Financing: He said, "There's new business ready to go with projects to be built, but no one can get construction financing to get these new projects going. Even large publicly traded companies are finding it hard to get construction loans."
Second: He then said, "Real estate is still not moving, which is impacting the industry." He discussed a particular large condo project he's been working on for years that shut down in the middle of the project as the owner went out of business and the bank now owns the project. In this project, only 3 of the 7 large condo towers have been completed. The remainder of the project is on hold because they can't sell units. At the peak, these condo units were supposed to sell for $700,000. Now existing units list for sale at $280,000 and they still aren't moving.
Lastly: He said, "There are many competitors that have closed shops, or scaled so far back they are barely in business, and many hang by a thread of survival.
Has anything really changed?
Those were his comments back in the summer of 2010.
1) New projects? I would agrue that those new projects back in 2010 have for the most part been cancelled or shelved for years. Yes, financing is impossible to get, but most of those projects no long make sense via the numbers.
Why would anyone build a brand new building of any kind when there is so much vacant space commercially and tons of homes for sale, both of which you can now buy for a lot less than the cost to build. Even if you could get financing, the numbers behind building vs. buying or renting most real estate makes no sense.
2) Nothings moving? The only thing moving is all cash buyers snapping up financially distress homes for a fraction of the retail value. That hasn't changed either!
3) Closed shop! The client who made those comments above is very close to being one of those causalities because the business just isn't there, and contractors of various sorts are falling one by one. There's just not enough to go around today.
Housing Starts See Biggest Drop Since 1984
U.S. housing starts posted their biggest decline in 27 years in February while building permits dropped to their lowest level on record, suggesting the beleaguered real estate sector has yet to rebound from its deepest slump in modern history.
Groundbreaking on new construction dropped 22.5 percent last month to an annual rate of 479,000 units, according to Commerce Department data released on Wednesday. This was just above a record low set in April 2009 and way below the estimates of economists, who had been looking for a smaller drop to 570,000.
January's figure was revised up to 618,000 units from 596,000. But that did not change the tenor of the report, which confirmed that the sector is failing to recover despite interest rates near record lows.
Building permits, a hint of future construction demand, fell to a record low of 517,000 units from a revised 563,000, and were down by about 20 percent from levels seen in February 2010.
Housing was at the epicenter of the financial crisis of 2007-2009.
One key impediment to the sector's recovery is a vast backlog of unsold inventory, while a shaky job market has also made consumers reluctant to embark on any major new financial commitments. Making matters worse, a glut of foreclosures, stalled in recent months by revelations of improper loan documentation, is depressing the market.
That's sobering new data that only confirms nothing has rally changed!
I've done one construction loan recently, and it was a major rehab a $2 million home. We did $1.5 million in total financing (take out existing debt and cash to fund improvements). The client's income is almost as much as the loan. They have money in the bank and brokerage accounts, so they have liquidity for a rainy day.
That's a no brainer loan to wealthy people, and that's how strong you have to be to get a construction loan these days. It's almost impossible, and if you are building something speculative, that is your building something you expect to rent or sale without having a tenant or buyer in contract.............well good luck getting a loan.
It's still the hardest loan in the world to get these days and I don't see that changing any time soon. I see nothing that has changed and the construction industry is still in a death spiral.
Hope all is well.
J.D. Rosendahl, Rosey