Oct
28
Consumer Confidence At All-Time Low
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Business research group says its index of confidence plunges to its lowest level in four decades.
NEW YORK (CNNMoney.com) — A key measure of consumer confidence fell to an all-time low in October as the financial crisis weighed on American household budgets.
The Conference Board, a New York-based business research group, said Tuesday that its Consumer Confidence Index plummeted to 38 in October from an upwardly revised reading of 61.4 in September.
Last month’s decline brings the index to its lowest level since its inception in 1967.
“Consumers certainly appear to think the sky is falling,” said Adam York, economic analyst at Wachovia Economics Group, in a research note.
Economists were expecting the index to have declined to 52, according to a survey by Briefing.com.
“The impact of the financial crisis over the last several weeks has clearly taken a toll on consumers’ confidence,” said Lynn Franco, director of the Conference Board Consumer Research Center, in a statement.
The nation’s financial system has been under considerable strain in October as the credit crunch has hampered businesses ability to fund essential activities.
At the same time, stock prices have plunged as investors fear the global economy is on the verge of recession. The Dow Jones industrial average has fallen more than 27% so far this month.
“While the current reading may be an overreaction to the bad news in October, it does make clear that consumers understand that we have firmly moved into a recessionary environment and that this slowdown will be the worst in a generation,” York said.
Even though gas prices have come down significantly in recent weeks, putting more cash in consumers’ pockets, Americans now appear more focused on the deteriorating job market.
So far this year, the economy has lost 760,000 jobs, according to the Labor Department’s September payrolls report.
A case in point: Whirlpool Corp., the nation’s largest home appliance maker, said Tuesday it will cut about 5,000 jobs by the end of 2009 to cope with the credit crisis and weak demand.
Many economists worry that weakness in consumer spending, which makes up two-thirds of the nation’s economic activity, will result in further contraction of gross domestic product (GDP) in the fourth quarter.
The government will release its advance report on third-quarter GDP Thursday. A consensus of economists expect a 0.5% annual rate of decline after a 2.8% annual growth rate in the second quarter, according to Briefing.com.
“In assessing current conditions, consumers rated the labor market and business conditions much less favorably, suggesting that the fourth quarter is off to a weaker start than the third quarter,” Franco said.
Indeed, the survey found that the number of consumers saying business conditions are “bad” increased to 38.3% from 33.4%.
The assessment of the labor market was significantly worse. The percentage of consumers saying jobs are “hard to get” rose to 37.2% from 32.2%. Those claiming jobs are “plentiful” decreased to 8.9% from 12.6% in September.
Looking ahead, the index showed that consumers see more challenges in the short-term outlook.
Americans expecting business conditions to worsen over the next six months jumped to 36.6% from 21%. Those anticipating fewer jobs in the months ahead rose to 41.5% from 26.9% last month.
Despite consumers’ low level of confidence, the index showed some signs that they are still considering major purchases in the near future.
The percentage of those planning to buy a new car in the next six months rose slightly to 1.7% from 1.5%. But those with plans to buy a used car declined sharply to 1.7% from 2.3%.
On the housing front, the number of respondents planning to buy a home in the coming months rose to 2.7% from 2.3%.
The number of consumers planning to buy household appliances in the next six months declined to 25.9% from 29% in September. And the number of households with vacation plans increased to 38.7% from 37.3%.
The Consumer Confidence Survey is based on a representative sample of 5,000 U.S. households.
Oct
28
Home Prices See Another Record Plunge
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10 major markets have seen home values fall 17.7% over the past 12 months, and experts expect the declines to continue.
NEW YORK (CNNMoney.com) — Home prices fell in August for the 25th consecutive month and prices in 10 major markets plunged a record 17.7% year over year, according to a key index of real estate values released Tuesday.
The S&P Case-Shiller Home Price 10-city index dropped 1.1% for the month.
The 20-city index recorded a record year-over-year decline of 16.6% with a 1% fall in August.
“It’s Economics 101,” said Jared Bernstein, senior economist with the Economic Policy Institute. “You have a huge speculative bubble leading to a severe inventory overhang. And now home prices will have to decline accordingly.”
The indexes compare the sale prices of the same homes each year to determine price trends and are considered one of the most accurate home price gauges.
The hardest hit of all 20 cities on a year-over-year basis was Phoenix, where prices plummeted 30.7% during the past 12 months. Las Vegas prices plunged 30.6% and Miami sank 28.1%.
The cities that held up the best were Dallas, which saw a decline of just -2.7%, Charlotte NC (down -2.8%) and Boston (off -4.7%). No city showed a price gain during the last 12 months.
In August, San Francisco saw the biggest price declines, down 3.5%. Phoenix (-2.9) and Las Vegas (-2.4) also reported sizable losses for the month. Two cities showed gains in August; Cleveland prices rose 1.1% and Boston prices inched up 0.1%.
Price declines picking up
Of course, the August indexes don’t reflect the financial market meltdown that hit in September and severely restricted access to credit, according to Richard DeKaser, chief economist for National City Corp (NCC, Fortune 500). He believes the pace of price declines has picked up since then.
“There are two explanations for these steeper declines,” he said, “neither of which are encouraging. One is that the difficulty in obtaining credit has further constricted demand. The second is that home sellers are finally capitulating on prices. They’ve been holding out for months, refusing to sell except at their prices. Now they’re throwing in the towel.”
Bernstein agrees. “Buyers and sellers have been staring at each other to see who blinks,” he said. “Sellers may be blinking first.”
That is reflected in existing home sales volume, which ramped up 5% in September as prices fell. Even new home sales went up slightly in September.
Much of that statistical trend is being driven by data from hard-hit western states like California. The California Association of Realtors reported last week that home sales volume jumped a whopping 97% in September compared with the same period a year ago. But the median price of an existing home has fallen 41%.
If that trend spreads to other states, price weakness could last for many more months, even as sales volume picks up. What happens after that largely depends on the confidence bolstering effect of the government economic stimulus packages, according to DeKaser.
“I’m optimistic,” he said. “More credit will be available and housing inventories will be reduced. The deterioration will give way to a more balanced market.”
But not everyone agrees that the stimulus packages, which are designed to loosen up tight credit, will prove helpful. Peter Schiff, president of broker-dealer Euro Pacific Capital, believes the impact will be decidedly negative.
“The goal of all these plans is to give consumers more money to spend. However, excess consumer spending is part of the problem, not part of the solution” he said. “After a decade-long spending orgy, market forces are finally trying to restrict consumer spending and dampen credit. But the stimulus looks to provide a new source of funds after savings, income, and credit have been exhausted. Our imbalanced economy is in desperate need of retrenchment, but stimulus plans will effectively hold the firemen at bay while throwing gasoline on the flames.”
Additionally, said Schiff, easy credit means people will spend more on consumer goods and they’ll have less to spend on housing. As a result, he expects home prices to fall a lot more.
“They’ll surrender all the gains they made in the past 10 years,” he said, “and be even lower than they were 10 years ago.”
Oct
27
Sales of New Homes Up 2.7%
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New home sales show some signs of life, but September sales were still a third lower than year-ago levels.
NEW YORK (CNNMoney.com) — Sales of newly constructed homes rose in September, according to the monthly report from the U.S. Census Bureau, inching up 2.7% from August to an annualized rate of 464,000.
The reading was above the consensus forecast of 450,000, according to economists surveyed by Briefing.com.
But new home sales are still down 33.1% from September of 2007, and far below the pace of the boom years. In 2005, for example, 1.3 million new homes were sold.
In response to slower sales, home builders have been reducing their production. As a result inventory has fallen, but there were still about 394,000 new single family residences on the market at the end of September. At the current pace of sales, that would take 10.4 months to sell through.
The median selling price for a new home was $218,400 during the month, down from $221,900 in August, while the mean selling price was $275,500, up from $263,900.
“We’re clearly seeing some pick-up in regional areas where home prices have fallen,” said Mike Larson, a real estate analyst with Weiss Research. “The drops have spawned some bottom fishing.”
Indeed, new homes sales jumped 22% in the West, the nation’s hardest-hit area, according to the report, while other regions were down or flat. And, sales in that region are still off nearly 38% on a year over year basis.
He added that home builders have made a concerted effort to move inventory by rolling out incentives such as free upgrades and reduced rate financing. That means that buyers may be getting even better deals than the lower median home prices indicate.
Although Larson conceded that the latest Census Bureau numbers were positive, he cautioned that they occurred before the financial crisis fully took hold this Fall.
“The rest of 2008 will probably not be as good,” he said.
Home builders seem to agree with that assessment. Earlier this month, the National Association of Home Builders reported that builder confidence had fallen to a record low.
Oct
23
New Foreclosure Plan On Tap
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FDIC chief Sheila Bair says government will use authority under bailout law to prevent avoidable foreclosures.
NEW YORK (CNNMoney.com) — One of the country’s top banking regulators said Thursday that the government is working on a plan to do more to help troubled homeowners.
Sheila Bair, chairwoman of the Federal Deposit Insurance Corp., told the Senate Banking Committee that her agency and the Treasury Department are working closely to find ways to prevent avoidable foreclosures. The plan would use the Treasury Secretary’s new authority under the Emergency Economic Stabilization Act to provide guarantees to mortgage lenders.
“Loan guarantees could be used as an incentive for servicers to modify loans,” Bair said. “Specifically the government could establish standards for loan modifications and provide guarantees for loans meeting those standards.”
That way, she said, “unaffordable loans could be converted into loans that are sustainable over the long term.”
Americans have made it clear they are not happy that the $700 billion financial rescue package is focused so heavily on financial institutions and less so on helping homeownwers directly.
“Now that the administration has taken strong measures to stabilize financial institutions, it is imperative that we apply the same sharp and urgent focus to help the individual homeowners whose plight is at the root cause of this crisis,” said Senate Banking Committee Chairman Christopher Dodd, D-Conn.
Bair, who worked with Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke in crafting the financial rescue law, has been a longtime advocate of streamlining the modification process for homeowners who realistically have a chance of affording their mortgages once modified.
After the FDIC became conservator of mortgage lender IndyMac this summer, Bair instituted a loan modification process for loans that were 60 days or more past due and which IndyMac either owned directly or serviced. About two-thirds of the 60,000 loans under IndyMac’s umbrella are considered potentially eligible for the new program, she said.
“Through this week, IndyMac Federal has mailed more than 15,000 modification proposals to borrowers and has called many thousands more in continuing efforts to help avoid unnecessary foreclosures,” Bair said. So far, more than 3,500 have accepted the offers and others are being “processed.”
The modifications on average have cut borrowers’ monthly payments by more than $380, Bair said.
Not all foreclosures are preventable since some homeowners still won’t be able to afford their homes, even under modified loan terms. Bair said the loans being modified at IndyMac must provide “improved value” for the bank or for the investors who own the loans.
She added that she hoped the IndyMac modification program will serve as a “catalyst” for more loan modifications around the country.
Other witnesses at Thursday’s hearing include Neel Kashkari, the Treasury’s interim assistant secretary for financial stability; Brian Montgomery, the assistant secretary for housing at the Department of Housing and Urban Development; James Lockhart, director of the Federal Housing Finance Agency; and Elizabeth Duke, a member of the Federal Reserve Board of Governors.
Kashkari is leading the Treasury’s efforts under the $700 billion bailout to buy mortgage-backed securities and invest in banks. He said Thursday that Treasury “will look for every opportunity possible to help homeowners” as it carries out the plan.
Lockhart said mortgage finance companies Freddie Mac and Fannie Mae – which own or back trillions of dollars in home loans – are pushing hard to help homeowners.
“We have already been working with Fannie Mae and Freddie Mac to find new ways to prevent foreclosures,” Lockhart said. For example, he said the companies have boosted resources and staff aiming at assisting companies that service loans.
Oct
23
Greenspan Says Flaw in Market System
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WASHINGTON – Former Federal Reserve Chairman Alan Greenspan, describing the current financial crisis as a “once-in-a-century credit tsunami” acknowledged Thursday that the crisis has exposed flaws in his thinking and in the workings of the free-market system.
Greenspan told the House Oversight Committee that his belief that banks would be more prudent in their lending practices because of the need to protect their stockholders had been proven wrong by the current crisis. He called this a “mistake” in his views and said he had been shocked by that.
Greenspan said he had made a “mistake” in believing that banks in operating in their self-interest would be sufficient to protect their shareholders and the equity in their institutions.
Greenspan called this “a flaw in the model that I perceived is the critical functioning structure that defines how the world works.”
The head of the nation’s central bank for 18 1/2 years, Greenspan said in his testimony to the committee that he and others who believed lending institutions would do a good job of protecting their shareholders are in a “state of shocked disbelief.”
During questioning, Greenspan was challenged about various statements he had made during the five-year housing boom including forecasts that it was unlikely that there would be a nationwide collapse of home prices.
Greenspan said he had failed to predict a significant decline in home prices because the country had never experienced such a decline before.
Greenspan said that the current crisis had “turned out to be much broader than anything that I could have imagined.”
The committee called Greenspan to testify along with former Treasury Secretary John Snow and Securities and Exchange Commission Chairman Christopher Cox as lawmakers sought to discover if regulatory failings had contributed to the crisis.
House Oversight Committee Chairman Henry Waxman said that he believed that the Federal Reserve, which regulates banks, the SEC and the Treasury had all played a role in contributing to the mistakes.
“The list of mistakes is long and the cost to taxpayers is staggering,” Waxman, D-Calif., told the three men. “Our regulators became enablers rather than enforcers. Their trust in the wisdom of the markets was infinite. The mantra became that government regulation is wrong. The market is infallible.”
In his testimony, Greenspan blamed the problems on heavy demand for securities backed by subprime mortgages by investors who did not worry that the boom in home prices might come to a crashing halt.
“Given the financial damage to date, I cannot see how we can avoid a significant rise in layoffs and unemployment,” Greenspan said. “Fearful American households are attempting to adjust, as best they can, to a rapid contraction in credit availability, threats to retirement funds and increased job insecurity.”
Greenspan said that a necessary condition for the crisis to end will be a stabilization in home prices but he said that was not likely to occur for “many months in the future.”
When home prices finally stabilize, Greenspan said, then “the market freeze should begin to measurably thaw and frightened investors will take tentative steps towards re-engagement with risk.”
Greenspan said until that occurs, the government is correct to move forward aggressively with efforts to support the financial sector. He called the $700 billion rescue package passed by Congress on Oct. 10 “adequate to serve the need” and said that its impact was already being felt in markets.
Greenspan did not specifically address the criticism he is receiving now as being partly to blame for the current crisis.
Greenspan’s critics charge that he left interest rates too low in the early part of this decade, spurring an unsustainable housing boom, while also refusing to exercise the Fed’s powers to impose greater regulations on the issuance of new types of mortgages, including subprime loans. It was the collapse of these mortgages and rising defaults a year ago that triggered the current crisis.
In his testimony, Greenspan put the blame for the subprime collapse on over-eager investors who did not properly take into account the threats that would be posed once home prices stopped surging upward.
“It was the failure to properly price such risky assets that precipitated the crisis,” Greenspan said.
Oct
23
Foreclosure Filings Spike 71%
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Third quarter numbers saw a sharp rise compared to last year; in September, 81,312 homes were repossessed by lenders.
NEW YORK (CNNMoney.com) — The housing crisis still has a choke hold on America: In September, 81,312 homes were lost to foreclosure, according to a report released Thursday.
RealtyTrac, an online marketer of foreclosed properties, said that 851,000 homes have been repossessed by lenders since August 2007.
In September, 265,968 troubled borrowers received foreclosure filings – such as default notices, auction sale notices and bank repossessions. That’s a decline of 12% from the record high number of filings in August, but 21% more than in September 2007.
All told 765,558 foreclosure filings were made on U.S. properties in the third quarter of this year – up 3% from the second quarter and 71% from the same period last year.
“We have never seen a foreclosure cycle like this one before,” said Rick Sharga, Realty Trac senior vice president. Other periods of elevated foreclosure rates have been preceded by signs of economic weakness. However, “in this cycle, we have foreclosure problems that have caused an economic downturn.”
States Step Up
The most recent monthly dip in foreclosure filings was caused largely by decisions by several states to relax housing laws.
“Much of the 12% decrease in September can be attributed to changes in state laws that have at least temporarily slowed down the pace at which lenders are moving forward with foreclosures,” Realty Trac CEO James Saccacio said in a statement.
For instance, California – one of the states hardest-hit states in the housing crisis – has a new law that requires banks to contact struggling homeowners at least 30 days before delivering a notice of default. That’s helped to drastically slow the number of foreclosure filings in the state.
“In September, we saw California [defaults] drop 51% from the previous month,” said Saccacio. “That had a big impact on the national numbers since California accounts for a third of the nation’s foreclosure activity.”
North Carolina passed a similar law, and notices of default there fell by 66% in September.
Unfortunately, even these extensions aren’t saving most troubled borrowers. “The intention is very worthwhile, but I think the net result in most cases is simply delaying the inevitable,” said Sharga.
“If a few homeowners are able to stay in their homes as a result of the legislation, then it had a positive effect,” said Sharga. However, “the longer you are in foreclosure, the harder it becomes to pay the debt you owe to get out of foreclosure,” he added.
Circumstances in Massachusetts illustrate his point. That state enacted a law back in May requiring lenders to give troubled homeowners 90 days notice before initiating foreclosure, which pushed the number of foreclosure filings it reported way down for several months. But in September, when the law expired, filings spiked.
“Initial foreclosure filings in Massachusetts jumped 465% from August to September after being much lower than normal in June, July and August,” said Saccacio.
Nevada once again had the nation’s highest foreclosure rate, with one out of ever 82 homes in foreclosure. Florida had the second highest rate in September, with one in every 178 homes in default. California came in third, with one in every 189 homes there receiving foreclosure filling last month.
Waiting To See What’s Next
As foreclosures continue to wreck havoc across the nation’s housing market, the U.S. government has announced unprecedented efforts to absorb toxic debt and shore up investor confidence. The “Hope for Homeowners” rescue bill went into effect Oct. 1 and will allow some troubled borrowers to refinance into mortgages backed by the Federal Housing Authority. And more recently, a massive financial rescue plan calls for Treasury to buy up troubled assets, mostly backed by bad loans, to stabilize the financial system.
However, as home buyers and lenders wait to see the effects of the plans, “there is a lot of uncertainty in the market right now,” said Sharga.
Still, he thinks that the market could be nearing a bottom, even as uncertainty remains high.
“If everything goes right, we will be done with almost all the subprime loans by sometime in the first quarter of 2009,” said Sharga. “The market could start to stabilize at that point.”
The bad news: The housing market will be flooded with bank-owned homes. “We are estimating that by the end of this year, between one quarter and one third of all homes for sale will be bank owned properties,” he said.
That could push down prices even more, perpetuating a vicious cycle, but it might also start to attract bargain hunters who may absorb some of the massive housing inventory.
Oct
23
WASHINGTON – The number of homeowners ensnared in the foreclosure crisis grew by more than 70 percent in the third quarter of this year compared with the same period in 2007, according to data released Thursday.
Nationwide, nearly 766,000 homes received at least one foreclosure-related notice from July through September, up 71 percent from a year earlier, said foreclosure listing service RealtyTrac Inc.
By the end of the year, RealtyTrac expects more than a million bank-owned properties to have piled up on the market, representing around a third of all properties for sale in the U.S.
That’s bad news for anyone who lives nearby and wants to sell their home. While foreclosure sales are booming in many areas, those properties are commanding deep discounts and pulling down neighboring property values. “It has a pretty significant impact in terms of pricing,” said Rick Sharga, RealtyTrac’s vice president for marketing.
RealtyTrac monitors default notices, auction sale notices and bank repossessions. More than 250,000 properties were repossessed by lenders nationwide in the third quarter, 81,000 of which were taken back last month.
Six states — California, Florida, Arizona, Ohio, Michigan and Nevada — accounted for more than 60 percent of all foreclosure activity in the quarter, with California alone making up more than a quarter of all U.S. foreclosure filings.
Detroit and Atlanta were the only cities outside California, Florida, Nevada and Arizona to make RealtyTrac’s list of the 20 hardest-hit metropolitan areas.
The combination of sinking home values, tighter mortgage lending criteria and an economy that many economists think has already slipped into recession has left hundreds of thousands of homeowners with few options. Many can’t find buyers or owe more than their home is worth and can’t refinance into an affordable loan, with the global credit crisis making loans far less available.
For those who can qualify for a loan, or have cash to invest, there are bargains to be had, especially in ravaged markets like Nevada and California. Last month, foreclosure resales accounted for more than half of existing home sales in California last month, as home sales jumped 65 percent from a year ago, while the statewide median home price fell 34 percent to $283,000, according to MDA DataQuick.
RealtyTrac, however, reported foreclosure filings in September were actually down 12 percent from August. But much of that decline was the result of new state laws that delay the foreclosure process. In California, for example, lenders are now required to contact borrowers at least 30 days before filing a default notice. A similar law in North Carolina gives borrowers an extra 45 days.
Still, that’s not likely to be enough to save homeowners who owe more on their mortgages than their homes are worth. Nearly 12 million of the 52 million Americans with a mortgage — that’s 23 percent of them — are in that position, according to Moody’s Economy.com.
It remains to be seen how much the government’s intervention will stem the housing crisis. Earlier this month, the Federal Housing Administration launched a program that aims to prevent foreclosures by allowing homeowners to swap their mortgages for more affordable loans, but only if their lender agrees to take a loss on the initial loan. The bill is projected to help about 400,000 households.
Meanwhile, the Federal Deposit Insurance Corp., which took over Pasadena, Calif.-based IndyMac Bank over the summer, has been aggressively modifying troubled home loans since August in an effort to stave off foreclosures. Congressional Democrats are calling for that approach to be expanded as the Treasury Department buys billions in troubled mortgage debt as part of a $700 billion financial industry bailout.
Oct
22
CAPE CORAL, Florida (Reuters) – Long before she filed for bankruptcy, Ann Neukomm was “under water” — she owed more on her mortgage than her house was worth — a situation more and more Americans are finding themselves in.
As the financial crisis hits Main Street America, nearly one in six U.S. homeowners are finding themselves in the same position, threatening the U.S. economy with a new wave of foreclosures and bankruptcies.
About 12 million U.S. homeowners owe more than their homes are worth, compared with 6.6 million at the end of last year and slightly more than 3 million at the close of 2006, said Mark Zandi, chief economist at Moody’s Economy.com.
“At the root it’s ‘the’ problem,” said Zandi. “If you’re going to put your finger on the one thing that’s gotten us into this fiasco, it’s the fact that millions of homeowners are under water on their homes.”
If, like Neukomm, these homeowners go into foreclosure, it would add to the oversupply of homes, delay a recovery in the housing market, and add to pressure on banks.
Already, U.S. consumer spending is slumping as homeowners find they can no longer take equity out of their homes to fund their lifestyles.
In a slowing economy, it doesn’t take much to push an underwater mortgage into default.
“When you’re under water and you have some kind of hit to your income or some kind of unintended expense, that’s when you default. And so now we’ve got this noxious mix of millions of people under water and quickly rising unemployment,” Zandi said.
Like Neukomm, 57, many people got into trouble by refinancing mortgages to pull out cash when rising property values made it seem like an almost risk-free deal.
She ended up filing for bankruptcy in May after failing to keep up with mortgage payments on her home in Cape Coral, a once-booming town in southwest Florida.
“It’s a dirty word,” said Neukomm of her bankruptcy and personal feelings of failure. “Nobody wants to say it.”
WASTELAND
Cape Coral, built over swampland near Fort Myers on Florida’s palm-fringed Gulf Coast, was fertile ground for the real estate boom, which peaked across much of the United States three years ago.
It is now a wasteland, with barren strip malls, a bloated inventory of unsold or abandoned homes and ubiquitous for-sale signs that speak volumes about the plunge in housing prices and surge in mortgage defaults that triggered the U.S. credit crunch last year.
With current home prices likely to decline on average by another 10 percent, Zandi said there will be 14.6 million homeowners under water by September next year.
“House prices have collapsed and you’ve got many homeowners who bought homes in the last three years who put very little down or have been borrowing against their homes,” said Zandi. “That’s causing this to rise very rapidly.”
Economists like Zandi worry that the underlying housing crisis could eventually prove much more costly to the U.S. taxpayer than the $700 billion the U.S. government has pledged to recapitalize banks and buy up distressed debt from financial institutions.
“The government is going to have to start filling this negative equity hole and that’s just going to be a direct cost to taxpayers,” Zandi said. “This is going to be the really costly part, I think, for taxpayers.”
While the U.S. government has focused its rescue on banks, it has done little to help individuals who are struggling to pay their mortgages, apart from the HOPE NOW program, which has facilitated a few hundred thousand mortgage restructurings.
The government may have no option but to step in, especially if a rising tide of foreclosures and falloff in property and other tax revenues endanger municipalities and local governments and force some into bankruptcy.
Both presidential candidates have outlined plans for relief for distressed homeowners but critics say they have been short on details and there appears to be little consensus about how best to help homeowners who are under water.
DREAM HOME
Among homeowners in danger is Virginia Washington, a 64-year-old medical secretary from California who bought her retirement home in the town of Tolleson, Arizona, in 1996.
“It was supposed to be my dream home, but it has turned out to be a nightmare,” said Washington, who owes $207,000 on a house that is worth about $150,000.
Whereas many families that are now saddled with negative equity simply hand the keys back to the bank and walk away, Washington is haunted by the fear of losing the $65,000 in savings she put down as her deposit.
“Many people did not put any money down on a home and they feel free to walk away. But $65,000, there’s no money tree that grows that kind of money,” she said.
In Stockton, California, a town that has become a posterchild of the U.S. housing crisis, Zillow.com said nearly every homeowner who bought in 2006 is now under water.
There are countless other troublespots across the country.
Nationwide, for those who purchased U.S. homes since the beginning of 2003, nearly one in three now have negative equity. Nearly half of buyers who purchased in 2006 are under water.
Despite tighter credit and underwriting for home loans this year, Steve Berg, a managing director at research firm LPS Applied Analytics, said mortgages originated in 2008 were on par or trending worse than those originated last year or in 2006.
“Presumably the equity position of the borrowers in the loans originated this year should be better,” Berg said in an interview. “That doesn’t appear to be the case, and certainly not to the magnitude you’d expect.”
Foreclosed homes already account for 50 percent of all home sales in some markets, according to Zillow.com, an online real estate research service.
For homeowners like Neukomm, any solution to the negative equity problem will be too late. Any day now, she says she expects to receive a letter giving her 21 to 30 days to abandon the house she bought back in 2000.
“I can make my credit card payments. I just can’t do it with the house,” she said, adding that she was now looking at rental properties in Cape Coral.
(Reporting by Tom Brown; Additional reporting by Tim Gaynor in Phoenix, Julie Haviv in New York and Emily Kaiser in Washington; Editing by Eddie Evans)
Oct
18
WASHINGTON (AP) — The nation is on track to build fewer homes this year than at any time since the end of World War II, adding to the woes of an economy that analysts said Friday has almost certainly entered a recession.
While the economic outlook darkened even further with bad reports on layoffs and consumer confidence, it was one of the quietest days since the financial meltdown began a month ago. Wall Street’s tumultuous week turned out to be its best in five years.
The Dow Jones industrial average lost 127 points Friday but turned in the strong week because of two huge days of gains — a record 936-point jump on Monday and an increase of 401 points Thursday.
Friday was still marked by the huge swings that have become typical lately. At various points the Dow was up nearly 300 points and down nearly 250, and it finished with a triple-digit move for the 22nd time in 25 trading sessions.
A monthly survey by the National Association of Home Builders showed sentiment among home builders hit a record low in early October.
David Seiders, chief economist for the group, said builders are being hit by a double whammy from the financial turmoil: It’s harder for them to get loans to pursue new houses, and more difficult to sell those they do build.
He forecast that builders will keep slashing production in coming months, with construction starts for new homes and apartments totaling just 936,000 this year, the lowest level since 1945.
“The builders are telling us that the financial crisis is really hurting because people justifiably have no idea where things are going,” Seiders said.
Before the markets opened, President Bush went to the headquarters of the U.S. Chamber of Commerce to say that the $700 billion financial rescue package was “big enough and bold enough to work.”
But he cautioned that it would take time to unlock credit markets.
Adam Levitin, an associate professor at Georgetown University Law School, said that even with the government’s injection of billions into the banks, the high debt loads carried by consumers and shortage of creditworthy borrowers could continue to chill lending.
“Who’s going to lend to GM right now?” Levitin said at a conference organized by the American Bar Association. He also asked what banks would lend money to homeowners with troubled mortgages.
Analysts said new data released Friday showed it’s probably too late for the economy to avoid a recession.
Many of them said they now had recessions in their forecasts, believing that the overall economy, as measured by total domestic production, probably shrank in the July-to-September quarter, dragged lower in part by the continued plunge in housing.
“I don’t think there is any ambiguity with respect to whether we are in a recession,” said Mark Zandi, chief economist at Moody’s Economy.com. “I think it actually started at the end of last year, and because of the financial panic we are going through now, it is likely to last another year.”
Other economists said they were looking for at least three consecutive quarters of contraction, reflecting in part the fact that consumers, who account for two-thirds of total economic activity, are showing the strains of the biggest upheaval in the financial sector in 70 years.
A new University of Michigan/Reuters survey showed consumer confidence plunged in early October to its second-lowest level in the past 28 years.
“Concerns about falling employment, incomes and wealth have overshadowed relief from lower energy prices,” said Sara Johnson, an economist at Global Insight, a Lexington, Mass., forecasting firm.
The Commerce Department said Friday that construction of new homes and apartments dropped by a bigger-than-expected 6.3 percent in September to an annual rate of 817,000 units, the second weakest performance in government statistics dating back to 1959. The only weaker monthly showing occurred in January 1991, when the U.S. was in a recession and going through a similar painful housing correction.
In a bleak sign of future construction, applications for new building permits fell a sharp 8.2 percent to an annual rate of 786,000 units, the weakest level in more than 25 years.
The government also sharply revised lower its construction data for July and August. That was after dismal news earlier this week that retail sales fell by 1.2 percent in September.
Influential billionaire investor Warren Buffett said in opinion piece in The New York Times that he sees opportunity in the Wall Street chaos. He’s been moving his personal investments from safe Treasuries into U.S. stocks.
“To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions,” Buffett wrote. “But fears regarding the long-term prosperity of the nation’s many sound companies make no sense.”
The market eventually will turn around. “So if you wait for the robins, spring will be over,” he said.
On the housing front, while the sharp cutbacks in production will help reduce huge inventories of unsold homes, the problem is that rising levels of foreclosures are dumping more homes on the already glutted market.
Zandi said he believed that home prices, which have already fallen by 20 percent, will fall by another 10 percent and will not stabilize until the middle of next year.
Kim Shelpman, the chief executive of Holiday Builders, which operates in Texas, Florida, Alabama and South Carolina, said that her company was competing against a rising tide of foreclosures, but that she believed the excess inventory of homes was being “eaten up at a much quicker pace.”
Jesse Barrington, a sale consultant with Sotherby Homes, said the sales slowdown nationwide had been less pronounced in the upscale suburbs of north of Dallas where about 20 homes in a new subdivision had recently sold.
“In a normal economy, this is a good year. In this economy, it’s phenomenal,” he said.
In the South, sales managed a small 0.5 percent gain in September. They rose by 5.6 percent in the Midwest, where a boost in apartment building offset a slide in single-family homes to a record low.
The weakness last month was led by a 21 percent drop in the Northeast, where construction of single-family units fell to the lowest level on record, and the West, where building slipped by almost 17 percent with single-family construction also hitting a record-low in that region.
On Tuesday, the Treasury Department announced it would inject up to $250 billion in U.S. banks in return for partial ownership stakes, in a program similar to one launched in 1932 by President Herbert Hoover. The government hopes banks will use the capital infusions to rebuild their reserves and bolster lending to customers.
Oct
10
As the financial crisis intensifies, the few home buyers that are out there are reconsidering a purchase.
NEW YORK (CNNMoney.com) — The Dow has lost over 2,200 points in the last seven trading sessions – and that’s giving the few home buyers that are out there right now reason to reconsider.
The National Association of Home Builders (NAHB) for instance has seen its contract cancellations spike recently to as high as 30%, compared with an average rate of about 20%. During the housing boom, as few as 5% of sales were cancelled.
“The events of the past couple of weeks have people’s heads spinning,” said Steve Melman, NAHB’s director of economic surveys.
The National Association of Realtors (NAR) estimates that there are about 25% fewer people shopping for homes than there normally would be at this time of year. Potential buyers are worried about their jobs, their declining investments and falling housing prices, which is keeping them on the sidelines, according to spokesman Walter Molony
“You have to have a lot of confidence to make this kind of big-ticket purchase in the current environment,” said Molony.
Real estate agent Bob Rose was helping one couple look for an investment property in battered Contre Costa County, hoping to find a bargain that they could sell in a few years.
Then, on September 29 the Dow dove nearly 800 points and the couple decided not to buy. “They told me they had lost about a quarter of their retirement portfolio,” said Rose, and that they could no longer afford it.
Even some buyers who are already in contract are managing to pull out of sales amidst all the economic turmoil.
Deal or No Deal
Two weeks ago, one Washington state couple, Sharif Tai and Gaby Ghafari, went into contract on a new $450,000, three bed, three bath, house in central Seattle. Soon afterwards, the stock market began its steep descent.
“It wasn’t that we lost money [in the market] or that we were worried about our jobs,” said Tai, a software developer in his mid-20s, “but we thought we could get a better deal, so we decided to wait.”
The couple backed out of the deal by citing problems with the inspection, but they haven’t given up on making a purchase.
“We’re keeping our eyes out,” said Tai. “We want to see how things shake out. If we see a great deal, we’ll take it.”
Other buyers are demanding sweeteners before they close a deal during such a rocky time. San Francisco agent Jim Holt had clients go into contract on September 29, on a $750,000 home in town. But by the end of the week the Dow had lost over 800 points and the buyer demanded a whopping $50,000 price cut.
“Buyers are seeing the [market implosion] as an opportunity to get concessions,” said Holt. In the end, the seller only agreed to reduce the price by $5,000 – but that’s better than nothing.
Other house hunters are managing to wring more concessions out of sellers even on top of existing discounts.
Rich Machado, an agent with the Smart Homebuyer Team in New Bedford Westport Mass., had already helped one buyer get a seller to take $9,000 off the price of a house listed for $229,000, and throw in $6,000 in closing costs, $1,800 for an electric upgrade and $400 for a home service contract.
The deal went into contract two weeks ago, but despite that impressive array of incentives, “the buyer is balking,” said Machado. “He’s asking for another $10,000 off the price.”
The seller hasn’t caved in yet – but with demand drying up, he may be forced to come around.
As the losses mount on Wall Street – the Dow lost 678 points on Thursday alone – things will undoubtedly become even more difficult for sellers.
“In the midst of such chaos, everyone is just shaking their heads,” said NAHB’s Melman.”