Reuters Graphics Reuters Graphics
Chart from article: https://www.reuters.com/markets/us/real-estate-pain-us-regional-banks-is-piling-up-say-investors-2024-02-12/
Will commercial real estate trigger the next financial crisis?
The latest inflation figures in the United States look relatively positive, with a slight decline in annualized inflation rates. However, only three items of the CPI components declined in December. Persistent inflationary pressures that threaten to undermine the rate-cut narrative that financial markets have adopted are present below the surface. Investors expect the Federal Reserve to pump the monetary laughing gas machine, anticipating further rate cuts and monetary easing to support multiple expansions.
However, in this wave of fervent optimism, there are dark clouds looming on the horizon: another wave of regional bank troubles added to the burgeoning crisis in the commercial real estate market.
The regional bank crisis was disguised with liquidity, but reality showed that unrealized losses in the banks’ balance sheets rose to all-time highs in the third quarter of 2023. Regional banks remain in deep trouble. According to Moody’s, major US banks are sitting on $650 billion in unrealized losses.
Things are even scarier in the land of real estate. Recent reports paint a grim picture of the commercial real estate landscape, with delinquency rates soaring to alarming levels and non-performing loans rising. The commercial real estate market, once an example of economic strength, stability, and prosperity, now stands on the edge of crisis.
Delinquency rates in commercial real estate have reached a 10-year high, with almost $80 billion worth of property in distress. According to MSCI Real Assets and Fortune, the value of buildings that were bankrupt, under foreclosure by lenders, or in the process of liquidation rose by a net $5.6 billion in the third quarter of 2023. Office properties accounted for 41% of the $79.7 billion total.
https://www.dlacalle.com/en/will-commercial-real-estate-trigger-the-next-financial-crisis/
Office CMBS delinquency rate continues to rise as vacancy approaches 40% in cities like Dallas and San Francisco. #MacroEdge pic.twitter.com/0SOlVL0gmU
— MacroEdge (@MacroEdgeRes) February 13, 2024
h/t mark000