Sep 29, 2009 11:11 AM, Staff report
National Real Estate Investor
Cambridge Realty Capital Cos., which has completed more than $2.75 billion in seniors housing and healthcare debt and equity investments since the mid-1990s, sees no time like the present to expand its investment portfolio.
The Chicago-based firm traditionally has invested in existing properties with historical cash flow predictability and experienced owner/operators, explains Jeffrey Davis, chairman of Cambridge Realty Capital.
Going forward, the company will expand its investments to include the discounted debt of similar assets using strict investment criteria and screening.
The activity will be initiated through the company’s investment affiliate, Cambridge Investment & Finance Co., on a pre-commitment, opportunistic, transaction-by-transaction basis, adds Davis.
Cambridge specializes in three distinctive business lines: FHA-insured HUD loans, conventional financing and investments, and acquisitions. The company is one of the nation's leading HUD 232 healthcare lenders, offers a wide array of conventional lending options, and has been aggressively involved in direct property acquisitions, joint ventures and sale/leasebacks.
"The current credit crisis has significantly marginalized competitive factors, enabling Cambridge to become even more selective in identifying opportunities that meet the company's proprietary investment-screening model,” says Davis.
“Because the frozen capital markets have spread into all sectors, owner/operators are becoming more reliant on firms like Cambridge for their capital requirements," he adds.
Davis believes that the company's integrated debt financing and investment businesses complement each other. The company reviews more than $350 million in senior housing and healthcare financing origination requests on a monthly basis and maintains a large and proprietary database of real-time data.
"We understand the underlying property assumptions as well or better than any other operator or investor in this sector," says Davis.
There are a number of reasons investors might be drawn to the seniors housing/healthcare market segment at this time, he suggests.
"Most experts concur that senior housing has become a non-cyclical business and will not experience the economic recession at nearly the magnitude experienced by other segments of the commercial real estate market,” according to Davis. “Unlike other forms of residential and commercial real estate, seniors housing has not had any major construction or expansion of existing product since the major wave of overbuilding that took place in the late 1990s.”
Wednesday, September 30, 2009
U.S. Stocks Fall as Chicago Business Index Trails Estimates
Sept. 30 (Bloomberg) -- U.S. stocks fell for a second day as an unexpected contraction in a measure of business activity spurred concern the economy is struggling to recover.
American Express Co., Walt Disney Co. and JPMorgan Chase & Co. dropped more than 2 percent to lead declines in all 30 stocks in the Dow Jones Industrial Average after the Institute for Supply Management-Chicago Inc.’s business barometer trailed economists’ estimates. CIT Group Inc., the 101-year-old commercial lender, tumbled 35 percent on concern it will be forced into bankruptcy.
The S&P 500 lost 1.2 percent to 1,047.68 at 10:39 a.m. in New York. The Dow Jones Industrial Average tumbled 113.96 points, 1.2 percent, to 9,628.24. About seven stocks fell for each that rose on the New York Stock Exchange.
“We’re in the faith part of the economic cycle,” said Ralph Shive, manager of the $1.3 billion Wasatch-1st Source Income Equity Fund, which has beaten 96 percent of competing funds over the past five years. “All of us to some degree are guessing how strong the recovery is or how long it will take. Market prices have anticipated a decent recovery at this point. At some point we need to see earnings turn.”
Benchmark indexes erased an early advance spurred by a Commerce Department report showing the recession abated more than originally estimated in the second quarter. The world’s largest economy shrank at a 0.7 percent annual rate from April through June, the best performance in a year and better than the 1.2 percent decrease estimated by economists in a survey.
Quarterly Rally
The S&P 500 has jumped 14 percent in the third quarter, building on a 15 percent rally in the April to June period. The rally has sent price-earnings valuations in the index this month to the highest levels since 2004. The measure has rebounded 57 percent from a 12-year low in March.
CIT slumped 35 percent to $1.42. The lender is considering an offer of financing from Citigroup Inc. and Barclays Capital, people familiar with the situation said. Bondholders are also seeking to provide about $2 billion in loans as a restructuring deadline approaches tomorrow, said the people, who declined to be identified because the negotiations are private. CIT may choose other options, the people said.
Darden Restaurants Inc. fell the most in the S&P 500, declining 8.9 percent to $33.28. The owner of the Olive Garden and Red Lobster chains said first- quarter sales dropped 2.3 percent, missing analysts’ estimates.
Moody’s Corp. tumbled 6.8 percent to $19.39. U.S. House Oversight and Government Reform Committee is holding a hearing on rating companies today in Washington. McGraw-Hill Cos., owner of Standard & Poor’s, slipped 3.8 percent to $25.12.
Saks, Nike
Saks Inc. dropped 6.3 percent to $6.72. The luxury retail chain plans to offer as much as $100 million in shares, using the proceeds to reduce debt, according to a regulatory filing.
Nike Inc. jumped 7.3 percent to $64.48 and advanced earlier to $64.65, the highest intraday price since October 2008. The world’s largest athletic-shoe maker posted first-quarter profit that exceeded analysts’ estimates as it cut marketing and personnel costs.
All 10 of the main industry groups in the S&P 500 advanced in the third quarter, led by a 24 percent rally in financial shares and 20 percent gains in industrial and commodity producers.
Gannett Co., the nation’s largest newspaper publisher, posted the steepest advance in the index, more than tripling in the quarter. Hartford Financial Services Group Inc., Wynn Resorts Ltd. and Tenet Healthcare Corp. more than doubled.
Recovering Economy
The gains came amid speculation the economy was returning to growth following the worst recession in seven decades. Home prices stabilized, consumer confidence strengthened as job losses abated and the Institute for Supply Management said manufacturing activity ended an 18-month contraction in August.
The performance of the U.S. economy is probably more sluggish than reflected in stock markets, risking a correction in equities, Nobel Prize-winning economist Michael Spence said.
U.S. stock-market investors have “over processed” the stabilization of growth in the world’s largest economy, Spence said in an interview in Kuala Lumpur yesterday. The U.S. economy isn’t likely to experience a “double-dip” slowdown even as that remains a risk, said the professor emeritus of management in the Graduate School of Business at Stanford University.
Alcoa will be the first company in the Dow average to release third-quarter earnings next week, set for Oct. 7.
Analysts expect profits in the S&P 500 to drop 22 percent on average in the third quarter before rebounding 63 percent in the final three months of the year, according to estimates compiled by Bloomberg.
The International Monetary Fund today cut its projection for global writedowns on loans and investments by 15 percent to $3.4 trillion, citing improvements in credit markets and initial signs of economic growth.
American Express Co., Walt Disney Co. and JPMorgan Chase & Co. dropped more than 2 percent to lead declines in all 30 stocks in the Dow Jones Industrial Average after the Institute for Supply Management-Chicago Inc.’s business barometer trailed economists’ estimates. CIT Group Inc., the 101-year-old commercial lender, tumbled 35 percent on concern it will be forced into bankruptcy.
The S&P 500 lost 1.2 percent to 1,047.68 at 10:39 a.m. in New York. The Dow Jones Industrial Average tumbled 113.96 points, 1.2 percent, to 9,628.24. About seven stocks fell for each that rose on the New York Stock Exchange.
“We’re in the faith part of the economic cycle,” said Ralph Shive, manager of the $1.3 billion Wasatch-1st Source Income Equity Fund, which has beaten 96 percent of competing funds over the past five years. “All of us to some degree are guessing how strong the recovery is or how long it will take. Market prices have anticipated a decent recovery at this point. At some point we need to see earnings turn.”
Benchmark indexes erased an early advance spurred by a Commerce Department report showing the recession abated more than originally estimated in the second quarter. The world’s largest economy shrank at a 0.7 percent annual rate from April through June, the best performance in a year and better than the 1.2 percent decrease estimated by economists in a survey.
Quarterly Rally
The S&P 500 has jumped 14 percent in the third quarter, building on a 15 percent rally in the April to June period. The rally has sent price-earnings valuations in the index this month to the highest levels since 2004. The measure has rebounded 57 percent from a 12-year low in March.
CIT slumped 35 percent to $1.42. The lender is considering an offer of financing from Citigroup Inc. and Barclays Capital, people familiar with the situation said. Bondholders are also seeking to provide about $2 billion in loans as a restructuring deadline approaches tomorrow, said the people, who declined to be identified because the negotiations are private. CIT may choose other options, the people said.
Darden Restaurants Inc. fell the most in the S&P 500, declining 8.9 percent to $33.28. The owner of the Olive Garden and Red Lobster chains said first- quarter sales dropped 2.3 percent, missing analysts’ estimates.
Moody’s Corp. tumbled 6.8 percent to $19.39. U.S. House Oversight and Government Reform Committee is holding a hearing on rating companies today in Washington. McGraw-Hill Cos., owner of Standard & Poor’s, slipped 3.8 percent to $25.12.
Saks, Nike
Saks Inc. dropped 6.3 percent to $6.72. The luxury retail chain plans to offer as much as $100 million in shares, using the proceeds to reduce debt, according to a regulatory filing.
Nike Inc. jumped 7.3 percent to $64.48 and advanced earlier to $64.65, the highest intraday price since October 2008. The world’s largest athletic-shoe maker posted first-quarter profit that exceeded analysts’ estimates as it cut marketing and personnel costs.
All 10 of the main industry groups in the S&P 500 advanced in the third quarter, led by a 24 percent rally in financial shares and 20 percent gains in industrial and commodity producers.
Gannett Co., the nation’s largest newspaper publisher, posted the steepest advance in the index, more than tripling in the quarter. Hartford Financial Services Group Inc., Wynn Resorts Ltd. and Tenet Healthcare Corp. more than doubled.
Recovering Economy
The gains came amid speculation the economy was returning to growth following the worst recession in seven decades. Home prices stabilized, consumer confidence strengthened as job losses abated and the Institute for Supply Management said manufacturing activity ended an 18-month contraction in August.
The performance of the U.S. economy is probably more sluggish than reflected in stock markets, risking a correction in equities, Nobel Prize-winning economist Michael Spence said.
U.S. stock-market investors have “over processed” the stabilization of growth in the world’s largest economy, Spence said in an interview in Kuala Lumpur yesterday. The U.S. economy isn’t likely to experience a “double-dip” slowdown even as that remains a risk, said the professor emeritus of management in the Graduate School of Business at Stanford University.
Alcoa will be the first company in the Dow average to release third-quarter earnings next week, set for Oct. 7.
Analysts expect profits in the S&P 500 to drop 22 percent on average in the third quarter before rebounding 63 percent in the final three months of the year, according to estimates compiled by Bloomberg.
The International Monetary Fund today cut its projection for global writedowns on loans and investments by 15 percent to $3.4 trillion, citing improvements in credit markets and initial signs of economic growth.
Pimco Save More, Spend Less Economy Cuts Total Return
Sept. 30 (Bloomberg) -- Pacific Investment Management Co.’s Bill Gross says investors should expect total returns on equities of about 5 percent annually as consumers curb spending and increase savings.
“Returns mimic nominal” gross domestic product, Gross, manager of the world’s biggest bond fund, said in an interview yesterday with Bloomberg Radio. “Nominal GDP is the growth rate of wealth on an annual basis. The new normal is 2 to 3 percent GDP and real growth of 1 to 2 percent.”
Officials at Newport Beach, California-based Pimco say the “new normal” for the global economy will be characterized by heightened government regulation, lower consumption and slower growth. The Standard & Poor’s 500 Index increased 13 percent on average in the five years ended in 2007, before falling 37 percent last year as economies slid into recession. During the last two bull markets, the S&P 500 posted an average total return of 18.5 percent a year.
The U.S. savings rate rose to 6 percent of disposable income in May, the highest level since 1998. Only 8 percent of U.S. adults plan to increase household spending, almost one- third will spend less, and 58 percent expect to “stay the course,” a Bloomberg News poll showed Sept. 17. More than three in four adults said they cut outlays in the past year.
GDP Revision
The world’s largest economy shrank at a 0.7 percent annual rate from April to June, the best performance in more than a year, revised figures from the Commerce Department showed today. GDP contracted at a 6.4 percent pace in the first three months of 2009. The jobless rate climbed to 9.8 percent this month, from 9.7 percent in August, according to a separate Bloomberg survey before the Labor Department reports figures on Oct. 2.
Gross said he’s been buying longer maturity Treasuries in recent weeks as protection against deflation.
“There has been significant flattening on the long end of the curve,” Gross said “This reflects the re-emergence of deflationary fears. The U.S. is at the center of de-levering as opposed to accelerating growth.”
Consumer prices fell 1.5 percent in August from a year ago, according to the Labor Department in Washington. Prices have declined on an annual basis every month since March.
Yields on U.S. inflation-protected debt show there’s little concern about consumer prices eroding the value of bonds’ fixed payments. The difference in rates on 10-year notes and Treasury Inflation Protected Securities, or TIPS, which reflects the outlook among traders for consumer prices, is 1.76 percentage points. While up from 0.04 points in November, the level is below the average of 2.18 points over the past five years.
Breakeven Rates
The U.S. has the lowest so-called breakeven rates of any major sovereign debt market except Japan. The difference between three-year maturities is 0.6 point, below the average of about 2.21 points this decade.
Gross had said during the midst of the seizure in credit markets that Treasuries offered little value as investors seeking a refuge from turmoil in global financial markets drove yields to record lows in December.
He has since boosted the $177.5 billion Total Return Fund’s investment in government-related bonds to 44 percent of assets, the most since August 2004, from 25 percent in July, according data released earlier this month on Pimco’s Web site. The fund cut mortgage debt to 38 percent from 47 percent.
“We’ve exchanged our mortgages for the government’s check” as the Federal Reserve winds down purchases of agency debt, Gross said. “Mortgages are expensive compared to Treasuries and other vehicles.”
Program Extended
Fed policy makers last week committed to complete their purchases of as much as $1.45 trillion of mortgage securities and extended the end of the program to March from December.
Pimco’s Total Return Fund handed investors a 17.85 percent gain in the past year, beating more than 90 percent of its peers, according to data compiled by Bloomberg. The one-month return is 1.94 percent, outpacing more than 55 percent of its competitors. Pimco is a unit of Munich-based insurer Allianz SE.
In July Pimco reversed a policy to steer clear of U.S. debt when it said it would buy five- to 10-year Treasury securities.
“With Treasury yields near the top of our expected range, Pimco plans to overweight duration and take exposure to the five- to 10-year portion of the yield curve,” the firm said July 20 in a report on its Web site.
On that day, the yield on the 10-year note touched an intra-day high of 3.72 percent and a low of 3.57 percent. The note yielded 3.29 percent yesterday in New York, according to BGCantor Market Data.
Gross said intermediate- to long-term bonds will perform well as long as policy rates and inflation remain low, after minutes of the Federal Open Market Committee’s Aug. 11-12 meeting was released on Sept. 2.
“Returns mimic nominal” gross domestic product, Gross, manager of the world’s biggest bond fund, said in an interview yesterday with Bloomberg Radio. “Nominal GDP is the growth rate of wealth on an annual basis. The new normal is 2 to 3 percent GDP and real growth of 1 to 2 percent.”
Officials at Newport Beach, California-based Pimco say the “new normal” for the global economy will be characterized by heightened government regulation, lower consumption and slower growth. The Standard & Poor’s 500 Index increased 13 percent on average in the five years ended in 2007, before falling 37 percent last year as economies slid into recession. During the last two bull markets, the S&P 500 posted an average total return of 18.5 percent a year.
The U.S. savings rate rose to 6 percent of disposable income in May, the highest level since 1998. Only 8 percent of U.S. adults plan to increase household spending, almost one- third will spend less, and 58 percent expect to “stay the course,” a Bloomberg News poll showed Sept. 17. More than three in four adults said they cut outlays in the past year.
GDP Revision
The world’s largest economy shrank at a 0.7 percent annual rate from April to June, the best performance in more than a year, revised figures from the Commerce Department showed today. GDP contracted at a 6.4 percent pace in the first three months of 2009. The jobless rate climbed to 9.8 percent this month, from 9.7 percent in August, according to a separate Bloomberg survey before the Labor Department reports figures on Oct. 2.
Gross said he’s been buying longer maturity Treasuries in recent weeks as protection against deflation.
“There has been significant flattening on the long end of the curve,” Gross said “This reflects the re-emergence of deflationary fears. The U.S. is at the center of de-levering as opposed to accelerating growth.”
Consumer prices fell 1.5 percent in August from a year ago, according to the Labor Department in Washington. Prices have declined on an annual basis every month since March.
Yields on U.S. inflation-protected debt show there’s little concern about consumer prices eroding the value of bonds’ fixed payments. The difference in rates on 10-year notes and Treasury Inflation Protected Securities, or TIPS, which reflects the outlook among traders for consumer prices, is 1.76 percentage points. While up from 0.04 points in November, the level is below the average of 2.18 points over the past five years.
Breakeven Rates
The U.S. has the lowest so-called breakeven rates of any major sovereign debt market except Japan. The difference between three-year maturities is 0.6 point, below the average of about 2.21 points this decade.
Gross had said during the midst of the seizure in credit markets that Treasuries offered little value as investors seeking a refuge from turmoil in global financial markets drove yields to record lows in December.
He has since boosted the $177.5 billion Total Return Fund’s investment in government-related bonds to 44 percent of assets, the most since August 2004, from 25 percent in July, according data released earlier this month on Pimco’s Web site. The fund cut mortgage debt to 38 percent from 47 percent.
“We’ve exchanged our mortgages for the government’s check” as the Federal Reserve winds down purchases of agency debt, Gross said. “Mortgages are expensive compared to Treasuries and other vehicles.”
Program Extended
Fed policy makers last week committed to complete their purchases of as much as $1.45 trillion of mortgage securities and extended the end of the program to March from December.
Pimco’s Total Return Fund handed investors a 17.85 percent gain in the past year, beating more than 90 percent of its peers, according to data compiled by Bloomberg. The one-month return is 1.94 percent, outpacing more than 55 percent of its competitors. Pimco is a unit of Munich-based insurer Allianz SE.
In July Pimco reversed a policy to steer clear of U.S. debt when it said it would buy five- to 10-year Treasury securities.
“With Treasury yields near the top of our expected range, Pimco plans to overweight duration and take exposure to the five- to 10-year portion of the yield curve,” the firm said July 20 in a report on its Web site.
On that day, the yield on the 10-year note touched an intra-day high of 3.72 percent and a low of 3.57 percent. The note yielded 3.29 percent yesterday in New York, according to BGCantor Market Data.
Gross said intermediate- to long-term bonds will perform well as long as policy rates and inflation remain low, after minutes of the Federal Open Market Committee’s Aug. 11-12 meeting was released on Sept. 2.
Home Prices in 20 U.S. Cities Fell Less Than Forecast
Sept. 29 (Bloomberg) -- Home values in 20 U.S. metropolitan areas declined less than forecast in the year ended in July, a sign the housing slump that led to the worst recession in seven decades is abating.
The S&P/Case-Shiller home-price index fell 13.3 percent in July from a year earlier, the smallest drop in 17 months, the group said today in New York. Adjusted for seasonal variations, the gauge rose 1.2 percent from the prior month, the biggest gain since October 2005.
Foreclosure-driven price declines, low borrowing costs and government tax credits for first-time buyers have lifted home sales for much of this year, helping to slow the decline in prices. Stability in real-estate values and rising stock prices may help set the stage for a recovery in the consumer spending that accounts for two thirds of the economy.
“The worst has passed,” said Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “We expect prices to bottom out around the middle of next year and then look for modest price appreciation for the next several years. There is still a tremendous oversupply of homes in most major markets.”
Stock index futures rose after the report and Treasury securities extended losses. The contract on the Standard & Poor’s 500 index was up 0.4 percent to 1,062.8 at 9:23 a.m. in New York. The yield on the benchmark 10-year Treasury note rose to 3.32 percent from 3.28 percent late yesterday.
Better Than Forecast
The index was forecast to fall 14.2 percent, according to the median projection of 36 economists surveyed by Bloomberg News. Estimates ranged from declines of 12.5 percent to 15 percent. The measure fell 15.4 percent in the 12 months ended in June.
Year-over-year records began in 2001 and the gauge has fallen every month since January 2007.
All 20 cities in the S&P/Case-Shiller index showed a smaller year-over-year price decrease in July than in the prior month. Las Vegas showed the biggest plunge at 31 percent, followed by Phoenix at 29 percent. Cleveland showed the smallest decline at 1.3 percent.
Compared with the prior month, 17 of the 20 areas covered showed an increase, led by a 3.1 percent jump in Minneapolis and a 2.9 percent increase in San Francisco. Las Vegas suffered the biggest one-month decrease at 1.9 percent.
More Sales
Combined sales of new and existing homes have risen for four out of the last five months, signaling the worst of the housing crisis is over.
Sales of new homes climbed in August to the highest level in almost a year, the Commerce Department reported last week. Sales of existing homes unexpectedly declined, while remaining at the second-highest level in 23 months, the National Association of Realtors reported last week.
Fed policy makers last week said they would keep the benchmark lending rate near zero “for an extended period,” while noting that the economy and housing had strengthened. They also said they would slow the central bank’s purchases of mortgage debt and extend the program through the first quarter of 2010 in order to keep lending rates low.
Lennar Corp., the third-largest U.S. homebuilder, is among companies that see demand improving, even as losses mount. The Miami-based company said last week it expects to turn a profit in fiscal 2010.
‘Time to Buy’
“In the third quarter we started to see some real signs that the housing market is in fact starting to stabilize,” Stuart Miller, Lennar’s chief executive officer, said on a Sept. 21 conference call. “The sense that now is the time to buy is starting to gain momentum.”
Mounting foreclosures present a risk of renewed price declines as more homes are thrown onto the market. Foreclosure filings in August exceeded 300,000 for the sixth straight month, according to data from RealtyTrac Inc. A total of 358,471 properties received a default or auction notice or were seized last month, 18 percent more than a year earlier.
KB Home, the Los Angeles-based homebuilder that sells to first-time buyers, on Sept. 25 reported a third-quarter loss exceeding analysts’ estimates and said a housing recovery isn’t imminent.
“The precise timing of a housing recovery remains uncertain,” Chief Executive Officer Jeffrey Mezger said on a conference call with analysts.
The S&P/Case-Shiller home-price index fell 13.3 percent in July from a year earlier, the smallest drop in 17 months, the group said today in New York. Adjusted for seasonal variations, the gauge rose 1.2 percent from the prior month, the biggest gain since October 2005.
Foreclosure-driven price declines, low borrowing costs and government tax credits for first-time buyers have lifted home sales for much of this year, helping to slow the decline in prices. Stability in real-estate values and rising stock prices may help set the stage for a recovery in the consumer spending that accounts for two thirds of the economy.
“The worst has passed,” said Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “We expect prices to bottom out around the middle of next year and then look for modest price appreciation for the next several years. There is still a tremendous oversupply of homes in most major markets.”
Stock index futures rose after the report and Treasury securities extended losses. The contract on the Standard & Poor’s 500 index was up 0.4 percent to 1,062.8 at 9:23 a.m. in New York. The yield on the benchmark 10-year Treasury note rose to 3.32 percent from 3.28 percent late yesterday.
Better Than Forecast
The index was forecast to fall 14.2 percent, according to the median projection of 36 economists surveyed by Bloomberg News. Estimates ranged from declines of 12.5 percent to 15 percent. The measure fell 15.4 percent in the 12 months ended in June.
Year-over-year records began in 2001 and the gauge has fallen every month since January 2007.
All 20 cities in the S&P/Case-Shiller index showed a smaller year-over-year price decrease in July than in the prior month. Las Vegas showed the biggest plunge at 31 percent, followed by Phoenix at 29 percent. Cleveland showed the smallest decline at 1.3 percent.
Compared with the prior month, 17 of the 20 areas covered showed an increase, led by a 3.1 percent jump in Minneapolis and a 2.9 percent increase in San Francisco. Las Vegas suffered the biggest one-month decrease at 1.9 percent.
More Sales
Combined sales of new and existing homes have risen for four out of the last five months, signaling the worst of the housing crisis is over.
Sales of new homes climbed in August to the highest level in almost a year, the Commerce Department reported last week. Sales of existing homes unexpectedly declined, while remaining at the second-highest level in 23 months, the National Association of Realtors reported last week.
Fed policy makers last week said they would keep the benchmark lending rate near zero “for an extended period,” while noting that the economy and housing had strengthened. They also said they would slow the central bank’s purchases of mortgage debt and extend the program through the first quarter of 2010 in order to keep lending rates low.
Lennar Corp., the third-largest U.S. homebuilder, is among companies that see demand improving, even as losses mount. The Miami-based company said last week it expects to turn a profit in fiscal 2010.
‘Time to Buy’
“In the third quarter we started to see some real signs that the housing market is in fact starting to stabilize,” Stuart Miller, Lennar’s chief executive officer, said on a Sept. 21 conference call. “The sense that now is the time to buy is starting to gain momentum.”
Mounting foreclosures present a risk of renewed price declines as more homes are thrown onto the market. Foreclosure filings in August exceeded 300,000 for the sixth straight month, according to data from RealtyTrac Inc. A total of 358,471 properties received a default or auction notice or were seized last month, 18 percent more than a year earlier.
KB Home, the Los Angeles-based homebuilder that sells to first-time buyers, on Sept. 25 reported a third-quarter loss exceeding analysts’ estimates and said a housing recovery isn’t imminent.
“The precise timing of a housing recovery remains uncertain,” Chief Executive Officer Jeffrey Mezger said on a conference call with analysts.
Banker-Pay Limits May Hurt Most at Citigroup, Bank of America
Sept. 29 (Bloomberg) -- Citigroup Inc., Bank of America Corp. and smaller banks seeking to attract talent and regain ground on stronger peers may face a new obstacle from the global push to rein in executive pay.
Group of 20 standards barring bonus guarantees for more than one year and requiring deferred pay for top executives would take recruitment tools away from banks already burdened by diminished share prices and damaged reputations, some recruiters said. The plan adopted at last week’s G-20 summit may benefit Goldman Sachs Group Inc., JPMorgan Chase & Co. and Morgan Stanley, which have been quicker to repay government aid.
“Limiting guarantees to one year could hurt banks like Citigroup and Bank of America by putting them at another disadvantage in hiring,” said Colleen Westbrook, a partner with Morrison Cohen LLP in New York and a former counsel at the Federal Reserve Bank of New York.
Bank of America, the biggest U.S. bank by assets, and Citigroup, the third largest, are already under compensation constraints because they haven’t repaid the $45 billion each got from the U.S. Troubled Asset Relief Program. They are among seven firms required to submit compensation plans for their 100 highest-paid employees to the Obama administration’s special master, Kenneth Feinberg, who may rule on them next month.
Citigroup hasn’t given any multiyear contracts worldwide since January in its institutional clients group, said Alexander Samuelson, a company spokesman. He said the firm has still been able to hire senior people from firms including New York-based rivals Morgan Stanley, JPMorgan and Goldman Sachs.
‘Paying Competitively’
“We are focused on paying competitively in a way that aligns associate, shareholder and taxpayer interests,” said Scott Silvestri, a spokesman for Charlotte, North Carolina- based Bank of America.
Spokesmen for JPMorgan and Morgan Stanley declined to comment. Ed Canaday, a spokesman for Goldman Sachs in New York, said the firm “has never given multiyear guaranteed bonuses and we do not think they’re appropriate.”
The G-20 leaders, including U.S. President Barack Obama, U.K. Prime Minister Gordon Brown and Japanese Prime Minister Yukio Hatoyama, at last week’s summit agreed on a plan to better align economic policies and build banks’ capital buffers. They also vowed to keep stimulus measures in place until growth takes root and to narrow disparities in trade and savings.
Pay Standards
The pay standards designed by the Financial Stability Board, a group of regulators led by Bank of Italy Governor Mario Draghi, would require senior executives and others with a “material impact” on a firm’s risk-taking, including traders, to have a “substantial” part of their pay tied to individual, unit and company performance.
Some of that compensation, “such as 40 to 60 percent,” couldn’t be paid out for at least three years. The guidelines would also permit firms to recoup, or claw back, pay if losses occur later.
Some FSB guidelines have already been adopted by financial companies. Goldman Sachs has implemented policies limiting bonus guarantees to one year and paying a larger share of bonuses in stock as amounts increase. Zurich-based Credit Suisse Group AG and Morgan Stanley are among firms that have created systems to claw back bonuses.
Bank of America and San Francisco-based Wells Fargo & Co. have pledged to repay U.S. aid. Citigroup Chairman Richard Parsons said Sept. 14 he had “every confidence that Citi will be able to exit the TARP program, and actually be able to give the American taxpayer a decent return.” He didn’t set a date.
The agreements reached during the Pittsburgh summit still require approval by governments of the G-20 nations.
‘Perverse Incentives’
Investor advocates including Lucian Bebchuk, a professor of economics and finance at Harvard Law School, say guaranteed bonuses create “perverse incentives” for executives to take excessive risks.
Goldman Sachs, which set aside a record $11.4 billion to pay compensation in the first six months of this year, doesn’t need to offer guarantees for longer than one year because they pay more than rivals, said Gustavo Dolfino, president of Whiterock Group LLC, a New York- based executive search firm.
“Junior people don’t get multiyear guarantees, only senior people do,” Dolfino said. “Senior people that go to Goldman don’t really need a multiyear guarantee because what they get at Goldman is more than they would get somewhere else.”
Reduce the Risk
Douglas J. Elliott, a Brookings Institution fellow and a former investment banker, said he switched firms twice during his 20 years as a banker because he was offered two-year guarantees. The offers reduce the risk of moving to a company that the banker doesn’t know well or that is starting a new business area, Elliott said.
Eliminating multiyear bonuses “could be one of the things that entrenches the existing giants,” he said. “There’s very little risk in taking a job at Goldman, so they don’t in general need to offer multiyear guarantees.”
Banks could say “OK, you can’t have a three-year guarantee or a five-year guarantee but we’re going to give you five times what the guy at Goldman earns in year one, or we’ll give you a forgivable loan over five years,” said Henry Higdon, managing partner at recruitment firm Higdon Partners LLC in New York.
The G-20 guidelines “may well hurt Citi” and weaker banks, said Paul Hodgson, a senior research associate on compensation at the Portland, Maine-based Corporate Library, which focuses on governance issues. “But we’d rather see guaranteed bonuses banned altogether.”
Group of 20 standards barring bonus guarantees for more than one year and requiring deferred pay for top executives would take recruitment tools away from banks already burdened by diminished share prices and damaged reputations, some recruiters said. The plan adopted at last week’s G-20 summit may benefit Goldman Sachs Group Inc., JPMorgan Chase & Co. and Morgan Stanley, which have been quicker to repay government aid.
“Limiting guarantees to one year could hurt banks like Citigroup and Bank of America by putting them at another disadvantage in hiring,” said Colleen Westbrook, a partner with Morrison Cohen LLP in New York and a former counsel at the Federal Reserve Bank of New York.
Bank of America, the biggest U.S. bank by assets, and Citigroup, the third largest, are already under compensation constraints because they haven’t repaid the $45 billion each got from the U.S. Troubled Asset Relief Program. They are among seven firms required to submit compensation plans for their 100 highest-paid employees to the Obama administration’s special master, Kenneth Feinberg, who may rule on them next month.
Citigroup hasn’t given any multiyear contracts worldwide since January in its institutional clients group, said Alexander Samuelson, a company spokesman. He said the firm has still been able to hire senior people from firms including New York-based rivals Morgan Stanley, JPMorgan and Goldman Sachs.
‘Paying Competitively’
“We are focused on paying competitively in a way that aligns associate, shareholder and taxpayer interests,” said Scott Silvestri, a spokesman for Charlotte, North Carolina- based Bank of America.
Spokesmen for JPMorgan and Morgan Stanley declined to comment. Ed Canaday, a spokesman for Goldman Sachs in New York, said the firm “has never given multiyear guaranteed bonuses and we do not think they’re appropriate.”
The G-20 leaders, including U.S. President Barack Obama, U.K. Prime Minister Gordon Brown and Japanese Prime Minister Yukio Hatoyama, at last week’s summit agreed on a plan to better align economic policies and build banks’ capital buffers. They also vowed to keep stimulus measures in place until growth takes root and to narrow disparities in trade and savings.
Pay Standards
The pay standards designed by the Financial Stability Board, a group of regulators led by Bank of Italy Governor Mario Draghi, would require senior executives and others with a “material impact” on a firm’s risk-taking, including traders, to have a “substantial” part of their pay tied to individual, unit and company performance.
Some of that compensation, “such as 40 to 60 percent,” couldn’t be paid out for at least three years. The guidelines would also permit firms to recoup, or claw back, pay if losses occur later.
Some FSB guidelines have already been adopted by financial companies. Goldman Sachs has implemented policies limiting bonus guarantees to one year and paying a larger share of bonuses in stock as amounts increase. Zurich-based Credit Suisse Group AG and Morgan Stanley are among firms that have created systems to claw back bonuses.
Bank of America and San Francisco-based Wells Fargo & Co. have pledged to repay U.S. aid. Citigroup Chairman Richard Parsons said Sept. 14 he had “every confidence that Citi will be able to exit the TARP program, and actually be able to give the American taxpayer a decent return.” He didn’t set a date.
The agreements reached during the Pittsburgh summit still require approval by governments of the G-20 nations.
‘Perverse Incentives’
Investor advocates including Lucian Bebchuk, a professor of economics and finance at Harvard Law School, say guaranteed bonuses create “perverse incentives” for executives to take excessive risks.
Goldman Sachs, which set aside a record $11.4 billion to pay compensation in the first six months of this year, doesn’t need to offer guarantees for longer than one year because they pay more than rivals, said Gustavo Dolfino, president of Whiterock Group LLC, a New York- based executive search firm.
“Junior people don’t get multiyear guarantees, only senior people do,” Dolfino said. “Senior people that go to Goldman don’t really need a multiyear guarantee because what they get at Goldman is more than they would get somewhere else.”
Reduce the Risk
Douglas J. Elliott, a Brookings Institution fellow and a former investment banker, said he switched firms twice during his 20 years as a banker because he was offered two-year guarantees. The offers reduce the risk of moving to a company that the banker doesn’t know well or that is starting a new business area, Elliott said.
Eliminating multiyear bonuses “could be one of the things that entrenches the existing giants,” he said. “There’s very little risk in taking a job at Goldman, so they don’t in general need to offer multiyear guarantees.”
Banks could say “OK, you can’t have a three-year guarantee or a five-year guarantee but we’re going to give you five times what the guy at Goldman earns in year one, or we’ll give you a forgivable loan over five years,” said Henry Higdon, managing partner at recruitment firm Higdon Partners LLC in New York.
The G-20 guidelines “may well hurt Citi” and weaker banks, said Paul Hodgson, a senior research associate on compensation at the Portland, Maine-based Corporate Library, which focuses on governance issues. “But we’d rather see guaranteed bonuses banned altogether.”
U.S. Consumer Confidence Unexpectedly Fell This Month
Sept. 29 (Bloomberg) -- Confidence among U.S. consumers unexpectedly fell in September as a rising unemployment rate weighed on households.
The Conference Board’s confidence index dropped to 53.1, from a revised 54.5 in August, a report from the New York-based group showed today. Measures of present conditions and expectations for six months from now both declined. The index has climbed from a record low of 25.3 reached in February.
Unemployment is forecast to rise to 10 percent this year, even as the monthly pace of job losses slows. Today’s report corroborates the Federal Reserve’s assessment last week that sluggish income growth and tight credit are curbing household spending and slowing the pace of the economic recovery.
“It’s a little hard for households to look at their paychecks, or the lack thereof, and feel more confident,” Ellen Zentner, a senior economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said in a Bloomberg Television interview. Even so, “we should continue to see consumer confidence turn around,” because the recession is over and hiring eventually will rebound, she said.
Consumer confidence was projected to increase to 57 this month, from an originally reported reading of 54.1 in August, according to the median estimate in a Bloomberg News survey of 78 economists. Forecasts ranged from 54 to 70. The index averaged 58 last year.
Stocks Fluctuated
Stocks on the Standard & Poor’s 500 Index fluctuated as a separate report showed home values in 20 U.S. metropolitan areas fell less than forecast in the year ended in July, a sign the housing slump that led to the worst recession in seven decades is abating. The S&P 500 was up 0.1 percent to 1,064.23 as of 10:33 a.m. in New York.
The S&P/Case-Shiller home-price index fell 13.3 percent in July from a year earlier, the smallest drop in 17 months, the group said today in New York. Adjusted for seasonal variations, the gauge rose 1.2 percent from the prior month.
The Conference Board’s measure of present conditions dropped to 22.7 from 25.4 the prior month. The gauge of expectations for the next six months decreased to 73.3 from 73.8.
The share of consumers who said jobs are plentiful fell to 3.4 percent from 4.3 percent. The proportion of people who said jobs are hard to get increased to 47 percent from 44.3 percent.
Incomes, Jobs
The proportion of people who expect their incomes to rise over the next six months increased to 11.2 percent from 10.8 percent. The share expecting more jobs decreased to 17.9 percent from 18 percent.
Plans to buy automobiles, homes and major appliances within the next six months declined in September, the report showed.
Today’s figures follow the Reuters/University of Michigan final index of consumer sentiment, which rose this month to the highest level since January 2008.
Economists say the Conference Board’s index tends to be more influenced by attitudes about the labor market.
The pace of job losses is easing as the economy shows signs of accelerating. Payrolls fell by 216,000 in August, the smallest decline in a year, according to the Labor Department.
The economy has lost 6.9 million jobs since the recession began in December 2007, making it the biggest employment slump of any downturn in the post-World War II period. Economists surveyed by Bloomberg predict unemployment may reach 10 percent by year-end, the highest level since 1983, from 9.7 percent in August.
‘Bit Better’
At the same time, steadying demand is helping some consumer-related businesses such as American Greetings Corp. The second-largest U.S. greeting-card company last week reported a gain in second-quarter profit.
“Sales are actually a bit better than what we expected,” Zev Weiss, chief executive officer of the Cleveland-based company, said on a conference call on Sept. 24. “If you look at it from a year-over-year perspective, they’re hanging in there very nicely. And in this environment, that’s pretty good.”
Companies not faring as well include Rite Aid Corp., the third-largest U.S. drugstore chain. The Camp Hill, Pennsylvania- based business cut its full-year forecast last week, saying customers will remain focused on discounts in a “tough economy.”
Confidence may improve in future months as consumers repair their balance sheets. Net worth for households and non- profit groups climbed to $53.1 trillion from $51.1 trillion in the first quarter, marking the first gain since the third quarter of 2007, according to a Sept. 17 report from the Fed.
Fed policy makers last week said they would keep the benchmark lending rate near zero “for an extended period,” while noting that the economy and housing had strengthened. They also said they would slow the central bank’s purchases of mortgage debt and extend the program through the first quarter of 2010 in order to keep lending rates low.
The Conference Board’s confidence index dropped to 53.1, from a revised 54.5 in August, a report from the New York-based group showed today. Measures of present conditions and expectations for six months from now both declined. The index has climbed from a record low of 25.3 reached in February.
Unemployment is forecast to rise to 10 percent this year, even as the monthly pace of job losses slows. Today’s report corroborates the Federal Reserve’s assessment last week that sluggish income growth and tight credit are curbing household spending and slowing the pace of the economic recovery.
“It’s a little hard for households to look at their paychecks, or the lack thereof, and feel more confident,” Ellen Zentner, a senior economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said in a Bloomberg Television interview. Even so, “we should continue to see consumer confidence turn around,” because the recession is over and hiring eventually will rebound, she said.
Consumer confidence was projected to increase to 57 this month, from an originally reported reading of 54.1 in August, according to the median estimate in a Bloomberg News survey of 78 economists. Forecasts ranged from 54 to 70. The index averaged 58 last year.
Stocks Fluctuated
Stocks on the Standard & Poor’s 500 Index fluctuated as a separate report showed home values in 20 U.S. metropolitan areas fell less than forecast in the year ended in July, a sign the housing slump that led to the worst recession in seven decades is abating. The S&P 500 was up 0.1 percent to 1,064.23 as of 10:33 a.m. in New York.
The S&P/Case-Shiller home-price index fell 13.3 percent in July from a year earlier, the smallest drop in 17 months, the group said today in New York. Adjusted for seasonal variations, the gauge rose 1.2 percent from the prior month.
The Conference Board’s measure of present conditions dropped to 22.7 from 25.4 the prior month. The gauge of expectations for the next six months decreased to 73.3 from 73.8.
The share of consumers who said jobs are plentiful fell to 3.4 percent from 4.3 percent. The proportion of people who said jobs are hard to get increased to 47 percent from 44.3 percent.
Incomes, Jobs
The proportion of people who expect their incomes to rise over the next six months increased to 11.2 percent from 10.8 percent. The share expecting more jobs decreased to 17.9 percent from 18 percent.
Plans to buy automobiles, homes and major appliances within the next six months declined in September, the report showed.
Today’s figures follow the Reuters/University of Michigan final index of consumer sentiment, which rose this month to the highest level since January 2008.
Economists say the Conference Board’s index tends to be more influenced by attitudes about the labor market.
The pace of job losses is easing as the economy shows signs of accelerating. Payrolls fell by 216,000 in August, the smallest decline in a year, according to the Labor Department.
The economy has lost 6.9 million jobs since the recession began in December 2007, making it the biggest employment slump of any downturn in the post-World War II period. Economists surveyed by Bloomberg predict unemployment may reach 10 percent by year-end, the highest level since 1983, from 9.7 percent in August.
‘Bit Better’
At the same time, steadying demand is helping some consumer-related businesses such as American Greetings Corp. The second-largest U.S. greeting-card company last week reported a gain in second-quarter profit.
“Sales are actually a bit better than what we expected,” Zev Weiss, chief executive officer of the Cleveland-based company, said on a conference call on Sept. 24. “If you look at it from a year-over-year perspective, they’re hanging in there very nicely. And in this environment, that’s pretty good.”
Companies not faring as well include Rite Aid Corp., the third-largest U.S. drugstore chain. The Camp Hill, Pennsylvania- based business cut its full-year forecast last week, saying customers will remain focused on discounts in a “tough economy.”
Confidence may improve in future months as consumers repair their balance sheets. Net worth for households and non- profit groups climbed to $53.1 trillion from $51.1 trillion in the first quarter, marking the first gain since the third quarter of 2007, according to a Sept. 17 report from the Fed.
Fed policy makers last week said they would keep the benchmark lending rate near zero “for an extended period,” while noting that the economy and housing had strengthened. They also said they would slow the central bank’s purchases of mortgage debt and extend the program through the first quarter of 2010 in order to keep lending rates low.
Pimco’s Gross Is Buying Treasuries Amid Deflation Concern
Sept. 29 (Bloomberg) -- Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., said he’s been buying longer maturity Treasuries in recent weeks amid a re-emergence of deflation concern.
“We’ve exchanged our mortgages for the government’s check” as the Federal Reserve winds down purchases of agency debt, Gross said in an interview from Newport Beach, California, with Bloomberg Radio.
Gross boosted the $177.5 billion Total Return Fund’s investment in government-related bonds to 44 percent of assets, the most since August 2004, from 25 percent in July, according data released earlier this month on Pimco’s Web site. The fund cut mortgage debt to 38 percent from 47 percent.
The Total Return Fund handed investors a 17.85 percent gain in the past year, beating 94 percent of its peers, according to data compiled by Bloomberg. The one-month return is 1.94 percent, outpacing 57 percent of its competitors. Pimco, based in Newport Beach is a unit of Munich-based insurer Allianz SE.
Officials at Pimco have forecast a “new normal” in the global economy that will include heightened government regulation, lower consumption and slower growth. The economy will likely expand at a 2 percent to 3 percent rate going forward, Gross said.
The world’s largest economy shrank at a 1.2 percent annual rate from April to June, more than the originally reported 1 percent contraction, according to a Bloomberg News survey before the Commerce Department’s Sept. 30 report. The jobless rate climbed to 9.8 percent this month, from 9.7 percent in August, according to a separate Bloomberg survey before the Labor Department reports figures on Oct. 2.
“We’ve exchanged our mortgages for the government’s check” as the Federal Reserve winds down purchases of agency debt, Gross said in an interview from Newport Beach, California, with Bloomberg Radio.
Gross boosted the $177.5 billion Total Return Fund’s investment in government-related bonds to 44 percent of assets, the most since August 2004, from 25 percent in July, according data released earlier this month on Pimco’s Web site. The fund cut mortgage debt to 38 percent from 47 percent.
The Total Return Fund handed investors a 17.85 percent gain in the past year, beating 94 percent of its peers, according to data compiled by Bloomberg. The one-month return is 1.94 percent, outpacing 57 percent of its competitors. Pimco, based in Newport Beach is a unit of Munich-based insurer Allianz SE.
Officials at Pimco have forecast a “new normal” in the global economy that will include heightened government regulation, lower consumption and slower growth. The economy will likely expand at a 2 percent to 3 percent rate going forward, Gross said.
The world’s largest economy shrank at a 1.2 percent annual rate from April to June, more than the originally reported 1 percent contraction, according to a Bloomberg News survey before the Commerce Department’s Sept. 30 report. The jobless rate climbed to 9.8 percent this month, from 9.7 percent in August, according to a separate Bloomberg survey before the Labor Department reports figures on Oct. 2.
Thursday, September 24, 2009
Fed, Treasury to Scale Back Emergency Programs as Crisis Eases
Sept. 24 (Bloomberg) -- By Scott Lanman and Robert Schmidt
The Federal Reserve and U.S. Treasury said they’re scaling back emergency programs aimed at combating the financial crisis, reducing support for firms that now have an easier time getting funding.
The central bank today said it will further shrink auctions of cash loans to banks and Treasury securities to bond dealers, reducing the combined initiatives to $100 billion by January from $450 billion. The Treasury has “begun the process of exiting from some emergency programs,” the chief of the government’s $700 billion financial-rescue fund said separately.
Fed Chairman Ben S. Bernanke and other policy makers are trying to balance two goals: securing an economic recovery after the deepest contraction and financial crisis since the Great Depression while withdrawing fiscal and monetary stimulus in time to avoid driving inflation and borrowing costs higher.
“The stress in the system has been reduced significantly,” said Conrad DeQuadros, senior economist at RDQ Economics LLC, a New York research firm he founded with John Ryding, a fellow former Bear Stearns Cos. economist. At the same time, “they don’t want to completely wind down” the programs yet, he said.
The Libor-OIS spread, a gauge of banks’ willingness to lend, has narrowed to 0.11 percentage point, from a record 3.64 points in October 2008.
Rate Decision
The Fed yesterday said it will complete its planned $1.25 trillion in purchases of mortgage securities and extended the end-date of the program to March from December. In a unanimous decision, policy makers kept the benchmark interest rate in a range of zero to 0.25 percent and repeated that rates will stay low for an “extended period.”
Herb Allison, assistant Treasury secretary for financial stability, today told the Senate Banking Committee that the recovery is too fragile to halt all assistance. At the same time, he said aid programs for financial firms, auto companies and the credit markets are winding down.
The Treasury has $180 billion invested in the banking system through capital injections where the government receives preferred shares and warrants, said Allison, the chief of the $700 billion Troubled Asset Relief Program. That’s down from $239 billion when President Barack Obama took office in January, Allison said.
European policy makers are also moving to withdraw stimulus. The European Central Bank said it will discontinue its 84-day U.S. dollar liquidity-providing operations with the Fed “given the limited demand and the improved conditions in funding markets.” The ECB will keep conducting seven-day dollar operations.
German Debt Sales
Germany cut its planned sales of debt as the end of the recession helps boost the finances of Chancellor Angela Merkel’s government before national elections. The nation reduced proposed issuance of bonds and bills in the fourth quarter by 22 percent to 59 billion euros ($87 billion), citing in part “improved funding conditions.”
The Fed cited “continued improvements” in financial markets in reducing the size of the Term Auction Facility, created in December 2007, and the Term Securities Lending Facility, begun in March 2008.
The TAF will sell $50 billion in 70-day funds next month, down from $75 billion in 84-day funds in September, with the auctions’ size and maturity decreasing more in November and December, the Fed said in a statement today. The Term Securities Lending Facility will shrink to $50 billion, and then $25 billion, from $75 billion.
TAF’s Future
The Fed said it will evaluate whether to “maintain a TAF on a permanent basis” and put out for public comment a “range of possible structures for a permanent TAF.”
Under the TAF, a separate monthly sale of $75 billion in 28-day funds will be unchanged through January, the Fed said. The longer-term auctions will be reduced to $25 billion in November and December, eventually converting the auction schedule to a single cycle of 28-day funds from biweekly sales for different maturities, the Fed said.
“The schedules also take account of the possibility that market pressures could be heightened over year-end,” the Fed said. “The Federal Reserve remains prepared to expand its liquidity operations more generally should financial-market conditions deteriorate materially.”
Outstanding credit under the Term Auction Facility has declined to $196 billion as of Sept. 16 from a record $493.1 billion in March. The TSLF’s balance has stood at zero since Aug. 19, declining from a record $235.5 billion in October 2008.
TARP Repayments
The Treasury’s Allison said banks seeking to leave the Troubled Asset Relief Program have repaid the government $70 billion, Allison said. The Treasury estimates that lenders will repay another $50 billion over the next 12 to 18 months, he said.
In addition, the government has received about $3 billion from warrant repurchases and more than $6.5 billion in dividends, interest and fees, Allison said.
Because the economic recovery is just beginning, Allison said that the government’s withdrawal from TARP will be slow.
“Significant parts of the financial system remain impaired,” he said, citing potential problems with commercial real estate and downward pressure on housing prices. “In this context, it is prudent to maintain capacity to address new developments.”
U.S. Economy: Sales of Existing Homes Unexpectedly Decline
Sept. 24 (Bloomberg) -- Sales of existing U.S. homes unexpectedly fell last month for the first time since March, signaling the housing recovery will be slow to gain speed.
Purchases dropped 2.7 percent in August to a 5.1 million annual rate, the second-highest level in the last 23 months, the National Association of Realtors said today in Washington. The median price dropped 12.5 percent from August 2008. A government report showed unemployment claims declined.
Stocks fell on concern the housing market remains dependent on government tax credits and purchases of housing debt by the Federal Reserve. The central bank yesterday said it would extend its program to buy $1.25 trillion in mortgage- backed securities, as well as $200 billion in agency debt, through March while noting that “housing-market activity has increased.”
“The improvement in the housing market is not going to be a smooth rise, but a choppy, upward trend,” said Zach Pandl, an economist at Nomura Securities International Inc. in New York, who projected sales would fall. “The real test will be if the market can weather the end of government stimulus.”
The Standard & Poor’s 500 Index was down 1.1 percent to 1,049.02 at 12:35 p.m. in New York. Treasury securities rose.
Existing home sales were forecast to rise to a 5.35 million annual rate, according to the median forecast of 74 economists in a Bloomberg News survey.
Figures from the Labor Department today showed that the number of Americans seeking unemployment benefits unexpectedly dropped last week to the lowest level in two months, signaling the job market is healing. Claims fell to 530,000 from 551,000 the prior week.
Borrowing Costs
The housing recession that crippled the economy is easing as foreclosure-driven price declines, tax credits to first-time buyers and near record-low borrowing costs have helped stabilize demand. Sales had reached a 4.49 million pace in January, their lowest level since comparable records began in 1999. Even so, unemployment at a 26-year high indicates more Americans may lose their homes, swelling the glut of unsold properties.
Purchases of existing homes were up 3.4 percent compared with a year earlier. The median price decreased to $177,700 from $203,200 a year ago.
The number of unsold homes on the market dropped 11 percent to 3.6 million in August. At the current sales pace, it would take 8.5 months to sell those houses, the fewest since April 2007.
A seven months’ supply is usually consistent with stabilization in prices, NAR chief economist Lawrence Yun has said in recent months.
Pending Purchases
The market is “close to a self-sustaining recovery” where home values stabilize or start increasing, Yun said in a press conference. The drop in sales runs counter to figures on pending purchases and signals that low appraisals and slow underwriting remain obstacles to sustained gains, Yun said.
The NAR’s pending sales data are considered a leading indicator because they are tabulated when a contract is signed. Figures on purchases of existing homes represent closings, which may take place a month or two later.
Today’s report showed sales of existing single-family homes fell 2.8 percent to an annual rate of 4.48 million. Sales of condominiums and co-operatives decreased 1.6 percent to a 620,000 rate.
The Commerce Department may report tomorrow that purchases of new houses rose in August to the highest level in 12 months, according to a Bloomberg survey.
Fed Action
Fed policy makers yesterday repeated they will keep the benchmark lending rate near zero “for an extended period,” while noting that the economy had strengthened. They also said they will slow central bank purchases of mortgage-backed securities and agency debt as they extend the program by three months.
The Obama administration’s $8,000 tax credit for first- time buyers, which is due to expire at the end of November, combined with the plunge in prices as foreclosures climbed, have helped lift sales this year. The Realtors’ group and National Association of Home Builders have lobbied to extend the credit on concern demand will wane after it lapses.
Treasury Secretary Timothy Geithner told reporters on Sept. 17 that the administration would take a “careful look” at extending the credit and called signs of stabilization in the U.S. housing market “very encouraging.”
Growing demand has prompted builders such as KB Home to get back to work. Housing starts rose to a nine-month high in August, the Commerce Department reported last week, indicating residential construction may soon add to growth after subtracting from gross domestic product since 2006.
Home Prices
Prices, which most economists forecast would be the last component of the market to turn, have begun to improve. The Federal Housing Finance Agency’s home-price index for purchases was up 1.1 percent in the three months through July, the best performance since early 2006.
“We’re seeing a firming of prices in a number of markets, not all,” Eli Broad, founder of Los Angeles-based homebuilder KB Home, said yesterday in an interview with Bloomberg Television. “I think we have bottomed out in many markets.”
Purchases dropped 2.7 percent in August to a 5.1 million annual rate, the second-highest level in the last 23 months, the National Association of Realtors said today in Washington. The median price dropped 12.5 percent from August 2008. A government report showed unemployment claims declined.
Stocks fell on concern the housing market remains dependent on government tax credits and purchases of housing debt by the Federal Reserve. The central bank yesterday said it would extend its program to buy $1.25 trillion in mortgage- backed securities, as well as $200 billion in agency debt, through March while noting that “housing-market activity has increased.”
“The improvement in the housing market is not going to be a smooth rise, but a choppy, upward trend,” said Zach Pandl, an economist at Nomura Securities International Inc. in New York, who projected sales would fall. “The real test will be if the market can weather the end of government stimulus.”
The Standard & Poor’s 500 Index was down 1.1 percent to 1,049.02 at 12:35 p.m. in New York. Treasury securities rose.
Existing home sales were forecast to rise to a 5.35 million annual rate, according to the median forecast of 74 economists in a Bloomberg News survey.
Figures from the Labor Department today showed that the number of Americans seeking unemployment benefits unexpectedly dropped last week to the lowest level in two months, signaling the job market is healing. Claims fell to 530,000 from 551,000 the prior week.
Borrowing Costs
The housing recession that crippled the economy is easing as foreclosure-driven price declines, tax credits to first-time buyers and near record-low borrowing costs have helped stabilize demand. Sales had reached a 4.49 million pace in January, their lowest level since comparable records began in 1999. Even so, unemployment at a 26-year high indicates more Americans may lose their homes, swelling the glut of unsold properties.
Purchases of existing homes were up 3.4 percent compared with a year earlier. The median price decreased to $177,700 from $203,200 a year ago.
The number of unsold homes on the market dropped 11 percent to 3.6 million in August. At the current sales pace, it would take 8.5 months to sell those houses, the fewest since April 2007.
A seven months’ supply is usually consistent with stabilization in prices, NAR chief economist Lawrence Yun has said in recent months.
Pending Purchases
The market is “close to a self-sustaining recovery” where home values stabilize or start increasing, Yun said in a press conference. The drop in sales runs counter to figures on pending purchases and signals that low appraisals and slow underwriting remain obstacles to sustained gains, Yun said.
The NAR’s pending sales data are considered a leading indicator because they are tabulated when a contract is signed. Figures on purchases of existing homes represent closings, which may take place a month or two later.
Today’s report showed sales of existing single-family homes fell 2.8 percent to an annual rate of 4.48 million. Sales of condominiums and co-operatives decreased 1.6 percent to a 620,000 rate.
The Commerce Department may report tomorrow that purchases of new houses rose in August to the highest level in 12 months, according to a Bloomberg survey.
Fed Action
Fed policy makers yesterday repeated they will keep the benchmark lending rate near zero “for an extended period,” while noting that the economy had strengthened. They also said they will slow central bank purchases of mortgage-backed securities and agency debt as they extend the program by three months.
The Obama administration’s $8,000 tax credit for first- time buyers, which is due to expire at the end of November, combined with the plunge in prices as foreclosures climbed, have helped lift sales this year. The Realtors’ group and National Association of Home Builders have lobbied to extend the credit on concern demand will wane after it lapses.
Treasury Secretary Timothy Geithner told reporters on Sept. 17 that the administration would take a “careful look” at extending the credit and called signs of stabilization in the U.S. housing market “very encouraging.”
Growing demand has prompted builders such as KB Home to get back to work. Housing starts rose to a nine-month high in August, the Commerce Department reported last week, indicating residential construction may soon add to growth after subtracting from gross domestic product since 2006.
Home Prices
Prices, which most economists forecast would be the last component of the market to turn, have begun to improve. The Federal Housing Finance Agency’s home-price index for purchases was up 1.1 percent in the three months through July, the best performance since early 2006.
“We’re seeing a firming of prices in a number of markets, not all,” Eli Broad, founder of Los Angeles-based homebuilder KB Home, said yesterday in an interview with Bloomberg Television. “I think we have bottomed out in many markets.”
Treasuries Rise After Record $29 Billion Seven-Year Auction
Sept. 24 (Bloomberg) -- Treasuries gained for a third day after stronger-than-forecast demand at a record $29 billion sale of seven-year notes, the last of three auctions this week totaling $112 billion.
The notes drew a yield of 3.005 percent, compared with a forecast of 3.047 percent in a Bloomberg News survey of four of the Fed’s primary dealers. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.79, compared with 2.74 at the previous sale in August and an average of 2.48 at the past seven auctions.
“There has been good demand for the seven-year sector from international investors, and there will continue to be until the beat changes, ” James Combias, New York-based head of Treasury trading at Mizuho Securities USA Inc., said before the offering. Mizuho is one of the 18 primary dealers required to bid at Treasury sales.
The existing seven-year note yield fell five basis points to 2.98 percent at 1.03 p.m. in New York, according to BGCantor Market Data.
Indirect bidders, a class of investors that includes foreign central banks, bought 61.7 percent of the notes, compared to 61.2 percent at the August offering and the seven- sale average of 46.2 percent.
Government securities rose earlier as purchases of existing homes dropped 2.7 percent in August to a 5.1 million annual rate, the second-highest level in the last 23 months, the National Association of Realtors said today in Washington. The median price dropped 12.5 percent from August 2008.
Housing ‘Volatility’
“We are still losing jobs and there is volatility in housing,” said Brian Edmonds, head of interest rates at primary dealer Cantor Fitzgerald LP in New York. “A lot of people are getting out of risky assets and into Treasuries. There will continue to be good demand for Treasuries.”
Today’s offering of seven-year notes follows a record $40 billion five-year note auction yesterday and a $43 billion auction of two-year securities on Sept. 22.
Yesterday’s five-year sale drew weaker-than-forecast demand, with a yield of 2.47 percent versus the 2.463 percent in a Bloomberg survey. The two-year sale on Sept. 22 drew the strongest demand in two years.
The central bank today said it will shrink its unprecedented emergency programs that auction loans to commercial banks and Treasury securities to bond dealers, citing “continued improvements” in financial markets.
‘Exceptionally Low’
Fed Chairman Ben S. Bernanke and fellow policy makers indicated yesterday for the first time since August 2008 that the economy is accelerating, even as they recommitted keeping their benchmark interest rate “exceptionally low” for an “extended period.”
“Substantial resource slack” and stable long-term inflation expectations mean that the policy committee “expects that inflation will remain subdued for some time,” policy makers said in their statement. Inflation erodes the value of a bond’s fixed payments.
The difference between rates on 10-year notes and Treasury Inflation Protected Securities, which reflects the outlook among traders for consumer prices, was 1.82 percentage points, below the five-year average of 2.19 percentage points.
Fed officials also said they’ll end a $1.45 trillion mortgage-bond purchase program later than scheduled. The Fed has bought about $862 billion of its $1.25 trillion agency mortgage- backed securities program. Demand is returning to housing after the industry shaved an average of 1 percentage point from gross domestic product each quarter since the start of 2006.
Group of 20
The number of Americans filing first-time claims for jobless benefits fell by 21,000 to 530,000 in the week ended Sept. 19, a Labor Department report showed today.
Investors speculate leaders from the Group of 20 nations will reiterate their message that the economic recovery remains weak. The meeting will start at 6 p.m. in Pittsburgh, when President Barack Obama hosts a dinner for the leaders, and concludes at about 4 p.m. tomorrow with a statement and press conferences.
Ten-year yields will be between 3.25 percent and 3.5 percent through month-end, he said.
The yield will rise to 3.60 percent by Dec. 31, according to a Bloomberg survey of banks and securities companies with the most recent forecasts given the heaviest weightings.
Over the past three months, returns totaled 1 percent for two-year notes, 3.1 percent for seven-year debt and 2.7 percent for 10-year Treasuries, according to indexes compiled by Merrill Lynch & Co
The notes drew a yield of 3.005 percent, compared with a forecast of 3.047 percent in a Bloomberg News survey of four of the Fed’s primary dealers. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.79, compared with 2.74 at the previous sale in August and an average of 2.48 at the past seven auctions.
“There has been good demand for the seven-year sector from international investors, and there will continue to be until the beat changes, ” James Combias, New York-based head of Treasury trading at Mizuho Securities USA Inc., said before the offering. Mizuho is one of the 18 primary dealers required to bid at Treasury sales.
The existing seven-year note yield fell five basis points to 2.98 percent at 1.03 p.m. in New York, according to BGCantor Market Data.
Indirect bidders, a class of investors that includes foreign central banks, bought 61.7 percent of the notes, compared to 61.2 percent at the August offering and the seven- sale average of 46.2 percent.
Government securities rose earlier as purchases of existing homes dropped 2.7 percent in August to a 5.1 million annual rate, the second-highest level in the last 23 months, the National Association of Realtors said today in Washington. The median price dropped 12.5 percent from August 2008.
Housing ‘Volatility’
“We are still losing jobs and there is volatility in housing,” said Brian Edmonds, head of interest rates at primary dealer Cantor Fitzgerald LP in New York. “A lot of people are getting out of risky assets and into Treasuries. There will continue to be good demand for Treasuries.”
Today’s offering of seven-year notes follows a record $40 billion five-year note auction yesterday and a $43 billion auction of two-year securities on Sept. 22.
Yesterday’s five-year sale drew weaker-than-forecast demand, with a yield of 2.47 percent versus the 2.463 percent in a Bloomberg survey. The two-year sale on Sept. 22 drew the strongest demand in two years.
The central bank today said it will shrink its unprecedented emergency programs that auction loans to commercial banks and Treasury securities to bond dealers, citing “continued improvements” in financial markets.
‘Exceptionally Low’
Fed Chairman Ben S. Bernanke and fellow policy makers indicated yesterday for the first time since August 2008 that the economy is accelerating, even as they recommitted keeping their benchmark interest rate “exceptionally low” for an “extended period.”
“Substantial resource slack” and stable long-term inflation expectations mean that the policy committee “expects that inflation will remain subdued for some time,” policy makers said in their statement. Inflation erodes the value of a bond’s fixed payments.
The difference between rates on 10-year notes and Treasury Inflation Protected Securities, which reflects the outlook among traders for consumer prices, was 1.82 percentage points, below the five-year average of 2.19 percentage points.
Fed officials also said they’ll end a $1.45 trillion mortgage-bond purchase program later than scheduled. The Fed has bought about $862 billion of its $1.25 trillion agency mortgage- backed securities program. Demand is returning to housing after the industry shaved an average of 1 percentage point from gross domestic product each quarter since the start of 2006.
Group of 20
The number of Americans filing first-time claims for jobless benefits fell by 21,000 to 530,000 in the week ended Sept. 19, a Labor Department report showed today.
Investors speculate leaders from the Group of 20 nations will reiterate their message that the economic recovery remains weak. The meeting will start at 6 p.m. in Pittsburgh, when President Barack Obama hosts a dinner for the leaders, and concludes at about 4 p.m. tomorrow with a statement and press conferences.
Ten-year yields will be between 3.25 percent and 3.5 percent through month-end, he said.
The yield will rise to 3.60 percent by Dec. 31, according to a Bloomberg survey of banks and securities companies with the most recent forecasts given the heaviest weightings.
Over the past three months, returns totaled 1 percent for two-year notes, 3.1 percent for seven-year debt and 2.7 percent for 10-year Treasuries, according to indexes compiled by Merrill Lynch & Co
Wednesday, September 23, 2009
Fed says U.S. recovery is underway
By Mark Felsenthal and Alister Bull
WASHINGTON (Reuters) - The Federal Reserve on Wednesday upgraded its assessment of the U.S. economy, saying growth had returned after a deep recession, while reiterating its promise to hold interest rates very low for a long time.
The Fed also said it would slow its purchases of mortgage debt to extend that program's life until the end of March, in a move toward withdrawing the central bank's extraordinary support for the economy and markets during the contraction.
The U.S. central bank, as widely expected, held its benchmark overnight lending rates at close to zero percent.
"Information received since the Federal Open Market Committee met in August suggests that economic activity has picked up following its severe downturn," the Fed said in a statement after its two-day policy meeting.
"Conditions in financial markets have improved further and activity in the housing sector has increased," it said.
U.S. government bond yields ended lower on the news that the central bank had reiterated a pledge to keep rates ultra-low for an extended period.
"I think it confirms that the economy still needs a little bit of help and that rates aren't going to go up anytime soon," said Alan Lancz at Alan B. Lancz & Associates in Toledo, Ohio.
But a stock market rally fizzled on concerns the Fed was setting the stage for pulling back from its efforts to stimulate the economy. The Dow Jones industrial average ended down 81.77 points or 0.83 percent at 9,748.10.
"There's still a lot of problems with mortgages, the housing market in general as well as the banking sector," said Dan Faretta, a market strategist at Lind-Waldock, a brokerage firm, in Chicago.
The Fed said it would gradually slow the pace of its purchases of mortgage-related debt in order to promote a smooth transition in markets as the Fed has been the biggest buyer.
But it made clear it would purchase the full amount of $1.25 trillion in agency mortgage-backed securities. In its August statement the Fed had said it would buy "up to" that amount, but dropped those two words on Wednesday.
At least one member of the Fed's policy-setting committee had proposed curtailing mortgage-backed securities purchases, saying they provide too much of a boost as recovery takes off.
The Fed doubled the size of its balance sheet to more than $2 trillion as it flooded financial markets with money during the crisis last year.
Some policy-makers worry the bloated balance sheet risks triggering inflation if the Fed waits too long before removing its stimulus measures and raising interest rates.
However, the U.S. central bank on Wednesday played down concerns about price pressures in an economy where the jobless rate is at a 26-year high and factory capacity is greatly underutilized.
Policy-makers said inflation would remain subdued for some time with substantial slack in the economy dampening cost pressures, and with long-term inflation expectations stable.
In August the Fed had noted rises in energy and commodity prices, but dropped that reference this week, suggesting that worries about inflation had diminished.
The Fed has maintained its support for the economy, even after cutting interest rates to near zero, through a campaign to buy $300 billion of longer-dated U.S. government bonds and $1.45 trillion of mortgage-related debt, in order to keep lending rates low.
The Fed opted in August to taper down the U.S. Treasury debt purchases by the end of October, and had been expected to opt for a similar gradual withdrawal for its mortgage debt buying which initially had been scheduled to close at year-end.
The U.S. central bank must walk a delicate path between acknowledging the recovery evident in the economy, and assuring investors that it remains attuned to the risks of a double dip recession as policy stimulus fades next year.
This means exiting in time from aggressive steps aimed at boosting growth to avoid igniting inflation as the economy picks up steam, while not smothering the recovery in the process.
Recent data has pointed to turnarounds in manufacturing, housing markets and consumer sentiment, and many analysts expect strong growth in the third quarter after four quarters of contraction. However, with unemployment at a 26-year high of 9.7 percent, most analysts nevertheless expect consumer spending to remain weak and damp the recovery.
U.S. home loan demand hits highest since late May
By Julie Haviv
NEW YORK (Reuters) - U.S. mortgage applications jumped last week to their highest since late May as interest rates tumbled below 5 percent, data from an industry group showed on Wednesday.
The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week to September 18 increased 12.8 percent to 668.5, the highest since the week ended May 22.
While consumers clamored for home refinancing loans, their appetite was also robust for applications to buy a home, a tentative early indicator of sales. The overall trend bodes well for the hard-hit U.S. housing market, which has been showing signs of stabilization.
Eric Belsky, executive director at Harvard University's Joint Center for Housing Studies, said several months of improvement in new and existing home sales is a positive sign.
"Low interest rates on mortgages are important to the fledgling housing recovery," he said, and this has made a significant impact on the affordability front.
"While an uptick may bring buyers anxious that rates will keep rising into the market temporarily, a material increase in rates could threaten the rebound," he said.
Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 4.97 percent, down 0.11 percentage point from the prior week and the first time since the week to May 22 the rate on this most widely used home loan was below 5 percent.
However, the rate remained above the all-time low of 4.61 percent set in the week ended March 27. The survey has been conducted weekly since 1990. Nevertheless, interest rates were well below year-ago levels of 6.08 percent.
The U.S. government has embarked on an aggressive plan to bring mortgage rates down to levels that would spur demand and help the battered housing market to begin to recover.
The Federal Reserve has set a goal to buy up to $1.25 trillion of agency MBS, $300 billion of Treasuries and $200 billion of agency debt in 2009. The Fed expects to have bought all the Treasuries by end-October while purchases of agency MBS and agency debt are due to be completed by year-end.
On Wednesday the Fed's policy-making Federal Open Market Committee will make a statement after a two-day meeting. Any changes, such as plans to end programs early or not use the full amounts budgeted, could make interest rates on mortgages rise, which would be negative for the housing market.
Low mortgage rates, high affordability and an $8,000 tax credit for first-time home buyers -- part of the government's stimulus bill -- have helped stabilize the market.
But with the tax credit set to end November 30 and distressed properties making up a high proportion of sales, the flurry of activity masks uncertainty about the long-term outlook.
"While it is by no means a slam-dunk, it does feel increasingly likely that the tax credit will be extended beyond the end of November or revived some time next year," said Celia Chen, senior director of housing economics at Moody's Economy.com in West Chester, Pennsylvania.
The MBA's seasonally adjusted purchase index rose 5.6 percent to 288.3, driven by applications for government-insured loans. The government purchase index was at the highest level ever recorded in the survey and the share of purchase applications that were government-insured was 45.7 percent, the highest share since November 1990, the MBA said.
The four-week moving average of mortgage applications, which smoothes the volatile weekly figures, was up 4.3 percent.
The MBA's seasonally adjusted index of refinancing applications increased 17.4 percent to 2,881.5, its highest since the week ended May 29.
The refinance share of applications increased to 63.8 percent from 61.0 percent the previous week, but remained significantly lower than the peak of 85.3 percent in the week to January 9. The adjustable-rate mortgage share of activity increased to 6.7 percent, up from 6.0 percent the prior week.
The National Association of Realtors on Thursday releases August data on U.S. existing home sales and on Friday the Commerce Department releases August data on new home sales.
(Editing by James Dalgleish)
NEW YORK (Reuters) - U.S. mortgage applications jumped last week to their highest since late May as interest rates tumbled below 5 percent, data from an industry group showed on Wednesday.
The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week to September 18 increased 12.8 percent to 668.5, the highest since the week ended May 22.
While consumers clamored for home refinancing loans, their appetite was also robust for applications to buy a home, a tentative early indicator of sales. The overall trend bodes well for the hard-hit U.S. housing market, which has been showing signs of stabilization.
Eric Belsky, executive director at Harvard University's Joint Center for Housing Studies, said several months of improvement in new and existing home sales is a positive sign.
"Low interest rates on mortgages are important to the fledgling housing recovery," he said, and this has made a significant impact on the affordability front.
"While an uptick may bring buyers anxious that rates will keep rising into the market temporarily, a material increase in rates could threaten the rebound," he said.
Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 4.97 percent, down 0.11 percentage point from the prior week and the first time since the week to May 22 the rate on this most widely used home loan was below 5 percent.
However, the rate remained above the all-time low of 4.61 percent set in the week ended March 27. The survey has been conducted weekly since 1990. Nevertheless, interest rates were well below year-ago levels of 6.08 percent.
The U.S. government has embarked on an aggressive plan to bring mortgage rates down to levels that would spur demand and help the battered housing market to begin to recover.
The Federal Reserve has set a goal to buy up to $1.25 trillion of agency MBS, $300 billion of Treasuries and $200 billion of agency debt in 2009. The Fed expects to have bought all the Treasuries by end-October while purchases of agency MBS and agency debt are due to be completed by year-end.
On Wednesday the Fed's policy-making Federal Open Market Committee will make a statement after a two-day meeting. Any changes, such as plans to end programs early or not use the full amounts budgeted, could make interest rates on mortgages rise, which would be negative for the housing market.
Low mortgage rates, high affordability and an $8,000 tax credit for first-time home buyers -- part of the government's stimulus bill -- have helped stabilize the market.
But with the tax credit set to end November 30 and distressed properties making up a high proportion of sales, the flurry of activity masks uncertainty about the long-term outlook.
"While it is by no means a slam-dunk, it does feel increasingly likely that the tax credit will be extended beyond the end of November or revived some time next year," said Celia Chen, senior director of housing economics at Moody's Economy.com in West Chester, Pennsylvania.
The MBA's seasonally adjusted purchase index rose 5.6 percent to 288.3, driven by applications for government-insured loans. The government purchase index was at the highest level ever recorded in the survey and the share of purchase applications that were government-insured was 45.7 percent, the highest share since November 1990, the MBA said.
The four-week moving average of mortgage applications, which smoothes the volatile weekly figures, was up 4.3 percent.
The MBA's seasonally adjusted index of refinancing applications increased 17.4 percent to 2,881.5, its highest since the week ended May 29.
The refinance share of applications increased to 63.8 percent from 61.0 percent the previous week, but remained significantly lower than the peak of 85.3 percent in the week to January 9. The adjustable-rate mortgage share of activity increased to 6.7 percent, up from 6.0 percent the prior week.
The National Association of Realtors on Thursday releases August data on U.S. existing home sales and on Friday the Commerce Department releases August data on new home sales.
(Editing by James Dalgleish)
Fed Said to Start Talks With Dealers on Using Reverse Repos
Sept. 22 (Bloomberg) -- The Federal Reserve has started talks with bond dealers about withdrawing the unprecedented amount of cash injected into the financial system the last two years, according to people with knowledge of the discussions.
Central bank officials are discussing plans to use so- called reverse repurchase agreements to drain some of the $1 trillion they pumped into the economy, said the people, who declined to be identified because the talks are private. That’s where the Fed sells securities to its 18 primary dealers for a specific period, temporarily decreasing the amount of money available in the banking system.
There’s no sense that policy makers intend to withdraw funds anytime soon, said the people. The central bank’s challenge is to decrease the cash without stunting the economy’s recovery and before it sparks inflation. Fed Chairman Ben S. Bernanke said in a July Wall Street Journal opinion article that reverse repos are one tool to accomplish that goal without raising interest rates.
“One thing the Fed has to figure out is if they can launch pilot programs without spooking the market and creating the perception that they are about to tighten,” said Louis Crandall, chief economist at Wrightson ICAP LLC, a Jersey City, New Jersey-based research firm that specializes in government finance. “They are discussing things like accounting issues, and updating the governing documents to the volume of reverse repos the dealer community could absorb.”
Fed Balance Sheet
Deborah Kilroe, a spokeswoman for the Federal Reserve Bank of New York, declined to comment about meetings with dealers. Total assets on the Fed’s balance sheet stand at $2.14 trillion, up more than a $1 trillion since the collapse of the subprime mortgage market in August 2007 triggered the worst global financial crisis since the Great Depression.
The Federal Open Market Committee, at the conclusion tomorrow of a two-day policy meeting, will probably maintain its assessment that “tight” bank credit is impeding growth, said economists including former Fed Governor Lyle Gramley.
The Fed will keep its target rate for overnight loans at a range of zero to 0.25 percent at the conclusion of the FOMC meeting, all 91 economists surveyed by Bloomberg News said.
Minutes from FOMC’s Aug. 11-12 meeting showed that among the exit strategy options discussed were reverse repurchase agreements as well as setting up a term deposit facility to reduce the supply of banks’ excess reserves.
Repo Sizes
At maturity of a reverse repo, the securities the Fed sold to the dealers are returned to the central bank, and the cash goes back to the companies. The reverse repurchase agreements contemplated by the Fed would need to be for a longer period and larger size than has been typical in previous open market operations, according to strategists.
“To be effective, the Fed would have to drain several hundred billion dollars worth of funds through these reverse repos, between about $400 and $600 billion,” said Joseph Abate, a money market strategist in New York at Barclays Plc, a primary dealer. “You may have a dislocation in the repo markets due to the supply effect of the Fed injecting such a large amount of extra collateral into the marketplace.”
Steps taken by the Fed since March 2008 to combat the seizure in credit markets included expanding emergency lending to banks, supporting the commercial-paper market and bailing out New York-based insurer American International Group Inc.
“The timing is not now for the exit strategies to begin,” said Tony Crescenzi, a market strategist and portfolio manager at Newport Beach, California-based Pacific Investment Management Co., manager of the world’s biggest bond fund. Talk of exit strategies “will all seem very preliminary and conditional upon evidence that the economy is moving toward a self-sustaining and self-reinforcing condition. The proof of that will be some improvement in the labor market picture,” he said.
More Participants
The jobless rate reached 9.7 percent in August, the highest in a quarter-century. Employers have eliminated almost 7 million jobs since the recession started, the biggest drop in any post- World War II economic decline.
Bernanke said in the opinion piece that reverse repos could be done with counterparties beyond the Fed’s primary dealers, which serve as counterparties in open market operations and are required to bid on Treasury auctions.
More trading partners may be needed since primary dealers have been shrinking their balance sheets the past two years, and likely can’t absorb an additional $500 billion of securities, according to Abate at Barclays.
Banks worldwide have recorded more than $1.6 trillion of losses and writedowns since the start of 2007, according to data compiled by Bloomberg.
General Collateral Rate
Securities dealers use repos to finance holdings and increase leverage. Bonds that can be borrowed at interest rates close to the Fed’s target rate for overnight loans between banks are called general collateral. Those in highest demand have lower rates and are called “special.”
As the supply of Treasuries increases, which occurs when reverse repos take place, repurchase agreement rates are typically pushed higher. The rate on collateralized loans in the more than $5-trillion-a-day repurchase agreement market, where Treasuries are borrowed and lent, is already higher than the amount changed for unsecured borrowing of federal funds.
The overnight general collateral repurchase rate, which is typically a few basis points below the fed funds rate, opened at 0.20 percent today, compared with fed funds at 0.17 percent, according to GovPX Inc., a unit of ICAP Plc. A basis point is 0.01 percentage point. Wrightson is also part of ICAP.
When the Fed does begin, “it will use reverse repos in tandem with other draining operations,” said George Goncalves, chief fixed-income rates strategist in New York at Cantor Fitzgerald LP, a primary dealer. “The Fed won’t want to totally disrupt the repo markets and the short-term financing of Treasuries given how much debt is coming to market.”
Central bank officials are discussing plans to use so- called reverse repurchase agreements to drain some of the $1 trillion they pumped into the economy, said the people, who declined to be identified because the talks are private. That’s where the Fed sells securities to its 18 primary dealers for a specific period, temporarily decreasing the amount of money available in the banking system.
There’s no sense that policy makers intend to withdraw funds anytime soon, said the people. The central bank’s challenge is to decrease the cash without stunting the economy’s recovery and before it sparks inflation. Fed Chairman Ben S. Bernanke said in a July Wall Street Journal opinion article that reverse repos are one tool to accomplish that goal without raising interest rates.
“One thing the Fed has to figure out is if they can launch pilot programs without spooking the market and creating the perception that they are about to tighten,” said Louis Crandall, chief economist at Wrightson ICAP LLC, a Jersey City, New Jersey-based research firm that specializes in government finance. “They are discussing things like accounting issues, and updating the governing documents to the volume of reverse repos the dealer community could absorb.”
Fed Balance Sheet
Deborah Kilroe, a spokeswoman for the Federal Reserve Bank of New York, declined to comment about meetings with dealers. Total assets on the Fed’s balance sheet stand at $2.14 trillion, up more than a $1 trillion since the collapse of the subprime mortgage market in August 2007 triggered the worst global financial crisis since the Great Depression.
The Federal Open Market Committee, at the conclusion tomorrow of a two-day policy meeting, will probably maintain its assessment that “tight” bank credit is impeding growth, said economists including former Fed Governor Lyle Gramley.
The Fed will keep its target rate for overnight loans at a range of zero to 0.25 percent at the conclusion of the FOMC meeting, all 91 economists surveyed by Bloomberg News said.
Minutes from FOMC’s Aug. 11-12 meeting showed that among the exit strategy options discussed were reverse repurchase agreements as well as setting up a term deposit facility to reduce the supply of banks’ excess reserves.
Repo Sizes
At maturity of a reverse repo, the securities the Fed sold to the dealers are returned to the central bank, and the cash goes back to the companies. The reverse repurchase agreements contemplated by the Fed would need to be for a longer period and larger size than has been typical in previous open market operations, according to strategists.
“To be effective, the Fed would have to drain several hundred billion dollars worth of funds through these reverse repos, between about $400 and $600 billion,” said Joseph Abate, a money market strategist in New York at Barclays Plc, a primary dealer. “You may have a dislocation in the repo markets due to the supply effect of the Fed injecting such a large amount of extra collateral into the marketplace.”
Steps taken by the Fed since March 2008 to combat the seizure in credit markets included expanding emergency lending to banks, supporting the commercial-paper market and bailing out New York-based insurer American International Group Inc.
“The timing is not now for the exit strategies to begin,” said Tony Crescenzi, a market strategist and portfolio manager at Newport Beach, California-based Pacific Investment Management Co., manager of the world’s biggest bond fund. Talk of exit strategies “will all seem very preliminary and conditional upon evidence that the economy is moving toward a self-sustaining and self-reinforcing condition. The proof of that will be some improvement in the labor market picture,” he said.
More Participants
The jobless rate reached 9.7 percent in August, the highest in a quarter-century. Employers have eliminated almost 7 million jobs since the recession started, the biggest drop in any post- World War II economic decline.
Bernanke said in the opinion piece that reverse repos could be done with counterparties beyond the Fed’s primary dealers, which serve as counterparties in open market operations and are required to bid on Treasury auctions.
More trading partners may be needed since primary dealers have been shrinking their balance sheets the past two years, and likely can’t absorb an additional $500 billion of securities, according to Abate at Barclays.
Banks worldwide have recorded more than $1.6 trillion of losses and writedowns since the start of 2007, according to data compiled by Bloomberg.
General Collateral Rate
Securities dealers use repos to finance holdings and increase leverage. Bonds that can be borrowed at interest rates close to the Fed’s target rate for overnight loans between banks are called general collateral. Those in highest demand have lower rates and are called “special.”
As the supply of Treasuries increases, which occurs when reverse repos take place, repurchase agreement rates are typically pushed higher. The rate on collateralized loans in the more than $5-trillion-a-day repurchase agreement market, where Treasuries are borrowed and lent, is already higher than the amount changed for unsecured borrowing of federal funds.
The overnight general collateral repurchase rate, which is typically a few basis points below the fed funds rate, opened at 0.20 percent today, compared with fed funds at 0.17 percent, according to GovPX Inc., a unit of ICAP Plc. A basis point is 0.01 percentage point. Wrightson is also part of ICAP.
When the Fed does begin, “it will use reverse repos in tandem with other draining operations,” said George Goncalves, chief fixed-income rates strategist in New York at Cantor Fitzgerald LP, a primary dealer. “The Fed won’t want to totally disrupt the repo markets and the short-term financing of Treasuries given how much debt is coming to market.”
Office Fundamentals Fall Quicker Than Expected, Says Foresight Analytics
In a revised forecast, Foresight Analytics projects that the national office vacancy rate will hit 18.4% by year’s end, up from an earlier prediction of 17.5%. As businesses hard hit by the financial crisis began to struggle in late 2008, they shed more space than anticipated, according Susan Persin, a partner with the Oakland Calif.-based research firm.
In tandem with rising office vacancies, estimates for job losses among office space users rose to 1.6 million for 2009, up from a previous estimate of 1.2 million to 1.5 million.
Despite the rapid decline in office fundamentals for the first half of the year, Persin does not believe the second half will be a repeat performance. “I think we’ve seen the worst of it,” she says. “We may a slight further downturn, but it’s not going to be a repeat of the first half in the second half.”
At the end of the second quarter, the national office vacancy rated stood at 16.2%, up from 14.5% at the end of 2008. Foresight Analytics draws it data from 39 of the largest office markets in the nation and covers all classes of office space.
Metro areas with the greatest estimated percentage change in office jobs include Phoenix, Detroit, Orlando and Atlanta (see chart). The absolute number of office jobs expected to be lost in 2009 is greatest in New York, followed by Los Angeles, Chicago, Atlanta and Phoenix, according to Foresight Analytics. Not surprisingly, these markets are also the metros with the weakest office fundamentals.
The good news is that as demand for office space continues to fall, the amount of new supply hitting the market has ebbed. Construction activity nationally is down 30% from year-end 2008 as projects are completed, delayed or canceled. A few markets are bucking the trend, however. “There are a couple of markets like Miami and Seattle that do have a lot of new supply when there’s negative demand,” Persin notes.
Miami, for example, will experience some of the most significant growth in vacancy rates nationally, and is projected to reach 22.5% by the end of this year. Almost 700,000 sq. ft. of new supply was delivered during the first half of 2009, with another 2.6 million sq. ft. under construction at mid-year. As a result, Miami office rents there are expected to fall by 15% to 25% this year.
Likewise, office vacancy rates in the Seattle/Bellevue area are expected to reach 21.5% during the second half of 2009, much of which can be attributed to the 4.2 million sq. ft. of space under construction at mid-year. Seattle rents are projected to drop 21.8% by the end of 2009, according to Foresight.
Supply also has worked its way into markets that would otherwise be considered fundamentally sound. “D.C. is an interesting market because it would have been among the best performing if not for a large pipeline of supply,” says Persin.
For instance, 2.9% of Washington, D.C.’s inventory was under construction at the end of the second quarter. So despite the city’s comparatively healthy economy, Foresight Analytics projects that the vacancy rate in the nation’s capital will rise to 17.4% this year while asking rents fall 10% to 15% by year end.
So where are the best investment opportunities? In some ways, the answer to that question is in line with the old adage, “What goes down must come up.”
Places that have been hard hit by the housing bubble like Southern California, Phoenix and Florida may be ripe for buying opportunities. “An investor has to be willing to hold for a period of time,” Persin says. “You’re not going to do quick flipping and make money at this point.”
Eight Years Post 9/11: Lower Manhattan Diversifies in Face of Office Glut
Sep 22, 2009 4:48 PM, By Sibley Fleming
Q&A with Robert Goodman, FirstService Williams
For the past 26 years, Robert Goodman has worked in Lower Manhattan, where he started his career. Goodman prides himself on his encyclopedic knowledge of the market, and maintains a mental database of tenants and their locations, past and present.
He has seen multiple cycles and watched the market rebuild over the past eight years as he also watched it collapse before his very eyes. On Sept. 11, 2001, he left his office on the 86th floor of One World Trade Center at 8:47 a.m. One minute later, he was at the base of the building, getting ready to jump onto the subway, when the first plane crashed.
Recently, Goodman left his position of senior managing director for tenant rep firm Studley and joined FirstService Williams, where he now serves as senior managing director of brokerage in the firm’s Manhattan office. NREI recently talked with Goodman about the Lower Manhattan office market, the current challenges of oversupply and the future of the home of Wall Street.
NREI: It’s been eight years since the attacks of 9/11. What are the broad strokes that characterize how the market has changed?
Goodman: The real estate market before 9/11 occurred was weakening as a result of the dotcom implosion. As we turn the clock ahead eight years later, it’s been a little bit of déjà vu in that we now have a weakening market that we’re once again addressing. The good news is that over the span of these eight years there’s been a change in the tenant mix, which makes up the business sector for Lower Manhattan, a change which is actually for the better for Lower Manhattan’s survival and ultimate rebirth.
NREI: How has the tenant mix changed?
Goodman: Up until 9/11, it was essentially a typical solid business community where you had traditional, old-line investment banking firms, all of the major Wall Street companies. We have a higher proportion now of technology firms, information technology firms, public relations firms, not-for-profit organizations, architectural firms and engineering firms, so the marketplace is no longer dependent on one particular business for its growth. It helps mitigate some of the risk that has been going on in the business world over the past 18 months.
NREI: What happens if the 11 million sq. ft. of office space lost when the World Trade Center was destroyed is replaced before the economy rebounds?
Goodman: It would be a significant risk to the marketplace simply because there are not enough existing tenants. There are not enough new companies, which are going to be created, which could possibly fill up a majority of that space. It will actually work to Lower Manhattan’s benefit that the development of those properties will take longer than anticipated because at that point businesses will have stabilized.
NREI: What are the opportunities for tenants seeking space in Lower Manhattan?
Goodman: There are significant opportunities both for existing product and product that will become available as key decisions get made about organizations such as Merrill Lynch and AIG. AIG has a significant presence in Lower Manhattan. Including the two buildings they have sold but not yet vacated, they have in excess of 2.5 million sq. ft.
NREI: What are some of the concessions that landlords are granting these days?
Goodman: Concessions continue to increase. The level of tenant improvement dollars continues to escalate. The number of months of free rent continues to increase. Probably the biggest difference that’s taken place is that tenants are significantly cash flow sensitive and they want to preserve as much of their capital as they can. Landlords now are aggressively promoting the construction of new premises at little to no cost to the tenant, so it’s stimulated tenants’ interest in certain buildings because they can move in at nominal costs to themselves to preserve a lot of their internal cash flow.
NREI: How have lease terms changed?
Goodman: Right now tenants are looking for long-term deals, anywhere from 10 to 15 years in order to lock in, in many cases historically low rent levels, particularly for Class-A properties.
NREI: Have Lower Manhattan asking rents stopped falling?
Goodman: Rent levels peaked during the second quarter of 2008 with average asking rents for all space at $51.00 per sq. ft. Average asking rents started to decline to $50.93 at the end of the third quarter of 2008 and to $49.72 by the end of the fourth quarter. Rent levels then collapsed at the beginning of 2009 as the downturn in the economy, exacerbated by Lehman Brothers’ demise, brought rent levels down to $44.37, a 10.8 % drop from the prior quarter. Average rent levels continue to weaken. Lower Manhattan is still weak as the bleeding continues but the rent levels are no longer hemorrhaging, as was the case in early 2009.
NREI: Have you seen much movement in tenants moving from Class-B space to Class-A space as a result of greater affordability?
Goodman: There has been a keen interest from tenants who have been located downtown for their entire careers to upgrade the quality of their premises. A lot of the small and mid-size tenants who could not afford Class-A properties are now able to move to buildings with better infrastructure, which will better help support their business moving forward.
NREI: What’s going on with sublease space?
Goodman: The overall sublease market right now has a handful of high-quality alternatives. What the sublease market has done is to put tremendous pressure on landlords to lower prices and there has been continued pressure on tenants who are offering sublease space to offer significant concessions as well. The sublease market has been somewhat of a magnate for drawing tenants outside of Lower Manhattan, and that’s a good thing.
NREI: When do you see a balance of supply and demand occurring in Lower Manhattan?
Goodman: The balance for supply and demand is going to occur faster in Lower Manhattan than it will in other parts of the city for a number of reasons. The first is that a number of older buildings are continuing to be transformed from commercial into residential properties. The number of housing units have more than doubled in the last eight years. The population, which was about 22,000 to 23,000 people around 9/11, is in excess of 55,000 people now. The growth of residential has taken inventory away from Lower Manhattan for some of the old buildings that go back to the early 1900s and now allows the marketplace to essentially be comprised of newer, upgraded office buildings. That’s going to help stimulate the balance sooner rather than later, probably within the next three years
Q&A with Robert Goodman, FirstService Williams
For the past 26 years, Robert Goodman has worked in Lower Manhattan, where he started his career. Goodman prides himself on his encyclopedic knowledge of the market, and maintains a mental database of tenants and their locations, past and present.
He has seen multiple cycles and watched the market rebuild over the past eight years as he also watched it collapse before his very eyes. On Sept. 11, 2001, he left his office on the 86th floor of One World Trade Center at 8:47 a.m. One minute later, he was at the base of the building, getting ready to jump onto the subway, when the first plane crashed.
Recently, Goodman left his position of senior managing director for tenant rep firm Studley and joined FirstService Williams, where he now serves as senior managing director of brokerage in the firm’s Manhattan office. NREI recently talked with Goodman about the Lower Manhattan office market, the current challenges of oversupply and the future of the home of Wall Street.
NREI: It’s been eight years since the attacks of 9/11. What are the broad strokes that characterize how the market has changed?
Goodman: The real estate market before 9/11 occurred was weakening as a result of the dotcom implosion. As we turn the clock ahead eight years later, it’s been a little bit of déjà vu in that we now have a weakening market that we’re once again addressing. The good news is that over the span of these eight years there’s been a change in the tenant mix, which makes up the business sector for Lower Manhattan, a change which is actually for the better for Lower Manhattan’s survival and ultimate rebirth.
NREI: How has the tenant mix changed?
Goodman: Up until 9/11, it was essentially a typical solid business community where you had traditional, old-line investment banking firms, all of the major Wall Street companies. We have a higher proportion now of technology firms, information technology firms, public relations firms, not-for-profit organizations, architectural firms and engineering firms, so the marketplace is no longer dependent on one particular business for its growth. It helps mitigate some of the risk that has been going on in the business world over the past 18 months.
NREI: What happens if the 11 million sq. ft. of office space lost when the World Trade Center was destroyed is replaced before the economy rebounds?
Goodman: It would be a significant risk to the marketplace simply because there are not enough existing tenants. There are not enough new companies, which are going to be created, which could possibly fill up a majority of that space. It will actually work to Lower Manhattan’s benefit that the development of those properties will take longer than anticipated because at that point businesses will have stabilized.
NREI: What are the opportunities for tenants seeking space in Lower Manhattan?
Goodman: There are significant opportunities both for existing product and product that will become available as key decisions get made about organizations such as Merrill Lynch and AIG. AIG has a significant presence in Lower Manhattan. Including the two buildings they have sold but not yet vacated, they have in excess of 2.5 million sq. ft.
NREI: What are some of the concessions that landlords are granting these days?
Goodman: Concessions continue to increase. The level of tenant improvement dollars continues to escalate. The number of months of free rent continues to increase. Probably the biggest difference that’s taken place is that tenants are significantly cash flow sensitive and they want to preserve as much of their capital as they can. Landlords now are aggressively promoting the construction of new premises at little to no cost to the tenant, so it’s stimulated tenants’ interest in certain buildings because they can move in at nominal costs to themselves to preserve a lot of their internal cash flow.
NREI: How have lease terms changed?
Goodman: Right now tenants are looking for long-term deals, anywhere from 10 to 15 years in order to lock in, in many cases historically low rent levels, particularly for Class-A properties.
NREI: Have Lower Manhattan asking rents stopped falling?
Goodman: Rent levels peaked during the second quarter of 2008 with average asking rents for all space at $51.00 per sq. ft. Average asking rents started to decline to $50.93 at the end of the third quarter of 2008 and to $49.72 by the end of the fourth quarter. Rent levels then collapsed at the beginning of 2009 as the downturn in the economy, exacerbated by Lehman Brothers’ demise, brought rent levels down to $44.37, a 10.8 % drop from the prior quarter. Average rent levels continue to weaken. Lower Manhattan is still weak as the bleeding continues but the rent levels are no longer hemorrhaging, as was the case in early 2009.
NREI: Have you seen much movement in tenants moving from Class-B space to Class-A space as a result of greater affordability?
Goodman: There has been a keen interest from tenants who have been located downtown for their entire careers to upgrade the quality of their premises. A lot of the small and mid-size tenants who could not afford Class-A properties are now able to move to buildings with better infrastructure, which will better help support their business moving forward.
NREI: What’s going on with sublease space?
Goodman: The overall sublease market right now has a handful of high-quality alternatives. What the sublease market has done is to put tremendous pressure on landlords to lower prices and there has been continued pressure on tenants who are offering sublease space to offer significant concessions as well. The sublease market has been somewhat of a magnate for drawing tenants outside of Lower Manhattan, and that’s a good thing.
NREI: When do you see a balance of supply and demand occurring in Lower Manhattan?
Goodman: The balance for supply and demand is going to occur faster in Lower Manhattan than it will in other parts of the city for a number of reasons. The first is that a number of older buildings are continuing to be transformed from commercial into residential properties. The number of housing units have more than doubled in the last eight years. The population, which was about 22,000 to 23,000 people around 9/11, is in excess of 55,000 people now. The growth of residential has taken inventory away from Lower Manhattan for some of the old buildings that go back to the early 1900s and now allows the marketplace to essentially be comprised of newer, upgraded office buildings. That’s going to help stimulate the balance sooner rather than later, probably within the next three years
Dollar Touches One-Year Low as Fed May Signal Rates to Stay Low
Sept. 23 (Bloomberg) -- The dollar touched a one-year low against the euro and weakened versus the yen on speculation Federal Reserve policy makers will signal today they will keep interest rates low, diminishing the allure of U.S. assets.
New Zealand’s dollar rose against all of the 16 major currencies after a government report showed the economy unexpectedly expanded for the first time in six quarters, spurring investors to buy higher-yielding assets. The yen rose toward a seven-month high versus the dollar on prospects Group of 20 leaders, meeting in Pittsburgh starting tomorrow, will call for a reduction in global trade imbalances that may cause further gains in the U.S. currency’s counterparts.
“Our view is that the Fed won’t change its statement, so we’d be very surprised if they changed the reference to exceptionally low levels of the fed funds rate,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney. “We are broadly bearish on the dollar. The improving global picture tends to produce selling of the dollar.”
The dollar traded at $1.4797 per euro as of 11:07 a.m. in Tokyo from $1.4790 in New York yesterday, after earlier declining to $1.4842, the lowest level since Sept. 22, 2008. The U.S. currency was at 1.0234 Swiss francs, after earlier falling to 1.0189 francs, the weakest since July 22, 2008.
The yen climbed to 90.82 per dollar from 91.10, and rose to 134.40 per euro from 134.76. New Zealand’s dollar advanced to as high as 73.12 U.S. cents, the strongest since Aug. 4, before trading at 72.60 cents from 71.89 cents.
Fed Meeting
The Federal Open Market Committee will probably maintain its assessment that “tight” bank credit is impeding growth, said economists including former Fed Governor Lyle Gramley. Lending contracted for five straight weeks through Sept. 9, a drop that in part reflected Fed orders to banks to raise more capital and toughen lending standards, analysts said.
All 93 economists surveyed by Bloomberg said the Fed won’t change interest rates at its two-day policy meeting ending today. Chairman Ben S. Bernanke and his colleagues may discuss how to wind down purchases of mortgage-backed securities, analysts said.
“You’ve obviously got some risks with the Fed, but unless they come out and surprise with being hawkish, which I don’t think they will, it’s another reason dollar bears will feel comfortable with their position,” said Phil Burke, chief foreign-exchange dealer at JPMorgan Chase Bank in Sydney.
Stop-Loss Orders
The dollar slumped earlier due to the activation of so- called stop-loss orders, Burke said.
“The dollar-yen started that move off going through 91 and that turned into Dollar-Index break through 76,” he said. “It was a dollar-yen move initially, which turned into a Dollar- Index move, and it all got pretty messy and nasty.”
A stop-loss order is an automatic instruction to sell or buy a currency should it reached a particular level.
The Dollar Index, which the ICE uses to track the dollar against the currencies of six major U.S. trading partners, dropped to as low as 75.939, the weakest since Sept. 22, 2008, before trading at 76.008 from 76.118.
The New Zealand dollar rose to its highest since August 2008 versus the U.S. currency after Statistics New Zealand said gross domestic product grew 0.1 percent in the three months to June 30, following a 0.8 percent drop in the first quarter. The median estimate in a Bloomberg News survey was for a 0.2 percent contraction.
“Early in the session the market was looking for direction and the kiwis gave it,” said Tony Bieber, a foreign-exchange trader at Suncorp-Metway Ltd. in Brisbane. “The kiwis are leading the charge against the U.S. dollar.”
New Zealand Rates
Traders are betting the Reserve Bank of New Zealand will raise its benchmark interest rates by 1.49 percentage points over the next 12 months, compared with a prediction for 1.36 percentage points yesterday, according to a Credit Suisse Group AG index based on overnight swaps.
The yen gained for a second day against the dollar on speculation world leaders will discuss policies to rebalance global economic growth at the G-20 meeting this week.
Policy makers need to promote a “sustained growth track and facilitate global adjustment, as well as structural reform which will need to be undertaken in both deficit and surplus countries,” Dimitri Soudas, a spokesman for Canadian Prime Minister Stephen Harper, told reporters in Ottawa on Sept. 21.
“The dollar remains under selling pressure as the G-20 summit moves toward reforming the international monetary system,” Philip Wee, a senior currency economist in Singapore at DBS Group Holdings Ltd., wrote in a research note today.
‘Market Manipulation’
Losses in the dollar may be tempered after Italian Prime Minister Silvio Berlusconi and Australian Prime Minister Kevin Rudd wrote to U.S. President Barack Obama urging him to lead the fight against financial speculation and make it the center of the G-20 summit.
“We would like to bring financial speculation and market manipulation, particularly for raw materials, to the center of the debate,” Berlusconi and Rudd said in their letter, a copy of which was posted on the Italian leader’s Web site.
The Reuters/Jefferies CRB Index of 19 commodities rose the most in a week yesterday. Crude oil traded near $72 a barrel after climbing 2.6 percent yesterday.
“Back in mid-June, the G-8 meeting revealed clear evidence of disquiet in commodity prices,” Sue Trinh, a senior currency strategist in Sydney at RBC Capital Markets, wrote in an e-mail to Bloomberg today. “Following that June communiqué, major commodity indices slumped around 10 percent in the following week. In foreign exchange, risk proxies followed commodity prices lower.”
New Zealand’s dollar rose against all of the 16 major currencies after a government report showed the economy unexpectedly expanded for the first time in six quarters, spurring investors to buy higher-yielding assets. The yen rose toward a seven-month high versus the dollar on prospects Group of 20 leaders, meeting in Pittsburgh starting tomorrow, will call for a reduction in global trade imbalances that may cause further gains in the U.S. currency’s counterparts.
“Our view is that the Fed won’t change its statement, so we’d be very surprised if they changed the reference to exceptionally low levels of the fed funds rate,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney. “We are broadly bearish on the dollar. The improving global picture tends to produce selling of the dollar.”
The dollar traded at $1.4797 per euro as of 11:07 a.m. in Tokyo from $1.4790 in New York yesterday, after earlier declining to $1.4842, the lowest level since Sept. 22, 2008. The U.S. currency was at 1.0234 Swiss francs, after earlier falling to 1.0189 francs, the weakest since July 22, 2008.
The yen climbed to 90.82 per dollar from 91.10, and rose to 134.40 per euro from 134.76. New Zealand’s dollar advanced to as high as 73.12 U.S. cents, the strongest since Aug. 4, before trading at 72.60 cents from 71.89 cents.
Fed Meeting
The Federal Open Market Committee will probably maintain its assessment that “tight” bank credit is impeding growth, said economists including former Fed Governor Lyle Gramley. Lending contracted for five straight weeks through Sept. 9, a drop that in part reflected Fed orders to banks to raise more capital and toughen lending standards, analysts said.
All 93 economists surveyed by Bloomberg said the Fed won’t change interest rates at its two-day policy meeting ending today. Chairman Ben S. Bernanke and his colleagues may discuss how to wind down purchases of mortgage-backed securities, analysts said.
“You’ve obviously got some risks with the Fed, but unless they come out and surprise with being hawkish, which I don’t think they will, it’s another reason dollar bears will feel comfortable with their position,” said Phil Burke, chief foreign-exchange dealer at JPMorgan Chase Bank in Sydney.
Stop-Loss Orders
The dollar slumped earlier due to the activation of so- called stop-loss orders, Burke said.
“The dollar-yen started that move off going through 91 and that turned into Dollar-Index break through 76,” he said. “It was a dollar-yen move initially, which turned into a Dollar- Index move, and it all got pretty messy and nasty.”
A stop-loss order is an automatic instruction to sell or buy a currency should it reached a particular level.
The Dollar Index, which the ICE uses to track the dollar against the currencies of six major U.S. trading partners, dropped to as low as 75.939, the weakest since Sept. 22, 2008, before trading at 76.008 from 76.118.
The New Zealand dollar rose to its highest since August 2008 versus the U.S. currency after Statistics New Zealand said gross domestic product grew 0.1 percent in the three months to June 30, following a 0.8 percent drop in the first quarter. The median estimate in a Bloomberg News survey was for a 0.2 percent contraction.
“Early in the session the market was looking for direction and the kiwis gave it,” said Tony Bieber, a foreign-exchange trader at Suncorp-Metway Ltd. in Brisbane. “The kiwis are leading the charge against the U.S. dollar.”
New Zealand Rates
Traders are betting the Reserve Bank of New Zealand will raise its benchmark interest rates by 1.49 percentage points over the next 12 months, compared with a prediction for 1.36 percentage points yesterday, according to a Credit Suisse Group AG index based on overnight swaps.
The yen gained for a second day against the dollar on speculation world leaders will discuss policies to rebalance global economic growth at the G-20 meeting this week.
Policy makers need to promote a “sustained growth track and facilitate global adjustment, as well as structural reform which will need to be undertaken in both deficit and surplus countries,” Dimitri Soudas, a spokesman for Canadian Prime Minister Stephen Harper, told reporters in Ottawa on Sept. 21.
“The dollar remains under selling pressure as the G-20 summit moves toward reforming the international monetary system,” Philip Wee, a senior currency economist in Singapore at DBS Group Holdings Ltd., wrote in a research note today.
‘Market Manipulation’
Losses in the dollar may be tempered after Italian Prime Minister Silvio Berlusconi and Australian Prime Minister Kevin Rudd wrote to U.S. President Barack Obama urging him to lead the fight against financial speculation and make it the center of the G-20 summit.
“We would like to bring financial speculation and market manipulation, particularly for raw materials, to the center of the debate,” Berlusconi and Rudd said in their letter, a copy of which was posted on the Italian leader’s Web site.
The Reuters/Jefferies CRB Index of 19 commodities rose the most in a week yesterday. Crude oil traded near $72 a barrel after climbing 2.6 percent yesterday.
“Back in mid-June, the G-8 meeting revealed clear evidence of disquiet in commodity prices,” Sue Trinh, a senior currency strategist in Sydney at RBC Capital Markets, wrote in an e-mail to Bloomberg today. “Following that June communiqué, major commodity indices slumped around 10 percent in the following week. In foreign exchange, risk proxies followed commodity prices lower.”
Tuesday, September 22, 2009
With High-Rise Debut, Modular Construction is Poised for Take-Off
In the words of an old ad slogan, when it comes to modular construction — You’ve come a long way, baby. Evidence of that is a 24-story, $34 million high-rise just completed in Wolverhampton, England.
It is the tallest modular building in Europe, according to its developers. Vision Modular Structures partnered with Fleming Developments UK to manufacture and install 805 modules, built in another location and transported to the construction site. The high-rise is the tallest of a group of student housing buildings of differing heights at Wolverhampton, completed in time for the school year that got under way just weeks ago.
Designed by Manchester-based O’Connell East Architects, the main tower and adjacent low-rise units incorporate 657 student bedrooms and 142 post-graduate apartments. The Vision Modular buildings are framed with structural steel and have solid concrete floors.
The rapid build schedule for the tallest structure was 27 weeks, although the full project required a year to complete. If it had been built using conventional on-site methods, the construction could easily have taken two years.
The modules were built in a factory in Cork, Ireland, with the panels fully completed with decorating touches before being transported to the university site.
In addition to student housing, modular construction can be used for hotels, hospitals, restaurants and other purposes. Many commercial buildings manufactured off-site are indistinguishable from those built on-site using more time-consuming linear methods. In Basingstoke, Vision Modular is building a 10-story apartment building and two mid-rise buildings with a combined 162 units. The company’s scheduled construction time is just 10 weeks.
Though built of wood and trucked to the site, some buildings are then sheathed in brick, giving them a substantial look that defies common perceptions of modular buildings as cheap, temporary structures built with materials that won’t last. Today, quality modular buildings have expected life spans of 20 to 50 years.
In the United States, the $5 billion modular building industry is drawing interest from developers and investors intrigued by the possibility of cutting construction costs and time over traditional stick-built methods, says Tom Hardiman, executive director of the Modular Building Institute, based in Charlottesville, Va.
Going modular makes sense for quick-service restaurants such as Starbuck’s, MacDonald’s and Wendy’s, which require similar buildings in numerous cities, says Hardiman. “They get it in half the time. It’s easily 30% faster, and in some cases 40% to 50% faster.”
Sep 21, 2009 1:14 PM, By Denise Kalette
The more work that can be done off-site, the shorter the overall time necessary to engage costly construction crews for a project. And the sooner tenants can occupy a building, the sooner owners can derive revenue from it.
Currently, modular building garners 1% of the commercial construction market. However, it is poised to grow as economic pressures spur real estate investors and developers to trim costs, and as word gets out that modular commercial structures must meet the same rigorous local building codes as stick-built structures.
Arizona-based Accelerated Construction Technologies built this bank off-site.
Another push for the modular industry comes from the trend toward environmentally friendly construction. Hardiman contends that many modular buildings are “greener” than the competition because there is less disturbance of the construction site and less waste. “At a conventional site you’ll see dumpster after dumpster of materials.” But with factory-assembled methods, less tonnage winds up at the landfill, he says.
Modular Goes Upscale
In Beavercreek, Ohio, a $40 million, 360,000 sq. ft. expansion of the Greene Town Center, a mixed-use development with retail, restaurants and apartments, incorporates modular construction technology.
By using modular housing from Champion Enterprises for the residences, about 13% of the project, owner Steiner & Associates was able to reduce labor and materials costs and increase profits for the project, completed last fall.
Champion, founded 55 years ago near Detroit, Mich., has built a name for itself as a leader in manufactured housing. It now has 27 manufacturing facilities in North America and Europe and has produced 1.7 million factory-built homes in North America.
Champion has thrown its hat into the commercial real estate ring by buying Caledonian Building Systems in the United Kingdom. Caledonian, a modular commercial leader, has built prisons, hotels, multifamily and other commercial projects.
Caledonian manufactured sections for a 1,200-bed residence hall being built for Sheffield University. For another project, in just 12 weeks, the company installed an 18-story student housing building in Brentford, Middlesex with 577 bedrooms and baths, dining facilities and other communal areas. It was completed in late summer 2006.
Military Builds Modular Barracks.
This real estate sales center in Naples, Fla. uses modular technology.
In DeSoto, Texas, Warrior Group, a modular development firm, has seen a rapid rise in revenue since the U.S. government became interested in the factory-built military housing — its specialty. The speed with which new housing could be erected, meeting strict military timetables and shifting troop assignments, was particularly important.
The firm’s revenue rocketed from $15 million in 2006 to $122 million in 2008, and is projected to reach $135 million this year, according to Gail Warrior Lawrence, president and CEO of Warrior Group.
Today, about 95% of the company’s projects involve creating housing for the U.S. Army Corps of Engineers. “We had a great year in 2008 and 2009 is shaping up to be another great year,” says Warrior-Lawrence.
Early on, her company partnered with a general contractor because it lacked project managers and superintendents, as well as the expertise to conduct estimates. “After a couple of years we said, ‘We can do this’, and we started building our own resources and infrastructure operations.”
Warrior is wrapping up projects at Fort Sam Houston, Fort Carson and Fort Polk, and is gearing up to construct a child development center at the naval air station in Fort Worth, Texas. The company has enough contracts for pending projects to keep the company busy for a year, and more contracts are expected.
That level of activity by a leading company bodes well for the industry, says the Modular Building Institute’s Hardiman. With only 1% of the commercial real estate industry currently committed to factory-built construction, the market is wide open. “There’s 99% room for growth.”
It is the tallest modular building in Europe, according to its developers. Vision Modular Structures partnered with Fleming Developments UK to manufacture and install 805 modules, built in another location and transported to the construction site. The high-rise is the tallest of a group of student housing buildings of differing heights at Wolverhampton, completed in time for the school year that got under way just weeks ago.
Designed by Manchester-based O’Connell East Architects, the main tower and adjacent low-rise units incorporate 657 student bedrooms and 142 post-graduate apartments. The Vision Modular buildings are framed with structural steel and have solid concrete floors.
The rapid build schedule for the tallest structure was 27 weeks, although the full project required a year to complete. If it had been built using conventional on-site methods, the construction could easily have taken two years.
The modules were built in a factory in Cork, Ireland, with the panels fully completed with decorating touches before being transported to the university site.
In addition to student housing, modular construction can be used for hotels, hospitals, restaurants and other purposes. Many commercial buildings manufactured off-site are indistinguishable from those built on-site using more time-consuming linear methods. In Basingstoke, Vision Modular is building a 10-story apartment building and two mid-rise buildings with a combined 162 units. The company’s scheduled construction time is just 10 weeks.
Though built of wood and trucked to the site, some buildings are then sheathed in brick, giving them a substantial look that defies common perceptions of modular buildings as cheap, temporary structures built with materials that won’t last. Today, quality modular buildings have expected life spans of 20 to 50 years.
In the United States, the $5 billion modular building industry is drawing interest from developers and investors intrigued by the possibility of cutting construction costs and time over traditional stick-built methods, says Tom Hardiman, executive director of the Modular Building Institute, based in Charlottesville, Va.
Going modular makes sense for quick-service restaurants such as Starbuck’s, MacDonald’s and Wendy’s, which require similar buildings in numerous cities, says Hardiman. “They get it in half the time. It’s easily 30% faster, and in some cases 40% to 50% faster.”
Sep 21, 2009 1:14 PM, By Denise Kalette
The more work that can be done off-site, the shorter the overall time necessary to engage costly construction crews for a project. And the sooner tenants can occupy a building, the sooner owners can derive revenue from it.
Currently, modular building garners 1% of the commercial construction market. However, it is poised to grow as economic pressures spur real estate investors and developers to trim costs, and as word gets out that modular commercial structures must meet the same rigorous local building codes as stick-built structures.
Arizona-based Accelerated Construction Technologies built this bank off-site.
Another push for the modular industry comes from the trend toward environmentally friendly construction. Hardiman contends that many modular buildings are “greener” than the competition because there is less disturbance of the construction site and less waste. “At a conventional site you’ll see dumpster after dumpster of materials.” But with factory-assembled methods, less tonnage winds up at the landfill, he says.
Modular Goes Upscale
In Beavercreek, Ohio, a $40 million, 360,000 sq. ft. expansion of the Greene Town Center, a mixed-use development with retail, restaurants and apartments, incorporates modular construction technology.
By using modular housing from Champion Enterprises for the residences, about 13% of the project, owner Steiner & Associates was able to reduce labor and materials costs and increase profits for the project, completed last fall.
Champion, founded 55 years ago near Detroit, Mich., has built a name for itself as a leader in manufactured housing. It now has 27 manufacturing facilities in North America and Europe and has produced 1.7 million factory-built homes in North America.
Champion has thrown its hat into the commercial real estate ring by buying Caledonian Building Systems in the United Kingdom. Caledonian, a modular commercial leader, has built prisons, hotels, multifamily and other commercial projects.
Caledonian manufactured sections for a 1,200-bed residence hall being built for Sheffield University. For another project, in just 12 weeks, the company installed an 18-story student housing building in Brentford, Middlesex with 577 bedrooms and baths, dining facilities and other communal areas. It was completed in late summer 2006.
Military Builds Modular Barracks.
This real estate sales center in Naples, Fla. uses modular technology.
In DeSoto, Texas, Warrior Group, a modular development firm, has seen a rapid rise in revenue since the U.S. government became interested in the factory-built military housing — its specialty. The speed with which new housing could be erected, meeting strict military timetables and shifting troop assignments, was particularly important.
The firm’s revenue rocketed from $15 million in 2006 to $122 million in 2008, and is projected to reach $135 million this year, according to Gail Warrior Lawrence, president and CEO of Warrior Group.
Today, about 95% of the company’s projects involve creating housing for the U.S. Army Corps of Engineers. “We had a great year in 2008 and 2009 is shaping up to be another great year,” says Warrior-Lawrence.
Early on, her company partnered with a general contractor because it lacked project managers and superintendents, as well as the expertise to conduct estimates. “After a couple of years we said, ‘We can do this’, and we started building our own resources and infrastructure operations.”
Warrior is wrapping up projects at Fort Sam Houston, Fort Carson and Fort Polk, and is gearing up to construct a child development center at the naval air station in Fort Worth, Texas. The company has enough contracts for pending projects to keep the company busy for a year, and more contracts are expected.
That level of activity by a leading company bodes well for the industry, says the Modular Building Institute’s Hardiman. With only 1% of the commercial real estate industry currently committed to factory-built construction, the market is wide open. “There’s 99% room for growth.”
Fed Growth Effort May Be Undermined by ‘Tight’ Credit
Sept. 22 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke’s efforts to stoke a U.S. economic recovery may be undermined by the central bank’s other goal of restoring the banking system to health.
The Federal Open Market Committee, at the conclusion tomorrow of a two-day meeting, will probably maintain its assessment that “tight” bank credit is impeding growth, said economists including former Fed Governor Lyle Gramley. Lending contracted for five straight weeks through Sept. 9, a drop that in part reflects Fed orders to banks to raise more capital and toughen lending standards, analysts say.
A failure to restore the flow of bank credit carries the risk that the economic recovery will be slower than the Fed anticipates, or even that the U.S. lapses into another recession, economists say. That would make it more likely the Fed will keep its main interest rate close to zero for a longer period.
“They would be absolutely delighted if banks went out and raised a lot more private capital and then began to lend more,” said Gramley, now senior economic adviser with New York-based Soleil Securities Corp. “Until that happens, the Fed has to continue to try to encourage economic growth through easy money.”
The FOMC, composed of Bernanke, Fed governors and regional Fed-bank presidents, is expected to release a statement at about 2:15 PM. New York time. Economists surveyed by Bloomberg News unanimously forecast the Fed will leave its benchmark interest rate unchanged.
Extend End Date
The central bank may also decide to extend the end date of its $1.45 trillion program to buy housing debt, now set to expire at the end of the year, and to gradually reduce the size of the purchases.
Banks have become more careful about lending. A Fed report released last week shows banks had $6.85 trillion of loans and leases outstanding to businesses and households as of Sept. 9, down for a fifth straight week and below the record $7.32 trillion in October 2008. Real estate loans, the biggest portion, stood at $3.79 trillion, up $7.5 billion from the prior week while down from a peak of $3.9 trillion.
The Fed’s second-quarter survey of senior loan officers, released Aug. 17, showed U.S. banks tightened standards on all types of loans and said they expect to maintain strict criteria on lending until at least the second half of 2010.
‘Worthy Households’
“While it is important for economic recovery that lenders provide credit to worthy households and businesses, they also must maintain enough capital to withstand losses -- even if economic conditions turn out to be worse than anticipated,” San Francisco Fed President Janet Yellen said in a Sept. 14 speech.
“The financial system is still far from healthy and tight credit is likely to put a damper on growth for some time to come,” Yellen continued.
Fed-led stress tests of the 19 biggest U.S. banks earlier this year were designed to ensure that the firms had enough capital to withstand a more severe economic downturn. The tests found that the banks need to raise $75 billion to withstand potential losses.
Separately, regional and some smaller U.S. banks may need $12 billion to $14 billion in additional capital to cope with troubled loans still on their books, the Congressional Oversight Panel said in August.
Banks have a Nov. 9 deadline from the Fed to raise the amount of capital determined by the stress tests. Bernanke said in June that the 10 firms that required capital had raised or announced actions to generate $48 billion of new common equity. The firms included Bank of America Corp., Wells Fargo & Co. and GMAC LLC.
Mortgage Rules
The Fed has taken other steps to make sure banks avoid riskier loans. In July 2008, it tightened mortgage rules by requiring lenders to determine a borrower’s ability to repay and barring other practices that led to the collapse of the housing market.
Minimum regulatory-capital requirements may change as officials in the U.S. and abroad craft new financial rules. Consumers are less credit-worthy as the job market deteriorates and after a record loss of wealth from plunging share prices and real estate values.
Rising unemployment will slow the pace of the recovery, Bernanke said on Sept. 15.
‘Very Weak’
“Even though from a technical perspective the recession is very likely over at this point, it’s still going to feel like a very weak economy for some time,” Bernanke said in response to a question after a speech in Washington. Fed officials in June predicted that GDP will expand 2.1 percent to 3.3 percent next year after shrinking 1.5 percent to 1 percent this year, according to the central tendency of their forecasts.
Banks have plenty of reasons to hold back on lending, analysts say.
Americans fell behind on their mortgage payments at a record pace in the second quarter, with delinquencies rising to 9.24 percent, according to an August report by the Mortgage Bankers Association.
“Consumers aren’t necessarily that credit worthy a proposition right now,” said John Ryding, chief economist and founder of RDQ Economics LLC in New York.
Falling values of commercial real estate are also a problem for banks, with an “uncertain degree of losses” to come, said Ryding, a former Fed researcher. Loans made for commercial property will probably sour and lenders will need to raise more capital to cover credit losses, Mike Mayo, a banking analyst at CLSA Ltd., said today at a conference in Hong Kong.
‘Ratchet Back’
“Banks are all trying to ratchet back their credit exposure,” said Eric Hovde, chief executive officer of Hovde Capital Advisors LLC, who manages about $1 billion with a concentration in financial and real-estate related companies and is chairman of Sunwest Bank in Tustin, California.
For instance, JPMorgan Chase & Co. now requires mortgage borrowers to make bigger down payments than before the crisis, and it has stopped allowing so-called stated-income loans that don’t require documentation of earnings, said Tom Kelly, a spokesman.
Neal Soss, chief economist at Credit Suisse in New York, predicts the lending lull will end within a few months after businesses finish depleting inventories and financial firms better determine how much in capital governments will require them to have.
“Bank lending is going to pick up all by itself as banks go looking for ways to add more juice to their earnings profile,” said Soss, who used to work as an aide to former Fed Chairman Paul Volcker. Soss said he forecasts 3.5 percent economic growth in 2010, on the high end of analyst projections.
Index Rallies
The 24-company KBW Bank Index rallied 69 percent from March 31 through yesterday as concern faded that lenders might not survive the economic slump.
Even as banks hold back, Fed policy makers have been trying to encourage borrowing to stoke an economic recovery. The Fed and other U.S. regulators told banks in November to maintain lending to “creditworthy” borrowers while warning against paying dividends that would cut funds available for loans.
In March, the Fed started an emergency program, the Term Asset-Backed Securities Loan Facility, to restart the loan- securitization markets that help form the so-called “shadow banking” system. That has helped generate investor demand for debt tied to auto and credit-card loans, unfreezing part of the credit markets.
“The question for the Fed, which is a very difficult question, is: what is the appropriate level of bank lending?” said Joseph Mason, a Louisiana State University banking professor and former economist at the Office of the Comptroller of the Currency. “It’s not bubble lending, it’s some subset of that. That is where the art of central banking lies.”
The Federal Open Market Committee, at the conclusion tomorrow of a two-day meeting, will probably maintain its assessment that “tight” bank credit is impeding growth, said economists including former Fed Governor Lyle Gramley. Lending contracted for five straight weeks through Sept. 9, a drop that in part reflects Fed orders to banks to raise more capital and toughen lending standards, analysts say.
A failure to restore the flow of bank credit carries the risk that the economic recovery will be slower than the Fed anticipates, or even that the U.S. lapses into another recession, economists say. That would make it more likely the Fed will keep its main interest rate close to zero for a longer period.
“They would be absolutely delighted if banks went out and raised a lot more private capital and then began to lend more,” said Gramley, now senior economic adviser with New York-based Soleil Securities Corp. “Until that happens, the Fed has to continue to try to encourage economic growth through easy money.”
The FOMC, composed of Bernanke, Fed governors and regional Fed-bank presidents, is expected to release a statement at about 2:15 PM. New York time. Economists surveyed by Bloomberg News unanimously forecast the Fed will leave its benchmark interest rate unchanged.
Extend End Date
The central bank may also decide to extend the end date of its $1.45 trillion program to buy housing debt, now set to expire at the end of the year, and to gradually reduce the size of the purchases.
Banks have become more careful about lending. A Fed report released last week shows banks had $6.85 trillion of loans and leases outstanding to businesses and households as of Sept. 9, down for a fifth straight week and below the record $7.32 trillion in October 2008. Real estate loans, the biggest portion, stood at $3.79 trillion, up $7.5 billion from the prior week while down from a peak of $3.9 trillion.
The Fed’s second-quarter survey of senior loan officers, released Aug. 17, showed U.S. banks tightened standards on all types of loans and said they expect to maintain strict criteria on lending until at least the second half of 2010.
‘Worthy Households’
“While it is important for economic recovery that lenders provide credit to worthy households and businesses, they also must maintain enough capital to withstand losses -- even if economic conditions turn out to be worse than anticipated,” San Francisco Fed President Janet Yellen said in a Sept. 14 speech.
“The financial system is still far from healthy and tight credit is likely to put a damper on growth for some time to come,” Yellen continued.
Fed-led stress tests of the 19 biggest U.S. banks earlier this year were designed to ensure that the firms had enough capital to withstand a more severe economic downturn. The tests found that the banks need to raise $75 billion to withstand potential losses.
Separately, regional and some smaller U.S. banks may need $12 billion to $14 billion in additional capital to cope with troubled loans still on their books, the Congressional Oversight Panel said in August.
Banks have a Nov. 9 deadline from the Fed to raise the amount of capital determined by the stress tests. Bernanke said in June that the 10 firms that required capital had raised or announced actions to generate $48 billion of new common equity. The firms included Bank of America Corp., Wells Fargo & Co. and GMAC LLC.
Mortgage Rules
The Fed has taken other steps to make sure banks avoid riskier loans. In July 2008, it tightened mortgage rules by requiring lenders to determine a borrower’s ability to repay and barring other practices that led to the collapse of the housing market.
Minimum regulatory-capital requirements may change as officials in the U.S. and abroad craft new financial rules. Consumers are less credit-worthy as the job market deteriorates and after a record loss of wealth from plunging share prices and real estate values.
Rising unemployment will slow the pace of the recovery, Bernanke said on Sept. 15.
‘Very Weak’
“Even though from a technical perspective the recession is very likely over at this point, it’s still going to feel like a very weak economy for some time,” Bernanke said in response to a question after a speech in Washington. Fed officials in June predicted that GDP will expand 2.1 percent to 3.3 percent next year after shrinking 1.5 percent to 1 percent this year, according to the central tendency of their forecasts.
Banks have plenty of reasons to hold back on lending, analysts say.
Americans fell behind on their mortgage payments at a record pace in the second quarter, with delinquencies rising to 9.24 percent, according to an August report by the Mortgage Bankers Association.
“Consumers aren’t necessarily that credit worthy a proposition right now,” said John Ryding, chief economist and founder of RDQ Economics LLC in New York.
Falling values of commercial real estate are also a problem for banks, with an “uncertain degree of losses” to come, said Ryding, a former Fed researcher. Loans made for commercial property will probably sour and lenders will need to raise more capital to cover credit losses, Mike Mayo, a banking analyst at CLSA Ltd., said today at a conference in Hong Kong.
‘Ratchet Back’
“Banks are all trying to ratchet back their credit exposure,” said Eric Hovde, chief executive officer of Hovde Capital Advisors LLC, who manages about $1 billion with a concentration in financial and real-estate related companies and is chairman of Sunwest Bank in Tustin, California.
For instance, JPMorgan Chase & Co. now requires mortgage borrowers to make bigger down payments than before the crisis, and it has stopped allowing so-called stated-income loans that don’t require documentation of earnings, said Tom Kelly, a spokesman.
Neal Soss, chief economist at Credit Suisse in New York, predicts the lending lull will end within a few months after businesses finish depleting inventories and financial firms better determine how much in capital governments will require them to have.
“Bank lending is going to pick up all by itself as banks go looking for ways to add more juice to their earnings profile,” said Soss, who used to work as an aide to former Fed Chairman Paul Volcker. Soss said he forecasts 3.5 percent economic growth in 2010, on the high end of analyst projections.
Index Rallies
The 24-company KBW Bank Index rallied 69 percent from March 31 through yesterday as concern faded that lenders might not survive the economic slump.
Even as banks hold back, Fed policy makers have been trying to encourage borrowing to stoke an economic recovery. The Fed and other U.S. regulators told banks in November to maintain lending to “creditworthy” borrowers while warning against paying dividends that would cut funds available for loans.
In March, the Fed started an emergency program, the Term Asset-Backed Securities Loan Facility, to restart the loan- securitization markets that help form the so-called “shadow banking” system. That has helped generate investor demand for debt tied to auto and credit-card loans, unfreezing part of the credit markets.
“The question for the Fed, which is a very difficult question, is: what is the appropriate level of bank lending?” said Joseph Mason, a Louisiana State University banking professor and former economist at the Office of the Comptroller of the Currency. “It’s not bubble lending, it’s some subset of that. That is where the art of central banking lies.”
Home Prices Gain 0.3 Percent in July as Tax Credit Fuels Demand
Sept. 22 (Bloomberg) -- U.S. home prices rose 0.3 percent in July from the previous month, the third straight monthly gain, as the tax credit for first-time buyers bolstered demand and helped stabilize the housing market.
The U.S. house price index fell 4.2 percent for the 12 months ended in July, the Federal Housing Finance Agency in Washington said today. July’s increase was lower than the 0.5 percent gain forecast by 12 analysts in a Bloomberg survey.
Demand is returning to the U.S. housing market after a three-year slump slashed values 28 percent nationwide and led to record foreclosures. Lower home prices and government stimulus efforts boosted sales of existing homes 7.2 percent in July from the prior month to the highest level in almost two years, the National Association of Realtors said in an Aug. 21 report. Home-loan rates last week also fell to the lowest since May.
“Mortgage rates have come back down and demand for homes remains high,” said Brian Bethune, chief financial economist of IHS Global Insight, a forecasting company in Lexington, Massachusetts. “There are a lot of positives in housing right now.”
U.S. President Barack Obama and Federal Reserve Chairman Ben S. Bernanke are considering whether to end support for the housing market that has been the source of the global financial crisis.
‘Encouraging’ Recovery Signs
Treasury Secretary Timothy Geithner on Sept. 17 called signs of stabilization in the housing market “very encouraging” and said the Obama administration is studying whether to let the tax credit expire at the end of November.
Home building companies are seeing signs that demand is improving. Lennar Corp., the third-largest U.S. builder, said yesterday it has started buying finished home sites in anticipation that buyers will return.
The Standard & Poor’s Supercomposite Home building Index of 12 companies has rallied 38 percent this year through yesterday on the prospect of a recovering market.
U.S. home prices probably will fall 13 percent this year to a median of $172,600, larger than the 9.5 percent decline in 2008, according to a National Association of Realtors’ forecast. Home resales probably will rise 1.1 percent to 4.97 million after a 13 percent drop last year, the group said.
Record Price Declines
The U.S. median home price tumbled 28 percent over three years to $164,800 in January, the month before Congress passed the American Recovery and Reinvestment Act of 2009 granting the tax credit for first-time buyers, according NAR. It had reached a record high of $230,300 in July 2006. January’s median home price was the lowest in more than seven years.
Lawrence Yun, chief economist of the realtors’ group, estimates that about 350,000 home sales through August were directly attributable to the tax credit. First-time buyers have accounted for 43 percent of home sales since the credit became law, up from 32 percent in the six weeks prior to its passage, according to Washington-based Campbell Communications Inc.
The U.S. house price index fell 4.2 percent for the 12 months ended in July, the Federal Housing Finance Agency in Washington said today. July’s increase was lower than the 0.5 percent gain forecast by 12 analysts in a Bloomberg survey.
Demand is returning to the U.S. housing market after a three-year slump slashed values 28 percent nationwide and led to record foreclosures. Lower home prices and government stimulus efforts boosted sales of existing homes 7.2 percent in July from the prior month to the highest level in almost two years, the National Association of Realtors said in an Aug. 21 report. Home-loan rates last week also fell to the lowest since May.
“Mortgage rates have come back down and demand for homes remains high,” said Brian Bethune, chief financial economist of IHS Global Insight, a forecasting company in Lexington, Massachusetts. “There are a lot of positives in housing right now.”
U.S. President Barack Obama and Federal Reserve Chairman Ben S. Bernanke are considering whether to end support for the housing market that has been the source of the global financial crisis.
‘Encouraging’ Recovery Signs
Treasury Secretary Timothy Geithner on Sept. 17 called signs of stabilization in the housing market “very encouraging” and said the Obama administration is studying whether to let the tax credit expire at the end of November.
Home building companies are seeing signs that demand is improving. Lennar Corp., the third-largest U.S. builder, said yesterday it has started buying finished home sites in anticipation that buyers will return.
The Standard & Poor’s Supercomposite Home building Index of 12 companies has rallied 38 percent this year through yesterday on the prospect of a recovering market.
U.S. home prices probably will fall 13 percent this year to a median of $172,600, larger than the 9.5 percent decline in 2008, according to a National Association of Realtors’ forecast. Home resales probably will rise 1.1 percent to 4.97 million after a 13 percent drop last year, the group said.
Record Price Declines
The U.S. median home price tumbled 28 percent over three years to $164,800 in January, the month before Congress passed the American Recovery and Reinvestment Act of 2009 granting the tax credit for first-time buyers, according NAR. It had reached a record high of $230,300 in July 2006. January’s median home price was the lowest in more than seven years.
Lawrence Yun, chief economist of the realtors’ group, estimates that about 350,000 home sales through August were directly attributable to the tax credit. First-time buyers have accounted for 43 percent of home sales since the credit became law, up from 32 percent in the six weeks prior to its passage, according to Washington-based Campbell Communications Inc.
Brown Says World Has Yet to Feel Biggest Impact From Stimulus
Sept. 22 (Bloomberg) -- U.K. Prime Minister Gordon Brown said the global economy has yet to feel the biggest impact of government-led spending programs to stimulate demand and reiterated concerns about removing them too early.
“The stimulus that we have still got to give the world economy is greater than the stimulus we have already had,” Brown told reporters in London yesterday before his departure today for the Group of 20 meeting in Pittsburgh. “What we want to do is safeguard a recovery from a recession we feared would develop into a depression.”
Politicians in Britain are calling for the government to put the brakes on spending and to focus on curbing the budget deficit that next year will exceed 12 percent of gross domestic product, the most in the G-20.
The International Monetary Fund in April estimated that fiscal stimulus packages between 2008 and 2010 amounted to 3 percent of gross domestic product for the U.K., 3.2 percent for the U.S. and 2.9 percent for Japan.
Brown is seeking support for a formal series of meetings between world leaders to coordinate economic policies and tackle problems ranging from trade imbalances to bonus pay earned by bankers. He travels to the U.S. today and will meet leaders from the G-20 nations in Pittsburgh later this week.
Recovery View
Brown said economic recovery was not yet guaranteed, adding to comments from President Barack Obama who this week said the unemployment rate “could even get a little bit worse, over the next couple of months.”
Britain and the U.S. are proposing similar measures to get national governments to steer economic policy so that future imbalances can be unwound before they damage the system.
“By meeting at Pittsburgh, we are looking at how we can put in place for the future the mechanism or path that can lead us to either making decisions about better ways of creating growth that is sustainable in the future, a better early warning system for the world economy about potential crises, a better way of resolving difficulties or imbalances around the world,” Brown said.
He suggested that China, India and South Korea, which have had surpluses in recent years, favor his measures as much as the U.S., which joined Britain in maintaining deficits.
“I have been talking to many countries in Asia as well as in Europe, and I have been talking to President Obama and others, and I believe that there is support for that framework,” Brown said.
The G-20 accounts for about 85 percent of the world economy. The Pittsburgh talks will the third summit of its leaders in the past year.
Its members are Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, South Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the U.S., the U.K. and the European Union.
“The stimulus that we have still got to give the world economy is greater than the stimulus we have already had,” Brown told reporters in London yesterday before his departure today for the Group of 20 meeting in Pittsburgh. “What we want to do is safeguard a recovery from a recession we feared would develop into a depression.”
Politicians in Britain are calling for the government to put the brakes on spending and to focus on curbing the budget deficit that next year will exceed 12 percent of gross domestic product, the most in the G-20.
The International Monetary Fund in April estimated that fiscal stimulus packages between 2008 and 2010 amounted to 3 percent of gross domestic product for the U.K., 3.2 percent for the U.S. and 2.9 percent for Japan.
Brown is seeking support for a formal series of meetings between world leaders to coordinate economic policies and tackle problems ranging from trade imbalances to bonus pay earned by bankers. He travels to the U.S. today and will meet leaders from the G-20 nations in Pittsburgh later this week.
Recovery View
Brown said economic recovery was not yet guaranteed, adding to comments from President Barack Obama who this week said the unemployment rate “could even get a little bit worse, over the next couple of months.”
Britain and the U.S. are proposing similar measures to get national governments to steer economic policy so that future imbalances can be unwound before they damage the system.
“By meeting at Pittsburgh, we are looking at how we can put in place for the future the mechanism or path that can lead us to either making decisions about better ways of creating growth that is sustainable in the future, a better early warning system for the world economy about potential crises, a better way of resolving difficulties or imbalances around the world,” Brown said.
He suggested that China, India and South Korea, which have had surpluses in recent years, favor his measures as much as the U.S., which joined Britain in maintaining deficits.
“I have been talking to many countries in Asia as well as in Europe, and I have been talking to President Obama and others, and I believe that there is support for that framework,” Brown said.
The G-20 accounts for about 85 percent of the world economy. The Pittsburgh talks will the third summit of its leaders in the past year.
Its members are Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, South Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the U.S., the U.K. and the European Union.
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