Car-buyers are being tugged two ways in a German debate over carbon-dioxide emissions: Should they buy cars for the fast lane, or downsize to smaller cars more suited to the slow lane of German autobahns?
The dilemma came to a head when Chancellor Angela Merkel's government debated an economic stimulus package in October.
With global talks on a new climate-saving pact due next week in Poland, the dispute underlined the conflict between ecology and the economy.
Germany initially wanted to grant two-year vehicle tax rebates to buyers of all cars with sophisticated technology to reduce and purify emissions, but an outcry from environmentalists halted the plan.
The green camp was upset that even powerful sports utility vehicles with clean engines could claim the subsidy, while all cars would receive half the subsidy, no matter how polluting they were.
One group, Greenpeace, accused the government of encouraging "climate hog" motorists who drive heavy SUVs and limousines.
Road vehicles account for about a fifth of Germany's carbon-dioxide emissions, so reducing car exhaust could help Europe's largest economy meet its climate goals.
The export problem
The trouble is, cars are one of Germany's main exports.
The cars that the world -- and many Germans -- want to buy from Germany are not small fuel sippers, but big, strong cars that eat up the kilometers and keep occupants in a steel cocoon of safety.
Despite localized speed limits and widespread congestion, there are still plenty of no-limit sections on German autobahns where the usual cruising speed in the fast lane is 160 kilometers per hour (100 mph) or more.
A few weeks ago, Germany's main Lutheran church group asked pastors to set a good, green example to their flocks by limiting their autobahn speed to 120 kilometers per hour.
However, there seems to be no sign that such restraint is catching on.
Germany's auto industry regularly opposes efforts to introduce a national speed limit, and it suggests that environmentalists who call for weaker, slower cars are out of touch with ordinary Germans.
The industry has lobbied against earlier implementation of European Union fuel-economy and carbon-dioxide standards for cars.
"The German government is trying to stop effective CO2 limits and acting as an errand boy for incorrigible auto executives," accused Juergen Resch, head of the German environmentalist lobby group DUH.
The controversy in Berlin over vehicle-tax rebates, which has rumbled on for two years, has not gone away.
Under pressure, Merkel chose to delay. She has promised the half subsidy to all new-car buyers, and said that her government will next year fine-tune the low-emissions element of its subsidy program.
The tax dilemma
The squabble seems set to continue next year, with environmentalists pushing for a tax scheme that acts as an incentive to buy lower-powered cars.
Two states -- Bavaria, home of BMW, and Baden-Wuerttemberg, home of Mercedes-Benz and Porsche -- pressed ahead this month and said they would distribute the tax rebates in the form that environmentalists oppose.
The auto industry is also pushing for another incentive which it contends will be good for industry and good for the climate at the same time: a buy-in of polluting older cars.
Martin Winterkorn, chief executive of Volkswagen, has claimed that scrapping every car made before 1999 currently on German roads would reduce total carbon dioxide emissions by 11.2 million tons.
General Motors' German subsidiary Opel has also argued for a buy-in as a way to help the stumbling industry.
Nov. 29 (Bloomberg) -- The yen gained for a fourth straight month against the euro, the longest wining streak since 1999, as the deepening global economic slump prompted investors to sell high-yielding assets and pay back loans made in Japan.
The euro weakened against the dollar for a fifth month as investors added to bets the European Central Bank will cut interest rates next week after inflation in the region slowed by the most since at least 1991. Russia’s ruble declined against the dollar to the weakest level since March 2006 as the central bank let the currency depreciate and raised interest rates to halt an exodus of foreign capital.
“The yen is still our favorite currency,” said Derek Halpenny, head of global currency research at Bank of Tokyo- Mitsubishi Ltd. in London in an interview on Bloomberg Television. “The interest-rate differential argument is still very, very powerful for the Japanese yen as yields around the world continue to plunge. Past performance tells you that the Japanese yen is going to be the currency that outperforms.”
The yen gained 3.4 percent to 121.22 per euro, from 125.30 at the end of October. The currency advanced 3.1 percent this month to 95.52 per dollar, from 98.46. The euro dropped 0.3 percent to $1.2691, from $1.2726 on Oct. 31.
The ruble slumped as low as 27.99 per dollar yesterday, the weakest since March 2006, as the 63 percent drop in crude oil prices from a July peak erodes the country’s export revenue. The currency declined 3 percent against the dollar and the euro this month.
Russia, India
Bank Rossii widened the ruble’s trading band yesterday for the second time this week by about 30 kopeks (1 U.S. cent), or 1 percent, on each side, according to Mikhail Galkin, head of fixed income and credit research at MDM Bank in Moscow. The central bank said yesterday it will raise its benchmark refinancing rate to 13 percent from 12 percent to help stem currency losses.
India’s rupee fell yesterday the most in two weeks, losing 1.4 percent to 50.1075 per dollar, after terrorist attacks across Mumbai left at least 124 people dead. The rupee lost 1.3 percent this month.
The Thai baht dropped to 35.56 per dollar yesterday, the lowest level since February 2007, after the government declared a state of emergency at airports in Bangkok, which were seized and shut by anti-government protesters this week. It lost 1.2 percent this month on concern political unrest will slow growth in Southeast Asia’s second-largest economy.
Banks Rate Cuts
Japan’s currency strengthened 9.4 percent against the New Zealand dollar this month, 7.8 percent versus the British pound, and 5 percent against the Australian dollar as investors pared carry trades in which they buy higher-yielding assets with funds borrowed in low-interest-rate countries. The Bank of Japan’s 0.3 percent benchmark rate is the lowest among developed nations.
The Reserve Bank of Australia will lower its main interest rate three quarters of a percentage point to 4.5 percent on Dec. 1, and the New Zealand central bank will cut its key borrowing costs to 5 percent from 6.5 percent two days later, according to the median forecast of economists surveyed by Bloomberg News. The Bank of England will reduce its benchmark lending rate one- percentage point to 2 percent on Dec. 4, according to a separate forecast.
The euro fell 1.5 percent to 82.52 pence yesterday, the biggest drop since June 3, 2001, after the European Union statistics office in Luxembourg said inflation in the region slowed to 2.1 percent in November from 3.2 percent in October. A separate report showed unemployment in the region rose to 7.7 percent in October from 7.6 percent in September, the highest level since January 2007.
‘Least Resistance’
Investors added to bets the ECB will cut its main refinancing rate about 75 basis points by March from 3.25 percent. The implied yield on three-month Euribor futures contracts expiring in March fell to 2.67 percent yesterday, from 3.15 percent at the end of October. The yield averaged 16 basis points above the ECB’s benchmark over the past year.
The ECB will cut its benchmark lending rate by half a percentage point to 2.75 percent on Dec. 4, according to the median of 56 economist forecasts in a Bloomberg News survey.
“The ECB has to come to the party, and they have to be aggressive cutting rates,” said Lane Newman, a director of currency trading at ING Financial Markets LLC in New York. “To buy the dollar is the path of least resistance. You’d better be prepared for a worse-than-expected time ahead.”
‘Addition Downside’
The ICE’s Dollar Index, which tracks the greenback against the euro, the yen, the pound, the Canadian dollar, the Swiss franc and Sweden’s krona, climbed to 88.463 on Nov. 21, the highest since April 2006. Investors sought refuge in Treasuries from a global recession, sending the yield on two-year notes below 1 percent on Nov. 20, the lowest since regular sales began in 1975.
The Federal Reserve said on Nov. 25 it will assign $800 billion in new funding to bolster credit flows to homebuyers, consumers and small businesses and will take on credit risk by buying debt.
Investors should buy the euro versus the greenback because repatriation of U.S. investments abroad and demand for dollar funding is waning, according to Bank of America Corp.
The Fed’s support of financial markets will flood the economy with excessive dollars, creating “additional downside risks” for the U.S. currency, strategists David Powell and Robert Sinche wrote in a research note yesterday.
“The recent advance of the dollar rests on a weak foundation,” Powell and Sinche wrote. “The rapid expansion of a country’s monetary base should prove to be inconsistent with a strengthening of its currency.”
The dollar may weaken to $1.4180 per euro, a 50 percent retracement of its rally from a record low of $1.6038 in July to a 2 1/2-year high of $1.233 in October, they wrote.
LONDON — Could the British government’s plan to borrow and spend its way out of a recession lead to a run on the pound?
George Osborne, the Conservative Party’s spokesman on such matters, warned of just such an outcome this month, and Peter Mandelson, the Labor government’s business secretary, accused him of being “reckless and irresponsible.”
In the last few days, Mr. Osborne again accused Prime Minister Gordon Brown of driving Britain toward bankruptcy, but he avoided any mention of what one of the biggest borrowing surges in British history might do to its already fragile currency.
All the same, a feeling is building that Mr. Osborne may have a point. The pound, already down more than 26 percent from its high of $2.11 a year ago, could fall further once the economy begins to feel the strain from the increased debt.
“Any economy with our level of borrowing and our deficit of trade should have one of the world’s weakest currencies, not the strongest,” said Peter K. Hargreaves, chief executive of Hargreaves Lansdown, an independent brokerage firm in Bristol. “We don’t make anything anymore, and our biggest export was the City of London, which is in disarray. We are in a very poor state.”
Mr. Hargreaves sees the pound falling to $1.25 — it was at $1.54 on Friday — and he has recently moved £20 million into United States Treasury bills and instruments denominated in, among other currencies, the Norwegian krone.
“I just don’t think this country understands how serious the problem is,” he said.
Britain has a deep, emotional connection with its currency, the world’s oldest still in use. Crashes, when they come — as they did in 1967, 1976 and 1992 — have been viewed as moments of wrenching national shame.
The pound’s buoyant decade under Mr. Brown’s predecessor, Tony Blair, came to be seen as a lush emblem of Britain’s financial and popular resurgence. Middle Eastern and Russian billionaires accumulated British assets, and American investment bankers, once happy to be paid in dollars, schemed to see how they might manage to secure their bonuses in pounds.
Now, unemployment is rising, house prices are falling and economic growth is a faraway hope. Britain is seen as having relied too much on volatile sectors like housing, finance and retail. The numbers paint a stark picture: Britain’s public debt is expected to double to more than £1 trillion by 2012 — or about 60 percent of its gross domestic product.
Still, when it comes to the currency — the ultimate barometer of an economy’s health and future prospects — few forecasters have predicted an outright collapse. In fact, after touching a recent low of $1.48, the pound has rallied, lifted by the government’s stimulus plan, which includes cuts in the sales tax and £3 billion in capital spending. Government officials said in the last week that the steep income tax increases built into the program, aimed at high earners, were there to assure currency markets that these high debt levels would not be permanent.
According to Bloomberg News, the average forecast by City economists for the pound at the end of 2009 is $1.62. It is $1.66 for 2010.
Of course, currency forecasting in the midst of a historic financial crisis is an imprecise art. And such estimates do not square with a growing pessimism about the pound’s future that can be readily heard from the salons of West London to the trading desks of investments banks, where a popular bet has become when, as opposed to if, the pound might hit parity with the dollar.
The last time sterling came close to parity was February 1985, when the currency dipped below $1.10, with Britain hobbled by labor unrest and a recession.
“Parity is not impossible,” said Theo Casey, an investment strategist at The Fleet Street Letter, a financial newsletter that has been forecasting the collapse of the pound since August. “We are this tiny island dependent on finance and housing. We are crashing and it will continue.”
His newsletter foresees a return to past sterling crises, most notoriously the one in 1976, when Britain had to seek a bailout from the International Monetary Fund. According to Mr. Casey, such dire prognostications have hit a chord: newsletter subscriptions have risen more than 30 percent since its call on sterling.
Willem H. Buiter, a political economist at the London School of Economics, points out in his widely read blog, Maverecon, that there are two factors in this crisis that were missing during previous sterling reversions.
The first is that the pound now floats freely, making it more vulnerable to the whims of speculators. The second is the added burden of a devastated banking sector.
These elements are joined by the one common cause of past currency panics: a bet made by currency speculators that the highly leveraged British state will become insolvent.
“A sterling crisis would not be something highly unusual, if your idea of the distant past is not the market trader’s last month,” Mr. Buiter wrote recently, voicing sympathy for Mr. Osborne’s warning that the Labor plan might ruin the pound.
Current account surplus to be commodities-bust casualty, economists say
Nov 29, 2008 04:30 AM
Ann Perry business reporter
Canada's long-running era of current account surpluses could soon come to an end as the commodity bust drags down trade flows that helped propel the country's economy for years, economists warn.
The current account surplus, a broad measure of international trade that includes goods, services, investment income and other areas, shrank to $5.6 billion on a seasonally adjusted basis, down from an upwardly revised $8.2 billion in the second quarter, Statistics Canada reported yesterday.
The third-quarter figure was higher than economists had expected, and shows that Canada is still selling more to the rest of the world than it is buying.
But in a research note, CIBC World Markets economist Krishen Rangasamy said it would "likely be the last hurrah on our external balance," noting that skyrocketing commodity prices have more than made up for falling export volumes over the past five quarters.
"Now that (commodity prices) have come back to earth, and given that the global recession does not bode well for a recovery in real exports, a current account deficit looms for upcoming quarters," Rangasamy wrote.
The current account provides a reading on a country's capital flows as they relate to other countries. While a current account deficit in the short term is little cause for alarm, economists say persistent deficits can weigh on a country's currency and lead to increased debt levels.
The Canadian dollar has already sunk sharply this year as prices for important Canadian commodity exports such as oil, natural gas and metals have tumbled.
Canada has not run a current account deficit since the second quarter of 1999.
In an interview, Rangasamy said he expects the current account will dip into negative territory in the final quarter of this year. He also sees an $8.5 billion current account deficit for next year as a whole, although he thinks a recovery in commodity prices and global growth late next year will drive a surplus in the fourth quarter of 2009.
Douglas Porter, deputy chief economist at BMO Capital Markets, said in a research note that the current account will "struggle to stay in the black" in the fourth quarter of this year. He predicted a current account deficit of $10 billion or more in 2009.
In an interview, Porter said the third-quarter current account surplus showed "a healthy picture, but it's looking in the rear-view mirror because commodity prices peaked at the very start of the third quarter and then they've been sliding ever since."
Oil prices have plummeted more than 60 per cent since peaking around $147 (U.S.) in mid-July. Light, sweet crude closed down a penny yesterday at $54.43 (U.S.).
Porter also noted that "the amount of goods we're going to be able to sell to the United States is undoubtedly slowing rapidly with the sharp decline in U.S. sales."
That could have a significant impact on the current account since Canada exports many goods to the U.S. The third-quarter current account numbers showed the goods surplus shrank to $15.2 billion, from $16.2 billion in the previous quarter, as growth in imports outpaced growth in exports, Statistics Canada said. Canada's deficit in services narrowed by about $300 million, due largely to lower fees paid on securities transactions.
Meanwhile, the country's investment income deficit nearly doubled to $3.8 billion, driven by a drop in profits Canadian investors earned abroad.
On the face of it, a shrinking current account likely won't help the loonie recover from its recent slump against the U.S. dollar. Aside from tumbling commodity prices, the loonie has been dragged down by political uncertainty around Prime Minister Stephen Harper's minority government and the apparent collapse this week of the sale of BCE Inc. The Canadian dollar closed yesterday at 80.84 cents (U.S.), down 0.39 of a cent.
But Stewart Hall, an economist at HSBC Securities (Canada), said he isn't "overly worried from the standpoint of market perception."
"I think the currency market is looking more toward those emerging market economies that have a big demand to finance external liabilities as being really kind of the weak links of the currency market," he said, adding that Canada isn't viewed as "one of those weak links in the currency chain."
Porter also suggested a current account deficit wouldn't necessarily be the end of the world.
"There's nothing necessarily healthy or unhealthy about a (current account) surplus or a deficit in any given year. You have to take into account everything else that's going on," he said.
"But what's not healthy is a decade or two decades of deficits each and every year like we've seen in the U.S., whereas in Canada we've seen surpluses pretty steadily since the start of this decade, which indicates that Canada has been living within its means as a broad economy this decade."
"Bahia Mar is probably the most precious public land the city owns," Steve Glassman, president of the Central Beach Alliance, said during a recent meeting of the group with about 60 members in attendance. Peter Henn, LXR Luxury Resorts & Hotels vice president, said he hopes the Bahia Mar Park Project will win unanimous vote of approval from the Alliance at its meeting in January. Henn offered a presentation to Alliance members – including miniatures of the proposed project and posterboards with before-and-after illustrations. His aim: to persuade members that Bahia Mar is exactly what the city needs. Project plans include a luxury hotel, two upscale residential buildings and a parking garage.
Alliance member Joe Panico said he liked the project and agreed that the land has been wasted.
"But you need to work on the aesthetics," he said. "The buildings have no 'wow' power."
Resident Chuck Murawski said its the aesthetics that should attract people.
"Visit Dubai or Barcelona, where the buildings are spectacular, not rectangular boxes," he said.
Beach resident Shirley Smith said the project is too big.
"The architecture is all right, but I'd love something more Mediterranean. There has to be a lot more talking," she said.
In other news:
Glassman announced said that the Beach Music Festival is scheduled for May 2009.
Capt. Victor London of the Fort Lauderdale Police Department said crime statistics in the Central Beach Alliance area are good news. There were 70 crimes between September and October, compared with 79 in the same period last year. Additionally, there was 809 calls for service compared with 860 in 2007.
I hope that you had a great Thanksgiving - now its time to talk about mortgages.
**Important - Before you get started reading this post, note that I started writing this on Wednesday the 26th using mortgage rates from that day. As of right now they are another .25% in rate higher. So the ‘5.5%’ used as an example below is now 5.75%. Last Friday BEFORE the Fed announcement, 30-year fixed were roughly 6%. As of today all of the hype that low rates are going to save housing is about less than .250% in rate. But most can’t even get 5.75%…let me explain.
Rates are not as low as the Wall Street analysts would have you believe. They speak of mortgage rates as a static thing that from now on will remain at levels that will fix all the housing markets woes, when in reality they swing wildly from day to day just like stocks.
Over the past few days the relentless pump over 5.5% is absolutely a red herring. The media and Wall Street analysts should not be quoting mortgage rates because they are committing the greatest ‘bait and switch’ of all time. They are going to make thousands of loan officers around the nation look like crooks because 5.5% really does not exist for most.
The 5.5% rates that are making everyone so giddy are ‘base-rates’ for perfect credit, vanilla borrowers. The ill-informed are assuming everyone gets that rate and is able to qualify. This may be how it was two years ago due to soaring house values, easy credit and more stable mortgage markets but that is far from reality today.
Think of the 5.5% rates like that car shown for $9,999 in the paper - there is only one available, its last years mode, this years is much more expensive and by the time you get yours, it costs twice as much. The fact is that most do NOT get the best rates available, rather get a shockingly higher rate.
The fact is that the 5.5% rates are for the best AAA, high-FICO, low loan-to-value, owner-occupied purchase or rate & term refi. This loan scenario makes up the minority of all borrowers and arguably the ones that need no help. The rates for most of us, especially those that need to refi out of a toxic loan, are still well over 6%. The rates for Jumbos are much worse and did not respond anywhere close to conforming.
Now I am going to show you some of the best rates available in the nation available on 11/26. These are wholesale rates meaning they are only available to mortgage brokers. To get a retail (consumer) rates, just add one point roughly.
For example, if you see a 5.5% @ (1.000) this means that at a rate of 5.5%, the mortgage broker would receive in return 1% of the loan amount in a rebate that can be used as her commission, to pay borrowers fees etc. In a deal with this pricing and rebate depending on the loan amount it would likely be a ‘no point’ deal where the consumer had to pay all other closing costs such as appraisal, credit, escrow, title, lender processing, underwriting etc. Count on about $2500 for ‘other’.
Taking this into consideration you will see on the rate sheet that a 30-yr fixed $417k loan is about 5.5% at no points. A Jumbo $650k loan is approx 6.25% at no points.
BUT, NOW GET READY FOR THE TRUTH - In Recent Months Rate Adjusters Have Soared
A rate adjuster is a ‘hit’ to the interest rate if you do not fall inside the tight vanilla box. During the bubble years, the vanilla box was big. Over the past year, it has shrunk considerably to a point where to the majority do not fit inside of it. This is a perfect example of ‘credit tightening’.
All of those adjusters in the grid below the rates grid are what takes most borrowers interest rates well above 6% again. If you are not a perfect 720 score, <80%> if you are lucky enough to only be impacted by 1.000 of adjustments, your real interest rate is 5.875% at no points plus $2500 closing costs.
Actual Conforming Rates (11/26) Below - most borrowers will get rates at 6.25% to 6.75%
Conforming $417k Fannie Mae ‘base rates’ are shown below across the top row. Note the 30-yr fixed at 5.5% pays the loan officer 1.128% of the loan amount to be used as commission or towards closing costs. In most cases this would mean 5.5% is a NO POINT loan. To do a NO COST loan the rebate has to be around 3% which takes rates well above 6%.
Now, add up all of the adjusters for not being a perfect credit, low loan-to-value vanilla borrower. See below this grid.
The Conforming $417k base rate row above are not what most get. This is because all loans are unique. You have to build your loan using the adjusters - I highlighted the most popular in red boxes. Please see all that apply to you. Notice how that if you do not have a perfect 740 score, decent loan-to-value and no second mortgage, you are getting hit. 1.000 in hits = roughly .375% in rate.
Conforming Borrower & Current Rate Example
675 credit score, 80% cash-out refi used to pay off a second mortgage, fully documented. This used to be considered super prime with very few pricing adjustments. Now they get smoked. 1) LTV & FICO hit = 1.75% to fee 2) Cash-Out Hit = 1.00 to fee.
The cumulative adjustment for this loan scenario of 2.75% of the loan amount in fee or 75 to 87.5bps in rate pushing the 5.5% rates to a whopping 6.375% at no points.
If they had a second to 90% CLTV they wanted to keep open as many do, there would be another 1% hit making the rate as high as 6.75% or forcing the borrower to come in with 1% of the loan amount, as much as $4,170 PLUS all closing costs.
Actual Jumbo Rates (11/26) Below - most borrowers will get rates at 6.75% to 7.50%
Jumbo from $417,001 to $625k ’base rates’ are show below in upper left boxes. Serious adjusters apply here as well unless you are a 740 credit score borrower doing an 80% rate/term refi or purchase with no second mortgage on a primary residence.
Note that a 30-yr fixed at 6.25% pays the loan officer 0.818% of the loan amount to be used as commission or towards closing costs. In most cases this would mean 6.25%-6.5% is a NO POINT loan.
Now, add up all the hits for not being a perfect credit, low loan-to-value vanilla borrower below the rate boxes. I have highlighted some of the most common in red. These are cumulative adjustments. Be aware that 1.00 in fee adjustments equal roughly .375% to .500% in rate.
ADJUSTMENTS GRID ABOVE - (Note: 1.000 adjustment = roughly .375 to .500 to rate)
The Jumbo ‘base-rates’ quoted above are not what most get. This is because all loans are unique and you have to build your loan using the adjusters above - I highlighted the most common in red boxes. Please see all that apply to you.
Notice that if you are not a perfect borrower doing a vanilla loan with no second mortgage you can’t get these rates. As a matter of fact, a 680 score borrower can’t even do a loan over 75%. A 680 score 75.01% LTV borrower used to be AAA Prime and are still rated that way on the balance sheet of banks such as Wells Fargo, Citi and Chase. Note that 1.000 in hits = roughly .375% in rate to .500 in rate.
Jumbo Borrower & Current Rate Example
700credit score, 80% no cash-out refi, fully documented. This used to be considered super prime with very few pricing adjustments. Now they get smoked. 1) LTV & FICO hit = 0.75% to fee 2) ‘Other’ hit >75% LTV or CLTV = 0.500 to fee. 3) If the borrower had a second mortgage above 80% which is common add another 1.00 to fee.
The cumulative adjustment of 1) and 2) it is a total of 1.25 to fee or roughly .625% to rate. This bring the base rate of 6.25% at no points to a whopping 6.875% at no points to the consumer.
If they had a second to 90% CLTV, which is common, there would be another 1% hit making the rate as high as 7.500% or forcing the borrower to come in with 1% of the loan amount, as much as $6,250 PLUS all closing costs.
————————————————————————————
In closing DON’T BELIEVE THE HYPE folks. That being said there is nothing wrong about calling your mortgage broker or the bank and seeing what you can hammer out. Perhaps, there are things that can be done. At least now you have some ammunition. -Best, Mr Mortgage
First off, Happy Thanksgiving everyone! I really wish you all the best.
Ok, now down to business - I have heard enough of the rampant speculation about how a 50bps drop in conforming mortgage rates are going to save the housing market - I wish it were that simple. There is not a lack of liquidity in the mortgage market. Rather, a lack of qualified borrowers given current lending guidelines; lack of aggressive Jumbo money; major asset devaluation; and terminal negative-equity. These factors make this excitement over a 50bps drop in rates a red herring.
We can’t even be certain yet these levels will hold. Remember folks, we have seen this happen a few times this year. Each time, rates went right back up after the initial knee jerk lower. It is happening again this time as well. Ever since the initial betterment on Tuesday morning, rates have been increased higher multiple times in just two business days. As of Wednesday afternoon rates have climbed back up to a level that has wiped out half of their initial gains. For example, last week a zero to half point 30-yr fixed was around 6%. On Tuesday is jerked down to 5.25% and is back to about 5.625% now. I am still not convinced that the low rates will last - I talk about in HERE.
But, for the purpose of this analysis, let’s pretend that conforming rates stay at 5.5% (NOTE - Jumbo Agency money is still well above 6%. Jumbos over the Agency Jumbo limit can be as high as 7-10% because these are bank portfolio loans).
In the good-old days, when rates dropped 50bps in a short period of time, the entire country would refinance for a lower rate, for cash out, to combine a first and second into new first mortgage and then add a new HELOC, etc.
Back then when values went up every month and there were hundreds of lenders with thousands of programs and interest rate structures it was very easy to pump the mortgage money. Back then the refi waves came every 6-8 months and within a few months after a wave began it was noticeable how this injection rejuvenated the consumer.
This can’t happen any longer. Who do you think is out there to take advantage of these low rates? Much fewer than you would think and a lot less than in the past.
REFINANCES
-Negative Equity - Within the states that need to most help, the vast majority can’t refi due to negative-equity- see chart in this LINK. In CA for example, some 60% of all mortgagees are either underwater or ‘near’ underwater and and will not be able to take advantage of the rates. NV, FL and AZ are even worse. The top 10 trouble states in the nation are mostly stuck underwater in their homes, unable to move or refinance.
-Rates are really not that low - The rates you are hearing about at 5.25% were there for a brief period yesterday morning but by the end of the day every lender had re-priced rate higher multiple times. Rates jumped back to the 5.5% level where they sit now.
Rates are lower than last week for sure, but these ‘low rates’ that are being heralded are ONLY for the best AAA Prime gold borrowers with 80% CLTV’s and 720 scores. This represents a small fraction of borrowers. As a matter of fact, most borrowers with this profile did not participate in the past several years of serial refinancing and many already have low 30-year fixed rates at 5% attained in 2003-2004. These rates are not for anyone less than perfect.
-Steep rate adjustments - Now days, the GSE’s have steep adjustments to the interest rate for less than perfect credit scores, higher loan-to-values, cash-out etc. These steep adjusters carry rates for most well above 6% even at today’s lower rate levels.
-Folks don’t qualify - ‘Back then’ nearly everyone could benefit from a drop in rates because values always went up and because stated income and interest only loans made it so everyone could qualify. Until mid 2007, lenders actually funded 75-80% of all loan applications! Now, lenders are funding 40-50% of applications. That is serious fall out. Now, you must have two years tax returns, a current pay stub, great credit and sizable equity to take advantage of the best rates. This profile represents a small minority of borrowers.
PURCHASES
With respect to purchasing, since over half the market is distressed sales of foreclosure related properties, rate does not matter as much - home price does. 6% or 5.5% will not change things - its about how cheaply they can buy. Everyone wants a ‘deal’ on a foreclosure.
Many ‘investors’ buying distressed properties pay cash. Those that don’t have much tighter qualifying rules and a much higher rate structure anyway because rental properties carry more risk. The GSE’s are now pricing in that risk.
Renters and first time home buyers are a different story and should see some benefit to lower rates if they hold. They will either save money or qualify for slightly more house. But remember, first time home buyers and renters are the weakest portion of the market and have always been. What is missing is the all-important move-up buyer, which lower rates will not help to any great degree. This is because of the gross amount of negative equity already discussed here and because without all of the exotic loan programs and easy qualifying many can’t even afford to re-buy the home they live in now.
MORTGAGE ORIGINATORS ANNOUNCE RECORD VOLUME ON 11-25…NOT SO FAST
I emailed a good friend at a national mortgage bank yesterday and asked…
Mark: Of all your loan locks today, how many were re-locks of loans already in process with other lenders. If it was heavy, it would show that yesterday’s massive mortgage action was not a bunch of new loans but just an aggregation of that past 30-days of production at higher rates that all moved to other lenders on the same day (today) for lower rates? I am trying to validate that on days where rates drop through the floor in a single day, very few new loans are originated. Rather all bank lose their present portfolio as borrowers and brokers go elsewhere to capture the new pricing.
David: Most were re-locks from other lenders on loans already in process. Some were refi-churns from the past 6 months originations including some of the re-locks. Another problem on days like today is that brokers lock everything in their systems without checking with their clients first because their computer tells them that John Smith can benefit from a refi if rates fall to a certain level. They lock up the loan to protect the rate and then call John Smith to find out he is delinquent, unemployed or the home value has dropped to a level at which he can’t refinance using new guidelines. Days like today feel great when they are happening but end up being costly.
————————————————————————————
This brings me back to a research note I wrote in Jan 2008 about IndyMac that explains the flurry of mortgage activity yesterday, as rates dropped.
1/24/08 IndyMac locks $1 billion in loans in a single day - The Lies Never Stop
Michael Perry is the biggest information fabricator in the industry. Look back through all of your 2007 press releases and you will see how many times he has said such things only to disappoint the shareholders.
The facts are IndyMac sits on Billions of unsalable subprime, Pay Option and second mortgage loans. These three loan types make up 80% of their portfolio and most of it cannot be sold for any price.
All mortgage companies had record locks yesterday. But this is not ‘new’ business necessarily. When rates crash down like they did yesterday, everyone forward locks loans with whoever has the lowest rates. They may have already had these loans locked at a different lender but relocked somewhere else to get the better rate.
IndyMac took a lot of business from other lenders yesterday. But, they lost a lot too. When this happens, portfolios just tend to shift from one lender to another, as borrowers and brokers want to take advantage of the lower rates and the lender at which they are presently locked typically will not roll down rates to market. If you lock it, that is your rate.
So, yes Indy may have locked $1 Billion (3000 loans) but they likely lost 3000 loans at their shop locked previously in the month because the loan officer locked those with a different lender for a better rate. Of the 3000 loans Indy locked yesterday, 2500 likely were already locked and in process at another lender like Countrywide.
Now for the bad news…all of those loans IndyMac already had in their pipeline previously locked at higher rates that were pulled, will cause massive losses. Not, only paper and hedging losses but real operational losses from having staff work loans that will never fund. These loans are the exact ones that they wanted to fund because they carry a higher rate than market rate in most cases.
The new $1 billion (3000 loans) that they locked yesterday at the one-day lowest rates in 5-years are locked at such low rates, funding these could created massive losses since rates shot up so much in the past 24-hours. Rates are up almost 50bps since yesterday morning.
To add insult to injury, chances are IndyMac was not able to hedge these appropriately and/or do not have the forward commitments necessary to handle that much production. In essence, their entire pipeline of loans they worked so hard on over the past month churned elsewhere for lower rates at a COST to Indymac.
This whole deal could ruin them. Sounds counterintuitive, but it is absolutely the facts.
So far banks, insurers, and automakers have knelt before the federal government with their hands out. Up next: Universities.
“There’s no evidence of a complete meltdown,” Molly Corbett Broad, president of the American Council on Education, told the New York Times recently, “but the problems are serious enough that higher education is going to need help from the government.”
The stock market collapse will have far-reaching consequences, but its impact on higher education is not yet fully recognized. Most universities keep their multi-million and sometimes billion-dollar endowments in equities. The decline in the value of those endowments has already forced serious cutbacks in public and private universities alike. Both Ivy League universities and state colleges have announced hiring freezes, postponed construction projects and suspended capital campaigns.
Even Harvard is in trouble. Instead of bleeding crimson, it's hemorrhaging green. Harvard’s nearly $37 billion endowment, the largest of any university, funds more than one-third of the school’s annual $3.5 billion operating budget. Because of the stock market’s decline, Harvard may well suffer hefty losses in its endowment; it's currently reconsidering its sweeping 20-year expansion across the Charles River in Allston, Massachusetts.
In a widely publicized email sent several weeks ago, Drew Gilpin Faust, Harvard’s president, said the university is looking for ways to reduce spending across the campus. “We must recognize that Harvard is not invulnerable to the seismic financial shocks in the larger world,” Faust wrote.
According to the Boston Globe, a Harvard official said a wage freeze for faculty and a budget freeze on all programs are currently on the table.
Universities should have been keeping their money safe for students. But like pension funds and charities, they were swayed by the siren calls of hedge funds that guaranteed consistently high returns. It all perpetuated the cycle of excessive leverage.
The first chink in Harvard’s armor came when Sowood Capital closed its doors in July 2007 after crushing losses. Harvard, one of Sowood’s investors, reportedly lost $250 million. The hedge fund’s founder once managed Harvard’s endowment.
Harvard's not alone. Last month, Boston University instituted a hiring freeze and a moratorium on all construction projects not yet underway. Dartmouth College said it was trimming its budget after its endowment lost $220 million during the investment crisis. Brown and Cornell also imposed hiring freezes. And Tufts University, which has been a need-blind college for the last few years, may not be able to keep that commitment for next year’s incoming class.
The cost of attending private universities is already prohibitive, and many students are flooding into state universities. According to the New York Times, applications at Binghamton University, part of the State University of New York system, were up 50% this fall. But even public universities are in trouble, as many have already announced mid-year tuition increases.
I can see an emerging trend in which students who can’t afford private universities will consider state universities, and those that can’t afford state schools will consider community colleges. Those that can’t afford those will slip through the cracks.
Sadly, it's taken a crisis of historic proportions to expose the severe cracks in our country’s higher education system.
NEW YORK (CNNMoney.com) -- Mortgage rates fell sharply yesterday after the administration announced that it will pump another $800 billion into credit markets to free up frozen consumer and mortgage lending.
That number dwarfed previous government actions aimed at bolstering the mortgage lending market.
"The feds agreed to spend a half a trillion dollars to buy up mortgage backed securities and another $100 billion to fund lending for Fannie and Freddie; we're not talking chump change anymore," said Keith Gumbinger of HSH Associates, a publisher of mortgage information.
Rates averaged 5.77% for the day on a 30-year, fixed rate loan, down from 6.06% Monday, according to Gumbinger. They fell as far as 0.75 percentage points during the day, according to Orawin Velz, Associate Vice President for Economic Forecasting at the Mortgage Bankers Association.
That could save a typical homebuyer more than $90 a month on a $200,000 mortgage.
"The government action was geared to bringing mortgage rates down," said Velz, "and it did."
The drop was the largest since early September, when the administration announced that it was taking control of mortgage giants Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500), and stemmed from similar market sentiment.
Both actions sought to give confidence to the investment community. Most mortgages are sold to investors in so-called secondary markets but with foreclosure rates so high and expensive write downs of mortgage-backed securities so common over the past several months, investors had fled the mortgage market.
Instead of buying mortgage bonds, they've been snapping up Treasurys, a virtually risk-free investment. That showed up in the falling yields of Treasury bonds and the greater difference between Treasury yields and mortgage interest rates.
Normally, interest rates on 30-year fixed rate mortgages are only slightly higher than yields on 10-year Treasury bonds, about 1.5 percentage points. That difference compensates mortgage investors for taking on extra risk.
Lately, however, because investors have perceived, quite reasonably, that risks of mortgage-backed securities were far greater than previously supposed, they demanded greater reward for investing in them.
That sent the difference, or spread, between mortgage interest rates and Treasury yields to 2 percentage points or so over the past year. That had widened even more recently, to about 3 percentage points, before the government took action yesterday. Even after the big drop in rates, the spread is still more than 2.5 points.
Whether the government action will lead to lower mortgage rates over the long term remains to be seen. "In theory, it should stimulate investor demand but there are a lot of unforeseen things that can occur," said Velz.
She initially thought the Fannie-Freddie takeover would have much the same long-term impact because it meant that the government was guaranteeing all the loans the two were backing.
"But the government started backstopping almost everything," she said, "so demand for mortgages declined and the spread increased again."
This time might be different, according to Mike Larson, a real estate analyst with Weiss Research, but he's far from certain.
"There's been some short-term bang for the buck," he said. "We have to see if it sticks."
Helping it stick could be the downward pressure from deflation concerns and the still unusually wide spread with Treasurys.
"Even if the spread just got a little tighter you'd get some added horsepower," said Larson. "We could see rates in the low fives pretty soon."
Florida’s financial industry struggled with problem loans and mounting losses in the third quarter.
The state’s 275 commercial banks had a combined loss of $151 million in the three months ended Sept. 30, and have lost $159 million in the first nine months of 2008, a report from the Federal Deposit Insurance Corp. said.
It’s a dramatic turnaround from a year earlier. In the third quarter of 2007, 278 commercial banks in Florida had combined net income of $138 million. They earned a combined $631 million in the first nine months of 2007, the FDIC said.
Florida’s 36 savings institutions posted steeper declines, with a combined $408 million in losses in the third quarter of 2008 and $568 million in losses year to date. In the third quarter of 2007, 37 savings institutions lost a combined $13 million, but they were in the black for the first nine months of the year, with a combined $79 million in net income.
Nationally, commercial banks and savings institutions reported net income of $1.7 billion in the third quarter of 2008, a decline of $27 billion, or 94 percent, from the $28.7 billion that industry earned in the third quarter of 2007, the FDIC said in a release.
The FDIC cited higher provisions for loan losses for the drop in industry profits. Loss provisions totaled $50.5 billion nationally, compared to $16.8 billion in the third quarter of 2007, the release said.
Charge-offs, or loans removed from banks’ balance sheets because they were uncollectible, rose in the third quarter, as did noncurrent loans , or loans 90 days or more past due or not accruing interest, the FDIC said.
Nationally, 2.31 percent of all loans were noncurrent at the end of the third quarter, the highest level for the industry since the third quarter of 1993.
Among Florida’s commercial banks, noncurrent loans made up 4.12 percent of all loans as of Sept. 30. Noncurrent loans were 5.19 percent of all loans at Florida savings institutions on Sept. 30, the FDIC said.
The FDIC also said its problem list of troubled institutions grew during the quarter from 117 to 171 institutions, the largest number since the end of 1995. The FDIC does not identify institutions on the problem list.
What's the price of entry into the housing market for a first-time buyer? The answer: a deposit of at least £20,000 - which is why so few people are now buying. If you want one of the best mortgage deals on offer, you are probably looking at having to rustle up a £50,000 deposit, or even more in London and the south-east.
While Alistair Darling this week claimed his pre-budget package of support for housing would "help the homeowners of tomorrow buy their first home", there was nothing in his speech to assist first-time buyers to overcome the substantial obstacle of stumping up a hefty deposit.
Latest Council of Mortgage Lenders figures show that the average first-time buyer is putting down a deposit of 16% of the value of the property - which equates to a whisker under £20,000 in the case of a typical £124,400 property being bought by a first-timer.
However, a review of the home loans on offer this week reveals that banks and building societies are reserving their best rates for customers with a 40% deposit. Based on the above example, that translates into £50,000: not a problem for some homeowners looking to hop on to a new mortgage deal but impossible for all but a minority of first-time buyers. That £50,000 figure is for the UK as a whole; it would be much higher in most of London and the south-east.
However, there are many who say that now is not the time for first-time buyers to be wading into the property market because house prices probably have some way further to fall. Sitting on the sidelines may be the best course of action. But some will feel they have waited long enough.
At first glance, the mortgage rates on offer at the moment do not look too bad. HSBC is offering a base-rate tracker deal - which follows the ups and downs of the Bank of England base rate - at 3.99%, while Abbey and Alliance & Leicester have two-year fixed rate deals at 4.49%. But in both cases, the maximum loan is 60% of the property's value - which means the buyer must put down the other 40%.
"If the borrower has a 20% deposit, rates rise to 5.99% for trackers and to 6.45% for fixed rates. If the borrower only has a 10% deposit, then there are no trackers and the lowest rate for a fixed deal is 6.45%," said Francis Ghiloni at the home loans website mform.co.uk.
The mortgage landscape has changed dramatically in recent months, and among those affected the most are those who can only manage a very small deposit, or none at all. All the remaining 100% mortgages were axed earlier this year, and there is little, if anything, available for those who have a deposit smaller than 5%.
Another problem facing first-time buyers is the greater caution of banks hit by the credit crunch about whom they take on as customers.
Meanwhile, some lenders are clamping down on low-cost "interest-only" mortgages, which many people have turned to in the past as a way of affording high property prices. With these, customers pay interest on the loan but do not pay off any of the capital debt - which means much lower monthly payments.
Earlier this year, Abbey said interest-only borrowers with "a proven repayment vehicle in place" would be able to borrow up to 75% of a property's value, while those without evidence of a repayment vehicle would be limited to 50%.
London’s West End and Moscow remain world’s two most expensive office markets; Dublin rents at 14th rank are almost double Brussels'
By Finfacts Team Nov 26, 2008 - 4:34:34 AM
Top 50 Most Expensive Office Markets as of November 2008 (converted to US dollars)
London’s West End and Moscow remain the world’s two most expensive office markets, respectively, while Hong Kong’s CBD (Central Business district), Tokyo’s Inner Central District and Mumbai’s Nariman Point round out the top five, according to CB Richard Ellis Group (CBRE) Research’s semi-annual Global MarketView/Office Occupancy Costs survey. Dublin has 14th rank and is fifth highest in Europe. Dublin rents are almost double the level in Brussels, the capital of the European Union.
The report tracks world markets with the highest as well as fastest-growing occupancy costs for the 12 months ended September 30, 2008.
The average rate of growth for office occupancy costs among the 172 markets monitored in the survey was 8%, almost double last year’s world inflation rate. Up 94.6%, Abu Dhabi, United Arab Emirates (UAE) had by far the fastest growing occupancy costs, with three of the top five fastest growing countries situated in the Middle East. The rise in occupancy costs in the UAE over the past twelve months has reflected market fundamentals—limited supply of quality office space and high demand from international firms, primarily law firms, financial institutions and real estate and construction companies planting a footprint in the UAE.
"Our current perceptions are greatly affected by the current economic malaise and we tend to forget how fast rents and occupancy costs were rising over the last 12 months," said Dr. Raymond Torto, CBRE’s Global Chief Economist."Clearly the rate of change is generally slowing, and in some markets the pricing direction is down. The turn in rent trajectory will provide some relief to occupiers and angst to owners. However, unlike previous downturns, which have occurred simultaneously with extensive overbuilding, the real estate market globally today is in a stronger position to weather the difficulties than in the past."
Asia Pacific was the fastest growing region among markets in the top 50, at an average rate of 26.2%. Among the region’s ten entries into the top 50 fastest growing and second overall, Ho Chi Minh City, Vietnam, was up 51.4%. Multi-national corporation tenants have driven demand for the limited supply of prestige prime office buildings in that city; however Ho Chi Minh City’s rents largely surged in the fourth quarter of 2007 and the first half of 2008. Perth, Australia, was second in the region and fourth overall, up 45.2%, while Hong Kong’s CBD had the third largest increase in the region and 12th overall, up 29.1%.
Occupancy costs in the six Latin American markets that made the top 50 fastest growing rankings grew an average of 21.5%, with two new cities—Santo Domingo, Dominican Republic, and Lima, Peru—making the list. São Paulo, Brazil, led the region and was the seventh fastest growing market overall, up 34%. São Paulo’s occupancy cost increase reflects a shortage of prime office space combined with a relatively strong local economy supported by global demand for commodities and a growing middle class. Meanwhile, of the nine North American markets in the top 50 fastest growing rankings (down from the last report’s15 markets), occupancy cost growth rates averaged 14.5%, the slowest of all the regions covered.
Asia-Pacific
Hong Kong jumped into the top three most expensive cities globally, with occupancy costs rising to $231.59. Ho Chi Minh City dropped from the top spot to number two among the top 50 fastest growing cities, while Perth, Australia, jumped up 10 spots in the most expensive rankings, coming in at number 31.
Europe
London’s West End remained the world’s most expensive office market at $248.66, and Moscow retained its number two spot at $234.73. The City of London was next among the European markets and eighth most expensive overall, at $146.61. In Europe, occupancy costs grew fastest in Moscow and Rome, with increases of 29.8% and 29.5%, respectively.
Americas
Five North American cities are among the world’s Top 50 most expensive office markets: Midtown Manhattan (15th at $98.08); Calgary CBD (38th at $66.58); suburban Los Angeles (41st at $63.58); Toronto CBD (43rd at $61.54); and Downtown New York City (48th at $59.16). In Latin America, São Paulo increased nine spots to 26th, at $75.13.
In the pre-Budget report (PBR) the chancellor made quite a low key comment.
"The government will shortly commission an independent review of British offshore financial centres," he said.
He also made it clear that the UK would not be held responsible for any sums held in the offshore bank accounts, in the same way as it is for the amounts held at UK on-shore bank accounts.
One wonders what is behind all this.
The review will not consider changes to the UK's constitutional relationship.
It will though look at the role of British offshore financial centres in the global economy, and in particular
financial supervision and transparency
fiscal arrangements
financial crisis management and resolution arrangements
and international cooperation.
What is the problem?
First off, what are these dependencies and territories?
With the transparency will come a greater flow of information about all things to do with tax.
Well they clearly include the Channel Islands and the Isle of Man.
But what about the more exotic locations such as the British Virgin Islands, the Cayman Islands and Bermuda?
The governments of these three jurisdictions did not issue press releases supporting the review, unlike Jersey, Guernsey and the Isle of Man authorities who did.
But it certainly would not make any sense, if the UK government is trying to take stock of its obligations, for one or more of these offshore jurisdictions to end up in the lurch like Iceland.
Therefore, once the full scope of the review is announced, it will almost certainly seek to look at all the locations where, for whatever reason, the UK government might end up being pushed into guaranteeing the savings of UK citizens.
More than meets the eye
But I think there is also more to it than this. There are probably two other very clear cut agendas behind this exercise.
First, the government will wish to ensure that whatever new regulations emerge from the embers of the current crisis for banks and financial institutions, these offshore jurisdictions are fully signed up to it.
And it will also wish to ensure that the new framework has a great deal of transparency built in to it.
Most importantly, along with the transparency will come a greater flow of information about all things to do with tax.
The government must be keen, as a spin off from the banking crisis, to ensure that UK tax payers do not use off shore jurisdictions to evade paying UK tax.
While the review itself is not specifically about tax, but about government obligations, it will almost certainly seek to enforce tax compliance as an offshoot of the work.
More demands
In the brave new world after the banking crisis, much taxpayers' money will have gone to keeping banks afloat.
We are about to enter interesting times in the offshore banking sector
Governments in the UK, US, other parts of the EU - and many other countries around the world - will no longer tread softly when seeking information from the banks in offshore jurisdictions about its taxpaying, or perhaps insufficiently taxpaying, citizens.
I also think if those demands do not receive a swift response, then the UK and others will work much more in co-operation with one another to obtain what they are after.
I think in any case we are about to enter interesting times in the offshore banking sector where transparency is the name of the game.
But at the end of it all, the mainly Western governments who are seeking information from the off-shore centres may find that their taxpayers were actually being much more honest than they were giving them credit for.
The opinions expressed are those of the author and are not held by the BBC unless specifically stated. The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.
At a time when many businesses are laying off, one local hotel is hiring.
W Fort Lauderdale is looking for more than 350 employees for its 517-room hotel that’s set to open next March.
W will launch a talent search on Monday, Dec. 1. Recruiting will take place on the second floor of the Galleria mall in Fort Lauderdale. The hotel is looking for everyone from welcome agents to room stylists to talent coaches.
“We are looking for passionate, qualified people who will connect with and take pride in our unique brand,” W Fort Lauderdale General Manager Scott Brooks said.
The center will be open Monday through Saturday, from 10 a.m. until 7 p.m., and walk-ins are welcome.
The hotel is located on a 4-acre site on Fort Lauderdale’s beach. It is the W brand’s introduction to the Florida market. There are five W hotels in New York City and 17 others nationwide.
New Jersey's largest boat-building company, Viking Yachts, laid off as much as 17 percent of its work force this year in what could be the biggest downsizing since the 1990-91 recession, coupled with a federal luxury tax that decimated the Bass River boat works.
From a recent peak of 1,400 workers, the company has shed 210 to 250 positions in several rounds since March, said Peter Frederiksen, Viking director of communications. Escalating fuel costs earlier this year were one factor, and the deepening global economic malaise has reduced domestic and international demand for the company's distinctive sport fishing and motor yachts.
"Some people are furloughed, which means they will be brought back when there's work," Frederiksen said.
People who have lost their jobs range from fiberglass workers, who lay up plastic and resin to build hulls from 45 feet to 82 feet in length, to some 20 administrative office staffers who were laid off in the summer. Out-of-work employees can still use the company's on-site health services, Frederiksen said.
The company's 600,000-square-foot production plant on the banks of the Bass River was expanded this year with completion of a 130,000-square-foot addition. Production had expanded in recent years to as many as 108 vessels annually, priced from around $1 million to $4.5 million each, according to the company.
For a time, the weakened American dollar and international exchange rates made Viking vessels an attractive choice for European buyers, and the company's foreign sales climbed to 30 percent of its business from 10 percent, "but it doesn't have the momentum it once had," Frederiksen said.
The National Marine Manufacturers Association is hearing anecdotal accounts "that estimate business is down about 30 percent for powerboats," said Ellen Hopkins, director of marketing communications for the group.
The association runs boat shows around the country, and the harsh climate, ironically, is helping to book display booths, Hopkins said: "People are scrambling to exhibit because they're not getting traffic at their showrooms."
The layoffs don't come close to Viking's crisis of the early 1990s, when the company went from 1,500 to 80 workers at one point and closed a Florida factory. In the years since, Viking founders Robert and William Healey diversified the privately held family company, which has interests in real estate, technology and energy.
"We're trying to manage this the best we can," Frederiksen. "From the luxury tax in '91, we knew we could never do it with boat building alone."
The company's new flagship 82 Convertible and other boats will be taken to the Miami International Boat Show in February in search of potential customers, he said.
"The fact is, boating has always been a cyclical business," Frederiksen said. "Eventually, we'll come out of this."
Viking is a major employer for southern Ocean County, and the layoffs and other job losses in recent months are contributing to a surge in need among area families low on cash.
Dan Hartmann, past president of the Tuckerton Area Inter Church Food Pantry, headquartered in a former garage next to the Little Egg Harbor Community Center on West Calabreeze Way, said there has been a tremendous increase in requests for food.
"In the past few months, it's almost doubled," Hartmann said. "Where we used to get 115 families, some months we get 200 to 230. There has been a tremendous increase at all levels. Even working families are having a hard time."
His wife, Anna, the current president of the food pantry, said she went straight to the food pantry Monday morning, even though the pantry is only open from 2 to 4 p.m. weekdays, except holidays.
"We are inundated," she said. "We are still feeding them. We had 230 families in October. We're still making Thanksgiving baskets."
Sectors of the boating industry began to feel a slowdown in 2007 as real estate markets stalled in what had been high-growth regions, and increasing fuel prices tipped the scales further.
New England-based builder Albin Marine halted production suddenly at its Rhode Island facility last year, citing high material costs and a decline in home equity among would-be buyers of its midsized motor cruisers.
Along with fuel prices this summer came the credit crunch, drying up financing for all but the best-rated borrowers. The National Marine Bankers Association canceled its annual December lending workshop in Fort Lauderdale, Fla., citing "existing market conditions and the economic hardships our industry continues to endure."
The early 1990s boating recession was intensified by imposition of a 10 percent federal luxury tax on high-end boats, such as those built by Viking. Robert Healey organized what became a national campaign to win repeal of the tax by 1993, and the brothers' continued investment in keeping the company alive enabled Viking to retool and surge back into the market.
"Bucking the tide is where you find success in today's world economy," Viking Executive Vice President Pat Healey wrote in the current issue of Vahalla, the company's twice-yearly magazine for Viking owners. "We appreciate your business and are doing all we can to hold pricing, despite ever increasing costs for raw materials, machinery, overhead and labor."
Healey said the launch this month of the 82 Convertible — the biggest boat in Viking's 44-year history — "continues our commitment to launch at least one new model yearly and sometimes more."
With the transparency will come a greater flow of information about all things to do with tax. 
Posts
