Higher borrowing costs put skids on commercial lending; mortgage demand still weak

Higher borrowing costs due to inflation (and central bank actions to raise interest rates) have begun to dampen commercial lending, bankers told the Federal Reserve in response to its latest survey on current economic conditions.

The bankers also told the Fed, as reported in its Beige Book for Jan. 18, that residential mortgage demand remains weak. The report, published eight times a year, was based on information collected on or before Jan. 9; it summarizes comments received from outside the Federal Reserve System.

Respondents to the survey also said that auto sales were flat on average during the reporting period, but that “some dealers noted that increased vehicle availability had boosted sales.” Meanwhile, the report indicated that commercial real estate activity slowed slightly, on average, with more notable weakening in the office market. Nonfinancial services firms experienced stable demand on balance, according to the report.

Housing markets continued to weaken, with sales and construction declining across the country, the report stated.

Also in the report: Retailers noted that high inflation continued to reduce consumers’ purchasing power, particularly among low- and moderate-income households.

Jan. 18, 2023, Summary of Commentary on Current Economic Conditions by Federal Reserve District

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