The nation’s house party ended with a thud in 2006, leaving everyone from condo flippers to Federal Reserve chairman Ben Bernanke waiting to see what would happen next.
The sudden stall in home sales, home construction and home prices — and what that will mean for the economy — was voted the top business story of the year by U.S. newspaper and broadcast editors surveyed by The Associated Press.
At the housing market’s peak, buyers rushed to open houses, blank checks in hand. Lenders gave big-money mortgages to people who could barely afford their monthly payments. That ended in 2006, when home builders scuttled projects, walked away from land they’d hoped to develop and would-be buyers canceled orders.
The story bumped high energy prices from the top of the list, where it had been for the past two years. Many of the year’s other top business stories were the latest installments of years’-long sagas, such as U.S. auto makers’ woes and the unraveling of Enron Corp.
Some of the new faces on the list, including Hewlett Packard Co.’s former chairwoman, Patricia Dunn, and separately, the growing group of executives who manipulated their stock options, might wish they were elsewhere — even at a lonely open house.
1. HOUSING SLIPS: Moody’s Economy.com, a private research firm, projected that the median sales price for an existing home will decline in 2007 by 3.6 percent – the first decline for an entire year in U.S. home prices since the Great Depression. One reason: Speculators fled the market. Not only did they stop buying, they put properties they owned up for sale.
“Investors were a bigger part of the market than many thought, including ourselves,” Ara K. Hovnanian, the president and chief executive officer of homebuilder Hovnanian Enterprises Inc. said in June.
2. ENRON’S FINAL ACT: Convictions of former CEOs Jeff Skilling and Ken Lay looked like the final act of the Enron drama, but Lay died in Aspen before he was sentenced and federal judge vacated his conviction, halting a federal effort seeking millions from Lay’s estate. Skilling, 53, reported to a Federal prison in Minnesota Dec. 13 to begin a sentence of 24 years and four months.
3. BACKDATING SCANDAL: News that executives and directors manipulated their option grants to inflate their gains rocked the executive suite. At least 195 companies disclosed Federal or internal investigations and at least 59 senior executives or directors have left their companies as of Dec. 19. Among the highest profile to fall were UnitedHealth Group Inc.’s William McGuire, who was pushed out as the company’s chairman and CEO, and Jacob “Kobi” Alexander, the former CEO of Comverse Technology Inc., who fled to Namibia, where he is fighting extradition.
4. AUTO WOES: Demand for U.S. auto makers’ vehicles, especially sport utility vehicles, shrunk and their market share eroded. About 38,000 unionized Ford Motor Co. workers, more than half the company’s U.S. hourly work force, said they would take buyouts. Through buyouts and early retirement, General Motors Corp. cut 35,000 jobs, nearly one-third of its hourly U.S. workers. Companies’ bonds sunk into “junk” ratings and they were reduced to using plants or inventories as loan collateral.
5. OIL PRICES: War in the Middle East and soaring demand sent oil prices above $78 a barrel, an all-time record. The big winner from the sky-high prices were oil companies, whose profits hovered near their 2005 records. Oil prices have since fallen, but the summer’s run has renewed rumblings about conservation and oil dependency.
6. GAS PRICES: Summer gas prices hit highs of $3.04 a gallon thanks to soaring crude oil prices, tight refining capacity and fears of another disastrous hurricane season. Increased prices began to sour the U.S. romance with gas-guzzling SUVs, hitting U.S. auto makers with another blow. Gas prices have since dropped, too, but drivers remain nervous.
7. FED HALTS: The Federal Reserve halted the rate hikes that had lifted its target short-term interest rate from 1 percent in early June 2004 to 5.25 percent in June 2006. While stock traders saw a slowing economy and looked forward to rate cuts, the Fed’s Bernanke said the central bank was keeping a sharp eye on inflation, which could take rates higher.
8. HP SPYING: HP’s boardroom infighting ended in humiliation. Chairwoman Patricia Dunn was hauled before Congress, ousted from her office and indicted for her role in a boardroom spying scandal in which private investigators lied and schemed to obtain the phone records of directors and reporters. Now the company’s CEO is being asked to tell Congress about the $1.37 million worth of options he exercised just before the scandal became public.
9. CHINA TIGER: China’s economy continues to grow more than 10 percent a year and its trade surplus with the U.S. is the largest ever. While officials are trying to slow growth and questions linger about whether Chinese banks are too loose with loans, the economy has showed only modest signs of slowing.
10. RECORD DOW: The Dow Jones industrial average climbed above 12,000 for the first time ever, outpacing broader indexes. The Standard & Poor’s 500 edged closer to its 2000 high and the Nasdaq composite index was miles behind its own record.
The following stories filled out the Top 20 in this year’s survey:
11. Private equity went on a buying spree, taking over companies large and small, including hospital chain HCA Inc., radio company Clear Channel Communications Inc., pipeline operator Kinder Morgan Inc. and casino company Harrah’s Entertainment Inc.
12. Warren Buffett announced his plan to give nearly $37 billion worth of stock in Berkshire Hathaway Inc., which he chairs, to the Bill and Melinda Gates Foundation.
13. Sales – and stock – at Wal-Mart Stores Inc. sagged as the company struggled with its strategy, its product mix and its image.
14. Bill Gates said he would step down as chief software architect at Microsoft Corp. in 2008 to focus on philanthropy.
15. Google Inc. stock soared above $500 a share in November before retreating slightly.
16. AT&T Inc. announced in March that it plans to buy BellSouth Corp. But the deal still awaits approval from the Federal Communications Commission and the price has risen from $67 billion to roughly $84 billion.
17. Google bought video-sharing Web site YouTube for $1.65 billion.
18. Beleaguered airlines finally saw profits after five years of devastating losses.
19. The newspapers in the Knight Ridder Inc. chain were parceled off and sold; publisher Tribune Co. is also for sale as newspapers’ fortunes slump.
20. The deepwater oil find off the coasts of Louisiana and Texas could be the largest in 38 years.