Commercial Real Estate Defaults. Will Our Economy Survive?

 When Covid shut down the world and folks were told they shouldn't come to the office, a new normal was upon us.  Many businesses realized that they don't have to spend billions on offices.  It turns out that millions of folks can do their jobs just fine from their homes.  So now what happens to the huge office buildings that are sitting empty?  How do you make the payments on those mortgages when they are sitting mostly empty?

It sounds like maybe the payments aren't being paid.

A lot of people have been waiting for "the other shoe to drop", and now that day has arrived.  Thanks to rapidly rising interest rates and historically low occupancy rates, we are facing an unprecedented commercial real estate crisis.  

Borrowers are starting to walk away from commercial real estate properties all over the nation, and that is really bad news for small and mid-size banks because they are holding most of these loans.  

Needless to say, a lot of small and mid-size banks are simply not going to be able to survive a nationwide tsunami of commercial real estate defaults.

When U.S. Senator John Kennedy was asked about this growing crisis, he didn't mince words...

"Am I worried? The short answer is yes," Sen. John Kennedy (R-La.), a senior member of the Senate Banking Committee, said in an interview. "The long answer is hell yes."

"I hope the Federal Reserve and the banking regulators are worried as well, and I hope they won't be caught flat-footed like they were with the bank failures that we've had so far," Kennedy said.

In some cities, commercial real estate values have already declined by more than half.

As borrowers increasingly walk away from bloated mortgages, lenders are going to be facing a balance sheet shock of epic proportions...

As the federal government strives to contain financial market turmoil, the next risk looming over the nation's banks is in plain sight: the $20 trillion commercial real estate market.

Some $1.5 trillion in mortgages will come due in the next two years, a potential time bomb as higher interest rates and spiraling office vacancies push down property values.

And because 70 percent of bank-held commercial mortgages sit on the balance sheets of regional and smaller lenders, a write-down in commercial loans could spell big trouble for the financial system and spill over into the larger economy just as the 2024 presidential campaign gets underway.

Fitch Ratings already estimated that 35% -- or $5.8 billion -- of pooled securities commercial mortgages coming due between April and December 2023 will not be able to be refinanced. 

"Commercial real estate is melting down fast," Tesla CEO Elon Musk said in a recent tweet. "Home values next."

Here;  Can Our Economy Survive The Coming Tsunami Of Commercial Real Estate Defaults? (prophecynewswatch.com)

Of course we are constantly seeing headlines talking about crashes and meltdowns and they certainly don't always come true.  But this warning about commercial real estate seems rather obvious.  Is there enough "money" left to bail everyone out if billions and billions of dollars goes up in smoke?

Elon says that the crash will start with commercial but then fall into home values.  Americans have rung up enormous balances on their credit cards and home equity lines in part because they feel wealthy as they look at their property values.  But what happens to all of them when their $800,000 home falls in value to $400,000?

There can be no doubt that Americans have gotten drunk on the easy money of COVID bailouts and 0% interest rates.  But we know that the Bible speaks strongly about those who are prone to drunkenness.  This time it might not be alcohol they are drunk on but drunk on Mammon.  One day this crash will happen.  We just don't know when God will withdraw His hand of mercy on this nation.