Subprime Bust Hits GSO
They say everything’s all rightThey say better days are hereThey say these are the good timesBut they don’t live around here. – Warren Zevon, “The Indifference of Heaven”
Last week Federal Reserve Chairman Ben Bernanke assured the room at the Federal Reserve Bank of Chicago that unprecedented losses in the subprime lending market would stay contained in that sector and not affect the economy as a whole in the coming months, though he acknowledged that subprime foreclosures are not likely to abate.
His words had an immediate affect on the Dow Jones Industrial Average, which took a slight loss that day, and weakened the dollar, which had been making gains.
And unlike Mr. Bernanke, we think strife in the subprime lending market will have a strong ripple effect – at least around here.
North Carolina saw 45,512 foreclosures in 2006, attributed to sudden unemployment, emergency medical bills and divorce, yes, but also to bad loans unscrupulously issued and, often, fraudulently maintained.
But the matter at hand is not the reasons behind the foreclosures, which contributed to the spate of bankruptcy filings among subprime lenders in 2007, but the immediate and long-term effects of these events.
In Greensboro, housing has taken over as a driving force in the economy after the decline of the textiles and furniture industries, creating jobs in architecture, contracting and construction, sales, appraisal, finance and loans, brokering, home improvement, landscaping, interior design and specialties like roofing, window hanging and cabinetry, all working in consort to build, beautify and sell a product that we now have in abundance. Supply side is so strong it’s outpacing household population growth, which according to the US Census Bureau went down by more than 4,000 people between 2000 and 2005.
Take a look around your neighborhood or out your car windows on your way to work or school. Chances are you’ll see quite a few homes with “for sale” signs spiked in the front lawn, some of which have been there for a year. The market is seemingly glutted while new construction continues and many homeowners are unable to maintain their current mortgage payments.
In the last nine days, 28 new Greensboro foreclosures have cropped up on Foreclosure.com, and an additional 29 residences in the city have been listed as lost due to bankruptcy. That’s almost 60 families who have lost their homes and must make other living arrangements; almost 60 homes that will sit vacant in neighborhoods, lowering property values and encouraging crime uti they’re sold in this saturated market. And that’s just today – by the time this editorial sees the printed page there could be 25 more.
These foreclosures and bankruptcies land blows on the lending institutions, which are becoming more reluctant to extend credit, particularly to those who are cash and asset poor.
Fewer loans means less sales, which contributes to the stagnation of an industry that has become, by default, a pillar of our economy.