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Banks Are Withholding From the Market Nearly All Repossessed Homes Over $300,000

By: Keith Jurow- July 20, 2010

Original Article on SEEKING ALPHA

With the expiration of the first-time buyer tax credit on April 30, there are now two main props keeping the housing market afloat. One is the growing percentage of home sales financed by Federal Housing Administration (FHA) loan guarantees. The other is the refusal of banks to put on the market foreclosed homes over $300,000.

In this article, we will take a look at the second factor. A future report will examine the role of the FHA in keeping the market from collapsing.

Chicago and Cook County, IL

Let’s begin with Chicago. Cook County is comprised of Chicago and its contiguous suburbs and has a population of roughly 5.3 million residents. It experienced a huge bubble during 2004-2006 and has suffered a substantial drop in both prices and home sales.

RealtyTrac.com has the most comprehensive database on foreclosures. It claims to have specifics on over 1.5 million defaulted, auction-ready, and bank-owned properties. The information is updated daily. You can organize listings of defaulted properties, those scheduled for auction, and repossessed homes (REO) by date as well as by amount. The website also provides a separate listing of those properties which have been put up for sale by the lender.

As of July 15, RealtyTrac listed 28,829 properties which had been foreclosed and repossessed by lenders. Some have been owned by the bank as long as 2½ years without having been placed on the market. Roughly half have been repossessed by the lender since late January 2010.

This year, banks in the Chicago area have foreclosed on a huge number of expensive homes. RealtyTrac lists 2,650 repossessed homes for more than $300,000 and 169 for more than $1 million.

Here is where it gets really interesting. Out of 28,829 repossessed properties, there were only 1,292 listed by lenders as “for sale.” The vast majority of these available homes were inexpensive. A mere 29 homes over $300,000 were for sale. In other words, the banks have withheld from the market 2,621 properties listed at $300,000 or higher.

There are probably two important reasons why banks have pursued this strategy. First, they are concerned that placing these more expensive homes on the market will severely weaken an already thin upper tier market.

Even more crucial is that selling substantial numbers of expensive homes at discounts of 50% or more would compel the lenders to take substantial losses which have been avoided by keeping them off the market.

To give you an example, one repossessed home in the upper income suburb of Glencoe was purchased in January 2004 for $850,000. Though not listed for sale yet, its opening bid price is $2,819,000. This suggests that the foreclosed owner had refinanced the property to the tune of $2.8 million. If the holder of the first lien put a home like this on the market, it could be forced to swallow a loss approaching $2 million or perhaps even more.

One big problem with this strategy is that the banks have also ramped up their placing of seriously delinquent borrowers into default – the first step in the foreclosure process. RealtyTrac listed 39,963 defaulted properties in Cook County as of July 15. All of them have been placed into default since August 2009 and half of them since early February of this year. That is nearly 4,000 per month for the past five months and nearly 10,000 in the last two months alone. Of these defaulted properties, there are 7,550 listed over $300,000. Sooner or later, these homes are coming on to the market either as foreclosures or short sales.

What does the market for non-foreclosed properties in Cook County look like now? As of July 15, trulia.com posted 38,877 properties for sale of which 14,866 were listed for $300,000 or more.

Sales of all new and existing homes and condos totaled only 9,057 in the first quarter of 2010 according to DataQuick. That is an average of slightly more than 3,000 per month for a county with over one million owner-occupied units. Since the peak in early 2006, home sales in the Chicago area have plunged by nearly 75%. Median sale prices for Cook County slid to only $175,000 in the first quarter, down 10% from a year earlier according to DataQuick.

With so many homes listed for more than $300,000 now languishing on the Cook County market, it is somewhat understandable that the banks would be reluctant to add their foreclosed homes in this price range to a weak market. When you add in the 7,550 defaulted properties in this price range which have not yet been repossessed by the banks, you can get a sense of the soaring number of homes that is ready to inundate an already glutted market. When these homes come onto the market, as they eventually must, prices will inevitably plunge.

Current home sellers may have been taken in by all those reports lately which have been claiming that the housing market is “stabilizing.” Only 35% of all the homes listed for more than $300,000 have had their asking price reduced since posting on trulia. So these homes just sit … and sit.

Miami-Dade County, FL

Most readers know that the collapse of the housing market in south Florida has been more severe than anywhere except perhaps Las Vegas. A recent REAL ESTATE CHANNEL article reported that banks have been repossessing south Florida homes at a rate of 4,000 per month in 2010. That would seem to suggest that the foreclosure debacle might soon stabilize. Let’s see.

According to RealtyTrac, on July 16 there were 10,858 repossessed properties in Miami-Dade County. More than 2,100 have been held by the banks for more than a year without having been placed on the market and 600 for more than two years. Over 1,400 of these foreclosed properties were listed at more than $300,000.

Out of 10,858 bank-owned homes, a mere 983 were listed for sale. Nearly all were very recently placed on the market -- after June 1 of this year. Only 11 of the 1,400 homes listed for at least $300,000 were actually on the market. Same as in Cook County. The problem is very similar. Trulia posted 13,114 Miami-Dade County non-foreclosed homes for sale at asking prices of more than $300,000. Only 21% have lowered their asking price. As with Cook County, most just sit … and sit.

Banks in the Miami area are also very reluctant to dump these higher-priced homes onto a still weak market. But they have the same problem that banks in the Chicago area are facing. RealtyTrac listed 22,753 defaulted properties for Miami-Dade County as of July 16. All have been put into default since late January of this year. Over 500 were defaulted in one day – July 15. More than 1,500 of these defaulted properties were listed at more than $300,000. All of these defaulted properties will be coming onto the market either as foreclosures or short sales.

The situation is even worse than in Chicago, however. Loan Performance, a division of Core Logic, tracks those metros with the highest percentage of seriously delinquent prime mortgages. This included loans that are either delinquent for more than 90 days or in the process of foreclosure. The Miami metro had the highest percentage of any metro in the country at the end of this year’s first quarter – 28%. This means that more than ¼ of all outstanding prime mortgages in Miami were either in the foreclosure process or almost certainly heading there.

The cure rates tracked by Core Logic tell us that practically all of these serious delinquencies will eventually follow the 22,000+ defaulted properties into foreclosure or short sales. The reluctance of banks to put higher end foreclosures onto the market will do nothing except delay the inevitable collapse in prices of homes purchased for $300,000 and above during the bubble years.

Orange County, CA

Orange County is situated between Los Angeles and San Diego. With a population of roughly 3 million, it includes such cities as Irvine, Santa Ana, and Anaheim as well as the tony towns of Newport Beach and Laguna Beach.

Like so much of California, the housing collapse after the bubble peak has been severe.

As of July 16, RealtyTrac listed 6,270 repossessed properties. Although 3,200 of them have been taken back by banks within the last six months, 650 have been in the inventory of banks for more than two years without having been placed on the market. As with Cook County and Miami-Dade County, very few foreclosed homes in Orange County are listed for sale – 227.

More than 3,800 of these repossessed homes are priced above $300,000 and 650 for more than $1 million. Yet not a single home over $1 million is currently on the market. Only 85 of the 3800 bank-owned properties priced at more than $300,000 have been listed for sale. This strategy is looking familiar, isn’t it?

There are 5,694 defaulted properties listed by RealtyTrac as of July 16. Although banks accelerated the foreclosing of properties in 2010, they have placed delinquent homes into default at an even faster pace. Half of the 5,694 defaults occurred in the past two months. More than 2,400 defaulted properties are listed at more than $300,000.

Are there a substantial number of non-foreclosed homes for sale at more than $300,000? You bet. Of the 15,599 homes listed for sale on trulia, 12,249 have asking prices more than $300,000.

The inventory of homes for sale rose steadily in the second quarter of 2010 according to the Orange County Real Estate Blog. Short sales now comprise 20-30% of all sales in most cities in Orange County and this has put downward pressure on home prices. Had the banks placed more of their REOs on the market, prices would have very likely crumbled on the upper end. When banks finally release these repossessed and defaulted homes to the market, that is what will happen.

Bergen County, NJ

Finally, let’s take a look at the Northeast. Bergen County is made up of fairly affluent communities which are located in northern New Jersey just west of the George Washington Bridge. Although home prices have dropped rather substantially since the peak, it has not been nearly as bad as in California or Florida.

RealtyTrac listed 615 repossessed properties as of July 16. Roughly 120 have been owned by the banks for more than a year without having been placed on the market. Two-thirds have been repossessed since the beginning of 2010.

Similar to the three other counties we have reviewed, many of the foreclosed properties in Bergen County are expensive homes. More than 100 are listed on RealtyTrac for $500,000 and above. More than 350 of these homes are listed for at least $300,000.

Are the banks withholding most foreclosed properties from the market as banks have in the other three counties? Absolutely. On July 16, there were only 31 repossessed homes on the market. A total of four were listed higher than $300,000. That is four out of more than 350 foreclosed homes in Bergen County that are listed on RealtyTrac for more than $300,000.

Bank Withholding of High-End Foreclosures from the Market is Nationwide

The four counties which we have looked at reveal a clear pattern on the part of banks to withhold most repossessed homes from the market and nearly all of those listed on RealtyTrac for more than $300,000. Is this occurring throughout the nation? Take a look at the following table and judge for yourself.

FORECLOSED HOMES ON THE MARKET as of July 16,2010
Location	Repossessed Homes	Repossessed Homes on the Market	Reposessed Homes Over $300K on the Market
Cook County, IL	28,829	1,292	29
Miami-Dade County, FL	10,858	983	11
Orange County, CA	6,270	227	85
Bergen County, NJ	615	31	4
Cincinnati, OH	2,914	184	1
Seattle, WA	946	51	8
Nashville, TN	1,350	102	1
Denver, CO	2,782	223	10
St. Louis, MO	2,323	312	2
Phoenix, AZ	10,613	1,144	16

Will this bank strategy keep the market for homes over $300,000 from imploding? Not a chance.

Fannie Mae now requires an average down payment of 30% for securitized loans which it purchases or guarantees. According to Fitch Ratings, mortgage delinquencies for prime jumbo mortgages soared to 10.3% in May as underwater owners walked away in droves. That spells serious trouble for the five states which account for 2/3 of all outstanding jumbo loans – California, Florida, New Jersey, Virginia and New York. The problem goes well beyond these states, however. Housing markets throughout the United States for $300,000+ homes are in for rough sailing and prices are extremely likely to be headed for a real plunge.

Original Article on SEEKING ALPHA

Commercial Real Estate: Is There a Bottom in Sight?

By: Keith Jurow- July 1, 2010

Original Article at SEEKING ALPHA

In the last 18 months, the commercial real estate market has seriously deteriorated. Yet many analysts are hopeful that the worst is over and that pressure on property owners will begin to ease. Let’s take an in-depth look at whether their optimism is justified.

Early 2007: The Perfect Calm

Charles Dickens began his classic, A Tale of Two Cities with the famous opening “It was the best of times …” That was the tone of the Mortgage Bankers Association’s (MBA) January 2007 assessment of the commercial market which was entitled “The Perfect Calm.” Indeed, everything looked calm and promising to the MBA.

Record amounts of investor money were pouring into the market. Delinquency rates had dropped to only 1% of all commercial real estate loans, down from the heart-stopping rate of 12% in 1991 after the S & L collapse of the late 1980s. The author of this MBA review could find little on the horizon that warranted concern except for possible overbuilding by optimistic developers.

Although the residential subprime market collapsed only three months after this report appeared, this had little effect on the commercial real estate market. For the rest of 2007, investors continued to bid on just about anything that hit the market at prices that defied traditional standards. A record $522 billion in sales transactions were closed that year according to Real Capital Analytics. The chart below shows how purchases skyrocketed from 2001 to 2007.

The Blackstone Group (BX), perhaps the nation’s leading real estate management and advisory firm, wisely sold off $60 billion of its holdings during the market peak of 2005-2007. Yet even it was subject to excessive exuberance, purchasing the Hilton Hotels empire in October 2007 for a whopping $26 billion. That was 40% more than the stock market valued the common shares at the time.

It Was Quite a Party While the Lending Flowed

The previous commercial real estate boom in the 1980s was characterized by massive overbuilding fed by easy money from the S & Ls and commercial banks. Total office market space actually doubled in the 1980s by the time the boom collapsed. The market was saved from total ruin only by Congress’s creation of the Resolution Trust Corporation (RTC) which took over the assets of failed S & Ls and sold them off in bulk often for pennies on the dollar. It cost the taxpayers $157 billion according to the Congressional Oversight Committee’s February 2010 report on the state of the commercial real estate market.

The lesson was clear: When threatened with a potential systemic failure, the federal government would bail out surviving financial institutions and all their insured depositors. No need for depositors to exercise any prudence as to where they put their money.

Like its residential counterpart, the commercial real estate bubble of 2004-2007 was a buying binge fed by a seemingly inexhaustible supply of mortgage funds. Most of the lending was provided by two sources – the commercial banks and institutional investors who purchased commercial mortgage-backed securities (CMBS).

Since the late 1990s, small and mid-sized banks have drifted away from their traditional role as short-term lender to commercial developers. Over the last dozen years, these banks gorged themselves on commercial real estate mortgages and became the primary lenders in this market. According to the Federal Deposit Insurance Corporation (FDIC), banks with assets between $100 million and $10 billion held 36% of their total assets in commercial real estate loans at the end of the first quarter 2010. Half of their total loan portfolio was in commercial mortgages.

Between 2000 and 2004, CMBS lending averaged $70 billion annually according to the real estate law firm Robins, Kaplan, Miller & Ciresi. Then it took off in 2005 and peaked at $248 billion in 2007.

Underwriting standards went out the window. According to the Congressional Oversight Committee report cited earlier, during the peak bubble years of 2006-2007, nearly 90% of CMBS loans were either interest-only or partial interest (negative amortization). Many of the deals required little down payment. As prices soared, lenders justified their actions by assuming that rising rents would continue indefinitely.

The Office Market in 2009

In the largest commercial sector -- the office market -- the statistics didn’t seem right to the CoStar Group in April 2009. Millions of jobs had been shed since the recession began, but the vacancy rate had not gone above 12.5%. Then Mark Heschmeyer, their chief analyst, published an article entitled “Has the Office Vacancy Rate Become Irrelevant?” In it, he quoted the firm’s CEO, Andrew Florance, who put it bluntly: “Never has a vacancy rate chart been more useless in commercial real estate than right now.”

Florance went on to elaborate:

Based upon the job losses we’ve seen to date, we should be seeing something on the order of 450 million square feet of negative absorption compared to the negative 20 [million] we’ve actually experienced.

The firm’s conclusion was that there was an enormous “hidden supply” of available space which had not been listed on the market. Some of the key reasons for this were:

Established tenants were still hopeful about being able to rehire laid off staff.
Major tenants such as those in the financial services industry were fighting bigger fires and were not focusing on a few million dollars in underutilized space.
Smaller and mid-sized tenants were worried that putting their unused space up for sublease might send an impression that they were not financially stable.
Lenders were not forcing the issue of recognizing unoccupied space as long as owners were still collecting rents and making loan payments.
Their conclusion was that a 1,100 basis point spread existed between the official vacancy rate and the actual percentage of available space. In other words, the percentage of total available space was not 12.5% but 23.5% of all office space. An incredible and frightening number.

CoStar found that in the 15 largest office markets, leasing activity had plunged by an average of 46% from a year earlier. With fewer deals being done, the average time between a space being listed on the market and a signed lease had soared from 270 days at the start of 2006 to 415 days in the first quarter of 2009.

Furthermore, office building prices had collapsed in early 2009. Class A space was down 21% from the previous quarter and by an average of 51% from the peak in early 2008. Class B space had fared even worse – down 40% in the first quarter and 55% from the third quarter 2008 peak.

A good example of the unreality that CoStar had found so frustrating was an announcement by Morgan Stanley (MS) in December 2009. Bloomberg reported that Morgan Stanley’s real estate division, which had spent $8 billion to purchase properties at the peak in 2007, planned to “relinquish” five San Francisco office buildings to its two lenders after having purchased them two years earlier from the Blackstone Group. One analyst estimated that the properties had lost half their value since having been bought as a result of a 37% plunge in prime office rents in the third quarter from a year earlier.

The Bloomberg author explained that Morgan Stanley had been negotiating an “orderly transfer” since early 2009. A Morgan Stanley spokeswoman took pains to explain that “This isn’t a default or foreclosure situation.” Really? What was it, then? A deed-in-lieu of foreclosure?

The Commercial Banks – A Policy of Extend and Pretend

As their commercial mortgage loan portfolio deteriorated, the banks have been extremely reluctant to foreclose on delinquent borrowers. Instead, they have chosen the route of extending loans as they matured with the hope that the market would improve. This policy was derisively called “extend and pretend.” The banks were taking their cue from the FDIC which had adopted a policy in October 2009 that supported what it called “prudent commercial real estate loan workouts.” The FDIC certainly did not want to take on the added burden of massive commercial loan defaults which so many mid-sized banks were facing.

By the end of 2009, all commercial banks and thrifts combined had charged off a mere $11 billion of commercial mortgages in the preceding two years according to FDIC figures. However, a growing number of community banks were failing in 2010 due largely to their commercial real estate loan portfolio. The FDIC has already closed 86 banks as of June 25. The five banks shut down in Florida, Nevada and California on June 18 had eighty per cent of their non-performing loans in commercial real estate.

A few months later, an August 2009 Wall Street Journal headline warned that “Commercial Real Estate Lurks as Next Potential Mortgage Crisis.” The authors pointed out that banks held a total of $1.7 trillion in commercial real estate loans. By way of comparison, at the height of the last commercial crisis in 1992, banks held roughly $400 billion of these loans.

The Current Commercial Real Estate Market

Although the Obama Administration has continued to assert that the economic recovery is on track, the most recent statistics for the commercial real estate market cast serious doubts on that premise.

In early May 2010, the real estate data firm Trepp reported that the 60 day delinquency rate in April for CMBS hit a record 7% up from only 1.8% in April 2009. Topping the delinquency list were the lodging sector with 17.1% of loans at least 30 days delinquent and multi-family residences with a 30-day delinquency of 13.1%.

That same month, the research firm Realpoint issued its latest report for April which showed that the total outstanding CMBS delinquent loan figure had more than tripled in the last 12 months to $54.6 billion. The chart below shows how this amount has steadily skyrocketed.

It was not surprising to learn that 80% of these delinquent loans were securitized between 2005 and 2007. Loans that were liquidated in April were resolved at an average loss to the lender of 52%.

In the first quarter of this year, office vacancy rates climbed to 17.2% according to real estate data provider Reis Inc. As CoStar pointed out in the April 2009 article cited earlier, the available space was considerably higher. Effective rents were down an average of 7.4% from a year earlier.

Real Capital Analytics tracks distressed commercial real estate figures which are broader than simply delinquent loans. It calls this universe “Troubled Assets.” In addition to delinquent or defaulted loans, it also includes loans in the process of foreclosure, loans where the owner is under financial pressure, loans where the owner has declared bankruptcy, and loans where a key tenant has declared bankruptcy which could affect the ability of the owner to service its debt.

Their latest figure for total Troubled Assets is $150.2 billion. Adding in the $31.9 billion in loans where the lender has foreclosed and taken back the property, the total figure for distressed loans is $182.1 billion.

No One Wants to Catch a Falling Knife

In mid-June, CoStar’s Mark Heschmeyer published a comprehensive review of the nation’s commercial real estate market. He emphasized that the damage to major metro markets varied widely.

Hardest hit were Las Vegas, Orlando, Tampa and Atlanta where distressed property sales accounted for 27-44% of all transactions. Nationwide, nearly 19% of all office transactions from early 2009 through March 2010 were distressed sales which were heavily concentrated in the suburbs.

Heschmeyer then turned to reports on specific markets from professionals in the field. The managing director of brokerage firm NAI Global reported that various sectors of Manhattan commercial property had plunged 40-60% from the peak years and sales activity had also plummeted. A commercial land buyer in Dallas lamented that investment funds which had been created to pick up distressed property - primarily REITs and hedge funds - were all over the place, bidding up prices and “not letting assets hit bottom.”

The Florida situation was so grim that the president of one troubled asset firm believed the general consensus to be that distressed properties would account for a majority of transactions for the next 3-5 years. A Philadelphia professional lamented that “properties are distressed because there are no tenants to lease up vacant space.” In San Diego, the number of defaults filed this year was running at a pace more than ten times greater than a year earlier.

One sarcastic pro from Arizona quipped that “It looks like we have reached the bottom, unless we find a new bottom.”

Another seasoned veteran of real estate cycles in Tempe, Arizona perhaps summed up best the attitude of market participants: “No one wants to catch a falling knife.”

Commercial Mortgage Loans Coming Due – A Ticking Time Bomb

William Hoffman is the CEO of Trigild, a non-performing loan specialist firm. In a telephone conversation with this REAL ESTATE CHANNEL author, he pointed out that although lenders do not want to foreclose, there is no other way to work out underwater loans that are coming due in the next two or three years. His view was that lenders will not want to refinance properties that have dropped 30-40% in value. The chart below aptly illustrates the ticking time bomb that awaits both underwater owners and lenders.

Data Source: Foresight Analytics

If there is a bottom on the horizon for commercial real estate, it is very difficult to see from this chart. Perhaps it is time to batten down the hatches.

The source of this article is Real Estate Channel™ at www.realestatechannel.com.

Original Article at SEEKING ALPHA

Jobless Claims in U.S. Increase More Than Economists Forecast to 464,000

By Shobhana Chandra - Jul 22, 2010

Original Article on BLOOMBERG

More Americans than projected filed applications for unemployment benefits last week, a sign firings remain elevated even as the economy is expanding.

Initial jobless claims jumped by 37,000 to 464,000 in the week ended July 17, exceeding the highest estimate of economists surveyed by Bloomberg News, Labor Department figures showed today in Washington. The survey median projected claims would climb to 445,000. The number of people receiving unemployment insurance and those getting extended payments dropped.

The figures underscore projections that a lack of jobs will restrain consumer spending, the biggest part of the economy, and lead to slower growth in the second half of the year. It will probably take a “significant amount of time” to restore the almost 8.5 million jobs lost in 2008 and 2009, Federal Reserve Chairman Ben S. Bernanke told Congress yesterday.

“Underlying demand for labor is fairly sluggish,” said Omair Sharif, an economist at RBS Securities in Stamford, Connecticut, who had forecast claims would rise to 460,000. “If that continues, it will have an impact on wages and salaries and clearly have some negative implications for consumer spending.”

Stocks held gains after the report and Treasuries remained lower. Futures on the Standard & Poor’s 500 Index were up 1.2 percent at 8:47 a.m. in New York, and the yield on 10-year notes was 2.91 percent compared with 2.88 percent late yesterday.

Retooling

The rebound in part reflects the unwinding of decreases in the prior two weeks as fewer factories closed for mid-year retooling than the government estimated. The influence of the manufacturing closures will probably take another week or two to wash out of the numbers, a Labor Department spokesman said.

The forecast was based on the median projection of 42 economists surveyed. Estimates ranged from 420,000 to 460,000. The Labor Department revised the prior week’s figure to 427,000 from a previously estimated 429,000.

The four-week moving average, a less volatile measure than the weekly figures, climbed to 456,000 last week from 454,750, today’s report showed.

The number of people continuing to receive jobless benefits dropped by 223,000 in the week ended July 10 to 4.49 million. The figure does not include the number of Americans receiving extended benefits under federal programs.

Those who’ve used up traditional benefits and are now collecting emergency and extended payments decreased by about 368,000 to 3.93 million in the week ended July 3 after Congress failed to pass legislation extending the assistance.

Extended Benefits

The Senate yesterday approved an extension of unemployment insurance that restores aid to 2.5 million people who lost their benefits. The legislation now goes to the House, where a vote is scheduled today. House approval would send the measure to President Barack Obama for his signature.

The unemployment rate among people eligible for benefits, which tends to track the jobless rate, fell to 3.5 percent in the week ended July 10 from 3.7 percent in the prior week.

Thirty-four states and territories reported an increase in claims, while 19 reported a decline. These data are reported with a one-week lag.

Initial jobless claims reflect weekly firings and tend to fall as job growth -- measured by the monthly non-farm payrolls report -- accelerates. That relationship has broken down in recent months as some companies continue to cut staff, while others expand, pointing to an uneven recovery.

Private Jobs

Today’s report reflects jobless applications for the week the Labor Department will survey employers to tabulate July payrolls. In June, private employers added fewer workers than projected by economists, while overall payrolls fell, reflecting a drop in federal census workers.

It may take years to recoup the loss of jobs during the recession that began in December 2007, economists said. The unemployment rate, which reached a 26-year high of 10.1 percent in October 2009, will end 2010 at 9.5 percent, the same as in June, according to this month’s Bloomberg survey.

Bernanke yesterday said central bankers “remain prepared” to act as needed to aid growth even as they get ready to eventually raise interest rates from almost zero and shrink a record balance sheet.

Companies announcing job reductions in July include New Brunswick, New Jersey-based Johnson & Johnson. The health- products company, under U.S. congressional investigation for a recall of children’s medicines, said it’ll reorganize the plant where the withdrawn drugs were made and cut 300 positions.

Workers at the Fort Washington, Pennsylvania, manufacturing plant who lose their jobs will continue to get regular pay and benefits through at least mid-September, then get a severance package based on the number of years they worked, J&J said.

Original Article on BLOOMBERG

Purchases of U.S. Existing Homes Fell in June

By Bob Willis - Jul 22, 2010

Original Article on BLOOMBERG

Sales of U.S. previously owned homes in June dropped less than forecast, sustained by a backlog of deals that will dry up when a government credit expires.

Purchases slipped for a second month, falling 5.1 percent to a 5.37 million annual rate, figures from the National Association of Realtors showed today in Washington. Transactions will be “very low” in coming months as the federal incentive ends, the group’s chief economist, Lawrence Yun, said in a news conference.

Other reports showed the economic outlook dimmed and more Americans filed applications for unemployment benefits, reinforcing signs of slowing growth. The data show why Federal Reserve Chairman Ben S. Bernanke reiterated today that central bankers stand ready to take additional action if the world’s largest economy “doesn’t continue to improve.”

“The overall picture is one of a very weak recovery,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York. “Housing still has a lot of problems, and the labor market is going to be painfully slow. The message from Bernanke is pretty much that they’re not going to do anything on tightening until God knows when.”

Stocks and commodities rallied on improving profit forecasts at companies from United Parcel Service Inc. to AT&T Inc. The Standard & Poor’s 500 Index climbed 2 percent to a 4:00 p.m. close of 1,093.67 in New York. Oil topped $79 a barrel and copper rose for a fourth day.

Exceeds Forecast

Existing home sales were expected to decline to a 5.1 million pace, according to the median forecast of 74 economists in a Bloomberg News survey. Estimates ranged from 4.25 million to 6.2 million. May’s sales rate was 5.66 million, unrevised from the previous estimate.

The Conference Board’s index of leading indicators fell 0.2 percent in June, the second drop in the past three months, according to figures from the New York-based research group. The gauge points to the direction of the economy over the next three to six months.

“We’re looking at a very subdued recovery,” said Harm Bandholz, chief U.S. economist at UniCredit Group in New York, who forecast the 0.2 percent decline. “Companies are still very cautious to hire.”

Initial jobless claims jumped by 37,000 to 464,000 in the week ended July 17, exceeding the highest estimate of economists surveyed by Bloomberg News, Labor Department figures showed. Claims were projected to climb to 445,000, and estimates ranged from 420,000 to 460,000.

Bernanke Testimony

Bernanke, in testimony before the House Financial Services Committee today, said unemployment is “the most important” problem facing the economy. “We are ready and we will act if the economy does not continue to improve, if we don’t see the kind of improvements in the labor market that we are hoping for and expecting.”

Housing is one industry that will probably struggle. In order to receive a tax credit of up to $8,000, homebuyers had to sign contracts by the end of April and initially close deals by June 30. Sales of existing houses are tracked when a deal closes.

The government this month extended the closing deadline to Sept. 30 after the jump in demand through April meant some purchases would not have time to be processed.

“We’re seeing the first stage of the cooling as the tax- incentive purchases fall off,” said Avery Shenfeld, chief economist at CIBC World Markets in Toronto, who projected sales would drop to a 5.38 million pace. “We will see prices retreat as the demand falls off without the tax incentive.”

Climbing Inventory

The number of homes on the market climbed 2.5 percent to 3.99 million. At the current sales pace, it would take 8.9 months to sell those houses, the most since August 2009.

The supply is likely to jump to 10 months or more in coming months as sales slow, said Yun of the Realtor group. The post- tax-credit slowdown may last as long as three or four months, more than he previously estimated, Yun said.

A 10 months’ supply has historically put pressure on home prices, he said. The median price of a previously owned house increased 1 percent to $183,700 from $181,800 in June 2009, the real-estate agents’ group said.

“It’s still a fragile situation in the housing market,” Yun said. “I hope it’s only two months but it could be three to four months with contracts remaining very weak.”

Foreclosures, Short-Sales

Foreclosures and short sales, usually not reflected in the NAR’s data, are boosting the so-called shadow inventory and competing with owners trying to sell properties. Home seizures jumped 38 percent in the second quarter from a year earlier, RealtyTrac Inc. said last week, putting lenders on pace to claim more than 1 million properties this year.

Sales at Miami-based Lennar, the third-biggest U.S. homebuilder by revenue, were running 20 percent to 25 percent lower last month than a year earlier as the expiration of the tax credit sapped demand, Chief Executive Officer Stuart Miller said June 24.

“The new-home market and housing in general still face serious headwinds from current economic and legislative conditions,” Miller said on a conference call with investors. “The prospect of additional delinquencies ahead continues to moderate this recovery as shadow inventory continues to be absorbed.”

Original Article on BLOOMBERG

Expect lots of government layoffs at state, local level

By Paul Davidson

Original Article at USA TODAY

Here's another headwind for a sputtering job market: State and local governments plan many more layoffs to close wide budget gaps.
Up to 400,000 workers could lose jobs in the next year as states, counties and cities grapple with lower revenue and less federal funding, says Mark Zandi, chief economist for Moody's Economy.com.

The development could slow an already lackluster recovery. Friday, the Labor Department said employers cut 125,000 jobs, mostly because 225,000 temporary U.S. Census workers completed their stints. The private sector added 83,000 jobs, fewer then expected, as the jobless rate fell to 9.5% from 9.7%.

Layoffs by state and local governments moderated in June, with 10,000 jobs trimmed. That was down from 85,000 job losses the first five months of the year and about 190,000 since June 2009.

But the pain is likely to worsen. States face a cumulative $140 billion budget gap in fiscal 2011, which began July 1 for most, says the Center on Budget and Policy Priorities.

While general-fund tax revenue is projected to rise 3.7% as the economy rebounds in the coming year, it still will be 8%, or $53 billion, below fiscal 2008 levels, according to the National Association of State Budget Officers.

Meanwhile, federal aid is shrinking. Money for states from the economic stimulus is expected to fall by $55 billion, says the National Governors Association. And the Senate last week failed to pass a measure to provide states $16 billion for extra Medicaid funding, an initiative that would have extended benefits from last year's stimulus. The House approved $25 billion in enhanced Medicaid funding.

Philippa Dunne, who surveys state financial officials for a newsletter, the Liscio Report, says most plan to intensify layoffs the coming year after relying largely on furloughs.

"The downturn has gone on so long, all the low-hanging fruit has been taken," says Scott Pattison, head of the state budget officers group.

Wells Fargo economist Mark Vitner expects state and local governments to cut about 200,000 workers this year if Medicaid benefits aren't extended. That's largely why Wells Fargo cut forecasts for third-quarter economic growth to 1.5% from 1.9%.

Even if Congress extendsMedicaid subsidies, Zandi expects 325,000 job cuts the next year, though Vitner says losses could be far less.

Among cuts planned and made:

•New York City is planning 4,500 layoffs, and more if the Medicaid subsidies aren't approved, says the Center on Budget and Policy Priorities.

•Washington state would have to chop 6,000 jobs without the Medicaid money.

•The city of Maywood, Calif., laid off all 68 of its employees July 1 and is contracting out police services, partly because of a $450,000 budget deficit.

Original Article at USA TODAY