The American housing market continues another month in the doldrums, yet with another bank suffering huge losses. Wachovia Corp announced its first loss in nearly seven years on the back of sub-prime loans. The fourth largest US bank faces credit problems from mortgages and other soaring debt. In its first quarter results for this financial year, the company posted a surprise loss of $350 million.
The housing slump has prompted the bank to raise $7 billion (3.5 billion pounds) of capital. The bank sold shares at a discount after boosting its reserves for credit losses and writing off debt, largely due to the nations housing slump and strained credit markets. Wachovia will also make 500 corporate and investment banking job cuts.
Federal Reserve chairman, Ben Bernanke stressed that the housing contraction is the biggest issue facing the economy and the financial markets. He added that the timing of the housing market recovery will largely determine the timing of the pick-up in overall economic activity. With respect to the ongoing turmoil in financial markets, the chairman acknowledged the continual deterioration of mortgage credit quality and associated writ-downs of mortgage related portfolios at large financial institutions. On this front he noted that falling house prices is the main culprit, suggesting that the key to stabilization of credit market conditions, is stabilization of house prices. In this regard, he refused to offer a forecast of house price.
As the American housing market continues weakening even further, there are reports of thousands of properties left vacant and abandoned by many house builders. The economic climate has forced them to file for bankruptcy. This has led to local governments and cities having to pick up the pieces and fall-out from the housing downturn.
In today’s market conditions, even a quick sale cannot guarantee a quick fix, with plummeting prices. The few builders remaining intact are being squeezed by tightening credit, weak buyer demand and cash flow problems as banks in some cases pressure them to pay down more of their loans, as land values decrease. It has become severe touching many parts of the country, from areas like Las Vegas, which experienced rampant speculation, to cities such as Philadelphia.
A man whom bought a new home, just before the credit crunch commented, the place where he is presently living had become undesirable. With no buyers coming forward, homes have been on the market for sale, on his development for over a year. They are not selling, because prospective purchasers do not want to buy into a development that is bankrupt.
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