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JANUARY 1956 b u s in e s s v ie w FEDERAL RESERVE ■ BANK OF PHILADELPHIA PROSPERITY ON THE INSTALMENT PLAN Consumer instalment and housing d e b t amount to about two-thirds o f all p riva te, non-corporate d eb t. This article deals with the prin cip al sources of such cred it, the avenues by which credit p o licy may affect the supply o f funds a va ila ble to le n d e rs, and whether consum er d eb t has becom e too large. CURRENT TRENDS The housing m arket is increasingly selective and builders are p ro ce e d in g more cautiously. Auto d e a lers are fa cin g more intensive com petition in new cars but the used car m arket rem ains strong. Additional copies of this issue are available upon request to the Department of Research, Federal Reserve Bank of Philadelphia, Philadelphia 1, Pa. PROSPERITY ON THE Production, employment, and income have been INSTALMENT PLAN moving ahead at a rapid pace. A good part of the steam behind this upward surge has been supplied by consumers. In addition to spending the bulk of our current income, we have been dipping into our future income in a big way. The essence of credit is that it enables us to spend now some of the income we hope to get later. Consumer instalment and housing debt has Business in the coming year will be influenced a great deal by what consumers soared to an all-time record. In the first nine months of last year, instalment credit, mainly on do, particularly in their spending for durables and housing. In the past year they consumer durables, rose 19 per cent, while that on 1- to 4^family homes rose about 13 per cent. have drawn heavily on tomorrow’s income to meet today’s expenditures. Since the end of 1945, consumer instalment and Here we take a look at: (a) the general billion to over $112 billion. It is not surprising housing credit combined have soared from $21 instalment credit picture— housing and that this tremendous rise in consumer indebted consumer, and (b ) the results of a recent ness has caused considerable comment and some concern. survey of the housing and automobile markets in this District. Significant questions in attempting to appraise the instalment credit situation are: Why the sharp rise in consumer and housing credit? What are. the principal sources of instalment credit? 3 business re v ie w Does credit policy affect the supply of con and the rise in personal income after taxes. In sumer and mortgage funds? 1945, there were less than 15 million families Has the debt burden of consumers become too with an annual income of $3,000 and over; to large? day there are 35 million. Another significant force translating con CONSUMER INVESTMENT IN PERSPECTIVE sumer desire for high cost durable goods into First, let us get this segment of our economy in actual purchases has been the more widespread perspective. Consumer investment— expenditures for consumer durable goods and new residential strides have been made in the past two decades use of buying on the instalment plan. Great construction— accounted for about 12 per cent in financing purchases of homes and major con of the total output of goods and services in 1954. sumer durables. In the first three quarters of last year, consumer desiring to buy a home might be able to borrow investment was taking a little more— about 14 up to one-half or possibly two-thirds of the ap per cent of the total. praised value. The single-payment loan maturing Prior to that time, a person From the standpoint of credit, however, the in a short period— e.g., three to five years— was consumer durable and housing segments are con typical. This method of home financing was not siderably more important. At the end of 1954, well adapted either to the borrower or the lender. consumer instalment and mortgage debt on 1- The borrower was not forced into saving regu to 4-family homes accounted for nearly two- larly some of his income to pay off the debt. Yet thirds of total private, noncorporate debt out the amount was usually more than he could standing, and for about two-thirds of the increase repay at maturity; and if times were bad the in such debt during the year. lender might refuse to renew it. As for the lender, the loan was not liquid and did not gen WHY THE SHARP RISE IN CONSUMER AND HOUSING CREDIT? erate a regular inflow of cash payments. Thus The tremendous rise in consumer and housing amount of their available funds into loans for lenders were unwilling to put a substantial debt during the postwar period has been gener the purchase of homes. The use of credit to buy ated by an unusually large volume of sales of consumer goods was generally frowned upon homes, automobiles, and other consumer dur both by lenders and consumers. ables. About 10 million new homes have been The single-payment loan has become obsolete constructed and over 50 million automobiles in consumer financing. It has been displaced by have been produced since 1945; and transac the amortized loan with principal and interest tions in existing homes and used cars have been repayable in regular instalments over a specified at high levels. This vast demand for housing, period. Instalment credit, in effect, enables con automobiles, and other durables reflects, in part, sumers to spend tomorrow’s income today. such well-known factors as the large backlog of The amortized loan, together with a gradual demand which accumulated during the depres reduction in down payments and lengthening of sion and war periods; the high level of new maturities, laid the foundation for the large household formation resulting from population growth of consumer and residential mortgage growth, a high marriage rate, undoubling, etc.; credit. Amortization, along with FHA and VA 4 b usin ess re v ie w insurance and guarantees of home loans, made instalment loans more suitable to lenders and enlarged the supply of lendable funds. NONFARM HOME MORTGAGES (1- TO 4FAMILY) BY MAJOR HOLDERS (P ercen tag e d istrib u tio n ) And terms better adapted to the needs of borrowers L ife S a vin g s ins. & loan cos. assoc. :nd o f C o m m l. S a v in g s brought many new buyers into the market for year banks banks homes, automobiles, and other consumer durable 1 9 4 1 ..................... 14.7 1 2. 0 10.9 2 3 .3 39.1 1 9 4 7 .................... 22.3 8. 2 1 2. 4 30.1 27.0 1 9 5 0 ..................... 21.1 9.5 1 8. 6 29.1 21.7 1 9 5 1 ..................... 19.8 10.2 20.8 28.8 20.4 19.9 goods. PRINCIPAL SOURCES OF INSTALMENT CREDIT A ll o th e rs 1 9 5 2 ..................... 19.1 1 0. 6 20.4 30.0 1 9 5 3 ..................... 18.1 1 1.2 20.4 31.4 18.9 1 9 5 4 ..................... 17.5 1 1.9 20.3 32.9 17.4 1955 17.2 12.2 19.7 34.3 16.6 (S e p t.) Two phases of the sources of instalment credit need to be distinguished— the institutions doing changed considerably since prewar. Savings and the lending and where they get their funds. loan associations, life insurance companies, and. Lending Institutions to a lesser extent, commercial banks are supply ing a larger proportion of home mortgage funds Instalment credit for the purchase of automobiles than before the war. and other consumer durables is supplied mainly mainly individuals, has become much less im by commercial banks and sales finance com portant. panies. position of savings banks. Commercial banks have become the largest supplier of consumer instalment credit. They now hold about 38 per cent of the total The “ all other” group, There has been little change in the Mortgage and real estate companies have be come of increasing importance in closing home outstanding as compared to 26 per cent at the loans. In recent years, they have originated one- end of 1940. third or more of all FHA and VA loans for the Sales finance companies are the next largest source with 33 per cent of the total purchase of homes. as compared to 29 per cent at the end of 1940. only a temporary source of funds. They sell the But these companies are Long-term mortgage credit for the purchase bulk of their home loans to institutional lenders. of homes is supplied mainly by commercial The principal buyers of home loans originated banks, savings and loan associations, life in by others have been life insurance companies, surance companies, and mutual savings banks. mutual savings banks, and the Federal National The following table shows the percentage distri Mortgage Association. bution among lenders of mortgages on 1- to 4family nonfarm homes. Sources of lendable funds Savings and loan associations have been the Three of the principal mortgage lenders— life largest supplier of home mortgage funds in the insurance companies, mutual savings banks, and postwar period, and accounted for about one- savings and loan associations— derive the bulk third of the total outstanding at the end of Sep of their funds from the public. As financial in tember, 1955. These institutions, together with termediaries, they mobilize the savings of mil life insurance companies and commercial banks, lions of people, and via loans and investments, held over two-thirds of the total. put them at the disposal of borrowers. The importance of the various lenders has Sales finance companies— a major supplier of 5 business re v ie w consumer instalment credit— derive their funds insurance companies, mutual savings banks, and mainly from capital paid in by stockholders, re savings and loan associations is not sufficient for payments on outstanding loans, and borrowing. them to meet their customers’ demands for mort They borrow directly from commercial banks gages and other forms of credit. In general, this and sell short-term paper and securities in the has been the case since 1952— the net inflow of market. A large part of the short-term paper is savings falling short of the increase in their in turn purchased by commercial hanks. It has holdings of mortgages and non-Government se been estimated that about three-fifths of sales curities. finance company funds is borrowed directly and To obtain additional funds for mortgages and business securities, some of these institutions indirectly from commercial banks. Commercial banks, the other major supplier sometimes sell Governments. This has been a of mortgage and instalment credit, are unique. significant source in the postwar period, reflect To be sure, most of them have savings deposits. ing in part portfolio readjustments to restore But they are the only institutions that can hold better balance between holdings of Governments demand deposits or checking accounts. When a and other types of investments. customer borrows from a commercial bank, the savings institutions acquire mortgages or other To the extent banker doesn’t hand him cash over the counter securities by selling Governments, there is only — he credits the borrower’s deposit account. a shift in assets, not an increase in the total. Spendable funds have been put at the disposal A second method of expanding capacity to of the borrower without any corresponding re take up new mortgage or other commitments is duction in funds available to others. The bank, the disposal of mortgages already held. in making the loan, created a new deposit, Federal National Mortgage Association was or thereby increasing the total money supply avail ganized in 1948 to provide a better secondary able to the public. market for FHA and YA home loans. Although The Thus, commercial banks differ from other the policies of “ Fanny May” have varied over lenders in two important respects. They put new the years, it has acquired an increasing amount deposits at the disposal of borrowers while sav of FHA and VA mortgages, its holdings having ings institutions transfer funds from saver to risen from about $200 million at the end of 1948 borrower. to $2.6 billion in October 1955. Commercial banks are required by law to maintain a certain minimum percentage Recently, the so-called “ warehousing” of res reserve back of their deposits. The capacity of idential mortgages with commercial banks has commercial banks to make loans and investments attracted widespread attention. is limited by the supply of reserves available to rangement, savings institutions either sell some them. More reserves for a reduction in the per of their mortgages to commercial banks under centage required) expand lending capacity; less an agreement to buy them back within a speci reserves (or an increase in the percentage re fied period or borrow directly from commercial quirements) contract it. The lending capacity of banks putting the mortgages up as collateral for savings institutions, however, is limited by their the loan. Life insurance companies in particular net inflow of new funds. Sometimes the net flow of savings into life 6 Under this ar have been selling mortgages to commercial banks under a repurchase agreement. Mortgage com b usin ess rev ie w panies, savings banks, and savings and loan And interest rates on consumer loans tend to be associations, on the other hand, usually borrow sticky. Monetary actions, however, do affect the from commercial banks pledging the mortgages supply of lendable funds. A restrictive policy, as collateral. A survey conducted by the Federal for Reserve System, as of November 1955, revealed squeezes the lending capacity of commercial example, tightens reserve positions and that weekly reporting member banks had $1.6 banks. Although banks ration the more limited billion of credit outstanding to real estate mort supply among borrowers as they see fit, it is gage lenders. Unused commitments outstanding unlikely that the supply of consumer credit will at the same time totaled $1.2 billion. be unaffected. They are likely to screen their Savings and loan associations have turned to own consumer loan applications more carefully the Federal Home Loan Banks for additional and hold a tight rein on credit lines to sales funds. Home Loan Bank advances to member finance companies and other consumer lenders. institutions have risen steadily in the postwar If sales finance companies turn to the market for period. In the first 11 months of this year net a larger part of their funds, the cost increases advances of the Home Loan Banks rose about as market rates rise. $500 million— an increase of nearly 60 per cent. Sales finance companies have increased their borrowing both from banks and in the market. Mortgage Credit There are several avenues through which mone Bank loans to sales finance companies, as re tary actions affect the supply of funds available ported by a sample of large banks, increased for home loans. about $500 million in the first 10 months of last mercial banks directly. Other mortgage lenders year. Outstanding short-term paper Credit restraint affects com placed find it more difficult to supplement their inflow directly with buying institutions was up about of savings by selling Government securities, $600 million. warehousing mortgages with commercial banks, MONETARY POLICY AND INSTALMENT CREDIT or selling mortgages in the secondary market. When credit is tight, prices of Government securities decline. Lenders become more reluc Monetary policy— actions of the Federal Reserve tant to sell Governments, possibly at a loss, to to make credit more or less readily available— shift into mortgages and other securities. In 1954 operates through influencing the cost and avail when money was plentiful and bond prices able supply of lendable funds. What about the strong, life insurance companies and mutual effect of such actions on consumer and mortgage savings banks liquidated a substantial amount credit? of Governments. But in 1955 such liquidation dried up as Government securities prices de Consumer Credit clined. As their reserve positions tighten, com A view that seems to be rather widely held is mercial banks become increasingly reluctant to that monetary actions have little or no effect on make direct loans to other mortgage lenders or consumer instalment credit. to warehouse their mortgages. Moderate changes The prices of in the cost of credit are unlikely to have much mortgages also decline in the secondary market effect on the willingness of consumers to borrow. (continued on page 10) 7 IN S T A L M E N T ■ 1 C o n s u m e r in s t a lm e n t and home m ortgage d eb t soar. CONSUMER DEBT HOM E M O RTGAGE DEBT 6 6 Lull 1941 1947 1950 1952 1954 1951 1955 INSTALMENT — N ew home loans began to rise rap id ly in m id-1954. 1952 ♦ estimated B IL L IO N S 4 C o n su m e r in- )60 s ta lm e n t an d home m ortgage debt account for the bulk of , ao private noncor porate d eb t. AND $ □ n A LL ■ HOME M O R TG A G E 1947 O TH ER 1950 D EBT ( I l : 1952 ♦ T O T A L N O N CO RPO RATE D E B T E S T IM A T E D , | | HOME j C O M M E R C IA L B A N K S ' | L IF E IN S U R A N C E CO'S j | j A LL O TH ERS | S A V IN G S BAN KS S a v i n g s and lo a n a s s o c ia tions are the larg est holders of home m ort gages. 7 1941 MORTGAGE 1947 1950 The percentage o f n ew c a r s bought "on the cu ff" continues to rise. 30 1947 1952 1949 ♦ e s t im a t e d B IL L IO N S $ (S E A S O N A L L Y A D JU S T E D } C o n s u m e r in stalm ent cre d it e x t e n d e d m o u n t e d in 1955 but r e p a y m e n t s lagg ed. DEBT \ I Iw J— I— J— — HaJ h » ■ H UC.IN I N O T E : H om e m ortg ag e d e b t refers only to nonfarm I- to 4-fam ily homes. 8 O v e r 4 0 % of home m o r t gages are b e ing u nd erw rit ten by the G o v ernm ent. Repaym ents on consum erinstalment and home m ortgage debt are taking an increasing per centage o f per so n a l in c o m e a fte r taxes. [mill b usiness re v ie w as the supply of mortgage funds becomes scarcer. Personal debt too high? The ability of savings and loan associations One measure frequently cited, especially for con to borrow from the Home Loan Banks is not sumer debt, is the amount outstanding relative directly affected by Federal Reserve actions. In to income. Both consumer and home mortgage September, however, the Home Loan Bank Board debt should be included, however. tightened up on advances to member associa claims against personal income. Both are tions, although later there was some relaxation. In the third quarter of 1955, consumer and Such coordinated action contributes to the ef housing debt outstanding was about 44 per cent fectiveness of monetary policy on the supply of of the annual rate of personal disposable income. mortgage credit. The percentage of debt to income was 32 in The full impact of credit restraint on the 1950, and 30 in 1941. This comparison indicates supply of mortgage funds may not be felt for that consumers’ total instalment debt burden is several months. The psychological reactions of considerably larger than prewar. lenders may be rather prompt. Faced with more It has been said that “ The only thing that uncertainty as to the availability of funds, they doesn’t become smaller when it is contracted is may be more cautious about making new com debt.” Payments relative to disposable income mitments. But it takes time for tight credit to are a better indication of ability to carry instal dry up the secondary sources of funds available ment debt than outstanding debt relative to in to savings institutions. come. In the third quarter of this year consumer Even more important, large lenders customarily make commitments for instalment and home mortgage debt payments financing new homes several months in advance combined took about 18 per cent of personal of actual construction. The full impact on con struction is delayed until outstanding commit ments are taken up. PERSONAL DEBT TOO HIGH; EXPANDING TOO RAPIDLY? The high levels and rapid rates of expansion in consumer instalment and home mortgage debt have aroused considerable comment recently. Some express concern over the rapid rise and the huge amounts of such debt outstanding. income after taxes, as compared to 15 per cent in 1952, 13 per cent in 1950, and 13.6 per cent in 1940. This measure also indicates a some what heavier burden than prewar. Such historical comparisons are not very sig nificant, however. There is no way of knowing whether outstanding debt or repayments in some previous period were in proper relation to dis posable income. Then, too, habits and conditions change over time. Debt is a claim on the income Others think there is nothing to be concerned of borrowers only. An all-important question is about. how many people owe the debt. They point out that personal debt in Payments on relation to income and saving is not far out of instalment debt or the home mortgage may in line with prewar; that the sharp rise is natural part be substitutes for other expenses— e.g., pay in view of the growth in population, income, and ments on the mortgage instead of rent, payments productivity; and that with higher incomes, con on home appliances instead of wages to domestic sumers have a larger margin over the amount servants, and payments on the TV set instead of required for necessities. the price of admission to the movies. 10 b usin ess re v ie w The fact that the delinquency rate is low and us into trouble. that collections are holding up well is also cited duced “ to get into debt over their heads.” Some borrowers may be in as evidence that personal debt is not too large. consumers who may be encouraged to borrow To One may well be skeptical, however, as to the and buy more than they can pay for, the widely value of this indicator at a time like this. Cer advertised “ easy payment plans” may appear to tainly debt payments should hold up when per be a careless use of adjectives. Small or no down sonal income is at an all-time peak. Inventories payments mean that the buyer of a home,, an seldom seem unduly large so long as sales vol automobile, or a household appliance has little ume is high, but let sales drop and even a mod at stake. And with little or no equity, he has erate inventory begins to look pretty big. Like little incentive to hold on to his property if and wise, consumer debt and mortgage debt are when his payments become difficult to meet. unlikely to seem unduly burdensome so long as Unduly liberal credit terms are also hazard employment is good and incomes are rising. But ous to the lender. It has been estimated that the how would the same volume of personal debt buyer of a new car under a one-fourth down, 36 appear should a recession drag employment and months-to-pay contract, has little or no equity incomes down to considerably lower levels? during the first year. In the case of a new home sold for nothing down and 30 years to pay, the Terms too liberal; expansion too rapid? buyer has no real equity for about nine years. There is no simple yes or no answer to the ques If borrowers have little or no equity, lenders tion of whether consumer debt is too high. But have little or no margin of security. A principle there are sound reasons for concern over recent consumer and home mortgage debt develop long accepted by lenders is that the borrower ments. One development which should cause us pledged as security for his loan. This principle should have a reasonable equity in the property to pause and think is the extremely liberal terms is still sound. on which a part of this credit has been extended. should be short enough so that the monthly pay Adequate statistics are not available to accu ments protect the initial equity; otherwise the And the maturity of the loan rately measure changes in credit terms, but there lender may incur a loss if he must repossess the seems to be little doubt that over the last year or property. so down payments have been reduced and matu rities lengthened. Dealers burdened with large Another serious implication of the recent trend toward quite liberal credit terms is the effect on quotas of new automobiles to sell have been future markets. pressing financing institutions for lower down longer maturities bring new buyers into the payments and longer periods for repayment, as market. But this is a one-shot stimulus. Once indicated in the next article. Until August 1 of spent, there is no further stimulating effect un 1955 one could buy a new home with nothing less credit terms are eased again. And lengthened down and thirty years to pay. In fact, if one maturities, by locking in a part of the buyer’s looks through the advertisements it almost seems income for an extended period, may take him that builders and merchants are selling credit out of the market for a long time. terms instead of homes and merchandise. Excessively liberal credit terms may well get Lower down payments and Credit terms have been eased when home construction and the production of automobiles 11 b usin ess re v ie w were already at record levels. If storm clouds be sustained for long. It has been estimated that should appear on the business horizon, lenders if real disposable income should increase at a may increase down payment requirements and rate of 4 per cent annually and consumer instal shorten maturities. More liberal credit terms ment credit at 19 per cent ( the average rate of in good times and less liberal in recessions increase during the past three and one-half would aggravate fluctuations in durable goods years I, repayments on consumer instalment debt production and employment rather than alleviate alone would take about 37 per cent of disposable them. The practice of warehousing mortgages with income by 1965. When the late Will Rogers was asked what causes depressions, he thought for a commercial banks expands the lending capacity moment and replied, “ Well, we have to stop once of nonbank lenders in boom times. If, as is in a while and pay up.” The chances of avoiding likely, the mortgages are repurchased or the a business slump will be improved if instalment loans repaid when business slows down, a part and home mortgage credit do not expand at a of the inflow of savings will be absorbed in pay faster rate than can be sustained. ing off old debt instead of going into loans which would expand the demand for current output. CONCLUSIONS This, too, may well aggravate fluctuations in The instalment or amortized loan to consumers new-home construction. and home buyers has rightly earned an impor Another pertinent question is whether the rapid rate of expansion in instalment and hous ing credit can be sustained. Rising employment and incomes, optimism over business prospects, and easing of credit terms have all combined to expand instalment and housing credit at an un precedented rate. The result: an unprecedented amount of future income is being diverted into tant place in our economy. Improved methods of financing have enabled many people to own homes, automobiles, refrigerators, washing ma chines, TV sets, etc., who would otherwise not have them. But credit like any other good thing can be abused as well as used. Instalment credit buy But ing has posed the problem of too much some credit purchases of durables and homes go in times; too little at others. Monetary actions, by spurts. What if expansion slows down, or there tightening and easing the supply of lendable is even funds, can help smooth out these fluctuations. the purchase of automobiles and homes. a decline? With new loans made would Lenders, too, can be helpful by keeping credit siphon off a part of current income, thus tending terms on a sound basis— particularly at a time to reduce demand for homes and automobiles. when consumer ability to pay is at an all-time below repayments, outstanding debt It hardly seems likely that the recent rate of expansion in instalment and housing credit can 12 peak. Prosperity on the instalment plan is all right, but let’s not have prosperity in instalments. b u sin ess re v ie w CURRENT TRENDS . . . in housing and cars With the preceding article as general back much more pronounced in houses than in du ground, current trends in the market for housing plexes or converted apartments. The large apart and cars come into sharper focus. The follow ment houses are said to be fully occupied, and ing is a report on what we have learned from in some cases waiting lists are almost as long as recent interviews with men active in both mar they ever were. With a wider choice of houses kets in Philadelphia and other centers of the for rent it is not surprising that more people are Third District. inclined to delay buying a house until they find a bargain in an old one or see just what they DEVELOPMENTS IN HOUSING want in a new operation. Inquiries made of realtors, lenders, and builders the Third Federal Reserve District have become . . . and there are more old houses for sale indicate that housing markets in major cities of increasingly selective in recent weeks. Opinions The number of old houses for sale also has in ranged all the way from “ considerably weaker” to “ continuing quite strong.” No one seemed creased, with a consequent weakening of this market in a majority of Third District cities. downright pessimistic concerning either the cur Owners of these properties seem to be unaware rent situation or the outlook for 1956, but ex of declining values, so in holding out for unreal pressions of unqualified optimism were seldom istically high asking prices they are delaying heard. These interviews uncovered more spotty situations than have been encountered for a long sales. The larger houses are said to be espe cially slow moving, although buyers also are time. Perhaps the most characteristic comments harder to find for some row houses in the older were to the effect that much of the urgency was neighborhoods where zoning regulations have gone from the attitude of prospective home buy been downgraded. According to realtors, there ers and that demand had weakened more for are many more desirable properties on today’s existing dwellings than for newly constructed market to compete with newly constructed houses ones. in the medium and low price ranges. This is a comparatively recent development. Last spring Rental vacancies have increased and over much of the summer the market for Realtors told us that rental lists have lengthened these in some of the larger cities like Philadelphia, strength. “ better” dwellings showed remarkable Harrisburg, and Trenton. Although the vacancy situation appears to be far from acute anywhere, Demand for new houses has turned spotty nearly all areas report the existence of “ more Reports from some areas indicate a significant elbow room.” accumulation of unsold newly built houses, while The uptrend in vacancies seems 13 b usin ess r e v ie w elsewhere operations seem to sell out almost as mortgage market frequently delays sales and fast as they are completed. It is a very spotty sometimes discourages them altogether. situation. In suburban areas around Philadel phia, for example, we were told of operations Builders are proceeding more cautiously remaining on builders’ hands only long enough Third District builders operating in all price to make the finishing touches, while others in ranges tell us they have been watching the hous the same general locality were described as “ un- ing market closely and that what they have seen explainably sticky.” Similar conditions appeared to exist near Harrisburg. In the Trenton area of has not been altogether reassuring. Some have shifted their maximum efforts into lower price New Jersey builders spoke of the probability of ranges— houses selling for less than $15,000. carrying over a substantial number of houses Others have continued building in the higher into the spring market. In the vicinity of Read brackets, but at a somewhat slower rate than ing, where operations have maintained a steady formerly. All builders seem to be more keenly but rather conservative pace all year, new houses aware of the increasingly competitive market in were selling about as promptly as ever. Demand which they must operate. also was said to remain active for the season in been some slackening in the rate of completions Not only has there places like Wilmington, New Castle, and Newark on houses begun earlier, but in many cases in Delaware, where there has been considerable builders are making fewer starts than originally industrial expansion and a continuing influx of planned. workers. Dover is another Delaware city where months of 1956 also are being revised down the market has held up, largely because of the ward, some much more than others. Builders tell housing needs of airforce personnel. us they still are acquiring some new land, but Financing difficulties are contributing to slower sales Programs developing for the early these ventures are on a smaller scale consistent with today’s more selective housing market. As almost everyone knows, the supply of mort THE DEMAND FOR CARS gage money has grown progressively tighter Last year the automobile industry went over the since last spring. And it seems to be harder to top. obtain adequate coverage on an old house than took a lot of steel, rubber, glass and other mate The production of almost 8 million cars on a new one, chiefly because appraisals are in rials. Automobile sales also went over the top. creasingly conservative. This situation appears The sale of almost 7^2 million cars took a lot of to be district-wide and not necessarily dependent credit. Automobile paper accounted for most of on the number of old houses on the market in a the $5 billion increase in instalment paper. given community. Even on new construction, financing is neither as readily available nor as New car sales are holding up attractive to a prospective purchaser as a few Sales of new cars are running near year-ago months ago. Interest rates generally are higher levels but more aggressive selling techniques are on conventional mortgages and larger down pay required to keep them there. ments with shorter maturities prevail on all same number of cars,” said one of the dealers, types of financing. At the very least, this tighter “ but I have to give away most of my profit to 14 “ I’m selling the b usin ess re v ie w do it.” Some dealers reported that public ac ceptance of 1956 models was not quite as good most dealers dispose of them without excessive wholesaling. as the 1955’s; others reported that the market is Terms of sale for used cars depend upon the still saturated from last summer’s efforts to move age of the car. For more recent models (for in the 1955 cars. The larger the city the more in stance 1955-54), the most common tense the competition seems to be. months; only a few go as high as 36 months. was 24 With regard to inventories of new cars there For older models, maturities usually run 12 to are conflicting reports. It all depends on what 18 months, but many dealers refuse to finance dealer you are talking to. Less than a sixth of anything older than a 1950 car. In such cases the dealers we talked to reported heavy inven personal loans from banks or small loan com tories; forty-five per cent said their inventories panies had to be negotiated by the customer. were light and the others, about 40 per cent, Down payment of one-third of the asking price said their inventories were balanced or normal is required on used cars by practically all deal for this time of the year. ers. Rarely will the dealer go as low as one- How fast new cars sell depends largely upon quarter. Another important competitive element the terms offered. It is always thus. Most deal in the used car market is the price tag. The price ers say that they require as a down payment a structure of 1954 and 1955 models appears to third or at least a fourth of the list price. How be rather weak. ever, there is always a temptation to knock off a softening was noted about twice as often as firm little more in order to close a deal. Maturities run up to 36 months. Most dealers ness. This is ascribed to competition from at say they dislike long-term financing because they feel that it extends the time when the buyer will again be in the market. Although a dealer may prefer shorter maturities, there is little he can do if his competitors go the limit. On the basis of our survey, tractive deals on new ’56 cars. Many people who would normally buy a late model used car have been attracted to new cars. Prices of older models appear to be holding steady as a result of brisk demand. Very few cases of downward price trends were found for 1953 cars or models The used car market shows strength Most of the dealers report that the demand for of earlier vintage. In summary, our survey of automobile dealers used cars is good, better in fact than the demand revealed continued optimism, intensive compe for new cars. In late December when we made tition, and a disposition to offer the most favor the survey the demand for used cars was slightly able terms possible to prospective buyers. To stronger than in the corresponding period a year the dealer under constant pressure of overhead earlier. Dealers are fortunate to have a good costs and the need for fast turnover any potential market for used cars because inventories are buyer with a steady job looks like a good pros heavy. This is a natural consequence of the huge pect. volume of new car sales last year. many lenders frown upon any further easing of Used cars have an average lay-over of 15 to 20 days and However, funds are getting tighter and down payments and maturities. 15 F O R THE R E C O R D . . . B IL LIO N S i M E M B E R BAN KS 3RD E R .D , D E P O S IT S B A N K IN G ■'Vvw A/ \ ,y . t C H EC K PAYM EN TS C20 c i t i e s } IN V E S T M E N T S 3 ______________ ________ , --------------- — — .— — LO ANS 2 2 YEARS AGO YEAR AGO F a c to ry * T h ird F e d e ra l R e serve D istrict U n ite d States P er c e n t c h a n g e P er c e n t c h a n g e SUMM ARY N ovem ber 1 9 5 5 from mo. ago year ago 11 mos. 1955 from year ago N ovem ber 1 9 5 5 from mo. ago year ago EM PLO YM EN T A N D IN C O M E F a c to ry e m p lo ym e n t ( T o t a l ) . . . T R A D E ** D e p a rtm e n t s to re s a le s ............. B A N K IN G ( A l l m e m b er b a n ks) D e p o s its ............................................ L o a n s .................................................. In ve stm e n ts...................................... U.S . G o v t, s e c u r itie s ............... O t h e r .............................................. C h e c k p a y m e n ts ............................ + 7 + 10 + 7 + 3 + 13 + 12 0 -2 -1 + 13 + 6 + 16 + 11 + 22 + 18 0 0 + 2 + 10 + 1 6 + 1 + + + + + 7 0 9 9 + 8 + P er ce n t P er ce n t change change N ovem ber N ovem ber 1 9 5 5 from 1 9 5 5 from A lle n to w n . . F T a rris b u rg . . 0 +1 0 + 3 + 17 + 13 -1 3 3 4 -1 3 0 -1 3 + 9t + 7t + 1 + 3 -2 -3 -1 -1 ot 0 0 + 1 + 18 -1 1 -1 4 + 2 + 10 year ago mo. ago year ago Per c e n t Per c e n t P er c e n t change change change N ovem ber N ovem ber N ovem ber 1 9 5 5 from 1 9 5 5 from 1 9 5 5 fro m mo. ago year ago mo. ago year ago mo. ago year ago 9 0 + 26 -1 +12 + 12 + 2 + 34 -1 + + 9 -1 + 13 9 + 2 + 11 + 2 + 2 + 18 + 2 9 + 5 + 1 + 5 + 5 + 21 2 + 3 + 11 + 8 + 6 0 + 3 -3 + 4 + 8 - 1 + 19 + 12 - 4 +2 - 2 -7 + 5 + 1 + 5 + 2 + 8 + 26 + 5 + 2 + 9 +6 + 5 W ilm in g t o n . . + 6 + 1 2 + 13 + 2 4 + 3 4 + 17 +9 +15 -7 + 16 Y o r k ................ -1 + 0 + 1 2 + 17 + 2 7 +1 + 13 + 4 +13 + 8 + 2 + 17 + 42 + 1 0 P h ila d e lp h ia . -1 0 - 1 - 1 + 5 + 32 + R e a d in g . . . . +1 + 6 + 0 + 0 W ilk e s - B a r r e 0 + 7 3 7 S c ra n to n . . . . 0 + 2 -2 -3 -1 Of Stocks S ales CH AN G ES L a n c a s te r. . . L2 -F2 P a yro lls LO C A L 11 mos. 1955 from year ago 0 + 7 + 4 6 D e p a rtm e n t S to re C heck Paym ents E m p lo y ment mo. ago O UTPUT M a n u fa c tu rin g p r o d u c tio n . . . C o n s tru c tio n c o n tr a c ts * ............. C o a l m in in g .................................... NOV 1955 + 4 + 13 0 2 + 8 + 8 7 PRICES C o n s u m e r......................................... ot ‘ Based on 3 -m o nth m o ving a v e ra g e s . “ A d ju s te d f o r se a so n a l v a r ia tio n . 16 - 1t t 2 0 C itie s ^ P h ila d e lp h ia + 1 0 0 0 3 ‘ N o t restrictesd to c o rp o a te I mits o f citie >s b u t co ve rs a re as ol o n e o m o re c o u n tie s .
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