100-City Rental vs. Ownership Study

The Center for Economic and Policy Research (CEPR) has come out with it October 2008 report titled "Ownership, Rental Costs and the Prospects of Building Home Equity: An Analysis of 100 Metropolitan Areas," which compared the ownership and rental costs in 100 major U.S. metropolitan areas and projected the potential for a first-time homebuyer in those cities to accumulate home equity.  Since the publication of that paper, housing prices have continued their steep descent in much of the country and rents have risen modestly.  The study shows that recent price declines indicate many communities are moving back toward the historical track of modest equity increases for homebuyers. The findings point out that is still unwise for policy makers to attempt to directly intervene in housing markets to maintain what are historically unprecedented high home prices.  

CFNAI down to -2.57

The Chicago Fed National Activity Index was −2.57 in September, down from −1.61 in August. Most of the index's decline in September was driven by the steep drop in industrial production, as reflected in the contribution of the production and income category of indicators. However, all four broad categories of indicators made negative contributions to the index in September. 

The CFNAI is a weighted average of 85 existing monthly indicators of national economic activity. It is constructed to have an average value of zero and a standard deviation of one. Since economic activity tends toward trend growth rate over time, a positive index reading corresponds to growth above trend and a negative index reading corresponds to growth below trend.

Commercial Real Estate Values Fall 2.5%

For the 3Q of 2007, there was a decrease in the TBI of 2.5%. Since the 3Q of 2003, the TBI (The MIT/CRE CREDL Initiative has developed a Transactions-Based Index (TBI) of Institutional Commercial Property Investment Performance) has been steadily increasing for the past 4 years.

The MIT Real Estate Center analysis shows that
the drop may not only indicate the end of commercial real estate price increases which effectively doubled in the past 4 years, but it also may signal that weakness in the housing market is spilling over into commercial real estate. The last time we saw this large of a price decrease occurred when prices fell 3.9 percent following the terrorist attacks of 9/11, says the MIT center.

Commenting on the index for the third quarter of 2007, MIT center director David Geltner said in a statement, "The fall in our index is the first solid, quantitative evidence that the subprime mortgage debacle, which hit the broader capital markets in August, may be spreading to the commercial property markets."

RPX - Residential Property Index

If the residential market hasn't seen it's share of inflated values from the flow of easy money lately, now investors can trade in the RPX ("Residential Property Index"). The RPX will enable users to trade residential property prices in 25 MSA's nationwide in addition to a composite index based on those 25 cities. The trades are based upon an initiation of trading in derivative instruments and financial products based on the RPX from Radar Logic.

Radar Logic uses a proprietary modeling technique to create Daily Prices derived from the actual prices paid for US Residential real estate, which the Federal Reserve reports in total aggregated value of assets held to be $22.9 trillion as of 3/31/07.

I wonder if the lenders will short their positions on the RPX in order to hedge their bets against the underlying foreclosures that will result as ARM's readjust. This tactic is used by managers of oil & gas assets to limit their downside on future price fluctuations, and now the largest lenders in the country could short RPX positions, knowing that they have an influx of NOD's potentially coming in 4Q '07. Perhaps the Kramer meltdown video gave Wall Street an idea on how to feed off itself.