Regional Perspectives
The San Francisco Region's nonfarm employment growth continues to outpace the nation's--However, performance varies across industries. Construction payrolls expanded rapidly, while manufacturing and agricultural employment showed some weakness.
Reported earnings and asset quality among the Region's insured institutions remained stable during first quarter 2000--Concentrations in traditionally higher-risk lending categories, such as commercial real estate and construction loans, increased, particularly among insured institutions in MSAs with robust high-tech sectors.
Despite some recent weakness, the Region's high-tech sector has contributed to employment and personal income gains as well as to increases in residential and commercial real estate activity.
By the San Francisco Region Staff
In Focus This Quarter
Ranking Metropolitan Areas at Risk for Commercial Real Estate Overbuilding--Commercial real estate construction has boomed in a number of U.S. metropolitan markets during recent years amid falling vacancy rates and growing demand for new space. Insured depository institutions have reasserted their role as primary sources of capital for this construction boom, particularly in the wake of the 1998 financial markets crisis that left some important market-based lenders on the sidelines. Recent data for some metropolitan areas show that on-balance-sheet exposures of FDIC-insured institutions are by some measures higher now than at the peak of the last commercial real estate cycle during the late 1980s. This article reassesses major U.S. metropolitan real estate markets in search of possible signs of overbuilding that could drive up vacancy rates and drive down rents in the near term. This review points to an underlying trend of markets experiencing more vigorous construction activity across multiple property types.
By Thomas A. Murray, Senior Financial Analyst
Rising Home Values and New Lending Programs Are Reshaping the Outlook for Residential Real Estate--Rising home prices and high levels of activity in the single-family housing market have been supported by excellent economic conditions and generally low interest rates. However, as interest rates have begun to rise, housing market activity has slowed. Historically, residential real estate has been one of the best-performing asset classes at insured institutions. Concerns have recently arisen, however, that new, higher-risk lending lines of business could adversely affect the future credit quality of residential real estate portfolios.
By Alan Deaton, Financial Economist
