There’s trouble brewing in the commercial loan market. While I only handle residential sales, I keep tabs on the commercial market, too. Especially, when it can have broad economic impacts. Unlike residential mortgages that are fixed for 30 years, commercial real estate loans are generally just 5-years with a balloon payment, so the owners continually refinance the properties at the five year mark. The problem is that not only have interest rates shot up since commercial owners got their last loans, but many office buildings have high vacancy rates in the post-pandemic world making the buildings worth less now than a few years ago. Because of the lower values and higher interest rates, there are many commercial buildings that simply won’t qualify for loans in the amount the owners will need. Austin is in better shape than other cities, but it’s something to monitor over the next year or two.
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