Archive for July, 2011
Moody's Investors Service said its index for commercial real estate prices rose 6.3% in May, marking the first increase in six months and the largest monthly gain since the agency began tracking the data in 2000.
The index is 45.7% lower than the peak in October 2007, and April's reading was the lowest since the peak. (Click on chart to expand.)
Analysts attributed the increase in the Moody's/REAL Commercial Property Price Index to higher prices on distressed transactions, which rose 4.8% during May. The index is based on repeat sales of properties across the country using market data from Real Estate Analytics LLC.
Distressed sales accounted for 27% of all repeat-sales during the month, although that percentage has decreased the past two months, according to Moody's.
"They switched from being a drag on aggregate prices to contributing to their increase," analysts said.
Significant returns from assets bought and sold after the real estate downturn also helped prices in May.
"A number of transactions that were recorded in May had their most recent prior sales in 2009, as the market was beginning to bottom and subsequently traded for substantial returns," said Tad Philipp, Moody's director of CRE research. "We are likely to see a pickup in post-peak, repeat sales and expect such transactions to play an important role in helping drive the CPPI higher."
May's count of repeat transactions remained essentially flat with the prior month at 174, however, dollar volume rose 33.8% to $3.3 billion in May, one of the largest non-year-end levels since the peak, according to Moody's.
Write to Jason Philyaw.
Political deadlock mixed with terrible housing market conditions will eventually turn America into a society of renters, according to the latest Housing Market Insights report from Morgan Stanley (MS: 18.06 -0.50%).
High rates of mortgage delinquency, foreclosures and liquidations are turning homeowners into renters, analysts at the investment banking giant said, lowering homeownership rates and increasing demand for rentals.
And it appears even federal institutions are giving up on implicitly supporting what used to be the cornerstone of the ideal American life.
In the Treasury Department white paper on reforming the government-sponsored enterprises, a suggested change to housing policy was put forward: "The administration believes that we must continue to take the necessary steps to ensure that Americans have access to an adequate range of affordable housing options. This does not mean our goal is for all Americans to be homeowners."
During the housing bubble, homeownership rates increased from 66% to 69%, an all-time high. Today, that number is just below 65%, according to Morgan Stanley researchers Oliver Chang, James Egan and Vishwanath Tirupattur.
The analysts expect this will decline further to 59.7%, driving multifamily vacancies down and rents up. The researchers derived this estimate by taking the number of delinquent homeowners likely to be foreclosed, and moving them into the rental category.
Nonetheless, American payroll and household formation numbers are actually on the rise (see chart below):
Traditionally, this would mean that these households, with increasing capital, would naturally look to invest in a home, but getting the loan to do so is on a downward trajectory (see chart below):
The above two graphs will come as no surprise to those following the rental markets.
The National Multi Housing Council, a trade group representing the apartment industry, pushed for balanced housing policy in regard to renting at the group's mid-year conference in May.
During the housing boom, it was difficult to get approvals from the government-sponsored enterprises for rental housing, but localities are reducing the barriers and restrictions that have hampered rental development to encourage the revenue and jobs new development brings. The NMHC called the trend "the new normal," and it appears demand will continue to surge.
"The best public policies must recognize the need for diverse, affordable housing options for both renters and owners. However, home ownership remains one of the most important sources of wealth for many households," said Sarah Duda, senior research and project associate at the Woodstock Institute, a nonprofit research firm and financial reform advocate.
After reviewing the Morgan Stanley report, Duda responded: "Keeping current homeowners in their homes should be a top priority. Preserving the opportunity for people to purchase a home, particularly while affordability in the ownership market is high, is also important. Requiring meaningful loan modifications and making mortgage credit available, safe and affordable for renters who are ready and willing to buy their first home will be most helpful at this time."
Furthermore, a lack of credit and falling home prices continue to negatively impact the desire to own a home.
And it's not just these factors pulling down the ability of Americans to get a mortgage.
"GSE reform, Dodd-Frank securitization rules, mortgage interest deduction reform, continued home price declines and a long workout period for distressed homes, will likely make it harder to buy an owner-occupied home," the Morgan Stanley report states.
"As such, we believe that the U.S. will become a Rentership Society, in which the homeownership rate will keep falling, the home rentership rate will conversely rise, and the rental market will dominate the investment landscape in housing for years to come," according to the analysts.
They made clear the interpretation of their results are not necessarily equal to a negative outlook. They point to improvement to the multifamily sector as an example. However, performance of single-family dwellings, often owned by one landlord, are more difficult to project.
Write to Jacob Gaffney.
Follow him on Twitter @jacobgaffney.
HousingWire won a bronze award for its website in an international competition of business publications. The publication also received three honorable mentions.
The website was honored by Trade, Association and Business Publications International along with NetworkWorld.com (gold) and PulseToday.co.uk (silver).
The TABPI judges said the HousingWire website was "easy to read and inviting … enjoyed that the colors coordinated throughout."
The editorial staff received honorable mention in the best single-issue category for its October issue, which featured an exclusive interview with Freddie Mac CEO Charles "Ed" Haldeman Jr.
HousingWire also received honorable mentions for feature design and table of contents design. It was among seven magazines that took home four or more awards. The other six were ACC Docket, Exhibitor Magazine, Instore, Modern Healthcare, NCAA Champion and Pizza Today.
The Tabbies recognize excellence in trade, association and business publications. TABPI's mission is to bring together editors working for English-language publications worldwide and encourage a common dedication to editorial ethics and excellence.
The 2011 Tabbies featured nearly 400 entries, with nominations coming from the U.S., Canada, the U.K., India, New Zealand and South Africa.
Write to Kerry Curry.
Follow her on Twitter @communicatorKLC.
