Loan origination and default data suggest that a recovery in the housing industry has been in effect since 2010, according to the Small Business Administration.
While improvements in housing prices, annual growth rates, loan disbursements and geographical housing trends indicate the industry is well on its way to recovery, there are still concerns.
The level of small business defaults is higher than historical averages, but has declined consistently since 2009 as a result of support from federal stimulus spending, an improving economy and a housing market on the mend.
The fiscal cliff and the shadow inventory are also concerns that could potentially knock the market back onto unstable grounds.
However, small business loan data suggests that as housing recovery continues to gain momentum, which is “a hopeful sign in an uncertain economy,” according to a report on the information from Standard & Poor’s.
SBA 7(a) loan disbursement — a program extending loans mainly to small-business borrowers that are not able to obtain funding from commercial lenders without a government guarantee — peaked in 2006 at 3,499 loans, totaling $1.2 billion. In 2011, the loan originations improved from only 2,118, totaling $850 million in 2009, to 2.519, slightly above levels in 2003.
Click on the chart below to view SBA loan origination between 2008 and 2011.
Overall lending to small businesses remains well below 2007 peak levels. The 2011 loan volume of $197 billion is 40% below the peak levels of 2007 and below levels of every single year in the past decade, according to the Federal Financial Institutions Examination Council.
Between 2009 and 2011, SBA supported more than $55.6 billion in lending to more than 113,000 small businesses, including more than $42 billion in loans with reduced fees and higher guarantees. Many of these loans went to housing-related small businesses, according to the “Small Business Agenda” report conducted by National Economic Council.
A few months after small business default rates bottomed in 2006-2007, the Case-Shiller Home Price Index peaked. However, the opposite happened in 2009 when SBA housing sector loan defaults peaked while housing prices dramatically declined.
Geographical trends indicate a housing recovery, specifically the hardest-hit markets of Florida, Nevada and Arizona. The Sand States are showing signs of vast improvement in the housing market.
About 40% of housing-related standard industrial classification codes are in the construction sector. The remaining 60% is comprised of retail, services, manufacturing, finance, insurance and real estate sectors.
In the construction sector, 2011 loan origination reached $575 million, 5% higher than the previous record in 2006.
