I generally agree, but I think the local market will become ever more important as we go forward. Places with rebounding economies and didn't over-build could be in good shape in a couple years, some places will simply never recover. I'd guess Cincy and Cbus have hit a floor. Cleveland and Dayton are extremely connected to their economies. I think Toledo could come up off the bottoms (the benefits of being an industrial town).

Why your paycheck might be going up

 

http://articles.moneycentral.msn.com/Investing/Extra/why-your-paycheck-might-be-going-up.aspx?page=3

 

from the article...

 

There is evidence that an epic hiring boom is about to get started and that competition for the right workers is already pushing up wages in many industries.

 

As a result, paychecks are about to start growing again, for the first time in more than a year.

 

and

 

Businesses are flush with cash and seeing an increase in sales thanks to business spending and exports. That makes them more able to pay more to compete for employees.

 

Moreover, history suggests we should expect a big improvement in the labor market given the near-death experience the economy just suffered.

 

 

more from the article...

 

History shows that the severity of job loss during an economic contraction has a correlation to how strongly jobs are created in the expansion that follows. In other words, the leaner the lean years, the more abundant the rich ones.

 

And boy, has this recession been a doozy: Although the unemployment rate didn't set a post-World War II record when it peaked at 10.1% in October (the record of 10.8% was reached in late 1982), the magnitude of the increase in unemployment was a record. It more than doubled from a low of 5% in December 2007. Compare this to the average increase of 2.7% in postwar recessions.

 

 

That means we should be due for some serious job creation. Indeed, LaVorgna estimates that monthly job creation one year after the current recession ends, based on historical precedent, should come in around 520,000. Compare this to the 162,000 jobs created in March.

 

If the recession ended in July 2009, when the economy started growing again, that means we should see a big boost in the job market sometime this summer. That's not all: It seems that management cut too many workers during the downturn, which suggests that businesses are short-staffed as they enter a period of robust economic growth.

 

The team at the ISI Group looked at all the postwar recessions and calculated that the decline in economic output explains 73% of the decline in employment. Given the 3.8% decline in gross domestic product from 2007 to 2009, employment "should" have dropped 3.7 percentage points -- which would have put the peak unemployment rate at 8.7%. Instead, it jumped to 10.1%.

 

And finally, businesses have squeezed all they can out of existing workers. In the depths of the recession, the fear of job loss acted as a strong motivator for workers to be more efficient. This resulted in the best productivity gains in more than 40 years, boosting corporate profitability as more sales could be supported by less labor.

 

But these types of productivity gains aren't sustainable.

^  While I generally agree with the author that companies probably cut more jobs than they really needed to, there are several things that kept going thru my mind as I read the article...

 

1)  This Great Recession was not exactly like the post-WWII recessions

2)  The author assumes this recession will follow the average pattern since WWII.  He kept mentioning the 'typical recession'. But as we've heard, and as it's been shown on this very board (via Dayton employment charts), there was a permanent shift in recession recoveries in the past 30 years, and each recovery is weaker and slower.

3)  The author seems to have forgotten that the last recession was followed by the 'jobless recovery'.  Why should this one be much different?

4)  No mention of the effects of continued off-shoring of jobs over the past decade.

5)  No mention that while manufacturing has been improving, employment in manufacturing has been falling (until very recently)

6)  No mention of a debt hangover or a housing hangover.

 

Like so many economists and analysts, the author seems to take past experiences, project the average onto the current situation, and then predict the future based on that.  While I don't want to go around saying "it's different this time",I think history has shown that you can't use the 'average post-war recover' as a model for any given recovery.  and the further you distance yourself time-wise from 1945, the greater the difference of each successive recovery.

 

Credit is going to remain tight for a while. In the past, when the Federal Reserve would do what it does to lower rates, there would usually be a commensurate effect in easing lending. While making loans is technically the only way money is created, do we really want to continue with so much debt-making? The fact that rates are low, yet lending is tight, to me, indicates that there has been at least a temporary change in the way our economy works.

Is main street starting to wake up? If it does wall street may find a few of them will be walking the plank in the future.

 

Protesters descend on Wall Street, New York City banks

 

New York (CNN) -- Protesters rallied in downtown New York City Thursday to voice their anger over what they perceive as the roles Wall Street and big banks played in America's economic crisis.

 

The AFL-CIO organized the rally, and union President Richard Trumka addressed the crowd, saying, "How long will we allow the spirit of greed to continue to drive us into economic holes?"

http://www.cnn.com/2010/US/04/29/banks.protests/

 

External economic forces are going to continue to put a lot of pressure on our economy and any effort to see a real rebound. I still think the downward pressure is going to show more acceleration later this year.

 

Volatility Jumps as European Sovereign Debt Crisis Infects Asia

 

"April 30 (Bloomberg) -- Volatility indexes show Europe’s fiscal crisis is jolting markets in Asia’s largest economies, with gauges in China and India jumping as much as in the U.K."

 

“When markets react to a big spike in stress they look at simple indicators like a country’s debt to gross domestic product,” Sebastien Barbe, head of emerging-market research for Credit Agricole CIB, said in a phone interview from Hong Kong. “India doesn’t have any dollar debt, but it does have huge local-currency debt.”

http://www.businessweek.com/news/2010-04-29/volatility-jumps-as-european-sovereign-debt-crisis-infects-asia.html

 

Spanish unemployment tops 20% in first quarter

 

"On Friday, data that showed Spain's jobless figure topped 20% in the first quarter of 2010 -- 20.5% to be exact -- served to highlight the tough job the government here is facing in trying to get its finances under control and light a fire under the economy. It marks the worst unemployment rate since 1997."

http://www.marketwatch.com/story/spains-jobless-level-tops-20-2010-04-30

 

Warning Signal on U.K. Debt?

Value of Default Protection Has Doubled in 2010 and Is Outpacing Spain

 

"As investors scramble to protect themselves from the next credit flare-up in Europe, their worries are spreading to the U.K."

http://online.wsj.com/article/SB10001424052748703572504575214642413694462.html?mod=rss_whats_news_us

Despite the headwinds, looks like the economy is expanding again, and it's pretty broad-based...

 

http://news.moneycentral.msn.com/provider/providerarticle.aspx?feed=OBR&date=20100503&id=11418456

 

from the summary article..

Manufacturing, construction and consumer spending data on Monday all bode well for the economic recovery, with factories' activity growing at the fastest pace in nearly six years....

 

The Institute for Supply Management (ISM) said its index of national manufacturing activity rose to 60.4 in April from 59.6 in March...

 

Consumer spending rose in March for a sixth straight month, while construction spending also rose....

 

Government data last Friday showed [consumer] spending grew at a 3.6 percent rate in the January-March period, driving the overall economy's 3.2 percent growth pace during the period....

 

According to a Reuters survey, nonfarm payrolls likely increased by 200,000 in April, adding to the prior month's 162,000 gain....

 

Real disposable income increased 0.2 percent in March ...

Despite the headwinds, looks like the economy is expanding again, and it's pretty broad-based...

 

http://news.moneycentral.msn.com/provider/providerarticle.aspx?feed=OBR&date=20100503&id=11418456

 

from the summary article..

Manufacturing, construction and consumer spending data on Monday all bode well for the economic recovery, with factories' activity growing at the fastest pace in nearly six years....

 

The Institute for Supply Management (ISM) said its index of national manufacturing activity rose to 60.4 in April from 59.6 in March...

 

Consumer spending rose in March for a sixth straight month, while construction spending also rose....

 

Government data last Friday showed [consumer] spending grew at a 3.6 percent rate in the January-March period, driving the overall economy's 3.2 percent growth pace during the period....

 

According to a Reuters survey, nonfarm payrolls likely increased by 200,000 in April, adding to the prior month's 162,000 gain....

 

Real disposable income increased 0.2 percent in March ...

 

I am noticing an uptick in my job field (building permits, home construction, etc). The real question in my mind is how much of this is stimulus related and how much will be sustainable once the stimulus injection runs its course?

The headwinds for our economic recover are still very stiff. International economic issues are growing along with our own challenges.

 

Greek strikers hit Athens streets over austerity plan

 

"Greek public sector workers have stormed the Acropolis and scuffled with riot police after launching a 48-hour strike against austerity measures."

 

"Their action comes ahead of a nationwide general strike on Wednesday."

 

"The measures include wage freezes, pension cuts and tax rises."

BBC News - Greek strikers hit Athens streets over austerity plan

 

Volcker Says U.S. Unemployment Will Be ‘Too High for Too Long’

 

"May 4 (Bloomberg) -- Former Federal Reserve Chairman Paul Volcker said the U.S. economy faces a “long slog” as the nation struggles to reduce the jobless rate from close to a 26- year high."

 

“I am afraid the level of unemployment will be too high for too long,” Volcker said in the prepared text of a speech yesterday in St. Louis. “My characterization of the outlook is a long slog.”

http://www.bloomberg.com/apps/news?pid=20601103&sid=aWqCX7U0VxSo

 

 

FINALLY. I don't know if this will change the rules and accountability in the future, but at least the information is going public. If we really want to ensure that we don't have a repeat of the last few years, better oversite and regulations need to be enforced.

 

Crisis Panel to Probe Window-Dressing at Banks

 

"It’s an open secret on Wall Street that many big banks routinely — and legally — fudge their quarterly books."

 

"The techniques in question, which are normally relegated to the shadows of finance, are expected to be thrust into a public spotlight on Wednesday by the federal committee that is investigating the causes of the financial crisis. The Financial Crisis Inquiry Commission is expected to focus most sharply on the way banks slim down their balance sheets before reporting their results and on loans they receive from entities like special-purpose vehicles and hedge funds, which are allowed to operate with little public disclosure."

 

"What is perhaps surprising is that many of the practices that enabled investment banks like Lehman Brothers to mask their deteriorating finances during the crisis are still wide open — and still being employed by other banks."

http://www.cnbc.com/id/36961758

As more homeowners go under water, more and more are/will default. It should be interesting to watch the numbers this summer and fall to see if the ending of the tax credit causes housing to take a stepper decline again.

 

Trend of US Mortgages ‘Underwater’ Grows: Report ~ CNBC

 

"A growing percentage of U.S. homeowners were saddled with "underwater mortgages" in the first quarter, accounting for almost one in four homes in a trend that poses a serious threat to the housing market's recovery, real estate website Zillow.com said on Monday."

 

"U.S. home values in the first quarter were down 3.8 percent year-over-year and down 1 percent quarter-over-quarter, to $183,700, according to the Zillow Home Value Index."

 

"It was the 13th consecutive quarter of year-over-year declines."

http://www.cnbc.com/id/37060248

First taxpayers provided free money to banks, then we provided $8,000 for home purchases, next came billions to bailout other countries and now we may be paying peoples mortgages. This type of manipulation of the housing market has got to stop. Moral hazard and risk are being eroded and in the end will only entice more people to stop paying their mortgages. All these efforts just keep kicking the can down the road and making the can bigger and bigger. One day we may find the can to big to kick.

 

States: Let taxpayers cover your mortgage

 

"NEW YORK (CNNMoney.com) -- Unemployed? Owe more on your mortgage than your home is worth? Your state might one day pay your mortgage."

 

"Giving people free money to cover their home loans is just one of the radical ways that four states -- Florida, Michigan, California and Arizona -- plan to use $1.4 billion the Obama administration is sending their way to help the unemployed and underwater avoid foreclosure."

http://money.cnn.com/2010/05/12/news/economy/taxpayer_mortgages/

^Forgive me for my lack of indignation about this program when taxpayers have long been covering almost 1/3 of mortgage payments for homebuyers in the highest income bracket.  At least this program is somewhat targeted (Paul Willen's point), which makes it better than most foreclosure prevention interventions.

Look for forclosure numbers to go into outerspace as the year progresses. Banks are finally moving on homes that should have already been forclosed on and that inventory is massive.

 

U.S. Home Seizures Reach Record as Recovery Delayed

 

"(Bloomberg) — U.S. home foreclosures climbed to a record in April, a sign that government mortgage relief efforts have yet to turn the tide of property seizures, according to a report by RealtyTrac Inc."

 

"Bank repossessions rose to 92,432 in April, up 45 percent from a year earlier, Irvine, California-based RealtyTrac said today in a statement. Foreclosure filings, including default and auction notices, fell 2 percent to 333,837. One out of every 387 households received a filing."

http://www.businessweek.com/news/2010-05-13/u-s-home-seizures-reach-record-as-recovery-delayed-update1-.html

 

I know I keep say this, but I really believe the international economic issues are/will put a lot of pressure on any real economic recovery by the US. It is a global economy and we don't live in a bubble.

 

Sarkozy Threatened to Quit Euro to Prod Merkel, El Pais Says

 

"May 14 (Bloomberg) -- French President Nicolas Sarkozy threatened to pull out of the euro unless German Chancellor Angela Merkel agreed to back the European Union bailout plan at a summit last week in Brussels, El Pais newspaper said."

http://www.bloomberg.com/apps/news?pid=20601085&sid=aTua8DZFUreE

The debt never went away, it was just put into another account (taxpayers). What made matters even worse, we increased the debt load with these transfer.

 

The second debt storm

Who will bail out the countries that bailed out the world's corporations?

 

SAN FRANCISCO (MarketWatch) -- The financial crisis never really went away.

 

"The debt mountain that brought down some of the world's biggest banks and dragged the international financial system to the brink of disaster has simply shifted to governments. Now it's threatening countries around the globe -- and, if left unchecked, could rip the very fabric of Europe's economic system and wreck economic recoveries in the U.S., China and Latin America."

http://www.marketwatch.com/story/the-second-debt-storm-hits-nations-2010-05-14

 

Looks like to me the market is also concerned about US domestic economic conditions. Not just the Euro. Lowes lowering it outlook and NY manufacturing dropping singificantly from last month.

 

MARKET SNAPSHOT: U.S. Stocks Indecisive As Euro's Fall Tracked

 

"U.S. stocks wavered on Monday as Wall Street remained cautious after the euro fell to a four-year low and a forecast from home-improvement retailer Lowe's Companies Inc. weighed on sentiment."

 

"The New York Federal Reserve Bank reported its index of manufacturing activity in the region fell to 19.11 in May from 31.86 last month."

http://www.nasdaq.net/publicpages/NewsDetailPublic.aspx?symbol=&storyId=20100517%5CACQDJON201005171052DOWJONESDJONLINE000226.htm

Unfortunately, it's looking more and more like we're going to end up doing the Latin American thing and inflating our way out of the debt.

Unfortunately, it's looking more and more like we're going to end up doing the Latin American thing and inflating our way out of the debt.

 

I think there is a very real possibility of inflation in needed items, food, energy, etc (we are already starting to see this). But, I am not sure we will see widespread inflation any time soon. A lot of this money is being lost in the deflationary void and never coming back out.

This just can't be. Wall Street and the big Banks were 'stealing' from the taxpayer through the municipal bond market? I am shocked that their upstanding ethics would allow them to do such things. Man, the Banks and Wall Street were sure living it up on the taxpayer tab and still are.

 

Conspiracy of Banks Rigging States Converged in Mortgage Crash

 

"May 18 (Bloomberg) -- A telephone call between a financial adviser in Beverly Hills and a trader in New York was all it took to fleece taxpayers on a water-and-sewer financing deal in West Virginia. The secret conversation was part of a conspiracy stretching across the U.S. by Wall Street banks in the $2.8 trillion municipal bond market."

 

"West Virginia was just one stop in a nationwide conspiracy in which financial advisers to municipalities colluded with Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co., Lehman Brothers Holdings Inc., Wachovia Corp. and 11 other banks."

 

"They rigged bids on auctions for so-called guaranteed investment contracts, known as GICs, according to a Justice Department list that was filed in U.S. District Court in Manhattan on March 24 and then put under seal. Those contracts hold tens of billions of taxpayer money."

http://www.bloomberg.com/apps/news?pid=20601110&sid=aAePAQdl8rKc

Inflation not a concern....

 

Consumer prices support Fed's low-rate vow

 

http://news.moneycentral.msn.com/provider/providerarticle.aspx?feed=OBR&date=20100519&id=11418456

 

Consumer prices unexpectedly fell in April, the first decline in a year, and the core annual rate recorded its smallest gain since 1966, suggesting scope for the Federal Reserve to keep interest rates near zero for some time.

 

... In the 12 months through April, prices increased 2.2 percent.

... Compared to April last year, the core inflation rate rose 0.9 percent, the smallest increase since January 1966.

I know CincyDad has talked a lot about this on here. The good thing for the government is a lot of these grads won't show up in the unemployment stats since they didn't have a job to draw unemployment benefits from. They also will not be buying any real estate anytime soon.

 

College Grads Flood U.S. Labor Market With Diminished Prospects

 

"May 19 (Bloomberg) -- Ten months after graduating from Ohio State University with a civil-engineering degree and three internships, Matt Grant finally has a job -- as a banquet waiter at a Clarion Inn near Akron, Ohio."

 

"Students who graduated in the early 1980s -- when two recessions drove unemployment to a peak of 10.8 percent -- suffered wage losses of more than $100,000 in the next 15 years compared with those who came into the job market during the decade’s boom years, according to Kahn’s research."

 

“They get shifted down into a lower level and lower pay scale,” she said. “They are working for worse firms, they’re not learning as many skills and they’re not moving up the career pyramid as quickly.”

http://www.bloomberg.com/apps/news?pid=20601109&sid=a8f9A4GYLECE&pos=14

 

I'm teaching a bunch of seniors right now that will all have education degrees. No one has jobs and they are already planning on moving in with their parents and chilling for a while. The academic job market is basically none existent though better than last year.

Unfortunately, it's looking more and more like we're going to end up doing the Latin American thing and inflating our way out of the debt.

 

What's the evidence that inflation is rising?

Individual bankruptcies are on the rise, foreclosures are moving into new record territory, Commercial loans are the next be default wave and all these things are/will put Cities, States and Counties on the edge.

 

Municipal Bonds: The Next Financial Land Mine?

 

"As Wall Street nervously watches the sovereign debt crisis unfold in Greece, another potential landmine is looming closer to home, one that could bring U.S. cities and towns to their knees, force the federal government to cough up another bailout package, and potentially send the unemployment rate much higher. The danger this time? Municipal debt."

 

"State and local government are frantically scrambling to meet budget shortfalls as high unemployment and shaky consumer confidence mean less income tax and smaller sales tax revenue for government coffers. At the same time, falling home prices and rising foreclosures will start to hit municipalities hard this year as all those property reassessments done over the past 18 months kick in."

 

"A couple of municipalities, such as Los Angeles and Detroit, have even whispered the "B" word. Former Los Angeles Mayor Richard Riordan argued in an editorial in the Wall Street Journal earlier this month that the city will likely have little choice but to declare bankruptcy between now and 2014."

http://www.time.com/time/business/article/0,8599,1991062,00.html

Unfortunately, it's looking more and more like we're going to end up doing the Latin American thing and inflating our way out of the debt.

 

What's the evidence that inflation is rising?

 

It's not rising now.  The problem is that we have inflationary pressures that are looking increasingly long-term and structural (i.e., deficits that we're going to have an increasingly difficult time containing over a timeframe measured in decades) against deflationary pressures that are likely to be substantially more fleeting.  We have a historically low velocity of money at the moment, and there has also been a heightened demand for dollars in recent months because of the euro crisis, which has caused many large players to move assets out of Europe to America.

 

We have breathing room.  I just worry that we're not using it well.

^^ "College Grads Flood U.S. Labor Market With Diminished Prospects "

 

Thanks for posting this,  RageRunner.

 

As a corollary, I'll add this bit of anecdotal piece of information...

 

I know a number of college professors.  All are complaining that the quality of students has dropped significantly in the past year as the unemployed are heading to college.  There has been a drop in the quality of their work (plagiarism is a bigger problem now).  But more interesting, the number of students with "special needs" has increased significantly.  By "special needs", I mean the students with behavior problems.  Students who are disrespectful to the professors.  Students who can't keep quiet during class and who insist on being heard all class long.  In other words, students who don't understand what is appropriate behavior in a college class.  These are often studens who blame others (especially the Professors) for their problems.

 

Anecdotal points, I admit.  But widespread.

 

^Sounds like people who deserved to be fired.

By mid to late summer you can either put a fork in the housing market again or the FEDs will have a newly implemented housing support program in place, again.

 

FHA Home-Financing Volume Sign of ‘Very Sick System’ (Update2)

 

"May 24 (Bloomberg) -- Loans guaranteed by the Federal Housing Administration, the U.S.-owned mortgage insurer, may be involved in more home-purchase transactions than borrowing financed by Fannie Mae and Freddie Mac."

 

“This is a market purely on life support, sustained by the federal government,” he said at the Mortgage Bankers Association conference. “Having FHA do this much volume is a sign of a very sick system.”

http://www.businessweek.com/news/2010-05-24/fha-home-financing-volume-sign-of-very-sick-system-update2-.html

 

Experts see underlying weakness in housing

Spring sales propped up by expiring tax incentive, low mortgage rates

 

"The housing market had a spring fling with buyers hoping to find bargains using the now-expired government tax credits and record low interest rates.

 

Now it's back to reality.

 

The sweet sales pace of March and April, many experts agree, will sour by mid-summer, and the national housing downturn has not yet ebbed."

http://www.msnbc.msn.com/id/37340069/ns/business-real_estate/

and just to throw this out for discussion...

 

http://news.moneycentral.msn.com/provider/providerarticle.aspx?feed=OBR&date=20100526&id=11418456

 

New U.S. home sales surged to their highest level in nearly two years in April...

Sales of new U.S. single-family homes jumped 14.8 percent to a 504,000 unit annual rate, from 439,000 units in March, the Commerce Department said on Wednesday. That compared to market expectations of a 430,000 unit pace.

 

This undoubtedly reflects the expiration of the $8k tax credit, and new homes sales are counted at the time the purchase offer is accepted, unlike existing homes which get counted at the time of closing.

 

We should therefore expect a big drop in the # of new homes sold next month, while the # of used homes sold will stay thru the end of June (deadline for closing to receive tax credit).

 

I will admit, though.  The record low mortgage rates at the moment is a surprise to me.  The FED had ended its (announced) purchase of MBS, and as expected, mortgage rates initially rose.  But now they are back down, due primarily to the problems in Europe, I guess.

 

 

My take on the low mortgage rates:

 

Interest rates price risk.  They price numerous kinds of risk.  They price the risk of borrower default, predictions or expectations about inflation, and the risk of a collapse in the collateral's value, for example.  Well, anyone who is genuinely creditworthy in *this* market is probably going to be doing just fine when the economy actually recovers.  In addition, the risk of a house going underwater *from today's status quo* has to be pretty low.  A house that's selling for $200,000 today might well be $275,000 or $300,000 in more robust times.  The risk of someday being undersecured for a bank lending on a home today isn't likely to be too high (obviously there are exceptions in certain areas, and every property is different, but as a general rule, I think this is a safe assumption).

 

In addition, the fact that it's a buyer's market for homes also means that it's a buyer's market for home loans, practically speaking.

 

The problem I have, and why I'm still surprised, is the risk of inflation.  If banks are lending out money at ~5% today, they really have to believe that inflation risks are low, even over the medium and long term, since mortgages are long-term investments (from the lender's perspective, or the perspective of the buyer of the note from the lender).  I know inflationary signals have been low so far, but in the medium and long term, I really have trouble seeing how the structural deficit, an inflationary force, is going to be containable.

My take on the low mortgage rates:

 

Interest rates price risk. They price numerous kinds of risk. They price the risk of borrower default, predictions or expectations about inflation, and the risk of a collapse in the collateral's value, for example. Well, anyone who is genuinely creditworthy in *this* market is probably going to be doing just fine when the economy actually recovers. In addition, the risk of a house going underwater *from today's status quo* has to be pretty low. A house that's selling for $200,000 today might well be $275,000 or $300,000 in more robust times. The risk of someday being undersecured for a bank lending on a home today isn't likely to be too high (obviously there are exceptions in certain areas, and every property is different, but as a general rule, I think this is a safe assumption).

 

In addition, the fact that it's a buyer's market for homes also means that it's a buyer's market for home loans, practically speaking.

 

The problem I have, and why I'm still surprised, is the risk of inflation. If banks are lending out money at ~5% today, they really have to believe that inflation risks are low, even over the medium and long term, since mortgages are long-term investments (from the lender's perspective, or the perspective of the buyer of the note from the lender). I know inflationary signals have been low so far, but in the medium and long term, I really have trouble seeing how the structural deficit, an inflationary force, is going to be containable.

 

Risk is very high right now. That is why the private sector is giving out very few loans and the Government is taking on almost all the home loans risk at this time. As far as interest rates, they are being kept artifically low and are currently not connect to the real risk that would be in the rates if the FEDs would step back and let the market reprice rates according to current risk concerns.

^Exactly.  As long as the GSEs are government-backed and are more or less the only game in town (other than FHA), mortgage rates only reflect prepayment risk and interest rate risk.

^Exactly.  As long as the GSEs are government-backed and are more or less the only game in town (other than FHA), mortgage rates only reflect prepayment risk and interest rate risk.

 

But private mortgage rates are record low as well....How can they do this?

 

I have not doubt that I could walk into US Bank, a private banking company, and refi into a 30-yr fixed rate 80-10-10 mortgage at sub-5% interest rates.  In fact, their website today quotes 30-yr mortgage rates of 4.875 with NO points/origination fee.  The rate for a 30yr fixed with 1 point that they originate (4.675) is listed as LOWER than the 1 point FHA loan they offer (4.750).  Since US Bank does not resell their mortgages, that means they would be stuck with a sub-5% loan from me for 30 years. 

 

Why would they do this?  Perhaps they figure I will sell in the next couple of years and so the money they earn from the refi will offset either 1) the likelihood I will sell (end the mortgage) before rates go up.. or 2) any probably increase in interest rates down the road.

 

Are lenders just plain cash-hungry right now?  Do they have to generate a modest level of activity just to keep their lending offices operational during the downturn, even at a loss right now?

 

I guess the answere varies from private lender to private lender.

 

^Exactly. As long as the GSEs are government-backed and are more or less the only game in town (other than FHA), mortgage rates only reflect prepayment risk and interest rate risk.

 

I have to echo what CincyDad said--GSEs aren't the only game in town right now.  Huntington was quoting ridiculously low rates, too (though I have no idea if they typically sell their mortgages or not, and they weren't quite as good as US Bank, due to fees and points).  Apparently if you have good credit, you're a hot commodity right now and private banks really are competing to get your business.

I'm not really following you guys... GSEs don't lend directly.  That loan from Huntington or any other lender these days is being sold to Fannie or Freddie.  That's why banks are offering such low rates for conforming loans.  With few exceptions, banks just aren't building up loan portfolios currently.

 

The most recent estimate I saw (for late 2009) was that Fannie, Freddie and Ginne Mae (which covers FHA mortgages) made up about 95% of the mortgage market.

 

Speaking of inflation, deflation and money supply. The US money supply shrunk, the first time since the great depression. This makes you realize just how bad things have been. We have 'created' trillions and the money supply is shrinking. WOW!!!! If this continues inflation will stay under control for the foreseeable future.

 

Report: US Money Supply Plunging at 1930s Rate

 

"The United States’ M3 money supply reportedly is plunging at an accelerating pace similar to that in 1929 to 1933, despite near-zero interest rates.

 

The M3 data — which include a broad range of bank accounts and are tracked by British and European experts for danger signs about the U.S. economy — began shrinking a year ago, London’s Daily Telegraph reported. That race has since picked up speed.

 

The stock of money fell from $14.2 trillion to $13.9 trillion in the three months to April, amounting to an annual rate of contraction of 9.6 percent, the report said. The assets of institutional money market funds fell at a 37 percent rate, the sharpest drop ever.

 

"It’s frightening," Professor Tim Congdon, from International Monetary Research, told the newspaper."

http://www.moneynews.com/StreetTalk/US-Money-Supply-Plunging/2010/05/27/id/360292

I'm not really following you guys... GSEs don't lend directly.  That loan from Huntington or any other lender these days is being sold to Fannie or Freddie.

 

I agree most mortgages are being resold to Fannie/Freddie/FHA, but it was my understanding that US Bank was one of the few keeping the mortgages in their own portfolio.  I could be wrong on this.

 

So my questioning was why any bank (ie the 5% you referred to above that was not being resold to the government) give out 30 yr fixed rate mortgages at these low rates when they know that inflation is on the way?

^It would surprise me a great deal if US Bank were holding onto many of its originated mortgages- they were certainly selling most of their originations into the secondary market before the crash.  That other 5% is probably made up of multiple subsegments, including jumbo loans, CRA special products, shorter term loans or variable rate loans.  I wouldn't extrapolate the 5% into the fixed rate 30 year market.  I'm sure there are a few 30 year fixed loans going into portfolios, but I'd bet it's a negligible part of any bank's lending practice* and comes with an explanation.

 

PS, I am sure there are some small community banks that do still make and hold 30 year fixed loans, and I don't know why they do it.  Maybe expectations for high inflation aren't universal; maybe they're hedged, who knows.  But they're not very representative of the industry.

Jesus, it really is all census workers...key snippets:

 

Economy adds 431K jobs but few in private sector

 

By JEANNINE AVERSA, AP Economics Writer 25 mins ago

 

WASHINGTON Job creation by private companies grew at the slowest pace since the start of the year, as a wave of census hiring lifted payrolls by 431,000 in May. The unemployment rate dipped to 9.7 percent as people gave up searching for work. The Labor Department's new employment snapshot released Friday suggested that outside of the burst of hiring of temporary census workers by the federal government many private employers are wary of bulking up their work forces.

 

Virtually all the job creation in May came from the hiring of 411,000 census workers. Such hiring peaked in May and will begin tailing off in June.

 

By contrast, hiring by private employers, the backbone of the economy, slowed sharply. They added just 41,000 jobs, down from 218,000 in April and the fewest since January.

 

The unemployment rate, which is derived from a separate survey than the payroll figures, fell to 9.7 percent from 9.9 percent. The dip partly reflected 322,000 people leaving the labor force for a variety of reasons.

 

The number of people out of work six months or longer reached 6.76 million in May, a new high. They made up 46 percent of all unemployed people, also a record high.

 

About 125,000 new jobs are needed each month just to keep up with population growth and prevent the unemployment rate from rising.

 

http://news.yahoo.com/s/ap/us_economy

 

I think we may have seen the top of the stimulus bump in job creation.

The housing market and industry is about to take another noticable leg down.

 

Housing experts predict more homeowners falling into foreclosures

 

"Real estate experts predicted this week that 3.5 million homes nationally will go into foreclosure this year as risky adjustable-rate mortgages written in 2005 reset and unemployment continues."

 

"That's up from 2.8 million homeowners who faced foreclosure in 2009, and sets a pace that isn't likely to plateau until late 2011, said RealtyTrac Senior Vice President Rick Sharga."

 

"The second wave of toxic loans is about to hit," said Sharga, whose Irvine, Calif.-based company tracks foreclosure filings."

http://www.palmbeachpost.com/money/real-estate/housing-experts-predict-more-homeowners-falling-into-foreclosures-725875.html

Take this for what it is worth. Ben didn't 'see' the house bust coming, the bank debacle coming, and didn't see the recession coming. I hope he is right, but after watching this event over the last few years one thing has become pretty apparent. When they (Ben, FEDs) start telling everyone something will not happen, it probably is already in the cards.

 

Bernanke doesn't expect U.S. double-dip recession

Fed chief: consumer spending, business investment will pull economy forward

 

"My best guess is we'll have a continued recovery [but] it won't feel terrific," he said."

http://www.marketwatch.com/story/feds-bernanke-doesnt-see-double-dip-recession-2010-06-08

 

I also find it concerning that one of the 'great' economist in the world continues to 'guess'.

 

This is worth the read. Its a great article that explains employment numbers, how they are collected, its holes, the big picture and what is coming.

 

The bad news - bad news on jobs

Commentary: Five reasons the employment numbers are worse than they seem

 

"BOSTON (MarketWatch) -- The news on jobs isn't as bad as it seemed on Friday. It's worse."

 

"We already know that when you strip out the short-term Census jobs, May's jobs growth was a pitiful 41,000. But what people haven't realized is that the leading indicators for June are even worse."

 

"A million and a half people disappearing? It sounds like a crazy conspiracy theory. But there it is, buried in the fine print of the government's own data."

 

"Some of the new "jobs" may not even exist"

"That's because they're being counted by the Federal Department of Guesswork. Ever since 1994, say economists, Uncle Sam has been using some statistical, er, "adjustments" to the core jobs data to come up with the, er, "true" picture. It will surprise no one that these "adjustments" make the data look better, rather than worse."

 

"Some recovery: The number employed in the private sector is still about 900,000 below where it was even a year ago, and about 8 million below where it was in 2007. And remember, it has to keep growing just to stand still, because the population is growing."

http://www.marketwatch.com/story/five-ways-the-jobs-numbers-are-worse-than-bad-2010-06-08?pagenumber=2

This part of the real estate system has only touch the edge of the iceberg when it comes to defaults.

 

Delinquent properties in Greater Cincinnati on the rise

 

"Cincinnati now ranks in the nation’s top 20 for its delinquency rate on securitized commercial real estate loans."

 

“We’re early in that default game. That situation is going to continue to worsen before it improves,” said Paul Plattner, senior vice president specializing in property management for Colliers International/Cincinnati."

 

Read more: Delinquent properties in Greater Cincinnati on the rise - Business Courier of Cincinnati http://cincinnati.bizjournals.com/cincinnati/stories/2010/06/14/story1.html

^  Good thing they shelved the planned "Liberty Town Center" at I-75 and sr-129.  Just think what that would have done to vacancy/default rates in the area.

^ Good thing they shelved the planned "Liberty Town Center" at I-75 and sr-129. Just think what that would have done to vacancy/default rates in the area.

 

It should be interesting to see what the new tower in Downtown Cincy does to the office market and vacancy rate. There is only so much demand to go around.

This will not do. It has quickly become apparent that just having historically low interest rates are not enough to keep the RE market up, without other direct government intervention. The chances are very high we will see another taxpayer funded bailout program for the RE market soon.

 

U.S. June home builders index falls 5 points to 17

 

"WASHINGTON (MarketWatch) - Sentiment among U.S. home builders retreated in June after a tax break for home buyers expired, according to a monthly survey released Tuesday by the National Association of Home Builders. The housing market index dived to 17 in June from 22 in May, the NAHB reported. All three components of the index fell in June, and home builders were more discouraged in all four regions of the country. The index was lower than the 21 that was expected by economists surveyed by MarketWatch, and was the lowest since it hit 15 in March."

http://www.marketwatch.com/story/us-june-home-builders-index-falls-5-points-to-17-2010-06-15

 

What Happened to the Green Shoots?

 

"Mortgage applications for new purchases have indicated an incredible fall in home sales following the April expiration of the buyer credit. They're down 42%. Foreclosures also continued to occur at a very high rate, so housing market inventory almost certainly increased in May."

http://finance.yahoo.com/banking-budgeting/article/109777/what-happened-to-the-green-shoots

This kinda sums it up.

 

 

 

In New Jersey, taxes are high, the budget's a mess, government is inefficiently organized, and the public pension fund is blown to kingdom come. Which makes New Jersey a lot like most other states in 2010. What makes the state unusual is its rookie governor, a human bulldozer named Chris Christie, who vowed to lead like a one-termer and is keeping his promise with brio. He has proposed chopping $11 billion from the state's budget — more than a quarter of the total — for fiscal year 2011 (which starts July 1). He's backing a constitutional cap on property taxes in hopes of pushing the state's myriad villages and townships to merge into more efficient units.

 

Read more: http://www.time.com/time/nation/article/0,8599,1997284,00.html?hpt=C2#ixzz0rGkd4RfJ

 

 

^^  "He's backing a constitutional cap on property taxes in hopes of pushing the state's myriad villages and townships to merge into more efficient units."

 

Having lived in Upstate NY, I can tell you that this is a big problem in that part of the country.  The government payrolls are quite high compared to states like Ohio.  I lived just outside a small (10k) city near Syracuse.  The township has the ability to levy property taxes to support it's service, and there are lots of services There were 5 township trustees (vs 3 where I live in Ohio).  The counties are bloated.  There were 30 county commissioners (down from 35 a few years earlier) for the county.  Where I live in Ohio, there are 3.  And in NY, if you are in an elected position for 10 years, you get free family healthcare the rest of your life.

 

I think Ohio under-does the county and township trustees, but Mid-Atlantic states really over-do it.

I think Ohio under-does the county and township trustees, but Mid-Atlantic states really over-do it.

 

On what basis do you say that we underdo the county commissioners and township trustees, though?  Particularly the township trustees?  Obviously, some townships are more complex than others, but I really don't think that any of the problems that burdened any of the townships I've lived in in Ohio would have been solved by additional trustees.  (Cynically, they're all elected by basically the same voters, so you're likely to get 3, 9, 15, or 30 people who are all somewhat similar.)  Likewise, Franklin County has only three commissioners but seems to be at least reasonably well run.  Obviously there is always room for improvement, but what I don't see is evidence that Franklin County is suffering specifically because of a lack of man-hours on the Board to devote to governance.

Lots of states do just fine with no townships and county school systems.

Look for a new taxpayer funded support program soon. If not, look for recessionary data by the holidays.

 

National new-home sales plunged to record low in May

 

"Purchases of new homes in the United States fell in May to a record low as a federal tax credit expired, showing the market remains dependent on government support."

 

"Sales collapsed a record 33 percent to an annual pace of 300,000 last month from April, less than the median estimate of economists surveyed by Bloomberg News and the fewest in data going back to 1963, according to a Commerce Department report released Wednesday. Demand in prior months was revised down."

 

“Underlying demand for housing absent the government’s tax credit remains disappointingly weak,” Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, said before the report. “The housing market recovery is looking like a mirage.”

http://www.ibj.com/national-newhome-sales-plunged-to-record-low-in-may-/PARAMS/article/20711