As the Twitter handle of the Kobeissi Letter discussed the ramification of the banking crisis, Tesla CEO Elon Musk highlighted a serious crisis waiting in the wings.
What Happened: More than $2.5 trillion in commercial real-estate debt is set to mature over the next five years, the most than any five-year period in history, "Kobeissi Letter," which publishes a weekly commentary on the global capital markets, tweeted.
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While rates have more than doubled and occupancy rates of commercial real estate remain low at 60-70%, refinancing these loans could be incredibly expensive, likely leading to the next major crisis, it said.
And worse is the fact that about 70% of commercial real estate loans are owned by small banks, it added.
Rapidly rising rates are teaching everyone a valuable lesson. Theres no such thing as free lunch.
The Fed apparently is having a part as the banking crisis will likely play out as a commercial real-estate crisis, it said.
Musk Chimes In: Commenting on the tweet, Musk said this is by far the most serious looming issue, adding in that mortgages could be too.
This is by far the most serious looming issue. Mortgages too. Elon Musk (@elonmusk) March 27, 2023
This is not the first time the billionaire is offering his take on the housing market. In mid-2022, he said predatory lenders were severely wounded or didnt survive as the house prices collapsed, referring to the housing market collapse of 2006.
Fed Needs To Act: The looming crisis is potentially a product of the Fed that cut interest rates too quickly and then tried to play catch up, "Kobeissi Letter" said in a follow-up tweet.
To mitigate this risk, the Fed needs to cut rates ASAP and the government needs to back all deposits temporarily.
Morgan Stanley analyst said in a recent podcast that affordability is challenged and housing supply is very tight, although the two are no longer getting even more stretched.
"In other words, we don't see a catalyst for sales volumes to inflect higher from here, but we also don't think the ingredients are in place for large month-over-month declines to continue either."
Sales are leaning toward bottoming right now and volumes will likely be weak in the first half of 2023, they said. "We also want to emphasize that this will still result in significant year-over-year declines, given how strong the first half of 2022 was," the firm added.
President Joe Biden said Friday that banks are in pretty good shape and there is no imminent danger of any of them exploding.
Photo: Courtesy of Wikimedia Commons
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