September 14, 2014

A Decade Of Boom, Bust And Boom Again

A report from MarketWatch. “Jim Reid and his strategy crew at Deutsche Bank spent over 100 pages this week examining the ‘near two-decade rolling series of inter-related bubbles’ that have characterized our financial lives. We’ve sure been on a hot streak, between the Russia and Asia in the 90s, those crazy dotcom kids in 2000, the speculative housing bust in 2007, and more recently signs of a Chinese credit bubble. Their conclusion: this trudge from one bubble to the next may be making its way to the final frontier. That frontier is the bond market.”

“Here’s the Deutsche treatment: ‘The worry is that there is nowhere left for this bubble to go given that it is now in the hands of the lenders of last resort (governments and central banks with regulators ensuring other large captive buyers). Although we think this bubble needs to be maintained to ensure the solvency of the current financial system, the best case scenario is that it slowly pops over time via negative real returns for bondholders. The worst case scenario being future restructuring.’”

The Sydney Morning Herald. “One of Australia’s most senior bankers believes global financial markets may face a “meaningful” correction similar to the 1994 bond crash, because aggressive monetary stimulus is inflating asset bubbles. Rob Whitfield, the chief executive of Westpac’s institutional bank, warned that bubbles were forming as global investors took on more risk in search of higher returns. Mr Whitfield said central bank moves to stimulate growth had created ‘a wall of liquidity,’ which had in turn triggered a global hunt for yield reminiscent of conditions before the 1994 bond crash.”

“Historically, he said asset bubbles had ‘largely arisen during periods of ultra-accommodative monetary policy, combined with sustained periods of low interest rates and an ever-increasing supply of money - sound familiar?’”

The Mercury News. “After a red-hot start to the year, the Bay Area’s housing market is heading toward a fall and winter hibernation that should be easier for buyers battered by frenzied competition for a scant supply of homes for sale. Some real estate agents in the East Bay said they were beginning to see price reductions as sellers realize they have missed the big buying season. Laura Wucher with Better Homes and Gardens Real Estate, said she’s seeing more homes being listed just as the market is slowing. ‘A lot of people have listed their houses too late, and it’s taking a lot longer to get offers,’ she said.”

“Jennifer Branchini, president of the Bay East Association of Realtors, said she’s seeing more houses with ‘price reduced’ on them. ‘When I see seven to 10 price reductions in a day, I think it’s a sign the market’s calming down’ in the East Bay’s Tri-Valley area, Branchini said.”

The Los Angeles Times. “The latest sign that buyers are gaining leverage in Southern California’s housing market: Price cuts are back. The number of homes with reduced asking prices has risen sharply in recent months, a reversal from last year’s sellers’ market, when list prices seemed more like a floor than a ceiling. These trends have been building all year. But home sellers — often the last to see market shifts — are finally getting the message, said Paul Reid, a Redfin agent in Temecula.”

“‘A lot of what we’ve seen over the last six or eight weeks is people lowering their prices to get buyers in the door,’ Reid said.”

“David Silva, a veteran agent with Ricci Realty in Orange, has watched as the number of homes for sale in that Orange County town ballooned from about 100 in early 2013 to about 270 today. With more competition on the market, some of his clients have had to cut prices to drive up interest. He’s heard stories from colleagues about would-be buyers walking away from contracts when they found a better house for less money.”

“Some sellers — those with less motivation to move now — are pulling their homes off the market, said Steve Shrager, an agent with Coldwell Banker in Studio City. Sellers who can’t get the price they want are choosing to rent their home, or try to sell again in another year. ‘They feel the price can’t go anywhere but up,’ Shrager said.”

“After two years of bidding wars and big price run-ups, some sellers have yet to come to terms with reality, said Steven Thomas, chief economist at Reports on Housing, which tracks the Southern California market. After a decade of boom, bust and boom again, many aren’t sure how to react to a normal market. ‘People are not used to this,’ he said. ‘That’s why you get some panic. Eventually these houses will sell. You just have to be patient.’”

Bits Bucket for September 14, 2014

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