Linking ≠ endorsement. Enjoy and share:
- Re-key the Locks Between Tenants with Kwikset SmartKey // Landlordology
This is interesting. We’re wondering about how it works regarding master keys. Lucas Hall writes:
Besides online rent payments, I think Kwikset’s SmartKey technology is one of the best inventions in property management in the last 10 years.
When a tenant loses a key, these special deadbolts and door handles allow a landlord to easily re-key the locks within seconds.
Each of the Kwikset SmartKey locks cost about the same as traditional locks, and they will pay for themselves in 1 visit from a locksmith.
- How and When to Start Hiring Employees for Your Real Estate Business
Mark Ferguson is a real go-getter and knows how to work smarter rather than harder.
I like to have a lot going on in my life- both personally and in my business.
I used to think I wanted to work hard to someday get to a point where I could sit back relax and lounge around — but I realized I don’t have any fun lounging around, I have fun doing stuff and conquering challenges.
Right now in my business I have a fix as flip business that does 10 to 20 deals a year, a Real Estate listing and selling business that does 200 deals a year, 7 (soon to be 8) long-term rentals, a Real Estate blog and I do 1000 BPOs a year. When I say “I”, although I am personally responsible for all of this — in no way do I do all the work. Recently I was at a closing on one of the flips I was buying and my banker asked me how I can keep track of everything. The truth is, I don’t keep track of everything, my team does. When I say my team, I don’t mean a team of professionals to help me like contractors, accountants and lawyers, I mean employees that I hire to make … me more successful.
Thank you, Mark, for sharing your personal experience with hiring. It’s motivating.
We’ve been enjoying all of your articles and look forward to each new one.
- Daniel Gros on on the eurzone banking sector’s unstable status quo. – Project Syndicate
Daniel Gros, Director of the Brussels-based Center for European Policy Studies, writes:
… a full-fledged banking union is unlikely to be achieved anytime soon. The ECB is set to take over supervision of the 120 largest banks, which account for the bulk of eurozone banking assets, but the next required steps are already in doubt. Most governments de facto oppose a “single resolution mechanism” (SRM in Brussels jargon), because it would mean that they could no longer control their own banks. Deposit insurance is not even being considered. And there are legal and political obstacles to creating a true common backstop.
As long as the fiscal backstops for banks remain national, there can be no level playing field. In this scenario, integration could at most take the form of “colonization,” under which banks from fiscally strong countries use their lower cost of capital to buy up banks in fiscally weak countries. Even in the unlikely event that colonization encountered no political resistance, it would not lead to a very efficient banking system.
The eurozone thus risks becoming stuck in an unstable status quo, with banks’ cross-border claims large enough to transmit national shocks to the entire system, but financial integration not deep enough to ensure that capital flows freely throughout the currency area. If a full banking union proves impossible, it might be preferable to let the trend toward renationalization run its course. At least the eurozone would get some stability.
- Three Cents Worth: Fretting Over Manhattan’s Luxury Spread – Miller Time – Curbed NY
Jonathan Miller writes:
The shift in new development towards luxury product has been widely discussed over the past 2-3 years, beginning with One57 (where a 1-bedroom starts at $3 million). As the luxury new development market moves towards higher supply over the next few years, perhaps we’ll see land prices fall, making it once again feasible for developers to build something below the $3 million threshold en masse.
- Cooling-off of Latin America | vox
Ignacio Munyo and Ernesto Talvi write:
… current growth rates in Latin America are cooling off, in spite of a still favourable external environment as the impact of the past improvements in external conditions on growth dissipates through time, and supply bottlenecks kick in. Even if external conditions for the region remain favourable, unless they start improving once again, they are unlikely to be a renewed source of stimulus for higher growth rates as they were during the Golden Years, when external conditions markedly improved. In fact, the eventual withdrawal of massive monetary stimulus by the Fed and the central banks of other advanced economies, foreshadows tighter financial conditions, and slower inflows of foreign capital for emerging economies and Latin America.
Stimulus to higher growth, thus, must come from domestic sources.
- China’s Real Leap Forward – The Globalist
5. The Chinese economy is now expected to surpass the U.S. GDP in purchasing power terms by 2016 — by the time when the United States holds its next presidential election.
6. And there is another big milestone ahead: China will almost certainly overtake the U.S. economy in nominal exchange rate terms before the 2021 centennial of the founding of the Chinese Communist Party.
Let’s hope the opening up of China, such as it’s been, doesn’t bode ill. It’s still a one-party dictatorship while we were told back during the beginnings of the “opening” that a burgeoning middle class in China would spell huge democratic reforms.
- Prices dive in Greek housing market
Greece’s six-year recession and brush with bankruptcy has seen prices tumble by nearly a third for residential property, a key means for many to invest and save for retirement.
Experts also blame government policy as new taxes on property owners to balance public finances as required under its EU-IMF bailout have worsened the situation.
- Millennials ready to move out? That’s good news for multi-family | REJournals.com
Dan Rafter reports:
… study says that members of Generation Y — otherwise known as the Millennials — are finally financially sound enough to move out on their own. That, of course, means more business for the multi-family industry, especially in the urban areas — think places like Chicago, Minneapolis, Cincinnati and Indianapolis — that Millennials prefer. These Millennials, though, aren’t always interested in buying homes. They’ve seen their parents struggle with a drop in home values, leaving many of them underwater on their mortgage loans. Many Millennials, then, are opting to put off owning a home. They’re concentrating today on renting.
- Early Look: China Set for a Slowdown – China Real Time Report – WSJ
Richard Silk reports:
“The economy may experience a relatively long period of deleveraging and dealing with overcapacity,” the People’s Bank of China said in its quarterly monetary policy report, released on Tuesday [November 5, 2013].
Though the PBOC avoided saying whether it would seek to speed up the deleveraging process, analysts, used to scouring these pronouncements for the slightest change of wording, were shocked.
“As far as I can remember, this is the first time the central bank, or any other government economic agency, has used the ‘D’ word in an official document,” said UBS economist Tao Wang.
- Investors Try Out New Approach: Build to Rent | Realtor Magazine
Last year, 5.8 percent of single-family home starts were being built as rentals, the highest share since 1974, according to an analysis by the National Association of Home Builders.
- ULI: Investor Interest Shifting to Secondary Markets – WORLD PROPERTY CHANNEL Global News Center
The U.S. real estate recovery will gain momentum in 2014, as investors shift their focus to secondary markets, according to a widely-read annual report released today.
While not a new trend, the movement to secondary markets is “likely to build substantial momentum next year, given the steady pace of improvement in market fundamentals,” according to Emerging Trends in Real Estate 2014, the report issued by the Urban Land Institute and PwC US.
The top market sector in 2014 will be industrial, with 64 percent of respondents rating warehousing a “buy.” Industrial replaces multi-family, the top ranked sector in previous reports. Multi-family remains popular, but the on-going growth of e-commerce and the shortening supply chains for retailers and manufacturers is increasing interest in industrial space, the report concludes.
The next year may also see new developments subsectors such as central business office and limited service hotels….
We agree with the upticks for industrial and especially warehouse.
Residential is seeing low home-formation, stagnant wages, and tight inventories. Repeat foreclosures will likely ease the inventory tightness, but buyers are still put off by other factors.
We might not know enough until 2015 to get a decent sense of any longer-term trends developing.
Bond and mortgage markets are jittery over things such as blips in (misleading) changes in GDP. The recent increase in GDP for instance was mostly due to rising inventories, not necessarily real demand.
Source … https://www.worldpropertychannel.com/nor th-america-commercial-news/emerging-tren ds-urban-land-institute-pwc-real-estate- market-real-estate-recovery-san-francisc o-industrial-warehousing-secondary-marke ts-multi-family-7623.php
- Do rentals decrease nearby home values? – MSN Real Estate
Michael Estrin reports:
“I think there is a stigma about renters, but the research just isn’t there to say for certain that a given amount of rental properties in a neighborhood brings values down by a specific amount,” Rohe says.
What data there are on the topic comes from a study Rohe co-authored in 1996 that looked at homeownership. For every single percentage point increase an area saw in homeownership, Rohe and his colleagues found a corresponding increase in value, over the course of a decade, of about $1,600.
“It’s possible that the converse is true, that renters bring values down,” Rohe says. But he cautions that a lot of factors go into a home’s value, and those findings may not have the same weight in a post-crisis market. For now, the hard evidence remains elusive.
“Renters can be very responsible people, so it’s more on the landlords, and whether they keep the properties they rent out maintained and looking good.” [said Kurt Wannebo, CEO of San Diego Real Estate & Investments]
- Fannie Mae profit soars, full repayment of $116B bailout nears – Washington Business Journal
Tucker Echols reports:
Fannie Mae has received a total of $117.1 billion in taxpayer support through the Treasury’s purchase of senior preferred stock, meaning that if the fourth quarter of 2013 is anything like the third, the Treasury will be in the black on its rescue of the mortgage giant.
If it’s no longer broken, why fix it?
- Wealth, Health and Inequality – NYTimes.com
Uwe E. Reinhardt, economics professor, Princeton, writes:
Professor Deaton asserts that economists routinely apply Pareto’s principle [https://en.wikipedia.org/wiki/Pareto_pr inciple] too narrowly, overlooking that the wealthy in societies with highly unequal distributions of income and wealth may capture the country’s systems of governance. They may then use this power to rig market processes in their favor or to exploit taxpayers through what economists call “rent seeking” — that is, profit made on government contracts that is not matched by commensurate value delivered to society. That linkage can easily make the rest of society worse off.
“There is a danger that the rapid growth in top incomes can become self-reinforcing through the political process that money can bring,” Professor Deaton warns — a process that can turn democracy into plutocracy.
We certainly agree with that.
- The Bankruptcy Exemption – NYTimes.com
Simon Johnson writes:
Because big banks cannot go bankrupt, they have an unfair advantage against everyone else in the financial sector. The counterparty risk of trading with them is lower, and thus they are regarded as a better credit risk than would otherwise be the case. This allows them to place bigger bets, which in turn creates more risk for the macroeconomy.
The intent behind Title I of Dodd-Frank is clear. If large complex financial institutions cannot go bankrupt, then they must be forced to change the scale and nature of their operations until each and every company is small enough and simple enough to fail without disrupting the world economy.
Why isn’t AIG seen as a template?
- Advance Estimate of GDP for the Third Quarter of 2013 | The White House
Jason Furman, Chairman of the Council of Economic Advisers, writes:
2. In the fourth quarter, GDP growth will be slowed by the government shutdown that lasted from October 1 to October 16 and the brinksmanship over the debt limit that occurred during that period. During the shutdown, hundreds of thousands of Federal workers went temporarily unpaid, families were unable to travel to national parks, oil and gas drilling permits were delayed, Small Business Administration loans were put on hold, and licenses to export high-tech products could not be granted, to name just a few effects. Several forecasting groups have estimated that the shutdown will reduce annualized real GDP growth in the fourth quarter by between 0.2 and 0.6 percentage point. Early indicators of economic activity in October also show that the shutdown weighed on the economy and on consumer sentiment. An index of weekly economic indicators developed by the Council of Economic Advisers dropped sharply in the first half of October, consistent with a 0.25 percentage point reduction in the fourth quarter GDP growth rate. The advance estimate of GDP growth in the fourth quarter will not be available until early 2014.
5. Residential investment has posted double-digit annualized gains for five consecutive quarters. Housing investment plummeted during the financial crisis and remained weak early in the recovery, but has been growing strongly since the end of 2011. Despite the increase in mortgage rates this year, there is a significant upside potential in this sector, as housing investment remains well below its historic average as a share of the economy, while the pace of new housing starts, at about 900,000 homes annually, remains well below the pace implied by demographics.
“… the pace of new housing starts, at about 900,000 homes annually, remains well below the pace implied by demographics.”
That, however, may not take into consideration enough the changes in what young people want to buy (rent v. buy).
- European Central Bank Makes a Surprise Rate Cut – NYTimes.com
Nelson Schwartz and David Jolly report:
FRANKFURT — In an unexpectedly swift reaction to economic warning signals, the European Central Bank cut its benchmark interest rate to a record low on Thursday [November 7, 2013], moving to head off what some economists fear could be a long period of stagnation like the one that has afflicted Japan.
The cut in the E.C.B.’s main rate to 0.25 percent from 0.5 percent took many analysts by surprise, and seemed intended to reinforce a vow last year by Mario Draghi, the bank’s president, to do “whatever it takes” to preserve the euro zone.
The central bank was reacting to a sudden drop in euro zone inflation, which fell to an annual rate of 0.7 percent in October, well below the bank’s official target of about 2 percent. The decline raised the specter of deflation, a sustained fall in prices that can destroy the profits of companies and the jobs they provide.
“It was really important to challenge that perception that the E.C.B. is indifferent,” said Richard Barwell, an economist at Royal Bank of Scotland who was one of the few to predict a rate cut. “Within their remit, they are willing to do whatever it takes to save the euro.”
At the same time, some economists questioned how much the cut would achieve in the absence of any fiscal stimulus from euro zone governments. Countries like Italy and Spain cannot afford to increase government spending, while Germany, which can, is not willing to. That is one reason the euro zone economy is stuck in economic limbo, no longer in recession but barely growing.
Predictably, the rate cut won praise from countries with weak economies — and drew criticism from Germany, which has a historical aversion to inflation and fears that looser money will lead to profligacy among the euro zone’s more financially tro ubled members.
The view in Germany and among some economists is that there is no threat of deflation. This group sees slowing inflation merely as a sign that wages are falling in countries like Spain and Greece, where labor costs had become too high for companies to compete in the international marketplace.
…deflation is considered even more dangerous than runaway inflation. When prices fall, consumers and businesses delay purchases because they expect goods to become even cheaper. Corporate profits decline, and companies are forced to pay their workers less. A spiral begins that is difficult to brake.
We would have been surprised had they not cut the rate. It’s the same thing that happened with the taper-talk. People just haven’t yet caught up with the fact that the central banks have been actually saying what they mean (telegraphing: forward guidance). Minds need to settle down, be less helter-skelter on these matters.
- Ending Too Big to Fail – Federal Reserve Bank of New York
William C. Dudley, President and Chief Executive Officer
Remarks at the Global Economic Policy Forum, New York City
It is a great pleasure to have the opportunity to speak here today. My remarks are going to focus on what is called the “too big to fail” problem. As you are aware, this problem arises when the failure of a large, complex financial institution threatens to cause such significant disruption to the financial system and the economy that these potential costs are judged as too severe to bear, leading to government intervention to prevent the failure. As a result, the firm, by being too big to fail, gains an implicit guarantee at the taxpayers’ expense that it does not have to pay for. I think there is broad agreement that such a regime is unacceptable in several respects. The first problem is that it creates an uneven playing field between large and small financial firms, with larger financial firms gaining a funding advantage from the perception that they may be too big to fail. The second problem is that this funding advantage creates incentives for financial firms to become bigger and more complex. The third problem is that there is a positive feedback loop. As the banking system becomes more concentrated and complex, that just increases the financial stability risks, making the too big to fail problem even more acute.
So what should we do about it? Today, I will evaluate three broad sets of choices: 1) Building a credible resolution regime and more resiliency in the financial system that together reduce the systemic costs of failure sufficiently so that large, complex firms can be allowed to fail; 2) taking steps, such as tougher prudential standards, that further reduce the probability of failure of such firms; and 3) breaking up the too big to fail firms so that no firm is so large that its failure would threaten financial stability in the first place.
To summarize, I conclude that building a cr edible resolution regime is necessary but not sufficient. Even if the single-point of entry resolution framework proposed by the Federal Deposit Insurance Corporation (FDIC), which I very much endorse, is fully perfected, the costs of resolution for the largest systemically important financial institutions (SIFIs) will still be significant. I will argue that at least as much effort should be made to lower the risk of failure of such large, complex firms. Not only does this include higher capital and liquidity requirements, which we are implementing, but also building incentives into the system so that firm managements will act more forcefully and much earlier to put their firms on more solid ground before they encounter greater difficulties.
Finally, I am not yet convinced that breaking up large, complex firms is the right approach. In particular, these firms presumably exist, in large part, because there are scale or network effects that allow these firms to offer certain types of services that have value to their global clients. These benefits might be lost or diminished if such firms were broken up. In addition, the costs incurred in breaking up such firms need to be considered. Finally, the breakup of such firms would not necessarily result in a significant reduction in overall systemic risk if the resulting component firms were still, collectively, systemic.
Others have argued in favor of separating commercial and investment banking activities of the large banks. In my opinion, there are shortcomings to re-imposing Glass-Steagall-type activity restrictions. It is not obvious to me that the pairing of securities and banking businesses was an important causal element behind the financial crisis. In fact, independent investment banks were much more vulnerable during 2008 than the universal banking firms which conducted both banking and securities activities. More important is to address the well-known sources of instability in wholesale funding markets and to give careful considera tion to whether there should be a more robust lender of last resort regime for securities activities.
However, the system links both types of banks. When the “universal banking firms” were deregulated, it greatly undermined the structure of the entire banking sector. The deregulation was itself a source of instability. We’d have to see what measures might be offered up to counteract the entire phenomenon/psychology.
- Private-Equity Landlords Won’t Blow Up the Economy – Bloomberg
Good points: Matthew C. Klein writes:
Even if investors lose money buying the bonds, the size of the rental securitization market will probably remain too small to be systemically dangerous. Private-equity firms, hedge funds, and real-estate investment trusts have only raised a modest $20 billion so far and there are signs that investment may be slowing.
When the strategy first developed in 2011, investors could buy and renovate thousands of foreclosed homes on the cheap and rent them out for after-tax yields of as much as 8 percent. At the same time, they could position themselves to benefit from any rebound in housing prices. That made single-family houses attractive to investors hunting for returns of as much as 25 percent.
But then places such as Phoenix became saturated with investor capital, house prices soared and yields fell. Investors moved on to Atlanta. As the housing market recovers, the opportunities for big gains will diminish. Some early entrants have already cashed out. So far, the big investors have yet to buy even 200,000 houses. At this rate, it’s inconceivable that this market will get anywhere near as big as the subprime and Alt-A mortgage-bond markets during the go-go years.
The most optimistic estimate, which seems to be based on the assumption that investors will accumulate more than 10 million homes, is that the rental securitization market will be worth a little less than $1 trillion.
Dayen’s three other complaints are even easier to dismiss. Big companies often run apartment-rental operations far better than individual landlords. There isn’t much reason to think private-equity firms would be systematically worse than anyone else at renting out single-family homes.
Source … https://www.bloomberg.com/news/2013-11-0 7/private-equity-landlords-blow-up-the- economy.html
- Low Inventories Conceal Hidden Vacancies, Threat Looms Nonetheless
Some homes are being held off the market temporarily for repairs before being listed for sale or rent. However, Trulia
warns that when these homes hit the market, demand may not rise to match the new inventory.
“Household formation was alarmingly slow,” said Trulia’s chief economist, Jed Kolko in a statement Tuesday responding to the newly released Census data.
- Report: Housing Bubble Fears May Not Be Unfounded
National home prices are 17 percent overvalued, and current levels of price appreciation in some areas of the country are unsustainable, according to Fitch.
“Fitch identifies a bubble risk in continuing price rises and sees several factors which could halt or even reverse recent gains in the market,” Fitch stated in its quarterly U.S. RMBS Sustainable Home Price and Economic Risk Factor Report released Wednesday [November 6, 2013].
- Swiss Housing Market Inches Closer to Bubble, UBS Says – Bloomberg
“Although economic growth in the last quarter was higher than in the previous quarter, it was unable to keep pace with the price and debt momentum on the residential real estate market,” Matthias Holzhey and Claudio Saputelli at UBS in Zurich said.
The SNB has sounded the alarm about the property market overheating in a bid to prevent a repeat of the real estate crisis of the 1990s, which stunted economic growth for years.
- America’s Future: High Inflation and Falling Real Wage | EconMatters
This linked article raises problems with price inflation.
We agree that wages must rise and that those on fixed incomes must be taken care of via the safety net.
We do though concur with those who are afraid of deflation in that it causes people to wait to buy (wait for the fallen prices), which slows the economy, and it causes people to have to pay back debts with money that is even more dear to them, buys more, further harming the economy.
There is a solution: a debt-free currency rather than issuing currency only when corresponding bonds are issued. That debt-free currency should be pegged exactly to real productivity growth. It should be issued, increased, or withdrawn, decreased, to match productivity requirements. The result would be no inflation or deflation and no additional national debt. In fact, the national debt could be paid off.
- Warren Mosler: What Modern Monetary Theory Tells Us About Economic Policy – YouTube
If you are unfamiliar with Modern Monetary Theory (MMT), to which we subscribe with very few reservations (we don’t believe the Money Multiplier is a dead tool but rather has been mistakenly stashed away by the Fed and should be pulled back out and used in the form of charging interest on excess reserves), now’s your chance to listen to one of the clearest speakers and experts on MMT: Warren Mosler. Unfortunately, the audio between the two speakers was not balanced properly, but having your volume control handy and listening to the whole interview will be well worth the time and effort.
This episode features Warren Mosler, president of the financial services firm Valance Company and one of the founders of Modern Monetary Theory (MMT), speaking about what MMT tells us about economic policy. He explains not only what policy makers can do but also what they should do in the current economic environment. How can MMT help get the economy back on track? Watch the interview to find out!
- China inflation hits eight-month high amid tightening fear
Xiaoyi Shao and Kevin Yao report:
BEIJING (Reuters) – China’s annual inflation climbed to an eight-month high of 3.2 percent in October as food costs soared, fanning market worries about policy tightening as factory output and investment data pointed to signs of stabilization in the economy.
Real estate investment growth rose 19.2 percent, while revenue from property sales rose 32.3 percent.
How much of that is practical?
- Zhang Jun on examines the factors affecting China’s potential rate of GDP growth. – Project Syndicate
Zhang Jun, a libertarian capitalist and Professor of Economics, Director of the China Center for Economic Studies, Fudan University, Shanghai, writes:
… the convergence hypothesis — the benchmark theory for estimating an economy’s potential growth rate — which states that a rapidly growing developing economy’s real growth rate will slow when it reaches a certain share of the per capita capital stock and income of an advanced economy. According to the economists Barry Eichengreen, Donghyun Park, and Kwanho Shin, that share is about 60% of America’s per capita income (at 2005 international prices).
At first glance, the experiences of Asia’s most advanced economies — Japan and the four “Asian Tigers” (Hong Kong, Singapore, South Korea, and Taiwan) — seem to be consistent with this theory. In 1971-1973, Japan’s per capita GDP fell to roughly 65% of that of the United States in purchasing-power-parity terms, while the Asian Tigers experienced economic downturns of varying degrees when they reached roughly the same income level relative to Japan.
But Eichengreen, Park, and Shin also found that once this income level is reached, annual growth rates tend to fall by no more than two percentage points. This means that GDP growth should have slowed gradually in Japan after 1971, instead of plummeting by more than 50%. Likewise, given the remaining income gap with the US, the Asian Tigers should have grown faster than they have in the last two decades. But they each suffered a substantial slowdown (albeit less sharp than Japan’s).
These inconsistencies can be explained by external shocks — a point emphasized by Hideo Kobayashi in his book Post-War Japanese Economy and Southeast Asia.
Unlike Keynesians, who focus on demand shocks, followers of the Austrian economist Joseph Schumpeter view cost shocks as impor tant potential catalysts for structural reform and industrial upgrading — both of which are needed to avoid falling into a low-growth rut in the long term. In the short term, a cost shock devastates some economic activities, forcing companies either to shut down or move on to another line of business. But what Schumpeter called “creative destruction” can facilitate the eventual emergence and expansion of new, more efficient firms.
Given that improving overall productivity is the best way to defend against cost shocks, the new round of structural reform should be aimed at creating conditions for economic transformation and upgrading. The key is to establish a level playing field guided by market rules, reduce government intervention in the economy, and stop protecting inefficient businesses.
China must guard against the development of private monopolies, further environmental degradation, rising wealth and income inequality, and the potential for an “advanced” society with no safety net. What’s your view?
- Mortgage Rates: Pricing Worsens 1.0 Points After October Jobs Report
Dan Green reports:
The effect of the October Non-Farm Payrolls report was immediate. Within minutes of release, mortgage pricing worsened by one discount point for nearly all available loan types.
For example, averaged from more than 100 banks nationwide, Freddie Mac’s November 7 mortgage rate survey reported the 30-year fixed rate mortgage at 4.16% for borrowers willing to pay 0.8 discount points at closing.
Today [November 8, 2013], that rate is 4.16% with 1.8 discount points.
For a homebuyer borrowing at the local conforming loan limit of $417,000 in Miami, Florida; Phoenix, Arizona; or Bucks County, Pennsylvania, then, that one additional discount point will add $4,170 to total closing costs.
Or, for buyers in high-cost markets such as Orange County, California; Brooklyn, New York; and Loudoun County, Virginia where the conforming loan limit is $625,500, the additional point adds $6,255.
For borrowers who choose “zero point” loans, expect mortgage rates to be 0.375 percentage points higher as compared to before the release of the October Non-Farm Payrolls.
- Moving Freddie Mac and Housing Forward
From here on out, Freddie Mac will return pure gravy to the US taxpayer. Donald H. Layton, CEO of Freddie Mac, writes:
This morning, Freddie Mac reported pre-tax net income of $6.5 billion for the third quarter of 2013, which is our eighth consecutive quarter of positive earnings and now the second largest in our company’s history. Our net income was $30.5 billion this quarter, while comprehensive income — which we believe to be the most important measurement of our results — was $30.4 billion. This includes a one-time federal income tax benefit of $23.9 billion.
It’s yet another sign that the company is making very good progress moving forward on four key priorities: returning value to taxpayers, helping struggling homeowners, building a strong book of business, and shifting risk to the private market and away from taxpayers.
Returning Value to Taxpayers
The company’s sustained profitability has significantly increased our ability to return value to taxpayers. Including the scheduled December payment, our total payments to Treasury will be $71.345 billion, compared to the $71.336 billion that we’ve drawn from the Treasury. However, it’s important to note that dividend payments do not offset prior draws and that Treasury still maintains a liquidation preference of $72.3 billion on the company’s senior preferred stock.
- American Homes 4 Rent jumps on REO-to-rental wagon | 2013-11-08 | HousingWire
Brena Swanson reports:
The industry continues to capitalize on the REO-to-rental securitization market, as American Homes 4 Rent becomes the latest company to securitize a portion of its portfolio of single-family properties.
The transaction received approval by the company’s Board of Trustees and intends to go public with it within the next 90 days.
The transactions comes to light during a period when more companies are shifting towards the REO-to-Rental market, causing much discussion about the scope, interest and potential size of the market. …
As HousingWire previously reported, Blackstone (BX) subsidiary Invitation Homes’ was the first to dip its toes into the market but leaving an ocean left to explore, with KBW analysts forecasting a nearly trillion-dollar market.
- Homebuilders will gain steam in 2015 | 2013-11-08 | HousingWire
Christina Mlynski reports:
… pent-up housing demand could be sated as soon as 2015 as rising starts and new home sales match and eventually exceed new household formation — which is traditionally what homebuilding depends on.
In 1999, household real income peaked and today stands 9% below that peak, remaining flat or lower every year since 2007, Moody’s noted.
The trick is that until healthy real income growth resumes — which appears unlikely in the near term — homebuilding will level off at a much lower plateau than in other recoveries.
- The BLS Jobs Report Covering October 2013: Effects of the Shutdown Mostly Hidden But Still Large – naked capitalism
This month’s jobs report is a mess.
The big story here is that while unemployment as measured by the BLS changed little in October, the labor force and the employed declined significantly, and my counts of real unemployed (21+ million) and disemployed (~29 million), both current and trend, spiked. This represents a much larger effect than just what happened to federal employees in October. It could be fairly large ripple effects in the rest of the economy from the shutdown or it could be these and a general weakening in the economy.
- Economy Shows Surprising Vigor Despite Federal Government Impasse | The Registry
Very optimistic employment outlook:
Employers shrugged off the federal government shutdown last month to hire workers at a rate exceeding even the most optimistic expectations. Despite facing constant and varied headwinds throughout the year, the economic and employment recovery appear quite broad and self-sustaining, setting the stage for potentially greater economic growth in the fourth quarter. The U.S. economy remains firmly on track to add more than 2.2 million jobs this year, exceeding last year’s total by a slender margin.
With additions in all 10 private-employment sectors, employers added 204,000 jobs in October. The preceding two months were also revised significantly upward, reflecting economic growth that expanded at a much greater rate than expected.
However, the article completely ignores those who’ve given up looking and the confusing manner in which the government shutdown was handled and reflected, or not, in the data and reports.
We’ll wait at least two months before knowing with hindsight just how much the shutdown whacked the economy.
- Fed’s Dudley Says Banker Pay Rules Could Help Curb Risk-Taking – Bloomberg
Federal Reserve Bank of New York President William C. Dudley said regulators should consider imposing compensation structures to strengthen bank executives’ incentives to “proactively manage risk.”
“Imagine how incentives would change if a significant portion of senior bank management’s compensation each year were deferred to be available to cover future capital losses,” Dudley, 60, said today in a speech in New York. “The terms and the form of deferred compensation are an important tool that could be further developed to generate a better set of incentives consistent with our financial stability objectives.”
“Collectively these enhancements to our current regime may not solve another important problem evident within some large financial institutions — the apparent lack of respect for law, regulation and the public trust,” Dudley said. “There is evidence of deep-seated cultural and ethical failures at many large financial institutions.
- Mortgage Rates Crushed by Employment Report
The market’s knee-jerk reaction: Matthew Graham reports:
Mortgage rates shot dramatically higher after today’s long-awaited Employment Situation Report (also referred to as “NFP” to save space and because the headline component of the report is “Non-Farm Payrolls”). Trading levels in the secondary mortgage market (MBS or ‘mortgage backed securities) fell off a cliff immediately after the report, well before any lenders released their first rate sheets of the day. Lower MBS prices translate directly to higher rates.
In most cases, today’s rates are .125-.25 percent higher than yesterday’s. The most prevalently quoted conforming 30yr fixed rate for ideal scenarios (best-execution) therefore rose to 4.375% and in some cases as high as 4.5%.
… it [the jobs report] went against the grain just went markets were becoming convinced that the Fed couldn’t possibly be justified in reducing asset purchases at the upcoming December meeting.
We think the Fed will take a much closer look at the underlying fundamentals of the unemployment situation. It is not lost on them that the number of people who could work and would work has been falling due to the lack of positions available and that those jobs that have been opening up are still mostly low-paying and part-time.
We expect the Fed to announce changes in their unemployment and inflation targets, lowering unemployment to 5.0 to 5.5% and raising inflation to 2.5 to 3%.
- Where America’s Vacant Homes Are – Forbes
Jed Kolko, Chief Economist, Trulia, writes:
… the share of vacant homes being held off the market — that is, neither for sale nor for rent — is rising. In 2013 Q3, 53.5% of vacant homes were held off market, up slightly from 52.9% in 2012 Q3 and from a low of 45% at the height of the housing bubble in 2006.
The Census data shed some light on these vacant homes being held off market. Over the past year, from 2012 Q3 to 2013 Q3, there were increases in the number of homes that were vacant because they needed repairs or were being prepared to be rented or sold. At the same time, there were declines in the number of vacant homes in foreclosures or other legal proceedings, which is consistent with other data showing big drops in the share of homes in the foreclosure process.
Many of the vacant homes now being held off the market won’t stay off the market forever. Homes under repair or being prepared to be sold or rented could come onto the market. These homes would then be added to the active inventory, which would slow down or even reverse price and rent increases while giving house hunters more housing options.
The local vacancy rate matters for construction: builders are hesitant to build new homes where there are many vacant homes. To see the impact on construction, we looked at how metro construction activity in 2013 compares with each metro’s own “normal” over the past twenty-plus years. Among the 10 metros with the highest vacancy rate today, construction in 2013 is just 48% of the historical normal level in those metros. But among the 10 metros with the lowest vacancy rate today, construction in 2013 is right at 100% of the historical normal level in those metros.
- How the rise of modern regulation is changing the finance industry – Quartz
New research from Thomson Reuters published in its Q3 TRust Index shows that the global uptick in financial regulation continued to gain momentum during the third quarter of 2013. Thomson Reuters Accelus tracked an average of 110 regulatory changes every day in the third quarter of 2013, about double the daily updates the tool recorded during the same period in 2010. Through September, the number of tracked regulatory alerts this year has already reached an all-time high of 18,986.
“People used to talk about regulation in terms of a tsunami that would wreak havoc and then go,” said Scott McCleskey, the global head of regulatory intelligence at Thomson Reuters. “This is more like global warming, in that the tide just continues to rise.”
“Banks have less money to make a profit, but you also have to weigh that the net result is meant to be a safer industry,” McCleskey said.
- Large Investors Not Cashing Out of Buy-to-Rent Bet — Yet – Forbes
Daren Blomquist reports:
RealtyTrac this week analyzed nearly 600,000 purchases made by investors between January 2011 and September 2013 and found that the vast majority of large institutional buyers are sticking to their original buy-to-rent game plan and not cashing out despite substantial gains in the value of properties in their portfolios.
The 600,000 purchases were those made by individuals or institutions that purchased at least three properties in a calendar year and for which price and estimated market value data was available. So these do not represent 100 percent of all investor purchases made during this time, but they certainly represent a big enough sample size to shed light on some important trends.
The story is different for the larger investors purchasing more than 500 properties during that time period. Entities in that category have purchased more than 39,000 properties but only re-sold about 2,000, representing 5 percent of their original purchases.
- CoStar: Zillow of commercial real estate
Andrew Florance, CEO, CoStar Group, discusses how his company markets real estate online and the state of the commercial real estate industry.
- FRB: Speech–Bernanke, The Crisis as a Classic Financial Panic–November 8, 2013
Ben Bernanke says:
Once the fire is out, public attention turns to the question of how to better fireproof the system. Here, the context and the responses differed between 1907 and the recent crisis. As I mentioned, following the 1907 crisis, reform efforts led to the founding of the Federal Reserve, which was charged both with helping to prevent panics and, by providing an “elastic currency,” with smoothing seasonal interest rate fluctuations. In contrast, reforms since 2008 have focused on critical regulatory gaps revealed by the crisis. Notably, oversight of the shadow banking system is being strengthened through the designation, by the new Financial Stability Oversight Council, of nonbank systemically important financial institutions (SIFIs) for consolidated supervision by the Federal Reserve, and measures are being undertaken to address the potential instability of wholesale funding, including reforms to money market funds and the triparty repo market.7
Of course, market discipline can only limit moral hazard to the extent that debt and equity holders believe that, in the event of distress, they will bear costs. In the crisis, the absence of an adequate resolution process for dealing with a failing SIFI left policymakers with only the terrible choices of a bailout or allowing a potentially destabilizing collapse. The Dodd-Frank Act, under the orderly liquidation authority in Title II, created an alternative resolution mechanism for SIFIs that takes into account both the need, for moral hazard reasons, to impose costs on the creditors of failing firms and the need to protect financial stability; the FDIC, with the cooperation of the Federal Reserve, has been hard at work fleshing out this authority.10 A credible resolution mechanism for systemically important firms will be important for reducing uncertainty, enhancing market discipline, and reducing moral hazard.
Source … https://www.federalreserve.gov/newsevent s/spe ech/bernanke20131108a.htm
- Has the U.S. Economy Been Permanently Damaged? : The New Yorker
We completely agree. John Cassidy writes:
Friday’s employment report, which shows that payrolls rose by two hundred and four thousand jobs in October, indicates that the economy was a bit stronger in the past three months than most people thought. But we won’t know the full impact of the government shutdown and the debt-ceiling crisis for a while yet, and it is fanciful to suggest that one better-than-expected jobs report will persuade the Federal Reserve to change course and start withdrawing some of its monetary stimulus.
Trying to sort the signals from the noise in the jobs report is a tough task in the best of times: the margin of error for the payroll figures is plus or minus ninety thousand jobs. [That’s the exact position we wrote too.]
You don’t need a mastery of econometrics to grasp the idea that low levels of investment and persistently elevated rates of unemployment are doing some serious damage to the supply side of the economy.
That’s the bad news. The good news is that things aren’t quite as bad as the figures in the Fed paper might suggest. If we can get policy right and sharply increase the level of over-all demand in the economy, most of the damage done in the past five years is reversible. Just as running an economy at low levels of demand generates self-reinforcing processes that are harmful, running an economy at high levels of demand has the opposite effect: capital investment rises, retired and discouraged workers return to the labor force, small-business formation surges and innovations spread more rapidly, productivity increases, and the unemployment rate consistent with stable inflation falls.
We saw this in the late nineteen-nineties, when G.D.P. grew at an annual rate of more than 4.5 per cent, the unemployment rate fell to four per cent, and the labor-force participation rate rose t o sixty-seven per cent, while inflation remained quiescent. Unfortunately, of course, these positive developments were attended by a speculative bubble in the stock market, which eventually burst. But the key point stands. If we can get the economy to grow faster, the growth will be self-reinforcing, and it could almost certainly be sustained at levels higher than current estimates of the potential growth rate suggest, including the ones in the Fed paper.
… rapid growth coincided with the Second World War, when, under the guise of scaling up the military to fight Hitler, the U.S. authorities subjected the economy to an enormous fiscal-stimulus program. At the moment, sadly, there is no prospect of any more fiscal stimulus, let alone a war-sized one, and the onus is falling on the Fed to gee up the economy.
The US Congress and the President need to see the light. The federal government needs to spend as if we are in WWII but not on military spending but on Main Street spending: Fix the infrastructure and educate and employ the people, not to fire weapons but to produce the things (goods and services) we need right now every bit as much as anyone thought we needed to win in WWII.
- Bernanke, other policymakers point to weakness in labour market – Livemint
The US economy has been dampened by budget battles in Congress that have led to tighter fiscal policy despite a falling budget deficit, economists say. This austerity has been one reason why the Fed has kept its stimulus in place for longer than it might have liked.
Williams [John Williams, president of the San Francisco Fed] on Friday [November 8, 2013] blamed some of the slow recovery on tight fiscal policy, which he said has chopped about 1.5 percentage points from growth this year.
We agree with John Williams.
- Bernanke says still awful lot of slack in U.S. labor market | Reuters
(Reuters) – Federal Reserve Chairman Ben Bernanke said on Friday that there was still an “awful lot of slack” in the U.S. labor market, but cautioned that economic data did not do a good job of providing an accurate measure.
“I think the unemployment rate probably understates the degree of slack in the labor market. I think the employment-population ratio overstates it somewhat, because there are important downward trends in participation,” he said in response to an audience question during a panel discussion at the IMF.
“But that being said, I think we would agree that there is an awful lot of slack in the labor market – a lot of young people living with their parents and the like – and that is a very important imperative, and why the Federal Reserve in particular is taking strong actions to support job creation.”
At one point, Bernanke and [Larry] Summers, who had been a top contender to replace him at the helm of the U.S. central bank until political opposition killed his chances, debated theories of negative interest rates.
We’ll look for that debate because we advocate charging interest on excess reserves, which would be applying a negative-interest rate, to get the large commercial banks aggressively to market to borrowers to get the main-street economy rolling again.
- Bernanke Says Regulators Must Confront Moral Hazard: Video – Bloomberg
We went looking for Ben Bernanke and Larry Summers “debating” negative-interest rates and came away with this video concerning which if you will go to approximately minute 55, you will hear Larry Summers speak on the issue. The first question to the panel right after Larry finishes allows Ben Bernanke to ask Larry about that. It wasn’t a debate between them, and it wasn’t about charging interest on excess reserves, per se. Though there is a connection with that.
Nov. 8 (Bloomberg) —- Federal Reserve Chairman Ben S. Bernanke speaks about the 2008 financial crisis and banking regulations. Former Bank of Israel Governor Stanley Fischer, Harvard University’s Kenneth Rogoff and former U.S. Treasury Secretary Lawrence Summers also speak on the panel at the International Monetary Fund in Washington.
- Lockhart still cautious on Fed pullback despite jobs bounce | Reuters
Dennis Lockhart, President, Atlanta Fed, says:
“Monetary policy overall should remain accommodative for quite some time. The mix of tools we use to provide ongoing monetary stimulus may change, but any changes will not represent a fundamental shift in policy.”
- Why the Fed won’t taper on good jobs report – The Term Sheet: Fortune’s deals blogTerm Sheet
Nin-Hai Tseng writes:
FORTUNE — The monthly jobs report released Friday was better than expected, but anyone who thinks this means the Federal Reserve will start slowing down its economic stimulus program is probably overlooking Washington’s dysfunction.
Recall in October, Uncle Sam was forced to partially shut down its offices and services after Congress stalled on budget talks. This wasn’t all that surprising to the Fed, which expected that lawmakers would have a hard time getting their act together before hitting critical budget deadlines. In September, policymakers surprised Wall Street when they delayed plans for tapering its $85-billion-a-month bond purchase program.
Once again, the Fed may have to prepare if there’s another debt fight. The federal government may have reopened for business, but it’s funded only through January 15. And the U.S. could hit the debt ceiling again in early February.
We definitely need fiscal (federal governmental) spending into the main-street economy (not the financial sector) to bolster the economy, but most in Congress and the White House don’t understand Modern Money Theory and mechanics. They are locked into a Gold Standard mentality and don’t understand that the Fed is not creating dollars that have been getting out the door into the real economy.
The Fed has just barely managed to keep the US from totally collapsing to a degree that would have made the Great Depression look like a picnic.
The executive and legislative branches often think, speak, and act as austerity proponents, Austrian School of Economics adherents, laissez-faire capitalists, which is to say Libertarian or Anarcho-Capitalists: that’s anarchistic-capitalists.
What do you think?
- Discredited economic theory holds Europe in deflationary thrall – chicagotribune.com
What’s the answer to William Pfaff’s question?
The unanswered question is why there is such iron fidelity to neoliberal austerity in the contemporary community of official, semi-official and even academic economists. It can’t be that it works. It doesn’t work. Even in theory it doesn’t work, as Stephen King remarks with his Mars/Jupiter comparison. The key assertion in the academic argument that deficit at a certain level magically turns into surplus has been found to be a vulgar error in arithmetic. American experience has consistently disproved the theory, as Krugman has told all who will listen.
A new Policy Network paper by Vivien Schmidt of Boston University and Mark Thatcher of the London School of Economics asks why “neoliberal ideas continue to be the only ideas (apparently) available.” Why have “the euro-zone countries embraced ‘market discipline’ through austerity and, in so doing condemned themselves to slow or no growth?” Why have such ideas since the 1980s “not just survived but continued to be dominant”?
- Indias real estate market: Time for the bubble to burst? – NDTVProfit.com
Raghu Kumar, co-founder of RKSV, writes:
… a quick way to see whether a country’s economy is improving is to simply look at its real estate prices. If real estate sales fall, then real estate prices eventually fall in tandem. This then reduces the value of all homeowners, whether they are looking to actively sell or not. The result is that there is a reduction in home loans granted to those same homeowners. Finally, this reduces consumer spending which results in reduced GDP.
So all in all, real estate prices or sales are a great indicator of a country’s economy.
With the Sensex hitting new highs and RBI Governor Raghuram Rajan promising all sorts of ground-breaking changes to propel the economy (on 6th November, the RBI unleashed a far reaching set of new rules that will allow foreign banks to enter India’s protected domestic environment), you would expect real estate prices to be surging upward. And yet, this is not what is happening.
If you’re looking to invest in real estate, it might be wise to wait for the bubble to burst. You will then have plenty of options available to pick your location.
- ECB split stokes German backlash fears – FT.com
Peter Spiegel and Stefan Wagstyl report:
Divisions at the heart of the European Central Bank over last week’s rate cut have revived fears in Frankfurt of a German popular backlash against the bank’s policy making, even as the ECB faces decisions critical to the eurozone’s future.
People involved in the policy debates said divisions between northern and southern representatives on the ECB board have been mounting since market pressures on the eurozone relaxed, with council members freed up to revert to national interests.
The German position is a drag on the European and global economies. They are thinking small.
They don’t understand or trust the tools available to thwart hyper-inflation if inflation starts to climb.
Germany could be the center of a new Europe and less dependent on exports if Germany were to turn away from Austrian economics and toward Modern Money Theory (MMT).
- Calculated Risk: Employment Report: Solid Report ex-Government Shutdown, Seasonal Retail Hiring highest since 1999
Bill McBride, a very astute statistics-observer, writes:
• The government shutdown impacted the unemployment rate and the participation rate. This impact from the shutdown should be reversed in the November report.
• Overall this was a solid employment report (except the impact of the government shutdown).
Ordinarily, we reduce the image of the graphs Bill has on his cite so as to not steal his thunder and to encourage others to visit his posts to read everything he has to say. This time through, we are including a larger image while still encouraging you to click through to the source.
- Calculated Risk: State and local government austerity is over
Another from Bill McBride:
Although not as big a drag as the housing bust, there was an unprecedented period of state and local austerity (not seen since the Depression).
Now state and local governments have added to GDP for two consecutive quarters, and I expect state and local governments to continue to make small positive contributions to GDP going forward.
Visit Bill’s post for more details.
- As real estate boards bare their teeth, the grand MLS experiment begins to illuminate the future of listing display | Inman News
Sam DeBord, a managing broker, Coldwell Banker Danforth, Seattle, writes:
Recent moves by Realtor and MLS boards have ignited the national conversation about the proper use of real estate listing data in mass-display formats like syndication and Internet Data Exchange (IDX). A variety of innovative approaches to properly transmitting and displaying listing data are being discussed and put into action across the country. The opportunity for a wide-ranging, multimarket experiment into data distribution may be one of the most transformative things to happen to real estate in years.
Sam’s article is enthusiastic and encouraging regarding the issue of tightening by the NAR of MLS (Multiple Listing Service) data repeated on the likes of Zillow and Trulia, etc. He wants to see nation-wide experimentation to bring out the best of the best for the sake of the entire industry.
Where we were seeing a war starting to develop and with the NAR with more of an upper hand, Sam wants to turn minds to cooperate and compete in an intelligent manner. What do you think of his ideas?
- Treasury vs. Fed: Who’s right on the economy?
Fed critics, primarily on Republicans, worry that cheap money and record levels of liquidity-pumping could be creating negative consequences down the road.
This week’s batch of economic reports no doubt will add to the debate, with GDP ringing up an impressive 2.8 percent third-quarter gain. However, even that strong quarterly gain pushed the year-over-year growth to only a tepid 1.7 percent, and much of the quarterly rise came about through inventory rebuild.
In our view, the Treasury Department is more political. Ben Bernanke has made the Fed more mandate driven. Janet Yellen will increase that.
She believes that the health of the economy is more tied to the health of the labor force, economically and otherwise. Perhaps she brings the maternal instinct to the task and wants to nurture labor, nurture families and individual workers for the sake of the whole.
Source … https://www.cnbc.com/id/101179930
- Reno Better Than Manhattan for Buyers Demanding Yield: Mortgages – Bloomberg
Brian Louis reports:
Wall Street may issue more than $100 billion in commercial mortgage-backed securities next year, which would be more than any period except the boom years of 2005 through 2007.
Real estate investors are “more willing to explore opportunities in a wider swath of potential markets,” according to the report, based on responses from more than 1,000 property buyers and lenders.
- Furloughed Government Workers Elevate Unemployment Rate to 7.3%
Carrie Bay reports:
The civilian labor force was down by 720,000 in October. The labor force participation rate fell by 0.4 percentage point to 62.8 percent over the month. At the same time, the employment-population ratio declined by 0.3 percentage point to 58.3 percent, partly reflecting the decline in federal government employment last month.
Stephen Bronars, senior economist with Welch Consulting, explained to ABC News that the labor force participation rate is the lowest it’s been in 35 years, largely because more and more people are deciding to leave the labor force rather than remain unemployed. “Some of this is due to the aging of the population, but participation should be increasing during a recovery as more people find work,” Bronars told the news outlet.
In October, government data shows 2.3 million persons were marginally attached to the labor force, compared to 2.4 million (not seasonally adjusted) a year earlier. These individuals were not counted as part of the unemployed population in Friday’s report.
Not everything is explained by the federal shutdown or an aging population. Many older people are finding it necessary to remain in the workforce. Given their experience and the fact that people are remaining healthier longer, those older people crowd out younger people what with the tight labor market.
In our opinion, it’s up to those in charge of federal fiscal policy to remedy the situation by creating more jobs, private and public, via infrastructure spending.
Do you agree? Why or why not?
- Charlotte’s Wall Street landlords move quickly to evict renters | CharlotteObserver.com
Andrew Dunn reports:
… evictions are an inevitable part of the rental business. But local real estate veterans say the investment companies’ rapid evictions differ markedly from the stance of many mom-and-pop landlords, who work with renters during difficult months as they try to avoid costly tenant turnover.
“It comes with the territory. You’re always going to have a certain percentage of tenants who are delinquent,” Charlotte real estate investor Dan Gosser said. “Some will end up paying, but you have to file to start the process. You don’t want to find yourselves 90 or 120 days without rent.”
“They have investors who want to see a rate of return,” Gosser said.
Indeed, the cash coming from tenants is vital to the companies’ business model, said JPMorgan Chase analyst Anthony Paolone.
“If you have large institutional capital behind these businesses, the investors are going to expect a very systematic and streamlined process for owning and operating these assets,” he said. “It wouldn’t surprise me if the resident collection process is something that’s streamlined.”
But the customer service should be efficient as well, he said. “Those two things have to go hand in hand.”
- Corporate governance and bank capitalisation | vox
Deniz Anginer, Demirguc-Kunt, Harry Huizinga, and Kebin Ma write:
A failing bank can be defined as one that has insufficient capital. Bank capitalisation strategies thus are crucial in determining the probability of a bank failure. Confirming this, Berger and Bouwman (2013) find that higher levels of pre-crisis capital increase a bank’s probability of survival during a banking crisis. Beltratti and Stulz (2012) and Demirguc-Kunt, Detragiache and Merrouche (2013) find that banks that were better capitalised before the crisis had a better stock-market performance during the crisis.
Value-maximising shareholders are likely to favour relatively low bank capitalisation, as this increases a bank’s prospects of receiving generous bailouts in the event of a future bank failure. Consistent with this, our main finding is that ‘good’ corporate governance — or corporate governance that makes the bank act in the interest of bank shareholders — engenders lower bank capitalisation.
Value there means short-term stock prices, not real value.
- [Highly recommended] New China Cities – Shoddy Homes, Broken Hope – NYTimes.com
This is sad. Ian Johnson reports:
HUAMING, China — Three years ago, the Shanghai World Expo featured this newly built town as a model for how China would move from being a land of farms to a land of cities. In a dazzling pavilion visited by more than a million people, visitors learned how farmers were being given a new life through a fair-and-square deal that did not cost them anything.
Today, Huaming may be an example of another transformation: the ghettoization of China’s new towns.
Signs of social dysfunction abound. Young people, who while away their days in Internet cafes or pool halls, say that only a small fraction of them have jobs. The elderly are forced to take menial work to make ends meet. Neighborhood and family structures have been damaged.
Most worrying are the suicides, which local residents say have become an all-too-familiar sign of despair.
- Private deleveraging in the Eurozone | vox
Fabian Bornhorst and Marta Ruiz Arranz write:
High debt and the simultaneous deleveraging of firms, households, banks, and the public sector can weigh on growth through various channels. High debt increases private agents’ vulnerabilities to asset price shocks, financial volatility, and uncertainty. Faced with the need to strengthen and repair balance sheets, agents place more importance on debt reduction than on profit maximization, which reduces economic activity. This, in turn, exacerbates the initial drop in asset prices, and increases financial volatility. Economy-wide, self-enforcing negative feedback loops between highly-indebted private sectors, a weak financial sector, and a sovereign under stress constrain demand and credit conditions. Uncertainty about the private sector’s ability to service the high debt burden can raise questions about banks’ asset quality, and impair financial intermediation.
… The analysis also suggests that private sector debt may be more detrimental to growth than public-sector debt. Regressions identify a stronger and more statistically significant association between private sector debt and growth than between government debt and growth.
However, their report doesn’t break things down into which side of a given cycle is being evaluated.
Other studies show conclusively that properly done, increasing public spending and even relatively sizeable deficits during a recovery can more than pay for itself in the longer run.
- Bending the Cost Curve on Affordable Rental Development – Urban Land Institute
What drives cost and why?
While a significant portion of the cost of a project is directly related to its size and scale, many costs—such as land, legal expenses, and funding application fees—are fixed or otherwise not directly correlated to the number of units in a project. These fixed costs make smaller projects less economical on a per-unit basis. Therefore, in some circumstances, per-unit project costs could be reduced by removing the barriers to larger projects.
To create additional units, a developer could build on a larger lot or develop an existing site more intensely. While the former method can bring some economies of scale, land and soft costs may increase as a result. A better method of achieving greater cost-effectiveness may be to develop more units on a given site through increased lot coverage, greater building height, or the construction of smaller units.
However, oftentimes there exist significant barriers to increasing the number of units built on a given site, including the following: a lack of demand for additional units; inadequate funding to cover the incremental increase in total development costs; and requirements on density, size, amenity, or design features imposed by governments or funders. It should also be noted that additional density does not necessarily lead to lower costs. For example, larger projects may require a shift from wood-frame to more expensive steel construction. Alternatively, a project might be built in phases, thus increasing soft costs.
Project Design and Construction
While the cost of affordable housing is a significant concern, it is important to recognize that savings should not come at the expense of quality. When affordable housing is poorly designed, unattractive, and unsafe, it will fail to m eet the primary social goal of providing decent shelter for lower-income households.
The importance of design and construction quality has been proved over the years, both through failures (such as the high-rise public housing projects that have required expensive redevelopment) and successes (including mixedincome developments and Low Income Housing Tax Credit projects). Furthermore, many developers intend to own and operate an affordable housing development in perpetuity, whereas comparable market-rate developers might operate under a shorter time horizon. Therefore, higher upfront costs may be justified if the measures improve the long-term viability of the project; some developers have begun to design and build with life-cycle costs in mind.
That being said, policy, financial, and regulatory barriers to controlling design and construction costs also exist: …
- [This is a must-watch] Video: Fukushima fallout: Should the West Coast be concerned? | abc7.com
We’re sorry, but the embed refused to work. Please click through to the original post to view the video. It is worth it.
To say that this would severely impact real-estate prices on the West Coast of the US is putting it way below mildly. David Ono reports:
Fukushima is potentially the biggest ticking time bomb in human history. The damaged plant is in no condition to withstand another massive earthquake or tsunami. The original 19-foot sea wall was shattered when the tsunami struck and provided little protection. The tsunami flooded the plant, cut off power, and the meltdown was underway.
The plant’s defenses today are far less.
Just last week, Dr. David Suzuki, one of Canada’s top environmental scientists, stunned the audience when he described what will happen if a massive quake did hit today.
“It’s bye bye Japan, and everybody on the West Coast of North America should evacuate,” Suzuki said. “Now if that isn’t terrifying, I don’t know what is.”
How high, wide, and long, etc., would a new seawall have to be to protect the area from another tsunami? Should they be constructing one? Could they do it without causing more problems? How long would it take? Would it be done before they could remove all the reactor rods? Should one be built regardless, just to protect the whole area: water containment, rod houses, etc.?
The way the whole thing has been handled so far doesn’t give us any confidence in TEPCO, though we hope for them as they remove the rods over the next several years! One slip handling the thousands of rods could spell a much larger disaster.
Why they ever built a nuclear power plant on that coast is just amazing.
- Prestigious real estate development award for Midtown Detroit Inc. a ‘counter point’ to national narrative | MLive.com
Not the typical view of Detroit: David Muller reports:
DETROIT, MI – In what its president says shows Detroit’s momentum, Midtown Detroit Inc. was given the Urban Land Institute’s (ULI) Global Award for Excellence on Friday.
Midtown Detroit Inc. continues to oversee some of the most rapid development in the city. The Midtown neighborhood has seen an influx of independent retail as well as the arrival of a Whole Foods, and continues to have a 96 percent residential occupancy rate.
- China smog: Can energy efficiency stop ‘airmageddon’? – CSMonitor.com
The image is actually a photo of buildings through the smog. The little pink screen is superimposed to show you the contrast with how clean air would look. Clay Stranger writes and reports:
An electronic screen is seen on a building amid heavy smog in Shenyang, Liaoning province in China. There is a growing awareness in China that environmental protection is no longer an obstacle to economic growth, Stranger writes. Rather, the absence of environmental regulations could eventually stifle growth.
“The playground is closed today kids.” I heard those unwelcome words all too frequently growing up in Los Angeles in the 1980s. Air quality in the Los Angeles basin was the worst in the country throughout most of my childhood. This was largely due to the millions of private vehicles and the smog-trapping effect of the encircling mountains. Not being allowed outside because of air pollution was an unhappy reality on too many summer days of my youth.
The human cost of contaminated air in China is enormous, and a WHO Global Burden of Disease reportindicated that 1.2 million people died prematurely in China in 2010 due to air pollution. A recently released study from the Proceedings of the National Academy of Sciences found that 2.5 billion years of life expectancy have been lost in China due to air pollution—that’s the staggering equivalent of the cumulative lifetime for all the 35 million residents in the metro area of the world’s most populous city, Tokyo.
China Daily has reported on short-term attempts to curb the pollution levels in Harbin: “Government officials are asking farmers to stop burning crop stalk, while Harbin’s environmental bureau has also conducted checks on factories that discharge pollutants.”
But those small measures are not nearly enough to clean the air. More persistent causes o f northern China’s air pollution are the emissions from coal-fired heating systems and vehicles.
Good for them that they are cracking down and studying real methods for fixing the problem. Proper fixes will not harm economic gains but improve them. Thoughts?
- Home equity lines due for reset may be looming financial disaster – latimes.com
Kenneth R. Harney reports:
WASHINGTON — Could the real estate market be heading for a new financial storm? Maybe.
Some mortgage and credit experts worry that billions of dollars of home equity credit lines that were extended a decade ago during the housing boom could be heading for big trouble soon, creating a new wave of defaults for banks and homeowners.
That’s because these credit lines, which are second mortgages with floating rates and flexible withdrawal terms, carry mandatory “resets” requiring borrowers to begin paying both principal and interest on their balances after 10 years. During the initial 10-year draw period, only interest payments are required.
So much for stable interest-rates sparing the real-estate market from reset problems.
- 10 Macro Thoughts to Start the Week | PRAGMATIC CAPITALISM
Political Economist Marc Chandler writes:
1. The monthly establishment survey of the US employment report was stronger than expected and sufficient to lift the 3-month private sector average (190k) above the 6-month average (175k). Yet it is little different from the 12-month average (196k), which suggests that despite some volatility, the trend is little changed. The household survey, apparently more prone to being skewed by the government closure continues to under-perform. Over the past three months, it has recorded an average loss of 239k jobs.
This coupled with other measures of the labor market, such as hours worked and average earnings do not show a marked improvement in the US labor market.
We like that he focused on the average loss. We still think it will take at least two months (seasonally adjusted) to know where the US jobs market is really headed.
- Towards A Progressive Economy For Europe – Social Europe Journal
Hannes Swoboda and Stephen Hughes write:
Europe’s current misfortune is not just that it was hit by the most severe financial crisis in decades. It has also come from the fact that this crisis occurred during a time in which economic thinking was, and still remains, dominated by old concepts and neoclassical models.
Back in 2008 and 2009, survival instincts initially pushed even the most neoclassical politicians to support recovery plans of Keynesian inspiration. Unfortunately for Europe, those first instincts were quickly undermined by flawed forecasting models and the economic dogma that inspired them. In 2010, coinciding with the recovery of employment and output in Europe, policymakers and economic experts switched gears, abandoned the policies that were working and made a dramatic shift of policy towards austerity. The world was told that this would not provoke a new plunge in economic activity and a continuing explosion of unemployment. Their economic models, they said, showed that big cuts in public spending would restore investor confidence and pull us out of recession. As we now know, just the opposite happened. [Emphasis added] Unsurprisingly, recession is still present, confidence is low and unemployment and uncertainty continue to increase.
It’s the same thing that happened in the US in the 1936 Mistake. (See: https://www.telegraph.co.uk/finance/comm ent/ambroseevans_pritchard/10319186/Fed- recoils-from-1937-tightening-error-as-jo bs-evaporate.html)
- Is Ireland Proof That Austerity Works?: Mohamed El-Erian | Economy Watch
CEO and co-CIO of PIMCO, Mohamed El-Erian writes:
Rather than restoring the banks to financial health and ensuring responsible behavior, the Irish economy as a whole was dragged down. Growth collapsed; unemployment spiked. Lacking opportunities, emigration increased — a vivid reminder of how economic crises have wreaked havoc on the country’s demographics throughout its history.
Mohamed A. El-Erian gives both sides of the debate.
- 4 Minute Video: How to Use the 50% Rule to Analyze a MultiFamily Investment Property – YouTube
Can be used on both Multi-Family and Single-Family property initial estimates:
The 50% Rule is a great tool for quickly estimating the potential cash flow from a real estate investment. This video will walk you step by step through the math and show you how quickly and easily a cash flow estimate can be – for any size real estate investment.
- Blackstone’s Big Spain Bet – The Epoch Times
Frank Yu reports:
Last year, the Spanish government enacted reforms to encourage more renting by eliminating certain tax breaks for home purchases. In addition, it passed regulations to speed up eviction of tenants and the ability for landlords to charge rents higher than prevailing inflation rates.
This perfect storm of legislation, tight credit environment, and economic uncertainty will likely spur a population, which had been focused on ownership, to start renting.
- PIMCO’s Seidner: The Economic Recovery Is Even Worse than Many Think | Enterprising Investor
Another analyst who thinks the number of people who’ve given up looking for a job matters greatly: Julie Hammond, CFA, reports:
“We went through a three-year transition in bond markets after the financial crisis, then fell into a sovereign debt crisis, and now we’re questioning the sustainability of policy — both monetary and fiscal,” said Marc P. Seidner, CFA, a managing director of portfolio management at PIMCO, at the 2013 Fixed-Income Management Conference held October 17—18 in Boston. Seidner kicked off the annual event by questioning the strength of the economy and appropriateness of valuation levels in bond markets.
“From a fundamental perspective, the unemployment rate, which is what the Fed watches, has come down close to 7%. But does this rate really reflect the underlying fundamentals of the economy?” Seidner asked.
Seidner showed the audience a graph by Haver Analytics that plotted (through 8/31/13), the percent employed versus the unemployment rate (%) back to 2000. Although the unemployment rate is now closer to the Fed’s target, the ratio of the number of people employed to the total population (currently about 58.5%) has not budged since 2008.
On the surface, people tend to focus on signs of growth in the economy — housing, the manufacturing sector renaissance, and energy independence. And it is true that these longer term trends are improving. But in the here and now, the number of people working has not improved and seems stuck at 58% (vs. about 64.5% in 2000).
He was speaking before the jobs report was released in November, but his point still stands.