The US economy expanded through the second quarter of 2005 despite higher interest rates and energy prices but signs of moderation in the hot housing market may be emerging, a report from a bank regulatory agency said on Tuesday.
The Federal Deposit Insurance Corp said labour, credit and residential real estate conditions were strongest in the US West, Northeast and areas of the South, particularly Florida and Virginia.
But the Midwest continued to lag the rest of the United States, the FDIC said in a report that covered regional economic conditions in the period before Hurricane Katrina battered the US Gulf Coast in August.
FDIC analysts said strong residential and commercial real estate lending in the West, Northeast and South reflected low long-term interest rates and new mortgage products, especially in areas that have seen the fastest growth in home prices.
"However, signs of economic and housing moderation could be emerging, and job growth in even the strongest regions waned slightly in the second quarter," the FDIC report said.
The US housing sector has shown little sign of sustained cooling despite a years-long rally that has sent home prices up by more than 53 percent on average across the country, government data show.
In the West, Northeast and areas of the South, prices have climbed faster than the rest of the country. Nevada, for example, led the states in appreciation with prices up 28 percent over the 12 months ending June 30, according to data from the US Office of Federal Housing Enterprise Oversight.
Stubbornly low long-term mortgage rates, which have largely ignored increases in short-term borrowing costs, have kept demand among homebuyers robust. But rising home prices have led to a growing use of what the FDIC called "innovative mortgage products," or loans other than traditional 30-year fixed-rate or the most basic adjustable-rate mortgages.
Federal bank regulators have increasingly raised concerns about those alternative loan products, dubbed "exotic" by Federal Reserve Chairman Alan Greenspan, and said they saw signs of loose underwriting among lenders.
The FDIC report said many of the hottest real estate markets saw a deterioration in housing affordability in the second quarter and a higher dependence among buyers on alternative loans. The regulator also cited speculative activity in coastal areas. The gap between growth in home prices and growth in per capital personal income in the United States expanded to 7.99 percent in the second quarter from 7.67 percent in the first quarter and 5.65 percent in the comparable period a year ago, FDIC said.