The Housing Bubble

A closely watched pot never boils over.

Last updated: October 19, 2012 10:32 pm
Manufacturers warn of ‘fiscal cliff’ threat
By Ed Crooks and Robert Wright in New York

General Electric and Honeywell, two of the largest American manufacturers, have reported robust results from their industrial businesses but warned of the threat posed by the approaching “fiscal cliff”: the possibility of steep tax rises and spending cuts taking effect in the US at the end of the year.
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They both raised concerns about the gridlock in Washington over budget policy. Dozens of tax cuts and allowances will expire and spending cuts will be triggered automatically from January 1 unless Congress can reach a deal.

GE, the largest US industrial group by market capitalisation, reported a 7 per cent rise in pre-tax profits and earnings in line with analysts’ expectations but surprised with slower than expected growth in revenues. It also cut its guidance of revenue growth for the full year to 3 per cent, from a previous projection of 5 per cent.

The news hit the company’s shares, which closed down 3.4 per cent at lunchtime in New York at $22.03.

However, Keith Sherin, the company’s chief financial officer, said the slower revenue growth was a result of GE Capital, the finance division, shrinking faster than previously planned, as the group worked to reduce its reliance on financial services. “We feel that we’ve had a pretty good quarter,” he said.
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Mr Sherin warned, however, that the fiscal cliff could have a large effect on the US. “It affects us the same as everyone else,” he said. “We hope it can be resolved with bipartisan work, for the good of the country and the world.”

Honeywell, which makes aircraft systems, components and controls, stuck with its central estimate for full-year earnings, in spite of a near halt to sales growth, as it raised its forecast profit margins.

Dave Anderson, chief financial officer, said the company’s “formula” was working “in an otherwise challenging environment”.

However, he also warned that the potential “fiscal cliff” presented risks to demand. Mr Anderson said he hoped to see politicians “applying some intelligence” to resolving the issue.

Lower-priced home inventory down 33 percent in South Florida

by Kim Miller

The inventory of homes for sale at $105,600 or less dropped 33 percent in South Florida during the past year, making it difficult for first-time buyers to find properties.

According to Zillow, which released a report today measuring housing inventory in three price tiers, the average inventory drop nationally in the lowest tier was 15 percent.

The price ranges Zillow considered are $105,600 and under for the bottom tier, $105,601 to $234,350 for the middle tier and greater than $234,351 for the top tier.

“First-time homebuyers are being squeezed out of the market by falling inventory and the rapid influx of investors looking to buy basic homes to rent out to the growing population of people who have recently been foreclosed upon,” said Zillow Chief Economist Stan Humphries, in a press release. “Investors are paying in cash and can close sooner, which is more favorable to banks and homeowners looking to sell.”

In Palm Beach, Broward and Miami-Dade counties, homes in the middle tier of pricing saw the biggest inventory drop with 34 percent fewer properties to choose from. Homes in the highest-priced category were down 34 percent.

But South Florida’s dwindling inventory doesn’t come close to the dearth of homes in some California areas. In Fresno, the amount of lower-priced homes for sale is down nearly 60 percent from last year, while Sacramento saw a 55 percent drop.

This entry was posted on Thursday, October 11th, 2012 at 11:31 am and is filed under Housing affordability. You can follow any responses to this entry through the RSS 2.0 feed.

Yawn…must be about time to go into hibernation again for another year.

Stock market plunges amid mediocre earnings

Mary Altaffer/AP - Trader Peter Tuchman reacts as he looks at the numbers during the closing bell on the floor of the New York Stock Exchange on Oct. 19. Poor corporate earnings reports pounded the stock market Friday in a sour end to an otherwise strong week of trading. The Dow Jones industrial average fell more than 200 points for its worst day in four months.

By Neil Irwin, Published: October 19

Maybe earnings season isn’t going so well after all.

That was the apparent conclusion of investors Friday, as a sell-off drove the stock market to its steepest one-day decline since June. It came after a series of mediocre earnings reports from corporate titans including Microsoft and General Electric.

The Standard & Poor’s 500-stock index ended the day down 1.7 percent, as the Dow Jones industrial average fell 205 points, or 1.5 percent, on the 25th anniversary of the stock market collapse known as “Black Monday.” The decline in tech stocks was even steeper, with the Nasdaq composite index off 2.2 percent.

It was the second straight down day after the stock market began the week with three consecutive days of gains. The decline reflected a rising sense that some of the optimism that had been building amid decent earnings numbers earlier in the week was overdone.
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I see great signs of progress here, with the NY Fed president advocating for a breakup of Megabank, Inc. Perhaps by the time my kids are all adults, Megabank, Inc’s deathgrip on American finance will be crushed in the jaws of a reinvigorated Sherman Antitrust Act.

Another Reason to Break Up America’s Big Banks
By John Grgurich
October 19, 2012

The incomplete pass-through from agency mortgage-backed security yields into primary mortgage rates is due to several factors — including a concentration of mortgage origination volumes at a few key financial institutions.

So said William C. Dudley, chairman of the New York Federal Reserve, in a speech on October 15. Translated from central-banking speak, Dudley is saying that the Federal Reserve’s monetary policy should be turning around the U.S. economy, but something is keeping that from happening. That something is dominance of the mortgage market by a few big banks.

As if the country really needed more reasons to break up the superbanks, Dudley has provided another compelling one, and it’s one investors should embrace.

Too big to compete

Dudley’s argument is fairly straightforward. The Federal Reserve has just embarked on its third round of quantitative easing, QE3, aimed specifically at driving down home-mortgage rates. By committing to purchase $40 billion in mortgage-backed securities every month, demand for MBSes should, theoretically, incent banks to do more mortgage lending, and therefore drive down rates as they compete for business.

Standing in the way of lower mortgage rates, however, are the country’s big banks. Because they do the bulk of mortgage lending, and because there are so few of them, lack of competition for prospective homebuyers is keeping rates artificially high even as they should be going down. Some of the country’s biggest home lenders include JPMorgan Chase, Wells Fargo, Bank of America, and Citigroup.
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Another California Realtard Charged with Defrauding Buyers and Sellers

http://northridge.patch.com/articles/northridge-real-estate-agent-among-3-charged-in-1-5-million-fraud-case

Chicago Area Median House Price Falls A Whopping 35.6% in Sept.

http://glenellyn.patch.com/articles/glen-ellyn-home-sales-fall-slightly-as-chicago-area-hits-six-year-high

DO NOT buy housing now.

Well my political participation is done with for now. Mailed in my Arizona ballot (I am in Phoenix). Voted libertarian where there were LP candidates. Voted for the independent party candidate for Maricopa Cty Sheriff. I could not vote for social conservative Sherif Joe. Nor the Dumbo opponent. Voted against more bonds. Voted against permanent sales tax. Socialism is for retards.

Gary Johnson got my vote for prez.

Maybe he has to shore up PA but interesting choice of banks.

BY: Washington Free Beacon Staff
October 19, 2012 10:40 pm

Obama For America took out a $15 million loan from Bank of America last month, according to the campaign’s October monthly FEC report. The loan was incurred on September 4 and is due November 14, eight days after the election. OFA received an interest rate of 2.5% plus the current Libor rate.

This gal is a real go-getter. I think our property taxes should be raised just to pay the local rag to write articles on her… Shoot, let’s have a special levy to endow a chair of journalism in honor of the author of this piece.

http://www.statesman.com/news/business/barreling-through-barton-hills-realtorborker-mille/nSbmB/

How many years has it been now since the HBB began posting sundry articles and anecdotes about this kind of practice?

In defense of the sham landlords, illegality notwithstanding, at least they are using their entrepreneurial talent to create value out of properties that Uncle Sam has decided to let go to waste. And since they got the property “for free,” they can charge a very reasonable rent which enables both themselves and the tenant to both come out ahead.

Freddie Mac warns of bogus landlords renting out foreclosed homes
By Kenneth R. Harney
October 21, 2012

WASHINGTON — No one wants to take the blame for the housing bust in this political season, but scammers and rip-off artists in the hundreds are working overtime to siphon dollars out of the wreckage of the crash and its still-vulnerable victims.

You’ve probably heard about the loan-modification predators who promise financially ailing homeowners that they’ll prevent or forestall foreclosures —but are really after thousands of dollars in fees, for which they do nothing.

Now the second-largest source of mortgage money in the country — Freddie Mac — is warning about a troubling wave of post-crash fraud: scammers who illegally rent out foreclosed and for-sale homes to unsuspecting consumers. The bogus landlords don’t own the properties — Freddie does — and they have no right to offer them to anyone. But they use Craigslist and other websites to advertise them to prospective tenants.

Typically the rents are tantalizing — say $1,200 a month for a three-bedroom home in a neighborhood where similar houses command double that — and the terms are straightforward: Pay us a security deposit and one or two months’ rent upfront — always in cash or money order — and we give you the keys, no questions asked. The fraud promoters sometimes change the locks on the front door, remove the lockbox installed by the real estate agent marketing the house for Freddie Mac and tell prospects: Oh, and don’t worry about that real estate sign in the front yard offering the house for sale. We tried to sell the house but it didn’t work out, so now we’re renting it.

According to real estate brokers working with Freddie, this type of scam can bilk unwary rental home shoppers — some of whom have lost their own homes to foreclosure or short sales — out of hundreds or thousands of dollars. Robert O’Hara, a foreclosure specialist with Re / Max Synergy in suburban Chicago, said one victim told him that she lost a total of $10,000 in upfront fees and rental payments to a fraudulent landlord before she was forced to leave the property.

“This is happening all over the place, in every price range,” O’Hara said. “They take the victim’s money and disappear.”
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Now that real estate is always going up again, lenders eagerly making secondary mortgages again.

How long from now will it be until when home values are rising so quickly that house-proud owners are once again using second mortgages as a way to liberate equity that can be used to make highly-leveraged investment home purchases?

Lenders granting more second mortgages as home values rise
An increase in second mortgages reflects major lenders’ growing confidence that the real estate market has finally made the turn to recovery.
October 14, 2012|By Kenneth R. Harney

WASHINGTON — If you have a pressing need to raise some cash, here’s some good news: Rising home values are encouraging lenders to revive a product that imploded during the housing bust years — second mortgages.

Researchers at Equifax, one of the three national credit bureaus, say total outstanding balances of second home mortgages at banks rose in the latest month for the first time in nearly five years. Though the blip was relatively small — about three-tenths of a percent — analysts say any increase in the amount of second mortgages is a bellwether event, indicating that major lenders are showing growing confidence that the real estate market has finally made the turn to recovery. The Federal Reserve recently reported that American homeowners’ equity stakes rose $406 billion in the second quarter, a 5.9% increase over the previous quarter and the highest it has been since 2008.

Second loans, which include fixed-payment mortgages as well as floating-rate home equity lines of credit, put the bank in second position in the event of a foreclosure. Say you have a house worth $250,000 with a $200,000 first mortgage and a $20,000 second mortgage. The proceeds of any foreclosure would initially be used to pay off the lender in the first position. Any remainder would pay off the holder of the second lien. Because lenders assume a “junior” position when they make a second loan, these mortgages are generally considered to be higher risk and carry higher interest rates and fees than a first.

Second loans can be used for a variety of purposes — paying for kids’ college tuition, injecting capital into a small business, financing a home improvement and paying off credit card debts are among the most popular.

Equifax, which receives information from virtually every major bank and mortgage lender, compiles data on a variety of loan products. In its latest National Consumer Credit Trends study, it found that home equity lending appears to be rebounding fastest in New Mexico and California, where outstanding balances jumped 2.3%, along with Nevada (2.1%), Colorado (2%) and Florida (1.6%).

Increases in equity lending, said Amy Crews Cutts, Equifax’s chief economist, “are really a healthy sign” for the economy overall because in the years after the housing bust, many banks had little confidence that home prices were stable enough to lend against in second position.

Now when Cutts speaks with bankers, she finds them “pretty willing to do [second] loans when their customers need them — they’re much more open” than they’ve been in years. Though underwriting standards are tougher than they once were, banks are lending again, and they are experiencing smaller losses. In the most recent study, Cutts said, second mortgage write-off rates fell to just 2.7%, the lowest they’ve been since February 2008.

Second loans are “an important element” in Bank of America’s “customer relationship strategy,” said Matt Potere, home equity executive for BofA. “We expect growth to occur as market conditions continue to improve.”

James Chessen, chief economist for the American Bankers Assn., agrees. “It’s good news that finally there’s some upward movement” in home equity lending, he said.
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IEM implied odds against a Romney win are now down to 3:2 — best numbers for Romney since August.

Most important number of the 2012 presidential election season: 47 percent:

NBC/Wall Street Journal poll has Obama, Romney tied at 47 percent
by FP Staff Oct 21, 2012

WASHINGTON (Reuters) – President Barack Obama and Republican challenger Mitt Romney are tied at 47 percent support each among likely voters with just over two weeks to go before the U.S. presidential election, a NBC/Wall Street Journal poll released on Sunday said.

The nationwide poll, which was conducted after last Monday’s presidential debate, reinforced the perception of the race as a cliffhanger.

It showed “a little bit of a lead” for Romney among the critical “battleground” states as a group, NBC correspondent Chuck Todd said on the network’s “Meet the Press” program.

Among a larger sample of registered voters, Obama led Romney 49% to 44%, the Wall Street Journal said in a report on the poll on its website. This, however, was down from a seven-point edge the president had among registered voters in late September, the Journal said.

“Sitting at 47 is a good number for a challenger, but not a good number for an incumbent” close to the November 6 election, NBC’s Todd said on Meet the Press. He said Obama’s lead among women – 51 percent to 43 percent – was his smallest all year long.

Obama’s campaign adviser David Axelrod, appearing on the NBC program, said polls for the election were “all over the map.” He said he had always predicted Obama’s re-election attempt would be close.

“If you look at the early voting that’s going on around the country, it’s very robust and its very favorable to us. And we think that’s a better indicator than these public polls, which are frankly all over the, all over the map,” Axelrod said.
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Physics ain’t gonna save Mr Market from the financial equivalent of the force of gravity.

Updated: 21 October 2012 | 6:30 am in Features and Columns
On Topic: Physics and the stock market

If we lose a bunch of money in the stock market, apparently it’s because we’re not as smart as think we are.

Or, to put it another way, the markets and all the cosmic factors that come into play — the economic speculations and prognostications from more sources than there are stars in the heavens, Fed Chairman Ben Bernanke’s latest hints and pronouncements, trouble in Greece, trouble in Spain, trouble in Portugal, trouble in France, still more trouble in Greece — well, it’s just all too much.

That seems to be one of the morals of the story from James Owen Weatherall, a mathematician, philosopher and assistant professor of logic and philosophy of science at the University of California-Irvine. He’s also author of “The Physics of Wall Street: A Brief History of Predicting the Unpredictable,” to be published in January by Houghton Mifflin Harcourt.

See, here’s the problem, as he sees it:

Imagine you are trying to putt a golf ball. The hole you are aiming for is only slightly larger than the ball itself. And yet, if you miscalculate by a fraction of an inch, and you hit the ball a little too hard or a little too softly, or you aim a little to one side, you would still expect the ball to get close to the hole, even if it doesn’t go in.

That’s because we imagine that the world is an ordered place.

But you’d be wrong.

Here Weatherall brings in Edward Lorenz, a meteorologist and author of what’s come to be called the Chaos Theory. You know, the idea that one little occurrence can lead to more significant events.

It goes something like this: You can’t find your car keys, so you’re late for work, therefore your major presentation isn’t given that morning to an important client, who angrily drops your company as a vendor, thereby forcing your employer to trigger huge layoffs, pulling down its stock price, which in turn signals an industrywide decline that affects world markets, and so on until the extinction of life on Earth as we know it.

The plots of countless sitcoms are based on this notion, as well as a recent series of commercials for satellite TV reception.

Lorenz’s 1972 conference paper in which he put forth his theory carried the title, “Predictability: Does the Flap of a Butterfly’s wings in Brazil Set Off a Tornado in Texas?”

As Weatherall notes in his discussion of how we try to chart the whimwams of the markets, “You can never account for all the flaps of all the butterflies across the globe.”

Of course, stock market analysts admit what they do isn’t for the faint of heart. But they aren’t going to concede it’s impossible, either.

So they continue to consult quarterly statements, annual reports, financial models, dowsing rods and tea leaves, all in hopes of wisely guiding their clients. Or aid those loyal customers enough for them to still be able to pay their fees.

Weatherall suggests adding more science into the process would help. But even he admits that, in the end, we simply don’t know enough about butterflies.

50 Shades Of Stock Market Grey
October 21, 2012

Investors and the stock market have been bound in a tawdry affair over the last several years. But like so many relationships marked by heightened tensions and unpredictably dangerous behavior, investors risk a most tumultuous ending from this ongoing entanglement. It has never been a question of if, but more of when. In the meantime, this relationship appears ready to continue drifting higher.

The journey for stocks over the last several years has been shocking to say the least. After touching an all time intraday high on October 11, 2007 of 1576 on the S&P 500 Index (SPY), stocks soon descended into darkness. Over the next 17 months, the stock market was stripped of -58% of its value before reaching a final intraday bottom on March 6, 2009 of 667 on the S&P 500. But since this time, stocks have engaged in a lusty +121% rally that has brought the market back as close as 7% from its previous all time highs at 1474 on the S&P 500 in recent weeks.

Unfortunately, the rally that has brought us so far back to near previous heights is without any solid foundation.
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Phew…the Eurozone debt crisis has passed without serious incident.

Oct. 19, 2012, 12:56 p.m. EDT
Investor fears of euro-zone catastrophe fading
Skeptics warn that danger could return with a vengeance
By William L. Watts, MarketWatch

FRANKFURT (MarketWatch) — Despite nearly three years of dithering, infighting and backtracking by European leaders, some strategists now say the euro-zone debt crisis no longer poses the immediate danger that has kept investors on the lookout for the next market-sinking headline.

The crisis “used to be a wrecking ball hanging over the markets […] It has stopped swinging,” said Andrew Wilkinson, chief economic strategist at Miller Tabak & Co. in New York.
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ft dot com
October 21, 2012 8:28 pm
Drones: Undeclared and undiscussed
By Geoff Dyer

Whoever wins the White House will face pressure to be transparent about America’s use of secret military tools

[Stealthy approach: a US Reaper drone is launched at Kandahar in Afghanistan]

If there is such as a thing as an “Obama doctrine”, it was prob­ably first suggested by the advice of Robert Gates, defence secretary for the first two and a half years of the administration.

“Any future defence secretary who advises the president to again send a big American land army into Asia or into the Middle East or Africa,” he said shortly before leaving office, “should have his head examined.”

Given President Barack Obama’s political and economic aversion to launching new wars with lots of ground troops, it is perhaps no surprise that he has latched on so powerfully to the use of armed drones to go after suspected terrorists. US officials claim al-Qaeda’s leadership has been “decimated” over the past few years.

The surprise is that the subject has hardly come up in the course of a long election campaign – even one dominated by a sluggish economy – because it ignores one of the more remarkable and controversial aspects of the Obama administration. The president has made such extensive use of secret military tools that he would have provided himself with years of seminar material were he still a constitutional law professor.

“It is arguable that, through covert wars, this administration has violated the sovereignty of more countries, more times, than any other administration,” says David Rothkopf, chief executive of Foreign Policy magazine and a former Clinton administration official.

Mr Obama, a Nobel Peace laureate, did not invent the new approach but he has dramatically expanded it. The use of targeted killings was authorised one week after the terrorist attacks of September 11 2001, and in the next seven years the administration of George W. Bush ordered about 50 operations. Mr Obama has signed off on more than 350.
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Asian Stock Markets Fall On Gloomy Japan Data
BY Bhaskar Prasad | October 22 2012 12:02 AM

(Photo: REUTERS)
An investor checks stock information with a computer at a brokerage house in Hefei, Anhui province Feb. 20, 2012.

Most of the Asian markets fell Monday as investor confidence was weighed down by the report that Japan’s trade deficit increased in September compared to the same month last year, raising concerns about the faltering global economy.

Japan’s Nikkei Stock Average was down 0.81 percent or 73.14 points to 8929.54. Among the major losers were Amada Co Ltd (4.09 percent), OKUMA Corp (3.60 percent) and Komatsu Ltd (3.25 percent).

The Chinese Shanghai Composite fell 0.62 percent or 13.17 points to 2115.13. Hong Kong’s Hang Seng marginally rose 0.08 percent or 16.77 points to 21568.53. Among the major losers were CNOOC Ltd (1.11 percent) and China Overseas Land &Investment Ltd (1.43 percent).

South Korea’s KOSPI Composite Index dropped 1.05 percent or 20.41 points to 1923.43. Shares of Samsung Electronics Co Ltd fell 0.15 percent and those of Hyundai Motor Co declined 1.54 percent.

India’s BSE Sensex fell 0.14 percent or 26.38 points to 18655.93. Among the major losers were DLF Ltd (0.90 percent), Axis Bank Ltd (0.63 percent) and Sesa Goa (0.50 percent).

Market sentiment turned negative as Japan reported Monday a rise in trade deficit in September compared to the same month last year with a decrease in exports and increase in imports. Japan’s Finance Ministry data showed that the country recorded 558.6 billion yen ($7.0 billion) trade deficit in September, compared to a surplus of 288.8 billion yen last year.

Exports dropped 10.3 percent in September from a year earlier, indicating the soft global demand. There was a slump of 21.9 percent in exports to Europe compared to the previous year. While exports to China dropped 14.1 percent, exports to the U.S. rose 0.9 percent. The continuing debt crisis in Europe and the strength of the yen have hurt the demand for exports, the key driver of Japan’s economy.

Meanwhile, imports rose 4.1 percent in September from previous year as the nuclear energy crisis has resulted in the increased need of oil and gas. The government decided to shut down Japan’s nuclear reactors following the earthquake and tsunami in 2011 that resulted in the worst nuclear accident in 25 years.
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