thehousingbubble@gmail.com
Blog

This Final, Terribly Overheated Period Could Not Be Sustained And A Market Correction Ensued

A report from the San Francisco Chronicle in California. “After skyrocketing during the pandemic, home prices in San Francisco have been declining in recent months at faster rates than in other parts of the state and country. Typical home values in San Francisco climbed from nearly $900,000 in January 2020 to a record $1.2 million in May 2022, according to Zillow data. Then home values began to decline, reaching $1.1 million by the end of March 2023.”

“‘This final, terribly overheated period of an incredible 10-year up-cycle in Bay Area home values led to fantastic increases in home prices over a two-year period, which could not be sustained, and a market correction ensued — as it always does — this time, in particular, triggered by the huge increase in inflation and interest rates, and the sudden dramatic fall in stock market values,’ said Patrick Carlisle, chief market analyst for the San Francisco branch of real estate firm Compass.”

In Maricopa in Arizona. “The average sales price in Maricopa dropped 16%, to $356,000 in December from $427,000 in June 2022. The average sales price fell 1% from December 2022 to March 2023 and that might be the last drop for the near future. Of the 464 active listings, 278 were new construction, a whopping 58%.”

From KTVZ. “Central Oregon’s real estate market continued to show fairly stable signs in April, with the Bend median home sales price down somewhat while Redmond’s increased, according to a monthly report released Sunday. The Bend area’s median single-family home sale price dropped $16,000 to $669,000 last month, the report from Redmond’s Beacon Appraisal Group said. In Redmond, meanwhile, the median home sales price popped up $30,000 last month, to $469,000.”

From Bisnow. “If there were a one-word refrain that rang through the first-quarter earnings calls of the country’s top commercial real estate brokerages, it would be ‘challenging.’ With steep declines in transaction volumes and leasing and a ballooning sense of economic uncertainty stacked against them, five of six top real estate brokerage firms posted net losses in the first three months of this year. Many firms voiced expectations that the worst is yet to come, anticipating these troubling conditions and their effects on the industry would persist for longer than previously predicted.”

“Colliers, Cushman & Wakefield, JLL, Newmark and Marcus & Millichap all posted net losses in the first quarter.  In his company’s earnings call, Colliers Chief Financial Officer Christian Mayer said since providing the firm’s initial outlook in February, ‘a significant banking crisis has occurred, availability of credit has tightened further and the level of uncertainty around asset valuations has increased, causing us to revise our outlook for the year.'”

The Kansas City Star. “The potential foreclosure on the Mission Gateway project poses perhaps the biggest threat the cursed Johnson County development has ever faced. It could leave the city of Mission without a finished project, but also cost developers, bankers, vendors and contractors millions. Several real estate experts tell The Star the development, despite sitting on one of the most valuable pieces of property in the area, is upside down, meaning the property is now worth less than what is owed.”

“‘They’re going to sell that thing in a fire sale for a fraction of that number,’ said Kade Pittman, vice president of real estate at Cinergy Entertainment Group.”

CBC News in Canada. “The hot housing market Canmore is one example of how Alberta’s recreational property market is staying strong amid softening demand in other parts of the country. At a national level, spring forecasts from Royal LePage and ReMax Canada suggest that amid higher interest rates and economic uncertainty, the pandemic-induced frenzy for recreational property has started to die down. In Canmore, for example, prices have risen about eight per cent in the first quarter of 2023, and are expected to rise about another eight per cent by the end of the year, according to the ReMax report. It’s a stark contrast to the cottage country hot spot of Muskoka, Ont., where the report noted prices have tumbled about 14 per cent compared to the first quarter of last year.”

“‘It’s sort of indicative of economic factors,’ said Elton Ash, regional vice-president for ReMax Canada. ‘What you’re seeing in Alberta is that strong buyer confidence that doesn’t quite exist in Ontario.'”

From DPA. “German real estate giant Deutsche Wohnen reported a loss of €667.9 million ($737.3 million) for the first-quarter on Monday, compared to profit of €236 million in the previous year. Deutsche Wohnen, a publicly listed property company in Europe, is part of the Vonovia Group. As of March 31, 2023, the portfolio comprised a total of around 140,000 residential units.”

From Yicai Global. “The recent cooldown in China’s real estate market is in line with expectations, and it will remain stable afterward, as it is unlikely to usher in a new round of housing price declines, industry insiders said after a local regulator punished real estate developers for having greatly cut the prices of two projects in their new residential projects. On May 5, the Suzhou Kunshan Housing and Urban-Rural Development Bureau punished two local real estate projects that considerably cut prices without permission, disrupting the local market and causing social instability. It suspended sales contracts for the projects and said to allow the resumption only after rectifications.”

“China Vanke is the developer of one of the two projects the Kunshan regulator halted. Before the intervention, the real estate giant offered around 20 percent discount, equal to CNY300,000 (USD43,410), Yicai Global learned. Afterward, the price cut was rectified to only between CNY30,000 and CNY50,000 (USD4,340 and USD7,230). As a leading property developer with strong bargaining power, Vanke’s actions aroused concerns that others will also start a new round of discounts like it happened last year.”

“If the local officials allow developers to offer big discounts, more firms may follow up, triggering a price war and disrupting home buyers’ mentality and confidence, further affecting their purchasing behavior, said Lu Wenxi, an analyst at Zhongyuan Real Estate in Shanghai, Caijing reported yesterday. In order to stabilize housing prices and market expectations, many local governments set a daily discount limit for the real estate market of 10 percent or 15 percent to avoid too significant price cuts and started punishing many developers for excessive price reductions.”

From ABC News. “Financial counsellors are urging people hit by rising interest rates to seek help, with the latest increase plunging about 171,000 more home owners in Australia into mortgage stress. The RBA raised interest rates for the 11th time in 12 months last week, taking the cash rate to 3.85 per cent. In New South Wales, more than half a million mortgage holders (32 per cent) are now ‘at risk,’ according to Roy Morgan data. A third of all mortgage holders now ‘at risk’ in Australia are in NSW.”

“Vanessa Emery, a financial counsellor with Wesley Mission, urged people to start early, as soon as home owners ‘feel the bite’ in their budget. Ms Emery said they were seeing people who were paying 50 to 90 per cent of their income on the mortgage. ‘What we’re also seeing is couples who are separated but living under the same roof, because they simply can’t afford to live separately,’ she said. If there was no expected long-term change in their clients’ position, they would be forced to sell. ‘Sometimes that’s the best outcome because they’re able to relieve their stress because they don’t have to worry about making those unaffordable payments anymore,’ she said.”

Related Posts
This Post Has 68 Comments

  1. ‘they were seeing people who were paying 50 to 90 per cent of their income on the mortgage’

    That’s some sound lending right there.

    ‘What we’re also seeing is couples who are separated but living under the same roof, because they simply can’t afford to live separately’

    Must be awkward.

    1. “…separated but living under the same roof..”

      Not surprisingly the same here in SoCal.

      Add in the rental room for the UCI student and you got the making’s for a sitcom.

    2. “separated but living under the same roof”

      Some states (like VA) allow couples to separate under one roof and still get a divorce. I think it’s always been that way, because there have always been couples who are too poor to afford a separate rent payment.

      I knew one couple who were divorced and had the money for one parent to move out, but still lived under the same roof raising two young children. IMO that seems kinda low.

    3. “couples who are separated but living under the same roof, because they simply can’t afford to live separately”

      At least it was cheaper than renting.

      1. Proverbs teaches that this isn’t practical if the spousal unit isn’t contentious. I expect that applies even more to an Ex. The remedy is for one to live on the rooftop!

        In my case, it would have been Unpossible.

    4. Must be awkward.

      The term cuckold comes to mind. No self-respecting man would do such thing.

  2. ‘The Bend area’s median single-family home sale price dropped $16,000 to $669,000 last month, the report from Redmond’s Beacon Appraisal Group said. In Redmond, meanwhile, the median home sales price popped up $30,000 last month, to $469,000’

    There’s two charts at this link to show how much these sh$tholes have cratered. Not included in the article stats.

    1. After the previous bubble pop, you had a commenter singing the blues on his Bend shanty. And he paid about $300k if I recall. Imagine the blithering idiots who were paying over $700k for shacks in Bend, Oregon. It’s insanity. There’s no other way to describe it.

  3. Bend OR , that has to be Bay Area money same with Reno NV

    All reasons why Newsome CA’s governor wants a exit tax

    1. “Bend OR , that has to be Bay Area money same with Reno NV”

      “All reasons why Newsome CA’s governor wants a exit tax”

      —

      – A CA exit tax might be considered the financial equivalent of the “iron curtain.” All sources of revenue to be considered.

      – Border policy from the left is entirely self-serving. An open southern U.S. border is fine, but leaving the Socialist hell-hole state is discouraged. OK, got it. This isn’t much different than N. Korea, Venezuela, Cuba, in my view, but, the weather is nice! 🙂

      “The government you elect is the government you deserve.” – Thomas Jefferson

      “Toute nation a le gouvernement qu’elle mérite.” (Every country has the government it deserves.) Lettres et Opuscules Inédits (1851) (letter of August 15, 1811). – Joseph de Maistre

      “To the masses, the catchwords of Socialism sound so enticing… so they will continue to work for Socialism, helping thereby to bring about the inevitable decline of the civilization which the nations of the West have taken thousands of years to build up.” – Ludwig von Mises

      “Socialism has been tried on every continent of the globe. In light of its results, it is time to question the motives of [its] advocates.” – Ayn Rand

      —

      The Eagles – Hotel California

      Welcome to the Hotel California
      Such a lovely place (Such a lovely place)
      Such a lovely face
      They livin’ it up at the Hotel California
      What a nice surprise (what a nice surprise)
      Bring your alibis

      Last thing I remember, I was
      Running for the door
      I had to find the passage back
      To the place I was before
      “Relax, ” said the night man,
      “We are programmed to receive.
      You can check-out any time you like,
      But you can never leave! “

      —

      California Defaults On $18.6 Billion In Debt, Saddling Employers With The Expense
      Zerohedge
      by Tyler Durden
      Sunday, May 07, 2023 – 07:00 PM
      “California’s recent decision not to pay back some $20 billion borrowed from the federal government to cover unemployment benefits during the pandemic will fall on the shoulders of employers, according to experts.”

      —

      Margaret Thatcher, in a television interview for Thames TV This Week on February 5, 1976. Prime Minister Thatcher said, “…and Socialist governments traditionally do make a financial mess. They [socialists] always run out of other people’s money. It’s quite a characteristic of them.”

      “The problem with socialism is that you eventually run out of other people’s money to spend.”

      – Are we there yet? 🙂

      1. “Don’t be fooled by big ol’ socialist tiddies. They’re meant to hypnotize, then enslave your ass. ” – attributed to Thomas Sowell

          1. The quote is usually attached to a picture of AOC wearing a tight T-shirt, in what is likely a photoshopped image, as she sports an immaculate rack.

      2. “Are we there yet?”

        How far behind does Colorado lag California? 5 years? A decade? Either way, it’s near inevitable at this point.

        See also: a certain Denver City Councilwoman’s recent proposal of re-distribution. It never ends.

      3. “– Are we there yet? 🙂”

        – Just saw this:

        https://hotair.com/jazz-shaw/2023/05/07/california-panel-approves-800-billion-reparations-package-n548924

        California panel approves $800 billion reparations package
        Jazz Shaw 8:31 AM on May 07, 2023

        “Of course, this plan would only apply to Black residents and not any other minorities. And the total bill would add up to more than two and a half times the state’s entire annual budget, even as California faces a significant budget shortfall. (NY Post)”

        – From a conservative blog post:

        “People who never held slaves in a state that never allowed slavery will pay reparations to people who were never slaves.”

        – I’m not sure if the good citizens of CA will get to vote on this or not, but Oh, I think we’re there now…

        – BTW, isn’t paying out taxpayer funds to a select racial group racist or something? Is this the new affirmative action? 🙂

        – CA is certainly living up to it’s moniker of “Clown-ifornia.” 🤡

        1. Meanwhile, his Gruesomeness just stiffed the Feds out of $20B as he is refusing to pay back a loan to provide Covid UE bennies. No worries, though, as California businesses are stuck holding the back and will pay higher premiums (50% higher) to the unemployment fund to pay back the loan.

          Anyway, it’s obvious this is another form of “student loan forgiveness'”. It will escalate to the national level, with empty promises of “coming soon”, just keep voting for us.

          1. What empty promise? People still don’t need to pay their student loans. At this point, so many budgets are built around not paying that payments will never resume. It’d hurt the marginalized!

      4. California lawmakers pushing the wealth tax think they can “get around” the problem of residents leaving “by trying to tax people even after they leave the state,” said Patrick Gleason, vice president of state affairs at Americans for Tax Reform. However, he, Gray and Walczak all questioned the legality of such an approach or labeled it outright unconstitutional.

        Yeah! What happened to no taxation without representation?

        1. trying to tax people even after they leave the state

          They’ve floated that trial balloon more than once. Once they manage to stuff the SC they might give it a try.

    2. Bend OR , that has to be Bay Area money same with Reno NV

      It is hard to predict which one will get annihilated worse, but I guess I’d choose Bend because it is in the middle of effing nowhere with almost no economy aside from housing speculation.

    3. “exit tax”

      According to some research at the Berkeley law school, the exit tax bills, as written, are likely Unconstitutional under Commerce clause and Due Process. However, CA might be able to get away with an exit tax if they structured it like the one-time federal exit tax imposed on expatriates who renounce US citizenship.

      https://scocablog.com/exit-taxes-in-california-not-so-fast/

      1. There are all kinds of tricks they can resort to doing. For instance, if you sell your house you could have to pay a tax on any appreciation on it if you don’t buy another house in Clownland, even if you stay and rent. They could make the tax pretty steep. Of course, that won’t affect renters.

        1. Here’s the last line of the article, which is pretty telling: “That should survive judicial scrutiny, and it would capture the ultra-wealthy who soak up the California sun and run before paying their share.”

          So it’s not surprising that the article offers this suggestion on how to soak the rich: Make moving out-of-state a one-time trigger event to pay a tax on unrealized gains of all assets. This automatically targets the rich without being discriminatory. I wonder how that strategy would compare to collecting taxes for 10 years post-move.

  4. Typical home values in San Francisco climbed from nearly $900,000 in January 2020 to a record $1.2 million in May 2022, according to Zillow data. Then home values began to decline, reaching $1.1 million by the end of March 2023.”
    Ok, so that means home values are still up 22+% since January 2020. That seems like at least twice the appreciation one would normally see, and with SF becoming a cesspool, I think we still have a ways to fall in SF.

  5. all this talk about San Fran reminded me of a poster we had long ago i think sfrenter, 2 gay teachers who were going to buy a house and they each were getting i think $100k loan from the city as long as they remain teachers for10 years…..and it would be forgiven…

    Migrants, who have not been vetted, being housed in an official NYPD facility where there are guns, police equipment and crime victims

    https://www.audacy.com/1010wins/news/local/city-taps-nypd-training-facility-to-house-asylum-seekers

    1. I do remember the gay teacher in San Fran. They had to write a letter to seller, so they got their kids the write a letter about wanting to have a house with a backyard to play with fairies. The seller was a fruit/nut (it’s Frisco after all) and had actually believed her backyard had fairies, so she sold the house to them. Funny thing is, they probably made out like bandits on the sale.

      Gov cheese to buy housing is something HBB predicted years ago. Local govs can’t allow house prices to decrease to where the average person can afford one, because so many voters already have houses and equity, not to mention that commercial real estate is its own Domino Rally. Instead, govs will just hand out money to buy the houses at the higher prices. Renter get to buy houses, people with houses retain their equity, win-win! Until the inflation comes back from China and eggs are $3 each.

    2. I’ve got no issue with people choosing to be gay. What I am tired of is them advertising it. Why do they think everybody should know it and give them special treatment? Keep your bedroom proclivities to yourselves. Trans, on the other hand, is an abomination I will never, EVER accept.

      1. advertising it

        The solution to the discomforts of amorality is to find approval of others. Once that is freely given, why not advance to a celebration? Then tribute!

          1. There are a number of interesting books regarding the longitude problem and the clocks of the day unable to keep time on the rolling swells at sea.

          2. give ’em an inch (live and let live) and they’ll take a mile (clown world 2023).

            Fine so be it, you will get nothing then. Not even the closet.

      2. Instead of changing a perfectly normal body to match a screwed up mind, why not change the screwed up mind to match the perfectly normal body? That seems to be even more gender-affirming than what they do now. Oh wait, in that case there’s not much for virtuous mommy to brag about.

        1. oh Ox you are just too logical….

          sort of like Dr Now (600lblife) saying i can fix your stomach but you have to fix your mind

        2. changing a perfectly normal body

          Leads to a lot of suicide. The pushers don’t seem to care about that.

  6. seeing a lot of vehicles, mostly large work trucks, parked in the streets in residential middle class areas. looks trashy as hell!
    a sure sign of people doubling-up in living accommodations.

    * “accommodations”: I feel so British. must be the recent coronation.
    next it’ll be “Council flats” for Section 8.

    quite so.

    1. “Council flats” for Section 8.

      If I am not mistaken, the gooberment owns the council flats.

    2. That’s par for the course in partially Latino neighborhoods, you know, those small 1950-1970s houses that people “used to” live in. Basement apartments and white vans fill the street parking.

  7. “The average sales price fell 1% from December 2022 to March 2023 and that might be the last drop for the near future.”

    What are they smokin?

  8. “‘This final, terribly overheated period of an incredible 10-year up-cycle in Bay Area home values led to fantastic increases in home prices over a two-year period, which could not be sustained, and a market correction ensued…”

    Yep, I thought back in 2018 that we were already in bubble territory, then the feds and big government kept the pedal to the metal until early last year.

    And it says correction “ensued” like it’s past tense. Grab your popcorn as it’s only just begun.

    1. For some reason, most real estate markets in the US caught a bunch of bids late last year/early this year. A bunch of knifecatchers poured in. Many areas showed small increases MOM. Now the lying relitters have latched onto that and are running with it, ignoring the YOY drops.

  9. Sticker Shock: New Car Prices Up 19% During Joe ‘Car Guy’ Biden’s Presidency

    JOHN CARNEY
    8 May 2023

    President Joe Biden describes himself as a “car guy” but thanks to Bidenflation cars are increasingly unaffordable for many Americans.

    The consumer price index for new vehicles increased by more than 19.4 percent from March 2021 through March 2023, data from the Department of Labor show.

    https://www.breitbart.com/economy/2023/05/08/sticker-shock-new-car-prices-up-19-during-joe-car-guy-bidens-presidency/

    1. From what I have read automakers are going to reduce production to not flood the market with $80K pickups and other overpriced vehicles. I’m sure this will mean layoffs for the UAW, but at this point the union boyz should know that the Dems, while they expect their loyal vote, will throw them under the union made bus.

      1. If they reduce production of sexitrux, does that mean they will be making fewer new cars overall? I guess they expect us to buy down that glut of used and repossessed cars. No thanx. I’d rather not own a car that was joyridden into the ground by some pandemic deadbeat.

        1. No thanx. I’d rather not own a car that was joyridden into the ground by some pandemic deadbeat.

          Exactly. I casually pull up used car listings every month or so. I search for 2020 models or newer. Oftentimes I’ll see something like a 2021 Toyota pickup with 65,000 miles on it, asking more than it was priced new. Some punk jacked up on stimmies drove the pisz out of a vehicle he never could have dreamed of affording, and now wants some svcker to pay him more than he paid for the thing new. Clown world.

          1. The used car market is more insane than the new car market. I just had to buy a new acura because I squeezed every last miles out of my domestic jalopy before it died last month. My new car cost $50k. Which believe me is insane and is nearly twice as much as I’ve ever paid for a car. But it was below msrp and discounted quite a bit off what it costed even 6 months ago.

            But it’s still mile for mile a cheaper than a comparable used car and it drives like I would expect a $50,000 car to drive.

            The wife loves it too, fanciest thing she ever owned but complains about how much it costs every time she drives it. Weird times we live in.

      2. Nah Kia and Hyndai will flood the market.
        &
        Do not discount Chinese cars making it in America next 5 years.

  10. Last summer my two central A/C units died within a few weeks of each other. . (it’s got an addition) One was 28 years old (like that’s going to happen with the new ones) and used the R22 which is now more than a hundred dollars a pound, so not worth fixing. (thanks greenies) and the other unit was 19 years old and R410 (which was good until it’s now going to be outlawed too). Anyway everyone was slammed, they got them working to limp thru the summer and I got a bid for replacing them both. Figured I should do that now before they get more expensive plus getting things in can be a problem. Got a hard quote, took it, they ordered it and there’s no point in doing them until spring.

    So now time has come and they are to start work this week. The guy called to set it up and I asked “did i make the right call by buying last year?” (And BTW if you haven’t priced A/C units in 20 years they have gone WAY up). He told me “oh yes, we’ve already had two price increases from our supplier this year, so that’s about 14% you saved plus they told us we’re supposed to get another one end of this month”

    Good thing inflation is under control.

    1. “thing inflation is under control”

      One inch EMT is now $150 for a 100 foot bundle, $1.50 a foot.

      Can you even get parts for those AC units or new units? In Sparky World we are still months out on delivery for meter stacks and main disconnects.

      “Two weeks to flatten the curve” now 3+ years later…

      1. Can you even get parts for those AC units or new units?

        Last year I forgot to hose down the condenser and it blew the big honking capacitor. It was available but cost me $150. Won’t make that mistake again,.

        1. I forgot to hose down the condenser

          Why does one need to do that? To keep it cool on a hot day?

          1. “I forgot to hose down the condenser”

            Keep the coils clean and free of dirt and debris.

          4. “Why does one need to do that?”

            When the refrigerant is compressed a great deal of heat must be transferred to the atmosphere via the condenser coils. When they’re dirty it inhibits heat transfer. If you know that a dust storm is looming, e.g., a haboob such as those experienced in Arizona it is best to switch off the AC until the storm has passed.

    2. I bought a Trane variable speed heat pump with R410A several years ago, and it is way more efficient. However, I shut it off in the winter and rely on electric upright oil radiator heaters in each room.

  11. ‘Of the 464 active listings, 278 were new construction, a whopping 58%’

    Fooked.

  13. ‘feel the bite’

    https://youtu.be/qe2vOJ11CdY?t=24

    “Vanessa Emery, a financial counsellor with Wesley Mission, urged people to start early, as soon as home owners ‘feel the bite’ in their budget. Ms Emery said they were seeing people who were paying 50 to 90 per cent of their income on the mortgage.”

    1. people who were paying 50 to 90 per cent of their income on the mortgage

      and another 50% on taxes. How long does it take to “feel the bite”?

    1. Federal Reserve
      Published May 8, 2023 5:46pm EDT
      Fed survey signals looming credit crunch after rate hikes, banking turmoil
      More banks tightening lending standards amid higher interest rates, Fed survey shows
      By Megan Henney FOXBusiness
      Ark Invest CEO Cathie Wood gives an economic outlook ahead of the Federal Reserve’s expected rate hike on ‘Kudlow.’
      We’re in a ‘real credit crisis’: Cathie Wood

      The Federal Reserve said Monday that more banks are tightening their lending standards in the wake of recent turmoil within the financial sector.

      The share of banks tightening terms on commercial and industrial loans for medium and large businesses rose to 46%, up from 44.8% in the fourth quarter of 2022, according to the Fed’s newest quarterly Senior Loan Officer Opinion Survey.

      “Banks reported expecting to tighten standards across all loan categories,” the report said. “Banks most frequently cited an expected deterioration in the credit quality of their loan portfolios and in customers’ collateral values, a reduction in risk tolerance, and concerns about bank funding costs, bank liquidity position, and deposit outflows as reasons for expecting to tighten lending standards over the rest of 2023.”

      When credit conditions tighten, banks significantly raise their lending standards, making it difficult to acquire a loan. Borrowers may have to agree to more stringent terms like high interest rates as banks try to reduce the financial risk on their end. Fewer loans, in turn, would lead to less big-ticket spending by consumers and businesses.
      …
      https://www.foxbusiness.com/economy/fed-survey-signals-looming-credit-crunch-rate-hikes-banking-turmoil

    2. The Financial Times
      Property sector
      US lenders warned that commercial property is ‘next shoe to drop’
      Executives and investors fret about impact of rising rates and empty buildings on $5.6tn market
      For Lease signs on buildings
      For lease signs in San Francisco. ‘Commercial real estate is leverage on leverage on leverage,’ said the chief executive of a large US bank
      Ortenca Aliaj, Antoine Gara, Harriet Agnew and Eric Platt in Beverly Hills 4 hours ago

      Fund managers are warning of growing problems in the $5.6tn US commercial real estate industry that could prove painful for lenders already shaken by turmoil in the banking sector.

      Rising interest rates, falling prices and waning demand for office space following the pandemic had strained the commercial property market. But these troubles intensified after this year’s failures of Silicon Valley Bank, Signature Bank and First Republic raised worries about other regional banks that account for the bulk of commercial real estate loans.

      “The private market hasn’t started to heavily mark down real estate,” Apollo Global Management co-president Scott Kleinman told the Financial Times.

      “The equity will be first. That’s the next shoe to drop in the US. Like everything else, it has been priced so tightly and there hasn’t been a commercial real estate crisis in the US since the ‘90s.”

      Guggenheim Partners chief investment officer Anne Walsh said the pain would be concentrated in certain regions of the US, including large urban centres such as San Francisco and New York, as well as in second-class office buildings that are in need of repair.

      “We’re likely going into a real estate recession, but not across the entire real estate market,” Walsh said. “Lenders will be very choosy about what loans they are willing to make.”

      She noted some lenders were requiring personal guarantees from property owners — in which borrowers pledge their own assets to secure a mortgage — a signal of the tightening lending standards and the fact that banks were pulling back. In a Federal Reserve survey released on Monday, a majority of US banks said they tightened credit standards for loans secured by non-residential properties in the first quarter, while none eased standards.

      A wall of debt is also scheduled for repayment in the coming years. “There’s a maturity cliff for a lot of this real estate in the next few years, a significant portion of which is funded by regional banks,” said the chief executive of a large US bank.

      “Commercial real estate is leverage on leverage on leverage . . . if people are forced to quickly unwind that leverage it can pop up in other places.”
      …

Comments are closed.