From Volume 7, Issue 10 of EIR Online, Published Mar. 4, 2008

U.S. Economic/Financial News

Revenue Shortfalls Mount Across the Nation

Feb. 25 (EIRNS)—Across the national landscape, states, counties, and localities, each week report new levels of financial bankruptcy. Wing-ding stimulus plans won't plug 18 states' current deficits, totaling $14 billion in the current budget, and 20 more expected for 2009, totaling $34 billion combined. As shortfalls mount, officials turn to austerity to balance budgets.

A sampling from around the nation:

Virginia: In Fairfax County, outside the nation's capital, officials expect the drop in home values to be worse than the 4% forecast in January, and to worsen an existing $220 million shortfall. "For a government that depends on real estate taxes for $6 of every $10 in its general fund, the additional drop will lead" to more cuts, the Washington Examiner reported. The county also will lose at least $26 million on investment income due to the Federal Reserve rate cuts.

Florida: Legislators next week begin debating how to cut $1-2 billion more from their budget, on top of $1.1 billion cut last Fall, when the housing bubble burst, and construction collapsed. Tax revenue to run the state next year is now projected to be less than the previous year for two years in a row, which will force the legislature to cut nearly 3% of a $70 billion budget, the St. Petersburg Times reported.

Washington: The state is lowering its revenue estimate $400 million, due to sagging tax collections.

Wisconsin: "Tough, very tough," is how Wisconsin Gov. Jim Doyle characterized his state's problems, including a $600 million shortfall.

Rhode Island: Gov. Don Carcieri (R) proposes to slash the state's workforce by 1,000 to help address an estimated $385 million shortfall next fiscal year.

Kentucky: Gov. Steve Beshear (D) has a $430 million shortfall this year and $930 million shortfall forecast over the two-year budget cycle beginning July 1.

Arizona: Gov. Janet Napolitano (D) has an estimated shortfall of $1.2 billion.

New Jersey: the state has a $3 billion-plus revenue hole, and Gov. Jon Corzine (D) was expected to announce a slash-and-burn budget on Feb. 26.

Home Sales Continue Collapse

Feb. 25 (EIRNS)—Financial media are reporting that the figures just released by the National Association of Realtors claim that sales of existing homes (and condos) fell a trifling 0.4% in January 2008, compared to the previous month, December 2007. However, compared to January 2007, sales are down 23.4%. In fact, according to MarketWatch, it's the "lowest sales pace since [NAR] began tracking combined sales in 1999." In addition, the inventory of unsold homes rose 18.4% (year on year), and median price again fell, 4.6% to $201,000.

Also feeling the pain, is number-two home improvement retailer Lowe's, which reported a 33% drop in fourth-quarter profits. Competitor Home Depot is expected to post similar losses later in the week. Lowe's CEO Walter Todd, in an interview with Bloomberg News, said he was tired of giving "overly optimistic" projections of revenue, only to be disappointed three months down the line. Realistically, he said, revenue may further decline 5-6% in the year through January 2009.

U.S. Foreclosure Filings Skyrocket in January

Feb. 26 (EIRNS)—Foreclosure filings nationwide soared 57% in January over the same month last year, according to RealtyTrac. A total of 233,001 homes were affected, 8% more than in December, with 45,327 lost to bank repossessions. California had the largest total, with more than 57,000 foreclosure filings there in January, one for every 227 homes. Florida had 30,000, one for every 273 households. Several states recorded massive jumps in the last twelve months: Rhode Island filings rose 279%; Maryland 430%; and Virginia 634%.

Home Prices Falling at Accelerating Rate

Feb. 27 (EIRNS)—Sales of new single-family homes dropped 2.8% in January compared to December, hitting the lowest annual rate in nearly 13 years, at 588,000. New and existing home sales, combined, have plunged to a rate of 5.5 million per year, a level characteristic of the 1970s.

The median sales price of a new home fell to $216,000, down 15.1% from a year ago, and down a whopping 33.9% from January 2007, according to the Commerce Department. This represented the biggest annual price drop since records began in 1963. The unsold inventory of new homes climbed to a 9.9-months supply at the current sales pace, the highest level since October 1981.

On Feb. 26, the S&P/Case-Shiller national home-price index for the fourth quarter plunged 9.1% from a year earlier, the largest decline since the index began 20 years ago. The accelerating drop in home prices means that already at the end of 2007, nearly 9 million homeowners had negative equity; that is, they owe more on their mortgage loan than the home is worth.

Households in that situation are effectively in "debt house arrest," trapped in homes on which they are in absolute debt, and unable to sell or move without being liable for tens of thousands of dollars in immediate cash debt payments. They are set up for a looming foreclosure. Housing economists estimate that when the house price plunge reaches 20% year-to-year nationwide (as it already has in parts of California, Florida, Virginia, and elsewhere), some 15 million of America's roughly 57 million mortgaged homes will be in this negative-equity trap.

Fannie Mae Posts $3.6 Billion Loss; Worse Is Yet To Come

Feb. 27 (EIRNS)—The government-sponsored enterprise Fannie Mae, the largest provider of mortgage financing, said its massive loss for the fourth quarter of 2007 was largely due to a $3.2 billion loss on derivatives contracts, combined with write-downs on the value of mortgage securities it either holds or guarantees. Warning of a "significant" worsening of defaults and foreclosures amid falling prices, Fannie Mae increased its "credit/loss ratio"—losses as a percentage of the home loans it guarantees—to a range of 11-15 basis points, up from 8-10 basis points it forecast in November.

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