At the end of the daylong symposium of brokers, developers, lenders and academics, Fed officials wound up with plenty of ideas but no silver bullets.
“We’ve witnessed over the last few years, especially in the ... Southeast ... some pretty severe stress in the both the residential and commercial real estate markets. That stress spilled over inside financial institutions and in the overall health of the economy of the Southeast,” Lockhart said as the session began. “... The recovery has been slower in the region, and a lot of that has been connected to the recovery in the real estate markets.”
At the wrap-up, Brian Bowling, the Fed’s senior vice president summed up not only the conference but also private meetings on the topic the bank held in recent days.
“The key thing we’re hearing all week is confidence,” he said. “People want leadership. They want clarity to change the psychology in the near term to maybe sustain some kind of recovery.”
Panels of experts on residential and commercial real estate and homeowner’s insurance gave their own arguments for letting the economy work out its own balance between supply and demand.
“I think the cure is time,” said Walter Mercer, executive vice president with SunTrust, a regional bank based in Atlanta.
Mercer predicted that the values of what he called trophy commercial properties would begin increasing but said he and other lenders would be very picky about where they invested. They can afford to with the collapse of the mortgage-backed securities funding source that commanded the majority of commercial development between 2005-07, developments that are mostly under water and maturing in the next three years.
On the residential side, negative equity is also the chief problem, according to the experts.
“You can drop rates as low as you want, but people aren’t going to be able to pass the underwriting,” said Mark Fleming, chief economist with CoreLogic, a firm that compiles property data for lenders.
Reducing the principal owed for homeowners at risk of default may help the overall economy by preventing foreclosures but it is not the remedy for mobility, the ability to take a new job out of town or retire in a new state like Georgia or Florida, Fleming said.
States in the South enjoyed an economic boom since the 1950s fueled by people moving to them from other parts of the country for work or retirement. That flow stopped because homeowners lost their mobility when they couldn’t sell their homes.