Building Up A Big Bubble
It’s Friday desk clearing time for this blogger. “Part of the reason housing prices have taken off? Investors. Some from other countries, some from Wall Street. Investor interest sparked bidding wars in housing markets, which Anthony Sanders saw first-hand when he bid on a house in the Virginia suburbs of Washington several years ago. ‘I just happened to have one Chinese investor literally arrive at the house at the same time I did,’ he says. ‘And we almost had a foot race to the door. Fortunately, I’m faster.’”
“Sanders teaches real-estate finance at George Mason University, and says the bidding wars are producing bubbles in the hottest housing markets, like Los Angeles, San Diego and Charlotte. ‘That’s where the bubbles are forming,’ he says. ‘They’re old bubble cities, that are re-bubbling.’”
“It’s getting harder to make a bundle buying up foreclosures and renting them out. The auction prices of homes climbed faster than rents in 2013, so returns on investment dropped, according to CoreLogic. Glenn Plantone, a real estate investor in Las Vegas, said that there were only 208 properties sold there at auction to third party purchasers — not lenders — in October. That was the first time in six years that a month had fewer than 300 of such sales.”
“In Tampa, which was the top city in 2012, returns declined to a yield of 9.7% in 2013 from 10.5%. The reason for the decline: An influx of institutional investors with money to spend at Tampa’s foreclosure auctions. ‘It’s much more difficult to get a return when prices have been pushed up,’ said Sean Galaris of financial services firm LM Funding, which is based in Tampa.”
“Mike Conlon’s big break came when the housing market bubble burst. His company went around snatching up bank-owned properties and housing owned by the financially distressed. But after two years and 3,000 home spaces acquired, fixed up and managed, he is slowing down. ‘For 2014, I’m being cautious,’ Conlon says. ‘It looks like we are building up a big bubble again; it’s like 2008 is repeating itself. Low interest rates are staying low too long. We see it in real estate. Things we were able to buy at rock bottom, it’s ended now. Things are way overpriced again.’”
“Weak conditions in the territory’s property market mean an increasing number of people are selling their homes in Canberra for a loss. A housing price report for the September quarter, issued on Thursday, shows 7.5 per cent of homes were sold for a loss, and the median loss was $18,900. Despite the increase, Canberra had the third-lowest proportion of loss-making sales in the country. Sydney recorded the lowest at 4.8 per cent, followed by Perth at 4.9 per cent. ‘The recent weakness in capital growth conditions across Canberra is resulting in an increasing proportion of loss-making resales,’ the RP Data report says.”
“Cooling measures have turned Singapore property agent Sanam Mahesh Daswani into a ‘chaser’ of clients, instead of a clincher of deals. In the past, her cellphone used to ring off the hook with eager buyers. Now, she needs to prod clients relentlessly before they make a purchase. ‘Before they (buyers) came to us, now we have to follow them. And we need more patience now, because they take longer to decide,’ said Ms Sanam.”
“She is not alone in her situation. Agent Frederick Chia said that he had to sell a 1,200 sq ft condominium unit in Changi Court for $1.22 million two months ago, a figure lower than its market rate of about $1.3 million. Even so, his client ‘could have lost more.’ ‘I don’t think we would have been able to obtain that (same) price today,’ noted Mr Chia, whose monthly sales from the sector have nearly halved in recent months.”
“‘It’s little surprise that buyers are holding off purchases, because the government has no intention to loose its property tightening measures,’ said Buggle Lau, chief analyst of a Hong Kong real estate agency. Barclays UBS and Merrill Lynch Bank of America foresee a downturn, with home prices falling 30 percent or more by the end of Y 2015 on the back of supply increases and stalling income growth. ‘The magnitude of the fall is underestimated,’ wrote Barclays’ analysts. ‘The property market is about to enter its first real downturn since 1998.’”
“When Michael Shuken recently bought his family’s first home, a four-bedroom in Mar Vista, his adjustable-rate mortgage helped them stay on the pricey Westside. For now, his interest-only loan costs him about 35% less per month than a 30-year fixed mortgage, he said. But he’ll have a much bigger monthly bill in 10 years, when the loan terms require him to start paying off principal at potentially high rates.”
“‘What is going to happen if I can’t restructure my loan and extend it? Are interest rates going to be 7%, 8%?’ the 43-year-old commercial real estate broker said. ‘The home is big enough for me to grow into. The question is, will I be able to?’”
“More homeowners in Southern California were willing to take that risk last year. In November, 11.2% of homes bought with loans carried adjustable-rate mortgages, or ARMs. That’s double the rate of the same month a year earlier, according to DataQuick. Mortgage brokers say borrowers who plan to move after a few years, or those with considerable, but irregular, income could be well-suited for an ARM. ‘A big percentage of my clients are freelance employees in entertainment,’ said John Ciolino, a senior loan consultant with Luther Burbank Mortgage. ‘So they are going job to job, and they are concerned with having a higher mortgage payment.’”
“One of the most important changes is a new standard set by the Consumer Financial Protection Bureau for determining whether a borrower is qualified to repay the loan, or theability-to-repay mandate. Jerry DeMaio, a loan officer and a real estate agent in Woodbridge, said what concerns him most about the new regulations is the change in debt-to-income ratio. He said that in 2013, he was able to get mortgages for people whose debt-to-income ratio was 45 percent. However, in 2014, that will drop to 43 percent. DeMaio said that will make it a little more difficult for some people to qualify for loans.”
“On the positive side, DeMaio said, most people even at the 43 percent ratio, are overextending themselves with a 43-percent loan-to-income ratio.”
“The 2007 Mortgage Foreclosure Debt Forgiveness Act has been dismissed that tax on short sales has ended in 2014. ‘I don’t know how this will shake out, but it’s a very sad thing. And I don’t know how they are going to pay taxes (on forgiven debt). They have no money to pay them with,’ said Sharon Clark, the executive director of the Central Jersey Housing Resource Center in Raritan Borough.”
“Two Monterey real estate brokers were found guilty in civil court of defrauding the public when they falsified loan documents that caused an elderly woman to lose her house, the District Attorney’s Office said. In 2008, prosecutors opened their investigation of the marketing and business practices of real estate loan brokerage Estates on the Bay, Inc. and its owners, Susana Silva and Deanna Gobert, who were assessed fines after a 10-day bench trial. The 43-page order indicates Silva said she started in real estate in her 20s and was taught to ‘push everything through,’ even if it meant falsifying loan documents.”
“If Janet Yellen, who takes over as chairman of the Federal Reserve if the Senate confirms her in a vote scheduled for next week, tapers too quickly, investors could panic, causing mortgage rates to surge, said Diane Swonk, an adviser to the Federal Reserve Board. If the new chairwoman goes too slowly, low rates coupled with an improving economy will cause the housing market to overheat, Swonk said.”
“The share of homes bought by first-timers fell to 28 percent in November from 30 percent at the beginning of 2013, according to the National Association of Realtors. During the decade ending in 2012, the average was about 40 percent. ‘So far, first-time buyers have been missing from the housing recovery,’ Swonk said. ‘They need to come into the market in greater numbers because they have to buy properties before sellers can move up.’”
“‘Yellen has control of the punch bowl,’ said Swonk. ‘If there’s not enough punch, the party starts to die. If there is too much, it gets out of control.’”
“‘It’s clear that the rise in mortgage rates slowed the pace of improvement in the housing market in addition to double-digit price increases and tough lending standards which have put a particularly on those buying a home with a mortgage,’ emailed Peter Boockvar, chief market analyst at the Lindsey Group. ‘How the U.S. economy responds to higher rates in 2014 will be the true test of its health and whether it’s a perpetual addict to cheap money or not.’”
“Sanders teaches real-estate finance at George Mason University, and says the bidding wars are producing bubbles in the hottest housing markets, like Los Angeles, San Diego and Charlotte. ‘That’s where the bubbles are forming,’ he says. ‘They’re old bubble cities, that are re-bubbling.’”
It’s kind of hard to miss it if you live here. Works out great for folks like our landlords or the neighbor who has to sell her foreclosure home and move on to Houston.
One point from this group of stories is that people involved in real estate, despite occasional reservations, once again are jumping back in with both feet. Like a drug dealer getting high off his own dope.
RealtaRds always get high on what they’re selling. That’s why their nonsense is so easy to see through. It’s like someone with whiskey breath swearing they haven’t had a drink.
“Barclays UBS and Merrill Lynch Bank of America foresee a downturn, with home prices falling 30 percent or more by the end of Y 2015 on the back of supply increases and stalling income growth. ‘The magnitude of the fall is underestimated,’ wrote Barclays’ analysts. ‘The property market is about to enter its first real downturn since 1998.’”
Roh-roh. Luckily the U.S. real estate market is decoupled from Asia’s.
Hmmm, was the Asian real estate market decoupled from the U.S. housing bust?
No. I just like to mock fools who bought into Goldman’s decoupling nonsense hook, line and sinker.
What seems amazing here is not that the global housing bubble is showing cracks — a development which was completely predictable. Rather it is how very, very long it is taking for the global bubble to turn over. Who could have guessed that markets would take this long to revert to rationality?
“More homeowners in Southern California were willing to take that risk last year. In November, 11.2% of homes bought with loans carried adjustable-rate mortgages, or ARMs. That’s double the rate of the same month a year earlier, according to DataQuick.”
Wasn’t one of the HBB’s self-proclaimed real estate ‘experts’ assuring us just last week that it’s different this time, as everyone is buying with a 30-year fixed mortgage?
“Mortgage brokers say borrowers who plan to move after a few years, or those with considerable, but irregular, income could be well-suited for an ARM. ‘A big percentage of my clients are freelance employees in entertainment,’ said John Ciolino, a senior loan consultant with Luther Burbank Mortgage. ‘So they are going job to job, and they are concerned with having a higher mortgage payment.’”
How does an ARM protect you against higher interest rates or lower housing prices in case you unexpectedly need to move a few years after purchase? It didn’t work out that way for many after the 2007-08 subprime collapse, when they had to move because they lost their jobs in the Great Recession right about the time when housing prices were plummeting. Maybe next time will be different.
Sub Prime was contained.
Though not to $200 bn.
Yep, it was—sub-prime was contained, but the problem was not contained to sub-prime.
I used a neg am loan in 1990. It worked out well for me, since the payment was low and in many years, when my income was low, I let interest accrue to principal. My base PITI was $681 (or how I would like to have that payment again).
In the years when I made more money, I paid the accrued interest and got the higher tax deduction.
One minor detail….the house I bought for $172,000 in 1990 dropped in value about 17.5% by 1994! Oh well, it went to $450,000 in the bubble and is now at $275,000 today. It provides good cash flow from the rent. I now have a fixed rate loan.
You’re a debt donkey. Eeeenhhh-aaaaanhhh-eeeeeenhhh-aaaaaaanhhh!!
If you’re referring to me, what I said was:
“New construction is still way too low, mortgage financing is still too boring (no Option ARMs, etc.), and inland markets are still way too far below the peak for a crash to come in 2014.”
What I said is that Option ARMs aren’t back (nor are NINJA or liar loans). An Option ARM is different than a 10-year ARM (fixed for 10-years, then adjusts, as was reported in the story). Remember “teaser rates” and negative amortization? Remember no-doc loans?
Show me those loans being back, and I’ll start waving a red flag and sounding alarms.
See the enclosed article about what is “normal” from the NY Fed for ARMs over time.
http://www.newyorkfed.org/research/current_issues/ci16-8.pdf
Note on page 2 that the share of the mortgage market that is ARMs is most commonly over 20%. During the peak, this percentage was over 40% (as a percent of all loan $).
11% is a trend toward normal after going to near 0%, not an overshooting of “normal”.
Now, let me be perfectly clear–what made the Option ARMs so risky was that people were using them as an affordability tool, since they were being qualified on the “teaser” interest rate payment, that was insufficient to cover the full interest amount (ie. they were set up to fail unless incomes OR home values continued to rise at a rapid rate). I know people today that refinanced into an ARM, but they did not do so as an affordability tool.
As this 11% goes up, it will be much more likely that these loans are being used for affordability, and thus, inserting risk into the lives of the borrowers and system.
This is a warning flag to pay attention to, but at 11%, it’s not a concerning number…at least to me.
Anyone who bought with a mortgage in the last few years bought with a teaser rate. When rates normalize they will be crushed by the drop in house prices.
Teaser rates for Option ARMs were less than the contract interest rate, which allowed negative amortization, and would adjust after a relatively short period of time (3-5 years).
While the rate on my mortgage is very low, it will never reset to a higher rate. Principal is being reduced monthly at a higher rate than if the interest rate were higher, and there is no negative amortization.
These two are FAR different, and have much different effects on the dynamics of the housing market.
Mind you, if interest rates go up for new buyers, you likely will be taken to the cleaners anyway. Leveraged losses, falling rents and that sort of thing.
and there is no negative amortization.
Blue’s point is that the neg-am is pending and thus hard to gauge at this point—but that it will arrive on the resale-price side, rather than the accumulation-of-interest side. It’s a novel way of looking at being underwater due to the current market manipulation. I like it.
Anyone who bought with a mortgage in the last few years bought with a teaser rate.
What a great way of putting it, Blue! It was a market-wide manipulation into a teaser-rate/teaser-price structure.
I know people today that refinanced into an ARM, but they did not do so as an affordability tool.
It still strikes me as remarkably foolish to take out any variable-rate debt while rates are within spitting distance of a historical low. We are only up ~1% off the almost-certain floor of a lifetime.
BTW, did bankrate get rid of their historical rate charts? I don’t see the link to them anymore. Do bankers not want the sheeple to know that they missed the interest-rate bottom?
They’re not “within spitting distance”.
Borrowing costs have nearly doubled since May 2013.
Be truthful
Borrowing costs have nearly doubled since May 2013.
Reference to your data-source, please?
I will refer you to the “commitment rate” data from Freddie Mac, which they have recorded since 1971:
They recorded a low of 3.35% in December of 2012 (same as Nov 2012). Their latest data for November 2013 was 4.49%.
In case you need help with the math, that is a difference of 1.14%, which is very close to my statement that it was ~1% off the historical lows.
If you want to look at it in terms of your claim of doubling: 3.35% times 2 is 6.7%; current rates are nowhere near 6.7%. Thus, your statement is FALSE.
To be precise, rates have actually gone up by:
(0.0449-0.0335)/0.0335 = 34%.
Please stop lying about the data. We can make our housing-bear case without lying and distortion; leave those techniques to the realtors.
I don’t think you’re a liar. You’re just not that smart.
Worse yet, you don’t even have the low and high rates correct but I’ll school you on this one too.
A rate movement from 3.35% to 4.49% is a 33% increase in borrowing costs.
Got math?
A rate movement from 3.35% to 4.49% is a 33% increase in borrowing costs.
Um, that’s awfully close to what I said, which was 34%. At least this time you are only off by a small amount. Check your math—perhaps you rounded 34.03 down to 33 by mistake.
Now where is the “double” that you quoted early? Before you said double; now you said a third. A third is not “nearly doubled”, unless you are a realtor.
And I’m still waiting for you to quote the data-set that you are basing your earlier comments upon.
And waiting for you to substantiate what you said here:
you don’t even have the low and high rates correct
I’m beginning to think that you may be a realtor, as you seem to lie ALOT.
Keep quoting your friends a Fraudie…..And guys like myself, Jones and Hanson will continue to expose you and post the truth.
As far as rates go, they’re up over 80% in just a few short months.
Enjoy.
As far as rates go, they’re up over 80% in just a few short months.
LOL. Care to substantiate that with even a wee small bit of fact?
I thought not.
Liar.
Getting schooled is painful for you.
Jesus Christ, man. Answer the question. Like we used to have to do in school….show your work. (And if it’s NOT clear enough….that means show the rates you’re talking about, HA. Spewing words like “liar” etc. will not give you a passing grade.)
He’s not gonna listen. Imagine….. a known distortionist calling someone else a liar.
Housing Analyst doesn’t answer questions, he just throws out unsubstantiated statements and then makes fun of anyone who doesn’t believe him.
He’s completely useless in this blog.
“On the positive side, DeMaio said, most people even at the 43 percent ratio, are overextending themselves with a 43-percent loan-to-income ratio.”
What is the point of establishing nominally prudential lending standards which encourage households to take on more debt than they can afford? Seems rather self-defeating…
This gets back to something the media and government don’t like to talk about. Way back when the Countrywide CEO was doing his worst, he was on the cover of the Wall Street Journal, among others, praised as a savior of ordinary people wanting to get in on the housing boom.
Right now you can again find many quotes lamenting the coming scarcity of crazy loans.
“crazy loans…”
A person with a 43 - 45% debt service to (gross) income ratio earning $100K probably has a lower standard of living than a frugal person earning $25K but having no debt. Crazy indeed.
No mention of children. Job security? How old they are? Let’s shoe-horn them into a loan so others can be shoe-horned into an even bigger loan!
What’s not being said by the media is that people who bought a house on credit the past couple of years have just been thrown under the bus.
I disagree. Many people who purchased homes in the last couple of years obtained good deals, have low interest rates, have insulated themselves from rental inflation and are paying down their loan each month.
I agree you should not stretch yourself to buy or rent a house.
‘Many people who purchased homes in the last couple of years obtained good deals’
I know of people who bought a Flagstaff house last summer that are already underwater. You should tune into the carnage in Las Vegas. Banks are slashing REO prices up to 3 times a month; 10k, 30k at a whack.
These recent FHA/VA buyers are screwed, and have been screwed by the government. How can a family in the military pay off a $500k San Diego house? Better not get transferred for 30 years.
I agree Ben, there are people who make poor choices. Someone who bought in Flagstaff and has an affordable home still obtains the benefits I listed above. Las Vegas is a market of transients, so you are correct, buying there is a huge risk. A sailor in San Diego should not be buying a home. They should rent with a military release clause.
I know many people who purchased homes in the Sacramento market during the last few years who are quite pleased. They pay less than comparable rent and have a nicer place to live. Those conditions are harder to find today.
It makes absolutely ZERO sense to buy a house when you are in the military and moving all the time.
“I know many people who purchased homes in the Sacramento market during the last few years who are quite pleased.”
It’s way to early at this point to tell how things will turn out for them. Let’s compare notes in 2023.
‘I know many people who purchased homes in the Sacramento market during the last few years who are quite pleased’
As I’ve said before, this is like saying how glad you are you got married after the honeymoon.
“It’s way to early…”
Not if you are in the “I am happy today, therefore I made a good choice” camp.
I visited air force in-laws over the holdiay who were pissed they had to live in base housing- mostly seemed because he was a colonel and his house was too close to regular soldiers’ housing in distance and quality. Base housing that was recently contracted to Balfour- Beatty on a 50 year lease by the way.
If only we could make the civilian masters of the universe live within a few blocks of enlisted housing.
Housing allowance for the services can be mighty expensive as a Coast Guard retiree once explained. Near the coastlines, must be able to respond in a timely fashion, his enlisted housing allowance was $2800.00 per month in California, IIRC.
With the taxpayer assuming all the risk of the mortgages and the FIRE sector making fat profits off the loans and house sales, the goal is being achieved.
Wasn’t the old conforming loan standard 30 percent?
Yes, but I believe that was for the mortgage, only. If I understand the 43%, then it covers all revolving debt (mortgage + car loan + student loan + credit cards + home equity ATM financing, etc).
“‘Yellen has control of the punch bowl,’ said Swonk. ‘If there’s not enough punch, the party starts to die. If there is too much, it gets out of control.’”
It gets down to maintaining the optimal level of drunkenness.
The other part of the job is to financial engineer the situation so those who don’t drink get to pay the tab for those who choose to do so.
‘So far, first-time buyers have been missing from the housing recovery,’ Swonk said. ‘They need to come into the market in greater numbers because they have to buy properties before sellers can move up.’
These people make me sick. We’re all just little gears in their imaginary financial machine, to be turned and greased to do what they want. Never mind if these people can’t afford a house payment. Get out there and buy so the next group can move up and so on.
Nobody made you god Swonk. Why don’t you and the rest of the central bankers butt out of our lives?
“We’re all just little gears in their imaginary financial machine, to be turned and greased to do what they want.”
You leave Swonk alone, leave God’s work alone.
It’s bad enough that Swonk has to live with such a name as Swonk without everyone on this blog going out of their way to pick on him.
Snort. Swonk. There, you happy.
LeslieAppletonYun is a liar.
Swonk has a very serious integrity problem. In 2006, she was front and center cheerleader and denier of any problem. Her mealy-mouthed commentary from the sidelines 2006- current merely serves to support the ongoing National Housing Debacle And Fraud.
She’s based in Chicago. How convenient.
Here’s a gem from back in the day:
“A nationwide housing bubble is unlikely given that the run-up in prices in
recent years is backed by legitimate economic fundamentals, including changes
in interest rates, real per capita income growth, housing formation, and
changes in the S&P 500. “Almost 80% of the run-up experienced since 1999 was
captured by fundamentals,” says Swonk. The remaining 20% of increases in home
values can be attributed to regional variables not tracked in national data,
such as local zoning laws, real estate taxes, agglomeration and speculative
investment.
“We would have to see short-term interest rates rise more than three
percent and a virtual collapse in real per capita income growth before housing
appreciation slowed to the level of inflation,” says Swonk.”
http://www.prnewswire.com/news-releases/mesirow-financial-special-housing-report—housing-bubble-unlikely-increases-to-continue-in-05-and-06-54210107.html
That’s what I’m talking about right there.
Thanks FED Up.
Thank you for those as Diane Swonk quotes. Yes, I remember her front row cheerleading of the seemingly economic ‘virtuous circle’ miracle she attributed to the Fed. She’s a frequent guest on Bloomberg - and never called out on her dismal track record.
So she’s still a Fed ‘advisor’!
Is the plan going forward to keep charging the costs of the mortgage lending recovery against the interest paid on savings?
I note that all the MSM-favored San Diego real estate experts see nowhere for housing and stock prices to go in 2014 but up, though at a slower rate than 2013. Got momentum?
INTEREST RATES MAY LOOK SAME IN NEW YEAR
Mortgage rates will climb as those for savers stay dismal
By Jonathan Horn
12:01 a.m. Jan. 3, 2014
Get ready for another year of the same when it comes to interest rates.
Mortgage rates are expected to continue creeping up in 2014, but the same can’t be said for rates that savers like, such as money market interest rates and certificates of deposit, economists say.
The patterns would continue a trend seen throughout 2013, when savings accounts paid around 0.1 percent interest, but mortgage rates rose more than a full percentage point. The average 30-year-fixed mortgage rate began 2013 at an average 3.34 percent, only to climb to 4.53 as of Thursday, Freddie Mac reports.
Analysts largely expect long-term rates such as mortgages and Treasury notes to rise through 2014, as the Federal Reserve scales back its bond-buying program called quantitative easing, which puts downward pressure on long-term interest rates. That’s going to hit affordability in the housing market.
“You did miss the party in terms of the bottom,” said Norm Miller, a real estate professor at the University of San Diego. “You’re going to be paying more, and you might have this fear that it’s going to get away from you and you have to jump now, but that’s an irrational fear.”
Miller said with borrowing becoming more expensive, the prices of homes won’t be seeing the 24 percent year-over-year price gains they did during the summer, when they were bouncing back from the bottom of the housing bust. Instead, they’ll go back to historically stable year-over-year gains of about 5 percent. In November, the San Diego County median price was $412,750, according to real estate tracker DataQuick.
Greg McBride, a senior financial analyst at Bankrate.com, said he expects the housing market to be able to withstand the 30-year-fixed mortgage rate reaching 5.5 percent by December, so long as the rise is slow and steady.
“It’s the better economy that’s getting people to buy houses,” he said, noting a historical average for a 30-year fixed of about 7.5 percent. “If we saw a sharp jump in rates like we did in the middle of last year, it would definitely take a bite out of demand. I think it’s all in how quickly we get from here to there.”
…
Future generations of economists should have a field day analyzing the redistributive effects of quantitative easing. The short story:
1) U.S. corporate owners made a bundle.
2) Savers were screwed.
3) Members of the 0.1% did great.
4) Members of the 47% were thrown under the bus.
These results were no surprise. I was in the minority when I stated in 2008 and 2009, that these would be results of the easy money.
The Fed has yet to own up to any of the redistributional effects of its policies, and I’m not holding my breath. Some outsider economist with brass balls will have to step up to the plate and point these things out.
First time buyers are absent because they are least able to afford these high prices, yet this chowderhead thinks they can just magically start purchasing houses? I suppose with all these I/O ARM’s we’re starting to read about there may be some “exotic” financing around the corner for them. What could ever go wrong?
I wasn’t aware that one could transform from a dying sloppy drunk to a steady drinking maintenance alcoholic.
Dr. Drew says that’s the problem with friends and relatives of addicts. They don’t really want the problem fixed, they just want to go back to the point where the addict was using, but fun. Hence the need for AlAnon to try to fix their expectations as well.
‘it’s like 2008 is repeating itself. Low interest rates are staying low too long…Things are way overpriced again’
It’s been said before; this is what happens when the solution to a problem caused by artificially low interest rates, is several more years of artificially low interest rates.
“I don’t know how this will shake out, but it’s a very sad thing.”
Who could have imagined the hair-of-the-dog hangover cure would produce an even worse hangover?
Diane Swonk now advises the Federal Reserve Board? Is that a joke? From the New York Times in 2005 (and an all-time favorite HBB quote):
“‘I just don’t think we have what it takes to prick the bubble’, said Diane C. Swonk, chief economist at Mesirow Financial. ‘I don’t think prices are going to fall, and I don’t think they’re even going to be flat’.”
According to another article I’ve seen, she also sits on the Council of Economic Advisors for the White House.
And if I see that Hank Fishkind being quoted again, I’m really going to lose my s__t.
‘I just don’t think we have what it takes to prick the bubble’
Statements like this bring up an important point about what we are dealing with. This isn’t economics. If a witch doctor has a degree in economics, that doesn’t make his potions and spells economics.
This is something I tried to get across to Rio when he would go on about trickle-down. We are in an era of central bank-ism. It has nothing to do with market forces, nothing to do with economics. I don’t know what you’d call it; doesn’t really matter. What is going on is manipulation of markets on a massive scale. What Bernanke and the global central banks have done is characterized as “experimental” and “unprecedented.” It is that. But it’s also completely divorced from any notion of supply and demand. This is dangerous stuff.
It is imperative to put some distance between yourself and the laboratory. I don’t appreciate being someone’s lab rat.
There’s no place to run anymore. This whole situation truly is tragic. Given the “hope” and “change” expectations after 2008, it also has a “four legs good, two legs better” Animal Farm aspect to it that makes me extremely cynical.
I don’t advocate violence, but the rats need to take over the laboratory.
One can hide in plain sight for the most part. The things to get away from are the credit machinery and the bleeding edge lifestyle. I’d like to be part of the solution, but not in a tilting alone at windmills kind of way. This experiment will have an end somewhere along the line. One thing I hope for is that the bums that cooked this up are not allowed to be in charge of setting the course in the future. With most people being fully indentured debt donkeys that is a lot to hope for.
‘I don’t know how they are going to pay taxes (on forgiven debt). They have no money to pay them with’
Let’s see, you stop making mortgage payments, maybe for years. And you can’t even pay the taxes? How can they pay for the house if they have no money? Is it any wonder the HARP loans fail like they do? What a bunch of whiny losers. “I can’t make my payments! Let me live in the house for free for years, and then feel sorry for me again! Waaa!”
“How can they pay for the house if they have no money?”
Isn’t that why most mortgages these days come with a federal guarantee of principle?
“Isn’t that why most mortgages these days come with a federal guarantee of principle?”
+1 Just blue-eyed parasites draining the country’s treasury.
‘The Chinese National Audit Office (CNAO) said on Monday that total local and regional government (LRG) debt stood at CNY17.8trn (USD2.9trn) as of June last year…the audit confirms that LRG debt is still rising, and the associated risks remain. The 63% increase in LRG debt since the previous audit at end-2010 outpaced the 40% cumulative GDP growth in the same period.’
‘According to the audit results, around one third of LRG debt is serviced by sales proceeds of land use rights. Lower tier LRGs especially could be exposed to property market volatility. And the growth of shadow financing in recent years could increase the interest burden and refinancing risk for LRGs.’
http://finance.yahoo.com/news/fitch-reform-implementation-still-key-095232194.html
“The auction prices of homes climbed faster than rents in 2013…”
It doesn’t seem very complicated. Fewer people working and average earnings going down. Price of food and gas still elevated. More houses for rent and they expect rents to go up.
‘on MoneyLife taped before New Year’s Day…Rotblut noted that Twitter currently trades at more than 50 times its price-to-sales ratio.’
“If a stock was trading at 10 times sales, I would say a stock was extremely over-valued, if it was trading at 20 times sales, I’d say the stock was extraordinarily highly valued,” Rotblut said. “At 56 times sales, you are more than factoring in future growth, you are really paying too high a price. It really is a point where it puts the point into hot-potato range, where you don’t want to be the last person holding the stock, because it’s not a question of if the valuation is going to drop, it’s only a question of when.”
‘Rotblut noted that even if he assumes a relatively high price-to-sales ratio of 25 as being appropriate, that still suggests the stock should fall at least 35 percent, and he noted it would still leave the stock with an “unjustifiably high valuation.” He compared the situation – especially with Twitter being a recent public offering where investors are just seeing their first reports on the stock – to what happened during the Internet bubble days of the late 1990s, where stocks were valued more on sentiment than on fundamentals, right to the point where market sentiment changed and they cratered as the bubble burst.’
http://blogs.marketwatch.com/thetell/2014/01/02/is-twitter-vastly-overvalued/
Here a bubble, there a bubble, everywhere a bubble bubble..
I heard someone note that if Google were priced at the same revenue multiple as Twitter, their stock would be at $6,000 per share. And Google isn’t cheap at $1,100 per share.
“Sanders teaches real-estate finance at George Mason University, and says the bidding wars are producing bubbles in the hottest housing markets, like Los Angeles, San Diego and Charlotte. ‘That’s where the bubbles are forming,’ he says. ‘They’re old bubble cities, that are re-bubbling.’”
Gee, price cuts and days on market property linger in L.A. I wonder what happened?? I’ll tell you what happened the investors have flown and there are NOT enough first time buyers willing to step up and take on an overpriced $426,000 1,600sqft risk for 30 years of slavery.
“The auction prices of homes climbed faster than rents in 2013…”
it is very complicated I think…
With rents a fraction of the cost of resale housing, it appears resale housing prices have a long way to fall.
“The 2007 Mortgage Foreclosure Debt Forgiveness Act has been dismissed that tax on short sales has ended in 2014. ‘I don’t know how this will shake out, but it’s a very sad thing. And I don’t know how they are going to pay taxes (on forgiven debt). They have no money to pay them with,’ said Sharon Clark, the executive director of the Central Jersey Housing Resource Center in Raritan Borough.”
No, what’s really sad are people who don’t pay for their own mistakes but expect the public to do it for them.
There’s an argument to be made for making the lender pay that tax. They’re the ones with money, after all. Right or wrong, either the lender pays it or it don’t get paid. They’d just need to roll that risk in with the rest when setting the interest rate (snerk).
It would be great if we had a mortgage lending system where the borrowers and lenders shared the losses and left everyone else out of it. I don’t give a flying fork how they divide up the bad gambling debt, so long as I’m not personally on the hook.
“It would be great if we had a mortgage lending system where the borrowers and lenders shared the losses and left everyone else out of it.”
+1 Unfortunately market forces are for a free people.