Wednesday, May 14, 2008

Delinquencies In Commercial Mortgage Backed Securities Rise

From 0.34% last year to 0.43%, according to Standard & Poor.

Here is the article:

Interesting facts: Multi-Family properties had 55% of the delinquencies, and of that the regions hardest hit were Texas, Florida & Nevada.

Why these regions? Speculation during the housing bubble led to overbuilding. The people who bought these houses lived in California where they could borrow heavily against the value of their expensive Californian house. This money was then "invested" in cheap housing in Texas, Florida and Nevada in anticipation of selling these units at a higher price. Since the population to support these new homes was not present and since these "investors" were not willing to take a loss, they did the only logical thing which was to rent them out.

Only these people didn't realize that everybody who owned these newly built houses was doing the exact same thing.

As a consequence, asking rents dropped below that which was being charged by apartment units in Nevada, Florida and Texas. These apartment units were not able to attract tenants, reducing the cash flow of the apartment owners who are now late on their loans.

A tragically beautiful butterfly effect of rising home prices in California leading to apartment complex failures in Texas.

Economists have long feared the Law of Unintended Consequences, and part of the reason why there is so much uncertainty with regards to this housing bubble is that we will likely see grotesque and strange beings such as these appear. Financial monsters that were allowed to grow in hidden places and without any known natural predators.

Greed without fear.

Fear is back my friend. And it is back to crush without mercy the misguided vanity that took place in it's absence.

Multi-family housing in California is faring much better, people actually want to live here and single family houses are prohibitively expensive, so the fundamentals are solid.

I would hate to see delinquencies in multi-family financing in Texas negatively impact financing here where things are sane, but in these crazy times anything is possible.

No comments: