Terrel L. Shields
Elite Member
- Joined
- May 2, 2002
- Professional Status
- Certified General Appraiser
- State
- Arkansas
Are investors beginning to lose money?
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Rough Banking Seas Ahead?
- Thread starter Non Sequitur
- Start date
Joe Flacco
Elite Member
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- Jul 31, 2013
- Professional Status
- Certified Residential Appraiser
- State
- Maryland
I think banks are in good shape for the most part.
- Joined
- Feb 14, 2002
- Professional Status
- Certified Residential Appraiser
- State
- Louisiana
IMO it has more to do with policy than anything else right now. I follow a guy on LinkedIn, he publishes CRE risk exposure and the numbers are staggering. He and a few others claim if we weren't in an election year it would be a blood bath. The reason I believe him is the LOs I know agree, regulators are largely ignoring CRE exposure risks right now.
Joe Flacco
Elite Member
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- Jul 31, 2013
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- Certified Residential Appraiser
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It would be a blood bath in what way? And what is happening right now to hold off the blood bath?
Terrel L. Shields
Elite Member
- Joined
- May 2, 2002
- Professional Status
- Certified General Appraiser
- State
- Arkansas
If the FED reduces interest rates by one quarter percent, it's pretty much a nothing burger. No one with a 3% loan will refi. IF the FED waits until the country's economy falls on its face, then it has to dump the interest rate below 3% and all that does is revive a bunch of zombie companies who survived on low interest lows and start the same old over-heated economic engine that has been a way too much of the economy for 20+ years..
I don't know how the FED has "walked the line" in the face of undue over-spending stimulus but they have done a good job so far. But at a cost. Housing is too expensive. Building is too expensive. And it is going to get worse if interest rates are lowered. Everyone here are shocked at their tax bills. The property tax assessments are much higher and though the tax itself is limited to 5%, that 5% will continue to increase annually by 5% until doomsday. I don't know any wage earner who expects 5% wage increases annually. That would be pretty much a max. As taxes increase, and wages not, the real issue becomes what do we cut to survive? The only way our taxes will go down is for property values to plummet. And that takes a recession. I recession I no longer see coming.
I don't know how the FED has "walked the line" in the face of undue over-spending stimulus but they have done a good job so far. But at a cost. Housing is too expensive. Building is too expensive. And it is going to get worse if interest rates are lowered. Everyone here are shocked at their tax bills. The property tax assessments are much higher and though the tax itself is limited to 5%, that 5% will continue to increase annually by 5% until doomsday. I don't know any wage earner who expects 5% wage increases annually. That would be pretty much a max. As taxes increase, and wages not, the real issue becomes what do we cut to survive? The only way our taxes will go down is for property values to plummet. And that takes a recession. I recession I no longer see coming.
Gobears81
Senior Member
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- Nov 7, 2013
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- Certified General Appraiser
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- Illinois
The balloons are the problem, since the CRE mortgages usually require periodic refinancing. Higher rates, and in the case of offices, structural declines would push a lot of loans that were previously "OK" into the high-risk category. FWIW, I haven't been getting many refinancing requests lately on properties that were previously appraised/ probably due for renewal - makes me think that everyone is kicking the can down the road for as long as possible. Would be interested if anyone has any other thoughts on that side.
On a side note, so many use CRE as a synonym for office buildings. Most CRE is doing quite well in this area. Saw the earlier mention of MF not doing well - I think that is due more to over-building in some areas than anything else.
- Joined
- Feb 14, 2002
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OK, prepare for a run on sentence.
Per his calculations roughly 2,000 community banks (about half in the US) are over leveraged (CRE mortgages), and around half of the ones are over leveraged to a point that if this weren't an election year the FDIC would force closures or mergers. The others would be forced to right size, which is a very painful process.
Joe Flacco
Elite Member
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That is the problem but my understanding is the big banks exposure to CRE is not very large. We will probably see a bunch of community banks go under and get swallowed by bigger banks.
I think maybe downtown multi-family not doing well. Closer to my house it seems like restaurants not doing well. I don't really follow commercial though.
Joe Flacco
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Yeah.. it is a big problem and a lot of people are going get wiped out. But everybody knows this problem already.
I wouldn't be surpised at all to see a mild recession sometime in the next 24 months. Nothing like the financial crisis. Mild.
Gobears81
Senior Member
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- Nov 7, 2013
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- Illinois
I've heard that too about the community bank CRE exposure, but don't know enough either way to have opinion.
Midwestern MF is STRONG atm. Restaurants are an odd duck, as fast food benefited from the pandemic and they could pass along their price increases to absurd levels. Saw recently that many full-service restaurants are now about even with fast food in prices, if not better. I can get a good meal at Chili's for about the same price as Burger King, even after a tip. Interestingly, our company has done several appraisals of full-service restaurants in the past few years that are putting massive amounts of money into their property for either construction/ buildout or renovation. It is rarely feasible, so I'm not sure what to make of so many suddenly wanting to do this.