Saturday, October 16, 2010

Foreclosure 2.0

Having dug through the subprime mortgage mess, something at the back of my mind gave me that nagging feeling like an itch you can't reach. Some 288 thousand homes were foreclosed on in the third quarter of this year. There's an investigation about robo signing of foreclosure documents and possible fraud charges but that is not what was bugging me. While driving in Seattle early last year I noticed several empty lots once filled with buildings and gas stations and the like now fenced and idle. At the end of one block was one of those land use signs announcing condos coming in early fall 2009. When I passed this area early this summer nothing had been built. That got me to wondering about the state of commercial properties and their foreclosure status. I scanned the net for any news. Nothing. I knew a down town Las Vegas project had been stopped but knowing that commercial real estate can require a two year lead time I also knew there was big trouble brewing in commercial real estate.
Thanks to an article from fellow blogger Oso I find that the other shoe is about to drop. This will be far larger than the subprime mess and coincide with several other residential type mortgages about to blow up over the next two or three years that should be interesting or should I say horrifying.
Here's the crux of the situation concerning commercial real estate CRE.
# There is approximately $3.5 trillion of debt financing these commercial properties.
# Approximately $1.4 trillion of this debt comes due between now and 2014.
# The delinquency rate for all commercial backed securities exceeded 9% for the 1st time in history last month and has more than doubled in the last 12 months.
# Non-performing loans are close to 16%, up from below 1% in 2007.

As you can see the big boys have this problem well hidden from the general public. It's taken me a year to find any information on the subject even after numerous Google searches. If the subprime mess was the 800lb. gorilla in the room then the CRE mess is Godzilla waiting to devour the whole house. And neither of these problems has been properly addressed.

This well could be your Halloween trick because it sure isn't any treat. Have I scared you enough yet? Let me throw one more freight at you before I sign off. If you have been following the stock and commodity prices the last few months you'll note that the Dow has regained much of the ground it lost since 2007. You would think that was a good thing but it's not. It hasn't gone up this high for a rational reason. Not that it acted in a rational manner in the past. But the underlying factors of our economy aren't there. Consumer spending and confidence the main drivers of our economy are still at an all time low. I fear that with the high speed computer trading that's now in place, one hiccup and the whole thing could come crashing down. We did see a preview this past spring and these little monsters have no regard for anything with flesh and blood.


TomCat said...

Nice research. :-)

The reason that the Fed has adopted a policy to devalue the $US is to allow banksters to profit on the market using free money, this building up enough reserves to cover the toxic assets still on their books. I doubt that it will work, because keeping our own economy depressed is a side effect of that policy, because interest rates are too low to give banks an incentive to lend the money small and medium size businesses need to grow.

It would not be so severe had the Bush Regime used the TARP funds to purchase toxic assets as the law stated it should. Instead, they gave it to the banksters with no strings attached.

BBC said...

So a lot of monkeys bit off more than they could chew and took on things they couldn't pay for if things got tight, I'm not going to feel bad for them.

Oso said...

It's sure as hell scary man.A lot of people seem to think high inflation is coming, I think disinflation is more likely and with so much private sector debt this would further crimp what little demand is out there.

You sure don't paint a pretty picture but I think your assessment is right on the $.

I think all we can do is try and stay out of further debt and try to educate people by the type of blogging you're doing.

Maybe winning a state lottery would be a good idea as well!

Demeur said...

The problem is that those crap loans and the banks that issued them will bring down the rest of us who did the right things. So we get to suffer for other people's greed.

Oso It's not just the private debt but we're seeing cities, counties, and states in deep financial trouble. They can't borrow money short term to temporarily cover their tax shortfalls. They can cut but there's only so much to cut.

S.W. Anderson said...

Financial industry greedmeisters, manipulators, speculators and other predators continue to play their games and rake in more and more money, largely divorced from Main Street reaility. Wouldn't it be refreshing if the next bubble took the whole despicable lot of them down?

"If the subprime mess was the 800lb. gorilla in the room then the CRE mess is Godzilla waiting to devour the whole house."

I wonder about that. I wonder how much of that property is developed, how much is occupied. I'm far from being well up on CRE, but I think it's a very different league. Not so much a matter of families in hock up to their eyeballs and trying to live in something they're buying. I think a lot of commercial property is in the hands of fat cats who can afford to hold on until the economy turns around. Then, they will probably realize healthy returns for having held on. That's mostly the way it's happened in the past.

That's not to say there won't be some who experience painful losses, of course.