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- GIC to Norges Bank Raise Risk Appetite in London: Real Estate – Bloomberg
Investors from Norway to Singapore are bypassing property funds and putting money into London commercial projects with developers, taking more risk in a bid to increase returns as the U.K. market recovers.
“These big investors are looking at their experience in the run-up to the global financial crisis and are acknowledging that they were paying substantial fees” to funds, and losing money in many cases, Ben Sanderson, a director at Hermes, said by phone. “They typically aren’t interested in putting money into these blind pools anymore. They want to be involved in the execution.”
- London’s real estate bubble fears overblown?
Concerns of a real estate bubble in London are overblown, according to experts, who argue that recent price rises are “entirely understandable” given the city’s supply and demand dynamics.
London needs 50,000 new homes a year to fulfill demand, according to Savills real estate agency, with the city’s population expected to grow by 1 million by 2021.
The price hikes in London have been supported in part by a lack of supply and seemingly unstoppable demand from foreign buyers, who are continuing to snap up available property. Purchases by foreign buyers accounted for 49 percent of central London property buys over the year to June 2013, according to estate agency Knight Frank, with 28 percent of these buyers not resident in the U.K.
- U.K. House-Price Index Rises to Highest in More Than a Decade – Bloomberg
The Bank of England took action last month to restrain the strengthening property market by ending incentives for mortgage lending under its credit-boosting program. Demand has been partly fueled by the BOE’s Funding for Lending Scheme and the government’s Help to Buy program, and RICS said surveyors predict prices will rise 3 percent over the next 12 months.
A sales-to-stock ratio, an indicator of the supply-demand mismatch, climbed to its highest since October 2007 as the number of unsold properties fell to “historically quite low levels.” The flow of properties coming onto surveyors’ books “has almost ground to a halt,” while buyer interest is growing almost at the strongest pace on record, the group said.
- Correcting three myths about the housing market | The Great Debate
We largely agree with Elyse Cherry’s sentiments. Here’s one.
… experience shows that these homeowners are not the irretrievable deadbeats that some creditors claim them to be. The entire U.S. economy was taken in by the housing bubble.
Almost the entire U.S. economy was taken in by the housing bubble, but we take her point.
- Tax Deductions – the Best, the Worst, the Trickiest
The Best Tax Deductions
The best tax deductions are those that do not require cash outlay, yet generate tax savings for you while the property is still generating a positive cash flow and appreciating.
“Component” depreciation puts a lot more cash in your pocket.
A prime example is rental property depreciation, which is a “paper” deduction you take with no cash outlay, yet it creates cash in your pocket via the tax savings from the deduction. For example, a $3,000 depreciation deduction saves you $900 in a 30% tax bracket.
Even better is Component Depreciation (or cost segregation analysis), which is breaking out the property’s cost into depreciable components with shorter recovery lives. This equates to significantly higher depreciation deductions and savings.
In the above example, if you used component depreciation, the deduction would be $10,000 (instead of $3,000) with a savings of $3,000 (instead of $900) or a big difference of $2,100 cash in your pocket.
Second Best Deductions …
It’s interesting advice. Read the whole article.
- Top 100 Non-Profit Senior Living Providers Adopt Tech in Droves – Senior Housing News
While the senior living industry is sometimes thought to be slow to adopt cutting edge technologies, a new survey of the 100 largest non-profit senior living continuing care retirement communities indicates some of the early adopters are using the technology in abundance.
Across social connectedness, safety and electronic documentation, providers are already using technology solutions in the vast majority of communities.
Some of these technologies are very intelligent to implement. The “aging in place” ones can apply also to regular apartment complexes, other rentals, and owner-occupied housing.
- China’s Newest City: We Call It ‘Detroit’ – Forbes
There is substantial disagreement as to how much Chinese individuals have already stashed offshore. Boston Consulting Group estimates they hold $450 billion in assets outside their country, and WealthInsight believes the number to be $658 billion.
- Robert Shiller On Swedish Home Prices – Business Insider
Economist Robert Shiller was in Sweden this past weekend to attend the festivities surrounding the awarding of his 2013 economics Nobel Prize.
While there, he interviewed with Sweden’s Sveriges Television’s svt1, and warned that Swedish home prices have disconnected from fair value.
Last month, economist Nouriel Roubini warned that Sweden was among several countries showing “signs of frothiness, if not outright bubble.”
- U.S.-Owned Mortgage Backers’ Guarantee Fees Increased by FHFA – Bloomberg
If this goes through, it will work to slow the economy perhaps prematurely.
Fannie Mae (FNMA) and Freddie Mac, the U.S.- owned mortgage-finance companies, will raise the fees they charge lenders to guarantee loans as part of an effort to shrink their presence in the mortgage market, the Federal Housing Finance Agency said.
For the first time, the companies also will start charging higher fees in New York, New Jersey, Connecticut and Florida, where long foreclosure timelines make it more expensive for Fannie Mae and Freddie Mac to dispose of properties they take over after borrowers default, the FHFA said. The agency is also shifting its fee structure so borrowers with poor credit will pay more.
The fee increases, typically passed on to borrowers in the form of higher interest rates, will go into effect in March and April, the agency said in a statement. Fees will rise an average of 14 basis points on typical 30-year fixed-rate mortgages, the FHFA said.
James Hamilton digs in.
… the true growth rate of the U.S. economy was probably less than 3% for the third quarter, but could turn out to be above 3% for the fourth quarter.
- What is the evidence on quantitative easing [being deflationary]?
There is plenty of (justified) debate as to how strong these effects are, and we all know the difficulties of doing proper empirical work in macroeconomics, and on top of that the time to produce research means these papers are not analyzing the very latest data. But I cannot find a serious — or for that matter non-serious — empirical study suggesting that QE is deflationary in its impact.
We don’t see the Fed’s QE as currently deflationary, though we haven’t made an exhaustive study of the matter.
Landlords and those contemplating landlording: why so many people must rent:
Emmanuel Saez, a professor of economics at the University of California, Berkeley, updated his research into income inequality in September which uses data from tax filings. He found that the share of the US’s overall wealth for the country’s richest top 1% is back to pre-Wall Street Crash levels. The top 1%’s share at the end of 2012 was equal to 50.4%, a level higher than any other year since 1917 and even surpasses 1928, the peak of stock market bubble in the “roaring” 1920s, Saez said.
Rising prices may be bringing some homeowners out from under water, but tight credit will still preclude many traditional buyers from the market, according to a recent report from San Diego-based DataQuick, a real estate information and analytics provider. As a result, investors will continue to play a major role in the purchase market for the foreseeable future, DataQuick concluded.
- Regulators voting on final Volcker Rule – latimes.com
Three of the nation’s top regulatory agencies adopted the final version of a rule aimed at preventing banks from taking risky bets that supporters argued could endanger the financial system.
The Federal Reserve, Federal Deposit Insurance Corp. and Securities and Exchange Commission voted Tuesday to approve the Volcker Rule, the centerpiece of the 2010 Dodd-Frank financial overhaul.
The U.S. Commodity Futures Trading Commission and the Office of the Comptroller of the Currency were also expected to approve the rule Tuesday. Many government offices are closed because of an East Coast snowstorm that has snarled travel.
- Dems clear way for Senate OK of Obama housing pick Mel Watt | www.wsoctv.com
WASHINGTON — Democrats have used the Senate’s newly eased filibuster procedures to clear the way for confirmation of the man President Barack Obama wants to become a top housing regulator.
The Senate voted 57-40 on Tuesday to end a Republican filibuster, or delaying tactics, against Rep. Mel Watt.
Until Democrats forced through changes last month, it took 60 votes to end filibusters….
- Calculated Risk: Graphs: Duration of Unemployment, Unemployment by Education, Construction Employment and Diffusion Indexes
A few more employment graphs by request …
Duration of Unemployment
This graph shows the duration of unemployment as a percent of the civilian labor force. The graph shows the number of unemployed in four categories: less than 5 week, 6 to 14 weeks, 15 to 26 weeks, and 27 weeks or more.
The general trend is down for all categories, and both the “less than 5 weeks” and 6 to 14 weeks” are close to normal levels.
The long term unemployed is at 2.6% of the labor force – the lowest since May 2009 – however the number (and percent) of long term unemployed remains a serious problem.
- Rob Parenteau: How to Exit Austerity, Without Exiting the Euro | naked capitalism
First of all, if a government stops having its own currency, it doesn’t just give up ‘control over monetary policy ‘… If a government does not have its own central bank on which it can draw cheques freely, its expenditures can be financed only by borrowing in the open market, in competition with businesses, and this may prove excessively expensive or even impossible, particularly under ‘conditions of extreme urgency’ … The danger then is that the budgetary restraint to which governments are individually committed will impart a disinflationary bias that locks Europe as a whole into a depression it is powerless to lift.
So wrote the late Wynne Godley in his August 1997 Observer article, “Curried Emu”. The design flaws in the euro were, in fact, that evident even before the launch – at least to those economists willing to take the career risk of employing heterodox economic analysis. Wynne’s early and prescient diagnosis may have come closest to identifying the ultimate flaw in the design of the eurozone – a near theological conviction that relative price adjustments in unfettered markets are a sufficiently strong force to drive economies back onto full employment growth paths.
Otherwise, why would policymakers willingly agree to give up much of their discretion in using monetary policy, fiscal policy, and exchange rate policy tools that had conventionally been used to stabilize economic growth? One would only pitch the proposal of expansionary fiscal consolidation if one shared a near theological conviction in the stabilizing properties of markets left to their own devices.
The failure of this neoliberal experiment is now all too obvious.
If we can agree with the late Wynne Godley that the separation of central bank monetary policy from fiscal policy is one of the core design flaws of the eurozone, and we can acknowledge that the expansionary fiscal consolidations pr omised five years ago have proven anything but expansionary, then it is clear that effective demand must be revived by other measures. If private sector investment demand is going to continue to prove to weak (especially relative to private saving preferences), and if the increase in trade balance is going to continue to be made largely through import contraction (on the back of weak final domestic demand), then economic growth can only return if countries abandon austerity measures. Simply put, peripheral nations in the eurozone must regain control of their fiscal policy, and must actively pursue full employment growth policies.
Then follows an interesting idea for dealing with the problem: tax anticipation notes. The notes would apparently be interest-and-debt free, just as we’ve been advocating, such as with United State Notes versus interest-ladened Federal Reserve Notes. It then ends with a couple of paragraphs, this being the first:
Austerity has proven to be a disaster on nearly all fronts. It is time to abandon the fatal conceit of the neoliberals. Economies are not naturally drawn to full employment growth paths when prices are free to adjust . We know this from the theories of Keynes, Fisher, and Minsky, and we know it from historical and direct experience – yet this was the central premise, as well as the fundamental design flaw, behind the European Monetary Union. This theology of “markets uber alles” has been demonstrated to be very questionable, if not deceitful, both in theory and in practice. The human cost of the neoliberal conceit has proven both tragic and unacceptable. Furthermore, this live and misguided experiment in neoliberalism has set in motion dynamics of political and social polarization and dissolution – dynamics that are blatantly antithetical to the original unifying intention supposedly behind the eurozone project.
- Hopes for a weaker euro looking more like fantasy | MacroScope
… what is likely to happen soon is the first move by the Federal Reserve to cut back on its mammoth monthly bond-purchase programme, and that will almost certainly prop up the dollar at the expense of every other currency.
But will that move be enough?
- Celebrations of Too Big to Fail’s Demise Are Premature – Bloomberg
So Lew [Treasury Secretary Jack Lew] is arguing that we are on the verge of making it possible for large complex financial institutions — really the six biggest U.S. banks — to fail. Could these entities now really go bankrupt, unencumbered by any kind of government support, with their shareholders wiped out and major potential losses for their creditors, as is the case with almost all other private-sector companies?
Lew’s logic breaks down in three places. …
… cross-border resolution won’t work for the megabanks, not unless you offer a U.S. bailout that fully protects all creditors in foreign jurisdictions. But if that occurs, it will no longer be the case that “shareholders, creditors, and executives — not taxpayers — will be responsible if a large financial institution fails.”
That “cross-border resolution” issue may be the devil in the details (or lack of details).
- Does the U.S. Really Have The Highest Corporate Tax Rates?
In terms of the effective corporate tax rate, the United States is actually below the average of the big industrial countries, at about 26%.
… As a result, the oft-heard claim that the U.S. corporate tax rate is crippling the competitiveness of American business is, at best, “vastly overstated.”
Close to half—about 48 percent—of today’s outstanding home equity lines of credit (HELOCs) were originated between 2004 and 2006, and more than 75 percent were originated between 2004 and 2009. According to LPS, “the vast majority” of these loans are set to amortize over the next few years.
Bandell built his case around a Spanish drug lord named Alvaro Lopez Tardon. Arrested in Miami in 2011, Tardon is accused of laundering roughly $26 million in cocaine proceeds by buying exotic cars and Miami condos. But of course, non-criminal wealthy people from around the world are fond of avoiding paying taxes, too. In Miami, these types of condo buyers range from Eastern Europeans who got rich off privatization after communism fell, to former power brokers from Latin America who looted their countries’ coffers and sunk the money in Miami real estate.
- China’s Hot Money Headache – Real Time Economics – WSJ
… the sharp difference in onshore and offshore interest rates creates a renewed incentive to look for ways around China’s capital controls. As long as the opportunity to make a fast buck remains, a flow of hot money will continue to find its way over the border. Lower interest rates might be the only way China can deflect the pressure of inbound capital, said ANZ’s Mr. Liu.
“At this point, a cut in interest rates would be a tightening policy for China,” he said. “It would result in lower capital inflows.”
That puts the central bank in a bind. At the moment, it’s set on raising rates to battle persistent over-investment and a massive build-up of debt.
An added advantage to the homeowner who chooses this plan is the opportunity to buy back an investment equity if one of the investors wants to sell. Investors are required to offer the opportunity to the homeowner before other buyers.
Cinelli explained that traditional equity in a home, unlike a stock portfolio, cannot be actively managed. “It’s an asset, but it’s a dormant asset,” he said. “However, one of the applications of equity finance is that it modifies that dormant asset and enables the homeowner to move it into another asset, making it more flexible.”
The equity gain is shared proportionately based upon capital contributions? This is private lending, right? The “shares” are how liquid?
Wikipedia: “In economics, the Phillips curve is a historical inverse relationship between the rate of unemployment and the rate of inflation in an economy. Stated simply, lower unemployment in an economy is correlated with a higher rate of inflation.” https://en.wikipedia.org/wiki/Phillips_curve
What’s at stake: The missing disinflation — or even deflation — in the Great Recession has generated a large literature, which proposes a set of possible tweaks to the traditional Phillips curve (anchored expectations, non-linearity at zero because of downward nominal rigidity, reduced impact of LT unemployed, mis-measurement of inflation expectations or even inflation). Although this literature clearly points to the need for updating the traditional relationship (especially when it is used to estimate the NAIRU), it remains hard to conclusively choose between the different alternatives proposed.
- Swedish Housing Surges to Unsafe Value as Debt Soars – Bloomberg
Bidding wars, once unheard of, are now the norm in Stockholm, says Filip Abrizeh, an agent with Swedbank Fastighetsbyraa AB, Sweden’s largest real estate brokerage.
Robert Bergqvist, SEB’s chief economist, says not to look at debt in isolation. Real disposable incomes in Sweden grew 58 percent during the past decade. Even though household debt is almost double disposable income, total household assets are more than three times as high, he says.
Besides, says Johan Andersson, SEB’s chief risk officer, Swedes almost never default.
“There is a good deal of good old Lutheran tradition here that you repay your debts,” he says.
Hansson says oceans of easy credit have eroded that tradition. His research shows that only a fifth of house price increases can be explained by population growth outstripping the housing supply.
- With a Crucial Test Looming for Abenomics, Japan’s Economy Falls Short – Businessweek
One promising sign: Japanese companies are investing, with new machinery orders on the rise again.
More take-home pay would help Japanese consumers do their part, but with wages falling, people aren’t confident enough to spend. “Japan’s growth really outperformed in 2013, but a large part of that was the government spending more money,” Orlik says. “For Abenomics to work, you need much higher spending by households and [business]. With the fiscal contraction coming, that has to start happening now.”
- America’s rental crisis | Felix Salmon
The problem is simple arithmetic, as laid out in a sobering new report from Harvard University:
In 2011, 11.8 million renters with extremely low incomes (less than 30 percent of area median income, or about $19,000 nationally) competed for just 6.9 million rentals affordable at that income cutoff—a shortfall of 4.9 million units. The supply gap worsened substantially in 2001—11 as the number of extremely low-income renters climbed by 3.0 million while the number of affordable rentals was unchanged. Making matters worse, 2.6 million of these affordable rentals were occupied by higher-income households.
When you have 11.8 million households chasing 4.3 million affordable rental units, no amount of moving out of town is going to solve the problem, which is only getting worse, thanks to the way in which inequality is getting worse in America. Here’s the chart, which shows the inexorable rise of rents, even as the median income of renters has declined dramatically since 2000:
The result is the next chart: half of all renters now spend 30% of their income on rent, and a quarter spend more than 50%. This is an unprecedented squeeze on the people who can least afford the shelter they need.
- Hopes grow for revival of European securitization market in 2014 /Euromoney magazine
A Damascene conversion in some regulatory circles in favour of securitization, as a means of boosting the real economy, has heartened market participants, but regulatory hurdles remain, including the liquidity coverage ratio. While continental European issuance has demonstrated growth, there are grounds for cautious optimism that 2014 will see the securitization market, from CLOs to RMBS, spring back to life.
If not well-regulated, it could spring another crash.
- Work Force Is Shrinking Because of Retiring Boomers, Philly Fed Paper Argues – Real Time Economics – WSJ
Philly Fed economist Shigeru Fujita argues that the shrinking of the U.S. workforce over the past year and half was “entirely due to retirement” of baby boomers. He then points to data showing that very few people return to the labor force after leaving for either retirement or disability. This means improving employment conditions may not boost the size of the labor force, Mr. Fujita writes. People may remain on the sidelines rather than resume the job search.
A year and a half seems entirely too short to use as a gauge. We also would have to know how many were forced into retirement early due to the recession: a rather complicated set of survey questions that would demand great methodological care.
- How I Bought a 12-Unit Apartment Building with No Money Down (And How it Nearly Bankrupted Me…)
And … I have the most compliant building in the District of Columbia.
You need to read the article to understand that statement.
- Australian disease will be one for the text books | | MacroBusiness
This article reminds us of the pre-Great Recession doomsayer pieces we read that turned out to be 100% correct, and he didn’t even mention the real-estate bubble there.
“This is good news for the housing and mortgage finance markets, but the rate remains elevated relative to the pre-crisis level of about 0.6 percent,” said Mark Fleming, chief economist for CoreLogic.
A “normal level” of foreclosure inventory “would be only a quarter of the current stock,” according to Fleming.
- Skyrocketing rents hit ‘crisis’ levels
Since the housing crisis began in 2008, approximately 4.6 million homes were lost to foreclosure, according to CoreLogic. The vast majority of those homeowners became renters. Even as housing recovered, credit tightened, pushing even more potential buyers out of homeownership and into rentals, both apartments and single-family rental homes.
There are now 43 million renter households, or 35 percent of all U.S. households, the highest rate in over a decade for all age groups, according to Harvard’s Joint Center for Housing Studies; 4 million more renters today than there were in 2007. For those aged 25 to 54, rental rates are the highest since the center began record keeping in the early 1970s.
As a result, rental vacancies have fallen dramatically, and rents have skyrocketed.
According to Fannie Mae’s director of economics and multifamily research, Kim Betancourt, we can expect that the demand for multifamily financing is going to remain strong for the remainder of 2013 and throughout 2014.
This is mostly accredited to the fact that Americans are still having issues obtaining a traditional mortgage and in turn is now translating into a wave of new tenants for these new construction projects.