According to the CoStar indices of commercial real estate prices, the sector has been quite strong this past year: prices are up between 7 and 10% for the 12 months ending October. As the chart above suggests, there is still a lot of interesting upside potential in commercial real estate.
I always found the post-2008 dump in commercial real estate values to be thought-provoking. It almost exactly mirrors the residential dump---yet buyers and financiers of commercial real estate are often and usually sophisticated institutions.
ReplyDeleteThese are not wahoo-homebuyers getting liar loans. Yet the results are nearly the same.
This leads me to conclude that the reason for the property dump was not Fannie and Freddie and CRA or whatnot, all of which should be dispensed with.
The big driver of the dump was a sudden plunge in microeconomic aggregate demand, likely instigated by Fed tightening in 2008, reacting to inflation ghosts. Remember the gold and oil scare was going on, also the corn ethanol run-up.
The Fed reacted to these false signals.
I am happy to see the commercial real estate recovery, and hope it has a lot of legs.
Just for the sake of argument and for Benjamin:
ReplyDeleteECRI Becoming Japan (Part 2)
Earlier this year we pointed out that, with the U.S. and other major Western economies experiencing slower growth in the last five years than Japan in its lost decades, long-term trend growth had already downshifted around the world, resulting in weaker recoveries and more frequent recessions than most had expected when the 21st century began. Following Japan’s lost-decades example, the policy response has been more and more quantitative easing, which has been unable to break this pattern.
Rather, in the U.S. and the Eurozone, the central banks are increasingly failing to meet critical inflation target mandates. In reality, these major economies are already like Japan in its lost decades, recalling the economic truism that recession kills inflation.
The European Central Bank cut rates last month following a "surprise" drop in Harmonized CPI inflation to 0.7% in October. But a head-to-head comparison on the same metric (see chart) shows that U.S. inflation was actually lower, having dropped to just 0.6% in October.
What many still fail to acknowledge is that the major Western economies – including the U.S. – are effectively becoming Japan: the comfortable consensus is that, in contrast to the Eurozone, inflation in the U.S. should be (to quote the Fed) “moving back toward its longer-run objective” of 2%, and thus not a concern.
But should it be a concern, with yoy growth in the Personal Consumption Expenditures deflator falling to a four-year low of 0.7%. Ominously, ECRI’s Future Inflation Gauges remain in cyclical downturns in both the U.S. and the Eurozone. In the coming months, inflation is likely to fall further below their official targets in both economies.
http://www.businesscycle.com/ecri-news-events/news-details/economic-cycle-research-becoming-japan-inflation-us-eurozone-japan
http://www.businesscycle.com/ecri-news-events/news-details/economic-cycle-research-becoming-japan-inflation-us-eurozone-japan-1
LIPPER US FUND FLOWS
ReplyDeleteWeekly 12/11/2013
Equity Fund Outflows -$234 Mil;
Taxable Bond Fund Outflows -$689 Mil
xETFs - Equity Fund Outflows -$5 Bil;
Taxable Bond Fund Outflows -$918 Mil
Weekly 12/04/2013
Equity Fund Inflows $1.5 Bil;
Taxable Bond Fund Outflows -$258 Mil
xETFs - Equity Fund Inflows $891 Mil;
Taxable Bond Fund Inflows $57 Mil
Schaeffer's Investors Intelligence
ReplyDeleteDate....Bullish....Bearish
12/11_____58.2_______14.3
12/04_____57.1_______14.3
11/27_____55.7_______14.4
11/20_____53.6_______15.5
The Bull / Bear Ration reached 4.07 December 11th. According to CNBC, this preocuppied Tweeter feeds on Wall Steet Thurday afternoon.
Back in 2010, I spoke with my banker about this sector and we both agree that the dung was going to drop...
ReplyDeleteIt never did and in fact, two well known real estate management companies gave their shareholders monster returns..
This is part of the problem when gloom and doom view are not properly constrained...
Re: the fear of deflation. I think this fear is unduly exaggerated, and the parallel to Japan is not valid. Japan had a little bit of deflation accompanied by a currency that rose inexorably for decades against every other currency on the planet. If anything crippled Japan's economy, it was the yen, not deflation. The dollar, in contrast, is still close to its weakest level in history against other currencies.
ReplyDeleteThe dollar is stable against the euro...and the ECB is suffocating Europe with tight money...not good
ReplyDeleteHunger Grows for U.S. Corporate Bonds
ReplyDelete"Investors are buying new U.S. corporate bonds at a record pace, and demanding the smallest interest-rate premium to comparable government bonds since 2007."
And the beat goes one....
http://online.wsj.com/news/articles/SB10001424052702304202204579256220639836350
Benjamin said...
ReplyDeleteThe dollar is stable against the euro...
Ben Jamin, with Euroland in a honorific economic state, the US Dollar should have staged a powerful rally...
The fact that it has not, is an overriding concern for me...
Mr Grannis, why would a strong currency be a liability for Japan?
A very strong Euro had little or no impact on Germany, also a major exporter.
Thank you in advance.
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ReplyDeleteEspecially into multifamily dwellings, apartment buildings and condominium developments. Property development and real estate investing is the best way to secure your financial future.
ReplyDelete