The Twitter handle of the Kobeissi Letter discussed the ramifications of the banking crisis, and Tesla CEO Elon Musk pointed out a serious crisis waiting in the wings.
More than 2.5 trillion in commercial real-estate debt is expected to mature over the next five years, according to the Kobeissi Letter, which publishes a weekly commentary on the global capital markets.
While rates have doubled and occupancy rates of commercial real estate remain low at 60- 70%, refinancing these loans could be incredibly expensive, leading to the next major crisis, it said.
It added that about 70% of commercial real estate loans are owned by small banks.
The rising rates are a valuable lesson for everyone. There is no such thing as free lunch. It said that the Fed is playing a part in the banking crisis, as it's likely to play out as a commercial real-estate crisis.
Musk said that mortgages could be the most serious issue, and that this is by far the most serious issue.
This is not the first time that the billionaire is offering his take on the housing market. In mid 2022 he said predatory lenders were severely wounded or didn't survive as the house prices collapsed, referring to the 2006 housing market collapse.
In a follow-up tweet, Kobeissi Letter said that the Fed needed to act: The looming crisis is a product of the Fed that cut interest rates too quickly and then tried to play catch up.
To mitigate this risk, the Fed needs to cut rates ASAP and the government needs to back all deposits temporarily. Morgan Stanley analyst said in a recent podcast that affordability is challenged and housing supply is very tight, although the two are no longer stretched.
We don't think the ingredients are in place for large month-over-month declines to continue, because we don't see a catalyst for sales volumes to inflect higher from here. Sales are leaning toward bottoming right now and volumes will likely be weak in the first half of 2023, they said. The firm said that this will still result in significant year-over-year declines, given how strong the first half of 2022 was.
President Joe Biden said Friday that banks are in good shape and there is no imminent danger of any of them exploding.
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