Posted on 09/27/2007 6:30:21 PM PDT by DeaconBenjamin
The US economy faces a 40 to 45 per cent risk of recession induced by the housing market downturn, the chief executive of Freddie Mac warned on Thursday as data showed sales of new homes hit a seven-year low in August.
Richard Syron, chief executive of the government-sponsored mortgage company, said the credit squeeze had left some parts of the US housing market “literally frozen”. This was a “substantial depressive to the overall economy”. He forecast the Federal Reserve would make another “material” cut in interest rates.
Mr Syron also predicted that Congress would bring some relief to the troubled US mortgage industry by lifting restraints on the operations of Freddie Mac and its sister mortgage company, Fannie Mae.
He said the $417,000 ceiling on the size of home loans they can buy was likely to be raised to help support the US mortgage market.
His comments came as data showed sales of new US homes plunging 8.3 per cent in August amid rising borrowing costs and tighter lending standards that have restricted the availability of mortgage credit.
KB Home, one of America’s biggest housebuilders, also warned that the housing market was likely to worsen next year as it posted a loss in its third quarter.
Thursday’s weak housing data from the Commerce Department show the number of unsold new homes fell only 1 per cent to 529,000 on the month, about 140,000 above levels in a healthy housing market. Median new home prices were down 7.5 per cent year-on-year to $225,700, the biggest fall since 1970.
● Separately, Freddie Mac has agreed to pay $50m to settle Securities and Exchange Commission charges that it concealed wide swings in earnings from 1998 to 2002.
Is this the same Freddie Mac chief who committed accounting fraud?
Mr. Syron was elected Chairman of the Board and Chief Executive Officer of Freddie Mac in December 2003.
So did the previous Freddie Mac board, those who were on the board during the fraud, pay back their performance bonuses?
There isn’t a housing problem everywhere in the USA, just in parts of it where the greedy got too greedy.
A $99,000 house in Texas is still a $99,000 house. That same house was over $300,000 in California, and has now deflated back to $200,000 -still overpriced in my opinion- but what ever downward adjustments continue to happen in those over inflated regions isn’t going to cause a nation wide recession, no matter how hard these Marxist anti American economy moonbats “pray” for one.
All it’s going to do is cause a severe drop in sales for the “get rich quick on real estate” paid tv advertisers, all of which have seen their wealth in assets suddenly disappear, replaced by big payments with no way to dump their holdings.
True.
But does truth even matter anymore?
I was talking to some real estate people tonight. In some areas there are no buyers.
I would love to believe the housing bubble was only local and will not drag down the entire US economy. I just don’t believe it.
This bubble and collapse in housing are both nationwide. This link shows a map of per capita foreclosures by state...
http://static.seekingalpha.com/wp-content/seekingalpha/images/foreclosure_rate_heat_map.png
The more red the state, the more foreclosures. You can see form the map, that Texas is actually experiencing more per capita foreclosures than California.
So back to your original hope that the housing problem won’t cause a nationwide recession.
What is growing the economy? 70% of our growth is on consumer spending.
Why is the consumer spending? They are not spending increased earnings. They are spending increased debt. They are borrowing and spending.
When the consumer stops spending, 70% of our economic growth is immediately in trouble.
Well, spending on homes has ground to a halt. Spending in general is way off. Profits at Lowes and Home Depot dropped due to the collapse of housing. Profits at Walmart and other discount stores are following suit. Consumer confidence is dropping and the last several years of rampant consumer spending is at risk of grinding to a slow pace.
Much of our nations strong consumer spending, fueling 70% of our economic growth, came from pulling equity out of homes with 2nd mortgages or by refinancing. Rising prices stimulated that borrowing. Now, falling prices mean people are not feeling so rich and not inclined to tap that equity. Some people either borrowed form their homes or bought near the peak, and now falling prices means they have little or no equity to borrow.
This is not good. A nation wide recession is possible and is likely. This will not be confined to bubble regions only. It is going to affect the nation.
Doesn’t seem real optimistic for Christmas.
I can’t say. Stock bubble burst. Housing bubbles are like a car tire’s slow leak. You can roll for a while, but at some point you have to pull over.
For all I know, a recession may already have begun. Or maybe it will begin in the spring. I don’t know. I only believe that a lot of debt has to be squeezed out of the financial economy before we can get back to normal and grow at a healthy pace.
Some credible people are predicting that the next housing boom may not occur for 15 years. That is a LONG time for people to have to wait to be able to tap into the equity in their homes again. That means, real GDP growth will depend on real wage increases.
Thank goodness the global economy is red hot and seems sustainable so. At the same time, nations like China do depend somewhat on our wealth to fund their growth buy their goods.
Christmas retail sales will be very telling this year.
And - like it or not - it doesn't paint an optimistic picture for _Republicans_ at election time, either....
- John
I used to laugh at the prospect of a Hitlery candidacy. I really thought she had no chance. But if we start 08 with a recession - 2 quarters of shrinking economy — that news won’t hit until fall 2008, just in time for the election.
Hitlery wins!
Be afraid. Be VERY afraid.
A recession can last 0 months.
This clown wants to buy higher priced mortgages.
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