NATNews Blog > July 2015 > Fed Districts Report Healthy Real Estate Activity

    Fed Districts Report Healthy Real Estate Activity

    7/16/2015 8:33:05 AM
    All 12 Federal Reserve Districts indicated that economic activity expanded from mid-May through June. Activity in New York, Philadelphia, and Kansas City grew at a modest pace, while Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Dallas, and San Francisco saw moderate growth. Compared with the previous report, growth remained steady in Cleveland, and Boston reported conditions were stable or improving. Boston, Philadelphia, Atlanta, Kansas City, and Dallas reported that contacts were optimistic about future growth, while Chicago and San Francisco cited optimism coming from specific sectors.
     
    Improvements in consumer spending varied by district. Some districts indicated that low energy prices helped boost spending, while some border districts noted weakness tied to the rising dollar. Automobile sales increased in almost all districts. Tourism expanded in most regions, except New York where activity slowed.
     
    Nonfinancial services experienced moderate growth since the previous report. Boston, Richmond, St. Louis, Minneapolis, and Dallas noted strength in professional and business services. Boston and Richmond saw growth increase for healthcare services.
     
    Reports on residential and commercial real estate markets were positive. Home sales increased for most districts, although Philadelphia and Dallas reported sales were mixed, and New York reported a decline in sales volume. Most districts noted home price appreciation. Residential construction activity varied across most of the country. Commercial real estate activity increased at a modest pace for several districts, while non-residential construction, especially multifamily, was strong in many districts.
     
    Lending activity increased since the last report. Real estate lending was up in half of the districts. Consumer lending, particularly auto loans, rose in several districts. Districts that reported on delinquency rates indicated that they were low. Credit quality and credit standards were mostly unchanged since the previous report.
     
    Among districts reporting on agriculture, rainfall damaged crops in Chicago and St. Louis but helped improve growing conditions in Dallas. Oil and natural gas drilling declined in Cleveland, Minneapolis, Kansas City, and Dallas. Coal production was flat in Cleveland and down in Richmond. Energy related capital expenditures were down in some districts.
     
    Across districts, employment levels increased or were steady in most sectors, although there were some reports of layoffs in manufacturing and energy industries. Labor market tightness was reported in Boston, Atlanta, Minneapolis, and Dallas.
     
    Most districts cited only modest wage pressures aside from positions that required specialized skills or were in high-demand. Prices for inputs and finished goods remained steady since the previous report.
     
    Real Estate and Construction

    Several districts reported that residential real estate activity had increased during the reporting period, including Richmond, St. Louis, Minneapolis, and Kansas City. Additionally, New York indicated that housing markets continued to improve and Dallas noted that residential real estate activity generally remained solid. Home sales were reported as generally increasing across most markets in Boston, Cleveland, Atlanta, Chicago, St. Louis, Minneapolis, and Kansas City. Richmond cited improvement, and San Francisco reported continued growth in home sales. Philadelphia and Dallas indicated that home sales activity was mixed, and New York indicated that sales volume in some markets was down. Boston, New York, and Richmond reported low levels of inventory, and Minneapolis indicated that inventory had decreased from the year-earlier level in some markets; and Kansas City noted that inventories continued to fall.
     
    Most districts indicated that home prices were generally up over the reporting period. Reports on residential construction activity varied by district. Richmond, St. Louis, and Minneapolis indicated that activity was mixed. Cleveland reported that single-family starts picked up across most of the district; Atlanta noted that construction was up from the year-ago level, and Kansas City indicated that residential construction expanded. Boston, Cleveland, Atlanta, Kansas City, Dallas, and San Francisco each reported contacts having positive residential real estate outlooks.
     
    Several districts, including Chicago, St. Louis, and Kansas City, indicated that commercial real estate activity was mostly positive and that it continued to increase at a modest to moderate pace. Low and declining vacancy rates were highlighted by several districts, including Chicago, St. Louis, Kansas City, and Dallas. New York reported that availability rates varied by submarket and property type. Rents were noted as being up slightly, increasing, or rising in Philadelphia, Richmond, and Dallas. Some districts, like Philadelphia and Cleveland, indicated that nonresidential construction activity continued at its previous pace, while other districts such as Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, noted an increased level of nonresidential construction activity.
     
    Multifamily construction was described as strong, elevated, robust, and picking up by several districts, including New York, Richmond, Atlanta, Dallas and San Francisco. Commercial real estate outlooks remained fairly favorable. Philadelphia was generally optimistic, Atlanta remained positive; Kansas City expected strengthening in the months ahead; and Dallas remained cautiously optimistic.
     
    Banking and Financial Services

    Overall demand for loans during the reporting period increased in New York, Richmond, Atlanta, and Dallas, and was stable in Kansas City. Consumer loan demand was steady in Chicago and Kansas City. Commercial loan demand increased in New York, strengthened in Richmond, and remained robust in San Francisco. Reports of commercial and industrial (C&I) loan growth were mixed, and ranged from strong in Philadelphia, to increased in New York and St. Louis, flat in Chicago, and slower in Dallas. Loan volume increased at a modest to moderate pace in Philadelphia, Cleveland, and St. Louis. Mortgage lending grew steadily in Chicago, Kansas City, and San Francisco. Cleveland noted seasonal increases in mortgage loans, and Richmond reported a modest increase. Real estate lending was flat in Philadelphia, and increased in St. Louis. Mortgage refinancing increased in Atlanta and held steady in Chicago.
     
    Credit quality was unchanged in New York, Cleveland, and Kansas City, remained strong in Dallas, and improved in San Francisco. Richmond reported credit quality was stable with a slight decline in rural areas of the district. Delinquencies were lower in New York, remained at low levels in Cleveland and Chicago, and remained modest in San Francisco. Boston's report noted low interest rates and generous terms for commercial real estate mortgages and construction loans. Credit standards were largely unchanged in other districts including Cleveland, Kansas City, and Dallas, while there were mixed changes in Richmond. Deposit levels increased in St. Louis, Dallas, and San Francisco, and remained stable in Kansas City.
     
    Employment, Wages and Prices

    Employment levels picked up in various industries across districts since the last reporting period. Service-related firms in particular experienced payroll expansion in Boston, Philadelphia, Richmond, St. Louis, and Dallas. New York and St. Louis noted increased demand for human resource professionals to recruit new employees. Reports from manufacturing firms were mixed, with Cleveland, Richmond, and St. Louis noting increased job openings and/or payroll gains, whereas manufacturers in Boston and Dallas cited layoffs. Although downsizing continued in the energy sector in Atlanta, Minneapolis, and Dallas, the pace abated in Dallas since the last report. Accounts of sustained labor market tightness spanned several districts, including Boston, Atlanta, Minneapolis, and Dallas. Firms from several districts continued to describe shortages for particular types of skilled labor, predominantly in the construction industry.
     
    Wage pressures were modest across most areas of the country, outside of some specialized skill and high-demand occupations in sectors such as information technology, transportation, and construction. Reports from Kansas City and San Francisco were more robust, indicating intensifying wage pressure across a broader range of industries. Cleveland, Chicago, and San Francisco all highlighted a growing sense among business contacts that recent announcements of minimum wage hikes and pay increases at a number of large retailers could prompt broader wage pressure across other industries as firms compete to remain attractive employers.