Commercial Estate equals more Write-down
Written by A Forex View From Afar on Monday, March 03, 2008Back to www.thelfb.com
If some had thoughts that the residential sub-prime was the end of the problem, they most certainly would have been wrong; the Markets are now reveling in the Bond Insurers problems that have appeared. If they thought that the Bond Insurer problems were the end of the road, they was wrong again; the Markets are now reveling in more write-downs and problems to come from Commercial real-estate loans and Commercial mortgage-backed securities, so says Goldman Sachs.
Analysts from Goldman see a 21% to 26% fall in value of Commercial estates over the next 2 years, due to higher credit conditions. These losses in value will trigger more write-downs. Until now, residential estate values have fallen somewhere around 20%.
With the freezing of the residential-mortgage-backed market, it seems the commercial-mortgage-baked (CMB) market is getting into trouble, it is almost at a stand-still too. January marked the first month in which no CMB deriveratives were sold in the last decade.
An even bigger problem is the firms' own holdings of leftover, unsold commercial-mortgage-backed securities. The market for these bonds virtually shutting down has made it hard to determine what they are worth, Wall Street firms are being forced to rely on the CMBX index, which tracks the performance of commercial-real-estate bonds with different credit ratings.
Portions of the index have more than tripled this year, indicating soaring perceptions of risk to come.
Risk is starting to be a real problem in US Markets, and Risk Aversion makes only for a one thing, a Bear Trap that makes money harder to get and reduces liquidity in the real estate sector. If the Goldman Sachs analysis is correct, the commercial loans problems will have an important impact to the GDP numbers over the next few Quarters, and that will therefore impact the valuations of the USD.
Source
WSJ: Wall Street Gears for Its New Pain
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