People Knew It Wouldn’t Last Forever
It’s Friday desk clearing time for this blogger. “A hedge fund proposal for freeing Fannie Mae and Freddie Mac from U.S. control is poised to face stiff opposition from investors who say it risks wrecking the mortgage-bond market. The Moelis & Co. blueprint calls for raising tens of billions of dollars in capital for the mortgage-finance companies. The plan, released earlier this month, would also limit the amount of federal money available to offset any Fannie and Freddie losses to $150 billion. ‘I don’t think you could sell virtually any of this debt overseas if it wasn’t government-guaranteed,’ said Scott Simon, who until 2013 managed billions of dollars in mortgage-backed securities for Pacific Investment Management Co. Some of his former foreign clients would have reacted to a limited backstop by asking him to ’sell it all,’ he said.”
“Government-insured Federal Housing Administration (FHA) loans accounted for nearly 8 percent of Bay Area home purchase loans in May, down from 8.6 percent in April and from 10 percent a year ago. Low-down-payment FHA loans accounted for a substantially higher share of home purchase loans in the more affordable stretches of the Bay Area, like Solano County, which had the highest FHA share in May — at 20.8 percent. Contra Costa County was second.”
“The sharpest jump in home sales between April and May was in Napa County, where they rose more than 40 percent. The average home there sold for $622,250 in May, a drop of .4 percent compared to April. In fact, prices fell between April and May in most of the Bay Area, with Solano County’s 1 percent increase being one of only three areas where prices rose.”
“San Francisco ‘is a tale of several markets,’ Coldwell Banker agent Joel Goodrich said. While Pacific Heights, Russian Hill, Noe Valley and the Mission remain strong, ‘the big inventory of new South of Market condos’ is putting pressure on older condos. The website SocketSite highlighted a Hayes Valley condo and a high-end home in Cow Hollow that just sold for roughly the same price they fetched in 2014.”
“Although recent data indicates home sales are declining in the GTA and Greater Golden Horseshoe Area, it does appear that more inventory is hitting the market and that prices are finally coming down. ‘In March, there were 1,566 listings in Mississauga,’ says Alex Ocsai, a Broker/Owner with Royal LePage Meadowtowne Realty. ‘Now, there are 2,592 homes on the market. There are 65 per cent more listings than there were in March. Hitting the high prices in March stimulated a lot of that, people knew it wouldn’t last forever.’”
“Landlords’ confidence has fallen as investors face the prospect of higher tax costs and weakening house prices, according to Kent Reliance research. The lender’s latest Buy to Let Britain report found 41 per cent of landlords are confident about prospects for their portfolios, down from 44 per cent in the previous quarter and 67 per cent three years ago. OneSavings Bank chief executive Andy Golding says: ‘A perfect storm of weakening house prices, higher taxes and lending restrictions have knocked investors’ confidence.’”
“Hong Kong’s K&K Property is among the developers feeling the effect of softening sales. Eager buyers snapped up units in K&K’s upcoming Victoria Skye luxury residential project when the first batches of apartments were put on sale starting late last month. But the developer managed to transact only 80 out of 206 units offered in the most recent round of sales, despite some 2,300 prospective buyers registering their interest.”
“Some observers are predicting a further drop-off in sales this year, driven by an unusually large influx of new housing supply. ‘Developers will offer their projects at competitive prices in view of more than 10,000 new flats available for pre-sale in the second half,’ Louis Chan Wing-kit, vice chairman at local agency Centaline Property told the South China Morning Post.”
“In Beijing, sales of so-called serviced apartments nearly tripled last year to more than 4 million square meters (43 million square feet), accounting for a third of all residential sales, up from just 13 percent in 2015. But sales there collapsed in April, down more than 98 percent year-on-year, while unit prices fell 31 percent in May, the E-House data shows. Developers in Shanghai have suspended sales of all related developments, property agents said. ‘Some cities over-planned their office supply; by converting some of this into apartments would have helped ease the glut,’ said Stanley Ching, head of Citic Capital’s real estate group.”
“Buyer’s remorse has resulted in two house sales falling through on the same day in Melbourne’s north-west, with the buyers ‘disappearing’ overseas. The St Albans buyers chose to give up the small deposit they paid on auction day last month rather than proceed with the sales. Both contracts have been rescinded. Henderson & Ball Lawyers partner Justin Lawrence said there were cases of buyer’s remorse from time to time, but it appeared to be occurring more than in the past.”
“‘I think the market in a lot of areas is barrelling on so hard that people are really being swept along by the process, and just going ‘did I really agree to pay $2 million for that vacant block of land?’ Mr Lawrence said. ‘And they wake up Sunday morning, and they think ‘oh my goodness’ or — as we’ve seen a couple of times — they go home and they speak to their spouse, and their spouse says ‘what do you mean you paid that much?’”
“The $100 billion city rising from the sea next to Singapore has hit a roadblock: China’s capital controls. Subsidized junkets that flew in prospective buyers to development sites in the southern Malaysian state of Johor have dwindled. And some buyers who paid deposits for yet-to-be-built homes are considering canceling their purchases.”
“‘I feel I’m on the horns of a dilemma,’ said Michelle Gao, who paid about 600,000 yuan ($87,825) toward the 1.2 million yuan cost of a two-bedroom apartment at Country Garden Holdings Co.’s vast Forest City development. ‘If the project relies so much on Chinese buyers like me, how on earth are they able to sell in future? Will the construction ever finish?’”
“Few projects are likely to be affected as much as the Chinese-financed developments in Johor, some of which had relied on mainland customers for as much as 90 percent of sales. Six Chinese buyers interviewed for this story said they paid a 10 percent down-payment to Country Garden in showrooms in China by swiping debit or credit cards or using payment services like Alipay. They said the property agents are now telling them they need to go to Hong Kong, Singapore, Malaysia or Macau to swipe their cards to pay the balance of installments, or wire funds to Country Garden’s overseas accounts.”
“Many are worried that would still make them liable under China’s foreign exchange rules. This month, the Chinese government said domestic banks will have to provide daily reports of clients’ overseas transactions of more than 1,000 yuan. ‘I was told it can still be done from Hong Kong, but I’m just scared now,’ said buyer Elaine Xiao. ‘I don’t know what punishment I may get.’ A buyer whose family name is Yu said she doesn’t intend to pay the next installment on her apartment when it comes due this month. She said her agent advised her to swipe her credit card in Hong Kong to get around the rules. ‘I asked the sales agent will you take responsibility when I’m blacklisted in China?’”
“The glut of properties being built in Johor has also affected local developers, Petaling Jaya-based Tropicana Corp. is giving a 25 percent rebate. Yu, the buyer from Guangzhou, worries that the thousands of apartments still to be built at Forest City will be hard to sell without Chinese buyers. ‘My home is still in the ocean,’ Yu said. ‘Locals will not buy homes with prices double the local rate. Without enough residents from China, everything will change.’”
‘I feel I’m on the horns of a dilemma…If the project relies so much on Chinese buyers like me, how on earth are they able to sell in future? Will the construction ever finish?’
Click!
“…daily reports of clients’ overseas transactions of more than 1,000 yuan.”
Less than $200. It was only a year or so ago that we were talking about them bleeding out $1 Tr a year.
‘My home is still in the ocean,’ Yu said. ‘Locals will not buy homes with prices double the local rate. Without enough residents from China, everything will change.’
If these people are smart enough to read the handwriting on the wall, what nonetheless compells them to buy?
‘I don’t think you could sell virtually any of this debt overseas if it wasn’t government-guaranteed’…Some of his former foreign clients would have reacted to a limited backstop by asking him to ’sell it all’
Ah, but the local supply and demanders would then have to explain why there is zero demand. Zero! I really don’t want to hear about shortages until this rickety easy money crap is pulled away, which it can’t be without a total collapse, so up it goes until it falls under its own weight:
‘Government-insured Federal Housing Administration (FHA) loans accounted for nearly 8 percent of Bay Area home purchase loans in May, down from 8.6 percent in April and from 10 percent a year ago. Low-down-payment FHA loans accounted for a substantially higher share of home purchase loans in the more affordable stretches of the Bay Area…In fact, prices fell between April and May in most of the Bay Area’
Low down loans at falling, nose bleed prices. What could go wrong? As long as the calendar on the wall doesn’t say 2004 or whatever, it’s to the moon Alice! Right?
This is playing out similarly to the Bay Area top formation circa 2004. Eventually sales at the high end completely froze while sales and price appreciation continued to accelerate at the low end.
By 2007, the entire market, from Richmond to Mountain View, was headed to Hell in a handbasket.
is Zillow broken?
when you click neighbor hood I get +2.1% prediction
when I use “Values” I get neg (-2.8%) prediction
highly weird
Fedspeak
Bamboozle with BS and profit.
““A hedge fund proposal for freeing Fannie Mae and Freddie Mac from U.S. control is poised to face stiff opposition from investors who say it risks wrecking the mortgage-bond market…‘I don’t think you could sell virtually any of this debt overseas if it wasn’t government-guaranteed,’ said Scott Simon, who until 2013 managed billions of dollars in mortgage-backed securities for Pacific Investment Management Co. Some of his former foreign clients would have reacted to a limited backstop by asking him to ’sell it all,’ he said.”
It’s such bad stuff that he wants to set up a hedge fund to buy it for himself under the guise of “helping” US taxpayers. He’s going to talk it down as much as possible so he can buy it low and hose the aforementioned taxpayers in the name of selfish greed.
The article doesn’t say he’s even involved. I see this kind of thing all the time:
‘He’s going to talk it down as much as possible so he can buy it low and hose the aforementioned taxpayers in the name of selfish greed’
It’s kinda early in the day to get your blood pressure up, especially when you didn’t even read the thing. The more important take away is, there is no apparent market for 30 year shack backed bonds. Why? In an age supposedly starved for yield.
This has nothing to do with the credit risk of the loans. It has to do with the low interest rates, term, and the fixed-rate nature of the debt.
30-year, fixed rate mortgages only exist in the US–and they exist here because of government backing.
As a foreign investor, would you rather buy a 30-year treasury bond at 2.9%? Or a pool of government backed, 30-year mortgages at 4%? Seems pretty obvious to me…you buy the mortgages, since the default risk is the same.
Take away the government backing, and interest rates on 30-year mortgages will go up and up and up, until people start borrowing the way they do everywhere else around the world…5-year ARMs, 10-year ARMs, floating rate debt, etc.
The 30-year would disappear, and the mortgage market in the US would look like it does pretty much everywhere else on the planet. And I don’t think that’s bad.
“30-year, fixed rate mortgages only exist in the US–and they exist here because of government backing.”
I am pretty sure that my former debt donkey cart was loaded with a 30 yr fixed rate mortgage that wasn’t backed by FedGov. It just wasn’t low down, low interest.
I’m sure that’s true (it’s consistent with my loan)…HOWEVER, I think that is by far the exception.
You have to ask yourself…if low-leverage, low-rate, 30-year fixed loans are totally acceptable to the investor market, why don’t they exist in other countries?
You can get a 10 year fixed rate mortgage with 30 yr amortization in Canada. It’s not popular.
Correction. 25 years.
It’s the ability to fix the rate for 30-years with no prepayment penalty that is not great for a lender, but pretty darn good for a borrower.
I’m curious, what’s the most popular loan in Canada?
BTW, this link looks interesting…it’s an older report, but probably mainly still applicable today:
https://cbaweb.sdsu.edu/assets/files/research/Lea/10122_Research_RIHA_Lea_Report.pdf
I think it is the 5 year.
I am pretty sure that my former debt donkey cart was loaded with a 30 yr fixed rate mortgage that wasn’t backed by FedGov. It just wasn’t low down, low interest.
You must be very, very old, as the FHA was founded in the 1930’s and they offered low down, 30 year loans from the get go. My parents bought their first house in the 60’s with a low down FHA loan.
You know I’m not THAT old. My first mortgage was in the ’70s and it was not an FHA loan. My mortgage in the ’80s was with the Farm something GSE. In the 90’s it was with PNC and no government backing, just PMI. I know there were so many foreclosures in the ’30s banks went belly up and nobody wanted to lend so the FedGov started FHA and the 30yr was born.
I am thinking banks followed the example of FHA to stay in the business and that FHA did not own the whole mortgage market by a long shot. No bank ever steered me to an FHA loan. I think maybe it was because I didn’t have trouble qualifying for a bank loan.
“Seems pretty obvious to me…you buy the mortgages, since the default risk is the same.”
Seems pretty obvious to me that the market is pricing in the risk of mortgages in a pool getting refinanced at a lower rate if interest rates fall.
“The more important take away is, there is no apparent market for 30 year shack backed bonds. Why?”
No private lender can compete with Subprime Sam’s low-interest, underwriting-lite, federally-insured lending, where everyone knows that future bailout costs will be covered by Subprime Sam’s infinitely deep pockets.
I’m starting to think this is all one big charade to buy and sell the “good faith and credit of the United States of America.” You name it: sham colleges funneling gov-backed student loans, sham health insurance companies funneling gov-backed Obamacare subsidies, sham prisons wanting more “customers” to skim small profit from gov money, sham funds and securitizers funneling fees from that Greatest Fool — Fannie Mae — for gov-backed mortgages, sham faith-based charities funneling gov-backed grants, sham investment companies attempting to invest gov-backed Social Security to skim fees, sham defense companies prolonging war to continue gov-backed contracts, sham large farmers growing hungry/thirsty corn ethanol to gov-backed programs.
Now some hedgie wants to buy Fannie and Freddie to take advantage of the gov backing (and take advantage of F&F tightened credit post crash). As they said in Casino, it was about the skim. Always about the skim.
The federal government has been bleeding the GSE’s for years, and it should be noted they did have shareholders prior to the government placing them in conservatorship for $180B, which has more than been repaid.
they did have shareholders prior to the government placing them in conservatorship
And those shareholders should have been wiped out when the government had to step in and backstop them explicitly to avoid BK.
for $180B, which has more than been repaid.
It’s irrelevant that it has been repaid; they needed the backstop to avoid BK, and that BK would have and should have wiped out the shareholders. So if those shareholders get diddly, that’s the right outcome.
It starts with “I’ll gladly pay you Tuesday for a hamburger today.”
Oxide
Yup.
‘Are Empty Offices In Boston A Sign The Economic Fall Is Here?’
Soon to be followed by an economic Nuclear Winter.
Don’t you wish Albuquerquedan were here to help interpret the implications of the latest bear market in oil for the broader economy?
Jun 21, 2017 @ 05:30 PM
With Oil Plummeting, The Stock Market Is The Biggest Loser
Jared Dillian, Contributor
Oil recently entered a bear market, and most traders are spending their time figuring out the implications for the energy sector.
In the old days, people used to say that copper had a PhD in economics. I don’t think that’s as true as it once was–the market for base metals is frequently distorted by speculative activity from China. Oil, on the other hand, is turning into an indicator of overall economic health.
Remember years ago, when stocks would rally when oil went down? Now, the opposite is true–oil goes down, and stocks go down, too.
A lot of people attribute that to a decline in investment in the energy sector, and more importantly, possible contagion effects from plummeting high yield energy credits. But it’s bigger than that. We learned in 2008 that people should spend less time focusing on the supply side in oil, and more time on the demand side. I think the recent slide in oil prices is forecasting a recession–which might happen soon.
…
Is Dillian implying that the fed should buy a $30 floor under oil prices?
Wages are dropping in Colorado
http://www.bizjournals.com/denver/news/2017/06/22/wages-dropped-in-all-large-colorado-counties-last.html
Such an epic bubble in Denver…
All those new shacks built on top of each other, out in the middle of nowhere, now all the way past the airport! I drove by them a month ago.
Crazy . . .
Comparing Denver to New Orleans. NOLA just doesn’t have the economy that Denver does. NOLA is still affordable except for Garden District, Uptown, Lakeview. Those places are never affordable.
New Orleans:
Labor Force: 599.1 thousand (total)
Unemployment Rate: 5.1%
Mean Family Income: $48.3k (2015)
Mean House Price: $173,800
Ratio: 3.6 More or less affordable.
Denver:
Labor Force: 1,573.5 thousand (total)
Unemployment Rate: 2.1%
Mean Family Income: $70.2k (2015)
Mean House Price: $400k
Ratio: 5.7 Not affordable.
Regards,
Roidy
I remember reading a story where guy who has managed oil-spill disaster clean-up recovery operations around the planet said that doing business along the gulf coast was extremely difficult, e.g., you have to count your fingers following a business handshake.
Yes, there is a lot of that going around down here.
Regards,
Roidy
Guaranteed housing and rents will go up with this news.
I get at least one email a week from Chase promoting their $595 cash back mortgage.
Been on the fence for a decade now, but that $595 is really tempting…
Do it!
I get those promo pieces, too. So does my buddy who is into crypto currency. He follows some guy called Bix Weir (not sure about the spelling). He’s switching over to Chase because, according to Weir, it’s the only bank with enough reserves should things go bust. Like literally the only bank.
So I asked, well, what about the FDIC? The response was: good luck with that.
All anecdotal, though.
Hey squad, I just found another example of product price inflation — saran wrap. I’m pretty sure Saran Wrap used to be 12 inches wide, but now it’s 11 5/8 inch wide. A couple times I’ve had to double up the wrap to cover something wider. So even though the box is the same total of 200 sq ft, people use more of wrap so they have to buy more. I’m sure this is intentional.
Ran across this article the other day about Saran Wrap, why they made their product less sticky.
http://host.madison.com/business/ceo-explains-why-sc-johnson-made-saran-wrap-less-sticky/article_8987a920-fec9-5567-8b47-3067b3f83ff6.html
Smaller or no bonuses might explain the Douglas County (home of Highlands Ranch) drop, but it sure doesn’t explain the drops in Weld or Larimer County.
I don’t understand. If Everything is Awesome, why is demand for gasoline dropping? Could it be that the 95 million people “not in the work force” but not counted as unemployed - oh heavens no - in our so-faux “recovery” aren’t doing much driving or consuming? And they certainly won’t be buying overpriced shacks.
http://www.zerohedge.com/news/2017-06-23/demand-oil-pipeline-capacity-hits-6-year-low
That’s probably not it. Total employment and miles driven have been increasing for years.
https://www.fhwa.dot.gov/policyinformation/travel_monitoring/17aprtvt/figure3.cfm
If you read the actual article, they note: “For the first time since 2011, demand for the pipeline was below capacity for a five-day period starting early next week, Colonial said on Thursday.”
This is a recent event, which may or may not be indicative of a longer term trend.
But it certainly wouldn’t show up in your graph, which data ends 2 months ago.
Well, there are statistics showing that jobs have been created at a steady rate of around 150,000 - 200,00 a month for the past few years, right up until the last report for May. The article is about one pipeline that delivers gasoline to the northeast.
Possibly because cars are becoming more fuel efficient? Or perhaps because those who are living at home with mom are sharing a car with mom too? And all those millenials in the cities, even if they aren’t living totally car free, they aren’t driving 30 mile commutes either.
FWIW, a lot of people work a few days a week from home. Telecommuting has cut out about 1/3 of my old gasoline consumption. Also makes the car last longer since it gets driven less.
Smart. I’m going to look into this approach.
The madness continues to rock on in my hood, places coming up and people throwing caution to the wind to “get in” at any price. Houses are now going for a million buckaroos with the locals cheering like it was a sport. Luxury car dealers are rolling the big ticket rides out of the lot as if everyone had monopoly money. Everyone is now rich! The sky is the limit, once the million mark hit, the denizens just “made it” achieved their well deserved reward from simply not moving….
At some point this entire bubble pops again…we are close to the top
“… we are close to the top.”
Time to cash out some equity before it slips away.
He said Dolores, I live in fear
My love for equity so overpowering, I’m afraid that It will disappear
https://www.youtube.com/watch?v=5_H-LY4Jb2M
Mountain View, CA Housing Prices Crater 14% YOY On Plunging Housing Demand
https://blog.pacificunion.com/wp-content/uploads/May_17_ZIP.pdf
Can’t be. A guy I know paid over asking price just couple of weeks ago.
Immelt completes sale of New Canaan home
By Alexander Soule Published 3:59 pm, Friday, June 23, 2017
Outgoing General Electric CEO Jeff Immelt completed the sale of his longtime home at 705 West Road in New Canaan, with he and spouse Andrea recording $4 million in the sale, 27 percent below its original listing price of $5.5 million more than a year ago.
http://www.greenwichtime.com/
I think he just wanted out really bad. Good chance CT could end up like Illinois.
And according to Zillow, he bought the house *16 years ago* for 5.25! It looks like he bought high and sold low. You would hope that Mr. Immelt does a better job managing GE, but it doesn’t look like it. Since 2001, Immelt has “presided over a 30% decline in GE’s stock price, costing GE some $150 billion in market value. ”
He’s going to get something like $211 million when he resigns this year, so I guess he’s doing something right.
Oh dear….
https://www.theguardian.com/money/2017/jun/22/buy-to-let-uk-property-sales-fall-by-almost-50-in-a-year
Here’s one today about Canada. I never knew, the loans in Canada are full-recourse, so the FBs can’t do the jingle-male thing.
https://www.ft.com/content/eccb3d30-578a-11e7-9fed-c19e2700005f
This quote from the chief economist guy:
““There’s no question house prices can’t continue at this level,” says Jean-François Perrault, chief economist at Scotiabank. “No question.””
On the other side of the spectrum, this guy gets it:
““You have to be paranoid at all moments,” says Tom Karadza, co-founder of Rock Star Real Estate, a brokerage and wealth-advisory firm in Oakville, south-west of Toronto.”
“For a while he’s been telling clients to steer well clear of the superheated city, looking instead in low-key spots like Kitchener and St Catherines.”
““I don’t believe any of this is under control,” he says.”
Typo, male = mail. whatever… :).
Bitcoin payment for real estate? What could go wrong?
https://news.bitcoin.com/canadian-luxury-home-listed-for-sale-on-beijing-craigslist-for-1075-bitcoins/
Sounds just as solid as Chinese investors putting down payments on their credit cards.
Are the dominoes starting to fall?
http://wolfstreet.com/2017/06/23/ecb-shuts-veneto-banca-banca-popolare-di-vicenza-italian-banking-crisis/