Sit back, grab some popcorn and just watch as the exponential gets exponentialer... and then it all goes splat.
Bad News For America's Biggest Housing Bubble: San Francisco Home Prices Suffer Biggest Drop In Three YearsSubmitted by Tyler Durden on 03/31/2015 13:50 -0400
It was not only the annual growth rate of only 7.9%, matching the lowest since the European debt bubble burst in 2010, but also the sequential rate of price drops, at -0.9% - the biggest monthly drop in three years, or since January 2012 - that will once again be a subject for concern of housing watchers. Because should the price decline resume its acceleration without any emerging tailwinds to prop up the local housing market, then there will surely be some severe fallout such as this peak housing bubble example, in which as Curbed reported last week, a run down shack which listed for $799,000 sold for 50% more, or $1.2 million a few weeks later!
The Bond bubble is not only an overcrowded trade, a bubble of historic proportions but it will cause the entire crash of the financial system.
While the actual number of new homes sold has barely budged during the so-called Recovery, the incentive for the builders, is right there, and as can been by median new home prices which continue to rise, and in fact hit an all time high as recently as December!
The following chart courtesy of Citigroup, demonstrating the liquidity cliff, i.e., the impact of a liquidity bubble on price and risk, is so mindbogglingly simple, it is no wonder that virtually nobody gets it.
The ultra high end of US housing is now sliding fast, and that unless some other central banks steps up and resumes the injections of some $100 billion in outside money into inflating asset prices such as stocks and billionaire mansions, then all bets are soon off.
Martin Feldstein, Harvard University professor alludes to what many in the financial community recognize that risk-taking is out of control.
After several months of quite complacency, investors were woken up Thursday by a sharp sell off driven by concerns over potential rising inflationary pressures, rising credit default risk and weak undertones to the economic data flows. One of the primary threats that has been readily dismissed by most analysts is the impact from rising interest rates...
Fourth time was sadly not the charm...
While today's Case Shiller data was widely disappointing across the board, indicating a significant slowdown in price gains (and on a sequential seasonally adjusted basis, practically a decline), the one market we paid particular attention to was San Francisco. What we found is a red flag for everyone waiting to time the bursting of the latest housing bubble. Because after an unlucky 13 months of posting consecutive 20% Y/Y price gains, the San Francisco bubble appears to have finally burst, posting "just" an 18.2% price increase, the lowest since January of 2013.
Yesterday we mocked China for being desperate enough to push its tumbling housing market (which directly and indirectly accounts for some 80% of Chinese GDP per SocGen estimates) no matter the cost, that at least 20 developers were offering the kinds of mortgages that resulted in the first credit bubble crack up boom and collapse, namely "Zero money down." Little did we know that the US, never one to lag in the financial innovation department had once again one-upped China, by bringing back from the dead the company that according to Housing Wire was "once a poster child for pre-crash subprime lending" - Ditech Mortgage Corp. But best of all, ditech was known as a leader in subprime. The bulk of the mortgages were interest-only, low-documentation subprimes, and ditech was a pioneer in offering 125% loans allowing the borrower to borrow more than the sale price.
Enter the Fed's recently announced Fixed-Rate Reverse Repo facility, which earlier today saw its greatest use to date in history, when a record $95 billion in Treasury paper was repoed out to the street for a 3 day term, at an 0.03% annual rate. Since there were 68 bidders in the operation, the average participant had an extra $1.4 billion in cash lying around to give to the Fed in exchange for holding Treasurys into year end.
JPM's "flows and liquidity' expert Nikolaos Panigirtzoglou, who last week spotted the "most extreme ever excess liquidity" bubble, has just noticed yet another indication that not even corporations believe in further equity upside. Simply said, this means that that for the first time since the Lehman crisis, non-financial corporations within the entire developed, G-4 (US, Europe, Japan and UK) world, have shifted from net buyers of stock to net sellers, as net "equity withdrawal" have just turned positive.
Over the past year there has been some confusion about whether Ben Bernanke has managed to not only completely break the stock market (which, if one harkens back to hallowed antiquity used to discount good or bad news in the future, and "trade" accordingly), but also invert it fully. The chart below from Guggenheim will once and for all put any such confusion to rest. As Guggenheim's Scott Minderd points out "The 52-week correlation between S&P 500 returns and the change in the Citigroup Economic Surprise Index has plunged from 0.45 to -0.13 over the past 12 months. A negative correlation indicates that weak U.S. economic data tends to push equity prices higher, while strong economic data tends to send them lower."