Commercial property losses will hit US banks
With the delinquency rate on commercial-mortgage backed securities rising sixfold in a year, there's a lot more pain to come for the banks.
Banks won't be boosting lending significantly anytime soon. The International Monetary Fund estimated last week that they have still only written down around half of their likely overall credit-crunch losses.
One area where there's plenty of bad news to come is US commercial property, says Gary D Halbert of Halbert Wealth Management. Prices have fallen by 39% from the peak; rents in New York could slide by 20% in 2010.
Many commercial mortgages, like their residential subprime counterparts, were packaged up and sold on as commercial mortgage-backed securities (CMBS), says Halbert.
Due to both careless lending and a sliding economy, the delinquency rate for CMBS has shot up sixfold in a year. And most of the loans making up CMBS that fall due in the next five years $100bn of $153bn, reckons Deutsche Bank, although others estimate twice as much will be "difficult or impossible" to refinance as the value of the properties behind them have slid so far.
So expect far more commercial property write-downs across the financial system, says Halbert. We have only seen "a fraction" so far.