EU Recession Spooks Investors
- Mar 07, 2012
The EU reported on Tuesday that the euro zone is in a “mild recession,” since the modest amount of growth seen in 2011, totaling 1.4 percent, pretty much came to halt as the year ended and worries about dangerous levels of debt among various euro-using countries came to the fore. The Eurostat, which produces economic stats for the EU, now estimates that the zone’s economy contracted by 0.3 percent during the fourth quarter of 2011 on an annualized basis, and revised the third quarter’s growth to a meager 0.1 percent.
Technically, the zone isn’t in a recession until two quarters of contraction have passed, but it seems clear that the EU believes that the first quarter of 2012 is going to be as crummy as 4Q11. This notion seems to have rattled some investor nerves, since European stocks lost ground as soon as word of the “mild recession” broke, eventually causing French and German bourses to see about 3 percent losses. Greece, for its part, also rattled some nerves on Tuesday by threatening to default on payments to holders of Greek debt who refuse to “voluntarily” go along with the deal negotiated last month that would give them a serious (50 percent-plus) haircut.
Upon receiving the somber news from Europe, Wall Street, after some time floating around the heights of a 13,000 Dow—a level not seen since before the Panic of 2008—came tumbling down on Tuesday, though not enough to count as a crash. The Dow Jones Industrial Average lost 203.66 points, or 1.57 percent, in the steepest single-day drop since November. The S&P 500 was down 1.54 percent and the Nasdaq declined 1.36 percent.
Foreclosure sales see early ’12 spike
U.S. residential foreclosure sales were up sharply in January, according to LPS Mortgage Monitor on Tuesday, which put the number of sales for the month at 91,000 nationally—some 29 percent more than in December. Foreclosure sales, the final taking of the property at the end of a foreclosure action, saw a recent monthly peak of 124,000 in Sept. 2010, according to LPS Mortgage Monitor.
But that was during the heyday of robo-signing. Once that practice and other lender shenanigans came to light, foreclosure sales declined precipitously, especially in judicial foreclosure sales, the 24 states of the union in which a judge must sign off on a foreclosure. But now, with the robo-signing settlement a done deal, it’s expected that the foreclosure pipeline is in for a cleaning.
And so it seems, if January is any indication of a trend. Even the judicial foreclosure states saw a strong month-over-month increase in foreclosure sales, up 51 percent compared with December, noted LPS Mortgage Monitor.
Green Street reports static CRE prices, for now
Green Street Advisors reports that its Commercial Property Price Index didn’t budge in February, with U.S. CRE values are essentially drifting sideways since last summer after a two-year period during which prices rallied from a Great Recession trough in 2009. The index is a time series of unleveraged U.S. CRE values that captures the prices at which transactions are currently being negotiated and contracted, according to the Newport Beach, Calif.-based company.
By Green Street’s reckoning, CRE prices had risen to within about 10 percent of previous peak in 2007 by the summer of 2011. Unsurprisingly, apartment values have been strongest and have surpassed prior highs, while values of lodging and office properties are furthest from their ’07 peaks. Office buildings in Manhattan, the country’s largest office market, are 20 percent below their prior highs, Green Street notes.
Peter Rothemund, an analyst at Green Street Advisors, says that there might be a return of positive momentum in CRE pricing in the near future, with capital markets now a little more optimistic in their forecasting. Not only apartment properties will benefit from the trend. “All property sectors will benefit from capital markets being a little more comfortable with the future,” Rothemund tells CPE.