Credit crisis imminent in the United States?

It seems that interest rate hikes by the Federal Reserve in the United States are also increasingly affecting the real estate market. Eric Peters, the CIO of One River Asset Management, shares in a new publication that it is increasingly difficult to raise capital for real estate projects. “The credit market started tightening six to nine months ago,” he said.

Silicon Valley Bank was the final straw

In recent months it has been more difficult for real estate projects to get good loans, but after the drama surrounding Silicon Valley Bank, the market has completely frozen, according to Peters. “The lender for our latest 30-story project in a prime city has dropped out. After that, we talked to more than 100 banks and nobody wants to finance us,” says the investor.

“The Federal Reserve needs to come up with liquidity and lower interest rates to stop this mess,” he continues. So far, prices have not yet fallen due to the high interest rates, but the construction of new projects now also seems to have collapsed enormously.

They normally finance the construction of new projects with a ‘construction loan’ that has a relatively high interest rate. Once the construction phase is complete and tenants move into the properties, they pay off that loan and refinance at lower interest rates.

The problem is that construction loans are now at 4.0 – 4.5 percent, while after a refinancing they end up at 6.5 percent or even 8.5 – 9.0 percent. According to Peters, that is the reason why the real estate market is currently completely stuck and if a solution is not found soon, it could cause huge problems.

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‘We’ve never seen this before’

“We also developed real estate during the 2008 cycle (credit crisis). But what we are seeing now is something completely new. In this way, the production of new real estate comes to a complete standstill,” says Peters. Slowly but surely, we are starting to see the effects of the Federal Reserve rate hikes all over the economy.

It remains to be seen what awaits us in the coming months. As a central bank, you cannot, of course, expect that an economy that has operated at an interest rate of 0 percent for years can also continue to function at an interest rate of 5 percent.

The next Federal Reserve interest rate meeting is scheduled for May 3 and a rate hike of 0.25 percent is also expected for that meeting. It is becoming increasingly difficult to avoid a recession and it even seems that the Federal Reserve is aiming for a recession to bring inflation down.

For Bitcoin, we have yet to see what that means. In general, a recession is not a positive development for risk assets. You usually see people fleeing to US dollars at the start of a recession, because they have to pay the bills with it.

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