In the most alarmist tone ever, the former US Federal Reserve chairman Alan Greenspan said that the market behaviour was similar to the land boom collapse of 1837 and the bank panic of 1907.

He said that it is similar to the Black Friday in 1987 where the stock market crashed after years of excessive property speculation and sudden hedge fund collapses.

In fact, the current stock market problems in the US turmoil have been the result of a meltdown in real estate sales and rising sub-prime mortgage defaults.

However, the US government is confident that the economy will still stage a comfortable growth for the rest of the year. (8 Sept)

Increased layoff scaring investors

Unexpectedly, more Americans lost their jobs in August. In all, about 600,000 of them would have to find new jobs. The unemployment rate in the US now remains at 4.6%. 

As such, speculation is rife about a possible rate cut by the Federal Reserve to cushion a possible economic hard landing.

The news led to a better bonds market but a weaker dollar. Effectively, it means the recession risk has gone up.

Salaries are one of the main indicators, along with sales, incomes and production that help determine the start of economic contractions. (8 Sept)

Largest US mortgage firm repositions itself

US mortgage giant Countrywide Financial may lay off some 12,000 jobs gradually amid a deepening housing crisis and a host of mortgage foreclosures. The figure represents around 20% of the firm’s total workforce.

Countrywide Financial is the largest mortgage firm in the US. After the unfolding of the sub-prime mortgage crisis, the giant firm has seen its business being wrecked by declining demand for home loans and a liquidity crunch.

The mortgage firm is being hit by double whammy of falling demands for home loans which appears bottomless at this moment and its August’s one-month debt position of US$11.5 billion (S$17.4 billion) from 40 banks. It is not known how much in total the mortgage giant is behind.

The California-based mortgage firm will stop marketing some subprime mortgage loans which have been culpable for the spate of foreclosures in recent months. (8 Sept)

Foreclosure of homes financed by sub-prime loans at record high

The sub-prime market crisis in the US appears to be getting worse.

More than 619,000 homeowners or 1.4% of all those with mortgages are facing the real threat of losing their homes. In the first three months of the year only 1.28% of those with mortgages faced such problem.

The total number of default cases rose by 0.28% to 5.12% of all mortgages. This is the highest level since 2002, pointing to acceleration in the troubles in US mortgage markets.

What is more worrying is that some of the default cases involved prime mortgages – not just from growing numbers of seriously delinquent adjustable-rate sub-prime mortgages.

There should be more foreclosures to come in the months ahead as sub-prime loans re-set to higher rates.

The problems are worst in California, Florida, Nevada and Arizona. Declining real estate prices caused by over-supply and weak economic conditions in those states have made refinancing the sub-prime loans very difficult and thereby worsening the problems. (8 Sept)

Edited by Sam Gian – Independent Real Estate Sale Consultant