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Commercial real estate outlook brightens

With the release of the January value of Moody's index of commercial real estate prices, we see that prices have increased three months in a row. This looks like a bottom, but it may still be early to call one. Nevertheless, it is encouraging to note that both residential and commercial real estate values have fallen by a similar order of magnitude since their recent highs, and both appear to have hit bottom. It would not be unusual at all for a bottom in prices to occur given a) the degree to which prices have fallen, b) the length of time prices have been weak, c) the emergence of a general economic recovery, d) the presence of extraordinarily accommodative monetary policy for the past 18 months. and e) the fact that mortgage rates are at or very close to all-time lows.

Indeed, if these markets couldn't find a bottom given all of the above conditions, then it would really be time to start worrying.

As further evidence of improving conditions in the commercial mortgage market, I offer this chart of CMBX prices from Markit:

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