Real estate market health is all about sector, sector, sector
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JEREMY HOBSON: Now let’s get to real estate. Two big stories this morning — Borders Bookstore chain is going out of business and will be closing its 400 remaining stores. But the government said this morning that new home construction hit a six-month high last month.
Juli Niemann is an analyst with Smith Moore and Company. She joins us live from St. Louis as she does every Tuesday. Good morning.
JULI NIEMANN: Good morning Jeremy.
HOBSON: Well Juli, let’s start with Borders. It’s going to be closing its remaining stores. What kind of an impact is that going to have?
NIEMANN: Well, it’s bad news for commercial real estate. They have both freestanding and high end malls. And you’re basically looking at huge competition that’s coming from the Internet now. So you’re probably going to see even tougher times for these big box outfits.
HOBSON: OK, well, what are you supposed to do about that? Do we tear downs these old Borders stores?
WNIEMANN: Well, there’s a problem there because again, some of them are freestanding — those conceivably you could be, because who could fill it? It’s got to be another big box outfit. The freestanding in the malls, though, you’re going to see more of them — those are smaller outlets — possibly filled by other kinds of retailers. But even right now, retail is very, very slow. It’s not recovery, simply because there are fewer households being formed, little income growth, and very low job growth. So retail is still stalled out.
HOBSON: And Juli, what about new home construction. We got this word this morning from the government that housing starts hit a six-month high last month. What’s going on there?
NIEMANN: Well, the good news is it wasn’t horrible news. Probably the biggest area is the demand for rental properties. People can’t buy when prices are still gong down, and employment is soft, so now they’re going into rental properties. Banks right now — the old time values, 20 percent down. You have to have a job, verifiable income, credit ratings. So people are definitely moving over to the rental side. Now the good news on rentals means that you’ve got an indicator of some stability in the job market coming here. Maybe the kids are moving out of mom’s basement. On the building side, more available rental properties to meet demand. Rents are likely to ease somewhat as new supply hits the market. And there’s hope that in a year or two, you can dump the roommates.
HOBSON: All right, well we’ll take that. Juli Niemann, analyst with Smith Moore and Company, thanks as always.
NIEMANN: You bet.
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