A monthly survey conducted by the Treasury Department of 22 of the largest bank participants in the Capital Purchase Program (CPP) found that new loan originations increased by 13 percent in June 2009, while outstanding loan balances decreased by 1 percent. Through the CPP, Treasury invests in viable banks to stabilize the financial system by building up the capital bases of banks, enabling continued lending and economic recovery. Since the inception of the CPP, Treasury has funded 665 banks of all sizes in 48 states, Puerto Rico and the District of Columbia.
The increase in originations was due largely to a sharp increase in new home purchases and seasonal renewals in commercial and industrial (C&I) and commercial real estate loans. While it is good to see that loans for new home purchases are on the rise, one should not immediately interpret this as a bottom in the housing market. Remember that the $8,000 First-Time Homebuyer Tax Credit per couple expires on December 1, 2009. Homes must be built and the purchases closed by that date in order to qualify for the loan (click here to read more on this topic). Thus, new housing starts and new home loans are almost entirely attributable to the tax credit. Once that expires, assuming it is not extended, we will need to pay close attention to housing statistics to see whether the market is truly repairing itself, or whether the tax credit offered a temporary boost to a still-declining market.
Commerical real estate continues to look vulnerable. In the CRE sector, the June survey results point to continuing poor market conditions and general caution by businesses. CRE loan balances at these 22 banks fell by 1 percent, and banks reported that demand for CRE loans remained well below normal levels as businesses continue to focus on strengthening their balance sheets, reserving for future losses, and downsizing. Additionally, the lower demand for new loans reflected a surplus in the market, as the supply of office space has increased due to firms downsizing and office vacancies rising.
- Tables
- The Monthly Lending and Intermediation Snapshot, 08/17/09
- Individual Banks’ reports, 08/17/09
Gregg D. Killoren
victoria1014
