Linking ≠ endorsement.
“The property market in China is softening, thus putting pressure on the economy and financial system. However, we do not think it is anywhere near the meltdown scenario that led to the financial crisis in the West,” Luo said.
“The majority of bank loans in China are still made up of corporate loans, and the direct exposure to properties is manageable,” she said.
“Moreover, China still has room for policy maneuver to cushion the property market downturn,” Luo said.
Our view is that they can stand still at best, faking it awhile longer, or they can take the charge. The longer they wait, the bigger the hit, unless they plan to wait decades the way the Fed has planned in the US. That would just be a huge drag.
↑ Japan’s bond market: Quantitative freezing | The Economist
Bond prices remain high and yields low despite low unemployment and slowly rising inflation, which would normally presage higher yields.
↑ FHA Loans | Extra Interest Payments Mortgages
…thanks to a policy switch made final last week, charging extra interest payments on loans insured by the Federal Housing Administration (FHA) will soon be banned. …
…the lender will have to stop charging you interest on the date of the closing, not compute the interest charges that would be due through the end of the month and roll them into your bottom line.
…FHA’s other current negatives — super-high mortgage insurance premiums that are non-cancellable for extended periods — won’t be disappearing.
↑ Why there will be no crash in Perth
Ordinarily, the points cited in the article would be all one would need to consider; however, there’s the Chinese economy to consider. Australia, including its real-estate market, depends upon China.
By “Unlearning Economics” (more on the author below):
For critics of mainstream economics, the 2008 financial crisis represents the final nail in the coffin for a paradigm that should have died decades ago. Not only did economists fail to see it coming, they can’t agree on how to get past it and they have yet to produce a model that can understand it fully. A number of books critical of economics have been written or re-written with the crisis in mind; articles by journalists and critical economists are keen to use the crisis as evidence of the fields failings; and that student-led anti-economics initiatives call themselves things like the ‘Post-Crash Economics Society’ speaks for itself.
However, economists tend to see things differently — in my experience, your average economist will concede that although the crisis is a challenge, it’s a challenge that has limited implications for the field as a whole. Some go even further and argue that it is all but irrelevant, whether due to progress being made in the field or because the crisis represents a fundamentally unforeseeable event in a complex world. Below I have compiled the 7 most common arguments used to defend economic theory after the crisis, and will consider each of them in turn, with the quality of the arguments increasing as we go further down the list.
While there’s been a lot of kerfuffle over exactly who ‘predicted’ the crisis and what that means, the most important point is that those who did warn of a crisis like the one we’re going through identified key mechanisms (debt build up, asset price bubbles, global imbalances) and argued that, unless these processes were combated, we’d be in danger. I appreciate that the ‘stopped clock’ problem really is a problem: there are so many people predicting crises that eventually, one of them will seem to be right. However, this is easily countered by using the same framework to make predictions outside the crisis. For example, Peter Schi ff predicted a financial crisis quite a lot like the one we’ve been through, but he also predicted hyperinflation, suggesting that his model is wrong in some way. Conversely, endogenous money models are consistent with both the financial crisis and the subsequent weak effects of monetary stimulus: since money is created as debt, private debt can have major effects on the economy, and since banks do not lend based on reserves, there’s no reason for an increased monetary base to produce inflation. The issue is not ‘prediction’ in the narrow sense of seeing the future, but in the broader, scientific sense of furthering our understanding.
A model of one aspect of the economy which takes the effect of other areas as exogenous will fail to detect potential positive feedback loops and emergent properties. A model which takes the crisis itself as an exogenous ‘shock’ is even worse, and in many ways is hardly a model of the crisis at all, since it offers no understanding of why crises happen. Are there alternatives? I have previously written about how post-Keynesian and Marxist models offer more comprehensive understandings of the financial crisis and antecedent decades; I shan’t repeat myself here. Other promising areas include network theory, evolutionary economics and Agent-Based Modelling. All of these share that they take the system as a whole instead of focusing on isolated mechanics.
Regardless of one’s feelings about socialism, the author is well worth reading. Author info:
I am an economics student in the UK who is interested in economics, history and socialism. I try to challenge conventional narratives and the way political issues are framed, particularly in the discipline of economics, which I think lends itself to a skewed perspective. As my profile picture suggests, I am a big fan of John Maynard Keynes and his followers and contemporaries, and broadly follow the economics of the post-Keynesian school. I am, however, also a socialist, so my policy recommendations come with an obligatory ‘and crush capitalism’ alongside them.
↑ Clear and Present Danger: Australia to be hit as Chinese economy unravels
This is part of what we were referring to above concerning China and Australia.
A resources expert has forecast the iron ore price will continue to tumble as the Chinese economy begins “unravelling”, causing significant issues for Australia.
Speaking at a conference on Thursday, the federal government’s former top resources forecaster Quentin Grafton said the iron ore price was unlikely to recover quickly, leading to a painful downturn in the Australian economy in 2015.
“This isn’t about doom and gloom, it’s about looking at the risk and numbers. It’s a clear and present danger,” Mr Grafton said.
↑ [Recommended] Increasing government popularity predicts emerging-market financial crises | vox
Read the linked article while thinking about China. China has shown clear signs of being torn about which direction to head at any given moment: sensible regulation or unbridled stimulus.
If governments of poor ability/competence are more likely to generate bad booms, then enacting regulatory actions is politically costly, as it becomes the tell-tale sign of poor quality of governance. This political reputation concern is a force that may prevent governments from enacting optimal regulatory measures and avoiding crises. A government concerned about its popularity might thus prefer to ride economic booms, even if that means a larger risk of a subsequent crash.
The delay makes no sense.
An Associated Press analysis found that Californians who live in 10 water districts with the highest number of unmetered home or business all used more water each day than the state average.
Residents of cities such as Los Angeles, San Francisco and San Jose have been metered for decades. However, many customers served by about 40 water districts in a 300-mile stretch of the Central Valley continue to pay a flat rate, meaning they can use as much water as they want without seeing their bills rise.
Meters play on basic human behavior— and people billed monthly for their water use tend to use less, said Lisa Maddaus, a water resources engineer and partner at Maddaus Water Management Inc. based in Folsom.
In studying the conversion to water meters in Davis, which was completed in 1998, she found that in the first year, residents used 18 percent less water. After the initial spike in savings, she said residents used about 10 percent less in the second year.
↑ Chance of ‘megadrought’ in U.S. Southwest now 50%, study concludes – LA Times
The chance of a “megadrought” gripping the Southwest for more than 30 years has increased to 50%, scientists say, which means bad news for California’s already parched landscape.
The odds of a 10-year drought afflicting the southwestern U.S. have increased to 80%, according to a new study by Cornell University, the University of Arizona and the U.S. Geological Survey.
↑ Katharina Pistor: Creating A Legal Foundation For Finance – YouTube
This is a very informative interview about the theoretical legal framework of the European Monetary Union, the way forward for the European Central Bank, German reservations and legal opinions, and more.
It gives insights concerning the legal foundation upon which Mario Draghi is forging ahead at the ECB likely over German objections.
…Katharina Pistor, a grantee of the Institute for New Economic Thinking, professor at Columbia University Law School, and the director of Columbia’s Center on Global Legal Transformation, is developing a Legal Theory of Finance that makes big strides in this area.
↑ Mortgage equity withdrawal should be regulated like retirement account loans – OC Housing News
What do you think about this idea that they use in Texas? Larry Roberts:
In Texas the total loan-to-value ratio on any cash-out or HELOC can’t exceed 80% by state law; it’s actually written into the State constitution. People can borrow more to purchase a property, but then they must wait until they have more than 20% equity before they can even consider mortgage equity withdrawal. This effectively puts a lockbox on home equity.
Without access to mortgage equity, Texans had little incentive to bid up house prices; plus, since their property taxes are about double what we pay here in Calfornia, and since these taxes rise with value without a cap, Texans had a large disincentive to run up home prices. As a result, they didn’t inflate a housing bubble in Texas when the rest of the country did.
Despite the disappointing August data, the labor market is improving. First, I wouldn’t put too much weight on August’s weak numbers. Summer is traditionally a weak period for hiring and August jobs report numbers are often revised higher.
In fact, 14 of the last 18 August payroll reports have been below expectations, while 12 of the last 14 August employment releases have ultimately been revised higher. Hence, I’m eagerly awaiting the normal revisions to this number. In the meantime, with prior 3-month, 6-month, and 12-month moving average nonfarm payroll gains of 207,000, 226,000 and 207,000, respectively, the current run-rate in job creation is still on par with that of past periods of economic expansion.
Well, Rick’s certainly watching the right area.
As we mentioned previously, August’s numbers could be revised. It’s likely. They could, however, be revised downward.
September’s numbers will be most telling.
↑ Low U.S. Job Particpation Rate Is Cyclical: DeLong: Video – Bloomberg
Brad DeLong, an economics professor at the University of California at Berkeley, William Janeway, a senior adviser at Warburg Pincus & Co., and Bloomberg’s Michael McKee talk about today’s report showing U.S. employers hired fewer workers than forecast in August, the outlook for the labor market and Federal Reserve policy. They speak with Trish Regan on Bloomberg Television’s “Street Smart.”
It’s true that Janet Yellen’s dashboard is expanded in very nearly the way we had suggested (what we watch albeit in a less mathematical way but more psychological sense) before the new parameters were announced by the Fed. That said, the weight is on the main number, which number was bad for August (subject to revision up or down).
Of course, we completely agree with Brad DeLong about fiscal policy having been severely lacking ever since the crash. The stimulus that was done was way too little and not directed enough at the real economy. We can’t blame the Fed for that. It’s mainly Congress’s error with Mr. Obama coming in a close second.
↑ The Efficient Markets Hypothesis Has Been Proved Wrong But Economists Do Not Want to Listen | Fixing the Economists
Not real estate, per se, but interesting: Philip Pilkington:
Economists and business schools continue to teach the EMH, of course. It continues to give off the mystique that markets somehow get the price ‘right’. It does so by being vague to the point of meaninglessness in many cases. But when it does manage to say something concrete and make a claim that can be falsified, it fails. And when it fails its proponents simply ignore the overwhelming evidence to the contrary. This is not science. It is ideology.
↑ Federal Reserve to debate new language on interest rates – FT.com
The Fed still views the timing of a first rate rise as entirely dependent on the economy’s progress. But many Fed officials have grown concerned about a market tendency to fixate on calendar dates, often in the second half of 2015, rather than update the odds of a rate rise as the data changes.
We have always looked at it as a constantly moving target of probabilities. There is no set date yet, not even close.
↑ Spanish Home Prices Rise 0.8% on Annual Basis – Bloomberg
Two years since applying for a European Union rescue, Spain has become one of the fastest-growing euro-area economies as record unemployment subsided, exports surged and investment rebounded.
Will it last? Will Mario Draghi’s efforts be allowed to go forward?
↑ Observer-Reporter | Area’s housing market continues robust pace
The gas factor
Hackett agreed the natural gas boom in Washington and Greene counties, as well as historically low interest rates, have been responsible for the sales momentum over the past several years.
It appears the number of potential homebuyers coming from the gas industry won’t be abating anytime soon.
The Marcellus Shale Coalition, which represents oil and gas exploration companies and their supply chain partners in Pennsylvania, said in late July that its members plan to hire a total of 2,000 people this year, with the majority of them — 80 percent — filling positions in engineering, construction and equipment operations in Southwestern Pennsylvania’s portion of the shale strata.
↑ China’s housing market is on the brink of collapse. Should Australia be worried? | Business | theguardian.com
So where does the concern come from?
In the past few months there have been a number of worrying signs that the booming Chinese real estate market is about to burst.
For example, the Wall Street Journal recently reported a Chinese study that found in 2013 22.4% of houses in China’s urban areas were vacant — up from 20.6% in 2011. This suggests a fairly serious glut of houses in China. And when there is an over-supply of something, the price for that item inevitably falls.
In July, monthly residential house prices rose in only six of the 70 major Chinese cities. If we look at the growth of residential housing prices across five of the major Chinese cities, the drop off in prices is clear to see:
The decline has also occurred in commercial buildings, with the growth of sales in commercial buildings for the first seven months of this year 8.4% below what was achieved last year:
Similarly, the growth rate of investment in real estate development has dropped off. This time last year it was growing at around 19% year on year; now it is down to 13.7%.
They are called “zombie homes” and neighborhoods have good reason to fear them.
New York has an estimated 15,000 of them — homes that have been abandoned by their owners, usually with foreclosures looming but before lenders are in control of the properties.
↑ Germany’s Trade Surplus and Exports Reach All-Time Highs – Bloomberg
The Bundesbank has warned that political tensions have cast doubt over a second-half rebound by threatening global trade. International sanctions have been imposed on Russia over its support for separatists in Ukraine, and unrest has worsened in the Middle East.
↑ Japan says economy contracted 7.1 percent in April-June on bigger drop in business investment | Fox News
Japan says revised data show its economy contracted at an annual rate of 7.1 percent in April-June.
That’s a huge drop and directly the result of the mistaken sale-tax increase we warned about.
↑ America’s wealth gap ‘unsustainable,’ may worsen: Harvard study | Reuters
“Shortsighted executives may be satisfied with an American economy whose firms win in global markets without lifting U.S. living standards. But any leader with a long view understands that business has a profound stake in the prosperity of the average American,” according to the report.
↑ Jobs still biggest worry for home buyers
Diana Olick reports:
“The August National Housing Survey results lend support to our forecast that 2015 will likely not be a breakout year for housing,” said Doug Duncan, senior vice president and chief economist at Fannie Mae. “The deterioration in consumer attitudes about the current home buying environment reflects a shift away from record home purchase affordability without enough momentum in consumer personal financial sentiment to compensate for it.”
While employment has certainly improved in 2014, it has not improved enough; the August jobs report from the U.S. Department of Labor fell well below expectations. Some have written the month off as an outlier, while others are concerned it is a signal of slower improvements through the back half of the year.
“Most panelists acknowledged the difficult time millennials had during the recent recession. Their unemployment rate was much higher than the national average, and they are seeing more part-time work when employed as well as low levels of income growth,” wrote Goldman Sachs analysts in a summary of the conference.
With the parents burned, the children are afraid of fire and rightly so.
OAK HARBOR: The operator of an Ohio nuclear plant along Lake Erie said cracks first discovered three years ago have grown in the concrete building that protects the plant and its reactor.
Where are the photos of the cracks, and why in the world doesn’t the Associated Press report state how deep they are in the 2’6″ thick walls?
A public needing to make political choices on such hugely important matters needs to be informed. That’s the job of the press, isn’t it?
Perhaps this is just a preliminary report. Let’s hope so. :-)
↑ Brewer declares state of emergency in Maricopa and La Paz counties due to flooding | Arizona Capitol Times
[Photo caption:] A truck creates a wake as its driver tries to navigate a severely flooded street as heavy rains pour down Monday, Sept. 8, 2014, in Phoenix. Storms that flooded several Phoenix-area freeways and numerous local streets during the Monday morning commute set an all-time record for rainfall in Phoenix in a single day.
Arizona Gov. Jan Brewer is declaring a statewide emergency because of flooding from major storms that dropped heavy rain and she’s also telling non-essential state employees to stay home Monday.
Some 3 inches of rain fell in 7 hours. That’s more than 3-month’s worth of Phoenix monsoon rain in just a little more than 1/4 of a day.
↑ Keeping “smart homes” safe from hackers – CBS News
Before consumers start integrating smart devices into their homes en masse, they’ll need to feel confident that such technology is secure.
Like any computer that is connected to the Internet, the IoT may never be fully impervious to hackers and viruses. Scott Morrison, senior VP and distinguished engineer at CA Layer 7 Technologies, says that future and current technologists will have to design devices that are resilient on their own, rather than assuming that the home network is already secure.
↑ J&K floods: Worst flood in 60 years claims 150 lives in J&K; PM Modi calls it a ‘national disaster’, IAF intensifies relief operations | The Indian Express
The state is facing the worst floods in the last 60 years. Over 11,000 people have been rescued so far.
In Srinagar, even as Army choppers started aerial operations, they were unable to evacuate hundreds of people trapped in the flooded areas. Rescue workers said over 1,000 people, including women and children, were stranded in Rajbagh and the surrounding areas, where the level of water has reached over 30 feet. “We rescued 45 people from Kursu Rajbagh. We would have continued but the currents were so strong that it was becoming impossible to move. We had to abandon the operation,” said Inam-ul-Nabi, a Red Cross worker.
↑ Europe, End the Austerity Mania – The Globalist
“Martin Hüfner is the former chief economist of Germany’s HVB Group”:
The hypothesis that austerity is the cure all has been proven wrong empirically. The countries that didn’t follow this maxim have actually not fared worse economically. By the same token, those who did are not better off today.
↑ Calculated Risk: Phoenix Real Estate in August: Sales down 9%, Cash Sales down Sharply, Inventory up 22%
Inventory has clearly bottomed in Phoenix (A major theme for housing in 2013). And more inventory (a theme this year) – and less investor buying – suggests price increases should slow sharply in 2014.
According to Case-Shiller, Phoenix house prices bottomed in August 2011 (mostly flat for all of 2011), and then increased 23% in 2012, and another 15% in 2013. Those large increases were probably due to investor buying, low inventory and some bounce back from the steep price declines in 2007 through 2010. Now, with more inventory, price increases should flatten out in 2014.
↑ Why Aren’t More Renters Becoming Homeowners?
We see that the main reasons preventing renters from becoming owners are weak balance sheets (low savings or high debt), low income,….
↑ Nashville housing market faces tight supply
…the 64.5 days homes spent on the market on average in the past three months are the fewest since the housing bubble burst seven years ago.
One analyst expects the tight supply to create upward pressure on home prices in the near term and draw more sellers into the market in the coming months. “Because the market is so tight, homebuyers have less ability to shop around and are snapping up properties quickly,” said Alex Miron, an economist with Moody’s Analytics.
↑ ‘Only a matter of time’: Las Vegas home prices flatten out – VEGAS INC
…Las Vegas housing prices were flat last month as the market slows down from its meteoric recovery from the recession.
The median sales price of single-family homes in August was $200,000, same as July but up 9.9 percent from a year ago, according to a new report from the Greater Las Vegas Association of Realtors.
That marks a drastic contrast to the past year or so, when prices regularly were up 25 to 30 percent year-over-year, one of the fastest growth rates in the country.
↑ Housing Market Not ‘Too Big To Fail,’ But ‘Too Regulated To Succeed’
We must say that the linked article mischaracterizes the role Fannie and Freddie played in the crash. It was Wall Street banks (commercial and investment) that misrepresented the securitized packages they sold. Fannie and Freddie have been making a number of them buy those bad loans back, loans which did not meet Fannie and Freddie standards. Had the Wall Street banks not funded bad loans, loans that didn’t meet the standards, the crash would not have happened.
↑ Texas’ sizzling real estate market becomes an international sensation – CultureMap Houston [cached]
A new report shows international homebuyers [primarily Mexicans] are snatching up Texas real estate at a record pace. According to the 2014 Texas International Homebuyers Report released by the Texas Association of Realtors, international homebuyers contributed over $11 billion to the Texas economy between March 2013 and March 2014.
↑ House prices are inflated and a fall seems certain – the only question is when
Australia: Good, realistic article:
House prices are soaring, real incomes are sliding and property has become our fastest growing industry. Can anyone spot a problem?