Bush/Cheney's Parting Gift: Home Sales and Prices Drop at Record Pace

The economic gift of the Chimperator and the rubber stamp, more deregulation GOP Congress that he had for six and one half years just keeps on giving - bad news that is. Home sales and home prices dropped at a record rate last month and sadly things do not appear to be bottoming out as yet. As I have been saying since the summer of 2007 or longer, unless and until the residential real estate market is stabilized and turned around, the larger economy will continue to nose dive. Supposed foreclosure assistance is not yielding results and the banking institutions that have received billions of dollars in taxpayer funds are not passing the relief on to consumers either in terms of loan modifications or easing the difficulty many credit worthy borrowers are experiencing in securing loans. What may turn out to be a refinance boom may save some working in the real estate industry, but it will otherwise probably yield little boost to the economy. Here are some highlights from Reuters:

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The pace of existing home sales plunged a record 8.6 percent in November and prices fell a record amount as layoffs and a stock market crash worsened an already grim housing market, a real estate trade group said Tuesday. The median home price fell 13.2 percent on an annual basis, down for a fifth straight month to $181,300. It was the largest drop since the current data series began in 1968 and probably the largest since the Great Depression.

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The quickly deteriorating conditions in the job market, stock market and consumer confidence in October and November have knocked down home sales to another level," Yun [Lawrence Yun, the chief economist for the National Association of Realtors] said. "It is, therefore, imperative to provide incentives for homebuyers to get back into the market, Yun said.

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The housing malaise, which triggered a global financial crisis, has infected other sectors of the broader economy and sent unemployment rates higher. Analysts says stability in the housing sector is key to any recovery in the U.S. economy, which has been in a recession since late last year.

New Wave of Mortgage Failures Could Create a Nightmare Economic Scenario

The news on the U. S. housing market front just seems to get worse by the day. This story (http://biz.yahoo.com/ap/071124/apfn_doomsday_scenario.html?.v=1) takes a look at precisely how bad things may yet become in some real estate markets that are already reeling from a drop in sales combined with ballooning foreclosure rates. From what I see in the local market and what is happening to both homeowners and real estate investors, I believe that things in fact will get very bad. Significant drops in resale prices could leave many homeowners with little option but to walk away from their homes saddled with mortgage balances in excess of their decreased market value. Here are some highlights:

Soaring mortgage default rates this year already have shaken major financial institutions and the fallout from more of them, some experts say, could spread from those already battered banks into the general economy. The worst-case scenario is anyone's guess, but some believe it could become very bad.

"We haven't faced a downturn like this since the Depression," said Bill Gross, chief investment officer of PIMCO, the world's biggest bond fund. He's not suggesting anything like those terrible times -- but, as an expert on the global credit crisis, he speaks with authority. "Its effect on consumption, its effect on future lending attitudes, could bring us close to the zero line in terms of economic growth," he said. "It does keep me up at night."

Some 2 million homeowners hold $600 billion of subprime adjustable-rate mortgage loans, known as ARMs, that are due to reset at higher amounts during the next eight months. Subprime loans are those made to people with poor credit. Not all these mortgages are in trouble, but homeowners who default or fall behind on payments could cause an economic shock of a type never seen before. Some of the nation's leading economic minds lay out a scenario that is frightening. Not only would the next wave of the mortgage crisis force people out of their homes, it might also spiral throughout the economy.

The already severe housing slump would be exacerbated by even more empty homes on the market, causing prices to plunge by up to 40 percent in once-hot real estate spots such as California, Nevada and Florida. Builders like Chicago's Neumann Homes, which filed for bankruptcy protection this month, could go under. The top 10 global banks, which repackage loans into exotic securities such as collateralized debt obligations, or CDOs, could suffer far greater write-offs than the $75 billion already taken this year.

Massive job losses would curtail consumer spending that makes up two-thirds of the economy. The Labor Department estimates almost 100,000 financial services jobs related to credit and lending in the U.S. have already been lost, from local bank loan officers to traders dealing in mortgage-backed securities. Thousands of Americans who work in the housing industry could find themselves on the dole. And there's no telling how that would affect car dealers, retailers and others dependent on consumer paychecks.

Meanwhile, the number of U.S. homes in foreclosure is expected to keep soaring after more than doubling during the third quarter from a year earlier, to 446,726 homes nationwide, according to Irvine, Calif.-based RealtyTrac Inc. That's one foreclosure filing for every 196 households in the nation, a 34 percent jump from just three months earlier. Such data suggests more Americans could lose their homes than ever before, and those in peril are people who never thought they'd welsh on a mortgage payment. They come from a broad swath -- teachers, pharmacists, and civil servants who were lured by enticing mortgage terms.