KeNo's Housing and Economic Portal: Monday July 13 Housing and Economic stories

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TOP STORIES:

States brace for shutdowns - (www.latimes.com) Time is running out for the legislatures in Arizona, California, Indiana, Mississippi and Pennsylvania to solve budget gaps. The last time Indiana missed its deadline for passing a budget and had to shut down the government was during the Civil War. But on Monday, as lawmakers raced to hammer out an agreement over school funding, state agencies began preparing 31,000 workers to be temporarily out of a job. Republican Gov. Mitch Daniels has warned residents that most of the state's services -- including its parks, the Bureau of Motor Vehicles and state-regulated casinos -- would be shuttered unless a budget is passed today. Indiana is one of five states -- along with Arizona, California, Mississippi and Pennsylvania -- bracing for possible shutdowns this week as time runs out for lawmakers to close billion-dollar gaps in their fiscal 2010 budgets. Of the 46 states whose fiscal year ends today, 32 did not have budgets passed and approved by their governors as of Monday afternoon, according to the National Conference of State Legislatures. Although the majority of those are expected to pass eleventh-hour budgets, the fiscal futures of a handful remain uncertain, said Todd Haggerty, an NCSL research analyst. "It's a lot of states that are coming down to the wire," Haggerty said. "It's far more than we've seen in the past, and it's because of the state of the economy." Since 2002, only five states have been forced to shut down their governments. Some of the closures were brief: In 2007, Michigan's doors were closed for four hours before lawmakers passed emergency measures that bought them time to close a $1.75-billion deficit. "What's different now is that the recession has eroded tax revenues across the country," Haggerty said. Collectively, he said, states are wrestling with budget deficits totaling $121 billion. In California, state finance officials will begin issuing IOUs on Thursday if lawmakers and the governor cannot agree on a way to close a $24-billion shortfall. The IOUs would go to local governments, vendors, taxpayers and college students receiving state financial aid. California has issued such IOUs only one other time -- in 1992 -- since the Great Depression. In Arizona, which has never missed its constitutional budget deadline, officials are battling over how to resolve a $3-billion gap. Republican lawmakers and the state's GOP governor, Jan Brewer, fought for months over her proposal for a temporary sales tax hike to preserve some government services. In a compromise unveiled Friday, legislators agreed to ask voters to approve the tax in November. But when a key committee was unable to muster a majority Monday for the compromise bill, lawmakers began drafting resolutions that would let the government function for at least a week.

House Sales Didn't Soar in San Diego: Realtor Data Had "Errors" - (online.wsj.com) The California Association of Realtors expects to make sharp downward revisions in its recent monthly reports of soaring home sales in the San Diego area, Robert Kleinhenz, deputy chief economist of the trade group, said in an interview. Those revisions will mean modest downward revisions in statewide sales, he added. The revisions are likely to be announced in late July, when the Realtor group reports home sales for June. The problem resulted from a glitch in data from a multiple-listing service in San Diego, Mr. Kleinhenz said. He said a change in computer systems used there resulted in incorrect data being sent to the Realtor association over the past year or so. Thomas Lawler, an independent economist in Leesburg, Va., who tracks home sales nationwide, raised questions about the San Diego data in a report last week. Mr. Lawler noted that the numbers reported by the Realtors vastly exceeded those from MDA DataQuick, a research firm in La Jolla, Calif., and other sources. The California Realtors have reported that San Diego sales in April were up about 63% from a year earlier. Mr. Kleinhenz said that is expected to be revised downward to a gain of about 20%. For May, the group reported an 89% increase in sales in San Diego; that will be slashed to about 6.5%, the economist said. As a result, he said, the state-wide sales gain for May -- reported last week as 35% -- also will be revised down, though it probably will remain above 30%, Mr. Kleinhenz said.

Corporate Bonds Show Lehman Doesn’t Matter With 9.2% Return - (www.bloomberg.com) Nowhere is the recovery in financial markets more evident than in corporate bonds, where Lehman Brothers Holdings Inc.’s bankruptcy is becoming a distant memory. U.S. investment-grade company debt returned 9.2 percent in the first half of the year, outperforming Treasuries by 13.7 percentage points, the most on record, according to Merrill Lynch & Co. index data. Corporate bonds also did better than the Standard & Poor’s 500 Index of stocks, marking the first time since 2002 that the fixed-income securities outshined both Treasuries and equities. Yields on investment-grade company securities fell to within 3.31 percentage points of Treasuries yesterday, the least since Sept. 10, according to Merrill’s U.S. Corporate Master Index. Spreads widened to a record 6.56 percentage points on Dec. 5, and the securities lost 6.8 percent in 2008, the worst year on record, as the shock to financial markets from Lehman’s collapse Sept. 15 froze credit markets and sparked a run on Treasuries that caused bill rates to fall below zero. “Spreads on corporate debt were so out of whack coming into the year, implying default rates that indicated more than 20 percent of all speculative-grade companies would go bankrupt,” said Kevin Sherlock, co-head of loan and high-yield capital markets at Deutsche Bank in New York. “The risk appetite is far more aggressive now than it was three months ago. It’s about where we were last summer at pre-Lehman levels.” The biggest returns came in the riskiest securities. High- yield, high-risk bonds gained 29 percent, or 34 percentage points more than Treasuries, Merrill Lynch indexes show. While credit spreads are narrowing, defaults continue to rise. The U.S. speculative-grade default rate jumped to 8.1 percent in May, the highest since October 2002, and may reach 14.3 percent by the first quarter of 2010, according to S&P. “The easy money has been made,” said Richard Lee, a managing director in the fixed-income trading department of closely held broker-dealer Wall Street Access in New York. “You could have bought any corporate credit in January and February and made out like a bandit.” Other measures of credit also show improvement. The difference between what banks and the U.S. government pay to borrow for three months, the TED spread, has shrunk to 41 basis points, the lowest since July 2007 and down from 464 basis points in October. A basis point is 0.01 percentage point. The Libor-OIS spread, an indicator for banks’ willingness to lend, ended yesterday at 0.38 percentage point. That’s approaching the 0.25 percentage point that former Fed Chairman Alan Greenspan has said would indicate that markets were back to “normal.”

Well so much for that grand idea - (www.richudell.com) Good video clip. Sad. Deeply sorrowful. Not sure where to turn to now. I just got the wonderful news from Marlo at Bank of America that if I ask for Deed in Lieu of Foreclosure that they will 1099 me for the difference between appraised value and the incredibly stupid price at which I purchased the home. If I short sale the home same situation takes place. If I continue to pay, then I’m paying more for my cash then anyone else out there. Here she comes off threatening my credit.

Delinquencies Double on Least-Risky Loans, US Says - (www.bloomberg.com) Delinquency rates on the least-risky mortgages more than doubled in the first quarter from a year earlier as U.S. efforts to help homeowners failed to keep pace with job losses that pushed more borrowers toward foreclosure. Prime mortgages 60 days or more past due climbed to 2.9 percent of such loans through March 31 from 1.1 percent at the same point in 2008, the Office of the Comptroller of the Currency and the Office of Thrift Supervision said today in a report. First-time foreclosure filings on the loans rose 22 percent from the fourth quarter, the report said. “I’m very concerned about the rise in delinquent mortgages and foreclosure actions,” Comptroller of the Currency John Dugan said in a statement with the report. President Barack Obama’s plan to create “sustainable, payment-reducing modifications is a positive step that should show significant benefits in the coming months,” Dugan said. Obama’s program, unveiled Feb. 18, aims to help as many as 4 million homeowners by modifying loans and calls for Fannie Mae and Freddie Mac to refinance mortgages for as many as 5 million borrowers who owe more than their houses are worth. Foreclosure filings surpassed 300,000 for a third straight month in May, according to RealtyTrac Inc., and the U.S. economy has shed about 6 million jobs since the recession began in 2007. “Job losses have mounted and even those with good credit that were able to get a prime mortgage are having a harder time making monthly payments with a loss of income,” said Celia Chen, an economist at Moody’s Economy.com in West Chester, Pennsylvania. Serious Delinquencies: Serious delinquencies on prime loans, which account for two-thirds of all U.S. mortgages, rose to 661,914 in the first quarter from 250,986 a year earlier, according to the report. Overall, mortgages 60 days or more past due rose 88 percent from last year, the report said. Mortgages modified to help struggling borrowers stay in their homes fail within nine months more than half the time, the report said. About 53 percent of mortgages modified in the first quarter of 2008 were 30 or more days delinquent after six months; 63 percent were in default after a year. As lines of credit deteriorate, home prices are moderating. The S&P/Case-Shiller home-price index for 20 major U.S. metropolitan areas fell 18 percent in April from a year earlier, the smallest decline in six months.

Corn Futures Down Lock Limit, Soybeans and Wheat Drop On Crop Reports - (Mish at globaleconomicanalysis.blogspot.com) As U.S. Farmers Boost Acreage, Corn, Soybeans, Wheat Plummet. Corn plunged by the Chicago Board of Trade’s limit after a government report showed U.S. farmers planted more acreage with the grain than estimated in March. Wheat and soybeans also tumbled on signs of increasing supplies. Corn futures for December delivery dropped by the maximum of 30 cents, or 7.6 percent, to $3.6725 a bushel at 11:02 a.m. on the CBOT. The price headed for the fourth straight quarterly slide. The U.S. corn report showed “an awfully big acreage number and suggests inventories will be more comfortable,” said Tim Emslie, a research manager at Country Hedging Inc. in Inner Grove Heights, Minnesota. The U.S. is the world’s largest exporter of corn, soybeans and wheat. Corn is the nation’s biggest crop, valued at $47.4 billion in 2008, followed by soybeans, hay and wheat, government figures show. Soybean futures for November delivery fell 22 cents, or 2.2 percent, to $9.615 a bushel. Earlier, the price touched $9.435, the lowest since April 1. U.S. farmers will sow a record 77.483 million acres with the oilseed, up 2.3 percent from 75.718 million last year, the USDA said. In March, the agency said farmers intended to plant 76.024 million acres. Wheat futures for July delivery tumbled 18.25 cents, or 3.5 percent, to $5.0975 a bushel. The price earlier touched $4.9575, the lowest since Dec. 12. About 13.77 million acres were seeded with spring wheat, the USDA said. That topped the 13 million projected by analysts surveyed by Bloomberg News last week. Total inventories on June 1 were 667 million bushels, doubling from a year earlier. Cattle and hog futures rallied today as the crop reports signaled lower costs for livestock feed. “This is a great day for the cattle and hog producer and the dairyman,” Basse said. “Corn, soybeans and wheat all made their seasonal highs earlier this month. Given favorable weather for the remainder of the growing season, we should have a breathable cushion of inventories.”

Paying college tuition with credit card gets costlier - (www.usatoday.com) Across the nation, a growing number of universities are making it harder — and costlier — for students to use credit cards. Starting Wednesday, students at the University of Southern Maine who pay tuition using plastic will face a 2.75% processing fee. Other schools that have adopted, or are adopting, similar policies include George Mason University, Northwestern University, Wichita State and the University of Virginia. The movement comes as colleges face budget shortfalls and look to trim costs wherever they can. When students use a credit card, institutions have to pay an average of 2% to process the transaction, according to Nilson Report, a payment systems newsletter. Traditionally, colleges have borne these costs themselves. But they're increasingly rethinking these policies — and passing costs along to students — amid the difficult economy. In 2007, 26% of colleges charged a credit card payment fee, either directly or through a third party, up from 14% in 2003, according to surveys conducted by the National Association of College and University Business Officers. Other industries, such as retailers and airlines, are also grappling with the impact of credit card processing fees. At George Mason University, controller Elizabeth Brock says that 50% of students typically pay their tuition via credit card. Brock believes the 2.75% fee levied on credit card transactions will cause many students to switch to other forms of payment. "A high percentage of our students and parents who used a credit card (did so) because there was no incentive not to," says Brock, who estimates the school will save $1.5 million a year from its new policy. Students can still pay their tuition by credit card — through TouchNet, a third-party provider — she adds, but, "It's not going to be cheap." TouchNet accepts MasterCard, American Express and Discover, but not Visa, President Dan Toughey says, because of Visa rules that prevent it from passing the credit card processing fee on to consumers. Visa spokeswoman Randa Ghnaim says it doesn't allow merchants to charge consumers processing fees because they're "unfair." George Mason senior Steven Smith, 21, agrees. "A lot of students think it's outrageous," says Smith, a member of the student government.

OTHER STORIES:

House prices post 18.1 percent annual drop in April - (www.finance.yahoo.com)

Case Shiller April Shows Slight Moderation In Rate Of Decline - (www.businessinsider.com)

Next Segment of Housing Market to Crash: $1 Million McMansions - (www.finance.yahoo.com)

Loan Delinquencies Double on Prime Loans - (Mish at globaleconomicanalysis.blogspot.com)

Consumer Confidence in U.S. Slipped in June - (www.bloomberg.com)

No recovery for US property markets until 2017 - (www.reuters.com)

How maths killed Lehman Brothers - (plus.maths.org)

Can a Market Crash Save Us from Hyperinflation? - (www.seekingalpha.com)

20 Million Vacant Houses and Squattertown, USA - (Charles Hugh Smith at www.oftwominds.com)

California Misses Deadline to Avoid the Need for IOUs - (www.bloomberg.com)

Congress Gets Plan for Consumer Protection Agency - (www.nytimes.com)