Aug
27
Number of bankruptcy filings in recent 12-month period rises to nearly 1 million.
NEW YORK (CNNMoney.com) — As things in the economy have gotten worse, the number of people and businesses heading to bankruptcy court has spiked.
Bankruptcy filings surged 29% in the 12 months that ended June 30, according to government figures released Wednesday.
Total filings rose to 967,831 from 751,056 a year earlier.
Business filings jumped more than 41% to 33,822 from 23,889 in the year-ago period. Personal filings totaled 934,009, up 28% from last year.
“As we continue to hear more bad economic news, we will continue to see bankruptcies spiral upwards,” said Jack Williams, resident scholar at the American Bankruptcy Institute.
The bankruptcy group expects filings to reach 1.2 million this year, as problems in the housing market have “reverberated throughout the economy,” he added.
The data also showed that filings for Chapter 7 rose 36% to 615,748 in the 12 months that ended June 30.
Chapter 7 bankruptcy is designed to give individual debtors a “fresh start” by discharging many of their debts. Under Chapter 7 a filer’s assets minus those exempted by his home state are liquidated and given to creditors first in line for repayment, while the rest of his debts are cancelled.
Another type of individual bankruptcy – Chapter 13 – requires debtors to pay back their debts over time. Total Chapter 13 filings rose 17% to 344,421 from 294,693 a year earlier.
Filings for Chapter 11 bankruptcy, which is aimed at assisting struggling corporations or partnerships, rose more than 30% to 7,293.
2005 law cracked down on filersThe increase comes near the third-year anniversary of a congressional crackdown on filers of chapter 7 bankruptcy.
The Bankruptcy Abuse Prevention and Consumer Protection Act, which made it harder for individuals to receive Chapter 7 bankruptcy protection, went into effect in late 2005. Huge numbers of people rushed to file for bankruptcy before the deadline and then filings dropped off dramatically in 2006-07.
Lawmakers who voted in favor of the law included Sen. John McCain, R-Ariz., the Republican presidential candidate, and Sen. Joe Biden, D-Del., the Democrats’ vice presidential pick.
Democratic presidential candidate Sen. Barack Obama, D-Ill., voted against the act.
Recently, Obama has proposed to fast-track bankruptcy proceedings for military families and help seniors facing bankruptcy keep their home.
Proponents of the law argued that it would prevent consumers from using bankruptcy laws to clear debts that they actually have the ability to repay. Consumer advocates decried it as a boon to creditors – particularly credit card companies – that lose money when debtors declare Chapter 7 bankruptcy.
Williams said that Chapter 7 filings are starting to return to levels last seen before the 2005 law, which suggests that the decrease following its enactment “may have been an illusion.”
Aug
27
The Hope Now coalition reports that it completed a record number of mortgage workouts in July – but that was outpaced by the increasing rate of foreclosures.
NEW YORK (CNNMoney.com) — Hope Now has helped more than 2 million at-risk borrowers stay in their homes during the past 13 months, according to numbers released by the coalition on Wednesday.
The alliance of mortgage servicers, counselors, and investors assembled to combat foreclosures fixed more than 192,000 problem loans during July, a one-month record that represents a 6% increase over June.
Despite this progress, foreclosures continue to climb; 91,752 families lost their homes in July. That represents an increase of 14% from June and more than double the number of July 2007, when only 42,043 homes went to foreclosure.
“The treadmill is still going a little faster than [Hope Now] can keep up with,” said Nicholas Retsinas, Director of Harvard University’s Joint Center for Housing Studies. “Foreclosures have outpaced the efforts to combat them.”
So, Hope Now is stepping up its efforts to reach out to troubled borrowers to let them know help is available, according to Faith Schwartz, the alliance’s executive director. The group has promoted its program through advertising, public announcements, as well as letters to at-risk borrowers and large foreclosure prevention events that it’s holding around the country.
Reluctant to seek helpBut even now, after months of publicity, many borrowers still fail to respond to Hope Now’s offers to help.
Of the nearly 1.6 million letters that have gone out since November 1, 2007 to borrowers 60 days past due, more than 80% of borrowers still had not called their lenders a month after receiving the letters, according to Schwartz.
“Outreach is crucial,” she said. “Borrowers have to talk to their lenders. That’s the most important message we communicate.”
Still, that low response rate is better than the industry norm. Most loan servicers find only about 2% to 3% of delinquent borrowers contact them after receiving a notice, according to John Courson, chief operating officer for the Mortgage Bankers Association.
Hope Now has recently started partnering with community groups to put on large events that allow the thousands of troubled borrowers who attend to meet with foreclosure prevention counselors. It has hosted 20 of these events since March, with a total of 11,500 homeowners in attendance.
Last week Hope Now held several of these events in Florida even as Tropical Storm Fay buffeted the state; a total of 3,300 borrowers turned out for help.
“We are committed to helping as many borrowers as possible and we’re not going to let anything, including a tropical storm, get in the way,” she said.
Twenty different mortgage lenders and servicers participated in the Florida events including many of the industry’s biggest players, like Bank of America (BAC, Fortune 500), JP Morgan Chase (JPM, Fortune 500), Wells Fargo (WFC, Fortune 500) and Washington Mutual (WM, Fortune 500).
“I think their outreach efforts are great,” said Jared Bernstein, senior economist with the Economic Policy Institute, “and they’re smart to go to ground zero [for foreclosures] to hold these events. But there’s only so much they can do. They cannot change people’s circumstances in enough cases to stave off the correction that has to occur.”
More helpAnd a change in lender attitudes has probably paved the way for more workouts, according to Harvard’s Retsinas.
“The participating lenders have come to grips with the idea that the market is not going to get better soon, so they are cooperating more with borrowers. Hope Now numbers reflect that,” he said.
Of the 192,034 total workouts completed by Hope Now in July, nearly 112,000, or 58%, were repayment plans, while the remaining 80,000 or 42% of the workouts involved permanently modifying the terms of a loan to make it more affordable. Last year at this time, less than 24% of workouts were modifications. Of the nearly 92,000 subprime loans that were fixed, 52% of them were modifications.
Repayment plans simply give borrowers more time to pay lenders what they owe, either by extending the term of the loan or by raising monthly payments. They work best for borrowers who were thrown off the track by one-time events, such as an illness or temporary job loss.
But by and large they’re considered to be fairly ineffective at preventing foreclosures in the long run, since borrowers often cannot afford the original terms of their loans.
Modifying a mortgage by lowering the interest rate, the principal, or both, is the most effective means of keeping owners in their homes.
Even modifications won’t work for everyone, according to Bernstein.
“Home prices are still falling,” he said. “There are probably 10 million folks underwater, owing more on their mortgages than their homes are worth and that’s going to climb. Not everybody under water is going to foreclose. If you’re close to solvency, these efforts can help pull you back from the brink. But if you’re well underwater, you’re probably going to drown.”
Aug
26
Home Prices Plummet in a New Record
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National prices fell 15.4% in past 12 months. Las Vegas was the worst-hit city, while Denver and Boston saw the biggest price increases.
NEW YORK (CNNMoney.com) — National U.S. home prices fell a record 15.4% in the second quarter compared with last year, according to a report released Tuesday.
The latest S&P/Case-Shiller national home price index is down 18.2% from its peak in the second quarter of 2006, and there are no signs that the pace of home-price declines is easing. The second-quarter loss was even larger than the record 14.2% drop posted in the first three months of 2008.
Both the Case-Shiller 10-city index (down 17%) and 20-city index (down 15.9%) also posted record year-over-year losses in the second quarter.
A small piece of good news: In June the pace of monthly declines slowed ever so slightly compared with May. Prices for the 10-city index declined 16.9% year-over-year and the 20-city index was down 15.8%.
Too much inventory“While there is no national turnaround in residential real estate prices, it is possible that we are seeing some regions struggling to come back, which has resulted in some moderation in price declines at the national level,” said David Blitzer, chairman of the Index Committee at Standard & Poor’s, in a statement.
Still, all 20 cities covered by Case-Shiller are in negative territory for the past 12 months, said Mike Larson, a real estate analyst with Weiss Research. “[The moderation] is not good news,” he said. “It’s just a little less bad.”
And with mortgage loans difficult for many home buyers to obtain and foreclosure rates still rising, inventories of homes for sale continue to expand, depressing home prices. There is now an 11.2 month supply of existing homes on the market.
“The inventory problem has not been solved,” said Larson.
Peter Schiff, president and chief global strategist at Euro Pacific Capital, said the market is only about halfway to its bottom. In 2005, he predicted the then-coming bust would cut 30% off national home prices.
Losses will continue because there has been no fundamental change in markets, he said. Despite abundant foreclosure sales, inventories are still growing and lending availability is still shrinking.
And, people are not inclined to buy in a falling market. They wait for it to hit bottom. “If prices fall another 20%, that’s the time to buy,” said Schiff.
Hardest hitThe worst performing city in the index was Las Vegas, where prices plunged 28.6% year-over-year, followed by Miami, down 28.3%, and Phoenix, down 27.9%.
In June, Phoenix prices dropped 2.6% from May, the largest decline of any city in the index.
Denver and Boston were winners for the month, with home prices climbing 1.5% and 1.2%, respectively. Prices have risen in both markets for three consecutive months. Charlotte and Dallas, both up 1%, have recorded four straight months of gains
The lower-priced homes are posting the biggest price declines, according to Blitzer. One reason: Lending abuses were much more common low-priced homes during the boom.
“There was more speculative lending in inexpensive homes,” he said.
He cited San Francisco, where the price of inexpensive homes has fallen more than 40% from the peak, while moderate priced homes were off 30%, and expensive homes fell just over 10%.
“That’s a dramatic spread,” said Blitzer.
Still, Larson of Weiss Research said he believes that while year-over-year prices will continue to decline, sales of foreclosed homes will help moderate those losses by taking rock-bottom priced homes off of the market.
“Prices have fallen so much that you’re starting to see sales improvement,” he said. “People are snapping up a lot of distressed properties.”
Aug
26
NEW YORK – A widely watched index released Tuesday showed home prices dropping by the sharpest rate ever in the second quarter, but the data for June suggest the severity of the housing slump may be waning.
The Standard & Poor’s/Case-Shiller U.S. National Home Price Index tumbled a record 15.4 percent during the quarter from the same period a year ago.
The monthly indices also clocked in record declines. The 20-city index fell by 15.9 percent in June compared with a year ago, the largest drop since its inception in 2000. The 10-city index plunged 17 percent, its biggest decline in its 21-year history.
However, the rate of single-family home price declines slowed from May to June, a possible silver lining, the index creators said.
“While there is no national turnaround in residential real estate prices, it is possible that we are seeing some regions struggling to come back, which has resulted in some moderation in price declines at the national level” said David M. Blitzer, chairman of the index committee at S&P.
Fourteen cities in the monthly index showed improvement from May to June, but nine recorded positive returns.
The index’s glimmer of hope follows another surprisingly positive housing headline on Monday. Existing home sales rose in July, surpassing expectations, as buyers snatched up cheap distressed properties in the hardest hit housing markets.
Still, on a year-over-year basis, no city in the Case-Shiller 20-city index saw price gains in June, the third straight month that’s happened.
Las Vegas led the largest annual declines, falling 28.6 percent followed by Miami at 28.3 percent and Phoenix at 27.9 percent.
Charlotte, N.C., the last city in the index to report depreciation during the current housing downturn, posted its largest drop since 1991 at 1 percent.
Aug
25
Sales by homeowners increased more than expected in July, as median prices fell 7% from July 2007. But supplies still rise to a record high, pushing prices even lower.
NEW YORK (CNNMoney.com) — Sales of existing homes rose more than expected in July, but prices continued to fall and inventory increased. That’s according to the latest reading on the battered housing market by an industry trade group released Monday.
The National Association of Realtors reported that sales by homeowners in July increased to an annual pace of 5 million, up from the revised June reading of 4.85 million.
That’s better than the annual pace of 4.9 million that economists surveyed by Briefing.com expected, and it’s the highest pace since February. Still, July sales were down 13.2% from a year earlier.
“Sales volume is starting to increase because prices are collapsing,” said Michael Larson, an analyst with Weiss Research. “When lenders are aggressive enough on pricing, especially in certain markets, it’s enough to attract buying interest.”
Falling Prices
The median price of all homes sold during the month – including single-family homes, townhomes, condominiums and co-ops – fell 7.1% to $212,400 from $228,600 a year ago. Before the start of the current housing slump, it had been 11 years since prices fell compared to a year earlier.
At the same time, the single-family home median price fell 7.7% from a year ago to $210,900. The trade group has tracked those sales prices going back to 1989.
The rate of existing home sales rose in every region of the country except the South, where sales slipped by a seasonally adjusted 0.5%. Sales in the Northeast rose 5.9%, while the Midwest saw an increase of 0.9%. The West saw the largest jump in sales, up 9.7%, as prices fell a whopping 22.2% in that region.
Prices in the Northeast declined 4.9%, while the South saw a dip of 3.5%. Prices actually rose 1% in the Midwest.
“Home prices generally follow sales trends after a few months of lag time,” said Lawrence Yun, NAR chief economist. “Still, inventory remains high in many parts of the country and will require time to fully absorb.”
Expanding Inventory
Even as sales picked, up, the excess supply of homes on the market still rose 3.9% in July to a record high of 4.67 million. Realtors estimated that represents an 11.2 month supply.
That is up from the 11.1-month supply in June, though NAR said the rise in inventories was due to a sharp jump in the number of condominiums on the market. Inventory of single family homes declined slightly, falling to a 10.6 month supply from 11 months in June.
“The troubling thing about this report is that the supply issue is not going away,” said Larson. “It would be okay as long as the inventory went down, but there were enough new listings that overall supply rose more than sales.”
In response to the struggling market, President Bush signed the Housing and Economic Recovery Act late last month. The bill includes a temporary tax credit of up to $7,500 for first-time home buyers who haven’t purchased a home in three years.
Qualified buyers must earn less than $75,000 – or $150,000 for a couple – after which point the tax credit begins to phase out. The Senate Finance Committee estimates that about 1.6 million people will use the credit.
But if inventory continues to rise, it may be a while before the the market can recover.
“This report illustrates a housing market that’s going to continue to struggle,” said Larson. “Pricing pressure will remain for a while.”
Aug
21
Job Boom Could Be Coming Soon
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Economists at the University of Michigan predict that 3.5 million jobs will be created in the next two years.
NEW YORK (CNNMoney.com) — There is no denying that the job market is weak.
The Department of Labor reported this morning that 432,000 people filed for unemployment benefits in the past week – making this the fifth straight week that jobless claims topped the 400,000 mark.
And so far this year, there has been a loss of 463,000 jobs.
Yet, some are starting to see light at the end of the tunnel on the job front. Economists at the University of Michigan said in a report released yesterday that 900,000 jobs will be added next year and that 2.6 million more will be created in 2010.
Joan Crary, an economist with the University of Michigan, said that this forecast is based on a belief that the economy will finally begin to rebound in the second half of 2009.
Housing, autos may recoverShe added that the increase in jobs will likely be broad-based. But two particularly hard-hit sectors of the market could help lead the comeback.
“To get this sort of recovery, you’ll have to have a turnaround in housing. So you’ll have to see a pickup in construction jobs. We could also get a pickup in vehicle manufacturing with the shift to smaller cars,” she said.
Crary added that as long as oil prices remain relatively high, she expects more companies to aggressively invest in other energy sources, such as solar power, wind power and ethanol.
“Alternative fuel could be an area where there will be a lot of research and development going forward, so we could see some job gains in that industry,” she said.
Still, the job market is not likely to improve in the next few months. The University of Michigan is predicting that a total of 700,000 jobs will be lost in 2008. That implies an average loss of more than 47,000 a month for the final five months of the year.
And some think that forecast is too optimistic.
Doubts persist“I don’t see anything rosy about what’s going on in the job market. The level of unemployment claims are in recession territory,” said Kurt Karl, chief U.S. economist with Swiss Re.
Karl said he expects a loss of at least 100,000 jobs in August, and that, towards the end of the year, the economy may be shedding up to 200,000 jobs a month.
But Karl also believes that the economy will bounce back next year. That, eventually, should lead to job gains.
“The economy should improve next year though. The housing market will start heading up in the second half of the year and the consumer will come back, especially if we continue to get a break on inflation with oil prices coming down,” he said.
However, there could be a lag in the recovery of the labor market, as there was following the end of the 2001 recession.
“Job losses tend to be persistent, and the economy does turn before the job market,” Karl added.
And Crary concedes that the credit crunch remains a big wild-card for any economic and job market predictions.
With fears still swirling about more bank collapses, and a possible bailout of mortgage giants Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500), it’s tough to imagine a sustained improvement in the economy and job market occurring until banks sort out their balance-sheet debacles.
“The financial sector has to straighten itself out for our forecast to be feasible,” Crary said.
Aug
20
Mortgage Applications Near 8-year Low
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A drop in the refinancing of existing mortgages spurs a downturn in applications.
NEW YORK (AP) — Mortgage application volume fell last week to its lowest level in nearly eight years, the Mortgage Bankers Association said Wednesday.
The fall in application volume is the latest sign of a struggling housing market. On Tuesday, a Commerce Department report showed construction of homes and apartments fell in July to the lowest level in more than 17 years.
And while fewer new homes are being built, fewer customers are also refinancing existing mortgages. A sharp drop in refinance volume in recent weeks has been the leading driver of declining application volume.
The trade group’s application index fell to 419.3 during the week ending Aug. 15, its lowest level since the index hit 298.3 in December 2000, and a 1.5% decline from the prior week. Application volume is down 61% from its 2008 peak in February.
The MBA’s index peaked at 1,856.7 during the week ending May 30, 2003, at the height of the housing boom. An index value of 100 is equal to the application volume on March 16, 1990, the first week the MBA tracked application volume.
The survey provides a snapshot of mortgage-lending activity among mortgage bankers, commercial banks and thrifts. It covers about 50% of all residential retail mortgage originations each week.
Application volume fell despite a drop in interest rates as well. The average rate for traditional, 30-year fixed-rate mortgages fell to 6.47% during the week ending Aug. 15, from 6.57% the previous week.
The average rate for 15-year fixed-rate mortgages, often a popular option for refinancing a home, fell to 5.99% from 6.17%. The average rate for one-year adjustable-rate mortgages fell to 7.07% from 7.15%.
Aug
20
Government rescue may be on the table as the mortgage finance giants struggle with losses.
NEW YORK (AP) — As mortgage financiers Fannie Mae and Freddie Mac struggle with continuing credit losses, their ability to raise needed capital is uncertain and, analysts say, is complicated by the possibility of a government bailout of the two companies.
“We’re in uncharted water with this,” Bert Ely, an Alexandria, Va.-based banking industry consultant and longtime critic of Fannie and Freddie, said Tuesday.
Published reports about a possible bailout, continued quarterly losses at Fannie and Freddie and further deterioration in the credit markets have investors concerned about the mortgage companies’ solvency. Those worries have sent the companies’ prices tumbling, with Fannie falling another 4.49% and Freddie sliding 5.01% on Tuesday.
In the latest sign of trouble, Freddie had to pay its highest borrowing premium in 10 years when it issued $3 billion worth of five-year debt on Tuesday, according to The New York Times. Freddie had to pay an interest rate that’s 1.13 percentage points higher than the rate the federal government pays for similar borrowing, the report said.
A government bailout is widely considered the least attractive alternative to help the mortgage financiers shore up their balance sheets because investors are worried that federal intervention will wipe out the holdings for any non-governmental investors, said Brian Gardner, a senior vice president with Keefe, Bruyette & Woods Inc.
Last month, the Treasury Department agreed to provide support to Fannie and Freddie, which collectively own or back about $5.3 trillion in mortgages, about half the nation’s mortgage debt. The support could come in the way of loans or an equity investment by the government to help support the mortgage companies. It is widely assumed any equity investment by the government would take a senior position above all other investors – in other words, should the companies become insolvent, the government would recover money before others who have invested in Fannie and Freddie.
Over the past year, homeowners have increasingly defaulted on mortgages, which has led to billions of dollars in losses for the pair of government-sponsored enterprises. That trend has also been one of the leading culprits in the deterioration in credit markets that has made it more difficult for companies in general to raise new capital.
Freddie has said it is committed to raising $5.5 billion to help shore up its troubled balance sheet – that is nearly twice the size of Freddie’s current market capitalization of about $2.84 billion.
Fannie’s market capitalization is about $6.58 billion. Friedman, Billings & Ramsey Co. analyst Paul Miller estimates Fannie needs to raise between $5 billion and $10 billion in new capital.
But the prospect of government help has been one of the greatest hang-ups in efforts to raise capital from other investors.
Fannie and Freddie could raise those funds through non-governmental investors, but the cost would likely be severe in terms of interest or dividend payouts depending on the structure of the capital raise and in terms of dilution to current shareholders, analysts said.
“The cost of capital of this nature is just staggering,” said Ladenburg Thalmann Inc. analyst Richard Bove. Fannie and Freddie could likely raise capital, but it would cost them so much during the current downturn in the credit market that it is unattractive, Bove said.
At a certain price, though, analysts said the companies would find investors. It is just a matter of what costs and stock dilution investors are willing to incur.
Any non-governmental investor is going to want a senior position, said Walter O’Haire, a senior analyst with consulting firm Celent.
Potential investors might also approach the government to provide some financial guarantees to help protect against losses, O’Haire added. “They will want as much assurance as they can possibly get,” O’Haire said.
If Fannie and Freddie cannot find outside investors, the government’s offer of support will likely come into play. Ely said that if the government gets involved, the first option would be to provide the mortgage companies with loans, likely through the Federal Reserve or possibly the Treasury Department.
That option would help the Treasury Department avoid an outright takeover of the company, Ely said.
Fannie (FNM, Fortune 500) or Freddie (FRE, Fortune 500) would likely pledge mortgages and securities from their portfolios as collateral in return for the loans. That would help avoid a complete government takeover.
The Federal Reserve opened up a similar lending option for investment banks in March shortly after the collapse of Bear Stearns. Previously only retail banks were able to borrow money from the Fed, using loans as collateral.
Aug
19
Credit Crunch May Take Out Large Us Bank Warns Former IMF Chief
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The deepening toll from the global financial crisis could trigger the failure of a large US bank within months, a respected former chief economist of the International Monetary Fund claimed today, fuelling another battering for banking shares.
Professor Kenneth Rogoff, a leading academic economist, said there was yet worse news to come from the worldwide credit crunch and financial turmoil, particularly in the United States, and that a high-profile casualty among American banks was highly likely.
“The US is not out of the woods. I think the financial crisis is at the halfway point, perhaps. I would even go further to say the worst is to come,” Prof Rogoff said at a conference in Singapore.
In an ominous warning, he added: “We’re not just going to see mid-sized banks go under in the next few months, we’re going to see a whopper, we’re going to see a big one — one of the big investment banks or big banks,” he said.
Rising anxieties over “worse to come” in the credit crisis sent shares tumbling in Europe and Asia.
In London, the FTSE 100 index extended opening losses as widespread fears over the financial sector’s woes led to another battering for stocks. The FTSE closed 129.8 points, or 2.38 per cent, lower at 5,320.4, pushing it into bear market territory — a level 20 per cent below the October 12, 2007 peak of 6730.71 — for the sixth time in two months. Germany’s Dax shed 2.4%, while the CAC 40 in Paris lost 2.5%.
Professor Rogoff, who was chief economist at the IMF from 2001 to 2004, predicted that the crisis would foster a new wave of consolidation in the US financial sector before it was over, with mergers between large institutions.
He also suggested that Fannie Mae and Freddie Mac, the struggling US secondary mortgage lending giants, were likely to cease to exist in their present form within a few years.
His prediction over the fate of Fannie and Freddie came after investors dumped the two groups’ shares on Monday after reports suggested that the US Treasury may have no choice but to effectively nationalise them.
The professor also sounded a warning over rising US inflation, which rose last month to its highest since 1991, and criticised the Federal Reserve for having cut American interest rates too drastically. “Cutting interest rates is going to lead to a lot of inflation in the next few years in the United States,” he said.
As investors’ edginess over the threat of further financial turbulence sent equity markets into a further spin, bank shares were hit hardest. Among the biggest fallers in London trade were HBOS, down 6 per cent, Royal Bank of Scotland, whose shares plunged by 5 per cent, while HSBC fell 3.6 per cent. In continental Europe, Spain’s Banco Santander was off 2.35 per cent, and BNP Paribas lost 3.8 per cent.
Persistent worries over the rapidly deteriorating economic outlook in the UK also saw sterling succumb to fresh losses. The pound lost almost a cent against the dollar, dropping to $1.881, above the near-two year lows plumbed on Friday.
Earlier, there were fresh jitters in Asia, with the region’s leading bourses in sharp retreat after a dire overnight performance by Wall Street left the Dow Jones Industrial Average down by more than 180 points. Both Asian markets and Wall Street were unnerved by suggestions over the prospects for Fannie Mae and Freddie Mac.
While Japanese banks have remained relatively under-exposed to sub-prime mortgage products, many fear that they would be heavily exposed to a nationalisation of Fannie and Freddie. The large Japanese financial houses hold around Y9.6 trillion (£47 billion) in bonds and mortgage-backed paper issued by housing finance groups in the US.
“If the recapitalisation talk is realised, there are no assurances that the securities that have been issued [by U.S. mortgage firms] will be 100 per cent guaranteed,” said Yutaka Shiraki, a senior equity strategist at Mitsubishi UFJ Securities.
Financial sector shares were particularly badly hit in Tokyo, where they led the Nikkei 225 Index into a 300-point decline. The selling continued throughout the day, and peaked after a declaration by the Bank of Japan that the world’s second largest economy was now looking “sluggish”.
Although the central bank’s downbeat economic report included vague predictions of a return to growth over time, traders said that the comments had shattered any last hope that Asia’s export-led economy might somehow “decouple” from the woes in the US.
The picture was somewhat more stable in Shanghai, which spent a day in relative limbo following Monday’s 5.3 per cent nosedive. With Chinese stocks beating a daily retreat, investors are focused on the 2001 index high of 2,245-points. Some believe that level will hold up as a technical floor on the selling, others believe that it may shortly fail and unleash a much deeper collapse in stock values.
Aug
19
NEW YORK (CNNMoney.com) — Home prices continue to tumble across the country, making homes more affordable in most U.S. cities, according to a new report released Tuesday.
Nationally, 55% of homes sold from April through June were affordable to families earning the U.S. median income of $61,500, according to a quarterly report released Tuesday by the National Association of Home Builders (NAHB).
That’s up from 53.8% in the first quarter of 2008, and the most affordable home prices have been since the second quarter of 2004.
“Homes became more affordable because median income and interest rates remained about the same throughout the country, as home prices continued to fall,” said Gopal Ahluwalia, an NAHB economist.
Median home prices dropped to $215,000 in the quarter, which are about 10% below year-ago levels of $240,000, according to NAHB.
“This is definitely positive news, because more people can afford to buy a home,” said Ahluwalia. “Still, actual sales haven’t picked up, because people are waiting on the sidelines as they fear home prices will continue to decline.”
Falling home sales have battered the homebuilding industry. The NAHB study followed a Census Bureau report also released Tuesday that showed home building fell sharply in July to a 17-year low. Monday, a monthly NAHB report showed homebuilders’ confidence in the housing market remained at record low levels.
Tale of Two Cities: Indianapolis and New York
Indianapolis led the the nation’s major metro areas in home affordability for the 12th straight quarter. The median price of homes sold during the second quarter was $108,000, down from $122,000 last year. And 91.6% of the households there earning the median income of $65,100 could afford to buy a median priced home. That’s up from 86.8% last year.
New York was the least affordable major housing market in the country, according to the report. It was the first time that a major metropolitan area outside of California was the least affordable home market in the 17-year history of the report. Los Angeles was the least affordable housing market at this point last year.
“Prices went down a lot in both areas, but they fell a lot more in Los Angeles,” said Ahluwalia. “Prices are declining very rapidly in California because of a large supply and low demand.”
In New York, the median home price fell slightly year over year to $481,000 from $510,00. That led to an increase in affordability; 11.4% of households earning the median income of $63,000 could afford to buy a median priced home, up from 6.3% in the second quarter of 2007.
Despite that change, New York still fell to the least affordable area from second-least affordable last year, according to this survey.