June 23, 2013

It Seems Like We Have Been Here Before

A reader suggested a topic on recent events. “It looks like the Brazilian protests got even larger last night. China is in a liquidity crisis so advanced that they can’t even hide it anymore. Europe is toast. It looks like the BRICs have ended their sprint. What about the BRICs? Where are all the rich foreigners now? What new kabillionaires will swoop in to buy up all of our millions of shadow inventory using solid gold bars, absorbing the oversupply, driving prices into the stratosphere and saving us all?”

“People argue about FED involvement in the economy and whether it will end. Everything ends- often not in the way hoped or intended. I don’t have answers, but I do have questions. I believe that there is an unspeakable amount of hubris in DC and that most of these idiots actually believe (or did at one time) that they ‘have it under control’. The fundamental facts that they attempt to ignore (markets seek equilibrium and the gross imbalances all around us) are all taught in ECON 101. These morons know what they have done.”

“It cannot be lost on the sociopaths that the longer they try to stave off equilibrium/reality, the more catastrophic the eventual collapse. If semi-educated people like us can realise this simple fact (and see its effects all around us), then they must be aware of it as well. For this reason I would like to think that they will begin to pull away the punchbowl and face reality before it gets even worse.”

“QE has made systemic imbalances worse. It is also acknowledged that every successive dose of QE has had a smaller positive effect and a shorter half-life. So if they elected to continue, they would be forced to ’spend’ (create additional debt) ever-increasing amounts of money at shorter intervals to obtain decreasing results. Within a couple of years the US would be injecting 1 Trillion $ each month. How feasible is that? Once it becomes dubious- much less farcical- then nobody has any faith in the system and the whole thing collapses anyway.”

“But now the genie of Unintended And Unforseeable Consequences is well out of the bottle. In every country, every Central Bank and every boardroom the Masters Of The Universe are furiously flipping switches and throwing levers, all either trying to stay afloat or make a killing.”

The Daily News. “During the early years of the real estate bubble last decade it took just 15 months for the San Fernando Valley’s median home price to leap 47 percent, moving from $343,000 to hit the half-million dollar mark in June 2004. Now, with the market bouncing back from the Great Recession, there’s something familiar about the current rise in prices. It’s taken only about 17 months for the Valley median to move from a recession low of $339,000 in December 2011 to once again flirt with $500,000. So are we heading for another session of bubble trouble?”

“‘Nah, not even close’ replied economist Christopher Thornberg. ‘What we are dealing with here is not a bubble but a market that is reacting to the fundamentals.’”

“‘I don’t think we’re entering another housing bubble burst,’ said Jim Link, CEO of the Van Nuys-based Southland Regional Association of Realtors. ‘The crazy times are gone. Lenders are not giving loans to people who (are not qualified) for a loan. Things have greatly changed in the lending area.’”

From Bloomberg. “While rising costs make purchasing real estate more expensive, the upshot for homebuyers is that banks will need to respond by improving credit availability that has been holding back the market for the past five years. ‘If people believe house prices are going up, credit availability will evolve,’ said Paul Willen, a senior economist at the Federal Reserve Bank of Boston. ‘There is too much money to be made lending to homebuyers. Lenders will find a way.’”

“Even as Bernanke resorted to unprecedented measures, including holding borrowing costs near zero, the central banker said at the start of last year that housing was being held back partly by tight credit. Bank of America Corp., which has hired 1,000 loan officers during the past year, plans to continue adding staff to aggressively go after home-purchase business as refinances slow, said spokesman Terry Francisco. The company is doing more lower-down-payment originations because mortgage insurers are getting more comfortable with them as home prices rise, he said. The company is considering lowering its down-payment requirement for jumbo loans to 15 percent from 20 percent, he said.”

“‘We would never change credit conditions due to market pressures,’ he said. ‘Any changes would be based on economic factors.’”

“‘What we’ve seen in the last three or four years is that lenders were so skittish about doing something wrong,’ said Guy Cecala, publisher of Inside Mortgage Finance, a trade journal. ‘They said let’s do the safest loans on earth. What’s prodding them away from that is being more comfortable with the quality of loans and also the fact of life that unless they start being more flexible, volumes will go down.’”

“While underwriting standards are far more restrictive than they were during the real estate boom, lenders are becoming more flexible, said Cecala. They’re dialing back documentation requirements for jumbo loans for pricier properties and allowing lower down payments even for conventional mortgages, he said.”

“Zillow Mortgage Marketplace saw a 570 percent increase in the number of lenders offering conforming loan quotes with down payments of 3.5 percent to 5 percent in March 2013 compared with two years earlier, said Erin Lantz, director of the site. ‘More lenders are willing to lend to borrowers with lower down payments — it’s an indication that they are able to extend credit more broadly,’ Lantz said.”

“More buyers are also getting low down-payment loans backed by government sponsored mortgage enterprises, Fannie Mae and Freddie Mac, said Credit Suisse Group AG mortgage strategists Mahesh Swaminathan and Vikram Rao. Rising home prices have made mortgage insurers more willing to take on loans with lower down payments. ‘Otherwise creditworthy borrowers who wanted to buy homes with lower down payments were largely left out of the market a couple of years ago,’ Rao said. ‘Now some of those people are able to come into the market and buy. The market has opened for them.’”

From CBS News. “In Dumont, New Jersey, 30-year-old Jeremy McDonald decided he couldn’t wait any longer to jump into the housing market. ‘And now that the prices are starting to trickle up a little bit, it’s a good time to get in there ’cause I know the market’s not going down anymore,’ he said.”

“Realtor Kelly Weber says in the past few months it’s suddenly become a sellers’ market. ‘Actually they’re starting to get over asking price,’ she said. ‘You’re getting multiple offers on properties. Inventory is low. You have buyers wanting to get in before rates start creeping further up, which is creating this frenzy.’”

The Herald Tribune. “One of the most ambitious real estate developments planned for Southwest Florida during the mid-2000s housing boom is moving forward again. Kolter Group LLC’s plan to resurrect its 18-story Grand Sarasotan luxury condominium project — albeit with a new name — also represents the largest new residential development in Sarasota to consider moving ahead since 1350 Main St. was completed in 2006.”

“‘It’s shocking,’ said Jack McCabe, a real estate consultant in Deerfield Beach. ‘A lot of developers that held onto choice sites like this have instead downsized from their boom-time dreams. It shows a lot of confidence by this developer. Only time will tell if they actually fill these units with buyers, or if they just sit empty.’”

“‘It seems like we have been here before,’ said Sue Wolverton, Coldwell Banker senior VP in Southwest Florida. ‘There’s definitely a demand, and the upper-end market is moving. The timing might be right to get a few projects underway.’”

Bits Bucket for June 23, 2013

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