New home sales down

We mentioned yesterday that new home sales were expected to have gone up in November, but it turns out they unexpectedly plunged instead. According the Census Bureau report, the seasonally adjusted annual rate of new home sales plummeted 11.3% to 355,000 in November compared to the prior month. The November rate was the lowest since April, when new homes sold at an annualized rate of 345,000. According to Ian Shepherdson, chief U.S. economist for High Frequency Economics in Valhalla, N.Y., the November decline can be attributed in large part to changes to the $8,000 home buyer's tax credit. Buyers who were rushing to make a purchase ahead of the tax credit's Nov. 30 deadline were given a reprieve when it was announced on Nov. 6 that the credit would be extended to April 30, 2010.

"The extension will in due course lift sales again but the key factor in November seems to have been the drying-up of the flow of buyers under the original program." Going forward, Shepherdson expects sales "to rise sharply next year...because eligibility for the tax credit has been broadened to include most homebuyers, not just first-time buyers." The largest November declines occurred in the Midwest and the South, where sales rates plunged more than 21% over the last 12 months. The Census Bureau said there were 235,000 new homes for sale at the end of November. That represents enough supply to last for 7.9 months at the current sales rate. You'll remember that on Tuesday, the National Association of Realtors released its report on existing home sales for November, which grew 7.4% month-to-month to an annualized rate of 6.54 million units.

Payday at Fannie and Freddie

According to documents filed by the company today, top executives at mortgage finance giants Fannie Mae and Freddie Mac, both of which have been under government control since last year, received millions of dollars in pay this year. Michael Williams, who was named CEO of Fannie Mae on April 21, received total compensation of $6 million. David Johnson, the chief financial officer and No. 2 at the company, received $3.5 million, and five other top executives saw their total pay package top $2 million. Williams and three other top executives are eligible to receive an additional payment pursuant to a 2008 retention program, according to the filing. At Freddie, its slightly smaller rival, CEO Charles Haldeman also received total compensation of $6 million and is due to receive the same pay level in 2010. Bruce Witherell, Freddie's chief operating officer and No. 2 at the company, received $4.5 million for each year, while Ross Kari, the chief financial officer, received $3.
5 million for each year. The pay packages had received approval of both the Federal Housing Finance Agency, the agency that oversees their operations while they operate under conservatorship, as well as the Treasury Department, according to the filings. So much for fiscal responsibility.

$290 billion hike to debt limit

The Senate today passed a $290 billion increase to the amount of debt the Treasury is allowed to have, because the federal government inching close to the debt ceiling. The 60-39 vote follows House approval of the measure earlier this month. President Obama is expected to sign the bill soon. The new law raises the debt ceiling to $12.394 trillion from $12.104 trillion. As of Tuesday, the amount of debt subject to the limit on Treasury's books was $12.04 trillion, just $64 billion below the limit. The increase is estimated to cover Treasury's borrowing needs through mid-February. If the Senate hadn't raised the debt ceiling before Dec. 31, the Treasury would have had to employ extraordinary measures to keep the debt below the ceiling to stave off default.

Default would unleash a chain of events that could devalue U.S. bonds and seriously harm the nation's reputation with creditors around the world. In short, it's not something lawmakers can afford to let happen. Treasury has taken extraordinary measures in the past - sometimes for months at a time - whenever Congress let the vote on the debt limit go down to the wire. House leaders were originally considering an increase of approximately $1.8 trillion, but they settled on a much shorter-term increase because of pressure brought by a group of fiscal hawks in both the House and the Senate. They have threatened to vote against any long-term debt ceiling increase unless they get commitments to increase fiscal responsibility from the leadership.

Jobless claims down, durable goods up

Applications for jobless benefits fell last week and new orders for long-lasting U.S. manufactured goods excluding transportation surged in November. The U.S. Labor Department showed initial claims for state unemployment benefits fell by 28,000 to a seasonally adjusted 452,000 last week - the lowest tally since early September 2008 and below market expectations for 470,000 new claims. "All evidence points to healing in the labor market. I would not be surprise to see a positive net payroll number in December. That would be the first time in about two years," said Robert Dye, senior economist at PNC Financial Services in Pittsburgh. Thursday's claims report also showed the number of people filing for benefits after an initial week of aid also fell to near a 15-month low in the week ended Dec. 12, to 5.076 million from the previous week's 5.203 million. The U.S. Commerce Department said Thursday orders excluding transportation surged 2.0 percent in November after falling 0.
7 percent the previous month, beating market expectations for a 1.0 percent rise. A plunge in orders in civilian aircraft, however, saw overall orders for durable goods rising only 0.2 percent, below market expectations for a 0.5 percent increase. Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending, jumped 2.9 percent last month after dropping 2 percent in October. Durable goods inventories fell 0.2 percent in November after being flat the prior month. Shipments increased 0.3 percent, adding to October's 0.7 percent gain.

TARP funds to small banks not paid back

Even though banks have paid back much of the Troubled Asset Relief Program (TARP) loans, there are still 663 banks with a total of $58.6 billion in loans that have yet to pay the Treasury Department back. Bailed out banks aren't required to pay back their TARP loans for five years, and smaller banks are happy to sit on the cheap money. Most of those banks won't pay back their bailout funds for years -- if at all: One went bankrupt. Two of those banks have failed. Dozens are subject to government sanctions. And 56 were unable to pay their quarterly dividends or interest payments last month. Besides an unwillingness to repay taxpayers quickly, many small banks are simply unable to do so.

The law stipulates that banks who pay back their funds early must replace them with another source of capital, and the big banks have been able to go to the market and issue stock to grow their capital reserves. Small banks, however, don't have the luxury of issuing more stocks, as investors largely remain weary of small banks who haven't yet proven their health. "Equity markets are not open to smaller banks," said J.P. O'Sullivan, associate director of banks and thrifts at SNL Financial. "Regulators are going to want to see them build up their common equity before they redeem. That means they're going to have to earn their way out." The White House last month estimated total losses from the $700 billion bailout will amount to $141 billion, and the Congressional Budget Office lowered its estimate to $159 billion. But experts say that loss could be higher if more small banks fall into trouble.
 

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