Between the effect of downtown office buildings and shopping malls emptying out during Covid and never coming back, and the jolt of higher interest rates, a lot more commercial real estate is in distress. Foreclosures have been rising, as the figure below displays, but the Wall Street Journal today thinks the bottom is near:
In previous downturns, comparable surges in foreclosure activity has signaled the approach of a market bottom. Once lenders seize a property, they are typically quick to sell it, a process that helps determine values of properties after long periods of sluggishness in the sales market.
Maybe, but I wouldn’t count on it just yet. There a lots of reasons, as the Journal reports, for thinking this might have a lot more downside ahead:
Until recently, though, many lenders have been reluctant to take over properties in hopes of a recovery and to avoid the expense and losses of foreclosure actions. “Lenders will do everything in their power to avoid that,” said Jade Rahmani, an analyst at Keefe, Bruyette & Woods. . .
It is possible that commercial-property values could deteriorate even further if the U.S. economy falls into recession and companies start laying off workers and want less office space.
