Presentation: Bricks may be solid, but real estate values will fall further

Transcription

Bricks may be solid, but real estate
values will fall further
CESifo International Spring Conference 2009
Tank der
of Deutsche
Think Tank
DeutscheBank
BankGroup
Gruppe
Dr. Tobias Just
March 20, 2009
Content
1
US housing market
2
More real estate bubbles
3
Burden for the real economy
4
Repercussions for the real estate markets
5
Final remarks/The end of the crisis?
1
The end of a long boom
US house prices are falling
 The US real estate market reached
its peak at the end of 2006
House price indices, 2000=100
220
 Since then real estate prices have
continued to fall
200
180
160
 Case-Shiller: by 25%
140
 NAR:
by 20%
120
 OFHEO:
by 8.7%
100
2000
2002
Case-Shiller
Sources: S&P, NAR, OFHEO
Dr. Tobias Just - March 20, 2009
2004
NAR
2006
2008
OFHEO
 There have only been weak signs
so far that the market is beginning
to bottom out
1
There is no one single US housing market
Big regional differences
Case/Shiller house price index, 2000=100, sa
Charlotte
Denver
Miami
New York
Las Vegas
300
250
200
150
100
2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: S&P Case Shiller
 Corrections primarily took place (of
course) in the markets with the
biggest overvaluations (coastal
regions, Las Vegas, Arizona)
 In many other regions
overvaluations were only
moderate; the current weakness
there is primarily cyclical
1
Strong reaction on both sides of the market (S&D)
Significantly fewer home sales
Supply growing very slowly
Number of single-family home sales, in '000
'000 per month annualized
7000
1600
2000
6000
1400
1800
1200
1600
5000
1000
4000
1400
1200
800
3000
2000
1000
0
1976
1981
1986
1991
Existing houses, left
1996
2001
2006
1000
600
800
400
600
200
400
0
200
Long-term average
0
1976 1980 1984 1988 1992 1996 2000 2004 2008
New houses, right
Building licences
Source: NAR
Source: US Census
New construction
1
It will take at least 1.5 years to close the supply gap
US: housing inventory
 Excludes secondary residences
and vacation homes
m units, annual rate
14.5
14.5
14.0
14.0
13.5
13.5
Vacant
13.0
13.0
12.5
12.5
Trend
12.0
12.0
11.5
11.5
Currently almost 1.5 m
units above trend
11.0
11.0
10.5
10.5
10.0
10.0
00
01
02
03
04
Sources: US Census, DB Research
05
06
07
08
 The US population has grown by
2.8 m a year (mean of the last 20
years); the number of households
by approx. 1 m (average
household size 2.6 persons)
 With stable supply, the gap could
diminish in 1.5 years (new builds
approx. equal to demolitions) –
however, it will probably take
significantly longer
1
How deep could prices fall?
Reverse to mean
Beyond GDP growth
House prices – deviation from trend, in %
Real GDP growth (x-axis)
Real house price growth (y-axis)
Euroland
US
30
1971-2000
25
10
20
8
15
2001-2006
Far above historic relationship (∑: 32%)
6
10
5
4
0
2
-5
0
-10
-4
-2
-2
0
-15
-4
-20
71 74 77 80 83 86 89 92 95 98 01 04 07
Sources: OECD, Deutsche Bank Global Markets Research
-6
Sources: OECD, DB Research
2
4
6
8
1
Further remarks on the US real estate market
 Have sales volumes stabilised? No all-clear yet!
 Excess supply surely exists in the US
 Prof. Shiller predicts prices may fall by another 20-25% before reaching their
equilibrium. This forecasts takes account of the deep recession and a possible
overshooting
 From 1980 to 2000 real estate prices grew by an average 4.4% p. a. (nominal);
from 2001 to 2006 by 7.3% p. a. Thus, the average increase in US prices was
nearly 20% above the trend; in the hotspots the exaggeration was much more
pronounced
 The government will support private home owners. This could cushion the
downward development
 Conditions for financing will probably change. This will slow down the long-term
development
Content
1
US housing market
2
3
4
5
2
Exaggerations in many housing markets
Germany remains the peculiar
outlier
 The house price boom is over in
most European countries
House prices, 2001=100
US
DE
250
230
210
190
170
150
130
110
90
70
50
UK
FR
ES
IT
 The adjustment process is not yet
completed
 Germany did not see any
exaggerations – neither in any
region nor in any market segment.
Thus the risk of strong corrections
is weak
01
02
03
04
05
06
07
Sources: CaseShiller, Nationwide, MVIV, BulwienGesa
Nomisma, INSEE
08
2
Not only the usual suspects
Look who is crashing next
 Dubai is in the early stages of a
strong price correction
(in Q4: -8% qoq)
House price growth, in % yoy
Dubai
Bulgaria
Russia
Croatia
Sweden
Norway
Finland
UK
Spain
France
Lithuania
Latvia
Ireland
Estonia
 House prices will have to fall
significantly in many Eastern
European markets (in Russia
prices have fallen since Q4 2008)
2008 Q3
2007 Q4
2006 Q4
 As seen before, the regions with
the strongest price increases in the
past will face the strongest price
declines in the future
-40
-20
0
Source: Knight Frank
20
40
60
80
2
In addition there has been a “construction bubble”
Too much new construction
in Spain and Ireland
 In Spain the supply of new housing
units exceeded the number of new
households by more than 300.000 units
p.a. in the last few years. This has led
to a vacancy of more than 1 m units
New residences/'000 households
70
60
50
 In some years nearly 90.000 new
residences were built in Ireland, a
country with only 4 m inhabitants (three
times more than in Berlin in the boom
years)
40
30
20
10
0
2005
2006
DE
FR
2007
IE
Sources: Euroconstruct, DB Research
UK
2008
ES
 The United Kingdom, France and
especially Germany should be affected
less on the supply side
 The houses will not save the world this
time – completion volume will stay
muted for years!
2
It‟s also in the office markets that prices grew too fast
Yields are rising
 The (implicit) capital values of
office buildings grew from the last
low point (2003/2004) to approx.
Q3 2007 in:
Office yields (%)
London (City)
Madrid
Paris
Frankfurt
8
7
 London:
by +250%
6
 Paris:
by +130%
5
 Madrid:
by +120%
4
 Frankfurt: by +23%
 Moscow: by +330%
3
90
92
94
96
98
Sources: CBRE, RREEF
00
02
04
06
08
 Retail stores experienced similar
growth rates
Content
1
US housing market
2
3
4
5
3
2009 will be a difficult year
Low expectations
Worst recession since 1930
Business expectations, +/- diffusion index
Real GDP, % yoy (baseline scenario)
40
US
Euroland
DE
4
20
3
2
0
1
0
-20
-1
-2
-40
-3
-60
91
93
95
97
Source: ifo Institut
99
01
03
05
07
09
-4
2000
2002
2004
Sources: Destatis, DB Research
Current baseline forecast of -3.5% (2009) might still look benign!
2006
2008
2010
3
The export champion suffers from missing export
markets
Problems come from abroad
Export share (x-axis), in %;
New orders Aug-Dec 2008 compared to Mar-Jul 2008 (y-axis), in %
0
The bigger the export share of total turnover, the
more painful the current adjustment.
Clothing
-5
Electrical
engineering
-10
Plastics
Chemicals
Textiles
-15
Mechanical
engineering
-20
Automotive
Metals
-25
30
35
Sources: Destatis, DB Research
40
45
50
55
60
65
3
Europe„s overall economy suffers from the recession in
the construction sector
Depending on construction
Fewer new buildings expected
Share of construction investments for new
housing construction of GDP (2007)
Building permits,1998=100
350
300
IE
250
ES
200
150
Europe
100
FR
50
UK
0
98
00
02
04
06
08
DE
DE
0
2
4
6
8
FR
10
Sources: OECD, DB Research
Source: Euroconstruct
IE
UK
ES
Content
1
US housing market
2
3
4
5
4
Only a little less cold than in December
Pessimism in the sector prevails
KnightFrank real estate index
Values>100 signal optimism
110
90
 One year ago there were still more
optimists than pessimists – in
January the readings were slightly
above those of December. At least
the bottom seems to have been
reached
 Assessments are negative for all
segments – at least the readings
for the housing sector are much
higher than those for commercial
real estate (though still below 100)
70
50
30
Jan 08 Mrz
Mai
Source: BulwienGesa
Jul
Sep
Nov
Feb 09
4
The office market will follow the economic cycle
Rents will fall markedly
Growth of real GDP (in % yoy, x-axis)
Growth of prime office rents (in % yoy, y-axis)
60
y = 6.0x - 11.4
R2 = 0.40
40
 Drop in rents of more than 20% are
very likely
20
 GDP forecasts would suggest an even
more pronounced drop
0
-20
-40
-2
 Office rents in European cities
react very strongly to the business
cycle
0
2
4
6
Correlation of rental growth in Frankfurt, Paris, Milan, Amsterd.,
Madrid and London with national growth rates, 1990-2008
Sources: RREEF, OECD, DB Research
8
 However, the current level of
completions is moderate in many
cities
 Especially in German cities, no
record rents were reached in the
last upswing
4
Office markets are cooling already
US office rents are starting to fall
Peaks already passed
Prime office rents, 2000=100 (local currencies)
Prime office, USD/square foot
180
80
160
70
60
140
50
120
40
100
30
20
80
10
60
0
1990
00
1993
1996
1999
2002
2005
San Francisco
Source: CBRE
04
06
08
2008
London
New York
02
Los Angeles
Source: CBRE
Paris
Madrid
Frankfurt
4
Refinancing contains risks
Hardly any issuance
Global issuance volumes, in bn USD
400
 Significant reduction in the
issuance volume of ABS and MBS
 What is more important: High
demand for refinancing until 2012
implies pricing risks
350
300
250
200
 In the United States a total of USD
230 billion CMBS could have to be
renewed until 2012. In 2009 and
2010 USD 60-70 bn, respectively
150
100
50
0
Jan 06 Jul 06 Jan 07 Jul 07 Jan 08 Jul 08 Jan 09
ABS
Source: Dealogic
MBS
 In Europe the volume is lower
because the overall securitisation
market is smaller
 Falling capital values are an
additional burden
4
Declining demand for real estate portfolios
Fewer primary portfolio deals
Number of housing units in portfolio deals, '000
Secondary deal
Primary deal
400
End of the rally on commercial
investment markets
Commercial real estate transactions, EUR bn
60
350
50
300
250
40
200
30
150
20
100
50
10
0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Note: Portfolio deals with at least 800 units, H1 2008
Source: BBR
© BBR Bonn 2008
0
1998
2000
2002
Sources: JonesLangLasalle, DB Research
High transaction volume is not necessarily a good sign for 2009!
2010 will remain at comparatively low levels.
2004
2006
2008
4
Expected return
Opport.
Investors
Real estate
Corp.s
Value Add
Textbook
REITs
Core/Core+
Risk
Source: DB Research
Content
1
US housing market
2
3
4
5
5
Six assertions
US house prices will keep falling in 2009. Completion
volumes could hit bottom
European housing markets are only seeing the
beginning of painful adjustments
Office rents will fall significantly, and office yields will
rise further
Retail sector developing unevenly: Prime locations
and discounters are relatively safe havens
Need for refinancing significantly limits room for
manoeuvre of opportunistic investors
Strategic long-term investors move back into the
focus of investment markets
5
More information (selection) www.dbresearch.de
Disclaimer
© Copyright März 09. Deutsche Bank AG, DB Research, D-60262 Frankfurt am Main, Deutschland. Alle Rechte vorbehalten. Bei Zitaten
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Presentation: Bricks may be solid, but real estate values will fall further

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