Forecast for 2011: Slow Growth Leads to Recovery

Stocks: This graph shows three stock indexes (Dow, NASDAQ, LCSI), covering the first 11 months of the year. Landscape Communications Stock Index (LCSI) comprises 50 stocks within the landscape industry. All three indexes are inter-related and followed similar dips and peaks.

Annual inflation back in July was 1.24 percent. August was 1.15 percent and for September, an almost identical 1.14 percent. This is still less than half of January levels of 2.63 percent. In April inflation was 2.24 percent and 2.02 percent in May and 1.05 percent in June. This is disinflation when the rate of inflation decreases.

The only blip up in inflation in recent months was from June's 1.05 percent to July's 1.24 percent and back down to 1.15 percent in August. On a monthly basis we had 0.14 percent for August and only 0.06 percent for September. Annualized, that would be 0.7 percent, much less than current annual inflation levels.

The current inflation rate remains in the long-term down trend that began in 1990 but was interrupted by a six year uptrend from 2002 - 2008. The best conventional/FHA/VA 30-year fixed mortgage rates are in the 4 percent to 4.25 percent range for well-qualified borrowers. The best conventional/FHA/VA 15-year fixed mortgage rates are in a range between 3.375 percent and 3.625 percent with the same closing cost characteristics of the 30 year range.

Financial/Interest; Inflation continues to be low, along with the prime interest rate and 30-year interest rate. This is good news for consumers, as it makes home-buying more affordable. Hopefully these rates will stay low long enough to stimulate the economy and lead to recovery. Sources: www.InflationData.com, Mortgage News Daily

Financial

The September Employment Situation report from the Bureau of Labor Statistics was painful - total nonfarm payrolls declined by 95,000 jobs. That included the elimination of 77,000 temporary federal census jobs as the data collection for the decennial census draws to a close.

Employment losses were amplified by the elimination of 83,000 state and local government jobs. Roughly 60 percent or 49,800 of the jobs, were lost in local education, primarily teachers, with state governments shedding another 7,800 education jobs.

Are we complacent with record low mortgage rates? Some lenders may go as low as 3.75 percent if the borrower is willing to pay points, but these offers are getting harder to come by.

Consumer Price Index for All Urban Consumers increased 0.1 percent in September on a seasonally adjusted basis. Over the last 12 months, the all items index increased 1.1 percent before seasonal adjustment.

Single-Family Housing Units Authorized; Housing starts peaked five years ago and have dwindled until this year, when we saw a bit of a bump in the market. In 2011 you can expect to see more progress in housing starts and permits. But it could take several years before we have another surge like we experienced from 2004 to 2006. The glut of vacant homes along with foreclosed homes has saturated the market. Source: U.S. CENSUS BUREAU

The gasoline index rose again in September, leading to a third consecutive increase in the energy index despite a decline in the index for household energy. Over the last 12 months, the energy index rose 3.8 percent over the last year, with gasoline up 5.1 percent. This will affect your operating costs for utility vehicles, lawn mowers and other equipment.

Manufacturing in the U.S. expanded at the fastest pace in five months in October, pointing to renewed strength in the industry that led the nation out of recession.

U.S. companies such as Caterpillar Inc. are benefiting from rising demand in overseas markets including China, where manufacturing expanded in October at the fastest pace in six months.

The U.S. economy remains stuck in neutral, according to the latest data, continuing a pattern of steady growth that is too slow to bring down joblessness. Until employment recovers it will be tough for the economy to recover from the lengthy recession.

A consistent picture has emerged from a wide range of economic data since the spring: The expansion is solid enough that the nation is not dipping back into recession, yet so feeble that there is little progress in the recovery.

MultI-Family Housing Units Authorized; According to the Wall Street Journal, fundamentals for real-estate investment trusts in multifamily housing have been on an arc of improvement after the economic slowdown and high unemployment pushed occupancy and rental rates down. Data show vacancies declined sharply in the most recent period, sparking modest rent increases, according to real-estate research firm Reis Inc. Source: U.S. CENSUS BUREAU

Trade

According to the U.S. Census Bureau the combined value of distributive trade sales and manufacturers' shipments for August, adjusted for seasonal and trading-day differences but not for price changes, was estimated at $1.093 trillion, up 0.1 percent from July 2010, and up 8.2 percent from August 2009.

Manufacturers' and trade inventories, adjusted for seasonal variations but not for price changes, were estimated at an end-of-month level of $1.387 trillion, up 0.6 percent from July 2010 and up 4.7 percent (plus or minus 0.4%) from August 2009. The total business inventories/sales ratio based on seasonally adjusted data at the end of August was 1.27. The August 2009 ratio was 1.31.

Education Construction, Value Put-in-Place; Although this sector dipped this year, after three years of growth, look for education to continue to grow into the next decade as the U.S. population grows. Source: US Census Bureau

Construction

According to the U.S. Census Bureau construction spending during September 2010 was estimated at a seasonally adjusted annual rate of $801.7 billion, 0.5 percent above the revised August estimate of $797.5 billion. The September figure is 10.4 percent below the September 2009 estimate of $894.8 billion.

Highways/Streets Construction, Value Put-in-Place; Although the passage of American Recovery and Reinvestment Act funded construction and infrastructure such as highways and streets, in 2010 this sector leveled off and you can expect it to stay flat for the next few years even with the proposed SAFETEA-LU. If passed, this bill could generate billions of dollars for surface transportation infrastructure. Source: US Census Bureau

Remodeling

Substantive growth in remodeling spending, coming off a three year decline, seems likely in 2011, according to the Leading Indicator of Remodeling Activity (LIRA) by the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University. Even though spending is still below its 2007 peak, the LIRA indicates that homeowner improvement spending is expected to be up at a double-digit pace at an annual rate through the first half of 2011.

''The downturn in home improvement activity has pushed spending below its long-term trend,'' says Eric Belsky, managing director of the Joint Center for Housing Studies. ''A recovering economy should stabilize house prices and consumer confidence levels, encouraging homeowners to reinvest in their homes and undertake deferred repairs and replacements.''

New single family housing units authorized by state; 2009/2010 State Breakdown With top 10 most populated states in their ranking order. Most states felt the housing crunch the past three years. During that time private house units authorized by state decreased between 50 and 70 percent. Texas still leads the nation, while California had only about one-fifth of permit this year, as compared to its peak in 2004. Eventually the housing sector will recover, leading the way to a gradual economic recovery for the entire nation.

Housing

Lenders foreclosed on a record number of properties in the third quarter.
RealtyTrac reported foreclosure filings in the third quarter of 2010 rose 4 percent from the previous quarter but were down 1 percent from the same period in 2009. During the quarter 930,437 homes, one in every 139 U.S. housing units, received a foreclosure filing.

Privately-owned housing units authorized by building permits in September were at a seasonally adjusted annual rate of 539,000. This is 5.6 percent below the revised August rate of 571,000 and is 10.9 percent below the September 2009 estimate of 605,000.

Single-family authorizations in September were at a rate of 405,000; this is 0.5 percent above the revised August figure of 403,000. Authorizations of units in buildings with five units or more were at a rate of 111,000 in September.

Privately-owned housing starts in September were at a seasonally adjusted annual rate of 610,000. This is 0.3 percent (plus or minus 10.3 percent)* above the revised August estimate of 608,000 and is 4.1 percent (plus or minus 12 percent)* above the September 2009 rate of 586,000.

Single-family housing starts in September were at a rate of 452,000; this is 4.4 percent (plus or minus 13.9 percent)* above the revised August figure of 433,000. The September rate for units in buildings with five units or more was 150,000.

Privately-owned housing completions in September were at a seasonally adjusted annual rate of 648,000. This is 7.3 percent (plus or minus 14.3 percent)* above the revised August estimate of 604,000, but is 10.1 percent (plus or minus 13.6 percent)* below the September 2009 rate of 721,000. Single-family housing completions in September were at a rate of 501,000; this is 4.8 percent (plus or minus 14.2%)* above the revised August rate of 478,000. The September rate for units in buildings with five units or more was 138,000.

Office, Commercial & Manufacturing, Value Put-in-Place; Of the three sectors, manufacturing has done the best in the past year, although all have declined since last year. With unemployment at about 10 percent, it will take another year or two for the office construction to pick up the pace. Some experts predict that a default debacle could occur in the office and commercial sectors, lowering expectations for those industries in 2011.

Highway

State transportation departments received a grant from the U.S. Department of Transportation to help fund 10 projects. This included several that will improve freight connections. These grants were made available by Congress for the second round of the Transportation Investment Generating Economic Recovery program (TIGER II.)

States received grants for five railroad, one highway safety, one bridge, one port, one transit and one electric vehicle project. Significant awards received by state DOTs includes: $34 million by the Texas Department of Transportation for the Tower 55 railroad project in Fort Worth; $20 million by the New Hampshire Department of Transportation for the Memorial Bridge Replacement in Portsmouth; and $17 million by the West Virginia Department of Transportation for West Virginia 10 safety improvements.

Leading Indicator of Remodeling Activity; Home owner improvement spending decreased the previous two years, but is expected to rebound a bit this year. It could take the sector a few years to fully rebound, as home owners may not have a lot of discretionary income for landscaping and home improvements. Source: Joint Center for Housing Studies

Education

Architecture firms with a commercial and industrial specialization posted an Architecture Billings Index (ABI) of 56.3. One monthly score above the 50 level does not ensure that there will not be further slippage in the months ahead, according to Kermit Baker, AIA Chief Economist. However, there were several positive elements in the September report.

This is not only the strongest reading for this specialty since the summer of 2007, but also the fifth straight month that commercial and industrial firms have reported increases in billings. These particular sectors, more than housing, seem to be viable markets for landscape design and installation in the near future.

Religious & Healthcare Buildings, Put-in-Place; For the past seven years construction has slowly declined in the religious building construction private sector since a peak of $8.5 billion in 2003. Healthcare though is a recession-proof industry, accounting for nearly one-sixth of the U.S. economy. With the population getting larger and growing older, expect this sector to grow in the next few years. Source: US Census Bureau

Office

All 10 of the top urban cities in the U.S. increase its office vacancy rates in each of the past two years. On a few occasions, suburban vacancy rates subsided in areas such as San Jose, California (urban rates down from 17.9 in 2009 to 16.7 in 2010), San Diego (from 22.5 to 19.3) and San Antonio (from 22.8 to 19.3). New York City was the one bright spot, as it remained in single digits (at 9.8) for the third year in a row.

But even with this good news, urban office vacancy rates continued to climb for the second straight year. Vacancy rates will continue to be high until people start finding full time jobs again. Unemployment hovered between 9.5 and 10 percent for most of the year.

Amusement and Recreation, Put-in-Place; This graph breaks down amusement and recreation spending for both the private and public sectors. We saw a peak in 2008 for both the private and public sectors, with declines in both the last two years. For 2011, once the economy rebounds, look for improvements in amusement and recreational spending. Source: US Census Bureau

Lodging Industry Construction, Put-in-Place; From 2005 to 2008, this sector showed steady growth. However it declined each of the past two years. Air Transport Association predicted the number of U.S. domestic flights in the fourth quarter would fall by 22 percent from 2000, a reduction of about 6,600 flight departures a day. When the travel industry begins to recover, look for demands on lodging to increase.

Top 10 Commercial Real Estate Markets for 2011

After three years of dislocation and unprecedented loss, commercial real estate industry investors and professionals hint at hopeful signs of tempered commercial real estate market improvements.

''Emerging Trends in Real Estate 2011,'' a nationwide survey of commercial real estate industry leaders has identified the top areas for commercial property and apartment investment in 2011:

1. Washington, D.C.- D.C. is expected to hold onto its top ranking as long as the economy labors (and all the lobbyist remain in town).
2. New York City- TARP and Fed funds directed at banks helped financial markets and eased job cuts, triggering the biggest ratings jump for NYC.
3. San Francisco- The Northern California real estate market has sidesteps some of the state's fiscal issues, performing better than Southern California.
4. Boston-The city registers high marks for livability, controlled development, and a highly educated labor force, but lacks economic vibrancy.
5. Seattle-Seattle gets a boost from adding 160,000 new residents since the recession.
6. Houston-Houston is expected to come out stronger from the recession than most big cities, creating more real estate demand.
7. Los Angeles-L.A. remains an attractive location, with Southern California serving as an important gateway to the Pacific Rim and Latin America.
8. San Diego-San Diego tracks closely to Los Angeles with its desirable climate and gateway status.
9. Denver-The mile-high city demonstrates 21st century growth by strengthening its downtown core through a new light rail and railroad hub to serve surrounding suburbs.
10. Dallas-Fort Worth-The area attracts businesses with its low costs, low taxes and sizeable talent pool.

Source: ''Emerging Trends,'' an annual industry outlook for the real estate and land use industry from the Urban Land Institute.