Echoes of the 2008 financial crisis

EVENTUALLY, the world is starting to feel the ripple effects of the US commercial real estate turmoil. The real estate market distress goes back to issues — such as reduced office demand and apartments that were overbought at their peak values — stemming from the Covid pandemic. The crisis is exacerbated by rising borrowing costs resulting from monetary tightening by the Fed to tame decades-high inflation. A Bloomberg report last week argued that “the shakeout in the $20 trillion market had long been delayed for a simple reason: No one could figure out just how much properties were worth. And, more crucially, few wanted to.” Many US lenders, especially the country’s regional banks ‘loaded up on loans for properties now worth a fraction of their initial price’, are finally beginning to feel the pain. However, the pain is no longer confined to the US banks; it is also spreading like a contagion outside the US to Japan, Germany and elsewhere as “the lenders take steps to brace for bad loans after property deals started to pick up, revealing just how far real estate prices have fallen.” The slump spurs concerns about losses that can ripple across the global financial system.