Concern is mounting among some analyst types that nonresidential building–which till now has somewhat made up for the decline in residential building–is heading south because of banks.
The New York Times reports today that the experts are worried because banks have weakened due to losses on their mortgage loans and that this may make them start tightening up on lending to nonresidential projects the way they have for residential ones.
And, there is some slight evidence coming in to support this concern: Nonresidential activity fell in July by 0.7 percent–that hadn’t happened apparently since December 2007.
Meantime, according to the latest Commerce Department figures, construction spending “took a bigger than expected tumble as housing activity dropped to the lowest level in SEVEN years…” reports the Associated Press.
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Charles FeldmanCharles has written 149 articles for us.
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Charles is currently reporting for KNX Radio in Los Angeles, is the co-author of the book No Time To Think, and can be found commenting about the news on his blog, The Feldman Blog.
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Part of the issue is the fact that commercial property is valued based on the income and the yield. In a soft economy there are fewer tenants. With higher inflation you can expect higher yields so lower building values. Little competition in the credit market implies lenders can be more picky when evaluating loan deals.
“In a soft economy there are fewer tenants.”
Yes, but with current credit crunch in residential isn’t that making more renters that would have typically been owners in the past?