"Just consider some of the most recent economic news....
*The number of U.S. home foreclosures set a record for the second consecutive month in May. How can the U.S. housing industry be recovering when the number of Americans being foreclosed on continues to set all-time records?
*As of March, U.S. banks had an inventory of approximately 1.1 million foreclosed homes, up 20 percent from a year ago. Instead of working their way through the huge backlog of unsold homes, U.S. banks continue to pile up a massive inventory of foreclosed homes at a staggering pace.
*According to figures from the U.S. Commerce Department, housing starts in the United States fell 10 percent in May, the biggest decline since March 2009. The data also revealed that single-family home starts suffered the biggest drop since 1991. There is already a massive glut of unsold homes on the market, so builders simply do not think it is profitable to build many new homes right now.
*Officials now tell us that the cost of "fixing" Fannie Mae and Freddie Mac, the government-backed mortgage companies that last year bought or guaranteed the vast majority of all U.S. home loans, will be at least $160 billion and could grow as high as $1 trillion. The twin pillars of the U.S. mortgage industry have become financial black holes that the U.S. government endlessly pours massive amounts of cash into. That is not a good sign.
*Fannie Mae and Freddie Mac are to be delisted from the New York Stock Exchange because their stock prices have been trading under $1 per share for more than 30 trading days. The truth is that Fannie Mae and Freddie Mac would have completely imploded by now if the U.S. government had not decided to step in and bail them out.
*The average duration of unemployment in the United States has risen to an all-time high. Not only are a ton of Americans out of work, they can't find work for a very, very long time once they are unemployed.
*For Americans younger than 25 years of age, the unemployment rate is 18.8%. But even those young Americans that can find employment often find themselves working in very low paying service jobs.
*Federal Reserve Chairman Ben Bernanke says that the U.S. unemployment rate is likely to stay "high for a while". Considering how badly Bernanke has been doing his job, it would be really nice if we could add just one more person to the unemployment rolls.
*According to one new study, approximately 21 percent of children in the United States are living below the poverty line in 2010 - the highest rate in 20 years. There are hundreds of thousands of American children on the streets each night, and yet we continue to insist that we are the greatest country in the world.
*For the first time in U.S. history, more than 40 million Americans are on food stamps, and the U.S. Department of Agriculture projects that number will go up to 43 million Americans in 2011. How many tens of millions of Americans have to be on food stamps before we officially say that we are in a depression
"*According to the Wall Street Journal, the debates have begun inside the Fed about what it should do in the event of a "double dip" recession. If they are already debating what to do during the next economic downturn that means it is probably a foregone conclusion.
*If you were alive when Christ was born and spent one million dollars every single day from then until now, you still would not have spent one trillion dollars by now. But somehow the U.S. government is now over 13 trillion dollars in debt. According to a U.S. Treasury Department report to Congress, the U.S. national debt will top $13.6 trillion this year and climb to an estimated $19.6 trillion by 2015.
*It is being projected that the U.S. national debt will grow to surpass our gross domestic product in 2012. Needless to say, that is a really, really bad sign.
*The total of all government, corporate and consumer debt in the United States is now equal to 360 percent of GDP. At no point during the Great Depression did we ever even come close to such a figure.
But things may be even worse in Europe right now. Unfortunately for the U.S., when Europe experiences an economic collapse it will devastate the American economy as well.
The economic news coming out of Europe lately has been extremely alarming....
*George Soros says that a European recession next year is "almost inevitable". Considering how much access George Soros has to inside information, the fact that he is so pessimistic about Europe is a very troubling thing indeed.
*A report by the Bank for International Settlements says that the debt crisis hitting southern Europe resembles the 2007 subprime mortgage crisis. Is history about to repeat itself?
*Moody's has downgraded Greece government bond ratings into junk territory, citing the risks inherent in the rescue package that the rest of the eurozone has put together for them. Soon Spain, Portugal, Italy, Ireland, Romania and a number of other European nations could have their debt downgraded as well.
*The U.K.'s new Office for Budget Responsibility has announced that the U.K. economy was more damaged by the recent financial crisis than previously admitted, and that it may never fully recover. But the same could be said for many other nations across the world as well.
*21.5% of all working-age people in the U.K. do not have a job. It seems like almost every country has a shortage of jobs these days.
*New U.K. Prime Minister David Cameron is warning that Britain's "whole way of life" is about to be significantly disrupted for years by the most drastic public spending cuts in a generation. In fact, severe austerity measures being implemented all across Europe could make this one of the most "interesting" European summers in ages.
*Spanish banks are borrowing record amounts of money from the European Central Bank as Spain's financial institutions are finding it increasingly difficult to acquire funds in international capital markets. But the truth is that it isn't just Spanish banks that are facing a liquidity squeeze - the entire world is heading for a massive credit crunch."
at http://theeconomiccollapseblog.com/archives/bad-economic-news
Showing posts with label real estate market. Show all posts
Showing posts with label real estate market. Show all posts
Thursday, June 17, 2010
Wednesday, June 16, 2010
SPAIN MAY BE THE NEXT DOMINO TO FALL
"As Spain wrestles to contain its budget deficit which in turn is leading to a drop in bond market values, local banks are having a difficult time in locating funding due to their holdings of underwater government debt.
Chairman for one of Spain’s largest banks, Francisco Gonzalez said yesterday that for many of the country’s financial institutions, the “international capital markets are closed”. In addition, Spain’s Treasury secretary, Carlos Ocana said that the current environment for banks and corporations was “definitely a problem”.
Generally, European banks rely heavily on lenders from abroad for funding and less so on traditional deposits according to The Economic Times. They turn to the international capital markets in both money market land and in longer-term debt, to finance about 40 percent of their 33 trillion euros of assets. The remaining amount comes from deposits which is about half and the balance through equity.
With the inability to attract funding as evident by the rise in the interbank short term lending rates, Spanish banks are turning to the European Central Bank as a lender of last resort.
According to a Financial Times article, Spanish banks borrowed 85.6 billion euros from the ECB last month which was twice the amount needed right before the last credit crunch which was triggered by the fall of Lehman Brothers in September 1998. Furthermore, it is the highest amount since the beginning of the Euro Zone in 1999. Comparatively, the borrowing is an increase of about 14.4 percent from April’s tally of 74.6 billion euros."
at http://pragcap.com/spain-may-be-the-next-domino-to-fall
Chairman for one of Spain’s largest banks, Francisco Gonzalez said yesterday that for many of the country’s financial institutions, the “international capital markets are closed”. In addition, Spain’s Treasury secretary, Carlos Ocana said that the current environment for banks and corporations was “definitely a problem”.
Generally, European banks rely heavily on lenders from abroad for funding and less so on traditional deposits according to The Economic Times. They turn to the international capital markets in both money market land and in longer-term debt, to finance about 40 percent of their 33 trillion euros of assets. The remaining amount comes from deposits which is about half and the balance through equity.
With the inability to attract funding as evident by the rise in the interbank short term lending rates, Spanish banks are turning to the European Central Bank as a lender of last resort.
According to a Financial Times article, Spanish banks borrowed 85.6 billion euros from the ECB last month which was twice the amount needed right before the last credit crunch which was triggered by the fall of Lehman Brothers in September 1998. Furthermore, it is the highest amount since the beginning of the Euro Zone in 1999. Comparatively, the borrowing is an increase of about 14.4 percent from April’s tally of 74.6 billion euros."
at http://pragcap.com/spain-may-be-the-next-domino-to-fall
Tuesday, June 15, 2010
9 Reasons Why Spain Is A Dead Economy Walking
"The following are 9 reasons why Spain is a dead economy walking....
#1) Even before this most recent crisis, unemploment in Spain was approaching Great Depression levels. Spain now has the highest unemployment rate in the entire European Union. More than 20 percent of working age Spaniards were unemployed during the first quarter of 2010. If people aren't working they can't pay taxes and they can't provide for their families.
#2) In an effort to stimulate the economy, Spain's socialist government has been spending unprecedented amounts of money and that skyrocketed the government budget deficit to a stunning 11.4 percent of GDP in 2009. That is completely unsustainable by any definition.
#3) The total of all public and private debt in Spain has now reached 270 percent of GDP.
#4) The Spanish government has accumulated way more debt than it can possibly handle, and this has forced two international ratings agencies, Fitch and Standard & Poor’s, to lower Spain’s long-term sovereign credit rating. These downgrades are making it much more expensive for Spain to finance its debt at a time when they simply can't afford to pay more interest on their debt.
#5) There are 1.6 million unsold properties in Spain. That is six times the level per capita in the United States. Considering how bad the U.S. real estate market is, that statistic is incredibly alarming.
#6) The new "green economy" in Spain has been a total flop. Socialist leaders promised that implementing hardcore restrictions on carbon emissions and forcing the nation over to a "green economy" would result in a flood of "green jobs". But that simply did not happen. In fact, a leaked internal assessment produced by the government of Spain reveals that the "green economy" has been an absolute economic nightmare for that nation. Energy prices have skyrocketed in Spain and the new "green economy" in that nation has actually lost more than two jobs for every job that it has created. But Spain so far seems unwilling to undo all of the crazy regulations that they have implemented.
#7) Spain's national debt is so onerous that they are now caught in a debt spiral where anything they do will harm the economy. If they cut government expenditures in an effort to get debt under control it will devastate economic growth and crush badly needed tax revenues. But if the Spanish government keeps borrowing money their credit rating will continue to decline and they will almost certainly default. The truth is that the Spanish government is caught in a "no win" situation.
#8) But even now the IMF is projecting that the Spanish economy is going nowhere fast. The International Monetary Fund says there will be no positive GDP growth in Spain until 2011, at which point it will still be below one percent. As bleak as that forecast is, many analysts believe that it is way too optimistic considering the fact that Spain's economy declined by about 3.6 percent in 2009 and things are rapidly getting worse.
#9) The Spanish population has gotten used to socialist handouts and they are not going to accept public sector pay cuts, budget cuts to social programs and hefty tax increases easily. In fact, there is likely to be some very serious social unrest before all of this is said and done. On May 21st, thousands of public sector workers took to the streets of Spain to protest the government’s austerity plan. But that was only an appetizer. Spain's two main unions are calling for a major one day general strike to protest the government's planned reforms of the country's labor market. The truth is that financial shock therapy does not go down very well in highly socialized nations such as Greece and Spain. In fact, the austerity measures that Spain has been pressured to implement by the IMF have proven so unpopular that many are now projecting that Spain's socialist government will be forced to call early elections."
at http://theeconomiccollapseblog.com/archives/9-reasons-why-spain-is-a-dead-economy-walking
#1) Even before this most recent crisis, unemploment in Spain was approaching Great Depression levels. Spain now has the highest unemployment rate in the entire European Union. More than 20 percent of working age Spaniards were unemployed during the first quarter of 2010. If people aren't working they can't pay taxes and they can't provide for their families.
#2) In an effort to stimulate the economy, Spain's socialist government has been spending unprecedented amounts of money and that skyrocketed the government budget deficit to a stunning 11.4 percent of GDP in 2009. That is completely unsustainable by any definition.
#3) The total of all public and private debt in Spain has now reached 270 percent of GDP.
#4) The Spanish government has accumulated way more debt than it can possibly handle, and this has forced two international ratings agencies, Fitch and Standard & Poor’s, to lower Spain’s long-term sovereign credit rating. These downgrades are making it much more expensive for Spain to finance its debt at a time when they simply can't afford to pay more interest on their debt.
#5) There are 1.6 million unsold properties in Spain. That is six times the level per capita in the United States. Considering how bad the U.S. real estate market is, that statistic is incredibly alarming.
#6) The new "green economy" in Spain has been a total flop. Socialist leaders promised that implementing hardcore restrictions on carbon emissions and forcing the nation over to a "green economy" would result in a flood of "green jobs". But that simply did not happen. In fact, a leaked internal assessment produced by the government of Spain reveals that the "green economy" has been an absolute economic nightmare for that nation. Energy prices have skyrocketed in Spain and the new "green economy" in that nation has actually lost more than two jobs for every job that it has created. But Spain so far seems unwilling to undo all of the crazy regulations that they have implemented.
#7) Spain's national debt is so onerous that they are now caught in a debt spiral where anything they do will harm the economy. If they cut government expenditures in an effort to get debt under control it will devastate economic growth and crush badly needed tax revenues. But if the Spanish government keeps borrowing money their credit rating will continue to decline and they will almost certainly default. The truth is that the Spanish government is caught in a "no win" situation.
#8) But even now the IMF is projecting that the Spanish economy is going nowhere fast. The International Monetary Fund says there will be no positive GDP growth in Spain until 2011, at which point it will still be below one percent. As bleak as that forecast is, many analysts believe that it is way too optimistic considering the fact that Spain's economy declined by about 3.6 percent in 2009 and things are rapidly getting worse.
#9) The Spanish population has gotten used to socialist handouts and they are not going to accept public sector pay cuts, budget cuts to social programs and hefty tax increases easily. In fact, there is likely to be some very serious social unrest before all of this is said and done. On May 21st, thousands of public sector workers took to the streets of Spain to protest the government’s austerity plan. But that was only an appetizer. Spain's two main unions are calling for a major one day general strike to protest the government's planned reforms of the country's labor market. The truth is that financial shock therapy does not go down very well in highly socialized nations such as Greece and Spain. In fact, the austerity measures that Spain has been pressured to implement by the IMF have proven so unpopular that many are now projecting that Spain's socialist government will be forced to call early elections."
at http://theeconomiccollapseblog.com/archives/9-reasons-why-spain-is-a-dead-economy-walking
Friday, June 11, 2010
THE DIRE OUTLOOK FOR HOUSING
"While the market has been focused on the Euro, China and the BP oil spill, the impending second wave of decline in the housing market has largely gone unnoticed. Recent housing numbers have mostly been bolstered by the home buyers’ tax credit that expired on April 30th, the date when contracts had to be signed to qualify. Sales, however, are not recorded until closing, which has to take place by June 30th. Sales of new and existing houses may therefore show some further strength until then, but fade after that time. (Sen. Reid has proposed extending the completion date to Sept. 30th, but only for those who qualified by April 30th.)
The point we’re getting to is that sales already appear to have declined significantly after the tax credit expiration. We quote the following in a story from the weekend Wall Street Journal that did not seem to attract wide attention.
“.Ivy Zelman, chief executive of Zelman Associates, a research firm, estimates that sales of new homes nationwide in May were down 25% to 30% from April. She warns that the weak May performance increases the chances of renewed price cuts by builders caught with too much inventory.
“Lawrence Yun, chief economist for the National association of realtors estimated that contracts signed for home resales in May were down 20% to 30% from a year earlier. He expects June and July to remain fairly weak.”
“Now that the real estate market is not benefiting from tax-credit ’steroids, we’re probably going to see a sluggish second half,’ said Ron Peltier, chief executive officer of real-estate broker Home Services of America Inc. Joblessness, or the fear of losing a job, continues to deter many potential buyers. Mr. Peltier said, and the large number of homes in foreclosure or heading that way is still putting pressure on prices in many areas. Home Services.saw its home-purchase contracts signed in May fall by nearly 20% from a year earlier, or about twice the decline it was expecting.
“A national survey of real-estate agents by Credit Suisse, released Friday, shows that traffic at homes for sale was down in May to its lowest level since the financial crisis of late 2008.”
The overwhelming anecdotal evidence is supported by the Mortgage Bankers Association (MBA) purchase application index, probably the best leading indicator of future home sales. Last week’s index was down 42% since the April 30th tax credit expiration, and at a level not seen since 1996.
All of the evidence we see indicates that the tax credit merely pushed home sales ahead, and that without it, sales and prices will resume their decline. In addition to the lack of tax credits, adjustable rate mortgage resets will soar from about now until November and then reach an even higher peak in 2011. This will put more and more mortgage holders into a position where they can longer meet their monthly payments, leading to another round of defaults and foreclosures.
Furthermore, delinquencies were climbing even before the rise in resets. According to the MBA, 1st quarter delinquencies surged to a record in every single category—fixed prime, adjustable prime, fixed subprime and adjustable subprime. At the end of the quarter fully 10% of all prime and 27% of all subprime mortgages were in delinquency.
Another big problem for the industry is the so-called “shadow” inventory, consisting of homes that banks are holding, but haven’t foreclosed; homes that have been foreclosed, but not put on the market; and delinquent homeowners who have not yet foreclosed. We should also mention that 14.9 million homeowners owe more on their homes than the homes are worth, fully one-third of all U.S. mortgage holders. Of these, 9% are more than 20% underwater. Many of these homeowners may walk away from their homes even if they are capable of making their payments, and many already have done so. Some reputable studies have estimated that one-quarter of all defaults is caused solely by negative equity.
The prospect of declining home sales and prices has dire consequences for the economy. The further drop in prices will put even more mortgage holders underwater and exacerbate the number of subsequent defaults and foreclosures. The resulting decline in consumer net worth feeds back into lower consumer spending and sets up a negative feedback loop that works its way through the economy. Furthermore the drop in home values sharply reduces the value of the mortgages held by the banking system. Although the suspension of mark-to-market regulations means that banks won’t be forced to write down the loans, bank managements will certainly be fully aware of the potential threat to their capital, and be even more reluctant to make loans than they are today.
All in all we believe that the stock market has not discounted the potentially deteriorating housing picture that will probably hit the headlines within the next few months. In our view, therefore, the recent 1040 bottom in the S&P 500 will eventually give way and decline to significantly lower lows."
at http://pragcap.com/the-dire-outlook-for-housing
The point we’re getting to is that sales already appear to have declined significantly after the tax credit expiration. We quote the following in a story from the weekend Wall Street Journal that did not seem to attract wide attention.
“.Ivy Zelman, chief executive of Zelman Associates, a research firm, estimates that sales of new homes nationwide in May were down 25% to 30% from April. She warns that the weak May performance increases the chances of renewed price cuts by builders caught with too much inventory.
“Lawrence Yun, chief economist for the National association of realtors estimated that contracts signed for home resales in May were down 20% to 30% from a year earlier. He expects June and July to remain fairly weak.”
“Now that the real estate market is not benefiting from tax-credit ’steroids, we’re probably going to see a sluggish second half,’ said Ron Peltier, chief executive officer of real-estate broker Home Services of America Inc. Joblessness, or the fear of losing a job, continues to deter many potential buyers. Mr. Peltier said, and the large number of homes in foreclosure or heading that way is still putting pressure on prices in many areas. Home Services.saw its home-purchase contracts signed in May fall by nearly 20% from a year earlier, or about twice the decline it was expecting.
“A national survey of real-estate agents by Credit Suisse, released Friday, shows that traffic at homes for sale was down in May to its lowest level since the financial crisis of late 2008.”
The overwhelming anecdotal evidence is supported by the Mortgage Bankers Association (MBA) purchase application index, probably the best leading indicator of future home sales. Last week’s index was down 42% since the April 30th tax credit expiration, and at a level not seen since 1996.
All of the evidence we see indicates that the tax credit merely pushed home sales ahead, and that without it, sales and prices will resume their decline. In addition to the lack of tax credits, adjustable rate mortgage resets will soar from about now until November and then reach an even higher peak in 2011. This will put more and more mortgage holders into a position where they can longer meet their monthly payments, leading to another round of defaults and foreclosures.
Furthermore, delinquencies were climbing even before the rise in resets. According to the MBA, 1st quarter delinquencies surged to a record in every single category—fixed prime, adjustable prime, fixed subprime and adjustable subprime. At the end of the quarter fully 10% of all prime and 27% of all subprime mortgages were in delinquency.
Another big problem for the industry is the so-called “shadow” inventory, consisting of homes that banks are holding, but haven’t foreclosed; homes that have been foreclosed, but not put on the market; and delinquent homeowners who have not yet foreclosed. We should also mention that 14.9 million homeowners owe more on their homes than the homes are worth, fully one-third of all U.S. mortgage holders. Of these, 9% are more than 20% underwater. Many of these homeowners may walk away from their homes even if they are capable of making their payments, and many already have done so. Some reputable studies have estimated that one-quarter of all defaults is caused solely by negative equity.
The prospect of declining home sales and prices has dire consequences for the economy. The further drop in prices will put even more mortgage holders underwater and exacerbate the number of subsequent defaults and foreclosures. The resulting decline in consumer net worth feeds back into lower consumer spending and sets up a negative feedback loop that works its way through the economy. Furthermore the drop in home values sharply reduces the value of the mortgages held by the banking system. Although the suspension of mark-to-market regulations means that banks won’t be forced to write down the loans, bank managements will certainly be fully aware of the potential threat to their capital, and be even more reluctant to make loans than they are today.
All in all we believe that the stock market has not discounted the potentially deteriorating housing picture that will probably hit the headlines within the next few months. In our view, therefore, the recent 1040 bottom in the S&P 500 will eventually give way and decline to significantly lower lows."
at http://pragcap.com/the-dire-outlook-for-housing
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