The Housing Bubble

I recently took a trip to Qatar and India. Doha (Qatar) had a lot of high rise buildings and more in construction with more than 60 floors each. The surprising thing was that all were empty with no occupants. They are just building like Ghost-towns in China. There was a bigh sign that read: “Vision 2030″. They are building for 2030. Too much money is being spent in infrastructure (Keynsianism) and it looks to the World that the economy is growing. What happens when these emply buildings find no occupants in the end. Or growth slows.

Same was the story in India. Many high rises with residential flats all over the major metros. If you drive at night time, the lights will be on in only a few flats in a building. Most are being bought by investors. Surprisingly, the prices in New Delhi were more than any major big US city. Like a flat in Delhi suburbs was around 3 crores which is roughly $600K. A flat is like an apartment here in US. If you go inside the ciry, they could be anywhere from 6crores to 15 crores. Basically in millions of US dollars. Do Indians really have that much money?

The most interesting thing was after talking to some local folks in Delhi, they said we are different. In India they said there is too much black money and prices will never go down. They think what happened in US RE market was local to USA. Indians seemed very content and happy. Almost everbody who owns a house is very rich out there. And most houses they said were paid off. So there is no RE bubble out there as per the locals.

I recently met a friend from Toronto and he said Toronto is different. He claim was that RE in Canada will double in price from today’s price in the next few years.

The whole World is on dope.

Will the housing market bottom out after the Souper Bowl?

Is talk of a U.S. debt default pure BS?

Would now be a good time to dump all your stock holdings? If so, where would you park the proceeds?

This may be a good time to go for real assets and get out of paper.

Jan. 18, 2013, 8:01 a.m. EST
Where stock market will be in January 2017
Commentary: Four-year forecast is of a below-average return
By Mark Hulbert, MarketWatch

CHAPEL HILL, N.C. (MarketWatch) — Where will the stock market be in January 2017, four years from now?

If you’re like the vast majority of investors, you’ve never even wondered. The investment arena is so short-term-focused that the typical investor’s “long term” barely extends from lunch until dinner.

That’s a shame, however, since the stock market’s return over the next four years may very well be more predictable than whether it will close up or down tomorrow.

That’s the good news, provided you’re willing to extend your focus beyond the very short term.

The not-so-good news is that the market’s return over the next four years is likely to be somewhat below average, at least according to a market-timing model that has exploited the stock market’s long-term predictability to turn in an enviable record.
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My question:

At what point does the government throw enough incentives on the housing market to make it stupid NOT to buy?

As things have developed;

- The extra mobility that you have by being a renter is waaay overrated when, for most people, there aren’t any better/higher paying jobs to move to. And it doesn’t appear that there will be for several years at best, This assumes we don’t have another recession/depression.

- Letting people live in houses foreclosure free, is the only “stimulus” package planned for the wretched refuse.

- Tax incentives, already heavily weighted towards homeowners, promises to get more so.

-The Ground-Zero observations of the majority of people is that rents are GOING UP in places where people are (perceived or actually) able to find work. The 2/2.5/3 times income doesn’t really matter, when the rent on a equivalent place is more.

-A bunch of people are being “priced out” of safe/clean/low crime suburbia, and are finding themselves renting slums in high crime areas. Or (in my case) commuting 70 miles each way, to live in slowly-but-surely-going-down-the-crap-tube nabes, that have marginally less crime (I find myself being forced to choose between places where all my stuff will get ripped off in 5 years, vs. places closer to work where all my stuff will get ripped off in two).

How about a discussion of why top economic policy makers have such a hard time seeing what at least some mere mortals have trouble missing…

Jan. 18, 2013, 2:42 p.m. EST
Fed’s nightmarish year of 2007 comes into focus
Transcripts from dawn of global financial crisis released
By Greg Robb, MarketWatch

WASHINGTON (MarketWatch) — In 2007, Federal Reserve officials did not recognize that a global financial tsunami was upon them until it crashed over them that August, according to transcripts of the central bank’s monetary-policy meetings from that time released on Friday.

The Fed keeps transcripts of its monetary-policy meetings and releases them after five years.

The transcripts show a hopeful central bank as 2007 started, with Fed Chairman Ben Bernanke speculating that the “worst” might be behind the economy when it came to the housing market.

At the January meeting, officials were talking about moderate growth. For instance, Fed Gov. Susan Bies, a former community banker, said that she was feeling better about the housing market.

In March, Bernanke was publicly predicting moderate economic growth.

Even as late as June, Fed officials were relatively sanguine about the outlook.

“I view the conditions for growth going forward as being reasonably solid,” said Janet Yellen, president of the San Francisco Fed, although she went on to describe the risk to the outlook from the housing market as a “600-pound gorilla in the room.”

Throughout the first half of 2007, Fed officials were more worried about the prospects for higher inflation.

“I continue to think that the predominant risk remains that inflation will not moderate as expected,” said Michael Moskow, president of the Chicago Federal Reserve Bank, at the meeting in late June.

Fed officials were slow to realize that problems in a corner of the marketplace, that of subprime mortgages, had rampaged across the balance sheets of the biggest U.S. and global banks through bonds that had been packaged by Wall Street firms.

The demand for mortgage securities was so great then that underwriting standards had been ignored. As 2007 progressed, it became clear that many homeowners were likely to default on these loans, among others.

The pernicious effect came from information fog as investors and bankers did not know where the losses resided. As a result, many institutions pulled back from lending. This process crystallized into a full-blown crisis in the fall.

Before central bankers met in early August, financial markets were demanding that the Federal Reserve cut interest rates, but the Fed held its target for the federal funds rate at 5.25%. The Fed’s statement noted that markets were “volatile” but officials, as they had for much of the year, believed that inflation, not slower growth, was the biggest concern.

According to the transcripts of the pivotal August meeting, Bernanke said that Fed policy, in the longer term, “should be directed not toward protecting financial investors but rather toward our macroeconomic objectives.”
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End of the Bond bull market ? Deflation and higher rates ahead ?
That would be very bad I’m thinking

“Stocks are the hare to bonds’ tortoise. While equities inflate and implode with relative regularity, the process is much more gradual for those on the debt side. According to technical analyslt Louise Yamada we’re in year 33 of the current bond cycle and poised to start an era in which rates will rise. The last time the bond market made such a directional shift from lower to higher rates was 1946.

There’s no real rush to flee bonds but the long term types should exercise some caution. “We may be getting some early evidence that there’s a bottoming process in rates, which means a topping process in price,” Yamada notes in the attached video.

It’s not just a function of time. The 1946 shift happened in the wake of the Great Depression, a period in which the country experienced deflationary pressures not unlike what we saw over the last five years (yes, deflation… go sell your house, inflation hawks). The rising rate frenzy ended in the early years of the Reagan administration when the term “Stagflation” entered the national lexicon and double-digit rates were the norm.

The frenzy now to get into bonds is the opposite of what we saw in the ’80s. “One of the things that’s so disturbing is that people are rushing into the bond market having come out of stocks,” Yamada says with a note of concern. Buying debt in the hopes of getting a 1% return isn’t investing, it’s hiding. That shouldn’t be an option for managing your money.

Yamada isn’t suggesting bond investors storm the exits, just that they exercise some caution. “The only advice here is stop holding long-end (treasuries) and start moving short-end so that as rates go up in the next five years you have an opportunity to roll your short positions into a slightly higher rate.”

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Cactus

Interesting article. With all of Bernake’s funding the stock market has held up - with only 50% of average prior volume ! If the same historical volume were present would he have had to double his contributions?

I think most people think the market is rigged. I think there is a lot of price statesmanship going on -

Can you imagine if the interest rates spike due to external sources - ie huge international housing inventories, congress can’t agree on a new debt ceiling, sequestration, Israel strikes Iran’s nuclear (and misses), China decides they have enough US dollars (Japan too) and wants only gold, US decides to force 2 trillion corp profit repatriation (and sinks foreign economies). Bond holder discounts could go ballistic.

I think the US fault line are all these bonds at such low prices. And they could be triggered or be the trigger in an economic collapse greater than anything the world has ever seen because of so much “freely printed money”. A landslide starts with a loose rock.