FOMC/FOMC20060629meeting/FOMC20060629meeting--17.txt MR. SLIFMAN As shown in exhibit 5 in the top left panel , the financial obligations ratio for homeowners has risen sharply over the past year or so . FOMC/FOMC20060629meeting/FOMC20060629meeting--17.txt MR. SLIFMAN This group presumably is at greater potential risk for financial stress generally : Note the higher levels of their delinquency rates , the red line , compared with the prime market . FOMC/FOMC20060629meeting/FOMC20060629meeting--17.txt MR. SLIFMAN Nevertheless , the recent spate of reports and a jump in the rate of contract cancellations for new homes , which homebuilders attribute largely to a retreat by investors , pose a downside risk to the housing outlook . FOMC/FOMC20060629meeting/FOMC20060629meeting--17.txt MR. SLIFMAN When we prepared the Greenbook , the spot price of WTI was just under $ 70 per barrel , about $ 5 less than at the time of the May Greenbook . FOMC/FOMC20060629meeting/FOMC20060629meeting--17.txt MR. SLIFMAN The slowing reflects a step-down in purchases of light motor vehicles as well as essentially flat real outlays for goods other than motor vehicles in the first two months of the quarter . FOMC/FOMC20060629meeting/FOMC20060629meeting--17.txt MR. SLIFMAN Data on mortgage originations by investors and those purchasing second homes , which begin on a monthly basis in mid-2003 and are available only through March , are plotted to the right . FOMC/FOMC20060629meeting/FOMC20060629meeting--17.txt MR. SLIFMAN As I mentioned earlier , several developments besides the incoming spending indicators influenced our thinking about the economic outlook . FOMC/FOMC20060629meeting/FOMC20060629meeting--17.txt MR. SLIFMAN In addition to ongoing demand for large-scale servers from financial services companies , demand for clusters of small-scale servers -- so-called server farms -- by Internet content providers , for example , also appears to be robust . FOMC/FOMC20060629meeting/FOMC20060629meeting--17.txt MR. SLIFMAN The other big surprise in the recent data is the sharper-than-expected drop-off in housing activity , as illustrated in the middle left panel . FOMC/FOMC20060629meeting/FOMC20060629meeting--17.txt MR. SLIFMAN And the increases for those subprime borrowers experiencing resets could be striking : We estimate increases of something like 25 to 30 percent of their original payment . FOMC/FOMC20060629meeting/FOMC20060629meeting--17.txt MR. SLIFMAN We assume that equity prices will rise at a 6 1/2 percent annual rate going forward -- a pace that roughly maintains risk-adjusted parity with the returns on Treasury securities . FOMC/FOMC20060629meeting/FOMC20060629meeting--17.txt MR. SLIFMAN As you can see in the last column , the bulk of variable-rate mortgages -- both ARMs and interest-only -- that have yet to reprice wo n't begin to reprice until after 2007 . FOMC/FOMC20060629meeting/FOMC20060629meeting--17.txt MR. SLIFMAN With regard to PCs , Intel will be introducing a fundamentally new chip design in the second half of this year that reportedly will increase performance and significantly reduce power consumption . FOMC/FOMC20060629meeting/FOMC20060629meeting--17.txt MR. SLIFMAN And with futures prices also lower , we reduced the path of crude oil prices throughout the projection period . FOMC/FOMC20060629meeting/FOMC20060629meeting--17.txt MR. SLIFMAN We project that demand for PCs should step up later this year , spurred by the combination of the new generation of chips for high-end users and falling prices on old chips for middle - and low-end users . FOMC/FOMC20060629meeting/FOMC20060629meeting--17.txt MR. SLIFMAN Nevertheless , the greater stress evident among the most financially vulnerable segment of the household sector presents a downside risk to the forecast . FOMC/FOMC20061025meeting/FOMC20061025meeting--87.txt MS. BIES However , the 20 percent drop in purchase mortgage applications means that mortgage brokers are earning a lot less income . FOMC/FOMC20061025meeting/FOMC20061025meeting--87.txt MS. BIES So predatory lending is rearing its head at the lower end of the scale , and it 's something we have to continue to watch for . FOMC/FOMC20061212meeting/FOMC20061212meeting--96.txt MS. BIES Banks are still getting some of this business and putting it on their balance sheets , and it is part of the growth of what you 're seeing the banks funding . FOMC/FOMC20061212meeting/FOMC20061212meeting--96.txt MS. BIES I think we 'll see that bottom in housing sales long before we see it on the construction side because there 's a large amount of inventory still to work through . FOMC/FOMC20061212meeting/FOMC20061212meeting--96.txt MS. BIES I 'm hearing this from folks who understand that the quality of what goes into those pools varies tremendously when you do n't have the Fannie Mae and Freddie Mac framework for the underwriting . FOMC/FOMC20061212meeting/FOMC20061212meeting--96.txt MS. BIES I thought I 'd start today talking a bit about housing markets and the condition of banks right now . FOMC/FOMC20060510meeting/FOMC20060510meeting--124.txt MS. BIES The Greenbook showed how much the subprime sector is going up ; and we know , because ARMs are a big chunk of those mortgages , that it is starting to be felt . FOMC/FOMC20060510meeting/FOMC20060510meeting--124.txt MS. BIES In other words , they bill the customer for this interest , but instead of making the customer give them the cash every month , they just add the amount to the outstanding balance and it creates negative amortization . FOMC/FOMC20061212meeting/FOMC20061212meeting--73.txt MS. PIANALTO I am concerned that we do n't yet have a good handle on where house prices are headed and how the uncertainties surrounding house prices might affect consumer spending . FOMC/FOMC20061212meeting/FOMC20061212meeting--73.txt MS. PIANALTO The inflation trend continues to be hard to interpret , but I still expect core inflation to drift down gradually over the forecast period . FOMC/FOMC20061212meeting/FOMC20061212meeting--73.txt MS. PIANALTO Second , the support to consumption provided by cash-out refinancing is not likely to be available going forward to the same degree that we 've had during the past several years . FOMC/FOMC20061212meeting/FOMC20061212meeting--73.txt MS. PIANALTO The Greenbook points out that the OFHEO price index is still increasing a bit , but the builders I met with convinced me that the published prices for new homes do n't accurately reflect market conditions . FOMC/FOMC20061212meeting/FOMC20061212meeting--73.txt MS. PIANALTO The Greenbook 's extended house decline alternative scenario represents this risk , although I have not yet heard stories that are quite as dramatic as the 20 percent decline in home prices in that scenario . FOMC/FOMC20061212meeting/FOMC20061212meeting--73.txt MS. PIANALTO I just think that there 's greater likelihood that the real economy could prove to be weaker than the baseline in the Greenbook in 2007 , and the key risk in my view is the degree of spillover from the housing market into the rest of the economy . FOMC/FOMC20061212meeting/FOMC20061212meeting--73.txt MS. PIANALTO I 've been told stories of builders in Arizona who have been giving buyers new Lexuses as part of the overall deal so that they do n't have to bring down the prices in their subdivision . FOMC/FOMC20061212meeting/FOMC20061212meeting--73.txt MS. PIANALTO -LSB- Laughter -RSB- Now , if we could get these homebuilders to adopt a Buy American strategy , we might also be able to solve our domestic auto problem .