Spain Implodes, UK Home Slide Most Since Great Depression

Data from everywhere is pouring in at a fast pace. Almost all of it is horrid. Let's start with a look at Europe where Spain pulls bond sale amid economic crisis.

The treasury pulled an expected sale of 15-year bonds after probing the market informally, saying it would wait until credit conditions began to calm down. "We are not facing financing problems. We placed a successful three-year note on Wednesday," said a spokesman.

Government officials have been shocked by the intensity of the downturn now engulfing the country. Car sales fell 31pc in June, industrial production has fallen 5.5pc over the past year and the collapsing property sector is shedding almost 100,000 jobs a month.

Miguel Sebastian, the industry minister, said the economy had ground to a halt in the second quarter and was now in "virtual recession".

Worst Slide Since Great Depression

In the UK the Slide in house prices is the worst since the Great Depression.

Britain is now in the midst of the worst housing slide since the Great Depression, economists declared after house price inflation dropped to the lowest level since comparable records began.

Figures from Halifax, the UK's biggest mortgage lender, showed house prices have fallen by 8.7pc in the year to June, confirming that the property crunch is more severe than the last housing crash in the early 1990s.

House prices have never fallen by more than 10pc over a year in recorded history, except in 1931, when Britain left the gold standard.

The Bank of England reported recently that the number of mortgages being approved for housing purchases dropped to 42,000 in May - the lowest level since comparable records began in 1993 and down 64pc on the previous year.

Prof Goodhart, now at the London School of Economics, said: "Output is going to fall, unemployment is going to rise, possibly quite sharply. It's a horrible situation. "The British economy is getting into quite a recession. I remember when the Queen had an 'annus horribilis,' and this is the annus horribilis for the MPC.

Bankers Want More Help

In a repeat of what is happening in the US, UK Bankers want more help from Bank of England.

Senior figures from the UK's biggest banks will today lobby the Bank of England to widen the terms of the special funding scheme launched in April to bring liquidity back to the financial sector. The bankers will argue that the Special Liquidity Scheme (SLS) has not done enough to restore confidence among banks, leading to them to remain cautious about lending money to each other and to customers.

The Bank may also be resistant to widening the terms of the SLS. The Bank's Governor, Mervyn King, has repeatedly warned of the "moral hazard" of financial institutions generating business without having proper concern about the risk of writing it at any price.

Britain Condemned For Flagrant Breach Of EU Spending Rules

The Telegraph is reporting Britain faces EU action over budget deficit.

European Union finance ministers have voted to condemn Britain for flagrant breach of the Maastricht spending rules, irked that the UK government has not even tried to keep its budget deficit below the treaty limit of 3pc of national income.

By its own admission, Labour will need to borrow at least 3.2pc of GDP this year, even if the economy holds up well. Brussels described this as "prima facie evidence of a planned excessive deficit". It warned that UK public finances were no longer on a sustainable course after the spending blitz of recent years.

Yesterday's vote is the first time the EU has launched disciplinary action against a big Western state under the revamped Growth and Stability Pact. While France and Germany both violated the old pact, they did so at the bottom of the dotcom mini-slump.

Britain's sins are more serious. The breach has occurred at the top of the cycle when tax revenues should be at their peak. Brussels said there had been a "deterioration of the structural balance of 4.5pc of GDP" since 1999. Brussels said Britain did not qualify under the "exceptional" circumstances clause.

The UK now has the worst fiscal profile of any developed country in the North Atlantic sphere.

UK Homebuilders Axe 40% Of Staff

The housing gloom is spreading as Bovis Homes and Redrow axe 40% of staff.

Bovis Homes and fellow housebuilder Redrow both said this morning that they plan to make 40pc of their staff redundant as the British public continues to put off buying new homes.

Bovis is cutting 400 jobs and this morning described the current market as "the worst backdrop the group has seen for many years", while 500 jobs will go at Redrow, which said that the pace of the downturn in the UK market was "unprecedented".

Bovis revealed the number of homes it sold in the first six months of the year fell by 32pc, and conceded that it was impossible to predict by how much house prices would fall.

Yesterday Persimmon, the UK's largest housebuilder, said that it was laying off 1,100 people - 22pc of its workforce. Last week, Taylor Wimpey said that it was wiping £660m off the value of its land holdings, in recognition of the fact that it is worth a lot less now compared with this time last year.

US Foreclosures Rise 53%

On this side of the ocean, Foreclosures Rose 53% in June, Bank Seizures Tripled.

U.S. foreclosure filings increased 53 percent in June from a year earlier and bank seizures rose the most on record as deteriorating property values and higher rates on adjustable mortgages forced more people to give up their homes.

More than 252,000 properties, or one in 501 U.S. households, entered a stage of the foreclosure process, RealtyTrac Inc., a seller of default data, said today in a statement. Bank seizures rose 171 percent, the most since the Irvine, California-based company began tracking statistics on default notices, warnings of a scheduled auction and repossessions in January 2005.

"The foreclosure problem is getting worse and will stay with us well into the next decade," Mark Zandi, chief economist for Moody's Economy.com in West Chester, Pennsylvania, said in an interview. "The job market is eroding and homeowners have less equity. Lenders are much less willing to work with you if you've got negative equity, and you're more likely to give up your house if you're deeply underwater."

Foreclosure activity is the highest since the Great Depression of the 1930s, said Rick Sharga, RealtyTrac's vice president of marketing. Home prices, which fell the most on record in April, according to the S&P/Case-Shiller index of 20 U.S. metropolitan areas, have created a cycle where shrinking equity drives homeowners into foreclosure, which in turn further pushes down home prices, Sharga said.

"We'll have 1 million bank-owned properties by the end of the year," Sharga said in an interview. "That will represent between one-fourth and one-third of all home sales."

There are only two words that can describe what is happening and both begin with a "D".

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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