U.S. banks homebuilding losses to taper in six months: S&P
U.S. banks' losses from loans to homebuilders should start to taper off in about six months, a Standard & Poor's analyst said on Wednesday.
The bottom in homebuilder activity apparently started forming after the second quarter closed, so write-offs should taper off late this year or early next, said Tanya Azarchs, a bank credit rating analyst with Standard & Poor's in New York.
Data this week showed U.S. home prices rose in May for the first time in three years, in the latest sign, along with recent pickups in residential property sales, that the battered housing market may be stabilizing. Home prices in the United States have plunged more than 32 percent on average from their 2006 peaks.
You would expect banks' loan write-offs to be a lagging indicator of the fundamentals in the home building market, because it takes a while to figure out who really can't pay and then to recognize the losses, said Azarchs in a telephone interview with Reuters.
Although banks have suffered their biggest losses in decades, the time lag between home building activity hitting a floor and bank loan losses starting to decline is still probably about six months, as in previous economic cycles, Azarchs said.
The precipitous decline of U.S. real estate prices combined with huge bets on risky mortgage-backed securities were key catalysts for the global financial crisis which first erupted two years ago. The crisis triggered trillions of dollars of losses for financial institutions worldwide and brought the banking system to the verge of implosion when Lehman Brothers fell in September 2008.
In commercial real estate, losses are still piling up, putting banks' already strained balance sheets under more stress, analysts warn.
U.S. banks will see losses from loans they made to parts of the commercial real estate sector including offices and retail developments accumulate for another two years or so, Azarchs said.
These sectors of commercial real estate are only now starting to ramp up in terms of loss rates, and still ahead is the refinancing need (in 2010 and 2011) that could trigger more writedowns, Azarchs said.
(Additional reporting by Lynn Adler in New York)
(Reporting by John Parry)