Housing Market

Property prices in Copenhagen have risen 40-60 percent since the middle of 2012, when the central bank first resorted to negative interest rates to defend the krone’s peg to the euro.

"Some activity in auto loans reminds me of what happened in mortgage-backed securities in the run-up to the crisis. We will be looking at those institutions that have a significant auto-lending operation."

The Fed has created permanent housing crisis from which there is no escape.

September Existing Home Sales fell 6.5% from August, but you will not see that in the headlines as after adjustments for seasonals, existing home sales actually rose in September by 4.7%, bouncing back from a 5.0% revised lower drop in August (and beating expectatations of a mere 1.5% rise). 2015 has seen unprecedented volatility in the NAR's reported data, but a they note, "Unfortunately, first–time buyers are still failing to generate any meaningful traction this year."

Update: DRAGHI SAYS ECB DISCUSSED A FURTHER LOWERING OF DEPOSIT RATE

Draghi hints at December QE expansion, noting that "the degree of monetary policy accommodation will need to be re-examined at our December monetary policy meeting." 

Since either NIRP, or QE, or most likely both, are about to cross the Atlantic and make landfall in the US before the Fed is forced to launch the monetary helicopter, those who want to know what is really coming - no, not rate hikes - are urged to read this.

After yesterday's closing ramp "prudently" just ahead of an abysmal IBM earnings report with the lowest revenues since 2002, and the latest rally in capital markets which sent European stocks to their highest level since August on the back of a barrage of global bad data which has unleashed the Pavlovian liquidity dogs screaming for moar central bank bailouts, this morning has seen a modest decline in the Stoxx 600 driven by energy names, while S&P500 futures are set to open lower on IBM's disappointment at least until the latest massive BOJ USDJPY buying spree sends the pair to 120 and the S&P solidly in the green. The biggest political event overnight was the Canadian election, where Trudeau's liberals swept PM Harper from power, capping the biggest political comeback in the country's history; the Canadian dollar is largely unchanged after initially weakening then rising.

Now that mortgage rates are sliding back to 2015 lows, any sense of urgency from the demand side of the pricing equation has been removed. So what is the alternative? Pushing the supply into overdrive of course, and doing more of precisely what got the US financial system (and the bailed out GSEs) in trouble in the first place: today Freddie Mac, together with Quicken Loans, announced a new lending program, one which would enable "eligible borrowers" and focusing on millennials, to finance a house with a "down payment of as little as three percent."

It is a generally quiet week on the economic front, with updates mostly on the housing front where following today's euphoric NAHB Housing Market Index, we have housing start and permits, blaims and existing home sales. Elsewhere, Fed speakers continue to speak, with Lacker, Dudley (again) and Powell confusing traders once more. The big news this week is earnings as some of the most prominent companies report, including IBM, Verizon, GM, Ebay, Coke, Boeing, Amazin, AT&T, CAT, Microsoft and P&G.

The key overnight event was the much anticipated, goalseeked and completely fabricated Chinese economic data dump, which was both good and bad depending on who was asked: bad, in that at 6.9% it was below the government's 7.0% target and the lowest since Q1 2009, and thus hinting at "more stimulus" especially since industrial production (5.7%, Exp. 6.0%) and fixed spending also both missed; it was good because it beat expectations of 6.8% by the smallest possible increment, and set the tone for much of Europe's trading session, even if Asia shares ultimately closed largely in the red over skepticism over the authenticity of the GDP results. Worse, and confirming the global economy is now one massive circular reference, China accused the Fed's rate hike plans for slowing down its economy, which is ironic because the Fed accused China's economy for forcing it to delay its rate hike.

Earlier today the largest U.S. mortgage lender Wells Fargo reported results that beat expectations by the smallest possible increment. What caught our attention, however, was the fuel that keeps Wells Fargo's engine humming: mortgage applications. Unfortunately for the housing bulls, there was no good news here because after rushing higher in early 2015 on the latest false hope of an economic recovery or due to fears rates are rising, Wells' mortgage applications and the associated pipeline have declined ever since.

Fed chief Janet Yellen’s hesitations and the market turmoil since August seem to validate that it is impossible to stop the accommodative monetary policy, unless you accept that doing so would trigger a new global crisis. The Fed is aware that raising interest rates too fast and too high could have the same effect as pressing the nuclear button. The whole system could collapse and it cannot be taken for granted that the central banks would be able to extinguish the fire this time. Their strike force has weakened because their balance sheets are exposed to market fluctuations and their credibility was seriously damaged because the measure they have taken have failed to strengthen the economy.

This globalization of regional housing markets is pricing the middle class out of housing in areas that also happen to be strong job markets. Many commentators are concerned that a nation of homeowners is being transformed into a nation of renters, as housing is snapped up by hedge funds and wealthy elites fleeing China and the emerging markets. But will current conditions continue unchanged going forward?

Despite last night's disappointingly weak China re-open (notably less than US ADRs had implied), it appears everyone and their pet rabbit levered up as China margin-buying rose CNY21bn - the most in 2 months. It appears China's housing market also disappointed hope-strewn expectations as Golden Week home sales slowed dramatically YoY (blamed on weather). All is not well in the liquidioty stress department as despite ongoing injections, o/n HIBOR spiked 240bps overnight. China stocks are mixed at the open as PBOC strengthens the Yuan fix for the 5th day in a row to 2 month highs. Concerns are also growing in China's corporate bond market where bubble flows have greatly rotated from stocks to drive yields on risky firms to record lows.

And now the real shocker: there is over US$100bn in gross financial exposure to Glencore. From BofA: "We estimate the financial system's exposure to Glencore at over US$100bn, and believe a significant majority is unsecured. The group's strong reputation meant that the buildup of these exposures went largely without comment. However, the recent widening in GLEN debt spreads indicates the exposure is now coming into investor focus."