Nov 07
27
I wish I could get away without mentioning the biggest drop in housing prices ever measured — matching the previous record set just last quarter. We are talking about a year-over-year drop of 4.5%. Tim Iocono has charted the action of 20 local housing markets for you. According to the L.A. Times, homeowners are asking “How Low Can It Go?”
Furthermore, there is the foreclosure mess, which the BondDad declares “Nowhere Near The Bottom.” Nationally he may well be right; locally I am not so sure. He believes “super-glut of inventory will be the standard for the foreseeable future”, and the only possible result of that is lower prices. The Associated Press reports that foreclosures “will lead to billions of dollars in lost economic activity next year in the nation’s major metropolitan areas.” Make that tens of billions:
The biggest losses in economic activity are projected for some of the nation’s largest metropolitan areas. New York is expected to lose $10.4 billion in economic activity in 2008, followed by Los Angeles at $8.3 billion, Dallas and Washington at $4 billion each, and Chicago at $3.9 billion.
It is telling that people holding seminars on how to make money on foreclosures are smiling.
It was just yesterday that J.P. Morgan announced 100 layoffs in it’s subprime lending unit, but I think the interesting part is this:
About 40 percent of JPMorgan’s 2006 subprime originations would not be approved under today’s standards, the bank said in a statement.
The bank has discontinued, for example, all subprime home equity loans. JPMorgan has said that it expects to originate about $1 billion subprime loans per month.
That’s right, a 40% reduction of subprime originations is still a billion dollars of loans — $1000 million — each and every month. The continuing scale of this mess is astounding. It rather makes the Fed’s offer of $8 billion in loans to banks seem paltry!
CitiGroup is under pressure to ease mortgage terms and help people keep their homes — a win/win/win situation in my opinion: people don’t become homeless, Citi doesn’t have to get their equity out right now and can continue to make money, and the house doesn’t sit on the market depressing housing values for everyone else. However, this same company is talking about a second massive round of job cuts. Perhaps as many as 45,000 people will join the 17,000 laid off barely six months ago. As Brilliant Jill points out, these people will be hard pressed to find new jobs:
You know as well as I do that it isn’t top executives — those who actually make the decisions — who will pay the price, other than a few hundred million less in bonus money this year. But when you consider the amount of money lost in this mortgage disaster, these 45,000 likely layoffs at Citigroup are only the beginning. That’s 45,000 more people pounding the pavement looking for jobs that will be next to impossible to find because every other company that might hire them will be cutting back as well. So they’ll be looking for whatever work they can scrounge up in the retail and service industries…
At risk of pointing out the obvious, these people are going to have a lousy Christmas, and a tough time making the mortgage payment.
Perhaps all this is why consumer confidence is down.
Nevertheless, I have watched the stock market long enough to know that the more voices cry panic, the more people proclaim there is no end in sight, the more people say it’s a disaster, the closer to the bottom we really are.
