High interest rates are serving as a serious deterrent to home buyers while disintermediation is adversely affecting the supply of mortgage funds. No pickup in home-building in the second half of this year is expected either by District homebuilders or thrift institution executives, should current conditions continue. The agricultural outlook still includes big crop yields, based on May 1 conditions, but farm income prospects are wilting. The rate of increase of business loan demand appears to be slowing down, although loanable funds have become increasingly tight. Bank credit is being rationed, while banks aggressively compete for loanable funds.

From discussions with several District thrift institutions, concern over disintermediation was readily apparent. Net inflows have shrunk appreciably or have given way to net outflows of deposits. One savings and loan executive said that April was "miserable," and the "Treasury issues are killing them." Another described deposit inflows as "slim and bad." He wants the Board to know that the law of supply and demand still works-that people are withdrawing large CD's before maturity because they can make up the penalty and then some. A third "...sure would like to know what the Fed is planning to do to him next." A respondent who had recently attended a mortgage bankers convention said "everyone there seemed scared and uncertain."

With a few exceptions, homebuilders generally sound just as gloomy as S&L executives about the outlook. Although most expected the year to be slower, pessimism about the months ahead is increasing. While new home sales in the Kansas City metropolitan area held up surprisingly well through mid-April, they have dropped off drastically since, especially in Missouri because of its 8 percent ceiling on mortgages. Two major Kansas City builders expressed resentment at the apparent willingness of the Federal Reserve System to sacrifice the housing industry this year in an effort to stop inflation. In Colorado, building activity continues to be determined largely by natural gas allocations. Thus, Denver experienced a record number of mortgage commitments in April, a bulge created by the gas company's requirement that, in order to get gas service, new units must be completed by July. A sharp decline in new starts is expected once that deadline is passed. In Tulsa, a builder complained about how high interest rates were hurting housing. "You know," he said, "we had some carpenters looking for jobs recently. Now, that's a change." One hundred miles away, in Oklahoma City, however, the construction of single family homes is off only slightly from last year, and the builder contacted remains optimistic about the months ahead. However, such favorable views were decidedly fewer in this Redbook survey than in the one taken three months ago.

Agricultural conditions in the District continue mixed. Favorable weather has enabled farmers to make good headway with the planting of spring crops. Some difficulty in acquiring fertilizer and chemical pesticides is being reported, but the problem does not appear to be too serious in this geographic area. Winter wheat conditions have deteriorated substantially in much of the District since May 1 when favorable prospects were indicated in the crop report. Dry weather and an outbreak of streak mosaic are hindering the development of the crop. With immediate improvement in the weather, the 1974 wheat crop still could be larger than a year ago. The sharp decline in wheat prices over the last 2 months has removed much of the bloom surrounding income prospects for District farmers, but unless weather conditions improve, the price situation may reverse. Moreover, the livestock industry, which continues in a depressed state, offers little promise of bolstering District farm income unless slaughter prices improve or costs come down.

Although business borrowing at large District banks increased sharply in the past 4 weeks, reports from a survey of some of the larger banks indicate that recent increases in the prime rate are beginning to have an effect on business loan demand. Several banks reported that, while the volume of business borrowing remains exceptionally large, loan requests do appear to be leveling off or, in a few cases, even declining. Nevertheless, due to the current high level of business loan demand, some banks have begun to ration credit either by rejecting new loan requests or by limiting the size of loans to normal or past amounts. Moreover, in several instances, banks have become more selective with regard to the purposes of loan requests and have rejected speculative loans for land development and "excessive" inventory accumulation. To accommodate the business loan demand, District banks are competing aggressively for CD's and, as a result, are experiencing sharp inflows of deposits. Most banks are also relying upon purchases of Federal funds to supplement loanable funds, but of the banks in the survey, none as of yet have borrowed Euro-dollars. With only two exceptions, the survey banks have not experienced any slowing in the growth of savings deposits or consumer certificates of deposit in recent weeks. One of the exceptions, however, did report a drop of 5 percent in savings deposits and consumer CD's in the last month.