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- None of the experts saw India's debt bubble coming. Sound familiar? | Jayati Ghosh | Comment is free | The Guardian
She makes solid observations based upon real macroeconomic history and the current situation in much of the emerging markets.
By Jayati Ghosh. The Guardian, Monday 26 August 2013 15.00 EDT
The Indian economic boom was based on a debt-driven consumption and investment spree that mainly relied on short-term capital inflows. This generated asset booms in areas such as construction and real estate, rather than in traded goods. And it created a sense of financial euphoria that led to massive over-extension of credit to both companies and households, to compound the problem.
The typical story, which was elaborated half a century ago by Charles Kindleberger, goes something like this: a country is "discovered" by international investors and therefore receives substantial capital inflows. These contribute to a domestic boom, and also push up the real exchange rate. This reduces the incentives for exporters and producers of import substitutes, so investors look for avenues in the non-tradable sectors, such as construction and real estate. So the boom is marked by rising asset values, of real estate and of stocks. The counterpart of all this is a rising current account deficit, which no one pays much attention to as long as the money keeps flowing in and the economy keeps growing.
But all bubbles must eventually burst.
This is what has just started to happen in India, and is also likely to happen in several other emerging markets. But essentially the same process has already unfolded many times before in different parts of the world: Latin America in the 1980s, Mexico in 1994-95, south-east Asia in 1997-98, Russia in 1999-2000, Argentina in 2001-02, the US in 2008, Ireland and Gree ce in 2009, and so on. Why are we so startled each time? And why do we never, ever, see it coming?
Read the source article … http://www.theguardian.com/commentisfree /2013/aug/26/india-debt-bubble-boom-bus t-pattern
- Trulia: Housing in Third Phase of Recovery, Awaiting Fourth
By: Krista Franks Brock. 08/28/2013
The housing market is now 64 percent of the way back to "normal," and we are entering the third phase of the recovery, according to Trulia's monthly Housing Barometer.
The first two phases of the recovery began in 2009 and 2012, respectively. The milestone marking the first phase was when sales and construction first started to pick up. The second phase began when home prices reached bottom and began to increase.
The third phase began this spring after housing inventory bottomed out and both inventory and mortgage rates began to climb, according to Trulia.
What we're waiting on now, according to Trulia, is the fourth phase, in which "young adults finally start moving out of their parents' homes."
- CRE Charts Steady, Moderate Growth | CCIM Institute
Posted August 28th 2013
Vacancy rates are on a gradual decline across almost all commercial property sectors. Meanwhile, rents are nudging upwards, according to the National Association of REALTORS® Quarterly Commercial Real Estate Forecast.
The multifamily sector remains a landlord's market with a forecast 4.0 percent vacancy in 3Q14. Strong demand for a tightened apartment supply will drive rents up 4.0 percent this year, and an additional 4.0 percent in 2014.
Download the complete report (PDF).
Read the source article … http://www.ccim.com/newscenter/323209/20 13/08/28/cre-charts-steady-moderate-grow th
- Tweaking the Fed's Taper | Fox Business
By Elizabeth MacDonald. Published August 27, 2013
Recently, the 10-year Treasury bond yield rose by 116 basis points from this year's low of 1.66% on May 2 to 2.82% on Friday. That happened mostly as a result of all the Fed's chatter about tapering.
So what to do? It seems even the hint of a Fed retreat has caused Treasury bond traders to go berserk. Goldman Sachs is already out in the markets saying the Fed should continue to buy mortgage-backed securities since mortgage-lending standards remain tight in various parts of the country, as opposed to easier standards for commercial real estate.
Mortgage rates hit historic lows last May, and people rushed to refinance. The fear is a mortgage rate spike higher could freeze over refinancing and the housing market, and even cause layoffs at banks.
Northwestern University economists Arvind Krishnamurthy and Annette Vissing-Jorgensen presented fascinating research on this topic at the annual meeting of central bankers in Jackson Hole, Wyo. They suggest the Fed should stop buying Treasuries, start rolling off this government debt as well as older mortgage-backed securities, BUT keep buying new mortgage-backed securities.
However, the treasurys are what allow the government to borrow to fund what it does to help the economy via fiscal spending while the private sector goes through much needed deleveraging. Ben Bernanke and other Fed governors know this, albeit some care less about it than do others — some are more libertarian leaning than are others.
Read the source article … http://www.foxbusiness.com/government/20 13/08/27/tweaking-fed-taper/
- Eased Mortgage-Risk Rule to Be Proposed by U.S. Agencies – Bloomberg
By Clea Benson – Aug 28, 2013 10:38 AM GMT-0700
Daniel M. Gallagher, a Republican member of the Securities and Exchange Commission, one of the regulators issuing the proposal, said in a written dissent today that the new standards were so lax that they would allow lenders to escape retaining risk on many loans that will probably default.
The proposal would require banks to retain a slice of mortgages when borrowers are spending more than 43 percent of their monthly income to repay their debt. The earlier version would have required banks to keep a stake in loans when borrowers were spending more than 36 percent of their income on all loan payments. The new measure also would prohibit loans with risky features such as balloon payments or repayment terms of longer than 30 years.
Careful! The less skin in the full game, the wilder many lenders are apt to become again.
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