US Housing Trouble on Horizon?

[dcarrigg]

Did it slip by anyone else that over half of all mortgages originated now (and over 75% of FHA-backed mortgages) come from unregulated non-bank lenders backed by shorterm warehousing lines of credit? This one's worth a read, even if it is a couple month's old.

Here's the abstract:

Nonbanks originated about half of all mortgages in 2016, and 75% of mortgages insured bythe FHA or VA. Both shares are much higher than those observed at any point in the 2000s. Wedescribe in this paper how nonbank mortgage companies are vulnerable to liquidity pressuresin both their loan origination and servicing activities, and we document that this sector inaggregate appears to have minimal resources to bring to bear in a stress scenario. We showhow these exact same liquidity issues unfolded during the financial crisis, leading to the failureof many nonbank companies, requests for government assistance, and harm to consumers. Theextremely high share of nonbank lenders in FHA and VA lending suggests that nonbank failurescould be quite costly to the government, but this issue has received very little attention in thehousing-reform debate.

[BK]

Re: US Housing Trouble on Horizon?

No not possible. Remember the mantra that this housing market is different because lending is tight...

Great blog post on this topic https://loganmohtashami.com/2018/03/...hat-came-left/

[thriftyandboringinohio]

Re: US Housing Trouble on Horizon?

No not possible. Remember the mantra that this housing market is different because lending is tight...

Great blog post on this topic https://loganmohtashami.com/2018/03/...hat-came-left/

Thanks BK, great find.
Seems like if we push wages down far enough there are't enough people able to buy houses.
Can't run a good economy without good wages.

[Mega]

Re: US Housing Trouble on Horizon?

Fed has rased rates (again) ...........more to come.
ECB has said its ending QE in Dec 2018, rates will start to return & go up

German bussniess leaders have been told to expect 5% rates by 2021-23 ish

Gee, do you think that might effect where all the money poured into? (Stocks/housing)...................I THINK SO!

[BK]

Re: US Housing Trouble on Horizon?

thrifty,
Mark Hanson has a take on what might be coming.... this latest is article by another guy that Mark comments on see
https://mhanson.com/6-13-18-hanson-n...s-coming-fast/

[touchring]

Re: US Housing Trouble on Horizon?

Thanks BK, great find.
Seems like if we push wages down far enough there are't enough people able to buy houses.
Can't run a good economy without good wages.

As long as there are jobs, housing markets can go up a lot more than most people think.

Ever wonder how apartments in Shanghai and Beijing can be 50 times annual wage?

Cut discretionary expenses, sell away the car, eat ramen for lunch everyday, use contrapceptives - kids are expensive, take up a 2nd job, 80% of take home pay goes into the mortgage.

[dcarrigg]

Re: US Housing Trouble on Horizon?

As long as there are jobs, housing markets can go up a lot more than most people think.

Ever wonder how apartments in Shanghai and Beijing can be 50 times annual wage?

Cut discretionary expenses, sell away the car, eat ramen for lunch everyday, use contrapceptives - kids are expensive, take up a 2nd job, 80% of take home pay goes into the mortgage.

I wonder what Chairman Mao would say about landlords charging 80% of income and asking for months and months up front.

There's an old 1990s northern California rap tune with the line, "Landlord, landlord, where you at? I'm hiding in the bushes with a baseball bat."

I bet his advice wouldn't be so different.

[touchring]

Re: US Housing Trouble on Horizon?

I wonder what Chairman Mao would say about landlords charging 80% of income and asking for months and months up front.

There's an old 1990s northern California rap tune with the line, "Landlord, landlord, where you at? I'm hiding in the bushes with a baseball bat."

I bet his advice wouldn't be so different.

In this case, the landlord is the state (or should I say the Communist Party), since all land belongs to the the state. This is the reason why I say the bubble will collapse the moment trade slows because there's simply no real spending power in China, all the cash has gone into real estate.

When the bubble collapses, the RMB will devalue and tariffs that Trump is preparing will be needed to offset the strength of the USD. US gets to collect free money to pay off Federal debt and consumers don't pay extra for imports due to the strong dollar.

To prevent job loss, China and other exporting countries will print even more money to lend out to the factories to pay for the tariffs. The dollar will soar even higher. So eventually, America's debt will be paid for by its trading partners.

As major emerging markets currency devalue, the wealthy (millionaires and billionaires) will all be rushing to buy gold, silver and dollars to hedge against "inflation" within their countries.

Is my interpretation correct?

[thriftyandboringinohio]

Re: US Housing Trouble on Horizon?

As long as there are jobs, housing markets can go up a lot more than most people think.

Ever wonder how apartments in Shanghai and Beijing can be 50 times annual wage?

Cut discretionary expenses, sell away the car, eat ramen for lunch everyday, use contrapceptives - kids are expensive, take up a 2nd job, 80% of take home pay goes into the mortgage.

All too true touchring. But I would argue such an economy is not good one - "good" meaning maximum GDP, maximum business opportunity for selling things, maximum personal consumption expenditures, and maximum median personal income. I think that handful of economic measures and a few others show a vibrant and healthy economy. The price of housing eventually crowds out many other businesses. Around the world and throughout history we see economies where a handful of ultra rich are surrounded by a sea of deeply impoverished peasants sending their pennies to the mansion on the hill. Although the baron in his castle thinks his life is very good, most other actors in the economy would not claim it's "good".

As long as some other nation somewhere has enough disposable income to buy Shanghai products it can work I guess, but in the large aggregate it seems unsustainable.
Who will buy goods and services if the vast majority of people are impoverished? I suppose the few rich people who collect the high apartment rents don't really care if the rich people selling televisions go out of business - the last tycoon still standing is happy enough.
At our current course and speed the US seems to be headed for a situation much like you describe.

[thriftyandboringinohio]

Re: US Housing Trouble on Horizon?

In this case, the landlord is the state (or should I say the Communist Party), since all land belongs to the the state. This is the reason why I say the bubble will collapse the moment trade slows because there's simply no real spending power in China, all the cash has gone into real estate.

When the bubble collapses, the RMB will devalue and tariffs that Trump is preparing will be needed to offset the strength of the USD. US gets to collect free money to pay off Federal debt and consumers don't pay extra for imports due to the strong dollar.

To prevent job loss, China and other exporting countries will print even more money to lend out to the factories to pay for the tariffs. The dollar will soar even higher. So eventually, America's debt will be paid for by its trading partners.

As major emerging markets currency devalue, the wealthy (millionaires and billionaires) will all be rushing to buy gold, silver and dollars to hedge against "inflation" within their countries.

Is my interpretation correct?

It's hard to argue with your thesis, touchring.

Around iTulip there are pages and pages of articles and discussion pointing to only two ways this show can end - a sudden stop with the related defaults, or a fierce inflation.
The inflation scenario always struck me as more likely - the rich lenders get at least part of their money back in devalued currency, and the vast number of regular people who don't think much about economics see the number getting bigger on their paycheck and the price of their house. The pain of the inflation is harder to assign and easy to ignore.

[GRG55]

Re: US Housing Trouble on Horizon?

As long as there are jobs, housing markets can go up a lot more than most people think.

Ever wonder how apartments in Shanghai and Beijing can be 50 times annual wage?

Cut discretionary expenses, sell away the car, eat ramen for lunch everyday, use contrapceptives - kids are expensive, take up a 2nd job, 80% of take home pay goes into the mortgage.

What you describe in the last paragraph may be necessary but not sufficient conditions. Freely available, cheap credit is the key ingredient you left out. Without this, the rest is noise.

And the reason the Chinese property markets (and stock markets) are so volatile is because private capital (and credit) in China is barred from being allowed to invest in large swaths of the economy reserved exclusively for the State. So all that money gets funnelled and concentrated in these two outlets. Unless, of course, it is able to be extracted from Mainland China (via Hong Kong) and finds its way to some other unfortunate destination such as Sydney or Vancouver.

[dcarrigg]

Re: US Housing Trouble on Horizon?

In this case, the landlord is the state (or should I say the Communist Party), since all land belongs to the the state.

That's a key part of the subtext of my half-tongue-in-cheek previous post!