That’s Citigroup saved, again, for the fourth time (the second by Washington), now for the car companies perhaps: just $US25 billion should see them right, this time, again. It’s only money, after all, and Citigroup has received $US45 billion from the US Government in the past five weeks, plus other benefits, in exchange for stiffing shareholders agreeing to cut dividends to just 1 cent per share.
And don’t mention the share price — even if it jumped 58% overnight to $US5.95, almost wiping out last week’s losses. At that price Citigroup’s worth $US32.2 billion, still well short of the $US45 billion bailout from the US taxpayer. No matter how Citigroup is portrayed and greeted by the markets — shares and commodities surged, as did the Aussie dollar which jumped sharply — it’s a stopgap measure. The real problem is not the slumping economy, nor is it the slumping car sector — it’s the continuing damage the black hole in the US housing sector is causing.
But maybe there are more high profile mendicants with their begging bowls out and corporate pay to protect. So long as the housing hole remains unplugged, nothing is going to change in the US — not even with a $US700 billion stimulus package and President Obama’s goodwill.
Given the link between falling home prices, rising foreclosures, problem mortgages and spending by consumers (around 70% of US GDP), there’s a crying need for something to be done. But the Bush Administration continues to ignore it and Obama will at his peril. Overnight we got another reminder of the damage being done by the housing slump — according to figures from America’s real estate agents house prices are now at 2004 levels. That means people who have owned their houses (and still have them) for the past four to five years, are now underwater, in negative equity.
The National Association of Realtors said that sales of existing homes fell in October and prices continued to fall as the credit freeze hit home. The NAR also reported that sales by homeowners slid in October to an annual pace of 4.98 million. That was down 3.1% from September’s revised reading of 5.14 million and down 1.6% from a year ago when the slump was starting. That should have been good news, sort of, an apparent slowing in the rate of fall.
New home starts and building permits fell in October to their lowest levels on record (since 1947). Later in the week we will get October’s consumption and personal income figures that will no doubt be horrible. So far October has seen retail sales plunging by a record 2.8%, inflation down by a record 1% at the consumer level, weak industrial production, car sales slumping 32% to their lowest level in two decades and unemployment soaring, up 1.2 million this year so far and 240,000 in October.
All this is flowing from the mess in housing triggered by the sub-prime mortgage collapse which has sucked other mortgages down, pushed foreclosures to record levels and undermined the whole economy. The NAR showed the extent of the problem in its release. It said the national median existing-home price in October was $US183,300, down 11.3% from a year ago when the median was $206,700 and down sharply from September when the median existing-home price was $US191,400.
October’s median existing-home price was the lowest since March 2004, when it stood at $US183,200. That means that homeowners who has lived in their homes for four to five years are seeing their homes worth the same or less as when they bought them.
The NAR said that prices were depressed by the fact that an estimated 45% of October home sales were actually distressed home deals: ie. purchasing houses out of foreclosure. This calls into question the decision two weeks ago by the US Government not to buy troubled mortgages with funds from the remainder of the $US700 billion bailout fund, but to switch attention to frozen credit card, student loan and car loan markets.
Part of the deal with Citigroup is that $US306 billion of troubled and good loans, from mortgages, to corporate buyout bonds, to CDOs and other securities, are being guaranteed by the bank, several government agencies and the Fed to the tune of $US235 billion.
But Citigroup will be under pressure to use the surplus capital it now has to buy and support troubled home loans, modify mortgages for its customers and lend to other customers. Problems with US financial groups won’t settle down until the home loan market is stabilised and house prices stop falling.
RealtyTrac, the online foreclosure market group estimated that foreclosure filings increased 5% in October when 84,868 homes were taken from their owners.