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The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Name:Ben Jones
Location:Northern Arizona, United States
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“What’s lost in these numbers is the fact that the US is now the #1 carbon producer in the world, literately billions of tons of fossil fuels are either consumed or exported every year.”
Bluestar
The USA is the world’s largest producer of electricity from coal.
Esso’s new tar sand plant’s emissions are equivalent to a normal refinery - and newer technologies will even improve on that.
It would be nice to see coal’s long promised low emission threshold be achieved as well.
Yes, emissions are too high, but we are very diligently working on reducing them - and are succeeding. I also agree that enviro complaints also have been a lot of the fuel for these improvements.
And a lot of jobs are being created in trying to resolve all energy production environmental problems.
Putting our head in the “sand” doesn’t create jobs or solve our energy needs.
Remember, the USA will become energy self sufficient - but only for a short time (you only have 29bb recoverable).
I like your 25% comment.
Patrick,
I forgot to mention I was talking about LNG (Liquified Natural Gas) which takes 25% of the input energy to compress and freeze it and not compressed natural gas - CNG. Every time I see stories about how many tons of LNG people want to export to the world markets I just wonder what these people are thinking? We should keep the NG here for insuring a 50 year supply for our transportation systems. Are LNG supporters dumb or greedy?
Sadly the US will never be energy independent as long as multinational corporations decide who they buy and sell energy to.
In the long run our technology will fundamentally terraform the planet but in 5 million years you would never know we were here, just a blip in history. For the next 200 years where you are in the food chain makes all the difference.
We are at year 5 of the recovery which is historically when we should be seeing +250k jobs a month and solid YoY wage increases. I think we are at full employment right now based on demographics, the effects of globalization and technology. If corporations want to spend money on labor they have plenty of money to do it but excess cash on the balance sheet is used to buy back shares. mergers or special dividends. We can’t make them hire people.
Why spend that money on labor, when you can invest in robots?
Bluestar
I so totally agree with you. There is no supreme guidance/pain being imparted from on high to encourage corps equitable cash management strategies.
Big Ben will depart looking good, but in the long run his cheap cheese will have shown as being a huge impediment to long term investments - who wants to chance their money at these rates - so you buy AAA bonds ! That can lose their value overnight!
Your comment on keeping the fuel at home is reasonable too as our combined domestic market provides adequate funding to keep unit development costs within anything that additional offshore sales could provide.
Robots shouldn’t frighten us. They are levelling the playing field with cheap labour countries. What we need is to compete hard to get that work back in America, including pushing the politicos.
And getting back that almost three trillion into the USA economy that is overseas awaiting repatriation - when corps can do it for free !
“…homes are in short supply as builders significantly slowed new-home construction during the recession…”
To what extent is the supply ’shortage’ due to
1) investors who snapped up homes after the announced bubble reflation plans, with the hopes of flipping them for a quick buck?
2) owners who are normally would have sold years ago but haven’t because they are still ‘waiting for prices to come back’?
3) the sizable gap between what legitimate first-time buyers are willing-and-able to pay and much higher seller-expected prices which haven’t yet reverted to realistic levels since the bubble collapse?
4) millions and millions of used homes that remain in shadow inventory?
With current artificially inflated housing prices coupled with unprecedented recent levels of investor purchases and hidden shadow inventory, why can’t ‘real estate experts’ look beyond the canard of low recent building rates for a plausible explanation of the supposed-housing ’shortage’?
At the rate I’m seeing building around me, the newest houses started with the most recent build push should be online and ready for move in in 2-4 more months.
Forgot to mention:
5) Artificially inflated home prices which drive a gap between effective supply and demand, creating the appearance of a shortage…
1) should be evident in the vacancy rate of certain markets. The more of this category, the higher the vacancy rate should be;
2) I think a distinction needs to be made between “listing shortage” (not enough homes on the market to be sold) and “supply shortage” (not enough homes in existence). This is only part of the listing shortage, as these people deciding to sell don’t really create a new unit of supply–they sell one place and move into another (either as a rental or owner).
3) Same as #2
4) What matters here are VACANT homes in shadow inventory. If you are living in a house that is in the foreclosure process, you are going to get kicked out, and usually find another place to live. The estimate that I saw of this number was 300k. 90k of these “zombie foreclosures” were in the State of Florida. This 300k isn’t enough to move the needle.
Overall, I think the answer with respect to supply shortage varies widely. Look to vacancy rates of different markets if you want to see where the supply shortage really is located.
With over 4 million excess empty and defaulted houses in CA alone, there’s no need to worry about a “housing shortage”.
http://webcache.googleusercontent.com/search?q=cache:SMA0729GL4EJ:www.hcd.ca.gov/hcd_state_of_housing_ca2012update0812.pdf+&cd=1&hl=en&ct=clnk&gl=us
(the CA gov’s site seems to be down, so I pasted a cached version of the 2012 report)
The applicable quote on page 9:
“California was already behind in meeting its housing need relative to population and employment growth when residential permits in the last decade peaked in 2004 at over 212,960. Just when residential construction was approaching the average annual need to accommodate the State’s population growth and mobility, the bottom fell out of the financial sector with the foreclosure crisis and recession. During the past decade, residential new construction has averaged less than 150,000 permits per year, lagging well behind the State’s annual average need.”
California simply isn’t building enough housing, and hasn’t for a LONG time.
It has seemed like a long while, but we’ve only had the initial shock of the bubble ending. I think the next leg down will shake out a lot of “inventory”.
For the most part, people live in that “inventory”. If you start to believe that all of a sudden lots of homes will start to hit the market, you need to answer this fundamental question:
Where do the people go who live in the homes that are sold (added to “inventory”)?
If you believe that there are simply tens of millions of homes sitting empty, just ready for someone to decide to sell them, well then, you don’t need to answer the question, since you will claim my premise is incorrect (that most of the “inventory” that is not on the market is occupied).
Go ahead and stand by your lies RW/RentalWatch….. All the way to prison.
‘After appearing before a judge on Thursday, Amanda Bynes has been denied the right to leave psychiatric hold, according to a new report.’
http://www.mtv.com/news/articles/1711693/amanda-bynes-denied-5150-psychiatric-hold-release.jhtml
I guess she won’t be posting today…
Well, the revelation that she is still being held as ‘mentally incompetent’ DOES explain a lot about her previous posts and outlook for the housing market.
Who the eff is Amanda Bynes?
I refuse to google….
Just read her recent HBB posts (”…renting is throwing away money, while owning is building equity with each monthly payment…”) blah, blah, blah…you’ll soon catch on.
Goon squads AlterEgo.
Is it safe to assume the spring bond market weakness was an anomaly, and the Wall Street bovine herd has a clear path to stampede from here to the moon?
Aug. 2, 2013, 6:31 a.m. EDT
There’s too much complacency in the market
Commentary: Stocks at record highs, but investors are still bullish
By Howard Gold
It’s August and the dog days of summer are officially here.
That means money managers, traders, and hedge-fund operators have decamped for the beach, leaving Wall Street looking like an empty canyon. Even the financial media have dialed things back a bit as the news cupboard is pretty bare.
Earnings season is winding down, President Barack Obama has delayed his choice of a new Federal Reserve chairman or woman until the fall, and Congress is headed for recess. The Federal Open Market Committee, which announced Wednesday it would maintain current policy, won’t meet again until mid-September.
So, barring two jobs reports and the sudden appearance of black swans, there’s almost nothing investors need to worry about over the next few weeks — except their own complacency. With several indexes at or near all-time highs and with trading volumes deeply depressed, investors are taking things too much in stride.
Bullish sentiment is rampant, the CBOE Volatility index (VIX -3.79%) is bumping along its recent lows, and price/earnings ratios for stocks are entering high, if not nosebleed, altitudes. That makes things ripe for a decent correction after a surprisingly strong summer rally.
…
Like your Little League baseball coach probably told you, “Keep your eye on the ball.”
ft dot com
On Wall Street
August 2, 2013 4:05 pm
Warning lights are flashing in America’s credit markets
By Stephen Foley
There is much for financial stability hawks to worry about
Wall Street has played a one-note tune for three months now, focused monomaniacally on the question of when the Federal Reserve will begin to taper its bond purchases. Inevitably, Friday’s disappointing US payrolls numbers were seen giving the Decemberists a boost over the September Songstrels.
But while the market has turned on this question since May, it is actually six months since the first hint that the Fed was shifting its thinking on quantitative easing, and that there might be more to the taper question than monthly swings in the economic data.
Fed governor Jeremy Stein’s February 7 speech on “Overheating in Credit Markets” signalled that officials were thinking seriously about the potential financial ill-effects of QE, in a theme that was taken up by chairman Ben Bernanke three months later. It looked an important speech then. It looks seminal now.
In it, Prof Stein highlighted the dangers to financial stability as investors reach to earn a little more yield in the ultra-low interest rate environment engineered by the Fed. He ran through a list of indicators where one may spot high-risk practices building up. It is worth repeating the exercise.
The first thing to say is that the months of May and June, when investors got used to the idea that Fed tapering will begin this year, took some of air out of the junk bond and leveraged loan markets – but not nearly as much as one may imagine.
One of Prof Stein’s insights was that policy makers must dig beyond headline numbers such as credit spreads, if they want to see overheating before it is too late. Investors reach for yield by taking on risk in ways that are deliberately harder to measure, by accepting fewer investor protections, for example.
All four of his non-traditional indicators are flashing warning lights, data from Lipper and S&P Capital IQ show. This year’s issuance of payment-in-kind notes, which allow borrowers to put off cash interest payments, is close to passing the total for the whole of 2012, having had the biggest month this year in July.
Issuance of covenant-lite loans hit an all-time record in February but even through recent turbulence it has remained elevated at monthly levels that were typical in the first half of 2007. The use of borrowing simply to pay private equity shareholder dividends – “divi recaps” – doubled in the second quarter from the first. July was slow, but there are $8bn of deals slated for August, which will be at least the second-highest month this year.
And finally, the leverage in large buyout deals in July was 5.9 times, the highest since 2007. There is still a wall of money chasing the higher yields from junk bonds and leveraged loans. Leveraged loan funds just recorded their 59th successive week of inflows.
…
From “The way, way back”:
Aug. 2, 2013, 7:24 a.m. EDT
The return of ‘Dow 36,000’
Commentary: Why Wall Street is now betting on that infamous forecast
By Brett Arends
Remember “Dow 36,000”, that farcical piece of bull market baloney published in 1999?
Well, guess what: It’s back.
No, I’m not kidding.
Fourteen years ago, economists James Glassman and Kevin Hassett secured a certain place in history when they published their claim that the Dow Jones Industrial Average was heading for 36,000 in short order.
Their book of the forecast, “Dow 36,000 — The New Strategy for Profiting from the Coming Rise in the Stock Market,” published six months before the market peaked, became a best seller.
The two gurus laughed all the way to the bank.
Main Street cried all the way to the poorhouse.
Today, it is like déjà vu all over again. Once again, people on the Street of Shame are penciling in a 36,000 target on the Dow. But this time there is a big difference.
They’re not so stupid as to say it out loud. Instead they are using it, in secret, as the central economic forecast on which your grandmother’s entire retirement plan is based.
Yes. Seriously.
…
Government has been the source of nearly 100% of all MBS issuance since 2008:
1) P.10 of this Freddie Mac presentation (PDF): http://www.freddiemac.com/investors/pdffiles/investor-presentation.pdf
2) Article discussing the situation: http://washingtonexaminer.com/federal-government-controlled-99.3-percent-of-mortgage-market-in-2012/article/2522042
In light of this, how likely is it that the GSE’s will be shut down?
Another thread started me thinking about homesteading history….
Federal homesteading was done away with the Federal Land Policy & Management Act of 1976. By an odd coincidence, a widely quoted statement is that the middle class income has been stagnant since the very next year, 1977. Is that a mere coincidence?
1976 US population 218 million
Present US population 314 million
Since 1976 the US population has grown by about 50% right when the use of excessive federal land was denied.
Several California cities (most recently Richmond, CA.) have proposed using eminent domain to seize and restructure blocks of underwater houses then sell them back to the mortgagees at fair market value (minus a percentage incentive to the banks or bondholders).
Potentially 3+ million mortgages nationwide could be rewritten in this manner, with investors putting up the money in exchange for a bundled percentage of the cram-down. So far it’s not come to fruition, but with housing bubble bust #2 looming, is this an idea whose time has come? What better way to hedge all those REITs than to co-opt the city councils of about-to-bankrupt municipalities?
Apologies if this reposts:
Several California cities (most recently Richmond, CA.) have proposed using eminent domain to seize and restructure blocks of underwater houses then sell them back to the mortgagees at fair market value (minus a small incentive to the banks or bondholders).
Potentially 3+ million mortgages nationwide could be rewritten in this manner, with investors putting up the money in exchange for a bundled percentage of the cram-down. So far it’s not come to fruition, but with housing bubble bust # 2 looming, is this an idea whose time has come? What better way to hedge all those REITs than to co-opt the city councils of about-to-bankrupt municipalities?