Light At The End Of The Tunnel

Doug Marshall, CCIM
Market Assessment
Published December 8, 2009

In a previous market assessment, I identified seven things that need to occur before commercial real estate lending can return to normal (whatever the new normal is going to be):

1. The overall economy needs to improve
2. Commercial real estate fundamentals (vacancy rates and rental rates) need to stabilize
3. Foreclosures need to occur so banks can cleanse their balance sheets of non-performing assets
4. Weaker banks need to fail
5. Lenders need to extend, amend, and pretend
6. Inflation needs to happen, and
   
7. A new version of the CMBS product needs to be created.

Today's post falls into the first category: the overall economy must improve before lending can return to normal.

Chart of the Day (shown below) is a product of Barron's Magazine, which provides insightful charts that both inform and educate the reader. Rarely can you find a chart which better illustrates how this recession compares to those experienced in the past.

The chart compares the third quarter earnings of most companies that comprise the S&P 500 to other recessions that have occurred since 1936.

Notice the precipitous decline in corporate earnings since the third quarter of 2007. Earnings have been in freefall, having dropped 92% from the third quarter of 2007 to the third quarter 2009 trough, which makes it easily the largest decline on record.

However, on the positive side, the S&P 500 combined earnings has bottomed out and is moving up sharply. Improved earnings are the first step to recovery; but as we all know, employment growth is the real indicator needed to show that a recession is over.

Unfortunately, we are not there yet. In Oregon and Washington, unemployment is expected to continue to rise through the second half of 2010.

But for now, we should realize that the U.S. economy is in the first stage of a recovery. It may be a slow and arduous recovery, but it appears we are in for better days ahead.

Have courage! There's light at the end of the tunnel.

Source: Barron's Magazine Chart Of The Day, November 20 2009