Full text of District Highlights : June 1985

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DALLAS
Federal Reserve Bank of Dallas

June 1985

Texas S&Ls Expand and Diversify Lending in Current Recovery
Since the economic recovery began,
Texas savings and loan associations
(S&Ls) have expanded and diversified
lending activity. The 1983 housing
boom produced rapid growth in lending
in the traditional S&L market, residen­
tial mortgage lending, at S&Ls in both
Texas and the nation as a whole. Texas
S&Ls, however, also diversified their
lending by increasing their presence in
nontraditional markets, such as
nonresidential mortgages and con­
sumer and commercial loans. The in­
crease in lending in these areas offset
the decrease in residential lending ac­
companying the 1984 downturn in
home building and helped S&Ls main­
tain asset and income growth.

Expansion into Nontraditional Areas

Housing Cycle Affected Lending

After a spectacular performance in
the early 1980s, residential conduc­
tion—measured by the number of
housing permits issued—suffered a
major slowdown in Texas during 1984.
The large decreases in net migration to
Texas during both 1983 and 1984,
following the migration boom of 1982,
were primary forces leading to the
slowdown. Because of the negative ef­
fects of slowing population growth,
stimulative factors in 1985, such as
falling interest rates, are unlikely to
boost residential construction above
its 1984 level.

Texas S&Ls financed much of the
state’s housing boom that began in
1982. S&Ls make mortgage loans to
finance both the purchase and the con­
struction of residences. During 1983,
residential construction spending rose
$3.2 billion, and S&Ls increased their
residential construction lending $3.7
billion while loans for purchasing
homes grew $2.3 billion. Growing
business credit demands in 1984,
however, pushed up interest rates,
which led to a decline in the housing
industry. Both home construction
spending and residential mortgage
lending fell $1.6 billion in 1984. The
decline in lending was primarily in
apartment and condominium construc­
tion financing that followed over­
building in some Texas markets.

Texas S&Ls have also utilized ex­
panded asset powers to increase both
nonresidential mortgage lending and
nonmortgage lending, including com­
mercial and consumer lending (Table
1). Lending to finance retail shopping
establishments and other nonresiden­
tial projects rose $4.3 billion in the last
two years, and nonmortgage lending
increased $2.4 billion in 1983 and $1.9
billion in 1984. In 1984 the increases in
nontraditional lending more than off­
set the decrease in residential lending

resulting from the sharp downturn in
the Texas housing industry. Total
loans closed have not fallen with the
decline in housing permits, as in the
past (Chart 1).
Diversification Has Positive Effect

This diversification has helped sup­
port asset and income growth at Texas
S&Ls. Assets grew over 30-percent in
each of the last two years. In the
future, however, regulatory changes
will limit growth to 25 percent at most.
(Continued on back page)

Residential Construction in Texas
Adjusts to Slower Migration

Home Building Responds to Migration

During the early 1980s, residential
construction was stimulated by large
net inflows of people into the state.
Net migration was responsible for
about two-thirds of the 1 million-

person increase in the state’s popula­
tion between 1980 and 1982 (Chart 2).
The rapid influx of new residents
sharply increased the demand for
housing, and home construction in
T e xa s, e s p e c ia lly b u ild in g of
multifamily dwellings, rose with a lag
of 8 to 12 months (Chart 3). Supply-side
forces, such as the tax incentives of
the Economic Recovery Tax Act of
1981, also contributed to this surge in
building.
More recently, decreases in net
migration have curbed residential con­
struction. From 1982 to 1984, net
migration to Texas fell over 90 percent
to reach its lowest level since 1967.
This drop occurred despite continued
high growth in some metropolitan
areas. The recovery of the national
economy and the slump in the Texas
(Continued on back page)

Table 1
LOANS CLOSED AT FSLIC-INSURED SAVINGS
AN D LOAN ASSO CIATIO NS IN TEXAS

Chart 1
INDEXES OF TOTAL LOANS CLOSED AT
S&Ls AND TOTAL HOUSING PERMITS
ISSUED IN TEXAS

(Dollar amounts in millions)
Absolute
change

Percent
change

Type of loan

1983

1984

Mortgage
Residential...........

$11,790

$10,170

Nonresidential . . .

4,682

6,008

1,326

28.3

All other.....................

3,745

5,599

1,854

49.5

Total .................

$20,217

$21,777

-$1,620

$1,560

i— 600 (1980:Q1=100)------------------------------------------------

-13.7

7.7

SOURCE: Federal Home Loan Bank of Dallas.

SOURCES: Federal Home Loan Bank of Dallas.
U.S. Department of Commerce, Bureau of Census.

Chart 2
POPULATION CHANGE AND
NET MIGRATION IN TEXAS

Chart 3
INDEXES OF HOUSING PERMITS AND
NET MIGRATION IN TEXAS

i— 600 THOUSANDS OF PERSONS —
— 500

■ POPULATION CHANGE
$ NET MIGRATION

NOTE: Both series are based on mid-year population figures.
SOURCES: U.S. Department of Commerce.
Chase Econometrics.

‘ NOTE: Quarterly values interpolated from annual data.
SOURCES: U.S. Department of Commerce.
Federal Reserve Bank of Dallas.

LOANS— LARGE WEEKLY REPORTERS

DEPOSITS— LARGE WEEKLY REPORTERS

Eleventh Federal Reserve District

Eleventh Federal Reserve District

r~

■—

60 PERCENT’ ----------

-20

1982

1983

1. Percent change from same quarter in previous year.
SOURCE: Federal Reserve Bank of Dallas.

1984

’85
1. Percent change from same quarter in previous year.
SOURCE: Federal Reserve Bank of Dallas.

DISTRICT BRIEFS
The District’s economic expansion continues but at a very gradual rate.
The slowing of economic growth within the
District is evident in the slight gains in total
nonagricultural employment. In the first quarter
of 1985, the increase in Texas employment was
substantially smaller than in the fourth quarter
of 1984. Even so, Texas employment grew
significantly faster than Louisiana’s. Employ­
ment expansion in New Mexico has proven
stronger than in the other District states.
Manufacturing activity in Texas is flat, broadly
following the national trend. The prime reasons
for the sluggish performance are competition
from imported goods and the slowing of the
U.S. economy, which has dampened demand. In
Texas the weakness is most severe in durable
goods manufacturing.
As the weakness in oil prices continues, the
drilling rig count has yet to show the normal
seasonal upturn that usually occurs during the
spring. The Texas drilling rig count has been
falling steadily and is now more than 20 per­
cent below last year’s level. After increasing
throughout much of 1984, employment in oil
field machinery manufacturing has dropped.
The recent decline in interest rates has

stimulated residential construction in the na­
tion as a whole. In the District, however, the
surplus of residential units has, to date,
prevented a resurgence in construction. The
weakness in the District is widespread, affect­
ing both multifamily and single-family units.
Nonresidential construction continues strong.
Loan growth at the District’s large banks is
slowing, reflecting the state of the economy.
The volume of business loans actually fell in
April compared with a year earlier. Both real
estate and consumer loans continue to in­
crease, although the rate of growth is slowing.
Prices for agricultural products sold by District
farmers are considerably below a year earlier.
Expanded production has led to an 18-percent
decline in the Texas all crops price index.
Inflation in the District is running at a slightly
lower level than in the nation as smaller in­
creases in housing costs hold down the local
increases in the consumer price index. Com­
pared with a year earlier, inflation in April in­
creased 3.6 percent in Dallas-Fort Worth and
2.9 percent in Houston. For the same period the
national rate was 3.7 percent.

UNEMPLOYMENT RATE

HOUSING PERMITS: TEXAS

i-

I-

12 P ER C EN T

(QUARTERLY AVERAGES SEASONALLY ADJUSTED)

30 TH O U S AN D

(QUARTERLY AVERAGES SEASONALLY ADJUSTED)

TO TAL

24

18
12

S IN G L E -F A M ILY

I

1982

I

1983

I

1. Louisiana, New Mexico, and Texas.
SOURCES; Texas Employment Commission.
U.S. Department of Labor, Bureau of Labor Statistics.
Federal Reserve Bank of Dallas.

CONSUMER PRICE INDEX

Federal Reserve Bank of Dallas.

1984

p85

I

1982

I

1983

I

1984

SOURCES: U.S. Department of Commerce, Bureau of the Census.
Federal Reserve Bank of Dallas.

TEXAS INDUSTRIAL PRODUCTION INDEX

p 85

Texas S&Ls (cont.)

Construction (cont.)

The increased lending activity has
generated higher interest income and
substantial fee income in the form of
origination and servicing fees for loans
sold to other investors. Fee income
rose 67 percent in 1983 and grew at an
annual rate of 40 percent in the first
half of 1984.

energy sector have made migration to
Texas less attractive by curtailing
employment opportunities in the state
relative to the nation as a whole. The
large declines in net migration have
resulted in smaller increases in the de­
mand for housing and a slowdown in
the pace of residential construction. A
record number of housing permits were
issued in Texas in 1983, but the
number of multifamily permits fell
about 35 percent in 1984 while the
number of single-family permits fell ap­
proximately 18 percent. In each of the
first three months of 1984, the numbers
of multifamily and single-family per­
mits issued were substantially below
their corresponding levels in the
previous year. Also, the Texas share of
multifamily permits issued in the
United States declined from about 28
percent in the first quarter of 1983 to
just over 10 percent in the first quarter
of 1985. The Texas share of single­

The Outlook Is Mixed

The outlook is for continued growth
of lending at Texas S&Ls. The
185-basis-point fall in mortgage in­
terest rates since their peak in 1984
will generate increased home sales
and mortgage lending. In addition,
year-to-date nonresidential construc­
tion spending in Texas is 13 percent
above the comparable 1984 level. On
the other hand, S&L delinquency rates
have risen, and increases in nonper­
forming assets could place downward
pressure on earnings in 1985.
—Robert T. Clair

family permits issued fell from about
12 percent to just over 7 percent. These
reductions reflect the large declines in
net migration.
Outlook

Although other forces might work to
offset the current downturn in residen­
tia l construction, the industry,
especially the multifamily sector, prob­
ably will not top last year’s perfor­
mance. Declining mortgage interest
rates could dampen the negative effect
of the declines in net migration. Any
strengthening of the state economic
recovery could provide some stimulus
to residential construction as well. It is
unlikely, however, that the combined
positive effect of these additional fac­
tors in 1985 will outweigh the lagged
effect of last year’s large decline in net
migration.
—Jeffery W. Gunther and
William T. Long III

The views expressed are those of the authors and do not necessarily reflect the positions of the Federal
Reserve Bank of Dallas or the Federal Reserve System.

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