The fate of a lot of commercial property is tied to the medical sector of the economy. From Wolf Richter at wolfstreet.com:
Who would have thought: Property bubble needs Obamacare.
When the effort in Congress to pass a health-care bill – the American Health Care Act, designed to replace the much maligned Affordable Care Act – failed on Friday, the thing that wasn’t supposed to happen happened: The industry that had whined for years about this, that, and the other in the Obamacare law, breathed a huge sigh of relief.
On Monday, despite the general unease in the stock market, heath care stocks rallied. Well, they didn’t exactly rally, they edged up. But it made them the best-performing sector among the 11 S&P 500 sectors.
But no one apparently breathed a bigger sigh of relief than the over-indebted and teetering Commercial Real Estate sector. Investors, including the largest asset managers in the world, had experienced the rich benefits of a multi-year mega construction boom of hospitals, medical office buildings, and other health-care facilities to accommodate the ballooning industry that is taking over the US economy and provides 16% of its private-sector jobs.
Property prices had soared over the years as part of the overall commercial real estate bubble. It has gotten so huge that if it deflates, it risks taking down the banks, particularly smaller banks where CRE lending is heavily concentrated.
Even Federal Reserve governors admit its policies since the Financial Crisis have helped fuel this bubble, and it admits that it is a bubble, and references to it keep showing up in their statements and speeches as the fretting has begun. Among them, Boston Fed President Eric Rosengren, a Fed “dove,” is now worried that the commercial real-estate bubble in the US has once again become a risk to “Financial Stability.”
To continue reading: Commercial Real-Estate Moguls “Breathe Easier” after Health Bill Collapsed