I'm afraid not... not even close!
As Q2 comes to an end, many investors expect repeat profits from banks and a subsequent hike in employee compensation packages - one element for some fuel in the Hoboken property market.
But there are too many things wrong with these absurd conclusions, the least of which is an understanding of FASB accounting rules. Since the focus here is on the real estate effects, I'll keep the accounting explanation simple.
As the banks loan portfolio worsens, they actually imply an increase in profits due to reversals of the initial entries at writeoff - yes, it seems counter-intuitive but that's why their stocks may be a good investment. The worst is probably over for them thanks to the backing of the Treasury and the Fed.
That said, an adjustment in overall employee compensation is also being enacted such that the average industry-wide (annual) employee compensation will DROP by about 40%. These numbers apply to about 80% of the domestic workforce in this industry. The severe loss of hefty bonuses will be partially compensated by raises in salary but it will fall far short of the year-end loss in expected rewards. There will obviously be exceptions but this is a wide swath upon the industry, especially investment banking - the former king on compensation. This raise in salaries is being (ignorantly) spun as a positive, just as bank profits are, without the understanding of the NET effect.
But these are continuing consequences of deleveraging in the global (let alone US) economy. A phenomena that has no easy reach or solution. Much has been done to stave off worse consequences over a much longer period but the asset bubble in sectors such as real estate will never benefit until the next bubble round is inflated. How ironic! This leaves us with YEARS of falling RE prices in this area (especially) and growing inventories. Until they begin to shrink, there is no bottom in sight for prices. Until jobs begin to grow SIGNIFICANTLY, there is no impetus for buyers to upgrade or move into the $800k+ range of properties - the majority of Hoboken's current inventory.
I've had some bets with a few RE broker friends that are now a year into their cycle. If they want to double down AGAINST another 15% price drop, I'll gladly oblige. But none have taken the opportunity to date.
Would they have you believe something that they themselves are just beginning to doubt? The renter in this market has always dreamed of being an owner.
That trend is about to take a 180 turn in the mainstream!
Disclosure: I am still an owner of RE assets.
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3 comments:
Do you have any opinion on the DB report which calls for a 40% drop in prices in the area? Is it possible to post a copy since I have only seen reports about the report and not the original itself?
Keep up the opinion and forecasts!
-LZ
I think by now, everyone has heard of the report. i do have a copy but it cannot be posted since it is research material for Deutsche Bank clients only. I'm sure it will eventually leak onto the Web in the near future.
While that forecast may seem extreme, it is not improbable. But I am not looking for that deep a cut. However, I deem my comparables target to take us to 2001 start levels in Hoboken eventually. That's more than 15% from where we've come so far but I don't think that we have caught up yet in present terms. ie. ask prices are way behind the curve as we drop.
Do I really want to inherit someone else's bad risk evaluation at this stage? I don't see the opportunity!
That should give you a base to work from going forward.
I had to search this post out because only 20% of the banks are going to make any additional hires over the next six months!
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