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The Latest or ig i nat ion ANALYTICS Commercial Executives Cautious on Market Recovery a na ly t ic s se r v ic i ng An uncertain economic outlook is clouding the future for commercial real estate. D Analysts Address Truths and Untruths of Home Price Gains S e c on da r y M a r k e t Capital Economics wonders if recent reports are telling the whole story. A re indices incorrectly misleading the market regarding the rise of house prices? "Yes" is what the market appears to be saying when it comes to rising house prices. But is there more to what the indices suggest than meets the "aye"? A recent U.S. Housing Market Update from Capital Economics suggests that the information reported in indices may not exactly measure up. Data reveals that the decline of distressed sales is in fact having an upward impact on house prices, yet that information alone does not appear to be enough evidence to convince market experts that house price indices' failure to adjust for this result is in essence marring the "real" rate of house price appreciation. For instance, while both the Case-Shiller 20-City index and the CoreLogic index revealed 48 | The M Report house prices increasing upwards of 1 percent in May, and 12.2 percent throughout the last year, there have also been claims that perhaps these indices have been exaggerated or inflated due to the way that foreclosure resales are calculated into the equation alongside home prices. The Zillow house price index, in light of this hypothesis, shows a much more moderate rise by just 5.8 percent year-over-year. And yes, it certainly does appear that the share of distressed sales had an impact on the rate and direction of house price shifts in the recent years, mainly that the decline of such sales—particularly in 2009—aided a house price increase, yet this impermanent improvement simply shifted right back following the rise once again of distressed sales. Hence, the maintainable rise in house prices finds itself situated alongside a major drop in distressed sales shares. Despite the claims of exaggeration, it is not entirely conclusive that the main indices are in fact over-egging the "true" rate of price appreciation. Although distressed sales can push prices away from the buyers and sellers of a market, they have also undoubtedly laid the foundations for the housing market's mend as they provide an opportunity for investors to purchase homes at bargain prices, which in turn aids housing recovery. Likewise, though, the most recent dip in distressed sales has also catapulted housing toward healing. Both sides considered, this entire issue may come down to what is often known as a red-herring, with some indices including distressed sales data as others exclude it. Bottom line remains that house prices are expected to grow and then slow as 2014 is ushered in. Such a slowdown in house price appreciation would indicate a sustainable nationwide house price recovery is right at our fingertips. espite the commercial real estate market's "gradual, uneven recovery," industry executives remain wary about the future as job creation and various uncertainties threaten to slow down property value gains, the Real Estate Roundtable reported in its Q 3 Sentiment Survey. According to the Real Estate Roundtable, the latest survey continues the "basically flat" trajectory of the past several quarters, with the Current Conditions index staying at 71 and the Overall and Future Conditions index each rising a single point to 70 and 68, respectively. "This survey indicates a commercial real estate sector and national economy stuck on a plateau of recovery—certainly improved since the worst days of the recession, but not moving forward in any robust way," said Jeffery DeBoer, president and CEO of the Real Estate Roundtable. "The slow pace of macroeconomic recovery is directly tied to the 'flatlining' of expectations in our industry, which is why the Roundtable continues to press for an array of federal policies aimed at unleashing investment and job creation." While the index has been largely flat from quarter to quarter, a majority of respondents in the third-quarter survey said they view market conditions as having improved "at least somewhat" during the past year (77 percent compared to Q2's 75 percent). In addition, the number of participants expecting better conditions in the next year grew to 65 percent from 62 percent in last quarter's survey.