Charlie Munger warns of ‘trouble’ for banks amid ‘a lot of agony’ for commercial real estate
Berkshire Hathaway vice chairman Charlie Munger sounded the alarm this weekend over the worrisome state of America’s commercial real estate, noting U.S. banks were saddled with “bad loans” amid falling property prices.
“It’s not nearly as bad as it was in 2008,” Warren Buffett’s right-hand man told the Financial Times in an interview published Sunday. “But trouble happens to banking just like trouble happens everywhere else. In the good times you get into bad habits…When bad times come they lose too much.”
Berkshire Hathaway in the past has backed banks in tough times, investing about $5 billion in both Goldman Sachs and Bank of America in the 2007-08 crisis and 2011, respectively. But now, with a handful of bank failures being followed by possible commercial property crash, Berkshire Hathaway isn’t getting involved. One major concern is risk stemming from commercial property loans in bank portfolios.
The shift to remote work has hammered commercial real estate, leading to rising vacancy rates and falling property values.
“A lot of real estate isn’t so good any more,” Munger said. “We have a lot of troubled office buildings, a lot of troubled shopping centres, a lot of troubled other properties. There’s a lot of agony out there.”
Banks today, he noted, are hesitant to loan to commercial developers. “Every bank in the country is way tighter on real estate loans today than they were six months ago,” he told the British paper. “They all seem [to be] too much trouble.”
Last month, Tesla CEO Elon Musk tweeted that of all the economy’s looming threats, the state of the commercial real estate debt market is “by far the most serious.”
Munger acknowledged Berkshire Hathaway’s past success with bank investments. But he also referred to lessons learned. “We’ve had some disappointment in banks, too. It’s not that damned easy to run a bank intelligently, there are a lot of temptations to do the wrong thing.”
His comments come ahead of Berkshire Hathaway’s annual meeting in Omaha next Saturday.
Treasury Secretary Yellen warns of commercial real estate 'issues' that could strain banks – MarketWatch
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.
to Brookfield Corp.
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.
See: Commercial real estate’s debt machine is broken down
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.”
Related: Blackstone wrote down its stake in this Chicago office building to $0. Now it’s talking with lenders on the debt coming due.
South Okanagan residential real estate market sales picking up speed – Penticton News – Castanet.net
Buyer activity and real estate listing activity are gaining momentum again in the South Okanagan, as residents have adjusted to the current late spring market.
“The market is doing really well,” Association of Interior Realtors Past President Lyndi Cruickshank said.
“I think a lot of people felt really shell shocked when the interest rates started to rise, understandably so, as we often feel that resistance when there’s a dramatic change in our lives. And is often the case, people settle into what our new reality is, and our interest rates are certainly significantly higher than they were. But people are finding ways to manage.”
There has been a bit of a decline in the average home price, which is helping buyers. And as more homes come on the market, it ultimately helps the consumers looking to purchase.
“I talked to so many people last year that really wanted to be able to sell their home, but there was such a fear as to where they were going to go. So now that we have seen the inventory start to open up quite a bit. It’s allowing them more choice.”
Home inventory has increased by 38 per cent in active listings.
In the South Okanagan, the benchmark price for a single-family dwelling dipped 6.6 per cent, to $772,200. Townhouses ($558,100) and condominiums ($427,700) also dropped in May compared to this same time period last year.
“We’re certainly more into a buyer’s market than we have been over the last year. Previously, we were very predominantly held by a sellers market. And we’re seeing a lot more strength on the buying side now,” Cruickshank said.
She added that this is typically the time of year that people start to look for homes and that people really traditionally look to put their homes on the market.
“That plays a big role, obviously, in that increase in activity that we’re experiencing right now.”
The more balanced market will give buyers more of an opportunity to do their due diligence before purchasing.
“We’ve got a long way to go. We came from such an extreme market this time last year. And then we had that real hit with interest rates and things really slowed down very dramatically. So it’s really nice to see things starting to just move forward in a more normalized way again.
Still, finding homes in the South Okanagan remains to be a challenge as vacancy rates remain low, even as developments continue to grow.
“It’s going to take years, years before we’re ever at a place where our inventory is going to meet demand unless we see something really dramatic. And that’s right across the country when we look at what the demand is, and the current supply. So I don’t see that changing.”
Advice for first-time home buyers remains the same: finding a realtor and figuring out what time to buy is best for you.
Real Estate Builder Backed by Ackman Says Lenders Rejecting New Apartment Deals – Bloomberg
[unable to retrieve full-text content]
Real Estate Builder Backed by Ackman Says Lenders Rejecting New Apartment Deals Bloomberg
iOS 17 redesigns Apple Translate and offers a more intuitive UX – XDA Developers
Samsung may bring dust resistance feature to Galaxy Z Fold 5, Z Flip 5 – indulgexpress
NASA's Parker Solar Probe Plunges Into Fast Solar Wind and Discovers Its Mysterious Source – SciTechDaily
Silver investment demand jumped 12% in 2019
Iran anticipates renewed protests amid social media shutdown
Search for life on Mars accelerates as new bodies of water found below planet’s surface
Business23 hours ago
As a Job Seeker, Handle What You Control First
News22 hours ago
Poilievre accuses Liberals of leading the country into ‘financial crisis,’ vows to filibuster budget
News14 hours ago
Canada attends first-of-its-kind UFO briefing at the Pentagon
Media14 hours ago
‘Wednesday’ Actor Percy Hynes White Issues Response To Social Media Posts Accusing Him Of Sex Assaults
Real eState22 hours ago
PGIM CEO Sees 60% of Office Real Estate Market in 'Purgatory' – Bloomberg
Media22 hours ago
12 Ways Web3 Media Could Embrace AI – CoinDesk
Economy15 hours ago
Japan Economy Grows at Faster Pace as Businesses Spend More
Real eState16 hours ago
Prices for Okanagan real estate continue to fall while supply increases – Global News