5 ms·

Signs of impending financial crisis?

betaby 3y ago
Another wealth transfer, yes.
fundad 3y ago
Hopefully it’s a correction. The banks get a little smaller but it’s a huge opportunity. Once these properties are written down and sold to residential developers, we can add more units and make cities more livable.
- betaby 3y ago
  Not going to happen in any meaningful scale. Absolutely not in Canada and perhaps on some degree in US. Media is already conditioning population about that in Canada.
- cmur 3y ago
  I wish this could work out as well as it seems it could, but it’s not nearly as easy or flowery as a residential developer picking up an office building. A friend of mine in the space pointed out even though these spaces have a lot of floor space, plumbing is your main issue on converting these structures into livable spaces. Most of these spaces only have 1-2 bathrooms a floor, meaning an apartment-style floor plan adjustment turns into a nightmare regarding piping.
- baq 3y ago
  Converting CRE into residential is easiest (and probably cheapest) done by tearing the whole building down and building it from scratch. Pretty much nothing in commercial is designed to handle needs of residential and you can't just add missing pipes, shafts, stairs, isolation, etc. to an existing building.
  - smileysteve 3y ago
    Nah, easiest is changing the definition of "residential" from family to individual - the sector that the US lost in the 70s now known as long term hotels. When you change this definition to - communal kitchen - communal bathrooms - no window access You solve many issues - college costs (by bringing back dormitories instead of every college kid having an apartment) - housing costs for early 20s that don't want to manage a whole apartment (and Uber eats 90% of meals) - a small degree of homeless that are similar to the category above (especially the temporary homeless) - baby boomer (now early gen x) "retirement" not quite to assisted living (yes, this group don't always need a private bathroom and kitchenette - when they have central dining halls)
  - bequanna 3y ago
    Yep. Commercial -> Residential conversion is far from easy. I'm active in a multifamily investor group and what I am hearing is that it is damn near impossible to make this work and actually cheaper to just build new multifamily vs convert.
    - no_wizard 3y ago
      What if you change the narrative from "single family" home (or multi-family dwellings) to "cater to couples and/or singles that can handle needed compromises"
      - bequanna 3y ago
        Good luck changing building regs to suit that. Also, it sounds like you’re proposing building adult dormitories. Is there any evidence people want that?
    - fundad 3y ago
      Private sector isn’t positioned to accomplish this. You’re correct.
  - fundad 3y ago
    the properties absolutely need to be written down to accommodate the cost of demolition. The businesses who overpaid and the banks that will repossess the buildings are obviously taking a hit and won’t fund this.
madsbuch 3y ago
They do say the long real-estate cycle is 15-18 years. 2007 is 17 years ago. While I don't like that type of rule of thumb, I can clearly feel why it makes sense. I am on the brink of buying my first home as it is. And having seen peers having earned several hundreds of thousands from their houses over the past 4-5 years really adds pressure and FOMO. I guess that is the sign to be extra cautious on buying. And I also think that this feeling is quite prevalent creating the perfect storm for a financial crisis.
- ethbr1 3y ago
  With regards to residential property, after watching the last 20 years I've decided demand is the music to valuation-musical-chairs. If demand falls, then prices go down. Otherwise, they track inflation (multiplied by desirability of the area you're looking in). Which basically means: buy in areas with growing populations, good economies, and good achool zones.
- bdw5204 3y ago
  Now is probably not the right time to buy because interest rates are at the highest levels in recent memory. Nobody in their right mind is selling right now unless they are being forced to out of financial desperation. The commercial real estate crisis is a different problem based on the pre-2020 assumption that it was a good investment because remote work would never be widespread.
  - ethbr1 3y ago
    If parent has access to US-style fixed-rate, refinance-without-penalty mortgages, the interest rate isn't a major component. Provided you can carry the payments, what do you care? Buying now: interest is deductible on itemized taxes, can refinance when rates drop, build any home value appreciation Buying later: your rent money is literally doing nothing for you, you've missed home value appreciation, and you need to pay more for a home in the future Systemic home valuation decreases is the bigger threat to watch for (i.e. keep an eye on prices:incomes, etc).
    - 3y ago
davidgerard 3y ago
The trouble with imaginary assets is that you can talk about them with a dollar sign on the front for years at a stretch - but you can only kite cheques for so long.
someonehere 3y ago
There are more signs than we are being led to believe that something is coming. For example, Egypt has decided to ditch the US dollar and join BRICS. It’s a matter of time before things catch up with our economy.
slv77 3y ago
The Federal Reserve is paying 5% interest on $7 trillion of reserves held by banks. Since this is in excess of what the Federal Reserve is earning on the assets on its balance sheet they are booking the difference as “deffered assets”. Little of this needs to trickle down to retail depositors given the Federal Reserves “ample reserves” policy so this is effectively a bank subsidy. For all the talk of the Fed “printing money” this is literally printing money because there is no offsetting asset on the Feds balance sheet. Eventually the hole in the balance sheet is supposed to be closed by interest earned that would normally be paid to the US Treasury. In other words the Federal Reserve has figured out how to directly bail out banks without the consent of Congress to the tune of $10B+ per month. The higher they raise interest rates, the bigger the subsidy. That should leave a lot of banks well capitalized to pick up assets of small regional banks and REITs that will eventually fail. Roughly $10B in bank subsidies can translate into $100B in loans with required 8% capital ratios. The Federal Reserve considers their “ample reserve” policy a “public good” as in it is good for the public to see savings eaten away by inflation and higher public debt burden of interest payments to subsidize banks.
- JumpCrisscross 3y ago
  > Federal Reserve is paying 5% interest on $7 trillion of reserves held by banks This was sanctioned by the Congress in 2008. And the banks could earn more in the interbank market. That’s why the Fed pays that interest: to keep those excess reserves out of the market.
fnordpiglet 3y ago
No, this is a sign of the system built after the last financial crisis functioning. It’s also a sign of the clickbait industrial complex functioning.

Another wealth transfer, yes.

Hopefully it’s a correction. The banks get a little smaller but it’s a huge opportunity. Once these properties are written down and sold to residential developers, we can add more units and make cities more livable.

betaby 3y ago
Not going to happen in any meaningful scale. Absolutely not in Canada and perhaps on some degree in US. Media is already conditioning population about that in Canada.
cmur 3y ago
I wish this could work out as well as it seems it could, but it’s not nearly as easy or flowery as a residential developer picking up an office building. A friend of mine in the space pointed out even though these spaces have a lot of floor space, plumbing is your main issue on converting these structures into livable spaces. Most of these spaces only have 1-2 bathrooms a floor, meaning an apartment-style floor plan adjustment turns into a nightmare regarding piping.
baq 3y ago
Converting CRE into residential is easiest (and probably cheapest) done by tearing the whole building down and building it from scratch. Pretty much nothing in commercial is designed to handle needs of residential and you can't just add missing pipes, shafts, stairs, isolation, etc. to an existing building.
- smileysteve 3y ago
  Nah, easiest is changing the definition of "residential" from family to individual - the sector that the US lost in the 70s now known as long term hotels. When you change this definition to - communal kitchen - communal bathrooms - no window access You solve many issues - college costs (by bringing back dormitories instead of every college kid having an apartment) - housing costs for early 20s that don't want to manage a whole apartment (and Uber eats 90% of meals) - a small degree of homeless that are similar to the category above (especially the temporary homeless) - baby boomer (now early gen x) "retirement" not quite to assisted living (yes, this group don't always need a private bathroom and kitchenette - when they have central dining halls)
- bequanna 3y ago
  Yep. Commercial -> Residential conversion is far from easy. I'm active in a multifamily investor group and what I am hearing is that it is damn near impossible to make this work and actually cheaper to just build new multifamily vs convert.
  - no_wizard 3y ago
    What if you change the narrative from "single family" home (or multi-family dwellings) to "cater to couples and/or singles that can handle needed compromises"
    - bequanna 3y ago
      Good luck changing building regs to suit that. Also, it sounds like you’re proposing building adult dormitories. Is there any evidence people want that?
  - fundad 3y ago
    Private sector isn’t positioned to accomplish this. You’re correct.
- fundad 3y ago
  the properties absolutely need to be written down to accommodate the cost of demolition. The businesses who overpaid and the banks that will repossess the buildings are obviously taking a hit and won’t fund this.

madsbuch 3y ago

They do say the long real-estate cycle is 15-18 years. 2007 is 17 years ago. While I don't like that type of rule of thumb, I can clearly feel why it makes sense. I am on the brink of buying my first home as it is. And having seen peers having earned several hundreds of thousands from their houses over the past 4-5 years really adds pressure and FOMO. I guess that is the sign to be extra cautious on buying. And I also think that this feeling is quite prevalent creating the perfect storm for a financial crisis.

ethbr1 3y ago
With regards to residential property, after watching the last 20 years I've decided demand is the music to valuation-musical-chairs. If demand falls, then prices go down. Otherwise, they track inflation (multiplied by desirability of the area you're looking in). Which basically means: buy in areas with growing populations, good economies, and good achool zones.
bdw5204 3y ago
Now is probably not the right time to buy because interest rates are at the highest levels in recent memory. Nobody in their right mind is selling right now unless they are being forced to out of financial desperation. The commercial real estate crisis is a different problem based on the pre-2020 assumption that it was a good investment because remote work would never be widespread.
- ethbr1 3y ago
  If parent has access to US-style fixed-rate, refinance-without-penalty mortgages, the interest rate isn't a major component. Provided you can carry the payments, what do you care? Buying now: interest is deductible on itemized taxes, can refinance when rates drop, build any home value appreciation Buying later: your rent money is literally doing nothing for you, you've missed home value appreciation, and you need to pay more for a home in the future Systemic home valuation decreases is the bigger threat to watch for (i.e. keep an eye on prices:incomes, etc).
  - 3y ago

davidgerard 3y ago

The trouble with imaginary assets is that you can talk about them with a dollar sign on the front for years at a stretch - but you can only kite cheques for so long.

someonehere 3y ago

There are more signs than we are being led to believe that something is coming. For example, Egypt has decided to ditch the US dollar and join BRICS. It’s a matter of time before things catch up with our economy.

slv77 3y ago

The Federal Reserve is paying 5% interest on $7 trillion of reserves held by banks. Since this is in excess of what the Federal Reserve is earning on the assets on its balance sheet they are booking the difference as “deffered assets”. Little of this needs to trickle down to retail depositors given the Federal Reserves “ample reserves” policy so this is effectively a bank subsidy. For all the talk of the Fed “printing money” this is literally printing money because there is no offsetting asset on the Feds balance sheet. Eventually the hole in the balance sheet is supposed to be closed by interest earned that would normally be paid to the US Treasury. In other words the Federal Reserve has figured out how to directly bail out banks without the consent of Congress to the tune of $10B+ per month. The higher they raise interest rates, the bigger the subsidy. That should leave a lot of banks well capitalized to pick up assets of small regional banks and REITs that will eventually fail. Roughly $10B in bank subsidies can translate into $100B in loans with required 8% capital ratios. The Federal Reserve considers their “ample reserve” policy a “public good” as in it is good for the public to see savings eaten away by inflation and higher public debt burden of interest payments to subsidize banks.

JumpCrisscross 3y ago
> Federal Reserve is paying 5% interest on $7 trillion of reserves held by banks This was sanctioned by the Congress in 2008. And the banks could earn more in the interbank market. That’s why the Fed pays that interest: to keep those excess reserves out of the market.

fnordpiglet 3y ago

No, this is a sign of the system built after the last financial crisis functioning. It’s also a sign of the clickbait industrial complex functioning.