The Mess That Greenspan Made - Part 414

Underwater Homes Across the U.S.

The National Association of Realtors reports on existing home sales tomorrow and the data in the graphic below from this NY Times story is not likely to show much improvement, if any. In fact, with the slow, winter selling season quickly approaching, America’s underwater home problem is about to get a little worse before next spring.

Yes, that’s right. The entire cities of Las Vegas and Orlando are underwater while Phoenix along with a number of cities in California and Florida are not far behind.

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The Dramatic Increase in Student Loans

Boy, the latest statistics on student loans are pretty shocking. I’m glad I got through college back when tuition was relatively low and there were still good jobs waiting for you after graduation day. USA Today reports that borrowing for higher education occurred at a record pace last year and total outstanding debt reached an important new milestone.

The amount of student loans taken out last year crossed the $100 billion mark for the first time ever and total outstanding student loan debt will exceed $1 trillion for the first time this year.

Americans now owe more on student loans than on credit cards, reports the Federal Reserve Bank of New York.

Students are borrowing twice what they did a decade ago after adjusting for inflation, the College Board reports. Total outstanding debt has doubled in the past five years — a sharp contrast to consumers reducing what’s owed on home loans and credit cards.

Taxpayers and other lenders have little risk of losing money on the loans, unlike mortgages made during the real estate bubble. Congress has given the lenders, the government included, broad collection powers, far greater than those of mortgage or credit card lenders. The debt can’t be shed in bankruptcy.

The credit risk falls on young people who will start adult life deeper in debt, a burden that could place a drag on the economy in the future.

While this is surely part of “The New Road to Serfdom” here in the U.S. or, more simply, “wage slavery”, as noted in the article, it is true that the unemployment rate for those with college degrees is less than half of what it is for the rest of the population. For many marginal college prospects, this amounts to a high-stakes roll of the dice as to whether it makes sense to take on so much debt.

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The Commerce Department reported(.pdf) that housing starts jumped 15.0 percent in September, from an annual rate of 572,000 units in August to 658,000 last month, but permits for new construction, a leading indicator for the home building industry, fell 5.0 percent, from 625,000 in August to 594,000 in September, as residential construction continues at a pace that can only be described as “depressionary” (if that’s a word).

Current levels of housing starts and permits remain down more than 70 percent from their 2005-2006 housing bubble highs and are still less than half of what would be considered “normal”, a context that is critical in understanding the significance of housing starts reaching a 17-month high – conditions are still very, very bad for home builders.

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Inflation at Three-Year High of 3.9%

The Labor Department reported that the rising cost of energy products and food drove consumer prices 0.3 percent higher in September and that the annual inflation rate now stands at 3.9 percent, the highest level since September 2008.

Paced by a 2.9 percent rise for gasoline, up 33.2 percent on a year-over-year basis, overall energy prices jumped 2.0 percent last month and are now up 19.3 percent from a year ago.

Food & beverage prices rose 0.4 percent in September and are now 4.5 percent higher than last year at this time while the “food at home” subcategory rose 0.6 percent for the third month in a row, now up a stunning 6.3 percent on a year-over-year basis.

(more…)

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