Q2 2024: Non-Performing Commercial Real Estate Loans Up Nearly 70% from Q2 2023

U.S. Commercial – Two Year Historical [Q2 2024]

Commercial real estate debt has continued its two-year trend of deteriorating performance, according to the latest data from US banks. However, some categories of consumer debt have seen apparent improvement over the past three months. 

CRE mortgage debt performance has continued to deteriorate since 2022, with the dollar value of non-performing commercial loans hitting another new record in Q2 2024, landing it nearly 70% higher than the same quarter last year.

At the end of Q2 2024, 530 banks reported holding commercial REOs. 

Moving into Q3 2024, non-performing CRE loans held by banks included:

  • $1.6B in 30-89 day late owner occupied loans 
  • $20B+ in nonaccrual stage non-owner occupied CRE loans (up almost 40% this year)
  • $3B in 30-89 day late non-owner occupied loans 
  • $4B plus in nonaccrual stage owner occupied CRE loans

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

Construction Debt

U.S. Commercial – Construction 90+ Nonaccrual [Q2 2024]

Nonperforming construction loan volume appears to have peaked at its two year high, staying steady at the same dollar value as in Q1 this year.

The largest percentage of this debt is still in commercial development loans. Most of this debt is still in the nonaccrual stage, now a pool of over $2.7B in loans. This is up by around $400M from last quarter, which was almost double that from last year. 

This is followed by newly defaulting loans in the 30-89 day late stage, which is also up to almost $2B. 

Banks are still holding just under half a billion dollars in construction REO, with 375 banks reporting holding these non-performing assets.

Other Debt

Agricultural

One of the strongest performers of the past two years, farmland debt, has once again seen improvement over the past three months. 

Both newly late loans and REO volumes have fallen from the previous quarter’s figures. 

The largest part of this pool is around $700M in non-accrual debt, followed by $453M in newly late loans, and just $37M in REO (half that of the first quarter).

U.S. Commercial – C&I Non-Performing [Q2 2024]

Business Debt

Business debt performance has held steady in Q2, with just a slight hint of improvement since its two-year record worst in Q1. 

More than $16B in non-performing C&I loans are in the nonaccrual stage, up $3B over the since the end of last year. 

Newly late loans total around $7B, while $2.5B sits in the 90 day plus category, showing more and more of this debt is ending up in later stage and uncollectible status. 

Consumer Debt: Auto Loans & Credit Cards

Auto loan debt continues its usual seasonal cycle, with a slight deterioration in Q2. This could put this sector on track to a new three-year record if this pattern holds through December 2024.  

Credit card debt performance appears to be one of the surprise highlights of this quarter’s data. Loans in the 90+ day late category fell by around $2B this quarter, suggesting the worst performance may have peaked at the end of 2023.

Looking Ahead

While this year’s presidential election and other political factors could well alter the current trajectory, some types of commercial and consumer debt performance appear as though they may have peaked in distress, with some even showing improvements. 

However, investors should be aware of annual seasonal performance cycles. 

Commercial mortgage loans have also continued to worsen in performance for two straight years, with over $24B in nonaccrual stage loans.

Ongoing inflation, higher interest rates, a new tech revolution continuing to impact jobs, and economic policy and regulations seem set to be major influencers of markets through the end of 2024. 

Still, high asset valuations, Fed rate cuts, and more programs pushing help for homebuyers currently offer investors great opportunities to profit from distressed debt.

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

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