|
|
|||
|
|||
|
|
Real Estate Crash Could Kill Job Market MoneyNewsWilkinson's Edge (Headlines - scroll down for complete stories)
1. U.S. Real Estate Job Growth: Cause for Concern? 1. U.S. Real Estate Job Growth: Cause for Concern? As the housing boom has spurred the economy, it has also created about 700,000 new U.S. jobs in the last four years, according to a recent page-one story in The New York Times. In comparison, all other sectors of the American economy have lost close to 400,000 jobs over that same period.
Story Continues Below
However, despite the growth created by the housing boom, economists predict a devastating slowdown over the next few years. Residential housing accounts for 16% of America's GDP, at $1.9 trillion. As the largest single American sector, experts say real estate is a double-edged sword. "The story here is twofold," says Mark Zandi, chief economist for Economy.com. "Real estate has been an important job creator in bad times, but it's also a reason we haven't created a lot of jobs." Zandi claims that growth from housing does not have the wide-ranging impact that comes with a boom in other sectors. Fixed-mortgage rates are only just above their lowest level in at least a generation, and the fear is that long-term interest rates will stagnate or even start to rise considerably. Should housing prices dive – a scenario predicted by many experts – the massive real estate market could drag the rest of the economy down with it. A study by the International Monetary Fund claims that over the past three decades, approximately 40% of the housing booms in wealthy countries have led to busts – and those have almost inevitably resulted in recession. Editor's Note:
2. Housing Bubble Could Crush Debt Buyers The current housing boom has achieved record levels. According to The New York Times, a recent study determined that "in 55 places, housing prices had risen by at least 30% in three years, after inflation. Together, those 55 markets now account for an unprecedented 40% of all housing value in the United States." Of course, this current surge is due in large part to the proliferation of dangerous adjustable-rate mortgages and other similar arrangements that allow borrowers to put down little or no down payment. According to the National Association of Realtors, one-quarter of all home buyers - including 42% of first-time buyers - made no down payment in 2004. But while a sudden decline or stagnation in real estate would leave borrowers vulnerable to potentially massive interest rate hikes, lenders and investors could be left in an even more precarious situation. But it is difficult to know who will be hit hardest. Lenders generally deflect risk by selling some mortgages to private investment banks, which in turn break them up into varying securities. These are sold off to other investors – including mutual and other types of funds, international insurance companies and other countries' central banks (like China). Outside investors now retain some $4.6 trillion in mortgage-backed securities – which is more than the value of the U.S. Treasuries. While this arrangement has been profitable for all involved, but when the end comes, there will be a major loser. But nobody knows exactly what kind of hedges investors and lenders have made against a potential housing crisis. Plus, many of the international players involved in financing the mortgage boom are not subject to regulation by the United States. And many who are – such as Fannie Mae and Freddie Mac – have been largely allowed to operate without any real monitoring or interference. With an impending housing bubble burst, lenders and investors might suddenly panic over the possibility of being left holding the bag and decide to stop handing out loans. As many ARMs have hit the three-year mark at which they are reset, danger could be lurking for everyone involved. Editor's Note:
3. Australia to Privatize Public Pensions?
Anticipating deficits in its public pension system, the Australian government has proposed a plan to have private money managers invest a portion of its government surplus, according to the Wall Street Journal. The idea is expected to be approved by the Australian legislature.
In 2003 and 2004, Australia posted a total surplus of $17 billion, but conservative sides of the ruling National and Liberal parties rejected the suggestion of spending the money on infrastructure or tax cuts, instead choosing to shore up public workers' retirement funds. Editor's Note:
4. U.S. Economy Attracts World Investors The U.S. Treasury has just announced an increase in the foreign appetite for American government, agency and corporate bonds. The latest data (through May) shows that net purchases of dollar-denominated capital recorded a $60 billion surplus. That marks a 28% improvement over April's figure and compares to a $55.4 billion trade deficit for May. All this once again proves that what the nation spends on foreign imports eventually comes back around to plug the capital deficit. The data goes some way in explaining the continued rise in the value of the U.S. dollar this year, which jumped 4.35% against the euro in May. Foreign appetite for U.S. Treasury bonds hit $27.6 billion in May from April's $24.7 billion. Since overseas central bank buying was roughly half its April value, institutional demand for the yield on government bonds rose sharply during May. The call for corporate bonds also improved for that month. However, it appears that overseas investors found American equities a little less appealing during the month. In April, foreign purchases of corporate equities totaled $4.7 billion, but in May foreigners sold a net $72 million. Meanwhile, Americans stepped up purchases of overseas bonds and equities by 68% as they handed over $10.6 billion to buy assets abroad. Japan, China and the U.K. remain the three largest holders of U.S. government debt, with total ownership of $1,061.7 billion. Editor's Note:
Editor's Notes:
|
|
|||||||||||||||||
|
|||||||||||||||||||
|
| All Rights Reserved © 2010 NewsMax.Com |