As I mentioned earlier (3 months ago) I was a little concerned with the results of the SLOOS (Senior Loan Officer Opinion Survey). Concern has turned to pale-faced horror.
About 55 percent of domestic banks—up from about 30 percent in the January survey—reported tightening lending standards on C&I loans to large and middle-market firms over the past three months. Significant majorities of respondents reported tightening price terms on C&I loans to these firms, and in particular, on net, about 70 percent of banks—up from about 45 percent in the January survey—indicated that they had increased spreads of loan rates over their cost of funds.
In addition, smaller but significant net fractions of domestic banks reported tightening non-price-related terms on C&I loans to these firms over the past three months.
Regarding C&I loans to small firms, about 50 percent of domestic respondents reported tightening their lending standards on such loans over the survey period, compared with about 30 percent who reported doing so in the January survey. On net, about 65 percent of banks—up from about 40 percent in the January survey—also noted that they had increased spreads of C&I loan rates over their cost of funds for these firms.
Translation: No Money, No Honey.
Developers need credit to build things, it makes sense to take out loans and leverage yourself with borrowed funds rather than finance the whole project yourself. Few people buy homes with a dump-truck full of money, they usually take out a mortgage and will pay it off in little bits until they move or die.
Developers are the same way, and development is severely impacted by changes in money and debt markets. Cutting off the supply of loanable funds is akin to shutting off the sun; we can expect that as money continues to tighten construction workers will continue to fill the bread lines.
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