Experts: Could be as bad as the mortgage meltdown
(UNDATED) - First it was the mortgage meltdown that brought down the American economy. But now, brace yourself for something economist say, could be just as bad.
Commercial real estate is the next thing to go. Nobody wants to rent it, or buy it and without money coming in, owners of malls and office buildings are being forced into foreclosure. It's so bad; the commercial market could be close to collapse.
Florist Mathew Xenakis is finding it hard to stay open, that's because the building he rents from is going bankrupt.
"We had a couple of employees before and we've had to lay everybody off," said Xenakis.
In April, the owners of Providence Place filed for bankruptcy protection as more and more stores inside its malls were closing. It's not just malls shopping centers and office buildings are also struggling to fill vacancies. That has some economists predicting a wave of commercial foreclosures that could derail the economic recovery.
In the past two years the delinquency rate for commercial loans has skyrocketed and is only expected to rise. That could leave banks holding the bag on billions of dollars in bad loans. So far this year more than 90 smaller banks have collapsed and commercial foreclosures could sink hundreds more.
"Bank failures are going to be rising for at least a year," said economist Julia Coronado.
But unlike the collapse in housing, the government sees this crisis coming and is prepared to spend billions to prevent another credit crunch.
"The policy makers are in front of the problem and I guess that's the good news and means this won't be as bad as we saw with the housing sector," said Coronado.
That's little consolation for Xenakis. He's trying to stay open through the foreclosure process, and hopes a new owner can save the building.
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