August 2010 Fundatmentals

[Ally]

U.S. home sales post record 27% plunge

Sales of previously owned U.S. homes took a record plunge in July to their slowest pace in 15 years, underlining the housing market`s struggle to find its footing without government aid.

Tuesday`s report from the National Association of Realtors, which was much worse than market expectations, was the latest data that indicated economic activity continued to slacken into the third quarter.

The NAR said overall sales were at their lowest since it started the existing-home sales data series in 1999, with single-family home sales that account for most business at their lowest since 1995. Association chief economist Lawrence Yun characterized overall sales as the softest since 1995.

The dismal sales report came as Chicago Federal Reserve President Charles Evans warned the risk of a double-dip recession was higher than six months ago. He doubted that output will actually shrink but said recovery will be modest.

"It is becoming abundantly clear that the housing market is undermining the already faltering wider economic recovery. With the increasingly inevitable double-dip in prices yet to come, things could yet get a lot worse," said Paul Dales, a U.S. economist at Capital Economics in Toronto.

Read the full article here.

 

[Ally]

An unsupportable American dream

One of the great paradoxes of the U.S. economy is how something as personal and individualistic as home ownership -- a core value at the heart of the American dream--could have been turned into one of the world`s biggest socialist disasters.

Yesterday, the U.S. housing meltdown continued, with sales of existing homes plunging a record 27% in July. Forecasters had expected the worst, but this was far worse than the worst.

The U.S. housing market is at a point at which it seems to be dragging the United States down as if the country were some hapless satellite of the old Soviet Union that refuses to face the facts. The game is over, the old regime is technically dead. Time to liberate U.S. housing from the old socialist ways and bring it back to the old U.S. free market where it belongs.

But nobody wants that freedom, at least not yet.

U.S. home ownership, artificially created over decades by trillion-dollar government-backed loans, guarantees and regulation, continues to operate under the old rules.

Read the full article here.

 

[Ally]

U.S. home sales plunge to 15-year low

WASHINGTON - Sales of previously owned U.S. homes took a record plunge in July to their slowest pace in 15 years, underlining the housing market`s struggle to find its footing without government aid.

Yesterday`s report from the National Association of Realtors, which was much worse than market expectations, was the latest data that indicates economic activity continued to slacken into the third quarter.

The NAR said overall sales were at their lowest since it started the existing-home sales data series in 1999, with single-family home sales that account for most business at their lowest since 1995. Association chief economist Lawrence Yun characterized overall sales as the softest since 1995.

"It is becoming abundantly clear that the housing market is undermining the already faltering wider economic recovery. With the increasingly inevitable double-dip in prices yet to come, things could yet get a lot worse," said Paul Dales, a U.S. economist at Capital Economics in Toronto.

Resale home sales fell a record 27.2% from June to an annual rate of 3.83 million units. June sales were revised down to a 5.26-million-unit pace from a previously reported 5.37 million.

Read the full article here.

 

[Ally]

U.S. needs total nationalization of housing

Last week, Bill Gross raised plenty of eyebrows when he suggested that the government ought to totally nationalize housing finance, while dismissing the idea that the private sector could ever step up to the plate and replace Fannie and Freddie.

Naturally Gross -- who as head of PIMCO is one of the biggest investors in mortgage-backed assets -- was dismissed for talking his book (a frequent charge).

In his latest monthly letter he goes into more depth about his views, and denies that he`s just taking the PIMCO line.

The first key to his argument is that the private sector has failed when it comes to housing finance:

I proposed a solution that recognized the necessity, not the desirability, of using government involvement, which would take the form of rolling FNMA, FHLMC, and other housing agencies into one giant agency — call it GNMA or the Government National Mortgage Association for lack of a more perfect acronym — and guaranteeing a majority of existing and future originations. Taxpayers would be protected through tight regulation, adequate down payments, and an insurance fund bolstered by a 50-75 basis point fee attached to each and every mortgage. Seemed commonsensical to me. After all, Fannie and Freddie had really blown up because of the private/public nature of their charter, which incentivized executives and stockholders to go for broke with the implicit understanding that Uncle Sam would be there as a backstop should anything go wrong. If you eliminated the private incentive and provided a tighter regulatory watchdog, we would have no more "liar loans"or "no docs" and a much sounder foundation for future homeowners and investors. The private market, to my mind, had really lost its claim as the most efficient and judicious arbiter in this particular case. Markets and private incentives without proper guardrails were as threatening to a sound economy in the 21st century as too much regulation and government ownership proved to be in the 1970s.

Read the full article here.

 

[Ally]

Top Economists: The second Great Depression has arrived

David Rosenberg, market guru, has officially declared that the US economy is in a state of depression, and he sees the economic superpowers woes worsening.

On the heels of that bleak forecast, the statistics for existing home sales for July were released and the numbers were ugly. The weak housing market collapsed. Reflecting the worst slump in American history, existing housing sales had plummeted a stunning 27 percent and there`s no sign on the horizon that sales will stabilize any time soon.

The bottom line, argues Rosenberg and others: the US economy has collapsed into another Great Depression.

Citing the period from 1929 to 1932 and the eerie similarities, Rosenberg said, "We may well be reliving history here. If you`re keeping score, we have recorded four quarterly advances in real GDP, and the average is only 3 percent." The same happened during the early 1930s stock market rebound of 50 percent after the 1929 crash.

The Great Depression followed the brief economic upswing.

Read the full article here.