Prepared at the Federal Reserve Bank of Chicago and based on information collected before July 16, 2007. This document summarizes comments received from business and other contacts outside the Federal Reserve and is not a commentary on the views of Federal Reserve officials.
——————————————————————————–

Reports from the twelve Federal Reserve Banks indicated that economic activity continued to expand in June and early July. New York, Richmond, St. Louis, Minneapolis, and San Francisco described the pace of growth as “moderate” while Cleveland and Chicago saw it as “modest.” Philadelphia noted that economic conditions improved. Kansas City said the regional economy continued to grow but at a moderating pace, and Dallas characterized its economy as strong but said it decelerated. Boston and Atlanta described business contacts’ reports as “varied” or “mixed.”

On balance, consumer spending rose at a modest pace, although a number of Districts indicated that sales were mixed or below expectations. Several reports indicated that capital spending increased, and expenditures for most business services continued to rise. Employment increased further in most regions and in many sectors of the economy. Most Districts said that residential construction and real estate activity continued to decline. Commercial construction and real estate markets were generally more active than during the previous reporting period. District reports indicated that manufacturing activity continued to expand during June and early July. Household lending declined in most regions, while commercial and industrial lending expanded at a modest pace. Contacts generally reported ongoing input cost pressures, particularly for petroleum-related inputs, while prices at the retail level continued to increase at a moderate rate. Energy and natural resource activity remained at high levels, or in some instances, rose further. Many Districts described overall wage gains as moderate and/or similar to the previous reporting period. Agricultural conditions varied widely, as the impacts of drought were felt east of the Mississippi River and heavy rains affected the Dallas and Kansas City Districts.
Construction and Real Estate
Most Districts said that residential construction and real estate activity continued to decline on balance. Many Districts, however, noted increased activity in some individual market locales or segments. Atlanta, Chicago, St. Louis, and Minneapolis said construction decreased. Boston and Kansas City said housing markets remained “soft” and “weak,” respectively, while San Francisco indicated that residential markets were weak and had slowed further in some areas. New York said markets were mixed but stable. Two notable exceptions were the Cleveland and Richmond regions, which experienced slight increases in sales. Atlanta said home inventories remained high, as did Dallas (even after a slight decline in the recent period). Inventories increased in Kansas City, but they declined in New York, and contacts in Boston and Cleveland described the number of homes for sale as “normal” and “acceptable,” respectively. District reports on home price appreciation were mixed: Boston noted a return to price appreciation and Kansas City indicated slower rates of decline. But Richmond and Chicago reported slower rates of increase or the beginning of declines, and in the Dallas District, some contacts projected a correction in entry-level home prices. Looking ahead, contacts in the Cleveland District were uncertain about how long it would be until the market turned, and analysts in Dallas had revised their housing outlook down. Contacts in Atlanta expected further declines overall, though they anticipated the market in Florida would be flat.

Commercial construction and real estate markets were generally more active than during the previous reporting period. New York said markets strengthened and San Francisco reported continued firming. Cleveland, Atlanta, Minneapolis, and Kansas City indicated small gains in development. Richmond and Dallas described local markets as still “solid” and “robust,” respectively. Chicago said the pace of development was steady, and St. Louis said markets were mixed. Richmond and Chicago observed that overall commercial vacancy rates were stable. Office vacancy rates fell in four regions. Demand for industrial space increased in four Districts, while net absorption in the Minneapolis District was negative. Richmond, Kansas City, and San Francisco reported increases in rental rates for commercial space, and New York said that the asking rents for space “continued to soar.”

It isn’t the one that has everything. It’s the one with more of what you want and less of what you don’t. This system can guide you to it.

A home’s four C’s

When I became a real estate agent, I discovered something about home buyers: A lot of them cry. Right in front of you. After a few times I began to understand. This is a high-pressure, extremely emotional decision. No house will ever fully live up to your dreams, and whatever compromises you make (and you’ll have to make some) you’ll be stuck with for years.

I’ve never met anyone who was totally rational about evaluating a home, but the way to get closest, I’ve found, is to break the process into discrete parts. Just as diamond buyers focus on four competing criteria (carats, clarity, color and cut), home buyers need to consider a home’s four Cs: cost, condition, capacity and convenience.

The worksheets on the following pages have helped my clients weigh those factors and make the inevitable tradeoffs with fewer tears; they should work for you too.
A home’s true cost

I see a lot of buyers make a basic mistake: When deciding if a particular house fits their budget, they look only at listed price and their probable mortgage payments.

But to make an honest comparison of the houses on your list, you must consider all the costs you’ll be facing. In addition to mortgage payments, there are maintenance costs, property taxes and homeowners association fees, utilities and insurance.

Your total outlay should be no more than a third of your gross income (ideally, less).

Define ‘acceptable’ condition

Unless you’re buying brand new, expect your home to need some upgrades. Just be sure the issues aren’t structural (such as those under “red light” below, which your home inspector can help you identify). Fixing these could run as much as $30,000, says New Jersey builder Jay Cipriani.

Better to go with a home needing cosmetic work (”green light”) or at least a less extensive overhaul (”yellow light”). The investment you make in resolving these will improve your quality of life while living there and increase the resale value.

RED LIGHTThese problems can be incredible costly. Run away.	YELLOW LIGHTThese issues may be fixable. Consult a pro to determine.	GREEN LIGHTFixing these problems will return at least some of your investment.
Major cracks in the foundation To fix major foundation cracks, the house often needs to be propped up.	Leaking or sagging roof Ask the roofer if you can plop on a new one (cheaper) or if you must strip the old (more costly).	Too few bathrooms A half bath could run $15,000 but it can increase the home’s value by 12%.
Sagging stairs One loose tread is okay, but if the entire staircase bows, you may have foundation problems. It’s a big job - see above.	A 20-year old boiler… A more modern system (which you will likely have to install within a few years), will cost thousands.	Outdated kitchen Revamping a kitchen can return 75% to 100% of your investment on resale.
Leaks or water damage A long-term leak can rot your carpet and your walls, cause mold and require extensive repairs.	Mature trees within 15 feet Roots can grow into pipes causing leaks or sewage backups.	Too-small rooms Adding an archway or moving a non-load bearing wall can open the layout at a cost of around $7,000.
Termites Mud tubes and hollow wood are signs of a serious infestation, particularly worrisome if the house has a wood frame.	High radon levels To mitigate this lung cancer risk, you must install a ventilation system.	Cracked, drafty or warped windows New, energy-efficient windows cost as little as $200 each and can make a big difference in appearance and heating bills.

Consider capacity

To squeeze into a budget, you might have to get a smaller - wait, I’m a real estate agent: cozier - house than you’d like. So forget about square footage, often a misleading number. More important is how that space is allocated. These questions will help you evaluate whether the space in a house fits you.

Does it have enough closet space? Rather than look at the number of closets, measure the length of them (for instance, six feet in the hall, two in the kids’ rooms and so on). Compare the total with that of your current home. Also, take along a hanger to make sure the closets really are deep enough for clothes.

Are there enough bedrooms? One of the most awkward moments for a real estate agent is when the husband counts the bedrooms and says “We’ll all fit,” then the wife gets a gleam in her eye. Ideally, you’ll know your family’s expansion plans before shopping. Since that’s not always possible, consider whether there’s room for surprise long-term guests, be they kids or in-laws. If you can’t afford extra bedrooms, is there an area that could be converted, like an attic or a basement?

Does the kitchen suit my needs? Think about whether there’s space for you, your family and your guests - as well as your cooking gear. (I’ve seen kitchens with cabinets too shallow for a microwave.) Don’t forget about the fridge, which can be costly to replace: A family of four needs at least 22 cubic feet.

Is there a spot to work from home? Is there room for a desk, a computer and files? Even if you don’t need an office, your next buyer might: A work space can add an average of $12,000 to resale value, according to a study done by Remodeling magazine.

Weigh the price of convenience

Cities offer great job and cultural opportunities, but they generally come with high real estate costs. To get more house for your money, you might look along the edge of a hot neighborhood or in a smaller town nearby.

But will you miss the pace? Will you end up with a longer, pricier commute than you’d prefer? Will family and friends ever visit?

To determine whether moving farther out is worth the sacrifice, look at a house in the area you like and a similar one 15 to 30 minutes away. Then consider the factors in the worksheet below.

YOUR DOLLARS WILL GO FARTHER IF YOU DO TOOUse a list like the one below to determine whether moving farther out is worth the sacrifice.
	Closer House	Farther House
Listing price
Length of commute
Gas price
Cost of commute
Cost of child care
Nearest hospital
Nearest supermarket
Nearest pharmacy
Nearest airport
Good schools?

by Alison Rogers
Thursday, August 16, 2007provided by CNNMoney

Alison Rogers is the author of “Diary of a Real Estate Rookie.”

Copyrighted, CNNMoney. All Rights Reserved.

NEW YORK (Reuters) - Countrywide Financial Corp. (CFC.N) shares sank 13 percent, their biggest one-day decline since the 1987 stock market crash, on fears the largest

U.S. mortgage lender could face bankruptcy as liquidity worsens.

“If enough financial pressure is placed on Countrywide or if the market loses confidence in its ability to function properly, then the model can break, leading to an effective insolvency,” Merrill Lynch & Co. analyst Kenneth Bruce wrote. “If liquidations occur in a weak market, then it is possible for Countrywide to go bankrupt.”Countrywide debt prices fell and the perceived risk of owning its bonds rose, suggesting less confidence that the Calabasas, California-based company can pay its bills and fund operations.This helped drag down U.S. stocks, as investors bought safe U.S. government debt to escape clouds enveloping the

U.S. mortgage industry.Bruce downgraded Countrywide to “sell” from “buy” on Wednesday. “The company can survive a period of secondary market instability; however, the steps that it would take to preserve shareholder value would be expensive, likely leading to further share price declines,” he said.Shares of Countrywide closed down $3.17 at $21.29 on the New York Stock Exchange. They have fallen 50 percent this year, and the company’s market capitalization has dropped to about $12.3 billion. Countrywide did not immediately return requests for comment on Wednesday’s share price decline.Bruce’s downgrade suggests deepening problems at Countrywide, which has in the last month tried to assure investors it would thrive once the credit crunch afflicting

U.S. mortgage lenders passed.The downgrade came a day after Countrywide said foreclosures and mortgage delinquencies rose in July to their highest levels since at least early 2002. DEBT YIELDS RISEShares of several other companies exposed to mortgages also suffered double-digit percentage declines on Wednesday, including Deerfield Triarc Capital Corp (DFR.N), KKR Financial Holdings LLC (KFN.N) and Scottish Re Group Ltd (SCT.N). The KBW Mortgage Finance Index (.MFX) fell 2.7 percent.The mortgage industry is struggling as defaults rise, investors refuse to buy many home loans, and bankers curtail lending to mortgage providers. Dozens of lenders have quit the industry this year, and several have gone bankrupt.Countrywide spokesman Rick Simon declined to discuss Bruce’s report, but said: “Management is completely focused on running the business in a changing environment.”Reuters obtained a copy of Bruce’s report.Countrywide’s 5.8 percent notes maturing in 2012 fell 1.9 cents on the dollar to 90 cents, yielding 8.37 percent, according to Trace, the Financial Industry Regulatory Authority’s bond pricing service.The perceived risk of owning Countrywide bonds rose. Credit default swaps rose about 100 basis points (1 percentage point) to 500 basis points, or $500,000 per year for five years to insure $10 million of debt, traders said.Countrywide’s unsecured 30-day commercial paper yielded 6 percent to 6.25 percent, according to Deborah Cunningham, chief investment officer for money markets at Federated Investors. DISRUPTIONSBruce said market disruptions have made it difficult for many companies to obtain even short-term financing. He pointed to

Canada’s Coventree Inc. a structured finance firm that on Monday found itself unable to sell its own short-term debt. It said it later found buyers for C$600 million (US$556 million) of the debt. The Countrywide downgrade is “a big deal,” said Blake Howells, director of research at Becker Capital Management in

Portland, Oregon. The disruptions are “an issue for Countrywide and for anyone accessing pretty reliable short-term funding.” Earlier this month, Countrywide said it had access to $186.5 billion of cash as of June 30, including $46.2 billion of “highly reliable” short-term financing. Chief Executive Angelo Mozilo on July 24 said Countrywide expected to add market share, and eventually be among perhaps five lenders to dominate the mortgage market. Countrywide added nearly 7,000 jobs from January to July. Bruce said “we like” Countrywide’s franchise, but industrywide liquidity problems could erode its value.

By Jonathan Stempel  

(Additional reporting by Karen Brettell, Doris Frankel, Chris Sanders, Neil Shah and Dan Wilchins)

WASHINGTON - Sales of existing homes fell in 41 states during the April-June quarter while home prices were down in one-third of the metropolitan areas surveyed, a real estate trade group reported Wednesday. The new figures from the National Association of Realtors underscored the severity of the current housing slump, the worst downturn in 16 years.However, Realtors officials said they saw some glimmers of hope in the data. They noted that existing home prices were up in 97 of the 149 metropolitan areas surveyed compared with the sales prices of a year ago.That represented price gains for 65 percent of the areas surveyed, an improvement from the first quarter of this year when only about 55 percent of the metropolitan areas reported price gains from the same period a year ago. In the fourth quarter of last year, less than half of the metropolitan areas reported price gains.“Although home prices are relatively flat, more metro areas are showing price gains with general improvement since bottoming-out in the fourth quarter of 2006,” said Lawrence Yun, senior economist for the Realtors.The states suffering the biggest drop in sales in the second quarter, compared to the same period a year ago, were Florida, down 41.3 percent, and

Nevada, down 37.5 percent. Other states with big declines were Arizona, down 23.4 percent; Tennessee, down 21.5 percent; Maryland, down 21.1 percent, and

California, down 19.8 percent.Bucking the downward trend, six states actually showed sales increases during the second quarter while one state had unchanged sales and there was incomplete data for two states, the Realtors reported.

Wyoming had the biggest sales increase, a rise of 10.8 percent in the second quarter of this year compared to the second quarter of 2006. Sales were up 4.1 percent in Iowa from a year ago while sales in

North Dakota rose by 2.9 percent, the third strongest gain.Nationwide, sales of existing homes totaled 5.91 million units at an annual rate in the second quarter, down 10.8 percent from the sales pace of the second quarter of 2006.The national median sales price in the second quarter was $223,800, down 1.5 percent from a median price in the spring of 2006.

“Recent mortgage disruptions will hold back sales temporarily, but the fundamental momentum clearly suggests stabilizing price trends in many local markets,” Yun said.

By MARTIN CRUTSINGER, AP Economics Writer

PARIS (AFP) -

US home loan woes caused more turmoil on world markets Friday despite the tens of billions of dollars released by central banks to stop the problem turning into a global economic crisis. London’s FTSE stock market closed a whopping 3.71 percent lower and US, European and Asian shares slumped after losses tied to

US subprime mortgages — high-risk home loans to people with poor credit histories — spread. The growing crisis caused the price of oil to fall for the third straight day as speculators rushed to bank profits on concerns that subprime fears might weaken energy demand.Central banks across the world responded by pumping tens of billions of dollars into the banking system, offering loans at lower rates to commercial banks to forestall a credit crunch that could damage economic growth.“The European financial system is facing a serious but not ‘catastrophic’ crisis,” said an analyst at

US investment bank Morgan Stanley, adding that “it may take weeks before the true depth of the credit problem is revealed.”After years of booming house prices and cheap credit — interest rates have been historically low — the

US housing market is now in reverse with loans becoming more expensive and house prices falling.This has caused high numbers of mortgage defaults and repossessions as borrowers, particularly high-risk subprime borrowers, struggle to make their repayments.Dozens of

US mortgage lenders have been put out of business and major Wall Street banks such as Bear Stearns have taken a hit.After several weeks of turmoil on world stock markets due to the subprime crisis, fears appeared to recede earlier this week.But on Thursday French banking giant BNP Paribas spooked the market when it said it had suspended three investment funds exposed to the

US housing market because it was unable to value the assets.A short time later the European Central Bank pumped a record 94.8 billion euros into the money supply — far more than it injected in the aftermath of the September 11, 2001 attacks in the

United States — and followed up with another 61.05 billion euros on Friday.The Federal Reserve for its part has pumped 38 billion dollars into the

US banking system since Thursday, intervening three times on Friday to shore up the country’s financial system.Central banks in Australia, Canada and

Japan also injected liquidity into their markets.But stock markets continued to slump across the world, with volatile US markets opening lower before rebounding and then falling back again in afternoon trade.“It’s that unnerving effect of the unknown which is spooking investors at the moment,” said analyst Henk Potts of Barclays Stockbrokers in

London.Banking stocks were among the worst hit.“Investors don’t know which banks have got exposure (to the credit problems) and the extent to those potential losses,” said Potts.But he added: “We suspect that the underlying picture is more positive than the knee-jerk reactions that we have been seeing in terms of the (stocks) sell-off for the last couple of sessions.” The International Monetary Fund agreed. The multilateral lender said Friday that the global financial market turmoil sparked by the

US mortgage sector should be “manageable” and that global economic growth would likely not be derailed. The human face of the current financial crisis is likely to be a low-earning American, possibly someone who took on a mortgage they could ill-afford and whose mortgage broker did inadequate checks on their ability to repay. The link between these people and turmoil in financial markets involves much financial wizardry that enabled banks and funds all over the world to make investments that are essentially bets on borrowers repaying their mortgages. Banks are now setting aside cash as a precaution against further losses from their bad investments and have become far more cautious about lending. This is known as a “credit squeeze,” but the fear is that this could become a veritable “credit crunch” in which companies and consumers have inadequate access to loans. A shortage of liquidity would restrict the ability of companies, and eventually consumers, to borrow, potentially slowing economic growth worldwide.by Rory Mulholland