Economy Watch: RE Investment Still Low; Freddie Mac Posts 2Q Income of $5B

Real estate investment shows tepid growth compared to the bubble years. And Freddie Mac reported that its second quarter 2013 net income was $5 billion, compared to $4.6 billion in the first quarter of 2013, the second largest in the company's history.

The Bureau of Economic Analysis released some of the underlying details of last week’s preliminary GDP report on Wednesday, including information about real estate investment trends, by measuring such investments as a percentage of GDP. Investment in single-family housing, for instance, has clawed its way back to roughly 1 percent of GDP, though that’s still fairly tepid compared to the bubble years, when investment in single-family was over 3 percent of GDP for a time.

Investment in multi-family properties is also down: currently it’s less than 0.25 percent of GDP, which represents a drop from before the recession, when it was nearly 0.5 percent of GDP. But multi-family development as a percentage of GDP has been sliding for a long time. Back in the 1960s and even the stagflation years of the 1970s, it was always over 0.5 percent of GDP, and often more than 1 percent.

As for commercial property types, investment in office properties is roughly 0.1 percent of GDP, well off its historic averages of 0.4 percent to 0.5 percent (and nearly 0.9 percent during the go-go 1980s office boom). Though down to about 0.1 percent of GDP each in recent years, investment in retail and hotel properties hasn’t dropped quite so much; their historic averages were around 0.2 percent of GDP.

Freddie Mac Posts 2Q Income of $5B

There may be proposals for winding it down, but for now GSE Freddie Mac is still alive an apparently doing better than during the darkest days of the recession. The company reported on Wednesday that its second quarter 2013 net income was $5 billion, compared to $4.6 billion in the first quarter of 2013 – the seventh consecutive quarter of profitability and second largest in Freddie Mac history.

Also important to note: though still in conservatorship, Freddie Mac didn’t have to take any funds from the U.S. Treasury during the second quarter of 2013. In fact, the company’s dividend obligation to Treasury will be $4.4 billion in September 2013. Including the September payment, the company’s aggregate cash dividends paid to Treasury thus far will total about $41 billion.

Freddie acquired 16,418 REO properties in during the second quarter, and disposed of 19,763; its total REO inventory fell to 44,623 at the end of 2Q13. According to the GSE, its REO inventory has declined during each of the last six quarters mainly due to lower foreclosure activity, but also because a significant number of borrowers completing short sales rather than suffering foreclosures.

Wall Street experienced another mild down day on Wednesday, backing slowly away from recent record highs for some of the indices, with the Dow Jones Industrial Average off 48.07 points, or 0.31 percent. The S&P 500 lost 0.38 percent and the Nasdaq declined 0.11 percent.