October 26, 2014

For Every Reckless Borrower There Is A Greedy Investor

It’s Friday desk clearing time for this blogger. “Markets that were hottest during the recovery saw the largest slowdown in home-value growth in the third quarter, Zillow said. The Bay Area definitely makes that list. The news gets even worse for Bay Area homeowners. Zillow expects year-ahead home-value appreciation in the Bay Area to grow just 2.9 percent, not even meeting the company’s national projection of 3 percent. Third-quarter inventory of Bay Area homes on the market jumped 20.2 percent from a year ago. Homeowners are likely to feel the chill as more people decide to sell before the slowdown turns into price cuts. It’s too late, Zillow says, noting that 37 percent of listings on its site nationally had at least one price cut in the past month.”

“In good news for housing, Fannie Mae and Freddie Mac reached an agreement with mortgage lenders to make it harder for the mortgage giants to force the banks to buy back loans that go bad. San Francisco’s top banker touted the importance of home loans. ‘Every home that gets sold — that satisfies a customer’s need — not only fulfills a dream, but a dollar spent on a home multiplies through the economy like no other thing we do,’ said Wells Fargo CEO John Stumpf . ‘A loan to a homeowner is magical in that respect.’”

“Home prices softened in September across Palm Beach and Broward counties. Douglas Rill, broker at Century 21 America’s Choice in West Palm Beach, said some sellers still think the market is surging and price their homes accordingly. ‘You have a certain percentage of sellers pushing the envelope to above market numbers,’ Rill said. ‘Those homes are taking longer to sell.’ Marisa DiLenge, a Broward agent for Better Homes & Gardens, said she has a three-bedroom Plantation listing that shows well because it’s professionally staged, but a buyer has yet to step forward. On Monday, the seller cut the price a second time, to $282,499. ‘When I put my listings on the MLS, I usually have them under contract within a week or so,’ DiLenge said. ‘I’m not seeing that the last four or five weeks.’”

“While prices have slowed this year after a stellar 2013, industry observers insist this isn’t the start of a new meltdown. ‘I have no fear that there will be another bubble,’ said Ken Johnson, a real estate economist at Florida Atlantic University. ‘I don’t see any irritational exuberance in the housing market right now. We might go flat, we might go down a little bit, then back up. But we’re not going to lose 50 percent of value. That’s just not going to happen.’”

“The NAR’s chief economist, Lawrence Yun, said sentiment among real estate agents was at its lowest level of the year, suggesting that sales may be weaker going forward. ‘It’s turned into what I think is really a classic buyers’ market,’ said Sherry Spinelli, a real estate agent with Long and Foster in Northern Virginia. ‘More days on market, prices are coming down, the offers are even lower and there are just a lot of houses out there, so it’s a challenge for sellers. I think you have to lower the price in order to sell it.’”

“‘Buyers don’t have the same sense of urgency as they did before. They can be a little bit more discerning,’ said Greg Bender, a Los Angeles-area Realtor with Berkshire Hathaway HomeServices. Bender is seeing homes sit on the market far longer than they did just six months ago. It is no longer a seller’s market. In Phoenix the price deflation is even more dramatic. Last year, prices were up 18 percent annually at this time. Today they are up barely 1 percent. ‘Most of the median-price increase over the last 12 months is because a greater percentage of the homes being sold are in the luxury market, not because home values overall are increasing,’ Arizona State University’s Mike Orr wrote in a recent report.”

“Prices soared again between 2011 and 2013 due to the Federal Reserve’s intervention. Some argue that as that demand goes away, housing will pay a price again. ‘If stimulus ‘hangovers’ are proportional to the amount of stimulus that preceded them, then this one could be a doozy,’ wrote Mark Hanson, a housing analyst in California.”

“There are more homes for sale in Moose Jaw than there are buyers which has led to a three per cent decrease in housing prices. Moose Jaw isn’t the only city experiencing a growing home inventory during this year. According to the Royal LePage housing price survey, in Regina, the average prices for single family homes have dropped seven to eight per cent during the past year. ‘There’s a lot more product on the market now than normal,’ said Jim Millar, executive officer with the Moose Jaw Real Estate Board, who says this is why housing prices have dropped.”

“Dubai house prices and rents weakened in the third quarter, according to a report from Asteco. According to rival broker Care, 19,000 more new homes were expected to be handed over in Dubai next year, hampering landlords’ efforts to further raise rents and prices. ‘For the first time since 2012 we have seen both residential rental rates and sales prices decline as a result of a natural adjustment to continuing new supply entering the market,’ said John Stevens, the Asteco managing director. ‘We believe that sales prices may soften further with more new supply on the way.’”

“It’s more bust than boom for the Gladstone property market, with a property analyst saying it is the same old story for the central Queensland region. The figures represent a 13.1% and 24.9% decrease in house and unit prices, respectively, compared with the corresponding period last year. Senior economist Dr Andrew Wilson said the economic influences would continue to affect the Gladstone market for years to come. ‘Same old, same old for Gladstone … when is it going to end?’ he said. ‘There was a lot of investment money pumped into the market three years ago with the mining boom. But unfortunately mining is no longer booming.’”

“The effects of the slowdown are evident throughout China. Factories are churning out steel, concrete and other commodities well beyond local demand and are kept alive by local governments arranging emergency loans. Debt levels are rising at a clip that rivals the US, Japan and South Korea before they tumbled into recession. About 20 per cent of apartments are vacant, according to a Goldman Sachs report, and Chinese cities are chockablock with empty apartment towers. Much of Chinese consumer wealth is tied up in housing.”

“Zhang Shuangyang, who runs a cake shop and two online sock stores, said she has delayed major purchases and is increasingly worried about the future. ‘We can feel that the economy is getting worse.’”

“Unfortunately for China, Ernest Hemingway might see his words about bankruptcy ring true again. In ‘The Sun Also Rises,’ someone asks: ‘How did you go bankrupt?’ To which the other person replies: ‘Two ways. Gradually, then suddenly.’”

“For a decade, until mid-2012, Josef Ackermann was the CEO at Deutsche Bank. It was a position that earned him the nickname ’shadow chancellor’ of Germany and allowed him to play a decisive role during the European banking crisis and then in the eurozone’s debt crisis. Q: ‘The Greek state had been borrowing recklessly in the 30 years before the crisis broke, and especially after 2000. But wherever there is a reckless borrower there must be also an equally reckless creditor. Shouldn’t both sides in a loan agreement – the creditor and the borrower – share responsibility for it? Shouldn’t banks pay the price for reckless lending?’”

“A: ‘You’re right: for every reckless borrower there is a stupid or greedy investor. To this day I keep wondering how investors came to collectively bid down Greek bond prices to a few basis-points over German Bunds to end up owning 350 billion euros of Greek debt? The search for yield and wrong regulatory incentives, such as the zero risk weighting, can explain only part of it.’”

“The Federal Housing Finance Agency this week polished off a new set of guidelines that will allow government backing of loans that it had shunned since the mortgage crisis. And in a surprise move, the guidelines include a provision to consider some mortgages without down payments. There are instances where loans should be available to borrowers without the means to place a down payment. It’s just that I can’t think of any.”

“It’s important to recognize that borrowers can no longer depend on banks and regulators to measure creditworthiness. A series of government programs, low interest rates and tax breaks along with loosening standards at banks eroded this institutional test. So today it’s incumbent on the borrower to ask himself if he can afford the American Dream.”

“For many, the answer is probably ‘no.’ The U.S. median household income is $51,900. The median home price is $188,000. So, yes, it’s possible. But the current home-buying market is full of cash buyers and speculators, many of them hedge funds. That means in many markets, there’s competition for properties from buyers who will outgun regular folks.”

“The FHFA will, in the end, encourage more lending. And this will translate into more credit for people who have been denied. But that policy isn’t the one that matters. It’s my policy, your policy, based on what we truly can afford that does.”

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Comment by Ben Jones
2014-10-24 04:06:56

Do you feel it? It’s getting closer:

‘Despite the price growth and shrinking inventory, the president of the real estate association said market conditions now favor buyers because the annual price increases are no longer in the 20-percent range, as they were this time last year. And even though the inventory of homes for sales was down for the month, the market has more For Sale signs than it did a year ago.’

“Jumps in the year-over-year median price comparison were in the double digits for almost two years, maxing out with a 29 percent increase in August 2013,” said Zola Szerencses, broker with RE/Max 200 Realty in Winter Park. “Single-digit increases – combined with Orlando’s pumped up inventory of homes available for purchase – are creating a favorable environment for buyers, especially those contending with Orlando’s soaring rental rates.”

‘Orlando real estate broker Myra Johnson said the market continues to struggle with distress properties. “There does seem to be more foreclosure properties working their way through the system,” she said. “The banks, many times when they do put their houses out there, they put pretty aggressive prices on them and sometimes they’re not in very good condition.”

BTW, the interview with this Ackermann is worth reading.

Comment by taxpayers
2014-10-24 05:49:07

may 2013 was the recent peak in 22151 gov supported Oblast w of DC

Comment by Beer and Cigar Guy
2014-10-24 06:23:56

I mis-posted this at first Ben, so you will see it again a little lower…

Oh, yeah- the market is STELLAR here in Florida, especially in Orlando. This bandit sign was on my way to work this morning.

‘3 Orlando Condos for $125,000. All three!’

Sounds like a helluva investment! Buy in bulk and save!!

Comment by Ben Jones
2014-10-24 04:11:40

‘About 6 percent of the housing units in the Portland metro area are “seriously underwater,” according to RealtyTrac. The firm defines “seriously underwater” as homes in which the owner owes at least 25 percent more than the estimated market value of the property.’

‘Statewide, about 7 percent of Oregon homes are seriously underwater, RealtyTrac reports. Nationally, about 15 percent of the nation’s mortgages are underwater, according to the firm.’

‘Lingering effects of the recession are still being felt in some parts of Oregon, the data shows. The issue is especially acute in three southern Oregon counties bordering California, with about 46 percent of Klamath County homes, 44 percent of Josephine County homes and 41 percent of Jackson County homes are “seriously underwater” according to RealtyTrac’s definition.’

Comment by rms
2014-10-24 04:20:27

What can you get for $200,000 in North Portland?

This two-bedroom, one-bathroom house in North Portland’s St. Johns neighborhood sold on Sept. 19 for $200,000.

Built: 1954
Size: 720 square feet
Lot size: 5,227 square feet
2013 taxes: $1,931

Comment by rms
Comment by taxpayers
2014-10-24 05:51:09

maybe a tree hugger bought it
the Portlandia show better get some new episodes soon

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Comment by Avocado
2014-10-24 12:51:12

+1 for Portlandia!!!!!

Comment by AZtoORtoCOtoOR
2014-10-25 08:44:25

I don’t know how Oregon could possibly have a housing problem when all of California wants to move here :)

Comment by Ben Jones
2014-10-24 04:15:45

‘Data indicate that demand for homes is cooling off. Sales of existing homes in the Chicago area have fallen every month but one in 2014. Local home price increases have also dropped this year, according to a closely watched index.’

‘Local builder Edward R. James Cos. LLC has pre-sold 108 of its 171-unit Westgate at the Glen project in north suburban Glenview after starting marketing in May for the single-family and town homes, said president Jerry James.’

‘While demand there is strong, good sites for large projects are exceedingly difficult to find, and the market isn’t strong enough yet to pursue unfinished projects in farther-out areas that were the frontier of the prior housing boom, he said.’

“It could be true we’re supply-constrained in terms of where the supply is located. To say we’re supply-constrained in terms of lots to build on, we’re not constrained at all,” Mr. James said.’

Comment by rj chicago
2014-10-24 07:40:40

Ben -
Here in ILLANNOY and especially chicago area - it is about property taxes - when the folks look at north shore rates - it is a good chunk of change just for property taxes. Typical Chicago bungalow on a tree lined street in a mid class area - 50 x 120 foot lot - 1800 s.f. place built after the war - taxes in crook co now are at about 8 grand for such a place per year.
Me personally and one reason that my wife and I sold our place in the far out burbs a few years back - get this - taxes - 60 x 150 ft. lot - 4200 s.f. home - new on a very nice street in a PUD backing on to a preserve - kane county - abutts Crook Co - west of the loop about 30 miles -
Um…….I am ashamed to say - 19,200 per year. We looked at that after things blew apart and said what the hell are we doing here?
I now rent - wife passed away last Jan - now in process of looking at a different state to move. Colorado is creeping down the list with some of the commentary I see on this site. Nashville - a bit too honky tonky for me personally. SC and NC - too damn many snakes!!

Comment by Doom
2014-10-24 12:48:31

rj..Traveled many places, Prescott Az should be on your list, excellent climate, low property taxes, clean high elevation, and yes a Costco and Sam’s to walk around Ha ha.

Comment by Avocado
2014-10-24 12:53:17

I looked into Prescott.

I was told you better like the three R’s to live there:

NM has much better weather and people. Silver City. Santa Fe.

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Comment by Doom
2014-10-24 13:33:52

Yes NM is very nice but dirt poor State very poor roads, my time there was limited but enough so you can’t compare the two places.

Much better climate I doubt it, Prescott has very little snow or rain avg temps are ideal, worlds largest pine forest, our friends live in Prescott Lakes really nice area.

Yes agree very conservative no question, lot of miltary retirees yes also true, red necks question red necks like red states or city like Prescott.

I just mention this location because of cost of living,nice life,good small businesses , about 145k population general area so not a berg.

Also like Ashville NC but the weather in winter is subject to ice storms and much more snow not my idea of retirement but also a nice place.

I played pro ball so I made many stops in my life small to medium towns, got to know the locals and chamber of commerce tall stories about how nice there towns were, I found many places are not that nice, once you stay there a while.

Comment by doom
2014-10-24 14:21:54

Sorry hope my post this didn’t repeat itself here it goes again:

Yes a very tea party attitude no question, it has many retired military officers living there, red necks don’t do well in red sates or towns like this so don’t know where you got that. Prescott weather is very nice year round, very little snow or rain, but can be windy at 5,000 ft. it happens, temps are excellent.

Our friends live in Prescott Lakes, the town with Prescott Valley included is about 145k citizens certainly not a big city but not a berg like Sliver City which I have been thru.

NM, the state is dirt poor, the roads are terrible many unpaved, poverty is major issue. NM is a very restful and enchanting landscape no issues there, it is like a undiscovered Western land of don’t know why it never built up like lets say Utah for example.

As a former pro ball player I traveled many bergs, small and medium towns most are Chamber of Commerce hype, after you really get to know the terrain, weather, and locals.

Another place worth looking into (although ice and snow can happen abruptly not my idea of retirement) is Ashville NC.

Again we don’t live in Prescott we visit very often, we love Sedona ( who doesn’t) and No Arizona persay.

Comment by Housing Analyst
2014-10-24 16:34:41

AZ is a nice place to visit, hell to live there.

Comment by scdave
2014-10-25 09:31:40

As a former pro ball player ??

With whom ??

Comment by doom
2014-10-26 11:35:44

Played in the Pirates organization many years ago. Like so many had high hopes then the realization hits, pro sports is a business, travel bad, pay bad, better players then you, only the strong really survive.

I guess it was said that pro ball is a “hard game played by hard men,” that statement says it all.

Comment by Housing Analyst
2014-10-26 11:46:40

You should have developed a day job career instead of of speculating on depreciating assets at grossly inflated prices like houses.

Comment by rms
2014-10-25 16:00:39

“Traveled many places, Prescott Az should be on your list, excellent climate, low property taxes, clean high elevation, and…”

+1 Don’t forget Embry-Riddle Aeronautical University.

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Comment by doom
2014-10-26 11:48:50

Yes sir thought if I threw that in everybody would say what the heck is that, like the Colorado School of Mines, most only know the Universities or well known state schools in America.

Lot of great schools around,they just don’t compete for being #1 in sports like that is now how a school should be measured in this country, sad It is.

Comment by jane
2014-10-24 15:32:11

Personally, I like Virginia A LOT - oops, a lot. Not Northern VA.
Central or SW Virginia. Suss it out. One thing I can say for the state outside of Northern VA (”NOVA”) - there’s an underlying aversion to taxes. That goes across the board EXCEPT for NOVA, which is actually a festering suburb of CA-LI-NYC, where real-t-whores rule.

I’d rule Charlottesville out for the same reason. I think it went 90% for The One in both elections. Social justice warriors all.

Best of luck. One thing the east has: water. Of course, so does Chicago - but there you’ve got the corruption, and the dwindling middle class manhauling the Magic Bus, with the Free Sh*t Army calling the cadence.

Comment by Housing Analyst
2014-10-24 16:45:48

Central and SW virginny is quit nice country. Somewhat like rural new england without the 9 months of $hitty weather.

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Comment by iftheshoefits
2014-10-24 17:06:56

This Hokie is aiming to return there from the west. RE prices, at least on relative terms, are far more favorable, at least compared to RE insane asylums like Salt Lake.

C’Ville is just as expensive as Salt Lake now. Looked into it last year. Highly overrated for the price - traffic is terrible, and the place is teeming with DC snobs. It’s kind of their weekend playground now, I think.

Comment by Housing Analyst
2014-10-24 17:17:43

Bullseye. C-ville was getting pimped by the REIC as “the place to be” as far back as the 1990’s. Now filled with helpless smarmy pukes.

Comment by Pete Deer
2014-10-26 12:23:40

I live in Charlottesville and have for over 10 years. It’s a nice small city with a vibrant downtown, very easy to get around and the traffic is only bad during rush hour and game days. We’re surrounded by a lot of natural beauty and UVA attracts a diverse population from all over the world.
Housing prices here are high (just like everywhere else) but like the bubble that popped in 2008 that is unlikely to last. On my way to work (a 2 mile bike ride), I’ve been couting the same 10 houses for sale for the past 8 plus months…and this does not include the several hundred or so rental units that have come online over the past year.
Given where the economy is headed I think a lot of folks who invested in houses to either rent or flip here are going to be in for a rude awakening. I think I’ll continue to rent for a while…

Comment by iftheshoefits
2014-10-26 13:20:24

Housing prices in Charlottesville are not like anywhere else. They’re very high, much higher than the surrounding areas, particularly for a relatively small town without much of an employment base outside of the University and the medical center. The only justification I can see for the price premium is the fashionable lifestyle/image, fueled by the federal government growth engine 2-1/2 hours away. You feel it everywhere you go. For the rest of us, there’s nowhere near enough attraction there to compete with that.

The Route 29 retail corridor is an absolute mess, and getting worse all the time. If you’ve got to get around the perimeter, there’s very few roads. Everything funnels in to the middle.

Comment by little al
2014-10-24 23:29:06

I’ve thought about retiring in Virginia. The prices are low enough.

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Comment by Housing Analyst
2014-10-26 13:41:20

You gotta get out of debt first.

Comment by Whac-A-Bubble™
2014-10-25 19:51:29

I were widowed and could afford to move to the Sunbelt, I would head down there and seekasingle lifestyle.

Comment by Housing Analyst
2014-10-24 04:19:04

San Francisco’s top banker touted the importance of home loans. ‘Every home that gets sold — that satisfies a customer’s need — not only fulfills a dream, but a dollar spent on a home multiplies through the economy like no other thing we do,’ said Wells Fargo CEO John Stumpf . ‘A loan to a homeowner is magical in that respect.’”

Man oh man where do start with this fraudster? This guy belongs in a jail cell. I’m not a gambler but I’ll gladly wager that a cell is where you’re going to find this guy in the next few years.

Comment by Blue Skye
2014-10-24 04:57:11

The word “magical” struck me too. He exploits gullibility and actually thinks he is funny.

Comment by Mr. Banker
2014-10-24 05:27:47

“He exploits gullibility and actually thinks he is funny.”

“… exploits gullibility …”

Bahahahahahahaha … line ‘em up: The dotted lines are waiting.

Step 1: Dumb ‘em down.

Step 2: Prosper.

A nation of sheep.


Comment by iftheshoefits
2014-10-24 07:40:50

‘but a dollar spent on a home multiplies through the economy like no other thing we do,’

In other words, you guys really don’t do much of anything, any more.

You used to back successful, growing businesses and their surrounding communities. Now, you just push junk debt to debt junkies. Hope you’re proud!

Comment by Guillotine Renovator
2014-10-24 17:44:44

When it’s that easy, why would you expect any different? Until the sheep in this country stop taking on massive loads of debt, look for more of the same.

Comment by real journalists
2014-10-24 07:56:30

here’s a letter from wells fargo offering me a personal line of credit up to $100,000, this is about the fourth one of these i have received in the past few months:


Comment by Ella58
2014-10-24 11:37:24

Last year, every time I signed on to Wells Fargo online I would get a splash page offering to refinance and pull out the equity from my CAR LOAN. (I don’t actually have a car loan, but I assume these ads appeared for every WF customer). In what universe does a depreciating used car “build up equity”?

WF was more prudent than most big banks during Bubble 1.0, but it sounds like they won’t survive the re-bubble quite so easily.

Comment by Housing Analyst
2014-10-24 13:17:16

“In what universe does a depreciating used car “build up equity”?”

In the same universe that a used up house “builds up equity”.

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Comment by CHE
2014-10-24 12:20:48

I don’t have mine on me right now, but Discover just sent me an offer to take out a $25,000 personal loan because of my exceptional payment history.

This is a week after I received notice they were closing my Discover Card account due to inactivity.

If I don’t need your credit card because I don’t run up debt, why would I need to take your $25,000 loan?

Ugh… If I need $25,000 I’ll loan it to myself because I have cash in the bank and no debt.

Comment by real journalists
2014-10-24 08:00:37

i get mail addressed to people who don’t live here. this one from local shylock springleaf financial services offers michael to borrow $4,250 at 25.48% apr:


Comment by Anonymous
2014-10-24 15:53:16

OMG, that’s classic! Debt donkeys indeed!

Comment by rms
2014-10-25 21:58:32

“…25.48% apr…”

Peter Clark needs the Pol Pot farming lifestyle.

Comment by real journalists
2014-10-24 08:07:13

and another one from conn’s homeplus offers jeffrey to borrow $2,000 at 28.91% apr, jeffrey and michael must be some real debt donkeys to get offers like these:


Comment by rms
2014-10-25 22:02:43

“…jeffrey and michael must be some real debt donkeys…”

+1 They’re likely on the suckers mailing list.

Comment by Ben Jones
2014-10-24 04:19:05

‘After the housing crash, the Phoenix area had a fast boost in home prices from September 2011 to last summer. This year, prices leveled off and then rose somewhat. The median single-family-home price went up 11 percent – from $192,000 to $213,500 – from last August to this August. The average price per square foot jumped 7 percent. The median townhouse/condominium price went up 10 percent. However, the report’s author explains the median gains are not reflective of higher home values across the board.’

“The median went up largely just because we saw a big drop in sales clustered at the low end of the market,” explains Mike Orr, director of the Center for Real Estate Theory and Practice at the W. P. Carey School of Business. “The average price per square foot actually dropped last month.”

‘Single-family-home sales activity dropped 15 percent from last August to this August. Investor interest, in particular, has dramatically fallen over the last year. The percentage of homes bought by investors in August was 14.4 percent, way down from the peak of 39.7 percent in July 2012.’

Comment by Whac-A-Bubble™
2014-10-24 05:31:15

‘The percentage of homes bought by investors in August was 14.4 percent, way down from the peak of 39.7 percent in July 2012.’

Nobody could have seen it coming!

Comment by Ben Jones
2014-10-24 05:37:20

‘Phoenix has the worst office vacancy rate among the largest 30 commercial real estate markets in the U.S.’

‘Greater Phoenix has a 21.7 percent office vacancy rate, according to the third quarter numbers from CBRE Group Inc. The next highest is Detroit at 21.5 percent.’

Comment by Ben Jones
2014-10-24 05:40:44

‘Close to one in four Californians and one in five Arizonans and Nevadans are living in poverty, according to a new report by the U.S. Census Bureau. That gives the Southwest the highest concentrations of poverty in the U.S. when cost of living and social welfare benefits are accounted for along with traditional income measures.’

‘The new analysis accounts for social welfare benefits received by poor people, as well as costs of living such as housing. That drives up the poverty rate in California by 2.8 million and takes Hawaii’s poverty rate from 12.4 to 18.4 percent because of those states’ high costs of living.’

‘Conversely, those factors reduced high poverty rates in Southern states such as Louisiana and Mississippi as well as New Mexico.’

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Comment by Ben Jones
2014-10-24 05:54:19

‘Nearly one in four Californians live in poverty, a higher fraction than in any other state, according to U.S. Census figures released this week that take into account the high cost of housing and other basic needs in places like San Francisco and Silicon Valley.’

‘In the cities and suburbs of San Francisco, San Jose and Santa Cruz, for example, a family of four with a mortgage is considered impoverished if annual income is not more than about $35,000. That may seem low, but it’s the highest poverty threshold in the U.S., tied with only Honolulu, Hawaii.’

Comment by Whac-A-Bubble™
2014-10-24 07:48:55

“…a family of four with a mortgage is considered impoverished if annual income is not more than about $35,000.”

I’ve got a great idea! Why not lower the mortgage lending qualification bar so more of these families earning $35,000 a year can afford to become home owners and get rich. Wouldn’t that pretty much solve the problem?

Comment by joesixpack
2014-10-24 08:33:28

Or raise minimum wage until all can afford a home.
As long as it is some kind of centralized, forced, broad based interference with free markets, I am certainly all for it.

Look how well it has been working.

Comment by Anonymous
2014-10-24 15:58:28

I’ve been in Las Vegas the last two days (IN the city, not hanging out in a Strip resort). Judging by what I’ve seen, the rate has to be more than 1 in 5! BTW, I was driving on the beltway the other evening (about 6:30), through some relatively new-looking housing tracts, and the majority of the houses were pitch dark inside and out…presumably, unoccupied.

Comment by Tarara Boomdea
2014-10-24 16:10:08

Anonymous said: houses were pitch dark inside and out…presumably, unoccupied.
And in the occupied homes, thousands still squatting after all these years.

Comment by Guillotine Renovator
2014-10-24 17:50:32

Las Vegas is an absolute armpit.

Comment by Tarara Boomdea
2014-10-24 17:54:12

Guillotine Renovator typed: Las Vegas is an absolute armpit.
Don’t forget New York City, too. Hate to leave that awful place out.

Comment by Housing Analyst
2014-10-24 17:58:33

There are bars on the windows everywhere you look in NYC.

Comment by Guillotine Renovator
2014-10-24 18:28:22

I’ve never been to New York City so I can’t comment on it, but I’ll take your word.

Comment by Tarara Boomdea
2014-10-24 18:48:32

You live in Northern Nevada, no? I’ve gathered that Vegas has the same relationship with the rest of Nevada that New York state has with NYC. I can see and sympathize with that point of view.

I also lived in Jersey for a few years as a kid; it was great - so to each his own.

I have to see more of Nevada. I was only in Sparks for a day (Ron Paul delegate).

I am grateful that native Nevadans don’t seem to hate NYers as much as Californians. Or maybe that’s what they say to my face ;-)

Comment by scdave
2014-10-25 09:49:50

Or raise minimum wage ??

I would support a national minimum wage ties to income and cost of living in counties….A living minimum wage in SF or NY is quite different than one in Mobile Alabama…

Comment by scdave
2014-10-25 09:51:15

I am grateful that native Nevadans don’t seem to hate NYers as much as Californians ??

Which makes it kinda laughable because many I almost want to say the majority moved there from California….LOL

Comment by Tarara Boomdea
2014-10-25 10:06:50

Ha, may be!

When we got here in 2006, we’d sometimes run into a few NY’ers. Now, you can’t throw a rock without hitting one (that’s for the haters ;-) ) I was shocked at the vitriol aimed at Californians here (fear they’ll vote for higher taxes, mostly.) Taxes were what drove us out of NY. No fond memories of Dinkins, Guiliani (a little scary) and most of all, Bloomberg.

Comment by scdave
2014-10-25 10:23:57

fear they’ll vote for higher taxes, mostly ??

Sure…Thats what send many, particularly union and government pensioners from California to Nevada…No state income tax…Got a couple of friends who did it in the last few years…

Comment by Shillow
2014-10-24 06:19:49

We’ve been assured that this is still profitable. The high vacancy rates still pencil out if you bought in 1785.

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Comment by rj chicago
2014-10-24 07:43:35

Water Ben - water - it is all about water there in the valley of the sun.

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Comment by Whac-A-Bubble™
2014-10-24 07:45:32

I find it amazing that PHX has a higher office vacancy rate than bankrupt Detroit. What gives!?

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Comment by Dman
2014-10-24 08:29:09

And Detroit’s vacancy rate is skewed by the mostly abandoned brick skyscrapers built in the 1920’s, which are too expensive to maintain. The vacancy rate in the newer buildings isn’t bad at all. So in that sense, Phoenix, being a much younger city for the most part, with mostly newer buildings, is doing far worse than Detroit.

Comment by Ben Jones
2014-10-24 08:43:15

There was a study a few months ago that put Phoenix dead last of US metros for income vs cost of living. And we’re supposed to believe house prices can go up 70% in 2 years given that environment.

Comment by Housing Analyst
2014-10-24 09:31:44

Now that’s some funny chit right there. :mrgreen:

Comment by Guillotine Renovator
2014-10-24 17:55:06

Most Phoenix area jobs are of the $10-$15 variety. And those are considered “good.”

Comment by Guillotine Renovator
2014-10-24 17:56:10

*per hour*

Comment by rms
2014-10-25 22:07:32

“Most Phoenix area jobs are of the $10-$15 variety.”

+1 And that the folks who brush their teeth and do laundry.

Comment by scdave
2014-10-25 09:43:13

Greater Phoenix has a 21.7 percent office vacancy rate, according to the third quarter numbers from CBRE Group Inc. The next highest is Detroit at 21.5 percent.’ ??

And the nitty-gritty question is; What is it going to take to reverse this trend ??

Is it no new construction thereby allowing the vacancies to be absorbed over time ??

Is it a paradigm shift in where and the way we conduct business thereby not only not needing any significant new construction and rendering much of the existing space obsolete ??

I think the latter….

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Comment by Ben Jones
2014-10-25 09:47:51

Or they could lower the rent.

Comment by scdave
2014-10-25 10:00:23

True Ben…At some price someone would take the space..However, even with no debt, operating cost got to be 35% of proforma rent probably more…So, if the rent roll changes to the downside along with vacancy, the operating cost as a percentage explode to the upside…

But I think its more of a long term trend…It appears to me to be function of demand and not necessarily one of price…

Comment by Ben Jones
2014-10-25 10:10:53

It’s not my field really. Notice they say greater Phoenix. Glendale/Peoria is reported to have a commercial vacancy of 45%. I drove out through this area to the west not that long ago. Buildings, buildings, houses, houses, open desert, just like that. There are signs everywhere for new houses. “Starting in the $200’s”, etc.

Comment by scdave
2014-10-25 10:29:59

Glendale/Peoria is reported to have a commercial vacancy of 45% ??

Yeah…And what about the existing tenants that remain…Guess what ?? They are knocking on the landlords door saying lower my rent or Im walking….

So, its a death spiral when its a paradigm change to the model…The only thing going up is the operating cost…

And here we are talking about office….Retail is in the same boat…I have a friend that owns a few big-box stores in several locations including Arizona…He said all of them have came back to him and requested rent reductions even though they have signed leases…

Comment by taxpayers
2014-10-24 05:52:45

when markets are hot folks reach for more- the top is when condos get hot
then HOTEL CONDOs- that’s the peak

Comment by Shillow
2014-10-24 07:31:47

“The average price per square foot actually dropped last month.”

Yep, as predicted. Same scenario will play out everywhere else. Infestors and flippers gone. Prices drop back down. And there will not be a new round of flippers and infestors this time as their model has been shown to be flawed musical chairs resulting in losses.

Whenever govt is involved in maintaining prices of anything people should run for the hills.

Comment by Whac-A-Bubble™
2014-10-24 07:50:56

Not to worry! Help is on the way, from the FHFA. More low-income buyers will be qualified to purchase homes from investors, making rich people richer and more low-income families poorer.

Comment by Ben Jones
2014-10-24 04:22:31

Funny how often slow follows terms like frenetic:

‘The number of homes being sold has slowed from last year’s frenetic pace.’

‘Home sales across Australia peaked in November 2013 with 45,640 houses and units sold in the month, RP Data said.’

‘”We are already seeing listing numbers ramping up at a faster rate than last year. The big question is whether buyer numbers will match the pace of listings to absorb this additional supply,” Mr Lawless said.’

‘Mr Lawless said there had been a recent rise in vendor discounting, as well as average selling times.’

Comment by Housing Analyst
2014-10-24 04:25:08

‘I don’t see any irritational exuberance in the housing market right now. We might go flat, we might go down a little bit, then back up. But we’re not going to lose 50 percent of value. That’s just not going to happen.’”

I believe there’s an interview from 2006 where this guy said the same thing.

Comment by Ben Jones
2014-10-24 04:32:48

‘I don’t see any irritational exuberance in the housing market right now’

‘Orlando had one of the highest rates of condominium/townhome sales in September, with median prices more than double what the units had fetched five years ago.’

‘In recent years, investors have helped revive Orlando’s condo market. With cash-fisted investors flocking to scoop up bargain-priced properties, condominium sales and prices have shown more strength in Central Florida than in most areas of the state. Orlando — the same market with some of Florida’s most affordable condos a few years ago — had condo prices in September that exceeded five of the state’s 20 metropolitan areas.’

One more time so this guy in Florida doesn’t miss it:

‘cash-fisted investors flocking to scoop up’

Comment by Beer and Cigar Guy
2014-10-24 06:33:36

‘cash-fisted investors flocking to scoop up’ investment bargains destined to make them multi-millionaires virtually overnight, they arrived in their solid-gold private jets, resplendent in their diamond-encrusted codpieces, the uber-rich Brazilian and Chinese investors fought bloody cage matches, viciously pummelling one another with huge sacks of moneys as they made all-cash offers of 100X asking price…

Comment by Beer and Cigar Guy
2014-10-24 06:34:45

I’m your huckleberry…

Comment by rms
2014-10-25 22:22:45

‘cash-fisted investors flocking to scoop up’

+1 Worthy of an engraved plaque.

Comment by Ella58
2014-10-24 11:45:00

“We’re not going to lose 50 percent of value. That’s just not going to happen.”

Aren’t those usually the magic words that turn out to mean the exact opposite? If so, I like the specificity of the 50% drop. (In some places that still wouldn’t get you back to even 2004 prices, but it’s a start…)

Comment by Housing Analyst
2014-10-24 13:15:38


Comment by Ben Jones
2014-10-24 04:27:17

Here it is again:

‘Although property experts, landlords and politicians say that the market is cooling off after several years of runaway price hikes, there is still a sense that houses prices are out of reach for the majority of residents.’

‘Quite a few used the phrase “it’s not for us” when asked about new properties in south Johor. The phrase represents their frustration at being left behind in the property boom taking place because of the Iskandar Malaysia project.’

‘The hype and excitement created was matched by the entrance of many new players in the form of catalyst projects, developers, investors and consequently speculators,” said V. Sivadas, a property consultant based in Johor Baru.’

‘According to the government’s Household Income Survey 2012, the average household in Johor earns RM4,658 a month. As the cost of living goes up in Johor Baru, residents feel they cannot pay the monthly instalments that come with owning houses priced on average, at RM300,000. “And that’s in Kulai,” said Mohd Mazlan, referring to the town some 30km from Johor Baru.’

‘Sivadas believes that the government both at the federal and state level must get more involved in the property market. A balance needs to be struck between catering for investors in the market and the public’s needs for affordable homes. For instance, the “carpet-building” of luxury condos on Johor Baru’s waterfront created the perception that there was a glut of high-end properties, he said.’

‘It’s also not clear who would buy these units as they were priced above what locals could afford. “The power remains with the state to correct the apparent mismatch of supply and demand in the residential sector,” said Sivadas.’

Comment by Whac-A-Bubble™
2014-10-24 07:53:56

How interesting that people in Malaysia who just want a house to live in face the same nontraditional competition from wealthy investors buying up residential properties as California households who just want a house to live in face.

Comment by rms
2014-10-24 04:41:16

“Zhang Shuangyang, who runs a cake shop and two online sock stores, said she has delayed major purchases and is increasingly worried about the future. ‘We can feel that the economy is getting worse.’”

+1 When you are running your own business you don’t need to read the financial periodicals to know the economic tide is receding. Checks are bouncing, credit cards are stolen, your receivables are 90+ days past due and they don’t answer your telephone calls, etc.; the good ‘ol seventies weren’t that long ago. Up next, the sequel?

Comment by Ben Jones
2014-10-24 04:50:46

I came across this, which is a few weeks old:

‘Handan’s real estate market is suffering from a collective breach of contract and incidents of bosses fleeing. With dozens of real estate enterprises and tens-of-billions of private capital involved, thousands of victims grouped at the city hall to raise their grievances. Experts say local authorities are to blame for using land to make money, which is a widespread phenomenon in China.’

‘The companies involved were attracting private capital with annual interest rates of 20-30%. After company bosses fled, crowds entered the main streets holding placards and banners, demanding the whereabouts of their funds, but the local government refused to disclose the amount of collective funds involved.’

‘Economic commentator Niu Dao: “It’s going on everywhere; where’s the money?—It’s been pocketed by the officials.” “The businessmen ran away, because they feared their lives would be at risk once the officials were exposed.” “People have to hold the government accountable, since the bosses are gone—it’s not right for the authorities to mobilize the police and mess up the whole situation.”

‘Prof. Wang Jianguo; Guanghua School of Management, Beijing University: “The high property prices are mainly caused by the government, who sell land at high prices and demand high taxes.” “70% of property values are said to go to the government, turning people’s wealth into government revenue.”

‘Niu Dao says he’s visited cities such as Chongqing and Xi’an and found vacant buildings everywhere. Niu Dao: “The problem is not just in real estate, but mainly in the financial sector, so putting in more money is no use; vacant buildings are all over the place.” “Financing has relied on mortgages, but bad debts are high; once the banks collapse, everything will collapse.”

‘China’s central bank is injecting $81-billion (500 billion yuan) into five major state-owned banks, reports Wall Street Journal. Niu Dao says once the CCP prints the money, the rich will quickly sell their houses and flee abroad.’

Comment by Ben Jones
2014-10-24 04:53:56

Lo and be-hold:

‘Almost a third of the home loans written in September by a mortgage provider part-owned by Macquarie Group Ltd. were to Chinese investors, the chairman of the firm said.’

‘Yellow Brick Road Holdings Ltd., 18.4 percent owned by Macquarie, lent A$320 million ($281 million) to Chinese investors out of a total A$1.1 billion in disbursements last month, Mark Bouris said yesterday in Sydney. The proportion of Chinese borrowers has doubled in the past year, he said.’

‘Yellow Brick Road’s Chinese customers tend to borrow only about half of a property’s value, paying the rest up front, he said. There haven’t been any signs of arrears building up on the loans, which are in the range of A$350,000 to A$750,000, according to Bouris. Following the recent expansion, growth is now flattening out, he said.’

Yellow brick road? That’s almost as obvious as the “credit equals gold” company that went bust recently.

Comment by Ben Jones
2014-10-24 04:58:58

‘The president of Canada Mortgage and Housing Corp. acknowledges there may be a “data gap” when it comes to the degree of foreign ownership in the marketplace, as debate swirls over whether overseas buyers are inflating house prices in markets like Vancouver and Toronto.’

‘Evan Siddall said the research arm of CMHC is tackling the foreign ownership issue and looking for more data from the banks.

“We are looking at information that lenders have because lenders have clients,” said Mr. Siddall. “The problem is people buy through nominees and corporations and they are allowed to do that. We need to look for ways to pierce that. The way we do that with Canadians is we phone. We can’t phone people in Singapore or Hong Kong, we don’t know who to call.”

‘The issue has become a hot topic with one Vancouver brokerage suggesting about one-third of single family homes in the city are going to people with connections to mainland China. Prices for a single detached family home in Vancouver have topped $1.2-million while Toronto is closing in on $1-million for a detached home - levels that many people blame on speculative buyers from overseas.’

“There’s no bogeyman in this, having foreign investment in the market, inherently there is nothing wrong with that. I owned real estate in the U.S. at one point and I’m not a bad guy,” said Mr. Siddall. “But we need to recognize the fact that when people don’t have direct connection to a country, when things go bad, they are more likely to take their cards off the table. If it gets too high, we become concerned.”

‘In his conversation with Mr. Campbell, the CMHC head said his group continues to look at the idea of banks having some type of deductible, in case a consumer defaults on a loan.’

Cards off the table? Customer defaults? We don’t know who to call?

Ghost busters!

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Comment by Ben Jones
2014-10-24 05:01:30

‘Graphics: Ghost Towns’

‘It’s no secret many cities in China are haunted by too much building and not enough people. One Beijing newspaper devised an index to illustrate the problem is no phantom.’

‘Academic research, reports by financial institutions and news articles often refer to cities as “ghost towns” because apartments are vacant and streets are deserted. On October 13, China Investment Network, a business newspaper in Beijing, released a “ghost town index” to determine which cities were, well, the most ghostly…Based on this approach, at least 50 Chinese cities fit the description of “ghost town.” The large city of Weihai, in the eastern province of Shandong, and the tourist destination of Sanya, in the south’s Hainan Province, were among China’s emptiest.’

Comment by Whac-A-Bubble™
2014-10-24 05:35:51

Is there a plan in place to shoulder the maintenance expense on all those Chinese ghost cities? I smell more Keynesian stimulus spending ahead!

Comment by Blue Skye
2014-10-24 05:07:32

We’ve seen before that delinquencies start showing up when price stops going up.

The stupidity of Australians lending money to outside investors to bid up the price of their own houses. There can be only one outcome and it sounds like that is about to be realized.

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Comment by Whac-A-Bubble™
2014-10-24 05:33:48

Sounds like an awful lot of the so-called wealthy all-cash Chinese investors got their cash by borrowing other people’s money.

Is anyone who regularly posts here surprised?

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Comment by Shillow
2014-10-24 07:34:32

And when they default will we have our own ready made ghost cities here?

Comment by Guillotine Renovator
2014-10-24 21:37:58

Where’s Albuquerquedan and his Chinese miracle?

Comment by rj chicago
2014-10-24 07:49:40

Ben - there was a 1/2 page piece in the front section of the Wall St. J. on Monday talking about this very thing in Handan - China is going down like a hulking steamer with a torpedo hole in its flank.

Comment by Whac-A-Bubble™
2014-10-24 07:58:27

Where is ABQDan to serve up a rebuttal when you need him to do so?

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Comment by Anonymous
2014-10-24 16:06:48

I keep wondering what happened to A-Dan…he needs to get back here and defend China, where everything is coming up roses!

Comment by Whac-A-Bubble™
2014-10-24 08:04:06

The Wall Street Journal
China News
China Challenged by Deepening Property Slump
Decline Hits Many Households and Industries, Scams Burn Speculators
A debt-ridden property developer has abandoned this housing project in Handan, a city in North China, leaving numerous home buyers and creditors stranded. Esther Fung/The Wall Street Journal
By Esther Fung
Oct. 19, 2014 8:52 p.m. ET

HANDAN, China—The property slump is worsening across China, hitting many households and industries, scaring off home buyers and lenders, and leading to bankrupt developers and abandoned projects.

Adding to the turmoil, some developers are fleecing investors with scams, while legitimate firms are increasingly stretched for cash, leading to lending rates approaching 50% in some cities.

In the industrial city of Handan, 250 miles southwest of Beijing, officials are trying to recover $1.5 billion that they say developers raised illegally, largely from individual investors who laid out money based on promises of fat returns.

“My family and my in-laws are so worried about not being able to recover the money, which was originally meant for my husband and me to buy our own home,” said 35-year-old Cathy Wang, who lent 500,000 yuan ($81,380) to a developer who promised to repay the loan at an annualized interest rate of 30%.

Agile Property Holdings Ltd. , a midsize developer, is seeking to extend a December deadline to pay $475 million in loans. Smaller developers in cities such as Baotou in the north and Ningbo and Wenzhou in the east have closed their doors, leaving some projects half-finished.

Average new-home prices in China fell in September for the fifth month in a row, with the pace of month-to-month declines accelerating last month.

Some economists worry that a worsening slump could affect the financial system, although China, with more than $3.8 trillion in foreign-exchange reserves, could avert a full-fledged credit crisis.

At the same time, it isn’t clear how much of the financial system is exposed to property-sector weakness because many developers rely on non-bank sources for funding—everything from big investment vehicles to individual speculators. Trusts, a type of Chinese investment vehicle and a major lending source, have a total of 1.262 trillion yuan (about $205 billion) in outstanding loans to the property sector so far this year, up more than 50% from the year-earlier period.

Following the global financial crisis, a housing boom helped China recover quickly, but it led to unsustainable gains in home prices, rising leverage among developers and ballooning inventory. In 2010, Beijing started rolling out measures such as curbs on bank loans to property developers as part of efforts to rein in speculation and to steer the economy away from being overly reliant on investment.

This year, housing sales, prices and construction activity have declined sharply, as a chronic glut of homes and expectations of further falls in prices keep buyers on the sidelines.

So far Beijing has shown little interest in dramatic remedies to help the property market, such as compelling banks to lend to developers. The government in recent weeks made its most decisive move yet by allowing existing homeowners to qualify for the preferential rates and terms enjoyed by first-time buyers. But economists say its efforts so far have shown little impact.

China on Tuesday will report its third-quarter economic-growth figure. Economists widely believe it will slow to 7.2% from 7.5% in the second quarter, according to a Wall Street Journal survey, putting China in jeopardy of missing its annual growth target—set at 7.5% for 2014—for the first time since the Asian financial crisis of 1998. That is in large part because of the property market. In a monthly survey of home prices of 100 Chinese cities, 79 showed a decline in September from August, compared with 32 in last December from November.

“The linchpin of China’s economy is the housing market,” said Alastair Chan, an economist at Moody’s Analytics, who called housing the “key downside risk” to the Chinese economy.

The slowdown is rippling through different corners of the economy. Domestic steel prices are falling—steel rebar is down 15.8% since the start of the year—and Chinese steel producers are exporting more to compensate for weakness at home. Cement prices have dropped 9% since the start of the year.

Construction-equipment maker Zoomlion Heavy Industry Science & Technology Co. said on Oct. 15 that it expects a 65% to 75% decrease in net income in the first nine months this year due to slowing growth in fixed-asset investment, “especially the slowdown in the growth of real-estate investment.”

Meanwhile, lenders are limiting their exposure to the market, worsening the pain. “We’re more cautious in our debt financing to developers and our criteria have gotten tougher this year,” said David Long, president of the investment unit in Grand China Fund, a Beijing-based private-equity fund. His fund now extends loans only to real-estate firms in more-developed cities and looks for borrowers with revenue sources apart from real estate.

“If we loan out one yuan, it needs to be backed by two yuan worth of collateral,” said Mr. Long.

In some cities away from the big, developed areas of Beijing and Shanghai, lending rates have surged to as much as 48% annually as desperate property developers look for cash. Such loans are the most susceptible to problems, said Zhong Wei, a professor at Beijing Normal University’s Finance Research Center, who watches lending in those areas. “The risk and rewards are proportionate to each other,” he said.

In Handan, the impact of the alleged illegal borrowing and the folding of a number of property developers can be seen in projects that sit half-finished and abandoned. Property developers say home buyers are more skittish. Construction companies worry that developers won’t pay them.

“How can we trust property developers now?” said a construction manager who gave only his surname, Chen, as he pushed a cart out of the workers dormitory next to a stalled housing project in Handan. Mr. Chen said his firm sent its stonemasons home and assigned other workers to projects elsewhere.

“We’re victims too,” he said. “How can we continue to work if we’re not paid? Workers need to be paid.”

The Handan government last month said that 32 property developers—more than one in five in the city—raised a total of 9.3 billion yuan ($1.5 billion) from illegal fundraising, often in the form of high-interest loans from small investors. By comparison, Handan’s total bank lending for all of last year totaled 5.5 billion yuan, according to government data.

Handan officials didn’t respond to requests for additional information. But interviews with investors and home buyers who paid for homes they didn’t get suggest at least three property developers have collapsed and two have fled with loans unpaid and projects unfinished.

The news was shocking to residents who had watched property prices soar 24% during the past four years. Ms. Wang, the Handan resident who lent money to a developer says she thought, “It’s impossible” on hearing her developer had fled.

Ms. Wang identified the developer as Gold Century Real Estate Group. It couldn’t be reached for comment, and on a recent visit its offices were vacant.

As buyers became wary of fleeing developers, home sales in Handan largely dried up, hurting the rest of the city’s property developers. In China, developers often get needed funding by selling apartments before their projects are completed. “It has become tougher for us to raise money,” said Yang He, a Handan-based developer. “This is the worst I’ve seen in my 10 years in the industry.”

Li Bin, a 31-year-old father of two, said he paid 712,000 yuan ($116,000) two years ago for a three-room apartment in a high-rise development called Century in Gold Flower Garden, a Gold Century project. Construction stopped last year. On a recent visit, the buildings were only shells, their stairways exposed to the elements. At the property’s showroom, the glass door had been shattered by angry homeowners, according to a construction worker.

“I hope the government tries to find a way to complete the project so that we can move in,” Mr. Li said. “I borrowed money to pay for this, and I’m not buying another home.”

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Comment by Ben Jones
2014-10-24 08:50:53

‘Li Bin said he paid 712,000 yuan ($116,000) two years ago for a three-room apartment in a high-rise development called Century in Gold Flower Garden’

What an unfortunate name.

‘I hope the government tries to find a way to complete the project so that we can move in,’ Mr. Li said. ‘I borrowed money to pay for this, and I’m not buying another home.’

I hate to tell you this Li, but “the government” doesn’t give a damn about you and and your half finished sky box. They are too busy with their 6 mistresses and flying bushels of loot out to Vancouver. And I doubt your threat of “not buying another one” will shake them out of that.

Comment by rj chicago
2014-10-24 11:49:11

Whac - that be the article I was referring to - and by referring I don’t mean pot (refer) - I mean citing!!
Happy day!!

Comment by Whac-A-Bubble™
2014-10-24 18:23:07

“Century in Gold Flower Garden”

Any fool who buys a place with such a dorky name deserves a Joshua Tree reaming.

Comment by rms
2014-10-24 19:08:49

“My family and my in-laws are so worried about not being able to recover the money, which was originally meant for my husband and me to buy our own home,” said 35-year-old Cathy Wang, who lent 500,000 yuan ($81,380) to a developer who promised to repay the loan at an annualized interest rate of 30%.

You never really own a Chinese home, you just take care of it for the next Emperor.

Comment by Blue Skye
2014-10-24 08:20:26

Yet it is still claimed that China cannot go down because they have enough foreign reserves to paper over the entire earth (or something like that). My personal suspicion is that what reserves they have are hollowed out with obligations such that they are not free and clear to simply cash their way out of a credit collapse. I guess we will find out.

It doesn’t seem logical to me that the biggest credit junkies in the world, and possibly the most corrupt and deceitful gang of thieves, would also be the most prudent savers.

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Comment by Housing Analyst
2014-10-24 04:52:04

Bloom berg yammering away this morning about how the fed saved the universe by buying $4.45 trillion in junk at massively inflated prices “to keep prices from falling.”

Bloom berg is the new TASS/Pravda.

Comment by Whac-A-Bubble™
2014-10-24 04:55:47

“David Weidner’s Writing on the Wall
Opinion: It will soon get easier to buy a home — but don’t do it
By David Weidner
Published: Oct 23, 2014 1:28 p.m. ET”

Isn’t it fantastic how much great advice is freely available on the internet to anyone who has access and knows how to read?

Comment by Whac-A-Bubble™
2014-10-24 04:58:48

Any thoughts on how long from now the next GSE bailouts will go down?

Comment by rms
2014-10-24 05:10:44

“Any thoughts on how long from now the next GSE bailouts will go down?”

Didn’t the messiah say, “Never Again?”

Comment by Blue Skye
2014-10-24 05:10:54

Zero down. The only thing missing now is signup bonuses for the borrower.

Comment by Whac-A-Bubble™
2014-10-24 05:39:30

Do you mean the free cars and vacations, financed on the mortgage loan?

Comment by iftheshoefits
2014-10-24 07:45:42

No, I think he means direct government funded credits for buying a house.

They’ve done just about everything they can with artificially low interest rates and no down payments. Next, it’s going to be, just give ‘em money.

Everybody must get enslaved.

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Comment by rj chicago
2014-10-24 07:50:45

Also known as the Free sh8t Army!!! Rock on!!

Comment by Avocado
2014-10-24 13:00:24

These are my favorite welfare queens costing taxpayers well over $100 Billion a year.

Archer Daniels

google it

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Comment by Whac-A-Bubble™
2014-10-25 11:35:22

Housing regulator considers lower down payments
By Dina ElBoghdady, Washington Post
Lower down payments possible on mortgages
Changes in down payments might meet opposition on Capitol Hill

The regulator that oversees Fannie Mae and Freddie Mac is considering policy changes that aim to make credit more readily available to potential home buyers, many of whom have been shut out of the market by the stiff lending requirements put in place in the aftermath of the housing bust.

The Federal Housing Finance Agency is discussing whether the two mortgage giants should lower their down-payment requirements from 5 percent to 3 percent in some cases, according to people familiar with the matter who asked not to be named because they were not authorized to speak about it. Freddie scrapped the 3 percent minimum a few years ago, and Washington-based Fannie did the same more recently.

The boost in down payments was part of a broader initiative to shrink the government’s role in the mortgage market a push that the FHFA abandoned after Mel Watt took over as its leader this year. Watt has said his agency no longer plans to have the government-controlled companies retreat from the housing market, asserting that Fannie and Freddie must help keep home loans flowing to the public.

The FHFA also is mulling changes that it hopes will prompt lenders to ease their standards. After the housing market tanked, Fannie and Freddie forced the industry to buy back billions of dollars in loans. In response, lenders began demanding unusually high credit scores and imposing other tough standards on borrowers exceeding the government’s own criteria in a bid to insulate themselves from financial penalties. Lenders say they have no incentive to let up because the rules governing when Fannie and Freddie can take action against them are unclear, an issue the FHFA plans to address, the knowledgeable people said.

The regulator’s decisions about Fannie and Freddie have huge sway over the mortgage market and, by extension, home buyers. Fannie, Freddie and the Federal Housing Administration collectively own or back nearly half of all U.S. mortgages.

None of them makes loans. Fannie and Freddie buy loans that meet their guidelines from lenders, package the loans into securities and sell them to investors. For a fee, they guarantee the mortgages and pay investors if the loans default.

The FHFA is an independent agency that operates without direction from the White House. But the White House has been beating the drum on widening access to credit for months now and has met several times with industry executives most recently this week about the issue, people familiar with the matter said.

Experts who track the mortgage industry are skeptical that the proposals, which were first reported in The Wall Street Journal, are dramatic enough to ease lenders’ concerns and open up credit in a significant way.

For starters, even when borrowers were required to put down only 3 percent, lenders usually required more, said Guy Cecala, publisher of Inside Mortgage Finance. “So the question is: If they lower the down-payment requirement, is anybody going to pay attention?” he said.

Any talk of lowering down payments or laying the groundwork for borrowers with lower credit scores to enter the market is likely to ignite opposition on Capitol Hill, where Republicans in particular have repeatedly warned that loosening credit requirements could lead to another housing meltdown.

Comment by Whac-A-Bubble™
2014-10-25 11:46:08

“…according to people familiar with the matter who asked not to be named because they were not authorized to speak about it.”

Whatever became of the First Amendment?

Comment by rms
2014-10-25 16:24:18

“Whatever became of the First Amendment?”

Ignore the Second, and you might as well write-off the First.

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Comment by Ben Jones
2014-10-24 05:07:09

‘There may be no need for macro-prudential tools after more data has signalled that the housing market is softening, according to a property market economist. Dr Andrew Wilson, senior economist at the Domain Group, says it is the lowest growth the market has seen for some time. “The national house price result is the lowest quarterly growth rate recorded since March last year and continues to be primarily reliant on the strength of the Sydney market.”

‘Sydney, Melbourne and Darwin were the only capital cities to record an increase in house prices over the September quarter. “Although house prices in Sydney are not accelerating at the exceptional levels recorded last year, the growth rate has been consistent over 2014,” Wilson said. “The Sydney market will continue to lead the pack, however, the clock is now ticking for that market as further signs of moderation are emerging.”

‘After periods of consistent prices growth, Brisbane, Adelaide and Hobart recorded a fall in the median house price over the September quarter. “Surprisingly, the Brisbane house price stalled over the September quarter with the median down by 1.3% which is the first negative quarterly result for more than two years. Adelaide and Hobart also reversed recent trends of house price growth, recording their first falls in a year.”

‘Over the September quarter, Perth and Canberra saw negative growth in the median house price, recording -1.5% and -1.7% respectively. “Subdued prices growth in Perth was no real surprise as that market has consistently reported waning buyer activity over the past year,” Wilson said. “Volatility in Canberra and Darwin is also a continuation of recent market trends.”

‘The downwards trend in house price growth may curb the need for the Reserve Bank to step in to cool the market, says Wilson. “Without a sustained revival in economic activity, housing markets will continue to soften, ending the debate about macro-prudential tools or changes to property taxation policy designed to offset local and foreign investor activity.”

‘The downwards trend in house price growth may curb the need for the Reserve Bank to step in to cool the market’

Yeah, in a few months he’ll be crying, “mommy, make it stop”.

Comment by Ben Jones
2014-10-24 05:21:41

‘The Ship Mortgage Crisis’

‘How ship valuation methods rationalized toxic shipping portfolio and ship covered bonds’

‘The financial quality of loans (e.g. credibility of borrower, credit default risk, liquidity risk, etc.) was eroded in six consecutive years before the crisis, and more surprisingly, securitizers (i.e. mortgage securitizers who monetize the mortgage loans) were well aware of the declining power of credibility and refunding capacity. Another confounding conclusion of Demyanyk and van Hemert is that the problems behind the financial failure could be identified well before the crisis while high house prices shaded the monitoring mechanism. The subprime mortgage crisis seems to be a mixture of human error and malfunctioning financial architecture.’

‘While the subprime mortgage crisis sparked a financial chaos by 2008, the shipping business and ship mortgages were not immune to the misguided banking industry. On October 5th 2012, a credit rating institution, Moody’s, posted the following announcement: “Moody’s Investors Service has today placed on review for downgrade the Aa1 ratings assigned to the public-sector Pfandbriefe (public-sector covered bonds) and the Baa1 ratings assigned to the ship Pfandbriefe (ship covered bonds) issued by HSH Nordbank AG (HSH or the issuer), which are governed by the German Pfandbrief Act. On 16 December 2011, both covered bonds were downgraded to Aa1 and Baa1 respectively.”

“The ratings of HSH’s mortgage Pfandbriefe, which are currently on review for downgrade, are not affected by this rating announcement.”

‘There are a number of reasons behind the anomalies on the shipping loan market including risk handling and ship valuation which finally caused the ship mortgage crisis hidden behind the aftershocks of the 2008 crisis. On December 2nd, 2009, an article is published on Business Insider Australia titled “Banks hide shipping losses with -The Hamburg Valuation-” and frankly disclosed motivations behind the valuation game: “As ship values soared, so did apparent collateral values backing shipping loans. Yet as ship values then collapsed, the collateral disappeared. This threatens to put, and has put, many debtors in breach of banks’ loan covenants.”

“How can banks avoid coming to terms with the fact that much of their collateral is worth far less than they represent? Scrap mark to market valuation of ships and replace it with a new mark-to-model-driven valuation methodology. Sound familiar?”

Comment by Whac-A-Bubble™
2014-10-24 05:44:11

“While the subprime mortgage crisis sparked a financial chaos by 2008, the shipping business and ship mortgages were not immune to the misguided banking industry.”

Is it fair to say that subprime lending is the banking industry’s version of Ebola?

Comment by Mr. Banker
2014-10-24 05:47:39

About George Economou, the CEO of Dryships:

“It was surreal. When someone asked why he was doing the deal, here–now, he actually said, basically, ‘Because Americans are the dumbest investors around, and there’s lots of liquidity in this market.’”

Comment by Mr. Banker
Comment by MacBeth
2014-10-24 07:21:55

What’s more interesting to me is that Americans didn’t use to be the dumbest.

Comment by Whac-A-Bubble™
2014-10-24 05:27:26

“The FHFA will, in the end, encourage more lending. And this will translate into more credit for people who have been denied. But that policy isn’t the one that matters. It’s my policy, your policy, based on what we truly can afford that does.”

What this policy does is
1) lowers the bar for people who would not qualify for a mortgage to buy a home at the price the seller is willing to accept, based on their credit history and financial situation;
2) put federal taxpayers on the hook for insuring these loans, with no say in the matter.

Comment by Ben Jones
2014-10-24 05:28:29

‘A hotel boom is transforming the island of Hainan as the south China province attempts to build itself into a global tourism destination, but industry insiders are wondering whether the market can handle the sudden growth.’

‘A drive along the 22-kilometer-long coast of Haitang Bay in Hainan’s Sanya City leads to a cluster of newly constructed luxury hotels such as the Sheraton, Conrad and Kempinski. Within the next six years, the stretch will be home to 32 hotels.’

‘Data from the local tourism authority showed that Hainan currently has 65 five-star hotels in business, with another 40 under construction, surpassing the 50 to 60 five-star hotels in China’s first-tier cities such as Beijing and Shanghai.’

“With so many identical high-end hotels concentrated in one place, it reflects oversupply and a waste of resources,” said Wang Jiansheng, head of the Hainan Tourism Development Research Association.’

‘A senior manager surnamed Zhang from a five-star hotel in Haitang Bay said that the average occupancy rate for his hotel has been stuck at around 20 percent, but he expected a recently launched tax-free store to improve the situation.’

‘Haitang Bay has had an apparent impact on its neighbors. Hotel managers from the nearby Yalong Bay, which boasts nearly 20 luxury hotels, complained that bookings have dropped sharply due to oversupply.’

‘A survey headed by Cui Lisha from the People’s Political Consultative Conference Hainan Committee, a political advisory body, said that Hainan’s five-star hotels can accommodate 28 million tourists a year at present, way exceeding an estimated demand of 8 million tourists by 2020.’

Comment by Ella58
2014-10-24 11:59:40

And the hotel boom is all over the world. I’ve posted this before, but here’s a huge list of scheduled new hotels opening in 2014 -


I thought the 19 in NYC was bad, but the 40 in Hainan definitely wins.

Comment by Ben Jones
2014-10-24 12:08:14

I found an article a few months back that said 5 5 star hotels were opening everyday in China. It went on to say that “local officials” would give developers land to build houses if they would open this sort of thing. It said straight out that no one expected the hotels to make money.

Comment by Ella58
2014-10-25 11:27:09

Amazing! So for all the gov’t/city incentives, what benefit does opening luxury hotels bring to their city, exactly? Employment, perhaps, but only if there are guests. I was just reading that business travelers are now staying in airbnb spare bedrooms because their companies won’t pay for a normal hotel!

Is it all just to look good on the overseas investor brochure? “Our ghost city isn’t just apartments, we have a hotel too!” kind of thing?

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Comment by Ben Jones
2014-10-24 05:34:52

‘State-owned steel magnate Sinosteel Corp. has been cast under a shadow of conflict and conjecture, a situation which many industrial insiders have attributed to the poor performance of the company.’

‘Recently, some media outlets reported that Sinosteel was facing default of 78 billion yuan ($12.7 billion) on loans from nine banks, and the State-owned Assets Supervision and Administration Commission of the State Council (SASAC) was likely to inject 20 billion yuan ($3.26 billion) in order to resuscitate the company.’

‘Sinosteel and some banks were quick to deny these reports. On September 23, Zhang Zhixiang, a spokesman for Sinosteel, told China Securities Journal that the reports are not accurate. The spokesman claimed the company is facing financial problems as a result of unpaid bills from customers, but denied rumors that the company is straining under the weight of overdue loans amounting to 10 billion yuan ($1.63 billion).’

‘Ten years ago, it was inconceivable that a central SOE might be faced with the issue of its own survival. At the outset of 2008, the then-President of Sinosteel Huang Tianwen confidently made the claim that the company was likely to rank among the world’s top 500 companies that year. He wasn’t bluffing. In 2009, true to Huang’s predictions, Sinosteel entered the elite club of the Fortune Global 500 for the first time, ranking 372nd. In 2011, it climbed to 354th place.’

‘Following this short burst of glory, however, niggling concerns on the company’s market situation have refused to subside, with the focus being most commonly placed on its high debt ratio. By the end of 2013, Sinosteel had total assets of 110.1 billion yuan ($17.93 billion), while their debts amounted to 103.3 billion yuan ($16.82 billion), leaving the company with a debt ratio of 93.87 percent.’

“The debt ratio of a well performing company should not be very high, never surpassing 70-80 percent. If the debt ratio is higher than that, the company can still maintain good sales revenue, but this is not the situation in Sinosteel,” an anonymous deputy director of finance of a private company told International Financial News.’

‘The latest round of loan default reports started from June this year, when a 690-million-yuan ($112.38 million) loan Sinosteel borrowed from China Development Bank became overdue, and loans from other banks were all extended. The loans are said to amount to 10 billion yuan in total.’

‘Zhang Lin, an analyst with Lange Steel Information Research Center, says Sinosteel has come a cropper in several big projects. “Purchase of steel companies in Shanxi Province and investment in iron ores of Midwest Corp. in Australia can all be considered missteps,” she said. In her opinion, what is more unfortunate is that the whole industry is in recession, further reducing the investment returns for these projects.’

“Rash expansion is a major reason leading to the present difficulty. After the Chinese Government launched the 4-trillion-yuan ($586 billion) stimulus package in 2008, Sinosteel also embarked on runaway expansion of production capacity. It was very usual at that time that different subsidiaries of Sinosteel had overlapping businesses,” said Yu Fenghui, an economist, in a commentary piece for The Beijing News. “In the meantime, its overseas expansion is also out of control, purchasing nearly 10 companies in Africa for iron ore and chromium resources. In 2008, Sinosteel acquired Midwest Corp. in Australia, but after that, prices for iron ore started declining, causing serious depreciation of this investment.”

‘Liu Haimin, Deputy Director of China Metallurgical Industry Planning and Research Institute, thinks that more deeply rooted reasons lie in deficiencies in the system of checks and balances governing central SOEs. “For the management teams of central SOEs, successful expansion projects represent their holy grail. If these projects are not successful, they won’t have to bear the brunt of responsibility and the government will cover all losses. Therefore, the management teams often ignore risks and just uninhibitedly pursue expansion,” he said.’

Comment by Beer and Cigar Guy
2014-10-24 06:08:09

Oh, yeah- the market is STELLAR here in Florida, especially in Orlando. This bandit sign was on my way to work this morning.

‘3 Orlando Condos for $125,000. All three!’

Sounds like a helluva investment! Buy in bulk and save!!

Comment by Ben Jones
2014-10-24 06:24:14

‘I am a macroeconomist, but I dissent from the profession’s two leading camps in the United States: the neo-Keynesians, who focus on boosting aggregate demand, and the supply-siders, who focus on cutting taxes. Both schools have tried and failed to overcome the high-income economies’ persistently weak performance in recent years. It is time for a new strategy, one based on sustainable, investment-led growth.’

The problem is, we don’t need these pencil necks to tell us how things should be.

‘China Will Keep Growing. Just Ask the Soviets.’

Why is everybody so afraid of capitalism? You know, let consumers vote with their dollars/feet and supply and demand sort things out? I mean, are we so happy with how things are that we can’t try something that has only given us EVERYTHING WE HAVE!

I was reading an article about how Yellen and the UK central bank guy and some others in that crowd started talking like “class warriors”. Uh, they print up trillions, 95% of it goes to rich people. Yeah, sure, class warriors.

Will people accept any kind of BS that’s thrown at them?

Comment by Ben Jones
2014-10-24 06:55:21

The WP sends me these things:

‘The U.S. economy has fallen, and it can’t get up. At least that’s the way it seems. That’s because our slump hasn’t really ended, even though the Great Recession officially did more than five years ago. Growth has been low, unemployment is still high, and it’d be even more so if the labor force hadn’t shrunk so much. And all this, remember, has happened despite interest rates being zero the whole time.’

‘It’s brought back the specter of “secular stagnation.” That’s the idea, first proposed by Alvin Hansen in 1938, that an economy can get stuck in a never-ending slump if slower population growth means slower investment…But interest rates can’t go only lower — they’re effectively at zero. As a result, the not-so-great recovery might be followed by a future that’s just as bad.’

‘Hold on. What does it mean that the economy “needs” low rates — indeed, negative once you account for inflation — to get to full employment? That shouldn’t happen in a world, like our own, where investments have positive returns. Companies should always want to invest, hiring workers in the process.’

‘Well, the answer is one part psychology and another part supply and demand. People, you see, just might be too scared to invest in anything that doesn’t look super-safe, unless there’s a bubble that looks super-profitable.’

Comment by rj chicago
2014-10-24 07:58:59

Ben - zirp has forced anyone with money to go into risk markets - read the Dow. There is NO incentive to save - only invest in higher risk instruments seeking yield. This does not end well.

Comment by Ben Jones
2014-10-24 08:09:20

As I’ve said, the dominant economics is central bank-ism. They never question what they are doing, even when it fails over and over.

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Comment by Whac-A-Bubble™
2014-10-24 18:26:34

They are above questioning, as what they do to save the economy is the correct course of action by definition, as any other possible course would naturally lead to financial Armageddon.

Comment by scdave
2014-10-25 10:08:57

There is NO incentive to save ??

I respectfully disagree…There may not be a rate of return in the form of income but there is surely a high rate of return in the form of safety & security…

Comment by Whac-A-Bubble™
2014-10-24 18:25:18

‘Well, the answer is one part psychology and another part supply and demand. People, you see, just might be too scared to invest in anything that doesn’t look super-safe, unless there’s a bubble that looks super-profitable.’

I guess the Fed better keep inflating bubbles, or investment may completely dry up!

Comment by joesixpack
2014-10-24 09:26:29

“Will people accept any kind of BS……..”

Rhetorical question, I know….but

of course they do and it is more than stupidity.
I believe there is a large and growing segment of our population that knows it is BS, but choose to accept more of it because they have become indoctrinated and entitled, or they just don’t know how to get back to Kansas and are afraid that the journey will wipe them out.

Then as many begin to reach retirement age, they get nervous as they see cities filing for BK, pensions in trouble, government in general unable to fullfill promises and low and be-hold, they realize that they never had a real safety net and that those polititions don’t really give a hoot about them and never did. It is a beautiful site to behold. By now, they are old, expensive to hire, smell funny and they act like gamblers, not investors, walking around the casino jingling their chips, looking for the lucky game.

PS: I put 50 bucks on the 12 in the field last weekend and it hit.

Comment by taxpayers
2014-10-24 09:37:12

1921 USA and 1998 Asia
let is all go” Andrew Mellon

then things rock- otherwise perma EU/Japan

Comment by Rich
2014-10-24 07:25:28

“So today it’s incumbent on the borrower to ask himself if he can afford the American Dream.”

Ah…Yeah Sure, make that payment ? No problem……..Great sign here.

Comment by Anonymous
2014-10-24 16:43:30


“San Francisco home prices may be out of control, but at least in the city if you pay nearly $2 million for a property, you generally get some kind of a livable structure as well. Not so in Palo Alto, where this decrepit, potentially hazardous home is on the market for $1.8 million. “Property is not habitable,” reads the listing notes. “Prospective buyers to drive or walk around property only.” “

Comment by scdave
2014-10-25 10:11:22

Pretty common in Palo Alto…Nothing new here…Millionaires dancing with billionaires…At least in some locations…

Comment by Whac-A-Bubble™
2014-10-24 18:13:20

For Every Reckless Borrower There Is A Greedy Investor F_cked Buyer

Comment by Ben Jones
2014-10-25 08:18:33

Here’s more on my theory of black hole economics:

‘Quantitative easing may turn out to be a gift that keeps on giving for the U.S. economy. As the Federal Reserve prepares to end its third round of bond buying next week, the central bank plans to hang on to the record $4.48 trillion balance sheet it has accumulated since announcing the first round of purchases in November 2008.’

‘Holding bonds on the Fed’s balance sheet limits the supply of securities trading on the public markets, which helps keep prices up and yields lower than they otherwise would be. That provides stimulus to the economy just as a cut in the Fed’s benchmark interest rate would, according to Michael Gapen, a senior U.S. economist for Barclays Plc in New York and former Fed Board section chief in charge of monetary and financial markets analysis.’

‘Boston’s Eric Rosengren differs with Bullard in supporting an end to asset purchases. He calls QE3 “materially helpful,” in part because it helped boost housing prices. Rosengren votes in 2016.’

Higher house price make us poorer. See California. Lower interest rates make us poorer and encourage gambling - also makes us poorer.

The black hole; they take $4 trillion out of the economy and it disappears. This giant chunk of assets use to provide jobs, income. Yes, you can expect that even distressed assets will be converted into productive assets in a capitalist economy. Now it’s just gone. And then there’s the moral hazards, etc, that come with hiding such messes.

Comment by Whac-A-Bubble™
2014-10-25 08:53:19

“The black hole; they take $4 trillion out of the economy and it disappears.”

Didn’t Enron try something similar? Maybe it works better when central banks do it than it does for private firms.

Comment by iftheshoefits
2014-10-25 09:57:12

Well with private firms (TBTF excluded, alas) at least something or someone eventually blows the whistle.

Comment by Whac-A-Bubble™
2014-10-25 10:12:15

Is the Fed’s $4 trillion balance sheet some kind of secret?

I’m sort of curious why they haven’t used massive balance sheet expansion in the past, given how successful it has been to bail out the economy. (Or have they?)

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Comment by Whac-A-Bubble™
2014-10-25 10:19:20

Check out how much of the Fed’s balance sheet expansion was due to MBS purchases! I guess since Hank Paulson’s Special Investment Vehicle for mortgages didn’t pan out, the Fed decided to become the MBS black hole for the housing bailout?

Comment by Whac-A-Bubble™
2014-10-25 10:51:42

Your Portfolio is Controlled by the Fed!
By Geoffrey Pike
Friday, October 24th, 2014

U.S. stocks have been on a roller coaster ride lately.

After the major downturn in late 2008 and early 2009, stocks began going back up starting in March 2009. And it has been a bullish ride up over the last five years — until just recently.

This ride up for stocks has coincided with low interest rates and an extremely loose monetary policy from the Federal Reserve. The Fed has gone through several rounds of quantitative easing (QE), or in simpler terms, money creation.

The Fed has been buying a combination of U.S. Treasuries (government debt) and mortgage-backed securities (MBS) with money created out of thin air. The purchase of MBS is a new thing for the Fed since 2008. It has essentially served as a quiet way of bailing out the major banks from bad loans.

Comment by Whac-A-Bubble™
2014-10-25 10:55:14

Not everyone agrees with the Fed’s massive bailout of the housing market.

Comment by Whac-A-Bubble™
2014-10-25 10:56:14

Fed’s Lacker says exit strategy dissent stemmed from MBS approach
WASHINGTON Fri Sep 19, 2014 8:32am EDT

Federal Reserve Bank of Richmond President Jeffrey Lacker testifies before the House Financial Services Committee hearing on ”Examining How the Dodd-Frank Act Could Result in More Taxpayer-Funded Bailouts” on Capitol Hill in Washington June 26, 2013. REUTERS/Yuri Gripas

(Reuters) - Richmond Federal Reserve President Jeffrey Lacker on Friday identified himself as the lone dissenter on the Fed’s so-called exit strategy, and said his opposition stemmed from the central bank’s plan to keep holding mortgage-backed securities.

Lacker has previously opposed the Fed’s purchase of mortgage-backed securities (MBS) because he feels it singles out a certain sector and gives it an advantage over other borrowing by consumers.

The Fed announced on Wednesday a new set of plans related to whittling down its $4.4 trillion balance sheet, built up through three large-scale bond buying programs.

The strategy, known officially as “Policy Normalization Principles and Plans”, outlined various steps it will take in moving away from the loose policy that has been in place since late 2008. The policy-setting Federal Open Market Committee (FOMC) said all but one of its participants agreed with the approach.

“Specifically, I did not support plans for the assets on the Fed’s balance sheet,” Lacker said in a statement on Friday.

The bond-buying programs, which involved monthly purchases of mortgage-backed securities and Treasury securities, were put in place in part to keep long-term borrowing costs down.

Lacker offered a similar dissent in December 2012 when the FOMC decided to continue buying MBS.

“If asset purchases are appropriate, the FOMC should confine its purchases to U.S. Treasury securities,” Lacker said at the time, as that would cover a broader swath of borrowers and not single out a certain subset.

On Wednesday, the FOMC said it currently does not anticipate selling agency mortgage-backed securities as part of the normalization process. Limited sales may be warranted in the future, it said.

The Fed’s continued holding of MBS prompted Lacker’s dissent.

I believe this approach unnecessarily prolongs our interference in the allocation of credit,” Lacker said. “While this would favor home mortgage borrowers, it tilts the playing field against other borrowing by consumers.”

Comment by Ben Jones
2014-10-25 08:33:53

‘Clem Ziroli Jr.’s mortgage firm, which has seen its costs soar to comply with new regulations, used to make about three loans a day. This year Ziroli said he’s lucky if one gets done. “The biggest thing people are suffering from is the cost to manufacture a loan,” said Ziroli, president of the Ontario, California-based firm and a 22-year industry veteran. “If you have a high credit score, it’s easier. For deserving borrowers with lower scores, the cost for mistakes is prohibitive and is causing lenders to not want to make those loans.”

‘If banks commit compliance errors in issuing a loan that goes bad, they have to buy it back at a loss from Fannie Mae or Freddie Mac.’

Whoa here Clem. Why don’t you and these bankers just pull out your wallet and make these loans? After all, you are so concerned for these deserving borrowers?

What’s that? You don’t want to use your own money to make these loans? Well why is that? You’ll get your money back, with interest, right? These loans are sound, right?

There was a time when these loans were made without government backing. Remember when the GSE’s had to fight for market share?

‘During the housing boom between 2004 and 2007, lenders provided about $2 trillion in subprime loans’

Oh, and this:

‘The share of subprime mortgages for which borrowers either provided little documentation of their assets or none at all rose to 38 percent in 2007 from 32 percent in 2003, according to a paper published by the Federal Reserve. Almost one in four of those mortgages defaulted by 2008 compared with one in five of fully documented subprime loans.’

Well, well. So the difference between the two is 5% - 20% versus 25%. It looks to me like subprime loans default a lot, way too much to make money on. Maybe that’s why, prior to the early 2000’s, subprime was only 1% or 2% of the market.

Here’s another gotcha; before the early 2000’s, the default rate on that tiny portion of subprime was only around 14%, not 20% or 25%. It’s easy to conclude that when you combine subprime with high prices, you almost double the default rates.

Comment by Gabe Sanders
2014-10-25 09:18:24

Until people find jobs that they can actually earn a decent wage, I don’t see any major real estate momentum for the near future.

Comment by Housing Analyst
2014-10-25 12:37:05

Do you really think wages are going to double or triple to meet current grossly inflated asking prices of resale housing?

Of course not. Housing prices will continue to fall until them meet wages.

Comment by Whac-A-Bubble™
2014-10-26 11:56:13

“Do you really think wages are going to double or triple to meet current grossly inflated asking prices of resale housing?”

Why does that matter? Isn’t the main question that of whether the government can get big enough loans into the hands of willing borrowers to buy homes at prices that keep the bubble on the boil?

Comment by Housing Analyst
2014-10-26 12:05:36


keep the bubble defaults on the boil

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Comment by Whac-A-Bubble™
2014-10-26 15:20:45

A high future default rate in exchange for high prices and “affordability” mortgages today is the driving force behind the bubble. Of course the Democrats will provide a “Save Our Homes” bailout program for the households who go into default tomorrow, thanks to volunteering to become debt donkeys today.

Comment by rms
2014-10-26 16:20:34

Of course the Democrats will provide a “Save Our Homes” bailout program for the households who go into default tomorrow, thanks to volunteering to become debt donkeys today.

+1 The democrats learned from the republicans how to buy votes with a promise, e.g., “a chicken in every pot and a car in every garage.”

Comment by Tarara Boomdea
2014-10-26 19:28:56

Whac-A-Bubble said:
A high future default rate in exchange for high prices and “affordability” mortgages today is the driving force behind the bubble. Of course the Democrats will provide a “Save Our Homes” bailout program for the households who go into default tomorrow, thanks to volunteering to become debt donkeys today.

Worked out well for Laura:

No Payments Five Years. Las Vegas real estate agent helps owner reduce principal & waive payments, Sept. 4, 2012

Buying a $568k house, defaulting and being rewarded with a mortgage reduction of $232K plus five years free rent, amazing, though this certainly didn’t happen to everyone.

All these underwater people still drowning; what’s a few more?

Comment by Whac-A-Bubble™
2014-10-26 20:23:08

What next: GSE-sponsored cramdowns?

Comment by Housing Analyst
2014-10-25 15:35:43


Comment by Whac-A-Bubble™
2014-10-25 17:05:04

The Economist
Fannie Mae and Freddie Mac
Structurally unsound
America restores the weak lending standards that led to the housing crash
Oct 25th 2014 | New York | From the print edition

WHEN politicians bashed Wall Street for its reckless mortgage lending in the wake of the subprime crisis, bankers retorted that it was the politicians’ enthusiasm for expanding home ownership, even if it meant small deposits and low credit standards, that had really fomented the disaster. Yet that enthusiasm is undimmed: in a speech on October 20th Mel Watt, head of the Federal Housing Finance Authority (FHFA), announced plans to reintroduce mortgages with deposits as low as 3% through Fannie Mae and Freddie Mac, the two government-backed housing giants it regulates.

Both Fannie and Freddie were bailed out during the financial crisis. There was much talk in Congress of winding them down; in the meantime, they tightened loan requirements to limit the risk to taxpayers. But that changed when Barack Obama appointed Mr Watt, a congressman from North Carolina and long-term evangelist for home ownership.

Fannie and Freddie do not issue mortgages. Instead, they buy them from banks and guarantee the securities into which they are bundled for resale. Over the past two years many big mortgage lenders have paid billions of dollars in fines and been forced to buy back piles of dud loans on the grounds that they did not conform to Fannie’s and Freddie’s rules. These settlements were controversial, in that the pair had actively sought out risky mortgages to satisfy their mission to promote “affordable housing”.

In response, many banks have stopped lending to riskier borrowers. The new rules announced by Mr Watt are supposed to entice them to resume by narrowing the circumstances under which they can be held at fault. The banks, which hold buckets of surplus deposits and are eager for safe ways to deploy them, are pleased, since the risks of making loans with low deposits will once again rest with Fannie and Freddie.

Comment by Whac-A-Bubble™
2014-10-25 23:06:33

What is different this time?

The Economist, a bastion of conservative real journalism, is preemptively calling out the folly of using subprime lending for U.S. Housing Bubble reflation purposes. The Democrats are going to go down in history as the primary architects of this financial disaster in the making.

Comment by iftheshoefits
2014-10-26 07:32:55

Is there a single conservative politician on the national level that is taking a stand on this? I don’t know of any but I may have missed one.

Comment by Whac-A-Bubble™
2014-10-26 10:38:05

No, I don’t think so. It seems national-level U.S. politicians prefer to avoid any discussion of housing policy like they avoid Ebola.

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Comment by Whac-A-Bubble™
2014-10-26 11:46:01

The Road to Hell Is Paved by … Lax Lending Rules
By Dunstan Prial
Looking Out
Published October 24, 2014

Hall of Fame catcher Yogi Berra supposedly coined the phrase “It’s like déjà vu all over again.”

The amusingly redundant saying seems especially apt – if not all that amusing – following the announcement earlier this week that federal housing regulators, via the mortgage servicing giants Fannie Mae and Freddie Mac, plan to loosen lending requirements to help jump-start the sluggish U.S. housing market.

Perhaps the most eye-catching aspect of the broad proposal designed to ease the path for lower-income families and first-time buyers toward home ownership is to once-again allow borrowers to put down as little as 3% for a down payment.

Anyone who watched U.S. housing prices soar early last decade only to tumble calamitously as millions of Americans defaulted on their home loans can be forgiven for rolling their eyes, shaking their heads and slapping their foreheads while uttering, “Here we go again.”

Their sense of foreboding is entirely warranted.

Twenty-years ago, as stock markets soared and the economy boomed during the Clinton Administration, the federal government – Democrats and Republicans alike – made increasing home ownership a priority. After all, they reasoned, isn’t owning a home the epitome of the American dream?

With that laudable goal in mind, housing and lending regulators in the mid-1990s initiated a series of steps intended to bring that elusive goal of home ownership closer to millions of lower-income families, many of them minorities, which had up to then been shut out of the housing market.

Greed Led to 2009 Financial Crisis

It worked. Home ownership rates in the U.S. rose from 65.1% in 1995 to 69% in 2005, according to the Bureau of Labor Statistics. Meanwhile, during roughly the same period mortgage originations exploded by more than 600%, from $459 billion in 1990 to $2.9 trillion in 2005.

It’s the latter of those two figures that led to all of the subsequent trouble, and the primary cause of those troubles can be summed up in one word: greed.

After government regulators eased mortgage requirements – all the while promising to backstop many of those loans through Fannie and Freddie guarantees — lenders began essentially rubber-stamping so-called subprime loans to millions of borrowers with virtually no realistic hope of paying the money back.

It didn’t matter. The money flowed in great torrents from Main Street to Wall Street and, for a while at least, everybody won. Home values soared, elevated by roaring demand triggered by the lax lending environment. Wall Street bankers printed money packaging the loans and selling them to an audience of seemingly insatiable investors. Bonuses for Fannie and Freddie executives also soared.

Then it all came tumbling down.

Comment by rms
2014-10-26 00:09:18

“Historically, it was difficult to get a home loan. And down payments weren’t an option. They were the price of admission to the lending officer’s desk.”

+1 Unfortunately a tall order for today’s millennial.

Comment by Whac-A-Bubble™
2014-10-26 11:12:22

The murky origin of the 20 percent down payment
​A "House For Sale" sign point to a home in Park Ridge, Illinois. New housing regulations were finalized without a down payment requirement, though some argued for 20 percent.
Photo by Tim Boyle/Getty Images
by Stan Alcorn
Wednesday, October 22, 2014 - 14:10

Picture a mortgage, and you’re likely imagining a down payment of 20 percent of the price of the house.

I think the 20 percent down payment has become the default, no pun intended,” says Jonathan Miller, president of Miller Samuel Real Estate Appraisers and Consultants. “To many homeowners, I think it symbolizes a commitment.”

The requirements of Fannie Mae and Freddie Mac — the government-backed entities that support the vast majority of new mortgages — are the most obvious reasons the standard applies today.

Under Fannie and Freddie’s rules, you can get a lower down payment mortgage, but that then requires extra payment in the form of mortgage insurance,” says Susan Wachter, professor of real estate and finance at the University of Pennsylvania’s Wharton School.

The history of that requirement dates back to the Great Depression. According to Wachter, before the 1930s most mortgages were short-term and non-amortizing: a home buyer had to either pay off the whole house in a lump sum after a few years, or roll over the loan at a new interest rate. Down payments, on the other hand, were typically more than 30 percent.

After the resulting foreclosure crisis and construction halt — similar to what happened after the recent financial crisis — the government created the Federal Housing Administration, which backed mortgages, but required a 20 percent down payment. After World War II, the Department of Veterans Affairs and the FHA adopted a 30-year, fixed-rate standard. By the mid ’50s, most mortgages fit that description.

But 30-year, fixed-rate, 20 percent-down loans weren’t strictly the result of government-sponsored enterprises, or GSEs.

“When I bought my first home it was $22,000 and I had to put 20 percent down, and it was a conventional loan,” says Chris Polychron, president-elect of the National Association of Realtors. “The conventional lenders mimicked what the GSEs did.”

Since the 1950s, 20 percent has remained the average down payment — with the exception of the run-up to the financial crisis in 2008. But how did 20 percent become that dividing line in the first place, back in the 1930s? As with so much of our economic life, it’s anybody’s guess.

“I would speculate if you scored 80 percent, you’re a B-minus student, and I guess that means you’re above average,” says Miller. “So maybe that has something to do with it.”

Comment by Ben Jones
2014-10-26 07:12:43

‘One of the biggest land developers in Western Sydney, Perich Group managing director Tony Perich, says he is concerned about a housing bubble in Australia and says there are too many investors in the market that are pricing out first-home buyers. “It worries me a lot,’’ he told The Australian when asked about his fears of a potential bubble. “People are going to start to get scared of the market. Are there too many investors in the market? There probably is. I worry about investors at times. First-home buyers should always be first in the line and they are not.’’


Comment by Whac-A-Bubble™
2014-10-26 10:42:08

Is OZ turning into a Chinese colony?

Comment by Whac-A-Bubble™
2014-10-26 10:43:35

Chinese investors account for a third of mortgages, franchise says
By Julia Corderoy | 24 Oct 2014

Amid speculation that the Australian property market is cooling, it looks like Chinese investment in the property market is still hot, hot, hot.

According to one of the largest mortgage providers in the country, almost a third of all home loans the company wrote in September were to Chinese investors. An article by Bloomberg News reports Yellow Brick Road chairman, Mark Bouris saying the mortgage provider lent $281 million to Chinese investors out of the total $1.1 billion loans written during that month. The proportion of Chinese borrowers has doubled in the past year, he said.

Alliance Mortgage Solutions, a small Sydney-based brokerage who has only been operating since November 2012, has settled $416 million in 2014 so far. At the AMAs last Friday, the brokerage was the first organisation from the Chinese community to take out the Best New Brokerage of the Year award.

According to Eric Cui, Sales Director at Alliance Mortgage Solutions, 25% of the brokerage’s total loan settlements written this year were for Chinese investors living overseas. A further 70% of loan settlements were from within the Chinese community in Australia – which includes citizens, permanent residents or other relevant visa holders.

Comment by Whac-A-Bubble™
2014-10-26 11:49:41

Lenders facing soaring costs shutting out U.S. buyers
By Alexis Leondis and Clea Benson, Bloomberg News, Bloomberg
October 24, 2014, 11:20 PM

WASHINGTON — Clem Ziroli Jr.’s mortgage firm, which has seen its costs soar to comply with new regulations, used to make about three loans a day. This year Ziroli said he’s lucky if one gets done.

His First Mortgage Corp., which mostly loans to borrowers with lower FICO credit scores and thick, complicated files, must devote triple the time to ensure paperwork conforms to rules created after the housing crash. To ease the burden, Ziroli hired three executives a few months ago to also focus on lending to safe borrowers with simpler applications.

“The biggest thing people are suffering from is the cost to manufacture a loan,” said Ziroli, president of the Ontario, California-based firm and a 22-year industry veteran. “If you have a high credit score, it’s easier. For deserving borrowers with lower scores, the cost for mistakes is prohibitive and is causing lenders to not want to make those loans.”

Federal regulations, enacted after the collapse of the subprime market spurred the financial crisis, are boosting mortgage costs this year. Most lenders are responding by providing home loans only to borrowers with near perfect credit, shutting out creditworthy Americans whose loan files are too expensive to review and complete. If banks commit compliance errors in issuing a loan that goes bad, they have to buy it back at a loss from Fannie Mae or Freddie Mac.

During the housing boom between 2004 and 2007, lenders provided about $2 trillion in subprime loans, many to unqualified borrowers. So-called liar loans didn’t require borrowers to provide pay stubs or tax returns to document earnings. Teaser rates as low as 1 percent offered on mortgages soared when they reset a few years later.

The share of subprime mortgages for which borrowers either provided little documentation of their assets or none at all rose to 38 percent in 2007 from 32 percent in 2003, according to a paper published by the Federal Reserve. Almost one in four of those mortgages defaulted by 2008 compared with one in five of fully documented subprime loans. Wall Street firms securitized pools of the loans called collateralized debt obligations and sold them to investors. They also created so-called synthetic CDOs that were derivative instruments designed to mirror the performance of the loan pools.

“What started the crisis were these loans that were designed to fail, loans that weren’t underwritten at all,” said Julia Gordon, director of housing finance and policy at the Washington-based Center for American Progress, which has ties to the Democratic Party. “No one quite realized that these loans were then at the bottom of this giant pyramid scheme, where the Wall Street derivative products that were based off of them would just come crashing down and take the whole economy with them.”

Federal rules put in place after the 2008 financial crisis attempt to prevent such reckless lending. The Consumer Financial Protection Bureau in January began implementing the qualified mortgage rule, a 52-page document mandating that lenders must take detailed steps to prove that borrowers have the ability to repay their mortgages. The measure also cracks down on risky loan features such as balloon payments and large fees by leaving lenders exposed to legal liability if they issue such loans.

“The industry as a whole did a terrible job of self- policing and they should not be shocked that there’s now more oversight than there was before,” Gordon said.

Comment by clark
2014-10-26 17:17:49

“I bought a house in Naples, Fl when the market dropped in 2008. I bought it sight unseen (well, except for the photo online) and, I still haven’t seen it.”

That was from a guy I overheard who ran estate sales in the Midwest boasting to one of his customers while they raved about how beautiful the area is.

I guess he does have a steady income. But still, six years, and he hasn’t even seen it? Lifestyles of The Rich and Famous, I guess?

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