With the inventory of homes available for sale at very low levels, clearly America needs new homes and new lots to put them on. Home builders and land developers have at least one thing in common. They need bank lending to finance their operations.
Home builders need a line of credit to build “spec homes.” Land developers need a line of credit to pay for streets and utilities in new subdivisions. Without bank credit, there is no new housing.
Two slides from the St. Louis Federal Reserve show real estate lending has virtually stopped since the peak in 2008. The first slide shows real estate secured lending at the 100 largest banks in the country. Loans secured by real estate at the big banks peaked in July 2008 at $2.75 trillion. The trough was reached in April 2011 at $2.54 trillion. Since the trough, real estate loan growth has been tepid at the big banks. The most recent reading at the end of March is $2.58 trillion
The next slide shows the same data for the remaining banks, those not among the 100 largest banks in America. Loans secured by real estate at the smaller banks peaked in April 2009 at $1.12 trillion. The trough was reached in October 2011 at $939 billion. Since the trough, real estate loan growth has been virtually nonexistent.
Clearly, new loan funds are hard to come by for home builders and land developers. This means that the supply of homes available for sale will continue to be low. Thus, home prices will continue to increase more rapidly than normal. It’s likely that real estate loans will continue to be constrained through 2014 as well. Home builders who can find financing will have little competition.
The good news is that the Texas banking environment is much stronger and more optimistic than the national averages suggest. Many Texas banks are beginning to make loans to homebuilders. But even our Texas banks are cautious. Expect to see low inventories of homes for sale in most Texas cities through 2014.
If you own a home in Texas already, you are going to like this scenario. Prices are likely to rise. If you are looking for a home, you better be ready to act promptly when you find a home you like. Chances are that there will be other families with the same opinion and few other options.
Source: RECON Posted on by Mark Dotzour