If you tell a lie big enough and keep repeating it, people will eventually come to believe it - Joseph Goebbels, Hitler's Propaganda MinisterMany of you woke up yesterday to news that existing home sales for October were higher than expected and that the homebuilder sentiment index had reached a 6-yr high. This morning, housing starts were reported and were better than expected, although this reading was achieved by revising last month's data report lower. All three data points are being promoted as evidence that housing was recovering. See the quote above.
To put a "truth" dent into the existing home sales report, the data as it's being promoted is not supported by fundamental evidence. For instance, with existing home sales, although there was an increase, it would look to be as a result of investment in rental buyers and maybe some speculators. If you review the mortgage purchase application data for September and October, there has been a definitive downtrend. "Organic" buyers who are buying a home to live in as a primary residence - the bread and butter of a healthy housing market - require mortgage financing in order to purchase a home. The data being reported on mortgage purchase applications does not indicate that the existing home sales are being purchased by this type of buyer. Here's what I'm talking about: LINK
As we know, there has been an accelerating trend of hedge fund/private equity investors who are going into areas and buying up "blocks" of vacant homes. These are cash buyers, or buyers who have access to credit that is a lot cheaper than mortgage financing. A preponderance of this type of buyer in October would explain a possible jump in existing home sales. Interestingly, it was reported about a month ago that one of the first big hedge funds to jump into this type of deal, Ziff-Ochs, is in the process of trying to unload 80,000 homes in northern California. They discovered that being a landlord does not justify the cash on cash return on investment. It probably won't take long for monkey-see monkey-do imitators to discover the same thing, and at some point the existing homes being bought now will be reintroduced to the inventory pool of homes for sale...
As for the homebuilders sentiment index, it's just that: sentiment. If there's a prototypical "touchy feely" economic indicator, it's any of the sentiment index reports. After six years of getting their ass kicked by the market (Dow Jones Homebuilding Index is down 60% from it's 2005 peak), this index would be reflecting a dead-cat bounce in "hope." I would rename that housing market indicator as "the builder hope" indicator. Think of it as a "hope" box, or a "god" box - lol.
Finally, with regard to whether or not the average middle class person even has the income to support buying a home, we know that personal income, especially on an inflation-adjusted basis, has been declining for several months now. Furthermore, if you look at the best grassroots indicator of business formation and potential hiring - capital expenditures - it would appear that big corporations are not only NOT spending money on capital formation, but bona fide hiring is not taking place and we'll probably see an acceleration in corporate layoffs. How can the middle class be buying homes right now when many of them know they might not have a job next year? Here's an article from yesterday's Wall Street Journal that sums it up best - "Investment Falls Off A Cliff:" LINK
Quickly, with regard to today's housing starts number, suffice it to say that it was a "seasonally adjusted annualized" number that hit the headlines. As we've seen in previous posts, these seasonally adjusted numbers could also be called "robustly manipulated fallacious statistics." If you peruse today's full release from the Census Bureau: LINK, you'll discover that the headline number was actually below the revised number for September. Moreover, you'll see that actual construction starts are lagging permit applications - badly. Last, I have discovered by perusing the latest homebuilder quarterly reports that cancellation rates are starting to spike higher. They have been - in general - running in the low-high teens, and now they are running in the high 20% to low 30% range. This factoid is not being reported in the headlines or in the main stream media. What this means is that new home sales reports and housing start reports are egregiously overstated, since new home sales data are based on contract signings, which now have a 30% chance of being cancelled.
Bottom line is that housing is not only NOT recovering, but the elitists in NYC and DC are putting their best spin possible on what is being reported. The truth is that housing is getting ready to follow corporate capital investment off the cliff...
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so I ask the question-why would someone build a house when you can basically name your price to buy existing? Unless you are trying to burn fiat and want something specific there is minimal single family housing going up. There are some regions where a few developments are going up. But as you stated the vast majority do not have the jobs to comfortably buy even entry level housing now. And the outlook is not all that great.
ReplyDeleteBoth my kids have recently bought existing. They waited til lthey found the location and deal that was what they wanted and can stay in those places a long time.
The main open issue is what if we have the big kahuna collapse? Can't wait for that to happen forever, but always nice to have back up plans in case.
Ultra-loose Fed policy increases bank funding risk
ReplyDeleteIn his Wall Street Journal Heard on the Street column, David Reilly concludes that the banks' heavy reliance on funding through repurchase agreements raises their risk and highlights why investors have to pay attention to the liability side of each bank's balance sheet.
This conclusion confirms why banks should be required to provide ultra transparency and disclose on an ongoing basis their current global asset, liability and off-balance sheet exposure details. This is exactly the information that is needed to monitor bank funding risk.
And in some cases, the interconnections may be rising because of the superlow interest-rate environment.
With bank profits being squeezed, many firms are looking to reduce their long-term debt, since this tends to be more expensive than shorter-term funding.
In its place, banks rely more on short-term funding such as deposits, which have been soaring. But they are also increasing their use of short-term, repurchase, or repo, transactions. These involve a bank or investor borrowing or lending money on a short-term basis using securities as collateral.
Indeed, among the biggest U.S. banks, repo financing is now almost as large as long-term debt outstanding. At the end of the third quarter, for example, combined long-term debt at J.P. Morgan Chase, JPM +2.68% Bank of America BAC +4.06% andCitigroup C +3.20% exceeded combined repurchase-agreement liabilities by just $44 billion. A year earlier, the difference was nearly $300 billion.
http://tyillc.blogspot.com/2012/11/ultra-loose-fed-policy-increases-bank.html
Are you kidding me? Look at homebuilder stocks, they were up 200% in one year. Every new home around where I live (in Southern CA) got sold out immediately after released. Man, wake up!
ReplyDeleteLOL. Dead cat bounce dude. SoCal is going to lead the coming cliff-dive - that is unless Obamma authorizes free loans to immigrants to buy homes...
DeleteSenate bill rewrite lets feds read your e-mail without warrants
ReplyDeleteProposed law scheduled for a vote next week originally increased Americans' e-mail privacy. Then law enforcement complained. Now it increases government access to e-mail and other digital files.
A Senate proposal touted as protecting Americans' e-mail privacy has been quietly rewritten, giving government agencies more surveillance power than they possess under current law.
CNET has learned that Patrick Leahy, the influential Democratic chairman of the Senate Judiciary committee, has dramatically reshaped his legislation in response to law enforcement concerns. A vote on his bill, which now authorizes warrantless access to Americans' e-mail, is scheduled for next week.
Leahy's rewritten bill would allow more than 22 agencies -- including the Securities and Exchange Commission and the Federal Communications Commission -- to access Americans' e-mail, Google Docs files, Facebook wall posts, and Twitter direct messages without a search warrant. It also would give the FBI and Homeland Security more authority, in some circumstances, to gain full access to Internet accounts without notifying either the owner or a judge. (CNET obtained the revised draft from a source involved in the negotiations with Leahy.)
It's an abrupt departure from Leahy's earlier approach, which required police to obtain a search warrant backed by probable cause before they could read the contents of e-mail or other communications. The Vermont Democrat boasted last year that his bill "provides enhanced privacy protections for American consumers by... requiring that the government obtain a search warrant."
http://news.cnet.com/8301-13578_3-57552225-38/senate-bill-rewrite-lets-feds-read-your-e-mail-without-warrants/
Come on Dave why all the negativity! They're loading the boat but how long before it capsizes?
ReplyDeleteBlackstone, the world’s largest private-equity firm, has spent about $1.5 billion on 10,000 foreclosed properties in the U.S. this year, making it the biggest buyer of single-family homes in the country, Gray said. Blackstone has been buying $100 million of houses a week, Stephen Schwarzman, chairman of the New York-based firm, said during an Oct. 18 earnings call.
“This is the kind of thing that happens once -- every once in a while, where you see something that’s a market-turning trend and we are loading the boat,” Schwarzman said.
Blackstone sees two year window to buy houses - mortgages
http://www.bloomberg.com/news/2012-11-14/blackstone-sees-two-year-window-to-buy-houses-mortgages.html
Blackstone is great as raising money and skimming fees. They suck at managing anything besides Treasury bonds
DeleteLondon Bankers Become Landlords as Rents Hit Record: Mortgages
ReplyDeleteLondon rents have risen more than 6 percent in the past year to a record, even as job cuts by banks reduce employment in the financial-services industry to a 20-year low.
That’s encouraged individual investors and companies including KKR & Co. to enter the rental market as central banks push down yields on debt to record lows.
The average rent in greater London climbed to 1,240 pounds ($1,974) last month, according to an index compiled by HomeLet. That was up 32 percent from October 2009, when rents averaged 940 pounds per month. The cost of renting a property in the rest of the country increased 7 percent between 2009 and 2012, said Homelet, the U.K.’s largest referencing and rentals insurance company.
In Britain, rising rents are encouraging investors to take out loans for buy-to-let transactions, a type of mortgage that helped fuel speculation during the housing boom. Loans of this kind totaled 4.2 billion pounds in the three months through September, the most since the third quarter of 2008, when the housing market was crashing.
Demand for rental properties is growing because first-time buyers in the city typically need down payments of about 25 percent, according to the Greater London Authority. The average deposit is 57,175 pounds, more than double the national figure, said Halifax, the mortgage unit of Lloyds Banking Group Plc.
At the same time, bond investors are more willing to buy securities tied to buy-to-let mortgages. The extra yield they demand above benchmarks to hold the debt fell to 1.55 percentage points this month, half the spread in July and down from 11 percentage points in June 2009, according to JPMorgan Chase & Co. Paragon Group of Companies Plc, which lends mainly to landlords with more than 10 properties, sold 175 million pounds of bonds last month.
Buy-to-let investors are likely to benefit from the Financial Service Authority’s mortgage market reform. From April 2014, lenders will need to be stricter on verifying incomes and must assess borrowers’ ability to handle higher interest rates.
Affluent Investors
“They don’t regulate the buy-to-let market,” Neil Chegwidden, director of residential research at Jones Lang LaSalle Inc. (JLL), said by phone. “Buy-to-let investors tend to be more affluent. Most have more than one property, so you’ve got greater security by writing that kind of mortgage.”
http://www.bloomberg.com/news/2012-11-21/london-bankers-become-landlords-as-rents-hit-record-mortgages.html
Grantham: Biggest Housing Bubble Since 807 A.D. Has Burst
ReplyDeleteWe’ve previously noted that the housing bubble which burst in 2007 was bigger than the Great Depression … and perhaps bigger than any housing bubble in 700 years:
The question is, given the boom we had between 2001-2007, how bad a bust might we have?
Real Estate
Well, in the greatest financial crash of all time – the crash of the 1340s in Italy, which brought on a new dark Age – real estate prices fell by 50 percent by 1349 in Florence when boom became bust.
How does that compare to 2001-2007? The price of Southern California homes is already down 41%, Southern California hasn’t fallen as fast as some other areas, and we’re nowhere near the bottom of the market.
Moreover, the bubble was not confined to the U.S. There was a worldwide bubble in real estate.
***
Housing bubbles are now bursting in China, France, Spain, Ireland, the United Kingdom, Eastern Europe, and many other regions.
And the bubble in commercial real estate is also bursting world-wide. See this.
Jeremy Grantham just said that our recent bubble was the largest in 1,200 years:
Investors should be wary of a Fed whose policy is premised on the idea that 3% growth for the U.S. is normal. Remember, it is led by a guy [Bernanke] who couldn’t see a 1-in-1200-year housing bubble! Keeping rates down until productivity surges above its last 30-year average or until American fertility rates leap upwards could be a very long wait!
http://www.ritholtz.com/blog/2012/11/grantham-biggest-housing-bubble-since-807-a-d-has-burst/
New Twists In MF Global Scandal Focus On the CFTC
ReplyDeleteMark Melin has been doing an excellent job of covering the MF Global scandal and cover up.
This is an excellent example of the credibility trap. That blatant theft occurred and no indictments and prosecutions have resulted seems so unbelievable that most tend to ignore it. You don't understand, it takes time, it takes time. Yes, to cover things up, to kick the can down the road, and hope that the people lose interest.
And yet this is just one instance of the distortions that are plaguing the global commodity and financial assets markets. The long delayed investigation into the silver market is most likely another.
The most urgent problem facing the US and the Western nations is not a 'fiscal cliff.' It is the pernicious corruption in the financial system that has captured the politicians, and distorted the public conversation through influence in the media and directing the opinions and buying the research of 'experts' through the power of big money.
http://jessescrossroadscafe.blogspot.com/2012/11/new-twists-in-mf-global-scandal-focus.html
With 25 MILLION excess empty houses and prices falling, why buy now?
ReplyDeleteFellow citizens, these track records are yours.
ReplyDelete“The People Are Severely Fooled”
http://showrealhist.com/yTRIAL.html
“Home Prices & the Dow, each Inflation-Adjusted. A recent Dow day.”
http://patrick.net/forum/?p=1219038
Your collective brainwashability is repulsive.
Do you know folks who had kids to have somebody to sell high to?