The United States is the main focus, although Europe could also be infected by Sweden. According to a renowned economist, the Fed would be forced to lower interest rates in September 2023.
As has been reported in the media, the limitation of redemptions from the Blackstone Real Income Trust fund had set off alarm bells from the regulator and from the market itself. Said limitation has not yet been lifted, and warnings about the danger posed by fixed income in the real estate sector continue.
Financial entities in this industry operate with high levels of leverage, as well as increasing financing costs. This was caused by the rise in interest rates that is taking a toll on your credit profile. In this sense, a global financial crisis seems to be closer than ever.
The bankruptcy of several US banks has contributed to the notable tightening of financing conditions. This has generated significant anxiety in the North American commercial real estate sector.
It is worth remembering the acquisition by Lehman Brothers of the Archstone apartment company in 2007, one of the reasons for the subsequent bankruptcy of the investment bank. The truth is that the sector faces sharp falls in the valuation of commercial premises, and a large debt about to expire.
Regional Banks in the United States Are Exposed to the Real Estate Market
According to data from the Mortgage Bankers Association, the total volume of debt in the commercial real estate market is approximately $4.5 trillion. The main concern in the banks’ commercial real estate loan portfolio is exposure to the office space and retail sectors.
Another concern is the concentration of commercial real estate loans on the balance sheets of regional banks. According to Bank of America data, of the banks’ commercial real estate loan portfolio, regional banks hold approximately 65% of non-multi-family commercial real estate loans.
Swedish Case Would Serve as Precedent for Europe
Sweden is in the firing line of the European real estate slowdown, as commercial property owners face sharp declines in valuation, a veritable mountain of maturing debt, and tense bondholders.
Currently, financing costs are skyrocketing, with the central bank raising interest rates from 0 to 3% in one year. According to Capital Economics, it is estimated that the borrowing costs of real estate companies stand at an average of 7% in the bond market. This is well above the 3.9% return they might expect on rentals, based on current prices.
Stagnant rents and falling valuations will make it difficult to refinance past-due debt. The consequences in Sweden will set the tone for the rest of Europe.
How Will Bitcoin Behave in the Face of Interest Rates?
A major global financial crisis that will drive the introduction of CBDCs seems inevitable. For JP Morgan analyst Seamus Mac Gorain, a recession is inevitable in the United States, which would force the Fed to lower interest rates in September 2023.
If this were the case, the first interest rate cut by the US Fed it would cause the price of bonds to rise and the stock market to collapse in the face of the demonstrated recession.
Eventually, it will be necessary to see if Bitcoin ends up behaving as an indicator, or as a monetary asset. Time will tell.
By Audy Castaneda