News, Commentary, & Analysis. Feb. 6, 2014. #RealEstate #Insurance #Economics

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Table of Contents
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1) Oil spill risks would rise from three major projects: U.S. study

2) Solar Insurance Costs Halve as Cheap Panels Quash Premium – Bloomberg

3) Bill seeks to help Mass. prep for climate change | Boston Herald

4) Talking-Car Systems to Be Required as U.S. Weighs Rules – Bloomberg

5) The Middle Class Is Steadily Eroding. Just Ask the Business World. – NYTimes.com

6) Worries Over Banks Exposure to Emerging Markets Are Warranted – Bank Think Article – American Banker

7) Housing Might Not be Looking so bad After All

8) [Recommended] Margin Debt Hits All-Time High: Prelude to a Crash? | Global Research

9) Why monetary policy should ignore bubbles – Quartz

10) The Prudent Bear: End of an Era

11) The X factor in the buy vs. rent equation: How long will you stay? | Inman News

12) Mortgage applications stuck despite sliding rates

13) Mortgage Rates Prepped To Burst Off January's Non-Farm Payrolls

14) China's housing market is looking ugly, which is scary for its financial system – Quartz

15) Swiss Housing Market Bubble Looms Closer, UBS Says – Bloomberg

  1.    Oil spill risks would rise from three major projects: U.S. study

    The insurance industry has its eye on this.

    VANCOUVER — A U.S. study that takes a wider examination than Canadian research into oil spill risks in the Salish Sea shows the greatest potential increase in spills is off the San Juan and Gulf Islands.

    The potential for oil spills in the Haro Strait-Boundary Pass passage increases by 4.75 times as a result of the anticipated increase of 1,250 large ships annually from three planned projects in the waters shared by British Columbia and Washington state, according to the draft findings of a U.S. Environmental Protection Agency-funded study.

    Spills or leaks negatively impact the area's real estate and overall quality of life and health: water, air, and land pollution.

    Add your comment.


  2.    Solar Insurance Costs Halve as Cheap Panels Quash Premium – Bloomberg

    The cost of insuring a solar plant has dropped by half since 2010 as cheaper photovoltaic panels lead to lower project costs and reduced premiums.

    That will translate into more and cheaper, clean, sustainable energy and help reduce the rate of increase in global warming.

    Add your comment.


  3.    Bill seeks to help Mass. prep for climate change | Boston Herald

    One part of the bill would let the state purchase from willing sellers land with buildings that have been repeatedly damaged by storms or tides.

    The land in areas at risk of flooding would be used for conservation or recreation.

    Do you like that idea?

    Add your comment.


  4.    Talking-Car Systems to Be Required as U.S. Weighs Rules – Bloomberg

    This isn't quite directly "real estate" oriented, but we thought you'd still find it interesting.

    U.S. regulators will propose rules before President Barack Obama leaves office requiring vehicle-to-vehicle communications systems in new cars, a move advocates said may aid safety more than seat belts and air bags.

    We think it should eventually help to reduce auto-insurance prices. With new risks unfolding everyday, households and firms may want to target savings toward other coverages.

    Add your comment.


  5.    The Middle Class Is Steadily Eroding. Just Ask the Business World. – NYTimes.com

    As politicians and pundits in Washington continue to spar over whether economic inequality is in fact deepening, in corporate America there really is no debate at all. The post-recession reality is that the customer base for businesses that appeal to the middle class is shrinking as the top tier pulls even further away.

    What does this mean for rental properties? Does it mean that apartments geared toward the middle class won't do as well as those geared toward dollar-store shoppers? What does it mean for all of those 3 bedroom, 2 bath houses the all-cash Wall Street buyers have soaked up? Will they become harder and harder to rent out because families just won't be able to afford them and those who can will just buy McMansions instead?

    Add your comment.


  6.    Worries Over Banks Exposure to Emerging Markets Are Warranted – Bank Think Article – American Banker

    We agree.

    Significant events emanating in developed markets affect emerging ones. The inverse is also true, especially now that for the first time in history, emerging markets represent 50% of global GDP in purchasing power. Also, some of the banks in emerging markets are much larger than they were in the early 2000s. In fact, a number of Chinese banks are now considered GSIBs, and they are more interconnected with banks in developed markets than ever before.

    Add your comment.


  7.    Housing Might Not be Looking so bad After All

    "The familiar saying that housing brings the economy out of recessions did not hold true this time around," according to David Crowe, Chief Economist for the National Association of Homebuilders (NAHB). Crowe, writing in the current edition of RealtyTrac's Foreclosure News Report said that home building this time around did not take the well-worn path we have come to expect in an economic recovery. Construction has moved up from the bottom, but that movement has not been "stellar." Housing starts in 2013 were well under 1 million, an improvement from 2012 but the rate of increase has slowed to under 20 percent so expectations for 2014, Crowe says, are hesitant and somewhat pessimistic.

    The slower than normal recovery of the housing industry in his view occurred because the Great Recession had characteristics more like the Great Depression than those typical of other post-war recessions. It was longer and deeper and in terms of housing was particularly severe.

    The article is, however, optimistic.

    We're sure the thinking was formulated well before much of the emerging-market fallout hit.

    Add your comment.


  8.    [Recommended] Margin Debt Hits All-Time High: Prelude to a Crash? | Global Research

    This is what comes of monetary policies where the liquidity isn't targeted at boosting the real economy rather than the financial sector.

    Mike Whitney is what the mainstream would call extremely fringe; however, in the lead up to the 2008-9 crash, he was the most fervent critic of Wall Street and the Fed that we saw. His message of doom about the housing market was spot on, as the Brits would say.

    The Fed is not the place where the Great Recession should have been battled. It should have been battled in Congress, particularly the House. Legislation should have been put through recreating the New Deal but only better, where high-skills training and fulltime work were provided by the public sector while the private sector deleveraged. We also add that it should have been funded via debt-free United States Notes.

    The exact wrong things have happened instead. The Fed created massive liquidity with no strings attached, which money was used as what is called "hot money." It flowed into emerging markets into often wildly speculative deals at best when it should have gone into solid investments right here in the US, which would have benefited the whole world.

    The Fed's easy money policies have pushed margin debt on the New York Stock Exchange (NYSE) to record levels laying the groundwork for a severe correction or another violent market crash.

    In December, margin debt rose by $21 billion to an all-time high of $445 billion.

    We don't take the exact same attitude toward the Fed as Mike does. We agreed with Bernanke that the lack of fiscal effort was a huge problem for the Fed. We also think that the Fed is not as focused on the stock market as Mike seems to think it is but is rather more focused on mortgage rates, unemployment, and avoiding deflation.

    Lastly, a housing boom can be landlord centered.

    Those things said, we agree that the US is still in a financial and economic mess.

    Add your comment.


  9.    Why monetary policy should ignore bubbles – Quartz

    This article, by Yichuan Wang, is a good follow-on to Mike Whitney's above. It hits somewhat more on what we were saying in discussing Mike's post. We don't agree with it though that Fed policies don't create, or haven't created, bubbles. On that, we think Mike is exactly right.

    Janet Yellen's confirmation hearing showed signs that US monetary policy will soon adopt a third mandate. She said: "Overall, the Federal Reserve has sharpened its focus on financial stability and is taking that goal into consideration when carrying out its responsibilities for monetary policy." While Yellen has traditionally downplayed this mission, the December FOMC meeting minutes also revealed a growing chorus of FOMC participants who believe that monetary policy should do more than just ensure full employment and price stability. Rather, they believe that monetary policy should look out for bubbles and pop them before they jeopardize financial stability.

    To ask the Fed to pop bubbles is like asking a blindfolded surgeon to remove a tumor with a chainsaw. The Fed is neither prescient nor precise enough to pop bubbles without risking even more severe damage to the broader real economy. With this in mind, the bar for intervention should be set exceptionally high.

    That last point is correct. Do you agree?

    Add your comment.


  10.    The Prudent Bear: End of an Era

    Here's Doug Noland's bear/pessimistic take.

    When I began referring to the "global government finance Bubble" back in April 2009, I had reason to fear that the unfolding Bubble would indeed prove to be the "Granddaddy of all Bubbles." In particular, unprecedented amounts of "money" were poised to flood into China and the developing economies. The Bernanke doctrine specifically sought dollar devaluation along with the impetus to coerce savers from the safety of their savings out to inflating global risk markets. And, importantly, global policies had once again created a highly conducive backdrop for leveraged securities speculation.

    As already noted, the bills are beginning to come due. Inflationism's inevitable consequences have manifested to the point of being highly destabilizing. Late-cycle Credit excess has created enormous amounts of suspect debt and economic maladjustment. Worse yet, these days much of this debt trades in the marketplace. Likely huge quantities of potentially problematic securities are held by leveraged speculators.

    January 30 — Bloomberg (William Pesek): "Among the many reasons to dismiss President Xi Jinping's pledges to transform China's growth model, Gan Li may offer the best: an epic housing bubble that can't be allowed to pop. Gan, a professor at Southwestern University of Finance and Economics in Chengdu, Sichuan… recently crunched some disturbing numbers on the level and distribution of household income and wealth. After examining survey results from 28,000 households and 100,000 individuals, Gan believes that roughly 65% of China's household wealth is sitting in real estate. An astounding 90% of households in nation of more than 1.3 billion people already owns homes. In the first half 2012, he found, about 42% of demand for properties came from buyers who already owned at least one. Many of these homes and apartments… were bought in the midst of one of history's biggest real estate booms and bubbles. 'The C hinese housing market is clearly oversupplied,' Gan told Tom Orlik… 'Existing housing stock is sufficient for every household to own one home, and we are supplying about 15 million new units a year. The housing bubble has to burst. No one knows when.' When it does, the damage to household wealth will reverberate across the second-biggest economy, devastate consumption and increase risks of social unrest. In other words, it's something the Communist Party can't allow to happen."

    That 90% figure is astounding. They almost all have second empty homes just as a bubble spot to park their cash that mostly hasn't been able to leave the country.

    Add your comment.


  11.    The X factor in the buy vs. rent equation: How long will you stay? | Inman News

    Most online buy vs. rent calculators are based on the assumption that a buyer will live in a house for seven years, Reuter's Beth Pinsker reports in a "Your money" column.

    But Trulia Chief Economist Jed Kolko says that the average is more like 8.5 years. Ilyce Glink, publisher of thinkglink.com, thinks that homeownership doesn't start to look like a solid investment unless buyers are looking at staying put for at least 10 years.

    With today's shaky job market, that's a time frame that fewer prospective buyers will be able to commit to with confidence.

    How true. In addition, it's a local issue. The buy-versus-rent decision will also depend on where one will be living, which city, etc., as each place's values go up and down differently.

    Add your comment.


  12.    Mortgage applications stuck despite sliding rates

    Mortgage applications barely moved last week, even as a run on the U.S. bond market pushed interest rates down.

    A weekly measure from the Mortgage Bankers Association showed total applications up by just 0.4 percent from the previous week, seasonally adjusted. Applications to refinance rose 3 percent, and applications to purchase a home fell 4 percent.

    Mortgage rates began their slide as investors, concerned about trouble in emerging markets, dumped out of the stock market and fled to the relative safety of the bond market.

    Add your comment.


  13.    Mortgage Rates Prepped To Burst Off January's Non-Farm Payrolls

    Dan Green:

    So long as growth remains steady, Wall Street expects the Fed to reduce the third round of its quantitative easing (QE3) at a measured pace through the end of 2014. Should job growth spike, however, the Fed may opt to accelerate the "taper" of QE3 which would likely send rates higher.

    The opposite can be true, too. Last month, jobs data was much weaker-than-expected which caused mortgage rates to sink.

    Mortgage rates have dropped each week since and are now at their lowest point since Thanksgiving. This week, mortgage rates could reverse on a stronger-than-expected Non-Farm Payrolls.

    Add your comment.


  14.    China's housing market is looking ugly, which is scary for its financial system – Quartz

    Untold billions in corporate borrowing are supported by property used as collateral. There's a cottage industry of auditors willing to appraise unoccupied or under-development property at whatever value is deemed necessary to get a bank manager to extend a loan. (In many cases, the borrower will turn around and lend to another business at a higher interest rate.) The fact that prices keep going up means there's nothing challenging those face-value assumptions. A slump in prices would put a big dent in the value of that collateral.

    When coupled with the rate at which private individuals and families own vacant properties, China is looking straight at a housing crash. Values could drop wel more than half, even as much as 75%. The rug would be pulled out from under the Chinese economy. It would ripple throughout the world hitting some places like a huge tsunami.

    Add your comment.


  15.    Swiss Housing Market Bubble Looms Closer, UBS Says – Bloomberg

    Growth in mortgages has exceeded that of economic output since 2009, and last year price gains of homes and apartments outstripped advances in incomes, according to the central bank.

    Add your comment.


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