A House of Cards Starts to Wobble
Both commercial and residential real estate markets are falling apart as the jobs market appears ready to have carpet pulled from under it.
You're reading 0 of 1 free page.
Register to read more or Unlock Pro — 50% Off Ends Soon
Commercial and residential real estate markets continue to deteriorate.
Trepp came out with its monthly review on Wednesday, and I posted a brief blurb on the Daily Diary. Wolf Street devoted a column to it on Thursday. Delinquency rates on Commercial Mortgage Backed Securities, or CMBS, continue to rise across the major commercial real estate categories. Delinquency rates on loans secured by office buildings are back up past 10% and at their highest level since the Great Financial Crisis. Delinquency rates on paper against hotels are nearing 8%. Most concerning is the delinquency rate against multi-family properties has moved from 1.33% a year ago to 6.57% in April. A reckoning is coming for many parts of commercial real estate, even while the story has faded from the financial headlines.
On the residential side of the market, home inventories continue to surge. I am in the epicenter of this pullback in south Florida. The state has a record number of condos for sale. On the west coast of Florida, like Punta Gorda, overall inventories are higher than they were in the Housing Bust. Texas and other states are also seeing a notable slowdown as well. Given the ratio of the average American household income to the average mortgage payment has reached 38%, this shouldn’t be unexpected. Historically this number is just under 30%. The only times this ratio has gotten higher was in 2006 just before the housing crash and in 1981 when it hit an absurd 56% as Volcker raise rates to the high teens to crush inflation.
The jobs market, meanwhile, is deteriorating even before the full impact of tariffs is felt. Wednesday’s ADP jobs report showed only 62,000 jobs created during the month, half that expected. Early in the week monthly job openings again fell. This time to under 7.2 million, missing the consensus by a quarter million positions. This morning’s April Bureau of Labor Statistics jobs report, however, did manage to top expectations.
Also, equities managed to end April relatively unscathed, despite all the pearl clutching and kvetching from the financial media around tariffs and their impacts on trade, inflation and the global economy.
I expect tariffs and trade policies will continue to dominate airtime in May on CNBC and Bloomberg. But new trade deals during this month would indeed go a long way to relieving some considerable angst throughout the markets. Personally, I will be keeping a close eye on the real estate and the job markets this month. Both feel like they could be on the precipice of inflection points. They also could be critical to the direction of the economy in the months ahead. If the real estate and job markets continue to deteriorate, we still could see a recession and a lower equity market by summer.
At the time of publication, Jensen had no position in any security mentioned.
