KeNo's Housing and Economic Portal: Tuesday June 14 Housing and Economic stories

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TOP STORIES:

Ally Financial bets on risky subprime car loans - (www.reuters.com) Ally Financial Inc, the United States' largest maker of car loans, hopes that people have forgotten the time when "subprime" became a synonym for "disaster." Ally, once known as GMAC Financial Services, is getting ready to go public this year, and is making the case that subprime loans for used car buyers are not about to produce the same results that they did in the housing market a few years ago -- a near-collapse of the financial system. Auto loans performed relatively well during the downturn, and demand for cars is up, so auto lending is one of the few types of consumer debt that is growing. Ally wants to show investors that this makes it different from many other banks, which are struggling with weak loan demand and their own soured mortgages. The company is making more loans to subprime borrowers, and financing more purchases of used cars, both steps with higher risk. It has said it wants to raise the percentage of auto loans on used cars that it makes to 50 percent from its current 20 percent. Subprime car lending is "a very attractive business today," Ally President William Muir told analysts on May 3. Profit margins on the loans more than cover the cost of expected losses from borrowers who fail to repay, he said. Plus, providing loans on used cars endears the company to dealers.

Cities that weathered housing bust now suffering - (finance.yahoo.com) Even cities that weathered the housing market crash with relatively little damage are suffering now. Severe price declines have spread to Dallas, Denver, Minneapolis and Cleveland, which had mostly withstood the bust in housing since 2006. The damage has now gone well beyond cities hit hardest by unemployment and foreclosures, such as Phoenix and Las Vegas. "We didn't enjoy the highs and the lows like other cities," said Kay Weeks, a Realtor with Ebby Halliday in Dallas, where prices fell nearly 1 percent in March and are expected to keep falling. "But when we get bad news nationally, people take notice and cut back on spending and buying homes." Home prices in big metro areas have sunk to their lowest since 2002, the Standard & Poor's/Case-Shiller 20-city monthly index showed Tuesday. Since the bubble burst in 2006, prices have fallen more than they did during the Great Depression. The index, which covers metro areas that include about 70 percent of U.S. households, is updated every quarter and provides a three-month average. The March data is the latest available. Foreclosures have forced prices down so much that some middle-class neighborhoods have turned into lower-income areas within months.

Consumer Confidence Slumps to 6-Month Low - (www.bloomberg.com) Consumer sentiment unexpectedly decreased in May to the lowest level in six months as Americans grew concerned over the outlook for jobs and the economy, while a measure of home prices dropped to a nine-year low. The Conference Board’s confidence index dropped to 60.8 from a revised 66 reading in April, figures from the New York- based private research group showed today. Home prices decreased 5.1 percent in the first quarter from the same time in 2010, according to data from S&P/Case-Shiller. A separate report today showed manufacturing cooled.

Consumer finances have been squeezed by rising costs of food and fuel and erosion in home equity, causing spending to slow. A drop in gasoline prices from a three-year high may bring households some relief, while a resumption of supplies disrupted by the earthquake and tsunami in Japan will benefit companies like Deere & Co. (DE), giving the economy a lift in the last six months of 2011.

Home Prices in 20 U.S. Cities Decline to Eight-Year Low, Case-Shiller Says - (www.bloomberg.com) Home prices in 20 U.S. cities dropped in March to the lowest level since 2003, showing housing remains mired in a slump almost two years into the economic recovery. The S&P/Case-Shiller index of property values in 20 cities fell 3.6 percent from March 2010, the biggest year-over-year decline since November 2009, the group said today in New York. At 138.16, the gauge was the weakest since March 2003. A backlog of foreclosures poised to reach the market means prices may stay depressed, dissuading builders from taking on new-home construction projects. Unemployment at 9 percent and stricter lending conditions are signs that any recovery in housing may take years.

The Stupidity of Hope: Greece Is Still Going to Default - (www.cnbc.com) Keeping in mind that the words “hope” and “Greece” should almost never be used in the same sentence, here would be the one exception: Let’s “hope” markets aren’t rallying on “hope” for “Greece.” Hope, apparently, does spring eternal, however, and it seems as though despite all the evidence to the contrary, there are still people out there with money to spend who believe that Greece can be rescued yet from its seemingly intractable fiscal position. How else to explain Monday’s surge in the euro and drop in the US dollar, which had been rallying on well-placed hopes that the periphery of Europe was sliding further into the debt abyss and ready to implode? Irrationality, we now can conclude, comes in many forms. The latest form is in some weakly substantiated murmurs out of Germany that the core of the core of euro zone nations might be softening its stance towards a Greek bailout and is ready to ease its demands that the nation speed up its ultimately unavoidable debt restructuring.

OTHER STORIES:

Falling Home Prices Hit Big Banks, Fannie and Freddie - (www.cnbc.com)

Goldman Denies Offering Libya a Big Equity Stake - (www.cnbc.com)

Housing Prices Worse Than Feared- (www.cnbc.com)

Double-Dip Housing Markets - (www.cnbc.com)

EU Set to Kick the 'Greek Can' a Little Further - (www.cnbc.com)

Fears Grow of a Debt-Ceiling Standoff in Congress - (www.cnbc.com)

Chicago Purchasing Managers Index Falls to 56.6 in Sign Expansion Slowing- (www.bloomberg.com)

House sets vote on debt, to focus on budget talks with White House - (www.washingtonpost.com)

Rising Rents Risk Higher U.S. Inflation as Fed’s Rate Restraint Questioned - (www.bloomberg.com)

In Showdown Over Debt, Neither Party Is Blinking - (www.nytimes.com)

Economists Downgrade Prospects for Growth - (online.wsj.com)