April 10, 2018

They’re Now Aggressive In The Opposite Way

A report from Curbed New York. “The federal tax overhaul appears to be affecting New York real estate already. Namely, New Yorkers aren’t buying—the past three months marked Manhattan’s lowest sales quarter total in more than six years as well as the largest annual decline in nine years according to the newly released market reports for the first quarter of 2018. Douglas Elliman’s report shows that despite a strong local economy, ‘unease regarding effects from the federal tax law and an uptick in mortgage rates may have resulted in a slowdown among buyers and sellers.’ There’s also a chance the decline in sales was overstated, the report says, as the number of closed new development sales fell by half while the ‘legacy’ contract pipeline emptied.”

“The median sales price in Manhattan slipped from last year, a slight two percent to $1,077,500. Price per square foot declined much more, 18.6 percent to $1,697. There’s plenty of luxury real estate to go around in 2018: luxury inventory rose at more than twice the rate of the overall market, while the market share of luxury resales was at its highest level in two-and-a-half years. The median sales price for luxury real estate was $5.9 million, a number that declined 15 percent from a year ago. But there were 1,494 listings on the market, 15 percent more than last year.”

From Bloomberg. “Home sales in Manhattan plunged by the most since the recession as buyers at all price levels drove hard bargains and were in no rush to close deals. Sales of all condos and co-ops fell 25 percent in the first quarter from a year earlier to 2,180, according to a report Tuesday by appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. While just a few years ago, bidding wars were the norm, ‘there’s nothing out there today that points to prices going up, and in many buyers’ minds, they point to being flat,’ said Pamela Liebman, CEO of brokerage Corcoran Group. ‘They’re now aggressive in the opposite way: putting in very low offers and seeing what concessions they can get from the sellers.’”

“Corcoran Group released its own Manhattan market report, showing an 11 percent decrease in completed purchases and a 10 percent drop in sales that are pending. For sellers, to reach a deal in the first quarter was to accept a lower offer. Fifty-two percent of all sales that closed in the period were for less than the last asking price, according to Miller Samuel and Douglas Elliman. Buyers agreed to pay the asking price in 38 percent of deals, but often that figure had already been reduced. Combined, the share of deals without a premium was the biggest since the end of 2012.”

“‘Even with New York real estate prices, you do hit a point in which resistance sets in,’ said Frederick Peters, CEO of brokerage Warburg Realty. ‘People are very anxious about overpaying.’”

“Prices fell the most in the lower Manhattan neighborhoods of Battery Park City and the Financial District, where the median slid 15 percent from a year earlier to $1.21 million, according to Corcoran Group. On the Upper West Side, the median dropped 8 percent to $1.1 million. Neither new developments nor resales were spared from buyer apathy. Purchases of newly constructed condos, which continue to proliferate on the market, plummeted 54 percent in the quarter to 259, Miller Samuel and Douglas Elliman said. Sales of previously owned apartments dropped 18 percent to 1,921.”

“The plunge in transactions is actually a good thing, in that it may serve as a wake-up call for more sellers to scale back their price expectations, said Steven James, Douglas Elliman’s CEO for the New York City region. ‘It sends the sellers a signal that you have to get more reasonable if you want my buy,’ James said. ‘It’s like buyers said, ‘I’ve told you all along, but you wouldn’t listen! Now I have your attention, so let’s talk.’”

From Real Estate Weekly. “Citi Habitats February Rental Market Analysis found that landlords made modest adjustments in pricing and increased their use of move-in incentives during the month. Some 46 percent of rental transactions brokered by Citi Habitats offered a free month’s rent and/or payment of the broker fee to entice new tenants in February – up from 43 percent in January. These incentives remain remarkably high – and while they are most common on high-end product, they can be found on both new construction units and re-rentals alike.”

“‘Landlords are taking a proactive approach to temper resistance to current rents,’ explained Gary Malin, president of Citi Habitats. ‘Through moderation in pricing and the continued use of concessions, they have been able to consistently reduce vacancy rates – while providing attractive opportunities for apartment seekers. There are a lot of great options for tenants, especially on the luxury end of the spectrum.’”

“Douglas Elliman Real Estate February Rental Market Report also showed record or near-record landlord concessions and declining net effective rents across all three boroughs. ‘Record concessions in Manhattan, Brooklyn and Queens are once again the strongest leasing trend for this month,’ said Hal Gavzie, Executive Manager of Leasing for Douglas Elliman Real Estate.”

From The Real Deal. “Residents are beginning to move into Extell Development‘s new luxury rental building at 510 East 14th Street in the East Village and timing couldn’t be worse in theory. In February, an oversupply of high-end units brought apartments with monthly rents at $10,000 or more down by about 11 percent to an average rent of $12,925. Additionally, a Douglas Elliman report found that 36.2 percent of buildings offered tenants concessions to sweeten the deal, as The Real Deal reported.”

“Extell’s 110 market-rate apartments in the building, which can range in size from studio apartments to three-bedrooms, are supposed to rent from between $3,695 up to $12,510 for a three-bedroom unit. The developer is also offering two months free rent.”

“Director of residential sales and leasing, Anna Zarro believes the building is ‘in a really special position given the sub-market we’re in,’ and said applications for the units have been coming in steadily, though she didn’t give exact numbers. ‘There’s not so much new, well-thought out luxury product with the lifestyle considerations that we’re providing.’ Time will tell, but it’s not slowing down Extell’s plans; the company is in final stages of securing its next development site on the Upper East Side, as TRD reported.”

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Comment by Mortgage Watch
2018-04-10 09:09:21

Monterey, CA Housing Prices Crater 10% YOY As Coastal Property Market Implodes


Comment by Apartment 401
2018-04-10 09:13:38
Comment by oxide
2018-04-10 09:25:08

Good article!

The survey confirms that millennials have the weakest balance sheet, with credit cards playing an even more significant role than pesky student loans

Putting groceries on the CC while using the paycheck for the college loans?

Comment by BlackSwandive
2018-04-10 10:48:13

Best thing to do would be to load all that student loan debt onto a credit card, then default and go BK.

Comment by Anonymous
2018-04-10 11:40:50

Use the CC “convenience checks” to pay the loans, then…

Seems feasible, I wonder why people don’t do this? Of course, mister Banker wouldn’t approve. :D

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Comment by Professor 🐻
2018-04-10 22:05:05

Why not just buy a house, wait for the price to go up, take out a home equity loan to pay off your student debt, then walk away from your mortgage after the next crash? Where is the downside?

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Comment by In Santa Clara
2018-04-10 09:49:33

Sky high rents aren’t helping them either. When I got started, fresh out of school, the rent was just over half a week’s pay (and it was in Solana Beach!). To be fair, I was a coder and made more than most people my age, but today people in a similar situation can pay as much as half a month’s pay, depending on the locale. Many have roommates to help pay the rent, even though they make 60K or more.

Comment by oxide
2018-04-10 10:39:25

FYI, yesterday when I said “nobody’s blaming the men,” I didn’t mean general misandry. I meant that I don’t blame the guys for going MGTOW. IMO it’s the fault of the stupid woman for allowing herself to have a child with a man she has no legal ties to.

This seems to be a recurring theme in recent news articles, where “partners” and “girlfriends” are having babies and buying houses without getting married first. IMO it’s foolish. Men should not be leaving themselves an “out,” at least not for kids or major financial transactions.

Comment by Anonymous Coward
2018-04-10 10:51:37

Just pointing out that a lot of times it is the woman who is reluctant to enter the legal quandary of marriage. Even if it is not the norm, it does happen quite often these days that the woman is financially better off but wants to have kids with a partner who may or may not prove to be reliable (which is all partners). It isn’t only men who have learned lessons from messy divorces. This is the truth that lies behind a significant portion of the increase in babies born to single women, especially older single women.

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Comment by Montana
2018-04-10 18:18:28

True..it seems like women use men to have kids, dump the guy and keep the kids. Get welfare until they get to work. The kids are their lil buddies and mom doesn’t have to answer to anyone. Maybe get a new guy with no claim on your kids.

Seems to be a way of life now.

Comment by In Santa Clara
2018-04-11 05:18:47

It isn’t only men who have learned lessons from messy divorces.

Yet women initiate 70%+ of all divorces.

Guys increasingly understand that she can hit the eject button at any time, without needing any reason, and he will not only be removed from his home and family, but will have to continue to financially provide for said home and family.

That’s an even worse deal than Mr. Banker’s dotted line special.

Comment by MacBeth
2018-04-11 05:37:33

“That’s an even worse deal than Mr. Banker’s dotted line special.”


What’s fascinating is the number of graying Boomer men who still think men are the problem. It’s incredible, actually.

They’ve sold out their sons and grandsons to remain in good standing with their graying wives.

Boomer men are seemingly oblivious to the plight of their younger brethren.

One wonders what X-er and Millennial-age women think of their sons.

Comment by Mafia Blocks
2018-04-11 06:11:10

…. and then there was housing.

Kenmore, WA Housing Prices Crater 6% YOY


Comment by rms
2018-04-11 06:12:10

“One wonders what X-er and Millennial-age women think of their sons.”

Should be gelded and wearing a dress? :)

Comment by Professor 🐻
2018-04-11 07:31:00

“Should be gelded and wearing a dress?”

That seems to be a frequently exercised option in California.

Comment by In Santa Clara
2018-04-10 10:53:05

Many men think that having kids, in or outside of marriage is foolish, a good way to end up saddled with decades of expensive child support.

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Comment by BlackSwandive
2018-04-10 15:07:34

Who could blame them in this day and age? There are a lot of women out there who like to sink their hooks into a good salary, plop out a few kids, suddenly not feel so well about the relationship, then take half or more of the poor guy’s money while she goes off to bang and support some loser, being a half-assed parent in the process. It’s all too common.

Comment by sod
2018-04-10 16:42:57

“We sterilized some folks.”


Comment by liquideye
2018-04-10 17:54:19

I think we blame men and women for what are their instinctual behaviors, but its the societal system which determines much of the outcomes. Currently the system promotes bad behavior, so good people opt out, and bad people keep doing what their doing as there are no controls to limit them.

I heard on the radio yesterday that in the UK women are starting to burn out on their weekend jaunts where they get drunk, hook up, then go to the clinic with their friends the next day to get the morning after pill. How dumb can you get - were they not told about the dangers of STDs?

Nasty and proud, lol.

Comment by OneAgainstMany
2018-04-10 19:00:50


I said the exact opposite of that. Go back and read the thread.

Comment by BlueSkye
2018-04-10 20:55:53

Said it indeed. Then said something else. Giving assignments now. Where does the stone land…

Comment by Mr. Banker
2018-04-10 10:55:12

“This seems to be a recurring theme in recent news articles, where ‘partners’ and ‘girlfriends’ are having babies and buying houses without getting married first. IMO it’s foolish.”

I find it to be amusing.

Hey, women wanted to be liberated, free of male domination, free of the patriarchy.

This is what liberation looks like.

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Comment by BlackSwandive
2018-04-10 11:28:40

Yep. Yet, when dating, their first question is “what do you do?” which is code for “how much money do you make?”

Comment by rms
2018-04-10 12:14:06

“Hey, women wanted to be liberated, free of male domination, free of the patriarchy.”

Increased public deficits… a progressive success story.

Comment by BlueSkye
2018-04-10 20:58:46

This is what liberation looks like…

The women I know (mostly) would just like an honest man.

Comment by oxide
2018-04-11 04:50:50

To be fair, “what do you do” isn’t about only the raw dollar figure. Women are asking more about the pre-requisites to that job: for example, are they smart, did they make it through college, was it a difficult major, were they slackers, were they drunkards/druggies, things like that. If a guy made it through an engineering program, then he can probably handle a house and car and stable career. A college dropout selling HVAC maintenance more likely to take off at the first sign of trouble.

So yeah, it’s not like the women (in general, there are exceptions) is going to choose a $100K guy over a $60K guy on money alone.

Comment by MacBeth
2018-04-11 05:31:47

“Hey, women wanted to be liberated, free of male domination, free of the patriarchy.”

Increased public deficits… a progressive success story.”

There are many women out there who are pretenders and/or confused. They think they are independent because they no longer have to depend on “their man”.

They can depend on Big Daddy government instead.

It’s why many women vote the way they do. They want to tell men to “stick it” in their private lives, yet still get their goodies.

Comment by BlueSkye
2018-04-11 06:48:16

free of male domination…

Where can you find a man these days who would offer himself as a living sacrifice to provide for a family unselfishly?

It’s difficult to raise children without a helpmate. This I’m pretty sure of.

Comment by tresho
2018-04-11 08:05:31

The women I know (mostly) would just like an honest man.
Are these women “honest” themselves? Or are they hypocritical, like the rest of us?
Women who seek the perfect man, and men who seek the perfect woman, are both bound to be severely disappointed.

Comment by OneAgainstMany
2018-04-11 10:33:19

Well said Tresho.

“If only there were evil people somewhere insidiously committing evil deeds, and it were necessary only to separate them from the rest of us and destroy them. But the line dividing good and evil cuts through the heart of every human being. And who is willing to destroy a piece of his own heart?” -Aleksandr Solzhenitsyn

Comment by Mr. Banker
2018-04-10 10:13:48

“Millennials and debt go hand-in-hand.”

A job well done. Many thanks go out to No Child Left Behind and other dumb-’em-down educational programs.

Comment by Sean
2018-04-10 11:11:02

Not giving pass to the younger folks, but most people of any generation are horrible with finances. This is why as a parent of three kids I believe it is absolutely critical to teach kids about finance, savings and spending as early as possible. Kids are naturally curious about money and piggy banks anyways, build on that curiosity!

Comment by scdave
2018-04-10 15:40:52

IMO, the best way teach your children about finance and money is to hope they emulate what they see through you.

Comment by rms
2018-04-10 15:54:17

+1 That’s the military way, “Lead by Example.”

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Comment by BlueSkye
2018-04-10 16:09:38

Kids growing up today might be better served with the life skills their great grandparents had. Our generation succeeded in the greatest credit expansion in history. House happy goobers and debt donkeys might not serve them well as examples when this bubble ends.

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Comment by tresho
2018-04-11 08:14:09

Kids growing up today might be better served with the life skills their great grandparents had.
I agree. Most kids I have spoken to recently cannot even name their grandparents (let alone the g-grandparents), much less talk about their life stories & skills.
Many years ago I met a teenage girl, after I had read a little about one of her great-granduncles in a Civil War history book. She was at an after school gathering with some of her friends. I told them about her ancestor, getting captured by the Confederates in 1864, confined in a warehouse in preparation to being sent to a POW death camp. Her ancestor set the warehouse on fire. He then escaped in the confusion & got back to his unit before they even missed him. Those kids were astounded. They nudged her elbow & said, “We always knew you were a warrior woman!” To this day she smiles when she sees me and straightens up a bit.

Comment by dwkunkel
2018-04-10 18:25:54

They also learn how to treat the opposite sex by the examples set by you and your spouse.

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Comment by tresho
2018-04-11 08:15:49

They also learn how to treat the opposite sex by the examples set by you and your spouse. Unfortunately they are also being indoctrinated by popular culture, now on a race to the bottom of the barrel.

Comment by Mafia Blocks
2018-04-10 11:25:18

They’re renting. Smart. Very smart.

A wise man once said, Why buy it when you can rent it for half the monthly cost? Buy later after prices crater for 75% less.

He’s right.

Boise, ID Housing Prices Crater 5% YOY As Market Floods With Vacant Housing



Comment by BlackSwandive
2018-04-10 11:30:36

“Debt-ridden Millennials.”

I remember not long ago when Millennials were supposedly frugal and debt-averse. What happened to that?

Comment by rms
2018-04-10 12:28:17

“What happened to that?”

Credit standards were lowered.

Comment by snake charmer
2018-04-10 12:36:07

The marketing campaign to divorce them from those virtues was successful.

Comment by Mr. Banker
2018-04-10 12:43:18


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Comment by In Santa Clara
2018-04-10 12:39:24

They weren’t frugal, they were broke.

Comment by liquideye
2018-04-10 18:56:03

Latest testing of ‘murican youts shows about 25% proficiency in any particular subject by grade 12. They do a little better when theyre younger, but only a little. Math, reading, whatever - most suck at just about everything. An interesting point in the results was supposedly they excel at economics - an anomalous 40% proficiency. I’m not sure what constitutes economics teaching in high school nowadays - maybe its buying something off of Amazon or how to sell yourself on craigslist and get the most money for your honey.

Comment by MacBeth
2018-04-11 05:19:49

We’re actively importing the uneducated. Of all ages. By the millions.

It’s not surprising the average individual is increasingly stupid.

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Comment by Econ_Teacher
2018-04-11 06:47:27

They’re likely basing that proficiency on pass rates which are massively inflated because econ is a senior (12th grade) course and the vast majority of teachers of 12th graders are far more concerned with pass rates than any actual economic learning. My class is hated by the counselors and loved by the kids who pass it because I do teach them. It’s criminal how unionized teacher hacks undervalue the desire of students to really be challenged and to learn to live a successful, meaningful life, understanding that time is the ultimate scarce resource. .

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Comment by MacBeth
2018-04-11 05:23:57

“Debt-ridden Millennials.”

“I remember not long ago when Millennials were supposedly frugal and debt-averse. What happened to that?”

It was nonsense from the start. If they were frugal, they wouldn’t have cell phones. They wouldn’t take out 6-year car loans. They wouldn’t attend $30-$60K / year colleges.

Comment by MacBeth
2018-04-11 05:25:44

The oldest Millennials will be 40 years old in the not-so-distant future.

The youngest are pushing 20.

It’s interesting that nothing is being said about the next generation, known as Homelanders.

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Comment by DF
2018-04-11 05:32:40

The main thing about the Homelanders is how massively addicted they are to their smartphones.

Comment by MacBeth
2018-04-11 05:48:19

No different than Millennials in that respect.

Glad I’ll be dead by the time those generations are 80 years old. Imagine what these generations will be like behind the wheel at age 80 or 90!

90 years old and texting behind the wheel.

Comment by rms
2018-04-11 06:38:09

The Millennials are probably the first generation too deeply in debt and underpaid to be able to support themselves and provide late boomers and Xers medical needs and retirement.

Comment by OneAgainstMany
2018-04-11 12:48:05

Imagine what these generations will be like behind the wheel at age 80 or 90!

You are making the assumption that humans will still be in charge of driving by then.

Comment by MacBeth
2018-04-11 17:37:44

You sure are hell bent on ceding your freedom (and that of others).

Self driving cars means government decides where you can go.

Comment by OneAgainstMany
2018-04-11 17:56:12

Government already decides where you go. They control where roads are put up, and whether there is sufficient upkeep as to render them driveable. The real freedom is using your two legs, not a car.

Comment by snake charmer
2018-04-10 09:45:04

Through Google street view, I looked at that Extell property on 14th Street (it shows it under construction but largely finished). I had something else in mind when I visualized a “luxury product with lifestyle considerations.” Maybe “luxury” in New York has a different, more intermediate meaning? Either that, or the word is used as a basis to charge extravagant rents.

Comment by aNYCdj
2018-04-10 11:46:48

just down the block. lots of great bands tiki bar drinks,


Comment by Ben Jones
2018-04-10 09:59:44

‘The median sales price in Manhattan slipped from last year, a slight two percent to $1,077,500. Price per square foot declined much more, 18.6 percent to $1,697…just a few years ago, bidding wars were the norm’

Gosh, I hope no one paid too much in such an environment.

Comment by Mr. Banker
2018-04-10 10:09:46

“Gosh, I hope no one paid too much in such an environment.”

If they did perhaps they could drop by my bank for a chat and maybe I could, er , help them out.


Comment by Mortgage Watch
2018-04-10 10:18:44

Littleton, CO Housing Prices Crater 18% YOY


Comment by ibbots
2018-04-10 10:34:44

We’re #18!

Austin is #1, Denver #3, Huntsville Alafreakingbama makes a surprise showing at #7. I once read that the best thing about living in AL is that it is the first state listed in the drop down box when you’re doing an online address form. I’m sure it has its spots. The Gulf Coast is supposed to be nice.


Comment by In Santa Clara
2018-04-10 11:03:01

Those stats are meaningless. Denver #3? It’s become a crowded, overpriced town with low wages. Maybe 20-30 years ago. Then It was less crowded, less expensive town with low wages. But now? Heck, even the Broncos svck.

Comment by snake charmer
2018-04-10 12:51:19

My town is far from perfect, but #75? At least we’re three spots above Orlando.

Comment by scdave
2018-04-10 15:45:22


Comment by jeff
2018-04-10 11:41:46

If you get a German shepherd neighbor with Connecticut plates beware.

Police: Couple busts dog out of quarantine, flees state

Updated 11:09 am, Tuesday, April 10, 2018

PLAINFIELD, Conn. (AP) — Police in Connecticut are looking for a couple they say busted their German shepherd out of quarantine and then fled the state.

Plainfield police say the dog had been held since January for multiple biting incidents, including one in which two children were injured.

But sometime Saturday night or Sunday morning, police think Sean Simmons and Cierra Pensis broke into the animal control officer’s office, liberated their dog and then left the state with the pet and their two children.

Police think they are headed for North Carolina or South Carolina.

The breakout remains under investigation, and police are asking anyone with information to contact them.

Comment by Mortgage Watch
2018-04-10 13:21:02

Mount Vernon, VA Housing Prices Crater 17% YOY As National Housing Demand Plummets


*Select price from dropdown menu on first chart

Comment by Neuromance
2018-04-10 16:18:47

A new IMF study shows correlations in house prices around the globe.

London Home Prices Now Offer Clues for Buyers in New York, Tokyo
By Jeanna Smialek
April 10, 2018

• Global real estate has become more synchronized: IMF research
• Financial integration and global growth are behind the trend

Home prices across the globe are increasingly moving in the same direction at the same time, according to a new International Monetary Fund analysis. Growing integration of financial markets is a key reason.

Researchers took a look at 44 cities and 40 advanced and emerging-market economies, and found that globally low interest rates have helped to push up prices the world over. What’s more, institutional investors have gotten more active in big-city real estate as they seek higher returns, and wealthy individuals are buying up properties as investments. Those two trends are inflating price stickers in places like New York and London simultaneously.

Coordinated economic growth has also helped home prices to move in tandem. In 2017, growth picked up in 120 economies — the broadest synchronized jump since 2010.

“All of this suggests that house prices are starting to behave more like the prices of financial assets, such as stocks and bonds, which are influenced by investors elsewhere in the world,” IMF researchers Claudio Raddatz Kiefer and Jane Dokko wrote in a blog post Tuesday, based on analysis in the fund’s Global Financial Stability Report.


If the link above doesn’t load, try the direct link to the IMF study:

For Home Prices in London, Check the Tokyo Listings
By Claudio Raddatz Kiefer and Jane Dokko
April 10, 2018
International Monetary Fund Blog

In recent decades, house prices around the world have shown a growing tendency to move in the same direction at the same time. What accounts for this phenomenon, and what are the implications for the world economy? These are questions that IMF economists explore in Chapter 3 of the latest Global Financial Stability Report.


Comment by Neuromance
2018-04-10 16:30:05

Not just nationally, but within dissimilar states they show similar movements. This fellow put together an interesting analysis: http://lenkiefer.com/2018/02/19/more-house-price-plots/

These things, to me, point to underlying tidal forces affecting house prices. Many factors affect house prices. But injecting vast amounts of money into the market by central banks, plus lower interest rates, is IMO a very big factor.

Comment by Neuromance
2018-04-10 17:02:19

Of course, this effort to broadly reflate house prices is no big secret (mostly - the Federal Reserve transcripts below from 2009 were released in 2015). And when all the central banks are playing from the same playbook, one sees a certain amount of synchronicity.

Ben Bernanke Has an Impressive Passive-Aggressive Streak, and Other Things We Learned in the New Fed Transcripts
New York Times

As the Fed weighed strategies for arresting the economic tailspin in March 2009, including the collapsing housing market, Elizabeth Duke, a member of the board of governors, offered a colorful way of thinking of their task.

“I’d like to start with the story of an elderly wealthy gentleman who had taken a young bride and begun to spend money like crazy,” Ms. Duke said. “His friends got very concerned that he was going to go through his entire fortune, and they elected one of their number to go and talk to him about it. He said: ‘Sam, we’re really concerned. We want to make sure that you know that you can’t buy love.’ Sam said: ‘I know you can’t buy love, but if you spend enough money, you can buy something that looks so close you can hardly tell the difference.’ ”

What does this have to do with housing? She continued:

“So I think if we spent enough money, got enough of a hit right now, it would look like a floor on house prices, and we might have something every bit as good as a floor on house prices.


Comment by Ben Jones
2018-04-10 17:46:37

And of course it’s been Thelma and Louise ever since.

Central banks may do more harm than good, says head of India’s central bank
By Greg Robb

Published: June 18, 2016

“A bridge that relies on wealth effects, you better hope that you got enough growth to justify the asset price increase which created the wealth effect in the first place.” - Raghuram Rajan


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Comment by Neuromance
2018-04-10 19:11:40

Rajan: Take any model you want. If inflation is relatively low and investment is relatively low, my guess is you would come up with a very low neutral rate, because you want to pump up investment to get more aggregate demand and the low inflation suggests there is weak aggregate demand relative to supply.

You could get savings increase rather than decrease. And as far as investment goes, it is not clear to me that the key constraint on investment is interest rates. It may be aggregate demand.

But if there is this perverse effect of interest rates on consumption than you are not helping aggregate demand, either. We don’t understand why, at such low interest rates, people aren’t investing, but they’re not.

Some points:

• By printing money, they’re sucking purchasing power out of the demand base and directing it to their favored sector(s).

• They then wonder why companies aren’t investing with these low interest rates, instead just loading up their companies with debt. Because there’s no demand for which capacity needs to be built up.

• Net loss of wealth, either via inflation or negative interest rates makes people poorer. Why on earth would they spend more when they feel, and are, poorer? They’d likely buckle down and limit their spending.

Rajan apparently didn’t realize how important it is to keep the influential big money players flush with government-extracted largesse. A powerful and interventionist central bank is essential to that task. He announced that he was being terminated on the day this interview was published.

Monetary policy gives the central bank more power, firehoses money at the financial sector, which leads to a feedback loop of money coming back to federal politicians. This is not a subtle point and cannot be ignored in real-world calculations. Eisenhower warned of the defense industry. The blindside was the financial industry.

Leaders have throughout the ages wanted a quick and easy way to bring prosperity via manipulation of the money supply. The modern incarnation of monetary policy is new lipstick on an old pig.

Comment by MacBeth
2018-04-11 05:15:19

Your use of “leader” is a misnomer. Leaders do not game the system, nor do they build false economies/ markets/ demand.

A leader is ethical. Those you describe are anything but.

Comment by Professor 🐻
2018-04-11 01:22:14

“So I think if we spent enough money, got enough of a hit right now, it would look like a floor on house prices, and we might have something every bit as good as a floor on house prices.”

That was the thinking in 2009.

By 2013, the Fed decided an indirectly targeted housing rescue was insufficient, and aimed QE3 squarely at putting a floor under housing.

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Comment by Professor 🐻
2018-04-11 01:47:29

Look no further than actions taken by the Fed after releasing their White Paper on Housing in early 2012 for the explanation of how housing so quickly became similarly overvalued to where it was in the runup to the 2007-2009 financial collapse.

Fed’s push on housing crosses a line, critics say
By Zachary A. Goldfarb
February 21, 2012

Senior Federal Reserve officials are injecting themselves into a noisy debate over how to solve the housing crisis, drawing criticism from some lawmakers who say the Fed has no business straying from its traditional role as the U.S. central bank.

Amid complaints that the Fed has encroached on Congress’s territory, Chairman Ben S. Bernanke has tried to allay concerns on Capitol Hill over the past few weeks, in the latest flap in a broader debate about the Fed’s proper role in the economy.

The latest commotion follows the Fed’s release last month of a report analyzing housing policy, which central bank officials say is closely related to their efforts to reinvigorate the economy. The report suggested that additional federal efforts to help homeowners could be worthwhile, even at taxpayer expense.

Democrats have seized on the “white paper” as ammunition in arguing for billions of dollars in new federal relief for beleaguered borrowers. Some Republicans have accused the Fed, which generally avoids addressing policy questions before Congress, of potentially compromising the central bank’s independence.

“It appears the Fed may have overstepped their bounds in recommending fiscal policy actions,” said Michael Feroli, chief U.S. economist at J.P. Morgan Chase. “It does get a little bit into dangerous territory.”

After Rep. Scott Garrett (R-N.J.) complained this month that the Fed had crossed a line, Bernanke said publicly that he was sorry if the lawmaker thought that the white paper intruded on a congressional debate. And after Sen. Orrin G. Hatch (R-Utah) released a letter he sent to the Fed, warning it “to refrain from providing any hint of activism,” Bernanke called him to explain the central bank’s actions.

Some Fed officials, in particular New York Fed chief William Dudley, have advocated a variety of new efforts to aid homeowners. Many of the white paper’s ideas to help the housing market echo Obama administration proposals, such as helping homeowners refinance into more affordable mortgages and selling foreclosed buildings for use as rental properties.

Comment by Neuromance
2018-04-10 16:24:48

This was an interesting read.

Hovnanian’s Weird CDS Trade Gets Weirder
Also securities fraud, subprime lending, beef, chants, blockchain and volatility.
by Matt Levine
April 10, 2018
Money Stuff blog

But the point is that a CDS is a sort of abstract generalized synthetic form of a bond. This has its uses. One well-known use is that it allows people to bet against a company’s bonds: Actually short-selling bonds can be difficult, because you have to find and borrow the bonds, but it’s easier to just find a bank that will write you a CDS contract and bet against them that way.

It is also, though, kind of an awkward tool for many of its purposes. “When you punish bad stuff because it is bad for shareholders,” I also wrote, “you are making a certain judgment about what sort of stuff is bad and who is entitled to be protected from it.” If sexual harassment is treated with securities lawsuits on behalf of shareholders, does that mean that the real victims of sexual harassment — the real victims of any corporate misbehavior, when you think about it — are the shareholders?

That’s from this Wall Street Journal story — “Big Banks Find a Back Door to Finance Subprime Loans” — about how banks have gotten out of the business of making subprime consumer loans, but have increased their lending to “nonbank financial firms” which, in turn, make subprime consumer loans.

A banking system is a superposition of fraud and genius that interposes itself between investors and entrepreneurs,” Steve Randy Waldman once wrote. Banks take in deposits, which they are supposed to keep perfectly safe: Money in a bank account is supposed to be completely equivalent to cash, safe in all circumstances. And then they take that money and they lend it to people running risky businesses doing risky things. They try to minimize those risks — by making sure that the loans are overcollateralized, by looking the borrower in the eye and concluding that she is trustworthy, whatever — but “no loans are risk-free.” The mystery of banking is that it issues risk-free liabilities in order to finance risky businesses. It is a mystery that constantly renews itself, that is never fully domesticated, that always has the power to make people uncomfortable.


Comment by Neuromance
2018-04-10 17:11:40

I heard an interesting statement recently, during an interview with an academic, a professor of some econ/finance/business-related subject. He said, “I’m pro-free market. I’m not pro-business.”

I thought that was an interesting take. Indeed, businesses are only one half of a market, the other half is the consumer.

Comment by Mr. Banker
2018-04-10 17:57:13

A nation of dummies…

“Slutty sheep: Veteran academics warn college students are going off the rails”

“Colleges are ‘unreformable’ by now”

“STEUBENVILLE, Ohio – Today’s college students are “situationally confused.” They have no room in their schedules for “intellectual curiosity.”
Two veteran academics who have diagnosed different plagues in modern higher education have little optimism for young people entering college for the foreseeable future, judging by their presentations to a conference this past weekend at Franciscan University of Steubenville, a conservative Catholic institution.

“College students have no passions today and “aren’t trained to pay attention to the things they feel connected to,” former Yale English professor William Deresiewicz told the gathering on the “crisis” in American higher education at the Veritas Center for Public Ethics.

“In fact, higher education has become “profoundly unintellectual” and student life has become about “accumulating gold stars,” said Deresiewicz, who publicly disavowed Ivy League education several years after leaving Yale.”

There’s more …


Comment by tresho
2018-04-11 08:03:03


When he was a student in the 1970s, “no one thought unisex dorms was possible.”

My first & only dorm was unisex, 1971 was when I moved in. Who are these “no one”s?

Comment by Professor 🐻
2018-04-10 22:09:57

Is a 60% stock market decline within the realm of plausibility?

Comment by Professor 🐻
2018-04-10 22:11:43

All this volatility is following one bear’s script for a 60% tumble in the stock market
By Shawn Langlois
Published: Apr 10, 2018 3:52 p.m. ET

Comment by Professor 🐻
2018-04-10 22:19:43

This is good:

He said the problem for his team has been the over-reliance and negative response to extreme “overvalued, overbought, overbullish” market action.

“Those syndromes provided valuable warnings in prior market cycles across history, but were wholly ineffective in putting brakes on speculation in an environment where the Fed intentionally starved investors of safe alternatives,” he explained. “Recognizing that valuations matter profoundly over the long run, yet are nearly useless over the short run, is central to navigating complete market cycles.”

Comment by BlackSwandive
2018-04-10 23:17:07

It’s baked in the cake. This market has nothing to do with fundamentals, and everything to do with the central bank liquidity firehose.

Comment by Professor 🐻
2018-04-11 01:56:50

Why would they turn the hose entirely off if a fire would inevitably result? Isn’t it more likely that they would attempt to slow the flow of water to get asset price inflation to the Baby 🐻 temperature: not too hot, not too cold, just right?

Your argument is essentially that despite years of practice and a vast arsenal of policy tools at their disposal, they will nonetheless botch this financial engineering maneuver. (I’m not necessarily disagreeing with you; just trying to understand the logic of your post.)

Comment by Professor 🐻
2018-04-11 02:09:39

“Prices fell the most in the lower Manhattan neighborhoods of Battery Park City and the Financial District, where the median slid 15 percent from a year earlier to $1.21 million, according to Corcoran Group. On the Upper West Side, the median dropped 8 percent to $1.1 million. Neither new developments nor resales were spared from buyer apathy. Purchases of newly constructed condos, which continue to proliferate on the market, plummeted 54 percent in the quarter to 259, Miller Samuel and Douglas Elliman said. Sales of previously owned apartments dropped 18 percent to 1,921.”

Dumb question of the day: Why would anyone want to purchase a property where you stand to lose fifteen percent in the first year of ownership? Can you imagine how bad such a loss would look if the amplifying effect of leverage is a factor?

Comment by OneAgainstMany
2018-04-11 13:23:57

Why would anyone want to purchase a property where you stand to lose fifteen percent in the first year of ownership? Can you imagine how bad such a loss would look if the amplifying effect of leverage is a factor?

I think if people have a crystal ball then they wouldn’t do this. But many are caught up in the mania. Also, when money is illicit or when a buyer has so much money that a 15% loss over a year is a rounding error, then short-term price corrections may not matter as much as getting what you want, when you want it.

Comment by Carl Morris
2018-04-11 14:39:31

Also, when money is illicit or when a buyer has so much money that a 15% loss over a year is a rounding error, then short-term price corrections may not matter as much as getting what you want, when you want it.

My wife’s money isn’t illicit and a 15% loss on a house is not a rounding error for her. But I’ve noticed she thinks of it at least somewhat as found money and “there’s more where that came from” that results in the mindset you describe. But it’s a mindset created by a couple of decades of insane appreciation with no losses. I suspect a lot of Americans think the same way even though they did see prices go down a decade ago.

Comment by Professor 🐻
2018-04-12 03:07:03

“…though they did see prices go down a decade ago.”

Immediately preceding the Fed bailout to make all housing gamblers whole? Some lesson in personal risk management!

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Comment by rms
2018-04-12 04:36:25

Jeez bear… not sleeping well these days?

Comment by Mafia Blocks
2018-04-11 16:31:42

“Can you imagine how bad such a loss would look if the amplifying effect of leverage is a factor?”

Precisely. Paying multiples of production costs for a rapidly depreciating asset like a house and borrowing to do so is beyond foolish.

Comment by Professor 🐻
2018-04-11 02:40:44

There’s probably no good reason to buy stocks before the end of the summer.

The Lesson From Stock Corrections Past? 200 Days of Pain
By Lu Wang, Sarah Ponczek, and Elena Popina
March 27, 2018, 4:24 PM PDT
Updated on March 28, 2018, 5:06 AM PDT
- S&P 500 fell 14% on average in five similar selloffs since ’09
- Current rout would rank at bottom in duration if ended now

Mark Newton, president and founder of Newton Advisors, explains his cautious optimism about the S&P 500 Index.

Remember the last time stocks fell so hard? You probably don’t, and that’s making today’s market seem harsher than it is.

It’s a fact of the life of the mind — things always seem worse in the present. In reality, they’re not. In this bull market alone there’s been five other corrections like this one, and it’s taken around seven months on average for equities to climb out of their hole. Based on that path, the current jitters won’t be fully eradicated until August.

Just because bouts of losses are normal doesn’t mean they’re painless, especially when momentum stocks are leading the way lower. But the statistic is a reminder that it’s unrealistic to expect a market recovery to involve a straight line back up.

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