July 12, 2015

Quarterly Fund-Raising Week

Please help the HBB stay online with a contribution! Use either the Paypal link or PO Box to the right. Also, please make checks payable to Ben Jones. Thanks for your support!

Surgery To Avoid Death

A weekend topic on lending and the housing bubble. The Visalia Times Delta”A new working paper by Wharton economists Fernando Ferreira and Joseph Gyourko, the authors argue that the idea that subprime lending triggered the crisis is misguided. That paper looks at foreclosure data from 1997 through 2012 and finds that while foreclosure activity started first in the subprime market, the foreclosure activity in the prime market quickly outnumbered the number of subprime foreclosures.”

“While subprime borrowers default at a higher rate than prime borrowers, Ferreira said in an interview with Fortune that the data shows that the foreclosures crisis would have happened even in the absence of such risky lending. ‘People have this idea that subprime took over, but that’s far from the truth,’ Ferreira said.”

“The vast majority of mortgages in the U.S. were still given to prime borrowers, which means that the real estate bubble was a phenomenon fueled mostly by creditworthy borrowers buying and selling homes they simply thought would not ever decrease in value.”

The Olympian. “June was a good month for the Thurston County housing market. It was so good, in fact, that the 455 single-family residences that sold last month were the most in June in nine years, according to Northwest Multiple Listing Service data. The county housing market has improved, largely spurred by historically low mortgage interest rates — a 30-year mortgage is around 4 percent — and lower inventory levels, which have helped drive prices higher.”

“The lack of inventory also has led to instances where buyers compete for the same house with multiple offers, and some have taken more drastic steps, such as waiving the need for an inspection to get that house, said Windermere Olympia owner Steve Garrett. ‘That harkens back to the days when we had a real estate bubble,’ Garrett said.”

“The big difference is that lending remains cautious, though it has eased a bit since the recession, he said.”

From Bloomberg. “Canada’s fastest pace of multiple-unit projects in almost three years led a surprise gain in housing starts for June, another sign of what the central bank dubs a side effect of cutting interest rates in a time of record consumer debt. The beginning of work on projects such as condominiums and apartments rose 3.7 per cent to 130,933 units, Ottawa-based Canada Mortgage & Housing Corp. said Thursday. That type of work has surged 53 per cent since February, the month after Bank of Canada Governor Stephen Poloz made a surprise rate cut.”

“Poloz may lower his benchmark rate again next week to 0.5 per cent after recent indicators showed unexpected declines in economic output and non-energy exports. The governor last week likened his January cut to ’surgery to avoid death’ and said the controversial move that risked stoking household debt ‘must be subordinate’ to the bigger economic dangers.”

“Poloz and Finance Minister Joe Oliver have said there is no housing bubble in Canada, even as condominium prices and construction in Toronto and Vancouver have swelled. The Bank of Canada said June 11 a crash in housing prices that are overvalued by as much as 30 per cent remains the biggest risk to the country’s financial system. Two days ago the Toronto Real Estate Board said home sales rallied to a record for the third-straight month and the average price of a detached house in the core surged 14 per cent to $1.05 million.”

“‘The momentum in the housing market through the spring and into the summer is undeniable,’ said David Tulk, chief Canada macro strategist at Toronto-Dominion Bank’s TD Securities unit. ‘While the issue of household leverage remains a concern, it is secondary to growth fears and the very real risk of a technical recession in the first half of 2015.’”

Crain’s Cleveland Business. “As the economy expands, unemployment continues to fall and inflation improves to projected stable levels, Janet Yellen, chair of the Federal Reserve Bank, reinforced the Fed’s message that a federal rate hike could come later this year. Regarding factors that could stymie economic growth, Yellen said business owners and managers ‘remain cautious’ and haven’t significantly increased capital expenditures despite ‘brighter prospects for consumer spending.’”

“A second factor could be housing, she said, pointing out that residential construction has remained ‘quite soft’ despite growth in national home prices and home sales. ‘Many households still find it difficult to obtain mortgage credit, but, more generally, the weak job market and slow wage gains in recent years appear to have induced people to double-up on housing,’ Yellen said, citing the increasing numbers of young adults living with their parents.”

“‘The biggest challenge I think the Federal Reserve faces is making sure that we have a strong enough and resilient enough financial system that is well enough regulated and supervised, that we do not have another financial crisis in the lifetimes of anyone in this room — and hopefully not the lifetimes of our children either,’ she said.”

Bits Bucket for July 12, 2015

Post off-topic ideas, links, and Craigslist finds here.