Our local new construction market is different from the rest of the country. For example go to the Phoenix area and you see the publicly held large national builders such as KB Homes, DR Horton and Centex as the ones who are building the most houses. These companies raise their money to purchase land and build houses by doing a combination of public bond offerings and corporate lines of credit with large banks such as Chase and Bank of America. In Washington State it is much different. 90% of the builders in our state build less than a 100 homes a year and are privately held. Some of the larger builders get their financing from large money center banks; mainly Wells Fargo, BofA and US Bank. However the bulk of the lending for new construction homes and condos was done by Frontier, Homestreet, Horizon, Sterling, Seattle Bank, etc. It is mainly due to these construction and development loans that has caused these banks problems. The value of these assets has declined so dramatically that a once healthy bank like Frontier that was on paper one of the strongest and most profitable in the nation is in such a bind. The other fall out from the potential failure of these banks is that they are also did a lot of local lending to small businesses such as small retail and service companies. These companies are struggling but are able to meet their obligations unlike a lot of the builders and if this credit disappears they have no where to turn. They can go to Chase and get a credit card with a high limit and an 800 number and a 24% interest rate as their alternative, not really what they need.

The irony here is that the Federal Reserve bailed out the money center banks and brokerages that created the mess with the CDOs and invented the sub-prime mortgages but the collateral damage that it caused with the regional banks is just looking to be flushed. As a matter of fact it gets even worse. Since the regulators failed so miserably with the money center banks they now have decided to get tough on the regionals. In fact they are going to the regionals and saying to them they want them to get out of community based lending but they have no where else to go to make money. They are basically real estate asset based lenders. They are not competitive on car loans, they can’t do large corporate based lending and they have no other sources of income so what do they do? On the other hand the money center banks are in a position to consolidate their market share. So what do you do? I would suggest buying stock in Chase (JPM) and hope Jamie Dimon is merciful to our local lending needs. .

The second issue regarding regulatory changes will be addressed in another post.

This week there were only five pending sales and again the per sq. ft. average was up for three weeks in a row for pendings versus sold, this is a counter trend to other markets still fighting through bank owned homes and short sales. Also in this group of pendings there appeared to be no banked owned or short sales. A first. The average pending per sq. ft. price was $238 vs $241 last week and the average sale price was. The average list price sold was $503,000 down from both weeks in a row.

On the surface it appears that some of the bank owned and short sales may be working themselves through the system. If the economy doesn’t get worse this maybe a continuing trend. It appears there is some mild movemement up on price on the lower end but it also appears the buyers are starting to dig there heels in. I suspect we will see sales volumes declining from seasonal levels. Also you may see buyers sit on the sidelines if they can’t get the deals they want. Interesting to see how this plays out.