Foreclosures at record as household wealth falls

WASHINGTON (Reuters) - U.S. home foreclosures hit a record late last year amid a shakedown in the subprime mortgage market that is taking its toll on the broader economy, and the net wealth of U.S. households fell for the first time in five years, data on Thursday showed.

The Mortgage Bankers Association on Thursday also said the mortgage delinquency rate hit its highest since 1985 in the final three months of 2007. While the rate of failing loans swelled across most mortgages, it was led by a growing wave of subprime borrowers unable to make payments.

Adding to that, the Labor Department reported the number of workers remaining on jobless benefits is holding at the highest in nearly two and a half years. For retailers, the story also is not so bright as they posted mixed February sales results, with some signs of struggle as cash-strapped consumers favored outlets where they could save money.

"The epicenter of the U.S. economy's current predicament is housing," said John Lonski, chief economist at Moody's in New York.

Federal Reserve data showed the net wealth of U.S. households fell for the first time in five years in the fourth quarter last year as the value of real estate holdings and stocks weakened.

The U.S. central bank's "flow of funds" quarterly report showed the net worth of American households dipped nearly 1 percent to $57.72 trillion in the final three months of 2007 from a revised $58.25 trillion in the third quarter.

The last time that quarterly net worth fell was in 2002.

The Fed report also showed the percentage of equity that Americans have in their homes sank to the lowest level since 1945. Homeowners' percentage of equity fell to 47.9 percent in the closing quarter last year from 48.9 percent in the third quarter and 49.6 percent in the second quarter.

PENDING HOME SALES FLAT

Separately the National Association of Realtors said its index of pending contracts to buy previously owned homes was unchanged in January. However, analysts said it was too soon to say this data pointed to an improving housing market.

"The housing market remains stuck in the doldrums. Inventory levels are high, buyer confidence is down, and the economic outlook is uncertain," said Mike Larson, real estate analyst at Weiss Research in Jupiter, Florida.

"The Federal Reserve is trying to light a fire under housing demand by cutting short-term rates. But credit market turmoil and stingier lenders are thwarting its efforts so far," he added, predicting that a lasting economic recovery isn't likely until 2009.

Prices for U.S. government securities rose steadily as investors flocked to safer investments on fears of a U.S. recession.

Stocks were down, with the benchmark Dow Jones Industrial Average ending off more than 200 points and the Standard & Poor's 500 index finishing at its lowest closing level in 18 months.

"There's been a major flight to quality," said Joseph LaVorgna, chief economist at Deutsche Bank in New York, adding that much of the market movement is not in response to the economic data.

JOBLESS CLAIMS FALL

New applications for jobless benefits tumbled by 24,000 last week to a much lower-than-expected 351,000, but the number remaining on jobless aid was the highest since the aftermath of Hurricane Katrina in 2005, a Labor Department report showed.

Economists were expecting initial jobless claims last week to fall to a seasonally adjusted 360,000 from 375,000 the prior week, revised up from 373,000.

But underscoring a weakening labor market, the number of workers staying on the jobless rolls rose to 2.83 million for the week ended February 23, the most recent week these figures were available, from 2.80 million. This was at a level not seen since the aftermath of Hurricane Katrina.

"Continued claims are a sign of workers having a harder time to find jobs. The time of unemployment has stretched out a bit," said Christopher Low, chief economist for FTN Financial in New York.

While Thursday's data showed some weakness in the labor market, Wall Street analysts will be closely watching the government's report on Friday on February employment.

Economists are expecting a scant 25,000 jobs were added in February, with unemployment rate rising to 5.0 percent from 4.9 percent.

"The labor market is moving sideways and so is consumer spending," said Lonski.

(Additional reporting by Glenn Somerville, Lisa Lambert and Patrick Rucker in Washington and Brad Dorfman in Chicago; Editing by Chizu Nomiyama)