Economy Watch: CRE Values Spike in September

Moody's Investors Services said on Monday that U.S. commercial property prices spiked upward 4.3 percent in September, up from an eight-year low in August.

November 23, 2010
By Dees Stribling, Contributing Editor

Courtesy Flickr Creative Commons user Wonderlane

Moody’s Investors Services said on Monday that U.S. commercial property prices spiked upward 4.3 percent in September, up from an eight-year low in August. The gain on the Moody’s/REAL Commercial Property Price Index is the largest since Moody’s began tracking CRE prices about 10 years ago, and prices now stand just a hair (0.3 percent) more than during September 2009.

The increase isn’t necessarily a sign of any underlying health in the commercial real estate market, however. “The relatively large swings seen in the index recently are due in part to the uncertain macroeconomic environment and the effects of a thin market with low transaction volumes,” noted Nick Levidy, a Moody’s managing director, in the statement.

But not all CRE has seen similar rises in valuation. Apartments led the way, with prices up nearly 16 percent during 3Q10 compared with the same quarter last year, and office property values increased 4.4 percent, led by class A buildings with tenants in place. Industrial property values, by contrast were down 1.2 percent year-over-year, and retail valuations took it on the chin, dropping 12 percent since this time last year.

Mortgage Delinquencies Ease a Bit

Mortgage delinquencies on U.S. residential properties dropped during 3Q10 to 6.44 percent, down from 6.67 percent, according the data released by TransUnion on Monday. The percentage decline was the largest since the dimly-remembered pre-recession 4Q06, but even so the third quarter 2010 rate is still higher than the third quarter 2009 rate of 6.25 percent.

Nevada–where else?–still has the dubious distinction of highest mortgage delinquency rate, 15.12 percent. Florida was second on the delinquency list at 14.63 percent. Ten states showed increases in delinquencies since 2Q10, with Maine topping the list with an increase of 4.71 percent. North Dakota, where the unemployment rate is low, experienced the lowest delinquency rate in the nation, 1.52 percent.

“TransUnion sees no reversal in the current three quarter trend,” said F.J. Guarrera, vice president in TransUnion’s financial services business unit, in a statement. “Note that this forecast is based on various economic assumptions, including that both real estate values and the employment picture improve gradually. We are noting small improvement in both areas–monthly job growth numbers and doubling of areas in the U.S. experiencing rising home values.”

Shadow Housing Market Balloons

Mortgage data specialist CoreLogic said on Monday that the shadow inventory of houses on the U.S. market is now 2.1 million units, up 10 percent from this time last year. According to the company’s definition of shadow inventory, that includes properties that are at least 90 days delinquent or are in foreclosure, but not listed for sale by the repossessor.

Combine the shadow inventory with the regular for-sale inventory, the company said, and that adds up to 23 months worth of supply. Some of the shadow total–and perhaps an increasing number–are houses in limbo due to the foreclosure fiasco. Problems with foreclosure documentation tend to stretch out the time between the 90 days delinquent milestone and putting the house on the market.

Wall Street had a mixed day on Monday, with the Dow Jones Industrial Average slipping 24.97 points, or 0.22 percent, and the S&P 500 off 0.16 percent. The Nasdaq gained 0.55 percent.