Earlier today President Obama and Politburo Chief Putin had a 1 hour conversation. According to CNN it went something like this
California Middle Class Is Priced Out. What’s Next For California Real Estate?
Do not worry my dear friends. The upcoming “severe” bear market in real estate will fix this issue. To read my full report on this matter and to see the “why, how and when” please Click Here
While upscale places like Irvine and Pasadena approaching their 2006-07 highs, the middle class neighborhoods are still down to the tune of 30-40% with higher % of Californians not being able to afford a home.. Plus, over 30 percent of California buyers are cash investors (hedge funds, institutions, etc…). BTW, that number is as high as 75-80% in Las Vegas.
All of this is just another symptom of the enormity of the credit bubble juiced by the FED. While this might be the case now, the upcoming bear market in real estate will resolve this problem sooner rather than later.
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California Middle Class Is Priced Out. What’s Next For California Real Estate? Google
From our friends at DoctorHousingBubble.com
California is a land of booms and busts. Generations ago gold rush fever brought many to speculate and gamble for future glory. In the 1900s the promise of uninterrupted sun and great weather lured families to the area. This trend has only magnified with global forces becoming so dominant and people fully connecting and thinking alike on the technological hive mind. In other words, people are seeking the same goals and dreams. People also love speculating on real estate. Language is hardly a barrier when documents can be translated in the click of a mouse button. California housing is leaving many middle class families behind as the state gentrifies dramatically. Reports are very clear, and that is only one out of three California families can actually afford to purchase a home at today’s prices. Yet the market is attracting investors from all across the country and world. People are willing to leverage their income with low interest rates and funnel upwards of 50 percent (or more) of their household income into real estate. What is interesting is that in many “prime” areas housing prices are inching back close to their former peaks. Yet working class areas, only a few miles away from these markets are still years away from reaching their former peaks. California is a magnifying glass to the slow erosion of the American middle class.
Prime areas reaching peaks while other areas crawl out of recession trough
As mentioned in a previous article, housing is an odd industry where prices are set at the margins. In the US, we have 81 million single family homes. From the latest figures we have something like 2.2 to 2.5 million homes available for sale (existing and new homes). What this means is that at any given point we have roughly 3 percent of all existing inventory on the market for sale. This is nationwide. In some prime markets, you have even lower percentages and this drives up prices especially if speculation is running wild.
Zillow has some great reports on markets across the US. Let us look at a few Southern California cities in terms of the latest housing figures:
Source: Zillow
This chart is very telling. First, you’ll notice that places like Irvine and Pasadena are only 4 percentage points away from reaching their previous peaks hit in 2006-07. These markets pull from local investors, global investors, flippers, Wall Street, and of course professional families. But take a look at areas like Compton (still off by 38 percent from the peak), Inglewood (off by 32 percent), Santa Ana (off by 36 percent), and Santa Clarita (off by 26 percent). Santa Ana is only a few minutes away from Irvine but this is like comparing two different worlds. Of course the majority of people by definition live somewhere in the middle and that is why looking at household incomes is important. Yet these are unlikely to be the current buyers. Over 30 percent of California buyers for close to half a decade are coming from big money investors. Many are stretching out with FHA insured loans but this is likely to be in more working and middle class neighborhoods. Talking with colleagues in the industry they mention that FHA in prime areas is virtually a no-go for buying with sellers.
People might look at a home value of $749,200 in a place like Irvine and scratch their heads. But with ARMs, interest only loans, and dual income families people are willing to stretch to buy. Investors of course are willing to go deep into the game.
Yet we may be seeing a slowdown here, even in prime areas. For example, in Irvine inventory hit a low of 400 late in the fall and is now at 620 (up 55 percent). You’ll also notice that month-over-month prices dipped which is telling but then again, your typical California family is not going to swing a $750,000 home. Which is really the big divide happening across the US, a gutting of the middle class.
Homeownership not available to everyone
I made the argument close to a decade ago that homeownership was not always the best option. For most parts of the US, owning may be a good option (when the median home price is $190,000) but in high cost areas the math isn’t so simple. Renting may make a lot more sense for those starting a career and looking for mobility for work. Yet young Americans are facing a very tough economic climate. Beyond the economics, the homeownership rate has fallen dramatically in California:
Even before the bust, the homeownership rate was already trending back to where it was in the late 1980s. Not much has changed since. In fact, with high levels of investors buying properties and lower sales figures, this trend is likely to continue.
For many families, the quick run-up in prices in 2013 has completely shut them out. We are now seeing investors slowing down given that good deals are harder to find. Some are venturing into lower priced areas but you also deal with lower incomes. This may matter if you are looking at hiking rents or trying to flip to an actual potential long-term homeowner.
Housing starts and future trends
Even if housing were to erase the gains of 2013, California has essentially shut out a good number of middle class families from owning. The market has hit a turning point recently:
You’ll see that across the state, year-over-year prices went up 22.1 percent but fell 6.2 percent over one month. Inventory is up 22 percent from last year and time on the market is up 20 percent as well. More to the point, sales volume has fallen by 13 percent even in the face of rising prices. At current price levels in more selective markets, you really have to be upper middle class to wealthy to own a home. In fact, you will likely need to be in the top 15 to 10 percent of household income (meaning a household income of $150,000 a year is the minimum to play the game without leveraging your entire future on real estate).
California is largely leaving a good portion of the middle class out of the homeownership race. This trend looks to be the case for years to come.
As The US Continues To Piss On Russia, How Long Before Ukraine Reignites?
If you have been reading this blog, you know that I have correctly predicted both the Russian invasion of the Ukraine as well as the subsequent calm on Tuesday. Before it had happened. I ended my analysis with one statement. For as long as the US Administration and the EU Bureaucrats stop pressuring or going after Russia and/or Putin, things will die down.
Not to be outdone by anyone, today Hillary Clinton decided to throw her panties in the ring by comparing Putin to, what else, Hitler of course.
Trust me when I tell you this. Nothing will infuriate Putin more than when a high ranking ex member of Obama Administration and a presidential hopeful calls him a Hitler. If this sort of behavior from the US continues Putin will have no choice but to demonstrate his “manhood”, “power” and “the size of his co@$” by invading Ukraine or worse. I am not sure why this is so hard for everyone to understand.
Then again, maybe that is exactly what our military industrial complex wants.
Speaking at a fundraiser in California, Clinton drew a parallel between Adolf Hitler’s rhetoric that ethnic Germans living in neighbouring countries he later invaded were oppressed, and Vladimir Putin’s claim that ethnic Russians in Ukraine are under threat by nationalists and radicals.
The former US secretary of State, who is widely expected to run for US president in 2016, particularly criticised Moscow over the issuing of passports to ethnic Russians living in Ukraine’s Crimean peninsula.
“Now if this sounds familiar, it’s what Hitler did back in the 30s,” Clinton said, the Long Beach Press-Telegram reported.
“All the Germans that were … the ethnic Germans, the Germans by ancestry who were in places like Czechoslovakia and Romania and other places, Hitler kept saying they’re not being treated right. I must go and protect my people and that’s what’s gotten everybody so nervous.”
Clinton, 66, made the comment at a $1,500-a-head fundraiser for the Boys and Girls Club of Long Beach.
She also said that Putin believes “his mission is to restore Russian greatness.”
“When he looks at Ukraine, he sees a place that he believes is by its very nature part of Mother Russia,” Clinton said.
Harry Saltzgaver, who attended the event, told Buzzfeed that Clinton added there was “no indication that Putin is as irrational as the instigator of World War II.”
Earlier this week, Vladimir Putin was accused of acting like Hitler in 1930s also by the former foreign minister of the Czech Republic, Karel Schwarzenberg.
“Since he wanted to invade Crimea, he needed a pretext and said that his compatriots were oppressed,” said Schwarzenberg.”When Hitler wanted to annex Austria, he said that Germans there were oppressed.”
Putin has claimed it would be legitimate for Russia to use force to protect its interests in eastern Ukraine and Crimea.
“We have received a request from a legitimate president,” Putin told a press conference. “Also we have historical and cultural ties with those people. And this is a humanitarian mission. It’s not our goal to conquer somebody.”
He said deploying the military would be the last resort but and denied that troops without insignia who took over strategic locations in Crimea are Russian.
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As The US Continues To Piss On Russia, How Long Before Ukraine Reignites? Google
China: Get Rich Or Die Trying
China’s goal is to grow at any cost. Forget the consequences and an eventual collapse to it’s political and economic system. That is exactly what China’s leadership is doing by pushing for 7.5% annual growth through credit. Now, lets refresh our memory. China has….
- $21 Trillion Debt Mountain. Roughly the same size as the entire US Banking Sector. It took the US 220 years to get to that number, it took China just 5 years of explosive credit growth.
- $6 Trillion In Shadow Banking. Actually, no one knows how large this number is. I have read good data/reports putting this number at $10-15 Trillion range.
- Empty cities, shopping centers, massive speculative bubble in real estate, built out infrastructure, rising cost of labor and export driven economy.
Maybe I am stupid, but tell me again how this is going to end well for China? When the US financial market starts its bear market and when the US Economy enters into a severe recession, there will be hell to pay in China. When will that happen? Luckily for you, we know to the day. Please Click Here to learn more.
China’s leaders spurred speculation they will allow the country’s $21 trillion debt mountain to inflate after refraining from cutting their annual economic-growth target.
Analysts at Australia & New Zealand Banking Group Ltd. and Nomura Holdings Inc. said authorities will need to loosen monetary policy, after Premier Li Keqiang yesterday announced a goal of 7.5 percent growth, the same target as last year. Li said China will seek an “appropriate” increase in credit.
Any easing would contrast with leaders’ efforts to rein in a $6 trillion shadow-banking industry and control the build-up of local-government debt that followed stimulus measures unleashed in 2008. Li is seeking to support growth amid three money-market rate surges in eight months and the threat of defaults of high-yield investment products and corporate bonds.
“I had hoped that they would pay more attention to curbing the risks but instead they focused on growth,” said Dariusz Kowalczyk, Hong Kong-based economist and strategist at Credit AgricoleSA. “They will just have to pay the price of higher leverage and once they start to deal with this in earnest, the costs of solving the issue will be bigger.”
The benchmark Shanghai Composite Index (SHCOMP) fell 0.9 percent yesterday, the most in a week, amid concern that the country may face its first onshore corporate bond default. Shanghai Chaori Solar Energy Science & Technology Co. said it may not be able to make an 89.8 millionyuan ($14.7 million) interest payment in full by the March 7 deadline.
Trust Bailout
The warning came little more than a month after the nation averted its first trust default in at least a decade as investors in a 3 billion-yuan high-yield product issued by China Credit Trust Co. were bailed out days before it matured.
Shadow banking was rated as the biggest challenge for the Chinese economy by more analysts than any other concern in a Bloomberg News survey of 29 economists ahead of the National People’s Congress meeting. The risk of vested interests blocking efforts to increase the role of markets in the economy was the next most-cited issue.
Economists also saw dangers from the property market; the increased funding required to generate each unit of gross domestic product; local government debt; and the threat that liberalizing interest rates will trigger financial turbulence.
The combined debt of Chinese households, corporates, financial institutions and the government rose to 226 percent of GDP last year, up from 160 percent in 2007, Credit Agricole estimated in a report last month. GDP reached $9.4 trillion in 2013.
Creating Money
“Given increasing credit risks, many would have expected Mr. Li to talk about financial deleveraging of some sort,” Kevin Lai, economist at Daiwa Capital Markets in Hong Kong, wrote in a note. “There is still a desire to ensure enough money is created to satisfy the refinancing pressure from many borrowers.”
The economy expanded 7.7 percent in 2013, the same pace as in 2012. Previous data this year have shown a slowdown in manufacturing, while trade and credit expansion exceeded estimates.
This year’s growth target is “flexible and guiding,” the National Development and Reform Commission said in a related report yesterday.
Li, who reiterated that China will pursue a “prudent” monetary policy, announced a target of 13 percent growth in M2, the government’s broadest measure of money supply. That was the same target as last year, when M2 expanded 13.6 percent. The budget deficit as a percentage of GDP will be about the same as last year, Li said at the annual meeting of the legislature in Beijing.
Leverage Pace
“If they are pursuing a trajectory to slow down the pace of leverage they should target a slower M2 growth,” said Wang Tao, chief China economist at UBS AG in Hong Kong, who previously worked at the International Monetary Fund. “Without doing that it’s not clear.”
People’s Bank of China Governor Zhou Xiaochuan may elaborate on monetary policy during a press briefing that normally is held during the legislature’s meeting, which ends March 13.
China hasn’t adjusted benchmark interest rates since July 2012 and is in the process of removing controls on borrowing costs and savings rates.
Currency Bets
The yuan slumped about 1.4 percent in February amid speculation the PBOC wants an end to the currency’s steady appreciation before a possible widening of the trading band. The yuan climbed 0.24 percent yesterday, the most since 2012, on anticipation the central bank has reached its goal of discouraging one-way bets on the currency after spurring last month’s record decline.
Zhou said recent foreign-exchange rate moves are “normal,” the official Xinhua News Agency reported on its microblog on March 4.
Not everyone saw a conflict between the growth target and China’s vow to introduce more market-driven change. Stable economic and labor-market conditions are “conducive for actually implementing the top-down reforms,” Qu Hongbin, chief China economist with HSBC Holdings Plc in Hong Kong, wrote in a note yesterday. “Reform and growth should support each other.”
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Obama’s Budget BS
Obama’s new budget proposal is so laughable it has more holes than a block of Swiss Cheese. Let’s take a look at just a few things to see how ridiculous it is.
The U.S. economic recovery that began in 2009 will continue to gain momentum over the next few years.
Oh yeah, based on what? If anyone in the Government had bothered to study economic cycles they would soon conclude that they can’t forecast prosperity into perpetuity. Particularly, today’s recovery that has been driven entirely by credit and speculation. As our forecast clearly indicates (Click Here) the US Economy and financial markets are about to go through a major bear market/recession. Good luck with that momentum.
The unemployment rate, which was 6.6 per cent in January, will continue to slowly decline over the next five years, stabilizing at 5.4 percent by 2018
Why not just say 1.2% by 2075. Again, the upcoming recession and bear market (2014-17) will drive unemployment much higher. Would you want to read something scary? Here, 4 Reasons US Unemployment Rate Will Be At 20% By 2017.
U.S. housing market has shown clear signs of recovery.
I would hope housing would show some signs of recovery after the FED pumped over a $1 Trillion into the economy over the last 3 years alone. Yet, this recovery is nothing but a dead cat bounce. Would you like to know what the real future of real estate is? Click Here to read our comprehensive real estate report.
In a nutshell, this report is not worth the paper it is printed on.
P.S. I have no political affiliation either way. In fact, I believe we will be much better off without government at all.
WASHINGTON (AP) — President Barack Obama’s $3.9 trillion budget proposal for next year suggests the U.S. economic recovery that began in 2009 will continue to gain momentum over the next few years but that the unemployment rate won’t fall to pre-recession levels of below 6 percent until 2017.
The White House forecast that the budget deficit would fall from $649 billion in the fiscal year that ends Sept. 30 to $564 billion in fiscal 2015 and $458 billion in 2017. If the projections hold up, it would mark three years in a row of annual red ink below
$1 trillion.
The unemployment rate, which was 6.6 per cent in January, will continue to slowly decline over the next five years, stabilizing at 5.4 percent by 2018, the administration projected. That’s down from a high of 10 percent reached during the 2008-2009 recession.
The economic forecasts, included in the president’s budget proposal for the fiscal year that begins Oct. 1, are generally in line with projections made by other government and private forecasters.
However, the White House projects a 6.7 percent unemployment rate for 2015. While that’s the same level as in the Blue Chip Consensus — an average of about 50 private-sector forecasts— it is more optimistic than the Congressional Budget Office, which projects 2015 unemployment at 7.1 percent.
The administration forecast is based on assumed congressional approval of all of Obama’s budget tax and spending proposals, an unlikely prospect.
The most recent unemployment rate available is January’s 6.6 percent. That’s getting close to the 6.5 percent threshold the Federal Reserve suggested might be the point at which it would back away from its policy of keeping short-term interest rates at near zero.
The budget document said that the U.S. housing market has shown “clear signs of recovery, after its collapse in 2007 and 2008, which was a major cause of the financial crisis and recession.”
The administration projects that, as a share of the nation’s total economic output, the deficit next year would be 3.1 percent of the nation’s gross domestic product. That’s down from the 2009 peak of 10.1 percent.
Still, spending is expected to rise again in the next decade as the population ages and draws on retirement and health care benefits without new sources of revenue.
The White House projected that interest on a 10-year Treasury bill would rise from 3.0 percent now to 4.3 percent in 2017 and reach 5.0 percent by 2021.
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Is It Time To Short Facebook?
Facebook has been on fire lately with its stock price appreciating 200% over the last 9 months. Of course, Facebook is not alone. Tesla, Google and many other highly speculative issues are up big time since this credit driven stock market rally made a push for its blow off top a year ago.
With that said, Facebook is going out on a limb of stupidity with it’s ridiculously overpriced purchase of WhatsApp two weeks ago and now an apparent purchase of drone maker Titan Aerospace for $60 million. Something tells me that Titan doesn’t have any revenue either, but that’s beside the point.
The issue here is as follows. Mark Zuckerberg doesn’t know what to do with all of his cash. It’s burning a hole in his pocket and he is making idiotic decisions reminiscent of the tech bubble. While Facebook’s stock is still technically strong, there is no doubt that these stupid capital allocations will catch up to Facebook sooner rather than later.Once the market begins to breakdown as per my FORECAST I would anticipate Facebook to come down significantly.
Making Facebook a great short opportunity. (Not yet, wait for a technical breakdown)
Facebook will buy drone maker Titan Aerospace for about $60 million, a source familiar with the situation told CNBC on Tuesday.
The solar-powered drones can reportedly be airborne for up to five years without having to land.
The deal is part of Facebook’s ambition to provide Internet access worldwide. News of a possible deal was first reported by TechCrunch.
Last summer, Mark Zuckerberg announced a project called Internet.org—a partnership with a number of other tech giants that aims to make Internet available to everyone in the world. The solar-powered drones could help Facebook provide Internet to areas around the world without it, starting with Africa.
Titan Aerospace is privately held, and is based in New Mexico. The news comes after the social network acquired messaging app WhatsApp for $19 billion last month.
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When Buffett Speaks Peasants Listen
Over the last few days Warren Buffett released his annual letter to shareholders as well as did a few interviews. Here are some of the highlights.
- Ukraine doesn’t matter – I agree.
- The stock market is NOT being manipulated – I agree.
- The US Economy is OK, but it will be fine. – Disagree. As per my mathematical & timing work, we will have a severe bear market and a recession over the next 3 years.
- Railroads will do very well in the future – hmm, OK, check out some railroad stocks everyone.
- Bitcoin is a speculative BS – I agree
Whether or not you agree with Buffett or his policies, it always good to read or listen to one of the brightest minds on the face of this Earth. You can check his latest letter to shareholders here Berkshire Letters
Two days after publishing his annual letter to shareholders, Warren Buffett is on CNBC speaking with Becky Quick.
Equity fund managers Todd Combs and Ted Weschler will also be on later in an extremely rare appearance.
On Ukraine
Off the bat, Quick asked for his take on the tension in Ukraine.
Rather than addressing the turmoil directly, Buffett said that he does not consider these types of skirmishes when he invests in companies.
“I never really buy businesses based on macro factors,” he said.
He noted that he invested in his first business in the wake of the attack on Pearl Harbor.
On The Stock Market
Regarding the market itself, Quick asked if the mom-and-pop investor really could get a fair shot as some argue that the market is actually rigged.
Buffett was skeptical that the $20-plus-trillion stock market could actually be rigged.
“People should stop calling it the stock market,” he said. “It’s American business.”
On The U.S. Economy
“Exactly what’s been going on since the fall of 2009 continues,” he said, reminding us that he gets live updates from the 80+ companies he invests in. “Moderate but consistent growth for four and a half years. Every now and then we get excited about a speeding up and every now and again we worry about a double dip.
“In terms of what we see, it’s been almost a straight line, but not at the kind of slope that people would like. But not flat either.”
“We haven’t gotten wildly optimistic and we haven’t gotten wildly pessimistic,” he added, emphasizing that things have been pretty steady.
On Weather
“It’s certainly a factor,” he said. “Our railroads don’t work as well … and those things compound.”
“The biggest risk … to us would be earthquakes in New Zealand,” said Buffett recognizing that the hurricane insurance business has been very good to Berkshire.
On Selling Coca-Cola, Wells Fargo, And American Express:
“None of the stocks are forever but they’re for very long terms,” said Buffett to a question of when he planned on selling these stocks.
On IBM
A reader asked if Buffett felt he made a mistake with this stock.
“The financial performance has been pretty good but it’s been helped with low tax rates,” Buffett said, adding that there was a lot going on in the business due to cloud tech. “It’s fair to say I know less about the future of IBM than I do about Wells Fargo or Coca-Cola. … In terms of the price action, that means little to me. The fewer the shares outstanding the better I like it. … I would like to see the revenues pick up.
“We bought a few more shares last year, but not many. We bought a few shares this year.”
On Railroads
Buffett’s still bullish on the industry
“The future of railroads is very good,” he said.
On The Keystone Pipeline
It’s a “very good idea for the country.”
“I’d vote yes,” he said later.
On Being Considered “Too Big To Fail”
Buffett says Berkshire has heard nothing from regulators about the derivatives on his book making his company TBTF. “We never have any significant short-term debt, we always have bundles of cash. … We’re large, but Exxon Mobile is large. … It’s very unlikely we’d be categorized like that.”
On Washington
“It’s more or less a stalemate,” said Buffett, who also said he can’t imagine things getting worse.
On Raising The Minimum Wage
“It really cuts both ways, you’d like to have people getting paid more but you also want more people employed. I could argue both sides. … What you really should do is increase the earned income tax credit. … I think you can accomplish way more through the earned income tax credit. … There’s trade offs on the minimum wage and you can do all these studies but they don’t know.”
The Greatest Thing Obama Can Do To Create Jobs
“Further fiscal stimulus would increase job growth,” said Buffett, “but you pay a price for that.”
Buffett also disagrees with the view that the Fed’s low-interest policy is exacerbating the issue.
Who’s doing a better job cleaning up their mess? — Obama or BofA CEO Brian Moynihan
“Brian Moynihan didn’t have to convince the United States Congress,” said Buffett.
On Ukraine as WWIII or the next Cold War
“The last thing you’d want to do is hold money during a war. … During WWII the stock market advanced. … You’re gonna be a lot better off holding productive assets over the next 50 years over stocks or bitcoin.”
On Bitcoin
“It’s not a currency,” he said. “I wouldn’t be surprised if it wasn’t around in the next 10-20 years.”
“It’s being priced off the dollar,” Buffett added. “It is not a durable means of exchange.”
On Todd Combs And Ted Weschler
“Todd and ted look at investments very much like I do,” he said, noting that they think about businesses rather than stocks.
“It’s a combination of soundness and brilliance,” he added saying that they think about the things that haven’t happened yet.
“They’ve made Berkshire billions already.”
Todd Combs, Ted Weschler and Tracy Britt Speak
“Ninety percent of things you can dismiss within five minutes,” said Todd Combs, who said he spends much of his time reading company filings.
“Know the situation; wait for the right price,” said Weschler on his investment process. “Be ready.”
On activist investing:
“The way some people use the word ‘shareholder value’ kind of puzzles me,” said Buffett, at Berkshire he wants to build sustainable earning power over time. He said this in reference to Carl Icahn’s push for Apple to buy back stock. He said that Apple’s refusal to go all the way with Icahn’s proposal was likely a sign that it was looking to do the same thing.
On an economic slowdown:
“My impression is that the American economy over the last five years has been moving at a steady rate, upwards.”
Buffett said that some sectors may not be doing as well, and the economy isn’t growing as fast as people would like.
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Mortgage Origination Collapses, Cash Is King. What’s Next?
I know, I know. You are just as shocked to the core as I am. Here is a quick summary:
- Loan originations declined to the lowest point since November 2008
- Property sales remained relatively strong, supported by increased cash purchases…..
- Approximately 709,000 HARP-eligible loans vs. 2,306,000 in Jan. 2013
- 2013 home equity lending up 26 percent vs. 2012, but still down over 90 percent from 2006
- HELOC performance in recent vintages is pristine, but new problem loan rates continue to rise for those beginning to amortize
So, loan origination is the lowest since 2008 and down 60% year-over-year, but investors are still buying hand over fist. Well, that’s dandy. If Blackstone Group is financing dentists and plumbers so they can find them investment properties it mean the real estate market is going through the roof. Right? Duh…Read my full report on collapsing Real Estate Here.
Black Knight’s January Mortgage Data Shows Further Declines in Loan Originations and Fewer Refinance Prospects
But First Increase in Home Equity Lending Since 2006
March 04, 2014
- Loan originations declined to the lowest point since November 2008
- Property sales remained relatively strong, supported by increased cash purchases
- Approximately 709,000 HARP-eligible loans vs. 2,306,000 in Jan. 2013
- 2013 home equity lending up 26 percent vs. 2012, but still down over 90 percent from 2006
- HELOC performance in recent vintages is pristine, but new problem loan rates continue to rise for those beginning to amortize
JACKSONVILLE, Fla. — March 4, 2014 — Today, the Data and Analytics division of Black Knight Financial Services released its latest Mortgage Monitor Report, looking at data as of the end of January 2014. Black Knight observed a general decline in the overall “refinancible” population of both traditional and HARP-eligible borrowers with associated loan origination volumes dropping in both categories as well.
“In January, we saw origination volume continue to decline to its lowest point since 2008, with prepayment speeds pointing to further drops in refinance-related originations,” said Herb Blecher, senior vice president of Black Knight Financial Services’ Data & Analytics division. “Overall originations were down almost 60 percent year-over-year, with HARP volumes (according to the most recent FHFA report) down 70 percent over the same period. These declines are largely tied to the increased mortgage interest rate environment, which is having a significant impact on the number of borrowers with incentive to refinance. A high-level view of this refinancible population shows a decline of about 13 percent just over the last two months.
“Of course, in addition to higher interest rates, a good deal of this decline can be attributed to the fact that a majority of those who could refinance at historically low rates in recent years already have, and we see a similar dynamic in terms of HARP-eligible loans. The volume of HARP refinances over the past year has driven this population down to about 700,000 loans in January 2014, as compared to over 2.3 million at the same time last year. From a geographic perspective, outside of Florida and Nevada, we see the Midwestern states of Illinois, Michigan, Missouri and Ohio have among the highest percentage of HARP eligibility.”
However, while loan origination volume has declined year-over-year, property sales activity remained relatively strong through year-end 2013, with December’s monthly sales up 3.7 percent year-over-year and full year 2013 up 8.4 percent vs. 2012. Fourth-quarter sales were bolstered by a jump in the percentage of cash sales, to over 40 percent of the total, up from about 25 percent in the prior year.
The most recent data also marked 2013 as the first year in which home equity lending had increased since 2006 — though total home equity volumes (including both loans and lines of credit) were still down more than 90 percent from that time. Black Knight found that the current resurgence in home equity origination is concentrated in so-called “super-prime” borrowers, with average credit scores for first- and second-lien HELOCs at 786 and 779, respectively. This concentration has paid off in terms of loan performance: delinquency rates on HELOCs originated over the past four years have averaged at just 0.1 percent. At the same time, HELOCs originated prior to 2004 (and therefore in the amortizing stage of the loan) are seeing increased rates of new problem loans — up 27 percent year-over-year as of January.
As was reported in Black Knight’s most recent First Look release, other key results include:
| Total U.S. loan delinquency rate: | 6.27% |
| Month-over-month change in delinquency rate: | -2.96% |
| Total U.S. foreclosure pre-sale inventory rate: | 2.35%
|
| Month-over-month change in foreclosure pre-sale inventory rate: | -5.32% |
| States with highest percentage of non-current* loans: | MS, NJ, FL, NY, LA |
| States with the lowest percentage of non-current* loans: | MT, CO, AK, SD, ND |
*Non-current totals combine foreclosures and delinquencies as a percent of active loans in that state.
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Mortgage Origination Collapses, Cash Is King. What’s Next? Google
Future Weapons Of War. US Treasury Bonds
What would be the first thing to happen if China and the US ever go to war?
Today, one of Putin’s advisers Sergei Glazyev gave us an indication. China would immediately dump $1.3 Trillion in the US Treasury at market. Many other nations would follow immediately (sell first, ask questions later) making the US insolvent and bankrupt overnight. Surging interest rates, collapsing equity markets and devastated economy would be the immediate result. Surely, the FED would try to backstop any such action but they will be powerless given the volume.
In fact, this action would probably cause more economic damage than any nuclear weapon could.
It is unfortunate that the US finds itself in such a situation, but that is the price we have to pay for today’s “fake prosperity” through monetary policy, credit infusion and speculation. Even though Sergei Glazyev is being silenced for the time being, today, he gave us a clear indication of how future wars will be fought by suggesting that Russia should dump all of its Treasure holding if the US is to impose sanctions.
MOSCOW, March 4 (RIA Novosti) – An adviser to Russian President Vladimir Putin said Tuesday that authorities would issue general advice to dump US government bonds in the event of Russian companies and individuals being targeted by sanctions over events in Ukraine.
Sergei Glazyev said the United States would be the first to suffer in the event of any sanctions regime.
“The Americans are threatening Russia with sanctions and pulling the EU into a trade and economic war with Russia,” Glazyev said. “Most of the sanctions against Russia will bring harm to the United States itself, because as far as trade relations with the United States go, we don’t depend on them in any way.”
Glazyev noted that Russia is a creditor to the United States.
“We hold a decent amount of treasury bonds – more than $200 billion – and if the United States dares to freeze accounts of Russian businesses and citizens, we can no longer view America as a reliable partner,” he said. “We will encourage everybody to dump US Treasury bonds, get rid of dollars as an unreliable currency and leave the US market.”
According to US Treasury data from the end of 2013, Russian investments in US government bonds total around $139 billion out of a total of $5.8 trillion of US debt held in foreign hands.
US Secretary of State John Kerry on Saturday warned that Russian military interventions in Ukraine, which have been justified by the Kremlin as protection for residents in heavily ethnic Russian-populated regions, could result in “serious repercussions” for Moscow.
“Unless immediate and concrete steps are taken by Russia to deescalate tensions, the effect on US-Russian relations and on Russia’s international standing will be profound,” Kerry said.
Kerry mentioned economic sanctions, visa bans and asset freezes as possible measures.
Former deputy energy minister and lively government critic Vladimir Milov slammed Glazyev’s remarks, saying they would put further downward pressure on the ruble, which was pushed down Monday to a record low of 36.5 against the dollar amid fears about the possible outbreak of war.
“That idiot Glazyev will keep talking until the dollar is worth 60 [rubles],” Milov wrote on his Twitter account.
A high-ranking Kremlin source was quick to distance his office from Glazyev’s remarks, however, insisting to RIA Novosti that they represented only his personal position.
Glazyev was just expressing his views as an academic, and not as a presidential adviser, the Kremlin insider said.
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Shocking News: 1.3 Million Homes In California Are Still Underwater
Even though the prices have surged 20-30% in some areas of California last year alone, incredibly, 1.3 million homes are still underwater. If you count the number of houses with 10% equity or less the number should easily approach 2 million homes or 20%.This should come as no surprise to those following this blog.
What is surprising to me is that this level of “undervaluation” still exists in today’s market. Even though the FED pumped in close to $1 Trillion into the US Economy over the last 3 years, this “dead cat” bounce in real estate is failing to impress. With an upcoming severe bear market and recession within the US Economy, real estate market is bound to decline further. You can read both reports and timing associated with both markets Click Here.
Just as quick summary, real estate market is completing stage 2 (bounce, aka…dead cat bounce). Once this stage is over, I believe it is already over, the real estate market will start its stage 3 collapse. Typically, this stage is more powerful and takes the market much lower than the one before it. Get yourself ready.
Our Friends at Dr.HousingBubble:
Does housing policy amount to price fixing from banks? Negative equity, accounting standards, and control of supply. 1.3 million homes in California still underwater.
Housing is an industry made and broken at the margins. This is why in areas like Beverly Hills or Newport Coast, a small number of sales can skew prices dramatically. Housing prices in more homogenous markets where many homes are built in cookie cutter fashion provide a better metric of future appraisal values. How so? If you have a builder building 1,000 identical homes in Las Vegas, it is hard to justify that your 3 bedroom 2 baths home at 1,500 square feet is valued more than an identical one next door even though you might think it is worth more. Also, housing is the biggest purchase for most Americans. You may buy multiple cars over your life but not many homes. This is why the measures to control inventory by banks and the flood of investors has tilted this market into unfamiliar waters. High prices in the face of very low inventory. People struggling to pay mortgages yet banks having no issue buying up a large portion of single family inventory. Given that the Fed is the mortgage market, are we seeing a minor (or major) portion of price fixing in housing?
Price fixing in real estate
First it may be useful to give a standard definition of price fixing:
“Price fixing is an agreement between participants on the same side in a market to buy or sell a product, service, or commodity only at a fixed price, or maintain the market conditions such that the price is maintained at a given level by controlling supply and demand.”
For housing, most of the definition is met. Banks fully control distressed inventory and the Fed essentially owns the mortgage market. Since real estate is not standard like say a farm product, there is little ability to set prices in a uniform way however by controlling inventory via stunted accounting rules and slowing down on foreclosures over the years, slowly real estate has moved from weak hands (i.e., American consumers) to stronger hands (i.e., Fed backed banks). The main mission of the Fed was to protect member banks (many that owned overvalued real estate and derivatives). All other economic results have been a consequence of this primary mission.
One of the most obvious ways this is revealed is through the number of properties that are still underwater across the nation. First, take a look at how many properties remain underwater in California where home prices jumped last year in a way we have not seen since the last housing bubble:
15 percent of California homeowners are still underwater despite the dramatic jump in prices last year. Throw in those with less than 10 percent equity and you have nearly 20 percent of all homeowners underwater or near underwater. A massive amount of California homeowners have no equity in their homes even though prices surged last year by 20 to 30 percent in some areas.
Yet price gains are tapering off. Investors have lost some of their appetite in the market. Investors buy with the intention of making money off rental incomes or flipping in an ever increasing market. Prices today are stuck where they were back in the summer of 2013. The ability for households to buy is constrained by weak income growth. In California, only 1 out of 3 households can actually purchase a home today at current prices and with their actual earned income.
In California, we have a total pool of housing units of 12,552,658:
Of these 6,781,817 are occupied by “owners” although you will see from the previous chart that 1.3 million of these owners are fully underwater. They are paying more on their asset than it is currently worth. This is typical for a depreciating asset like a car but not a home. Many of these people bought during the last bubble that ended more than half a decade ago!
Banking policy has worked well for banks and investors have done very well over the last few years. Peppered throughout the mainstream press is the grim reality that over 5,000,000 households have lost their mortgaged properties via foreclosure. Many of these homes simply shifted hands to Wall Street, hedge funds, and investors. The single family home market has become a speculative vehicle once again simply in a different form.
We’ve already noted how many homes are “owner occupied” so it might be useful to see how many homes sold in the latest month of data:
January home sales for California: 25,832
Last month, only 0.38 percent of all properties in the owner occupied category shifted hands. If demand, supply, interest rates, and emotions are playing into the trend then these few properties will set the market. The average January sales volume is 31,393 dating back to 1988 in California so demand was much lower (despite more inventory and a much bigger population) yet prices were higher because of heavy investor buying. Investors seem to be pulling back a bit and that is why we are seeing some more inventory creep in and sales inching back. Price gains are also moderating.
It is safe to say that the current housing market has many forms of price fixing through a connection of government policy, banking regulation, and Fed monetary policy. At the moment, this may not be in favor of future homebuyers but it certainly is in favor of current owners and banks. The dialogue now seems to revolve around “do I speculate and jump in?” or “will market forces break through the control and shift prices?” This of course assumes you want to “own” although many are opting to rent now. I don’t buy the arguments from people saying that they simply want to buy for security and then whine how they “missed” the last opportunity and are now locked out forever. If you really believe that thesis, why not buy today? If you are buying for the “long run” meaning 30 years or so this minor jump up is nothing in the full scheme of things. Similar to dollar cost averaging, if you have a long horizon why does the short-term matter? Many however are speculating but don’t want to call it that.
This is fascinating from an economic stand point because we have never been in a situation like this especially with so much riding on housing. Price fixing is not a dirty word necessarily but this is definitely going on to a certain degree.
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Shocking News: 1.3 Million Homes In California Are Still Underwater Google