March 22, 2015

Sellers Can Have Their Cake And Eat It Too

A housing bubble topic for the weekend, the Hong Kong Standard. “In The Fabulous Decade, a book co-authored by Janet Yellen and former Fed vice-chairman Alan Blinder, she suggests behind the boom of the 1990s were monetarism combined with fiscal discipline. The book was published in 2001, therefore the authors missed that spectacular burst of the dotcom bubble and subsequently the housing boom and bust. Ten years lapsed. Despite all the ups and downs in the market, Yellen remains a believer in central banking. The US economy has been recovering, slowly but surely. There is no sign of consumer price inflation. Prices of stocks, bonds and even real estate are a little high, but not even close to an alarming level. There is no reason for the Fed to change the status quo, except the expectation that it has to do something.”

“The greatest uncertainty ahead is the ever strengthening US dollar. A strong dollar keeps domestic consumer prices in check while on the other hand the flood of liquidity from all over the world keeps asset prices in the United States afloat.”

From Bloomberg. “Investors are kicking themselves if they listened to Fed Chair Janet Yellen and the Board of Governors last July and sold their biotech stocks. As Bespoke Investment Group points out, the Nasdaq Biotech index is up well over 40 percent since Yellen’s valuation comments.”

“Here is what the Fed said in its Monetary Policy Report on July 15: ‘Nevertheless, valuation metrics in some sectors do appear substantially stretched—particularly those for smaller firms in the social media and biotechnology industries, despite a notable downturn in equity prices for such firms early in the year. Moreover, implied volatility for the overall S&P 500 index, as calculated from option prices, has declined in recent months to low levels last recorded in the mid-1990s and mid-2000s, reflecting improved market sentiment and, perhaps, the influence of ‘reach for yield’ behavior by some investors.’”

The Press Democrat in California. “We find ourselves about to embark on our spring rush in the North Bay real estate markets. Coming off last year’s supply-constrained market conditions, we are seeing even less inventory make its way to the table for consumption by eager buyers. Many sellers are searching to understand what the actual value may be of their current home, as well as wondering where and when they will find their next home.”

“Within the borders of Sonoma County, Windsor’s price-per-square foot soared to $405 for a single family home - a staggering leap of 96 percent over last year, partly due to a low volume of sales. The city of Sebastopol reported a 39 percent gain to close the month at $528psf. The west side of Petaluma boasted a hearty 21 percent rise as this submarkets tipped the scales at $390psf.”

“The markets are indicating aggressive demands from buyers with sellers trying to figure out how they can have their cake and eat it, too. Most are encountering madness in the process. This year may find the aggressive, yet patient buyer have the greatest success as they will likely be more creative in their attempts, eventually reaching their goal while helping to create momentum in the marketplace.”

The Mercury News in California. “The Bay Area’s housing market looks like it’s headed for a competitive free-for-all this year as a low supply of homes for sale has droves of buyers bidding up prices everywhere. February sales dropped by double digits from a year ago along the Peninsula and the South Bay and parts of the East Bay, CoreLogic DataQuick reported. ‘I don’t see any bubble at all,’ said Ken DeLeon of Ken DeLeon Realty in Palo Alto. ‘I just see a lack of inventory.’”

“It’s pretty much the same in the East Bay. ‘We are experiencing a little bit of craziness right now,’ said Tom Hendershot, a Redfin agent who covers the Oakland-Berkeley area.”

From Fox Business. “‘It was very difficult to definitively identify a bubble until after the fact–that is, when its bursting confirmed its existence.’–Alan Greenspan, former Federal Reserve Chairman, Jackson Hole, August of 2002. The Federal Reserve had driven the effective federal funds rate down to a low 1.7% when Greenspan made that comment, and the housing bubble was ballooning, ready to burst. Now, the next Fed-induced bubble is popping, a bubble that helped mask weaknesses in the economic recovery.”

“‘The beneficiary of the Fed’s easy-money policies – energy – has burst,’ says Stephanie Pomboy of MacroMavens. ‘The sudden and dramatic souring of the economic data in the last few months suggests the energy bubble had a much bigger role in the recovery than commonly perceived.’”

“Pomboy points to analysis put out by the Manhattan Institute last February which ‘is looking less outlandish.’ The Institute claimed the entire economic recovery was due to the U.S. oil and gas boom, which overall ‘has added $300 billion to $400 billion annually to the economy—without this contribution, GDP growth would have been negative and the nation would have continued to be in recession.’”

“The energy bust has also blown a hole in Treasury demand ‘created by reduced dollar recycling,’ Pomboy says. Meaning, profits from the boom in global oil transactions settled in U.S. dollars (the dollar is the reserve currency) had to be parked somewhere. As energy prices rose, more dollars were recycled in U.S. Treasuries, driving yields to historic lows and helping consumers to borrow to spend.”

“But as the dollar has strengthened, that has led to a sharp, ‘inexorable reduction’ in demand for U.S. Treasuries, Pomboy says. From their peak last September, foreign transactions in Treasuries have flipped from a positive $74 billion per quarter in purchases to a negative $26 billion in quarterly sales through year-end 2014, Pomboy adds.”

The Australian Financial Review. “Australia will run into a glut of apartments in just two years led by Melbourne and Brisbane - but other cities including Adelaide are also building more than they need, research house BIS Shrapnel predicts. By June next year, the country is likely to have more than 74,000 apartment completions, which is 5000 more apartments than it needs. Melbourne faces a surplus of 15,000 apartments.”

“Having led the growth of high-rise dwellings on a scale not yet seen, Melbourne’s construction industry needed to change tack to avoid being hit by the glut, said BIS Shrapnel associate director Kim Hawtrey. ‘Now is the time to start sounding the alarm,’ Dr Hawtrey said.”

“Chinese Estates net profit jumped 38 percent in 2014 after it pocketed HK$2.91 billion from selling its troubled unit Moon Ocean to major shareholder and former chairman Joseph Lau Luen-hung. Turnover dived 59 percent from a year earlier to HK$2.63 billion due to a nearly 90 percent drop in property sales. The developer sold considerably fewer homes in both Hong Kong and the mainland last year, with total sales plunging to HK$207 million and HK$410 million respectively from HK$2.92 billion HK$1.73 billion in 2013.”

“More than 99 percent of its local retail properties were leased during the year, though Hong Kong posted its first annual retail sales drop since 2003. ‘Rental rates for certain retail business sectors have shown signs of reaching their peak,’ Lau said.”

Bits Bucket for March 22, 2015

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