The Ralph Bivins Project – Podcast Guest Jeff Havsy, Moody’s Analytics

HOUSTON – (Realty News Report) – RALPH BIVINS: Welcome to the Ralph Bivins Project. We’re here today with Jeff Havsy, a noted economist with Moody’s Analytics. He’s the commercial real estate practice lead at Moody’s. Also, mark your calendars. He is going to be in Houston to give the economic outlook to CommGate on Sept. 11 at Houston Country Club. I’ll be there so come by and say hello.

Jeff, formerly the chief economist at CBRE, has a long and impressive resume. My first question to him is this: In mid-September, the Federal Reserve Open Market Committee will be meeting. Everyone has been wondering what the Fed will do at this meeting. Jeff, what do you think the Federal Reserve will do?

JEFF HAVSY: First of all, thank you, Ralph, for having me. I’m excited to be here. I look forward to talking to you. You always have such good insights.

As to your question, it’s interesting. I think the stock market had a little temper tantrum on August 5, and they overreacted. It was just one number, and we know that when we look at the job numbers, there can be significant revisions in one direction or the other. In this case, the jobs number is more than 100,000, which was the lowest in a couple of years. Normally, they would have said, “Well, it’s a positive number, that’s still pretty good.” Instead, they said, “We’re not putting up with this,” which was crazy.

To Listen to the entire podcast: CLICK HERE FOR SPOTIFY or CLICK HERE for YouTube

RALPH BIVINS: The stock market – it seemed ilke everyone was freaking out with the big drop on August 5.

JEFF HAVSY: I have a quick story about that. One of my first jobs was actually designing new financial products for the Chicago Board of Trade. It was back in the 1990s, and we actually hit a “circuit breaker” telling us to stop trading orders on the Dow Jones Industrial Index. One reason this happened, we felt, was because sentiment got in the way. I think that’s what happened in early August. We just got wound up. You look at the job numbers. They weren’t as strong as they had been, but unemployment claims came in low yesterday. So, we may have overreacted. Maybe we had technical issues. Maybe storms down south were impacting on construction……but one number doesn’t make a trend.

RALPH BIVINS: You think they will cut the rate in September? Some people say it may be as much as 50 basis points.

JEFF HAVSY: It’s going to be 25 . Twenty-five, not 50.

RALPH BIVINS: They should have done 25 in July then gone gradually. People say the Federal Reserve is either too slow, too late or too early.

JEFF HAVSY: It’s a thankless job. You’re never right. Someone is always angry with you. It’s a tough thing.

RALPH BIVINS: After the stock market dropped sharply that day, people were talking about the Fed coming in and making an emergency rate cut. It didn’t happen. You’re right. It seemed a little overblown.

JEFF HAVSY: And the market has risen since then. It has come back. Sometimes, we have to get out of our own way. It’s human nature, we get wound up, we get caught up in emotion. Things go too far. If we get a good night’s sleep, we can come back and see how it goes.

The biggest thing is the sentiment. A 25 percent basis point cut is not changing…well, yes, it is going to change some of the numbers. But it’s small relative to where financing costs have been. The biggest thing is with the signal it sends. I think people need to keep that in mind. Just because you cut 25 basis points, the next day, your costs are not going down dramatically. They’ll go down a little. We’re into the easing era and I think that is the bigger issue. There isn’t a lot of rent growth in the market, so even by moving down 25 basis points, there are things we have to work through.

RALPH BIVINS: Of course, it’s been huge for home buyers and home builders, and it has had quite an impact on the commercial real estate industry, too.

JEFF HAVSY: Exactly. There’s a lot of supply there and fundamentals will be soft for a little bit.

RALPH BIVINS: Shifting gears a bit. One of the problem areas in commercial real estate has been the office market. There are exceptions, but overall office vacancy has been rising and some owners are having trouble refinancing their buildings. Can you speak to that?

JEFF HAVSY: I describe it like this: the problem isn’t that office is over built; at the moment it’s under-demolished.

RALPH BIVINS: That’s a good one. I’m going to borrow that.

JEFF HAVSY: I think we’re going to see that (demolishing buildings) where You have some of these B-minus at best, or C buildings, that are functionally obsolete that really should not be in use anymore. Trying to refinance them and re-tenant them can be extremely difficult. Don’t get me wrong, we’re always going to need some B space, B-minus space, some C space. There are a lot of users out there that need cost effective office space.

To Listen to the entire podcast: CLICK HERE FOR SPOTIFY or CLICK HERE for YouTube

BIO OF JEFF HAVSY

Jeff Havsy is the commercial real estate industry practice lead at Moody’s Analytics. He previously served as CBRE’s chief economist for the Americas and was responsible for guiding the CBRE Econometric Advisors (CBRE EA) team. He previously served as a board member for the Real Estate Research Institute (RERI), worked as senior economist with the Chicago Board of Trade and was the director of research for the National Council of Real Estate Investment Fiduciaries.

Mark Your Calendars:

CommGate will hold its Economic Outlook – Powered By Moody’s – Wednesday Sept. 11 from 3 to 6 p.m. at the Houston Country Club. Economist Jeff Havsy of Moody’s Analytics will present an economic forecast. Information: