Residential real estate sales and home prices remain mired in a downward spiral, as rental markets are strengthening, according to the Federal Reserve. The latest Beige Book suggests economic conditions across most of the dozen Fed districts nationwide are expanding moderately. Although some districts experienced deceleration in growth the past few months. Manufacturing activity continues to expand in many parts of the country, and nonfinancial services are growing at a steady pace with gains in information technology and business and professional services. The central bank said commercial real estate leasing has stabilized somewhat, “while construction activity has remained very subdued.” Still, most districts reported loan demand was steady to stronger the past few months, especially in the commercial and industrial sector. And the Fed said “widespread improvement was reported in credit quality.” Yet, consumer spending reports were mixed. “Elevated food and energy prices, as well as unfavorable weather in some parts of the country, were said to be weighing on consumers’ propensity to spend,” according to the Beige Book report. A number of districts reported a large overhang of distressed properties that is weighing down new residential construction. Meanwhile five districts — Atlanta, Chicago, Cleveland, New York and San Francisco — reported improved prospects for development of multifamily rental properties. The Federal Reserve said nonresidential construction, “though widely reported to be at very low levels, rose modestly” in Boston, Chicago, Dallas and Minneapolis. “More broadly, contacts in a number of districts expressed a general sense of optimism about the outlook for the second half of 2011” for the real estate and construction sectors. The Beige Book gathers anecdotal evidence of economic conditions in the 12 Fed districts nationwide. The central bank will publish the next one July 27. Write to Jason Philyaw.

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