As Goes Housing, So Goes Floridas’ Banks
The St, Petersburg Times reports on the FDIC study. ” Amid a generally bullish report on the U.S. and Florida economy released Tuesday by the Federal Deposit Insurance Corp., banking regulators cited two potential, and related, trouble spots. First is the growing inventory of unsold homes, up sharply from a year ago.”
“Second is the fact that the loan portfolios of community banks, those with assets of $1-billion or less, have become increasingly concentrated in commercial real estate loans. At more than half of the state’s community banks, commercial construction and development loans now equal 100 percent or more of the institution’s capital. Most of those loans are for housing projects.”
“‘As goes housing, so goes Florida’s bank performance because of its concentration in this product line,’ the FDIC’s Jack Phelps said. ‘We think most of these loans were prudently underwritten, but economic circumstances can change. And historically, we’ve seen that cyclical downturns in the real estate market contribute to higher levels of (bank) loss.’”
“Veteran banking analyst Dick Bove’s negative outlook is based on his belief that migration to Florida will slow as the housing market weakens nationwide. Speculators holding multiple properties also will be under increasing pressure to get out of the market as interest rates increase, he predicted. ‘It’s going to be a very hard landing,’ he said.”
“Bove scoffed at suggestions that banks will be insulated from the effect of a real estate crash because of stronger underwriting requirements. ‘Interest-only loans were not prevalent a number of years ago,’ he said, ‘and selling multiple homes to one buyer wasn’t in existence. Any banker who says underwriting standards are tougher today is flat-out lying.’”
“Ken Thomas, a longtime bank investor in Miami, said he fears a credit crunch if regulators focus too much on the loan-to-capital ratio. ‘You don’t want banks to interpret this as an indicator to stop investing in commercial real estate, because that’s Florida’s growth engine.’”
Also from the Times. “One month after its ceremonial groundbreaking and 21/2 years shy of completion, Trump Tower Tampa has broken with its builder, a company it praised last year as one of the best in the business. Turner Construction Co., the New York contractor pegged in December to build the $260-million luxury condominium high-rise, backed out of the deal March 17, Turner spokeswoman Shannon Eckhart said.”
“But Trump Tower might have a higher hurdle: It has yet to announce a financier to lend it $200-million. SimDag’s principals, including Frank Dagostino and Jody Simon, have had to dig into their pockets for startup money.”
Thanks to the reader who sent in these links.
From the FDIC report: ‘Data for early 2006 indicate that single-family and condo sales across many Florida metropolitan areas declined, while condo sales prices along parts of the Panhandle actually fell.’
‘Commercial real estate lending has been an important performance driver during the past ten years. Outstanding CRE loans have grown from $4.3 billion, or 34.8 percent of assets, in 1996 to $31.8 billion, or 59.6 percent of assets, in 2005.’
‘Within the CRE loan portfolio, C&D lending has been the fastest growing segment. C&D loans grew 66 percent during 2005. This was a record increase and the tenth consecutive year that double-digit growth has occurred. The majority of C&D lending is for residential housing, and continued strong absorption of new housing units will be a crucial factor.’
‘Concentrations of C&D loans have increased significantly and are well above the past cyclical high reached in the late 1980s. Specifically, 112 community banks (56 percent) in Florida had an exposure of C&D loans of 100 percent or more of capital. In sharp contrast, only 58 community banks (22 percent) had a C&D loan to equity ratio of 100 percent or higher in 1987 at the past cyclical high. The Naples, Fort Walton, Panama City, Tallahassee, Cape Coral, and Jacksonville metropolitan areas were the most active development markets.
‘You don’t want banks to interpret this as an indicator to stop investing in commercial real estate, because that’s Florida’s growth engine.’”
Commercial real estate in Florida. Ah yes, the thousands of miles of strip malls and the great, economically stimulating jobs that they bring. Arby’s, Popeye’s, Waffle House and check cashing joints as far as the eye can see. What a shame it will be if they have to stop building.
No, he’s mostly talking about houses:
‘have become increasingly concentrated in commercial real estate loans. At more than half of the state’s community banks, commercial construction and development loans now equal 100 percent or more of the institution’s capital. Most of those loans are for housing projects.’
Few people make loans for a mall that sits empty like some Florida houses do.
I don’t know. I have visited some big box stores and malls around SD which were surprisingly empty. It is hard for me to imagine they were producing high returns given the low foot traffic density, and most of my visits were last year when bubble fears were still in the “Loch Ness Monster” realm and the housing ATM was still pumping out reams of cashola. My guess is that the investors who underwrote the cost of all this commercial RE investment around SD do not follow Warren Buffet’s or Peter Lynch’s approach.
Sorry if I am guilding the lilly here, but SD’s retail outlets are heavily exposed to a housing downturn, due to the reliance of consumption spending on the RE-dependent jobs base and the housing ATM machine. Of course, a hit to the retail sector could result in more job loss, and more weakness in the housing sector (systemic risk again!).
I lived in South Florida in 1990 around the last downturn and there were serveral big malls that sat almost empty for thoses few lean years. One in particular was developed with S&L funding and went through several owners and I think bankruptcies before it became viable as a Flea Market.
Same thing all over TX. There are some that are STILL empty.
Txchick57 - Do you know anything about the housing market in Rutheford, Tx?
You must mean Weatherford, TX, which is west of Ft. Worth on the way to Abilene. It used to be trailer trash heaven but there are probably some suburbian gems out there now
The most noteworthy thing I can say about Weatherford is it has some of the nastiest spring and fall weather in the DFW area. Seems like never a tornado goes by that doesn’t at least look at Weatherford first.
The only good thing about Weatherford is its commuting distance to Fort Worth.
I live in Florida and all the new developments are surrounded by new strip malls that have nothing but chain stores and restaurants. (I guess that’s why I’ve always been attracted to older, historic neighborhoods that have mom and pop shops.) Jeb Bush keeps patting himself on the back in regards to the low employment rate we have. That is true, however, he fails to mention how much these jobs are paying. We have “help wanted” signs posted everywhere but they are all for minimum wage positions or sales help with 100% commission. Problem is that housing is so expensive now that low cost labor can’t afford to live anywhere close to where they work.
some called me crazy, but I’m telling you, make sure your bank is safe. why would you sell your home only to put it to risk in a bank that loans it out to the real estate market?
It’s a good idea to have more than one bank too.
A good place to start is the FDIC report. Did you know one of the most over-exposed banking systems is Georgia’s?
Okay, I’ll bite. I live in Georgia (move from Lamorinda, Bay area end of 2005). Which bank in Georgia is most exopsed?
Betcha TX is up there too. The weakest markets with the most to lose. Totally supports my theory that markets like GA and TX will drop harder and faster than anything in Cali
JLaw & CLimber..right
1bank - at home (cash, metals, & ammo)
2nd bank - 24 hour deposit solutions.
this way when the electrons go blinkity blink…modern day sample of Roosevelt’s closing and destroying every bank (good & bad)that was not part of the Federal Nov.1910 -CAbAL! By Exec order FDR penned a context change in US banking, while the country slept, and Congress frittered, {permitting usurpation of State rights stolen in plain site with little or no protest}….Today’s events, will bring ruin to the Federale’s, closed in favor of Foriegn World wide banks.
‘It’s going to be a very hard landing,’ he said.” What the hell happened to the Soft landing every other analyst has been talking about??
It’s pretty amusing that loans to a builder to build residential property is classified as a commercial real estate loan.
Not sure, but I think it’s how they characterize the large scale development loans.
Large scale development loans are commercial loans. These loans can amount in the millions of dollars and have theoretically stricter underwriting standards than a residential loan would have. Also, the construction loans are pretty tightly monitored by the lender with certain inspection requirements to ascertain compliance with the plans and specs and mechanics’ lien waivers before periodic disbursements. No residential lender and very few escrow and title companies have the capability or knowledge to handle these loans properly.
Classified today as Commercial R.E. tomorrow “OREO-Oh OH”, OREO-Oh OH!”{tune from Wizard of OZ!}- OZ - aka the FED}.
“Veteran banking analyst Dick Bove’s negative outlook is based on his belief that migration to Florida will slow as the housing market weakens nationwide. Speculators holding multiple properties also will be under increasing pressure to get out of the market as interest rates increase, he predicted. ‘It’s going to be a very hard landing,’ he said.”
“Bove scoffed at suggestions that banks will be insulated from the effect of a real estate crash because of stronger underwriting requirements. ‘Interest-only loans were not prevalent a number of years ago,’ he said, ‘and selling multiple homes to one buyer wasn’t in existence. Any banker who says underwriting standards are tougher today is flat-out lying.’”
Underwriting? What’s underwriting?
I recently got a job at the Small Business Administration putting together disaster loans for the victims of the hurricanes last year. What has surprised me the most about a large percentage of the Florida applicants is that so many of them own multiple units. They also think that the homes they bought in 2004 or 2005 have doubled or more in price from their estimates on their applications. Most of these people have huge mortgages, HELOCs and maxed out credit cards with huge balances. From what I’m looking at, there are a huge number of people that are right on the cusp of a huge collapse, even if prices only flatten. If they drop, get the hell out of the way, because this baby is coming down.
Keep us updated old sport. If you’re ever in the Sunnyvale / San Jose area, wings & beer are on me.
Another fascinating story. Wow.
“Bove scoffed at suggestions that banks will be insulated from the effect of a real estate crash because of stronger underwriting requirements. ‘Interest-only loans were not prevalent a number of years ago,’ he said, ‘and selling multiple homes to one buyer wasn’t in existence. Any banker who says underwriting standards are tougher today is flat-out lying.’”
I have always wondered how could one person get the loans to buy
serveral houses. I’ve heard of several flippers buying 10-14 houses,
how is this possible? Should the banks be guilty too?
You suggest an interesting question, which is of all those flippers and other varieties of RE speculators out there, how many bought more than one “second” home? I am guessing there were a sizable number of “extreme flips” represented in that 40% of used home purchases last year which were second-or-more. And of this group, those who cannot or will not stop their gambling habit before the market crashes will end up in deep sh!t, along with the dealer (I mean lender) who supported their habit.
sure interesting question.
In Europe we know even less about what is going on regarding ’speculation’, but if I check in my own street (relatively wealthy area), about half the people own a ‘vacation home’ in France or Spain, and some even some extra ones in Eastern Europe, Turkey etc. (and probably there are some people who don’t tell you what they own …). Most of these are certainly ‘investments’ and not vacation homes, but nobody keeps track.
I also know some examples of people who have piled on ‘vacation homes’, using all the equity gains to buy more homes (usually in newer areas where the boom was just beginning). Everyone will tell you it is safe because in the past 15 years or so there has not been one down year. They ‘make money’ every year (despite the negative cash flow).
And exactly on the other side of the globe it is much of the same. I remember an article in a New Zealand newspaper about the Auckland market, where most of the buyers of expensive homes (I think that was over 750K NZ$) owned at least a second home and about 25% owned at least 5 homes. 80% of them were planning to buy more homes next year.
that suggests that at least in the more expensive segment a small percentage of the people did most of the buying.
ow could one person get the loans to buy
serveral houses…
one at a time, from what i heard. borrow (heloc, i guess) from an equity of an appreciated house, then, use that money as a down payment for the next one. if the down payment is big enough, no question will be asked.
“We think most of these loans were prudently underwritten, but economic circumstances can change. And ”
Can this guy be serious? Prudently underwritten? Come on, we all know how loose lending standards are, at least dont compound it by bullshitting every one because the shit is about to hit the fan.
Sure, as long as prices are going up, they are prudent… and circumstances can change
“Also from the Times. ‘One month after its ceremonial groundbreaking and 21/2 years shy of completion, Trump Tower Tampa has broken with its builder, a company it praised last year as one of the best in the business. Turner Construction Co., the New York contractor pegged in December to build the $260-million luxury condominium high-rise, backed out of the deal March 17, Turner spokeswoman Shannon Eckhart said.’
“But Trump Tower might have a higher hurdle: It has yet to announce a financier to lend it $200-million. SimDag’s principals, including Frank Dagostino and Jody Simon, have had to dig into their pockets for startup money.”
I’ve been predicting this for months. The whole Trump tower thing strikes me as a put-on. I doubt Trump is using any of his own money. The project was absurd from the start. Tampa is not a sophisticated city, and a tower of million dollar condos downtown makes no sense, since there is no place to go and nothing to do there. People flee before sunset. It is easily one of the ugliest, most depressing downtowns in America.
I don’t know a whole lot about Tampa, but I wouldn’t call plopping down $1,000,000 for a condo the height of sophistication. I think the prices people pay for tiny shoebox apartments in NY is incredibly stupid, and obviously, there’s plenty to do there at all hours of the day. I just don’t see any inherent value in a luxury condo, and they are going up all over the place here in Dallas - another city with absolutely nothing to do downtown after the sun goes down - unless watching vagrants pee on buildings is your thing.
>> I think the prices people pay for tiny shoebox apartments in NY is incredibly stupid
Don’t know why my comments aren’t showing, but I was just saying that people are in NY for the money and lifestyle…that’s it.
I can see it.
So, Ivana’s building is gone, and now another Trump building is in trouble. You know, Trump has his name on another ugly condo building, this time in Jersey City NJ. There are rumblings of builder trouble there too (but I have no solid info on that.. yet). In any case, it will be interesting to see if that building runs into trouble too. My bet is it will. All of the other buildings in Jersey City are NOTHING but speculators.
-X
BubbleTrack.blogspot.com
Your mattress should be poking up in two places.
One from the bag of gold and the other from the sack of Bennies.
i’ve had two excellent conversations this week. one is a commercial broker, the other an insurance broker. both are very smart guys who i respect. they were well-versed in everything we talk about here including resets, exchange rates, japan rate hikes, china money, helocs, neg-ams, bank exposure….and on and on. it’s not just us talking about this stuff. there’s other people out there doing their homework.
I wish I knew more people doing their homework. That would make me feel much better. About the closest I can come to that story is my teenage daughter was at school today and a class discussed real estate. One teenage boy proclaimed that real estate was a sure thing- the best investment ever since it never goes down in value and everyone who is anyone should buy a house.
He was shut down by my daughter and another girl in the class who is the daughter of a local, respected real estate agent. SHE told him that actually no… it is all going down RIGHT now, and won’t be thinking about going back up until they are OUT of college.
Smart girl… told my daughter to make sure she gets the phone number of that real estate agent dad!
athena -
Great story! I love these anecdotes from Sonoma - you and Moon Valley should write a script together.
LOL… ;-D maybe we can title it the Elephant in the Valley!
Ben’s post earlier today ‘Bracing For The Great Unwinding’ referenced Neil Irwin’s article in the Washington Post. Neil conducted an online chat this afternoon on the Post’s website:
http://www.washingtonpost.com/wp-dyn/content/discussion/2006/03/31/DI2006033101410.html
He is open, direct, and willing to publish and respond to the most skeptical questions. If Maryanne Haggerty is your cup of tea don’t bother!
Ah, just maybe it’s time for the Donald to relocate to HOLLYWOOD
“With city and state officials nearing a choice on a developer for the site of the New York Coliseum, Donald J. Trump has issued a not-so-veiled threat that he would file a lawsuit if his bid for the property was rejected in favor of a rival developer.
Mr. Trump, who is among the five finalists for the valuable 3.4-acre parcel along Columbus Circle, at the southwest corner of Central Park, has offered the highest price for the property and has pledged to close the deal almost immediately if he is selected.
But, city and state officials said they felt that Mr. Trump’s proposed tower, which would include condominiums and a five-star hotel, has the weakest design. Two other developers, The Related Companies and Millennium Partners, appear to be the leading contenders, according to city and state officials speaking on the condition of anonymity.”
URL:query.nytimes.com/gst/fullpage.html?res=9B01E3D81E31F936A25754C0A96E958260
did you guys see this?
http://walkthrough.nytimes.com/
Joseph and Avi Fox launched BuySide Realty today for residents of California, Florida and Illinois, where 22 percent of all homes are sold. It has the potential to be one more blow against the fixed-commission system so profitable to real estate agents.
The new company assumes that buyers find their houses on the Web — or anywhere, for that matter, except directly from an agent. (Statistics from the National Association of Realtors say about two-thirds of buyers find their own home without an agent, though most use an agent to complete the deal.)
So BuySide is focused on changing the role of the buyer’s agent.
Read about Trump Mortgage Company.
With mortgage profit shrinking, and lender layoffs common, why would Donald Trump enter the home-loan game?
Here is a nice $100,000 reduction - was $965,000 now $865,000
http://www.bakersfieldmls.net/index.cfm?fuseaction=home.showPropertyDetail&l=133572
Hello? It’s in Bakerfield!!!! You could not pay me to live there!!!!
I still can’t believe there is any housing (except a farm) for over $250K MAX in Bakersfield. Surely this “proves” there is a housing mania. I would think that places like Bakersfield will fall the hardest and fastest in the coming crash.
Aaaaaaargh, Citi Bank rumored to buy Washington Mutual if they get their stock price! Merger and Acquisition (M/A)…that’s the next bubble!!!!!!!!!!!!!!!!!!!!!!!
Land auctions beginning in Florida. Here’s a list of 40 in the Port St. Lucie area. The neighbors of these 40 probably need the alka-seltzer this morning.
http://www.grahamauctioncompany.com/tesorolotlist.htm
“The breakout second home market is cushioning the housing market against a hard landing as the second home sector’s sales pace surges far ahead of both new and resale homes.”
And contra to past days……Realtytimes today!!!!
RE agents and lenders should beware: Their commission is a pittance compared to the cost of litigation. They need to disclose up front and in writing the extremely high risk of buying residential housing today.
I don’t think many agents are really facing the risk of a downturn, the many I know are in denial as to how bad it can be.
Simmssayss…
http://www.AmericanInventorSpot.com
AmericanInventorSpot.com
I agree. Litigation is going to be a big part of this bubble. I expect that legislation will be enacted here in CA forcing all sellers to do a certain amount of home inspection and no longer will sales be as in most areas.