Real estate is for a while one leg in the grave – residential leg it is. But all that time the second leg was firmly 6 feet above.

But today I’ve got a fresh signal that the second leg is scratching the ground and slipping down. This is CMBX-NA-AAA 3, the “AAA” rated CDS behind the tranche of commercial mortgages:

CMBX-NA-AAA 3

Today we saw a record panic on that index, though not too big in absolute numbers. The latest AAA tranche spread increased by 2.4bp. With the 8bp coupon the loss represent the 3.6 months of expected income lost in one day. It’s not a lot, but it never happened before.

What’s next? Land, it’s all about land. As long as the commercial real estate was still developing the price of land was holding up with limited losses. When commercial RE market finally collapses the huge amount of land in private hands will be repriced down to historically low valuations.

This is when the giant soaking sound of disappearing wealth will be heard. I wish you all to preserve your savings through the tough times ahead