Bubble City home prices falling like rocks

The median price for a home in Cape Coral, Florida has dropped >30% YoY; Cape Coral

Las Vegas's median home prices are now down 32% YoY: Las Vegas

Sacramento, California down 32.3% YoY: Sacramento

Orange County, California is down 33% YoY: Orange County

Riverside California is down a whopping 42% YoY: Riverside


For other Cities around the nation: Housingtracker.net


So, how low will prices go?

Answer: When monthly PIT&I for a new home mortgage, plus any association fees equals or falls below the rent costs for the same home, we will be at/or very close to the bottom - and we ain't there yet!

By that time, millions will have lost their homes through foreclosure, tens of millions more will have wrecked credit, unemployment will be raging, the cost of living will be much higher, credit markets will be tighter, existing home inventories will be massive, and few (due to said credit or employment issues) will be able to secure a new mortgage - even at these low prices.

In the shorter term: Nehemiah - a seller funded FHA downpayment assistance program used by ~ 40% of buyers today - ends on Oct 1st (~21 days from now): Down payment assistance program to end.

The YoY figures above prove it's quite brutal out there now, but the end of this program may be one of the final nails in the housing market coffin.

So, if you've been sitting on the sidelines up to now and you're getting itchy - thinking about jumping in soon, you may want to seriously consider the issues mentioned above before pulling the trigger.

Bottom line: Home prices still have a way to fall.

Regards

9% of all loans Nationwide Delinquent or in Foreclosure

Home loan troubles break records again



The source of trouble in the mortgage market has shifted from subprime loans made to borrowers with bad credit to homeowners who had solid credit but took out exotic loans with ballooning monthly payments.

The Mortgage Bankers Association said Friday that more than 4 million American homeowners with a mortgage — a record 9 percent — were either behind on their payments or in foreclosure at the end of June.

"The problem that policymakers and Wall Street once assured us was 'contained' to subprime mortgages has proven to be anything but," Mike Larson, a real estate analyst with Weiss Research, said in a research note.

As the economy falters and home prices keep falling, concern is building about a second wave of mortgage defaults flooding the market through 2010.

On Friday, the Labor Department said the nation's unemployment rate shot up to a five-year high of 6.1 percent in August.

A drop in income — whether through a lost job, divorce, death of a spouse, or health problems — is the No. 1 reason people fall beyond on their mortgages and lose their homes.

But mortgage defaults and foreclosures in many areas, especially California and Florida, can also be blamed on egregious lending practices and rampant speculation by homebuilders and small investors alike.

"We are unlikely to see a national turnaround until we see a turnaround in the two largest states," with the most outstanding home loans, said Jay Brinkmann, the Mortgage Bankers Association's chief economist.

The latest quarterly figures broke records for late payments, homes entering the foreclosure process and for the inventory of loans in foreclosure. The trade group's records go back to 1979.

The percentage of loans at least one month past due or in foreclosure was up from 8.1 percent in the January-March quarter, and up from 6.5 percent a year ago, using figures that were not adjusted for seasonal factors.

New foreclosures rose from the first quarter in 35 states and Washington, D.C. The biggest increases were in Nevada, Florida, California, Arizona, Michigan, Rhode Island, Indiana and Ohio.
New foreclosures actually declined in Texas, Massachusetts and Maryland. Both Maryland and Massachusetts recently passed laws to slow the foreclosure process and give borrowers more time to catch up on their payments.

Almost 500,000 homeowners, or about 1 percent, entered the foreclosure process in the second quarter.

But for the first time since the mortgage crisis started, delinquencies on subprime adjustable-rate loans declined. While more than one out of every five homeowners with a subprime ARM is still in default, that portion dipped 1 percentage point from the first quarter to 21 percent.

What's driving up the delinquency rate now is the number of homeowners with risky, adjustable-rate prime loans made with little or no proof of the borrowers' income or assets.

More than one out of 10 borrowers with a prime ARM is now delinquent or in foreclosure. That portion, 11.3 percent, was up from 9.7 percent in the first quarter, and is expected to rise as more homeowners see their monthly payments spike.

Many of these loans allowed the borrower to pay only the interest on the loan for a fixed period. Others gave the borrower the option to "pick-a-payment," adding any unpaid interest to the principal balance.

Defaults on these mortgages, which earned the nickname "liar loans" because borrowers often did not document their incomes, are costing Fannie Mae and Freddie Mac billions of dollars. The Treasury Department has even pledged to bail out the mortgage finance companies if necessary.

With home prices plummeting, particularly in California, Nevada, Arizona and Florida, many borrowers with these exotic loans now owe more on their homes than they are worth.

Worse still, these loans reset to higher monthly payments when borrowers reach maximum debt limits — typically around 10 to 25 percent more than the original loan.

Those resets can increase the borrower's monthly payment by more than $1,000 a month on average, Fitch Ratings said in a report this week.

And nearly half of these pay-option loans are expected to reset to higher monthly payments by the end of 2010, Fitch said.

Foreclosure Heat Maps

Las Vegas homes for $60 a Square Foot?

Since the beginning of the Las Vegas housing downturn back in 2006, I've told folks to expect Las Vegas home prices to revert back to 1999-2000 levels - an average of ~ $60-$65 a square foot. Early on, many laughed and thought it impossible. These days however, though we're not quite there yet, many are alarmed at how quickly my outlook is panning out to be future economic reality.


Allow me to share with you a few examples of what I'm talking about:


The first property I'd like to show you is:

Realtor.com listing Detail 9565 GONDOLIER ST, LAS VEGAS, NV 89178

Located in Mountains Edge, a Master-Planned Subdivision on the South side of town, this home offers a new buyer 5 Beds, 3 baths and 4,449 Sf of luxury for $379,900 - approx $85 a square foot.

Note: This home is currently bank owned - they swallowed $763,636 in unpaid debt on 7/15/2008. Thus, you can get this home for 51% off what the bank actually owes

The second property is:

Realtor.com listing Detail 6224 FOXHUNT ST, Las Vegas, NV 89130

Located in the "New-North" side of town (off No. I-215 and I95), this home offers 5 beds, 3 baths, and 4331 Sq Foot on .52 acres of land for $335,900- approx $77.5 a square foot.

Note: This home is also bank owned and they assumed $695,628 in unpaid debt on 1/28/2008. So, this home is being offered for 52% off what the bank assumed

The third property is:

Realtor.com listing Detail 9022 GREEK PALACE AV, LAS VEGAS, NV 89178

Once again located on the south side of town - in the Mountains Edge, Master Planned Community - this 5 bed 3 bath home of 4,264 Square Foot is being offered at $325K - $76 a Square foot

Note: This home is privately owned - the individual paid $640,717 to Ryland Homes back in March 2007. So, this home is actually being offered at a 49% discount from the 2007 purchase price.

The last property is:

Realtor.com listing Detail 9308 HARROW ROCK ST, LAS VEGAS, NV 89143

Located in the far North West side of the Valley, this home offers 9 Bedrooms, 4 baths and 6,087 Square foot of living space, situated on .21 acres - for $388,550 - $63 a Square Foot

Note: Once again, this home is bank owned and they assumed $641,860 of unpaid debt on 3/20/2008. Current price is 40% off what the bank assumed.





Closing:

Though the examples above are the exception and not the rule (yet), prices here are falling fast and I don't think it will be long before my ultimate price outlook comes to fruition.

Note: For personal integrity sake, and ease of sorting through thousands of listings, I chose newer, larger homes in desirable locations for my examples and could have showed better overall deals per SF, but due to bad locations and/or home conditions, that would not have honestly served my readers.

Feel free to look for yourself: Link to homes in Las Vegas > 4,000 SF (If you look at the link, note the first listing comes to $58 a SF, but it's in a crappy area; listing #3 is a great deal, but the home was built in 1984, etc)

Currently, there are over 28,000 for sale in the Valley and the median price is down > 30% YoY(thus far).

With foreclosures increasing by the day (I have them on both sides of my beautiful Toll Brothers rental property w/pool - and there are many more throughout this gated neighborhood) - I figure we're around 50-60% of the way to the ultimate bottom for Las Vegas house prices.

Bottom Line: $60-$65 SF median prices are nearly here...


BTW:

If/when any of my readers are interested in buying here in the Valley, I would highly recommend a fantastic realtor friend - a hard working man of integrity, who has more than gone out of his way in the past to help out my family when faced with a difficult housing predicament. I've used many realtors throughout the years and can unequivocally state "he's the best"

Give him a call - you won't be disappointed.

Gary Wittman
Realty One Group and a member of Foreclosure Express
Office: 702-743-5172
E-mail: wittmangary@yahoo.com



Best regards

Randy

Economicrot.blogspot.com

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Las Vegas: All flash and no cash

It's very popular to look/act the part here in flashy Las Vegas.

The cheap-money driven economic boon, which lasted through 2006, allowed the local masses to drive the best of new cars, wear fancy designer clothes, dine at trendy/expensive restaraunts and/or hang out at any one of the myriad of overpriced nightclubs here in town -- requiring a $20+ dollar cover charge (after a > 1 hour wait) and $8+ dollar drinks, just for the privilege of looking/acting like "you are someone" while hanging out with the "in" crowd.



Personally, though in the top 10% income bracket myself (just a point of reference -- not to boast), I'm too damned frugal (ok -- and too old) to really worry about these things, but I often laughed beneath my breath as I watched these eager masses of "trendy" folks fighting for their "perceived" status of "Got Bank" -- as I knew it was all a facade, wouldn't last, and the bills would one day come due.

When discussing the issue with friends, we would jokingly refer to the trend as "all flash and no cash".

Looks like we were right, as the party bills are now coming due and the years of "flash" now require some overdue "cash".


MensHealth ranks Las Vegas as top U.S. city for personal debt

If the number of foreclosures and bankruptcy filings didn't tell you Nevada's consumers stand on shaky financial ground, perhaps a new study will convince you of the fiscal peril visiting a legion of locals.

Web site MensHealth.com has named Las Vegas America's top city for the amount of personal debt -- credit card balances, auto loans, home loans and other consumer financing -- its residents carry. And those considerable obligations could worsen an already stagnant local economy, experts say.

Editors from MensHealth.com didn't comment for this story by press time. But a summary of criteria they used to develop their roster listed statistics including foreclosure rates, housing prices, bankruptcy filings, credit scores, levels of credit debt and credit usage.

Las Vegas or Nevada dominate at least a few of those indicators.

The state has spent most of the last year as No. 1 in the nation in foreclosures, according to Irvine, Calif., real estate research firm RealtyTrac. Las Vegas landed among the markets experiencing the biggest slides in housing prices -- 20.2 percent year-over-year in the first quarter, according to the National Association of Realtors -- and the state frequents the top 10 list in number of bankruptcies. And a recent TransUnion study found the Silver State has a higher percentage of consumers delinquent on credit card payments than any other state.

The West dominated MensHealth.com's list of worst cities for debt, with seven of the top 10 falling within or west of the Rockies.

Billings, Mont., posted the lowest load of personal debt.

Trends among local consumer agencies testify to growing debt loads in Southern Nevada.

Michele Johnson, president and chief executive officer of Consumer Credit Counseling Service in Las Vegas, said the nonprofit's client base jumped 70 percent this spring compared with a year ago. The stories she hears from the group's newest clients revolve mostly around housing, with interest-only and option adjustable-rate mortgages squeezing homeowners who can't afford rising borrowing costs.

"I've never seen it this bad. Never," said Johnson, who's worked for the service since 1982.

Reasons for high debt in Las Vegas stump experts. But Johnson speculated the influx of residents and high cost of living play roles.

"A lot of folks move here knowing that jobs are very plentiful, so they uproot themselves, move here with minimal assets and find the cost of living is much higher than they anticipated," Johnson suggested. "Insurance and day-care costs are very high, and though jobs are plentiful, they're not necessarily well-paying."

The result: Consumers fall back on credit cards to supplement income and meet monthly expenses.

Throw in exotic mortgages, which tens of thousands of local consumers took out from 2005 to 2007 to buy homes, and the problem compounds, Johnson said. As interest rates adjusted upward, housing payments ate into earnings and forced expenses ranging from food to utility bills onto plastic.

Snowballing debt, in turn, makes it tougher for consumers to respond to economic contraction.

"Consumers (with substantial obligations) just don't have the flexibility to spend, and any hit to their income becomes magnified through the burden of keeping current on their debt," said Joel Naroff, an economist and president of Naroff Economic Advisors in Holland, Pa. Markets experiencing economic downturns would suffer even more if residents carry big debts, he added.

Rising debt also hurts economies because it leaves consumers with less discretionary cash. The drop in spending on nonessentials hits big-ticket items hardest, with buyers picking up fewer cars, appliances, televisions and other high-dollar goods, Naroff said. Smaller operations, including restaurants and local retailers, suffer as well.

"A lot of people used their homes, especially if they got a year or two of price increases, to get home equity lines of credit and loans, and those loans became an important source of income," Naroff said. "Those (equity) funds purchased a lot of goods."

It's not the first time consumers overextended themselves en masse, Naroff said, and he expects the historic cycles to repeat themselves. That means indebted consumers will retrench in the next two to three years, cutting back on credit and improving their balance sheets.

But Naroff noted one key difference this time around that could lengthen recovery time. Unlike previous eras, big mortgages anchor today's heavy debt loads, and those heavy obligations mean "it's really going to take a while to get things back together again," Naroff said.

"It's going to spread at least through next year," he said. "How much farther is hard to know. Part of it will depend on how the economy bounces back."


Bottom line:

The Las Vegas housing market has tanked, credit markets have dried up, tourism is falling, gaming revenue is down, inflation is raging, and the bills are now coming due.

Certainly things are looking bad for Vegas now, but just wait to see what happens when the casino layoffs begin in earnest and the unemployment lines grow... We ain't seen nothing yet!



Regards

Randy

New Home Sales Data was released today

A government survey released today showed sales of new homes in May tumbled 2.5 percent across the United States.

The report said that new home sales declined to a seasonally adjusted pace of 512,000 homes (that means: across the nation a total of 42,666 homes sold in May -- seasonally adjusted of course).

"New homes are still a tough sell. Despite aggressive pricing, half of completed new homes are still sitting on the market after 8.5 months, the highest median months reading since 1982," said Patrick Newport, a US economist at Global Insight.


Randy

We Ain't seen nothin Yet

Since the end of the housing boom in 2005, I've been stating the housing correction in Las Vegas would be significant and we'd likely see a 50% haircut (peak to trough) in home prices. Thus far, odds are looking pretty good that I'll ultimately be correct (Maybe even too optimistic).



Four years of gains wiped out in just one.

Home prices across 20 major U.S. cities have dropped a record 15.3% in the past year and are now back to where they were in the summer of 2004, according to the Case-Shiller home price index released Tuesday by Standard & Poor's.

Las Vegas saw the biggest declines, with prices falling 26.8% in the past year.

With so many homes on the market and foreclosures rising, prices are likely to keep falling, said Patrick Newport, an economist with Global Insight

"We expect the 20-city Case-Shiller composite to fall another 15% to 20%, to a bottom at the end of 2009, translating to a peak-to-trough drop of 30% to 35%," wrote Michelle Meyer, an economist for Lehman Bros.

After accounting for 4.5% inflation over the past year, real home prices are down in every region in the nation.

Closing:

Thus far, the decline in bubble-region home prices has been quick, but I still feel we've got a long way to go. Significant banking/credit issues will soon to come to light again while unemployment numbers are due to increase significantly. Combine these issues with billions in Option Arm Resets, massive inflationary pressures and soon-to-be crucified equities markets and the result is a toxic Witch's Brew of economic misery that will continue to force massive downside price pressures across the nation.



Bottom Line: We ain't seen nothing yet!

Regards
Randy

DOW Surges on good news!

Thursday's retail sales reports came in twice as high as expected, while jobless claims rose significantly more than expected.

Meanwhile, today's inflation data came in mixed: May's officially reported (manipulated) Consumer Price Index rose a larger-than-forecast 0.6 percent, driven by everyday essentials like gas and food -- the biggest increase in six months. However, the (severely skewed) "Core CPI", which excludes energy and food prices, came in as expected, with a mere 0.2% rise in May.

Additionally, today's Consumer Sentiment figures, impacted by rising unemployment concerns and record gas prices, fell hard -- to the lowest registered since 1980 (Note: that would be a 28 year low for my math challenged readers).

All this great news, provided a boost to the DOW and it regained ~ 220 points over the course of the last two days. (sarcasm for those who don't know me)

Here's an interesting report from Yahoo finance, Market Update:

Stocks spiked in the final minutes of Friday’s session, ending the session with a 1.5% gain. The day’s optimistic tone was established early on as oil prices stepped lower and core economic data met economists’ expectations. The session’s advance helped position stocks to finish the week just below the unchanged mark. (My Comment: I wonder who was doing all the last minute buying? Hmm...)

With that behind us, lets take a gander at other rosy economic reports of the day:

Foreclosures Rise 48% in May as Repossessions Double

June 13 (Bloomberg) -- Banks repossessed twice as many homes in May and foreclosure filings rose 48 percent from a year ago as falling house prices trapped borrowers in mortgages they couldn't afford, RealtyTrac Inc. said in a report today.

The percentage of total outstanding U.S. homes in some stage of foreclosure in the first quarter was 2.47, the Washington-based Mortgage Bankers Association reported. The average over the last 30 years has been 0.98 percent, the industry group said.

Lenders took possession of 73,794 houses in May, more than doubling the 28,548 REOs in May 2007, RealtyTrac said.

``Right now, lenders are afraid to lend and buyers are afraid they'll be under water in a year, so unless something dramatic happens we're going to continue to see the trend go in the wrong direction,'' said Rick Sharga, RealtyTrac's vice president of marketing.

Corn surges to record highs

NEW YORK - Corn prices surged to a new record this week, dashing meat producers' hopes for lower animal feed costs.

Corn jumped to a record of $7.30 a bushel on the Chicago Board of Trade Friday after hitting new record prices for six days in a row.

The surge in price was mainly due to wet weather in the Midwest, which has drowned crops. Investors and analysts are now fearing supply of the grain could be in jeopardy since much of the crop has already been damaged.

US Airways to slash 1,700 jobs, cut more capacity

US Airways Group Inc said it will reduce its work force by 1,700, or about 5 percent, and will cut more capacity than planned and introduce new fees as the airline industry battles record fuel prices and a weakening economy.

Downgrade Flattens Fifth Third Bancorp

Fifth Third Bancorp's dividend may be doomed, according to one analyst who foresees a halved dividend and capital infusion plan in the regional bank's future.

On Friday, BMO Capital Markets Analyst Peter Winter downgraded Fifth Third Bancorp to market perform from outperform on expectations that net charge-offs will be much higher than anticipated. "Housing conditions and the overall economy have gotten much worse since March 31," Winters said.

Ford to Have More `Targeted' Buyouts at U.S. Plants

June 13 (Bloomberg) -- Ford Motor Co. will conduct additional ``targeted'' buyouts at some U.S. plants as the world's third-largest automaker shrinks its workforce to match dwindling sales.

The plan for more early departures underscores the pressure on Ford after losses of $15.3 billion over the past two years. Even with 38,000 U.S. production workers taking buyouts since 2006, the automaker may have too many plants and employees amid a 12-year decline in U.S. market share.

Chrysler raises prices 2 percent on 2008 inventory

Chrysler LLC is raising prices by an average 2 percent on most of its remaining 2008 vehicles in response to rising costs of steel and other raw materials.

The increase will take effect on vehicles shipped to dealers starting Monday, and won't affect vehicles already in dealers' inventories.

Chrysler's sales were down 25 percent in May, a month in which the whole market dropped 11 percent when compared with May of last year. Through the first five months of the year, Chrysler's sales were off 19 percent, with huge drops in larger vehicles that make up most of its lineup.

Moody's may cut Lehman's 'A1' rating on ouster of CFO

Moody's Investors Service on Friday placed Lehman Brothers Holdings A1 rating on review for a possible downgrade. The move follows Lehman's announcement that Chief Financial Officer Erin Callan is leaving. The ratings agency noted that although the purpose of the management change appears to be an effort to assure accountability for its losses and to strengthen risk and financial controls, the decision may, in fact, further erode investor confidence.

Lehman Employees Lost $10 Billion as Shares Declined

June 13 (Bloomberg) -- Lehman Brothers Holdings Inc.'s employees lost at least $10 billion as shares of the fourth- largest U.S. securities firm plummeted 74 percent from the high last year.

Office Max shares fall on index change

NEW YORK (AP) -- Shares of office-supply retailer OfficeMax Inc. hit a 52-week low on Friday, after Standard & Poor's said it would replace it on the S&P 500, effective at the close of trading

Bad economy means less access to college

Federal panel says economic downturn means fewer loans for some college students

The struggling economy is likely to make it tougher for college students to obtain and pay for loans this fall, members of a federal education panel said Friday.

The panelists, hosted by the U.S. Department of Education's Advisory Committee on Student Financial Assistance, said students face higher interest rates on loans issued by private entities like banks or may not qualify for loans at all as lenders tighten their requirements in light of the sub-prime mortgage crisis and other economic factors.



Regards
Randy

Goldilocks Economy - News Roundup

U.S. stocks rose the most in almost two months today, led by energy companies and retailers. I imaging the following issues weren't taken into consideration:

U.S. Mortgage Delinquencies, Foreclosures at Record

June 5 (Bloomberg) -- The number of Americans in danger of losing their homes to foreclosure rose to the highest in at least three decades during the first quarter as borrowers who fell behind on payments were unable to sell their homes.

The total inventory of homes in foreclosure increased to 2.47 percent and the delinquency rate, loans with one or more payments overdue, grew to 6.35 percent. All were the highest in a series that goes back to 1979, the Washington-based trade group said.

Equity in Americans’ homes falls to historic low

The equity Americans have in their most important asset — their homes — has dropped to its lowest level since the end of World War II.

Homeowners’ portion of equity slipped to 46.2 percent in the first quarter from a revised 47.5 percent in the previous quarter. That was the fifth quarter in a row below the 50 percent mark, the Federal Reserve said Thursday.

The total dollar value of equity also fell for the fourth straight quarter to $9.12 trillion from $9.52 trillion in the fourth quarter, while Americans’ total mortgage debt rose to $10.6 trillion from $10.53 trillion.

Experts expect equity to decline further as falling home prices erode the value of Americans’ largest asset, dragging more homeowners “upside down” on their mortgages.

At the end of March, nearly 8.5 million homeowners had negative or no equity in their homes, representing more than 16 percent of all homeowners with a mortgage, according to Moody’s Economy.com Chief Economist Mark Zandi. By June 2009, he estimates that will increase to 12.2 million, or almost one out of every four homeowners with a mortgage.

MBIA, Ambac, $1 Trillion of Debt, Lose S&P AAA Rating (Update3)

June 5 (Bloomberg) -- MBIA Inc. and Ambac Financial Group Inc., the world's largest bond insurers, had their AAA financial strength rankings cut by Standard & Poor's, taking with them the ratings on more than $1 trillion of securities they guaranteed.

The ratings were lowered two levels to AA, New York-based S&P said in a statement today. S&P said it would keep the ratings under review pending ``clarification of ultimate potential losses as well as future business prospects, the outcome of strategic business decisions, and potential regulatory developments.''

UBS Plans to Close Its Municipal Bond Business

UBS said Thursday it would close its municipal bond business after failing to find a buyer for what was the third-largest underwriter of American state and local government debt last year.

“UBS explored a number of alternatives to exit the institutional municipals business and determined that because of the complexities of selling the business in the current market and limited market capacity for a business of this size, a sale of the business was unlikely in the near term,” the company said in a statement.

Richmond Federal Reserve Bank President Jeffrey Lacker Says Fed Loans to Wall Street Risk More Crises

June 5 (Bloomberg) -- Richmond Federal Reserve Bank President Jeffrey Lacker, challenging Chairman Ben S. Bernanke's unprecedented actions to stem a financial panic, warned that lending to securities firms raises the risk of future tumult.

``The danger is that the effect of the recent credit extension on the incentives of financial-market participants might induce greater risk taking,'' Lacker said in a speech to the European Economics and Financial Centre in London. That ``in turn could give rise to more frequent crises,'' he said.

Lacker urged that the central bank now ``clearly'' set boundaries for its help to financial markets. In an interview yesterday on the themes of his speech, Lacker said even those new boundaries may not be believed by investors unless a financial firm fails ``in a costly way.''

The remarks are the strongest warning by an official about the consequences of the Fed's aid to securities dealers, the first lending to nonbanks since the Great Depression.

Federal Reserve Vice Chairman Donald Kohn Says Writedowns to Rise, Losses May Spread (Update3)

June 5 (Bloomberg) -- Federal Reserve officials expect some U.S. banks to report ``weak earnings'' and write down more assets while operating with insufficient reserves to cover bad loans, Vice Chairman Donald Kohn said.

The economic slump may increase problem loans for consumers, credit-card holders and corporations, Kohn testified today to the Senate Banking Committee. Banks ``must be prepared for the possibility'' that they may find it harder to borrow if financial-market turmoil continues or credit availability declines further, he said.

``We expect bank holding companies to continue to report weak earnings and further asset valuation writedowns,'' Kohn said during a hearing on the banking industry. Banks aren't increasing reserves enough to keep pace with losses, he said.

US banks fear $5 trillion balance impact

US banks fear accounting changes could impact lending as they force $5 trillion of assets back on to their balance sheets.

Analysts at Citigroup warn the planned tightening of accounting rules for off-balance sheet vehicles would force US banks to reconsider arrangements and could result in up to $5 trillion (₤2.5 trillion) of assets coming back on to their books.

‘We think it is very likely that these vehicles will come back on balance sheet.’ Birgit Specht, head of securitisation analysis at Citigroup, told Financial Times.

Ford Cutting Salaried Expenses By 15%; Delaying Merit Raises

DETROIT -(Dow Jones)- Ford Motor Co. (F) notified its U.S. salaried workers that it will trim expenses in its white-collar work force by 15% through layoffs, attrition and a hiring freeze on some open positions.

All moves, which will include trimming contract jobs, are slated to be completed by Aug. 1, Ford spokesman Mark Truby said Thursday. Truby also confirmed that merit raises for North American salaried workers, due to be paid in July, will be delayed until October. The auto maker will also suspend its U.S. tuition assistance program.

U.S. Auto Sales May Fall 1 Million in 2008, Ross Says (Update1)

June 5 (Bloomberg) -- U.S. auto sales may fall by 1 million vehicles this year and 350,000 more in 2009, said billionaire investor Wilbur Ross, who has been buying up suppliers of parts to the industry.

``The American consumer is tapped out and burned out,'' Ross said today in speech at the Ward's Auto Interior Show in Detroit. ``The pressure on consumers has been intensified by the loss of jobs and the high price of gas.''

Airlines Lose A Decade To Fuel

All airlines can do is cut, cut, cut. There is just no money left after dealing with increasingly rising fuel costs to continue at current levels.

"Based on a look at industry domestic capacity among legacy carriers, regional airlines, and low cost airlines, we expect 2009 domestic capacity will be in line with where it was in 1998 to 1999, essentially wiping out 10 years of growth for the legacy carriers," said McKenzie.

Summer airfares double, triple, quadruple

The law of supply and demand is kicking in for airline passengers this summer — and not in their favor.

Despite a string of price increases this year, demand for summer flights remains strong and the USA's big airlines are continuing to fill more than 80% of their seats.

This week, six Airlines (American, United, Delta, Northwest, Continental, US Airways) raised prices again for flights on many domestic routes where there's no non-stop competition from low-fare carriers. The result, says travel price guru Tom Parsons of BestFares.com, is that the cheapest tickets available on many routes in July are 100% to 300% higher than a year ago.

These are historic rates for fare increases, but even with that, airlines are failing to keep up with their rising fuel costs.

Americans' net worth took a dive in the first quarter

Yes, you have gotten poorer. And at an accelerated pace.

The net worth of U.S. households fell in the first quarter, the second straight decline, thanks to the double-whammy of sliding home values and the plunge in stock prices, the Federal Reserve said in a report today.

The central bank’s so-called flow of funds report estimated the net worth of American households at $55.97 trillion as of March 31, down $1.7 trillion from year-end. That was more than three times the $530-billion drop in the fourth quarter.

More Troubles for the US Dollar? : Trichet Says ECB May Consider Raising Rates in July

June 5 (Bloomberg) -- European Central Bank President Jean- Claude Trichet said officials may raise interest rates next month to combat the fastest inflation in 16 years, sparking a surge in the euro and pushing bond yields to the highest level since 2001.

``It's not excluded that, after having carefully examined the situation, that we could decide to move our rates by a small amount at our next meeting,''

Not really important, but indicative of the times we live in, so I figured I'd post it anyway:

Boxer Holyfield Joins List of Celebrities Facing Foreclosure

June 5 (Bloomberg) -- Evander Holyfield, the former heavyweight boxing champion, faces losing his home to foreclosure, joining fellow athlete Jose Canseco and former ``Tonight Show'' sidekick Ed McMahon among celebrities struggling to pay mortgages.

Holyfield's estate in Fairburn, Georgia, will be put up for auction July 1 to repay a mortgage on the property with an original principal of $10 million, according to a legal notice published yesterday in the Fayette Daily News. Washington Mutual Inc., the biggest U.S. savings and loan, filed the notice, which identifies Holyfield as the property's owner.

Closing:

Very nice "Goldilocks Economy" rally in US Stocks today. Certainly hope all the bad news has been digested.

Regards

Randy

Absolutely Staggering Housing Chart!

May 29th - Economist.com

America's house prices are falling even faster than during the Great Depression



AS HOUSE prices in America continue their rapid descent, market-watchers are having to cast back ever further for gloomy comparisons. The latest S&P/Case-Shiller national house-price index, published this week, showed a slump of 14.1% in the year to the first quarter, the worst since the index began 20 years ago. Now Robert Shiller, an economist at Yale University and co-inventor of the index, has compiled a version that stretches back over a century. This shows that the latest fall in nominal prices is already much bigger than the 10.5% drop in 1932, the worst point of the Depression. And things are even worse than they look. In the deflationary 1930s house prices declined less in real terms. Today inflation is running at a brisk pace, so property prices have fallen by a staggering 18% in real terms over the past year.

More writedowns on the way?

Consumer Confidence and New home sales data will be released tomorrow (10:00 EST)... This data could make for a very interesting day, as consumer confidence is already at a 15 year low and new home sales (viewed as a leading indicator of the housing market) hit a 17 year low last month... I expect any lower indications tomorrow to possibly roil the financials once again.

Markets: Tough Days

US shares had their largest weekly fall in almost four months last week as investors rediscovered the real US economy and realised the credit crunch and housing slump had not somehow been vanquished by the rescue of Bear Stearns in March.

And that will be bad news for market sentiment here were a 1% fall has been tipped on the futures market.

Worryingly, the big drivers of Friday's 146 point fall on the Dow were the likes of Lehman Brothers, Morgan Stanley and Merrill Lynch; the big, troubled investment banks that had stabilised in the wake of the rescue of Bear Stearns by the US Federal Reserve. Goldman Sachs dropped for a ninth day in a row.


UBS warns of more losses

LONDON (MarketWatch) -- UBS on Monday warned that that it may have to record losses on non-U.S. real estate as it seeks nearly $16 billion from shareholders to repair a dented balance sheet.

UBS last week said it's going to sell $22 billion of subprime and Alt-A U.S. residential-mortgage-backed securities to BlackRock for $15 billion, with UBS providing the fund manager an $11.25 billion loan in the process.

But as the subprime troubles cool down, others have sprung up. UBS's exposure to auction-rate securities, used mostly in municipal financing, increased to 11 billion francs ($10.7 billion) from 6 billion francs during the first quarter.

UBS said its loss-making positions in real estate markets outside the U.S. "could increase," the Swiss bank said in the prospectus.

All told, UBS has taken about $19.2 billion in write-downs and losses to an $82.6 billion portfolio of securities tied mostly to the U.S. housing market.

UBS already has issued 13 billion francs of convertible notes to sovereign wealth funds in Singapore and a Middle Eastern country it hasn't named. It's now selling 16 billion francs of stock to existing shareholders at a 31% discount to Wednesday's close.

Shares of UBS, which on Tuesday will trade without subscription rights, dropped 5.8% in Swiss action and are down more than 60% over the past 12 months.


Writedown bug could bite Lehman

The brokerage firm's accounting is back under scrutiny.

Lehman Brothers has some explaining to do (My thought: The next Bear Stearns?).

Shares of the big brokerage firm have dropped 13% over the past three days amid renewed questions about the health of Lehman's balance sheet. The setback comes just over a month after finance chief Erin Callan led a public relations blitz that aimed to dispel worries about Lehman's financial standing following the collapse of rival Bear Stearns. Callan's efforts were aided by a surprisingly solid first quarter earnings report and a $4 billion preferred stock sale that was strongly oversubscribed.

But David Einhorn, the manager of the Greenlight Capital hedge fund, reopened the case against Lehman in a speech Wednesday. Einhorn, who along with any number of other value-oriented, long/short hedge fund managers is short Lehman, says the firm hasn't taken sufficient writedowns on its $6.5 billion collateralized debt obligation book to account for the sharp decline in the value of this sort of paper. Einhorn laid out his argument in a speech at the Ira Sohn Investment Research Conference.

A Lehman spokesman declined to comment, although the firm has made clear that it dismisses Einhorn's claims root and branch because of his short position.

But based on price-checks in the secondary market, Einhorn appears to have a good point. It seems highly unlikely that the $200 million in writedowns Lehman took in the first quarter - representing just 3% of the CDO portfolio's value - begins to account for the hit that this paper would take were it to come to market.

The CDOs Einhorn is scrutinizing include various asset-backed securities, primarily auto- and credit-card loans, with some small business and franchise loans. There is no mortgage-bond exposure in these CDOs, but that's not to say the bonds are pristine. About 25% of the portfolio, or $1.62 billion, is rated noninvestment grade, with ratings of BB-plus or below.

Not to put too fine a point on the matter, but merely finding a buyer for a $1.62 billion portfolio of sub-investment grade loan CDOs would be an achievement in this market. There is, in fact, an excellent chance that no buyers exist for these securities, given the apparent problems with the underlying collateral. Portfolio managers in contact with Lehman's own trading desks told Fortune that the firm appears to value such "scratch and dent" loans held by other firms at deeply discounted levels, with no guarantee that the Lehman desks would even bid on this paper themselves.

All that said, two dealers say a reasonable bid, could one be found, might be 10 cents on the dollar. That suggests Lehman could be looking at a writedown of more than $1 billion on this portion of its holdings alone.

To be fair to Lehman, the rest of the portfolio isn't nearly as problematic. Still, these CDOs - nearly $5 billion worth - could also be subject to discounts beyond the 3% Lehman seems to have decided on, and the discounts will only get deeper if the rating drops lower.

Of course, according to its 10-Q filing, at the end of the first quarter Lehman had $786 billion in total assets. So the decision of whether to write down a billion dollars or two could easily fall short of materiality. But it's nearly impossible to carry off an argument that the 3% haircut Lehman has taken so far on its $6.5 billion portfolio is remotely adequate. Were Lehman to seek a buyer for the entire portfolio at once, a bid of 50% of face-value might be generous. Whatever Einhorn's motivation, it appears clear that the firm's investors would do well to brace for at least one more round of asset writedowns.

Daily Economic News

It's been a long day and there is so much I want to say, but there just isn't enough time.

I just got in... Attended my son's H.S. Graduation Awards Ceremony tonight and I'm proud to report that he's graduating with High Honors (4.2GPA).

One wonders, with the economic situation being what it is, what opportunities will be available to him 4 years from now when he has a B.S. Degree in hand. Scary to even contemplate...

Anyway, much happening in the markets of late. The US Dollar index is plummeting again. Will it make another historic "all-time low" this time around? I think it's quite possible, though 70 will provide very tough downside resistance.

And how about that Oil? Holy Crap--Light Sweet Crude Oil just broke through $135 in Asian Trading tonight! The Chart below hasn't even had a chance to catch up yet.... Anyway, with that said, I want you to note the severely overbought condition in Oil. Don't be surprised to see a pullback sometime soon, but I honestly don't think it will fall below $110 and when it does, it won't stay down for very long. Expect $150 tops before a nice correction.

Gold, as I've been forecasting for weeks now, is rebounding nicely. It has cut back through the 50DMA and the MACD has decidedly turned upwards. I still stand by my earlier comment: $1,200 gold by end of 2008.

The DOW on the other hand is looking pretty ugly -- it sliced back through its 50DMA and the MACD is also turning down. I don't think we'll test the March lows just yet, but think it's inevitable over the longer run -- and when we finally do: look out below!

I expect tomorrow to be a very interesting day also... All the Asian Indexes are currently in the red on inflation concerns, and existing home sales data gets released tomorrow at 10:00 EST. Consensus expects the numbers to come in at 4.85 Million (annualized) sales -- keep your eye on market reactions.

With that, I'm going to have to call it a night (told you I didn't have much time). I hope all of you have a great evening.

Regards

Randy

UPDATED: US Economic Outlook 2008 -2011+ Briefing

Recently, as part of a broad based financial education class for younger folks (in their 20's-30's), I was asked to provide an economic outlook assessment/briefing to help these young adults gain a better understanding of the very complex problems the US economy is dealing with -- both current and future.

Other people will provide generic information w/regard to: balancing a checkbook, living within your means, using credit wisely, investment options, compounding interest, etc... My main objective is: try to make a very complex issue (economic problems/future forecasting) easy to follow, so that these young people can make wiser decisions based upon the knowledge they have gained.

With that said, I have yet to give the actual briefing (it's scheduled for early June), so I thought I'd take advantage of the available time and ask some of you smart folks to review and provide feedback w/regard to content, complexities, general flow/digestibility, accuracy, missing content, etc...

Please remember -- this briefing was tailored for folks who know little about the history of money, the broader economy, inflation or the many issues in play. Additionally, I plan to expound upon many of the points made in the briefing (when presenting it).

Would really appreciate your comments/feedback.

NOTE: briefing updated based on reader feedback and 207 reads today -- very much appreciated!

The following topic's were added/corrected:
- 20% annual growth = 4 year doubling of money supply
- Short history on Federal Reserve
- US Dollar as World's Reserve Currency
- Oil/OPEC issues (imbedded w/Dollar and Current/future outlook)

US Economic Outlook Briefing (Use full-screen mode for best results)


Thanks in advance!

Randy

"Goldilocks economy" news roundup

Citigroup to shed nearly $500 billion in assets

Citigroup aims to shed between $400 billion and $500 billion of its $2.2 trillion in assets and grow revenue by 9 percent over the next few years as it tries to rebound from massive losses tied to deterioration in the credit markets.

The $500 billion in so-called "legacy assets" the bank intends to sell off or allow to mature include yet-to-be-named noncore businesses, as well as assets in Citigroup's securities and consumer banking segments. That includes mortgages and other real estate-related holdings.

Citigroup has already begun its winding-down process by writing down about $38 billion in soured debt since last summer, and setting plans to reduce its residential mortgage assets by $45 billion over the coming year. It has also sold businesses including CitiCapital, CitiStreet and Diners Club.

These moves arrived on top of huge stock sales to outside investors, including government funds in Singapore and the United Arab Emirates.

While others agreed that Citi had to sell assets, not everyone was certain how easy such a sale would be.

"I'm not sure they have half a trillion in good assets that someone wants to buy. But they're doing the obvious — they have no choice," said R. Christopher Whalen, managing director of consulting firm Institutional Risk Analytics.


A.I.G.’s Quarterly Loss Depresses Dow

The insurer American International Group helped send the Dow Jones industrial average down about 120 points after posting a $7.8 billion first-quarter loss that rekindled anxiety about the strained state of the global financial system.

“The news came as something of a surprise to some and a wake-up call to most that the financial service companies are not yet out of the woods,” said Philip J. Orlando, chief equity market strategist at Federated Investors


Delphi Corp. Reports 1st-Quarter Loss of $589 Million

Delphi Corp., the bankrupt former auto-parts subsidiary of General Motors Corp. said its first- quarter loss widened to $589 million as sales to its former parent declined.

The supplier, which failed to leave court protection as planned last month when an investor group pulled out, said shipments to GM fell 18 percent. The automaker's output in North America has been curtailed by a strike at supplier American Axle & Manufacturing Holdings Inc. that began on Feb. 26.

Delphi last month cut its 2008 earnings forecast because of falling U.S. vehicle sales. The supplier said today it will seek to increase the limit on its debtor-in-possession credit facility to $4.35 billion from $4.1 billion, subject to court approval


Gas jumps above $3.67, oil passes $126 on Venezuela concerns

Oil rose above $126 a barrel for the first time Friday, bringing its advance this week to nearly $10, as investors questioned whether a possible confrontation between the U.S. and Venezuela could cut exports from the OPEC member. Gas prices, meanwhile, rose above an average $3.67 a gallon at the pump, following oil's recent path higher.

On Friday, The Wall Street Journal published a report that suggested closer ties between Venezuelan President Hugo Chavez and rebels attempting to overthrow Colombia's government. Chavez has been linked to Colombian rebels previously, but the paper reported it had reviewed computer files indicating concrete offers by Venezuela's leader to arm guerillas. That appears to heighten the chances that the U.S. could impose sanctions on one of its biggest oil suppliers.

Oil prices also were boosted Friday by the dollar, which declined against the euro. The European Central Bank said it was unlikely to consider interest rate cuts to cool the strong euro against the slumping dollar.


FedEx Lowers Profit Outlook on Higher Fuel Costs, Lower Demand

FedEx Corp., the second-largest U.S. package-shipping company, said fourth-quarter profit will miss its forecast after surging fuel prices raised costs by at least $100 million more than estimated.

Yesterday's forecast marked the second time FedEx pared its outlook this fiscal year under the strain of the rising price of oil, which set records each day this week, and a possible U.S. recession. United Parcel Service Inc., the largest U.S. shipper, last month lowered its forecast as well.


High fuel prices hurting airlines more than 9/11:

"The world has changed dramatically for the airline industry," said Scott Dickson, senior vice president and chief marketing officer at Oak Creek, Wis.-based Midwest Air Group Inc. (NYSE: MEH), which operates Midwest Airlines.

"This is probably a bigger shock to the airlines' systems than what happened after 9/11. This is going to bring some very fundamental change in the industry in terms of its size, its shape and its character, especially if these phenomenally high fuel prices continue for any length of time."

Fuel prices for airlines have risen 200 percent since 2000 and more than 60 percent over the last year, said Dickson, who spoke Thursday at the Public Policy Forum's Viewpoint luncheon at the Hilton Milwaukee City Center.

Eight airlines recently have gone out of business, in large part because of fuel costs, according to Dickson.

"There are carriers that have had aggressive growth plans that are now announcing zero or negative growth plans," he said. "I don't think any carrier in the industry has a growth plan for the next 18 months."


Housing Bailout Bill Seems to Be on Shaky Ground

Even as the housing foreclosure crisis deepens, legislation to rescue homeowners and their lenders appears to be in significant political jeopardy.

The bill, which passed the House on Thursday, is quickly becoming a casualty in a battle between the Bush administration, which says it opposes any taxpayer bailout that would only further encourage risky lending practices, and Democrats who say that homeowner assistance is the only way to contain the damage to the broader economy.

The Bush administration on Friday said it would only support legislation that did not require taxpayer funds. The Congressional Budget Office estimates that the House-passed measure would refinance as many as 500,000 homes over the next five years, at a cost to taxpayers of about $2.7 billion.

“Taxpayers shouldn’t be taking on the risk of foreclosure,” said Tony Fratto, a White House spokesman.

Under the voluntary plan that was approved by the House, borrowers at risk of default would be able to refinance their loans at a more affordable 30-year fixed-rate mortgage insured by the Federal Housing Administration.

In exchange for avoiding foreclosure, lenders would have to agree to reduce the principal balance. The borrowers would pay a monthly insurance fee that would go to a fund to protect taxpayers from losses. A consensus was emerging on Friday that if Congress adopted a measure, it would likely be far more modest than the one passed by the House, which itself has been criticized by housing groups for being too small.


Fannie to Aid Underwater Loans

Fannie Mae is preparing to introduce by midyear a program of refinancing mortgages for people who owe more than the current value of their homes, a situation known as being "underwater."

The plan is the latest twist in efforts to contain the surge in foreclosures on homes in much of the U.S. It differs from a bill approved by the House on Thursday that would authorize the Federal Housing Administration to insure loans for distressed borrowers only after the lender has written down the principal -- something many lenders are reluctant to do. Fannie's refinance plan would result in new loans of equivalent size, leaving the borrower underwater but giving him or her a lower monthly payment or at least a fixed rate.

We're saying to the consumer, 'You're not trapped any more,'" said Jeff Hayward, a senior vice president at Fannie.

The program will allow refinancing loans of as much as 120% of the property value. Fannie officials project that 150,000 households could qualify for such refinancings.

Rather than reducing the principal due on the loan and taking an immediate loss, Fannie is betting that these people will be able to keep up on their new loans and prices will recover.


The Ticking Credit Card Time Bomb

My guess is that many Americas continue to run up massive credit card debt because they have little intention of every paying it off. Since many who are underwater on the home loans, and behind on the auto and student loans see bankruptcy as a foregone conclusion, they see no downside to pilling on as much debt as possible while the taps remain open.

Those choking on credit card debt may also be taking cheer from the gathering government campaign to bail out over-leveraged homeowners. The sheer numbers of who are afflicted with spiraling monthly payments will make credit card relief a potent political issue for crusading Congressman and Presidential candidates. After all, there are few fundamental differences between those who borrowed too much to buy houses and those who made the same mistake with consumer goods. If the government bails out the former why not the latter? In fact, one reason some homeowners have such large mortgages is that they consolidated their credit card debts into their mortgages each time they refinanced. Why should renters be forced to pay off their credit card debts while homeowners have theirs forgiven?

Soon, as credit card delinquencies rise and losses on pools of securitized credit card debt mount, those supplying the credit will finally get wise to the fact they will never get their money back. As a result the market for such debt will dry up even more quickly than did the market for subprime mortgages. Cards will therefore be much harder to come by and will have much lower limits then they do today. Limited to only the cash in their wallets, Americans will finally be forced to dramatically curtail their spending, and the recession will finally gather serious momentum.



Randy

Economic Troubles Affect the Vegas Strip

This non-economist writer has been forecasting the looming Las Vegas economic downturn since early 2006: Las Vegas—A House of Cards Bound to fall -- if you read the comments/feedback section to that post, you'll realize that some felt I belonged in a loony bin...

Quote 1:

"You're certainty about the fragility of Vegas in the face of a national economic downturn belies a level of profound ignorance to it's past. Stated in terms more suited to you, betting against Vegas is a sucker bet. "

Quote 2:

"Randy, the level of certainty you work yourself into regarding things you know absolutely nothing about is fun to watch, in the same way one watches "Jack Ass". Whether or not that is at cross purposes to your own best interest will be for you to decide."

Ouch! Yes, pretty harsh indeed... But I was un-fazed, because I knew this national economic downturn would be bigger than any seen in many decades, and that the final outcome would be very difficult for our non-diversified Las Vegas economy...

Well, it now looks as if I may be vindicated, as the tide is beginning to turn...

Take my recent (April 08) piece which listed some downturning indicators; illustrating that all is not well in Las Vegas: The Las Vegas Economic Downturn Has Started


And just today the the New York Times released an article that backs me up: Economic Troubles Affect the Vegas Strip

For decades, this gambling center seemed nearly immune to the economic swings of the rest of the country. But these days, the city built on excess is seeing a troubling sign: moderation.

Gambling revenue and hotel occupancy are down. Resorts are slashing room rates and offering coupons or free nights. Casino operators are firing hundreds of workers, and their stock prices have plummeted since October. Credit is drying up for hotel and condominium projects planned before the slowdown arrived.

Even the people still coming to Las Vegas are spending less. Julia Lee, 27, of Los Angeles said she normally brings $10,000 on her trips here to play blackjack. As Ms. Lee picked up show tickets the other night, she said she had brought less than half that on this trip. “My parents are in real estate, and we’re worried,” she said.

So are this city’s hoteliers, retailers, wedding chapel operators and anyone else who depends on the extravagance of gamblers and tourists. The spending declines are relatively modest, a few percentage points here and there. But Las Vegas has a huge inventory of new casinos and hotels due for completion in the next few years, and a long national recession could send the city reeling.

The Las Vegas outlook would be far worse if not for foreign visitors. They are taking advantage of the low dollar to savor the fare of celebrity chefs like Alex Stratta and to snap up goods that might cost twice as much in Europe.

To manage the slowdown, Las Vegas is revving up an overseas marketing campaign, and in the United States, it is pitching spontaneous Vegas escapes. “Do it without thinking!” says one television spot.

But representing only 13 percent of visitors, foreigners can take up only so much slack. Deutsche Bank recently started foreclosure on a $760 million construction loan for the Cosmopolitan Resort and Casino, a partly built project in the heart of the Las Vegas Strip.

Crown Las Vegas, a bullet-shaped hotel and casino resort that was supposed to become the tallest building in the city, was scrapped a few weeks ago for lack of financing.

One of the most prominent Las Vegas casino operators, Tropicana Entertainment, said Monday it would seek bankruptcy protection. The company, beset by financial difficulties, made cutbacks at a casino in Atlantic City that prompted New Jersey regulators to strip it of its license there; that set off a cascade of fresh financial problems.

Other multibillion-dollar Las Vegas projects are facing delays or have been put up for sale because of tightening credit and changing Wall Street perceptions about the city. The city’s resort properties already have 130,000 rooms, and Wall Street — which financed much of the recent boom — is worried that Las Vegas cannot absorb the 40,000 more that are on the drawing board or under construction.

“In this market, it is not good business to be confident,” said Jan L. Jones, a senior vice president at Harrah’s Entertainment and a former Las Vegas mayor. “I’ve never seen an economy like this nationally. Nobody knows how deep what nobody wants to call a recession will go.”

Historically, Las Vegas has been resistant to recessions, entering them later and exiting them sooner than the country at large. Gamblers, particularly high rollers, tend to play no matter which way the economic winds are blowing.

But executives here worry this recession could be different from the last two — in 1990-1 and 2001 — when consumer spending was propped up by easy credit. Now credit is drying up. And high gas and food prices, declining home values and rising unemployment are keeping many Americans closer to home.

More important, over the last two decades Las Vegas has shifted from a destination dominated by gambling to one with more appeal to middle-class shoppers, diners, golfers and others who can afford brief splurges. Whereas gambling represented 58 percent of revenue for Las Vegas Strip resorts in 1990, it represented only 41 percent of revenue in 2007, according to a Deutsche Bank report.

As gambling was legalized in more parts of the country in recent years, Las Vegas was forced to expand its own offerings to keep growing. It worked, but it made the city more susceptible to recessionary declines in disposable income.

“Las Vegas is now as vulnerable as other communities,” said J. Terrence Lanni, chairman of the board of MGM Mirage.

Hotel occupancy was down for January and February, the most recent figures, by 1.5 percent, despite average daily room rates 3.8 percent below the year before. Gambling revenue in the Las Vegas metropolitan area for the same period was down about 4 percent.

“It’s accelerating to the downside,” said Bill Lerner, a senior gambling analyst at Deutsche Bank who lives in Las Vegas. “Las Vegas’s economy is more reflective of the general economy than ever.”

Las Vegas visitors said in recent interviews that they were spending less than in the past.

Rita Keene, a retired insurance risk manager from Collinsville, Ill., said she has been coming to Las Vegas several times a year since 1978 and had never set gambling limits. This year she is betting no more than $300 a day at the slot machines, and she is not going to shows.

“We have investments, and you know what the stock market has been doing,” she said while putting quarters in a slot machine at the Orleans casino. “My husband and I have even talked about this maybe being our last time.”


Closing:

Allow me to repeat my 2006 closing post (from: Las Vegas -- A House of Cards) below:

"Once the LV layoffs begin, more homes will go into foreclosure, as people won’t be able to make their mortgage payments. Then businesses outside of the casino industry (local restaurants, retail, home improvements, beauty, health care, etc) will also begin to feel the pain. Eventually, a chain reaction of dominoes will begin to fall, and ultimately the number of outbound U-hauls will vastly exceed those inbound..."

Well, Nevada is already leading the nation in both foreclosures and price declines ( Nevada Tops in Foreclosures AND Price Declines! ), so as tourism continues to fall and the layoffs increase, I expect we'll see a far worse economy down the road...

Bottom Line:

The Las Vegas downturn has just started and we're merely seeing the opening salvo today.

Better reserve that U-haul now!!!

Regards

Randy

$6 Trillion Housing Loss

A Washington think tank is warning that housing prices are falling at an accelerating level, destroying wealth at a pace that will cost the average homeowner $85,000 in lost wealth this year alone.



The projections by the Center for Economic and Policy Research are based on the numbers in Tuesday's Case-Shiller home price index, which showed accelerating price declines in most big cities.


The annual rate of price decline over the last quarter was 24.9% in the 20-city index and 25.8% in the 10-city index," the center said in its Housing Market Monitor today. "At this rate of price decline, the excesses of the housing bubble will have largely disappeared by the end of the year. At the same time, the price decline implies an incredibly rapid loss of wealth.


In real terms, the rate of price decline in the 20-city index would imply a loss of almost $6 trillion in real housing wealth over the course of the year, an average of $85,000 per homeowner."

Disappearing now: $6 trillion in housing wealth

Nevada Tops in Foreclosures AND Price Declines!

Housing prices post record declines--Las Vegas, Miami and Phoenix all saw prices plummet by at least 20%. And so far, there is no sign of a bottom.

Home prices have posted another record decline, as most of the nation's largest markets suffered double-digit drops over last year, a survey released Tuesday shows.

The S&P Case/Shiller Home Price Index, which tracks 20 of the largest housing markets, showed prices plummeting by 12.7% in the 12 months ending February. That's the biggest fall since the index began tracking prices in 2000.

The 10-city Case/Shiller index is down 13.6% year-over-year, the biggest drop since its launch in 1987.

"There is no sign of a bottom in the numbers," S&P spokesman David M. Blitzer, said in a prepared statement. "Prices of single family homes continue to drop across the nation."

"This is huge," said Dean Baker, co-director of the Center for Economic and Policy Research. "Back a couple of years ago, people were saying, 'Housing prices are not like stocks; they change slowly,'" he said.

But the drop in home prices appears to be accelerating. Indeed, Baker said that at the rate prices are falling, as much as $6 trillion in home values could be wiped out from the top of the market in June, 2006, through the end of this year.

Prices in the Las Vegas metro area have plunged more than any other city, down 22.8% over the 12 months through February. Miami prices plummeted 21.7%. In Phoenix, they've fallen 20.8%.

The declines create a vicious cycle, according to Peter Schiff, the president of the investment firm Euro Pacific Capital. He was sounding alarms about the housing bubble more than two years ago.

As housing price losses extend, he said, the fall-off in demand for homes will deepen. And Schiff expects to see a national price decline of 30% - and by as much as 50% in the worst hit markets.

U.S. Foreclosure Filings Double in First Quarter, Led by Nevada

April 29 (Bloomberg) -- U.S. foreclosure filings more than doubled in the first quarter as payments rose for subprime adjustable mortgages and falling home prices left property owners unable to sell or refinance without losing money.

Almost 650,000 properties were in some stage of foreclosure during the quarter, or 1 in every 194 U.S. households, Irvine, California-based RealtyTrac Inc., a seller of foreclosure data, said today in a statement. The number was 112 percent above a year ago. Nevada, California and Arizona had the highest rates.

Home prices in 20 U.S. metropolitan areas fell 10.7 percent in January from a year earlier, the most on record, declining for the 13th straight month, according to the S&P/Case-Shiller home- price index. A record 18.6 million homes stood empty in the first quarter, the U.S. Census Bureau said yesterday.

Government attempts to slow the flood of defaults ``could be simply deferring another flood of foreclosures,'' Saccacio said in the statement. ``That could extend the length of time it takes the market to recover from this downward cycle.''

Nevada led the nation with the highest foreclosure rate in the first three months of the year. Filings rose 137 percent to 19,595 from the year-earlier period. One in every 54 households there was in default or foreclosure, said RealtyTrac, which counts default notices, auction notices and bank repossessions and has a database of more than 1 million properties.

Home prices sink at record clip; foreclosures keep mounting

Jody Hanson and her boyfriend Scott Harrison want to buy a two-story house with at least three bedrooms in Las Vegas for no more than $225,000. So far they have been out-bid on four foreclosed homes.

"There are just a ton of people here getting foreclosed upon," Hanson said, "so there are just so many deals waiting for you."

Half of all sales in Las Vegas are foreclosures, said Karen Wilson, a local Century 21 agent, though she said the glut of homes on the market has started to wane and transactions have picked up.

Nevada posted the country's worst foreclosure rate in the first quarter, RealtyTrac Inc. said Tuesday, with one in every 54 households receiving a foreclosure-related notice.

"Once the market starts in a given direction, the momentum will carry it down, even below the (historic) trend line, until something happens to change the overall psychology," said Jim Gaines, a research economist at Real Estate Center at Texas A&M University.

Bottom Line: We aren't anywhere near the bottom yet. I've already seen (very nice) bank-owned foreclosure selling for ~ 60% of their Peak prices (a 40% haircut) and with increasingly tight credit markets, waves of future mortgage resets (can you say EXPLODING ARMS), declining tourism/gaming revenues and a weakening job market, foreclosures will continue to increase and prices will keep on falling... Banks can't continue to hold their increasingly massive inventories and will eventually have to resort to fireside sales... I honestly expect to see 1999-2000 prices again ($65 a SF) -- within 24-36 months.


Note: Here's a late add video-- sent to me by a reader:

VIDEO: Angry owners vandalizing foreclosed homes in Las Vegas


All the best

Randy

End of the road for FOMC rate cuts; Pause to come?

Consensus feels, due to rising inflation pressures, a slowdown in unemployment figures, a rising equity market and a less volatile credit market, that the FOMC may be towards the end of their rate cutting and many now feel a "pause" will be in order (either this time - April 30th or next - June 25th)


Dollar Rallies on Fed Rate Pause Speculations

The dollar rallied in NY trading Thursday following a WSJ report that the Federal Reserve may signal an interest-rate pause at the next FOMC meeting due to inflation concerns.

A Wall Street Journal report by Fed watcher Greg Ip said the Federal Reserve may cut the federal funds rate by 25 basis points next week and then keep the rate steady from there.


The Case For Dollar Strength?

The FOMC-There’s evidence that policy makers may want to pause now in order to give the actions they have already taken time to work their way into the system. Fed Governor Kevin Warsh said last week that as credit markets begin to operate more smoothly, more of the Fed’s interest-rate cuts will filter through to the economy. "The problems afflicting our financial markets are indeed long-in-the-making," he said. "Time is an essential tool of our policy response."

There have been some remarkable changes recently in how the market sees the FOMC members making policy changes at the April 29-30 meeting and beyond. Four weeks ago, traders saw a 72% chance for a 50 basis point move in April and a 28% chance for 25 basis points. Last week, traders began seeing no chance for a 50 basis point cut and now see an 18% chance the Fed will make no move at all (the rest of the bets are for a 25 basis point cut, which is the outcome that is most likely). What’s more, the chances of the Fed going below 2.0% on the overnight rate are decreasing rapidly-there currently is a 69% chance that the Fed will make no move at all at the June meeting. This doesn't mean the Fed is necessarily finished adjusting policy, but rather a that period to pause in order to assess the effectiveness of the policy changes that have already been made seems to be in order.


U.S. stocks set to face a sterner Fed

U.S. stocks will face renewed pressure next week, with investors facing not only another heavy week of earnings, but also key data that may confirm the U.S. economy is in recession and a Federal Reserve increasingly expected to pause its campaign to lower interest rates

Although many commentators are talking as if the Federal Reserve has already decided to cut interest rates by a quarter-point rate cut next week followed by a pause over the summer, there is a chance the Fed could instead decide to just pause right here, Fed watchers said



My thoughts:

I don't buy it, as there are still far too many uncertainties out there for the Fed. I expect a 25Bp cut this time around followed by another in June (or an emergency cut if warranted beforehand) and a 1.25% rate by the end of the year.

Certainly we may see a small dollar rally beforehand, but I expect the USDX to easily fall below 70 this year as the fed continues to add fuel (liquidity) to the raging economic fire.

We are nowhere near the end of this housing/credit/insolvency crisis and think ZIRP (Zero Interest Rate Policy) is not out of the question in our future. Each time a new crisis erupts, the fed will print/cut/inject in an effort to contain it, but will eventually run out of monetary ammunition... That's when the real hyperinflationary fireworks will begin.

Again, we're no where close to the end of this financial crisis: Will the Fed Cut Rates again? ; Ushering In a New Economic Era

Regards
Randy