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The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
About Me
Name:Ben Jones
Location:Northern Arizona, United States
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Is China’s economy headed for a hard landing?
How are the BRICs economies looking these days?
Russia, the Ukraine, and the Markets: Broken BRICs
Rana Foroohar @RanaForoohar
March 4, 2014
Russia’s President Vladimir Putin attends the opening ceremony of the Russian Pilgrims’ House at the Jordanian side of the Jordan River
Ali Jarekji—Reuters
For a couple of years now, one of my very smartest sources, Ruchir Sharma, head of emerging markets at Morgan Stanley Investment Management, has been saying that the emerging market story was over. Coming from someone who makes their money trading those markets, that’s quite a statement. But the last few days of market turmoil and today’s tanking of Russian stocks makes me think once again how right he is. Even before the crisis in the Ukraine, the Russian economy grew at only 1.5 percent last year, and it will be lucky to grow this year at even one percent, despite oil prices being over $100 a barrel. (Some 70 percent of Russia’s export revenues come from oil and gas.) That says a lot about how broken this particular petro state is.
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Business Emerging Markets
Forget the BRICs; Meet the PINEs
Michael Schuman @MichaelSchuman
March 13, 2014
University student interns monitor trading at the Philippine Stock Exchange in Manila’s Makati financial district University interns monitor trading at the Philippine Stock Exchange in the financial district of Makati, Philippines, on Feb. 7, 2014 Erik de Castro—Reuters
While many emerging markets are taking a beating, a fantastic growth story in the developing world is widening and drawing in new countries
Emerging markets are taking a beating these days, most of all the famous BRIC economies — Brazil, Russia, India and China. These four once seemed poised to dominate a post-American world. Not anymore. Brazil and India are posting growth rates that are only a fraction of what they were a couple of years ago. Russia’s prospects, already hampered by an overbearing state, are unlikely to improve as its aggressive moves into Ukraine could force Europe and the U.S. to impose economic sanctions. Even mighty China, while still notching admirable growth, must confront rising debt and a distorted financial system. The supremacy of the emerging world suddenly seems very far off.
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Cheap houses.
The solution is clear.
As long as there is investor money to buy houses for cash to fix up and rent out as collateral for rental-backed bonds, there will be no cheap housing.
Back to the “there is no ceiling to shelter costs” eh DebtDonkey?
Are current levels of margin debt truly at historically high levels? If so, what does the situation portend for the future prices of risk assets?
Stock Market
Warning: This Year’s Spike in Margin Debt Is a Huge Red Flag for the Market
By David Zeiler, Associate Editor, Money Morning · March 20, 2014
Margin debt, the amount of money people have borrowed to buy stocks, is not only at a record high - it’s accelerating.
This margin debt level is another sign that a stock market crash, while not necessarily imminent, is becoming more and more likely.
According to New York Stock Exchange data, margin debt reached $451.3 billion at the end of January - the fifth record month in a row.
The higher the margin debt goes, the more likely a stock market crash, or at least a sharp correction, becomes.
“As that debt goes up, the market’s foundation gets shakier and shakier,” Brad McMillan, chief investment officer for Commonwealth Financial, told MarketWatch.
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Really?!?!? 2008 was NOT that long ago.
Keep yer cash close to the vest.
Investment World – Copper and Iron Prices Drop
As Copper Sells Off, Iron Ore Prices Plunge Too
March 17, 2014
Saul Griffith
Posted with permission from Value Walk
Unraveling Chinese financing deals said to be one of the common factors…
Last week, the global copper market found itself in the throes of massive selling that led to copper contracts listed on the Shanghai Futures Exchange falling to their lowest levels in four years on Tuesday. London prices followed suit, tumbling that day to the lowest in three years.
A bond default by Chinese company Chaori Solar apparently spooked domestic financial markets, which feared that more such defaults were waiting to happen. Already grappling with tightening credit, the copper market, which traditionally uses physical inventory of the metal to secure financing, is said to have panicked after the release of disappointing Chinese economic data.
Fearing that copper prices could fall further in the event of low growth and hence weak demand, market operators apparently reduced their exposure by selling or hedging inventories.
Another factor: apprehensions that falling copper prices could lead to defaults by borrowers, forcing financers to unload metal collateral on the market, and unleashing a downward price spiral in a domino effect.
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U.S. Stocks Drop as Fed’s Yellen Outlines Stimulus Exit
By Callie Bost Mar 19, 2014 1:29 PM PT
U.S. stocks fell for the first time in three days as Federal Reserve Chair Janet Yellen said the central bank’s stimulus program could end this fall and benchmark interest rates could rise six months later.
Walt Disney Co., General Electric Co. and Boeing Co. lost at least 1.4 percent to lead the Dow (INDU) Jones Industrial Average lower. Consolidated Edison Inc. led utilities to the biggest decline among 10 groups in the Standard & Poor’s 500 Index. Newmont Mining Corp. lost 3 percent as gold tumbled the most in six weeks after the Fed’s decision to reduce asset purchases.
The S&P 500 slipped 0.6 percent to 1,860.77 at 4 p.m. in New York. The Dow slid 114.02 points, or 0.7 percent, to 16,222.17. About 6.7 billion shares changed hands in the U.S., in line with the three-month average.
“The pace of tightening, once the Fed starts tightening, is a little bit faster than thought before and I think that’s why we’re getting this market reaction,”John Canally, an economic strategist at LPL Financial Corp., said in a phone interview from Boston. His firm oversees about $438.4 billion. “Being reminded that the Fed will eventually raise rates is getting traders’ attention.”
By keeping its benchmark interest-rate target near zero and conducting three rounds of asset purchases, the Fed has helped push the S&P 500 up as much as 178 percent from a 12-year low as U.S. equities enter the sixth year of a bull market that started in March 2009.
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Stocks
Industrial Metals’ Decline Not a Negative Indicator
The message from the past three years could not be clearer: Equities have no problem rising while industrial metals are falling.
Howard Simons
9:50 AM EDT, Monday March 17, 2014
I’ve always had the greatest respect for prosaic markets, those quiet little workhorses with little speculative content. However, one of the consequences of modern finance is that some trader’s tentacles get stuck in every gearbox and manage to turn nonfinancial assets into financial ones. Just try to find a tentacle remover at Home Depot (NYSE:HD). It used to be possible to analyze copper in terms of physical supply and demand, but now you have to contend with Chinese firms that used it as collateral for a loan and managed to turn the red metal into red ink in the process.
Should you panic about the decline in the Dow Jones-UBS industrial metals index, which consists of copper, aluminum, nickel, and zinc? On one level, the answer is: only if you wish to amuse whoever’s looking at you by taking a few selfies and posting them all over Facebook (NASDAQ:FB) or other social media sites unfamiliar to your aged correspondent. On a more serious level, the only times that declining industrial metals have been a coincident (and not even a leading) indicator of equity returns have been recessions. If the global economy is weak and metals demand declines, both stocks and industrial metals decline.
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The Scariest Margin Call Since 1792
Published Mon, Mar 17, 2014 | Louis Basenese, Chief Investment Strategist
It’s St. Patrick’s Day, and apparently too many investors are feeling lucky.
In the last week, a cacophony of warnings erupted from financial pundits over the latest margin debt figures.
Why? Because the amounts of cash that investors are borrowing from their brokers to reportedly buy up more stocks topped $451 billion in January.
That’s the fifth month in a row that margin debt levels hit new all-time highs. (My colleague, Alan Gula, recently discussed the uptick in margin debt, too.)
We’re in “uncharted territory,” warns TrimTabs.
Andy Ash, Director at Monument Securities, fears that the surge puts us at risk for a “severe” market pullback. Indeed, it opens the possibility for the biggest margin call since the inception of the stock market.
Scared yet?
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ft dot com
Last updated: March 2, 2014 8:28 pm
S&P’s rise underpinned by borrowed money
By Michael Mackenzie in New York
US stocks are being propelled to fresh highs by investors borrowing a record amount of money in a high stakes gamble that is raising concerns over the potential for a sharp correction in the five-year bull run.
With the S&P 500 registering a fresh closing peak of 1,859.45 last week, margin debt – money borrowed to buy stocks – hit a record level in January, according to data from the New York Stock Exchange.
Peaks in the use of borrowed money have in the past been a precursor to big bear markets and viewed as a warning sign. Though margin debt has been hitting record highs in recent months, it now stands at $451bn on the NYSE, a rise of more than 20 per cent over the past year and above 2007’s peak of $381bn. Five years ago it hit a low of $173bn.
In past market peaks, excessive levels of margin debt exacerbated the subsequent slide in stocks, as investors were forced to quickly sell their holdings as prices fell, sparking a nasty downward spiral.
The rise in margin debt comes as questions are being asked about heady valuations, notably in biotechnology – where the Nasdaq Biotech Index is up 16.4 per cent since the start of the year – and in corners of the technology sector, which has seen Facebook spend $19bn on WhatsApp.
However, investors are not yet alarmed enough to sell out despite the S&P’s 22 per cent rise over the past year.
“We are beginning to see signs of froth; it’s a yellow flag of caution and the market can move higher from here,” said Kate Warne, investment strategist at Edward Jones. “It’s not the time to move to the sidelines, you frequently get good returns in the final stages of a bull run.”
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Personal Finance
3/03/2014 @ 11:50AM
NYSE Margin Debt Hits Record $451 Billion; Watch Out If Rate Drops
Margin debt hit a record $451 billion on the New York Stock Exchange in January, as investors borrowed more money than ever to buy into the post-financial-crisis bull market.
And that’s a good thing, for now. But rapidly rising margin debt can also signal a market top, especially if the rate of borrowing starts to drop below its 12-month average. That was a strong signal to get out of the stock market in late 1999 and 2007 — if 0nly investors had been able to see the data in real time. The NYSE margin statistics are released after a six-week delay.
“You can’t use this for timing, but you can use it to be prepared for trouble,” says Ricardo Ronco, head of technical analysis at Aviate Global in London who shared the charts here with me. The net level of margin debt “gives you an important color on the mentality of the market,” he told me.
The chart below shows the level of the Standard & Poor’s 500 Index, with the trend in NYSE margin debt below it. The important line in the middle panel is the 12-month moving average. As long as margin debt remains above its 12-month moving average, Ronco says, the market is probably “safe.” When it dips below the 12-month average, investors are using less of the rocket fuel needed to keep stocks aloft.
The bottom panel shows the trend in net margin debt, or credit minus debt. History doesn’t always repeat itself, but the parallels to 1999 and 2007 are obvious.
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How about a thread where we try to match users with their multiple handles?
Let’s start with you.
I’ve only used Ol’Bubba dating back to 2005.
Last week I posted as “El Bubba” for one post, but that was a typo as I had to reset my browser to the default settings.
How many handles have you used, Housing Analyst?
I’d be surprised if the true number is less than a dozen.
You wouldn’t accept if if I told you so just ask the blog owner.
Okay…
Ben Jones… how many handles has Housing Analyst used over the years?
Hey Bubbsy
http://m.youtube.com/watch?v=0wR2w1sbeXg
Rental Watch = Rental Watch = Rental Watch
Only one handle, going back to 2006.
If that were true there would be no need to state it.
How about a thread where we try to match users with their multiple handles?”
what R U talking about ??
Some history of the alleged Republican individual health insurance mandate:
“oxide: The individual mandate was a product of the Heritage Foundation.
Ben Jones: You do know the Heritage Foundation is a pack of neocons, right?”
The short answer is that the Heritage Foundation was a pack of neocons at the time of its inception, but it certainly isn’t that way now. Actually, I’m not sure that there are any true neocons, that is, disillusioned former libs, left in public life.
Is this a move to silence those voices that do not belong to real journalists?
Internet Control in an Anti-Free Speech World
March 20, 2014 by Arnold Ahlert
Nonetheless, the effort has its defenders. Senate Commerce Committee Chairman John D. Rockefeller IV (D-WVA) called the move “consistent with other efforts the U.S. and our allies are making to promote a free and open Internet, and to preserve and advance the current multi-stakeholder model of global Internet governance.” Gene Kimmelman, president of Public Knowledge, a hard-left group promoting itself as a public interest vehicle, concurred. “This is a step in the right direction to resolve important international disputes about how the Internet is governed,” he said.
This so-called step in the right direction is anything but. It is useful to remember that along with Russian and China, the EU criminalizes free speech, and the Organization of the Islamic Conference is determined to silence those who resist terror and jihad. And despite Chehade’s contention that the Obama administration’s decision “marks a point of maturity in the ICANN community and the global Internet community,” he revealed that governments would be welcome as “equal parties” with others in the coming discussions for laying out the appropriate transitional process. Those discussions are scheduled to begin at an ICANN meeting in Singapore next week.
ITIF’s Daniel Castro sounds the ultimate alarm, one that should concern every American. “Yes, Internet architecture is technical and, frankly, quite boring to outsiders,” he acknowledges. “But it is an issue with huge consequences that demands attention from policymakers. It is too important to get wrong. And if the Obama Administration gives away its oversight of the Internet, it will be gone forever.”
http://www.frontpagemag.com/2014/arnold-ahlert/internet-control-in-an-anti-free-speech-world/ - 67k -
Many good points in the article, but I do not like the Frontpagemag website because they are so militantly pro Israel/Zionism that David Horowitz and Daniel Pipes wish they could dig up Rachel Corrie’s corpse so they could run it over with a bulldozer again.
Horowitz’s life story is interesting, from red diaper baby in Sunnyside, Queens to 60’s radical in Berkeley to 90’s neocon.
We could talk about actual investor impact in local markets.
I have a story (from a co-worker as I have never owned). He and his wife bought a new condo in a building in southeast DC a few years ago. Neighborhood had been improving for years, though still stuck with the awful DC schools system. He got involved with the condo board. The number of investor owned units in the building was getting him worried. Doesn’t FHA refuse to do mortgages in buildings that are less than 50% owner occupied? At one time they refused if it was less than 65% owner occupied. So he tried to get the condo association to put a limit on the number units in the building that could be rented out. No dice. Some of the owners who occupy the building also own units that they rent out and they don’t want any restriction. Does it even occur to them that if people can’t get mortgages, the value of their units will crash immediately? Nope, they don’t care. Or they can’t care because without the rent, they would lose the units anyway. He gave up and sold - to an investor. Bought a townhouse in another neighborhood. New PITI is less than the old PITI plus condo fee.
Other stories?
Employment ever going back to what it was pre-bubble ?
WASHINGTON (Reuters) - The millions of Americans suffering through long stretches of unemployment could be left behind as the economy strengthens, a study by an influential former White House economist found.
Alan Krueger, a respected labor market economist who led President Barack Obama’s Council of Economic Advisers, said those unemployed long term tended to put less effort into their job hunts than others and were often viewed by employers as undesirable.
The sobering analysis published on Thursday by the Brookings Institution, a think tank in Washington, projected that people out of work for more than six months will increasingly give up their job search in the coming years.
Their plight could be one of the deepest scars left by the 2007-09 U.S. recession.
While the unemployment rate has fallen quickly over the past year, most of the workers getting jobs have experienced only brief stretches of unemployment.
It has yet to be seen whether the long-term unemployed will eventually get jobs as the economy strengthens or drop out of the labor force altogether. Krueger’s analysis suggests America is headed towards the latter of those two paths.
Not for decades.
My next door neighbor lost his management job at big blue last year. After a few months he found another job that paid half of what his old job did. That job lasted six months and he was laid off and he’s looking again. He’s very discouraged to say the least. At least his IBM pension is vested, he just needs to get by for a few more years before he can start collecting on that and SS.
Some years ago my other neighbor also lost his job at IBM. Even though he had a brand new MBA he struck out in his search for a new job and tried to start a photography and video biz, with poor results. He and his Methodist minister wife divorced within the year and sold the house. She moved to Wyoming and I have no idea what became of him.
Men and Women relationships are very fragile these days. With the economic chaos and the easy of Internet dating Women are so vulnerable to the grass is greener on the other side. My spinning instructor is on the prowl for her third husband. I know so many 35 to 40 something women with kids looking for love and their soul mate.
It has yet to be seen whether the long-term unemployed will eventually get jobs as the economy strengthens or drop out of the labor force altogether. Krueger’s analysis suggests America is headed towards the latter of those two paths.
Oldsters are dead meat. Young pups often complain that they can’t get real jobs because the oldsters are hogging them. What they don’t realize is that there are no jobs and when an oldster loses a job that the geezer is even more screwed than they are since he can’t move back into his mom’s basement.
Employment will not go back to Pre bubble levels until we get rid of the European disease known as “progressivism.”
Did outsourcing jobs make college tuition go up ?
The big idea behind outsourcing if I recall was something like this, employee A would be forced to leave his current job and in time get a better more productive job.
Productive job I imagine to be a higher skill level perhaps requiring training at a college?
What about “money on the sidelines” and a generation of delayed first-time buyers who want in, but not at current prices?
A recent post on a competing (and, obviously, inferior) housing bubble blog yielded over 150 comments from potential first-time buyers, mostly 30-somethings in California. The majority of posters said they have spent the past few years renting and saving up money, and many now have a 20% down payment or more and pre-approved mortgages from banks or private equity lined up. The consensus was that housing is currently overpriced, but most were ready and eager to buy when prices correct.
So is this a possible difference from the last collapse? Whereas buyers in Bubble 1.0 had never experienced home price declines, this next crop of buyers have witnessed both a market collapse and an unprecedented market rebound in a few short years. When prices start to fall, will these people be lining up to buy at slight discounts, with the probably unreasonable expectation that prices will shoot to the moon again in a few years?
And will these buyers, in trying to catch a falling knife, temporarily slow what should be dramatic price declines? Or will they get cold feet when faced with the reality of falling prices with no end in sight, especially in the face of increased economic instability and falling rents?
“a generation of delayed first-time buyers who want in”
I don’t think so. The toy is broken and nobody wants it.
Let’s discuss the rolling housing collapse that will become prominent in the North East this year as the epicenter of the foreclosures is shifting to NY and NJ. Will we have to go thru the same numbskull diatribe that we encountered in states like Florida? Lawyers will get scores of clients wanting houses for nothing, victimhood articles in the local press and the political theater from the sociopaths. I am already tired of all of this and would like to know when we are all going to GROW UP as a Country and take responsibility for our actions. Btw what inning are we in this debacle. Are happy days ahead for us and how soon?