Economic Update — Shoppers, Homebuyers, Investors All Looking for Bargains

The U.S. Department of Commerce had a bit of a surprise to share on Thursday, reporting that American retailers reported a 1 percent gain in sales in January compared with the month before, reflecting somewhat higher gas prices but also more spending on food and clothing. It’s the first time in six months that retail spending has increased, and the question now is whether this is a mere fluke of post-holiday bargain-hunting or the beginning of the bottom for retail spending. Many economists, glum sorts that they are, opine that it’s a fluke. The National Association of Realtors has reported that average U.S. housing prices fell more in 2008, some 12.4 percent, than in any year since the organization began compiling such metrics in 1979. Distressed sales, including foreclosures, accounted for nearly half (45 percent) of all sales nationwide in 4Q08, thus pushing the national median single-family house price down to $180,100, which is the lowest average price since 2Q03. Those homebuyers who are able to buy are clearly out there looking for bargains. Nevada, whose residential-market bubble popped more dramatically than most places, saw a 133.7 percent increase in sales in the last quarter of 2008, compared with a year earlier. Likewise, sales in California were up by 84.7 percent over the same period, and sales in Arizona were up 42.6 percent. The bargain-hunting impulse isn’t so clear when it comes to commercial real estate, though there are hints of it. According to Preqin, a British alternative assets research and consultancy group, private-equity fundraising has taken a hit lately, but hardly stopped. “Although the number and value of funds being raised has fallen significantly, fundraising has far from ground to a halt, with over 300 funds successfully raising over $200 billion in commitments in the second half of [2008],” the company said in a recent report. Real estate private-equity funds worldwide raised an aggregate of $116.8 billion in 2008, the report also noted. “Investors’ focus now is on sound fundamentals, the better to take advantage of the opportunities that the market is going to offer,” Sharon Ann “Samm” Miller, managing director of Rockwood Capital L.L.C. in its White Plains, N.Y., office, told CPN. Since 1980, Rockwood has invested over $3.1 billion of equity on behalf of investors in over $9.3 billion of real estate, and currently manages a portfolio of about $2.85 billion of equity invested in $6.2 billion of real estate. The trick is to buy as close to the bottom as possible, but no one has a secret formula for determining the bottom–only judgment based on data and experience in particular markets or property types. “Investors are drilling down deep in terms of research,” said Miller. “They know that opportunities will present themselves eventually, and they want to be ready.” Now that the stimulus package seems likely to pass, next on the agenda for the Obama administration is a program to subsidize people behind on mortgage payments, rather than actually in foreclosure. This new approach was reported by Reuters late in the day on Thursday, and is still unconfirmed by the White House, but even so various stocks shot up as a result of the news. The Dow Jones Industrial Average closed down only slightly on Thursday, by 6.77 points or 0,09 percent, though earlier in the day it was down nearly 250 points. The S&P 500 ended up 0.17 percent, while the Nasdaq was up 0.73 percent.