Week ends on the slump
Generally speaking, when we hear the words record-breaking we think positive thoughts. Unfortunately we’ve recently broken a long-standing record that is anything but reason to celebrate. According to the Federal Reserve, Americans’ percentage of equity in their homes fell below 50 percent for the first time on record since the Fed starting monitoring this statistic (back in 1945).
What’s this mean exactly? Home equity refers to the percentage of a home’s market value once mortgage-related debt is subtracted. This value has steadily decreased even as home prices jumped earlier this decade due to a surge in cash-out refinances, home equity loans and lines of credit. This latest news marks the first time homeowners’ debt on their homes exceeds their equity in 63 years!
In continuing with the tradition of good news (sarcastically of course) oil prices also broke some records today. Crude oil closed at a new record high while the value of the dollar sunk to a record low against the euro.
Completing the trifecta of trouble, stocks went a tumbling thanks to a combination of an unstable credit market and a spike in home foreclosures. No, this certainly didn’t happen overnight. Concerns about defaults have made lenders hesitant to extend credit, preventing the credit markets from functioning as they should.
To provide an example of the credit market upset, Citigroup (the fourth-largest U.S. home lender) has announced plans to shed $45 billion in its American residential units mortgages and home equity holdings in the upcoming year. It will accomplish this by writing fewer new loans and allowing payments made on existing loans drop their assets down.
Finally, contrary to earlier speculation that interest rates would be quick to rebound once the economy stabilized is now being negated by Federal Reserve Bank of New York President Timothy Geithner. Timothy has gone on to say that it’s looking like the central banks may be keeping interest rates low for some time to come. This could be viewed as good news for the consumer if only the shadow if impending doom didn’t loom on the horizon.
