Last week's update of the Moody's/REAL Commercial Property PriceIndex (CPPI) measured a 3.1% decline in the national index ofproperty prices. Following drops in both June and July, the indexis now just 1% above its cyclical low. As note by MIT ProfessorDavid Geltner in his related commentary, the headline numbers masklower price points for distressed asset sales. Similarly, pricesfor prized core assets in a handful of leading metros haveregistered robust improvements. Isolating New York, Washington DC,Boston, Chicago, San Francisco, and Los Angeles, the index climbedby 8% in July. Since touching bottom, the index for these sixmetros is up 19% , in clear contrast with the broader trend. Pricesin these metros are supported by investor interest but also byhealthier credit conditions supporting transaction activity and byscale in support of price discovery.

The Contribution of Distress to PriceIndices

In spite of the relatively large declines in thelast two months' index measures, we should be cautious wheninterpreting the result as evidence of renewed instability in thepricing trends for performing assets. Essential to the assessmentof the current index trend, including the July measurement, theshare of transactions related to distress has been increasingsteadily over the past 18 months. In turn, this larger share ofdistress sales has exerted greater downward pressure on theaggregate measure of same-property prices.