Sunday, February 08, 2009

The era of greed is over, right?

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Posted by at 9:53 AM
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22 comments:

  1. AnonymousFebruary 08, 2009 11:00 AM

    That's why capitalism is the best way. One man's greed keeps another man's greed in check! The world is messed up all around though...

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  2. AnonymousFebruary 09, 2009 6:46 AM

    Beltway burden: Income divided by housing and transportation

    February 9, 2009 - 6:18am
    Hank Silverberg, wtop.com

    WASHINGTON - While you may get a great deal on a home in the outer suburbs, the cost savings may be lost once you figure out the transportation costs.

    "At about the 15-mile mark, housing costs go down, but you're seeing a greater increase in transportation, so your overall cost is higher," says Pam Patenaude, executive director of the Urban Land Institute's Terwilliger Center for Workforce Housing.

    When you divide median income by the sum of housing and transportation costs, you get what's known as the "beltway burden."

    With annual combined housing and transportation costs at 39 percent of the median income of $87,398, Arlington County becomes the most effective when you use this formula. Next in line are Alexandria, with a median income of $80,510, and Fairfax County, with median income of $100,419. Both have combined housing and transportation costs at 41 percent.

    The worst, when you combine housing and transportation costs are Clarke and Warren counties at 58 percent, followed by Fredericksburg at 56 percent. The median incomes of the three areas are $64,288, $53,976 and $46,007, respectively.

    The costs are 53 percent in Spotsylvania County (median income of $72,456), 52 percent in Fauquier County (median income of $77,917) and 50 percent in Prince William County (median income of $81,307).

    Patenaude says many people don't do this type of calculation when they choose a house or a job. They don't factor in the costs of vehicle maintenance, gas and other related auto costs that are associated with driving longer distance each day.

    Often they house-hunt on weekends when traffic is lighter and don't factor in rush-hour traffic. Commuters across the region spend roughly 60 hours a year sitting in traffic.

    With a median income in the entire metro area of $78,221, housing adds up to 29 percent of that and transportation another 17 for combined costs of 46 percent. Across the region, households spend an average of $23,000 per year on housing and $13,000 on transportation.

    The report's authors hope the study helps lead to more affordable housing closer to transit.

    The report looked at data from 2000 and 2006. While it captured the height of the real estate market, it didn't include last last summer's nearly $4 a gallon gas prices.

    http://wtop.com/?nid=30&sid=1596645

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  3. AnonymousFebruary 09, 2009 6:59 AM

    Oil speculation: It's back
    There's more of it today than there ever was this summer. And this time around, it really is making oil more expensive.
    By Jon Birger, senior writer
    LAST UPDATED: DECEMBER 5, 2008: 1:55 PM ET


    NEW YORK (Fortune) -- With oil now at $50 a barrel, you no longer hear Congress complaining about oil speculators. The irony is there's probably more real speculation going on today than there ever was back in June and July.

    I'm talking about the type of speculation that involves hoarding oil today so it can be sold for more down the road. Today's speculators are actually buying oil. They're not merely flipping futures contracts without taking delivery - which is what hedge funds and commodities index funds were doing when they were in the crosshairs of Congress this summer. As I've argued before, investors who trade futures but never take delivery of actual oil can't have a material impact on oil prices because their trading affects neither supply nor demand.

    What's different now is the structure of the futures market, which is giving big investors an incentive to buy and hold huge sums of crude. Specifically, the November 2009 price of oil is considerably higher ($12 a barrel higher, to be precise) than the spot price - a scenario futures traders call a "contango" market. (The opposite scenario - spot prices higher than futures prices - is known as "backwardation.")

    "The steepening of the contango has opened up carry-trade arbitrage opportunities that are slow to be closed due to constrained credit conditions," Goldman Sachs wrote in a recent research report. Translation: this is a great time for investors to be hoarding oil.

    Today's market is giving Goldman clients and other well-heeled investors an opportunity to buy oil in the spot market for $50 a barrel, sell it forward in the futures market for $62, and then pocket the $12-a-barrel difference, less storage costs.

    This type of oil investing was quite popular in 2005 and 2006 when, like today, the price of oil one year out was much higher than the spot price. Back then, contango trades were so popular that one of Morgan Stanley's top energy traders, Olav Refvik, leased so much oil storage that he earned the nickname "the King of New York Harbor."

    There's no question the investing strategies pursued by Refvik and others were pushing up oil prices. By putting large sums of oil into storage, they reduced the supply available to consumers. By 2007, however, the gap between spot prices and futures vanished, and so did the opportunity to profit from that difference. And the amount of oil held in inventory began to fall.

    Nevertheless, Congress needed a scapegoat for rising oil prices and an easy target proved to be hedge funds and other investors dabbling in oil futures. But these pseudo-speculators were simply making a bet on the direction of prices; they weren't driving them. Their gains (or losses) came out of the hides of the investors or airlines or oil companies on the other sides of their trades, not the oil-consuming public. Moreover, a lot of commodities hedge funds were actually making the wrong bets: According to Merrill Lynch, the average commodities hedge fund had a negative trailing 12-month return through June.

    Unlike futures flippers, contango traders really do impact oil prices, yet they're getting a free pass. According to the U.S. Energy Information Agency, domestic oil inventories have risen 9% since oil prices peaked in early July. While some of that is attributable to the weak economy and slack energy demand, gasoline consumption declined only 5% over the same period and gasoline inventories have risen only 4%. (If you're wondering why contango traders would target crude oil but not gasoline, vaporization issues make gasoline harder to store.)

    Demand for oil storage is so keen today that some big investors who can't secure storage on land have resorted to leasing supertankers and using them as floating oil tanks. For example, the U.S. oil trading firm Koch Supply & Trading recently leased the 2-million-barrel-capacity Dubai Titan, a Koch spokesperson confirms, the third supertanker Koch has leased this year.

    It's hard to quantify exactly much lower gas prices might be were it not for the current speculation. In the United States alone, crude oil inventories have increased by 27 million barrels since early July, the equivalent of about 200,000 barrels a day being pulled off the market. Based on the estimates I've seen, a 200,000 barrel-a-day decrease in supply could raise gasoline prices by anywhere from 20 to 40 cents a gallon.

    For the average consumer, that's real money. But I bet you a barrel or two that actual oil investors like Koch never get targeted by Congress the same way the hedge funds and index funds did this past summer.

    After all, who needs a scapegoat when gas is $1.90 a gallon?

    http://money.cnn.com/2008/11/26/news/economy/oil_speculation.fortune/index.htm?postversion=2008120513

    ReplyDelete
  4. AnonymousFebruary 09, 2009 9:45 AM

    Why does everyone who wants housing to stay at ridiculous prices assumes everyone works in downtown DC?

    the department of health and human services is not in DC....NIH is near the beltway....most tech jobs are on the Dulles toll road or up 270 outside the beltway.

    Some people who make great money would double their commute moving to downtown DC.

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  5. AnonymousFebruary 09, 2009 10:35 AM

    The vast majority of occupied square footage (office space) is inside the beltway.

    Its called "density".

    There is a lot of vacant office space on the Dulles Toll Road.

    ReplyDelete
  6. AnonymousFebruary 09, 2009 1:11 PM

    There is a lot of vacant office space in the I-270 and I-95 (MD) corridors as well.

    ReplyDelete
  7. AnonymousFebruary 09, 2009 1:29 PM

    What the hell kinda screwed up assumptions are they making to reach those numbers?

    Does anyone have access to a more detailed breakdown of exactly what their "formula" is?

    Transportation costs, even from the edges of the area, are almost meaningless compared to the price of housing unless you are doing something just nutty.

    This is a lot like people who try to argue that high gas prices will keep prices in close high, the math just doesn't work.

    ReplyDelete
  8. AnonymousFebruary 09, 2009 1:46 PM

    Looking at the numbers a bit more...

    According to this article, Alexandria and PWC have roughly the same median income.

    This article claims their formula results in combined housing and transportation costs of 41% in Alexandria and 50% in PWC.

    That means, assuming housing prices were equal in Alexandria and PWC, transportation alone would account for an additional 9% of income.

    With a median income around $80k in both areas, that means they think transportation costs are >$7k higher (per year) in PWC.

    Note, I am not saying total transportation costs are $7k. I am saying they are $7k higher in PWC, and that is in a scenario where housing costs in Alexandria and PWC are equal.

    Of course we know housing in PWC is far far cheaper than Alexandria...

    Does anyone have a reasonable explanation for this?

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  9. AnonymousFebruary 09, 2009 3:19 PM

    "Does anyone have a reasonable explanation for this?"

    Depreciation on a typical $30,000 automobile?

    Cost of auto ownership in PWC versus using the King St. Metro station in Alexandria?

    $7,000 in the context of one car is not far-fetched, but who knows?

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  10. AnonymousFebruary 09, 2009 4:25 PM

    We aren't talking about $7k total, we are talking about $7k MORE than in Alexandria.

    Not only that, but that assumes housing costs are the same in PWC as they are in Alexandria. (when of course they are not even close)

    The median price in Alexandria is ~400k, compared to ~165k in PWC.

    Even if you assumed the guy living in Alexandria took the metro every day(for free) these numbers aren't going to work unless you make some ridiculous assumptions.

    There is just no way it costs significantly more to commute in from PWC than it does to live within walking distance of a metro stop in Alexandria. (and even within walking distance of the metro most families have at least one car)

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  11. JamesFebruary 09, 2009 9:01 PM

    "Why does everyone who wants housing to stay at ridiculous prices assumes everyone works in downtown DC?"

    You're completely right about this. For example there is tons of defense work in Tyson's Corner, Reston, Herdon, and Chantilly. There are also lots of biotech jobs in the Maryland suburbs. General Dynamics is headquartered in Falls Church, VA. Lockheed Martin has its headquarters in Bethesda, MD. Capital One is headquartered in the Tyson's Corner area.

    Personally, I live and work in Fairfax County.

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  12. AnonymousFebruary 10, 2009 1:42 AM

    ...and if we are going to play the "maybe the alexandria guy rides the metro to work" card, then we also have to assume people living as far out as Vienna also ride the metro in. For that matter the guy in PWC could ride the VRE in.

    It sounds like a realtor did the math for that article.

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  13. AnonymousFebruary 10, 2009 8:15 AM

    "The vast majority of occupied square footage (office space) is inside the beltway.

    Its called "density"."

    sure there are lots of empty office buildings outside the beltway. But I dont think office buildings full of $40K a year pencil pushers in downtown DC is what we are talking about here.

    Im talking about guys making $150K+ in biotech, health and computers in the big tall buildings OUTSIDE of DC.

    Im sure there are more density of mcdonalds in DC than the tech highway too.

    try again.

    ReplyDelete
  14. AnonymousFebruary 10, 2009 11:33 AM

    "try again".

    This is reality, and all you need to know. See if you can accept it.

    Office Leasing Retracts
    Vacancy Rates Rise, but So Do Rents

    Washington Post Staff Writer
    Monday, November 10, 2008; Page D01

    Leasing of commercial office space in the Washington area had its biggest quarterly drop in more than a year as financial markets slid into crisis and economists predicted a deep national recession.

    Many of the deals that did get done in the third quarter came from businesses renewing current space rather than expanding into new buildings, brokers and analysts said. The market will continue to be slow as long as concerns over the future of the economy exist, they said. Meanwhile, buildings financed during the years of the boom continue to be completed, pushing up vacancy rates.

    "It is going to be pretty slow going," said John Sikaitis, vice president and director of research of the commercial real estate firm Jones Lang LaSalle. "There will be some government demand primarily from Treasury and some of the financial related-agencies, but we don't expect a lot."

    The turmoil in credit markets has probably been felt strongest this year in sales of office buildings. Only $3.5 billion worth of buildings traded hands in the first nine months of the year, a decline of 77 percent from the $15.3 billion sold during the same period last year, according to New York firm Real Capital Analytics.

    The leasing of office space has also suffered as businesses pull back. A total of 6.7 million square feet of new leases were inked in the third quarter ended Sept. 30, a decline of 16 percent when compared with the 8 million square feet worth of deals done in the same quarter one year ago, according to Bethesda-based CoStar. It was the biggest year-over-year decline since a 26 percent drop in the first quarter of 2007, according to CoStar data.

    Developers had 101 buildings under construction comprising about 13.7 million square feet of office space. The vacancy rate for the Washington area was 11.5 percent at the end of the third quarter, up from 10.1 percent a year ago; the average asking rent for the region climbed to $34.01 per square foot in the third quarter, up from $33.51 a year ago, CoStar said.

    Despite the continued increase in rents, brokers and analysts said building owners are becoming more willing to lower rents or offer concessions.

    "Owners are a lot more willing to offer rent abatements," said Sigrid Zialcita, director of research for the commercial real estate firm Cushman & Wakefield. "They are more generous now."

    In the District, the vacancy rate remained relatively flat at 8.5 percent compared with 8.6 percent a year ago. Asking rents increased to $47.51 per square foot from $46.43 a year ago. And some notable deals did get done.

    For instance, the global architectural firm RTKL signed a lease in August for about 63,400 square feet of space at 2101 L St. NW, nearly doubling its presence in the District, according to the commercial real estate firm Studley. The Washington office of Seyfarth Shaw subleased 77,000 square feet of space at 975 F St. NW in September, according to CB Richard Ellis.

    Problems on Wall Street reverberated here. The District-based development firm Monument Realty, for instance, lost its largest financial backer in Lehman Brothers when that storied New York investment bank sought bankruptcy protection in September.

    In Northern Virginia, the vacancy rate inside the Beltway remained relatively flat, with the Rosslyn-Ballston corridor at 8.2 percent compared with 8.1 a year ago. Rents increased to $36.38 per square foot compared to $35.17 a year ago.

    Along the Dulles Toll Road, where developers built buildings in hope of lining up tenants later, the vacancy rate for Reston and Herndon was 18.6 percent compared with 11.7 percent a year ago. Asking rents were flat at $31.14 per square foot compared with $31.16.

    Despite the sluggishness, telecom giant Time Warner leased 195,000 square feet of space in a building called South Lake at Dulles Corner, according to Brandywine Realty Trust of Radnor, Pa.

    Along Route 28, south of Dulles International Airport, the vacancy rate ticked up to 20.5 percent, compared with 18.1 percent a year ago. Asking rents declined to $27.80 per square foot from $28.98 a year ago.

    In Montgomery County, the vacancy rate rose to 10.8 percent from 9.2 percent a year ago. Rents increased to $30.15 per square foot from $28.75. Prince George's County's vacancy rate increased to 17.4 percent from 15.1 percent a year ago. Asking rents there declined to $22.59 per square foot from $22.94.

    Meanwhile, some 38 buildings comprising 3.3 million square feet of office space remained under construction throughout Suburban Maryland at the end of the third quarter, according to CoStar.

    A significant portion of that was speculative office space, Sikaitis said.

    http://www.washingtonpost.com/wp-dyn/content/article/2008/11/09/AR2008110901740.html

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  15. AnonymousFebruary 10, 2009 11:42 AM

    Im not disputing there are empty buildings outside the beltway. You miss the point.

    You can just keep thinking phDs working at NIH spend more on gas cause they live in bethesda or rockville. However, nobody believes you.

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  16. AnonymousFebruary 10, 2009 12:55 PM

    "You can just keep thinking phDs working at NIH spend more on gas cause they live in bethesda or rockville. However, nobody believes you."

    NIH is in the "Core" metro area.

    Empty office buildings in the phony neighborhood called "Dulles" are not in the core area.

    ReplyDelete
  17. AnonymousFebruary 10, 2009 1:03 PM

    "You can just keep thinking phDs working at NIH spend more on gas..."

    Way to move a goalpost, by the way. Nice job. Its called "incrementalism" by people who are more astute that you.

    ReplyDelete
  18. AnonymousFebruary 10, 2009 3:32 PM

    "NIH is in the "Core" metro area."

    NIH is less than a mile inside the beltway. If you live downtown, your commute to work is 4 times further than living in bethesda or rockville OUTSIDE the beltway. No beltway burden there my friend.

    If you were talking about dulles, centerville and manassas, SAY SO. However there are tons of jobs in Reston (symantec, microsoft etc)....and tons of biotech jobs in bethesda rockville and gaithersburg.

    ReplyDelete
  19. AnonymousFebruary 10, 2009 8:24 PM

    Issues not being discussed in full.

    Reverse commute. Distance does not equal travel time.

    Cost of travel vs. quality of life.

    Job-center density. There are jobs outside the beltway -- just not as many.

    ReplyDelete
  20. AnonymousFebruary 11, 2009 1:44 AM

    "issues not being discussed in full"

    That article was BS to start with.

    It was nothing but a catchy title backed up by some screwed up math.

    ReplyDelete
  21. AnonymousFebruary 12, 2009 11:16 AM

    "NIH is less than a mile inside the beltway. If you live downtown, your commute to work is 4 times further than living in bethesda or rockville OUTSIDE the beltway. No beltway burden there my friend."

    NIH is TEN MILES from the center of Washington DC, with no river crossings. That's nothing unless you're a lard ass for whom traveling one mile is a burden.

    And yes, reverse commutes are different, whether you accept that fact, or not.

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  22. AnonymousFebruary 12, 2009 11:22 AM

    "However there are tons of jobs in Reston (symantec, microsoft etc)....and tons of biotech jobs in bethesda rockville and gaithersburg."

    Route 7 and the Dulles Toll Road are the only way to access Reston.

    Both are horribly over-crowded, even on a good day. God forbid you're trying to travel into a sunrise or sunset on either of those roads. God forbid in rains a little while you're trying to drive on those roads.

    Oh yeah, Microsoft is set to layoff 15,000 people. Biotech is reliant upon venture capital funding. VC funding in 2009 is dead.

    The article above provides specific metrics regarding commercial occupancy rates and price per square foot. The bottom line is that the outer suburbs (which includes Reston but not Bethesda) have far more empty office space than the "core", which just happens to be downtown Washington DC and Rosslyn, VA.

    The fact that you don't accept reality doesn't mean it isn't real. (apologies to Kant)

    ReplyDelete

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