New Home Sales Spike, Now Poised to Come to Earth
- May 27, 2010
May 27, 2010
By Dees Stribling, Contributing Editor
New home sales went through the roof in April, but only because the federal tax credit was propelling sales upward like a jet pack. According to the U.S. Department of Commerce, 14.8 percent more new homes were sold in April than in March. The annualized rate of new home sales was 504,000 in April, a whopping 47.8 percent more than during the same month last year.
The government-sponsored spur to new home sales seems to have been more potent in the Midwest and the West than other parts of the country, with the April total representing a 31.6 percent increase for the Midwest and a 21.7 percent increase for the West. Sales in the South were up 10.8 percent but the Northeast saw flat sales.
The jet pack is out of fuel. The question now is just how hard the market will come to earth.
FASB Proposes Mark-to-Market Change
The Financial Accounting Standards Board, which is the U.S. rule-setting body for corporate accounting, has proposed rules that would require banks to value loans at current prices–the long discussed, not-yet-implemented “mark-to-market” rules. Advocates of the move call it a blow for transparency in the financial industry.
The change would presumably include the valuation of a good many commercial real estate loans held by banks that were originated a few years ago and which have been extended lately. That might or might be a major problem for the loan holders by the time the rule changes go into effect in 2013.
Naturally, the banking industry doesn’t like the proposal one little bit. Not because it would cost the industry, of course, but because it would be bad for the economy, the bankers say.
“If implemented, the proposal would greatly undermine the availability of credit by making it difficult to make many long-term loans, the value of which, even if performing perfectly, would likely be reduced on the day a loan is made,” Edward Yingling, president and CEO of the American Bankers Association, said in a statement Wednesday.
GSEs Drank MBS Kool-Aid in Mid-00s
What happened to Fannie and Freddie? Edward DeMarco, acting director of the Federal Housing Finance Agency, said in a letter this week to ranking committee members in both houses of Congress that losses on private label mortgage-backed securities from 2005 to 2007 put the GSEs in the dire straits they find themselves in now.
“Investments in private-label MBS were primarily responsible for eliminating Freddie Mac’s preconservatorship net worth of $27 billion and played a significant role in the initial draws under the Preferred Stock Purchase Agreements,” DeMarco’s letter said. “Given that Fannie Mae had less than half the amount of private-label MBS as Freddie Mac, the overall impact was similar but less severe.”
Maybe it was nervousness over Euro-debt and the Greek contagion, or the oil spill, or uncertainty about the DeWyze-Bowersox contest, but in any case Wall Street had another down day–down in fact below 10,000 for the Dow Jones Industrial Average, which lost 69.3 points, or 0.69 percent. The S&P 500 lost 0.57 percent and the Nasdaq dropped 0.68 percent.