July 08, 2008
US Surreal Estate

While the residential real estate bubble has been well publicized, little attention has been paid to the fate of commercial real estate. All real estate has been on a massive bull run this decade, with home prices up 200% in six years and commercial real estate prices up a similar amount. But it’s clear that because of the credit crunch, these good times are coming to an end.

Since the second quarter of 2006, home prices (as measured by the S&P/Case-Shiller National Home Price Index) are down 17%, and falling faster every quarter. Commercial real estate prices (as measured by MIT’s Transaction-Based Index) have held their gains so far, but the bull run on shopping malls, apartment complexes, and office towers is faltering.

Although the first quarter of 2008 shows a 2.1% capital return for commercial real estate, the demand-side index continues to fall, dropping by 4.6%. This is the third straight quarterly drop, marking a cumulative decline of more than 14% since the Q2 2007 peak. With demand falling off a cliff, it seems likely that prices will soon follow, tracing a similar path to the decline of home prices.

 

Stay in touch with the economic trends moving today's markets

On page 10 in the flagship issue of The Casey Report, Bud Conrad looks at the economic implications of the housing market meltdown in "The End of Mortgage-Related Credit Growth".

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