The Declining Market

According to the Associated Press, there are some discouraging facts recently posted:

* Home prices tumbled by the worst annual rate on record in the fourth quarter

* Almost 14 million homeowners are already under water, according to Moody’s Economy.com (where they owe more than the home is worth)

* Confidence index sank to new lows in February as widespread layoffs, shrinking retirement accounts and plunging home prices fueled fears as stated by the

* The Standard & Poor’s/Case-Shiller U.S. National Home Price Index plunged more than 18 percent during the quarter from the prior-year period, the largest drop in its 21-year history

Jobs are one of the major indicators of declining market.  In November 2008, payrolls took a deep dive as 533,000 jobs were cut.  Now that our unemployment is at 6.7% we are at all 15 year high.  According to Market Watch,

“It was only the fourth time in the past 58 years that payrolls had fallen by more than 500,000 in a month. Since the recession began 11 months ago, a total of 1.9 million jobs have been lost. Job losses in September and October were revised much lower.

There is no denying that our country has always faced financial problems based on our mentatility of borrowing versus saving…of consuming versus producing…of “printing money” when needed!  This issue has been compounded with the downturn of our real estate market and depreciating home values.  Our homes are the single largest asset (or should I say liability now) of many Americans.  With a decrease in this asset, spending is minimized and families cannot rely on their homes as an ATM machine anymore.  This issue is hitting home, not only as a country but individually.  A movie called I.O.U.S.A is being released this month that outlines not only our current financial conditions but the history that has led to where we are today from a debt perspective.  Below is the trailer:  

WCI Home Builders could not obtain the necessary funding to maitain a healthy cash flow.  With $2.18 billion in assets and $1.92 billion in debts WCI had to file for Chapter 11.   WCI Home builders focus on the luxary real estate market where most of its business is centered out of Florida (one the top states for declining real estate prices).   A week ago its stock went from 99c to 2c.  This is a far cry from the ~$20 it was trading for about a year ago.   This is yet another plea for help in our declining real estate market. 

Bush recently passed a housing law to try and “help” homes that are pending foreclosure. $300 billion is being given to the FHA to help refinance homes at a more affordable rate.  This is expected to be dispersed to over 400,000 households.  There are many other perks to this housing bill such as grants to fix up foreclosed homes and tax credits for first time home buyers.  Read the full article from the News & Observer.

With all the financial turmoil our economy is facing right now it is no surprise that there has already been 500 billion dollars in losses and asset write downs by our financial institutions.  According to Money Morning, this is forecasted to continue with an expected total of 1 TRILLION dollars in write downs! With so many people waiting on the sidelines to buy, it is not a far stretched theory.  Some feel that there is hope with the new bill that the US House of Representatives just passed:

As of today, February 16, more are more signs are leading towards a further declining market:

•  U.S import prices went up by 1.7% which was driven by increased prices for oil
• Export prices increased 1.2% which was the largest jump since 1989.
• The Reuters/University of Michigan index of consumer sentiment dropped to 69.6 which was the lowest it has been since 1992.  These numbers are representative of the recessions in the mid 70’s, 80’s, and early 90’s.
• Stock prices fell due to concerns that there was a slowing in consumer spending.  Dow Jones was down 28 points to 12,348.

It was reported that over 17,000 jobs were lost last month. Most of the jobs were lost in construction, the mortgage industry and in real estate (no surprise there!). This doesn’t even include all of the real estate agents who are still technically employed with a broker but are not seeing any income due to the drastic drop in sales.

Bush couldn’t have said it any better in this article, “There’s serious signs that … the economy is weakening”.

Click here for the full story from Yahoo! Finance…

On January 22, the Fed cut the benchmark interest rate by 3/4 of a point (now at 3.5%).  This meeting came a week or so early from the next board meeting on January 29th.  This was partially due to the panic that swept the globe on Monday when all foreign stock markets took a plunge. 

What is most concerning is that this is the largest cut ever.  Typically we have not seen cuts more than .5% (especially in a spontaneous meeting like this one).  I guess desparate times calls for desparate measures. 

Not only are we skeptical of the government’s ability to stop our country from moving into a recession, but so is the rest of the world.  Foriegn market stock indecies fell sharply today as a result of skeptism from foreign markets that President Bush’s stimulus is too little too late!   This plan calls for a tax cut of approximately $145 billion dollars with the thought that this would promote spending and keep the economy going strong.  

Click here for the full story from Yahoo! Finance…

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