Economist Gary Shilling, who predicted the housing industry collapse in 2008, said the commercial real estate bubble was about to burst. According to Shilling, stock markets in the US will also fall sharply and the economy will enter a recession.
While the office and commercial real estate sector was turned upside down after the pandemic, many economists began to draw attention to the problems in these areas.
“I think the biggest bubble right now is commercial real estate,” Gary Shilling, the economist best known for correctly predicting the 2008 mortgage crisis, said last week on the investment podcast The Julia La Roche Show.
“This is not as big as the mortgage craze, but I think it’s a bubble that’s starting to burst,” Shilling said, referring to the 2008 defaults that collapsed many Wall Street banks and led to the global financial crisis.
Shilling, known as the housing market prophet, said that before the crash, risky loans USA He warned that it was the “biggest financial problem” for the economy and wrote an article titled “The Housing Bubble Will Probably Burst” in January 2006.
COMMERCIAL REAL ESTATE IS IN TROUBLE
Stating that remote or hybrid working, which has become widespread after the pandemic and implemented as a model in many companies, will affect commercial real estate, Shilling lastly said:
“There are office buildings that are vacant now, and one of the problems is that these office buildings are approaching maturity. “Mortgage lenders either don’t want to renew the loans or demand much higher interest rates to do so,” he said.
“There are also other commercial real estate, such as hotels and shopping malls, that have been in trouble for a while,” said Shilling, also stating that stock markets may fall to their lowest level since the pandemic, and predicted that “if we are not already in it, we will probably enter a recession soon.”
‘STOCK MARKET WILL FALL HARD’
“My view is that stocks will fall about 30 percent to 40 percent from peak to trough,” Shilling said. “If you look at most of the major indicators that reliably predict recessions, it’s pretty hard to avoid a recession,” he said.
Data and experts’ opinions in commercial real estate markets also confirm Shilling.
Default rates for commercial mortgages, which include offices, apartments and other commercial properties, have been rising for four consecutive quarters, according to the Mortgage Bankers Association (MBA). More than 5 percent of office loans and 5 percent of retailer loans defaulted in the third quarter.
‘THE OFFICE SECTOR HAS BEEN HEAVILY BLOWN’
Erin Sykes, chief economist at residential real estate brokerage firm Nest Seekers International, echoed Shilling’s views on the real estate market, saying commercial spaces are struggling to pay their rent on time.
“While some properties such as shopping malls and retail have been somewhat protected, the office segment has been hit hard,” Allianz Trade economists said in a report published in late October. The report also stated, “High interest rates made real estate less attractive compared to risk-free government bonds and led to a significant decline in asset values.”
Stijn, professor of real estate and finance at Columbia Business School, who wrote the Commercial Real Estate Risks report published by Goldman Sachs in October van Nieuwerburgh evaluated, “It may take a few years for the office market to stabilize.”