MBA Says Economic Data Consistent with a Recession
 WASHINGTON, DC - According to the Mortgage Bankers Association (MBA), while Fed Chairman Ben Bernanke has warned that a recession is possible, economic data reinforced strongly the notion that a recession is already in progress.
The labor market saw steady Job losses in the first quarter. Total nonfarm payrolls fell 80,000 in March. The Bureau of Labor Statistics also revised downward the previous months’ payroll numbers. As a result, job losses widened from 63,000 to 76,000 in February and from 22,000 to 76,000 in January. During the first quarter, the labor market shed 232,000 jobs or about 77,000 a month on average. The unemployment rate jumped to 5.1 percent from 4.8 percent.
Construction payrolls saw another sizable loss, with builders shedding 51,000 jobs in both residential and nonresidential sectors. Mortgage industry employment appeared to stabilize, standing at 364,100 in February and edging down from 364,800 in January. (The Bureau of Labor Statistics releases some detailed categories of employment with a one-month lag.) Since its peak in February 2006, industry employment has declined about 28 percent, with sharp drops occurring in the two months following the August financial turmoil and modest declines in recent months.
Other reports this week continue to point to declining economic activity. The four-week moving average in the weekly initial jobless claims has been trending up, suggesting a continued soft labor market. Both the manufacturing and nonmanufacturing surveys from the Institute for Supply Management (ISM) indicated reduced manufacturing and service activities again in March. The pace of decline has moderated from the previous month, however. So far, the declines in the indices have been mild by historical standards of an economic downturn.
Factory orders fell in February for the second consecutive month, confirming the results from the ISM manufacturing survey and suggesting soft nonresidential investment for equipment and software. Combined with the drop in private nonresidential construction spending in February for the third consecutive month, the ISM and factory orders reports indicated that nonresidential investment likely declined in the first quarter following a 6.0 percent annualized increase in the fourth quarter.
Interest Rates:
Long-term interest rates rose steadily through Thursday but reversed on Friday in response to the weak employment report. The 10-year yield hovered around 3.49 percent on Friday -- about the same as the closing rate at the end of last week. Fed funds futures doubled the odds of a 50-basis point cut at the next Federal Open Market Committee meeting on April 29-30 to about 40 percent from 20 percent before the employment report.
Housing and Mortgage Indicator:
Construction spending fell in February for the fifth consecutive month. Total construction spending edged down 0.3 percent in February. Private construction spending dropped 0.5 percent, as a result of declines in both private residential (0.9 percent) and nonresidential construction spending (0.1 percent). Over the past year, private residential construction spending has been 18.8 percent lower than a year ago. While private nonresidential construction spending fell for the third consecutive month, it has increased 13.2 percent from a year ago. Public construction spending rose 0.4 percent. The report suggests that residential investment would continue to subtract from economic growth in the first quarter, while nonresidential investment is unlikely to contribute appreciably to growth.
Economic Indicators:
The Institute for Supply Management (ISM) manufacturing index edged up to 48.6 from 48.3 in February. A reading below 50 indicates a contraction in the manufacturing sector. This is the third reading below 50 in the past four months. The report was better than expected as it contradicted results from several regional manufacturing surveys for the month, showing sharp declines in manufacturing activity around the country.
The ISM manufacturing index is based on a survey of purchasing executives at roughly 300 industrial companies. It includes ten different sub-indices: new orders, production, employment, supplier deliveries, inventories, customers’ inventories, prices, new export orders, imports and backlog of orders.
Forward looking components of the index suggested continued slow activity ahead. New orders declined 2.6 points to 46.5 -- its lowest level since October 2001. The production index fell two points to 48.7 -- the first reading below the 50 threshold since December. Manufacturers continue to see strong overseas demand for capital goods but it’s small relative to weakening domestic demand.
The component related to prices showed a worrisome trend, with the prices manufacturers paying for inputs rising sharply. The prices-paid index increased eight points to 83.5 and now stands at its highest reading since the aftermath of Hurricane Katrina in October 2005. Elevated commodity prices, including oil, have largely pushed up input prices.
Factory orders fell 1.3 percent in February, following a 2.3 percent drop in January, as both durable and nondurable goods orders declined.
The Institute for Supply Management (ISM) nonmanufacturing index edged up to 49.6 from 49.3 in February. A reading below 50 indicates a contraction in the manufacturing sector. This is the third consecutive reading below 50. The last time the nonmanufacturing index was below 50 for at least three months was in 2001-02 as the economy was emerging from a recession.
Nonfarm payroll employment fell 80,000 in March, and the downward revisions to prior months total 67,000 jobs. Excluding the gain in government payrolls, employment in the private sector dropped 98,000 -- the fourth consecutive monthly decline.
The unemployment rate increased to 5.1 percent, its highest rate since September 2005 following Hurricane Katrina. Average hourly earnings growth remained steady at 0.3 percent. Over the past 12 months, earnings rose 3.6 percent -- slowly decelerating since reaching a peak of 4.3 percent at the end of 2006.
Manufacturers cut 48,000 jobs -- the biggest decrease since July 2003. The drop included a loss of 24,000 jobs in the auto manufacturing and parts industries, which largely reflected the effects of strike at a supplier for General Motors Corp.
Service industries added 13,000 after an increase of 6,000 in February, with leisure/hospitality and education/healthcare employment continuing to grow. Temporary help services shed 22,000 jobs, following a decline of 34,000 in February. Retail payrolls decreased by 12,400 after dropping 46,700 in February, whileAverage weekly hours edged up to 33.8 hours from 33.7 hours.
NAR Says Commercial Real Estate Fundamentals Holding
 WASHINGTON, DC – Commercial real estate market fundamentals are fairly stable, although investment is waning following a record year in 2007, according to the latest Commercial Real Estate Outlook of the National Association of Realtors®.
NAR Chief Economist Lawrence Yun said the commercial real estate market is holding essentially even. “We’re seeing no significant changes in vacancy rates or rent growth, so the fundamentals in commercial real estate still seem to be respectable,” he said. “Under normal circumstances, near-full occupancy coupled with positive rent growth would be of strong interest to investors, but we’re not seeing that. The credit crunch has filtered into the commercial real estate market.”
Patricia Nooney of St. Louis, chair of the Realtors® Commercial Alliance Committee, said the investment cycle appears to be turning. “It looks like investors are taking a wait-and-see attitude,” she said. “Even with fairly stable fundamentals and capital available from institutional investors, it appears investor confidence has declined, and some private investors have had problems obtaining financing. Commercial real estate investment set a new record in 2007, but now that we’re in a period of economic uncertainty, transaction volume is likely to decline.”
Investment in commercial real estate in 2007 was $427.2 billion, up 39.2 percent from the previous record of $306.8 billion in 2006; that total does not include transactions valued at less than $5 million or investments in the hospitality sector, based on analysis of data from Real Capital Analytics. NAR projects the investment dollar volume this year could drop by 30 to 40 percent, comparable to 2006 levels.
The NAR forecast in four major commercial sectors analyzes quarterly data for various tracked metro areas. The sectors are the office, industrial, retail and multifamily markets. Historic metro data were provided by Torto Wheaton Research and Real Capital Analytics.
Office Market
There is a lag factor in the current office market to backfill space by tenants who moved into newly constructed space. At the same time, concerns about the overall economy are causing some tenants to put expansion or relocation plans on hold. These present a challenge to timely and cost-effectively lease space in older office buildings.
Since the level of new supply will be greater this year, office vacancies are expected to rise to 13.3 percent in the fourth quarter from 12.5 percent in the last quarter of 2007. Annual rent growth in the office sector is forecast at 3.5 percent in 2008, following an 8.0 percent gain last year.
Estimates for the first quarter show areas with the lowest office vacancies include New York City; Honolulu; Long Island, NY; and San Francisco, all with vacancy rates of 9.4 percent or less.
Net absorption of office space in 57 markets tracked, which includes the leasing of new space coming on the market as well as space in existing properties, should total 38.5 million square feet in 2008, down from 57.3 million last year.
Office building transaction volume in 2007 totaled a record $211.0 billion, compared with $133.5 billion for 2006. Equity funds accounted for 40 percent of office investment last year. Foreign investors purchased a record $17.7 billion in office buildings last year.
Industrial Market
Industrial activity remains strong in port and distribution hubs, with relative weakness around many manufacturing centers. International trade continues to play a pivotal role in industrial real estate.
Vacancy rates in the industrial sector will probably average 9.6 percent in the fourth quarter of 2008, up from 9.4 percent in the same period last year. Annual rent growth is projected at 3.3 percent by the fourth quarter, down from 3.6 percent at the end of 2007.
The areas with the lowest industrial vacancies include Los Angeles; San Francisco; Tucson, AZ; Salt Lake City; Orange County, CA; and Portland, OR, all with vacancy rates of 6.1 percent or less. Los Angeles is expected to remain a landlord’s market for the next four to five years.
Net absorption of industrial space in 58 markets tracked is likely to total 134.7 million square feet in 2008, up from 120.2 million last year. Industrial transaction volume in 2007 was a record $46.0 billion, compared with $38.9 billion in 2006.
Retail Market
The supply of new retail space is finally being held in check, although secondary markets might be growing because new space often follows population growth. As secondary and tertiary market populations continue to grow, it will become necessary to track those markets in addition to monitoring older retail centers.
Vacancy rates in the retail sector are expected to decline to 8.8 percent in the fourth quarter from 9.2 percent in the fourth quarter of 2007. Average retail rent is forecast to grow by 1.4 percent in 2008, compared with a 3.2 percent rise in 2007.
Retail markets with the lowest vacancies include Orange County, CA; San Francisco; San Jose, CA; Washington, DC; Las Vegas; Honolulu; and Los Angeles, all with vacancy rates of 5.9 percent or less.
Net absorption of retail space in 53 tracked markets is forecast at 24.8 million square feet this year, up from 11.1 million in 2007. Retail transaction volume in 2007 totaled a record $71.6 billion, up from $46.9 billion in 2006. REITs accounted for a quarter of retail transaction volume last year.
Multifamily Market
The apartment rental market – multifamily housing – is attracting risk-averse institutional investors. Of the record $98.6 billion spent in this sector last year, 40 percent of acquisitions were from institutional investors such as pension funds and life insurance companies. Private investors were equally active, accounting for another 40 percent of transactions.
Many potential first-time home buyers continue to rent, placing downward pressure on vacancy rates and upward pressure on rents. The number of new multilfamily units remains relatively high, due in part to the conversion of condo projects into rental buildings – notably in the Washington, D.C., area and South Florida.
Multifamily vacancy rates should average 4.8 percent in the fourth quarter, down from 5.1 percent in the fourth quarter of 2007. Average rent is seen to rise 5.3 percent in 2008, up from a 3.1 percent increase in 2007.
Multifamily net absorption is estimated at 245,800 units in 59 tracked metro areas in 2008, up from 234,400 last year.
The current national vacancy rate is 4.7 percent, below the 5.0 percent level which is considered landlord’s market. The areas with the lowest apartment vacancies include Northern New Jersey, San Jose, Miami, Salt Lake City and San Diego, all with vacancy rates of 2.9 percent or less.
Mortgage Market Meltdown Raises Apartment Demand, But Financial Crisis Crimps Sales and Capital Availability According to NMHC Quarterly Survey
 WASHINGTON, DC – The ongoing financial market turmoil and its spillover into the broader economy are having a mixed effect on the apartment sector, according to the National Multi Housing Council’s (NMHC) latest Quarterly Survey. Although sales volume is down and equity is less available, apartment demand is being bolstered by the housing and mortgage market downturn while there are signs that debt financing conditions may be stabilizing.
“The apartment industry is clearly benefiting from the downturn in the for-sale housing industry,” noted NMHC Chief Economist Mark Obrinsky. “While the 'shadow' rental market (unsold houses and condos that have left the for-sale market to enter the rental market) may attract some apartment renters (and potential renters), thus far, the lowest homeownership rate in five-and-a-half years seems to have increased demand for apartment residences.”
Obrinsky added that, “Overall, the apartment industry remains healthy at this point due to continuing strong fundamentals, and the fact that apartment firms did not overbuild in the latest economic cycle.”
Almost 80 percent of respondents indicated that tightening mortgage credit has reduced the outflow of renters into homeownership, a small rise from the 75 percent figure of October 2007. More than one-third (35 percent), however, described the decrease as “big,” up from 22 percent in October and 18 percent last July.
The Market Tightness Index, which measures changes in occupancy rates and/or rents, remained below 50 for the second time in 17 quarters, slipping to 33. (For all four of the survey indexes, a reading above 50 indicates that, on balance, conditions are improving; a reading below 50 indicates that conditions are worsening; and a reading of 50 indicates that conditions are unchanged.) This may reflect seasonal weakness (leasing tends to occur in the summer and fall) in addition to readjustments in the housing market. Nearly half of respondents, however, indicated no change from the prior quarter.
One unexpected result was the sharp improvement in the Debt Financing Index, which rose to 45 percent from 17 in the prior quarter, but still remains below 50. Forty percent of respondents indicated borrowing conditions were worse, while a quarter said they were unchanged. These responses point to the tightened underwriting standards and the still-frozen Commercial Mortgage Backed Securities (CMBS) market.
Even so, the share of respondents who thought borrowing conditions were worse was cut nearly in half from the prior quarter (when 76 percent noted worsening conditions), and nearly a third (29 percent) of all respondents indicated borrowing conditions were better this quarter, up from 20 percent from the previous quarter.
The current economic challenges are having the largest impact on the volume of property sales. For the ninth straight quarter, the Sales Volume Index was below 50, although it improved from the last quarter, rising from 12 in October to 18 in January. Although an improvement from the previous quarter, this is nonetheless the second lowest figure in the history of the survey and is a testament to the uncertain environment stemming from the economic slowdown and the ongoing financial market crisis.
The Equity Financing Index edged up slightly to 24, though this too is still the second lowest figure on record. Almost 40 percent of respondents said equity financing conditions had not changed from the prior quarter, although two percent (the same as last quarter) actually reported that equity financing was more available.
Cushman & Wakefield Reports Global Investment in Commercial Real Estate Hits Record $930 Billion
Company predicts 17 per cent fall in 2008
 NEW YORK, NY -
Global investment in commercial real estate (excluding apartments) totalled a record $930bn (€665bn) in 2007, an increase of 29 per cent on 2006 according to the latest report from global real estate consultant Cushman & Wakefield – International Investment Atlas 2008. Trading volumes slowed by 12.5 per cent between the first and second halves of the year, however, and the global total for 2008 is now expected to reach around $770bn, a fall of 17 per cent.
Emerging markets were the strongest performers with China appearing in the top ten global destinations for investment by volume with around $15bn invested, and Brazil just behind in 11th place with around $14bn invested. Ten of the top 15 fastest growing markets were emerging markets including European hotspots such as Ukraine, Turkey, Bulgaria and Hungary.
The strongest regional growth was in the Americas with investment in Latin America increasing 87 per cent and North America 49 per cent. Asia also enjoyed a strong year with investment increasing 27 per cent to reach $145bn. Investment in Europe also rose albeit by a more modest 10 per cent to stand at $349bn. The top five global investment targets remain the USA, UK, Germany, France and Japan.
Cushman & Wakefield’s predicted total of $770bn for 2008 would still represent nearly three times the level of trading seen only five years ago; evidence that commercial real estate should remain an established global asset class. This is reflected in the proportion of overseas investors who drove growth in 2007. Although domestic investors increased their stake by 19 per cent, foreign buying activity increased 54 per cent and now accounts for 34 per cent of global volumes, up from 29 per cent in 2006. The role of foreign buyers also increased in the second half of the year with market share rising from 31 per cent in the first half of the year to 38 per cent in the second.
David Hutchings, head of research, Cushman & Wakefield EMEA, said: “Foreign investors are expected to be increasingly important in all global markets in 2008 as they seek out higher returns and better diversification to reduce risk. The sovereign wealth funds look set to be particularly active as they take advantage of a change in pricing and a shift in buying power favouring well-financed, long term institutional players.
“Greater activity from German funds is also likely on a global scale and a growing dimension for cross border investment is likely to come from Asia. Not only can we expect to see more investment from China and India as they diversify and recycle the growing surpluses being created by their buoyant economies, but we may also see renewed Japanese buying, particularly if REIT regulations are relaxed to encourage off-shore investment.”
North America
North America’s 49 per cent increase in activity took trading volumes to $416bn with the 50 per cent increase in the USA driving the figure. Early trading benefited from the privatised REIT portfolios and subsequent flipping but, since the autumn, the impact of the credit crunch has destabilised the market with higher spreads on debt, tighter underwriting conditions and a stalling CMBS market.
Chris Lowery, global head of capital markets, Cushman & Wakefield Inc, said: “There remains no real shortage of equity capital and many overseas investors are coming into the market to take advantage of buying opportunities offering long term value. The fundamentals of the market for the most part remain sound, notably for the office sector where vacancies remain low and construction under control, and if the debt markets recover, we can expect to see prime real estate perform well, particularly in the second half of this year.”
Europe
After a 36 per cent increase in 2007, foreign investors are now the dominant player in Europe accounting for 55 per cent of the $349bn market. The major markets of Germany and France both posted gains of around 30 per cent although the UK, Europe’s biggest market, was the principal victim of the credit crunch in the region and saw a 13 per cent fall in activity. Many more investors began targeting Central & Eastern Europe where there was a 47 per cent increase in activity. Markets such as Turkey, Russia and Ukraine offer higher potential returns but with higher risk and all are expected to see a further marked increase in investment in 2008.
Michael Rhydderch, head of cross border investment, Cushman & Wakefield EMEA said: “There is now a more rigorous appraisal of risk across European markets especially for secondary assets. Some markets have been affected by the credit crunch less than others, however, with some of the Eastern European markets in particular remaining highly attractive. Investment volumes in these markets should actually increase in 2008.
In some of the more established Western European markets prices are adjusting quickly to the new reality. We believe that capital is starting to flow back into those markets most affected by the credit crunch as prices begin to appear comparatively attractive. Countries like the UK, which have seen values fall significantly, could in fact start to stage a rally in the second half of the year. Secondary stock, however, will remain weak across most sectors and jurisdictions unless there is a significant improvement in debt markets.”
Asia
Trading volumes in Asia totalled $145bn, an increase of 27 per cent. Mature markets such as Japan and Australia dominated but 80 per cent growth in emerging markets (notably China and Korea) has been the most spectacular. Foreign investors are a key component of this growth with foreign investment rising 87 per cent in 2007 to nearly $73bn. Investment volumes are expected to increase further in 2008 aided by strong foreign demand and the ongoing growth of the REIT market across the region.
Michael Thompson, CEO Asia Pacific, Cushman & Wakefield, said: ““We anticipate further strong interest in Asia’s emerging markets and a spreading of interest to include new targets such as Vietnam. Whilst American and European funds will be a key part of this, we’re expecting much more inter-regional investment, with new players from Japan, China and India likely to join the already established Australian players, competing across Asia Pacific.”
Real estate globally can not be viewed in a single light: the credit crunch may be high in most people’s minds but an economic slowdown is a more important potential threat in many areas.
Emerging markets have been going from strength to strength as investors seek stronger returns and diversification – and this will continue in the face of current uncertainty in many mature economies.
New markets continue to be added to the target list of investors – be that new country targets in established regions such as Ukraine or Vietnam – or new regions, with South and Central American economies looking highly promising for near term gains and the more established markets in the Middle East and Africa also attracting more capital.
The main split in the market going forward is not, however, likely to be by geography, it will be by quality. Good assets offering security or added value potential are in demand and in those areas seeing a re-pricing of property – such as the UK and the USA – they will only look more attractive going forward as interest rates are cut.
Hence while trading volumes this year can not be expected to match those of the recent past due to the absence of those players reliant on abundant debt, strong demand is nonetheless likely. Equity is not in short supply and provided a greater sense of economic certainty returns over the coming months, we anticipate that for prime real estate, emerging markets will escape the current slowdown relatively unscathed while more affected mature markets will be in recovery mode by the second half of this year.
Lipsey Cites CB Richard Ellis As Top Commercial Real Estate Brand For 7th Consecutive Year
 LONGWOOD, FL - According to The Lipsey Company's latest survey (2007), CB Richard Ellis is the top commercial real estate brand in the country for the seventh consecutive year.
CB Richard Ellis Group, INC (NYSE:CBG), an S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services firm (in terms of 2007 revenue). With over 29,000 employees, the Company serves real estate owners, investors and occupiers through more than 300 offices worldwide (excluding affiliate offices). CB Richard Ellis offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. In 2007, CB Richard Ellis was named one of the 50 “best in class” companies by BusinessWeek, and one of the 100 fastest growing companies by Fortune Magazine.
Rounding out the survey's top five, and unchanged from last year, are:
- Cushman & Wakefield, Inc. is a premier real estate services firm. They recruit,
retain, and train the most experienced and talented professionals, then give them the flexibility and global platform needed to add value. Their 12,000 worldwide employees, located in 215 offices throughout 56 countries, assess each client's needs and implement solutions that fit the client's strategic,
operational, and financial goals. Cushman & Wakefield also provides research and analysis on 85 major markets worldwide. They are market leaders in all of their core businesses.
- Colliers International has 10,092 employees in 267 offices in 57 countries. Through Colliers USA's 95 offices, they offer a broad range of services, including leasing, sales, corporate services, property management, facility management, development and construction. With over 4,400 employees in the USA alone, Colliers is one of the largest and most experienced commercial real estate service providers in the nation.
- NAI Global is the premier network of independent commercial real estate firms and one of the largest commercial real estate service providers worldwide. NAI Global manages a network of 8,000 professionals and 375 offices in 55 countries throughout the world. NAI professionals work together with their
global management team to help clients strategically optimize their real estate assets. In 2006, NAI offices around the world completed more than 36,000 transactions worth over $40 billion. They also manage over 250 million square feet of commercial space.
- Jones Lang LaSalle, is committed to delivering exceptional strategic, fully-integrated
services for property owners, investors and occupiers. On January 29, 2008 they reported record net income of $256 million, or $7.64 per diluted share of common stock, for the year ended Dec. 31, 2007. This represents an increase of 46 percent over the prior year’s net income of $175 million, or $5.24 per share. Revenue for the full year 2007 was $2.7 billion, an increase of 32 percent from the prior year, the result of strong performance in all operating segments. JLL has more than 100 offices worldwide and operates in more than 430 cities in 50 countries.
The Lipsey Compay is a Longwood, FL-based training and consulting firm that, among others, offers a popular course in commercial real estate branding. Each year the firm conducts a comprehensive survey of the top 25 commercial real estate brands.
MBA Survey: Commercial/Multifamily Mortgage Delinquencies End 2007 At or Near Record Lows for Most Major Investor Groups
WASHINGTON, DC - The Mortgage Bankers Association (MBA) recently released its inaugural analysis of Commercial/Multifamily Mortgage Delinquency Rates for Major Investor Groups that shows delinquency rates ended 2007 at or near record lows for most major investor groups.
Fourth quarter delinquency rates for four of the five largest investor groups – commercial mortgage-backed securities (CMBS), life companies, Fannie Mae and Freddie Mac – remained at or near historically low levels. For the fifth group, FDIC-insured commercial banks and thrifts, delinquency rates were lower at 2007’s year-end than during 5 of the previous 11 years and 10 of the previous 16 years.
“This is an important new analysis that helps cut through much of the recent ‘noise’ on commercial real estate finance,” said Steve Graves, Managing Director & Chief Operating Officer of Principal Real Estate Investors and Chair of the Mortgage Bankers Association’s Commercial Board of Governors. “Despite a great deal of attention being paid to economic uncertainty, it is reassuring to know that the performance of commercial and multifamily mortgage loans and bonds has remained so fundamentally sound.”
The new MBA analysis looks at commercial/multifamily delinquency rates since 1996 and compares year-end rates for the five largest investor-groups: commercial banks and thrifts, commercial mortgage-backed securities (CMBS), life insurance companies, Fannie Mae and Freddie Mac. Together these groups hold more than 80 percent of commercial/multifamily mortgage debt outstanding.
“The analysis incorporates the same measures used by each investor group to track the performance of their loans,” said Jamie Woodwell, Senior Director of commercial/multifamily research at the Mortgage Bankers Association. “While the numbers aren’t comparable across different investor groups, within each group they show a common theme – for nearly every investor group, commercial/multifamily loans are currently performing at some of the strongest levels on record.”
CMBS delinquency rates at year-end 2007, for example, were lower than those at year-end of 9 of the previous 10 years. Life companies finished 2007 with a delinquency rate lower than at year-end of all 11 of the pervious 11 years. Fannie Mae finished with a rate equal to or lower than 10 of the previous 11 years. Freddie Mac finished with a rate lower than 10 of the previous 11 years. And FDIC-insured banks and thrifts finished the year with a delinquency rate lower than 5 of the previous 11 years.
To put this period in context, for the two series with longer histories – commercial banks & thrifts and life insurance companies – delinquency rates for the period 1996 to 2007 (the period analyzed here) are considerably lower than during the preceding years. Using these longer series as a gauge, life companies’ 2007 year-end delinquency rates were their lowest on record, and delinquency rates at commercial banks ended 2007 lower than 10 of the previous 16 years.
Each investor group tracks delinquencies in its own way, meaning delinquency rates are not comparable from one group to another. Based on the unpaid principal balance of loans (UPB), delinquency rates for each group at the end of the fourth quarter were as follows:
- CMBS: 0.40 percent (30+ days delinquent or in REO);
- Life company portfolios: 0.01 percent (60+days delinquent);
- Fannie Mae: 0.08 percent (60 or more days delinquent);
- Freddie Mac: 0.02 percent (60 or more days delinquent);
- Banks and thrifts: 0.80 percent (90 or more days delinquent or in non-accrual).
To put these numbers in context, of 34,937 commercial/multifamily loans in life company portfolios, with a total unpaid principal balance of $245 billion, only 9 loans with an aggregate UPB of less than $19 million were 60+ days delinquent at the end of the quarter. Of $1.2 trillion of commercial/multifamily loans at FDIC-insured banks and thrifts, only $9 billion was 90+ days delinquent.
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