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Rock Bottom

The disintegration of construction and development loan portfolios echoed a collapse in home building and paralleled a dive in other private construction activity. Now, construction spending may be bottoming out.
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Housing Drag

Overall in the current cycle, housing construction has failed to fill the role it had in fueling previous recoveries. Change in housing starts, months before and after recession end. (Figures are based on three-month moving averages of values at a seasonally adjusted annual rate)
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Starts Up

Housing starts have begun to tick up, however, with recent gains concentrated in the multifamily sector, perhaps reflecting a shift toward renting as a result of the foreclosure crisis. Units in thousands.
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Big Role on Small Balance Sheets

Construction and development loans are most important to smaller banks. Such assets accounted for about 7% of total loans at institutions with less than $10 billion of assets as of Sept. 30, compared with just 2% at institutions with more than $100 billion of assets. Construction and development loan portfolios by bank asset class
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Looser Credit, Stronger Demand

Banks have reported loosening standards for commercial real estate loans - which included construction and development loans - for four consecutive quarters, and that demand has spiked recently.
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Bad Hangover

Construction and development portfolios have by far the worst nonperformance ratios of any major loan category, however, and chargeoffs are likely to remain a severe headwind. Noncurrent to total construction and development loans by bank asset class
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Real Estate Owned

Construction and development loans also account for the largest category of repossessed assets on bank books.
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Household Disintegration

Ultimately, lending volume will be determined by broad supply and demand factors in the housing market. Household formation* turned sharply negative during the recession, but improving employment conditions could set the stage for a sustained recovery. Units in thousands
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Overhang

The size of the excess supply of housing is a matter of heated contention. In 2011, the 8.8% of the housing stock that was vacant or employed in seasonal use was 2.1 percentage points above the average since 1965, which translates to about 2.8 million units. Percent of total housing stock
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