April 21, 2017

Responding Rationally To Loose Money

It’s Friday desk clearing time for this blogger. “The slumbering housing market in Greenwich, the Connecticut town favored by Wall Street’s financial elite, jolted awake in the first quarter as buyers emboldened by the rising stock market committed to purchases — as long as they didn’t have to pay full price. Prices remain 20 percent below the town’s peak in the second quarter of 2006, when the median was $2.33 million. ‘That kind of market no longer exists,’ said Jonathan Miller, president of Miller Samuel. ‘If it comes back, it’s not tomorrow.’”

“‘Too much luxury product’ says one broker as a glut of ultra-high-end condos sparks price cuts, including on Gwyneth Paltrow’s pad, which she sold for 30 percent below its original price. Paltrow’s pad wasn’t an outlier. In 2015 and 2016, a confluence of events, including a glut of luxury units and uncertainty surrounding the presidential election, forced many sellers to slash their prices as buyers took harder and longer looks at properties. ‘The New York market became very overpriced,’ Donna Olshan, whose eponymous brokerage specializes in properties costing more than $4 million, tells THR. ‘Buyers became very cost-conscious.’”

“Though the residential slowdown continues in South Florida, sellers may finally be adjusting to market conditions by lowering their prices. Residential properties sold for bigger discounts during the first quarter compared to the same period of last year in Miami Beach, continuing a trend from the fourth quarter of 2016, according to Douglas Elliman. Properties in Miami Beach spent 143 days on the market during the first quarter of this year, up from 97 days the previous year. Listing discounts also continued to increase, which makes sense given that ‘pricing was too high to begin with,’ said Jonathan Miller, whose firm Miller Samuel authored the reports. ‘The spread is widening. The seller is traveling farther to meet the buyer, and I don’t believe it’s the buyer coming up to meet the seller.’”

“According to the latest FipeZAP Index, residential real estate sale prices in Brazil remained relatively stable in March. Eleven of the twenty cities included in the Index showed a decline in sale prices from February to March. ‘What I tell the owners I work with is that if they want to sell they property in a short array of time they must indicate a price that is below market value. If not they must be patient,’ said Charlie Jonas from luxury real estate agency, Rio Exclusive.”

“The best rental deals on residences in Abu Dhabi could be on the new one ones as landlords ramp up on incentives. Landlords are facing a stark choice - stick to their demands and see their tenants moving out and having to keep the units unoccupied for longer. Or they can give in to market forces and sign up tenants for the best they can get under the circumstances. They have to as rents in Abu Dhabi remain under extreme duress, particularly at the top end of the residential leasing space. On many counts, the level of stress on asking rents is much higher than what landlords in Dubai’s freehold zones are facing. What is remarkable about Abu Dhabi is that it is happening within a much lower residential base.”

“Alpon Abu of Vase Solutions says rental prices in Nairobi recorded a drop in the final quarter of 2016 caused by an oversupply of apartments and falling demands, citing available reports. ‘It seems there is an oversupply of A class commercial spaces as well as expensive apartments that is causing a drop in prices, rental yields,’ he says. ‘Moreover, several banks have gone down within the last 12 months. With a weak banking system that cannot provide sufficient finance support for further growth, the future does not look bright for developers.’”

“International Real Estate Federation vice-president Michael Geh said only owners who could no longer bear the hefty mortgage repayment were willing to let go of their high-end properties at 20 to 30 per cent less. ‘If you have two to three luxury condominiums and there is no rental coming from either and people not wanting to buy, then it seems necessary for owners to give about 25 per cent off the asking price to let go of at least one property. But for the buyer, it is a good deal. So, I wouldn’t say the property market is crashing because there is still a willing buyer for a willing price tag,’ said Geh who represents the Malaysian chapter of the International Real Estate Federation.”

“Geh likened the situation to the English folklore Robin Hood, noting that the rich would not like the current situation while the ‘poor’ would be happy being at the receiving end.”

“A meeting has heard the reason Newstead-based builder CKP Constructions collapsed, leaving four projects around the city uncompleted. CKP Construction director Craig Petersen told a meeting of creditors that an unpaid debt owed by a developer called Gabba Holdings had lead to cash flow problems from which the company was unable to recover. The company’s collapse is the latest in a series of building company failures and comes as the Reserve Bank of Australia singled out the Brisbane property market as an area of concern.”

“Housing and Public Works Minister Mick De Brenni said the CKP collapse meant subcontractors had once again been left exposed. Brisbane/Gold Coast-based Cullen Group collapsed just before Christmas, owing subbies an estimated $18 million and leaving a string of uncompleted projects. ‘MEA Chief Executive Malcolm Richards said that the collapse would leave many sub-contractors out of pocket. ‘This is devastating news for the many mum and dad sub-contracting businesses who will now be left out of pocket due to the collapse of CPK Constructions,’ Mr Richards said.”

“Fresh from their triumphs on energy, health and other files, the Ontario Liberals plan to extinguish an ‘overheated’ Toronto housing market. Chesterton once said the modern world consists of formerly coherent virtues wandering about in mad isolation. Let us soften our scorn for the credulity of past ages long enough to consider that the major thrust of government policy over the past decade has been to ’stimulate’ the economy by keeping interest rates artificially low.”

“The point is, the whole idea behind cheap money, other than (a) government can alter real interest rates because the market is full of dopes who don’t know from nominal and (b) to hold down interest payments on runaway public debt, is to make citizens borrow and spend. Then when we do, responding rationally to loose money by taking out big mortgages, they say hey, we wanted you to spend like maniacs but not on significant assets. Dawk.”

“Part of the argument is that if the housing ‘bubble’ were to ‘burst’ it would hurt the economy. But that’s only true if government has foolishly socialized risk by backing unsound mortgages. So having made the whole system dangerously unstable and inflated it recklessly, they now want to do us another favour based on their superior enlightenment, capacity and compassion.”

“So why not simply mandate that no house in the Greater Golden Horseshoe can sell for more than its MPAC valuation, at least to a stinking foreigner? Because it would be central planning, which we know always causes unfair disaster. So while they devise other central planning to cause unfair disaster, please hit the roof as hard and often as possible especially if you live in Toronto. Putting holes in it with your head will reduce its value. Which your government actually wants.”

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Comment by Albuquerquedan
2017-04-21 09:48:54

Not paying your debts in Abu Dubai can have consequences far worse than just losing your property:


Comment by Albuquerquedan
2017-04-21 09:53:11

Apparently, that has just been changed, of course it could be changed back at any time:


Comment by Senior Housing Analyst
2017-04-21 09:59:15

Great Falls VA Housing Prices Crater 7% YOY


Comment by azdude
2017-04-21 10:06:55

who i gonna be wheeled out next week to reassure everyone the stock market will never go down again and you are a fool not to BTFD?

How long can this sh@t show go on?

Comment by aqius
2017-04-21 10:36:16

HEY now, i got the lock on lower case comments & bad punctuation on this blog. but you can use rAnSoM nOtE font all you want.

(sEnD uNmaRkeD 20’s oR tHe sQuiRreLs gO unFeD ) !

Comment by Blue Skye
2017-04-21 10:42:38

“we wanted you to spend like maniacs but not on significant assets. Dawk.”

This is priceless. Incompetent undercover socialists. The government should just buy random stuff and hand it out to people. Then we can all be Venezuela.

Comment by Ben Jones
2017-04-21 11:32:24

I doubt most readers here understand how momentous what’s occurring in Canada and Australia is. An “emperor wears no clothes” moment doesn’t do it justice. After denying there could ever be a bubble in these two countries, suddenly it’s government policy to bring it down. (And there are hardly two bigger bubbles on the planet).

This is a collision of virtues indeed. How lucky they decided they were to have such valuable shacks, and luckier every month. 500k, 1 million, 2 millions! Why they are all rich, so rich it became the basis for their economies, year after year. Then with terror they see the vulnerability. This isn’t virtue, it’s greed. The seeds of destruction. Now comes the bargaining: OK, let’s let a bit of air out of Toronto but don’t go too far! Too late, and they all know it.

And what do you know, the same stimulative policy was over stimulative. It got out of hand. They lost control: remember the line about appraisers hitting numbers this past week as Toronto equity nomads ran around with monopoly money. We all know what happens to monopoly money after the game is over.

The writer asks, how do these government types know the value of our shacks? The obvious question is, how should that value be determined? Janet Yellen? Bernanke? Any economist will tell you central planners can’t do it properly. The only way forward is the combined decisions of millions of market participants. And it’s best to not distort that process to any advantage or disadvantage. Of course, when the cat has climbed to the top of the tree, getting back down will not be graceful and it might involve some pain.

Comment by sod
2017-04-21 18:00:20

Great post.

Comment by Mike
2017-04-21 18:16:16

great synopsis.

Signs of an impending slow down are increasing, so the cat may be starting down from the tree. The “recovery of their senses” phase in the madness of crowds seems near

Comment by 2banana
2017-04-21 12:08:07

Elections have consequences.

And it will take awhile to drain the swamp.


Mel Watt’s plan to loosen mortgage credit will shape housing finance for years
Newswires – May 23, 2014 – Joseph Lawler, Economic Correspondent

Despite being a new officeholder of a relatively obscure federal agency, Mel Watt drew a strong reaction for his speech Tuesday by signaling that the federal government will increase its role in helping more Americans buy houses.

For Republicans, it was the moment they had feared when, for months, they blocked President Obama’s nomination of the former North Carolina Democratic congressman to his current post as director of the Federal Housing Finance Agency. As the conservator – – the government steward — for Fannie and Freddie, the FHFA has massive influence over the mortgage market.

Watt began his speech noting “certain changes in focus” from the plans laid out by his fiscally conservative predecessor Ed DeMarco, and then outlined a number of plans to loosen the terms that Fannie and Freddie require for the loans they insure. The two government- sponsored enterprises buy loans from lenders and package them into insured securities, with the purpose of increasing liquidity in the mortgage markets.

Americans may understandably be concerned about the standards Fannie and Freddie require for the loans they guarantee — the two did receive $188 billion in bailout funds after risking trillions on bad loans.

The bottom line, and what likely motivated Watt to begin easing the FHFA’s terms, is that amid rising mortgage interest rates, mortgage originations, including refinancings, are at the lowest level in more than 10 years, according to Black Knight:

But Watt’s decisions will not just shape the short-term availability of mortgage credit. They also will play a critical role in shaping the housing finance system for years.

DeMarco had explicitly favored tightening the GSEs’ lending terms to shrink their market footprint and bring private capital into the secondary market for mortgages. By reversing course, Watt plans for Fannie and Freddie to maintain their market share — which in turn will lessen the pressure on Congress to wind down the two companies and reform the market.

Some analysts welcome the change. The Urban Institute’s Jim Parrott, formerly an Obama administration economic adviser, wrote in response to Watt’s speech that the private market is not currently capable of taking over market share from the GSEs, and that by limiting Fannie and Freddie’s presence, the FHFA simply would deny creditworthy borrowers the chance to own a house.

“Watt has signaled that he will turn from focusing on the enterprises as institutions in intentional decline to institutions that should be better prepared to form the core of our system for years to come,” Parrott wrote in praise of Watt’s decisions.

But Douglas Holtz-Eakin, the president of the right-leaning American Action Forum and a former Congressional Budget Office director, is skeptical of the changes Watt has planned. “This is sort of a re-creation of the worst aspects of their conduct,” Holtz- Eakin warned, referring to the troubled history of Fannie and Freddie as companies competing for market share heading into the crisis.

If the Obama administration determines that lending standards are too tight, Holtz-Eakin said, it should review restrictive rules promulgated by the Consumer Financial Protection Bureau and other federal financial agencies, rather than respond with an ad-hoc policy undertaken through the GSEs.

Comment by scdave
2017-04-21 14:11:29

Elections have consequences ??

Yes they do as we will soon see.

Comment by JSandusky
Comment by 2banana
2017-04-21 14:19:57

It was a substation fire.

All EBT will be working tomorrow.

Comment by aqius
2017-04-21 14:31:25

was kind of shocked by how dark it was at the underground BART station in the picture.
it appears there was only ONE emergency light on . . WTH!?

very dimm & murky.

you’d think our overprotective nanny state of California would have red sirens /strobe lights going off, oxygen masks dropping out of the ceiling & grief counselors w. Starbucks.

oh the humanity.

Comment by aqius
2017-04-21 14:37:29

then again since we’re all to poor to afford out of parents basements no big difference

Comment by MightyMike
2017-04-21 15:34:13

The combined glow of all of the iPhones was probably sufficient.

Comment by Ben Jones
2017-04-21 12:15:30

This was posted in the last comments section:

‘If you are going to claim incomes are the same (ie. adjust them for inflation), it only makes sense to also adjust home prices for inflation’

Don’t stop there. Let’s adjust for depreciation, maintenance, insurance, taxes, interest, opportunity costs. Without considering things like lack of mobility and risk of life changes, suddenly buying a shack looks like a present day decision about future streams of income and outflow. And guess what? It’s just an expense. So get a big house, it just costs more, smaller costs less. All of which is why I have to wonder about apartment owners who have negative cash flow.

Comment by azdude
2017-04-21 13:57:57

I was out cruising some neighborhoods today and I saw a house for sale. Wrote down the address and just thought of what they would be asking in my head. Was thinking around 300k. Got home and googled it and the price was close to 600k. I just had to laugh at the bs going on out there.

Comment by Blue Skye
2017-04-21 14:38:01

Let’s adjust…

It becomes quite circular. Excel spreadsheets blow up with circular calculations. You cannot use logic to explain a mania.

Comment by Karen
2017-04-21 14:49:35

Let’s also adjust for unemployment, under-employment, future job prospects. And aside from the fact that wages in many industries have been stagnant for a long time, what is the average age of the people who work at various jobs? I bet it’s higher than it once was. Lots more older people working than there used to be, and most of them are not looking to buy houses. And from an article we saw the other day, there are many older folk who might like to sell their house but can’t, because they owe too much money on it.

Comment by scdave
2017-04-21 15:04:40

I bet it’s higher than it once was. Lots more older people working than there used to be ??

Well duh. Life expectensie is much higher.

Comment by phony scandals
2017-04-21 18:08:55

“Well duh. Life expectensie is much higher.”

Life expectancy

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Comment by Blue Skye
2017-04-22 08:40:22

Life expectancy…

I think this is not it at all. I know a lot of people in their 60s who are working past the age they should have been able to retire. It’s not because they project they might not have enough money in 25 years. It is because they do not have enough money now.

Comment by phony scandals
2017-04-22 08:48:32

Do you mean Life expectancy or Life expectensie?

Comment by Blue Skye
2017-04-22 10:00:26

Life Expectations. No time to footsie around.

Comment by aNYCdj
2017-04-21 14:20:00

Ok my really OT of the week, sad funny gross…..um a larger person


Comment by aqius
2017-04-21 17:10:36

jeezuz, joseph & mary jane girls that’s just astounding.
gallons. GALLONS of GREASE.


Kevin James in 5 years ?

Comment by Financial Moralizer
2017-04-21 16:26:09

Another one from Vancouver (stupid ad-blocker thingy though). Talks about how “presale” construction condos get flipped a bunch of times before being dumped on the general public. It also allows the foreign hordes to dodge the 15% tax and cap gain tax.


Comment by azdude
2017-04-21 16:42:53

it will end in tears.That seems like ground zero for this sh@t show.

the media has been pretty quiet about the debt ceiling coming up.

Comment by Financial Moralizer
2017-04-21 17:08:02

How many times have they done the whole government debt-ceiling fake panic thing? We all know how the story will end. More debt as usual. If anything it will be another reason for the market to rally some more when they increase it again.

Comment by azdude
2017-04-22 05:39:59

shutdown coming on the 28th.

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Comment by Financial Moralizer
2017-04-22 10:00:40

Yes, and they may indeed let it “shut down”, for a couple of weeks anyway, with a lot of public drama. IIRC the last time it happened, first they brought out all the national park service employees who weren’t getting paid anymore. Then, the veterans. I think once they started plastering the vets all over the media, the “bad optics” got too much so they raised the debt again.

Comment by Albuquerquedan
2017-04-22 05:31:30

I was listening to satellite radio yesterday and listened to Canadian talk radio. Real estate in Toronto and Vancouver was the big topic. A woman from Vancouver who was on the show literally used the line it is different here. The Toronto guests seemed much more worried and talked about a 40% decline in housing prices in the late 80s early 90s in Toronto and how it took two decades to recover. They also talked about I think 100,000 vacant homes in the Toronto area, these were homes for the most part that were not up for sale but not lived in, they had just been bought for speculation. No question getting ugly up there.

Comment by Race Bannon
2017-04-22 07:52:41

Toronto, Dallas, LA, Seattle, NYC, Miami….. It’s all the same.

Comment by phony scandals
2017-04-22 09:27:00

“Toronto, Dallas, LA, Seattle, NYC, Miami….. It’s all the same.”

Johnny Cash would have been one hell of a HBBer


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Comment by Senior Housing Analyst
2017-04-21 16:44:58

Boulder County, CO Rental Rates Crater 8% YoY


Comment by sod
2017-04-21 18:10:50

My fear is that there will be so many people underwater, so many losers, that the rules of the game will change again to save them. The people sitting out, waiting for the correction, will not be rewarded.

Comment by rms
2017-04-22 00:57:51

How about a $90k Ford pick-up?

Comment by azdude
2017-04-22 07:48:14

reserve still not met flat black looks like a rattle can primer job to me.

somebody from silicon valley will buy it.

Comment by Albuquerquedan
2017-04-22 05:34:51

When your money supply is set by politicians that is highly likely. If it is a gold standard or even a block chain system that is far less likely to happen. As long as the “problem” is deflation, the politicians believe they have the answer, print more money.

Comment by MightyMike
2017-04-22 08:08:21

The people sitting out, waiting for the correction, will not be rewarded.

Sitting on your butt and waiting for Godot is rarely rewarded. Parents should teach this to kids at a young age.

Comment by Ben Jones
2017-04-22 08:18:10

I manage a lot of property bought by people who were richly rewarded by waiting for the last crash. It’s not really waiting is it? It’s something that’s happening, and when it happens you can just step in on the opportunity.

Comment by Race Bannon
2017-04-22 08:21:51

With the added benefit of free rent in many empty skulls. :mrgreen:

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Comment by Blue Skye
2017-04-22 10:07:21

There is a reward built in if you don’t pay what you don’t have. You escape that 30 year poverty debt slavery. Then maybe you won’t need to push shopping carts in the Wallyworld parking lot at 70 like a debt donkey friend of mine.

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Comment by Financial Moralizer
2017-04-22 09:25:07

Sometimes markets reward patience.

Sometimes they don’t.

Comment by sod
2017-04-22 10:13:26

Lao Tzu says:

The sage acts by doing nothing.

Act without action.

Those who know when to halt are unharmed.

Comment by Jessica
2017-04-22 09:15:26

Oh I hope not. This madness has affected a whole generation of home buyers — or would be buyers.

Comment by azdude
2017-04-22 05:41:21

you guys gonna do you duty to the economy and consume some more chinese imports from walmart today?

Comment by Financial Moralizer
2017-04-22 09:28:15

I am going to start a flamingo farm.

Comment by phony scandals
2017-04-22 10:37:09

I might let you buy into my Nauga Farm in Stoughton, Wisconsin.

Been thinking about beefing up the critters and producing Nauga burgers instead of just Naugahyde.

Comment by aNYCdj
Comment by azdude
2017-04-22 07:51:08

I think they are moving to an online platform to save money on rent.

Retail has really been imploding during this great recovery.Seems like most of the people who really have to work a job are broke.

people who own assets have lots of cash.

Comment by Financial Moralizer
2017-04-22 09:38:40

We just lost… what, something like 30% of our brick-and-mortar retail sector? It’s like a big chunk of the boat broke off and floated away…

How can you not have some kind of recession after that?

Comment by aNYCdj
2017-04-22 06:16:13

best news i heard i still think terrestrial radio is a viable medium as long as we get a lot more local ownership…


Comment by Senior Housing Analyst
2017-04-22 06:16:59

Ventura, CA Housing Prices Crater 11% YoY


Comment by phony scandals
2017-04-22 09:38:11

“Ventura, CA Housing Prices Crater 11% YoY”


Comment by Mr. Banker
2017-04-22 07:53:25

A blast from the past … all the way back to 2002.

Frontline: “Don Con”.

A favorite take away: Bankers were making 7% off of every deal they were putting together.


Comment by Professor Bear
2017-04-22 10:08:59
Comment by Blue Skye
2017-04-22 10:27:29

I’m thinking United and American are distinctly separate companies.

Comment by Mr. Banker
2017-04-22 11:47:17

“I’m thinking United and American are distinctly separate companies.”

Your thinking is correct. One has a stock symbol of UAL and the other has a stock symbol of AAL.

Separate companies.

Comment by Professor Bear
2017-04-22 10:15:51

“The slumbering housing market in Greenwich, the Connecticut town favored by Wall Street’s financial elite, jolted awake in the first quarter as buyers emboldened by the rising stock market committed to purchases — as long as they didn’t have to pay full price. Prices remain 20 percent below the town’s peak in the second quarter of 2006, when the median was $2.33 million. ‘That kind of market no longer exists,’ said Jonathan Miller, president of Miller Samuel. ‘If it comes back, it’s not tomorrow.’”

20 percent underwater is as good as it will get over the course of a generation for the high rollers who bet the family farm and lost it on the first wave down in the collapse phase of The Great Housing Bubble.

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