bank run blog

The New York Times web site features a photo essay on partially constructed and otherwise abandoned residential real estate projects in California. The Times writes, “In the three years since housing peaked in Merced, the median sales price has fallen by 50 percent.”

“A sidewalk leads to nowhere in one development in Merced.”

“Mayor Wooten at the stagnant pool of a foreclosed home she listed.”

see slideshow-
New York Times : Where Housing Crashed the Hardest

The US Labor Department reported that the jobless rate rose to a four year high last month. Unemployment increased in 45 of 50 states in July with some of the hardest hit states in the sun belt losing between 15 and 20 thousand jobs. Florida alone lost 21,400 jobs as tourism and construction sectors contracted registering heavy job losses.

Mississippi and South Carolina had the biggest increases in unemployment last month, each rising 0.9 percentage point with the joblees rate in Mississippi reaching 7.9 percent and the jobless rate in South Carolina climbing to 7 percent. Bloomberg reports, “Payrolls decreased in 36 states…The tally of individual state figures showed the U.S. lost 111,000 jobs last month.”

In California, where the jobless rate has risen to 7.6 percent, a total of 371,000 people were unemployed in July in Los Angeles County and the jobless rate in San Diego County the highest it has been in thirteen years. The San Diego Union Tribune reports, “job losses were concentrated in the housing sector. Construction, real estate and mortgage companies have lost 14,100 jobs over the past year.”

But the pain has been felt deeper in the community;

“With foreclosures and defaults continuing to rise, San Diegans have less money to spend, meaning less business at local stores. As a result, retailers shed 2,200 jobs, mostly at auto dealerships, furniture stores, home-improvement outlets, clothing boutiques and general merchandisers.”

see stories-
Bloomberg : Florida, Georgia Had Biggest Job Losses in July, Labor Says
KNBC News : Gov’t: Local, State Unemployment Rates Increase
San Diego Union Tribune : Experts blame bust in housing market

This segment from the WXMI Fox 17 in West Michigan discusses the growing phenomenon of homeowners who owe more than their home is worth deciding to “walk away” leaving abandoned homes to be foreclosed upon by lending institutions.

“By the time they hit the wall on making their mortgage payment, it means everything else has pretty well been depleated in terms of other ways to get money; their retirement savings, their checking account, credit cards have been tapped.” Joel Rahn, Byron Center Bank

The New York Post reports that managers of a sovereign wealth fund from an unknown country have hired an American real estate firm signaling the SWF’s intention to purchase hundreds if not thousands of foreclosed bank owned homes in California, Nevada, Arizona and across the US.

The Post writes that the wealth fund has set aside $29 billion to buy bank owned foreclosed homes in the US at half their original value. In fact, the Post writes that the fund has made an offer to purchase $2.5 billion of bank seized properties at 40 cents on the dollar recently and also negotiated an offer to purchase $2 billion worth of bank owned single family homes for 31 cents on the dollar.

The company hired by the foreign investment entity to research the market of foreclosed upon family homes in the US, Field Check Group, has refused to disclose the identity of the fund.

The Post reports that sovereign wealth funds of countries such as Abu Dhabi (with $875 billion in investable reserves) and Norway (with $391 billion in investable reserves) are positioned to “scoop up” thousands of bank owned properties because, “The depressed value of the US dollar makes the homes a bargain, and the funds have deeper pockets.”

see story-
New York Post : Lost Sovereignty

The rise in fuel prices and the dramatic drop in the value of suburban homes has ignited a migration of suburbanites out of the far flung developments the construction of which were a large part of the ‘boom’ of the past decade.

Some predict that over time vast numbers of suburban homes will stand vacant others, including the reporter in this segment from CBS News, predict that present day suburban sprawl will be the future’s “slums”.

“By 2025 there will be a surplus of 22 million large lot homes in suburban areas.” -Ben Tracy, CBS News

“The project of suburbia is over.” -Howard Kunstler, author

Realty Trac reported today that 739,714 homeowners received notice that their homes were in foreclosure in the second quarter, up 13.8 percent compared to the first quarter of 2008. Foreclosures are up a 121 percent compared to the same quarter in 2007.

Bank seizures in the first half of the year increased by 154 percent to 370,179 from the same period in 2007. 48 of 50 states and 95 of the 100 largest US cities had year-over-year increases in foreclosure filings in the second quarter. Realty Trac reported that the following states saw the largest increases in foreclosures last quarter;

Nevada: one in every 43 households received a foreclosure notice in the quarter

California: one in every 65 households received a foreclosure notice in the quarter

Arizona: one every 70 households received a foreclosure notice in the quarter

Also among the top ten states where home owners receive foreclosure notices were Florida, Colorado, Ohio, Michigan, Georgia, Massachusetts and Illinois

Bloomberg quotes Bill Gross, manager of the bond fund at Pacific Investment Management, who said “About 25 million U.S. homeowners risk owing more than the value of the their homes.” Bloomberg writes;

“One in every 171 households was foreclosed on, received a default notice or was warned of a pending auction.”

see stories -
Reuters :RealtyTrac report says Q2 home foreclosures up 13.8 pct from Q1
Bloomberg : U.S. Foreclosures Double as House Prices Decline

In this segment, CBS News explains the Texas ratio formula, an indication of the financial stability of banks, and gives the ratios of some banks with wildly lopsided ratios.

“Some Wall Street analysts using a little known formula known as the Texas ratio say as many as 150 financially strapped institutions could fail over the next 18 months.”- Pryia David, CBS News

A recent study released by the Nielsen Company that tracks consumer habits found that 63 percent of consumers report having to trim expenses because of high gas prices. Todd Hale, senior vice president of Nielsen said;

“While discretionary spending is likely to be a challenge for most low and middle income shoppers, even affluent consumers are looking for ways to make their dollars go further.”

Nielsen reported that 78 percent of consumers are combining shopping trips, 52 percent are eating out less and 35 percent of consumers are buying less expensive brands at the supermarket.

See stories-
CNN Money article : Gas prices have consumers cutting back - study
Phoenix Business Journal : Nielsen survey shows 63 percent of consumers cutting spending

The Office of Federal Housing Enterprise Oversight reports that U.S. home prices fell a record 4.8 percent in May since the same time last year. The agency also said that home prices fell 0.3 percent since last month. OFHEO oversees the government-sponsored mortgage-finance companies Fannie Mae and Freddie Mac.

Market Watch points out, “The OFHEO index tracks mortgages data from Fannie Mae and Freddie Mac of sales of the same homes over time. It does not include jumbo loans, or subprime loans, so it may understate the declines in the bubbliest areas of the country, such as California, Florida, Nevada and
Arizona.” Market Watch notes that the more comprehensive Case-Schiller index;

“will be released for May by Standard & Poor’s next week. Through April, home prices were down 15.3% in the past year according to Case-Shiller. It includes subprime and jumbo loans, so it covers more homes than the OFHEO index does.”

There are wide regional disparities in home values that the national averages do not reflect. While the OFHEO reports that prices rose in May in the Middle Atlantic (New York, New Jersey and Pennsylvania) and the East North Central states (Michigan, Wisconsin, Illinois, Indiana and Ohio), the San Diego Union Tribune writes, “DataQuick Information Systems reported yesterday that the statewide median home price was down 31.5 percent last month from June 2007 levels.”

See articles-
Market Watch : U.S. home values fall 4.8% in past year, U.S. says
Associated Press : US home prices fell 4.8 percent in May
San Diego Union Tribune : Statewide home prices fall

As inflation and unemployment spike upward, the misery index is at its highest point since 1993, The misery index combines the unemployment rate and the rate of inflation to come up with an indicator that suggests how tough times are for the average working American. Bloomberg reported last week;

“The year-over-year inflation rate accelerated to 5 percent, the fastest since May 1991, the Labor Department said. A separate report July 3 showed a 5.5 percent unemployment rate for June. Today’s consumer price index data also showed wages fell 2.4 percent over the last 12 months, after adjusting for inflation…The June unemployment rate held at 5.5 percent after soaring the most in two decades in May from April’s 5 percent”

Bloomberg also predicted, “Surging costs and falling payrolls will cause consumers to slow spending growth to the weakest pace since 1991 by the fourth quarter.”

The misery index was conceived of by economist Arthur Okun who was an economic adviser to President Lyndon Johnson in the 1960’s. The web site www.miseryindex.us writes, “It is assumed that both a higher rate of unemployment and a worsening of inflation both create economic and social costs for a country. A combination of rising inflation and more people of out of work implies a deterioration in economic performance and a rise in the misery index.”

see article-
Bloomberg : U.S. `Misery Index’ Climbs to 15-Year High on Prices