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VIDEOGet Ready for a Double Dip in Housing
By
Richard Suttmeier
Mar 01, 2010 9:00 am
Speculation in copper and lumber futures is causing problems for homebuilders and the US economy.
Editor's Note: This article was written by Richard Suttmeier, chief market strategist at ValuEngine.com, which is a fundamentally-based quant research firm in Princeton, New Jersey, that covers more than 5,000 stocks every day.
The Housing Slump Renews -- Sales of new homes plunged 11.2% in January to a record low 309,000 units on an annualized basis. Sales of existing homes fell 7.2% to a seasonally adjusted annual rate of 5.05 million units, the weakest reading since June 2009.
I think that prospective buyers who had hoped to take advantage of the first-time $8,000 tax credit, and move-up buyers seeking the $6,500 tax credit are concerned that they can't get to contract by the end of April if they're applying for a mortgage now. Even if they do, they have to close by the end of June. If not, they may lose their down payment and don't get the tax credit? If it all goes well, it still takes six months to get the tax check from the IRS.
Commodity Speculation Is Hurting the Homebuilders -- Because Bernanke insists on keeping the federal funds rate at zero percent, speculation in copper and lumber futures is causing problems for homebuilders and hence the US economy. How can a builder compete with cheaper depressed short sales and foreclosures in existing homes with higher costs of building materials?
Source: Thomson / Reuters
Since the end of 2008 to the high in January 2010 copper prices are up 182%. Since January 2009 and February 2010 lumber lutures are up 112%.
Source: Thomson / Reuters
Bernanke says there are no signs of inflation, so he continues to ignore reality, and that zero-rate policy could actually cause the double dip, or worse.
Fannie Mae Takes a Hit -- Fannie Mae (FNM) will get another $15.3 billion of taxpayer money bringing its total bailout to $75 billion. The total for Fannie and Freddie Mac (FRE) is now $126 billion, and the total line to the US Treasury is now up to $415.3 billion and counting through 2012.
FDIC Troubling Statistics -- The FDIC Quarterly Banking Profile suggests that "The Great Credit Crunch" that began with the peak in the housing stocks in mid-2005 will continue right through the new decade. Community banks peaked in December 2006 and the regional banks peaked in February 2007. Stress continues to build in the banking system as the number of bank failures rise.
The Housing Slump Renews -- Sales of new homes plunged 11.2% in January to a record low 309,000 units on an annualized basis. Sales of existing homes fell 7.2% to a seasonally adjusted annual rate of 5.05 million units, the weakest reading since June 2009.
I think that prospective buyers who had hoped to take advantage of the first-time $8,000 tax credit, and move-up buyers seeking the $6,500 tax credit are concerned that they can't get to contract by the end of April if they're applying for a mortgage now. Even if they do, they have to close by the end of June. If not, they may lose their down payment and don't get the tax credit? If it all goes well, it still takes six months to get the tax check from the IRS.
Commodity Speculation Is Hurting the Homebuilders -- Because Bernanke insists on keeping the federal funds rate at zero percent, speculation in copper and lumber futures is causing problems for homebuilders and hence the US economy. How can a builder compete with cheaper depressed short sales and foreclosures in existing homes with higher costs of building materials?
Source: Thomson / Reuters
Since the end of 2008 to the high in January 2010 copper prices are up 182%. Since January 2009 and February 2010 lumber lutures are up 112%.
Source: Thomson / Reuters
Bernanke says there are no signs of inflation, so he continues to ignore reality, and that zero-rate policy could actually cause the double dip, or worse.
Fannie Mae Takes a Hit -- Fannie Mae (FNM) will get another $15.3 billion of taxpayer money bringing its total bailout to $75 billion. The total for Fannie and Freddie Mac (FRE) is now $126 billion, and the total line to the US Treasury is now up to $415.3 billion and counting through 2012.
FDIC Troubling Statistics -- The FDIC Quarterly Banking Profile suggests that "The Great Credit Crunch" that began with the peak in the housing stocks in mid-2005 will continue right through the new decade. Community banks peaked in December 2006 and the regional banks peaked in February 2007. Stress continues to build in the banking system as the number of bank failures rise.
- The number of banks on the FDIC List of Problem Banks is up 824% since the end of 2007 to 702.
- The assets among the problem banks is up 171%, to $402.8 billion
- The warnings began when quarterly net income in the banking system crashed in the fourth quarter of 2007, which was the final warning that recession loomed.
- Nonfarm, non-residential real estate loans have not yet begun to deteriorate as there appears to be a balance for loans of owner-occupied properties collateralized by business revenue (sales of goods and services) and business expenses (payroll, supplies, and debt services). This is a fragile balance and a reason for the lack of job creation.
- If you assume derivatives were a cause of "The Great Credit Crunch" consider this: Since the end of 2007 the notional amount of derivative contracts produced by our nation's banks is up $48.8 trillion, up 29.6% to $213.6 trillion. I thought we were supposed to reduce derivative exposures.
Bank Failure Friday
The FDIC closed two community banks on Friday with one publicly traded Rainier Pacific Bank (RPFG), which is on the ValuEngine List of Problem Banks.
The 22 bank failures so far in 2010 have cost the Deposit Insurance Fund $4.4 billion, bringing the DIF deficit to $25.3 billion. The FDIC has $46 billion in prepaid DIF fees for 2010 through 2012 that are earmarked for the DIF when scheduled. 
Send me your comments and questions to Rsuttmeier@Gmail.com.
No positions in stocks mentioned.
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