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U.S. Housing Price Forecast: Double-Digit Percentage Decline Still Ahead

“Housing rebound still fragile; St. Louis sales down 16% from May ‘08”

-St. Louis Post-Dispatch, June 23, 2009

“Option ARMs reset threatens housing rebound”

-Seattle Times, June 27, 2009

“Housing rebound continues, barely”

CNN Money.com, July 1, 2009

From headlines like these, I apparently slept through the U.S. housing bottom. Then again, maybe not. From Reuters today:

U.S. housing prices will fall by a double-digit percentage from already beaten-down levels, resulting in an overall 40 percent plunge by the time foreclosures peak in the second half of 2010, Barclays Capital economist Michelle Meyer said.

Meyer issued her forecast two days after the Standard & Poor’s/Case-Shiller Home Price Indexes showed for April an 18.1 percent year-to-year decline, compared with 18.7 percent in March, in the rate of home price declines in 20 major U.S. metropolitan areas.

The indexes have tracked the prices of U.S. single-family homes since 1987.

“While the early signs of improvement are in place for housing, the market will likely remain out of balance for some time, given the flood of foreclosures,” Meyer wrote.

“Home prices are likely to continue to fall, albeit at a slowing pace, even after the economy technically emerges from the recession.” Home prices have fallen 32.6 percent from their peak three years ago, S&P/Case-Shiller said.

On that basis, they would need to fall another 11 percent for an overall 40 percent peak-to-trough decline. Further declines could imperil metropolitan areas that have yet to experience the worst of the nation’s housing slump.

According to S&P/Case-Shiller, New York was the only major market to have above-average, month-over-month housing price declines in both March and April and also have a below-average decline for the year ended in April.

Home prices in that market fell 12.5 percent from a year earlier. The Denver area had the smallest drop, 4.9 percent.

Bloomberg’s Oshrat Carmiel talked more about the Manhattan residential real estate market today. Carmiel wrote:

Manhattan apartment prices dropped for the first time since 2002 in the second quarter as the collapse of Lehman Brothers Holdings Inc. and Bear Stearns Cos. caught up to property owners in the nation’s most expensive urban market.

The median price fell 18.5 percent from a year earlier to $835,700, New York appraiser Miller Samuel Inc. and broker Prudential Douglas Elliman Real Estate said today. The number of sales plunged by half, the most since Miller Samuel began keeping data in 1989.

“The standstill that existed after Lehman Brothers has been broken, and it was the sellers that cried uncle,” Pamela Liebman, chief executive officer of New York-based property broker the Corcoran Group, said in an interview.

Values are falling broadly in Manhattan for the first time in the almost four-year U.S. housing recession, with declines now seen in co-operatives and condominiums of every size and price. Private-sector employment in the city dropped by 91,200 jobs, or 2.8 percent, in the 12 months through May as Wall Street losses and asset writedowns topped $1.4 trillion.

The price of studio apartments declined 16 percent from a year ago to a median of $405,000, according to Miller Samuel. One-bedrooms dropped 17 percent to $650,000 and two-bedrooms fell 23 percent to $1.27 million. Three-bedroom units fell 37 percent to $2.35 million and four-bedrooms plummeted 47 percent to a median of $3.92 million.

Wake me when the housing bottom arrives, please.

Sources:

“US Home Prices Seen Falling 40% Overall: Analyst”
Reuters, July 2, 2009

“Manhattan Apartment Prices Drop as Lehman Hits Home (Update1)”
Oshrat Carmiel
Bloomberg, July 2, 2009

Citigroup Hikes Rates For ‘Some’ U.S. Credit Card Accounts

I once had a credit card from Citigroup.

They took it away from me, probably because I wasn’t spending as much as they wanted me to, and when I did rack up a balance, I paid it off monthly.

Not the kind of customer they were looking for.

From Reuters’ Hezron Selvi this morning:

Citigroup Inc has increased interest rates on up to 15 million U.S. credit card accounts just months before curbs on such rises come into effect, the Financial Times reported citing people close to the situation.

Citigroup had upped rates on 13 million to 15 million credit cards it co-brands with retailers such as Sears, the paper said.

In a statement, Citigroup said “We have adjusted pricing and card terms for some customers as part of our regular account reviews. This is an ongoing process to ensure we offer terms, interest rates, credit lines and products based on individual needs and risk profiles.”

“These changes also reflect the dramatically higher cost of doing business in our industry as we work to preserve the broad availability of credit,” Citigroup told the paper.

Well, that’s one way of helping the American consumer get back on its feet…

Source:

“Citi raises rates on millions of credit cards: report”
Hezron Selvi
Reuters, July 1, 2009

A Plea From Michael Moore

“Save our CEOs”
YouTube Video Link

Advice For The Hotshot Fund Manager

Investor, commentator, and author Jim Rogers was recently interviewed by staff of the Economic Times (India) website. One statement from the former partner of George Soros stood out in particular:

What will you tell a confused fund manager who seeks your advice?

Become a farmer. The world has tens of thousands of hotshot fund managers right now. If I am correct, the financial community is not going to be a great place to be in for the next 30 years. We have many periods in history when financial people were in charge, we had many periods when people who produced real goods were in charge — miners, farmers, etc.

The world, in my view, is changing and is shifting away from the financial types to producers of real goods, and this is going to last for several decades as it always has. This may sound strange but it always happens this way.

Ten years from now, it may be farmers who will drive the Lamborghinis and the stock brokers will drive tractors or taxis at best.

Source:

“Fund Managers can become farmers: Jim Rogers”
Economic Times (India), June 3, 2009

Freddie Mac Bailout: $51 Billion And Counting

“These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis… The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”

-Congressman Barney Frank (D-MA), September 11, 2003

From the Washington Post’s Zachary Goldfarb this morning:

Freddie Mac yesterday reported that it lost $10 billion in the first three months of the year, as investments in mortgages continued to fall in value at the federally run housing finance giant.

The disclosure automatically prompts a $6 billion investment from the Treasury Department to keep the company solvent, bringing Freddie Mac’s bailout total to $51 billion in the first nine months of its government rescue…

Last week, Fannie Mae reported that it lost $23.2 billion in the first three months of the year as mortgage defaults increasingly spread from risky loans to the far-larger portfolio of loans to borrowers who have been considered safe. The loss brought District-based Fannie Mae’s total bailout to $34 billion.

Freddie Mac’s $10 billion loss compares with a $149 million loss in the same quarter last year. It was far smaller than the fourth-quarter loss, which was $24 billion.

The federal government has pledged $200 billion to offset losses at each mortgage giant. In the years of the housing boom, Freddie Mac, even more than its counterpart Fannie Mae, moved swiftly into buying mortgage investments created out of pools of loans made to people with weak credit histories or no proof of income or employment.

Source:

“Freddie Mac Loses $10 Billion for Quarter”
Zachary A. Goldfarb
Washington Post, May 13, 2009

Wall Street Pay To Be Dictated By Washington?

The Wall Street Journal reported today that the Obama administration is seriously contemplating changing compensation practices on Wall Street and throughout the financial services sector. The Journal’s Damian Paletta and Deborah Solomon wrote:

The Obama administration has begun serious talks about how it can change compensation practices across the financial-services industry, including at companies that did not receive federal bailout money, according to people familiar with the matter.

The initiative, which is in its early stages, is part of an ambitious and likely controversial effort to broadly address the way financial companies pay employees and executives, including an attempt to more closely align pay with long-term performance.

Administration and regulatory officials are looking at various options, including using the Federal Reserve’s supervisory powers, the power of the Securities and Exchange Commission and moral suasion. Officials are also looking at what could be done legislatively.

Among ideas being discussed are Fed rules that would curb banks’ ability to pay employees in a way that would threaten the “safety and soundness” of the bank — such as paying loan officers for the volume of business they do, not the quality. The administration is also discussing issuing “best practices” to guide firms in structuring pay.

At the same time, House Financial Services Committee Chairman Barney Frank (D., Mass.) is working on legislation that could strengthen the government’s ability both to monitor compensation and to curb incentives that threaten a company’s viability or pose a systemic risk to the economy.

Just more posturing, or another nail in the coffin for Wall Street as we know it?

Some, like legendary investor Jim Rogers, would say it really doesn’t matter, as they argue a new financial center is being established in Asia. They might have a point, considering that’s where the money is flowing to these days.

As usual, time will tell.

Source:

“U.S. Eyes Bank Pay Overhaul”
Damian Paletta, Deborah Solomon
Wall Street Journal, May 13, 2009

Some Investors Prevented From Withdrawing 401(k) Funds

Do you have a 401(k) retirement account? You might be interested in the following piece from the Wall Street Journal the other day. From Eleanor Laise back on May 5:

Some investors in 401(k) retirement funds who are moving to grab their money are finding they can’t.

Even with recent gains in stocks such as Monday’s, the months of market turmoil have delivered a blow to some 401(k) participants: freezing their investments in certain plans. In some cases, individual investors can’t withdraw money from certain retirement-plan options. In other cases, employers are having trouble getting rid of risky investments in 401(k) plans.

When Ed Dursky was laid off from his job at a manufacturing company in March, he couldn’t withdraw $40,000 from his 401(k) retirement account invested in the Principal U.S. Property Separate Account.

That fund, which invests directly in office buildings and other properties, had stopped allowing most investors to make withdrawals last fall as many of its holdings became hard to sell.

Now Mr. Dursky, of Ottumwa, Iowa, is looking for work and losing patience. All he wants, he said, is his money.

“I hate to be whiny, but it is my money,” Mr. Dursky said.

The withdrawal restrictions are limiting investment options for plan participants and employers at a key time in the markets. The timing is inconvenient for the number of workers like Mr. Dursky who are laid off and find their savings inaccessible.

Though 401(k) plans revolutionized the retirement-savings landscape by putting investment decisions in the hands of individuals, the restrictions show that plan participants aren’t always in the driver’s seat.

Unlike the money managers…

Source:

“401(k)s Hit by Withdrawal Freezes”
Eleanor Laise
Wall Street Journal, May 5, 2009

AIG Paid $454 Million In Undisclosed Bonuses For 2008

Apprently, all that “outrage” the White House expressed back in mid-March over bonuses paid to employees of bailout fund recipient American International Group has done little good. Reuters’ Jeremy Pelofsky and Lilla Zuill reported last night:

Embattled insurer American International Group paid some $454 million in previously undisclosed performance bonuses to employees for 2008, the company said in answers to questions from a U.S. lawmaker that were released on Tuesday.

AIG was widely criticized for paying out some $165 million in retention bonuses after it received some $180 billion in government bailout aid. Some of the retention bonuses were returned by employees after the firestorm of criticism.

The company told Representative Elijah Cummings, a Maryland Democrat, the performance bonuses were paid out by operating units, across the company’s operations in some 120 countries…

The company also told Cummings AIG’s bonus plans for 2009 were under development, “in consultation with the Federal Reserve and Treasury.”

Rumor has it that Washington is now threatening the bailed-out insurance giant with a heavy dose of harsh language.

Source:

“AIG reveals $454 million in 2008 performance bonuses”
Jeremy Pelofsky, Lilla Zuill
Reuters, May 5, 2009

Wall Street Paychecks Making A Comeback?

Sounds like they might be partying on “The Street” again soon. From the New York Times’ Louise Story this weekend:

The rest of the nation may be getting back to basics, but on Wall Street, paychecks still come with a golden promise.

Workers at the largest financial institutions are on track to earn as much money this year as they did before the financial crisis began, because of the strong start of the year for bank profits.

Even as the industry’s compensation has been put in the spotlight for being so high at a time when many banks have received taxpayer help, six of the biggest banks set aside over $36 billion in the first quarter to pay their employees, according to a review of financial statements.

If that pace continues all year, the money set aside for compensation suggests that workers at many banks will see their pay — much of it in bonuses — recover from the lows of last year.

“I just haven’t seen huge changes in the way people are talking about compensation,” said Sandy Gross, managing partner of Pinetum Partners, a financial recruiting firm. “Wall Street is being realistic. You have to retain your human capital.”

Brad Hintz, an analyst at Sanford C. Bernstein, was more critical. “Like everything on Wall Street, they’re starting to sin again,” he said. “As you see a recovery, you’ll see everybody’s compensation beginning to rise.”

In total, the banks are not necessarily spending more on compensation, because their work forces have shrunk sharply in the last 18 months. Still, the average pay for those who remain — rank-and-file workers whose earnings are not affected by government-imposed limits — appears to be rebounding.

Of the large banks receiving federal help, Goldman Sachs stands out for setting aside the most per person for compensation. The bank, which nearly halved its compensation last year, set aside $4.7 billion for worker pay in the quarter. If that level continues all year, it would add up to average pay of $569,220 per worker — almost as much as the pay in 2007, a record year.

What was it that musician and former Talking Heads frontman David Byrne used to say?

“Same as it ever was.”

The BPA (ft. David Byrne, Dizzee Rascal), “Toe Jam” (2008)
YouTube Video Link

Source:

“After Off Year, Wall Street Pay Is Bouncing Back”
Louise Story
New York Times, April 26, 2009

Swiss Banker Lucky He’s Not Swiss Cheese

In contrast to American banks, which routinely share nonpublic personal and account information with “affiliates” and marketers, the Swiss are known the world over for their extremely strict banking secrecy laws.

So, it comes as no surprise that a former banker who broke Switzerland’s banking laws is being sent to jail. From the Associated Press today:

A Swiss court has increased the prison sentence handed to a former banker who broke the country’s strict banking secrecy laws.

An appeals court in the northwestern city of Basel has sentenced the unidentified Swiss man to three months in prison for handing over details of 45 bank clients to German authorities.

The 38-year-old gave up the information while being detained in Germany on suspicion of fraud.

Prosecutors had appealed as too lenient the original 30-day prison sentence meted out in 2007. The Basel appeals court said Friday that the sentence was increased because of the severity of his crime.

And I thought appeals were supposed to work the other way.

Ironically, the Swiss Parliament passed the Banking Law of 1934, which codified the rules of secrecy and criminalizes violation of it, also as the result of German actions. Switzerland put in place the banking secrecy laws to thwart Nazi attempts to investigate the assets of Jews and other “enemies of the state” that were being held in Swiss banks.

“I need to use my Swiss bank’s
ATM, then I’ll be right back”

Source:

“Swiss Banker Who Broke Secrecy Rules To Be Jailed”
Associated Press, April 24, 2009

Wall Street Job Losses Mounting

Speaking of Wall Street…

Wall Street shed 3,100 workers in March, shrinking New York City’s most important generator of jobs to just 169,200 people, the state’s Department of Labor reported on Thursday…

Economists say each Wall Street job helps create up to three service jobs, ranging from law firms to retail shops.

The number of lost jobs in securities, already down by 31,100 jobs from its December 2000 peak, could increase because workers are not counted among the unemployed until their severance payments have run out, a lengthy period for many on Wall Street.

Get a resume that gets you hired

Source:

“Wall Street loses 3,100 jobs in March”
Joan Gralla
Reuters, April 16, 2009

TARP May Cost $167 Billion More Than Estimated

Despite being widely hated, ridiculed and otherwise smacked down by the public, the $700 billion dollar TARP program may turn out to be the best investment the taxpayer made all year…

We are still in the early innings of the TARP game, but the very early score indicates that the much-maligned $700 billion dollar rescue program may actually give a little back for the use of your money and, at the minimum, we get to hear a bit of all-too-rare good news.

-Brian Sullivan, FOX Business, December 17, 2008

Reuters’ Lisa Richwine checked on the score last Friday and discovered:

U.S. congressional budget analysts have raised their estimate of the net cost to taxpayers for the government’s financial rescue program to $356 billion, an increase of $167 billion from earlier estimates.

The Congressional Budget Office had originally projected the $700 billion Troubled Asset Relief Program would cost taxpayers $189 billion.

The additional cost, which applies to TARP spending for fiscal years 2009 and 2010, was included in the CBO’s March projection of a $1.8 trillion deficit for fiscal 2009, which ends September 30.

The TARP cost projection was raised due to changes in financial market conditions, new transactions and a shift in expected timing of payments, the CBO said.

The Treasury Department announced plans to use some of the money to help avoid home foreclosures and made new deals with Bank of America and American International Group. Those programs involved higher subsidy rates than previously estimated, the report said.

Think there might be a chance of invoking the slaughter rule?

Sources:

“Gasp! Horror! The Government is MAKING Money on the TARP?”
Brian Sullivan
FOX Business (New Ideas Blog), December 17, 2008

“Estimated U.S. taxpayer cost for bailout jumps”
Lisa Richwine
Reuters, April 3, 2009

Bailout Protestors March Near Wall Street

To sin by silence when they should protest makes cowards of men.

-Abraham Lincoln (16th U.S. President. 1809-1865)

From Reuters’ Christine Kearney last Friday:

Several hundred demonstrators protested near Wall Street on Friday against the handling of the U.S. economic crisis, government bailouts of private banks and corporations and bonuses paid out at insurer AIG.

Members of worker rights, healthcare and anti-war groups gathered in the rain holding posters that read “Bail Out the Unemployed” and “No More $ For Wall St & War.”

They also shouted demands for more jobs.

“This crisis is growing more dire everyday with so many people being kicked out of their home and jobs,” said Dustin Langley, a spokesman for the ‘Bail Out The People Movement’, the main protest organizer that called for a moratorium on U.S. home foreclosures and the creation of a national jobs program.

Hundreds of protesters lined up on Broadway to march past the headquarters of American International Group and close to the New York Stock Exchange and financial giants Bank of America, Chase and American Express, but were not permitted on Wall Street.

Michael Feinberg, 51, a rabbi who runs a nonprofit workers rights group, held a sign that read ‘Regulate The Profiteers,’ and argued that corporations who helped plunge the economy into recession should not have received bailout money.

“That money should have been used to put people to work, to create jobs and healthcare, not to reward greedy financial speculators,” he said. “This has to be a wake-up call that we have to change our national priorities about the way we do business in this country.”

Friday’s protest follows hundreds of others held around the United States since the bailout of investment banks began last year…

And in other news, Wall Street executives took to the road today to protest against blame being directed at them for the U.S. financial crisis…

Source:

“Activists protest bailouts near Wall Street”
Christine Kearney
Reuters, April 3, 2009

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Fannie Mae, Freddie Mac To Give Out More Than $210 Million In Bonuses

America, you are being taken for a ride.

If you thought $165 million in bonuses paid out last month by bailed-out insurance giant American International Group was ludicrous, then you’ll love what’s coming out over the newswires today. The Associated Press’ Alan Zibel wrote this afternoon:

Mortgage finance giants Fannie Mae and Freddie Mac plan to pay more than $210 million in bonuses through next year to give workers the incentive to stay in their jobs at the government-controlled companies.

The retention awards for more than 7,600 employees were disclosed in a letter from the companies’ regulator released Friday by Sen. Charles Grassley of Iowa, the senior Republican on the Senate Finance Committee. The companies paid out nearly $51 million last year, are scheduled to make $146 million in payments this year and $13 million in 2010.

“It’s hard to see any common sense in management decisions that award hundreds of millions in bonuses when their organizations lost more than $100 billion in a year,” Grassley said in a statement. “It’s an insult that the bonuses were made with an infusion of cash from taxpayers.”

Fannie and Freddie declined to comment on Friday. Fannie had disclosed that it plans to pay four top executives at least $1 million each in retention payments that run through February. Freddie has yet to report on which executives are in line for the awards.

As with the AIG case, supporters of the bonuses argue that these “retention payments” are required to prevent staff from leaving. Zibel added:

The companies’ federal regulator, James Lockhart of the Federal Housing Finance Agency, defended the bonuses in a March 27 letter to Grassley, noting that the collapse of the company’s stock prices “destroyed years of savings for many” workers. The companies’ stocks now trade below $1, down from more than $60 in fall 2007.

Lockhart denied a request Grassley made last month to release names of employees receiving at least $100,000 in bonuses, citing “personal privacy and safety reasons.”…

Keeping the companies “operating at full speed was best for the housing markets and best for the economy,” Lockhart wrote. “That would only be possible is we retained the Fannie and Freddie teams.”

$165 million. $210 million. Think we’ll see some bailed-out institutions’ “retention payments” surpass the $300 million mark by Memorial Day weekend? As some on Wall Street like to say, “the trend is your friend.”

Source:

“Fannie, Freddie worker bonuses total $210M”
Alan Zibel
Associated Press, April 3, 2009