Housing Just Got a Lot More Affordable

Here are the cities with the biggest increase in affordability:

Housing Cost as a percentage % of Homeowners Income (Peak to Current)

Metro Area Oakland, CA
Peak Date 2007-08
Peak Ratio 84%
Current Ratio 28%
% Change 67%

Metro Area Riverside-San Bernardino, CA
Peak Date 2006-07
Peak Ratio 68%
Current Ratio 25%
% Change 64%

Metro Area Sacramento, CA
Peak Date 2005-06
Peak Ratio 63%
Current Ratio 26%
% Change 59%

Metro Area Las Vegas, NV
Peak Date 2006-07
Peak Ratio 54%
Current Ratio 22
% Change 59%

Metro Area Phoenix, AZ
Peak Date 2006-07
Peak Ratio 46%
Current Ratio 19%
% Change 58%

Metro Area Los Angeles, CA
Peak Date 2007-08
Peak Ratio 102%
Current Ratio 45%
% Change 56%

Metro Area Miami, FL
Peak Date 2007-08
Peak Ratio 76%
Current Ratio 34%
% Change 54%

Metro Area Washington DC
Peak Date 2005-06
Peak Ratio 53%
Current Ratio 25%
% Change 53%

Metro Area Detroit, MI
Peak Date 2004-05
Peak Ratio 29%
Current Ratio 15%
% Change 49%

Metro Area Tampa, FL
Peak Date 2006-06
Peak Ratio 42%
Current Ratio 21%
% Change 49%

Housing construction continues to decline

Housing starts tumbled 10.8% in March, a distress sign that economists say means housing construction will not make a big turnaround soon.

Construction of new homes and apartments fell to a seasonally adjusted annual rate of 510,000 units, the Commerce Department said Thursday। That was the second-lowest rate in the department's records, which go back 50 years.

The decline was more than many economists had expected and took off some of the glow from a reported increase in February। The February figure was also revised downward in Thursday's report.

Applications for building permits fell 9% in March to a 513,000 seasonally adjusted annual pace, the lowest on record।

Michael Larson, a housing analyst at Weiss Research, says the numbers are being strongly affected by the starts in the multifamily home segment, whose numbers tend to swing widely।

"Builders are having a hard time competing with these low prices on almost-new and foreclosed homes," Larsen says। "You're seeing things getting a little less bad on the housing arena, but there is still a market that is oversupplied. Nothing suggests an imminent recovery."

Reduced housing starts could help shorten the time necessary to clear the nation's oversupply of available homes।

The number of newly built homes for sale has shrunk from a peak of about 555,000 three years ago to about 300,000 today।

New construction has fallen in part due to the difficulty builders have getting credit, consolidations within the industry, and the fact that home prices are often coming in below construction cost।

Housing starts "are at extraordinarily low levels," says Mark Zandi at Moody's Economy।com. "We are at a bottom in terms of construction. It's very hard on the home-building industry."

He predicts new construction will pick up by this time next year।

The Commerce Department reported last month that home construction had increased more than 20% in February। That was revised in Thursday's report to 17.2%.

"The numbers are bouncing around, which is not that much of a surprise," says Joel Naroff at Naroff Economic Advisors. "Single-family starts were essentially flat. That gives me some hope that that segment of the market is starting to stabilize."

Relocation rate lowest since tracking began in 1948

The national mover rate declined from 13।2 percent in 2007 to 11.9 percent in 2008 — its lowest rate since the bureau began tracking these data in 1948.In 2008, 35.2 million people 1 year and older changed residences within the U.S., representing a decrease from 38.7 million in 2007 and the smallest number of residents to move since 1962.“Even though the number of people who changed residence in 2008 dropped by 3.5 million from the previous year, millions of Americans continue to move,” said Tom Mesenbourg, acting director of the U.S. Census Bureau. “As we gear up for the 2010 Census, we will be looking to get an accurate count of everyone in the country, regardless of whether they moved in the past year or not.”By region, people in the South (13.5 percent) and in the West (13.2 percent) were likeliest to move in 2008. (The two rates were not statistically different.) The Midwest and the Northeast had mover rates of 11.1 percent and 8.2 percent, respectively. In 2008, the Midwest saw the largest decline in its mover rate from 2007.Among those who moved in 2008, 65 percent moved within the same county, 18 percent moved to a different county within the same state, 13 percent moved to a different state, and 3 percent moved to the U.S. from abroad.Principal cities within metropolitan areas experienced a net loss of 2 million movers, while the suburbs had a net gain of 2.2 million movers.In 2008, renters were five times more likely to move than homeowners. More than one-in-four people (27.7 percent) living in renter-occupied housing units lived in a different residence one year earlier. By comparison, the mover rate of people living in owner-occupied housing units was 5.4 percent.Other highlights:• Of the population for whom poverty is determined: 22.8 percent below 100 percent of the poverty level moved within the last year, 16.3 percent between 100 and 149 percent of the poverty level moved within the last year, and 9.7 percent at or above 150 percent of the poverty level moved within the last year.• While the number of movers who lived 500 or more miles from their previous residence one year ago (2.8 million) was not statistically different in 2008 than 2007, the number of movers who lived less than 50 miles away one year ago decreased from 5.1 million to 4.4 million between 2007 and 2008.• The most common reasons for moving were housing related – such as the desire to own a home or live in a better neighborhood – representing 40.1 percent or 14.1 million movers. The distribution among those who gave other reasons for moving was: family related (30.5 percent), employment related (20.9 percent) and other (8.5 percent).• The black alone population had the highest mover rate (16 percent), followed by Hispanics (15 percent), Asian alone (13 percent) and white alone, not Hispanic (10 percent).थे statistics come from Geographical Mobility: 2008, a series of tables that describe the comparison between place of residence at the time of the March survey and place of residence one year earlier.

Republicans torpedo mortgage relief plan

The centerpiece of President Barack Obama’s plan to keep thousands of people from losing their homes amid the worst economic crisis in decades is headed for defeat this week in the Senate.

Allowing people to seek mortgage relief in bankruptcy court is opposed by Republicans and enough Democrats to block it। They remain worried that the legislation would unleash a torrent of loan defaults, ultimately driving up mortgage rates and introducing fresh uncertainty to an already ailing economy.

The rejection would deal a blow to the popular president pushing an ambitious agenda to stabilize the economy।

“I just want to underscore our commitment ... to doing everything we can to help mitigate the damage homeowners are facing across the country,” Treasury Secretary Timothy Geithner told lawmakers this week।

The number of homes under threat of foreclosure has shot up since last year, when २.3 million households received foreclosure filings.

RealtyTrac Inc।, a foreclosure listing firm, has reported that some 650,000 homes received at least one foreclosure-related note in the first three months of 2008. This year, nearly 804,000 homes have already received foreclosure notes.

Economists also estimate that about a fourth of U।S. mortgage-holders owe more to the bank than their property is worth.

In February, Obama announced his plan to save some 9 million debt-ridden individuals from losing their homes by providing incentives to lenders to cut homeowners’ monthly payments or refinance loans for individuals whose home’s market value has sunk below what they owe।

As part of the plan, Obama said he also wanted to change bankruptcy laws so a judge can reduce a person’s mortgage payment based on its market value। The option was cast as a last resort for homeowners who were unable to otherwise modify their loans.

Bankruptcy judges can already reduce loans on investment properties or personal property based on the property’s current value।

Congressional Democrats championed the legislation, which passed the House in March. But the measure quickly stalled in the Senate amid a multimillion-dollar lobbying effort by banks and credit unions that said the forced easing, or “cram-down,” of mortgage terms would impose steep and unpredictable costs.
Sen। Dick Durbin, D-Ill., has led negotiations with the banking industry under the assumption that a deal would shore up Democratic support and win over a few moderate Republicans to reach the 60 votes needed to pass the bill.

This week, the National Association of Federal Credit Unions released a letter from its board of directors rejecting the proposal. While other groups, including banking giants JP Morgan Chase, Bank of America and Wells Fargo, remained at the table, Democratic aides said the prospects of an agreement looked dim.
Believing the Senate needed to move on, Senate Majority Leader Harry Reid, D-Nev।, tentatively scheduled a Thursday vote.

“There’s no reason why every Republican shouldn’t be on record for opposing a provision that could help tens of thousands of Americans,” said Reid spokesman Jim Manley।

The bankruptcy provision will be offered as an amendment to popular legislation aimed at freeing up capital for banks by increasing the borrowing authority of the Federal Deposit Insurance Corp।

Last year, Republicans and 10 Democrats, along with Connecticut independent Joe Lieberman, voted to scuttle similar legislation in a 58-36 vote।

Among those expected to reject the bill next week were Democratic Sens। Jon Tester of Montana and Ben Nelson of Nebraska. Tester and Nelson were among those who voted last year to block the proposal.

Tester said in a statement on Friday that while he supports helping homeowners to modify their mortgages, he believes the bankruptcy bill would be ineffective and potentially harmful।

Likewise, a Nelson spokesman said the senator believes the provision “would raise interest rates on other borrowers and further destabilize the mortgage industry.”

Home Sales: The Distressing Gap

Click on graph for larger image in new window.
This graph shows existing home sales (left axis) and new home sales (right axis) through March.

Real Time Economics at the WSJ excerpted some analyst comments about the existing home sales report yesterday: Economists React: ‘Plunge Is Over’ in Existing-Home Sales। A few comments from analysts:

"Home sales have stabilized following the post-Lehmans plunge..."

"This is a bit disappointing but the big picture is still clear; the plunge in sales following the Lehman blowup is over।"

"The weaker-than-expected result does not change the broad trend in sales, however, which continues to point to a tenuous stabilization..."

"Although home resales were down in March, one can make a reasonable argument that resales are bottoming ..."

As I've noted before, I believe this "stabilization" discussion in existing home sales analysis is all wrong।

Close to half of existing home sales are distressed sales: REO sales (foreclosure resales) or short sales. This has created a gap between new and existing sales as shown in the following graph that I've jokingly labeled the "Distressing" gap.
I believe this gap was caused by distressed sales - in many areas home builders cannot compete with REO sales, and this has pushed down new home sales while keeping existing home sales activity elevated।

Over time, as we slowly work through the distressed inventory of existing homes, I expect existing home sales to fall further।

So I believe those analysts looking at the existing home sales report for stability are looking in the wrong place। The first "signs of stability" in the housing market will be declining inventory, a bottom in new home sales, and the gap between new and existing home sales closing।

by CalculatedRisk on 4/24/2009

New-home sales slip in March, but beat expectations

New-home sales dipped slightly last month, but still beat expectations as builders start to see long-awaited signs of life in the housing market — including a dip in the inventory of new homes for sale.The Commerce Department said Friday that sales fell 0.6% in March to a seasonally adjusted annual rate of 356,000 from an upwardly revised February rate of 358,000. February's results were adjusted upward more than 6%.

New-home figures are notoriously volatile and subject to big adjustments.
March's results exceeded the expectations of economists surveyed by Thomson Reuters, who expected a sales pace of 340,000 units। Sales were still down nearly 31% from March 2008.

The median sale price of a new home fell to $201,400, a 12% drop from a year earlier। The median price is the midpoint, where half sell for more and half for less. Prices are likely to remain weak as builders continue to clear out their stock of unsold homes.

There were 311,000 new homes for sale at the end of March, down 5।2% from 328,000 in February. At the current sales pace, the government said it would take almost 11 months to exhaust the supply of new homes on the market.

The glut of unsold homes and competition from deeply discounted foreclosed properties puts even more pressure on prices and on builders' profits।

The report measures signed contracts to buy new homes rather than completed sales, so March's results could reflect the early impact of a new a new $8,000 tax credit for first-time buyers signed by President Barack Obama in mid-February
Sales varied dramatically around the country, rising more than 15% in the West from a month earlier, and unchanged in the South। They sank more than 32% in the Northeast and nearly 8% in the West.

In the market for previously occupied homes — a far larger market — the spring selling season is off to a lackluster start. Sales fell 3% to an annual rate of 4.57 million in March month from a downwardly revised pace of 4.71 million units in February, the National Association of Realtors said Thursday.

26 cities with the highest foreclosure rate

All are located in 4 hard-hit states. Metro areas in California, Florida, Nevada and Arizona topped the foreclosure filing list for the first quarter of 2009 in a report from RealtyTrac, an online marketer of foreclosed properties. A foreclosure filing includes default papers, auction sale notices and repossessions.

Las Vegas had the highest rate of foreclosures of any city, with one in every 22 homes subject to a foreclosure filing in the first three months of the year। The rate of foreclosure filings was 4.5%, seven times the national average.

Merced, Calif।, had the second highest rate, with Cape Coral-Fort Myers, Fla., Stockton, Calif., and Riverside-San Bernardino-Ontario, Calif., rounding out the top five.

"The metro areas with the highest levels of foreclosure activity in the first quarter of 2009 paint a picture of concentrated problems in a relatively small number of hard-hit areas," said James J। Saccacio, chief executive officer of RealtyTrac, in a written statement.

Foreclosure rates have been very high in the 4 key states throughout the bursting of the housing bubble, and so it was to be expected that cities from those states would pepper the top of the list।

It was a surprise to see the list so top heavy, according to Rick Sharga, senior vice president at RealtyTrac।

New problem cities: Meanwhile, some metropolitan areas had a surge in foreclosures। Boise City-Nampa, Idaho, in 27th place, Provo-Orem, Utah, in 37th, and Charleston-North Charleston, S.C., in 51st were examples Sharga gave of areas that had particular strong gains in filings.

Sharga said the rise of foreclosures in additional regions indicates new factors influencing the housing market as the recession drags on।

"What we believe we are seeing is some of the areas with unemployment problems," said Sharga। "These are people living paycheck to paycheck and, when the paycheck is gone, suddenly they can't afford to make their mortgage payments."

The data for RealtyTrak's metro area foreclosure report is collected from 2,200 counties across the nation, and those counties represent more than 90% of the U।S. population. Some 203 areas are covered by the report.

Across the nation, foreclosure activity in the first quarter hit a record high, according to another RealtyTrac report issued last week। Total foreclosure filings reached 803,489 in the first three months of the year, the highest monthly and quarterly totals since RealtyTrac began reporting in January 2005.

The national report also found that the worst of the foreclosures were centralized in a handful of worst-hit states. California, Florida, Arizona, Nevada and Illinois accounted for nearly 60% of the total foreclosure activity in the first quarter, with 479,516 properties received foreclosure filings in those states.

Lenders Fight Lawmakers Over Letting Courts Cramdown Mortgages

As lenders begin to implement the Obama administration's foreclosure rescue program, Senate Democrats are wrangling with the financial services industry over a key part of the plan that would permit bankruptcy judges to cut the principal owed by mortgage borrowers.

Congressional and industry officials said progress is being made, but no deal has been struck। Major lenders, including Bank of America, Wells Fargo and J.P. Morgan Chase, negotiated with Sen. Richard J. Durbin (D-Ill.), who is leading the effort in the Senate, through the recent two-week recess, officials said. The banks declined to comment.

"We're certainly making progress but have yet to reach an agreement," said Max Gleischman, Durbin's spokesman।

Under the proposal, a bankruptcy judge could change the terms of a distressed homeowner's mortgage to make it more affordable, including lowering the principal balance or interest rate, a process known as a cramdown। The measure passed the House by a wide margin last month, but then stalled। Senate leaders hope to reach an agreement and vote by Memorial Day। The Obama administration has said the measure is an important part of its efforts to reduce foreclosures.

The negotiations, which have also included the Credit Union National Association, have touched on provisions pushed by the financial services industry to blunt the impact of the change। For example, lenders want the cramdown authority to expire by 2014। There is also debate about how to make bankruptcy modification the last resort for borrowers।

"Any legislation should include a provision requiring the borrower to consider an offer of a modification -- one sanctioned by the government or something as effective -- before a cramdown can be considered," Rick Simon, a Bank of America spokesman, said in a statement। "This would give servicers incentives to provide workouts and borrowers an incentive to use them and avoid bankruptcy।"

It is unclear whether even the support of major lenders would be enough to bring along the rest of the financial services industry, which has argued for years that cramdowns would drive up losses and that homeowners would flood bankruptcy courts। One of the largest banks, Citigroup, threw its support behind the process earlier this year। But the Mortgage Bankers Association and American Bankers Association, major industry groups, are not part of the current negotiations, and congressional Republicans continue to resist the provision।

The provision "fundamentally alters the way mortgage lending is done and actually hurts the housing market. Lenders and borrowers are the best people to change the terms of the mortgage," said Scott E. Talbott, senior vice president of government affairs of the Financial Services Roundtable, another industry group.
The Independent Community Bankers of America had been observing the negotiations, but walked away last week, said Camden Fine, president of the group। "Basically we were told by the senators that are involved that we either had to agree in principle to some sort of cramdown provision or we couldn't stay in the room," Fine said. "And we could not agree to that because we don't agree in principle."

Key Democratic lawmakers have attempted to gain support from some lenders by bundling the legislation with a provision to lift a cap on how much credit unions can lend to small businesses। Some lawmakers have also offered to increase the Federal Deposit Insurance Corp.'s borrowing authority. Banks want the borrowing authority raised to prevent a hefty special assessment from the FDIC.

"We just don't believe that cramdowns should in anyway be linked to FDIC borrowing authority," Fine said.

By Renae Merle

Washington Post Staff Writer

Housing Implosion Roaring Back, Worse Than Ever

Due to the lifting of the foreclosure moratorium at the end of March, the downward slide in housing is gaining speed. The moratorium was initiated in January to give Obama's anti-foreclosure program -- a combination of mortgage modifications and refinancing -- a chance to succeed. The goal of the plan was to keep up to 9 million struggling homeowners in their homes. But it's clear now that the program will fall well-short of its objective. (Legislation for cram-downs, that is, allowing judges to reduce the face-value of the mortgage, is still bogged-down in Congress. Most economists believe that cramdowns are the only way to keep people from abandoning their homes when they are underwater on their loans.)

In March, housing prices fell faster than anytime in the last two years। Trend-lines are now steeper than ever before, nearly perpendicular. Housing prices are not falling, they're crashing and crashing hard. Now that the foreclosure moratorium has ended, Notices of Default (NOD) have spiked to an all-time high. These Notices will turn into foreclosures in 4 to 5 months time creating another cascade of foreclosures. Market analysts predict there will be 5 million more foreclosures between now and 2011. Soaring unemployment and rising foreclosures ensure that hundreds of banks and financial institutions will be forced into bankruptcy. 40 percent of delinquent homeowners have already vacated their homes. There's nothing Obama can do to make them stay. Worse still, only 30 per cent of foreclosures have been relisted for sale suggesting major hanky-panky at the banks. Where have the houses gone? Have they simply vanished?

Here's a excerpt from the SF Gate explaining the mystery:

"Lenders nationwide are sitting on hundreds of thousands of foreclosed homes that they have not resold or listed for sale, according to numerous data sources। And foreclosures, which banks unload at fire-sale prices, are a major factor driving home values down.

"We believe there are in the neighborhood of 600,000 properties nationwide that banks have repossessed but not put on the market," said Rick Sharga, vice president of RealtyTrac, which compiles nationwide statistics on foreclosures। "California probably represents 80,000 of those homes. It could be disastrous if the banks suddenly flooded the market with those distressed properties. You'd have further depreciation and carnage."

In a recent study, RealtyTrac compared its database of bank-repossessed homes to MLS listings of for-sale homes in four states, including California। It found a significant disparity - only 30 percent of the foreclosures were listed for sale in the Multiple Listing Service. The remainder is known in the industry as "shadow inventory." ("Banks aren't Selling Many Foreclosed Homes" SF Gate)

If regulators were deployed to the banks that are keeping foreclosed homes off the market, they would probably find that the banks are actually servicing the mortgages on a monthly basis to conceal the extent of their losses। They'd also find that the banks are trying to keep housing prices artificially high to avoid heftier losses that would put them out of business. One thing is certain, 600,000 "disappeared" homes means that housing prices have a lot farther to fall and that an even larger segment of the banking system is insolvent.

Here is more on the story "California Foreclosures About to Soar...Again"

"Are you ready to see the future? Ten’s of thousands of foreclosures are only 1-5 months away from hitting that will take total foreclosure counts back to all-time highs। This will flood an already beaten-bloody real estate market with even more supply just in time for the Spring/Summer home selling season...Foreclosure start (NOD) and Trustee Sale (NTS) notices are going out at levels not seen since mid 2008. Once an NTS goes out, the property is taken to the courthouse and auctioned within 21-45 days....The bottom line is that there is a massive wave of actual foreclosures that will hit beginning in April that can’t be stopped without a national moratorium."

JP Morgan Chase, Wells Fargo and Fannie Mae have all stepped up their foreclosure activity in recent वीक Delinquencies have skyrocketed। According to the Wall Street Journal:

"Ronald Temple, co-director of research at Lazard Asset Management, expects home prices to fall 22% to 27% from their January levels। More than 2.1 million homes will be lost this year because borrowers can't meet their loan payments, up from about 1.7 million in 2008." (Ruth Simon, "The housing crisis is about to take center stage once again" Wall Street Journal)

Another 20 percent carved off the aggregate value of US housing means another $4 trillion loss to homeowners। That means smaller retirement savings, less discretionary spending, and lower living standards. The next leg down in housing will be excruciating; every sector will feel the pain. Obama's $75 billion mortgage rescue plan is a mere pittance; it won't reduce the principle on mortgages and it won't stop the bleeding. Policymakers have decided they've done enough and refuse to lift a finger to help. They don't see the tsunami looming in front of them plain as day. The housing market is going under and it's going to drag a good part of the broader economy along with it. Stocks, too.

The Headless Chicken Keeps on Running…

The Fed's $12।8 trillion of monetary stimulus has triggered a six week-long surge in the stock market. Think of it as Bernanke's Bear Market Rally, a torrent of capital gushing from every leaky valve and rusty pipe in the financial system. The Fed's so-called "lending facilities" are a joke; stocks rocket into the stratosphere while the broader economy is stretched out corpse-like on a cold marble slab. Is this an economic recovery or just more of Bernanke's "no down" zero-percent "no doc" faux prosperity?

Bernanke has provided generous "100 cents on the dollar" loans for Triple A mortgage-backed collateral that is now worth 30 cents on the dollar। The Fed stands to lose trillions of dollars on these loans because the assets will never regain their original value. Eventually the taxpayer will have to pony up the difference in higher taxes, fewer public services and a weaker dollar.

Naturally, some of Bernanke's liquidity has made its way into the stock market where the prospects for maximizing profit are still the best। The Fed's debtors didn't borrow the money just to stick it in a dusty vault in their offices. They've put it where they think it will do them some good. At the same time, the relentless systemwide contraction continues apace and hasn't been eased by Bernanke's low interest rates or lending programs. All of the economic indicators point to a deepening recession that will last for two years or more. Here's a clip from a recent statement from the IMF:

"Recessions associated with financial crises have typically been severe and protracted। Financial crises typically follow periods of rapid expansion in lending and strong increases in asset prices. Recoveries from these recessions are often held back by weak private demand and credit reflecting, in part, households’ attempts to increase saving rates to restore balance sheets. They are typically led by improvements in net trade, following exchange rate depreciations and falls in unit costs.

Globally synchronized recessions are longer and deeper than others। Excluding the present, there have been three episodes since 1960 during which 10 or more of the 21 advanced economies in the sample were in recession at the same time: 1975, 1980 and 1992…Recoveries are usually sluggish, owing to weak external demand..."

The recession will be a long uphill slog regardless of developments in the stock market। Bernanke admitted as much last Thursday when he said that the collapse of U.S. lending will cause “long-lasting” damage to home prices, household wealth and borrowers’ credit scores.

“One would be forgiven for concluding that the assumed benefits of financial innovation are not all they were cracked up to be....The damage from this turn in the credit cycle -- in terms of lost wealth, lost homes, and blemished credit histories -- is likely to be long-lasting।”

Unlike Treasury Secretary Geithner, Bernanke has been surprisingly candid in his analysis of the crisis। That doesn't mean that his policies have been worker-friendly; far from it. But he has been honest about the shortcomings of deregulation and financial innovation. So far, the meltdown has wiped out more than $11 trillion of household wealth, ignited soaring unemployment, and pushed millions of people from their homes. As Bernanke admits, the country will not quickly bounce back.

Economists Kenneth Rogoff and Carmen Reinhart have conducted a study on the last 18 international financial crises and compiled their findings in a document called: "Is the 2007 U.S. Subprime Financial Crisis So Different?" What they discovered was that "rising public debt is a near universal precursor of other post-war crises" and that countries that experienced large capital inflows were particularly vulnerable to crises. By 2006, two-thirds of the world's surplus capital was flowing into the United States via its current account deficit. This flood of foreign capital kept interest rates low, housing and equity prices high, and Wall Street flush with money. Now foreign investment is drying up, housing prices are falling, the secondary market is frozen, and deflation is setting in across all sectors of the economy. Rogoff and Reinhart believe that "recessions that follow in the wake of big financial crises tend to last far longer than normal downturns, and to cause considerably more damage. If the United States follows the norm of recent crises, as it has until now, output may take four years to return to its pre-crisis level. Unemployment will continue to rise for three more years, reaching 11–12 percent in 2011." (Newsweek, "Don't Buy the Chirpy Forecasts")
The proliferation of opaque, unregulated debt-instruments (MBSs, CDOs, CDSs) also played a big role in the present crash by reducing transparency and increasing systemic instability। Here's Rogoff and Reinhart in their Newsweek article "Don't Buy the Chirpy Forecasts:

"Assuming the U।S. continues going down the tracks of past financial crises, perhaps the scariest prospect is the likely evolution of public debt, which tends to soar in the aftermath of a crisis. A base-line forecast, using the benchmark of recent past crises, suggests that U.S. national debt will rise by $8.5 trillion over the next three years. Debt rises for a variety of reasons, including bailout costs and fiscal stimulus. But the No. 1 factor is the collapse in tax revenues that inevitably accompanies a deep recession."

Tax revenues are already falling sharply across the country as the recession deepens। In fact, Bloomberg News reports that “State and local sales-tax revenue fell more sharply in the fourth quarter of 2008 than at any time in the past half century"… (Corporate and personal income taxes are also declining at a record pace.) This makes it impossible to predict the ultimate cost of the crisis. But what makes it even harder is that Treasury Secretary Timothy Geithner refuses to remove toxic assets from the banks balance sheets using the usual "tried and true" methods. A recent report from a congressional oversight committee (The Warren Report) revealed that there are three ways to fix the banking system; liquidation, reorganization and subsidization. Geithner has rejected all three of these preferring to implement his own make-shift Public Private Investment Program (PPIP) which is thoroughly untested, has no base of public or political support, and is clearly designed to shift the toxic debts of the banks onto the taxpayer through publicly-funded non recourse loans. (Geithner's plan will allow the banks to establish off-balance sheet operations so they can buy their own bad assets from themselves using 94 per cent public money) The whole thing is a obvious swindle papered-over with gibberish.

So far, less than $10 billion has been transacted through Giethner's PPIP; a mere drop in the bucket। The IMF estimates that the banks and other financial institutions may be holding up to $4 trillion in toxic assets. At the current rate, Geithner's strategy will take a century to succeed. The Treasury Secretary knows his plan won't fix the banking system; he's just hoping that the economy rebounds before the government is forced to nationalize the big banks. It's just a stalling ploy, but, even so, there are risks. As the economy worsens, the likelihood of another financial meltdown or a run on the dollar increases. Foreign central banks and investors are getting antsy and are starting to rattle Geithner's cage. In recent months China has slowed its purchases of US Treasuries, traded tens of billions of USD in currency swaps, and gone on a spending spree for raw materials; all to protect itself from weakness in the dollar. According to Bloomberg:

"People's Bank of China Zhou Xiaochuan called for the establishment of a "super-sovereign reserve currency" last month after Chinese Premier Wen Jiabao said he's worried a weaker US dollar may hurt China's investments। Inflation and a depreciating dollar would erode the value of US holdings owned by international investors."

Again, Bloomberg:

“China, Japan and Korea should establish a routine mechanism to diversify the region’s reserve currencies away from the dollar, the China Securities Journal reported, citing central bank adviser Fan Gang. The Asian countries need to consider setting up a transitional arrangement to help reduce reliance on the dollar before the problems in the international financial system are resolved."
Geithner's foot-dragging could be extremely costly for America's long-term economic prospects. The Treasury Secretary should be tackling the toxic assets problem head-on and stop the dilly-dallying.

Al Capone’s Chicago Home for Sale

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The Chicago home of Al Capone (aka “Scarface“), located at 7244 S Prairie Ave, Chicago, IL 60619, is on the market for $450,000। Capone, perhaps the most famous gangster of all time, purchased the two-flat home in the Chicago working-class neighborhood of Grand Crossing in 1923 for $5,500.

According to the Chicago Tribune, the asking price of $450,000 is a bit exorbitant for this working-class South Side neighborhood, since similar two-flats are selling for $180,000 to $230,000. But the seller and real estate agent both feel its historic significance will bring the right buyer.

Foreclosures 46% higher in March than a year ago

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Foreclosure filings — default notices, auction sale notices and bank repossessions — were reported on 341,180 properties in March, 46% more than a year ago and 17% above February's total।

The number of homeowners facing foreclosure surged in March as lenders lifted temporary moratoriums and resumed legal actions against delinquent mortgage payers।

One in 159 U।S. housing units received at least one foreclosure notice in the first quarter, for a total of 803,459.

This report shows that the housing problems are not going away anytime soon.

No. 2 mall owner files largest U.S. real estate bankruptcy

General Growth Properties Inc., the nation’s second-largest mall owner, has filed for Chapter 11 bankruptcy protection in New York.

GGP, owner of more than 200 malls, including Fashion Show in Las Vegas and Faneuil Hall Marketplace in Boston, declared bankruptcy Thursday in the biggest real estate failure in U।S. history.

General Growth also announced that it has lined up $375 million worth of debtor-in-possession financing from Pershing Square Capital Management LP। The company would need court approval to access this facility.

All day-to-day operations at the company’s shopping centers, including paying employees, insurance and other expenses, are expected to continue as usual.

Sales of vacation homes fall during recession

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Spring has arrived, but the sale of vacation properties is stuck in hibernation as the recession takes a toll on demand for second homes. That's leaving vacation home sellers with properties that won't sell, forcing some to rent out the homes and others to lose them to foreclosure.

Vacation home sales dropped 30.8% to 512,000 last year from 740,000 in 2007. Prices have also tumbled. The median price of a vacation home was $150,000 in 2008, down 23.1% from 2007.

WHO BUYS VACATION HOMES?

Demographic characteristics of vacation home buyers:

Median age: 46

Median household income: $97,२००

Married couples: 74%

No children under 18: 54%

Where they buy

resort area: 23%

Rural area: 23%

Suburban subdivision: 20%

Urban area/central city: 8%

Homes by region South: 45%

Northeast: 22%

West: 18%

Midwest: 15%

Median distance from primary residence 316 miles

News Snippets

As Home Values Fall, Property Tax Revolt Brews

In many cities across the US, homeowners are filing record numbers of assessment appeals, wanting their property taxes to reflect their shrinking value of their houses.

Property taxes have become a rallying point for disgruntled Americans because, unlike sales or income taxes, they can be challenged directly by individual citizens: Some 40 percent of assessment appeals are successful. Yet the movement threatens already stressed counties, putting the tax receipts that pays for schools and police at risk.

In metro Atlanta, more than 50,000 people -- a 10-fold increase over last year -- filed appeals ahead of the April 1 tax deadline. The result was long lines of grumbling taxpayers. Little wonder: A survey released Tuesday said average home prices in Atlanta are down to 1996 levels.

Example: In Nevada's Lyon County, appeals are up 30-fold. One reason: Unemployment is at 15 percent, the highest in the state.

Assessments can be political, as a recent Supreme Court case in Nevada showed. The court ruled that dramatic differences in assessments in different counties bordering Lake Tahoe suggested that more than just the real value of the homes and properties was taken into account.

The National Taxpayer Union, an antitax lobbying group in Washington, claims that as many as 60 percent of homes in the U.S. are overassessed. For the 722,000 homes in New Jersey that are potentially overassessed, average savings on the tax bill could equal nearly $2,000

Weds News Snippets

-----------------------------------------------------Ban on travel to Cuba may be lifted!
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A bipartisan group of senators says Congress is ready to pass legislation to allow all Americans to visit Cuba. Supporters say the move would create thousands of jobs.

A Senate news conference Tuesday and one in the House set for Thursday reflect new attempts to lift the travel ban, a key part of the U.S. trade embargo imposed after Fidel Castro took power in Havana in 1959.

The broader trade embargo would remain in place.Obama has ordered a review of U.S. policy on Cuba and last month loosened restrictions to let Cuban Americans visit relatives.

Journalists can travel to Cuba, as can people on humanitarian missions. If travel limits were lifted, about 3 million Americans would visit Cuba each year, according to a 2002 study by the Brattle Group, economic consultants in Washington.

The increase in air travel, cruises and a ripple effect through the travel industry would produce $1.2 billion to $1.6 billion a year, the group estimated, creating as many as 23,000 jobs.

Sen. Mel Martinez (R-Fla.) strongly opposes the measure. He warned that flooding Cuba with tourists and dollars would only sustain the Castro regime. Martinez accused the Chamber of Commerce and business interests of seeking profits at the expense of freedom and democracy. "They are not acting from a moral standpoint," he said. "They are simply acting from an economic advantage standpoint."

HaHaHaHaHa - Did I read that statement by a republican right?
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US home price drops set records in Jan.

Home prices sank by the sharpest annual rate on record in January, and the pace continues to accelerate, but there were a handful battered metro areas where price declines slowed, according to data released Tuesday.

The Standard & Poor's/Case-Shiller index of home prices in 20 major cities tumbled by a record 19 percent from January 2008. It was the largest decline since the index started in 2000. The 10-city index dropped 19.4 percent, also a new record.

All 20 cities in the report showed monthly and annual price declines, with 13 posting new annual records. Prices dropped by more than 10 percent in 14 cities.
Prices in the 20-city index have plummeted 29 percent from their peak in summer 2006, while the 10-city index has fallen 30 percent.

Prices have sunk back to levels not seen since late 2003.
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New Media replacing old.

20% — as in the percentage of journalists who worked in newspapers in 2001 who have since left the field because their jobs have been eliminated.

In 2008, "America's newspapers got smaller in just about every way." Half of the country's states no longer have a newspaper that covers Congress.A century ago, 689 cities in the United States had competing daily newspapers; at thestart of this year, only about 15 did, but one of those has already lost its second newspaper,and two more will likely become one-paper towns within days.

Dallasnews.com, which was at a couple million in revenue a few years ago, is now pushing $30 million in revenue. That's a fast growth rate.

"I'm 57. When I was 21, about 70% of people my age read a newspaper regularly. For people my age now, it's still about the same percentage. But in the Dallas market today, only about 30% of people between 18 and 24 look at a newspaper fairly regularly. That's a 40% gap. That's not good news for the newspaper in the bag."

There is a significant pricing gap between new media and old media.

The cost to reach 1,000 people is $20 for newspapers, but just $5 for those online. Advertisers definitely have more choices today.we need to train journalists for multimedia reporting. They need to move from being just print reporters to being comfortable taking photos and doing audio and video.
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The Great Housing Paralysis of 2009.

Have home prices hit bottom? The end may be in sight.

Nationwide, home prices will bottom out at the end of this year, according to the forecasters at Moody's Economy.com.

Median prices will probably fall another 10% on top of the 27% they've plummeted since their 2006 peak. That prediction assumes that President Obama's various recovery efforts - including billions to slow foreclosures and goose bank lending, plus a tax credit to most 2009 buyers who haven't owned in the past three years - will have some effect.

If they don't, says Economy.com's Mark Zandi, the bottom could come as late as 2011.

And then?

"The recovery will look more like a U than a V," predicts Mike Larson, a real estate analyst at Weiss Research. Translation: After home prices hit their lows, they'll probably stay there for a few years as the economy slowly struggles back to its feet. Prices aren't expected to reach their 2006 levels again for another decade. ======================

MONEY Magazine:

Latest forecasts and projections for the nation's 100 largest metro areas.

Rank Location One-year forecast (through March 2010)

1 Miami, FL -27.8%
2 Sarasota, FL -25.5%
3 Orlando, FL -24.5%
4 Fort Lauderdale, FL -24.4%
5 Phoenix, AZ -19.7%
6 Tampa, FL -19.1%
7 West Palm Beach, FL -18.7%
8 Jacksonville, FL -17.2%
9 Las Vegas, NV -17.0%
10 New York, NY -15.3%
11 Los Angeles, CA -15.3%
12 Riverside, CA -15.1%
13 Virginia Beach, VA -14.9%
14 Nassau/Suffolk, NY -14.9%
15 Stockton, CA -14.5%
16 Wilmington, DE -14.1%
17 Tucson, AZ -13.5%
18 Honolulu, HI -13.4%
19 Camden, NJ -13.3%
20 Providence, RI -13.2%
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Banks now also walking away from properties.

City officials and housing advocates (in South Bend, Indiana) and in cities as varied as Buffalo, Kansas City, Mo., and Jacksonville, Fla., say they are seeing an unsettling development: Banks are quietly declining to take possession of properties at the end of the foreclosure process, most often because the cost of the ordeal — from legal fees to maintenance — exceeds the diminishing value of the real estate.
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GOP Plan Aims to Expand Home Buyer Tax Credits.

Under the proposal, borrowers refinancing their mortgage would be eligible for $5,000 to help cover closing costs or to reduce their principal balance. The plan also revives a $15,000 home buyer tax credit proposal that Republicans pushed last year. This time, the proposal would require the borrower to have at least a 5 percent down payment. Both programs would expire in July 2010.