A Reason As Simple As The Law Of Gravity
A report from National Real Estate Investor. “Earlier this year it seemed like student housing properties were immune from the slowdown in investment sales. Sales for other property types had slowed dramatically compared to 2016. But the volume of single-asset student housing properties bought and sold in the first months of 2017 matched the beginning of 2016, which proved to be a record year for the sector. No longer. ‘That story about student housing outperforming on sales volume does not hold water anymore,’ says James Costello, senior vice president with Real Capital Analytics. ‘It was the case through 2016 even as the apartment market faltered. Now though, deal activity is falling for student housing was well.’”
“The reason for slow sales may be as simple as the law of gravity—what goes up must come down, at least a little. ‘Not surprisingly, sometime after the better yields on offer went away, so eventually did the stronger growth in deal volume,’ says Costello.”
From The Oregonian. “The housing sector has garnered the most headlines in Portland due to skyrocketing prices for renters and buyers, and rock-bottom vacancy rates for apartment-seekers. But that growth is showing signs of slowing, especially at the high end. More Portland apartment buildings are offering incentives to fill up expensive units. Killian Pacific, developer of the high-profile Goat Blocks apartment complex in Portland’s inner eastside, has leased 104 of the 247 units in five months. The company reluctantly began offering one month’s free rent to lure tenants. ‘It definitely was slower than we expected in April and May,’ said Jeremy McPherson, Killian Pacific’s vice president of development.”
The Citizen Times in North Carolina. “It’s not your imagination. A lot of apartments have been going up in the Asheville area over the past five years or so. And by a lot, we’re talking thousands. While multiple companies have had a hand in building apartments over the past half-decade, no one entity has put up more than Southwood Realty out of Gastonia. Vice President Will Ratchford said they’re done for now in Buncombe County. ‘I think the market is going to be saturated for a while,’ Ratchford said. ‘We’ve started to get some negativity about apartments.’”
The Arizona Republic. “A tax break that cities use to entice development has led to legal woes in Tempe. Basically, Tempe became the owner of a luxury apartment complexalong Tempe Town Lake this year to give the developer, OliverMcMillan, a break on its property taxes. The project, previously known as the Lofts at Hayden Ferry, is now called Salt and is slated to open this year, according to the company’s website. However, nine builders claim San Diego-based OliverMcMillan hasn’t paid them, and they have placed liens against the property.”
“Since Tempe is the property owner, AP Southwest LLC and other contractors filed a notice of claim, which is often a precursor to a lawsuit, with the city to obtain the $5.6 million they claim they are owed. ‘It would be funny if it wasn’t so horrible,’ said Jim Manley, a senior attorney at the Goldwater Institute, which has long opposed these types of tax breaks.”
From Curbed on Colorado. “Most major U.S. cities are experiencing housing shortages, which are driving up rents and forcing residents out of their homes. But few have tackled their housing challenges as voraciously as Denver, which has built a record-breaking number of units over the last year. Now the city is trying a new approach to make its existing housing more accessible: a pilot program that would rent 400 vacant apartments to people who could otherwise not afford them.”
“In his state of the city address earlier this week, Denver Mayor Michael Hancock announced a rent “buy-down” program that will take empty high-end apartments and subsidize their rents so families that make 40 to 80 percent of the city’s median income can move in. The glut of so-called ‘luxury housing’ is also an issue that many cities are facing. Affordability advocates claim developers are trying to maximize their profits by building too many of these high-end units, and selling them to foreign or anonymous buyers that leverage them as investments but may not fill them with residents.”
“The New York Times recently tracked the acquisitions of these ’shell companies’ which led to some legislative reform and a Treasury Department investigation of all-cash purchases in Manhattan and Miami.”
From Curbed San Francisco. on California. “Does San Francisco seem slightly less terrifyingly expensive today than it did four weeks ago? According to rental site Abodo, it should. In Abodo’s midyear rent report rounding up trends in apartment prices for the first six months of the year in major cities, on average San Francisco rents declined 1.2 percent per month (on Abodo, that is) since the beginning of 2017. Abodo spokesperson Sam Radbil tells Curbed SF that the rental platform can only report the figures it has, and suggests that if homes aren’t getting more affordable it’s an infrastructure issue, not a data analysis one.”
“‘We are confident that it all starts with development,’ Radbil says. ‘I don’t need to explain supply and demand to anyone. The price on new buildings is going to drive up the average and median, but at the same time as you get more apartments, landlords have less leverage and the price on more affordable places will decline.’”
From The Oklahoman. “Oil patch? What oil patch? Three years of volatile crude oil prices — at less than half the most recent peak — never spilled over into apartment occupancy or the multifamily investment market in Oklahoma City. ‘First month free’ and other rent concessions are due to another factor: Construction that never missed a beat, causing overbuilding in some pockets of the metro area. That’s the highlight of Commercial Realty Resources Co.’s midyear apartment report by broker-owner Mike Buhl: Whatever jobs have been lost to declined oil prices have been made up by other economic sectors.”
“He said there are signs of uncertainty — the banners advertising specials at the newest apartment complexes struggling to fill, especially downtown, in the Quail Springs area along Memorial Road and in parts of south Oklahoma City ‘When you drive around town, you see more of those (rent concession) signs on properties, but I think that’s just more of an effect of more inventory coming on the market, as opposed to any effects of the oil industry,’ he said.”
“‘While it comes down to what is being built and where it is being built, speculation remains that developers will keep building product and adding inventory,’ he said. ‘What I expected at this time last year was that developers would start to tap the brakes a bit on a number of construction projects. But that really didn’t happen. The amount of new construction coming to the market without some kind of slowdown does seem a bit aggressive.’”
“The Reserve on Stinson Apartments, to be renamed State on Campus Norman, 730 Stinson, Norman: 204 student-oriented units built in 2005 near the University of Oklahoma campus; sold in May for $17.6 million, a 42-percent drop from its original sale price of $30.5 million in December 2006. That was a surprise, Buhl said, considering continued strong investment in general. ‘I don’t know if that indicates any kind of trend. Probably not,’ he said.”
Oh dear…
’sold in May for $17.6 million, a 42-percent drop from its original sale price of $30.5 million in December 2006′
‘developers are trying to maximize their profits by building too many of these high-end units, and selling them to foreign or anonymous buyers’
The Oregon article has some guys bragging about a whopping profit in a sale to some Thai firm. And I’ve documented some other places going for double the cost of construction, almost as soon as they are finished.
#SoCalSoCurious: Who are the cash buyers in SoCal real estate?
by Leo Duran | Take Two® July 12 2017
Lauren Martinez lives in Pasadena, and has been looking for a home to buy with her husband.
“There was one town home that we found here in Pasadena that we just loved,” she says.
It had a fireplace, an outdoor space for a dog.
“The upstairs bedroom was just amazing,” she says. “It had this huge window that was really, really big and just had this gorgeous view of all these trees.”
So she and her husband put in an offer. The seller seemed to like it.
“But then we ended up losing out to an all cash buyer,” says Martinez, “and we’re just like, ‘How can we compete with that?’”
She asked SoCal. So Curious: Who are all the cash buyers in SoCal real estate? And where do they get their money from?
Her friends and family suggested it might be foreign investors, which might have been true a while back.
“Those days really passed 4, 5 years ago,” says Geoff McIntosh, president of the California Association of Realtors.
Back then many of those people came from China, but they’re just about 5 percent of the cash buyers right now according to the association’s research.
Deep pocketed American investors used to buy in all cash, too. But that was mostly right after the housing collapse in 2008 when they lapped up whatever cheap homes they could hoping to turn a profit once the market picked up.
Cash buys are still a thing, though.
Last month, he says 20 percent of all real estate transactions in Southern California were paid for in cash.
So who’s outbidding Lauren with cash?
People with rich parents.
“They’re going to mom and dad and saying, ‘We really want to buy something and would love it if you give us the money,’” says McIntosh.
http://www.scpr.org/programs/take-two/2017/07/12/57900/socal-so-curious-who-are-the-cash-buyers-in-socal/
Thanks for sharing Mike.
I have seen this but with one additional steps It’s a all cash offer but the parents place a private loan on the property at the closing. Typically the institutional lenders require the loan to be seasoned for at least 6 months to refi. Children then get a new Loan and payoff the parents 1st loan.
This too shall pass. How many of these parents are HELOC-rich?
When this jig is up, what’s next? Borrowing against indentures? That’s almost what the current student loans amount to: indentured service.
Compared to all this mess, indentured servitude is sounding better and better. You put in 7 years of work, but after those seven years you got ship passage, room and board, a usable skill at journeyman level, a near-guaranteed job, all free and clear no debt. That’s a better deal than an Obamastudies MA.
Insanity…
+++++
Now the city is trying a new approach to make its existing housing more accessible: a pilot program that would rent 400 vacant apartments to people who could otherwise not afford them.”
“In his state of the city address earlier this week, Denver Mayor Michael Hancock announced a rent “buy-down” program that will take empty high-end apartments and subsidize their rents so families that make 40 to 80 percent of the city’s median income can move in.
DAMMIT!
I knew it. Young career-minded people are stuck doubling up or settling for less, while the low-income and/or welfare queens get the granite countertops. This is exactly what I dreaded… and predicted.
Buying votes dont come cheap, does it? This has been going on for a long time, just not with “luxury” housing to my knowledge.
Liked this one too:
“‘We are confident that it all starts with development,’ Radbil says. ‘I don’t need to explain supply and demand to anyone.
Yeah, I think the federal reserve and the management at pretty much every phony social media/unicorn tech company populated by grifters could stand to learn the lesson.
Government assistance typically helps the poor, harms the middle class and has no impact on the wealthy.
I’m impressed they’re using public money to keep rents up instead of letting the market adjust them. Those same middle class are paying to help keep themselves out of those units.
I’m impressed with the chutzpah, but the mayor will probably keep his job. And if he doesn’t, there are some grateful developers out there that will provide a sinecure.
I’m wondering how the luxury tenants who paid are going to feel about their new neighbors.
They’ll let the owners know when it’s time to renew the lease.
+1.
It will certainly be interesting to see how SJW Millenial residents react. What level of “providing for the unfortunate” will they tolerate?
I wonder if all these Section-8 types will have the same access to luxury amenities such as the pool and yoga studio or the gym or the dog-washing parlor. And good luck with the party room.
not to sound elitist, which I’m definitely not in
my well used-wrangler jeans driving a 25 yr old 4Runner but low income residents will trash that luxury complex.
they won’t appreciate or respect their residence since it was given to them unearned.
think of the movie “Trading Places”, when all of Eddie Murphy’s freeloading friends trash his new mansion . . . he finally wises-up & kicks them out.
another ex: new resident idiots here in our HOA-run pool have broken the float rope 8 TIMES in 6 weeks.
a new record!
To SJWs, even being middle-classist is as bad as being elitist. These luxury places *will* be trashed. In one of my apartment complexes, they opened the pool on Memorial Day weekend, and on Tuesday the next day we all got a letter about a new residence-pass and guest fee system. It was clear the freeloading friends had trashed the pool in the first weekend.
One of the reasons someone pays a luxury rent is so that their neighbors will be of the same economic strata. As they say, “birds of a feather flock together”.
If there’s any concentration of subsidized renters in any one particular property, then it’s a pretty sure bet that the particular property will always be tainted.
The ownership can kiss their premium pricing goodbye.
How about taxing those empty units at a rate that would “force down” the price to a point where they rent.
Yup, I’ve lived in tainted properties before, complexes which accepted Section 8s and similar low-income. But those were Grade B properties which were relatively cheap to begin with. The residents accepted the fact that tolerating the undesirables was a package deal with the lower price.
But these new Denver digs are full-on luxury complexes, not Grade B. The residents will *not* tolerate it, not for long.
Raising the price is the *only* way to weed out the riff-raff without violating discrimination laws.
They don’t tolerate it.
My friend who rents in the Mid-Wilshire area of LA has been moving every year. He gets in to a shiny new building when it’s empty and after a year the “affordable unit” residents end up trashing the place.
He finally found one that didn’t have any “affordable” units but even that place has bad quality build where some of the luxury do-dad amenities already don’t work.
Denver Business Journal recently reported there are 53,000 rental units in some phase of construction right now.
This movie will only end badly…
“Denver mayor announces housing experiment”
http://www.thedenverchannel.com/news/local-news/mayor-announces-rent-buy-down-program
I still wonder how he’s going to pay for it. If he wants to raise taxes, he’ll have to get voters to approve it.
Dem Politicos here do this all the time, they propose some new tax and spend program, and voters shoot it down. I think the last time they got a new tax was the marijuana tax.
I will bet a steak dinner that the “top” of the RE bubble in Canada was on or about June 1st, 2017.
Better prepare for the articles of declining sales, “sticky” prices on the way down, foreclosures, bank failures, government bailouts, “victims” and “we are no going to give it away…”
++++
Canadian Home Sales Crash In June
Jul 17, 2017
http://www.zerohedge.com/news/2017-07-17/canadian-home-sales-crash-june
The Canadian Real Estate Association says home sales in June posted their largest monthly drop since 2010, with the Greater Toronto market leading the decline.
This is the third monthly decline in a row…
Toronto existing home sales drop 37.7% y/y
Average Toronto existing home price fell 5.8% m/m
Average Toronto existing home price up 6.3% y/y
Vancouver existing home sales drop 12.2% y/y
Average Vancouver existing home price fell 3.2% m/m
Average Vancouver existing home price up 2.7% y/y
Democrat/progressive/liberal policies of high taxes, give the public unions anything they want and insane business killing regulations have forced their very own children to move far away from them…
…to red states.
Why do they hate their children?
++++++
Millennials Could Be Key To Illinois’ Housing Recovery… But They’re Fleeing The State
Jul 16, 2017
http://www.zerohedge.com/news/2017-07-16/millennials-could-be-key-illinois-housing-recovery-theyre-fleeing-state
Illinois loses more millennial taxpayers and dependents to other states than any state except New York; this means Illinois’ distressed housing market is losing a big contingent of first-time homebuyers.
Illinois had the nation’s third-highest share of seriously underwater properties as of March 2017, according to a May 2017 report by RealtyTrac. Millennials could be the key to propping up home values: Robust homebuying forces property values up, and millennials were the largest group of homebuyers for each of the past four years, according to NBC News. Unfortunately, Illinois’ millennials are leaving instead of putting down roots.
But economic weakness and burdensome tax policies keep Illinois’ home values suppressed. And these factors send Illinois’ population and housing demand flooding across state borders.
Millennials are a key group among today’s first-time homebuyers: As they grow their families, they are buying homes and spurring housing demand. First-time homebuyers’ movement at the bottom of the property ladder serves as the housing market’s engine, because it allows established homeowners to climb up to bigger, more expensive homes.
But Illinois is losing millennials to other states, and their exodus represents a loss of thousands of potential first-time homebuyers – which could slow down the state’s housing recovery.
Illinois’ net loss of millennial taxpayers and their dependents over that four-year period ranked second-worst in the nation to New York’s 136,800 net loss.
Illinois’ mass millennial departure will have far-reaching ramifications. These young people are entering their prime earning years and taking their productivity and earning power to other states. Fewer young people are investing in Illinois, and fewer companies will have reason to as the state’s population ages and the economy sputters. This reduced demand to stay in Illinois could lead home values to recover more slowly compared with states that fare better with millennials, thus prolonging homeowner distress in Illinois.
On top of that, cost drivers such as government worker retirement benefits create a crushing tax burden for Illinoisans, while some of the nation’s highest property taxes drive down home values and increase homeowner liabilities.
“How do you raise incomes when your state’s economic appeal is based on low costs?”
“That’s the basic conundrum facing a number of red states. They rightly talk about their cost climate, touting tax rates and such. But the biggest component of cost for many businesses is labor. Being a low cost state is tantamount to being a low wage one in many cases.”
You might enjoy reading the article in this link:
http://www.newgeography.com/content/005687-red-state-conundrum
From the article;
If they can’t afford to pay the going rate, then these firms don’t have a skills gap problem, they have a business model problem. The problem is with the companies, not the workforce.
Maybe there’s just not enough profit in it to support a realistic business model. OR…maybe the business owners are like landlords we always hear about, thinking that they “need” to make X dollars per unit of time therefore the prices they charge and expenses they pay have to be Y.
O.T.
When I was in college years ago, during the Pleistocene epoch, I needed to pick a major in my second year. I looked down the list , but, Financial Magician wasn’t there. Doctor, lawyer, and accountant appeared. Only now, years later, is FM a viable choice. I could have interned with Jon Corzine’s $1.2 billion act, and, then waited to work for DryShips, another $1.3 billion. I’m a devout believer in reverse stock splits. Forget 3 for 1. Fifteen to one sounds more magical. What’s 1.3 billion dollars in disappearing rabbits to barbecued customers ?
And then today. A private equity fund, EnerVest, had $2billion disappear. That’s my kinda of Texas money. It pays a few light bills. And there’s more where that came from.
So there is one remaining question that no one has asked except my older criminal lawyer friend who drives a Bentley and is stoned most of the time. “How many EnerVests are out there? They’re gonna need a good lawyer. Let’s start with the number ten.”
Whaddya say ?
Fifteen to one should have been written 1-15. That’s the beauty of math and a Summer glass or brew.
SF area housing article, but the comments are the best read, both from locals and nationwide.
https://nyti.ms/2uqXIBc
I read some of the comments, and while I agree rents seem extremely high, they’re completely affordable for a couple of professionals. The attorney with the engineer husband complaining that it’s too expensive so they left doesn’t make any sense. I see plenty of nice rentals for $3k per month. An attorney and an engineer could save bank while living a good life in SF on their salaries.
Yeah if California taxes weren’t a thing
I see plenty of nice rentals for $3k per month. An attorney and an engineer could save bank while living a good life in SF on their salaries.
Where I am you can get a very nice 1br place for $3k/mo, but for a 2br/2ba it’s possibly but difficult to stay under 3k. My guess is that an attorney and engineer define “a good life” as a 3/2/2 SFH at a minimum…which will cost far more than $3k/mo. So part of the problem may be their definition, but still…
Yes, you are spot on target. My daughter and her husband clear $400k/yr and their 2 bed 2 ba apt is $3,200/mon. They are banking substantial dollars to savings……they just can’t buy a house.
“…what goes up must come down, at least a little.”
Every time I ever threw an object high up in the air, it came all the way back down and landed with a thud.
And really heavy objects are known to create giant craters upon landing.
You just *so* love this analogy, don’t you.
Very well then Prof, how many satellites fall from the sky? How many space stations,voyagers, telescopes … or even pieces of space garbage? They were all thrown pretty high into the air decades ago and almost none of them have come down yet.
Moral of the story: you CAN make things go up and never come down, IF your knowledge of gravity goes beyond high-school level physics. If you want to use an analogy, you gotta use ALL of it.
[Maybe that's why all those hedgies hired physicists...
]
I was curious about what actually does happen to satellites (tldr: some are de-orbited, some are put in ‘graveyard orbits’ farther out): https://spaceplace.nasa.gov/spacecraft-graveyard/en/
But if we’re talking wealth and power, throughout history it has tended to accrue to an oligarchy. The more powerful the oligarchy, the greater the gravity. Eventually the power centers explode, like a supernova, and the process of coalescing begins anew.
Every competent rocket surgeon will tell you that it takes an enormous amount of resources to achieve “escape velocity” to put your payload into orbit. Rockets and their fuels aren’t cheap.
And back in the late 70’s, didn’t Skylab’s orbit decay and come crashing back down to Earth?
Several trillion of QE isn’t enough rocket fuel for you, bubba?
A trillion here, a trillion there. Before you know it, you’re starting to talk about real money.
“Very well then Prof, how many satellites fall from the sky.”
Since satellites are deliberately put into quasi-permanent orbit, this is a poor analogy, unless the Fed has a secret plan to keep the Housing Bubble permanently in orbit.
That said, gravity eventually wins, so technically100% of satellites fall from the sky.
http://newsfeed.time.com/2011/09/22/satellite-falling-to-earth-nasa-scientist-puts-it-into-perspective/
“The sky is falling! The sky is falling!” - Chicken Little
unless the Fed has a secret plan to keep the Housing Bubble permanently in orbit.
Careful there, Care Bear, the Fed might think you’ve hacked into their systems and stolen their secret plans! Especially that part about making small adjustments to avoid atmospheric drag.
No, the housing bubble doesn’t have to be held up forever, just long enough for buying to pencil out vs. renting.
When the hot Chinese money flows dry up, who’s going to be “investing” in US commercial real estate?
http://wolfstreet.com/2017/07/17/what-happens-so-u-s-commercial-property-as-chinese-money-dries-up/
It may be a good time to take some money off the table with respect to real estate investment vehicles.
I noticed that QREARX is up less than 4% for the trailing 12 months ending 6/30/17.
Is it possible that the US will run out of available inventory before the Chinese run out of hot money? When they run out of San Francisco dumps to buy, will they move on to gobble up the Oil Cities of the Western desert, the midwest, the southeast, the northeast, like the biblical swarm of locusts?
They’ll never run out of bay area dumps to buy…they’ll just keep driving the price up until it suddenly stops and no one will see it coming.
But…but…secure wallets! Secure Blockchain technology!
Meanwhile, in my safe deposit box, my PM stacks rest in quiet repose.
http://www.zerohedge.com/news/2017-07-17/over-7-million-stolen-after-coindash-initial-coin-offering-hacked
Do you mean to suggest that they have yet to invent virtual lockboxes where you can safely store your imaginary Buttcoins indefinitely?
Remember - Bill hides his gold in pantry behind the oatmeal.
LOL @ storing your PMs in a safe deposit box.
The top 4 things the TV wants us to buy:
– mortgages + home equity loans
– gold + silver
– pillows
– weight loss programs
The top 4 things the TV wants us to buy:The top 4 things the TV thinks at least a few of us that have money can be convinced to trade it for at a price that allows a skim…
It kind of baffles me why they run the buy-gold/buy-silver commercials non-stop 24×7 on the news channels. Do people really decide to buy gold coins after watching a commercial and some crazy guy calling for astronomical prices? Every person I’ve ever met in real life have never even seen or held an actual gold coin, and probably would not buy any, except for maybe as a curiosity or trinket.
I wonder if it’s some kind of “disinfo” campaign by the PTB. Like — flood the airwaves with so much, and so obviously-looking, shady people trying to sell gold, maybe it has the desired effect of people NOT buying gold because they think it is a scam.
Then again, you got the mortgage companies running their ads 24×7 too… and yet people are piling into that no problem…
Do people really decide to buy gold coins after watching a commercial and some crazy guy calling for astronomical prices?
Not most people. But there are probably a small subset of viewers with money who have nothing to do but watch their show and get scared into impulse purchases that make them feel safer.
No idea on your disinformation theory.
It is sad (to me) to see gold in these cheap ads on TV all the time. I think it deserves more respect.
I think, as many others have speculated as well, that if the SHTF, the price of paper gold and physical gold will decouple completely. Paper gold to zero, and physical to “infinite”, probably with the emergence of local black markets.
sgfood ??
I have been around here for quite awhile and That’s one of the best articles I have read on the housing issue in California in many years. Thank You for posting. Please re-post on a weekend so more of the HBB members can read it. Please mention the comments section because that provides the best on the ground information. Thanks Again for the super post.
It is all crap. I fought that for 25 years in Santa Rosa, and attended the city council meeting every week for those 25 years.
The city council members get fed a line of bs by developers and believe it.
If you allow us to have smaller streets, and more house per acre, we could build more affordable unit
So they believed the developers and the developers put in the mcmansions and cut out the middle class, and the low income buyer.
Oh they put in a rule that you had to have a low income home in every 5 units, but they also said just give us $10,000 and we will accept it and combine the money to provide low income housing.
And then the no-profit came and built rent controlled apartments, but the buildings of course were no low income construction and the allowed expenses increased the costs.
Now the sainted governor want every house to have a solar panel on the roof, which drives the price of houses up by about
$25,000 which again will kill the low or moderate income houses but for rent or sale. And all of the fees for water and sewer, and parks etc, will prevent anything be built without subsidies by the government
oh well.
Any article about CA housing that doesn’t say a word on CEQA is missing a vital issue. I’m not sure if the legislation is going to make a bit of difference, but the article raises meaningful issues that need to be addressed.
If you’re talking about the NYT piece posted earlier, it totally leaves out the Fed dumping trillions of dollars into the hands of the elite who are parking it in any asset they can find, RE in top tier urban markets being a favored location to launder that evil money.
They also ignored the FHA conforming loan limit of $625k. You can’t talk about being priced out without talking about the effective price floor of $625k the government is so kindly providing to the bankers… i mean homeowners… I mean loan-owners.
Some of the commenters, a precious few though, mention the problem of rent control (decreases supply). Another small handful mention proposition 15 (decreases supply). Only ONE that I read mentioned underlying land prices (cheap HUD/FHA funding for multi-family property = increased demand for land = higher prices).
Ben, on a daily basis, offers a clearer view of why prices are rising.
The NYT piece and the comments attached are way off the mark. Almost all of them are crying for MORE government intervention and have almost no understanding of basic economics.
But what else would you expect from the statists who run it and read it?
Which risk-on investment class is due to get 🔨ed the worst when the Fed finally normalizes rates?
- Housing?
- Long-term bonds?
- PMs?
- Cryptocurrency?
- Stocks?
- Commodities?
http://lexicon.ft.com/Term?term=risk-on,-risk-off
IMHO, the answer is long-term bonds. There is no escape from the math when your coupon is fixed. However, I’ve been waiting so long for their fall that I’m wondering if there is something more going on than just the Fed buying (as I’ve noted before, changing demographics, and weak global economy).
My reason is that my guess is that the Fed will only be able to “normalize” rates if the economy is doing OK. And if the economy is doing OK, it will be creating jobs and companies will be earning more money (stocks will hold up better even with declining valuation metrics), commodities will be in demand, and more people will have jobs, with wage pressure (and will want to live somewhere other than mom’s basement).
Decent economy won’t bode well for PMs, but that doesn’t mean they will go down, it just probably means there won’t be fear buying.
And Cryptocurrencies are anyone’s guess…not really linked to interest rates at all, IMHO…more linked to people’s acceptance as a form of payment, political disruption globally, etc.
Long-term bonds have traditionally been described as “windows and orphans” investments. In the case of Treasurys, they generate a fixed series of dollar payments guaranteed by the full faith and credit of the U.S. Government.
What income does Bitcoin generate, and what guarantees it?
What income does gold generate, and what guarantees it?
The main reason people find Bitcoin interesting for investment (well, one of the main reasons, aside from the blockchain tech), is that the supply is capped.
If it ever finds widespread use, greater demand and fixed supply could lead to increasing value over time.
In this respect, bitcoin is similar to gold. Yes, supply is increasing, but at a relatively low rate.
However, with gold, we have centuries of people’s belief in it’s value.
With Bitcoin, we have a few years, and the “value” of any cryptocurrency will be speculative for years to come (maybe even decades to come).
Chinese rental yields are plunging…we know what this means.
Be afraid, Chinese FBs. Be very afraid.
http://www.scmp.com/business/china-business/article/2103116/plunging-chinese-rental-yields-point-property-bubbles-major
House prices have “stalled” in London. I’m sure this means they’re at a permanently high plateau. Otherwise…oh dear….
http://www.telegraph.co.uk/property/house-prices/house-prices-continue-stall-fears-fresh-slowdown-london-could/
We all know what happens to an airplane that stalls after a steep climb. It doesn’t level off.
If someone tells you that the idea of Kid Rock running for Senate is ridiculous, show them this:
https://i.redd.it/uo3dmwixg8az.jpg
or this:
https://i.redd.it/pt09u8a7nr9z.jpg
The Federal Reserve Board: The Best Weapon Against Discrimination?
A high employment economy is an effective way to reduce racial discrimination in the labor market.
07/17/2017 09:11 pm ET | Updated 5 hours ago
Most people have little understanding of the Federal Reserve Board. This is unfortunate because it has an enormous impact on the economy and therefore on people’s lives. The Fed’s decisions on interest rate policy can slow the rate of the economy’s growth and bring job creation to a halt, if they choose. Conversely, if the Fed adopts an interest policy to foster growth, then millions more people can have jobs.
The Fed’s impact in this area is not just a question of aggregate job numbers. After all, adding another one million jobs in a labor market with 150 million jobs may not seem like a very big deal. However the job growth that we see as the labor market tightens overwhelmingly benefits the most disadvantaged groups in society.
The additional jobs go disproportionately to those with less education and also to workers who face discrimination in the labor market, specifically African American and Hispanic workers. Along with the increase in job opportunities, these workers are also likely to see more wage gains since the stronger job market improves their bargaining position.
A few years back, Jared Bernstein and I wrote a book on the benefits of full employment that emphasized this point about full employment — offering especially large benefits for the disadvantaged. A new paper from the Federal Reserve Board made the same point with additional data and analysis.
The basic point is that a high employment economy is an effective way to reduce racial discrimination in the labor market. While a low unemployment rate should not be an excuse for abandoning policies explicitly designed to combat racial discrimination in the labor market — it is a very effective tool, especially at a time when other channels may be blocked.
http://www.huffingtonpost.com/entry/596d5fe7e4b0376db8b65a84
Seems like penalizing employers that use illegal labor could have a similar positive effect on the labor market. I read a report long ago that estimated the effect of illegal labor on the most disadvanted American workers at about a $2/hr reduction in wages, which was about 20% at the time. Pretty significant.
In the case of this article it seems like a way to try to convince everyone that efforts to avoid deflation at all costs are actually to help the disadvantaged…rather than to save banker bonuses.
Which of course begs the question of whether the Fed is responsible for creating jobs.
Seems to me that certainly, the Fed can harm economic growth. I think the best it can do is to avoid harming the situation. If it optimizes interest rates and the money supply, business can continue at its optimal rate, providing jobs. When it strays into expert redistribution (money printing, buying bonds) the favored industries certainly do well but probably at a low benefit to cost ratio.
The conceit I believe the Fed suffers from is the Lazarus Fallacy: Just because a man can kill another man, does not mean he can resurrect that man as well. Just because a company can blow up a building doesn’t mean it can build one.
There is the school of thought (Krugman, Summers) that speculative bubbles are a healthy state of the economy, and the Fed is one component in sparking those. The problem with speculative bubbles is that they are volatile and induce malinvestment and major disruptions when they pop (“At the height of the [housing] boom, 32% of young Spaniards dropped out before completing secondary school. The rate fell to 19% in 2016, but is still the highest in the EU (bar Malta)”). But, if policy makers can envision no other game, they play the one they see (”If the only tool you have is a hammer, every problem looks like a nail”). These are very smart people obviously (of course, so was Robert McNamara and his Whiz Kids who were architects of the Vietnam quagmire).
There’s still so much to do. Technology creates wealth. Business creates wealth and jobs. All the myriad human sicknesses including aging need to be solved. Cars need to be made safer. Productivity needs to rise so that people can work less and have more leisure time throughout the economy. Humans need to get off the planet before the sun starts becoming more intense, leading to its expansionary climax. While billions of people are still mired in poverty measured in calories per day. There’s a lot of room for wealth creation. Saying “This is it, debt = wealth, we’re at the top of the debt supercycle, it’s stagnation from here” is like blind men feeling one small part of the elephant and thinking they understand the elephant.
A few links to demonstrate a possible wealth skimming/redistribution effect:
1) Income charts by percentile since the 1970s: http://billmoyers.com/2015/01/05/top-10-charts-2014/
2) List of recessions from 1918 till the present (vertical gray bars): https://fred.stlouisfed.org/series/AMBNS
3) The US went off the gold standard in 1971.
After the US went off the gold standard, the recessions started getting more spaced out, after the 70s. But income inequality started growing as well. Coincidence? Spurious pattern? Maybe. But going off the gold standard seems to me to have removed restraint from politicians and central bankers, and increased the ability to skim/redistribute wealth.
Economic growth comes from the ground up, not the top down it seems to me. But when you have the ability to sink back into central planning because everyone just knows they can do it better than the market, because the market can screw up from time to time, it’s hard to resist. Icarus just KNOWS he can fly to the sun.
Fewer recessions? Okay - but look at incomes. Economists may be gaming themselves, optimizing what they’re looking for, and finding it, and not presenting the true picture.
Globalization? Part of story, likely. But when it’s the lower classes being squeezed, who cares, they’re little more than beasts of burden, they should have been born smarter. But when it’s middle class college kids getting squeezed, people take notice. And the vise is getting higher.
Regarding market forces: just because something is wrong a little bit doesn’t mean it should be totally thrown out.
I’m not a gold bug, I don’t own gold. Gold’s “intrinsic value” lies in its ability to serve as a durable currency and that people like to wear it. But, an angle to consider.
Another item to consider is the acceleration of automation, and the effect of low interest rates on the adoption of such automation.
If you own a business, you can make more money by either selling more stuff (increasing revenues), or reducing the cost of production of the stuff you are already selling (reducing costs). Good managers will strive to do both all the time.
However, which is more risky for a business owner? In other words, which is the better risk-adjusted return for the business owner? Investing money to expand revenues (which likely requires hiring)? Or investing money to decrease costs (which probably allows decreasing employment)?
I’m sure the answer differs depending on circumstances.
When the Fed lowers interest rates, are they making it easier for business to both create AND destroy jobs. The second part of this is a counterbalance to the argument that full employment driven by lower interest rates will necessarily drive higher wages.
As long as interest rates remain low, the “wages” for automated production (i.e. the cost of capital) remain low, making it hard for humans to get paid more…even at “full employment”.
Why do so many pronouncements from the Fed come off sounding like prevarication?
uh oh day jah vooie
As Paperwork Goes Missing, Private Student Loan Debts May Be Wiped Away
https://www.nytimes.com/2017/07/17/business/dealbook/student-loan-debt-collection.html
Rest assured those student loans won’t be “wiped away.” They’ll be transferred to the public ledger for taxpayers to cover.
It’s mathematically impossible for US citizens to pay off what the government has committed to, has been since at least Bush the second.
That’s where the Fed’s printing press comes in.
Are there any mathematical limits on the degree to which the Fed can monetize the debt?
I don’t believe so, as long as they keep their heads. It’s why I think they will eventually own everything…if they keep their heads.
When the judge’s rulings wiped out $31,000 in debt, “it was such a relief,” Ms. Watson said. “You just feel this whole weight lifted. My mom started to cry.”
Hey Mr. Banker, it looks like a few dollars escaped. ?
Maybe Mr. B managed to sell that pig in a poke to someone else before it was discovered missing. He usually manages to.
Yes, looks like 4 intermediaries (from the chart), then to whoever has invested in those trusts. I guess when the judge wiped it out, it basically turned their investment into a one-time cash donation to the schools. Isn’t that where the borrowed money went? The schools got the money, to use for paying for the school itself, their salaries, etc. Bummer for the investors, seems they will lose everything.
Er, sorry, 3… gar…
Bummer for the investors, seems they will lose everything.
They’ll lose some fraction of their loan portfolio. Most of the paperwork was probably not lost.
Interesting thing about debt-based purchases: Drop interest rates and the monthly payments stay the same for higher loan amounts.
Thus, the recipients of what the loan is buying get more money/are favored. The buyers/debtors don’t get more. And savers are penalized. It’s all part of the “expert redistribution.”
Bonus: investors sniff the price increases and pile in, leading to speculative increases, leading to a bubble.
Well, investments have risks. Or they are supposed to. If you choose to invest in student loans, they probably come with lots of warnings of possible default.
The wikipedia article on “Student loans in the United States” is interesting. It says the private student loans are used when the student has already maxed out their federal loan limit.
These are loans that are not guaranteed by a government agency and are made to students by banks or finance companies. Private loans cost more and have much less favorable terms than federal loans, and are generally only used when students have exhausted the borrowing limit under federal student loans. They are not eligible for Income Based Repayment plans, and frequently have less flexible payment terms, higher fees, and more penalties.
But they are eligible to be dismissed in bankruptcy court.
so it could be a doable option while you are young
One of the first student loans that I got was private…IIRC, I wasn’t eligible for government loans.
It was expensive too (8-10%, if I recall correctly)…I paid that sucker off ASAP after graduation.
Looks like Chinese oligarchs want to get their ill-gotten gains and themselves out of China before the pitchforks and torches come for them.
http://www.cnbc.com/2017/07/17/half-of-chinas-rich-plan-to-move-overseas.html
You may be right about the oligarchs but that article was about the everyday Chinese people with money. I don’t think they expect any pitchforks and torches even if they should. They just prefer the upper middle class lifestyle in the USA to the rich lifestyle in China.
Speaking of which…I was just at a Chinese friend of a friend’s house last weekend. $2.5M big house with big back yard and pool and Ferrari in the garage about 45 minutes into the hills from San Jose. I was trying to figure out why she and her child were living there when the husband was still living and working in China and had no plans to move here. My wife said “she’s the ’second’ wife”. I said “oh”.
“Rich Chinese” are a tiny fraction of the population, not to be confused with “everyday Chinese with money.” Given how corrupt China is, it’s a safe bet that a lot of them are absconding with ill-gotten loot rather than being honest entrepreneurs who struck it rich with that good ole Protestant work ethic.
“Rich Chinese” are a tiny fraction of the population, not to be confused with “everyday Chinese with money.”
When dealing with very large numbers the fractional categories can get very fuzzy. There are a lot of “everyday” rich people in Shanghai even if the fraction of the whole is small.
I was trying to figure out why she and her child were living there when the husband was still living and working in China and had no plans to move here. My wife said “she’s the ’second’ wife”. I said “oh”.
Reminds me of a scene in one of the old Pink Panther movies. Commissioner Dreyfus is talking on the phone with a woman. As he hangs up he tells her “Kiss the children for me”. His assistant asks: “Your wife?”, he replies “My mistress.”
Anyway, the woman is doing well as a mistress, but it isn’t anything new.
I didn’t see her as unusually beautiful, but the kid was a genius and she did have the whitest legs I’ve ever seen in shorts. I thought she was wearing white nurse’s hose at first. Chinese women and their fear of the sun…
Don’t they have one wife policy?
There’s a part of the Fremont’s Mission District nicknamed “Second Wife Village”
And, yes, while polygamy is officially illegal, it’s still part of Chinese culture — and if you know how many “big wives” behave, somewhat understandable.
There’s a part of the Fremont’s Mission District nicknamed “Second Wife Village”
Hahah…I heard of that in Shenzhen but not in Fremont.
“…Fremont’s Mission District…”
I used to live up there near Ohlone College on Starr street, which was lined with olive trees. Freeway access and great hang gliding was right near there too. I couldn’t afford it these days.
Toronto’s Realestate plummets, Panic has started as new policies are implemented
https://www.youtube.com/watch?v=cb2Sdye2IP4
“If you recently purchased, just hold on.”
Greatest Musical Number Ever? 1943 (The Nicholas Brothers)
https://www.youtube.com/watch?v=QfB5LH3E1N4
Ben
The oldest brother, Fayard, said in a YouTube interview,it was shot in one take and jumping two steps was challenging.
* *
So years ago I bought my Mom a recording of Pavarotti singing Nessun Dorma. It was his trademark. My Mom, who passed at 103, listened, and looked up and said: “You missed Jussi Bjorling.”
I finally had a chance to listen to him when someone posted this on YouTube. One of the comments had the final say: “He was a freak of nature.”
https://www.youtube.com/watch?v=bUbA5y1hnFg
‘When he was compared to Bjorling, Pavarotti said; “Please, I’m only human.”
Thanks for posting that video.
Those flying splits in the tap dance routine are amazing!