A QE Only Economy
A weekend topic around three articles. Builder Online, “Last year, many economists predicted that 2015 would be a turnaround year for first-time buyers, who would be encouraged to enter the market due to stable job growth and the return of mortgage options that allow buyers to put as little as 3% down on a home. However, that prediction has largely fallen flat. It’s an ongoing sluggishness among both first-time buyers and a portion of entry-level buyers that can be largely attributed to one key factor: affordability.”
“Demand for new homes is strong across all buyer segments, and demand scores from Metrostudy regional directors show positive gains year over year. However, while higher demand increases production, builders are still missing the mark for potential buyers who would like to purchase a home but cannot afford the product that builders are selling. The reasons for the lack of lower-priced housing vary by region, but are mostly due to the usual suspects.”
“In Chicago, construction costs are the biggest impediment, while tight lot inventory and high property values continue to plague markets like Seattle, Denver, Northern California, Salt Lake City, and South Florida. According to regional director David Cobb, ‘New-home prices remain well out of reach for many buyers, with the median new single-family detached home sales price [in South Florida] now at $517,000.’”
“Even townhomes have become too expensive for some buyers in markets like Charlotte, N.C., where townhome prices have increased by double-digit percentage points year over year. This is likely also the case in the New Jersey-New York suburbs, where condo and townhome projects are receiving increased interest from first-time buyers, but traffic isn’t converting into sales.”
“In higher-value markets, only first-time and entry-level buyers with high budgets are able to buy. According to Philadelphia regional director Quita Syhapanya, ‘Builders can’t find the margins they need marketing to [first-time and entry-level buyers with low price points], so they continue to market, sell, and build for the move-up buyers.’”
Bryan Crabtree at Townhall Finance, “The Housing Market has been in the unfettered hands of the Fed since 2008. And, the looming Fed rate-increase may be the end of the recovery. If you bought a home in the last four years, you’ve likely seen your equity grow. And that has created blind-optimism about the future of housing. But if you look at those same values a year from now, it’s not likely to be that optimistic.”
“First, the fundamentals tell us that interest rates, presently lower than at almost any point in the last forty years, have created a short-term housing stimulus that has increased demand and allowed buyers to purchase homes that, historically, would have been out of their price range. Second, builders are building spec-homes again (homes where there is no buyer yet). This skews the numbers, and therefore the perception of the housing market, because these properties in builder-communities are not included in the homes listed for sale.”
“Third, as many as a million homes have been purchased by institutional investment-companies for the sake of generating short-term rental income. Their intention, however, is to sell these homes once the market has recovered (likely, they will be too late). In other words, we still have to clear that inventory through the market in the near future. This means that the numbers being reported by Realtors are missing hundreds of thousands of unlisted spec-homes and lots, as well as shadow-inventory that will reappear in the future (when it’s needed the least).”
“And, because of extremely low mortgage interest-rates, the exciting 2015 sales numbers are misleading. Median home-price is rising (while transaction volume is rising), but actual home-price appreciation is stalling or even declining. The main reason that median-price is rising is that interest rates are low, which affords most buyers more purchasing power.”
“On my housing radio show, we talk about how home-buyers seem to be buying the maximum of what they can afford (part of a growing trend of irresponsible consumer decisions). They’re generally putting as little down as possible, to such an extent where the following holds true: a 1% rise in mortgage interest rates would reduce the home-buyer’s purchasing power by 11%.”
“The overwhelming majority of all new mortgages are backed by the Federal Government through HUD/FHA, VA, Fannie Mae or Freddie Mac. Unlike previous eras, where we saw volatile mortgage-interest rates, we have new and unprecedented control by the Government. Combine this with the Dodd-Frank legislation (and QRM, Qualified Residential Mortgage), requiring much stricter scrutiny on lenders, and the housing-industry is simply not capable of enduring much of a rise in rates.”
“We’re about to learn that this ‘housing recovery’ has really been nothing more than a Government-sponsored stimulus of ridiculously low interest rates and trillions of dollars in Fed-printed money.”
From Swarajya Magazine. “In what history will judge as an extraordinary period, for the last 84 months the US Federal Reserve has held onto a policy of ZIRP (zero interest rate policy) and it’s almost a decade since the last rate hike happened in 2006. In other words, we have been on an easing cycle for almost a decade, though technically the withdrawal of QE (quantitative easing) could be seen as a tightening move – at least in the relative sense of the word.”
“Some economists have, however, pointed out that the US economy might already be in a recession and so the rate hike was the last thing that the US economy needed right now. And that the Fed would be forced to embark on an easing cycle soon. So how does all this really play out?”
“In fact, Janet Yellen had to abandon her ‘incoming data dependent’ approach to effect the hike yesterday (16 December). For much of the year, she had insisted on seeing an improvement in the ‘labour force participation rate’ before she embarked on a hiking cycle. But just a fortnight back, she had changed her tune to speculate that it might automatically improve in the months ahead despite a hike. Why the sudden shift?”
“Maybe Yellen is well aware that the US economy is already in a recession as almost all of the leading indicators (factory orders, thanksgiving sales, inventory data, etc) show and it’s only a matter of time before she has to embark on an easing cycle. So it might well have boiled down to choosing between making obvious to the world that the US is a ‘QE only economy’ or giving the world a reasonable sounding excuse about the interest rate hike being the cause of the recession, even if it happens to inflict a certain amount of self-damage to her reputation as a forecaster (not that the public has any memory of the forecasting track records of these central bankers. Yellen’s forecasting on the housing bubble or the 2008 credit crisis was abysmal, though President Obama credited her for the same when she took office).”
“This long period of easy credit has led to tremendous malinvestments and capital misallocation decisions worldwide – most notably on the side of government finances, leading to bloated balance sheets. The US cannot sustain any meaningful increase in interest rates. At a mere 4 percent interest rate, the share of net interest payments in federal outlays would jump to more than 20 percent – a clearly unsustainable level.”
“There might be technically no way out of the situation today although, much like a near-dead patient can stay on ventilator support, the US economy can totter along under conditions of A-ZIRP (Almost ZIRP). As far as Yellen is concerned, she will continue to give speeches about normalising monetary policy for a few more weeks. That there is no way for the Fed to shrink its balance-sheet will never be brought up (who is there to buy the trillions of near junk bonds it holds?)”
“Perhaps by the end of Q1 of 2016, it would be obvious to everybody that the US is indeed in a deep recession. And Yellen would be forced to come out with interest rate rollbacks and loaded helicopters to fill the economy with free cash.”
A comment from yesterday:
IPFreely
“Isn’t it interesting that it’s a Chinese STATE OWNED entity doing this while seeming to have no problem selling to mainland Chinese who are supposedly under capital controls? It is also interesting that they have run out of ghost cities to build there so why not step in and build in a place like LA that is starving for units but the locals can’t figure out how to build anything anymore. We live in interesting times.”
http://thehousingbubbleblog.com/?p=9408#comment-2508166
‘can’t figure out how to build anything’
I have documented that the shack builders have said there isn’t sufficient demand to do much more. I have documented that land prices have doubled or tripled all over the country. So how can this be? Why are only “luxury” apartments being built, but at the highest rate in 30 years? It’s right here:
‘This long period of easy credit has led to tremendous malinvestments and capital misallocation decisions worldwide’
‘This long period of easy credit has led to tremendous malinvestments and capital misallocation decisions worldwide’ ??
has really been nothing more than a Government-sponsored stimulus of ridiculously low interest rates and trillions of dollars in Fed-printed money.” ??
We are starting on the path to higher long term interest rates….With all the refinancing, new purchase money and HARP the homeowners in our country are sitting on interest rates that I believe are going to have inventory implications we may not expect…I just see 3 & 4% long term interest rates as a powerful incentive to just stay put…
Don’t forget all the Baby Boomers who stayed in their empty nests for seven years longer than planned because refinancing into a low-interest mortgage made it too expensive for them to ever downsize to housing that makes sense for geriatric lifestyles. Circumstances will eventually force them on to the nursing home or the morgue, at least partially alleviating the inventory shortage of suitable housing for middle-class families.
I agree with that Pbear…However, they are not all going to be in nursing homes or die all at the same time…If that generation came into the world over a period of 15-20 years then they likely exit over the same time frame on average…And that does not count the ones who have already downsized or moved to cheaper locals which many have and will likely continue so some of that Baby-Boomer inventory is already in the hands of new owners with extremely low interest rates…
A massive demographic of 70 million people will all head to the grave in a 20 year span leaving 35+million excess empty houses.
Now combine that with already excess, empty and defaulted houses of 25 million in an environment of collapsing demand and there is only one conclusion;
Get what you can get for that depreciating house while you still might get something because it’s going to be less for decades to come.
Oh, so today the number is 60M empty homes? HA, you are good for a ha ha ha every day.
That’s sneaky, breaking the fantasy number up into two smaller pieces, neither of which have any basis in fact.
The data hasn’t changed my friend. You can’t hide 25 million excess empty and defaulted houses anymore than you can hide 35 million.
I am not leaving. You’ll have to take me out in a gurney! This is a toe tag house and it you want, just roll me into the compost bin in 25 years. Dust to dust, ashes to ashes…..but no way a millenial is getting my home for a while!
Oh yeah, I forgot to mention: 3.35% interest rate just reinforces the plan!
Don’t forget CA Proposition 13…
Exactly JM & PB…..
My mom passed away a couple of years ago at 88 years old….She had a reasonable amount of cash but very little income…SS was it…She lived on that SS check for a very long time without needing to dip into her savings…Her property taxes were $665. per year…
This is a toe tag house and it you want, just roll me into the compost bin in 25 years. Dust to dust, ashes to ashes…..but no way a millenial is getting my home for a while!..3.35% interest rate just reinforces the plan! ??
Yes…Some just don’t get it and our resident bed-weter is just a antagonist so we ignore him…
I will say it again, I think due to these 3-4% fixed 30 year loans we may not see the typical turn over of single family homes that we have experienced historically…
With housing demand at 20 lows (30 in CA) and falling and massive excess housing inventory, you’re right. You won’t find a buyer for that depreciating shanty at a fraction of the imagined price.
“typical turn over of single family homes”
It is a strange conclusion that low interest mortgages will make homes unavailable down the road. We learned after 2006 that people abandon mortgaged houses not because of interest rates but because of price. Eight million of them in fact, one million in California. Round two will come up when prices fall, regardless of interest rates.
We learned after 2006 that people abandon mortgaged houses not because of interest rates but because of price ??
BS….First, the market was strong in 2006 and through 2007…Then, September 2008 hit with the Lehman collapse and with AIG on the ropes…
Unemployment went to 10%+ (reported) but was in reality much higher…We are on the verge of a global depression…What the hell would you expect in that environment…
Once the domino effect with foreclosures kicked in it had a systemic effect and the downward spiral accelerated….The run-up may have been facilitated by low interest rates and more-so by underwriting standards (or lack thereof) but the collapse had little to do with price…
Little to do with “global depression” (which is wasn’t) Dave. The collapse in housing demand and defaults would have happened irrespective of AIG and Lehman.
Obscuring massively inflated prices behind kick the can down the road financing is precisely what happened then and has continued to this day.
“She lived on that SS check for a very long time without needing to dip into her savings…”
I was just at a Christmas party at one of the larger government offices I frequent for work. I met an amicable older fellow who said he retired in 1984 on the feds CSRS plan. Not overweight, still witty… he likely has another ten years to go!
First, the market was strong in 2006 and through 2007…Then, September 2008 hit with the Lehman collapse and with AIG on the ropes…
Wow, what a bunch of revisionist BS!
Housing peaked in SD at the end of 2005; it was followed in most of the rest of the country with a peak at various times throughout 2006.
Prices were well on their way into decline before Lehman collapsed. And Lehman collapsed BECAUSE of the end of the ponzi mortgage market—and demand dried up because of the price declines; income from issuance was way down, and they were holding a bunch of cr@p mortgages that no one wanted to buy by that point.
Nice try on swapping the cause and effect around by 180-degrees!
Ehhhhhh no.
Demand dried up because of grossly inflated prices. Just like today.
Demand dried up because of grossly inflated prices. Just like today.
That was my point; demand dried up 2-3yrs before Lehman failed, because prices were too high. Demand declined even FURTHER after prices started going down, as no one wants to buy into an already-bursting bubble.
‘This long period of easy credit has led to tremendous malinvestments and capital misallocation decisions worldwide’
Do Federal Reserve Bank economists recognize the effect of their policies on capital misallocation?
Why should it matter to the Fed if there is malinvestment? They think defaults are no problem, buy up the worthless paper and issue new loans again at interest. What should worry the Fed is debtor exhaustion, the loss of demand for loans. There is no indication that they can see that far.
Do Federal Reserve Bank economists recognize the effect of their policies on capital misallocation?
This can’t possibly be a novel thought to them, can it??
My conclusion is that they know, and don’t care; perhaps a nicer way of saying that is that they think the harm caused by this mis-allocation is lower than the assumed harm of not acting.
From the comments to the last piece:
Sawyer
“Lol this is awful. Like, I can’t even take this seriously….friggin austrians.”
Rich Keal
“What part of a manufactured bond market don’t you get? The can has been kicked down the road so far and so many times few remember where it all began. Pensions rolled over to Wall Street starting in 74 complements of the ERISA Act to pay for LBJ’s BS. Fast forward to the S&L crises bailout which was lowering of the rates on a massive scale that took a small regional thrift called WAMU to become the 3rd largest bank in the US before the papered over collapse of it, Merrill and B of A et. al. The banking landscape and bond market is an artificial joke and anyone who believes otherwise is simply ignorant or a fraud. Which are you? Please offer your explanation for all the printing and rolling to keep floating the global economy.”
^The grim reality.
http://www.thehousingbubbleblog.com/?p=8265#comment-2299823
http://www.thehousingbubbleblog.com/?p=8787#comment-2407352
From the Swarajya Magazine piece: “The current easy credit cycle has gone on for a 35-year period wherein US interest rates have come down from around 20 percent plus in 1980 to just above “0 percent” now.”
Yep… Ronald (mommy?!) Reagan jump-started the American economy in 1980 by liberalizing credit during his first administration. But to be fair the damage was done well before his arrival in Washington.
jump-started the American economy in 1980 by liberalizing credit during his first administration ??
I think you have your timeline incorrect…1980 we were entering the Volcker recession with 18% interest rates…
“I think you have your timeline incorrect…1980 we were entering the Volcker recession with 18% interest rates…”
Oh I recall those days well… makes me sick all over again. The Volcker plan was part of a major economic change. Easy credit was part of that plan too, which paved way for the check cashing industry as well. But what really hit me was the Deep Pockets Liability that led to huge insurance increases. However it forced me back to college.
“Lol this is awful. Like, I can’t even take this seriously….friggin austrians.”
I’ve noticed people who are incapable of intelligent discource often times go straight to the ad hominem attack.
I get emails on multi-family properties in Tucson. The latest:
$450,000
SqFt +/- / Source 3,584 / Assessor
Year Built: 1982
Net Opp Income: -497
Analysis
Cap Rate %: -0.11
Cap Rate %: -0.11 ??
LOL….Why would you even advertise that…
Some people are willing to spend $1.00 to save $0.25 in taxes! Don’t ask me why!
‘Argentines expressed shock at soaring prices on Friday and a major union called for protests to demand salary increases in the initial fallout from a major devaluation of the South American nation’s currency.’
‘The price hikes came after the new administration of President Mauricio Macri on Thursday lifted restrictions on the buying of U.S. dollars. That led to a 30 percent devaluation of the Argentine peso vis a vis the dollar, which was immediately felt across the country.’
‘Yearly inflation is estimated at around 30 percent, a figure certain to rise in coming months. Finance Minister Alfonso Prat-Gay said earlier this week that Macri’s administration was negotiating with many businesses to keep prices at the level they were at the end of November.’
‘Many were skeptical. “Prices always go up,” said Adrian Portas, 51-year-old security guard who said he would curtail the amount of meat his family eats. “But our salaries do not.”
Russia and Brazil are in the double digit club too.
The Fed is being disingenuous, again, about its rate hike.
http://wolfstreet.com/2015/12/17/fed-is-raising-rates-for-the-opposite-reasons-they-claim/
‘Politicians and government leaders have a long history of managing the expectations of the public. They consider it the most powerful tool they have. However, once leaders start on that path, they will find themselves routinely lying before they reach its end.’
‘Fed leaders too have figured this out. They believe that managing the expectations of the public, and particularly the expectations of big business and Wall Street, to be one of their most powerful tools. So they “talk up the economy,” regardless of how mediocre it is, and regardless of what economic misjudgment that will produce, as Governor Lockhart did last week, to accomplish whatever their goals may be.’
‘Even as they’re raising rates, Yellen once again put negative interest rates on the table. In Europe, negative interest rates have already morphed from sheer impossibility to solid reality. But there are some unintended consequences. Read… “Perverse, Unpredictable Effects” of Negative Interest Rates: Mortgage Rates Soar in Switzerland”
From the link referenced at the end:
‘And there was a another issue for banks, on the cost side of the equation. The FT: “At the same time, the costs of financing mortgages rose because of the effect negative interest rates had on capital markets. Banks had to pay a higher price to use market instruments to hedge the maturity mismatch between short-term retail deposits and long-term housing loans. As a result of increased hedging costs, mortgage rates rose.”
“The market response to negative interest rates was highly logical because of the value of retail deposits,” UBS finance director Tom Naratil told the FT. “The bigger question for us was: would the other banks follow us or would they look to pick up market share?”
‘No worries. Now the Swiss banks are in sync: ironic as it seems on first blush, mortgage rates will rise further, not despite, but because of the SNB’s negative-interest-rate policy.’
‘This absurd NIRP environment has had another perverse effect: issuance of franc-denominated corporate bonds by non-Swiss companies has plunged 28% year-to-date from the same period last year, to CHF 18 billion, on track to be the weakest year in Dealogic’s data going back to 1995.’
‘It seems investors just don’t like being charged for lending money to risky borrowers – with the only hope being that rates will drop even further, which, as mortgage rates are demonstrating, is not guaranteed. Faced with soft demand for these rip-off bonds, the players in this game are keeping issuance down to avoid pushing up yields.’
‘As the Swiss mortgage debacle shows, markets can be recalcitrant and re-develop a will of their own when things get too absurd. And they can act counter to central planning. Ah, the unintended consequences of NIRP. Absurdities breed absurdities, and they’ll breed many more surprises.’
‘NIRP is already in the toolbox of the Bank of Canada which has embarked on an all-out currency war. In another perverse side effect, there are clear winners: rich Chinese who buy homes in Canada.’
Here’s one for the new era:
‘Faced with soft demand for these rip-off bonds’
‘So they “talk up the economy,” regardless of how mediocre it is, and regardless of what economic misjudgment that will produce, as Governor Lockhart did last week, to accomplish whatever their goals may be.’
Isn’t this the same approach taken by the Chinese government?
Fed’s Williams wants low rates, hot economy in 2016
“Every meeting will truly be live in terms of adjusting policy one way or the other,” San Francisco Federal Reserve Bank President John Williams told Reuters in an interview, referring to the Fed’s policy-setting meetings.’
‘In a wide-ranging, hour-long interview at the San Francisco Fed’s headquarters, Williams said he expects easy Fed monetary policy to help push the unemployment rate, now at 5 percent, down to around 4.5 percent by the end of next year.’
“We are going to run a higher-pressure economy for a while,” he said. Inflation, he said, is still running stubbornly low, in part because of falling energy prices and the strong dollar. “I want to get it back to 2 percent,” he said.’
‘Though much more optimistic about the economy than in prior years, Williams said that at the end of this week’s meeting, there was no round of high-fives among the 17 policymakers at the table.’
“We are not done: we still have inflation unquestionably running stubbornly low due to mostly, I think, global factors,” he said. To keep job creation strong, rates will need to stay low, rising only modestly next year, he said, adding: “We are going to run a higher-pressure economy for a while.”
‘Williams said he is “completely confident” that the Fed’s timing on its first rate hike was appropriate. Even so, he said, there’s “some kind of probability,” perhaps about 10 percent, that a shock could hit the economy and send it back into recession. If that happens, he said, the Fed would not hesitate to cut rates and perhaps buy more bonds or promise to keep rates low for a certain period of time. These are tools it used after the financial crisis to ease monetary policy when rates were already near zero.’
“We are still in a situation where most of our tools are fully employed. It’s like an army that’s got all of your forces out there, you don’t have a lot of reserves,” said Williams. “It’s hard to feel like, well, I’m feeling any kind of sense of victory or something.”
High-fives? Victory?
‘In a wide-ranging, hour-long interview at the San Francisco Fed’s headquarters, Williams said he expects easy Fed monetary policy to help push the unemployment rate, now at 5 percent, down to around 4.5 percent by the end of next year.’
If this guy gets his way, the next recession is certain to be a doozy.
Remember WIN - Whip Inflation Now? It took a while but … eventually it kicked in and worked!
Here, from Wiki …
“Whip Inflation Now (WIN) was an attempt to spur a grassroots movement to combat inflation, by encouraging personal savings and disciplined spending habits in combination with public measures, urged by U.S. President Gerald Ford. People who supported the mandatory and voluntary measures were encouraged to wear “WIN” buttons, perhaps in hope of evoking in peacetime the kind of solidarity and voluntarism symbolized by the V-campaign during World War II.
“The campaign began in earnest with the establishment by the 93rd Congress, of the National Commission on Inflation, which Ford closed with an address to the American people, asking them to send him a list of ten inflation-reducing ideas. Ten days later, Ford declared inflation “public enemy number one” before Congress on October 8, 1974, in a speech entitled “Whip Inflation Now”, announcing a series of proposals for public and private steps intended to directly affect supply and demand, in order to bring inflation under control. “WIN” buttons immediately became objects of ridicule; skeptics wore the buttons upside down, explaining that “NIM” stood for “No Immediate Miracles,” or “Nonstop Inflation Merry-go-round,” or “Need Immediate Money.”
It’s funny but the last definition of “NIM” - “Need Immediate Money” - still applies.
“… eventually it kicked in and worked!”
In case anyone here doesn’t quite get this, this was meant to be a bit of sarcasm.
From the last link in the post:
‘In fact, Janet Yellen had to abandon her ‘incoming data dependent’ approach to effect the hike yesterday (16 December). For much of the year, she had insisted on seeing an improvement in the ‘labour force participation rate’ before she embarked on a hiking cycle. But just a fortnight back, she had changed her tune to speculate that it might automatically improve in the months ahead despite a hike. Why the sudden shift?’
I mentioned last week that the language had changed recently but I couldn’t pin it down like he did. I don’t know what to make of it; did they see something that freaked them out? Was it this all-of-a-sudden “credit crisis”? Or is the prey in the trap and it’s time to spring it?
Consider this; China just got reserve currency status from the IMF. Coincidence? Then they almost immediately changed their peg to a basket of currencies. Very curious.
‘U.S. stocks closed lower on Friday for the second straight day, as concerns, ranging from a decline in crude oil prices to the global response to the Federal Reserve’s interest hike, weighed down the market. The expiration of stock and index options contracts added volatility in a heavy trading volume day.’
‘The S&P and Dow had their worst two-day performance since Sept. 1, while indexes posted losses for the week. The S&P 500 posted one new 52-week high and 37 new lows; the Nasdaq recorded 36 new highs and 136 new lows.’
‘Volume on the U.S. exchanges was 11.85 billion shares, compared to 7.24 billion average for the full session over the last 20 trading days, according to Thomson Reuters data.’
‘Apple is making 94% of smartphone profits, but selling fewer phones than rivals’
‘That’s up from 85% during the same quarter of 2014 and it’s a figure Apple achieved despite selling just 14.5% of the total smartphone number for the quarter. To put that into perspective Samsung achieved 24.5% of global sales during the same period, yet took just an 11% share of profits, according to a Canaccord Genuity report.’
‘Those profit figures exceed 100% because many handset makers, such as Sony and HTC, actually posted a negative operating income.’
The dry cleaner effect, courtesy of ample Yellen bucks. Another article said Apple was developing a new cheaper time waster, I mean smartphone, so it can compete in emerging markets. Just give it time and we’ll have all these guys operating at a loss. Apples stock dipped into the correction zone yesterday.
“Just give it time and we’ll have all these guys operating at a loss.”
And there it is.
Mirror mirror on the wall. Who is the biggest deficit spending president of them all.
Why…. why it’s Barack Obama!
http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=200
‘Republican congressional leaders are like a football coach who believes the secret to winning is to punt early and often. House Speaker Paul Ryan and others are claiming victory over the 2,000-plus page appropriations bill, but this is a “no boondoggle left behind” $1.1 trillion nightmare.’
‘House Appropriations Committee Chairman Hal Rogers’ press release claims that the omnibus bill “helps to stop waste and administrative overreach.” Instead, the bill ravages both paychecks and freedom. No wonder White House spokesman Josh Earnest gushed Wednesday: “We feel good about the outcome.”
‘Some provisions of the bill seem harebrained even by Beltway standards. Republicans were justifiably outraged by the Bureau of Alcohol, Tobacco, Firearms and Explosives’ “fast and furious” operation, which authorized sending more than a thousand guns to Mexican drug cartels. Section 276 of the omnibus bill prohibits federal agents from providing guns to anyone he “knows or suspects … is an agent of a drug cartel, unless law enforcement personnel of the United States continuously monitor or control the firearm at all times.” So the G-man is supposed to keep his finger on the suspect’s trigger at all times, or what? Perhaps it would be too easy to cease giving weapons to drug dealers.’
http://www.usatoday.com/story/opinion/2015/12/17/budget-bill-leaves-no-boondoggle-behind-column/77476422/
one way to go
lp.org
“We could be on a bubble and that bubble could crash and it’s not going to be a pretty picture,” said Trump, whose boasts about his ability to anticipate the market have aroused some skepticism among investment professionals. “The market has gone down big league the last couple of weeks. We could be in a big fat bubble and if that bubble crashes, it’s a problem.”
http://www.bloomberg.com/politics/articles/2015-12-19/trump-predicts-u-s-economic-bubble-could-soon-burst
Nice post Ben….
“Perhaps the most appalling part of the omnibus are the provisions that authorize tech and communication companies to secretly provide your personal data to federal agencies — no search warrant required. The American Civil Liberties Union warns that this information “can be used for criminal prosecutions unrelated to cyber security, including the targeting of whistle-blowers under the Espionage Act.” Rep. Justin Amash, R-Mich., rightly warns that a vote for the omnibus bill is a “vote to support unconstitutional surveillance on law-abiding Americans.”
“Third, as many as a million homes have been purchased by institutional investment-companies for the sake of generating short-term rental income. Their intention, however, is to sell these homes once the market has recovered (likely, they will be too late). In other words, we still have to clear that inventory through the market in the near future. This means that the numbers being reported by Realtors are missing hundreds of thousands of unlisted spec-homes and lots, as well as shadow-inventory that will reappear in the future (when it’s needed the least).”
Sounds like the real number of short-term rental investments which were purchased for short-term investment gain may number in the millions. Good luck when these folks collectively try to collect their gains by cashing out en masse.
Further complicating the 25 million excess, empty and defaulted house issue is the 35 million houses just beginning to trickle on the market as boomers die off.
can u name a positive residential market ?
Any area where prices are falling to dramatically lower and more affordable levels is a positive residential market.
can u name a positive residential market ?
LOL…R U surprised at the answer U got…..
Higher prices and unaffordable necessities may seem to benefit you personally when you supposedly have “got yours”. They make your community impoverished however, as the state of California proudly proves. How is it positive to have an impoverished community?
Higher prices and unaffordable necessities may seem to benefit you personally when you supposedly have “got yours” ??
You got it wrong Dude but I sense your envy…I really don’t give a crap if my house goes up or down in value…Got It ?? Because, the SOB is not for sale and has not been for 36 years and counting…Value of my house is irrelevant to me…
Houses priced at 3X value across your whole community is indeed important because it impoverishes the whole community. This may not seem important to you personally because you have the “SOB” already? It is the reason your state is the poorest in the country. What’s to envy?
Huntington Beach, CA Housing Craters; Prices Crater 10% YoY
http://www.zillow.com/huntington-beach-ca-92648/home-values/
‘Right now, the Dallas-Fort Worth metropolitan statistical area is one of the hottest multifamily markets in the country with an eye-opening 34,000-plus units currently under construction. North Texas rents are at an all-time high, driven by almost 7 percent annual rent growth for the year ending Sept. 30. Despite the increase, occupancy rates exceed 95 percent.’
‘We have seen developers rush in to fill the need. More than a dozen apartment towers are under construction or planned for places like Uptown, Victory Park, Oak Lawn and the Design District. Developers are also renovating and repurposing existing buildings.’
‘The construction boom has not been restricted to the urban core. There are substantial projects in the $300 million Legacy West development in west Plano, for example. Palladium International has just announced that it has plans to build a luxury 30-story multifamily high rise there. At Craig Ranch, a master-planned community in McKinney, ground was broken on a second phase of the Parkside luxury apartments and a parcel of land for the third phase has been purchased. To put all this activity in a national perspective, Dallas-Fort Worth is the fourth largest apartment building market in the country.’
http://rebusinessonline.com/dallas-a-market-with-multifamily-staying-power/
‘The last time the Federal Reserve raised interest rates, the housing crash hadn’t happened. The recession was still a year away. For homebuyers and real estate investors who’ve gotten used to years of rock-bottom-priced mortgages, you’d imagine the prospect of higher borrowing costs would sound a red alert.’
‘But real estate economists so far are shrugging off the Fed’s small hike in the interest rates banks charge each other.’
‘Interest rates are still ridiculously low. This week, the average cost for a 30-year fixed-rate mortgage was still a tad under 4 percent. In June 2006, the average home loan went for 6.3 percent.’
http://www.dallasnews.com/business/columnists/steve-brown/20151217-fed-rate-increase-doesnt-raise-red-flag-in-the-real-estate-sector.ece
eye-opening 34,000-plus units currently under construction ??
Wow….
There is construction literally everywhere. I spoke with a friend recently who is having a house built. he’s having a very difficult time finding framers. apparently they are all tied up on projects.
eventually it will be time to short the home builders, question is, when?
he’s having a very difficult time finding framers ??
Yep…Same thing here for all the trades…There are over 200 electricians from out of state working on the Apple project alone…
So they hire help from out of state for half the inflated cost of local help.
Another excellent example of how nothing matters but price.
Oh, but all is not well in Texas: http://wolfstreet.com/2015/12/14/retail-sales-in-texas-plunge/
“Oil Bust Contagion Spreads”
From the comments:
william
December 17, 2015 at 10:51 pm
I live in Austin, Texas and am closing on my third Texas property next week. Am I crazy? Maybe, but I am planning long-term 10+ years out and am only risking a few months of pay. Property prices don’t swing as much in Texas because of the high property taxes taking a large chunk of each mortgage payment.
So much madness packed into one little paragraph. How many other “william from Austin” types are there here? Tons, I’ll bet.
‘Metro Denver home prices should increase a respectable 6 percent next year even with mortgage rates on the rise, according to a forecast from the National Association of Realtors.’
‘The problem for the housing market, however, is that home prices rose to reflect lower mortgage rates and now will have to adjust if mortgage rates go higher. That is assuming that the Fed doesn’t reverse course in the coming months in the face of mounting evidence of a slowdown.’
‘With each passing month, it appears more likely that metro Denver home prices might have peaked in June. Higher interest rates would make it harder to reverse that course.’
http://www.denverpost.com/business/ci_29278021/mortgage-rate-hikes-could-temper-denver-home-prices
‘prices rose to reflect lower mortgage rates’
And this:
‘In an ideal world with stable interest rates and a balanced supply and demand, home prices would rise in tandem with income gains, said Erik Franks, a research manager at John Burns Real Estate Consulting in Irvine, Calif. After adjusting for income gains, the drop in 30-year mortgage rates have allowed homebuyers to borrow 44 percent more than what they could have in June 2001, when rates were 7.2 percent.’
“If a particular market is already overvalued with very low mortgage rates, when rates go up, they’re going to feel the effects more,” Franks said.’
Hey guys what could go wrong here:
‘allowed homebuyers to borrow 44 percent more than what they could have in June 2001′
Don’t forget, the GSE’s lost $7 billion on interest rate derivatives last quarter. That’s seven thousand millions.
‘The Grove at City Center, a 420-unit apartment complex in Aurora, has been sold for $60 million. Denver’s experiencing a bevy of big apartment complex sales. Yesterday it was reported that Los Angeles-based real estate investment company TruAmerica Multifamily bought the 362-unit Veranda Highpointe Apartments at 6343 E. Girard Place in Denver for $105 million.’
‘Earlier this month, Gelt Inc. of Los Angeles bought the 564-unit 3300 Tamarac apartment complex in Denver for $74 million.’
http://www.bizjournals.com/denver/morning_call/2015/12/another-big-denver-area-apartment-complex-is-sold.html?ana=e_den_rdup&s=newsletter&ed=2015-12-18&u=rFuEtNnpCoSO1qd%2BFguvKNdYeb8&t=1450452790
The Grove deal is $148,000 per apartment. The online calculator says the Veranda one is $290,000 each.
http://verandahighpointe.com/apartments/
3 Bedroom
2 Bath
1356 sq.ft.
Starting at $2,649
Studio
1 Bath
521 sq.ft.
Starting at $1,300
Here’s the bells and whistles:
Pool, Spa, & Lazy River
Outdoor Courtyard with Fire Pit
Bocce Ball Court
Fitness Center
Indoor Court w/ Basketball Hoop
Billiards and Shuffle Board
Yoga Studio
Cyber Café
Private Meeting Room
Nikko Rooftop Lounge
Lucky Dog Walking Path
Sudz Dog Wash
What is it with this lazy river stuff?
3 Bedroom
2 Bath
1356 sq.ft.
You don’t see them building three bedroom apartments around here…Kind of makes me wonder what the profile is of the occupants in the three bedroom…
homebuyers to borrow 44 percent more than what they could have in June 2001, when rates were 7.2 percent.’ ??
Question is, when valuations fall and they will in a significantly higher interest rate environment, will the owners default and walk or sit tight on their 3% mortgages ??
With foreclosure moratoriums in all 50 states, default isn’t an issue.
‘Look out, mortgage rates are going up! That’s the fear mongering that some are telling homeowners and homebuyers after the Federal Reserve raised interest rates. The other key thing to keep in mind is that as mortgage rates go up, home prices usually come down.’
“As interest rates go up, we expect home prices will come down eventually. It doesn’t happen overnight,” says Karen Stone, a real estate broker for TOWN Residential in New York City.’
That could be good for buyers. Right now many cities have been “seller’s markets.” There aren’t many homes for sale but there are a lot of people looking. “In New York City, I’m still seeing bidding wars,” says Stone, who admits she’s even been surprised at the price some homes have sold for. “The last few years have been a ‘no rules’ environment.”
‘Now she’s starting to see a shift as buyers are saying, “Wait a minute. I’m not quite ready to spend that much more.”
http://www.wdsu.com/money/why-mortgage-rates-are-not-going-up-now-but/37013714
Want to comment on this Jingle?
‘Stone, who admits she’s even been surprised at the price some homes have sold for. “The last few years have been a ‘no rules’ environment.”
The other day I saw an ad for a 2.8% cash-out refi - on your car.
I mean the last bubble in 2006 was in the face of quarter point increases every three months right? It does take a long time; as affordability dropped and rates rose, the creative mortgage projects filled the affordability void for at least a few years. Wonder if we’ll see that again.
The other day I saw an ad for a 2.8% cash-out refi - on your car ?
OMG…That may be the canary-in-the-coal-mine right there…
Sometimes your best investments are the ones you don’t make.
“San Francisco Rents Fall In November”
http://www.bizjournals.com/sanfrancisco/blog/real-estate/2015/12/bubble-apartment-rents-fall-san-francisco-oakland.html
Denver, CO Housing Inventory Explodes 114% As Prices Crater 17% YoY
http://www.movoto.com/denver-co/market-trends/
Collapsing Demand For Commercial Office Space
http://www.zerohedge.com/news/2015-12-20/peak-office-space
Ft dot com
When Rates Rise
US central bank policy and the spectre of 1998
Normalising interest rates seen as stemming risk of financial bubbles
A U.S. flag flies on top of the Marriner S. Eccles Federal Reserve building at sunrise in Washington, D.C., U.S., on Tuesday, Oct. 28, 2014. The Federal Open Market Committee meets today and tomorrow after six weeks of volatility in global financial markets. Since the FOMC met in mid-September, oil prices have tumbled 14 percent, and the Standard & Poor’s 500 Index of stocks dropped as much as 7.4 percent from a record close.
Photographer: Andrew Harrer/Bloomberg
December 18, 2015
Matthew Klein
History never repeats, but there are some intriguing parallels between the global macroeconomic environment in 1997 to 1998 and today that may help explain the Federal Reserve’s decision to lift US interest rates this week.
Back then, few at the Fed believed in using monetary policy to restrain excessive risk-taking in the financial markets. Now, it seems, things have changed. How else to explain such different reactions to such similar circumstances?
By the end of 1998, inflation had decelerated to the slowest rate since the second world war; oil prices had collapsed by nearly two-thirds; junk bond yields were soaring; the dollar had gained a fifth against the currencies of America’s trade partners; and countries from Latin America to Russia to East Asia were struggling. Meanwhile, the US jobless rate had dropped to a three-decade low.
Policymakers responded to the confusing, contradictory signals from the strong domestic economy and shuddering financial markets by easing policy — first by refraining from an expected monetary tightening and then by slashing interest rates sharply.
Stock markets soared, encouraging excessive investment at a time when the US economy was already running hot.
“The Fed in 1998 was responding to market developments over and above domestic economic concerns and that contributed to extensions in market valuations,” said Toby Nangle, head of multi-asset allocation at Columbia Threadneedle Investments.
The Fed’s decision to begin “normalising” monetary policy on Wednesday may be an attempt to avoid repeating that experience.
Mark Dow, head of Dow Global Advisors, a hedge fund, and a former economist at the International Monetary Fund, says the Fed is keen on preemptively raising the cost of borrowing as a form of “avalanche patrol” for the financial markets.
Is the Fed overcompensating for mistakes of the past by now lifting rates too early?
…
BloombergBusiness
Googling China’s Economy Shows Shifting Sentiment
Enda Curran
Benchmark
December 20, 2015 — 3:00 PM MST
Photographer: Zhang Peng/LightRocket via Getty Images
To get a flavor of the changing sentiment on China’s economy, look no further than web searches made on Google.
In 2014, search interest reflected the nation’s rising prowess, with phrases such as “China largest economy,” “China number 1 economy” and “China overtakes U.S. economy,” according to data provided by the search engine giant. There were negative searches too, reflecting a slowdown already underway, but most queries were upbeat.
That changed over 2015. After a $5 trillion stock market rout and scant sign of any economic turnaround, web surfers increasingly googled terms like “China economy collapse,” “China economy crash” and “China economy crisis.”
The sampling of searches isn’t meant to be scientific and through the years the search terms can vary. But overall, it captures how the global mood has fluctuated on the world’s second-largest economy.
In January, top policy makers were preaching a message that the slowdown was under control. By mid year, credibility had been dented by a clumsy response to the summer stock market meltdown. Then came the sudden move to devalue the yuan in August that shook emerging market assets.
The search results exclude neutral searches such as “China economy” and repeat searches that are phrased differently. Meantime, searches on the People’s Bank of China returned to a peak hit in 2011, while web surfers seeking information on the yuan just keep on rising.
Whether the search interest is any kind of leading indicator, or just a lagging reflection of web interest, is unclear. Either way, China bulls will no doubt be hoping more browsers enter `China economic recovery’ in their search boxes than `China hard landing’ in 2016.
…
As long as the helicopters aren’t dropping cash on the American public themselves, any additional cash will just be hoarded by Wall Street and corporations looking for easy money to acquire other companies or stock buybacks.
Give cash to the people and the majority will SPEND IT!!!