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Lenders say real estate is overvalued? They should know!

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Jan 15, 2002
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Survey says yes to bubble

More than half of lenders believe real estate prices are over-inflated
Thursday, December 12, 2002

Inman News Features

More than half of lenders nationwide believe that real estate prices are significantly over-inflated by market, according to a recent "Lending Climate in America" survey.

The quarterly survey, which attempts to gauge shifts in lenders' attitudes toward the economy, reported that 58 percent of the lenders believe the U.S. is in the midst of a real estate "bubble," a term that refers to highly inflated prices.

Of that group, 70 percent believe that the real estate bubble will affect all real estate markets, not just the residential housing market.

"Commercial borrowers who are using real estate as collateral may feel an increasingly cold shoulder from lenders they approach," said E. Talbot Briddell, president of Phoenix Management Services, which conducts the survey. "A significant portion of lenders across the nation believe the value of real estate is inflated right now. If this market begins to cool or even burst, borrowers up and down the food chain will feel the effects."

When asked to predict the Federal Reserve's next move in rates, 52 percent said they would remain unchanged in the next six months, while 31 percent expect an increase of 25-50 basis points and 15 percent said rates would drop.

When asked which industries were most attractive to their lending institution, lenders named three that have topped the list for five consecutive quarters—light manufacturing, industrial distribution and service companies. Start-ups and technology were named by more than half of lenders as unattractive industries.

"The technology industry continues to be the road kill on the so-called path to recovery," said Briddell.

The survey concluded that lenders do not expect the economy to experience any noticeable improvement until the second half of 2003.

Philadelphia-based Phoenix Management Services is a turnaround management company that assists companies encountering financial, operational or management difficulties.

Register now for Inman News Features' two-day conference: "The Housing Bubble: Fact or Fiction?"
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