Reports from the nation’s 12 Federal Reserve banks show continuing weakness in residential real estate and construction, with most districts characterizing housing markets as soft or weak, and no districts reporting an increase in new home construction.

The latest “Beige Book” report — a summary of comments the Federal Reserve has received from businesses including real estate firms and mortgage bankers — provides anecdotes and observations that go beyond statistics in describing market conditions around the nation.

Highlights include:

New York District

Housing markets showed some signs of strengthening in the New York district, which encompasses New York state, the 12 northern counties of New Jersey, Fairfield County in Connecticut, Puerto Rico and the Virgin Islands.

New York City and parts of Long Island showed the strongest signs of strength. After a brisk first quarter, Manhattan’s co-op and condo market showed further signs of strengthening in April and May, according to both a major broker and a major appraisal firm.

Prices have accelerated, sales activity has remained brisk, and inventory has continued to shrink, especially at the high end of the market.

Manhattan’s rental market is reported to be increasingly tight. The market for co-ops and condos on New Jersey’s “Gold Coast” and for vacation homes on Long Island are described as strong.

Market conditions in the rest of the district largely remained sluggish. New Jersey home builders report that the market has stabilized at low levels, while New York state Realtors report that the housing market slowed in April.

Residential mortgage lenders reported loan demand picking up, with more bankers reporting increases than decreases in demand for the first time in almost two years. Demand remained unchanged for commercial mortgages and industrial loans. Respondents reported declines in refinancing activity, though to a lesser degree than in recent months.

Bankers reported tightened credit standards, particularly on home mortgages. Respondents report that loan rates increased in the residential mortgage category but were unchanged in the other categories. More bankers report rising than declining delinquency rates on residential mortgages.

A major New York City employment agency reported that hiring activity remained strong in May but that it had become increasingly difficult to fill jobs. The contact also noted that companies are very reluctant to give up seasoned employees and are frequently making counteroffers. Hiring has been particularly brisk in the financial sector, with strong demand from major Wall Street firms, medium-sized banks and hedge funds. One contact also notes a recent pickup in hiring at commercial real estate firms.

However, demand for workers from the publishing, advertising and consumer products industries is described as still sluggish. Starting salaries for college graduates are reported to be little changed from a year ago, but salaries for experienced workers have reportedly escalated.

Philadelphia District

Residential construction and sales were generally slow in the Philadelphia district, which includes eastern Pennsylvania, southern New Jersey, and Delaware.

Realtors reported the market for homes selling below $300,000 is outperforming the market for all higher price ranges.

The inventory of unsold homes is expanded, but not as quickly as last year. Average selling prices are basically unchanged from 2006. So far this year, the average number of days on the market has risen, but not to the highs experienced in earlier housing downturns. Realtors suggest that the correction in the housing market may result in a prolonged period of house prices rising more slowly than inflation, if at all.

Residential lending is flat or down from last year, with some regional variation. Residential lending in the Philadelphia suburbs is reportedly up relative to the same period last year. Overall, mortgage delinquency rates are holding steady. Some firms do not expect a pickup in residential lending to begin until sometime in 2008.

Firms characterized wages as increasing at a steady pace. Employee benefits are currently exerting more pressure on costs than wages. Some businesses are providing employees with new, non-wage benefits, such as gasoline cards. Some firms also noted an increase in the cost of providing employee health care.

Cleveland District

New-home inventories were moving toward more normal levels, but sales remain at low levels in the Cleveland district, encompassing Ohio, western Pennsylvania, eastern Kentucky and the northern panhandle of West Virginia.

There was general consensus among builders that residential construction has yet to bottom out.

New-home sales over the past six weeks were reportedly stable, but at low levels. Builders said they weren’t sure when the housing market would turn around. Some said late 2007 may be the earliest.

Although builders were in agreement that new-home inventories remain high, several reported that they are moving toward more normal levels. In general, new-home prices were down slightly since mid-April, although some builders have discounted as high as 10 percent.

On net, reports point to a slight increase in employment levels across the district with little wage pressure. Staffing firms reported positive trends in job openings with an increase in the number of permanent openings, but the number of job seekers declined since mid-April and year-over-year.

Hiring demand was greatest in the service industries, including health care, insurance, finance and administrative. Manufacturing openings decreased. Almost all manufacturers, commercial builders and coal producers reported that input prices are rising especially for metals and petroleum-based products.

Richmond District

Real estate agents gave mixed reports on home sales across the Richmond, Va., District, which includes the District of Columbia, Maryland, Virginia, North Carolina, South Carolina and most of West Virginia.

A Realtor in Richmond reported stable home sales in recent weeks but also noted an increase in the number of contracts contingent on buyers selling their homes. Additionally, he said that clients were becoming more attuned to interest-rate developments.

In Northern Virginia, contacts characterized sales as “still churning away,” but said inventory levels remained elevated.

Reports were also mixed in the Carolinas. A Greenville, S.C., agent expected activity to strengthen because of a recent uptick in job growth in that area. But a Greensboro, N.C., agent said builders continued to offer substantial incentives to sell properties. He perceived a lack of confidence among buyers, in part because of businesses leaving the area. Reports on home prices varied, with prices declining a bit in some markets while holding steady in others.

Mortgage lenders in the district reported that activity remained flat. Lenders relayed only scattered reports of rising loan delinquencies. A Charlotte, N.C., contact noted that there appeared to be no widespread impacts from the recent developments in the subprime sector.

Temporary employment agents across the district indicated firming demand for workers. A Raleigh, N.C., contact attributed the recent surge in activity to the continued strength of the local labor market due in part to a sizeable number of new start-ups.

A contact in Richmond, Va., reported that the strong economy in that area had boosted demand for temporary workers.

A contact from Bethesda, Md., anticipated demand for temporary workers to weaken in coming months because of a softening in local economic conditions.

Overall, skilled workers remained in short supply. Contacts noted that customer service, computer and other general administrative abilities remained highly sought.

Atlanta District

Most builders and Realtors reported new- and existing-home sales remained below year-ago levels in the Atlanta district, which encompasses Alabama, Florida, Georgia, and parts of Louisiana, Mississippi and Tennessee.

Reports suggest that home sales stabilized at low levels in parts of Florida in April and May, but declined in Georgia. Most contacts continued to report that both new- and existing-home inventories were up from a year ago, and that asking prices were being lowered. New-home construction remained below year-ago levels across most of the region.

The majority of housing contacts continued to expect home sales and construction to be weak for the next several months. Higher mortgage delinquencies were noted in some parts of the district.

Hiring remained positive on balance during April and May, although there were reports of layoffs in the construction and real estate services sectors, especially in Florida.

Home builders were reportedly letting go the least qualified workers that they had hired during the housing boom. However, demand remained strong for skilled construction workers such as electricians, plumbers, and heating and air-conditioning technicians.

Contacts in the health-care industry continued to observe shortages of healthcare professionals, and strong demand for skilled workers was noted in the defense and aerospace industries. In some areas, attracting and retaining low-skilled workers in the retail and hospitality industries was said to be difficult because of the high cost of housing.

The district’s longer-term manufacturing outlook brightened with several new announcements. Hyundai announced a $270 million engine plant expansion in Montgomery to build four-cylinder engines for the North American car market. Honda announced a $64.5 million expansion at its Lincoln, Ala., facility. ThyssenKrupp AG said it will build a state-of-the-art steelmaking complex near Mobile, Ala. The $3.7 billion plant is expected to have 2,700 employees by 2010.

Chicago District

Inventories of speculative new homes were reportedly being slowly worked down throughout the Chicago district, but existing homes for sale remained high. The district includes all of Iowa and most of Illinois, Indiana, Michigan and Wisconsin.

Foreclosures increased in Indiana and Michigan. Nonresidential construction expanded slightly from a year ago.

Mortgage applications for home purchases and refinancing both declined. New home equity credit issuance continued to decrease, but outstanding balances were little changed. Mortgage delinquencies edged up further during May.

One contact said that banks in areas with high foreclosures were trying to work with troubled borrowers to avoid forcing them into foreclosure, and in some instances bankers were forgiving portions of the loan balances of distressed borrowers who were able to sell their home themselves.

St. Louis District

Home sales continued to be mixed throughout the St. Louis district, which includes all of Arkansas and parts of Missouri, Mississippi, Tennessee, Kentucky, Indiana and Illinois.

April 2007 year-to-date home sales were up 4.2 percent in Louisville and 2.5 percent in Little Rock from the year before.

Year-to-date home sales declined 4 percent in St. Louis and 8.8 percent in Memphis. Residential construction declined throughout most of the district.

April 2007 year-to-date single-family housing permits fell in most metro areas compared with the same period in 2006. Permits declined 24 percent in Memphis, 19 percent in Little Rock, and 8 percent in St. Louis. Permits, however, were up 34 percent in Louisville.

Both credit standards and demand for prime and nontraditional mortgage loans were unchanged.

Changes in labor market conditions were mixed by industry and location. Toolmakers, a pharmaceutical company and a retailer indicated they were adding workers, while a construction materials manufacturer and a home builder reported layoffs.

A contact in Rockford, Ill., noted a decline in commercial construction jobs after two big development projects were recently completed. An analyst in Illinois revised down a forecast for job growth this year, noting some softer demand in professional and business services.

Billable hours for temporary placements in low-skilled positions declined slightly, while growth in hours for professional and technical workers was steady. A staffing firm said it expected these trends to continue in the next few months, but it was getting “some signals” that its large customers were planning to add more temps later this year.

Minneapolis District

Home building remained at a low level in most parts of the Minneapolis district, which encompasses Minnesota, Montana, North and South Dakota, 26 counties in northwestern Wisconsin and the Upper Peninsula of Michigan.

Year-to-date home-building permits were down significantly in Rochester, Minn., and Fargo, N.D. Permits in Sioux Falls, S.D., were about even with last year. In contrast, a western Montana home builder expects business to be up as much as 40 percent from a year ago.

Labor markets were mixed, with unemployment rates in Minnesota and Wisconsin increasing by .5 percent in April from a year ago. A data-storage product manufacturer recently announced plans to cut 40 research-and-development jobs in Minnesota and 390 jobs at a North Dakota plant. Also in Minnesota, a newspaper recently announced plans to cut 145 positions. Initial claims for unemployment insurance in Minnesota were up 14 percent in late April and May compared to a year ago.

An electronics manufacturer is adding a production facility in Minnesota, and a fiberglass product producer is expanding production and a pump maker noted increased orders. In addition, a global steel company plans to invest $1.6 billion to build an iron-to-steel mill. However, a window maker, a paper plant and a manufacturer of stone-cutting machines in Minnesota reduced production, and a lumber mill in Montana closed.

Kansas City District

The residential real estate market in the Kansas City district continued to work off inventories, and commercial real estate activity strengthened further. The district includes Colorado, Kansas, Nebraska, Oklahoma, Wyoming, northern New Mexico and the western third of Missouri.

Though still below year-ago levels, residential sales followed seasonal trends with increased sales in most of the district’s states. Low- to mid-priced homes sold well, while the market for higher-priced homes and condominiums remained weak.

Strong housing demand was reported in cities with high concentrations of energy-related activity and in resort areas of Colorado. Median sales prices were flat or fell slightly. Stronger sales coupled with flat new-home construction led to a reduction in inventory levels from the last survey.

Bankers reported that both loans and deposits were unchanged since the last survey. Strong demand for commercial real estate and consumer installment loans and steady residential real estate loan demand offset easing of commercial and industrial loan demand. Credit standards were mostly unchanged, although a few contacts reported tightening lending standards to reduce risk exposure in a softer local economic environment.

District labor markets continued to add jobs and wage pressures eased slightly in late April and May. Hiring announcements outpaced planned layoffs with most job gains projected in service industries. Demand for skilled workers remained strong, most notably for engineers. Contacts in the leisure and hospitality industry reported difficulty retaining entry level staff.

Business contacts reported that labor shortages were limiting expansion plans and some companies had partnered with vocational schools to offer industry specific training programs. Wage pressures softened after intensifying in the last survey, but were expected to remain elevated compared to a year ago.

Dallas District

Although demand is better than many other areas of the country, housing markets remain soft in the Dallas district, which is made up of Texas, northern Louisiana and southern New Mexico.

Dallas-Fort Worth builders continued to reduce starts and expect price cuts on unsold inventory. Cancellation rates are still high in Dallas but have improved since March.

Houston’s housing market slowed since the last survey, despite solid job growth.

San Antonio has quickly become a buyer’s market, with a rising supply of new-home inventory and incentives “rising through the ceiling.” Sales of new and existing homes continue to rise in Austin, but builders are cutting back because new-home inventories are higher than desired. A recent pick up in leasing activity led respondents to be a bit more optimistic about apartment markets.

Consumer lending continues to soften, particularly for real estate and autos. Still, respondents remain optimistic, and some have improved their outlook because of reduced uncertainties regarding housing problems.

The labor market remains “very tight” for workers with specialized skills, such as CPAs, accountants, MBAs, auto mechanics, engineers and those with experience in commercial construction and the energy industry

Commercial banks report a shortage of tellers, and one contact said high-school graduates no longer have sufficient math, writing and communication skills for these jobs. Wages have risen for workers in short supply, in some instances substantially.

San Francisco District

Housing market activity remained sluggish in the San Francisco district, which serves Alaska, Arizona, California, Hawaii, Idaho, Nevada, Oregon, Utah, Washington and several territories.

Prices continued to rise in some states and areas where local economic conditions are strong, such as Utah, Idaho, Hawaii and the Seattle area.

Sales volumes for new and existing homes fell in most areas, and average time on the market rose slightly. Price appreciation slowed accordingly, with modest price declines reported during the survey period in some parts of the district.

Demand for commercial and industrial lending — as well as commercial real estate loans — rose but was partly offset by further weakening in demand for residential mortgages in most areas. Credit quality was at favorable levels overall, but it deteriorated slightly for home mortgages in some areas. Contacts noted continued growth in venture capital funding and private equity financing.

Growth in labor compensation generally remained moderate despite tight labor markets, although contacts noted further hefty salary increases for selected worker groups with specialized skills.

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