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Report – GRX Quarter 1 2010

In La Bourse on April 1, 2010 at 9:10 PM

The Georgia Real Estate Index (GRX) is an economer-original index composed of 3 publicly-traded companies headquartered in The Peach State: Beazer Homes USA, Inc., Cousins Properties, Inc. and Post Properties, Inc. Together the companies construct a market capitalization-weighted approximation of the Georgia real estate heart beat for Georgia as patient. Read the previous article — GRX — for an explanation of the index. Never minding the details, first quarter results are indeed in, so here is an inspection underneath the hood of the Georgia Real Estate Index.

Nearing its first ending quarter in existence, that is, quarter 1 of 2010, the GRX finished upward 12 percentage points beginning at 94.34 on December 31, 2009 and closing at 105.33 on March 31, 2010. Referenced here in the following figures, the 3-component index is referred to as GRX[3] (see below).

Given the headline concentrations on Georgia real estate, an additional 7-component market capitalization-weighted index is defined and provided — GRX[7]. At 7 pounds and 3 ounces, GRX[7] is born from the 3 original components and a few residual younger Real Estate Investment Trusts (REITS): Invesco Mortgage Capital, Inc. and Roberts Realty Investors, Inc. Rounding things out, we include buildings contractor Servidyne, Inc. and buildings operator Piedmont Office Realty Trust, Inc., representing SIC codes 1540 and 6512, respectively.

Conjoined, these indices help track an obvious subject of interest to Atlantans, Georgians and other spectators encircling the state. For Georgia background, Bureau of Labor Statistics (BLS)-official unemployment reads 10.5% for February, preliminarily — an all-time record high in the time-series. State unemployment rates provided by the BLS go back as far as 1976. Examined differently, just under half a million people in Georgia were searching for employment in February, yet could not find employment — read Regional and State Employment and Unemployment Summary. Currently projects like The Streets of Buckhead and Sea Island Company 5-star resort pursuits have been under distress — read Unfinished Projects Weigh On Banks and Resort Gem Sinks In A Sea Of Red Ink, respectively.

Another housing-focused report calculates 376,954 negative equity mortgages in Georgia as of third quarter 2009, that is, just about 1-in-4 Georgia mortgages “underwater” — read In Deep: Underwater Borrowers.

Much of the press headlines are dire, but there are some bright spots.

The S&P/Case-Shiller Home Price Indices have generally improved as of latest readings — S&P/Case-Shiller Home Price Indices Latest Press Release. Leasing rental companies, like those composing the GRX, could be benefitting from rent as a viable substitute for moving in with the parents. More broadly, the Bureau of Economic Analysis (BEA)-produced national macroeconomic indicators are bulging into correction mode position — read Gross Domestic Product (GDP) and Corporate Profits. Adjusted for inflation and seasonality, the residential investment contribution to economic output is up for the second quarter in a row at 3.8% in quarter 4 of 2009; that is after 14 consecutive negative quarters in a row — one of the deepest RMBS-induced recessions in recent history.

In future articles, we will take a closer look at the structural relationship between home prices and real estate-oriented publicly-traded companies in the GRX. To what extent, for instance, might there be structural breaks in the relationship? Are longers and shorters of stock just as easily capable of causing the run-ups and the run-downs in a company’s stock that, from a balance sheet perspective, deals in the world of real estate buying and selling?

Only to close on a mixed tone, the BEA also reports that commercial real estate, proxied in real nonresidential investment in structures, is down 6 consecutive negative quarters in row, yet the numbers are getting worse at a diminishing rate. Commercial real estate is proxied in the movements of the GRX index, only more specifically to Georgia on a state-level basis.

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