Category Archives: Beige Book

CR: Fed’s Beige Book: Economic activity expanded at “moderate” pace

Fed’s Beige Book: Economic activity expanded at “moderate” pace

by Bill McBride on 4/17/2013  

Fed’s Beige Book “Prepared at the Federal Reserve Bank of Dallas based on information collected on or before April 5, 2013.”

Reports from the twelve Federal Reserve Districts suggest overall economic activity expanded at a moderate pace during the reporting period from late February to early April. …

Most Districts noted increases in manufacturing activity since the previous report. Particular strength was seen in industries tied to residential construction and automobiles, while several Districts reported uncertainty or weakness in defense-related sectors. Consumer spending grew modestly, and firms in some Districts cited higher gasoline prices, expiration of the payroll tax cut, and winter weather as factors restraining sales growth. Retailers in several Districts expect continued sales growth in the near term.

And on real estate:

Residential real estate activity continued to improve in most Districts, and some Districts, including Cleveland, Richmond, Chicago, Minneapolis, Kansas City, Dallas, and San Francisco, noted increased momentum since the last report. The New York District, in particular, noted especially strong improvement in residential real estate—both in for-sale housing and apartment markets.

Home sales continued to rise in most Districts. Although homebuyer demand was high in the Boston District, low home inventories were restraining sales, keeping growth modest. Home sales were reportedly strong in both the Atlanta and Dallas Districts. The Richmond District noted low inventories were pushing up contracts to well above listing prices, and the Boston and New York Districts said multiple bids on properties have become more common. Tight inventories and strong sales led to rising home prices in many Districts, including Atlanta, Minneapolis, Kansas City, Dallas, and San Francisco. Within the New York District, condo sales volumes strengthened and low inventories have begun to drive up selling prices in New York City and surrounding areas, while New Jersey home prices were rising modestly and inventories were shrinking with a marked reduction in the number of distressed properties. Contacts in the Boston District also noted a decline in the stock of distressed properties.

New home construction continued to pick up in most Districts, although the Richmond District said that a low supply of residential building materials had stalled construction. …

Commercial real estate and construction activity improved in most Districts. Office vacancy rates declined in the Boston District and contacts said the construction of mixed-use projects was picking up. The New York District reported that office vacancy rates continued to decline and rents rose in Manhattan.

Residential real estate “continued to improve” and this was the most positive comment on commercial real estate in some time (but any “improvement” for commercial is from a very low level). This suggests moderate growth overall …



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CR: Fed’s Beige Book: Economic activity expanded at “modest to moderate” pace

Fed’s Beige Book: Economic activity expanded at “modest to moderate” pace

by Bill McBride on 3/06/2013 

Fed’s Beige Book “Prepared at the Federal Reserve Bank of Kansas City and based on information collected on or before February 22, 2013”

Reports from the twelve Federal Reserve Districts indicated that economic activity generally expanded at a modest to moderate pace since the previous Beige Book. …

Most Districts reported expansion in consumer spending, although retail sales slowed in several Districts. Automobile sales were strong or solid most Districts, and tourism strengthened in a number of Districts. The demand for services was generally positive across Districts, most notably for technology and logistics firms. … Many Districts noted rising gasoline prices and fiscal policy as having a negative effect on consumer sales, and contacts in the Boston, New York, and Minneapolis Districts said severe weather depressed sales somewhat.

And on real estate:

Residential real estate activity continued to strengthen in most Districts, although the pace of growth varied. Contacts in the Boston, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco Districts noted strong growth in home sales, while New York and Chicago reported slight improvements. A realtor in the Richmond District indicated that low interest rates continued to motivate home buyers, and potential buyers in the Philadelphia District expressed greater confidence, including entry-level purchasers who had been increasingly opting to rent since mid-summer. Contacts in the Cleveland and Atlanta Districts said sales were higher than a year ago. Home construction increased in most Districts, with the exception of the Kansas City District where it was reported as unchanged. Several Districts noted ongoing strength in multifamily construction, although contacts in the Atlanta and Cleveland Districts mentioned continued financing difficulties for builders. Home prices edged higher in the majority of Districts, with lower inventories generally cited as the primary cause. Richmond and Atlanta Realtors observed multiple offers on many homes. Philadelphia real estate contacts continued to report low-end home prices as firm or rising slightly, while high-end home prices were still falling. Inventories declined in nearly all Districts, with Realtors in several Districts concerned about the impact on future sales volume.

Overall commercial real estate conditions were mixed or slightly improved in most Districts.

This suggests sluggish growth overall, with some negative impact from “fiscal policy” … and with mostly “strong” growth for residential real estate.


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Fed’s Beige Book: Single-Family Homes Continued to Improve Across Most Districts


Real Estate and Construction
Overall, markets for single-family homes continued to improve across most Districts with the exception of Boston and Philadelphia. Residential real estate markets in the New York District were mixed but generally firm prior to the storm. Selling prices were steady or rising. Boston, New York, Richmond, Atlanta, Kansas City, and Dallas noted declining or tight inventories. The Cleveland District indicated that the number of single-family housing starts had increased since our last report and from a year ago; most sales contracts were in higher price-point categories. Similarly, Richmond noted more residential work in the high-end home category for the first time in three years, and builders cited significant pent-up demand in the first-time buyer segment. Atlanta indicated that existing home sales were up slightly compared to a year ago and reported that investors were more active in Florida than in the rest of the District. In Chicago, residential construction increased at a slow but steady pace in October and early November, and construction increased for single-family as well as multi-family homes. St. Louis reported that residential real estate market conditions continued to improve, and Minneapolis indicated that segments of construction and real estate were growing at a double-digit clip. Kansas City characterized residential real estate activity as brisk and noted that a solid rise in home sales had reduced home inventories. Dallas noted that single-family housing activity remained strong, with both new and existing home sales activity increasing. San Francisco reported that home demand continued to strengthen and that home sales continued to grow on a sustained basis in most areas, spurring new home construction. However, sales growth generally slowed for both the condominium and single-family home markets in the Boston District, and the Philadelphia District noted that October began as a disappointing month for some Realtors, only to be punctuated by Hurricane Sandy.

Construction and commercial real estate activity generally improved across Districts since the last report. Gains, albeit modest in most cases, were reported by Philadelphia, Richmond, Chicago, and Minneapolis. The gains among Cleveland’s contacts were tempered by reports in recent weeks of a slowdown in inquiries and a decline in public-sector projects. Kansas City described activity as holding firm and noted that real estate markets remained stronger than a year ago. Demand for office and industrial space continued to increase in Dallas, although contacts at some businesses said they were “holding back on expansions due to uncertainty.” Several Districts noted segments of little change in commercial real estate activity. Boston described market fundamentals as flat, and San Francisco depicted market conditions as stable but with pockets of strength for large infrastructure projects such as roads and bridges. Commercial and industrial conditions were mixed in the St. Louis District and throughout most of New York prior to the hurricane. New York added that, while office markets across upstate New York were unaffected by the storm, there were some signs of recent softening.

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Fed’s Beige Book: Residential real estate shows “signs of improvement”

Fed’s Beige Book: Economic activity increased “gradually”, Residential real estate shows “signs of improvement”

by Bill McBride on 8/29/2012 

Fed’s Beige Book:

Reports from the twelve Federal Reserve Districts suggest economic activity continued to expand gradually in July and early August across most regions and sectors. Six Districts indicated the local economy continued to expand at a modest pace and another three cited moderate growth; among the latter, Chicago noted that the pace of growth had slowed from the prior period.

This is a downgrade from the previous beige book that reported “modest to moderate” growth.

And on real estate:

Housing markets across most Districts exhibited signs of improvement, with sales and construction continuing to increase. Dallas reported significant levels of buyer traffic, Richmond noted strong pending sales, and Minneapolis and St. Louis mentioned increases in building permits. New York, Philadelphia, and Chicago indicated improvements as well, but characterized the progress as slow and modest. Declines in inventory levels were reported in Boston, New York, Philadelphia, Atlanta, Dallas, and San Francisco; these declining inventories put some upward pressure on prices according to Boston, Atlanta, and Dallas. A reduction in the stock of distressed properties was mentioned in New York, Richmond, and San Francisco. In Philadelphia and Kansas City, the possibility of shadow inventory entering the market remains a concern. In general, outlooks were positive, with continued increases in activity expected, although the projected gains were more modest in Boston, Cleveland, and Kansas City.

Commercial real estate market conditions held steady or improved in nearly all Districts in recent weeks.

“Prepared at the Federal Reserve Bank of Boston and based on information collected on or before August 20, 2012.”

Another downgrade … from “moderate growth” two reports ago, to “modest to moderate” in the last report … and now “expand gradually”. On the positive side, there were more positive comments about residential real estate.


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Fed’s Beige Book: Economic activity increased at “moderate” pace, Residential real estate “activity improved”

Fed’s Beige Book: Economic activity increased at “moderate” pace, Residential real estate “activity improved”

by CalculatedRisk on 6/06/2012 

Reports from the twelve Federal Reserve Districts suggest overall economic activity expanded at a moderate pace during the reporting period from early April to late May.

This is a slight upgrade from the previous beige book that reported “modest to moderate” growth.

And on real estate:

Activity in residential real estate markets improved in most Districts since the previous report. Several Districts noted consistent indications of recovery in the single-family housing market, although the recovery was characterized as fragile. The apartment market continued to improve, and multifamily construction increased in several Districts.

Home sales were above year-ago levels in most areas of the country and several Districts noted sales had improved since the previous report, although some noted that the pace was well below the historical average. In particular, the New York, Cleveland, and Richmond Districts noted a pickup in the pace of distressed sales. Residential brokers and some builders in the Philadelphia, Atlanta, and Dallas Districts said home sales were exceeding expectations. Contacts in the Richmond District said homes were being snapped up as investors become more confident in the housing recovery, and the Atlanta report noted stronger sales to cash buyers and investors in Florida. Chicago said more sales had multiple offers. Apartment rental markets improved in the New York, Atlanta, and Dallas Districts. One contact from the New York District noted rising apartment rents have made buying more attractive, contributing to a slight uptick in sales.

Most Districts reported that home inventories decreased. Overall, home prices remained unchanged in many Districts, although reports were mixed. There were a few reports that sellers were lowering asking prices, leading to downward pressure on housing prices.

New home construction increased in a number of Districts, including Cleveland, Atlanta, Chicago, St. Louis, Minneapolis, and San Francisco. Contacts in the Philadelphia District said demand for new home construction eased slightly. Builders in Kansas City noted housing starts were down, but they expected an increase in the next three months. The Boston, Atlanta, and Chicago Districts reported an increase in multifamily construction, and the Minneapolis District noted numerous multifamily projects were in the pipeline.

Commercial real estate conditions improved in most Districts, and there were some reports that commercial construction picked up.

Prepared at the Federal Reserve Bank of Dallas and based on information collected on or before May 25, 2012.

More sluggish growth – but not a slow down. And a few positive comments on residential real estate …

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Fed’s Beige Book: Economic activity increased at “modest to moderate” pace

Fed’s Beige Book: Economic activity increased at “modest to moderate” pace

by CalculatedRisk on 2/29/2012 

Fed’s Beige Book:

Reports from the twelve Federal Reserve Districts suggest that overall economic activity continued to increase at a modest to moderate pace in January and early February. Activity expanded at a moderate pace in the Cleveland, Chicago, Kansas City, Dallas, and San Francisco Districts. St. Louis noted a modest pace of growth and Minneapolis characterized the pace of growth as firm. Economic activity rose at a somewhat faster pace in the Philadelphia and Atlanta Districts, while the New York District noted a somewhat slower pace of expansion. The Boston and Richmond Districts, in turn, noted that economic activity expanded or improved in most sectors.

Reports of consumer spending were generally positive except for sales of seasonal items, and the sales outlook for the near future was mostly optimistic.

And on real estate:

Residential real estate activity increased modestly in most Districts. Boston, Cleveland, Richmond, Atlanta, Kansas City, and Dallas reported growth in home sales, while New York noted steady to slightly softer home sales. Philadelphia reported strong residential real estate activity. In contrast, home sales declined in St. Louis and San Francisco noted that home demand persisted at low levels. Contacts’ outlooks on home sales growth were mostly optimistic.

Commercial real estate markets displayed positive results in some Districts, as leasing showed overall improvement. Minneapolis, Richmond, Chicago, and Dallas noted increased leasing. Boston, however, reported mostly unchanged leasing fundamentals with some modest improvement since the previous report.

This was based on data gathered on or before February 17th. Mostly sluggish growth, but perhaps the most “positive” comments on residential real estate a long long time.

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Federal Reserve Weighs In on Housing

by David Crowe — Eye on Housing

The Federal Reserve issued a white paper on January 4 that reviews the condition of the housing market, discusses some of the causes of the current situation and assesses possible actions to alleviate some of the distortions in order to return the market and the economy to equilibrium.
The paper cites three key forces within the housing sector that are holding back both housing and the economic recovery: 1) persistent excess supply of vacant homes on the market, 2) a marked and potentially long-term downshift in the supply of mortgage credit, and 3) an unwieldy and inefficient foreclosures process imposing extra costs on homeowners, lenders and communities.
These three forces reinforce each other and have led to a heavy and continuous flow of foreclosed properties, lower home prices, more mortgage distress and a self feeding downward spiral. The slow economic recovery has suppressed demand and deflected the natural cyclic forces that normally boost housing.
Tight Credit

The paper reviews the dramatic fall in housing prices, household equity and resulting share of mortgages underwater. Not only has the collapse caused home buying to plummet, but lenders have tightened credit standards dramatically as well. The paper states that “the extraordinarily tight standards that currently prevail reflect, in part, obstacles that limit or prevent lending to creditworthy borrowers.” Several examples of how tightening has occurred are cited, such as lenders requiring higher credit scores than the GSEs accept out of fears of GSE demanded repurchase or higher regulatory costs of servicing. Data show particular impacts on first time home buyers, even in parts of the country with lower-than-national unemployment rates. The Fed paper posits that if the same degree of credit tightness had existed in the past, the country would have a much lower homeownership rate. The Fed paper states that “Continued efforts are needed to find an appropriate balance between prudent lending and appropriate consumer protection, on the one hand, and not unduly restricting mortgage credit, on the other hand.”
The paper does not prescribe specific solutions to tight credit but does contain suggestions for reducing the vacant real estate owned and preventing more properties from falling into that grave. The first issue tackled is the real estate already owned by banks and mortgage investors. The paper estimates current supply at 500,000 and an expected flow of 1 million this year and again next year. The steady flow keeps prices from rising and reinforces the trend through additional reductions in homeowner equity. Tied to this observation is the fact that residential rents are rising and so is the number of households renting. Hence, the paper discusses the pros and cons of selling more REO to investors who will rent them to households.
About half of the current REO stock belongs to Fannie Mae, Freddie Mac and FHA. The GSE’s regulator is currently reviewing proposed options for bulk sales of at least some of the inventory. Private mortgage pools own slightly more than another one-quarter of the REO and their servicers control what happens to that share. The last portion, a little below one-quarter, is owned by banks and thrifts. While some REO may be in poor condition or in low density areas too difficult to serve scattered rental units, most homes are in major metropolitan areas in viable rental locations.
The pros of a REO-to-rental program include reduction in the excess inventory of for-sale homes, maintenance and upkeep of the current stock and of the communities where the homes are, more immediate determination of loss to the investor/lender, and housing for households desiring rental single-family homes. The cons include likely lower return to the holder because investors require lower prices to compensate for risk, holding costs until sufficient inventory is accumulated before bulk sale, current regulatory complications that do not allow banks to own real estate, investors’ difficulty in obtaining financing, and determining appropriate owners/managers that assure the property remains well maintained.
Potential solutions to the concerns include auctions to a wide audience of third-party investors to increase competition, auctioning the rights to acquire a future stream of properties that satisfy specific criteria, auctioning future deed-in-lieu transactions to investors so there is not REO but a transfer directly from mortgage holder to investor with the possibility of retaining the current resident, allowing the mortgage holder to rent the property directly, and offering financing to the investor purchaser. When the REO has very low value, an option is transferring the property to a land bank and letting the community determine future use. Land banks have been established in several states but the significant resources they require have impeded broader use of this tool.

Defaults and Foreclosures
The flow of foreclosures could be slowed if there were greater or more effective efforts to address home owners’ under stress either because of reduced income or reduced values, which bar them from selling. The inability to refinance and take advantage of historically low mortgage rates has increased the number of homeowners in mortgage distress and foreclosure. The paper cites two obstacles generated by Fannie Mae and Freddie Mac. The GSEs have increased use of their putback policy, which increases the risk that a mortgage originator may have to take the mortgage back if the slightest flaw is found in a mortgage that defaults, and GSE loan-level pricing adjustments (LLPAs), which raise the rate for loans outside very narrowly defined GSE safe investment parameters. The paper suggested solutions include reducing, or eliminating in the case of refinancing their own loans, the LLPA, reducing putback risks on refinances, and expanding the refinance programs to non-agency mortgages. The Fed paper recognizes the tension between minimizing GSE risk and potential loss with stabilizing the housing market, but suggests the overall benefits of stability may offset the GSE costs.
To avoid the economic and personal disruption of a default for those borrowers already underwater, the paper addresses loan modifications. Suggested modifications to the current relatively ineffective programs include taking into account all long-term debt payments when calculating the maximum 31% payment to income ratio allowed in a modification because some homeowners also have second mortgages or other consumer debt, accounting current unemployed income levels rather than assuming past incomes, and principal reduction. While citing the difficulties that have prevented any substantial use of principal reduction actions, the paper offers alternatives such as aggressively facilitating refinancing for underwater borrowers who are current on their loans and expanding loan modifications for borrowers who are struggling.
When modifications are not sufficient to keep a homeowner in their home, the paper offers alternatives that possess complications but remain viable such as the deed-in-lieu or short sale, which avoids the sometimes lengthy foreclosure process and potential property deterioration.

Mortgage Servicing
The last section of the paper addresses the difficulties and injury that the mortgage servicing processes have and have caused in the process of resolving delinquencies and foreclosures. The system designed to accept and re-distribute mortgage payments was not staffed or trained to address the volume of mortgages in difficulty. The paper focuses on four factors that compounded the impact: no readily available data to assess servicer performance, no effective way of transferring servicing if poor performance is determined, servicer incentives lean toward foreclosure and no central registration of all liens on a property. Curative recommendations include investor access to servicer performance metrics, servicer compensation more in line with probability of default, and an online national registry of liens so all potential claimants can be identified.


The Fed paper takes a larger view of housing market solutions as a portal into the whole economy. The final paragraph states it best. “Restoring the health of the housing market is a necessary part of a broader strategy for economic recovery. As this paper suggests, however, there is unfortunately no single solution for the problems the housing market faces. Instead, progress will come only through persistent and careful efforts to address a range of difficult and interdependent issues.”

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