Beige Book July 2008

The Federal Reserve Bank gathers anecdotal information on current economic conditions through reports from Bank and Branch directors and interviews with key business contacts, economists, market experts, and other sources. The Beige Book summarizes this information.

The Federal Reserve has issued its Beige Book report for July. The Fed commented on the national real estate and construction market as follows:

Residential real estate markets declined or were still weak across most of the country. Slower home sales were reported in the Boston, Philadelphia, Richmond, Atlanta, and St. Louis Districts. Cleveland reported flat to declining sales, while sales remained sluggish in the Kansas City and New York Districts–especially at the high end–and were below year-ago levels in the Minneapolis District. New York also reported a drop in Manhattan condo and co-op transactions. Inventories of unsold homes or condos were reported as higher or excessive in several Districts, but Dallas noted a continued decline in inventories, especially at the low end. Home prices continued to decline in most Districts, and increased use of incentives and discounting was noted in several Districts. San Francisco noted particularly sharp declines in home prices in areas of California, Arizona, and Nevada that have experienced large increases in foreclosures. Atlanta said home prices dropped across the board. On the other hand, home prices were said to be holding up in the Dallas District and were little changed in the Kansas City District. Difficulties obtaining mortgage financing were reported in the New York and Chicago Districts. All Districts reporting on single-family construction said activity continued to decline, and builders in the Philadelphia District noted a rising number of cancellations. The decline in new construction accelerated in some areas of the Chicago District.

Commercial real estate activity weakened or remained sluggish in a majority of Districts, although Cleveland, Minneapolis, and Kansas City noted some improvement. Boston characterized sentiment in the sector as “decidedly morose,” and industrial markets were especially weak in that District. Office market conditions in the Richmond District continued to weaken and were “bleak” in the Washington, DC area. Vacancy rates increased in the Philadelphia and Atlanta Districts, and were up noticeably in both Midtown and Downtown Manhattan, according to contacts in the New York District. Office rents remained steady in the Philadelphia District, and were little changed in the Boston District after taking concessions into account. More positively, contacts in the Minneapolis District noted rent increases and positive absorption in the Minneapolis-St. Paul area office market. Districts reporting on nonresidential construction generally noted sluggishness, which contacts in the Chicago and Kansas City Districts attributed in part to prohibitively high construction costs. Contractors in the Cleveland District were also worried about cuts but reported strong backlogs and a steady flow of inquiries. Contacts in many Districts also cited tightened financing as a constraint. San Francisco noted particularly steep drops in commercial construction in the San Diego area. Retail space was described as overbuilt in the Boston and Chicago Districts.

Click here to read the full report.

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