Add in the effect of the Covid pandemic on people staying home to work. This is now a ‘thing’ and the ramifications are significant to one additional problem in the financial sector. What might that be? Commercial real estate and the loans taken out to pay for those buildings. Who’s hurting most? From a cursory glance, it appears commercial real estate in large Texas cities have the most vacancies. Why is that? I thought everybody was moving from California to Texas? Let’s check that out.
I’m back! The answer isn’t clear from a quick Google search. But this is my sense: commercial real estate vacancy rates in these large Texas cities have been high for quite some time – likely since the crash in ’08. Oil prices dropped below zero at one very fluky point. That had to have an impact on that commercial space in those big cities.
God knows how these developers have hung on as long as they have. Low interest rates probably helped. But that’s not the case anymore. There’s talk about turning older commercial buildings into residential housing, so I suppose that means there’s no going back. Oil will likely range in price between $70 and $80 a barrel for a long time to come. No wonder Texas is crazy.
But I digress. To summarize: the country’s financial situation reminds me of those episodes of Air Disasters on The Smithsonian Channel. It is always at least three things going wrong that cause airplanes to crash. How does that apply to the economy? So now we see interest rates rising leading to regional bank failures with high commercial vacancy rates, negatively impacting commercial mortgage backed securities and the crazy Republicans in Congress threatening to default on the debt. That’s four factors. Looks like a perfect storm for crashing the economy to me.
Here’s what I’d ask: if we’re gonna crash, can we do it before September? That will help my interest rate scenario previously discussed if the Fed starts cutting rates. Who ever thought I’d be hoping for a crash? Sorry to be so parochial, but hey: it’s every man (or woman) for himself/herself now. Don’t say I didn’t warn you.