Housing Still Faces Significant Headwinds

 

Many of these foreclosures are concentrated in the formerly hot markets in California, Las Vegas, Phoenix and south Florida and in the economically distressed markets, primarily the Great Lakes region of the upper Midwest. Foreclosures are expected to continue to rise, especially in these areas, through early 2010.
Courtesy of Propeller

The housing market still faces significant headwinds, even as they begin to abate. The Federal Reserve’s October Senior Loan Officer Opinion Survey on Bank Lending Practices revealed that the majority of banks are continuing to tighten lending standards for mortgages, as they have every quarter for the last four years.

However, the tightening is significantly below its peak in July 2008. Most banks this quarter reported that they neither tightened nor loosened their standards, those that tightened them reported raising their standards only somewhat and one bank reported that it had loosened its standard for issuing prime mortgages somewhat. Once the banks start to loosen their lending standards, look for a big rebound in construction and landscape activity.

Conditions for builders and developers have continued to tighten in the markets for loans to acquire and develop land and to construct homes — the AD&C credit markets. Not only have they found it increasingly difficult to obtain these loans, in many cases they have faced reductions in lines of credit, demands for increased equity for outstanding loans and, in some cases, demands for full repayment of outstanding loans. In many instances, these increased requirements transformed a performing loan into a non-performing loan.

Nearly three-quarters of the builders surveyed on the state of AD&C lending indicated that obtaining financing for land acquisition and land development was more difficult in the third quarter this year than it was the previous quarter.

Similarly, a high percentage of respondents said that it was more difficult to obtain loans for construction of multifamily projects. For single-family construction, builders generally reported that the financing construction was not quite as difficult it was for multifamily builders, with 57 percent reporting they had greater difficulty obtaining loans.

Faulty appraisals — appraisals that don’t properly account for foreclosures, short sales or dissimilar neighborhoods — also are hindering the housing recovery. One-third of builders responding to an NAHB survey indicated that they lost sales to low appraisals and 63 percent said they had appraisals coming in below their sales prices.

While only 10 percent of builders reported that the sale of foreclosed homes had no impact on their sales, 47 percent said they were somewhat impacted and 35 percent said they were significantly impacted by them.

– Courtesy of NAHB