Linking ≠ endorsement. Enjoy and share:
- Bubble: It’s coming, but we’re not there yet, experts say – San Francisco Business Times
“There has been such a lack of supply in the Bay Area, it’s been great to be a landlord,” said Moore [BRE Properties CEO Connie Moore]. “Long term it’s going to be a great market, but there are going to be a lot of concessions for all of this new stuff. Most of the stuff that we have under construction, the rents that we see today are clearly higher than what we thought they would be at this point when we underwrote the transactions. But the flip side of all the supply you are seeing in Mission Bay is that at some point that is going to weaken revenue growth. Ultimately rent growth has to track wage growth.”
- “The Party Is Over” for Housing — and Bank Earnings: Chris Whalen | Daily Ticker – Yahoo Finance
More pessimism, but is he being a realist?
“The party is over” for refinancing activity while a weak job market and flat consumer incomes are preventing a pickup in purchase activity, Whalen [Chris Whalen, managing director at Carrington Holding Company] says. “Structural reasons, apart from rates [mean] you’re going to see a real tail-off in demand” for mortgages.
“…a weak job market and flat consumer incomes are preventing a pickup in purchase activity….” We agree. How about you?
- Amend-extend-pretend revealed: Banks carry $57B of delinquent FHA loans – OC Housing News
This linked article starts out reading exactly like a libertarian piece except for mentioning needed regulation, but it really tips its progressive hand when it mentions nationalization.
More pessimism from another realist? (extended excerpt):
I have written about amend-extend-pretend since early 2009 when government regulators relaxed accounting rules and ushered in the era of mark-to-model accounting (AKA mark-to-fantasy). This accounting rule change allowed banks to report the value of a loan based on statistical modelling rather than on current market prices. Since the banks can use whatever bogus assumptions they want in their accounting models, it quickly devolved into a way for banks to disguise losses they will inevitably take.
Mark-to-model accounting allows banks to report higher book values than the free market would pay for their assets. This in turn allows them to report capital reserves in excess of what they really hold. This puts them in compliance with capital reserve ratios and relieves any pressure on lenders to resolve their bad loans through foreclosure and put that money to work in more productive loans. This policy of delaying bank write-offs is what propped up the Japanese banking system during the 90s, and it’s also what caused their lost decade.
In my opinion, the main reason our economy has not recovered from the Great Recession is because we failed to force the banks to write down their bad loans and liquidate their assets. This would have lowered asset prices and freed up capital for more productive uses. It also would have caused investors in bank stocks and bonds to lose trillions of dollars and forced the nationalization of our banking system. That sounds scary mostly because the oligarchs that would have been impacted by this set out to scare the populace into agreeing to a massive bailout to preserve their wealth and power. The countries that recently nationalized their banks, Sweden in the 1990 s and Iceland after the 2008 bust, both recovered quickly from nationalization and experienced robust economic growth. Countries that need nationalization, but don’t do it, experience years and decades of weak economic growth like we have.
To be sure, even if all $57 billion of loans went into foreclosure, losses to the FHA and banks would likely be substantially less, thanks to recoveries on the properties. The FHA’s overall recovery rate was 42% of the principal value in the second quarter.
Wow! That is an remarkably low number. If the banks only recover a similar 42% of principal value on the $57B in bad loans on their books, the total losses would be $32.5B spread among the four major banks. There’s no way they can absorb those kind of losses.
The FHA has more than $32 billion in reserves, but it faces an estimated $70 billion in future payouts on loans originated just from 2007 through 2009, according to the 2012t from the Government Accountability Office. In all, the FHA has roughly 686,000 seriously delinquent loans, representing $106 billion in total principal balances for all lenders. These distressed assets continue to be a major drag on the housing market, distorting the supply of homes for sale because so many remain stuck in the foreclosure process.
All the stories in the mainstream media discuss how the housing market is on the mend and shadow inventory is no longer a problem. Market analysts like Keith Jurow are right to point out that these so-called legacy loans are a major problem that isn’t going away by waiving a magic wand. These loans have yet to be dealt with, and when they are, they will be distressed sales that would not otherwise be on the market. It’s the price lenders and homeowners must pay for the depleted inventory rally they enjoy today.
How realist is that?
It is very true that we have been in a “kick the can” economy since the onset of the Great Recession. We also agree that nationalization was the answer. It worked on AIG. It could have worked on the whole banking and investment-house sectors. America would have come out of the Great Recession quickly and been in much better shape going forward.
- Real Estate Boom in Phoenix Brings Its Own Problems – NYTimes.com
PHOENIX — Here, where the housing market endured one of the hardest crashes anywhere during the recession, the rebound has come faster than in most parts of the country, fueled by a vigorous job market, a sturdy rise in home values and an all-around sense that the worst of times is in the distant past.
“It’s hard to find a lot of fault with the recovery in Phoenix,” said Daren Blomquist, vice president at RealtyTrac, a California company that tracks housing sales, reciting a list of positive indicators, like the area’s shrinking inventory of foreclosures, its healthy population growth and the steady decline in the number of homeowners who owe more on their mortgage than their property is worth.
But those changes have brought a whole new set of challenges.
Developers, discouraged by the high price of land and a shortage of construction workers, who left for greener pastures during the crash, are reluctant to build starter homes, the type most in demand. Prospective sellers are waiting to see if surging values will keep on climbing before they list their properties. Meantime, prospective buyers, including many newcomers drawn by new jobs in the state, are having a hard time finding a place to live.
- Value For Money: Mumbai Worst, Singapore Best – Forbes
Interesting valuation method:
Savills measured the total annual rent and occupation costs (including local taxes and service charges) for both residential and offices for 14 employees plus households. In its math, seven are employed in financial services and seven in a creative industry like a tech start-up. Taking that a step further, it related those costs to the average annual gross domestic product per capita of each city to see how sustainable those costs might be.
- China Export Gains Understated on Fake-Data Distortions: Economy – Bloomberg
The customs administration may have no intent to revise data because it’s too difficult to verify documentation, said Ding Shuang, senior China economist at Citigroup in Hong Kong. “The customs agency can say that all its numbers have documents to back them up, although some documents are in fact forged.”
Steve Wang, Hong Kong-based chief China economist with Reorient Financial Markets Ltd., said it’s too early for the effects of inflated data to show in September or October. The inflated figures mainly occurred with a few trading partners including Hong Kong and Taiwan, so the effects “should be visible for these partners if there is any,” Wang said.