News: Real Estate, Risk, Economics. Sept. 20, 2014

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Table of Contents
(Click to sections below.)

1) Want to Increase Homeownership? Give a Millennial a Good Job | Zillow Real Estate Research

2) Are we building too many homes?

3) Three ways to make the money market safer – Forum:Blog Forum:Blog | The World Economic Forum

4) Willful Ignorance on the Economy – The Globalist

5) MLS will send only the bare bones of listing data to Zillow, Trulia and realtor com | Inman News

6) Evesham stiffens penalty for neglected properties

7) Attorneys: Court ruling created millionaire real estate investors | Las Vegas Review-Journal

8) Basics Of China's Real Estate Industry

9) Six Considerations Before Starting to Invest in Real Estate

10) What's the new normal for the housing market? | Marketplace org

11) [Warning: Contains blue language; otherwise highly recommended] The big right-wing housing bubble lie – OC Housing News

12) Small Countries' Big Successes by Michael O'Sullivan and Stefano Natella – Project Syndicate

13) How to make your rental property work harder – Part 1 – Yahoo!7 – Yahoo!7 Personal Finance

14) The Economy: Does More Government Help or Hurt – Stephanie Kelton only – YouTube

15) Europe shows negative interest rates not absurd – and might work – FT com

16) Building Owners and Managers Association (BOMA) on: 15-year depreciation for tenant improvements and the Federal Terrorism Risk Insurance Act (TRIA) program

  1.    Want to Increase Homeownership? Give a Millennial a Good Job | Zillow Real Estate Research

    This article is very much in line with what we've consistently posted on this site.

    Add your comment.

  2.    Are we building too many homes?

    The fewer single-family homes that are built, the higher they will be priced, the fewer people will be able to afford them, the fewer will be built. The only way to get around that is by the government incentivizing builders and buyers, but why do it when renting is a perfectly acceptable alternative?

    The house-selling industry doesn't like that idea. Who likes his or her industry/income disappearing? Therefore, they lobby and market to convince politicians to support homeownership and renters to desire equity in a house even though it typically means being saddled with a mortgage and other expenses and a loss if they try to sell and move too soon, all of which is less convenient than renting an apartment or house.

    To put it simply, there are plenty of vacant homes, no new owner households are being formed, and there's not enough demand to necessitate building more new homes. Why then do real estate agents claim there is not enough supply to meet demand, and why are home prices continuing to rise? The answer is that certain segments of the market are thriving while others are stalled and certain locations are thriving while others are stalled.

    On the flip side, multifamily rental construction, while down for the month, is running at quarter-century highs, and the units are filling up fast. At the same time, there are 14 million single-family homes currently occupied as rentals, and those renters appear to be staying. There were just 11 million single-family rental homes as recently as 2007.

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  3.    Three ways to make the money market safer – Forum:Blog Forum:Blog | The World Economic Forum

    Good suggestions from Mark Roe:

    Last month, at a United States Federal Reserve Bank conference, officials lamented the money market's enduring fragility. Six years after a run on the money market nearly brought the US (indeed, global) financial system to its knees, critical risks that underpinned that crisis still have not been brought under control.

    The Fed was concerned about applying negative rates on excess reserves for fear of what that might do to the money market referred to in the article. The Fed is using its own reserve repo plan using weak collateral that Mark Roe might reject for reasons cited in his piece.

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  4.    Willful Ignorance on the Economy – The Globalist

    The Obama economic brain trust understands the Great Depression better than their right wing counterparts. They understand how the do-nothing approach of the Hoover Administration so undermined the economic system that true recovery became a remote aspiration.

    They also recognize how conservative demands for fiscal austerity every time the economy started to gain traction undermined President Roosevelt's stimulative economic policies and stalled recovery in its tracks time and again.

    ….Had the right not engaged in willful ignorance to promote a highly ideological and entirely unproven economic agenda, a far more robust U.S. economic recovery may have manifested itself years ago.

    We think Richard Phillips is overstating the Obama administration's knowledge of what should have been done. We think Mr. Obama did not take the bull by the horns nearly enough.

    The fiscal stimulus was at least 3 times too small (possibly even as much as 10 times; whatever it would have taken was the right amount) and not focused nearly enough on the main-street economy.

    "Eight of the ten largest U.S. banks were technically insolvent." Well, the 8 should have been nationalized at least temporarily the way AIG was handled.

    Had the fiscal effort been large and sustained and had the banks been taken over, the Fed wouldn't have been attempting to push on a string all this time and a far more robust U.S. economic recovery would definitely have manifested itself years ago.

    In fact, we thought the libertarians were proven so wrong by the crash that the government would overstimulate leading to inflation. The biggest surprise in the whole matter was the downright tininess of the fiscal effort. The thoroughly discredited fiscal hawks were still allowed to hold some sway.

    We think President Obama erred in not taking it all directly to the American people asking them to tell their representatives to get on board with a new New Deal or be voted out. It was a lost educational opportunity.

    Mr. Obama should have surrounded himself with New Dealers. The article might lead people to believe he was surrounded by them. He wasn't, not even close.

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  5.    MLS will send only the bare bones of listing data to Zillow, Trulia and | Inman News

    In a bid to drive more traffic to listing brokerage websites, consumers will soon see only limited listing data when they search for Mid-South homes on Zillow, Trulia, and other third-party public portals.

    The changes include a four-photo limit; the elimination of several data fields; listing descriptions will be restricted to 150 characters; and public portals will be required to include a link to the listing detail page on the listing broker's website.

    Add your comment.

  6.    Evesham stiffens penalty for neglected properties

    Banks and lien holders of abandoned properties in Evesham Township can no longer ignore unkempt lawns, hanging gutters and leaky roofs without consequences.

    The township will hold mortgage companies and tax lien holders more financially accountable for dilapidated or unmaintained property by fining them $1,500 a day for violations.

    Add your comment.

  7.    Attorneys: Court ruling created millionaire real estate investors | Las Vegas Review-Journal

    The as-yet unresolved issue in the SFR decision — and one that will be faced by other investors who acquired valuable residential property after paying only a token amount of money to pay off an HOA super priority lien — is whether proper notice was given, Gidvani said.

    A Clark County District Court will have to decide if that was the case for SFR, which paid off a $6,000 lien held by the Southern Highlands Community Association for a residential property. The investors argued in the case that the foreclosure wiped out a debt of $885,000 on the property, which was held by U.S. Bank as a first deed of trust, and the Supreme Court agreed.

    Add your comment.

  8.    Basics Of China's Real Estate Industry

    Builders are responding to slow demand by cutting the prices of homes and people are now buying only to occupy, rather than invest. The Chinese government has also tried to assist the housing sector with stimulus packages in response to the global economic crisis.

    Real estate has been the most prominent driver of growth in China and if its prices continue to decrease, investors are likely to cash in their losses and buyers are likely to hold off on purchases. This will consequently lower demand and leave a high supply of homes that would only sell for lowered prices.

    That's all very much in line with what we've been saying for many months. However, the article is much more optimistic than we are.

    We think the personal debt-ratio has been grossly exaggerated in terms of its protective impact. The general population wouldn't end up underwater if the job market would remain constant, but it won't. Way too much of the economy has depended upon real-estate construction; and now that manufacturing has been slowing, we just don't see a huge cushion ahead for China.

    Add your comment.

  9.    Six Considerations Before Starting to Invest in Real Estate

    Before you dive head-first into real estate investing, there are a number of things you need to think about. Real estate investing is not just about going out, buying a property, and then figuring out what to do with it.

    If you take some time and think about the following things, you'll have a much better chance of success. Success in real estate investing is all about making a profit. Profits can be made either from a monthly cashflow or from the sale of a property at a higher price.

    Here are six things to think about when starting to invest in real estate.

    Add your comment.

  10.    What's the new normal for the housing market? |

    Susan Wachter: "Lenders have tightened up. Standards have tightened up. Way beyond where they were in the period before the crisis. As well they should. But they've gone beyond that. So, if you compare credit standards today to where they were in 2001, which was a period way before the crisis, where we had earlier decades of lending that [was] reasonable, responsible, sustainable, we're not there yet. Standards have eased up slightly over this past year, but they're far tighter than historically were their norm. So, why is that? In part it's because of the experience of lenders, that if they make a mistake on the loan that loan is coming back to them. Reps and warranties are going to prevail. So they're being extremely careful. We need a solution to that problem and we're not there yet, but the solution that we have right now, which is keeping hundreds of thousands of people in renter-ship who would sustainably be able to be home owners- that solution is where we should be pushing towards."

    We don't think lending standards are too tight. We think there aren't enough high-paying jobs.

    Add your comment.

  11.    [Warning: Contains blue language; otherwise highly recommended] The big right-wing housing bubble lie – OC Housing News

    Larry Roberts (aka Irvine Renter) calls BS (literally) on political right's false narrative concerning the causes of the Greater Depression:

    I try not to be political on this blog. My posts have been picked up from both Tea Party blogs and Progressive blogs, so partisans embrace my pillory of both sides foibles. My burning desire is to know and expound the truth, and it angers and offends me when either side spins facts and promotes an inaccurate interpretation of financial history.

    My latest ire for revisionist history is directed at the political right as they incorrectly blame the policies of the political left for inflating the housing bubble. Interestingly, I support what the political right wants to do, prevent the political left from expanding credit to deadbeats with government backing; however, I can't support the lies they tell in order to bolster their position. Fighting bad policy by promoting lies may be good politics, but I can't support rewriting history in order to do it.

    Read Larrys whole article. He's absolutely correct about Wall Street's hand in the crash and that it was not regulation that caused it but the lack thereof.

    We differentiate between "deadbeats" and those with much lower IQ's than Larry's, those who can't comprehend the financial complexities of homeownership, what Larry calls loanownership, and were taken by Wall Street con artists (whom Michael Booth is attempting to cover), but we sincerely salute Larry's earnest desire for whole-truth telling.

    Add your comment.

  12.    Small Countries' Big Successes by Michael O'Sullivan and Stefano Natella – Project Syndicate

    Small and large nations/states, take note: Michael O'Sullivan and Stefano Natella:

    …there is a strong positive correlation between the pace of economic growth and "intangible infrastructure" — the combination of education, health care, technology, and the rule of law that promotes the development of human capital and enables businesses to grow efficiently.

    Add your comment.

  13.    How to make your rental property work harder – Part 1 – Yahoo!7 – Yahoo!7 Personal Finance

    There are two key strategies investors can adopt to help generate superior ongoing cash returns. Firstly, by improving their property's rental yield and secondly, by minimising ongoing holding and operating costs.

    We'll take a look at the first strategy now….

    Add your comment.

  14.    The Economy: Does More Government Help or Hurt – Stephanie Kelton only – YouTube

    We agree with the following video with the exception of the use of the term FIRE where Ms. Kelton said they (Finance, Insurance, and Real Estate) don't really make anything. We object because real estate produces tangible things every bit as much as does the "manufacturing" sector. In fact, there's manufactured housing. In addition, the insurance sector spreads the risk of loss across policy holders so that individual firms and household don't take the full hit of loss.

    Unless the state is prepared to do that, we think insurance is a good and necessary thing and a worker deserves his/her wages, insurance providers deserve a profit from which to live and grow.

    The financial sector contains a much higher percentage of reasonably debatable aspects than the insurance or real estate sector, which highly questionable aspects in the financial sector we have covered at some length elsewhere but also concerning which most readers are familiar to one degree or another. That said, we don't want to leave the impression that we wish to tarnish the entire sector much of which works mightily to do a good job within our mixed economy. We trust Stephanie Kelton would agree.

    Presented at the Kansas City Public Library, Plaza Branch on September 16, 2014.

    Add your comment.

  15.    Europe shows negative interest rates not absurd — and might work –

    Ah, this article ties in nicely with the one above where we briefly discussed negative interest rates, the money market, and Fed reservations.

    We think this article by Ralph Atkins is very close to nailing how negative rates will, in fact, work.

    We've advocated for them many times. We want strings attached to QE recapitalizing the banks. It means restricting the banks concerning where they could apply the funds and that the banks be required to educate borrowers and to closely work with them to ensure their success. We coupled all that with massive fiscal spending, per Stephanie Kelton's video above.

    At minus 0.2 per cent, the interest rate on the ECB's overnight deposit facility — which sets the floor for market rates — is only just below zero. The objective was to ensure ECB liquidity pumped into the financial system — including via the "targeted longer term refinancing operations" launched on Thursday — flowed into the real economy, rather than simply landing back in its electronic vaults.

    The worry about negative interest rates — which perhaps stopped the Fed going so far — was that lending and borrowing would grind to a halt as profitable trading opportunities vanished. Worst affected would be money market funds, which act as alternatives to bank accounts and provide liquidity to the financial system. When short-term interest rates turn negative, it is harder for them to deliver attractive returns while remaining safe and liquid.

    What was maybe overlooked was that absolute interest rate levels are not so critical for intermediaries. As long as there is a positive "spread", or difference between the rates at which they lend and borrow, they can still make profits. Similarly, terms offered by money market funds are compared with the costs of alternative instruments. "I'm fully confident that we will move comfortably into the negative world," Bea Rodriguez, head of European cash portfolio management at BlackRock, says.

    Add your comment.

  16.    Building Owners and Managers Association (BOMA) on: 15-year depreciation for tenant improvements and the Federal Terrorism Risk Insurance Act (TRIA) program

    Karen Penafiel:

    The commercial real estate industry is pushing Congress to include in this package an extension of the 15-year depreciation period for tenant improvements, which expired at the end of 2013. We are hopeful that Congress will pass a two-year extension, retroactive to January 1, 2014, and ending December 31, 2015, which means that our advocacy efforts to once again work to extend this provision will need to ramp up again immediately after it's passed. But this is anything but certain.

    Our other priority issue for the Lame Duck session is the extension of the federal terrorism risk insurance program (TRIA), which, absent Congressional action, will expire at the end of 2014. The Senate passed a bill this summer, which was a bipartisan effort that passed with overwhelming support from Senators and stakeholders alike. But the House has failed to pass legislation as well as failed to prevent this from turning into a partisan battle. Most Democrats and moderate Republicans seem to support the Senate's approach, but considerable pressure has been mounted from the far right to push for many changes to the current program that the policyholder community feels could restrict access to terrorism risk coverage at reasonable rates and terms.

    Add your comment.

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