Monday, September 21, 2009

Moody’s: CRE Prices Off 39 Percent from Peak, Off 5% in July

by Bill McBride on 9/21/2009 04:16:00 PM

From Bloomberg: Moody’s Property Index Resumes ‘Steep’ Fall in July (ht James)

The Moody’s/REAL Commercial Property Price Indices fell 5.1 percent in July from the month before, Moody’s said today in a statement. The index is down almost 39 percent from its October 2007 peak.
...
Commercial property sales this year may fall to an 18-year low. This latest set of numbers suggests no letup in that trend, said Neal Elkin, president of Real Estate Analytics LLC, a New York firm that partners with Moody’s in producing the report.

“We are still vulnerable to moves on the downside,” Elkin said in a telephone interview. “As time passes, the distress and the stress among those who need to sell is growing.”
...
Florida apartment values tumbled 40 percent in a year, the report said.

“That’s eye-popping,” Elkin said. The decline is being caused in part by “a ripple effect” from the overbuilding of condominiums in those markets, many of which are now competing as rentals, he said.
Here is a comparison of the Moodys/REAL Commercial Property Price Index (CPPI) and the Case-Shiller composite 20 index.

Notes: Beware of the "Real" in the title - this index is not inflation adjusted - that is the name of the company (an unfortunate choice for a price index). Moody's CRE price index is a repeat sales index like Case-Shiller.

CRE and Residential Price indexes Click on graph for larger image in new window.

CRE prices only go back to December 2000.

The Case-Shiller Composite 20 residential index is in blue (with Dec 2000 set to 1.0 to line up the indexes).

This shows residential leading CRE (although we usually talk about residential investment leading CRE investment, but in this case also for prices), and this also shows that prices tend to fall faster for CRE than for residential.

Also note the comment from Neal Elkin about condos being converted to rental units. There has been a surge in rental units, and rents are falling in most areas - and this is also impacting Apartment building prices.

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