Image
Image

Skyrocketing Consumer Debt & Falling Rates
With home mortgages, the primary collateral for the loan balance is the home itself. In the event of a future default, the lender can file a foreclosure notice and take the property back several months later. With automobile loans, the car dealership or current lender servicing the loan can repossess the car.


Homeowners often refinance their non-deductible consumer debt that generally have shorter terms, much higher interest rates, and no tax benefits most often into newer cash-out refinance mortgage loans that reduce their monthly debt obligations. While this can be wise for many property owners, it may be a bit risky for other property owners if they leverage their homes too much.

With credit cards, lenders don’t have any real collateral to protect their financial interests, which is why the interest rates can easily be double-digits about 10%, 20%, or 30% in annual rates and fees, regardless of any national usury laws that were meant to protect borrowers from being charged “unnecessarily and unfairly high rates and fees” as usury laws were originally designed to do when first drafted.

Zero Hedge has reported that 50% of Americans don’t have access to even $400 cash for an emergency situation. Some tenants pay upwards of 50% to 60% of their income on rent. A past 2017 study by Northwestern Mutual noted the following details in regard to the lack of cash and high credit card balances for upwards of 50% of young and older Americans today:

* 50% of Baby Boomers have basically no retirement savings.

* 50% of Americans (excluding mortgage balances) have outstanding debt balances (credit cards, etc.) of more than $25,000. 

* The average American with debt has credit card balances of $37,000, and an annual income of just $30,000. 

* Over 45% of consumers spend up to 50% of their monthly income on debt repayments that are typically near minimum monthly payments.

 

Rising Global Debt 

 

According to a report released by IIF (Institute of International Finance) Global Debt Monitor, debt rose to a whopping $246 trillion in the 1st quarter of 2019. In just the first three months of 2019, global debt increased by a staggering $3 trillion dollar amount. The rate of global debt far outpaced the rate of economic growth in the same first quarter of 2019 as the total debt/GDP (Gross Domestic Product) ratio rose to 320%.

The same IIF Global Debt Monitor report for Q1 2019 noted that the debt by sector as a percentage of GDP as follows:

  
Households: 59.8%

* Non-financial corporates: 91.4%

* Government: 87.2%

* Financial corporates: 80.8%

 


Rate Cuts and Negative Yields

As of 2019, there’s reportedly an estimated $13.64 trillion dollars worldwide that generates negative yields or returns for the investors who hold government or corporate bonds. This same $13.64 trillion dollar number represents approximately 25% of all sovereign or corporate bond debt worldwide. 

 

On July 31, 2019, the Federal Reserve announced that they cut short-term rates 0.25% (a quarter point). Their new target range for its overnight lending rate is now somewhere within the 2% to 2.25% rate range. This is 25 basis points lower than their last Fed meeting decision reached on June 19th. This was the first rate cut since the start of the financial recession (or depression) in almost 11 years ago dating back to December 2008.
 

It’s fairly likely that the Fed will cut rates one or more times in future 2020 meeting dates. If so, short and long-term borrowing costs may move downward and become more affordable for consumers and homeowners. If this happens, then it may be a boost to the housing and financial markets for so long as the economy stabilizes in other sectors as well such as international trade, consumer spending and the retail sector, government deficit spending levels, and other economic factors or trends.

We shall see what happens in the near future in 2020 and beyond.

* The blog article above is a partial excerpt from my previous article entitled Interest Rate and Home Price Swings in the Realty 411 Magazine linked below (pages 87 - 91):
January 14, 2013

Billions of Commercial Loans Coming Due in 2013

Image

Since the last market peak near 2007 or 2008 for both residential and commercial real estate properties nationwide, many of the existing 5 year fixed commercial loans may be ballooning or becoming all due and payable in 2013.

 

Upwards of 4,750+ CMBS (Commercial Mortgage Backed Securities) with loan balances near $55 billion may need to be refinanced in 2013 alone. Sadly, a very high percentage of these same potentially ballooning commercial mortgages may not have sufficient income to service the existing mortgage debt.

 

In addition, there may be an additional 6,300+ non-CMBS commercial mortgage loans (according to Bloomberg Financial News) with balances of almost $79 billion which may becoming all due and payable in 2013. Which of these properties may qualify for a new commercial loan though today?

 

In many situations, the existing commercial mortgage debt may currently exceed the conservative market value today in 2013 based upon the income and expenses for the existing properties. Yet, some mortgage lenders or servicing companies may accept partial payoffs almost akin to a residential "Short Sale" by way or either a sale or a refinance so property owners should still try to remain somewhat optimistic in spite of their challenging finnacial position today.

 

Most banks still don't want to foreclose on their properties so they may better realize today that a partial payoff may be much better for them than a foreclosure. My team of underwriters and associates may be able to help our clients negotiate with the existing lender so that they agree to some type of a discounted payoff which may be a "Win / Win" for all parties.

 

The most encouraging part of the commercial real estate industry today is that interest rates continue to hover near records low rate ranges (3% to 5%+, in many cases). With lower interest rates today, then borrowers may lock into this historically low rates, and potentially improve their monthly cash flows significantly.

 

Let's all try to keep an Open Mind (i.e., owners, banks, etc.) so that we may have more options or solutions available in 2013 than in recent years. In challenging times, it may be better to focus on the possible solutions in our lives more so than the obstacles.

Comments

Hide Comments (0)       Add a new comment
Archives
tiangle  2019
tiangle  2018
tiangle  2017
tiangle  2014
tiangle  2013
tiangle  April (2)
tiangle  March (2)
tiangle  February (3)
tiangle  January (3)
dot Are Commercia...
dot Cause and Eff...
dot Billions of C...
tiangle  2011
tiangle  2010
tiangle  2009
tiangle  2008