U.S. commercial real estate markets posted their strongest gains in more than two years in the third quarter, while residential markets remained stable, according to a survey released this week by the Federal Deposit Insurance Corp.
The FDIC’s composite index of bank examiners’ confidence in residential and commercial real estate markets reached 67 in October, down one point from 68 in July, when the last quarterly survey was taken.
That’s good news for bankers, because a more active real estate market generates more loans for the banking industry, which is already reporting record profits.
The news for the industry isn’t all good, however. Sales of new single-family homes in the U.S. dropped to the lowest level in seven months during October, separate Commerce Department figures showed this week. All regions of the country reported declines.
October’s overall 8.7 percent sales decline lowered the seasonally adjusted annual sales pace to 714,000 for the month. In September, sales fell a revised 4.5 percent.
Still, the FDIC report showed a strong commercial real estate market.
“The increasingly positive reports of commercial real estate market conditions during 1996 suggest that the recovery in this sector is gaining momentum,” said FDIC Chairman Ricki Helfer, in a prepared statement.
The improvement in the commercial market was driven by a steady reduction in the supply of excess commercial space, the poll said.
A record 84 percent of the 310 senior examiners and asset managers surveyed reported above average or average commercial property sales, while 29 percent found an oversupply of commercial space in their area.
In the residential markets, 35 percent said conditions were improving, a decrease from 45 percent in July.
That’s because, although home sales slowed, respondents said residential construction was improving. Some 88 percent reported average or above average new-home construction and 72 percent reported an upswing in condo and apartment construction.
“The recovery in housing markets still appears to be solid,” Helfer said. “With mortgage interest rates easing recently and the economy remaining strong, underlying conditions remain favorable for the residential sector in the near future.”
The average interest rate on a 30-year fixed mortgage continued to drop, hitting 7.52 percent a week ago. Rates had been climbing earlier in the year, reaching a high of 8.42 percent in July, according to the Federal Home Loan Mortgage Corp.
The FDIC’s index is based on a nationwide poll of examiners and managers from federal bank and thrift regulatory agencies. Scores above 50 indicate that more respondents thought local real estate market conditions were improving than declining. The most recent survey covered developments in August, September and October.
The market for commercial real estate showed the largest improvement. The FDIC survey found that 46 percent of the respondents said the residential housing market was improving — the highest mark since July 1994 — compared with 38 percent in July.
While housing markets improved nationwide, western states reported the strongest recovery, the FDIC said.
Bank regulators in California continued to record upbeat views. Some 64 percent saw improvements in commercial markets, up from 39 percent in July, and 70 percent reported stronger housing markets.
The FDIC uses the survey to track the health of the real estate industry, which in turn gives it a measurement of credit quality at the nation’s banks.
