Data from May 2023 shows personal savings in the United States at $1.06 trillion. However, a concerning trend emerged over the following nine months. By February 2024, personal savings had declined by nearly 30% to $746 billion. This represents a significant decrease of $314 billion.
Concurrently, consumer debt exhibited a contrasting trend. Total consumer debt, which stood at $982 billion in May 2023, increased to $1.04 trillion by February 2024. This represents a rise of $57 billion.
These trends raise concerns, particularly considering that consumer spending accounts for roughly 70% of the U.S. Gross Domestic Product (GDP). As savings dwindle and credit card interest rates climb above 20%, the ability of consumers to maintain current spending levels becomes increasingly precarious. This situation has the potential to negatively impact economic growth.
What could the implications be for commercial real estate lending?
The declining savings and rising debt trends could have a significant negative impact on commercial real estate lending in several ways:
Reduced Demand for Retail Space: A large portion of commercial real estate caters to the retail sector. With consumers spending less due to dwindling savings and high-interest debt, demand for retail space could decline. This could lead to higher vacancy rates and lower rental income for retail properties, making them less attractive to lenders.
Tighter Lending Standards: Banks and other lenders become more cautious when consumers are financially stretched. As personal savings decrease and debt increases, lenders might tighten their lending standards for commercial real estate loans. This could make it harder for developers and investors to secure financing for new projects, potentially stalling growth in the sector.
Declining Property Values: If economic growth slows due to reduced consumer spending, the value of commercial properties could decline. This could lead to loan defaults as the value of the property falls below the outstanding loan amount. This creates risk for lenders and discourages them from issuing new loans.
Focus on Creditworthy Borrowers: Lenders might become more selective, focusing on projects with strong fundamentals and borrowers with a proven track record. This could limit opportunities for smaller developers or those with riskier projects.
Overall, the declining savings and rising debt trends create a challenging environment for commercial real estate lending. It could lead to a decrease in loan availability, higher borrowing costs, and a slowdown in the overall market.
