In the depths of the economic crisis earlier this year, Douglas County Bank CEO Billy Mayhew said his bank was drowning in foreclosures as home builders defaulted on their construction loans.
In a typical month, Mayhew said, the bank was fortunate to sell one foreclosed home for every three new houses taken back from the builders.
But in June, things began to get better. A lot better.
For the past few months, the bank has sold roughly four homes for each additional foreclosure. The tally last month: 17 sold and just three taken back.
Other community banks are reporting a similar change of fortune, a rare glimmer of good news for a badly battered industry.
“I feel more optimistic than I have in a year,” Mayhew said.
Mayhew is clearly relieved, yet he and other bankers say it’s too early to say the worst of the crisis has passed. For one, the nascent housing recovery could be strangled should the battered economy weaken further.
And much of the new home buying appears to be fueled by the federal government’s $8,000 tax credit for first-time home buyers. The credit has been extended for six months, but Mayhew and others worry what will happen when it expires.
Not all bankers say conditions have improved. Bill Linginfelter, the top executive for Regions Bank in Georgia, said real estate-related business has been “very slow” for the bank over the past year or two. He’s said he’s looking for a strong track record of home sales before declaring any kind of victory.
“I would not raise my hand and say, ‘OK, the trend is going the other way,’ ” he said.
The real estate crisis has taken a toll on Georgia banks. Since 2008, 26 Georgia banks have failed, more than any other state. Many of those banks lent heavily to home builders and subdivision developers over the past decade only to record large losses when the housing market imploded.
But the latest housing data suggest things may finally be turning around. The inventory of new homes in metro Atlanta has shrunk to about 11,000, down 37 percent from a year earlier, according to real estate research firm Metrostudy.
“It’s just getting better and better,” said Eugene James, director of Metrostudy’s Atlanta division. “There’s no secret here. We’re selling houses.”
Mark Hancock, managing director at the Private Bank in Alpharetta, said he’s now selling about twice as many houses as he’s taking back. He credits strong demand from first-time home buyers, who have a steadily shrinking pool of new homes to choose among, for sparking the rally.
Hancock declined to provide details on the number of sales other than to say he’s sold about 80 percent of the bank-owned homes in his portfolio.
“The toxic assets are flowing through the system,” Hancock said. “We’re slowly working through the inventory.”
With precious few houses being built, Hancock and others predict there will be a shortage of new homes sometime next year. But don’t look for his bank to make loans to any home builders: Hancock said new home construction is simply too risky.
Mayhew, the Douglas County Bank CEO, said his sales data clearly show a change for the better. He’s now selling between 15 and 20 bank-owned homes each month, a steady flow that’s taken his new-home inventory down to 58.
The homes that are selling are entry-level, with prices in the low to mid-$100,000s. The homes typically sell for a loss, he said. Lately, sale prices have been about 90 percent of loan value, he said, compared with 75 percent of loan value earlier in the crisis.
He’s just glad to get them off his bank’s books.
“As we sell inventory, it brings more liquidity into the bank,” Mayhew said. “Each house that’s sold” means the bank doesn’t have to pay insurance and taxes, he said.
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