SINGLE LARGEST ONE-MONTH DECLINE - Index Stands 25.3% below April 2008 Levels; 29.5% below peak of October 2007

The Moody’s/REAL National All Property Type Aggregate Index from Real Estate Analytics, LLC, (REAL), measures 135.31 for April 2009, a decrease of 8.6% from the previous month and single largest one-month decline.  The Index, which has captured price data through the end of April 2009, is now 25.3% lower than it was a year ago and 29.5% below the peak measured in October 2007.  The index also indicated a 27.4% drop in prices over the past two years.

“The largest negative monthly return likely reflects the fact that deals closed were negotiated at the end of 2008 and in the first quarter of 2009, when securities markets and overall sentiment were plunging,” said Neal Elkin, President of REAL. “The question is will this mark the bottom or not.”

For the first time, the repeat sale transactions in April showed more negative than positive annualized rates of return. Overall, the South was the worst performing region, with all four property types seeing annual value declines of more than 20%. The three major office markets measured significant annual declines. New York and San Francisco had declines of 13% and 20%, respectively, with Washington DC posting the biggest year-over-year fall at 21%.

Moody’s/REAL Commercial Property Indices are owned by Real Estate Analytics, LLC, and provides the only investable, transaction-based commercial real estate benchmarks available in the United States.

The All Property Type Aggregate Index is measured monthly, while national and regional data by property type are measured quarterly. Changes in quarterly indices, if any, will be reported in May 2009.

To read the full report, please visit www.realindices.com

Foreclosure rates in the U.S. are big news world wide. The continuing glut of foreclosed and distressed properties on the U.S. market caused home values to drop another 16.8% over this time last year, and in some parts of the U.S. the drop was even steeper.

In Kalamazoo, MI, for instance, home values have fallen an additional 25% over the past year alone, even though Kalamazoo is a university town in one of the western pockets of Michigan where the economy is still ’somewhat’ stable. Unemployment in west Michigan is hovering just under 10% (as opposed to 14.7% for the state as a whole).

The sheer volume of foreclosures in the U.S. is approaching some kind of critical threshold.

Lenders are now starting to drag their feet.

In early 2007 the number of homeowners who were more than three months delinquent on their mortgage but who had not yet received a foreclosure notice from their lender was less than 1% of all borrowers. In recent months that percentage has tripled and is rapidly climbing. Some homeowners are now at 12 months behind in their payments and yet the lender has still taken no action to foreclose.

According to a recent report in the Washington Post, the reasons are many but they boil down to one common denominator:

Banks can’t afford to own many more homes they can’t sell. The losses are too staggering.

In the past, foreclosure proceedings were routinely initiated at 90 days past due. Today foreclosure might not be initiated for 6, 9, 0r even as many as 12 months, and even when foreclosure does finally begin, more and more banks are backing out before the property ever goes to sheriff’s sale. That’s because often these properties don’t sell at sheriff’s sale.

Foreclosures are still going forward, but in more and more cases the threat of foreclosure is more of a collection tactic than an actual legal proceeding.

Most lenders have come to the conclusion that at this point almost anything is better than foreclosing on a property and taking yet another big loss. Some of the homes in question cannot be sold at any price in this market, even though they are almost surely worth something. In response, many banks are holding properties longer, waiting for the market to bottom out so they can recoup something closer to true value on the distressed property.

There is no question that many, many U.S. properties in foreclosure limbo are undervalued right now, so holding them longer makes a certain amount of sense, but it’s complex. Some parts of the U.S. may not recover economically for decades, and if that is the case, neither will the property values. Right now, local trends are hard to predict.

Most analysts are however predicting increased foreclosures and defaults through the rest of 2009 and into 2010. Home values are unlikely to stabilize until the glut of distressed and foreclosed properties has been cleared.

At the moment, the most optimistic date when that might happen is 2011. Maybe.

Foreign investors interested in buying property in the U.S. now should be forewarned: You might have to hold that property and maintain it for several years before you see appreciation.

The U.S. real estate market is either showing signs of recovery or continues to melt down to new and ever more frightening lows, depending on what you read and who is writing it.

The main reason for the wildly diverse reports from the field is that the real estate market in the U.S. continues to be incredibly location-specific Even within the same city, neighborhoods less than a mile away from each other can be very different in both price and prospects. How is a foreign investor supposed to sort through a mess like that?

A recent article in the New York Times suggests checking cost per square foot, comparable properties, and special features.

Here is a summary of some of the best tips:

• Choose a good realtor, but think for yourself. You are going to want comparable prices and average costs per square foot from your realtor. Make that clear and then base your decisions on your own thinking. Consult with your realtor, but don’t expect your realtor to make your decision.
• Know the hot neighborhoods. Some neighborhoods will always be desirable, even if the market as a whole never heats up like it did during the last bubble. You have to know which neighborhoods are desirable and why to make an informed decision about whether any of them will remain desirable.
• Don’t go for low price alone. Just because a property is dirt cheap doesn’t mean it is a good deal. Some rust belt cities are already starting to bulldoze foreclosures that can’t be sold at sheriff’s sale at any price.
• Don’t overestimate your rehab skills. Older homes are charming and often cheap, but a good inspection is a must, and don’t gloss over what it reveals. Find your own inspector. If you let your realtor hire one you can be sure you’ll get a more positive report. What you want is a realistic assessment of future costs and problems.
• Ask about other monthly costs in advance. How high are the property taxes? What does electricity cost in the area in which you are shopping? Can you get an insurance policy on this property at an affordable price? If you are looking at condos, are there condo or monthly maintenance fees? If you are looking at a gated community or suburban home are their home association fees? What does the tax base of the host city look like? Has the city lost lots of industry? Does it have a high foreclosure rate? If so, expect a tax hike or other problems in coming years.
• What are your plans for the home? Do you expect to live in it yourself? Or are you planning to ‘flip’ or rent it, or just hold it until values come back and them resell? Your answer will factor into whether or not you are looking at a ‘deal’. In some cities, investors who gobbled up dirt cheap properties at tax sale with a plan to hold and resell them in six months to a year are getting hit with code enforcement fees from the city that can top $600 per month or more. If you are borrowing money to invest in homes only to resell them quickly, be aware that American insurance companies will cancel the policy on any home vacant for more than 30 days, and the city will often harass you to death for letting the home sit. If you plan to rent, have you checked into the rental market in that area? Even apartment complexes are having difficulty renting out all their units right now and many are going bankrupt due to the commercial credit market crunch. Don’t assume you can rent your ‘deal’ without checking into the market first.

It is possible to buy now and come out ahead, but it isn’t easy. Picking the wheat out of the chaff is a skill, and one worth developing with lots and lots of shopping before taking the final plunge.

As per usual, the best one can say about the “news” as to whether now is a good time to invest in real estate is at best confusing, at worst deliberately so. But there are some indicators giving an idea as to when and at what price is a good time to consider re-investing in property. Ignoring the obviously “spun” headlines from the government press release farms such as The Times, these are a few recent, factual articles that might be of interest as it would appear that the commercial real estate bubble is now starting to burst - and as predicted will have an impact on the credit availability in the residential sector.

Morgan Stanley has started writing down more of their commercial property funds - 80% of the properties in Fund V U.S. and 60% in Fund VI International. “Virtually any fund holding highly leveraged real estate assets and loans that were purchased during the last three years is in a very precarious position, given the steep decline in property valuations,” said Scott Farb, managing principal in the Los Angeles office of real estate consulting firm Reznick Group. Pensions and investments

Nick Lesau, one of London’s canniest property investors is starting to get back into the market after selling out at the height of the bubble. His investment fund “Max Property Group,” is paying just 25% of peak 2007 prices. “Mr. Leslau set up the Max Property Group last month and raised £200 million ($329 million) selling shares in what was Britain’s first initial public offering this year. Interest in the stock was so great that Mr. Leslau cut the investor road show short by a week, but the share sale was still oversubscribed.” NY Times

The Spanish banks are now the biggest property owners in Spain, and we feel the amount of real estate sloshing around unsold has reached critical mass. Refinancing this mess is going to be all but impossible when commercial property values drop by 75-80% - which they are going to.

After reading these two articles, it is fair to say the answer is - it depends. If you are a multi million dollar/pound real estate investment trust, and can pick up a property at 75% discount - yes. If you are a private individual, perhaps not just yet - unless you can negotiate a deal at the same level. 25% of peak value is my target price now and I feel this will be able to offer realistic returns - eventually - and only in markets that are likely to recover rather than be bulldozed such as being discussed for Flint, Michigan.