Signs The Market Is Heading Back Toward Earth
The Orange County Register reports from California. “Back from the depths of the housing crash, Orange County is once again the mortgage mecca of America New quarterly federal jobs data show the county is the national employment leader in two key home-loan related categories. A big lure to the mortgage game are paychecks far bigger than Orange County’s average weekly wages of $1,057 for all workers. Orange County’s weekly pay for real estate credit workers was $2,087 in the second quarter. That’s 17 percent more than the $1,781 the same workers made nationwide. Local loan brokers averaged $2,093 a week in the second quarter – 13 percent more than peers nationwide.”
“Even with Orange County’s recent mortgage hiring spree, these two home-loan industries now employ roughly half the number of workers who made mortgages at the peak of housing stupidity. That doesn’t mean there’s no reason for caution. Will higher mortgage rates and/or an erratic economy kill housing’s recovery, making today’s lending decisions look silly?”
The Star Telegram in Texas. “The boom is over. So says Jim Gaines, chief economist at the Texas A&M Real Estate Center, referring to the strong job growth and sizzling home prices that have buttressed the North Texas economy over the last few years. Gaines told us that 2016 will be ‘our transition year in Texas,’ marked by significantly slower growth in the economy and jobs that will put the brakes on soaring home prices. He foresees growth in statewide gross domestic product of less than 1 percent, while home price gains could halve.”
“‘The feeling of a boom economy is going to leave,’ he said. ‘The question is not whether we’re going to slow down and possibly decline, but at what rate and what’s the timing.’”
The Advertiser in Louisiana. “In 2015, Acadiana’s oil and gas workers might’ve drawn sympathy from their neighbors. This year, we might all feel sorry for ourselves. The oil and gas industry, beset by an international oil glut and price war, lost thousands of jobs last year, more than 2,000 in Acadiana alone. More losses are expected. Housing is down. So is hospitality. Transportation, too. ‘The ripple effects are greater than a year ago,’ said Cary Heath, an economist at the University of Louisiana at Lafayette, referring to the effects of the declining overall economy as ‘collateral damage.’”
The New York Times. “New York City real estate continues to sell for astronomical prices, but there are signs the market is heading back toward earth. Bidding wars, brokers say, are less frequent. Few open houses have lines out the door. And asking prices, while still lofty, are increasingly moving down, especially for luxury properties.”
“Among the discounted listings circulated by brokers and publicists in recent weeks: ‘$7 Million Price Drop!!’ for a five-bedroom at 110 Central Park South, listed for $17.995 million; ‘1 Million PRICE REDUCTION!’ for a three-bedroom penthouse at 15 West 20th Street, listed for $7 million; ‘HOT DEAL. *$150K Price DROP*’ for a one-bedroom at 280 Park Avenue South asking nearly $1.4 million; ‘PRICE REDUCED’ by $14 million in November, and further reduced by a total $18.5 million, for a historic townhouse at 684 Park Avenue, listed for $29.5 million. And the list goes on.”
“‘I have seen more broker incentives and price reductions in the last few months than I’ve seen in the last three years combined,’ said Leonard Steinberg, the president of the real estate brokerage firm Compass. ‘The market got carried away with itself in the first half of 2015. Some people went in with crazy pricing expectations.’”
The Miami Herald in Florida. “BankUnited has stopped offering retail residential mortgage loans to consumers and laid off some of its workers. South Florida’s largest locally based bank said new residential mortgages weren’t generating enough business but current mortgage holders won’t be left in the lurch. South Florida banking consultant Ken Thomas said he was ’shocked’ by the news. ‘One of the biggest needs we have in this community is affordable housing, and when you have the biggest South Florida-based bank backing off residential mortgage lending that raises eyebrows,’ he said. ‘If a small bank did this, that’s one thing. But this is BankUnited.’”
“The bank received a $4.9 billion federal government bailout after failing in 2009 because of bad mortgage loans it made during the real estate boom. (Only IndyMac Bank’s $11 billion failure was more costly for the government during the last downturn.) ‘This is not a great result for taxpayers, especially in one of the most economically lopsided communities in the nation,’ Thomas said.”
“One industry source familiar with the bank said BankUnited had bet big on expanding its residential lending business last year but couldn’t generate enough volume because of compliance costs and slowing Latin American investment in Miami. ‘They’re not the only bank that is considering this,’ said the source, who asked not to be named. ‘This could be the first of many.’”
“……couldn’t generate enough volume because of compliance costs and slowing Latin American investment in Miami…..”
There only needs to be ONE regulation: keep the first loss piece (say 5%?) of all loans you originate. The rest is unneeded.
I am guessing the decline in Latin American business is a stronger reason to exit, but lobbyists will say it is regulations and seek to dilute them.
Looking at currencies today, in the last 2-3 years it has become 50% more expensive for Latin Americans to buy U.S. real estate. THAT is the telling factor!
“……couldn’t generate enough volume because of compliance costs and slowing Latin American investment in Miami…..”
But…but…but… I thought all these wealthy South Americans were CASH buyers? So what does their slowdown have to do with BankUnited exiting the mortgage biz?
If your (Latino) friend bought a nice Miami condo in 2014 for $300,000 (converted form pesos) and you came to Miami last week, what would you say if your converted pesos meant the same condo cost you $450,00?
Adios amigos?
It’s only a matter of time before global financial contagion catches up to U.S. housing.
Smart investors are advised to dump your holdings ASAP: He who panics first panics best.
Dumb investors should plan to hold on under the presumption the long-time posters on this board don’t know what’s coming, even though we collectively predicted the 2007-08 episode.
‘The question is not whether we’re going to slow down and possibly decline, but at what rate and what’s the timing.’
He’s my brother from another mother.
“China Banks Seem To Be Doing Whatever They Can To Avoid Paying Anyone In Dollars”
Abrupt end to capital flight?
http://www.zerohedge.com/news/2016-01-17/china-banks-seem-be-doing-whatever-they-can-avoid-paying-anyone-dollars
“‘One of the biggest needs we have in this community is affordable housing…”
“affordable housing” defined as …as what? Defined as in lower prices?
Bahahahahaha … dream on …
“… and when you have the biggest South Florida-based bank backing off residential mortgage lending that raises eyebrows,’ he said.”
In this world the term “affordable” is not defined by the list price, it is defined by the cost of the monthly payments which are huge chunks - HUGE CHUNKS - of earned and yet-to-be-earned money that will regularly be sent up the economic food chain to the moneylenders - moneylenders, defined as those wonderful people who get to loan out to the vast multitudes of ignorant schmucks money that isn’t even theirs.
“In this world the term “affordable” is not defined by the list price …”
The “list price”, or the “going price” or perhaps the “Zillow price” is what gives value to the so-called equity that the neighbors get to enjoy and who like to think of as “wealth”.
But the true wealth is what the neighbors earn via their wages and salaries and then send up the line to wonderful people such as myself so I can spend it.
Bahahahaha … pukes work, bankers reap.
’slowing Latin American investment in Miami’
Why would all cash buyers from south America need loans? Oh, that’s right. I recently posted an article where they were almost all refinancing soon after they bought a fancy condo.
When I found this last night I wondered why this wasn’t in the national news. It was just last Friday. Seems kinda significant.
If you paid your mortgage off, it means you probably did not manage your funds efficiently over the years, it’s as if you had 500,000 dollar bills stuffed in your mattress.
almost all refinancing soon after they bought a fancy condo. Seems kinda significant ??
Ya think !!! Dirty money in, clean money out…Wash, Rinse, repeat….
‘clean money out’
The money goes to the seller. The problem for the rest of us is the buyers aren’t exactly driving a hard bargain and likely overpaid. Miami beach condos are WAY over their 2005 highs per square foot. It doesn’t make sense that the biggest lender would stop because of volume. They are the biggest lender! More likely they see falling prices (a la Manhattan) and don’t want to get burned. After all, the Related chief said 2 weeks ago the condo market was a bubble.
“A big lure to the mortgage game are paychecks far bigger than Orange County’s average weekly wages of $1,057 for all workers.”
Over a 52-week year that’s $52,399 in annual income. Small wonder The OC has to rely on all-cash investors from abroad to keep million+ dollar housing prices aloft, as local incomes don’t cut it.
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I remember doing a business cable install job in OC around 2005. It was basically a large open office with rows of tables and “kids” in their 20s-30s, maybe 40 of them. Two guys ran the operation and had all these “kids” hawking mortgages. I struck up general banter with one of the managers and it turned out they specialized in subprime loans. He kept telling about all the money their top earners made. Each kid had a picture of their dream car on the wall (M3’s Porsches, etc) and the bosses wanted them to “earn” it. I remember one kid getting ridiculed because he had a picture of a Tacoma on the wall haha.
Of course a few years later the business was gone.
Turns out Tacoma kid was the smartest one in the room.
I was teaching a summer course around that time. One of the brighter undergraduate econ majors in the class stopped attending because she got a high paying job hawking subprime mortgages (before obtaining her bachelor’s degree, mind you).
I would venture to guess 3/4 of the kids were right out of college or swayed out like your fine pupil.
When I stated Tacoma kid was the smartest in the room, that was setting the bar pretty low. It literally looked like something out of a Hollywood film…think Boiler Room mixed with Animal House. Quite the spectacle.
Nice to hear the good times are rolling again in the OC…
We are in a bull market still. CNBC TALKING HEADS
It’s a porcine beautician’s job duty to help Wall Street offload falling knives on greater fools right up until the moment when Janet gets the signal to pull the rip chord.
had all these “kids” hawking mortgages.
this is what i saw too at wells fargo, i knew something was wrong then … its a classic sign of a fraud/scam find the youngest, dumbest people you can find and put them out front.
Much like rapidly depreciating houses, junk, junk, junk.
“Glencore’s “Investment Grade” Bonds Just Took Out September Crash Lows: Downgrade To Junk Imminent”
http://www.zerohedge.com/news/2016-01-18/glencores-investment-grade-bonds-just-took-out-september-crash-lows-downgrade-junk-i
‘Among the discounted listings circulated by brokers and publicists in recent weeks: ‘$7 Million Price Drop!!’ for a five-bedroom at 110 Central Park South, listed for $17.995 million; ‘1 Million PRICE REDUCTION!’ for a three-bedroom penthouse at 15 West 20th Street, listed for $7 million; ‘HOT DEAL. *$150K Price DROP*’ for a one-bedroom at 280 Park Avenue South asking nearly $1.4 million; ‘PRICE REDUCED’ by $14 million in November, and further reduced by a total $18.5 million, for a historic townhouse at 684 Park Avenue, listed for $29.5 million. And the list goes on.’
Yet the media was saying just last week that Manhattan had hit all time highs and was selling like hotcakes.
Yesterday I was listening to the REIC devil radio show out of Las Vegas. The first was that hour long infomercial from New American Funding (based in Irvine). They were practically screaming what an idiot you were if you didn’t use your house to get “easy money” through a refi. The second show was a local lender and a UHS. They went over some stats: townhouses have a 19 month inventory, but sell in an average of 33 days. That’s a lot of relisting! Then they spoke at length about how huge the shadow inventory was and how “the banks” are dribbling it out to keep prices up. Now they will scoff at the term shadow inventory, but talk about it for 15 minutes like it’s a well know strategy.
Later I listened to this guy Bob Brinker - moneytalk radio or something. Any of you ever hear this guy? He’s a serious piece of work.
‘Among the discounted listings circulated by brokers and publicists in recent weeks: ‘$7 Million Price Drop!!’ for a five-bedroom at 110 Central Park South, listed for $17.995 million; ‘1 Million PRICE REDUCTION!’ for a three-bedroom penthouse at 15 West 20th Street, listed for $7 million; ‘HOT DEAL. *$150K Price DROP*’
Anyone else see the resemblance to eBay auction listing titles? Doesn’t that seem odd for “luxury” real estate? Screaming all caps, exclamation points, *asterisks*.
Last week it was reported that NYC RE is valued at around one trillion bucks. A few months ago a guy produced a graphic showing Manhattan alone is valued more than several states. The New York Times has reported that up to 95% of these luxury towers are empty most of the time. And the same paper took a casual look at some of the buyers and found drug criminals, Russian gangsters and other bad guys all over the place. Now the feds have been embarrassed into peaking at the money laundering. For a limited time only, of course.
“Now the feds have been embarrassed into peaking at the money laundering. For a limited time only, of course.”
I suggested this might be a problem about five years ago to an FBI agent in our circle, and he countered that it wasn’t. The funny thing is that drug money laundered into high-end San Diego housing was one of the subplots in the movie Traffic, which I saw back when it came out. So this is not exactly a new story.
‘this is not exactly a new story’
No, I told a Canadian newspaper it was money-laundering around 2010. A Canadian “condo king” said “this guy has been saying housing was going to crash for years”. I don’t know that I said that. I said it was a bubble, and bubbles usually (always?) crash. But about saying it for years: doesn’t that mean you had plenty of warning ahead of time? How come nobody ever says that about Shillers 2001 bubble call? And didn’t house prices already crash?
In 2007 (IIRC) I did another interview with a different Canadian paper. Asked if the resources boom wouldn’t protect Canada’s housing market, I replied, “it didn’t save Texas in the 80’s. It made it worse.”
Later I listened to this guy Bob Brinker - moneytalk radio or something. Any of you ever hear this guy? He’s a serious piece of work.”
He dismissed the housing bubble 2006 , I remember clearly listening to him on the radio while making up my mind to sell.
Porcine beautician for hire…
‘He dismissed the housing bubble 2006′
And it was coming unglued in 2006.
Did you hear him yesterday? He furiously berated a caller for pointing out he was wrong about where some town in Oregon was located. I don’t think I’ve ever heard a more ridiculous, hair-splitting, besides-the-point person talk about money issues. And he’s been on the radio for decades! No backing down for Bob. People who followed his advice lost a few billion (trillion? who’s counting?) bucks the last two weeks, but there he is, allocating capital like it never happened.
Brinker yammers like a heavy drinker.
After that Amazon thing yesterday I don’t think I’m going to comment in the bits bucket anymore and I’m thinking about ditching it all together. Here’s a comment from today:
‘ I still can’t wrap my ahead around the idea that China and their raw material suppliers were using SO MUCH oil that it was enough to raise the price of oil 4x.’
I’ve explained it before. Take Brazil; opening up huge mines, same in Australia and Canada and Chile. Think of all the people getting up everyday to drive (or fly!) to some remote place, run heavy equipment all day, then go out and spend all that money at night. Remember the 60 mile traffic jams in China? Now it’s not needed. Everything runs in reverse; not getting up to drive or fly to remote places. Not running heavy equipment, not going out at night. Ships don’t sail, trains don’t run. Ever see a giant-long train loaded with coal or oil?
Now imagine the oil producers are up to their neck in debt (thanks Janet!). “We can’t stop drilling, we’ve got bills to pay!” Viola, glut.
I’ve been watching this:
Transocean Ltd. (RIG)
9.86 -0.68(-6.45%)
http://finance.yahoo.com/q?s=rig&ql=1
Was at 170 in 2007 and 83 as late as 2011. So Yellen, how’s that inflation project going? Still can’t see that QE is deflationary?
Speaking of heading back to Earth, yesterday I read that Apples fall from last years high had wiped out the market cap equivalent of 485 of the S&P 500 companies. But old Buy and Hold Brinker was telling us how to “re-balance” our portfolio between bonds and stocks!
“wiped out the market cap equivalent of 485 of the S&P 500 companies”
That’s awesome.
“I’m thinking about ditching it”
Less work.
After that Amazon thing yesterday I don’t think I’m going to comment in the bits bucket anymore
That would be a shame.
Looks like I’ll need to read yesterday’s bits…I was out with the family.
I just read the whole back and forth on the word “Amazon”.
lol
The author was trying to sound clever in his word choice.
I have no doubt that if the three people in question were men, he would have written something like “Macho Men”, or something equally tasteless to describe them as men in power.
The guy is trying to be a better writer than he is. The fact that word choice distracts the message is just sad.
I recommend anyone listen to the 12/14/15 EconTalk podcast. The guy being interviewed was talking about how the Fed started to pay interest on excess reserves in order to keep the QE money from finding it’s way out into the wild (making new loans, driving consumption, etc.).
The other words, he would claim that $4T of QE didn’t become inflationary because the money just did a round trip and ended up as excess reserves at the Fed.
Was QE therefore deflationary? I don’t think I would make that argument…but I would make the argument that the Fed kept QE from being inflationary, and the recession and its aftermath was/is the biggest deflationary force.
Consider that QE was buying up bad loans from the member banks. What to do with that cash? Somehow it didn’t all get borrowed again. So the Fed paid some interest on it, to help the banks heal a little more. The banks have been complaining that the salve wasn’t enough. The Fed gave money to the banks in exchange for crap and then paid interest on it.
To keep it from getting into the wild?
Hey Ben,
I know this is late, but you could totally dump Bits Bucket. I’ve been reading here forever, and now it’s just a place where PBear info dumps and the troglodytes argue politics. I’m scrolling through most of it. I bet you have things to do you’d make more money at.
But thank you, so much, for what you have done. I can’t tell you how much it has meant to our family.
^Nailed it.
It’s been a while since my last post but I still have been reading your all’s insight frequently. Keep up the good work.
Per Ben’s statement of the obvious regarding QE being deflationary…
When the dust settles on this impending economic catastrophe, who will take the bigger blame?…will it be the brilliant central bankers the world over, who thought QE and ZIRP, which in the end fueled nothing but overproduction and overcapacity, thereby creating a glut of everything in a period of need for nothing? Or will it be the heads of corporations and their brilliant idea to sell debt for the sake of stock buybacks, completely oblivious to the fact that the nominal 2% coupon (what a great deal!) they were selling this debt at would be more like 20% in real terms after the deflationary spiral set in?
I imagine history will look back on both groups with disdain, but whereas the central bankers were simply fueled by a foolish, bookish inability to grasp higher level supply and demand dynamics, the multinational execs and their debt for buyback strategies were fueled by abhorrent greed in processes that were wittingly nothing more than homegrown leveraged buyouts and pump and dumps.
I heard recently that the majority of US stock trades are flash trades. Now who has the ability to do those? Not even day traders as far as I know.
Don’t leave out the regulators. Aren’t they supposed to be of heightened awareness of financial stability? Of course corporate execs are greedy. But didn’t Yellen herself warn that junk bonds were getting silly? (Bio-tech stocks too). I found articles where the bond markets laughed her off. Oh it’s all so much fun till somebody loses an eye. Now we have Japanese central bankers buying REITs even! Bernanke the Courageous backed up the truck on MBS and treasuries. All previously considered illegal, but in the age of black-market taxis and hotels, who cares about the rule of law?
You raise a great point, Ben. Whereas historically markets were supposed to be self-governing institutions (i.e. price discovery in a free market would set all things right), today’s central bankers quite literally chopped off Adam Smith’s Invisible Hand.
With the passing of Dodd Frank, the SEC, CFTC, FINRA, etc. certainly enacted all sorts of new oversight measures…but NONE OF THEM apply to the proper actors! Is it a different world for broker dealers? Yes. Are prop desks nothing like they were 10 years ago? Yes.
But who’s shaping the game? Not the regulators and their fruitless tasks. It is the Fed. The ECB. The BOE. The BOJ. These folks are supposed to be acting as the commissioners of the league. Instead they are acting as the referees, changing the rules of the game after the snap, tripping the quarterback as he drops back to pass, recovering the fumble and returning it for their own touchdown. And now the scoreboard shows us with zero, and them with however many points they decide.
“Instead they are acting as the referees, changing the rules of the game after the snap, tripping the quarterback as he drops back to pass, recovering the fumble and returning it for their own touchdown. And now the scoreboard shows us with zero, and them with however many points they decide.”
here ben……
10 Seconds of Extreme Trading in Blackberry
https://www.youtube.com/watch?v=NRUCWIosL_k
“Back from the depths of the housing crash, Orange County is once again the mortgage mecca of America New quarterly federal jobs data show the county is the national employment leader in two key home-loan related categories. A big lure to the mortgage game are paychecks far bigger than Orange County’s average weekly wages of $1,057 for all workers. Orange County’s weekly pay for real estate credit workers was $2,087 in the second quarter. That’s 17 percent more than the $1,781 the same workers made nationwide. Local loan brokers averaged $2,093 a week in the second quarter – 13 percent more than peers nationwide.”
I refuse to give any income to those RE s1uts.
“The Fed Responds To Zero Hedge: Here Are Some Follow Up Questions”
http://www.zerohedge.com/news/2016-01-18/fed-responds-zero-hedge-here-are-some-follow-questions
‘No truth to this @zerohedge story. The Dallas Fed does not issue such guidance to banks.’
‘We thank the Dallas Fad for their prompt attention to this important matter. After all, as one of our sources commented, “If revolvers are not being marked anymore, then it’s basically early days of subprime when mbs payback schedules started to fall behind.” Surely there is nothing that can grab the public’s attention more than a rerun of the mortgage crisis, especially if confirmed by the highest institution.’
‘As such we understand the Dallas Fed’s desire to avoid a public reaction and preserve semantic neutrality by refuting “such guidance.”
‘That said, we fully stand by our story, and now that we have engaged the Dallas Fed we would like to ask several very important follow up questions, to probe deeper into a matter that is of significant public interest as well as to clear up any potential confusion as to just what “guidance” the Fed is referring to.’
http://www.safehaven.com/article/40187/this-is-not-2008-its-actually-worse
“But the debt debacle in China is not the primary catalyst for the next recession in the United States. It is the fact that equity prices and real estate values can no longer be supported by incomes and GDP. And now that QE and ZIRP have ended, these asset prices are succumbing to the gravitational forces of deflation. The median home price to income ratio is currently 4.1; whereas the average ratio is just 2.6. Therefore, despite record low mortgage rates, first-time home buyers can no longer afford to make the down payment. And without first-time home buyers, existing home owners can’t move up.”
“But the debt debacle in China is not the primary catalyst for the next recession in the United States. It is the fact that equity prices and real estate values can no longer be supported by incomes and GDP.”
Seems like a false dichotomy. Weren’t Chinese and other foreign investors paying in excess of what local end users were willing and able to pay for housing a primary driver of the Echo Bubble?
A old house is like a old car always have to fix something. I’m always fixing this ~ 1980’s house I bought.
All the Black Rock homes that were bought up as rentals who’s fixing those things ?
I can spot the flippers at lowes they always buy the cheapest stuff , and most of the stuff Lowes sells is cheap crap so to buy the cheapest that’s really bad.
That’s the cheap crap our landlords buy to maintain the fixer - upper they rent to us.
RE: “I’m thinking about ditching it”
Oh no, please don’t. I am glad they (we) have a place to bicker about politicians and other stuff, otherwise; the main blog thread would get clogged with that stuff. I often think that as I scroll through the Bits Bucket.
Also, I appreciate being able to read Stucco’s links. Seems like they would clog up the main blog thread a bit too much. Jmho.
Whatever you decide, thank you for everything.
Ben, thanks for everything you do. I’d prefer that the bits bucket continue to exist so that people can avoid the political discussions.