This “index is already plunging to new depths”
The centerpiece of the 2007-2009 financial crisis, as you probably recall, was a meltdown in subprime mortgages.
The same thing could happen again, except this time, with commercial real estate mortgages.
Here’s an April 7 headline from USA Today:
Commercial real estate is headed for a crisis worse than 2008, Morgan Stanley analysts say
The culprits are rising interest rates on adjustable-rate mortgages and lack of demand. Some landlords of office buildings in New York, New Jersey and California have already defaulted, including the largest office owner in downtown Los Angeles.
Looking at an example in the South, the owner of the Sheraton Atlanta Hotel recently defaulted on a $98.2 million mortgage.
More defaults are likely ahead as more than half of the $2.9 trillion in commercial mortgages are due for refinancing in the next two years or so.
Returning to that USA Today article:
With small- and medium-size banks accounting for 80% of commercial real estate lending, the situation might soon get worse. …
Commercial property prices could fall as much as 40% “rivaling the decline during the 2008 financial crisis.”
Relatedly, our April Elliott Wave Financial Forecast provided insight into an index of various commercial mortgage-backed securities, abbreviated as CMBS.
After peaking with many of the most speculative stock sectors in 2021, the Bloomberg Investment Grade CMBS declined into the fourth quarter of 2022. After a three-wave rally to February 2, the index is already plunging to new depths.
Just to let you know, regarding residential real estate, that market is also showing weakness. In February, U.S. home prices fell on a year-over-year basis for the first time since 2012. Home prices are down 10.7% from their June 2022 top.
There’s lots more to discuss. I invite you to get our complete analysis of major U.S. financial trends as you follow the link below.
Financial Change Can Unfold with Lightning Speed
Bear markets tend to be fast-moving, especially when the trend begins a “third of a third” wave: in Elliott wave analysis, means the most extreme leg of a bear market.
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In a way this is not surprising. Mr. Market delights in fooling most investors, most of the time.
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