KeNo's Housing and Economic Portal: Friday May 27 Housing and Economic stories

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TOP STORIES:

The Fed may deny it, but Americans know prices are rising - (www.newsweek.com) “I can’t eat an iPad.” This could go down in history as the line that launched the great inflation of the 2010s. Back in March, the president of the New York Federal Reserve, William Dudley, was trying to explain to the citizens of Queens, N.Y., why they had no cause to worry about inflation. Dudley, a former chief economist at Goldman Sachs, put it this way: “Today you can buy an iPad 2 that costs the same as an iPad 1 that is twice as powerful. You have to look at the prices of all things.” Quick as a flash came a voice from the audience: “I can’t eat an iPad.” Dudley’s boss, Ben Bernanke, was more tactful in his first-ever press conference on Wednesday of last week. But he didn’t succeed in narrowing the gap between the Fed’s view of inflation and the public’s. I respect Bernanke. As an expert on the financial history of the 1930s, he was one of the very few people in power back in 2008 who grasped how close we were to another Great Depression. But if we’ve avoided rerunning the 1930s only to end up with a repeat of the 1970s, the public will judge him to have failed.

Las Vegas halfway through housing downturn? - (www.vegasinc.com) A Las Vegas research analyst said today the number of homeowners who are delinquent in their mortgage payments suggests the region is only halfway through its housing crisis. A report released today by California-based research firm CoreLogic said the 90-day delinquency rate for homeowners improved in February to 18.83, down from 19.09 percent in January and down from 21 percent in February 2010. That’s the lowest the delinquency rate has been since August 2009, but Larry Murphy, the president of SalesTraq, said the delinquency rate is still too high and doesn’t bode well for the Las Vegas housing market. Since January 2007, 86,736 homes have been foreclosed upon in Las Vegas, Murphy said. That’s one of every seven homes. Murphy said he’s concerned the high number of delinquencies could result in a similar number of foreclosures or cases where homes are sold as part of a short sale in which the owner owes more on the mortgage than the home is worth. “Another 80,000 distressed sales will undoubtedly keep downward pressure on sales prices, even those properties which are not distressed,” Murphy said in a report he issued today. “If this scenario is valid, it means we are approximately halfway through the most severe housing crisis in Nevada.”

$368/month for gas - (money.cnn.com) Round-trip airfare from New York to Los Angeles. More than a dozen dinners for two at Applebee's. Two 16 GB iPod nanos. These are just a few of the things you could have bought if you weren't spending $368.09 a month on gasoline. That's the average amount American households spent on gas in April, according to an exclusive analysis of data by the Oil Price Information Service for CNNMoney. The study, which compared average gas prices with median incomes nationwide, also showed that U.S. households spent nearly 9% of their total income on gas last month. That's more than double what the average American family spent just two years ago, when gas prices were hovering around $2.05 a gallon.

Prediction of ‘Hundreds of Billions’ in Muni Defaults - (www.bloomberg.com) I am not betting against Meredith. She is more credible than the other numskull economists and Fed Governors.

Meredith Whitney, the analyst who correctly predicted Citigroup Inc.’s 2008 dividend cut, defended her prediction of “hundreds of billions of dollars’ worth” of municipal-bond defaults. Whitney, 41, speaking today at the Milken Global Conference in Beverly Hills, California, said local governments in states such as California, Nevada, Arizona and Florida that are dependent on the housing and construction industries for higher tax revenue would continue to struggle financially. “States have been spending at two-and-a-half times their tax receipts,” she said. “The states then are cutting off aid to their local governments which rely on them for over a third of their monies. The local municipalities have nowhere to go and their bias is to save their constituents before they save their bondholders.” Whitney, who heads New York-based Meredith Whitney Advisory Group LLC, told CBS Corp. (CBS)’s “60 Minutes” on Dec. 19 that municipal-bond investors could “see 50 sizable defaults, 50 to 100 sizable defaults, more,” that “will amount to hundreds of billions of dollars’ worth of defaults.”

Strategic defaults could get very ugly - (www.marketwatch.com) I define a strategic defaulter to be any borrower who goes from never having missed a payment directly into a 90-day default. A good graph, which I will discuss shortly, illustrates my definition. Who walks away from their mortgage? When home prices were rising rapidly during the bubble years of 2003-2006, it was almost inconceivable that a homeowner would voluntarily stop making payments on the mortgage and lapse into default while having the financial means to remain current on the loan. Then something happened which changed everything. Prices in most bubble metros leveled off in early 2006 before starting to decline. With certain exceptions, home prices have been falling quite steadily since then around the country. In recent memory, this was something totally new and it has radically altered how most homeowners view their house. In those major metros where prices soared the most during the housing bubble, homeowners who have strategically defaulted share three essential assumptions: