US Housing Prices May Fall Further article from US Mortgage Brokers Association newsletter below
• TSX -248.21 to 10,805(Reuters) every stock market in the world was down yesterday on doubts about the strength of the US economic recovery. TSX closed to its lowest level in 2 months dipping below the 11,000 pt mark
• DOW -119.48 to 9,762 dipped below 10,000 pts as sales of new US homes fell 3.6% last mth against an expected 2.6% rise
• Dollar -1.08c to 92.72 fell to its lowest level in 3 weeks influenced by a dip in oil prices
• Oil -$2.09 to $77.46US per barrel.
• Gold -$4.80 to $1,034.70USD per ounce
Housing Prices May Fall Further
Forbes Magazine from MBA Newslink
A number of factors suggest housing prices could drop another 10%.
Over the past few months, there have been suggestions that the U.S. housing market might finally be bottoming out. Since July, the decline in sales of both new and existing homes has moderated. Moreover, over the past three months, there has been a very modest increase in home prices at the national level as measured by the 20-city S&P/Case-Shiller home price index. However, the high inventory of unsold homes, continuing foreclosures, and double-digit unemployment could mean that housing prices have further to fall.
Reasons for cheer. A number of "green shoots" suggest cause for some optimism:
--Inventory reduction. Whereas housing starts are presently estimated to be running at a 600,000 annual rate, underlying U.S. household formation is presently running at an annual rate of approximately 1.5 million units. Lower residential construction relative to household formation is allowing excessive home inventories to be gradually worked off.
--Cheap mortgages. As a result of the Federal Reserve's highly accommodative monetary policy, and the activity of the government-sponsored home lending enterprises, mortgage rates have declined to more affordable levels. For example, 30-year fixed-rate mortgages have fallen below 5% for the first time in many years.
--Increased affordability. The slide in home values has brought prices more into line with their long-run fundamentals. Since September 2006, U.S. home prices have fallen 27%, bringing prices back to the level prevailing in mid-2003. As a result, the ratios of home prices to rents and of home prices to incomes are now much more in line with historic levels. The index of housing affordability now stands at its most favorable level in the past 20 years.
Reasons for doubt. Despite these "green shoots," there remain a number of factors that suggest that U.S. home prices have not quite hit bottom:
--Inventories historically high. Despite small declines in recent months, the inventory of unsold homes at the national level remains at close to its historic high. A key indication of the degree of excess home inventory is that the number of vacant homes, in which neither an owner nor a renter presently dwells, exceeds its normal level by nearly 1 million units.
--Foreclosure crisis. The United States is presently suffering from a foreclosure crisis that is further adding more homes to a market already characterized by excess inventories. Forward-looking indicators, such as the number of mortgages that are more than 90 days delinquent (i.e., behind payment) suggest that the pace of foreclosures could increase in the months ahead.
--High unemployment. A very weak labor market situation inhibits households from making the long-term financial commitments, such as buying a home. The Labor Department estimates that approximately 16.5% of the labor force is either unemployed or in involuntary part-time employment. At the same time, the huge slack presently affecting the labor market is exerting downward pressure on wage income growth. Most economists--including White House Council of Economic Advisers Chair Christina Romer--do not foresee much improvement in the labor market in 2010.
--Mortgage resets. Next year, approximately $200 billion in "Option ARM" mortgages (adjustable rate mortgages) are due to reset to higher rates. This is likely to add to the foreclosure problem, since these resets will produce a sharp jump in debt service payments.
--Default incentive. Finally, another factor adding to the foreclosure problem is that a growing number of U.S. households now have "negative equity" in their homes (i.e., their mortgage debt exceeds the value of their homes). Since mortgages in most U.S. states are "non-recourse loans" (the lender cannot pursue the borrowers' other assets, beyond the home), negative equity gives homeowners a strong incentive to default on their mortgage loans.
Outlook. The present high level of unsold housing inventories, the poor state of the labor market and the current wave of foreclosures suggest that home prices may have a further 10% to fall (in real terms). This will add to the financial distress facing the banking sector, inhibiting a return to above trend GDP growth in 2010.
Thursday, October 29, 2009
Wednesday, October 28, 2009
Financial Update For Oct. 28, 2009
“a recession is when your neighbour loses his job. Depression is when you lose yours” Ronald Regan
The US recession may be officially over, but…
High dollar `hollowing out' manufacturing economy
Articles below
• TSX -181.34 (Reuters) now that investors have received some reassurance about the 3rd-quarter earnings season, it’s getting harder to maintain the powerful rally that’s been running along since March.“It looks like the bar is pretty high,” said John Johnston, chief strategist, the Harbour Group at RBC Dominion Securities
• DOW +14.21
• Dollar +.08c to 93.80
• Oil +$.87 to $79.55US per barrel.
• Gold -$7.40 to $1,034.70USD per ounce
• • http://www.financialpost.com/markets/market-data/money-yields-can_us.html?tmp=yields-can_us
The recession may be officially over, but recovery is fragile and job losses still mounting
Tom Raum, THE ASSOCIATED PRESS
The Canadian Press, 2009
WASHINGTON - It is about to become official: The U.S. recession is over - but not the pain.
The government will release figures this week expected to show that the economy has awakened from its deepest slump since the 1930s and is in the early stages of a recovery. But the following week, the government will issue another set of figures expected to show unemployment continuing to rise toward and possibly above a clearly recessionary 10 per cent.
How can both be possible?
The government releases third-quarter Gross Domestic Product figures on Thursday. Many forecasters say they will show GDP growing at an annual rate of about 3 per cent, validating a widely held belief among economists that the recession ended in June or July.
But try telling that to the more than 15 million still unemployed, the small businesses and individuals who can't get loans and the people whose homes are worth less than their mortgages.
Assertions by government and private economists that the recession is over - issued amid graphic examples of continuing wide distress - are raising fresh questions about economic scorekeeping.
The national recession may be technically over, but the state of the economy remains in the eyes of the beholder.
Or, as Ronald Reagan liked to say, a recession is when your neighbour loses his or her job. Depression is when you lose yours.
A survey of economic forecasters prepared by Blue Chip Economic Indicators, a research organization, predicted GDP growth to remain positive in each quarter through the end of 2010. In a survey by the National Association of Business Economics, 34 of 43 economists polled said the recession is over.
"From a technical perspective, the recession is very likely over," said Federal Reserve Chairman Ben Bernanke.
"A recession that showed no signs of ending last January appears to be firmly entering the recovery phase," said Christina Romer, the chair of the White House Council of Economic Advisers.
But nobody is sugar coating the statistics, especially in the administration, which agrees with private surveys suggesting that unemployment will hover near 10 per cent through most of next year.
"Even when you've turned the corner, you have so much work to do," Romer told Congress' Joint Economics Committee.
And while she credited much of the turnabout to government stimulus measures and moves by the Fed, she said "by mid-2010, fiscal stimulus will be contributing little to further growth."
Even ahead of the report expected to show an increase in economic growth, The Conference Board, a private Chicago-based research group, reported Tuesday that consumers' confidence about the U.S. economy fell unexpectedly in October as job prospects remained bleak.
That fueled speculation that an already gloomy holiday shopping forecast could worsen. Consumer spending accounts for more than two-thirds of the entire economy.
The economy has lost 7.2 million jobs since the recession began in December 2007, 3.4 million of them since President Barack Obama took office in January.
James K. Galbraith, an economist at the University of Texas at Austin, suggests too much attention is given to when recessions technically begin and not enough to other measures of the economy.
"It's just a word. A recession technically lasts during negative quarters. But that doesn't mean you're back to prosperity once you have positive growth. You're back to prosperity when the unemployment rate is back around 4 per cent," Galbraith said. And that, he said, could take years.
A recession is popularly defined as two or more consecutive quarters of negative economic growth, or declining output.
But a more refined determination is made by the National Bureau of Economic Research, a private group of leading economists charged with dating the start and end of economic downturns. It not only looks at GDP but at employment levels, real personal income, industrial production and wholesale and retail sales.
It put the start date at December 2007 and has not yet called an end.
There have been 11 recessions since World War II. In the two most recent ones, job growth lagged long after the recessions were deemed over. In the most recent two - July 1990-March 1991 and March-November 2001 - the unemployment rate did not fall to prerecession levels for several years.
After the eight-month 2001 recession, the unemployment rate went from a prerecession 4 per cent in 2000 to 4.8 per cent in 2001. Then it kept climbing even higher - to 5.8 per cent in 2002 to 6 per cent in 2003. It didn't return to under 5 per cent until 2006, when it fell to 4.6 per cent.
While there are clear signs of recovery, it is uneven.
Stocks have surged about 50 per cent since their March lows. And a year after Washington rescued the financial industry, some large banks and Wall Street firms have roared back to profitability.
But smaller banks and other businesses are struggling, and many have failed or are failing.
That disconnect sparked anger among the public and led to sweeping government action last week to limit executive compensation at financial firms that accepted federal bailout money.
"While credit may be more available for large businesses, too many small business owners are still struggling to get the credit they need," Obama said in his weekly radio and Internet address. "These are the very taxpayers who stood by America's banks in a crisis - and now it's time for our banks to stand by creditworthy small businesses, and make the loans they need to open their doors, grow their operations and create new jobs."
There have been modest improvements in manufacturing and other parts of the nonfinancial business sector, yet lingering signs of weakness in commercial real estate and retail spending.
Economists suggest some of the expected increase in economic growth is a bounce off the bottom. They attribute it to government stimulus spending, including the now-expired Cash for Clunkers program; accommodative Fed monetary policies and widespread cost-cutting by companies.
Many companies let inventories run down so much that when they ran out, orders picked up. Home resales ticked up as buyers scrambled to complete their purchases before a tax credit for first-time owners expires. And U.S. exporters have benefited from a relentless decline of the dollar that has made U.S. goods cheaper and more competitive overseas.
But none of this adds up to a sustainable upswing.
"Absent robust job growth, it is not a true economic recovery," said White House economic adviser Jared Bernstein.
High dollar `hollowing out' manufacturing economy
Iain Marlow- Toronto StarSpecial Features
Foreign exchange rates are "hollowing out" Canada's already-battered industrial economy and require intervention by the Bank of Canada, CIBC said on Tuesday.
Avery Shenfield, CIBC World Markets' chief economist, argued the soaring loonie could force Canada's bruised manufacturers and exporters to leave the country.
The comments, the latest salvo from intervention advocates, came hours before Bank of Canada Governor Mark Carney appeared in front of the House of Commons committee on finance.
In the short term, Shenfield said, the Bank of Canada is keeping interest rates low to maintain activity in sensitive areas of the economy, such as housing construction. However, in the long term, the strategy will result in permanent damage, he said.
"If businesses are making decisions today about where to locate, which plants to leave open, which to close, and they look at Canada as an expensive place to export from – because our workers are expensive in U.S. dollar terms – then we might lose facilities during this period of Canadian dollar overvaluation," Shenfield told the Star.
Carney has recently talked down the dollar in public statements that seem to be working, since the loonie dropped from 97 cents against the U.S. dollar last week to 93.80 cents on Tuesday.
But he told the committee that although currency was important, it was not a necessary component in keeping inflation rates down.
That makes sense to Eric Lascelles, chief economics and rates strategist at TD Securities, who said it is impossible to fight the recession war with a double front against both the currency and inflation.
"It's quite clear that the Canadian dollar's strength is damaging some sectors of the economy, I don't think that's particularly up for debate," he said.
"Where the issue stands, is whether it's practical to think that one can successfully intervene in the currency."
To alter the currency, the Bank of Canada can buy and sell on foreign exchange markets.
The last time it did so was in 1998, an intervention that Lascelles said was "ultimately unsuccessful."
He added that the bank cannot possibly try to control the currency and the rate of inflation at the same time.
"You're always back to square one, which is not trying to proactively influence the currency, but rather trying to respond to it simply by indicating the consequences when the currency does move," he said.
Carney, according to United Steelworkers economist Erin Weir, is interpreting the bank's role in an overly conservative fashion. Pointing to the Bank of Canada Act's preamble, Weir said Carney and his team have a responsibility not only to regulate macroeconomic policy, but to protect employment.
"Mark Carney has raised the prospect of intervening in currency markets, but seems reluctant to actually do so."
The US recession may be officially over, but…
High dollar `hollowing out' manufacturing economy
Articles below
• TSX -181.34 (Reuters) now that investors have received some reassurance about the 3rd-quarter earnings season, it’s getting harder to maintain the powerful rally that’s been running along since March.“It looks like the bar is pretty high,” said John Johnston, chief strategist, the Harbour Group at RBC Dominion Securities
• DOW +14.21
• Dollar +.08c to 93.80
• Oil +$.87 to $79.55US per barrel.
• Gold -$7.40 to $1,034.70USD per ounce
• • http://www.financialpost.com/markets/market-data/money-yields-can_us.html?tmp=yields-can_us
The recession may be officially over, but recovery is fragile and job losses still mounting
Tom Raum, THE ASSOCIATED PRESS
The Canadian Press, 2009
WASHINGTON - It is about to become official: The U.S. recession is over - but not the pain.
The government will release figures this week expected to show that the economy has awakened from its deepest slump since the 1930s and is in the early stages of a recovery. But the following week, the government will issue another set of figures expected to show unemployment continuing to rise toward and possibly above a clearly recessionary 10 per cent.
How can both be possible?
The government releases third-quarter Gross Domestic Product figures on Thursday. Many forecasters say they will show GDP growing at an annual rate of about 3 per cent, validating a widely held belief among economists that the recession ended in June or July.
But try telling that to the more than 15 million still unemployed, the small businesses and individuals who can't get loans and the people whose homes are worth less than their mortgages.
Assertions by government and private economists that the recession is over - issued amid graphic examples of continuing wide distress - are raising fresh questions about economic scorekeeping.
The national recession may be technically over, but the state of the economy remains in the eyes of the beholder.
Or, as Ronald Reagan liked to say, a recession is when your neighbour loses his or her job. Depression is when you lose yours.
A survey of economic forecasters prepared by Blue Chip Economic Indicators, a research organization, predicted GDP growth to remain positive in each quarter through the end of 2010. In a survey by the National Association of Business Economics, 34 of 43 economists polled said the recession is over.
"From a technical perspective, the recession is very likely over," said Federal Reserve Chairman Ben Bernanke.
"A recession that showed no signs of ending last January appears to be firmly entering the recovery phase," said Christina Romer, the chair of the White House Council of Economic Advisers.
But nobody is sugar coating the statistics, especially in the administration, which agrees with private surveys suggesting that unemployment will hover near 10 per cent through most of next year.
"Even when you've turned the corner, you have so much work to do," Romer told Congress' Joint Economics Committee.
And while she credited much of the turnabout to government stimulus measures and moves by the Fed, she said "by mid-2010, fiscal stimulus will be contributing little to further growth."
Even ahead of the report expected to show an increase in economic growth, The Conference Board, a private Chicago-based research group, reported Tuesday that consumers' confidence about the U.S. economy fell unexpectedly in October as job prospects remained bleak.
That fueled speculation that an already gloomy holiday shopping forecast could worsen. Consumer spending accounts for more than two-thirds of the entire economy.
The economy has lost 7.2 million jobs since the recession began in December 2007, 3.4 million of them since President Barack Obama took office in January.
James K. Galbraith, an economist at the University of Texas at Austin, suggests too much attention is given to when recessions technically begin and not enough to other measures of the economy.
"It's just a word. A recession technically lasts during negative quarters. But that doesn't mean you're back to prosperity once you have positive growth. You're back to prosperity when the unemployment rate is back around 4 per cent," Galbraith said. And that, he said, could take years.
A recession is popularly defined as two or more consecutive quarters of negative economic growth, or declining output.
But a more refined determination is made by the National Bureau of Economic Research, a private group of leading economists charged with dating the start and end of economic downturns. It not only looks at GDP but at employment levels, real personal income, industrial production and wholesale and retail sales.
It put the start date at December 2007 and has not yet called an end.
There have been 11 recessions since World War II. In the two most recent ones, job growth lagged long after the recessions were deemed over. In the most recent two - July 1990-March 1991 and March-November 2001 - the unemployment rate did not fall to prerecession levels for several years.
After the eight-month 2001 recession, the unemployment rate went from a prerecession 4 per cent in 2000 to 4.8 per cent in 2001. Then it kept climbing even higher - to 5.8 per cent in 2002 to 6 per cent in 2003. It didn't return to under 5 per cent until 2006, when it fell to 4.6 per cent.
While there are clear signs of recovery, it is uneven.
Stocks have surged about 50 per cent since their March lows. And a year after Washington rescued the financial industry, some large banks and Wall Street firms have roared back to profitability.
But smaller banks and other businesses are struggling, and many have failed or are failing.
That disconnect sparked anger among the public and led to sweeping government action last week to limit executive compensation at financial firms that accepted federal bailout money.
"While credit may be more available for large businesses, too many small business owners are still struggling to get the credit they need," Obama said in his weekly radio and Internet address. "These are the very taxpayers who stood by America's banks in a crisis - and now it's time for our banks to stand by creditworthy small businesses, and make the loans they need to open their doors, grow their operations and create new jobs."
There have been modest improvements in manufacturing and other parts of the nonfinancial business sector, yet lingering signs of weakness in commercial real estate and retail spending.
Economists suggest some of the expected increase in economic growth is a bounce off the bottom. They attribute it to government stimulus spending, including the now-expired Cash for Clunkers program; accommodative Fed monetary policies and widespread cost-cutting by companies.
Many companies let inventories run down so much that when they ran out, orders picked up. Home resales ticked up as buyers scrambled to complete their purchases before a tax credit for first-time owners expires. And U.S. exporters have benefited from a relentless decline of the dollar that has made U.S. goods cheaper and more competitive overseas.
But none of this adds up to a sustainable upswing.
"Absent robust job growth, it is not a true economic recovery," said White House economic adviser Jared Bernstein.
High dollar `hollowing out' manufacturing economy
Iain Marlow- Toronto StarSpecial Features
Foreign exchange rates are "hollowing out" Canada's already-battered industrial economy and require intervention by the Bank of Canada, CIBC said on Tuesday.
Avery Shenfield, CIBC World Markets' chief economist, argued the soaring loonie could force Canada's bruised manufacturers and exporters to leave the country.
The comments, the latest salvo from intervention advocates, came hours before Bank of Canada Governor Mark Carney appeared in front of the House of Commons committee on finance.
In the short term, Shenfield said, the Bank of Canada is keeping interest rates low to maintain activity in sensitive areas of the economy, such as housing construction. However, in the long term, the strategy will result in permanent damage, he said.
"If businesses are making decisions today about where to locate, which plants to leave open, which to close, and they look at Canada as an expensive place to export from – because our workers are expensive in U.S. dollar terms – then we might lose facilities during this period of Canadian dollar overvaluation," Shenfield told the Star.
Carney has recently talked down the dollar in public statements that seem to be working, since the loonie dropped from 97 cents against the U.S. dollar last week to 93.80 cents on Tuesday.
But he told the committee that although currency was important, it was not a necessary component in keeping inflation rates down.
That makes sense to Eric Lascelles, chief economics and rates strategist at TD Securities, who said it is impossible to fight the recession war with a double front against both the currency and inflation.
"It's quite clear that the Canadian dollar's strength is damaging some sectors of the economy, I don't think that's particularly up for debate," he said.
"Where the issue stands, is whether it's practical to think that one can successfully intervene in the currency."
To alter the currency, the Bank of Canada can buy and sell on foreign exchange markets.
The last time it did so was in 1998, an intervention that Lascelles said was "ultimately unsuccessful."
He added that the bank cannot possibly try to control the currency and the rate of inflation at the same time.
"You're always back to square one, which is not trying to proactively influence the currency, but rather trying to respond to it simply by indicating the consequences when the currency does move," he said.
Carney, according to United Steelworkers economist Erin Weir, is interpreting the bank's role in an overly conservative fashion. Pointing to the Bank of Canada Act's preamble, Weir said Carney and his team have a responsibility not only to regulate macroeconomic policy, but to protect employment.
"Mark Carney has raised the prospect of intervening in currency markets, but seems reluctant to actually do so."
Tuesday, October 27, 2009
Financial Update For Oct. 27, 2009
• TSX -147.25(Reuters) after an early morning surge as investors, who have been dithering over further gains for days, took confusion over the U.S. homebuyer tax credit as excuse to sell and lock in profits
• DOW -104.22
• Dollar -1.35c to 93.72 to the lowest level in almost three weeks as the head of the nation's central bank reiterated concern the currency has grown too strong and crude oil and stocks tumbled.
• Oil -$1.82 to $78.68US per barrel. on concerns that a sluggish economic recovery will keep fuel demand low.
Gold -$13.50 to $1,042.10USD per ounce
• DOW -104.22
• Dollar -1.35c to 93.72 to the lowest level in almost three weeks as the head of the nation's central bank reiterated concern the currency has grown too strong and crude oil and stocks tumbled.
• Oil -$1.82 to $78.68US per barrel. on concerns that a sluggish economic recovery will keep fuel demand low.
Gold -$13.50 to $1,042.10USD per ounce
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