CRE Bank Delinquencies vs. Property Prices
Sometimes it is difficult to reconcile different data sets. Compare commercial real estate loan delinquencies at banks, which are increasing according to the Federal Reserve, with commercial property prices, which have stabilized and even come up a bit in recent months according to the Moody’s/REAL commercial property price index. Can prices continue to move higher if loan delinquencies in banks, CMBS and other lenders continue to rise? If there is enough investment capital chasing a limited supply of properties, then prices are unlikely to fall much further. But there are differences in property quality and location. Private investors appear willing to pay up for Class A properties in primary markets, bidding up prices even as institutional investors hang back because their models assume a tepid recovery in rental rates. A similar scenario is playing out in the residential property market as foreclosures rise while the major price indexes have stabilized or increased slightly in recent months. First-time homebuyers compete with aggressive investors in hard-hit markets with decent growth prospects, which puts upward pressure on prices for entry-level homes.
Source: Federal Reserve, Moody's REAL CPPI, Grubb & Ellis