Tuesday, November 24, 2009

Shiraz Allidina (attribution corrected) creates a nice indicator of over-leverage in commercial real estate.

He uses the Federal Flow of Funds to look at Commercial Real Estate Loans Outstanding as a fraction of GDP. When the share goes well above the long term mean, bad stuff in commercial real estate seems to ensue.

13 comments:

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Anonymous said...

As prices went up, debt went up with it. Now there is too much debt to service with rental income. Japan did something similar with their CRE in 1990, and the debt could not be repaid in a timely fashion.

Too much electronic printing drove CRE prices too high. It would have been better to just let CPI prices go down at the rate of productivity increases. Confiscating the productivity increase, and recycling it into so much debt was a bad idea.

Shiraz Allidina said...

The Notorious B.I.G. said it best:

Mo Money, Mo Problems.

This was a credit/price bubble straight from the Kindleberger/Minsky model.

Yalova Emlak said...

You did a very good research in the real estate market. I got real info from this blog.thank you.

JChristopher said...

Good work! But i still guess The long time foreclosure and real estate investing seems to be good.

Sherwoods Independent Property Consultant said...

A very nice article which explains the implementation of funds..in bad and good ways...for hot properties of the week and best property deals...

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