Displaying items by tag: commercial real estate

(Washington)

The US property market is a complex and bifurcated sector right now. On the commercial side, prices look set to weaken on huge supply of property and financing. On the residential side, inventory is tight and prices are rising. On the latter market, new data out shows that home sales and inventory are plummeting, and prices are rising quickly. Home sales have fallen for a third straight month, and according to the National Association of Realtors, “The root cause is, without a doubt, the severe housing shortage that is not releasing its grip on the nation’s housing market. What is for sale in most areas is going under contract very fast, and in many cases has multiple offers”. US median home prices are up 5.2% year on year and have set a new high of $276,900.

FINSUM: So the market is seeing rising prices and rising rates. What gives? At some point fairly soon the market almost has to stall by default.

(New York)

Many in the industry think a big bust in commercial real estate (CRE) is coming. If you think of the residential real estate market, you probably think about tight supply, rising prices, and more buyers than sellers. The commercial real estate market is currently characterized by the opposite conditions. A building boom and a glut of new CRE debt is threatening to wipe the sector out. The sector looks very vulnerable to rising rates because the massive amount of debt (which just hit a record) and the overindulgence of borrowers. So how can one play the fall? Oddly, the best strategy might be to buy homebuilders, who will be much less sensitive to rate rises, and sell REITs.

FINSUM: The paired strategy sounds like a good one, but the bigger theme here is that a bust in CRE is reportedly on the horizon.

(New York)

Over the last several months there has been a lot of doom and gloom about commercial real estate. Everyone had been expecting a surge in defaults in 2016 and 2017 given that many mortgages issued in 2006 and 2017 were coming due. However, the delinquency rate on commercial mortgages has been falling for 8 consecutive months and is currently at 4.51%, compared to 5.31% this time last year and 10.34% in 2012. Many borrowers have been able to readily refinance their debts given high liquidity in the market.

FINSUM: The market for commercial mortgages looks to be in much better shape than many feared.