We’ve talked extensively about the growing levels of debt in the economy. The national debt recently eclipsed $28 trillion. Corporate debt was already skyrocketing prior to the pandemic. All of this is driven by loose Federal Reserve monetary policy designed to drive borrowing. And people wonder why Peter Schiff insists the Fed can’t actually let interest rates rise to fight inflation.
As economist Doug French highlighted, there’s another segment of the economy buried in debt – the commercial real estate market. The problem is compounded by the fact that the value of commercial real estate is falling like a rock thanks to a shift toward work-at-home and the brick-and-mortar retail apocalypse. In a nutshell, the commercial real estate market is plagued by too much debt and not enough assets.
It appears the government lockdowns in response to the COVID-19 pandemic has hastened the deflation of the commercial real estate bubble.
According to CoStar Group, an estimated $126 billion in commercial real estate will be forced to sell at distressed prices over the next two years. That will eclipse the amount of distressed commercial property sold during the first two years after the 2008 financial crisis.
The usual suspects are in the process of inflating an eerily familiar bubble.
It’s another housing bubble, but this time centered on rental property.