“There are now about 2 million excess U.S. housing units, over and above normal working inventories for new and existing homes. Some are listed for sale but many aren’t, including foreclosed houses and vacant properties that owners are keeping off the market until prices rise.
At current rates of housing starts and household formation, it will take about four years to work off this excess inventory.
That’s plenty of time for those surplus houses to push prices down an additional 20 percent.
Also, the $25 billion settlement between mortgage servicers and state attorneys general and the federal government may have cleared the way for mass foreclosures and price-depressing sales.
Foreclosures, stringent lending standards and high unemployment lowered the homeownership rate to 66 percent in the fourth quarter of 2011, from its 69.2 percent peak in the fourth quarter of 2004. It may be on its way to 64 percent, or maybe even lower.
I estimate that these conditions will create 3.9 million new renters by 2016.
Most will probably be in apartments, but some may rent single-family houses if the problems of maintaining them can be solved to the satisfaction of financial institutions and other large-scale owners.”
Property developers are salivating as a home ownership wave is coming as the “thirty something” members of Generation X demand the American Dream.
These children of the baby boomers, born in the 1980s and 1990s, form a generation even larger than that of their parents. And they are quickly entering their peak marriage and family formation years.
The settling down of the largest generation to date will create unprecedented demand for starter homes and rentals. Meanwhile, new supply has all but disappeared in the wake of the bust. New home construction hit its lowest levels on record last year, breaking the record lows of the year before and the year before.
It may seem absurd to talk about it, given the foreclosure backlog that still plagues the market, but in a few short years we may actually have a housing shortage, at least in the cities attracting these new families.”
The State of Metropolitan America report portrays the demographic and social trends shaping the nation’s large metropolitan areas and discusses what they imply for public policies to secure prosperity. Alan Berube presents an overview of that report.
Video Source: The Demographic Transformation of the U.S.
Cramer and Welch Predict Light in the Tunnel, Finally!
Is the worst real estate crisis nearly over asks this observer? With mortgage resets nearly over and the talking heads linning up perhaps the boom is just around the corner.
The U.S. housing market has shown strong signs of bottoming and could soon turn around, “Mad Money” host Jim Cramer says, at least if recent housing data and bullish comments from prominent businessmen are any indicator.
Jack Welch, meanwhile, has joined the group of notable businessmen who think the housing market is looking up. Earlier this month, the former General Electric chairman said a combination of low prices and record-low interest rates have helped the battered real estate market hit bottom and get ready to rebound, perhaps even stronger than many economists expect. ”Housing has pretty well bottomed and rental prices are going up. Vacancies are almost nonexistent,” Welch said. “So you’ve got a lot of forces driving toward the housing market. Prices are down, interest rates are down, the affordability index is good. … We think it could be a blowout. Housing could be really good based on all the dynamics that are out there.” By Drew Sandholm, Posted 20 January 2012
Bernanke, Ben S. (1953–)
Election: 2001, Fellow
Members of the American Academy of Arts & Sciences: 1780–2011
Affiliation at election: Princeton University
Residence at election: Princeton, NJ
Career description: Economist; Educator
Current Affiliations: United States Federal Reserve
On September 16, 2008, AIG suffered a liquidity crisis following the downgrade of its credit rating. Industry practice permits firms with the highest credit ratings to enter swaps without depositing collateral with their trading counter-parties. When its credit rating was downgraded, the company was required to post additional collateral with its trading counter-parties, and this led to an AIG liquidity crisis. AIG’s London unit sold credit protection in the form of credit default swaps (CDSs) on collateralized debt obligations (CDOs) that had by that time declined in value.
The United States Federal Reserve Bank announced the creation of a secured credit facility of up to US$85 billion, to prevent the company’s collapse by enabling AIG to meet its obligations to deliver additional collateral to its credit default swap trading partners. The credit facility provided a structure to loan as much as US$85 billion, secured by the stock in AIG-owned subsidiaries, in exchange for warrants for a 79.9% equity stake, and the right to suspend dividends to previously issued common and preferred stock.
AIG announced the same day that its board accepted the terms of the Federal Reserve Bank’s rescue package and secured credit facility. This was the largest government bailout of a private company in U.S. history, though smaller than the bailout of Fannie Mae and Freddie Mac a week earlier. AIG’s share prices had fallen over 95% to just $1.25 by September 16, 2008, from a 52-week high of $70.13. The company reported over $13.2 billion in losses in the first six months of the year.
The AIG Financial Products division headed by Joseph Cassano, in London, had entered into credit default swaps to insure $441 billion worth of securities originally rated AAA. Of those securities, $57.8 billion were structured debt securities backed by subprime loans. CNN named Cassano as one of the “Ten Most Wanted: Culprits” of the 2008 financial collapse in the United States.
As Lehman Brothers (the largest bankruptcy in U.S. history at that time) suffered a catastrophic decline in share price, investors began comparing the types of securities held by AIG and Lehman, and found that AIG had valued its Alt-A and sub-prime mortgage-backed securities at 1.7 to 2 times the values used by Lehman which weakened investors’ confidence in AIG.
On September 14, 2008, AIG announced it was considering selling its aircraft leasing division, International Lease Finance Corporation, to raise cash. The Federal Reserve hired Morgan Stanley to determine if there are systemic risks to a financial failure of AIG, and asked private entities to supply short-term bridge loans to the company. In the meantime, New York regulators allowed AIG to borrow $20 billion from its subsidiaries.
At the stock market’s opening on September 16, 2008, AIG’s stock dropped 60 percent. The Federal Reserve continued to meet that day with major Wall Street investment firms, hoping to broker a deal for a non-governmental $75 billion line of credit to the company. Rating agencies Moody’s and Standard and Poor downgraded AIG’s credit ratings on concerns over likely continuing losses on mortgage-backed securities. The credit rating downgrade forced the company to deliver collateral of over $10 billion to certain creditors and CDS counter-parties. The New York Times later reported that talks on Wall Street had broken down and AIG may file for bankruptcy protection on Wednesday, September 17.
Just before the bailout by the US Federal Reserve, AIG former CEO Maurice (Hank) Greenberg sent an impassioned letter to AIG CEO Robert B. Willumstad offering his assistance in any way possible, ccing the Board of Directors. His offer was rebuffed.”
Watch “To Big to Fail” HBO… The key issue was the sales of unregulated uncollateralized insurance sold by AIG and Hartford, and the other big insurance firms. This is the key to the 2008 and 2011 downturns… When real estate was placed in equity portfolios and then the values crashed 35% t0 60% the policies had to pay out and so AIG who sold the lion share could not pay, the dominos nearly fell across the globe… I’ll bet you that Putin called George in the White House and said if you let AIG go BK then he would find Washington gone in the morning. So then they backed up AIG to stop the fall.
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