Nearly $175 billion in home loans are at risk of default. The rapid rise in interest rates and the end of easy money caused a financial shock in the most sensitive sector of activity.

Distress levels in European real estate are at their highest in a decade, partly due to a drop in liquidity. The decline in transactions and the development of commercial and residential real estate will inevitably impact spending in the real economy.

The slump in more than a decade of easy money has been made worse for property companies by a pandemic that has changed how people work and live, leaving many business premises empty. The repercussions are being felt around the world. A Brookfield real estate unit warned in November that it could struggle to refinance the debt of two downtown Los Angeles towers and raised the prospect of foreclosures. A missed debt payment by theme park developer Legoland Korea sparked a credit crunch in the country, forcing the central bank to act to stabilize markets.

The crisis has already started to claim a few victims, but we are only at the beginning. U.S. home-builder Builders FirstSource has cut 2,600 jobs, while U.K. millennial favorite Made.com has gone bankrupt. Several U.S. banks expect loan losses to rise this year. In its fourth-quarter results, Bank of America Corp. reported an additional $1 billion in office real estate loans with a high risk of default or missed payments.

Pressure points in commercial real estate are expected to be at both ends of the market: older buildings the occupier has moved to and developments that still need to be completed. In China, the construction of about 2 million housing units has been interrupted. In 2020, the Chinese real estate sector contributed around 29% of the country’s GDP, comparable to Ireland, before the market collapse in 2008. A few months ago, the International Monetary Fund warned investors against the risk of more defaults among Chinese property developers.

We are at the dawn of a global real estate crisis aggravated by several factors: high-interest rates for an extended period, raw material costs that weigh on the price of construction, and a paradigm shift that constitutes the development of remote working. These structural elements will push investors away from one of the essential asset classes.