Commercial real estate sales, prices and lending showed improvement in the first quarter but regulators expect bank losses on CRE loans will be elevated for at least another year.
Deputy comptroller Bert Otto told a congressional panel that vacancy rates are still rising nationally and cash flows on CRE properties are expected to decline into 2011.
"We expect CRE losses to remain elevated for an extended period, much as we saw in the early 1990s downturn," the national bank supervisor testified.
Losses on CRE loans are the major driver of small bank failures. But Otto noted there has been some improvement in the market.
A private index shows a stabilization of CRE prices as of February and property sales jumped 16% in the first quarter, compared to a year ago.