July 3, 2016

Mid-2016 Housing Bubble Predictions

What’s your mid-year housing bubble predictions? From 6 months ago. “My prediction for 2016 is that Europe and the EU will be the big story. At least one terrorist incident will occur. More Libyan/Syrian/Iraqi/Afghan migrants will arrive, at the same time a recession does. Frustrated, unemployed young people will riot somewhere. More countries become like Greece; that is, they have an anthem and a flag, but otherwise lack more than nominal political or economic independence, which was ceded to the EU and ECB, who serve an ephemeral belief and large private banks, respectively. Anti-EU parties gain more support. Having been failed grotesquely by all politicians, Greece suffers either an armed insurgency or a military coup. At least one country schedules a referendum on continued EU membership.”

“This country will be interesting. We are one big recession or large-scale domestic terror attack away from radical change, and I don’t think the change will be for the better either. But on economic matters, with a presidential election pending, my thinking is the same as it was for 2015. Much as I would like to see the echo housing bubble, and other asset bubbles, dissipate, and they all will eventually, I think they will continue in the short-term, whether the Fed makes minimal rate changes or not. We bet everything on propping up assets, and therefore we’ll do anything and everything to make that bet win, to include reversing course or changing the rules in the middle of the game. We’re stuck in a highly self-destructive paradigm. This road goes over a cliff, but we’re stepping on the accelerator.”

One said, ” Here in Oregon I see copious vineyard plantings; let me add some other bubbles: wine, craft beer, leased cars, cable channels ( do some of them have <50,000 viewers? ),and RV’s."

And another, "Housing price spread narrows with QE ending. Market for high end homes (continues) to soften while demand for affordable entry level properties holds up. Overall market declines in both volume and prices. Long, soft landing–except for where things are really out of whack (Vancouver, Bay Area)."

"Oil recovers sooner than expected. Commodities markets typically overcorrect. There’s just too much being shut down too fast right now. Still–oil likely won’t see boom times again because of increasing pressure to phase out fossil fuels. Dot com has shake out version 3.0. 2002, 2009, 2016… (Predicted above also.) Another effect of QE ending: dot coms have to show profits not just growth. Money ain’t so free anymore."

And this, "After 10 years on a massive commodities bubble roller coaster, the double peak and retreat to 2006 prices has completed. It’s a classic tits up picture on the Commodities Price Index. There is still another 50% drop to return to the relatively stable ‘92 to ‘02 level. I don’t know about 2016, it could take several years of liquidations to wring out the most obvious excesses. A third spike to extreme bubble pricing is unlikely as it would require another credit expansion and building boom of gigantic proportions. Who is willing and able to step up to that?"

"I expect we have already entered a decades long period of deleveraging and deflation, despite the foolish efforts of central planners. If you are going long commodities, debt and housing, best of luck."

From one year ago. “Denver will continue double digit rent and used house price increases for the next two years. Everybody wants to live in Denver.”

Another said, “I predict an increase over the next few weeks in news stories about Chinese investor suicides.”

And finally, ”
1) There’s a high level of debt and it’s increasing again: http://www.newyorkfed.org/microeconomics/hhdc.html#/2014/q4

2) The economy seems to be improving, which puts upward pressure on interest rates. But that increases the cost of debt, putting a brake on the economy.

That feedback loop is pretty important it seems to me.

Also, the recovery seems highly stratified, with people at the upper ends of the income spectrum doing quite well, but the younger, and lower paid types not doing so well.

Average household income in the US: https://research.stlouisfed.org/fred2/series/MEHOINUSA672N

Labor force participation by age: http://www.bls.gov/emp/ep_table_303.htm

I see more of the same in the housing market for the next six months with an eventual flattening in house prices.

The longer term problem is the whole food chain issue - plankton (lower income buyers) buy cheaper houses, allowing move up buyers to move up. Right now, it seems like a lot of wealthy players driving the housing market, at least from media reports. And not so many plankton.

I think there will be without question a generational change in the attitude towards real estate as a path to riches. Peak debt was reached, the mortgage finance market was nationalized, and this seems to be the system going forward. But it was with the run up in debt that also sparked the runup in house prices. So, in the future, the experience of homeowners will be more “meh, it’s a lifestyle choice, better to raise kids in, but wait till you can afford it” rather than the older generation telling their kids, “OMG you have to buy RIGHT NOW and AS MUCH AS YOU CAN because it’s only going to go up in price and inflation’s going to make it affordable eventually” and that was exactly their experience. Plus they had affordable mortgages, before the evolution of the debt markets to their current go-go form.

I think there’s going to be a big voter dichotomy going forward, with large divides between younger have-nots, and older, wealthier asset- and job-holers. That labor force participation change for younger people, from previous years to now is a significant indicator.”

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Comment by Ben Jones
2016-07-02 17:34:47

I’ll forward this through the holiday. I was supposed to be on the road to Texas for a week, but got pulled back. I’ll be putting out fires the next few days and will post/moderate when I can.

Comment by The Selfish Hoarder
2016-07-02 19:30:50

housing bubble Prediction: the housing prices in California will continue to become more unaffordable the rest of 2016.

As for other assets, gold will pop, And finish above$1500 per ounce by the end of 2016. Bitcoin will be in the $800 range. The S&P 500 index will be at 2100 on December 31 of this year. Bitcoin will finish 2016 as the best asset class to put your money in. It achieved that distinction in 2015.

Comment by Jingle Male
2016-07-03 02:56:29

The bitcoin is really volatile. I remember it hitting $1200 or so a few years ago, now $600 today. It must have really dropped in 2014, if 2015 was a stellar year for appreciation.

Comment by Jingle Male
2016-07-03 03:17:48

I guess you could say something similar about gold. $1,750 a few years ago. Dropped to $1100 in 2013, now up to $1250-1300.

Comment by The Selfish Hoarder
2016-07-04 09:44:43

By rough interpolation estimates, gold has already broken out above its long term downtrend (since September 2011).

Roughly 1754 days ago gold was at $1900. 396 days later in October 2012 gold was roughly $1800. It dropped $100 in 396 days. If it kept that rate, gold should be at $1311 today. Now it is $1350.

I actually think I will be selling gold (not buying) the next time I go to my favorite coin shop in Los Angeles. And that is probably in five years.

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Comment by The Selfish Hoarder
2016-07-04 19:16:24

In four days and twelve hours from now, which should put it at Saturday 7 am pacific time, the Bitcoin halving occurs. The number of possible Bitcoin rewards for mining will be cut from 25 to 12.5 Bitcoin’s per block


Comment by Professor Bear
2016-07-02 21:20:14

I predict that Donald Trump will continue to be Donald Trump and his campaign will continue imploding from now through November 2016 Election Day.

Comment by Jingle Male
2016-07-03 02:59:12

I agree…..but will he win the election….that’s the prediction I want to hear!!

Comment by Professor Bear
2016-07-03 03:53:48

Hang tight… it’s coming your way soon!

Comment by Professor Bear
2016-07-03 05:15:15

Got popcorn?

Trump’s Troubles Inspire Epic Schadenfreude

Taking too much pleasure in watching Trump’s current crash could be hazardous.
Will Leitch
June 21, 2016 — 10:00 AM EDT

Last Tuesday night, writer Jared Yates Sexton attended a Donald Trump rally in Greensboro, North Carolina, and live-Tweeted the experience. He would later write about the night for The New Republic, but that story didn’t have nearly the effect his Tweets did: Sexton, in real time, chronicled every liberal’s most terrifying fears about, and worst stereotypes of, Donald Trump supporters.

Jared Yates Sexton @JYSexton

Big seller is a shirt that says Trump That Bitch. Everyone wearing one is being asked to pose for pictures. Big thumbs up. Big grins.
5:28 PM - 14 Jun 2016

Comment by Ben Jones
2016-07-03 06:08:06

‘every liberal’s most terrifying fears’

Come on PB, give us a big bold election prediction. Like rental watch the other day; “if she isn’t in prison, she’ll win by a landslide”.

BTW, 400,000 dead in Syria now, up from 300,000 a couple months ago. 6,000 killed in Iraq last month IIRC.

Here’s another prediction someone out there could make: how many Libyan’s will end up dead on the bottom of the ocean, trying to escape Clintons regime change? In the thousands please, round up.

Comment by Professor Bear
2016-07-03 06:28:02

I predict American voters will face a bad choice of Presidential candidates in November 2016, with much unhappiness to follow the outcome, whether blue or red voters hold sway.

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Comment by Raymond K Hessel
2016-07-03 06:34:04

I predict ‘Muricans will get exactly what they deserve for voting for Oligopoly water carriers.

Comment by The Selfish Hoarder
2016-07-03 06:49:42

Whoever is elected this November will be the least poplar president ever in Ameican history.

Comment by Jingle Male
2016-07-04 05:46:15

…….and immediately face an economic recession, thereby becoming even less popular.

Comment by Raymond K Hessel
2016-07-03 06:32:51

I predict PB will maintain his unhealthy fixiation with Donald Trump.

Comment by Ben Jones
2016-07-03 07:48:03

‘Nearly 2,900 migrants have died trying to reach Europe by crossing the Mediterranean Sea, making the first six months of 2016 the deadliest on record, according to figures published Friday by an international migration group.’

‘Between the months of January and June, there were 2,899 recorded deaths at sea, the International Organization for Migration (IOM) reported, around a 50 percent increase in the number of deaths when compared with the same period in 2015, when 1,838 migrants went missing or drowned at sea. In 2014, there were 743 deaths at sea by mid-year.’

‘In first six months of this year, 225,665 migrants arrived in Italy, Greece, Cyprus and Spain by sea, with the central Mediterranean route to Italy claiming the most lives, accounting for nearly 2,500 deaths. This time last year, the number of arrivals by sea was just over 146,000, the IOM said.’

‘On Thursday, 10 women died in a sinking rubber boat off the coast of Libya and an Italian ship rescued hundreds of other migrants, the Italian coastguard said.’

‘The latest deaths came as Italy raised the wreck of a fishing boat that sank in April last year. The disaster is feared to have killed up to 800 people, making it one of the deadliest shipwrecks in decades of seaborne migration from North Africa towards Europe.’

Comment by Jingle Male
2016-07-03 01:34:13

The housing market will continue to see stability, with 2% annual increases in value. Home builders will build about 700,000 SF houses/year (2016). Apartment construction will slow a bit. Rental rate increases will flatten, maybe drop a little.

Market Update:

The SFR rental market in the Sacramento foothills continues to be very tight. One tenant vacated on the 30th. New tenant identified and lease out for signature. Moving in on Tuesday. 5 days vacancy…. and about 15 days over the last 7 years.

Dropped the rent 5% for young military family seeking long lease and stability.

I keep predicting the SFR rental market will soften, but there are not enough houses being built to match supply. Rents jumped too much (10%?) over the last couple of years. Maybe the apartment construction will help bring some balance.

Comment by Palm Beach County
2016-07-03 02:50:56

So, is Ben saying that the ‘bubble’ isn’t going to pop this time? The last bubble had some areas drop 50%. Shouldn’t we be seeing at least a 30%-50% drop in prices very soon if we are at the top of the bubble? Seriously, I am holding a lot of cash right now and would be very disappointed if there isn’t a ‘pop’ and an end to all of this craziness.

Comment by Jingle Male
2016-07-03 03:06:36

I will not predict the future in Florida, since I don’t see that market. In Nor Cal, we had a 15% drop in the high end housing, but middle and low end is still tight and holding steady. The high end is recovering again.

There will be no 30% drop in anything here. There is too much demand and not enough supply.

Comment by Palm Beach County
2016-07-03 03:55:36

If we had our bubble burst a few years ago and we are back to those same levels now…what is going to maintain these prices? If the ‘bubble’ couldn’t hold the last time…how does it hold up this time when the economy worldwide appears to be worse? Yet I hear many people saying that there is no reason to implode like the last time. How does that make sense? Where is the cash going to come from to support all of this?

Comment by Ol'Bubba
2016-07-04 04:45:34

Look at the interest rates. In 2007, a 30 year fixed rate mortgage was in the 6% range. Today, in 2016, you are looking at 30 year fixed rates that are below 4%.

For a given price point, the monthly carrying costs are lower today than they were in 2007.

Where is the cash going to come from? From the bond market as investors seek higher yields.

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Comment by Professor Bear
2016-07-04 05:46:08

“For a given price point, the monthly carrying costs are lower today than they were in 2007.”

For a given quality point, prices are higher today than in 2007.

Comment by Captain Lou Albano
2016-07-04 07:26:59

0% down in 2007

0% down today

A distinction without a difference.

Comment by Professor Bear
2016-07-03 04:01:29

“I am holding a lot of cash right now and would be very disappointed if there isn’t a ‘pop’ and an end to all of this craziness.”

Given Uncle Sam’s revealed complicity in keeping the housing bubble aloft, and that some posters here have expected the craziness to end for close to twenty years now to no avail, don’t hold your breath.

However, the Chicom government’s failure to reflate the Chinese stock market bubble over the last year is cause for hope. Bubbles eventually collapse of their own weight, overwhelming government intervention efforts.

Comment by Professor Bear
2016-07-03 05:40:00

$55T to $88T over the course of seven years = (88/55-1) X 100% = 60% gain in U.S. housing values. This has clearly never, ever happened before in the course of U.S. financial history.

However, many pundits will also insist the Housing Bubble is over. We’ll see!

Housing values push Americans’ total wealth to record $88T
The nearly $500B jump in resi real estate values drove the growth in wealth
June 10, 2016 11:35AM

Rising home values helped push the overall wealth of Americans to a total of $88.1 trillion through the first quarter of this year – an all-time record.

A $498 billion increase in residential real estate values nationwide drove the jump in wealth, offsetting a shaky stock market in the first three months of the year that saw the overall value of equities fall $160 billion, according to a new Federal Reserve report released Thursday.

The news is a testament to the U.S. housing economy’s turnaround since the last recession in 2007 and subsequent global financial crisis the following year, according to the Wall Street Journal.

That downturn, which was precipitated by a housing bubble, saw households lose more than $12 trillion and resulted in Americans’ net worth bottoming out at $55 trillion in 2009.

While the figures are not adjusted for inflation, wealth growth has significantly outpaced inflation, the Journal reported, and the U.S. housing market’s rebound has hugely helped. Homeownership in the U.S. stands at 63.7 percent, and the increase in housing values is benefiting many middle-class households – even those who saw their homes go underwater in recent years as values plummeted.

Americans also aren’t taking on as much debt these days. While total household debt increased $17 billion in the first quarter, it remains lower than levels seen during the financial crisis. [WSJ] – Rey Mashayekhi

Comment by Professor Bear
2016-07-03 06:34:22

“Americans’ total wealth”

Does this include the all-cash Chinese investors who piled in to U.S. housing when it became clear the gubmint was going to reflate the bubble?

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Comment by phony scandals
2016-07-03 09:58:35

Be careful about trying to wait out or predict the end of a bubble.

This is my quest, to follow that star,
No matter how hopeless, no matter how far
To fight for the right without question or cause
To be willing to march into hell for a heavenly cause

And I know if I’ll only be true to this glorious quest
That my heart will lie peaceful and calm when I’m laid to my rest

The Impossible Dream-Man of La Mancha - YouTube
https://www.youtube.com/watch?v=RfHnzYEHAow - 173k -

Comment by The Selfish Hoarder
2016-07-03 10:15:50

IDC anymore if I build up $100,000 in limit buy orders in my brokerage at 0% interest and get no buys. The same amount in 2 year notes will earn me $550 in a year. What’s $550 out of $100,000 anyway? So yeah I am shifting out of t bills, notes, and tips. Lots of ten year issues I bought years ago are maturing the next two years. I am unwilling to buy new ten year notes while yields on many stocks are 3%.

I still think a stock crash is imminent, and will precede a bigger housing bubble crash. But I don’t think the crash in housing will be in 2016.

Comment by Professor Bear
2016-07-03 04:19:15

I predict Brexit aftershocks to follow the initial temblor, especially if other Eurozone nations decide to follow suit and Leave.

Comment by Professor Bear
2016-07-03 06:31:26

The Financial Times
Life & Arts
Brexit’s reluctant revolutionaries
London was amazed when the rest of England voted for Brexit. John Sunyer reports from the working-class city of Derby
Ornamental British bulldogs on sale at Royal Crown Derby
© Stephen Burke
July 1, 2016
by: John Sunyer

I’m sitting in a car looking out to the vast Rolls-Royce industrial estate on the outskirts of Derby. Summer rain pours down at 8am, the smell of petrol hangs heavy in the air. Next to me is James, a stout man of 50 or so, who has worked at the quintessentially British engineering company for the past decade.

We’re talking about the lengthy and bad-tempered referendum on Britain’s membership of the EU. Everyone knows what happened at the ballot box. Britain rejected an imperfect status quo and took a great leap into the unknown, every council area in Derbyshire included: 59.1 per cent voted Leave, with turnout in most areas above the already very high national average. London, where I live, and which voted overwhelmingly for Remain, looked on dazed and confused at the results from the rest of the country.

People say the north of England begins somewhere in Derbyshire. It is a place where trickle-down economics and trickle-down politics meet. Its only substantial place, Derby, a working-class city of around 250,000, is right in the middle of the north/south divide, forever in-between.

As yet, James isn’t convinced why he voted to leave the EU. He seems to have voted against his own interests. Like a good number of Brexiters in Derby, he strikes me as an unlikely revolutionary.

“Britain must be Britain again. We’re big, we’re strong enough. It might be hard but we’ll still eat,” he says with great vigour. “I don’t have money in the stock market, so what’s it to me?”

He congratulates himself for unleashing his “inner anarchist” — usually he is sensible, self-controlled. But then those more familiar English traits — worldly scepticism, a predilection for muddling through — reassert themselves.

Comment by The Selfish Hoarder
2016-07-03 13:05:46

“Inner anarchist.” I like that. You knew I would.

Comment by Professor Bear
2016-07-03 06:45:48

The Financial Times
The economic risks of an outbreak of Brexit-style votes
Poll may trigger a cycle of low growth and populist policies in the west, writes Kenneth Rogoff
© PA
July 1, 2016
by: Kenneth Rogoff

Stock market fears that a Leave vote would lead to a sharp drop in global growth appear to have calmed. The conclusion now seems to be that Brexit might be bad for the UK but for the rest of the world it is close to a non-event.

Really? With the eurozone still struggling to coalesce around a strategy to preserve the currency union, and populist pressures building everywhere, it is highly likely that similar episodes will erupt, and disrupt, on the continent.

A widespread resort to knife-edge votes to address complex, nation-defining economic questions with international implications would be a concern even amid strengthening global growth. But the situation is just the opposite — and in this context such mechanisms are a recipe for instability and disaster.

Comment by Professor Bear
2016-07-04 01:58:29

Stephen Bartholomeusz
Italy’s PM threatens an EU implosion
Italian PM Matteo Renzi has tried to take advantage of the instability within Europe generated by the Brexit vote.
Picture: AFP/ Gabriel Bouys.
Stephen Bartholomeusz
The Australian
4:16PM July 4, 2016

A collision between Italy and the European Union over a potential bailout of Italy’s teetering banking system is getting closer by the day, threatening to tear up the newly-woven fabric of the EU’s banking union and posing a bigger potential threat to Europe’s stability than the UK’s Brexit.

As discussed previously (Italy’s perfect storm could topple the EU, 29 June) Italy’s banking system is in trouble, with about $A540 billion of non-performing loans and a desperate need for new capital.

Given the dearth of willing alternate capital-providers, Italian Prime Minister Matteo Renzi wants to inject the equivalent of about $A60bn of public funding into the system to try to stabilise it.

The problem for Renzi and Italy — and the EU — is that the rules of the European Banking Union forbid taxpayer bailouts as the first resort for troubled banks. The rules, years in the making, insist that shareholders and creditors are “bailed in” before taxpayers can be called on.

Renzi has tried to take advantage of the instability within Europe generated by the Brexit vote to convince the EU authorities to suspend the prohibitions on state aid and the bail-in rules, threatening to act in defiance of them if Italy isn’t given approval to ignore them. Over the past week there have been negotiations between the Italians and the EU about the issue, but no resolution.

Germany’s Chancellor, Angela Merkel and European Central Bank officials have refused to contemplate exempting Italy from the rules, with the ECB suggesting that allowing Italy to bail out its banks would represent the end of the banking union, arguably the key reform the EU authorities have made to their financial system since the financial crisis.

The authorities are concerned about the precedent it would set, the potential for other European countries to follow suit (Portugal is the most likely) and the irredeemable damage it would do to the new single eurozone supervisory and resolution regime the banking union was supposed to create.

Comment by Professor Bear
2016-07-04 02:30:40

Telegraph Business
Brexit fears push back hopes of US interest rate rise to 2018
Federal Reserve
Investors do not expect the Federal Reserve to raise rates this year or next
Peter Spence, Economics Correspondent
2 July 2016 • 7:56pm

A surge in US hiring will not be enough to prompt a Federal Reserve interest rate rise this year or next, investors believe, as ripple effects work their way across the Atlantic.

Figures released on Friday are set to show that the US created 180,000 jobs in June, rebounding from the worst jobs report in five years, as the economy added just 38,000 positions.

Fed officials had said that they would be watching the labour market data for signs of improvement, which central bank watchers believed could encourage a rate rise in the coming months.

However, the UK’s referendum result has suppressed hopes for higher rates. Janet Yellen, the Fed chairman, said last month that a Brexit would bring a “period of uncertainty” and the possibility of “a period of financial market volatility that would negatively affect financial conditions and the US economic outlook”.

Neil Mellor, a BNY Mellon strategist, said that the vote had “compounded doubts that the Fed will be able to hike rates this year at all, let alone implement the two hikes [it had] notionally pencilled in”.

Comment by Professor Bear
2016-07-04 04:09:22

The South China Morning Post
Thanks to Brexit, a new global financial crash is looming
More vulnerable economies risk slipping back into recession and deflation will continue to get the upper hand
David Brown
PUBLISHED : Monday, 27 June, 2016, 12:06pm
UPDATED : Monday, 27 June, 2016, 12:06pm
Gloomy days ahead after Britain votes to leave the EU as increased uncertainty will hit economic confidence hard. Photo: AFP

It is no exaggeration to say that the world economy has just entered into a new age of deep uncertainty. Britain’s decision to quit Europe has sent profound shockwaves around the world at a very bad moment. The world economy is hardly out of one global financial crisis and the odds are surging that another worldwide crash is about to begin.

Britain’s Brexit vote has far-reaching consequences with the potential to throw the world into even bigger economic chaos and disorder than the 2008 global financial crisis. The catastrophic collapse in the UK pound, free-falling global equities and a dramatic surge in market volatility is just the start of it. The lid has been lifted off Pandora’s Box of morbid fear. There is no end to the list of deep concerns in investors’ minds, bringing risk aversion and market panic to boiling point.

Global financial confidence is a fragile house of cards at the moment. Global policymakers have worked courageously and have been extremely inventive to keep the forces of global contagion at bay over the last seven years. Zero interest rates, creative monetary engineering and lashings of QE cash have held the line, but there is precious little left in the central banks’ kitty to deal with what may come next. The next crisis could be the one that breaks the central banks.

Comment by Professor Bear
2016-07-04 06:06:05

The Financial Times
Hedge funds
Bond vigilantes expect more eurozone fireworks after Brexit
US hedge funds look ready to bet that without ever-closer union, the eurozone will break up
6 hours ago
by: Stephen Foley

The US Independence Day holiday, which culminates in fireworks displays around the country tonight, has provided American investors with a welcome respite from the financial market fireworks ignited on Britain’s own “Independence Day”.

The immediate spike in the dollar relative to sterling, and the new leg down in Treasury yields, were responses to the Brexit vote which made sense to smart money investors on this side of the Atlantic. The subsequent rebound in risk assets caught more people off guard, but it is what logically follows if you expect Monetary Stimulus Forever.

What had investors scratching their heads, however, was the response of Italian and Spanish government bonds. Among the — admittedly few — funds who put on hedges against a Brexit vote, one of the favoured trades was to short bonds from the weaker eurozone countries.

The theory is that Brexit will encourage populist and separatist movements in Europe, erode political support for the euro, and undermine the market’s fragile confidence that the EU will be able to prop up ailing government finances and banking systems.

Comment by Professor Bear
2016-07-04 19:03:28

Financial Regulation
Bad Debt Piled in Italian Banks Looms as Next Crisis
Brexit vote compounded strains in banking system burdened by sour loans; ‘Italy is the patient that is sickest’
The headquarters of Banca Monte dei Paschi di Siena. The Italian bank is under pressure from the Brexit vote and also took a hit in the stock market on July 4 as the European Central Bank told it to slash its bad-debt burden.
Photo: Giuseppe Cacace/Agence France-Presse/Getty
By Giovanni LegoranoJuly 4, 2016 6:38 p.m. ET

MILAN—Britain’s vote to leave the EU has produced dire predictions for the U.K. economy. The damage to the rest of Europe could be more immediate and potentially more serious. Nowhere is the risk concentrated more heavily than in the Italian banking sector.

In Italy, 17% of banks’ loans are sour. That is nearly 10 times the level in the U.S., where, even at the worst of the 2008-09 financial crisis, it was only 5%. Among publicly traded banks in the eurozone, Italian lenders account for nearly half of total bad loans.

Years of lax lending standards left Italian banks ill-prepared when an economic slump sent bankruptcies soaring a few years ago. At one major bank, Banca Monte dei Paschi di Siena SpA, bad loans were so thick it assigned a team of 700 to deal with them and created a new unit to house them. Several weeks ago, the bank put the bad-credit unit up for sale, hoping a foreign partner would speed the liquidation process.

The U.K. vote to exit the European Union has compounded the strains on Europe’s banks in general and Italy’s in particular. It imperils the Monte dei Paschi sale, some bankers say, and creates fresh uncertainty at a time when lenders are struggling with ultralow and even negative interest rates and sluggish economic growth.

Brexit has many executives concerned that central banks will keep interest rates lower for longer than they might otherwise, in an attempt to counteract the slower growth—in the eurozone as well as Britain. European banks’ stocks slid after the vote, with those in Italy especially hurt. Shares in Monte dei Paschi are down roughly a third since the June 23 referendum.

All this threatens to spark a crisis of confidence in Italian banks, analysts say. Although Italy has only one bank classified as globally significant under international banking regulations—UniCredit—some analysts say bank stresses worsened by Brexit could threaten Italy’s stability and, potentially, even that of the EU.

“Brexit could lead to a full-blown banking crisis in Italy,” said Lorenzo Codogno, former director general at the Italian Treasury. “The risk of a eurozone meltdown is clearly there if Brexit concerns are not immediately addressed.”

Comment by Professor Bear
2016-07-03 04:23:35

Look for a full-blown bailout of Puerto Rico’s debt crisis to set a precedent for other U.S. debt crises bailouts over the next few years. Bailouts gained rather than lost favor in the post-2008 period, creating moral hazard incentives for too-big-to-fail entities to behave in ways to take advantage of future bailout prospects.

Comment by Professor Bear
2016-07-03 05:09:26

Congress’s Work With Puerto Rico Isn’t Done Yet
July 1, 2016 8:00 AM EDT
By Editorial Board

The good news is that Congress has finally passed a bipartisan bill to help Puerto Rico dig out from its $70 billion in debt. The bad news is that the island is still a long way from economic recovery.

The federally appointed control board created by the law will enable the restructuring of Puerto Rico’s unsustainable debt and oversee its fiscal plans and economic policies. The law’s provisions are strict: In addition to approving all fiscal plans and budgets, the board can overturn noncompliant laws and accelerate the development of critical infrastructure projects. Puerto Rico must develop approved budgets for at least four consecutive years, with annual revenue in excess of expenses, before the board can be terminated

Comment by Raymond K Hessel
2016-07-03 06:36:04

Every corrupt, maladministered Democrat-run municipality will need repeated bailouts going forward. That’s basic arithmetic.

Comment by Neuromance
2016-07-04 10:34:24

Professor Bear: Bailouts gained rather than lost favor in the post-2008 period, creating moral hazard incentives for too-big-to-fail entities to behave in ways to take advantage of future bailout prospects.

I think more specifically, the people who profit from these behaviors have seen there is no personal cost to the behaviors, only personal profit. No FIRE executives in prison. The society bailing out the companies is icing on the cake. It keeps the cashflow going for the executives. But being able to receive once-in-a-lifetime profits through bankruptcy, as Akerlof chronicled years ago (PDF), is sufficient enticement.

Comment by Professor Bear
2016-07-04 12:15:16

Akerlof (AKA Janet Yellen’s husband) was indeed a visionary.

Comment by Palm Beach County
2016-07-03 04:43:19

June Auto Sales Down 4.6%, Much Worse Than Expected
by Mike Mish Shedlock • July 1, 2016

Earlier today domestic auto sales came in a bit weaker than expected. Total numbers are now out. And they are much worse than expected.

The Bloomberg Econoday consensus estimate for total vehicle sales in June was 17.3 million at a Seasonally Adjusted Annualized Rate (SAAR). The actual report shows 16.7 million SAAR sales.


The first hard look at consumer spending in June is negative as unit vehicle sales fell a very sharp 4.6 percent to a 16.7 million annualized rate which, outside of March’s 16.6 million, is the lowest rate since April last year. Sales of North American-made vehicles fell 3.7 percent to a 13.2 million pace from 13.7 million with imports down 5.4 percent to 3.5 million. Data on cars and light truck show similar declines. These results are worrisome, suggesting that consumer spending, which surged in April and proved strong in May, may have slowed sharply in June. Today’s results point to a decline for motor vehicle sales in the June retail sales report, a component that showed strength in the two prior months and was a regular source of retail strength during 2015.

Motor Vehicle Sales

Motor Vehicle Sales 2016-07-01

Have autos peaked this economic cycle? I think so.

Mike “Mish” Shedlock

Comment by TheCentralScrutinizer
2016-07-03 22:41:50

Been seeing a LOT of choice sports cars in the San Diego craigslist for damn cheap. Such temptation…

Comment by Ol'Bubba
2016-07-04 04:50:01

Please post a link to a representative post.

Comment by Captain Lou Albano
2016-07-04 05:30:35
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Comment by Palm Beach County
2016-07-03 05:09:32

The upshot: We’re a lot closer to 2007 than you might think….


Comment by Professor Bear
2016-07-03 06:39:36

No, not at all. A decade out from the last crisis seems like normal timing for a new one.

Comment by Raymond K Hessel
2016-07-03 06:59:50

The Fed-engineered boom-bust cycles are the most efficient means of effecting the transfer of wealth from the 99% to the Fed’s accomplices on Wall Street. They’ve been happening about every eight years now…Yellen will resort to QE4 and NIRP to avoid a crash before the elections, as she wants a Comrade of Proven Worth in office who will ensure the Fed can defraud the 99% with impunity.

Comment by Professor Bear
2016-07-03 05:25:11

Election Results 2016
Clinton questioned by FBI as part of email probe
By Dan Berman, Evan Perez and Pamela Brown, CNN
Updated 6:44 PM ET, Sat July 2, 2016

Comment by Raymond K Hessel
2016-07-03 06:38:31

Pure Kabuki theater. Clinton, as an integral member of the corrupt and venal .1% that now controls our former republic, is literally above the law. Clinton knows this. AG Lynch knows this. Whatever FBI agents are going through the motions of “interviewing” her know this.

Comment by Neuromance
2016-07-04 10:45:06

I agree, it is theater. If Holder and Breuer can prevent any prosecutions of the FIRE sector, Lynch, who owes her big break to Bill Clinton, has precisely zero intention of allowing Hillary to be negatively impacted by the DOJ (of which the FBI is a part). And she has the discretionary power to stop it too. At high levels of government and law, virtually everything is negotiable.

If the president and the head of the DOJ do not want legal action to be taken against an individual, it will not happen. Of course there will be theater for public consumption to blunt any political points from being scored. But the end result is a fait accompli.

Comment by phony scandals
2016-07-03 07:02:40

Loretta Lynch falls under the Clintons’ corrupting influence

By Michael Goodwin
July 2, 2016 | 9:48pm

She can’t help herself. Even yesterday, with the political world fixated on her meeting with FBI agents, Hillary Clinton had her flack mislead the public.

A spokesman said she gave a “voluntary” interview, which is true only because she agreed to talk instead of waiting to be subpoenaed. The flack also said she was “pleased” to assist the gumshoes.

Who believes she was “pleased” to be interviewed by the FBI in a criminal investigation that could upend her life?

But that’s the way the Clintons roll.

Yet there’s another dimension to their chronic crookedness, and it gets insufficient attention even though it might be more important to the nation’s well-being.

It is that, in addition to being personally corrupt, the Clintons are corrupters. They are piggish users, with the people and institutions around them inevitably tarnished and sometimes destroyed even as the Clintons escape to their next scam.

Loretta Lynch is the latest. The attorney general’s dumbfounding decision to meet privately with Bill Clinton while the FBI investigates Hillary’s handling of national secrets stained Lynch’s reputation and added to public mistrust of the Justice Department.

Lynch didn’t create that mistrust — she was supposed to be the antidote. Her predecessor, Eric Holder, was a left-wing activist who used his role as the nation’s chief law-enforcement officer to further his and Obama’s political agenda.

That role earned Holder an undesired distinction. His refusal to cooperate with Congress on the disastrous Fast and Furious gun sting led to a bipartisan vote in the House holding him in criminal contempt, the first time in history a sitting Cabinet member ever faced such a censure.

Lynch, as his successor, was handily confirmed by the Republican-controlled Senate, with her steady, firm demeanor and solid record as a prosecutor carrying the day.

Yet her lifetime of good work and the hope for a fresh start at Justice are now overshadowed. She acknowledges the meeting with Bill Clinton was a mistake, and pledged to accept the recommendation of FBI agents and career prosecutors on whether Hillary should face charges.

That’s not enough, not nearly enough, given the circumstances and stakes.

While Lynch offers no explanation as to why in the world she agreed to the 30-minute meeting on a plane in Phoenix, perhaps she felt she owed the former president something. Remember, he first nominated her to be the US attorney in Brooklyn in 1999, a promotion that changed her life.

Comment by Ben Jones
2016-07-03 06:44:46


‘Our nation’s 240th birthday bonanza, the Fourth of July, is right around the corner. Because I am blessed with a boundless love for America and the noble dudes who founded it, I decided the best way to honor them was to spend four days living like they would have in 1776.’

‘This would have been a slow and arduous process even without all the booze in my stomach, but the toxic mixture of ale, pie, and pork fat brewing in my gut made everything basically impossible. Ben Franklin may have been able to slam a few small beers and then crank out witticisms in Poor Richard’s Almanac, but I was completely and utterly cashed by 2PM.’

Comment by Palm Beach County
2016-07-03 06:46:26

Pending Home Sales Skid in May

WASHINGTON (June 29, 2016) — After steadily increasing for three straight months, pending home sales let up in May and declined year-over-year for the first time in almost two years, according to the National Association of Realtors®. All four major regions experienced a cutback in contract activity last month.

The Pending Home Sales Index,* a forward-looking indicator based on contract signings, slid 3.7 percent to 110.8 in May from a downwardly revised 115.0 in April and is now slightly lower (0.2 percent) than May 2015 (111.0). With last month’s decline, the index reading is still the third highest in the past year, but declined year-over-year for the first time since August 2014…..(more)…….


Comment by Raymond K Hessel
2016-07-03 06:56:52

Prediction: the “former” Goldman Sachs officials running the Fed and central banks for the exclusive enrichment of their oligarch cronies will ramp up the “quantitative easing” to Weimar 2.0 heights, massively screw over savers with NIRP, and still not forestall the depression and collapse they themselves caused. Fortunately, Comrade Hillary will not allow this crisis to go to waste, and will declare a State of Emergency and rule by decree. But first, the Comrades of Proven Worth will need to disarm the populace.


Comment by Ben Jones
2016-07-03 07:06:27

‘Dot com has shake out version 3.0. 2002, 2009, 2016… (Predicted above also.) Another effect of QE ending: dot coms have to show profits not just growth. Money ain’t so free anymore.’

‘Zenefits, a once high-flying startup that has become emblematic of deception and excess in Silicon Valley, is chopping its valuation by more than 50%.’

‘The human-resources software startup shot to a $4.5 billion valuation in just two years by brokering health-insurance benefits and automating traditional HR tasks such as payroll and compliance. The company was a darling of Silicon Valley until last fall, when it came out that Zenefits had allowed salespeople in at least seven states to act as insurance brokers without the proper licensing.’

‘Those troubles compounded in February, when it was revealed that Zenefits founder and then-CEO Parker Conrad had created a secret software program, known as a macro, that let its health-insurance brokers in California fake the completion of a mandatory online training course. Conrad resigned that month.’

‘Now, in an effort to move past those scandals, Zenefits has proposed a settlement with investors that reprices its existing stock at a $2 billion valuation and grants them additional shares in exchange for releasing the company of potential legal claims.’

Comment by Raymond K Hessel
2016-07-03 07:08:56

I predict that will ultra-rare exceptions, corrupt, incompetent Democrat officials will not be held accountable for their actions, hastening our decline into a collectivist kleptocracy.


Comment by TheCentralScrutinizer
2016-07-03 22:43:28

I predict that Raymond will whine endlessly about corrupt democrats.

Comment by Ol'Bubba
2016-07-04 04:52:08

What’s your prediction for corrupt, incompetent Republican officials?

Comment by Raymond K Hessel
2016-07-03 07:22:37

Prediction: President Clinton and the Comrades of Proven Worth at the DNC will take us down the same collectivist kleptocracy road as Venezuela. Watch and learn, ‘Muricans. This is your future.


Comment by Raymond K Hessel
2016-07-03 08:03:07

Venezuelans have gone to the polls 19 times since 1999, and chavismo has won 17 of those votes. The regime has won by stacking the election authorities with malleable pro-government officials, by enmeshing its supporters in a web of lavishly petro-financed patronage and by intimidating and marginalizing its opponents. It worked for more than a decade — until it didn’t work anymore.

After every election, another little piece of the constitution would be chipped away: Courts and oversight bodies were stacked high with supporters, checks and balances stripped, basic freedoms eroded.

Comment by Raymond K Hessel
2016-07-03 07:24:34

Prediction: we will have less and less to celebrate on the 4th of July.


Comment by Raymond K Hessel
2016-07-03 07:31:19

Prediction: the MSM’s journalist omerta about the real stories and issues of our time will continue. However, the funnies at TBP will still skewer the untouchable high and mighty.


Comment by phony scandals
2016-07-03 08:14:56

Nobody Believes the Media Anymore: Trust Eroded to Just 6 Percent

By Zen Gardner -
April 20, 2016


The truth is, most Americans have understood that the network news and television broadcasts are filled with lies for a while now.

Only Americans in general put up with the lies for a long time, so long as they still had good jobs, and a decent opportunity at security and a good life.

Nowadays, the squeeze is on. The economic pressure and the growing underclass of government-dependent zombies are all too clear. Many people are becoming sophisticated at sorting out untruths and self-serving propaganda.

The B.S. broadcasting 24/7 on cable news is tiresome. Establishment newspapers and other government-sanctioned liars are losing their grip to the Internet, and today’s Americans are apt to shrug off their old gatekeepers and instead seek out news and information that responds to their concerns.

As the Associated Press demonstrates, this is no fringe movement – basically nobody believes the media anymore, and they are largely seen as complicit in the corruption of the system in Washington, on Wall Street and in countless avenues of everyday life.

Comment by Raymond K Hessel
2016-07-03 08:55:34

Polls consistently show that ‘Muricans give abysmal trust ratings to the press and congress, yet in 2008 and 2012, 95% of them mindlessly bent over for the Oligopoly status quo by voting for hope ‘n change or the even more craven GOP “alternatives.” So the real problem, it seems, is the abject stupidity of the ‘Murican voter.

Comment by Raymond K Hessel
2016-07-03 08:40:11

In 2008 and 2012, 95% of the electorate embraced and sanctioned the crony capitalist, corporate statist, neocon status quo with their votes for Obama, McCain, and Romney. In 2016, millions of amoral, indescribably stupid voters will do the same by casting votes for Hillary. That said, BREXIT signifies a crossroads as growing numbers of the sheeple are waking up and rejecting the corrupt Oligopoly status quo. Is there hope, or will we be pulled down by the sheer ignorance of the stupid majority?


Comment by Raymond K Hessel
2016-07-03 09:28:27

Thousands of commentaries have been issued about Brexit in the past week. I’ve written four myself. Most discuss Brexit as the result of immigration issues, class war, political theater, a reaction against the European Union’s bureaucratic power, sovereignty, etc. Other essays focus on the potential upsides or downsides of Brexit.
What few if any commentators present is the idea that Brexit is a symptom of the Crisis of Capitalism.
The current global version of Capitalism is characterized by these overlapping dynamics:

1. Replacing stagnant real growth and income (and thus taxes) with debt.

2. Replacing investment in real-world productivity with speculation (i.e. financialization)

3. Replacing “everyone must have skin in the game” free-market capitalism with protected, privileged Elites crony capitalism in which the few benefit at the expense of the many.

4. Replacing local, decentralized democracy and ownership with central planning.

5. Using “extend and pretend” financial trickery to mask insolvency, impaired assets/ collateral and non-performing loans rather than address the debt overhang directly via write-downs and liquidations of impaired assets.

Comment by Raymond K Hessel
2016-07-03 08:53:00

“If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks…will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered…. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.” – Thomas Jefferson in the debate over the Re-charter of the Bank Bill (1809)

Comment by Raymond K Hessel
2016-07-03 08:57:48

Prediction: The neocons’ “moderate Syrian opposition” will continue to arm to not-so-moderate jihadis in Syria with US-taxpayer-purchased weaponry.


Comment by Raymond K Hessel
2016-07-03 09:01:23
Comment by Raymond K Hessel
Comment by Raymond K Hessel
2016-07-03 09:26:28

Coercion is inseparable from corruption. When a group coerces with impunity, it steals from, lies to, defrauds, and enslaves the subjugated. The dominant group invariably develops a morally comforting ideology of its superiority and the subjugated’s inferiority. Such relationships are the essence of corruption.

Every square inch on the planet is subject to the jurisdiction of one or more coercive regimes, with their attendant corruption and fraud. Trillions of dollars, euros, pounds, and yen, et al., are extracted from the productive and diverted to governments, who buy political support. Trillions more are borrowed. Central banks issue fiat debt units backed only by laws mandating their acceptance and extract funding for governments via the hidden tax of debt depreciation and the hidden theft of debt monetization and interest rate suppression. Regulation allows governments to reward cronies and extort and terrorize the unfavored. Perpetual wars benefit militaries and those who supply the armaments, with part of their profits recycled to those championing war. This is pervasive, legal corruption. One can only guess at the extent of sub rosa criminality, which may dwarf it.

Last week’s Brexit vote, in particular financial markets’ reaction, underscore the corruption and fraud, and the inevitability of its failure. Brexit is a victory for Britain’s honest producers; those who work in districts far removed from The City, London’s financial precinct. They will be freed from onerous European Union mismanagement, bureaucracy, regulations, and taxes that have contributed to Europe’s economic stagnation, dearth of innovation, and persistently high unemployment, especially among its youth. The European Central Bank’s debt monetization and negative interest rates, while obscuring the sorry state of the European economy, have only made it sorrier. Chronic debt issuance has left many European governments, and their banks, which own much of that debt, one economic or financial crisis away from insolvency.

Comment by Raymond K Hessel
2016-07-03 10:46:17

Another indicator that the Fed is about to escalate its War on Savers with NIRP.


Comment by Captain Lou Albano
2016-07-03 17:22:57

Here’s what we know;

-housing demand at 20+ year low

-current housing prices 300% higher than long-term historic price trend and double construction cost

-record housing inventory(remember the speculators?)

-severely elevated vacancy rates

-record levels of 100% financing at grossly inflated prices

-plunging public confidence in anything housing related

-record low employment levels(participation in the workplace by working age individuals at 38 year lows)

My advice?

Get what you can get for your house today because it’s going to fetch much less later…… for years to come.

Comment by Daniw
2016-07-03 18:37:56

My predictions:

There is not going to be a recession

Rent control laws get passed in some local areas due to rent hike shocks

If it feels like Enron all over again it probably is: a temporary flight to safety over regional issues will reveal the fraud that is underlying this echo housing bubble

Price fixing behavior and illegal collusion among realtors is one element that I think is more serious than the public imagines

Twilio had a successful ipo but they still dont make money. Ask google why that is and the answers reveal there is a circular effect with many unicorns being clients of other unicorns. Some of the explanations for why profit doesn’t matter remind me of the dot com bust

Comment by Professor Bear
2016-07-04 20:32:09

Whistling while strolling past the graveyard has absolutely no effect whatsoever on the risk of a recession.

Gross Says U.S. Recession Odds May Be 30% to 50% Post-Brexit
John Gittelsohn
June 27, 2016 — 2:54 PM CDT
Updated on June 27, 2016 — 3:34 PM CDT
Bill Gross Talks Brexit, Bonds, and Central Banks
Vote marks ‘end of globalization as we know it,’ manager says
Yield on 10-Year U.S. Treasuries may drop to 1.25%, he says

The odds of a U.S. recession may be as high as 50 percent following last week’s vote in the U.K. to exit the European Union, according to Bill Gross, manager of the Janus Global Unconstrained Bond Fund.

The yield on 10-year U.S. Treasury bonds may fall to 1.25 percent from about 1.45 percent on Monday, Gross said during an appearance on Fox Business Network. The lower yield would still be attractive to investors compared with negative interest rates in Japan or Germany.

That spread could drive up the value of the dollar and increase the odds of a recession to the 30 percent to 50 percent range, according to Gross. While Britain represents a small part of the global economy, Friday’s vote will slow trade, immigration and growth around the world, which have driven economic expansion for years, he said.

“This is the end of globalization as we know it,” Gross said.

Comment by Raymond K Hessel
2016-07-03 18:42:09

Silver is telegraphing more QE, i.e. more debasement of the dollar.


Comment by frankie
2016-07-04 03:40:23

UK construction industry slumps amid Brexit fears

Breaking: Britain’s building sector has suffered its biggest slump in activity in seven years.

It’s a clear sign that the EU referendum has hurt the economy.

Data firm Markit reports that residential house building suffered a “steep decline” in June, while commercial construction activity shrank for the first time since May 2013.

Markit says that many building firms saw their new work dry up last month, as the Brexit campaign reached its climax:

Lower levels of activity were overwhelmingly linked to deteriorating order books and a corresponding lack of new work to replace completed projects.

A number of firms commented on reluctance among clients to commence new contracts in the run-up to the EU referendum, alongside ongoing uncertainty about the general economic outlook

This dragged Markit’s construction PMI down to 46.0 in June, down from 51.2 in May.

Any reading below 50 shows a contraction, and 46.0 is the lowest reading since September 2009.

Most of the survey was conducted before the results was known, on June 24.

Comment by Ben Jones
2016-07-04 06:19:28

‘UK construction industry slumps amid Brexit fears…Most of the survey was conducted before the results was known’

The UK government was taking steps to pop the bubble before the election, and Mr Champagne Super Nova in the Sky hasn’t been able to unload his shack for almost a year.

Comment by frankie
2016-07-04 03:45:32

My predictions,

Some pain but blame it on the Brits rather than look at the worlds underlying issues.
Fire up the printing presses and go easy, easy money, tis all they know to do.
Life will get worse for the majority of us, but hopefully for the people in charge at such a slow rate that like the frog being boiled alive most people don’t notice. I think this will fail as we can see through out Europe the frogs have started to jump around and are far from happy frogs.

Comment by frankie
2016-07-04 03:46:56

UK construction industry slumps amid Brexit fears

Breaking: Britain’s building sector has suffered its biggest slump in activity in seven years.

It’s a clear sign that the EU referendum has hurt the economy.

Data firm Markit reports that residential house building suffered a “steep decline” in June, while commercial construction activity shrank for the first time since May 2013.

Markit says that many building firms saw their new work dry up last month, as the Brexit campaign reached its climax:

Lower levels of activity were overwhelmingly linked to deteriorating order books and a corresponding lack of new work to replace completed projects.

A number of firms commented on reluctance among clients to commence new contracts in the run-up to the EU referendum, alongside ongoing uncertainty about the general economic outlook

This dragged Markit’s construction PMI down to 46.0 in June, down from 51.2 in May.

Any reading below 50 shows a contraction, and 46.0 is the lowest reading since September 2009.

Most of the survey was conducted before the results was known, on June 24.

Apologies if posted twice.

Comment by frankie
2016-07-04 03:51:04

Today I received an offer of an unsecured loan at the lowest interest rate ever 3.9%, sounds low until you compare it with a balance transfer credit card percentage interest rate for twenty four months 0%. Of course they are betting you won’t pay it off but that is how desperate they have got to get your business.

Comment by Apartment 401
2016-07-04 05:31:29

Prediction: every penny that is sucked out of the “real economy” to pay for overpriced housing will continue to not be spent on other goods and services and wages will continue to stagnate.

Welcome to the recoveryless recovery.

Comment by Combotechie
2016-07-04 06:08:43

“… every penny that is sucked out of the “real economy” to pay for overpriced housing will continue to not be spent on other goods and services and wages will continue to stagnate.”

Agree. But on the other side of this is …

Every penny that is sucked out of the “real economy” to push up the prices of houses creates wealth in the form of increased equity and this increased wealth translates to increased cash-out possibilities directly and increased GDP indirectly (indirectly expressed as increased rents - actual and imputed) so it is all good and it should (and probably will be) encouraged … encouraged forever.

Debt is converted into wealth. A miracle.

Party on: The economy is in good hands (choke).

Comment by Professor Bear
2016-07-04 06:14:48

So you are saying all those Chinese investors who bought U.S. housing are enjoying tremendous wealth effects?

Comment by Combotechie
2016-07-04 06:26:55

As long as prices go up they are.

(Comments wont nest below this level)
Comment by Combotechie
2016-07-04 06:44:36

The buying power of an earned dollar is exactly the same as the buying power of a borrowed dollar; As far as buying power is concerned there is no difference.

An earned dollar from working a job is competing against a borrowed dollar from buying or having bought a house IF the value as expressed by the price is rising. IOW ones does not need to work at a job if the value of his house (again, value as expressed by the price) is rising enough to equal, after all tax considerations, the money earned by his job.

This house value will rise if strangers can be convinced to push up prices. If strangers can be convinced to continually push up prices long enough and far enough then one doesn’t really need a job, what one really needs is a house.

This is The Miracle at work! A job or a house; Choose one or the other; each one will generate income in its own way.

Comment by Combotechie
2016-07-04 07:00:19

The Miracle is amplified by the fact that the buyer of a house does not have to plunk down large chunks of money, he only has to promise to plunk down large chunks of money.

His promises of money work as well as actual money works to pump up prices, and pumping up prices pumps up the values of equity for the neighbors - it creates wealth for the neighbors.

If he has one hundred comparable neighbors then his act of putting, say, three percent down for a house for an increased price for the house creates a similar increase in wealth for one hundred of his neighbors.

Presto, an amplified miracle has been performed.

Comment by Professor Bear
2016-07-04 12:16:53

A three percent gain in value on a home bought with three percent down is a 100% net return on investment.

Comment by Professor Bear
2016-07-04 06:13:20

It’s amazing how many big name economists appear to be too dumb to understand the simple principle you describe! Housing is the dry cleaner that creates the dry cleaner effect.

Comment by Apartment 401
2016-07-04 06:35:32

“This sucker could go down” — George W. Bush

Comment by Palm Beach County
2016-07-04 06:01:39

Loxahatchee ‘horses out of the gate’…Bill Gates just bought here…taxes skyrocket 17%

Recovery continues: Palm Beach County property values rose 8.4 percent
LOCAL GOVT & POLITICS By Eliot Kleinberg - Palm Beach Post Staff Writer 1

Posted: 5:19 p.m. Wednesday, June 29, 2016

WEST PALM BEACH — The numbers local governments will use to set their budgets, and your tax rate, are on their way to Tallahassee. And they’re even more encouraging than previous estimates.
In July 1 preliminary tax roll numbers submitted Wednesday to the state, the Palm Beach County Property Appraiser’s Office said property values jumped 8.41 percent from 2015 to 2016. The figure was 7.85 percent in late May, and a late April estimate put it at just 6.6 percent.

Overall, the county’s total taxable value for this year is $165.1 billion.

Property values, set as of Jan. 1, could change again before the final accounting. This is the second of three required certifications; the last is Nov. 1. But they’re the ones cities and other taxing entities will employ as they assemble their budgets, and potential tax rates, for approval at the end of September.

“This is the fourth year in a row the market has improved,” Property Appraiser Gary Nikolits said in a release.

+Recovery continues: Palm Beach County property values rose 8.4 percent photo
Kelly Smallridge
The figures inch the county closer to its historic high of $169.5 billion, set in 2007, before the recession sent it plummeting to a 10-year low of $124.4 billion three years later. Since 2012, the market value of real property in the county has jumped 46 percent, Wednesday’s release said.

The new figures mean Palm Beach County government would collect an additional $59.6 million in 2016-2017 if commissioners approve a budget at the 2015-2016 tax rate, John Wilson, the county’s budget director, said Wednesday.

The Property Appraiser’s Office isn’t alone in its rosy assessment. Last week, the Realtors Association of the Palm Beaches reported the median price of a house sold in Palm Beach County rose in May to $311,000, the highest level since 2008.

+Recovery continues: Palm Beach County property values rose 8.4 percent photo
Gary Nikolits
For Kelly Smallridge, president and CEO of the Business Development Board of Palm Beach County, the promising figures are a mixed blessing. While a thriving economy can be enticing to a company, the idea that its employees would face higher rents or housing prices can be a downer.

“We don’t want to price ourselves out of the market,” Smallridge said. She said that it’s possible all major Florida cities also are seeing an increase, but she’s competing all across the Sun Belt. She also noted that the county still has a dearth of available office space, and if builders must pass on higher costs, that can lead to higher rents, that also can discourage businesses.

Of Wednesday’s numbers, the most dramatic increase was in Loxahatchee Groves, which saw a rise of nearly 17 percent.

+Recovery continues: Palm Beach County property values rose 8.4 percent photo
(Getty Images)
Councilman Ryan Liang said Wednesday he doubts any of that is related to the new Westlake community going up nearby, since not enough time has elapsed. “It will probably affected the property values for next year, once they start breaking ground,” he said.

What he does credit is horses.

“We’re getting a lot of equestrian overflow from Wellington,” Liang said.

The smallest increase, 3.2 percent, was in tiny Cloud Lake, squeezed up against Palm Beach International Airport. At 49 acres it nearly could fit twice into the Palm Beach Outlet Mall — 86 acres — and sports an official population of 133. Its total value, even the newly pumped up $5.4 million, is less than many single homes go for in Palm Beach.

The town isn’t experiencing a slowdown. It’s just nearly built out, said Mayor W. Patrick Slatery, who has been an elected official for 38 years. He said many people own second homes in the town that they rent out, or lots that they bought as investments or inherited.

“A lot of these houses were built back in the 1940s and 1950s,” Slatery said Wednesday. “So they’re pretty well used up.”

Staff writer Mike Stucka contributed to this story.
Palm Beach County property values by the numbers
Total market value: $237.5 billion

Comment by Combotechie
2016-07-04 06:25:21

“Palm Beach County property values rose 8.4 percent”

Due to the actions of … strangers.

Strangers act and - presto! - ones wealth (if one is a homeowner/homebuyer) increases by 8.4 percent AND his taxes increase by a similar amount WHICH MEANS a lot of governmental revenue issues move toward the direction of getting solved.

What’s not to like? Expect more effort to be made in keeping this financial miracle intact.

Comment by Ben Jones
2016-07-04 06:38:49


‘China’s got outflows, but does anyone know why?’

‘When it came to Chinese residents buying offshore assets, Gruenwald differed significantly from Goldman’s analysis. “It was hard to find evidence of lots of people with suitcases taking money over the border,” he said.’


‘even Chinese thieves don’t trust their own communist thugs and moved $1T offshores in 2015 and $500B went to buy US houses’

‘All that talk and not a mention that China is buying record amounts of gold and silver because they know when the Fed starts QE4 the value of their foreign reserves drops , just like the value of the dollar in your wallet does , and not a word that for the last 2 month the Chineze goverment has been running ads on prime time telling its people to buy gold and silver .so if you read their news and then our news it is easy to see they are trying to help their people for what is coming and our goverment is only helping themselves and their bankster friends .main stream media is nothing more than the Dept of Propaganda for our goverment .’

Does anyone know if it’s true the Chicoms have been running ads about buying gold and silver? A year ago it was Chinese stocks.

Comment by Professor Bear
2016-07-04 12:19:19

“…our goverment is only helping themselves and their bankster friends.”

Does it seem odd that crony communist governmentarians do more for their people than crony capitalists do?

Comment by Palm Beach County
2016-07-04 07:38:50

Signs of a top at the top of NYC’s real estate market….


Question: So, if the luxury market is toping out in so many areas of the country will that soon filter down so that the rest of the market gets ‘top heavy’?

Comment by aNYCdj
2016-07-04 08:25:02

most of the legal 2 family houses in our area are being illegally converted to 3 the local handyman has been so busy he hired help because you need the extra illegal rent to cover the inflated house price.

telling sign the garage has been bricked in some with a big picture window

Comment by Palm Beach County
2016-07-04 07:53:36

JUL 3, 2016 @ 03:28 PM 7,212 VIEWS

Before You Rush To Buy Inflated Real Estate Assets, Take A Vacation To Greece


Comment by Apartment 401
2016-07-04 07:54:59

Pic for RJ, the city of Castle Rock and Pikes Peak seen from the top of the Castle Rock (the one with the star on top that you can’t miss seeing from Interstate 25):


Comment by frankie
2016-07-04 08:12:16

LONDON (Reuters) - The aftershocks of Britain’s decision to leave the European Union have hit the property sector over the past week, with a foreign bank freezing loans for buyers and some investors pulling out of commercial deals.

Some foreigners, however, are already making the most of the drop in the pound post-Brexit to snap up what they see as residential bargains.

London property has long been a magnet for foreign investors, be it extravagant homes or iconic commercial real estate, and prices in the capital have sky-rocketed.

Key to overseas investors will be whether the fall in the value of sterling is attractive enough to offset the political vacuum, expected economic slowdown and questions over market access that have resulted from Britain’s vote to leave the EU.

Singapore’s United Overseas Bank temporarily halted mortgage loans for London properties. Other Asian banks also flagged potential investment risks.

For British investors, the uncertainty may be prohibitive, even though property is widely considered more profitable than other safe assets, given supply shortages.

“A number of deals I know have gone down or certainly been delayed,” Paul Firth, head of real estate at law firm Irwin Mitchell LLP said. “Everyone is taking a pause at the moment just to wait until a new normal is established.”

In one case, the purchase of a regional shopping centre by a U.S. private equity fund worth more than 30 million pounds was delayed after Brexit for at least a couple of months pending the market settling down.

Another deal his firm was working on involved a French vendor of high-end luxury goods who put on hold its new flagship London store after Britain’s decision to leave the EU, he said.

He said a number of their “significant investment deals”, worth above 30 million pounds each, had stalled. The deals involved mainly UK investors but also some foreigners. One deal the firm was working on worth more than 40 million pounds had gone through since Brexit.

Britain’s June 23 vote to leave the EU has already caused the government to collapse and deeply divided the country.

Bank of England Governor Mark Carney said on Thursday the economy would probably need more stimulus over the summer given that the outlook had deteriorated. He also said commercial real estate transactions had halved since last year’s peak and that activity in residential real estate had slowed sharply.

British commercial real estate investment volumes reached 10.7 billion pounds in the first three months of 2016, a 28 percent fall versus the same period a year ago and its lowest quarter since the second quarter of 2013, according to June research from real estate services firm Cushman & Wakefield.

There were also signs that the fallout from Brexit was benefiting professional investors such as private funds at the expense of homebuyers, who may struggle along with the economy.

Before the referendum, officials said the economy could tip into recession and house prices could fall 10 to 18 percent if Britain voted to leave the European Union. Economists polled by Reuters before the vote said they expected house prices to be flat next year and then pick up again if Britain chose to leave.


The madness continues.

Comment by phony scandals
2016-07-04 08:12:29

“Life, liberty, and the pursuit of property”

Comment by oxide
2016-07-04 08:36:06

I don’t know about the next six months, but I predict that in the next 2-3 years, biology is going to break the demographic holding pattern we are in. Boomers who are “hanging on for another couple years” in their jobs will finally be forced to retire for health reasons. (many of them still smoke and many are obese.) Older Millenials who have been putting off starting families will be longer be able to deny the biological clock.

The result will be changes in the job and housing markets. What will happen to the jobs vacated by boomers? Will the jobs disappear… will they be taken by Facebooking Millenials… or will they snapped up by patient and forgotten Gen-X? Housing is trickier… Boomers who live in suburbs of hot markets will do well. They can sell the house and yard to the Millenials with young children and move south. Boomers in cold markets (literally) like Detroit and Chicago are hosed. And when the country-boomers are no longer around to spend the gov bennies at Wal-Mart, rural town may disappear entirely.

Comment by Captain Lou Albano
2016-07-04 08:57:10


The boomer demographic already made the retirement move. They drove demand 1998-2007. Their next move is to the old folks home or coffin leaving the tens of millions of additional excess housing units in their wake. This is why we see demand at record lows.

Comment by Apartment 401
2016-07-04 08:58:49

If current trends continue, 25% of American women now under age 40 will never have children, and this is a beautiful thing.

And BTW my new woman’s only child is 20 and out of the house, the verb “parenting” is not a component of my part of the relationship.

Comment by Raymond K Hessel
2016-07-04 09:12:37

Meanwhile, the intelligent have become an endangered species as the cretins AKA Democrat dependency voters breed like rabbits. Our national descent into IDIOCRACY is complete.


Comment by Professor Bear
2016-07-04 12:21:35

“…my new woman’s only child is 20 and out of the house…”

Great planning! If I ever get to a point in life where I need to find someone new, I will remember this example.

Comment by In Colorado
2016-07-04 11:22:28

I predict that most of the vacated boomer jobs will not be backfilled, at least not in this country. If corporate America needs to hire young bodies that need to be trained, they will hire them in the 3rd world for a fraction of the cost.

Comment by oxide
2016-07-04 14:13:07

I was wondering about this myself. The boomer jobs appear to be quite a different skill set from what the Millenials do. My guess is that *some* of those jobs will be filled by GenX who have been quietly moving up the ranks. The rest of the jobs will disappear along with the boomers as workplace efficiencies (somehow) replace middle and upper management).

IMO younger Millenials would do well to work in skilled trades which don’t rely on cubicles and computers. Skilled building trades and foreman, nursing, law enforcement, trucking and loading dock (need English for that), airlines, etc.

Comment by Palm Beach County
2016-07-04 08:43:28

The Hottest Real Estate Markets for the Next Five Years….


Comment by X-GSfixr
2016-07-04 09:12:22

On the road to Eagle, Colorado. Broke airplane. Yeah, Im texting while driving. Gotta do something. Its not the middle of nowhere, but I can see it from here.

Wheat has all been cut. The corn looks real good.

Comment by phony scandals
2016-07-04 10:42:05

“On the road to Eagle, Colorado. Broke airplane.”

George Costanza plane crash comment - YouTube
https://www.youtube.com/watch?v=4vIZbDa__1o - 190k -

Comment by In Colorado
2016-07-04 11:24:55

So the super rich guy who owns the Gulfstream was too cheap to fly you out to Eagle or at least to Denver?

Comment by phony scandals
2016-07-04 14:44:44

Well, he wasn’t going to a Global Warming Gala.

Leo DiCaprio Invites A-List Friends to Take 6,000-Mile Flight to Global Warming Gala

The celebrities expected to attend will likely burn up tons of fossil fuel in order to make it.

Breitbart - July 4, 2016 105 Comments

Oscar-winning actor and environmental activist Leonardo DiCaprio has invited a group of his Hollywood friends out to France for a glitzy climate change gala at the posh St. Tropez resort — but the celebrities expected to attend will likely burn up tons of fossil fuel in order to make it.

The 41-year-old Revenant star will host the Leonardo DiCaprio Foundation Annual Gala to Fund Climate and Biodiversity Projects at the Bertaud Belieu Vineyards in St. Tropez on July 20, according to the Daily Mail.

Celebrities expected to attend reportedly include Cate Blanchett, Robert De Niro, Penelope Cruz, Kevin Spacey, Arnold Schwarzenegger, Charlize Theron, Kate Hudson and Scarlett Johansson, along with a full roster of other international pop stars and business mavens.

But those celebrities will need to find a way to get to the gala, of course, and, if they fly by private jet, they’re likely to burn up tons of carbon dioxide, an irony not lost on some environmental activists who have criticized DiCaprio for hosting the event so far from where a large number of the expected attendees live.

Comment by Prime_Is_Contained
2016-07-04 23:45:48

Sounds like he is right on schedule, then:

“I would like to improve the world a bit. I will fly around the world doing good for the environment”

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Comment by Raymond K Hessel
2016-07-04 09:14:22

Words you will never hear from Hillary Clinton:

“The people of the United Kingdom have exercised the sacred right of all free peoples… Come November, the American people will have the chance to re-declare their independence. They will have the chance to reject today’s rule by the global elite, and to embrace real change that delivers a government of, by and for the people. I hope America is watching, it will soon be time to believe in America again.” — Donald Trump

Comment by Apartment 401
2016-07-04 13:49:07


Comment by Prime_Is_Contained
2016-07-04 23:44:11

and to embrace real change that delivers a government of, by and for the people.

If only I could believe that he really meant that.

IMO, the left got snookered by promises of hope-and-change in 2008 and 2012—and the odds are high that the right is all teed up to fall for the same exact lines in 2016.

Comment by X-GSfixr
2016-07-04 09:33:55

Sign by I-70…..

“Wakeeney…….its affordable”

Compared to? Russell? Fort Hays?

Comment by PDneXt
2016-07-04 09:49:29


Our next guest says there are signs another housing bubble may be on the horizon. Stephen Oliner used to be with the Federal Reserve Board. Now he’s at UCLA, where he analyzes real estate markets, and he’s here now. Thanks so much for being with us.

STEPHEN OLINER: Thanks, Rachel. I’m really happy to be with you.

MARTIN: You track housing market indicators. What are you seeing right now?

OLINER: So we’re seeing worrying signs of building excesses again in the housing and the mortgage markets. It’s not that we’re in a crisis today or in a bubble today, but there are trends underway that, if they’d run for a very long time, will put us back into a situation that will look a little bit like what we had in the last crisis.

MARTIN: That’s unbelievable because we went through all kinds of collective strife over this, and there was legislation passed. So before we get into what didn’t work in all those changes, what specifically are you seeing? What are the indicators?

OLINER: So there are really two types of indicators. The first concerns the risk that’s in the mortgage loans that are being made today. So at the American Enterprise Institute, where I have a position as well as at UCLA, we analyze about 80 percent of the individual home mortgage loans made every month to purchase homes. And many of these loans are very risky, subprime-style loans that are now being made with government guarantees rather than being held by private investors. But nonetheless, they’re quite risky.

MARTIN: How can this be possible? I mean, the whole problem, as I understand it, was that people who could not afford these mortgages were being enticed into signing on the dotted line, and the lenders knew it.

OLINER: Right, so the element of fraud that was rampant during the financial crisis in the lead-up to the bubble, that’s basically gone. But there still are other ways for loans to be risky in many dimensions, and that is still happening. So let me give you just a couple of specifics. Now, we normally think that people in a prudent lending situation will put down 10 or 20 percent. That’s so old-school. That’s not happening now. The median down payment for a first-time buyer in the United States is 3 and a half percent.

If they were to turn around and need to sell the house, they wouldn’t get enough money to repay the mortgage. So they’re actually underwater on day one of the mortgage. There are other ways in which the mortgages are risky. One is that people are still stretching to buy bigger houses with larger monthly payments than is really safe given their incomes, and that is completely allowable under our current mortgage regulations.

MARTIN: Which is good and bad, right? After the housing crisis, people were so scared that nobody wanted to buy anything. And now you’re saying we’ve overcompensated and people are living beyond their means again.

OLINER: Yes, that is what I’m saying. And we tend to think that a very strict, regulatory framework was put in place that would prevent this from happening again. And the problem is the following - 80 percent or so of the loans that are being made in the United States today are loans that have a government guarantee of some kind, federal government guarantee, and those loans are exempt from the regulations.

Comment by Captain Lou Albano
2016-07-04 16:08:52


He defines subprime as3% DP mortgages. And underwater from day 1 too.

How can this be? Fraudsters and Donkeys howl daily on the hbb there is no fraud, subprime and underwater debtors.

Dance Donkeys. Gyrate Fraudsters.

Comment by Raymond K Hessel
Comment by rms
2016-07-04 12:02:23

Eventually these blue-eyed blondes will figure-out that they’re now supposed to cover-up under a burqa. Globalism.

Comment by Raymond K Hessel
2016-07-04 09:55:06

Physical precious metals: the best protection against the Keynesian lunatics at the central banks and their deranged money-printing.


Comment by Raymond K Hessel
2016-07-04 10:03:14

New MSM meme: the Fed was really, really going to raise rates, but now BREXIT has forced a deferral until December or the Second Coming of Christ, whichever comes last.


Comment by Dutch Spikes
2016-07-04 10:15:09


Major political or economic shock hits US in August/September.

Recession is belatedly found to have begun in Q2 2016.

High end housing inventory continues to pile up, putting downward pressure on mid-level housing prices. Median sales prices start to drift downward as high end properties taken out of the mix. Entry-level housing remains in high demand, especially in desirable neighborhoods.

Presidential election is close; Hillary prevails albeit not without scandals.

Brexit is shelved…

Comment by Captain Lou Albano
2016-07-04 10:49:38

That’s when high end housing becomes entry level. It happened in 1980, 1991 and 2007.

It’s the way the world works.

Comment by Captain Lou Albano
2016-07-04 10:45:39

“Toyota Dumps Prius Inventory As Sales Collapse”


Let the prices crater.

Remember…… Nothing accelerates the economy and creates jobs like falling prices to dramatically lower and more affordable levels. Nothing.

Comment by Professor Bear
2016-07-04 12:27:49

Gas miser chick cars must be hard to sell when gasoline prices are so reasonable!

Comment by Captain Lou Albano
2016-07-04 15:03:05

Convertibles are chick cars. Not Priuses.

Comment by X-GSfixr
2016-07-04 12:04:20

Colby Kansas…..nothing on the FM band except C&W

Choices on AM are Rush, radio preachers, and Mexican Top 40.


Comment by Captain Lou Albano
2016-07-04 14:56:09

And millions of rapidly depreciating houses

Comment by alphonso bedoya
2016-07-04 12:54:19

My son is a data miner. When he was fifteen in the year 2000 he would sit in the backseat of our 1988 Suburban with his friends and review their Magic the Gathering card hands after being picked up from their Friday night card shop. After a few minutes, their discussions would take a detour into randomness and probability. (When you lost a round you went off into the corner and played poker.) If you were to read a transcript of their discussions you would think you were listening to three mathematicians. Who knew that I was.
So as a Millennial he poses the following : When people write stories do they really understand the math they are reporting? If a purchased house in South Florida went from 500k to 1.8million and then lost 900k of its value the headline would read: “House loses 50% of its value.” In a LESS desirable neighborhood, and purchased in the same year, another 500k house rises 80% to 900K and loses 30% in a pull-back in price. A news article reports : “House loses 30% and defies severe downturn.” Which would you rather own ?
Resisting the emotional response, are arguments skewed to support one’s position. My neighbor is a high-end real estate agent. She politely tells me that I do not understand the present market.

*** The Chinese will NOT sell their houses in British Columbia regardless of any pull-back, correction or crash.
*** A U.S. stock market pullback of 5-7% is imminent.
*** Rents for 2017 will rise 5-10%.
*** Downtown Miami will become a new Chinatown
*** Housing prices will go sideways in 2017 with scarcity and location still being the only criteria to consider.
*** The electoral college will decide the next Presidential election.
*** We will wake up to a China stock market crash in 2017 which then takes us down as well.
*** College admissions drop, car inventories rise and a Deflationary Recession sets in during 2017.
*** The banking and business interests will continue to game elders and and the upper lower class.

Comment by oxide
2016-07-04 14:34:30

I agree on the Chinese. They aren’t really buying real estate to make money. They are in it to launder yen and escape beheading. If a house bought with $1 M in laundered money drops to $500K, they won’t care. They will be grateful that they laundered $500K and kept their necks intact (and had a few anchor babies along the way, NEVER forget that).

Comment by Captain Lou Albano
2016-07-04 15:01:29


The banks they borrowed the money from will care.

Comment by oxide
2016-07-05 03:44:40

I said launder money, not borrow money. *Learn* the difference.

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Comment by Captain Lou Albano
2016-07-05 09:02:21

It’s all dumb.borrowed.money Donk.

Comment by Neuromance
2016-07-04 15:01:33

Data/links to follow

There’s a basic underlying demand for real estate, for investment purposes and for consumption. The population continues to grow. But there’s close to historically high numbers of vacant units out there. Multi-family supply is being added at a healthy rate and SFH supply is recovering off its lows. Inflation is real and growing, so the possibility of paying off a house in inflated dollars exists. The Fed’s DSR/FOR ratios are somewhat lower than historic averages - but interest rates are near zero, so that’s probably at a wall on the downside. Sales of new construction are steeply increasing, currently at 501K annually, up off the trough of 306K, but the last time sales were similar was back in 1991. Sales of existing houses prior are at 2002 levels, 5.5 million annually. Interest rates are at historic lows, providing lower monthly payments for higher prices, thus driving prices up.

Do I see an increase, a flattening, or a decline? Population increase (about 25-30 million a decade) plus low interest rates will continue. Government and central bank juicing of the market - it’s close to maximally juiced. The next thing that would notch prices up are something like a 50 or a 100 year mortgage as in some other countries, guaranteed by the GSEs. It’s certainly a possibility eventually, but I don’t see it in the next six months, or year. Sales are solid. Not bubble level but at 2002 levels. Prices are close or at historic highs. So I while the FIRE sector would like higher sales and higher prices, their price x volume is still in “housing boom” territory. So NIRP or 50 year mortgages are not on the table yet it seems to me.

House prices are directly related to debt. The DSR/FOR (which is a sketchy measure, according to the Fed itself) can go up somewhat, but then there’s absolute volume of debt which is near the peak. The GSEs buy 3% down (de facto 0% down) mortgages. This can be squeezed a bit more I suppose.

Net result: my crystal ball is cloudy but the 17 million vacant units, slightly below average FOR/DSR, near historical maximum household debt, supply building starting to return to historical ranges, GSE buying 3% down mortgages, interest rates at record lows, sale price x volume solidly in “boom” level, continued solid population growth, continued increase in price of the substitute good (rent) - with this backdrop, I’d say prices are flat or slightly increasing.

Comment by Neuromance
2016-07-04 15:05:55

1) House prices are close to historic highs, per the Case Shiller 20 city composite: https://fred.stlouisfed.org/series/SPCS20RSA

2) Population continues to increase.

3) Rate of supply increase:
FRED, Single family starts: https://fred.stlouisfed.org/series/HOUST

Apartments/Condos: Fannie Mae multifamily market commentary: http://www.fanniemae.com/resources/file/research/emma/pdf/MF_Market_Commentary_031716.pdf

FRED 5 Units or more starts: https://fred.stlouisfed.org/series/HOUST5F

4) Number of vacant housing units, FRED (17 million): https://fred.stlouisfed.org/series/EVACANTUSQ176N

5) Rental vacancy rate, FRED: https://fred.stlouisfed.org/series/RRVRUSQ156N

6) Household debt is close to historic highs, per the New York Fed’s “Household Debt and Credit Report”: https://www.newyorkfed.org/microeconomics/hhdc.html

But debt service relative to income is apparently lower:

Fed Debt Service Ratio / Financial Obligation Ratio: https://www.federalreserve.gov/releases/housedebt/

Timeframe — FOR — DSR Total — DSR Mortgage — DSR Consumer
Current — 15.31 — 10.02 — 4.51 — 5.52
Average — 16.5 — 11.4 — 5.6 — 5.7
Median — 16.6 — 11.4 — 5.7 — 5.7

7) Cost of substitute goods (aka rent and other options): Increasing.
Historic rents (till 2000): https://www.census.gov/hhes/www/housing/census/historic/grossrents.html

Rent CPI: https://fred.stlouisfed.org/series/CUUR0000SEHA

8) Wages:
The last realmedian/mean data seems to be from 2014: https://fred.stlouisfed.org/series/MEPAINUSA672N

May 2016’s Federal Reserve report says the median household income is between 40 and 49K: http://www.federalreserve.gov/2015-report-economic-well-being-us-households-201605.pdf

Nominal, non-inflation-adjusted income continues to increase however: https://fred.stlouisfed.org/series/MEHOINUSA646N

9) Employment situation:
Labor force participation may have bottomed: http://data.bls.gov/timeseries/LNS11300000
Participation by age group: http://www.bls.gov/emp/ep_table_303.htm

10) Interest rates will likely continue to be low: “High debt forces interest rates to stay low, which encourages yet more debt,” Mr Pradhan writes. Central banks dare not push interest rates up too quickly for fear of causing another crisis; hence the stop-start nature of the Federal Reserve’s statements on monetary policy. The developed world seems stuck with sluggish growth and low rates.” : http://www.economist.com/news/finance-and-economics/21698669-ideas-reducing-debt-burden-chronic-problem

11) Speculative/Investment impact: What happens if house prices flatten, briefly, or for an extended period? In the short run, no changes. There still is a mania where real estate perceived to be a can’t-lose investment. It would take years of decline, and no echo-bubble to change that attitude. Shiller noted that RE prices track inflation over the past 100 years. A brief, sharp downturn followed up a quick rise upward like we had, only reinforces the can’t-lose attitude. A decline followed by flat prices would change that belief.

12) Central bank and government interventions: What’s left? Actual zero down mortgages, increased government provided subsidies (which already exist from the local and state levels, in addition to GSE first time buyer subsidies), NIRP, longer duration mortgages purchased by the GSEs?

13) Capital outflows from China. China does not have the rule of law. Its leaders were shaped by the being victims of the chaos of the Cultural Revolution. RE is a way to lock up money offshore. Will this outflow increase?

14) Attitudes towards house price supports by non-asset holders (Millenials, renters who wish to buy), and their impact on politicians in the election, versus attitudes of current asset holders: Public polls in Britain have for the past few years have shown house price increases are not desired by the population. But the links between house prices, rents and government and central bank actions are hazy even to those of us who are interested in these issues. House price supports are lucrative for the PTB.

15) Election results: Hillary will continue the status quo, as she’s received a great deal of support from the FIRE sector. Trump is a developer with real estate business interests. Balanced with that is a more populist base and a stated focus on the domestic economy. Most importantly, his advisors will probably be slightly less sympathetic to Wall Street than Hillary’s (the most powerful positions in the government belong to the DC advisory class who tells politicians who to appoint to what). Net result: I don’t see a big impact on the RE market.

16) Black Swans: Basically, if a different intellectual paradigm takes hold at the central banks. Bernanke’s speech and overview of the causes of the Great Depression and Keynes’ calling out of house building as a cure for the Depression (it’s in the same paragraph as his prescription of burying bottles of money and digging them up in his “General Theory of Employment, Interest, and Money”) have provided the intellectual justification for stimulus and boosting the real estate market. Additionally, if the NET benefit of ZIRP proves to be not so beneficial, leading to bubbles (which do have consequences contrary to some high profiile economic pundits’ assertions) and other costs, then this would be a black swan. If the realization that one cannot borrow and print one’s way to prosperity takes hold (at least prosperity of the society as a whole, it’s quite lucrative for a few), that would result in less FIRE-friendly policies. Unlikely though for quite some time, as we’re in the Age of Financialization, in which the PTB are blinded to the effects of financialization because of the benefits they personally have received from it. Also, the fact that the government is so beholden financially to the FIRE sector for campaign cash and post-public-service sinecures (Geither went to Warburg, Bernanke to Citadel and I’m very curious where Watt will go post public-service).

17) Actual inflation, as indicated by the MIT Billion Prices project is not trivial: http://bpp.mit.edu/usa/

18) Historic new house sales volume: https://www.census.gov/construction/nrs/pdf/soldreg.pdf

Multiple formats: https://www.census.gov/construction/nrs/historical_data/index.html

19) Historic existing home sales volume: Interesting thing about this is the Census relies on NAR to provide the data ( https://www.census.gov/construction/nrs/new_vs_existing.html ) and NAR won’t tell you the data prior to 2013 - you have to buy it, if they’re willing to sell it to you. I’m sure the government tracks this information closely for tax purposes, but it goes to show how closely the FIRE sector and government work together, that they won’t allow public viewing of something as basic as historic house sales data prior to 2013.

Here’s a link that seems correct: http://www.tradingeconomics.com/united-states/existing-home-sales

Here’s another link up to 1999 (p.7 of 31, p. 66 labeled): https://www.huduser.gov/periodicals/ushmc/fall09/hist_data.pdf

Comment by aNYCdj
Comment by Apartment 401
2016-07-04 16:55:13

Cypress Hill — Real Estate:


Comment by Bubblebot
2016-07-04 22:05:32


Trump wins, acts more “presidential”. He lets the economic chips fall where they may, stopping QE, bad trade deals, raising rates,and such, knowing it’s the only cure to normalize things for the long term. He is then blamed for ruining the stellar recover we were all enjoying and causing a global economic melt down. He is voted out after one term by the zombies before a true healing can be attained. Hillary, Rosie O’Donnell and PB go on The View to say I told you so.

Comment by dandroidz
2016-07-05 04:21:24

Prediction :
1) Surge in direct US troop involvement against ISIS (starting in Turkey??)
2) QE4
3) No significant change in home prices or rents (perhaps more in 2017)

Comment by Casa$Loco
2016-07-05 04:29:34

Like I called it in 2007 this the the top, there is no place to go but down. The increase in inventory in North Atlanta is nothing short of spectacular! At least double this time last year, and not moving. With the school set to the start in a month these house will likely sit or be taken off the market. Same as nine years ago the mentality has changed from ‘Prices can only go up I better buy quick” to “Prices are head lower and I’m not about to catch a falling knife.” Remember who’s been buying most of these properties: Chinese investors with cash, well China’s not doing so hot so they may be in need of the cash.
What makes this bubble different is that there are other bubbles about to pop: Unicorn Dot Com, Stock Market and the dollar. Each of these is driving the other and when the first domino falls it’s going to be like jenga! Watch out below! I suspect metals will be the safe haven. Remember last time everyone runs for the door at the same time, like sheep, and the door is getting smaller.

Comment by Captain Lou Albano
2016-07-05 09:04:17

Same here in Seattle.

Comment by Prime_Is_Contained
2016-07-07 19:44:49

You’re in Seattle now? Can I buy you a beer?

Comment by Casa$Loco
2016-07-07 12:51:46

This is the top and there is nowhere to go from here but down, I called it in ‘07 and I’m calling it now. Inventory is loading up in the key markets: Miami, Phoenix, Atlanta, Las Vegas. SF And NY are starting to see some inventory. Same old story, same old song and dance my friend.

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