I’m sure that you’ve been reading about interest rates increasing. They were over 5% on a 30 fixed conventional mortgage yesterday. Those same rates were well under 3% in January.
The Federal Reserve Bank began raising its benchmark interest rate. This is the one that’s used by banks to determine the rates that they charge their customers on commercial loans. Since the Fed signalled its intention to raise the rate, most other interest rates have increased substantially as well.
I’m not going to talk about what that will do to an already overheated real estate market. Obviously buyers can no longer afford what they could a couple of short months ago.
What I want to talk about is what this will do to the commercial markets. We’ve known that the commercial real estate marketplace has been headed toward a real estate recession for quite some time.
Landlords can’t find tenants for their retail spaces because everyone uses Amazon and Ebay. When a landlord can’t collect rents, they can’t pay their mortgage.
When they can’t pay their mortgage, the bank forecloses on the loan. When enough loans go bad, the bank is taken over by the FDIC and is sold to another bank that can properly capitalize the institution and protect the bank’s depositors.
When banks have problems, they don’t lend money. They need to sit on as much capital as they can, so that they can hold on to their bank.
But what will happen now that interest rates are increasing? As a borrower, you may be put into a position where you can’t afford the financing which may, in and of itself, push you into foreclosure.
Bankers have to qualify their loans. They look at things like your income, expenses, and ratios, to qualify you in the first place.
What happens if your profits on a particular property are so low that the bank can’t even refinance you if they wanted to? What happens when you take that same loan that’s maturing to another bank, and they can’t qualify you or offer financing either?
Foreclosure and then probably bankruptcy because your loans are personally guaranteed.
The Fed has already signalled that it will probably do another six or seven interest rate hikes. What do you think the commercial rates will be then? Most rates have already gone up over 2% with the Fed only increasing its benchmark rate by a quarter of a point?
If you need to do something about your commercial loans, the time is now rather than later. Get it done now, when you still might have a chance at finding a cooperative banker.
A year from now, that might become impossible.
Let me leave you with this.
The March inflation numbers came in even higher than was expected. The new inflation number is 8.5%.
Depending on your politics we could talk about the War in Ukraine, Energy Policies, or Supply Chain Issues to discuss the problem, but who cares? Finding someone or something to blame is irrelevant.
Doing something to protect your business and your margins is, at this late stage of the game, the only thing that’s important.
Raise your prices, change suppliers, and cut fat wherever necessary. Position your business properly so that you have a chance of getting through this nightmare.
It doesn’t look like it’s going to end anytime soon.
I’m going to go back to doing my returns now. If there’s anything we can do to help you, please don’t hesitate to contact us.
We’re all going to get through this. Let’s get through it together.
Accounting Solutions Ltd. stands ready to complete our mission and purpose of protecting you, your family, and your business. Whether you need Employee Retention Credits, Payroll Services, or Accounting and Tax Work, you have but to ask. I’m here and I remain,
Sincerely yours,
Chris Amundson
President
Accounting Solutions Ltd.
773-267-7500
www.AccountingSolutionsLtd.com
Note that the only professional services provided by Accounting Solutions Ltd. are those specified in a written communication from our office detailing the scope of services to be rendered and the terms and conditions applicable to the engagement.