The Housing Bubble

Another euro-pegged government defending an overvalued exchange rate bites the dust, a reminder that the underlying economic and social disaster across the Europe’s Arc of Depression is still getting worse.

Bulgarian prime minister Boiko Borisov resigned this morning after days of mass protests against austerity across the country.

“I will not participate in a government under which police are beating people. Every drop of blood is a shame for us,” he said. “Our power was handed to us by the people, today we are handing it back to them.”

This follows the defenestration of the free-market finance minister earlier this week.

http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100022927/bulgaria-succumbs-to-euro-deflation-curse/?utm_source=dlvr.it&utm_medium=twitter

BAE plots £1bn buyback but warns 3,500 US jobs at risk
British defence giant BAE Systems plans to buy back £1bn of shares over the next three years, but has warned that 3,500 US jobs are threatened by spending cuts.

…..

The company’s announcement of its share buyback came hours after it had warned that it will be forced to cut 3,500 jobs in the US if the threat of Pentagon spending cuts becomes reality.

The company said it had warned staff within its US ship repair business of the possible cuts after the US Navy signalled its “intent to cancel” a number of ship maintenance requirements, should unresolved budget negotiations between Congress and the White House drive spending down.

BAE, which employs around 38,000 people across the US and 5,000 in ship repair, said that cancellation of the maintenance plans would “significantly impact” its ship repair operations in Norfolk, Virginia; San Diego, California; Mayport, Florida; and Pearl Harbor, Hawaii.

http://www.telegraph.co.uk/finance/newsbysector/industry/defence/9884742/BAE-plots-1bn-buyback-but-warns-3500-US-jobs-at-risk.html

What’s really going on in California

California imposed a new law on banks innocuously called “Homeowners Bill of Rights” which forces banks to switch over to a judicial foreclosure process, which they can opt to do on their own, but takes a year or more to renegotiate contracts and compensation structures for the foreclosure law firms who do all the leg work for the banks. And while those changes are being made… it makes it appear that foreclosures have slowed down dramatically in the state.

The reality?

Defaults (undeclared) are spiraling upward that yet have to pass through the foreclosure pipeline.

The truth?

California is still the highest foreclosure state in sheer volume and percentage.

The low-down?

Resale housing is still massively overpriced as a result of unprecedented interference by individual states and the federal government. The market distortions will be removed and the down draft will continue allowing the market to correct.

If you play with fire, you will get burned.

HOT topic for today should be Fed’s Exit Strategy that they said in minutes yesterday. Impact on stocks, Gold, USD etc. and on RE.

Send in the drones!

http://www.cbsnews.com/8301-505266_162-57570450/the-scooter-store-power-wheelchair-company-raided-in-federal-probe/

In January, the inventory in most areas within 5mi of DT Austin has dropped over 50%…. North of DT (area 2) has seen an inventory drop of 76.5%

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I have been hearing the phrase “it seems like there are not many homes on the market”. And the truth is there is not. In fact, the last time we has less than 6 thousand homes on the market was in 2001. Compared to January 2012 the amount of inventory is down 28.5%.

The inventory seems to have fallen more in central Austin. Here are the drops in inventory for the central Austin mls areas.

10N - Down 56.7%
10S - Down 58.1%
1B - Down 38.3%
2 - Down 76.5%
4 - Down 50.0%
6 - Down 63.2%
7 - Down 43.8%

Regarding yesterdays discussion of The Blue Angels and military airshows… The reason there is no good substitute for attending them is because there is no good way to reproduce the sound made by these machines.

Thats really the best part.

In the film world, every good editor knows “sound is half the picture”

Manufacturing in the Philadelphia Region Unexpectedly Shrinks
By Michelle Jamrisko - Feb 21, 2013 7:05 AM PT

Manufacturing in the Philadelphia region unexpectedly contracted in February for a second month.

The Federal Reserve Bank of Philadelphia’s general economic index dropped to minus 12.5, the lowest reading since June, from minus 5.8 in January. Readings lower than zero signal contraction in the area covering eastern Pennsylvania, southern New Jersey and Delaware. The median forecast of 58 economists surveyed by Bloomberg projected an increase to 1.

The reading follows New York Fed data released last week that showed factory activity rebounded after six months of contraction, raising prospects that factories could contribute to expansion this year. At the same time, unresolved fiscal policy negotiations and the January increase in payroll taxes may convince companies to hold the line on stockpiles, trimming orders to manufacturers.

“There are some conflicting signals here and there, but overall the sector should improve,” Yelena Shulyatyeva, a U.S. economist at BNP Paribas in New York, said before the report. “World growth should pick up marginally this year, and that should be supportive of manufacturing in the U.S.”
…

Let me get this argument straight: After years of QE1, QE2 and QE3, jobless claims are up and inflationary pressures are building. Thus QE is working and we clearly need to keep the QE pedal to the metal for a few more years.

Jobless Claims Move Up; Inflation Pressure Builds
Published: Thursday, 21 Feb 2013 | 10:01 AM ET

More Americans than expected filed new claims for jobless aid last week and consumer prices were slightly higher in January, supporting the argument for the Federal Reserve to maintain its very accommodative monetary policy stance.

Initial claims for state unemployment benefits increased 20,000 to a seasonally adjusted 362,000, the Labor Department said on Thursday.

It said in a second report that consumer prices were flat for a second consecutive month in January though they rose 0.3 percent excluding food and energy. The data comes amid growing signs of divisions at the Federal Reserve over its bond buying program aimed to stimulate the sluggish economic recovery.

“The job market is gradually improving but not fast enough for the Fed to remove accommodation. We still think a Fed rate hike is a late 2014 to early 2015 event,” said Jacob Oubina, a senior economist at RBC Capital Markets in New York.
…

Military Spending
Sequestration is for Sissies: $6.9 Billion More for the F-22
By Mark Thompson
Feb. 21, 2013

Raptor in flight
Air Force photo / Tech. Sgt. Dana Rosso
An F-22 Raptor flies over Alaska Jan. 5.

Pentagon officials took to PBS and the Pentagon press room to warn Wednesday about the impending sequester’s impact on military spending.

“We’re really trying to keep on protecting the country and delivering the defense under these circumstances,” Deputy Defense Secretary Ash Carter said on the PBS NewsHour Wednesday evening. “In some cases, that’s not going to be possible.” On March 1, assuming no White-House-congressional deal on a $1.2 trillion deficit reduction package over the coming decade, more than $500 billion in Pentagon cuts will kick in automatically, including a $46 billion cut between March 1 and October 1.

“Two-thirds of the Army active combat brigade teams, other than those that are currently deployed, would be at below acceptable levels of readiness,” Pentagon money chief Robert Hale said. “It could affect their ability to deploy to a new contingency, if one occurred, or if this goes on long enough, even to Afghanistan.”

Yet slightly more than an hour before Carter appeared on television, the Air Force slipped Lockheed Martin a little something extra to keep their fleet of F-22s flying:

Lockheed Martin Aeronautics Co., Fort Worth, Texas, is being awarded an indefinite-delivery/indefinite-quantity contract (FA8611-13-D-2850) with a ceiling of $6,900,000,000 for F-22 modernization…This award is a result of a sole source acquisition.

One doesn’t know whether to laugh or cry. The F-22 program has become a parody of itself, and of all that is wrong and warped in the military-industrial complex.
…

Lessons of dot-com bubble, which burst 13 years ago

Commentary: The demise of the Internet bubble will be “celebrated,” ironically enough, on almost the same day as the bull market’s fourth birthday, reports Mark Hulbert, teasing out three big takeways.

As recently posted on Zerohedge:

Wal-Mart: “Families Are Adjusting To A Reduced Paycheck And Increased Gas Prices”

We are confident that our low prices will continue to resonate, as families adjust to a reduced paycheck and increased gas prices,”

However, February sales started slower than planned, due in large part, to the delay in income tax refunds. We began seeing increased tax refund check activity late last week in our stores, resulting in a more normalized weekly sales pattern for this time of the year.

So there you have it. Obama and the Democrats promised no tax hikes on the middle class leading up to the 2012 election. Barely into Obama’s second term, the middle and lower class see a tax hike. The amusing thing is it takes a corporation like Walmart to show the empirical proof. So what do our resident Democrats have to say? I’d guess it’s something like “The expiration of the payroll tax cut wasn’t raising taxes because it was just temporary”. Tell that to all the families “adjusting to a reduced paycheck”.

And about those higher gas prices… as recently discussed on NPR, why are Democrats, aligned with environmentalists, fighting the Keystone Pipeline tooth and nail and trying to promote higher gas prices while the lower and middle class suffer from high gas prices?

Because progressive ideology is more important than hard-working people being able to get to jobs and buy groceries.

Avoiding mortgage albatross hamster wheel debt slavery:

“Young American adults have pared the amount they owe on homes, cars and credit cards in the wake of the recession, shedding debt almost four times faster than their elders, a survey shows. College loans are an exception.

From 2007 to 2010, which includes the 18-month slump that was the longest recession since World War II, median debt for young households fell to $15,473, a 29 percent decline. Median debt for older households dipped to $30,070, an 8 percent drop.

The share of younger homeowners fell from 40 percent to 34 percent while their median housing debt dropped $127,914 (should that be to $127,914?)

Millennial households with college-degree recipients reported median debt of $114,504, about 63 percent of all debt for their generation. Households led by young people with some college had a median debt of $25,088, about 19 percent of the total. High-school graduates owed a median of $18,259, or 16 percent.”

http://mobile.bloomberg.com/news/2013-02-21/millenials-shed-debt-faster-than-older-americans.html

Very loooonnggg piece from Time Magazine on USA “free market” health care system:

“Taken as a whole, these powerful institutions and the bills they churn out dominate the nation’s economy and put demands on taxpayers to a degree unequaled anywhere else on earth. In the U.S., people spend almost 20% of the gross domestic product on health care, compared with about half that in most developed countries. Yet in every measurable way, the results our health care system produces are no better and often worse than the outcomes in those countries.

According to one of a series of exhaustive studies done by the McKinsey & Co. consulting firm, we spend more on health care than the next 10 biggest spenders combined: Japan, Germany, France, China, the U.K., Italy, Canada, Brazil, Spain and Australia.”

http://healthland.time.com/2013/02/20/bitter-pill-why-medical-bills-are-killing-us/

I don’t know if this article is legit or an example of white fear mongering but either way, I can’t dismiss it because part of white culture is to be pre-emptive.

Its actually a characteristic of smart culture, but Im calling it white culture because most people need to see a behavior presented in someone else, before they can see it in themselves, and Im a black person.

For example, the best way to do something is always the best way to do something; thats why people often end up doing things the same way (until someone comes up with a better way)

http://eradica.wordpress.com/2013/02/19/the-new-shooting-targets-federal-agencies-will-using-as-target-practice/

Two articles to be filed under: drill, baby, drill!

http://www.counterpunch.org/2013/02/21/life-and-death-in-the-frack-zone/

http://mobile.bloomberg.com/news/2013-02-21/oil-boom-forces-employers-to-be-landlords-in-north-dakota.html

Zillow says: 2 million homeowners no longer under water. With 6% appreciation.
negative equity is still at 27.5% (down from 35%)

2012 a banner year for housing affordability, industry group says
By Alejandro Lazo
January 9, 2013, 8:17 a.m.

Last year was probably one of the most affordable years ever to buy a house as prices bottomed and mortgage interest rates hit record lows.

The National Assn. of Realtors reported that 2012 will probably go down as a record year for housing affordability, according to its affordability index. That measure, which is calculated based on the median home price, family income and the average mortgage interest rate, stood at 198.2 in November.

The higher the index number, the more purchasing power available to consumers. A reading of 100 is the point at which a family with a median income can afford a median-priced home presuming a 20% down payment.

For the entire year of 2012, the group projects the index will hit an average of 194, the highest it has been since recordkeeping began in 1970.

While homes may be affordable and mortgage interest rates low, 2012 was also marked by low inventory, steep competition for homes and tight mortgage lending standards. These conditions shut out many families still struggling from the recession. Many of the most successful buyers were firms and investors paying cash for properties.

The Fed meeting minutes have scared the bejeebus out of investors.

‘Fear index’ set for biggest one-week jump since 2011

Chicago options exchange’s Volatility Index, or VIX, is on track for its largest weekly jump in 17 months following Wednesday’s Federal Reserve meeting minutes and Thursday’s weak economic data.

Median home price posts biggest gain since 2005, Realtors say
February 21, 2013, 9:56 a.m.

One measure of national home prices rose last month with a vigor not seen since the bubble days as the number of foreclosed homes and other distressed properties on the market shrank.

The median sales price for previously owned U.S. homes rose 12.3% annually in January to $173,600, the National Assn. of Realtors said Thursday. It was the 11th consecutive month of annual increases and the strongest such gain since November 2005.

In the West, the median price rose 26.6% over the year to hit $239,800 as sales fell.

A significant drop in housing inventory and a flood of investors flush with cash have played a significant role in bidding up the market in recent months, particularly in hard-hit markets such as the Inland Empire, Phoenix and Las Vegas.

The median home price is the point at which half of all homes sold for more and half for less. The median is susceptible to fluctuations in the types of homes selling — meaning that the fewer foreclosures and other cheap properties in the mix, the better that figure is going to look.

“Some, but not all of the strengthening in prices merely reflects a shift in the mix away from sales of discounted ‘distressed’ homes — from foreclosures and short-sales — toward more traditional sales,” Jim O’Sullivan, chief U.S. economist for High Frequency Economics, wrote in an emailed analysis. “The bottom line: while up only modestly in January, the trend in home sales still looks up; with inventories down sharply, prices are rising as well.”

Nevertheless, sharp home price increases — particularly in battered cities such as Phoenix and Las Vegas — have raised concern among some economists that speculation could return to markets if double-digit gains continue.
…

Wow. I guess Ben Jones is covered. So is Joe Smith, that’s a real name. Rest of us are screwed big time.

Illinois state senator pushes anti-anonymity bill

A recently introduced bill in the Illinois state Senate would require anonymous website comment posters to reveal their identities if they want to keep their comments online.

Most miserable cities: http://www.forbes.com/sites/kurtbadenhausen/2013/02/21/detroit-tops-2013-list-of-americas-most-miserable-cities/

“Plummeting home prices” and “home price collapse” is one of the main criteria for being on this list.

Oil city, indeed.

Didn’t hit the dew-point last night, streets were crystal clear, so I pedaled through a 13-degree F wind-chill this morning. That cold air cuts right through flannel lined jeans like you’re wearing shorts. My hands froze too despite thermal gloves. After parking the bicycle in my office I hit the coffee/bookstore. One of the cuties there saw me ride past, “A little cold out there?” “Yeah, that’s right…”, I said holding my thumb and index finger about an inch apart, “…about that cold!” Received a naughty grin. Unfortunately, we have rain, ice and snow forecast for the next three days, so no riding.

http://www.westernjournalism.com/state-farm-to-leave-illinois-move-to-texas/
State Farm, the nationally-known insurance chain headquartered in Bloomington, Illinois, has apparently had its fill of “The Land of Lincoln’s” confiscatory taxes. The 800 million dollar company is reported to have purchased “substantial workspace” in the Dallas, Texas area. The giant insurance firm’s workers are being kept in the dark reportedly to avoid “alarming them”; but is it their workers or the State of Illinois they would like to keep in the dark about this move? If this doesn’t signal State Farm’s coming dash out of Illinois’s clutches, what could it mean?

A knowledgeable Dallas real estate insider has called this impending move “a major business relocation” of record-breaking proportions. The numbers involved are approximately 2.5 million square feet of workspace and thousands of workers. No company in Dallas’ history has made a move this large.

Texas isn’t the only state State Farm is running to. There has also been a report that it has leased office space in Atlanta. The combined amount of both new locations roughly equals the 3.5 million square feet it has in Bloomington.

These moves should come as no surprise to anyone. In spite of (or maybe because of) raising its corporate and personal income tax rate by 67% in 2010, Illinois has seen its credit rating fall and its deficit raise. A review of the tax structure in Georgia shows the personal and corporate income tax is 4% as compared to Illinois’ 6.25%.

Texas has no personal or corporate income tax.

Add to this the fact that the gasoline tax in Illinois is 60.9 cents per gallon (while Texas collects just 38.4 cents per gallon and Georgia charges 47 cents tax on a gallon of gas), and it is easy to see why any company or individual would want to move.

The worst thing about the coming loss of jobs in Bloomington is that both the town’s state senator and Assembly representative are Republicans who did not vote for the policies that have destroyed their state and local economies.

Detroit — Nearly half of the owners of Detroit’s 305,000 properties failed to pay their tax bills last year, exacerbating a punishing cycle of declining revenues and diminished services for a city in a financial crisis, according to a Detroit News analysis of government records.

The News reviewed more than 200,000 pages of tax documents and found that 47 percent of the city’s taxable parcels are delinquent on their 2011 bills. Some $246.5 million in taxes and fees went uncollected, about half of which was due Detroit and the rest to other entities, including Wayne County, Detroit Public Schools and the library.

Delinquency is so pervasive that 77 blocks had only one owner who paid taxes last year, The News found. Many of those who don’t pay question why they should in a city that struggles to light its streets or keep police on them.

“Why pay taxes?” asked Fred Phillips, who owes more than $2,600 on his home on an east-side block where five owners paid 2011 taxes. “Why should I send them taxes when they aren’t supplying services? It is sickening. … Every time I see the tax bill come, I think about the times we called and nobody came.”

This week, a state-appointed review team concluded the city can’t fix its financial problems. Any emergency manager appointed by Gov. Rick Snyder would have to grapple with a broken property tax system. The city’s share of uncollected taxes last year was $131 million — an amount equal to 12 percent of Detroit’s general fund budget.

A four-month News investigation found:

Detroit has the highest property taxes among big cities nationwide and relies on assessments that are seriously inflated. Many houses are assessed at more than 10 times their market price, according to new research from two Michigan professors.

Detroit relies on a shrinking sliver of businesses and neighborhoods to pay the bulk of the bills. The three casinos, General Motors Corp., DTE Energy, Chrysler Group LLC and Marathon Petroleum Corp. paid 19 percent of collected property taxes. Five city neighborhoods, most of them downtown and along the river, paid 15 percent of the city’s taxes and represent only 2 percent of the city’s total parcels. In all, only 41 percent of the city’s parcels produced tax revenues last year because of delinquencies and a large number of tax-exempt land.

Detroit’s delinquencies are so pervasive that some owners have been allowed to keep their property even if they don’t pay taxes. Wayne County treasury officials are so overwhelmed by foreclosures that they ignored about 40,000 delinquent Detroit properties that should have been seized last year and said they will look the other way on about 36,000 this year.

Lou Schimmel, Pontiac’s emergency financial manager, said Detroit needs to fix its property tax system — and fast.

“It’s broken,” Schimmel said. “It has to be fixed. You need the revenue.”

“It’s just plain simple. Your revenues are falling so fast you can’t afford to provide basic services.”

Frustrated by the system

Leola Wesley questions what services she gets for her taxes. Bill Lee pays out of his civic duty. Both are frustrated by the system.

Wesley paid $810 last year for her snug home near Chalmers. She was the only resident on her 32-parcel block who paid.

“It makes me not want to pay,” said Wesley, 85, who would move from her home of more than 20 years if she could afford it. “If nobody else is paying, why should I?”

A streetlight on her corner is out. Potholes are deep. She lives next to two vacant lots and rarely sees police patrol her block.

“There are so many empty houses, there’s nobody to pay,” Wesley said. “I’d like to know what is going to be the solution.”

Across town, Lee has dutifully paid his nearly $4,000 annual bill despite believing it’s too much. His stately brick Tudor in the University District is assessed at $53,810, meaning the city pegs its market value at $107,620. A recent appraisal he paid for found the house was worth $35,000.

“It was my commitment to seeing the city working,” said Lee, 67, a consultant who has lived there since 1982. “I know our difficulty is we are still operating like we have a million people. We have to have somebody to support that. … But it’s not fair that such a small percentage is paying.”

‘It’s not sustainable’

In Michigan, counties are required by law to foreclose when taxes aren’t paid for three years. So the owners of 143,600 properties who didn’t pay their full bill last year still have time to avoid foreclosure. Nearly 12,200 of those paid a portion of their bill but are still considered delinquent.

But the delinquency rate in the city shows the severity of Detroit’s challenges. Several other large Michigan cities, including Warren, Southfield, Grand Rapids and Dearborn, received taxes from more than 85 percent of their homeowners last year.

Cities with collection rates less than that are in trouble, said Alan Mallach, a Brookings Institution fellow who has studied the city extensively and is a consultant for the Detroit Works project.

Taxes are due Jan. 15. They become delinquent March 1 and it’s up to Wayne County to collect them. The county issues bonds to front some of the money to the city and tries to recoup lost revenue by selling foreclosed properties. The property auctions rarely make enough. In the past five years, the city has lost out on $317 million in taxes, county records show.

Property taxes are the lifeblood of most cities, but they’ve dwindled in Detroit. The funds now comprise 13 percent of general fund revenues, compared to 48 percent to 77 percent in other cities, according to research by professors Mark Skidmore of Michigan State and Gary Sands of Wayne State universities. Money from the state and federal government makes up the remainder in most cities. “The case is clear: The city is on the verge (of insolvency),” said Skidmore. “It’s not sustainable. It creates a whole cascade of challenges.”

At a breaking point?

Detroit finance director Cheryl Johnson said the city is doing its best under tough circumstances and the “property tax system is not broken.”

“It is a tragedy,” said Linda Bade, the city’s chief assessor. “We had the mortgage crisis, the auto crisis, the tier 1 and 2 suppliers all fled, huge unemployment …”

But critics argue the problems have reached a breaking point.

Property owners increasingly are re-buying their land in tax-foreclosure auctions and legally erasing their debts. Last year, 600 properties were re-purchased by their owners, triple the number in 2010. That cost the city nearly $6 million in unpaid taxes.

“It was a business decision,” said landlord Lamont Hunter, who said the $45,400 he owed in taxes and fees were too high on four of his foreclosed rentals that he bought back at auction for $5,801 total.

“Each of these houses I bought back is in bad, poor areas I wouldn’t live in. I am better off to bid.”

Even some banks are walking away. A 2010 federal General Accounting Office report found Detroit had some of the highest numbers in the nation of “bank walkaways,” or mortgage servicers who start foreclosure proceedings but then opt to abandon the properties and, often, their tax bills.

The review found 500 houses total in four Detroit ZIP codes — including the city’s northeast corner and Brightmoor — that were abandoned between January 2008 and March 2010.

Homeowners like Ricardo Kisner question whether the city can survive.

“It makes me wonder why I pay my taxes and keep my property up,” said Kisner, a North Rosedale Park resident and former top finance official for the city and Detroit Public Schools. “I keep asking myself, ‘Am I the stupid one?’”

Analyzing Detroit property tax data

The Detroit News wanted to know, as the city struggled to pay its bills and faced a showdown with the state over its finances, how well it was collecting taxes.
We began with 200,000 pages of city data on 2011 property taxes, converted the document into a database that stripped out personal property tax bills and parcels that weren’t taxable, including publicly owned property. The News made a block-by-block map showing which parcels paid taxes, and then updated it with Wayne County records from January that reflected late payments.
All told, taxes were paid in full on 53 percent of taxable properties in 2011. Taxes were paid on time on fewer than half of the city’s properties.
And although there are many vacant properties with little value, most of the nonpayers owed at least $1,000.
Mapping software showed that, by and large, neighborhoods with the most value had the highest payment rates. Those areas included the downtown business district, the areas east and west of downtown along the river, and Palmer Woods, home to some of the city’s most expensive housing.
The lowest payment rates were in large swaths of the east side and along the I-96 and I-94 corridors on the west side.
Day 2: The Detroit department that assesses properties is under fire for waste and missing cash. Its two top officers work two days a week and each stands to make more than $100,000 this year.

From The Detroit News: http://www.detroitnews.com/article/20130221/METRO01/302210375#ixzz2Laxsh8oQ