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The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Name:Ben Jones
Location:Northern Arizona, United States
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Which of the PIIGS are TBTF?
Spain Urged to Divulge Bank Bailout Plan
By AP / DANIEL WOOLLS Thursday, May 31, 2012
(MADRID) — The European Union urged Spain on Thursday to come clean on how it plans to finance the overhaul of its banking sector, warning that uncertainty over this has contributed the recent market turmoil and the country’s soaring borrowing costs.
A European Commission spokesman, Amadeu Altafaj, told Spanish National Radio that the conservative government in Madrid needed to spell out quickly how it plans to finance the recapitalization of troubled lender Bankia SA and whether there are other banks burdened by toxic real estate assets that might need assistance.
…
See? Nobody’s learning. Not the politicians. Not the bankers. Not the public. It’s ideology run wild; everyone believes this can all just be recapitalized or renegotiated or bailed out.
Eventually you have to deal with the reality that you don’t have any more money.
Greek radical left seeks vote to cancel bailout
(AP) – 45 minutes ago
ATHENS, Greece (AP) — The head of Greece’s Radical Left Coalition, whose strong gains in last month’s elections deepened concerns over his nation’s economic future, vowed Friday to cancel Greece’s international bailout agreement if he wins an upcoming repeat ballot.
Alexis Tsipras, whose party came second in the inconclusive May 6 polls, said there was no way to partially implement the terms of the bailout.
Presenting his Syriza party’s economic program, he said he would seek to repeal the bailout terms, which have included deep spending cuts and stiff tax hikes and have been blamed for a prolonged recession.
The debt-strapped country holds its second election in six weeks on June 17. It was called after the center-right New Democracy party won the May 6 poll but without enough votes to form a government, and coalition talks collapsed.
“The first act of a government of the left, as soon as the new Parliament is sworn in, will be a cancellation of the bailout and its implementation laws,” Tsipras said.
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Irish people on course to grudgingly accept EU treaty that opens way for further cuts in debt-ridden countries
Low turnout relieves pressure on EU bosses battling to contain debt crisis
New treaty was signed by leaders of 25 countries in February
Urges members who ratify to cut annual deficit to no more than 0.5% GDP
By Daily Mail Reporter
PUBLISHED: 06:47 EST, 1 June 2012 | UPDATED: 07:17 EST, 1 June 2012
…
The tipping point in the eurozone crisis: Who’s next over the edge?
Ben Chu
Friday 01 June 2012
Markets get ahead of events. It’s what investors are programmed to do. If you think there is a risk of losing money tomorrow you sell today, rather than waiting for it to happen.
This dynamic has been on display in the eurozone crisis. Indeed, it has been driving events. In May 2010 Greece had to be rescued. Ireland followed in November 2010. Then Portugal in May 2011.
But there were signs of severe stress in markets long before they collapsed. The interest rate on Greek, Irish and Portuguese bonds all breached 7 per cent in trading in the weeks and months before they were bailed out. Spanish and Italian bonds are now trading perilously close to that level, with Spain on 6.6 per cent and Italy on 6 per cent.
The credit insurance market is also a good place to look for indications of looming breakdown. The Credit Default Swap (CDS) rate on Irish bonds hit 6.07 per cent before the November 2010 bailout. That means it cost you $607,000 per year to ensure $10m of Irish debt. The CDS on Portuguese debt hit 6.25 per cent before that country went under last May. Greece’s CDS hit similar levels before its May 2010 bailout. Today, the rate of insuring Spanish debt is 5.9 per cent, while the Italian rate is 5.5 per cent.
Investors seem to be betting that those nations are likely to slip over the brink in the coming months. Without dramatic action from policymakers to restore confidence, that may become a self-fulfilling prophecy.
Is it still “turtles all the way down” these days, are have the global banking system’s bailout authorities begun to run out of turtles?
Editorial
Blame Game, European-Style
Published: May 31, 2012 19 Comments
The financial news from Europe keeps getting worse. Spain’s government, its banks foundering, may soon need to be bailed out. The cost of that rescue could strain the new European bailout fund, leaving little behind should investors turn on Italy next.
Mario Draghi, the president of the European Central Bank, warned this week that the euro zone as currently structured had become “unsustainable.” He criticized Europe’s political leaders for half-measures and delays that have made the crisis worse. He is right.
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Assuming the debt in the PIIGS funded trade imbalances with international trading partners…
Greece $30B a year
Spain $100B a year
Italy $80B a year
Portugal $20B a year
… would massive write down of debt make a long-term difference.
It seems that everything is focused on the government debt, but with these international trade imbalances, would austerity really make a difference? Would they be able to plug these trade imbalances, without the tool of a floating international exchange rate? If not, do they just fund these trade imbalances on even more debt, needed additional bailouts in the future?
There are two kinds of austerity. The false kind is what they’re commonly doing, where surface cuts are made, largely to fool the public into thinking that everything will return to inflation again, and so no serious attempt is made to curb now-standard massive government growth.
The real kind of austerity is where you slash your government to 1/3rd of its previous size, one way or another, in ways that are lasting. Nobody’s doing that except the working poor, who are forced to do it, but they are still making up for it with massive draws on government welfare systems.
So we’re far, far from real austerity. This is a generational crash and these things take generational time to sort out. Headlines in 2016 will still be talking about a European bailout and austerity and all that nonsense.
Although U.S. investors have seen the stock market hammered relentlessly for a month running, so far there is little apparent effect of the boiling Eurozone debt crisis on the U.S. housing market.
Is this destined to change, and if so, why?
Somefing’s gotta give…
US STOCKS - Wall St stumbles as euro zone worry grows
Related News
EU throws Spain two potential lifelines
Wed, May 30 2012
Europe fears drive U.S. bond yields to 60-year low
Wed, May 30 2012
Europe’s deepening crisis drags Wall Street lower
Wed, May 30 2012
Euro falls 1 percent vs U.S. dollar to near two-year low
Wed, May 30 2012
Analysis & Opinion
Time to get real?
Why isn’t the euro falling even further?
Wed May 30, 2012 10:10am EDT
* Spanish, Italian yields rise on euro zone concerns
* New Greek election poll shows leftist SYRIZA has taken lead
* European Commission calls for banking union
* Research in Motion tumbles in premarket
* Indexes off: Dow 1.1 pct, S&P 1.2 pct, Nasdaq 1.4 pct
By Chuck Mikolajczak
NEW YORK, May 30 (Reuters) - U.S. stocks dropped on Wednesday, as rising bond yields for Italy and Spain and the latest poll results in Greece worsened fears about a spiraling of the euro zone’s debt crisis.
The region’s fiscal woes sent the yield on the safe-haven 10-year U.S. Treasury note to the lowest in 60 years and the euro to its lowest level in 23 months against the dollar. U.S. equities have been closely tethered to the currency’s fortunes, with a 50-day correlation between the euro and the S&P 500 index at 0.91.
“The longer they (Europeans) drag it out, the less severe are the ramifications of a break-up and then who actually ends up exiting - so much of this is unwritten it is hard to put any sort of odds on how this plays out,” said Nathan Snyder, portfolio manager at Snow Capital Management in Sewickley, Pennsylvania.
Yields on 10-year Spanish bonds moved closer to the 7 percent level, a point at which other nations in the bloc were forced to seek a bailout.
Spain is expected to issue new bonds shortly in an effort to fund its troubled banks despite the increased borrowing costs.
Adding to the concern, Italian 10-year yields topped 6 percent for the first time since January at a bond sale, raising concerns the region is vulnerable to a contagion.
Investors were given cause for optimism after the European Commission said the the euro zone should move toward a banking union, consider eurobonds and the direct recapitalization of banks from its permanent bailout fund as well as boost growth and cut debt.
But the cheering was short-lived after the latest poll from Greece showed the radical leftist SYRIZA party has taken the lead over the pro-bailout conservatives ahead of a national parliamentary election next month that may determine whether the debt-laden country stays in the euro zone.
“It seems inevitable the euro has got to break up, it’s just how long can they drag it out and what are the ramifications,” said Snyder of Snow Capital Management.
The CBOE Volatility index jumped more than 10 percent, it’s biggest spike since mid-April.
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DJIA = 12K or bust!
The golden lining in the gloom: Goldbugs have their QE3 (or other central bank liquidity injection) hopes up again.
June 1, 2012, 11:17 a.m. EDT
U.S. stocks sink; Dow gives up gains for year
Economy adds only 69,000 jobs in May, well below expectations
By Polya Lesova and Laura Mandaro, MarketWatch
NEW YORK (MarketWatch) — U.S. stocks fell sharply on Friday, turning the Dow average negative for the year, after a disappointing U.S. jobs report and downbeat data from China and Europe raised serious concerns about the health of the global economy.
The Dow Jones Industrial Average (DJIA -1.65%) fell 204.20 points, or 1.7%, to 12,190, deepening losses in midmorning trade after briefly trimming declines after a report on U.S. manufacturing.
The index is now down 0.3% for the year.
“2012 is beginning to look horribly like 2011 – initial high hopes that the recovery was kicking into high gear, subsequently dashed,” said Nigel Gault, chief U.S. economist at IHS Global Insight, in an emailed report.
…
Gold futures rallied as investors sought a safe haven and the dollar fell on speculation the weak data could trigger more quantitative easing from the Federal Reserve. The August gold contract (GCQ2 +3.21%) surged $47.40, or 3.1%, to $1,612.10 an ounce.
Yields on 10-year Treasury notes (10_YEAR -5.51%) hit a fresh low of 1.44% and recently traded down 9 basis points at 1.47%.
…
Even though it has had little apparent benefit, for political reasons, I guess the Fed will have to continue Operation Twist.
Fed will act in wake of jobs report: BBVA’s Karp
June 1, 2012, 1:31 PM
The Federal Reserve is likely to decide to ease again at the next meeting in June in the wake of the weak job report, said Nathaniel Karp, chief economist at BBVA Compass. “They have to do something. They have to show their face,” Karp said in an interview.
With Congress seemingly in no position to react to the weaker outlook, “the Fed is the only man standing,” he said.
Karp said Fed officials would likely extend its $400 billion Operation Twist plan that was set to expire at the end of June.
Under the Twist plan, the Fed is swapping short-term debt on its balance sheet for longer-term securities.
Karp said extending Twist would ease the economy’s ills but is not a cure for the disease. But the majority on the Federal Open Market Committee is not ready for another large scale asset purchase plan, he said.
Fed Chief Ben Bernanke tried to signal to the markets in February that strong data might not last but traders were not paying attention, he said. Traders had thought that the economy had crossed the river and was safe,” Karp said. In fact, there is a long way to go, he added.
“It is clear now we are in low growth environment and it is fragile and it exposes economy to certain risks and if things [get] worse you can have contagion,” Karp said.
…
In other news, the sun is forecast to rise in the east tomorrow.
ft dot com
Last updated: June 1, 2012 10:19 pm
Global data raise fear of downturn
By Richard Milne in Oslo, Michael Mackenzie in New York and Robin Harding in Washington
Workers assemble products at the Logitech International SA factory in Suzhou, Jiangsu Province, China, on Friday, March 2, 2012. Logitech is the world’s biggest maker of computer mice.
A dismal US jobs report and weak economic data from Brazil, China and the UK exacerbated fears of a sharp global slowdown on Friday, as markets ended a historic week with borrowing costs for haven nations plunging to new all-time lows.
The US payrolls report for May recorded only 69,000 new jobs for the month – against expectations of 150,000 – and capped a string of bad news that sent benchmark bond yields for the US, UK and Germany to unprecedented levels. Germany’s 30-year borrowing costs fell below Japan’s for the first time ever while Denmark became the first EU country to see its 10-year yields drop below 1 per cent.
“This week has been a real game-changer. There is no good news anywhere,” said Mark Schofield, global head of interest rate strategy at Citi. “The market is pricing in a much, much greater probability of one of two events in Europe: the break-up of the euro or fiscal union.”
…
this happened last year about this time I would half guess its the same this time and this is an Engineered sell-off so big buyers can shake out weak hands and buy cheap?
My thought exactly! Weak hands, make way for the strong hands…
It was said during the bubble years that for those who were waited the bursting of the bubble would provide great investment opportunities, perhaps the greatest in our lifetimes. Is that still true? And if so, what sort of opportunities and where should we be looking?
There has never been a better time to buy a house, at least according to a majority of your fellow Americans.
Oops…my bad. I see the article I posted below is three years out of date!
April 16, 2009
Americans See Buyers’ Market in Housing
Seventy-one percent think now is a good time to buy a house
by Dennis Jacobe, Chief Economist
PRINCETON, NJ — Plunging housing prices combined with historically low interest rates have persuaded 71% of Americans that now is a “good time” to buy a house — up 18 percentage points from a year ago and the highest level of housing-purchase optimism in four years.
Housing Prices: Expectations Slightly More Pessimistic
The S&P/Case-Shiller Home Price Index shows that housing prices in 20 U.S. metropolitan areas were down 19% in January 2009 compared to a year ago. Accordingly, in an April 6-9 survey, Gallup finds that Americans’ outlook for home prices in their areas is slightly more pessimistic than it was a year ago. Fewer Americans now expect housing prices to increase over the next 12 months (22%) than did so in April 2008 (29%), and more expect them to stay the same or decrease (76% vs. 69%).
Consumers’ housing-price expectations in 2008 and 2009 stand in sharp contrast to those of the three previous years, when at least half of Americans expected housing prices to increase and fewer than one in five expected them to decrease.
Commentary
The fact that most Americans recognize that now is a good time to buy a house should be good news for home sellers, home builders, realtors, and everyone associated with housing, including the average homeowner. Recognizing that there are many good deals in the housing market is a big part of the “buy” decision, and in most of the post-World War II period, this attitude would lead to a sharp increase in housing sales.
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I bought three houses in 2009 and they have proven to be excellent investments. The cash flow is growing, vacancy is very low, and 4% of the loan balance is paid down.
Apparently, a majority of Americans *always* believe home prices will rise again. I suppose cargo cultists should be expected to patiently await their personal versions of the Second Coming.
Attitude Check
A majority of Americans believe home prices will rise
Justin Sullivan/Getty Images
A realtor sign advertises a reduced price in front of a home for sale May 27, 2009 in San Anselmo, Calif. More Americans believe home values are going to go up than they are going to go down.
Interview with Frank Newport
Marketplace for Thursday, May 31, 2012
Kai Ryssdal: With the American housing market going the way it has the past couple of years, we’ll take our good news where it comes. Earlier this week, the S&P/Case-Shiller Home Price Index reported a slight — very slight — gain in home prices. A scant tenth of 1 percent.
Not great. But you know how we are, right? The facts say one thing, we think another.
The editor in chief at Gallup, Frank Newport, is here every week to give us an Attitude Check, what Americans really think about the news of the week, which today flies in the face of those facts I mentioned.
Frank, good to have you back.
Frank Newport: Good to be with you, Kai.
Ryssdal: I want to make sure I’m reading your data right: More people in this country believe home values are going to go up than they are going to go down? Do I have that right?
Newport: That’s right. Thirty-three percent: ‘Yes, home prices in my area are going to go up;’ 23 percent, down. Back to 2005, we had 70 percent saying prices were going to increase.
Ryssdal: All right, so extrapolate for me, just because there’s been some buzz this week with the Case-Shiller and all the rest of it that somehow we have approached a housing bottom. Do people believe more broadly that housing is at least not going down any farther? Do you know that?
Newport: We have, right now, seven out of 10 Americans who say it’s a good time to buy a house, so that’s a good sign as well in terms of these perceptions, which of course are very important because you have to perceive the reality for the reality to become real.
Ryssdal: Whoa. That’s very zen, man.
Newport: Very zen-esque, but it’s the key principle of social psychology, regardless of what Case Shiller tells us and all that. If people don’t think prices are going to go up, they’re not going to go buy houses.
Ryssdal: Right. Does that imply that if people are interested in buying houses again, that they actually will? Is there execution in addition to that aspiration?
Newport: Well, that’s an interesting question, and for that we would need to look at the actual data that are out there, because we don’t know. What we’re measuring here is kind of the environment — the context, as it were — that buying could take place. We do know one thing, empirically. We say: Do you own a house? And that’s at 62 percent — and Kai, that’s as low as we have seen it since we’ve been asking that question. So actual homeownership is down. Where it will go in the future? We’re going to wait and see.
Ryssdal: What about, Frank, this whole issue of people owing more on this homes than they’re worth, whether they’re underwater or not? Is it still a sizable chunk of the American housing market?
Newport: Well it’s pretty negative. In the good ole days, in 2006, 92 percent of Americans who owned a home said ‘it worth more than I paid for it.’ Now it’s 53 who say it’s worth more, but 43 percent say it’s worth less. A lot of those are underwater, we make a presumption. And a lot of those, by the way, are younger homeowners based on our data.
I “always” believe that “everything you you actually need to survive; food, shelter, energy, will rise in price. Does this make me a cargo cultist?
No. It just makes you appear to be misrepresenting reality about housing.
I too always believe that everything you need will rise in price. I don’t believe that being forced to select 2 out of 3 is sustainable when 1 out of 3 is cost prohibitive.
“Is that still true? And if so, what sort of opportunities and where should we be looking?”
In my area we are still priced above 2003 levels, I use the 2001 to 2003 prices as a rough baseline for “normal” or “semi-affordable”, so my answer would be no…there are no opportunities of a lifetime. In the last 3 years anything priced at 2001 levels or below were crap and needed many thousands of dollars worth of work. My target is a quality house for $90 to $110/sf, maybe I find one, maybe I don’t…life goes on.
I recently picked up a partial set of ”Golden Book Encyclopedias” for $5 , published in 1960 , sold through the Grocery stores back then , one book at a time . They were fully colorized with thousands of pictures, elementary level, and totally politically incorrect for this day , but all stuff we still say to each other privately .I read every word , many times back then , and every book still brings pleasant memories now. Can’t recall any other literature that we had way back then that affected me in quite that way .
Jess, I just had a “World Book” flashback. Thank you, kind sir.
We were poor, and my Aunt gave us a set of encyclopedias, and in addition the year book each year. During the summers, we would make up groups and share our readings, along with our pilgrimage (on foot) to the library and community pool. Awww, the good old days.Simple childhood memories, the best kind!
My late father taught us the love of reading. For that I am grateful.
Human nature and the housing bubble. It’s behind a pay wall, but I found this WSJ article interesting.
http://online.wsj.com/article/SB10001424052702304840904577422090013997320.html
Some main points.
“We tend to think that people are either honest or dishonest. In the age of Bernie Madoff and Mark McGwire, James Frey and John Edwards, we like to believe that most people are virtuous, but a few bad apples spoil the bunch…”
“But that is not how dishonesty works. Over the past decade or so, my colleagues and I have taken a close look at why people cheat, using a variety of experiments and looking at a panoply of unique data sets—from insurance claims to employment histories to the treatment records of doctors and dentists. What we have found, in a nutshell: Everybody has the capacity to be dishonest, and almost everybody cheats—just by a little. Except for a few outliers at the top and bottom, the behavior of almost everyone is driven by two opposing motivations. On the one hand, we want to benefit from cheating and get as much money and glory as possible; on the other hand, we want to view ourselves as honest, honorable people. Sadly, it is this kind of small-scale mass cheating, not the high-profile cases, that is most corrosive to society.”
They shifted the experiments to see what makes dishonesty and cheating more or less likely — the size of the reward, the odds of getting caught — and often found no effect.
“One thing that increased cheating in our experiments was making the prospect of a monetary payoff more “distant,” in psychological terms. In one variation of the matrix task, we tempted students to cheat for tokens (which would immediately be traded in for cash). Subjects in this token condition cheated twice as much as those lying directly for money.”
“Another thing that boosted cheating: Having another student in the room who was clearly cheating…Cheating, it seems, is infectious.”
“Other factors that increased the dishonesty of our test subjects included…thinking that ‘teammates’ would benefit from one’s cheating in a group version of the matrix task. These factors have little to do with cost-benefit analysis and everything to do with the balancing act that we are constantly performing in our heads.”
The article is worth a read for subscribers. I see several housing bubble parallels. Everyone was cheating, your fellow mortgage bankers are teammates, etc.
Sadly, it is this kind of small-scale mass cheating, not the high-profile cases, that is most corrosive to society
Another thing that boosted cheating: Having another student in the room who was clearly cheating…Cheating, it seems, is infectious.”
and I’d add
Seeing the people at the top cheat and get away with it has to increase cheating by the masses.
Thinking that those you are cheating are somehow a lower class, evil, not important while those you are cheating for are worthy. I’m reminded of the Kansas pharmacist who was diluting chemotherapy drugs and using the money he skimmed to donate to his church so he could be seen as a leader of the church.
How is the U.S. stock market shaping up for Summer 2012 compared to its rather dismal Summer of 2011?
June 1, 2012, 9:01 a.m. EDT
Stock futures tumble further after May payrolls
U.S. adds 69,000 jobs in May, well below expectations
By Polya Lesova and William L. Watts, MarketWatch
NEW YORK (MarketWatch) — U.S. stock futures nearly doubled their losses Friday after the government reported that the economy created many fewer jobs than expected in May, adding to the economic gloom fueled earlier by downbeat data from Europe and China.
The U.S. economy added only 69,000 jobs last month, the smallest increase in a year, according to data released on Friday morning. Economists surveyed by MarketWatch expected a 165,000 increase.
The reaction in stock futures was immediate.
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The president is trying to bring overseas jobs back. Wasn’t there a bill that was killed in the senate like a year back to tax companies who offshore. And Senate is Democrats majority.
Looks like again election year touting with no real action.
You due understand how bills are killed and what a filibuster is don’t you?
S. 3816
Not to worry about next Monday; a closely-watched pot never boils over.
MarketWatch dot com
Watch for avalanche of sell orders Monday
June 1, 2012, 6:11 PM
Monday’s trading will be the first opportunity stock investors in the U.S. will have to act on a major technical violation that occurred at Friday’s close: The breaking of the 200-day moving average.
This could result in an avalanche of sell signals hitting the market at Monday’s open, since many technical analysts use the 200-day moving average as the dividing line between bull and bear markets. They consider the primary trend to be up so long as the market is trading above its 200-day moving average, and that this trend turns to bearish whenever the market closes below this average—and that is what happened at Friday’s close.
Though the market doesn’t always fall off a cliff upon breaking the 200-day moving average, that certainly is what happened the last time the market broke this key technical level.
That occurred last Aug. 2, on which day the S&P 500 closed at 1,251.46. At its intra-day low just one week later, on Aug. 9, the S&P stood 150 points lower at 1101.54—an extraordinary decline of 12% in just five trading sessions.
Traders beware.
-Mark Hulbert
This is apropos nothing save the noises coming from Congress, but I just had to share it with you guys because it made me laff my arse off. Have a grand weekend, all.
http://www.youtube.com/watch?feature=player_embedded&v=nIwrgAnx6Q8#!
I so-o-o-o want to play this on the radio. Oh, do I ever. Right after this song, of course:
BTW, this is coming from someone who recently got in trouble for playing Sharon Jones and the Dap Kings.
I was a substitute deejay during the women’s issues show. Word later came down from Madame Producer: No men’s voices allowed.
Oops. My bad.
This afternoon, I was watching MSNBC when one of the flapping heads said we need to get tough with China and their exchange rate manipulations. The guest said that if China won’t stop manipulating we should….
and this is the first time I have heard this idea spoken by ANYONE except me….
…put a tax on converting money into Yuan to pay employees in, or buy good from, China.
Do not tax the imports, tax the money as it leaves the country!!! Genius!
Glad someone else is talking about it.
The volume of trade (that a tax on imports would target) is irrelevant. The imbalance of trade (money leaving this country) is what we need to target! And not just China. Every country!
Trade deficits are unsustainable because they result in excess debt on the individual on the negative side of the imbalance. We can either attack and reverse the trade imbalances, or the debt will grow so large that it will cascade default into depression. I prefer the former.
They can just transfer $ to London or Hong Kong or any offshore finance center and convert to Yuan there. Or convert $ to Euro or Yen and then convert those currencies to Yuan.
Genius? Not!
Weedend Topic fun could be to tell us your buying or selling story during this bubble on both the up and down side.