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1. Commercial-Property Loans Coming Due In The U.S. Soars to $929 Billion

  • Maturities have soared as more debt was extended according to the Mortgage Bankers Association (MBA).
  • Banks hold the largest share of these maturing loans at $441 billion (roughly half).

What you need to know: According to Bloomberg1, roughly 20% of the outstanding debt on commercial and multifamily real estate in the United States - totaling $929 billion - is set to mature this year, necessitating refinancing or property sales. This figure represents a staggering 40% increase compared to the Mortgage Bankers Association's previous estimate of $659 billion – which is primarily due to loan extensions and other delays rather than new transactions.

Why it mattersRoughly $4.7 trillion of debt from various sources is supported by US commercial real estate – and banks face the bulk of this “maturity wall” with $441 billion in commercial-property debt maturing this year.

Making matters worse, MSCI Real Assets noted2 that by the end of 2023, approximately $85.8 billion of commercial property debt was distressed, with an additional $234.6 billion potentially facing distress.

Now the Dunham Deep Dive: Let’s talk about the elephant in the room.

Who’s on the hook for all this?”

Well, as mentioned above, about $5 trillion of debt from all sources is backed by US commercial real estate, ratcheting up concern that increasing defaults and write-downs will hit lenders (such as New York Community Bancorp recently) and anyone else holding these commercial real estate bonds/securities.

Making matters worse, commercial property prices are down 21% from a peak reached in early 2022, just before the Federal Reserve launched its aggressive rate hikes to fight inflation.

Since then, commercial prices have dropped sharply - with office buildings seeing the worst decline (falling 35%).

Meanwhile, about 25% of office loans are coming due in 2024 (via the MBA data) at a time when property values have plummeted and vacancies have soared with the growth of remote and hybrid work.

It's hard to see how these loans will be rolled over (aka who refinances at a higher interest rate and while the underlying property value is down?).

I’ve touched on this commercial real estate problem recently in previous Morning Pours (read here if you want more context) – but it’s something the banking system must deal with - potentially kicking off another wave of banking issues.

2. U.S. Retail Sales Drop By Most In Nearly A Year As Consumer Spending Sinks In January

  • The value of purchases dropped -0.8% in January 2024 vs. December 2023.
  • Retail sales broad decline indicates consumers scaled back after a strong holiday season.

What you need to knowRetail sales in the US experienced a widespread decline in January3, suggesting that consumers stuttered after having a robust holiday shopping spree. According to data from the Commerce Department released on Thursday, the value of retail transactions (not adjusted for inflation) fell by -0.8% from December, following a downward revision from the previous month. This decline marks the largest drop in nearly a year.

Bloomberg economist – Estelle Ou – noted that, “… however, even with spending weakness concentrated in interest-rate sensitive categories, January’s pullback was broad-based as consumers tighten their belts amid higher borrowing costs and credit-card delinquencies.”

Why it mattersThe retail data primarily captures the purchases of goods, which represent only a portion of total consumer expenditures. However, reduced consumer spending can exert downward pressure on GDP (economic growth), particularly in a consumer-driven economy like the U.S. (consumption makes up roughly 70%). Moreover, with interest rates remaining high and loan delinquencies on the rise, there's speculation about whether this could signal the onset of a broader trend.

Now the Dunham Deep Dive:  Well, while U.S. households spent quite a bit over the last quarter of 2023, the new year so far saw a “surprising” drop in spending (the lowest in a year). 

But there’s one aspect I want to cover that shows how things may be worse than estimated – and that’s adjusting the retail sales in “real” terms (adjusting for inflation).

Thus, looking at it from these lenses, sales were actually down -1.1% month-over-month and -2.4% year-over-year – both much worse than the nominal (not inflation-adjusted) numbers.

In fact, retail sales have been essentially flat for the last three years – as shown in the chart below. 

Note that historically, when real retail sales are flat, it usually begins before a recession (because household spending power in real terms diminishes).

Just something to monitor. . .

3. Is China's Demographic “Doom Loop” Beginning? A Record Population Drop on Higher Deaths and Lower Births

  • Births hit a new low in 2023, accelerating the demographic shift (there’s a tidal wave of Chinese set to retire in the next decade)
  • China's population of over 1.4 billion could drop by a precipitous 60% by the end of the century, according to a Chinese think tank.

What you need to know: China’s population declined faster in 2023 as births fell to a record low, amplifying a demographic shift that poses long-term challenges to a government already contending with deflation pressures and a property crisis.

Why this matters: The number of people in the world’s second-largest economy fell4 for a second year by over 2 million to 1.41 billion in 2023, according to data released by the National Statistics Bureau on Wednesday.

To put this into context, the drop more than doubled in 2022, when the Chinese population shrank for the first time since 1961, the final year of the “Great Famine” under former leader Mao Zedong.

Victoria University senior research fellow - Peng Xiujian - wrote5 last month in an analysis of Chinese population trends that, "Our updated forecast for China brings forward our forecast of when the world's population will peak by one year to 2083, although there is much that is uncertain,"

"The accelerated decline in China's population will weaken China's economy and, through it, the world's economy," she added.

Now the Dunham Deep DiveI believe China is truly stuck here.

They have an enormous amount of elderly population and a plunging birth rate, indicating two things:

  1. There won’t be enough young to subsidize the aging economy (similar to what we’ve seen in Japan and part of Europe).
  2. The elderly tend to save more and consume less, thus taking away from China’s growth (especially when they have limited safety nets).

China is already dealing with an anemic consumer, and this won’t make things any easier for them. Especially because demographics are long wave cycles (meaning even if fertility rates sprouted up sharply, it wouldn’t do anything for decades).

Keep in mind that demographics are a feedback loop system - meaning the output of a process is then input back into a system, causing new outputs.

For example, low births will cause lower births and on and on. Hence the term “doom loop” (note that higher births will do the opposite as more births lead to more births, etc.).

China is the second largest economy in the world – so monitoring their economy is key (since it will either be a net boon for the global economy or a net drain).

There’s an old saying, “Demographics are destiny” – and it may prove true yet again. Just look at Japan. . .

Honestly, who knows what will happen.

Maybe this is all just noisy data. Or maybe these are trends worth keeping an eye on.

Either way, just some food for thought.








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