NEW YORK CITY-The latest data released Tuesday from Standard & Poor's Case-Shiller US National Home Price Index show that single-family home price indices declined by 4.2% in the first quarter of 2011, after falling another 3.6% in Q4 of 2010. But the residential market hasn’t hit rock bottom, says David Blitzer, managing director and chairman of the Index Committee at S&P, which he says may have an impact on the commercial real estate market as well.
“My impression is commercial markets peaked after the residential market did, to some extent,” Blitzer tells GlobeSt.com. “At this point, in today’s report, we say the residential market hasn’t bottomed yet. In fact, it demonstrated that it did not bottom-out two years ago. If that were to follow through, one would expect the commercial market to continue to drift down.”
In Q1, which includes data up to March 2011, the National Index hit a new recession low, posting an annual decline of 5.1% versus Q1 of 2010, according to a statement from S&P. Across America, home prices are back to mid-2002 levels, but S&P also finds that an increasing number of markets are posting new lows, such as New York, Atlanta, Chicago, Miami among eight others.
And where home values could potentially lead to reduced consumer confidence and reduced consumer spending, at the same time, the continuing decline may be steering certain buyers away from the single-family market and turning them to the rental market, explains Steven Weilbach, senior managing director of capital markets and head of the firm’s growing multifamily practice at Cushman & Wakefield. “It is proving beneficial at least in the short-term for the multifamily business,” he says, explaining that many have difficulty accessing a loan, lack credit or simply prefer the flexibility of a lease. “In some cases, that is driven by either greater or lesser affordability. Some people who have seen home values decline still think of it as a good investment option.”
As a result, there is an acceleration of multifamily construction across all major metro areas throughout the US, Weilbach says. The caveat is, while activity is picking up right now, product won’t be coming out of the ground for several years because of the lag-time between permitting and constructing new developments, he says.
Going forward, Blitzer says funding for commercial projects is going to depend on the valuation of particular developments, while on the residential side, availability of funding and mortgage lending are the two main factors. "Banks have become more reluctant to lend as loan-to-value ratios have moved back to the more typical 80% level," he says. "We were at 95% to 100% at the peak of the boom."
The cities showing positive housing trends are Washington, DC and Seattle, S&P notes. DC shows an annual growth rate of 4.3% and a 1.1% increase from its February level, which has positively affected commercial space as a result. “Washington, DC has a very stable economic base with the US government,” Blitzer says. “That means they are hiring lots of people and they need a lot of office space, and that continues. All these people need someplace to live, so they buy houses.”
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