Housing Market

Repossessions! Home repossessions in the USA increased by 11% in May. Foreclosure filings (default notices and scheduled auctions as well as repossessions) were also up by 2.3% (148, 054) according to a report just published today by RealtyTrac.

it appears the memo about the glorious housing recovery has bypassed the socialist paradise of France. Either that, or the concept of shared property is so advanced there, and the costs of evicting squatters so high, that all a homeless Parisian needs in order to have four walls and a roof above their heads is to find an empty office building and claim it as their own. Which is precisely what is happening. And while squatting is not a unique phenomenon to any paradise, socialist or otherwise, when a group of 16 Parisian families decided to take over a vacant 4-story building, have decided to put a little signature touch: they telegraphed their presence far and wide by placing repeated food orders so the neighbors could see the "comings-and-goings" of the delivery man (supposedly justifying their squatting), but actually went so far as to invite the French housing minister. And got her support! Socialist utopia indeed.

In a confirmation that the S&P is starting to get worried about the drones surrounding the McGraw Hill building resulting from the ongoing litigation with Eric Holder's Department of Injustice, not to mention a reminder that US downgrades always happen after hours, while upgrades must hit before the market opens, Standard & Poors just upgraded the Standard & Poors 500 the US outlook from Negative to Stable. On what "receding fiscal risks" did the S&P raise its assessment of the US - the fact that the US is now at its debt limit, that there is no imminent resolution to the credit issue, or the 105% and rising debt/GDP - read on to find out. And of course, the countdown until the S&P wristslap settlement with the DOJ is announced begins now, as does the upgrade watch by Buffett's controlled Moody's of the US to AAAA++++.

Following widespread discussion of the impact that Wall Street investors (gorging on the Fed's free-money extravaganza) have had on home prices, today's final straw for Blackstone appears to be the New York Times' editorial suggesting/blaming them (and others) for driving up the prices of single family homes and reducing the supply of affordable housing for first-time home owners. Blackstone decided to hit back with some of its own version of real estate truthiness via its' blog and why it is "proud of what it is doing in the housing market." So here are the six reasons that Blackstone believes laying the blame for housing bubble 2.0 at their (them being Wall Street) feet is wrong (and a few short responses to their perspective).

A macro overview.

China continues to be stuck between an external hot money flows rock and a contracting economy and unstable banking sector hard place... Thanks to the G-0 central planners, the PBOC's hands are now tied: if it injects more hot money or lowers the interest rate the inflation on the margins, which it has so far been able to mask will spill over into the streets in a repeat of 2011, and force an even more epic scramble for inflation protection than the one seen two years ago, and which led to gold rising to just shy of $2000. Naturally, at a time when the central planners have gone all in on precipitating the Great Rotation out of bonds and into stocks at all costs, a re-exodus into gold might just end the Keynesian experiment. So the China central bank has that to contend with as well.Which means one thing: in reality Chinese credit and liquidity is in far worse shape than reported. And sure enough, over the past 24 hours we got news courtesy of Bloomberg that the "China Liquidity Squeeze Risks Companies’ Debt Rollover" leading to what may be the first harbinger of a Chinese bank failure which may subsequently lead to a whole lot of dominoes falling.

If we take out this trendline, stocks could easily go to 1,450. And if things get really ugly we could even see a Crash (though that would likely come later in the Autumn based on historic patterns).

If we are to believe what they said, then this is the year. 2013! It’s going to happen.. The stock-market is ready to crash yet again this year and this time it’s going to be a big one. Let’s take a look at what was said, when, why and by whom.

How Another Housing Bubble Was Blown … And Why

Residential housing is the single largest "tangible" US real estate asset, worth roughly $18 trillion (but well below the total financial assets in circulation in the US).Housing inventory as of May was 133.2 million units, of which owner occupied is 78.9 million, renter occupied was 41.7 million, but most troubling: 12.6 million was Vacant. Some shortage... It is this mismatch between 11.1 million in negative equity "owner occupied" units and 12.6 million vacant units that all those who peddle the rent-to-own dream are focused on as America becomes increasingly a society of rents. It also means that the millions in soon to be formerly owner-occupied homes have to stay on bank books and not enter the market in other to generate the illusion of scarcity or else the myth that there is a housing shortage will be blown right out of the water.

Here is a simple way to test if the last year of housing market gains have been due to a real, fundamental, consumer-led recovery, or nothing but the latest iteration of the Fed's money bubble machine manifesting itself in the place of least du jour resistance - houses: Assume rising interest rates.

Ongoing monetary stimulus is leading to heightened volatility, and the bull market which has been in place since 2009 is becoming overextended. The recent string of surprise downside moves in markets may be the canary in the coal mine for global investors. This is where we are today. The tide is rising for U.S. and Japanese markets and asset prices will ultimately move higher. The size and violence of each wave that advances or recedes will continue to increase due to the surge of liquidity from central banks. These tides of liquidity are strong, as are the currents underneath. We must guard ourselves from the risk of being pulled under.

The airwaves are full of stories of economic recovery. One trumpeted recently has been the rapid recovery in housing, at least as measured in prices. The problem is, a good portion of the rebound in house prices in many markets has less to do with renewed optimism, new jobs, and rising wages, and more to do with big money investors fueled by the ultra-cheap money policies of the Fed. It seems entirely wrong that the Fed bailed out big banks and made money excessively cheap for institutions, and that this is being used to price ordinary people out of the housing market.  Said another way, the Fed prints fake money out of thin air, and some companies use that same money to buy real things like houses and then rent them out to real people trying to live real lives. At the same time, we are also beginning to see the very same hedge funds that have re-inflated these prices slink out of the market now that the party is kicking into higher gear – all while new buyers are increasingly having to abandon prudence to buy into markets where the fundamentals simply aren't there to merit it. Didn't we just learn a few short years ago how this all ends?

House prices - with respect to both levels and changes - differ widely across OECD countries. As a simple measure of relative rich or cheapness, the OECD calculates if the price-to-rent ratio (a measure of the profitability of owning a house) and the price-to-income ratio (a measure of affordability) are above their long-term averages, house prices are said to be overvalued, and vice-versa. There are clearly some nations that are extremely over-valued and others that are cheap but as SocGen's Albert Edwards notes, it is the UK that stands out as authorities have gone out of their way to prop up house prices - still extremely over-valued (20-30%) - despite being at the epicenter of the global credit bust. Summing up the central bankers anthem, Edwards exclaims: "what makes me genuinely really angry is that burdening our children with more debt to buy ridiculously expensive houses is seen as a solution to the problem of excessively expensive housing." It's not different this time.

While it isn't news to regular readers, the fact that one of the key pillars of the "housing recovery" (the other three being foreign oligarchs parking cash in the US courtesy of an Anti Money Laundering regulation-exempt NAR, foreclosure stuffing and, of course, the Fed's $40 billion in monthly MBS purchases) have been the very biggest Wall Street firms (many of whom had to be bailed out the last time the housing bubble burst) who have also become the biggest institutional landlords "using other people's very cheap money" to buy up tens of thousands of properties, appears to still be lost on the larger population. Intuitively this is to be expected: in a world in which the restoration of confidence that a New Normal, in which everything is centrally-planned, is somehow comparable to life as it used to be before Bernanke, is critical to Ben's (and the administration's) reflationary succession planning. As such perpetuating the myth of a housing recovery has been absolutely essential. Which is why we were surprised to see an article in the very much mainstream, and pro-administration policies NYT, exposing just this facet of the new housing bubble, reflated by those with access to cheap credit, and which has seen the vast majority of the population completely locked out.