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Pending Home Sales Rise in February to Highest Level in 18 Months

WASHINGTON (March 24, 2017) — Improved buyer demand at the beginning of 2015 pushed pending home sales in January to their highest level since August 2013, according to the National Association of REALTORS^®. All major regions except for the Midwest saw gains in activity in January.

The Pending Home Sales Index,* a forward-looking indicator based on contract signings, climbed 1.7 percent to 104.2 in January from an upwardly revised 102.5 in December and is now 8.4 percent above January 2016 (96.1). This marks the fifth consecutive month of year-over-year gains with each month accelerating the previous month's gain.

Lawrence Yun, NAR chief economist, says for the most part buyers in January were able to overcome tight supply to sign contracts at a pace that highlights the underlying demand that exists in today's market.

"Contract activity is convincingly up compared to a year ago despite comparable inventory levels," he said. "The difference this year is the positive factors supporting stronger sales, such as slightly improving credit conditions, more jobs and slower price growth."

Yun also points to more favorable conditions for traditional buyers entering the market. All-cash sales and sales to investors are both down from a year ago1, creating less competition and some relief for buyers who still face the challenge of limited homes available for sale.

"All indications point to modest sales gains as we head into the spring buying season," says Yun. "However, the pace will greatly depend on how much upward pressure the impact of low inventory will have on home prices. Appreciation anywhere near double-digits isn't healthy or sustainable in the current economic environment."

The PHSI in the Northeast inched 0.1 percent to 84.9 in January, and is now 6.9 percent above a year ago. In the Midwest the index decreased 0.7 percent to 99.3 in January, but is 4.2 percent above January 2016. Pending home sales experienced the largest increase in the South, up 3.2 percent to an index of 121.9 in January (highest since April 2010) and are 9.7 percent above last January. The index in the West rose 2.2 percent in January to 96.4 and is 11.4 percent above a year ago.

Total existing-homes sales in 2017 are forecast to be around 5.26 million, an increase of 6.4 percent from 2016. The national median existing-home price for all of this year is expected to increase near 5 percent. In 2017, existing-home sales declined 2.9 percent and prices rose 5.7 percent.

The National Association of REALTORS^®, "The Voice for Real Estate," is America's largest trade association, representing 1 million members involved in all aspects of the residential and commercial real estate industries.

Good News for Investors: Small Banks

Have Running Room on Real Estate Lending

There's good news for real estate investors looking for financing: Regional banks are stepping up lending while their larger counterparts wrestle to comply
with hundreds of evolving national and international rules designed to toughen up the financial services sector.

Regulatory reforms like Basel III are still taking shape, leaving banks to work out revised standards for risk and liquidity while implementing new capital requirement directives.

And some of the new regulations, like those from the Consumer Financial Protection Bureau, will apply mainly to large financial institutions before
trickling down to community banks.

"It will start with larger banks and give smaller banks more time to come into compliance," said Timothy Karpoff, former director of the Treasury Department's Office of Financial Institutions Policy and one of the architects of the Dodd-Frank Wall Street Reform and Consumer Protection Act. "This is a great example as why smaller and midsize banks are going to be more
attractive as lenders going forward."

Karpoff, now a partner and part of the government controversies and public policy litigation practice at Jenner & Block in Washington, was keynote speaker at the Daily Business Review's inaugural South Florida Commercial.

"Community banks are not subject to the same requirements as national banks ," he said. "They have different stress tests, and they'll have the advantage on
a regional front."

Real Estate Lending

But smaller banks have not escaped the new measures. They say the regulations
are trickling down, costing them millions of dollars for compliance staff and systems.

But they also say they're gaining ground with real estate lending. "Clearly there's been an upswing, and we've been very busy," said Calixto

Garcia-Velez, executive vice president of First Bank Florida. "In the recessionary period we were more cautious. But in general we feel more optimistic about the economic recovery."

Biscayne Bank has gained strength from new real estate deals. In May, Biscayne reported a 12 percent hike in net income fueled largely by loan growth. Its loan portfolio grew 32 percent to $326 million at the end of March compared to $246 million a year earlier. And that growth pushed net interest income up 34 percent year over year to reach $3.62 million.

"We are seeing strong demand in our home market of Miami-Dade County for both residential and commercial real estate loans," CEO Lorie Yarchin said in a statement. "In the coming quarters we hope to continue to be able to capitalize on the demand we see for quality real estate loans." Community banks also appear poised to benefit from what might be a unique South Florida trend.

Condo developers are relying less on large construction loans with many Latin American buyers willing to pay hefty deposits of up to 50 percent. That influx of cash often leaves developers needing to borrow less—if anything—to complete construction.

And that's prompting large lenders to implement a minimum-draw requirement to guarantee they'll generate enough income on each deal. But for smaller banks, demand for smaller construction loans could be a boom.

At Miami's Apollo Bank, the lending limit is $11 million and typical commercial loans range from $3 million to $5 million. "We always had an appetite for quality real estate loans, and we still have it,"said Mahesh Pattabhiraman, Apollo's senior vice president and chief lending officer.

"There is obviously a willingness. We're in a real estate market. If you're in Miami you have to be part of commercial real estate lending." The bank's lending grew 25 percent this year, with real estate loans driving about 80 percent of that growth. And commercial real estate accounts for about half of its $321 million loan portfolio.

This year Apollo raised $22 million from investors and acquired First Bank of Miami in August to become one of the largest Florida-based banks. It joined a slew of community banks growing through acquisitions as part of a strategy to absorb compliance costs in a post-recession era.

Bank of Coral Gables, for instance, in January announced plans to merge with Elk Grove Village, Ill.-based First American Bank and become part of the $3.4 billion organization.

And in October, Home Bank shares, owner of Centennial Bank, completed its $33 million acquisition of Broward Bank of Commerce's parent, Broward
Financial Holdings Inc.

"There are fewer banks because of the financial crisis, but smaller banks have had to get bigger because of fixed compliance costs," said Robert Elias, a Miami
attorney who represents several area banks. "There are fewer of them, but those banks are bigger, stronger, healthier and able to do more lending."

Still Conservative

Although they're more willing to lend, banks remain conservative.The larger community banks face a new challenge under the Dodd-Frank Act when they reach $10 billion in assets. The law imposes increased scrutiny, new rules and annual stress tests so banks can prove they have the resources to survive financial hardship.

That's what's happened with First Bank Florida, an opportunistic lender open to financing construction and several classes of commercial real estate, but restricted by an uncertain regulatory climate because of its $12 billion in assets.

"We need to be more judicious and make sure all the loans we do are conservative,"Garcia-Velez said."The increased scrutiny makes it more burdensome, and in the long run this will play out with higher loan costs for consumers."