The Housing Bubble

The house next door, whose former occupants I helped relocate one rainy weekend last month, is on the market for about $100K above recent comps for 2/2s. We’ll see how close the investor-owner gets to his wishing price in due time…

The trend here in SFH is very low inventory, “under contract” signs the norm, and many fixups-flips. It’s pretty pathetic that I can recognize the Home Depot materials in the Zillow pix. Behr Swiss Coffee paint is very popular.

Meanwhile, there are urban infill projects invading metro stations in gentrifying neighborhoods. Thousands of new condos and/or apartments are coming online, all seemingly designed by the same architect. I’ve seen 3-4 examples of this in person. However, all this new supply does not appear to be dropping prices, as economics would dictate. Those apartment rents are very high, and the condo equivalents cost almost as much as my house did. If you count HOA fees, condos have a higher payment.

AZ Slim is right about high-end student housing. I was driving through the University of Maryland’s main drag and saw several banners for “luxury student apartments.”

One other note: For people who drive everywhere, things are not as walkable as they may seem. One development says that their new apartments are “steps from the Metro.” Sure, you can see the Metro from the window, but it’s 3/4 mile, or a 15 minute walk through a maze of intersections and stoplights in heat and rain. It may be all hipster now, but I know from personal experience that it wears you down. I wonder how all these pretty young things are going to handle it when they are, say, 37 or 38.

$200 per square foot is the minimum asking price in south Denver. Recent sales I have noted range from $175 to $250 per square foot. Some of these houses are over 100 years old and don’t look like anything special.

95051-95054…….

Inventory at historic lows…Prices are above 2007 peak…The amount of apartments & commercial “campus” space being built is massive…Largest spike I have seen in my lifetime….1988-89 was big…Dot Com was big….This one is massive…Apple campus is only one example and it is surrounded by residential neighborhoods..Those prices have gone vertical…The smaller homes, 1200 square feet or so are approaching $1,000. per foot…Just insane…Same thing all the way up the peninsula towards San Francisco…

Summary I guess is that its about money immigration, jobs and people wanting to live in Silicon valley…

I spoke with a young man thats graduating from SCU yesterday…He is from a very weathy family in Spain…During his life he has lived in 4 different countries…I guess family has business throughout the world…Nice young man…He told me yesterday that he is staying here after graduation…Knowing that he has opportunity to work, given the family businesses, he said the weather here is just to good to Leave..

It reminds me of a young man that had just graduated from SCU back in the mid 90’s that I spoke with…He decided to stay also although his opportunity back home in the family business was huge…Anyone from Phenix will recognize the name…I am sure you will also Ben…The last name is Robsen…As in; Robsen Communities…One of the largest developers in Arizona…Son Mark, is still here and became one of the biggest local developers in the area…Lives in Los Gatos…

maybe the weather plays a bigger role than any would think…

Here are visuals of the new apple campus…You can see from the ariel views all the homes that surround it…

https://www.google.com/search?q=apple+campus+cupertino+construction&espv=210&es_sm=119&tbm=isch&tbo=u&source=univ&sa=X&ei=ssA-U6HeHcibygHe4IGwDA&ved=0CFoQsAQ

Sacramento Foothills:

1) Available SFR homes for rent are in short supply. More renters than homes available. Rental rates have not risen above the mid 2013 high point, but they easily good by mid 2014 if this trend holds.

2) High end housing has started selling. Properties for $1,000,000 to $2,000,000 are going under contract in greater numbers. These properties, many which have been sitting unsold for years, are finally moving. I think there is a deep amount of shadow inventory at this price level from people unable to sell since 2007. It will be interesting to see if the supply side starts growing as frustrated sellers re-list their homes for sale now.

History has not dealt kindly with the aftermath of protracted periods of low risk premiums.

– Alan Greenspan

Business Day
Jeremy Stein to Resign From Fed Board to Return to Harvard
By BINYAMIN APPELBAUM
APRIL 3, 2014

WASHINGTON — Jeremy C. Stein, a member of the Federal Reserve’s board who has raised concerns about its stimulus campaign, will resign at the end of May and return to his previous role at Harvard.

Mr. Stein, who joined the Fed in 2012, needed to return within two years to preserve his tenured professorship.

“During my time here, the economy has moved steadily back in the direction of full employment, and a number of important steps have been taken to make the financial system stronger and more resilient,” Mr. Stein wrote in a letter informing President Obama of his resignation, which was released by the Fed. He added, “There is undoubtedly more work to be done on both dimensions.”

Mr. Stein, an economist and noted academic, has helped to provide an intellectual rationale for the cautious evolution of the Fed’s stimulus campaign, which has not succeeded in returning either unemployment or inflation to normal levels.

He has argued that the Fed should temper its efforts to minimize unemployment because those policies encourage financial risk-taking, which can undermine long-term growth by destabilizing markets and causing new crises.

“Monetary policy should be less accommodative — by which I mean that it should be willing to tolerate a larger forecast shortfall of the path of the unemployment rate from its full-employment level — when estimates of risk premiums in the bond market are abnormally low,” he said in a speech last month.
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ft dot com
Last updated: April 2, 2014 6:32 pm
Credit bubble fears put central bankers on edge
By Tracy Alloway, Michael Mackenzie and Arash Massoudi in New York

On a mild spring day in New York, representatives from Citigroup set out to introduce investors to the bank’s new subprime securitisation platform.

This might sound like a scene plucked from 2007, at the height of the credit bubble that eventually sparked the financial crisis, but Citi’s “roadshow” began only this week. The US bank is prepping the market in advance of a debut securitisation from OneMain Financial, its subprime consumer lending arm.

In doing so, Citi is aiming to tap into a wave of investor demand for higher-yielding securities created from sliced-and-diced loans that it makes to riskier borrowers.

The planned sale is symptomatic of a wider development in credit markets as the thirst for increased returns has led to fears about possible overheating and provoked public soul-searching by central bankers.

Parts of Wall Street’s securitisation machine have shifted into higher gear, while sales of junk-rated bonds have surged and lending to highly-leveraged companies has surpassed its pre-2008 level.

“We are beginning to see the build-up of speculative excess. It’s more advanced in the US, and starting to come through in Europe,” says Chris Watling, chief market strategist at Longview Economics.

Central bankers have been debating whether monetary policy should take into account asset bubbles ever since the low interest rates cultivated under Alan Greenspan were blamed for herding investors into riskier investments in the years preceding 2008.

However, in recent months, that debate has become increasingly public as credit markets continue their upward trajectory.

While many members of the Federal Reserve Board argue that the central bank should not risk derailing longer-term economic growth in order to respond to potential market excesses, some have argued the reverse.

Daniel Tarullo, Fed board governor and its top banking regulator, said in February that the central bank should reserve the option of using monetary policy to fight latent bubbles.

Jeremy Stein, Mr Tarullo’s colleague on the board, argued late last month that the central bank should incorporate financial stability risks into its monetary policy. He added that the Fed should consider raising interest rates when estimates of so-called risk premiums in the bond market are abnormally low.

Just days before Mr Stein’s speech, one such risk premium measurement had dropped to its lowest level since early 2007. The difference, or “spread,” between Bank of America Merrill Lynch’s index of high-yield bonds and 10-year US Treasuries, fell to 291 basis points – not far from the 288 bps recorded in 2007.

“Here is where one can get into hard-to-resolve debates about bubble spotting and about whether one can expect the Federal Reserve to be smarter than other market participants,” Mr Stein said in the speech.
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Credit Markets
For Borrowers, Bonds Are Beautiful
Corporate Borrowing Booms Anew in First Quarter
By Mike Cherney and Katy Burne
April 1, 2014 7:26 p.m. ET

Corporate borrowing boomed anew in the first quarter, as slowing U.S. stock-market gains revived investor demand for bonds.

Highly rated firms sold about $317 billion in the U.S. during the first quarter—the second-highest quarterly figure ever and the most since the $347 billion logged in the first quarter of 2009, according to Dealogic data going back to 1995.

Borrowers ranging from U.S. technology titans Cisco Systems Inc. and International Business Machines Corp. to Brazilian oil giant Petroleo Brasileiro tapped the U.S. markets in the first quarter, taking advantage of low interest rates to stock up on billions in cash.

Cisco’s February sale of $8 billion in debt was the second-largest investment-grade technology-sector bond on record, behind only Apple Inc. $17 billion sale in April 2013, according to Dealogic. And IBM’s $4.5 billion sale was the largest bond deal ever by the company, Dealogic has said.

“We were pleased with the strong interest in our bonds,” a Cisco spokeswoman said. “High-quality technology bonds provide good [sector] diversification benefits for investors.”
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1 DAY ago
Markets
Investors Clamor for Risky Debt Offerings
Buyers Grab Securities With Weak Ratings, Tired of Lower Yields on Safer Deals
Investors are snapping up low-rated securities backed by companies, home mortgages and car loans at a clip rarely seen since the financial crisis, as fund managers and others tire of paltry yields on safer assets.
By Al Yoon, Katy Burne

Risky debt is flying off the shelves.

Investors are snapping up low-rated securities backed by companies, home mortgages and car loans at a clip rarely seen since the financial crisis, as fund managers and others tire of paltry yields on safer assets.

Buyers poured $3.42 billion into taxable U.S. high-yield mutual funds and exchange-traded funds in the first quarter, outpacing the year-earlier period’s $1.76 billion total, said fund tracker Lipper, and following a full-year outflow of $4.98 billion in 2013. At the same time, robust demand for the lowest-rated portions of some asset-backed securities has enabled issuers to cut offered yields, investors said.

The actions highlight the widespread expectation that the Federal Reserve will keep interest rates low for at least another year even as the economy picks up speed. The conditions should keep defaults low, investors said, enabling purchasers of the debt to pocket returns above those from more highly rated offerings.

“The world seems a safer place than it did two years ago, or even a year ago,” said John Kerschner, global head of securitized products at Janus Capital Group Inc., which manages $174 billion. Buying high-quality debt alone is “not going to put meat on the table, and you have to take a little more risk.”

Despite the expanding economy and the quiet inflation outlook, many observers warn that hefty sales of riskier debts raise warning signs.

Fed governor Daniel Tarullo last month warned about the risks of investors’ “reach for yield” and the “incentives for these firms to take on excessive risk,” in remarks at the 30th annual National Association for Business Economics conference in Arlington, Va. He said low rates could “potentially inflate a speculative bubble.”

Freddie Mac, the government-backed home-loan financing company, on Wednesday sold $966 million of derivatives backed by mortgage loans. Demand for the Structured Agency Credit Risk notes—debt that enables private investors to shoulder more of the risk of financing the U.S. housing market—was strongest in the riskiest, unrated portion of three classes of notes sold. Investors registered $10 of orders for each dollar of so-called M3 notes sold. Holders of the M3 notes share in any losses first.

Ultimately, Freddie Mac sold $391 million of the M3 notes at a yield of 3.75%, which is 0.4 percentage point below the rate at which the company initially shopped the debt, investors said.

“We’re in an environment where the discerning eye of real credit investors has given in to the less discerning generic yield grab,” said Stuart Lippman, a portfolio manager at TIG Advisors LLC, which manages $1.8 billion and bought some of the riskiest Freddie Mac notes. Mr. Lippman said the firm is comfortable with the risk and the debt is easily traded.

The demand “is a combination of a good market…as well as a growing understanding and investor base” in the program, said Mike Reynolds, a director of portfolio management at Freddie Mac.
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That’s a great question. More and more, the likely answer seems to be, NEVER.

“A parabolic blow off is more than a spike on a graph. In participant terms, it reflects an extreme optimism, even a frenzy, concluding with the maximum number of fellow believers. ”

Fear more than optimism. The middle class is shrinking. If you don’t own a home, you are left out of the middle class. If you don’t buy now before the price goes up, you’ll never be able to. And if you can’t borrow against your house, your kids will not be able to go to college.

I you don’t buy stocks before the price goes up, you’ll never be able to retire. After all, look at those interest rates.

It’s your last chance. There is only room for a few more on the ark, and the rest will be left to drown.

My impression is the number of suckers has gone down. But not to zero.

“Now it’s defaults, price slashing (up to 40% in one report), bank runs.”

Coupled with massive denial and very little open acknowledgment that the China housing bubble is popping before our very eyes…

Perhaps it is afraid of rising wages, which might reduce profits. Better to maintain sales through rising debt. Perhaps it’s time to raise interest rates.

These stories about how the market “will go up by X” before “plunging amount Y” make absolutely no sense to me.

S&P 500 will peak around 1,900 to 1,950 then drop 30%: Saxo Bank strategist
April 3, 2014, 10:52 AM ET

The S&P 500 SPX (-1.25%) is a mere 10 points away from a 30% plunge, says Saxo Bank’s chief economist Steen Jakobsen.

He expects equities will peak at around 1,900-1,950 before that big plunge kicks in. Given that the S&P 500 is hovering around 1,890, that selloff looks like it’s just around the corner. Instead, it could be a long, slow meltdown.

“We’re not looking at this correction for next month or for the next two quarters, this is for late 2014. If you’re looking at it right now, the market may have an upside of 5%, but then you’re looking at a 30% downside in the final month of 2014,” he says.
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No, please, not the death cross!

10-year Treasury yield death cross could signal bond rally
April 4, 2014, 2:03 PM ET

If you’re partial to ominous-sounding technical financial terms, brace yourself for this one: The death cross is approaching.

You can put to rest fears about the grim reaper, but the implications of this indicator suggest you would do well buying bonds, according to analysis by Abigail Doolittle of Peak Theories Research, a technical analysis firm.

The death cross refers to the passage of the 50-day moving average through the 200-day moving average, suggesting a loss of momentum in the market. And it’s not necessarily just bluster: It has been blamed for stock selloffs in the past. As Dootlittle points out, the 10-year Treasury (10_YEAR -2.60%) yield’s 50-day is very close to crossing the 200-day average, which suggests the yield may be poised to fall. Different data sets show varying proximities to the death cross, and on Tradeweb the two averages look to have already converged:
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I’m guessing it’s a some mechanism or belief whereby a reduction in Fed money printing (QE) will result in less money to chase stocks. Good economic report means no change to the QE reduction plan.

John McCain Is the Least Popular Senator in the Country

He Said It First
My favorite from the time of the 2008 campaign.

So far bitcoin is only off by 61% from the peak level reached last year.

There is plenty of room for further declines from here on out.

The most ominous Bitcoin trend
Business
Bitcoin Trends
By Tero Kuittinen on Apr 2, 2014 at 8:50 PM
Email @teroterotero

Last week, Bitcoin’s value tumbled 9% in one day on news that China’s central bank had ordered banks and payment companies to close trading accounts belonging to more than 10 exchanges. Since then, Bitcoin has crashed by nearly another 10%, now hovering around $480. It’s a steep decline from the feverish highs above $1,100 last November.

Ominously, general interest in Bitcoin is declining sharply, regardless of the recent turbulence. Google Trends shows that even though you would expect the break below the $500 level to generate a lot of curiosity, the search volume for “Bitcoin” is actually far below where it was in late February, when the pseudo-currency dropped below $600.

The drama swirling around Bitcoin is not dissipating at all. Recent items on Chinese central bank moves and the sudden discovery of hundreds of thousands of vanished Bitcoins are just as compelling as the news flow was a few months ago. But people have started losing interest. Search volume peaked last November as Bitcoin price topped $1,100, then had a smaller peak in late February as the price tumbled below $600.

But the latest Bitcoin crash is no longer piquing the interest of the general public at all.

Outside of Iceland, that is — the volcanic island remains the top country in the world when it comes to Bitcoin search volume relative to population size. That is because in the lava plains of Reykjanesbaer, Bitcoin-mining is a real industry thanks to cold air and geothermal energy.

Iceland was one of the biggest victims of the global financial crisis of 2008. Hopefully the nascent Bitcoin industry will fare better than Kaupthing did.

Marc Faber: Bitcoin could be worthless if the system crashes
04/04/2014 10:42 am
Filed Under: BTC - Bitcoin by Andrew Moran

A lot of libertarians and contrarian investors who are staunch critics of bitcoin make a few points: bitcoin has no intrinsic value, no one can physically own a bitcoin and the government and major financial institutions will clamp down on the digital currency in the near future.

One of bitcoin’s detractors is Marc Faber, legendary investor and publisher of the Gloom, Boom & Doom Report, participated in a webinar hosted by GoldCom on Friday in which he discussed a variety of issues, including monetary policy, precious metals, gold manipulation and the rise of bitcoin.

When discussing bitcoin, Faber, who called for the 1987 stock market crash, the housing bubble and an array of other traumatic market events, he admitted that he doesn’t know the value of bitcoin and that he would rather own gold.

“I don’t know the value of a bitcoin. I own gold because when the system breaks down, I want to have some cash,” stated Faber. “With a bitcoin, there is a scenario where the system breaks down and you have no internet access and then what is the value of your bitcoin?”

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Technology
Cryptocurrency News Round-Up: Bitcoin Bombs; PayStand Launches & Cryptocurrency Course
Daily news roundup of bitcoin, litecoin, dogecoin and more
Anthony Cuthbertson
By Anthony Cuthbertson Mary-Ann Russon
April 3, 2014 10:07 GMT
Bitcoin Price: £250.87 (via CoinDesk.com)

Cryptocurrency markets crash, a new bitcoin payment platform launches and a University in Cyprus offers the world’s first online digital currency degree programme.

The price of bitcoin has hit its lowest level since last November, causing significant disruption to all major cryptocurrencies. The bad day for bitcoin fuelled a market-wide drop, which saw only four of the top 50 cryptocurrencies gaining in value in the last 24 hours.

Auroracoin has been one of the worst affected by the turmoil, losing almost a dollar in value after stabilising at around $3 earlier this week, following large fluctuations in the days after its recent Airdrop.

Bitcoin price drop

The plummet in price of bitcoin seems to stem from China, where the ongoing uncertainty surrounding bitcoin in the world’s second largest economy has led to more exchanges suspending deposits.

China-based bitcoin exchanges OKCoin and FXBTC have both received official notices from regulators that some of their accounts will be terminated.

Another Chinese exchange, BTC38, has also announced that it is to suspend flat-to-digital currency trading following a shift in policy from the People’s Bank of China.

A ban on financial institutions in China from handling bitcoin last December previously caused the value of the cryptocurrency to crash by 50% in a matter of days.
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