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Wednesday, January 20, 2010

Moody's: CRE Prices Increase 1.0% in November, Expect further declines

by Calculated Risk on 1/20/2010 11:19:00 AM

Via the WSJ, from Moody's:

  • After 13 consecutive months of declining property values, the Moody’s/REAL Commercial Property Price Index (CPPI) measured a 1.0% increase in prices in November. Prices began falling over two years ago and significant declines were seen throughout 2009, with several months experiencing 5%+ value drops. The 1.0% growth in prices seen in November is a small bright spot for the commercial real estate sector, which has seen values fall over 43% from the peak.
  • We expect commercial real estate prices to decline further in the months ahead. Prices for properties with short term lease structures, such as multifamily, could show signs of a sustainable recovery later this year, while other property types will likely need longer to turn the corner.
  • 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. Moody's CRE price index is a repeat sales index like Case-Shiller - but there are far fewer commercial sales - and that can impact prices.

    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).

    CRE prices peaked in late 2007 and have fallen 43% from the peak and are now back to September 2002 levels.

    Notices that CRE trails residential (this is usually true for activity, but also for prices here), and that CRE prices fall quicker than residential (CRE prices tend to be less sticky than residential).