Commercial Real Estate - Next Shoe to Drop

Over the past few months – I’ve been reading that commercial real estate is poised for a significant ‘correction’ – similar to housing. Looks like we’ve arrived (see chart at end of post) – more write-downs and bank failures ahead. If you’ve paid attention over the past couple of months, you’ll notice that everything seems to be dropping in value 15-30% - corporate revenue (2nd qtr earnings reports), local/state/federal government tax revenue (charts below), real estate, etc. You have to wonder what will happen to stock markets once people stop focusing on Wall St. earnings 'estimates' (which have been extremely low) and start focusing on year over year revenue declines.


If you’re the President and have made promises regarding your ‘stimulus’ plan – what do you do if economic data does not support your overly optimistic budget/economic projections? You delay the report. It appears the White House will delay the midsummer budget update until September. Regardless of when they report - you can bet that Federal revenues will be down, spending up - and the deficit growing much faster than anticipated.

WASHINGTON (AP) - The White House is being forced to acknowledge the wide gap between its once-upbeat predictions about the economy and today's bleak landscape.

The administration's annual midsummer budget update is sure to show higher deficits and unemployment and slower growth than projected in President Barack Obama's budget in February and update in May, and that could complicate his efforts to get his signature health care and global-warming proposals through Congress.

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Monday, July 20, 2009

CRE: I Think the Shoe Just Dropped
www.econompicdata.blogspot.com

The worry that commercial real estate was the "next shoe to drop" goes back a long time, but after this additional data point, I think we're here. How banks and other financial institutions are hiding this level of damage has me scratching my head. Calculated Risk with the details:

From Dow Jones: Moody's: Commercial Real-Estate Prices Fall 7.6% In May
Commercial real-estate prices fell 7.6% in May ... The indexes are down 29% from a year ago and 35% from their October 2007 peak.

According to Moody's, CRE prices fell in 8.6% in April (about 16% in two months).

Talk about cliff diving!