Real estate (commercial), Residential real estate, and REITs: Three "R's" confirming Recession far from over?

Will the real estate sector pull us down again? Analysts are beginning to talk about commercial real estate being the next shoe to drop (hmmm, are these many shoes dropping from a centipede?! LOL) that can explain another round of weakness in banks, especially regional banks. As well as real estate in general on the verge of completing a counter-trend bounce that will roll over to another leg down. An interview on Bloomberg TV just a short while ago this evening featured the growing problems in commercial real estate. And another one yesterday featured one of the new online services that basically helps people "barter" their homes by trading their house for someone else's house. I tried to find that online service with a Google search, but turned up so many hits that I don't know if I can find it - but it's obvious this idea is growing in popularity. I've already commented a few times in the past that I think the convergence of bartering, and the Web with cheap or free online services, will be part of the deflationary force as we enter closer to the long-wave downturn lows still ahead. The good thing is that the Web enables the free exchange of communication that will help people weather the downturn lows relatively well - with information (learn how to cook and avoid expensive restaurants! exchange your home if you cannot sell it and buy another! keep up with family and friends online and save the old costs of photography, shipping packages, etc. etc.!).

So whether we welcome these new technologies as being part of deflationary forces, or as devices to help us get through deflationary times more easily, we've got to recognize that one of the sectors that's still in a downtrend is real estate, including commercial real estate.

The folks at "Chart of the Day" weighed in on this with their weekly free chart, so let's take a look - it's below, along with their text commentary:

Chart of the Day
For some perspective on the all-important US real estate market, today's chart illustrates the 2004 to 2009 trend of the Dow Jones Equity REIT Index. As today's chart illustrates, the unwinding of the real estate/credit bubble initially (early 2007 to mid-2008) occurred at a fairly moderate pace. That pace accelerated (mid-2008 to early 2009) as major financial institutions began to collapse. When all was said and done, the peak to trough decline of the Dow Jones Equity REIT Index ended up being 75.8%. Since the trough of early 2009, REITs have rallied and are currently up 38% (though remain 66% below the 2007 peak). As today's chart illustrates, the Dow Jones Equity REIT Index remains within the confines of a moderate downward sloping trend channel and currently trades near resistance.

Chart of the Day is provided without warranty of any kind and accepts no responsibility for its accuracy or for any consequences of its use. Journalists and bloggers may post the above free Chart of the Day on their website as long as the chart is unedited and full credit is given with a live link to Chart of the Day at http://www.chartoftheday.com/.

Well it's pretty evident that if the REITs fail from the resistance line shown on that chart, and if commercial real estate pulls down the banks some more ... and furthermore, the higher vacancy rates and the lower rents being negotiated are another clue that the overall economy is continuing to weaken, and there's no recovery in sight for residential real estate ... You cannot fault me for seeing these as signs that the financial markets outlook continues to be bleak!

Below is my weekly chart of IYR, which I constructed about a couple of months ago. Today I added some comments for this post. This also explains why my stake in SRS (short real estate) has been doing all right over the past two months. Given how things are looking, I do not see any reason to let go of that unless it reverses and takes out its lows of two months ago; and we should keep an eye on the IYR chart to see if it takes out the upper trendline resistance. Right now, IYR is riding on its Bollinger Band midline with moving average support, so it could bounce again to test that trendline. Taking out the moving average support will of course signal that another test lower lies ahead.