Southwest Economy Update: Second Quarter

Eleventh Federal Reserve District banks --Texas, northern Louisiana and southern New Mexico--have outperformed their counterparts nationwide, even in the midst of a recession. Recent first quarter data provided the good news of profitability rebounding and increases in asset-quality problems slowing down. Measured by profits or problems, banks in the Eleventh District were about “twice as good and half as bad” as their counterparts across the nation. This most likely suggests that the economic downturn was less severe in the Eleventh District than in other areas of the country.

With the Texas and national economies making signficant progress and demand in the rental and investment markets mobilizing, a bottom in commercial real estate (CRE) may be in sight. Declines in property values and rents have generated concerns about potential defaults and foreclosures as loans come due, creating risks to the banking sector and the economy in general. On a positive note, the lower rents and prices are beginning to create demand for space and investor interest. Also, sectors of the economy that drive real estate demand are looking up, making it appear that the bottom is near.

For further information, please visit: http://www.dallasfed.org/research/swe/index.html

July 13, 2010

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