News: 115 Bank Failures in 2009 And Counting… [news from MarketWatch.com]
Today was almost a double digit bank failure day and some are predicting triple digit day(s) before it is all over. Today’s 9 bank closings bring our 2009 total to 115 bank failures.
The Federal Deposit Insurance Corporation (FDIC) is expected to lose approximately $2.5 billion as of the end of September. With two more months left this year, it is reasonable to expect that cost to be $3 billion by the end of the year.
Counter Spin: 3.5% GDP Is Not Necessarily “Healthy”
The GDP numbers this week are artificial in the same way that buying that big screen television on credit increases your take-home pay. Are your really going to kid yourself that you got a raise? No? Then don’t let the GDP numbers fool you. There is a future price to pay.
The cash-for-clunkers represents 1.66% of the growth (http://www.businessinsider.com/chart-of-the-day-motor-vehicle-output-2009-10). The problem is that it compressed the timeline of a year’s worth of a certain kind of car buyer into a short time-span in Q3 2009, or as they say, “pulled forward future auto demand leaving behind a vacuum of these buyers for the next three quarters.
The first-time homebuyer tax credit of $8,000, expiring November 30, 2009 was responsible for approximately 20% of all home purchasing decisions, again pulling forward demand. This is likely responsible for another 0.1 – 0.25% of the GDP. Presently, it appears as if a homebuyer tax credit will be extended, repeating the cycle over the next 6-9 months.
BOTTOM LINE
The failing banks are mostly an expression of their non-performing assets (aka foreclosures). This is nothing new. But, with FDIC responsible for the non-performing assets, expect these foreclosures to hit the streets soon.
With the likely extension of a homebuyer tax credit to include existing homeowners, we should expect to see an additional pulling forward of housing demand, peaking about two months prior to the next sunset date. This will prevent / delay the second drop of a "W" shaped recovery
There are areas where the entry level housing inventory is under 1-month and prices have been on the rise since the beginning of 2009. If the tax credit is extended, then mid-priced homes are likely to see the same fate and even the higher end homes will see some benefit (perhaps reducing 9 years of inventory to 8).
If you are looking for a real estate deal, you need to do two things.
- Identify your property and negotiate your contract by the second week of January to get the lowest prices for the foreseeable future.
- Use the “Search by Price Discount” feature of http://FinestExpert.com. Simply specify a discount, say 20%, in your financial criteria and hit search.
Robert T. Boyer, Ph.D.
@RobertBoyer
@FinestExpert
