Experts Say Commercial Delinquencies Are Likely to Keep Rising.(commercial mortgages)

Although an anticipated upspike in commercial mortgage delinquency rates has not materialized so far, industry watchers believe that a spike is on the horizon. Commercial mortgage delinquencies are tied to the state of the economy though, and the Fed's easing of interest rates by 50 basis points at its November meeting could very well get the economy back on track and bode well for mortgage delinquencies going forward. However, the impact of a possible war in Iraq could upset the benefits realized from the Fed's pre-emptive action.

Mark Zandi, chief economist with Economy.com, said at the Urban Land Institute's fall meeting in Las Vegas, that while rumor has it that any war will be relatively quick, with no impact on energy prices, "it is also easy to make a scenario where the invasion does not go well." Mr. Zandi pointed out that every single post-World War II recession in the U.S. - with one sole exception - has been preceded by spiking energy prices. And if the war with Iraq doesn't go well and energy prices spike over a period of time, Mr. Zandi sees a significant risk of recession.

Standard & Poor's reports that commercial mortgage delinquency rates fell in the third quarter to 1.9%, following a flat delinquency rate in the second quarter. Sectorwise, delinquencies in the health care, retail and office sectors declined, while lodging and multifamily sector delinquencies rose. Standard & Poor's analysts Roy Chun and Larry Kay believe that health care delinquencies peaked in late 2001 and "trended down through the third quarter as delinquencies were resolved and few new loans were originated."

Retail delinquencies are at 1.73% for the third quarter, but with retail property accounting for more than 30% of outstanding ...