The American economy: keeping track of US economic developments.

Re: The American Economy

From the top one

In 2003, homeowners took out an estimated $332 billion in new sub-prime mortgages—the higher interest loans offered to those who don't qualify for prime rate loans. By last year, that amount had more than doubled to $665 billion, according to Freddie Mac. Now, rising rates mean those least able to afford it are the most likely to be affected.

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2 thirds of a trillion in dogy homeloans alone. Phew !

Our sub prime lending here has doubled in that time.

Many sub primers are building workers who sub contract their labour so its a vicious circle.

Re: The American Economy

Hi there

looks like tough times ahead for the real estate sector in the US

A few more interesting and provocative articles I glanced thru today - the overall sentiment is getting uglier by the day - big big change from this time last year.

http://articles.moneycentral.msn.com/Banking/HomebuyingGuide/WhenHomeownersAreDesperateToSell.aspx


http://articles.moneycentral.msn.com/Investing/CNBC/Dispatch/060823markets.aspx?GT1=8404

http://articles.moneycentral.msn.co...cles/FaceItTheHousingBustIsHere.aspx?GT1=8472

Could there be interesting times ahead for ourselves?

Re: The American Economy

Housing slump deepens in July (Herald Tribune)

"The report from the Florida Association of Realtors showed that the market was among the weakest in the state and that July was the worst month for Sarasota home sellers this year. The fall in the median price to $301,100 from $338,100 a year ago was the largest percentage drop of any Florida metropolitan area. The decline in the number of sales was the second-worst in the state."

http://www.heraldtribune.com/apps/pbcs.dll/article?AID=/20060824/BUSINESS/608240352/1007

Re: The American Economy

The US housing market is in free fall according to this report. Its extraordinary how quickly sentiment has changed.

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Re: The American Economy

I loved this quote from the following Businessweek article:

"The option ARM is "like the neutron bomb," says George McCarthy, a housing economist at New York's Ford Foundation. "It's going to kill all the people but leave the houses standing."

http://www.businessweek.com/magazine/content/06_37/b4000001.htm

Re: The American Economy

Figures just out - US Pending Sales fell 7% in July. Biggest ever drop...

Re: The American Economy

I think another poster mentioned the casual way the US media report their nascent housing crash. It seems to me that the almost religious fervour that has accompanied out own bubble was absent in the US. Possibly a reflection of their own history of economic boom and bust. To find a similar mindset to that which exists in Ireland today, you might have to return to the late 1920's America before the Wall Street Crash.

Re: The American economy

Toll Brothers are a "luxury housebuilder" in US yet their average prices at the top of the cycle are US$650k. Thats about Euro 500k so its easy to understand how the fervour has not quite reached our own great heights.

Re: The American economy

Asset deflation comes a knocking.

The writer seems confident that the Fed will be powerless to micro manage the unwinding of the US housing bubble. I suppose if they try and reflate again in an economy which has a negative savings rate and rising defaults it will just add to the mess and push up long term rates anyway. The US housing market is the leading indicator in my opinion, more specifically markets on the east and west coast the nexus of the bubble, the proverbial canary in the coalmine.

You should probably get accustomed to the following, coming-soon-to-the-business-section-of-your-local-newspaper phraseology: Oversupply, excess inventory, "hard landing," foreclosures, "upside-down" mortgages, contract cancellations, "fire-sales," bankruptcies, foreclosures, bank failures, credit crunch, credit contraction, bank crisis, Fannie Mae crisis, liquidity crisis, real estate deflation, asset deflation, price deflation, foreclosures, meltdown. Real estate values will fall from peak values somewhere in the range of 50% to 90%, depending on area, location, property type, "intrinsic value" and scarcity.

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Re: The American economy

Professor Paul Krugman of Princeton University on the US housing market.
(Bloomberg TV)
http://www.youtube.com/watch?v=qo4ExWEAl_k

Re: The American economy

Another article suggesting that the US housing bubble is a busted flush. I follow developments in the US quite closely because I believe that the American market is a leading indicator for our own.
http://www.nysun.com/article/39480

Re: The American economy

Duplex said:

Another article suggesting that the US housing bubble is a busted flush. I follow developments in the US quite closely because I believe that the American market is a leading indicator for our own.



http://www.nysun.com/article/39480

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Absolutely agree with you Dubplex. I split my time between Dublin and Florida and keep close tabs on both property markets. The American bubble popped in the spring of '06 and I think things are starting to turn the corner in Ireland. I can't believe how quickly things took a nose dive in the Florida market, despite the fact that the economy is booming and over 1,000 people move there each day. In my area of Florida, property values have dropped 10-15% from what people thought their houses were worth last spring. Other areas are worse. Specuvestors stopped buying and the FTB's are all waiting on the sidelines for things to drop even more. One of the biggest builders in the country, WCI, posted profits that were 93% less than last year - and massive layoffs will soon follow. I still think property values have a long way to drop before they make fundamental financial sense again and people start buying. A nasty recession is just around the corner, so arrange your investments accordingly.

I'm even more worried about the Ireland market. Everyone that I know in Dublin has a 2nd or 3rd "investment house" and when values start to drop they will all go running for the doors and we will be flooded with a million homes for sale. I think things have gone way to far for any government intervention to soften the fall. Lets just hope it happens quickly and we can all go on with our lives.


Here's a great blog site from a guy who has worked in the lending industry and has some very intelligent posts on the current situation:

http://www.housingbubblecasualty.com/

I love his most recent post "Do you own your house or does your house own you?"

"Like I have said countless times before, 2007 is going to be the year of reckoning. We are going to find out who owns their house, and whose house OWNS them. I bet there will be thousands of home ‘owners’ who will wish they could give a landlord 30 days notice and get on with their lives. But instead, they will be trying to sell an ‘asset’ they over-paid for, in a market where every other person getting OWNED by their house is trying to sell as well. The same people competed with each other to buy these properties with creative financing…and when the tide really turns, they will all be scrambling for the door."

Re: The American economy

I really enjoy the thoughts on this thread. There is a book out now the "wages of destruction" it is an excellent economic history of Nazi Germany.

Boring I can assure you not.

Anyway there is very real danger of history again repeating itself and the issue of inflation is more important and more dangerous to governments than most people may imagine.

Re: The American economy

More on the possibility of a hard landing for the US economy next year.
http://www.rgemonitor.com/blog/roubini/147839

Re: The American economy

The Chinese and Vietnamese increasing their minimum wage by 20% ?. The timing is interesting, if these reports can be relied upon. The Fed had their hearts set on dropping rates and now those darn orientals start exporting inflation as opposed to the usual deflation.
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Re: The American economy

Voodoo Debt, a look into the murky world of Mortgage Backed Securities. The author thinks that buyers of the more toxic securities are getting a little cautious.

In the marketplace, there are indices known as ABX.HE. They are a synthetic version of assets backed by U.S. home loans. They are subdivided into "tranches," or sections, that are grouped by their relative risk. Two weeks ago, a friend alerted me to the rather large trade that went through in a particular tranche of one of these indices. (It happened to be the BBB- tranche, which is the riskiest.) When the trade took place, it knocked the bid price a bit lower. It has continued to drift and now is off about 1.5%.

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http://articles.moneycentral.msn.co...ronicles/VoodooDebtAndTheComingRecession.aspx

Re: The American economy

Ireland's reliance on the US as an export market.
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Compare that figure to Germany.

Re: The American economy

I had to laugh when I heard an Irish economist saying that a US recession would be good for Ireland as it would act as a barrier to higher European interest rates. While that may be correct with regard to the issue of interest rates, there is no economy in Europe that is so dependent on the US. What happens in the States over the next 12 months will determine much of our own future.

Re: The American economy

Even at that, it will only act as a barrier if we get a deflationary recession. Given that the liquidity taps have been gushing for the past few years and we are emerging from a very low interest rate environment this is unlikely.

Irish people should be concerned that we will get the double whammy of low growth and high inflation aka stagflation.

Re: The American economy

The speed at which the brakes are coming on in US is shocking - witness the downward revisions today. This is looking like a fast down step to a far lower level of growth.