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Moody's CMBS Delinquency Tracker Hits Decade High
Yes, yes, everyone knows commercial real estate is a neutron bomb waiting to go off, and while many are yapping, nobody is doing jack. The Fed will deal with that implosion, the expectation goes, just as tidily as it dealt with the last bubble implosion. All, by the way, is good now - remember, every single Fed governor took turns yesterday to gang bang the concept of yet another bubble in process. Someone should familiarize the Fed members with the GOLDS COMDTY GP function in Bloomberg: remember the NY Fed has the biggest trading desk in the world: they should by now be familiar with more than just the BUY function on Bloomberg Tradebook.
So here is the data on the ongoing deterioration in CMBS, courtesy of Moody's, which data merely confirms data previously presented by RealPoint, the GSEs, and anyone else naive enough to care that this data set is relevant in Bubble Market 3000.
Aggregate Delinquency Rate
Delinquency increased 37 basis points in October, as measured by the Moody’s Delinquency Tracker (DQT). The delinquency rate now stands at 4.01%, more than six times the rate seen at the same time last year. The rate has increased over 375 basis points from the low reached in July 2007, with further increases anticipated.
In the past month the delinquency rate increased 37 basis points to 4.01%. This increase is in-line with the steady rise in the delinquency rate over the past six months. Five of the last six months have seen a gain in the delinquency rate in the range of 35 to 41 basis points. Only August, with a more modest 21 basis point increase, lies outside this range.
The past six months, May 2009 through October 2009, have had an average increase of 36 basis points in the delinquency rate. This is a significantly higher monthly average change in the delinquency rate than the previous six month period, November 2008 to April 2009, which had an average increase of 21 basis points.
Delinquency by Property Type
Hotels had the largest change in delinquency in October. The delinquency rate for hotels increased 123 basis points, bringing its rate to 6.20%. The hotel delinquency rate has reached its highest point in the history of the delinquency tracker, passing the old mark of 5.92% that occurred in June 2003. All five property types are currently at the highest rate recorded by the Moody’s DQT.
Multifamily remains the worst performing property type in October. The 38 basis point increase in the delinquency rate was primarily influenced by three large properties that are newly delinquent in the eastern region (see Figure 20). The multifamily delinquency rate is now 6.47%.
Delinquency By Vintage
Figure 5 displays the delinquency rate for each vintage as of the end of October. Delinquency was calculated based on loans currently delinquent as a percent of current balance as well as original balance of all CMBS loans in the vintage.
The 1999 vintage now has a delinquency rate over 20%, with significant increases throughout the past year. Less than 17% of the original balance of the 1999 vintage remains outstanding. The 1998 vintage, on the other hand, has had two consecutive months of declining delinquency rates. With the exception of 2005, vintages between 2004 and 2008 now have a delinquency rate exceeding 4%.
Figure 6 shows the effect of the financial crisis on the seasoning curve. Typically, a loan can be expected to have a low chance of falling delinquent in the first two years of its life (<1%), with delinquency ramping up slightly in the next three years, but still remaining below the 3% mark. Over the past year however, the crisis has caused the delinquency rate of later vintage loans to increase very rapidly, resulting in default rates for these vintages well above those of other vintages after a similar period of seasoning.
The high rate of delinquency in the 2004 vintage is unsurprising, as five year loans originated in 2004 matured or are maturing this year, and are attempting to refinance in a very difficult market. The 2005 vintage will likely experience a sharp rise in delinquency in 2010 due to similar refinancing difficulties.
Delinquency By Region
Delinquency increased in all four regions, with the South as the worst performer in October. All five major properties types in the South recorded an increase in their delinquency rate greater than 30 basis points. The South had a 47 basis point rise in its overall delinquency rate, which now stands at 5.61%. Hotels and multifamily properties had the largest gain in delinquency within the region.
The East was the second worst performer in the month with a 44 basis point rise in delinquency. This brings the eastern delinquency rate to 2.58%, still the lowest of any region. This rise in delinquency is attributable to a significant gain in the eastern multifamily delinquency rate and steadily increasing delinquencies in both the office and hospitality sectors. The West performed slightly better than the nation with a 35 basis point increase, compared to a 37 point increase for the national delinquency tracker. The western delinquency rate is 4.41%.
The Midwest had the mildest increase in delinquency of the four regions, only gaining 17 basis points to 4.95%. The Midwest had declines or minimal increases in delinquency in three property types. Only industrial recorded large rises in delinquency when compared with September.
Delinquency By State
Figure 13 displays CMBS delinquency rates by state. Michigan and Nevada are the first two states in the current recession to record a delinquency rate greater than 10%. These two states have respective delinquency rates of 10.78% and 10.07%. In October, Rhode Island, with a delinquency rate of 9.81%, joined Arizona, which has a 9.35% delinquency rate, as another state that has a delinquency rate greater than 9%. No other state has a current delinquency rate greater than 7%.
And a summary of all critical current and newly delinquent loans:
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great! keep saving those mortgage payments and buy gold. food provisions and emergency supplies. do not go to work, do not pay your bills and help your neighbor do the same...
captcha 1036? is that the new spx target? nothing matters anymore, just close your eyes and buy!
I'm just not seeing it. All time high does not trigger a full scale disaster just minor adjustments.
They'll hold the melt down off for long enough until the consumer comes back with a vengeance with all that pentup demand for Nascar knick-knacks and Tyler Durden Sunglasses from Walmart.
http://i47.tinypic.com/33tj6n9.jpg
Ben better start making plans to go mall shopping this holiday season -- for malls, not at malls.
We just had a headline appear in our local news that highlights the CRE issue-- on a fairly new retail development, the developer had made $3 million of payments on a $100 million commerical loan.
And then guess what happened?
It appears the Federal Reserve will own just about every retail mall built within a quarter of a mile of an interstate highway.
I wonder if they'll install discount windows?
"I wonder if they'll install discount windows?"
That'd be nice, trade your worthless junk at the Fed Mall Discount Window for some nice new FRNs to spend. Now thats what I call stimulus.
Dont worry....his minions (aka the banks) will buy the malls at a discount and they will be made whole if they lose money courtesy Mr. Taxpayer...if the banks end up making money....they get to keep it for their bonus reserves for 2010.
Amazing that CA CMBS delinquency is just below the national average trend and in mid pack. Maybe the hotel rate is helped because CA is a heavy tourist destination and there is less multi-family and industrial.
Curious report. I thought CA was a Top 5 pack leader in all things miserable regarding real estate.
CA if full of multi-family but much of it is government subsidized.
I'm also surprised that the state of CRE in California not in the top 5. As I sit here at work typing I can look out my window and count 12 buildings that are less than 50% occupied. Many have been built within the last 2 years and those are usually the worst off. It's only a matter of time I guess.
Noted in the chart of the top 10 delinks that 550 South Hope LA is listed for the Eastern Region.
Moody's know the difference between Left Coast and Blight Coast ??
But, but, but -- they sold the Pontiac Silverdome, so the market must be OK.
http://www.detnews.com/article/20091117/METRO/911170327/1411/METRO02/Sil...
Sure, there was a little loss on sale to chew on, but it DID SELL to new owners!!!!
It does have a nice big screen TV, several bathrooms and kitchens. Oh and lots of storage and parking. Oh wait ... that's a residential listing. I was confused because the price was residential .. sorry.
In 2008, $55.70 from 1975 is worth:
$222.74 using the Consumer Price Index
$180.03 using the GDP deflator
$258.10 using the value of consumer bundle
$218.91 using the unskilled wage
$348.35 using the nominal GDP per capita
$491.17 using the relative share of GDP
All this proof is fine and dandy. But they recently changed (last week?) the accounting rules for the commercial world much like the "mark-to-fantasy" FASB changes in March.
Just last evening, I opened up one of my old college accounting textbooks to reacquaint myself with some of the principles I can no longer associate with.
For instance, this book said the purpose of accounting was to "...improve the understanding and visibility to the health and performance of the organization."
Accounting is used for the EXACT OPPOSITE purpose today. I'd go so far as to say that no accounting rule passed in the last 15 years has helped clarify organizational performance or increased transparency into operations.
Exactly my thoughts, Rock. They have already lifted the rug and have broom in hand. All CRE failed loans and all CMBS and Commercial Derivative failures are not going to get in the way of a good recovery story. The defaults will all be swept into the shadows, off balance sheet, and we all know that what you can't see, can't hurt you. No matter that the losses should be in the $3-4 Trillion range and that is a conservative estimate. I quote Hudson from, "Aliens," just after the transport coming to rescue them crashes all around them:
"That's it man, game over man, game over! What the fuck are we gonna do now? What are we gonna do?"
Burke/Bernanke pipes up:
"Maybe we could build a fire, sing a couple of songs, huh? Why don't we try that?"
Sing a song of sorrow for the unborn FAS 166/167. That baby will NEVER see the light of day.
Reminder to self. Break out those water boards.
I'd like to see a report like this for high yield bonds. Excellent break outs and graphs. Pass the "seasoning" please.... ;)
The last image up there is China's Christmas shopping list.
Got that scene from Manchurian Candidate in my head
Now the Silverdome sells for the price of a small 2 bedroom house in LA and what's even more unbelievable is that they were only valuing the land underneath it for $10K per acre!
Tyler, now you've gone and ruined my nice lunch with a heaping dose of reality. Please, no more charts and graphs. While I can ignore the words, the pictures are too difficult to pass off as junk when any 5 year old can understand something's seriously wrong.
Please, for the kids of America, no more pictures.
Life Insurers May Lose $22.6 Billion on Commercial Real Estate
http://www.bloomberg.com/apps/news?pid=20601087&sid=aafL.j93seFA&pos=6
Hey, don't insurance companies need to maintain capital requirements regulated at the state level? How do you blow-off $22.6 billion? Somebody needs to get busy and relax accounting standards!!! Ben -- time for you to grab control of the insurance industry....
Excellent...we'll get another run at AIG. I was afraid we wouldn't be able to waste every tax payer dollar we had.
The only thing that will save this mess (Home/Hotel/CRE values) is inflation.
I don't believe this to be true, why? Because wages (income in the broadest sense of the word) has to be increasing in order to make the F'in payments....
Wages will be kept low because of increasing unemployment - low wages means that Ma and Pa can't stay at the hotels that will be going under. With low wages, but an increasing home values because of inflation - Ma and Pa can't afford to buy a new house at the increased home value.
What does this all mean. Hell I don't know, what I do know is: I sure feel like I've been (being!) screwed.
Books
So, all snark aside, is there a good trade here? SRS is down 94% over the past year, but has it reached bottom? It looks to be pretty inefficient at trying to capture declines, though.
Interesting, CMBS is hitting new delinquency highs, as is RMBS, but yet financials are trading at levels above summer 2008.
That is one valuable Fed put.
If you measure deliquencies in terms of gold ounces it goes away.
No matter which survey you look at, the delinquency rate is going up, not down. The sad statement of affairs though is that the banks are not accurately reporting some of them so as to protect their tails from FDIC or Federal Reserve Cease and Desist actions due to inadequate capital. Amazing isn't it; they rigged the mark to market acocunting but they can not rig the consumer and force them to actually pay on time or in full.
Some serious reality is going to bitchslap this economy in Q1 2010....