May 12, 2015

A Familiar Theme In Real Estate Booms

CTV News reports from Canada. “Housing starts fell 59 per cent in Saskatchewan on a year-over-year basis in April, according to the latest numbers from Canada Mortgage and Housing Corp. Regina’s housing starts declined eight per cent to 117, while Saskatoon saw a whopping 79 per cent drop to 116. ‘Economic growth is moderating in Saskatchewan. We’re seeing the housing market beginning to favour the buyer,’ said Lai Sing Louie, a regional economist with CMHC. ‘Inventory levels are rising, so that’s a signal for builders to channel sales to inventory and back off a little bit in terms of new construction.’”

Todays Zaman on Turkey. “While the economy is in poor shape, while debts climb and purchasing power decreases, what are the reasons for this leap? Is it a bubble, or is it real? Figures released by the Turkish Statistics Institute indicate that March was the month with the second-highest home sales recorded to date. However, question marks begin to arise indicating that they may not be a product of a real surge in housing demand. For example, according to a sector expert who spoke to Sunday’s Zaman, a popular trend has developed where tradesmen, small producers and even individuals who are in a financial bottleneck are selling their properties to their spouses or friends on paper with the understanding that they will purchase it back. This enables them to successfully apply to banks for housing loans that usually feature lower interest rates than other types of credit.”

“Another set of figures which complicate the matter show a housing surplus resulting from an imbalance in supply and demand. For example, in 2014 1,014,000 building permits were granted. The homes in question will be finished within the year and will contribute to the housing stock. In the first quarter 115,000 new homes were sold. This means that roughly 460,000 new homes will be sold this year. In the best case scenario between 500,000 and 600,000 will be sold, while 400,000 will remain on the market.”

“Such imbalance is due to the fact that the quality of homes being produced does not correspond with the income levels of prospective buyers. For example, housing prices in İstanbul far exceed the purchasing power of households that bring in TL 4,000 and under on a monthly basis.”

Bloomberg on China. “Fitch Ratings has called real estate the ‘biggest threat’ to Chinese banks as surging loans tied to properties coincide with defaults and falling sales. Corporate loans backed by buildings have grown almost fivefold since 2008 and residential mortgages have more than tripled in the period among lenders rated by Fitch. Chinese loans secured by real estate have increased 400 percent since 2008 at lenders rated by Fitch, compared with a 260 percent rise in facilities overall, according to Fitch.”

“‘We believe a significant portion of China’s 4 trillion yuan stimulus package found its way into the real estate sector,’ the analysts said in Friday’s report. ‘The rise of property collateral is a familiar theme in real estate booms.’”

The Australian Financial Review. “Like most aspects of the Chinese economy, Sunday’s night’s move to cut official interest rates was all about property. The PBOC is trying to avoid the housing market unravelling as chronic over-supply could trigger further price falls which then cascade through property developers, households and into the banking system. Zhu Min, a deputy director of the International Monetary Fund and former PBOC official, made this clear in Washington last month.”

“He said prices were still too high and the Chinese property market would continue to ‘face downward pressure’ as there was a staggering one billion square metres of vacant commercial and residential property across the country. To put this figure into context, it’s the equivalent of 2380 Shanghai Towers – currently China’s tallest building at 128 floors.”

The Financial Times on Australia. “A sustained property market boom in major Australian cities partly fuelled by a flood of foreign money is pricing first-time buyers out of the market — and causing problems for policymakers and the country’s central bank. Prices in Sydney have surged 14 per cent over the past year and 40 per cent since mid-2012. Auction clearance rates are running at record highs as investors — who now account for half of all mortgages issued — flood the market.”

“Official figures show the percentage of property purchases made by first-time buyers fell to 13.7 per cent in February, down from 18.5 per cent in mid-2012 and a high of 30 per cent in 2009. ‘We’d prefer a house but they are just too expensive,’ says Ms Kate Homan, one dozens of people squeezed inside a two-bedroom apartment in a Sydney suburb listed for sale at A$750,000 (S$790,000). ‘The heartbreaking thing is when you come to these auctions and see investors outbidding everyone else.’”

The Business Times. “There is a ‘real concern’ about a future oversupply of properties in Iskandar Malaysia, which could mean a potential decline in the value of homes there, said Monetary Authority of Singapore (MAS) board member Lawrence Wong. According to latest data from Malaysia’s National Property Information Centre, there are nearly 336,000 new private residential units in the pipeline in Iskandar.”

“Mr Wong, putting this figure into context, said that it is greater than the total number of private homes in Singapore; he added that the figure does not include another 1,400 hectares of reclaimed land near the Tuas Second Link that will come onstream from 2020.”

“Speaking in parliament, Mr Wong was responding to Nee Soon GRC Member of Parliament Lee Bee Wah, who wanted to know the number of Singaporeans who had bought properties in Iskandar, and how Singapore banks were safeguarded against major defaults in property loans to these buyers. ‘There are many risks involved in overseas property purchases, especially in markets where there is uncertainty of supply or no effective regulation of supply,’ said Mr Wong. ‘If there is an oversupply of properties, investments can lose their value, and it will also be difficult to find tenants for an investment property,’ he warned.”

“He noted that some reports on Iskandar and Johor have highlighted ‘aggressive land banking’ by property developers. Given these indications, buyers are becoming more cautious. The Johor housing market is slowing down, with official data from Malaysia showing that the value of residential property transactions fell by 42 per cent quarter on quarter in the fourth quarter of 2014.”




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61 Comments »

Comment by Ben Jones
2015-05-12 03:30:19

‘I have always struggled with the concept of buying a house in Kyoto, and will probably do so quite a bit longer now that I have read Tomohiro Makino’s 2014 book “Akiya Mondai” (“The Empty House Problem”). While ostensibly about housing, it is really about demographics and the disaster that awaits many communities, homeowners and families as the relentless impact of Japan’s aging, shrinking, childless population starts to be felt.’

‘Between 2009 and 2013 approximately 3 million new homes were added to the Japanese real-estate market, despite the population shrinking by almost three quarters of a million people. Most Japanese people apparently don’t want to live in Taisho Era houses either, so new construction is understandable.’

‘As people move into new homes, it leaves existing neighborhoods with more and more empty houses and condominiums whose actual value may be close to zero.’

‘The problem affects even those Japanese who thought they were well off. Makino writes of a large-scale condominium development next to a JR station in Kanagawa. Just 50 minutes from Tokyo by train and with units selling for ¥40-50 million each, the project was aimed at young working families. Surprisingly, though, it also generated a lot of interest from the elderly residents of a nearby upscale housing estate. Having reached an age where tending to a large empty house with a garden was too much work, a smaller condo close to transportation and shopping was an obvious draw.’

‘Yet none of the seemingly upper-middle-class citizens who submitted a purchase offer was able to follow through. The reason? None could sell their current house — all valued at over ¥100 million — due to a lack of buyers.’

Comment by In Colorado
2015-05-12 09:48:32

‘Yet none of the seemingly upper-middle-class citizens who submitted a purchase offer was able to follow through. The reason? None could sell their current house — all valued at over ¥100 million — due to a lack of buyers.’

They couldn’t find buyers for their $1M USD homes?

Maybe, just maybe, they aren’t worth one million dollars.

This also caught my eye:

Just 50 minutes from Tokyo by train and with units selling for ¥40-50 million each, the project was aimed at young working families.

“Young, working families” can afford $500K USD houses? I was under the impression that only graduates from elite universities were landing decent jobs, and that everyone else was pretty much under employed as offshoring has also ravaged the Japanese job market.

Comment by snake charmer
2015-05-12 10:09:35

It seems like Western economies can offer their citizens a lot of credit, but not a lot of decent-paying jobs. Seeing as how income is needed to service and pay off debt, that’s a problem, although I’m sure central bankers find no problem at all.

 
 
 
Comment by Ben Jones
2015-05-12 03:31:37

‘Bad loans at Chinese banks surged by the most in more than a decade in the first quarter, while profit growth continued to slow, the China Banking Regulatory Commission said.’

‘Non-performing loans in commercial banks jumped by 140 billion yuan (U.S.$22.53 billion) in the first three months to 982.5 billion yuan by the end of March, the CBRC said in a statement.’

‘The increase is the biggest since quarterly data became available in 2004 and equivalent to about 56 percent of new bad loans in 2014.’

‘Another 2.48 trillion yuan loans could potentially turn sour, according to the data. Since last year, credit defaults have spread from private firms to small state-owned enterprises on worries over slower economic growth and a cooling property market in smaller cities.’

Comment by Ben Jones
2015-05-12 04:41:51

‘Around 70 percent of companies surveyed in the Asia-Pacific region experienced overdue payments in 2014. This mainly affected companies in China, India, Hong Kong and Thailand.’

‘This was revealed by credit insurance group Coface in its annual survey which said the default level was highest in three years.’

‘Around 37 per cent of the respondents reported that overdue amounts increased in 2014, up by two per cent compared with the previous year. Companies in China, India, Hong Kong and Thailand are particularly affected.’

‘In China, the percentage of companies experiencing overdue payments in 2014 remained high. The Chinese economy’s high leverage, combined with the high cost of financing and low profitability of certain industries, means that the economic outlook for 2015 remains challenging.’

‘Coface’s risk policy remains cautious on industries affected by overcapacity issues, such as iron, steel, cement, shipbuilding, aluminium, glass for construction, coal mining, paper and printing.’

‘In India, overdue situations became more common in 2014. Coface underwriters reported that corporate overdue payments in India deteriorated in 2014, with huge increases in overdues from companies across all sectors, headlined by companies directly or indirectly related to the construction industry (such as infrastructure).’

Comment by Professor Bear
2015-05-12 07:41:50

‘In China, the percentage of companies experiencing overdue payments in 2014 remained high. The Chinese economy’s high leverage, combined with the high cost of financing and low profitability of certain industries, means that the economic outlook for 2015 remains challenging.’

This cannot be the same low-debt China described here on a daily basis by the resident expert.

 
 
Comment by scdave
Comment by Combotechie
2015-05-12 05:41:00

“There’s simply no playbook for a central banker facing so many competing challenges: deflation, excessive debt, chaotic global financial markets and vested interests resisting reform.”

OMG! No playbook! So what is a central banker to do?

“Zhou seems to have little choice but to make things up as he goes along.”

Which is the same thing that our central bankers are doing.

 
Comment by Professor Bear
2015-05-12 07:43:15

He’s not available…out to lunch.

 
 
 
Comment by Housing Analyst
2015-05-12 03:35:23

“Fitch Ratings has called real estate the ‘biggest threat’ to Chinese banks as surging loans tied to properties coincide with defaults and falling sales.”

Lesson: Never pay more than reproduction costs for a depreciating asset. If you paid more than reproduction costs ($55/square foot), you got ripped off.

Comment by Florida Skeptic
2015-05-12 18:48:50

I tell people that now and they look at me sideways. But I know it is true.

It is like people have entered an alternate reality generated by the housing industry that is supported by Big Business and the Banks. It is like it is just easier to plug in to the Matrix.

We live in the age of fake.

Comment by Housing Analyst
2015-05-12 19:44:33

There it is. Truth. It’s in short demand these days.

 
 
 
Comment by Housing Analyst
2015-05-12 03:40:26

“Schwarzman Deems China Defaults Good as Markets Embrace Failure”

http://www.bloomberg.com/news/articles/2015-04-21/china-defaults-are-welcome-to-traders-who-saw-markets-as-rigged

Remember….. foreclosures, defaults and falling prices are positively bullish and good for the economy.

 
Comment by Mugsy
2015-05-12 03:43:56

“Prices in Sydney have surged 14 per cent over the past year and 40 per cent since mid-2012.”

I hope the Aussie gov’t is happy with itself. They’ve allowed tens of billions of dollars to be laundered in their real estate market and screwed many Australians out of ever owning a home. They’re in good company though as it’s the same in the US, UK, Canada and New Zealand. The FIVEYE’s rule and dirty money is king.

Comment by In Colorado
2015-05-12 09:51:58

I hope the Aussie gov’t is happy with itself. They’ve allowed tens of billions of dollars to be laundered in their real estate market and screwed many Australians out of ever owning a home.

Once the ChiCom money spigot is shut off, housing will become more affordable down under, though the Aussie PTB will do everything they can to keep prices up.

 
 
Comment by Ben Jones
2015-05-12 04:46:17

‘Another building firm in Perth has gone into insolvency as job losses in the construction sector in that state continue to mount.’

‘Deloitte Restructuring Services has announced that its partners Jason Tracey and Gary Doran have been appointed as joint voluntary administrators of Perth-based home building outfit Capital Works Constructions Pty Ltd.’

‘Operating out of the northern Perth suburb of Osborne Park, Capital employs 24 people and trades under the names of Freelife Homes and Visionaire Homes. Freelife Homes is currently building houses for approximately 229 customers mostly across metropolitan Perth and has approximately 84 new homes in the pipeline waiting to be commenced.’

‘Also under administration will be Capital Construction Hire Pty Ltd, a labour company which principally provides contract labour to Capital Works.’

‘The latest development comes amid concern about growing incidences of construction business failure and job losses in Perth as the previously booming home building recovery eases.

‘Over the past year or two, both firms operating within the residential construction sector in Perth and their staff enjoyed strong operating conditions as the number of new housing starts throughout Western Australia surged from just over 20,000 in 2012 to more than 32,000 last year and demand for tradespeople and especially bricklayers surged.’

‘Now, however, there are growing signs that the market is past its peak. In this environment, coupled with an easing of activity in commercial building, concerns about business failure and job losses are mounting.’

 
Comment by Ben Jones
2015-05-12 04:50:59

‘Pro tip: Buy every stock with the word “technology” in it’

‘A rose by any other name would actually smell 10 percent more sweet.’

‘At least it would if that rose was a Chinese real estate company that had just changed its name to sound like a technology one. Indeed, as the Financial Times’ Gabriel Wildau reports, Shanghai Duolun Industry’s stock price shot up 10 percent—the most it’s allowed in a single day—after it rebranded itself as P2P Financial Information Services Co. But, to be clear, it’s not actually developing a peer-to-peer lending business. It just bought the domain name http://www.p2p.com, which it asserts is worth $100 million. That’s actually the only thing that domain says right now: “This domain is worth $100 million.” That, though, was apparently all it took to convince investors that the company’s long-term prospects were 10 percent better than they had thought the day before.’

‘It’s a dotcom bubble with Chinese characteristics.’

‘Now, it’s true that all of China’s stock markets have gone crazy the past year—doubling in price—but none have gone crazier than the tech-heavy Shenzhen Index. Half its stocks with analyst estimates, as the Financial Times’ James Mackintosh points out, have forward price-earnings ratios of 50 or more and 18 percent have 100 or more.’

‘By comparison, less than 10 percent of the stocks in the U.S.’s Russell 2000 have PE ratios of 50 or more and only 4 percent have 100 or more. It’s gotten to the point that all a company needs is the word “technology” in it to make its stock go up, up, up. Beijing Baofeng—yes—Technology, an online video company, zoomed up the maximum 44 percent allowed when it IPOed, and then the maximum 10 percent allowed each day after for the next month until its stock had gone up by a factor of 17.’

‘But why are China’s stock markets partying like it’s 1999? Well, part of it is that China’s housing bubble might be bursting—new home prices fell 5.1 percent in January—and the only other place people can put their money is in stocks. Another part is that China’s state-owned media companies have been saying for months that stocks look cheap, and people are listening. Especially people who haven’t graduated from high school.’

‘Indeed, 67 percent of China’s new stock investors don’t have a high school diploma. And now that China has cut interest rates so much—and looks like it will keep doing so—they can borrow money to buy as many stocks as they want. And that’s a lot. So-called margin accounts, which let people do this, more than doubled in 2014, and, even though brokerages have tightened their terms a bit, they’re still growing.’

Comment by Ben Jones
2015-05-12 04:55:01

‘Why China’s market should have suddenly taken off is something of a paradox. Much of the macro data over the past year has been relentlessly gloomy, particularly headline GDP growth.’

‘Few have been taken more by surprise by the sudden rise in the market than the Chinese themselves.’

‘The equity market had become something of an open joke among many Chinese looking to invest their money, with its chart resembling that of a failing company or a dying patient.’

‘Part of the reason for the growth also has been a change of sentiment among China’s investors. While shares slumbered they had been investing in property. But with real estate prices nationwide falling, on average 6 percent over the past year, stocks are back in fashion.

What worries regulators is that Chinese people tend to see the stock market as some form of casino. Small investors make up some 70 percent of share buyers, whereas mature exchanges in Hong Kong, New York and London are heavily dominated by more sober-and certainly more rational-institutions.’

‘There have been reports of some people actually selling second and third apartments just to get a piece of the action. Many private individuals have recently been borrowing money to invest in the market since their gains more than cover their interest repayments.’

‘In March alone, a record 1.14 million A-share trading accounts were opened in one week, whereas for most of the past few years the number opened has ranged from just 100,000 to 200,000. There have been a number of similar big spikes this year.’

‘Frank Tian, investment manager at Aberdeen International Fund Managers, based in Hong Kong, said there is a risk the manic behavior will bring unnecessary volatility.’

“There is a gambling culture in China and I say that as a Chinese. Whereas in developed markets you have got longterm professional investors, in China you have young people and even moms and pops gambling their retirement money. It is all deeply embedded in the culture.”

‘Zhu Ning, deputy director of the Shanghai Advanced Institute of Finance, thinks many Chinese investors have little idea about what they are doing.’

“I have done a lot of work on behavioral aspects of finance, and it is quite clear that a lot of Chinese investors aren’t familiar with concepts of investment,” he said.’

“Many of them are often very young and know very little about the stock market. They pay very little attention to fundamentals but just how well the market is doing, and they just want a piece of the action.”

‘All this prompted the authorities to try to damp down speculation. The China Securities Regulatory Commission, which regulates the stock market, moved on April 17 to prohibit margin trading within so-called umbrella trusts, through which investors can borrow money to invest in shares.’

Comment by Professor Bear
2015-05-12 07:46:50

‘Why China’s market should have suddenly taken off is something of a paradox. Much of the macro data over the past year has been relentlessly gloomy, particularly headline GDP growth.’

It couldn’t possibly be the assumption that a flood of easy money stimulus will soon drive shares skyward, could it?

Comment by Professor Bear
2015-05-12 07:48:56

P.S What is gloomy about 7 percent GDP growth? Americans would dine on crow for a month to post comparable results.

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Comment by Ben Jones
2015-05-12 08:54:52

The internet is a strange thing. I just got this in an email:

‘Hi Ben,

With a rising demand for more high-end living in Chengdu, Hollywood architecture firm 5+design has finished the design of Krystal Laputa, a collection of 3 multi-million dollar luxury hi-rise residential towers and one mid-rise building. All units within Krystal Laputa have been sold pre-completion since hitting the market one year ago.

Designed to evoke the sense of a floating neighborhood in the sky, the three towers hover over the lake and are connected by elevated marinas, waterways, and upper-level land bridges. Parks and recreational spaces sit on the land bridges to engage the community in outdoor activities.

Krystal Laputa takes advantage of Chengdu’s natural terrain and aims to push the interaction between residents and the outdoors. A Tea House sits on the ground floor in one of the towers and cantilevers over the water that flows in at the base, bearing full views of the expansive lake below.

To further the connection of place and nature, each unit is surrounded by its own private garden. Once exiting individual elevators, residents immediately enter into their separate green space as they make their way to the unit. All three towers and mid-rise building provide 270 degrees of undisturbed viewing that capture the scenic surroundings of the lake, lush greenery and the city of Chengdu in the distance.

The project is surrounded by an expansive lake, which was engineered to restore the canals and waterways that once existed in the region. It serves as Luxelake’s key environmental asset, providing a natural habitat to wildlife and functioning as a source of nutrients for surrounding vegetation.”

I looked it up:

http://en.wikipedia.org/wiki/Chengdu

Chengdu, formerly romanized as Chengtu, is the provincial capital of Sichuan province in Southwest China,[3] as well as a major city in Western China. It holds sub-provincial administrative status.[4] The administrative area houses 14,047,625 inhabitants: 7,415,590 within the municipality’s nine urban districts[5] and 6,632,035 in the surrounding satellite towns and counties’ urban, suburb and rural area. According to the 2010 census, Chengdu is the fifth most populous city in China.

The fertile Chengdu Plain, on which Chengdu is located, is also known as the “Country of Heaven”, a phrase also often translated as “The Land of Abundance”.

 
Comment by Housing Analyst
2015-05-12 09:07:24

I had no idea how desperate Dan is. Stunning.

 
Comment by snake charmer
2015-05-12 10:21:08

Last year I was traveling and read a feature about Chengdu in my airplane’s in-flight magazine. I’d never even heard of it, much less thought of the city as an international tourist destination. There was a picture featuring a towering luxury hotel called, no joke, the Shangri-La. Here’s the pitch for potential investors like you Ben:
________________________/

“Chengdu has always been known for its easy, some might say lazy, pace of life. Even its nicknames connote a life of leisure: Brocade City, Hibiscus City, Perfect City. Migrants from Beijing and Shanghai quip that the locals don’t so much walk as mosey.

Even as an infusion of government investment has caused the city to blossom into an economic powerhouse, drawing Fortune 500 companies deep into the misty mountains of Sichuan, Chengdu has retained its reputation for prizing the finer things in life. People here may work as hard as their brethren in China’s frenetic eastern and southern metropolises, but they also make time to while away an afternoon drinking tea, playing mah-jongg or dancing in a park.”

http://tinyurl.com/nd6j4mn

 
Comment by snake charmer
2015-05-12 12:07:56

The “Perfect City” in the “Land of Abundance.” Why live anywhere else?

There seems to be a bit of an air pollution problem, judging from images on the Google.

 
 
 
 
 
Comment by Ben Jones
2015-05-12 04:58:23

‘The economic downturn is starting to have an impact on Calgary’s rental market, says the Calgary Residential Rental Association.’

‘Due to job losses and the departure of college and university students from off-campus residences, the CRRA’s executive director Gerry Baxter says some landlords are losing tenants faster than usual.’

“A large number of them are from out of province so they have given up their tenancies here to move back to their home provinces to look for work,” he said. “The market is changing.”

‘Baxter added cost is also being affected. “Even when it comes to rent, some of the landlords I’ve been talking to have indicated that they’ve actually lowered their rents, just simply because the vacancies have increased and they’re looking to rent and they’re looking for tenants,” he said.’

 
Comment by Ben Jones
2015-05-12 05:17:41

‘It’s not the destination that matters, but the journey. That’s one squib of New Age wisdom that also resonates on trading desks, and helps explain the anxiety being spread by the global selloff in government bonds.’

‘The quickness and violence of the move up in yield implies too many big institutional investors caught offside and forced to reduce risk levels, which can beget still more selling.’

‘At these times, it becomes a game of trying to figure out if the Big Money is trapped, and where, and then often deciding to just get out of the way, in case it gets even uglier.’

‘In these instances, the question of why a sharp market break is happening is somewhat less important than how, and how fast. Which leaves us all monitoring the big auction of U.S. Treasury securities this afternoon, which will be followed by more new supply in coming days. When we get these swirling inter-market reactions among stocks, bonds and currencies, what investors most want to see is for the price moves to slow down and stabilize, as a hint that forced or fearful selling is abating. The credit markets have so far held up pretty well in this wild government-bond move, with demand for high-yield corporate debt firm this week. That’s often a key input for how stocks respond, and it’s not yet telling us to raise the market alert level too high.’

‘But stay tuned - things are moving fast out there.’

Comment by Ben Jones
2015-05-12 05:54:35

Oh dear.

CBOE Interest Rate 10 Year T No (^TNX)

Prev Close: 2.15

Open: 2.34

Up 0.17(7.91%) 8:38AM EDT

http://finance.yahoo.com/q?s=^tnx

Comment by Double Flip Triple Gainer
2015-05-12 06:21:23

I imagine the auctions the next few days will all be extremely over-subscribed. The corporate and HY spreads should start blowing out, as should EM government debt…but it seems to me no better time than now to buy some USTs.

Comment by Professor Bear
2015-05-12 07:55:26

You might want to check out the 2013 T-bond yield moves before jumping in. It seems like the correction that began in May 3013 lasted for months.

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Comment by Professor Bear
2015-05-12 22:46:27

I’ve been looking forward to the chance to compare the 2013 bond market selloff to the current one. May 2015 is setting up just like the May 2013 crash did. Problem is, the preceding period in 2015 is far worse for bond owners than was the early 2015 period. Now I’m thinking perhaps the relevent reference year is 1987.

I’ll add that year to the figure, then post for all eyes to see.

Meanwhile let me just mention that the 2013 bond market correction played out all year, ending with a 30-year T-bond yield just under 4%, off a base around 3% in early May — just like the current level!

 
Comment by Professor Bear
2015-05-12 23:20:21

Here is the chart. To make the years comparable, I indexed the 30-year T-bond yields to their beginning of year values. To summarize, both 1987 and 2013 ended up at much higher 30-year yields by the end of the year than they had in May.

2015 is setting up for a similar massive spike in yields, but with far more volatile and turbulent gyrations on the way up.

 
 
 
Comment by Professor Bear
2015-05-12 07:51:38

Bond yields are showing rapid improvements.

 
 
 
Comment by Combotechie
2015-05-12 05:20:21

“‘We believe a significant portion of China’s 4 trillion yuan stimulus package found its way into the real estate sector,’ the analysts said in Friday’s report. ‘The rise of property collateral is a familiar theme in real estate booms.’”

A rise of property collateral is driven by a rise in property PRICES.

Prices, get it? And prices are driven by OPINIONS, bullish opinions. Bullish opinions and available money.

Ya gotta have both for a boom. Take away one or the other - take away the bullish opinions or take away the available money - and you will turn a boom into a bust.

And to get a boom back you will need to get back the bullish opinions and the available money. One - the available money - is easy to get back but the other - the bullish opinions - less so.

Comment by Combotechie
2015-05-12 05:26:57

This idea of running an economy by managing the availability of money would probably work just fine if it weren’t for those pesky opinions that people - herds of people - seem to want carry about with them, opinions that seem to reverse - reverse as a herd reverses - now and then.

 
 
Comment by Ben Jones
2015-05-12 05:20:50

‘China’s State-backed property developer Greenland Group said on Friday it was looking to expand further into Canada after breaking ground on a high-rise hotel-condominium in downtown Toronto.’

‘Greenland said last year it plans to speed up its international expansion, focusing on first-tier cities in developed countries.’

‘Greenland Canada General Manager Henry Cao Yuan said his company is looking for more “medium-sized” projects in Toronto, similar in scope to the C$350 million ($290 million) to C$400 million hotel and condominium project underway in Toronto’s business district.’

“We are looking at the potential opportunities here in Toronto, but we are also in a very initial exploration of other cities - Montreal, Vancouver and Calgary,” Cao said in an interview following the groundbreaking ceremony for a double-towered Toronto hotel-condo project dubbed King Blue.’

‘Greenland missed the start of the condo boom that has long gripped Canada - and which some observers fear has already tipped into oversupply - but it is confident that population growth will continue to support more building, Cao said.’

“We are not at the very beginning joining the party, but we think we are not joining a party which will be ending very soon,” Cao said.’

Comment by Blue Skye
2015-05-12 05:55:37

Canada lost 19,700 jobs last month. A shrinking working population might not support that hoped for future of overpriced downtown condos.

 
Comment by traderjack
2015-05-12 12:36:12

the chinese, thinking long range, are simply transferring some of their population, and resources, into Canada, preparing for the future when they will control the Canadian Government, and have a place for the excess Chinese population!

Transpacific Immigration funded by governmental money!

LOL

Comment by Housing Analyst
2015-05-12 12:46:38

CraterJack!

 
 
 
Comment by Ben Jones
2015-05-12 05:25:13

‘There were breathless headlines proclaiming that dollar parity with Australia was just around the corner – and the implication, though no one ever spelled out exactly how this would happen, that this would mean good things for our economy. Those of us fortunate enough to have the spare cash to holiday on the Gold Coast would be able to buy more stuff – as long as we ignored the impact the ongoing high Kiwi dollar had on our manufacturing exporters. And boy, we’d stick it to the Aussies!’

‘Dollar parity was just another chapter in a long line of stories about our so-called rockstar economy – a label our government couldn’t drop fast enough once the dairy price started to drop and the real state of the nation became clear.’

‘Some have even tried to sell the housing bubble as a good thing. Sure, it might be difficult for young families to even dream of owning a home, and impossible to save a deposit when house prices in Auckland are going up by hundreds of dollars every week. But on the other hand, those of us with properties must feel pretty chuffed, what with our net worth going up and up.’

‘It’s hard not to get a bit doom-and-gloomy about everything. Just this week we’ve seen another business in Taranaki announce job losses, with Forman Insulation “re-aligning” themselves to save money and increase profits. Solid Energy is announcing yet more cuts after a deadly cocktail of incompetent leadership and hands-off government management but hands on profit taking, left the company completely unable to absorb the damage done by a low coal price.’

‘The numbers are telling one story – but the people on the ground can see a very different one. It’s hard to find a job. It’s impossible to find a first home. The safety net which should be there for all Kiwis in difficult times has been eroded and undermined by our government – and as that third-term arrogance really sets in it’s probably only going to get worse.’

 
Comment by Colorado Renter
2015-05-12 06:47:18

Two interesting and contrasting stories for today…

Denver prices up 17% since Q1 2014:

http://www.denverpost.com/business/ci_28093454/metro-denver-home-prices-raced-17-2-higher

The Fed Reserve Asset Bubble Machine:

http://www.wsj.com/articles/the-federal-reserve-asset-bubble-machine-1431386994

I can’t tell you how frustrating it is to be in the upper middle class income bracket, paying high rent, afraid to buy a house, and unsure where to invest period…

Comment by Housing Analyst
2015-05-12 06:51:02

Why buy a house when you’re renting for half the monthly cost?

 
Comment by rj chicago
2015-05-12 09:06:05

+1 on that

 
Comment by Housing Analyst
2015-05-12 09:25:15

“according to the National Association of Realtors.”

That’s the problem. The solution?

Denver, CO List Prices Crater 8% YoY; Inventory Explodes 134%

http://www.movoto.com/denver-co/market-trends/

 
Comment by Blue Skye
2015-05-12 10:46:16

“I can’t tell you how frustrating it is to be in the upper middle class income bracket, paying high rent, afraid to buy a house, and unsure where to invest period…”

Don’t be silly. You are already comfortable, you should relax and enjoy rather than be afraid. Buying an overpriced house is not the only alternative to paying too much in rent. You don’t have to do everything according to what the majority does, be creative. Stay out of debt and save actual money. Don’t speculate in markets that are leveraged by others.

Comment by In Colorado
2015-05-12 11:37:29

How does one avoid “paying too much in rent”? By taking in strangers as roommates? Staying in mom-n-dad’s basement? Renting in the ghetto? Living in your office like that guy in the bay area?

And he has a point about where to invest. The stock market is rigged. Assets are overpriced and the bank pays 0% interest.

Comment by Housing Analyst
2015-05-12 12:13:48

Simple.

Rent from a landlord instead of a bank. Doing so results in a 50% savings.

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Comment by Blue Skye
2015-05-12 12:19:35

“How does one avoid “paying too much in rent”?”

I am sure I would not make a good life coach, but doesn’t piling up the impossibles so immediately discourage one from seeing possibilities?

The things I did to reduce overhead costs about 90% probably wouldn’t work for the vanilla upper middle class mainstream sort, but some compromises must be possible for just about anyone.

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Comment by rallying the base
2015-05-12 13:10:58

The “starting from” rental rate on the website for my apartment building is 10% more than what I pay now.

Even if it goes up that much when I renew the lease this summer, it’s still less than renting from the bank.

Heat is included in my rent. Electricity is less than $30 a month for 8 months of the year and may top $70 a month in the summer. While all the loanowner loosers were cleaning up downed tree branches from last Sunday’s ice/snow storm, I was skiing in Rocky Mountain National Park.

Renting is always better. Always.

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Comment by redmondjp
2015-05-12 23:07:46

Bullcarp.

The payments on my house are 1/2 what it would cost to rent it.

I was lucky enough to buy in 1998.

Anybody with a brain can use one of the dozens of rent/buy comparison tools available to see what makes the best sense for them.

 
 
 
 
Comment by Neuromance
2015-05-12 16:35:16

Colorado Renter:I can’t tell you how frustrating it is to be in the upper middle class income bracket, paying high rent, afraid to buy a house, and unsure where to invest period…

You can have a pile of cash or you can have a large illiquid asset that’s expensive to maintain. I do look forward to buying one day, but I’m not going to go house-poor to do it. Nor do I have any interest in taking on a money pit. Which nowadays seems to be the only options for people in the situation you describe.

The financial-government cartel is going to do everything it can to transfer your accrued value to itself. But they’re going to have to actually do it, through currency destruction, confiscation or otherwise. I’m not going to do it for them.

I don’t like the rapidly escalating rents. I don’t like landlords. I don’t like banks. But if I have to pay a landlord or a bank, I’ll take the landlord.

And somehow, my net worth grew all throughout the bubble runup, burst and rebubble, as a renter. I used to be frustrated about the runaway real estate prices, but I realized there’s nothing wrong with an increasing net worth. The only option then, is this: http://i.imgur.com/4GIlWoJ.gif

Comment by Colorado Renter
2015-05-12 21:06:20

Ha ha. Fair enough. But isn’t there something better to do with my cash than sitting in a checking account?

Comment by Housing Analyst
2015-05-13 11:06:31

Hold onto every dollar you’ve got. And whatever you do, don’t buy a depreciating asset like a house at these grossly inflated prices.

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Comment by Housing Analyst
 
Comment by Professor Bear
2015-05-12 07:10:15

Bloomberg on China. “Fitch Ratings has called real estate the ‘biggest threat’ to Chinese banks as surging loans tied to properties coincide with defaults and falling sales.”

Snore…it’s all contained.

Comment by Blue Skye
 
 
Comment by Housing Analyst
2015-05-12 11:22:00

Real Estate Agent Charged With Molesting Sleeping Woman

http://cliffviewpilot.com/nyc-man-charged-with-molesting-sleeping-hackensack-woman-22/

 
Comment by Housing Analyst
2015-05-12 13:44:12

Aurora, CO List Prices Collapse 20% YoY As Housing Correction Resumes

http://www.movoto.com/aurora-co/market-trends/

Comment by redmondjp
2015-05-12 23:09:03

try not using movoto or zillow and get back to us.

Comment by Housing Analyst
2015-05-13 15:45:31

Refute it. You won’t because you can’t.

 
 
 
Comment by Professor Bear
2015-05-12 23:32:52

Luckily, real estate investment is a far less crowded trade than bonds (snark!)…

Comment by Professor Bear
2015-05-12 23:34:13

Bond Market Meltdown Deconstructed: Five Charts That Explain Why
Some extreme positioning and some major changes
by Ari Altstedter
12:35 PM PST
May 12, 2015

More than $450 billion has been wiped out across global bond markets in the past few weeks and, for many people, there doesn’t seem to be any particular reason why.

Sovereign-bonds yields had fallen so far that in order for them to make sense, investors would have needed to see persistent deflation and European recessions. For a while, that seemed like a real possibility, as oil went from more than $100 a barrel to less than $50 and many forecasters were predicting $30. Well, that didn’t happen, and oil started to rise at the same time as evidence of incipient inflation and economic growth in Europe.

That sparked speculation — proven to be unfounded — that the European Central Bank could even end its bond-buying program early. Against that backdrop, holding bonds with yields close to zero made little sense, causing investors to unwind one of the most crowded trades in all of markets. So, next time someone says “we don’t really know,” don’t buy it.

 
 
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