Part 1: A look at housing and still-troubled mortgage industry
Analysts differ on potential for sustained housing increases
Update: Last time, we discussed the Consumer Financial Protection Bureau, which on Thursday exits startup status and becomes a live, functioning agency--but not under Elizabeth Warren. Instead, Obama nominated Richard Cordray, a former Ohio Attorney General whom Warren had hired as CFPB's director of enforcement. Almost immediately after the announcement, the rumor mill cranked up with reports that not getting the directorship frees up Warren to make a run at Scott Brown's Senate seat, held for years by Teddy Kennedy. A July 19 Washington Post story says Warren has not ruled out becoming a candidate and that "Progressive groups have launched a Draft Elizabeth Warren for Senate campaign on Monday that garnered 14,000 signatures within its first five hours and raised more than $19,000."
Today we'll start a two-part look at housing, leading into some stories that echo Warren's admonition to Congress that the ongoing probe by the Attorneys General of the mortgage scandal may not have delved far into possibly criminal activities.
Housing starts jump nearly 15 per cent
A July 19 Marketwatch piece is headlined "June housing starts up 14.6% to 629,000." That sounds good, right? New housing available, people working, money changing hands--what's bad about that?
U.S. home builders sharply increased construction in June, according to estimates released Tuesday by the Commerce Department.
Housing starts rose 14.6% to a seasonally adjusted annual rate of 629,000, the highest level since January, the data showed.
Details underlying the June figures were also strong. There was a large increase in starts of multifamily units and a smaller gain in starts of single-family homes, the department reported.
Economists debated how seriously to take the increase.
We are pleased but slightly baffled by this report, said Ian Shepherdson, chief U.S. economist at High Frequency Economics.
Some welcomed the report as unabashed good news.
One analyst said he believes the upturn reveals the long-sought bottom of the home construction market. If true, it's only up from here.
Existing inventory a threat to new housing starts
Others aren't so sure. For example, Diana Olick at CNBC's "Realty Check" says, "I knew the moment I saw the number that there would be those arguing that any gain in new home construction is a negative because of the already bloated inventory of new, existing and foreclosed properties on the market.
"Miller Tabak's Peter Boockvar provided that: 'Bottom line, I repeat again that we don't need an increase in single family housing starts with a 9.3 month inventory to sales ratio of existing homes, but hopefully the pace of permits will prove the June jump as being an outlier (admittedly, the pace is still extremely depressed). Multi-family is where the housing construction benefits are being seen, and that will be the case for years to come.' "
Olick invokes home builders' sentiment index
Olick also discusses single-family starts and the rebound there following a spring full of construction-hindering bad weather. Nevertheless, she concludes: "Housing starts are so historically depressed right now that even a 15 percent jump doesn't signal the 'all good' to me, at least not when we all know that there is a huge inventory of distressed properties that haven't even hit the market yet. Just ask the builders themselves they know the number 15 pretty well that's where they currently register on the National Association of Home Builders sentiment index, 15. 50 is the line between positive and negative."
Housing crash reverberates through Western states
Meanwhile an AP account at Huffington Post says the Western states hardest hit and still lagging in the recovery from the Great Recession are those states that were most beat up by the housing crash.
"Depressed home prices and high rates of foreclosures have limited job growth in Arizona, California and Nevada. Meanwhile, a delayed housing bust and cuts in state government and construction jobs have led to rising unemployment in Idaho, Montana and Utah since the recession ended."
The report says some Midwest states have experienced less stress due to a modest rebound in manufacturing, but May was a stressful month because of supply chain disruptions caused by the emergencies in Japan.
"The AP's Stress index calculates a score from 1 to 100 based on unemployment, foreclosure and bankruptcy rates. A higher score signifies more economic stress. Under a rough rule of thumb, a county is considered stressed when its score exceeds 11. By that standard, about a quarter of the nation's 3,141 counties were stressed in May, roughly the same as in April."
Bank of America records largest quarterly loss ever
Its exposure to risky home lending has caused Bank of America to post a record loss. According to Bloomberg Businessweek, "Bank of America Corp. posted the biggest quarterly loss in the lenders history after Chief Executive Officer Brian T. Moynihan booked more costs tied to defective mortgages and revenue continued to slide.
"The second-quarter loss of $8.83 billion, or 90 cents a share, compared with profit of $3.12 billion, or 27 cents, a year earlier, the lender said today in a statement. Ed Najarian, head of bank research at International Strategy & Investment Group, called revenue fundamentally weak and Paul Miller at FBR Capital Markets said doubts about earnings power may prompt analysts to lower their ratings."
Little room for doubt exists that its troubled mortgage business is weighing on the huge bank, even excluding whatever results from the ongoing negotiations with the states' Attorney Generals. Moynihan has said the non-mortgage operations are making money.
But, says the BBW story, "Bank of America told investors June 29 it would book more than $20 billion in second-quarter charges from faulty mortgages. The sum includes funds to settle claims from institutional investors that the Countrywide unit used false or missing information to create home loans that later defaulted. Regulators criticized Countrywides lax underwriting, which left the firm near bankruptcy before Bank of America bought it for $2.5 billion in July 2008."
Where all this leading is anybody's guess. If you're hoping for an economic recovery in order to forestall a contemplated bankruptcy filing, maybe it's time to schedule an appointment with an attorney to talk over your options.
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