Banks in 2010: Ready To Lend?

The Commercial Real Estate Angle

The Atlanta Fed notes that a recovery is under way, and shifting from government support to private sector activity.

Housing Now

1.End of 2009: home sales increased in every district but San Francisco, where activity was steady and Kansas City, which declined
2. Lower priced homes typically purchased by first-time homebuyers outpaced sales of higher priced homes
3. Prices have remained at their low levels. Boston, Philadelphia, and Cleveland experienced price declines while Dallas reporting some firming
4. Residential construction activity is at low levels in most districts, except Chicago and Minneapolis
5. Rising vacancy rates and falling rents reflect the weakness in commercial real estate

Commercial Real Estate is the Big Question For Banks

The risk associated with commercial real estate is linked to banks, small business credit and jobs.

Banks are facing 900 billion dollars of bad or weak commercial paper, largely held by small or regional banks. Small business depend on small or regional banks for financing and they are not getting loans.

The concern now is a negative feedback loop, where banks wont loan money to small business so they cant hire. And without jobs, commercial property will see more vacancies, lower cash flows and lower evaluations, since that is dependent on strong economic activity. All this, just as they line up at the banks doors looking for strong asset evaluations and a bank ready refi

Its anybodys guess as to how this will play out, but the banks will need to sort this out before they take on new risks. Credit flow will remain MIA and that means a muted real estate recovery for now.

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