Realtor’s New Reality: Existing Home Sales Q1 2008

Yesterday, the National Association of Realtors (NAR) released their existing home sales report for the first quarter of 2008 showing, in truly stark terms, the tremendously broad nature of the housing downturn.

Single family home sales, on a year-over-year basis, are now falling in every state except for Indiana, Alaska and New Jersey (see chart below and click for larger version and note that NH doesn’t report sales data).

Worse yet, Q1 2008 home sales on an annualized basis compared to peak home sales set between 2005 and 2007 showed significant declining home sales in virtually every state (see chart below and click for larger version) except for Alaska and Indiana.

As for median selling prices, the NAR’s data (see chart below) also shows truly tremendous and widespread weakness among the statistical regions they track with virtually EVERY (147 of the 157 NAR tracks … some of the remaining 10 declined but didn’t report enough data for prior years to be included in a peak comparison) metro region showing significant declines from their respective peaks set between 2005 and 2007 and MOST (99 of the 147) metro regions showing declines as compared to Q1 2007.


Given that the majority of price declines have just begun to show in 2007, look for this price chart to continue to deteriorate in coming quarters.

Also, keep in mind that the NAR data only includes sales for MLS listed properties and given this limitation, the S&P/Case-Shiller index for each respective major metro should be considered a far more accurate price reference.

Amazingly, even given the obvious completeness of the housing downturn shown by their own data, the NAR officials are terming the results “Unusual” with their president, Richard Gaylord, blatantly continues the Realtor tradition of shameless self interested spin.

“It’s more important than ever to examine what’s happening with home prices at the city and neighborhood level, … The old real estate mantra of ‘location, location, location’ is perhaps more relevant today than ever before. Consumers should check with REALTORS® for local expertise on what’s going on in their own area because conditions can vary considerably from one neighborhood to the next.”

Reading Rates: MBA Application Survey – May 14 2008

The Mortgage Bankers Association (MBA) publishes the results of a weekly applications survey that covers roughly 50 percent of all residential mortgage originations and tracks the average interest rate for 30 year and 15 year fixed rate mortgages, 1 year ARMs as well as application volume for both purchase and refinance applications.

The purchase application index has been highlighted as a particularly important data series as it very broadly captures the demand side of residential real estate for both new and existing home purchases.

The latest data is showing that the average rate for a 30 year fixed rate mortgage decreased 9 basis points since last week to 5.82% while the purchase application volume decreased by 0.7% and the refinance application volume increased 6.5% compared to last week’s results.

It’s important to note that the average interest rate on an 80% LTV 30 year fixed rate loan has dipped just below the range seen throughout 2007 while the interest rate for an 80% LTV 1 year ARM remains elevated now resting 78 basis points ABOVE the rate of an average 80% LTV 30 year fixed rate loan despite all the herculean efforts by the Federal Reserve to bring rates down.

Also note that all application volume values reflect only “initial” applications NOT approved applications… i.e. originations… actual originations would likely be notably lower than the applications.

The following chart shows how the principle and interest cost and estimated annual income required to cover the PITI (using the 29% “rule of thumb”) on a $400,000 loan has changed since November 2006.

The following chart shows the average interest rate for 30 year and 15 year fixed rate mortgages over the last number of weeks (click for larger version).


The following charts show the Purchase Index, Refinance Index and Market Composite Index since November 2006 (click for larger versions).

Conspicuous Correlation: Retail Sales April 2008

Today, the U.S. Census Bureau released its latest nominal read on retail sales showing a decline of 0.2% from March 2008 but was 2.0% above April 2007 on an aggregate of all items including food, fuel and healthcare services.

Discretionary retail sales including home furnishings, home garden and building materials, consumer electronics and department store sales, on the other hand, experienced another significant decline falling 1.26% compared to April 2007.

Further, adjusted for inflation, discretionary retail sales declined 4.76% since April 2007.

On a “nominal” basis, there appeared to be “rough correlation” between strong home value appreciation and strong retail spending preceding the housing bust and an even stronger correlation when home values started to decline.

The following charts show the initial analysis plotting the year-over-year change to an aggregate series consisting of the primary discretionary retail sales categories that I termed the “discretionary” retail sales series and the year-over-year change to the S&P/Case-Shiller Composite home price index since 1993 and since 2000.


As you can see there was, at the very least, a coincidental change to home values and consumer spending during the boom and then the bust, but as home values have continued to decline, retail spending has remained low but has not continued to consistently contract.

One problem with this initial analysis is that both retail sales and the S&P/Case-Shiller Composite index are reported in “nominal” (i.e. non-inflation adjusted) terms and thus result in a somewhat skewed view especially for the retail sales data.

In fact, the year-over-year change to “nominal” discretionary retail sales has been positive for seven of the last eight months while the year-over-year change to “real” discretionary retail sales has been negative for twelve straight months (see the following chart).

The key point here is that although inflation (as reported by the CPI) has been relatively stable in recent years it is always a factor and in light of the latest surprise increases to the CPI results as well as many anecdotal reports of producers now passing through increasing energy prices to the consumer, it’s important to adjust retail sales (and home values) in order to fully understand its direction.


As you can see from the above charts (click for larger version), adjusted for inflation (CPI for retail sales, CPI less shelter for S&P/Case-Shiller Composite) the “rough correlation” between the year-over-year change to the “discretionary” retail sales series and the year-over-year S&P/Case-Shiller Composite series seems now even more significant.

Stopping The Bailout!

Bernanke might be one bad mother F’er but you can still make a difference.

To that end, I’d just like to remind everyone that now would be a good time to urge the White House to veto the various congressional plans for a taxpayer funded bailout of failed housing speculators and the mortgage and financial industries.

Extensive information and discussion regarding a Facebook group, online letters, emails and phone numbers can be found at Stop The Housing Bailout but the best method that has been presented is to simply call the White House at (202)-456-1414 or (202)-456-1111 and state "I am calling to ask you to veto any housing bailout that comes out of Congress."

Also, visit the Angry Renter online petition which has grown substantially in just a few short weeks.

A Socialized bailout of private individuals and, more grotesquely, wealthy investment firms that made outlandish private profits during the boom years is NOT an American or democratic ideal.

The Almost Daily 2¢ - Still Busting After All These Years

It’s been roughly three years since the Boston metro area started showing the first obvious signs that the housing market was in trouble and even after 29 months of steadily declining home prices and dramatically lower home sales, the bust seems poised to bring further losses.

It’s important to note that Boston was the first U.S. metro home market tracked by the S&P/Case-Shiller home price index to register a decline during this current housing bust and although some are looking to it as a leading indicator, the regional economic circumstances, as noted by the most recent Federal Reserve Beige Book, are only now beginning to show signs of notable stress in retail, construction, manufacturing, tourism, financial services and commercial real estate.

This is particularly bad news when considering that the Boston housing market has been, in a sense, declining steadily since early 2001 when annual home price appreciation peaked and the intensity of the housing expansion began to wane (click on following chart for larger version).

It appears that that the main thrust of the housing expansion occurred “in-line” with the wider economic expansion that was fueled primarily by the dot-com bubble and that since the dot-com bust, the housing market has never been quite the same.

Considering the era of easy lending following the “dot-com” bust served to prop-up and inflate the regions housing market, seeing that the intensity of the pre-2001 expansion never again materialized should serve as a troubling sign.

To better illustrate the actual drop-off in home prices and the potential length and depth of the current housing decline, I have compared BOTH the normalized price movement and peak percentage changes to the S&P/Case-Shiller home price index for Boston (BOXR) from the 80s-90s housing bust to today’s bust (ultra-hat tip to the great Massachusetts Housing Blog for the concept).


The “normalized” chart compares the normalized Boston price index from the peak of the 80s-90s bust to the peak of today’s bust.

Notice that during the 80s-90s bust prices took roughly 46 months (3.8 years) to bottom out.

The “peak” chart compares the percentage change, comparing monthly Boston index values to the peak value seen just prior to the first declining month all the way through the downturn and the full recovery of home prices.

In this way, this chart captures ALL months of the downturn from the peak to trough to peak again.

As you can see the last downturn lasted 105 months (almost 9 years) peak to peak.

The Almost Daily 2¢ - Depression Era Redux

In many ways the events surrounding the period just before and early on in the Great Depression seem to bear a striking similarity to what we have seen recently.

Maybe the events of this last year are simply an example of the typical ebb and flow of interactions between private institutions, the government and market participants during times of economic stress and uncertainty and that it’s only the reaction to turmoil that is similar.

Or, more pessimistically, Maybe through a somewhat different path and to a different degree the economy has found itself in essentially the same precarious position as it had been in during the initial stages of the Great Depression and a similar unwinding is now underway.

Or, more optimistically, maybe things just seem similar but they are in fact very different and we are now seeing nothing more than a typical recession, albeit with the potential to be a bit more severe than we have known in recent times.

Obviously looking back at history in order to gain some visibility on the future has its limitations and couldn’t possibly provide a perfect parallel to today’s circumstances but in some respects it appears that some things just never change.

I recently began reading “The Great Depression” by David A. Shannon and found that this collection of newspaper articles and firsthand accounts brings the feeling of that tumultuous era alive and further reveals startlingly similar circumstances and events to what has been seen recently.

I’ll provide a full review of the book when I’ve completed it but for now here are some points of interest:

As reported in the New York Times, October 25 1929:

“In the very midst of the collapse (note: before and after an apparently unscheduled meeting of the New York Federal Reserve) five of the country’s most influential bankers hurried to the office of J.P. Morgan & Co., and after a brief conference gave out word that they believe the foundations of the market to be sound, that the market smash has been caused by technical rather than fundamental considerations, and that many sound stocks are selling too low.”

The Stock Exchange firm of Merrill, Lynch & Co., in a message advising customers to keep accounts well margined without waiting for a direct request, said that investors “with available funds should take advantage of this break to buy good securities”

From an account written by economic historian Broadus Mitchell:

Public statements at the new year on the business outlook for 1930 damaged more reputations of forecasters than they bolstered. In the midst of the stock market debacle two months earlier, prominent persons whose word was apt to be taken – bankers, industrialists, economists, government officials – had declared their confidence in stocks, not to mention underlying business soundness.

Secretary of the Treasury Andrew W. Mellon committed himself blithely: “I see nothing… in the present situation that is either menacing or warrants pessimism… I have every confidence that there will be a revival of activity in the spring and that during the coming year the country will make steady progress.”

The White House reported the President as considering “that business could look forward to the coming year with greater assurance.” Willis H. Booth, president of the Merchants’ Association of New York, saw “no fundamental reason why business should not find itself again on the upgrade early in 1930.”

Secretary of Commerce Robert P. Lamont contented himself with listing the gains that the year 1929 as a whole had registered over 1928, and with predicting prosperity and progress “for the long run.”

The Almost Daily 2¢ - Twin Peaks?

Following up on a prior post, take a look at the trend and most recent state of the S&P 500 index and compare it to the last major bear market conditions that followed the dot-com bust.

There is a host of very interesting technical similarities (which are noted below) that may indicate that we have entered another bear market where on average the S&P 500 index retraces 20 – 30% from its prior peak.

It’s important to keep in mind that, at best, a bear market can be viewed as a transition into an period where there is a prolonged bias to sell into strength resulting in a successive series of lower highs yielding a clear downward trend.

At worst, there are periods (days or weeks) where particular stocks and the index as a whole will crash hard.

Study the following image (click for very large and clear version) of the S&P 500 index from 1995 to today then read below for the technical blow by blow.

Notice that I’ve updated the chart to reflect the fact that during the last week of trading the 200 day moving average broke through the 400 day moving average signaling a third “cross of death” that I will term the “cross of fiery gruesome death“ for all future posts.

Notice also, that I’ve added both the “effective” federal funds rate and an overlay indicating the period of the last recession.

As you can see, entering the last bear market, the Fed cut rate significantly taking it from 6.5% at the start of the bear market to 1.25% in the trough.

It’s important to note that although the Federal Reserve’s response was dramatic, the market still resulted in an over 48% decline.




THEN (1998 – 2000 Top)

• A. October 1998 – S&P 500 gives early warning sign by crossing its 400 day simple moving average (SMA). Notice also that the 50 day SMA breached the 200 day SMA.
• B. October 1999 – S&P 500 gives a second signal by crossing its 200 day SMA after a solid twelve month expansion. 50 day SMA touches the 200 day SMA.
• C. Three prominent but decelerating peaks set up the top.
• D. Between second and third (last) peak S&P 500 index breaches 200 day SMA. After the final peak S&P 500 index breaches the 400 day SMA.
• E. 50 day SMA heads down fast and crosses the 200 day SMA. (Cross of Death)
• F. 50 day SMA crosses 400 day SMA. (Cross of Far More Death)
• G. 200 day SMA crosses 400 day SMA. (Cross of Fiery Gruesome Death)

NOW (Today’s Top?)

• A. June 2006 – S&P 500 gives early warning sign by crossing its 400 day SMA. Notice also that the 50 day SMA breached the 200 day SMA.
• B. March 2007 – S&P 500 gives a second signal by falling near its 200 day SMA after a solid nine month expansion. 50 day SMA similarly depressed.
• C. Three prominent but decelerating peaks set up the top.
• D. Between second and third (last) peak S&P 500 index breaches 200 day SMA. After the final peak S&P 500 index breaches the 400 day SMA.
• E. 50 day SMA heads down fast and crosses the 200 day SMA. (Cross of Death)
• F. 50 day SMA crosses 400 day SMA. (Cross of Far More Death)
• G. 200 day SMA crosses 400 day SMA. (Cross of Fiery Gruesome Death)

Although the recent rally appears strong and Wall Street is feeling very optimistic, the prospects of a protracted bear market selloff are very real especially given the steady flow of poor macroeconomic, housing, consumer and employment data that will continue to flow throughout 2008.

Needless to say then next few weeks will be white-knuckle time…

Mid-Cycle Meltdown?: Jobless Claims May 08 2008

Today, the Department of Labor released their latest read of Joblessness showing seasonally adjusted “initial” unemployment claims declined 18,000 to 365,000 from last week’s revised 383,000 claims and “continued” claims declined 10,000 resulting in an “insured” unemployment rate of 2.3%.

It’s very important to understand that today’s report continues to reflect employment weakness that is wholly consistent with past recessionary episodes and that unequivocal clarity will more than likely come in the next few releases.

Historically, unemployment claims both “initial” and “continued” (ongoing claims) are a good leading indicator of the unemployment rate and inevitably the overall state of the economy.

The following chart (click for larger version) shows “initial” and “continued” claims, averaged monthly, overlaid with U.S. recessions since 1967 and from 2000.

As you can see, acceleration to claims generally precedes recessions.


Also, acceleration and deceleration of unemployment claims has generally preceded comparable movements to the unemployment rate by 3 – 8 months (click for larger version).


In the above charts you can see, especially for the last three post-recession periods, that there has generally been a steep decline in unemployment claims and the unemployment rate followed by a “flattening” period of employment and subsequently followed by even further declines to unemployment as growth accelerated.

This flattening period demarks the “mid-cycle slowdown” where for various reasons growth has generally slowed but then resumed with even stronger growth.

So, looking at the post-“doc com” recession period we can see the telltale signs of a potential “mid-cycle” slowdown and if we were to simply reflect on the history of employment as an indicator of the health and potential outlook for the wider economy, it would not be irrational to conclude that times may be brighter in the very near future.

But, adding a little more data I think shows that we may in fact be experiencing a period of economic growth unlike the past several post-recession periods.

Look at the following chart (click for larger version) showing “initial” and “continued” unemployment claims, the ratio of non-farm payrolls to non-institutional population and single family building permits since 1967.

One notable feature of the post-“dot com” recession era that is, unlike other recent post-recession eras, job growth has been very weak, not succeeding to reach trend growth as had minimally accomplished in the past.

Another feature is that housing was apparently buffeted by the response to the last recession, preventing it from fully correcting thus postponing the full and far more severe downturn to today.

I think there is enough evidence to suggest that our potential “mid-cycle” slowdown, having been traded for a less severe downturn in the aftermath of the “dot-com” recession, may now be turning into a mid-cycle meltdown.

NARcasting The Future: May 2008

Today, the National Association of Realtors (NAR) provided their latest estimate of annual existing home sales for 2008 increasing their prior “beginning of year” estimate slightly to a 4.95 million unit annual sales pace and decreasing their estimate for the “end of year” annual sales pace to 5.82 million units resulting in total year sales of 5.39 million units.

As I had noted last month, this type of “beginning year”-“end of year” reporting which in prior months estimated first and second half of the year sales pace and now estimates first and last quarter sales pace will probably be discontinued shortly as NAR goes back to stating only their total year sales estimate but for now I will chart all predictions.

Note that in this month’s chart I simply broke out each prediction and connected them to the 2007 year end result so as to best capture the flow of predictions.

As usual, the latest forecast comes with another dose of truly ridiculous spin.

In an effort to put their absurd bias into perspective I compiled all their existing home sales forecasts for 2007 and now 2008 into a chart along with a list of prominent quotes supplied with each forecast.

12/11/2006 Prediction: 6.40 million units.
Lereah "Most of the correction in home prices is behind us."

1/10/2007 Prediction: 6.42 million units.
Lereah "The good news is that the steady improvement in sales will support price appreciation moving forward."

2/7/2007 Prediction: 6.44 million units.
Lereah "After reaching what appears to be the bottom in the fourth quarter of 2006, we expect existing-home sales to gradually rise all this year and well into 2008."

3/13/2007 Prediction: 6.42 million units.
Lereah "Although existing-home sales will be marginally reduced due to subprime lending restrictions, they should be gradually rising this year and next."

4/11/2007 Prediction: 6.34 million units.
Lereah "Tighter lending standards will dampen home sales a bit, but by less than a couple of percentage points from initial projections."

4/30/2007
Lereah Leaves NAR for Move.com

5/9/2007 Prediction: 6.29 million units.
Yun "Housing activity this year will be somewhat lower than in earlier forecasts."

6/6/2007 Prediction: 6.18 million units.
Yun "Home sales will probably fluctuate in a narrow range in the short run, but gradually trend upward with improving activity by the end of the year."

7/11/2007 Prediction: 6.11 million units.
Yun "Home prices are expected to recover in 2008 with existing-home sales picking up late this year."

8/8/2007 Prediction: 6.04 million units.
Yun “With the population growing, the demand for homes isn’t going away – it’s just being delayed.”

9/11/2007 Prediction: 5.92 million units.
Yun “Patient buyers in most areas who do their homework will recognize that housing remains a good long-term investment.”

10/10/2007 Prediction: 5.78 million units.
Yun "The speculative excesses have been removed from the market and home sales are returning to fundamentally healthy levels, while prices remain near record highs, reflecting favorable mortgage rates and positive job gains."

11/13/2007 Prediction: 5.5 million units.
Yun "In some ways, the extended real estate boom from 2001 to 2005 created unrealistic expectations that housing is a short-term high-yield investment… 2007 will be the fifth best year for housing on record"

12/10/2007 Prediction: 5.67 million units in 2007, 5.7 million units in 2008.
Yun "The broad trend over the coming year will be a gradual rise in existing-home sales, but because sales are exceptionally low in the final months of 2007, total sales for 2008 will be only modestly higher than 2007."

01/08/2008 Prediction: 5.66 million units in 2007, 5.7 million units in 2008.
Yun "A meaningful recovery in existing-home sales could occur as early as this spring, or it may be further delayed toward late 2008."

02/07/2008 Prediction: 4.9 million units in H1, 5.8 million units in H2, 5.38 million units full year.
Yun "Where builders have cut construction sharply, and in most areas with improving affordability conditions, we’ll generally see moderately higher home prices."

03/06/2008 Prediction: 4.9 million units in H1, 5.8 million units in H2, 5.38 million units full year.
Yun "Significant price declines in some local markets have sharply and quickly improved local affordability conditions, and are inducing buyers to return to the marketplace"

04/08/2008 Prediction: 4.9 million units in Q1, 5.9 million units in Q4, 5.39 million units full year.
Yun "Exceptionally weak home sales related to jumbo loans problems will depress home prices in the first half of the year, but steady liquidity improvements in the conforming jumbo-loan market will help prices recover in the second half of the year"

05/08/2008 Prediction: 4.95 million units in Q1, 5.82 million units in Q4, 5.39 million units full year.
Yun "Although more than half of local markets are expected to see price growth this year, the aggregate existing-home price will decline 2.4 percent in 2008, driven by a relatively few markets that are very oversupplied"

Pending Home Sales: March 2008

Today, the National Association of Realtors (NAR) released their Pending Home Sales Report for March showing a weakening to existing home sales activity and a clear continuation of the historic decline to residential housing on a year-over-year basis, both nationally and across every region.

As the decline in demand for residential housing slumps through its third year, it’s important to consider the significance of both the extent of the decline and the severity of the oncoming declines to existing home sales activity clearly indicated by the current 20.1% year-over-year drop-off in pending home sales.

It is very likely that we are now seeing the spiraling feedback effect of sharply declining prices and both the palpable sense and actual effects of recession working to depress buyer confidence thereby causing continued even accelerating declines in housing demand.

As usual, NAR Senior Economist Laurence Yun continues the spin suggesting that his predictions of a weak first half of the year and an improved second half are coming to fruition as anticipated.

"Things are beginning to improve, but the availability of affordable mortgages is uneven around the country and sometimes within metropolitan areas, … As anticipated, we continue to look for a soft first half of the year, for both housing and the economy, before notable improvements in the second half. Some time is needed for FHA and new conforming jumbo loans to become widely available."

The following chart shows the national pending homes sales index since 2005 compared monthly. Notice that each year, the months value is decreasing consistently (click for larger version).

The following chart shows the national pending home sales index along with the percent change on a year-over-year basis as well as the percent change from the peak set in 2005 (click for larger version).

Note that in the above charts, I had to use the Not Seasonally Adjusted (NSA) data series as NAR changed the methodology for their Seasonally Adjusted (SA) series a while back and never republished the numbers.

Look at March’s seasonally adjusted pending home sales results and draw your own conclusion:

• Nationally the index was down 20.1% as compared to March 2007.
• The Northeast region was down 15.4% as compared to March 2007.
• The Midwest region was down 22.3% as compared to March 2007.
• The South region was down 26.7% as compared to March 2007.
• The West region was down 9.5% as compared to March 2007.

Reading Rates: MBA Application Survey – May 07 2008

The Mortgage Bankers Association (MBA) publishes the results of a weekly applications survey that covers roughly 50 percent of all residential mortgage originations and tracks the average interest rate for 30 year and 15 year fixed rate mortgages, 1 year ARMs as well as application volume for both purchase and refinance applications.

The purchase application index has been highlighted as a particularly important data series as it very broadly captures the demand side of residential real estate for both new and existing home purchases.

The latest data is showing that the average rate for a 30 year fixed rate mortgage decreased 10 basis points since last week to 5.91% while the purchase application volume increased by 12.1% and the refinance application volume jumped 19.3% compared to last week’s results.

It’s important to note that the average interest rate on an 80% LTV 30 year fixed rate loan remains well within the range seen throughout 2007 while the interest rate for an 80% LTV 1 year ARM remains elevated now resting 86 basis points ABOVE the rate of an average 80% LTV 30 year fixed rate loan despite all the herculean efforts by the Federal Reserve to bring rates down.

Also note that all application volume values reflect only “initial” applications NOT approved applications… i.e. originations… actual originations would likely be notably lower than the applications.

The following chart shows how the principle and interest cost and estimated annual income required to cover the PITI (using the 29% “rule of thumb”) on a $400,000 loan has changed since November 2006.

The following chart shows the average interest rate for 30 year and 15 year fixed rate mortgages over the last number of weeks (click for larger version).


The following charts show the Purchase Index, Refinance Index and Market Composite Index since November 2006 (click for larger versions).

Commercial Catastrophe?: MIT/CRE Commercial Property Index Q1 2008

There has been growing speculation and concern that the commercial real estate (CRE) markets will inevitably follow the lead of the residential markets down into a recessionary decline.

The notion of commercial real estate markets suffering a similar downturn as residential is both supported by historical correlations (e.g. residential and non-residential investment) as well as the anecdotally logical outcome for a market that has seen similar levels of loose over-lending.

Fortunately, we need not speculate about the current state of CRE as the MIT Center for Real Estate tracks commercial property prices with a series of indexes that cover Apartment, Office, Industrial and Retail property types.


Notice in the top aggregate chart, after having some substantial growth between 2003 and Q2 2007 (particularly during 2005 – 2006), there appears to be a pullback of sorts that started to form during the second half of 2007 leaving prices now 6.18% below the high seen in Q2 2007.

Furthermore, in Q1 2008 the Industrial and Retail components continue to show significant peak declines of 8.20% and 5.27% respectively while the Office component remained flat.

Looking at the supply and demand indices of the Retail component appears to shed some light on the factors now working to drive prices lower for that market.

Notice that while supply of retail properties have increased substantially in recent years, demand that remained largely flat since the middle of 2005 has now started to decline precipitously registering the largest year-over-year decline since at least 1994.

It will likely take another 2-3 quarters to get a firm picture of what exactly is occurring in the nation’s commercial real estate market but the latest MIT/CRE seems to be suggesting further weakness ahead.

The Almost Daily 2¢ - Nouvelle Bon Marché

In a whispery tone… “If you build it, they might come… or… maybe not!”

Regular readers can imagine my (slightly morbid, can’t turn away from train wreck style) excitement at finding this article in the Sunday Boston Globe concerning the poor results seen at the “Natick Collection”, a chic suburban mall recently (re)opened 20 miles outside of Boston.

Although this topic is clearly of local interest, I believe that the success or failure of this project has national implications as it represents both an expression of the ill founded concepts made possible by the era of easy borrowed capital (for households an firms alike) as well as crescendo of sorts for consumerism.

In short, the “Natick Collection” and its attached “luxury” residential condominium complex, the “Nouvelle at Natick”, were the brainchild of General Growth Properties (NYSE:GGP), the country’s second largest mall operator who, in what now appears firmly to be an experiment in “mixed use” mall development, apparently sought not only to capture the attention of the suburban “luxury” consumer but the “luxury” homebuyer as well.

But this project continues to look like a major blunder both because of the poor sales of the condos and now for what appears to be a significant failure of the luxury retail wing of the mall itself.

As the Boston Globe article points out, while some retailers are feeling pressure from low traffic and sales, others have either delayed store openings or pulled out altogether.

But rather than go into a lengthy blow by blow concerning the development and its viability drawing comparisons to other similar blunders and the like, consider what this disaster might be saying about the plight of the American consumer and further the firms who bet the party would never end.

Natick and the surrounding area is a typical middle to upper middle class region with relatively good access to Boston and likely a large population of youngish dual income families.

Also, although the housing bust has brought a measure of pain to the region, Massachusetts has not been crippled by the debacle to the extent that has been seen in some of the nations other comparable bubble regions.

So, while those cited in the Boston Globe article blame “yankee thriftiness” or even “poor taste” for the current failures seen at the Natick Collection, I believe the reality is something far more significant.

Consistent with recent sentiment surveys and a raft of other macroeconomic and retail data, the failure to thrive of a suburban luxury mall/residential franken-development seems to clearly confirm that the era of needless debt-fueled consumption is over.

While “Luxury” was a theme that played a significant role in the marketing of all manner of product and service during the eras of the dot-com and housing booms, “Thrift” doesn’t go nearly far enough in capturing the feel of the aftermath.