Archive for July, 2010
The state-owned bank Northern Rock Asset Management has been accused of treating its customers unfairly by mortgage advisers.
In January 2010 hundreds of thousands of Northern Rock customers lost the ability to switch their mortgage to another provider when Northern Rock Asset Management took over their account.
The bank agreed to waive, or reduce, early repayment charges for some but not all of its customers up until the end of June.
I’m in Washington, DC today, preparing to host a discussion later this week with economist Douglas Holtz-Eakin, former director of the Congressional Budget Office, a commissioner on the Financial Crisis Inquiry Commission and current president of the American Action Forum. Should be a lively Q&A, to say the least. (Many thanks to the American Legal & Financial Network for asking me to participate at their annual gathering here, as well.)
Not surprisingly for anyone who knows me, I’ve been spending a fair amount of my time preparing questions and compiling data. And what I’m looking at has me wondering what sort of economic recovery we’ve really had—while most analysts have suggested we’ve been out of recession since middle-to-late 2009, I’ve long held that it hasn’t felt that way for most Americans.
Here’s why: in one important way, our standard of living in this country has reverted all the way back to 1983. In reviewing a letter from Hoisington Investment Management Co. recently sent my way via John Mauldin, this gem stood out:
"Thus far, the NBER has been unwilling to proclaim an end to the recession that started in late 2007. This may partially reflect the fact that the ratio of people employed to our total population has fallen from 62.7% in December 2007 to 58.5% today. Although the recent low in this measure was 58.2%, touched just a couple of months ago, our present level is no higher than it was in 1983."
Not surprisingly, the recovery we have been seeing and hearing about is in many ways almost not at all a recovery–because it isn't being felt by most Americans. Consider that real U.S. GDP has averaged about 3.2% annualized since the “bottom” in 2009, and consider that roughly 2% of that total is due to inventories, leaving just 1.2% to actual economic growth.
Recently, Gluskin Sheff economist David Rosenberg wrote that this is the worst GDP recovery, at least ex-inventory, on record. And, yet, we’ve done more than ever before in an effort to make it all happen.
To recap: We’ve been running a 10% deficit-to-GDP ratio, and managing soaring debt-to-GDP ratio. We’ve seen the Federal funds rate sit as close to zero as it can get, for as long as possible, helping drive mortgage rates to their lowest levels nearly ever. The Fed has tripled its balance sheet by purchasing mortgage securities, while the FHA has stepped in to offer the next generation of subprime loans to consumers. We’ve shifted the sands of our accounting rules to enable profit growth primarily in the financial sector. We’ve put incessant pressure on banks to modify non-performing loans. We've juiced car purchases and home purchases via tax incentives, too – all part of massive stimulus spending designed to get the economy working again.
All this, and we have only the worst recovery on record to show for it?
If it took that much effort just to keep things flat-lining, where do you think we go next as the stimulus wanes? There is little impetus in Congress at present to consider additional stimulus—rightfully or wrongfully—and a recent Time survey suggests 67% of Americans are strongly opposed to such measures.
Only time will tell what lay ahead, but the data I’m looking at today isn’t exactly encouraging. The ECRI’s Weekly Leading Index is now down 9.8 percent, and has now been negative for the past 6 weeks. At the current level, our nation has never failed to have a recession—something numerous economists and pundits have highlighted privately, even if the CNBCs of the world aren’t broadcasting such a message to Jim Cramer's loyal viewership.
What’s been far more surprising to me, however, is how few economists thus far are willing to give credence to the idea that a double dip recession may be in the offing. Generally speaking, we’ve heard that double-dips are so rare an occurrence that they are unlikely to be seen now. But our past 18-24 months, if anything, should have made what was once considered rare part of the new normal in terms of economic thinking.
That said, I don't know that we’ll see a double-dip recession, either–but for an entirely different reason. I’m not so sure we ever really ended the first one.
Paul Jackson is the publisher of HousingWire.com and HousingWire Magazine. Follow him on Twitter: @pjackson
American International Group named former Prudential chief executive and experienced Asia hand Mark Tucker as the head of its Asian life insurance business, AIA, ahead of an expected $15bn AIA IPO.
The abrupt removal of AIA CEO Mark Wilson shows AIG chief executive Robert Benmosche is stamping his authority on the bailed-out US insurer and follows a boardroom battle at AIG that culminated in its chairman Harvey Golub quitting last week.
The results of stress tests on 91 of Europe's biggest banks will be published on a bank-by-bank and aggregated basis on Friday, Europe's banking regulator said Monday.
The results will also be published by the banks themselves and/or by national supervisors from around the same time.
Builder confidence dropped again in July and a monthly index conducted by the National Association of Home Builders (NAHB) and Wells Fargo (WFC: 29.60 +1.89%) is at its lowest level since April 2009, down from a three-year high just two months ago.
The housing market index was 14 for the month of July, down two points from its revised reading of 16 in June. The current index reading compares with a reading of 17 in July 2009. The index is derived from a survey of builders' perceptions of current single-family home sales and sales expectations for the next six months, categorizing them as “good,” “fair” or “poor.” In addition, the survey asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” The scores for each component are used to calculate the index. A reading more than 50 indicates that more builders view conditions as good than poor. In May, the index reached a three-year high.
The chart below tracks the NAHB index in comparison to the US Census Bureau reports on housing starts:
"We continue to see a lull in home buying activity following the expiration of the federal home buyer tax credit program, as many of the sales that would have occurred this summer were likely pulled forward to meet that program's deadline," said NAHB chairman Bob Jones, a homebuilder in Bloomfield Hills, Mich., in a press statement. "In addition, builders are reporting continuing consumer hesitancy regarding home purchases due to uncertainty in the overall economy and job markets."
Paul Dales, a US economist at the Toronto-based Capitol Economics concurred that the tax credit's expiration is impacting the housing market.
"It is becoming increasing clear that without the government's artificial support, the US housing market is struggling to stand on its own two feet," Dales wrote in commentary Monday. " The fall in the NAHB housing index…shows that demand for new homes has weakened further."
"That is not a surprise — activity was always going to drop as the tax credit meant that demand had been brought forward into the spring from the summer," Dales added. "But the fall in the index from the peak of 22 in May to a 15-month low is striking."
Specific factors contributing to the negative view include hesitation on the part of homebuyers, tight consumer credit and continuing competition from foreclosed and distressed properties, according to NAHB chief economist David Crowe.
"The pause in sales following expiration of the home buyer tax credits is turning out to be longer than anticipated due to the sluggish pace of improvement in the rest of the economy," Crowe said. "We do believe that favorable factors such as low mortgage rates, affordable prices, and demographic trends will help revive consumer demand for new homes this year, and that new home sales will improve by 10% in 2010 from 2009."
In addition to the overall index value, the index for current sales conditions was down two points to 15, and the index of sales expectations was down one point to 21. Perception of prospective traffic declined three points to an index value of 10.
In addition to the drop from May's three-year high to the low last seen in April 2009, the future sales index has declined from 27 to 11 and the traffic of prospective buyers index has dropped from 16 to 10.
"The latter has only ever been lower in the four months after the collapse of Lehman Brothers in September 2009," Dales wrote. "In other words, very few people are ever bothering to have a look at new homes."
Regionally, the Northeast region index was up seven points to 23, but NAHB said that region is smaller than others and the index is more volatile there than other areas. In the Midwest, the index increased one point to 15. The South and West each posted five-point declines to 14 and 9, respectively.
The Census Bureau is expected to release its monthly residential construction report Tuesday morning, which tracks housing starts, permits issued and housing completions for the month of June. Also, on Monday, the real estate brokerage chain ReMax reported on existing home sales for 54 select housing markets. The National Association of Realtors (NAR) will issue its national sampling of existing sales on Thursday.
"Overall, this survey is the first in a number of housing-related releases due this week that we expect to provide even more evidence that the housing market is now enduring a double-dip in activity and eventually prices too," Dales said.
Write to Austin Kilgore.
Buyers looking to close on home sales in time to collect the homebuyer tax credit pushed existing home sales up in June 5.6% compared to the same month a year ago, according to a monthly survey of 54 metro areas conducted by the national brokerage chain ReMax.
In addition, Denver-based ReMax said home sales prices were up 3.5% year-over-year. Compared to May, transaction volume was up 7.2%. The increases were attributed on the tax credit and said despite the increases, the heightened volume will not be sustained. The chart below tracks transaction volume.
"There’s no question, the tax credit has had a significant impact on this market," ReMax CEO Margaret Kelly said in a press release. "No one can predict the future, and we may still see a slight pull back, but for right now it appears that housing is holding its own, hopefully on the road to a sustainable recovery."
The National Association of Realtors (NAR) reported existing home sales decreased 2.2% in May, even though buyers had the opportunity to claim the homebuyer tax credit if they signed a sales contract by April 30. The report represents a sampling of approximately 40% of the nation's multiple listing services (MLS), but the association does not report individual market performance. The June edition of the NAR report is scheduled for release on Thursday.
While overall activity was up, individual market results varied across the country. ReMax tracks MLS data in 54 national real estate markets in its monthly report. Of those markets, 27 — half — had increased transaction counts, while the other half decreased year-over-year. Sales were up by double-digit rates in many Northeast markets including Philadelphia (27%), Boston and Hartford, Conn. (23% each) and Providence, RI (21%).
There were 27 markets that experienced year-over-year price changes in June, two were unchanged and 25 were lower. The weighted average median price for all markets in June was $211,530. California markets experienced the largest median price increases, including San Francisco (18%), Los Angeles (10%) and San Diego (9%), all over June 2009 levels.
The days-on-market average for home national home sales was 81 in June, down from 83 in May and 89 in June 2009. The number of homes for sale was down 5.8% from June 2009, but up 1.2% from May. The average months supply of inventory was 8.5 months, unchanged from May, meaning it would take that long to exhaust the current inventory at the current sales pace. A six-month inventory is considered a balance market.
Write to Austin Kilgore.
