Bad News for Development

[Gaspar]

More bad news.  Those that I've talked to in the commercial and residential market say that the banks are telling them that they expect another hard dip, and have tightened limits on development lending.

I just got word that yesterday afternoon Tanner Consulting laid off the remainder of it's commercial and residential architecture and interior design staff with the exception of one architect to complete existing documents.  I know all of those people and feel bad for them.

If anyone needs additional talented staff, let me know and I will pass it on. 

[Conan71]

A retired friend of mine owns a nice plot of land just off highway 97 north of Sand Springs with a great view of downtown.  He was in the process of building a new house, had all the engineering and architecture work done but has not moved dirt.  He's too concerned about the economy and being able to recoup his investment out of a custom home.  I keep hearing rumblings here and there and I don't like what I hear as it contributes to the psychological recession where people, companies, and banks simply just horde cash and exascerbate the problem.

[nathanm]

It's mainly a psychological problem, but the Fed isn't helping with their refusal to seriously address deflation through anything more than saying they are "concerned."

Ironically, Bernanke wrote a paper some years back about the lesson of Japan being the need for central banks to address deflation concerns swiftly and decisive action.

[SXSW]

Good thing I'm working on a project that isn't scheduled for completion until early 2012.  Hopefully things are looking a lot better then when I'm assigned to my next job.

Makes me glad I abandoned design in favor of construction management, although I'll probably jump back over once things get going again.  If energy prices remain stable or go up, especially nat gas, that would be really good for our local economy.

[bokworker]

It's mainly a psychological problem, but the Fed isn't helping with their refusal to seriously address deflation through anything more than saying they are "concerned."

Ironically, Bernanke wrote a paper some years back about the lesson of Japan being the need for central banks to address deflation concerns swiftly and decisive action.

it's hard to imagine what else the Fed can do... rates are at 0%, they have tripled the size of their balance sheet with quantitative easing, and we have mortgage rates at near all time lows. At this point they are pushing on a string.

While many are calling on banks to lend more their primary regulatory agency, the OCC, is taking a very dim view of credit quality making new lending difficult.

Like others have mentioned, those that I know in banking are taking steps to get out of real estate they own and are loathe to lend anything into the market.

[Conan71]

it's hard to imagine what else the Fed can do... rates are at 0%, they have tripled the size of their balance sheet with quantitative easing, and we have mortgage rates at near all time lows. At this point they are pushing on a string.

While many are calling on banks to lend more their primary regulatory agency, the OCC, is taking a very dim view of credit quality making new lending difficult.

Like others have mentioned, those that I know in banking are taking steps to get out of real estate they own and are loathe to lend anything into the market.

All real estate or simply new development?  Since the bubble burst in just about all markets, it seems real estate is good security especially if there's a good downpayment involved.

[Gaspar]

it's hard to imagine what else the Fed can do... rates are at 0%, they have tripled the size of their balance sheet with quantitative easing, and we have mortgage rates at near all time lows. At this point they are pushing on a string.

While many are calling on banks to lend more their primary regulatory agency, the OCC, is taking a very dim view of credit quality making new lending difficult.

Like others have mentioned, those that I know in banking are taking steps to get out of real estate they own and are loathe to lend anything into the market.

I think if the administration had taken a different approach in the beginning by laying the mantle on the private sector rather than growing public sector programs and demoralizing the financial section, things would be different.

I agree that there is a perceived, "us vs them" situation between the federal government and the private sector that is crippling the financial industry. 

This perception was created by the initial demonetization of the financial sector by the president and members of congress.  From the beginning there was very little "WE."  All we heard about were the "Fat Cats" on Wall street, and the "irresponsible banking practices." The the government took very public action against them while at the same time attempting to support them.

It's like beating a dog with a newspaper and attempting to feed him a treat at the same time.  Sure he's hungry, but he doesn't know if you are going to hit him or feed him.  We have a table of treats laid out for the banks, but they don't want to get smacked.

[swake]

I think if the administration had taken a different approach in the beginning by laying the mantle on the private sector rather than growing public sector programs and demoralizing the financial section, things would be different.

I agree that there is a perceived, "us vs them" situation between the federal government and the private sector that is crippling the financial industry. 

This perception was created by the initial demonetization of the financial sector by the president and members of congress.  From the beginning there was very little "WE."  All we heard about were the "Fat Cats" on Wall street, and the "irresponsible banking practices." The the government took very public action against them while at the same time attempting to support them.

It's like beating a dog with a newspaper and attempting to feed him a treat at the same time.  Sure he's hungry, but he doesn't know if you are going to hit him or feed him.  We have a table of treats laid out for the banks, but they don't want to get smacked.

The problem right now isn't what Obama is or is not doing. It's the still unresolved European banking problems scaring people all over again.

[Gaspar]

The problem right now isn't what Obama is or is not doing. It's the still unresolved European banking problems scaring people all over again.

. . .and the European banks are fueled by US commerce and lending. 

No one is taking a leadership role.  Our federal government has made it very clear that banks are evil, and they are not about to reverse that.  This thing is going to have to play out until someone cries "Uncle."  I think that is probably why many see this recession lasting until their is a change in guard or at least a change in attitude.

[SXSW]

it's hard to imagine what else the Fed can do... rates are at 0%, they have tripled the size of their balance sheet with quantitative easing, and we have mortgage rates at near all time lows. At this point they are pushing on a string.

While many are calling on banks to lend more their primary regulatory agency, the OCC, is taking a very dim view of credit quality making new lending difficult.

Like others have mentioned, those that I know in banking are taking steps to get out of real estate they own and are loathe to lend anything into the market.

I'd say real estate is fairly secure right now though lending is still very tight.  Hence why construction/development has taken a hit and will continue to take a hit.  If you can afford a decent downpayment and/or get by without financing (or very little financing) it is still a smart investment.  That is one reason I bought a house now and locked into low interest rates.  I just hope they're still low when the times comes for me to sell it.

[Conan71]

. . .and the European banks are fueled by US commerce and lending. 

No one is taking a leadership role.  Our federal government has made it very clear that banks are evil, and they are not about to reverse that.  This thing is going to have to play out until someone cries "Uncle."  I think that is probably why many see this recession lasting until their is a change in guard or at least a change in attitude.

I think you should realize by now that the poor leadership meme isn't playing well with anyone here but you, myself, and our third member of the axis of evil: Guido.

Even in 20 years when President Obama's administration is viewed with a wince like the Carter administration is now it will all have been President Bush and the Neo-Cons' fault.

[bokworker]

All real estate or simply new development?  Since the bubble burst in just about all markets, it seems real estate is good security especially if there's a good downpayment involved.

I was primarily speaking of real estate that the banks have foreclosed upon and now sit on their balance sheets. While there was a willingness to hold some of it for a while to protect the value I am sensing a growing impatience and an idea that if they don't sell now someone else will and drive the value down anyway. Hence I fear we could be looking at a lot of property hitting the market. Additionally, my sources have told me that traffic even looking at houses has slowed dramatically. My sample size is small so I could be getting a skewed outlook but I suspect they know what they are talking about.

[Conan71]

I was primarily speaking of real estate that the banks have foreclosed upon and now sit on their balance sheets. While there was a willingness to hold some of it for a while to protect the value I am sensing a growing impatience and an idea that if they don't sell now someone else will and drive the value down anyway. Hence I fear we could be looking at a lot of property hitting the market. Additionally, my sources have told me that traffic even looking at houses has slowed dramatically. My sample size is small so I could be getting a skewed outlook but I suspect they know what they are talking about.

You think this could wind up looking like the "HUD Flood" in the 1980's and very early '90's?  I can only assume traffic has slowed for a couple of reasons: One being the general eeriness in the economy right now and the other being the government incentive for first time buyers to buy ran out.

[bokworker]

You think this could wind up looking like the "HUD Flood" in the 1980's and very early '90's?  I can only assume traffic has slowed for a couple of reasons: One being the general eeriness in the economy right now and the other being the government incentive for first time buyers to buy ran out.

I hope not but there are rumblings that more than one financial institution has way more OREO (other real estate owned) on their books than than they can stand...or maybe even enough to wipe out their capital. No doubt the expiration of the tax credit has slowed traffic as was expected but I think the hope was that as people saw housing prices stabalize that there would be more confidence in the future. If you look at some statistics, like the housing affordability index (which compares national income to house prices and interest rates), housing is more affordable now than in a very long time. But if there is a lack of confidence who wants to make that kind of committment. And everyone has redefined what kind of committment housing is. It isn't so much an investment now (not that it ever should have been viewed as such) as a utilitarian asset and as such, why take the risk of a declining home value when you can just rent. 

SWAKE pointed out one factor hurting confidence but the entire list would be much longer than just what is going on in Europe. In general, I just sense a lot less optimism than in times past. Maybe it was because I was younger but I began working in the banking industry in 1982 and even when we were closing a bank every Thursday afternoon I don't remember pessimism being so rampant. Fear is an easy sell right now. Being an optimist is viewed as meaning you just aren't paying attention to what is going on.

[Gaspar]

I'd say real estate is fairly secure right now though lending is still very tight.  Hence why construction/development has taken a hit and will continue to take a hit.  If you can afford a decent downpayment and/or get by without financing (or very little financing) it is still a smart investment.  That is one reason I bought a house now and locked into low interest rates.  I just hope they're still low when the times comes for me to sell it.

It's certainly a good time to buy if you know who to talk to.  Many of the developers I used to work with are literally throwing properties away to get them off the books.  One such developer had his real-estate guy call around and offer models in his developments for 75% of their marketed price.  It still took him a while to unload.  The other builders trying to sell in his subdivisions were pissed, but what can you do?

If I had the money I might consider buying up some property, but again it's iffy as to where the economy is headed.