Tuesday, June 25, 2013

The Housing Market Is An Accident Waiting To Happen: Part 1

The recovery in the U.S. housing market is showing a pattern far different from what followed previous downturns, experts say, suggesting that the dramatic price gains of recent months may not be sustainable... market fundamentals may not be as healthy as the headlines suggest.  - Money News (Thompson/Reuters)  LINK
Interestingly, right now I'm starting to see the same indicators that I observed all around Denver in 2007/2008 which told me the housing market was about to crash.  "For sale" signs are starting to pop up a lot faster than "sold" signs (this is all over Denver, mind you);  I'm starting to see "new price" signs placed on top of "for sale" signs (especially in high end areas - "new price");  "contract pending" signs are coming off of "for sale" signs and the home remains on the market, sometimes with a new broker listing;  and rental rates are starting to fall, with move-in deals becoming standard once again.  In addition, I'm seeing a deluge of homes for rent hit the market - a development which has occurred over the past three months.

The Federal Reserve and the Government, with well over $1 trillion of money thrown at the housing market - a lot of it taxpayer-backed money - have engineered what some call a "mini-bubble" and what I call a dead-cat bounce in the middle of a big bad bear market.

I have been collecting data, research and articles over the last three months, most of which never makes it into the mainstream media and thus goes unseen by the public .  In Part 1 of my analysis I go over the dynamics of the housing market on a macro level, detailing the massive official intervention in the market, explaining why the low inventory reported by the National Association of Realtors is nonsense and some other macro indicators.  You can read Part 1 here:   The Coming Housing Crash.  I'm working on Part 2 now.


  1. Dave, do you have an IQ threshold for reading your analysis? I just saw somebody on SA calling for gold and silver going to ZERO...

    1. LOL. I've found most of the crap posted on SA is intellectually bankrupt.

  2. Chris Hayes: Bring on the upper-middle-class revolution!

    Twenty years ago, William Greider’s “Who Will Tell the People?” documented the betrayal of American democracy by the elites — by both political parties, by the press, by corporations and labor unions, and by a Washington regulatory complex so perfectly corrupt that it exists to serve only the monied interests.

    “Twilight of the Elites” is a story about inequality and myths: the myth of the meritocracy and the reality of the very uneven society that allows those, in the words of Ann Richards, who were born on third base to end up thinking they hit a triple — and then find themselves protected when they screw up.
    I think around the Gilded Age, also the crash of 1896. But why now: I would just say it’s social distance and inequality. Basically, excessive social distance between elites and citizens produces excessive power for elites, and this is the result of a 30-year process in which that distance has been expanding and expanding and has introduced a governing financial class, particularly, that is incapable of not effing things up.

    And yet it seems like a fairly new problem that we can no longer assume basic competence –


    – from those who at least appear to have risen on the merits of intelligence.

    Yes. Because we a) have a myth we tell ourselves about how right they are for their jobs, and so we feel a greater sense of betrayal, because we’ve all constructed a national myth that’s like – of course these are the people who should be running things. And second of all, democracy, when it’s functioning, and democratic institutions, when they’re functioning, have beneficial cognitive effects, which is that they’re ways of aggregating information. And when you get very removed from that, and things become very inside baseball, inside games, people are going to make bad decisions.

    So that’s a big part of it. People are embedded in these institutions, they are blinkered in these ways that means they’re making decisions outside the bounds of democratic accountability. Which can lead to corruption – like, moral transgression – but also, at the least, incompetence, because they’re literally not seeing the whole problem.

    You’re suggesting the American dream and the American democracy is a big lie we’re being fed!

    Yes, exactly! (laughs) So there’s that. But there’s also – I talk about the cult of smartness in the book, but intelligence is a really slippery concept, and it’s a lot harder to pin down than it first looks. The cult of smartness is this very seductive but very misleading sense that smartness is an ordinal quality, like height, that could be perceived immediately and you can definitively rank people, that it’s a clear perception that can be made when it’s just not.

    I have a tremendous amount of respect for intelligence, and it’s something that’s important to me, and it’s necessary, but far from sufficient. Intelligence in elites that is detached from lived experience, empathy, wisdom, judgment, compassion, self-skepticism, humility – detached from all those qualities, it can be a massively destructive trait. And I cite in the book [Dick Cheney aide] David Addington, who is the chief architect for much of what we have come to recognize as the most horrific aspects of particularly the torture regime, who is universally understood to be extremely bright. To me, he’s a kind of perfect example of what I call in the book “destructive intelligence.” People can be very bright and very destructive across the aisle. There’s Democrats, Republicans – a lot of people who are kind of “best and brightest” types. When somebody is really smart, in a palpable way, particularly when they’re competitive, or show off in a dominating way at meetings, they are cut a very wide berth.

    Someone like Larry Summers, who is an intimidating guy.

    Notoriously intimidating. And that factors into who gets listened to, who gets ignored.


    hmmm. summers....

  3. If the Fed has an exit plan then I’ve got a bridge in Brooklyn to sell you

    If the Fed stopped buying the bonds its hard to see a scenario in which the mortgage market would not implode. Even with all of the Fed and government involvement the mortgage market is still struggling, and it’s downright frightening to imagine what it would look like if the Fed were no longer printing up support. With US unemployment hovering around 23% (the figure when the measurement includes the people who have stopped looking for work) it’s a mystery as to who will assume the demand that the Fed is currently providing. Similarly with the Treasury market – if the Fed stops buying those bonds, who will?


  4. Max talks to Simon Rose of SaveOurSavers.co.uk about Mark Carney’s imminent arrival at the Bank of England, the idea that capitalists should hold protests demanding that capitalism be tried and the coming Bondpocalypse and the lying, cheating Anglo Irish bankers caught on tape.


  5. Financialization = Inequality

    There are a number of factors behind the widening canyon of economic inequality, but the primary driver is financialization. Financialization has given those with capital and access to financier expertise ways to skim great wealth from the system without creating any value whatsoever.

    Those with a home that is owned free and clear and $500,000+ in a 401K or retirement account have more capital than the vast majority of Americans, but members of the upper-middle class have no access to the leverage and tools of financialization.

    In other words, financialization isn't a consequence of having capital: it's the consequence of having access to unlimited credit, leverage and low-risk, low-tax skimming operations (for example, tax codes enable hedge funds to declare income as low-tax long-term capital gains).

    From the financier point of view, the upper-middle class tax donkeys who keep all their investment capital in mutual funds are the marks who supply liquidity to the system. The wealthy who park money in hedge funds are marks of a higher order, as their cash enables fund managers to gamble with other people's money and then return a thin slice of the gains (if any, after fees) back to the investors.

    A carry trade is a classic skimming operation. The term is based on the difference between the costs of holding (carrying) one position and the gains earned by investing the proceeds elsewhere.

  6. Fox Analyst Charles Payne Was Paid To Push Now Worthless Stocks (Media Matters) Are all Fox analysts paid stock touts, or just the two we know about?

    Fox and Payne did not respond to requests for comment.


    sly as a fox and pain in the ass....

  7. Why keeping FINRA from ruling RIAs is critical to these firms, the investor -- and even the U.S. economy

    FINRA is hungry

    That big gorilla called FINRA — facing a continued decline in its membership (consisting of all broker-dealer firms conducting business with the public) — is hungry. Sitting nearby are registered investment advisor firms — appearing to FINRA as juicy, growing bananas and a perfect treat to be consumed, chewed up and digested.

    Yet, we must ask – if you are a consumer, or if you are a registered investment advisor or an investment advisor representative, would FINRA’s desired takeover of RIAs be a good thing? Not on your life. Permit me to explain why.
    FINRA keeps the U.S. economy struggling

    In more than seven decades of existence, the Financial Industry Regulatory Authority Inc. (formerly known as the National Association of Securities Dealers, or NASD) has failed to provide the essential safeguards necessary to limit its large Wall Street member firms’ ability to underwrite or sell investment products with exorbitantly high fees and costs.

    The result has been the preservation of an oligopoly of investment banks, as well as the preservation of conflicted broker-dealer business models long overdue for an extinction event. More importantly, FINRA’s long-standing protection of its members’ excessive rent-taking has led to a crisis in American capitalism, negative implications for U.S. economic growth, and a dismal personal financial outcome in retirement for tens of millions of Americans. See: Why FINRA’s power grab for RIAs needs to be stopped to avert the death of the profession, Part 1.

    In fact, Wall Street currently diverts away from investors a third or more of the profits generated by American publicly traded companies. As Simon Johnson, former chief economist of the International Monetary Fund, observed in his seminal May 2009 article “The Quiet Coup,” appearing in The Atlantic, wrote: “From 1973 to 1985, the financial sector never earned more than 16% of domestic corporate profits … In 1986, that figure reached 19%. In the 1990s, it oscillated between 21% and 30%, higher than it had ever been in the postwar period. This decade, it reached 41%” More recently the financial services sector’s bite into corporate profits has been estimated at one-third or higher.
    Investor distrust = Less capital


  8. The Coming Housing Crash-a fine breakdown on the latest bubblicious reinflation of the housing market. a must read for anyone wanting to not only understand that sector of the economy but the rest of our paper economy as well. the only question is when, not if, this house of cards will finally collapse.

  9. Michael JacksonTuesday, 25 June, 2013

    Nevada has also been running this "dead-cat bounce" for awhile, calling it a "recovery" - Homes and Condos are way over-priced. Sadly, both
    conservative and liberal politicians here, along with the state-controlled media, is singing the song, "all is better". It will not abode well here as we are too consumer-tourism-driven to survive the next drop and our current Governor was to drive us away from that industry (but has reverse position).

    I really believe this state is getting financially "bail-out" secretly to stay alive (I see it but can't prove it). The last Legislative session was so quiet and lame-duck and they passed all bills and all the monies for them with no problem. But the question still remains: "Where is the money for all this coming from?". It ain't coming from the working person, who's income and benefits have been slashed by at least 1/3. There's no way that people could afford an income tax here (we have none) as wages are stagnant and low (and the monies would go into the pockets of officials anyways).

    Whatever game these government officials are playing here in Nevada, they'll be shitting in their pants when it comes falling apart.

  10. The Daily Show does the ratings agencies, CNBC, and the opera buffo of the financial markets.


  11. Ben Bernanke as Larsen E. Whipsnade

    If a private company or individual engaged in similar actions regarding the price or misrepresentation of a single product, fines and jail sentences would be sought. The Fed, however, engages in fraud with impunity. They are encouraged to do so by the political class. Bernie Madoff appears ethical in comparison with government and its agencies. The Fed gets to call their deliberate fraud “economic policy.” Government supports the fraud by claiming that an economic recovery is underway.

    Markets are arguably the greatest “invention” of mankind. They enable social cooperation and harmony while allowing maximum increases in living standards. Markets are the very foundation of modern civilization, allowing many billions of people to survive on our planet. Distorting markets is no small matter. Doing so literally threatens peace and economic well-being.

    The Fed’s behavior of distorting prices is deliberate dishonesty calculated for government advantage. The policy is designed to deceive others to behave in a manner which is ultimately harmful to these individuals. It is outright fraud!
    Concluding Remarks

    In hindsight, apologies are in order. There was no need to insult “carnies” by comparing them to government. Bernie Madoff’s crimes should not be compared to those of the government. He was a small fry and he could not force people to participate in his Ponzi scheme. Government is in a class by itself. The Mafia, in comparison, looks like Mother Theresa.


  12. Here is an article showing how current sales levels of new single family homes compares to pre-Great Recession levels:


    Even though sales are up from 50 year lows, when looking back to the 1960s, current sales levels are well below the long-term average.

  13. Misjudged Annuity Guarantees May Cost Life Insurers Billions

    Leslie Scism, who covers insurance for The Wall Street Journal, digs into the details of the Moody’s report in a piece this week. One rather striking fact emerges: Investors and their advisers have messed up insurers’ plans in part by behaving in ways that were, well, smarter than the insurance companies expected. Insurers generally count on a certain percentage of their customers to either cancel their policies or let them lapse; but in this case, with the variable annuities offering such generous payment terms, more customers have hung on, leaving insurers with “lower lapse rates” and much higher potential future payments, according to Moody’s.

    As Glenn Ruffenach and Elizabeth O’Brien have recently reported for Encore, insurers over the past couple of years have been raising fees on variable annuities, capping the amount of money annuity owners can invest and even offering to buy out their contracts, all in an effort to reduce their potential liabilities. Scism describes other efforts by insurers to cap their costs, and also notes that most insurers now offer much less generous income benefits to new buyers, with some having stopped selling variable annuities altogether.

  14. Secret files reveal how pay-to-play works in N.J.

    TRENTON — The engineering firm Birdsall Services Group was built of New Jersey steel, the kind forged in a fire of wheeling and dealing and political influence that made the company a titan in the brawl for millions of dollars worth of public contracts.

    Now it’s all melting down.

    Birdsall, bankrupt and a shadow of its former self, admitted in state court this month to dumping loads of illegal campaign donations into the coffers of elected officials, a practice one former employee said "regularly won contracts" for the company.

    It was classic Jersey: Banned by law from giving more than $300 to many politicians, Birdsall instead had its employees write personal checks to candidates and then later reimbursed the staffers with salary bonuses and lied to the state on disclosure forms.

    The company had created the perfect political machine, one that could skirt laws and churn out checks like a printing press, all without raising a single suspicion because each donation was for such a small sum of money it did not have to be reported to the public.

    A trove of company records obtained by The Star-Ledger exposes for the first time the hundreds of politicians — from mayors and council candidates to county freeholders and some of the most well-known New Jersey power brokers — whose campaigns profited from Birdsall’s crimes. (See complete list of donations below)

    The internal records, as well as court documents and interviews with people familiar with the company, offer a stunning behind-the-scenes look at how Birdsall used money to grease palms and jockey past competitors in the high-stakes race for public contracts.

    From 2008 to early 2012, Birdsall made more than 1,000 secret contributions worth $1.05 million to candidates and political groups of all stripes and in all corners of the state, according to a Star-Ledger analysis of the records.

    During the same period, business disclosure reports show, Birdsall cashed in on more than $84 million in public contracts.

    "This is exactly how pay-to-play works," said Craig Holman, who helped draft New Jersey’s pay-to-play law and who now lobbies in Washington for Public Citizen, an advocacy group. "The one side that isn’t so far being penalized are the public officials who received these contributions. If they knowingly and willfully accepted them, they must be prosecuted."


  15. Dirty Wars author Jeremy Scahill: is journalism being criminalised? – video interview

    In the wake of whistleblower Edward Snowden's leak of NSA files, Jeremy Scahill, author of Dirty Wars: The World is a Battlefield and featured reporter in the new documentary film of the same name, says under the Obama administration journalists are being intruded upon and whistleblowers are being charged with crimes. Scahill is also a national security correspondent for the Nation


  16. Housing made simple,
    No job, no money
    No money, no down payment
    No carzy fog-the-mirror loan from bank, no house buying.

  17. I feel like I couldn't have screwed up even more than I did. Sell my house in 2011 at a loss and "invest" in precious metals to protect my wealth for upcoming collapse. Since then precious metals have tanked and my old house has gone up 35% in price. I thought I was doing the right thing and preparing myself for what's next. Boy did I learn by losing a ton of money.

    Anyways, here on the West Coast things are really hot in multiple markets. My friend made an offer on a house in the Puget Sound area that had 10 offers and he offered 70K over asking price and still didn't get it. Agree that this can't be sustained because interest rates will creep up, among other things. Unfortunately, I think this will go on much longer than people expect. It already has.

  18. The housing market particularly in Australia is an accident that has been waiting to happen for 13 years. Meanwhile AUMN is an accident that has happened in 2 years and Silver Dragon in 6 months.

  19. Pardoned financier Marc Rich dies in Switzerland

    GENEVA (AP) — He was a wheeler-dealer pardoned by another consummate dealmaker, a working-class Jewish boy who left Belgium to escape the Nazis and rose to become the billionaire "King of Commodities."

    Marc Rich's connections to the rich and powerful not only made him fabulously wealthy but when he was indicted for fraud, racketeering and tax evasion on a grand scale, they helped secure him a pardon from Bill Clinton, hours before the U.S. president left office.

    That triggered a political firestorm from critics who alleged Rich bought his pardon through donations that his ex-wife had made to the Democratic Party.

    Rich died Wednesday of a stroke at a hospital in Lucerne, near his home for decades. He was 78, and his Israel-based spokesman Avner Azulay said he would be buried Thursday in a kibbutz in Israel.

    Throughout his storied career at the pinnacle of high finance, Rich was known as a man who could deliver the big deals thanks to personal relationships he had forged with powerful figures around the world.

    In a rare 1992 interview with NBC, Rich said that in his business, "we're not political...That's just the philosophy of our company."

    Yet Rich cultivated contacts with powerful politicians — in the Middle East as well as the United States — and used those ties to make billions, often when it seemed all doors were closed.

    During the Arab oil embargo of the 1970s, Rich used his Middle East contacts to purchase crude oil from Iran and Iraq and made a fortune selling it to American companies.

    But in 1983, while he was in Switzerland, Rich was indicted by a U.S. federal grand jury on more than 50 counts of fraud, racketeering, trading with Iran during the U.S. Embassy hostage crisis and evading more than $48 million in income taxes.

    Although the Swiss refused to arrest or extradite Rich, he stayed on the FBI's Most Wanted List, narrowly escaping capture in Finland, Germany, Britain and Jamaica, until Clinton granted him a pardon on Jan. 20, 2001 — the day he handed over the keys to the White House to George W. Bush.

    Last-minute presidential pardons are not uncommon in the United States, but this one raised a furor. Critics believed the case showed that justice means one thing for ordinary people and another for powerful insiders.

    Rich had other advocates, however.

    For years influential Israelis, including ex-Prime Minister Ehud Barak and the former chief of the Mossad spy agency, Shabtai Shavit, had been urging Clinton to pardon Rich, who over two decades had contributed up to $80 million to Israeli hospitals, museums, symphonies and to the absorption of immigrants.


  20. "Over the past three quarters, CAT (Caterpillar) has witnessed its largest decline in returns since the financial crisis. This pullback in firm performance has only recently begun to be matched with a decline in share price."


  21. "I don't want to be accused of being overly pessimistic when observing our local Real Estate Market, however, as strong as our market currently looks, there is reason to be careful of factors lurking in the background that could spoil this "mini-boom".

    The Glass is half empty: Washoe County Notices of Default are increasing at a steady pace, reaching 50 last week. Notices of Trustee Sales -when an actual foreclosure date is set- reached a high level of 36 from May 31 to June 6. Interest rates are increasing dramatically! The rate for a 30 year fixed rate mortgages has increased by 3/4% to 1% from 45 days ago -a 33% increase!

    The Glass is half full: The number of housing units sold in Washoe increased 8%, totaling 513 units from April to May of this year. The Sold-to-Asking Price Ratio reached 101.1% in May. This is not a typo; the overall sales price in May exceeded the overall listed price by 1.1%. So, there were a lot of listings that sold for more than the asking price! In May there was a 13% increase in new unit inventory compared to April and a 22% increase compared to May of 2012. The "months of inventory" number is a measure of time needed to sell each currently listed home if not a single listing was added to the market. Washoe County remains a strong sellers market with a 3.6 "months of inventory". A neutral market, which is neither a buyers or sellers market, is reached when the "months of inventory" number reaches 6."


    [Leave it to a Realtor. They writes about this "cat-bounce" in one paragraph, the next paragraph they are saying "but it's s great time for unreal estate!!!"]

  22. "The data point to the self-sustaining expansion the Federal Reserve is seeking to nurture as rising property values boost household wealth and spending, while businesses invest in new equipment to meet growing demand. Stocks climbed, with the Standard & Poor’s 500 index rebounding from a nine-week low, as the figures supported forecasts that the economy will overcome a midyear slump and accelerate in the second half of 2013.

    “It’s all good news,” said Mark Zandi, chief economist at Moody’s Analytics in West Chester, Pa. “The economy is going to gain traction.”

    Builders sold 476,000 new properties at an annualized rate last month, a 2.1 percent gain from April, the most since July 2008, the Commerce Department figures showed. The median selling price climbed to $263,900, up 10.3 percent from May 2012.

    The median new-home price in Las Vegas was $254,550 in May, up 32 percent from a year earlier, Home Builders Research reported.

    The median price for an existing single-family home was $170,000, up 32.8 percent year over year, the Greater Las Vegas Association of Realtors said this month.

    Lennar Corp. is among builders seeing increased sales, orders and higher average purchase prices. The third-largest U.S. homebuilder by revenue on Tuesday reported second-quarter earnings that beat analysts’ estimates.

    Miami-based Lennar delivered 4,464 houses, compared with 3,222 houses a year earlier, while the average sales price increased to $283,000 from $250,000. Orders rose 27 percent.

    “Against the backdrop of recent investor concerns over mortgage rate increases, we believe that our second-quarter results together with real-time feedback from our field associates continue to point towards a solid housing recovery,” Lennar CEO Stuart Miller said in a statement."


    [Yep, that bubble is pretty damn big, considering wages in Nevada are flat. Jobs have returned but the wages have returned very low. Las Vegas unemployment rate is at 9.9%. If these homes are being brought, it has to be by investors who have borrowed to raise the cash. Someone has to be behind the pumping of monies into the area. 2+2=4; this situation does not.]