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San Francisco’s Self-Inflicted Housing Problem
David Boaz
Housing is expensive and hard to find in beautiful San Francisco. In today’s New York Times, one would-be housing provider explains why. Scott James writes:
[A]fter renting out a one-bedroom apartment in my home for several years, I will never do it again. San Francisco’s anti-landlord housing laws and political climate make it untenable….
[A] complex legal structure has been created to make evictions for just cause extraordinarily difficult.
At first many of these rules governed only apartment complexes and larger properties with many units. But in 1994 the city applied the regulations to homes if they included just one rental on the property. In other cities, including New York City, such small-time landlords have far more rights over their own homes.
As he goes on to describe his experience with the last tenant in his downstairs apartment—a story featuring a sledgehammer, a flooded apartment, and a plugged-in appliance in an overflowing sink—I was reminded of the 1990 movie Pacific Heights, not coincidentally set in San Francisco.
It’s a thriller that is almost a documentary on the horrors of landlord-tenant law—and that is confirmed by today’s story. A young couple buys a big house in San Francisco and rents an apartment to a young man. He never pays them, and they can’t get him out, and then things get really scary. The lawyer lectures the couple—and the audience—on how “of course you’re right, but you’ll never win.” When I saw it, I just knew this happened to someone—maybe the screenwriter or someone he knew. Sure enough, when Cato published William Tucker’s book Rent Control, Zoning, and Affordable Housing, and I asked Pacific Heights director John Schlesinger for a jacket blurb, he readily agreed to say, “If you thought Pacific Heights was fiction, you need to read this book”; and he told me that the screenwriter had a relative who had gone through a tenant nightmare.
Want to instantly create 10,600 rental units in San Francisco? Reform landlord-tenant law so that small landlords come back to the market. In the meantime, watch Pacific Heights.
View full post on Cato @ Liberty
American • Housing Bubble II: Institutional Investors Instead Of First
Housing Bubble II: Institutional Investors Instead Of First-Time Buyers
WEDNESDAY, MAY 29, 2013 AT 12:11PM
Contributed by Michael Lombardi, MBA for Profit Confidential.
It’s almost as if the mainstream media is defining the U.S. housing market as being “hot,” while some economists are calling for robust growth ahead. But the reality is that we are far from a recovery in the housing market and more troubles could follow.
As I have discussed in these pages many times before, institutional investors are running to buy homes for rental income, because the yields elsewhere are getting thinner. As a result, we’ve experienced hikes in home prices in the U.S. housing market.
Institutional investors rushed to buy homes with the philosophy of buy cheap, renovate, and rent. But they might be in for a surprise. According to real estate research firm Trulia Inc., since 2005, there have been almost four million single-family homes added to the rental market. That supply has met the demand created during the crisis in the housing market. (Source: Trulia Inc., April 4, 2013.)
As a result, the rental rates that institutional investors were banking on are actually compressing. Take a look at the table below, which depicts the year-over-year change in rental rates and home prices in some major cities in the U.S. economy.
U.S. City
Year-over-Year % change in rental rates for single-family homes
Year-over-Year % change in single-family home prices
Las Vegas, NV
-1.9%
24.6%
Fort Lauderdale, FL
-1.2%
10.7%
Chicago, IL
-1.2%
3.6%
Orange County, CA
-0.7%
13.7%
Washington, DC
-0.7%
6.2%
As institutional investors are paying more for homes, their rental income is getting softer.
And the fact of the matter is that we are missing the most important piece of the puzzle for a real housing market recovery—first-time home buyers. Existing-home sales reported by the National Association of Realtors (NAR) showed that in April, first-time home buyers accounted for only 29% of the purchases in the housing market—a decline of more than 17% from April of 2012, when first-time home buyers accounted for 35% of all the existing-home sales. (Source: National Association of Realtors, May 22, 2013.)
And there are other troubling issues in the housing market; more than a quarter of all homes with a mortgage in the U.S. housing market had negative equity in the first quarter of 2013, while 18.2% of homeowners didn’t have enough equity to be able to cover the related costs of selling or moving into another home. (Source: Zillow, May 23, 2013.)
All of this is just simply adding to my skepticism toward the housing market recovery. At the very best, the U.S. housing market is still very anemic. Contributed by Michael Lombardi for Profit Confidential.
Wolf here: The good old days are back, when money grew on trees. Home prices jumped nationwide. The usual suspects: Phoenix soared 22.5%, San Francisco 22.2%, Las Vegas 20.6%. You can’t lose money in real estate. I’m already hearing it again.
http://www.testosteronepit.com/home/201 … rst-t.html
Statistics: Posted by yoda — Wed May 29, 2013 10:52 pm
View full post on opinions.caduceusx.com
Other • US Housing Bubble II: Euphoria And Other Shenanigans
US Housing Bubble II: Euphoria And Other Shenanigans
TUESDAY, MAY 28, 2013
The good old days are back. Those days during the last housing bubble when money grew on trees: home prices jumped 10.9% year over year, according to the S&P Case-Shiller 20-city Home Price Index, based on data through March 2013. On a monthly basis, the index rose 1.2%. Prices are now back to 2003 levels. The usual suspects: Phoenix soared 22.5% year over year, San Francisco 22.2%, Las Vegas 20.6%. You can’t lose money in real estate. I’m already hearing it again.
Flipping houses is back in vogue. People are jabbering about it on their cellphones while crossing streets without looking. Entire articles have been written about it, backed with reasonable-looking numbers, such as RealtyTrac’s “25 Markets Where Flipping Homes is Most Profitable.” The top three? Orlando, Las Vegas, and Phoenix. Visions of 2005!
The smart money is once again running national radio ads on how-to-flip-houses shenanigans. Pull out your credit card, call that 800-number, and get rich quick. On NPR, an “economist” said this morning that the housing market was “on fire.” That’s the sort of hard “data” that puts real gloss on NPR’s perspicacious coverage of the US economy. And everybody fingers the “tight” inventory – as hundreds of thousands of vacant and for-sale homes have evaporated, and as bidding wars are breaking out over what’s left. Or so it seems.
But vacant homes don’t evaporate. Private-equity funds have poured tens of billions into gobbling up vacant single-family homes in specific markets. And now some of them are planning IPOs as a way of dumping this stuff into funds that unsuspecting worker bees hold in their 401(k)s. It’s called an exit, and they have to do it before it blows up in their faces. Meanwhile, they’re hoping to rent out at least some of these vacant homes on their books, but vacancy rates of single-family homes are sky-high in these markets, with the stock of vacant homes having simply been moved from the for-sale list to the for-rent list where it languishes unnoticed by the gurus. That’s what free and unlimited money will do. I’ve hammered on this theme before…. Housing Bubble II: But This Time It’s Different.
Euphoria even shows up in the numbers. The Conference Board Consumer Confidence Index rose in May to 76.2 up from 69.0 in April, the highest level since February 2008. Not everyone was euphoric. Which was why the index hasn’t hit the stratosphere yet. But those among the respondents who benefitted from the Fed’s money-printing binge and the bubbles it engendered in corporate bonds, farmland, housing, the stock markets, even junk bonds… they felt flush; and just like in 2006 or 2007, when “Merger Monday” had become a day of the week, they felt wise for having made smart decisions. Forgotten were the fiscal cliff – whatever that had been – the payroll-tax hike, and the sequester. For the lucky ones, these inconveniences were drowned out by euphoria.
The Walmart crowd wasn’t so lucky, however, and if it hadn’t been for their presence, the index would have been soaring. So there were some hiccups: only 10.8% of the respondents thought that jobs were “plentiful”; while dismal, and a reminder of reality, it was up from an even more dismal 9.7% in April.
Everybody loves bubbles. People either don’t remember the wealth destruction and wealth transfers that took place when the last bubble blew up, or they think they, but not others, can get out in time, whether it’s through an IPO, a quick stock sale, or a real estate transaction. Governments love bubbles because they generate a flood of tax revenues – and even California is having illusions of a surplus. Central banks, and specifically the Fed, create bubbles and then deny their existence until afterwards when they bail out their cronies that hadn’t been able to get out in time – while others are left holding the bag. It’s an amazing show, with fireworks, suspense, dramatic plot twists, and a rousing score. And we get to watch it over and over again.
Since I write so much about financial fiascos, debacles, and nightmares, I’ve been asked about ways to protect assets in this environment. Thankfully, I don’t give financial advice. Even if I did, I wouldn’t have all the answers.
http://www.testosteronepit.com/home/201 … igans.html
Statistics: Posted by yoda — Wed May 29, 2013 12:32 am
View full post on opinions.caduceusx.com
Other • What If Stocks, Bonds and Housing All Go Down Together?
What If Stocks, Bonds and Housing All Go Down Together?
May 24, 2013
About the claim that central banks will never let asset bubbles pop ever again–their track record of permanently inflating asset bubbles leaves much to be desired.
The problem with trying to solve all our structural problems by injecting "free money" liquidity into financial Elites is that all the money sloshing around seeks a high-yield home, and in doing so it inflates bubbles that inevitably pop with devastating consequences.
As noted yesterday, the Grand Narrative of the U.S. economy is a global empire that has substituted financialization for sustainable economic expansion. In shorthand, those people with access to near-zero-cost central bank-issued credit can take advantage of the many asset bubbles financialization inflates.
Those people who do not have capital or access to credit become poorer. That is the harsh reality of neofeudal, neocolonial financialization. Neofeudalism and the Neocolonial-Financialization Model (May 24, 2012).
Injecting liquidity by creating credit and central bank cash out of thin air is not a helicopter drop of money into the economy–it is a flood of money delivered to the banks and financial elites. The elites at the top of the neofeudal financialization machine already have immense wealth, and so they have no purpose for all the credit gifted to them by the central banks except to speculate with it, chasing yields, carry trades and nascent bubbles (get in early and dump near the top).
Life is good for the kleptocratic financial Aristocracy: for debt-serfs, not so good.
No wonder the art market and super-luxury auto sales have both exploded higher. Thanks to the central banks’ liquidity largesse, the supremely wealthy literally have so much money and credit they don’t know what to do with it all.
If you want to borrow money to attend college, the government-controlled interest rate is 9%. If you want to speculate in the yen carry trade or buy 10,000 houses, the rate is near-zero or at worst, the rate of inflation (around 2% to 3%). If you want to borrow money for anything other than a socialized mortgage to buy a single-family home, tough luck, you don’t qualify. But if you want to speculate with $10 billion–here’s the cash, please please please take it off our soft central-banker hands.
If your speculations end badly, then no problem, we transfer the toxic trash heap of debt and phantom assets onto the balance sheet of the central bank or onto the public (government) ledger.
Given this reality, it was inevitable that the stock, bond and housing markets would all be inflated into bubbles by this monumental flood of free money. Please consider these three charts:
Spot The Bubble: Average New Home Price Soars By Most Ever In One Month To All Time High (Zero Hedge)
Verdict: bubble.
Verdict: bubble.
Japanese Bond Market Halted At Open As Bond Selling Purge Goes Global (Zero Hedge)
Verdict: bubble popping.
It is widely accepted as self-evident that all these bubbles will not pop because the central banks won’t let them pop. That’s nice, but if this were the case, then why did stocks crater in 2000-2001 and 2008-2009, and why did the housing bubble implode in 2008-2011? Did they change their minds for some reason?
No; they assured us right up to the moment of implosion that everything was fine, there was no bubble, etc. The only logical conclusion is that bubbles pop even though central banks resist the popping with all their might.
In the past, central banks were pleased to inflate one bubble at a time, enabling money both smart and dumb to flee one smoking ruin and get busy inflating the next bubble-ready asset class.
But now, thanks to essentially unlimited liquidity and credit, the central banks have inflated three bubbles at the same time: stocks, bonds and housing. That raises an interesting question: what if all these bubbles pop in unison? Will the central banks be able to place a bid under all three markets simultaneously? If so, where will all that freed-up cash go next?
One possibility is gold, another is commodities such as grain and oil. The latter is especially interesting, because central banks and governments hate energy speculators with special intensity because the "Brent vigilantes" have the power to boost inflation where it matters, i.e. energy.
Once energy takes off in a speculative bubble, the rising cost of energy sucker-punches the already-anemic global recovery, and the responsibility eventually lands on the laps of the central banks who created all the bubbles. Their quantitative easing policies discredited, the central banks will have to restrain their liquidity hand-outs, and that will undermine what’s left of the various speculative bubbles they’ve blown.
Those who argue bubbles won’t be allowed to pop ever again should look at history from 1999 to the present again.
http://www.oftwominds.com/blog.html
Statistics: Posted by yoda — Fri May 24, 2013 12:17 am
View full post on opinions.caduceusx.com
Cheap Money Bankrolls Wall Street’s Bet on Housing (The Fed screws the middle class yet again.)
Wall Street firms have swept in buying up foreclosed homes all over the country with the idea of becoming “super landlords.” If a firm can buy up a a hundred rental units at a reasonable amount with virtually free money (which is likely to remain free for a good while) and then turn around and rent the units to the people who have been foreclosed on, then hey, why not?
This is yet another example of how all the Fed’s printing is benefiting the firms which originally were saved by TARP even though they should have died.
Goldman Sachs, which was over leveraged (to be kind) and which should have perished in 2008 was saved by the US taxpayer. In some cases that taxpayer has now been foreclosed on. Goldman managed its books far worse than most foreclosure victims, but now because the average person doesn’t have direct access to the Fed window, Goldman gets to be the master of the people who paid to save Goldman. This is just sick.
On top of this, in places like Las Vegas housing prices are again lurching skyward as Federal Reserve funny money finds its way into the housing market. So former homeowners, now with terrible credit, are likely to remain former homeowners as Wall Street, enabled by the Fed, bids up prices.
And Just wait until the hedge funds take over Fannie Mae.
Tell me how the FOMC politburo helps the average person. Tell me why the average person should not want an end to the Federal Reserve.
(From CNBC)
Local real-estate broker Fafie Moore says private-equity firms and hedge funds have largely “crowded out” local buyers like Marchillo. That’s because the investment firms have broadened beyond their initial focus —buying homes at foreclosure auctions. Now, they are also bidding for homes listed by private owners and banks.
In a sign of how freely the money is flowing, Moore notes around 60 percent of all sales are in cash these days.
Fellow broker Trish Nash said she has seen cases where a home gets listed and quickly draws a dozen bids, many in cash. Realtors are talking about a mini-bubble forming here.
View full post on AgainstCronyCapitalism.org
American • Will The New Housing Bubble That Bernanke Is Creating End A
Will The New Housing Bubble That Bernanke Is Creating End As Badly As The Last One Did?
By Michael, on April 30th, 2013
Federal Reserve Chairman Ben Bernanke has done it. He has succeeded in creating a new housing bubble. By driving mortgage rates down to the lowest level in 100 years and recklessly printing money with wild abandon, Bernanke has been able to get housing prices to rebound a bit. In fact, in some of the more prosperous areas of the country you would be tempted to think that it is 2005 all over again. If you can believe it, in some areas of the country builders are actually holding lotteries to see who will get the chance to buy their homes. Wow – that sounds great, right? Unfortunately, this "housing recovery" is not based on solid economic fundamentals. As you will see below, this is a recovery that is being led by investors. They are paying cash for cheap properties that they believe will appreciate rapidly in the coming years. Meanwhile, the homeownership rate in the United States continues to decline. It is now the lowest that it has been since 1995. There are a couple of reasons for this. Number one, there has not been a jobs recovery in the United States. The percentage of working age Americans with a job has not rebounded at all and is still about the exact same place where it was at the end of the last recession. Secondly, crippling levels of student loan debt continue to drive down the percentage of young people that are buying homes. So no, this is not a real housing recovery. It is an investor-led recovery that is mostly limited to the more prosperous areas of the country. For example, the median sale price of a home in Washington D.C. just hit a new all-time record high. But this bubble will not last, and when this new housing bubble does burst, will it end as badly as the last one did?
Federal Reserve Chairman Ben Bernanke has stated over and over that one of his main goals is to "support the housing market" (i.e. get housing prices to go up). It took a while, but it looks like he is finally getting his wish. According to USA Today, U.S. home prices have been rising at the fastest rate in nearly seven years…
U.S. home prices in the USA’s 20 biggest cities rose 9.3% in the 12 months ending in February. It was the biggest annual growth rates in almost seven years, a closely watched housing index out Tuesday said.
In particular, home prices have been rising most rapidly in cities that experienced a boom during the last housing bubble…
Year over year, Phoenix continued to stand out with a gain of 23%, followed by San Francisco at almost 19% and Las Vegas at nearly 18%, the S&P/Case-Shiller index showed. Most of the cities seeing the biggest gains also fell hardest during the crash.
But is this really a reason for celebration? Instead of addressing the fundamental problems in our economy that caused the last housing crash, Bernanke has been seemingly obsessed with reinflating the housing bubble. As a recent article by Edward Pinto explained, the housing market is being greatly manipulated by the government and by the Fed…
While a housing recovery of sorts has developed, it is by no means a normal one. The government continues to go to extraordinary lengths to prop up sales by guaranteeing nearly 90% of new mortgage debt, financing half of all home purchase mortgages to buyers with zero equity at closing, driving mortgage interest rates to the lowest level in 100 years, and turning the Fed into the world’s largest buyer of new mortgage debt.
Thus, with real incomes essentially stagnant, this is a market recovery largely driven by low interest rates and plentiful government financing. This is eerily familiar to the previous government policy-induced boom that went bust in 2006, and from which the country is still struggling to recover. Creating over a trillion dollars in additional home value out of thin air does sound like a variant of dropping money out of helicopters.
And the Obama administration has been pushing very hard to get lenders to give mortgages to those with "weaker credit". In other words, the government is once again trying to get the banks to give home loans to people that cannot afford them. The following is from the Washington Post…
The Obama administration is engaged in a broad push to make more home loans available to people with weaker credit, an effort that officials say will help power the economic recovery but that skeptics say could open the door to the risky lending that caused the housing crash in the first place.
President Obama’s economic advisers and outside experts say the nation’s much-celebrated housing rebound is leaving too many people behind, including young people looking to buy their first homes and individuals with credit records weakened by the recession.
We are repeating so many of the same mistakes that we made the last time.
But surely things will turn out differently this time, right?
I wouldn’t count on it.
Right now, an increasingly large percentage of homes are being purchased as investments. The following is from a recent Washington Times article…
Much of the pickup in sales and prices has been powered by investors who, convinced that the market is bottoming, are scooping up bountiful supplies of distressed and foreclosed properties at bargain prices and often paying with cash.
With investors targeting lower-priced homes that they intend to purchase and rent out, they have been crowding out many first-time buyers who are having difficulty getting mortgage loans and are at a disadvantage when competing with well-heeled buyers. Cash sales to investors now account for about one-third of all home sales, according to the National Association of Realtors.
And as we have seen in the past, an investor-led boom can turn into an investor-led bust very rapidly.
If this truly was a real housing recovery, the percentage of Americans that own a home would be going up.
Instead, it is going down.
As I mentioned above, the U.S. Census Bureau is reporting that the homeownership rate in the United States is now the lowest that it has been since 1995.
In particular, homeownership among college-educated young people is way down. They can’t afford to buy homes due to crippling levels of student loan debt…
For the average homeowner, the worst news is that these overleveraged and defaulting young borrowers no longer qualify for other kinds of loans — particularly home loans. In 2005, nearly nine percent of 25- to 30-year-olds with student debt were granted a mortgage. By late last year, that percentage, as an annual rate, was down to just above four percent.
The most precipitous drop was among those who owe $100,000 or more. New mortgages among these more deeply indebted borrowers have declined 10 percentage points, from above 16 percent in 2005 to a little more than 6 percent today.
"These are the people you’d expect to buy big houses," said student loan expert Heather Jarvis. "They owe a lot because they have a lot of education. They have been through professional and graduate schools, but their payments are so significant, they have trouble getting a mortgage. They have mortgage-sized loans already."
And the truth is that there simply are not enough good jobs in this country to support a housing recovery. In a previous article, I used the government’s own statistics to prove that there has not been a jobs recovery. If we were having a jobs recovery, the percentage of working age Americans with a job would be going up. Sadly, that is not happening…
And as I mentioned above, the "housing recovery" is mostly happening in the prosperous areas of the country.
In other areas of the United States, the devastating results of the last housing crash are still clearly apparent.
For example, the city of Dayton, Ohio is dealing with an estimated 7,000 abandoned properties.
As I wrote about the other day, there are approximately 70,000 abandoned buildings in Detroit, Michigan.
And all over the nation there are still "ghost towns" that were created when builders abruptly abandoned housing developments during the last recession. You can see some pictures of some of these ghost towns right here.
So the truth is that this is an isolated housing recovery that is being led by investors and that is being fueled by very reckless behavior by the Federal Reserve. It is not based on economic reality whatsoever.
In the end, will the collapse of this new housing bubble be as bad as the collapse of the last one was?
http://theeconomiccollapseblog.com/arch … st-one-did
Statistics: Posted by yoda — Tue Apr 30, 2013 1:54 pm
View full post on opinions.caduceusx.com
Will The New Housing Bubble That Bernanke Is Creating End As Badly As The Last One Did?
Federal Reserve Chairman Ben Bernanke has done it. He has succeeded in creating a new housing bubble. By driving mortgage rates down to the lowest level in 100 years and recklessly printing money with wild abandon, Bernanke has been able to get housing prices to rebound a bit. In fact, in some of the more prosperous areas of the country you would be tempted to think that it is 2005 all over again. If you can believe it, in some areas of the country builders are actually holding lotteries to see who will get the chance to buy their homes. Wow – that sounds great, right? Unfortunately, this “housing recovery” is not based on solid economic fundamentals. As you will see below, this is a recovery that is being led by investors. They are paying cash for cheap properties that they believe will appreciate rapidly in the coming years. Meanwhile, the homeownership rate in the United States continues to decline. It is now the lowest that it has been since 1995. There are a couple of reasons for this. Number one, there has not been a jobs recovery in the United States. The percentage of working age Americans with a job has not rebounded at all and is still about the exact same place where it was at the end of the last recession. Secondly, crippling levels of student loan debt continue to drive down the percentage of young people that are buying homes. So no, this is not a real housing recovery. It is an investor-led recovery that is mostly limited to the more prosperous areas of the country. For example, the median sale price of a home in Washington D.C. just hit a new all-time record high. But this bubble will not last, and when this new housing bubble does burst, will it end as badly as the last one did?
Federal Reserve Chairman Ben Bernanke has stated over and over that one of his main goals is to “support the housing market” (i.e. get housing prices to go up). It took a while, but it looks like he is finally getting his wish. According to USA Today, U.S. home prices have been rising at the fastest rate in nearly seven years…
U.S. home prices in the USA’s 20 biggest cities rose 9.3% in the 12 months ending in February. It was the biggest annual growth rates in almost seven years, a closely watched housing index out Tuesday said.
In particular, home prices have been rising most rapidly in cities that experienced a boom during the last housing bubble…
Year over year, Phoenix continued to stand out with a gain of 23%, followed by San Francisco at almost 19% and Las Vegas at nearly 18%, the S&P/Case-Shiller index showed. Most of the cities seeing the biggest gains also fell hardest during the crash.
But is this really a reason for celebration? Instead of addressing the fundamental problems in our economy that caused the last housing crash, Bernanke has been seemingly obsessed with reinflating the housing bubble. As a recent article by Edward Pinto explained, the housing market is being greatly manipulated by the government and by the Fed…
While a housing recovery of sorts has developed, it is by no means a normal one. The government continues to go to extraordinary lengths to prop up sales by guaranteeing nearly 90% of new mortgage debt, financing half of all home purchase mortgages to buyers with zero equity at closing, driving mortgage interest rates to the lowest level in 100 years, and turning the Fed into the world’s largest buyer of new mortgage debt.
Thus, with real incomes essentially stagnant, this is a market recovery largely driven by low interest rates and plentiful government financing. This is eerily familiar to the previous government policy-induced boom that went bust in 2006, and from which the country is still struggling to recover. Creating over a trillion dollars in additional home value out of thin air does sound like a variant of dropping money out of helicopters.
And the Obama administration has been pushing very hard to get lenders to give mortgages to those with “weaker credit”. In other words, the government is once again trying to get the banks to give home loans to people that cannot afford them. The following is from the Washington Post…
The Obama administration is engaged in a broad push to make more home loans available to people with weaker credit, an effort that officials say will help power the economic recovery but that skeptics say could open the door to the risky lending that caused the housing crash in the first place.
President Obama’s economic advisers and outside experts say the nation’s much-celebrated housing rebound is leaving too many people behind, including young people looking to buy their first homes and individuals with credit records weakened by the recession.
We are repeating so many of the same mistakes that we made the last time.
But surely things will turn out differently this time, right?
I wouldn’t count on it.
Right now, an increasingly large percentage of homes are being purchased as investments. The following is from a recent Washington Times article…
Much of the pickup in sales and prices has been powered by investors who, convinced that the market is bottoming, are scooping up bountiful supplies of distressed and foreclosed properties at bargain prices and often paying with cash.
With investors targeting lower-priced homes that they intend to purchase and rent out, they have been crowding out many first-time buyers who are having difficulty getting mortgage loans and are at a disadvantage when competing with well-heeled buyers. Cash sales to investors now account for about one-third of all home sales, according to the National Association of Realtors.
And as we have seen in the past, an investor-led boom can turn into an investor-led bust very rapidly.
If this truly was a real housing recovery, the percentage of Americans that own a home would be going up.
Instead, it is going down.
As I mentioned above, the U.S. Census Bureau is reporting that the homeownership rate in the United States is now the lowest that it has been since 1995.
In particular, homeownership among college-educated young people is way down. They can’t afford to buy homes due to crippling levels of student loan debt…
For the average homeowner, the worst news is that these overleveraged and defaulting young borrowers no longer qualify for other kinds of loans — particularly home loans. In 2005, nearly nine percent of 25- to 30-year-olds with student debt were granted a mortgage. By late last year, that percentage, as an annual rate, was down to just above four percent.
The most precipitous drop was among those who owe $100,000 or more. New mortgages among these more deeply indebted borrowers have declined 10 percentage points, from above 16 percent in 2005 to a little more than 6 percent today.
“These are the people you’d expect to buy big houses,” said student loan expert Heather Jarvis. “They owe a lot because they have a lot of education. They have been through professional and graduate schools, but their payments are so significant, they have trouble getting a mortgage. They have mortgage-sized loans already.”
And the truth is that there simply are not enough good jobs in this country to support a housing recovery. In a previous article, I used the government’s own statistics to prove that there has not been a jobs recovery. If we were having a jobs recovery, the percentage of working age Americans with a job would be going up. Sadly, that is not happening…
And as I mentioned above, the “housing recovery” is mostly happening in the prosperous areas of the country.
In other areas of the United States, the devastating results of the last housing crash are still clearly apparent.
For example, the city of Dayton, Ohio is dealing with an estimated 7,000 abandoned properties.
As I wrote about the other day, there are approximately 70,000 abandoned buildings in Detroit, Michigan.
And all over the nation there are still “ghost towns” that were created when builders abruptly abandoned housing developments during the last recession. You can see some pictures of some of these ghost towns right here.
So the truth is that this is an isolated housing recovery that is being led by investors and that is being fueled by very reckless behavior by the Federal Reserve. It is not based on economic reality whatsoever.
In the end, will the collapse of this new housing bubble be as bad as the collapse of the last one was?
Please feel free to post a comment with your thoughts below…
View full post on The Economic Collapse
American • CLINTON’S LEGACY, PART 1: THE FINANCIAL AND HOUSING MELTDOW
CLINTON’S LEGACY, PART 1: THE FINANCIAL AND HOUSING MELTDOWN
by Sheldon Richman
March 18, 2013
Bill Clinton leads a charmed life. The former president is treated like a respected elder statesman whose tenure in office was so good that even some Republicans look back fondly on the years 1993–2001.
On the surface the record indeed looks good. The 1990s were a period of economic growth, and the central government actually shrank as a percentage of the total economy. But it would be rash to give Clinton the credit. During his time in office the information revolution shifted into high gear, boosting
productivity and business formation as the new World Wide Web emerged as a major commercial arena. (At the end of Clinton’s tenure, of course, the dot-com bubble, inflated by Federal Reserve easy money, burst.) When his Democratic Party lost control of the House and Senate in the 1994 midterm elections, Clinton had to accept spending restraints, which meant somewhat less obstruction to economic growth. (A few years later he declared — rather prematurely — that “the era of big government is over.”)
Supporters of Barack Obama’s bid to raise taxes on upper-income people point to Clinton’s tax increase as proof that raising the tax burden does not have to slow economic growth. That is a fallacy. The sound economic warning against tax increases must always acknowledge that other factors, such as a boost in productivity from technological advances, could to some extent offset the negative effects of a new tax burden. One may reasonably conclude, then, that the rate of economic growth would have been even greater without the tax increase, since more money would have been left in the productive private sector.
Another reason Clinton gets favorable reviews for his eight years in the White House is that the damage of particular policies pursued by his administration did not surface until he was out of office. It is barely understood that Clinton’s policies contributed to two catastrophes that have few parallels in American history: The housing and financial debacle that began in late 2007 (the Great Recession), and the attacks by hijacked airplanes on the World Trade Center and Pentagon on September 11, 2001, which took more than 3,000 lives.
Anyone who gets his information solely from the mainstream news media will most likely be astounded by those claims. What could Bill Clinton possibly have to do with the Great Recession or 9/11? He had much to do with them.
Deregulation
The financial and housing meltdown is typically attributed exclusively to the two administrations of George W. Bush, who succeeded Clinton in 2001. But that is shortsighted and only slightly more plausible than blaming the October 1929 stock market crash and the initial 1930s recession on Herbert Hoover, who took office in March 1929. (However, Bush does bear some responsibility.) Clinton himself has helped to propagate that myth. In a commercial for the Obama reelection campaign, he accused Mitt Romney of wanting to “go back to deregulation. That’s what got us in trouble in the first place.”
The irony is that Bush signed no financial deregulation during his two terms in office. At most he’s blamed for not having used existing regulations to better police Wall Street — a misleading claim.
So if Bush wasn’t a deregulator, who was?
Bill Clinton.
In 1994 Clinton signed the Riegle-Neal Interstate Banking and Branching Efficiency Act, which legalized interstate branch banking. Until then banks were forbidden to have branches in more than one state, limiting diversification and service to customers. (Through most of American history, many states forbade intrastate branch banking, making undiversified banks vulnerable to local crop and business failures.)
Five years after Riegle-Neal, Clinton signed the Gramm-Leach-Bliley Act, which repealed a key portion of the New Deal-era Glass-Steagall Act, namely, the part that forbade a single financial institution from offering commercial (depository) banking and investment banking services.
So Bill Clinton was the financial deregulator. Is that why he is partly culpable for the financial and housing meltdown? No. Neither of Clinton’s actions contributed to the crisis. Contrary to widespread belief about the repeal of Glass-Steagall’s separation of commercial and investment banking, the American Enterprise Institute’s Peter Wallison writes, “None of the investment banks that have gotten into trouble — Bear, Lehman, Merrill, Goldman or Morgan Stanley — were affiliated with commercial banks.”
Then why is Clinton culpable? Because his secretary of Housing and Urban Development (HUD), Andrew Cuomo, currently the governor of New York and a likely 2016 presidential aspirant, accelerated easy-housing polices, helping to inflate the housing bubble and setting the stage for its collapse.
The housing boom
We must back up a step. The meltdown was the consequence of a combination of easy money and low interest rates engineered by the Federal Reserve and easy housing engineered by a variety of U.S. government agencies and policies, including HUD; the Federal Housing Authority; and two nominally private “government-sponsored enterprises” (GSEs), Fannie Mae (the Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation). The agencies, along with enactments such as the Community Reinvestment Act (passed in the 1970s then fortified in the Clinton years), which required banks to make loans to people with poor and nonexistent credit histories, made widespread home ownership a national goal. All that, fueled by Fed-induced cheap credit, led to a home-buying frenzy and an explosion of subprime and other nonprime mortgages, which banks and the GSEs bundled into securities and peddled to investors worldwide. (The GSEs bought and guaranteed a huge number of those mortgages originated by banks and mortgage companies, some of which it sold as mortgage-backed securities and some of which it held on its own balance sheet.)
The housing boom could last for a while. If lenders and borrowers believe that housing prices (fueled by government-stimulated demand) will rise for the foreseeable future and interest rates will stay low, they will be attracted to adjustable-rate mortgages with low teaser rates. Both sides will also be willing to borrow and lend for more-expensive houses than otherwise. After all, if after six months, a buyer can’t make his payments when the mortgage’s interest rate jumps, he can refinance or sell the house at the newly inflated price.
Eventually, however, interest rates will rise (as the Fed fears too much inflation) and the perpetual-motion machine will come to a halt. Suddenly many formerly attractive mortgages held by banks, GSEs, and buyers of mortgage-backed securities will look like bad investments, as home “owners” who are “underwater” (owing more than their houses are worth) simply walk away, preferring default to continued payment, especially those who made little or no down payment and therefore have no equity, as government programs permitted and encouraged.
The housing and financial crisis could not have occurred in the absence of government housing and monetary policies. Hovering in the background throughout the bubble was the knowledge that the federal government would bail out troubled “too big to fail” financial corporations, including Fannie and Freddie, which went into government receivership.
Clinton’s contribution to the crisis lay in his appointment of Cuomo to the Department of Housing and Urban Development. Cuomo became HUD secretary in 1997 after holding the position of assistant secretary under Henry Cisneros beginning in 1993. In a heavily researched 2008 article in the Village Voice, Wayne Barrett wrote,
Andrew Cuomo, the youngest Housing and Urban Development secretary in history, made a series of decisions between 1997 and 2001 that gave birth to the country’s current crisis. He took actions that — in combination with many other factors — helped plunge Fannie and Freddie into the subprime markets without putting in place the means to monitor their increasingly risky investments. He turned the Federal Housing Administration mortgage program into a sweetheart lender with sky-high loan ceilings and no money down, and he legalized what a federal judge has branded “kickbacks” to brokers that have fueled the sale of overpriced and unsupportable loans. Three to four million families are now facing foreclosure, and Cuomo is one of the reasons why.
“Perhaps the only domestic issue George Bush and Bill Clinton were in complete agreement about,” Barrett continued,
was maximizing home ownership, each trying to lay claim to a record percentage of homeowners, and both describing their efforts as a boon to blacks and Hispanics. HUD, Fannie, and Freddie were their instruments, and, as is now apparent, the more unsavory the means, the greater the growth…. [Cuomo] did more to set these forces of unregulated expansion in motion than any other secretary and then boasted about it, presenting his initiatives as crusades for racial and social justice [emphasis added].
To add insult to injury, when Cuomo became New York’s attorney general he pursued mortgage lenders who were said to have taken advantage of the boom conditions he helped to create.
When the crash came in late 2007, and the government jumped in to bail out financial institutions, some of those chickens that came home to roost belonged to Bill Clinton. More people should know about it.
This article was originally published in the December 2012 edition of Future of Freedom.
http://fff.org/explore-freedom/article/ … -meltdown/
Statistics: Posted by yoda — Tue Mar 19, 2013 12:18 pm
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Canadian • 44% decline in Canadian housing prices – Moody’s
Moody’s ‘stress’ analysis assesses 44% decline in Canadian housing prices
Republish ReprintReprintsRepublish OnlineRepublish OfflineBarbara Shecter | 13/03/11 More from Barbara Shecter
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Tyler Anderson/ National Post“As with Australia, Spain and the U.K., we expect house prices in Canada to suffer the most due to the misalignment of current house prices with historic fundamentals,” the ratings agency said..
.A severe economic shock, such as the kind that hit Japan in the early 1990s and California and Nevada in 2006, would have to knock Canadian housing prices down by 44% to cause securities linked to Canadian mortgages to lose the highest ratings assigned by Moody’s Investors Service.
House prices to remain flat for 10 years: TD
OTTAWA — Canada’s real estate bonanza of the past decade has come to end and the long-term trend as one of the most profitable places to invest is also not encouraging, a new research paper from the TD Bank argues.
.Such a house price decline, were it to happen, would be driven primarily by the phenomenal upswing in Canadian home prices over the past decade, Moody’s said.
Canada joins Spain, as well as the United Kingdom and Australia, in the ratings agency’s assessment of countries where growth in housing prices over the past 10 years has driven their values away from sustainable market fundamentals and into “overheated” territory.
“As with Australia, Spain and the U.K., we expect house prices in Canada to suffer the most due to the misalignment of current house prices with historic fundamentals,” Moody’s said.
The ratings agency released the report Monday that included its housing market analysis, along with request for comment on its proposed approach to analyzing the credit risk of non-insured mortgage pools.
“Moody’s Investors Service is in no way predicting the extent nor the causes of a large scale house price depreciation in Canada,” spokesperson Thomas Lemmon said in an emailed statement.
“Along with many other factors, the home price component of our analysis provides that in order to achieve our highest rating, a mortgage pool would have to be able to withstand a 44% downturn.”
Moody’s is the second ratings agency in as many weeks to seek input on a proposal to change the methodology used to analyze securities linked to mortgages.
..Last week, London and New York-based Fitch Ratings unveiled a proposed a two-step model that reduces home prices to a “sustainable” value based on a number of factors including data provided by Canadian banks. It then further subjects the homes to a “stressed market” value decline assumption.
Fitch said Canadian home prices are overvalued by about 20%.
Ratings agencies came under harsh criticism in the aftermath of the financial crisis of 2008 for what was perceived as a failure to predict the U.S. housing market meltdown that precipitated it.
Since then, there has been an attempt to strike a balance of thorough analysis with timely analysis, according to Grant Connor, an associate in equity research at National Bank Financial who previously worked on structured finance at Moody’s.
“At the simplest level, a stress case scenario should represent a realistic worst case scenario,” Mr. Connor said.
As with Australia, Spain and the U.K., we expect house prices in Canada to suffer the most
.The model proposed by Moody’s on Monday determines house price “stress” rates, used to assign ratings, by looking at variable factors such as house price and income growth over 10 years, and fixed factors such as monetary policy.
The analysis of housing prices in the event of economic shocks includes data from Finland in 1989, Japan in 1991, and Hong Kong in 1997, as well as Ireland, Nevada, and California in 2006.
The “variable” analysis assesses how much current house prices have departed from “sustainable” market fundamentals. The assumption is that, in the event of a severe economic shock, expected demand that has been baked into current house prices will not materialize. In Canada, the growth in house prices over the past 10 years has ‘’far outstripped” the growth in incomes, according to Moody’s.
“Think of it like an elastic [being stretched],” explains Mr. Connor of National Bank Financial. “The snap back is going to be a lot harder.”
Moody’s also assesses the “fixed” factor, which rates how vulnerable the consumer is to economic shocks, whether there is a large oversupply of houses, how effectively monetary policy can alleviate the shock, and how dependent the economy is on the real estate sector.
Canada scores better in this area, said Mr. Connor, because the stability of the country and its monetary policy is taken into consideration. While Canada’s household debt to income ratio is very high, at 154%, Moody’s notes that savings rates are higher than in some jurisdictions such as the United Kingdom.
In addition, Moody’s does not seem overly concerned about an over-supply of housing with the possible exception of the condominium market.
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http://business.financialpost.com/2013/ … =2e05-c069
Statistics: Posted by yoda — Mon Mar 11, 2013 5:24 pm
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Other • What Could Go Wrong with the Housing Recovery in 2013? Plent
What Could Go Wrong with the Housing Recovery in 2013? Plenty.
February 27, 2013
Federal subsidies and Federal Reserve policies enabled a vast expansion of debt that masked the stagnation of income. Now that the housing bubble has burst, this substitution of housing-equity debt for income has ground to a halt.
What could go wrong with the housing recovery in 2013?
To answer this question, we need to understand that housing is the key component in household wealth. As a result, Central Planning policies are aimed at creating a resurgent "wealth effect": When people perceive their wealth as rising, they tend to borrow and spend more freely. This is a major goal of U.S. Central Planning.
Another key goal of Central Planning is to strengthen the balance sheets of banks and households. The broadest way to accomplish this is to boost the value of housing. This then adds collateral to banks holding mortgages and increases the equity of homeowners.
Some analysts have noted that housing construction and renovation has declined to a modest percentage of the gross domestic product (GDP). This perspective understates the importance of the family house as the largest asset for most households and housing’s critical role as collateral in the banking system.
The family home remains the core asset for all but the poorest and wealthiest Americans. Roughly two thirds of all households "own" a home, and primary residences comprised roughly 65% of household assets of the middle 60% of households – those between the bottom 20% and the top 20%, as measured by income. (The U.S. Census Bureau typically divides all households into five quintiles; i.e., 20% each.)
Since housing is the largest component of most households’ net worth, it is also the primary basis of their assessment of rising (or falling) wealth (i.e., the "wealth effect.") No wonder Central Planners are so anxious to reflate housing prices. With real incomes stagnant and stock ownership concentrated in the top 10%, there is no other lever for a broad-based wealth effect other than housing.
Extreme Measures
Given the preponderance of housing in bank assets, household wealth, and the perception of wealth, the key policies of Central Planning largely revolve around housing: keeping interest rates (and thus mortgage rates) low, flooding the banking sector with liquidity to ease lending, guaranteeing low-down-payment mortgages via FHA, and numerous other subsidies of homeownership.
At least three aspects of this broad-based support are historically unprecedented:
1) The purchase of $1.9 trillion of mortgage-backed securities (MBS) by the Federal Reserve.
The Fed purchased $1.1 trillion in mortgages in 2009-10 and it recently launched an open-ended program of buying $40+ billion in mortgages every month. Recent analysis by Ramsey Su found that Fed purchases have substantially exceeded the announced target sums; the Fed is on track to buy another $800 billion within the next year or so. This extraordinary program is, in effect, buying 100% of all newly-issued mortgages and a majority of refinancing mortgages.
Never before has the nation’s central bank directly bought 15%+ of all outstanding mortgages this raises the question: Why has the Fed intervened so aggressively in the mortgage market? There is no other plausible reason other than to take impaired mortgages off the books of insolvent lenders, freeing them to repair their balance sheets.
Regardless of the policy’s goal, the Fed now essentially controls a tremendous percentage of the mortgage market.
2) After the insolvency of the two agencies that backed many of the mortgages originated in the bubble years (Fannie Mae and Freddie Mac), the minor-league backer of mortgages (FHA) suddenly expanded to fill the void left by Fannie and Freddie.
Many of these mortgages require only 3% down in cash, just the sort of risky “no skin in the game” mortgages that melted down in 2008.
Given this mass issuance of low-collateral loans to marginal buyers, it is no surprise that the FHA will soon require a taxpayer bailout to cover its crushing losses from rising defaults.
In 2010, 97% of all mortgages were backed by government agencies, an unprecedented socialization of the mortgage market. (Source)
This raises two questions: Where would the mortgage and housing markets be if Central Planning hadn’t effectively socialized the entire mortgage market? What will happen to the market when Central Planning support is reduced?
3) Official measures of inflation are viewed by many with a healthy skepticism, but even this likely-understated rate has recently exceeded 2.5% annually.
In this context, it is unprecedented that one-year Treasury bonds have near-zero yields, effectively costing owners a 2%+ annual fee for the privilege of owning short-term Treasurys.
Even more astonishing, rates for conventional 15-year mortgages are comparable to official inflation (the Consumer Price Index, or "CPI"). Lenders are earning near-zero premiums on these mortgages. How sustainable is this imbalance of risk and return?
The enabler of these extremes is, once again, the Federal Reserve, which has purchased hundreds of billions of dollars in Treasury bonds and flooded the banking sector with zero-interest “free money.”
This formidable Central Planning support of housing has placed a bid (i.e., a floor) under housing, resulting in two bounces since the housing bubble popped in 2007-9.
The first heavily subsidized rise faltered. Will the latest pop also reverse? Or is the much-desired “housing bottom” in, from which prices will continue their ascent?
In the macro context, what housing bulls are counting on is the emergence of an “organic,” self-sustaining recovery in housing, based not on Central Planning subsidies but on private demand and non-agency mortgages.
Housing skeptics are looking for signs of what will happen when unprecedented support and intervention in the mortgage and housing markets is reduced or withdrawn.
The Foundation of Housing: Debt and Federal Subsidies
About two-thirds of all homeowners have mortgages. As I noted in The Rise and Fall of Phantom Housing Collateral, mortgage debt doubled from about $5 trillion in 1997, before the housing bubble, to $10.5 trillion in 2007, at the top of the bubble.
This reliance on debt informs the Central Planning policies of lowering interest rates and guaranteeing mortgages via Federal agencies such as the FHA. The only way debt can increase is if incomes rise or the costs and qualification standards of borrowing decline. Since income for 90% of households has been stagnant for decades, the only way debt can expand is by lowering interest rates and reducing the risk exposure of debt issuers via Federal guarantees.
These policies have been pushed to the maximum. As a result, the policy tool bag to further boost housing is now empty.
Now there is only one direction left for interest rates (up) and for housing subsidies and guarantees (down).
Another support of housing recovery is the restriction of homes on the market. Lenders are limiting the inventory of homes for sale by keeping many distressed/foreclosed homes in the off-market shadow inventory. This artificial restriction, coupled with low rates and government subsidies, has supported the modest recovery shown on this chart (courtesy of Lance Roberts) of total housing activity:
While housing has recovered to 2010 levels, what is not visible is the collapse in housing’s share of net worth displayed in this chart:
Housing equity as a percentage of total net worth declines when the stock market rises strongly while housing gains at a much lower rate (for example, during the Bull markets of 1952-1968 and 1982-2000) and rises as stock equity falls (for example, 1969-1981) while housing rose. In the 2001-2008 era, both equities and housing both climbed sharply, but since housing is the larger share of most households’ net assets, housing’s rise overshadowed the expansion of stock net worth, causing home equity to rise as a percentage of total net worth.
The collapse of the housing bubble and the stock market pushed home equity as a percentage of net worth to new lows. The subsequent doubling in the stock market has had little effect on the bottom 90% of households, as the top 10% of households own 85% to 90% of all stocks. (Source)
In broad brush, the wealth of middle class of homeowners has been influenced by four trends:
The stagnation of real income
A rapid rise in mortgage and other debt
The use of debt to fund consumption
The collapse of housing equity as the basis of debt-based consumption
In other words, Federal subsidies and Federal Reserve policies enabled a vast expansion of debt that masked the stagnation of income. Now that the housing bubble has burst, this substitution of housing-equity debt for income has ground to a halt.
This created a reverse wealth effect: The 70% between the bottom 20% and the top 10% have seen their net worth plummet while their debt load remains stubbornly elevated.
Americans saw wealth plummet 40 percent from 2007 to 2010, Federal Reserve says. (Source)
This chart is nominal rather than real (adjusted), but the relative expansion of debt is clearly visible:
While charts like this lump all household debt and income together, this masks the reality that there is a clear divide between the top 10% and the bottom 90% in terms of income and debt. The debt load of the top 10% is considerably lighter than that of the bottom 90%, while income and wealth gains have flowed almost exclusively to the top 20%.
The top quintile accrued 89% of the total growth in wealth, while the bottom 80 percent accounted for 11%. (Source)
Unsustainable Pricing Will Introduce the "Poverty Effect"
If we put all this together, we get a picture of a middle class squeezed by historically high debt loads, stagnant incomes, and a net worth largely dependent on housing.
In response, Central Planners have pulled out all the stops to reflate housing as the only available means to spark a broad-based “wealth effect” that would support higher spending and an expansion of household debt.
This returns us to the key question: Are all these Central Planning interventions sustainable, or might they falter in 2013?
Once markets become dependent on intervention and support to price risk and assets, they are intrinsically vulnerable to any reduction in that support.
Should these supports diminish or lose their effectiveness, it will be sink-or-swim for housing. Either organic demand rises without subsidies and lenders originate mortgages without agency guarantees, or the market could resume the fall in valuations Central Planning halted in 2009.
http://www.oftwominds.com/blog.html
Statistics: Posted by yoda — Wed Feb 27, 2013 1:21 am
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