Tuesday, May 09, 2006

Let's not Forget Commercial Lending

All the noise about residential financing has drowned out commercial financing in the public consciousness, but it too is showing signs of weakening.

Moody's has determined that the yield on real estate investments is the lowest since figures started being kept. The reason is that cheap loans have driven prices up, reducing yields. Moody's is also seeing a backlash against these prices: Buyers are borrowing only up to the property's value from five years ago, indicating that buyers are expecting a drop. If that is the case, a lot of owners will be in deep kimchi. Standard & Poors has seen a big increase in interest-only loans with balloon payments. That means there's a lot of quick flip expectation in the market. If resale prices can't pay for the balloons, it's going to be a bumpy ride.


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