Hopefully the 2008 mortgage crisis does not come again, but there are reasons to worry.
This time, the worry isn’t so much about residential real estate, but the growing amount of empty commercial real estate.
Investors ‘Once Again Bracing for Turmoil Among Regional Lenders’
The New York Community Bank, as just one example, has been given its third credit downgrade in just a week.
Commercial real estate is getting hit with a triple-edged sword.
First, high interest rates make already-expensive units that much more costly. Second, and maybe worse, too many office buildings and commercial buildings are empty – thanks to remote work. And remote work is also on the rise in places like Oakland because it’s just simply too dangerous to go to work.
Yahoo Finance reports, “Almost a year after the failure of three midsized U.S. banks sparked an industry crisis, investors and regulators are once again bracing for turmoil among regional lenders, this time due to rising defaults in commercial mortgages.”
The story continues:
NYCB was initially a benefactor of those failures, scooping up Signature Bank last year after it was shut down by regulators following a run on deposits.
The culprit now is commercial real-estate debt, which is souring quickly as landlords face higher interest rates than they can afford and tenants, after nearly four years of half-full offices, are cutting their leases.
And while the U.S. banking system is increasingly dominated by a handful of national giants, commercial mortgages are still the province of regional lenders.”
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What’s Next?
“Commercial mortgages account for, on average, 3% of the assets at the 10 biggest banks in the country. At the next 150 banks, it’s almost 20%. Local banks routinely have half of their customers’ deposits tied up in mortgages for office buildings, hotels, and malls,” Yahoo notes.
How this plays out is anyone’s guess but analysts are right to be concerned. It wasn’t too long ago that regional banks in California collapsed completely, which sparked similar concerns.
As if inflation isn’t bad enough, is another mortgage crisis on the horizon too?
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