Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: FRIDAY, March 1, 1991 TAG: 9103010719
SECTION: BUSINESS PAGE: A-5 EDITION: EVENING
SOURCE: Associated Press
DATELINE: WASHINGTON LENGTH: Medium
"I think there are some indications the problems in real estate are bottoming out," said William Seidman, chairman of the Federal Deposit Insurance Corp.
His agency, which insures deposits at banks and savings institutions, issued a compilation of statistics it uses as a "leading index" to predict the health of real estate markets. The data still show considerable weakness in many markets, but Seidman said he saw reason for hope.
Although the national office-vacancy rate increased to 19.5 percent at the end of 1990, from 18.1 percent a year earlier, rates in two-thirds of metropolitan areas studied were lower at the end of the year compared with the average of the past three years.
Also, falling home prices have combined with declining interest rates to bring housing to its most affordable point since 1977, he said. Already there is anecdotal, if not statistical, evidence that home sales are picking up, he said.
"It certainly doesn't say the real estate recession is over, but there are some indicators it's bottoming out," he said.
Seidman issued the real estate report the same day he tried to persuade members of Congress that banks - not taxpayers - will be able to repay up to $30 billion in borrowing he is proposing to bolster the government fund insuring deposits.
The decline of commercial real estate values has been the driving force behind the deterioration of banks' profits and the high rate of failures. Any improvement in real estate markets would be very good news for both the industry and the insurance fund.
However, many private analysts see no reason yet for optimism.
"I think his argument is very weak," said economist Paul Getman of Regional Financial Associates in West Chester, Pa. "He'll be lucky if the real estate recession hits bottom at the end of this year, because I don't see any signs of bottoming yet."
In the residential market, Getman acknowledged that declining prices and interest rates have made housing more affordable. But, he said, many lenders now demand more than the 5 percent or 10 percent down payments they once required. That shuts many first-time home buyers out of the market, he said.
He said office vacancy rates may not be deteriorating sharply, but they are still very high. He said employment growth has slowed in white-collar industries, such as banking, offering little hope that rates will decline soon.
The FDIC ranked 52 office markets using for criteria: growth in office completion, growth in office employment, change in vacancy rate and the vacancy rate itself.
The five areas considered to have the best prospects were Salt Lake City; Houston; Kansas City; Norfolk, Va.; and Austin, Texas. The five areas most vulnerable to a downturn were Hartford, Conn.; Albuquerque, N.M.; Detroit; Baltimore; and St. Louis.
Despite problems, banks continued to expand their real estate lending, belying complaints of a credit crunch, Seidman said.
During 1990, commercial real estate lending increased 9 percent while home mortgage lending grew 15 percent, he said. That compares with total loan growth of only 2.5 percent.
by CNB