PHOENIX-While holding out little hope for a recovery this year in this hard-hit real estate market, one CU said it is surprised at the high quality apps it has begun seeing.
Arizona State CU noted things have gotten cool in the Valley of the Sun, with significant devaluation of residential real estate, increasing unemployment, and signs of vacancies in retail commercial properties. "On the positive side, we continue to have population growth, and homes are beginning to sell at greater volumes, albeit at lower values," said AVP Chuck Anderson, who foresees both clouds and silver linings this year.
"We anticipate that the decreasing demand for commercial construction financing will continue until recovery and excess capacity is absorbed," he said. "We do not expect to see any residential development in 2009. Again, inventories are very high and carrying costs are causing significant burdens on the largest developers. We expect to see some increase in retail vacancy rates as consumer spending continues to be modest and retailers suffer from decreased sales."
Anderson also expects to see lease rates decrease in all sectors of commercial real estate as vacancy-or the threat of vacancy-prompts investors to lower rates to retain tenants. "Of course, as lease rates decrease, so also does the value of commercial property," he said, "so we expect some devaluation of commercial real estate through 2009."
On a positive note, Anderson said the CU is already seeing more opportunities for high quality commercial loans as banks withdraw from the market. "We are actually amazed at the quality of some of the loan requests that are coming in from financially strong borrowers with viable economic positions," he said. "There is increased attention and identification for credit unions as a viable commercial loan alternative to banks; again, with banks withdrawing from the market, we are getting calls weekly from brokers and broker referrals of businesses that were unaware of the credit union business banking alternative."
Opportunities To Be Had
Anderson said there are opportunities to be had right now. "Credit unions have a real chance to shine as a relationship lender in 2009, stepping in to fill the gap left by others, with quality business relationships," he said. "Not everything is gloom and doom, there are many viable, strong and highly performing businesses operating in our markets."
Dean Vigfusson, EVP-retail banking, anticipates decreasing demand for all types of consumer lending in 2009, including autos, credit cards, etc., as consumers pare down debt. He also predicts slightly increased demand for first mortgage real estate loans, "as rates near historic lows, and are expected to stay there for a period," he said. "The only thing preventing an all-out record refinance boom is the lack of equity many homeowners have."
Like Anderson, Vigfusson sees real opportunity for CUs. "With many mortgage brokers having left the market, credit unions have a unique opportunity to step in and assist borrowers that need mortgage financing," he noted. "These new lending relationships have dramatically increased awareness of credit unions and what they can do to assist homeowners with their financing needs."
