• Pivotfarm
    04/18/2014 - 12:44
    Peering in from the outside or through the looking glass at what’s going down on the other side is always a distortion of reality. We sit here in the west looking at the development, the changes and...

Housing Bubble

Tyler Durden's picture

Scramble To Exit Housing Market Peaks With "American Homes 4 Rent" IPO Pricing At 44% Discount





Two months ago we first observed the scramble by various hedge funds, in this case Blue Mountain, to take advantage of the peak sentiment in housing, and specifically rental housing (which just hit an all time high as reported previously) by rushing to capitalize on recent investments and dump exposure to the witless public. Specifically, we envisioned the then just announced IPO of the aptly named American Homes 4 Rent (yes, with a "4" not "for"), also known as AMH, which however came at precisely the wrong time for the market: just as mortgage rates were soaring and Colony American Homes postponed its own parallel IPO. Two months later, with the market about to pass 1700 and fears about the housing market put back in the shelf despite a glaringly obvious collapse in mortgage demand, these IPOs are back and with a vengeance, although now reflecting a far more subdued, tapered if you will, view about the house leasing sector. Not surprisingly, AMH priced overnight, selling 44.1 million shares at a price at the bottom of the $16-18 range to raise a total of $706 million: a 44% discount to the $1.25 billion suggested in the prospectus filed back in June.

 


Tyler Durden's picture

To Save Spain's Housing Market, It Must First Be Destroyed





About a decade ago, Spain set off to "grow" its economy by launching an unprecedented homebuilding campaign. Several years later the campaign backfired, when the global housing bubble popped, and hundreds of thousands of houses ended up underwater, vacant or simply incomplete while millions of people lost their jobs, resulting in possibly the worst depression in Spanish history. Fast forward to today when Spain is about to set off to "grow" its economy by launching an unprecedented counter-homebuilding campaign, one in which the housing excesses of the last "growth" campaign will be literally demolished. And thanks to the magic of modern Keynesian math, both construction and destruction will result in growth for Spain.

 


Tyler Durden's picture

Dylan Grice On The Intrinsic Value Of Gold, And How Not To Be A Turkey





Today’s bizarre confluence of negative real interest rates, money printing, eurozone sovereign default, aberrant asset prices, high unemployment, political polarization, growing distrust… none of it was supposed to happen. It is the unintended consequence of past crisis-fighting campaigns, like a troupe of comedy firemen leaving behind them a bigger fire than the one they came to extinguish. What will be the unintended consequences of today’s firefighting? We shudder to think.

 


GoldCore's picture

As The Crisis Deepens, Gold Flows East - Part 3 (of 3)





Lump this into the mix with the challenges around energy, the instability of the global banking system, the high unemployment rates, particularly among the youth and interest rates at unsustainably low levels, it would be reckless to report that the world economy is either on the brink of or on the road to recovery. Gold is a finite resource, the Chinese central bank continues to acquire gold quietly and without declaring.....for now.

It’s worth repeating: In the shadow of this game, gold looks like a solid investment.

 


Tyler Durden's picture

Here We Go Again: Step Aside RMBS, Rent-Backed Securities Are Here, And With Them The Beginning Of The End





Earlier today, when we reported that median asking rents in the US had just hit an all time high, we had a thought: how long until the hedge funds that also double down as landlords decide to bypass the simple collection the rental cash flows, and instead collateralize the actual underlying "securities"? One look at the chart below - which compares the median asking "for sale" price in black and the median rent in red - shows why. The last time there was a great divergence (to the benefit of housing), Wall Street spawned an entire Residential Mortgage-Backed Securities industry where Paulson, Goldman willing sellers would package mortgages, often-times synthetically, slice them up in tranches of assorted riskiness, and sell them to willing idiots yield-starved buyers. As everyone knows, that particular securitization bubble ended with the bankruptcy of Lehman, the bailout of AIG and the near collapse of the financial system. As it turns out, the answer to our original question was "a few hours" because securitizations are back, baby, and this time they are scarier and riskier than ever.

 


Tyler Durden's picture

China To Kick Bad Debt Hornets Nest





China is preparing to admit that the level of problem Local Government Financing Vehicle debt is double the 10.7 trillion yuan first reported just two years ago, something many suspected but few dared to voice in the open. But not only that: since the likely level of Non-Performing Loans (i.e., bad debt) within the LGFV universe has long been suspected to be in 30% range, a doubling of the official figure will also mean a doubling of the bad debt notional up to a stunning and nosebleeding-inducing $1 trillion, or roughly 15% of China's goal-seeked GDP! We wish the local banks the best of luck as they scramble to find the hundreds of billions in capital to fill what is about to emerge as the biggest non-Lehman solvency hole in financial history (without the benefit of a Federal Reserve bailout that is).

 


Tyler Durden's picture

"Bagehot Was A Shadow Banker" - A Monetary System That Is Only As Good As Its First Broken Promise





"At all times, ultimate collateral and ultimate money remain crucial reference points in modern financial markets, but the actual instruments are important only in times of crisis when promises to pay are cashed rather than offset with other promises to pay.... Our world is organized as a network of promises to buy in the event that someone else doesn’t buy. The key reason is that in today’s world so many promised payments lie in the distant future, or in another currency. As a consequence, mere guarantee of eventual par payment at maturity doesn’t do much good. On any given day, only a very small fraction of outstanding primary debt is coming due, and in a crisis the need for current cash can easily exceed it. In such a circumstance, the only way to get cash is to sell an asset, or to use the asset as collateral for borrowing."

 


Tyler Durden's picture

Guest Post: "Housing" - Is It Really Recovering?





The optimism over the housing recovery has gotten well ahead of the underlying fundamentals.  While the belief was that the Government, and Fed's, interventions would ignite the housing market creating an self-perpetuating recovery in the economy - it did not turn out that way.  Instead it led to a speculative rush into buying rental properties creating a temporary, and artificial, inventory suppression.  The risks to the housing story remains high due to the impact of higher taxes, stagnant wage growth, re-defaults of the 6-million modifications and workouts and a slowdown of speculative investment due to reduced profit margins.  While there are many hopes pinned on the housing recovery as a "driver" of economic growth in 2013 and beyond - the data suggests that it might be quite a bit of wishful thinking.

 


Tyler Durden's picture

Regulators Fold; Lift 'Skin-In-The-Game' Rules To Keep Housing Bubble Dreams Alive





Following the debacle of free-and-easy mortgage money to anyone who could fog a mirror in the run-up to the last housing bubble (remember that was just 6 years ago), regulators proposed 'skin-in-the-game' rules which forced banks to hold certain amounts of the loans they made (as opposed to securitizing and selling off that yieldy risk to the next greater fool). Makes sense. However, in a major U-turn, with interest rates rising, mortgage rates spiking, and home prices now collapsing once again, it would appear the very same congress has folded. As the WSJ reports, more stringent lending standards on top of the market environment leave the watchdogs, which include the Fed and the FDIC, wanting to loosen a proposed requirement that banks retain a portion of the mortgage securities they sell to investors (representing a victory for an unusual alliance of banks and consumer advocates that opposed the new rules). Undermining the initial goal of imposing market discipline, former FDIC Chair Sheil Bair noted, "My sense is that Washington has lost its political will for serious reform of the securitization market." Indeed it has, Sheila.

 


Tyler Durden's picture

New Home Sales Rise As Average, Median Home Prices Drop To 2012 Levels





First the bad news (which for the market is good news): the revised May New Home Sales number was 459, down from 476K, which means last month's beat of expectations of 462K was actually a miss which would have sent the S&P soaring. Now the good news (which for the market is bad): the June New Home Sales seasonally-adjusted annualized number was 497K: the highest since May 2008 (even if far below the prior housing bubble peak) represented by an unadjusted June number of 48K actual houses sold, with more than half of it coming from the 26K new homes sold in the south. So good right right? Not really: the reason why there was a pick up in volume was not because there was far greater demand, but for the usual Economics for Dummies reason why there is demand: prices plunged.

 


Tyler Durden's picture

Up In ARMs: Adjustable Rate Mortgage Applications Soar To 2008 Pre-Lehman Mania Levels





"In the last week of June, the dollar value represented by ARM applications accounted for 16 percent of mortgage requests, the highest share since July 2008, two months before Lehman Brothers Holdings Inc. collapsed, according to Mortgage Bankers Association in Washington." Oops.

 


Tyler Durden's picture

Guest Post: Trying To Stay Sane In An Insane World - Part 1





Facts are treasonous and dangerous in an empire of lies, fraud and propaganda. It is maddening to watch the country spiral downward, driven to ruin by a psychotic predator class, while the plebs choose to remain willfully ignorant of reality and distracted by their lust for cheap Chinese crap and addicted to the cult of techno-narcissism. We are a country running on heaping doses of cognitive dissonance and normalcy bias, an irrational belief in our national exceptionalism, an absurd trust in the same banking class that destroyed the finances of the country, and a delusionary belief that with just another trillion dollars of debt we’ll be back on the exponential growth track. The American empire has been built on a foundation of cheap easily accessible oil, cheap easily accessible credit, the most powerful military machine in human history, and the purposeful transformation of citizens into consumers through the use of relentless media propaganda and a persistent decades long dumbing down of the masses through the government education system. This national insanity is not a new phenomenon. Friedrich Nietzsche observed the same spectacle in the 19th century: “In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule.”

 


Tyler Durden's picture

No Country For First-Time Home Buyers





There was a time when the US housing market was not "driven" by hedge funds armed with government-subsidized, "REO-to-Rent" loans loading up on distressed properties, by banks refusing to release foreclosed properties into the market (thus creating a market subsidy) or by foreigners eager to park their "tax-evaded" wealth with the Anti Money-Laundering exempt National Association of Realtors. Instead, the main driver of US housing were first-time home buyers, "typically couples in their late 20s or early 30s" who historically have accounted for about 40% of home sales. Alas, last year, and all throughout the New Normal, this number has been about 25% lower, or representing just 30% of all sales (except for a brief spike to 50% in 2009 courtesy of recession-era tax credits). Then again, what 30 year old needs a home when one can now get an E-trade terminal under the bridge to generate "the wealth effect"?

 


Tyler Durden's picture

Confessions Of A Keynesian Debt Serf





"Things are different now. I’ve turned my savings into spending, rung up thousands of dollars’ worth of purchases on my credit cards and in the process paid a lot more in taxes. And I’ll probably keep spending like this until I nearly run out of money. In other words, I’ve bought a house. Since the recession materialized in 2008, policymakers in Washington have been urging Americans to buy homes, because no single purchase does more to generate economic activity. The housing market and everything associated with it accounts for around one-sixth of the entire economy, which is why a housing bust can drag the whole nation into a recession (basically what happened starting in 2007) while a housing boom can make nearly everyone better off, including people who don’t even own homes."

 


Tyler Durden's picture

The Week That Was: July 15th - 19th 2013





Succinctly summarizing the positive and negative news, data, and market events of the week...

 


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