Oil prices continue to surge with some pundits now talking about $200 per barrel oil! The stock market as measured by the Dow Jones Industrial Average, briefly recovered above the 13,000 level from a low of 11,500 in January with increased volatility. The latest economic figures now indicate that the first quarter’s GDP could be revised upwards thus confirming that the economy is still not officially in a recession. All of this coupled with, what appears to be a united international voice that the dollar should have a floor would tend to indicate that the economy could well amble along with a sideways to slightly upward bias for the next year or so. On the real estate front the bailout plan seems to be much ado about nothing - $2.7 billion in mortgage relief over 5 years – hardly an amount that would influence the market in either direction. With the 1 year Treasury yielding investors 1.93%, the stock market with increased volatility, commodities at all time highs and real estate still in the doldrums, investors have their work cut out for them.

As American homeowners fall behind on their mortgages in growing numbers, bankers and policy makers worry that while many of these people cannot pay, some simply will not.

Millions of Americans are “upside down” on their mortgages — they owe more on their homes than their homes are worth. So far, however, there is little evidence that people who have the means to pay are walking away from their homes as values sink.

The blogosphere is full of tales of homeowners who supposedly are choosing to mail the house keys to their lenders rather than keep their depreciating homes. And yet “jingle mail,” the term for those tinkling packages of keys, appears to be far rarer than many seem to think.

Freddie Mac, the big government-sponsored mortgage company, estimates that just 0.14 percent of the defaulted mortgages in its portfolio involved properties that were abandoned by borrowers. Fannie Mae, another mortgage company, puts the figure in the single digits. Both companies deal in relatively conservative loans, so the total rate may be somewhat higher. Industry officials say they have no way of knowing for sure.

Even so, the idea that some people are simply refusing to pay their mortgages has gripped the popular imagination. The notion picked up momentum in the last few weeks after “Inside Edition,” the celebrity-focused TV news program, reported that Jose Canseco, the former American League most valuable player who made millions during his baseball career, abandoned his $2.5 million mansion outside Los Angeles to move into a smaller property.

“You look at the Jose Canseco issue and say that it’s a walkaway, but he is probably the only person on his block that did that,” said Robert Padgett, director of loss mitigation for Freddie Mac. “Those types of stories garner a lot of attention,” he added, but they are “isolated occurrences.”

Many economists agree. The low numbers from Freddie Mac and Fannie Mae are consistent with past housing busts, like the ones that occurred in Texas in the 1980s and in the Northeast and California in the early 1990s.

Most homeowners default when there is “an intersection of two events: they don’t have equity in their houses and they run into trouble,” said Mr. Van Order, a former chief economist at Freddie Mac.

An estimated 9 million American households, or 10.3 percent of all single-family homes, owe more than their home is worth, according to Moody’s Economy.com. By comparison, 4.8 percent of home loans were in foreclosure or delinquent by 60 days or more at the end of last year, according to the Mortgage Bankers Association.

For the entire article from THE NEW YORK TIMES click here:

Rates on 30-year mortgages edged down slightly this week, but remained above 6 percent for the third straight week.

Mortgage giant Freddie Mac reported Thursday that 30-year fixed-rate mortgages averaged 6.05 percent this week, compared to 6.06 percent last week. It marked the third week that 30-year rates have been above 6 percent.

The Freddie Mac survey found that rates on other types of mortgages were mixed this week.

The average rate on 15-year, fixed-rate mortgages, a popular choice for refinancing, edged up to 5.60 percent, up from 5.59 percent last week.

Five-year adjustable-rate mortgages dropped to 5.67 percent, down from 5.73 percent last week. One-year adjustable-rate mortgages were unchanged for a third straight week, remaining at 5.29 percent.

A year ago, rates on 30-year mortgages stood at 6.21 percent, 15-year mortgage rates averaged 5.92 percent, five-year adjustable-rate mortgages were also at 5.92 percent and one-year adjustable-rate mortgages were at 5.48 percent.

For the entire article from MSNBC click here:

Even as the housing foreclosure crisis deepens, legislation to rescue homeowners and their lenders appears to be in significant political jeopardy.

The bill, which passed the House on Thursday, is quickly becoming a casualty in a battle between the Bush administration, which says it opposes any taxpayer bailout that would only further encourage risky lending practices, and Democrats who say that homeowner assistance is the only way to contain the damage to the broader economy.

The Bush administration on Friday said it would only support legislation that did not require taxpayer funds. The Congressional Budget Office estimates that the House-passed measure would refinance as many as 500,000 homes over the next five years, at a cost to taxpayers of about $2.7 billion.

Under the voluntary plan that was approved by the House, borrowers at risk of default would be able to refinance their loans at a more affordable 30-year fixed-rate mortgage insured by the Federal Housing Administration.

For the entire article from THE NEW YORK TIMES click here:

U.S. stocks had the first weekly drop in a month after new disclosure requirements for investment banks and American International Group Inc.'s need to raise $12.5 billion spurred concern of further losses for financial firms.

Merrill Lynch & Co., Lehman Brothers Holdings Inc. and Goldman Sachs Group Inc. fell after the Securities and Exchange Commission said Wall Street firms will have to disclose capital and liquidity levels. AIG had the steepest weekly drop in at least 25 years after the world's biggest insurer by assets reported a record quarterly loss. The company's vice chairman said there's ``no assurance'' credit-market losses are over.

The Standard & Poor's 500 Index lost 1.8 percent to 1,388.28 this week. The Dow Jones Industrial Average fell 2.4 percent to 12,745.88. The Russell 2000 Index of small-cap stocks retreated 0.8 percent to 720.05. The Chicago Board Options Exchange Volatility Index, or VIX the benchmark for U.S. options prices, jumped 6.8 percent to 19.41.

Financial firms are sinking under the weight of $323 billion in writedowns and losses caused by the collapse of the subprime-mortgage market. While members of the industry in the S&P 500 have gained 11 percent since March 17, the group has still declined 11 percent in 2008. Financials also dragged down first-quarter profit growth for the S&P 500 to a decline of 18 percent, according to Bloomberg data.

For the entire article from BLOOMBERG NEWS click here:

The US trade deficit narrowed by 5.7 per cent to $58.2bn in March, as weak demand for imported goods due to the economic downturn offset a shrinking of US export volume that was ascribed to a fall in aircraft shipments.

The data, released on Friday, was significantly better than the $61bn trade deficit expected by most economists. Several reacted by saying that US gross domestic product for the first quarter, which was initially estimated to have grown at an annual rate of 0.6 per cent, could now be revised higher.

Goldman Sachs and Citigroup economists both said that the improvement in the trade balance could lead the Commerce Department to add half a percentage point to US GDP in the first quarter.

Imports fell by $6.1bn to $206.7bn, the most since the September 11 terrorist attacks, in a clear sign that the weak dollar and US economic woes are affecting the appetite of American consumers and business for purchases of imports, particularly cars. The US trade deficit with China fell to $16.1bn - its lowest level in two years. However, deficits with Japan, the European Union and Mexico expanded.

Even though exports fell in March, mainly on the back of lumpy aircraft deliveries and fewer car sales, they still recorded their second-highest monthly total at $148.5bn. The strength of US exports is widely credited with keeping the US economy afloat amid the unfolding housing crisis.

For the entire article from THE FINANCIAL TIMES click here:

A U.S. official says the Bush administration is leading the international effort to put a floor under the falling dollar.

The conventional wisdom holds that the Europeans, worried that the strong euro is making their companies less competitive, prodded Treasury Secretary Henry Paulson and other Group of Seven finance ministers last month into signaling their joint disapproval of the dollar's plunge. Canada has also been troubled by the strong loonie.

But the senior U.S. Treasury official says the move came at the behest of the American side.

"Since our last meeting, there have been at times sharp fluctuations in major currencies, and we are concerned about their possible implications for economic and financial stability," the G-7 statement said.

"The G-7 language was meant to direct attention beyond the short-term U.S. financial-market turmoil," the senior Treasury official said Friday. The official noted that the administration expects faster growth in the U.S. and slower growth in euro-zone countries in coming months, a combination that would presumably strengthen the dollar against the euro.

 

© 2008 by Prof. Werner Antweiler, University of British Columbia, Vancouver BC, Canada.
Permission is granted to reproduce the image below provided that the source and copyright are acknowledged.
Time period shown in diagram: 9/Feb/2008 - 9/May/2008

For the entire articl from THE WALL STREET JOURNAL click here:

From THE ECONOMIST:

 

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