““I do think that there will be issues with respect to commercial real estate.””
— Treasury Secretary Janet Yellen, in an interview Wednesday with CNBC’s “Squawk Box.”
Treasury Secretary Janet Yellen, in her first interview since the U.S. debt-ceiling was lifted last week by Congress, warned on Wednesday about the potential for banks to feel strain from their exposure to weakening commercial real estate valuations.
Yellen was asked by CNBC “Squawk Box” host Andrew Ross Sorkin about if she’s worried about the state of estimated $20.7 trillion commercial real-estate market, particularly the office, and if weakness in the sector could potentially spark more bank failures.
“Well, I do think that there will be issues with respect to commercial real estate,” Yellen said. “Certainly, the demand for office space since we’ve seen such a big change in attitudes and behavior toward remote work has changed and especially in an environment of higher interest rates.”
Major landlords from Blackstone Inc. BX,
-0.97%
to Brookfield Corp. BN,
-1.75% have been bracing for a significant drop in office property values, as the Federal Reserve’s inflation fight puts an end to an era of abundant and cheap debt.
While the final word on wobbling property prices won’t be known for some time, PGIM Fixed Income, a key investor in commercial property debt, recently said they expect office values to fall 20%-50% from peak levels, while multifamily values could drop as much as 22.5%, in part because financing has become more expensive and scarce.
Office property woes and the ‘doom loop’
Researchers at the NYU Stern School of Business and Columbia Business School recently estimated there has been a $506.3 billion decline in office values from 2019 to 2022 nationally in the wake of the pandemic which could feed a “doom loop” in some big cities.
They estimate banks own 61% of U.S. commercial property debt. They also see potential for the value of New York City’s office stock to drop 44% from 2019 to 2029 due to stress in the sector from flexible work arrangements.
“I think banks are broadly preparing for some restructuring and difficulties going ahead,” Yellen said, adding that the overall level of liquidity at banks looks strong and that stress tests of the largest banks show they have adequate capital to withstand fallout from the commercial property market.
She also said banking supervisors will continue to closely monitor “a range of banks to make sure that they are adequately prepared to deal with it.”
Yellen also said that, “while there will be some pain associated with this, that banks should be able to handle the strain.”
TORONTO – One expert predicts Ottawa‘s changes to mortgage rules will help spur demand among potential homebuyers but says policies aimed at driving new supply are needed to address the “core issues” facing the market.
The federal government’s changes, set to come into force mid-December, include a higher price cap for insured mortgages to allow more people to qualify for a mortgage with less than a 20 per cent down payment.
The government will also expand its 30-year mortgage amortization to include first-time homebuyers buying any type of home, as well as anybody buying a newly built home.
CIBC Capital Markets deputy chief economist Benjamin Tal calls it a “significant” move likely to accelerate the recovery of the housing market, a process already underway as interest rates have begun to fall.
However, he says in a note that policymakers should aim to “prevent that from becoming too much of a good thing” through policies geared toward the supply side.
Tal says the main issue is the lack of supply available to respond to Canada’s rapidly increasing population, particularly in major cities.
This report by The Canadian Press was first published Sept. 17,2024.
OTTAWA – The Canadian Real Estate Association says the number of homes sold in August fell compared with a year ago as the market remained largely stuck in a holding pattern despite borrowing costs beginning to come down.
The association says the number of homes sold in August fell 2.1 per cent compared with the same month last year.
On a seasonally adjusted month-over-month basis, national home sales edged up 1.3 per cent from July.
CREA senior economist Shaun Cathcart says that with forecasts of lower interest rates throughout the rest of this year and into 2025, “it makes sense that prospective buyers might continue to hold off for improved affordability, especially since prices are still well behaved in most of the country.”
The national average sale price for August amounted to $649,100, a 0.1 per cent increase compared with a year earlier.
The number of newly listed properties was up 1.1 per cent month-over-month.
This report by The Canadian Press was first published Sept. 16, 2024.
MONTREAL – Two Quebec real estate brokers are facing fines and years-long suspensions for submitting bogus offers on homes to drive up prices during the COVID-19 pandemic.
Christine Girouard has been suspended for 14 years and her business partner, Jonathan Dauphinais-Fortin, has been suspended for nine years after Quebec’s authority of real estate brokerage found they used fake bids to get buyers to raise their offers.
Girouard is a well-known broker who previously starred on a Quebec reality show that follows top real estate agents in the province.
She is facing a fine of $50,000, while Dauphinais-Fortin has been fined $10,000.
The two brokers were suspended in May 2023 after La Presse published an article about their practices.
One buyer ended up paying $40,000 more than his initial offer in 2022 after Girouard and Dauphinais-Fortin concocted a second bid on the house he wanted to buy.
This report by The Canadian Press was first published Sept. 11, 2024.
