From the Wall Street Journal:
Does Canary In U.S. Economy Nest in Florida?
May 14, 2007; Page C1
the housing-market shakeout has an epicenter, it probably lies in Florida. For companies with business tied closely to the state, that is a problem.
During the boom, home prices around Miami and Tampa ran up faster than almost anywhere in the country. Goldman Sachs economists note that speculative buyers in houses and, especially, condos fed a building boom that pushed Florida’s housing stock up far more quickly than the state’s population grew. Now, Goldman says, investors better watch Florida’s woes carefully. Florida’s real-estate market was probably already set up for a hangover. Then 2005’s tough hurricane season made matters much worse by pushing up insurance rates along the coast.
Speculators who have held back on selling now bear heavy costs. According to the U.S. Commerce Department, the number of vacant homes for sale in Florida doubled last year to 4.3% of the state’s total housing stock. That’s the highest vacancy rate in the country. As more speculators throw in the towel, Florida housing prices may have much farther to fall.
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Florida has little in the way of exports, and so it is unlikely to get much help from strong global economic growth, says Goldman economist Jan Hatzius. He doesn’t think the housing downturn is enough to push the whole U.S. economy into recession, but it could be a “canary in the coal mine” of trouble in regional economies.
From the Wall Street Journal:
Mortgage Woes Force Banks To Take Hits to Sell Homes
By JAMES R. HAGERTY
May 14, 2007; Page A2
An auction of nearly 100 foreclosed homes here Saturday showed that mortgage lenders are having to accept huge discounts in some cases to unload such properties.
A surge of foreclosures over the past year or so has left lenders struggling to sell a growing backlog of homes. Rather than relying on real-estate agents, the usual practice, some are turning to large-scale auctions to speed up the sale process.
Real Estate Disposition Corp., the Irvine, Calif., company that organized Saturday’s auction of lender-owned homes, plans similar sales May 19 in Los Angeles and May 20 in Riverside, Calif.
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At the San Diego sale, houses and condos typically sold for about 30% below the previous sale or appraisal prices. In a few cases, the discounts were around 50%.
Watch this==> http://www.cbsnews.com/sections/i_video/main500251.shtml?id=2796105n
Housing expert Shilling says WW recession
House of cards or solid foundation?
THE SAVAGE TRUTH | What will housing slowdown do to the economy?
May 14, 2007
TERRY SAVAGE savage@suntimes.com
Alan Greenspan said he was puzzled about why the sub-prime mortgage mess hadn’t had a greater impact on the economy. That was last month.
The latest economic data show that indeed the combined crunch of higher mortgage payments and higher energy prices are sapping economic growth.
A chilling effect
Clearly, the mortgage mess impacts all homeowners, even indirectly. If the house down the block is sold at a foreclosure auction, how much is your home worth? That thought is chilling for millions of Americans who count their home as their most important asset — both financially and psychologically.
How far can home prices fall? It depends on which economist you ask. Months ago, Robert Aliber, retired University of Chicago economics professor, told me home prices would drop 30 percent. The forecast was so shocking that I hesitated to print it.
The latest gloomy forecast — backed up by compelling data — comes from Gary Shilling, frequently bearish, but even more frequently correct. To be blunt, Shilling is forecasting a drop of 40 to 50 percent in home prices in the more overpriced areas such as California, Florida and Las Vegas, and the ordinary homeowner, he says, could see a decline of 10 to 15 percent in the value of a suburban home.
Shilling’s forecast is based on the historic value of homes, adjusted for what he calls the “McMansion effect” of today’s larger homes being worth more. Using historical data compiled by Robert Shiller, he says home prices would have to drop 45 percent to get back to their historic normal levels.
Existing-home prices peaked in October 2005, and are down about 4 percent on a national basis through March 2007. But Shilling says the worst is yet to come, because he estimates it takes about 18 months from when home prices first start to slide for homeowners to recognize that this is not a fleeting blip.
Now the “interval of denial” is about over, and homeowners will start realizing that if they want to sell, they’ll have to cut prices, Shilling says.
Even worse, he says there is no way this problem can be confined to the housing market. He estimated that overbuilding has resulted in at least two million “excess” homes — a factor that will depress not only home building, but related industries in the coming years. Already, housing starts have fallen 33 percent from their peak of 2.265 million in January 2006 to 1.518 million in March. Shilling predicts an additional 25 percent decline in housing starts, and says there is no way that capital spending by businesses can pick up the slack. Ugh!
Shilling predicts “an American recession to commence later this year, and to extend globally in 2008.” Time will tell. And that’s The Savage Truth.