Title:
Commercial Real Estate Could Be Next Economic Threat
Description: This is
a VOA Special English Economics Report.
See text below
Text:
The American housing collapse was a major cause of
the recession. The housing market is showing new
life after three years of falling prices and too
much supply. But now there are worries that banks
could face big losses next on business properties.
For example, one effect of a weak economy is less
demand for office space. As a result, property
owners earn less and charge less in rent. This puts
pressure especially on owners who borrowed a lot of
money.
Easy credit helped fuel an explosion of development.
The market hit a high point in two thousand seven.
Now, late payments are growing. Almost three percent
of commercial mortgages were reported at least
ninety days late between April and June. That was
double a year earlier.
One major lender lost more than a billion and a half
dollars in the second quarter. Capmark Financial
Group said it might seek bankruptcy protection from
its creditors. Medium and small banks also face a
growing risk.
Banks hold one and a half of the three and a half
trillion dollars in debt that supports the
commercial real estate market. Housing debt is much
higher. Still, around two trillion dollars in
commercial mortgages are expected to come due for
payment within the next five years.
Commercial properties face two serious problems. One
is falling prices -- down by one-fourth since two
thousand seven. The other is refinancing.
Most commercial real estate loans have terms of ten
years or less. They often end with a large payment,
a balloon payment, which owners usually refinance.
But lower property values and tighter lending
requirements mean a harder time getting new loans.
One way to make capital available for new loans is
to sell mortgage-backed securities. But since last
year there has been little activity in the seven
hundred fifty billion dollar market for commercial
mortgage securities.
The Federal Reserve recently extended into next year
a loan program designed to get investors to buy more
securities like these.
The United States is not alone. Commercial rents in
Moscow, Hong Kong, Singapore and Mumbai have fallen
thirty percent or more.
American housing sales, though, have improved in
recent months, helped by lower prices and a tax
credit for first-time buyers.
The S&P/Case-Shiller national index of home prices
rose in April, May and June. That was the first
three-month increase in three years.
And that's the VOA Special English Economics Report.
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Hi. I
personally reviewed this video and found it appropriate for
the news section of English Global Group. This
is a Voice of America video which covers an interesting
topic in Special English. I would appreciate some feedback from both
students and teachers about this video. You can comment in
the window below using any of a number of different services
including Facebook, Yahoo, AOL, and Hotmail.
