Economic Update – Stocks, Housing See Unexpected Jump

After U.S. Treasury Secretary Timothy Geithner detailed plans to haul off about $1 trillion worth of the banking industry’s toxic assets on Monday–euphemistically called “legacy assets” by the government–the equity markets seemed happy about it. And about the fact that bond-fund giant Pimco, as well as BlackRock Inc., Colony Capital and others, have all said they would participate in the plan. Or maybe investors were buying stocks because everyone else is buying. In any case, the Dow Jones Industrial Averages shot upward to the tune of 497.48 points, or 6.84 percent, while the S&P 500 was up 7.08 percent and the Nasdaq gained 6.76 percent. Sales of existing houses also took an upward turn, which might have cheered Wall Street as well. According to the National Association of Realtors, sales of every kind of residence, including single-family houses, attached housing, condos and co-ops, rose 5.1 percent in February compared with January, to a seasonally adjusted annual rate of 4.72 million units. The reason? Bargains. “Because entry-level buyers are shopping for bargains, distressed sales accounted for 40 to 45 percent of transactions in February,” said Lawrence Yun, the organization’s chief economist. “Distressed homes typically are selling for 20 percent less than the normal market price, and this naturally is drawing down the overall median price.” The U.S. median existing home price, noted NAR, was $165,400 in February, down 15.5 percent from February 2008. But that average masks considerable regional variation. The median price in the Midwest was down 7.8 percent from a year ago, for example, while in the West the drop was 30.3 percent. Currently there are about 3.8 million residential properties for sale nationwide, or nearly a 10 months’ supply, which is unchanged from January. More woes in Vegas: Dubai World has filed suit against MGM Mirage, alleging that MGM is in breach of the joint-venture agreement that the company entered into when it sold Dubai World a half-interest in the CityCenter development on the Strip. The development is still slated to open later this year, but not on the scope originally planned when the sky was the limit a few years ago. According to Dubai World, which is the investment arm of the United Arab Emirates, MGM Mirage’s recent admission that it’s running on fumes (financial speaking) had endangered the development; Dubai World is also accusing MGM Grand of “mismanaging” the project, leading to cost overruns that Dubai World has had to pick up the tab for. In filing the suit, Dubai World is asking to be relieved of any further obligations under the JV. Small wonder the UAE wants to get free of the deal, as declining oil revenue and the contraction of international finance are putting downward pressure on its economy.