The Housing Bubble

Stay away from the drills.

Men at the Boston Marathon National Guard Civil Support Teams?
http://www.washingtonsblog.com/2013/04/the-black-and-tan-men-at-the-boston-marathon-were-national-guard-civil-support-teams.html - 74k -

http://www.youtube.com/watch?v=2pvKFmZ-2Zc - 205k -

By Josh Levs and Monte Plott, CNN
updated 10:25 AM EDT, Thu April 18, 2013

Another explosive device found

Authorities in Boston found at least one other explosive device that they were dismantling, Boston Police Commissioner Ed Davis said.

Rep. Bill Keating of Massachusetts, meanwhile, said two more were found.

One unexploded device was found at a hotel on Boylston Street near the bomb site and another unexploded device was found at an undisclosed location, Keating, a Democrat and member of the House Homeland Security Committee, said. He called the bombing a “sophisticated, coordinated, planned attack.”

FBI to take lead in investigation, seeks bomb ’signature’

It was unclear who may have planted the marathon bombs. There were no credible threats before the race, a state government official said.

Investigators warned police to be on the lookout for a “darker-skinned or black male” with a possible foreign accent in connection with the attack, according to a law enforcement advisory obtained by CNN. The man was seen with a black backpack and sweatshirt and was trying to get into a restricted area about five minutes before the first explosion, the lookout notice states.

http://www.cnn.com/2013/04/15/us/boston-marathon-explosions - -

Don’t buy a house today, wait until later and buy 2 or 3 for 65 percent off.

Was in fells point last night, took a long walk, took a route on the water taxi, and got dinner on the water. Basically my dream neighborhood but way over priced, several hundred bucks per square foot. They are building luxury rentals like crazy though. It’s a very old neighborhood, I wonder how the cobblestone streets will handle the traffic. Still a great place to visit. In the 80a and 90s the city was giving the existing houses away if people escrowed money and promised to fix the houses up and occupy them. It was a blighted area, now dotted by high rises amongst the 1700s/1800s structures.

I’ll pull the pictures of my phone later, on train now.

If you go out to dinner with this Professor, do NOT taste his food.

Florida Atlantic University Professor Claims ‘Actors’ Possibly Used In …
http://www.youtube.com/watch?v=W7ZO9hSG0×0 - - Cached - Similar pages
11 hours ago

While America is more than $16 trillion in debt, we also have nearly $122 trillion in unfunded liabilities, which no one seems to be focusing on

4 Ways to Maximize Your Social Security Benefit

Published: Wednesday, 24 Apr 2013 | 2:34 PM ET

By: Geoffrey S. Cable, managing director, Destination Wealth Management

Most Americans don’t understand all the ways that Social Security can benefit them, and no wonder — Social Security is an enormous, complex system that covers retirement, disability and death, with rules that are under-explained and confusing.

As a result, many recipients find out how to maximize their benefits only after beginning to receive them – when it is too

Here are four things that you need to know to maximize your Social Security benefit before you begin receiving your check.

You can receive benefits even if you never paid in. Spouses who have never worked (meaning they never paid Social Security taxes) may still be able to get retirement benefits under Social Security. You need to be at least 62 years old and your husband or wife must be eligible for retirement or disability benefits to apply. This second payment can significantly add to the total amount couples receive.

You may choose to a payment equal to half of what your spouse gets. If your spouse made more than you did in the course of your lives, his or her benefit is most likely higher than yours. When you apply, you can elect to take the benefit calculated on your salary, or one-half of your spouse’s higher amount, without affecting your spouse’s benefit. This can provide a much higher total benefit for working couples.

Wait to receive your benefit, and it continues to grow. Consider delaying benefits if you do not need them immediately – the additional income down the road may be significant. Benefits are increased by a certain percentage (depending on your date of birth) for each year that you delay your retirement. The increase can amount to up to eight percent more for each year that you wait to retire.

You may start receiving benefits before your spouse is retired. As long as your spouse has reached full retirement age (typically between 66 and 67), he or she can file for a benefit but suspend it. As your spouse continues to work and that benefit continues to grow, you may start to collect.

(Read more: Social Security Cuts: ‘Hard to See as Humane’)

By simply doing a little homework, you can make educated decisions about your Social Security and avoid mistakes you will have to live with for the rest of your life. Start by creating an account on the Social Security Administration (SSA) website. Check to make sure that the administration has recorded your work and earnings history accurately, as your retirement benefit is based in part on this history. Check back periodically to be sure the information stays accurate.

As you get closer to retirement, discuss your options with a financial planner or make an appointment with someone at the Social Security Administration.

It’s just really hard for me to believe there is even a debate about this. I understand builders and consumer advocates calling for smaller down payment requirements, but banks? Really, banks? Judging by this, banks are 100% certain that they will always be bailed out no matter what stupid decisions they make over and over and over.

http://finance.yahoo.com/news/down-payment-rules-heart-mortgage-181554518.html

“Falling housing prices to dramatically lower and more affordable levels is bullish optimism.”

Headline from Politico:

Obama: ‘President Bush loves this country’

You can’t make this stuff up.

To understand the impetus for housing market reflation policy, look no further than the huge disparity in the distributional effects of the supposed U.S. economic recovery.

Unfortunately, thanks to the policy’s success in attracting a huge influx of already-wealthy all-cash foreign and hedge fund investors into purchasing U.S. residential property just at the point when it was finally becoming somewhat affordable for Main Street households, many of the housing market wealth effects during the recovery have only served to widen the wealth divide.

Housing market wealth effects don’t cut it when jobs are scarce, incomes are stagnant, and worker discouragement runs rampant. A shrinking economic pie leads to hunger games wealth distribution. May the odds be ever in your favor.

Wealth of nearly all Americans fell after the recession
The richest 7% of U.S. families saw their average wealth soar 28% from 2009 to 2011, while the remaining households lost 4% of their net worth over the same period, a new report finds.
April 23, 2013 | By Don Lee, Los Angeles Times

Most of the wealth of 93% of U.S. households has been tied up in homes, and the values plummeted both during and after the Great Recession and only recently have been climbing, the poll found.

WASHINGTON — The richest 7% of American families saw their average wealth soar 28% from 2009 to 2011, while the remaining households lost 4% of their net worth over the same period, according to a new report.

The analysis of Census Bureau data by the Pew Research Center draws on the most recent statistics on wealth. The findings throw into stark relief the dramatically uneven nature of the recovery.

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The economy officially emerged from recession in mid-2009, and since then, affluent families have benefited handsomely from recovering stock prices and surging gains in bonds.

The report found that the average wealth of the upper 7% of households jumped to $3.17 million in 2011 from $2.48 million two years earlier, thanks largely to the strengthening stock market. Six out of 10 households with a net worth — assets minus debts — of $500,000 or more owned stocks and mutual funds in 2011.

Most of the wealth of the remaining 93%, however, has been tied up in homes, and the values plummeted both during and after the Great Recession and only recently have been climbing. Only 13% of the households owned stocks and bonds, and their average wealth dipped to $133,817 from $139,896.

The housing market, though recovering, has not grown nearly as fast as stocks and other financial assets. And that means the country’s wealth gap is likely to have widened further in the last 16 months.

“This recovery is sort of unique in that the housing market, rather than leading, has lagged,” said Richard Fry, a coauthor of the Pew report.

This Census data set is not used as much by scholars as the Federal Reserve’s Survey of Consumer Finances, which compiles comprehensive statistics on the financial health of U.S. families every three years. But the Fed’s latest data are for 2010, making it difficult to assess the magnitude of the wealth gains made in the recovery.

Edward Wolff, an economist at New York University who has written extensively on wealth distribution, said the new Pew report is helpful in understanding how “very sensitive wealth is to the housing market.”

Close to two-thirds of U.S. households own their homes. But of more concern than un-recovered home values, Wolff said, is the stagnant incomes of Americans.

Economists attributed the varying recovery in wealth partly to Fed policies that supported gains in stock and bond markets. “The Fed has kept things pretty good for the wealthy,” Wolff said.
…

Maybe dumping hundreds of billions of dollars into the hands of failed Wall Street Megabanks saved the world, but it apparently did little to help the average American Main Street household weather the financial pummeling of the Great Recession.

What recovery? US rich get richer, middleclass treading water
Published time: April 24, 2013 08:38
Spencer Platt / Getty Images / AFP

Income inequality surged during the first two years of the economic recovery, as the top 7 percent of American households was the only group to experience an increase in their net worth.

“Inequality is as dear to the American heart as liberty itself,” William Dean Howells once observed. But this quaint aphorism notwithstanding, the latest report on wealth polarization in the US may be difficult for many Americans to accept.

The top 7 percent of Americans saw their average net worth explode by 28 percent between 2009 and 2011, while the wealth of the remaining 93 percent of the population steadily declined during the same period, according to a study by the Pew Research Center.

From 2009 to 2011, the average net worth of the country’s 8 million wealthiest households surged from an estimated $2.7 million to $3.2 million, the Pew study said. For the 111 million households that make up the bottom 93 percent, average net worth plunged 4 percent, from $140,000 to an estimated $134,000.

The wealth chasm separating the top 7 percent and the rest of American society increased from 18-to-1 to 24-to-1 between 2009 and 2011. Meanwhile, the most affluent 7 percent of households owned 63 percent of the nation’s household wealth in 2011, up from 56 percent in 2009.

The results of the study throw a spotlight on a decades-long trend of increasing wealth disparity across the country, despite growing social and political awareness of the issue. In September 2011, protesters from the Occupy Wall Street movement descended on Manhattan, the financial heart of the US, and in Washington and elsewhere, to protest against rising social and economic inequality, corporate greed and political malfeasance.

Although the last presidential election between Barack Obama and Republican challenger Mitt Romney attracted attention to issues of inequality, proposed tax legislation aimed at narrowing the wealth gap has failed to pass in Congress.

Meanwhile, too-big-to-fail banks and other corporate entities that failed magnificently during the crisis, only to be rescued by a massive government bailout, continue to grow in size and – critics say – vulnerability to another setback.
…

April 17, 2013
Majority in U.S. Want Wealth More Evenly Distributed
And 52% support heavy taxes on the rich to redistribute wealth
by Frank Newport

PRINCETON, NJ — About six in 10 Americans believe that money and wealth should be more evenly distributed among a larger percentage of the people in the U.S., while one-third think the current distribution is fair. Although Americans’ attitudes on this topic have fluctuated somewhat over time, the current sentiment is virtually the same as when Gallup first asked this question in 1984. Slightly fewer have favored a more even distribution since October 2008.
…

Long delays at the airport seem like a great way to hit Republican Congressmen where it hurts, as I assume that while they are likely exempt from sequester travel restrictions, most of them aren’t wealthy enough to own their own airports and staff of private air traffic controllers?

Best part: Obama will win this blame game, hands down.

How the GOP Learned to Stop Smiling and Hate Sequestration
By Leslie Marshall
April 24, 2013

Months ago, a little thing called “sequestration” was facing the American people: cuts, cuts and more cuts – something Republicans normally love. At the time, soon after the two parties had played nice and come together at the eleventh hour to reach a deal as we all looked down at our toes tipping over the edge of the fiscal cliff, most of us, myself included, thought that sequestration wouldn’t happen. We assumed the Democrats and Republicans would hold hands, sing “Kumbaya” … well, you get the picture.

And … you know that didn’t happen.

As the hug festival we all anticipated and hoped for failed to materialize, President Obama listed the areas of cuts that would come. He spoke of the furloughs that would be given to the air traffic controllers; the cuts that would be made to the Federal Aviation Administration and its budget. Now these are union employees, so you would think this would be a double score for the GOP as they smile with glee.

[See a collection of political cartoons on sequestration and the fiscal cliff.]

If you recall, the GOP accused the president of trying to scare Americans when he spoke of those long lines and delays at the airport, as if it were fiction, something the President conjured up from the North Pole.

Now the furloughs are beginning – which union officials said months ago would take about four months to fully incorporate – and so to the lines and delays have begun. So the Republicans, seeing that Americans will blame them for the sequestration, want to place the blame on their favorite fall guy … the president.

I can see the political ads now: Long lines and delays at the airport? Don’t blame us, we who wanted the sequestration … blame the president. So I have a question, was the GOP lying then when they said the president was exaggerating? Or are they lying now that he is doing this for political gain?

[See a collection of political cartoons on airport security.]

And of course Republicans would have you believe that the president could change all of this with the swipe of his pen. And that’s not true. As Jay Carney reported, and the terms of the sequestration clearly show, only Congress can do that. Otherwise folks, this would be a dictatorship.

Seventy percent of the FAA budget is payroll; that’s personnel – jobs like … air traffic controllers.

So isn’t it clear why the GOP is pointing fingers at the president for these delays? They, their family, their friends, their lobbying buddies and corporate honchos are being affected. Where was the screaming at the federal employees who have been laid off? Not a word.
…

List of the top 12 “boomtowns” in USA. If you don’t want to click through the slideshow, they are:

Austin
New Orleans
Raleigh
San Antonio
Houston
Washington D.C. (no defense contractor left behind)
Oklahoma City
Nashville
Portland
Charlotte
Dallas
San Jose

http://mobile.bloomberg.com/money-gallery/2013-04-24/the-top-12-american-boomtowns.html

http://www.washingtontimes.com/news/2013/apr/25/sequester-tight-budgets-means-dhs-buying-less-ammu/

Tight budgets are forcing the Homeland Security Department to buy less ammunition, two top officials are slated to tell Congress on Thursday as the House oversight committee continues investigating the Obama administration’s ammunition purchases.

Despite the potential for cuts, the department still reported stockpiling more than 260 million rounds of ammunition as of November 2012 — a two-year supply, according to information provided to the committee ahead of a hearing on Thursday.

Hope and Change

“Basic dynamics of supply and demand would dictate that if there were a domestic labor shortage, wages should have risen. Instead, researchers found, they’ve been flat, with many Americans holding STEM degrees unable to enter the field and a sharply higher share of foreign workers taking jobs in the information technology industry.”

http://m.washingtonpost.com/business/economy/study-there-may-not-be-a-shortage-of-american-stem-graduates-after-all/2013/04/24/66099962-acea-11e2-a8b9-2a63d75b5459_story.html

The Economic Assassins Who Killed Cyprus
By Andreas C. Chrysafis on April 24, 2013 in Cyprus, News, Politics

Cypriots by all accounts are a resilient people and yet, one wonders why this small island has never enjoyed peace. Disraeli, the first Jewish minister of Britain, described Cyprus to Queen Victoria in 1878 as, “This jewel of the Med is the key to western Asia” and wanted to formulate the island as a “defensive dyke.” which describes why Cypus has been geo-politically doomed and in constant turmoil. Like a wake of ravenous buzzards, everyone wants bits of its entrails.

Today, Cyprus is not only a vital military “defensive dyke” but a financial center attracting billions of dollars worth of transactions. This economic miracle has provoked envy and even resentment in some EU member-states, especially Germany. Subsequently, the recent discovery of vast quantities of natural gas – estimated at €500 billion if not more – has exacerbated the urge to move against a vulnerable Cyprus, which seems like a trophy.

Dark EU forces lurking in dark corridors and have devised an unpalatable scheme and come up with a devious plan: Debtocracy. Reduce the nation to a pauper state through asphyxiating crippling loans and then it can be manipulated in any shape and form. Crashing its economy was a good start.

Unfortunately, the Cyprus government failed to read the danger signs until it was far too late. On the near-verge of bankruptcy, it was obliged to approach the Euro-Group lenders for a bailout. Last year, it was established that a staggering €17 billion was needed for Cyprus to remain in the Eurozone.

The Troika jumped at the opportunity to test its “innovative” radical new program devised under a shroud of secrecy. Advocated by both Germany and the ECB they put into action a most devious plan against the island and cunningly gave their “approval” to a €10 billion loan – out of €17 billion required. Under pressure, Cyprus agreed to raise the rest in compliance with Troika’s strict instruction. The trap was then set.

As a prelude to the final act of betrayal, a campaign was initiated to spin the real facts of the crisis – one of them being the ECB’s own funding of up-to €10 billion shortfall to a failing Cyprus bank. The ECB’s financial misconduct had caused an economic tsunami and helped to trigger the collapse of the Cyprus banking system.

Money laundering accusations soon began to spread around the world to scare off investors and the slurring continued with a vengeance. Those unfounded accusations of money laundering – mainly directed against Russian investments – were fervidly debated in EU parliaments but especially in Germany where an election climate existed.

George Soros, “the man who broke the Bank of England,” said in a speech last week that: “In the bailout of Cyprus, Germany went too far and Cyprus was a tremendous political victory for Chancellor Merkel.” Bad rumors instantly caused an irreparable damage to the nation’s economy and credibility. Its credit rating took a nosedive to junk status making it impossible to raise loans on the open market. By then, Cyprus had become the chunk of cheese caught in a trap to be nibbled away by friends and foes.

The European Central Bank then tightened the screw up forewarning that it would cut off all funding to the Cyprus banks and force its financial institutions into bankruptcy. The gloom and doom scenario has sent shock waves across the nation fearing that Cyprus will be the Troika’s next victims to experience a similar fate as Greece. It was to be worse than that.
…

Off the Charts
Seen From Greece, Great Depression Looks Good
By FLOYD NORRIS
Published: March 15, 2013

FIVE years into the Great Depression, one out of five workers in the United States was unemployed. The economy was nearly 20 percent smaller in 1934 than it had been at the peak, in 1929.

The Greeks can only wish they had it so good.

The Greek government this week released its estimate of economic output in the fourth quarter of last year, and also published its unemployment report.

For the year as a whole, the Greek economy, measured in 2005 euros, fell to 168.5 billion euros, down 6.4 percent from the previous year. That was a little better than the 7.1 percent decline in 2011. The last time the Greek economy was smaller than in 2012 was in 2001. The cumulative decline since 2007 was 20.1 percent.

In December, the unemployment rate was 26.4 percent, and that figure actually looked a little encouraging because it was lower than the 26.6 percent reported for November. Not since May 2008, when the rate fell half a percentage point to 7.3 percent, had there been a single month when the unemployment rate was reported to have fallen.

The accompanying charts compare the changes in gross domestic product and unemployment in the United States during the five years after 1929 with the changes in Greece during the five years after 2007.
…

Unemployment misery deepens in Spain and Greece
By Charles Riley @CNNMoney April 25, 2013: 5:55 AM ET
HONG KONG (CNNMoney)

The eurozone debt crisis extracted a heavy price in Spain and Greece to start the year as labor markets in both countries continued to shed jobs.

The number of unemployed in Spain broke the 6 million barrier during the first quarter, a new record. The unemployment rate rose to 27.2%, according to data released Thursday by the government.

Spain’s out-of-control unemployment is matched in Europe only by Greece, which posted a 27.2% jobless rate for January, the most recent month available.

Spain’s economy, the fourth-largest in the eurozone, is much bigger than that of Greece, and more systemically important.

But the countries have been plagued by a similar concoction of budget deficits and economic stagnation. Both responded with austerity measures that have eased their debt problems but have hurt their economies.

They also share severe crises in youth unemployment.

In Greece, 34.2% individuals aged 25 to 34 are unemployed. It’s even worse for younger workers — 59.3% of Greeks aged 15 to 24 are out of work.

For Spaniards aged 16 to 24, the unemployment rate is 57.2%.
…

Irish House Prices Fall for 4th Straight Month
By Eamon Quinn
Published April 25, 2013
Dow Jones Newswires

Irish home prices fell for the fourth consecutive month in March, suggesting the country’s housing slump is far from over after more than five years.

The government and its international bailout creditors continue to watch home prices for signs that Ireland is recovering from its banking and fiscal crisis.

The country came close to bankruptcy when its over-heated property market crashed in 2007. The Central Statistics Office said house prices are now 51% lower than at their 2007 peak, marking one of the largest declines recorded worldwide.

Prices nationwide dropped 0.5% on average last month from February and were down 3% from March 2012, the CSO said. In Dublin, residential prices fell 0.8% from February, but were 1.4% higher than in March 2012.

Home prices have now fallen in five of the last six months, including 1.5% in February, 0.6% in January and 0.5% in December.
…

The Role Of The Media In Propping Up Ireland’s Housing Bubble
23/04/2013 by Julien Mercille

Ireland’s economic crisis has its roots in a housing bubble that collapsed in 2007. Commentators have pointed to a number of bankers, politicians, developers and builders who share part of the responsibility for the orgy of lending and borrowing that preceded the crash, but the key role of the media has not yet been systematically examined. This is the task that a research project at University College Dublin seeks to address, on which this piece reports. The full academic article can be found here.

In the two decades before the crisis erupted, Ireland’s real GDP grew at an average rate of 6 per cent annually, while unemployment dropped from 16 per cent in 1994 to 4 per cent in 2000. The so-called ‘Celtic Tiger’ years were in fact made up of two different and successive booms. In the 1990s, the economy expanded thanks to export growth fuelled by American multinational corporations taking advantage of low tax rates in Ireland, which allowed the country to emerge from economic stagnation. However, as the growth of exports decreased significantly after 2000, a credit-fuelled construction boom sustained high economic growth rates. Real residential property prices tripled between 1994 and 2006, and construction ultimately accounted for more than 20 per cent of the size of the economy (the average for a developed country is about 5 per cent). As of April 2013, average house prices have dropped by a little more than 50 per cent nationwide relative to their peak in 2007.

It is not too difficult to identify a housing bubble in the making, based on simple indicators such as the P/E (price/earnings) ratio and the price-to-income ratio. This is what a few analysts did, such as The Economist magazine, which stated in 2002 that Ireland’s real estate market had been ‘displaying bubble-like symptoms in recent years’ and estimated that it was then overvalued by 42 per cent. However, the Irish media were almost without exception cheerleaders for the booming property market, only dampening their enthusiasm months after prices had started to decline in late 2007 and 2008.
…

What better place on the planet to expect hair-of-the-dog housing stimulus to work than Ireland? (I’m imagining that the original hair-of-the-dog hangover cure might have been invented there, but I’m not certain…)

Apply American solutions to the many Irish property problems
There are many demand and supply-side solutions to our property woes staring us in the face
Sean Ryan
Tue, Apr 23, 2013, 06:00
First published: Tue, Apr 23, 2013, 06:00

The landscape of the Irish property market is disjointed. In first quarter 2013 we have witnessed some rising house prices. However, this is only in certain parts of the country and particularly in Dublin. In other areas unemployment and high supply are keeping the market suppressed.

There is uncertainty over the impact of the Personal Insolvency Act on supply; there are legal roadblocks to bank repossessions; there is a very high percentage of mortgage arrears; there are a high number of cash transactions; and finally there is the perception that the banks are not open for business.

Solving problems
This article deals with some of these issues with most focus on mortgage arrears and solving that problem. It is important to note that at current new-build levels (8,000 or so in 2012) we are way below where the demand in this country is expected to be for the next 10 years given the demographics and the expected trends. We will need up to 30,000 new builds annually to meet the needs in the country.

Estimates put the number of mortgages in distress at about 13-16 per cent of all mortgages in the country or about 140,000 mortgages. It’s important to note that half the property stock in Ireland does not have any mortgages so the overall number in distress is 8 per cent or below.

Anecdotal evidence would suggest that there are also a lot of people close to a distressed state and are fighting to maintain payments. The people must not be forgotten in a solution because the last thing we need is for them to fall into a distressed state. In the United States the banks and the government are much more advanced in dealing with the same issues, having started the process back in 2009.

More on this later, but firstly lets deal with the demand side. We are all hearing stories of the banks not lending and refusing perfectly good applications for loans and mortgages. One story I heard recently was of a husband and wife who wanted to extend their home. They have no children and both of them are in professional, well-paid, secure employment. The bank refused the mortgage loan.
…

Italy housing market slumps, sales drop 23%, mortgages 39%
134,984 property deal closed in third quarter of 2012
15 April, 14:53

(ANSAmed) - ROME - The big impact the recession is having on Italy’s housing market was shown on Monday when Istat said property sales in the third quarter of last year were down by over 23%.

It said 134,984 property sales were closed at notaries between July and September last year, 23.1% down on the same three months in the previous year.

The national statistics agency added that the number of mortgages granted in the first nine months of 2012 was 39.5% lower than in the same period of 2011.

Property prices take another tumble
by TPN/ Lusa, in General · 27-03-2013 10:31:00

The average evaluation of Portuguese properties carried out by mortgage providers dropped again in February to stand at €998 per square metre and down an annualised 5.5 percent, the National Institute of Statistics announced Tuesday.

The statistics show that the month on month drop was a full percentage point down from €1,008 per square metre in January.
Both of Portugal’s main metropolitan areas saw continued downward pressure on housing prices with Lisbon and Porto registering falls of 0.8 percent and 0.4 percent on January to stand at €1,183 and €947 per m2, respectively.

In year-on-year terms, the two metropolitan regions have taken six percent and 4.1 percent hits to the average value of properties as evaluated by banks with the statistics pointing to an acceleration of the decrease in February.

However, the worst performing region in annualised terms are the Azores, down 9.5 percent and the Algarve, down 8.6 percent.

In terms of detached homes, they saw an average national monthly fall of 1.8 percent to stand at €943 per square metre in February and reflecting a year-on-year fall of six percent.
…

Housing prices drop in Victoria and Vancouver, bucking national trend
Andrew Duffy / Times Colonist
April 4, 2013

The real estate markets in Victoria and Vancouver appear to be bucking a national trend. Both have reported significant drops in average selling price through the first quarter of the year while the rest of the country is experiencing gains, according to a new Royal LePage survey.

The average selling price across common types of housing were higher year-over-year in most Canadian markets, with gains for houses at 2.4 per cent and condominiums up 1.2 per cent. But the same could not be said for the two largest B.C. markets.

In Victoria, the average price of a standard detached home dropped 1.5 per cent to $452,115 over the first three months of this year. The price of a bungalow dropped 3.8 per cent to $452,140 and condos fell 7.0 per cent to $267,000.

In Vancouver, which is still the most expensive housing market in the country, the average selling price of detached houses dropped 5.6 per cent to $1.116 million, bungalows fell 5.1 per cent to $1,013,750 and the average condo price slipped 5.6 per cent to $481,250.

B.C.’s decreases across all housing types is down to an overall reduction in activity from both buyers and sellers, which continues to drive prices down, Royal LePage said.
…

NOBODY COULD HAVE SEEN IT COMING!!!!

Silver lining for lenders: Since these mortgages were presumably covered by federal guarantees, they get made whole, courtesy of the U.S. taxpayer (i.e., you, dear reader).

The Tell
The Markets News and Analysis Blog
Modified mortgages show ‘alarming’ default trend
April 24, 2013, 9:01 AM

Troubled homeowners who received modified mortgages through a federal program are seeing high default rates, a troubling trend that officials inadequately understand, according to an investigator’s report released Wednesday.

The oldest permanent modifications made through the federal Home Affordable Modification Program, which launched in 2009, were redefaulting at a rate of 46.1% as of March 31, according to the report from the special inspector general overseeing the Treasury Department’s efforts to shore up the U.S. financial system. HAMP’s permanent modifications from 2010 have redefault rates ranging from 28.9% to 37.6%.

“The number of homeowners who have redefaulted on a HAMP permanent mortgage modification is increasing at an alarming rate,” the report said. “Treasury’s data shows that the longer a homeowner remains in HAMP, the more likely he or she is to redefault out of the program.”

Unfortunately, Treasury officials have an insufficient understanding of factors behind failures, according to the report.

“Better knowledge of the characteristics of the loan, the homeowners, the servicer, or the modification, more prone to redefault will increase Treasury’s understanding of the underlying problems that cause redefaults and provide Treasury an opportunity to address these issues proactively,” the inspector general said.

HAMP mortgages are modified to lower monthly payments by cutting interest rates and extending terms, among other actions. Servicers and borrowers receive incentive payments through the program.

Unsuccessful modifications have a “devastating effect,” according to the report.

“Redefaulted HAMP modifications on already struggling homeowners when any amounts previously modified suddenly come due,” according to the report. “When the homeowner cannot pay it, they lose their home to foreclosure.”

When Treasury launched HAMP, officials said the program could help 3 million to 4 million at-risk homeowners avoid foreclosure. However, as of March 31, only about 2 million HAMP modifications had been started, and 54% of these have been cancelled, according to the report.

Looking at Treasury’s use of funds from the Troubled Asset Relief Program, which was designed to shore up the U.S. financial system, less than 2%, or about $7.3 billion, has been spent on homeowner-relief programs, such as HAMP, as of March 31. Meanwhile, Treasury has spent 75% of TARP funds on rescuing financial institutions, the report said.

“For example, the PNC Financial Services Group (PNC +0.94%), a large regional east coast bank, alone received $7.6 billion, nearly the same amount of TARP funds used to help struggling homeowners throughout the nation,” according to the report. “Treasury pulled out all the stops for the largest financial institutions, and it must do the same for homeowners.”

–Ruth Mantell

China Housing Bubble? Watch These 2 Cities: Vanke
Sunday, 21 Apr 2013 | 11:20 PM ET
By: Reported by Ross Westgate, Written by Ansuya Harjani

CNBC speaks exclusively with Wang Shi, Chairman of the mainland’s biggest property developer, Vanke, at the China Entrepreneur Club’s Annual Summit of Green Companies in Kunming.

Controlling home price increases in China’s capital Beijing and financial hub Shanghai is critical for cooling the country’s broader property market, according to Wang Shi, chairman of Vanke, the mainland’s largest real estate developer.

“My concern is that if the price increases in those two cities can’t be controlled, it will result in price increases in other cities as well and that won’t be a good thing,” Wang told CNBC on the sidelines of the China Entrepreneur Club’s Annual Summit of Green Companies in Kunming, which is located in the country’s southwestern Yunnan province.

(Read More: Why China’s Property Market Is Getting Scary)
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Why is the MSM so fond of quoting ignorant people who offer bad financial advice?

Rapid improvement in the U.S. jobs picture seems quite likely to lead the Fed to exit QE3 “sooner than expected.” Perhaps Ben Bernanke will manage to hand over the reins before all hell breaks loose.

Mr Market seems blithely oblivious to the risk that QE3 may end long before anyone currently predicts.

April 25, 2013, 8:43 a.m. EDT
U.S. jobless claims fall near five-year low
New applications for unemployment benefits drop 16,000 to 339,000
By Jeffry Bartash, MarketWatch

WASHINGTON (MarketWatch) — The number of people who applied last week for new unemployment benefits fell near a five-year low, though the decline probably reflected temporary distortions that often occur after the Easter holiday and not a marked improved in the U.S. labor market.

Initial jobless claims dropped by 16,000 to a seasonally adjusted 339,000 in the week ended April 20, the Labor Department said Thursday. That’s the second lowest reading in 2013 and approached levels last seen in January 2008.

Economists surveyed by MarketWatch expected claims, a rough gauge of layoffs, to fall to 351,000 from a revised 355,000 in the prior week.

U.S. stock futures extended gains after the data.
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Mr Market seemed perfectly willing to overlook this dark cloud on the economic horizon.

U.S. NEWS
Updated April 24, 2013, 10:14 a.m. ET
Durable-Goods Orders Drop 5.7%
By JEFFREY SPARSHOTT and ERIC MORATH

WASHINGTON—U.S. orders for long-lasting manufactured goods fell sharply in March as businesses cut investment, suggesting that economic growth has cooled since the start of the year.

Durable-goods orders decreased 5.7% from the prior month to a seasonally adjusted $216.28 billion, the Commerce Department said Wednesday.

Economists surveyed by Dow Jones Newswires expected a 2.9% drop in March orders.

Durable goods are usually big-ticket items designed to last at least three years. Businesses and consumers typically make such purchases when they are confident about the economy.

Much of the weakness came from a drop in civilian aircraft and defense goods, volatile components of the monthly report, while demand for machinery and metals also softened. Orders for computers and electronics climbed.
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Adding to joe smith’s recent discussion about the baby boomer generation, why should we have to pay for the consequences of their bad lifestyle choices?

“If enough young people stay out of the market, then the risk pool in each group will be older and, presumably, sicker. And that will eventually drive up costs for everyone who remains.”

I just ran a marathon last weekend. I don’t want to pay for these fat olds’ diabetes meds and bypass surgeries.

http://www.marketwatch.com/story/to-cut-health-bills-boomers-need-20-somethings-2013-04-25

The report of my death was an exaggeration.

– Mark Twain

The civil war I predicted, in January, for Iraq has began:

http://www.bbc.co.uk/news/world-middle-east-22292220

What about the Fall 2012 election win you predicted for Romney? How’d that one turn out?

For anyone who has the time to peruse my various posts this morning from housing markets all over the planet, I have a simple question:

CAN YOU HEAR THE SOUND OF HOUSING PRICES CRASHING ALMOST EVERYWHERE EXCEPT THE U.S., WHERE THE CENTRAL BANK PUMPS IN $40 BILLION A MONTH OF QE3 LIQUIDITY IN AN OVERT POLICY TO PROP UP THE HOUSING MARKET?

If propping up housing prices is good policy, how come every central bank isn’t doing it?

Norway’s March s/a housing prices fall 0.2 pct m/m
OSLO, April 2 | Tue Apr 2, 2013 5:07am EDT

(Reuters) - Norwegian seasonally adjusted housing prices fell 0.2 percent in March compared to February, real estate industry associations reported on Tuesday.

On a year-on-year basis, prices rose by 7.0 percent in March, the association of real estate agents (NEF) and the association of real estate agency firms (NFF) said.

Unadjusted prices rose by 0.1 percent in March from February.

“We don’t see any effects of Easter on the sales volumes, which indicates that prices are levelling out,” the agency said in a statement. (Reporting by Camilla Knudsen, Writing by Victoria Klesty)
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sadly for teabillies everywhere, the story about the COEXIST sticker on the bomber-carjacked mercedes in Boston was an internet hoax.

http://jalopnik.com/the-coexist-sticker-on-boston-bomber-carjacked-car-is-478736660

April 25, 2013, 10:00 a.m. EDT
15-year mortgage rate hit record low of 2.61%
By Ruth Mantell

WASHINGTON (MarketWatch) — The average rate on the 15-year fixed-rate mortgage hit a record low of 2.61% in the week ending April 25, down from 2.64% in the prior week, Freddie Mac said Thursday in its weekly report. These data go back to 1991. A year ago, the 15-year rate was 3.12%. Meanwhile, the 30-year fixed-rate mortgage ticked down to 3.40% in the latest week from 3.41% in the prior week, nudging closer to a record low of 3.31%. The average rate on the 5-year Treasury-indexed hybrid adjustable-rate mortgage also hit a record low in the latest week, declining to 2.58% from 2.60% in the prior week. The data on the 5-year mortgage go back to 2005. The 1-year Treasury-indexed ARM ticked down to 2.62% in the latest week from 2.63% in the prior week.
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All dollar-denominated asset prices are rising today on a tsunami tide of QE3 liquidity.

The Big Pump and Dump
http://usawatchdog.com/real-estate-pump-and-dump-scheme-fabian-calvo/

“Even in the absence of the excess empty housing inventory estimated in the tens of millions, historically housing prices fall. Why? Because houses depreciate. ALWAYS.”

Hope and Change

“The NYPD is looking for two children, one as young as 10-years old, who attempted to mug a woman in Central Park.”

http://wap.myfoxny.com/w/main/story/90116945/

“90% of All Foreclosures Held Off Market” ……..…. And There Are MILLIONS of Them

http://realestate.aol.com/blog/2012/07/13/shadow-reo-as-much-as-90-percent-of-foreclosed-properties-are-h/

[i]Comment by ecofeco

2013-04-24 12:50:45

It seems our only choices have been Tweedledee or Tweedledum Dum for decades.

However, this does not detract from the main issue of the GOP doing far more to deliberately screw J6P, than anyone else.[/i]

This may be your main issue but I must say it did not seem to be [i]the[/i] main issue.

Anyone with an “if we could just get rid of one of the parties the other party would fix what ails us” point of view is missing the point entirely.

Pesky building codes, clean air, clean water and worker welfare rules in America? Not a problem, just move the factory elsewhere.

DHAKA, Bangladesh — Search crews on Thursday clawed through the wreckage of a collapsed building that housed several factories making clothing for European and American consumers, with the death toll rising to at least 238 and many others still unaccounted for.

The collapse of the Rana Plaza building in Savar, an industrial suburb of Dhaka, the capital, came only five months after a horrific fire at a similar facility …

Labor unions are almost nonexistent, and a labor organizer, Aminul Islam, was tortured and murdered last year. The case remains unsolved.

http://www.nytimes.com/2013/04/26/world/asia/bangladeshi-collapse-kills-many-garment-workers.html?pagewanted=all&_r=0

This will come as no surprise whatsoever to readers here, but still worth posting.

Had lunch with my cousin today. His house has been in foreclosure for around two years now and the whole time his kid has been squatting in it while renting part of it out to somebody else (income with no expenses!). He told me he just received a $300 check in the mail from the government as some kind of reimbursement program for people who are being foreclosed on…Onward!

Cape Coral couple cry foul over foreclosure, eviction

A pair of Fort Myers men who invented Bagel Bites have left a bad taste in the mouths of a Cape Coral couple being evicted from their house by the culinary duo.

Stan Garczynski and Bob Mosher, who created the bite-size pizza bagels in 1985, bought the waterfront home of Nickie Haggart, 70, and Jim Haggart, 83, at a foreclosure auction in January for $4,350.

Before the real estate market crashed, the 2,991-square-foot home was listed for $1.2 million. It is currently assessed at $387,906.

The house was placed on the auction block after Cape Coral foreclosed on an unpaid water assessment impact fee lien that totaled $620 plus unspecified interest, penalties and attorney fees, according to court records.

http://www.news-press.com/article/20130425/NEWS0101/304250025/Cape-Coral-couple-cry-foul-over-foreclosure-eviction

Church Split on How to Manage $2 Billion Legacy of a Queen

Published: Thursday, 25 Apr 2013 | 9:39 AM ET
By: Sharon Otterman

There has never been any doubt that Trinity Church is wealthy. But the extent of its wealth has long been a mystery; guessed at by many, known by few.

Now, however, after a lawsuit filed by a disenchanted parishioner, the church has offered an estimate of the value of its assets: more than $2 billion.

The Episcopal parish, known as Trinity Wall Street, traces its holdings to a gift of 215 acres of prime Manhattan farmland donated in 1705 by Queen Anne of England. Since then, the church has parlayed that gift into a rich portfolio of office buildings, stock investments and, soon, mixed-use residential development.

“Given the resources, I think they do exactly what they should be doing,” said Susan V. Berresford, a current member of the vestry and the former head of the Ford Foundation. “This, I think, is a first-class philanthropic operation and one that is using its resources very wisely.”

“The Trinity Church properties are now among the most valuable in all of New York City, because they are sitting on the edge of the hottest neighborhoods in the city — SoHo, TriBeCa and Greenwich Village,” said Mitchell L. Moss, a professor of urban policy and planning at New York University. “Trinity has been either very wise or very prudent, but they have let the market mature around them, and now they are ready to take advantage of it.”

The church, which calls itself “one of the largest landowners in Manhattan,” has also been building an equity investment portfolio that was worth about $160 million in 2011. And the value of Trinity’s real estate holdings is expected to grow because rezoning of much of the church’s land will allow up to 3,200 new residential units, with the first large project planned for Duarte Square on Canal Street.

Some details are not included on the form, church officials said, like Mr. Cooper’s $475,000 annual salary — which rises to a total compensation of $1.3 million when his pension and the estimated cost of his residence in a $5.5 million, church-owned SoHo town house are added. For at least some of the defecting vestrymen — who complained Mr. Cooper was circumventing them in decision-making, subverting a review of his leadership and de-emphasizing religious education and philanthropy while obsessing about reconstructing the church’s administrative headquarters at 74 Trinity Place — those numbers rankle.

Mr. Cooper said he believed the church had the right balance between ministry, charity and its real estate business.
———————————————————————————-
Global agenda and plan of action crafted during the Earth Summit, the 1992 United Nations Conference on Environment and Development (UNCED) held in Rio de Janeiro, Brazil. It is a comprehensive set of plans of action to promote sustainable development and eliminate national sovereignty in favor of allowing global control by the United Nations and their approved NGOs

Term

ICLEI

International Council on Local Environmental Initiatives which was renamed to Local Governments for Sustainability to make the group seem less International. Created in the 90’s after the 1992 Rio summit by the United Nations. This is one of the primary United Nations certified organizations. Also sponsored by the Kaiser Foundation from Oklahoma.

Mixed-Use Development

Buildings where residential and business is designed to be mixed so that no one building is only residential or business.

Sustainable Development

Development that considers future generations in planning and is not allowed to impact the planet or the environment in any way

http://tulsansforsustainablefreedom.com/glossary.html - -

ft dot com
April 24, 2013 11:22 pm
Housing industry defends US tax breaks
By James Politi in Washington

The US housing industry will warn lawmakers not to curb the tax deduction on mortgage interest as they grapple with ways to reform the US tax code and reduce America’s budget deficits.

In testimony prepared for a hearing on Thursday before the ways and means committee in the House of Representatives, Gary Thomas, president of the National Association of Realtors, will mount a vigorous defence of the mortgage tax break, according to a copy obtained by the FT.

“Congress should avoid further raising taxes on homeowners in a quest for additional revenue while federal spending is at record highs. Congress must first look to reduce spending in order to get our nation’s fiscal house in order,” Mr Thomas, a realtor in California, will say.

Led by Republican chairman Dave Camp, the House ways and means committee is pressing ahead with plans for a sweeping overhaul of the US tax system, and is considering any ways it can to raise revenue that could be used to lower the top individual tax rates. Meanwhile, Democrats including Barack Obama are eyeing tax reform as a way to reduce deficits and make the tax code more efficient and competitive.

This combination has put the mortgage interest deduction – claimed by more than 36.7m taxpayers in 2010 – in the crosshairs, since it is one of the largest US tax breaks in the system, costing the government more than $100bn per year.

Proponents of curbing the mortgage interest deduction have argued that it disproportionately benefits upper-middle class and wealthy Americans, and distorts incentives in the US economy toward home ownership in an unhealthy way. Some even believe that its existence contributed to the housing bubble of a decade ago that eventually burst, leading to the financial crisis.

But Mr Thomas rejects those arguments. “The tax system does not cause home ownership. People buy homes to satisfy many social, family and personal goals. The tax system facilitates home ownership,” he will tell lawmakers, saying they “should not dismiss or underestimate America’s passion for home ownership, notwithstanding the most recent economic crisis.”

Furthermore, the NAR president will say that the last time Congress withdrew tax breaks for housing in the 1986 reform under president Ronald Reagan, a recession followed. “Congress must be mindful that eliminating widely-used and simple tax provisions can have harsh and dangerous unintended consequences,” Mr Thomas will say.
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Furthermore, the NAR president will say that the last time Congress withdrew tax breaks for housing in the 1986 reform under president Ronald Reagan, a recession followed. “Congress must be mindful that eliminating widely-used and simple tax provisions can have harsh and dangerous unintended consequences,” Mr Thomas will say.

Post hoc ergo propter hoc fallacy in action!

More photos of the voulntary house search in Watertown.

USA USA USA

: Americans Ordered Out Of Homes At Gunpoint …
http://www.infowars.com/shocking-footage-americans-ordered-out-of-homes-at-gunpoint-by-swat-teams/ - 74k -

How many of you scumbag realtors have the intestinal fortitude to admit your occupation?

How much do you think NAR and MBA pay the owner of Patrick.net?

More than half a decade after the housing bubble popped, it seems we still haven’t run out of housing market victims. The latest: Banks that were victims of inflated ratings on their sh!tty mortgage assets.

REVIEW & OUTLOOK
April 24, 2013, 6:57 p.m. ET

Suddenly, Banks Are Victims
In their S&P lawsuit, the feds discover a new crisis narrative.

Standard & Poor’s on Tuesday asked a federal judge to dismiss a $5 billion fraud lawsuit filed by the Justice Department. The judge ought to grant S&P’s motion for many reasons, not least because otherwise no one will be able to sort Washington’s list of victims and villains.

The lawsuit covers the years before the financial crisis of 2008. Justice accuses S&P of claiming to be “independent” and “objective” and then—in order to please clients—assigning Triple-A ratings to mortgage-backed securities that S&P knew were more risky. S&P denies this.

In this latest Beltway telling of financial history, the alleged victims include two bailed-out U.S. financial giants and a failed credit union. Yet in other federal suits, all three have been charged as perpetrators of the mortgage crisis.

Former executives of Western Federal Corporate Credit Union, known as WesCorp, must be shocked to learn that Washington now blames their troubles on somebody else. WesCorp bought a lot of the mortgage paper at issue and its managers were fired and then sued by regulators after the feds seized the failing credit union in 2009.

Few would argue that these managers were blameless. Last year WesCorp’s former chief economist Dwight Johnston described the problem to trade publication Credit Union Journal. “Management was well aware the housing bust was possible,” said Mr. Johnston. “But from 2004 through 2007, no one inside WesCorp really wanted to hear about it.”
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Rumor has it that homes are selling like hot cakes in our nook of North County San Diego during this red hot spring sales season at a high premium to last year’s sale prices.

The bubble is back with a vengeance, and it is only a matter of time until the next crash.

The BOJ can print and print some more, but they never, ever can seem to be able to stop deflation, no matter how much they print!!!

Luckily deflation can never happen here, because this is America, where the stock and housing markets always go up.

BREAKING NEWS
Kia Profit Tumbles Steeper-Than-Estimated 35% on Production, Won

Japan Deflation Deepens as BOJ Maintains Policy Stance: Economy
By Toru Fujioka & Andy Sharp - Apr 25, 2013 9:53 PM PT

Japan’s consumer prices fell the most in two years, underscoring the challenge facing Bank of Japan Governor Haruhiko Kuroda as he works to meet a 2 percent inflation target.

Consumer prices excluding fresh food slid 0.5 percent in March from a year earlier, the statistics bureau said today in Tokyo. The median estimate of 25 economists surveyed by Bloomberg News was for a 0.4 percent decline. Overall prices dropped 0.9 percent.

Today’s data will be no surprise for the BOJ, which this month said that it expects prices to keep declining for “the time being” even after unveiling a plan for unprecedented easing. The bank today kept its pledge to expand the monetary base, and later may raise its forecasts for consumer prices to signal confidence it will reach its inflation target by 2015, people familiar with the matter told Bloomberg News this month.

“We can expect more easing later this year if prices refuse to edge up,” said Junko Nishioka, chief economist at Royal Bank of Scotland Group Plc (RBS) in Tokyo and a former BOJ official. “It’s imperative for the BOJ to clearly communicate its objectives to maintain expectations that prices will rise.”

The BOJ’s easing is pushing up property prices and is likely to lead to higher rents — a key consumer-price driver, Nishioka said. Prime Minister Shinzo Abe is also using his ties with business leaders to try to pressure companies to raise wages, she said.
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Got physical?

U.S. Mint Runs Out of Smallest American Eagle Gold Coin
By Debarati Roy - Apr 24, 2013 2:02 AM PT

The U.S. Mint ran out of its smallest American Eagle gold coin after demand surged following the biggest drop in futures in three decades.

Sales of the coins weighing a 10th of an ounce were suspended after demand more than doubled in 2013 from a year earlier, the Mint said yesterday in a statement. Total sales of American Eagles in April have almost tripled from a month earlier, according to its website.

Shoppers from India to China and Japan joined consumers in the U.S. and Australia in the rush to buy jewelry and coins after futures slumped 13 percent in two days through April 15. Indian buyers flocked to stores and banks for ornaments, coins and bars as purchases from the Perth Mint in Australia doubled and retail sales across China tripled.

“This week has been very busy for us,” Michael Kramer, the president of New York-based MTB Inc., a dealer authorized to purchase coins directly from the Mint. “We do not yet anticipate suspension” of heavier coins, he said. The Mint also sells 22-karat American Eagles of 1 ounce, half an ounce and a quarter of an ounce.

“The 1-ounce gold bullion coins are the most popular,” Michael White, a Mint spokesman, said in the e-mail.
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It seems odd that while Ben Bernanke has no inkling there is a new housing bubble developing, other knowledgeable experts see highly visible signs that the Fed is deliberately creating one.

Fascinating…

OPINION
Updated April 9, 2013, 7:44 p.m. ET
Is the Fed Blowing a New Housing Bubble?
Stagnant real incomes suggest that rising home prices reflect artificially low interest rates.
By EDWARD PINTO

Over the past year, the Federal Reserve has ramped up its policy of quantitative easing, with the result being new stock market highs and surging bond prices. Moreover, housing prices jumped 8%, the biggest annual gain since 2006.

The result is that more than a trillion dollars have been added to the market value of single-family homes. Homeowners are now wealthier and according to what economists call the “wealth effect,” they should be willing to spend more, helping the economy.

But there is another, less sanguine view of the housing recovery. Recent data released by the Federal Housing Finance Agency (FHFA) suggest that the increase in house prices is not being driven by a broad-based improvement in the economy’s fundamentals. Instead, the Fed’s lower rates are simply being capitalized into higher home prices. This does not bode well for the future.

A comparison of FHFA’s conventional home-financing data for February 2012 and February 2013 shows that borrowers bought newly built and existing homes in 2013 for 9% and 15% more respectively than in the previous year. Increases of this magnitude cannot be attributed to higher incomes, as these rose a mere 2% over the last year, just keeping up with inflation. It appears that home prices are being levitated by quantitative easing. Because interest rates were .625% and .90% lower on new and existing homes respectively this year compared with last year, the monthly finance cost to purchase a new home remained the same and went up only 3% for an existing home.

While a housing recovery of sorts has developed, it is by no means a normal one. The government continues to go to extraordinary lengths to prop up sales by guaranteeing nearly 90% of new mortgage debt, financing half of all home purchase mortgages to buyers with zero equity at closing, driving mortgage interest rates to the lowest level in 100 years, and turning the Fed into the world’s largest buyer of new mortgage debt.

Thus, with real incomes essentially stagnant, this is a market recovery largely driven by low interest rates and plentiful government financing. This is eerily familiar to the previous government policy-induced boom that went bust in 2006, and from which the country is still struggling to recover. Creating over a trillion dollars in additional home value out of thin air does sound like a variant of dropping money out of helicopters.

Will history repeat? When it comes to interest rates, whatever goes down must go up.

The average mortgage rate during the first nine years of the 2000s was 6.3% compared with today’s rate of less than 3.5%. If mortgage rates were to increase to a moderate 6% in three years, say, some combination of three things would have to happen to keep the same level of homeownership affordability. Incomes would need to increase by a third, house prices would need to decline by a quarter, or lending standards would need to be loosened even further.

The National Association of Realtors and the rest of the government mortgage complex can be relied on to push for looser lending. The Consumer Financial Protection Bureau recently came out with new rules that would grease the skids for relaxed lending standards, compliments of Fannie Mae, (FNMA +0.12%) Freddie Mac (FMCC -0.85%) and the Federal Housing Administration.

Given the continued subpar economic recovery and our past experience with the disastrous impact of loose lending encouraged by federal policies, homeowners would best be cautious about spending their new found “wealth.” Americans have seen this movie before and know how it ends.
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How will history ever figure out a way to thank any number of today’s big name economists for doing such a fine job of royally screwing up the financial system?

Paul Krugman Advised Fed To Create A Housing Bubble In 2002
Bloomberg View | By Matthew C. Klein Posted: 04/19/2013 3:14 pm EDT | Updated: 04/19/2013 3:23 pm EDT

Americans have been whipsawed by devastating cycles of boom and bust over the past three decades. Now some at the Fed want us to go through it again.

The excesses of the 1980s — leveraged buyouts, the junk bond bubble and wild property speculation — led directly to the original “jobless recovery” of the early 1990s. This occurred despite a prolonged period of very low interest rates. (The 1990 tax increases and post-Cold War defense cuts were probably counterproductive.) In many ways, that episode was a dress rehearsal for the recent crisis, so it makes sense that some of the most interesting writings about the dangers of excessive private borrowing come from that earlier time.

It didn’t take long for the next boom and bust cycle to hit. In the second half of the 1990s, the irrational exuberance of stock investors fueled a binge of business spending. Real nonresidential private investment increased at an annualized rate of more than 12 percent between the beginning of 1996 and the middle of 2000. That changed once firms realized that they had been wasting their money on bad investments and unneeded capacity. Capital expenditures plummeted by nearly 20 percent between the middle of 2000 and the end of 2001. Real business investment didn’t return to its pre-recession level until the beginning of 2005.

The massive swing in capital spending plunged the economy into recession and held back the recovery for years. According to the Census Bureau’s Current Population Survey, real median incomes (for individuals, not households) increased at an annualized rate of just 0.2 percent from 2001 through 2007. More Americans were working in the private sector in December, 2000, than in May, 2005. Since the population of prime-age workers was expanding throughout this period, the actual damage was even worse. Again, this was in spite of the fact that real interest rates were very low for a long time and in spite of the large tax cuts and spending increases of the early 2000s.

In 2002, economist Paul Krugman, who would go on to win a Nobel Prize in 2008, advised that the Fed “create a housing bubble to replace the Nasdaq bubble.” In his view, this would allow “soaring household spending to offset moribund business investment.” (Krugman began warning that the housing bubble was dangerous in 2005.)

We now have extensive evidence that the wanton borrowing that fueled the recent housing bubble made the economy vulnerable to the devastating downturn the U.S. endured. This shouldn’t have been surprising. After studying every business cycle experienced by 14 rich countries since 1870, Oscar Jorda, Moritz Schularick and Alan Taylor found that excessive private credit growth systematically predicts deeper downturns and slower recoveries.

Back in the 2000s, however, most people just wanted to get out of the funk associated with the aftermath of the tech boom. There was also a widespread belief that bubbles aren’t dangerous as long as the central bank is around to “clean up” the mess when they burst. This view was best articulated by Ben Bernanke in 1999. As a result, many monetary policymakers were untroubled by the prospect of creating a new bubble to replace the old one.

Transcripts of the Fed’s internal meetings make it clear that this was their conscious plan. On March 16, 2004, Donald Kohn, a longtime Fed staffer who later became the Fed’s vice chairman, said that the credit bubble was “deliberate and a desirable effect of the stance of policy.” According to Kohn, the Fed’s strategy was: “boost asset prices in order to stimulate demand.” That appeared to work for a short time, but it ended badly. We’re still struggling to emerge from the wreckage despite, yet again, incredibly low real interest rates and very large government budget deficits. Clearly, cleaning up after bubbles is harder than it’s made out to be.

One might think that the Fed has learned something from this experience. A recent speech from Nayarana Kocherlakota, the president of the Minneapolis Federal Reserve Bank, suggests otherwise. He said that the Fed “will only be able to achieve its congressionally mandated objectives by following policies that result in signs of financial market instability.” In other words, he wants to repeat the exact same formula that Donald Kohn endorsed in the 2000s.
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