Unwinding QE Will Be A Massive And Long-Lasting Hit
A report from the Orange County Register in California. “The resilience of Orange County’s housing market in 2016 surprised many folks. Builders didn’t construct many ‘affordable’ homes. Questions swirled about the durability of the local economic rebound and the quality of the jobs it was creating. Where would mortgage rates go and would lenders keep lending? And would foreign buyers, a noteworthy force, stay interested? Nonetheless, pricing hit new record highs and sales activity was the best in 10 years. So, was the surprisingly good 2016 a harbinger of more upward momentum or the last gasp of the rebound from real estate’s ugly crash? Is a boom building or a bubble brewing?”
“The typical mortgage used by a 2016 buyer resulted in an estimated monthly loan payment of $2,960, up 6 percent in a year, according to CoreLogic. Perhaps worse, that’s up 41 percent from 2012. But exactly how many folks wanted to buy a home in those early days of the market rebound? Note that last year’s estimated house payment looks cheap vs. the bubble days: It’s 14 percent below the $3,422 payment made by the typical 2006 buyer – back when the market peaked amid a buying frenzy.”
“Builders were the 2016 MVP: 12.4 percent of all sales were new homes, the highest share since 2007. So though developers are adding much-needed supply to a thin market, at new homes’ median selling price of $830,000 last year – down 1 percent from 2015 – it’s little help for bargain hunters.”
The Bozeman Daily Chronicle in Montana. “With fewer homes available to Bozeman homebuyers, prices pushed higher last year, especially for more affordable condos and townhouses, according to local real estate agents. The median price of a single- family home sold inside city limits in 2016 was $359,500, up 6.8 percent from 2015, according to Big Sky Country MLS statistics provided by the Gallatin Association of Realtors. For townhouses and condos, often bought as starter homes, the 2016 median was $240,000, up a whopping 17.1 percent from $205,000 in 2015.”
“‘It’s just like gas or wheat or anything else,’ said GAR CEO Steve Candler. ‘Supply is low, demand is up and the prices are going to adjust accordingly.’”
From CNBC’s Realty Check. “A plunge in applications for government-insured loans was behind a drop in overall mortgage volume last week. Most notable was a 13 percent drop in FHA applications — a direct result of the Trump administration reversing a cut in the FHA’s annual mortgage insurance premium just hours after the inauguration. That cut was the last major policy act of the Obama administration and would have decreased monthly payments for thousands of new, lower-income borrowers. FHA applications increased immediately after the cut was announced, and lenders have reported that many of those have also been withdrawn.”
“‘Following the decision to suspend a proposed decrease in the FHA mortgage insurance premium, FHA refinance applications dropped more than 25 percent, while FHA purchase applications fell almost 6 percent,’ said Michael Fratantoni, chief economist for the MBA.”
From Bloomberg. “Almost a decade after it all began, the Federal Reserve is finally talking about unwinding its grand experiment in monetary policy. And when it happens, the knock-on effects in the bond market could pose a threat to the U.S. housing recovery.”
“Just how big is hard to quantify. But over the past month, a number of Fed officials have openly discussed the need for the central bank to reduce its bond holdings, which it amassed as part of its unprecedented quantitative easing during and after the financial crisis. The talk has prompted some on Wall Street to suggest the Fed will start its drawdown as soon as this year, which has refocused attention on its $1.75 trillion stash of mortgage-backed securities.”
“Because the Fed is now the biggest source of demand for U.S. government-backed mortgage debt and owns a third of the market, any move is likely to boost costs for home buyers. In the past year alone, the Fed bought $387 billion of mortgage bonds just to maintain its holdings. Getting out of the bond-buying business as the economy strengthens could help lift 30-year mortgage rates past 6 percent within three years, according to Moody’s Analytics Inc.”
“Unwinding QE ‘will be a massive and long-lasting hit’ for the mortgage market, said Michael Cloherty, the head of U.S. interest-rate strategy at RBC Capital Markets.”
The New York Times. “After an eight-year run, a troubled government effort to prevent foreclosures and keep struggling borrowers in their homes came to an end in December. The expired Obama-era program - known as HAMP, the Home Affordable Modification Program - was widely criticized for its poor execution. Participation was voluntary for banks, and many that opted in did so unenthusiastically. At one bank, ‘the floor of the room in which the bank dumped the voluminous unopened HAMP applications actually buckled under the packages’ sheer weight,’ according to a scathing oversight report.”
“Banks and mortgage lenders say they are ready to step in with their own foreclosure-prevention programs, modeled on what they learned from the Obama administration’s effort. Armed with years of new data, financial companies say they now know how to make loan-modification programs successful, for both borrowers - who want to protect their homes - and lenders, who want to limit their losses on delinquent loans headed for default.”
“‘There’s tremendous public good in having an industrywide approach,’ said Justin Wiseman, the director of loan administration policy at the Mortgage Bankers Association, a trade group. ‘No one wants things to revert to what we had before.’”
congress critters no longer even ask yellon about valuation or selling schedule
they should press her to sell 50 billion of the mbs waste as a test
everyone is scared shtless
And how exactly will will they exert that pressure?
And what would be their motivation to do so, should they actually have the means?
They don’t want to rock the boat. ZIRP is the only thing keeping governments around the world afloat.
‘It’s just like gas or wheat or anything else,’ said GAR CEO Steve Candler. ‘Supply is low, demand is up and the prices are going to adjust accordingly.’
‘A plunge in applications for government-insured loans was behind a drop in overall mortgage volume last week. Most notable was a 13 percent drop in FHA applications — a direct result of the Trump administration reversing a cut in the FHA’s annual mortgage insurance premium just hours after the inauguration. That cut was the last major policy act of the Obama administration and would have decreased monthly payments for thousands of new, lower-income borrowers. FHA applications increased immediately after the cut was announced, and lenders have reported that many of those have also been withdrawn.’
“Following the decision to suspend a proposed decrease in the FHA mortgage insurance premium, FHA refinance applications dropped more than 25 percent, while FHA purchase applications fell almost 6 percent,’ said Michael Fratantoni, chief economist for the MBA.’
How’s that for some demand reduction Steve? These UHS and their expertise on supply and demand, but it’s always about supply and never about what true demand would be if this bailing wire and duct tape government loan racket wasn’t in operation.
Plenty of all cash purchases on the luxury end. It’s not all about FHA lending.
All housing transactions are cash. Using dumb.borrowed.money.
You couldn’t be more wrong, Housing analyst. All-cash buyers with two senior tech salaries have no need to borrow.
Boots on the ground data my friend. Boots on the ground data.
Redmond, WA Housing Prices Crater 19% YoY
http://www.movoto.com/redmond-wa/market-trends/
Slightly less rare than unicorns outside of the tech hubs with a cost of living that eats those salaries for breakfast. Tons of high end coming onto the market with no takers, the great chinese and american central bank circle jerk has been broken.
“All cash buyers with two senior tech salaries have no need to borrow”.
All fantastic until one of them desires to stay home with Jr. Living in Jonestown is ‘SPENSIVE!!!
The MSM financial media assures me I can fund my early retirement through buying into the classic car bubble. Where do I sign?
http://www.marketwatch.com/story/10-classic-cars-that-could-fund-your-early-retirement-2017-02-06
What really gets me are people who pay handsomely for some old 1960’s muscle car.
Notice that those are the houses that have cratered.
The high-end condos also much more often fall under the “want to have” not “need to have”.
And purchase of “wants” are easier to delay than “needs”.
Funny he cites two commodities that have bombed in price.
“Foretelling the future he is” - Yoda
air is clear, can’t even smell smelly mel watt
The UHS herd always sees more expensive houses as more affordable. They want it so because that is a bigger skim for them. Period. The government has been so hot on UHS and bank welfare programs that it is 100% expected as an entitlement. For them. Does nothing for those who have to pay. Crushes those who will not live a the lie of lifelong debt. Almost makes one want to go live on a boat.
Speaking of tiny houses, I saw a little farmhouse for sale this weekend in the back woods of Ontario. Despite the vinyl siding, I’m making it out as a one room 1812 era log cabin. The garage size barn next to it betrays the type. The house is about the size of a modern living room in total. $300,000. Oh there’s a few acres of boggy pasture land to go with it.
“Most notable was a 13 percent drop in FHA applications — a direct result of the Trump administration reversing a cut in the FHA’s annual mortgage insurance premium just hours after the inauguration. That cut was the last major policy act of the Obama administration and would have decreased monthly payments for thousands of new, lower-income borrowers.”
Why are the self-righteous Democrats so eager to bring back subprime lending? Don’t they realize that they are luring low income households into buying homes that they can’t afford at bubble premium prices, setting them up for financial ruin in the next recession? Was nothing learned in the 2007-2012 debacle?
You get the impression that all these Democrat politicians care about is getting votes, at any cost to their low-income constituents’ financial well being.
seems we have several DC area posters
while the MD side is doomed w RIF n Roll from Trump the VA side is smug thinking the DOD build up will save them.
I witnessed a shoeshine boy moment yesterday in church, as a teary-eyed woman lamented in front of the whole congregation about her family’s desperate need to buy a home in San Diego “as an investment” for their family to live in.
Apparently lots of San Diegans failed to learn from the last crash that you can’t live in an investment.
Wow…. That one is a sick ticket.
There are better ways to increase one’s net worth.
• “Congratulations, your house has doubled in price, here’s your new much higher property tax bill. Who’s awesome? You’re awesome.”
• “You mean a big house is more expensive to heat, cool and otherwise maintain? Huh.”
• “No Johnny, we can’t buy you a computer or help you with college expenses, we’re house-poor. But one day, we’ll be rich because of this thing!”
The other interesting thing is that people don’t have to play the game. I know someone who’s getting married. From what I gather, a typical wedding dress can run 10K-15K nowadays. Which is IMO flat out moronic for anyone, much less the middle class. But, one can either make one’s own dress (difficulty high) or simply buy an approximation for vastly less money. And for the other costs in general - some people feel absolutely compelled to go nuts with the costs, for whatever their reasons. But playing that game is purely optional.
I appreciate ‘you gotta live somewhere’, but the answer is not always buying a million dollar 1200 sf house in the middle of a runaway real estate price zone.
‘The typical mortgage used by a 2016 buyer resulted in an estimated monthly loan payment of $2,960…Note that last year’s estimated house payment looks cheap vs. the bubble days: It’s 14 percent below the $3,422 payment made by the typical 2006 buyer’
Golly, that some magic right there. Even higher prices yet a much lower loan payment. Did this all occur naturally and according to market forces?
‘Builders were the 2016 MVP: 12.4 percent of all sales were new homes, the highest share since 2007. So though developers are adding much-needed supply to a thin market, at new homes’ median selling price of $830,000 last year’
Here’s where rental watch can explain to us how we need even more 800k shacks to provide affordability.
In 2006, people were buying both low-end and high-end houses, resulting in a high average. In 2016, low-end houses are selling for “even higher” because of the demand. However, the high end crashed, dropping the average despite the activity on the low end. That’s how you can have higher prices for some houses but still an lower typical loan payment.
bubble popped 7/3/2005 in my hood 22151
summer of no return
the peak 2006 is due to slowing sales ,not price increases
word
$800K shack is the move up house of the person that lucked out and sold their $200K shack for $500K to a first time home buyer.
$800k starter homes are the new $500k starter homes.
Houses weren’t selling at $500k. Do you really believe they’ll sell at a higher price?
People who have no experience paying off debt are devoid of pain sensors that would normally tell them when enough is enough.
Few consequences, no pain.
Here’s where rental watch can explain to us how we need even more 800k shacks to provide affordability.
That’s not where the need is. The need is in the sub-$300k or in places with high impact fees, sub-$400k.
‘The median price of a single- family home sold inside city limits in 2016 was $359,500, up 6.8 percent from 2015′
‘Fannie Mae and Freddie Mac have lending limits, see below. Mortgages at or below these limits are known as “conforming” mortgages, because they conform to the lending limit. Mortgages higher than these limits are called non-conforming or jumbo loans. Most US counties have a maximum loan limit of $417,000 for a single family home, ($533,850) for two units, ($645,300) for three units & ($801,950) for four units. These limits are applicable for purchase and refinance mortgage loans.’
‘Several US counties surpass the ordinary loan amounts. These mortgages are often referred to as conforming jumbo loans since they conform to the Fannie Mae and Freddie Mac lending limit, although they surpass the customary limit’
‘GALLATIN BOZEMAN, MT $417,000′
‘Montana jumbo and FHA loan limits by county’
‘Gallatin FHA 1 unit limit: $356,500′
Isn’t it interesting how time after time, these shack prices drift right up to the government backed loan limit. Yup, that’s supply and demand for ya.
$645,000: How O.C. home prices got back to pre-recession peak, and …
http://www.ocregister.com/articles/percent-716148-prices-home.html
May 17, 2016 - With the median home price climbing to $645,000 in April, O.C. is the first Southern California county to get back to its pre-recession price peak.’
‘California jumbo and FHA loan limits by county’
‘Orange $636,150 $636,150′
It’s uncanny! These people at the GSE’s and FHA manage to almost exactly predict how much shacks will cost in virtually every county and city in the US. And if they raise the limits, I’ll be darned if the prices don’t go up again!
‘The Federal government created the Federal National Mortgage Association in 1938 to boost the faltering housing industry. In 1970, the federal government created the Federal National Mortgage Corporation (Freddie Mac) to compete with Fannie Mae in hopes of lowering interest rates. Fannie Mae and Freddie Mac are private corporations. You can buy stock in these corporations just like you can with other corporations; the difference between these corporations and other corporations is that they are backed by the Federal government from default. Fannie Mae and Freddie Mac purchase mortgages from the banks. In this way, banks are able to deliver unlimited amounts of money for home buyers. Fannie Mae and Freddie Mac then bundle mortgages, (commonly called “securitization”) and subsequently sell these investments to investors.’
Fannie and Freddie are private corporations? I thought they were in government receivership… Maybe they’re still labeled private.
Hey Donk.
GSEs which are a hybrid monster.
So much for the myth that California pays much more in taxes than it receives in services and this is even before the new high tech and housing bubbles burst:
http://www.latimes.com/politics/la-pol-sac-california-federal-government-money-20170205-story.html
Why do they include SS and medicare in the amount received but not in the amount paid out? I think that article is being disingenuous.
Effective 2017 the new conforming limit is $424,100.
Funny thing is that I used to see a lot of $417,000 loans now I am beginning to see the $424,000 loan.
I do think Govt. limits have a noticable effect on home prices but I know they have an effect on the amount borrowed as people borrow up to the conforming limit.
“Effective 2017 the new conforming limit is $424,100.”
That’s too bad… NAR lobbying?
Riverside County, CA Rental Rates Crater 7% YoY
https://www.zillow.com/riverside-county-ca/home-values/
Eurozone bond yields are starting to spike as “investors” wise up to the fact they may not get their money back.
http://www.marketwatch.com/investing/bond/tmbmkes-10y?countrycode=bx&mod=MW_story_quote
More money managers warning that QE-to-Infinity and ZIRP/NIRP isn’t going to end well.
http://www.cnbc.com/2017/02/06/bill-gross-central-bank-financial-methadone-is-unhealthy.html
Why does QE to Infinity and Beyond ever have to end?
And remember, median household income in metro Denver is less than $60,000:
http://www.bizjournals.com/denver/news/2017/02/03/metro-denver-home-prices-rising-slower-than-a-year.html
Yes, but Suzanne’s research indicates every listing is special, and you can do this.
Average home prices in metro Denver were up 8.3 percent year-over-year in January, to $402,979, including both detached single-family houses and attached condos and townhomes, according to the latest data from the Denver Metro Association of Realtors.
That’s a smaller increase than the market experienced from January 2015 to January 2016, when average home prices increased by 12.7 percent.
You have to wonder just how fudged all these numbers are.
$400K for the average Denver area home? With a median 60K HH income? When is this bubble going to finally pop?
But does the asking price mean anything considering housing demand is at record lows and falling?
$400K for the average Denver area home? With a median 60K HH income? When is this bubble going to finally pop?
A few more fed funds rate moves up and the 60k crowd will not be able to buy the houses and if they have variable rates they will not be able to hang on to the houses. Thus, prices will have to come down.
Where are you getting that data from? Looks like it’s closer to 70K:
http://www.deptofnumbers.com/income/colorado/denver/
“Looks like it’s closer to 70K:”
Not even close to tall-cotton for a family of four.
Heckova job, Bernanke & Yellen.
http://www.zerohedge.com/news/2017-02-06/first-time-2008-it-costs-over-1000month-purchase-median-us-home
message to the FED: You didn’t build that.
Id rather build equity than throw money down a rat hole to a slumlord.
Renting saves money and time. No weekends at Home Depot.
Live close to work, save time there. Be flexible, move where the money is…. life is good.
Mexicans do a great job on the yard work. Don’t know what our landlords would do without them.
Northampton, MA Housing Prices Crater 10% YoY
https://www.zillow.com/northampton-ma/home-values/
China again. Buy our stuff or we’ll kill you. Second time today. They’re really beating that drum.
http://www.zerohedge.com/news/2017-02-06/china-protests-us-sanctions-iran-jack-ma-warns-when-trade-stops-war-starts
The whole world population can fit in Texas. It’s true:
http://www.bizjournals.com/dallas/news/2017/02/01/why-stan-thomas-brought-83m-in-debt-to-his-growing.html?ana=yahoo&yptr=yahoo
“2,800 luxury apartments”
Everyone is special.
From now on, only vegetation-fed crow for me. Not the smelly scavenger crows. This doesn’t look half-bad. Hehe.
http://en.rocketnews24.com/2014/04/07/areas-in-japans-ibaraki-prefecture-working-to-protect-custom-of-eating-crow/
LOL… the predilections these yell’a fellas conjure-up.
“Because the Fed is now the biggest source of demand for U.S. government-backed mortgage debt and owns a third of the market, any move is likely to boost costs for home buyers. In the past year alone, the Fed bought $387 billion of mortgage bonds just to maintain its holdings. Getting out of the bond-buying business as the economy strengthens could help lift 30-year mortgage rates past 6 percent within three years, according to Moody’s Analytics Inc.”
Has anyone considered the massive reverse Robin Hood wealth transfer Fed policy has driven from generally poor renters to relatively wealthy residential property owners, including foreign investors who are sucking American renters dry with ever higher rents?
I wonder whether the new administration might be interested in how much money foreign real estate investors are taking from low income American renters.
The people orchestrating this are getting rich. If you google people like Phill Gramm, Ben Bernanke, or Tim Geithner, you’ll see they are probably pulling in millions a year as a result of their stints in government or the central bank.
It’s quite interesting to google the politicians and central bank officials behind the modern American financial system. Government or central bank employment was quite a good career move.
If the PTB can make money and the only thing the great unwashed can do about it is sink further into their opioid stupor, sucks to be them, right? The cattle exist for the farmer’s profit, the farmer does not exist to serve the cattle.
Why does QE need to be unwound at all? The central bank is a unique economic entity which can print currency. It can subtly appropriate and redistribute all the wealth it wants. It’s appropriated and redistributed nearly 4 trillion to its favored causes over the past several years. It’s done and here we are.
On the other hand, if the market exists for these financial products, it might be a money making opportunity to sell this debt.
Which might be interesting, if they wind up printing more and buying it right back again