Headlines – Week of February 22, 2010

February 28, 2010

Sharpest Decline in Lending Since 1942 (from the Wall Street Journal)

According to a recent article in the Wall Street Journal, U.S. banks registered their biggest full-year decline in total loans outstanding in 67 years.

More than 5% of all loans were at least three months past due, the highest level recorded in the 26 years the data have been collected. The problems are expected to last through 2010.

FDIC Chairman Sheila Bair believes the number of bank failures in 2010 will likely increase from the 140 recorded last year.

Tracking the Nation's Bank Failures

Tracking the Nation's Bank Failures

A survey by the Federal Reserve showed banks have slowed their efforts due to 1) the tightening lending standards put into place over the past two years and 2) a slowing demand for loans from businesses and consumers.

In addition, according to according to the FDIC, the number of U.S. banks at risk of failing hit a 16-year high at 702.

FDIC Problem Institutions

FDIC Problem Institutions

More than 5% of all loans were at least three months past due, the highest level recorded in the 26 years the data have been collected. And the problems are expected to last through 2010.

Initiatives such as the Obama administration’s $30 billion small business lending program will rely on banks making loans at a time when many of those same firms are wrestling with a rising tide of commercial real estate problems or being told to add to their reserves by regulators.
Bank Report-FDIC Portrait

Bank Report-FDIC Portrait

One issue complicating banks’ ability to lend is the looming problem of troubled commercial-real-estate loans. The FDIC’s report revealed that asset-quality indicators for banks continued to deteriorate in the fourth quarter as borrowers continued to fall behind on their loans. Banks wrote down $53 billion in loans in the final three months of last year. The quarterly write-off rate was the highest ever recorded in the 26 years the FDIC has collected the data. A total of $391.3 billion of all loans and leases, or 5.4%, were at least three months past due at the end of 2009.

 

Full Article

The News Hub Video

 

Is the Recession Over for Hotels? (from PKF Hospitality)

According to the National Bureau of Economic Research (NBER) the U. S. entered an economic recession in December 2007.  According to Smith Travel Research (STR), the U.S. lodging industry first began to show signs of weakness in July 2006, well before other business when year-over-year demand levels contracted by 14%. Total hotel demand declined 1.8% in 2008 and according to Hospitality Research total year decline in demand in 2009 of 6.3%.

The U.S. Gross Domestic Product grew 3.5% in the third quarter of 2009 as the recession ended after eight (8) quarters. PKF forecasts that the nine consecutive quarters of declining demand for U.S. hotels that began in the first quarter of 2008 will come to an end in the second quarter of 2010

As in past recessions, less demand leads to reduced construction of additional supply typically persisting three years past the beginning of the economic recession.

According to PKF, analysis of the data relating to the current 2007 recession reveals a distinctly different experience. Supply growth in the fourth quarter of 2007 was approximately 1.7%, slightly below the long-run average level of 1.9%.  Contrary to the previous downturns, room capacity following the start of this recession expanded in 7 of the 8 quarters immediately following. The current PKF forecast calls for above-average supply growth into the first quarter of 2010, the tenth month following the start of this recession.

Hotel Supply Growth Patterns

Hotel Supply Growth Patterns

While economic declines always lead to lower levels of lodging demand growth, following the start of the 1990 recession demand levels did not contract until one year after the recession began. This was different from the demand declines that were realized almost immediately when the 2001 and 2007 recessions began. The subsequent stigma associated with travel away from home was a major factor following the events of 9/11, while in the 2007 recession, the simultaneous occurrence of a stock market crash, the bursting of the housing bubble and the erosion of credit availability resulted in a severe economic downturn.  As a result, significantly levels of reduced lodging demand occurred immediately.

Hotel Demand Growth Patterns

Hotel Demand Growth Patterns

The current severity of the disconnect between the property cycle (supply increasing) and the business cycle (demand contracting) this time around is nearly ten-times as large as what was experienced in 1990-93 and twice as large as that realized in 2001-2004.

According to the December edition of PKF-HR’s Hotel Horizons, average daily rates will begin to realize their first year-over-year increase in the fourth quarter of 2010, representing the end of eight consecutive quarters of decline that began in the fourth quarter of 2008.

According to the PKF report, extraordinary declines lead to above-average recoveries, and they expect such will be the case with the current cycle. After the past two recessions, demand grew a cumulative 12.5% during the three-year period commencing the quarter after which the recession ended. The December 2009 Hotel Horizons® states that demand grow will be more than twice that amount as the industry recovers from the current recession. This demand growth will lead to the absorption of the new rooms that have been overwhelming many markets.  They believe that above-average increases in room rates will commence in the second half of 2011.

Full Article 

Half of South Florida homes sell for a loss

According to a recent report from Zillow.com, 47% of South Florida (Broward, Miami-Dade and Palm Beach) houses were in “negative equity” as of December, 2009, a 4 percent increase from the previous year .  In the Treasure Coast (Indian River, St. Lucie, and Martin counties), the picture is even worse. There, 65.7 percent of borrowers are upside down.

Nationally, 28 percent of homes sold for a loss in December.

Full Article

15 Top Retirement Cities

According to CNBC, Baby Boomers are willing to move farther than previous generations when they retire, and they are choosing places unlike stereotypical retirement hotspots.

The top places listed by AARP are:

1. Loveland/Fort Collins, Colo.
2. Las Cruces, N.M
3. Rehoboth Beach, Del.
4. Portland, Ore.
5. Greenville, S.C.
6. Sarasota, Fla.
7. Ann Arbor, Mich.
8. Tucson, Ariz.
9. Montpelier, Vt.
10. Honolulu
11. Santa Fe, N.M
12. Atlanta
13. Charleston, S.C
14. Northampton, Mass.
15. San Diego, Calif.

Full Article

Posted by Scott R. Lodde

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