Economy Watch – A Floor for Residential Real Estate?

Some badly shaken markets are going from very bad to less bad, bolstering the idea that residential real estate has hit bottom. However, banks are still being shut down -- perhaps even at last year's pace.

January 26, 2009
By Dees Stribling, Contributing Editor

Existing home sales took a dip nationally in December 2009 compared with November, as previously reported by CPE, though overall sales were up slightly for the entire year compared with the year everyone would rather forget, 2008. Possibly more indicative of some kind of floor under residential real estate, however, is the fact that certain badly shaken markets have gone from very bad to less bad.

Such as Florida. According to the organization Florida Realtors, single-family home sales were up statewide 31 percent in 2009 compared with 2008, though that only includes sales handled by its membership. Besides any impact federal housing tax credit might have had, there’s also another factor in moving the housing stock of the Sunshine State: the median sales price at the end of 2008 was $187,000, while at the end of last year it was $142,000. This represented a whopping 24 percent loss (mainly whopping a lot of people with underwater mortgages).

Among Metropolitan Statistical Areas in Florida, the 2009 champion in lost housing values–and the area that presumably sported the biggest bubble, back in the day–was Fort Myers-Cape Coral, where median price cratered some 43 percent between the end of ’08 and the end of ’09. Buyers with cash or extremely good credit responded: Realtor sales in the Fort Myers-Cape Coral MSA were up 97 percent from 2008 to 2009.

The part of the state where existing single-family homes nearly held their value was the Florida panhandle. In the context of the current housing market, that means single-digit declines in median prices. Fort Walton Beach was down 6 percent; Pensacola was also down 6 percent; and Tallahassee was down 7 percent. Condos in Pensacola actually saw an increase of 1 percent in median prices.

A Hole in the Floor for CRE

Over last weekend, the FDIC shut down banks in New Mexico, Oregon, Washington, Florida and Missouri, five in all. In the first few weeks of 2010, the agency has seized the assets of nine failed banks, including those five, an early pace that might put this year in the same league as 2009’s nationwide closure of 140 banks with total assets of $170.9 billion.

Marketwatch quoted an FDIC spokesman as blaming the majority of the failures on bad commercial real estate loans, but you don’t need to be with the FDIC to figure that out.

Is anyone going to make money in CRE this year? Only a few specialized niche service businesses, it seems.

“Most properties financed after 2005 are worth less than their debt, rental rates are declining in most asset classes, and cap rates are going up, exerting downward pressure on values,” Evan Gladstone, executive managing director of NRC Realty & Capital Advisors L.L.C., told CPE. “While a certain amount of non-performing debt has been trading from banks, CMBS special servicers are still in the workout mode and aren’t aggressively foreclosing on properties. Besides special servicers and lawyers, no one is making much money in commercial real estate right now.”

After a tumble on Monday, Wall Street settled down on Tuesday, perhaps pleased by the devil-you-know aspect of a second Bernanke term as Fed chairman. The Dow Jones Industrial Average gained 23.88 points, or 0.23 percent, while the S&P 500 was up 0.46 percent and the Nasdaq edged up 0.25 percent.