September 8, 2013

Bubble Versus Bubble

Readers were full of questions for this weekend. “China Property bubble vs US Property bubble vs Japan Property bubble.”

One asked, “Is a QE3 taper postponement rally in the cards for the near term?”

A reply, “Put a different way, the bond market has reacted in anticipation of the punch bowl being taken away, or at least spiked with a less potent view. Will it actually happen, and what will be the consequences if it does?”

One said, “State of your hood- inventory- bidding wars , or normalization?”

And finally, “So why is the spring selling season in the fall this year?”

The Associated Press. “Banks that have largely overlooked delinquent borrowers in small housing markets are now turning their attention to the regions, leading to yet another spike in foreclosures in Eastern Oregon’s Umatilla County, say real estate agents and a housing counselor. ‘Some people haven’t made payments in a long time and the bank just hasn’t made them the priority,’ said Denise Jerome, housing solutions manager for Community Action Program for East Central Oregon.”

“Foreclosures peaked in Umatilla County in 2010 with 328, and are on the rise again in 2013, the East Oregonian reports. They have already eclipsed last year’s count, and are on pace to be the third-highest of the last decade. There are 212 active judicial foreclosures in the county.”

“‘Since the housing market has started to solidify and come back, I think the banks have decided they want to get rid of those from their inventory,’ said Lewis Key, a real estate broker for John L. Scott Oregon Real Estate in Milton-Freewater.”

From Quartz. “Ireland’s housing market remains a terrible mess. The latest numbers from the Central Bank of Ireland out today show that 12.7% of all mortgages in Ireland were 90 days or more behind on payments in the second quarter. Some analysts argue that the official statistics understate the true extent of the problem, suggesting they don’t fully capture loans that are in forbearance for instance. (That’s when banks essentially stop collecting payments.) S&P has suggested that as much as 25% of Ireland’s mortgages are in some kind of trouble.”

“Why? A host of reasons: A loophole in Irish law currently makes repossessions all but impossible. And banks claim many mortgage holders are gaming the system by simply ceasing to make their mortgage payments. ‘If someone is just not paying their mortgage then we will take a robust line,’ David Duffy, chief executive of Allied Irish Bank said earlier this month. ‘There is no rent-free option available any more.”

From Money Morning. “The Chinese obsession with all things property has led to a possible credit bubble in the shadow banking system. One of the stimulus measures touted by Beijing is the push for more urbanisation. That means moving citizens from rural areas to soak up the excessive supply in existing urban areas and to create fresh demand to justify more development.”

“The transition to consumption will take time. So the authorities have resorted to the tried and true practice of building more ’stuff.’ This is an easy way to create the jobs needed to maintain social stability and retain their power base. There is no question this formula has been successful in achieving this objective.”

“Over the past five years, the IMF estimates emerging economies (of which China is by far the largest) have accounted for three quarters of global growth. Little wonder the west is so keen for this ‘growth’ story to continue.”

“However, the economic platform China has built isn’t a stable or sustainable model for the future. At some point (and some argue this has already happened) they’ll reach saturation point – they won’t need any more train lines, shopping centres, skyscrapers etc.”

“Transitioning to a consumption based economy is a great theory but in reality it’s not easy with a rapidly aging (and relatively poor) population. Consider how much more difficult that situation would become if China experienced a hard landing from a property bubble bursting. Millions would hit the unemployment queues and take to the internet to vent their anger (similar to the Arab Spring). How do you tame 1.3 billion people?”

“The bull in China is nothing to do with a raging market. It’s everything to do with the highly massaged economic data that the gullible West accepts. The West accepts it because they don’t want to think about the alternative.”

Bits Bucket for September 8, 2013

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