Residential construction activity is going on at a rapid pace in most tenth district cities, especially for single-family structures. The rising cost and short supply of some construction materials are being felt by some builders and customers, but funds remain available—though more expensive. Savings inflows to savings and loan institutions continue to be strong, as does mortgage loan demand. District commercial banks are also experiencing strong loan demands. Better weather conditions will probably bring increased livestock shipments, and the likelihood of a temporary dip in meat animal prices.

Executives of home builders associations in a number of district cities, representatives of several savings and loan associations, and some home builders, were surveyed to acquire additional information about the residential construction sector, and its financing. Aside from being slowed somewhat by bad weather, residential construction activity is generally strong in major urban centers of the tenth district—with the exception of Albuquerque. Activity is stronger in single-family unit building than in multi-family structures, and there is still apparently no overbuilding of the former. There is a great deal of speculative building, and some tendency for a shift from custom toward speculative building, as contractors find little trouble in selling the latter. In Kansas City, for example, speculative builders generally have no inventory, with many units sold before completion.

The impact of the withdrawal of Federal subsidies has varied among district cities. The slowdown in construction activity reported for Albuquerque is attributed largely to the end of Federal subsidies for low income housing, and a lesser anticipated effect is reported from Omaha and Tulsa. All respondents stressed the rising cost of construction materials, especially lumber, and its influence on the price of houses. Furthermore, some materials are in short supply. Lumber is not only expensive but hard to get in many places, particularly in the types and grades desired. Bricks are also reported as hard to get in Omaha, Albuquerque, and Tulsa. Increases in the price of concrete and the possibility of a cement shortage were also mentioned. On the other hand, both builders and builders association executives described funds as readily available, although getting more costly.

Spokesmen for various savings and loan associations corroborated the rapid pace of home building activity and most of those surveyed believe that it will continue to be strong for a while. Mortgage loan demand and commitments were reported as "up," "way up," "out of sight" by most respondents, with Denver being the major geographical exception. Mortgage rates have already been increased in recent weeks by at least one-eighth to one-fourth of one percent by institutions in several district cities. A further "inching up" is anticipated if mortgage loan demand remains high. Savings inflows were very good in the first quarter, although some concern was expressed for the future. No serious disintermediation has been experienced yet by the institutions surveyed. However, one respondent called disintermediation "a definite threat in the rest of 1973," and another is worried about a large amount of deposits he considers "vulnerable."

Loan demand at tenth district commercial banks continues to be strong in almost all categories. Exceptionally strong demand has caused some banks to concentrate more heavily in commercial loans. The prime rate has risen to 6 1/2 percent at all survey banks, but there were few reports of credit rationing or tightening of nonprice loan terms. Nevertheless, several banks have become more diligent in enforcing compensating balances requirements, while others felt that rationing was imminent. Most banks have relied heavily upon purchases of Federal funds, CDs, and maturing securities to provide funds to accommodate loan demand. Outflows of demand deposits, savings deposits, and consumer-type time deposits have been larger than is typical for this time of the year.

Reactions by tenth district bankers to the proposed dual prime rate were mixed. Some bankers felt it would be wise to differentiate between national and regional borrowers, as credit demands are often quite different for the two groups. Others expressed the view that credit-worthiness—not the size of the borrower—should be the criterion for establishing loan rates, with a single prime rate serving as a benchmark. Virtually all bankers interviewed agreed that the dual prime system might be difficult to administer. The consensus seemed to be that, under the system, funds would still be available to meet the needs of small borrowers even when higher rates existed on loans to large borrowers.

Unusually heavy rains during March proved to be a mixed blessing for farmers and ranchers throughout the district. While valuable moisture was added to the soil for the new wheat crop, many of the low spots in the fields were flooded and heavily damaged. However, most, if not all, of this loss will probably be offset by higher yields in the undamaged portions of the fields. As a result of the wet weather, very few farmers have been able to start the field work that must be completed before the spring crops can be planted. Further delays will likely reduce corn yields and perhaps induce some substitution of soybeans.

The weather has also greatly impaired the movement of livestock to market, partly explaining the strong prices for cattle and hogs prior to the boycott. The boycott apparently has had an effect on the market, and producers have responded to reduced sales by shipping significantly fewer animals to market. On the whole, prices have not weakened substantially. An end to the boycott and better weather conditions will probably bring fairly heavy shipments of livestock, causing meat animal prices to dip rather sharply until this backlog is marketed.