FDIC reports that housing slowdown poses challenge to bank loan growthMortgagepress.comresidential construction, mortgages, commercial real estate, FDIC Outlook
The recent slowdown in residential construction could reduce the
demand for mortgages, commercial real estate and construction loans
- activities that have been important factors in loan growth for
banks and thrift institutions in recent years. That's according to
the winter 2006 edition of "FDIC Outlook," which analyzes economic
and banking conditions in each of the eight FDIC regions.
"While employment and income trends are positive in almost every
region, the effects of the slowdown in residential construction
activity are clearly visible," said FDIC Chair Sheila C. Bair.
"Going forward, insured banking institutions should pay careful
attention to risk-management processes in this slower-growth
The FDIC report also shows that the ongoing expansion in service
industries such as professional and business services appears to be
offsetting the effects of the slowdown in housing and, to a
significant degree, the Midwest automobile sector. The new report
follows the FDIC announcement last week that, despite narrow net
interest margins and a high degree of reliance on commercial real
estate lending, FDIC-insured banks and savings institutions had a
sixth consecutive year of record earnings in 2006.
Among the findings around the country reported in the new "FDIC
Atlanta region: Continued weakness in the
housing sector could moderate the demand for real estate
construction loans and slow bank revenue growth during 2007.
Chicago region: Weaknesses in the domestic
automobile sector are weighing on employment growth, housing
markets and the relative performance of the region's FDIC-insured
institutions. FDIC analysts show whether other economic sectors,
primarily the services sector, are helping to balance weakness in
Dallas region: Unlike most parts of the
country, the energy and housing sectors have been key drivers of
recent economic growth in the Southwest. In the Mid-South, analysts
note some important differences in economic activity between rural
and urban counties that appear to also be reflected in measures of
banking sector activity.
Kansas City region: The unique rural and
agricultural nature of this region makes it increasingly vulnerable
to ongoing rural depopulation, changes in agricultural policy and
long-term water shortages.
New York region: The Mid-Atlantic and New
England areas are home to a relatively large share of residential
mortgage lenders. Analysts in these areas assess the potential for
strength in other economic sectors to mitigate the negative effects
of a downturn in housing.
San Francisco region: The construction sector
has driven much of the region's recent economic expansion,
contributing to high and increasing concentrations of commercial
real estate and construction loans. Further weakening of the
housing sector would slow both economic growth and loan demand for
FDIC-insured institutions in the region.
For more information, visit www.fdic.gov.