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Existing home sales drop in August after 4 monthly gains

According to the National Association of Realtors, existing home sales declined 2.7% in August to 5.10 million units, from 5.24 million in July; this follows gains in the previous 4 months during which sales rose a total of 15.2%. Lawrence Yun, NAR chief economist, said: “Home sales retrenched from a very strong improvement in July but continue to be much higher than before the stimulus. Some of the give-back in closed sales appears to result from rising numbers of contracts entering the system, with some fallouts and a backlog contributing to a longer closing process.” Yun cautioned that “we can’t take a housing rebound for granted” given the decline in August. Existing home sales are compiled from contract closings and may reflect purchases agreed upon weeks or months earlier. Total housing inventory at the end of August fell 10.8% to 3.62 million existing homes available for sale, which represents an 8.5-month supply at the current sales pace. The national median existing-home price for all housing types was $177,700 in August, down 12.5% from August 2008.

Fed to slow mortgage purchase; home loan rates likely to stay low

The Federal Reserve (Fed) had proposed last year – when the credit crisis peaked -- to buy as much as $1.45 trillion worth mortgage securities in 2009 in order to keep borrowing costs low for homeowners. The central bank has bought $775 billion worth of both mortgage-backed securities and debt from Fannie Mae, Freddie Mac and Ginnie Mae so far. The program, which was set to expire at the end of this year, has been extended through the first quarter of 2010. By slowing down mortgage purchase, the Fed hopes to avoid a sudden hike in borrowing rates if the Fed were to get out of the market all of a sudden. The Fed’s “primary goal is to avoid a shock to the market by suddenly shutting the programs down all at once,” said Christopher Low, chief economist at FTN Financial. As the Fed slows purchases, “they’re hoping other buyers will step in to avoid a sudden increase in mortgage rates,” said Low. Guy Cecala, publisher of Inside Mortgage Finance, expects rates for home loans to stay low “in the 5 percentage range” even though the Fed will slow its purchase of mortgage securities.

Luxury hotels may default on $24.5 billion debt

According to Realpoint LLC, a credit rating company that tracks commercial mortgage-backed securities, loans secured by more than 1,500 hotels with a total outstanding balance of $24.5 billion may be in danger of default. Luxury hotels with rooms costing over $800 a night have some of the biggest loans; decreasing occupancy and cash flows have put luxury hotels at significant risk. “All segments are showing signs of distress but the luxury segment carries much higher loan balances and is more clearly affected,” said Frank Innaurato, managing director of CMBS analytical services at Realpoint. Smith Travel Research says occupancy in the luxury hotel segment fell to 60% in the first half this year from 70% a year earlier. In addition, aggressive financing adopted by luxury hotels during credit boom is coming back to haunt them. “Luxury hotels have been aggressively financed during the peak CMBS issuance years,” said David Loeb, an analyst at Robert W. Baird & Co. “That’s why luxury hotel loans crowd these watch lists.” Andy Day, an analyst at Morgan Stanley, said luxury hotels are suffering from “a heightened focus on prudent corporate travel expenditures as well as the pullback in vacation travel.”

Initial jobless claims drop to the lowest in 2 months

According to the Labor Department, initial jobless claims dropped by 21,000 to 530,000 in the week ended September 21, from a revised 551,000 the week before. Initial jobless claims reflect firings and tend to drop as job growth rises. “The layoff picture is improving,” said Jonathan Basile, an economist at Credit Suisse Holdings. “Companies are realizing they don’t have to keep cutting costs as aggressively as they have.” Forty-nine states reported a drop in claims, while three reported an increase. The economy has lost 6.9 million jobs since the recession started in December 2007; the most since the Great Depression. The Labor Department data suggests that 33.3% of the unemployed people – about 5 million Americans -- in August remained jobless for at least 27 weeks. That is a drop from 33.8% in July, the most since 1948. The U.S. House voted this week to extend jobless benefits for 13 weeks in states hardest hit by the recession. This measure would continue aid to about 300,000 Americans who are likely to exhaust their benefits by the end of this month. The bill now moves to the Senate for approval.

TARP watchdog says bailout money may not be recovered fully

In a testimony to the Senate, Neil Barofsky, the special inspector general for the U.S. Treasury's $700 billion Troubled Asset Relief Program (TARP), acknowledged the role of bailout funds in stabilizing the economy, but said the program may not fulfill all the policy goals. "The progress on meeting the goal of 'maximizing overall returns to the taxpayer' is unclear," Barofsky said in a testimony to the Senate Banking Committee. "While several TARP recipients have repaid funds for what has widely been reported as a 17 percent profit, it is extremely unlikely that the taxpayer will see a full return on its TARP investment." For example, a full recovery of more than $80 billion spent to stimulate the U.S. auto industry "is far from certain." Barofsky said the Treasury has repeatedly failed to implement his recommendations to increase disclosures, including detailed reports on what banks are doing with taxpayer funds. "We remain puzzled as to why Treasury refuses to adopt our recommendations to report on each TARP recipient's use of TARP funds," said Barofsky. Treasury spokesman Andrew Williams said the department has implemented the "vast majority" of Barofsky's recommendations and has included the inspector general “early” in the development of many programs.