This page has been archived and commenting is disabled.
Haunted By The Last Housing Bubble, Fitch Warns "Gains Are Outpacing Fundamentals"
The last week has seen quite dramatic drops in the prices of a little-discussed but oh-so-critical asset-class in the last housing bubble's 'pop'. Having just crossed above 'Lehman' levels, ABX (residential) and CMBX (commercial) credit indices have seen their biggest weekly drop in 20 months as both rates and credit concerns appear to be on the rise. Perhaps it is this price action that has spooked Fitch's structured products team, or simply the un-sustainability (as we discussed here, here and here most recently) that has the ratings agency on the defensive, noting that, "the recent home price gains recorded in several residential markets are outpacing improvements in fundamentals and could stall or possibly reverse." Simply put, "demand is artificially high... and supply is artificially low."
FITCH: US RESIDENTIAL RECOVERY TOO FAST IN SOME LOCAL ECONOMIES
Fitch Ratings believes the recent home price gains recorded in several residential markets are outpacing improvements in fundamentals and could stall or possibly reverse. Many of these areas are in California, which has seen price increases of 13% over the last year.
In many markets, fundamentals are improving as unemployment rates continue declining, while low prices and low interest rates have kept affordability high. However, especially in cities that never fully unwound the mid-2000s bubble, rapidly increasing price levels are a potential cause for concern. For example, in Los Angeles, prices are up more than 10% in the past year despite a stubborn unemployment rate that remains above 10% and real incomes that have declined over the past two years. Prices are now more than 75% above pre-2000 levels.
Several factors are combining to form an environment supportive of brisk home price growth, but few are capable of providing long-term support to sustain the recent pace of improvement. Primarily, restricted supply and bolstered demand factors are bidding prices up.
The demand is artificially high as borrowers remain on the side lines waiting for prices to stabilize. We believe this level of housing demand is likely to abate once the pent-up demand is satisfied.
The supply is also artificially low, as recent regulations have limited the pace of foreclosure sales and the large percentage of underwater borrowers continues to hope for further price increases to be able to sell their homes at a profit.
The supply-demand imbalance is even more pronounced in regional markets that are seeing strong institutional and retail bids for rental properties. The low rate and steep drop in prices, coupled with the decline in homeownership, have attracted an estimated $8-$10 billion of new capital to this sector. Many markets have a large number of buyers vying for a limited number of homes.
»
- 17173 reads
- Printer-friendly version
- Send to friend
- advertisements -
As Bass has stated: "Our financial memory is 2 years" Truly astounding...
Our political memory is 2 femtoseconds. It's how they lie to you in front of your face a jillion times in one sentence and you say "mhmm, uhuh, that's an excellent point, Mr. Bernanke. I look forward to your reducing unemployment like you always say you do. Thanks for the negative interest rates, your benevolence is unparalleled. I'm going back to my three part-time jobs without healthcare, and I can't wait to be fined by the choomtrain conductor."
Billy writes:
someone said that federal reserve notes are fake, like monopoly money. is that true?
great question, Billy. thanks for asking.
first, you need to know what the fundamental properties of reserve notes actually are. these properties are listed below.
1. reserve notes are *friable*. that is, you can tear or cut a note into smaller pieces
2. reserve notes are *signaferous*. that is, they bear signatures of natural persons
3. reserve notes are *absorbent*
4. reserve notes are *plicatious*. they can be folded, for example, into a hat or a boat
5. reserve notes have *ink on both sides*
and finally,
6. reserve notes have the form of a *rectangle*
so the answer is no, Billy. they are not fake like monopoly money.
folks and truely beloved: this is a gift horse of the highest order!!!!!!!!!!!!!!
sell the mutha fukker if it has a mortgage...
if you don't, remember this:no income to pay and noone to buy.
end of story.
at this point in time you will be fukked.
take the proceeds and buy 50 percent gold and rent til collapse with contingecy plans in place
to beam the fukk out here...
Mortgage Applications out today. Big decline in refi apps and small increase in purchase apps, back to 1997 levels. This does not explain the cheap money house price surge.
http://confoundedinterest.wordpress.com/2013/05/29/mortgage-applications...
Yeah, I tried that in Sept of 2008 and rented for 3 years. I finally got sick of waiting for the collapse and built a house. Fuck it, its only money but I do like rounds and 1/10 coins also.
Yeah, and with all the high fives going around over rising rates, i guess every body forgot no one could afford the 5 percent when things were supposedly "good".
So, how's all the 5/1's feeling now?? Rates going up.. LOL!! Payroll taxes going up.. Healthcare costs about to go WAY up.. Hours worked going WAY down.. Etc, etc.
"Rates are going up" means we ran out of extra fiat to short gold, because Mrs. Watanabe for some unknown reason, is buying dollars out the ass, which has created another little temporary shortage.
It's all fine wine an sunshine..
I'm holding out until I can buy a 2,500 square foot house with one gold eagle. Until that happens I'll sit quietly stacking, and living in a mortgage free property. I'll watch patiently as these stupid fucks burn themselves again.
what the fuck is a "mortgage free property"?
- bought in 2007
Bought in 1996.
I was a freshman in college. On one hand I had no idea what a mortgage was, on the other, my college fund was invested in the Janus 20 fund. Talk about a combination of clueless and lucky.
As this guy says, mortgages purchase application level doesn't support the housing bubble. See here: http://confoundedinterest.wordpress.com/2013/05/28/double-double-toil-an...
i still wouldn't buy one. you couldn't give me your home.
repairs on depreciating asset, encumbered by first lien forever-TAXES...
DEPRECIATING ASSET IN NOMINAL TERMS!
FUKK HOMES-GET OUTSIDE THE BOX!
"They" won't stop blowing regardless of who's asking the questions. That's the way the dance music plays. Damned if you stop dancing too early and damned if you don't.
OK, so will someone please tell me how inflating the price of houses helps anyone. It makes them harder to afford. Higher prices require larger loans, which people cannot pay and are more likely to default.
How do banks benefit from more defaults? (because I am assuming it is all done for the benefit of banks)
We are in a cyclical unwinding of society where corruption and vice dominate.
It's simple. High prices mean more money for the banks. If the borrowers default then the losses get passed on to the tax payer.
mario writes:
will someone please tell me how inflating the price of houses helps anyone.
great question, mister draghi. thanks for asking.
the price of houses detemines the value of what we call "bank assets".
you see, banks own lots of "shares" of "entities" that have "leveraged" their "collateral" to "purchase" things called "tranches" of "securities" based on the "price" of "houses".
when that "price" goes below a certain number, the "banks" become "insolvent".
so we need to keep pushing that price up.
because "insolvent" "banks" are bad.
and by "bad banks", we mean each and every person onto whom the debt must be pushed in order to make the banks appear "solvent"
thanks for your question!
hugs,
christine
Oh dear boy you forgot the drooling local city and county unionized govt workers and their gold plated pensions. As your home value goes up they tax your more and more and more. You don't own anything - the county owns your home even if it is "paid off."
That means owners are renting from the state and then sub leasing to renters :) I'd still rather have title to property than rent. Even in a 3rd world shit hole, there are renters and owners. On a side note, I've been outside the country for a few days and I met 3 seperate Americans on 3 seperate occasions that read ZH.
you don't own, but you are owned...
The buyers may well be those govt. employees ( i can not call them workers) they have high incomes ,absolute job security and high credit scores. If so, it is not likely they will default. The assessors are also govt. employees and maybe giving other union members lower assessments to further screw the people in the private sector.
temporary wealth effect.
Old ppl see a rise in their net worth because of increasing house prices, stock, and bonds, then decide to leave labour market. More hiring to replace retiring worker. Unemployment goes down.
The unknown variable is automation. How much automation will be used to replace the older worker.
Of course reflating the housing bubble is a temporary solution, because its not dealing with the structural issues. But by that time its someone else problem, and current Wall St. players have made their billions.
The reversion to the mean is going to be ugly, and ppl retiring because of the false price signals from housing, equities, and bonds, will be f*cked over just like in every previous bubble.
But with the Fed in every market directly, or indirectly, noone knows what 'normal' prices are.
The higher the loan amount, the longer and harder is your debt slavery. Debt slaves neccesary to mow banker's lawns and clean their pools...and raise their children.
They hope to create the same affect as the last bubble. Housing rises in value, homeowner refinances every few years, takes what little equity they have in the house and buy things they do not need.
"OK, so will someone please tell me how inflating the price of houses helps anyone."
It doesn't really help. Ok maybe it helps those that need to unload some debt, that's because the last guy left holding debt gets screwed by the system. It still doesn't deny the fact that any asset class is better than holding fiat.
Prices are inflating from hot money coming from Russia & Europe (thanks to Cyprus) and China (thanks to power shift/new president). The world's wealthy are stashing money in a safe bet - USA real estate. These people don't care about a 25-50% crash in real estate? They're not selling and taking their money back home. It's here to stay. But there will be collateral damage, once again.
bubble capitalism continues to transform sage capital allocators into misallocators as everyone wants to buy and flip before the tapering begins.
average real disposable income stagnant. average median house price rise 10% yOy. disconnections in every market, but no one willing to say the Emperor has no clothes save ZH.
Over the last 17 years of Greenspan and Bernanke they have managed to engineer 3 stock bubbles, 2 housing bubbles, 1 gold bubble, 1 bond bubble and 1 nasty oil bubble. Why is it that Fitch is just now figuring out that the fundamentals don't match price? These guys couldn't see clouds on a cloudy day.
It's like nuclear fission. One particle hits another which hits two more which hits 4 which hits 8 until the fission is either halted or it goes on until a meltdown occurs. We have Bubbles all over the place right now and once one pops all of them are going to go in short order.
It's not just Greenspan and Bernanke, the Govt. played a huge role in creating these bubbles thru their legislation, but I get your point even though I disagree on the gold "bubble'.
A lot of it is on the administration in place at the time, circa late 90's- they recognized that they could fluff Greenspan, who was a $70K/yr bureaucrat with undue influence over the Fed reserve governors, who were sheep.... Greenspan got full of himself and his self-generated "formulas", and proceded to tweek the market to death, reacting on every blip.... As with any ordered chaos model, when you try to totally smooth out anything, you wind up sending it further out of control..... As his "rock star" status grew, Greenspan felt more compelled to screw with things- he effectively popped the greatest growth spurt in history (circa 1999), and felt pressure from the administration to make up for it by artificially inflating the housing market.... Greenspan only cared about his own legacy, and to this day continues to take any blame for what history will ultimate view as the point where "the wheels started to come off".....
soft landing...http://www.youtube.com/watch?v=ZPnj4Nrt6kk or not?
Silicon Valley housing is nonsensical at best. 40 year-old houses worth $75-100k at most in materials selling for $1M+. What was $500k in '04 now selling for $700k. Rents are through the roof - on the order of $1000/bedroom on average in regular areas and $1500+/bedroom in popular/in-demand areas.
good. they voted Pelosi / Obama so fuck em.
Property Tax the weath from those that bought in CA. They deserve it.
Anyone with common sense should leave California. The leeches can consume themselves.
+1000 syntax......
In Berkeley, CA - $3000/mo rents an 850sf single family home.
that's perfect for our 60K annual harvard grad! Ramen noodles V.2
"fundamentals"?
"Gains Are Outpacing Fundamentals"Ya thunk ?
Forgive me, but NO SHIT. Asset bubbles do not create wage bubbles. Fitch is usually out in front of the other incompetent midget porn obsessed rating agencies, but this is like saying "risk assets may....may be slightly overvalued".
Queue up the corpse of Buffett Obama to tell people he's buying home builders here....and no one could have seen the collapse coming.
Blinkered Ben and his Flowerpot Men.
His last 'grilling' was asked how come these different fed boards of 9 have at least 6 bankers on each (ad hoc). Answer, well maybe there's a case for more union members (ad hoc).
I thought no, why not End Fed ( preferred) or just have people who are not numbnuts.
Bottom line if this committee is representing best of the best then US is screwed.
While houses may not be cheap, mortages sure are. Can we all give a standing ovation to the honorable Dr. Banjamin Shalom Bernanke? /sarc
In all seriousness, this guy makes some valid points looking at Monthly Mortgage Payment to Income and Monthly Payment to Rent Ratios:
http://piggington.com/monthly_payment_ratios_may_2013_homes_may_not_be_c...
This bubble could last longer than many think. Just sayin'.
Time to put the Bernanke Puppet on CNBC to remind everryone how contained his bubble is!!!
Does this article have anything to do with all the empty store fronts I see in strip malls? Hard to beleive ANYONE would lend moar money to these tiny stores but I see New strip malls going up all over depsite the ghoist malls 2-3 miles away.
Soon we'll rival China for Ghost Malls.
Fitch, Moodys and S&P, are you rating garbage MBS as triple A again?
Blow a huge bubble and watch it pop.
LET US NOT FORGET THE EPIC SOVERGN DEBT BUBBLES GAINING SIZE GREATER THAN ABILITY OF GROWTH TO SERVICE...
Unemployment decreasing due to more service sector jobs that don't halp the economy, if unemployment is even truly down and it's not another case of the govt jiggering data.
This is bullish for stocks, right?
Cue Graham Summers or his protege Pivotfarm to tell us a collapse is imminent.
We are back to 2008 again. Prepare accordingly. The Fed's Boom/Bust model is right on schedule.
Imagine that you pay 85 Billion a month for worthless crap and the "Market" for worthless crap goes up.. Amazing really.
I hear you guys have alot of empty homes. I say just live in one, grow your own food out back. If your taxes bailed out the banks then you own the homes. Why should you have to pay twice? We're supposed to be minimizing pollution and saving the environment - so why are we building empty houses when we already have plenty of empty houses? So some idiot can demolish them? Or is it "capitalism" when someone builds over-priced houses that no-one can afford to buy and "communism" when you say, "Fuckit" and go and live in one for free? What happened to "efficiency in the markets"? (don't answer, its a rhetorical question) Empty houses in the US vs empty houses in China - don't look too different to me.
When houses are "sold" to idiots that can't afford them, the price is bid up so high that sensible people can't afford them. They are forced to be homeless. If the foreclosed homes are not auctioned at market prices, what do we call that? Theft? Extortion? If the banks that lent the money to idiots get bailed out by govt, then the US taxpayer owns the banks and whatever is on the books. "But you can't nationalise the banks! That's Communism!!!" Too bad, its already been done. Are you delibertely going to give up your assets while still being forced to pay the liabilities?
OUT WITH THE OLD SUCKERS, IN WITH THE NEW!
Doesn't everyone have someone they know who is selling or buying?
Do you NOT see the SHIT-HOLE houses selling in your hood? Lots, underwater, that have come back up for sale....
Everyone I know has had a bidding war on buying new houses.....WHERE THE FUCK WERE YOU 5 YEARS AGO? DID YOU NOT LISTEN?
I know, houses asre not like stocks where you can wait to buy but the good deals are gone. You are buying way up here....