Consensus On Recovery Slow to Form

The direction of real estate markets is a critical concern for lenders, but a consensus on which way they will go in the near term has yet to be formed.

New York banking executive Joseph Ficalora, for instance, warned last week that “more difficulty” lies ahead. “Prepare for adversity,” he advised attendees an industry meeting in Weston, Fla.

The chairman of New York Community Bancorp, the nation’s 22nd largest bank holding company with assets of $42.2 billion, said the downward slide in real estate is still far from over.

“There are far more reasons why the period ahead will be more difficult than the period behind us,” he said, noting that each part of the business cycle reflects the part that preceded it—and the current downward slide is following the most robust credit cycle ever recorded.

His downbeat forecast was in contrast to that of Fannie Mae’s chief economist, Douglas Duncan, who even so was not particularly optimistic himself.

Even though many experts think that the markets bottomed out last summer, Duncan is not expecting an overall housing recovery to come until 2013, largely because economic growth will be only half of what it has been during previous post World War II recoveries.

The Fannie Mae economist told the American Bankers Association’s Real Estate conference the recovery is broadening, with businesses starting to rebuild the inventories they curtailed so dramatically during the recession.

But, he added, consumers are “not showing the signs of life” they have exhibited is past recoveries. “Consumers are not going to be the major support they typically are,” he said. “They’re saving more and spending less.”

Although builders have done a good job in cutting down their unsold inventories, Duncan doesn’t expect production to get back into sync with underlying demographics for two to three more years. And when housing does recover, it will be on a regional basis, he said. “Housing will start back as a more regional event as opposed to a national event, with those markets not experiencing significant job losses recovering the fastest.”

The economist also told the conference that to have a sustained recovery, the banking business “has to get back into the game.” But that won’t happen, he added, until Congress decides on new rules of the road for the financial sector.

“Capital tends to sit on the sidelines until the rules are settled,” he said.

Diane Casey-Landry, the ABA’s senior executive vice president, sounded a similar alarm, saying that lenders are waiting for the next shoe to drop on what seems like a centipede of pending legislation. Casey-Landry didn’t hold any hope that long-overdue financial reform will move through Congress any more smoothly then health care legislation.

“The extraordinarily partisan and negative health care debate will bleed over into financial service reform,” she predicted when addressing attendees.