Moody's Commercial Property Price Index Drops 3.3% In August, At Lowest Level Since 2002
Luckily the banks don't care about that $3 trillion footnote on their balance sheets known as CRE. Because if they did, they would all be insolvent: the Moody's REAL/Commercial Property Price Index index dropped by 3.3% in August, and is now 45.1% lower compared to the October 2007 peak. The attached chart says it all, or almost all - it actually says nothing about why banks are still trading at positive equity values.
Moody's summary points:
- The National — All Property Type Aggregate Index recorded a 3.3% price decline in August. The index is currently at a new recession low, 45.1% below the peak measured in October 2007.
- Commercial property prices are currently 19% below the Consumer Price Index since December 2000. Over time we expect the CPPI to revert to a long term trend line close to that of the CPI.
- The data suggest that the commercial real estate market has become trifurcated, with prices for larger trophy assets rising, prices for distressed assets declining sharply, and prices for smaller but healthy properties remaining essentially flat. One way to view index returns is by looking at the interplay of these three components of the overall market. The index again turned negative this month in part because large negative returns on distressed properties created a drag that outweighed the positive and flat results of the performing properties
For those who look at this and wonder how Simon Property and other REITs can be trading at clearly bubble levels, here is the full report. Let us know if you figure it out.