Housing Market Tracker - Are We Suffering From a 'Recession Depression'?

Quotes of the Day

“Until I see evidence of a decline in spending by consumers and businesses because of credit problems, I am going to believe that this is just another symptom of recession depression.” - Edward Leamer, director of UCLA's Anderson Forecast, the state's best-known economic report. Leamer jokingly defined “recession depression” as a “psychological disorder” in which people are unjustifiably depressed about the threat of recession. (Sign on San Diego, Mar. 11th)

Macro Impact, And Will The Housing Slump Cause A Recession?

DMG Property In Foreclosure Process. Ridgecrest, California: “RealtyTrac: The lending institution for Drummond Medical Group's building has begun foreclosure proceedings… Drummond's Operational Manager Ernie Quier: Because of the budget crisis, the state has been slow to reimburse Drummond for Medi-Cal. Quier emphasized other medical groups are having trouble because of the state's budget problems and that Drummond remains one of the few groups who accept Medi-Cal in Ridgecrest… Over the last year, Drummond has contracted by about 40%, from approximately 102 employees to 60.” (Daily Independent, Mar. 11th)

Teen Columnist: For Adults, Foreclosure Is Payback Time. “Teen Columnist Emily Hu is a freshman at Catalina Foothills High School: People may blame the slow housing market as the reason many people cannot just sell their homes to pay the debt. But when you buy a house, selling it is probably not [high priority]. Once upon a time… people bought houses they could live in for a few years. So maybe this foreclosure crisis is for the better, forcing a readjustment… Instead of having the government… trying to bail out people before they become foreclosure victims, let's try reteaching our adults about taking responsibility for their own actions. Namely, taking out loans they can actually pay back.” (Tucson Citizen, Mar. 11th)

Downturn Doesn't Mirror Past, UCLA Panelists Say. “UCLA's Anderson Forecast, which previously has been ahead of the curve in forecasting the downturn of the California housing market and the resulting decline in the economy, predicted yesterday that the state and nation would not fall into a recession. “The data don't yet add up to a recession, and there is nothing to challenge the basic story of sluggishness that we have had for two years. Don't worry, be happy,” said Edward Leamer, director of the forecast, the state's best-known economic report. [The report] says the economy does not match the models of previous recessions, when huge factory layoffs led to downturns… [So] the state and nation probably will dodge a recession.” (Sign on San Diego, Mar. 11th)

St. Louis Fed Chief Sees 'A Mild Recession'. “Federal Reserve Bank of St. Louis President William Poole: The latest news suggests the U.S. economy is "tilting a bit below zero," but the downturn does not appear to be severe… “The real economy as I look at the data today does not appear to be in a dramatic decline. It's more softness that may involve a minor contraction. That may change. The big uncertainty is how the problems in many financial firms, in many financial markets, will impact the real economy. … The conventional forecast is that the economy will end up experiencing a mild recession… My guess is that most of these (financial) firms will survive, and those that fail will get sorted out and that the impact on the real economy will be relatively modest.” (USA Today, Mar. 11th)

Bonds Explode As Loans Implode. “Palm Beach county plans to issue $180 million in bonds to expand the jail and more than $35M to build a parking garage at the county convention center. The credit crunch probably will add a half percentage point to the interest rate the county must pay bondholders, translating to an additional $1M a year in interest costs for taxpayers.” (Palm Beach Post, Mar. 11th)

John Galt Plan Might Save U.S. Financial System: Caroline Baum. "Today's economic and financial crisis would resolve itself more quickly and efficiently if the government got out of the way. Yes, there would be pain. Some banks would fail. Others would clamp down on credit to atone for the years of lax lending standards. Homeowners-in-name-only would become renters. Housing prices would fall until speculators found value. That's not going to happen. The bigger the mess, the more urgent the calls for a government solution, the more willing government is to oblige. We want laissez-faire capitalism in good times and a government backstop against losses in bad times. It's a tough way to run an economy." (Bloomberg, Mar. 10th)

Flow of Funds Report: Maybe Bernanke Is Onto Something. “Friday's Flow of Funds report from the Federal Reserve provides evidence that Ben Bernanke might be onto something with his idea to save the economy by having banks slash the principal owed by homeowners who are losing their home equity. Things seem to work best in the U.S. when household assets rise faster than household liabilities - this is the very foundation of our consumption-based economy and life as we know it - so, if you can't keep asset prices rising (which seems pretty obvious now) maybe cutting liabilities at an even faster pace would be the next best thing.” (Tim Iacono in Seeking Alpha, Mar. 9th)

Federal Reserve: Household Equity at All Time Lows. “The Fed: Q4 Homeowners equity as a percentage of household real estate at 47.9%, the lowest on record. Going back 20+ years, this number was as high as 68.2% in 1986… For the first time ever, banks/lenders own more of the houses in America than the folks who live there do… If the recent downward price acceleration gets any worse, we are going to see an even lower number. Moody's Economy.com estimates that 8.8 million homeowners -- about 10.3% percent of all U.S. homes -- will have zero or negative equity by the end of this month. Another 10-15 million households are at risk of becoming "upside down" if prices continue falling.” (Barry Ritholtz in Seeking Alpha, Mar. 7th)

Get Seeking Alpha's housing market coverage by email -- it's free and takes only seconds to sign up.

Comments

[res ipsa lo...:]

They are about to break they winning streak, embarrassingly so.

"[The report] says the economy does not match the models of previous recessions, when huge factory layoffs led to downturns… [So] the state and nation probably will dodge a recession."

Einstein's theory didn't match previous models, so it has to be wrong eh? What logic. Of course it doesn't match your model. This time is different: there was no time since WW2 that Americans mortgage debt was greater than their equity so you model doesn't account for that factor. Home equity loans are a recent phenomenon. Consumer demand can drop for reasons other than unemployment. With real wages stagnant for a decade, Americans coped in three ways so they could keep spending: 1) two income households, 2) working longer hours, and 3) debt. The first two are at the limit so number 3 has been the spender's choice the last few years. With the housing bubble bursting, that last one has run its course as well and consumers have no more spending support. So consumer demand, 70% or so of GDP, is drying up and lack of demand will cause...you guessed it...a recession.

2008 Mar 11 05:43 PM

[stocon:]

Were there CDOs in the previous downturns?

2008 Mar 11 10:59 PM