The MIT index is a hedonic transactions based index based sales from the NCREIF index, and it attempts to find price movements of a "typical" property. The interesting thing is that the Moody's Commercial Property Index is still falling:
So the question is whether the MIT TPI is a leading indicator. My sense is actually that Apartments and Industrial Real Estate will come out of this thing earlier than other generic types, but I am not sure that anything is really at bottom yet. In particular, the MIT folks are showing that demand and supply are coming closer to lining up, but there is still excess supply nationally in the industrial, office and retail sectors.
The ethical thing for them to do, would be to forego the charts and bs due to lack of data. In their discussion of methodology they themselves note:
ReplyDelete"Question (Sufficiency of Number of Observations):
“The MIT website indicated transaction volume was extremely low in Q408, which calls into question
whether there was sufficient data available to support the current index value, particularly at the assetclass
level.”
Response (DG):
Regarding your question about the number of transactions, in effect, the sufficiency of the
sample size, we are getting scarily low. My sense (this is based on my experience and judgment,
not formal statistical science) is that we are still OK at the aggregate level, for the all-property index. I have less confidence in the individual sectoral indexes. As I suggested on the web site, I would recommend consulting the Moody's/REAL Commercial Property Price Index for a transactions-price index that is based on a broader population and hence much larger sample of
transactions, particularly for looking at the sectoral level. The Moody's/REAL CPPI is
comparable to the variable-liquidity (equilibrium) price index version of the TBI, only the
Moody’s index tracks a much larger, broader population of commercial properties based on the
Real Capital Analytics database. (You can download the Moody’s data from either
http://web.mit.edu/cre/research/credl/rca.html
or
http://www.realindices.com/real/index.htm
as well as from Moody's).
Having said that, I must say that the three TBI sectoral indexes that we were able to produce this
time (as noted, we couldn’t do retail due to complete lack of sales), look fairly reasonable to me.
This despite that they have only about a dozen transactions each. We don't have a policy of not
publishing a TBI just because of few data observations, but one certainly does need to keep that
in mind. In general I have been pleased with how reasonably the indexes seem to perform even
with surprisingly few observations. We employ a noise filter that seems to be very effective.
Nevertheless, as I said, I would take the sectoral indexes especially with a grain of salt." (pg. 10)
This means we have entered sample-size hell. They are working on the principle that what you say to the dog doesn't matter, only your tone of voice.
They discuss their methodology in a press release. Good grief.
Also: "The price and sales models that underlie the TBI use as a composite hedonic variable the quarterly-updated self-reported (appraised) values of the properties as reported into the NCREIF Property Index."
The problem with supply/demand is that demand was artificially magnified by loans to people who don't repay. They just wanted to flip the property to someone else, or endlessly refinance at near real ZIRP rates.
ReplyDeletePeople who do repay loans out of earnings still want property, but can't make up for the loss of demand from people who don't repay. Of course, loans to people who don't repay are a terrible way to run an economy...
To put this another way, people who repay loans out of earnings can only do so if purchase prices allow for them to do so. Rents must cover expenses, plus loan repayment. Prices must revert to marginal utility, instead of staying at bubble levels.
Otherwise, a whole new generation of bad loans will be made.
Hello author,
ReplyDeleteSorry for this
This might be wrong...
But I hope it is beneficial for us
We were taking some time today browsing some information for our webpage. As we were searching for some news about real estate, we landed in your page. We were happy to see your page containing resources real estate information. We would be glad if you could provide us a link. My blog includes information about real estate millionaire code etc.
We update our blog on an everyday basis to provide our viewers quality information. If you provide us a link in your page, it will be benefiting your end users as well as us.
Here is our link information
URL : http://www.realestatemillionairecode.com/
E-Mail : realestateseo4@gmail.com
I request you to add our link in your blog. If you have any questions please feel free to email us and we will respond promptly.
With Regards,
~Jeff Adams
This bar clearly indicates that demand is up in market and so do the prices. This is good news for the market but inventory is too low.
ReplyDeleteVery interesting study from MIT, but I doubt the real estate market has hit the bottom. It could keep going down next year 2010 considering the financial system is still somewhat in a mess.
ReplyDeleteInteresting blog you got here. It would be great to read something more concerning this matter.
ReplyDeleteBTW look at the design I've made myself A level escorts
In dept analysis. I like your blog keep up the good work.
ReplyDeleteThere are few things as rewarding as buying your first home. The sense of pride you feel can be enormous. When you make the decision to go from renting to owning, you are taking a step in the right direction. Home ownership can offer tax benefits, freedom to make decisions about your home, and investment benefits. There are some benefits to renting; such as, short-term obligation, no commitment to maintenance, and no responsibility to other financial costs associated with ownership. But renting should be viewed as a temporary lifestyle.For more details visit us at conveyancing solicitors.
ReplyDeleteInteresting chart. Time will tell...
ReplyDelete八大娛樂全套-指油壓半套
ReplyDelete高雄汽車借款.高雄當鋪.九九當鋪
屏東當鋪.屏東汽車借款.大興當鋪
高雄汽車借款.高雄當鋪.高都當鋪
高雄當鋪.高雄汽車借款.李記當鋪