June 15, 2014

How Much Of The Boom Is Based On Cheap Debt?

Readers suggested a topic on housing and recovery. “This should be the weekend discussion: ‘No wonder a CBS News/New York Times poll showed that 69 percent of Americans believe the economy is in bad shape, and 66 percent believe it isn’t getting any better. We often say that the recovery is fake, and it is.’”

“We see most of the trucking companies coming to our docks almost empty. The drivers say the economy has picked up a bit. Another one remarked that he lost 12K in salary last year as the company requested he should take time off. It’s hit or miss a common expression among drivers. Week to week or day by day is another expression used regularly. Trucking is usually a leading indicator of the state of the economy. What do other HBB’s see in their work, businesses or towns?”

One said, “Can the PTB clarify what exactly is meant by ‘affordable’ when it comes to housing? I was recently trying to parse the new head of HUD’s statements on the housing market. He crowed about government policies which have boosted house prices (’added trillions in equity’) yet said affordable housing was a goal as well. Contradictory goals it would seem.”

“Just trying to move away from the Alice In Wonderland nature of government real estate agency pronouncements: ‘I don’t know what you mean by ‘glory,’ Alice said. Humpty Dumpty smiled contemptuously. ‘Of course you don’t—till I tell you. I meant ‘there’s a nice knock-down argument for you!’”

“‘But ‘glory’ doesn’t mean ‘a nice knock-down argument’, Alice objected. ‘When I use a word,’ Humpty Dumpty said, in rather a scornful tone, ‘it means just what I choose it to mean—neither more nor less.’ ‘The question is,’ said Alice, ‘whether you can make words mean so many different things.’”

The Denver Post. “The average sale price for a single-family detached home in metro Denver hit an all-time record of $371,650 in May, but zooming prices aren’t keeping buyers out of the market, Metrolist CEO Kirby Slunaker said. The previous record of $369,000 was hit in May 2007, seven months before the official start of the Great Recession.”

“‘I”ve never seen it like this, ever,’ said Jim Carroll, who has sold real estate for 30 years. Carroll cautioned that ‘we are getting close to where people are paying too much.’”

The Arizona Republic. “Before the Great Recession, most of America might have looked at Arizona’s job growth with envy. Now, in some ways, it’s Arizonans who look longingly. Through April, Arizona has replaced 57 percent of the 298,000 jobs lost by February 2010. Nationally, many potential new Arizonans haven’t been able to sell their houses to move here. They also aren’t seeing the kind of job opportunities here that once seemed plentiful.”

“‘I think the big issue is we’re struggling to ignite a real housing recovery, and what’s driving that is the slow recovery in net migration into the state,’ said George Hammond, director of the Economic and Business Research Center in the Eller College of Management at the University of Arizona. ‘That’s connected to the lack of mobility in the U.S.’”

Mortgage Broker News. “Home prices are at an all-time high and mortgage rates are at an all-time low, leading many pundits to wonder what, if anything, the Canadian government will do to rein in the industry. ‘There are limits to what you can do with regulations and we have a tendency to go to change legislation when there’s a problem,’ said Layth Matthews of RateMiser Mortgage Advisors. ‘What we need government to do now is provide models and education for sustainable lifestyles, not try to predict house prices and enforce interest rates.’”

“According to Matthews, a prevailing desire to own more than is required is one reason for the exorbitant house prices and smarter saving and spending habits will lead to a higher degree of financial literacy among Canadians. ‘There is just a tremendous amount of pressure to buy things and to consume and one of the key truths to financial success is just deferred consumption,’ Matthews said. ‘You will actually have a lot more money and a better life if you don’t spend beyond your means.’”

“It’s a stance the OECD agrees with, with its latest economic survey pointing to high debt levels as a warning sign that could negatively impact the Canadian economy. ‘Regardless of whether or not a housing price bubble exists, very high household debt levels represent a major vulnerability,’ the report states. ‘Household debt began trending upwards in the mid-1980s from a level of 60 per cent of disposable income to reach a record high of 166 per cent in mid-2013.’”

The Spectator. “Mark Carney’s hefty hint that interest rates could rise sooner than markets anticipate is politically awkward but important, as until they do so, we shall have very little idea of how much of the recovery is based simply on cheap debt and how much of it is real. The car industry and house sales, for instance, benefit from ultra-low interest rates, and while they appear to be booming, it’s not clear how much of that boom is pushed by the bellows of cheap debt.”

“What’s more, the current situation punishes those who are doing exactly what the government wants them to do. When he announced the ‘savings revolution’ in this year’s Budget, George Osborne strangely neglected to mention that even though you can now drop £15,000 into an ISA in one year, you’re still better off paying off a mortgage than saving up a nest egg because of the poor returns that savings accounts offer in an era of low interest rates.”

From Bloomberg. “China’s home buyers are being offered no-money-down purchases in an echo of the subprime lending that triggered a U.S. economic meltdown and the global financial crisis. Poly Real Estate Group Co. is letting buyers delay full down payments at its Central Park development in southeastern Nanjing city, the official China News Service reported. A Poly investor relations officer who gave only his surname, Song, said the arrangement shouldn’t be described as ‘zero down payment.’ ‘Home prices are actually pretty high,’ Song said. ‘We are helping out those college grads to buy properties as they might not be able to put down a big sum all at once.’”

“In Beijing, at a Beijing Pearl River Real Estate Development Co. project called Season Joy City, on the southern outskirts of the city, property company SouFun Holdings Ltd. is offering loans to cover up to 50 percent of the purchase price of apartments. On a hot summer morning, a couple with a toddler were the only prospective buyers, looking at models of apartment blocks in a showroom. Promotional signs said property prices ‘will never fall.’”

Bits Bucket for June 15, 2014

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