Commercial Real Estate Blog

Last month, the NAHB (National Association of Home Builders)/Wells Fargo Housing Index reached an all time low of 18. July’s numbers were released last week, and they fell a further to points to 16. Anything north of 50 is considered good; and it is very obvious we’re very far off that mark.

The outlook for the future is also measured, and that figure too saw a decline from last month’s 27 to this month’s 23. The traffic figure, which measures buyer traffic slipped from 16 to 12.

The NAHB/Wells Fargo Sentiment Index guages the market sentiment of builders of single-family homes. The index has been tracking this data for over twenty years and the data they released yesterday indicates that sentiment is at an all-time low of 18. 50 is the median number, with any number over that indicates that more builders see conditions as good vs poor, and vice versa for numbers below that.

The index’s component indexes gauging current sales conditions and sales expectations for the next six months each remained unchanged in June, at 17 and 28, respectively. Meanwhile, the component gauging traffic of prospective buyers fell a single point to 17 indicating that there is no uptick in sight.

The data is available for viewing here:

• The NAHB/Wells Fargo Housing Market Index
• The NAHB/Wells Fargo Housing Market Index Components

Wachovia issued a report earlier this month on the state of commercial real estate. Generally speaking, they are bearish on almost all asset classes. Citing a tight lending market, oil prices, slowing demand, and other factors, the anticipation is that the run up in asset prices will continue the reverse which was initiated over the past few quarters.

The report contains a lot of useful data and charts, and rather than paraphrase the details, I’ve outlined the key points below. If you’d like to read the whole report, it is available here for download.

• Traditional Commercial Mortgage Financiers Pick-up Market Share
• CMBS Issuance Halts and About Face
• Nonresidential Construction Set to Weaken
• Property Fundamentals Correction Underway
• Domestic Banks Tighten Lending Standards
• Slowing Economy Puts Pressure on Office Fundamentals
• Industrial Demand Cooling Off
• Apartments Expected to Benefit from Housing Slump?
• Retail Slowing with Consumer Spending

There isn’t much that wasn’t generally known in the report, but the numbers and charts quantify what is going on. The prices are national averages so cap rates, costs per square foot, etc. in the report vary significantly from what assets trade for in Silicon Valley and bay area. Nevertheless, money chases opportunity so any fundamental change in other markets will have an impact on our local market as opportunity costs become to great to ignore.

In a two-part series of articles, the San Jose Mercury News puts on display the sheer impact the downturn in the housing market has had on some greater Bay Area neighborhoods.

The first article discussed the jitters homebuyers have after Anderson Homes, the builder of their neighborhood has decided to auction of the remaining homes in the subdivision.

The second article covers the post-auction feelings of one of the homebuyers.

In subdivisions in Los Banos and Manteca, some buyers have seen price differentials north of $150-200K between prices they paid earlier this year and what homes sold for at auction. These communities provide larger, more affordable housing, but the long commutes and otherwise less attractive demographics make them particularly vulnerable to a downturn in the housing market.

Housing auctions are interestingly enough beginning to resemble the dot-com asset auctions Silicon Valley witnessed earlier in the decade. As an investor in dot-com assets, I found the best deals during the initial stages of the auction wave as many people remained uninformed and skeptical. When word of profits leaked into the market for investors who got in early, eventually popularity of the auctions and interest grew and prices of those assets increased and inventory decreased. Without any further significant deterioration in finance and the overall economy, investors might uncover a similar scenario beginning to form in the housing market.