An article for the New York Post discusses how $1,000,000,000,000 of commercial real estate loans are coming due between 2010 and 2013. Commercial real estate developers and owners don’t get long term fixed loans like residential borrowers. They use shorter term, balloon loans to finance their deals. But, this is going to prove problematic in the coming years as the article explains.

I think this also shows that 2010 will be a difficult year for banks. Along with the commercial real estate mess, we have a massive amount of residential properties with adjusting ARMs as I profiled in this post. For anyone that thinks the credit mess is over, I think they are in for a rude awakening.

So what does someone who swims upstream to wealth do? One, keep your debt to income level as low as possible. You need to make sure your debt is very manageable. Second, avoid adjustable debt. With fixed rates so low due to the Fed’s purchases of mortgage backed securities, you should have a fixed loan. Third, avoid betting on the banks. I know so many people that are moving in and out of financial stocks. You are better off going to Vegas than betting on financials. I own the financials through broad market based ETFs, but I wouldn’t invest in this sector for some time. There is just too much risk.

The Federal Reserve reported today that delinquencies increased substantially in the first quarter of 2009. You will notice a substantial rise in residential real estate, commercial real estate, and credit cards. The only one of the three that isn’t at an all time high is residential real estate, which is still below the S&L crisis on the early 90s.

The residential real estate is what concerns me the most. Just as there seems to be a stabilization in real estate, we are finding defaults are increasing again. According to Realty Trac, foreclosures rose 32% in April. This won’t help a real estate market with 11 months of supply already.

Even more troubling, we can expect more real estate turbulence starting in July 2009 and lasting through 2011. There are an enormous number of option ARMs resetting during this period. For those who aren’t familiar with Option ARMs, they allow a homeowner to make a payment based on one of four methods: a 15 year mortgage, 30 year, interest only, and negative amortization loan. The negative amortization allows homeowners to pay less than the interest only option. This means any interest not paid is added back to the principal. So the mortgage is actually increasing over time. These real estate time bombs will start going off this summer and continue for two years. Many payments will increase by 30% or more once the readjustment kicks in on homeowners.

This debt deflation has a ways to go and stands to get substantially uglier than we have already seen. Any advice for these homeowners or comments on our debt?