China takes a hit ... orders fall ... commercial RE losses mount
First, China's Shanghai Composite Index dropped 5% overnight, the biggest decline in eight months. That may not sound like much because the darn thing has soared 79% so far this year. But the reason for it is worth noting: The government appears to be nervous about frothiness in the market and may clamp down. What kind of frothiness? Well, how about the fact that a Chinese home building firm IPO'd today ... and racked up a 56% first-day gain. Or the fact that a million Chinese stock trading accounts were opened in just two weeks in July, the most since January 2008. Ah to be young, in love, and putting in indications of interest on profitless Internet stocks. Those were the days.
Second, durable goods orders fell by a relatively steep 2.5% in June, compared with expectations for a drop of 0.6%. Strip out transportation orders, however, and you get a 1.1% gain. Economists were looking for an unchanged reading. A key gauge of business investment in the report rose 1.4% after a 4.3% rise in May.
Third, a report from Real Capital Analytics provides some interesting perspective on commercial real estate. RCA says about $2.2 trillion of U.S. commercial properties that were either purchased or refinanced since 2004 are now worth less than their original price. Some $1.3 trillion have declined so much the buyer's down payment has been wiped out or will be soon. Oh, and those figures don't even include one of the worst sub-categories in CRE -- hotels. Instead, the report covers office, industrial, multifamily, and retail. I've been saying for a while that residential real estate is stabilizing. CRE? Not so much.