Elliott Wave InternationalmyEWISocioniomics.Net
Home > Real Estate
Commercial Real Estate Crisis: NOW They Tell Us

By Nico Isaac
Thu, 18 Feb 2010 12:15:00 ET
Add to Facebook Add to Twitter Email to a friend Printer Friendly Get the RSS feed Add to more social media services
Get investable insights sent to your inbox at least once a week – for free. Challenge the way you think about investing with The EWI Independent. Privacy

On February 10, 2010 the Congressional Oversight Panel published a 189-page report on the condition of the U.S. commercial real estate sector. To summarize the document, "Hurricane Kat-REIT-a" has arrived.
To wit: The "levies" that were supposedly in place to keep the flood of mortgage defaults and price declines OUT OF the commercial real estate (CRE) sector have shattered. And the toll of the damage is nothing short of devastating; in short:
A total of $1.4 T-T-Trillion in CRE loans will require refinancing in the next four years, with One-Half of them underwater. Losses from these loan failures could reach $300 billion and threaten the balance sheets of nearly 3,000 mid-to-small sized banks.
In the words of one news source: The "commercial real estate crash...could touch the lives of nearly every American. This report is intended to wave a red flag to the White House and Congress that the CRE market is going to get a lot worse before it gets better." (CNN Money)
NOW they tell us. N-O-W, when commercial real estate values in some metro areas have plummeted by 50%; when real estate investment trusts (REIT) stand more than 60% below their February 2007 peak; and when a full-blown CRE loan crisis threatens the financial future of "nearly every American."  
What about then?
(The Health Of Housing: The latest Financial Forecast Service publications reveal what part real estate plays in the future of the entire U.S. economy. Click here to get started, absolutely risk-free.)
THEN -- as in the final peak of the commercial real estate boom circa early 2007. At the time, investment inflows into the sector reached an all-time record, alongside soaring REIT values to similar, never-seen-before heights. And, the only "red flag" the mainstream experts saw waving was at the other end of a nostril-flaring, hoof-stomping, market-charging bull.   
Here, the following news items from 2007 take over:
  • "A Real Estate Boom That Keeps On Giving." (New York Times)
  • "The housing market may be in tough shape but the [commercial] part of the world is doing quite well for itself." (Associated Press)
  • "The commercial market has not been dragged down by the residential mortgage mess because for the most part, buyers and sellers are more sophisticated and have more financial flexibility and resources to ride out credit market turmoil. It's a different animal. Anyone expecting to see defaults on these loans will be disappointed." (USA Today)
We all know how that story ends -- the supposedly "different" commercial animal becomes identical to its residential relative. Here, the September 2009 Elliott Wave Theorist offers this compelling visual:
As for the other story -- seeing the CRE crisis long before it arrived -- EWI's team of analysts has been there from the very start with the following archive of analysis:
October 2006 Elliott Wave Financial Forecast (EWFF, for short): "Some say home prices may go down, but commercial real estate is safe. Our forecast includes no such distinction."
December 2006 EWFF: " With prices of REIT indexes extending to new heights, the consensus is that commercial real estate will 'cushion the impact of the housing slump.' But its only a matter of time before every type of property gets pulled into the deflationary spiral."
June 2007 EWFF presented this close-up of the S&P REIT Index that showed a five-wave decline from its February 2007 peak and wrote: "The form suggests that the bull market is over for commercial real estate."
The violent sell-off from there slashed 70%-plus value off of REIT prices before bottoming in 2009.

Tags: commercial real estate, housing prices
Rating: - based on [93 rating(s)]
Rate this content:
  

Stay Ahead of the Trend in U.S. Stocks

FFS 
EWI's Financial Forecast Service equips you to think, trade and invest independently from the crowd. Here's what you'll get, risk-free:
  • Short Term Update -- Intensive forecasts and analysis3x/week for U.S. stocks, gold, silver, bonds and the U.S. dollar.
  • Financial Forecast -- In-depth,intermediate-term perspective on U.S. stocks, gold, silver, bonds and the U.S. dollar.
  • Theorist -- Bob Prechter's monthly big-picture insights.
Put the Financial Forecast Service on your screen in minutes, risk-free>>
Free 50-Page eBook


Learn to Think Independently

The Independent Investor eBook can help you to challenge conventional notions about investing and explain market behaviors that most people consider "inexplicable."
Download your free Independent Investor eBook

Real Estate


The Elliott Wave Principle is a detailed description of how financial markets behave. The description reveals that mass psychology swings from pessimism to optimism and back in a natural sequence, creating specific Elliott wave patterns in price movements. Each pattern has implications regarding the position of the market within its overall progression, past, present and future. The purpose of Elliott Wave International’s market-oriented publications is to outline the progress of markets in terms of the Wave Principle and to educate interested parties in the successful application of the Wave Principle. While a course of conduct regarding investments can be formulated from such application of the Wave Principle, at no time will Elliott Wave International make specific recommendations for any specific person, and at no time may a reader, caller or viewer be justified in inferring that any such advice is intended. Investing carries risk of losses, and trading futures or options is especially risky because these instruments are highly leveraged, and traders can lose more than their initial margin funds. Information provided by Elliott Wave International is expressed in good faith, but it is not guaranteed. The market service that never makes mistakes does not exist. Long-term success trading or investing in the markets demands recognition of the fact that error and uncertainty are part of any effort to assess future probabilities. Please ask your broker or your advisor to explain all risks to you before making any trading and investing decisions.