While residential real estate and manufacturing sectors of the economy are reporting positive improvements, commercial real estate remains one of the weakest sectors. According to the Federal Reserve Beige Book, any evidence of a recovery in the sector is unlikely for at least nine more months. The Beige Book is an economic indicator published eight times a year by the US central banking regulator. In the current release, commercial real estate conditions were described as either weak or deteriorating across all of the 12 districts measured in the report. The inability to obtain credit was cited as a problem for businesses wanting to purchase or build commercial space, leading to increasingly low demand and high vacancy rates. Leasing velocity also remains slow, but improved over the summer as tenants seek to upgrade space at bargain prices. Tenants are also demanding significant concessions along with lower rents. However, public, nonresidential construction activity funded by federal stimulus projects provided a bright spot in the Cleveland, Chicago, Minneapolis, and Dallas districts, but gains were often offset by state and local government cutbacks, the book said. On the residential side, the first-time homebuyer tax credit is providing a boost in home sales in most districts, but real estate agents told the districts they are concerned about the future of the sector after the tax credit’s expiration. Home prices were down 3% to 14%, year-over-year in August, however a contact of Boston’s district said the tax credit is creating growth in entry-level home sales, which cost less and is a factor in bringing down the median price. Construction activity in the residential sector remained weak. While banking declined in several districts, one bright spot to the sector was an increase in lending to homebuyers, in response to the first-time homebuyers tax credit. Write to Austin Kilgore.
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