Economic Update – Commercial, Residential Prices Deflate Like Stuck Balloon

Commercial property prices sank by 5.8 percent in 1Q09, according to the MIT Center for Real Estate’s Transactions-Based Index, which saw its fourth quarterly drop in a row during the quarter. The index is now 21 percent lower than in 1Q08, and fully 26 percent below its peak in mid-2007. According to MIT, that drop is similar to the index’s 27 percent drop during the commercial property slump of the early 1990s. “It’s possible that the first quarter of 2009 was the nadir in market sentiment,” said David Geltner, director of research at the MIT Center for Real Estate, in a statement. “Sales volume is down almost to nothing, as reflected in our demand index. The prices buyers are willing to pay fell a record 12 percent in the first quarter and is now 28 percent below a year ago and 39 percent below its mid-2007 peak.” On the residential side of the real estate aisle, the National Association of Realtors confirmed on Tuesday an unsurprising downward slide of U.S. home prices in 1Q09, noting the median home price was down 14 percent compared with the same quarter last year. Currently the median is $169,000, with prices down almost everywhere, but especially some markets in California and Florida, where foreclosures and short sales have put enormous downward pressure on prices. Though not up nationally, the volume of home sales was up sharply in some states in 1Q09, said the NAR–such as Nevada, which saw more than a doubling of sales compared with 1Q08, up 117 percent. Sales in California spiked 81 percent over the same period, while Arizona saw a 50 percent increase. People are buying, lured by lower prices, lower interest rates, a temporary $8,000 tax break for first-timers, and an enormous stock of bank-owned houses, which tend to be seriously discounted. According to the Federal Deposit Insurance Corp., U.S. banks had $26.6 billion worth of repossessed properties on their books at the end of 2008. Former U.S. Federal Reserve Chairman Alan Greenspan, speaking at a NAR conference on Tuesday, said that he’s seeing “seeds of bottoming” in the housing market. At least he didn’t say anything about “green shoots.” But it could have been that he’s striving to shore up his image in the history books, further asserting that the housing bubble wasn’t the Fed’s (that is, his) fault. “There is a recalibration of financial history that I find very puzzling,” the Wall Street Journal reported him as saying at the conference. Wall Street spent most of Tuesday in negative territory, but the Dow Jones Industrial Average managed to end positive, with a 50.35-point, or 0.6 percent, gain. The S&P 500 dropped a slight 0.1 percent, and the Nasdaq was down a more substantial 0.88 percent.