For Immediate Release
Chicago, IL – January 26, 2010 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Sherwin Williams (SHW), Fannie Mae (FNM), Freddie Mac (FRE), MGIC (MTG) and Bank of America (BAC).
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Here are highlights from Monday’s Analyst Blog:
Existing Home Sales Plunge
It is important to point out that used home sales have relatively little affect on the overall economy. Their effects are mostly indirect, as people tend to redecorate when they move in. However, the economic activity generated by Sherwin Williams (SHW) selling a few more or fewer gallons of paint is pretty minimal relative to the economic activity generated by new home construction and sales.
The prices of existing homes are very important, particularly given the number of people who are already underwater on their mortgages, or are on the edge of becoming so. Being underwater on a house is probably the best single predictor of if the mortgage will continue to be paid, or if it will eventually go into foreclosure.
If someone has positive equity in their house, the foreclosure rate should be zero. Even if the person loses their job or faces some other economic calamity, if the house is worth more than the mortgage, selling the house is still better than having the bank take it. If the mortgage is more (particularly substantially more) even if someone had millions of dollars in the bank, it would still be economically (though there can also be non-economic considerations) irrational to continue paying the mortgage.
People not paying their mortgages is very bad news for the entire mortgage complex, from Fannie Mae (FNM) and Freddie Mac (FRE) to the mortgage insurance firms like MGIC (MTG) to the large banks like Bank of America (BAC).
While the decline was not expected by the consensus of forecasters — who expected existing home sales at a 5.90 million rate — it is not a total shock either. The pending home sales were weak, and much of this month’s decline is probably related to the near expiration of the first-time-buyer tax credit. When it looked like the window was going to close, there was a stampede of buyers trying to slip in under the wire, in effect stealing sales from future months. Come April, the tax credit is again expected to expire, so look for another round of fast buying followed by another hangover this spring.
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