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- Text of the Fed’s statement on the taper – The Fed – MarketWatch
Beginning in January, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $35 billion per month rather than $40 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $40 billion per month rather than $45 billion per month.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Charles L. Evans; Esther L. George; Jerome H. Powell; Jeremy C. Stein; Daniel K. Tarullo; and Janet L. Yellen. Voting against the action was Eric S. Rosengren, who believes that, with the unemployment rate still elevated and the inflation rate well below the federal funds rate target, changes in the purchase program are premature until incoming data more clearly indicate that economic growth is likely to be sustained above its potential rate.
We agree with Eric S. Rosengren. How about you?
We thought they might start with a $5 billion taper rather than 10, announce it in 2014 (though the taper will begin in January, 2014), and start only with Treasurys.
Despite recent Fed talk about the fear of deflation, we actually think they are more concerned about overheating than is merited by the wage situation. Wages are too low, and there are too many people who’ve given up looking for work.
Hopefully, that will change in the not-too-distant future; but this tapering, while the stock market likes it right now, may backfire more than the Fed apparently thinks it might and slow the housing and construction sectors and thereby slow the whole recovery or worse.
We’ll be glad to have been a bit too pessimistic about the Fed’s actions though.
- FOMC Paraphrased : “We’re Almost Done Keeping Mortgage Rates Low”
Mortgage rates are worse following the Federal Reserve’s December 2013 meeting, but not by much. The Fed’s initial QE3 taper is relatively small and the move was not unexpected on Wall Street. Into 2014, though, the speed at which QE3 continues to taper will determine how quickly rates rise.
Stuart Jordan, Head of Capital Markets Czech Republic at Jones Lang LaSalle commented: “The competitive disposal process of one the most iconic buildings in Central Europe, if not Europe as a whole, cements the fact that iconic commercial buildings with rich architectural heritage will always generate an extraordinary interest level against more standard commercial stock.”
Ireland may have escaped the foreign chains of the bailout arrangement, but its experience has little to teach the other Periphery economies. Far from being the poster boy for the effectiveness of the austerity medicine it is a typical example of the recessionary effects of austerity; its economy has been scarred exactly in proportion to the enacted austerity; it’s just that there wasn’t as much austerity as is usually assumed.
- Breakthrough for banking union as eurozone agrees common ‘backstop’
This is a big deal.
After hours of negotiations, eurozone finance ministers have struck an agreement on how failing banks will be wound down. The consensus is a key plank of eurozone banking union, which will bring in a single set of rules for all lenders across the bloc.
- PIMCO | Economic Outlook – PIMCO Cyclical Outlook for Europe: Recession Ending, but Long-Term Growth Remains Challenged
Andrew Balls, managing director and head of European portfolio management for PIMCO:
In the core countries, growth is stronger but not all that strong, while peripheral countries are emerging from recession but only barely so. However, the gap between the core and the periphery has narrowed somewhat — momentum is slowing in Germany and France and economic conditions are improving in the periphery, with Italy poised to emerge from recession and Spain already having returned to growth.
Focusing on the big four eurozone economies, at the top of our forecast range we would expect Germany and France to grow at close to 1% and Italy and Spain at about 0.3%. At the bottom of our range, we would expect German and French growth at 0.5% or below and a return to recession in Italy and Spain.
That runs quite contrary to Walter Kurtz’s view concerning Germany v. France over on his Sober Look blog: https://soberlook.com/2013/12/germany-and-france-economic-divergence.html
- Trends in real estate private equity – EY – Global
As real estate fund administration services become more sophisticated, fund managers are increasingly outsourcing internal functions.
Many are investing heavily in building complete outsourcing packages that include property accounting, along with fund administration, such as depository bank services. Combining these services means offering fund managers “one-stop shop” platforms that are especially attractive to large, global funds, which are driving this trend as a cost-savings decision.
- Big revision to 2014 housing outlook
CNBC’s Diana Olick reports housing analyst Ivy Zelman has lowered her new home sales home estimates for 2014. Land, labor and financing influenced her decision.
- Blackstone Group expands into single-family mortgages for rental investors
Because they, Blackstone, are landlords themselves of these same types of properties (detached single-family houses, though usually at least twice the minimum price they are planning to allow in this program), they should know how to evaluate the deals better now too than average bank lenders.
It is yet another step in the evolution of the single-family rental market: a new lending platform by one of the biggest names in the trade, Blackstone Group. After investing close to $7 billion in rental properties through its Invitation Homes unit, Blackstone is offering cash to smaller investors wanting to get into the game. The firm is in the closing process on the first deals.
- New survey reveals extent and nature of workplace change programmes
Cost factors, while significant, were not seen as the most influential drivers of change. Despite ranking reducing real estate costs as the highest individual driver of change, with 17.6 percent of respondents identifying it as a factor, the next five most influential factors related to either strategic or human resource related objectives. Only 27.5 percent of respondents cited cost control factors (i.e., reducing real estate costs, lower churn, etc.) as being primary drivers, with organizational goals such as increasing communication and collaboration, generating high levels of creativity, and improving agility and customer responsiveness being cited by 37 percent of respondents.
That’s interesting. We just saw an article a couple of days ago saying that reducing square footage per worker to reduce costs was the primary motivation of the vast majority of implementers. Perhaps that was more anecdotal.
- Secret Inside BofA Office of CEO Stymied Needy Homeowners – Bloomberg
Isabel Santamaria thought she finally caught a break in her effort to save her Florida home from foreclosure after nine frustrating months: She reached Bank of America Corp.’s Office of the CEO and President.
What the mother of two autistic children didn’t know is that her case would find its way to contractors, including Urban Lending Solutions in Broomfield, Colorado, far from the bank’s headquarters in Charlotte, North Carolina. Bank of America hired the firm founded by Chuck Sanders, a former Pittsburgh Steelers running back, to clear a backlog of complaints about a federal program designed to prevent foreclosures.
“It felt like a big deal, reaching the CEO’s office,” Santamaria, 43, said of having her June 2010 call escalated to what she was told was the bank’s top level. “It only happened because I complained to my congressman, the attorney general, television stations. They only put you there if you make a big stink, but once you’re there, they still don’t help you.”
Here’s what they are trying to clean up (if you think they are truly trying):
On January 11, 2008, Lewis [then CEO of Bank of American, Ken Lewis] declared that Bank of America would buy Countrywide Financial for $4 billion stating that it was “rare opportunity” for the company. Bank of America would settle the acquisition at $2.5 billion. The acquisition has since been characterized as the worst deal in the history of American finance with a total cost which may exceed $40 billion as opposed to the original $2.5 billion cost due to Countrywide real-estate losses, legal expenses and settlements with state and federal agencies. Losses related to the Country wide acquisition have been so extensive that Bank of America had considered the option of placing its Countrywide division into bankruptcy in 2011. https://en.wikipedia.org/wiki/Ken_Lewis_(executive)#Acquisition_of_Countrywide
Because the housing crash was a major factor in the recession, construction was one [of] the industries hurt most. Between 2007 and 2012, national construction employment fell by 26%, or nearly 2 million jobs. Many of the cities with the biggest increases in poverty saw a similar decline in construction employment. In Cookeville, Tennessee, which had the second-largest increase in poverty in the country, nearly 10% of the workforce was employed in the industry between 2007 and 2009, compared to just 5.6% on average between 2010 and 2012.
Several of these cities were already struggling prior to the recession, in part because of their reliance on manufacturing. The industry had been declining for years, and the recession only made matters worse. In Salisbury, North Carolina, employment in manufacturing fell from 15.5% of all jobs to 8.3%. Goshen, Indiana, another city with a major increase in poverty, is heavily dependent on the auto industry — more than a third of the working population was employed in manufacturing between 2010 and 2012. According to Joe Frank at the Indiana Department of Workforce Development, this dependence had particularly dire consequences during the recession.
Manufacturing is now global. Manufacturers will continue to seek out the lowest labor rates in the world and only voluntarily return to US labor when shipping is too costly.
US manufacturing labor is now in head-to-head competition for jobs with those who will work for pennies a day in unsafe, unhealthy working environments.
CEO’s are in no mood to return to paying themselves 4 or 5 times what they paid US workers. They want to stay at 400 times and even 700 times the rate of their average workers. It’s a rather myopic and self-centered approach in our view. Do you concur?
- Fed’s ‘Very Dovish Tapering’ Spurs Rally – MoneyBeat – WSJ
No bond bargains seen immediately after taper: Heather Loomis at J.P. Morgan Private Bank said her firm was looking to add corporate bonds should prices fall in the aftermath of the Fed taper. But with the market holding firm, she said “I don’t think we’re going to see an opportunity to buy credit here.” She added that what “you can gather from how markets are moving is that a lot of this move was already price in.”
Pimco’s Crescenzi: Fed succeeds in reassuring: The Fed appears to have passed the first test to reassure investors that tapering isn’t tightening as short-term Treasury yields have fallen. “The taper amount was largely as expected, but the real story is the Fed’s successful effort to convince investors to focus on its policy rate,” says Tony Crescenzi of Pimco. “If the Fed’s taper is coal in investors’ stockings, the projection for a low policy rate is candy—and it is atop the coal, keeping investors jolly.” The 10-year note is now 1/32 higher, yielding 2.839%. The two-year note is also up 1/32, yielding 0.328%.
We expect that all of this is going to appear too rosy once the dust settles in the bond markets and mortgages find their new level negatively impacting real-estate borrowing.
The institutional all-cash buyers will like it though.
This is all part of why more people will be forced to rent and those with the funds will look to remain or become landlords.
- Kemal Dervis debunks the view that income convergence between emerging and advanced economies is coming to an end. – Project Syndicate
Kemal Dervis, former Minister of Economic Affairs of Turkey and former Administrator for the United Nations Development Program (UNDP), is Vice President of the Brookings Institution.
If Latin America invests around 20% of its national income in a sustained manner, while emerging Asia invests close to 30% — including investments in education — emerging Asia will converge significantly more rapidly.
That speaks to the need for the US to invest in the US in the same way.
- Young couples seek townhouses and condos with an urban feel – San Jose Mercury News
New building permits for detached homes and townhomes are up 39 percent from last year in San Francisco, San Mateo and Marin counties, 35 percent in Santa Clara and San Benito counties, and almost 19 percent in the East Bay, according to the California Homebuilding Foundation.
Permits for multifamily housing, including condos — which are particularly attractive to young, first-time buyers — are up 38 percent across the Bay Area, with San Francisco-Marin-San Mateo leading the way with an 82 percent jump over the first 10 months of 2013.
“We have started seeing a shift,” said Stephen Smiley, a vice president for the Northern California office of Meyers Research in Danville, an advisory firm to the building industry. “Two or three years ago, everybody’s idea was that high-tech folks want to live in nicer apartment buildings and be mobile and not buy.” But “rents got so high and you have number of choices for good townhomes and locations,” and interest rates are still historically low.
A report released last week by the Urban Land Institute in San Francisco predicts that Generation Y’s impact on real estate could be the “most dominant trend for many years.”
That is a switch.
Manuel de la Rocha-Vazquez:
Overall, workers remunerations as a share of GDP have dropped by 3 percent since 2000, an amount mostly transferred to profit margins. Thus the real problem lies elsewhere: Spanish prices grew faster than those in the rest of the Euroarea by about 1.5% on average. This was not caused by high salaries but by low labour productivity and high profit margins. So although real salaries did not grow, because of higher inflation nominal labor costs increased faster in Spain than in the rest of the Euroarea.
… In reality, most firms are using lower wages to reduce their high debt levels — not to lower prices. So ultimately the much needed private deleveraging is taking place on the back of workers purchasing power.
Our view is that higher profits retained and then paid out to the top executives and others in bonuses, etc., have really hurt here in the US.
Demand can’t go up in general if the bulk of the people can’t afford to spend more because their wages and salaries keep going down in constant dollars. Offshoring labor just to boost profits so the superrich can retain more for themselves is a dead-end economic policy/plan.
- It s Long Past Time to Kill the Bank Branch – Bank Think Article – American Banker
For years, bankers have bemoaned the looming death of the traditional bank branch. Now it looks like it’s actually starting to happen. Finally.
(While some customers, especially the elderly or the very wealthy, are less likely to do all of their banking online, banks don’t need the more than 82,000 branches they currently maintain nationwide to keep these customers happy.)
The increasing availability of remote deposit capture has accelerated this change in customer behavior, at least in my own experience. I used to visit my bank infrequently, mostly to deposit checks I sometimes receive as holiday or birthday gifts, but now that my bank allows me to do that by snapping a photo of any spare checks I luck into, I haven’t been past my local branch’s ATM lobby in months.
1. Yen weakness has not generated the expected benefits in terms of exports due to slow global growth and challenging competitive landscape.
2. Recently domestic import demand has grown considerably, as buyers try to get ahead of next April’s consumption tax hike.
- Federal Reserve raises the bar on stress tests | 2013-12-17 | HousingWire
The Fed released a letter Monday outlining the instructions for the Comprehensive Capital Analysis and Review for 2014, noting that it will now independently project bank holding company balance sheets and risk-weighted assets under the supervisory scenarios.
In an integrated European internal marketplace, one country’s domestic demand represents another member state’s export potential. Squeezing wages across a sizeable part of the Euro Area will also squeeze overall demand dynamics, with imports and exports between Euro area countries going down. In the end, it does not help much to try and improve competitive wage or price positions if export markets are stagnating since wage squeezes are being widely applied across the internal market.
In a nutshell, the path of wage devaluation that has been chosen by the European ‘Masters of Austerity’ is not only dangerous because it is triggering serious disinflation and possible deflation (see here). On top of that, the IMF is now showing that wage devaluation is not even leading to what is supposed to be its primary goal that is to trigger a revival of export demand based on improved price/cost competitiveness.
The currency wars also represent a race to the bottom; but without a radical change in the global monetary system and without the political will, there aren’t alternatives that are clear to the policy makers.
- CAR: Housing affordability falls fourth straight month in a row | 2013-12-17 | HousingWire
Housing affordability in California fell for the fourth straight month in November due to rising interest rates and a run-up in home prices, the California Association of Realtors said.
We expect that has been changing over the last several weeks and will continue more now that the Fed has announced its taper, modest as it is.
- Hong Kong’s Growing Unease With The Mainland | Economy Watch
When the Chinese mainland was insulated, Hong Kong thrived. In fact, Hong Kong continued to thrive for years after reforms and opening-up were launched in the mainland. But as the mainland’s economic development is catching up with that of Hong Kong, the latter risks becoming marginalized.
True, Hong Kong still tops the ranking of international financial centers by foreign direct investment (FDI) in terms of services. But it is followed by Shanghai, which seeks to become a world-class financial, trade and shipping center by 2020. The mainland’s financial reforms, along with the likely internationalization of the renminbi in the near future, are boosting Shanghai’s advantages.
- Apartment rents will keep rising next year
Higher rents are ahead next year for the nation’s apartment dwellers, but some cities will see smaller bumps than in recent years, market researchers say.
Rents will increase 3.1% nationally next year, about the same as this year, apartment market researcher Axiometrics says.
Meanwhile, researcher Reis sees rents rising an average of 3.3% in 2014.
Since the end of 2009, rents have soared 43% in San Francisco, including an 8% jump this year, Denton’s data show.
Next year, they’ll rise 5.1% given still strong demand and limited new supply.
- Spanish Defaults Surge as Banks Forced to Come Clean: Mortgages – Bloomberg
More than 5 percent of Spanish residential mortgages were in default in the third quarter, up from 3.5 percent a year earlier, according to data released today by the Bank of Spain. The level was 0.7 percent in 2007, the year before the real estate market imploded. AFES estimates a rise to 6 percent next year. Defaults as a proportion of all loans by Spanish lenders climbed to a record 13 percent in October from 12.7 percent the previous month, the central bank said today.
Defaults are rising partly because of changes required by the Bank of Spain that force lenders to book more soured mortgages.
It’s a disaster.
- How Real is China’s Growth? GDP Alternative Sheds Light – Real Time Economics – WSJ
For the most part, Capital Economics finds that its CAP index generally jibes with China’s GDP numbers, especially in 2009 and 2010. But in the last two years, its CAP index suggests growth may have been 1 to 2 percentage points below the official GDP numbers.
What’s up? Mark Williams, a China economist at the firm, says official GDP numbers reflect output data and are “skewed toward what is going on in industry.”
CAP data, he says, also capture “harder to measure” parts of the economy.
Over the past two years, he says, big firms have benefited disproportionately from a surge in lending. CAP data suggests that service-sector firms may be hurting more than the official GDP numbers would suggest.
- Why I Often Pay More For Property Than It’s Worth
To most real estate investors, getting a “deal” is strictly a function of paying a low purchase price. Not to me, because while a low price is never a bad thing, I recognize that price is only one piece of this puzzle; it is only one of the negotiable terms which add value in a transaction, and focusing solely on the price can lead us to ignore possibilities which exist elsewhere.
- Is There A US Housing Bubble, And Is It Tradable? | Real Estate | Minyanville’s Wall Street
… there’s less agreement about whether a repeat housing bubble is forming in the United States, and the following chart illustrates some reasons why opinions vary. The nominal price of new homes, shown in red, has risen markedly since the 2009 low and has even exceeded its pre-crash high. It looks like a wave ready to crest. Yet new homes represent only about 10% of all US home sales. A broader and probably more sober view would consider both new and existing homes and would correct for inflation and changes in average disposable income, as with the data series shown in blue. Seen that way, there doesn’t appear to be a bubble at all.
While some metropolitan areas like San Francisco, Houston, and Seattle have seen enough press to keep them fresh on the minds of today’s top investors, one hasn’t seen such notoriety.
According to a report released by the Greater Nashville Apartment Association, the average apartment in the Nashville is renting for an all-time high of $892 or an increase of a whopping 7.6% over this same time last year.
- Builder Confidence | National Association Home Builders
Builder confidence is on the upswing ahead of the new year. The National Association of Home Builders/Well Fargo Housing Market Index rose four points in December to 58 — up 11 points since the same time last year and sustaining a score of more than 50 for the seventh straight month. The index looks at sales of newly built, single-family homes across the U.S.
… confidence is on the rise despite concerns about climbing interest rates and uncertainty kindled by the recent government shutdown, David Crowe, chief economist with the NAHB, told HousingWire. Since the end of the shutdown, the release of pent-up demand has buoyed the uptick, he said.