Jan
30
Economy: Sharpest Decline in 26 Years
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Economic activity shrank by 3.8% in last three months of 2008, according to the government’s gross domestic product report.
NEW YORK (CNNMoney.com) — The U.S. economy suffered its biggest slowdown in 26 years in the last three months of 2008, according to the government’s first reading about the fourth quarter released Friday.
Gross domestic product, the broadest measure of the nation’s economic activity, fell at an annual rate of 3.8% in the fourth quarter, adjusted for inflation.
That’s the largest drop in GDP since the first quarter of 1982, when the economy suffered a 6.4% decline.
The decline was less than the 5.5% drop forecast by economists surveyed by Briefing.com. The fourth quarter plunge followed a more modest decline of 0.5% in the third quarter.
Still, some economists cautioned that the smaller than expected drop in economic activity wasn’t good news, but a warning sign about further weakness ahead.
“Today’s GDP report is no cause for celebration,” said Jay Bryson, global economist for Wachovia. “The economy is even weaker than the number would suggest.”
Hit by tight credit and soaring job losses, Americans slammed the brakes on spending in the quarter.
Consumer spending fell at a 3.5% annual rate, which was the seventh biggest drop on record. Spending on big-ticket durable goods plunged at a 22% pace, the largest decline since 1987. Consumer spending accounts for more than two-thirds of overall economic activity.
But it wasn’t just consumers pulling back. Fixed investment in equipment and software, taken as an indication of business spending, plunged at an annual 28% rate. That’s the biggest drop in 50 years.
Healthy export demand helped to lift U.S. economic growth earlier in 2008, but that strength vanished in the fourth quarter, as exports fell at nearly a 20% annual rate, the sharpest decline since 1974. That set off more concerns about the slowdown in the global economy.
“I don’t want to say we were counting on the global economy to bail us out. But if it turns into a big drag, we’ve got more of a problem,” said Gus Faucher, director of macroeconomics for Moody’s Economy.com.
More Warning Signs
Faucher and other economists noted that the biggest surprise in the report was the sharp growth in business inventories.
Economists say that was false growth brought about by businesses being unable to sell the goods they had on hand. Excluding the growth in inventories, GDP would have fallen by 5.1%
“When the economy is dropping fast it is hard for firms with plummeting sales to halt inventory accumulation,” said Robert Brusca of FAO Economics.
Since companies are likely to respond to the excess inventories by slashing production at the start of this year, GDP could be weaker in the next few quarters.
“As bad as this quarter was, it means the first quarter will be worse,” said Faucher.
In addition, prices for goods and services fell more than expected during the quarter. That limited the decline in GDP, which is adjusted lower to account for inflation.
The prices paid by consumers during the quarter fell at an annual 5.5% rate in the quarter, due primarily to lower gas prices. That’s the biggest such decline in that key price measure since the Commerce Department started calculating it on a quarterly basis in 1947.
While lower prices may provide some relief for consumers, economists warn that this phenomenon, known as deflation, can hurt economic activity.
Businesses worried that falling prices will cause them to lose money will cut back on production, which can lead to additional job losses. And even consumers who keep their jobs can hold off on purchases if they hope that prices of the goods they want will fall further if they wait.
The report comes as the Senate prepares for a vote on an economic stimulus package that is designed to pump more than $800 billion into the economy. The House passed the measure on a party-line vote Wednesday.
Christina Romer, chair of the White House’s Council of Economic Advisors, issued a statement saying the weak GDP report is another argument in favor of the stimulus package.
“This widespread decline emphasizes that the problems that began in our housing and financial sector have spread to nearly all areas of the economy,” she said in the statement. “Immediate action to support both the financial sector and overall demand is essential.”
Jan
29
Government report shows sales of newly built homes fell to an annual rate of 331,000 in December, lowest since reporting began in 1963.
NEW YORK (CNNMoney.com) — Sales of newly constructed homes plunged in December to the lowest level on record, going back to 1963, according to a government report released Thursday.
The U.S. Census Bureau reported that new home sales fell to an annual, seasonally adjusted rate of 331,000 in December. That’s down 14.7% from a revised 388,000 annual rate in November.
The December sales pace was 44.8% below the same month a year ago, when the annual rate of new home sales was 600,000.
Additionally, last month’s sales pace was much lower than the consensus estimate of 400,000, according to economists surveyed by Briefing.com.
Sales are typically slow around the holidays. “This is horrible, but note that December always sees activity drop sharply,” said Ian Shepherdson, Chief U.S. Economist of High Frequency Economics, in a written research note.
Tough Competition
But there are also larger, more daunting forces at work. The problem that builders are facing is dirt cheap competition from existing, foreclosed homes.
“You have foreclosures rising and when banks foreclose, they sell those houses at rock bottom prices, and builders just can’t compete in that market,” said Patrick Newport, economist with IHS Global Insight.
The problem is very acute in the West – in particular Arizona, California and Nevada – where home prices have plummeted the most and the foreclosure rates have spiked the highest.
While the number of new homes sold plunged in December, the number of existing homes sold in the month showed a surprise jump, according to a report released earlier in the week. But that bump is largely attributed to a flood of foreclosure sales.
The number of existing homes sold in December rose 6.5% from the previous month, to an annual rate of 4.74 million units, according to a report released Monday from the National Association of Realtors. Plunging home prices – especially extreme foreclosure bargains – brought buyers back into the market. Still, total 2008 sales were down 13.1% from 2007.
The median sales price of new homes – which measures the price at which half of the homes sold for more and half sold for less – was $206,500, down 9% from $227,700 a year earlier. The average sales price was $246,900, 13% lower than the $284,400 average of a year earlier.
At the end of the month, there were a seasonally adjusted 357,000 new homes for sale, which represents an inventory level of 12.9 months at the current sales pace.
For all of 2008, 482,000 new homes were sold, down 37.8% from the year prior. In 2007, 776,000 new homes were sold, according to the report.
Elevated inventory levels of both new homes and existing homes will continue to put downward pressure on new home sales.
“With so many homes for sale on the market, it doesn’t make sense for builders to build another home because he can’t sell it and make a profit on it,” said Newport.
Jan
27
Home Prices Fall at Record Pace
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Index of 20 U.S. cities shows 18.2% annual drop, to the lowest levels since 2004.
NEW YORK (CNNMoney.com) — An index of home prices in 20 major metropolitan areas fell at a record annual pace in November, to levels not seen since 2004, according to a report released Tuesday.
The S&P Case-Shiller Home Price Index, a sampling of 20 cities from across the nation, fell a record 18.2% over the 12 months ended Nov. 30. That brought the index to its lowest point since February 2004. From its peak in mid-2006, the index has plunged a whopping 25.1%.
Eleven of the 20 cities showed record declines, and the 12-month price drop for 14 of the cities was a double-digit percentage.
“The freefall in residential real estate continued through November 2008,” said David M. Blitzer, chairman of the Index Committee at Standard & Poor’s, in a prepared statement. He said the 20-city index has fallen for every month since August 2006, a total of 28 consecutive months.
The decline was very broad, with prices down at least 1% in every region of the nation during the October-November period. Eight regions recorded record monthly declines, according to Blitzer.
As has become the norm, Southwest cities were the hardest hit, with Las Vegas prices dropping 3.9%, the nation’s worst decline. Phoenix, at 3.4% was second. The Arizona metropolis recorded the worst 12-month decline, at 32.9%, followed by Las Vegas, at 31.6%.
New York and Cleveland prices fell by only 1% for the month, the smallest November drops. The best 12-month performer was Dallas, where prices slipped by 3.3%. Other 12-month, single-digit percentage drops were recorded by Denver, at 4.3%, Cleveland, at 5.2%, and Charlotte N.C., at 5.3%.
The Case-Shiller numbers just underscore how tough the market is for home sellers, according to Mike Larson, a real estate analyst with Weiss Research.
But there was some positive news in Monday’s report from the National Association of Realtors, which showed a bump up in the number of existing homes sold during December.
“We’re clearly seeing some of the impact of falling prices,” said Larson. “But the problem is that many of those sales are made at the cheapest prices [often of bank repossessed properties], making it hard for normal homeowners to sell.”
He does not foresee any swift improvement in housing markets – not as long as industries of all kinds keep announcing new layoffs, as several companies did Monday when more than 70,000 Americans learned they would lose their jobs.
“Home prices will likely decline, albeit at a slower pace, for the rest of 2009,” said Larson.
Jan
26
Existing Home Sales in Surprise Jump
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Sales of existing homes in December rose 6.5% from November. But prices continued to fall, down over 15% from last year.
NEW YORK (CNNMoney.com) — The number of existing homes sold in December rose 6.5% from the previous month, according to a report released Monday, as bargain hunters took advantage of plummeting prices.
The National Association of Realtors said that home sales increased to a seasonally-adjusted, annualized rate of 4.74 million units. That’s up from a revised pace of 4.45 million units sold in November and more than the rate of 4.4 million units projected by a consensus of industry analysts as reported by Briefing.com.
“We have some months to go before we are out of the woods on the housing front,” said Robert Dye, senior economist at PNC financial services group. Especially considering “weak consumer confidence and ongoing rapid deterioration in labor markets.”
Still, December’s existing home sales are down 3.5% compared with December of 2007, when the seasonally-adjusted, annual sales rate was 4.91 million. Existing homes include single family homes, townhomes, condominiums and co-ops.
For all of 2008, there were 4,912,000 homes sold, which was the lowest volume since 1997, when there were 4,371,000 homes sold. Sales volume in 2008 was down 13.1% from the 5,652,000 existing homes sold in 2007.
Bargain hunters: Bargain prices are bringing buyers back into the market. The median existing home price was down 15.3% to $175,400 from December 2007, when the median price was $207,000. The median price measures where half of the homes sold for more and half sold for less.
“Americans love a bargain, and the housing market is no exception,” said Mike Larson, real estate and interest rate analyst for Weiss Research in a written statement.
Thanks to the sales increase, the number of homes available on the market decreased 11.7% in December from the previous month, to 3.68 million. That represents a 9.3-month inventory supply at the current pace of sales, down from a 11.2-month supply in November.
“That’s exactly what we need to see if the housing market is ever going to get back to a state of equilibrium,” said Larson.
Home prices were pushed lower by the high volume of distressed sales, which accounted for 45% of December transactions according to the report.
“The higher monthly sales gain and falling inventory are steps in the right direction, but the market is still far from normal, balanced conditions,” said NAR chief economist Lawrence Yun in a written statement. He warned that the housing market is far from healthy. “Buyers will continue to have an edge over sellers for the foreseeable future.”
Surge in the West: The number of homes sold nationwide was buoyed by a surge in the West, where the housing market has been hardest hit by a record number of foreclosures.
Existing home sales in the West surged 13.6% to an annual rate of 1.25 million in December, up 31.6% from a year ago. But the median price in the West was $213,100, down 31.5% from December 2007.
In the South, existing home sales increased 7.4% to an annual pace of 1.74 million in December, but that was still 11.2% lower than December a year ago. And sales in the Midwest increased 4% in December to an annual rate of 1.04 million, but were down 10.3% from the same period last year.
The Northeast saw sales edge 1.4% lower, to an annual pace of 720,000 in December, down 14.3% from December 2007.
In the months to come: Analysts said that the weakening job market would slow any recovery in housing.
On Monday morning, a slew of companies announced a massive wave of job cuts. Home Depot (HD, Fortune 500), the No. 1 home improvement retailer, announced it would eliminate 7,000 jobs, or 2% of its total workforce, while Caterpillar (CAT, Fortune 500) said it will cut 20,000 jobs.
“Unfortunately, we are seeing fast and furious [layoffs] now,” said PNC’s Robert Dye. “And that does add to the level of uncertainty and it does put workers and consumers on edge.”
Mike Larson from Weiss Research echoed that sentiment. “It’s hard to imagine a lasting turn in the housing market with thousands of layoffs being announced every few days,” he said.
The Obama administration is now at work on an economic recovery plan, and Yun said that this will be critical to the revitalization of the housing industry.
“The Obama administration and Congress need to move fast to stimulate a spring sales upturn which will help to stabilize home prices and set the foundation for a sustainable economic recovery,” Yun said in a statement.
Jan
26
Economists: Recession Getting Worse
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Survey at private-sector companies forecasts greater job losses and worsening economic conditions in the months to come.
NEW YORK (CNNMoney.com) — Economists expect an already deep recession to get even worse in 2009, according to a survey released Monday.
Companies will lay off more workers and hoard more cash during the next 12 months, according to the National Association for Business Economics survey, a quarterly take from a panel of economists at private-sector companies in various industries. A vast majority of the 105 economists polled believe the country’s gross domestic product will continue to sink in 2009.
If business conditions indeed worsen during the year, they will be sinking from already historic lows. The survey’s measures of consumer demand, profit margins and capital expenditures all hit their lowest-ever levels in January’s edition of the 27-year old survey.
“NABE’s January 2009 Industry Survey depicts the worst business conditions since the survey began in 1982, confirming that the U.S. recession deepened in the fourth quarter of 2008,” said Sara Johnson, a NABE economist.
Nearly half – 47% – of surveyed economists said overall industry demand was falling, compared with 35% who said so in the October survey. Just 10% of respondents said profit margins were rising, compared with 52% who believe they are falling. And 38% of economists said capital expenses are falling, up from just 15% in October.
Credit conditions hurt businesses, according to the economists, as customers had less leverage to buy discretionary products. 78% of respondents said tightening credit conditions affected customers, and 52% said the credit crunch directly hurt businesses in their industries.
Pessimistic outlook on weak environment
With business conditions souring, the outlook for jobs has grown increasingly negative. 39% of economists believe their industries will lay off employees in the next six months, compared with 32% in October.
The forecast was particularly poor for the goods-producing sector, in which 69% of economists saw layoffs in the future, and no one believed the industry would be adding jobs. Service-sector economists were the most optimistic, with only 9% seeing layoffs and 29% saying their industry would be hiring in the next six months.
Companies will likely curtail spending in the coming months as well, according to the survey. 44% of the economists believed capital spending in their industries would fall off in the coming year, compared with just 16% who believed their businesses would increase spending.
Rising unemployment, tightening credit conditions and a difficult lending environment led economists to give a more pessimistic outlook on growth for 2009.
Just 22% believed the U.S. economy would expand this year, down from 62% who thought so in October. Although 26% now believe the economy will shrink less than 1% this year, 52% now think the economy will shrink by more than 1%, which no one predicted in October.
Jan
23
Banks are moving slowly to list repossessed homes for sale, which could mean that housing inventory is even more bloated than current statistics indicate.
NEW YORK (CNNMoney.com) — Housing might be in worse shape than we think.
There is probably even more excess housing inventory gumming up the market than current statistics indicate, thanks to a wave of foreclosures that has yet to hit the market.
The problem: Many foreclosed homes and other distressed properties that are now owned by banks have yet to be listed for sale. The volume of this so-called ‘ghost inventory’ could be substantial enough to depress already steeply falling prices when it does go on the market.
“That’s not good news,” said Pat Newport, an analyst with IHS Global Insight. “[Excess] inventory is the biggest problem in housing these days, and it leads to lower housing prices, which leads to more foreclosures.”
RealtyTrac, the online marketer of foreclosed properties, recently discovered that it has far more foreclosed properties listed it its database, which the company compiles using courthouse records, than there are listed in the multiple listing services (MLS) maintained by real estate agents.
RealtyTrac looked at listings in four states, California, Maryland, Florida and Wisconsin, and found that they contained only a third of the foreclosures it has in its database.
The scope of the problem isn’t clear, but it could be huge considering that RealtyTrac has a total of 1.5 million bank-owned properties on its site.
“Many properties that should be listed on the MLS are not listed on the MLS,” said Lawrence Yun, chief economist for the National Association of Realtors (NAR).
Underestimating Inventory
The National Association of Realtors calculates official housing inventory statistics using data from the multiple listing services. By that measure, there were 4.2 million existing homes for sale in November, an 11.2-month supply at the current sales pace, up from a 10.3 month supply in October.
But now it seems quite possible that these figures, which are already at record highs, are underestimating the situation. And if that’s the case, it could take much longer for the housing market recover than analysts currently expect.
Until supply can be brought down to a more normalized level of six to seven months, home prices will continue to come under pressure, according to Yun.
“It could be a worse problem than we think,” he said.
L.J. Jennings, a real estate broker with Pyramid Real Estate and Investments in Oakland Calif., sees plenty of evidence that it is.
“There are a number of properties in my area that have actually been taken back by the banks, but have not hit the market yet,” he said. “Once a bank repossesses a property, in some cases, it can take more than six months to hit the market.”
He cites a handful of examples offhand, including a single family home in Richmond seized in early October, a condo in San Ramon taken back the same month, and a four-family building in Oakland that was repossessed in July.
“Either lenders are overwhelmed and can’t get these properties back on sale quickly” said RealtyTrac spokesman Rick Sharga, “or they’re deliberately slowing down.”
Why There’s a Delay
The chief problem is probably system overload: Lenders are just not prepared to handle the sheer numbers of foreclosures that they have on their books. Banks took back about 860,000 in 2008 – more than twice the number in 2007 – according to RealtyTrac. Before the housing crisis hit, it took only about a month to get a bank-owned foreclosure on the market.
Lenders still insist they try to act as swiftly as possible. According to Tom Kelly, a spokesman for Chase (JPM, Fortune 500) Mortgage, their goal is to cut their losses on these homes, which are expensive to maintain, as fast as possible.
But banks might hold back listings in areas where they already have lots of homes for sale in order to avoid flooding the market, according to Michael Youngblood, a financial analyst and founder of Five Bridges Capital, an asset management company.
“If lenders have a significant number of properties in a limited area, they may want to stagger putting them back on the market,” he said.
Eve Alexander, a real estate broker with Buyers Broker of Florida in Orlando, attributes the delays to the general malaise that’s overtaken the lending industry as it’s imploded.
“I think banks are dragging their rears about doing just about everything,” she said. “They have so much going on and there’s so much red tape and the people don’t care, nothing gets done.”
There are also batches of bank-owned homes that don’t appear on the multiple listing services because lenders are trying to sell them via bulk and auction sales to investors as well as individuals, according to John Mechem, public affairs director for the Mortgage Bankers Association.
He adds that it’s also taking much longer to get many foreclosed homes in decent enough shape to put on the market. (see This home for sale stinks.)
Bank-owned properties are in worse condition than ever because the foreclosure process is taking longer than ever. As much as a year can pass between the time a borrower first misses a payment and the final auction sale, according to Youngblood. During that time, houses often deteriorate because owners have neither the money nor the incentive to maintain them. Some disgruntled homeowners may even deliberately damage homes before they leave.
“According to our servicing folks, it’s taking more time for lenders to get properties in saleable condition,” said Mechem.
The phenomenon of a growing ghost inventory doesn’t promise to get better anytime soon, as long as the rate of foreclosures continues to ravage the market. There were more than 3.1 million foreclosure filings in 2008, according to RealtyTrac.
Said Sharga: “I don’t see how we can avoid another 3 million in 2009.”
Jan
16
Columbia’s Amar Bhidé and NYU’s Nouriel Roubini – “When you have an integrated global economy…there are not many places to hide because markets [and economies] become correlated”
By Maria Bartiromo
A year from now we may look back on this column and thank heaven that not all of its grim predictions came true. But don’t bet your kid’s lunch money against Nouriel Roubini. A professor of economics at New York University’s Stern School of Business and chairman of the consultancy RGE Monitor, Roubini in 2006 predicted the housing bust and an ensuing recession, among other on-the-money calls. And he says the worst is still ahead. Amar Bhidé, a professor of business at Columbia University, is a former McKinsey executive, a staff member for the commission that investigated the stock market crash of 1987, and author of the new book The Venturesome Economy: How Innovation Sustains Prosperity in a More Connected World. He, too, expects a trying year ahead. But beyond the black cloud hanging over America, he sees a country chastened and an economy strengthened by the ordeal.
MARIA BARTIROMO
Where are we right now in this economic slowdown?
NOURIEL ROUBINI
We are looking at the most severe U.S. recession in the last 50 or 60 years, both in terms of length and depth. Every piece of economic news that’s come out in the last few weeks and months has been much worse than expected, from employment, holiday sales, capital spending by the corporate sector, the continued collapse of residential real estate, and a weakening even of the trade balance, so the rest of the world is also contracting.
Jan
15
Foreclosures Up a Record 81% in 2008
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Filings continued to soar through the end of the year – and there’s no relief in sight for 2009.
NEW YORK (CNNMoney.com) — U.S. foreclosure filings spiked by more than 81% in 2008, a record, according to a report released Thursday, and they’re up 225% compared with 2006.
A total of 861,664 families lost their homes to foreclosure last year, according to RealtyTrac, which released its year-end report Thursday. There were more than 3.1 million foreclosure filings issued during 2008, which means that one of every 54 households received a notice last year.
“Clearly the foreclosure prevention programs implemented to date have not had any real success in slowing down this foreclosure tsunami,” said James Saccacio, CEO of RealtyTrac in a statement.
And despite those efforts on the part of both the government and the banking industry to quell the housing crisis, defaults continued to climb as 2008 came to an end. Foreclosure filings were up 17% in December over November, and rose 41% compared with December of 2007.
“The big jump in December foreclosure activity was somewhat surprising given the moratoria enacted by both Freddie Mac (FRE, Fortune 500) and Fannie Mae (FNM, Fortune 500), along with programs from some of the major lenders and loan servicers aimed at delaying foreclosure actions against distressed homeowners,” said Saccacio.
Both of the government-sponsored mortgage giants suspended foreclosures starting November 26, 2008 through January 31, 2009.
The devastating numbers are unlikely to improve soon.
“I don’t see how we can avoid three million foreclosures again in 2009,” said Rick Sharga, a RealtyTrac spokesman. His company now has nearly a million sales listings for bank-owned homes.
Huge foreclosure inventory
And what’s worse, Sharga thinks that as many as 70% of the bank-owned homes listed on RealtyTrac’s site have not yet been posted on multiple listings services (MLS), the industry databases of homes for sale. Those homes are less likely to be sold because most real estate agents won’t know they’re available.
“Either banks are overwhelmed and can’t get the houses on the MLS quickly, or they’re deliberately slowing down so they don’t have to take markdowns to actual home values on their books,” Sharga said. Either way, it has the effect of underestimating the foreclosure inventory problem.
Banks also seem to be slowing the foreclosure process, according to Sharga. They are not sending out foreclosure filings as quickly when homeowners fall behind on payments.
Part of that is because some new state regulations require banks to notify delinquent borrowers of their intent to file notices of default, and to offer help to borrowers who want to get their finances back on track. Banks simply lack the manpower to track down so many delinquent homeowners with the required notifications. This creates a delay between the time that borrowers first miss payments and when they go into foreclosure.
After one such rule took effect in California this past summer, notices of default fell by half, to 21,665 from 44,278. But they jumped back to more than 44,000 again in December, probably because banks caught up on many of the postponed notices.
“The recent California law, much like its predecessors in Massachusetts and Maryland, appears to have done little more than delay the inevitable foreclosure proceedings for thousands of homeowners,” said Saccacio.
Falling home prices
Foreclosures are closely tied to home prices – they tend to rise as prices fall. And nationally, home prices have fallen more than 21% from their peak, according to the S&P/Case-Shiller Home Price index. In many areas, the decline has been much worse.
In Los Angeles, San Francisco and Miami prices are down 30% or more. They’ve fallen more than 40% in Phoenix and nearly that much in Las Vegas.
Declining prices put many homeowners “underwater” on their mortgages, owing more than their homes are worth, which makes them more likely to default.
And adding a flood of bank-owned homes to already slow markets further outstrips demand and dampens prices, creating a spiral of lower prices and higher foreclosures.
As a result, more homeowners who fall behind on their mortgage payments end up losing their homes, according to Jay Brinkman, the chief economist for the Mortgage Bankers Association
In California and Florida 80% of the homeowners who miss a payment end up in foreclosure, according to the MBA. That’s a much, higher percentage than in the past.
“The number of mortgages 30 days past due are still below what they were during the 2001 recession,” said Brinkman. But the proportion of those loans that went into foreclosure was much lower, he added – about 10%.
“Delinquency itself has become a much clearer predictor of foreclosure,” said Sharga.
If home prices keep plunging, the foreclosure scourge will likely continue.
And S&P’s chief economist, David Wyss, expects home prices to continue to decline, bottoming in early 2010 roughly 33% below their 2006 peak.
Worst hit areas
The three states hit hardest by foreclosure in 2008 were Nevada, Florida and Arizona. In Nevada, 7% of homes received a foreclosure filing – such as a notice of default, auction sale notice or foreclosure sale – during the year, up 126% from 2007.
Florida filings soared 133%, hitting more than 4.5% of all households, while Arizona filings jumped 203%, also to about 4.5%. California had the highest total number of filings for any state, 523,624, more than double 2007 levels.
Stockton, Calif. had the highest rate of foreclosures of any metropolitan area, at 9.5%. Las Vegas was second with 8.9% and Riverside/San Bernardino Calif. was third with 8%.
Of the top 20 cities for foreclosures, most are in the Sun Belt, with the exception of Detroit at number 10, Memphis, which ranked 18th and Denver which was 19th.
Jan
14
Slump in government reporter is the longest in at least four decades. Trade group says holiday sales down 2.8%, worse than forecast.
NEW YORK (CNNMoney.com) — Retail sales fell for the sixth straight month in December, the longest consecutive stretch of monthly declines in the measure in at least four decades.
“Consumers aren’t spending and that’s not good for the economy,” said Scott Hoyt, senior director of consumer economics with Moody’s Economy.com.
In another sign of distress for the industry, the National Retail Federation reported Wednesday that 2008 holiday sales for the combined November-December months fell 2.8%.
This was the first-ever decline in the period since the trade group first started to track holiday sales in 1995.
Combined November-December sales can account for as much 50% of their annual merchants’ profit and sales, making the months crucial.
The NRF had forecast a 2.2% sales gain for the year-end months, which would have been the weakest pace of increase in at least six years.
Retail sales reflect the state of consumer spending which in turn fuels two-thirds of the nation’s economy.
To that end, the Commerce Department said Wednesday that retail sales tumbled 2.7% last month, compared with a revised 2.1% drop in November. November sales were originally reported to have fallen 1.8%.
Economists surveyed by Briefing.com on average had forecast a decrease of 1.2% for December.
Sales excluding autos and auto parts also fell a much worse-than-expected 3.1% in December, compared to a revised 2.5% decline in November. Sales minus auto purchases were originally reported to have declined 1.6% in November.
Economists had forecast a decrease of 1.3% in the measure, according to Briefing.com.
“We’ve never had this long stretch of declines,” said Michael Niemira, chief economist with the International Council of Shopping Centers (ICSC), who has analyzed the government’s monthly retail sales numbers going as far back as 1967.
“This current situation is a reflection of a tough, tough environment,” he said. “Consumers are buying only essential items. Credit restraints have really impacted sales of big ticket purchases.”
“Moving forward, the question is whether this is the low point and could we get some moderation in retail sales in 2009,” Niemira said. “We haven’t seen a lot of convincing data to that effect.”
A steep 15.9% slump in gasoline station sales, which resulted from a plunge in prices at the pump, contributed to much of the weakness in core retail sales.
“The headlines are breathtaking, but they do overdo the gloom,” Ian Shepherdson, chief U.S. economist with High Frequency Economics, said in a report Wednesday.
“Of the $9.4B drop in sales between November and December, just over half was due to the plunge in gas prices, which pushed gas sales down by $4.9B, or 15.9%, rather more than we expected,” Shepherdson wrote. “Still, core sales were very weak.”
Clothing purchases fell 2.5%, department store sales slumped 2.3%, sales in electronics stores fell 1%, general merchandise stores suffered a 1.3% sales decline, and sales of furniture and home furnishings fell 1.8% in the month.
Food and beverage sales dropped 1.4% while grocery stores logged a 1.3% sales drop in December.
“There’s no a lot of impetus out there to turn this situation around,” Hoyt said. “We’re seeing huge job cuts, negative wealth effect, bonuses will be less than usual, credit has dried up and [consumer] confidence is exceptionally low.”
“The key thing is correcting the jobs situation. As long as we’re shedding jobs at a rapid rate, it doesn’t matter what else you do,” Hoyt added, referring to the NRF’s push for states to offer periodic national sales tax holidays in 2009 as an incentive to get consumers to spend money in stores.
“These tax cuts have to be part of a broader solution to turn this downward cycle around,” he said.
Jan
14
Taming Inflated Home Appraisals
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New guidelines aim to reduce the pressure that real estate appraisers feel to boost home values.
NEW YORK (CNNMoney.com) — Washington policy makers have taken aim at one of the main contributing causes to the housing crisis: inflated appraisals.
When home prices were soaring, one of the driving factors was that appraisers, pressured by loan officers and mortgage brokers, kept hyping home values. Not only did homebuyers wind up paying more, but the exotic mortgage products they needed to finance their purchases later exploded, setting off the financial and economic turmoil the nation is facing today.
Now, the Federal Housing Finance Agency (FHFA), the government agency created to oversee Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500), has announced a plan to curb the influence that loan originators exert on appraisers to overvalue homes. A new Home Valuation Code of Conduct, which will take effect this May, is an attempt to improve the reliability of appraisals for mortgages sold to the two companies. The guidelines prohibit lenders from coercing, extorting, colluding with, intimidating or bribing appraisers into making inaccurate appraisals.
“It’s a step in the right direction,” said Tom Inserra, president of Pinnacle Peak Appraisers in Arizona, who has testified before Congress on appraisal issues. “Separating the lending function from the selling function had to be done.”
Fannie and Freddie have a strong interest in ensuring the soundness of appraisal reports because they’re the basis for the mortgage loans that they buy from lenders, according to James Lockhart, FHFA’s director.
Most mortgages in the United States are now bought by Fannie and Freddie, who then securtitize them and resell them to investors.
High Hopes
Appraisals get inflated because the incomes of mortgage brokers and loan officers depend on how many mortgage loans are approved. A high appraisal ensures that the house – the collateral backing the loan – is worth more than the amount of the loan, which reduce the bank’s risk.
Inserra knows how intense the pressure to inflate values can get. Three years ago, he found himself battling one of his largest clients. The bank’s senior vice president in charge of mortgage lending tried to get Inserra to “hit a number,” industry parlance for inflating the appraisal. He wouldn’t do it.
“The discussion got so heated,” recalled Inserra, “that he threatened to do harm to my family if I didn’t co-operate. I really thought he might do it. I got a restraining order from a judge.”
In the end, the banker didn’t hurt his family, but he did punish Inserra by depriving him of the $200,000 in annual business he had been getting from the bank.
That may be an extreme case, but it was not isolated. A 2007 survey by October Research found that 90% of appraisers said that they felt pressured to fudge figures.
Enforcement is Key
Not everyone is convinced that the new guidelines will help.
“I’m very skeptical,” said Elizabeth Kern, a past president of the National Association of Independent Fee Appraisers (NAIFA). “I think the only thing that will change is that we’ll see the better appraisers, the more experienced ones, not getting the work.”
Inserra wonders about enforcement of the rules.
“The concern is that, unless there’s an enforcement mechanism that works better than what we have today, it won’t do much good,” he said.
Under the new rules, complaints from appraisers, consumers, or anyone else will be fielded by the “Independent Valuation Protection Institute,” which FHFA will set up.
If a lender logs too many complaints, it may be prohibited from selling its loans to Fannie and Freddie. That should be enough to make lenders police their appraisals more carefully, since the government entities are virtually the only buyers left standing.
The National Association of Mortgage Brokers is not happy with the plan. According to its president Mark Savitt, mortgage brokers often work closely with appraisers to make sure applications are error free and accurate. That kind of co-operation may be construed as crossing over the line into trying to influence appraisals, even when it’s not.
Savitt said increased enforcement of existing regulations is all that’s needed to make the appraisal inflation problem disappear. “Beef up the penalties for the laws that we already have and enforce those laws.”
Right now, few loan originators are held to account for pressuring appraisers. Bill Garber, director of government and external relations at the Appraisal Institute, reports that only about 15 states have any laws targeting loan officers and mortgage brokers, and these are not often enforced.
Appraisers themselves are more likely to get hit; more than 250 lost their licenses last year for hyping values, he said.
But if the new regulations help prevent some of the abuses, it could have a healthy impact on the housing market.
Lenders will have much more confidence that the home values are justified and that could make them more willing to lend.