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For immediate release: March 9, 2011

Dallas Fed: Texas Housing Market on Bumpy Road After Homebuyer Tax Credit Expiration
Report also features Banco de México Governor Agustín Carstens interview, articles on health of banking industry, new Dallas Fed survey

DALLAS—The latest issue of the Federal Reserve Bank of Dallas’ Southwest Economy features articles on the Texas housing market, Banco de México Governor Agustín Carstens, banking industry profits and the Dallas Fed’s new Texas Service Sector Outlook Survey.

Recent homebuyer tax credits likely induced a modest share of Texas home sales that would not have otherwise occurred, according to an analysis by business economist D’Ann Petersen and research assistant Adam Swadley in “Texas Housing on Bumpy Road After Stimulus Effects Fade.”

A larger proportion of transactions, however, involved buyers already planning to purchase homes who moved ahead to take advantage of the credits, the authors say.

The negative effects of the shifted demand on current Texas home sales and construction will trail off between now and the end of 2011, the authors estimate. This is consistent with the views of housing-sector contacts in the Federal Reserve Bank of Dallas' Beige Book, who expect to see market improvement in the latter half of 2011 or early 2012.

 “With a strong state job growth forecast of 3 percent in 2011, Texas housing is poised to perform better than the national average, even if the market lacks the vigor seen in past recoveries,” Petersen and Swadley write.

In an “On the Record” conversation, Banco de México’s Governor Agustín Carstens says Mexico’s economy will likely grow soundly in 2011, and officials’ biggest monetary policy challenge is how to deal with noncore inflation in Mexico, including agriculture and gasoline prices.

“Right now, the main challenge we face is the current sharp increase in commodity prices: Is it a one-time relative price change, or is it something that has a dynamic component that will feed into core inflation?” Carstens says.

Carstens explains Mexico’s resiliency following the recent recession, noting the importance of 1990s reforms that moved Mexico to a floating exchange rate and gave the central bank autonomy. Carstens also points to Banco de México’s single policy mandate of pursuing price stability.

“Compared to other countries, we do not have a mandate of pursuing growth, which I would say, for the most part, is a relief,” he says.

 In “Bank Profits Rebound as Loss Set-Asides Ease,” financial industry analyst Kelly Klemme and research officer Ken Robinson say recent data suggest that the banking industry, with improved profitability and fewer problem assets, is in the early stages of recovery from the financial crisis.

Concerns still linger about the sustainability of profits because the recent improvement can be attributed almost entirely to a reduction in what banks set aside to cover future loan losses, known as provision expense, the authors note. But, historically, banks maintain profits initially driven by the set-aside boost.

“Put in historical context, the recent rebound in profitability that has been driven almost entirely by a drop in provision expense is both welcome and expected,” Klemme and Robinson write. “As the economic recovery advances and asset quality improves, the upturn in profitability should continue.”

The Dallas Fed’s new Texas Service Sector Outlook Survey provides a timely assessment of the state’s service sector, which accounts for 59 percent of private-sector output and employs close to 7 million workers in Texas, according to this issue’s “Spotlight.”

The monthly survey, which includes 230 participating firms, provides crucial early clues about the direction of economic activity, including private service employment, retail sales and retail employment, according to the report.


Media contact:
James Hoard
Phone: (214) 922-5307