The Housing Bubble

Fed Focus
Janet Yellen’s big concern: Housing slowdown
By Annalyn Kurtz
May 7, 2014: 2:54 PM ET

NEW YORK (CNNMoney)
Federal Reserve Chair Janet Yellen is upbeat on the U.S. economy for the most part, but there’s one sector that causes her some concern: Housing.

“One cautionary note, though, is that readings on housing activity — a sector that has been recovering since 2011 — have remained disappointing so far this year and will bear watching,” she told the Joint Economic Committee in prepared remarks Wednesday.

The housing sector was a key part of the economic recovery last year but has since fallen short of economists’ expectations.

Building permits — a gauge of future home construction — fell 2.4% in March, and existing home sales were flat. Economists had expected both these indicators would improve more, especially after blizzards and a cold winter put the housing sector largely on hold.

Yellen cautioned that the warmer weather may not be enough to turn things around.

“The recent flattening out in housing activity could prove more protracted than currently expected rather than resuming its earlier pace of recovery,” she said.
…

“What does the Fed have up its sleeve to remedy its current “big concern”?”

Negative rates?

The house is the income earner. Get with the program.

“just before the SHTF”

That’s what I meant when I posted a week ago asking if it’s starting to feel like 2007-2008 again. Not as a specific parallel to housing, but to all time stock market highs, rapidly increasing food prices (several articles today note meat prices at all time high in USA), and the MSM’s insistence that the recovery is real, despite the overwhelming feeling on Main Street that it is not.

“This is the strongest global economy I’ve seen in my business lifetime,” said Henry Paulson in July 2007. It feels like we are back there now…

Nouriel Roubini: We’re at the very beginning of a credit bubble
May 8, 2014, 2:37 PM ET

Nouriel Roubini whipped out the “b” word on Thursday, telling Maria Bartiromo at Fox Business Network that we’re at the beginning of a credit bubble. We’re not on the brink of a major collapse, but we might be getting there, he cautioned.

The New York University professor and chairman of Roubini Global Economics is known as something of an economic pessimist, though he’s become slightly more optimistic recently. (Still, here are six of his risks.)

The Federal Reserve will keep its key lending rate low even after it lifts off from near zero, where it has rested for the past half decade, Roubini said. That slow process of normalization will keep the spigot of borrowing flowing, helping support the economy. But it will also lead to risky lending practices. Hence, a bubble is inflating that could eventually pop.

He’s by no means the first person to make this claim: the question of financial stability is one of the key criticisms of the Fed’s accommodative policies. Roubini didn’t criticize the central bank, so much as say that the Fed is damned-if-you-do, damned-if-you don’t.

Roubini cited the return of some of the key characters associated with the period before the last financial collapse: Lots of low quality bond sales, debt without strong protections for bondholders, and a certain kind of risky security called PIK-toggle bonds. The economist says:

“All the risky things that were happening back in ’06 and ‘07 are back again to the same level, if not more. So we are in the beginning of a credit bubble, but just the beginning.”

So file this one under “not imminent.” The risks won’t build until about a year or two down the road, he said.
…

“Could we possibly be at the BEGINNING of a new credit bubble?”

If the fenders, wheels and transmission weren’t coming off the China economy, I’d say yes. Yeltsin is telegraphing the end.

We need imaginary bubbles just like Santa Clause cause without them life in the US will be a lot harder to swallow. Thank God we have some manufacturing even if it is the credit bubble otherwise I was getting worried. Now let’s get back to the more important stuff like the NFL pick.

May 9, 2014, 9:58 a.m. EDT
U.S. stocks fall, on track to end week in the red
By Victor Reklaitis, MarketWatch

NEW YORK (MarketWatch) — U.S. stocks lost ground on Friday, putting them on track for a downbeat end to a choppy week that’s punished tech names.

The S&P 500 (SPX -0.21%) was last down 7 points, or 0.4%, to 1,868, on pace for a 0.7% drop for the week.

The Dow Jones Industrial Average (DJIA -0.12%) fell 40 points, or 0.2%, to 16,534. It’s on track to end the week fractionally lower.

The Nasdaq Composite (COMP -0.02%) shed 16 points, or 0.4%, to 4,036. The tech-heavy index is set for a weekly drop of 2.1%
…

Bonds are faring no better than stocks today.

Credit Markets
U.S. Treasurys Pull Back, Erasing Earlier Gains
Min Zeng
May 9, 2014 10:04 a.m. ET

U.S. Treasury prices pulled back Friday, erasing earlier gains, as some investors cashed out chips from still-lofty price levels.

In recent trade, the benchmark 10-year note was 6/32 lower, yielding 2.623%, according to Tradeweb. The 30-year bond declined 12/32 to yield 3.452%. When bond prices fall, their yields rise.

Bond yields have fallen sharply this year, as geopolitical concerns about Ukraine and an uneven pace of global economic growth boosted demand for haven assets. The 10-year note’s yield earlier this week hit a six-month low, and has fallen from about 3% at the start of the year. On Monday, the 30-year bond’s yield touched its lowest level since June 2013.

“The selloff in the 30-year bonds…is saying the entire market is overdone for now,” said Richard Gilhooly, senior U.S. rates strategist at TD Securities in New York.

Some analysts and traders said the room for further declines in bond yields could be limited. They said that unless there is an escalation in the Ukraine crisis or the U.S. economy fails to gain traction, the 10-year yield may not fall below 2.5%.

Dan Mulholland, head of U.S. Treasury trading at BNY Mellon Capital Markets LLC, said bond investors “need fresh triggers for another leg down in bond yields.”

The 30-year bond has been the best performer in the bond market this year. In a falling yield environment, the 30-year bond has attracted buyers because it provides the highest yield investors can get from the Treasury bond market.

This year through Thursday, Treasury bonds maturing in more than 25 years have posted a total return of 11.2%, higher than the 2.2% return from the overall Treasury market, according to data from Barclays PLC. Total return includes price appreciation and interest payments.

Traders and investors said pension funds, the main buyers of long-dated bonds, have piled in since the start of the year. The sharp rise in Treasury yields last year–that sent the 30-year yield to about 4% at the start of 2014–drew buying interest from pension funds as they need high-grade long-dated bonds to match their long-term obligations, such as payments for retirees.

The strong return over the past months also attracted asset-management firms and mutual funds. Foreign investors also joined the foray, as U.S. bonds offer higher yields compared to their counterparts in Germany and Japan, two other major sovereign bond markets.

Bond investors are comfortable buying Treasury bonds after the U.S. central bank chief reassured investors that an increase in interest rates remains far off. Federal Reserve Chairwoman Janet Yellen told lawmakers that the central bank will continue to hold its interest rates near zero for a considerable time to support the economy.

Lower yields continue to confound bond bears, who expected bond yields to extend last year’s sharp rise. The 10-year note’s yield rose over one percentage point last year.
…

I guess my question is whether there have been occasions of rapid RE price escalation and speculation WITHOUT an economic collapse following.

IMHO, I think real estate going up in value is a hallmark of a part of every economic cycle. As the economy gets better, more lenders are willing to lend, more borrowers willing to borrow, and so assets that are acquired with leverage go up in value…until they don’t.

We are on the train, heading for the train wreck and we know it?

Plain and simple.

Stick with the fundamentals;

-Grossly inflated housing prices 300% higher than long term trend

-Excess empty housing inventory in the 25 million housing unit range

-Collapsing housing demand to 20 year lows

-Housing and mortgage fraud in all 4 directions.

“Will we ever get meaningful reform of the GSEs?”

I have a better chance of becoming the pope. Smart people don’t ask such questions.

Monday, May 05 2014 02:43 PM
Real estate agent sentenced to two years in prison
By Casey Christie / The Californian

FBI agents escort Michael Angelo Munoz from U.S. Bankruptcy Court in downtown Bakersfield after his arraignment in January 2011.

BY JOHN COX Californian staff writer jcox@bakersfield.com

Former Crisp & Cole Real Estate agent Michael Angelo Munoz was sentenced Monday to two years in prison for his role in the infamous mortgage fraud case.

Munoz pleaded guilty in November to two counts of mail fraud and agreed to forfeit $1.3 million as a “reasonable reflection” of his financial gains under the criminal scheme, which federal prosecutors say took place between 2004 and 2007.

He was indicted Jan. 13, 2011, on one count of conspiracy to commit mail, wire and bank fraud, five counts of mail fraud, one count of bank fraud and aiding and abetting, and one count of conspiracy to launder money.

Prosecutors accused Munoz of being one of several “straw buyers” in whose names Crisp & Cole purchased homes using falsified loan applications. Many such properties later went into foreclosure, costing lenders some $30 million, according to the U.S. Attorney’s Office.

Munoz was the seventh Crisp & Cole defendant to be sentenced in the case. Another eight defendants await sentencing. The last of them, former operations manager Julie Dianne Farmer, is scheduled to learn her fate July 14.