In the US, investors are concerned about the commercial real estate (CRE) market. Economists at Commerzbank provide an overview of the situation.
Neglected risks tend to lead to greater turbulence
It is likely that it will take several years to overcome the problems, particularly in the office real estate sector.
The Federal Reserve does have instruments at its disposal with which it could probably prevent a systemic crisis; if the worst comes to the worst, it would probably also revive the ‘Bank Term Funding Program’ (BTFP), which is due to expire in March as planned. However, the banks' assets at the heart of the current difficulties are now commercial real estate loans, where significant defaults are certainly possible. This is an important difference to the turbulences of 2023. The bonds whose price losses triggered the problems back then were largely solid securities, especially US Treasury securities. Despite the price losses in the meantime, these were not at risk of default. Other instruments may therefore be needed to stabilize the financial markets.
That said, it is at least positive that the weaknesses in commercial real estate loans have been recognized. Experience shows that neglected risks tend to lead to greater turbulence.
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