You have to pay attention to the entire economy–especially if you’re considering whether to invoke bankruptcy protection
April 27, 2011
By Mike Hinshaw
Last time we looked at various economic-indicator strategies, including the seemingly offbeat idea of following the share prices and sales of leading underwear manufacturers. Besides rising fuel and grocery prices we discussed disturbing numbers regarding sales of new homes.
March new-home sales looked good
The day after that posted, The New York Times reported that “Buyers signed contracts in March at a seasonally adjusted annual rate of 300,000, an 11 percent increase from the month before but down from 384,000 in March 2010, the Census Bureau said Monday.”
Actually, the cited report is a joint release from the Census Bureau and the Department of Housing and Urban Development.
Reportedly, new-home sales in February were the lowest since 1963, when official record-keeping began for such data.
But foreclosures still a major problem
The April 25 NYT article continues: “In March 2005, when a lack of income or savings was no deterrent to getting a dream home with granite countertops and a walk-in pantry, families and investors flocked to new homes at an annual rate of 1.43 million houses.
“The millions of homes built during the boom have created a drag on the current market as the owners surrender them to foreclosure. Builders cannot compete against relatively new construction offered by banks for large discounts.”
Where do people move? Nearly half of properties labeled ‘distressed’
An April 26 post on a site that tracks people who move cites a report that says “Nearly half of housing market is made up of distressed properties“:
A new report indicates approximately half of the national housing market is made up of distressed properties, the latest indication that the real estate industry has yet to fully recover.
According to a Campbell/Inside Mortgage Finance Housing Pulse Tracking Survey, the distressed property index rose to 48.6 percent in March, the highest level the indicator has reached in the past 12 months.
Despite the increase in foreclosed homes, some real estate agencies have reported more people are moving, as RE/MAX recently announced home sales increased by double-digits last month. However, that’s not the case for everyone, as a real estate agent recently told Campbell Surveys.
“Investors and first time homebuyers are fearful of what is going on nationally,” said a California real estate agent. “Both the gas prices and the weather influence the local market.”
‘Home prices generally falling’
More troubling, an April 26 NYT article says that regardless of any monthly gains or spikes in sales, home prices generally are still falling. “Housing prices slid back in February to their lowest level of the downturn, fresh proof — as if any were needed — that real estate remains one of the most troubled sectors of the economy.
“The Standard & Poor’s Case-Shiller Home Price Index for 20 metropolitan areas dropped 1.1 percent from January, S.& P. said Tuesday.
“By the barest of margins, the index failed to plumb new depths. It is now at 139.27, essentially the same as the low of 139.26 that it reached in April 2009.
“Housing prices are falling even though banks have been pulling back on foreclosures, which generally drive neighborhood prices down. They are falling despite low interest rates, which make houses more affordable. And they are falling even though they have already dropped by a third from their heady peaks in mid-decade.”
Too much house?
Most of us who are paying attention realize the mess that the housing sector is in; as alluded to earlier, by the “granite countertop” reference, many of us believe that people are, in general, all-too ready to move into more house than they can sustain. And by that, I intend not only the obvious mortgage payment but also routine maintenance: Gated communities, sometimes. Custom roofs, too often. Trendy kitchens, etc. When you stretch your budget to the limit to barely cover the purchase of a boat, a horse, a house…but have neither the knowledge nor the funds to maintain your purchase? That’s a problem.
Peddling toxic mortgage packages: ‘Foreclosuregate’
On the other hand, it’s only fair to remember the outlandish, otherworldly climate that built up like giant steamclouds, when everybody and her brother in the mortgage industry was actively peddling “mortage products” by any and every technique known–some invented on the fly–backed up by investor demand (read: Wall Street), with their credit derivative swaps and CDOs and whatever other alphabet-toxic-soup product the “financial engineers” could devise.
Put another way, does anybody recall the last time every Attorney General in the United States of America joined forces on a common cause, as they have done in response to what has become known as “foreclosuregate” ?
Seriously–I’d like to know of any event that has brought all 50 states’ attorneys general together in an attempt to protect consumers.
CEO pay versus worker pay
While in this mode, let me add an endnote in opposition to the growing plutonomy. The following is from a Milwaukee-based site, reporting about the ever-increasing gap between workers’ pay and CEO pay:
By the time he broke for lunch on his first day of the new work year, Johnson Controls Chairman of the Board, President and Chief Executive Officer Steven A. Roell had already banked more salary than the average Wisconsin worker would earn all year. Roell earned $17.5 million in compensation in 2010, making him the state’s highest paid CEO, a new report shows.
The gap between executive pay and rank and file wages has never been greater or easier to document than it is today. In fact, the ratio of executive pay to worker salaries must be reported in the proxy statements of publicly traded corporations according to reform legislation passed by Congress in 2010 in the wake of the financial crisis.
Anybody trying to make a living should take these factors into mind: if you’re trying to sell a house, or trying to buy a house; if you’re trying to hire wisely, or trying to find a decent job.
If you’re on the brink on bankruptcy, you should pay special attention. If you’ve only been kinda’ sorta’ thinking about bankruptcy protection, stay tuned. We’ll keep reporting the latest news.
Whatever you do, before making major, life-changing financial decisions, consider consulting a trained, experience attorney. If you think your home is a candidate for a short sale, be sure to ask your attorney about it–it could greatly affect your standing and strategy for starting over.
For bankruptcy basics, please see:
Introduction to Chapter 7
Introduction to Chapter 13