CRE cliff-diving continues

Nov 20, 2009 19:37 UTC

Moody’s/REAL released September data for their commercial real estate price index. Month over month drops have been fast and furious this year.


(Click chart to enlarge in new window)

  • -8.6% Mar to Apr
  • -7.6% May
  • -1.0% June
  • -5.1% July
  • -3.0% Aug
  • -3.9% Sept

Since the peak in October 2007, CRE prices are down 43%.

Residential real estate has been coming back lately, according to the Case-Shiller index. The composite 20 index rose 1.2% in August, after rising 1.7% the month before and 1.4% the month before that.  Again these are month over month changes. The index is still down 11% compared to last year.

There’s a lot of skepticism that this indicates we’ve reached the bottom. Real estate agents will no doubt tell you they have. I doubt many are aware that the GSEs now guarantee a super-majority of all mortgages and that the Fed is printing money to put most of those on its balance sheet. Also ask what they think will happen when the homebuyer tax credit finally goes away next year. Without government support, the housing market wold be a ways down from where we are right now.

As always, keep in mind that the chart above comes with a BIG caveat. The Case-Shiller index is more robust than the Moody’s CRE index. The former is based on millions of transactions. In September, there were a total of 363 commercial transactions, valued at $5.1 billion. Of those, 76 totaling $1.1 billion were repeat sales used in calculating the index.

(Click chart to enlarge in new window)


The market for CRE is as cold as ever. Will the Superdome be included in November’s data?


CRE, although only 1/4 the size of residential, blows a stiff deflationary breeze at the present.

Efforts to reflate residential real estate are fed by populism that likely does not extend to CRE.

Posted by Dan | Report as abusive

Moody’s: CRE prices resume descent

Sep 21, 2009 16:42 UTC

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.”


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.


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…


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?

Chart of the day: CMBS delinquencies

Sep 14, 2009 14:56 UTC

The delinquency rate for commercial mortgage-backed securities continues to rise.

(Click chart to enlarge in new window)


From Moody’s (no link):

Moody’s … latest CMBS Delinquency Tracker (DQT) records the aggregate rate of delinquencies among US CMBS conduit and fusion loans at 3.23%, based on data through the end of August…

“Although the rate of increase has tapered off in the past two months, it is much too early to count on this trend continuing,” says Moody’s Managing Director Nick Levidy.  “In fact, we expect that the monthly change in the delinquency rate will resume an upward trend over the next several months as troubles compound in the commercial real estate sector.”

Of the five core property types tracked by Moody’s DQT, the multifamily sector continues to have the highest delinquency rate.   In August delinquencies for this sector were at 5.51%, an increase of 51 basis points since July.

After two months of posting leaps in delinquencies of over 100 basis points, the hotel sector saw its delinquency rate decline in August by 51 basis points to 4.18%.

Retail properties had a 22 basis point increase in delinquencies during August, raising the rate to 3.41%.  Half of the ten largest currently delinquent loans are backed by retail properties.

Office and industrial both had a 21 basis point increase in delinquencies in August.  The office delinquency rate is now 2.01%, the lowest among the five sectors. Office properties, however, generally have long-term leases so the sector”s delinquencies often lag those of the other property types.

Industrial properties are the second best performing property type, with a delinquency rate of 2.46%.

By state, Nevada and Michigan continue to post the highest delinquency rates, with Nevada at 8.69% and Michigan at 8.55%.  The rates for both states rose nearly a 100 basis points during August, Nevada having been at 7.71% in July and Michigan at 7.65%.



The multifamily sector problem must be quite worrying to Joe the Plumber and Family and Community Banks.

The economy is still in the woods with the various lags and compound multipliers that will only show up in the next 5 years. Politicians have to calm voters, that is their job. Economists have to calm down politicians, that is their job. Mathematicians have to calm down economists, that is their job. Actuaries have to calm down Mathematicians, that is their job. Portfolio Managers and Traders manipulate and apply all this knowledge, that is their job.

Yesterday there were results of two polls, one from economists, one vox populi. I wonder how these correlate ?

Posted by Casper | Report as abusive