NATNews Blog > October 2015 > Federal Reserve Reports Real Estate Market Growth Continues

    Federal Reserve Reports Real Estate Market Growth Continues

    10/15/2015 8:19:42 AM
    Reports from the 12 Federal Reserve Districts point to continued modest expansion in economic activity during the reporting period from mid-August through early October, according the Fed’s Oct. 14 Beige Report.
    The pace of growth was characterized as modest in the New York, Philadelphia, Cleveland, Atlanta, Chicago, and St. Louis districts, while the Minneapolis, Dallas, and San Francisco districts described growth as moderate. Boston and Richmond reported that activity increased. Kansas City, on the other hand, noted a slight decline in economic activity. Compared with the previous report, the pace of growth is said to have slowed in the Richmond and Chicago districts. A number of districts cite the strong dollar as restraining manufacturing activity as well as tourism spending. Business contacts across the nation were generally optimistic about the near-term outlook.
    Consumer spending grew moderately in the latest reporting period. Most districts reported that non-auto sales grew at a modest or moderate rate, while vehicle sales generally grew more strongly; tourism across the nation was mixed. Nonfinancial services activity generally strengthened since the previous report, although freight transport activity weakened.
    Manufacturing turned in a mixed but generally weaker performance during the latest reporting period, with a number of districts noting adverse effects from the energy sector. Some strength was reported in the motor vehicles, aerospace, and transportation equipment industries, while metals industries were generally weaker--in part, due to the strong dollar.
    Both the housing and commercial real estate markets improved since the last report. Home prices and sales volume increased in almost all regions, and a number of districts noted relative strength in the market for lower or moderately priced homes. Both residential rental markets and commercial real estate markets were mostly stronger. Commercial and residential multi-family construction showed further strength; single-family construction activity was more mixed but did increase modestly.
    Reports on the banking and finance sector were generally positive--lending activity increased, loan quality was steady to improved, and lending standards were little changed or somewhat easier.
    Agricultural conditions were mixed. Growing conditions and farm output were solid in some districts, but there were adverse effects from droughts in the south, as well as excessive rainfall in the Richmond and St. Louis districts. Lower crop and livestock prices raised concerns that farm income may weaken. Activity in the energy industry weakened since the last report.
    Labor markets tightened in most districts, with some reports of labor shortages--particularly for skilled workers. Wage growth was mostly subdued, though there were scattered reports of increased wage pressures. Prices remained fairly stable across the nation, as most districts reported that prices of both inputs and finished goods were little changed or up only slightly, though some districts report declines for energy, as well as other inputs.
    Real Estate and Construction
    Residential real estate activity has generally improved since the last report, with almost all districts reporting rising prices and sales volume. One exception was the Chicago District, where prices and sales volume were generally steady. A number of districts noted that the market for lower or moderately priced homes has outperformed the high end of the market. The inventory of available homes was reported to be low in the Boston, New York, Richmond and St. Louis districts; and San Francisco reported a shortage of available land in some areas. On the other hand, Philadelphia reported adequate inventories, and Dallas noted a fair amount of supply in the pipeline. Boston, New York and Chicago indicated rising residential rents, while Minneapolis reported sharp declines in rents in energy-producing areas of North Dakota.
    Residential construction has been mixed but generally stronger in the latest reporting period, with multi-family outpacing single-family construction. Strong multi-family construction was highlighted in the New York, Cleveland, Richmond and San Francisco districts, while Atlanta reported strong residential construction generally. However, Minneapolis and Kansas City reported declines in new home construction. Philadelphia mentioned a lack of new construction, while Dallas reported that new construction has been restrained by labor shortages. Chicago indicated little change.
    Commercial real estate markets have shown signs of strengthening in all 12 districts. Most districts noted improvement across all major segments, though New York and St. Louis noted some increased slack in the market for retail space. Commercial construction was also stronger in most districts. Boston and St. Louis noted brisk construction in the health sector, including senior care facilities, and Cleveland also indicated strong demand for senior living structures. New York, on the other hand, noted some pullback in new commercial construction, though activity remained fairly brisk.
    Banking and Financial Services
    Reports from the banking sector were generally positive. Loan demand or volume was reported to be growing in the Philadelphia, Cleveland, Richmond, Chicago, St. Louis, Dallas and San Francisco districts. Other districts indicated mixed loan demand: New York reported rising demand for commercial loans but declining demand for refinancing, and Kansas City indicated weaker demand for agricultural loans but steady demand in other categories.
    Credit conditions were mixed but mostly improved. Improved loan quality or declining delinquency rates were noted in New York, while Cleveland, Richmond and Kansas City reported little change. Richmond and Chicago indicated some easing in lending standards, while New York, Kansas City and Dallas reported no change. San Francisco reported tight lending conditions in the residential real estate segment.
    Employment, Wages and Prices

    Labor markets generally tightened since the previous report. The New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis and Dallas districts indicated that employment was up modestly to moderately. Boston reported that most advertising and consulting firms planned to increase hiring, while manufacturers were cutting staff. Many districts continued to report that employers were having difficulty finding skilled workers, and, in some cases, unskilled workers. Scattered labor shortages were reported in construction (Cleveland, Chicago, San Francisco), trucking (New York, St. Louis, Kansas City), and information technology (New York, Kansas City, San Francisco). However, contacts in the Philadelphia District noted relatively more growth of part time and temporary positions compared to full-time positions, and Dallas reported that layoffs in the energy industry were still underway.
    Wage growth remained subdued in most districts since the previous report. The Boston, Philadelphia, Richmond, Atlanta, Chicago, St. Louis, Kansas City and Dallas districts noted only slight to modest wage increases. To the extent that more significant wage increases were observed, they were largely concentrated among highly skilled workers in information technology, health care, professional services, and some of the skilled trades. However, New York noted increased wage pressure for both skilled and less skilled workers, and San Francisco noted that the impact of higher minimum wages implemented over the past year began to filter through to the retail sector and resulted in increased wages for some lower-skilled workers.