That’s welcome news for an economic recovery that still faces headwinds such as rising oil prices. The improving market has eased fears that banks might be crippled by heavy losses from their bad construction loans in the mid-2000s and would have to rein in lending just as credit is easing.

Lenders were still saddled with $181 billion in distressed loans in February, according to Real Capital Analytics (RCA). But that’s down from $188 billion in September. Mortgage defaults for office, retail and industrial building loans dipped for the first time since 2005 in the fourth quarter, to 4.28 percent from 4.36 percent. They should fall further this year, says RCA economist Sam Chandan. “Worst-case scenarios have been avoided,” he says.

The recovery, he says, has finally stabilized building occupancy, letting landlords pay down loans. Vacancy rates in the first quarter dipped slightly for retail and industrial properties, to 7.2 percent and 10 percent, respectively, and were unchanged at 13.4 percent for offices, according to CoStar Group. Occupancy has edged up steadily since early last year.

Investors, meanwhile, are clamoring to buy well-leased office buildings in markets such as New York City and Washington, D.C. A big reason: virtually no new development the past few years.

In New York, “We’re seeing prices (for prized buildings) return to 2007 levels” after falling 40 percent in the downturn, says Richard Baxter, vice chairman of real estate giant Jones Lang LaSalle.

New York’s biggest office landlord, SL Green Realty, has been scooping up buildings. Co-Chief Investment Officer Isaac Zion says credit is available, occupancy and lease rates are up and returns far exceed meager bond yields. “We really saw the writing on the wall and we pounced,” Zion says.

Commercial mortgage-backed securities, a big funding source for some buyers, are up this year.

More foreclosures are still likely to batter prices in many areas. But the investment furor could spread to cities such as Dallas, Denver and Houston, says CoStar real estate strategist Chris Macke.

Rising prices could at least temper foreclosures on the $1.4 trillion in commercial mortgages that Deutsche Bank says are maturing by 2013. Even owners still making payments might not be able to refinance properties whose values fell sharply.

© Copyright 2011 USA TODAY, a division of Gannett Co. Inc., Paul Davidson, USA TODAY

Seventeen of Florida’s metropolitan statistical areas (MSAs) reported increased existing home sales in February; 18 MSAs had higher condo sales. It’s the third month in a row that Florida Realtors has reported higher year-over-year existing home and existing condo sales statewide.

“Current market conditions and very low mortgage rates continue to offer great opportunities to anyone looking to buy a home in Florida,” said 2011 Florida Realtors® President Patricia Fitzgerald, manager/broker-associate with Illustrated Properties in Hobe Sound and Mariner Sands Country Club in Stuart. “Every day, Realtors® help people realize their dreams of homeownership – they see the positive impact that homeownership has on families and communities.”

She added, “To showcase homeownership opportunities across the state, Florida Realtors is sponsoring its second annual Florida Open House Weekend, March 26-27. Realtors will host open houses on behalf of home sellers in neighborhoods from the Panhandle to the Keys, giving buyers a chance to tour dozens of homes in a single weekend. Talk to a local Realtor about Florida Open House Weekend and look for participating open houses throughout your community.”

Florida’s median sales price for existing homes last month was $121,900; a year ago, it was $124,500 for a 2 percent decrease. Analysts with the National Association of Realtors® (NAR) note that sales of foreclosures and other distressed properties continue to downwardly distort the median price because they generally sell at a discount relative to traditional homes. The median is the midpoint; half the homes sold for more, half for less.

The national median sales price for existing single-family homes in January 2011 was $159,400, down 2.7 percent from a year ago, according to NAR. In Massachusetts, the statewide median resales price was $284,500 in January; in California, it was $278,900; in New York, it was $227,000; and in Maryland, it was $222,535.

NAR’s latest outlook notes that continuing improvements in the economy is a positive sign for the housing sector. “The housing market is healing with sales fluctuating at times, depending on the flow of distressed properties coming on the market,” said NAR Chief Economist Lawrence Yun. “The broad fundamentals for a housing recovery are developing. Job growth, high housing affordability and rising apartment rent are conducive to bringing more buyers into the market.”

In Florida’s year-to-year comparison for condos, 6,984 units sold statewide last month compared to 5,424 units in February 2010 for an increase of 29 percent. The statewide existing condo median sales price last month was $77,300; in February 2010 it was $90,400 for a 14 percent decrease. The national median existing condo price was $154,900 in January 2011, according to NAR.

The interest rate for a 30-year fixed-rate mortgage averaged 4.95 percent in February, down slightly from the 4.99 percent average during the same month a year earlier, according to Freddie Mac. Florida Realtors’ sales figures reflect closings, which typically occur 30 to 90 days after sales contracts are written.

© 2011 Florida Realtors®

The fourth quarter Survey of Emerging Market Conditions found improvement in several key categories, including the outlook for sales in new single-family homes and condominiums, office occupancy, retail occupancy, land investment and capital availability.

Much of the optimism derives from politics with the defeat last fall of Amendment 4, a proposed constitutional amendment that would have required a referendum for all changes to local government comprehensive land-use plans, said Timothy Becker, director of UF’s Bergstrom Center for Real Estate Studies. The conclusion of mid-term elections also eased respondents’ uncertainty as it provided a clearer picture of the future.

“The state welcomed a new governor who has promised to make Florida a more business-friendly state,” Becker said. “If he can succeed on his goals, respondents believe it will have a positive impact on the real estate market. Any help in attracting new business to move or form in the state will no doubt have a positive impact on job growth.”

Survey respondents’ expectations for occupancy and rent increased across every property type. The investment outlook rose in a majority of the property types, and the statewide outlook was the highest since the survey’s inception in 2006. Additionally, private capital is abundant as investors seek the few good products on the market. Overall, the market appears to be improving and will continue to improve at a slow pace over the next year.

Despite the positive outlooks in many asset classes, respondents’ optimism is tempered by troublesome economic factors, most notably Florida’s high unemployment rate of 12 percent. Respondents also relayed fears over federal, state and local budget issues.

“Local revenues continue to decline as property values decline, placing a tremendous burden on local budgets,” Becker said. “This will require tough decisions by local officials.”

The outlook for single-family and condominium sales increased slightly in the fourth quarter, but Becker said home builders continue to have a negative outlook because financing is difficult to obtain and lower prices in the foreclosure and short-sale market take potential customers away from the new housing market. Unexpectedly, however, respondents’ outlook for investment in residential development increased for both single-family homes and condominiums. Becker said the low cost of fully developed lots provides incentive for investors and developers.

Expectations for office and retail occupancy continued to improve. Occupancy expectations in the office sector increased, and the outlook for rental rates increased slightly but is expected to continue lagging inflation. In the retail sector, occupancy expectations improved for all property types.

Becker said respondents believe occupancy will increase in neighborhood centers and large retail centers. Accordingly, the investment outlook in retail increased for neighborhood centers while declining for the remaining property types.

Land investment and capital availability also rose this quarter. More respondents believe land is beginning to be priced at levels that support longer-term investment, despite the fact that lack of financing for land purchases continues to be a concern. The optimistic outlook for capital is due in large part to respondents’ belief that future availability will increase.

“Respondents believe there is a need to add additional apartment units based on the fundamentals and expect development financing to be available for that sector,” Becker said. “Private equity continues to be plentiful for quality core assets and valued-add assets.”

Expectations for apartment occupancy and the industrial sector were mostly stable.

© 2011 Florida Realtors®

The Pending Home Sales Index (PHSI), a forward-looking indicator, increased 2 percent to 93.7 based on contracts signed in December from a downwardly revised 91.9 in November. The index is 4.2 percent below the 97.8 mark in December 2009. The data reflects contracts and not closings, which normally occur with a lag time of one or two months.

“Modest gains in the labor market and the improving economy are creating a more favorable backdrop for buyers, allowing them to take advantage of excellent housing affordability conditions,” says Lawrence Yun, NAR chief economist. “Mortgage rates should rise only modestly in the months ahead, so we’ll continue to see a favorable environment for buyers with good credit.

“In the past two years, homebuyers have been very successful, with super-low loan default rates, partly because of stable home prices during that time. That trend is likely to continue in 2011 as long as there is sufficient demand to absorb inventory,” Yun said. “The latest pending sales gain suggests activity is very close to a sustainable, healthy volume of a mid-5 million total annual home sales. However, sales above 6 million, as occurred during the bubble years, is highly unlikely this year.”

The PHSI in the Northeast increased 1.8 percent to 73.9 in December but is 5.3 percent below December 2009. In the Midwest, the index rose 8.0 percent in December to 84.6 but is 5.1 percent below a year ago.

Pending home sales in the South jumped 11.5 percent to an index of 101.9 and are 1.7 percent above December 2009. In the West, the index fell 13.2 percent to 105.8 and is 10.7 percent below a year ago.

© 2011 Florida Realtors®