Friday, February 06, 2009

Fed's Yellen: Economic Outlook and Community Banks

by Bill McBride on 2/06/2009 10:31:00 PM

From San Francisco Fed President Janet Yellen: The Economic Outlook for 2009 and Community Banks. A few excerpt on a common topic: CRE and non-residential investment:

Nonresidential construction declined modestly at the end of last year but, surprisingly enough, has not yet shown the steep declines that have been expected for some time. However, such declines are almost surely imminent. With business activity slowing and new buildings coming on line, vacancy rates on office, industrial, and retail space are all on the rise. For developers, financing is indeed extremely hard to get. The market for commercial mortgage-backed securities has all but dried up. Banks and other traditional lenders have also become less willing to extend funding. It’s no wonder that my contacts are talking about substantial cutbacks on new projects and planned capital improvements on existing buildings.
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Many community banks have significant commercial real estate concentrations, and these loans are a particular concern in the current environment. At present, the performance of such loans has deteriorated only mildly. But, as I suggested earlier, we can’t count on that situation to continue, since the downturn in commercial real estate construction is just getting started and is likely to be quite challenging.

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