Buckle up because there’s some serious drama unfolding in the world of real estate investment. You might have heard about it, but there’s this obscure thing called CRE CLOs, and they’re taking a serious hit.
So, what are CRE CLOs? Well, they’re like a mixed bag of risky real estate ventures bundled up into bonds. These bonds are like a rollercoaster – some are high-risk, high-return, while others are a bit more stable.
But here’s the kicker: in the last seven months, the amount of troubled assets tied to these CRE CLOs has skyrocketed by four times! Yep, you heard that right – a whopping surge to over 7.4%. And for some unlucky investors, delinquency rates are hitting double digits.
Now, why should you care? Well, this pain isn’t just hurting investors; it’s part of a bigger shakeout in the colossal $20 trillion U.S. commercial real estate market. The big players are scrambling to salvage what they can, while others are eyeing opportunities to short-sell, betting on companies teetering on the edge of collapse.
Even bigwigs like Treasury Secretary Janet Yellen and Federal Reserve Chair Jerome Powell are keeping a close eye on this mess. They’ve warned that the fallout could be messy. And guess what? Few things are feeling the heat more than these CRE CLOs.
But wait, there’s more. Brace yourselves for higher mortgage rates. Fannie Mae’s predicting a spike, with rates expected to hit 6.4% by the year’s end. That’s not great news for the housing market, as expectations for home sales in 2024 take a nosedive.
So, what’s the takeaway here? Well, the real estate world is in for a bumpy ride. Keep your eyes peeled as this unfolds – it’s bound to get interesting.
Sources:
https://ca.finance.yahoo.com/news/real-estate-pain-showing-obscure-110000637.html
https://finance.yahoo.com/news/higher-mortgage-rate-forecast-leads-143000207.html?guccounter=1
