Jun
26
Realtors’ group says the number of existing homes sold in May gained 2% to an annual rate of nearly 5 million.
NEW YORK (CNNMoney.com) — Sales of existing homes rose slightly more than expected in May as home buyers responded to plummeting home prices, according to an industry trade group.
The National Association of Realtors (NAR) said Thursday that the number of existing homes sold during May rose 2% to a seasonally adjusted annual rate of 4.99 million units in May from a level of 4.89 million in April.
But sales remain 16% below the 5.93 million-unit pace in May 2007, the report showed. And Thursday’s report marks only the second time in 10 months that sales have increased.
Analysts were expecting the sales rate to increase to 4.95 million last month, according to a consensus of analysts’ estimates gathered by Briefing.com.
The report also showed that the national median existing-home price for all housing types fell 6.3% to $208,600 from $222,700 a year earlier.
“Home buyers are starting to get off the fence and into the market, drawn by drops in home prices in many areas and armed with greater access to affordable mortgages,” said NAR President Richard Gaylord, a broker with RE/MAX Real Estate Specialists, in a statement.
Total housing inventory at the end of May fell 1.4% to 4.49 million existing homes available for sale, indicating a 10.8-month supply at the current sales pace. That’s down from a 11.2-month supply in April, according to the report.
The large supply of homes on the market favors buyers, but it should take several more months to draw the inventory down, said Lawrence Yun, NAR chief economist.
“Stabilization in home prices can only occur with buyers returning to the market, so we are encouraged by rising home sales, particularly in distressed markets,” Yun said.
The housing market remains mixed around the country. But the report showed that highly overbuilt markets – including Sacramento, the San Fernando Valley and Monterey County in California, Sarasota, Fla. and Battle Creek, Mich. – all experienced sales increases versus last year.
However, it’s important to note that Thursday’s report lags the interest rate cycle and is “old news” to some extent, according to Bob Brusca, chief economist at FAO Economics.
Interest rates have risen since the existing home sales number was calculated, Brusca said. That means the current market could be less favorable for homebuyers.
What’s more, the existing home sales figure mostly reflects sales by individual homeowners as opposed to Wednesday’s new home sales report which tallies sales by commercial homebuilders.
“People selling their own home usually live in the home until they sell it, so they’re probably very motivated sellers, since they could be paying two mortgages,” Brusca said.
Conversely, homebuilders are “authentic sellers” and the new home sales report gives a “better view of what the market is like,” he said.
On Wednesday, the Census Bureau said that May sales of new single-family homes fell 2.5% to a seasonally adjusted annual rate of 512,000 from April’s revised reading of 525,000.
“The message is that the housing market is probably still weakening,” Brusca said.
Jun
25
New Home Sales Near Historic Lows
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Sales of new homes last month were slightly higher than expected, but were down 2.5% from April and more than 40% versus last year.
NEW YORK (CNNMoney.com) — New home sales remained near historically low levels in May, as the housing market continues to struggle with a huge oversupply of housing inventory.
The Census Bureau reported Wednesday that May sales of new single-family homes came in at a seasonally adjusted annual rate of 512,000, down 2.5% from April’s revised reading of 525,000.
“The market is still very much in distress,” said Jared Bernstein of the Economic Policy Institute. “We are closer to the bottom than we were a year-and-half ago, but we’re not there yet.”
The reading was higher than the consensus forecast of 510,000, according to estimates compiled by Briefing.com. But home sales are down more than 40% from May of last year and are 63% off the peak reading of 1.38 million homes sold in July of 2005.
Monthly new home sales reached their lowest point in September of 1981, when they tallied just 338,000. The Census Bureau has tracked the data since 1963.
The decline was most pronounced in the West, where new home sales fell 11%, to 114,000 in May from 129,000 in April.
“Where the bubble was inflated the most it’s now deflating the fastest,” Bernstein said. “That’s why the West continues to post double digit losses.”
Sales also fell sharply in the Northeast, down 8%, but were flat in the South. May sales in the Midwest increased 5%.
Falling home prices. The report also showed that the median sale price of new homes sold in May was $231,000, down 6% from 246,100 in April. The average sale price fell 3% to $311,300 in May from $321,000 last month.
“There is no way, in my mind, that prices have finished their downward trek,” Bernstein said. He thinks prices will decline another 15% before the market stabilizes.
The seasonally adjusted estimate of new houses for sale at the end of May was 453,000, according to the report. This represents a supply of 10.9 months at the current sales rate.
Bernstein said the current overhang of inventory in the housing market is huge – twice the average level – and that this glut of homes will continue to put downward pressure on home prices.
“Keep an eye on that overhang if you want to know where prices are going,” he said.
Wednesday’s report follows the release of a closely watched index of home prices on Tuesday that showed a record decline in April.
The S&P/Case-Shiller 20-city Home Price Index fell to a record low of 15.3% on a year-over-year basis, and was down 1.4% from March. The 10-city index was down 16.3% year-over-year and 1.6% for the month.
Jun
25
On the Path to a Housing Rebound
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The pain that homeowners and homebuilders are feeling now is a sign that things are going to get better.
NEW YORK (Fortune) — The news that housing starts have fallen to their lowest level in 17 years sounds like one more reason to be depressed about the shrinking value of your home. In fact, it’s an almost certain sign that the path to a housing recovery is finally in sight.
If prices are going to stabilize, let alone rebound, the United States needs to produce far more first-time home buyers than new houses. That’s the only way to tame the glut of “For Sale” signs dotting front yards from the Inland Empire of California to the Gold Coast of Florida.
Builders constructed far more homes from 2002 until 2006 – the peak bubble years – than could possibly be absorbed by the normal growth in households.
As a result, the market is now swamped with one million new and existing homes for sale that aren’t occupied, and hence need to sell quickly. That’s a multiple of the figure in most downturns, and it testifies to the duration and girth of the bubble.
“For the recovery to begin, builders need to eliminate the standing inventory of finished, unoccupied new homes,” says Mike Castleman, founder of Metrostudy, which assembles sales data on four million subdivisions across the U.S.
The massive overhang of unsold inventory has remained stubbornly high. Sure, builders cut back, but sales dropped just as quickly.
Now that excess supply is finally beginning to shrink. In April, the number of new homes for sale stood at 456,000 according to the U.S. Commerce Department, still a big number, but 93,000 below the mountainous figure a year ago.
The return of the first-time buyerThe key player in any recovery scenario is the first time buyer. The housing market operates with a pronounced laddering or ripple effect. When entry-level buyers flood the market, they not only stimulate production of new homes, they purchase existing homes. Those purchases, in turn, allow the sellers to move up to bigger houses.
But when the first-timers are absent, the entire buying chain gets frozen.
Today, newbies are coming back. Why? For the first time in years, entry-level homes are affordable. Builders have slashed prices, and what they’re building tends to be far smaller than the McMansions of the boom, selling for far lower prices. KB Home’s average selling price dropped to $248,0000 in its February quarter, versus $267,000 a year earlier. In 2006, KB’s basic model in Victorville, Cal., a former boomtown east of Los Angeles, took up as much as 3,800 square feet and sold for $328,000. Today, its stripped down offering goes for $220,000, at less than half the size.
So the first time in a decade renters can carry the mortgage payments and taxes on a new house for what they’re paying a landlord. Call it the New Affordability.
Here’s how the numbers play out: Single-family housing starts are now running at fewer than 500,000 a year. The normal demand for housing, based on immigration and household formation, is around one million units.
We won’t get back to that figure for a while because so many people rushed to buy homes during the boom.
But with first timers returning, sales should rise to almost 700,000 units by the end of next year, according to Bernard Markstein, senior economist for the National Association of Home Builders. That means sales will soon exceed new production by as much as 250,000 units a year.
That margin forms the foundation of the housing revival that comes in four steps.
Step 1: First, the return of first-time buyers will shrink the overhang of new houses for sale.
Step 2: Second, because so few new homes are being built, first-timers will start buying existing homes from owners who want to move up but have been trapped by the dearth of buyers. Their improved fortunes, though, come with a big caveat: The prices of new homes are now lower than comparably-sized existing homes. It’s as if used cars are selling for more than new ones. That can’t last. So move-up buyers are going to have to accept less than they had hoped to get for their current homes.
They’ll get a big break as they trade up, however. Unless they bought at the height of the boom, they’ll still sell at a profit. They can then use that equity to buy bigger homes at bargain prices. During the bubble, homebuilders started pushing up home sizes to 3,500 square feet or more. It’s those behemoths that are selling for the steepest discounts today.
Step 3: Next, housing starts should start rising, probably next year. The increase, however, will be slow and gradual. For the next two years at least, homebuilders will compete ferociously with existing home sellers for customers.
Step 4: Eventually, the glut of existing homes will disappear as well. The excess of new-home buyers over new homes being built makes that inevitable. But the oversupply is so enormous that the healing process could take as much as three more years. Only then will prices in former bubble markets start rising again.
What could go wrong?One event has the potential to slow or even derail the recovery: A sharp rise in interest rates. Right now, the first-timers are gorging on 6% loans guaranteed by the FHA. But rates may not stay there.
If they rise to 8% or higher because inflation rebounds, it would take a far bigger drop in prices to make new and existing homes affordable.
The New Affordability is now in place. But if rates rise, we’ll have to establish a New New Affordability – at even lower prices.
Jun
24
Home Prices Post Record 15.3% Drop
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Prices in 20 cities fall for 21st month in a row. One sign of hope: Pace of decline eased in many areas.
NEW YORK (CNNMoney.com) — U.S. home prices posted record declines in April, extending a painful losing streak for U.S. home prices.
The S&P/Case-Shiller 20-city Home Price Index fell to a record low of 15.3% on a year-over-year basis, and was down 1.4% from March. The 10-city index was down 16.3% year-over-year and 1.6% for the month.
The 20-city index is based on data going back 19 years, while the 10-city index is 21 years old.
There is one sliver of hope. Although every city surveyed posted year-over-year price drops, the month-to-month pace of declines did slow in many cities. And eight metro areas actually posted gains from March to April.
Bright Spots
Hard-hit Cleveland was the biggest winner, with prices up 2.9%. Charlotte, N.C. posted a slight gain of 0.2%, up for the second straight month, while Dallas prices were up 1.1% in April, also up for the second month in a row.
“There might be some regional pockets of improvement, but on an annual basis the overall numbers continue to decline,” said David Blitzer, Chairman of the Index Committee at Standard & Poor’s.
Indeed, there are anecdotal reports that investors have begun to snap up distressed Cleveland properties at very low prices, according to Dean Baker, Co-Director of the Center for Economic and Policy Research, a Washington-based think tank.
“The data suggests that Cleveland has found a bottom,” he said, “although it’s just one month’s data and I wouldn’t make too much of it.”
Also on Tuesday, the Office of Federal Housing Enterprise Oversight (OFHEO) reported that its monthly house price purchase index was down 4.6% year-over-year in April.
While the closely-watched Case-Shiller index tracks the sale prices of the same homes over the years, OFHEO’s index only tracks sales of homes with mortgages insured by Freddie Mac and Fannie Mae. These loans were for $417,000 or less, until Fannie and Freddie’s loan limits were raised in early March.
The overall price declines reported by Case-Shiller have been remarkably consistent over the past two years. Prices on the 20-city index have dropped for 21 straight months, since July 2006. The 10-city index has fallen every month since June 2006.
Declines Accelerating
What’s more, recent drops have been particularly steep. The 20-city index fell 2.2% in March, 2.6% in February and 2.3% in January, and is now it down another 1.4%.
“In the bubble markets, we continue to see very rapid rates of price declines,” said Baker. “If anything, it may be accelerating.”
Las Vegas prices plunged 26.8% compared with April of 2007, the worst drop among the 20 cities Case-Shiller covers. Prices there fell 2% in April.
Other hard hit cities include Miami (down 26.7% year-over-year and 4.1% in April), Phoenix (25% and 3.4%) and Los Angeles (23.1% and 2.2%).
“Bubble markets are now trapped in a vicious negative cycle,” said Mark Zandi, chief economist for Moody’s Economy.com, “with foreclosures driving prices down, which leads to more foreclosures.”
Foreclosures account for a much larger proportion of sales than they did a year ago, he said, and that pulls down the numbers. “But just because the average home in your market is down 25%,” he said, “doesn’t mean that your house is down 25%.”
Still, plummeting prices could derail some of the foreclosure prevention efforts underway across the nation. As home prices fall, that wipes out home equity, often leaving homeowners underwater, with mortgages worth more than their homes.
Some 10 million homeowners are now underwater, according to Economy.com, and that number will continue to grow as home prices plummet.
Underwater borrowers have higher rates of foreclosure than those with some home equity, since they can’t tap their homes for cash in case of an emergency. And some owners are simply walking away from homes that have lost so much value rather than continuing to make expensive payments every month.
The flood of foreclosures may be darkening an already bleak picture, said Zandi, “but the market is very bad right now.”
Jun
23
A squeeze on tax revenues could force local leaders to cut tens of thousands of more jobs. That could add to the nation’s economic woes.
NEW YORK (CNNMoney.com) — The latest hit to the economy could come from state houses and city halls across the nation, which are in their worst budget crisis in years.
With falling revenue from sales and income taxes, and property-tax declines looming, states, cities and towns have already laid off tens of thousands of government employees. Many expect more job cuts ahead as public officials struggle to balance their budgets.
The American Federation of State, County and Municipal Employees, a public employees union, says about 45,000 government layoffs have been announced this year.
All but four states are set to begin their new fiscal years on July 1, which means that tough decisions will have to be made soon. Economists say that cutbacks in jobs and spending by local governments could be a major drag on the overall economy.
“This isn’t a wrecking ball to a healthy economy, but it could be the straw that broke the camel’s back,” said Bob Brusca, economist with FAO Economics in New York.
There are 29 states, including California, Florida and Ohio, facing a combined budget shortfall of at least $48 billion in the fiscal year that starts July 1, according to the Center on Budget and Policy Priorities (CBPP), a liberal think tank.
The National Association of State Budget Officers estimates that spending by all 50 states will be up 1% in fiscal 2009. But that would be the third lowest increase in the past three decades.
There are nearly 20 million state and local government employees in the country. So a 1% decline in employment at cities, towns, schools and states would result in a job loss of almost 200,000 people, a much larger amount than we’ve seen from battered sectors such as automakers or home builders in the past two years.
Even in states, towns and cities not yet laying off people, hiring freezes and early retirement packages are now common, said Robin Prunty, senior director in the public finance department of credit rating agency Standard & Poor’s.
“The biggest cost they face is related to personnel,” she said. “You typically do have some downsizing.”
Tennessee plans to cut 2,000 positions, or about 5% of that state’s work force, according to the CBPP. New Jersey is looking at cutting, 3,000 jobs while Ohio may trim 2,700 positions. The Detroit News reports that Detroit may lay off 1,300 workers after July 1 if the City Council doesn’t sell the Detroit-Windsor Tunnel.
Brusca said many of the local governments facing the biggest squeeze are in Michigan and Ohio, which already have the weakest local economies, causing the unemployment situation in those hard-hit areas to worsen further.
What’s more, Kerry Korpi, director of research for the American Federation of State, County and Municipal Employees, said local governments are faced with a downturn in tax revenue at the same time that there is greater demand for many of the social services they provide.
At the same time, many local governments are also grappling with much higher expenses due to rising fuel prices.
Housing Bust Causing Biggest Problems
The 2001 recession was tough for state and local governments because even after the economy started to pick up, job losses continued for nearly two years.
But property tax revenues increased during that downturn as home prices and housing construction boomed.
Sales taxes, income taxes and property taxes each make up roughly a third of the tax collections from state and local governments, according to CBPP.
This local government budget crisis is likely to be more severe, according to experts, because the bust in home building and the decline in home prices will cut into property tax collections.
And it will probably get worse before it gets better — even if the national economy starts to show signs of improvement.
That’s because income and property taxes are likely to see declines lag the current slowdown. Sales tax declines are an early sign of a weakening economy.
But the drop in income taxes from job losses this year might not hit government revenue until next year while a drop in property taxes from a house being sold in the foreclosure process might not be felt in property tax collections for more than a year.
Still, the problems are already serious enough to cause widespread budget problems and repeated downward revisions in spending plans.
“Some budgets were out of balance almost immediately upon being introduced,” said S&P’s Prunty.
The city of Vallejo, Calif. filed for bankruptcy last month due to a ballooning budget deficit from soaring employee costs and declining tax revenue. Labor contracts with the city’s unions were part of the problem but the city’s plunging real estate market also was a factor.
Home values in Vallejo are down 24% year-over-year and 91% of homeowners who bought in the past two years have mortgages larger than their home’s value, according to real estate site Zillow.com.
While Vallejo’s housing problems are an extreme, they are not unique to that San Francisco suburb. Experts say the hit to property taxes that lays ahead for many cities could make this local government budget crisis the worst in nearly 30 years.
That’s more bad news for an overall economy already fighting enough headwinds.
“The potential is there for this to be fairly prolonged,” said Prunty.
Jun
23
Over the Horizon, A Housing Recovery
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Harvard report finds immigration, other demographic trends will fuel housing demand over the next decade.
NEW YORK (CNNMoney.com) — The current housing market is bleak: home prices and sales are plummeting, foreclosure proceedings are skyrocketing and mortgage rates are on the rise.
When will things be better?
A new study from the Joint Center for Housing Studies of Harvard University, “The State of the Nation’s Housing 2008,” finds the country poised to see an increase in housing demand over the next decade.
“The good news is that we still have a growing population,” said Nicolas Retsinas, director of the Joint Center for Housing Studies and one of the study’s authors. “As long as you have more households, more people are going to need places to live.”
Social trends – people getting married later and divorced more often – are making single-person households the fastest growing household type, the study finds. In addition, a long-term net increase in potential home buyers will be driven by demographic factors: the aging of “echo boomers” into adulthood, an increased life expectancy for baby boomers and projected annual immigration of 1.2 million.
From 2010 to 2020, the number of households in the United States will grow by an average of more than 1.4 million per year, the study finds.
Unsold homes block growth
Still, before the housing market can turn around, it must first work off the record numbers of unsold homes on the market. From 2005 to 2007, the number of new and existing vacant homes for sale rose 46% to 2.12 million.
The nationwide glut of unsold homes has hit the real estate market hard, forcing down sale prices, stemming new construction and leaving millions of homeowners with properties worth less than the value of their mortgage.
In early 2008, the nation had an 11-month supply of unsold new homes and a 10.7-month supply of existing single-family homes, according to the Harvard study. A six-month supply of existing homes is considered a buyers’ market. Reducing the current supply will require price declines, a decrease in interest rates, employment growth, a return of consumer confidence and the revival of accessible mortgage credit.
A reduction in new home construction is another key to decreasing inventory, Retsinas said. Privately owned housing starts fell 3.3% to a seasonally adjusted annual rate of 975,000 in May from 1 million in April, according to the Commerce Department.
A sharp drop-off in housing starts has precipitated housing turnarounds in previous bubble-bust cycles, said Karl Case, a Wellesley College economics professor and a co-founder of real estate consulting firm Fiserv CSW. Case also sees long-term growth in the housing market and agrees that immigration and other demographic trends will help fuel a long-term recovery.
“If household formation continues at pace, prices will recover and starts will rise again,” Case said.
In the housing bust of the early 1990s, cities with big immigrant populations, like Los Angeles, recovered more quickly than other metropolitan areas, like Boston, with lower foreign-born, said Case.
“Not all immigrants buy houses, but many immigrants buy houses,” Case said. “That has a positive effect on the prices in a market.”
Regional recoveries
Retsinas said parts of the country, such as the Northeast, with fewer vacant homes could see signs of a recovery in spring 2009. He was less sanguine about markets like the Southwest, where excessive overbuilding at the height of the market means it could take two years or more to sell off excess inventory.
Recovery in the Midwest represents that biggest challenge, because the housing downturn there stems from regional economic problems beyond overbuilding.
“They’re not reacting to an overheated housing market there,” Retsinas said. “They live in an economy that is shedding jobs.”
Jun
23
Record foreclosures and limited access to credit will make it harder than usual to rebound from this U.S. housing market slump, the worst at least since World War Two, according to a Harvard University study on Monday.
A two-year home price drop is eating into housing wealth, curbing consumer spending and slicing away economic growth. This is unlikely to change until potential home buyers are convinced that prices have stopped tumbling, the study found.
The downturn has room to run.
The highest home loan rates in nine months and strict lending standards are keeping buyers on the sidelines, even after aggressive Federal Reserve intervention and a 16 percent national home price slide from the 2006 peak, by some measures.
“Historically, housing markets recover only after the economy has entered a recession and a combination of falling mortgage interest rates and house prices have improved housing affordability,” Nicolas P. Retsinas, director of the Joint Center for Housing Studies at Harvard, said in a statement.
“It will take longer this time to rebound given the unusually high levels of foreclosures and constrained credit markets,” he said. “The slump in housing markets has not yet run its full course.”
Price declines and mortgage defaults are the worst on records dating back to the 1960s and 1970s, the study noted. Job losses and falling prices intensify risk of foreclosure.
The number of homes entering foreclosure nearly doubled to 1.3 million in 2007 from about 660,000 in 2005.
Payment shock after rate resets on some adjustable loans, many made to higher-risk borrowers, has propelled owners into foreclosure. For others in trouble, falling prices leave them with mortgages larger than the home’s value, and they are often unable to refinance or sell.
Also, new homebuilding and house sales rival the worst downturns in the post World War Two era.
The number of homeowners paying more than half of their income on housing surged by 35 percent to 8.8 million in 2006 from 6.5 million five years earlier, according to the study, the center’s 20th annual broad report on U.S. housing trends.
After rising for years, the U.S. homeownership rate fell to 67.8 percent at the end of 2007 from an all-time high 69 percent in 2004.
“As investors demand a higher return for assumed risk and limit credit to riskier borrowers, costs are rising for all types of mortgage, consumer and corporate loans,” the center said in a press release. “Many would-be borrowers are now finding it impossible to get loans at any price.”
Economic weakness does not bode well for income growth in the short run, and housing cost pressures are unlikely to lighten in the long term. Much of employment growth will be in part-time and low-wage positions, the study said.
“The somber conclusion is that if the economy slips into recession or job losses keep racking up, household growth and homeownership demand could fall even more,” the center said in the release.
Barring a prolonged period of serious economic decline, the study projects household growth of about 14.5 million over the next 10 years. The main risk to that outlook is a drop in immigration from its recent 1.2 million annual pace due to weaker labor markets.
To get home affordability back to levels of 2000, before a five-year record home price and sales surge, “would take some combination of large price declines, interest rate reductions, rent deflation and unprecedented real income growth,” the study said.
Even then, homes were out of reach for many “vulnerable households” often made up of low-wage workers, families with children and veterans.
Jun
20
3 Tips On Buying A Foreclosed Home
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Sure, banks are anxious to sell foreclosed properties and you can get a decent price. Here’s what you need to know before you shop.
(Money Magazine) — Meet the latest desperate home seller: the bank. According to RealtyTrac, lenders repossessed 197,800 homes in the first four months of 2008 vs. 90,800 in that period last year.
Banks don’t want to be in the real estate business, so sometimes they’ll accept much less than you might think to get the darn things off their books – especially in markets having lots of trouble. But buying such properties has drawbacks.
Here’s what you need to know.
1. Use the Web
Websites can help you find foreclosed homes. On Redfin.com, you can do a free search for so-called real estate owned (REO) properties – those for which the bank holds the deed – in Baltimore, Boston, Los Angeles, San Diego, San Francisco, Seattle and Washington, D.C. (and soon, Chicago).
Or you can locate them nationwide on Foreclosures.com or RealtyTrac.com for a subscription fee of $49.95 a month.
2. Use a broker
Forget buying directly from the bank (lenders typically deal only with pros) or at auction (you may wind up bidding more than you should).
Work with brokers; banks use them to sell most homes. Once you’ve identified which properties are REO, you’ll know those are the ones for which a low-ball offer is more likely to be accepted.
3. Watch out for repair costs
Look for houses that have been on the market for more than 90 days and offer 10% to 30% less than asking.
Bank-owned houses typically need a lot of work: People facing foreclosure often neglect maintenance and may have swiped fixtures and appliances on their way out.
Never buy an REO property without an inspection, and be sure to factor repair and remodeling work into your offering price. According to a recent survey by Remodeling Online, replacing a bathroom alone costs nearly $16,000, on average.
Jun
18
Economic Rebound At Least A Year Away
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U.S. economy likely won’t improve until summer 2009, with more layoffs and higher inflation looming, according to a survey of CFOs.
NEW YORK (CNNMoney.com) — Economic woes are expected to continue until at least mid-2009, and things may get worse before they get better, according to a quarterly survey of chief financial officers.
The quarterly Duke University/CFO Magazine Global Business Outlook study found 71% of more than 1,000 CFOs surveyed said the U.S. economy will not begin to rebound until 2009. And 54% think the turnaround will happen by next summer at the earliest.
“This could be the longest slowdown since the double dip recession of 1979-81,” said John Graham, director of the survey.
There was some positive news from the survey: Overall, optimism rose slightly from the previous quarter.
Still, financial chiefs from a broad range of public and private companies hold a grim view of the economy and attribute their pessimism to a tough jobs market and rising inflation. Weak consumer demand and high fuel costs also topped their concerns.
JobsCFOs said difficulty in attracting and retaining high quality employees is their the top concern, followed by the difficulty of planning in the uncertain economic environment. Accordingly, they expect employment to fall another 0.2% in the next 12 months.
A net 324,000 jobs have already been lost in 2008, the worst start to a year since 2002, when the U.S. economy was just coming out of the last recession.
As the economy sheds more and more jobs, businesses said they are increasingly worried about the fallout of rising prices and mounting layoffs.
InflationWith soaring fuel and food prices, 45% of companies said they have passed along rising costs to customers in the form of higher prices.
“In recent years, U.S. companies have largely shrugged off increasing fuel costs,” said Kate O’Sullivan of CFO Magazine. “For the first time in the history of our survey, fuel costs are tied as the top corporate concern, and … a majority of companies tell us they have taken explicit actions in response to increased fuel costs.”
That may exacerbate inflationary pressures, as only a quarter of the businesses concerned about rising prices said they will absorb those costs by cutting into profit margins. As a result, the surveyed CFOs said they are forecasting prices to increase by 4.1% by the same point a year from now.
“Rising fuel costs are seeping into the overall price level, contributing to inflationary expectations of over 4%,” O’Sullivan noted.
Signs of stabilizingDespite its gloomy findings, the survey suggests that CFOs are starting to feel better about the economic outlook. Pessimists outnumbered optimists by 8 to 1 in the past two quarters, but that ratio has improved to about 3 to 1.
“For the last several quarters, CFOs reported bad news and more bad news,” said Campbell Harvey, the survey’s founder. “This quarter, we’re seeing bad news with a little bit of good news.”
Harvey said the improved ratio potentially indicates stabilization. But he warned that the worst is still not over, and encouraged the Federal Reserve not to raise its key funds rate just yet.
“This is not the time to cut off the meds,” he said.
Jun
17
Home Prices Continue Sharp Descent
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Single-family home prices dropped 7.7% in the first quarter in the largest year-over-year decline since the National Association of Realtors began reporting prices in 1982.
The median sales price fell to $196,300, down 4.8% compared with the last three months of 2007. Read the rest…