RE: Comprehensive Overview

[don]

Housing Bubble 2.0: Here’s Why

by David Stockman • March 11, 2014

The Fed’s massive money printing campaigns flood the canyons of Wall Street with ZERO-COGS. That is, our rogue central bank enables speculators and gamblers to amass huge asset positions while paying virtually nothing for the short-term borrowings used to carry them. Its like making cars with zero-cost steel, tires, batteries, electronics and paints. (See “Yellenomics: The Folly of Free Money”)

This rigged equation is supposed to produce “wealth effects” and thereby trick the masses into spending more today on the theory that they can live off fattened IRA-stock accounts tomorrow. Alas, after three devastating bubble collapses this century—dotcom, housing, and the 2008-09 stock bust—-the unwashed aren’t taking the Fed’s bait.

So the only “wealth effect” going on is that the central banking branch of the state is deploying its vast powers to print money and levitate asset prices to help the rich get richer. After all, the top 1% own more that 40% of financial assets and the top 10% own close to four-fifths.

Were the academic zealots who run the Fed merely operating a perverse system that gifts the top strata with unearned windfalls, it would be bad enough. But ZERO-COGS actually punishes and undermines Main Street, and there is no better place to see this than in the phony housing recovery now underway—especially the mini-boom in house prices that has erupted in the very same precincts of Phoenix, Los Vegas, Sacramento, Southern California and Florida that were so badly bombed-out during the crash of 2007-2009. More...

Don et al,

Thanks for locating and posting articles from other sites on the tulip! Please remember to respect other sites' content rights and post only the introductory paragraphs then link to the article. Thanks a lot!

Fred #23

[vinoveri]

Re: Comprehensive Overview

Thanks, Don. Nothing new here; this has been going on for the past five years. He does highlight this concept of "carry" which may actually summarize the problem from a fundamental economic level - "wealth" creation via speculation and trading of financial assets, backstopped and low cost vs investing scarce real capital on productive businesses. Am glad folks like Stockman are shouting from the roof-tops, but the problem is, even when one is correct, TPTB can simply ignore the individuals as they control the bull horns.

[gvanc]

Re: Comprehensive Overview

Thank you Don for the many interesting articles you post to iTulip.com. I do recall reading other articles on iTulip about the housing rental security market. But, I found this Stockman article to be, at least for me, an informative summary of what is driving the housing market reflation in some areas of the country.

[don]

Re: Comprehensive Overview

a footnote to Stockman's summary . . .


The latest foreclosure news out of RealtyTrac is out, and provides the latest proof that if there is a housing recovery somewhere, it sure isn't in the US, where the dislocations in the supply/demand for real estate are so profound that one in five homes in the foreclosure process has been vacated by the distressed homeowner. To wit: "As of the first quarter of 2014, a total of 152,033 U.S. properties in the foreclosure process (excluding bank-owned properties) had been vacated by the distressed homeowner, representing 21 percent of all properties in the foreclosure process." This means that neither the distressed homeowner or the foreclosing lender taking responsibility for maintenance and upkeep of the home, leading to a veritable army of Vacant Dead housing units that are spreading like zombies across the nation in the most improbable housing "recovery" of all time.



Quote Daren Blomquist, vice president at RealtyTrac:

"The biggest threat from foreclosures going forward is properties that have been lingering in the foreclosure process for years, many of them vacant with neither the distressed homeowner or the foreclosing lender taking responsibility for maintenance and upkeep of the home — or at the very least facilitating a sale to a new homeowner more likely to perform needed upkeep and maintenance.

“One in every five homes in the foreclosure process nationwide have been vacated by the distressed homeowner, but it is closer to one in three foreclosures in some cities,” Blomquist added. “These properties drag down home values in the surrounding neighborhood and contribute to a climate of uncertainty and low inventory in local housing markets.”

Some other findings:

• States with the most owner-vacated foreclosures were Florida with 54,908 (36 percent of the national total, Illinois (15,512), New York (10,880), New Jersey (8,595), and Ohio (7,780).
• States with the highest foreclosure rates in February were Florida, Maryland, Nevada, New Jersey and Illinois.
• Nine of the top 10 metro foreclosure rates in February were posted by cities in Florida, along with Atlantic City, N.J., where overall foreclosure activity increased 254 percent from a year ago.
• Among the nation’s 20 most populated metro areas, the highest foreclosure rates were in Tampa, Miami, Baltimore, Riverside-San Bernardino in Southern California, and Chicago. Only four of the 20 largest metro areas posted annual increases in foreclosure activity: New York (up 77 percent), Philadelphia (up 20 percent), Washington, D.C. (up 19 percent), and Baltimore (up 14 percent).

And visually:

[ProdigyofZen]

Re: Comprehensive Overview

Two key factors stand-out. First, all cash sales have rising from a historic rate of about 10% of home purchases to 50% today—- a stunning rise that is most definitely not an indicator that Main Street households are flush with cash. But the truckloads of cash that have actually been brought in to residential neighborhoods by the new Wall Street landlords have disabled what Hanson calls the “mortgage loan governor” on residential housing prices—-a mechanism that historically kept housing prices anchored to down payments, documented incomes and cautious debt-to-income ratios.

What is interesting is that this is exactly how the Asian housing markets work. In Hong Kong, Shanghai, Beijing, Singapore etc the Chinese always buy in cash and rarely in debt. This is most likely how their housing markets can continue to increase at a rapid pace without a downturn.

Funny how Stockman uses terms like the "bubble cycle" that EJ used 9 or more years ago.

[don]

Re: Comprehensive Overview

According to RealtyTrac, the average duration of the foreclosure process for zombie foreclosures is an average of a record 1,031 days. Or just shy of 3 years.
Which means that all one has to do to live in a house which is in ownership limbo for over 1000 days, is to stop paying, pretend to vacate, then quietly sneak back and squat there until such time as the bank finally reclaims it. Which for those living in Arkansas, Hawaii, Florida, Nevada and New York is after 1128, 1112, 1095, 1055, and 1037 days, respectively.
As for such trivial things as one's credit rating - don't worry. Remember: Wells Fargo, desperate to push its mortgage origination business, is now rerunning the last housing bubble and will lend anything to anyone with a pulse, completely oblivious if one's FICO score is triple, double or single digits. It's just one of countless others desperate to find anyone to lend to in the New Normal.
Here is the breakdown of how long in the foreclosure process zombie properties remain in select states.

[Slimprofits]

Re: Comprehensive Overview

Hi Don, I think there is one piece of dishonest spin in the linked to ZeroHedge blog post about Wells Fargo and expansion of subprime lending.

anyone with a pulse

Brilliant - an 8.9% interest rate for a person who can barely make ends meet: what can possibly go wrong.

The borrower in question, an example from the Reuters article that their blog post is based on, managed a $30k down payment on a $200k mortgage and is an 'automotive dealer.' That's a disconnect. On the other hand we have this: http://www.desmoinesregister.com/art...st-10-000-mark

The new layoffs mean Wells Fargo, the world's largest bank by market value, has now laid off more 10,000 of its own since July 1.

"Mortgage application volume declined significantly in the last six months of 2013, and we currently expect mortgage origination volume to decline in the first quarter, reflecting seasonality in the purchase market and lower refi volumes," Kaipust said in a statement.

[Slimprofits]

Re: Comprehensive Overview

http://www.bloomberg.com/news/2014-0...mortgages.html

Private-equity firms, hedge funds, real estate investment trusts and other institutional investors have spent more than $20 billion to buy as many as 200,000 rental homes in the last two years.

[Forrest]

Re: Comprehensive Overview

Could this simply be termed a real estate pump and dump cycle...after all, the banks eventually kick out the people they have tricked into paying high prices for each house, then run another easy money cycle, and begin again?

[Thailandnotes]

Re: Comprehensive Overview

Bernal Heights: A Gold-Rush Eviction Tale

http://nymag.com/news/features/san-f...ctions-2014-3/

[don]

Re: Comprehensive Overview

Bernal Heights: A Gold-Rush Eviction Tale

http://nymag.com/news/features/san-f...ctions-2014-3/

Bernal Heights, the Mission - these were the affordable places working people could live in SF in the old daze.

(the dot-com boom had a similar, though it appears a bit smaller in magnitude, gentrification affect on the City. They went away. These guys will too someday. In the end, SF is just not they're kind of town . . . .)

[don]

Re: Comprehensive Overview

The Wall Street Home Buying Binge Is Over….Already!

by David Stockman • March 14, 2014

It seems like only yesterday I was lamenting the arrival of housing bubble 2.0 and the Fed’s nefarious policy of distributing ZERO-COGS (i.e. nearly zero short-term borrowing costs) to Wall Street speculators— which had then swooped into busted housing markets from Phoenix to Florida looking for the next big carry trade. This stampede of $5,000 suits riding John Deere lawnmowers into the likes of Scottsdale AZ had commenced less than 24 months ago, but already it had levitated prices by 25-50 percent in some of these markets.

It had also given rise to rivers of ink in the financial press about a “new asset class” called “buy-to-rent” single family homes. Right on time, it had already resuscitated Wall Street’s meth labs of financial innovation, which were busy “slicing and dicing” single-family rental streams into this year’s favorite flavor of toxic waste.

I also ventured the guess that these new Harvard Business School ”landlords” would turn tail and run the minute prices stopped bounding upward because it was all a speculative frenzy, not an investment program, in the first place. They self-evidently had no core competence in managing 200,000 single family homes scattered all over America’s sand belt suburbia. In a post called “Housing Bubble 2.0 ” I further suggested:

“The idea that Colony Capital of Los Angeles or Blackstone of Park Avenue posses magical economies of scale in the nationwide single family rental market is just plain bonkers…..(this time) instead of millions of Main Street speculators who believed up to the very end that housing prices would rise to the sky, we now have a few thousand institutional speculators who will head out of town on their John Deere’s as fast as they came….”

Actually, that was all said, well, yesterday! Today a Bloomberg headline updated the story:

”Home Buying Binge Ends as Prices Surge”

Bloomberg reported that:

Blackstone Group LP (BX) is slowing its purchases of houses to rent amid soaring prices after a buying binge made it the biggest U.S. single-family home landlord. Blackstone’s acquisition pace has declined 70 percent from its peak last year, when the private equity firm was spending more than $100 million a week on properties”’(and) investing $8 billion since April 2012 to buy 43,000 homes in 14 cities…..”

As for the new “asset class” that only a few months ago was being touted as a sure bet for $1 trillion status, the #1 real estate honcho in all of Wall Street and long time head of Blackstone’s hit-and-run real estate campaigns, Jonathan Gray, told Bloomberg quite succinctly:

“The institutional wave has passed…..It’s at a much lower level than it was 12 or 24 months ago.”

Well, that’s bubble finance at work. Home prices in hundreds of Sunbelt cities had been painfully brought down to earth during 2008-20011. Affordability based on sound mortgage underwriting and honest household income was being slowly restored. Yet right then and there the lunatic QE policies of the Bernanke-Yellen claque catalyzed Wall Street’s short-lived housing stampede. In the process, honest wage-earners got squeezed out of the market and the get-rich-quick contagion was once again unleashed in America’s suburban expanse.

So the questions recurs: Does our arrogant monetary politburo have the slightest idea what it is doing? Sadly, the Bloomberg headline makes the answer abundantly clear.

The Eccles Building is clueless!

Photographer: Jacob Kepler/Bloomberg

Photographer: Victor J. Blue/Bloomberg

Blackstone Group LP Global head of real estate Jonathan Gray