Bailout!

Posted on September 8, 2008 by grim

From the WSJ:

U.S. Seizes Mortgage Giants
Government Ousts CEOs of Fannie, Freddie;
Promises Up to $200 Billion in Capital
By JAMES R. HAGERTY, RUTH SIMON and DAMIAN PALETTA
September 8, 2008; Page A1

In its most dramatic market intervention in years, the U.S. government seized two of the nation’s largest financial companies, taking direct responsibility for firms that provide funding for around three-quarters of new home mortgages.

Treasury Secretary Henry Paulson announced plans Sunday to take control of troubled mortgage giants Fannie Mae and Freddie Mac and replace the companies’ chief executives. The Treasury will acquire $1 billion of preferred shares in each company without providing immediate cash, and has pledged to provide as much as $200 billion to the companies as they cope with heavy losses on mortgage defaults. The Treasury’s plan puts the two companies under a conservatorship, giving management control to their regulator, the Federal Housing Finance Agency, or FHFA.

With that, the U.S. mortgage crisis entered a new and uncharted phase, potentially saddling American taxpayers with billions of dollars in losses from home loans made by the private sector. Bush administration officials argued that the cost of doing nothing would be far greater because of the toll on the economy of falling home prices and defaults in the $11 trillion U.S. mortgage market.

Mr. Paulson noted that more than $5 trillion of debt and mortgage-backed securities issued by Fannie and Freddie is owned by central banks and other investors world-wide. “Failure of either of them would cause great turmoil in our financial markets here at home and around the globe,” Mr. Paulson said.

From CNBC:

Government Takes Control of Fannie, Freddie

The Government on Sunday seized control of mortgage finance companies Fannie Mae and Freddie Mac, launching what could be its biggest federal bailout ever, in a bid to support the U.S. housing market and ward off more global financial market turbulence.

Officials were concerned mounting losses at the two companies, which own or guarantee almost half of the country’s $12 trillion in outstanding home mortgage debt, was sapping their vitality and threatening to undermine them at a time other sources of housing finance have largely run dry.

“Our economy and our markets will not recover until the bulk of this housing correction is behind us,” U.S. Treasury Secretary Henry Paulson said at a news conference. “Fannie Mae and Freddie Mac are critical to turning the corner on housing.”
…
Paulson said Fannie Mae and Freddie Mac were so large that “a failure of either of them would cause great turmoil in our financial markets here at home and around the globe.”

Several analysts said the move should help instill some confidence in shaky credit markets and lower mortgage costs.

“The government had to do something to eliminate uncertainty,” said Peter Goldman, a principal with Front Barnett Associates in Chicago. “Anything that eliminates uncertainty in the credit markets is a good thing.”

Posted in Economics, Housing Bubble, National Real Estate | 363 Comments

Weekend Open Discussion

Posted on September 5, 2008 by grim

This is the time and place to post observations about your local areas, comments on news stories or the New Jersey housing market, open house reports, etc. If you have any questions you wanted to ask earlier in the week but never posted them up, let’s have them. Also a good place to post suggestions, requests for information, criticism, and praise.

For readers that have never commented, there is a link at the top of each message that is typically labelled “[#] Comments“. Go ahead and give that a click, you might be missing out on a world of information you didn’t know about. While you are there, introduce yourselves to everyone.

For new readers that have only read the messages displayed on the main page, take a look through the archives, a substantial amount of information has been put online in the past year. The archives can be accessed by using the links found in the menus on the right hand side of the page.

Posted in General | 640 Comments

September Beige Book

Posted on September 4, 2008 by grim

From the WSJ:

Consumer-Spending Slowdown Weighs on Economy
Fed’s ‘Beige Book’ Cites Job Losses; Prices to Stabilize
By KELLY EVANS
September 4, 2008; Page A4

Consumer spending across the country is weakening, a roundup of reports from the Federal Reserve shows, while price pressures continue to plague a wide swath of industries.

The Fed’s “beige book,” a survey of economic conditions from the 12 regional Fed banks released every six weeks, shows that economic activity has weakened across most of the country since late July.

Eric Rosengren, president of the Federal Reserve Bank of Boston, expressed his concern about the economic outlook in a speech Wednesday. “Over the course of this summer it became clear that the economic headwinds have not subsided as hoped,” he said.

Businesses, according to the beige book, reported a notable slowdown in consumer spending, the largest driver of U.S. economic growth. That suggests the third quarter is off to a rough start. On a quarterly basis, consumer spending hasn’t declined since the 1990-91 recession; forecasters caution it could now do so because of a shaky labor market and ongoing weakness in the housing and credit markets.
…
The report also found that labor-market conditions were weak in most regions of the country and that wage increases were moderate at best, adding to the strain on consumers. The unemployment rate this year has risen to 5.7% from 4.9% as nearly half a million jobs have been lost, according to the Labor Department. The latest employment report will be released on Friday and is expected to show further job losses and perhaps another rise in the unemployment rate.
…
Commercial real-estate activity, which includes office and retail space, has for the past year helped offset the crumbling housing market, but it is increasingly showing signs of strain. The beige book shows that commercial real-estate activity has “moved down or remained weak in all Districts except Dallas” since late July. Many regions noted softening demand, a decline in leasing activity, rising vacancies and slowing construction activity.

From the Federal Reserve:

Beige Book, Second District — New York

The Second District’s economy has shown signs of stabilizing since the last report, though not in all sectors. Manufacturers report that business activity has steadied in recent weeks, after weakening for a number of months, and factories continue to report fairly widespread increases in both input costs and selling prices. Contacts at non-manufacturing firms generally also report some stabilization in business conditions but continue to indicate modest declines in employment. Consumer confidence was reported to be at record lows in July. Still, retail sales remained on or close to plan in July and early August, and were up slightly from a year earlier; moreover, tourism activity in New York City has firmed. Housing markets have been mixed but generally softer, and office markets have slackened. Finally, bankers report weakening demand for both residential and commercial mortgages, widespread declines in refinancing activity, continued tightening in credit standards, and increasing delinquency rates on home mortgages.
…
Housing markets in the District have been steady to weaker. Manhattan’s rental market has slackened somewhat: average asking rents were reported to be running 2 to 4 percent lower in July and August than a year earlier, and the rental vacancy rate, though still below 2 percent, is reported to have climbed noticeably over the past year. A major appraisal firm reports some further softening in Manhattan’s co-op and condo market: sales activity has been increasingly sluggish, with resale prices flat to weaker. A growing number of deals are said to be falling through, due to difficulty in getting financing–largely at the middle of the market. The sales market has weakened more noticeably in Brooklyn and Queens, as well as in eastern Long Island.

On a more positive note, a contact monitoring New Jersey’s housing industry reports that the resale market has shown signs of stabilizing, though at a weak level, especially for single-family homes. Inventories of unsold existing homes have declined in northern New Jersey, as many discretionary sellers have taken their homes off the market and other sellers have become more negotiable. Both prices and sales volume have leveled off, though they remain lower than a year ago. Concerns over foreclosures are noted, though their absolute number is described as relatively low.

Posted in Economics, National Real Estate, New Jersey Real Estate | 332 Comments

“This is happening across the five boroughs, across the US”

Posted on September 2, 2008 by grim

From the Financial Times:

Manhattan shows first cracks

As the US housing slump deepened over the past three years, Manhattan’s real estate market seemed immune. Instead of crumb­ling with the rest of the nation, prices continued to rocket. Sales surged and new condominiums found multiple bidders. For a long while, Manhattan property was in an orbit all of its own.

But there are growing signs that this last bastion may be giving way. New York City, the seemingly indestructible foundation of the nation’s luxury property market, has this year begun to shown signs of strain. In the second quarter, traditionally the hottest property season, sales slumped 38 per cent to a five-year low, according to the Corcoran Group, the city’s largest residential real estate group.

“Two years ago, you could throw up some brick, put in a kitchen and a bath, put a price on it, and you’d have a bidding war,” says Pamela Liebman, Corcoran’s chief executive. “That’s not the case any more. Buyers now feel that a property they want today could cost less tomorrow.”
…
According to Miller Samuel, a New York residential real estate appraisal company, some 6,869 apartments were for sale in Manhattan in the second quarter. That is 11 per cent more than the first quarter – and a full 31 per cent more than the second quarter of last year.

While some of the rise results from new developments coming on line, much of the latest increase has to do with existing co-operative properties sitting around for months on end. Co-op inventory, which mostly consists of resales, rose at a quicker pace than condo stock did in the second quarter.

In another disturbing sign, homes are staying on the market for longer. Miller Samuel reports that, from April through June, properties were listed for an average of 135 days – nearly three weeks longer than in the same period last year. “We may go through a cycle now where product will sit on the market,” Ms Liebman says. “There’s little room for error in a market like this.”
…
But as yet there is no sign of let-up and the grim mood in Manhattan has spread throughout the region. Consider the softness recently seen in the Hamptons, the Long Island beach retreat whose fate is closely tied to the fortunes of Wall Street. According to data compiled by Suffolk Research Service, the market saw both price declines and slower sales in the second quarter than in the same period last year.

The price drops were even steeper for these beach homes, whose median price fell 11 per cent to $735,000, from $825,000 last year. What is more, volume took a hit for the fourth straight year. Only 576 homes sold in the second quarter, a 29 per cent drop from last year.

Posted in Economics, Housing Bubble, National Real Estate | 269 Comments

Weekend Open Discussion

Posted on August 29, 2008 by grim

This is the time and place to post observations about your local areas, comments on news stories or the New Jersey housing market, open house reports, etc. If you have any questions you wanted to ask earlier in the week but never posted them up, let’s have them. Also a good place to post suggestions, requests for information, criticism, and praise.

For readers that have never commented, there is a link at the top of each message that is typically labelled “[#] Comments“. Go ahead and give that a click, you might be missing out on a world of information you didn’t know about. While you are there, introduce yourselves to everyone.

For new readers that have only read the messages displayed on the main page, take a look through the archives, a substantial amount of information has been put online in the past year. The archives can be accessed by using the links found in the menus on the right hand side of the page.

Posted in General | 457 Comments

“[P]eople have to be realistic to expect what to sell their house for.”

Posted on August 28, 2008 by grim

From the Central Jersey Register News:

Expert: Housing woes may last through late ‘09

The local housing market has followed its expected downward course this year, and predictions it would begin to recover about this time have proved overly optimistic.

Many in the industry agree that prices are approaching or have already hit rock bottom, but there is some dissent on how much things will worsen before they improve.

Between the second quarter of 2007 and the same period this year, existing single-family home prices dropped just over 3 percent statewide, and sales dropped 18.53 percent, according to the New Jersey Association of Realtors’ Home Sales Report. Figures for the second quarter of 2008 were released this week and are preliminary.

Locally, prices throughout Burlington County dropped just over 4 percent since this time last year, and sales went down 15 percent.
…
“I guess it’s déjà vu from 2007,” said Bill Dressel, executive director of the New Jersey State League of Municipalities. “The housing market and development in general as it relates to the public/private sector partnership has gone south.”
…
“We are fighting our way through a recessionary period as it relates to low housing starts and just a dismal financial picture as it relates to the business community overall,” he said.

Joseph Seneca, professor at Rutgers Edward J. Bloustein School of Planning and Public Policy said there were some encouraging signs in the New Jersey real estate market, including a statewide increase in home sales in recent months, a fairly constant level of unsold inventory, and a slow decrease in prices, which he said probably helps the market.

But he emphasized the starker picture for the national economy, which he said has a large impact on the state. Rises in mortgage prices, credit standards and the large, if fairly stable, inventory of unsold houses are all national issues. So are the financial problems of large institutions, which he said have “no end in sight.”

“There are lots of foreclosures continuing nationally, and that adds more inventory to the market,” Dr. Seneca said. “House prices continue to fall, creating negative conditions for equity for homeowners.

“Foreclosures will continue to rise, and a good amount of the sales we’ve seen, particularly of existing homes, are fire sales of foreclosed homes being conducted by banks. So the housing market remains on a downward trajectory and prices are likely to continue to erode into 2009, nationally and in New Jersey.”
…
Experts generally agreed that the market is attractive for buyers with good credit who did not buy a house recently. “If you have equity in your home and we can price your house to sell, we can sell your home,” said Jeanne Roveda, broker/president of Century 21 B&R Realty in Upper Freehold. “Have prices adjusted? Yes, they obviously have. If you bought your house in 2005, 2006 or 2007, you may not be able to get what you paid for it.”

“We’re actually at a much slower market than 12 months ago,” said Donna Reichert, one of the owners of Coldwell Banker Winzinger Reichert and Associates on Route 130 in Bordentown. She estimated prices had fallen 20 percent in the area.

She added that things have picked up in recent weeks, “but people have to be realistic to expect what to sell their house for.”
…
Dr. Seneca’s forecast was slightly bleaker than those expressed by real estate agents. He said that others’ previous predictions of an economic turnaround in the second half of this year has been “postponed,” possibly to the last six months of 2009.

“And a big reason for that is the housing market hasn’t recovered, and with these negative factors,” he said, “the near-term outlook is for further weakness.

“I think there’s more correction in prices to come because of the very large inventory on the market and the still-increasing number of foreclosures putting more supply on the market, both nationally and in New Jersey,” Dr. Seneca said.

Posted in Economics, Housing Bubble, New Jersey Real Estate | 168 Comments

NY Metro Area Home Prices down 7.3% YOY

Posted on August 27, 2008 by grim

From the AP:

S&P: Home prices drop by record amount in 2Q

A widely watched index released Tuesday showed home prices dropping by the sharpest rate ever in the second quarter, but the data for June suggest the severity of the housing slump may be waning.

The Standard & Poor’s/Case-Shiller U.S. National Home Price Index tumbled a record 15.4 percent during the quarter from the same period a year ago.

The monthly indices also clocked in record declines. The 20-city index fell by 15.9 percent in June compared with a year ago, the largest drop since its inception in 2000. The 10-city index plunged 17 percent, its biggest decline in its 21-year history.

However, the rate of single-family home price declines slowed from May to June, a possible silver lining, the index creators said.

“While there is no national turnaround in residential real estate prices, it is possible that we are seeing some regions struggling to come back, which has resulted in some moderation in price declines at the national level” said David M. Blitzer, chairman of the index committee at S&P.

From the Record:

Housing market finally hitting bottom?

Home prices dropped 7.3 percent in the New York metropolitan area, which includes North Jersey, from June 2007 to June 2008, the Standard & Poor’s/Case-Shiller index reported today.

While that was a significant drop, it was less than half the decline seen nationwide. And some analysts saw signs that the market may be reaching a bottom
…
“Not one market is showing a positive return over the past 12 months,” said David Blitzer, chairman of the index committee at Standard & Poor’s.

But Patrick O’Keefe, former head of the New Jersey Builders Association, said there are signs that the market may be bottoming out in New Jersey and the Northeast as a whole. For one thing, Case-Shiller reported that prices in the New York metropolitan area inched up 0.2 percent from May to June of this year, the first time in almost two years that they haven’t dropped month over month.

“It would be premature to conclude that a rebound is underway,” said O’Keefe, now a director with J.H. Cohn, a Roseland accounting firm. He said housing sales and prices in the region will likely remain flat into 2009.

From Newsday:

U.S. house prices again decline at slower pace

U.S. house prices declined at a slower pace for the fourth straight month in June, signaling that the worst housing slump in more than 25 years may be starting to stabilize.

Home prices in 20 U.S. metropolitan areas fell 0.5 percent from the previous month, with nine areas reporting a gain compared with seven in May, the S&P/Case-Shiller index showed. Prices were down 15.9 percent from the previous month, less than economists had forecast.

The figures add evidence that the drag on the economy from the housing slump is lessening, while officials and analysts predict that a rebound remains at least a year away. A private report yesterday showed that sales of existing homes in the past three months averaged the same rate as the previous period.
…
S&P/Case Shiller also released quarterly figures for nationwide home prices. That measure showed a 2.3 percent drop in the three months through June from the previous three months, compared with a 6.8 percent decline in the first quarter.
…
Unlike half the metro areas in the 20-city index, the New York metro region did not see double-digit declines from a year ago but fell 7.3 percent, data show. Prices did see a 0.2 percent uptick from May to June for the metropolitan area, which also covers Long Island, parts of Connecticut, New Jersey and Pennsylvania, according to the Case-Shiller report.

Posted in Economics, Housing Bubble, National Real Estate, New Jersey Real Estate | 125 Comments

Realtors: Passaic is Prime!

Posted on August 25, 2008 by grim

From BusinessWeek:

Home sales, prices mostly fall in Northeast

Homes sales tumbled in most big Northeastern cities last month — with only Passaic, N.J., showing a healthy jump in activity — while sales of distressed properties dragged down median prices in the entire region, according to two reports released Monday.

Sales of existing homes in the Northeast declined nearly 12 percent in July from a year ago, the National Association of Realtors said. The median price in the Northeast was $278,700, down almost 5 percent from July 2007.

That reflected the national trend: sales dropped more than 13 percent year-over-year, while the median price decreased 7.1 percent to $212,000.

But the Associated Press-Re/Max Monthly Housing Report, also released Monday, showed July sales dropped by at least 20 percent in five of the nine Northeast cities tracked. The report analyzed home sales recorded by all real estate agents in those cities, regardless of company affiliation.

In the one bright spot, Passaic, sales jumped 38 percent over July last year. But the rapid sales pace could be stymied by glut of properties coming onto the market. The supply of unsold homes grew 32 percent to 10.6 months, and the median price slid 6 percent to $400,000.

Posted in Housing Bubble, New Jersey Real Estate | 263 Comments

July Existing Home Sales

Posted on August 25, 2008 by grim

From the WSJ:

Home-Price Watchers Hope Drop Slows
By MAYA JACKSON RANDALL
August 25, 2008; Page A2

This week’s housing-market data won’t erase the souring situation surrounding Fannie Mae and Freddie Mac, but there still might be a way to make lemonade.

Start with the S&P/Case-Shiller home-price-index report due out Tuesday. It will likely show continued price declines across the country as the housing slump drags on. Those are the lemons. To sweeten that up, look to the rate of price declines in hard-hit markets such as those in California and Florida. If the rate of declines slows, as some experts expect, there is your sugar.

The data are likely to be “negative pretty much across the board” and home prices are unlikely to bottom out until 2009 or 2010, said Mark Vitner, a Wachovia senior economist. But Mr. Vitner expects the rate of decline in home prices to begin to moderate “at some point in the second half of the year.” That could signal the worst is behind us, though Mr. Vitner says he thinks the market could easily sit at the bottom for at least a year.

At the same time, it would be souring if the rate of declines accelerates. All eyes are already on Fannie and Freddie, and data showing home prices plummeting more than expected wouldn’t help the mortgage giants.

“The more housing prices fall, the more foreclosures we get and the more each one of those costs Fannie Mae and Freddie Mac,” says University of Maryland business professor Peter Morici.

The week is chockablock with housing data. Existing-home-sales data, released Monday, will be interesting to watch. While economists expect a slight uptick in sales, it could be bittersweet — the result of troubled banks having to sell foreclosed homes at a deep discount. “I think the story there is simply that you have a lot of foreclosures and banks are pricing the homes so they sell,” said Global Insight U.S. Economist Patrick Newport.

On Tuesday, the Office of Federal Housing Enterprise Oversight will release its monthly home-price data through June. Additionally, the Commerce Department Tuesday releases data on July sales of new homes. Last month’s decline in sales was the fifth in six months.

From Bloomberg:

Home Sales Probably Held Near Decade Low: U.S. Economy Preview

Home sales in the U.S. probably teetered near a 10-year low, property values dropped and consumer spending cooled, signaling the economy has taken another turn for the worse, reports this week may show.

A total of 5.435 million new and existing homes were purchased in July at an annual pace, according to the median estimate of economists polled by Bloomberg News. June’s 5.39 million rate was the weakest since at least 1999. Spending probably rose 0.3 percent in July, half the prior month’s gain.

The real-estate recession will persist into next year as stricter lending rules and higher borrowing costs shackle demand. At the same time, equity is disappearing as home prices fall, and wages aren’t keeping up with inflation, depriving Americans of the means to maintain spending, the biggest part of the economy.

“The economy is going down a shaky path,” said Maxwell Clarke, chief U.S. economist at IDEAGlobal Inc. in New York. “We’re not going to see a rebound in housing anytime soon. Consumers are living hand to mouth, and the outlook for spending is very weak.”

Posted in Economics, National Real Estate | 303 Comments

“You just can’t afford to stay in this house”

Posted on August 24, 2008 by grim

From the Record:

In North Jersey foreclosures are up, home sales down

In a painful sign of the worsening real estate downturn, foreclosure actions in North Jersey nearly tripled in the first five months of 2008 over the same period in 2007, an analysis by The Record has found.

At the same time, the volume of housing sales has plummeted this year. And North Jersey home values, which held steady while many of the nation’s housing markets steeply declined in the last two years, have begun to crack.

Median home prices declined 2.3 percent in Bergen County and 8.2 percent in Passaic County in the first half of this year, compared with the same period in 2007, according to a Record analysis of public property records.

“If you bought your house less than five years ago, you’ve seen a decline in the price,” said Crystal Burns, an agent with Re/Max Advantage Plus in Teaneck.

Still, the region’s housing prices have held up better than the nation’s, where average prices have declined more than 15 percent, according to the Standard & Poor’s Case-Shiller index of 20 metropolitan areas.

But the rising foreclosure numbers are a sign of trouble. About 2,800 North Jersey residential properties — roughly one out of every 135 — were in some stage of the foreclosure process from January to May 2008, compared with about 1,000 — or one in 385 — a year earlier, according to The Record’s analysis of data from RealtyTrac, a California company that follows the market. Those numbers range from initial notices that a homeowner is in default on mortgage payments to a sheriff’s auction of the house to satisfy the debt.

And 335 actually lost their homes to foreclosure in the first five months of this year, a seven-fold jump from the January-May 2007 period. Most of those properties went back to the lenders.
…
Social service agencies are being flooded with calls from homeowners in distress.

“Some people we can help, because there are some lenders that will negotiate,” said Phyllis Salowe-Kaye, head of NJ Citizen Action, which does housing counseling.

“But about half of the people who come in here can’t be helped,” she continued. “They don’t have the money to pay the current loan. They don’t have enough equity to refinance. And they don’t have a lender who’s agreeing to negotiate. Those people are eventually going to get foreclosed on.”
…
“We haven’t even hit the worst part of the problem,” said Salowe-Kaye.
…
Lisa Molnar of Skylands Appraisals in Ringwood said prospective buyers “are just terrified. They think, ‘Why would I buy a house if values are going to decline?”

Posted in Foreclosures, Housing Bubble, New Jersey Real Estate | 29 Comments

Weekend Open Discussion

Posted on August 22, 2008 by grim

This is the time and place to post observations about your local areas, comments on news stories or the New Jersey housing market, open house reports, etc. If you have any questions you wanted to ask earlier in the week but never posted them up, let’s have them. Also a good place to post suggestions, requests for information, criticism, and praise.

For readers that have never commented, there is a link at the top of each message that is typically labelled “[#] Comments“. Go ahead and give that a click, you might be missing out on a world of information you didn’t know about. While you are there, introduce yourselves to everyone.

For new readers that have only read the messages displayed on the main page, take a look through the archives, a substantial amount of information has been put online in the past year. The archives can be accessed by using the links found in the menus on the right hand side of the page.

Posted in General | 458 Comments

I.O.U.S.A. Screening Tonite!

Posted on August 21, 2008 by grim

Tonight @ 8pm!

The long awaited I.O.U.S.A. Screening Get Together.

AMC Clifton Commons 16
405 Route 3 East
Clifton, NJ 07014

We’re going to be meeting up at the Shannon Rose (in the same complex, across from the Target) at 7:00pm.

Tickets can be purchased online, click here.

Posted in General | 309 Comments

Why save the housing market?

Posted on August 20, 2008 by grim

From the New York Times:

No End in Sight

A year into the financial crisis, the news is grim and there are signs of even worse troubles ahead. The mortgage bust continues and has begun to spread to loans for construction and commercial property, as well as credit cards and auto loans.

There may soon be more bank failures and a spate of corporate bankruptcies. That means that unemployment will almost certainly rise — employers have shed nearly half a million jobs this year — and those who keep their jobs will have to cope with fewer hours, measlier raises and evaporating bonuses.
…
The country cannot afford more delay and more posturing. Before the crisis gets any worse, Congress must take several steps.

Lawmakers need to start crafting the next stimulus bill — without repeating the mistakes of the last one.
…
Congress also needs to ensure that a $4 billion grant to states and cities to buy up vacant properties is quickly and efficiently distributed.
…
Congress also cannot wait to see if its anti-foreclosure measures work. It must begin to vet other ideas and be ready to move quickly if the crisis worsens. Most important, lawmakers should be ready to reform the bankruptcy law so that homeowners can have their mortgages modified under court protection.
…
The work doesn’t end there. The Bush administration and federal regulators need to develop a framework for resolving future financial failures before they occur. That is essential for rebuilding confidence in the system.

Millions of Americans are already suffering. And we fear millions more will be hurt before this crisis ends. They cannot wait until after the election for help.

Posted in Economics, Housing Bubble, National Real Estate | 205 Comments

NJ: “lurching from crisis to crisis”

Posted on August 19, 2008 by grim

Don’t forget to buy your tickets for the I.O.U.S.A. Screening GTG
Thursday, August 21st at 8:00pm

AMC Clifton Commons 16
405 Route 3 East
Clifton, NJ 07014

Tickets can be purchased online, click here.

—————————-
From the NY Post:

JERSEY: A LESSON IN FAILURE FOR NY

From 2003 through 2007, while the nation’s private economy soared, only tax-supported government jobs grew robustly in Jersey. Private employment increased a meager 1.8 percent, mostly in low-wage service jobs. In 2006, when the country was in the midst of an economic boom that produced government surpluses everywhere, Jersey faced a crushing $4.5 billion budget shortfall that prompted an embarrassing shutdown of state government.

Jersey’s decline has been rapid and astonishing. In the ’60s, one study judged it to be among the most business-friendly states because of its light tax burden. That helped attract a steady stream of businesses and residents from New York and produced robust economic growth.

Although there were occasionally signs of trouble over the years (like the pension shenanigans of Gov. Christie Whitman, in which government shirked its long-term obligations), the state’s real decline started with the election of Gov. Jim McGreevey and a Democratic-controlled Legislature in 2001.

McGreevey, aided by the Legislature, raised taxes and fees an astonishing 33 times, totaling $3.6 billion, amid a recession. The state also passed a heap of new labor-friendly, anti-business laws that rapidly worsened conditions.
…
The fallout has been swift. In 2002, the Beacon Hill Institute rated Jersey 26th among the states in overall competitiveness; by 2004, it had plummeted to 44th. Recently, corporate executives surveyed voted it one of the states where they’re least likely to expand.
…
Despite the constant stream of bad news, reform has been difficult because the kind of big-government, tax-consuming politics ruining Jersey have given too many residents a stake in the system.

The rapid growth of state and local government – whose employment increased by 15 percent from 2000 through 2006 alone – has created a huge public work force not about to vote for eliminating its perks and benefits.

Meanwhile, the state’s recent tax increases have fallen almost entirely on upper-income residents, so that those earning more than $200,000 a year (just 4.9 percent of households filing tax returns) are paying 60 percent of all income taxes. Jersey has even managed to make its onerous local property-tax system progressive by instituting a state rebate program – but only for those earning below certain incomes.

The effect of all of this is to make Jersey a place where businesses and a few residents pay the freight. So many people are on the public dole that reform becomes virtually impossible.
…
he question for New Yorkers is whether their pols learn anything from this. While for years people pointed to Jersey as a business environment New York should emulate, Jersey now stands as a cautionary tale. With Albany’s own dysfunctional politics, only Wall Street’s enormous earning power and Gotham’s international tourist appeal has insulated New York (and only Downstate) from Jersey’s fate. But with a prolonged crisis now possible in financial markets, New York may face the prospect of a Jerseyfication of its own budget and economy.

Posted in Economics, New Jersey Real Estate, Politics | 328 Comments

The 100-Year Storm

Posted on August 18, 2008 by grim

From Barrons:

The Endgame Nears For Fannie and Freddie

IT MAY BE CURTAINS SOON FOR THE MANAGEMENTS and shareholders of beleaguered housing giants Fannie Mae and Freddie Mac . It is growing increasingly likely that the Treasury will recapitalize Fannie and Freddie in the months ahead on the taxpayer’s dime, availing itself of powers granted it under the new housing bill signed into law last month. Such a move almost certainly would wipe out existing holders of the agencies’ common stock, with preferred shareholders and even holders of the two entities’ $19 billion of subordinated debt also suffering losses. Barron’s first raised the possibility of a government takeover of Fannie and Freddie in a March 10 cover story, “Is Fannie Mae Toast?”

Heaven knows, the two government-sponsored enterprises, or GSEs, both need resuscitation. Soaring mortgage delinquencies and foreclosures have led the companies to gush red ink for the past four quarters, and their managements concede the outlook is even grimmer well into next year. Shares of Fannie Mae (ticker: FNM) and Freddie Mac (FRE) have lost around 90% of their value in the past year, with Fannie now trading at $7.91, and Freddie at $5.88.

Similarly, the balance sheets of both companies have been destroyed. On a fair-value basis, in which the value of assets and liabilities is marked to immediate-liquidation value, Freddie would have had a negative net worth of $5.6 billion as of June 30, while Fannie’s equity eroded to $12.5 billion from a fair value of $36 billion at the end of last year. That $12.5 billion isn’t much of a cushion for a $2.8 trillion book of owned or guaranteed mortgage assets.

What’s more, the fair-value figures reported by the companies may overstate the value of their assets significantly. By some calculations each company is around $50 billion in the hole. But more on that later.
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Note, too, that Fannie and Freddie have nonpareil lobbying operations and formidable political strength, owing to their hefty donations and penchant for hiring former political operatives. Besides, the agencies claim they’ve landed in their current predicament through no fault of their own. As Freddie Mac Chairman and CEO Richard Syron recently put it, the GSEs have been hit by a “100-year storm” in the housing market, accentuated by some higher-risk mortgages that they were forced to buy to meet government affordable-housing targets.

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