Q1 2024: Commercial Construction Nonaccruals Continue to Grow, Newly Late Farmland Loans at Two-Year High

U.S. Commercial – Two Year Historical [Q1 2024]

Non-performing commercial real estate debt and all major categories of consumer debt appear to be up substantially on a year-over-year basis, continuing a two-year streak of culminating distress. 

CRE mortgage debt performance has continued to deteriorate since 2022, with the dollar value of non-performing loans hitting a new record yet again this past quarter.

Even farmland loans, which appeared to be the one outlier that bucked the overall trend now appear to be falling victim to the wider economic trend as well 

U.S. Commercial – REO [Q1 2024]

At the end of Q1 2024, 531 banks reported that they held commercial REOs, up again from the previous quarter.

Moving into Q2 2024 non-performing CRE loans held by banks included:

  • $1.6B in 30-89 day late owner occupied loans 
  • $18.2B in nonaccrual stage non-owner occupied CRE loans (up by over 20%)
  • $3B in 30-89 day late non-owner occupied loans 
  • $3.9B in nonaccrual stage owner occupied CRE loans

Find out which banks have the most non-performing commercial loans inside BankProspector.

Construction Debt

Non-performing construction loan volume also hit a new record high, and is at its highest in at least two years. 

U.S. Commercial – Construction 90+ Nonaccrual [Q1 2024]

The largest percentage of this debt is still in commercial development loans. Most of this debt is now in the nonaccrual stage, now a pool of over $2.3B in loans which is an over 20% spike from last quarter. And that volume was already up substantially from this time last year (almost double). 

This is followed by newly defaulting loans in the 30-89 day late stage, a pool of almost $1.4B in loans. 

Banks are still holding just under half a billion dollars in construction REO. Though, with 375 banks now reporting holding these non-performing assets, the distressed is spreading across more institutions. 

Other Debt

U.S. Commercial – Farmland 30-89 Days Late [Q1 2024]

Agricultural

Farmland debt had continued to outperform all other debt classes over the past two years. Now it seems to be falling prey to wider economic trends, with non-performing debt in this sector back to its highs of two years ago. 

The largest part of this pool is around $640M in nonaccrual debt, followed by $560M in newly late loans (up $200M over the previous quarter), and just $60.5M in REO. 

Business Debt

Business debt performance continues to deteriorate, also hitting a two year record. 

More than $16B in non-performing C&I loans are in the nonaccrual stage, up $3B over the previous three months. Which was up $1B from Q3 2023. 

Newly late loans total around $7B. $2.9B sits in the 90 day plus category, showing more and more of this debt is ending up in uncollectible status.

Consumer Debt: Auto Loans & Credit Cards

Both auto loan and credit card debt have continued their two-year streak of worsening performance on a year-over-year basis, though down slightly from their Q4 peaks. 

Around over $17B in credit card debts have recently fallen into default. Another $18B is over 90+ days late and around $15B in auto loan debt is now classified as non-performing.

Looking Ahead

Although we may have seen auto loan and credit card debt come down slightly from last quarter’s highs, even these pools are at new highs on an annual basis. 

While the residential mortgage market seems steady, distress across commercial categories could easily spill over into the housing market. Especially with consumers being stretched to the breaking point. 

Ongoing inflation, higher interest rates, a new tech revolution impacting jobs, and economic policy seem set to drive more borrowers to the brink of bankruptcy. 

Yet, high asset valuations also currently offer investors great opportunities to profit from distressed debt. 

The most obvious wild card that is likely to influence the direction of debt performance over the next year is the upcoming presidential election.

Log in now to see which banks are holding the most distressed notes.

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