June 15, 1977
Discussions with Tenth District savings and loans, commercial banks, and homebuilders associations confirm the strength evidenced in the homebuilding sector nationally. Single-family activity is strong, and while some rise in mortgage interest rates and terms is underway, it is not yet major. Evidence of speculative practices in homebuilding is very minimal in the District as a whole, and is not viewed with alarm even in those few metropolitan areas where it was specifically mentioned. The wheat harvest is now underway in the southern regions of the Tenth District with a record crop in prospect for Kansas and with District output expected to exceed 1976 levels by about 15 per cent. With prices unlikely to show much strength over the next several months, cash flow difficulties of some wheat farmers may be aggravated. While some District banks reported net gains in agricultural loans, repayments of old loans by farmers is an apparent reason for a part of the good to heavy agricultural loan demand being reported. Among Tenth District bankers contacted, most reported strong or improving overall loan demand, usually related to factors specific to their geographical area.
With few exceptions, discussions with Tenth District savings and loans and homebuilders associations indicated that homebuilding activity was very strong. Even where some recent moderation was noted, present activity levels were still viewed as very strong, while in other instances, such terms as "super", "fantastic", and "exploding" were used to describe the local home-building picture, with prices for new and used homes rising at 8-12 per cent per annum. Little evidence of speculative activity was noted generally, and specific references to such activity were not couched in alarming tones.
Most bankers contacted reported similar views of housing markets and price developments in their areas, with the outlook very good. Respondents attributed the strength in the housing market to immigration from new industry, or from growth in established industries—especially energy-producing ones. Very little speculation was reported in the District. In Albuquerque and Lincoln, however, respondents mentioned that some houses are being purchased in their areas for investment purposes. The Albuquerque respondent indicated that he thought these purchases are being financed through the banking system. Nonetheless, for the Tenth District as a whole, or for specific metropolitan areas, the "California" phenomenon in homebuilding is not strongly in evidence. Although some up-creep in mortgage rates and terms is in progress, this process is not yet viewed with alarm. However, there were some expressions of concern voiced by savings and loans at the prospect of future disintermediation.
The wheat harvest is now underway in the southern regions of the District, and by the end of June, the Kansas harvest will be nearing completion. Despite the general lack of moisture last fall and winter, production prospects are excellent at this time. In Kansas, output is expected to approach 400 million bushels, a new record, and about 17 per cent larger than in 1976. Production levels in Oklahoma and Nebraska will also be up sharply from last year. On balance, wheat output in the District will exceed 1976 levels by approximately 15 per cent.
Nationally, the 1977 winter wheat harvest will probably fall somewhat below that of 1976. However, because of a substantially larger carryover, total wheat supplies for the new marketing year will be higher than a year ago. Hence, wheat prices are not likely to strengthen over the next several months. While this development might aggravate the cash flow difficulties that many wheat farmers presently have, increased benefits from existing Government crop programs) such as deficiency payments, will help cushion the blow somewhat. At the same time, agricultural loan demand was reported heavy primarily in Nebraska, with some of the loans being for repayments of prior loans coming due. Other District bankers dealing with agriculture also reported good loan demand but mostly for repayment of old loans. One banker in Colorado reported that wheat farmers have repayment problems and are collateralizing new loans out of increased land values.
Among Tenth District banks contacted, most reported strong or improving overall loan demand, usually related to factors specific to their geographical area. Thus, in the southern and western parts of the District, strength was related to energy-producing industries, while in the Colorado resort area it was related to recreation industries. Bankers in the northern and eastern part of the District reported strong loan demand from commercial borrowers, mostly for short-term inventory loans.