The Mercurial Rise May Signal A Future Bust
A report from Southern California Public Radio. “It’s not breaking news that the California housing market is heating up, but now the California Association of Realtors is confirming it on the record, predicting that the trend will continue upward into 2014. For the past three or four years, investors have bought homes and rented them out. Now, Leslie Appleton-Young, the association’s chief economist, says they’re starting to ‘flip’ the houses more frequently.”
“So is all of this heated activity sending California into a housing bubble of the kind that preceded the 2008 financial crisis? Appleton-Young’s first answer is ‘never say never,’ but she believes the dynamics of today’s housing market are very different from the bubbly times. ‘The underwriting that goes into loan origination today does not look anything like the underwriting that we had in 2003-6, where you essentially had a pulse and got a loan,’ Appleton-Young said.”
The Mercury News. “Ramy Ugarte, a 24-year-old engineering forecaster for a San Ramon company, said he was ‘ready to call it quits’ after almost a year of looking at condos and homes and getting beaten out ‘on maybe 15 to 20 offers.’ ‘When I started looking I was going for condos, and I was looking at this one complex that started at $180,000. By October they were in the $300,000s,’ Ugarte said.”
“He turned to Neighborhood Housing Services Silicon Valley. Now, he’s moving into a house he bought in Hayward for $375,000, with loan assistance from a five-county program run by the nonprofit.”
“The percentage of first-time buyers who could afford to buy in the Bay Area fell from 66 percent in the first quarter of 2012 to 45 percent in the second quarter of this year, the California Association of Realtors reported. In Berkeley and Oakland, ‘people were struggling to compete as it was, and when interest rates rose they just dropped out altogether,’ said Mark Biggins of Redfin. ‘I’ve seen a lot of people drop out and continue renting like they did before.’”
The East Bay Express. “According to a market analysis from Red Oak Realty Investors, purchase prices in Oakland rose 64 percent from the second quarter of 2012 to the second quarter of 2013. When investors fix up a house and put it back on the market, said Patty Flores, a real estate agent who works in West and East Oakland, the price increase ‘can be pretty dramatic. Something you could have bought for 150 is now rehabbed and selling for 350.’ But the repairs don’t always justify the higher price tag. There’s widespread suspicion among people familiar with the housing market that ‘rehabilitation’ can mean little more than slapping on a coat of paint.”
“Steve King, a researcher for the nonprofit Urban Strategies Council, said many of the corporations currently renting out single-family houses are planning to sell them in five to seven years, after they increase in value. ‘Then we’ll have a whole other wave of destabilization,’ he added.”
“There are currently 432 homes in some form of foreclosure in Richmond, according to RealtyTrac. And of all the foreclosed properties in Contra Costa County, 13 percent are zombies. Over the past few years, banks have been dragging out the foreclosure process, allowing them to avoid becoming the owner of the property, and skirting their legal obligation to maintain foreclosed homes. In California, the average amount of time it takes banks to finalize foreclosures after mailing the initial public foreclosure notice has more than doubled since 2007 — from 154 days to 383 days — according to RealtyTrac. As a result, there were more than 29,000 zombie titles in California as of March.”
“A 2010 Federal Reserve paper noted that when banks stall foreclosures, they can ‘obtain whatever insurance or accounting benefit is available by documenting the loss,’ without having to maintain the vacant property. Also, keeping foreclosures off the books allows banks to borrow and lend more money, since foreclosures count as a liability against them.”
“Keeping homes out of foreclosure also boosts local property values because there are then fewer houses for sale on the market. The lack of inventory can cause a feeding frenzy among potential buyers who outbid each other for homes. ‘It’s part of the incredible manipulation of the market that we have right now,’ said Maeve Elise Brown, executive director of Housing and Economic Rights Advocates. ‘You have entities that are trying to show inventory … in drips and drops … because they want to artificially prop up prices.’”
Wall Street Cheat Sheet. “A new survey finds that sellers might be losing their control on the market. In the third quarter, 72 percent of real estate agents said now is a good time to sell a home, down from 86 percent in the previous quarter, and the first drop of the year, according to Redfin. On the other side of the closing table, 55 percent of agents said now is a good time to buy, up from 46 percent at the beginning of the year. Thirty percent of agents also said that sellers are having difficulties getting their home to appraise for the contract purchase amount.”
“‘At the end of this summer, you could smell the rubber on the road from buyers hitting the breaks,’ said Redfin San Diego agent Sara Fischer. ‘The cutthroat competition and frenzied demand has relaxed considerably.’”
The Californian. “For most of the past five years, the pessimists Gov. Jerry Brown likes to call ‘declinists’ were out in force, shouting to everyone who would listen that California’s best days are behind it, that Texas is the place to go. But they’ve been oddly silent lately. For good times are starting to roll again in the Golden State.”
“There still has not been full recovery from the Great Recession of 2008-11. Home foreclosures are down from their peak levels of three years ago, but remain higher than previous norms. And while the state has more millionaires than any other, with the accompanying mega-mansions, only 44 percent of residents are now able to afford a median-priced California home, priced at $428,510 in June. That’s down from 56 percent a year earlier, when prices were much lower.”
“Good for sellers, awful for buyers, especially first-time buyers, and a possible indicator that the mercurial real estate price rises of the last few months, with their accompanying spate of all-cash offers, may signal a future bust.”
The San Bernardino Sun. “What happened to us? We used to be the beautiful people, the privileged few, the well-to-do elite of Southern California. Now, we’re the poor people. The Inland Empire is No. 1 on a list, just released by the U.S. Census Bureau, of the poorest large metropolitan areas in the nation. What happened?”
“Our century-long heyday seems to have ended with a run of bad luck starting in the 1980s when Kaiser Steel in Fontana closed, Campus Crusade for Christ relocated its world headquarters from San Bernardino to Florida, Norton Air Force Base in San Bernardino shut down, and Santa Fe Railway in San Bernardino moved away.”
“We lost a lot of jobs. And I guess we started feeling like unfortunates. We started to feel like losers. Misery loves company and we started welcoming more and more unfortunates into our midst. We demolished downtown landmarks so we could build more and more low-cost housing units. We lost homeowners and gained renters. We ripped out the last of our vineyards and groves and replaced them with strip malls and warehouses.”
“We need to stop feeling sorry for ourselves and start feeling lucky again. Money follows money, just as poverty breeds poverty. We need to build more high-cost housing and less low-cost housing. We need to build more high-end malls and fewer strip malls. We need to develop, not neglect, our recreational amenities. We need to do a better job of selling others on ourselves. We need to do a better job of selling ourselves on ourselves.”
“We need to turn our frowns upside down and start acting like a better class of people. Maybe we’ll find that a better class of people starts to join us here. And maybe we’ll find that the people who insist on feeling and acting like unfortunates, like losers, will start to feel less and less welcome here.”
If lester appleton is talking, it’s guaranteed to be a gross misrepresentation.
Does anyone recall what Alan Greenspan was talking about when he said that?
So long as the Fed keeps pumping $40 billion of QE3 a month into mortgage-backed securities, I guess the debt that keeps housing prices artificially inflated and investors rolling in lucre never needs to be liquidated.
Greenspan Chides Investors
By EDMUND L. ANDREWS
Published: August 27, 2005
Correction Appended
JACKSON HOLE, Wyo., Aug. 26 - Even as he was being praised for fostering two decades of rising prosperity, Alan Greenspan, the chairman of the Federal Reserve, warned on Friday that people have been unrealistic in believing that the economy has become permanently less risky.
In the first of two speeches at a Fed symposium about the “Greenspan legacy,” the Fed chairman implicitly took aim at both the torrid run-up in housing prices and at the broader willingness of investors to bid up the prices of stocks and bonds and accept relatively low rates of return.
Both trends reflect what Mr. Greenspan said was the increased willingness of investors to accept low “risk premiums, a willingness based on a complacent assumption that the low interest rates, low inflation and strong growth of recent years are likely to be permanent.”
“Any onset of increased investor caution elevates risk premiums and, as a consequence, lowers asset values and promotes the liquidation of the debt that supported higher prices,” he said. “This is the reason that history has not dealt kindly with the aftermath of protracted periods of low risk premiums.”
…
Wasn’t this around the time that he urged people to refinance into adjustable-rate mortgages?
It was in 2004, about a year before the symposium. But even Suze Orman called b.s., which is saying something:
“When Federal Reserve Chairman Alan Greenspan speaks, the entire financial world listens. His opinions, policies, and cryptic hints are dissected all over the world, and have an immediate and often dramatic impact on the course of the monetary markets. If Warren Buffett is the Oracle of Omaha, Greenspan is the Wizard of Washington.
That’s why I was so shocked a few weeks ago when Chairman Greenspan let loose with a real doozy: he asserted that homeowners could save a ton of money if they took out an adjustable rate mortgage instead of a fixed rate mortgage.
…
[L]et’s be very clear. Rates right now are at historical lows. There is just one way for rates to move: up. Plain and simple. They could stay where they are for a few months, or even a year or two. But at some point rates will go up. It’s just the natural cycle. We are near the end of the downward cycle. It’s just a matter of time before the up cycle kicks in. If you are holding an ARM and rates start rising, you are going to see your ARM payments head north, too. And that could make a mess of your financial house.”
http://biz.yahoo.com/pfg/e03greenspan/
“[L]et’s be very clear. Rates right now are at historical lows. There is just one way for rates to move: up. Plain and simple. They could stay where they are for a few months, or even a year or two. But at some point rates will go up.”
How many years ago did Suze say this?
And by contrast, how many years ago did rates actually bottom out?
Lest anyone miss the current relevance of Suze’s comments, check out this bit from Ben’s post below:
‘Bank of the West has seen a marked increase in borrowers choosing adjustable-rate loans because their start rates are still lower. The current ARMs offer fixed rates for three, five or seven years before they become variable, making it relatively simple for borrowers to weigh benefit against risk, Larsen said.’
“It’s a personal choice,” he said. “You have to decide if you’ll be out of the house before the rate adjusts, or be sure you can handle the payment when it does.”
“About one-in-three borrowers is now getting an adjustable-rate loan at Bank of the West, compared with one-in-six before rates rose, he said.”
“You have to decide if you’ll be out of the house before the rate adjusts, or be sure you can handle the payment when it does.”
- Or be sure that a potential buyer will be willing and able to make that payment.
“- Or be sure that a potential buyer will be willing and able to make that payment.”
Much easier said than done against a backdrop of rapidly rising interest rates and prices…
“It’s a personal choice,” he said. “You have to decide if you’ll be out of the house before the rate adjusts, or be sure you can handle the payment when it does.”
Since RE always goes up there will always be an eager buyer when you’re ready to sell for a profit, and the mortgage industry will always be ready to finance an asset with solid underlying value. Only a fool would walkaway from this guaranteed opportunity.
He said it during a speech he gave in August of 2006.
Go here:
http://www.federalreserve.gov/boarddocs/speeches/2005/20050826/
20050826 = 2006?
Okay, 2005.
the last housing bubble or the stock market bubble of 2000?
u r missing out on the party again.
“Does anyone recall what Alan Greenspan was talking about when he said that?”
Has there ever been a time in history when interest rates were this low, yet high risk borrowers with credit scores in the low 500’s were able to finance $500k plus homes and $40k automobiles within a couple of years of defaulting on previous obligations?
“According to a market analysis from Red Oak Realty Investors, purchase prices in Oakland rose 64 percent from the second quarter of 2012 to the second quarter of 2013.”
This kind of insane runup in prices and hammering of risk premiums is one of the hallmarks of the Housing Bubble. The situation will inevitably end in tears for the greatest fools who buy just before prices crash once again.
P.S. Oakland is nearly in Janet Yellen’s back yard, so she should have a great view when this happens.
‘prices in Oakland rose 64 percent’
I said this before; even if you think prices are too low, what are the chances that such ridiculous increases will hit the perfect spot and stop? There should be alarm bells going off at the Fed based on these numbers alone, but you don’t hear a thing. So who’s running this game?
‘Something you could have bought for 150 is now rehabbed and selling for 350′
Oakland and Berkeley are dumps imho. Great school in a seedy area. The IE was a pit stop once on a car trip, and that area is an armpit.
Oy yeah, Ben. No one stops to ask the relationship of home prices to incomes. That should setting us bells in people’s heads. Our home should have been $250K to $275K tops. 12 months after our coe is the $300Ks, same home is listing and some are selling at $530K. Insanity. Although the buyer panic has definitely subsided.
We’re in east Ventura County in So Ca.
“No one stops to ask the relationship of home prices to incomes.”
Not even you. And the cost to replace flies over your head.
At this point, in history, who cares?
Three bubbles in twelve years and here we are again with pretty much the same comments section on Ben’s blog that we had 6 years ago.
The Bankers think that they have won. The “markets” are up, the politicians are bought, nothing is marked to market and not one of the bastards that blew up the credit market 6 years ago has gone to jail. In fact most of them are richer than they have ever been.
However, all bubbles eventually collapse and I can’t believe that when this one goes there will be any pieces left to pick up and continue with.
The question at that point will be who will then administer justice to those who deserve punishment.
Punishment?
Punishment will be meted out by the markets. And those taking the severe beatings are those who bought a house 1998-current.
You don’t want to be a part of it.
‘Three bubbles in twelve years and here we are again’
I was talking about scenarios last night with a person in Las Vegas. As we went over things, I found little similarity with today and 2006-08. The economy is much weaker; employment was high, now it’s low. Yet, there isn’t as much construction. Most of the buying is speculative today. Back then, ownership was at a high, now it’s at a low.
There’s so many wild cards. Shadow inventory, the Fed has already cut rates and sits on a mountain of MBS’s. There’s the GSE’s. With the budget being like it is, I can’t see DC throwing another trillion or 2 at Fannie/Freddie. But the most important difference IMO is the weaker economy.
“weaker economy” = no bid based on fundamental demand aside from that which is supported by government-sponsored subprime lending
“what are the chances that such ridiculous increases will hit the perfect spot and stop?”
Slim unless they start to slow significantly very soon. There are some signs that this is happening. If you look at CA markets by City per Zillow, you find that the 20%+ year on year increases have fallen to closer to 10% along the coasts (MtM in Sunnyvale was slightly negative last month!). However, the massive increases are still raging farther inland (which started sooner–in some places, 4% monthly.
All that said, if the Fed keeps rates too low for too long for places that were earlier in the recovery, we are at risk of a rebubble and recrash…although those risks are somewhat tempered by the fact that a pulse will not (yet) get you a mortgage.
My hope (and it’s a hope, bordering on expectation) is that we don’t repeat the massive bubble of 2005-2007, but end up with a more normal elongated cycle as we had in the 80’s and 90’s. However, in order to get there, we need to see home prices go up MUCH slower starting within the next 12 months.
For giggles, I took the median home price per square foot from Zillow in some inland locations where we own land, and essentially inflation adjusted land prices in earlier times. Long story short, we are within about 10-20% of more “normal” levels (post mid-90’s recovery, pre-bubble, early 2000’s).
I think it is highly unlikely that price increases slow soon enough to NOT overshoot these more “normal” levels, but again, my hope is that the overshooting is gradual, as opposed to a rocket ship like in 2005-2007.
You paid too much for worthless dirt. Enjoy your losses.
Actually, the bubble began in the mid 1990s. I can’t exactly remember his name (Jans Jin??), asked everyone (2005-06) how much prices had risen from 2003-2005 or something to that effect. Well, most commenters thought that the increase was greater than it actually was. The percentage increase wasn’t as large as expected for the heated years because prices had already risen significantly from the mid 90s to 2001. He presented data from the San Francisco Fed. With the lower median income, greater unemployment and lack of a tech boom, mid 90s prices will just be starting to get to fundamentally correct prices.
I agree. I talked with an Orange County broker who is very knowledgeable about prices there, and he told me that by 2000-01, they’d a “pretty good run up”, over many years, in prices. I know first hand that Austin Texas had a raging bubble in 1998.
Correct. Prices had already doubled then some by 2003.
‘if the Fed keeps rates too low for too long’
Of course, I think prices never deflated near enough in most markets. That said, it isn’t just rates. Why is the government still making most of the loans? That just shouldn’t be. And note that as each little lending standard is lowered or more risk taken, we don’t hear a peep from regulators. They are completely absent. Appraisers started bragging recently about adding an excitement factor into prices because of bidding wars. Did we hear anything from regulators? Heck, the government is the ones doing it! This was just sent to me: check out the What’s New tab:
http://www.calhfa.ca.gov/index.htm
CalHFA Announces New Efforts to Help Low and Moderate Income,
First-Time Homebuyers Purchase Homes
Part of what your suggesting is that the Fed knows when house prices are too high or getting there. History shows almost all central bankers have no clue what any asset price should be. And I don’t think they care about bubbles at the Federal Reserve. If you read the book Greenspan’s Bubbles, you will find the incredibly reckless actions of the Fed prior to the dotcom and housing mania’s.
This part of the bubble has been left to run its course. That will make the outcome more damaging, IMO.
I don’t think we’re in that much of a disagreement. I’m generally looking inland in CA, so the timing is a bit different than on the coasts (which the Shiller tracks). In any event, the trough of the last cycle was about in 1996 (Case Shiller for the coastal CA markets). At some point from mid-1996 to the early 2000s (2001-2002 on the coasts), we went from a recovery after overshooting the trendline on the way down to overshooting on the way back up. However, instead of a more normal correction taking place, debt fueled mania took over…with Option ARMs, subprime, etc. in part tied to low rates that were a reaction to the dotcom blowup.
We had a homebuilding investment in inland California that we funded in early 2003. My recollection is that the market was quite strong at that point, but not crazy. Within about a year of making that investment, prices went into hyperdrive, and we avoided making any more housing investments at that point.
BTW, I don’t think the Fed has a clue as to when to stop pumping to avoid asset bubbles. I think that (unfortunately) a lot of economic activity is tied to housing. People feeling good about their home means they hoard less cash, spend their equity, can refinance to lower rates if they’re not underwater, remodel their home if they have the equity, buy new stuff when they upsize, etc.
I believe that higher home prices leads to more economic activity, and I also believe that the Fed will dial back stimulus with greater economic activity. In that regard, home prices and Fed actions are linked.
My main concern is that different markets are recovering at different paces based on two major factors:
1. The inherent supply/demand situation (most easily measured by vacancy rates…how many rooftops compared to people), and
2. How quickly distressed sellers leave the equation (they are motivated by different factors than getting the best price with a reasonable marketing period).
And so specifically my concern is that there will be some markets with improved economic activity that is on the back of higher home prices, and that based on that alone, the Fed should dial back stimulus–for those markets, if they represented the whole of the US. However, they don’t represent the whole of the US, so if the average economic activity is still weak, the Fed will keep rates too low for too long for the earlier recovering markets, and there is a risk of rebubble in those places.
“You paid too much for worthless dirt. Enjoy your losses.”
We paid a fraction of improvement costs for finished lots (we got the dirt for free)…we’ll be just fine.
‘they hoard less cash’
A poster here recently noticed saving money is being re-characterized as hoarding.
You couldn’t identify “improvement costs” if you did the work yourself.. You don’t know. And you got burned.
“A poster here recently noticed saving money is being re-characterized as hoarding.”
I assume that ‘hoarding’ your ’savings’ by taking out a mortgage loan is not included under this re-characterization?
The banksters are definitely winning the propaganda war!
I define “hoarding cash” as keeping more cash on hand than you would in more “typical” times. I consider savings to also include other investments (including liquid and illiquid assets). In other words, you can “save” a lot, but keep very little of it in cash.
If you have no equity in your home, you feel less wealthy, you have less access to capital, and so the natural counterbalance is to keep more of a different type of wealth on hand in case you need it quickly.
On the other hand, if you own your house free and clear, you can easily get an equity line, which can give you access to cash very quickly if you need it. With the access to that capital, you don’t need to keep as much cash on hand.
You may still save, mind you, but you might put those savings in other assets.
And these are broad trends, not everyone will react the same way.
“If you have no equity in your home, you feel less wealthy, you have less access to capital, and so the natural counterbalance is to keep more of a different type of wealth on hand in case you need it quickly.”
On the other hand, if you blew all your savings on an overpriced mortgage which is now underwater instead of saving some money for a rainy day, you most likely are screwed.
Rental Watch
Your assessment of the market hyperdrive was spot on. We sold our 2,000 sq ft home in June of 1998 as it recovered from a down slide of the S&L residual mess. We were one of the few at our price point w/ equity. Not much, but something like $65K-$70K net, after paying the pirates. We then bought our 4,000 sq ft view McMansion. Prices in Sept 2002 were creeping up (we had sold our view home), not until 2003 did prices go bonkers in our area. We were flush w/ cash (house proceeds and other investments) to buy but no prospects, and the market went bonkers. We lived it. What a nightmare. All our furniture and Vette were in storage.
They’d already doubled by 2003 Donkey.
‘If you have no equity in your home, you feel less wealthy’
If you can’t earn any real interest on your savings, you feel less wealthy too. More than one person has said people save even more because the returns on savings are so low.
“If you can’t earn any real interest on your savings, you feel less wealthy too. More than one person has said people save even more because the returns on savings are so low.”
That’s also true…they also work later in life than they would otherwise (generally), because even if they saved throughout their career, if they left it in cash, they wouldn’t feel secure enough in their retirement.
I’m curious, why is my overall statement controversial?
“I believe that higher home prices leads to more economic activity, and I also believe that the Fed will dial back stimulus with greater economic activity. In that regard, home prices and Fed actions are linked.”
Is it because you simply want to disagree with me? Or do you think that higher home prices DO NOT lead to greater economic activity?
‘do you think that higher home prices DO NOT lead to greater economic activity’
I can remember a time when nobody thought much about their house prices, much less spent more because of them. The typical appreciation was about the rate of inflation, so it was a wash. If you can’t remember when this was the norm, it’s more proof that the bubble has been going on in California longer than you probably know.
If a high house price was a sustainable economic driver in and of itself, the bubble would never have fallen a few years back. Truth is, artificially high house prices make us all poorer. Come to think of it, high prices for anything we need make us poorer.
“A poster here recently noticed saving money is being re-characterized as hoarding.”
That is because a war on savers is not enough. If you really want to fleece them you have to bump it up to a “war on hoarders”, implying that they are keeping others from something that is rightfully theirs.
Those darn millionaires, billionaires and HOARDERS!!!!!
When I was growing up, I never heard my parents talk about our home price (in the 70’s/80’s). However, I do remember them utilizing home equity lines (or refinancing) for various things that were home-improvement related, renovating a bathroom, building a stand-alone garage and converting our garage to a familyroom/office so my mom could work from home when we were growing up, etc.
I don’t ever remember the home equity being used for spending–I don’t recall ever going on vacations that involved hotels, or airfare. Our vacations were typically driving to Tahoe and staying in my grandfather’s cabin (that has now been in our family for almost 50 years).
If the home equity wasn’t available, we probably wouldn’t have renovated the bathrooms, or built the stand-alone garage, etc. We wouldn’t have gone hungry, but that economic activity would not have occurred.
Now I’m not passing judgement on NOT using home equity, nor condoning borrowing against your house to buy steak and lobster. I’m personally in “debt repayment mode” (as I was just after college). However, I am drawing a correlation between higher home prices and increased economic activity, because SOME people do borrow against the increased value of their home to spend, or feel freer to spend some of their savings because they are comfortable that they COULD borrow against their house if need be.
“do remember them utilizing home equity lines”
Familial Debt-Junkyism. Why does this not surprise us….
“The typical appreciation was about the rate of inflation, so it was a wash.”
This is incorrect. Your mortgage doesn’t go up with inflation, so it isn’t a wash if you are thinking about the build-up of home equity–and if you have a 30-year amortizing loan, the build-up of equity is faster. And the lower the mortgage rate, the faster the equity build.
Consider an example today with a 30-year loan on a $250k home with $25k down.
Not a lot of equity to start, right?
After 10 years, with 2% inflation, and paydown of debt with a 5% loan, your home is now worth $305k, and your mortgage has been paid down to $183k. Without any crazy bubble increases or shennanigans, your 90% LTV loan has become a 60% LTV loan.
If the mortgage starting point is 3.5% instead of 5%, the mortgage is paid down to $174k (57% of value). And the opposite is also true…at a 9% rate, you only paid down to $201k (66% LTV at that point).
In all cases, the combination of very mild inflation and amortization of debt allows refinancing after living in a house for a while to spend money on things.
Of course, you need to maintain the house to get the benefit of appreciation, so you need to spend money along the way, which is under-appreciated by most people.
You seem to have a problem with defintions Liar.
Houses don’t “appreciate”. They depreciate.
Secondly, “equity” is a fallacy. It doesn’t exist in theory or reality.
“equity”
Just a lame excuse for homeowners to leverage themselves further underwater.
“…War on Savers…”
It goes on and on and on and on. Watch out for Lucy Yellen to take away the football over and over and over again.
Oct. 7, 2013, 5:00 a.m. EDT
One more reason to buy Japan and Europe stocks
Don’t fight the Fed, Bank of Japan, or the ECB
By Jonathan Burton, MarketWatch
Japanese Prime Minister Shinzo Abe’s economic reforms — dubbed ‘Abenomics’ — in tandem with Bank of Japan policies, have boosted Japan stocks.
AFP/Getty Images Enlarge Image
SAN FRANCISCO (MarketWatch) — ”Don’t fight the Fed,” investors are told. Fair warning. The Federal Reserve pulls the levers on U.S. interest rates and economic-related policies, and swimming against that tide is generally unwise for stock and bond buyers.
But given the increasingly global scope of stock and bond portfolios, the advice really should be, “Don’t fight central bankers. Period.”
Looking ahead to next week in Europe, the implications of the U.S. shutdown continues to loom large. Elsewhere, the Bank of England announces its monthly interest-rate decision.
A meaningful portion of the U.S. stock-market rally since 2009 arguably is due to accommodative Fed policies, underscored with a program to buy $85 billion of U.S. bonds monthly.
Global markets had believed the Fed would trim its largess, known as quantitative easing, after its September meeting. Instead, policy makers decided the U.S. economy isn’t strong enough for the Fed to taper the bond buying — at least not yet.
Still, the U.S. central bank has made it clear it is ready to become less generous as soon as economic conditions do show enough improvement.
Thus, in anticipation of the interest-rate rise that can be expected from the Fed’s tighter purse strings, investors may want to consider stocks and bonds of countries where central bankers appear likely to remain friendly to economic stimulus and, just as important, are skilled at communicating their process and plans.
“Central bankers elsewhere are picking up that style,” says Mark Luschini, chief investment strategist at securities firm Janney Montgomery Scott LLC. “This kind of forward guidance and communication is much different than the cloak-and-dagger approach central banks used to take.”
…
‘equity…a lame excuse for homeowners to leverage themselves’
Good point. In the company I manage, that pays cash for houses, the term “equity” is never mentioned.
Interestedly, in 1998 we paid $400K for a 4,000 sq ft newly built hilltop view home. We got a built in fridge, mastr FP, and another $10k worth of goodies as incentives to buy. When you say the late 90’s was in a bubble, new construction of luxury homes was in a slump in our area. The older stuff was pricey, but new was really a good deal. I would say when we sold in late 2002 and tried to buy our rancher home, prices started jumping. IIRC, $10K/mo turned into $20K/mo and we said the hell with it. In 2012 a decent deal within walking distance to 4 parks and a shopping district showed up. The door had opened to own the right situation at a fair price. We’re not HA’s whipper-snapper age, so we jumped in. Life is great.
“$10K worth of goodies”
Retail Donkey..
wood flooring (wholesale cost)
travertine on all 3 fireplaces
upgraded countertops in all 4 baths and kitchen
Add a few other things into the incentives and we got a great deal. The fridge alone was a $5,600 built in GE Monogram (pushing $8K now-matched cabinets)
HA- We did great! Back then, not many people were dropping $400K for a home.
We’re older. Time is now our enemy!
lolz… you go retail Donkey.
HA
Glad to get your approval. So, when are you buying? Are you planning to spawn?
We didn’t.
When I met my husband he owned a Jag XKE V12. Hard to throw kiddie stuff in a two- seater convertible. Then he became a Vette fan. The guy he sold the Jag to, killed himself in it. Found out about the horrible accident 10 yrs ago. Luckily his speeding only killed him.
Retail Donkey,
Is leslie appleton young a liar?
‘We used to be the beautiful people, the privileged few, the well-to-do elite of Southern California. Now, we’re the poor people.’
No wonder, with $5,000 fridges. I throw fridges away all the time. I can’t give them away.
Really? In the Chicago area, it would have been hard to find a new 4000 sq ft home for only 400k in 1998. Also, $5600 for a GE monogram? I don’t think subzeros were even that much back then.
BTW, those Illinois property taxes are a killer for a 4000 sq ft built in 1998.
My parents raised 7 children in a house half that size. WTF do you do with 3 fireplaces? Jeebus, I have to say Californians are the goofiest, most illogical people when it comes to real estate. And they think they are the smartest.
‘Now, we’re the poor people.’
“Over the past few years, banks have been dragging out the foreclosure process, allowing them to avoid becoming the owner of the property, and skirting their legal obligation to maintain foreclosed homes.
…
A 2010 Federal Reserve paper noted that when banks stall foreclosures, they can ‘obtain whatever insurance or accounting benefit is available by documenting the loss,’ without having to maintain the vacant property. Also, keeping foreclosures off the books allows banks to borrow and lend more money, since foreclosures count as a liability against them.”
Engaging in border-line legal activity is highly profitable. Imagine that!
“We need to build more high-cost housing and less low-cost housing. We need to build more high-end malls and fewer strip malls. We need to develop, not neglect, our recreational amenities. We need to do a better job of selling others on ourselves.”
Sounds like what San Bernardino needs is a housing bubble.
Oh wait!
When I was a boy we drove through parts of the Inland Empire on a family vacation to the U.S. I haven’t been back. Is there anything that would attract the kind of individuals that the Sun believes would relocate to the area if only the locals “turned their frowns upside down”?
The whole piece sounds a lot like magical thinking, a field-of-dreams argument that if we build it, or talk ourselves into having a better attitude, they will come. But guess what? There are a lot of other places that have that plan too.
Many in SoCal buy in less than desirable areas or properties because it is all that they can afford. The idea is that when the market takes off they can cash in their “equity” and move to somewhere (usually closer to the beach) that they would actually prefer to live.
Unfortunately many of these individuals seem to buy at the peak of the frenzy so the plan doesn’t really work out.
Proof of this can be seen on HWY I-15 at 5:00 am every weekday. Wall to wall cars heading down Cajon Pass with the occupant(s) doing their daily (twice a day 4 hour) commute to work.
Another example was during the mid-late 80’s bubble. I had several workmates that bought in apartment complexes relabeled into condos. Each one that I actually visited was nothing more than a basic one room motel suite and the prices for most were in the $130,000.00 range.
None of the individuals that I knew who bought these really wanted to but a condo that was in reality an apartment. However, they wanted to “get into something and begin to build up some equity”. These pseudo condos were all that they could afford and they wanted to buy before they got “priced out of the market”.
The market soon tanked (and didn’t come back until 97). Most bailed, at a loss, and not one of them that I stayed friends with ever got closer to the beach.
“Our century-long heyday seems to have ended with a run of bad luck … We need to build more high-cost housing…”
Cart before the horse. Debt donkey thinking.
Build them and they will come.
Some years back Raddison built a hotel in Compton because everyone wanted to stay in a hotel in Compton.
That didn’t work out all that well so now the hotel is a casino.
pretty soon it will be full of section 8 folks.
Section 8 folks gambling the check away. Sad.
‘A cash-out refinance – no wait time. Essentially, you can pay cash for a house then turn around and immediately do a cash-out refinance without having to wait six months as previous guidelines required. In a competitive purchase market with multiple offers, this can be an advantage over other buyers using purchase money financing because the close of escrow can be days rather than weeks as the would-be competition lines up financing.’
‘Bank of the West has seen a marked increase in borrowers choosing adjustable-rate loans because their start rates are still lower. The current ARMs offer fixed rates for three, five or seven years before they become variable, making it relatively simple for borrowers to weigh benefit against risk, Larsen said.’
“It’s a personal choice,” he said. “You have to decide if you’ll be out of the house before the rate adjusts, or be sure you can handle the payment when it does.”
“About one-in-three borrowers is now getting an adjustable-rate loan at Bank of the West, compared with one-in-six before rates rose, he said.”
“The prices are so astronomical, this is the only way I’d be able to buy a home here,” said a mother of two who works as a teacher, touring the Woodside development at 100 Castle Ridge Way off Scotts Valley Drive, where applications are due Sept. 30 for an “affordable” four-bedroom home priced at about $460,000.”
“The woman declined to give her name so as not to hurt her chances in a lottery Oct. 4 to determine the buyer, who must meet income guidelines and give up expectations of rapid appreciation to keep the resale price affordable for 45 years.”
‘California saw a 19% increase in the number of bank owned properties between July and September compared to the previous three months. Analysts say lenders are speeding up the pace of clearing out distressed inventory. In the Sacramento area, the number of Real Estate Owned or REO homes has skyrocketed. From August to September, REOs jumped by 70%.’
‘The pace of home appreciation has also doubled since the implementation of HBR,” Blomquist continued. ‘Clearly HBR has accelerated both the pace of home appreciation and foreclosure declines. The danger is that this acceleration will result in an overheated market that stalls when foreclosures delayed by HBR hit down the road.’
‘Scheduled foreclosure auctions increased 6 percent from the previous month following a 17 percent monthly increase in August, and REOs increased 44 percent from the previous month following a 20 percent monthly increase in August. “We’re well past the worst of the foreclosure crisis in Southern California, but the rapidly changing laws are making it more difficult to clear out the distressed properties that are still hanging around,” said Rich Cosner, president of Yorba Linda-based real estate brokerage Prudential California Realty. “The irony is that now would be a great time to sell those distressed properties given the low inventory of homes for sale.”
4 million dead, down, crippled houses in the state of California alone.
“Daren Blomquist is with the research firm RealtyTrac which released its third quarter numbers today. Despite the quarter-to-quarter increase, bank-owned properties are down nearly 70 percent from Q3 of last year.”
‘It’s part of the incredible manipulation of the market that we have right now,’ said Maeve Elise Brown, executive director of Housing and Economic Rights Advocates. ‘You have entities that are trying to show inventory … in drips and drops … because they want to artificially prop up prices.’
I can’t recall a time when people reveled in getting fleeced as much as today. These guys are playing Californians like a drum.
Yep, the manipulation is indeed mind boggling in northern California and thanks for putting a post together with so many good local (for me) stories…I gave up on buying in early 2012 after being shut out several times by 100% cash flippers and speculators, am following Bubble 2.0 with great interest from the sidelines…sold my last place in spring 2007 thanks to this blog and a few others.
If the banks are not paying property taxes on these zombies why can’t a lien sale proceed on the county courthouse steps?
http://www.realtytrac.com/content/foreclosure-market-report/september-and-q3-2013-us-foreclosure-market-report-7899
It is truly remarkable how long the zombie foreclosures take to work through the system!
Total foreclosures were up September from the month before in cities by zip code. Some cities reported no increase at all.
September numbers increase from August:
92234, Cathedral City, 46, +70.4%
92236, Coachella, +20, 25.0%
92240, Desert Hot Springs, +38, 40.7%
92241, Desert Hot Springs, 2, 0%
92210, Indian Wells, 8, +166.7%
92203, Indio, 21, +50%
92253, La Quinta, 33, +43.5%
92211, Palm Desert, 22, +37.5%
92260, Palm Desert, 22, 0%
92262, Palm Springs, 33, +94.1%
92264, Palm Springs, 22, +214.3%
92270, Rancho Mirage, 15, +7.14%
92274, Thermal, 3, 0%
Coachella Valley total: 285, +34%
‘Paying off a home’s mortgage can often be an uphill battle for many loan borrowers. The Loan Love article begins by saying “It used to be that one of the goals of homeownership was to eventually pay off your home loans and live in your house mortgage-free. Sucker! Nah, just kidding. But it is true that in the past couple of decades, that kind of mindset has kind of gone by the wayside for a lot of people. Why? Well, for one thing, tax laws that let you deduct your mortgage interest are a big plus for a lot of homeowners: Pay off your mortgage and you lose one of the biggest tax advantages available to the average (i.e., not super-rich) person. Also, while your parents or grandparents may have had a difficult time accessing any equity they’d built up in their home over time, many lenders today have made it easy to tap into that equity with equity loans, lines of credit and the ever-popular cash-out refinance.”
“”For instance, say you have a mortgage of $150,000 remaining on your home. Over time, the value of your home has increased to $250,000. That $100,000 difference is the equity you have in your home, and thanks to the cash-out refinance, it could be burning a hole in your pocket in just a few weeks. Of course, you typically can’t access the entire amount of your equity. Usually, you’re limited to a loan-to-value (LTV) ratio of about 80%, although some lenders may allow 90% LTVs (generally with a significantly higher interest rate as well as points – and you’ll also have to pay private mortgage insurance).”
“Valley-wide, there were 285 foreclosure filings — including default notices, scheduled auctions and bank repossessions –down from 674 filings in September 2013″
(I think there must be a typo…285 is the September 2013 number, which they say is down 58% from the year earlier. 58% of 674 is 391, which is very close to 674-285=389…)
It’s only good when foreclosures move through the system…especially when the year-on-year and longer-term trend is moving back toward normal, as opposed to spiraling up out of control.
“Coachella Valley”
Looks like their foreclosure rate is shooting skyward. I hope to soon have the chance to discuss this with my cousin the finance professor. I recall last Thanksgiving, which we enjoyed together up in Rancho Mirage, that he told me many of his colleagues were buying investment properties out there.
Perhaps they missed Alan Greenspans comments about ‘periods of low risk premiums’?
http://www.propertyradar.com/california/riverside-county-foreclosures
“Coachella Valley”
Isn’t that where the Palm Springs landscapers live?
Also one valley over from the towns of Joshua Tree and Yucca Valley.
Back in the day, we used to enjoy a running joke here about applying a Joshua tree to the hind quarters of foolish real estate investors.
News on the housing market is schizophrenic right now. On the one hand, prices are falling and inventory is increasing. On the other hand, we read story after story about the increasing prices and decreasing inventory. It can’t be both. I think the MSM are cherry-picking comparison points. Prices may be down over the past two months, bu they’re still up over last quarter. Inventory may have been increasing for the past 8 months, but it’s still lower than two years ago.
‘The recently booming San Diego housing market cooled off last month, according to statistics released Tuesday by the San Diego Association of Realtors. The median price of a single-family house sold in September in the region was $486,500, less than 1 percent above the August cost, the statistics showed. Also, 20 percent fewer houses changed hands in September than the previous month.’
‘For attached homes, the median price last month was $305,000, which is 1.6 percent less than the month before, according to the SDAR. Nearly 17 percent fewer condominiums and townhomes sold in September compared to the month prior.’
Recently booming. I don’t know if I’ve ever heard that said together.
“Realtors are projecting the rate of appreciation to cool off next year. Scott Underwood, a Long Beach-based broker, said upward movement in mortgage rates has calmed recent conditions in which a house may get a rush of offers as soon as it goes on the market. That makes it easier for parties on either side of the deal to assess a fair price. “Now, all of a sudden, there’s less of a frenzy and it’s easier to work in (and) conceptualize for buyers and sellers,” he said.’
“Realtors are projecting the rate of appreciation to cool off next year.”
Translation: Sell now or get trampled by investors rushing to the exits.
From the San Bernardino piece: “Feeling like we were poor people was bad enough, but we started acting like poor people, too. We even started being poor people.”
John Weeks nailed it; being poor isn’t about the lack of money.