Defaults on some commercial real estate and consumer loans increased in late 2023, reaching levels higher than before the COVID-19 pandemic, the US Central Bank (Fed) said in a report released Friday .
“The banking system remains strong and resilient. (…) However, the default rates on certain commercial real estate loans and certain consumer loans have increased to reach levels higher than those before the pandemic”, notes the Fed in this supervision report and regulation.
“Banks have increased their provisions for credit losses, in anticipation of a further deterioration in asset quality,” it is specified.
“The consumer loan default rate exceeded 1% for the first time since the first quarter of 2020, and the commercial real estate loan default rate reached 0.9%, a five-year high” , notes the Fed.
Concerning commercial real estate, the central bank specifies that “the decline in demand for office space and the rise in interest rates have had a negative impact on the performance” of these loans.
The development of teleworking has in fact emptied offices in large American cities, which now record an average attendance half that of 2019. Consequently, office space vacancy rates have climbed.
However, in 2024, a quarter of the loans taken out by owners to acquire these real estate assets will mature, according to figures from the Association of Real Estate Credit Institutions (MBA), i.e. $206 billion to be refinanced, at the time when the rates are at their highest in 20 years.
As for consumer loans, the default rate “increased in 2023 due to the credit card and auto loan sectors.”
It reached 1.7% at the end of 2023 for credit cards, “its highest level in the last five years. Additionally, the proportion of borrowers carrying over all or part of their credit card balance to the next billing cycle has increased.
For auto loans, the delinquency rate, here too, now exceeds pre-pandemic levels.
