The banking sector is expected to tighten up, and economists are pointing to the Senior Loan Officer Survey, which has been predictive of the last six recessions going back to the 60s. Regional banks provided funding for a lot of construction in the last decade, and a big batch of those loans are due this year and next year. The value of the properties is way below what’s owed on them, and the vacancy rates are at record highs, which means they can’t get the rents, lowering the value of the property. This could push the economy into a recession, but it’s unclear if the banks will muddle through with assistance from the Fed or if lending will tail off quite a bit.
Bank tightening, commercial real estate, and natural gas demand are just some of the topics discussed in a recent conversation on Seeking Alpha’s Investing Experts podcast. Recorded on May 20, 2023, the conversation features Kirk Spano and CashFlow Hunter discussing the potential impact of bank tightening on the economy and the commercial real estate market.
As reported in Spano, the banking sector is going to tighten up, though the extent to which this will happen remains unclear. He explains that the regional banks provided a lot of funding for construction in the last decade, and a big batch of those loans are due this year and next year. The value of the properties, however, is way below what’s owed on them due to record-high vacancy rates. This means that the banks are going to get really tight, and it will be difficult for them to refinance those notes without doing a lot of work on the property to convert it somehow.
CashFlow Hunter adds that the Senior Loan Officer Survey has pointed out that senior loan officers, particularly at regional banks, are responsible for an awful lot of liquidity and credit availability in the country, particularly for small and medium-sized businesses. To the extent that they start saying they’re lending less, it has been predictive of the last six recessions going back to the 60s. He notes that the survey has shown that the banking sector has tightened up quite a bit.
Both Spano and CashFlow Hunter agree that the impact of bank tightening could push the economy into a recession and affect a lot of other things. They also discuss the impact of commercial real estate on the economy and the potential for lending to tail off for a little while.
Spano also talks about the big themes for the energy sector over the next few years. He notes that natural gas demand is going to increase significantly due to the move away from coal and the shift towards renewable energy. He explains that natural gas is a transitional fuel that can help bridge the gap between coal and renewables, and that the demand for it is going to increase as a result.
With everything considered, the conversation highlights the potential impact of bank tightening and commercial real estate on the economy, as well as the opportunities and challenges facing the energy sector in the years ahead. It is a valuable re for investors looking to stay ahead of the curve and make informed decisions about their portfolios.
