Dallas: July 1971

The presidents of large District savings and loan associations generally expect economic activity to pick up moderately in their areas. They reported that increases in construction activity have bolstered the demand for mortgage loans in recent months. Moreover, the greater amount of construction activity, and associated mortgage demand, is expected to continue through yearend. They also indicated that they have raised their lending rates recently and expect to raise them again before the year is out. The banking directors on the boards of the Federal Reserve Bank of Dallas similarly expect local economic conditions to improve, but, in addition, they anticipate that the rate of inflation and interest rates will increase over the next six months. They also feel loan demand will increase over this period.

The presidents of savings and loan associations generally reported the demand for mortgage credit in their areas to be somewhat stronger than three months ago. Most attributed this strength to an increase in construction activity. But in spite of the number of new houses constructed, no buildup of unsold houses has been apparent. About half of the respondents reported that the number of unsold houses in their areas has remained about the same as three months ago, and a third indicated a decline in the number of unsold houses in their areas. Moreover, it was felt that these trends in construction activity, housing sales, and demand for mortgage credit will continue through the next six months.

At the respondent savings and loan associations, current lending rates on 80 per cent conventional home mortgages range from 7 1/2 to 8 3/4 per cent, averaging slightly less than 8 per cent. Most, however, ask for points above these rates. About half of the respondents reported that both their mortgage rates and the number of points they are asking are higher now than they were three months ago. Most of the remaining half reported that their rates and points have remained at about the same level as three months ago. The overwhelming majority reported no change in their minimum down-payment requirements or maximum maturities on mortgage loans compared with three months ago. About
two-thirds of the respondents felt that rates on their 80 per cent conventional home mortgages would be from 1/4 to 1 per cent higher at yearend than they are currently.

Savings and loan association presidents indicated that they are having either about the same or slightly less difficulty obtaining interim financing as they did three months ago. Most report that they are paying about the same rate for these funds as they did at that time.

The banking directors similarly expect the trend in economic activity in their areas to improve moderately, particularly in construction, industrial goods, and petroleum. But they also anticipate that both long- and short-term interest rates, and the rate of increase in consumer prices, will rise moderately over the balance of the year. Most banking directors feel that loan demand will pick up in the next six months, particularly in the consumer and construction areas. But they are also looking for the demand for agricultural loans to moderate further.

Banking directors were also questioned about demand for lines of credit and their policies on certificates of deposit and purchases of municipal securities. Demands for lines of credit by their large business customers have not changed much recently, although a few indicated these demands have risen. Most of the recent lines of credit have been arranged on the basis of verbal agreements (no fees attached). Two-thirds of the respondents said that they have recently changed their policies for purchasing municipal securities. Of those changing their policies, more than half are buying less, mainly to purchase more liquid securities or because they feel that interest rates on municipals will increase. Those purchasing more municipals indicated they are picking up mostly shorter term issues. Only about half of the directors' banks are seeking funds by issuing long-term certificates of deposit and are paying from 5 to 5 7/8 per cent for six-month funds.

District data continue to indicate that a modest economic recovery is taking place in this region. Texas industrial production continues to increase slowly. Registrations of new cars in Dallas, Fort Worth, Houston, and San Antonio in May were 7 per cent above the level for May last year. Similarly, department store sales for the four-week period ended July 10 were 6 per cent above the level for the corresponding period a year ago. However, Texas dropped its oil allowables 2.5 points to a level of 66.2 per cent for August in response to seasonal demand conditions. But the other District producing states were able to keep their allowables unchanged.

The situation for District agriculture continues uncertain to critical for several areas and enterprises because of drought. In some localities cotton plantings may be lost, and many cattle herds have been drastically cut back or totally eliminated due to feed shortages and lack of water. Most recently, the appearance of Venezuelan equine encephalomyelitis has plagued herds of horses.