The attached chart shows why we are probably closer to the high end in mortgage rates and headed lower, rather than the popular view that they have bottomed out and are headed much higher.Every so often, a group of major real estate developers get together for a conference where folks try to look ahead. In order to protect my source, I won’t tell you which real estate/developer conference it was, but I’ve been given permission by my source to post this high-level view of what the people who put up real dough to develop properties are seeing. This is the info that I talked about with Jeff Rense on his radio program last night — Read it and weep:
“This week I attended the [serious players] fall conference. [serious players] is the top real estate industry group in the world. All the most senior people in the industry.
1. Not one expert was willing to predict what things will look like in 3 years other than they think it will be better.
2. One top economist said if you are a developer find another career for the next 3 years-there is nothing to do and it may be 5 years.
3. Recovery will be slow. Unemployment will not drop back to more normal levels until 2014. First they will bring back people on 4 day weeks to 5 days, then they will increase hours form the average 33 hours now, then part timers will become more full time, then they will start to hire.
4. Real estate values are down generally 40% and there is a huge need for value reset to occur.
5. Nobody knows what debt will look like when it returns other than it will be far more conservative. Nobody knows what securitization will be when it does return.
6. The rating agencies will operate differently. There is a discussion among some of us that there needs to be an agency probably of Treasury that collects fees of some sort from issuers each time there is an issuance of debt to be rated and that agency will then hire a rating agency to be a analyst firm to determine the quality of the issue. There will definitely not be a continuation of investment bankers hiring the raters and paying them directly. There needs to be a rule that the I bankers cannot talk to the raters. There was far to much threats of withholding fees, and other inducements to the raters before making ratings about as accurate as appraisals which were also paid for by I bankers who needed high appraisals to justify the over leveraging.
7. Housing in some bad markets is still bad and the first time buyer credit is making it a somewhat phony market. Phoenix has 45,000 housing lots so there is a literal lifetime supply of lots. Land prices in Phoenix, S CA and other markets are 50% of the cost of the infrastructure installed on finished lots. The land has zero or negative value. In most areas it will be at least 5 years before any of this land will get built out in any quantity.
There are still 2-3 million too many houses in the US.
8. This time is really very different than any recession in the past
9. The US is no longer the world economic leader and will not lead the world out of this mess.
10. Real estate will once again be an investment and not the trading vehicle it became which is what led to this crisis.
11. We will go back to financing real estate with long term debt, and not the short term floating rate debt used to all a quick flip.
12. The Internet completely changed unemployment trends. Instead of just pumping up the US economy and bringing back production jobs, the Internet has caused the entire world to be competitors for many jobs in the US. It ranges from call centers to research, financial analysis, medical research, and on and on. This may be one of the most historic changes in history and one everyone needs to be aware of. It likely means wages in the US will be reduced below where they might have been were it not for this competition.
As several economists put it, the young in China and India and other Asian countries are hungry to get ahead and enjoy the good life, while US kids feel entitled and poorly educated. Those of us who built businesses were very hungry. Today there are still some like us, but many are too comfortable and unwilling to really sacrifice to make it like we were. The Asians want to learn. Our young people think they already know it- whatever it happens to be.
13. The 3rd Q GDP number is inflated by clunkers, home buyer subsidy, etc.
Growth next year will be more like 1%-2% in the first part of the year.
14. Inflation will return in 3-4 years
15. US corporations are sitting on record cash balances way beyond any they ever had. They will be doing more acquisitions.
16. The best market in the US is Washington DC. For obvious reasons
17. Investors fled real estate — completely fled real estate in the early 90’s. This time they see the long tern opportunity to create wealth and will be back as soon as the opportunity to buy appears
18 There is an enormous amount of cash on the sidelines
19. The Fed is intentionally holding rates at zero to try to force investors to invest in longer term riskier assets instead of collecting nothing on money market or CD’s.
20 The banks are still weak.
21 All values are still dropping and we have only gotten to 80% of the drop so far. Office and retail are only 80% there, industrial is only 60% and will be hurt by further inventory liquidation and lower levels carried going forward. Rents are only 75% of the way to the bottom.
22. In the 90’s it was easier to fix the problem because the damage was much more confined to a small number of large new buildings which were revalued and then rerented. Now the damage is widespread and covers a lot of older buildings so it will take a lot longer to solve. Quality really matter now. The best buildings will return, a lot of others will struggle.
23. Office vacancy will hit 18.6% nationally, retail 23%, and multifamily 8%.
24. The unwind of the massive Fed stimulus is critical to how it goes. Everyone thinks Bernanke is great but nobody ever did this before -it is truly uncharted waters. Then there is the politics and what will the rest of the world do.
25. As you will read below there will not be the massive foreclosure and asset disposal we all expected. The lenders are going to hold on. When assets do come to market prices will be higher than they should be due to very few deals being chased by massive dollars. There is already evidence of this in the multifamily market.
26. Mobile phones, and other devices are now becoming all sorts of tools and multiple use devices. Social networking is growing faster than anything anyone can imagine. The growth rates are beyond comprehension. This is where everything in the world is going from ordering food or reserving a car on Zip Car, to reading the news or anything. If you are over 30 you can’t grasp what is happening and how fast. The growth in usage is by tens of millions in months, and it is worldwide. You can’t get your mind around this. There has never been anything in modern times that even is remotely like this. The growth rate makes the growth in TV usage look like it was glacial. This is the biggest transformation of how the world functions in maybe hundreds of years. You need to learn all about this or get run over.
Here is the real stunner. A senior person at Treasury said to a small group of us that it is now official Treasury policy to extend and pretend on real estate loans. In other words, the policy statement from last week says, if you can make an analysis that says even if the current value is less than the loan, if you can do a spreadsheet that shows if you extend for 3-5 years, and if the economy gets better, and if the loan can be amortized down to where the loan is no longer more than the value, then the lender does not have to take an impairment -write down. Loans are to be modified by rate reductions, deferral of reserves, deferral of amortization or what ever.
Just NOT principal reduction. This is just like they are doing in housing.
Giant make believe. The free market seeking an equilibrium price is no longer economic policy. In short, the working of the free market is suspended. She went on to say it was administration policy that they will create new employment and by doing so they will boost the economy, and so then real estate values will return to old levels. There were 50 of the most senior and smartest real estate people in the room. They ripped her to pieces. It looked like one of the town hall meetings of August, except everyone there was a very senior, polished professional. At one point everyone was calling out or moaning at her. It was clear to all she had been given a few talking points and she was told to stick to them no matter how foolish she looked. The group told her in no uncertain terms this is terrible public policy. They said for jobs to be created you need to lower rents so the cost of occupancy was at a level to encourage more hiring. If the loan is kept at old levels and building values not reduced, then landlords can’t reduce rents to where they need to be to make taking space by tenants economically viable. Retailers costs remain higher than they should be making it harder to lower prices to induce sales. So there is a massive make believe going on. When I pressed the issue of political interference she said -what do you want us to do, bankrupt all the banks.
That is the choice.
What does this tell you?
A. The problem is going to take much longer to solve than it should,
B. The banks are still very weak, so lending will not return anytime soon,
C. A massive refi problem is getting deferred to 2013-2015.
D. The administration is playing politics with the economy to a degree that is dangerous. There has to be a massive value reset for real estate. We are deferring the inevitable.
I think we captured a lot of what was said in various panels and conversations. We have a long way to go and the government is making it harder to fix the problem.”
Although one of the reviewer - a senior fellow at a firm I can’t mention thought it was a tad ‘too negative’ it sounds about spot-on. This actually fits in with the model that I’ve outlined here multiple times. Specifically, that the country is in a modern re-run of the Great Depression and it’s going to be a decade (or longer) event. No mistaking it, however: There are key differences:
In the Great Depression (I) people lost about $475 per capita (constant dollars) in the first three years of the event. The losses since the initial decline from the top in the Internet Bubble has been much less but the Dow has never regained its once lofty heights since then on a purchasing power basis. The bank bailouts of 2008/09 cost each person about $680 per capita ex car bailouts. More if you toss those in.
FDIC has prevented bank losses from being immediately realized, however FDIC is ought of dough. As evidenced in the senior-level talks most aren’t privy to, Treasury and the Fed are trying to do whatever they can to get real estate other than residential to ‘pencil out‘ so as not to have to cope with more balance sheet erosion.
Since the problem is moving at glacial speed on the way down, with everyone pushing actually addressing debt liquidation as a “Yeah, some day maybe we’ll get to that…” it means that we could have another 10-20 years of misery ahead.
At some juncture it will become clear to the PowersThatBe that while a global internet/electronic consciousness may initially sound like a good thing, the blowback is significant: national borders and national employment agendas have been thrown under the rails. People everywhere are bidding on all kinds of jobs and that could throw the power structure into unanticipated chaos.
Just as WW II provided - ultimately - the end of the first Great Depression, the end of the Second Depression is likely to involve war as a means to bind humans together under national banners and causes, which can once again be orchestrated by the PTB. Foremost among the agenda items will be removal of manufacturing capability (’scarcity builds price’) and control of resources. Which is why the Middle East and the Pakistan/India conflict are such important flashpoints, along with the Georgia/Azerbaijan regional stresses along the Muslim leaning Former Soviet Union (FSU) southern tier of states.
While the Dow picked up 27 points Monday amidst happy-talk about retail, I expect once we get a few weeks into the new year that reality will intrude, and that means reconciling declining earnings. And that means an ugly spring for stockholders, if my bead on things is right.
Damn, I’m bright & cheery, aren’t I?
Meanwhile, the Conference Board's Confidence Index came in at an expected reading of 52.9 (from 50.6 in November), all of the "improvement" in confidence came from rosy future expectations, which rose to a two year high of 75.6 (from 70.3 previously). As for the present: current conditions plunged to another record low of 18.8. Never before has the differential between present pain and future hope been so wide.
The meltdown of the U.S. housing market is not over yet, and home prices will soon start trekking downward again as a flood of foreclosures looms, a well-known economist said Wednesday.
Mark Zandi, chief economist at at Moody's Economy.com in West Chester, Pennsylvania, said in an interview with Reuters home prices will resume their decline by early next year as foreclosure sales pick up again.
"The housing crash is not over," he said.
The U.S. housing market has suffered the worst downturn since the Great Depression, and its impact has rippled through the recession-hit economy as well as the rest of the world. A setback for the hard-hit housing market could portend problems for the U.S. economy.
Home prices, as measured by the Standard & Poor's/Case-Shiller U.S. National Home Price Index, will trough in the third quarter of 2010 after declining 38 percent, Zandi said.
The index peaked in the second quarter of 2006 and hit a trough in the first quarter of 2009, a drop of about 32 percent. Home prices in many regions have been rising.
That is because foreclosure sales fell over the summer and fall as mortgage servicers have tried to put stressed homeowners into the Home Affordable Modification Program and other modification plans, he said.
"This lull in foreclosures sales has resulted in the price gains in the past few months," he said.
"Foreclosure sales will increase, and home prices will resume their decline by early 2010 as mortgage servicers figure out who will not qualify for a modification," he said.
Zandi said 7.5 million foreclosure sales will have taken place between 2006 and 2011. The majority of these sales, however, have not emerged yet, with 4.8 million foreclosure sales expected between 2009 and 2011.
Attractive rates and high affordability have been positives for the U.S. housing market, which has been showing signs of stabilization.
Sales have surged in recent months as buyers scrambled to take advantage of the government's first-time home buyer tax credit, which was originally set to end Nov. 30.
Last month the Omaha administration extended the $8,000 first-time home buyer tax credit, added a $6,500 credit for home owners buying a new residence, and increased income limits. Eligible borrowers must sign contracts by April 30 and close loans by June 30.
Zandi said another significant obstacle to a housing market recovery is the number of mortgages that are "underwater," where borrowers owe more for the loan than the residence is worth.
This negative equity disqualifies many homeowners from refinancing and prevents some from selling their homes.
Borrowers in negative equity are also more prone to defaults and foreclosures. Zandi said about 25 percent of single-family homes with mortgages have negative equity.
"With so many homeowners so deeply underwater and unemployment very high and on the rise, the foreclosure crisis will continue putting more pressure on home prices," he said.
The U.S. Labor Department said the unemployment rate reached a 26-1/2-year high of 10.2 percent in October. November's unemployment rate in November will be announced Friday.
"Our house price outlook is dependent on two other key assumptions, including a more stable job market by early 2010 and that interest rates on fixed-rate mortgages remain well below 6 percent throughout the year," he said.
The unemployment rate will peak at 10.7 percent in the third quarter of 2010, Zandi forecast.
| WSJ BLOG/Developments: Young Folks Giving Houses Back To Banks | |
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Posted By Dawn Wotapka The housing crash has come to this: With so many Americans owing more on their homes than they're worth--in some cases hundreds of thousands of dollars--more are debating walking away, or halting payments they can afford and waiting for foreclosure. |
| Jobless Rate Suggests More Pain To Come In Housing Market | |
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NEW YORK (Dow Jones)--Fannie Mae (FNM) reported eye-popping losses as a result of the sharp deterioration in home loans it had guaranteed, and warned that its credit losses would continue to mount into next year. |
FOR decades, when troubled homeowners and banks battled over delinquent mortgages, it wasn’t a contest. Homes went into foreclosure, and lenders took control of the property.
On top of that, courts rubber-stamped the array of foreclosure charges that lenders heaped onto borrowers and took banks at their word when the lenders said they owned the mortgage notes underlying troubled properties.
In other words, with lenders in the driver’s seat, borrowers were run over, more often than not. Of course, errant borrowers hardly deserve sympathy from bankers or anyone else, and banks are well within their rights to try to protect their financial interests.
But if our current financial crisis has taught us anything, it is that many borrowers entered into mortgage agreements without a clear understanding of the debt they were incurring. And banks often lacked a clear understanding of whether all those borrowers could really repay their loans.
Even so, banks and borrowers still do battle over foreclosures on an unlevel playing field that exists in far too many courtrooms. But some judges are starting to scrutinize the rules-don’t-matter methods used by lenders and their lawyers in the recent foreclosure wave. On occasion, lenders are even getting slapped around a bit.
One surprising smackdown occurred on Oct. 9 in federal bankruptcy court in the Southern District of New York. Ruling that a lender, PHH Mortgage, hadn’t proved its claim to a delinquent borrower’s home in White Plains, Judge Robert D. Drain wiped out a $461,263 mortgage debt on the property. That’s right: the mortgage debt disappeared, via a court order.
So the ruling may put a new dynamic in play in the foreclosure mess: If the lender can’t come forward with proof of ownership, and judges don’t look kindly on that, then borrowers may have a stronger hand to play in court and, apparently, may even be able to stay in their homes mortgage-free.
The reason that notes have gone missing is the huge mass of mortgage securitizations that occurred during the housing boom. Securitizations allowed for large pools of bank loans to be bundled and sold to legions of investors, but some of the nuts and bolts of the mortgage game — notes, for example — were never adequately tracked or recorded during the boom. In some cases, that means nobody truly knows who owns what.
To be sure, many legal hurdles mean that the initial outcome of the White Plains case may not be repeated elsewhere. Nevertheless, the ruling — by a federal judge, no less — is bound to bring a smile to anyone who has been subjected to rough treatment by a lender. Methinks a few of those people still exist.
More important, the case is an alert to lenders that dubious proof-of-ownership tactics may no longer be accepted practice. They may even be viewed as a fraud on the court.
The United States Trustee, a division of the Justice Department charged with monitoring the nation’s bankruptcy courts, has also taken an interest in the White Plains case. Its representative has attended hearings in the matter, and it has registered with the court as an interested party.
THE case involves a borrower, who declined to be named, living in a home with her daughter and son-in-law. According to court documents, the borrower bought the house in 2001 with a mortgage from Wells Fargo; four and a half years later she refinanced with Mortgage World Bankers Inc.
She fell behind in her payments, and David B. Shaev, a consumer bankruptcy lawyer in Manhattan, filed a Chapter 13 bankruptcy plan on her behalf in late February in an effort to save her home from foreclosure.
A proof of claim to the debt was filed in March by PHH, a company based in Mount Laurel, N.J. The $461,263 that PHH said was owed included $33,545 in arrears.
Mr. Shaev said that when he filed the case, he had simply hoped to persuade PHH to modify his client’s loan. But after months of what he described as foot-dragging by PHH and its lawyers, he asked for proof of PHH’s standing in the case.
“If you want to take someone’s house away, you’d better make sure you have the right to do it,” Mr. Shaev said in an interview last week.
In answer, Mr. Shaev received a letter stating that PHH was the servicer of the loan but that the holder of the note was U.S. Bank, as trustee of a securitization pool. But U.S. Bank was not a party to the action.
Mr. Shaev then asked for proof that U.S. Bank was indeed the holder of the note. All that was provided, however, was an affidavit from Tracy Johnson, a vice president at PHH Mortgage, saying that PHH was the servicer and U.S. Bank the holder.
Among the filings supplied to support Ms. Johnson’s assertion was a copy of the assignment of the mortgage. But this, too, was signed by Ms. Johnson, only this time she was identified as an assistant vice president of MERS, the Mortgage Electronic Registration System. This bank-owned registry eliminates the need to record changes in property ownership in local land records.
Another problem was that the document showed the note was assigned on March 26, 2009, well after the bankruptcy had been filed.
Mr. Shaev’s questions about ownership also led to an admission by PHH that, along the way, it had levied an improper $450 foreclosure fee on the borrower and had overcharged interest by an unstated amount.
John DiCaro, a lawyer representing PHH at the hearing, was in the uncomfortable position of having to explain why there was no documentation of an assignment to U.S. Bank. He did not return a phone call seeking comment last week. Ms. Johnson, who couldn’t be reached for comment, did not attend the hearing.
According to a transcript of the Sept. 29 hearing, Mr. DiCaro said: “In the secondary market, there are many cases where assignment of mortgages, assignment of notes, don’t happen at the time they should. It was standard operating procedure for many years.”
Judge Drain rejected that argument, concluding that what had been presented to the court just did not add up. “I think that I have a more than 50 percent doubt that if the debtor paid this claim, it would be paying the wrong person,” he said. “That’s the problem. And that’s because the claimant has not shown an assignment of a mortgage.”
Mr. Shaev said he was shocked when the judge expunged the mortgage debt.
“We are in uncharted territory,” he said. “Right now I am in bankruptcy court with a house that has no discernible debt on it, yet I have a client with a signed mortgage. We cannot in theory just go out and sell this house because the title company won’t give a clear title on it.”
Among the next steps Mr. Shaev said he would take is to file an amended plan or sue to try to get clear title to the property.
Late last week, PHH appealed the judge’s ruling. But Mr. DiCaro and PHH are in something of a bind. Either they will return to court with a clear claim on the property — including all the transfers and sales that are necessary in the securitization process — or they won’t be able to produce that documentation. If they do produce it, they will then have to explain why they didn’t produce it before.
Oh, what a tangled web these mortgage lenders weave.
Green Vomit (9/25): How could anybody say this is a reasonable time to invest in real estate? You could either prove these numbers wrong, or you could check into the mental ward. Have you had your medication today?
DEBT BE NOT PROUD (8/11/09): One school of thought says excess debt must be paid off or written off before we will achieve dynamic growth. This "Low Debt" and "High Debt" chart of approximately the last 60 years shows that the magnitude of debt, whether it be corporate or household, could be far beyond reasonable. If this school is correct, then we may have many years or even a decade of slow growth. The only cure would be radical steps to reduce debt. If we are in the hang over of a world-record credit bubble, then the outlook for real estate investment is negative.
HISTORY'S TRENDS (8/5/09): The best research into credit bubbles says that property's value will fall through the summer of 2012 -- until three years from now. The good news is that the fall in values has nearly equalled the average fall of 35%. The bad news? What if we have a King-Kong credit bubble and it's actually not stupid to say "It's different this time."?
Monday, October 12, 2009
HOW BADLY DID the U.S. housing market crash? Well, just look at how much federal aid it has taken to stabilize it, at least for now. The Federal Reserve has bought almost $700 billion worth of mortgage-backed securities, with more to come. The Treasury Department is covering the losses of Fannie Mae and Freddie Mac. Congress has enacted tax credits to spur home buying, including an $8,000 bonus to first-time buyers that expires Nov. 30 but may well be extended. The Federal Housing Administration has dramatically expanded its mortgage insurance portfolio. The Obama administration offers government-backed refinancing to middle-income homeowners who are up to 25 percent underwater in their current mortgages.
Yet housing remains burdened by a huge backlog of unsold homes, which will probably grow since more foreclosures are on the way. And so the Treasury Department is contemplating yet more help, this time in the form of backstopping state-issued mortgage-revenue bonds, which are federally subsidized in that investors collect the interest tax free. During the boom, the states' housing finance agencies used these bonds to fund about 100,000 low-interest mortgages per year for lower-income home buyers. But since the bust, private bond buyers have shunned them, notwithstanding their tax-free status. At $4 billion this year, mortgage-revenue bond sales are running at a quarter of the pace they set in 2007, according to Thomson Reuters. The plan under discussion would have the government purchase about $20 billion worth of new bonds before the end of the year while insuring $15 billion in existing securities that states otherwise might be forced to redeem because they would not be tradable in the markets.
Administration officials are considering steps to limit the risk to taxpayers by, for example, charging a fee to back those bonds that Treasury does not buy outright. It is also true that, in the past, borrowers of bond-backed mortgages, well selected by the states, have defaulted relatively rarely. Of course, past borrowers didn't face anything like today's unemployment and foreclosure rates. Indeed, those conditions partly explain why private investors have bowed out of the market. As compared to other more direct forms of housing aid, mortgage-revenue bonds also come with high associated costs, in the form of fees for lawyers, rating agencies and underwriters.
Compared to the overall size of the huge housing bailout, this latest policy idea is pretty small beer. It does illustrate, though, that Washington is still in crisis mode when it comes to thinking about a vast, strategic sector of the economy. That's perhaps understandable, but it can't go on indefinitely. The financial crisis was partly the result of years of government-encouraged over-investment in residential real estate. When will the federal government start working on an exit strategy and a new, more rational housing policy -- one in which individual homeownership occupies a central, but less heavily subsidized, position? The answer, apparently, is not yet.
Foreclosures Grow In Housing Market's Top Tiers
New data suggest that foreclosures are rising in more expensive housing markets.
About 30% of foreclosures in June involved homes in the top third of local housing values, up from 16% when the foreclosure crisis began three years ago, according to new data from real-estate Web site Zillow.com. The bottom one-third of housing markets, by home value, now account for 35% of foreclosures, down from 55% in 2006.
The report shows that foreclosures, after declining earlier this year, began to accelerate in the late spring and that more expensive homes have more recently accounted for a growing share of all foreclosures. "The slope of that curve in recent months is much sharper than it was recently," said Stan Humphries, chief economist for Zillow. Rising foreclosures among more-expensive homes could create added pressure for a housing market that has shown signs of stabilizing in recent months as sales of lower-priced homes pick up.
The Zillow research compared homes against the median values for their local market and broke each market into three tiers by value. Zillow then looked at the share of monthly foreclosures in each tier over the past decade.
(This story and related background material will be available on The Wall Street Journal Web site, WSJ.com.)
Foreclosures are rising in more expensive markets as home values in those areas fall, leaving more homeowners with mortgages that exceed the value of their properties. Prime loans accounted for 58% of foreclosure starts in the second quarter, up from 44% last year, according to the Mortgage Bankers Association. Subprime mortgages accounted for one-third of foreclosure starts, down from one-half last year.
The prime category includes so-called exotic mortgages that were increasingly used to buy more expensive homes, including interest-only mortgages that allowed borrowers to defer principal payments during an initial period. Borrowers often aren't able to refinance out of these products because the drop in home values has left them with little equity in their homes.
Default rates are particularly high and expected to rise on option adjustable-rate mortgages, which allow borrowers to make minimum payments that may not cover the interest due. Monthly payments can increase to sharply higher levels after five years or when the outstanding balance reaches a certain level. A study by Fitch Ratings found that 46% of option ARMs were 30 days past due last month, even though just 12% of such loans have reset to higher monthly payments.
Zillow estimated that nearly one in four homes with mortgages was worth less than the value of the property at the end of June. Mr. Humphries said he didn't expect to see foreclosure volumes level off until later in 2010.
Is the Worst Over? Economic Indexes and the Course of the Recession in New York and New Jersey |
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| September 28, 2009 | |||
| Note To Editors | | ||
The Federal Reserve Bank of New York today released Is the Worst Over? Economic Indexes and the Course of the Recession in New York and New Jersey, the latest article in its series Second District Highlights.
Using coincident indexes – composite measures that gauge the level of current economic activity – for New York State, New York City and New Jersey, authors Jason Bram, James Orr, Robert Rich, Rae Rosen and Joseph Song analyze the area’s most recent recession and provide an update on the regional economy as of July 2009.
The indexes show that the New York-New Jersey region began to experience a severe economic downturn in 2008, several months after the onset of a national recession in December 2007. The authors note that this sequence of events differs from the 1990-91 and 2001 U.S. recessions, when regional downturns preceded the corresponding national trends. This delayed start suggests that the regional economy had more momentum and showed more resilience than the U.S. economy during the early stages of the national recession.
Job losses and rising unemployment were largely responsible for the steep declines in the regional indexes. Employment losses have been particularly marked in the region’s finance industry—a high-income sector that is a key driver of the region’s economy. During the downturn, weakness in this sector spilled over to supporting sectors such as business and professional services, resulting in additional job losses.
The pace of decline in the region moderated considerably in the spring of 2009 and leveled off in July 2009. However, the authors note that a period of ongoing job losses and rising unemployment may continue in the region even as the U.S. economy begins to recover, owing to the region’s historical tendency to lag the national recovery, the restructuring in the finance sector, and fiscal pressures arising from decreases in tax revenue.
Jason Bram is a senior economist, James Orr an assistant vice president and Joseph Song an assistant economist in the Microeconomic and Regional Studies Function of the Bank’s Research and Statistics Group; Robert Rich is an assistant vice president in the Macroeconomic and Monetary Studies Function of the Research and Statistics Group; Rae Rosen is an assistant vice president in the Regional Affairs Function of the Communications Group.
Here is the full report:
http://www.newyorkfed.org/research/current_issues/ci15-5.pdf
Continuing layoffs on Wall Street drove New York City’s unemployment rate to 10.3 percent in August, a 16-year high that underscores the need to retrain former financial services workers for other jobs, state officials said Thursday.
In the year since the Lehman Brothers investment bank collapsed and others had to be rescued from failing, the number of unemployed city residents has risen to more than 415,000, the highest total on record. The still-shrinking financial sector, which had been the main engine of employment growth in the city before the downturn, has essentially been declared to be in a state of emergency.
The State Department of Labor has begun using a “national emergency grant” of $11 million in federal funds to help those laid off on Wall Street shift into other fields, like health care and education. Emphasizing the need for such a shift, M. Patricia Smith, the state labor commissioner, said, “Our economists don’t see the financial-services sector ever coming back as strong as it was.”
Ms. Smith joined Gov. David A. Paterson and Assembly Speaker Sheldon Silver at a news conference in Lower Manhattan to discuss the latest jobs data and promote the retraining program. Mr. Paterson said the latest increases in the state and city unemployment rates showed that the recession was continuing in New York.
Referring to the recent pronouncement from Ben S. Bernanke, the chairman of the Federal Reserve, that the national recession is probably over, Mr. Paterson said, “What he’s saying about the national recession doesn’t apply to us.” He said New York faced at least another year of “tough sledding.”
The city’s unemployment rate, which rose from 9.5 percent in July, is now well above the national rate of 9.7 percent. Until July, unemployment had been the same or lower in the city than it was in the country for more than 18 months. Last month, the state’s unemployment rate rose to 9 percent, from 8.6 percent in July. Excluding the city, unemployment in New York State was 8 percent.
Still, Mayor Michael R. Bloomberg found a bright spot in the report. “While the job market is tight,” he said, “the city is losing jobs at less than half the rate of the rest of the country. This is an important sign that despite the challenges, people continue to be optimistic about the city’s future.”
Ms. Smith said the divergence between the city and the rest of the state was largely attributable to continued cutbacks on Wall Street and the ripple effect of the loss of those high-paying jobs. She emphasized that most of the Wall Street layoffs have involved mid- and lower-level workers who did not earn millions of dollars a year.
Under the retraining program that began in July, more than 450 people have begun classes to prepare for a career shift, and state officials say they have enough money to help at least 1,000 more.
One person in the program, Marisha Clinton, 39, of Prospect Heights, Brooklyn, said she lost her job analyzing technology stocks for Bear Stearns after it collapsed early last year. A year later, she was laid off by another securities firm.
Now, Ms. Clinton is using the $12,500 subsidy offered by the Labor Department to take courses at the New York Institute of Finance that might help her find other work.
“I’m keeping my options open,” Ms. Clinton said. “I’ve been working since I was 14 years old. I’d rather be working than not.”
The emergency federal grant went to New York. New Jersey and Connecticut, which received a combined $22 million to retrain people who have lost jobs since June 2008 at any of 31 companies — mostly large financial firms like Citigroup and Lehman Brothers.
Lana Umali, who worked for JPMorgan Chase for 20 years before losing her job in Manhattan last year, has already put Wall Street behind her. Ms. Umali, who lives in Middletown, N.J., used the state subsidy to help pay for courses to prepare her to work with elderly people. She is hoping to find work at a company that operates assisted-living facilities.
Immediately after she was laid off in June 2008, she said, “I was determined to go back into financial services. I never really thought about anything else.” But after a fruitless search, Ms. Umali said, “I got in touch with a whole other side of me.”
