Eric Reid

More than once a day I get asked .. where is the market heading and have we reached the bottom .. yet ?

Well my crystal ball is a little cloudy but here is what one leading economist

Roubini sees 10% decline coming

According to leading economist Nouriel Roubini, housing prices may still fall more than 10 percent as demand from first-time home buyers fades. Roubini said massive losses in commercial real estate loans will add to the problem, forcing banks to raise more capital. "The stress is moving from residential mortgages that are still in deep trouble, to commercial real estate, where they are just starting to recognize that they're going to have massive, massive losses," Roubini told reporters. The first-time buyer credit of $8,000, set to end on November 30, has kept housing activity moving this year and has helped reduce a massive inventory of unsold homes, but Roubini says that while the number of unsold houses may have bottomed out, prices are poised to fall further, increasing pressure on the economy again. One of the main risks next year may be from losses on some $2 trillion in outstanding commercial real estate loans, forcing banks to raise more capital, the economist pr edicted. "Half of this is in medium-sized and smaller banks, and even in the larger ones. Most of these losses are not recognized because they're keeping the loans at face value on their books," he said. Still, Roubini sees a greater chance of a U-shaped economic recovery in developed economies, with a 20 percent to 25 percent chance of a double-dip.

Holiday sales expected to be down... expect lots of last minute deals

The National Retail Federation (NRF) expects 2009 retail industry sales to fall 1 percent this year to $437.6 billion in the months of November and December. Last year, sales in the period fell 3.4 percent to $441.97 billion. If the decline does occur, it would mark the first back-to-back drop since the group began tracking such figures in 1992. "There's a lot of weakness in the consumer sector because of the employment situation, because there's no income growth and so consumer confidence is, I would say, wavering." The unemployment rate now stands at 9.8 percent, and that figure is "just not going to look better in the near term," Wells said. That will pressure holiday sales, she said, despite signs that the U.S. economy started to grow in the third quarter after four quarters of contraction. The year-end holiday shopping season is a critical one for retailers, and can account for 25 percent to 40 percent of full-year sales. The 2008 holiday was a disaster for retail ers, as a financial crisis swept across the globe in September and consumers cut spending on nearly everything but bare necessities.

Good news on winter heating costs

The U.S. Energy Information Administration (EIA) says the average U.S. household will pay 8 percent less in heating fuel costs this winter a savings of about $84 with natural gas and propane users enjoying the biggest drop in cost. All this is to cheaper fuel prices, plenty of fuel supplies and expected slightly milder weather compared with last winter. "Inventories of all heating fuels are currently well above levels seen at the start of last winter," the EIA said. The agency's forecast covers the U.S. winter heating season that runs from October through next March. Large fuel inventories will help mitigate any increases in energy prices if the winter is colder than expected. Winter expenses are forecast to be 11.8 percent ($105) lower for natural gas, 2.2 percent ($40) less for heating oil, 14.2 percent ($280) cheaper for propane and 2 percent ($20) less for electricity. At the same time, demand for natural gas is expected to be down 1.1 percent this winter, w ith consumption of heating oil down 1.9 percent, propane down 0.6 percent and electricity up 0.1 percent, the agency said.

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According to a US Treasury spokeswoman, The Treasury will soon finalize the long awaited plan to expand its incentives for mortgage companies to use "short sales" as a way to stem a rising tide of foreclosures. Short sales eliminate the problem of negative equity and help alleviate fears that a second wave of foreclosures is in the pipeline. Only 12 percent of eligible homeowners have had their loans reworked, leaving millions more foreclosures to come. Lisa Marquis Jackson, a vice president at Irvine, California-based John Burns Real Estate Consulting says, What they are trying to do is move some of these foreclosures in the pipeline, and bring them to a resolution before (foreclosure) happens. 12 percent of these being modified isn't enough to clean the[m] up.

How will these incentives help? Negotiating a short sale can take four to five months to complete, and buyers often walk away from sales because banks are slow to respond, or balk at the offer. The incentives will be calculated on recent declines of local home prices and average home prices in these markets, the Treasury said in May. They would add to other incentives that servicers can receive for reducing loan payments. In May, the Treasury proposed that lenders would receive $1,000 for allowing the owner to sell the house for less than the amount owed on the mortgage, and accepting the proceeds as full repayment. They will also receive $1,000 for accepting a similar deed-in-lieu transaction, in which the deed is simply transferred to the lender instead of going through a costly foreclosure. Borrowers who agree to short sales or deed-in-lieu deals can receive up to $1,500 in closing costs. Treasury also said it will pay second lien holders up to $1,000 to relinquish their claims in such transactions.