Housing Bubble Predictions: 2015
What are your new year housing bubble predictions? Six months ago, “Okay midyear prediction. I was wrong last December. But I keep trying. Anyway: Stocks will do well through early November. The S&P 500 will finish 2014 positive. Could be in the double digit percentage gain at least by election day in November. If the percentage gain is above 20% by then, watch for a correction taking the S&P down, but overall finishing in the single digit percentage gain on the closing bell the last trading day of the year compared to opening bell on the first trading day of 2014.”
One said, “The Fed has no choice but to monetize this Wurlitzer in order to prevent asset price drops, pumping nominal house prices up to generate increased property tax revenues, thereby bailing out municipalities, and upping prices of things in general, to increase sales tax revenue. In the process, amnesty that the Home Builders and Realtors are lobbying for, will be granted. This adds 15-35 million new household formers to the picture. Once legitimacy is established for these millions, Fanny, Freddy, FHA, etc will solicit these new customers to join the ‘Murikan dream, absorbing 14 million vacancies, plus what ever in addition need to be built to accommodate these new ‘citizens.’”
“Lagging incomes will begin rising as this tsunami of new money, and velocity of same, exponentially increases. The Fed will see to it the money gates remain wide open until inflation is running double digit, and interest rates are up to around 100 basis points behind it. Rising asset prices this time around are most likely in response to the devaluation of the Buck, now getting underway. If the Fed sees another negative GDP print coming, best spend some of that depreciating cash on a crash helmet, ’cause the Three Wire bales of C-Notes will be falling from the heavens. It’s all the Keynesian fools know.”
“No, house prices aren’t going back to 1963’s $5 k, the Dow isn’t going back to 750 and a cup of Joe 5 cents. I don’t expect gas at 27 cents, either. Three steps forward, one step back is the norm. This time around it took two steps back. The next Great Leap Forward is going to catch a lot of folks off guard, but it just isn’t different this time, it’s just a bit more extreme. I am shopping Northern California*, Oregon Coastal positive ROI property again. Better to be early in these inevitable trend swings than late. And this Deflation meme is getting very long in the tooth, as the price of everything from rent to food to fuel has risen, and I need those things.”
One year ago, “I was the one that disagreed with oil dropping to $80 but I thought gold would hold up. The level of manipulation surprised even me. However, I predict for very similar reasons that I said last year, that both oil and gold will be up. Oil very slightly from here but gold to about 1450. Assad has a 50/50 chance of leaving office this year. If it happens it will probably be a negotiated settlement. Iraq has become even more unstable this year as predicted but it has not impacted oil production sufficiently to move the needle but I think that may occur this year.”
One had this, “U.S. home prices will rise at a slower rate than they did in 2013. Long-term U.S. bonds will continue to tank as the QE3 taper takes effect. Financial collapse bagholder identification process will continue in 2014.”
It is always fun to review the year and the predictions. Oil prices dropping 50% came out of the blue. Thanks Ben!
Is oil somehow special, or is it possible other assets (housing, stocks, etc) could follow a similar price path in the aftermath of many years of intervention?
Isn’t oil special in that the price is set by an open cartel?
Not sure how OPEC compares to central banks when it comes to price fixing efficacy.
OPEC can obviously do it very quickly. We’ll see how temporary it will be, but I’m not sure OPEC’s game is to repeal gravity like the central banks.
It’ll be interesting to see how OPEC’s pricing power holds up against the lifting of the US export ban. It almost looks as though someone had their bluff called.
US eases oil export ban in shot at Opec as crude price slumps
American move to allow more oil exports will escalate price war with Opec and potentially force crude oil even lower in 2015
A gas flare burns at a fracking site
US escalates battle with Opec for control of world oil markets
Photo: REUTERS
By Andrew Critchlow, Commodities editor
10:29AM GMT 31 Dec 2014
President Barack Obama has fired a shot at the Organisation of Petroleum Exporting Countries (Opec) in the war to control global oil markets by quietly sanctioning the easing of America’s 40-year ban on exporting crude.
The US government has reportedly told oil companies they can begin to export shipments of condensate - a high-grade crude produced as a by-product of gas - without going through the formal approval process. The move could signal that a full opening of the export ban, which has existed since the oil shock of the 1970s, is imminent.
Brent crude fell sharply on the news, first reported by Reuters. The global benchmark opened down almost 2pc in London at $56.85 per barrel as it closes in on its biggest annual drop since the financial crisis in 2008. Brent has lost 50pc of its value since reaching its year-long high in June.
The ending of America’s self-imposed embargo on oil exports would mark a serious escalation in the unfolding oil price war with Opec led by Saudi Arabia. The kingdom has made it clear that it is willing to watch the price of oil fall lower in order to protect its share of the global market. Opec share has fallen to about a third of world supply, down from about half 20 years ago as the flood in shale oil drilling in the US and new supplies from Russia and South America have created a global glut.
Meanwhile, the sharp fall in the value of oil is placing economies in major producing nations such as Venezuela and Russia under extreme strain.
…
It doesn’t change anything fundamental. Oil cannot be produced at these prices in sufficient quantity to meet demand. Spiking the dollar may keep oil and gold prices down for a while, the first six months of 2014 both rose until the manipulation began, however, it is going to have a major impact on multinational profits and it is very difficult to see how they can continue to spike the dollar without causing a recession in this country. What Obama is doing is just a little more sophisticated than Mugabe but in the end it is just trying to set prices by fiat. It did not work in the old Soviet Union or in Zimbabwe and it will not work now. We lost 35 rigs just last week, oil production instead of going up one million barrels per day in the US in 2015 may drop. In the end the physical market will prevail over the paper (futures market) despite the manipulation.
Prediction: $70 plus oil by the end of 2015 and gold over $1300.
Domestic oil production down for the second week in a roll. Hard to see how we are going to increase production by one million barrels a day in 2015. Obama may be from Chicago but he has brought a knife to a gun fight. Both Russia and Saudi Arabia can profitably produce at these levels, we cannot.
http://www.eia.gov/petroleum/supply/weekly/pdf/table1.pdf
“It doesn’t change anything fundamental.”
Collapsing demand is indeed fundamental, and no amount of jawboning can change that.
One more thing for the non-economists who post here:
Eliminating the U.S. export ban increases U.S. export supply and puts more downward pressure on the world market price.
If that fails to meet your own pet definition of fundamental, I’m interested in the explanation.
CRICKETS
These price pimps and donkeys are $hitting all over themselves and backpedalling more than I’ve ever seen here. Ever.
You’d think even AlbqDan, with his never-ending advocacy positions for economic outcomes that fit his ossified world view, would acknowledge that collapsing demand and burgeoning supply portend further oil price declines.
Albdan is the David Lereah of oil- a laughingstock.
Eliminating the U.S. export ban increases U.S. export supply and puts more downward pressure on the world market price.
I disagree.
Total supply is unaffected; total demand is unaffected. How world-market pricing be affected??
Hint: the export ban is currently not causing a significant difference between US and world market crude prices. If there were currently such a difference, then removing the ban should remove the price differential, causing both prices to change somewhat.
Alb / Prime / Whac
The 2% world increase by Canusa producers has only displaced Opec Imports - a good thing. Trouble is, it’s growth is stalling for a lot of reasons and will probably not continue to grow rapidly.
Rig losses and slowing projects will lead to mothballing - soon. And that will have an effect on prices.
Oil markets are adjusting to the USD premium and the dislocation of 2% of the Opec market -
President O’Bama’s moves might be signalling his acceptance of the upcoming fight over Keystone - as the available supply will be coming probably from North Dakota. And Alberta.
“Total supply is unaffected; total demand is unaffected. How world-market pricing be affected??”
Let’s take the approach one of my mathematics professors recommended to me a couple of decades ago to perform this Gedankexperiment: Consider an extreme case.
Assume there was zero U.S. domestic demand for oil, so U.S. supply had absolutely nowhere to go under the export ban. Further suppose that potential U.S. supply was a significant portion of world market supply (true fact!). Then with the export ban in place, only non-U.S. production would meet world market demand (including U.S. import demand), as the quantity supplied by U.S. producers would be zero, due to nowhere to sell it.
Now suppose, under the above counterfactual scenario, that the U.S. export ban was lifted. Suddenly U.S. supply would be added to non-U.S. supply. Unless global market oil demand were perfectly elastic, which evidently is not the case, judging from the recent 40%+ price decline, this world market supply increase would lead to lower prices.
While in reality U.S. market demand is not zero, the export ban restricted U.S. producer sales to the domestic market, creating a limit on world market supply which ended when the U.S. export demand was lifted. More supply + nonzero price elasticity = lower prices.
Footnote: It would be easier to show the exact conditions for which my argument holds up using math, but it is January 1 and I am feeling very lazy!
“…the export ban is currently not causing a significant difference between US and world market crude prices. If there were currently such a difference, then removing the ban should remove the price differential, causing both prices to change somewhat.”
Admittedly this point undermines my argument. Nonetheless, unless no U.S. producers begin exporting after the ban is lifted, my supply increase argument holds up, with the strength of the effect monotonically increasing with U.S. oil exports.
While in reality U.S. market demand is not zero, the export ban restricted U.S. producer sales to the domestic market, creating a limit on world market supply which ended when the U.S. export demand was lifted. More supply + nonzero price elasticity = lower prices.
Patrick, your argument would make sense in a world in which US market demand was lower than US production—in other words, a world in which our ACTUAL production was being reduced by the export ban. In that case, removing the ban would increase production, increase exports, and thus affect world market pricing.
But in the real world, US market demand is HIGHER than US production. We are net importers of crude. So if the ban is lifted, there is zero change in production, zero change in global supply (if our domestic production is exported, we merely import more crude on net), and thus zero effect on world market pricing.
One more missing piece from the argument that lifting the U.S. export ban will have no effect on the world market price:
By allowing U.S. producers the opportunity to substitute their output for foreign production on the world market, this policy change undercuts OPEC’s pricing power. For example, if OPEC decided they wanted to try to push prices back up to AlbqDan’s predicted $70/bbl level, U.S. producers could undercut the strength of the action by increasing their exports as the world price went up in response to the OPEC supply reduction.
If you subscribe to the theory of rational expectations, it seems hard to argue that this implicit reduction in OPEC’s market power would not lead to further downward pressure on oil prices.
Nonetheless, unless no U.S. producers begin exporting after the ban is lifted, my supply increase argument holds up,
Nope, you are missing one key element: the increased export of US-produced crude is exactly offset by an increased import of some other non-domestic crude. Remember, US domestic demand did not change…
The unstated assumption that I think you are making (and that I think is incorrect) is that US production would be increased by the removal of the ban. If it were to their advantage to increase production, wouldn’t domestic producers have done so already, at least up to the margin of US domestic demand?
“So if the ban is lifted, there is zero change in production,…”
Only if U.S. exports do not increase when the export ban is lifted.
Time will tell, but I am guessing that some U.S. producers will find it more cost effective to export than to supply whatever U.S. markets they sold to before the ban was lifted.
Patrick, your argument
Whoops, sorry—I misattributed; my apologies, PB!
“…the increased export of US-produced crude is exactly offset by an increased import of some other non-domestic crude.”
This seems to be based on a strong assumption of perfect substitutability on the margin which ignores the cost savings that led to the reallocation of product flows.
My hunch is that the cost savings which drive the reallocation of product flow will translate into a world market supply increase. Don’t forget that the basic model of supply is based on marginal costs of production, so that lower marginal costs imply a shift to the right in the supply curve.
No apologies needed…I’m enjoying this discussion! Also don’t disagree with your argument; I believe which view prevails in the real world depends on details of production and delivery costs which I don’t claim to know.
This article seems to bolster my point that U.S. exports (and production) are likely to be supported at higher levels due to the lifting of the export ban, resulting in an increase in global market supply compared to the status quo before the ban was lifted.
US lifts ban on oil exports after years of pressure
Reuters | Washington
January 1, 2015
Last Updated at 00:10 IST
The Obama administration on Tuesday bowed to months of growing pressure over a 40-year-old ban on exports of most domestic crude, taking two steps expected to unleash a wave of ultra-light shale oil onto global markets.
The Bureau of Industry and Security, or BIS, which regulates export controls, said it had granted permission to “some” companies to sell lightly treated condensate abroad. Condensate is a form of ultra-light crude.
Some two dozen energy companies had asked the agency for clarification on permissible exports earlier this year, but until Tuesday those requests had been put on indefinite hold.
The BIS also released guidance in the form of frequently asked questions, or FAQs, to explain what kind of oil was generally allowed under the ban, the first effort by the administration to clarify an issue that has caused confusion and consternation in energy markets for more than a year.
The two measures are clearest signs yet that the administration is ready to allow more of the booming US shale oil production to be sold overseas, where drillers have said it can fetch a premium of $10 a barrel or more.
They follow a year of murky messages and widespread uncertainty over what is or is not allowed under a trade restriction that critics say is a relic of a bygone age, when oil was seen as scarce after the 1970s Arab oil embargo.
A domestic drilling boom of the past six years has transformed the US into an energy powerhouse, boosting US production by more than 50 per cent and reversing decades of decline.
Output of very light oil has been especially strong, leading to a glut that threatens to overwhelm domestic demand. The constraints helped fuel bumper profits for refiners such as Valero Energy Corp and PBF Energy Inc, but angered drillers such as Hess Corp that say they were selling at a discount.
…
For example, if OPEC decided they wanted to try to push prices back up to AlbqDan’s predicted $70/bbl level, U.S. producers could undercut the strength of the action by increasing their exports as the world price went up in response to the OPEC supply reduction.
That’s an easy argument to make, and is obviously true, because US producers have _already_ been doing this—that is why US production is up by so much, stimulated by years of high prices. However, in spite of these efforts to increase production, US producers have not yet succeeded in satisfying 100% of domestic demand.
It sounds to me as though the export ban drove a wedge between the domestic price and the world market price, as reflected in the potential $10 a barrel premium U.S. producers expect to receive on the world market.
This seems to be based on a strong assumption of perfect substitutability on the margin which ignores the cost savings that led to the reallocation of product flows.
You are totally correct; I was assuming (without stating it) that substitutability is extremely high, and that relatively little reallocation of flows would actually occur—primarily occurring due to ease of transport more than any other reason. I could well be wrong in that assumption.
My hunch is that the cost savings which drive the reallocation of product flow will translate into a world market supply increase. Don’t forget that the basic model of supply is based on marginal costs of production, so that lower marginal costs imply a shift to the right in the supply curve.
That is a great point—I had not considered that if efficiency gains due to reallocation are larger than I was assuming, that the reduction in marginal costs would factor into supply. Nice, I concur.
I believe which view prevails in the real world depends on details of production and delivery costs which I don’t claim to know.
I agree. I also am not an expert in this area. But it is still fun to reason through! Thanks for prompting that. Note that if I had to bet with my own funds, I would still bet on high substitutability!
“…bet with my own funds…”
True confession: I bought some Vanguard Energy Fund Investor Shares on 12/15/2014. Turns out that was the day they hit their 52-week low; some times you get lucky with the timing!
I’m not sure the bottom has been reached on these yet. Will buy more going forward if the price drops to a lower low.
True confession: I bought some Vanguard Energy Fund Investor Shares on 12/15/2014. Turns out that was the day they hit their 52-week low; some times you get lucky with the timing!
Let us know at the end of 2015 whether that actually turned out to be a good price or not!
Prime and Whac
My comments realized that 19 mbd are consumed and only about 12 are being produced. Replacement of Opec oil by domestic production means their oil is on the international market.
But MIX has to also be considered. The oil allowed for export is stripper gas (lng), highly volatile and not the best shipped by rail. Yet there is a lot of it available and it would be foolish to flare it just to manage well pressure.
President OBama I think is using the Keystone landslide to allow the sale of this premium lng by safer transport than by rail.
Also, this light oil could possibly be mixed with the bitumen to allow faster pipeline transit.
Why is oil going down? Because Opec and Russia have a surplus and the USD is at a premium - and their surplus is caused by the USA not needing as much of their oil, and probably an economic slowdown.
Pricing has little to do with the US market on it’s own.
“I believe which view prevails in the real world depends on details of production and delivery costs which I don’t claim to know.”
Those costs are falling, that is for sure. No more $100k per year newbies, etc. These companies will be re-negotiation with their suppliers, etc. There was a fantastic amount of waste going on at $100 per barrel. The truth is these companies will find ways to be profitable at under $40 per barrel.
“Let us know at the end of 2015 whether that actually turned out to be a good price or not!”
So far, so good — it’s up 8 percent in two weeks.
Isn’t oil special in that the price is set by an open cartel?
Only if the cartel is willing to sufficiently cut back production AND non-cartel producers are unable to make up for the cartel’s artificial shortage.
Well prices have dropped like a stone, so there must be something to it.
It’s this part that had something to do with it:
“AND non-cartel producers are unable to make up for the cartel’s artificial shortage.”
non-cartel producers this time around were able to make up for any shortage (and then some).
The non-Saudi producers have something that the Saudis do not, and it will keep them producing until they collapse from exhaustion.
It’s debt.
The non-Saudi producers have something that the Saudis do not, and it will keep them producing until they collapse from exhaustion.
It’s debt.
Looking forward to $1 gas!
Martha! We’re filling up the Suburban!
Back up the pickup truck to fill the tank with $0.80/gal gasoline!
Yesterday’s gasoline purchase at $1.699/gallon
I’ll play. Interest rates stay in a holding pattern even as the fed ends qe. Treasury rates also stay in a holding pattern.
Junk bonds fall as oil prices tank and a mini stock market turmoil develops as losses in junk bonds make some investors sell off their stocks. Some pension funds that carry these bonds fail. This might extend to those homes for rent funds but that may just be wishful thinking.
More small time flippers get tired of the work for less than the fancy returns they expected, sell their housing stock at a loss and get a real job. Rents stabilize and house prices stay in a holding pattern overall.
More apartments built with wooden framing catch fire in California resulting in the government restoring the old requirement for steel framing for multistory buildings
Wages finally start going up and business owners in suburbs and rural areas start finding major problems in attracting employees
Getting roommates becomes more normal for more people in the Bay Area supporting high rents but allowing individuals to pay less than they had prior to the boom.
Los Angeles ‘ silicon beach siphons tech workers from the Bay Area but sf continues to be the main draw with both businesses and housing concentrated in the city proper .
The overvaluation/ bubble existing in preipo stocks like uber and lyft stay high but wait for 2016 when the need to start showing a profit becomes real.
1) Link of oil and other commodities prices collapse to China and Eurozone economic slowdowns becomes increasingly irrefutable
2) Oil doesn’t drop much further, but also fails to quickly rebound as predicted by many economists
3) Oil patch state economies feel the pain
4) Price of oil patch housing takes a hit due to sudden weakness in demand
5) Fracking junk bond carnage comes to light
“However, I predict for very similar reasons that I said last year, that both oil and gold will be up.”
Will somebody soon step up to repeat this stopped-clock prediction for another year? Eventually it just has to be right!
Oil is still CR8Ring for now…trying to stress test 52 - week lows
Crude Oil - Electronic (NYMEX)
Market closed $53.14
Change -$0.98 -1.81%
Volume 20,895
Dec 31, 2014 6:36 a.m.
Quotes are delayed by 10 min
Previous close $54.12
Day low $52.93
Day high $53.92
Open: $53.87
52 week low $52.70
52 week high $101.33
Well, hey, due to central bank and political interventions, housing prices reflecting incomes has been the equivalent of a stopped-clock prediction for years now too. Someday the prediction is going to be correct.
Exactly. I make the similar predictions two years in a row, when many were talking about $800 gold and he predicts cratering housing prices in San Diego for five years and he calls me a broken clock. Not seeing that cratering Whac:
http://www.trulia.com/real_estate/San_Diego-California/market-trends/
“…he predicts cratering housing prices in San Diego for five years…”
Wrong poster, pal.
huh… demand touching 6 year lows there. Wonder why that is DeflationDan?
http://www.movoto.com/san-diego-ca/market-trends/#city=&time=5Y&metric=Median%20List%20Price&type=0
CR8R.
Movoto dot com
Overview of San Diego, CA Market Trends
Updated: 12/01/2014
San Diego’s home resale inventories decreased sharply, with a 17 percent decrease since November 2014. Distressed properties such as foreclosures and short sales increased as a percentage of the total market in December. The median listing price in San Diego went down from November to December. There were a total of 143 price increases and 705 price decreases.
“San Diego’s home resale inventories decreased sharply,…”
Given the large and growing population of Baby Boomer geezers who live in San Diego, there will be a point within the foreseeable future when these people leave their empty nests in droves, leaving behind a large number of used homes for sale. It will be great for used home sales people, but not so great for those banking on a never-ending inventory squeeze to keep prices up on a permanently high plateau.
I’ll give you that.
And further, I’ll allow that many stopped clock predictions come true, in the long run.
I dunno. Is looking back at YoY housing price declines a prediction?
Just like your prediction for falling housing prices except I have not made it for many years in a row.
You do make plenty of crap up, though.
The Chinese stock market was up over 50% this year and growth will be 7% in 2015, hardly an irrefutable slowdown.
Excerpt from China Daily:
Although China’s GDP growth for the past year is likely to slow to around 7.5 percent, its contribution to global and Asian economic growth still accounts for 27.8 percent and 50 percent respectively, according to estimates of the International Monetary Fund.
“China’s economic growth has become more stable and been driven by more diverse forces,” Chinese President Xi Jinping told an Asia-Pacific Economic Cooperation (APEC) CEO summit in November.
Even a growth rate of around 7 percent would place the Chinese economy among the top in the world in both speed and increment, Xi said, adding that all major economic indicators of the country are “within the reasonable range.”
In face of potential economic risks, China has been advancing a new type of industrialization, IT application, urbanization and agricultural modernization in a coordinated way.
At a Group of 20 summit in Australia, Xi said China’s economic growth serves as a main engine for global economic growth.
Noting the various domestic reforms, Xi said that the Chinese economy will maintain its momentum for powerful, sustainable and balanced growth, and provide the world with greater demand and more opportunities.
“…its contribution to global and Asian economic growth still accounts for 27.8 percent and 50 percent respectively, according to estimates of the International Monetary Fund.”
CR8R in waiting…
China’s contribution to global and Asian debt growth still accounts for 27.8 percent and 50 percent respectively, according to estimates of the International Banking Fund.
Fake growth based on borrowing is everywhere, but especially concentrated in China. It will have to end like all epoch credit expansions, hard to say when.
David Stockman, David Stockman’s Contra Corner
This Time Is The Same: Like The Housing Bubble, The Fed Is Ignoring The Shale Bubble In Plain Sight
Dec. 10, 2014 1:40 PM ET
We are now far advanced into the third central bank generated bubble of the last two decades, but our monetary politburo has taken no notice whatsoever of its self-evident leading wave. Namely, the massive malinvestments and debt mania in the shale patch.
Call them monetary bourbons. It is no exaggeration to say that inhabitants of the Eccles Building deserve every single word of Talleyrand’s famous epithet: “They learned nothing and forgot nothing.”
To wit, during the last cycle they claimed to be fostering the Great Moderation and permanent full employment prosperity. It didn’t work. When the housing and credit bubble blew-up, it washed out all the phony gains from the Greenspan/Bernanke printing spree. By the time the liquidation was finished in early 2010, there were 2 million fewer payroll jobs than there had been at the turn of the century.
…
The Outlook
Fed Likely to Stare Down Oil-Price Drop
Officials Poised to Put More Weight on Economic Strength Than Low Inflation
By Josh Zumbrun
Updated Dec. 14, 2014 6:44 p.m. ET
Much has changed in the U.S. economy since Federal Reserve officials last issued their economic projections, in September. Oil prices have fallen by more than one-third, the dollar has climbed 5.3% against a broad basket of currencies and about 800,000 more Americans have found jobs.
These developments present overlapping challenges as Fed Chairwoman Janet Yellen and her central-bank colleagues wrestle with shifting fundamentals at home and mounting jitters overseas. She will hold a news conference Wednesday, after the Fed’s two-day policy meeting, to discuss the central bank’s outlook and plans going into 2015.
Falling oil prices are a boost to the U.S. consumer. But lower prices also are putting downward pressure on already low inflation, potentially moving the nation further away from the Fed’s objective of 2% annual increases in consumer prices.
…
$51 for 2018 now
what econimist is calling for a big rebound?
I’ll go w the futures
The underlying fundamental reasons for the latest sharp downtrend in long-term Treasury yields may throw a wrench into the Fed’s proposed timing to restore short-term interest rates and associated risk premiums to (higher) normal levels.
“Long-term U.S. bonds will continue to tank as the QE3 taper takes effect.”
That must be near the top of the list of most popular failed 2014 predictions. What keeps those long-term yields pinned down now that QE3 is over? Is it the flow of bond purchases from other central banks whose stimuslus efforts increased as the Fed tapered?
Is it the flow of bond purchases from other central banks whose stimuslus efforts increased as the Fed tapered?
Yes. QE was outsourced.
Real interest rates have soared. DIX up from 80 to 90 in six months. That looks a lot like 20%+ for anyone owing USD.
Crushing.
What is DIX?
The world economy is so messed up with excessive debt, the Fed will never raise rates in many many years.
Bingo. But they are nonetheless certain to keep offering forward guidance on the eventual timing.
“Bingo”?
Prof, months ago you were posting dozens of articles about bond yields and prices, which were supposed to indicate that interest rates “are gonna” skyrocket. Any minute now. And house prices “were gonna” crater in response. Any minute now… you’ll see. But now, the Fed keeping rates low for years is a “bingo?”
Oof
Donk,
Housing prices fall irrespective of rates.
I shorted 10-year Treasuries in 2009. It took me about a year to wise up and I got out with a small loss. Since then, I have quit predicting which way rates are going. Too many variables!
Just another one to add to your growing pile of losses Jingle_Fraud.
Here’s another;
Rocklin, CA Sale Prices Plunge 6% YoY; Fall MoM and QoQ As Negative Equity Conditions Worsen In CA
http://www.zillow.com/rocklin-ca-95678/home-values/
Oxy, if you interpret any article I post as my personal endorsement, you are missing the point. Generally I post articles to show a particular MSM perspective on a current economic development. Many times I post articles I completely disagree with merely to stimulate discussion. Don’t incorrectly assume I agree with everything I post!
“… the Fed’s proposed timing to restore short-term interest rates and associated risk premiums to (higher) normal levels.”
If we are enjoying (choke) the wonders of a borrowed-money economy (and IMO this is what most all the economies on the planet appear to be) then to keep these economies going the cost - the interest that must be paid on all the borrowed money that keeps the economies going - must be kept low.
Unless, by some financial magic, further borrowing of money can be done in order to pay the interest on all the previous borrowing of money that had already been done.
Yes! This would do the trick! And if the trick is of done right then it could be done … it could be done forever!
It also seems useful to keep those borrowing costs as low as possible in order to avoid requiring an excessive amount of new money creation in order to pay them.
“… excessive amount of new money creation …”
This is definitely stand-up material.
Too bad we can’t create water from thin air to alleviate California’s drought problems.
“Too bad we can’t create water from thin air to alleviate California’s drought problems.”
Perhaps Congress should submit a bill … and make it happen.
Maybe the guys who run the National Weather Service could take a course or two in Modern Finance Magic and learn to somehow borrow rain from the future so as we can enjoy all of rain’s benefits today.
I read Dr. Seuss books to my son, and our economy bears a resemblance to the fantastical structures and situations one sees there. With debt as the oobleck and the Fed Board of Governors as the king’s magicians.
The underlying fundamental reasons for the latest sharp downtrend in long-term Treasury yields
Please remind me of what those “fundamental reasons” are?
60 million+ unoccupied, never-to-be-occupied housing units in China, for one…
They built enough housing for an extra billion + people Prof.
I’m wondering how or why 1,000 million has been misreported as 60 million. Please post a link to the data or source if you have it.
It is something I read early in 2014 but cannot find. Perhaps it was in error, or simply that I was. All I see now are claims of 60 million extra empty houses in China.
Though I like the idea of 1 billion empty houses, but it sounds a bit over the top!
China – Ghost Cities
By Global Research News
Global Research, December 22, 2014
“Vast new cities are being built across China at a rate of ten a year, but they remain almost completely uninhabited ghost towns.
Racing to stay ahead of the world economy, is the superpower about to implode?
There are around 64 million empty apartments in China”, claims analyst Gillem Tulloch. It’s all part of the Chinese government’s efforts to keep its economy booming and there are plenty of people who would love to move in but the properties are priced out of the market.”
…
Here is my prediction … homes in the best zip codes in the metro Boston, LA/OC, SF, DC, and NYC areas will continue to increase in value. Homes in the less desirable zip codes in the same metro areas will either be flat or up slightly.
Homes in many cities that are not on the coasts, with the exception of Denver and a few others, will grind lower. That is right. Lower.
There will be a financial crisis in either Europe or Japan that will shake the US stock market. That will trigger a huge new wave of QE from the world’s central banks.
Everything craters. Everything. Nowhere is special no matter the zip code. How soon we forget.
Yep. It’s not different anywhere, except perhaps with regards to timing.
And verily the Lord said unto Moses, throw down thy rod and behold, $400,000 will become $320,000 and Pharoah will tremble and before the one true God.
and behold, $400,000 will become $320,000
So you are only predicting a 20% decline?!? Booo…
Some areas on the west coast have already seen a 20% decline.
I’m only predicting 20 percent off peak by November. Where it goes from there? Probably lower, much lower, but my prediction doesn’t cover that.
If a foreign financial crisis really “shakes the US stock market” it will also put a stop to home buying in the nicer areas that you mention.
Hmmm…
Boston Metro sale prices down YoY and falling
LA sale prices down QoQ broadly, parts down YoY, declines accelerating
Denver sale prices down QoQ
Happy 2014!
I predict HA will post every single day in 2015, saying prices are cratering in every market everywhere.
I predict many many more scared shills.
LOL!!! Most accurate prediction yet!
No doubt, and the declines are likely to continue well beyond 2015. It’s curious how the frequent reminder of them pains those living in the mania.
It’s pretty hard to miss when you predict price declines in the face of a historic mania that takes “longer than expected” to correct.
“Lagging incomes will begin rising”
Yeah right, the future belongs to Lucky Ducky
“You work three jobs? How uniquely American” — George W. Bush
“Lagging incomes will begin rising”
In some places this will be true. But not in the U.S.
Lagging incomes will begin rising
How many years have the “experts” been making this prediction?
Maybe now she’ll only have to work two jobs. Nah, who am I kidding? She’ll have to work a fourth job to pay a hospital bill.
The trend in price declines YoY will accelerate into mid 2015. Inventory will continue to explode. Price cuts will be a higher and higher percentage of sales. Once double digit YOY price declines become commonly reported around midyear - bloodbath for the remaining 6 months. Mo Credik Mel ain’t helping this one.
So I will be able to buy the same house by November for 20% less than I could in April of this year.
Some call it prediction, I call it my wishful thinking.
Be careful about borrowing to fulfill your wish. Borrowing long in a deflationary era is possibly a doubly painful proposition.
2015 will bring price increases to the most desirable zip codes, and decreases to less desirable. In DC your Bethesdas and Potomacs will continue to rise, while your Germantowns will sink. Most working class people will continue to be priced out of the working class towns (even with exotic mortgages), and with investors pulling out rents will continue to sink.
For us, we are planning on saving up more for a DP and buying in the beginning of 2016, probably in Columbia, MD. My wife has kid number three coming (hopefully) in July, and we are ready to settle down. Currently there are dozens and dozens of properties that have sat since March 2014. Started off at 420-500K which are now listed at 350-400K. The price cuts are phenomenal, and like any good used house salesman will tell you “You need to price it right” when it hits the market. My guess is that sellers who are ready to list their house in 2015 will undercut current listings, continuing the downward spiral. Is it going to be a CRATER like some think? I don’t think so, but it will sink.
Also, I would like to thank everyone on this blog for educating me on housing. I don’t post often, but I do appreciate what I read. I wish everyone a Happy New Year.
If it has gone from $500K to $400K, that’s a 20% drop. Now if the newer listings in the spring undercut this further, how is that not a Crater?
Cr8r
When I think of “Crater”, I think of $5,000 houses or free with an 8 gallon fill up.
Everyone has their own definition of a crater.
1) Crater=falling prices
Prices are cratering.
2)Grossly inflated Prices=Plunging demand
Prices are grossly inflated.
3)Plunging demand=Falling but grossly inflated prices
Demand is plunging.
Columbia still has Dc commuter price boost, how about Ellicott City
much less crime than Columbia
That’s not a crater in sales prices. That’s just a price drop from wishing price to asking price. Boomers not willing to give it away. Or, flippers who think that a $10K home depot kitchen is worth $45K in resale.
So, what would make a DC zip code desirable? Columbia is a worse commute than Germantown.
As well as you know, commutes vary. My wife works in SS, so a ‘quick’ trip down 29 is better than 270/Beltway from G-Town.
I’d say Metro access for most, but not for me. I like being in between DC and Baltimore, and I like the design of Columbia.
Call your 10% losses today what you want Donk. They’re yours and yours alone.
Open season on cops now?
Police in Ferguson, Missouri, Face Gunfire During Burglary Callout
Shots were fired at police officers in Ferguson, Missouri, as they tried to arrest six people suspected of a break-in on Tuesday night, authorities said. The officers were responding to reports of a burglary at Beauty Town, a store that was torched during the protests against the killing of Michael Brown. The officers found several people coming out of the store carrying hair products, according to a statement by the City of Ferguson sent to NBC station KSDK. The statement said that shortly after the officers told six people they were under arrest and began taking them into custody, two rounds of shots were fired directly at them.
…
Hair products so good, they’re worth getting shot over!
The officers found several people coming out of the store carrying hair products
Hair products? Like shampoo, conditioner and dye?
You really don’t interact with many black people up there in the Loveland/Broomfield bubble, now do you?
They were likely stealing extensions and weaves, which are rather pricey.
You really don’t interact with many black people up there in the Loveland/Broomfield bubble, now do you?
They’re pretty rare in both areas.
I predict the average American moron will continue to confuse his wants with his needs and will continue to satisfy his craving for what he wants by borrowing enormous quantities of money from generous and wonderful middle-men such as myself.
They will continue to work and I will continue to reap.
I also predict that teenagers - aka children who know everything - will continue to make far-reaching and very stupid career decisions and will suffer the enormous cost of borrowing to finance these stupid career decisions far, far into adulthood.
I predict the average American moron will continue to confuse his wants with his needs and will continue to satisfy his craving for what he wants by borrowing enormous quantities of money
Like the herds that run out and spend $500 or more on the latest Smartphone, deluding themselves that the phone is “free” because they have a very pricey 2 year contract with a provider like Verizon.
More people will have jobs this year but…but..but….
http://www.usatoday.com/story/money/business/2014/12/30/health-law-impact/21067751/
Lots of people are going to learn new math skills to keep under income limits and get free healthcare…….no sense getting screwed by making $50 a month too much!!!!
I was under the impression that the subsidies are tiered and phase out as your income rises above the maximum income that qualifies for a full subsidy, as opposed to going over a cliff because you got a $50 a month raise.
It’s like the myth that after getting a pay raise that your taxes increase so much that your take home pay decreases.
you forget welfare food stamps section 8 all sorts of programs are not tiered.
The article you quoted was talking about employers hiring part time to avoid paying for Obamacare.
And foodstamps are tiered. Yes, there is an income level from where you are cut off from any benefit, but that doesn’t mean you will get the maximum benefit automatically.
From the USDA’s website:
or should i have said tiered differently….so the net effect could be all or nothing, for some programs I think we will hear a lot more stories about i’m going to be homeless because i made $50 too much this month
we will hear a lot more stories about i’m going to be homeless because i made $50 too much this month
My understanding of Section 8 is that it too is tiered and gradually phases out as opposed to going over a cliff because you got a tiny raise.
What is more likely is that people might turn down overtime pay because for every extra dollar they make the might lose 30-40 cents of government cheese, so they feel it isn’t worth their time.
2014
-Price declines showed up in metro areas
-Demand fell again YoY
-The burgeoning inventory enlarged even more
-Clear cut evidence of widespread fraud
2015 is the year of lead balloons
HA may even post it twice…..within minutes of the previous post. HA!
Comment by Jingle Male
2014-12-31 09:02:43
I predict HA will post every single day in 2015, saying prices are cratering in every market everywhere.
Stick with the data Jingle_Fraud.
Renton, WA Sale Prices Plunge 15% YoY As Prices Grind Lower Statewide
http://www.zillow.com/newcastle-wa-98056/home-values/
And I beheld when he had opened the sixth house, and, lo, there was a great shillquake; and the price cut became red as a sackcloth of donkey rumps, and the tears became as blood;
Donkeylations 6:12
lolz… Reverend Shillow. Well done.
It sure is a time of tribulation for the housing religion. Be glad you have no stake in the Great Cratering.
Long Beach, CA Sale Price Gains Evaporate YoY; Plummet 16% QoQ and 12% MoM
http://www.zillow.com/long-beach-ca-90803/home-values/
I looked it up:
HBB Predictions 4/25/2014
Predictions for the balance of the year
Sacramento: 0% to 5% gain in values thru 12/31/2014.
The Zillow median sales price is $217,300 today.
http://www.zillow.com/local-info/CA-Sacramento/r_20288/
Here is the link. Check back on Dec. 31.
___________________________________________________
HBB Reality for 2014
Sacramento: Zillow median sale price is $232,800 (thru Nov. 2014)
Housing median gained $15,500, or 7.1%
___________________________________________________
HBB Predictions for 2015:
Sacramento: 0% to 5% gain in values thru 12/31/2015
Stocks: Today, $18,031. One year later it will be $18,750 or a 4% gain, but it will swing widely by more than 10% over the year.
Treasuries: Today, 2.19%. One year later, 3.19%.
____________________________________________________
Happy New Year to HBB’ers all. It has Ben real, it has Ben fun and it has Ben real fun.
Nobody cares about “values” Jingle_Fraud. And considering the town of Rocklin, CA is where your debt-shacks are located in is down YoY, what are you going to do now?
Rocklin, CA Sale Prices Turn Negative On Year; Plunge 5% MoM and 8% QoQ
http://www.zillow.com/rocklin-ca/home-values/
You are a guest in someone’s house. It is rude to mock them.
I don’t mock HA. I just point out how much baseless misinformation he distributes.
And if you’re talking about Ben, I have nothing but praise and respect for him, so you may have misinterpreted my comment. This blog serves a great purpose and I support it regularly with generous financial contributions. Which reminds me, it is now a new year and time to renew my support!
Blue, click on the link HA posted above. The market in that town is healthy. Zillow ranks it 8.1/10. Prices aren’t cratering. They are rising. There is demand for buying homes and rents are supported by fundamental factors.
HA asks “…what are you going to do now?”
I am going to provide quality housing and great service to the residents living in my houses, just as I have always done. In exchange, I will receive excellent cash flow and a nice return on my investment. Nothing is changing for me.
HA thinks the world is collapsing, when in reality, very little is changing and what is changing, is only changing a little!
That is worth mocking…..you know the story…Chicken Little!
Falling prices is nothing to fear Jingle_Fraud. Falling prices are positively bullish and good for the economy.
… and you sound confused today Jingle_Fraud.
Domestic gold mines are shutting down as we speak.
Copper will come down to normal, forcing a third of the world and half of our domestic mines to shut down. Copper mines rely too heavily on their side output of gold and palladium and other rarities that, if planned correctly, pay the bills allowing them to mine copper at a small loss.
Australian iron is going to drop 70%
Lead will come down to normal pricing.
Silver will be, once again, the cheapest way to go on almost any need for a malleable meltable.
Someone will realize that following Buffet is like basing your financial religion on the Easter Bunny. Mythical returns on a mythical myth.
Then that someone will realize any investment based on 17times earnings is the oddest damn thing in the world to explain to anyone not financially leeming’d in to retardation…and that your average 5 year old knows better.
Someone will realize that they have no equity. Equity is farcical until converted to absolute, after tax, holding it your hand, cash. Nothing but cash means cash. The $1000 stupidly perceived equity in your six year old car/house is not going to put gas/heating fuel in it at any gas price.
That someone had better be you. Get a second job while you can.
Mazillions are about to be unemployed from $16 to $25per hour jobs…and waking up to their new $11 per hour part time cashier gig.
Predictions for 2015…
- The Great Rotation finally happens as the 30-year-long bond rally runs out of gas. Once a selloff in bonds catches fire, interest rates go up rather quickly. Look for the 10-year Treas to go up from 2.8% yield now to 4% or more. The Fed will raise rates (following the market instead of leading it).
- All that bond selling frees up cash, which needs to go to work somewhere. Equities get the cash, pushing the Dow to 20,000 by the end of 2015. Weak conditions in China and emerging nations bring foreign cash into US equities as the US will shine as the top world economy.
- Bond selloff lifts mortgage rates, causing a pullback in real estate prices. RE market doesn’t tank but prices drift down and buyers will have upper hand. RE market will become more fragmented, reflecting the widening US income gap. Microbubbles occur in selected zip codes favored by the wealthy.
Re market is already tanking. Higher interest rates will only speed the decline.
The stock market is turning over. That portends for a nasty February.
We’re in uncharted territory. Complacency seems to be all around us.
A healthy New Year to one and all.
Oh my….
Contra Costa County, CA Sale Prices Plunge 6% YoY; Plummet 9% MoM
http://www.car.org/marketdata/data/countysalesactivity/
Now if realturds are saying it, you know it’s far more extreme.
The price pimps and excuse makers have nothing to say about this reality either.
(from the same link).
Ask yourself this, HA: are prices really up 42% MoM and 47% YoY in Madera?
If not, what might that suggest about this data-set? What might that imply about your Contra Costa “plunge”?
More denial.
I didn’t deny anything; I asked you three good questions.
Why are you avoiding answering them?
Address the falling prices.
Why are you still avoiding the questions?
Why are you still avoiding the falling prices?
Hint: you like to pick statistical outliers in noisy data-sets. You love noise.
Hint: You’re in denial of falling prices irrespective of scope.
If I remember correctly, I predicted last year that little would change economically, at least from a housing standpoint; that we’d have the same stale and failed ideology from the same poor economic and political leadership. I think that’s the same for 2015 and even 2016. We can’t and won’t change voluntarily for the better. Period. We’re totally committed, to the point where I suspect that radical proposals would be seriously considered, or implemented, if the status quo were to be threatened by any event: eliminating paper money, negative interest rates for U.S. savers, and/or bank bail-ins.
Just in general, it pains me to see 2% annual inflation being sold by unelected central bankers as a positive thing to a country characterized by stagnant or falling wages for very large majority. I predict that will continue too.
I went into the HBB archives and found my prediction for 2014. Some hits, some misses:
For the United States, my prediction is that, unfortunately, there will be no change from current trends — we will have more empire, more surveillance and other intrusive uses of technology, more idiot reality television, more gadgets, more expensive healthcare and higher education, more sports. More redistribution of wealth upwards as a consequence of QE and ZIRP. More anodyne pronoucements from the Fed, which will perceive itself as having more mandates, and more stupid sideshows from our feckless Congress. More destruction of the middle class. More indebted young people living at home. Many of these problems discredit independent thought and democratic political institutions, but they will be ignored because the Dow, and housing prices, will continue to rise, albeit more slowly than in 2013. We’re just not good enough to do any better.
Internationally, I think that separatist movements, fueled by economic distress, will gain strength. It’s just a matter of time before Catalonia tries to secede from Spain, Greece leaves the euro, and similar acts, or attempted acts, of disaggregation occur. I also think that something of global economic or political consequence will happen in Asia, because China, India, and Pakistan are incredibly unstable, far beyond any fantasy that the U.S. might have of controlling or even influencing events.
I am of the doom philosophy. Not that humanity is doomed, but that our current way of living is doomed. When it happens, it will be good in some ways and bad in others. But I don’t think it happens next year.
Charmer, to me it looks like you were spot on a year ago. I remember reading that last year. Thanks for bringing it up.
Prediction: the phrase “no one saw it coming” will be used in relation to RE, starting in the Texan, Canadan and Australian media. HBB’ers will laugh.
*(Of course, what do I know? Last year I said that by now, the tech bubble will have burst, and a WSJ headline today was “Start-Up Valuations at All-Time High.” Lol.)
Ruble down - Russians run away.
http://money.cnn.com/2014/12/29/real_estate/russian-homebuyers/index.html?iid=HP_LN
Last I checked this morning, Mr Market was up. Did Wall Street finish in the black on this last day of 2014?
Key-rash…
Why the Dow’s 2014 gain is kind of meh
Published: Jan 1, 2015 10:56 a.m. ET
By Victor Reklaitis
Markets writer
NEW YORK (MarketWatch) — The Dow Jones Industrial Average’s gain of 7.5% in 2014 is actually just “meh.”
The blue-chip gauge’s (DJIA, -0.89%) average yearly move in the last couple of decades is a 9.7% jump, according to FactSet data going back to 1988. And that includes the brutal 33.8% slide of 2008, as the financial crisis and recession took hold. Since then, however, the Dow has barely looked back, more than doubling as it has posted six straight years of gains.
The S&P 500’s (SPX, -1.03%) climb of 11.4% in 2014, in contrast, ought to impress investors. The big-cap benchmark’s average annual move since 1988 is a gain of 9.7% — just like the Dow’s. So it delivered an above-average year in 2014. Read all about Wednesday’s trading.
The S&P has risen for three years in a row, after edging down for the year in 2011 as investors fretted about — sound familiar? — eurozone problems.
The Dow underperformed the S&P this year, as it has in other bull-market years, in part because it tracks 30 mature, not-so-high-growth companies. It is the index, after all, that’s been called a dinosaur, or worse. On the flip side, the old-school, steadier Dow showed its resilience in 2011, when it rose 5.5%.
…
I predict stocks will crater by a snowflake moment.
I predict the housing analyst will find a job.
I forecast imminent meltdown of empty skulls and empty pockets reading the HBB.
Of course it did
What’s the value to the buyer in a house?
1) Consumption - the ability to live in them and use them to one’s desire.
2) Flipping them - selling them for a higher price in the future, making a profit.
If the ability to flip them for a profit becomes less, there will be less demand for them. House prices are determined by debt. If the ability to take on debt is limited by, say peak debt or a change in attitudes towards debt, flipping becomes less profitable and prices remain flat or decline.
Amusing note on politicians and money in politics: http://imgur.com/gallery/kyBQzh5
Truth right there but it’s missing the bought and paid for democraps.
My January 1 2014 prediction was that gold could bottom before the end of 2014 but go no lower than $1000 (was right) and may have already bottomed (was wrong). And also that the stock indices would correct (they did) and have single digit percentage gains for the year (the S&P 500 had over 11% gain).
My own strategy was to shift more out of stocks and into precious metals for 2014. I did.
2015: For gold, I say it may have already bottomed and in 2015 I doubt it will get any lower than $1100. For stock indices, I predict single percent gains for the whole year, 5% to 9%. Not too shabby.
My main observation on gold is that its price seems to follow a very efficient random walk. Your guess is as good as mine whether that leads to higher or lower levels by the end of 2015.
One further thought (which just came to me as I hit the “Add Comment” key): If the Fed actually starts its tightening cycle this year, you can safely bet the trend component of the random walk will tilt to negative, as interest bearing assets will become increasingly attractive compared to gold as returns and risk premiums normalize.
Again, gold prices don’t generally go the inverse of interest rates. http://www.goldstockbull.com/articles/gold-investors-should-not-fear-rising-interst-rates/
“I’m melting!”
Business
China factory activity shrinks for first time in months
31 December 2014
From the section Business
Activity in China’s factories contracts for the first time since May this year
China’s manufacturing activity shrank for the first time in seven months in December, a private survey showed on Wednesday.
The final HSBC/Markit Purchasing Managers’ Index (PMI) was at 49.6, just below the 50 level that separates growth from contraction in the sector.
The reading was slightly higher than an initial “flash” number of 49.5 released earlier this month.
But, the result was still down from a final reading of 50 in November.
The most recent data paints an even weaker picture of the slowing Chinese economy, which has been heralded as the “factory of the world”.
…
China December factory PMIs suggest economy cooling further, more stimulus expected
BEIJING Thu Jan 1, 2015 12:40am EST
An employee welds the exterior of a vehicle along a production line at a factory in Qingdao, Shandong province December 1, 2014. REUTERS/China Daily
(Reuters) - China’s factory activity sputtered in December, underlining the challenges facing the country’s manufacturers as they fight rising costs and softening demand in a cooling economy.
After a rough 2014, the world’s second-largest economy looks set to start the new year on a weak note, reinforcing expectations that Beijing will roll out more stimulus to avert a sharper slowdown which could trigger job losses and debt defaults.
A property slump is expected to last well into 2015, companies will continue to struggle to pay off debt and export demand may remain erratic, leaving only the services sector as the lone bright spot in the economy.
China’s official Purchasing Managers’ Index (PMI) slipped to 50.1 in December from November’s 50.3, a government study showed on Thursday, its lowest level of the year and clinging just above the 50-point level that separates growth from contraction on a monthly basis.
Analysts polled by Reuters had forecast a reading of 50.1.
“This indicates that industrial growth is still in a downward trend, but the pace (of declines) is slowing,” Zhang Liqun, an economist at the Development Research Centre, said in a statement accompanying the report.
…
The effort to fundamentally transform the United States of America will go into overdrive, this is the global communist movement’s last shot.
#BuckleUp
#Don’tFundamentallyTransformMeBro
Smith has an interesting post (Dec30) over at oftwominds, with a shocking graph of median house price/HH income going back to 1965. If we are rolling over the edge of a cliff on house prices, here is an indication of how far down the baseline is. House prices are 550% of HH income. I’ve read some here say normal is 300%. That was just in the year 2000. In 1990 it was just over 200%, in 1980 just over 100%. In 1970, just 50%. I wish this graph went back another 50 years, it would be interesting to see what happened in the 20s and 30s.
We were not in a depression in 1970, I’d say it was in the early days of the big credit expansion. It’s when I got my first credit card, Shell Oil I think and then Sears. Can anyone imagine a world without easy credit? It happened 80 years ago and lasted 40 years. Can anyone imagine house prices falling to below half of median HH income, and chasing falling income down? That would be a reduction of over 90%!
My guess in 2015 is that most people cannot now get out of debt methodically, but only all at once in liquidation. The downhill slide has been in force for at least six months now.
In 2015 I predict HA will change his screen name to Captain Obvious.
Deflation and low interest rates
Fed will continue to fight deflation because they can’t tax it and it will bankrupt them.
It doesn’t seem to be working.
‘Banks and other lenders that took ownership of homes during the Great Depression’s mortgage meltdown in the Central Valley are shedding them at a furious pace, according to RealtyTrac.’
‘In November, Stockton and Modesto were in the top five metropolitan areas for distress and short sales — in foreclosure or bank-owned — in the nation. While the national average for these sales was 12.6 percent, Stockton had 27.6 percent of home sales in that category and Modesto 25.1 percent.’
‘The other three metro areas with the highest percentage of distressed and short sales combined were Las Vegas (36.3 percent); Miami, Fla. (26.9 percent) and Jacksonville, Fla. (25.1 percent).’
http://www.centralvalleybusinesstimes.com/stories/001/?ID=27460
Did the RealtyTrac spokesperson inadvertently say “Great Depression” when he meant to say “Great Recession”?
It’s hard to imagine lender actions that took place in the 1930s are still affecting the status quo, although with extend-and-pretend government intervention, who knows?
I predict that an excess of lust for fake money will lead to death and destruction in the New Year.
New Year’s Eve stampede kills 36 on Shanghai waterfront
By Adam Jourdan
SHANGHAI Thu Jan 1, 2015 10:33am EST
A woman cries at a hospital after a stampede occurred during a New Year’s celebration on the Bund, central Shanghai January 1, 2015. T REUTERS-Aly Song
People try to identify their relatives at a hospital, from pictures of some of the victims of a stampede during a New Year’s celebration on the Bund, central Shanghai January 1, 2015. REUTERS-Aly Song
Security personnel (front) and policemen stand next to an entrance to a hospital where injured people of a stampede incident are treated, in Shanghai, January 1, 2015. REUTERS-Aly Song
(Reuters) - A stampede killed at least 36 people during New Year’s Eve celebrations in Shanghai, authorities said, but police denied reports it was caused by people rushing to pick up fake money thrown from a building overlooking the city’s famous waterfront.
The government in China’s gleaming business capital said large crowds started to stampede on Chen Yi Square, in the riverside area known as the Bund, just before midnight.
It was the worst disaster in the cosmopolitan city since 58 died in an apartment building fire in 2010.
The cause of the crush has still to be confirmed, though state media and some witnesses have said it was at least partly triggered when people rushed to pick up coupons that looked like bank notes.
A man named Wu, who brought one of the 47 injured to hospital for treatment, said the fake money had been thrown down from a bar above the street as part of the celebrations.
But Shanghai police said on their official microblog that while closed-circuit television footage did show some bills had been thrown from a bar in a building overlooking the Bund, which a small number of people picked up, this did not cause the crush.
“This incident happened after the stampede,” police said in a brief statement, without saying what the real cause was.
Another witness, who gave his family name as Wei, said there had been a problem away from the area where the fake bills were thrown, with people trying to get on to a raised platform overlooking the river.
Xinhua news agency said that people had been trampled on after falling down on the steps up to the platform.
“We were caught in the middle and saw some girls falling while screaming. Then people started to fall down, row by row,” a witness surnamed Yin told Xinhua.
…
I predict Uncle Sam will continue to promote a cult of home ownership, having failed to learn anything from the first wave of Great Housing Bubble collapse.
Feds Still Promote ‘Cult of Home Ownership,’ as Investors Drive Prices Up
J.D. Tuccille|Dec. 30, 2014 9:28 am
A couple of weeks ago, I noted that Fannie Mae and Freddie Mac are partially returning to their old tricks of promoting home ownership at all costs. By backing loans to “qualified first-time homebuyers” who put down as little as 3 percent of the value of a home, they’re taking a step back toward the Clinton-era and Bush-era policies that led so directly to the mortgage meltdown.
Why would they do this?
Because government officials have long been hung up on the idea that home ownership is a good thing in itself, and that rising housing prices are a sign of increasing prosperity. Last year, President Obama went to Arizona (not quite ground zero for the last housing bubble, but close enough) to boast, “our housing market is beginning to heal. Home prices are rising at the fastest pace in seven years.”
…
Mel Watt’s Christmas Gift To ACORN And Democrats
Posted 12/30/2014 06:12 PM ET
Cronyism: The Obama regime has quietly ordered Fannie Mae and Freddie Mac to start donating hundreds of millions of dollars a year to a permanent affordable-housing slush fund for Democratic activist groups.
Earlier this month, while few were paying attention, Federal Housing Finance Agency chief Mel Watt sent letters to the mortgage giants to “set aside in each fiscal year 4.2 basis points of each dollar of unpaid principal balance of new business purchases to be allocated to the Housing Trust Fund and the Capital Magnet Fund.”
That’s a 0.042% tax to equip the funds. HUD will run the housing fund; the Treasury Department will run the capital fund.
If the funds had been operating in 2010, when Fannie and Freddie together bought $856 billion in new mortgages, Fannie and Freddie would have pumped a whopping $360 million into the funds. Estimates put their total for fiscal 2015 at half a billion dollars.
The money will help build apartments for extremely low-income Americans, says Watt, the former Congressional Black Caucus leader whom President Obama hand-picked to regulate Fannie and Freddie. The funds will also help the poor afford their own homes through down payments and other assistance.
But nonprofit housing activist groups will distribute the funds. So count on money being diverted to ACORN fronts and clones, beholden to the Democratic Party, who in the past have laundered housing grant money to finance political campaigns.
As we’ve reported previously, ACORN affiliates are still operational in New York and other cities, having renamed themselves after ACORN was busted for fraud and corruption during the 2008 presidential campaign. They’re also still receiving HUD housing grants.
In the past, these groups have used HUD grants to pressure banks to make ill-advised home loans that sped the mortgage crisis. Now a permanently funded war chest will aid their shakedown — courtesy of taxpayers still on the hook for Fannie and Freddie.
The last thing the nation needs is another Washington scheme that further politicizes the lending and home-building markets. Yet rest assured that will be the end result of these national housing funds.
Making matters worse, they’re unaccountable to congressional appropriators, making them ripe for corruption and cronyism. We’re talking about billions of dollars funneling through left-wing nonprofits and floating around in urban reinvestment projects sponsored by the likes of Rahm Emanuel and Al Sharpton and Jesse Jackson.
With this potential $500 million slush fund, moreover, the Obama regime is effectively turning Fannie and Freddie into off-budget welfare agencies — indeed, a self-sustaining shadow government for the left wing that will survive even Republican administrations.
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“The Obama regime has quietly ordered Fannie Mae and Freddie Mac to start donating hundreds of millions of dollars a year to a permanent affordable-housing slush fund for Democratic activist groups.”
Starting to see what community organizing is all about? Could those funds serve Americans better if we used them for infrastructure repairs or a high speed rail system?
#ClowardAndPiven
#FundamentalTransformationOfAmerica
Is there any chance that more Republicans in office could revive plans to wind down Fannie Mae and Freddie Mac?
Review & Outlook
Life Without Fannie and Freddie
A new study shows only a modest effect on the housing market.
Dec. 26, 2014 6:19 p.m. ET
The housing-industrial complex spends so much money lobbying to maintain federal mortgage subsidies that it’s easy to forget how little they matter to the average borrower. A recent report from the Congressional Budget Office does a public service in showing how easily the U.S. could transition to a free market that doesn’t threaten taxpayers.
Last week CBO released a paper exploring various options for reform of mortgage financing. One alternative CBO studied is to allow private companies to replace Fannie Mae and Freddie Mac , the two government-created monsters that guarantee mortgage-backed securities and contributed so much to the 2008 credit crisis.
Under this scenario, Fan and Fred would gradually increase the fees they charge to provide these guarantees, and gradually reduce the number of loans that qualify. By the end of a decade, Fan and Fred’s market share of new mortgage guarantees would be zero. And most consumers would barely notice the difference.
According to CBO, borrowers who took out Fannie- or Freddie-backed loans early in the transition “would pay interest rates that were 20 basis points higher than they would pay under current policy. That differential would continue to increase, so by 2024, borrowers who took out federally backed mortgages would face rates that were 60 basis points higher than they would be under current policy.” And that’s about the increase that borrowers would pay in the private market, too.
In other words, shutting down the two firms and letting taxpayers off the hook would add much less than a percentage point to rates for borrowers. As CBO notes, such rate increases would be “smaller than the fluctuations in market interest rates that occur in most years. For example, rates on conforming 30-year fixed rate mortgages rose from less than 3.5 percent in January 2013 to 4.5 percent in July of that year, or more than 100 basis points. Mortgage rates moved a little less during the first 11 months of 2014, when they stayed between 3.9 percent and 4.5 percent, a range of 60 basis points.”
But what about home values? Would the end of subsidies channeled through Fan and Fred cause home values to crack? CBO’s analysis says that house prices might be “2.5 percent lower than they would be under current policy.” If that’s a catastrophe for a mortgage customer, it’s probably because he put too little down and borrowed too much. And lower home prices would make housing marginally more affordable for renters and first-time buyers, which is supposed to be the point of the federal subsidy scheme.
CBO points out other benefits to getting rid of Fan and Fred, notably that “privatization would probably provide the strongest incentive for financial institutions to be prudent in their lending and securitizing because private investors, rather than taxpayers, would bear all losses.” Bravo to that one. CBO also notes that competition would mean less reliance on any one entity in a market and greater innovation.
Under the scenario sketched out by CBO, as the toxic twins disappear, private investors could once again take a leading role in the market. But the Federal Housing Administration would still exist to subsidize first-time home buyers and CBO figures they would soak up a portion of the business that used to belong to Fan and Fred. So the taxpayer wouldn’t be entirely out of the woods.
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Running marginal buyers through the wringer is very, very profitable.
Structurally unsound
America restores the weak lending standards that led to the housing crash
The Economist
Oct 25th 2014
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.
http://www.economist.com/news/finance-and-economics/21627699-america-restores-weak-lending-standards-led-housing
Prediction: CR8R
Home Prices See Biggest Monthly Drop Since Polar Vortex As Case-Shiller Declines For Second Month
Submitted by Tyler Durden on 12/30/2014 09:15 -0500
Case-Shiller’s 20-city home price index dropped 0.1% MoM in October (on an unadjusted basis) - the second monthly drop in a row and biggest drop since the Polar Vortex. Year-over-year, home prices rose 4.5% - the weakest growth since October 2012. While this modestly beat expectations (+4.5% vs +4.4% exp.), it is the 11th month in a row of growth deceleration. Also of note: the Top 20 Composite index is now down for the second month in a row, dropping to 173.36. The question now is whether the downside momentum will pick up.
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Falling Case Shiller, falling MRIS(zillow), falling prices per realtor associations…
But prices aren’t falling eh? LOLZ
2015 U.S. Housing Trends: Will Echo Bubble Continue?
By Charles Hugh Smith | Market Overview | Dec 31, 2014 04:40PM GMT
Considering the reality that only the top 5% have benefited from the policies of the past six years, it’s difficult to see how the Echo Bubble can continue expanding in 2015.
After two years of bubble-type price increases, the big question for housing in 2015 is: will the Echo Bubble continue expanding, or will it follow its 2002-2007 sibling’s epic bubble pop and decline? To answer the question, we first need to identify the key trends that have enabled the expansion of the Echo Bubble.
There are three key dynamics underpinning housing’s Echo Bubble.
1. The unprecedented intervention of the Federal Reserve to push mortgage rates to historic lows. Nothing fancy here; lower rates serve two purposes central to the policies of central banks everywhere: they enable marginal buyers to qualify to buy homes, and they boost prices higher.
2. The post-2008 slump in housing construction and the demand for rental housing pushed inventory down and demand up. This led to a classic imbalance of supply and demand: as demand by investors and overseas buyhaters rose, inventory fell. Prices naturally skyrocketed in areas with tight inventory and high demand.
3. The end of the Fed’s monetary easing/money-printing devastated the periphery emerging-market economies, forcing capital to flee to safe havens such as U.S. real estate. As China and the emerging economies t had boomed as Fed money poured into their economies rolled over, those who had accumulated fortunes rushed to transfer their wealth (often ill-gotten) into safe havens such as the U.S.
The goal wasn’t just to transfer capital, but safeguard the families’ physical safety; buying a house with cash is the ideal solution. This dynamic has fueled a vast all-cash housing trade in areas favored by foreign capital: New York, Miami, Los Angeles, San Francisco, Vancouver, etc.
The question then boils down to: are these trends likely to continue or fade? To answer that, we have to refer to a fourth dynamic, one that undermines the entire Echo Bubble: the erosion of household income.
How can housing prices keep rising as household income continues declining in real terms?
…
Will the Echo Bubble continue expanding in 2015? Let’s answer with another set of questions: is a housing market that is dependent on marginal buyers who would never qualify to buy a house with prudent risk management a sustainable market? Is a housing market that is dependent on hot money from overseas buying houses for cash a sustainable market? Is a housing market that is dependent on investors buying homes to rent a sustainable market?
Considering the reality that only the top 5% have benefited from the policies of the past six years, it’s difficult to see how the answer is “yes.” Income has gone nowhere, while the wealth of the top 5% has soared. Is that a healthy economy that can support a sustainable rise in house values? No, it isn’t.
Chinese economy set to miss growth target for first time since Asian financial crisis
Xi Jinping, the Chinese president, emerges from a key Communist party meeting with a stronger mandate and new powers to sidestep his own government
China’s government may cut growth targets next year
Picture: AP/XINHUA
By James Titcomb
12:35PM GMT 01 Jan 2015
Latest manufacturing figures points to slowest growth in world’s second-biggest economy for 25 years
China’s economy is likely to miss Beijing’s growth target for the first time since the Asian financial crisis at the end of the last century, after official figures showed the country’s seismic manufacturing sector barely grew in December.
A housing market slump and attempts to rebalance China’s heavily investment-dependent economy have held back growth this year, and data on Tuesday showed factory output expanding at its slowest rate for 18 months.
The government’s Purchasing Managers’ Index – a survey of private sector manufacturing companies – fell from 50.3 in November to 50.1 in December.
This was only just above the 50 point mark that separates growth from decline, and the lowest since June 2013. The figures added weight to suggestions that the economy has missed a government-set growth target of 7.5pc for this first time since 1999.
Most economists now expect the economy to have grown 7.4pc in 2014 - the slowest since 1990.
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‘nobody, nobody knows what’s going to happen to anybody besides the forlorn rags of growing old’
-Jack Kerouac, On the Road
http://www.goodreads.com/quotes/48084-so-in-america-when-the-sun-goes-down-and-i
“I saw Brooks Clark, who is now about eighty and bent like a bow, hastening along the road, barefooted, as usual, with an axe in his hand; was in haste perhaps on account of the cold wind on his bare feet. When he got up to me, I saw that besides the axe in one hand, he had his shoes in the other, filled with knurly apples and a dead robin. He stopped and talked with me a few moments; said that we had had a noble autumn and might now expect some cold weather. I asked if he had found the robin dead. No, he said, he found it with its wing broken and killed it. He also added that he had found some apples in the woods, and as he hadn’t anything to carry them in, he put ’em in his shoes. They were queer-looking trays to carry fruit in. How many he got in along toward the toes, I don’t know. I noticed, too, that his pockets were stuffed with them. His old tattered frock coat was hanging in strips about the skirts, as were his pantaloons about his naked feet. He appeared to have been out on a scout this gusty afternoon, to see what he could find, as the youngest boy might. It pleased me to see this cheery old man, with such a feeble hold on life, bent almost double, thus enjoying the evening of his days. Far be it from me to call it avarice or penury, this childlike delight in finding something in the woods or fields and carrying it home in the October evening, as a trophy to be added to his winter’s store. Oh, no; he was happy to be Nature’s pensioner still, and birdlike to pick up his living. Better his robin than your turkey, his shoes full of apples than your barrels full; they will be sweeter and suggest a better tale.”
Thoreau
Governments need debt slaves. They will never get out of the market. Don’t worry, we debt monkeys get the bill.
Prediction: Barack Hussein Obama (D.-Kenya) will still be in office on 1/1/2016
Not only is this year starting off with temperatures which call global warming into question, but it is cold enough to make a bear want to remain in hibernation well into spring time.
Prediction: Plans will take shape for Riverview Gardens Senior High School to regain its accreditation, as it comes to light in the national media that it serves its minority constituents as the only unaccredited high school in the state of Missouri, where Michael Brown spent his sophomore year.
Racial issues have seeds sown in failing schools
By Donnell Probst
September 1, 2014 at 6:03 pm
As much of the country awaits the decision of the grand jury in the Michael Brown case, there are plenty of questions to be asked regarding police brutality and racial tension in America. As important as the these questions are, there is one that has flown under the radar in the middle of all the chaos: How have the failing schools in lower-income communities contributed to these societal ills?
This national interest problem has been quietly brewing in St. Louis county for almost a decade. Since 2006, St. Louis county has experienced a rash of school districts losing their accreditation from the Missouri Department of Elementary and Secondary Education.
Riverview Gardens School District, a little over four miles east of Ferguson, Missouri, was the first to lose its accreditation with DESE in 2006. Just one year later, St. Louis Public Schools, serving approximately 23,500 students in St. Louis, lost its accreditation in a highly publicized takeover by the state of Missouri. In one final blow to struggling communities in and around St. Louis, Normandy School District lost its accreditation in 2012, the last in a string of failed public education institutions.
The NSD is the poster child for failing schools in St. Louis county. Comprised of 24 municipalities, NSD residents are 98 percent African American with 93.6 percent of its students receiving assistance through the federal lunch program.
After decades of movement towards more segregation in St. Louis, the demographics of the NSD are becoming all too common in suburban America; high minority population, even higher unemployment rates and lack of social services set up school districts for failure before they even have a chance to succeed.
Progress must be made in these areas if we are to stop the perpetuation of segregation and low socioeconomic status of communities like those surrounding St. Louis.
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Poor racial relations in St. Louis suburbs have origin in “white flight”
By Donnell Probst
August 24, 2014 at 6:21 pm
The pathology of racism in America has long been a product of the unending, systematic segregation of minority communities to the most undesirable corners of society.
On the surface, Ferguson, Missouri, seems like any other impoverished, fringe suburb with its crumbling infrastructure, elevated unemployment rates and inadequate educational systems. However, St. Louis has a unique history of segregation that places blame directly on the Caucasian-Americans who chose to flee the city, leaving a dynamic of separation and racism behind.
Despite the fact that much of St. Louis appears to be an antiquated version of mid-century America many would prefer to leave in the past, the segregation of St. Louis’ communities is not simply a residual effect of a bygone era, but instead a process which has endured the test of time, gaining alarming momentum over the past three decades.
As early as the 1930s, segregation pervaded every corner of America with the establishment of discriminatory housing practices such as “residential security maps.” This process attempted to identify minority communities as poor credit risks by “red-lining” their neighborhoods on a map for use by mortgage and credit lenders.
The infamous “restrictive covenants” of the 1940s sought to protect established white neighborhoods from “red-lining” by blocking developers, realtors, and residents from selling property to “high risk” buyers, making it impossible for minorities to move into or out of more desirable areas in and around St. Louis.
As white families moved farther into the undeveloped suburbs of St. Louis in their attempt to escape the growing diversity of St. Louis and its adjacent suburbs, they began establishing discriminatory zoning policies such as large lot requirements and bans on apartment buildings, all but explicitly preventing lower income, minority families from moving into their neighborhoods.
As much of the country made efforts to move past segregation after the Civil Rights movement, St. Louis seemingly doubled its efforts to avoid integration. The rate of “white flight,” the phenomenon of white residents moving away from areas with growing minority populations, increased dramatically. As black populations rose in communities like Ferguson, the white population declined at an equal, often more accelerated rate.
In 1980, approximately 85 percent of the population of Ferguson, Missouri was white, while only 14 percent of the community was black. Just 30 years later in 2010, a shift in demographics occurred, showing only 29 percent of the population was white, while 69 percent was black.
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I’ve noticed liberal commentators often decry the advent of white flight from transition communities in the Midwest, without ever acknowledging that the whites are moving to escape the increasing crime rates and declining school standards which seem to invariably accompany an influx of new minority community members. Never mind that minority families that can afford to move out of declining areas do so as well.
My sister is a case in point: Hardly a racist, she used to date a Jamaican. Nonetheless she has located her family life forty miles east of where we grew up, where her son can get a good public school education far from the unaccredited Riverview Gardens school district where we attended public school.
Blaming white flight on racism precludes discussion of the real problems that need to be addressed in order to remedy the societal issues that stem from white flight.
Blaming white flight on racism precludes discussion of the real problems that need to be addressed in order to remedy the societal issues that stem from white flight.
+infinity. Well said, PB.
Try to imagine for a moment, that same liberal commentator blaming a minority family for fleeing an area where crime is increasing and their kids can’t get a good education; nope, can’t picture it—instead, they would be lauded.
“There are times when an investor has no choice but to behave as though he believes in things that don’t necessarily exist. For us, that means being willing to be long risk assets in the full knowledge of two things: that those assets may have no qualitative support; and second, that this is all going to end painfully. The good news is that mankind clearly has the ability to suspend rational judgment long and often.”
I predict that 2015 will, once again, feature a seemingly endless glut of writers/observers who appear to think that the terms “crude oil” and “condensate” refer to exactly the same substance.
With prices of both cratering, a distinction without a difference.