Office Demand Still Stagnant Nationwide; Fannie Mae Profitable Again; Philly Fed Coincident Indexes Up

The U.S. office vacancy rate was down quarter over quarter in the first quarter of 2013 by only 0.1 percentage points. Fannie Mae, practically given up for dead during the abyss of the Great Recession, showed signs of life in 2012. And the Philly Fed reported on Tuesday that its coincident indexes increased in 45 states.

Reis Inc. reported on Tuesday that the U.S. office vacancy rate was down quarter over quarter in first quarter of 2013 by only 0.1 percentage points, from 17.1 percent to 17 percent. That slow pace of decline mirrors the pace during all of 2012, when the rate dropped only 30 basis points over four quarters. There’s been virtually no addition to office supply, so that means there’s also been very little additional demand. 

Indeed, according to Reis, only about 1.58 million square feet of new office space came online during the first quarter of 2013, which is the lowest quarterly demand growth since Reis began publishing  office construction data on a quarterly basis in 1999. That’s down a whopping 45 percent compared with first quarter of 2012. Developers still have no incentive to construct office properties.

Absorption is sluggish as well. Reis reported net absorption of about 4 million square feet for the quarter, compared with 5.27 million square feet in the first quarter of 2012, and 3.32 million square feet in fourth quarter of 2012. The office market is going to bump along that way, Reis explained, until employment consistently improves. During 2012, the economy created an average of 180.000 new jobs a month, clearly not enough to spark development (CRE data by Reis).

Fannie Mae Roars Back to Profitability 

Fannie Mae, practically given up for dead during the abyss of the Great Recession, showed signs of life in 2012. On Tuesday, the GSE reported annual net income of $17.2 billion for 2012, compared with a net loss of $16.9 billion for 2011, and quarterly net income of $7.6 billion during fourth quarter of 2012. 

The company attributed the improvement to a number of improving factors: namely, improved credit results driven by a decline in serious delinquency rates, an increase in home prices, higher sales prices on Fannie Mae-owned properties, and the company’s resolution agreements with Bank of America (which was a one-time gain).

Fannie Mae calculates that 2012 saw a 4.7 percent annual increase in home prices, compared with a home price decline of 3.7 percent in 2011. Net proceeds from the company’s REO sales equaled 59 percent of the loans’ unpaid principal balance in 2012, compared with 54 percent in 2011. Also, the GSE’s holdings experienced a serious delinquency rate of 3.91 percent at the end of 2011 that dropped to 3.29 percent at the end of 2012. Its “early stage” delinquencies (loans that are 30 to 89 days past due) declined from 2.91 percent to 2.62 percent over the same period. 

Philly Fed’s State Coincident Indexes Mostly Up 

The Philly Fed reported on Tuesday that its coincident indexes increased in 45 states, decreased in three (Alabama, Illinois, and New Mexico), and remained stable in two (Hawaii and Wyoming) in March compared with February. Over the past three months, the indexes increased in 46 states, decreased in two (Illinois and Wyoming) and remained stable in two (Alaska and Alabama).

These coincident indexes are formulated by the Fed from state employment data, combining four state-level indicators to summarize current economic conditions in a single statistic. The four state-level variables in each coincident index are nonfarm payroll employment, average hours worked in manufacturing, the unemployment rate, and wage and salary disbursements deflated by the consumer price index (U.S. city average).

Wall Street felt chipper on Tuesday, with the Dow Jones Industrial Average up 89.16 points, or 0.61 percent. The S&P 500 gained 0.52 percent and the Nasdaq advanced 0.48 percent.