US housing market in disarray
Increasing number of US consumers are finding it tough to meet their mortgage payments, leading to worries about more loan defaults and sending financial markets across the world into a tailspin. Leading the pack of non-performing loans is the so-called subprime mortgages given to people with weak credit history, says a survey released by the Mortgage Bankers Association (MBA). The proportion of all outstanding loans in the initial stages of foreclosure was at the highest in the 37-year history in the fourth quarter, says the MBA report. The share of mortgaged homes at the start of the foreclosure process rose to a seasonally adjusted 0.54% last quarter, topping the previous record of 0.50% touched in the second quarter of 2002, when the economy was recovering from recession. The delinquency rate for one-to-four-family houses rose to 4.95% of all loans outstanding compared with 4.67% during the third quarter and 4.70% a year earlier.
"Although the US economy and job market remain solid, the housing market continued to decelerate in the fourth quarter of 2006. Nationally, house prices increased at a slower rate and the pace of sales and construction activity continued to slow," says Doug Duncan, chief economist of the MBA.
Meanwhile, Accredited Home Lenders Holding, a US subprime mortgage lender, agreed to sell US$2.7bn of loans to pay bankers who demanded cash to cover the risk of defaults. The loans will be sold at a substantial discount to alleviate pressure from margin calls, leading to a pretax charge of US$150mn, the San Diego, California-based company said in a statement. Accredited didn't identify the buyer. At least 20 so-called subprime lenders have closed in the US and more are fighting for survival after a surge in defaults by customers. Accredited shares have lost 66% of their value this year. Former Federal Reserve Chairman Alan Greenspan said this week that he expected the fallout from the mortgage crisis to spread to other parts of the US economy, especially if home prices decline.
Shares of US mortgage companies rose on March 15 after Blackstone agreed to buy PHH Corp.'s home-lending business and Bear Stearns said it may buy more subprime loans. Countrywide Financial, the biggest US mortgage lender, gained 3.1%, Accredited added 56% and New Century Financial more than doubled. Accredited shares rose 5.9% in German trading on March 16. Shares of mortgage companies have plunged by a rise in late payments and lack of demand from investors who buy home loans. More than two dozen lenders have shut down or sought buyers since the start of 2006 as defaults in US subprime markets have grown.
Inflation up; so is industrial output, core growth
The Government is unlikely to have any relief anytime soon as far as prices are concerned. Inflation, based on the Wholesale Price Index (WPI), climbed further to 6.46% in the week ended March 3, due to higher edible oil and naphtha prices. Cement, fruits and vegetables also turned costlier. Inflation was at 6.1% in the previous week. The figure was higher than the consensus forecast of 6.31% and much higher than the annual inflation rate of 3.86% during the comparable period of the previous year. The Congress-led UPA regime has been under pressure ever since the WPI-based inflation has crossed the 5% mark. It has taken several measures along with the Reserve Bank of India (RBI) to contain spiraling prices of essential goods. Inflation hit a two-year peak of 6.73% in the week ended Feb. 4. The cut in petrol and diesel prices last month helped soften the blow a little bit. Inflation declined to 6.05% for the week ended Feb. 17. However, it spiked again to 6.1% in the last week of February.
India's industrial output grew by 10.9% in January as against 8.5% in the same month a year earlier, the Government said. However, the latest reading on the Index of Industrial Production (IIP) was lower than the upwardly revised 12.5% growth in December. The manufacturing sector expanded by 11.6% in January versus 9.4% in the year-ago period. Mining output grew by 6% in January this year compared to just 2% in the same month last year. The electricity sector logged a growth of 8.5% in the month as against 6.4% in the year-ago period. In the first 10 months of the current fiscal year (April-January 2006-07), industrial output grew by 11% compared to 8% in the corresponding period of the previous financial year, the Government said. Meanwhile, the infrastructure sector output grew by 8.7% in January as against 8.2% in the same month a year earlier, and marginally higher than a revised 8.5% in December, the Government said. During April-January 2006-07, the infrastructure growth was 8.4% as against 5.8% in the corresponding period of the last fiscal year.