Tuesday, March 30, 2010

Housing Market: Finding its Way Back
(Part 2)

Although the housing market is lagging behind the economy, there are particular states with several markets that are lagging behind the national housing recovery ; i.e., Florida, Las Vegas, California, Michigan, Arizona, Illinois, New Jersey . The first quarter of 2010 is looking more glum than experts anticipated. Homes which Banks have started foreclosure or repossessed is up 2.2% year over year. That number increases 5 times that rate in some of the aforementioned markets. Keep in mind that the government programs to save home owners from the dreaded foreclosure were targeting low-income home owners, which left the middle class home owner hanging with little or no assistance. According to the First American Core Logic, (data firm that tracks 97% of U.S. Mortgage Transactions) there are 5 million mortgages that are delinquent, and 36% of them are over 180 day late. Further 1 out of 14 homes meet the criteria for foreclosure. That marks a fairly steep increase from 1 in 22 homes during the same period last year. We are facing the second wave of foreclosures, and appear to be in the eye of the storm. Lastest numbers out last week indicate that there are 11 million home owners who currently owe more on their home than they are worth. America, we should prepare ourselves for an even longer road to recovery where the housing housing is concernec.

Help is on the way. This past Friday, the federal government announced that they were adding a new series of programs to assist struggling home owners who have run out of options. David Stevens, commissioner of the Federal Housing Administration stated “We’re walking that delicate balance to make sure these solutions are sustainable and not temporary,” speaking of the new efforts the FHA is taking to get the housing market back on its feet, while helping homeowners stay in their homes. The programs are extensive, but there is a vital program that addresses the upside-down mortgage issue facing millions of Americans. With this Program. homes will we refinanced at 97% of the home actual values, which will significantly lower mortgage payments for homeowners. Will will also mean forgiveness of debt, which in essence homeowners bailout. Who says the government only thinks about saving the large corporations?
F.H.A. will likely use the $14 billion pay for mortgage insurance and cover a large portion of the write downs, so that lenders are not carrying the loss. There quite a few new programs on tap to help numb the pain for home owners. Nevertheless, the initial reaction to the refinancing program among lenders is less than enthusiastic. The F.H.A. may have to sweetin' the deal for lenders bolster their interest in making it work. Lets face it, if the lenders are not on board, it's just hot air. As the general economy gradually bounces back, the housing industry will need a lot more time to find its way back. see Part 1

K. Reilly
Cohn-Reilly Report

Tuesday, March 23, 2010

Greek Crisis Update

The latest on Greece is the country may leave the euro zone and adopt a new currency -- a Greek euro - something of a cross between a drachma and a euro to be used only internally. Some humorous economists have jokingly given the new money a nickname: the "Gyro."

A bailout from the European Union or its partner countries is growing increasingly unlikely. German Chancellor Angela Merkel just stopped all possibilities of future discussions of this topic at the upcoming EU Summit. While the International Monetary Fund is ready to help, it is unlikely the EU would allow its aid, and stigma, to affect the other Euro nations. As a member of a currency union, Greece is "stuck in a eurozone straightjacket," writes economist Desmond Lachman of the American Enterprise Institute. Its options to dispose of its debt are limited: a default is not politically viable, a restructuring is unworkable, and currency devaluation to make the mess go away -- a tactic Argentina used in 2001 -- is impossible. To remain in the EU, Greece must accept its rules in good times, and in bad. If Greece thinks it's trapped in a bad marriage, it could choose to leave the eurozone, but that would be a shocking development, one that Prime Minister George Papandreou insists is not on the table.

As the crisis deepens, Greece's "leaving the Euro area, though still a low probability scenario, can no longer be ruled out," says Uri Dadush, the director of Carnegie International Economics Program. "It's a painful route, but a lot less painful than others." Greeks are starting to wonder what a euro-less future might look like. One possible roadmap: copying California's 2009 debt solution of issuing warrants later redeemable for dollars. The proposal by London School of Economics' Charles Goodhart and Oxford Said Business School's Dimitrios Tsomocos, would introduce a new way to pay debts inside Greece. The same may hold true for the other countries in crisis such as Spain, Portugal, and possibly Italy while leaving the euro in place for international transactions. Interestingly, along with Greece, these countries combined are known appropriately as P.I.G.S. in certain circles.

Public unrest in Greece over the austerity measures is increasing in intensity: “They’ve ruined us, these measures,” complained Thanassis Apostolakis, a mover, referring to the government’s austerity plan. “Even these are getting expensive,” Mr. Apostolakis said, tossing a half-smoked cigarette — now subject to higher tobacco taxes — in the gutter next to his truck.
There is no question that Greece is in for several years of slumping incomes, slower growth and social strife as the government slashes spending to reduce its huge budget deficit. Anastassios Haros, who owns a women’s clothing store in Athens, said his sales had fallen by about half over the past few months. “Consumers have been bombarded by messages of doom,” he said. “Even if they have some cash in their pocket they’re not going to spend it.” Alexandros Douvanas, a 38-year-old nurse — and union leader — at a public children’s hospital in Athens, said he might be forced to consider a job in the private sector if things got much worse. He is facing a wage freeze and a 12 percent cut to vacation pay, as well as higher costs of living because the value-added sales tax is going up by two percentage points, to 21 percent. “I make €1,100 a month,” he said, an amount equivalent to $1,490. “I don’t have a lot room for maneuver.”

The Greek Central Bank warned Monday that growth this year could slump 2 percent. The runaway spending that provoked Greece’s debt crisis and unsettled markets worldwide is a symptom of much deeper problems, including an uncompetitive economy, rampant tax evasion and a bloated civil service that invites corruption. However, though it is barely visible from today’s perspective, there may also be an upside to Greece’s predicament: Things are so bad that even a little reform would go a long way to stimulate economic growth — if the government can maintain public support. Greek leaders, who were slammed by the debt crisis shortly after taking office late last year, insist the country is ready for change.

C. Cohn
The Cohn-Reilly Report

Sources: CNN, The New York Times

Wednesday, March 17, 2010

Housing Market: Finding its Way Back

Much ink has been usurped on articles, reports and analysis about the housing market over the past 18 months. Like many other industry speculators, I’m inclined to believe the worst is behind us with respect to the economy. As far as the housing market is concerned, an industry come back is much more complex. Why….simply because we have to consider so many factors before we can to determine where the Industry is headed - for example: home values, the credit availability, interest rates, government programs,tax incentives, and unemployment. All of these elements impact the home owners ability to pay their mortgage, or the borrower’s access to credit, and their ability to purchase a home, or keep the one they’re in.

It has been reported that over two trillion dollars in bad mortgages will never be repaid. As housing prices continued to fall, analysts speculate that recovery in the housing market may be nearly five years away. Investors are not likely to want mortgage-backed securities from Fannie Mae - particularly if their loans are risky. Therefore, days where banks blindly loaned to home buyers with low credit criteria are long gone. This is not exclusive to subprime loans. All mortgages will be difficult obtain for while.

Much like the Cash for Clunkers program, the housing program offering an $8,000 tax credit to First-Time Home Buyers, was a great success. Increased housing sales in 2009, may have initially created false hope that the market was on the rise. As it turns out, 80% of FHA mortgages were First-Time Home Buyers taking advantage of the tax incentive. We can expect that once the First-Time Home Buyers program expires, home sales will fizzle. The Spring season normally renews hope in the housing market as sales and home values tend to increase during this time. Unfortunately, the market is not illustrating any signs that this trend will be realized this spring season. Part 1-of-2

- K. Reilly
Cohn-Reilly Report

Wednesday, March 10, 2010

Gas Pump Prices are Creeping up Again

Good news for energy companies – bad news for the consumer. Prices at the pump are increasing, with the average national price for a gallon of gasoline jumping 5 cents in the last week, to just above $2.75. “That’s a drag on the economy,” said Tom Kloza, chief oil analyst at the Oil Price Information Service, who estimated that consumers were paying just over $1 billion a day at the pump, about $250 million more than this time a year ago. Kloza predicts, as well as the The Energy Information Administration, that gasoline prices will top out this month at about $3 a gallon nationally and $3.25 in California.

Part of the increase in gasoline prices is seasonal. Prices typically go up in the spring as refiners switch to more expensive blends of gasoline. Demand usually picks up as motorists emerge from hibernation and hit the road. However, other factors are contributing to the rise - optimism about the economy, new tensions in oil-producing Nigeria and reports that China intends to build up its strategic reserves have pushed oil prices this week to around $82, about a $10 increase in the last month.

Gasoline accounts for about 4 percent of the typical family's budget,but consumers tend to pay the increase at the pump instead of driving less. That leaves less to spend on clothing and other household purchases. Sung Won Sohn, an economics professor at the Smith School of Business at California State University, lowered his forecast for U.S. economic growth to 3 percent, from 3.2 percent, because of the anticipated rise in energy costs.” Higher gasoline prices are like a tax that depresses overall consumer spending",he said.

Don’t expect gas prices to test the $4 per gallon level, as it did in 2008. To get to even $3.50, you need crude prices near $120 or $125 per barrel; numbers that are not probable for 2010. Even so, as we reach $3 a gallon, it is sure to take a bite out of the average consumer’s pocket.

C. Cohn

Sources: Associated Press, NY Times, LA Times

Tuesday, March 2, 2010

Bankruptcies Spike in '09: Wall St., Main St.

Part 2-of-2
Market analysts anticipated that 2009 filings would challenge the record set in 2001, which was directely related to the Dot Com bust. In 2001, there were 383 public companies that went bankrupt. The total number of corporate filings in 2009 were surprising not record setting, but in fact, more than 100 shy of the 2001 record. That certainly puts the matter into perspective on some level. Recent banckruptcy data illustrates the rate of corporate filings began to slow down during the last quarter of 2009, which may be a positive indication that corporate finances are beginning to stabilize. On a more cautious note, however, it could be argued that this is merely a temporary lull. Lets hope that this is not the case.
Economic fundamentals suggest that bankruptcy rates usually lag behind other economic indicators. Therefore, it will be at least another six months before we begin to really see steady decrease in filing for businesses. Case in point: the recent manufacturing numbers reportedly showed a strong turnaround, and the unemployment rate did actually dipped below 10% two weeks ago. Although the financial markets continue to fluctuate, the manufacturing and onsumer spending reports depicted much needed traction, and offer a glimmer of hope that the economy is beginning to breath on its own.
Part 2 of 2
Back to Part 1

- K. Reilly
Cohn-Reilly Report