KeNo's Housing and Economic Portal: Monday January 31 Housing and Economic stories

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U.S. Mayors Say City Bond Defaults Likely Amid Strain - (www.bloomberg.com) The mayors of Los Angeles and Chicago said the financial strains still weighing on local governments in the wake of the recession may cause cities to default on their bonds. Los Angeles Mayor Antonio Villaraigosa, a Democrat, said municipalities are being squeezed as states move to balance their own budgets, a step that can involve taking more funds that would otherwise be sent to towns and cities. “There’s no question you’ll see some cities in default,” Villaraigosa told reporters today at a press conference in Washington, where the U.S. Conference of Mayors is meeting. “The difference between us and the federal government is they can print money. The states balance their budget oftentimes on the backs of cities, counties and school districts. We actually have to balance a budget.” Speculation about local governments defaulting has weighed on the $2.9 trillion municipal market, where returns tumbled during the last quarter of 2010 by the most since 1994. Last week, yields, which move inversely to prices, hit the highest since the depths of the financial crisis in December 2008, according to the Bond Buyer 20 Index, a gauge of 20-year bonds backed by general tax revenue.

Vallejo Files Plan to End Court Control of Finances - (www.bloomberg.com) The city of Vallejo, California, proposed paying some creditors as little as 5 percent of what they are owed, making it the first general municipality that would fail to fully repay its debts in bankruptcy. General unsecured creditors would collect 5 percent to 20 percent of their claims under the plan of adjustment filed late yesterday in U.S. Bankruptcy Court in Sacramento, the state capital. No city or county has used federal bankruptcy laws to force creditors to take less than they are owed, according to Bruce Bennett, the lead lawyer for Orange County, California, when it filed the biggest municipal bankruptcy in the U.S. in 1994. Vallejo’s plan assumes the city can’t provide essential services, like police and fire protection, while also paying its debts, he said. Should the city succeed, the case “may become an important precedent,” Bennett said in an interview. The creditors, who include retirees and former employees, would be paid $6 million over two years. The plan must first be voted on by creditors before U.S. Bankruptcy Judge Michael S. McManus decides whether to approve the proposal.

Greek Bond Spread Widens; Zeit Says Germany Considers Debt Plan - (www.bloomberg.com) Greek bonds fell, pushing the extra yield investors demand to hold the securities over German bunds higher, after Die Zeit reported Germany is considering a plan that would help Greece restructure its debt. Greece would be allowed to buy back government bonds with funds from the European Financial Stability Facility made available “with favorable interest conditions,” the German newspaper said in an e-mailed release today, without saying where it obtained the information. The yield on 10-year Greek bonds jumped 32 basis points to 11.60 percent as of 10:47 a.m. in London. The spread over bunds widened 28 basis points to 8.61 percentage points.

Wells Fargo Won’t ‘Pay Up’ to Settle Mortgage Buybacks - (www.bloomberg.com) Wells Fargo & Co. won’t seek a settlement with Fannie Mae orFreddie Mac on disputed mortgages, and terms offered to rival banks may not have been as generous as some portrayed, Chief Financial Officer Howard Atkins said. “The quality of our securitizations was of a much higher caliber than all of the other large bank peers,” Atkins said today in an interview. “It doesn’t make sense for us to pay up to get rid of the remaining small amount of problems we have.” Prodded by lawmakers, Fannie Mae and Freddie Mac have pressed banks including Wells Fargo to buy back mortgages that were based on faulty data about the homes and borrowers. Wells Fargo said today in its fourth-quarter report that demands from the government-owned mortgage companies declined for a second straight quarter and now stand at $1.5 billion.

The Key Housing Story That's Going To Get Even Worse In 2011 – (www.businessinsider.com) This is a key story: there were a record low number of housing completions in 2010, breaking the record set in 2009. The total for single family, multi-family and manufactured homes (estimated) was 703 thousand units in 2010. That is about 17% below the 844 units completed in 2009 (including manufactured homes). The previous record low was 1.244 million in 1982. As Tom Lawler noted, there will be record low number of multi-family units completed in 2011 - since it takes over a year on average to complete - and probably a record low number of total units. Note: Multi-family completions will be at a record low this year, but starts will increase. This graph shows annual completions for 1 to 4 units, 5+ units and manufactured homes. In 2010, 1 to 4 unit completions were at a record low 506 thousand. This was just below the 534 thousand units completed in 2009. This is far below the previous record low of 712 thousand units in 1982. For 5+ units, completions were at 147 thousand units. This was just above the record low of 127 thousand in 1993 - and that record will be broken in 2011. This doesn't include demolitions that were probably in the 200 to 300 thousand unit range. This suggest the excess supply was reduced in 2010, and will probably be significantly reduced in 2011. Of course this also depends on household formation - and that means jobs.