HOUSE prices are set to drop in the US for the first time on record, US investment bank Goldman Sachs warned this weekend.

Prices in several segments of the market have already started to fall, and the overall market will move into the red even in nominal terms next year, fuelling fears that this will trigger a downturn in consumer spending and hit an already slowing US economy.

Jan Hatzius, economist at Goldman Sachs, said: “The risk is rising that nominal US home prices may be headed for an outright decline in 2007. It would be the first decline in national home prices ever recorded, at least in nominal terms.”

In real terms, prices have declined during several periods, including a 9% drop from 1979 to 1984.

In a special analysis of the data, the Goldman economists found that seasonally adjusted US house prices were already falling in dollar terms. The nominal median price of a single-family home has been declining slightly at a 1% annualised rate since the fourth quarter of 2005, the research shows.

The median price of a condo or co-op apartment has been falling more steeply at a 9% annual rate. Hatzius said: “It is not surprising to see relatively greater weakness in the condo and co-op market, which is much more concentrated in overheated coastal parts of the United States”.

Asking prices, according to the real estate brokers’ multiple listing services, are also weak. Goldman’s proprietary database covering 52 regional markets shows that, on a population-weighted basis, the median asking price is up only about 2% since last summer.

Given the reported sharp decline in bidding wars over the last year and the increasing willingness of sellers to accept lower offers, this is probably also consistent with a drop in home price inflation into negative territory, the report says.

The Office of Federal Housing Enterprise Oversight’s index is also likely to show a sharp slowdown for the rest of this year. As of the first quarter of 2006, this index was up 10.1% year-on-year, extremely close to the 10.4% year-on-year increase seen in the National Association of Realtors median-price data.

Goldman is forecasting that the year-on-year Office of Federal Housing Enterprise Oversight’s index growth could fall to 4% by the second or third quarter of 2006, and possibly into negative territory in 2007.

The bad news on house prices comes after the US economy slowed to an annualised 2.5% in the second quarter, down from 5.6% in the first quarter. This fuelled hopes in the markets that there could be an end the Federal Reserve’s rate hike campaign, which would boost share prices, even though the core inflation measure favoured by the Fed increased at an excessively strong annualised rate of 2.9%.

The Dow gained 119.27 points on Friday, or 1.07%, closing at 11,219.70. It posted its best weekly point gain since May 2005 as investors regained hope that the crisis in the Middle East would remain contained.

Source: thebusinessonline.com

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The impact of hurricanes is affecting many local commercial real estate markets, but job creation and increased trade are shaping the overall market, according to the National Association of Realtors Commercial Real Estate Spotlight.

David Lereah, NAR’s chief economist, said it takes time for commercial real estate to respond to changes in the overall economy. “There is a well-known lag effect in commercial real estate, with a strong rise in jobs over the last two years currently bearing fruit in terms of higher demand for commercial space, especially in the office sector,” he said. “In addition, increases in trade are benefiting industrial properties such as warehouse and distribution facilities.”

NAR President Thomas M. Stevens from Vienna, Va., explained other factors at play in commercial real estate sectors. “People displaced by hurricanes are having a large impact on the apartment market across many areas of the South,” said Stevens, senior vice president of NRT Inc. “Consumer spending is sustaining retail real estate, but that sector is seeing relatively modest growth and conditions vary widely.”

Condo conversion accounted for a big increase in multifamily transactions this year. “The overall flow of capital into commercial real estate is at an unprecedented level, with multifamily transactions accounting for about a third of the total,” he said.

Through the first nine months of 2005, a record of $188 billion in investment-grade real estate traded hands, not counting transactions valued at less than $5 million. “These figures demonstrate the value of commercial real estate as part of a diversified investment strategy,” Stevens said.

The NAR forecast for four major commercial sectors includes analysis of third-quarter data in 57 metro areas tracked. The sectors include the office, industrial, retail, and multifamily markets, plus some additional information for the hospitality sector. The metro data were provided by Torto Wheaton Research and Real Capital Analytics.

In the office sector there is sustained improvement, driven by approximately 580,000 new office jobs created over the last two years. Vacancy rates are projected to drop to 13 percent in the fourth quarter and to 11 percent by the end of 2006, compared with 15.4 percent in 2004. Office rents are seen to rise 4 percent for 2005 and another 5.5 percent in 2006; they were essentially flat in 2004 with a 0.4 percent gain.

Areas with the lowest office vacancies currently include Ventura County, Calif.; Orange County, Calif.; West Palm Beach, Fla.; New York City; and Fort Lauderdale, Fla., all with vacancy rates of 8.1 percent or less.

Net absorption of office space in the 57 markets tracked, which includes the leasing of new space coming on the market as well as space in existing properties, is expected to be 84.4 million square feet in 2005 and 78.3 million in 2006. This compares with 77.7 million square feet absorbed in 2004 and only 20 million in 2003.

The Washington area led the nation in total office space absorption in 2005, followed by New York, Phoenix, Los Angeles and Dallas.

The industrial sector also is experiencing a decline in vacancy rates – forecast at 9.5 percent in the fourth quarter and 8.4 percent a year from now. In 2004, industrial vacancies stood at 10.9 percent. Industrial rents are likely to grow 2.1 percent for 2005 and 3.4 percent in 2006, following a decline of 0.6 percent in 2004.

Trade patterns continue to benefit industrial property, but congestion in Southern California is diverting some traffic from China through the Panama Canal in order to reach Eastern markets. The areas with the lowest industrial vacancies are West Palm Beach, Fla.; Los Angeles; Riverside, Calif.; Long Island, N.Y.; and Las Vegas; all with vacancy rates of 6.1 percent or less.

Net absorption of industrial space in the 57 markets tracked should be 251.3 million square feet in 2005, and 216.1 million in 2006, up strongly from 176.5 million square feet absorbed in 2004 and a very modest 16.5 million in 2003.

In the retail sector, the vacancy rate is expected to ease to 7.2 percent in the fourth quarter and 6.9 percent a year from now, down from 7.5 percent in 2004. Rent growth is seen at 3.8 percent in 2005 and 3.6 percent in 2006, up from 3.3 percent in 2004.

Retail markets expected to have the lowest vacancies – forecast through 2007 – include Las Vegas; Oakland, Calif.; San Jose, Calif.; Ventura County, Calif.; and San Francisco. Net absorption of retail space in the 57 markets tracked is projected to be 56.2 million square feet in 2005 and 31.6 million in 2006, compared with 27.1 million in 2004.

The apartment rental market – multifamily housing – should see vacancy rates at 5.3 percent in the fourth quarter and 4.8 percent by the end of 2006, down from 6.2 percent in 2004. Average rent is likely to rise 2.8 percent in 2005 and 5.6 percent in 2006, up from a 1.5 percent increase in 2004.

Areas with the lowest apartment vacancies are Fort Lauderdale, West Palm Beach, Miami, Orlando and Los Angeles, all with vacancy rates of 2.7 percent or less. Houston- and Atlanta-area vacancies plummeted due to demand by hurricane evacuees, and will lead the nation in absorption of units during 2005.

Multifamily net absorption is forecast at 316,000 units in 57 metro areas tracked in 2005, and 264,000 in 2006, compared with 264,300 absorbed in 2004 and a modest 159,400 units 2003.

After Houston and Atlanta, the strongest multifamily absorption this year is expected in Chicago, Dallas and Boston.

Purchases of multifamily property rose 90 percent in 2005 – much of the rise is attributable to conversion of apartments into condos, with 150,000 units converted in the first 10 months of 2005. Converters dominate investment activity in every region except the Southwest, where private local buyers are most active, but conversion is expected to subside in 2006.

A fifth commercial sector, hospitality, is experiencing temporarily inflated occupancy levels that result from demand by hurricane evacuees. Hotels and motels in cities near impacted regions are seeing the greatest demand, but Houston, Dallas-Fort Worth, Atlanta, San Antonio and Memphis also are experiencing higher occupancies as a result.

Hospitality markets projected to have tightening room availability in 2006 include Los Angeles; New York; Phoenix; Portland, Ore.; and San Diego.

The Commercial Real Estate Spotlight is published by the NAR Research Division for the Realtor Commercial Alliance.

MANATEE - Real estate may be hot but so are small-business sales, according to a local business broker.

“It’s always a good time to buy or sell a business because there is always growth in small businesses in this country,” said Tonya Merrill, a business broker at BDR Business Brokers in Bradenton.

About 25 percent of small businesses are for sale in the United States, and there are thousands of businesses for sale in Florida, she said. “And in Manatee and Sarasota counties combined, there are more than 300 businesses for sale at any given time,” Merrill said. “Businesses are always changing hands.”

Pat Sawyer, the new owner of Take One Media on Manatee Avenue West, knows all about buying a new business.

She moved here from Britain earlier this year after working with a business broker to seal the deal with her new company, which transfers film onto DVDs and films special events, among other things.

Merrill said many of her customers are moving to this area from abroad and out of state.

It took Sawyer nearly four months from the day she selected the business to the day that she officially became the owner.

“It’s a long process and using a broker is the way to go because you get the guidance that you need,” Sawyer said. Brokers help people buy and sell a business and help the parties with the legal process of a purchase.

But it’s not the only way.

While business brokers do have several listings, aspiring business owners can also peruse the classifieds and several Web sites that offer business listings for sale.

But it’s not always necessarily the right way to go. “Businesses for sale by owner are a lot harder to sell,” Merrill said. “People like to buy through professional brokers unless they know the seller personally.”

Brokers help a seller set a sale price by looking at the company’s earnings, net profit and assets, and at comparable businesses nearby and their selling prices.

Merrill said buying a business is more attractive than starting a new one because you take less of a financial risk. “Buying a business that has a proven track record is easier than starting that track record yourself,” she said. “The business is already making money and has a history.”

Motivated sellers will help the new buyer finance the business and stay on to help with the ownership transition.

“Customers have to like the new owner and the old owner can help to assuage customer and employee concerns,” Merrill said.

There is one disadvantage to buying a business. “No matter how hard you try in your investigation of the business, something might be missed or overlooked,” she said. “Plus, sales also slow down the first year and often the new owners don’t account for enough operating funds right away.”

When working with a business broker, buyers must also sign a confidentiality agreement. “It’s important to most sellers to keep quiet the fact that they are selling their business,” Merrill said. “You can lose customers and employees without being confidential.”

Buyers also provide brokers with their background and financial stability.

Brokers usually receive a specified fee from the seller in a process similar to that of a Realtor. Once a contract is agreed upon, there usually are a few months of due diligence where financial statements are reviewed and new leases and agreements are drawn up.

To get the most for your business when you are ready to sell, Merrill said business owners need to have well-documented accounting procedures and records reviewed and certified by a public accountant.

“Record keeping is the key,” Merrill said. “If you don’t have proper documentation you can be in trouble.”

And for those who want to be their own boss but have never owned their own business, Merrill recommends buying a franchise.

“Franchises are opportunities for someone else to set up the processes so that the lack of experience can be overcome by the processes already in place,” she said.