Real Estate Update - October 15, 2009

Banks making short sales tougher

NEW YORK - Oct. 12, 2009 - Banks are backing away from short sales, forcing sellers to pay extra at closing or demanding a promissory note for the amount due. One-third of borrowers owe more on their mortgages than their properties are worth, according First American CoreLogic.

When their situations were really tough, most banks preferred short sales because they were their best opportunity to get the most money back. But with an improving economy, and because the losses on many of these properties have already been written off the books, banks are increasingly reluctant to negotiate a short sale.

Today, banks demand 9.5 weeks to respond to a short-sale request compared to 4.5 weeks a year ago, according to research firm Campbell Communications. The banks' reluctance is frequently stymieing sales and frustrating real estate practitioners.

Survey: Most economists see recovery starting

NEW YORK (AP) - Oct. 14, 2009 - More than 80 percent of economists believe the U.S. recession is over and an expansion has begun, but they expect the recovery will be slow as worries over unemployment and high federal debt persist.

That consensus comes from leading forecasters in a survey by the National Association for Business Economics released Monday.

"The survey found that the vast majority of business economists believe that the recession has ended but that the economic recovery is likely to be more moderate than those typically experienced following steep declines," said NABE President-elect Lynn Reaser, chief economist at Point Loma Nazarene University.

The forecasters upgraded the economic outlook for the next several quarters, but cautioned that unemployment rates and the federal deficit are expected to remain high through next year. Forecasters now expect the U.S. economy, as measured by gross domestic product, to advance at a 2.9 percent pace in the second half of the year, after falling for four straight quarters for the first time on records dating to 1947. They expect a 3 percent gain in 2010.

Still, the federal deficit has ballooned and the jobless rate is expected to lag behind, as employers remain cautious.

The unemployment rate rose to 9.8 percent in September from 9.7 percent, the Labor Department said earlier this month, the highest point in 26 years.

Forecasters expect the unemployment rate to continue to rise, to 10 percent in the first quarter of next year, before edging down to 9.5 percent by the end of 2010.

The recession, the worst since the 1930s, has eliminated a net total of 7.2 million jobs. More job cuts were announced last week. Thermo Fisher Scientific Inc., which makes industrial and scientific equipment, said it will close a plant in Dubuque, Iowa, next year, costing 350 jobs.

Worries about unemployment are likely to continue to constrain household spending. Personal consumption spending likely began rising in the second half of this year, but is expected to remain low in 2010. Still, Americans aren't expected to save as much as they have in past decades. The savings rate is expected to be above the 2 percent average of the past four years, but below the 9 percent average in the 1970s and 1980s.

The housing recovery is one bright spot. Forecasters expect 2010 to be the first year since 2005 that the housing sector will contribute to overall growth. Home prices are expected to rise 2 percent in 2010, but panelists do not believe that will stifle the housing recovery.

Inflation is expected to remain low due to the weak labor market and other factors. Thus, the NABE panel - which consists of 44 economists surveyed Sept. 2 through Sept. 24 - expects the federal funds rate to remain at its current record low near zero until late next spring, before a gradual rise begins.

"The good news is that this deep and long recession appears to be over, and with improving credit markets, the U.S. economy can return to solid growth next year without worry about rising inflation," said Reaser.

Commercial real estate loans get closer looks

NEW YORK - Oct. 13, 2009 - The days of exuberant commercial real estate lending are over. At least for now.

As bank and thrift failures continue to grip an industry already operating in a sluggish economy, bankers and developers said the bar has been raised for commercial real estate loans.

That means borrowers must be prepared to have a convincing plan of how their commercial project will succeed and be willing to put more cash into it if they hope to get a loan approved.

For bankers, participating in such deals means more paperwork, more frequent checks of the borrower's financial situation throughout the life of the loan, and pressure by regulators to make certain that the commercial real estate loans they make won't default.

"Real estate values were continuing to increase and there appeared to be potentially nothing but upside," said David Harris, CEO of RelianzBank. "We've fallen back to a much more disciplined environment."