As you try to sort whether commercial real estate is indeed the next “shoe to drop” (as everyone’s saying) here’s a little more chartology showing just how fast CRE loans are going sour.You can see it’s basically quadrupled since the crisis started last autumn, and at this rate, it’s easy to imagine it hitting 6% by the end of the year, which would be unheard of.
Still, even with the scary, default growth charts we’ve been kicking about, it’s worth thinking about ways that CRE won’t play out like residential real estate.
For one thing, we’re likely to see a lot of defaults where the property owner is potentially able to pay, or is at least getting decent rents, but simply can’t come up with the refinancing. That’s a problem, but it’s not the total lost economic cause of some unemployed homeowner in Stockton walking away from their shoddily constructed home that was valued at $350,000.
While a defaulting homeowner is frequently a total washout — they lose their job, and they can’t pay their mortgage at any price, even if they went back to the pic-a-pay days — there’s likely to be a lot more in-between situations in the commercial space, where a modification actually works, due to lower, but still existent underlying cash flows.