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Why Commercial Real Estate is Set to Get Slammed

Trouble is also brewing in the residential real estate market

by Bob Stokes
Updated: July 28, 2020

Commercial real estate investors are in an especially precarious position should another financial crisis unfold.

A July 18 Marketwatch article titled "The open secret in commercial real estate is that owners regularly take cash out of properties..." says:

Borrowers, ahead of this [year's] downturn, pulled more equity out of U.S. commercial buildings than ever before....

Debt relief conversations already started in April... between the hardest-hit commercial property borrowers and their lenders.

Since then, delinquent commercial mortgage-backed securities loans have climbed to nearly 10%, rivaling the worst levels of the global financial crisis [in 2007-2009].

The National Association of Real Estate Investment Trusts estimates that the value of U.S. commercial real estate is around $16 trillion (2018).

Indeed, as this April 2020 chart from Forbes shows, U.S commercial property prices have more than doubled since their 2009 low:

CommercialRealEstate

Moreover, commercial real estate loans at U.S. banks surged by $863 billion or 62% since 2012.

So, if commercial mortgage-backed securities loans delinquencies already exceed the levels of more than a decade ago, imagine the scenario if "another shoe drops."

Relatedly, trouble is also brewing in the residential real estate market.

In June, ABC News reported:

Existing home sales plunge 9.7% in 3rd straight monthly drop

Elliott Wave International's analysts have been discussing what this likely means for U.S. housing prices.

Moreover, they are providing forecasts for the broader U.S. economy, U.S. stocks, bonds, gold, silver, the greenback and much more.

Indeed, regarding that reference to "another shoe dropping" in the financial system, the July Elliott Wave Financial Forecast addresses that possibility.

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