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What the Federal Reserve Is Seeing


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October 20, 2005

What the Federal Reserve Is Seeing

Peter Coy

Here's what the Federal Reserve had to say yesterday about the housing market in its Beige Book summary of economic conditions:

Residential real estate activity remained generally strong, but reports that demand for homes has eased have become somewhat more common.

And here's a little more detail. The Beige Book comes out eight times a year. It's based on surveys by the 12 regional Fed banks of businesses and other contacts in their regions.

District banks gave mixed reports on residential real estate markets. Although levels of activity appeared to remain generally high, a number of Districts indicated that demand for housing was slowing in some regions. Residential real estate activity continued to expand in Chicago, St. Louis, and Dallas, and remained strong in San Francisco. Richmond reported continued strength in housing construction, but indicated that demand was easing in some parts of the District. Minneapolis reported that home sales had slowed in some areas but were strong in others. Boston reported that homes were taking longer to sell, as did New York. Cleveland reported little growth in residential construction. Kansas City reported some easing in home sales and a growing inventory of houses for sale. Chicago also reported higher inventories of unsold homes on the market. Atlanta reported a strong increase in demand for housing in areas where evacuees from the coast were relocating, but indicated that demand for homes was moderating elsewhere in the District.

To see the summary, click here. From the summary page you can click on any of the regional banks to see more detail.

09:57 AM

Bubbles, Economy, Housing Prices, Regions

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Over the next few years I think the inflation of the economy will continue a swelling of housing prices. And money from Asia seeking safety because of medical issues, and to gain higher interest return will continue the direct financing of housing. At least on the West Coast.

As far as affordability goes, look for more economists; to push for a flat tax, to put money directly into the hands of the consumer, and also encourage investment. It may increase the deficit, but that extra debt service, will only encourage more foreign investment.

Posted by: Mike Reardon at October 21, 2005 04:41 AM

Mike,

The flat tax has been sneaking in under the radar (did anyone realise that) and remember that with the flat tax there is no mortgage interest deduction which is the main reason people are willing to pay more in mortgage than they are in rent. The flat tax will effectively raise mortgage rates by 25%-35% instantly depending on your tax bracket. How many people who are already stretched beyond their limits could afford such a high jack up in the cost of their mortgages?

Posted by: Doesitmatter at October 22, 2005 10:24 AM

The first part of support for a flat tax that economists have put forward, is removing impediments to money earned from investment. And also granting relief from the alternative minimum tax from investment. The economists in question will see the flat tax, as the equivalent of supply side investment, that profit increases from investment will increase government tax income.

The structuring of the property deduction into the investment side of the flat tax will be raised to sell it. Economists support of the flat tax is related to placing money into the hands of working people to aid in consumption and now adjust to decreasing refinance of property. A lot of money is going to seek a place to invest and a swelling inflation will also continue to raise property prices.

Posted by: Mike Reardon at October 25, 2005 02:38 AM

What the fed is seeing is feedback from their failure to take meaningful action while it was possible. A couple of 1/2% rate hikes at the beginning of the year would have made a world of difference. I don't believe we would be talking 5% inflation now. (Yes on my blog I was proporting the hikes back in the spring as well).

Bunker down and take cover, a very cold "winter" is coming.

Posted by: Wes at October 25, 2005 11:16 AM


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