Headlines – Week of September 4, 2011

September 13, 2011

Economic Growth Widespread Across Metro Areas in 2010

According to data provided by the U.S. Bureau of Economic Analysis, of the ten largest metropolitan areas, the three with the fastest real GDP growth in 2010 were Boston-Cambridge-Quincy, MA-NH (4.8 percent), New York-Northern New Jersey-Long Island, NY-NJ-PA (4.7 percent), and Washington-Arlington-Alexandria, DC-VA-MD-WV (3.6 percent).

The ten largest metropolitan areas, accounting for 38 percent of U.S. metropolitan area GDP, averaged 2.5 percent growth in 2010 after falling 2.2 percent in 2009.

Durable-goods manufacturing led the resurgence in certain metro areas such as Durham-Chapel Hill, NC and Palm Bay-Melbourne-Titusville, FL, where the industry contributed more than 3.0 percentage points in the overall real GDP growth (6.6% and 4.7%, respectively).

In the Great Lakes region durable-goods manufacturing contributed 11.4 percentage points to the GDP growth of Elkhart-Goshen, IN and more than 6.0 percentage points to growth in Columbus, IN and Kokomo, IN. Elkhart-Goshen, IN and Columbus, IN were two of the fastest growing metropolitan areas in 2010, with overall real GDP growth of 13.0 percent and 10.1 percent, respectively.

The effects of the growth in financial activities were more widespread than other industries in 2010. In Houma-Bayou Cane-Thibodaux, LA; Des Moines-West Des Moines, IA; Hartford-West Hartford-East Hartford, CT; and New York-Northern New Jersey-Long Island, NY-NJ-PA financial activities contributed more than two percentage points to real GDP growth. All of these metropolitan areas grew faster than the national average.

In contrast to most industries, construction continued to detract from growth in 2010. In Las Vegas-Paradise, NV and Steubenville-Weirton, OH-WV, real GDP contracted due to strong concentrations in the construction industry.

In Las Vegas-Paradise, NV, real GDP in the construction industry continued to decline by more than twenty percent and sank below its 2001 level.

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22.5% of Mortgages in Negative Equity

CoreLogic recently released their Q2 negative equity report showing that 10.9 million, or 22.5 percent, of all residential properties with a mortgage were in negative equity at the end of the second quarter of 2011.

This is down very slightly from 22.7 percent in the first quarter.

An additional 2.4 million borrowers had less than five percent equity (referred to as near-negative equity) in the second quarter. Together, negative equity and near-negative equity mortgages accounted for 27.5 percent of all residential properties with a mortgage nationwide.

The report also shows that nearly three-quarters of homeowners in negative equity situations are also paying higher, above-market interest on their mortgages.

Negative equity, often referred to as “underwater” or “upside down,” means that borrowers owe more on their mortgages than their homes are worth. Negative equity can occur because of a decline in value, an increase in mortgage debt or a combination of both.

  • Nevada had the highest negative equity percentage with 60 percent of all of its mortgaged properties underwater, followed by Arizona (49 percent), Florida (45 percent), Michigan (36 percent) and California (30 percent).
  • The negative equity share in the hardest hit states has improved. Over the past year, the average negative equity share for the top five states has declined from 41 percent to 38 percent. Nevada had the largest decline over the last year, with the negative equity share dropping from 68 percent to 60 percent. The reason for the Nevada decline is the high number of foreclosures that led to lower numbers of remaining negative equity borrowers.
  • Negative equity significantly limits the ability of borrowers to capture the benefit of the low-rate environment. There are nearly 28 million outstanding mortgages that have above market rates and are in theory refinanceable. Twenty million borrowers with positive equity, or 53 percent of all above-water borrowers, have above market rates. Eight million borrowers with negative equity, or nearly 75 percent of all underwater borrowers, have above market rates. The disparity is even greater for those with severe negative equity. More than 40 percent of borrowers with 125 percent or higher loan-to-value (LTV) ratios have mortgages with rates at 6 percent or above, compared to only 17 percent for borrowers with positive equity.

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Fixing Housing Crisis Will Create 1 Million Jobs

A new report from a group called The New Bottom Line argues that if banks wrote down the mortgage principal of underwater borrowers it could pump $71 billion per year into the economy and create more than 1 million jobs annually. The report, “The Win/Win Solution: How Fixing the Housing Crisis Will Create One Million Jobs”. The New Bottom Line is a campaign that represents about 1,000 nationwide faith-based and community organizations.

The report states that by lowering home owners’ mortgage payments by an average of more than $500 per month or $6,500 per year, it would free up about $6 billion dollars per month that home owners could then spend on such items as buying groceries, household necessities, school supplies, etc.

By writing down the principals and interest rates on all underwater mortgages to market value would serve as the second stimulus that America without added costs to taxpayers.

The group is pressing State Attorneys General, who are currently in settlement talks with the nation’s largest banks over allegations of foreclosure abuses, to stand firm on its request for principal reductions for underwater borrowers.

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Posted by Scott R. Lodde

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