India’s property market is poised for a correction and residential property rates will have to drop by up to 30% in some geographies for affordability to catch up, according to a Goldman Sachs Economic Research report released on Monday.
However, such a fall could trigger significant negative effects on the economy with construction, consumption and investment taking a hit. Related industries such as steel and cement on the backend, and hotels, trade and transport on the front-end will be impacted, it said.
Income growth will fall, reducing demand for housing as the economy continues to slow due to the knock-on effects of the global financial crisis, lowering demand for real estate.
Besides income growth, demographics, interest rates, inflation and expectations of future projects affect demand. Commercial real estate demand will also take a beating due to the slowdown in IT and business process outsourcing (BPO) sectors, it said.
A fall in collateral will hurt firms’ balance sheets, increase funding costs, hurt confidence and reduce investment demand.
However, India’s favourable demographics, low mortgage penetration, falling interest rates and ongoing infrastructure demand will keep the property downturn from being protracted, it said.
Tuesday, November 25, 2008
The Federal Reserve took two new steps to unfreeze credit for homebuyers, consumers and small businesses, committing up to $800 billion.
House prices in 20 U.S. cities declined in the year ended in September at the fastest pace on record as rising foreclosures pushed down property values.
The S&P/Case-Shiller home-price index dropped 17.4 percent in September from a year earlier, more than forecast, after a 16.6 percent decline in August. The gauge has fallen every month since January 2007, and year-over-year records began in 2001.
Mounting foreclosures are contributing to the drop in home prices, while adding to the inventory of unsold homes on the market. Lower property values are weighing on household wealth, causing consumers to cutback on spending and increasing the likelihood that the U.S. economy will contract for a second consecutive quarter.
“Price declines have already led to considerable improvements in affordability, but more foreclosures and an inventory overhang will keep depressing prices,” Abiel Reinhart, an economist at JPMorgan Chase Bank in New York, said before the report.
Home prices decreased 1.8 percent in September from the prior month after declining 1 percent in August, the report showed. The figures aren’t adjusted for seasonal effects so economists prefer to focus on year-over-year changes instead of month-to-month.
GDP Declines
A government report showed the U.S. economy shrank in the third quarter faster than previously estimated as consumer spending plunged by the most in almost three decades. Gross domestic product contracted at a 0.5 percent annual pace from July through September, the most since the 2001 recession, according to revised figures from the Commerce Department today in Washington. The government’s advance estimate issued last month showed a 0.3 percent decline.
S&P/Case-Shiller also released quarterly figures for nationwide home prices. That measure showed a 16.6 percent drop in the three months through September from the previous three months, compared with a 15.1 percent drop in the second quarter.
Economists forecast the 20-city index would fall 16.9 percent from a year earlier, according to the median of 28 estimates in a Bloomberg News survey. Projections ranged from declines of 16 percent to 17.2 percent.
Compared with a year earlier, all areas in the 20-city survey showed a decrease in prices in September, led by a 31.9 percent drop in Phoenix and a 31.3 percent decline in Las Vegas.
Downward Pressure
“The turmoil in the financial markets is placing further downward pressure on a housing market already weakened by its fundamentals,” David Blitzer, chairman of the index committee at S&P, said in a statement.
Robert Shiller, chief economist at MacroMarkets LLC and a professor at Yale University, and Karl Case, an economics professor at Wellesley College, created the home-price index based on research from the 1980s.
Reports this month showed mounting foreclosures are pushing prices down and hurting demand. Existing home sales, which account for about 90 percent of the market, dropped in October and prices fell by the most on record, the National Association of Realtors said yesterday.
The median price of an existing home plunged 11.3 percent in October from a year earlier and fell to the lowest level since March 2004, according to the Realtors.
Sales of distressed properties accounted for 45 percent of last month’s total, up from about 40 percent in September, the agents’ group also said. Foreclosure filings were up 25 percent in October from a year ago, according to RealtyTrac Inc., the Irvine, California-based seller of default data.
The drop in home construction has subtracted from growth since the first quarter of 2006. The downturn is likely to remain a drag on the economy until the home sales and prices improve.
D.R. Horton Inc., the largest U.S. homebuilder, reported its sixth straight quarterly loss today. The Fort Worth, Texas- based company said orders fell 38 percent while the cancellation rate was 47 percent.
The S&P/Case-Shiller home-price index dropped 17.4 percent in September from a year earlier, more than forecast, after a 16.6 percent decline in August. The gauge has fallen every month since January 2007, and year-over-year records began in 2001.
Mounting foreclosures are contributing to the drop in home prices, while adding to the inventory of unsold homes on the market. Lower property values are weighing on household wealth, causing consumers to cutback on spending and increasing the likelihood that the U.S. economy will contract for a second consecutive quarter.
“Price declines have already led to considerable improvements in affordability, but more foreclosures and an inventory overhang will keep depressing prices,” Abiel Reinhart, an economist at JPMorgan Chase Bank in New York, said before the report.
Home prices decreased 1.8 percent in September from the prior month after declining 1 percent in August, the report showed. The figures aren’t adjusted for seasonal effects so economists prefer to focus on year-over-year changes instead of month-to-month.
GDP Declines
A government report showed the U.S. economy shrank in the third quarter faster than previously estimated as consumer spending plunged by the most in almost three decades. Gross domestic product contracted at a 0.5 percent annual pace from July through September, the most since the 2001 recession, according to revised figures from the Commerce Department today in Washington. The government’s advance estimate issued last month showed a 0.3 percent decline.
S&P/Case-Shiller also released quarterly figures for nationwide home prices. That measure showed a 16.6 percent drop in the three months through September from the previous three months, compared with a 15.1 percent drop in the second quarter.
Economists forecast the 20-city index would fall 16.9 percent from a year earlier, according to the median of 28 estimates in a Bloomberg News survey. Projections ranged from declines of 16 percent to 17.2 percent.
Compared with a year earlier, all areas in the 20-city survey showed a decrease in prices in September, led by a 31.9 percent drop in Phoenix and a 31.3 percent decline in Las Vegas.
Downward Pressure
“The turmoil in the financial markets is placing further downward pressure on a housing market already weakened by its fundamentals,” David Blitzer, chairman of the index committee at S&P, said in a statement.
Robert Shiller, chief economist at MacroMarkets LLC and a professor at Yale University, and Karl Case, an economics professor at Wellesley College, created the home-price index based on research from the 1980s.
Reports this month showed mounting foreclosures are pushing prices down and hurting demand. Existing home sales, which account for about 90 percent of the market, dropped in October and prices fell by the most on record, the National Association of Realtors said yesterday.
The median price of an existing home plunged 11.3 percent in October from a year earlier and fell to the lowest level since March 2004, according to the Realtors.
Sales of distressed properties accounted for 45 percent of last month’s total, up from about 40 percent in September, the agents’ group also said. Foreclosure filings were up 25 percent in October from a year ago, according to RealtyTrac Inc., the Irvine, California-based seller of default data.
The drop in home construction has subtracted from growth since the first quarter of 2006. The downturn is likely to remain a drag on the economy until the home sales and prices improve.
D.R. Horton Inc., the largest U.S. homebuilder, reported its sixth straight quarterly loss today. The Fort Worth, Texas- based company said orders fell 38 percent while the cancellation rate was 47 percent.
Fed Commits $800 Billion More to Unfreeze Lending
The Federal Reserve took two new steps to unfreeze credit for homebuyers, consumers and small businesses, committing up to $800 billion.
The central bank will purchase as much as $600 billion in debt issued or backed by government-chartered housing-finance companies. It will also set up a $200 billion program to support consumer and small-business loans, the Fed said in statements today in Washington.
With today’s announcement, the central bank is starting to use some of the unorthodox policy tools that Chairman Ben S. Bernanke outlined as a Fed governor six years ago. Policy makers are aiming to prevent a financial collapse and stamp out the threat of deflation.
“They’re trying to put funds into the system, trying to unfreeze these markets,” said William Poole, the former St. Louis Fed president, in an interview with Bloomberg Television. “Clearly, the Fed and the Treasury are beginning to take a large amount of credit risk.”
The Fed will purchase up to $100 billion in direct debt of Fannie Mae, Freddie Mac and the Federal Home Loan Banks and up to $500 billion of mortgage-backed securities backed by Fannie, Freddie and Ginnie Mae, the statement said.
Aid for Housing
“This action is being taken to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally,” the Fed said.
Separately, under the new Term Asset-Backed Securities Loan Facility, the Fed will lend up to $200 billion on a non-recourse basis to holders of AAA rated asset-backed securities backed by “newly and recently originated” loans, such as for education, automobiles, credit cards and loans guaranteed by the Small Business Administration, the Fed said.
The Treasury will provide $20 billion of “credit protection” to the Fed in the lending program, using funds from the $700 billion financial-rescue package. The Treasury said in a statement that the facility may expand over time and cover other assets, such as commercial and private residential mortgage- backed debt.
On the ABS facility, the Fed is trying to avoid having “continued disruption of these markets” that would limit lending and “thereby contribute to further weakening of U.S. economic activity,” the central bank said.
ABS Program
Under the new lending program, known as the TALF, the New York Fed will auction a fixed amount of loans each month for a one-year term. Assets will be held in a special-purpose vehicle to be created by the Fed. The program will stop making new loans on Dec. 31, 2009, unless the Fed Board of Governors extends it.
Lenders providing credit under the TALF “must have agreed to comply with, or already be subject to,” executive- compensation restrictions in the October bailout law, the statement said.
The Fed will start buying the direct debt of government- sponsored enterprises -- Fannie, Freddie and a dozen federal home loan banks -- through primary dealers in government debt from next week. The purchases of mortgage-backed securities will be done through asset managers, and officials aim to begin the effort by year-end.
Purchases of both types of debt “are expected to take place over several quarters,” the Fed said.
The central bank will purchase as much as $600 billion in debt issued or backed by government-chartered housing-finance companies. It will also set up a $200 billion program to support consumer and small-business loans, the Fed said in statements today in Washington.
With today’s announcement, the central bank is starting to use some of the unorthodox policy tools that Chairman Ben S. Bernanke outlined as a Fed governor six years ago. Policy makers are aiming to prevent a financial collapse and stamp out the threat of deflation.
“They’re trying to put funds into the system, trying to unfreeze these markets,” said William Poole, the former St. Louis Fed president, in an interview with Bloomberg Television. “Clearly, the Fed and the Treasury are beginning to take a large amount of credit risk.”
The Fed will purchase up to $100 billion in direct debt of Fannie Mae, Freddie Mac and the Federal Home Loan Banks and up to $500 billion of mortgage-backed securities backed by Fannie, Freddie and Ginnie Mae, the statement said.
Aid for Housing
“This action is being taken to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally,” the Fed said.
Separately, under the new Term Asset-Backed Securities Loan Facility, the Fed will lend up to $200 billion on a non-recourse basis to holders of AAA rated asset-backed securities backed by “newly and recently originated” loans, such as for education, automobiles, credit cards and loans guaranteed by the Small Business Administration, the Fed said.
The Treasury will provide $20 billion of “credit protection” to the Fed in the lending program, using funds from the $700 billion financial-rescue package. The Treasury said in a statement that the facility may expand over time and cover other assets, such as commercial and private residential mortgage- backed debt.
On the ABS facility, the Fed is trying to avoid having “continued disruption of these markets” that would limit lending and “thereby contribute to further weakening of U.S. economic activity,” the central bank said.
ABS Program
Under the new lending program, known as the TALF, the New York Fed will auction a fixed amount of loans each month for a one-year term. Assets will be held in a special-purpose vehicle to be created by the Fed. The program will stop making new loans on Dec. 31, 2009, unless the Fed Board of Governors extends it.
Lenders providing credit under the TALF “must have agreed to comply with, or already be subject to,” executive- compensation restrictions in the October bailout law, the statement said.
The Fed will start buying the direct debt of government- sponsored enterprises -- Fannie, Freddie and a dozen federal home loan banks -- through primary dealers in government debt from next week. The purchases of mortgage-backed securities will be done through asset managers, and officials aim to begin the effort by year-end.
Purchases of both types of debt “are expected to take place over several quarters,” the Fed said.
U.S. Stock-Index Futures Rally on Fed’s Plan to Boost Lending
U.S. stock-index futures advanced, signaling the market may extend its biggest two-day rally since 1987, after the Federal Reserve committed as much as $800 billion to help resuscitate lending.
SLM Corp., the student lender known as Sallie Mae, rallied 14 percent, while CIT Group Inc., a commercial-finance company, jumped 11 percent after the Fed said the funds will be used to purchase mortgage-related debt and support loans to consumers and small businesses. Citigroup Inc. advanced 7.1 percent after its chief financial officer said the bank has no need to sell assets in order to conserve capital.
Futures on the Standard & Poor’s 500 Index expiring in December gained 2.5 percent to 869.1 at 9:11 a.m. in New York. Dow Jones Industrial Average futures rose 162, or 1.9 percent, to 8,547 and Nasdaq-100 Index futures jumped 1.6 percent to 1,164.75.
“This is a more direct effort, as opposed to shoring up the balance sheets of key banks,” said Erick Maronak, the New York-based chief investment officer at Victory Capital Management, which oversees $61 billion. “Hopefully that alone will restore confidence and get things moving again.”
The S&P 500 has rallied 13 percent from an 11-year low on Nov. 20 after the government guaranteed troubled assets at Citigroup and President-elect Barack Obama picked Fed Bank of New York chief Tim Geithner as his Treasury secretary.
JPMorgan climbed 5.2 percent to $29 in trading before the official open of U.S. exchanges, while Bank of America Corp. added 2.9 percent to $15.01.
General Electric, the economic bellwether whose products range from lightbulbs to power-plant turbines, rose 1.3 percent to $15.46. Intel Corp., the world’s biggest maker of semiconductors, added 10 cents to $13.66.
Citigroup Gains
Citigroup, the New York-based bank that got $306 billion of loan guarantees from the government over the weekend, advanced 42 cents to $6.37. CFO Gary Crittenden said in a Bloomberg Television interview that there is “no need for us to sell assets at this point, although we’ll continue to work away on non-strategic assets.”
Futures maintained gains even after the Commerce Department said the U.S. economy shrank in the third quarter faster than previously estimated as consumer spending plunged by the most in almost three decades. Gross domestic product contracted at a 0.5 percent annual pace from July through September, the most since the 2001 recession, according to revised. The government’s advance estimate issued last month showed a 0.3 percent decline.
SLM Corp., the student lender known as Sallie Mae, rallied 14 percent, while CIT Group Inc., a commercial-finance company, jumped 11 percent after the Fed said the funds will be used to purchase mortgage-related debt and support loans to consumers and small businesses. Citigroup Inc. advanced 7.1 percent after its chief financial officer said the bank has no need to sell assets in order to conserve capital.
Futures on the Standard & Poor’s 500 Index expiring in December gained 2.5 percent to 869.1 at 9:11 a.m. in New York. Dow Jones Industrial Average futures rose 162, or 1.9 percent, to 8,547 and Nasdaq-100 Index futures jumped 1.6 percent to 1,164.75.
“This is a more direct effort, as opposed to shoring up the balance sheets of key banks,” said Erick Maronak, the New York-based chief investment officer at Victory Capital Management, which oversees $61 billion. “Hopefully that alone will restore confidence and get things moving again.”
The S&P 500 has rallied 13 percent from an 11-year low on Nov. 20 after the government guaranteed troubled assets at Citigroup and President-elect Barack Obama picked Fed Bank of New York chief Tim Geithner as his Treasury secretary.
JPMorgan climbed 5.2 percent to $29 in trading before the official open of U.S. exchanges, while Bank of America Corp. added 2.9 percent to $15.01.
General Electric, the economic bellwether whose products range from lightbulbs to power-plant turbines, rose 1.3 percent to $15.46. Intel Corp., the world’s biggest maker of semiconductors, added 10 cents to $13.66.
Citigroup Gains
Citigroup, the New York-based bank that got $306 billion of loan guarantees from the government over the weekend, advanced 42 cents to $6.37. CFO Gary Crittenden said in a Bloomberg Television interview that there is “no need for us to sell assets at this point, although we’ll continue to work away on non-strategic assets.”
Futures maintained gains even after the Commerce Department said the U.S. economy shrank in the third quarter faster than previously estimated as consumer spending plunged by the most in almost three decades. Gross domestic product contracted at a 0.5 percent annual pace from July through September, the most since the 2001 recession, according to revised. The government’s advance estimate issued last month showed a 0.3 percent decline.
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