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Foreclosure notices were sent to 243,353 homes in April according to RealtyTrac. The monthly total will rise as mortgage rate resets peak this summer and overburdened court clerks catch up with their backlog of requested foreclosure notices. But the impact on housing starts will be minimal because virtually all of these homes were already listed for sales and lenders have already reserved funds to cover their share of foreclosure expenses and capital losses.
Economic reports since the initial estimate of 1st Q GDP have been unexpectedly favorable, suggesting that the economy may now avoid a quarterly drop in GDP this year. This results from underestimate of March data by the Bureau of Economic Analysis for construction spending, manufacturing inventory and wholesale inventory as well as revised January and February data for these three items.
The economy is in a recession now in spite of the 0.6% GDP growth in the first quarter and the unexpectedly small 20,000 job loss in April. Ultimately recessions are defined with monthly data. The period from December 2007 to early summer 2008 is likely to be designated a recession.
The first phase of cleaning up the mortgage mess is now largely behind us. Most banks and other lenders have marked down the value of their mortgage related assets and have found new capital to replace their losses. Phase two is now underway. We will find out whether the expected default losses are smaller, the same as or bigger than the sum of lender write downs.
The frustration with mortgage, housing and energy problems has given congress just what it needs as your representatives prepare for a long campaign break. It is a piece of legislation that few members will dare vote against. Who would vote against a bill titled “Foreclosure Prevention Act”. So it is an opportunity for members to stuff the legislation with goodies for their districts and, of course, their contributors.
The three market changes that are necessary for the housing collapse to end and a susrtainable recovery to begin are now happening quickly. Banks and other lenders are now substantially re-capitalized, the surplus inventory of homes for sales is being sharply reduced and home prices are falling rapidly in the most depressed housing markets. Each of these three processes is sufficiently complete for housing starts to stabilize or at least only decline marginally in the next few months.
Today brought reports that new home sales fell (or did they?), that durable goods manufacturers can not cut production fast enough to keep already too high inventories from rising, that refinancing mortgage applications soared, that oil refineries cut production because they are losing money selling gasoline and that “housing activists”, protesting in the Bear Stearns lobby, and their media supporters still expect to be rescued from the consequences of their predatory borrowing.
February existing home sales are up 2.4% from December and February housing starts are 6.5% above December although both housing permits and new home sales are still declining early in 2008.
After restoring liquidity at commercial banks with massive cash injections to keep credit flowing to business, the FRB cleaned up the inventory at investment banks and will now turn to getting hedge funds to write down their bad assets.
The energy department just reported that diesel fuel pump prices soared to $3.82 /gal. last week . This is $0.16 more than a week earlier and also is more than double the price rise for gasoline. But this spike in diesel prices is not due to cold winter and accompanying extra demand for heating oil as has happened many times in the past. This time the villains are foreign car buyers and domestic environmentalists.
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