Putting The Genie Back Into The Bottle
It’s Friday desk clearing time for this blogger. “Federal Reserve Chairman Ben S. Bernanke defended quantitative easing, saying it has helped the economy and shows no immediate sign of creating a bubble in asset prices. ‘We don’t think that financial stability concerns should at this point detract from the need for monetary policy accommodation which we are continuing to provide,’ he said today in Washington.”
“Bernanke said of all the concerns raised about bond buying by the Fed, the risk it could prompt financial instability is ‘the only one I find personally credible.’”
“Realtors are calling Lincoln’s housing market, strange, because of the limited number of listings and the competition of buying a house. In the summer of 2008 the city saw a record number of houses for sale. Now, it’s the total opposite and buyers don’t have a lot of options. Kim Zwiener with Sellstate Realty says buyers need to keep their eyes peeled and be quick on their feet. ‘Everybody’s looking at the same property and when new ones come on those buyers are ready to jump on to that property, get out there and look at it right away and write their offers right away,’ Zwiener said.”
“Khalil Oudah arrived at the Emaar sales centre in Abu Dhabi at 7am yesterday – three hours before the developer’s latest batch of villas went on sale. Like others in the queue who were invited to the event after registering online earlier last week, he didn’t know what properties would be available or for what price. ‘It’s my first time buying for the last five or six years,’ said Sulaiman Hamdo, who was also queueing. ‘I had a few properties in 2008, but sold them at a loss because I needed the cash.’”
“Sara Sayegh, whose family bought a three-bedroom villa in the sale, said: ‘It’s an investment. I’m hoping housing prices will go up.’”
“Real estate agents and people trying to sell their properties are convinced there is a glut of condos on the market in Montreal. New condos continue to be built throughout Montreal, especially in the downtown core, leaving owners of older buildings with a tough time making a sale. Realtor Colette Birks is promoting a two-bedroom condo complete with garage in NDG, but hasn’t had a nibble at her original $349,000 asking price. She’s now reduced the amount to $325,000.”
“‘In my whole career I have never seen such a quiet market,’ said Birks, who is convinced the sluggish economy is making buyers timid. ‘People are starting to be scared. You know, it becomes like a survival matter and you have to think that if you don’t make money you have to live with what you have.’”
“In the last months of 2013, the number of successful transactions in the market increased, especially for the segment of small apartments with reasonable prices. The Minister of Construction, Minister Dung, said real estate inventory is decreasing. As of December 15, 2013, the total value of inventory was estimated at nearly VND95 trillion, down 26.5 percent compared to the first quarter 2013. In particular, there are more than 20,000 unsalable apartments worth VND29.23 trillion. Currently there are about 4,000 housing projects and new urban areas in Vietnam, with a total investment of nearly VND4.5 trillion with 3,200 underway projects. The housing prices have fallen a lot compared to the 2008-2010 period. ‘The prices of most of housing projects have been reduced by 10-30 percent, returning to the prices in 2006,’ Minister Dung affirmed.”
“A realtor says the market is changing and sellers are going to have to get more creative to sell their homes. The house located in north Scottsdale is listed for a cool $2.4 million dollars. If you want the Ferrari, buy the house at full price and the car comes with it. Realtor Andrew Bloom says expect more incentives offered in luxury listings. He says cars, golf memberships and vacations are just some of the things people may offer as they try to stand out in a crowded market.”
“‘In this market, you have to offer some incentives. You want to speak to buyers out there and say hey, we’ve got a unique product and we’ve got something.. want to throw in with it, so we stand out,’ he said.”
“The Charlotte area has been among the nation’s largest areas for institutional investors, who tend to rent the home for a year or more. Sharon Collins with Remax Realty Consultants, said she is curious to see the end game for the institutional investors, whether it is offering the home for sale to the renters after the lease is up, or having confidence that housing prices will be up compared to when they made their purchase. ‘They obviously believe in ‘buy cheap, sell high,’ so it will be interesting to see if they are able to pull that off at the level in which they’ve invested,’ Collins said.”
“Trending housing data from November 2013 puts Maryland at No. 3 among the Top 10 states with the most foreclosures. The foreclosure rate is a 42 percent increase from a year ago, RealtyTrac reports. Delaware is No. 2 on the list, with foreclosures jumping 56 percent from October to November. The glut of foreclosures could create problems for middle-class homeowners. Doug Marshall, of Marshall Real Estate Auctions in Salisbury, is adamant that home values are brought down when foreclosed or bank-owned properties sell at auction for below-market value.”
“‘The foreclosure system in Maryland cannot work effectively when government is creating a scenario where families can live for up to 600-plus days without making a payment,’ he said. ‘That’s creating a cycle where, once that person vacates the home, it’s in disrepair. It’s sold at a worthless foreclosure auction at the courthouse. The bank buys it back, takes title to the property, and has to liquidate it.’”
“Former owner, Domingo Franco, obtained a mortgage for the Speedwell Street triple decker from JPMorgan Chase in August 2002, purchasing the house for $430,000. In 2009, he lost his job as a union carpenter and squeaked by with payments before going into default. Franco, is still living on the premises. Franco’s tenant, Josephina Luna, says she never received notice that Fannie Mae was taking possession of her home, but she did receive a notice requiring her to vacate the building. The bank foreclosed in August 2013.”
“Franco says he hopes new Federal Housing Finance head Melvin Watt will change Fannie Mae’s policies and allow him to stay in his home. ‘I do not want to live in this house for free,’ Franco says. ‘That never has been my intention. I understand that everyone who makes an investment wants to have a return.’”
“Ben Shalom Bernanke will step down from the most powerful position, at least in the world of finance, later this month, but his eight-year tenor as the chairman of the US Federal Reserve and the times in which he held the position will be studied for years, or perhaps, decades to come. The crucial thing from the Fed’s point of view would be putting the genie called quantitative easing back into the bottle. Only then will we be able to say with confidence whether Bernanke’s Fed averted a crisis, or ended up sowing seeds for another.”
“Bernanke kept a valuable promise that he made as the governor of the Federal Reserve board to the legendary Nobel Prize winning economist Milton Friedman. Friedman and Anna Schwartz had shown in their work, A Monetary History of the United States, 1867-1960, that the Fed was responsible to a great extent for the Great Depression. On Friedman’s 90th birthday in 2002, Bernanke said, ‘I would like to say to Milton and Anna: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.’”
“Bernanke kept a valuable promise that he made as the governor of the Federal Reserve board to the legendary Nobel Prize winning economist Milton Friedman. …thanks to you, we won’t do it again.”
There is one for our list of things that are not true!
The promise went something like: Allow people access to money and they will spend it. If they spend it then the economy will rise from the ashes.
Two problems with this:
1. Money has been made available to the banks so as to provide bank loans to people but bank loans are not being made to most people because most people’s credit ratings are shot. The people who have good credit ratings do not need to borrow and so they don’t.
2. If people spend money then the economy will rise from the ashes, but the economy that rises from the ashes is not this country’s economy, it’s some other country’s economy. During the Great Depression most things people wanted to buy (as opposed to needed to buy) were made in the U.S. Now most things people want to buy are made somewhere else.
“Now most things people want to buy are made somewhere else.”
That is why a drastic drop in consumer spending will hurt someone else more than it will hurt here. The ones that will get hurt here are the skimmers and the interest takers. That is who the Fed is giving money too, to keep them alive. Not to cover new lending but to cover old bad loans.
3. What banker in his right mind would loan out money, at interest rates close to the zero bound, to deadbeats, who are unlikely to repay it, so they can buy overpriced assets which are likely to be deeply underwater by the time the bank forecloses? (I guess that is where those federal guarantees of principal come into play…)
The deadbeats are getting very high interest rate to compensate for the deadbeatness and high risk. Lots of subprime auto loans.
Good point. For instance, check out:
lendingclub.com
If people spend money then the economy will rise from the ashes, but the economy that rises from the ashes is not this country’s economy, it’s some other country’s economy.
Winner, winner, chicken dinner.
Hello Combotechie:
1) I have excellent credit, so I borrow money at 0-1.5% annual interest.
2) During the Great Depression, nobody believed in the unicorn that is “Free Trade”, which prevented us from having a trade deficit.
QE to infinity… If QE doesn’t end, and it doesn’t in any foreseeable future because the US economy will tank, the housing prices will never fall to acceptable or reasonable level.
“Former owner, Domingo Franco, obtained a mortgage for the Speedwell Street triple decker from JPMorgan Chase in August 2002, purchasing the house for $430,000. In 2009, he lost his job as a union carpenter and squeaked by with payments before going into default.”
Union carpenter salary ranges from about 50-80K. No way in he** you can afford a 430K house, even on 80K. That’s 5X income. 240K is about the max for someone with an 80K salary, assuming the rest of their expenses are pretty low. My house only cost a little more than that and my HH income is a multiple of the “high” range for a union carpenter.
The problem is the price of the house, not the mortgage, interest rate or any of the other BS that people attribute these “hard luck” stories to. Yes, even if you buy a house within your means; you could still be in trouble if you lose your job for a long period of time. But buying at 5-6X your income is a surefire way to wind up in foreclosure. Every single time.
Frankly, I’m not sure why people would want to do it, even if the banks would allow it. Our mortgage is a little under 2X our income and, you know what? It’s still a whole lot of money. It’s always painful when I see the money come out for the payment each month. I can’t imagine what 4-6X would feel like (and I’m sure that I don’t want to imagine it!).
join a local
http://www.fcta.org wildly unpopular in the DC area,but we fight on
The housing market was booming when he took out his loan and it was projected to forever boom thus his income from being a unionized carpenter had no where to go but up.
Plus, because the housing market was to forever boom, taking out a large mortgage was a no-brainer because no matter how expensive prices were at the time of the purchase prices were destined to become more expensive as time went on.
An expensive mortgage today becomes a cheap mortgage tomorrow IF prices forever continue their uptrend.
‘The number of private homes sold by developers in Singapore in December fell more than 80 percent from a year earlier, with the property industry bracing itself for a tough 2014 as a series of government measures to cool the market start to bite.’
I thought the recent drop in SoCal new home sales was pretty large, but Singapore’s drop is much bigger.
It’s kinda funny. An article that ponders, this could be a problem!
‘The U.S. Federal Reserve’s massive bond-buying program to stimulate the U.S. economy has long sparked fears that it was inflating property prices. But now the Fed has started to wind down its purchases, concerns are rising that “tapering” could generate new risks for global property markets.’
‘The Fed’s $85 billion of bond purchases every month had pumped extra liquidity into the world’s financial system. All these extra funds encouraged investors to pile into riskier assets – such as property.’
‘This in turn contributed to dramatic house price rises across a number of emerging markets. In 2013, Indonesian house prices rose by 13.5 percent, Turkey’s increased by 12.5 percent and Brazil’s were 11.9 percent higher, according to global property consultancy Knight Frank’s Global House Price Index.’
‘Liam Bailey, global head of residential research at Knight Frank, said one of the “unintended consequences” of the Fed’s stimulus was a global risk of real estate bubbles. “I think most people would agree – quantitative easing, low interest rates – has been a contributory factor to the recent house price growth,” he told CNBC.’
‘The house price bubble concern does cross our radar screens to the extent that if it pops, it will have a knock on effect on consumer spending, household wealth - a whole variety of sectors,” Gordon said.’
“It’s at an all-time record high in Hong Kong, in Canada, in some U.S. markets. From a property investor standpoint, it is something that raises at least a minor concern in terms of risks for 2014.”
‘While with regards to the U.K. in particular – where house prices are up 5.4 percent on the year country-wide, and 11.6 percent higher in London – Bailey warned that the price growth did not seem justified by the fundamentals.’
(Read more: Yep, it’s another housing bubble)
“The problem with strong price growth is the longer you have strong price growth, the bigger the risk you build up when rates do rise. That’s the real issue,” he said.’
“It’s at an all-time record high in Hong Kong, in Canada, in some U.S. markets. From a property investor standpoint, it is something that raises at least a minor concern in terms of risks for 2014.”
Ahem…
County new home prices hit record high
By Jonathan Horn
2:42 p.m. Jan. 14, 2014
Updated 10:24 a.m. Jan. 16, 2014
Construction on a new for-sale homes continues at Civita in Mission Valley. - Roger Showley
The median price for newly built single-family homes and condos in San Diego County shot up to a record high in December, while the number of new homes sold hit a record low for a December.
Last month, 284 new residences sold at a median $699,000, a 48 percent hike over the $473,250 median new home price in December 2012, when 419 new homes sold. The previous record for a median new home price was $553,000 in February 2008, when 330 units closed escrow, real estate tracker DataQuick reported Tuesday.
…
I keep hearing there is no land to build on and permits and fees are running people out of town.
I keep hearing there is no land to build on ??
Mostly its a zoning issue not a land issue…Here, we are seeing industrial property being rezoned mixed use residential & commercial…Also, commercial thoroughfare being rezoned mixed use…
“The problem with strong price growth is the longer you have strong price growth, the bigger the risk you build up when rates do rise. That’s the real issue,”
This is why I expect the PTB to take all necessary measures to prevent a significant increase in long-term interest rates.
‘I expect the PTB to take all necessary measures to prevent a significant increase in long-term interest rates’
Oh boy, have we stumbled upon an ocean of irony here.
‘Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.
The Counter-Revolution in Monetary Theory (1970)
http://en.wikiquote.org/wiki/Milton_Friedman
On top of countless money printing splurges before, Bernanke and the central bankers embarked on the splurge to end all splurges. We should all be pushing around wheel-barrows full of Benjamin’s by now. But we’re not.
Something that Friedman “proved” is no longer true. It’s a modern economic conundrum that vast sums of money is created to reduce interest rates, when the very creation of that much money should cause interest rates to soar!
‘Bernanke said of all the concerns raised about bond buying by the Fed, the risk it could prompt financial instability is ‘the only one I find personally credible.’
Let’s cut to the chase; central bankers can’t create inflation anymore. (Putting aside that inflation is “financial instability” too). All they can do is create bubbles that float on an ever deflationary sea. And bubbles pop, by definition. What we’re left with is the debt.
The debt is spread around, either voluntarily or involuntarily. The river of money is focused to cronies.
“We should all be pushing around wheel-barrows full of Benjamin’s by now. But we’re not.”
Financial innovation has hidden the wheel-barrows behind the veil of electronic balance sheets.
Check out this trajectory!
Reserve Bank Credit (WRESCRT)
2014-01-15: 4,007.383 Billions of Dollars Last 5 Observations
Weekly, Ending Wednesday, Not Seasonally Adjusted, Updated: 2014-01-17 6:36 AM CST
For those old enough to remember, what was seriously high inflation like? I was young, but I recall my dad marveling at gas prices on the signs we drove by. I would stand in a corner store and look at candy or soda prices with amazement. A bottle of Coke had been 10 cents. It went up to 15, then 25. I’ve said this before; when real inflation is at work, every man, woman and child knows it.
I recall during a grocery shopping trip with my mom in the 1970s seeing an elderly woman pick up a loaf of bread and muttering under her breath, “I can’t believe how much things cost.”
We have not had *seriously* high inflation in the USA or temporarily former parts thereof since 1865.
When I was a kid in NYC (60’s), on a Friday night I’d want a quarter for a tiny Coke (10 cents) and a slice of pizza (15 cents) so I’d ask my mother for a dollar. She’d fake faint and then give me the quarter. In the 70’s our family stopped drinking coffee because of the price and we started hearing about old people on the block eating cat food. Around that same time I worked part time as a cashier and was called to the back to frisk an old lady caught shoplifting (all the old people were shoplifting.) I refused and called the eager beaver assistant manager a jerk.
When the US Congress is shovelling as much fuel onto the deflation fire as it possibly can, it’s hard for a banker to cause inflation.
If we had tariffs, then we would have inflation, and Bernanke would raise rates in a snap.
On Foreign investment in USA real restate;
Overall, the United States was ranked as one of the hottest investment markets for industrial, office and multifamily real estate. The cities of New York, San Francisco, Houston, and Los Angeles were rated to be particularly appealing, but the survey found an increasing interest in cities beyond these major destinations.
http://www2.realtoractioncenter.com/site/R?i=DOXZBWuV-b-3f1pXZL9Y3Q
Bernanke in his dotage may end up being worse than Greenspan. But who cares? He knows that quote might be thrown back at him a few years from now, and it doesn’t matter, because being right or wrong doesn’t matter nearly as much as money does. At this rate, he’ll have a 90th birthday party every bit as painfully obseqious as Friedman’s, attended by captured economists and courtier financial journalists.
He was at least smart enough to leave while prices were still going up. (Come to think of it, so was Greenspan…)
Realtor® tips for buying in Lincoln’s red-hot market:
And by the way, where in BFE is Lincoln?
I actually was just kidding about that last question. I have relatives we used to visit in Seward, NE, within shouting distance of Lincoln, NE. Talk about a housing bubble outpost in the middle of nowhere…
Oooh, actually, I am in the market for red hots. I really like them. There is a cookie that I make with red hots. And I can get them in Lincoln?
‘People are starting to be scared. You know, it becomes like a survival matter and you have to think that if you don’t make money you have to live with what you have.’
Happy real estate investing Hunger Games! And may the odds be ever in your favor.
“The crucial thing from the Fed’s point of view would be putting the genie called quantitative easing back into the bottle.”
Only time will tell.
I think Bernanke has a different definition of what “works”. As long as he and his club members are in the loop, then it works for them.
“The US has been printing money since 2009 and it has helped set off a series of echo housing bubbles around the world – Canada is only one of the echo housing bubbles,” says Seth Daniels, founder of JKD Capital, who is advising a new short-focused fund in Toronto. “If the US tapers QE, it could set the process in reverse and trigger the collapse of these echo credit bubbles, including Canada.”
Glad to see the “echo bubble” meme I coined here is gaining traction.
Alexandria VA Housing Prices Crumble 14% Year Over Year
http://www.movoto.com/alexandria-va/market-trends/
prices are up in N VA including Alexandria- up10%+
According to Realtor, they’re down… and falling.
Your movoto site doesn’t have many listings. Try a different source.
You mean the inventory is much higher correct?
Ethan:
Can you please tell me where Movoto get their data? I can’t find that information on their site.
This is what it says on the bottom of their page. It doesn’t say exactly where they get all the data. It says where they get some of the data. They are not getting it from the listings on their site.
Banks Keep Their Mortgage Litigation Reserves a Secret
http://dealbook.nytimes.com/2014/01/16/banks-keep-their-mortgage-litigation-reserves-a-secret/?partner=yahoofinance
Of course they aren’t creating a bubble in asset prices. They didn’t do that last time either!
2014 U.S. economic forecast: STALL
‘Sharon Collins…is curious to see the end game for the institutional investors, whether it is offering the home for sale to the renters after the lease is up, or having confidence that housing prices will be up compared to when they made their purchase. ‘They obviously believe in ‘buy cheap, sell high,’ so it will be interesting to see if they are able to pull that off at the level in which they’ve invested.’
This is going to be so much fun to watch.
Who knows what they believe in. Maybe they believe that they are sufficiently important members of The Club, and will therefore receive a guarantee of some sort.
When I was still looking to buy in 2011-2012 I did have a preapproved loan…but thanks in large part to QE it was dang near worthless as I was up against flippers and specuvestors making 100% cash offers so my bids (full price or slightly higher) were ignored several times. On a happier note when I took an early retirement in 2012 and opted to cash out my pension I got waaay more than I would have a few years ago thanks to artificially low interest rates….but strongly agree that there will be hell to pay as a nation when the QE party is over and the hangover starts.
hung-argent-Portugal- now Poland at about 50%
Nationalized private pensions
think bama won’t do that?
got ammo?
Woo hoo! Free Ferrari! Those are economical to run. A little alligator to go with your big alligator.
How about to reduce the price to a reasonable level, so people can actually afford to buy it.
It is time for Mr. Banker to take a punch. Eat your losses, Mr. Banker