The US financial system and commercial real estate might be hit by a “perfect storm,” economist Peter St. Onge warns
Economist Peter St. Onge has warned that a downturn in the commercial real estate market may be an early warning sign of trouble for the whole US banking system.
The analyst’s latest video update indicates slowing development in key US cities, which might spell disaster for real estate corporations heavily leveraged and owed to local financial institutions.
St. Onge warns that if demand for expensive city centres drops, American banks would pay a heavy price for urban decay.
Since the Federal Reserve has begun charging interest on deposits, “we are now seeing a mass annihilation [of poorly managed firms and real estate ventures]. The prime rate, which is the rate provided to the top enterprises, is 8.25%. That’s a big jump from the 3.25% average over the previous 15 years. However, our economy has developed on the back of cheap money, and those days are past.
Even though 85 percent of Americans reside in urban or suburban areas, many of these places are so poorly managed (in terms of safety, amenity provision, and taxation) that businesses are leaving or going out of business completely. Millions of employees, who before would have had to endure the increasingly unpleasant cities due to distant work, are now allowed to do so thanks to the spread of COVID.
The analyst expresses concern that the entire scale of the issue has not yet become apparent. St. Onge warns that a perfect storm of deteriorating government bonds, increasing interest rates, and enormous quantities of bad loans lingering in regional banks might have severe economic repercussions.