It Seems Like We Have Been Here Before
A reader suggested a topic on recent events. “It looks like the Brazilian protests got even larger last night. China is in a liquidity crisis so advanced that they can’t even hide it anymore. Europe is toast. It looks like the BRICs have ended their sprint. What about the BRICs? Where are all the rich foreigners now? What new kabillionaires will swoop in to buy up all of our millions of shadow inventory using solid gold bars, absorbing the oversupply, driving prices into the stratosphere and saving us all?”
“People argue about FED involvement in the economy and whether it will end. Everything ends- often not in the way hoped or intended. I don’t have answers, but I do have questions. I believe that there is an unspeakable amount of hubris in DC and that most of these idiots actually believe (or did at one time) that they ‘have it under control’. The fundamental facts that they attempt to ignore (markets seek equilibrium and the gross imbalances all around us) are all taught in ECON 101. These morons know what they have done.”
“It cannot be lost on the sociopaths that the longer they try to stave off equilibrium/reality, the more catastrophic the eventual collapse. If semi-educated people like us can realise this simple fact (and see its effects all around us), then they must be aware of it as well. For this reason I would like to think that they will begin to pull away the punchbowl and face reality before it gets even worse.”
“QE has made systemic imbalances worse. It is also acknowledged that every successive dose of QE has had a smaller positive effect and a shorter half-life. So if they elected to continue, they would be forced to ’spend’ (create additional debt) ever-increasing amounts of money at shorter intervals to obtain decreasing results. Within a couple of years the US would be injecting 1 Trillion $ each month. How feasible is that? Once it becomes dubious- much less farcical- then nobody has any faith in the system and the whole thing collapses anyway.”
“But now the genie of Unintended And Unforseeable Consequences is well out of the bottle. In every country, every Central Bank and every boardroom the Masters Of The Universe are furiously flipping switches and throwing levers, all either trying to stay afloat or make a killing.”
The Daily News. “During the early years of the real estate bubble last decade it took just 15 months for the San Fernando Valley’s median home price to leap 47 percent, moving from $343,000 to hit the half-million dollar mark in June 2004. Now, with the market bouncing back from the Great Recession, there’s something familiar about the current rise in prices. It’s taken only about 17 months for the Valley median to move from a recession low of $339,000 in December 2011 to once again flirt with $500,000. So are we heading for another session of bubble trouble?”
“‘Nah, not even close’ replied economist Christopher Thornberg. ‘What we are dealing with here is not a bubble but a market that is reacting to the fundamentals.’”
“‘I don’t think we’re entering another housing bubble burst,’ said Jim Link, CEO of the Van Nuys-based Southland Regional Association of Realtors. ‘The crazy times are gone. Lenders are not giving loans to people who (are not qualified) for a loan. Things have greatly changed in the lending area.’”
From Bloomberg. “While rising costs make purchasing real estate more expensive, the upshot for homebuyers is that banks will need to respond by improving credit availability that has been holding back the market for the past five years. ‘If people believe house prices are going up, credit availability will evolve,’ said Paul Willen, a senior economist at the Federal Reserve Bank of Boston. ‘There is too much money to be made lending to homebuyers. Lenders will find a way.’”
“Even as Bernanke resorted to unprecedented measures, including holding borrowing costs near zero, the central banker said at the start of last year that housing was being held back partly by tight credit. Bank of America Corp., which has hired 1,000 loan officers during the past year, plans to continue adding staff to aggressively go after home-purchase business as refinances slow, said spokesman Terry Francisco. The company is doing more lower-down-payment originations because mortgage insurers are getting more comfortable with them as home prices rise, he said. The company is considering lowering its down-payment requirement for jumbo loans to 15 percent from 20 percent, he said.”
“‘We would never change credit conditions due to market pressures,’ he said. ‘Any changes would be based on economic factors.’”
“‘What we’ve seen in the last three or four years is that lenders were so skittish about doing something wrong,’ said Guy Cecala, publisher of Inside Mortgage Finance, a trade journal. ‘They said let’s do the safest loans on earth. What’s prodding them away from that is being more comfortable with the quality of loans and also the fact of life that unless they start being more flexible, volumes will go down.’”
“While underwriting standards are far more restrictive than they were during the real estate boom, lenders are becoming more flexible, said Cecala. They’re dialing back documentation requirements for jumbo loans for pricier properties and allowing lower down payments even for conventional mortgages, he said.”
“Zillow Mortgage Marketplace saw a 570 percent increase in the number of lenders offering conforming loan quotes with down payments of 3.5 percent to 5 percent in March 2013 compared with two years earlier, said Erin Lantz, director of the site. ‘More lenders are willing to lend to borrowers with lower down payments — it’s an indication that they are able to extend credit more broadly,’ Lantz said.”
“More buyers are also getting low down-payment loans backed by government sponsored mortgage enterprises, Fannie Mae and Freddie Mac, said Credit Suisse Group AG mortgage strategists Mahesh Swaminathan and Vikram Rao. Rising home prices have made mortgage insurers more willing to take on loans with lower down payments. ‘Otherwise creditworthy borrowers who wanted to buy homes with lower down payments were largely left out of the market a couple of years ago,’ Rao said. ‘Now some of those people are able to come into the market and buy. The market has opened for them.’”
From CBS News. “In Dumont, New Jersey, 30-year-old Jeremy McDonald decided he couldn’t wait any longer to jump into the housing market. ‘And now that the prices are starting to trickle up a little bit, it’s a good time to get in there ’cause I know the market’s not going down anymore,’ he said.”
“Realtor Kelly Weber says in the past few months it’s suddenly become a sellers’ market. ‘Actually they’re starting to get over asking price,’ she said. ‘You’re getting multiple offers on properties. Inventory is low. You have buyers wanting to get in before rates start creeping further up, which is creating this frenzy.’”
The Herald Tribune. “One of the most ambitious real estate developments planned for Southwest Florida during the mid-2000s housing boom is moving forward again. Kolter Group LLC’s plan to resurrect its 18-story Grand Sarasotan luxury condominium project — albeit with a new name — also represents the largest new residential development in Sarasota to consider moving ahead since 1350 Main St. was completed in 2006.”
“‘It’s shocking,’ said Jack McCabe, a real estate consultant in Deerfield Beach. ‘A lot of developers that held onto choice sites like this have instead downsized from their boom-time dreams. It shows a lot of confidence by this developer. Only time will tell if they actually fill these units with buyers, or if they just sit empty.’”
“‘It seems like we have been here before,’ said Sue Wolverton, Coldwell Banker senior VP in Southwest Florida. ‘There’s definitely a demand, and the upper-end market is moving. The timing might be right to get a few projects underway.’”
Take a look at thsi statement:
“The company is doing more lower-down-payment originations because mortgage insurers are getting more comfortable with them as home prices rise.”
As the price rises the risk should increase, should it not? The only way this would not be true is if there was no limit to the rise. If there is a limit to the rise - aka “a top” - then the higher the rise in price then closer to the top the price will get.
And as the price closes in on the top the risk should increase, not decrease. But this is not how the industry sees it.
This, BTW, is an example of a market where Price equals Value and fundamentals (if there are any) are ignored.
Could our government backstopping almost all mortgages at present be just a little bit responsible for “confidence”?
Prices around Boston have become insane. The median household income isn’t over $60k a year, but fixer uppers are going for $450k with 40-50 minute commutes to Boston. Prices are now higher than before the recession and last housing bubble. Has the fundamentals changed that much?
Beware Jon. This is all the more reason to avoid housing. Furthermore, the price correction will be even more severe.
“Has the fundamentals changed that much?”
It gets down to whether interest rates are a fundamental. Though they may be so over the long-term, the heavy influence of monetary policy such as QE3 on recent interest rate levels suggests they are not a short-run fundamental.
The median household income isn’t over $60k a year, but fixer uppers are going for $450k
That’s about the median HH income in my little burg, but fixer uppers here go for about 150K.
http://www.realtor.com/realestateandhomes-detail/1015-E-2Nd-St_Loveland_CO_80537_M17655-75326?row=68
According to Zillow, the median household income in Boston is about $39,000, the same as my town. But their houses are almost 3 times more expensive.
“According to Zillow, the median household income in Boston is about $39,000″
LOL!! $39K median in Boston? Maybe in Dorchester. Reason #817 to avoid Zillow.
http://www.boston.com/business/gallery/medianincomesinmass/
Shows town by town median income for the greater Boston area.
Some examples…
Sherborn: $190,000
Weston: $176,000
Carlisle: $170,000
Dover: $169,000
Wellesley: $166,000
Sudbury: $157,000
Andover: $138,000
$39,000…..LOL!!
I just looked at some incomes in the Boston area. You must have spent half an hour picking out these six. But here’s my question; what does a person in Boston make when they lose their job? Because that’s what’s coming for the bubble areas. And if people in Boston are so rich, why did so many walk away from their houses and condos a few years ago?
Oh, almost forgot…LOL!
I got the $39k from Zillow. According to wikipedia, it’s $51,739.
So, wages are 30% higher than my town. And houses are 175% higher.
“I just looked at some incomes in the Boston area. You must have spent half an hour picking out these six.”
As you know, Slithers has a tendency to pick out exceptions and out-LIARS and then misrepresent them as the trend.
You gotta love Slithers.
Too funny!
Everywhere I read, the talk is of a “frenzy” when describing house sales. Yet, typically in the same articles you have at least one “expert” who adamately states that there is no bubble. “Frenzy” is mania. We all know what housing mania begets.
“We all know what housing mania begets.”
Frenzied froth, followed by frenzied sales?
Buy, buy buy! Sell, sell, sell!
It doesn’t work out that way in a mania. Acceptance of foolishness take a long time to gain traction. Maniacs (housing bubble buyers) have to be literally crushed to loosen their grip. Years may pass before an unlikely vision of reality. Heirs have a better chance at seeing reality. There is a space between buying mania and capitulation. It has a bounce in it, always. that is where we are. Sales will not be “frenzied”, they will be resigned.
Lets all try to provide some additional clarity to Bubble 2.0 and its aftermath so that historians will be better able understand its nuance. Instead of “mania” or “frenzy”, I’m going to start using the term ‘housing dementia’. To me, this more accurately reflects the sick, tragic and negative aspects of this level of self-inflicted economic damage.
It gets a little fuzzy, but wasn’t Thornburg one of the only economists to admit a housing bubble last time? I don’t mean he warned anybody early on, but he did call a bubble when it was obvious to everyone but an economist.
I think the difference this time around is that Thornburg owns his own consulting firm. Whereas before, he was a professor at UCLA.
Prostitution tends to corrupt prostitutes.
I know,
He looked honest only when standing next to David lier-ah and Less-lie appleton young.
Same with Ivy Zelman.
A scarcity of homes for sale and record-low mortgage rates are setting up for a bullish real estate market, Zelman & Associates CEO Ivy Zelman said Thursday on CNBC.
“I think we’re in nirvana for housing,” she said. “I think that I have to tell you, I’m probably the most bullish I’ve ever been fundamentally, and I’m dating myself, been around for over 20 years, so I’ve seen a lot of ups and downs.”
-from the CNBC article, “‘We’re in Nirvana for Housing’: Zelman”
I wonder what Ivy thinks about all this.
No need to wonder. Google the article above.
How large are the payments Ivy is receiving?
DANG! Fundamentals are weaker now than they were before. Unemployment is higher and wages are lower. Length of employment is shorter. Stock market unhinged, etc.
Perhaps she alludes to the fundamentals of underwriting standards, but that’s bunk when so many purchases are being made by institutional investors with more money than sense.
The point she made in an interview was that mortgage rates would need to rise to 6%, and prices up another 20% before we got back to long-term averages of affordability.
How large are the payments Ivy is receiving??….
“‘Nah, not even close’ replied economist Christopher Thornberg. ‘What we are dealing with here is not a bubble but a market that is reacting to the fundamentals.’”
At what point did he morph into a mouthpiece for the REIC?
“At what point did he morph into a mouthpiece for the REIC?”
The moment he went freelance.
Christopher Thornberg has to earn money same as the newsprint folks, so they do and say what their advertisers demand. Colon Powell performed likewise at the UN for his benefactors.
‘And now that the prices are starting to trickle up a little bit, it’s a good time to get in there ’cause I know the market’s not going down anymore,’ he said.”
People like this are the reason bubbles will continue to come fast and furious…
Yeah, I wonder how he knows?
Bernanke has witnessed that he can no longer hold the interest rate down - witness the last three weeks - and has joined the bandwagon by releasing his QE by first telling, then (in his mind) slowly removing it.
This will allow foreign holders of Treasuries to exit losing a lot less than if it were a sudden stop. But they will still lose, and that will have consequences.
For what?
By taking the easy way they have goofed up the economy in a multiple of ways and made it even worse.
Funny thing is, as rates rise, people are going to freak out…where do they then put their money?
Flood to Gold as the Fed has telegraphed TIGHTENING down the road, with inflation currently in check? Not all that likely.
Flood to Equities as people are panicked about the effect of higher rates on the economy? Maybe not.
Flood to Real Estate as people freak out about the effect of higher rates on property values? I sense hesitation.
Flood to Commodities as China appears to be heading for a harder landing than people expected? Perhaps not there.
Flood to Treasuries? Seems the most likely.
And then what happens to rates if people move into treasuries? Rates don’t rise as much.
Either
A) People and businesses freak out so much that the economy (not debt/equity/asset prices) is negatively affected and the Fed restarts the printing press or
B) The economy sluggishly plugs along, but while it does so, we have significant volatility in debt/equity/asset markets until we wean ourselves off the Fed drug.
My guess is “B”…time to buckle up…I’m not sure there is anywhere to hide from the volatility today.
Cash?
Maybe savings rates will become attractive.
They are quite likely to improve in the near term compared to where they have recently been.
The more people flood to cash, the less attractive savings rates will be.
It Seems Like We Have Been Here Before 19:36
“‘It seems like we have been here before,’ said Sue Wolverton, Coldwell Banker senior VP in Southwest Florida. ‘There’s definitely a demand, and the upper-end market is moving. The timing might be right to get a few projects underway.’”
All we need is an unusually large number of damaging Florida hurricanes this summer and it will be right back to 2005 again.
30-yr fixed mortgage rates are up this year from 3.125% to 4.25%, with the rate of increase recently increasing and no end to the increase in sight. Thus far the increase is enough to hammer down the amount of principle that can be financed on a 30-yr fixed mortgage at the same monthly payment by 12.9%.
Mercurial Mortgage Rates to Stabilize Soon, Analysts Say
Monica Almeida/The New York Times
Low home loan rates have helped breathe life into a languid housing market, but are now rising.
By NELSON D. SCHWARTZ
Published: June 20, 2013
It looks like the great American mortgage sale is finally coming to an end.
While rates on home loans are likely to remain modest by traditional standards, the ultralow borrowing costs that encouraged millions of homeowners to refinance and helped revive the moribund housing market are quickly becoming a memory. As yields on 10-year government bonds rise amid signs that the economy is improving and that the Federal Reserve will reduce bond purchases, mortgage rates have quickly followed.
Rates on 30-year fixed mortgages hit 4.25 percent on Thursday, up from 4.12 percent on Wednesday morning before the Fed chairman, Ben S. Bernanke, signaled the central bank might begin easing back on stimulus efforts later this year. As recently as May, the average interest rate on a 30-year fixed mortgage stood at 3.5 percent, close to the lowest in decades.
…
Once QE3 ends, 30-year fixed mortgages seem destined to head up to at least 5.24% — THE LOWEST ON RECORD BEFORE QE3.
Rising Mortgage Rates Are the Least of Buyers’ Worries
By Carla Fried - Jun 21, 2013 12:07 PM PT
Photograph by Albert Mollon
Ben Bernanke and the Federal Reserve have pretty much signaled last call at the Bar of Insanely Low Mortgage Rates. With the Fed now on record that it may begin to reduce its bond-purchasing program by the end of this year — suggesting the beginning of the end of repressed rate — the interest rate on a 30-year fixed-rate mortgage hit 4.25 percent on June 20. As recently as early May that same rate was at 3.5 percent.
Keith Gumbinger, vice president at mortgage information website HSH.com, expects the quick rate increase to put a fork in the refinancing market, which currently accounts for more than two-thirds of all new loan activity. After five years of record low rates, most homeowners have already refinanced at least once; the average rate on outstanding mortgages is below 5 percent. When the interest rate on a 30-year loan was at 3.5 percent back in early May, serial refinancers could still make the math work on doing another deal. Not now.
For potential home buyers, though, the recent rate spike is far from mortgageddon. Sure, 4.25 percent isn’t as sweet as 3.5 percent, but it’s still downright cheap. Gumbinger points out that the lowest rate in normal times (i.e. times of no Fed intervention) was 5.24 percent in June 2003. “Is the bottom past? Probably. But we’re still well below the historic low,” says Gumbinger.
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“Mortgageddon”? Really? How about no.
Give it time. The mortgage meltdown is in front of us.
Mercurial Mortgage Rates to Stabilize Soon, Analysts Say
Monica Almeida/The New York Times
Low home loan rates have helped breathe life into a languid housing market, but are now rising.
By NELSON D. SCHWARTZ
Published: June 20, 2013
It looks like the great American mortgage sale is finally coming to an end.
While rates on home loans are likely to remain modest by traditional standards, the ultralow borrowing costs that encouraged millions of homeowners to refinance and helped revive the moribund housing market are quickly becoming a memory. As yields on 10-year government bonds rise amid signs that the economy is improving and that the Federal Reserve will reduce bond purchases, mortgage rates have quickly followed.
Rates on 30-year fixed mortgages hit 4.25 percent on Thursday, up from 4.12 percent on Wednesday morning before the Fed chairman, Ben S. Bernanke, signaled the central bank might begin easing back on stimulus efforts later this year. As recently as May, the average interest rate on a 30-year fixed mortgage stood at 3.5 percent, close to the lowest in decades.
…
It’s beginning to look alot like 1994 — ALOT!
Mortgage rates dip but likely to rise soon
Source: Freddie Mac survey of about 125 lenders
Record low, Nov. 21, 2012: 3.31%
10:28 a.m. EDT June 20, 2013
rates
(Photo: Andre J. Jackson, Detroit Free Press)
WASHINGTON (AP) — U.S. mortgage rates fell for the first time in seven week, keeping the average on the 30-year fixed loan just under 4 percent. But rates are expected to surge next week, as markets respond to Chairman Ben Bernanke’s comments that the Federal Reserve will likely reduce its bond purchases later this year.
Mortgage buyer Freddie Mac said Thursday that the rate on the 30-year loan eased to 3.93 percent last week. That’s down from 3.98 percent last week but is still the highest level since April 2012.
The rate on the 15-year mortgage fell to 3.04 percent from 3.10 percent. That’s the highest since May 2012.
Freddie Mac surveys lenders across the country on Monday through Wednesday each week. Bernanke’s comments during a news conference Wednesday afternoon weren’t fully reflected in the latest rates.
Concern that the Fed will wind down its bond purchases has pushed mortgage rates higher in recent weeks. Mortgage rates are still low by historical standards, helping sustain the housing recovery that began last year. But a spike in long-term interest rates could drive them higher quickly.
The Fed has been buying $85 billion worth of Treasury and mortgage bonds a month since late last year. The purchases pushed long-term interest rates to historic lows, making mortgages and other consumer and business loans cheaper.
Mortgage rates are expected to rise because they tend to follow the yield on the 10-year Treasury note. The yield on the 10-year note climbed in early trading Thursday to 2.39 percent, its highest level in 15 months. That’s up from a low of 1.63 percent last month.
And the yield could go even higher based on Bernanke’s remarks that the Fed will begin tapering later this year and could end the program in the middle of next year, provided the economy shows continued strength.
…
I assume everyone who reads and posts here understands how the Realtor™ push to get as many prospective buyers to “hurry up and buy before interest rates go higher” virtually assures a crash when rates actually do rise substantially?
Just in case anyone who reads here doesn’t understand this, I will post an explanation right after I cook myself and enjoy a delicious omelet.
U.S. NEWS
Updated June 18, 2013, 10:51 p.m. ET
Mortgage Rates Rise but Still a Bargain
By NICK TIMIRAOS and CONOR DOUGHERTY
Rising mortgage rates are pushing up the cost of buying a home just as more local markets are seeing prices and sales climb, but economists say that unless rates move substantially higher the increase is unlikely to derail the U.S. housing recovery.
Mortgage rates have jumped above 4% for the first time in about a year, hitting 4.15% in the first week of June, up from 3.59% five weeks earlier, according to the Mortgage Bankers Association. The rise represents a 15% increase in the cost of borrowing, or around $50 in the average monthly payment on a $192,800 home, the median price of a previously owned home in April.
Sarah Milligan and her son Corbin at her parents’ home in Glendale, Ariz., check out a home listing in Phoenix’s very competitive market.
The cost of buying a home is going up. What’s behind the rise in interest rates? Is now still a good time to buy? WSJ’s Jason Bellini has “The Short Answer.”
Buyers, while not exactly pleased, have so far taken the rising rates in stride. Sarah Milligan, a 35-year-old teacher from Glendale, Ariz., who has been hunting for a house in the $140,000 range, recently got a disappointing call from her mortgage broker: Her prequalified mortgage rate is now over 4% from just below that level.
Ms. Milligan, who currently rents a three-bedroom house, says the rate increase won’t change her decision to buy, but she said it could move up her timing: “I should probably try to get one as soon as I can.”
…
2 Hebrew nationals on the grill, sopressata and tiramisu. Pool, 85 degree sun and wife.
Cannabalism?
Pool, 85 degree sun and wife.
At the rental?
Why at the family compound of course.
You should know better AlWog.
Omelet was delicious. I first sauteed some onion, jalapeno pepper, sugar plum tomatoes and portobello mushrooms. Mixed three eggs with salt, a few drops of Tabasco sauce, pinches of turmeric, coriander and cumin, and a couple tablespoons of skim milk. Cooked the eggs in the normal manner, added sauteed veggies, and grated some sharp cheddar inside before folding…yum!
Now on to that explanation of why we should expect the next leg down in housing prices some time soon:
1. It is well-known that a combination of investors and lender inventory withholding has dessicated supply in the price range where most U.S. families can afford to make a purchase.
2. Luckily the Fed has remedied the situation through QE3 MBS purchases that artificially forced mortgage rates down to generational lows, enabling families to buy homes at much higher multiples of incomes than normal.
3. Rumors that rates may soon increase have led Realtor™s to implore prospective buyers to hurry up and buy now or get priced out forever, creating a demand spike even greater than what would have resulted from rock-bottom interest rates alone.
4. As fly-by-night buyers, including hedge funds, all-cash Chinese and Canadian investors, and investment banks, realize that interest rates are heading off generational lows once-and-for-all, and will not return to these levels until 2050 or later, they will face the prospect of either selling or losing money as rates go up.
Smart money investors will sell; dumb money will be left holding the bag.
5. Besides higher rates pushing down family home purchase budgets from where they were at the interest rate nadir, the current push to “buy now before rates go up” will result in a demand trough in prospective buyers following the present-day spike. Recent end-user buyers who fell for the “hurry-up-and-buy before rates increase” ruse will find themselves underwater without a life preserver.
Are the Chinese investing or buying hideaways in case their capitalist experiment ends in another Cultural Revolution?
“Are the Chinese investing or buying hideaways in case their capitalist experiment ends in another Cultural Revolution?”
What they were recently buying or why is irrelevant.
What matters is the prospect that the PBOC taking away the easy money punch bowl from the Chinese shadow banking system will severely curtail all-cash Chinese speculation in U.S. residential real estate going forward.
P.S. Is it true that the Fed deliberately popped the U.S. bubble in 1929? Pritchard’s statement to that effect is the first time I have seen that suggested in print. Any corroborating evidence would be much appreciated.
Time to sober up as America and China remove punch bowl
By Ambrose Evans-Pritchard Economics
Last updated: June 20th, 2013
The US Federal Reserve has refused to blink. The Chinese central bank has refused to blink.
The authorities in the world’s two biggest economies appear determined to strike a blow against moral hazard and clear the froth in asset markets, at least until this exhibition of virtue blows up in their faces.
…
Let me point out that the Fed has already “tightened” prematurely three times in the last five years, coming to regret its haste within three months on each occasion.
It talked up the yield curve by 50 basis points in the late Spring of 2008 even though the money supply – which Bernanke does not look at – was clearly buckling. This led to the Fannie, Freddie, AIG, Lehman disaster that Autumn. (Don’t tell it would have happened anyway whatever Fed did. That is rot).
It threatened to take away the punch bowl after QE1 and again after QE2, only to double-down later. It has persistently misread the difficulty of achieving economic “escape velocity.”
As for the PBOC in Beijing, we are seeing a cold-eyed refusal to intervene with liquidity to stabilise the interbank lending market, where Shibor rates have surged to record highs.
It seems they really do wish to flush out the excesses in the shadow banking system. They view the rampant credit growth after the Lehman crash as a mistake, as indeed it was, and are furious that banks have evaded property lending curbs by going off books.
Credit has grown to 200pc of GDP, up 75 points in less than five years. Fitch says total credit has jumped from $9 trillion to $23 trillion, adding the equivalent of the entire US commercial banking system in five years.
It no longer buttering many turnips. The efficiency of credit – the extra GDP added by each extra yuan of loans – has fallen from a ratio of 0.85 to 0.15. At this point it risks becoming a pure Ponzi scheme, as SocGen’s Wei Yao calls it.
So yes, the Chinese are right to be tough, but that does not mean they can easily control the denouement. After all, the Bank of Japan deliberately popped the Nikkei Bubble in 1990, and the Fed deliberately popped the Wall Street bubble in 1929. Whether or not it is deliberate is a greatly overrated element.
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Snore…
If the PBOC pops the China bubble, a new Cultural Revolution might be in the wings, since many Chinese only put up with the great corruption of the communist party because they think they are going to “get theirs” too. If the good times come to a stop, they might get angry.
Might be a good time to own an overseas hideaway, if you’re a Chinese millionaire kleptocrat.
“…total credit has jumped from $9 trillion to $23 trillion, adding the equivalent of the entire US commercial banking system in five years.”
Dumb question of the day:
What would prevent the global central banking sector from continuing to rapidly expand credit indefinitely, if the alternative is global financial Armageddon?
many
ChineseAmericans only put up with the great corruption of thecommunistDemocratic and Republican parties because they think they are going to “get theirs” too.Never realized how much we all have in common.
When was our last Cultural Revolution?
The 60s?
Did our rich get sent to work farms or get beaten to death by mobs in the 60s?
If the most the Chinese kleptocrats had to fear was bell-bottoms and free love, I agree they would have little reason to flee overseas. But China has a more…vigorous history of cultural revolution.
OK. Not sure what that has to do with how both of our populations put up with corruption because they think they’ll be getting a cut too…
“Comment by alpha-sloth
2013-06-23 18:51:33
When was our last Cultural Revolution?
Comment by Carl Morris
2013-06-23 19:23:42
The 60s?”
Personal Remembrances of the Kent State Shootings, 43 Years Later
By David Rosenberg
Posted Saturday, May 4, 2013, at 11:00 AM
Mary Ann Vecchio screams as she kneels over the body of fellow student Jeffrey Miller during an anti-war demonstration at Kent State University, Ohio, May 4, 1970. Four students were killed when Ohio National Guard troops fired at some 600 anti-war demonstrators. A cropped version of this image won the Pulitzer Prize.
On May 4, 1970, four Kent State University students were killed and nine injured when members of the Ohio National Guard opened fire during a demonstration protesting the Vietnam War.
In 2010, the site of the Kent State University shootings was placed on the National Register of Historic places by the Department of Interior with support of the Ohio Preservation Office. Carole Barbato**, a communication studies professor at Kent State University who was a junior there in 1970, spoke to Behold about some of the more than 4,000 images (many from student photographers) the university has in its archive related to the events around May 4. Since 2001, Barbato has taught a course titled “May 4, 1970, and Its Aftermath” and she also led the photo selection process for the May 4 Visitors Center.
“It’s a difficult story to tell,” Barbato said. “It’s a very complex story. There are still many unanswered questions.” Barbato spoke about her personal and historic knowledge about the famous images, sharing her insight and observations about the killings 43 years later:
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Kent State Incident
On April 30, 1970, President Richard M. Nixon appeared on national television to announce the invasion of Cambodia by the United States and the need to draft 150,000 more soldiers for an expansion of the Vietnam War effort. This provoked massive protests on campuses throughout the country. At Kent State University in Ohio, protesters launched a demonstration that included setting fire to the ROTC building, prompting the governor of Ohio to dispatch 900 National Guardsmen to the campus.
During an altercation on May 4, twenty-eight guardsmen opened fire on a crowd, killing four students and wounding nine. Following the killings, the unrest across the country escalated even further. Almost five hundred colleges were shut down or disrupted by protests.Despite the public outcry, the Justice Department initially declined to conduct a grand jury investigation. A report by the President’s Commission on Campus Unrest did acknowledge, however, that the action of the guardsmen had been “unnecessary, unwarranted, and inexcusable.” Eventually, a grand jury indicted eight of the guardsmen, but the charges were dismissed for lack of evidence.
In their coverage of the events at Kent State, the media used a photo, taken by a fellow student, of a woman kneeling in anguish, arms upraised, beside one of the slain students. This Pulitzer Prize-winning image soon became a symbol of the social upheaval of the time.
Another, similar incident took place ten days later, on May 14, at Jackson State University, an all-black school in Mississippi. During a student protest, police and state highway patrolmen fired automatic weapons into a dormitory, killing two students and wounding nine others. No warning had been given and no evidence was ever found of student sniping that might have justified the shootings. Nevertheless, unlike the Kent State episode, this incident evoked little national attention, embittering many blacks who felt that the killing of black students was not taken as seriously as that of whites.
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The Kent State shootings were the subject of the 1970 song “Ohio” by the group Crosby, Stills, Nash and Young.
Not sure what that has to do with how both of our populations put up with corruption because they think they’ll be getting a cut too…
My original point was the Chinese kleptocrats might need overseas retreats if they had a Chinese-style cultural revolution, ie violent, widespread, anti-capitalist, anti-rich.
Our cultural revolutions haven’t been as fearsome.
ft dot com
June 21, 2013 8:07 pm
Bond selling hits US homebuyer costs
By Stephen Foley and Tom Braithwaite in New York
A “for sale by owner” sign stands outside a home in LaSalle, Illinois, U.S
Rising prices are encouraging more Americans to put their homes on the market
A fierce burst of selling in the bond market has sent borrowing costs for US homebuyers sharply higher, posing a risk to the rebound in America’s housing market, which has underpinned the economic recovery.
Yields on benchmark US Treasuries, which move inversely to prices, on Friday jumped to a peak of 2.55 per cent, their highest level in almost two years, as investors bet that the Federal Reserve would soon begin to wind down its emergency bond-buying programme, “quantitative easing”.
The average rate on a new 30-year fixed rate mortgage has jumped to 4.24 per cent, according to bankrate.com. The average 30-year fixed rate was 3.40 per cent as recently as early May. Wholesale mortgage rates rose by 15 basis points on Friday, an indicator that new loans could rise still further.
A wave of refinancing sparked by historically low rates has helped cut the living costs of millions of American families. But mortgage bankers warned the phenomenon, which has also boosted profits at banks such as Wells Fargo and JPMorgan Chase, was now approaching “burn out”, with the rate hike helping snuff it out.
“The mortgage market overall in the US is going to contract fairly significantly,” said David Stevens, chief executive of the Mortgage Bankers Association. He expects refinance volume to decline by more than half next year to about $400bn.
The head of the mortgage division at one large lender said: “For the next few weeks I think you’ll see refinance volumes are soft.”
But both men added that they hoped people would not be deterred from buying new homes. “I don’t think it will have a material impact on the purchase business: people are saying housing prices are going up and you’ve got consumers in the best shape they’ve been in some time,” said the mortgage executive.
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“History tells us a gradual rise in interest rates won’t likely deter homebuyers.”
The only problem with this assertion: The recent rise in U.S. mortgage rates have been steep, not gradual.
This is why global markets are freaking out
By Neil Irwin and Katerina Sokou, Published: June 20, 2013 at 7:30 pm
Around the world, markets were frazzled by the latest out of the Fed. (Kin Cheung/AP)
A wave of selling washed across the financial world Thursday, driving the stock market down, interest rates up, and bringing new tremors of concern that the forces that have been propping up growth are starting to fade away.
The U.S. stock market closed Thursday down 2.5 percent following a 1.4 percent drop on Wednesday, but those moderate declines don’t capture the sense of fear that captured trading floors from Wall Street to London to Tokyo this week. The very underpinnings of a four-year bull market seemed to be coming unglued. An index of expected future market volatility soared 23 percent, to its highest level since the fiscal cliff standoff at the end of last year.
Markets are spooked, interest rates are on the rise across the globe, and a manufacturing survey hinted at new economic weakness in China. If those trends continue it could be enough to take the air out of a U.S. economic recovery that was just gaining momentum.
This isn’t a crisis like the ones that struck the United States starting in 2008 or Europe in 2010. Rather, it is a byproduct of the world’s central banks, having intervened on vast scale to deal with the economic travails of the last several years, introducing uncertainty and even a little chaos as they start to contemplate how and when the era of easy money might end.
Over the last five years, the Federal Reserve has injected more than $2.7 trillion in newly created dollars into the financial system and is continuing to add to that total to the tune of $85 billion a month. But in a news conference Wednesday, chairman Ben S. Bernanke made clear that the central bank expects to start pulling back the throttle later this year and ending the purchases entirely, if the economy cooperates, next summer.
That was enough to spark a sell-off on bond markets, which drove the interest rate the U.S. government must pay to borrow money to rise to its highest level since October 2011. Those higher rates will soon translate to higher home mortgage rates for ordinary Americans, putting one of the support struts of the economy, the housing rebound, at risk. Home builders’ stocks fell particularly steeply on Thursday.
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I anticipate shedding tears of joy when the latest crop of U.S. residential real estate investors gets threshed by ever-rising interest rates.
3 reasons why higher mortgage rates won’t slow the housing recovery
By Nin-Hai Tseng, Writer
June 20, 2013: 10:36 AM ET
History tells us a gradual rise in interest rates won’t likely deter homebuyers.
FORTUNE – U.S. Federal Reserve Chairman Ben Bernanke’s speech Wednesday will likely push mortgage rates higher in the coming months. The central bank isn’t going to raise interest rates soon, he assured, but if the economy continues improving the way it has, it will consider trimming its monthly bond purchases from the current level of $85 billion by the end of this year.
Bernanke’s remarks roiled markets around the world.
U.S. Treasury bonds continued falling, with the 10-year yields hovering at 2.41% — the highest point in two years. Because mortgage rates tend to follow the 10-year, the borrowing costs of home loans will almost surely rise. For the first time in about a year, the 30-year mortgage rate jumped above 4% to 4.15% during the first week of June, according to the Mortgage Bankers Association.
Some might worry higher mortgage rates could derail recovery of the housing market, but that will depend how quickly rates rise. And if history tells us anything, paying more is unlikely to hurt homeowners and buyers. Here’s why:
Interest rates alone don’t drive home prices.
If the past few economic recoveries say anything about interest rates, it’s that the costs of taking out a home loan have almost no bearing on home prices.
Across 20 cities tracked by the Standard & Poor’s Case-Shiller home price index, prices in May posted the biggest gains since 2006; the index rose 10.2% during the first three months this year.
The rebound has been driven by factors beyond borrowing costs, particularly as banks have tightened lending standards. For one, job growth has helped make families more willing to buy. Even though unemployment remains relatively high, employers have added jobs for 32 months in a row.
MORE: Bernanke won’t blow up bond market
Also, the number of homes for sale remains unusually low for various reasons — there’s been little construction in the last few years; many who still owe more on their mortgages than their properties are worth have been reluctant to sell at a loss; and the number of foreclosures sold at deep discounts and short sales have declined.
True, higher interest rates do make buying a home more expensive; the rule of thumb is that for every one-percentage-point increase in mortgage rates, homebuyers pay 10% more. If interest rates rise too rapidly it could certainly slow home sales.
More broadly, though, a slower rise isn’t likely to stall the housing market’s recovery, experts say. During the last housing boom, interest rates were markedly higher than today’s rate: The 30-year mortgage hovered between 5.5% to 7% between 2005 and 2006.
Higher rates aren’t likely to stall homebuilders either. During recoveries following recessions in 1982 and 1991, interest rates were also far higher — 17.3% and 9.5%, respectively, says Patrick Newport, economist with IHS Global Insight. And yet, housing starts during both periods ran about an annual rate of 900,00 — roughly levels seen today, he adds.
It’s (mostly) a mortgage-less recovery, anyway.
Home sales have steadily risen, but investors armed with cash have played an unusually large role. They’re buying up foreclosed properties on the cheap — at times, known to compete with first-time buyers in full-on bidding wars, as The New York Times highlighted recently.
The percentage of homes bought with cash surged in many U.S. cities. Nearly a third of all homes sold in Los Angeles during the first three months this year were bought with cash, compared with a mere 7% in 2007. The same story has played out in Miami, where 65% of homes sold were cash deals, compared with 16% six years ago.
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“Nearly a third of all homes sold in Los Angeles during the first three months this year were bought with cash, compared with a mere 7% in 2007.”
Is 33% of Los Angeles home purchases with cash fairly typical compared to historic norms?
“If you have to borrow for 15 or 30 years, it’s not affordable nor can you afford it.”
“it’s not affordable nor can you afford it.”
Nor do you have the money to buy it.
“Nor do you have the money to buy it.”
And why do you think that might be?
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