Much of the afternoon was devoted to the commercial market and banks. The commercial market is a great source of concern right now. Commercial defaults could freeze the housing rebound while its impact on the credit market could drive even more banks out of business – including some that are starting to turn around today. The triple whammy of housing defaults, followed by commercial defaults, followed by credit card defaults is not a good combination for recovery – did I mention unemployment? But that’s worst case and hopes are high (if not the actual hopers) that we may be on our way out of the first and the stimulus may moderate the others.
Commercial transaction are down 80% from a year ago and values have dropped 25% – 35% in some markets. This is at least partially due to significant overbuilding during the past decade. Given that commercial loans are typically in the 5-7-10 year cycles, these loans are comeing due and lenders simply aren’t extending additional credit even to loans that are performing. Commercial construction has virtually ground to a halt during the past year with only about 70 million SqFt being permitted and developed. While this may sound like a lot, compared to the billions of feet available out there, it’s a drop in the bucket.
The future of banks as we know them was also mentioned. It was posited that the recent downturn was actually more of a lending bubble rather than a housing bubble. The public was responding to the rampant availability of funds. From the EVP of Wells Fargo Mortgage, ‘Bad loans are made in the good times – it’s counter-cyclical and created this bubble.’ Banks also need to work smarter. NAR announced new regulations making short sales a priority to lenders. That system is broke all across the country – not just where you are. Partly because banks are severely overburdened right now, partly because many experienced staff have been replaced in cost reduction efforts, partly because…
There is a new incentive that may tip the scales for enhanced short sale procedures – allowing short sales or deed-in-lieu to proceed without requiring delinquency on the part of the owner. Aside from the unfortunate habit of dinging people’s credit for trying to do the right thing, it is also having a real impact on our soldiers. One member from Hawaii quoted the high percentage of foreclosures in Honolulu in and around Pearl Harbor. Soldiers posted there years ago purchased homes or condos anticipating a lengthy stay or a rising market. Now many of those same soldiers are being transferred and are having their credit wrecked at the same time all thanks to their employer (US Government) & the banks. Even returning veterans, some wounded, returning from duty are transferred stateside and are forced into credit hell. That’s not right.
It was also pointed out that 90% of sub-prime borrowers were already homeowners – the incentive for banks was on the gamble, not the product. Banks must get back to the business of being banks – back to basics. Making fewer but higher quality loans to qualified homebuyers – without excessive and onerous over-regulation.Home buyers are also being encouraged to buy a house as a home – not as a stock certificate or an investment. Over the long term housing remains the greatest builder of wealth for the average American. The short term laughs at the long term.
t. But,” she noted,” it’ll be a slog, not a sprint.”