The weakening of the commercial real estate sector is causing speculation that banks could be headed for trouble. An increasing number of large properties are going into default, and more are being added to watchlists for loans that may be in jeopardy. Quickly rising interest rates are causing concern that investors who are up for refinancing may not be able to afford to cover both loan payments and property expenses. Last quarter, commercial property values experienced the largest fall since 2009. This is of particular concern for small banks and large lenders that invest heavily in real estate.
Although it’s too soon to say for sure, there is concern that there could be a repeat of the savings and loan crisis of the late 1980s and early 1990s. The crisis occurred due to a mass souring of property loans and investments led to a recession.
