Lack of funds may exacerbate housing woes

As the nation's real estate market struggles, one bank executive believes that a lack of formerly plentiful funding has contributed to the decline.

Speaking to the local group Commercial Real Estate Women (CREW) Utah this month at the University of Utah, MagnetBank president and chief operating officer Chris Worel said the biggest issue facing the real-estate market is that "about 40 percent to 50 percent of available buyers are not in the marketplace because the second-home mortgages, investment mortgages and subprime mortgages aren't available."

The residual effect of constricted lending practices is having an impact on both commercial and residential real-estate, as well as various other industries associated with those markets. Losing such a significant portion of the buyers "totally changes the economics of a project," he said.

Because developers are being forced to lower their prices while still having to keep their businesses afloat with fewer buyers in the current market, many are having trouble paying their debts, he said. That trend is accompanied by the ripple effect of investors pulling money out of banks, so the entire economy is suffering.

Less available financing has put a crimp in the commercial leasing market and the residential housing market, he said. Banks also are having to set aside additional reserves to meet tighter lending regulations, which reduces the amount of funds lenders have available for loans.

Now that banks have instituted stricter lending standards that make it tougher for individuals and businesses to qualify for loans, the entire economy is feeling the squeeze.

"For the balance of 2008, we're going to be in a period of time where inventories are getting absorbed before you see a lot of new projects coming online," Worel said.

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