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US: Credit is becoming increasingly tight
Wed, Feb 6 2008, 08:31 GMT
by Peter Possing Andersen
Overview: Yesterday night the Federal Reserve released the Senior Loan Officer Opinion Survey. The report conveys a survey of the lending standards for the prior three months to January. Generally, the report indicated a tightening of overall credit in all parts of the economy. In particular the mortgage credit market and commercial real estate have been facing some serious tightening. At the same time overall demand for loans has been weakening.
Details: The report strongly indicates that mortgage lenders have continued to tighten credit. The number of respondents reporting tighter credit standards has now reached an all-time high for the survey period. Moreover, the credit tightening is not only isolated to the more risky sub-prime and non-traditional loans. 52.9% of the respondents - up from 40.8% in the prior survey - are reporting tighter lending standards on prime loans. In line with the continued deterioration in home sales during Q4, the demand for mortgage loans has weakened considerably. In summary, the survey for mortgage loans delivers a very downbeat message indicating that credit availability as well as demand for mortgage loans have continued to deteriorate.
For household consumer credit the picture is becoming somewhat more negative, although the process of tightening is much gentler than in the mortgage market. Especially the tightening of other consumer loans indicates that households are facing tougher financing conditions for big-ticket spending items such as cars and other durables. Also, the willingness to make consumer instalment loans has weakened indicating a minor deterioration in the access to consumer credit.
In the corporate sector the tightening continues. For commercial and industrial loans the tightening remains relatively orderly. However, lending standards for commercial real estate loans have experienced a significant tightening. In combo with faltering demand for this category, the survey signals that the boom in structures, which have been a convenient buffer against the slowdown in residential home building, might be close to an end.
Assessment: The report clearly indicates that all types of credit are now being tightened up in a response to the financial crisis and the continued downturn in the housing market. The information embedded in this survey is definitely a concern for the Fed, which has lately expressed high concern about the deteriorating credit availability in the economy. The loan survey, which was due on 17 January, has most likely been available for the FOMC up to the unscheduled 22 January meeting. In the statement following the 22 and 30 January meetings the committee mentioned the downside risk to the economy from deteriorating financial conditions and tighter credit for some businesses and households. Hence, the survey has almost certainly been a part of the information set convincing the committee to ease policy significantly at these meetings
Published on Wed, Feb 6 2008, 08:36 GMT
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