Elon Musk sounds the alarm on real estate, warning a spike in defaults on mortgages and commercial loans could hammer banks:- Elon Musk has sounded the alarm on mortgages and commercial real estate.
The Tesla chief warned that an increase in defaults and low asset prices could hit banks. Loan portfolios are threatened by high-interest rates, depressed occupancy levels, and a looming recession.
Elon Musk has warned that turmoil in the banking sector could spread to the housing and commercial real estate markets.
“This is the most serious emerging issue ever,” he tweeted on Saturday. “Hostage too.”
The CEOs of Tesla, Twitter, and SpaceX were responding to The Kobeissi Letter after it outlined that a record $2.5 trillion in commercial real estate debt will mature over the next five years.
Many borrowers may default on those loans due to increasingly high-interest rates, depressed occupancy levels, tighter financing, and recessionary fears rising as pressure on asset prices. The market commentary noted that around 70% of CRE loans in the US are held by smaller banks, exposing them to significant losses.
In the same vein, Genevieve Roch-Decter tweeted a few days ago that the Silicon Valley Bank collapse was “just a blip” — and that CRE loans on banks’ balance sheets were a “huge timebomb”.
The finance guru cautioned that loan defaults could rise due to higher borrowing costs, and real estate prices could fall due to soft demand. The CRE portfolio of banks could result in a fall in value, putting pressure on lenders to raise fresh capital to shore up their finances. This scared away SVB’s depositors, sparked an altercation at the bank, and prompted the federal government to take control of the lender.
“That’s the real problem,” Musk replied. “Many cities have high office vacancy rates. Mortgage portfolios are also at risk if housing prices drop significantly.”
The tech billionaire is worried that commercial real estate loans and mortgages from banks could tank in value. He appears concerned that higher rates, tighter lending standards, a looming recession, and the remote-working trend could weigh on demand for some assets, pulling down prices, causing a wave of defaults, and those institutions. can deal a heavy blow to those who hold those assets. Loan.
Bill Ackman recently outlined the important role small lenders play in the construction and real estate sectors. The billionaire investor and head of Pershing Square warned that if depositors pull their money out of those banks, it could hinder lending to those industries and cause a meaningful economic downturn.
Two Wall Street giants have also sounded the alarm in recent days. Bank of America said that CRE could be the “next shoe to fall” for markets and the economy, while JP Morgan suggested that the banking sector could lose $38 billion from a rise in loan defaults.
It’s worth noting that Musk has been complaining about high interest rates for some time. The Tesla chief lamented that they effectively raise the price of vehicles, as they increase the monthly cost of car-loan payments. As a result, automakers have to cut prices to keep up with demand, he said.
“Elon Musk sounds the alarm on real estate, warning a spike in defaults on mortgages and commercial loans could hammer banks”
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