The protracted housing slump that has devastated U.S. home prices now appears to have fully-enveloped the United Kingdom. Home prices in the United Kingdom in August fell at their fastest pace in two decades (pdf), U.K.-based mortgage lender Nationwide Building Society announced Thursday.
On a year-over-year basis, the average price of a U.K. home plummeted 10.5% to $301,500 or 164,654 British pounds in August, NBS said. Further, it was the first year-over-year double-digit decline in the U.K. since 1990.
London-based economist Mark Chandler told BloggingStocks Thursday the August U.K. housing data, "is just dreadful."
"Housing in the U.K. is becoming a bit of a 'magical mystery tour,' to borrow a phrase from The Beatles. For a month or so, we thought the declines in home prices had moderated. Apparently not," Chandler said. "Tighter lending requirements and real concern about the economy have sapped sales and it's really showing up in the price data."
A sluggish U.S. economy that grows at 3.3% in Q2? What's going on here?
The U.S. Commerce Department Thursday revised its Q2 GDP growth estimate to 3.3% from the previously-estimated 1.9%, but economist David H. Wang remains a skeptic regarding the appearance of an economic recovery.
"Don't write home or e-mail home that we have 'blue skies' ahead regarding the U.S economy because the skies remain uncertain and stormy looking. If you take away the export gains, the economy is still pretty weak," Wang said. "Also, one quarter does not a recovery make, and we'll get final data on Q2 GDP in September [September 26]."
Economists surveyed by Bloomberg News had expected the preliminary Q2 GDP statistic to total 2.7%. The U.S. economy grew at a 0.9% annualized pace in Q1 and contracted 0.2% in Q4 2007. Q2 GDP data fleeting?
Wang said an improvement in exports and inventory accumulation strengthened GDP in Q2, but other factors suggest "it will be difficult, if not impossible to match that GDP growth rate in Q3 and Q4."
It's a policy wonk truism arguing that when uncertainty abounds, sometimes the best action is no action. And, one could argue, today's potential home buyers and sellers would be wise to heed the Beltway axiom.
A case of the Case-Shiller jitters
Economist Peter Dawson was hoping for Case-Shiller house price statistics in July that were easier on the eye. Dawson was disappointed: the Case-Shiller Index of 20 major metropolitan areas plunged 15.9% from July 2007 (pdf). Prices in the 10-city index plummeted a record 17.0% from July 2007.
"The July Case-Shiller data is about as bad as it gets. It shows a housing sector where prices remain in free-fall in just about every market, save a few, such as Charlotte, North Carolina and Dallas," Dawson said. "The housing bottom has not occurred and it's not near."
So given the above, what's the best stance regarding housing? For sellers, Dawson said if one has to sell for a job relocation, a sale invariably has to occur. But for those who have a three-year or longer sales horizon, postponing a sale may net a better price, providing the U.S economy recovers in 2009, he said.
For buyers, Dawson said "time is on the buyer's side" in most markets. "At this stage, lease or rent through at least June 2009," Dawson said. "In most major markets, prices are likely to be lower by next spring than they are today."
The economic downturn has meant lower sales for retailers such as department store chain Dillard's Inc. (NYSE: DDS) and apparel retailer Talbots Inc. (NYSE: TLB). On Wednesday both companies reported wider second-quarter losses.
Little Rock, Ark.-based Dillard's said it it lost $38.3 million, or 51 cents a share, in the quarter, compared with a loss of $25.2 million, or 31 cents a share, in the second quarter of the previous year. Same-store sales fell 4%, and overall revenue dropped to $1.65 billion from $1.69 billion a year ago.
Results included a gain of 15 cents per share, mostly from the sale of a company airplane, and store closing and other charges of 8 cents per share.
Analysts surveyed by Thomson Financial had expected a loss of 54 cents per share on revenue of $1.62 billion.
Dillard's said cost-cutting efforts in the second quarter were insufficient to offset disappointing results, but that the company would continue to close under-performing stores and cut back on advertising and general expenses.
Shares of Dillard's jumped 48 cents, or 4%, to $11.85 in early trading, before settling back down. Shares are down about 38% year to date.
"Home prices are becoming affordable again, so the decline in prices is likely more than half over," say Dr. Marvin Appel and Gerald Appel of Systems & Forecasts.
Meanwhile, the technical experts believe that long-term investors can now look to get back into the real estate investment market and recommend two ETFs that are based on rental REITs.
"Many analysts do not expect the financial markets to improve significantly until home prices stop falling. The pace of existing home sales remains low, and available inventory relatively high, both indicating that buyers are not yet able to step into the market at current prices.
"However, that could change within a year. Home prices are becoming affordable again, so the decline in prices is likely more than half over.
"The median home price is now more affordable to the median household than at any time since the start of 2004. My analysis suggests that housing prices will have to fall a bit more, but the housing market is not far from being reasonably valued for the first time in five years.
There are lines of reasoning, and then there are lines of reasoning.
European Central Bank board member Axel Weber said Wednesday there's no plan for interest rate cuts and policy makers may, in fact, have to raise rates as the economy accelerates out its slump, Bloomberg News reported. He added that "monetary policy is where it should be" and that "discussion about declining rates in Europe is premature."
London-based economist Mark Chandler told BloggingStocks Wednesday that data he's reviewed indicate Europe's economy will continue to slow in Q3, which is why he's somewhat taken aback by Weber's comments.
"Weber's comments are a bit troubling. I mean, what data is he looking at? The comments will create a bit of a row [dispute] in the U.K. because our economy is not going to contribute to the recovery he sees, not at this stage," Chandler said.
The Federal Open Market Committee (FOMC) released the minutes of its recent meeting on August 5. The event itself was a bit of an anti-climax because of the comments by Fed Chairman Ben Bernanke at the recent Wyoming summit.
Everyone knew that although members of the Fed are quite concerned about inflation, they are even more concerned about the deteriorating economic situation. This was clearly indicated in comments made at the Jackson Hole meeting. In addition, as I mentioned in my earlier analysis, the decisions by Fed Governors Plosser and Stern to vote to leave rates unchanged instead of dissenting indicates the gravity of the economic and monetary problems facing the United States. This was almost a complete reversal of the recent hawkish comments by both individuals.
The FOMC minutes actually give us insight into the thinking of the Fed. The Fed is very concerned about the fragile nature of the economy. It clearly believes that a rise in interest rates prematurely could damage the already battered credit situation.
However, the Fed is concerned about the inflation situation. It is particularly concerned that inflation could become embedded in expectations. This phenomenon is much more difficult to control once it begins.
It believes that the weak economic situation, combined with the recent decline in oil prices, may help to resolve this dilemma in the coming months. It may require a rise in interest rates if this does not occur.
Today's housing news on new home sales in July sounds eerily similar to the post I wrote yesterday about July existing home sales. In both cases, we are given a quick headline that sounds like good news, but once you dig into the details a little deeper you realize that the news is just not as pretty as it first sounds.
Let's first take a look at the positive headline: New home sales rise in July. Great, this is exactly the sort of news that the market needs to hear. After all, weakness in the housing market has been a major catalyst to the current economic slowdown, so any good news is like a breath of fresh air. During July the market saw a jump of 2.4%. Not too shabby.
"So far, the financial sector has written off more than $300 million in assets. By some accounts the damage will rise to $1 trillion or more before all is said and done.
"The selloff, which at its nadir was marked by a 55% year-over-year decline in the KBW Index, pushed the constituent members down to a collective 0.64 times book value and a dividend yield of 9%.
"At those levels, either the world is coming to an end or there are tremendous bargains for investors with the courage of their convictions. Looking hard at the data, we can only conclude the latter is the case, provided you're careful with your investment choices.
And one habit likely to change is European Central Bank President Jean-Claude Trichet's penchant for delaying interest rate cuts until the last possible moment, so says economist Richard Felson.
"In this case, Trichet will be joining the Fed's rate cut party this fall," Felson told BloggingStocks. "In fact, if economic conditions continue to worsen in Europe, they may even precede the Fed with a rate cut." The ECB next meets to discuss rates on September 4; the Fed, on September 15.
The Fed, as investors / readers are aware, has paused in its rate cut cycle, after decreasing interest rates by 325 basis points, to 2% from 5.25%, in an effort to jump-start a U.S. economy dragged down by its worst housing slump in a generation. Meanwhile, the ECB has remained in restrictive monetary policy mode - - first increasing its refinance rate by a quarter-point to 4.25%, in mid-2008, then taking a stand-pat stance, citing inflation pressures.
In the current housing market, it has been hard to find any sort of silver lining, but we do see a little positive news today, as existing home sales in July jumped more than expected, mainly due to lower home prices.
During July, sales of existing homes rose by 3.1%. This was well above the 1.6% that Wall Street was hoping to see, but analysts caution against assuming that this is a sign that the market has finally bottomed out. Despite beating Wall Street estimates, we still have to consider the fact that home sales were over 13% lower than the same period a year ago.
While we can view the July sales figures as promising, we must also take a minute to look at home inventories, and here the picture is not so rosy. Here we see that the number of unsold single family homes is running at all time highs. Currently the market is trying to deal with a total of 4.67 million unsold homes. This is the highest level that we have seen since 1968 when the National Association of Realtors started monitoring the data.
Some of the participants at a recent retreat of central bank governors and economists charged that the Fed did too much to help Wall Street and too little to aid taxpayers.
According to the Associated Press, "A possible bailout of Fannie Mae and Freddie Mac, on the heels of similar action involving investment firm Bear Stearns, seems to send a loud signal to financial companies that the government will clean up their messes."
The point may make seen in dollars and cents, but it fails to acknowledge that a complete collapse of the financial systems does no one any good. The Fed and Treasury have put tens of billions of dollars of liquidity into banks and brokerages, mostly in the form of low costs loans. A bail-out of Freddie Mac (NYSE: FRE) and Fannie Mae (NYSE: FNM) could cost billions more. Ultimately, taxpayers will foot the bill for those actions.
By listening to Wall Street, the Fed has helped the financial industry while ignoring other troubled sectors like automotive. But, if a large U.S. bank or brokerage firm fails, the panic could drive the markets into a flat spin and trillions of dollars in wealth would be lost.
The Fed is too close to the financial community and that is a good thing.
Douglas A. McIntyre is an editor at 247wallst.com.
It would seem to be stating the obvious, but the habits of home buyers will probably hold the key to whether the economy will go into its deepest recession in decades. That is the prevailing wisdom, but is it right?
According to Reuters, "a sharper housing bust would leave deep scars in consumer sentiment, which would likely lead to a deep recession." Some economists and real estate experts see home prices falling another 15% to 20% from current levels.
Real estate may be a critical part of an economic recovery, but it is not the only one. Oil and commodities recently had their sharpest correction in years. If oil moves below $100 and the price of agricultural products moves down substantially, the implied cost of living for most Americans will get much better. Under those circumstances, homeowners have more money to pay mortgages.
Wages could also rise. Recent pressure on consumer prices makes it more likely that unions and employees will press for higher compensation. In many cases, they will be turned away. But, worker demands for higher pay spread across the entire economy should yield some improvements in how much people take home.
Housing prices are important, but they are not the only game in town.
Douglas A. McIntyre is an editor at 247wallst.com.
Inflation easing? Commodity prices moderating? A recovering dollar? Global factors making the U.S. Federal Reserve's monetary policy choices less fraught with trade-offs?
Just another Wall Street analyst's dash of optimism amid the U.S. economic slump?
Not quite. The above is U.S. Federal Reserve Chairman Ben Bernanke's take on "the state of world-economic" from his speech delivered at the Federal Reserve Bank of Kansas City's Annual Summit at Jackson Hole, Wyoming.
Bernanke said the recovering dollar and declines in commodity prices "should lead inflation to moderate." The Fed "is committed to achieving medium-term price stability and will act as necessary to obtain that objective," Bernanke added.
Further, Bernanke said the Fed's benchmark interest rate is "relatively low" given current price pressures. On liquidity, Bernanke said financial turmoil has "not yet subsided" and that policy makers will continue to review the Fed's measures to ensure liquidity to determine "if they are having their intended effects."
Minyanville Founder and CEO Todd Harrison dares to share the kind of keen insight and actionable information you won't find in any prospectus. For more original thought, visit www.minyanville.com.
Holy cow, can it be any slower out there? I'm taking a break from trying to set the all-time record for meetings on a "slow" summah Friday to offer a quick take on a few topics.
There hasn't been any price talk on Lehman so even if it happens, it's a bit of a crap shoot. Remember Minyans, Bear Stearns was taken over too.
There is no doubt franchise value and a lot of smart people at Lehman. There's also a lot of baggage on their balance sheet. It -- like most of the financials -- is a double-edged sword.
A sluggish U.S. economy that grows at 3.3% in Q2? What's going on here?
There is an old axiom among lobbyists 
The economic downturn has meant lower sales for retailers such as department store chain 
Today's housing news on 
It's been said that old habits die hard.
In the current housing market, it has been hard to find any sort of silver lining, but we do see a little positive news today, as 
Some of the participants at a recent retreat of central bank governors and economists charged that the Fed did too much to help Wall Street and too little to aid taxpayers.
Inflation easing? Commodity prices moderating? A recovering dollar? Global factors making the U.S. Federal Reserve's monetary policy choices less fraught with trade-offs?
Minyanville Founder and CEO Todd Harrison dares to share the kind of keen insight and actionable information you won't find in any prospectus. For more original thought, visit 
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