bank run blog

With no easy credit and many US workers unemployed, vacationers are becoming stay-cationers in foreclosureland leaving America’s getaway spots in dire straights. This segment from CBS focuses on how the economic downturn has even dimmed the lights in America’s favorite bingo hall, Las Vegas.

“The Folies Bergere opened at the Tropicana in 1959…the Tropicana’s owners, battling bankruptcy, announced they are closing the Folies for good.” CBS News

“Like nearly 60 percent of the people in Las Vegas with a mortgage, (Tanya Rucker) owes more than her house is worth.” CBS News

In the accompanying video from Yahoo Finance, Aaron Task talks to analyst Nariman Behravesh about the newest US residential construction activity numbers and the prospects for a bottom :

“Hopes for a bottom in the housing market took a serious knock Thursday as the government reported housing starts fell 10.8% in March while building permits fell 9% to a record low.

The starts number is volatile because it’s weather dependent – February, for example, saw a surprising spike – but ‘the permits are a little more reliable,’ says Nariman Behravesh, chief economist at IHS Global Insights. ‘The fact they’re down is a little worrisome.’

As rates and home prices have fallen, mortgage applications have risen sharply and affordability has improved dramatically, says Behravesh. But ‘we’re not out of the woods yet,’ he says, forecasting another 5% to 10% decline in average home prices nationwide.”

Yahoo Finance Tech Ticker : Housing Dilemma: Govt. Needs Banks to Play Ball as Public Outrage Grows

Los Angeles Times : Housing starts plunge in March

The bankruptcy of General Growth has been a certainty for as much as a year, but today’s historic filing will be seen as a symbolic starting point for the collapse of US commercial real estate and associated financial instruments. Reuters reports :

“General Growth Properties Inc, the second-largest U.S. mall owner, declared bankruptcy on Thursday in the biggest real estate failure in U.S. history.

Ending months of speculation, General Growth, along with 158 of its 200-plus U.S. malls, filed Chapter 11 while it tries to refinance its debts.

But the ongoing global financial crisis made it impossible for General Growth to restructure outside of bankruptcy and could signal further troubles for other financial institutions who are General Growth creditors.

The collapse underscores the pressure on U.S. commercial real estate with few sources of available funding.”

USA Today endeavors to put the “stunning announcement” into perspective :

“The historic bankruptcy filing by General Growth Properties on Thursday reflects both risky business decisions by the nation’s second-largest mall owner, and a rapidly deteriorating outlook for commercial real estate, analysts said.

The stunning announcement — the largest real estate bankruptcy filing in the nation’s history — was due in part to General Growth’s strategy of taking on debt to acquire other companies. The Chicago-based firm said in its Chapter 11 filing it had assets of $29.6 billion and debts of $27.3 billion. Its high-profile properties include New York’s South Street Seaport and Boston’s Faneuil Hall Marketplace.”

Reuters : General Growth files largest U.S. real estate bankruptcy

USA Today : Mall owner fell victim to risky moves, bad times

A recent study by economists from the Federal Reserve predicts that increasing unemployment, now reaching the mid-teens in many regions, will spark another wave of home foreclosures in the US. Two current and one former economist at the Boston Fed Bank and one Atlanta Fed researcher write;

“Job losses and falling home prices have a bigger effect on delinquencies than mortgage terms, and modifications aren’t necessarily a better deal for investors than foreclosures.”

The notion calls into question the cooperative federal program whereby banks have been entreated by politicians to help struggling homeowners by “re-working” mortgages (eliminating fees, extending the length of loans, granting temporary forbearance and in some cases even reducing usurious interest rates- but never agreeing that the value of the mortgaged properties were wildly inflated) cannot stanch the coming deluge of foreclosed families.

The then-Bush-now-Obama plan of politely asking for the assistance of banks (that are, in many cases, receiving government dollars as they claim solvency) says the Fed researchers, “contends that the crisis can be attenuated by changing the terms of ‘unaffordable’ mortgages.” With an army of jobless unable to pay for groceries, much less a home loan, policies aimed at reducing a borrower’s debt-to-income ratio “face important hurdles in addressing the housing crisis.” Obama has pledged $75 million dollars to banks and homeowners so they can try to ‘work it out’.

The federal bankers say that it may be better to provide government bridge loans to unemployed workers as they ride out the next phase of the New Depression, hunkering down in a desolate foreclosureland seeking part-time employment in the food courts of shuttered big-box plazas.

see story-
Los Angeles Times : Mortgage modifications may not stem foreclosures, Fed economists say

The other shoe has dropped.

Bloomberg reports that mortgage delinquincies of commercial properties are beginning to been seen across the US. Bloomberg writes;

“Loans secured by properties that were writtenassuming rental growth have been unable to meet targets, leading to increased defaults. The delinquency rate for North American commercial real estate loans in mortgage backed securities may triple in 2009 as loans default.”

Some regions have been hit hard and hit early, Bloomberg reports;

“Office, retail, apartment and industrial properties with mortgage payments 60 days late or more rose to 3.93 percent as of March in Cleveland area and 3.75 percent in the Detroit area…The North American commercial property delinquency rate is 1.1 percent according to Standard and Poor’s.”

Cleveland had a commercial real estate vacancy rate of 14.8 in 2008 which is forcast to rise to more than 20 percent by 2010. Ohio has unemployment levels that outpace the national average. In December, the unemployment rate in Ohio was 8.8 percent and the state lost a further 214,000 jobs in January. Detroit’s unemployment rate is even greater, with 10.6 percent of its workers receiving unemployment insurance.

The service also said that that Phoenix area had the “second highest percentage of 30-day late commercial real estate loan payments” and that other regions, such as the Las Vegas area, could see commercial defaults increasing over the course of 2009.

“Cleveland and Detroit are just the first to see the stress. They’re the canaries in the coal mine”, Bloomberg qoutes chief economist for Grubb Ellis, “There is really no part of the country being spared.”

see story
Bloomberg : Cleveland Commercial Loan Delinquencies Signal More Declines