Posted on 09/06/2009 12:54:11 PM PDT by BGHater
EVEN as the economy may be starting to recover, banks across the country are confronting a worsening outlook for their construction loans, an area that boomed for much of the decade.
Reports filed by banks with the Federal Deposit Insurance Corporation indicate that at the end of June about one-sixth of all construction loans were in trouble. With more than half a trillion dollars in such loans outstanding, that represents a source of major losses for banks.
Construction loans were highly attractive in recent years for many banks, particularly smaller ones without a national presence. One reason was that other types of loans were not easy to make. A handful of big banks came to dominate credit card loans, for example, and corporate loans were often turned into securities.
Construction loans, however, needed local expertise and were not easy to standardize. In a booming real estate market, there were few losses on such loans.
The problems now extend well beyond loans for the construction of single-family homes, where banks have been taking losses and cutting back their commitments for a couple of years. At the end of June, $173 billion in construction loans related to single-family homes was outstanding, barely more than half the peak level reached in the fall of 2006, when the housing market was booming.
It is in commercial real estate construction — be it stores or office buildings — that the pain seems likely to rise. At the end of June, $291 billion in such loans was outstanding, down only a few billion from the peak reached earlier this year.
“On the commercial side,” said Matthew Anderson, a partner in Foresight Analytics, a research firm based in Oakland, Calif., “I think we are fairly early in the down cycle.”
(Excerpt) Read more at nytimes.com ...
It think this is normal when you settle for a “jobless recovery.”
on the plus side the price of office space has dropped about 30%
The other Real Estate Loan Markets not discussed are the permanent loans with balloons coming up later this year and in 2010. These 7-10 year loans had lenders who could pay the mortgages until their tenants started moving out this year and continue to vacate leaving no income to pay the debt service. You may find buyers for these buildings but WAY below the cost of the p.s.f. mortgage left on the real estate.
De J’vue of the S&L problems circa 1990! JMHO.
Just wait until all of the 5 year commercial balloons come due in the next 3 months...
Can’t wait to hear Timmy’s comments then...
I knew the house of cards would collapse, but I never dreamed it would be this bad ....
I knew it was coming though, when I opened my biz, even before the new phone books came out, I was getting calls - lots of them - from training agencies that had federal and state contracts to retrain people who had lost their jobs due to imports.
No one would listen, why should they, didn't our percentage of owner occupied homes go to it's highest level ... what could go wrong?
LLS
Our elected “leaders” need to learn that there was ONE thing that made our economy the world’s leader: MANUFACTURING. We used to make everything, for everyone. Now, we make nothing (except some of our defense needs). All those mills, mines, and plants made our economy sing.
Until we level the playing field of manufacturing through FAIR trade versus FREE trade, we are screwed. No workers on Earth are better than we are, but many are cheaper. How many times do we need to buy the same cheap POS item made in China, when that same item used to last for years when it was made here?
ROFLOL
The problem is that free trade made it easier to outsource, but consumers who chose saving $.50 on pens and binders over keeping jobs here made it profitable. If we want companies to make things here again, we have to buy from them when they do.
The Ames Company defied the king of England and began manufacturing shovels in the USA in 1774. They still do so to this day. I have some Ames shovels in my work shed.
Maybe you should too.
I'm inclined to think that it is just starting... another view of The Towers of Silence, chained shut 6+ weeks.
I'd hate to be the one servicing that debt...
Thanks for the ping.
I walked the “Fashion Square Mall” in Orlando last week ,, counted 45 vacancies... www.preit.com ,, looked like 15-20% of the available retail space (mall is 1.1 million sq ft but a great deal is common areas) ... I saw many new shops that took up space there that obviously won’t last through the end of the year... Older strip malls are hit much harder and I know the valuations have fallen so much that nobody that was rolling 5-7 year balloons and banking the cash flow will be solvent at the next refi meeting with their banker.
Serious losses.
But it matches what you see as you fly over the cities and drive past the “commercial” highways: Hundredss of acres of “not built” and “stopped” construction that is now growing weeds, not homes, businesses, and stores.
I drive by a brand-spanking-new strip mall to/from work every day.... it is a gorgeous red brick and vacant, save for a day spa. It has been that way since it opened. The older strip mall down the way is almost completely shut down.
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