Hitting The Market With Unrealistic Expectations
Readers suggested a post on the housing bubble. “How many houses in your area are hitting the market with ‘unrealistic expectations’? Here in Maryland I’ve seen quite a few houses hitting the market (shooting down the tight inventory theory). One house, which I do like, has overshot my estimate by about 20 percent. It’s on a main road, set back with a nice 1 acre square lot (tree lined, ability to build on it). The price has almost tripled from 12 years ago. In the notes it clearly says ‘As is’, and looking at the pictures it needs a lot of work and updates.”
“So how can the average American afford this place? How can I buy a house in 2013 dollars when I currently (after two paycuts) make 1999 dollars?”
A reply, “The average American CAN’T afford it. Lying Realtors, lenders, etc have conditioned people to believe that unaffordable real estate is normal, that paying a large percentage of their income to a bank as mortgage interest is a good thing.”
One said, “Since we are apparently in the beginning phase of another bubble, we can probably expect prices to go up by some insane amount over the next couple years. I doubt that this bubble will be much different from the last. I think it will probably just be shorter, since it is driven more by speculators with cash, and less by speculators with no-pay mortgages.”
A reply, “How can we be ‘in the beginning phase of another bubble’ when prices haven’t stopped falling from the previous bubble?”
One said, “There is no way the bounce will last as long as the original bubble. It can last longer than expected (see stocks) but I think it’s nuts to say ‘the last one lasted X years, so that means we’re XX% of the way into this one.’”
And another, “I really depends on lenders. If lenders get stupid again, prices could go up really high, really fast, in which case we could rebubble really fast. If lenders don’t get as stupid as fast, we should see a slowdown in the pace of price growth as new housing developments get closer to historical averages, in which case, we might have a long climb, like what was seen coming out of the early 90’s recession.”
A reply, “I don’t believe it because that was a real recession that was allowed to run its course, and then a real recovery that you get after such an event. None of the ingredients are in place (yet) for a real recovery.”
And this, “Here in Phoenix the prices have gone up as much as 20% depending on where it is. The really cheap stuff is gone but the prices are still much better than at the peak.”
And finally, “This is pretty funny. One of my kids walked away from a house in Phoenix 5 years ago and the bank still hasn’t foreclosed. Five years of squatters and/or just falling apart. Sure, houses are moving like hotcakes.”
From UPI. “Properties repossessed by lenders in the first quarter took an average of 477 days to complete the foreclosure process, up from 414 days in the previous quarter and up from 370 days in the first quarter of 2012. It was the highest average number of days to foreclose going back to the first quarter of 2007, a record high since RealtyTrac began tracking this metric in the first quarter of 2007.”
“The average time to complete a foreclosure increased from the previous quarter in 39 states, led by Oregon (up 61 percent), Arkansas (up 42 percent), Texas (up 40 percent), Tennessee (up 37 percent), and Michigan (up 22 percent) — all non-judicial foreclosure states. New York continued to register the longest state foreclosure timeline at 1,049 days from foreclosure start to bank repossession (REO). New Jersey came in second highest at 1,002 days followed by Florida at 893 days, Hawaii at 824 days, and Illinois at 720 days.”
From USA Today. “In 21 of 24 major metropolitan markets tracked by residential brokerage ZipRealty, new listings outnumbered new sales contracts for the 30 days ended March 15. Home sellers in Los Angeles, for instance, put 16,170 homes on the market from mid-February to mid-March. At the same time, only 9,533 homes entered sales contracts. Other cities seeing the same situation included Phoenix — where January home prices were up 23% year-over-year, Standard & Poor’s Case-Shiller data shows — the San Francisco Bay Area, Denver and Houston.”
“In Orange County, the inventory of single-family homes and condominiums listed for sale has risen 10% since April 1, says Steven Thomas, of trade publication Reports on Housing. That’s the biggest expansion in about two years. Some homeowners are ‘testing the waters and attempting to fetch prices that are just way too off the mark,’ he says. He expects inventories to keep growing as those homes sit longer.”
The Arizona Republic. “Rising home prices in the Southwest Valley and throughout metro Phoenix have prompted investors to go elsewhere for a good deal, Avondale real-estate agent Joe Bourland said. In 2012 the percentage of Maricopa County homes bought by investors fell from 37 percent in February 2012 to 30 percent in February 2013. ‘When investors could buy a house for $70,000 and rent it for $1,000, the return was really good. Now that same house is selling for $115,000 and rents have dropped because there are many homes for rent,’ Bourland said.”
“The Southwest Valley is the second-hottest new-home market in the Valley right now, next to the Mesa-Gilbert region. Over the past 12 months, 23 percent of all permits to build in the Valley were issued in the Southwest Valley. In December, the purchase of these properties, which are called developed lots, peaked when developers bought 2,272 lots in Maricopa County. The new homes for sale that result from these lot purchases will hit the market in late 2013 and will continue into 2014, housing-market analyst Jim Belfiore predicted.”
From the comments to a Star Ledger reprint:
‘The New Jersey condominium market is starting to warm up, according to The New York Times.
Marc Shakter: This article is a stretch at best… It’s easy to say the market is warming up in this area so close to NY when there’s no other housing readily available for people that work in NY. When you’re given little to no alternative, of course people are going to snatch these places up. Have fun buying the air between some walls and then having to pay rent on it to boot.’
‘BOINK!: My neighbor’s house has been on the market for 3 years and it is nice and affordable.’
‘awildcat: There are 3 tenets that a buyer needs to consider: location, location and location. Perhaps, your friend’s property doesn’t fall into those categories. Affordability is very subjective.’
‘FreeMySpeech: Location isn’t everything. I think Storm Sandy proved that point. I have family and friends downtown, Jersey City with sweeping views of NYC — amazing how I stayed dry and safe with running water and electricity while those “in great locations” had to move out because their places were no longer inhabitable. You must be a RE agent looking for new suckers. The NYT article must’ve been sponsored by the developers desperate to move their properties. Take a ride throughout JC and you’ll see nothing but “for sale” or “for rent” signs. This is nothing more than fluff, at best.’
‘navajorug: I ran the numbers on this for illustrative purposes. If you put 20% down ($120,000) on a $600,000 condo and finance the rest with a 30 year fixed rate mortgage at 4.5%, your mortgage payment is almost $2,500 per month. Add the taxes, insurance and condo fees, and you’re probably dealing with a total cash outlay of $4,000 per month. With that in mind, I’d be better off keeping my $120,000 and renting a place nearby (or maybe even in the same building) for a heck of a lot less than $4,000/month — right? Am I missing something here?’
You are missing the obama housing bubble v2.0.
$7 Trillion in new deficit sending…
Artificial zero interest rates…
46 cents of every government dollar spent in borrowed money…
Trillions in wall street bailouts, TARP, stimulus, etc…
The Fed buying $40 billion of worthless bank “assets” a month…
All that cheap money had to go somewhere.
. Add the taxes, insurance and condo fees, and you’re probably dealing with a total cash outlay of $4,000 per month. With that in mind, I’d be better off keeping my $120,000 and renting a place nearby (or maybe even in the same building) for a heck of a lot less than $4,000/month — right? Am I missing something here?’
Navajorug is not missing something. In a city where a condo is $600K, then yes, you are better off renting and pocketing your savings. Now, if renting costs $4000 a month and rent = PITI, then you need to look more closely at the numbers. In this case, I suspect the deciding factor is the ROI you could get on that $150K. Over 30 years you could easily turn that $150K into enough $$ for an Oil City retirement house. The trick, of course, is having $150K lying around in the first place. Oh, and hoping that rent doesn’t rise over 30 years to eat up any savings.
$4000 per month is $1000 per week. I am pretty sure I can check into one bedroom suite at a 4 star hotel at that price for the week in Jersey. The hotel comes with many services including breakfast, room service, pool, exercise room, free night stays, points and sometimes an evening drink at the hotel’s bar which the condo does not. I can also checkout anytime I like by letting the front desk know at a moment’s notice.
Oh I forgot besides paying for the Hotel I would have money left over each and every day to eat lunch and dinner at a fancy restaurant which the condo does not.
America start thinking
Dam I forgot again being a teetotaler I also get free soaps, shampoos, fancy teas and coffee, cookies and a chocolate mint with turndown service.
Yeah, but that’s not going to fund your retirement like a 600k condo will.
I just looked at my receipts from my 1 week work related trip to West Palm last month. I stayed at a double tree (negotiated 1 bedroom suite) near the airport, with an upgraded suv car rental and airfare was slightly above $1000.
I can live almost anywhere in the country at a hotel in a 1 or 2 bedroom suite at a 4 star for cheaper than buying the condo in Jersey. Btw I cannot tell the difference between a 4 star or a 5 star. The 5 star hotels tend to be big aging old buildings with older brand names that are too expensive to maintain and run and are not conveniently located. I am certain I will not live long enough to pay off a mortgage.
You guys can suffer on the mortgage deal.
“You guys can suffer on the mortgage deal.”
Well… there are plenty of suckers right here on this blog suffering under the oppressive weight of massive mortgage payments on what is always a rapidly depreciating asset at inflated prices.
And they could have rented for half that amount.
“A reply, “The average American CAN’T afford it. Lying Realtors, lenders, etc have conditioned people to believe that unaffordable real estate is normal, that paying a large percentage of their income to a bank as mortgage interest is a good thing.””
No doubt true, but if their mindset allows a willingness to do this, and if the banks and gov’t policies enable this mindset (which appears to be the case), then the “market” such as it is, will continue to favor prices that to us might seem unrealistic. So it goes. How it will turn out for the folks who play? That be a whole ‘nudder story…
“‘navajorug: I ran the numbers on this for illustrative purposes. If you put 20% down ($120,000) on a $600,000 condo and finance the rest with a 30 year fixed rate mortgage at 4.5%, your mortgage payment is almost $2,500 per month. Add the taxes, insurance and condo fees, and you’re probably dealing with a total cash outlay of $4,000 per month. With that in mind, I’d be better off keeping my $120,000 and renting a place nearby (or maybe even in the same building) for a heck of a lot less than $4,000/month — right? Am I missing something here?’”
But then there is this. Can one really rent the equivalent for a heck of a lot less than $1150 (+ upkeep) per mo?
Think the “Link” to the log house gorgeous condition on wooded lot, caught the post in moderation. Let’s try with link delted but with detail added.
Here’s a nice house in my neighborhood
4306-S-Warlance-Ln_Janesville_WI_53548_M87285-71607
$219k. I acre wooded lot. 1900 sq ft. Price a bit high per square foot for area. This was just the first house that popped up on Realtard site in my zip. Log house. Hardwood everywhere. Huge stone fireplace. Neat ceiling angles. A place to live for a lifetime. If the moderated (with link) post pops through, you can then see the images.
Mortgage $800 or so. Taxes $250-300 or so. Factor in yer own upkeep estimates and amortize as ya will.
Here in town, 850 sqare foot apartments rent at $850-900 in tolerable complexes.
Can ya’all find me a house like this for $500/mo, half the cost to own?
And, if I earn $300k/year as an evil doc, and if the house (Incalculable losses I think I can in fact calculate), de-bubblates to value of Zero when the 30year mortage is done, why specifically should I be… unhappy?
Or if I do a 15 year mortage ($1500 payment not $1100 payment) and I have no mortgage and just taxes then ($280 now, might grow some by then), and pay say $400/month in “mortgage/tax” starting in fifteen years on this place, how horrible is that, so that I should be quavering in fear of incalculable losses, and “bank slave”? I spend way more per month on dinner out.
‘I spend way more per month on dinner out.’
You could buy a house like that for about that amount in Flagstaff, if the owners didn’t owe $350k on it. That is the bigger problem, IMO. Flagstaff doesn’t have many jobs that could justify that price. And the job market is so poor, I’d have no confidence in being able to make the payments for 15 years. I know people who own those houses. They don’t eat out (except fast food) because they are struggling to make the payments. Meanwhile, 2 hours away in Phoenix, where jobs are more plentiful and pay much more, house prices are almost half of Flagstaff.
The central problem of this housing bubble is the cumulative effect on the economy. One $200k house in Wisconsin doesn’t matter much. A million $500k houses in California do matter, especially if they are financed with low down government backed loans.
I rather agree with your points, which are not inconsistent with mine.
I found this blog in 2005 after searching for housing bubbles online d/t my own observations in Manhattan. All Bubbles have cumulative economic toxicity. Indeed, one might argue Bubbles result from attempts to mask already present accumulated economic toxicity (What is the economic quality-of-life for the Median Income family now vs thirty years ago… etc…).
I concede that I have a measure of fatigue though for mindless bromides that make up a sizable chunk of postings in various econ boards, lending a bit of echo-chamber flavor.
You know… “Your losses are incalculable” (yet I can calculate well). “everyone who disagrees with me is a liar” (high school debate drop-outs, apparently). “You can rent anything for half the price of “owning” (except… not), “housing will have to go down in value” (yet everything I buy as a consumable drops in value).
To be clear, the example I posted in my half-the-month town in Wisconsin is not offered to argue that housing “is a good buy”, “is an investment”, “to claim there is not a bubble”, etc.
I merely point out that a well built log-construction house with wood and ceramic (timeless) interior, in nice shape, on a wooded park-like acre lot, for $1100 payment on a 30-year or $1400 payment on a 15-year, with a legit huge early-on tax break in my tax category, in which on a 15-year all I’d owe starting in 15 years is taxes and upkeep, would be hard to find for “renting half the cost of owning”, which would be $700/month vs a 15 year mortgage/tax (would have to drop to $200/month in fifteen years, once I only had to pay taxes).
And, that house was a bit pricey per sq foot for the town. Generic modern houses on 1/3 acre can be had $80/ft-2
I don’t have a mortgage now, though I have in the past and likely will again in the future. If I were to buy the house in question (I’m not in market), frankly I would not care… much… if it devalued 50% or 100% in 15 years.
And in that town, a modest 2 bedroom apt rents $850, nearly the whole payment on that house on a 30 year mortgage.
I’m all for exploring economic principles, and I was aware of the housing bubble long before most people who play here started bleating various bromides.
And, too, I concur that $1,000,000 in Cali/Vancouver for a modest house, raises different challenge in terms of core financials, than a $200k luxury home on luxury land in Wisconsin. Of course, this does point to the notion raised (that some don’t want to hear), that in some places in USA housing still is close to proportion to incomes and to “opportunity value” (rental value), even if not the case in many places.
And, though some disagree with my views on my other half-the-month in NYC, where now I pay rent of (well less than owning would cost) $5k for a nice 1200 sq foot place in the Upper West Side, I would have been happy to see the Housing Bubble pop, at least for a bit, here in NYC, before the second bubble (now?) began to inflate or to further-flate, I suppose we might say. My rent has risen (even allowing for option to move to new building) each year the last 8 years.
You must have a strange job to live in two places that far apart.
Not so much a strange job. Maybe, rather, a strange life
I claim no prescience for the following. I knew I wanted Medicine as a kid, coming from a Medical family. Who knew Medicine would end up being a sort of… uhhh…. bubble…
I figured I wouldn’t starve. I didn’t expect salaries to more than double for starting docs the last 10-15 years. I didn’t expect the Doctor Shortage (we can debate/explore the impact of Obamacare, “Big Medicine” and all the other pertinent tropes, in another thread).
I’m now licensed in two states. Could license in any state I want. I received serious online offers (I’m more than qualified for the positions) for probably 30 positions each week in my 2 states. I could start any of them within a couple months. I receive more than 200 posts/week for positions nationally. Most will facilitate pertinent state license (an admitted antiquated system) in about 2 montsh.
Turns out that I’ve long worked outside Manhattan. NYC is worst place for hospital docs. Low salaries. Unhappy working conditions. Usually 8-9 hour instead of 12 hour shifts (more days at work each month with short shifts). My old boss in an out-of-town NYC hospital went out west and lured me to join.
Not a bad deal. I work two weeks (14 shift) straight 12 hour shifts. Out West the patients are just as sick and medically complicated (I don’t want to be bored). The hospitals are kinder and gentler to doctors (more support to make the day’s work easier). The people of course are nice. Working two weeks/month I have two weeks off each week in NYC to live life well, and earn about double what a NYC hospital would pay for similar hours/year. Hospital brings me out (travel, air, rental car) and gives me housing.
Yeah, strange life. But, Medicine is Medicine.
Dunno if that answers your questions…
Typo, “working two weeks straight each month, I have two weeks off straight each *month* in NYC”. Sorry.
How many real estate investment properties do you own, mactrollboy?
Whacky continues to seek external validation, due to his insecurities. I do remain interested if someone can find me a Like Rental in Like Community for half the documented ownership costs. Seems that is not in play…
“How many real estate investment properties do you own, mactrollboy?”
Answer the question.
Tactic 8 from the Losing Debater’s Manual: “When you have nothing of substance to offer, make your demands- usually irrelevant ones- loudly, in bold voice”.
Just sayin’…
If macboy is a raveling doc, he probably doesn’t have time for rental property, p-bear.
I do not begrudge p-bear’s decision to continue renting, based on his situation. If I were in his situation I would likely have continued to rent as well.
Renting generally is a reasonable option.
Whacky just seems obsessed with mapping his own insecurities onto others…
“If I were in his situation I would likely have continued to rent as well.”
You were “in his situation”. You exacerbated it by paying a massively inflated price for a 50 year old depreciating shanty when you could have rented it for half.
What did you pay for your debt-dump?
Rents payments cost more than “owning”. Iz we communicatin’ yet…?
“You could buy a house like that for about that amount in Flagstaff, if the owners didn’t owe $350k on it.”
And it is the gap between what owners owe and what buyers are willing and able to pay which helps explain why many homes sit on the market indefinitely at prices where they will never sell.
That’s right. And the grim reality is cash flows are negative at current grossly inflated asking prices of resale housing.
Why buy now when housing prices are grossly inflated and falling when you can rent it for half the monthly cost of buying it?
Dang. My car just lost value again. Driving it is fun though…
But your house lost alot more. ALOT more.
Tactic 3.9 from the Losing Debater’s Manual: “When you have nothing of substance to offer, offer the Straw Man in bold (CAPS) voice.”
Excellent
BTW. 3.9 is a “double”. Bonus points from the Losing Debater’s Manual.
Ignore the real estate investor pretend-doctor troll, unless to point out how much money he is going to lose on his foolish real estate investments.
No doctor would be st00pid enough to equate losing chicken feed on a car to losing years worth of your life’s savings on falling-knife real estate investors…would they!?
Tactic 1 from the Losing Debater’s Manual: “Ad Hominem Insult”
Tactic 2 from the Losing Debater’s Manual: “Cry ‘Troll’”
Tactic 3 from the Losing Debater’s Manual: “Straw Man”.
Whacky is on a rollll….
You are on a roll with your ad hominem attacks.
But that won’t quell our curiosity about how much money you have lost so far on your investment properties.
Tactic 14 from the Losing Debater’s Manual: “When clobbered on all fronts, endeavor to mimic your opponent’s style”.
… just sayin’…
Well???
Water…
I just thought it fair to point out that in times when more people paid off their homes before retirement, families eating out was a less regular occasion than it is today.
We ate out about every 4-6 weeks but possibly even less. However, we had cookouts on a private beach or boat. We had extended family events w/multiple food options. After spending the day at the beach or hiking or skiing, Dad would tell us to invite friends over and we’d have a big cook out in summer or he’d make chili or soup and yummy breadstuffs in the winter. For a while we got into what I think is a lazy habit of going out 2-3x a week. We’re over it now. Diving back in to foodyism and sharing w/friends.
“4306-S-Warlance-Ln_Janesville_WI_53548_M87285-71607″
Any skydiving at that airport due east of there?
I’m fairly afraid of airplanes. No skydiving for me…
Any skydiving at that airport due east of there?
rms, are you a skydiver? Maybe I knew that and forgot…
“rms, are you a skydiver?”
Yes.
Yes.
You would love my brother…
I’m coming to realize there are two (maybe 3) distinct real estate markets in this country. There are reality based markets where renting is close to the cost of owning. Then there are the bubble markets, like the Jersey city example, and the traditionally high priced markets like Westchester NY/ San Diego. Add to this the difference between markets where hedgefunds are active vs where they are not. The contrast is astounding. Or the difference between trendy cities vs the more mundane.
So we see Macboy and PW arguing, but they are debating about 2 completely different realities.
“…but they are debating about 2 completely different realities.”
Not quite. mactrollboy is having an imaginary debate with me, in which he imagines himself to be winning. (If you recall Clint Eastwood’s imaginary debate with Obama at the 2012 RNC, you will get the idea…)
Meanwhile, I keep posting one reason after another why he is going to lose a bundle of money on his real estate investments when this echo bubble crashes.
Where are macboy’s investment properties? When did he buy them?
He won’t discuss that.
Poor Whacky… he can argue only against his own projection. Must explain his frustration
He won’t discuss that.
Why would you assume that he has any, then?
It would be easy enough to confirm. Instead he endlessly backpedals and changes the subject.
Besides, if he really is a medical doctor, there is a pretty high probability he is also a financial dunce who unthinkingly bought investment properties back when everyone of means was doing it.
Tactic 3 from the Losing Debater’s Manual “Straw Man”. Just sayin’..
Tactic 14 from the Losing Debater’s Manual: “Cry Ignorance”: “When you have lost on points of discussion, complain that your opponent won’t provide you with enough information to confirm your baseless assertions”.
As Per:
“It would be easy enough to confirm. Instead he endlessly backpedals and changes the subject.”
Tactic 1 from the Losing Debater’s Manual: “When you have lost on points of discussion, engage in Ad Hominem insult, to attempt to distract”
As per:
“Besides, if he really is a medical doctor, there is a pretty high probability he is also a financial dunce ”
Luv it
Tactic 14 from the Losing Debater’s Manual: “Cry Ignorance”: “When you have lost on points of discussion, complain that your opponent won’t provide you with enough information to confirm your baseless assertions”.
As Per:
“It would be easy enough to confirm. Instead he endlessly backpedals and changes the subject.”
Tactic 1 from the Losing Debater’s Manual: “When you have lost on points of discussion, engage in Ad Hominem insult, to attempt to distract”
As per:
“Besides, if he really is a medical doctor, there is a pretty high probability he is also a financial dunce ”
Luv it
.
As per:
“Besides, if he really is a medical doctor, there is a pretty high probability he is also a financial dunce ”
Luv it
I thought that point was generally well understood, so it didn’t come across as an ad hominem to me. But then again, I have personal experience in this area.
My father was a Doc (he’s now retired). He invested heavily in RE in the late 70’s, then lost his shirt when the RE crashed as Volcker started cranking rates up.
Great doctor… TERRIBLE with finances (that RE debacle is NOT the only example).
Part of the charm for me, is I split time in two wildly disparate markets. I share with most of the rational folk here concern for a failing economy and for challenges, including housing bubbles, for most of us.
But, I do somewhat laugh at the reflexive mindless bromides that replace rational conversation.
As I’d mentioned earlier in this thread, to some fellow named Ben…
“I concede that I have a measure of fatigue though for mindless bromides that make up a sizable chunk of postings in various econ boards, lending a bit of echo-chamber flavor.
You know… “Your losses are incalculable” (yet I can calculate well). “everyone who disagrees with me is a liar” (high school debate drop-outs, apparently). “You can rent anything for half the price of “owning” (except… not), “housing will have to go down in value” (yet everything I buy as a consumable drops in value).
To be clear, the example I posted in my half-the-month town in Wisconsin is not offered to argue that housing “is a good buy”, “is an investment”, “to claim there is not a bubble”, etc.”
Regards…
If you stopped responding to the bromides, you wouldn’t see them as often.
Here’s my take on your situation. For some reason you can’t admit it to yourself but you want that log cabin. Nothing wrong with that but it is weird that you want validation from strangers.
My advice - negotiate a years lease on the log house, close up your apartment in NY, plan to spend a week or 2 every OTHER month in a temporary rental in NYC. That would potentially free up 40-50K a year which is less than you might conceivably lose on the log house. At the end of the year you’ll know whether you want to make a commitment to Janesville. You say the owner won’t rent??? They sure would if you quoted a figure anything close to 5K a month. With a qualified buyer in place? Ya youbetcha.
Weird how none of this has any relevance to me. Strange how people come up with things…
“Your losses are incalculable”
BINGO!
“You can rent anything for half the price of “owning”
Right again!
Congratulations. You’re really coming around.
Apparently I can calculate well
And… renting costs more than owning.
Weird how n’ it all worketh out.
Whacky sounds worried…
Just sayin’…
All the signs are in place for another leg down in the Second Great
RecessionContraction of the global economy.The one exception I can see is the American housing market. Housing is different, because everyone wants to live here, all real estate is local,
real estate always goes up, an army of all-cash hedge fund, Canadian and Chinese investors are snapping up properties faster than they go on the market, inventories have shrunk to historically unprecedented levels. Consequently, real estate is the only asset class which is immune to the hammering which stocks, gold and other hard commodities, Bitcoin and pretty much every other financial or real asset class have recently endured.
Buy American residential real estate today! It truly is the only safe investment.
CHINA NEWS
April 9, 2013, 11:08 a.m. ET
Downgrade Highlights China Debt Worries
Move by Fitch Is One of Strongest Signals Loan Binge Could Threaten Recovery; Shadow Lending Is an Extra Wild Card
By AARON BACK
Xinhua/Zuma Press
A loan surge to fund big infrastructure projects and revive China’s growth built up debt. Construction on a Hangzhou-Changsha rail line, above.
BEIJING—Fitch Ratings Inc. lowered one of its key ratings on China’s government debt, in one of the most prominent warnings to date over a credit buildup in the world’s second-largest economy.
The downgrade applies only to China’s yuan-denominated debt, which is primarily traded domestically—not the foreign-currency debt that it issues in international financial markets, so it is unlikely to have a big impact on global financial markets.
Nevertheless, it is the first outright downgrade in years of debt that is widely seen as buffered by China’s vast foreign-exchange reserves, highlighting a growing perception that massive lending by China’s banks, as well as shadowy nonbank lenders that operate under little regulation, could seriously disrupt China’s economic recovery.
Much of China’s debt came from a surge of lending in the wake of the 2008 global financial crisis, which helped Chinese growth rebound in part with the help of massive infrastructure projects but weighed down local governments and banks with loans. Analysts at Fitch have been part of a chorus of analysts and market players consistently sounding alarms about the run-up in China’s debt.
…
Sunday 21 April 2013
Apple loses world’s biggest company title as shares hit 18-month low
Apple shares have hit their lowest levels in a year and half, after a supplier hinted at a slowdown in iPhone and iPad production.
The Apple logo is seen in this September 11, 2012 file photo at the Yerba Buena Center for Arts in San Francisco
The decline means Apple has lost its position as the world’s most valuable publicly traded company to Exxon Mobil Photo: AFP
By Andrew Trotman, and agencies
5:48PM BST 17 Apr 2013
The shares closed down $23.44, or 5.5pc, at $402.80, the lowest level since December 2011.
The decline means Apple has lost its position as the world’s most valuable publicly traded company to Exxon Mobil. Apple has a market capitalisation of $378bn compared with Exxon’s $385bn.
…
Wasn’t there a time when Worldcom or one of those companies had more value than GM? I just remember something like this from the tech bubble of the late 90s where we looked back and laughed. Perhaps this will be the same? At least Apple does make a real product that people use and like…
I don’t know about Worldcom, but there was a point when Yahoo was valued higher than the big three auto makers combined.
Enron had a very high valuation until days before it collapsed…
CHINA NEWS
Updated April 15, 2013, 10:11 p.m. ET
Slower China Growth Signals Days of Miracles Are Waning
By JAMES T. AREDDY and TOM ORLIK
Shanghai property developer Sun Ping recalled offering a bloc of villas for sale in 2006, a time when buyers queued overnight and traded spots in line for money. He sold 62 houses in three hours and figures those homeowners quickly saw their investments triple in value.
“That was a miraculous time,” Mr. Sun said. A recent open house he hosted drew only a handful of shoppers.
The days of miracles appear to be over in China, the world’s second largest economy. A cleanup is under way, following an economic party of epic proportions that lifted incomes but left behind debt, corruption and a mess of the environment.
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You know humans must love bubbles if we think of them as miracles.
I took the miracle reference as a sardonic metaphor…
April 17, 2013, 2:02 P.M. ET
Plunging Yen Hammers Emerging Asia, Risks Currency Crisis
By Ben Levisohn
It’s a point I’ve raised before, but it’s worth making again: Japan’s bond buying is killing Asian equities.
Here’s Societe Generale’s chart showing flows into Japanese funds and those into emerging Asia.
The biggest losers have been Taiwan, Korea and China, Societe Generale says. The iShares MSCI China ETF (FXI) has dropped 13.7% during the past three months, the iShares MSCI South Korea ETF (EWY) has fallen 9% and the iShares MSCI Taiwan (EWT) has dropped 3.1%. The iShares MSCI Japan Index ETF (EWJ), meanwhile, has gained 16.7%.
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FOMC members are not unanimously supportive of the Fed’s recent foray into housing market stimulus.
Plosser Favors Selling Securities in Eventual Fed Stimulus Exit
By Steve Matthews - Apr 16, 2013 3:00 AM PT
Philadelphia Federal Reserve Bank President Charles Plosser said an eventual withdrawal of Fed stimulus should include sale of securities on its balance sheet and a return to the federal funds rate as the main policy tool.
“I am uncomfortable declaring at this point that we would not engage in sales” of securities, Plosser said today in a speech in Beijing. “We should return to an operating framework in which the federal funds rate is our policy instrument, we should shrink the size of our balance sheet consistent with this framework and we should shorten the duration and return the composition of our portfolio to all Treasuries.”
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Far from “exhausting QE,” the Fed can’t stop. (For a visual, imagine a truck experiencing brake failure as it travels down a steep mountainside slope.)
Here’s why:
Sunday 21 April 2013
Trade protectionism looms next as central banks exhaust QE
Officials at the US Federal Reserve may be more worried than they have let on about the treacherous task of extricating America from quantitative easing. This is an unsettling twist, with global implications.
A new paper for the US Monetary Policy Forum and published by the Fed warns that the institution’s capital base could be wiped out “several times” once borrowing costs start to rise in earnest.
Photo: Reuters
By Ambrose Evans-Pritchard, International Business Editor
6:00PM GMT 24 Feb 2013
A new paper for the US Monetary Policy Forum and published by the Fed warns that the institution’s capital base could be wiped out “several times” once borrowing costs start to rise in earnest.
A mere whiff of inflation or more likely stagflation would cause a bond market rout, leaving the Fed nursing escalating losses on its $2.9 trillion holdings. This portfolio is rising by $85bn each month under QE3. The longer it goes on, the greater the risk. Exit will become much harder by 2014.
Such losses would lead to a political storm on Capitol Hill and risk a crisis of confidence. The paper — “Crunch Time: Fiscal Crises and the Role of Monetary Policy” — is co-written by former Fed governor Frederic Mishkin, Ben Bernanke’s former right-hand man.
It argues the Fed is acutely vulnerable because it has stretched the average maturity of its bond holdings to 11 years, and the longer the date, the bigger the losses when yields rise. The Bank of Japan has kept below three years.
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Besides government versus private affiliation and a license to print fiat money, what is the difference between a central bank and a hedge fund?
Paulson Tells Clients Central Bank Purchases to Back Gold
By Kelly Bit - Apr 19, 2013 9:20 AM PT
John Paulson, the hedge-fund manager who’s lost money this year after a 16 percent decline in gold, told clients that purchases by central banks and demand in Asia will support the metal in the near term.
“Although inflation and inflation expectations remain subdued, which appears to have dampened the appetite for gold so far this year, we believe that ongoing central bank purchases and strong gold demand from China and India will help support the gold price in the near-term,” Paulson & Co. said in a letter to clients that was obtained by Bloomberg News.
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As Cyprus sells gold to help bailout, other troubled eurozone countries could be next
Jan Harvey and Clara Denina
Reuters | 13/04/11 | Last Updated: 13/04/11 11:54 AM ET
Cyprus’ gold sale would allow it to easily come up with around 3% of what it must contribute to the bailout.
Simon Dawson/Bloomberg
LONDON — Heavily indebted eurozone nations such as Italy and Portugal could come under pressure to put their bullion reserves to work as a result of plans for Cyprus to sell gold to meet its financing needs.
A European Commission assessment of what Cyprus needs to do as part of its European Union/International Monetary Fund bailout showed Cyprus is expected to sell in excess gold reserves to raise around 400-million euros (US$523-million).
Other struggling euro area countries may be pushed to take note. Between them, for example, Portugal, Ireland, Italy, Greece and Spain, hold more than 3,230 tonnes of gold between them, worth nearly 125-billion euros at today’s prices.
The lion’s share of that — 2,451.8 tonnes — belongs to Italy. But Portugal and Spain also hold hundreds of tonnes and gold is currently trading around US$1,558.95 per ounce in spot terms, or 1,189 euros.
The metal makes up more than 90% of Portugal’s foreign exchange holdings, and 72.2% of Italy’s. India, by contrast, holds less than 10% of its reserves in gold.
Gold sales on their own would be far from a magic bullet to solve eurozone financing problems: Italy’s entire gold reserves, for example, are worth less than 95-billion euros, against outstanding debt of around 1.685-trillion euros.
But the Cyprus situation shows that even a relatively small gold sale may help address severe debt problems. Cyprus’ gold sale would allow it to easily come up with around 3% of what it must contribute to the bailout.
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U.S. states push to use gold as money as trust in Bernanke wanes
Amanda J. Crawford, Bloomberg News | 13/04/09 11:07 AM ET
The U.S. Constitution bars states from coining money and also forbids them from making anything except gold and silver coin tender for paying debts. Advocates say that opens the door for the states to allow bullion as legal tender.
Chris Ratcliffe/Bloomberg
Distrust of the Federal Reserve and concern that U.S. dollars may become worthless are fuelling a push in more than a dozen states to recognize gold and silver coins as legal tender.
Arizona is poised to follow Utah, which authorized bullion for currency in 2011. Similar bills are advancing in Kansas, South Carolina and other states.
The measures backed by the limited-government Tea Party movement are mostly symbolic — you still can’t pay for groceries with gold in Utah. They reflect lingering dollar concerns, amplified by the Fed’s unconventional moves in recent years to stabilize the economy, said Loren Gatch, who teaches politics at the University of Central Oklahoma.
“The legislation is about signalling discontent with monetary policy and about what Ben Bernanke is doing,” said Gatch, who studies alternative currencies at the Edmond, Oklahoma-based school. “There is a fear that the government, or Bernanke in particular and the Federal Reserve, is pursuing a policy that will lead to the collapse of the dollar. That’s what is behind it.”
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Bloomberg News
Baltic Dry Index Slides for Sixth Day as Glut of Ships Persists
By Alaric Nightingale
April 04, 2013
The Baltic Dry Index, a measure of commodity shipping prices, slid for a sixth session as a surplus of vessels drove down rates owners charge to haul cargoes from iron ore to grains.
The gauge slumped 1.3 percent to 866, according to data from the Baltic Exchange in London today. Rates declined for a third consecutive day for all four vessel types tracked by the bourse, led by Panamaxes that mostly transport agricultural commodities and coal.
More than 200 vessels, the most ever, were waiting to load Brazilian soybeans at the end of March, according to data from SA Commodities, a Santos-based shipping agent. While the bottleneck curbed vessel supply, there is still a surplus of Panamaxes competing for business, said Jeffrey Landsberg, the New York-based president of Commodore Research & Consultancy, an adviser to ship owners.
“The optimism over South American grain cargoes has been overblown,” Landsberg said by phone today. More Panamaxes will be built this year than in 2012, the only class of dry-commodity shipping where that’s happening, he said.
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Strategies
If It’s Underground, Maybe Its Price Is, Too
By JEFF SOMMER
Published: April 20, 2013
IN waves of intense selling, an array of commodities extracted from beneath the earth’s surface — from gold and silver to oil, aluminum and copper — has fallen sharply in price this month.
Each commodity is unique, of course, with its own problems and personality. Gold retains an almost theological status among some of its adherents, who say it’s the one true store of value — yet gold’s price swings have been stunning. Oil has plenty of swagger, and its fluctuations have brought economies to their knees and countries into conflict. Copper is quietly useful and is said to convey so much information about global trends that it is called Dr. Copper — the commodity with a Ph.D. in economics.
Yet despite many idiosyncrasies, commodities have been moving largely in the same direction. With some exceptions and interruptions — notably, during the financial crisis — all of these finite resources rose in value for a decade or so. And at least for the moment, that overriding trend appears to have been broken.
What is striking is that a broad market consensus has rapidly emerged: that the immediate prospects for many high-flying commodities have grown appreciably bleaker.
“I see further declines ahead for most commodities,” says Julian Jessop, chief global economist and head of commodities research for Capital Economics in London.
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‘The economy could slip into recession unless measures to stimulate growth are urgently implemented, Economic Development Minister Andrei Belousov said. “We will propose economic stimulation measures,” he said Friday in the Far East city of Blagoveshchensk, warning that otherwise Russia will see zero growth by the fall. “These measures are necessary because we have to get out of the situation we are now in, so as not to fall into recession,” Belousov said.’
‘If the data for the first months of 2013 are extrapolated for the full year, GDP growth is estimated at a mere 1.7 percent, Klepach said.
The ministry also expects net capital outflow to reach $30 billion to $35 billion in 2013, compared with its original forecast of $0 to $10 billion, Klepach said. GDP grew only by 3.4 percent last year, the lowest since the deep recession of 2009, with weak demand for exports in Europe.’
‘Newly appointed Central Bank chief Elvira Nabiullina said last week that Russia needed to rethink its commodity exports-based growth model, with a new emphasis on internal sources of development, diversification of the country’s raw material-based economy, increased investment and improvement in the investment climate.’
http://themoscownews.com/business/20130415/191442403/Belousov-Risk-of-recession-without-stimulus.html
Add Russia to the list of national economies that are headed down the crapper.
Where did we go wrong? Canada loses status as economic superstar: IMF
National Post Wire Services | 13/04/16 | Last Updated: 13/04/16 2:32 PM ET
Canada’s economic growth will be the slowest among Group of 20 countries outside Europe as it grapples with a cooling housing market and as policy makers rein in deficits, according to the International Monetary Fund.
The Washington-based lender cut its 2013 Canadian growth forecast to 1.5%, from an October estimate of 2%, while boosting its projections for Japanese growth to 1.6%. The U.S. economy will grow at a 1.9% pace this year, while the euro area contracts by 0.3%, the fund said Tuesday in its World Economic Outlook.
Canada’s economy is expanding at the slowest pace since 2009 as the housing boom that helped lift it from recession cools and high household-debt levels constrain demand. Canadian policy makers, who have sought to stem increases in household borrowing and cut government spending, should be prepared to take growth-supporting measures if the nation’s economy continues to weaken, the IMF said.
That could mean allowing budget deficits to widen and keeping the Bank of Canada’s policy interest rate at 1% for longer, it said.
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‘Really there is a recession right now’: Canadians lose faith in economic ‘miracle’ amid prolonged slowdown
Louise Egan and Andrea Hopkins, Reuters | 13/04/15 | Last Updated: 13/04/15 9:14 AM ET
Some 54,000 Canadians joined the ranks of the unemployed in March, the worst monthly job losses in more than four years.
Eddie Seal/Bloomberg
OTTAWA/TORONTO — Factory worker Nelson Claros has little time for talk of the Canadian economic miracle.
The 50-year-old was laid off last year from his job of 22 years at a bus-assembly plant northwest of Toronto, and has since applied for 130 jobs. His best offer: A job at $12 an hour, half his previous wage and not enough to pay his bills.
“Really there is a recession right now. They don’t call it a recession, but the companies are closing, there are a lot of layoffs. How can this be a miracle economy?” he asked.
It wasn’t supposed to be like this. Canada’s recovery from a mild 2008-09 recession was quick and job-filled, and the country added nearly 900,000 jobs to take the jobless rate to 7.2% from 8.7% at the depths of the downturn.
Canada sheds 54,500 jobs
It was a dramatic, even ugly, fall back to Earth. Canada’s labour market — sometimes hot, often lukewarm — turned icy cold in March, reflecting what has been the economic climate on the ground for some time. More jobs were lost in that month than at any time in four years — back when Canada’s was still in recession — wiping out all the gains, and then some, from the previous month and racheting up the unemployment rate.
No bank needed a government bailout, the housing market did not collapse and Finance Minister Jim Flaherty repeatedly boasted about how Canada was outperforming its partners in the Group of Seven rich industrialized economies.
But recent growth has consistently fallen short of expectations and a very rough patch late last year turned disappointment into dread. Economists had been betting on a quicker U.S. recovery to boost Canadian exports, as well as a pickup in business spending.
The slowdown could spell trouble for the Conservative government of Prime Minister Stephen Harper, which is showing signs of mid-term stress and losing ground in opinion polls to the third largest party, the Liberals.
Policy makers predict a brighter second half of 2013, but people like Claros and business leaders are not so sure.
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The dangers of debt
Shadows lengthen
Chinese credit rises. China’s credit rating falls
Apr 13th 2013 | HONG KONG |From the print edition
CHINA’S financial system used to be bothersome but simple. The bulk of savings were deposited in state-owned banks, which extended most of their loans to state-owned enterprises (SOEs). When things went wrong, the banks enjoyed bail-outs from taxpayers and from depositors, who had nowhere else to go.
Today China’s financial system is still bothersome, but it is no longer simple. Savers can choose between traditional deposits (which pay capped interest rates) or a bewildering variety of “wealth-management products” (WMPs) offered by lightly regulated trust companies and asset management firms, as well as banks themselves. Borrowers can raise money from a fast-growing bond market, trust companies, or other firms, which make “entrusted” loans via a bank. As a last resort, they can also turn to kerbside creditors.
The composition of credit is, therefore, changing fast. Straightforward bank lending accounted for only 55% of new financing in the year to February 2013, according to Fitch, a rating agency. The growth of other forms of credit beyond bank lending is “a source of growing risk” to financial stability, it believes. And many of the costs of financial instability, were it to arise, would inevitably end up on the government’s tab.
That is one reason the agency this week downgraded the government’s local-currency credit rating by one notch, to A+ (it is now four notches below the highest possible AAA rating). The downgrade in itself is largely symbolic: China’s rating is still high, the public finances are still respectable (the combined debts of the central and local governments are about 50% of GDP, Fitch reckons) and a government need never default in a currency it prints.
More worrying are the credit trends that contributed to the downgrade. The stock of outstanding bank loans rose from about 100% of GDP in 2008 to over 130% at the end of 2012. Other forms of financing grew even faster, Fitch reckons (see chart). This credit boom has not yet sparked inflation—consumer prices rose by only 2.1% in March compared with a year earlier—but that is limited consolation. The global financial crisis demonstrated that financial excesses can cause trouble even if they do not show up in inflation first.
Spooked by these developments, China’s banking regulator last month imposed new curbs on WMPs issued by the banks under its jurisdiction. Only 35% of the money raised by these products can now be invested in “non-standard” assets, such as trust loans, which do not trade on China’s principal bond market. Banks must also declare what they have bought with the money raised by each product, to stop them rolling over bad loans with the proceeds of newly issued products.
These measures are broader and stronger than anything the regulator has tried before. But regulation is lagging innovation, says Charlene Chu of Fitch. The curbs only cover banks, neglecting many of the firms populating China’s shadow-banking system. “Some of these sectors are so new that nobody really has regulatory authority over them,” Ms Chu says.
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Paging nhz!
Underwater: The Netherlands Falls Prey to Economic Crisis
By Christoph Schult and Anne Seith
April 02, 2013 – 12:56 PM
REUTERS
The Netherlands, Berlin’s most important ally in pushing for greater budgetary discipline in Europe, has fallen into an economic crisis itself. The once exemplary economy is suffering from huge debts and a burst real estate bubble, which has stalled growth and endangered jobs.
Michel Scheepens is familiar with risk. The 41-year-old oversees the energy market for the Dutch bank ING, and it’s his job to determine whether his employer should finance such projects as a wind farm in Cyprus or a gas-fired power plant in Turkey. Until now, it was always other people’s money that was involved.
For some time, however, Scheepens has been experiencing what a poor investment feels like on a personal level. Six years ago, the father of three bought half of a duplex for his family in the commuter town of Nieuw-Vennep, near the North Sea coast. The red brick building cost €430,000 ($552,000), but the bank generously offered him a loan of €500,000, so that there was enough money left over for renovations, along with notary and community fees. Scheepens had intended to resell the house after a few years, as is common in the Netherlands. But then prices tumbled following the Lehman bankruptcy. If the family were to sell the house today, it would have to pay the lender €60,000. His house is “onder water,” as Scheepens says.
“Underwater” is a good description of the crisis in a country where large parts of the territory are below sea level. Ironically, the Netherlands, widely viewed as a model economy, is facing the kind of real estate crisis that has only affected the United States and Spain until now. Banks in the Netherlands have also pumped billions upon billions in loans into the private and commercial real estate market since the 1990s, without ensuring that borrowers had sufficient collateral.
Private homebuyers, for example, could easily find banks to finance more than 100 percent of a property’s price. “You could readily obtain a loan for five times your annual salary,” says Scheepens, “and all that without a cent of equity.” This was only possible because property owners were able to fully deduct mortgage interest from their taxes.
Instead of paying off the loans, borrowers normally put some of the money into an investment fund, month after month, hoping for a profit. The money was to be used eventually to pay off the loan, at least in part. But it quickly became customary to expect the value of a given property to increase substantially. Many Dutch savers expected that the resale of their homes would generate enough money to pay off the loans, along with a healthy profit.
An Economy on the Brink
More than a decade ago, the Dutch central bank recognized the dangers of this euphoria, but its warnings went unheeded. Only last year did the new government, under conservative-liberal Prime Minister Mark Rutte, amend the generous tax loopholes, which gradually began to expire in January. But now it’s almost too late. No nation in the euro zone is as deeply in debt as the Netherlands, where banks have a total of about €650 billion in mortgage loans on their books.
Consumer debt amounts to about 250 percent of available income. By comparison, in 2011 even the Spaniards only reached a debt ratio of 125 percent.
The Netherlands is still one of the most competitive countries in the European Union, but now that the real estate bubble has burst, it threatens to take down the entire economy with it. Unemployment is on the rise, consumption is down and growth has come to a standstill. Despite tough austerity measures, this year the government in The Hague will violate the EU deficit criterion, which forbid new borrowing of more than 3 percent of gross domestic product (GDP).
It’s a heavy burden, especially for Dutch Finance Minister Jeroen Dijsselbloem, who is also the new head of the Euro Group, and now finds himself in the unexpected role of being both a watchdog for the monetary union and a crisis candidate.
Even €46 billion in austerity measures are apparently not enough to remain within the EU debt limit. Although Dijsselbloem has announced another €4.3 billion in cuts in public service and healthcare, they will only take effect in 2014.
“Sticking the knife in even more deeply” would be “very, very unreasonable,” Social Democrat Dijsselbloem told German daily Frankfurter Allgemeine Zeitung, in an attempt to justify the delay. It’s the kind of rhetoric normally heard from Europe’s stricken southern countries. The adverse effects of living beyond one’s means have become apparent since the financial crisis began. Many of the tightly calculated financing models are no longer working out, and citizens can hardly pay their debts anymore. The prices of commercial and private real estate, which were absurdly high for a time, are sinking dramatically. The once-booming economy is stalling.
Unemployment on the Rise
“A vicious cycle develops in such situations,” says Jörg Rocholl, president of the European School of Management and Technology in Berlin and a member of the council of academic advisors to the German Finance Ministry. “Customers have too much debt and cannot service their loans. This causes problems for the banks, which are no longer supplying enough money to the economy. This leads to an economic downturn and high unemployment, which makes loan repayment even more difficult.”
The official unemployment rate has already climbed to 7.7 percent. In reality, it is probably much higher, but that has been masked until now by a demographic group called the ZZP. The “Zelfstandigen zonder personeel” (”Self-employed without employees”) are remotely related to the German model of the “Ich-AG” (”Me, Inc.”). About 800,000 ZZPers currently work in the Netherlands.
One of them is Rob Huisman. The 47-year-old lives with his wife and son in Santpoort, near Haarlem. In 2006 Huisman, an IT specialist, left his position with a large consulting firm to start his own business. It went well at first, with Huisman earning €100 an hour. But over time many customers, both governmental and private, slashed the fees they were willing to pay. Sometimes jobs were simply deleted altogether. “For companies it’s worthwhile to let their permanent employees go and then take on temporary work contracts,” says the IT expert. “It saves them the social security costs.”
There is cutthroat competition among the self-employed, who are undercutting each other to secure occasional jobs. “If you don’t accept a job, someone else will snap it up,” says Huisman. In addition, he is unable to pay contributions to his retirement fund at the moment. “We are living largely on our savings,” he says.
No End in Sight
The Dutch have long been among Europe’s most diligent savers, and in the crisis many are holding onto their money even more tightly, which is also toxic to the economy. “One of the main problems is declining consumption,” says Johannes Hers of the Netherlands Bureau for Economic Policy Analysis (CPB) in The Hague, the council of experts at the Economics Ministry.
His office expects a 0.5-percent decline in growth for 2013. Some 755 companies declared bankruptcy in February, the highest number since records began in 1981. The banking sector is also laying off thousands of employees at the moment.
Because of the many mortgage loans on the books, the financial industry is extremely inflated, so much so that the total assets of all banks are four-and-a-half times the size of economic output.
In February, the government was forced to nationalize SNS Bank, the country’s fourth-largest bank, because it had a large portfolio of bad loans for commercial real estate. The remaining banks only want to securitize a portion of their giant loan portfolios and resell the securities through a special mortgage bank — primarily to the country’s pension funds, where the Dutch have put away large sums for retirement.
Young families like the Scheepens, who have bought a home in recent years, are now hoping that they can at least keep their jobs. Although their duplex has lost value, they can still make the monthly payments.
But the cuts are getting closer. A neighbor recently lost his job, and well-educated people can no longer find jobs. “There is no end to the crisis in sight,” says Scheepens.
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“I really depends on lenders. If lenders get stupid again, prices could go up really high, really fast, in which case we could rebubble really fast.”
Just a few years ago, many folks predicted we wouldn’t see the return of subprime lending for an entire generation.
How wrong they were!
IBD Editorials
Race-obsessed Obama Is Artificially Reinflating the Housing Bubble — Investors.com
The Obama Subprime Bubble
Posted 04/15/2013 07:01 PM ET
Subprime Scandal: The administration is fueling another housing bubble by pushing lenders to finance homes for people who can’t afford them. Pressure is coming from all corners of government.
President Obama is worried about a plunge in new-home buying among minority borrowers with subprime credit scores. So he’s using the Federal Housing Administration, for starters, to help finance failure.
In a reckless gambit, FHA is asking lenders to relax lending standards, while assuring them it will back home loans down to a 580 FICO score with a minimal down payment and high debt-to-income ratio.
“The obligation that I have is to ensure lenders using the FHA program are lending to as full a spectrum of the credit box as possible,” FHA Commissioner Carol Galante recently said.
FHA’s chief urging banks to underwrite subprime loans conjures up bad memories of Fannie Mae CEO Franklin Raines begging for more subprime loans before the crisis.
In fact, loans purchased, insured or guaranteed by either Fannie Mae or Freddie Mac, as well as FHA, are automatically designated “qualified mortgages” under new mortgage rules issued by the Consumer Financial Protection Bureau.
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I am going to interpret the dearth of comments on this post as an indication that everybody who reads here agrees with it, even Alpha-Sloth.
Whacky uses “Tactic 5″ from the Losing Debater’s Manual.
For a medical doc, you do a great impersonation of a mentally handicapped person.
Whacky engages in Tactic 1 from the Losing Debater’s Manual: “When you have no issues-oriented challenge to offer, engage in Ad Hominem Insult”. Always fun to see a nice example of Tactic 1. Twenty Tactics to go…
Tactic 5 from the Losing Debater’s Manual: “Assert that disinterest in your posts constitutes validation of them”.
Just sayin’…
I offered an issue to discuss which you turned into a troll attack. I don’t believe a medical doctor would do this, but I do believe a real estate investor would pretend to be a medical doctor in a futile attempt to give more credibility to his posts.
A medical doctor, if he is any good, would have already bought an overpriced house. He would not be bothered whether the prices went up or down because he would not have the time. Unless he owns several houses for … investment purposes.
Tactic from the Losing Debater’s Manual, “When you have nothing of substance to offer in debate, cry ‘Troll’”
Just sayin’
“”A medical doctor, if…”
Tactic 3 from the Losing Debater’s Manual: “Straw Man”.
Just sayin’…
“Unless he owns several houses for … investment purposes.”
You read my mind!
Tactic 3 from the Losing Debater’s Manual: “Straw Man”
“In a reckless gambit, FHA is asking lenders to relax lending standards, while assuring them it will back home loans down to a 580 FICO score with a minimal down payment and high debt-to-income ratio.”
Smart folks know better than to buy RE in this rigged market, so sub-prime is the only gig left to play. Too bad that the smart folks will be providing the bailout. The future is so bright ‘ya gotta wear shades.
“Too bad that the smart folks will be providing the bailout.”
I believe this is the plan:
1) Subprime borrowers start buying up housing again at prices they can’t afford.
2) In a few years, the current wave of subprime borrowers go into foreclosure at “higher than expected rates,” a consequence of subprime lending. But it’s OK: Since the loans are federally guaranteed, lenders get made whole, while taxpayers chip in the funds to cover the naked insurance claims.
3) Politicians who pushed to restart subprime lending receive financial remuneration from REIC constituents.
Nailed it!
Financially ignorant people with low credit scores and low IQ would fall for such a trap. This subset of people would otherwise never have a shot at owning RE. They will line up by the dozens. Some of them might succeed at paying off their mortgages but most will not. Their houses will be back on the market only in worse conditions.
The “leg down” essentially has been and will be continuous, save for noise and for transient superficial bumps generated by massive intervention.
Simply look at the buying power and quality of life for the median-income family in USA now vs thirty years ago. The Housing Bubble is but a symptom of the economy. My assertion? “Comfy Middle Class” is a historical anomaly. Feudalism is a far more stable system.
I pay a lot of attention to the market where I grew up, northern NV, where prices went absolutely insane, and where the meltdown was equally as spectacular. Prices dropped, in some areas, back to early 90’s prices, with ghetto areas reaching back to 1970’s prices, NOMINALLY, only to experience a veritable feeding frenzy of speculative buying activity, whipsawing prices back up into the stratosphere in many instances.
Now, the mls is littered with overpriced houses which few can afford, with hardly any entry level houses available period. This is exacerbated by an artificial shortage of houses thanks to banks not listing empty homes, and not foreclosing on others. There is a LONG way to go before any sort of normalcy returns.
I will add that, in many cases, asking prices are back to the 2005-2007 halcyon days.
Owners who paid ridiculous prices circa 2005-2007 fueled by crazy loans are hoping some new buyers armed with buckets of money and boxers of stupid will happen along to relieve them of their financial mistakes.
So? This causes surprise?
No. It causes a dearth of sales transactions to end users who can’t afford or don’t want to pay 2005-2007 bubble-era prices.
So? That causes surprise?
Just sayin’…
Endlessly repeating one’s self is a classic sign of mental disability. My ex-girlfriend’s mentally disabled sister used to do it all the time…
(Actually, the ex-girlfriend’s sister’s favorite line was, “I’ve got a great idea!”)
Tactic 1 from the Losing Debater’s Manual: Ad Hominem Insult.
Just sayin’…
What’s uh Ad Hominem?
Tactic 19 from the Losing Debater’s Manual, “Absent anything of substance to offer in discussion, retreat to questions.”
Just sayin’…
“Why buy a house at these massively inflated asking prices? Rent for half the monthly carrying costs and buy later, after prices crater for 65% less.”
Besides… rental rates are falling.
Houses rent for far more than half the monthly costs of mortgage/tax/upkeep.
Not my landlords’ place — the one with thousands of dollars worth of pending sprinkler system repair waiting for them to pay for it.
I’m guessing it will set them back several month’s of rent payments to fix this…
Your comment has nothing to do with my comment. Just sayin’…
“upkeep” = cost of repairing a sprinkler system
P.S. Your comments have nothing to do with what somebody with the smarts to get a medical degree would say.
Let me guess: You are a real estate investor troll, masquerading here as a medical doctor?
“Let me guess: You are a real estate investor troll, masquerading here as a medical doctor?”
This sounds spot on.
Tactic 2 from the Losing Debater’s Manual: “Absent your ability to make a cogent point on issues of substance, accuse your opposition of being a ‘Troll’”.
Tactic 1 and Tactic 5 have been defined elsewhere in today’s discussion. 20 or so Tactics to go…
Thanks, gents
I note again, “Houses rent for far more than half the monthly costs of mortgage/tax/upkeep.” As per the example posted in discussion with Ben, above.
Rental rates are half the cost of buying…. and rental rates are falling.
Enjoy.
Ignore the troll.
Rental rates are more than the total rate in the cost of buying.
Are we communicatin’ yet?
Rent would be > $1100/month.
4306-S-Warlance-Ln_Janesville_WI_53548_M87285-71607
Just sayin’…
Tactic 2 from the Losing Debater’s Manual: “When lacking anything of substance to offer in debate, cry ‘Troll’”
Excellent.
Rents are half the cost of buying at current grossly inflated asking prices of resale housing.
Rents are higher than costs of “owning”.
And so it goes…
Where?
The fake doctor is “in.”
Tactic 3 from the Losing Debater’s Manual: “Straw Man”
Excellent
Where??
Tactic 7 from the Losing Debater’s Manual: “Absent anything of substance to offer in debate… make demands”.
Tactic 7 from the Winning Debater’s Manual: “Call out, but do not engage, Tactic 7 from the LDM”.
Excellent.
Where are rents higher than the cost of owning?
Notice how mactrollboy keeps diverting the topic away from his money-losing real estate investments?
How far underwater are you at this point, mactrollboy? Please do tell…
I can’t imagine a worse scenario for being a landlord - High powered job 2 weeks a month, out of town the other two. Or being a LL in rent control NY - recipe for disaster.
I’d take him at his word for now - who could dream up that kind of lifestyle. What comments has he made to lead you to believe he is a landlord?
“I can’t imagine a worse scenario for being a landlord - High powered job 2 weeks a month, out of town the other two.”
There is a big difference (of which you are personally aware) between working for a living as a landlord and buying into a rising market with the plan to flip your homes at a later date.
I can’t imagine there aren’t a few California investors taking note of the recent eight percent of monthly appreciation and jumping on the echo bubble price blowout bandwagon with a plan to cash out before the next crash. And it’s people with high powered jobs and money to blow who will be among the crash victims.
Whacky Engages in Tactic 3 from the Losing Debater’s Manual: “Straw Man”.
Just sayin’…
Like a Hay Man?
Perhaps Whacky can let us know if ignorance indeed is bliss? So many questions he has about core jargon…
Luv it.
ft dot com
Easy money brews sudden swings
By Michael Mackenzie in New York
The two-day drop of more than $200 in the price of gold can only further chill the way investors have been looking at risk-taking in recent months.
The virtues of gold as an investment sharply divides opinion, but no investor can ignore its stunning fall from favour over the past week.
In the current climate of easy money from central banks, investors are right to worry that the distortion of asset prices is no golden era.
As risk managers examine the scale and speed of gold’s sudden and unexpected descent, a logical reaction is to ask whether such an episode could erupt in other asset classes, such as equities and bonds whose prices are being buoyed on a tide of central bank liquidity.
Since Monday, US equities and inflation bonds, for example, have not been spared from investors questioning their current prospects.
Although Wall Street was firmer on Friday the S&P 500 suffered its worst week since its post-election swoon last November.
Meanwhile, inflation bonds have suffered from volatile trading as investors have reacted to the big retreat in commodity prices and the benign nature of consumer prices.
A hedge fund manager concedes that clients feel a little less sure about chasing an equity market, fresh from setting a nominal record high only last week.
“The move in gold has taken the juice out of speculation, and clients that were pretty bullish on the S&P a week ago are now cautious,” he says.
…
Forgot to include date on the above article (yesterday’):
On Wall Street
April 19, 2013 10:04 pm
Gold goes up and gold goes down. Real Estate goes up and Real Estate goes down. Stocks go up and stocks go down. Tulips go up and Tulips go down.
Perhaps a pattern can be found…
Expert: Gold Crash Not a ‘Natural Event,’ Caused by Central Banks
Friday, 19 Apr 2013 09:28 AM
By Michelle Smith
Theories about what triggered gold’s recent drop are “cover stories,” says Chris Powell, co-founder of the Gold Anti-Trust Action Committee (GATA), an organization focused on exposing, opposing and litigating against collusion to control the price and supply of gold and related financial instruments.
The reason the metal fell was because central banks stepped in and gutted gold prices to avert a short squeeze in London, he noted.
Gold saw its biggest two-day drop ever, reported CNBC, which compared the decline with the stock market crash of 1987.
Powell said that type of price action was “too overwhelming.”
“Nobody sells gold like that in order to make a profit on a long-term gold holding,” he told Yahoo.
“I’m pretty confident that it was a central bank operation. I can’t prove it, but too much gold paper was dumped for the crash to be a natural event,” he added.
…
Gold goes up and gold goes down. Real Estate goes up and Real Estate goes down. Stocks go up and stocks go down. Tulips go up and Tulips go down.
Perhaps a pattern can be found…
Was it Big Pharma or Big Farma…
Is 2nd Ave pastrami up or down?
Straw Man. Tactic 3 from the Losing Debater’s Manual. Just sayin’…
Yeah but….2nd ave….. pastrami.
Straw Man. Tactic 3 from the Losing Debater’s Manual. Just sayin’…
What’s a strawman?
Tactic 7 again… excellent.
Troll tactic Numero Uno: Divert the discussion from anything related to housing or economics in order to dilute the focus away from topics that bring to mind your real estate investing losses…
Whacky Engages in Tactic 3 from the Losing Debater’s Manual: “Straw Man”.
Just sayin’, dontcha know…
Hay man! How ya been?
Who pays mactrollboy to chew up band width here?
Tactic 2 from the Losing Debater’s Manual, “When you cannot score points on substance, cray ‘Troll’”.
Luv it.
HOME-EQUITY CREDIT LINES MAKE COMEBACK
By U-T San Diego
12:01 a.m. April 21, 2013 Updated
6:03 p.m. April 19, 2013
Using your home as an ATM no longer is a financial option, but the tools that allowed owners to pull out massive amounts of money during the boom years — equity credit lines and second mortgages — are making a comeback.
Banking and credit analysts say the dollar volumes of new originations of home-equity loans are rising again — significantly so in areas of the country that are experiencing post-recession rebounds in property values. These include most of the Atlantic coastal states, the Pacific Northwest, California, Arizona, New Mexico, Texas and parts of the Midwest.
Not only have owners’ equity positions grown substantially on a national basis since 2011 — up by an estimated $1.7 trillion during the past 18 months, according to the Federal Reserve — but banks increasingly are willing to allow owners to tap that equity. Unlike during the credit bubble years of 2003-06, however, they aren’t permitting owners to go whole hog — mortgaging their homes up to 100 percent of market value with first, second and even third loans or credit lines.
Now major lenders are restricting the combined total of first and second loans against a house to no more than 85 percent of value. For instance, if your house is worth $500,000 and the balance on your first mortgage is $375,000, you’d likely be limited to a second mortgage or credit line of $50,000. Contrast this with 2007, the high-point year of home-equity lending, when many lenders offered so called “piggyback” financing packages that allowed 100 percent debt without private mortgage insurance. A buyer of a $500,000 house could get a $400,000 first mortgage and a second loan of $100,000.
That ultimately didn’t work well for the banks. During the third quarter of 2012 alone, according to federal estimates, banks wrote off $4.5 billion in defaulted equity loans, often in situations where homeowners found themselves underwater and behind on both first and second loans. In such a situation, second mortgages become essentially worthless to the bank since in a foreclosure, the holder of the first mortgage gets paid off first. On underwater foreclosures, the second loan holder is left holding the bag.
…
Mmmm, sweet sweet equity. How we’ve missed you…
“Mmmm, sweet sweet equity. How we’ve missed you…”
+1 Yee-haw, gimmie that $50k 4-door pickup w/lift-kit and 22″ rims!
Just in time, too. The old one’s getting plumb wore out. I was getting scared I might have to drive one of them sissy cars.