bank run blog

The New York Times reports that the Hope Now alliance said that there are now more prime mortgage foreclosures in the US than subprime mortgage foreclosures.

The alliance said that 197,000 foreclosures were initiated in July, and 105,000 of these were on properties secured with a prime mortgage. The group said that there were more prime foreclosures than subprime foreclosures also in June. The Times writes;

“The Hope Now people report that completed foreclosure sales are still higher for subprime but the gap is narrowing…this does show how the foreclosure problem is spreading. One more indication that things are getting worse.”

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New York Times : Prime Foreclosures

As families move out of foreclosed single-family homes across the US, nature moves in and begins to reclaim.

In this segment from the Associated Press, local officials respond to the phenomenon of stagnant water in the swimming pools of foreclosed homes that has become a breeding ground for mosquitoes. Some towns, fearful of the spread of West Nile Virus, have employed mosquito larvae eating fish to combat the problem.

“Scientists say that swimming pools like this one could lead to a greater risk of West Nile Virus for the state’s residents.” – Mike Brocia, Associated Press

In this segment, CBS News reports that empty homes are being used more and more by honey bees that turn the moribund properties into huge hives.

“I started out, I might have been doing eight or nine a year, and its…over nine hundred plus last year.” – B. Keith Councell, Professional Bee Remover

The widely predicted and much feared contraction in US consumer spending has been obscured by the government stimulus checks and skyrocketing commodities prices, but the underlying data confirm that consumers are tapped out. The Associated Press reports on consumer spending and personal incomes figures that are pushing Wall Street down this morning :

“Personal incomes plunged in July while consumer spending slowed significantly as the impact of billions of dollars in government rebate checks began to wane.

The Commerce Department reported Friday that personal incomes fell by 0.7 percent in July, the biggest drop in nearly three years and a far larger decline than the 0.1 percent decrease analysts expected.

Consumer spending edged up a modest 0.2 percent, in line with expectations, but far below June’s 0.6 percent rise. When the impact of rising prices was factored in, spending actually dropped by 0.4 percent in July, the weakest showing for inflation-adjusted spending in more than four years.”

Analysts agree that the outlook for the second and third quarters is bleak, as the factors that pushed GDP growth to a stated 3.3 percent in the second quarter recede. According to Bloomberg :

“Incomes dropped 0.7 percent, the first decrease since August 2005, reflecting the end of the rebates, after a 0.1 percent gain the prior month. The median projection was a decline of 0.2 percent.

As domestic demand wanes, the U.S. may also be hit by a slowdown in economies abroad that would erode export gains. Europeans’ confidence fell more than forecast this month as the economy teetered on the brink of a recession, a report showed today. The European Commission’s index of executive and consumer sentiment dropped to 88.8 from 89.5 in July.

The Commerce Department report’s price gauge tied to spending patterns jumped 4.5 percent from July 2007, the biggest 12-month gain since 1991.”

Associated Press : July incomes drop by largest amount in 3 years

Bloomberg : U.S. Economy: Consumer Spending Slows, Inflation Accelerates

Surprisingly robust GDP numbers for the second quarter fueled a 200-point rally on Wall Street today, bringing out the routine chorus of bottom callers. Of course, GDP that runs substantially below even stated inflation is not really growth at all, but it has passed for such for several quarters in a row now. But today’s skewed data includes the effects of the stimulus checks and the ultra-weak dollar, both of which are gone already. Barring a major federal effort to monetize US debt, deflation is likely to result in a stronger dollar, especially as the US contagion takes hold in the economies of all of its foreign trading partners.

Economists realize that the second quarter numbers, even if they hold through the usual rounds of revisions, represent a temporary countertrend. The Associated Press is reporting Spring’s economic rebound unlikely to last :

“The economy pulled out of a dangerous rough patch in the spring, thanks largely to strong exports, but the rebound isn’t expected to last. Economic slowdowns overseas could make exports tail off just as Americans are hunkering down after the bracing impact of rebate checks wanes, plunging the country into another rut later this year.”

US companies in a position to export benefited from the currency imbalance :

“The biggest factor in the GDP’s second-quarter rebound was robust sales of U.S. exports. The weaker value of the U.S. dollar has bolstered those sales, which accounted for half of the gain in GDP. Exports grew at a 13.2 percent pace in the spring, more than double the 5.1 percent growth rate logged in the first quarter.

Imports, meanwhile, fell at a 7.6 percent annualized pace in the spring, as economic troubles in the U.S. crimped demand for foreign-made goods. The improved trade picture added 3.1 percentage points to second-quarter GDP, the most since 1980.”

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The Times notes the one-time effects of the government stimulus package, in an article headlined US GDP rise gives false recovery hope :

“However, analysts cautioned that much of the GDP growth was driven by the weak dollar, which boosted exports by making America’s goods and services cheaper for foreign buyers.

The impact of more than $100 billion (£54.7 billion) worth of tax rebates, made by the US Government to its citizens, also helped to offset the impact of the US housing slump and high energy costs, analysts said.

The US will benefit less in the second half of the year from exports, as the economies of Europe and Japan slow and the dollar continues to gain value.

In addition, as many of the tax rebates have been spent, the economy will not continue to benefit from the fiscal stimulus in the second half.”

full story

This segment from the Associated Press focuses on Alt-A mortgages that are now beginning to re-set. These loans, also referred to as “liar loans”, were given by banks to consumers who were not required to give proof of their income. The AP reports;

“The housing market, already awash in subprime foreclosures, is now getting hit with a second wave as homeowners with liar loans default in record numbers.” – Ed Donahue, Associated Press