Posts Tagged ‘Home Prices’

Tethered to a Real Estate Asset

Monday, October 18th, 2010

Time to Rethink Housing Assets

Declining home values are choking a major source of small business capital. Sadly, the consequences are most severe in the Gulf Coast states that are dealing with the longer-term consequences of the oil spill. According to Lending Tree, three of the top ten states with underwater mortgages are Florida (47.8% of mortgages in the state are underwater, meaning negative equity for the homeowner), Louisiana and Mississippi, each with 23.8% of mortgages underwater. Nationwide, small business owners frequently tapped home equity lines of credit to finance their businesses. Barlow Research’s quarterly small business survey reports that one-quarter of respondents used their homes as collateral for their businesses or for personal loans in which the proceeds were used to finance the businesses. With housing prices having fallen by one-quarter from their peak in March 2006, the home ATM machine has dried up. At the same time, banks have tightened loan underwriting criteria to deal with their nonperforming real estate loans, leaving small business owners with few financing options.  Add to that pain the fact that more than 99.6% of all companies operating in the real estate and construction industries (according to the U.S. Small Business Administration) are small businesses, which took an extra hit from declining home prices. Small wonder that many Americans feel tethered to their homes. We must de-couple small business finance from housing finance and develop better lending options to resume growth in the small business sector.