Renting Beats Home-Buying Remorse After Meltdown: John F. Wasik

Oct 16, 2009 | No Comments | Sean Mills

All in all some good advice for a newbie homeowner the only problem I see with this is the stock market you could be investing in is even more unstable than the real estate market.  A 40-50% decline in the stock market in less than 6 months now that was a wild ride.  I will [...]

Oct. 14 (Bloomberg) — Unless you want to stay in a neighborhood for life, renting a home may make more sense.

With more foreclosures and huge inventories of unsold homes looming and mortgage rates held down by the government, the housing market may not stabilize for years.

It’s no longer a given that you will build home equity. The housing debacle may have depressed housing prices for a generation in all but a handful of areas.

Am I spouting American housing heresy? After all, can’t you still build wealth by simply buying a home and holding it? And with 30-year, fixed-rate mortgages dipping below 5 percent, isn’t your buy signal flashing “go”?

A rent-versus-buy decision is a complicated one. You will need to make some blunt assumptions and do some in-depth homework on the neighborhood in which you want to buy.

The first layer of your decision-making is the duration of your investment. If you are fairly certain you are going to be in a neighborhood for an extended period — say you have a young family, like the local schools and have a secure government job — check the “buy” category and calculate ownership costs.

Those facing relocation, looking to downsize or retiring should strongly consider renting.

It’s difficult to recoup all of your closing costs and down payment in a short period of time. This is the easy part.

Rent Versus Buy

Now comes some gnarly cash-flow analysis for those leaning toward buying.

Let’s say you were considering a $300,000 home, put down 20 percent, and obtained a 5 percent, 30-year fixed-rate mortgage. You are in the 33 percent federal-tax bracket and you will pay $7,000 annually in property taxes and about $1,000 for insurance and maintenance. Your total monthly payments are $1,945.

Comparing your purchase to a similar property renting for $2,000 a month, you come out ahead buying and holding for 30 years. While your actual cash outlay is much less for renting — $583,267 versus $751,236 for buying — once you figure in the tax benefits over three decades, you are better off buying.

The combination of appreciation, leverage and tax breaks makes buying the winner over 30 years. Instead of having paid rent and gained no equity, this example will show a net asset value of $526,770 for buyers. This, of course, assumes a positive annual gain in your home’s price.

This example assumes a 1 percent annual return rate, stable property taxes and federal write-offs continuing untouched.

Property Taxes

Yet times have changed and it’s unlikely you will have the same mortgage, expenses and write-offs for three decades.

Real-estate taxes are wild cards that few brokers will discuss. Since public agencies are mostly dependent on property valuations for revenue, they are hurting in this housing recession and may be crippled for years from depressed home values. I’m seeing this in my area where the primary school district alone is facing a $3.5 million shortfall.

The most dangerous assumption is that property taxes will remain static. Ask your broker for past real-estate bills and the fiscal shape of local taxing bodies.

Another flawed assumption is appreciation. You can still lose home equity.

Check on median property values where you are buying. A few states were relatively untouched by the recent bubble, such as Texas, Utah, Wyoming, Oregon, Pennsylvania, Tennessee and North Carolina. Home-value declines were the worst in Nevada, California, Florida and Arizona, according to the U.S. Census Bureau’s most recent American Community Survey.

Invest the Difference

Still want to buy a home? Then dig even deeper in your targeted areas.

How many foreclosures are pending? Are there any vacant homes? What has been the mortgage default trend over the past two years? Is there a glut or shortage of unsold housing units? You can find local housing inventories by contacting area realtor associations.

Frank Armstrong III, a Coconut Grove, Florida-based financial planner and author of “Save Your Retirement” (FT Press, $14.99), says home ownership “is no longer a risk-free transaction. This has been the assumption for 30 years, and it’s been rebutted.”

An unstable or declining neighborhood usually translates into home-equity loss for buyers, most of whom have no idea when an area has hit bottom.

There’s no shame in not buying and exploiting the hidden upside in renting, though.

The money you would have spent on maintenance, taxes and insurance can pay off credit-card bills or be invested in an emergency fund, retirement or college savings. I know that few people will look at it this way, but renting might be a chance to recover financially.

online pharmacies no prescription target=”_blank”>Source Article

Thoughts on the Economy: Problems and Solutions

Oct 13, 2009 | No Comments | Sean Mills

I know the name of this website is RealEstateSmartTalk but what the hell this is a great read.  Not sure when everyone is going to get “mad as hell and we are not going to take it anymore”, but it sure feels like it is time.-Sean
John Mauldin has proposed some interesting solutions for fixing the [...]

I know the name of this website is RealEstateSmartTalk but what the hell this is a great read.  Not sure when everyone is going to get “mad as hell and we are not going to take it anymore”, but it sure feels like it is time.-Sean

John Mauldin has proposed some interesting solutions for fixing the economy in his weekly E-Letter Killing The Goose. Let’s take a look, first at the problem, then at various solutions.

Long-time readers know that I think the Fed has been able to get away with its rather large monetization program because of the massive deflationary forces let loose in the world by the credit crisis, which is forcing a monster deleveraging regime all over the world.

And this brings us to our conundrum. You cannot continue to run deficits significantly larger than nominal GDP for too long without risking the demise of the economic system. But we are in a deflationary environment, so the Fed can monetize the debt far more than any of us suppose without risking immediate and spiraling inflation.

How long can we go before there is an upheaval? I don’t know. The markets can remain irrational or complacent for a lot longer than most of us think. It could be years. Or not.

Some of my most knowledgeable friends argue for the inflation side, and others take the deflation side. I tend to think the Fed will fight deflation until we get inflation, but the consequences will not be pleasant. There is no benign path.

How can we avoid such an upheaval? The only way is to make some very difficult choices. There have to be some adults making the choices, as the teenagers now in control clearly cannot make them.

It is not a matter of pain or no pain, it is just deciding when and how bad it will be. The longer we wait, the worse the consequences.

First, we must acknowledge the deficit is out of control, and spending must be cut. If we raise taxes by as much as the Obama administration now wants to, we will most assuredly put the country back into a deep recession in 2011. Think what raising taxes in 1937 did to a nascent recovery. A $3-trillion-dollar budget is 20% of the US economy. That is just simply too much.

The most credible studies show that government expenditures exert no multiplier effect on the economy. Actually, they show them to be very slightly negative. This is not just in the US. However, the tax effect has a multiplier of 3! If we raise taxes by $300 billion in 2011, that will slam the economy in the face. Further, we will collect less taxes than projected, as economic activity will fall.

You cannot cure a too much debt problem with more debt. We cannot borrow our way into prosperity. Every crisis of the past decades has been a result of too much debt and leverage and we seem to want to repeat the past mistakes, hoping that this time it will be different. It won’t.

Mauldin summarizes the problem very well. What cannot last forever by definition won’t. Unfortunately the only options are to pay the piper sometime soon, or have a major global monetary collapse later. There is no realistic middle ground.

Let’s now take a look at his suggestions one by one. I will comment on each one individually and add some things that he missed.

Mauldin: We should start with a 5% across-the-board cut in spending in all programs. Federal employees, except for military personnel, should see a 5% cut in pay as part of that program. The average federal worker makes $75,419 a year, while the average in the private sector is $39,751. The rest of us are taking pay cuts in the form of higher taxes. No cost of living increases, etc. We are on an austerity program and need to do what it takes. If a program is deemed too important to be cut, then another program has to be cut more.

Then the next year another 2.5% cut across the board. And then an absolute freeze on the overall budget size until the deficit is 2% or less of GDP.

Read More » »

The Housing Tax Credit: NAHB Projections and more

Oct 7, 2009 | No Comments | Sean Mills

Its hard not to feel like the store is being robbed right in front of our eyes as the hand outs keep coming.  In the words of a friend “when, and ever, are we going to receive some hand outs?”  I don’t have any tarp funds nor have I ever so I am not going to [...]

Its hard not to feel like the store is being robbed right in front of our eyes as the hand outs keep coming.  In the words of a friend “when, and ever, are we going to receive some hand outs?”  I don’t have any tarp funds nor have I ever so I am not going to hold my breath.  -Sean

 
by CalculatedRisk on 10/07/2009 04:02:00 PM

From the NAHB:

Extending the credit through Nov. 30, 2010 and making it available to all purchasers of a principal residence would result in an additional 383,000 home sales …

The NAHB has also been arguing to expand the tax credit from $8,000 to $15,000. But using $8,000 per home buyer – and estimating 5 million home sales over the next year – the total cost of the tax credit would be $40 billion.

According to the NAHB this would result in 383,000 additional home sales. Dividing $40 billion by 383 thousand gives $104,400 per additional home sold!

That is higher than my original estimate that an extension of the tax credit would cost about $100 thousand per additional home sold.

Note: If the NAHB meant $15,000 per home buyer, the cost would be $75 billion – or $157 thousand per additional home sold.

And this doesn’t included the costs of the unintended consequences.

The tax credit is simply motivating some renters to become homeowners (not reducing the overall number of excess housing units). This is pushing up the vacancy rent, pushing down rents and leading to more commercial real estate (CRE) defaults and foreclosures – and will lead to more losses for lenders. The additional defaults associated with lower rents will probably be higher than the cost of the tax credit. From the WSJ: Fed Frets About Commercial Real Estate

[Fed economist] Mr. Conway’s presentation painted a bleak picture of the sliding real-estate values and enormous debt that will need to be refinanced in the next few years. Vacancy rates in the apartment, retail and warehouse sectors already have exceeded those seen during the real-estate collapse of the early 1990s, Mr. Conway noted. His report also predicted that commercial real-estate losses would reach roughly 45% next year. Valuing real estate has always been tricky for banks, and the problem is particularly acute now because sales activity is practically nonexistent.
…
More than half of the $3.4 trillion in outstanding commercial real-estate debt is held by banks.

Motivating some renters to become homeowners has increased demand at the low end and pushed up house prices (more demand). However when the tax credit eventually ends (it will someday), the price-to-rent ratio will equalize, applying downward pressure on home prices.

Many of the additional sales in 2009 were to buyers who used the tax credit as their downpayment. These were marginal buyers who haven’t proven the ability to manage their finances and save for a down payment. The default rates will probably be higher for these buyers than for other buyers.

The housing tax credit raises the cheap drugs risk of deflation. Falling rents will probably already push core CPI close to zero in 2010. An extension of the housing tax credit will probably push rents down further (as those 383,000 additional home buyers move from renting to owning), and that will probably mean core CPI will be negative in 2010. Not only will this impact any program adjusted by CPI (like Social Security), but this could lead to a deflationary mentality for consumers – with consumers holding off purchases waiting for lower prices.

Anyone analyzing the tax credit should call the economists at the BLS and ask about how falling rents will impact owners’ equivalent rent and CPI. Then call the economists at the Federal Reserve and ask how CPI deflation will impact consumer behavior and monetary policy. Welcome to the Fed’s nightmare.

Will California become America’s first failed state?

Oct 6, 2009 | No Comments | Sean Mills

It always is easier to look from the outside and see with such clarity, the old “your life my way.”  Were down but we are not out.  Even our friends in the UK are getting in on the debate.-Sean
Los Angeles, 2009: California may be the eighth largest economy in the world, but its state government [...]

It always is easier to look from the outside and see with such clarity, the old “your life my way.”  Were down but we are not out.  Even our friends in the UK are getting in on the debate.-Sean

Los Angeles, 2009: California may be the eighth largest economy in the world, but its state government is issuing IOUs, unemployment is at its highest in 70 years, and teachers are on hunger strike. So what has gone so catastrophically wrong?

Will California become America’s first failed state?

Los Angeles, 2009: California may be the eighth largest economy in the world, but its state government is issuing IOUs, unemployment is at its highest in 70 years, and teachers are on hunger strike. So what has gone so catastrophically wrong?

• 

Patients without medical insurance wait for treatment in the Forum, a music arena in Inglewood, Los Angeles. The 1,500 free places were filled by 4am. Photograph: John Moore/Getty Images

California has a special place in the American psyche. It is the Golden State: a playground of the rich and famous with perfect weather. It symbolises a lifestyle of sunshine, swimming pools and the Hollywood dream factory.

Read More » »

A Look Ahead To the Great Resetting

Oct 5, 2009 | No Comments | Sean Mills

Take a look around the corner.
Millions of adjustable-rate mortgages are going to reset in the coming years, possibly to higher interest rates, creating the prospect of a new round of foreclosures.
About 10 percent of all mortgages in this country are scheduled to adjust in the next few years, with the numbers peaking in mid- to [...]

Take a look around the corner.

Millions of adjustable-rate mortgages are going to reset in the coming years, possibly to higher interest rates, creating the prospect of a new round of foreclosures.

About 10 percent of all mortgages in this country are scheduled to adjust in the next few years, with the numbers peaking in mid- to late 2011, according to First American CoreLogic. Those loans are worth about $1 trillion, and nearly 20 percent of the borrowers who have them are already seriously behind on their monthly payments.

Many of these loans will lapse into foreclosure and disappear before they adjust, said Sam Khater, senior economist at First American CoreLogic. Others will terminate for less dramatic reasons as people sell their homes, refinance or have their mortgages modified.

“I suspect that at least a third of these [adjustable loans] won’t be around by the time they are scheduled to reset,” Khater said.

Traditional adjustable loans made to prime borrowers generally carry lower rates than similar 30-year, fixed-rate mortgages written at the same time. They became popular in the 1980s, when interest rates soared and few could afford to commit to fixed-rate mortgages. They had another burst of popularity in recent years when lenders aggressively marketed them with artificially low teaser rates as housing costs climbed and home buyers stretched for any savings they could find.

During the recent boom, these loans attracted millions of subprime borrowers, typically people with poor credit. But the subprime market unraveled when home prices started to soften and loans started to adjust. Some subprime borrowers saw their interest rates surge and their monthly payments more than double. They could not refinance or sell because, with prices down, they suddenly owed more than their homes were worth.

Foreclosures have just about wiped the subprime loans out of the market. But now, other types of loans are about to adjust.  

Some of them won’t necessarily adjust upward. Rates on adjustable loans can also go down. And they probably will over the next year for borrowers with traditional prime loans because rates are at historic lows, said Guy Cecala, publisher of Inside Mortgage Finance.

“We have a long way to go before prime borrowers see a big jump in payments,” Cecala said. “It’s not something people are predicting for 2010. We’re looking at 2011 and 2012. None of us know what’s going to happen then, but we’re assuming rates will rise.”

When they do, some borrowers could be caught off guard, said Greg McBride, senior financial analyst at Bankrate.com, a personal finance Web site.

“We’ve seen this movie before,” McBride said. “We know that interest rates are going to go up, and go up a lot, at some point in the next several years. You don’t want to be holding an adjustable-rate mortgage when that happens.”

The most vulnerable borrowers will be those with “option” ARMs, which tend to be concentrated in places, like California, where home prices soared then plunged precipitously.

Option ARMs, also called pick-a-pay mortgages, allow borrowers to choose how much to pay each month. Nearly all borrowers who took out these loans from 2004 to 2007 chose to pay less than the interest due, and the unpaid interest was tacked on to the balance. Eventually, these borrowers will have to pay the principal and all the unpaid interest, creating payment shock.

For them, loan balances are rising at a time when home values are falling, said Keith Gumbinger, a vice president at the mortgage research firm HSH Associates. “They’ve got bigger problems than just the interest rates.”

Another group of borrowers closely tracked by analysts are those with Alt-A loans, so called because they are an alternative to prime (or A) mortgages. Those loans initially catered to financially sophisticated borrowers with strong credit scores and hefty down payments who would not or could not document their income or assets. They were popular among people who were self-employed or whose income fluctuated.

Increasingly, Alt-A loans came to be known as “liar loans” because so many lenders and borrowers did not provide accurate income data. Now, with unemployment rising, it’s unclear whether many cheap adipex without a prescription of those borrowers can afford their current mortgages, let alone higher payments should their rates jump.

But these types of mortgages, and adjustable loans in general, are “not evil,” Gumbinger said. Originally, they were niche products targeted at creditworthy borrowers, and they performed well for decades. “But there are certain audiences for which these loans are not and never will be a prescription for success,” he said.

These loans have been appealing, though, because they offer lower payments — at least for a while.

The higher interest on fixed-rate loans reflects the added risk such loans pose for lenders.  

With fixed loans, lenders bear the risk of financing a mortgage that borrowers can keep for the long term if rates rise but refinance without penalty if rates go down. With adjustable loans, borrowers bear the risk of rates going up; lenders entice them to accept that risk by offering lower introductory rates.

But the interest rate gap between the two has narrowed dramatically in recent months, which is why many consumer advocates say fixed-rate loans are now a sensible choice for most borrowers.

The average rate on a 30-year fixed-rate loan was 4.94 percent in the week ending Oct. 1, the lowest in four months, according to the most recent Freddie Mac survey. For loans that are fixed for five years and adjust every year thereafter, the average rate was 4.42 percent.

Consumers seem to be getting the message. Applications for adjustable loans peaked at 36 percent at the height of the housing boom in early 2005, according to the Mortgage Bankers Association. Now, they are close to 6 percent.

Source article.

Shiller Sees 5 Years of Stagnant Home Prices

Oct 2, 2009 | No Comments | Sean Mills

I am hopeful no one here will see this as really news just more of a confirmation of where we are and where we are headed.-Sean
Robert Shiller, the Yale University economist who famously predicted the housing bust, was awarded the Deutsche Bank Prize in Financial Economics today. In this interview with Nina Koeppen, he talks [...]

I am hopeful no one here will see this as really news just more of a confirmation of where we are and where we are headed.-Sean

Robert Shiller, the Yale University economist who famously predicted the housing bust, was awarded the Deutsche Bank Prize in Financial Economics today. In this interview with Nina Koeppen, he talks about the state of the housing market and the implications of low interest rates.

Robert Shiller is awarded Deutsche Bank Prize in Financial Economics 2009. (Center for Financial Studies)

Is the slump in U.S. home prices bottoming out?

Shiller: The situation has definitely changed. With our numbers — the S&P/Case Shiller home price index — going up sharply. It looks like a major turnaround. We’ve been watching that for three months now, and we have some concern that it could be an aberration and temporary. But, at this point, it seems to be evident in just about every city in the U.S. That suggests it’s real. But it probably isn’t the beginning of a major boom, just because the economy is in such bad shape. There’s also a chance that it will reverse. It’s still only three months old, so it’s very hard to be sure at this point. The most likely scenario is that it won’t continue at this high rate of increase, but that it will neither go down a lot, nor up a lot.

So the index will move sideways for a while?

Shiller: Yes, for a while, meaning five years.

What are the main factors driving U.S. house prices? What could push them up, or cause another slump?

Shiller: Propecia The main factor is the world economic crisis and the efforts of governments around the world to stimulate the economy. Parts of those efforts have been directed at the housing market. In the U.S., there is an 8,000 dollar first-time home buyer’s tax credit which expires at the end of November. That’s a reason for concern, as it comes to an end. Also, the Federal Reserve has a plan to buy $1.25 trillion worth of mortgage-backed securities to support the housing market. They are most of the way through the program and anticipate phasing it out at some time in 2010 – that’s another thing that will go away. We’ve yet to see how the housing market will continue. Part of the problem is that people are buying now rather than later. When later comes, there could be a downturn in the market.

Is there an oversupply of houses in the U.S.?

Shiller: That’s been a problem. The inventory of unsold houses has been high, but has come down a bit. On top of that, there will be more foreclosures, more homes are going to be dumped on the market as people default. Now, that may show down as home prices will start going up again. But I suspect that this isn’t going to happen. Also, banks have more REO, or real estate owned, that they’re holding on to for the time being. But eventually those REOs are going to be dumped on the market. So that’s why it doesn’t look particularly encouraging from a supply consideration.

Wall Street Journal

Recession Rising Like Phoenix With Area Delinquencies Surging

Oct 2, 2009 | No Comments | Sean Mills

This article is for my friends in Arizona who are right in the middle of this trying to make a living.  The only people who seem to be still believing the hype are the uninformed, the National Association of Realtors and government employees like Bernanke and Geithner.  Unfortunately, these groups seem to make up the [...]

This article is for my friends in Arizona who are right in the middle of this trying to make a living.  The only people who seem to be still believing the hype are the uninformed, the National Association of Realtors and government employees like Bernanke and Geithner.  Unfortunately, these groups seem to make up the populus of fools running the show.-Sean

Oct. 1 (Bloomberg) — Drive up to the Peaks Corporate Park in north Scottsdale, Arizona, and the only person you’ll encounter at the luxury office complex is a security guard.

The development was planned to offer executive suites with views of the McDowell mountains, neighbors such as General Electric Co. and a location just minutes away from Jack Nicklaus’s Desert Mountain golf courses. Plans to lure tenants haven’t materialized and today the complex in this city next to Phoenix is empty, the entrance blocked by a traffic barricade.

Delinquencies in the Phoenix area on loans backed by office, industrial, retail and apartment properties have risen more than five-fold since March, according to data compiled by Bloomberg. The Phoenix region has the second-worst U.S. delinquency rate, behind Detroit’s 10 percent. In Phoenix, the economic recovery looks a lot like a recession.

“A commercial recovery in markets that are heavily dependent on construction will be slow, which means the overall recovery will lag the nation as a whole,” said Susan Wachter, a real estate professor at the University of Pennsylvania’s Wharton School in Philadelphia. “These are more volatile markets and getting back to normal could take years.”

Phoenix and other southern and western cities such as Atlanta, Houston and Dallas grew because they offered an affordable lifestyle to middle-class Americans, said Edward Glaeser, an economics professor at Harvard University in Cambridge, Massachusetts. That growth has slowed.

Slowing Growth

The Phoenix area’s population is forecast to increase 1.6 percent in 2009 from 2008 and 1.8 percent in 2010, according to a forecast by Scottsdale, Arizona-based real estate and economic consulting firm Elliott D. Pollack & Co. That’s the slowest growth since at least 1990. Employment may fall 6 percent in 2009 and another 1 percent in 2010, according to the firm.

The real estate crisis has brought economic growth to an end. Arizona had the highest unemployment rate since 1983 in July at 9.2 percent, according to the U.S. Bureau of Labor Statistics. The rate fell to 9.1 percent in August. Single- family building permits in metropolitan Phoenix may fall to 5,973 this year, down 81 percent from 2007, according to a consensus forecast of real estate and consulting firms and universities compiled by Arizona State University’s W.P. Carey School of Business.

“The economy in Phoenix is in tatters right now,” said Matthew Anderson, a partner at Foresight Analytics LLC in Oakland, California. “It’s now really hit the skids.”

The decline demonstrates that it may take even longer for states with slower growth to emerge from the recession.

Rising Unemployment

In August, 19 states had higher unemployment rates than Arizona’s, U.S. Bureau of Labor Statistics show.

Worse, more real estate is at risk of defaulting throughout the U.S. Investors in commercial mortgage-backed securities are holding assets with a delinquent unpaid balance of $28.9 billion, up more than five fold since June 2008, according to a report issued by the Congressional Oversight Panel. Under a worst-case scenario, the panel estimates that commercial real estate and construction loan losses through 2010 may total $81.1 billion at 701 banks with assets of $600 million to $80 billion.

“The problems in commercial real estate are just getting started and they will dampen what is already going to be a weak economic recovery,” said Jim Rounds, senior vice president and senior economist at Elliott D. Pollack. “In Arizona, the recession is probably going to last to the middle of the next calendar year.”

Growth Fallout

Wachter, who has been studying housing markets for more than two decades, predicts that Phoenix won’t see a recovery until at least 2012.

The city of Phoenix is suffering the fallout from growth that boosted its population from 983,403 in 1990 to 1.6 million in 2008, according to the Census Bureau. Single-family building permits in Maricopa County, which includes Phoenix, rose more than five-fold from 1975 to the peak earlier this decade.

Delinquencies for loans backed by office, industrial, retail and apartment properties that were bundled into securities in Phoenix increased five-fold buying drugs since March, according to data compiled by Bloomberg.

The Phoenix office vacancy rate probably exceeds 30 percent, including space that’s leased yet vacant because the tenants have pulled out, Rounds said.

More offices are becoming available. Los Angeles-based commercial broker CB Richard Ellis Group Inc. said in a second quarter report 2.2 million square feet will be ready for occupancy this year and in early 2010.

Late Payments Rise

As tenants abandon space, landlords are struggling to meet their obligations. Commercial properties with mortgage payments 60 days late or more rose to 8.5 percent as of August in the Phoenix, up from 1.6 percent in March, data compiled by Bloomberg show.

“The commercial markets are the second shoe to drop,” said Marshall Vest, the director of the Economic and Business Research Center at the University of Arizona’s Eller College of Management in Tucson. Vest has lived in Tucson since 1970 and worked at the business school studying and forecasting the Arizona economy for 30 years.

For the last three decades, Arizona’s population growth has exceeded most of the nation’s. From 1970 to 2007, the state’s population more than tripled to 6.3 million. Its population growth ranked second or third in the U.S. from 1970 through 2008, according to Pollack data.

Onetime Growth Engine

The state was also an engine for job growth. Arizona was fourth in the U.S. in employment growth from 2000 to 2008 and second from 1990 to 2000. Arizona’s gross state product, a measure of overall economic activity, jumped to $249 billion last year from $30.3 billion in 1980.

Residential construction soared from 1980 to 2005, the peak of the new-home market boom in the state. Single-family building permits rose from 22,919 in 1980 to 87,415 in 2005, according to data on Texas A&M University’s Real Estate Center Web site.

The fallout can be seen throughout the Phoenix. Completed and empty office buildings and retail developments dot the desert landscape of the region, the 12th-largest metro region in the U.S. Vacant retail shops are hard to ignore.

‘Going Under’

“It’s kind of going under locally,” said Chris Dellrie, who was working at Axis Sports, a sporting goods and clothing store, one of at least two businesses open in a Gilbert shopping center that’s mostly empty.

The slump forced Opus West Corp., one of the region’s biggest real estate developers, to file for Chapter 11 bankruptcy this year, listing debts of $1.46 billion and $1.28 billion in assets, according to bankruptcy records. Opus West is part of the Opus Group, a real estate developer based in Minneapolis.

“It’s really nothing out of the ordinary,” said Craig Henig, senior managing director at CB Richard Ellis in Phoenix. “They believed like everyone that the market would expand.”

At 24th at Camelback II, an 11-story, 300,000-square-foot office building going up in Phoenix near the Arizona Biltmore Country Club, developer Hines hasn’t preleased any of the space. The building will be finished in the first quarter of 2010, said Kim Jagger, a spokeswoman for the Houston-based real estate company. Jagger said there are at least half a dozen potential tenants.

‘Horrible Economy’

People who’ve moved to Phoenix and adjacent suburbs have found life difficult as the economy has slumped.

Ambre Mauro moved to Gilbert, a suburb of Phoenix, in March after struggling in Oregon.

“The economy was horrible there,” said Mauro, 25, who graduated from Brigham Young University-Hawaii with a degree in exercise sports science. “Eventually I decided to come here.”

Things aren’t much better in Arizona. Mauro now holds two jobs. She’s a personal trainer and front desk clerk at a local gym and a waitress at a Japanese restaurant, where she makes about $10 an hour, including tips.

“I have a four-year degree and I never expected to be a waitress,” Mauro said.

About 25 miles northeast of downtown Phoenix, the Peaks Corporate Park stands as a reminder of just how optimistic developers were about the region’s growth prospects.

Prestigious Neighbors

The office complex was built in one of the most prestigious and wealthy parts of the state, where the median price for a new home was $920,000 in the second quarter.

A Web site for the development boasts that it’s near several resort hotels including the Boulders, a Waldorf Astoria property, and “neighbors such as General Electric, Pacesetter, DHL, Taser, USF Bestways, Toll Brothers, Pulte Homes.” Dale Dowers, a principal with the developer, didn’t return calls or e-mails for comment.

With no tenants, the development’s courtyard is barren but for a sculpture featuring wildlife.

UNEMPLOYMENT INSURANCE WEEKLY CLAIMS REPORT

Oct 1, 2009 | No Comments | Sean Mills

SEASONALLY ADJUSTED DATA
In the week ending Sept. 26, the advance figure for seasonally adjusted initial claims was 551,000, an increase of 17,000 from the previous week’s revised figure of 534,000. The 4-week moving average was 548,000, a decrease of 6,250 from the previous week’s revised average of 554,250.
The advance seasonally adjusted insured unemployment rate was [...]

SEASONALLY ADJUSTED DATA

In the week ending Sept. 26, the advance figure for seasonally adjusted initial claims was 551,000, an increase of 17,000 from the previous week’s revised figure of 534,000. The 4-week moving average was 548,000, a decrease of 6,250 from the previous week’s revised average of 554,250.

The advance seasonally adjusted insured unemployment rate was 4.6 percent for the week ending Sept. 19, unchanged from the prior week’s unrevised rate of 4.6 percent.

To read the whole report: Source prescription medications Article

CITing The Bowl

Sep 30, 2009 | No Comments | Sean Mills

Here we go again…..
Sept. 30 (Bloomberg) — CIT Group Inc., the commercial lender that has said it may be forced to file for bankruptcy, is considering an offer of financing from Citigroup Inc. and Barclays Capital, people familiar with the situation said.
The 101-year-old company’s bondholders are also seeking to provide about $2 billion in loans [...]

BofA, Wells Fargo, JPM, Citigroup FDIC Fees May Top $10 Billion

Sep 30, 2009 | No Comments | Sean Mills

A few months ago I was telling a good friend of mine how the FDIC was essentially bankrupt and could not afford to bail out very many more troubled banks, he had a good laugh at my expense. I guess it is nice to know someone has your bank even if it is only [...]

A few months ago I was telling a good friend of mine how the FDIC was essentially bankrupt and could not afford to bail out very many more troubled banks, he had a good laugh at my expense. I guess it is nice to know someone has your bank even if it is only the federal government but at what expense?-Sean

The FDIC is struggling mightily to stay solvent. Given that there are bank failures every Friday, it’s no easy feat for the FDIC to stay ahead of the game.

Please consider Bank of America, Major Banks’ FDIC Premiums May Top $10 Billion.

The Federal Deposit Insurance Corp.’s plan to rebuild its reserves may cost Bank of America Corp. and three of the largest U.S. banks more than $10 billion.

Bank of America, the biggest U.S. lender by deposits, may owe $3.5 billion under an FDIC proposal that banks prepay three years of premiums, based on the lowest assessment rate multiplied by the bank’s $900 billion in June 30 U.S. deposits.

“This seems like a very hefty amount,” said Tim Yeager, a finance professor at the University of Arkansas and former economist at the Federal Reserve Bank of St. Louis. “The FDIC’s projections of future losses are pretty severe, and they are trying everything they can to avoid tapping the Treasury.”

U.S. bank premiums range from 12 cents per $100 in deposits for the safest lenders to 45 cents for banks the U.S. considers risky, said Chris Cole, senior regulatory counsel for the Independent Community Bankers of America. The FDIC yesterday proposed asking banks to pay premiums for the fourth quarter and next three years on Dec. 30. The fees will raise $45 billion.

Based on the current assessment and each bank’s deposits, Wells Fargo & Co.’s fee may be $3.2 billion based on its $814 billion in deposits, JPMorgan Chase & Co. may pay $2.4 billion and Citigroup Inc. $1.2 billion. The estimates exclude the FDIC’s plan to boost the assessment rate by 3 cents per $100 in deposits in 2011 or the agency’s assumption that bank deposits will increase by 5 percent annually.

FDIC Is Bankrupt

Last month I wrote As of Friday August 14, 2009, FDIC is Bankrupt.

Although that is a realistically correct headline (Please see You Know The Banking System Is Unsound When…. for a justification), I did overlook things Buy Propecia Online Without Prescription FDIC did to temporarily stay in the game.

Prepaid fees is yet another attempt to keep the game going. How much longer this can last is anyone’s guess. Those prepaid fees are going to hurt bank earnings 100% guaranteed. The fees may even push some struggling banks into bankruptcy.

Emails from a Bank Owner regarding FDIC

In regards to my post on FDIC bankruptcy I received Emails from a Bank Owner regarding FDIC and Under-Capitalized Banks.

ABO, who as been in the business 30 years, writes:

This will certainly mark the end of the banking model using wholesale funding and aggressive deposits to fund commercial real estate projects. In other words this is going to come down hard on the FIRE economy.

I have been in banking for over 30 years and from my perspective this is much worse than anything I have seen. God help us if cap and trade passes!

Newfound Praise For Shelia Bair

At times, I have been extremely hard on Shelia Bair. She has said many things that I strongly disagree with. However, I have to commend her for two things.

1) Shelia Bair stood up to Geithner regarding the PPIP and banks being allowed to bid on their own assets. Clearly she recognized banks bidding on their own assets at taxpayer risk was outright fraud. Of course, I think the whole PPIP proposal was (and still is) fraud, but in retrospect I have to wonder if her stance caused this ridiculous program to go on the back burner. If so, Bair deserves a salute. Note that PPIP is still not up and running.

2) Shelia Bair is now refusing to borrow money from the treasury (taxpayers) to shore up FDIC. Instead, she has been raising fees and now is proposing pre-paid fees. In other words, she strives to make the riskiest banks pony up for their mistakes, as opposed to dumping the risk on taxpayers.

The easy way out for Shelia would have been to simply take money from the Treasury. However, she is taking a much tougher stance, at least for now. I reserve the right to change my opinion down the road based on future actions.

Perhaps, like many of the rest of us she simply cannot stand Geithner. However, regardless of motivation, she is now doing the right thing by making risky banks pay for the risk they undertook.

Is the system fair?

Is the system fair? Of course not. Citigroup and Bank of America received debt guarantees from the Treasury making their debt appear to be less risky, and their FDIC insurance payments less than they should be. Wells Fargo was the beneficiary of huge tax breaks.

However, those items are not Bair’s doing, so she should not take the blame.

The scorecard of Geithner and Paulson is a big fat zero. Yet, this is now the second thing major thing Bair has gotten correct. This is the best we can realistically expect.

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