In September there were increasing signs of risk in the financial markets. Early in the month the Financial Times reported on worry about real estate lending in the US. There was a 42% increase in loans under stress according to this article. As noted: “The financial consequences of shutting swaths of the US economy to deal with coronavirus are still just becoming clear, as many hotels remain empty, shopping mall traffic is subdued and office workers remain at home. ” But one could argue that this is only the tip of the iceberg as the world adjusts to a post-COVID-19 world. Whilst the article refers to “shutting,” it is more likely the case that individuals are also taking actions to work from home, shop by internet, and travel and eat out less frequently. Many of these patterns are only going to continue or get stronger suggesting that the historic valuations for commercial real estate may not be sustainable.
Later in September, Gillian Tett (also in the Financial Times) noted that “(f)ears of a credit crunch have already hit business confidence and worried banks.” She goes on to provide other evidence from a variety of sources regarding stress in the economy. She notes: “the key point is that chronic stress can be very economically debilitating.” I do not think there is anyone who would dispute that we are in a period of “chronic stress” not only from the impact of COVID-19 but also from political uncertainty and the challenges of societies dealing with embedded systemic racism. Clearly a time to be cautious.
