Although the information in this report has been obtained from sources that Integrated Real Estate Services, Inc. believes to be reliable, we do not guarantee the accuracy, and such information may be incomplete or condensed.  All opinions and estimates included in this report constitute our judgment as of this date and are subject to change without notice.  This report is for information purposes directed to the real estate professional only and is not intended as an offer or solicitation with respect to the purchase or sale of any type of real property interest.

Introduction and Historical Perspective

 Based upon comments and suggestions of readers like you of our past real estate market forecasts, this forecast will be different from the ones in the past for it will also include questions from readers of the forecast like you.  The questions selected are:

1. What are the three major economic diseases that could impact the economy and thus the real estate market?

2. The brain drain on Long Island.  We buy a house on Long Island, raise and educate our children including college.  When they finish and want to have a house of their own, they can’t.  The prices are astronomical.  As a result, they move off Long Island.  Thus our pool of talented workers is not replenished.  Instead, other areas of the country are benefiting.  What is the story here?

3. What will the impact of China be on the US economy and the World economy during 2007?

4. Was the War in Iraq the best move?

5. Should we re-institute the draft?

6. I have a fixed income property, net net net.  Meaning I get a net check every year for the next 20 years.  The rate of return at the time I bought it was 6%.  Because of actions of the FED over the last 1-1/2 years, the rate is now 8%.  If I tried to sell it (all other things equal), what would it be worth more or less than when I paid for it and why?

Given substantial changes in key aspects of the market, this forecast will contain substantially more detail that the "summary" forecast over the past years.  This is done so that the reader is re-acquainted with key facts, definitions in order to have a clear understanding.  Additionally, entire indices have been presented, for example, the Dow Jones Industrial Average so that the reader can get a complete historical perspective. This index, among others, is presented in both tabular and graphic format. It will also explain "why" certain things are happening in the market.

GDP Growth:   According to Wikipedia's definition Gross Domestic Product is as follows:

Please see rear of article for expanded and detailed information on the formulas. It also shows in great detail the limitations and the critique of GDP.

According to BEA, National Economic Accounts, 11/29/2006, the GDP is as follows:

Period                            % Change from prior period       

1st Quarter 2005                        3.4%

2nd Quarter 2005                        3.3%

3rd Quarter 2005                        4.2%

4th Quarter 2005                        1.8%

1st Quarter 2006                        5.6%

2nd Quarter 2006                        2.6%

3rd Quarter 2006                        2.2%  

For the Year 2007,  it is forecast that the GDP growth will be in the 2-1/2% -3-1/2%. But  depending upon actions of the FED and stubbornly high energy prices this could vary.

 

Current Economic Conditions:  Following are the results of a Gallup poll regarding the perceptions of economic conditions in the United Stated.

Gallup Poll. Nov. 9-12, 2006. N=1,004 adults nationwide. MoE ± 3.
							.
"How would you rate economic conditions in this country today -- as excellent, good, only fair, or poor?"
							.
		Excellent	Good	Only Fair	Poor	Unsure
		%	%	%	%	%
	11/9-12/06	8	32	43	16	-
	10/20-22/06	9	35	33	22	1
	10/9-12/06	7	34	42	16	1
	9/7-10/06	5	29	44	22	1
	8/7-10/06	5	31	43	21	-
	7/6-9/06	5	33	42	19	1
	6/1-4/06	6	30	46	18	-
	5/8-11/06	4	25	45	25	-
	4/10-13/06	5	33	40	23	-
	3/13-16/06	4	30	45	20	1
	2/6-9/06	4	34	42	20	-
	1/20-22/06	5	34	41	18	1
	1/9-12/06	8	35	37	18	1
	12/19-22/05	6	33	39	22	-
	12/5-8/05	6	31	43	20	-
	11/17-20/05	5	32	39	24	-
	11/7-10/05	3	29	47	21	-
	10/24-26/05	3	26	45	25	1
	10/13-16/05	3	25	46	26	-
	9/26-28/05	3	28	41	27	1
	9/12-15/05	3	28	44	25	-
	8/22-25/05	4	30	42	24	-
	8/8-11/05	4	32	46	18	-
	7/25-28/05	4	28	44	23	1
	7/7-10/05	3	33	45	18	1
	6/16-19/05	4	33	40	23	-
	6/6-8/05	4	31	45	20	-
	5/23-26/05	3	37	41	19	-
	5/2-5/05	1	30	44	25	-
	4/18-21/05	2	29	44	24	1
	4/4-7/05	3	29	49	18	1
	3/21-23/05	2	30	43	24	1
	3/7-10/05	3	32	48	16	1
	2/21-24/05	5	33	42	20	-
	2/7-10/05	3	37	44	16	-
	1/3-5/05	3	38	42	17	-
	12/5-8/04	2	35	43	19	1
	11/7-10/04	3	33	44	20	-
	10/11-14/04	2	32	44	22	-
	10/9-10/04	4	31	40	24	1
	9/13-15/04	3	36	39	22	-
	8/9-11/04	3	36	40	21	-
	7/30 - 8/1/04	6	32	39	23	1
	7/8-11/04	5	32	41	21	1
	6/3-6/04	3	32	44	21	-
	5/2-4/04	2	27	43	27	1
	4/5-8/04	3	31	44	22	-
	3/8-11/04	2	30	44	24	-
	2/9-12/04	2	31	46	21	-
	1/12-15/04	3	34	42	21	-
	1/2-5/04	3	40	41	16	-
	12/11-14/03	3	34	44	19	-
	11/3-5/03	2	28	49	21	-
	10/24-26/03	2	24	44	30	-
	10/6-8/03	2	20	50	27	1
	9/8-10/03	1	20	49	30	-
	8/4-6/03	1	24	52	23	-
	7/7-9/03	1	23	50	26	-
	6/12-15/03	1	25	49	25	-
	5/19-21/03	1	20	47	31	1
	5/5-7/03	1	21	50	28	-
	4/7-9/03	2	25	51	22	-
	3/29-30/03	1	25	51	23	-
	3/24-25/03	3	30	47	20	-
	3/3-5/03	1	21	46	32	-
	2/17-19/03	1	17	48	34	-
	2/3-6/03	2	20	53	25	-
	1/20-22/03	1	19	49	31	-
	1/13-16/03	2	20	50	28	-
	12/19-22/02	1	23	48	28	-
	12/5-8/02	2	23	51	24	-
	11/22-24/02	2	30	45	23	-
	10/31 - 11/3/02	2	26	45	26	1
	10/3-6/02	2	24	46	27	1
	9/23-26/02	2	25	47	25	1
	9/5-8/02	2	22	53	23	-
	8/19-21/02	1	23	47	28	1
	8/5-8/02	1	27	52	19	1
	7/29-31/02	2	27	48	22	1
	7/22-24/02	2	25	48	24	1
	7/9-11/02	2	26	51	20	1
	6/17-19/02	2	35	43	19	1
	6/3-6/02	3	33	49	14	1
	5/20-22/02	3	38	46	12	1
	5/6-9/02	2	33	51	14	-
	4/22-24/02	2	37	46	14	1
	4/8-11/02	2	36	51	11	-
	3/4-7/02	3	31	51	14	1
	2/4-6/02	2	26	55	16	1
	1/7-9/02	2	27	54	16	1
	12/6-9/01	2	29	53	16	-
	11/8-11/01	2	29	50	19	-
	10/11-14/01	2	36	48	13	1
	9/14-15/01	3	43	44	9	1
	9/7-10/01	2	30	49	19	-
	8/16-19/01	2	34	49	14	1
	7/19-22/01	3	38	47	11	1
	6/11-17/01	3	39	45	12	1
	5/10-14/01	3	37	45	15	-
	4/6-8/01	4	41	41	14	-
	3/5-7/01	3	43	43	10	0
	2/1-4/01	7	44	36	13	-
	1/10-14/01	11	56	27	6	-
	12/2-4/00	12	51	28	8	1

 

 Real Estate Taxes:  Real estate taxes on Long Island are the highest in the United States. In Nassau County, for example, the school taxes are about 65% to 70% of the tax dollar. In Nassau, there are 56 districts while in Suffolk there are 68. According to a study on "Budgets and Taxes" published in Newsday on May 1st, 2006 a complete summary of the 124 districts, the proposed budgets for 2006-2007 and the % change over the prior year was published.  While there were a small amount of districts with slightly lower or no change budgets, the predominance of the districts showed single and double digit growth.  The largest proposed increase was 33.42% in Suffolk and 15.01% in Nassau. It is forecast that the taxes will again rise in 2007 predominately caused by the school taxes.

 

Bond Interest Rates:         Historically, as of December 30^th, 2005 the yield for the 30 year bond was 4.53% while the yield for the 10 year bond was 4.38% and the yield for the 5 year was 4.35% and the two year bond was 4.40%.

Acccording to CNN Money.com  as of December 8th, 2006, the interest rates and yields were as follows:

Bonds

Dec 8 11:35am ET † Price Change Yield Yld Chng 2 yr 99 31/32 -4/32 4.63 +0.06 5 yr 100 1/32 -6/32 4.48 +0.04 10 yr 100 27/32 -9/32 4.51 +0.03 30 yr 98 1/32 -11/32 4.62 +0.02

 

   Is this the beginning of the inverted yield curve? There is good reason to believe so.  What will the Fed Chairman do?  It remains to be seen but this will be high on the priority list.

This is an inverted yield curve on the left.  Note that the yield is very high for the short term maturities and very low for the long term maturities.  It should be just the opposite.  A normal yield curve is on the right.

                               

Historically, an inverted yield curve has been viewed as an indicator of a pending economic recession. When short-term interest rates exceed long-term rates, market sentiment suggests that the long-term outlook is poor and that the yields offered by long-term fixed income will continue to fall. More recently, this viewpoint has been called into question as foreign purchases of securities issued by the U.S. Treasury have created a high and sustained level of demand for products backed by U.S. government debt. When investors are aggressively seeking debt instruments, the debtor can offer lower interest rates. When this occurs, many argue that it is the laws of supply and demand, rather than impending economic doom and gloom, that enable lenders to attract buyers without having to pay higher interest rates.  There is merit to this thinking but, if you continue the logical reasoning, could US debt continue to mound and still have falling interest rates? (To learn more, see Forces Behind Interest Rates and Trying To Predict Interest Rates.) 
 

Housing:                                

                                                In a New York Times article heading August 6th, 2006 reports that inventory is soaring, buyers taking their time and sellers lowering their sights. Inventory is up across the board.  More on this later. An article earlier on in the year by Newsday, 4/18/2006 headlines that the housing market pace is slowing.

                                                In New York City it is expected that the condominium market could fall by 3%-5% while the cooperative market could rise 10%-15%.  This is caused by the fact that the cooperative prices are extremely low when compared to the other housing prices and thus the demand has shifted to them.  Additionally, the outer boroughs of Manhattan are also being positively affected due to the continued increases of rents and housing prices in Manhattan. However, there is a glut of condominiums on the market, including the "to be builts" in the pipeline.  There are also substantial New Jersey projects, in excess of 10,000 units overlooking lower Manhattan with 6 minute train access time, being held in abeyance.  

                                                  In Nassau County the median price of houses is forecast to fall by 6%-8% for the year.   The median price of houses in Suffolk County is expected to fall 4%-6% for the year.  In Suffolk, the median price of houses is expected to stay between 0% and 2% for the year.

 As of November 22nd, 2006 the median prices of houses were as follows: Nassau- $480,000; Suffolk- $402,000; Queens-$490,000.

In a Newsday article dated November 11th, 2006, the median home prices in Nassau and Suffolk houses fell as follows: Nassau $500,000 in October 2005 to $472,300 in November 2006, Suffolk $400,000 October 2005 to $390,000 in November 2006, Queens $462,800 in October 2005 to $477,900 in November 2006. Additionally the number of  homes on the market increased as follows: Nassau 6,575 October 2005 to 9,769 November 2006, Suffolk 9,358 October 2005 to 13,923 November 2006, Queens 6,243 October 2006 to 10,047 November 2006.

Interesting facts:

In this market, setting the right first price is important.  If set correctly, the property will move the quickest.  Numerous agents are working with their sellers and even sharing the cost to bring in an appraiser to help properly set the price.

Glass condominiums were the top choice by architects and residents for residents in Manhattan.

According to a Prudential Douglas Elliman report written by Miller Samuel, new residential construction is almost entirely condominiums which have lead to a 60% increase in condo inventory.  Co-op inventory reported is up about 7%.  Their Manhattan 3rd Quarter 2006 reports two interesting statistics: The average sales prices is down 7% from the prior quarter $1,288,748 current quarter, $1,380,193 prior quarter.  The average sale price per square foot for the current quarter is $1,050 while the average sale price per square foot for the prior quarter is $1,083 down 3%. The number of days of the market (DOM) from the last date went from 150 days in the current quarter from 144 days in the prior quarter, up 4.2%.  The listing discount from last date on the market went from 3.5% to 4%.

Additionally the report addressed the cooperative market.  " Price indicators fell from prior quarter records but remained above prior year levels.  The average sale price of a Manhattan Co-op apartment fell 16.1% from the prior quarter to $1,296,452 but was up 13.8% over the prior year quarter  average sale price of $956,490.

The Miller Samuel report also addresses the mood of the buyers and seller and says ,,," the sense of urgency is missing, standoff between buyers and sellers remains."

In the luxury market, "prices saw greater gains from last year than the overall market. The average sale price was $4,509,833 down from the prior quarter near record average selling price of $5,013,147 but was 17.9% higher than the prior year quarter average sale price of $3,824,079. The average days on market increased 11 days to 161 days as compared to 150 days in the prior quarter. The average sales price of $1,973,569 are virtually unchanged from the prior quarter average of $ 1,974,623 but up 26.2% from the prior year quarter average sales price of  $1,563,388. The average number of days it took to sell a loft apartment was 145 days, 13 days longer than the prior quarter and 29 days longer than the same period a year ago."

In the loft market, " prices weakened from the prior quarter but above prior year quarter. All price indicators fell from the records set in the prior quarter but remain higher than the same period last year."

There are various sources reporting the "market weakness" could last 6 months to a year or so.  This is traditionally a slow time in housing going into the holidays.  The statistics in the 2nd quarter will be more meaningful.

The assessor in Nassau County is sharply expanding real estate taxes of owners of illegal multi family housing according to Newsday article dated October 4th, 2006. A front page article in Newsday earlier dated October 2nd, 2006 showed an old property tax bill on a sample house like this of $5,912 going to $33,765.  Other houses cited showed a 4 to 5 fold increase in real estate taxes.

According to a Newsday article dated October 20th, 2006, New York City will build affordable housing on the Queens site that was part of the Olympics bid.  It will be 5,000 units with the average rent being $1,200 to $2,500 for families in the income range of $60,000 to $150,000. The construction will begin in 2008. It is noted that this initiative will be the largest affordable housing project since Brooklyn's Starrett City opened in the 1970's.

The most common value enhancing improvements that pay off reported by the New York Times, November 5th, 2006 are: renovated lobby, playroom, gym, roof deck, roof replacement, boilers and burners, elevators, full time doormen.

The use of Feng Shui is growing more popular in real estate decorating decisions.  What is feng shui exactly.  It is phonetically pronounced as "fung schway".  It is a methodolgy of the alignment of living spaces to maximize "chi" or living energy.  It also maximized the flow and balance of natural energy.  It uses a special compass called a "lou pan" or an octagonal map called a " bagua".  Along with either one of these, depending upon the practicioner, numerology and astrology also come into play.  Real estate experts report that it makes the house more marketable, however no known studies have been known to be done along with appropriate peer review.

 

 

The latest home price figures as reported by the Multiple Listing Service of Long Island are as follows:

QUEENS

November 2005            $455,000

October 2006                $477,900

November 2006            $505,000

NASSAU

November 2005            $490,000

October 2006                $472,300

November 2006            $485,000

SUFFOLK

November 2005            $390,000

October 2006                $390,000

November 2006            $395,000

 

Below are the historical median sales prices of homes for Nassau, Suffolk and Queens Counties.

 

Year                Median           %change                    Number of                  % change from         

                        Sale                From                           Listings                       Previous Year           

Price               Previous Year

                                                             Nassau County

2005               $490,000       12.64                          28,507                        18.59

2004                  435,000       12.99                          24,038                        17.90

2003                  385,000         6.94                          20,388                        31.25

2002                  360,000       19.60                         15,534                        -4.02

2001                  301,000       20.40                         16,184                        12.83

2000                  250,000                                          14,344

                                   

                                                            Suffolk County

2005               $390,000         8.03                          38,535                        20.73

2004                  361,000       13.34                          31,918                        14.81

2003                  318,500       15.82                          27,800                        26.24

2002                  275,000       19.57                          22,021                          2.82

2001                  230,000       21.31                          21,418                           3.92

2000                  189,600                                           20,611           

                                                            Queens County

 

2005               $455,000       18.18                         27,109                        27.12

2004                  385,000       15.10                         21,325                        12.51

2003                  334,500       15.74                         18,954                        39.31

2002                  289,000       25.65                         13,606                          4.43

2001                  230,000       15.87                         13,029                        -4.01

2000                 198,500                                           13,573                       

 Source: Long Island Board of Realtors

 

As stated earlier, The housing market has shown signs of cooling off but by no means a burst of a bubble, at least, not as of this writing. According to Associated Press, 11/20/2006, the National Association of Realtors said sales of existing homes fell in 38 States and the prices of homes slid in 45 Metropolitan areas.  According to the Census Bureau, housing starts plunged nearly 15% to a seasonally adjusted annual rate of 1.49 million in October 2006 from a revised 1.74 million in September 2006.

For an historical perspective, new home construction slowed in October 2005 with an annualized construction rate of about 2.2 million homes which was a fall of 5.6 % the largest decline in almost six years.  The National Association has an index called the Housing Market Index, which is their way of looking at the statistics.  In October is fell about 6 points to 60 which is mid point for their index.  This “slowdown” is interpreted by many as simply a return to “normal” growth.

 The housing market is estimated to be just beginning to approach  the point where "normal" supply and demand relationships will prevail. This normal supply and demand balance is expected to occur late in 2008.  Normal supply and demand is defined as:

                    1. A small amount of marketing time or days on market (DOM) about 3-6 months for the mainstream house.

                    2. A 5% -10% difference (lower) between asking price and ultimate selling price. 

As the market gets there, it will go through a phenomenon.  Very little inventory ( which has been the case over the last year or two) proceeding to a seeming flood of inventory of houses for sale during the winter months, leading to a reasonable balance late in the 4th quarter of 2008 which will lead to the stimulus of the start of new construction.  This is the basic description of a "market cycle".

In this process there will be some market disintermediation at the upper to extreme upper-end of the housing spectrum. Given the juxtaposition to New York City ( the financial and cultural capital of the world) and the overall strong world economy, the housing market in general, as measured by the median sales price, will finish the year 2007 slightly behind than the beginning of the year with low single digit percentage declines  in Nassau ( -5% to -10%), Suffolk ( -6% to -11%) ,  and Queens ( -3% to -5%). The condominium market in New York City is forecast to decline ( -10% to -15%).

Some of my esteemed colleagues in the industry have published detailed housing reports for New York City and boroughs.  Many go through each neighborhood reciting current prices for both condominiums and cooperatives, historical prices and other information.  To access those reports, the web site contact information is listed in the rear of this forecast.   

Office Rents:             $41.75 to $53.50 ( not including the extreme upper end i.e penthouses etc.)  per s/f effective rent Class A Manhattan with higher rents probable in the new buildings with spikes for penthouse spaces,  $29.50 - $33.00 per s/f effective rent Class A on Long Island. But there has been developing shadow office space a/k/a sublease space.  It has been coming on the market in significant quantities over the last year. The market has been reasonably strong but office vacancies have been reported to increase in the last quarter of 2006.

                                     New office construction doesn't make economic sense unless rents are greater than $30.00 per square foot on Long Island and $50.00 plus in Manhattan. At the present time there are four  significant projects  underway and all report doing well on Long Island.  Most notably  the Times Square office section is doing very well.

 Overall office vacancy rates in both Nassau and Suffolk County are expected to increase slightly.  In Nassau is could rise to 8.0% while in Suffolk is could rise to 11.25%.  Office vacancy overall in Manhattan is forecast to be in the 7% to 8% range for the upper level space in the mid-town market.  The downtown market is forecast to be in the 9% range for the high end space.

         Of note, Manhattan office buildings have been selling for over $1,000 per square foot.  Just recently reported by Newsday, 11/28/2006, The Towers, a 150,000 square foot building at 111 Great Neck Road sold last months to Philips International for $52.5 Million or $350 per square foot. It also reported the following: EAB Plaza now Reckson Plaza sold just under $250 per square foot last year and the Computer Associates headquarters sold for $263 per square foot.

From an historical perspective the office markets in both New York City and Long Island are about at the same point in the economic cycle.  There is little  speculative building.  In New York City there was a lot of space being taken by start up companies financed by venture capitalists.  Since venture capital money is typically short term  or about 2 years, what happens is these companies don't perform well and the venture capital money is called. Should the international business influx continue into New York City, this also will continue the economic picture  positively.

Since the first beams of the World Trade Center have just been installed ( 12/19/2006 amid the speeches and ceremonies)  the statistics of the World Trade Center loss will be summarized.  Added to that will be the World's Tallest Buildings so that a comparison between the New World Trade Center, a building you have in mind and the world's tallest buildings can be examined and compared.

 

COMPELLING ECONOMIC IMPLICATIONS

With the World Trade Center and related buildings being out of action since 9/11/2001 a look at the compelling economic implications is given for economic perspective. Assuming a office market rent of $40 per square foot, there is a total loss of rent of $536,801,840 ( does not include the damaged buildings)  not to mention the multiplier effect of employment.  Assume one person for every 150 square feet and an average salary of $50,000 the economic amount lost to this area is $4,473,348,667.

                                                                    World's Tallest Buildings

According to AboutArchitecture.com  following is a list of the world's tallest buildings including the World Trade Center.  Building listed in shaded boxes are proposed.

 

Industrial Rents: $4.75 - $6.05 Net in Brooklyn & Queens

$5.60 - $6.80 Net on Long Island

$9.90 - $11.25 Net on Long Island for new flex space

 

Retail Rents:       $60.00-$65.00 triple net + in the major malls on Long Island

$25.00 - $35.00 prime power centers on Long Island

$600.00 -$625.00 + in Manhattan in the prime retail areas i.e. 5^th and Madison Avenues, 57^th Street. Areas such as Tribecca, SoHo, the Village and Union Square will show double digit rates of growth. Chelsea should approach double digit growth for the quality locations. The downtown area will show modest gains but will be poised to show double digit gains as the World Trade Center and related buildings become completed and online. This is estimated to be three years away.

All other areas a 3%-4% increases.

Interesting fact:  Regarding "Black Friday", the day after Thanksgiving, traditionally the first day of shopping for the Christmas season, the following was reported by Newsday: 137 Million shoppers expected across the US, 47.1% of consumers will shop on line ( up from 36% three years ago ) and $457.4  Billion in sales ( up from 5% from last year)

Capitalization Rates:

Industrial                       9.750% - 12.00%

Office                           7.75% - 10.5

Retail                           7.50% - 10.75%

Hotel                            8.75% - 10.75%

Assisted Living          9.00%  - 11.00%

Multi-Family               7.25% - 10.00%

 

Property Appreciation Rates:

 

Retail                            1%-1-1/2%

Office                           1%-2%

Industrial                      2% -4%

Multi-family                  2%-3%

Hotel                            2%-4%

Assisted Living          1% - 2%

 

Stock Market:     As of December 8th, 2006 according to CnnMoney.com the market statistics were as follows:

Dow Jones Industrial Average
12,313.90 +35.49 / +0.29%   Dec 8 11:44am ET † Open: 12,271.28 High (day): 12,332.88 Low (day): 12,258.54 YTD%Change: 14.90% Volume: 88,062,793.00 Prev. Close: 12,278.41 52-Week Range (Low - High): 10,661.15 - 12,361.00

Put in perspective at that time, the rest of the market indices were as follows:

Dec 8 11:45am ET †	Change	%Change	Level
	Dow	+35.73	+0.29%	12,314.14
	NASDAQ	+17.34	+0.71%	2,445.03
	S&P	+4.59	+0.33%	1,411.88
	DJ Wilshire 5000	+46.58	+0.33%	14,246.57
	Russell 2000	+3.41	+0.43%	795.70
	Philadelphia Semiconductor	-1.70	-0.35%	478.86
	Dow Transports	-13.74	-0.29%	4,740.93
	Dow Utilities	-1.18	-0.26%	455.95
	NYSE Composite	+21.22	+0.23%	9,063.20
	AMEX Composite	+4.97	+0.24%	2,094.32
	Morningstar Index	+11.41	+0.33%	3,427.85

CLOSE OF YEAR MARKET STATISTICS: The Dow Jones Industrial Average ended the year 2006 at 12,463.15 up 16% which was the best performance since 2000.

 

The market will probably have volatile but upward growth starting in the 1^st Quarter.  The market could hit a low of 11,500 in the Dow Jones Industrial Average but it is forecast to hit  13,150 by the end of the year . Due to pronounced demographic shifts, the market could reach 20,000 by 2009. Ironically the Dow started 2003 at 10,450. As of the December 30^th, it was 10,783.  The low for the year 2005 was 10,000.46 and the high was 10,984.46. The NASDAQ  as of December 30^th,  2005 was 2,205.96.  The S&P  was up 14% for the year.  It is forecast that the S&P will increase 8%-10% for 2007.  The Nasdaq was up 9.5% for the year.  It is forecast that the Nasdaq will increase 5% for 2007.  The Russell was up 17% for the year.  It is forecast that the Russell will rise 12%-15% for the year.

Historical Snapshots of Dow Jones Industrial Averages

                                                   

                                          Black Monday (1987)     

 

Complete History of the Down Jones Industrial Average through December 4th, 2006

The NASDAQ and other parts of the market as of December 8th, 2006 are:

		NASDAQ 2437.36 9.67   0.40%   DJIA 12307.49 29.08   0.24%   S&P 500 1409.84 2.55   0.18%   NASDAQ-100 1786.21 8.75   0.49%   NASDAQ-100 PMI 1773.75 -3.71   0.21%   NASDAQ-100 AHI 1786.11 -0.10   0.01%   Russell 1000 766.95 1.29   0.17%   Russell 2000 792.56 0.27   0.03%   FTSE All-World ex-US* 235.51 -0.36   0.15%   FTSE RAFI 1000* 5851.76 9.88   0.17%

 

 

HOW TO COMPUTE THE DOW JONES INDUSTRIAL AVERAGE

 

 

 Entertainment

Movies on demand will continue to grow substantially over the next decade.  It will cut into the “movie theatre” business.  This will have a negative impact on the movie theatre business over the next decade. The movie industry by in large had an excellent year according to box office revenues.

 Energy Policy

Historical perspective: For a number of years and even now the United States energy prices were substantially lower than the rest of the industrialized world.  For that reason, many businesses and industries sprouted up based upon a "false sense of energy prices". 

As of July 12th, 2006, gasoline prices reported were

        Yesterday: $3.25

        Day Before: $3.25

Week Ago: $2.43

Record High: 9/11/2005: $3.34

FYI - According to Associates for International Research, Inc. ( www.air-inc.com), Reuter: International Energy, when gas prices were $3.20 in the United States here were the prices from key cities and countries worldwide:

1. Canada                    $3.42

2. Mexico                      $2.28

3. Britain                        $6.70

4. France                       $7.22

5. Caracas                    $0.12

6. Oslo                            $6.90

7. Germany                    $6.50

8. Italy                             $6.25

9. Israel                           $5.28

10. Egypt                          $0.65

11. Kenya                         $4.37

12. Johannesburg           $3.39

13. Kuwait                        $0.78

14. Saudi Arabia             $0.61

15. New Delhi                  $3.71

16. Beijing                        $2.05

17. Russia                        $2.50

18. Japan                         $4.50

19. Shanghai                    $1.94

20. Sydney                        $3.42

Historical gas spikes - a look at the past- in inflation adjusted prices

1. 1973- $ 1.90 - Arab Oil Embargo - President Nixon-Ford

2. 1979 - $3.25 - Shah of Iran Crisis - President Carter

3. 1986 - $1.75- Opec Oil Price War - President Regan

4. 1990 - $2.00 - Iraq invasion of Kuwait - President Bush # 1

5. 2001 - $1.25 - 9/11 attack

 In every one of the last 10 years of real estate economic forecasts, it has been emphatically stated that the US should devise and implement a policy to get the economy completely off of fossil fuel ( gasoline and natural gas ) within a 10 year time frame. 

 Fossil fuel is a finite resource, meaning it is going to run out at some point in time based upon how much is actually in the ground available to be pumped out and the rate at which it is consumed. 

 It is again recommended that hydrogen become the replacement for fossil fuel and a policy to do that should be implemented immediately with joint cooperation between government and the best minds in business, science and industry.

 Alternative sources such as active and passive energy for new housing construction, wind and certain hydroelectric possibilities should also be factored into the equation.  In 10 years, it will make an enormous difference if the United States did enact a wide sweeping new energy policy incorporating hydrogen power as its main stay.  It will also make an enormous difference if the United States doesn’t implement a new and wide sweeping energy policy.  If the US does implement such a plan it will have substantial and far reaching positive economic and other benefits.  Having a plan can produce benefits in two ways: 1. Businesses plan their policies, new product development around their perceptions of current and forecast energy costs. This promotes greater efficiencies. 2. Having a cohesive energy plan will promote energy savings, conserve resources and promote new energy producing initiatives . If not, it will have detrimental effects. 

 Fossil fuel is going to run out.  The only question is when. The question is what will the predominant energy source of US be when this happens.  If the US has zero dependency on it, that would be ideal. Any type of dependency would present a problem.

Energy - Significant points

A new wave theory of producing energy has been proffered by a few sources, notably Oregon State University ( Newsday 8/27/2005 ).  The process utilized a series of buoys which harness the motion of the ocean's waves to produce electricity which is then delivered via an electric cable.

ENVIRONMENT

Governor Eliot Spitzer of New York will take the oath of office in January.  In Newsday's "Albany Agenda", they report key projects and issues that he and the legislature will have to work out together in order to move forward.  They are : Greenhouse gases, DEC staffing, Brownsfields - following up on the State's 2003 landmark law to get contaminated sites cleaned up, Environmental Protection Funds, Open space and Oceans policy. 

All of these have a profound economic and environmental quality of life effects.  The items listed above don't include additional protection for wetlands. While the Governor-elect clearly has the will, the big question is " will he find the way?"

According to Newsday, 12/13/2006 New York City Mayor Michael Bloomberg has painted a portrait of how New York City will look in 2030, the challenges that lie ahead and a plan to address them.  He reduced the city's challenges to the least common denominators - " By 2030, nearly 1 million more people will live in the city, the infrastructure will be about a century old and the water supply and the air and land will be pushed to extremes." In the montage behind the mayor's speaking podium, some of the key points read, " Improve travel, ensure all New Yorkers have parks, develop water network back up systems, achieve state of good repair on our transportation, upgrade our energy infrastructure."

 

Global Competitiveness 

The United States ( US ) has dropped from #1 to #6 according to the Global Competitiveness Report released September 26, 2006.  In 2005, US was viewed as the most competitive country in the world.  But according to the World Economic Forum, US has fallen to #6 behind such countries such as Singapore, Denmark, Sweden and Finland.  Additionally, US fell to # 5 from # 1 in a Global Technology Readiness Assessment.

There are nine pillars ( used by World Economic Forum ) critical to driving productivity and competitiveness according to the report.

•     Institutions

•     Infrastructure

•     Macroeconomic

•     Health and Primary Education

•     Higher Education and Training

•     Market Efficiency

•     Technology Readiness

•     Business Sophistication

•     Innovation

Immediately after World War II, the US has substantial advantages over most of the world:

• It was undamaged physically by the war

• Most all of the creative structure and infrastructure was on US soil and could be immediately deployed into civilian output

• It was the largest economy in the world- a world superpower

• It had an endless supply of capital

• There was no effective competition

• Ease of developing and bring cutting edge medical and technology products to market 

• Strong trade balance

The report indicates that while the business competitive component of this sector is stellar, the areas losing ground are public ( military efforts )and private indebtedness, lack of personal savings, declining business transparency, declining educational performance and growing trade imbalance.      

The report goes on to report that US decline in certain major industries such as Ford, GM showing major declines and losing their foothold to Toyota and Honda.

The report also reports that Wall Street, the IPO capital, is losing ground to Shanghai as the launch point for new IPO's.

Additionally the report highlights that the building trades, developers, owners, managers have become static with respect to global competitiveness, technology and innovation.  Although real estate is a "local" market attributes such as the type of real estate product designes, built, operated is continually being subject to international comparison.

Terms such as NextGen buildings, paperless real estate operations are considered "too futuristic" here in the US but have become mainstream around the world.

The entire report can be found at this web address:  http://www.weforum.org/en/initiatives/gcp/Global%20Competitiveness%20Report/index.htm

The World Economic Forum's home page can be found at this address: http://www.weforum.org/en/index.htm

 

 

Transportation - Noteworthy points

On Long Island, we basically have two choices, road and rail.  For the rail component, there is nothing really new except the idea of having a third line added to the main line as well as the LIRR being extended to the east side. This is a map of the location.

Following are key excerpts and references from the website of  the Metropolitan Transportation Authority and the Long Island Railroad.

 

     EAST SIDE ACCESS PROJECT

According to the Long Island Rail Road (LIRR) web site, the project ( Metropolitan Transportation Authority MTA known as “ East Side Access”, started construction in  1998.  It  would connect the Port Washington  branch and the Main lines of the LIRR to the station via Sunnyside Yard in Queens and cross the East River on the lower level of the 63rd Street Tunnel, which is currently served on the upper level by the F train of the New York City Subway.

The project cost has jumped in price from US$3 billion in 1998 to US$6.3 billion in 2006, with the biggest and most expensive work yet to be done—tunneling through Manhattan 90 feet (30 m) below the current Metro-North Railroad tracks under Park Avenue, 175 feet (50 m) below the street surface.

There would be no connections between the two sets of tracks. The LIRR concourse would be under Vanderbilt Avenue to the west of Grand Central Terminal. Current plans are to bring 24 trains per hour at peak time to the station (Penn Station currently can handle a maximum of 42 trains an hour at peak).

Information on the LIRR web site goes on to say that the project has so far not run into substantial opposition although some Midtown East businesses have started raising concerns. In addition, Cardinal Edward Egan has expressed concerns about the impact of a proposed air vent (disguised as a building) at 50th Street and Madison Avenue, very near to St. Patrick's Cathedral.

The project was justified by a 1998 study that showed that approximately 70% of all jobs in Midtown Manhattan are within walking distance of Grand Central, while only 36% of jobs are within walking distance of Penn Station (there is some overlap, and some jobs are not within walking distance of either facility).

If the project is completed, Metro-North is considering bringing trains into Penn Station via the West Side Line along Manhattan's west side, which currently handles Amtrak and freight service.  The current MTA Chairman has indicated that his ultimate goals would be for the beginning of the east side assess and the merger of the LIRR and Metro-North.  His apparent rational is that LIRR and Metro-North have many similarities and that "There must be some new efficiencies we can find."  Metro-North enjoys two apparent advantages: 1. it has exclusive access to Grand Central Terminal while the LIRR faces bottlenecks going into a crammed Penn Station with New Jersey Transit and Amtrak.  2. Metro-North has three main lines are unlike LIRR in that LIRR's main lines, except for 1, have to filter through Jamaica.

In addition to this plan, a proposal is on the table to build a new tunnel in the East River to bring LIRR trains downtown to the new World Trade Center Transportation Hub. This plan is on the drawing board and construction has not started.

 

On the road side, nothing of significance except seemingly endless repairs.    There is an idea being developed.  That idea is that on the busiest highways, paying a price to avoid traffic. In other words, tolls.

 

The Air Train - The train to the plane,  an Air Train from LIRR's Jamaica Station to Kennedy Airport- Source: LIRR web site

                    Routes and Stations