Archive for April 8, 2009

Be Cautious Traveling Through North Florida Easter Week

Be aware that there are a lot of flooded areas.

Per First Coast News:

According to the Florida Division of Emergency Management, officials blame record flooding for the deaths of two people. Recent heavy rains have forced transportation officials to close 253 roadways and 23 bridges so far. Most of the seven major rivers west of Tallahassee have already crested, smashing flood stage records set in 1948.

They continue monitoring waterways and bridges east of Tallahassee, especially in the Suwannee River area from Interstate 10 south to the Gulf. Emergency officials say rivers and water in low-lying areas continue rising and they might even have to close Interstate 10 if conditions worsen.

If your GPS navigation system is anything like mine, it WILL attempt to reroute you through some roads that may be even less safe in the event your main route is closed. Be careful.

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Pulte Acquires Centex

April 8 (Bloomberg) — Pulte Homes Inc. agreed to buy Centex Corp. for $1.3 billion in an all-stock deal that creates the largest U.S. homebuilder by revenue and throws each of them a lifeline in the worst housing decline since the 1930s.

The first consolidation of publicly traded homebuilders since the bursting of the real estate bubble may also be the last because it’s easier to buy land than take on the troubles of rivals, said Ivy Zelman, a former Credit Suisse Holdings analyst who now runs her own New York-based research firm. The 13 largest U.S. homebuilders have lost 81 percent of their value since the July 2005 peak, according to Standard & Poor’s.

Centex, which initiated the sale, and Pulte are betting that by combining companies they will be better able to survive the longest housing slump since the Great Depression, with new home sales down more than 75 percent since their 2005 peak.

“This is really good because not only are there too many homes, there are too many homebuilders,” said Vicki Bryan, a senior high-yield bond analyst for New York-based Gimme Credit LLC. “Cash is king and this gives them $3.4 billion, the most in the industry, which means they don’t need the banks.”

Pulte agreed to pay 0.975 of a share for each Centex share, valuing Centex at $10.50, or 38 percent more than yesterday’s closing price, the Bloomfield Hills, Michigan-based company said today in a statement. The transaction, approved by both companies’ boards, includes $1.8 billion in net debt.

If I thought either company built good houses, I *might* be saddened by the news. As it is, I wouldn’t buy one of their houses or lose any sleep if they were both to go out of business. I consider the nationwide building companies to be a huge part of why the housing market is so overbuilt in Florida.

/And why insurance rates are so high.

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Similarities Between Today’s Situation and Great Depression

Interesting article in the Wall Street Journal. Read the entire article here, as I’ve merely excerpted the conclusion:

In an important paper in 1983, Ben Bernanke argued that during the Depression, severe damage to the financial system impeded its ability to perform its economic role of lending to households for durable goods consumption and to firms for production and trade. We are seeing this process playing out now as loan funds for automobile purchases have withered. Auto sales fell 41% between February 2008 and February 2009. Retail and labor markets too are now part of the collateral damage from the housing debacle. Housing peaked in early 2006. Losses from the mortgage market began to infect the financial system in 2006; asset prices in that sector began to decline at the end of 2006. Meanwhile, equities and the broader economy were performing well, but as the financial sector deteriorated, its problems blindsided the rest of the economy.

The events of the past 10 years have an eerie similarity to the period leading up to the Great Depression. Total mortgage debt outstanding increased from $9.35 billion in 1920 to $29.44 billion in 1929. In 1920, residential mortgage debt was 10.2% of household wealth; by 1929, it was 27.2% of household wealth.

The Great Depression has been attributed to excessive speculation on Wall Street, especially between the spring of 1927 and the fall of 1929. Had the difficulties of the banking system been caused by losses on brokers’ loans for margin purchases in 1929, the results should have been felt in the banks immediately after the stock market crash. But the banking system did not show serious strains until the fall of 1930.

Bank earnings reached a record $729 million in 1929. Yet bank exposures to real estate were substantial; as the decline in real estate prices accelerated, foreclosures wiped out banks by the thousands. Had the mounting difficulties of the banks and the final collapse of the banking system in the “Bank Holiday” in March 1933 been caused by contraction of the money supply, as Milton Friedman and Anna Schwartz argued, then the massive injections of liquidity over the past 18 months should have averted the collapse of the financial market during this current crisis.

The causes of the Great Depression need more study, but the claims that losses on stock-market speculation and a monetary contraction caused the decline of the banking system both seem inadequate. It appears that both the Great Depression and the current crisis had their origins in excessive consumer debt — especially mortgage debt — that was transmitted into the financial sector during a sharp downturn.

What we’ve offered in our discussion of this crisis is the back story to Mr. Bernanke’s analysis of the Depression. Why does one crash cause minimal damage to the financial system, so that the economy can pick itself up quickly, while another crash leaves a devastated financial sector in the wreckage? The hypothesis we propose is that a financial crisis that originates in consumer debt, especially consumer debt concentrated at the low end of the wealth and income distribution, can be transmitted quickly and forcefully into the financial system. It appears that we’re witnessing the second great consumer debt crash, the end of a massive consumption binge.

H/T Fresh Bilge

There was far too much easy credit for too long a time. My daughter was approved for credit cards when she was in high school and working a part-time job! Momma was NOT happy about that, but she made her payments. Unfortunately, many people (like high school age daughter) did NOT understand that making the minimum payment each month meant that they were going to owe on those cards for 30 years or more on things that were not assets but consumables.

Then there are the people that were buying houses and vehicles that they could not afford. Unfortunately, I know far too many good, well-meaning people who have new cars, new appliances, and new house who have to juggle bills every month to make the payments when both are employed. There is no cushion of savings for illness, accident, or periods of unemployment. The sudden increase in energy prices devastated their budgets for food, transportation, and electricity all increased suddenly and they didn’t have the budget to cover it. They are one paycheck away from financial disaster, and I fear for them.

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