Housing Prices Fell Dramatically in October

Housing prices fell dramatically in October according to the S & Ps Case Shiller Housing Price Index. The New York Times reports:

Home values in 20 large metropolitan areas across the country dropped at a record pace in October as the fallout from the financial collapse reverberated through the housing market, according to data released Tuesday.

The price of single-family homes fell 18 percent in October from a year earlier, according to the closely watched Standard & Poor’s/Case Shiller Housing Index. All 20 cities reported annual price declines in October; prices in 14 of the 20 metropolitan areas surveyed fell at a record rate as the financial crisis reached a critical point.

The fall in prices were very dramatic in most of the 20 cities that compose the 20 City Housing Price Index. The yearly declines were most dramatic in: "Prices in Las Vegas and Phoenix, where developers built subdivisions stretching into the desert, fell by nearly a third in October from 2008. Home prices fell 31 percent in San Francisco and 29 percent in Miami. Prices in New York declined 7.5 percent in October over the same month a year ago.

Locally, in the Washington, DC area prices were down 18.7% from a year ago; and 2.3% during the month of October.

Washington, DC: Housing Boom & Bust. Source (NYTimes Graph).

Of course, during the past year, the percentage price declines have not been uniform across the Washington, DC metro area. Overall, in the Washington, DC metro area we are back to May 2004 prices (nominally). Inflation adjusted, prices are back even further to early 2003.

Open Question

Can the financial leadership in the United States be trusted to make sound decisions regarding the allocation of resources?

Happy Christmas to all, and to all a good night!

Amazon.com has free Christmas music for download here and here. Considering donating to charity this holiday season? Here's some advice for the generous.

Perhaps David will post, but I'll be on vacation for the next week. Merry Christmas and happy New Year.

Home sales plunged in November

From MarketWatch.com:

Resales of U.S. single-family homes and condos fell a surprisingly bad 8.6% in November ... the National Association of Realtors reported Tuesday, even as home prices fell at the fastest annual pace on record. ...

In the past year the median sales price fell 13.2% — the largest decline since data collection began in 1968 and likely since the Great Depression — to $181,300. Separately, the Federal Housing Finance Agency reported that U.S. home prices fell 7.5% over the 12 months ending in October, according to a monthly index that includes prices for houses with mortgages that have been sold to or guaranteed by Fannie Mae or Freddie Mac.

The inventory of unsold homes on the market rose 0.1% to 4.2 million, an 11.2-month supply at the current sales pace, according to NAR. The 11.2-month supply matches a recent peak set in April, and is the highest since the mid 1980s, according to NAR. ...

Elsewhere Tuesday, the Commerce Department reported that U.S. new-home sales fell to their lowest level in over 17 years in November. ... New home sales are 35.3% below their level in November 2007. ...

On Monday, federal regulators reported that the proportion of modified loans delinquent by 30 days or more was 55% after six months, while modified loans that were 30 or more days delinquent after three months stood at 37%.

Don't worry about all this. The place where you live is special. Also, the recovery is right around the corner, as it has been for the past three-and-a-half years. The recovery originally scheduled for late-2005 is now expected in mid-2009. The economists who overlooked the housing bubble can't possibly be wrong this time.

Comments?

2009's ten worst housing markets

Fortune Magazine has predictions for the 2009's ten worst housing markets. You won't be shocked to learn that eight of the ten are in California.

Here's the list, with the projected fall in prices:

1. Los Angeles, CA. 2009 projected change: -24.9%
2. Stockton, CA. 2009 projected change: -24.7%
3. Riverside, CA. 2009 projected change: -23.3%
4. Miami/Miami Beach, FL. 2009 projected change: -22.8%
5. Sacramento, CA. 2009 projected change: -22.2%
6. Santa Ana/Anaheim, CA. 2009 projected change: -22.0%
7. Fresno, CA. 2009 projected change: -21.6%
8. San Diego, CA. 2009 projected change: -21.1%
9. Bakersfield, CA. 2009 projected change: -20.9%
10. Washington, DC. 2009 projected change: -19.9%

For Washington, DC, they predict further price declines in 2010 as well, for a total predicted decline of 24.5% over the next two years.

David Lereah Admits he 'Spun' for the Realtors; Takes Responsibility

David Lereah, currently working for Reecon Advisors Inc, now admits he "put a positive spin" on the housing market during the boom and bust times. Mr. Lereah goes on to take responsibility for his predictions while he was at the National Association of Realtors. This comes from a recent interview with Money Magazine article titled 'Former real estate bull admits, "I spun"'.

Q: Were you wrong to be so bullish?

A: I worked for an association promoting housing, and it was my job to represent their interests. If you look at my actual forecasts, the numbers were right inline with most forecasts. The difference was that I put a positive spin on it It was easy to do during boom times, harder when times weren’t good. I never thought the whole national real estate market would burst.

Q: Any regrets?

A: I would not have done anything different. But I was a public spokesman writing about housing having a good future. I was wrong. I have to take responsibility for that.

It is a positive that Mr. Lereah is taking partial responsibility for his actions while he was working at the NAR. It all begs the question is Lawrence Yun also engaging in 'positive spin?'

Additional Links:

Realtor Chief Economist: “I spun” (NJ Real Estate Report)

Another Reason Not to Trust So-Called Economic Experts (Seeking Alpha)

McMansion Watch: Foreclosed McMansion

This lovely foreclosed "rehab only" home, located in Springfield, Virginia, can be yours for only $425,000. Car not included.

Also, this former McMansion Watch beauty is still for sale a month-and-a-half later, despite the free Bubble Meter advertising. It's a better deal now, since the price has been dropped by $45,000.

As foreclosures increase, fewer people willing to buy them

From The Wall Street Journal:

Foreclosures have long been labeled a bargain hunter’s dream and reducing the swelling count is a key part of housing’s recovery. But a new Harris Interactive survey released Tuesday shows decreased enthusiasm for buying foreclosed properties amid concerns about aspects ranging from hidden costs to falling home values, delivering yet another blow to a crippled sector.

“What’s significant about our findings is that just as the market is being flooded with more foreclosures, homebuyers are more hesitant to buy them,” said Pete Flint, co-founder and chief executive of Trulia.com, a real-estate search engine that released the study with foreclosure tracker RealtyTrac.

The survey shows 47% of adults surveyed, saying in November they would consider purchasing a foreclosed home, down from 54% in April. Meanwhile, 80% now express concern about the negative aspects of buying a foreclosed home, up from 69%.

Buying a foreclosure can be a hassle-filled process. Real-estate agents estimate about half of foreclosed properties to be sold by mortgage companies nationwide have substantial damage, The Journal reported earlier this year (”Buyer’s Revenge: Trash the House After Foreclosure“).

As Michael M. Phillips wrote, foreclosed homes were found with all sorts of problems, from missing pipes and appliances to damage done by previous owners upset losing their homes. Mr. Phillips described holes punched in walls, paint dumped on carpets and pets locked inside “to wreak further havoc.”

Some people lock their pets in the homes, which will likely kill the pets?! The fact that so many full-grown adults will trash their homes before being evicted simply demonstrates that rather than being victims, they are often selfish, irresponsible people who don't deserve our sympathy.

The strangest house I've ever seen

From The Wall Street Journal:

From the looks of it, E.T. has come back to Earth and set up shop in Signal Mountain, Tenn. At least, that’s what one might think upon stumbling across the house designed like a spaceship at 1408 Palisades Road. ...

Known as “The Spaceship House,” the building was the creation of Curtis King, who spent $250,000 to have it built for his son in 1973, according to Terry Posey, an auctioneer with Crye-Leike Auction of Cleveland, Tenn. ...

Made of steel and concrete, the structure provides nearly 2,000 square feet of living space, including three bedrooms, two full bathrooms, a bar and entertainment area. The rooms are round, just like the house itself, and are situated around a central point. ...

Signal Mountain resident James Faris placed a winning bid of $119,000 on the Spaceship House at yesterday’s auction, according to the Chattanooga Times Free Press.

Southern California real estate prices continue to plunge

From BusinessWeek:

According to research firm MDA DataQuick, the median home price fell a record breaking 35% in November versus the same month in 2007. The median price paid for all homes combined last month was $285,000, down 5% from October. Last month’s median was the lowest since it was $298,000 in April 2003, which was the last time the median was below $300,000. November’s median stood 43.6 percent below the peak $505,000 median reached in spring and summer of last year.

The median price has eroded consistently over the past 16 months as price depreciation swept the region, discounted foreclosures ballooned in inland markets and sales stagnated in higher-end neighborhoods. The latter have suffered from, among other things, a difficult financing environment for large mortgages....

Foreclosures have accounted for about half of all Southland resales during the past three months. In November, they reached 55%.

Any DC folks want to move to sunny Southern California?

Homebuilder Hovnanian loses another $450 million

From CNN Money:

Hovnanian Enterprises Inc. said Tuesday its fiscal fourth-quarter loss narrowed slightly from a year ago, but the homebuilder continued to struggle against sharp declines in new home contracts and falling land values.

After paying preferred stock dividends, the builder lost $450.5 million, or $5.79 a share, for the quarter that ended Oct. 31. That compares with a loss of $469.3 million, or $7.42 a share, in the same period last year, and marked the ninth quarterly loss in a row.

The results included $456.5 million in pretax charges, including $319.9 million in land-related charges.

Quarterly revenue fell 48% to $721.4 million.

"Since mid-September, the housing market has deteriorated in lockstep with the widening financial crisis and declines in broader economic conditions," Ara Hovnanian, president and chief executive, said in a statement.

Underscoring that point, the Commerce Department reported Tuesday that construction of single-family homes fell last month by almost 19%, the biggest drop in a quarter-century.

Wow! The company lost $450 million in the quarter, and looking at their balance sheet, their shareholder equity is $777.9 million. At that rate, perhaps they should just cease operations and give shareholders what money they can now, rather than try to survive two more quarters.

The Economist didn't see the financial crisis coming

The New York Times reflects on The Economist's 2008 predictions:

For 23 years, The Economist has issued bold predictions for the coming year in its thick December special issue. ...

“About 2008: sorry,” reads a note from the issue’s editor, Daniel Franklin, in the prediction edition for 2009. Who would have seen the financial crisis coming, Mr. Franklin asked? “Not us. The World in 2008 failed to predict any of this,” he said. ...

“Oh, and we expected that by now Hillary Clinton would be heading for the White House,” Mr. Franklin wrote.

Like me, The Economist saw the housing bust coming, warned about it repeatedly over the years, but completely missed the financial crisis it would cause. I feel somewhat comforted that my failure to foresee the broader financial damage was matched by people much more knowledgeable than me. (In fact, most econ Ph.D.s didn't even believe there was a housing bubble.)

I was fearful of anything having to do with Fannie Mae, Freddie Mac, homebuilders, mortgage companies, and hardware retailers (e.g. Home Depot and Lowe's). I knew that Japan's earlier combined stock market/housing market collapse resulted in bad banks. Yet, I thought the economic damage would be "contained" to housing-related industries.

On the other hand, I've read the comments on this blog for several years, and many of you Bubble Meter readers did expect this. My hat's off to you.

As for the presidential election, at least The Economist got the political party right, but they had 50/50 odds going in.

U.S. housing loses $2 trillion in value

Bad news for homeowners from Zillow:

American homeowners will collectively lose more than $2 trillion in home value by the end of 2008, according to a report released Monday. ...

Some 11.7 million Americans are now "underwater," owing more on their mortgage balances than their homes are worth.

Keep in mind that it is $2 trillion that never would have existed without the housing bubble. For people who bought at the peak, however, that's no consolation.

McMansion Watch

Here's another McMansion from Fairfax Station, Virginia. I'll admit that I do like some McMansions, but this one to me is butt ugly.

The best investor became the worst

If your stock portfolio is down over the past year, take heart: It could be worse.

William H. Miller spent nearly two decades building his reputation as the era's greatest mutual-fund manager. Then, over the past year, he destroyed it.

Fueled by winning bets on stocks other investors feared, Mr. Miller's Legg Mason Value Trust outperformed the broad market every year from 1991 to 2005. It's a streak no other fund manager has come close to matching.

Mr. Miller was in his element a year ago when troubles in the housing market began infecting financial markets. Working from his well-worn playbook, he snapped up American International Group Inc., Wachovia Corp., Bear Stearns Cos. and Freddie Mac. As the shares continued to fall, he argued that investors were overreacting. He kept buying.

What he saw as an opportunity turned into the biggest market crash since the Great Depression. Many Value Trust holdings were more or less wiped out. After 15 years of placing savvy bets against the herd, Mr. Miller had been trampled by it. ...

"The thing I didn't do, from Day One, was properly assess the severity of this liquidity crisis," Mr. Miller, 58 years old, said in an interview at Legg Mason Inc.'s Baltimore headquarters. ...

Mr. Miller's picks read like a Who's Who of the stock market's biggest losers: Washington Mutual Inc., Countrywide Financial Corp. and Citigroup Inc.

"Every decision to buy anything has been wrong," Mr. Miller said. ... "It's been awful."

A couple of years ago when I saw his portfolio was full of home builders and mortgage companies, I knew he was headed for trouble. He owned stocks that have since gone to zero. On top of that, many investors have pulled out of his fund, giving him little capital to buy stocks with now that the market has fallen. There's little chance of him making the money back. Unfortunately, while I saw his errors in advance, I didn't see the errors in my own portfolio. With the notable exception of Warren Buffett, a lot of value investors are getting creamed.

Washington, DC metro area foreclosures

A picture is worth a thousand words:


These are the foreclosed homes currently for sale. Click on the image to see a full-size version. It looks like it says 307 in Washington, DC, 287 in Alexandria, VA, and 340 in Manassas, VA.

Want to buy a home?

NYU professor "explains" why foreclosure prevention efforts are failing

NYU-Stern School of Business professor Thomas F. Cooley has an article on Forbes.com "explaining" why foreclosure prevention efforts are failing. It all seems kosher until the second to last paragraph where he completely fabricates a sentence in the U.S. Constitution. He writes:

...the constitution provides that "Congress shall make no law impairing the obligations of contract."

In fact, the Constitution says no such thing. He has thrown together the first five words of the First Amendment and then appended a very loose paraphrasing of Article I, Section 10, which applies only to the states. To make matters worse, apparently nobody at Forbes noticed the error before publishing it. After reading that whopper, I decided I couldn't trust any of the other claims he was making in the article.

With business school professors like this, no wonder Wall Street is in trouble. —And still, business school professors get respect and housing bubble bloggers do not.

Thanks but no thanks to Greg Mankiw for linking to that article.

McMansion Watch: Near Me McMansion

You can't see it in the photo, but it's got vinyl siding on three sides.


Two years ago, when I was kicked out of my old apartment when it almost went condo, I moved to my current apartment in Centreville, Virginia. Since then I've been tracking the prices on a local McMansion community in the area, the homes of which were valued in the $850,000-$950,000 range at the time. As recently as a few months ago, they were valued by Zillow in the $650,000-$750,000 range and Zillow shows two recent sales (before the Lehman Brothers collapse) in that price range.

So, now I am shocked to see this. A house in the neighborhood, which is a good representation of the norm—in fact, it may be slightly on the large size—is now valued by Zillow at $667,500. But that's not all. It is listed for sale at $549,900! (It is being sold "AS-IS". A bank-owned home, perhaps?)

Zillow says it was worth $968,000 at its peak in 2005. That means this former almost-million-dollar home has fallen by roughly $400,000 in three years.

Also, this townhouse in the same general area sold for $514,855 four years ago. It is now listed for sale at $333,000.

The Prince William County housing implosion is slowly moving inward toward D.C.

May you live in interesting times.

Help fight the automaker bailout

Click here to easily email the White House and your Congressmen.

9 1/2 Street NW, Washington, DC

9 1/2 Street NW in Washington, DC

Mortgage modifications failing

CNBC's Diana Olick says loan modification programs are failing:

According to the Comptroller of the Currency, John Dugan, who gave a preview of his latest Mortgage Metrics report:

“After three months, nearly 36 percent of the borrowers had re-defaulted by being more than 30 days past due. After six months, the rate was nearly 53 percent, and after eight months, 58 percent.” ...

I realize that there are a lot of public and private sector programs really trying to help troubled borrowers, but the fact of the matter is that a lot of troubled borrowers are beyond help. And instead of spending so much time focusing on trying to modify these loans, perhaps we need to look at the problem from a different perspective. ...

Unless the lenders or investors or government officials are willing to simply throw the loan out and give away an awful lot of house to an awful lot of borrowers, modifications, and certainly "mass modifications" which a lot of government types are pushing, are just exacerbating the problem.

Diana Olick promotes a fantastic alternative at the end of this video: Let the properties go into foreclosure, sell them to people who can afford them (i.e. renters like us), and let the free market work. What a novel idea! There's no way politicians will go for it.

The whole "prevent irresponsible homeowners from losing their homes" effort is by definition a "prevent responsible renters from buying homes" effort.

An interesting comment

An interesting comment left by a Bubble Meter visitor. Does anyone have a useful answer?

Stocks

Dude, seriously. Since 1825? OMG.

Foreclosures Rate Set to Remain Very High

In the past year and a half we have experienced a a very high rate of foreclosures. This high rate of foreclosures will continue for at least another few years.

In a research note titled "Foreclosure Update: over 8 million foreclosures expected" (no link, hat tip Frank) updated last week, Credit Suisse analysts are now forecasting 8.1 million homes will be in foreclosure by the end of 2012, representing 16% of all households with mortgages

The analysts projected this could be as low as 6.3 million in a mild recession, with a somewhat successful loan modification program (re-default rates at around 40%), and as high as 10.2 million in a more severe recession. Via Calculated Risk.

These are reasonable foreclosure estimates by Credit Suisse. The huge job losses (530K in November) that are occurring, will make a very large contribution to the millions of foreclosures that are coming in the next 3 years. Of course, this huge wave of foreclosures and large job losses will put strong downward pressure on home prices.

Dean Baker warned us of severe recession two years ago

...And so did Bubble Meter.

Here's what Dean Baker had to say in 2006:

The decline in housing prices will sharply limit the extent to which people can borrow against their home to support their consumption. This will cause savings to rebound from their current negative rates to more normal levels—at 6 to 8 percent of disposable income—but will be associated with a sharp falloff in consumption.

Together these effects virtually guarantee a recession, and probably a rather severe recession. Even worse, there is no easy route to recovery from a recession that results from a collapse of a housing bubble...

The crash and post-crash world will not be pretty. Millions of people will lose their jobs and their homes. Unfortunately, the economists who led us down this path are not likely to be among the ones who suffer severe consequences.

And Bubble Meter:

Simply put, there are too many things that are unsustainable in the US economy. As the housing market continues to decline, it will push the US economy over the tipping point and solidly towards a recession.

Don't you hate it when bubbleheads are right? —Early, but right.

Are you as prepared for a dollar collapse?

From xkcd:

Foreclosures surging

Third quarter foreclosures are up 76% year over year:

A record 1.35 million homes were in foreclosure in the third quarter, driving the foreclosure rate up to 2.97%, the Mortgage Bankers Association said Friday.

That's a 76% increase from a year ago, according to the group's National Delinquency Survey.

At the same time, the number of homeowners falling behind on their mortgages rose to a record 6.99%, up from 5.59% a year ago, the association said.

This means that one in 10 borrowers in America are either delinquent or in foreclosure.

Many of those troubled borrowers are in California and Florida, which have among the highest delinquency rates in the nation.

The weakened economy and mounting job losses are expected to push these numbers even higher.

Americans rapily losing jobs

There have been 1.9 million job losses so far this year, with one quarter of those losses occurring in the last month:

The economy shed 533,000 jobs in November, according to a government report Friday — bringing the year's total job losses to 1.9 million.

November had the largest monthly job loss total since December 1974.

According to the Labor Department's monthly jobs report, the unemployment rate rose to 6.7% from 6.5% in October. Though lower than economists' forecast of 6.8%, it was the highest unemployment rate since October 1993. ...

November's monthly job loss total was greater than October's revised loss of 320,000. Payroll cuts in September were revised up to 403,000, which means two-thirds of this year's job losses have occurred in the last three months.

November's report provided the first glimpse at how employers reacted after the peak of the credit crisis, reached in mid-October. With credit largely unavailable and expensive, consumers scaled back their spending, dragging down manufacturing and construction businesses. ...

With the economy in a recession and most economic indicators signaling even more difficult times ahead, economists say job losses will likely deepen and continue through at least the first half of 2009. ...

According to a report by outsourcing agency Challenger, Gray & Christmas, planned job cut announcements by U.S. employers soared to 181,671 last month, the second-highest total on record.

Treasury wants to reinflate the housing bubble

The U.S. Treasury apparently wants to fight the symptom by recreating the problem:

The plan, which is in the development stage, would temporarily use the clout of mortgage giants Fannie Mae and Freddie Mac to encourage banks to lend at rates as low as 4.5%, more than a full point lower than prevailing rates for standard 30-year fixed-rate mortgages.

Economist Tim Duy thinks this is "potentially very bad policy":

The key word here is “temporary,” implying a sunset clause. This is a program, however, that screams permanency. Once the federal government defines a right to low rate mortgages, they will find it very hard to reverse their position. ... Why? Because at some point in the future, revoking the right will create classes of winners and losers, especially if it results in a steep rise in mortgage rates. And the losers will fight tooth and nail to prevent that rise; just imagine the army of lobbyists from home builders and realtors that will descent on Washington. ...

Perhaps I worry too much. Perhaps it really will be temporary. Consider, however, who is behind this proposal:

The Treasury plan is similar to ideas previously floated by the National Association of Realtors and the lobby group for home builders...

I can only think of Adam Smith’s warning:

The proposal of any new law or regulation which comes from [businessmen], ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.

What is the alternative? Stop focusing on the housing market. Stick to policies that will be revocable when necessary. There are virtually unlimited opportunities for good policy in education, infrastructure, and health care, to name a few (Rebecca Wilder fears there may even be too many).

WSJ skewers Barney Frank and Sheila Bair

The Wall Street Journal skewers Congressman Barney Frank and FDIC Chairwoman Sheila Bair:

What do you do if you've spent your career encouraging mortgage loans to people who can't repay them? Barney Frank's answer is to grill federal officials on why they aren't preventing foreclosures. Infuriated at the difficulty of modifying mortgages, the Beltway crowd doesn't understand that such contracts weren't designed to let people live in houses they can't afford.

Still, at a recent hearing of his Financial Services Committee, Mr. Frank received encouraging words from FDIC Chair Sheila Bair. She outlined her ballyhooed plan to prevent an estimated 1.5 million foreclosures by the end of 2009. ...

What we have here is another uncharted voyage into the land of taxpayer risk, and for little economic gain. We can only hope that news of the FDIC program doesn't encourage more people to stop paying their mortgages as they await rescue from Sheila Bair.

NYC luxury housing market starting to experience problems

There's nothing like a financial crisis to ruin the New York City luxury housing market:

For a while, even as the rest of the housing market sputtered, the luxury sector had looked strong, wealthy home buyers packing cash were largely unaffected by the mortgage meltdown and foreign buyers, for a time, were still buying. Now…not so much, foreign buyers have lost interest, according to Barron’s, and “big stock-market losses, a sagging economy and massive layoffs in financial services are sorely affecting the liquidity, wealth and confidence of potential buyers of high-end homes.”

Those still in the market for a fancy house can find some huge discounts. ...

Because of the troubles on Wall Street and in the finance sector, the worst-off areas in coming months are likely to be Manhattan and surrounding suburbs...

All told, luxury-home prices in and around Manhattan could drop by as much as 20% to 25% over the next 12 to 15 months...

Lereah & Others Missing The Housing Bubble

From a blog at The Atlantic:

Unless I were allowed to rely exclusively on David Lereah (until recently the permabullish economist for the National Association of Realtors) I would be hard put to find one economic expert who had completely missed the housing bubble, much less write an entire article consulting no one else.

David Lereah definitely missed and dismissed the housing bubble. If one goes back to 2004, 2005 or even 2006 there were plenty of economic experts who had completely missed the housing bubble including economists at Harvard the Federal Reserve and at other prominent institutions.

Americans expect housing prices to bounce back soon

Some people never learn:

Many Americans still see real estate as their best shot at wealth. In survey after survey, people expect prices to bounce back — in some cases, as soon as six months from now.

Those hoping for a quick rebound are likely to be disappointed. Economists and other pros generally say home prices won't bottom out before the second half of 2009, and some don't see a bottom until 2011 or 2012. Even when they stop falling, prices may scrape along the bottom of the rut for years.

Foreclosure modification programs still falling behind

Foreclosure modification programs can't keep up with the growing mass of foreclosures:

The nation's top banking regulator warned Tuesday that help for troubled homeowners is failing to keep pace with the foreclosure crisis.

"We're definitely behind the curve, and we fall further behind the curve every day," FDIC Chairwoman Sheila Bair told an audience at the Fortune 500 Forum in Washington, D.C.

According to Bair, the nation's financial system would be in much better condition today if earlier warnings she made about mortgage modification had been heeded.

Bair began sounding the alarm more than two years ago, warning that lenders had to shore up capital reserves to offset non-performing loans. In October 2007, she told lenders that they should start modifying more at-risk mortgages so borrowers could afford to stay in their homes.

Meanwhile the mortgage mess has ballooned, expanding beyond the housing market into the entire financial sector and the overall economy.

What Sheila Bair doesn't seem to understand is that in the bubble markets of the east and west coasts, high mortgage costs and declining home prices mean many people would be better off financially if they lost their home to foreclosure and became renters.

Since the cost of renting is still significantly less than the cost of owning, people who get "help" are still likely to be paying more for their mortgage than they would pay to rent an equivalent home. Furthermore, since housing prices are still falling, and are likely to for several more years, people who get "help" will likely find their negative equity is continuing to grow.

That said, the emotional cost of foreclosure may be worse than the financial cost of remaining homeowners.

U.S. officially in recession

I'm sure you've all heard this by now: The United States is officially in a recession.

The National Bureau of Economic Research—a private, nonprofit research organization—said its group of academic economists who determine business cycles decided that the US recession began last December.

The news pushed US stocks lower and renewed calls for another economic stimulus program.

The current recession, which many economists expect to persist through the middle of next year, is already the third-longest since the Great Depression, behind only the 16-month slumps of the mid-1970s and early 1980s.

"I think that we've got a ways to go, that this is going to be probably a deep and long recession," Jeffrey Frankel, a Harvard University economist who sits on the NBER's committee, told CNBC. "It could be the worst post-War recession. We don't know yet." ...

Many Wall Street financial institutions already had declared that the US recession began in December 2007, when there was a sharp increase in the US unemployment rate.

The last two recessions have been so short—about eight months—that the NBER's official prenouncement came after the downturn had actually ended. ...

What's been confusing for economists this time around is that a contraction in gross domestic product—what laymen consider a key recession indicator—did not happen until the third quarter of this year.

Other key barometers, such as payrolls and the jobless rate, have clearly been in a recessionary trend for most, if not all, of the year, economists say. ...

A senior adviser to U.S. President-elect Barack Obama said news that the United States has been in a recession for a year underscored the need for an economic stimulus package.

Lawrence Summers, tapped by Obama to become director of the White House National Economic Council, said the slump may be worsening.

Based on the currently available numbers, it does not (yet) look like this recession is deeper than the early 1980s recession, but it will almost certainly be longer—possibly much longer. What should the government do in response to this extended recession? See here.

To my readers: I hope you will do your patriotic duty and buy your family lots of presents this holiday season—And buy a few gifts for yourself too. This doesn't mean you just go out and buy a bunch of junk. Instead, think of things you would likely buy at some point in the future, and simply move the purchases forward in time. Your nation's economy is depending on you.

Ignoring the housing bubble—What a great idea you guys had, Messrs. Greenspan and Bernanke!

Stock market wipeout today!

The DJIA is down 680 points today, on news that we are officially in a recession. (We're in a recession? Gee, what a shocker!)

Hovnanian, R.I.P.?

It looks like homebuilder Hovnanian is in a heck of a lot of trouble:

Hovnanian, the big New Jersey-based homebuilder, got a big no thanks from its bond holders [last] week. The company had tried to reduce its massive $1.6 billion debt load by offering bondholders new securties paying 18% interest. The catch was they had to accept just 60 cents on the dollar for their outstanding notes. Just $71 million worth of bonds were tendered.

The move was an attempt to preserve some assets for stockholders, including the 18% of the shares owned by management and the Hovnanian family, says the debt watchers at the research firm Gimmie Credit.

Over the past twelve months, the company lost $17.16 per share. Hovnanian's stock was recently trading for $2.19 per share.