Headlines – Week of September 19, 2010
September 27, 2010
Banks Keep Failing
A recent article in the Wall Street Journal noted that 279 banks have now collapsed since Sept. 25, 2008, when Washington Mutual Inc. became the biggest bank failure on record. The failures of the past two years shattered the pace of the prior six-year period, when only three dozen banks were taken over by the FDIC.
Other notable quotes from the article:
- In the second quarter of this year, the FDIC increased its number of problem banks by 6% to 829.
- Over the next decade over 5,000 could fail
- Of the failed banks since February 2007, 75 were formed after 1999
- Since 2008, the industry’s assets have shrunk by 4.5%.
- The recession and collapse of the housing bubble have cut bank-industry employment by 188,000 jobs, or 8.5%, since 2007
- Bank failures alone have cost 11,210 jobs, or 32% of the employees at failed banks
- The FDIC is burdened with $38 billion of remnants it is trying to sell.
- 94% of bank failures since 2008 had either residential or commercial real estate as their largest category of delinquent loans.
- Surviving banks have raised more than $500 billion in new capital
- Bank of America, J.P. Morgan Chase & Co. and Wells Fargo hold 33% of all U.S. deposits, up from 21% in 2006
Another article from the Wall Street Journal states that new data suggests the sales of existing, or previously owned, homes rose 7.6% from July’s extremely low levels. The information was taken from figures released by the National Association of Realtors.
The August figures were the lowest for any month since 1997 except for July.
While the number of unsold homes fell 0.6% in August to 3.98 million, it would still take 11.6 months at the current sales pace to clear the inventory. This is the second highest figure since the realtors’ group began tracking the data in 1999, behind July’s 12.5 months.
The debate is on among housing experts as to how far prices have to drop in order to increase the sale of the existing housing stock.
The picture varies from region to region. Home prices in several Florida and Nevada markets are likely to fall at least another 5%, while parts of Texas and Oklahoma could post modest gains over the next year, according to one expert.
Nationally, prices in July fell by 0.5% on a seasonally adjusted basis following a 1.2% decline in June.
Much of the lingering weakness in demand is linked to sluggish improvement in the job market. Some 465,000 people filed new claims for jobless benefits last week, up 12,000 from the week before, according to the Labor Department.
According to CoreLogic Inc., while 11 million borrowers are underwater, or owe more than their homes are worth, another 2.5 million will join them if prices decline just another 5%.
UCF: Recovery to be slow, gradual
According to Sean Snaith, director of the Institute of Economic Competitiveness at the University of Central Florida, the good news is the worst recession since the Great Depression is over … the bad news is the path to recovery looks like it will be slow and gradual.
The economic downturn has vaporized trillions of dollars in wealth from home equity, stocks and retirement accounts.
According to Snaith, a V-shaped recovery, with an abrupt recession followed by just as rapid a recovery, is not in the cards and neither is the W-shaped cycle, known as the double-dip recession.
Other notable quotes from Snaith:
- Economic impacts in Florida from the BP oil spill are likely to be much less than the worst-case projections.
- Housing is showing some improvement in single-family existing home sales, but “prices will ultimately tell us when the market has bounced back.”
- Commercial real estate “still has a lot to work out,” with some developers likely to have trouble paying their mortgages, which will come due for repricing. This in turn will put pressure on banks, and more failures are likely.
- The Ocala, Florida metropolitan area is projected to be No. 1 in the state in terms of average percentage of population growth from 2010-13, with a figure of 1.4%. This is due largely to property insurance issues in coastal Florida counties.
Posted by Scott R. Lodde