Linking ≠ endorsement.
↑ Retail Lending Gets Easier—Thanks in No Small Part to CMBS | Commercial Observer
CMBS loans are appealing to borrowers, be-cause the loans are nonrecourse, in contrast to traditional financing, which often stipulates that borrowers are on the hook for financial damages if the loan goes bad, said Dov Zabrowsky, the director of underwriting at Eastern Union Funding. The term of a typical CMBS loan is also longer than that of a traditional bank loan, said Mr. Zabrowsky.
With more flexibility offered by CMBS loans, developers and owners who want to revamp their properties are able to creatively finance projects that might look risky on paper, and finance projects at properties that were until recently the scourge of investors.
↑ [Very highly recommended] Austerity and the Employment Rate | CEPR Blog
This post, by Ben Wolcott, is short and direct: austerity was, and remains, flat-out wrong.
In 2010, after an initial round of coordinated stimulus from both wealthy and developing countries, deficit hawks around the world regrouped. Pointing to growing deficits and debt, they demanded that countries reverse course and begin moving toward balanced budgets. The deficit hawks argued that deficit reduction could be accomplished without impairing growth because of the effect it would have in boosting confidence among businesses and consumers.
Many economists argued against this drive towards austerity at the time. They noted and rigorously explained the fallacious logic in the idea that deficit reduction could be expansionary. They also pointed out how fiscal policy had already saved the economy from a second depression and that more stimulus would likely be necessary. However, now we have more than three years of data, so we no longer have to speculate. A simple picture can be worth a thousand words (or in this case, billions).
Actually, tens of trillions.
↑ The Velocity Of Money In The U.S. Falls To An All-Time Record Low
… the velocity of M2 normally slows down during a recession. And we can also see that the velocity of M2 has continued to slow down in the “post-recession era” and has now dropped to the lowest level ever recorded ….
This is why we continually refer to the velocity of money.
Where we differ with Michael Snyder is that we believe the Fed will change course and that even the US Congress will finally begin to see the light and start doing what is best for the economy as a whole rather than for the short-term for their own campaign coffers and personal estates. You see, if they continue allowing the basis of the economic system to erode, it will erode right out from under them. If they let that happen, then Michael Snyder will have been proved right. We should all have stocked up on food, seed, guns, ammo, gold, and all the rest of the usual things the doomsayers suggest.
↑ The return of the home as ATM | Inman News
This time it is different. The housing mania is not widespread. While home prices are bubbly, home sale volume is flat or declining. Between 30-50 percent of the homes sold in the past few years have been purchased by investors for cash. Some of those investors are large public companies like Blackstone. Unlike the housing bubble of the mid-2000s, this is Wall Street’s bubble, not Main Street’s.
Historically, low interest rates haven’t “fixed” the economy, even though homes prices have risen, because according to the central planners, there are not enough homes being sold because they are too expensive. Rather than admit the senselessness of their manipulation that caused home prices to rise beyond affordability, they try more manipulation and conspire to lower lending standards so that unqualified borrowers can overpay for used homes so that higher home prices can be sustained so that more people can achieve equity and borrow against it so they have more money to spend on foreign goods. Makes sense?
↑ China’s Real Estate Downturn Spells Trouble for Global Economy | TIME
At an industry forum in late May, Pan [China’s richest property owner, Pan Shiyi] compared the nation’s real estate prospects to the Titanic. “It [the real estate industry] will soon hit the iceberg in front of it,” he declared.
Pan’s outlook may be bleak, but is borne out by statistics. According to Standard & Poor’s, residential housing prices in China will drop by 5% this year — a dramatic reversal from last year’s rise of 11.5%.
We haven’t seen anyone taking the same position as the following, but we formally pronounce that we believe the bursting of the real-estate-market bubble in China has officially begun.
We don’t see the Chinese leadership pulling off an economic miracle, and that’s what it would take.
↑ EconoMonitor : EconoMonitor – Peak Pollution: China to Lead the Clean Energy Revolution
Reaching peak pollution would necessarily mean closing coal plants. It would mean a massive increase in nuclear power. It would also mean using much more natural gas. It would require cleaner vehicles and more mass transit. And it would obviously mean a huge buildup of more solar and wind power.
There is still a long way to go, but the days of China’s smog-choked cities may be numbered.
The coming economic slowdown will be a golden opportunity to transform China’s energy sector.
As for nuclear, the less of that the better. They should continue working on clean, non-toxic energy production and also without doing huge ecological damage with ill-planned hydro projects.
↑ Larry Summers Should Keep His Mouth Shut | The Baseline Scenario
Larry Summers is well on his way to rehabilitating his public image as a brilliant intellectual, moving on from his checkered record as president of Harvard University and as President Obama’s chief economic adviser during the first years of the administration. Unfortunately, he can’t resist taking on his critics—and he can’t do it without letting his debating instincts take over.
Larry is far from the only one who suffers from this problem. Some people don’t ever even get to the point where they might be considered as on the way to rehabilitation. We think Alan Greenspan is a good example. Tim Geithner also certainly seems to have shot himself in the foot with his recent book laying on the excuses, which is what Larry Summers just did.
Look, they were all wrong. No amount of appealing to the difficulties of forming and ramming through policies will alter it. They argued for bad policies that caused the crash. It’s recorded history. It won’t do anyone any real good to continue trying to retroactively whitewash the gross mistakes.
The fact of the matter is that Brooksley Born was absolutely correct. Geithner wasn’t there then, but Greenspan and Summers, along with Paul Rubin, sent the country way off in the totally wrong direction that definitely caused the Great Recession.
↑  Doug Casey on Data Collection & Thomas Palley talks Keynesian – YouTube
At the 13:18 time mark:
… Erin talks to Dr. Thomas Palley about differentiating between Post-Keynesians and New Keynesians.
This is apparently a continuation of the first segment in an earlier episode.
In our last post of Tuesday, we mentioned that Larry Summers had ignored William K. Black and others who had rightly predicted stagnation. (https://propertypak.com/2014/06/10/news-real-estate-risk-economics-jun-10-11-2014/#0610141) Bill Black, like Thomas Palley, is a Post-Keynesian.
In fact, we had predicted stagflation, which is stagnation with inflation, only because we thought those in power would panic and over inflate but inflate in the wrong way. How we overestimated them! The calls for austerity were simply amazing to us. We thought nobody would be so ill-informed about the causes of the crash and the way out to actually call for more from the same economic ideology that got us into the whole mess in the first place.
We do hope Erin continued the interview and that it will yet air such that Thomas actually gets to explain the basic tenets of Post-Keynesianism, with which we largely agree provided we’re discussing a debt-based currency, which is what we have now, not that a debt-based currency is necessarily required in Post-Keynesianism. Whether a debt-free currency would be placed beyond PK is a matter for debate amongst and between adherents. Our point is that once a debt-free currency were to completely replace the debt-ladened currency we now have, many of the Welfare State things Post-Keynesians advocate would be easily done to the extent that we would soon be faced with the option of a guaranteed minimum income with no fears of being replaced by robots but rather able to afford all the robots we might want to alleviate us all from all undesired work.
↑ Collateral Damage: Life among the CAFOs
What do you think?
CAFOs. Concentrated Animal Feeding Operations. Sometimes people say Confined Animal Feeding Operations. Where I live, in northeastern Wisconsin, we have 16 CAFOs in Kewaunee County, second only to our neighboring Brown County which has 20. Most of these operations have 5,000-10,000 animals living in the closed quarters of the confinement model.
… a tremendous producer of animal waste, the newest mantra we have to hear about is their “liquid gold” and how valuable it is to them and their crops. Liquid gold where I live is full of hormones, antibiotics, and barn cleaners and may include industrial and/or municipal wastes.
Even too much of a good thing is bad, especially when “liquid gold” ends up in groundwater, wells and on our beaches caked with algae due to the “nutrient loads” deposited in our waterways and traveling to Lake Michigan. The dispersal of harmful particulates, under the guise of “nutrients” is wrong. The reality of “drift” and “fugitive emissions,” which cannot be captured or controlled, put us all at risk for exposure to pathogens, viruses, bacteria and toxic chemicals to be ingested or inhaled ….
Should they be spraying such sludge such that it pollutes the neighborhood and surrounding areas? Does it lower real-estate values? Will it result in higher insurance premiums due to increased risks? What should be done about it?
Realism appears to be settling in.
More and more, the market hinges on regular people buying houses with normal mortgages, and with lending standards still tight and the economy still feeling soft, there’s only so much those people will pay.
“We’re bumping along a ceiling. I really can’t see values going up much more,” said Steven Thomas, of ReportsOnHousing.com, which analyzes Southern California housing markets.
In days gone by, the mortgage industry simply would have radically lower standards. It can’t do that anymore. Good!
↑ Millennials rock real estate world with desire for urban living – CultureMap Houston [cached]
“Hugh F. Kelly, chair of The Counselors of Real Estate”:
Kelly pointed out the unemployment rate for Millennials is 9.1 percent, and median incomes range from $25,000 to $45,000 on the high end. He said the generation is choosing smaller living spaces than the typical homes in the suburbs that appealed to their parents. Millennials value mass transit and “work, live, play” communities where residents of all ages, ethnicities and income brackets live side-by-side.
↑ Real estate firms investing millions on east end of Center City – Philadelphia Business Journal
Philadelphia making a comeback:
Keystone Property Group is making a big bet on the east end of Center City.
In less than a year, the Bala Cynwyd, Pa., real estate company has invested a tad more than $210 million on buying two office buildings in the Independence Square submarket and has plans to grow its portfolio. The company is bullish on this part of the city.
↑ The Changing Face of Office Space: NYC Real Estate Adjusts | Commercial Observer
The new normal does, however, have implications for the type of offices that will be in high demand in coming years, according to a study released in December by the city’s Economic Development Corporation. Noting a drop in the average individual office workstation size from 250 square feet per employee ten years ago to as little as 135 square feet per staffer today, the report forecasts that companies eager to move into consolidated and repurposed space will actually demand 6.1 million square feet more of Class B and Class C space than the market can provide by 2025. And while 48,965 new technology jobs will by that time require 4.8 million more square feet of all types of spaces—the second highest total behind health care’s 137,341 new jobs and 6.3 million square feet—experts predict that other professions will embrace collaborative offices in the competition for employees.
↑ Big price increases unlikely in Phoenix housing market for rest of year | ASU News
… the demand for rental homes is very high, and Orr [Mike Orr, director, Center for Real Estate Theory and Practice, W. P. Carey School of Business, Arizona State University] says the availability of those homes is dropping to unusually low levels. He estimates there’s only a 29-day supply of single-family rentals, and therefore, rent is starting to rise in the most popular locations. As a result of this demand, the Phoenix area is seeing a strong upward trend in multi-family construction permits.
↑ Survey Respondents see Home Prices, Interest Rates, and Rents Leveling
No matter how the results of Fannie Mae’s National Housing Survey for May are interpreted, it is hard to see them as good short terms news for the housing market. The company says that Americans’ concerns about the direction of the economy and their household income appear to be weighing on housing growth. It is also possible that the results mean that potential homebuyers see several reasons to return to the wait and see attitude that helped flatten the market in 2011 and 2012.
Low wages, discouraged workers, high student debts, and properly rigid lending standards and more have all contributed to the leveling off.
↑ BofA Sways Judge to Reconsider SEC Mortgage Lawsuit – Businessweek
At a hearing today [Wednesday, June 11, 2014] in federal court in Asheville, North Carolina, lawyers for the bank argued that SEC rules governing such disclosures were unclear.
The bank “certainly made some points,” said U.S. District Judge Max O. Cogburn Jr. Cogburn told the lawyers that before the hearing he’d “been leaning toward” adopting a magistrate judge’s recommendation that the SEC’s case go forward, but that now he’d take “a look back.”
We think he’ll let it go forward anyway. It should go forward.
↑ The Best And Worst States To Make A Living In 2014 – Forbes
“You have areas that go through booms and busts, says Barrington [“Richard Barrington, senior financial analyst for MoneyRates.com and author of the study”]. “Texas went through a huge crash in the early 80s and that’s the kind of thing that could make a radical reversal. If the bottom fell out of energy prices, North Dakota, whose economy has been doing well—that could reverse. Until that happens, this data has some staying power.”
It’s a home with a beautiful view, but it could collapse at any moment. A luxury house in Texas, perched on a cliff with a spectacular view of Lake Whitney, has started falling into the water.
↑ Luxury Home Dangling Off Cliff Over Lake Whitney – CBS Dallas / Fort Worth
A vacant luxury home is dangling over Lake Whitney after the bluff beneath it has given way and fallen into the lake.
A crack was found in the bluff beneath the home, located in the White Bluff gated community, roughly a year ago.
↑ Former ECB Official Orphanides Points Finger for Euro Woes at Politicians, Mainly German – Real Time Economics – WSJ
Pretty much what we’ve been writing for years now:
Athanasios Orphanides has a theory on what went wrong in Europe: The governance of the euro-zone was incompatible with prudent management of a major crisis. Some big countries — notably Germany — exploited the flaws in the system to its advantage at the expense of others. The 2009 recession was triggered by the U.S., but the 2011 recession was made in Europe and was avoidable.
“Key decision makers exhibited neither political leadership nor political courage,” he says in a lecture turned into a Massachusetts Institute of Technology working paper.
“Rather than work towards containing total losses, politics led governments to focus on shifting losses to others. The result was massive destruction in some member states and a considerably higher total cost for Europe as a whole.”
Angela Merkel squandered a golden opportunity for both Germany and Europe. She could have been an updated version of Bismarck (https://en.wikipedia.org/wiki/State_Socialism_(Germany)#Bismarck.27s_social_legislation). Instead, Europe has been mired in stagnation at best. Many nations there are seeing an alarming rise in extreme fascism, such as the Golden Dawn in Greece, which has even taken to openly singing Nazi SS songs.
The Chinese CPI in the first four months of 2014 averaged 2.2 percent, down from 3 percent plus in late 2013 and way below the official 2014 target of 3.5 percent set out by Premier Li Keqiang. Producer prices even registered outright deflation for more than two years. So China has a negative inflation gap. According to the Taylor rule, the PBC therefore ought to ease monetary policy. Unless, of course, financial stability concerns dominate, calling for a continued tight monetary policy stance. The rationale is that lower interest rates might fuel shadow banking expansion, excess leverage and asset price booms in China. Thus an accommodative policy could add to the already growing financial imbalances. But tight monetary conditions could also run the risk of a disorderly deleveraging. In any case, the standard Taylor rule might help inform the weights on inflation and output but is silent on the relative weight attached to the policy goals of price and financial stability.
“I’ve closed jumbo loans in seven days,” said Hernandez. Successful borrowers often employ strategies like Selvaraju’s, using a combination of second mortgages, home-equity lines of credit, and quick closings to beat all-cash buyers. “There are always options, so long as you go to the right lender,” she said.
Here are tips for borrowers in markets that reward cash.
Be patient: Some all-cash buyers and their offers can appear and disappear, especially if the buyer is overseas. Your financing-contingent? offer still might have a shot, especially if you’re willing to put down a large down payment.
Realize that flexibility is an advantage: Sometimes a line of credit on another investment property, or a home-equity line of credit, can help make your offer look even better. It may not be all-cash, but more-cash is better than less-cash.
Know the market: Work with your real estate agent and loan officer to find sellers that are open to accepting bids with financing.
↑ How Demographic Changes Could Boost Americans’ Wages – Real Time Economics – WSJ
The bottom line, he [Chris Porter, chief demographer, John Burns Real Estate Consulting”] says, is that if the U.S. continues to add 2 million jobs a year and the inflow of new potential workers drops below 1 million, labor demand will outstrip supply, pushing up wages.