The Misconception Is That People Can Afford It
The Press Enterprise reports from California. “Banks are still in the throes of taking back housing-crisis remnants in Inland Southern California, a new report from RealtyTrac shows. The 2,447 foreclosure filings across the two-county region in August were 11.6 percent less than the year earlier, but nearly half of the filings – 1,057 – involved notices of default. Industry analysts say the spike in initial mailings and bank repossessions are revealing ’shadow inventory’ that’s been in the background since the height of the foreclosure crisis.”
“To avoid a glut of foreclosure action, home-price devastation and possible market implosion, the filings were parceled out. Home take-backs also took somewhat of a hiatus when the California Homeowner’s Bill of Rights took effect in 2013. Foreclosure activity began to intensify in March. Bank-repossession notices then showed year-over-year increases every month through July. Total foreclosure filings in July rose for the first time after 31 consecutive months of declines.”
“‘If the 15 percent average decline had continued in January through August, we would have seen 52,056 total foreclosure starts in the Inland Empire during that time period,’ said RealtyTrac Vice President Daren Blomquist said. ‘Instead, we have seen 24,509 NODs (notices of default) during that time. That leaves 27,547 that we would have expected to happen, but did not happen.’ If only half of the 27,547 anticipated filings lead to a foreclosure, Blomquist said, it could take at least 11 months at the current rate for the Inland region to work through the backlog.”
The Pensacola News Journal on Florida. “For the 11th straight month, Florida led the nation in foreclosure rates. Florida had a total of 6,468 foreclosures in August, a 74 percent jump from July and a 25 percent increase from August of last year. In Pensacola, 307 housing units faced some sort of foreclosure activity in August, up 274 percent from July and 60 percent from August 2013. Pensacola Realtor Anthony Sessa said many of the foreclosed homes are ones realtors have known about for some time.”
“‘In the last 30 days, our inventory of properties which will eventually be on the market has increased greatly,’ he said. ‘It’s what we call shadow inventory, that we’ve all known about and were just wondering when we were going to get it. Our inventory in general has been average to low, so it’s the best time to feed this stuff out.’”
CBS Philly on New Jersey. “The shrinking casino industry is one reason experts say Atlantic County is top on the list of counties in New Jersey for home foreclosures. This week RealtyTrac released a report showing New Jersey foreclosure starts in August increased about 115 percent from the same period last year. ‘When these casino workers came in and bought these $300,00 to $500,000 houses they could afford them, but when they lost their jobs or went from full time to part time, they couldn’t make the payments,’ says Atlantic County Sheriff Frank Balles.”
The Denver Post in Colorado. “The number of foreclosures filed in Colorado last month showed the largest year-to-year increase since 2007, when the state was embroiled in the mortgage meltdown, according to a new report. The increase, a 57-percent surge when compared with a year ago according to RealtyTrac, is likely the result of state investigations into the practices of Colorado’s two largest foreclosure law firms. ‘The surge in foreclosure activity is not the result of a faltering economy but, instead, problems in the foreclosure industry that have delayed some (filings),’ said Chad Ochsner of Re/Max Alliance.”
Arizona Public Media. “After being on a downward trend for several months, foreclosure filings are rising in Tucson and statewide. A new report from RealtyTrac showed the number of homes that progressed a step in the foreclosure process went up by 16 percent from July to August. The number more than doubled from June to July, and is up by nearly half since this time last year. RealtyTrac Vice President Daren Blomquist said the recent jump in filings is due to more homes entering the foreclosure process. ‘Primarily, the increases in Tucson are coming from the foreclosure starts, properties just starting the process. Actual bank repossession of properties, the final stage of foreclosure, those are still going down,’ he said.”
The Fairfax Times in Virginia. “Fairfax County’s budget staff expressed some nervousness last week about declining sales in the local housing market. The number of active listings in the county in August was at a five-year high, as compared to the same month in prior years, and the number of homes sold was down about 12 percent from last year. David Versel, senior research associate at the George Mason University Center for Regional Analysis, said the local housing market is actually doing quite well, given the slow recovery of the job market. ‘Our job growth has been really weak this year,’ he said. ‘The fact that the housing market is even flat is positive.’”
“While soaring inventories can be a sign of trouble in the housing market, Versel said that the numbers had been abnormally low. ‘If it keeps going up over the next six to 12 months, then it is probably a cause for concern,’ he said. While still not back to where they were at the peak of the market, the median sales price for Fairfax County is now $478,000, compared to a low of $308,000 in 2009. ‘In that relatively short amount of time, prices have increased 55 percent,’ said Corey Hart, senior product manager with RealEstate Business Intelligence. ‘To think that houses would continue to appreciate at double digit increases year over year, it’s really not sustainable.’”
Seattle Weekly in Washington. “Everyone around here has been flooded with unsolicited offers. Walking around the neighborhood, we run into Stanley Perkins, who has lived in his house since 1973, when he bought it for $17,500. Asked to bring out some of the offers that regularly arrive in the mail, he heads into the house and comes back with carton after carton. ‘Dear Stanley,’ begins one letter from a repeated land suitor. ‘As I have stated in my letters to you recently, the land market may be in a bubble and 2014 could be the top of the market.’ The letter’s author goes on to say that he represents buyers who ‘are so eager to purchase your property’ that they have agreed to pay all of the usual commissions.”
From Bloomberg. “Canada’s ratio of household debt to disposable income approached a record high between April and June, underscoring the central bank’s concern about imbalances in consumer finances. Home sales and prices have shown unexpected strength as the lowest mortgage rates in decades spur demand. Forecasts for housing starts were raised yesterday to the highest this year in monthly Bloomberg News surveys.”
“With mortgage debt rising, the economy will be exposed when interest rates rise, said Andy Nasr, senior portfolio manager at Calgary-based Middlefield Capital Corp. which manages about C$4 billion ($3.6 billion), including real estate stocks. ‘The misconception is that ‘Well it’s ok because people can somehow afford it,’ he said at Bloomberg’s Toronto office. ‘They can’t.’”
‘Is fresh China stimulus a done deal?’
‘While the Chinese government has indicated a greater tolerance for a slower growth, economists expect Beijing to turn on the stimulus taps to prop up the economy following a sharp deceleration in activity growth in August.’
Nothing can run on its own any more. I keep thinking about what rms said - there’s no free market in the US housing market. This is the US of A. It’s the biggest market in the country. And it’s a government market.
Let that sink in, because it means more than most might think.
No free market in Red China I understand. Here in the US, not so much, especially given the hypocrisy involved, not to mention questionable legality.
Not only housing, but look at the fraud and manipulation in commodities prices, stocks, etc. The Fed is distorting prices everywhere.
‘Condo owners say a 7-year-old change in state law now is forcing them from their homes as investors convert their buildings into rentals. Some condo owners say they’re being pressured to sell as investment groups slowly take over whole complexes, often by snapping up foreclosed units. Their goal is to sell the properties at a profit.’
“I’m a real estate broker so I thought I was smarter than everybody else,” said Nancy Alexander, who has owned a unit in The Hamptons at Tampa Palms since 2006. “My mistake was thinking that we had rights,” she said, adding that she hasn’t sold. “I thought nobody could make (us) sell. I was wrong.”
Condos are owned by the association.
‘The public sale of the home of Washington County Board of Education member Karen Harshman and her husband was canceled late last month, according to a representative of Alex Cooper Auctioneers Inc.’
‘The house had previously been scheduled for public sale on July 23, but that sale was also canceled several days before the date of the auction. In July, Harshman said that the bank’s attorney said the July 23 scheduled sale was a mistake, and that her family was given 30 days to work out a refinancing deal.’
‘The Harshmans bought the home for $425,000 in March 2004, according to the Maryland Department of Assessments and Taxation’s website. The property had an assessed value of $377,100 as of July 1, 2014. The foreclosure action was a result of a default on a January 2007 loan for $498,750 records said.’
‘As one of seven members on the school board, Harshman votes on budgets, contracts and other financial matters. She is running for re-election in the Nov. 4 general election.’
‘The Harshmans bought the home for $425,000 in March 2004, according to the Maryland Department of Assessments and Taxation’s website. The property had an assessed value of $377,100 as of July 1, 2014. The foreclosure action was a result of a default on a January 2007 loan for $498,750 records said.’
If they bought the home for $425,000, how could their mortgage have been almost $75,000 higher?
Something about those figures doesn’t quite smell right, especially in light of the default. What about this situation differs from an attempt to steal $498,750 from their lenders and get away with it?
refi in 05-06 would do it
it’s going to be a Harsh reality
? have they lived there for free since 07 ?
That’s like…Harsh…Man.
Negative amortization and rolled-in fees could explain it.
‘You might be stuck in your current home because of new tougher mortgage regulations and ever-rising prices in the Canadian real estate market, according to a new report. Benjamin Tal, deputy chief economist with Canadian Imperial Bank of Commerce, says the old narrative of graduating from school, getting a job and then marrying is bumping up against new economic realities.’
“The value of bigger and pricier properties is rising notably faster than less expensive properties - widening the gap between starter home and dream home,” Tal writes. He says the more expensive a property is, the faster its price tends to be rising. Tal adds someone trying to move from say a $600,000 property in Toronto to a $900,000 property ends up having to pay not only for the jump in category but for the fact “the move-up property has risen faster than the price of their own property.”
“The picture that emerges is of a much more static market than perceived by many,” says Tal, who thinks the higher end of the market might end up more vulnerable to price adjustments. He says while average prices have risen about five per cent on a national basis, the percentage hides a reality that shows prices have stalled in some markets and are even falling in Saint John, N.B., and Quebec City.’
‘Tal says the issue has been affordability on the low end of the market and points to federal regulations restricting government-backed insured mortgages to 25-year amortizations, a sharp drop from the 40-year amortizations that existed before the crackdown on housing by Ottawa.’
From the article from Realty Trac:
““If the 15 percent average decline had continued in January through August, we would have seen 52,056 total foreclosure starts in the Inland Empire during that time period,” Blomquist said. “Instead, we have seen 24,509 NODs (notices of default) during that time. That leaves 27,547 that we would have expected to happen, but did not happen.”
If only half of the 27,547 anticipated filings lead to a foreclosure, Blomquist said, it could take at least 11 months at the current rate for the Inland region to work through the backlog.”
Let me understand:
If prior trends continued, there would have been 52k NODs.
However, prior trends did not continue (the decline in NODs was faster than 15%), and there were only 24.5k NODs.
If prior trends actually did continue, the the hypothetical 27.5k NODs that did not occur would take 11 months to work through the backlog.
???
Now, if they could point to rising delinquencies (non-current loans, and the precursor to NODs), which would imply a build-up of distress from an artificial slowdown in issuances of NODs, they might have a point. But since they can’t point to rising delinquencies, this is complete nonsense.
It means shadow inventory is going to swamp the market.
Shadow inventory should be evidenced by people who are delinquent on their loans.
While there are such reservoirs of future NODs/Foreclosures in places like NY/NJ/FL, the number of delinquent borrowers has been steadily shrinking in CA.
Non-current loan rate in CA is the eighth lowest in the country at 4.4%.
The US as a whole is at 7.5%, including:
NY: 10.8%
NJ: 12.4%
FL: 10.9%
There is a reason you moved to an eastern time zone.
Nope.
Defaults and delinquencies are understated due to Californias foreclosure moratorium.
‘you moved to an eastern time zone’
Are you sure about that? The weakest markets in the US are in the Southwest. Florida is stronger than California. For now.
Speaking of Rancho Bernardo, CA, the real estate market seems about as dead as a doornail this fall. Very few homes are up for sale, and some of those which are have had yard signs out for months on end with no takers.
I’m sure it’s different here than the markets Rental Watch watches…
Even with the Mo Credik Mel changes earlier this year PHX is going down in flames. There is no demand at the prices that were driven up since 2011. Some pulled off market but they don’t make the market price. That is set by those who cannot wait. And those people and hedge funds are dropping prices.
Yes. Price per square foot is going down. Phoenix is how it is going to play out everywhere. Just like before.
Are you calling 2011 as a bottom?
No. 2011 resale prices were 2-4x inflation adjusted long term trend.
The bottom is a long way down.
No, 2011 is not a bottom. I’m saying, me personally, I’d be cool with prices back there. Knowing then what I know now, if I had lived where I am now, I would have bought then. But had I bought where I was in 2011, I would not have been able to move and would now be miserable. 2011 is where prices were in a market based on true demand, before the recent pump began. At least from what I can see in PHX area.
That’s exactly right about Phoenix. That market is going to crumble quickly. Even the uber-shills are starting to backpedal out there.
Not sure what’s up with the Zillow estimates, but my old house, that the owner couldn’t give away for 130k in 2011, sold for 193k in fall 2012, has a zestimate of 94k, when it was previously 158k.
Personally I think the FMV is right at 120k, which is where he bought it in early 2011. I feel bad for the lady who cashed out her 401k and paid 193k cash for it in a bidding war.
I hope Phx house prices go down a lot, like fast.
Rental Watch:
Banks aren’t filing NODs in places where prices are rising. Lots of folks have been living payment-free for years.
25 million excess empty and defaulted houses, 4.4 million of which are in the state of California, can’t be hidden indefinitely.
Yagotta admit it has been nearly a decade since the shadow inventory issue was first raised here on the HBB, with no end in sight.
There’s a few reports above that suggest it’s in sight. I’d be interested in knowing what the loan origination dates were for these tens of thousands of new foreclosures were.
‘The surge in foreclosure activity is not the result of a faltering economy but, instead, problems in the foreclosure industry that have delayed some (filings)’
It seems like ‘they’ (whoever ‘they’ are) are trying to time an upsurge in foreclosures to land midway between business cycle downturns, so as to not worsen a bad economic picture when job loss is high.
We’ll see whether the market manipulation pans out or now…
One conjecture: The collusion to withhold shadow inventory from the market may end when there is no perceived advantage to holding on in order to get higher prices later than what could be obtained currently.
And the turning point will be when rising mortgage rates erase any doubt that bubble prices are headed for the dustbin of financial history. This will occur around the time when the Fed ends its interest rate suppression program. Not sure when that is going to happen, but wait for it!
And when interest rates rise doesn’t the government become instantly more broke? Why would they let that happen ?
The question is one of when they will no longer be able to prevent interest rates from rising (and I haven’t a clue as to the answer…).
Not able to prevent it. Yes. If that happens, yaaahhhooooeeee, look out below.
I have to admit, I do not understand things enough about bonds and interest rates and things like that to understand what the mechanism would be for it to get to a point where it cannot be controlled with the constant printing press, QE stimulus.
On Reddit, they have a place called ELI5, meaning explain it like I’m 5 yrs old. I’d be very interested in reading an ELI5 version of how interest rates can spin out if control.
“I’d be very interested in reading an ELI5 version of how interest rates can spin out of control.”
Please post when you find it.
“I’d be interested in knowing what the loan origination dates were for these tens of thousands of new foreclosures were.”
Check out Property Radar:
http://www.propertyradar.com/trends/california
Last chart on the page shows NOD/Foreclosure by year of origination. Most are still from 2005-2007 vintage.
Also look at page 17 of the Q2 Fannie Credit Supplement:
http://www.fanniemae.com/resources/file/ir/pdf/quarterly-annual-results/2014/q22014_credit_summary.pdf
Recent vintages have much more “normal” delinquency rates (akin to pre-bubble) era vintages. For instance, 2009 and 2010 vintages are tracking 2003 very closely these are most obvious because there is more data.
The other years seem to also be tracking a lower delinquency track–while we have yet to see what the ultimate DQ rates will be for 2011- vintages, they are so far tracking lower than the bubble-era mortgages.
Recent vintages have much more “normal” delinquency rates (akin to pre-bubble) era vintages DURING AN ERA OF LIQUIDITY-INJECTION-INFLATED PRICES.
FTFY.
The real question in my mind is whether those apparently “normal” delinquency rates will remain normal when prices are no longer being manipulated (assuming that that ever occurs).
PIC–I agree. At the next correction, will there be enough of a downturn for people to start walking away? Certainly fewer “liar loans”, fewer option ARMs and higher down payment requirements will change the dynamic this time around.
That’s the trillion dollar question, alright!
But I can’t help but think that it won’t take much of a downturn to put the 2013-era buyers back underwater…
Nope. Zero to 3% down paper is the definition of a liar loan. And the majority of these as percentage of loans made since 2008 were in fact liar loans.
“But I can’t help but think that it won’t take much of a downturn to put the 2013-era buyers back underwater…”
I tend to agree, but if you look objectively at the long-term Shiller data, this rise in prices looks a lot more like pre-2005 cycles than a repeat of 2005-2007. As such, I think the dynamics will look a lot like prior housing cycles–how much of a foreclosure crisis was there in the early 80’s cycle? early 90’s? I think that’s what the next downturn will look like.
“Prior cycles” didn’t inflate 45% like the fraud driven period 2008-2013.
Nice try.
I tend to agree, but if you look objectively at the long-term Shiller data, this rise in prices looks a lot more like pre-2005 cycles than a repeat of 2005-2007.
It sounds like you are viewing this most recent rise in prices as if it is a separate cycle, whereas it looks more to me like a continuation of the first bubble; if that is accurate, then it really needs to be viewed in the context of “bubble-burst interrupted”. Because we never did let the bubble resolve, and goosing the market seems to have put it right back into bubble-mode.
“Zero to 3% down paper is the definition of a liar loan.”
And here I thought all along that a “liar loan” was one where the paperwork was falsified to show income supporting the payment on the note, and said income was not verified. How in the world can you call low/no down payment loans “liar loans?”
‘you are viewing this most recent rise in prices as if it is a separate cycle’
What he’s doing was invented by the MSM. See, there was nothing wrong with the bubble prices, it was the loans. And what’s happening now is a recovery. And when it falls it’s just part of a normal cycle.
Who ever heard of an 18 month up cycle in housing? Especially one with double digit increases month after month, all across the country.
Bubbles are in prices and only prices. It doesn’t matter how you get there. Could you get a liar loan to buy pets.com stock? This is the same old justifying bubbles after the fact. No one had a problem in 2008 saying, “well those prices were unrealistic. It was way too high.” Then, as the money printers worked their magic, the REIC had to concoct a narrative to sooth the public’s nerves about paying fantastic sh$tloads of money for old houses that cost $13,000 to build.
PIC-
On what basis do you think we didn’t resolve the prior bubble in terms of home prices?
If you look at the Shiller data at face value, the trough reached in early 2012 was nearly at the same level as the prior THREE housing market troughs (within about 10%).
Here are the Shiller index values at the different troughs:
Q4 1974: 102.5052
Q3 1982: 103.313
Q4 1996: 106.7336
Q1 2012: 113.8965
However, the CPI calculations were changed in the middle of the Shiller data (Boskin Commission in 1995). If you adjust for the Boskin changes to get an “Apples to Apples” comparison vis-a-vis the way CPI was calculated (post-Boskin, they have only corrected for about 0.2% to 0.37% per year of the bias–do a Google search for “Update of Boskin Commission’s Estimate of Bias”), you get the following:
Q4 1974: 102.5052
Q3 1982: 103.313
Q4 1996: 106.7336
Q1 2012: 108.083 - 110.7156
In other words, the bubble did resolve–or if it didn’t, was only within a few percent of resolving.
(NOTE, the Update to the Boskin Commission’s findings was written in 2000, and noted the changes to date resolving only some of the bais–0.2% to 0.37%. The assumption is that future changes to the CPI would be made to fix the rest of the biases. My math above assumes that no changes to the CPI calcs were made after 2000. Assuming there actually were additional changes made, Q1 2012 data would look even closer to the prior troughs.)
However, the bounce back in prices was far faster than prior cycles–in large part due to the Fed’s ZIRP, but worth noting, nowhere close to the immediately prior peak. We are now many points ABOVE prior non-bubble peak values (unless you adjust for Boskin, and then “many points” becomes <5%).
Today’s value is 134 (unadjusted for Boskin, which would lower the number by up to about 5 points). The most recent prior peaks were:
1979: 122
1989: 126
2006: 198
Q1 2014: 134 (or 129 adjusted for Boskin)
So, are we going to rocket up from here?
Not in my opinion.
Are we going to crash immediately from here?
Not in my opinion (there isn’t enough development to create the supply (new construction) that typically coincides with a market peak).
Will prices fall from the current levels at some point in the next several years?
Yes, but such a fall would likely coincide with significantly more housing development. How far NOMINAL prices fall IMHO depends on two factors:
1. Do prices go much higher before they start to inevitably fall? and
2. How long is the decline from peak to trough?
Let’s say they don’t go up from here, and fall over roughly a 5 year period (similar timeframes as earlier cycles), at 2% per year of inflation, my guess is that once prices start to correct, you will probably have a 10-20% decline in NOMINAL prices from current levels (over several years) before you reach the next trough.
Clearly this is not a great scenario for people who bought in 2013/2014, but it’s not clear to me that such a decline would trigger a mass rush to “walk away” from mortgages again.
Jonesy, Thanks for revisiting that important point of “it was the loans” charade.
“Last chart on the page shows NOD/Foreclosure by year of origination. Most are still from 2005-2007 vintage.”
These NODs are getting pretty long in the tooth, given it is almost a decade since they were originated, and most of them probably went into default in the great recession (i.e. 2007-2010 period).
Stretching them out much longer runs the risk of a standing shadow inventory backlog from the recent recession at the onset of the next one.
“I tend to agree, but if you look objectively at the long-term Shiller data, this rise in prices looks a lot more like pre-2005 cycles than a repeat of 2005-2007.”
Not at all relevant: What this ‘looks like.’
Totally relevant: The underlying cause (Fed QE3-driven housing market reflation program from January 2012–present).
On what basis do you think we didn’t resolve the prior bubble in terms of home prices?
RW, granted, I may be over-simplifying here. But the 2012-2014 market has me convinced that the prior bubble was not fully resolved.
If you look back at the last few “normal” cycles in RE, the trough was long and wide; in this case, we rocketed right back up within two years That’s not a normal trough, nor a normal recovery. And this bubble was so huge that the hangover should have been larger than normal, not less than half as long.
That why I think it’s a case of “Bubble Interrupted”.
Does that mean that a normal 5-yr trough will arrive eventually, when this fake recovery is in the rear-view mirror? Heck if I know, but I think it is more likely than not that it will get interesting again!
‘Demand for houses in Maricopa and Pinal counties declined in July compared to the same month of 2013, but that shouldn’t be read as a sign of another housing bubble, according to a report by Arizona State University’s W.P. Carey School of Business. “It’s kind of the opposite of bubble,” said Mike Orr, director of the school’s Center for Real Estate Theory and Practice.’
‘According to Orr, a typical housing bubble involves extremely enthusiastic buyers hoping to re-sell homes at a profit and pushing prices to unsustainable levels. The current market lacks that kind of enthusiasm, he said. “Not enough buyers nor enough sellers for it even to be called an average market,” Orr added.’
“…but that shouldn’t be read as a sign of another housing bubble,…”
How about if we read that as a sign of the Echo Bubble losing air?
Is the opposite of a bubble a Pop?
That’s because the buyers of 2012/2013 were hoping to be the sellers in 2014/2015.
Since no sellers have shown up, they’re stuck holding the bag.
Might not be a bubble, but there’s a bunch of bagholders. And how long until they try to offload it to the US Taxpayer?
‘Two months ago, I warned that Australia’s status as ‘the Lucky Country’ was doomed and that an economic crash was imminent. Then, many Australians derided the prognosis, but now the penny has finally dropped as optimistic press splashes are replaced by mounting fear.’
‘Clear and present danger’ screams the Sydney Morning Herald while the Australian warns ‘Economy faces a difficult ride’ and the Australian Financial Review doesn’t hold back either, with ‘Economy enters danger zone’. Bloomberg is even more pessimistic: ‘Australia gives up on Australia as investment dwindles’.
‘The headlines indicate that something has changed Down Under this antipodean spring, as smart locals have realized what serious analysts have known for a long time and was predicted here – Australia is poised for a Greece-style financial meltdown.’
‘The cause is a dramatic freeze in Chinese construction, which feeds on Australian iron ore, as the Land of the Rising Dragon reaches capacity in residential dwellings – completing a decades-long building program. The average price of new homes has been tumbling in China for months, with the rate of decline accelerating from June (0.5 percent) to July (0.8 percent). It plunged another 0.6 percent in August, bringing the average to US$1,737 per square meter. Not exactly happy news for Chinese financiers, but horrifying for those in Sydney where a gigantic property bubble has stoked up prices to $21,700 a square meter, a vast multiple of those in the world’s second-biggest economy.’
Sux now for export-oriented economies reliant on shipping raw materials to China.
“The cause is a dramatic freeze in Chinese construction…”
How about Chinese investment $ in the USA?
With 97 new construction projects in Downtown Los Angeles (S Korean & Chinese $ - some commercial, and lots of pricey tower apt units) how many of these will not come to fruition ?
With their unwinding in the process, will they get nervous building in the US. Will the LandSea projects materialize?
China learned to announce their bank defaults late on a Friday:
‘An off-balance-sheet credit product default has left a small Chinese bank on the hook for 4 billion yuan ($652.3 million), the latest default to hit the shadow banking sector, the official People’s Daily said in a report on Friday.’
‘The default comes amid a wave of reports in domestic media on Chinese banks and brokerages struggling to make payments on shadow banking products. The popularity of off-balance-sheet products has exploded in recent years, with banks and trust firms marketing them as high-yielding alternatives to bank deposits, but analysts warn that the risk of defaults is rising as the world’s second-largest economy slows.’
‘Evergrowing Bank guaranteed the repayment of 3.7 billion yuan of principal and 300 million of interest payments under off-balance sheet products issued by one of its shareholders and an affiliated company, the paper, a mouthpiece of the Chinese Communist Party, said on its website. That sum accounts for 57.8 percent of the lender’s 2013 net profit, it added.’
“Due to liquidity issues the enterprises cannot repay the debt, so to protect its reputation Evergrowing Bank must in accordance with the terms of a previously signed contract pay compensation,” the paper said, without providing details on the source of its information.’
Taking a page out of the FDIC’s playbook?
A registration site blocks most of this one:
‘Maui’s housing market had a soft month in August with a slight dip in median prices and a bigger decline in the number of sales, according to data from the Realtors Association of Maui.’
‘A new report from the trade group showed that the number of home sales and median prices last month were significantly worse than what the Valley Isle has seen over the first eight months of this year.’
‘Maui’s housing market had a soft month in August with a slight dip in median prices and a bigger decline in the number of sales, according to data from the Realtors Association of Maui.’
It was probably the weather.
@Lionel - Good one!
‘When these casino workers came in and bought these $300,00 to $500,000 houses they could afford them’
Coffee, cocktails.
I recall reading stories about Vegas Casino doormen being paid 60K+ per year and card dealers being paid even more. Now the stories are about casinos going bankrupt.
I guess it was fun while it lasted.
No, they could never ‘afford’ them. ‘Carry’ them for a while, perhaps, but never afford.
‘I think that Silicon Valley as a whole, or that the venture-capital community or startup community, is taking on an excessive amount of risk right now—unprecedented since ‘99,” said Bill Gurley, a partner at Benchmark, referring to the last tech bubble.’
‘There’s a phrase that I love: “discounted risk.” Do people discount risk? Right now you’ve got private companies raising $200, $400, $500 million. If you’re in a competitive ecosystem and you raise that amount of money, the only way you use it—because these companies are all human-based, they’re not like building stores—is to take your burn up.’
‘And I guarantee you two things: One, the average burn rate at the average venture-backed company in Silicon Valley is at an all-time high since ‘99 and maybe in many industries higher than in ‘99. And two, more humans in Silicon Valley are working for money-losing companies than have been in 15 years, and that’s a form of discounted risk.’
‘In ‘01 or ‘09, you just wouldn’t go take a job at a company that’s burning $4 million a month. Today everyone does it without thinking.’
‘You just slowly forget, and half of the entrepreneurs today, or maybe more—60% or 70%—weren’t around in ‘99, so they have no muscle memory whatsoever.’
‘So risk just keeps going higher, higher and higher. The problem is that because you get there slowly the correcting is really hard and catastrophic. Right now, the cost of capital is super low here. If the environment were to change dramatically, the types of gymnastics that it would require companies to readjust their spend is massive.’
‘For the first time since ‘99, in the past 12 months, I’ve been in board meetings where the company says, “Our only option is a 10-year lease,” at record pricing on a per square foot basis here in San Francisco, which is two or three times what the rent was three years ago. And so this is why it’s all cyclical—because the landlords get greedy. They wouldn’t do a 10-year lease if they thought that the rates were low. So they’re implicitly telling you they want to lock this in for 10 years, which is its own form of greed because what happened in ‘99 is half the companies went bankrupt and they couldn’t pay the lease over the 10-year period.’
‘Anyway, it’s those kinds of things that happen. The most obvious one is just the acceptable burn rate. And that can be seriously, negatively reinforced by the capital market. In the software-as-a-service world, where the risk is potentially among the highest, Wall Street has said it’s OK to lose tons of money as a public company. So what happens in the board rooms of all the private companies is they say, “Did you see that? Did you see they went out and they’re losing tons of money and they’re worth a billion. We should spend more money.” And there are people knocking on their door saying, “Do you want more money, do you want more money?”
‘So it takes the burn rate up.’
Complacency is never obvious.
‘You just slowly forget’
Like last time, the firms left standing when the dust settles after the crash will be the ones that are relatively debt free and actually make stuff. Just like all the dot bomb firms that vanished when the music stopped, a whole bunch of social media and smartphone app firms will suffer a similar fate this time when the investors once again realize that the Emperor has no clothes.
There’s only so much ad money to be made from free apps that collect data on the activities and spending patterns of millenials, particularly when said target group has little money to begin with. Not to mention there’s very little ad space on a smartphone-sized display.
I’m goin all in on shake shack - they make something
‘To think that houses would continue to appreciate at double digit increases year over year, it’s really not sustainable.’
Well d’oh…
During the last implosion it took a while for people to realize that home prices could fall. When that realization reached a criticial mass, prices collapsed. It seems that we are in the early realization stage, where pockets of price weakness have others believing that “it’s different here” (remember that phrase?). Then the price weakness starts to climb up the income scale and over larger geographic areas. That’s why the Fed is terrified of raising rates even slightly, because once they do, not only will the current housing bubble collapse, so will the stock market.
The collective amnesia of falling home prices boggles the mind.
It really does. It just hasn’t been that long.
This weekend’s post had a comment from a UHS saying ‘They feel the price can’t go anywhere but up…’
Yet another example of it being the same bubble.
I’ve seen some listings in LA lately that indicate people are starting to realize prices might fall. In just the last couple of weeks, there has been 1) a marked improvement in the quality of inventory, and 2) several condos and houses thrown on the market empty. So some people are finally listing their vacant extra properties, and are so eager to get them listed they don’t have time to stage them. Interesting…
I sure hope financial historians give central bankers proper credit for policies that drove household debt and housing prices through the roof during this unprecedented housing mania.
There ya go…
That’s what’s amazing: that so many people took on so much variable rate mortgage debt. And the Canadians don’t have an MID!
I suppose that because this is the situation around the word that central bankers will keep rates low as long as they can, further skewing the global economy by inflating asset prices.
Imagine if Canadian mortgage rates rose from 3% to 6%. That’ll put a wrench in the howmuchamonth economy.
The more they inflate those asset prices, the farther said prices will have to drop when interest rates return to normalcy.
rose from 3% to 6%………How many people still believe if interest rates go up 3% so will their mortgage payments go up only 3%…….
When rates go up, my mortgage payments will stay the same…..30-year fixed.
The Denver Post in Colorado. “The number of foreclosures filed in Colorado last month showed the largest year-to-year increase since 2007, when the state was embroiled in the mortgage meltdown, according to a new report. The increase, a 57-percent surge when compared with a year ago according to RealtyTrac, is likely the result of state investigations into the practices of Colorado’s two largest foreclosure law firms. ‘The surge in foreclosure activity is not the result of a faltering economy but, instead, problems in the foreclosure industry that have delayed some (filings),’ said Chad Ochsner of Re/Max Alliance.”
Investigations - Really!!! All I have to say about this is what a load of crap!!!
Just in Denver this last weekend looking about for a decent nabe to build a home - umm….I am still picking myself up from the floor. Can’t touch a decent build these days in area south or west of the 470 for less than 200 bucks a foot - Who in their right mind can afford this much less even want to Pay for it at these inflated prices. Costs are way out of line with reality out there in the Columbine State. Me thinks I wait it out and let it implode.
As an aside - went up to an area near Morrison - nice place behind the hog back ridge and there are new homes being built all over the place - mostly production stuff - back in the day these would have been move ups from starter homes - but the prices say they are more for guys like me - soon to be retired looking for a place to have guests and kids / grandkids over the next 15 + years but the prices!!! Lordy!! Cost / Value / Debt to equity / cost relative to gross salary - Something gotta give. I pray it ain’t my heart!
5 times median income is the “new normal” in metro Denver.
That’s what Aurora is for
“Live” in “Metro Denver”, pay Greeley prices. So your house is far away from where the jobs are and might be in a Denver International Airport flight path. Details.
Hmmm…details.
Custom build - 3800 s.f. - looking in Doug Co south and east of Castle Rock - also been looking out west in Morrison area.
Land is from what i can tell very expensive right how.
I see few ‘fixer uppers’ in south / west Denver area and given what I do for a living that would be a very viable route if I could find something outside of the regular tract development context. Really don’t want to go north because driving up there it is basically one way in - one way out (I-25) and far from where i would most likely work - DTC is one area of employment that fits my skills and profession - architect.
I know, I know - architect - what is he thinking - The deal is I have been in ILLANNOY for near 30 years and to witness prices here vs. what is happening with accelerated costs there in Denver area I just am still picking myself up from the floor.
Aurora - I may as well live in KS for heaven’s sake.
So….is 200.00 a s.f. unreasonable in the market out there? Seems a bit excessive to me - I was thinking more in the 160 to 180 range.
Thoughts there guys? Again - I am backing off for a bit - me thinks it is gonna implode out there. As goon notes 5x income is normal - maybe in the new world order of things but not this guy. ugh!
Aurora - I may as well live in KS for heaven’s sake.
That’s what I meant by “details”.
And Denver is overdue for a correction. It’s a low wage cow town in flyover.
Thanks -
Being who I am - Ps 27 is pertinent - Wait on the Lord.
So….I will wait and wait some more. Housing market I am convinced is filled with liars and hucksters. Again - there is from what I can tell ALOT of inventory in Denver area which seems to those of us in Realinda the opposite of what ought be happening - increase supply - decrease demand - price go down.
AND…
That is not to say the Ch*tcago ILLANNOY is a great place to be!!
Ugh!
https://asunews.asu.edu/20140903-business-orr-housing-report-real-estate
Orr adds the choices for anyone who wants to buy a Phoenix-area house for less than $175,000 are pretty slim. For example, bargain foreclosures are few and far between. Completed foreclosures on single-family homes and condos are down 45 percent this July from last July.
The limited options at the low end of the market are also contributing to the booming demand for single-family rental homes. Orr says fast turnover and low vacancy rates have already pushed the rent on single-family homes in the most popular areas up 7.5 percent over the last 12 months. Affordable apartment and condo rentals have also become hard to find.
Just like for everyone, theyre better off renting for far less.
Hmmm…HBB folk are not wrong after all!! Thanks there guys!!
http://www.advisorperspectives.com/dshort/guest/Michael-Lombardi-140915-Home-Prices.php
We’ve never been wrong about housing. Ever.
Liberty Lake, WA Sale Prices Plunge 16% YoY As Housing Price Declines Accelerate Nationally
http://www.zillow.com/liberty-lake-wa/home-values/