News Alerts. Jan. 9, 2014. #RealEstate

Linking ≠ endorsement. Enjoy and share:

  1. How Much Capital Gains Tax Do I Have to Pay – Just Ask Ben Why

    Some time ago I published an article entitled What Is Depreciation in Real Estate. Today I'd like to further consider what impact depreciation has on taxation upon the sale of an asset — the capital gains, by shedding light on the concepts of Cost Basis, Taxable Income, and Capital Gains as they relate to a sale of investment property.


  2. Sam Zell Discusses Entrepreneurship and Investing – YouTube

    Listen to the second of a two-part video interview with Sam Zell, where SVP of Freddie Mac Multifamily, David Brickman, asks Sam about: (1) entrepreneurship in America (2) his philosophy on investing and (3) partnering with his competitors.



  3. EconoMonitor : Ed Dolan's Econ Blog – Austerity and the Euro in Two Graphs: A Reply to Paul Krugman

    Ed Dolan goes after Paul Krugman.

    As regular readers of this blog will know, I am no big fan of fiscal austerity during a slump. Such policies are procyclical. The time to fix the fiscal roof is when the cyclical sun is shining. Premature fiscal consolidation has very likely slowed recoveries from the global crisis in both Europe and the United States. Also, I would not dispute that the "Draghi effect," as Krugman calls it, is a contributing factor in bringing euro interest rates down. The European Central Bank Chairman's pledge to use all available tools of monetary policy to save the euro undoubtedly has had some effect on rates. Still, it does seem plausible that, when deciding how much to pay for euro bonds, investors have taken into account the huge swings toward surplus in the underlying balances of the crisis countries.

    Paul Krugman, I think, knows all this. Although it is only January 2, may I nominate his graph for the most disingenuous of the year?

    "… neither graph really proves anything." Refreshing!


  4. [Highly recommended] Will the reforms speed growth in China?

    What a treat it is to read Michael Pettis's analysis of the Chinese economic situation: Some snippets:

    … historical precedents suggest that the greatest challenge facing Beijing is not in identifying the right set of reforms but rather in implementing them. The reforms are relatively easy to prescribe, but political opposition to the reforms is likely to be very strong. To see why, we must understand how the alignment between the interests of the economic elite and the needs of the economy will change.

    … as China deleverages, growth in demand must drop sharply. After all if economic growth over the past several years has been goosed by rapid credit expansion, deleveraging must have the opposite effect. It is strange that economists who acknowledge that the current growth model is overly dependent on debt have failed to understand that its reversal will have the opposite impact. If it did not, it is hard to explain why anyone would consider debt to be a problem in the first place.

    … if credit is a problem in China — something no one doubts — it must be a problem because of wasted investment that has yet to be recognized, otherwise it would have resulted in negative GDP growth today. Failure to recognize the investment losses will, of course, artificially boost GDP growth today, but it must also artificially reduce GDP growth tomorrow as the recognition of those losses is simply postponed, not eliminated. The failure of many economists to recognize that wasted investment has a cost — even as they recognize that investment has been wasted — has caused them both to misunderstand the relationship between wealth creation and GDP and to understate the future impact of this overstated GDP.


  5. What Comes After the Evans Rule? – Tim Duy's Fed Watch

    Tim Buy:

    Bottom Line: The end of the Evan's rule is fast approaching. The Fed does not have a backup plan other than talk. Are there new rules ahead? Or is it all discretion? And could you get a divided Fed to agree to new dovish rules in any event? They don't seem eager to change the thresholds. How much stress will force their hand? Might be tough times for Fed communications ahead.

    We've been all for adjusting the talk as facts bring new required decisions to light. The types of jobs coming on line, the wage and salary rates of those jobs, the high debts of new graduates, the changing/lowering participation rate, and many other things, all factor into the Fed's evolving concept to provide forward guidance.

    We think the Fed should do much, much more educating concerning the subtle changes that are taking place. The Fed should definitely get over being seen as flip flopping. Mid-course corrections are a good thing, not something that should be seen as reflecting negatively upon the navigator/captain who is successfully seeing and avoiding economic icebergs in stormy seas while instructing the passengers and crew on just how that's being done, etc.


  6. Some thoughts on easy money and fiscal withdrawal | Credit Writedowns

    Ed Harrison:

    Until 2013, the rise in asset prices was not enough to overcome the need for and psychology of deleveraging. This was particularly important regarding house prices, a leveraged asset that constitutes the bulk of most household's net worth. The financial crisis put many households underwater on their housing investments. This led to an inability to refinance mortgages, a loss of mobility, mass defaults, and a general household deleveraging.

    But in 2013, the US led the way in house price increases. That stopped deleveraging dead. Consumer credit is up, while debt service costs are at generation lows.

    The fiscal withdrawal will continue into 2014 in order to push down deficits. In the US, unemployment benefits are being cut. In the UK, Chancellor George Osborne has warned that more cuts are coming. Where is this heading? Based on leading indicators, growth in the near term will be good. But wages are not rising yet, while household debt is. That leaves a murky legacy for this asset-based growth strategy.


  7. Calculated Risk: Weekly Update: Housing Tracker Existing Home Inventory up 2.0% year-over-year on Jan 6th

    Bill McBride:

    Inventory is still very low – and barely up year-over-year – but this increase in inventory should slow house price increases.


  8. Europe's Prospects Looked Better in 1930s – Bloomberg

    The euro area's recent experience is far closer to that of the gold-standard countries than to the sterling group's. Members of the euro area lack their own monetary policies, just like the gold-standard countries in the 1930s. Compounding the problem, the European Central Bank is committed to an orthodox low-inflation-first approach. The results have been dismal.

    It's well-known that staying on gold paralyzed monetary policy in the 1930s and made the slump worse, while the countries that exited benefited from monetary stimulus and did much better. Less familiar is that leaving the gold standard also had big implications for fiscal sustainability: It made consolidating public debt far easier. In this respect, today's euro-area countries are in even worse shape than their gold-standard counterparts.

    The mixed-economic problem is obvious. The solution is obvious: full monetary, fiscal, and political union. However, the Germans have been refusing.


  9. US single-family homes were costlier to build, priced higher and larger in 2013 | Inman News

    The cost to build the average U.S. single-family home hit $246,453 in 2013, reaching its highest mark since 1998 ….

    … interior finishes accounted for the largest percentage (29.3 percent) of the average cost to build a home in 2013, followed by framing (19.1 percent), exterior finishes (14.4 percent) and plumbing, electrical and heating, ventilation and air conditioning (13.4 percent).


  10. While Office Space Remains Vacant, Rents Keep Rising | Inc.com

    A new report from New York City-based real estate research firm Reis found that the U.S. office rental space market still has a high vacancy rate and sluggish growth due to an overall bleak economic outlook.

    The vacancy rate across the U.S. office rental market stood at 16.9 percent in the fourth quarter of 2013–the same level as the previous quarter and just under the Q4 2012 rate, Reis found.

    The real estate research firm says vacancies are still high because of the weak economy, which is not producing jobs that require more office space. "With most of the employment growth continuing to come from low-paying, low-skilled jobs that don't utilize office space, demand remains weak," the report said, according to Reuters.


  11. Euro Jobless Scourge Seen Defying Leaders' Growth Pledge – Bloomberg

    European Union leaders pondering the fruits of a 120 billion-euro ($163 billion) push to jump-start the economy and create jobs can look to data this week for evidence of how little has been achieved.

    The euro-area unemployment rate probably held near a record in November at 12.1 percent, according to the median estimate in a Bloomberg News survey of economists. That report on Jan. 8 follows tomorrow's [Jan. 7, 2014] release of December consumer-price data. Analysts see inflation hovering near the four-year low that preceded a surprise interest-rate cut a month earlier by the European Central Bank.

    In December, EU leaders acknowledged their struggle to create jobs, 18 months after they unveiled the Compact for Growth and Jobs, saying unemployment remains "unacceptably high." Governments are relying for continued support from the ECB, which may this week repeat its vow to keep its policy accommodative for "as long as necessary."


  12. Gambling for resurrection in Iceland | vox

    Friorik Mar Baldursson and Richard Portes:

    With the financial turmoil that began in August 2007, the banks' access to capital markets was curtailed. They then gambled on resurrection, expanding their balance sheets and refinancing the investments of their owners and other big borrowers, while they should have been deleveraging and securing their liquidity positions in foreign currency. The banks also prevented their share prices from collapsing by purchases of their own shares in the stock market, offloading accumulated shares in private deals, usually financed by themselves. All this went on apparently unnoticed by regulators. The Icelandic banks did not buy toxic securities — but together, they administered their own potent mix of systemic poison.

    The Icelandic banks were too big to fail, but too big for the state to rescue. So they did fail, with devastating systemic consequences in Iceland, though the international effects were small relative to the simultaneous global crisis. The Icelandic bankers are paying a personal price, more than financial, as some others have in the past (e.g. many officials of US 'thrifts' in the 1980s). But elsewhere, there have been no high-profile prosecutions of individual executives of financial institutions that failed or were bailed out in the 2008 crisis. In this regard, Iceland may seem a special case played out in a tiny country. But as a classic case of gambling for resurrection, for which we now have detailed evidence, the lessons of the rise and fall of the Icelandic banks are very general indeed.


  13. Shadow Banking Risks Exposed by Local Debt Audit: China Credit – Bloomberg

    China's audit of local governments exposed an increased reliance on shadow banking, swelling the risk of default on 17.9 trillion yuan ($3 trillion) of debt.

    The State Council has issued an order imposing new limits on shadow banking, two people familiar with the matter said. The new rules include banning transactions designed to avoid regulations such as moving interbank lending off balance sheets, said the people, who asked not to be identified because the order hasn't been made public. The regulations were sent to ministries and local governments last month, the people said.

    A great deal of China's economy is being held up by nothing but hidden bad debts. They're going to have to come back down to Earth. How long will they be able to delay the day of reckoning?

    We'd be surprised if they aren't postponing a 30% economic write down that will only grow the longer they continue to pretend to the world that they don't have a huge mess on their hands that they aren't simply going to be able to reform their way out of without taking some major capitalistic hits.

    See also: http://www.economist.com/blogs/freeexcha nge/2014/01/chinas-debt


  14. China to allow 5 private banks this year

    BEIJING (AP) — China will allow the creation of up to five privately financed banks this year to support economic growth by gradually opening the state-run industry, the country's banking regulator says.

    Analysts including the World Bank say an overhaul of Chinese banks that lend little to entrepreneurs is urgently needed to achieve the ruling Communist Party's goals of making the economy more productive.

    The China Banking Regulatory Commission said in a statement Monday it would enlarge the role of private capital in banking. It said that would include a closely supervised "pilot project" to allow creation of three to five privately financed banks.

    We wonder how well regulated they'll be.

    Will they be privately controlled by Communist Party officials? That would only exacerbate corruption.


  15. The Ultimate Landlord's Guide to Rental Property Deductions – EZ Landlord Forms


    Segmented Depreciation/Cost Segregation: Many landlords are unaware that the IRS allows non-structural assets such as carpets, appliances, etc. to be depreciated over a shorter term (5-15 years) and separately from the line item depreciation of the property itself. This is allowed because the government recognizes that these items will not last as long as the property and therefore, will not fully benefit from the line item depreciation of 27.5 years. Landlords are encouraged to seek the assistance of a professional to utilize segmented depreciation, given the complexities involved.


  16. How to Tell If Fiscal Policy Works | The Fiscal Times

    Mark Thoma:

    Many people opposed to fiscal policy on ideological grounds argue that since the economy didn't crash after the sequester, and since unemployment remained relatively high after the stimulus package, it must be that fiscal policy doesn't work. But don't be fooled. That type of ad hoc analysis cannot settle the question. When the analysis is done correctly — when a baseline is estimated using modern macroeconomic models and compared to the actual outcome — the evidence on the effectiveness of fiscal policy in deep recessions is quite favorable.


  17. Lawrence Summers: Strategies for sustainable growth – The Washington Post

    Larry Summers:

    … the one that holds the most promise — is a commitment to raising the level of demand at any given level of interest rates through policies that restore a situation where reasonable growth and reasonable interest rates can coincide. To start, this means ending the disastrous trends toward ever less government spending and employment each year and taking advantage of the current period of economic slack to renew and build out our infrastructure. If the federal government had invested more over the past five years, the U.S. debt burden relative to income would be lower: allowing slackening in the economy has hurt its long-run potential.

    Our loyal readers will hear us echoed there.


  18. The Importance of Unemployment Insurance for American Families & the Economy: Take 2 – Papers – The Hamilton Project

    Interesting data:

    … recent research has shown that few workers actually wait until benefits run out to find a job ( Card and Levine 2000; Card, Chetty and Weber 2007), and that the job search process is ongoing.

    The economic gains from extending UI [Unemployment Insurance] benefits are significant. UI benefits help families through periods of financial stress as well as providing some of the greatest "bang-for-the-buck" in terms of the impact of government spending on the economy. Moreover, the empirical evidence suggests that the potential costs of reduced job search activity are likely quite modest and the slow economic recovery and the high ratio of unemployed workers to job openings are the central cause of lengthy durations of unemployment.


  19. U.S. CMBS Delinquency Rate Continues to Dip in December | Mortgage News | Daily National and State Headlines

    With a rate decrease of 23 basis points over the course of the month, the delinquency rate for US commercial real estate loans in CMBS is now 7.43 percent. The rate is 228 basis points better than the 2012 year-end delinquency rate.


  20. Macau's gambling industry is now 7 times bigger than Vegas – Jan. 6, 2014

    Forget about Las Vegas and Atlantic City. Macau has cemented its status as the undisputed heavyweight champion of the gambling industry.

    The Chinese territory reported gambling revenue of 360 billion patacas ($45 billion) for 2013, an increase of almost 20% over the previous year.


  21. Real estate boom continues in Canada's largest cities – Yahoo Finance Canada

    Repeated warnings of an overheated market failed to deter home buyers in Canada's largest cities in 2013, with the number of Toronto home sales up two per cent over the previous year, Vancouver sales were up 14 per cent and Calgary sales rose 11 per cent.

    Homes in the Greater Toronto Area continued their robust rise in price, up 5.2 per cent to an average price of $523,036 in December, compared to $497,130 in 2012, the Toronto Real Estate Board reports.

    After a slow start to 2013, GTA housing sales picked up in the second half of the year. Total sales for 2013 were 87,111, compared to 85,496 transactions in 2012.


  22. Is Real Estate Headed For A Fall?

    It's very difficult to understand why prices have appreciated so much during the past year. Yes, we have a growing population and there is surely pent-up demand but look at household incomes: They're not just stagnant, they're falling. According to the Census Bureau, 2011 incomes were 8.9 percent lower than in 1999, a year when the typical home sold for $138,000.

    How do people pay for homes which now cost on average $199,500 when incomes are effectively lower than 12 years ago? Part of the answer is far lower interest levels — roughly 4.3 percent versus 7.44 percent in 1999, a huge reduction.

    The catch is that the wonders of low rates only go so far. The genie in the bottle only grants so many wishes and it looks like 2014 will be a very calm year. If we're lucky enough to see only moderate price growth, we'll have much to celebrate.


  23. Video and "Nextdoor: About us"

    Nextdoor is the private social network for you, your neighbors and your community. It's the easiest way for you and your neighbors to talk online and make all of your lives better in the real world. And it's free.

    Thousands of neighborhoods are already using Nextdoor to build happier, safer places to call home.

    People are using Nextdoor to:
    Quickly get the word out about a break-in
    Organize a Neighborhood Watch Group
    Track down a trustworthy babysitter
    Find out who does the best paint job in town
    Ask for help keeping an eye out for a lost dog
    Find a new home for an outgrown bike
    Finally call that nice man down the street by his first name

    Nextdoor's mission is to use the power of technology to build stronger and safer neighborhoods.

    What do you think? They appear to be highly integrating with law-enforcement. Is this akin to "community policing," the old-fashioned neighborhood cop walking the beat?

    Do you have privacy concerns about "Nextdoor's" approach?

    Let us know your thoughts.



  24. The Fed Shifts Ground on Big Banks – NYTimes.com

    Simon Johnson:

    Mr. Tarullo was the first top Fed official to recognize clearly and discuss publicly the implicit subsidies that large banks continue to receive. He also drew the implication that bank size should be limited, given that subsidies expand as the bank gets bigger:

    To the extent that a growing systemic footprint increases perceptions of at least some residual too-big-to-fail quality in such a firm, notwithstanding the panoply of measures in Dodd-Frank and regulations, there may be funding advantages for the firm, which reinforces the impulse to grow. There is, then, a case to be made for specifying an upper bound.

    Here "upper bound" means the "systemic footprint" of banks or, put more simply, their size.

    We agree.


  25. 200 Years of American Financial Crises – NYTimes.com

    Shaila Dewan and I had an article on Monday about a study suggesting the American economy was doing reasonably well — at least compared with the aftermath of previous systemic financial crises. Some readers wrote me asking about what the previous crises were and how they're defined, so here's some more detail.

    In our view, if it had not been for the little stimulus and QE that we've had, this Great Recession would have been worse than the Great Depression.


  26. Housing Markets Beginning to Show Signs of Stability | Mortgage News | Daily National and State Headlines

    Markets in 56 out of the approximately 350 metro areas nationwide returned to or exceeded their last normal levels of economic and housing activity, according to the National Association of Home Builders/First American Leading Markets Index (LMI), released today [Jan. 7, 2014]. This represents a net gain of two from the previous month. The index's nationwide score of .86 indicates that, based on current permits, prices and employment data, the nationwide average is running at 86 percent of normal economic and housing activity.


  27. Wells Fargo Creates SWAT Team to Keep Loans In-House: Mortgages – Bloomberg

    This is a switch but fully expected.

    Wells Fargo wants to give its clients more loans that can't be sold to the government-backed firms. The bank is confident the new underwriting group, which will make both qualified and non-qualified mortgages, will allow it to originate debt that doesn't meet the CFPB's safe harbor, said Blackwell. Non-qualified mortgages could be between 25 percent to 40 percent of the bank's total nonconforming loans, or about 5 percent of all mortgages, he said. Nonconforming loans are those that can't be sold to Fannie Mae or Freddie Mac.

    The approach represents a change for the bank, which long made loans with the intention of selling them all.

    "In the early days of our history, we were a mortgage bank: our primary responsibility was to originate and sell," Blackwell said. "Today we are originating for our portfolio. These are loans that we will hold for their lifetime."

    Here's the risk.

    While lenders initially will be reluctant to extend non-qualified mortgages to borrowers with lower incomes, limited assets or low credit scores, they will probably stretch the rules as they seek to expand business, just as they began offering loans to subprime borrowers in the last decade, according to Richard Eckert, an MLV & Co. analyst who worked as a risk management analyst at the Federal Home Loan Bank of San Francisco in the 1990s.


  28. 8 Reasons Why the Manufacturing Industry is Reinvesting in U.S. Production | PropertyCasualty360

    Rising labor and other costs overseas, the desire to reduce supply chain uncertainty and increased transportation costs are driving interest in re-shoring by U.S. producers of goods …
    [Reasons given:]
    Rising labor costs (68%).

    Desire to reduce supply chain uncertainty (52%).

    Increased transportation costs (44%).

    Increased labor productivity in the U.S. (36%).

    Exchange rate volatility (32%).

    Issues with intellectual property (28%).

    Increased energy competitiveness due to reduced U.S. energy costs (24%).

    Need for higher-skilled labor in the U.S. (16%).

    See also: http://www.mmsonline.com/articles/when-r eshoring-really-happens


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