Nov 20, 2023
Commercial real estate (CRE) is fading away as a component of the S&P 500. The S&P 500 real estate sector is now just 5% of the entire S&P 500. Even at the 2008 low, in the worst real estate crisis of all time, this percentage barely dropped below 6%. Meanwhile, demand for commercial real estate (CRE) loans is now at 2008 levels. Office building prices are down ~30% over the last year and apartments are down ~15%. Also, Delinquent commercial real estate loans at US banks have hit their highest level in a decade. The strength of the housing market is masking the weakness of CRE. Speaking of the housing market, the US is overly dependent on the lopsided 30-year fixed-rate mortgage. Where under inflation and rising rate, the lender (investor) loses. If inflation cools and rates fall, the borrower refinances. Here is my US House of Representatives testimony of 30 year mortgages. Here is the actual paper by Michael Lea and me. Another major reason for the FRM's dominance is government
