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Home · Property Management · Financing : Fed: Lenders Still Tightening Standards

Demand Picks Up In Philly, Cleveland, K.C., and Dallas

Inman News, June 13, 2008

Reports from the 12 Federal Reserve districts suggest residential real estate markets remained weak in most areas during the second quarter, with tighter credit standards reported for most loan categories.

The Federal Reserve’s latest “Beige Book” report documented flat or declining home sales in Boston, New York, Cleveland, St. Louis and Dallas. Inventory levels of new and existing homes remained high or were rising in New York, Philadelphia, Cleveland, Richmond (Virginia) and San Francisco.
Home sale prices decreased somewhat in Boston, Atlanta, Kansas City and San Francisco, but remained relatively stable in Richmond and Chicago. Residential lending activity remained generally weak in Richmond, Atlanta and Chicago. In contrast, demand picked up in Philadelphia, Cleveland, Kansas City and Dallas, but was about the same in St. Louis.

Reports from the districts included these details on mortgage lending and housing markets:


First District — Boston
Massachusetts home sales decreased 16 percent year-over-year in April — somewhat less than in previous months — while condo sales decreased 27 percent. Connecticut and New Hampshire experienced year-to-date home sales declines of 28 percent and 24 percent, respectively, compared to 2007. Rhode Island home sales decreased 18 percent year-over-year in March, and Maine home sales decreased 23 percent year-over-year in April. Meanwhile, median home prices are down 8 to 11 percent from a year earlier across the states. Contacts in Massachusetts reported increased activity at open houses, and April’s pending home sales numbers in the Boston area were said to look promising. However, one contact noted that financing issues could still prevent increased activity from translating into increased sales.
Second District — New York
Bankers reported little change in loan demand in any loan category or in refinancing activity. No bankers reported eased standards for any type of loan. Sales transactions for Manhattan co-ops and condos were down sharply from a year earlier in April and May, while inventories of unsold units were up by much more than the seasonal norm since the beginning of the year.
A leading appraisal firm reported that average and median selling prices were buoyed by a skew in volume toward the high end, with prices of comparable units flat to lower than a year ago. Sales activity in the outer boroughs was also reported to be down sharply from a year earlier. One industry contact said he’d heard of quite a few deals falling through due to difficulties in obtaining financing.
An expert in New Jersey’s home-building industry notes that the market for new homes is being hampered by ongoing weakness in the resale market, where sales activity remains at low levels and prices are down more than 10 percent from a year ago. However, builders are reported to have worked through much of their inventory overhang and are no longer offering aggressive discounts, but they are still offering concessions.
Third District — Philadelphia
Bankers said the slow rate of real estate loan expansion was the result of a low rate of home sales as well as limits that lenders were imposing on home-equity lending.
Residential real estate agents reported sales of existing homes were edging up modestly in many parts of the region, and new-home sales have increased slightly in some areas, as well. However, real estate agents noted that the average time homes are on the market has not declined and inventories of homes for sale remain high. In general, residential real estate contacts do not expect housing activity to expand strongly this year. One noted that the “correction has a year to run at least,” and another said “a real construction rebound will occur in 2009.”
Fourth District — Cleveland
An uptick in home mortgage originations was attributed to seasonal factors and is not seen as the beginning of a trend. New-home sales were flat to declining, while inventory levels remain high. Even though there has been a slight pickup in traffic, almost all home builders expect no improvement in the housing industry for the remainder of 2008. New-home prices have been relatively stable since our last report, though discounting has increased.
Fifth District — Richmond
Residential lending activity slowed a bit in recent weeks as the number of mortgage originations fell slightly and refinances continued to taper off. Contacts in Richmond, Va., Raleigh, N.C., and Hilton Head, S.C., reported a decrease in demand since early April, and a Charleston, S.C., lender said his firm had not seen the “normal pickup that comes with the spring buying season.” Interest rates on mortgages were relatively steady, although a contact in Charlotte, N.C., noted rates had moved a touch higher in the last two weeks. Several lenders said they again reduced loan-to-value ratios over the last six weeks, while contacts in Hilton Head and Charlotte reported raising credit score requirements a bit further.
Realtors continued to report generally sluggish home sales in recent weeks, but marginal improvements in sales were noted by agents in Charlotte and in Fredericksburg, Va. Other contacts noted that they were not seeing the kind of activity typical for this season. An agent in Greensboro, N.C., said he was “having a tough time getting sales,” adding that negative press reports had people “still holding back.” Inventory levels continued to swell in several areas in the District and a few agents told us they had noticed an increase in foreclosures. House prices remained relatively stable across most of the District in recent weeks. A Richmond, Va., Realtor noted that prices were more reflective of what buyers were paying two years ago.
Sixth District — Atlanta
Demand for all types of loans was trending slightly lower, and demand for mortgages was particularly weak. Reports from home builder and Realtor contacts indicated that new- and existing-home sales remained below year-ago levels in April and May in most areas. For the first time in more than two years, Florida home builders reported that new-home sales were flat to slightly up on a year-over-year basis. Sales of new homes outside Florida were described as below year-ago levels. Realtors in Florida and other Sixth District states conveyed that existing-home sales remained below year-ago levels. Both home builders and Realtors continued to note declining home prices throughout the District. New-home inventories continued to moderate while inventories of existing homes increased.
Seventh District — Chicago
Mortgage refinancing decreased and mortgage originations were low, and contacts reported that lending remained concentrated among fixed-rate and conforming mortgage products. The decline in residential construction slowed in April and May for much of the District, and several contacts expressed the belief that it may be approaching a bottom for the Midwest. Absorption rates of residential housing remained low, but began to increase in many areas as cancellations declined and prices showed signs of stabilizing. However, credit availability for new developments remained tight, and many builders continued to suffer losses on existing projects. Demand slowly returned to some markets as inquiries were reported to have increased, particularly among first-time home buyers. However, many potential buyers were finding it difficult to obtain a mortgage.
Eighth District — St. Louis
Credit standards for residential mortgages were tightened, while demand for these loans ranged from about the same to moderately weaker. Compared with the same period in 2007, April 2008 year-to-date home sales declined 18 percent in Memphis and Louisville and 17 percent in St. Louis and Little Rock. Residential construction also continued to decline. April year-to-date single-family housing permits fell in all but one District metro area compared with the same period in 2007. Permits declined 53 percent in Memphis, 40 percent in Louisville and St. Louis, and 33 percent in Little Rock.
Ninth District — Minneapolis
Market conditions for residential real estate continued to deteriorate. April pending sales in the Minneapolis-St. Paul area were down more than 6 percent. Home prices fell by almost 4 percent statewide in Wisconsin.
Tenth District — Kansas City
Bankers reported tighter credit standards and somewhat stronger loan demand than in the previous survey. Demand for residential real estate loans and consumer installment loans increased moderately, but some respondents reported tighter standards for residential real estate and consumer installment loans. Realtors, mortgage lenders, and moving companies reported a seasonal pickup in sales that reduced home inventories. Demand for lower-priced homes was stronger than demand for high-end homes requiring jumbo mortgages. Still, one Realtor noted the market for first-time home buyers has slowed because higher living expenses constrained buyer efforts to save for a down payment.
Eleventh District — Dallas
Partly reflecting reduced credit availability at nonbank lenders, loan demand at banks is growing faster than deposits, and banks have tightened standards to increase interest-rate spreads. Community banks reported a strong increase in real estate loan requests because other lenders are no longer funding these borrowers. Housing activity continued to decline. New- and existing-home sales fell further, and some builders are abandoning planned developments. Existing-home inventories inched up, but remained low enough to keep median home prices from falling by much. Apartment demand was solid, but there is increasing concern about oversupply in Houston and Austin, where construction activity has spiked.
Twelfth District — San Francisco
Lenders continued to tighten credit standards, which remained especially strict for residential mortgages and construction loans. Credit quality eroded a bit further, mainly for loans related to the housing sector, with the most significant adverse impacts on asset portfolios noted for smaller community banks. Housing markets remained exceptionally weak during the survey period, while conditions in nonresidential real estate markets softened a bit further. Unsold inventories of new and existing homes remained at unusually high levels in most areas, causing further price drops, especially in parts of California, Arizona and Nevada that also have seen sharp increases in home foreclosures. Scattered reports pointed to a recent pickup in home sales, which was attributed to increased affordability due to lower prices. On the nonresidential side, conditions weakened a bit further in some areas, with contacts noting reduced leasing activity and lower sales prices for commercial properties in the San Francisco Bay Area and further increases in vacancy rates for commercial property in Las Vegas and San Diego.
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