XJO - Bear Posts only (Factors which might cause the markets to fall), page-12198

The US economy is being set up for a sub-prime style banking crisis - only this time it's office buildings, not houses.

Nearly half the office buildings in the US (and elsewhere) are empty and it's getting worse as more and more businesses get used to people working from home.

Owners of these office buildings are clinging on by the fingernails hoping that interest rates will go back down, and soon. These hopes just got shafted last night by the Fed Chair Jerome Powell saying: "more rate hikes to come and interest rates are to remain higher for longer". No doubt, this statement has just wiped trillions off the value of these buildings and has many banks very worried now.

Trillions worth of loans on these buildings are due to be refinanced soon at the new (unaffordable) loan rate (see below) - which just keeps marching higher. When this happens, the return on the investment is nowhere near enough to service the loan - meaning the borrowers will give the keys to the bank and say "its your problem now" -> just like what happened when the sub-prime borrowers could no longer afford the mortgage repayments before the 2008 GFC.

Since this is a global problem, how will we know which banks are safe and which ones are about to go broke?

The combination of plummeting occupancy and higher interest rates will make refinancing tougher for property owners, who may simply hand back the keys. Banks could end up with lots of offices to try to sell at deep discounts. This will bring back memories of the global financial crisis (2007-2008).



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https://www.linkedin.com/pulse/empty-office-buildings-have-become-debt-time-bomb-small-harshad-shah