Professor Mark J. Perry's Blog for Economics and Finance
After falling more than 700 points from a level of 1058.79 last September to 345.82 points in early March (see graph above), the MSCI U.S. REIT Index (real estate investment trusts) has rebounded by almost 82% and closed today at 628.38, the highest close in more than 9 months (since early November).
Dr. Mark J. Perry is a professor of economics and finance in the School of Management at the Flint campus of the University of Michigan. Perry holds two graduate degrees in economics (M.A. and Ph.D.) from George Mason University near Washington, D.C. In addition, he holds an MBA degree in finance from the Curtis L. Carlson School of Management at the University of Minnesota. In addition to a faculty appointment at the University of Michigan-Flint, Perry is also a visiting scholar at The American Enterprise Institute in Washington, D.C.
7 Comments:
Yeah, it's fallen so low it can't possibly fall much farther, right?
It's not like the foreclosure rates of the underlying properties are increasing or anything.
Take a look at the share of Retail properties in that index and then try to tell us REITs are at a bottom. It's easy to look at charts. It's hard to analyze fundamentals.
If I were as good as you think you are at timing markets, I'd quit my job and spend all my time trading stocks. You don't rally put you money where your mouth is, do you? How many shares of this REIT do you own?
The Forbes headline is attractive but the exposition is less than optimistic. Deutsche Bank has good reason for concern.
Forecasts of vacancy rates for commercial property are expected to rise in the coming two years from already record highs. The availability rate, a better measure, is estimated at 1100 bps above vacancy rates. This excess capacity is being held off market for a variety of reasons which parallel the shadow inventory of residential foreclosures.
CoStar is showing second quarter vacancy and availability rates significantly above previous forecasts, even higher than their 'financial spiral' scenario predicted. Market prices for leases are extremely soft, cap rates are up to 7.5% and are forecasted to rise to 9%, property values have declined by 40% or more, default rates are rising, absorption is negative, there are still completions coming on market, and financing for large transactions is virtually non-existent.
The chart reflects the U.S. economy fell off a cliff in Sept '08, which coincided with the Lehman failure. The U.S. was on a path to a mild recession, at worst, before Sep '08, thanks to accommodative monetary policy and expansionary fiscal policy.
The tax cut portion of the Obama stimulus, which was a $13 a week reduction in payroll taxes that began in Apr '09, along with increases in unemployment benefits and food stamps, likely had an immediate and powerful effect on slowing the pace of the contraction.
It's important to note, tax cuts will increase consumption (using final sales), pay-down debt, and build-up saving. Household debt has increased substantially in recent years.
Increasing demand for shovels, hard hats, concrete, etc. will not help much in clearing the market of excess assets and goods (e.g. houses and autos) to accelerate production. That type of demand adds assets and goods to the economy, rather than clear existing assets and goods.
Hmmm, well if there's money to be made in REITs then people ought to hurry up get it while they can...
Consider the following Reuters item: How the Cap-and-Trade Bill Could Transform the Real Estate Sector
Just one nugget from this article: 'Upon enactment of the bill, new commercial and residential buildings would be required to achieve 30 percent improvements in energy efficiency relative to baseline. By January 1, 2014, new residential buildings would have to improve energy efficiency by 50 percent; commercial buildings would be required to achieve 50 percent improvements relative to baseline by January 1, 2015. Additional reductions in energy use would continue in subsequent years at 5 percent additional savings every three years. DOE could accelerate or lessen these standards on the basis of lifecycle cost analysis. The baseline under consideration is 2005'...
How attractive will REITs be after this goes into effect?
I don't know but initially I'm guessing that this will be a real drag on the housing/building sector...
$13 per week extra pay - wow, Starbucks is saved!
Graph is representing a good way trust in real estate investment.
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