After the Federal Reserve developed its 2023 stress test scenarios — the baseline and severely adverse sets of assumptions used in testing the resilience of large banks — Trepp projected potential commercial real estate property prices and portfolio losses under each.

This is scenario planning, so the most challenging assumptions aren't a prediction of a likely outcome. But even the baseline wasn't all that encouraging. Given the current economic climate, that shouldn't be surprising.

Under the baseline scenario, the economy undergoes a slowdown and then a gradual recovery. Unemployment begins to increase, reaching 4.9% in the first half of 2024, and then recedes to 4.6% by 2026 Q1. CPI starts at 3.2% in the first quarter of this year (which already seems low), slowly declining until it reaches 2.2% at the beginning of 2026. The 10-year Treasury starts at 3.9% and finally lands at 3.2%; the 3-month peaks at 4.8% by the middle of this year and then declines. Real GDP growth is -0.5% now (measured numbers aren't yet available), gets worse in the second quarter, then begins to improve, reaches 2.3% at the start of 2024, and by 2026 is down to 2.0%. That includes a moderate recession.