***** MERRY CHRISTMAS *****
I will publish Friday the 22nd (after 9:00am) to report on the November employment data. I will pause until January 3rd.
About 14% of all commercial real estate loans and 44% of loans on office buildings appear to be in “negative equity,” meaning the debt is now greater than the property value. That raises the risk borrowers won’t repay because their stakes are wiped out, according to the report.
The distress “can induce anywhere from dozens to over 300 mainly smaller regional banks joining the ranks of banks at risk of solvency runs,” analysts wrote.
US banks held about $2.7 trillion in commercial real estate debt at the end of the third quarter, according to the report by analysts from the University of Southern California, Northwestern University, Columbia University and Stanford University.
Commercial-property values have fallen 22% since the first quarter of 2022, when the Federal Reserve began raising interest rates to combat inflation, according to real estate analytics firm Green Street. Office prices have plunged 35% as demand for desk space weakened following the wide adoption of remote work. (…)
A 10% default rate on commercial real estate would result in about $80 billion of additional bank losses and an estimated $160 billion if the default rate climbs to 20%, according to the report. In the global financial crisis 15 years ago, delinquency rates on commercial-property loans peaked at about 9%, while charge-offs of such loans hit 3.3%, according to Federal Reserve data. (…)
The delinquency rate on bank commercial real estate and apartment loans was 0.85% in the third quarter, up from 0.45% a year earlier, data from the Mortgage Bankers Association show.
Home Sales Ticked Up in November After 5 Months of Declines Existing home sales increased 0.8% in November from the prior month to a seasonally adjusted annual rate of 3.82 million, the National Association of Realtors said.
Existing-home sales, which make up most of the housing market, increased 0.8% in November from the prior month to a seasonally adjusted annual rate of 3.82 million, the National Association of Realtors said Wednesday. November sales fell 7.3% from a year earlier. Existing-home sales for the full year in 2023 are on track to be the lowest since at least 2011. (…)
Home-buying affordability fell in October to the worst level since 1985, according to NAR.
Affordability has improved slightly since then, as mortgage rates have declined for seven consecutive weeks and fell below 7% last week. (…)
The national median existing-home price rose 4% in November from a year earlier to $387,600, NAR said. That was the highest price for any November in data going back to 1999, NAR said. (…)
Nationally, there were 1.13 million homes for sale or under contract at the end of November, down 1.7% from October and up 0.9% from November 2022, NAR said. (…)
The share of first-time buyers in the market was 31% in November, up from 28% a year earlier. About 27% of November existing-home sales were purchased in cash, up from 26% in the same month a year ago, NAR said. (…)
Source: NAR and Wells Fargo Economics
China’s central government is borrowing more to help diffuse a $9.3 trillion time bomb in hidden local debt. The resulting shift in fiscal power has its own risk: demotivating regional officials.
Beijing’s rare decision to issue 1 trillion yuan ($137 billion) of central debt, and transfer the funds to local governments, was hailed in October as a relief for struggling provinces.
That move came as China clips the borrowing ability of local authorities, including by banning the creation of the financing vehicles that allowed off-balance debt to spiral.
Some analysts see that strategy as the beginning of a revamp of the inter-government debt structure. The overall result could diminish the fiscal discretion of local leaders and weaken their drive to enact new policies. (…)
Swinging the pendulum back in the central government’s favor, however, risks stripping agency from local officials who know their economies best. A tendency to do less to avoid making mistakes is already an issue in China’s vast bureaucracy as Xi’s anti-corruption campaign rolls on. (…)
A national property tax could replace land sales as a major source of local revenue. But that levy is deeply unpopular with the nation’s powerful middle class, and weak consumer demand dragging on growth makes it unlikely such a policy will be implemented anytime soon. (…)
Beijing’s increased sway could help it drive through big reforms, previously held back by regional resistance. Bringing provincial pension systems into a national pool, for example, would serve Xi’s common prosperity push to narrow the wealth gap. (…)
CHINA
China’s Foreign Direct Investment Drops to Near Four-Year Low
New actually utilized foreign capital received by the country was 53.3 billion yuan ($7.5 billion) last month, down 19.5% from a year earlier, according to Bloomberg calculations based on data published by the Ministry of Commerce on Thursday.
For the first 11 months of the year, investment fell 10% on year to 1.04 trillion yuan, the ministry said in a statement. (…)
Data from the foreign exchange regulator showed foreign investment in the third quarter turned negative for the first time since 1998, likely reflecting less willingness by firms to re-invest profits in China, partly given the higher return abroad due to the yield gap with the US. (…)
China Bans Exports of Some Rare-Earth Processing Technology
China will halt the export of a range of rare-earth technologies, potentially making it harder for the US and other western nations to bolster supplies of strategic raw materials.
Beijing put technology for making rare-earth metals and rare-earth magnets on a list of items can’t be transfered overseas, according to a document from the Ministry of Commerce. The move by the world’s dominant supplier of the minerals comes as its geopolitical rivals rush to cut reliance on materials produced in China.
Over the past three decades, China has built a dominant role in mining and refining rare earths, a cluster of 17 elements used in everything from wind turbines to military hardware and electric vehicles.
The new rules don’t affect shipments of rare-earth products themselves, but may be intended to frustrate efforts to develop the industry outside China. (…)
Until relatively recently, there were barely any rare-earth refineries at all outside of China. That means its companies and researchers have built a substantial technological and practical advantage in how to extract and process rare earths, while expertise elsewhere has lagged. (…)
China accounted for more than two-thirds of mined rare earths last year, and is home to as much as all global refining capacity, according to US government figures. The country also dominates the supply of rare-earth magnets, the main product deployed in manufactured goods.
Biden Explores Raising Tariffs on Chinese EVs Administration officials are once again debating Trump-era duties on roughly $300 billion of Chinese goods.
The Biden administration is discussing raising tariffs on some Chinese goods, including electric vehicles, in an attempt to bolster the U.S. clean-energy industry against cheaper Chinese exports, people familiar with the matter said.
Biden administration officials, long divided over trade policy, have left in place Trump-era tariffs on roughly $300 billion of Chinese goods. But officials at the White House and other agencies are debating the levies again, the people said, with an eye on wrapping up a long-running review of the tariffs early next year.
Chinese EVs are already subject to a 25% tariff, which has helped prevent subsidized Chinese automakers from making inroads into the U.S. market. Raising that tariff likely would have little immediate impact on U.S. consumers. Other targets for potential tariff-rate increases are Chinese solar products and EV battery packs, the people said. While the U.S. now primarily imports solar material from Southeast Asian countries, China is still an important supplier of EV batteries. (…)
The Biden administration is also considering lowering tariffs on some Chinese consumer products that officials don’t see as strategically important, in addition to the potential increases on clean-energy products, the people familiar with the conversations said. (…)
The U.S. barred EVs containing battery materials from China from eligibility for a $7,500 consumer subsidy. But U.S. officials feared domestic automakers couldn’t compete without some collaboration from Chinese companies. (…)
(…) The union will cover just a handful of the bank’s 200,000-plus employees. But it amounts to a new frontier for the resurgent labor movement, following successful unionization efforts at Starbucks shops, a handful of Apple stores, and an Amazon.com warehouse.
It could also give momentum to the effort inside Wells Fargo. (…)
Branches in Daytona Beach, Fla., and Atwater, Calif., also have filed to hold elections. The union has been distributing literature to call center and branch employees.
“Our victory today is the first of many to come,” Sabrina Perez, a banker at the Albuquerque branch, said in a statement. “Despite Wells Fargo’s aggressive attempts to dissuade us, we are igniting a fire and showing our colleagues across the industry that not only is change possible, it is within reach.” (…)
The union vote is just the first step. Workers still need to negotiate a collective bargaining agreement, a contract between the employees and company over the terms of their employment. That has proven difficult in other recent unionization efforts. (…)
The banking industry hasn’t historically been a hotbed of unionization. There were some efforts after World War II and in the 1970s, but they didn’t really stick—similar to many other white-collar workplaces, according to Ileen DeVault, a professor of labor history at Cornell University. (…)
Reuters adds:
Employees at the Daytona Beach, Florida branch and Atwater, California have also filed for union elections which are expected to be held in January, two sources said.
