View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

-

J

FED j/kA/0R ESER V E B A N K /P iR IC H M O N D

(O

flM

fi/ fta

H

C

U

l

OCTOBER 1950

RESIDENTIAL

MORTGAGE HOLDINGS

(MILLIONS OF DOLLARS)

stimates indicate that nearly three-fourths of
the mortgage loans on 1- to 4-family urban
homes are held by institutional lenders. The chart
above shows the importance of the various groups
of lenders. The article on page 3 discusses the role
that credit plays in the current building boom to­
gether with the purposes of real estate credit con­
trol.




Also In This Issue------Fifth District Trend Charts„_

__Page

2

Agricultural Debt Rises

__Page

8

__Page

9

...

Business Conditions and Prospects
Statistical Data_________

_________

__Page 10

FEDERAL RESERVE BANK OF RICHMOND

F ifth D istrict T rends
FURNITURE SHIPMENTS

BUSINESS FAILURES

The rapid rise in business activity in a month in which few
fiscal periods end resulted in a 45% decline in adjusted business
failures from July to August. Although August failures were 12%
above last year, rising business volume and prices should cause
them to trend downward.

-+ +

Shipments of furniture manufacturers moved into new high
ground in August by a substantial margin, rising 21% on an ad­
justed basis from July to a level 57% ahead of a year ago. Un­
filled orders at the end of August were equal to 2.3 months’ sales.

- ♦ ♦ * •

COTTON CONSUMPTION

LIFE INSURANCE SALES

The full force of large bookings of cotton goods and yarns in June
and July found reflection in cotton consumption in August which,
on an adjusted basis, rose 19% from July to a level 32% above
a year ago. Mill orders on hand are large and still higher rates of
consumption can be expected.

Uncertainty regarding the war clauses in insurance policies, to­
gether with an added social security inducement, caused life insur­
ance sales to rise 39% on an adjusted basis from July to August,
with the latter month 82% ahead of a year ago. Easing of the war
tension may result in some set-back in the sales rate.

♦ ♦ +
DEPARTMENT STORE SALES

CONSTRUCTION CONTRACTS AWARDED

A saner purchasing approach by consumers in August was re­
flected in the 9% decline in adjusted department store sales from
July, but dollar sales were still 18% ahead of a year ago. Ap­
pliances, floor coverings, and television sets expanded their gains
over last year beyond those in July.

Construction contracts were booming in August 1949, but a super
boom has been added; August 1950 showed a gain of 55% and set a
new high monthly record. Eight months’ contract awards were 59%
ahead of the same period in 1949, but seasonal factors and possible
credit restrictions or controls portend declines from now on.




121

MONTHLY REVIEW

OCTOBER 1950

Home Building Well on Way to All-Time Record
Demand Still Rising, But New Credit Restrictions And Military Needs Will Slow Boom
—Banks Playing Important Role In Home Financing
homeowners and investors contracted for
dusty, the high level of building activity has placed
strains upon supplies of materials and labor, and these
more than two square miles of housing in Fifth
have been aggravated by speculative activity anticipating
District states during the first eight months of 1950.
stepped-up diversion to military needs. Reports indicate
Covering almost 60,000 new dwelling units, residential
substantial rises in building costs due to premiums on
building contracts awarded from January through Aug­
materials and higher wages necessary to secure and re­
ust of 1950 far surpassed the records of recent years and
tain labor.
have made it obvious that 1950 will be the outstanding
home construction year not only of the postwar period
Thus construction again becomes one of the danger
but for all time.
areas of inflation. The
heavy demand for hous­
Nationally the picture
ing will of necessity be
has been much the same.
In i t i a l C o n t r o l M e a s u r e s
faced with a decreasing
New housing s t a r t s
Since the outbreak of war in Korea a number of steps
supply of new civilian
amounted to 988,400 dur­
have been taken to assure the availability of goods for
construction, f o r both
defense purposes and to combat the inflationary pressures
ing these months, a figure
arising from expanded demands upon an already booming
materials and manpower
54°/ greater than t h e
o
economy. These measures include:
will be made available for
total for the same months
1. Interest rates— a rise in short-term interest rates
defense purposes. Price
of 1949. There is no
through the open market operations of the Federal Re­
inflation in the construc­
doubt that starts through
serve System;
tion industry would make
September are in excess
2. Consumer credit— specific restrictions on the grant­
the transfer of materials
ing of consumer instalment credit under the provisions of
of the record total of 1,Regulation W of the Board of Governors of the Federal
and men to defense both
025,100 reported for all
Reserve System;
costly and difficult unless
1949. Forecasts for the
3. Real estate credit—more stringent terms and reduced
resort were had to direct
year 1950 have run as
funds for Government guarantee of residential mortgages,
controls. A program that
high as 1,400,000 dwell­
as directed by the President in letters to the agencies con­
cerned ;
relies upon measures oth­
ing units, although re­
er than direct controls
cently enacted real estate
4. Increased taxes—new tax legislation to provide funds
for defense expenditures and to decrease purchasing power
m u s t therefore include
credit controls may be ex­
in the hands o f the public;
the curtailing of the de­
pected to reduce the vol­
5. Inventories—the requirement by the National Pro­
mand for construction.
ume of starts in the last
duction Authority that inventories of certain critical ma­
quarter of the year more
terials in short supply be held to a “ practical working
The Postwar Demand
minimum” ;
than seasonally.
for Housing
6. Exports—the tightening of export controls by the
Housing bulks large in
Department of Commerce on strategic materials.
The post-World War
the construction industry
Authority for the further restriction of real estate con­
II need for new homes
and has played an impor­
struction credit is contained in the Defense Production Act
has been s o frequently
tant role in the current
of 1950 and the Executive Order issued pursuant to that
demonstrated as to re­
construction b o o m . In
Act. The accompanying article analyzes the housing boom,
the financial aspects of home building, and the reasoning
quire little comment, but
August of this year, for
behind the steps thus far taken to check inflation in this
the conversion o f this
example, it is estimated
sector of the economy.
need into such a strong
t h a t private residential
demand surprised many
construction constituted
observers. The backlog need for housing had its origin
$1,250 million out of the $2,730 million construction
in the low construction levels of the 1930’s and was
outlay, showing a gain of $468 million over the preced­
further increased during the war years when private
ing August. Other private construction and public con­
construction was held to a minimum. High marriage
struction also registered gains over August of 1949,
rate and greatly increased birth rates during and after
but the great increase of activity was in private housing.
the war created new and expanding family units. High
The unprecedented construction activity has resulted
income levels have led each family unit to want its own
in bottlenecks. Increasing shortages of materials have
home, adding yet further to the number of houses and
led to “ gray” markets in strategic building supplies
apartments desired.
throughout the country; shortages of labor in certain
This desire required funds, however, in order to be­
building skills have also appeared. While defense needs
come effective demand and bring forth new construction.
have as yet made small inroads upon the construction inr o s p e c t iv e

P




[3]

FEDERAL RESERVE B A N K OF RICHMOND

These funds have come partly from the savings of the
war p eriod; many E bonds had been bought and many
savings accounts opened for the express purpose of pro­
viding down-payments on homes. O f far greater im­
portance than these savings, however, were the loan
funds available on unprecedentedly easy terms. On the
basis of the guarantee and insurance programs of the
United States Government, lenders have made funds
available at low interest rates, for long periods of time,
and at high ratios of loan to value.

blossomed into a new boom in 1950 as business condi­
tions continued to improve and income payments rose
to new high levels. The present prospect is that income
payments will rise to yet greater heights and that, in the
absence of restraints, the demand for residential con­
struction at current prices will soar to levels that cannot
be matched by the resources available for private con­
struction activity.

Control of Residential Real Estate Credit

There are many ways of securing diversion of con­
The small or nonexistent down-payments and the
struction resources to military use. One is to allow the
many years allowed for loan repayment have typically
rationing influence of prices to have their effect, thus
made home ownership outlays no more (and sometimes
permitting prices to rise to the level where a sufficient
less) burdensome than rent payments. A t the same
number of would-be builders or buyers of new homes are
time, high income levels
priced out of the market.
— and more particularly,
Military needs can then
the relatively large gains
be satisfied by meeting
R e s id e n tia l B u ild in g C o n t r a c t s P e r Ye a r
o f t h e lower - income
the higher market prices.
FIFTH FEDERAL RESERVE DISTRICT STATES
groups— have made many
A second alternative is
more people willing to
d i r e c t rationing, the
Each symbol represents
undertake ownership.
physical allocation of re­
10,000 dwelling units
1945
Similarly, t h e terms
sources according to need
available have made in­
or some other criterion.
vestment real estate more
A third alternative is to
1946
attractive and have en­
restrict, by some means,
couraged merchant build­
the availability of funds
ers to undertake largefor the purchase of new
1947
scale projects. The re­
construction.
sults have been seen in
The Federal Govern­
the many apartment de­
1948
ment has chosen the lat­
velopments which num­
ter course. The President
ber their units in the hun­
and Congress have voiced
1949
dreds and in the new
their intention that the
communities of s m a l l
needed restriction of con­
homes erected on a field
struction should be ob­
1950
production-line basis un­
*
*
*
*
*
*
tained by a restriction of
der Government-guaran­
st eidmmom
credit available to pur­
SOURCE: F.W. DODGE CORPORATION
F 'r$ f e' ^ ^ m onths
teed financing.
jf l9 5 0
chasers o f nonmilitary
T h e significance o f
new construction.
mortgage terms and in­
come levels is amply demonstrated by the record of 1949
The key to balance in the market for new residential
and 1950 as it has thus far emerged. The decline of
housing lies in the financing of home purchases. Just
business activity beginning in late 1948 was accompanied
as progressively easier terms have added increasing
by a sharp drop in residential construction. H om e build­
numbers of prospective builders and purchasers, so high­
ing continued at a relatively low level during the first
er down-payments and more restrictive mortgage terms
quarter of 1949, and then rose somewhat earlier than
can reduce the number of would-be homeowners who are
the revival of general business conditions.
bidding for the use of scarce materials and manpower.
Brighter employment prospects increased individuals’
President Truman took the first action in this direc­
willingness to undertake mortgage commitments, and at
tion in mid-July as one of the early steps in the process
the same time mortgage terms were further eased by new
of expanding this nation’s defense efforts. The Presi­
legislation. The fact that construction costs had fallen
dent decreased the additional insuring authority of the
but little during the recession undoubtedly influenced
Federal Housing Administration from $1,250 million
many families to proceed with home plans rather than
to $650 million and requested both that agency and the
to wait for substantial cost decreases that might never
Veterans Administration to stiffen the terms under
come, but even for them income position and prospects
which they guaranteed and insured mortgage loans.
and the terms of mortgage credit were of fundamental
importance in the decision to build or purchase a home.
Specifically, for appraisal purposes construction costs
were limited to the level of July 1, 1950, and down-payA s noted, the rise in construction during late 1949




Ai
*
*
*
*

*
*
*
*

****1
***
***
****

[4]

OCTOBER 1950

MONTHLY REVIEW

the relative size of mortgage portfolios has led many
banks to become cautious and selective in the extension
of additional mortgage credit.
Mutual savings banks constitute the fourth category
of institutional lenders on real estate. Traditionally these
banks have been prominent sources of mortgage credit
in the states within which they operate; at the end of
1949 they held 9% of total mortgages on 1- to 4-family
homes in the country as a whole, even though their
operations as primary lenders are limited to the few
states in which they are chartered in substantial num­
bers. Conservative investment policies and legal restric­
tions on lending activities caused a lack of willingness
on the part of savings banks to meet the terms offered
by competitors, and caused their share of mortgage hold­
ings to decline in the postwar period until 1948. Since
that time, however, liberalized legal and policy restraints
have allowed these banks to increase their acquisitions of
mortgages relative to the total expansion.

ment requirements were raised by 5 percentage points
for virtually every type of mortgage loan.
The Defense Production Act of 1950 authorizes the
President to initiate various controls, including the con­
trol of real estate construction credit. On September 8,
the President signed the Act, and forthwith issued an
Executive Order instructing the Board of Governors of
the Federal Reserve System, with the concurrence of the
Housing and Home Finance Administrator, to apply
controls on residential construction credit other than that
insured or guaranteed by the F H A or the VA . The
directive provided control by the Housing and Home
Finance Administrator over the terms required by
Government agencies, said terms to be subject to the
same restrictions as those applied to private credit by
the Board. A continuation of the preferential treatment
for veterans is called for by the Defense Production
Act of 1950.
Financing of Residential Properties

The Secondary Market for Mortgage Loans

As shown by the chart on the cover, individuals look
largely to institutional lenders to supply the funds that
they borrow for the purpose of building or buying
homes. While other holders of mortgages show impor­
tant dollar increases in holdings since the war, their
new extensions of credit were not great enough to main­
tain their 1945 position in the mortgage lending field.
The largest net lenders on home mortgages during the
postwar period have been savings and loan associations.
Organized primarily to direct the flow of savings into
residential construction, the many relatively small asso­
ciations hold nearly a third of total mortgages on 1- to
4-family homes. This reflects an increase in the propor­
tion of total home mortgages held by these associations
during 1946 and 1947; since then their share has remain­
ed roughtly constant.
The largest relative increase in postwar holdings of
residential mortgages has been in the portfolies of life
insurance companies, which have found in mortgage
loans one outlet for the vast stream of investment funds
at their disposal. In addition to the making of home
mortgage loans, insurance companies have been heavy
purchasers of F H A insured home mortgages, and by
year-end 1949 held almost 40% of all outstanding F H A
home mortgages.
While mortgage lending for long periods is foreign
to the strict concept of the function of commercial banks,
it has frequently played an important role in their opera­
tions. Formerly closely restricted by state and national
banking law, banks have taken advantage of Federal
guarantee and insurance of home mortgages to extend
their activities. Within the Fifth District nonfarm real
estate loans currently represent 29% of total gross loans
of member banks; this, it may be noted, is equal to 122%
of total capital accounts. In 1929 the same ratios were
5% and 21% — less than one-fifth the current levels.
While insured and guaranteed loans do not fall under
the limits upon real estate lending prescribed by the law,




Although there is a limited market for the sale of con­
ventional loans, insured and guaranteed mortgage loans
are widely saleable. The expansion of this market in
the postwar period has been one of the important fac­
tors contributing to the overall expansion of real estate
credit. Not only is a method supplied by which borrow­
ers and lenders widely separated are able to receive and
to extend credit, but also lenders have been provided
with a ready means of reducing their holdings in the
event of becoming overextended.
The Federal National Mortgage Association has pro­
vided the means of expanding and strengthening this
market. Funds actually put into the market by the
FN M A have amounted to approximately $1 billion net
during the two past years of operation, but in addition to
this $1 billion, FN M A has contribued to the willingness
of other lending agencies to advance funds by standing
ready to purchase the resulting mortgages. Firm com­
mitments were issued in some cases which virtually made
FN M A a primary lender through assuring private lend­
ers of the saleability of mortgages prior to loans being
made; this authority was discontinued in March of this
year.
The existence of a secondary market in insured mort­
gages has also facilitated the considerable extension of
credit by lenders who do not intend to hold the mort­
gages made. In 1949 mortgage companies originated
more than one-fourth of all FHA-insured mortgages and
promptly sold virtually all of them to other lending
agencies. Similarly, commercial banks and savings and
loan associations made more insured loans than they
cared to hold, being net sellers on balance.
Insurance companies, on the other hand, were pur­
chasers of more than half of the F H A mortgages sold
in addition to having originated 23% of 1949’s F H A
mortgages. Mutual savings banks were also substantial
net purchasers of insured mortgages, largely due to the
[5]

FEDERAL RESERVE BANK OF RICHMOND
relaxation of restrictions on their holdings of out-ofstate-debts on real estate. In spite of these purchases,
F N M A was forced to acquire $629 million to carry out
its role of supporting the market.
An additional source of funds for primary real estate
lenders is provided by the Federal Home Loan Bank
System, which provides credit through the Federal
Home Loan Banks to member institutions, principally
savings and loan associations. In addition to short-term
unsecured advances, these banks make loans of up to
10 years’ maturity secured by first mortgages pledged
by their members.

activity is the insuring of loans made under Title II to
finance 1- to 4-family dwellings. Until recently loans up
to 95% of appraised value might be insured in the case
of small dwellings, while similar coverage was available
for loans up to 80% of the appraised value of larger
homes. Current terms on insured loans now require
down-payments five percentage points greater than
formerly.
Th guarantee program administered by the Veterans
Administration covers loans made on homes built or
purchased by veterans. Current legislation provides for
the guarantee of as much as 60% of each loan, to a
maximum of $7,500, with a maximum maturity of 30
years. Formerly such loans could be made for as much
as 100% of the appraised value of the property; recent
restrictions have reduced this loan-value ratio so that
now purchasers must pay closing costs at least and in
most cases 5% of the cost of the property.
The volume of operation of these two agencies may be
seen from recent financing. New loans on 1- to 4-family
dwellings during the first half of 1950 are estimated at
$6.6 billion. Of this total, approximately $2.5 billion
was insured by the F H A or insured or guaranteed by
the V A. Viewed on an accumulated basis, of the $40
billion of mortgage debt on 1- to 4-family houses out­
standing on June 30, 1950, about $16.5 billion was in­
sured or guaranteed by one of these two agencies.

Government Insurance and Guarantee of
Mortgage Loans

The role of the Federal Government in insuring and
guaranteeing home mortgage loans has been of major
importance in influencing both the supply of mortgage
funds and the demand for them. Would-be borrowers
have become eligible for loans far in excess of the
amounts that would have been available to them under
traditional standards. Further, as already noted, the
terms on which insured and guaranteed mortgage funds
have been available have led many people to borrow
for new homes who would otherwise have continued as
tenants. In brief, home ownership has been made more
Table 1

Table 2

L O A N S SECU R ED B Y 1- TO 4 -F A M IL Y P R O P E R T IE S
468 Fifth District Member Banks
June 30, 1950
Amount
Average
Number (thousands Size of Loan
of Loans of dollars)
( dollars)
Insured or guaranteed by
136,231.4
4,362
31,232
FH A or V A ____________
49,346.4
11,955
4,128
Insured by F H A _________
First lien insured or guar­
85,616.9
4,692
18,249
anteed by V A _____________
Junior lien guaranteed
1,268.1
1,234
1,028
by V A _________________
Not insured or guaranteed
by F H A or V A __________
61,261
176,493.7
2,881
44,812
138,912.7
Amortized ______________
3,100
Not amortized___________
16,449
37,581.0
2,285
Total_________________
92,493
312,725.1
3,381

L O A N S SECU R ED B Y 5- OR M O R E F A M IL Y P R O P E R TIE S
468 Fifth District Member Banks
June 30, 1950
Number
of Loans
Insured or guaranteed
by V A or F H A _________ _____

Average
Size of Loan
(dollars)

81

14,921.3

184,214

FH A or V A .................. .

427

11,391.3

26,678

Amortized

______________

329

8,498.1

25,830

Not amortized __________

98

2,893.2

29,522

Total_________________

508

26,312.6

51,796

Not insured or guaranteed by

Fifth District Member Bank Mortgage Holdings

Member banks of the Fifth District have supplied sup­
plementary information on their mortgage portfolios as
of June 30, 1950. The figures indicate that 44% of the
dollar volume of home mortgage loans (loans secured
by 1- to 4-family dwellings) and slightly more than onethird of the number of such loans are insured or guaran­
teed by F H A or V A (see Table 1). The proportion of
insured or guaranteed mortgages held approximates the
average for outstanding home mortgage debt of the
nation.

attractive creditwise and the borrowing capacity of indi­
viduals has been increased.
On the supply side additional funds have become
available because of the decreased risk of insured and
guaranteed loans and the greater ease of disposing of
such loans if the need arises. In some instances this
liberalized credit reflects changed investment policies of
lenders, while in the case of regulated lenders such as
commercial banks and mutual savings banks, it is due
to statutory changes which recognize the insured or
guaranteed loan as offering less risk than conventional
real estate debt.
The Federal Housing Administration has issued in­
surance certificates covering a wide variety of residential
building and repair work, but at present the bulk of its




Amount
(thousands
of dollars)

Mortgage loans guaranteed by the Veterans Admin­
istration accounted for almost two-thirds of guaranteed
loans, and 27.8% of all home mortgage loans. F H A in­
sured loans accounted for 15.8% of total home mortgage
loans. Smaller banks carried a much larger share of GI

16}

MONTHLY REVIEW
home mortgage loans, but placed less reliance on FH A
home mortgages.
Combination G I-FH A loans were reported separately,
with the portion guaranteed by F H A treated as separate
loans, and included in the total of loans insured by FH A.
The portion of such loans guaranteed by V A was listed
separately, amounting to $1.3 million, less than j/ oi 1%
2
of home mortgages held by Fifth District member banks.
The importance of the amortized home mortgage loans
is shown clearly by these data— almost 80% of the dol­
lar volume of home mortgages held by Fifth District
member banks is in amortized loans. This is one of the
important developments expected to reduce the impact
on the lender of any future general decline in home val­
ues such as took place twenty years ago. At that time
the usual mortgage instrument was a fixed payment loan
of three to five years’ maturity. Only rarely was the
borrower expected to pay at maturity; custom dictated a
partial payment, and renewal of the balance.
The sharp and continued decline in home values after
1929 (31% in four years) resulted in a situation in
which the value of many properties fell below the face
value of the mortgage. Amortization, which reduces
the principal continuously, presents a much better tool
for fighting continuous depreciation and the ever-present
contingency of a fall in prices.
Amortization, however, does not remove all risks
from mortgage lending. With a reasonable amortization
schedule, the face value of the mortgage should not be
at any time in excess of the resale value of the property.
However, monthly payments on principal and interest
may prove very difficult to meet should unemployment
on a large scale develop. Under such circumstances, in­
sured and guaranteed mortgages would not result in
sizeable losses, but would result in lower rates of net
return. Further, even insured and guaranteed mortgages
would be completely frozen to the lender between the
time of default and the time of final settlement. Unin­
sured amortized mortgages, under these circumstances,
might become delinquent, and many would require re­
financing in order to secure continued (reduced) pay­
ments.
Average size of home mortgage loans held by Fifth
District member banks varied considerably according to
type of loan. The average home mortgage loan outstand­
ing on June 30 was $3,381— as compared with about
$2,500 in 1940. Noninsured loans outstanding were
somewhat smaller than average— $2,881. The average
insured or guaranteed home mortgage loan value was
$4,362. V A insured or guaranteed first lien mortgages
averaged almost $600 larger than F H A insured loans.
The fact that insured loans averaged almost $1,500
larger than did conventional loans seems to be a strong




OCTOBER 1950
indicator of the importance of such insurance to the cur­
rent housing boom. The equity of the home owner, as
would be expected, is much smaller where guaranteed or
insured loans have been obtained. As noted above, the
lower equities and longer maturities enable many more
people to commit themselves to the purchase of homes.
In addition to the insurance feature, amortization ap­
pears to contribute to the popularity of these loans—
amortized conventional loans averaged more than a
third larger than standing loans. This suggests that
both bank and customer are more willing to extend
themselves on amortized than on standing loans. An­
other reason for the size differential is found in the
tendency of small banks to adhere to the single-pay­
ment loan.
FH A and V A financing were relatively more impor­
tant in the case of rental properties (loans secured by
5- or more-family properties), accounting for $15 mil­
lion, 56.7% of all rental mortgages (see Table 2 ). As in
the case of home mortgages, the greater part of loans
secured by 5- or more-family properties were amortized.
Average insured or guaranteed mortgages on rental
properties were $184,214— almost seven times the aver­
age size of noninsured mortgages, as shown in Table 2.
The extent to which insured or guaranteed mortgages
on rental properties exceed in value conventional mort­
gages on the same type of property seems to indicate
that some of these loans would not have been made at
all, and that the housing projects in question might not
have been undertaken without the insurance feature. It
is further interesting to note that non-amortized loans
on rental properties averaged some $4,000 larger than
did amortized noninsured mortgages.
Indirect financing of mortgages by commercial banks
in the Fifth District (through loans to nonbank mort­
gage lenders) does not appear to be of major impor­
tance. Direct real estate loans secured by mortgages on
nonfarm properties totaled $339 million, while an addi­
tional $19 million was outstanding in the form of loans
to nonbank mortgage lenders. Indirect financing of
mortgages thus accounted for approximately 5% of total
Fifth District member bank mortgage financing. Loans
to nonbank mortgage lenders averaged slightly more
than $5,000.
In additional to mortgages on existing nonfarm real
estate, Fifth District member banks had outstanding on
June 30 loans of $35 million for the construction of nonfarm residential properties— slightly more than 10% of
the total of outstanding nonfarm real estate mortgages.
State member banks held 252 mortgages for $0.3 mil­
lion secured by vacant residential lots. (National banks
are not permitted to make loans secured by unimproved
real estate.) These loans averaged just over $1,300.

FEDERAL RESERVE BANK OF RICHMOND

Agricultural Debt Rises
in the Fifth District increased their debts
to offer vigorous competition to banks in this District.
Total PC A loans increased 18% in 1949— the largest
during 1949 for the fifth consecutive year. On
percentage increase for principal lenders in the nonJanuary 1, 1950 farm-mortgage debt was up 5% from
real-estate field. PC A ’s also increased their share of
the previous year, and other farm loans had risen 10%.
non-real-estate loans and at the beginning of 1950 held
The increase continued in the first half of 1950, and on
22% of the total.
June 30, 1950 total farm loans of Fifth District mem­
ber banks (excluding CCC loans) were 3% greater
Banks continued in first place as suppliers of nonthan a year earlier and 19% more than on December
real-estate credit and, on January 1, 1950, held 56% of
31, 1949.
the total in the District.
The share of the Farm­
Total agricultural loans
ers’ Home Administra­
in this District have inFARM MORTGAGE HOLDINGS
tion was practically un­
c r e a s e d substantially
FIFTH FEDERAL RESERVE DISTRICT
changed at 22%, but total
since 1945. The farmF H A l o a n s increased
M I L L I O N S O F D O L L A R S A S O F J A N U A R Y 1. E A C H Y E A R
mortgage debt of $322
somewhat. In South Car­
350
350
million on January 1,
olina, where F H A loans
1950 is 38% more than
— LIFE INSURANCE
are particularly impor­
the $233 million out­
FARMERS HOME ADM.
300
300
tant, F H A ’s share fell
standing five years ear­
from 50 to 43%.
lier. Similarly, other ag­
250
250
ricultural loans at the be­
For the District as a
ginning of 1950 totaled
i o t h e r s ,;v ; ;
whole little change was
I (JO IN T -ST O C K LAND BANKS,
$110 million, a gain of
200
200
observed in the propor­
■'4 SAVINGS BANKS, INDIVIDUALS,
80% over the 1945 figure
tions of farm-mortgage
AND, MISCELLANEOUS L E N D E R S ) I
of $61 million. These in­
debt held by principal
150
150
creases parallel increases
lenders. Proportions held
in other regions in realby agencies of the Farm
100
100
estate and non-real-estate
C r e d i t Administration,
debt.
the Farmers’ Home A d­
ministration, and insured
Commercial banks were
50
50
commercial banks declin­
active agricultural lenders
ed slightly while t h e
during 1949. In each
shares held by life insur­
state in the District farm1940
1942
1944
1946
1948
1950
ance companies and indi­
mortgage loans of banks
viduals and others in­
rose, and at the end of the
creased. In North Caro­
year banks held over $81
line and South Carolina, however, banks were able to
million in farm mortgages as compared to about $77
million a year earlier. Non-real-estate loans (excluding
increase their share of farm-mortgage debt.
CCC loans) to farmers by banks also rose and on Janu­
Increases in farm debt in the Fifth District appar­
ary 1, 1950 totaled about $62 million, a gain of $5 mil­
ently stem from rises in land values and increased in­
lion during 1949. Fifth District member bank holdings
vestment by farmers in livestock and machinery and
of all farm loans (excluding CCC loans) were 4.9% of
equipment. To the extent that such expenditures result
gross member bank loans and discounts on December 31,
in greater production and income, the welfare of
1949 and 5.5% on June 30, 1950.
farmers is improved by incurring debt for these pur­
poses.
Production Credit Associations apparently continued

F

armers




r8 ]

OCTOBER 1950

MONTHLY REVIEW

Business Conditions and Prospects
goods and yarns, which are somewhat variable in their
movement, have overall nearly returned to the peak
levels established early in 1948. Late in September,
however, the price upsurge appeared to have run its
course, with resales of certain types of goods being
offered below producers’ levels.

x p a n s i o n of industrial production has taken place
’ in recent weeks in the Fifth Federal Reserve Dis­
trict, but seasonally adjusted trade levels receded some­
what in August from the scare-buying levels of July.
Construction activity in August rose substantially over
July. This was contrary to the usual seasonal tendency
and probably due to rushing planned projects in antici­
pation of control measures, as well as diversion of man­
power and materials.
An encouraging development during recent weeks has
been evidence of returning normalcy in the retail mark­
ets, and thus a reduction in the scale of hoarding pur­
chases. Department store sales, seasonally adjusted,
dropped 9% from July to August but were still 18%
ahead of that month last year. Similar slackening of
activities has been witnessed in furniture stores. House­
hold appliance stores, on the other hand and contrary to
seasonal tendency, continued their sales expansion into
August and September. This latter trend is due to the
almost certain cut back in television production in the
near future.
Passenger car sales in July were slightly below the
June level, while truck sales rose in that month. Used
car prices, which had strengthened early in August,
were weakening by the end of that month and continued
weakening into September. In the Fifth District, people
buying cars on credit may have financed them in part
from redemptions of savings bonds. These redemptions
rose during both July and August, while new sales of
these bonds declined to the lowest level since Novem­
ber 1941.
Automobile trade levels for the rest of the year should
show good increases over similar months last year, but
the lack of urgency in buying of most other products is
a fortunate development— it takes pressure off rising
prices and may aid credit controls in holding price rises
to proportions necessitated by rising wages.
Wholesale trade in the District continued upward in
August with the exception of electrical goods and groc­
eries. The former were probably in short supply, and
the latter was a result of more people becoming con­
vinced there would be no serious shortages. The upward
sales trend in most wholesale lines indicates that retail­
ers count on higher trade levels during the fall.
Outstanding at the production level was a gain of
19% from July to August in consumption of cotton in
Fifth District mills to a level 32% ahead of a year ago.
Mills have sold output of goods and yarns for the rest
of 1950, and there has been some business in print cloths
and sheetings into 1951. Employment in the industry is
rising, and it is probable that mills will be on a threeshift basis, if they can secure the manpower for such
operations. It is expected that a further rise in output
will be witnessed between now and spring. Prices of

E




There was substantial buying of cotton domestics at
the retail level in July and August, but this too appears
to have been of a hoarding nature and will probably be
at the expense of such sales in the months ahead. Most
cotton goods have shown no inordinate gains at the retail
level. There is little doubt that the overall demand for
cotton goods will be heavy over the next six months,
though it may not be as heavy as had been previously
anticipated. This factor, together with the over-exten­
sion of converters and their need for cash, may be the
motivating factor in the easier situation, particularly in
print cloths.
Bituminous coal production in August (following the
July holidays) rose 20% after season correction to a
level 22% ahead of a year ago. Soft coal consumption is
running slightly ahead of last year, and users are ac­
cumulating stocks. Consumption will be upward in com­
ing months, and stocks are still at a fairly low level. The
combination of rising consumption and stockpiling
should cause considerable expansion in coal production
in the next several months.
Sawmills have enjoyed an unusually active summer
this year. Demand has been extremely heavy, and prices
of southern pine have moved into new high ground by
a wide margin. In late September, however, there was
some easing in prices, probably anticipating a cut-back
in building regardless of the demand factor. Important
in pushing pine prices to new high levels was the car
shortage on the West Coast occasioned by military needs
in Korea. As a result Douglas fir mills on the West
Coast built up substantial stocks. Anticipating that these
stocks might soon reach the market could have been a
factor in recent price easing.
There is no unanimity of opinion as to the necessary
or desired cut-back in the housing field. Some indica­
tions point to an annual rate of 900 thousand units.
Others guess as low as 750 thousand; but there will
probably be enough housing to cover requirements under
somewhat tighter financing terms. Demand for lumber,
however, will probably be very high due to the require­
ments of the rearmament program.
Furniture factories are still going at capacity in this
District, and prices generally have been raised from 5
to 10%. The cut-back in housing probably will not have
the same effect on furniture, though lowered demand due
to lessened housing construction would logically come
Continued on page 12

[9]

FEDERAL RESERVE BAN K OF RICHMOND

PRINCIPAL ASSETS

AND

LIABILITIES

UNITED STATES AND FIFTH
L A S T W EDN ESDAY OF

M EM BER

BANKS

D IST R IC T
F IG U R E S

LOANS

LOANS AND INVESTM ENTS
B ILLION S OF DO LLARS

MONTH

OF

5th Dist.
2.0

DEMAND DEPOSITS, ADJ.

U.S. GOVT. S EC U R IT IES
u s.
.

BILLION S OF DO LLARS

BILLIONS OF D O LL A R S

40.0

TIME DEPOSITS

TOTAL DEPOSITS

B ILLIO N S OF DO LLARS

B IL L IO N S OF D O LL A R S

BILLIO N S OF D O LL A R S

20.0

Latest Figures Plotted:

Data Partly Estimated

Fif,h District, August 30,1950
United States, July 26 ,1950

51 R E P O R T IN G M E M B E R B A N K S — 5th D IS T R IC T

D E B IT S TO I N D IV ID U A L A C C O U N T S

(000 omitted)

(000 omitted)
August
1949

8 Months
1950

8 Months
1949

756,548

$ 6,663,740

$ 5,929,600

1,184,622
25,894
19,643
28,817

975,160
20,206
16,612
25,923

8,311,652
180,150
141,918
218,690

7,535,510
164,681
136,180
208,833

54,909
340,811
173,447
96,340
32,161
138,743
40,937
39,566
165,677

43,775
244,104
147,007
67,353
23,109
133,859
35,370
29,276
139,687

399,230
2,204,433
749,267
663,024
120,105
1,087,656
272,147
136,166
1,099,882

359,421
1,820,300
729,533
561,081
113,904
976,442
251,741
124,664
998,500

64,961
108,538
97,467
53,217

53,226
99,672
71,297
39,961

490,298
824,845
703,136
389,110

460,081
770,459
604,542
341,220

24,792
28,185
40,757
33,758
200,652
22,206
551,513
105,585

20,881
23,164
33,585
28,643
165,631
21,767
506,730
84,450

189,011
192,383
310,035
236,564
1,617,269
168,318
3,825,936
781,096

170,649
176,194
275,916
247,072
1,369,783
156,051
3,789,487
706,611

41,343
143,393
32,455
62,586
29,459
$ 4,848,559

36,020
121,052
26,874
53,471
26,000
$ 4,070,413

319,513
1,017,259
235,321
461,787
208,623
$34,218,564

346,469
1,045,555
227,634
443,777
200,795
$31,242,685

August
1950
Dist. of Columbia
Washington
Maryland
Baltimore
Cumberland
Frederick
Hagerstown
North Carolina
Asheville
Charlotte
Durham
Greensboro
Kinston
Raleigh
Wilmington
Wilson
W inston- Salem
South Carolina
Charleston
Columbia
Greenville
Spartanburg
Virginia
Charlottesville
Danville
Lynchburg
Newport News
Norfolk
Portsmouth
Richmond
Roanoke
West Virginia
Bluefield
Charleston
Clarksburg
Huntington
Parkersburg
District Totals




$

866,035

$

ITEMS
Total Loans___________________
Business & Agricultural____
Real Estate Loans__________
All Other Loans____________
Total Security Holdings---------U. S. Treasury Bills_________
U. S. Treasury Certificates__
U . S. Treasury Notes________
U. S. Treasury Bonds________
Other Bonds, St’ks & Secur.
Cash items in Process of Col.
Due from Banks_______________
Currency & Coin_____________
Reserve with F. R. B a n k Other Assets___________________
Total Assets_________________
Total Demand Deposits______
Deposits of Individuals _____
Deposits of U . S. Govt--------Deposits of State & Loc. Gov.
Deposits of Banks __________
Certified & Officers’ Checks..
Total Time Deposits___________
Deposits of Individuals_____
Other Time Deposits________
Liabilities for Borrowed Money
All Other Liabilities__________
Capital Accounts_______________
Total Liabilities____________

Sept. 13,
1950
$1,037,661**
475,503
235,512
338,811
1,763,152
144,651
42,757
341,691
1,068,385
165,668
291,297
205,340*
73,042
450,621
56,136
$3,877,249
$2,996,039
2,272,628
88,367
133,860
451,001*
50,183
610,593
564,058
46,535
7,800
23,787
239,030
$3,877,249

Change in Amount from
Aug. 16,
Sept. 14,
1950
1949
+205,259
+ 44,495
+ 100,278
+ 33,502
2,011
+ 32,469
+
9,030
+ 75,746
+
— 80,950
+ 10,465
— 15,924
+ 58,467
—
39,462
— 191,862
+298,660
+ 20,269
33,135
— 191,363
4,326
+ 19,539
+
+ 45,787
+ 33,660
+ 22,666
+ 50,770
8,583
+
3,915
+
1,835
+ 17,311
+
2,253
+
4,353
+
+152,061
+218,341
+160,317
+200,447
+154,548
+ 89,914
4,842
+ 28,465
+
3,231
+
3,255
+
+
5,545
+ 65,997
— 3,647
+
8,634
—
1,800
— 3,714
—
1,954
— 3,198
154
—
516
+
—
9,150
+
7,800
1,094
+
634
+
1,600
+ 13,174
+
+218,341
+152,061

*Net figures, reciprocal balances being eliminated.
**Less reserves for losses on bad loans.

r

101

MONTHLY REVIEW

OCTOBER 1950

S E L E C T E D F IF T H D IS T R IC T B U SIN E S S IN D E X E S
A V E R A G E D A IL Y 1935-39=100--S E A S O N A L L Y A D JU STE D
August
1950
Automobile Registration1------------------------------------------------------Bank Debits— -----------------------------------------------------------------------Bituminous Coal Production________________________________
Construction Contracts Awarded___________________________
Business Failures— No.---------------------------------------------------------Cigarette Production________________________________________
Cotton Spin dip Hours
Department Store Sales2-----------------------------------------------------Electric Power Production_________________________________
Employment— Manufacturing Industries1__________________
Furniture Manufacturers: Shipments2--------------------------------Life Insurance Sales________________________________________

July
1950

June
1950
275
355
154
408
86
239
138
332
300
139
297
290

268
372
118r
507
122
236
133
393
304
138
306
317

394
138
701
67
283
359

___
371
441

August
1949
204
329
113
453
60
253
129
305
262
137
237
242

% Change-—Latest Month
Prev. Mo.
Year Ago
—
+
+
+
—
+

3
6
17
38
45
20

+ 31
+ 20
+ 22
+ 55
+ 12
+ 12

— 9
+
1
— 1
+ 21
+ 39

+
+
+
+
+

18
19
5
57
82

1 Not seasonally adjusted.
2 Revised Series— back figures available on request.

B U IL D IN G P E R M IT FIG U R ES
August
1950

August
1949

W H O LE SA LE TRADE

8 Months
1950

8 Months
1949

3,940,970
29,340
51,790
185,915
90,855

$ 58,476,105
824,400
1,637,171
2,682,486
1,268,791

$ 32,362,415
342,440
645,917
1,676,255
1,083,541

Maryland
Baltimore
$
Cumberland
Frederick
Hagerstown
Salisbury

7,440,050
107,585
151,575
201,246
320,959

Virginia
Danville
Lynchburg
Norfolk
Petersburg
Portsmouth
Richmond
Roanoke

382,383
2,801,857
1,445,830
289,018
1,038,505
2,226,076
1,404,537

163,978
221,256
713,050
119,420
180,485
2,172,200
784,167

2,361,196
5,291,130
10,308,403
4,470,131
3,270,519
18,015,826
12,814,636

1,814,637
3,289,458
7,868,366
1,051,690
1,114,122
12,475,915
7,775,945

West Virginia
Charleston
Clarksburg
Huntington

656,378
176,225
1,286,343

3,283,929
102,025
1,442,512

10,433,281
1,288,748
5,364,756

8,101,289
791,895
3,982,798

North Carolina
Asheville
Charlotte
Durham
Greensboro
High Point
Raleigh
Rocky Mount
Salisbury
Winston-Salem

359,715
2,771,519
2,209,958
1,657,868
527,200
3,349,180
294,961
311,177
1,298,849

193,276
1,275,574
1,000,635
470,870
284,575
910,900
87,820
100,100
375,757

3,435,535
21,030,413
12,379,946
9,246,742
2,934,294
12,514,765
3,375,463
2,473,737
8,951,982

1,886,401
14,823,065
5,681,375
7,248,112
1,980,357
5,569,325
1,021,868
872,537
5,859,797

South Carolina
Charleston
Columbia
Greenville
Spartanburg

283,800
823,720
3,715,400
2,176,162

138,349
400,245
684,429
234,027

2,110,563
7,495,802
8,496,074
4,557,825

2,986,621
4,427,018
7,276,110
2,812,568

$

Dist. of Columbia
Washington
4,852,791

8,855,335

47,943,232

$ 28,493,784

$285,453,952

L IN ES

+31
- 4
|-29
-24
-61
-72
- 1
+29
+ 9
+17

+45
— 17
— 1
— 14
+ 2
+ 17
+ 13

+44
— 9
— 6
— 9
+ 2
— 6
+ 13

— 5
+11

+
+

7
2

+34

+ 15

+

+

2

7

R E T A IL F U R N IT U R E SAL ES
Aug. 1950
vs. 1949

STATES
Maryland (7)..
District of Columbia (7)..
Virginia (19)..
West Virginia (1 0 )_
North Carolina (10)
South Carolina (1 0 ).
District

8 Mos. 195
vs. 1949

+16%
+40
+23
+ 35
+ 30
+ 18

(6 3 )______

h 9%
-12
-10
-14
-14
-11

+27

+ 11

+ 16
+40
+23
+ 30
+ 13
+19
+53

IN D IV ID U AL CITIES
Baltimore, Md. ( 7 ) ________
Washington, D. C. ( 7 ) _____
Richmond, Va. ( 6 ) ________
Lynchburg, Va. ( 3 ) _______
Charleston, W . Va. ( 3 ) ____
Charlotte, N . C. ( 3 ) _______
Columbia, S. C. ( 3 ) ................

b 9
-12
- 6
-13
- 3
-12
bio

Number of reporting firms in parentheses.

-----------------♦ + ♦ —

C O T T O N C O N S U M P T IO N A N D ON H A N D — B A L E S
Aug. 1950

Aug. 1949

408,990

350,335

731,818

D E P A R T M E N T S T O R E O P E R A T IO N S
(Figures show percentage change)

601,111

Fifth District States:

978,750
4,553,230

Sales, August ’50 vs. August *49
Sales, 8 mos. *50 vs. 8 mos. ’4 9 Stocks, August 31, ’50 vs. ’49.—

807,840

663,008

1,144,250
4,568,889

676,397
3,946,463

Spindles active, Aug. 31, U . S..

20,540,000

Orders outstanding,
August 31, ’50 vs. ’49________
Current receivables August 1
collected in August ’50_______
Instalment receivables August 1
collected in August ’50... ........

19,745,000

Sales, Aug. ’50 vs. Aug. ’49___
Sales, 8 mos. ’50 vs. 8 mos. ’49

Source: Department of Commerce.

[ii]

Balt.

Wash.

Other
Cities

Dist.
Total

+16

Rich.

561,607
3,935,139

United States:
Cotton consumed_____________
Cotton on hand Aug. 31, in
consuming establishments..
storage & compresses______




| 61
-33
-69
-67
-12
-38
-19
-58
-21
-40

Number of reporting firms in parentheses.
Source: Department of Commerce.

•♦ + ♦ ■

Cotton consumed____________________________

Aug. 31 July 31
1949
1950

District Totals (2 1 7)_____

$198,459,716

Cotton Growing States:
Cotton consumed______
Cotton on hand Aug. 31, in
consuming establishments..
storage & compresses.__ ___

Stocks on
August 31, 1950

Auto supplies ( 8 ) _____________
Electrical goods ( 7 ) __________
Hardware (1 1 )_______________
Industrial supplies ( 5 ) _______
Drugs & sundries (1 7 )______
Dry goods ( 9 ) ________________
Groceries (5 6 )________________
Paper & Products ( 6 ) ________
Tobacco & Products ( 9 ) _____
Miscellaneous (8 9 )____________

51,637,879

District Totals $ 44,560,867

Sales in
August 1950
compared with
August
July
1949
1950

+21
+ 5
+21

+
+

1
5

+16
+ 2
+ 11

+16
+ 6
+13

+17
+ 3
+ 11

+ 79

+60

+69

+39

+ 65

29

48

48

41

42

17

19

17

14
Md.
+16
+ 1

D.C.
+16
+ 2

Va. W .V a. N.C.
+18 +26 +13
+ 4
+11 + 5

17
S.C.
+13
+ 4

FEDERAL RESERVE B A N K O F RICHMOND

Business Conditions and Prospects
Continued from page 9

later on. Regulation W may also affect some purchases
and have a retarding influence. New housing, however,
will be completed in large volume for the rest of the
year, and furniture demand should therefore continue
at a high level.
Cigarette output has responded in substantial fashion
to the general rise in business activity, due more to in­
ventory accumulation on the part of wholesalers and re­
tailers than to any marked change at the consumer level.
Cigarette prices have been raised and, with tobacco costs
also at new high levels, further price rises might occur.




The employment situation in July was again affected
by the widening of plant vacations and, consequently,
did not respond to the demand that became evident in
that month. The upward trend in August (textile, ap­
parel, and seasonal food and tobacco industries account­
ed for the bulk of the increase) indicates an improved
situation all along the line— even shipyards have added
moderately to their payrolls. Before year-end the labor
force will probably have been expanded considerably by
the rehiring of women while, at the same time, men are
being called to the armed services. On balance, the em­
ployment situation should be as full as can be practically
effected, continuing for many months into the future.


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102