Not that I want to play the role of a Cassandra, but some of the continued negative economic news should not come as a surprise to anyone who seriously follows the news and keystone industries such as housing. The housing free fall cannot help but drag the rest of the economy down. Moreover, with many consumers either stressed under the weight of adjustable rate loans or fearful that housing values will fall and leave them with little or no equity (or even owing more than their home is worth), it should be a no brainer that consumer spending will slow. Moreover, if people are having trouble paying their mortgages, obviously they will let credit card and auto loan bills slide as they struggle to keep their homes. And so the downward spiral begins. I still do not believe that the current regime has any clue as to what is going on with normal people and their financial struggles. Today's Washington Post covers some of these issues (http://www.washingtonpost.com/wp-dyn/content/article/2007/10/24/AR2007102402570.html?hpid=moreheadlines). Here are some highlights:
Many of the nation's biggest companies have cut back their sales expectations in recent days and the financial system is showing signs of new stress, evidence that the U.S. economy is more threatened by the sharp downturn in housing than it appeared to be only a few weeks ago. The investment firm Merrill Lynch yesterday reported its first quarterly loss in six years and said the value of assets on its books had fallen $7.9 billion. The National Association of Realtors reported that the number of existing homes sold in September was the lowest in the eight years the data have been tracked.
"On the fundamental economics, there's a perception that things are getting worse," said Kenneth Kim, an economist at Stone & McCarthy Research Associates. "On the credit-market problems, people had started to think the worst was behind us. Now they think that's not necessarily the case."
The problems started last week in the banking sector. Citibank, Bank of America and Wachovia each reported disappointing earnings, mostly from losses on a variety of credit products. The banks indicated that their portfolios of home loans, credit card debt and some forms of corporate debt were worth less than was previously thought, and led to write-downs of $2.2 billion at Citigroup, $4 billion at Bank of America and $1.3 billion at Wachovia. Bank of America said last night that it would lay off 3,000 employees at its investment-banking division and reevaluate the unit's strategy.
Last week, the construction-equipment maker Caterpillar warned that the housing downturn was spreading to other parts of the economy, raising fears about the economy's strength and its ability to avert a recession. Capital One Financial of McLean, meanwhile, last week posted its first-ever quarterly loss and said it had an increasing number of delinquencies and defaults in both the credit card and auto finance sectors.
The National Association of Realtors reported that sales of existing single-family houses, townhouses, condominiums and co-ops declined 8 percent in September from August, to a seasonally adjusted rate of 5.04 million units. The pace is the lowest since the association began tracking such data in 1999. Sales were down 19.1 percent compared with September 2006.
"I can't see a light at the end of the tunnel for declining home sales," said Stuart G. Hoffman, chief economist for PNC Financial Services Group in Pittsburgh. "Before we hit bottom, which may not be until next spring or summer, [the market] is going to be down another 5 to 10 percent from where we are now." "Housing is a black hole, but it hasn't quite sucked in the energy of the rest of the economy," Hoffman said. "But my forecast is that when we close the books on this holiday season, this is not a holiday [retailers] are going to remember very fondly."
All in all, NOT a pretty picture or one that adds to one's sense of financial security. I know of people who have been trying to sell homes for up to a year while making double mortgage payments. Eventually, they will be tapped out.
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