A World Without Grossly Overvalued Assets
It’s Friday desk clearing time for this blogger. “A claim by Fitch Ratings Service that the Texas housing market is the most ‘overvalued in the country’ and homes are selling for prices which are ‘unsustainable’ is being openly mocked by housing industry experts in the state. ‘I think that’s pretty silly,’ Mark Dotzour, an economist who heads the Real Estate Center at Texas A&M University, told News Radio 1200 WOAI. Fitch also says the falling price of oil exposes the Texas housing market to a bubble. Dotzour says, please….’If our stays under fifty dollars for the next six years, yes, Texas could have a problem.’”
“A 4 bedroom, 2.5 bath, 2400 square foot home in a nice neighborhood in San Antonio for sale today for $180,000. An almost identical home in a similar neighborhood in Los Angeles is on the market for $715,000. ‘And they say it’s Texas that has a real estate bubble?’ one local real estate executive told News Radio 1200 WOAI.”
“Home sales plunged 23 percent across the San Fernando Valley in November from a year ago, and the persistent market slump will likely drag into next spring, said the San Fernando Valley Economic Research Center at California State University, Northridge. Sales declined 30 percent from 1,380 in October. November’s total was the lowest since 947 in February of 2009, the center said, making the month the 14th consecutive of year-over-year sales decline. ‘This year has been one of consistently slow home sales, and we are seeing a further expected slowdown as we move to the end of the year. We expect this slowdown to continue into at least March of 2015,’ said economist William W. Roberts, the center’s director.”
“Residential brokers who help Russians find homes in Miami say the plunging value of the ruble will probably affect their clients in a variety of ways. The exchange rate from rubles to dollars results in properties that are twice as expensive for Russian buyers and current condo owners, said Irina Kim Sang, broker/associate for Coldwell Banker Miami Beach. There will be a number of consequences, Ms. Sang said. ‘Those who have invested $1 million plus [for a condo] have at least $1,000 in monthly fees,’ she said. ‘With the ruble devalued, they’re paying double the amount for maintenance and, should they only be using the property for three to six months of the year, they may want to sell.’”
“House prices in London went into reverse in November, falling below the £500,000 mark on average, and have slumped in some of the wealthier south-west postcodes of the capital, in the latest evidence that 2014’s property boom is cooling rapidly. The collapse in both the oil price and the Russian rouble will hurt the prime central London market, according to forecasters Capital Economics. It said: ‘The collapse in the value of the currency means an average priced home in a prime London borough in roubles is now around twice as expensive as it was at the start of the year.’”
“Although the supply for Phnom Penh’s condominiums currently outstrips demand, their numbers are expected to more than triple from 3,090 today to around 10,000 by 2018, according to real estate firm Century 21’s Condominium Report 2014. Driving this growth are large projects such as the $700 million, 900-unit DI Rivera development on Diamond Island, scheduled for 2017, the report says. Prices grew 6 per cent year on year, with an average price per square metre at $1,900.”
“But despite this expansion, the majority of the capital’s completed condominiums are vacant, as most sales go to foreign speculators and Cambodians remain culturally reluctant to purchase the units. Developers’ claims of selling out 70 per cent of their projects may be too rosy as well. ‘Despite the high rate of reported sales by condominium developers, it is found that the some of the reported figures are bookings with small deposits rather actual sales transactions whose rate remains low,’ the report reads.”
“Secondary market prices of properties in posh South Delhi localities have fallen 25-30 per cent over the last one year as a pileup of inventory and need for money turn many investors into desperate sellers. Compared with peak prices, the discount is as much as 40 per cent, say brokers. Property brokers and consultants say there are several distress deals available in the market today. A south Delhi broker, who did not wish to be named says every builder today has unsold inventory. ‘Many of them are unable to hold on to this inventory anymore as they are strapped for cash.’”
“In a recent deal, an apartment built on a 1,200 square yard plot in Delhi’s posh West End area was sold for Rs 13 crore. The sellers were asking for Rs 17-18 crore a year back. During the peak, it would have sold for around Rs 22 crore. Similarly, a builder sold a floor in Niti Bagh for around Rs 13-14 crore, climbing down from his ask of Rs 18-19 crore about 10 months ago. A 1,200 sq yard plot in Hauz Khas that a family was asking Rs 60 crore for six months back isn’t getting sold for Rs 45 crore today.”
“Housing prices in the Kingdom will go down 30 percent due to falling oil prices distribution of more low-cost homes and the imposition of Zakat on vacant land a real estate expert has predicted. ‘The real estate market is facing an unprecedented recession and many agents have spoken about falling sales’ said Bandar Al-Aboud. He said commercial banks in the Kingdom have played a role in hiking prices by granting huge amounts to citizens in long-term housing loans. ‘This increased liquidity and led to skyrocketing prices.’”
“According to one blogger Khamis Al-Jaary prices of plots in north Jeddah rose from SR20000 to SR200000 per square meter. ‘After the real estate collapse it came down to SR30000. But now prices have gone up again to SR500000. It’s now time for them to fall again’ he said.”
“The current turmoil in global commodity markets, most notably with the collapse in oil prices, is a result of global supply outstripping demand – something we also see graphically in the number one market, China. China is suffering historically unprecedented levels of overcapacity for everything from steel to solar panels and nowhere is this more glaring than in the housing market. House sales nationally fell by 10 percent in 2014 and the country now has around seven years worth of unsold housing inventory, according to real estate expert Ai Jingwei. A Beijing business newspaper has published a ‘ghost town index’ stating there are at least 50 cities in which half or more of the housing is unoccupied.”
“The term ‘new normal’ to underline lower GDP growth has been adopted by the CCP regime and widely promoted in the state media. The regime is trying to pull the wool over people’s eyes by presenting the deepening slowdown as a deliberate and intended policy, as something positive. Deflation arises when financial bubbles burst as occurred in Japan when its property bubble collapsed in the early 1990s, and today in China as a result of overproduction and overconstruction. Worst of all, deflation exacerbates the debt burden for companies and governments by increasing the real cost of loans.”
“Whether China’s economy will suffer a hard landing in the next period (commonly defined as GDP growth below 5 percent) is an open question. Some economists warn that a ‘long landing’ is the most likely scenario, echoing our own predictions that China is now entering a ‘Japanese phase’ of deflation, debt crisis and stagnation, with major implications for the class struggle and political stability in the period ahead.”
“Thirty years ago, a steep slide in crude prices forced Larry Oldham to gut the payroll at his Midland oil company down to just himself and one other who worked as secretary, accountant and oil lease specialist. It seemed to Oldham that everybody owed somebody else a little money. The oil bust of the mid-1980s still swallowed up oil companies, banks, real estate markets, and thousands of jobs in Texas, sending the state’s roaring economy into a slump for years. ‘I wish I could paint a rosy picture, but I’m a realist. This is my fourth downturn,’ said Oldham. ‘Everything’s going to get pretty ugly.’”
“The state’s housing market also sees big dips in home permits when U.S. crude prices fall sharply, and the current oil crush may hit the market as hard as it did in 1986 and in 2009, according to Barclays.”
“In this latest boom, oil companies have found a new source of eager money lenders. The Federal Reserve has kept interest rates low since the financial crisis, prompting investors to seek better returns by pumping more than $200 billion into higher-paying - but risky - low-grade corporate bonds for energy companies. Prices for the U.S. energy sector’s high-yield debt instruments, known as junk bonds because they carry high risk for investors, have dropped nearly 20 percent since June. ‘The whole credit spectrum has been experiencing a significant amount of shock,’ said Shaia Hosseinzadeh, a principal at investment firm WL Ross & Co.”
“The credit strategy team at Deutsche Bank, headed by Jim Reid, pose an interesting question: ‘Are we any nearer to finding a more sustainable financial system? Or have we simply delayed the economic pain and are continuing on the completely wrong path policy wise?’ In a report entitled ‘Plate Spinning,’ they state: ‘The problem for central bankers is that they have inflated certain asset prices to levels where, if they reined in their actions too much, then they would likely see adverse market moves and a loss of confidence in the system.’”
“Central bank ‘easy money’ has inflated stock prices across the world but there has been an absence of any meaningful improvement in the underlying economy. The stark reality facing investors in 2015 is that the depression which was avoided in 2009 by ‘printing’ huge amounts of money is still unresolved and five years of inflated asset prices have left global markets incredibly unstable.”
“The unimaginative and badly handed policy response of money printing has wreaked havoc on asset allocation across the globe. Overinflated asset prices have magnetically attracted capital to all sorts of inappropriate places where it doesn’t belong, while the size of the Federal Reserve’s balance sheet has snowballed. We now have billions invested in oil rigs that could be left rusting in the middle of the ocean if prices remain at their current level. Even more capital is gathering dust in empty houses across China. In both cases, tumbling asset prices could results in trillions in loan losses for the banking sector. Technology companies have also attracted billions of investment yet create very few jobs, no profits and no tangible product.”
“The 2009 depression avoided by printing money remains unresolved. What we do know is that the US monetary base is now shrinking after the third round of QE was brought to the close in October. And the Fed is also expected to hike interest rates at some point next year. Investors might have to readjust to a world without grossly overvalued assets in 2015.”
‘For the fifth straight year, Florida is holding on to its unwanted crown as the mortgage fraud capital of the country. Florida suffers from more than five times the expected rate of fraud based on its volume of new mortgage loans in 2013, according to a fraud index released Monday by LexisNexis Risk Solutions.’
‘Coyle said Florida’s woes may be due partly to its high number of investment properties, which could be prone to fraud. The prolonged foreclosure process in Florida is also hurting recovery, he said.’
‘Unlike some other studies based on complaints or suspicion, LexisNexis examined proven mortgage fraud and misrepresentation based on 2013 data from mortgage industry professionals.’
‘One widening concern is misrepresentation on credit documentation, which jumped from being an issue with 5 percent of loans to 17 percent between 2012 and 2013.
Asked what fixes could help Florida, Coyle cited two nagging concerns to address:
• Buyers who lie about occupancy, saying they’re buying a home as a primary residence to receive a lower interest rate and homestead exemption when they’re actually buying it as an investment.
• Homeowners who collude with friends or family to sell their home to them via a short sale, enabling them to, in essence, keep the property and then refinance it years later.’
‘With the refinancing boom ending, the volume of mortgage loans has shrunk from $1.8 trillion to $1.1 trillion. That could put pressure on loan originators to be more creative or more lax as they scramble for a piece of that shrinking pie. “You’ll start seeing more and more fraud,” Coyle predicted. ‘
‘Nationwide, mortgage fraud has been on the upswing for the past three years despite the slow economic recovery. Seventy-four percent of 2013 loans involved some type of fraud or misrepresentation on the loan application, up from 69 percent in 2012 and 61 percent in 2011, LexisNexis said.’
• Buyers who lie about occupancy, saying they’re buying a home as a primary residence to receive a lower interest rate and homestead exemption when they’re actually buying it as an investment.
How many of hbbers that trumpet their prowess in buying houses have done this?
The notion that buying a depreciating expense at a grossly inflated price and then double the cost by financing is somehow an “investment” is strange all on its own.
It’s funny how most people can’t comprehend that, but then, they also can’t see that mortgage has the same root as mortuary and translates to death contract. Even though it’s staring them right in the face and has been known throughout history to be a bad thing they want the biggest one they can get. We live in interesting times.
I invest in unsecured consumer credit, and Florida is also a big negative signal in that debt, too. Not that it is a bad idea to invest in Florida, but the interest rates must be higher.
“I invest in unsecured consumer credit…”
Certainly not a gig for the mild mannered type.
I invest in unsecured consumer credit,
How do you go about that?
“……Investors might have to readjust to a world without grossly overvalued assets in 2015.”
How I wish for just plain old ordinary stability.
Watch out for what you wish!
PS Activist central banking in a world with multiple financial superpowers creates a good backdrop for ongoing financial turmoil.
for ongoing financial turmoil.
and for ongoing financial looting.
1) print money
2) inflate bubbles
3) ???
4) readjust to a world without grossly overvalued assets
3)CRATER
“I wish for just plain old ordinary stability.”
The problem you may regret with stability, is that it is a long way down.
The problem you may regret with stability, is that it is a long way down.
It feels so good, when you realize that you have reached bottom—and there aren’t any more stairs to fall down.
Except the bottom is a long way down and the bruising on the horizon is more painful than forfeiting.
How I wish for just plain old ordinary stability.
Has there ever been such a thing? How many panics and depressions were there prior to the creation of the Federal Reserve? Even the 50’s had the Cold War to deal with.
‘Houston has one of the most overvalued housing markets in the country, according to a national financial rating agency. Home prices in the Bayou City are 19 percent overvalued — the second-highest in the nation after Austin — according to Fitch Ratings’ fourth quarter Sustainable Home Price report. Fitch measured how far current home prices have deviated from the historical norm, looking at data such as household income, unemployment rates, population growth, mortgage rates and rental prices.’
‘Texas’ current housing boom is “out of character with its price history,” and is unsustainable in the long run, said Fitch director and analyst Stefan Hilts.’
“What we’re most worried about is speculative buying and selling,” Hilts said. “People aren’t buying houses because they need to; it’s because they can. That’s causing a big market distortion.”
‘Illicit money outflow problems make emerging countries suffer’
‘The estimate of US$6.6 trillion of illicit outflows from 2003 to 2012 from emerging countries points to major inefficiencies in these economies. Of that, about US$3 trillion was diverted from the BRICS group – Brazil, Russia, India, China and South Africa, said Reuters, quoting the Washington-based think tank Global Financial Integrity {GFI}.’
‘China, the world’s second biggest economy, lead the way with an estimated US$1.25 trillion of illicit outflows over the decade, said Reuters. Illicit capital includes misinvoicing of trade when exports and imports are booked at different values. This is to avoid taxes or to hide large transfers of money.’
‘Trade misinvoicing accounts for about 78% of illicit capital outflows, according to Reuters. Russia is the second-biggest exporter of illicit money, India is fourth, Brazil seventh and South Africa is 12th, GFI was quoted as saying.’
In sub-Saharan Africa, illicit cash outflows equal about 5.5% of its GDP.’
‘Authorities in China have demoted about 1,000 government officials with relatives abroad who refused to return home, Xinhua said on Monday, in the latest clamp down in a sweeping anti-corruption campaign.’
‘Authorities had identified more than 3,200 officials at county-level or above, with children or spouses who have emigrated abroad, Xinhua citing the Organization Department of the party’s Central Committee.’
‘Xinhua said those officials, known as “naked” officials in China, use their families “as a conduit transferring their ill-gotten assets abroad, and in preparation for their own flight”.
“Personnel departments nationwide have held talks with ‘naked officials’ and asked them to choose between accepting less sensitive posts or bringing their families back to China,” Xinhua said. “Those who refused have been disciplined and personnel departments will monitor ‘naked officials’ on a regular basis in the future.”
Sounds unpleasant. Good luck leaving the country now.
The problem with tsunamis is that while they lift all boats on the way in, they also wash all boats out to sea on the way back out.
‘The number of homes sold in San Luis Obispo County decreased year over year in November, while the median home price continued to increase. In San Luis Obispo County, 75.5 percent of homes sold were resale single-family homes. Sales volume in that category decreased by 9.9 percent to 210 units sold in November, while the median price decreased by 1.7 percent to $449,750.’
‘Jay Geisenheimer, a real estate broker at Rodeo Realty Inc. in Studio City and a director on the board of the Burbank Assn. of Realtors, said that despite the higher median prices, home sellers were still seeing multiple offers.’
‘Geisenheimer said lenders have reintroduced some mortgage products that were more common before the economic downturn that began in 2007, which has led to an increase in potential buyers making offers on properties.’
‘However, she cautioned agents representing buyers to be careful with loan products that require lower down payments. They’re more complicated, she said, and they take longer to process and can make offers less attractive than those with more cash up front. She also said they’re potentially more risky.’
“Years ago, that’s how we got in trouble,” she said, referring to the housing bubble that led to the protracted recession.’
Admit to cratering demand and in the second breath lie and say there are multiple offers.
Realtors can’t even lie effectively.
‘The existing supply of houses for sale in Fresno County is inching up and close to normal. In November, there was 5.7 months of inventory available based on the current pace of home sales compared to 4.9 months in October, according to the California Association of Realtors.’
‘The rest of the central San Joaquin Valley is seeing an uptick too. The supply of homes for sale in Kings County increased to 4.4 last month from 3.6 in October. Madera County inventory grew slightly to 5.1 from 4.9. And in Tulare County there was 5.5 months of supply, up from 4.4 a month before.’
Admit to cratering demand and in the second breath lie and say there are multiple offers.
It was two different articles, not a single article, HA.
HA does not make the distinction between his fiction and reality. He just pulls info out of his head (or perhaps the other end) and makes up a post. HA!
Data Jingle_Fraud data.
price reporting slows way down as markets cool. The price didn’t go up.
From China Daily does not seem like Japanese style deflation, BTW a hard landing is less than 5% growth> we would be so lucky to see that for a year. Excerpt:
Shanghai government sells 10 plots on Wednesday alone for 10.64b yuan
Land sales in Shanghai have ended the year on a high, highlighting a growing appetite by developers for plots in first-tier cities as oversupply risks continue in smaller cities.
One parcel of land in Qiantan, an area the authorities plan to transform into another Pudong New Area, sold for 1.61 billion yuan ($259 million) on Wednesday to a consortium led by Gree Real Estate Co Ltd, which set a record high this year by floor price.
The company plans to use the site for residential development, and the parcel’s average gross floor area price worked out at 65,832 yuan per square meter, a 127 percent rise from its starting price.
But just hours later that price was beaten, after Changsha-based Sanxiang Share Co Ltd bought another nearby plot for 1.86 billion yuan, which translated into a gross floor area price of 66,629 yuan per sq m, a 114 percent premium on the starting price.
During the day the Shanghai government sold 10 plots, raking in 10.64 billion yuan, bringing its annual land sale revenues to 162.1 billion yuan, according to figures provided by China Real Estate Information Corp.
The value is less than the 216.4 billion yuan record set last year, but the average floor area price this year was 9,752 yuan per sq m, an 18 percent increase over the level in 2013.
While the U.S. spends its money on SNAP, China build high speed rail trains: http://www.chinadaily.com.cn/business/2014-12/26/content_19176647.htm
China has a policy of raising the standard of living of its citizens. Obama has a policy of raising the standard of living of Mexican citizens. Viva globalization.
Shoddily constructed death traps between empty cities, used to facilitate the looting of China’s economy, vs food for people that are hungry.
You bend over backwards to piss on the United States, and pat yourself on the back for your patriotism. You are an embarrassment to Americans and conservatives, and you should just go back to screaming at the television with your cohort of soon-to-be-dead crybabies.
“China has a policy of raising the standard of living of its citizens. Obama…”
Glad you brought that lie up. Part of the problem china faces is exactly that it does not have a policy of raising its “citizens”. It has had a policy of massive credit expansion which causes increasing wealth disparity. The insiders get first cut on moneys spent on unproductive projects. The “citizens” sink in debt. Like what we’ve been doing in the US, but on steroids.
We wonder how the current growth statistics might be impacted if the reported overinvoicing of exports to spirit money out of China were subtracted from the GDP.
We wonder how the current growth statistics might be impacted if the reported overinvoicing of exports to spirit money out of China were subtracted from the GDP.
How does this overinvoicing “spirit money out of China”? If those invoices end up being paid (e.g. for a higher value than the value of the goods that are exported), that sounds like it would result in a net flow of funds _into_ China.
What am I missing?
I guess you are right Prime. I didn’t think it through.
I figured I was missing something… Now _under_invoicing could certainly work as a strategy for moving funds out—e.g. get paid for a portion of the goods “under the table” in the foreign currency, with the money already being out of the country.
Australian mining company invoices for 2 tons of ore, but delivers 1 ton. Invoice paid, money sent to Australian subsidiary owned by Chinese expat. Boom: China and money now separated.
Got it, thanks. I was thinking it was the Chinese company doing the invoicing! If the sub is in a different country, then over-invoicing makes perfect sense.
China Daily always has good news for China. Just like Russia Today does with Russia.
Funny, that.
“……average floor area price this year was 9,752 yuan per sq m, ……”
That works out to $15/SF, but I am not sure about the measurement. I think “floor area price” is a calculation dependant on the final density at build out. So if the land is 100 SF and you can go up 10 stories, building a 100 SF/floor, the floor area price of $15/SF means a land sale price of $150/SF. That is $6,000,000 for an acre. Seems bubblicious!
’If our stays under fifty dollars for the next six years, yes, Texas could have a problem.’
Gotta love the strawman BS. Even though oil is off by over forty percent, it has yet to drop below $50. Is this dude insinuating that a forty percent plus crash in oil prices is no big deal to the Oil Patch economy?
On a even more positive note, natgas is down 30%+….. and falling.
Falling crude and refined product prices and falling housing prices is a positive sign for the economy.
Food production costs will also fall a corresponding amount. Good for everyone but the debt peddlers.
Food production costs will also fall a corresponding amount.
No such good news for the owners of farmland bought at bubble prices, justified by bubbly food prices…
Tillable dirt used for crop production doesn’t change hands frequently.
Sounds like you missed the all the news reports of hedge funds buying into farmland a couple of years back…
It was overstated.
What data do you base that statement on?
HA statements are baseless. You know that now!
There is a bubble in CA for almond and pistachio land and orchards. Prices are currently at $25k/acre. Crop demand exceeds supply (thank you Iran embargo). Crops are yielding $10,000/acre today. Tomorrow, you won’t be able to give your nuts away as production doubles.
HA bases his statements on which way the wind is blowing. You know that already.
From construction to ag to financials. Wild claims and zero substance Jingle_Fraud.
‘South Florida’s re-energized housing market took another step back in November. The Broward County median price for existing single-family homes sold last month was $267,000, down 1 percent from November 2013, the Greater Fort Lauderdale Realtors said Monday. It was the second time in three months that Broward failed to see a median price increase.’
‘Meanwhile, normally robust sales also dropped, falling 6 percent to 1,008 from 1,073. Not since December 2010 have both the median price and sales declined in Broward.’
‘In Palm Beach County, the November median price was $265,012, off less than 1 percent from a year ago, according to the Realtors Association of the Palm Beaches. It was the third time in the past four months that the median dipped when compared with the same period the year before.’
‘In recent months, what had been a seller’s market from late 2012 to early 2014 has balanced out, with fewer bidding wars giving buyers more say-so in negotiations. “I see the sellers still standing firm, but prices and appraisals aren’t justifying it,” said Jon Klein, an agent for Real Living 1st Choice Realty in Broward and Palm Beach counties.’
‘One of Klein’s clients, Adam Dalva, bought his five-bedroom Parkland home for $680,000 in 2007 and listed it for $725,000. But with the market not as hot as before, Dalva figured it was better to reduce his asking price so he could sell it in time to close on another home in the area.’
‘He accepted a contract for $675,000 and expects to complete the deal in early February. “I think I could have gotten my price if I had held on for another 60 to 90 days, but I wasn’t going to hem and haw. It wasn’t worth the aggravation,” Dalva said.’
‘After a solid showing in October, Brevard County’s housing market faltered in November. This marks a notable departure from a yearlong trend of significant growth in the local housing sector, though it is unclear whether the monthly numbers are signs of a looming decline, or simply a statistical anomaly.’
‘The number of single family homes sold in Brevard dipped by 23 percent between October and November this year, dropping from 851 to 655, according to the latest figures from Florida Realtors. During that same time frame, there was a steep decline in the median sales price of Brevard’s single-family homes. The median sales price of single-family homes in November 2014 was $133,500 - which is $9,500 lower than it was in October 2014.’
“It’s probably too early to be cause for concern,” said Sean Snaith, the director of the University of Central Florida’s Institute for Economic Competitiveness. “There’s always some monthly volatility. Seasonal fluctuations are not necessarily indicative of a trend. Monthly data can be noisy. That being said, the housing market is likely to face some headwinds, because the role of investors in that sector has slowly dwindled in 2014.”
‘Snaith said that if Brevard’s institutional investors exit the local housing market, they will need to be replaced by traditional home buyers in order for the market to maintain its equilibrium, but that this will be a challenge due to the lack of available credit for middle class families and due to the struggles those families typically face when they attempt to obtain a mortgage.’
‘He argued that federal lending regulations overcorrected for the recent, national housing crisis, and that the regulations are so stringent that they are stalling the nation’s economic growth. “All of this works to inhibit the availability of credit,” Snaith said. “One of the solutions is to roll back these regulations.”
When “economic growth” is a measure of debt growth and not real prosperity, it’s not a good thing Snaith. Got any solutions for that?
Last time it was first the MOM declines, which translated into YOY declines. In central FL, it’ still creeping upward or holding steady, which considering inflation is a real decline.
Lots of houses on the market in my area. One house I looked at in summer ‘13 is still on the market. Obviously owned by an investor, it’s at least 200k overpriced relative to the market.
Won’t be surprised if we see 5-10% declines in YOY pricing soon. Not necessarily a good thing for many people, but if we can get a rational housing market I’ll tolerate it. My concern is the number of recent specuvestors who will dump properties and begin the whole problem again.
My concern is the number of recent specuvestors who will dump properties and begin the whole problem again.
“begin the whole problem again”—it sounds like you are confused regarding what the actual problem is in the housing market.
Prices falling to reflect organic demand is not the problem; prices being manipulated by Fed QE pumping, resulting in mal-investment of capital based on the confused pricing signals from the phantom demand cause by hedge funds looking for some asset with a flicker of ROI, THAT IS THE PROBLEM.
In other words, specuvestors dumping properties is the _solution_, not the problem.
Agreed. No confusion here, but A LOT of these specuvestors shouldn’t be in the housing market. They’ve distorted reality.
“The current turmoil in global commodity markets, most notably with the collapse in oil prices, is a result of global supply outstripping demand – something we also see graphically in the number one market, China. China is suffering historically unprecedented levels of overcapacity for everything from steel to solar panels and nowhere is this more glaring than in the housing market. House sales nationally fell by 10 percent in 2014 and the country now has around seven years worth of unsold housing inventory, according to real estate expert Ai Jingwei. A Beijing business newspaper has published a ‘ghost town index’ stating there are at least 50 cities in which half or more of the housing is unoccupied.”
AlbqDan somehow manages to persistently ignore the collapse of the demand side of equilibrium in his oil price analysis. Any undergraduate economics text will show that prices are not determined by costs (i.e. supply) alone; rather it is at the intersection of supply and demand where price is determined. Whendemand collapses and supply is temporarily high due to an international glut, the price can drop pretty severely before equilibrium is restored.
There is no collapse in demand in oil, the world used more oil in 2014 than it did in 2013, and will use more oil in 2015 than it did in 2014, show me any numbers to the contrary.
From the article above:
‘China’s construction sector consumes around half the world’s steel and cement and employs 37 million people – which is 23 percent more than the entire working population of Britain. The past decade’s building boom has therefore also been a huge driver of global energy prices, with China accounting for more than half the world’s construction activity, and construction consuming almost one-third of global energy usage.’
‘The slump in commodity markets has led many economic commentators to again question if China’s official GDP figures reflect the real picture. As Bloomberg columnist William Pesek commented, “For anyone who thinks China is operating even close to that number [i.e. 7.5 percent growth], I have two words: iron ore. Even more than the plunge in oil, the halving of prices for these pivotal rocks and minerals – as well as a 44 per cent dive in oil and tumble in coal and other commodities – suggests China may be braking rapidly.”
‘Like poorer commodity exporters Australia has ridden on the China construction boom, with huge gains for its mining companies, but at the cost of a further decline in its domestic manufacturing base. Today, however, a quarter of Australia’s thermal coalmines are unprofitable, according to Glencore.’
‘Chinese steel capacity has expanded furiously, driven by frenzied and increasingly speculative investment in property and infrastructure construction. This expansion has continued despite already absurd levels of overcapacity, which the Chinese regime has now pledged to rein in, although achieving this is no straightforward matter. Similar overinvestment has occurred in cement, glass, coal mining, aluminium, shipbuilding and a plethora of other industries, backed by an unprecedented credit explosion – an additional US$19 trillion since the onset of the global capitalist crisis in 2008.’
‘A report in November by two government economists estimates that up to half of all investment over the past five years, 42 trillion yuan worth, has been wasted (Xu Ce of the National Development and Reform Commission, and Wang Yuan of the Academy of Macro Economic Research). The problem has worsened, they say, over the past two years i.e. since Xi came to power.’
‘China’s steel output is now seven times greater than that of Japan, the world’s number two steel producer. Idle capacity alone is more than twice the size of the US steel industry. Overproduction has led to a price war with steel prices in some regions of China falling as low as the price of cabbage. In 2012, China had the capacity to produce 2.9 billion tons of cement, but actual demand was only for 2.1 billion tons. Three quarters of China’s 200 biggest airports are losing money, but there are plans to build 100 more.’
‘Beijing’s difficulties are magnified by the growth of the shadow banking sector – now the world’s third largest – which serves as an unofficial channel for the state-owned banks to circumvent government regulation in order to maintain the flow of credit to distressed corporate borrowers.’
‘The situation in the coal industry is even worse. 70 percent of China’s coalmines are running at a loss through a combination of falling global coal prices (down 25 percent in 2014), excess capacity, and the government’s anti-pollution measures. More than half of coalmines are struggling to pay their employees’ wages, according to the chairman of the China Coal Industry Association, Wang Xianzheng. Consequently, major coal producing regions such as Shanxi province are on the frontline as concerns rise over financial stress, with reports of imminent shadow banking defaults.’
‘Debt service charges have reached 17 percent of China’s GDP, according to the Financial Times, an increase from 7.5 percent of GDP in 2011. The central bank’s move to cut interest rates, probably to be followed by increases in the capital base of the banks (by cutting the required reserve ratio), is mainly intended to ease the debt servicing costs of China’s companies and local governments as a wave of defaults looms. This is already happening, but has been disguised by shuffling bad debts from one entity to another within the banking system.’
New demand:
http://news.yahoo.com/china-starts-building-huge-beijing-airport-000856325.html
Falling demand:
“A Beijing business newspaper has published a ‘ghost town index’ stating there are at least 50 cities in which half or more of the housing is unoccupied.”
Collapsing demand, overflowing tank farms and excess productive capacity leads to the current oil price which has cratered 45% in just 6 months. Sounds like housing and every other commodity out there.
Remember…… Falling prices of all items to dramatically lower and more affordable levels is positively bullish and good for the economy.
Whac keep following the MSM’s attempts to convince people that Obama has some chance of winning against Putin. However, the IEA’s numbers show that oil demand will have grown to 94.4 million barrels a day by 4th quarter 2015. There is no way that demand will be met without oil being in the $90 to $100 range.
https://www.iea.org/oilmarketreport/omrpublic/currentreport/#Demand
….. yet prices are 45% lower than they were 6 months ago.
Champion lower prices ABQ dan.
When an economic war is being waged which is hurting the long term capacity to meet demand, in the aggregate it is not a good thing. That is what you are missing, these artificially low prices now will just cause higher prices in the near future. If the smaller oil companies lose their ability to produce by laying off their drilling crews, it will be hard to restart production despite the oil remaining in the ground. It would have been better to have a protracted period around $75 a barrel than to have a short time in fifties only to jump right back to $100 a barrel which is what we are facing now.
Excess capacity, falling demand and overflowing inventory leads to falling prices.
And falling prices are positively bullish and good for the economy.
The US keeps spiking the dollar to hurt oil but in the end that will just slow the US economy. I do agree that the NG glut is real, supply is way up and the US economy is weaker than people are believing and the strong dollar is making it worse. Since the NG market is largely isolated NG prices should be fairly soft despite colder weather moving in which might offer some support.
Yes the dollar is increasingly valuable with each passing day. This is why you want to hold onto every dollar you’ve got.
“Overinflated asset prices have magnetically attracted capital to all sorts of inappropriate places where it doesn’t belong, while the size of the Federal Reserve’s balance sheet has snowballed. We now have billions invested in oil rigs that could be left rusting in the middle of the ocean if prices remain at their current level.”
Looks like Albuquerqueboy could possibly learn something here. Speculative bubbles should not be confused with real demand.
The US keeps spiking the dollar to hurt oil
Dan, how can you say that with a straight face?
The US was undercutting the value of the dollar with each wave of QE. Now that they finally stop some of the outright manipulation, you call that “spiking”?!?
dan is living in an alternate plane. He cannot digest any of the realities that have been posted here for months and months, now well summarized in the article. It will not scratch dan.
Looking at the chart of supply (OPEC & non OPEC) it seems that an average of 2m bpd increase by OPEC over 3~4 months has dropped the price of a barrel of oil by over 40%. Surely there was something else going on - like speculation. The big guys probably got out in a hurry.
Speculation is the number one reason prices were so high for so long. Either ABdan is so stupid he’s mistaken speculation for fundamentals, or his financial interests are so financially aligned with high crude prices that he can’t see beyond his own portfolio.
Or he is getting paid by the number of positive posts he makes.
“Or he is getting paid…”
That is a possibility, but not as probable as other, more simple possibilities.
You may as well present your perfectly rational argument to a fawkin stone as to try and convince AlbqDan.
Why attempt to convince when the data does it for you?
but not as probable as other, more simple possibilities.
Occam’s Razor, baby!
‘Houston has fewer homes underwater, but foreclosure filings are rising, according to two recent reports. The Bayou City has 68,222 homes underwater, meaning these homeowners owe more on their mortgage than their home is worth. About 7.4 percent of all Houston homeowners with a mortgage are underwater.’
‘While there are fewer underwater homes in Houston, the city’s foreclosure activity is rising, according to another national real estate brokerage firm.’
‘Foreclosure filings are up 70 percent between years-end 2013 and 2014, according to RealtyTrac’s December foreclosure market report. In fact, Houston had the second-highest number of foreclosing filings among the 20 largest cities nationally, second only to New York City.’
Lincoln(Sacramento), CA Price Gains Evaporate; Down 6% MoM, 9% QoQ and 2% YoY
http://www.zillow.com/folsom-ca-95630/home-values/
Folsom and certainly Lincoln are working-class bedroom communities well beyond the reach of ghetto Sacramento. Unfortunately prices there have been driven back up to insane levels, and the commute to real jobs down in the valley can be brutal depending on the time of day with six lanes, each direction, bumper to bumper. Several friends that were priced-out of the San Jose area bought into the sierra foothills scene. Yes, it is very pretty up there just above the valley’s winter fog layer, but the economic fundamentals don’t add up on my napkin.
‘For generations of U.S. homeowners, the tax deduction on mortgage interest has been a sacrosanct loophole that no one in Congress dare touch. But the collapse in interest rates is producing a bizarre and, so far, underappreciated result. It is making that loophole less and less valuable.’
‘Indeed, for growing numbers of homeowners the loophole is now almost completely worthless. The mortgage-interest deduction is no longer a middle-class tax break. It is becoming an increasingly regressive break that is aimed mostly at the upper classes.’
‘I’m not a political fan of this deduction. It makes no sense. It’s regressive and drives up home prices. The only justification, which is slim, is that it’s one of the few tax loopholes that have benefited middle-class people and not just the connected or the very wealthy.’
‘I am offering no view on whether current interest rates are going to rise or fall, nor on the returns from other assets. Carrying a mortgage makes sense if you believe home prices are going to continue to rise rapidly and you want to increase your exposure as much as possible. They also make sense if you believe you’re going to earn higher returns from stocks or other investments.’
‘But for millions of people, the tax benefits are now virtually nil.’
“It is making that loophole less and less valuable.’”
And for fewer and fewer suckers considering less than 15% of all loan owners accrue enough expenses to exceed the standard deduction.
The mortgage interest tax deduction is a realtor marketing technique designed to skew the rent v. buy calculation. And as we already know, rental rates are half the cost of buying in most cases.
A minor tax deduction is no consolation at all for leveraged financial loss.
And for fewer and fewer suckers considering less than 15% of all loan owners accrue enough expenses to exceed the standard deduction.
And most of them have no idea that they are not benefiting from the deduction. Cause people are smart.
Out of curiosity, where does the “15%” figure come from?
where does the “15%” figure come from ??
From the same place everything else that he posts…Out of his southern orifice…
Refute the data. Refute it.
Encinitas, CA Sale Prices Plummet 10% YoY
http://www.zillow.com/encinitas-ca/home-values/
“Encinitas, CA…”
But it sure is pretty there.
A reference to the data that you quoted, please? I did not ask about Encinitas. I asked about the 15% figure you quoted here: “less than 15% of all loan owners accrue enough expenses to exceed the standard deduction”
You don’t like any of the data.
I love data.
Why do you refuse to share a pointer to it?
Good. Then we’ll start with data showing falling prices.
why do you refuse to look at it?
I do look at the data. And as I’ve told you before, I trust the Case-Shiller, which showed prices falling in the national, 20-city, and 10-city indexes starting in Nov. I am glad that it has finally turned south.
I trust Case-Shiller more than the Zillow links that you send. My reason for trusting it more is that it is less affected by mix-shift (due to being based on price-pairs), and it is less affected by month-to-month noise (due to being based on a rolling 3-mo average).
Then address the data.
http://www.zillow.com/encinitas-ca/home-values/
Granite Bay, CA Sale Prices Plunge 11% YoY; Sellers Slash Prices As Housing Demand Plummets To 20 Year Lows
http://www.zillow.com/granite-bay-ca-95746/home-values/
Everyone has a riding lawnmower in Granite Bay.
‘Over the past 30 years, wealth has grown exponentially and has become increasingly concentrated foremost in the upper .01%, then the .1%, followed by the 1% and the upper 10% – 20%.’
‘The large scale, long-term concentration of wealth has continued through booms and busts of the real economy, the financial and IT crises. Wealth grew despite long-term economic recessions and stagnation, because the so-called recovery programs imposed austerity on 80% of the households while transferring public revenues to the rich.’
‘The so-called ‘crises of capitalism’ has neither reversed nor prevented the emergence of an international class of billionaires who acquire, merge and invest in each other’s activities. The growth of wealth has been accompanied by the pillage of accumulated profits from productive sectors which are stored as wealth not investment capital.’
‘The dispossession of capital and its conversion to private wealth subsequently led to the rapid expansion of the financial and real estate sector. Capital accumulation of profits has been the source of private accumulation of wealth at the expense of wages, salaries, public welfare, and state revenues.’
‘The growth of private wealth at the expense of productive investments is a world-wide phenomenon which has been facilitated by an international network of banks, political leaders and ‘regulators’ centered in the United States and England.’
‘The single most important aspect of private wealth accumulation on a world-scale is criminal behavior by the elites in multiple locations and involves the violation of multiple laws and regulations.’
‘The bulk of the profits are transferred into financial networks which in turn illicitly channel the funds into overseas accounts.’
‘The movements of profits ‘overseas’ takes multiple forms (transfer pricing, phony invoices, etc.) and they are primarily converted to private wealth. These ‘international movements’ of profits are largely composed of mega-thievery or plunder by political and business leaders from ‘developing countries’. According to the Financial Times (17/11/14, p2). “Up to $1 trillion (dollars) is being taken out of developing countries every year through a web of corrupt activities involving anonymous shell companies that typically hide the identity of their true owners”.’
‘The $1 trillion of stolen profits and revenues from the ‘developing countries’ (Africa, Asia, South America) are part of a “corruption chain” which is organized, managed and facilitated by the major financial institutions in the US and UK. According to a World Bank report in 2011 “70 percent of the biggest corruption cases between 1980 and 2010 involved anonymous shell companies. The US and UK were among the jurisdictions most frequently used to incorporate legal entities that held proceeds of corruption” (Financial Times, 17/11/14, p2.).’
Behind every great fortune is a great crime
And behind every new home-debtor is a mountain of unpaid debt.
“‘Over the past 30 years, wealth has grown exponentially and has become increasingly concentrated foremost in the upper .01%, then the .1%, followed by the 1% and the upper 10% – 20%.’”
You mean it’s trickling down?
Montebello, CA Sale Prices Crater 7% YoY As Prices Fall Across State
http://www.zillow.com/montebello-ca-90640/home-values/
Miami, FL Sale Prices Plummet 8% YoY; Dive 14% QoQ and 8% MoM
http://www.zillow.com/miami-fl-33134/home-values/
Housing Bubble: Flippers. Record home prices. Stock markets at record highs. Record low-interest rates.
Read more at http://investmentwatchblog.com/housing-bubble-flippers-record-home-prices-stock-markets-at-record-highs-record-low-interest-rates/#4ff67SOxOVDDMsJU.99
Potomac, MD Sale Prices Crater 6% YoY As Housing Price Declines Resume
http://www.zillow.com/potomac-md/home-values/
S&P “profits” driven largely by accounting fudges in our crony capitalist wonderland.
http://www.zerohedge.com/news/2014-12-26/blackrock-stunner-sp-500-profits-are-86-higher-they-would-be-without-accounting-fudg
We have previously observed that while pundits are happy to focus on non-GAAP earnings which over the past several years have become a total farce, the reality is that GAAP EPS for the S&P in 2014 will be 1.3% lower than a year ago, and that as a result of crashing energy company profits, 2015 GAAP EPS will be lower still, meaning that contrary to the propaganda, the US will see two consecutive years of declining wage growth. That said, not even we expected to read the following shocker revealing just how naked the corporate profitability emperor truly is, and coming from the world’s largest asset manager on top of everything.
Memories of Pol Pot and the Khmer Rouge no doubt linger in the air.
Denver, CO Sale Prices Sink 5% YoY
http://www.zillow.com/denver-co-80224/home-values/
‘When Olga Savelyeva took out a $226,000 mortgage to buy a small apartment on the outskirts of Moscow in 2008, she could never have imagined that the ruble would lose more than half its value in a few short years.’
‘But Savelyeva’s $2,090 monthly instalments have skyrocketed in ruble terms due to the Russian currency’s dive against the dollar. The resulting jump in monthly payments from 49,000 to 115,000 rubles now devours most of her family’s income.’
‘The 30-year-old mother of a young daughter and her husband have tried to honour their repayment commitments but despite their best efforts, December’s instalment was $400 short. “We’re left with 3,000 rubles ($56) this month,” Savelyeva told AFP. “We won’t be able to make the January payment in full… “We also have other obligations,” she added, referring to her retired mother and cancer-stricken father.’
‘Savelyeva is one of tens of thousands of Russians who took on lower-interest foreign currency-denominated mortgages in the years before the financial crisis and now struggle with repayments as the ruble’s value shrinks.’
http://finance.yahoo.com/news/dollar-mortgage-holders-urge-russia-end-financial-slavery-151942771.html
But Savelyeva’s $2,090 monthly instalments have skyrocketed in ruble terms due to the Russian currency’s dive against the dollar. The resulting jump in monthly payments from 49,000 to 115,000 rubles now devours most of her family’s income.’
OMG, they were taking out dollar-denominated mortgages when their incomes are denominated in rubles?!??!?
Un-freaking-believable!! That is a financial disaster waiting to happen!!
OMG, they were taking out dollar-denominated mortgages when their incomes are denominated in rubles?!??!?
I saw this in Mexico too. The dollar denominated mortgages had much lower interest rates. It worked great … until it didn’t.
This seems like such an obvious IQ test.
We just don’t understand the masterful chess game they’re playing.
This seems like such an obvious IQ test.
At the time the peso was pegged at (not floating freely) at 12.50 to a USD and it had been that way for decades. What was different was that double digit inflation was rearing its ugly head. Some chose to ignore that omen, even though it was becoming obvious that the peso had become severely overvalued. It was so overvalued that I knew upper middle class families who would fly to San Antonio or Houston to go on shopping sprees because clothes and other items were so much cheaper than in Mexico City. They would fly out with nearly empty suitcases. It got so bad that customs began to crack down on the practice and force people to pay tariffs on their purchases.
China: Hard landing in 2015?
The Chinese regime is not only navigating the slowest GDP growth for a quarter century, but simultaneously trying to speed up neo-liberal restructuring in order to spur private investment and domestic consumption. This is part of its strategy to wean the economy off its addiction to debt, now running at over 250 percent of GDP, an exceptionally high level for a developing economy.
The term “new normal” to underline lower GDP growth has been adopted by the CCP regime and widely promoted in the state media. Xi Jinping claims to have developed the “new normal” as a theory – while in fact this term has been plagiarised from Western media descriptions of the post-2008 global crisis. “The ‘new normal’ theory elaborated by Chinese President Xi Jinping would be one of the hallmarks to be engraved in history,” trumpeted the Global Times.
The regime is trying to pull the wool over people’s eyes by presenting the deepening slowdown as a deliberate and intended policy, as something positive. While it is true that the neo-liberal reformers advocate slower “quality” growth (by which they mean less state control and a reduction of debt-funded investment), there are myriad factors at work in the economy today that Beijing does not control and which could set-off economic shockwaves in the coming period.
http://chinaworker.info/en/2014/12/21/8759/
My home dock is in a “club”. One of our more prosperous appearing members of the past several years bought a fine yacht and also a high priced RV about 5 years ago when they arrived (snow birds). The boat and the RV got liquidated this past year and they are going to stay full time in their trailer in Florida. I’ll miss them a bit, they were friendly neighbors, though haughty. The gal said to me before they went south for the last time “We don’t know how we’re going to make it.”
Maybe for them it is one of those “hard landings”. You think someone is actually wealthy and then find out they did it all on credit and now can’t service the debt.
The gal said to me before they went south for the last time “We don’t know how we’re going to make it.”
LOL. Talk about false prosperity!
“The 2009 depression avoided by printing money remains unresolved. ”
Gibberish. Unresolved for whom? Banks robbed the citizenry with no regret or remorse. The smart citizenry by and large had no recourse.
The country now is filled with ignorant people who think nothing bad will happen on their “watch.” Hey, Depressions are always “dancing in the street.”
A police state within thirty years is potentially in our future to maintain the status quo which is unmaintainable.
P.S.
South Florida is another country.
North Florida is 1960’s medicare/medicaid.
Central Florida is filled with new arrivals and South Florida escapees. How’s that for a stereotype that’s unfortunately accurate?
My son graduated from a graduate school department that had twelve graduate students:
Ten Chinese,
One student from the Middle East and
himself.
(None were physical education majors.)
Now…..if the Chinese do a quiet recall….
But then there is the paradox:
Why are we using OUR facilities to educate people from other countries who will return home and the Chinese are asking why are we allowing our people to be educated abroad who do NOT wish to return home.
Not all of them return home (right away!) as many instead take jobs at U.S. universities (for the time being! ).
Not all of them return home (right away!) ??
More like (ever)…They become assimilated here…Meet a guy or gal…The thought of leaving the united states never crosses their mind…Particularly, to go back to China…
‘China’s trade will grow 3.5 percent in 2014, implying the country will fall short of a current 7.5 percent official growth target, according to a report on the Ministry of Commerce’s website that was subsequently revised to remove the numbers.’
‘The initial version of the report published on the website on Saturday, which quoted Minister of Commerce Gao Hucheng, was replaced with a new version that had identical wording but with all the numbers and percentages removed.’
The Commerce Ministry did not answer calls requesting comment on the reason for the change.’
http://finance.yahoo.com/news/chinas-trade-growth-seen-falling-123110076.html
Hmmm….. From a 14% GDP to 7.5%…. Now 7.5% to 3.5%.
Is the size of the moon crater inverse to the plummeting GDP? Can it be seen from satellite photography yet?
Can it be seen from satellite photography yet?
I think it can be seen with binoculars at this point—and soon to be visible to the naked eye.
There’s an epidemic of Crater Rage.
Whatever sovereign growth metric is being “pitched” now is not sustainABLE.
It takes five miles for a tanker to stop at sea.
Drip, drip, drip….
“In this latest boom, oil companies have found a new source of eager money lenders. The Federal Reserve has kept interest rates low since the financial crisis, prompting investors to seek better returns by pumping more than $200 billion into higher-paying - but risky - low-grade corporate bonds for energy companies. Prices for the U.S. energy sector’s high-yield debt instruments, known as junk bonds because they carry high risk for investors, have dropped nearly 20 percent since June. ‘The whole credit spectrum has been experiencing a significant amount of shock,’ said Shaia Hosseinzadeh, a principal at investment firm WL Ross & Co.”
Does anyone else find it odd that oil is down by over 40% yet energy junk bonds are only off by 20 percent?
Makes me wonder who or what financial entity is propping them up…