A STERN GLANCE HAS MOVED!
A Stern Glance has moved to A Stern Glance. Because of continuing reliability challenges with this venue, we are now hosting it on our own servers.
Stern And Company
Friday, October 27, 2006
Thursday, October 19, 2006
The Housing Market Redux
Apropos of the previous, the following article from the October 19 edition of The Los Angeles Times is quite instructive, especially for Las Vegas, which has at least modestly follow California housing trends and has drawn considerable investment in the housing market from California:
More Homeowners Going Into Default
A housing market slowdown combined with rising payments on adjustable-rate loans is leading to a sharp hike in notices from lenders.
The number of Californians who are significantly behind on their mortgage payments and at risk of losing their homes to foreclosure more than doubled in the three months ended Sept. 30, providing the latest evidence of trouble in the housing market, figures released Wednesday show.
Lenders sent out 26,705 default notices — the first step toward a foreclosure — during the July-to-September period, up from 12,606 during the same quarter in 2005, according to DataQuick Information Systems.
Defaults are still well below their peak level of 59,897, which came in the first three months of 1996, as the state's last housing slowdown was ending. But the report shows that the slumping housing market is taking a toll on more homeowners — especially those with mortgages that offer low initial payments at the cost of higher bills down the road.
"We were putting buyers in homes with loans they could not afford to sustain over the long haul," said Bob Casagrand, a San Diego real estate agent. "If you're a marginal buyer with an adjustable mortgage, you're rolling the dice on the future."
Foreclosures are rare when the housing market is strong and prices are rising. In those conditions, borrowers can usually sell their homes quickly, or they have enough equity to allow them to refinance their loans. But in another disquieting sign, DataQuick reported that 19% of the owners who went into default earlier in the year actually lost their homes to foreclosure in the third quarter, more than triple the 6% in 2005.
Mortgage payments are such a big part of the household budget for many Californians that it takes only a little trouble to fall behind. For Stacey and Mike Broussard, all it took was an exceptionally rainy spring.
That meant Mike Broussard was laid off from his job as a heavy equipment operator.
"I tried to juggle things around — we were eating a lot of peanut butter and a lot of beans — but it got out of control," said Stacey Broussard, 39.
She was in charge of the bills and each month would pay what she could of the $1,300 the lender expected for the mortgage on their home northeast of San Francisco in Antioch.
At the end of August, she said, she tried to make another partial payment, but the lender said anything less than a full payment would lead to a default.
One day her husband said she had a notice from the post office to pick up a special letter. She knew what it was, but he didn't. "I was trying to fix it before I told him," she said. "That was the worst moment."
Mike Broussard is now employed again, and the couple — who are lucky enough to have equity in their home — are working with TerraCotta Group, a Manhattan Beach real estate and mortgage company that specializes in helping delinquent homeowners get out of default.
When she started TerraCotta 2 1/2 years ago, company President Tingting Zhang said two or three people would come through her door on the typical day looking for help. Now, it's 30 to 40. "And we haven't reached the peak yet," said Zhang, who believes that the combination of rising interest rates and high-risk mortgages could spell defeat for a rising number of borrowers.
Just Wednesday morning, Zhang dealt with a Lancaster resident who had taken out a $310,000 adjustable-rate mortgage with a starter interest rate of 5.4% and a monthly payment of $1,050.
In July, the interest rate climbed to 8.5% and the monthly payment jumped to $2,306. A year-end adjustment will send the monthly payment to $2,744.
"The borrower is totally unprepared for this rate adjustment," Zhang said.
The fallout is starting to show up in the workload at credit counseling outfits.
Gary Aguilar, counseling manager for Springboard, a nonprofit credit counseling agency in Riverside, said the amount of mortgage-related work he and his staff were doing had "pretty much tripled this year."
The softening of the housing market was the trigger, as new homeowners with little or no equity in their properties found themselves unable to sell at a high enough price to pay off the balance of the loan and still cover all of the sale expenses.
"Whereas a year ago, people could have put their house on the market and sold their way out of the problem, now they're stuck with the house," said Richard Pittman, housing services coordinator for credit counselor ByDesign Financial Solutions in Los Angeles.
"I've talked to two in the last week who thought they had a done deal, and when it came to putting the loan together, they came up short" and their house went to auction, he said.
More than half of the loans that went into default in the third quarter were made last year, DataQuick said. The homeowners were a median of five months behind on their payments when they entered the foreclosure process, meaning half were more than five months behind and half were less. The median delinquent debt was $9,829 on a $306,000 mortgage.
The housing market in San Diego County peaked earlier than the rest of California, so it's not surprising that default notices rose particularly quickly there. They climbed 160% in the quarter, more than twice the pace in Los Angeles County.
"In the vast majority of cases, the default notices are falling disproportionately on the entry-level market," said John Hokkanen, a San Diego agent. "These are people who don't have any reserves in a time of crisis."
Foreclosures also can weaken housing values further as lenders put the foreclosed homes on the market, often at reduced prices in hopes of a quick sale.
But although experts believe the default and foreclosure numbers will continue to grow, few see them accompanying a painful housing collapse as occurred in the early 1990s.
"I don't think it's time to panic," said Christopher Cagan, an analyst with First American Real Estate Solutions in Santa Ana. "People have gotten so used to sellers able to command whatever they want on whatever terms they want. That's no longer the case. This is a natural turning of the business cycle."
DataQuick analyst John Karevoll concurred: "We're still seeing foreclosure activity below an average of the last 19 years. I'm not convinced the numbers are going to continue going up at this rate, unless something major happens to the economy."
One hopeful factor is that the state's economy is much stronger and more diversified than it was 15 years ago, when the aerospace industry was downsizing with the end of the Cold War.
In addition, there hasn't been a repeat of the 1980s building boom, which created an oversupply of homes and helped fuel the downward spiral in housing prices in the 1990s.
"Historically, we're in a different place than we were then," said economist Christopher Thornberg, who watched the '90s slump unfold as a graduate student at UCLA and now has a consulting firm. On the downside, he noted, "we have never seen a run-up in housing prices like this and we've never seen these kinds of mortgages."
Zhang agreed: "Back then, you put 20% down and got a 30-year fixed-rate loan. Now, we have a lot of people who got mortgages when they really shouldn't have qualified."
Stern And Company
Housing Market California Housing Market Las Vegas Housing Market
More Homeowners Going Into Default
A housing market slowdown combined with rising payments on adjustable-rate loans is leading to a sharp hike in notices from lenders.
The number of Californians who are significantly behind on their mortgage payments and at risk of losing their homes to foreclosure more than doubled in the three months ended Sept. 30, providing the latest evidence of trouble in the housing market, figures released Wednesday show.
Lenders sent out 26,705 default notices — the first step toward a foreclosure — during the July-to-September period, up from 12,606 during the same quarter in 2005, according to DataQuick Information Systems.
Defaults are still well below their peak level of 59,897, which came in the first three months of 1996, as the state's last housing slowdown was ending. But the report shows that the slumping housing market is taking a toll on more homeowners — especially those with mortgages that offer low initial payments at the cost of higher bills down the road.
"We were putting buyers in homes with loans they could not afford to sustain over the long haul," said Bob Casagrand, a San Diego real estate agent. "If you're a marginal buyer with an adjustable mortgage, you're rolling the dice on the future."
Foreclosures are rare when the housing market is strong and prices are rising. In those conditions, borrowers can usually sell their homes quickly, or they have enough equity to allow them to refinance their loans. But in another disquieting sign, DataQuick reported that 19% of the owners who went into default earlier in the year actually lost their homes to foreclosure in the third quarter, more than triple the 6% in 2005.
Mortgage payments are such a big part of the household budget for many Californians that it takes only a little trouble to fall behind. For Stacey and Mike Broussard, all it took was an exceptionally rainy spring.
That meant Mike Broussard was laid off from his job as a heavy equipment operator.
"I tried to juggle things around — we were eating a lot of peanut butter and a lot of beans — but it got out of control," said Stacey Broussard, 39.
She was in charge of the bills and each month would pay what she could of the $1,300 the lender expected for the mortgage on their home northeast of San Francisco in Antioch.
At the end of August, she said, she tried to make another partial payment, but the lender said anything less than a full payment would lead to a default.
One day her husband said she had a notice from the post office to pick up a special letter. She knew what it was, but he didn't. "I was trying to fix it before I told him," she said. "That was the worst moment."
Mike Broussard is now employed again, and the couple — who are lucky enough to have equity in their home — are working with TerraCotta Group, a Manhattan Beach real estate and mortgage company that specializes in helping delinquent homeowners get out of default.
When she started TerraCotta 2 1/2 years ago, company President Tingting Zhang said two or three people would come through her door on the typical day looking for help. Now, it's 30 to 40. "And we haven't reached the peak yet," said Zhang, who believes that the combination of rising interest rates and high-risk mortgages could spell defeat for a rising number of borrowers.
Just Wednesday morning, Zhang dealt with a Lancaster resident who had taken out a $310,000 adjustable-rate mortgage with a starter interest rate of 5.4% and a monthly payment of $1,050.
In July, the interest rate climbed to 8.5% and the monthly payment jumped to $2,306. A year-end adjustment will send the monthly payment to $2,744.
"The borrower is totally unprepared for this rate adjustment," Zhang said.
The fallout is starting to show up in the workload at credit counseling outfits.
Gary Aguilar, counseling manager for Springboard, a nonprofit credit counseling agency in Riverside, said the amount of mortgage-related work he and his staff were doing had "pretty much tripled this year."
The softening of the housing market was the trigger, as new homeowners with little or no equity in their properties found themselves unable to sell at a high enough price to pay off the balance of the loan and still cover all of the sale expenses.
"Whereas a year ago, people could have put their house on the market and sold their way out of the problem, now they're stuck with the house," said Richard Pittman, housing services coordinator for credit counselor ByDesign Financial Solutions in Los Angeles.
"I've talked to two in the last week who thought they had a done deal, and when it came to putting the loan together, they came up short" and their house went to auction, he said.
More than half of the loans that went into default in the third quarter were made last year, DataQuick said. The homeowners were a median of five months behind on their payments when they entered the foreclosure process, meaning half were more than five months behind and half were less. The median delinquent debt was $9,829 on a $306,000 mortgage.
The housing market in San Diego County peaked earlier than the rest of California, so it's not surprising that default notices rose particularly quickly there. They climbed 160% in the quarter, more than twice the pace in Los Angeles County.
"In the vast majority of cases, the default notices are falling disproportionately on the entry-level market," said John Hokkanen, a San Diego agent. "These are people who don't have any reserves in a time of crisis."
Foreclosures also can weaken housing values further as lenders put the foreclosed homes on the market, often at reduced prices in hopes of a quick sale.
But although experts believe the default and foreclosure numbers will continue to grow, few see them accompanying a painful housing collapse as occurred in the early 1990s.
"I don't think it's time to panic," said Christopher Cagan, an analyst with First American Real Estate Solutions in Santa Ana. "People have gotten so used to sellers able to command whatever they want on whatever terms they want. That's no longer the case. This is a natural turning of the business cycle."
DataQuick analyst John Karevoll concurred: "We're still seeing foreclosure activity below an average of the last 19 years. I'm not convinced the numbers are going to continue going up at this rate, unless something major happens to the economy."
One hopeful factor is that the state's economy is much stronger and more diversified than it was 15 years ago, when the aerospace industry was downsizing with the end of the Cold War.
In addition, there hasn't been a repeat of the 1980s building boom, which created an oversupply of homes and helped fuel the downward spiral in housing prices in the 1990s.
"Historically, we're in a different place than we were then," said economist Christopher Thornberg, who watched the '90s slump unfold as a graduate student at UCLA and now has a consulting firm. On the downside, he noted, "we have never seen a run-up in housing prices like this and we've never seen these kinds of mortgages."
Zhang agreed: "Back then, you put 20% down and got a 30-year fixed-rate loan. Now, we have a lot of people who got mortgages when they really shouldn't have qualified."
Housing Market California Housing Market Las Vegas Housing Market
Las Vegas Housing Market
While new residential construction last month firmed a bit, it is only a one month snapshot and it's far too early to discern whether that increase is an aberration or the basis for an upswing. What is not aberrative, however, is a report today that home mortgage delinquencies are continuing to increase.
According to a report from Moody's Economy and Equifax, 2.33% of mortgages were delinquent at the end of the third quarter, the highest level since 2003, with the delinquency rate in Las Vegas up 1.33 percent from a year ago, the second biggest jump in the nation and the rate at 3.15 percent.
While according to the report, "the latest increase appears to be more closely tied to looser lending standards, borrowers tapping their equity and slowing home-price growth," it is also eminently true that the increase is particularly notable because bad loans normally climb when the economy weakens and job losses rise. Las Vegas has enjoyed high employment with unemployment levels well below the national rate, until recent months during with the Nevada rate has steadily approached the national level.
Overall, the level of bad loans remains manageable, but higher loan losses could force lenders to cut back on credit, making it more difficult for some borrowers to get a loan. A spike in foreclosures could also help push home prices downward in some markets if lenders were forced to sell significant numbers of homes at a loss. With considerable, perhaps record levels of housing inventory on hand, especially in Las Vegas, there is little doubt that the local economy is settling in for a rather long period of at least modest economic distress, notwithstanding an apparent strong tourist industry.
Stern And Company
Las Vegas Housing Industry Las Vegas Economy Mortgage Delinquencies
According to a report from Moody's Economy and Equifax, 2.33% of mortgages were delinquent at the end of the third quarter, the highest level since 2003, with the delinquency rate in Las Vegas up 1.33 percent from a year ago, the second biggest jump in the nation and the rate at 3.15 percent.
While according to the report, "the latest increase appears to be more closely tied to looser lending standards, borrowers tapping their equity and slowing home-price growth," it is also eminently true that the increase is particularly notable because bad loans normally climb when the economy weakens and job losses rise. Las Vegas has enjoyed high employment with unemployment levels well below the national rate, until recent months during with the Nevada rate has steadily approached the national level.
Overall, the level of bad loans remains manageable, but higher loan losses could force lenders to cut back on credit, making it more difficult for some borrowers to get a loan. A spike in foreclosures could also help push home prices downward in some markets if lenders were forced to sell significant numbers of homes at a loss. With considerable, perhaps record levels of housing inventory on hand, especially in Las Vegas, there is little doubt that the local economy is settling in for a rather long period of at least modest economic distress, notwithstanding an apparent strong tourist industry.
Las Vegas Housing Industry Las Vegas Economy Mortgage Delinquencies
Wednesday, October 18, 2006
Economic Reports Released
Housing starts in September 2006 were at a seasonally annual adjusted rate of 1,772,000, up 5.9% from August and down 17.9% from September 2005. Permits were 1,619,000, down 6.3% from last month and down 27.7% from one year ago.
Real average weekly earnings rose by 1.0 percent from August to September after seasonal adjustment. This increase stemmed from a 0.2 percent rise in average hourly earnings and a 0.7 percent decline in the Consumer Price Index for Urban Wage Earners and Clerical Workers. Average weekly hours were unchanged.
The Consumer Price Index for All Urban Consumers (CPI-U) decreased 0.5 percent in September, before seasonal adjustment. The September level of 202.9 (1982-84=100) was 2.1 percent higher than in September 2005.
Housing Starts Real Earnings Consumer Price Index Stern And Company A Stern Glance
Real average weekly earnings rose by 1.0 percent from August to September after seasonal adjustment. This increase stemmed from a 0.2 percent rise in average hourly earnings and a 0.7 percent decline in the Consumer Price Index for Urban Wage Earners and Clerical Workers. Average weekly hours were unchanged.
The Consumer Price Index for All Urban Consumers (CPI-U) decreased 0.5 percent in September, before seasonal adjustment. The September level of 202.9 (1982-84=100) was 2.1 percent higher than in September 2005.
Housing Starts Real Earnings Consumer Price Index Stern And Company A Stern Glance
Monday, October 09, 2006
Annual Reports
In recent years, highly-produced corporate annual reports have been at least modestly marginalized, if not superseded completely by the increasingly ubiquitous "10-k Wrap." There is little question that production costs are a factor, as well as the conventional wisdom that the Financial Community is only concerned with "the back of the book."
Stern And Company's view is that appropriate structure and discipline applied to production schedules will maintain the production budget, i.e. eliminate rush or overtime printing charges. But more importantly, a well-written, appropriately informative annual report will potentially add the "color" that just might attract institutional investors, as well as securities analysts to consider the company. We also believe that an annual report should be treated much like a news release and should be "merchandised" to a company's key publics. Without that component, it's simply another of piece of mail.
In order to make an annual report a more compelling document, Stern And Company designs the content to provide elements key constituencies require to make informed decisions. Among those components:
Annual Reports Corporate Annual ReportsFinancial Communications Corporate Strategies Stern And Company A Stern Glance Las Vegas PR Firms
Stern And Company's view is that appropriate structure and discipline applied to production schedules will maintain the production budget, i.e. eliminate rush or overtime printing charges. But more importantly, a well-written, appropriately informative annual report will potentially add the "color" that just might attract institutional investors, as well as securities analysts to consider the company. We also believe that an annual report should be treated much like a news release and should be "merchandised" to a company's key publics. Without that component, it's simply another of piece of mail.
In order to make an annual report a more compelling document, Stern And Company designs the content to provide elements key constituencies require to make informed decisions. Among those components:
- A specific discussion of the company's strategy. This component is often incorporated in the Chairman's or Chief Executive Officer's message, and as such is frequently vague or platitudinous. The discussion of strategy must communicate how the company's approach is nimble and dynamic enough to take advantage of turns in the business and economic environment. Consideration should be given to making this discussion a prominent sidebar or even a separate page.
- Economic Drivers: Rarely do we see specifics regarding the economy in annual reports. For example, each month unemployment, new orders for manufactured goods and retail sales are reported by the Federal Government. Often these economic indicators have an impact on the stock market as a whole, but do they impact your company specifically. A discussion of those indicators that do or can have an effect can mitigate, or enhance that impact, if investors have a clear understanding of the company's drivers. There's an argument to be made that all economic drivers impact business. However, defining the subtleties inherent, as well as the specific drivers will, over time, provide a company with the best possible opportunity for greater control over investors' perceptions derived from the economy.
Stern And Company has substantive experience in developing and writing annual reports for companies of all sizes, at remarkably cost-effective fee structures. Please feel free to contact us through our websites, Stern And Company or A Stern Glance.
Annual Reports Corporate Annual ReportsFinancial Communications Corporate Strategies Stern And Company A Stern Glance Las Vegas PR Firms
Friday, September 29, 2006
Personal Income and Consumer Spending
The Department of Commerce reported today that personal income in August was $11,051.9 billion, up 0.3 percent from July. Nominal personal consumption expenditures (PCE) rose 0.1 percent while real PCE decreased 0.1 percent. Nominal disposable personal income (DPI) rose 0.4 percent while real DPI increased 0.2%. Personal savings as a percentage of DPI was -0.5% in August.
With core inflation, which excludes food and energy, up 2.5 percent from a year ago and posting the largest increase in more than ten years, this was the weakest performance in nearly a year. Core inflation, which excludes energy and food, was up a worrisome 2.5 percent compared to a year ago, the biggest year-over-year increase in more than a decade.
While unemployment just under five percent, certainly down from a year ago, there remain more than 7 million unemployed and a second Gross Domestic Product (GDP) of 2.6 percent doesn't provide much foundation for greater growth as statisticly several quarters of growth approaching 8 percent are required to bring employment levels back to their previous strong position.
While most economists believe the we will sidestep a recession, it remains clear that one of the nation's primary economic drivers, the housing industry, is already approaching that economic environment. On the other side of that coin is the inflationary impact of energy costs. Even with gasoline prices softening to the mid-$2.00 range, they, as well as home energy costs remain a substantive burden and drain on the consumer.
We are, in fact, looking a period of relatively high unemployment, though not especially manifest statistically; a period of some relative inflation; and a period, with respect to the middle and lower wage earners, of stagnation.
Consideration should be given to the possibility of a very challenging period of stagflation. While it may not be as severe, or even the same as that which occurred in the 1970s, as our economic environment is simply different, it could well be as painful.
Stagflation Economics
With core inflation, which excludes food and energy, up 2.5 percent from a year ago and posting the largest increase in more than ten years, this was the weakest performance in nearly a year. Core inflation, which excludes energy and food, was up a worrisome 2.5 percent compared to a year ago, the biggest year-over-year increase in more than a decade.
While unemployment just under five percent, certainly down from a year ago, there remain more than 7 million unemployed and a second Gross Domestic Product (GDP) of 2.6 percent doesn't provide much foundation for greater growth as statisticly several quarters of growth approaching 8 percent are required to bring employment levels back to their previous strong position.
While most economists believe the we will sidestep a recession, it remains clear that one of the nation's primary economic drivers, the housing industry, is already approaching that economic environment. On the other side of that coin is the inflationary impact of energy costs. Even with gasoline prices softening to the mid-$2.00 range, they, as well as home energy costs remain a substantive burden and drain on the consumer.
We are, in fact, looking a period of relatively high unemployment, though not especially manifest statistically; a period of some relative inflation; and a period, with respect to the middle and lower wage earners, of stagnation.
Consideration should be given to the possibility of a very challenging period of stagflation. While it may not be as severe, or even the same as that which occurred in the 1970s, as our economic environment is simply different, it could well be as painful.
Stagflation Economics
Introduction
A Stern Glance, the newsletter of Stern And Company was started in October 2003 as a traditionally mailed publication.
At Stern And Company we believe the practice of strategic communications is inexorably entwined with the economic, political, societal and cultural environments in which we live. The purpose of this venue is to comment on and analyze news and issues arising from these environments. Our comments will reflect the views of Stern And Company, as well as those from some outside contributors. Please feel free to comment on our views or contact us with any questions you might have.
Public Relations Crisis Communications Investor Relations
At Stern And Company we believe the practice of strategic communications is inexorably entwined with the economic, political, societal and cultural environments in which we live. The purpose of this venue is to comment on and analyze news and issues arising from these environments. Our comments will reflect the views of Stern And Company, as well as those from some outside contributors. Please feel free to comment on our views or contact us with any questions you might have.
Public Relations Crisis Communications Investor Relations
