Moody’s: CRE prices resume descent

September 21, 2009

Last month commercial real estate prices took a bit of a breather, falling just 1% after seeing prices fall 9% from March to April and an additional 8% from April to May. Those are fairly stunning rates of decline. In July, the descent picked up steam again, falling 5.1% compared to June.

Commercial real estate prices…renewed steep declines and low transaction volume in July… The [Moody's/REAL Commercial Property Price Index] was down 5.1% from June after having declined by only 1% the prior month.  It is now 30.8% below what it was a year earlier and 38.7% below the peak measured in October of 2007.

Overall market transaction volume continued the pattern of calendar 2009.  “The market has averaged about 375 sales per month for the seven months in 2009,” said Moody”s Managing Director Nick Levidy. “Over the same time period in 2008, sales were averaging nearly 1,100 a month.”

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So much for improving second derivatives, at least on the CRE side.

For residential, you can see the market appears to have stabilized this summer. But that’s thanks to government support. Eventually support will go away and residential prices will likely turn back down.

As always, I want to include a caveat with the chart above. Comparing these two indices is difficult due to the number of data points available. The Case-Shiller index draws on millions of transactions over time. The Moody’s/REAL index has far fewer, just 300 this month.

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So it’s tough to say anything definitive about commercial real estate prices using this index.

But the lack of transactions suggests sellers don’t want to hit the bid in the market. Though Felix makes a good point–he’s sitting next to me–that many sellers probably couldn’t hit bids if they wanted to. For particularly overlevered properties, selling at today’s prices implies wiping out equity and forcing a big haircut onto debtholders. It’s not easy getting all interested parties to agree on a short sale…

Comments

Very intereting article. What is going to happen when te lenders release all the foreclosure that they currently have? What will the numbers look like then?

 

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