While Manhattan Hotel Sells its Shops for a Record …
CBS MarketWatch on How Much the Stimulus Has Done
| Did the government’s remedies work? Is the recession over? How can some New Yorkers luxuriate? We trim, blend, and append four 2009 articles from: (1) MarketWatch, Oct 29, on the stimulus done by Rex Nutting; (2) MarketWatch, Oct 21, on loose Fed credit by Deborah Levine; (3) AP, Oct 28, on new home sales by Alan Zibel; and (4) Wall Street Journal blog, Nov 6, on luxury shops by Kris Hudson (via reader Wyn Achenbaum). |
by Rex Nutting, by Deborah Levine, by Alan Zibel, and by Kris Hudson
- How much has the stimulus done?
Whatever the US stimulus stimulated, it hasn't eliminated the stressed credit markets, rising foreclosures, lack of hiring, and a coming collapse of commercial real estate.
The stimulus is the government’s two-year $787 billion program and the Federal Reserve’s ultra-loose monetary policy.
Last quarter, the economy grew 3.5%, led by increased consumer spending, home building, and auto sales, the US says.
The government provided up to $8,000 to first-time home buyers. Home sales don't figure in directly in GDP, but home building does. In response to the tax credit and to lower prices, interest rates, and inventories of unsold new homes, builders started more homes.
How much of home and auto sales in the third quarter was stolen from the fourth quarter? How much was buying that wouldn't have happened without the subsidy?
Cash-for-clunkers ended in August, and sales dropped sharply in September.
It's almost impossible to disentangle the impact of the stimulus and the natural tendency of the economy to grow. We can't go back and run the economy through a different reality in which the government didn't deficit-spend.
- Fed's buying of Treasurys less helpful, Mortgage program more so
The Federal Reserve nears the end of its $300 billion Treasury-buying program, started in March. Their buying up government bonds, making them a bit scarce, limits the increase in yields they pay. Treasurys serve as benchmarks for borrowing costs, so when they yield less, they keep borrowing affordable.
However, the maturities where the Fed devoted the most attention -- 4.5 to 10 years -- yields actually rose from 2.53% to 3.41%.
Still, 86 basis points is not much of an increase in rates considering their continuous expansion of debt issuance. If the Fed hadn't taken out Treasurys, we may have seen higher rates.
Many expected the Fed's buying would push mortgage rates down enough to spur a refinancing wave; that never materialized.
Ironically, after the Fed announcement in August that it would slow down its Treasury purchases, investors bought more longer-dated debt, pushing yields lower.
Fed buying of mortgages has fared better at keeping a lid on mortgage rates. The Fed is in the process of buying $1.25 trillion in mortgage-backed “securities” and $200 billion in debt sold by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. When the Fed announced the program in March, the average 30-year fixed rate mortgage rate was 4.98%; last week it was 4.92%.
JJS: While politicians and bankers keep spending your money with dubious results, the land-price cycle -- the main engine of the business cycle -- keeps banging along the bottom, regardless (the cycle will persist until we end land as an object of speculation).
- New home sales fall 3.6%
Sales of new US homes in September tumbled 3.6%, their first drop in six months. From a year ago sales were off 7.8%.
Despite the decline, the market is up 22% from the bottom in January, though down more than 70% from the peak in 2005 July.
The report reflects contracts to buy homes, not completed sales. It has been taking longer to close a transaction this year because it's taking longer to get approved for a mortgage and to have a property appraised.
Despite the drop in sales, the number of new homes for sale at the end of the month shrank to 251,000, down almost 4% from August. At the current sales pace, that represents 7.5 months of supply. The inventory is the lowest in nearly 27 years.
Demand for mortgages has fallen for the past three weeks. Purchase applications are the fewest since mid-May and refinancing requests are at a two-month low.
The median sales price of $204,800 was off 9.1% from $225,200 a year earlier, but up 2.5% from August's $199,900.
Buyers moved to the sidelines ahead of the November 30 expiration of the homebuyers' tax credit. Critics say many buyers would have entered the market anyway and call the credit a costly subsidy for people who don't need it.
JJS: People don’t need tax credits and other tinkering. All we need is an end to taxes on our earnings and a share of the value of locations, which now is a boon to only a few.
- Starwood Commands Top Price for Luxury Shops at St. Regis
One of the busiest corners in the world for luxury retail has commanded a price that fits that title. Starwood Hotels & Resorts Worldwide sold the 24,700 square feet of shops in its St. Regis hotel in Midtown Manhattan for $117 million -- $4,736 per square foot, more than three times the next priciest deal in Manhattan in recent years.
The shops in that expensive space at Fifth Avenue and 55th Street are De Beers Diamond, Pucci, and Bottega Veneta. Some of those retailers are making thousands and thousands of dollars per square foot.
That type of corner comes available for lease maybe once every 15 years. It’s a very sought-after corner. There’s more foot traffic (of luxury shoppers) on that corner than anywhere else in the U.S.
Starwood sold the retail space to three New York landlords: the Chera family’s Crown Acquisitions, Lloyd Goldman, and the Feil Organization. Haim Chema, a principal in Crown, said the group considered the deal a good value partly because lease rates for the space, which currently are at less than the market rate, can be increased once leases expire.
Wyn Achenbaum: Let's say that the value of the building itself is a generous $500 per square foot. Consider that this building, built by John Jacob Astor, has been around since 1904 and was restored in 1991. Then the other 90% of the value of the property is purely locational.
JJS: The value of sites and resources and EM spectrum and ecosystem services is immense, enough to replace taxes and still pay citizens a dividend. But as long as we let it spur and reward speculation, we must have the rollercoaster business cycle and ensuing poverty and recessions.
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Jeffery J. Smith runs the Forum on Geonomics.
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Also see: Next Bubble Threatens the American Economy
Rescue the economy or rescue ourselves?
A realtor realizes site rent can replace taxes |
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