One In Six Construction Loans Are In Trouble

nytimes.com:

Reports filed by banks with the Federal Deposit Insurance Corporation indicate that at the end of June about one-sixth of all construction loans were in trouble. With more than half a trillion dollars in such loans outstanding, that represents a source of major losses for banks.

Read the whole story: nytimes.com

Comments

[3dtrix]

I've been in construction all my life - and it's plain to see we've reached an end-game scenario. There are only two types of occupancies - commercial and residential - and run-away speculation has decimated construction of both. Millions upon millions of square feet of commercial real estate - mostly office and retail space (we've abandoned manufacturing) were developed as means of leveraging the obscene amounts of imaginary money held by lenders in the recent credit bubble - they sent money out of their doors by the trainload, and development of commercial real estate is one of the old-reliables of their business model. But naturally, the bubble was unsustainable, and as a consequence, there is a nightmarish glut of commercial real estate - vacant and shuttered - and unlikely to be occupied for years. So scratch commercial construction - the money was imaginary, but the buildings were real enough - no one will be building more for who knows how long...

[3dtrix]

As for residential construction - the speculation-fueled run-up of residential construction costs (in both real estate and building) have reached the tipping point of putting a modest home out of reach of a typical working couple. The basic unit of society will always be the family (whatever that may look like) and every family needs a place to live. When I started out in my industry, a single blue-collar income could support the purchase and maintenance of a single-family home. Over time, that morphed into two incomes being required. Now those two incomes, for the most part, must be at the professional level - not a shop clerk and a tradesperson, but two white-collar workers. How many couples do you know where one is a lawyer and the other a college professor? That's who qualifies these days. The recent spike in home valuation was a direct consequence of bankers selling naked fear to the general population - that if one didn't jump into the marketplace NOW and pay any ridiculous price, one would NEVER be able to afford a home. People believed them - and bought overpriced homes by the millions. How many sit empty? And how soon will more be built?

[3dtrix]

Me - I'm in remodeling - only ever built two new homes. My work environment has become more competitive as new-construction tradesmen (a completely different skill set) look for anything to keep busy and competent but illegal outfits bid work at rock-bottom prices - which is all most can afford these days. I'm well networked in a mid-sized town (for thirty years now) though, and multi-skilled - frame to finish carpenter, journeyman plumber AND electrician, roofing, drywall - the works. I won't starve - I've been busy through every downturn since I started, and I've got work now. Just not any that requires a loan...

[iblogleft]

This will become known is the history books as the years of the Free-Market Bailout. A time when the free-market was "mistaken" and could not live under its own rules, and required trillions of public dollars to remain a valid economic engine.

Meanwhile, back on main street, millions are forced into shelters when their property is foreclosed on, only to watch the business community and corporations be refinanced and extended on the taxpayers back, so one day they may reap ungodly profits once again.

This is the story of America. An America where priorities have been juxtaposed, and people fooled into believing this new direction is the patriotic one, and the only choice for "Real Americans".

[xrepublican]

ONLY 1 out of 6 are in trouble? That's all? seems like it should be far higher....­.....

[drkazmd65]

Exactly what I was thinking xrepublican. That seems to my mind to be a bit on the optimistic side as an estimate.

[dontberadicalized]

Some folks believe that we are heading into a serious period of deflation that may take years to unwind. And that means that the market will be heading much lower.

Even now we see jobs are still being lost, other parts of the real estate bubble need to unwind, there is a lot of credit out there that needs to collapse and we have a congress and a president who are massively spending and massively expanding government and the deficit.

Fiscal responsibility in the White House and in Congress is non existent. And even as they expand the deficit at a far faster rate than Bush did, they claimed they would be the fiscally responsible ones. They aren't.

I'm afraid the worst isn't over yet. In a deflation folks, Cash is king. Everything goes down in value, cash goes up.

[MarsAmbassador]

Deflation? We are headed into one of two things and neither of them are deflation. We are either going to go into a major depression or experience hyperinflation due to the massive devaluation of our currency. Personally, I believe we are headed for both. China, Russia, India and Brazil have stopped buying US Treasury bills and investing in our currency. In other words, they are no longer buying our debt because they do not view American money as being a good investment. The only thing keeping us afloat for the past who knows how many years has been other countries buying up our debt. That's it. Take that away and we're so screwed it's not even funny. And once the rest of the world decides they don't want to use the US dollar as the global reserve currency, the market is going to be FLOODED with American money, in effect making us practically useless. As a result, the price of imported goods will skyrocket for us, leading to hyperinflation. The massive loss of jobs and crushing debtload will bring us to our knees in the form of the worst recession the US has ever seen. And we will not recover. I'm talking End Of Empire. The deaththroes will be catastophic here at home, with Republicans and Democrats each blaming each other and their politices, nobody will agree on anything and we will become FAR more polarized than we are now. Fractured beyond repair. I weep for the future.

[MetalCanuck]

Actually with all the printing Cash will die, but gold on the other hand will explode.

[JoeBlough]

"Fiscal responsibility in the White House and in Congress is non existent" - It's been that way for over eight years. Get used to the new economy. The Bush/Cheney Legacy will be with us for decades.

[MetalCanuck]

Actually this problem goes all the way back to LBJ and Vietnam.

[factotem]

Uh, just hang in there. Obama is tied up with health care as his sole issue until December. He might be able to get around to it, then.

[dontberadicalized]

The US cannot buy it's way out of a recession.

[xrepublican]

But we can inflate our way out of debt......­.... Look for a redux of Wemiar Germany - only we've suckered the world into 'Mutually assured destruction' - if the US$ collapses, so does the whole world economy.

[JoeBlough]

But we did elect Republicans to get us into one.

[MarsAmbassador]

Too late. You want to fix this issue, you need to go back 30 years and stop Reagan. He started the massive downward spiral of massive spending and massive debt, moving wealth from average people to the few at the top. Every government since has continued this trend, including, unfortunately the current one. Geithner and Paulson screwed us so bad. The banks own this entire place, from top to bottom. They own the politicians and they own us. Larry Flynt really nails it:
http://www.huffingtonpost.com/larry-flynt/common-sense-2009_b_264706.html

[karen1p]

@ MarsAmbassador

Thanks for pointing us toward that awesome Flynnt article. He is right on.

Just waiting for the date to strike!

[factotem]

Was that Obama's platform?
"Vote for me and I'll tell you it's too lat to fix anyything?"

[Viper]

Our healthcare costing twice as much as in the rest of the world is in part how we got here and yert our healthcare produces no better results than Cuban where they spend just 250 Bucks per year per person on healthcare.

GM made money in every country but here, because of healthcare cost.

The rest of the world is on single payer and the cost of helathcare is not in the products they produce directly giving our competitors a clear advantage and trade surpluses as opposed to us having more trade deficts than the rest of the world combined..

Detroit lost half its population as MFG moved to Canada becuase of single payer government furinished healthcare. They have trade surpluses. Houses in Detroit avg Price 18K, across the lake in Canada.. 200K.... Get the picture!


And yet we have 1diots in the Repug party who fight to protect insurance companies who treat no one to keep taking 35% of every healthcare dollar so their execs can make $105k per hour while the rest of our industry leaves the country (since reagan came into office we have lost 80% of our industry). 57% of Fortune 500 Execs support single payer!

Pls try to educate yourself. Rush and Hannity barely got out of Highschool­...

Regards

[NightflyLester]

In normal times I wonder what the percentage is? 5%? 7%? 10%?

Maybe 16.6% isn't apocalyptic in the grand scheme... just askin'

[OpposingViewpoint]

The banks are reporting profits, all the while hiding losses in off-the-book accounting practices. Accounting practices sanctioned by our government along with the sanctioning of the flawed stress tests. http://www.huffingtonpost.com/2009/05/08/five-reasons-the-bank-str_n_199850.html Five Reasons The Bank Stress Tests Are Unreliable You touched on the commercial real estate bu*st that is indeed just getting into full swing. What we cannot overlook are the two additional real estate subprime vehicles known as the Alt-A's and Option ARM's that began to reset earlier this year with a value of approximately $1.8 TRILLION, 70% of which are projected to default. All the while the FDIC itself is bankrupt due to the number of banks that have gone the way of the rest of our economy. You really don't to be a Nobel Prize winning economists to arrive at the conclusion we are in some very serious difficulty. Ap0calyptic? I don't know, but then again, who does?

[NightflyLester]

I'm happy you got an opportunity to rant, however I was more interested in an answer to the question..­.

[Viper]

Nush kept the unemployemnt numbers low by deciding under him that 5% less of the population participated in the workforce than under Clinton. Given no job creation under BUSH, thats how the number stayed relatively low since we need to create 200K jobs per month to keep unemployement staeady. Under Clinton 22.5 million jobs created..

In reality Obama came into offce with unemployement of 12%, if you had the 5% back in....

17% "real" unemployement is very bad. It was LT 8% when Clinton left office.

And employment will not change much until we start making stuff again and to do that we have to fix healthcare ( that means single payer to compete) and stop the Free trade BS that no one else practices. China's polciy is for example a 22.5% tarrif on our goods (we charge them just 2.5%) and if you want to sell it in China .. it must be made there.... Its the Japan model of business while we have stupid repug policies of free markets , when they are not free!.


Regards

Regards

[charmante]

I live in the Seattle area and the last part of the report is what caught my attention:

"Foresight’s estimates of the proportion of problem construction loans in the 20 largest metropolitan areas has one surprise: the one with the largest proportion of troubled loans is Seattle, where the recession has started to pinch. But it is also notable that just one of the 20 areas has less than 10 percent of construction loans in trouble. A year earlier, most of them were below that level."

I am already seeing signs that residential real estate is in trouble and heading for the worst . However, I did not know how bad the commercial real estate was getting. Construction of large condos and office towers in Bellevue and Seattle were going in full throttle earlier this year which prompted me to wonder how long the party was going to last.

Washington State did not start to feel the pain of the recession until February 2008 and since then it had gotten worst and worser. Sounds like we will also be among the last one to recover.

[karen1p]

The construction business in Seattle is the WORST!

I was laid off in February and cannot find work. I am from Seattle and worked in building material sales. No jobs, in fact more lay offs. It is frightening.

Better start learning how to pour coffee.

[Troubledwawa]

Not surprised, we haven't bottomed in real estate (commercial or residential).

[simplify]

We constantly whine and pins about how much banks are getting. How much are they losing...l­ets have a balanced discussion

[eilish]

Can't be too awful for the poor buggers what with all the regulation-free bailout money, although I'm sure those 48 million dollar bonuses will be cut by a few bucks.

[mrcontinental]

They created the money out of thin air.

What more do you want to discuss?

[changeself]

with a good lawyer on your side,

fighting your bank for fair practice almost always pays!

disclosure: neither i nor anyone close to me is a lawyer, but

Democracy Now covered this issue and home foreclosure.

do not let corporate media and wall street fool you into thinking

you have no recourse.

[dwright]

Couldn't the title have easily read

5/6th of all Construction Loans are NOT in Trouble

I am truly getting sick of the negativity of this site

[changeself]

go back to Faux site. good riddance.

[eilish]

In the construction business, 1/6th is HUGE. Panicky huge.

[JoeBlough]

In trouble? I'm sure they will be bailed out. Not to worry.

[munki]

We have lenders or investors.­..

Why are they not exposed to these???

We need to talk to special asset, special asset or... anyone who is in charge...
could be avoided...

[PhilipTaylor]

Wall Street Banks DO NOT WANT Homeowners to SUCCEED!

Wall Street Banks and their Hedge Fund Managers make OUTRAGEOUS PROFITS on FORECLOSURES as they own "MASSIVE and REPETITIVE CASINO BETS" that your mortgage will fail!

They want you to FAIL so they get the BIG PAY0FF!
__________­__________

There EV1L STEPS:

Make Loans to FAIL!

Bet the loans WILL FAIL!

Collect on Bets!
_______________

Add in Derivatives and it is “MANUFACTURED INSIDER TRADING” by Wall Street Banks and their Hedge Fund Managers!

[hellboundtrain]

You are correct!
How can the people persevere and win
over a system that has been
designed to defeat them and all of their hard work?

They have no real representation because nearly all of the representatives have been bought out by the corporate controlling interests. Bad for the people that made America great.

[eilish]

I have a feelin' she ain't so great no more.

[mrcontinental]

One sixth? That number is way to low.

[eilish]

It is very much too low in AZ.