The Three Percent Solution

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40 | Th e M Rep o RT o r i g i nat i o n s e r v i c i n g a na ly t i c s s e c o n da r y M a r k e t ANALYTICS The LaTesT Fed report Highlights slow-and- steady growth, oil concerns While the overall economy grew, the housing sector showed little gain. e conomic growth continued at a "modest to moderate" pace through November and December, though falling oil prices threaten to disrupt some areas in the coming months, according to reports collected by the Federal Reserve. In a recent Beige Book report, the Fed said that contacts in most of its 12 districts expect faster growth in the year ahead, though some in the Dallas district are worried about a slowdown as the oil market suffers. While lower prices are bound to keep Americans happy at the gas pump, they could potentially be a problem for housing in oil- dependent states, including Texas, Oklahoma, and Louisiana. If the current decline impacts the local labor market (as the Dallas Fed indicated in its own Beige Book), it could be a weight on their housing health in the next few years. In the housing sector, the Fed reported little change for most districts, with both single-family home sales and construction flattening out. Sales were down somewhat on a yearly basis in Boston, Cleveland, Atlanta, Chicago, Minneapolis, Kansas City, and Dallas, while San Francisco posted a pickup. While existing-home sales fell annually in Philadelphia, contacts there are optimistic about pending home sales numbers, which improved year-over-year. On the homebuilding side, construction on new homes slowed slightly in the Cleveland, Atlanta, Chicago, Minneapolis, and Kansas City districts. Homebuilding increased in some areas of the San Francisco district. Overall, loan demand grew modestly, nudging up in Richmond, Kansas City, and Dallas, with the Philadelphia district also reporting a "modest" increase in total loan volume. Credit quality also improved somewhat, with overall reduc- tions in loan delinquencies. Credit standards were largely unchanged, though "several districts com- mented that their contacts indicated that stiff competition for high-quality borrowers was leading to lower underwriting standards among lenders more generally," the Fed said.

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