Tuesday, May 08, 2007

Minneapolis First in Foreclosures - Isolated Incident, or Recession in the Works?

Seeking Alpha points to an article in the Star Tribune about the amazing number of foreclosures in North Minneapolis.

Most impressive is the chart with the red dots, showing how the delinquencies are distributed throughout the county.

Is this just a hot spot of bad sub-prime mortgage lending? Or is it the first in a long string of falling dominoes?

No one really knows, of course. Some say the markets have already taken into account the pretty poor outlook for the housing market. Some say that the dollar's slow demise will help the manufacturing sector and keep the country out of deep recession.

crystal ball
[Thanks to traum-geschenke.de for the image.]

I have no particularly unique crystal ball like Alan Greenspan thinks he does, but my favorite and the only truly scientific economic research institution that I know of is now predicting that business cycle conditions point towards a likely recession.

The institution in question is the American Institute for Economic Research. I like these people. Their news can sometimes be tepid (what truly non-partisan organization issues earth-shattering statements every few days like the IPCC? [Intergovernmental Panel on Climate Change]) But when it's time to rumble, they rumble loud and clear.

Here's an excerpt:

"The yellow caution lights of recent months have now turned red. Conditions have continued to deteriorate: both the percent of leaders expanding and their cyclical score are now at levels that preceded prior recessions. A contraction of general business activity is more probable than continued expansion.

"Last month we were hesitant to assert that recession was imminent because one of our key indexes, the cyclical score, had not weakened sufficiently to confirm the signal from the percentage of leaders expanding. However, new and revised data now indicate that the cyclical score has been considerably weaker and for a longer time than previously thought, confirming the recessionary signals given since January by the percent of leaders expanding. The weakness among our primary leading indicators of business-cycle conditions continues to spread and a recession now appears imminent.

"Very few forecasters share our view. Aside from a few Wall Street 'permabears,' business economists and forecasters seldom, if ever, predict a recession. As many have put it, such pronouncements are 'bad for business.' This is, of course, a disservice to themselves, their employers, and their clients. We, on the other hand, are completely independent and committed to giving our readers our analysis of business-cycle changes, and the evidence behind our conclusions, for better or worse."

[Source: Research Reports, April 23, 2007, AIER, Great Barrington, MA 01230]

Bravo. Keep up the good work. Predicting 24 of the 21 most recent recessions sounds like a good batting average to me.

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2 Comments:

Blogger STUDS said...

i would have left a comment on the alpha site but you have to go through a login. If you read the article you will see that there were a large amount of foreclosures on owners who got into to the rental game too late. most of those properties were rented, not owner occupied.
Also this is the most depressed area of the twin cities and is notorious for property flipping and pure out fraudulant loans. it took the out of state lenders like new century and washtenaw a while to figure out they had been had. the article failed to mention all the arrests and prison sentences already handed out to these people.
not very representitive of the local market at all. in fact, over all, it is more stable than most big cities.
another example of don't believe everything you read.

8:07 AM  
Blogger Katy said...

Thanks, Studs, for your wise comment. I agree that we have to be careful about believing everything we read, and about jumping to conclusions therefrom.

But I am adding Minneapolis's misery to that of other areas around the country. For example, California's foreclosures are rising. So are they in other spots.

These symptoms, combined with the recession rumblings of AIER, do worry me. And you must also throw into this mix the quandary in which the Fed now finds itself. The Govs are walking a tightrope between this recession that I think is coming and a potential painful collapse of the dollar, however temporary it might turn out to be. I believe it will be a pure matter of luck if they make it through this one without an "oops." Markets are very, very jittery.

1:33 PM  

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