Friday, May 20, 2011

Weekend Links

1--Existing-Home Sales in U.S. Unexpectedly Fall, Bloomberg

Excerpt: Sales of existing U.S. homes unexpectedly declined in April, indicating the industry is struggling to gain traction as the economy expands.

Purchases of existing homes dropped 0.8 percent to a 5.05 million annual pace last month, the National Association of Realtors said today in Washington. A 5.2 million rate was the median projection in a Bloomberg News survey and the April figure was less than the most pessimistic forecast. The median sales price declined from a year earlier and 37 percent of transactions were of distressed dwellings.

Falling prices and the prospect of more foreclosures entering the market signal more Americans may be hesitant to purchase homes. With unemployment at 9 percent and wages stagnant, any sustained recovery in residential real estate may take years to unfold....

Philadelphia-Area Manufacturing

The Federal Reserve Bank of Philadelphia’s general economic index fell to 3.9 in May from 18.5 a month earlier. Readings greater than zero signal expansion in the area covering eastern Pennsylvania, southern New Jersey and Delaware. The median forecast of 59 economists surveyed by Bloomberg called for a gain to 20.

Another report today from the Labor Department showed fewer Americans than forecast filed first-time claims for unemployment benefits last week. Applications declined by 29,000 to 409,000. Economists projected 420,000, according to the median forecast in a Bloomberg survey.

Of all purchases, cash transactions accounted for 31 percent after a record 35 percent in March, NAR chief economist Lawrence Yun said in a press conference as the figures were released. The Realtors group began tracking the monthly figure in August 2008, and the share on a yearly basis before that was around 10 percent, Yun has said.
Distressed Sales

Distressed sales, which comprise foreclosures and short sales, in which the lender agrees to a transaction for less than the balance of the mortgage, accounted for 37 percent of the total after 40 percent in March, Yun said....

Shadow Inventory’

CoreLogic Inc. in March estimated about 1.8 million homes were delinquent or in foreclosure, a so-called “shadow inventory” set to add to the unsold supply of existing houses already on the market.

2--Will the Banks Finally Have to Answer?, New York Times

Excerpt: What is needed is a broad inquiry into how banks inflated the housing bubble, profiting as it expanded and getting bailed out when it burst — leaving investors and homeowners devastated.

Any serious investigation must take a close look at “securitization” — the pooling of thousands of home loans into securities that were sold to investors the world over. Three years after it all imploded — and even after Congress vowed to get answers and names — Americans still don’t have answers to vitally important questions.

Topping the list: Did the big banks know (if not, why not?) that billions in loans and related securities were destined to fail? Did they intentionally mislead investors and insurers or were they just incompetent?

An investigation must also figure out the extent of wrongdoing in Wall Street practices that fed the securitization pipeline. By extending credit to mortgage lenders, Wall Street allowed them to make loans far longer than they otherwise could have. Did Wall Street purposely inflate the bubble when it enabled loans to uncreditworthy borrowers for unreasonably priced homes?

All indications are that last year’s robo-signing scandal, in which banks were found to have filed false court documents in foreclosure cases, was just the tip of an iceberg. A growing body of Congressional testimony, academic research, court cases and other evidence suggests pervasive defects, and potentially vast lawbreaking, in the securitization and foreclosure process.

It has also been suggested that federal and state officials have ignored or played down allegations of widespread illegality, a charge that is all too easy to believe. A recent federal investigation into banks’ foreclosure abuses ended with a wrist slap. Talks between state attorneys general and banks over those abuses appear hamstrung, in part, by the apparent failure of state officials to do a thorough investigation on which to base demands for meaningful reforms and stiff penalties.

3--Total student loan debt tops 7 percent of GDP, Dr Housingbubble

Excerpt: student loan debt including debt from private banks is closer to $1 trillion which is over 7 percent of GDP. College tuition and fees are certainly outstripping inflation by many measures. What is troubling about this trend is that it is being financed by debt backed by the government. Banks are willing to loan money knowing the government is on the hook if students fail. The spin is also disturbing. The evaporation of blue collar industries does make college a more important tool for future economic success if one wishes to enter the middle class (i.e., purchase a home and save a bit of money to avoid eating off the dollar menu every day).

Just like in housing, every home benefitted during the housing bubble. A large portion of the money is being funneled to for-profit colleges....

Nice to sell a product where results are merely a marketing ploy and where close to 40 percent of students end up defaulting on their debt (debt that you cannot walk away from). The colleges don’t care because there is no accountability just like the mortgage brokers that pushed off junk loans to people during the housing bubble. Wall Street is happy because look at the above chart. And when it all goes boom it is the sucker taxpayer that is on the hook. This is the new model of economic growth in our nation. Wall Street has learned to turn everything into a bubble including education with the deep pockets of taxpayers. Yet measurable results are nowhere to be found. Wall Street doesn’t want money flowing into public schools because there is little profit to be had. The government here is merely the dumping ground for the bad loans as it is the case with the housing bubble.

4--Tough Job Market for recent College Graduates, Calculated Risk

Excerpt: From Catherine Rampell at the NY Times: Many With New College Degree Find the Job Market Humbling

Employment rates for new college graduates have fallen sharply in the last two years, as have starting salaries for those who can find work. What’s more, only half of the jobs landed by these new graduates even require a college degree ...

The median starting salary for students graduating from four-year colleges in 2009 and 2010 was $27,000, down from $30,000 for those who entered the work force in 2006 to 2008, according to a study released on Wednesday ...

Among the members of the class of 2010, just 56 percent had held at least one job by this spring, when the survey was conducted. That compares with 90 percent of graduates from the classes of 2006 and 2007.

And many of there recent graduates are saddled with excessive student debt - a difficult situation and a poor time to start a career.

5--Weekly Initial Unemployment Claims declines to 409,000, 4-Week average highest since November, Calculated Risk

Excerpt: The DOL reports on weekly unemployment insurance claims:

In the week ending May 14, the advance figure for seasonally adjusted initial claims was 409,000, a decrease of 29,000 from the previous week's revised figure of 438,000. The 4-week moving average was 439,000, an increase of 1,250 from the previous week's revised average of 437,750.

This graph shows the 4-week moving average of weekly claims for the last 40 years. The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims increased this week to 439,000.

This is the highest level for the 4-week average since last November.

6--Japan's Earthquake Recession, The Streetlight blog

Excerpt: It was reported yesterday that Japan's economy shrank at a fairly rapid rate in the first quarter of 2011. Real output was down almost 1% during the quarter. This was in large part due to the effects of the earthquake; if significant pieces of your economy are simply not doing anything for a month, then of course the total output you produce during that time is going to be low. Some expressed surprise at the bad report, but even two months ago this GDP report was quite predictable.

The interesting question now, as Alphaphille suggests, is whether this will turn out to be a "temporary" recession. My answer is yes.

Two effects will mean that output in Japan will begin to recover quite strongly. First, manufacturing companies that were forced to stop doing business in the weeks after the quake are already trying to churn out extra output to make up for shipments that were delayed or missed in March and April. Countless manufacturing facilities around the world rely on inputs from Japan and were forced to slow or stop production as that flow of inputs stopped. (That's the likely explanation for the fall in manufacturing production in the US in April, by the way.) Now both the Japanese suppliers and their customers are scrambling to make up for that lost production.

Second, the Japanese government is slowly but surely embarking on a massive rebuilding effort in the affected area. This will probably amount to a fiscal stimulus of several percent of GDP in total. Even though this will be spread over the next few years, I think we'll already begin seeing significant effects of this stimulus in the second half of 2011.

7--The Debt Ceiling Fiasco, Alan Blinder, Wall Street Journal

Excerpt: ...(concerning the debt ceiling) "...outright default is not my main concern. Several other things are:

For openers, suppose the federal government actually does reduce its expenditures by 40% overnight. That translates to ... about 10% of GDP. That's an enormous fiscal contraction for any economy to withstand, never mind one in a sluggish recovery with 9% unemployment. Even contemplating such a possibility is evidence of a dark, self-destructive impulse.

Second, markets now assign essentially zero probability to the U.S. losing its fiscal mind. They'd be caught flat-footed if the threat of default suddenly started to look real, possibly triggering a world-wide financial panic. ...

And finally,... should the view take hold that threats to default are now a permissible weapon of political combat in the world's greatest democracy, U.S. government debt will lose its exalted status as the safest asset money can buy—with unpleasant consequences for the dollar and interest rates.

Fights over the budget are normal and proper in a democracy... But threatening to default should not be a partisan issue. In view of all the hazards it entails, one wonders why any responsible person would even flirt with the idea.

8-- Public Programs Keep Millions Out of Poverty, CBPP via Economist's View

Excerpt: With anti-poverty programs under serious attack in Washington, here’s something to keep in mind: a major new study from the National Bureau of Economic Research (NBER) finds that public programs keep one in six Americans out of poverty — primarily the elderly, disabled, and working poor — and that the poverty rate would double without these programs.

Without the cash and non-cash income provided by programs such as Social Security, SNAP (formerly food stamps), and the Earned Income Tax Credit:

The share of Americans below the poverty line in 2004 ($19,307 for a family of four) would have more than doubled, from 13.5 percent to 29 percent. That is, 45 million more Americans would have been poor.

The share of Americans in “deep poverty,” with incomes below half the poverty line, would have more than tripled, to 21 percent.

The share of Americans who are poor or near-poor, with incomes below one-and-a-half-times the poverty line, would have risen to about 40 percent.

The House-passed budget would impose draconian cuts on programs for low- and moderate-income families, ranging from SNAP and Medicaid to rental assistance, Pell Grants, and Head Start. Current proposals to impose annual limits on federal spending or insert a balanced budget requirement into the U.S. Constitution would force the same kinds of cuts.

9--Don’t Buy A House In 2011 Before You Read These 20 Wacky Statistics About The U.S. Real Estate Crisis, The Economic Collapse

Excerpt: e following are 20 really wacky statistics about the U.S. real estate crisis....

#1 According to Zillow, 28.4 percent of all single-family homes with a mortgage in the United States are now underwater.

#2 Zillow has also announced that the average price of a home in the U.S. is about 8 percent lower than it was a year ago and that it continues to fall about 1 percent a month.

#3 U.S. home prices have now fallen a whopping 33% from where they were at during the peak of the housing bubble.

#4 During the first quarter of 2011, home values declined at the fastest rate since late 2008.

#5 U.S. home values have fallen an astounding 6.3 trillion dollars since the housing crisis first began.

#6 In February, U.S. housing starts experienced their largest decline in 27 years.

#7 New home sales in the United States are now down 80% from the peak in July 2005.

#8 Two years ago, the average U.S. homeowner that was being foreclosed upon had not made a mortgage payment in 11 months. Today, the average U.S. homeowner that is being foreclosed upon has not made a mortgage payment in 17 months.

#9 Sales of foreclosed homes now represent an all-time record 23.7% of the market.

#10 4.5 million home loans are now either in some stage of foreclosure or are at least 90 days delinquent.

#11 According to the Mortgage Bankers Association, at least 8 million Americans are currently at least one month behind on their mortgage payments.

#12 During the first quarter of 2011, less new homes were sold in the U.S. than in any three month period ever recorded.

#13 According to Zillow, the United States has been in a "housing recession" for 57 straight months without an end in sight.

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