Economy
Hopefully the 2008 subprime crisis will not come back, but there are reasons to worry.
This time, the concern isn't so much about residential properties, but rather the growing amount of empty commercial properties.
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Investors are once again bracing for turmoil among regional lenders
Community Bank of New York, as just one example, received its credit rating downgrade for the third time in just one week.
Commercial real estate is being hit hard by a double-edged sword.
First, high interest rates make already expensive units much more expensive. Second, and perhaps worse, many office buildings and commercial buildings are empty – thanks to remote work. Remote work is also on the rise in places like Auckland because it's simply too dangerous to go to work.
Yahoo Finance reports, “Nearly a year after the failure of three mid-sized U.S. banks led to an industry crisis, investors and regulators are once again bracing for turmoil among regional lenders, this time due to rising defaults on commercial mortgages.”
The story continues:
New York Commercial Bank was initially a beneficiary of those failures, acquiring Signature Bank last year after it was shuttered by regulators in the wake of a deposit run.
The culprit now is commercial real estate debt, which is deteriorating rapidly as landlords face higher interest rates than they can afford, and as tenants, after nearly four years of half-full offices, cut their leases.
Although the US banking system is increasingly dominated by a handful of national giants, commercial mortgages remain the purview of regional lenders.
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What then?
“Commercial real estate loans represent, on average, 3% of assets at the nation's 10 largest banks. At the next 150 banks, the proportion is nearly 20%. Yahoo notes that local banks routinely hold half of their customers' deposits in mortgages for office buildings Hotels and shopping centres.
How this will happen is anyone's guess, but analysts are right to be concerned. It wasn't long before California's regional banks completely collapsed, raising similar concerns.
As if inflation wasn't bad enough, is another subprime mortgage crisis on the horizon?
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