Friday, April 14, 2006

Oil, Ford, Interest Rates, Las Vegas Foreclosures

A few issues that caught my attention this AM:

Oil breaks $70 a Barrel in after market trading

BEIJING, April 14 (Xinhuanet)-- Brent North Sea crude oil was traded at 70.20 dollars a barrel for the first time on Thursday evening due to simmering tensions of Iran nuke issue.

"We're just in this terrific Bull Run right now, and the worries just steepen," said John Kilduff, analyst at Fimat USA.

He added that as long as political tensions continue in Iran, crude futures next week are apt to break their previous trading record of 70.85 dollars, reached Aug. 30, 2005, after Hurricane Katrina struck the Gulf coast.

While Bloomberg News survey shows that 26 of 52 analysts, traders and brokers, or 50 percent, said prices will decline next week, 17, or 33 percent, forecast an increase and nine expected little change.

High Oil Prices Widen Global Imbalances

Rising oil prices are fueling global distortions in trade, with oil producers raking in profits while the current account gaps of fuel importers move further into the red, the International Monetary Fund said on Thursday.

In the first chapters of its semi-annual World Economic Outlook, the IMF said that over the past two years, higher oil prices had accounted for one-half, or about one percentage point of GDP, of the deterioration in the US current account.

It said with limited excess production capacity, the medium-term supply/demand was likely to remain "very tight and oil prices will persist near current levels".

The Washington-based global lender said the impact of higher oil prices on global imbalances would likely linger longer compared to similar oil shocks of the 1970s and early 1980s.

This was mainly because producers were saving more of their revenues and because inflationary consequences have been limited and oil consumers have not been forced to adjust as quickly, it said.

It also found the recycling of petrodollars through international capital markets was helping to keep interest rates low in the United States and so was adding to the current account deficit, already 6.5 percent of GDP, by encouraging consumption.

High international capital inflows -- some of them oil-related -- have depressed yields on U.S. government bonds by perhaps three-quarters of a percentage point, the fund said.

It said past oil shocks led to higher interest rates and slowdown in growth and domestic demand, and changes in exchange rates and asset prices.

But this time current accounts are adjusting more slowly largely because interest rates have not risen as much.

"Together with deeper global financial integration and the fact that spending (by) oil exporters has remained relatively subdued, current accounts are adjusting more slowly," the IMF said.

It also pointed out the global environment is very different today than it was in 1970s, when large deficits were concentrated in oil importing developing countries. This time, the deficit was in the United States, aggravated by high oil prices.

Ford to lay off 2,400 and close two plants

Ford Motor Co. announced Thursday that it would shut down its truck assembly plant and end a long history of automobile building here, delivering a crushing blow to plant workers, union officials and city leaders.

The F-150 pickup assembly plant, once considered a darling of Ford’s manufacturing base, was widely expected to survive a round of plant closings by the beleaguered automaker.

Instead, Ford executives said during a conference call Thursday that the 2,433-worker plant would close in 2008, abandoning a facility that dates to 1925 and the Model T.

The Norfolk plant has long been regarded as one of the company’s most efficient. However, analysts have said its East Coast location makes it costly and time-consuming to ship parts to Norfolk from Midwest suppliers. Also, Ford cited the fact that the facility can not produce the larger and more profitable SuperCab pickups.

Mortgage Rates at Highest in Nearly 4 Yrs.

Rates on 30-year mortgages climbed this week to their highest point in nearly four years, a development that could put a further crimp in housing activity.

Freddie Mac, the mortgage company, reported Thursday that rates on 30-year, fixed-rate mortgages averaged 6.49 percent for the week ending April 13. That was up from 6.43 percent last week and was the highest since mid-July of 2002.

Some economists believe rates on 30-year mortgages could reach 7 percent by the end of this year.

There are signs that rising mortgage rates are slowing the housing market, which registered record-high sales for five years in a row. "If the past is any guide, the effect of rising interest rates is likely to be felt most visibly in housing markets," Federal Reserve Governor Donald Kohn said in a speech Thursday.

Foreclosuresup 99% in my little Bubblicious City of Las Vegas

Many homeowners in the Las Vegas valley may be overextending themselves, because
home foreclosures have jumped dramatically in the past year.

The median price of a home is up to $314,000 and that has driven the monthly mortgage payment up as well, which is up nearly $200 a month since this time last year to nearly $1,800.

The sounds of an auctioneer saying "going once" and "going twice." Finally, saying, “Sold back to the beneficiary for $303,487.08." That's what most people will find at daily auctions of what were once peoples American dreams.

Republic Mortgages Scott Gillespie warns the worse is yet to come.

"A lot of people don't fully grasp what is going to happen with the mortgages that are out there," Gillespie said. Gillespie says Congress is considering a bill making certain adjustable rate mortgages illegal becauseFrom January to February the number of foreclosures jumped 99-percent.

A three-bedroom, two-bath house is one of 127 homes on the home foreclosure report where the American dream is going wrong. Gillespie said the trend is expected to continue for years, and investor Rick Korbel recently saw the spike in for closers and started attending local auctions.

Korbel says struggling homeowners need to face reality before its too late.

"They know they are in over their head," Korbel said. "When people are behind on their bills they tend to avoid the phone, put their head in the sand and think that it is not happening."

Experts say that's the last thing a homeowner should do. Lenders recommend facing the problem head on by contacting your mortgage broker or trying to sell. Homeowners who will be hardest hit are expected to be the ones who bought homes above the median price of $314,000. There's more bad news for homeowners. In a list of 100 cities, Forbes Magazine ranked Las Vegas dead last for real estate appreciation rates.


Any-Mouse said...

And this is just the beginning just imagine what things will be like over the next 18 months, if not sooner. I have a favorites folder named “Quickening” a phrase used by Art Bell. I don’t believe in UFO’s like Art does but I do believe things are going down hill rapidly. The sites I come across that reflect a quickening of things go in the folder.

Out at the peak said...

Lending regulation should not have been reactionary. Precautions should have been put in place.

LVLandlord from Ben's blog would laugh at the 99% increase because the previous number was so small. He will give the same spin about how LV is different. To me, anything that doubles quickly is a scary sign.

Those foreclosure auctions are going to be depressing for years IMHO. Because of the credit bubble, people refi'd easily and removed as much equity as possible. The starting bids on the foreclosures are most likely going to be unattractive. Plus the buyer has to worry about the other leins.

Anonymous said...

Something has got to give, I lived through the UK housing Bubble and bust of 1990-1.

The indicators kept on coming in showing that things were about to go bust, but the experts kept giving reasons why it was different.

Sounds like de ja vous.


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