Tuesday, June 09, 2009

Commercial Mortgage Defaults Seen Rising to 17 Year High

by Bill McBride on 6/09/2009 12:15:00 PM

From Bloomberg: U.S. Commercial Mortgage Defaults May Rise to 17-Year High (ht Brian)

The default rate on commercial mortgages held by U.S. banks may rise to the highest in 17 years in the fourth quarter as debt for refinancing remains scarce and the recession drags down rents.

The rate is likely to reach 4.1 percent by year-end, Real Estate Econometrics LLC ... said in a report today. ...

Commercial defaults already are at a 15-year high after climbing to 2.3 percent in the first quarter ... from 1.6 percent at the end of 2008 ...

The projection for this year would match the 4.1 percent rate seen in 1993 and be the highest since defaults reached 4.6 percent in 1992 during the savings and loan crisis ...

The company projects the default rate on commercial mortgages will reach 5.2 percent by the end of 2010 and peak at 5.3 percent in 2011 before starting to decline.
Earlier this morning, TARP panel chair Elizabeth Warren recommended running the stress tests again on US banks, but using a higher unemployment rate and for more years (including 2011 through 2013). This would include these higher commercial real estate defaults that everyone now sees coming.