Commercial real estate unhealthy

Office vacancy rates have hit 17% which is a 15 year high. The effective rents have fallen 8.9% YOY the greatest since 1980.

Hotel occupancies are at 45.5% which is nothing to get excited about. Hotel foreclosure sin 2009 were up over 300 percent from 15 to 62. Hotel defaults were up over 450 percent from 53 to 307.

Apartment vacancies have hit a 30 year high at 8% as measured by REIS. Asking rend have fallen, the largest drop since 1999. The effective rents have also by 3% for the year. The census bureau states that the vacancy rate is even higher ta 11%.

On top of the commercial problem, Boston Fed president Rosengren thinks that mortgage rates should increase by 75 bps once the Fed stops their buying program at the end of first quarter. They bought over 3/4 of the paper that has been issued. The pressure to raise rates when there is not the Fed buying will be very high.

There is no good reason to hold commercial or residential mortgages at this time. Additionally, REIT's will have significant downward pressure in this market. The spillover to smaller banks where more of the commercial loans are made is also significant.