The dilapidated condition of the American real estate sector will continue in 2008
According to a CreditCards.com poll, for as many as 27
million American adults keeping warm this winter will mean borrowing money and 20 million will use credit cards to be able to afford their heating bills. Nearly 12% of Americans say they will need to borrow money to pay winter heating bills; 9% will need credit cards to afford their heating bills.
As I have pointed out before, the median US household’s financial position is extremely precarious. It is, therefore, not surprising that retail stocks are performing poorly. Poorly performing retail stocks are not the only indicator suggesting weak consumption environment.
According to David Rosenberg of Merrill Lynch, the housing recession deepened in November 2007, as new home sales plunged 9%, which places annualised level at just 647,000 – the lowest since April 1995. At the same time supply of unsold homes jumped to 9.3 months in November, up from 8.8 months in October; just shy of the 17-year high reached in August 2007.
It should be clear that the high level of inventories of unsold homes will continue to pressure home prices and depress construction activity as we move into 2008. It is evident from the record level of existing home inventories as a percent of US households how severe the housing recession is. It should, therefore, only be a matter of time until housing starts decline further and will also signal the onset of a US recession.
Please note that each time housing starts declined 50% or more, a recession followed, as was the case in 1970, 1974, 1981, and 1990. Given the high level of unsold home inventories both in terms of months’ supplies and as a percentage of households, the housing and construction outlook remains grim.
In last month’s report, we reproduced a chart showing US median home prices as percentage of median incomes, showing that US home prices would’ve to decline another 25% or stay flat for five years to reach fair value.
However, it should be noted that in some areas of the US where home price appreciation was particularly high in the last few years housing prices could decline much further.
What is new is that the credit problems, which first manifested themselves in mortgage backed securities, have now infected also the bond insurance companies examples being AMBAC (ABK) and MBIA.
The problem is that MBIA – the world’s largest bond insurer – disclosed on December 21 that it had had guaranteed $8.1 billion of the riskiest mortgage securities, which imperil its entire net worth. The company said it had guaranteed $30.6 billion of complex mortgage securities in total. Stocks of bond insurance companies such as MBIA and AMBAC really started to tumble in earnest in October 2007 and were so indicating some problems. As I have emphasized before, we need to look at the performance of shares, which reflect the market perception of the future value of companies and their earnings, and avoid listening resolutely to opinions of analysts and so called “sophisticated” investors.
For Complete IIPM Article, Click on IIPM Article
Source : IIPM Editorial, 2008
According to a CreditCards.com poll, for as many as 27
million American adults keeping warm this winter will mean borrowing money and 20 million will use credit cards to be able to afford their heating bills. Nearly 12% of Americans say they will need to borrow money to pay winter heating bills; 9% will need credit cards to afford their heating bills.As I have pointed out before, the median US household’s financial position is extremely precarious. It is, therefore, not surprising that retail stocks are performing poorly. Poorly performing retail stocks are not the only indicator suggesting weak consumption environment.
According to David Rosenberg of Merrill Lynch, the housing recession deepened in November 2007, as new home sales plunged 9%, which places annualised level at just 647,000 – the lowest since April 1995. At the same time supply of unsold homes jumped to 9.3 months in November, up from 8.8 months in October; just shy of the 17-year high reached in August 2007.
It should be clear that the high level of inventories of unsold homes will continue to pressure home prices and depress construction activity as we move into 2008. It is evident from the record level of existing home inventories as a percent of US households how severe the housing recession is. It should, therefore, only be a matter of time until housing starts decline further and will also signal the onset of a US recession.
Please note that each time housing starts declined 50% or more, a recession followed, as was the case in 1970, 1974, 1981, and 1990. Given the high level of unsold home inventories both in terms of months’ supplies and as a percentage of households, the housing and construction outlook remains grim.
In last month’s report, we reproduced a chart showing US median home prices as percentage of median incomes, showing that US home prices would’ve to decline another 25% or stay flat for five years to reach fair value.
However, it should be noted that in some areas of the US where home price appreciation was particularly high in the last few years housing prices could decline much further.
What is new is that the credit problems, which first manifested themselves in mortgage backed securities, have now infected also the bond insurance companies examples being AMBAC (ABK) and MBIA.
The problem is that MBIA – the world’s largest bond insurer – disclosed on December 21 that it had had guaranteed $8.1 billion of the riskiest mortgage securities, which imperil its entire net worth. The company said it had guaranteed $30.6 billion of complex mortgage securities in total. Stocks of bond insurance companies such as MBIA and AMBAC really started to tumble in earnest in October 2007 and were so indicating some problems. As I have emphasized before, we need to look at the performance of shares, which reflect the market perception of the future value of companies and their earnings, and avoid listening resolutely to opinions of analysts and so called “sophisticated” investors.
For Complete IIPM Article, Click on IIPM Article
Source : IIPM Editorial, 2008
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