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Housing Bubble Pop Alert: Colony Pulls IPO On "Market Conditions", Blue Mountain Rushes To Cash Out Of Own-To-Rent

Tyler Durden's picture


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. 

That's right - the oldest economic joke in the book is also the best way to approximate real marginal demand, especially by those whom even the NYT earlier today identified as the primary beneficiary of cheap credit which they have subsequently transformed into an ubiquitous landlord industry, buying up homes by the tens of thousands with the intention of quickly converting them to rentals.

So if, indeed, it is the smart money that defines the marginal price, and since said money is "smart" and realizes that either the US consumer is tapped out and unable to satisfy a priori modeled cash flow demands or it anticipates a rise in interest rates (not due to a pick up in the economy but due to a tapering of Fed purchases - two very, very different things: note the pick up in yields at the end of QE1 and QE2 which signaled not an economic recovery but simply more QE a few months down the line) which contrary to the propaganda on TV would have a devastating impact on the housing market and also the economy, then we would promptly see the imminent pop of the second coming of the housing bubble.

One can make the argument that some have already felt the early tremors: late last year it was Och-Ziff, one of the original entrants in the REO-to-Rent business who called it quits as the returns it was generating from rental income were "less than expected." Then just last week we wrote about Carrington, an early landlord investor backed by OakTree, which too decided to quietly slip out the back exit. Carrington's memorable quote still haunts us: "There’s a lot of -- bluntly -- stupid money that jumped into the trade."

Yes there is.

Which brings us to tonight's news. Because while pulling out on one's terms as OZ and Carrington have done, is never sufficient and necessary grounds for others to follow suit, being forced to do so can quickly send all the other remaining marginal players stampeding in a accelerated prisoners dilemma where nobody wants to be the last to defect, or translated, he who sells next, sells much better than he who sells last (especially since by then the market will be bidless).

Moments ago the WSJ reported that one of the companies at the vanguard of the second housing own-to-rent bubble, Colony American Homes, has just pulled its IPO due to, you guessed it, market conditions. Because the market being a whopping 4% off its all time highs truly qualifies as a force majeur in the IPO world. Only that's not it. What is "it" is the recent pounding all related housing REITs have experienced on nothing more than the mere concern that rates may, at some point rise (even despite the simple math conducted by Jeff Gundlach today demonstrating how a return to 5% interest rates would promptly destroy the US balance sheet in a few short years time).

Sure enough, suddenly all companies that did not have to concern themselves with plunging and uneconomical cash flows simply because their cost of capital would be laughably low no matter the asset side of the balance sheet, are in near panic mode. Such as Colony.

From the WSJ:

Colony American Homes Inc. postponed the pricing of its initial public offering Tuesday, citing market conditions, according to a person familiar with the matter.


The Scottsdale, Ariz.-based firm has projected its IPO of 20 million shares to be priced between $11.50 and $13 each.


Colony American’s postponement follows a selloff in shares of real-estate investment trusts the past two weeks, as the prospect of interest rates’ eventual rise has dulled the shine of high-dividend-paying stocks. REITs, property-owning companies that pay most of their taxable income to shareholders as dividends, had gained appeal as an alternative to bonds in recent years, as historically low interest rates left investors searching for income.


The single-family landlord would be the latest in a new class of REITs that have gotten a tepid reception from investors: those formed to buy single-family houses, rather than larger buildings like apartment complexes or office towers.


Colony American Homes was formed last year and seeks to buy houses in mid- and upscale neighborhoods with low crime and good school districts. As of April 30, the company owned at least partial shares in 9,931 homes in nine states, including California and Georgia. Veteran real-estate investor Thomas Barrack, founder of private equity real estate firm Colony Capital LLC, serves as chairman of Colony American.

However, Colony was not alone. Also after the close today, another rental REIT, the hilariously named American Homes 4 Rent also scrambled to file its own IPO prospectus, realizing the game is almost up.  And while we will let readers delve into the financials of the massively unprofitable rental REIT on their own (S-11 link here), the firm which has already invested $2.5 billion to purchase some 14,210 properties across the US, which in an ideal world would generate an average of $15,755 in cash rent per property (and a solid 9% cap rate if only on paper) suddenly also appears very worried about the rate compression between its assets and liabilities and can't seem to wait to cash out.

But what is most curious about the AH4R IPO is that it was only in November of last year that none other than Blue Mountain - the hedge fund located on the fifth floor of the JPM HQ best known for first raping then rescuing the JPM London Whale: one wonders just how much Andrew Feldstein might have overheard at the 48th Street Starbucks but we digress) invested over $70 million in the rental company. Six months later it is perfectly happy to be classified as a "selling shareholder."

Translation: the hedge funds that bought in barely six months ago into what everyone knew would be the easiest and most levered wave to ride the accelerated housing bubble, are now rushing to get out before the emperor's lack of clothes is obvious for all to see. If they can that is: for those who are forced to pull their IPOs, the sad housing reality summarized so aptly by Carrington is about to unfold.

But the best news for everyone, is that very soon we will have the answer if the past 18 months in rising prices were nothing but a transitory mirage created by Bernanke's printer. If the "smart money" is any indication, we are quite confident we know the answer already.

And just in case the less than smart money, i.e., reporters with an agenda and such, are confused by what is going on, here once more is Mark Hanson explaining just why the so much desired rising interest rates are nothing but a fast and anything but painless suicide for the housing sector.

Mainstream analysts have already forgotten that the bubble from 2003-2007 was all about "leverage-in-finance", I.e.: popular, exotic loan products of each period, terms, allowable DTI, documentation type, start/qualifying interest rates etc. For example, from 2003 to '05 a 5/1 interest only loan allowed 50% DTI qualifying at interest only payments. From 2006 to '07  Pay Option ARMs allowed 55% DTI at a 1.25% start rate. This made the "cost" of buying a house HALF of what it is today. Then when the leverage-in-finance all went away during a short period of time from late-2007 to mid-2008 house prices quickly "reset" to what people could afford to pay on a fundamental basis...30-year fixed mortgages, fully documented, 45% DTI, at a 6% interest rate.


Because 70%+ of homebuyers use mortgage loans -- and the monthly payment trumps the "purchase price" of the house with respect to purchase ability and decisioning -- then it stands to reason that the monthly payment rate of popular loan types of each period relative to house prices would determine whether or not house prices are once again bubbly.


Bottom Line:  the popular loan programs during the bubble years -- which allowed for rapid and large house price appreciation -- were not 30-year fixed loans like today. Rather, exotic interest only loans, negative amortizing Pay Option ARMs and high CLTV HELOCs.  Thus, comparing the "affordability" of houses using today's 30-year rates and program guidelines vs 30-year rates and guidelines from 2003 to 2007 is apples to oranges.


Based on "cost of ownership" for the 70% who need a mortgage loan to buy, CA houses are more expensive today than from 2003 to 2007.


This is why first-timer buyer volume has plunged to 4-year lows recently. And if not for the incremental buyer & price pusher -- the institutional "buy and rent or flip "investor" that routinely pays 10% to 20% over the purchase price / appraised value treating a house like a high-yield bond -- present house prices cannot be supported.


Bottom line:  Back in 2006 a $556k house "cost" as much as a $324k house does today.


* * *


After 5 years of interest rates being forced incrementally lower each year -- and everybody that qualifies refinancing over and over again allowing the banks to originate and earn several points off of each gov't loan churn -- the jig is up for a while at least.  The mortgage market is now so efficient -- and rates have been at historic lows for so long -- there is simply nobody on the proverbial "fence".


This morning I was made aware that three large private mortgage bankers I follow closely for trends in mortgage finance ALL had mass layoffs last Friday and yesterday to the tune of 25% to 50% of their operations staff (intake, processing, underwriting, document drawing, funding, post-closing).  This obviously means that my reports of refi apps being down 65% to 90% in the past 3 weeks are far more accurate than the lagging MBA index, which is likely on its' way to print multi-year lows in the next month.


As I stress in the note below, the "refi capital conveyor belt" is a quiet, yet powerful economic driver.  Not only do refi's grease homeowners balance sheets and have been responsible for the lions'' share of mortgage-centric US banks' earnings over the past few years but they are huge for the labor market.


With respect to jobs, well over 100 individuals touch one refi from loan application printing/shipping, up-front processing (appraisal, credit, bank/job verifications, title, escrow etc), to lender underwriting, document drawing, and funding, and through post-closing including securitization and trustee services. So when the refi door slams shut it's a macro headwind for which few account. In fact, many model the exact opposite...that rising rates is great for banks and the economy.

Naturally, Ben is aware of all of the above. Which is why it is only a matter of time before we get yet another "capital reallocation" catalyst event, which forces speculators out of stocks and right back into the "safety" of bonds where they can hibernate until 2014, when the "Great Rotation" charade that has repeated itself every year for the past four, can resume once more even as the even greater charade, Quantitative Easing, which is merely a wealth transfer mechanism from the middle to the upper class, is here to stay.

Assume rising interest rates indeed... Then promptly run for the hills.


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Tue, 06/04/2013 - 23:20 | 3625345 fonzannoon
fonzannoon's picture

rising rates are the catalyst for lower rates. sounds rational. what a mess.

Wed, 06/05/2013 - 00:15 | 3625416 Dingleberry
Dingleberry's picture

So you mean people buy payments, not houses?

You mean people that only have a few % to put down and use FHA are going to be negatively impacted by paying LIFETIME PMI starting this month?

Gee, what a fucking surprise.

Wed, 06/05/2013 - 01:36 | 3625472 TwoShortPlanks
TwoShortPlanks's picture

They will let the Housing Bubble burst once they are ready to contain it...and China is nearly there!

They will monetise and devalue to save Real Estate, because Real Estate values and Money Velocity values are closely related.

Buying MBS's has only ever been about kicking the Derivatard can down the road to where monetising Gold can become a reality. Likewise, QE has only ever been about building Bank Reserves and holding up the Derivatards and Shadow Banking mess.

I wonder if Obama's immediate response to a request to visit, at the behest of China, had any interesting issues attached?!

Wed, 06/05/2013 - 01:47 | 3625506 AldousHuxley
AldousHuxley's picture

FED knows housing bubble is best way to get people to consume so they have negative interests to have Americans buy a big piece of storage space first and then go shopping to fill it all up with junk from china.

American homes = storage unit

stuff = depreciating personal assets

consumerism = belief that things can bring you happiness while ignoring time with friends, family, and nature.


American standard of living = Big TV in a Big House watching other people have fun.


Wed, 06/05/2013 - 06:57 | 3625632 markmotive
markmotive's picture

If you think US housing is hitting bubble-levels, just look north of the border to Canada.

Canadian real estate could drag the Canadian economy into the gutter.

Wed, 06/05/2013 - 10:19 | 3626144 Precious
Precious's picture

And what exactly does all this have to do with Lumber Futures falling off a cliff. Nothing. Nothing I say.

Wed, 06/05/2013 - 08:03 | 3625713 TWSceptic
TWSceptic's picture

Not to mention the whole scheme is based on infinite debt creation and the belief this can and will continue without problems. Great economic and social model.

Wed, 06/05/2013 - 01:47 | 3625507 AldousHuxley
AldousHuxley's picture

FED knows housing bubble is best way to get people to consume so they have negative interests to have Americans buy a big piece of storage space first and then go shopping to fill it all up with junk from china.

American homes = storage unit

stuff = depreciating personal assets

consumerism = belief that things can bring you happiness while ignoring time with friends, family, and nature.


American standard of living = Big TV in a Big House watching other people have fun.


Wed, 06/05/2013 - 02:13 | 3625522 TwoShortPlanks
TwoShortPlanks's picture

That's so depressing it needs to be covered in two posts from now on, ok?!

Not doubled-up for that 'Squared' affect.

Gonna go now, I need to shave my wrists!

Wed, 06/05/2013 - 09:27 | 3625979 Yes_Questions
Yes_Questions's picture



Don't do it.

You're still needed 'round here.


Wed, 06/05/2013 - 03:07 | 3625544 Angus McHugepenis
Angus McHugepenis's picture

Fonz: Not sure how your posts are disapperaring and reappearing in a span of about an hour, espcially when I posted a reply to you about an hour ago. I have been monitoring ZH via Tor and a direct connection. Your post has popped up twice for a brief few seconds and then vanished again. Oddly, my reply to your phantom post has two up arrows but your original post is nowhere to be seen. How can people up arrow my comment if there was no original post from you on the screen? And how can TWO of my computers, both running independently, on TWO different IP addresses see the same anomoly?

Does Kito know you don't exist? Cue a Kito comment as soon as the keyword hits on THIS comment.

Edited at 1:06am, June 5th/13

Wed, 06/05/2013 - 03:01 | 3625548 Yamaha
Yamaha's picture

I just don't get it - just put some lip stick on this pig.......

Tue, 06/04/2013 - 23:21 | 3625346 lead salad
lead salad's picture

The Bernank is blowing bubbles out his ass....

Wed, 06/05/2013 - 05:35 | 3625594 cossack55
cossack55's picture

How did he grow a beard on his ass?

Wed, 06/05/2013 - 06:56 | 3625631 Proofreder
Proofreder's picture

Rehypothecation, no doubt.

Tue, 06/04/2013 - 23:25 | 3625353 IridiumRebel
IridiumRebel's picture

I'd like to thank ZH for the top heavy RE cratering stories. We are negotiating the sale of our house and I will be taking the deal. Losing a nice 13K cuz I was a fucking team blue pill 4 years ago and sucked fedcock. Live and ya learn.

Tue, 06/04/2013 - 23:51 | 3625381 Angus McHugepenis
Angus McHugepenis's picture

I feel for ya bro. But I got one up on ya... I have a bankster for a brother. I'll give you 20k if you do him dirty.

Wed, 06/05/2013 - 00:13 | 3625413 IridiumRebel
IridiumRebel's picture

We will mitigate losses by living with my folks for 6 months(ugh). I'll pass on the banker snub, but if it makes you feel better, the fool buying is a bank manager. I'll be the one guy laughing heartily when everyone else is going, "how could this have happened" post crash.

Wed, 06/05/2013 - 00:29 | 3625433 Son of Loki
Son of Loki's picture

"There's never been a better time then now to sell your house,' is what even my realtor is saying now....Hard to believe she could even mouth those words but she sees mortgage rate rise will sink house prices more.


Sounds reasonable.  After all, the Spin has been buy now while rates are low....when the Stampede to sell begins it's gonna be awful tough to sell if you have to move for a job or move closer to your kids.....and so on.....

Wed, 06/05/2013 - 01:13 | 3625487 kchrisc
kchrisc's picture

There's never been a better time to walk away from your house/ mortgage.

Wed, 06/05/2013 - 05:36 | 3625595 FreeNewEnergy
FreeNewEnergy's picture

I'd have to rewrite that as, "there's never been a better time to sue a bankster for mortgage fraud," which is just what I did on Monday. BofA has 30 days to acknowledge receipt of the Summons & Complaint and another 30 after that to answer the charges, all 39 of them.

Ought to keep their lawyers busy for a few days, adding another couple thousand to what they've already sunk into this shithole (which I duteously keep one level above condemnation status). Having already lived here four years while BofA paid the taxes, I figure even if I lose, I've already won.

Let them eat sheetrock!

Wed, 06/05/2013 - 12:21 | 3626540 MachoMan
MachoMan's picture

You might want to consider the possibility of losing attorneys fees...  which will increase proportionately with the number of allegations in your complaint...  In a very short time, you can run into enough money to buy a house.

Wed, 06/05/2013 - 07:41 | 3625673 loonyleft
loonyleft's picture

"There's never been a better time then now to sell your house,'

That's what she is saying...... to you


There's never been a better time to buy as she sees interest rates going what she says to her buyers. 


Realtors = Bankers who couldn't make the grade. Monopolizing information, insulating themselves from any responsibility and taking oversize commissions. 

Wed, 06/05/2013 - 08:12 | 3625739 duo
duo's picture

Many of the people I know have their homes up for sale, but I don't know any that are buying.  I guess they want to cash out and rent the house next door.

Wed, 06/05/2013 - 11:01 | 3626294 Ruger556
Ruger556's picture

I would think that renting in time of high inflation is bad.. unless you can get a 10 year lease or something very long term.  I myself bought a small farm at 3.5% fixed in US dollars.  Once the inflation hits and I start getting paid 9billion dollars a week (see Germany), I can pay that right off. In additon I have a enough PM to buy out the mortgage when the spot price spikes and have enough left over to scoop up other assets.  They aren't making any more land.. and it is always good to be able to grow food, have a well/septic and be able to raise animals too.  Maybe I am niave.. not sure.  But that is the way I see it now. 

Wed, 06/05/2013 - 12:24 | 3626550 MachoMan
MachoMan's picture

Correction, renting at a time of high DEMAND PULL inflation is bad...  However, during cost push inflation, it gets hard to pay historically low fixed rates on virtually everything.  Huge distinction...

That said, if you can live off your land and enjoy it and it helps fulfill you, then it's probably a good choice presuming you're not stepping too far out on a limb to do it.  I wouldn't be expecting to get rich though. 

Wed, 06/05/2013 - 13:49 | 3626922 Ruger556
Ruger556's picture

Nope, not expecting to get rich, just have a decent house.. with enough land to have a very large garden and the ability to graze 5-5 horses/cattle..  and some chickens..

Wed, 06/05/2013 - 01:18 | 3625434 Angus McHugepenis
Angus McHugepenis's picture

I should have used a /s tag re doing my bankster brother. Regardless, I've followed your saga on ZH and I was hoping you could just sell the fucking house, get out, and start anew. In a previous life I used to deal in commodities shipped by rail & sea. No computers, internet, or instant communication (yeah, I'm a fucking fossil almost). We had ONE rule...

The first loss is your best loss... take the hit, move on, before you start second guessing your second guesses...

You're a smart MF. You will do well. Just don't beat yourself up over a one time thing.


Edit: Iridium... I see you're stepping into self pity in a comment above. No need for such bullshit. Take the punch. Then stand up and fight again. I'll tell you horror stories of my winnings and losings that will scare the virginity out of a high school cheerleading squad. Umm... wait... bad example. Do cheerleaders anywhere still have virginity?

Wed, 06/05/2013 - 12:33 | 3626572 MachoMan
MachoMan's picture

Yes, plenty of virgins...  it's because, like everything else in the english language, the definitions of once basic and obvious terms have been corrupted to the point of nonsense....  In this case, virginity doesn't mean sexual innocence any longer...  It is a hyper-technical term solely referring to penetration from a penis...  In other words, blowing an entire football team...  letting the basketball team run an anal train...  lezzing out with a scissoring and fingering melee...  and even handjobs for the janitor are all fair game...  nothing to do with virginity.

And...  even if one has been deflowered...  there are apparently do-overs by being "born again virgins"...  not sure how that works, but I digress...

Wed, 06/05/2013 - 00:03 | 3625403 Manipuflation
Manipuflation's picture

IR, all I have to say is Fuck.  I wonder how well matches would work as a broken window?

Wed, 06/05/2013 - 00:17 | 3625414 IridiumRebel
IridiumRebel's picture

Meh, I'm over it. Fuckin deal will prolly fall through knowing my luck.

Wed, 06/05/2013 - 09:53 | 3626072 Goner
Goner's picture

If it fell thru it would be a blessing in disguise (assuming you live in a non-recourse state)

Why not just stop paying your mortgage. Live in the house rent free till they can kick you out. Forclosures are running 8-12 months in most places and that is assuming you dont fight it. I know people living in the same house going on 3 or 4 years and never making a single payment.

If you pay the water/ gas/ garbage and mow the lawn the bank is often in no hurry to get you out of the door so they have to do all those things. And that assumes they have the legal ground to stand on.


Yeah its going to trash your credit but who cares. You will save a ton of cash and when you go to rent pay 6 months in advance, NO one is going to turn you away. It seems like almost everyone has dings on their credit now so its not the stigma it was before. Plus you can rebuild your credit fairly easy if thats what you care to do

Dont let the bank steal more money from you and turn around and sell it to the next sucker.

Wed, 06/05/2013 - 12:34 | 3626582 MachoMan
MachoMan's picture

The more you're underwater, the longer you get to stay...

Wed, 06/05/2013 - 13:47 | 3626915 Tapeworm
Tapeworm's picture

Yeah, sure.

 The ones that live rent free are the ones that Ben B is buying out from the TBTF banksters with the QE and saddling the responsible with the bills.

 Would you consider buying any of the MBS crap that the FED is buying?

Wed, 06/05/2013 - 02:02 | 3625517 HulkHogan
HulkHogan's picture

Sorry you're losing money on the deal. I bought a new house in 09 at 33% off the asking price. I think I got a good deal, but I have a feeling if I sold now I'd be losing money on it. Stupid things, you just can't know what a house is worth until you sell.

Tue, 06/04/2013 - 23:27 | 3625359 WillyGroper
WillyGroper's picture

Geez, just from reading this I start getting "Discover Home Loan" ads.

Wed, 06/05/2013 - 02:32 | 3625536 TheMerryPrankster
TheMerryPrankster's picture

all I see are ads for 1958 buicks and Lucky Strikes Calvalcade of stars.

Tue, 06/04/2013 - 23:27 | 3625360 disabledvet
disabledvet's picture

Q: "How do you rape a whale?" A: "tell it to open wide."

Tue, 06/04/2013 - 23:33 | 3625367 aint no fortuna...
aint no fortunate son's picture

Fuck Bernanke

Tue, 06/04/2013 - 23:37 | 3625372 ebworthen
ebworthen's picture

Just as long as this doesn't make the Nightly News with Brian Williams all is fine.

The retail house flippers and investors will put their feet and legs in the piranha infested waters all over again.

The banks and the big boys will be defended at all costs.  If you don't have an inside source STAY OUT OF THE WATER.

Tue, 06/04/2013 - 23:39 | 3625373 SilverIsMoney
SilverIsMoney's picture

Something ive seen at my job are banks handing over foreclosure properties to various fake LLCs they basically conjure out of thin air to give the potential buyer the impression theyre buying from a developer and not the desperate bank trying to dump the properties. Among other things this is used as a way to drive up the price. Its all pretty crazy. Recovery my balls, the entire housing market is being driven by foreclosures and I know because I work in it.

Tue, 06/04/2013 - 23:53 | 3625389 Bay of Pigs
Bay of Pigs's picture

Amazing what passes as "legitimate" business transactions these days, isn't it? Just different ways to commit moar fraud.

The TBTF banks are unloading this dogshit as fast as possible and will be smiling when the smoke clears and the shell holding companies go tits up.

Wed, 06/05/2013 - 01:28 | 3625497 kchrisc
kchrisc's picture

I heard that the banks were "selling" their inventory to their fake LLC/entities using debt instruments from the same or partner banks.

1. Potemkin LLC over pays for homes from Bank A using note from same said bank or partner bank.
2. Potemkin LLC sells some inventory to greater fools for a "loss."
3. The "losses" can then eventually, using Enron like black-magic, be used by said Bank A later for tax purposes.
4. Music stops and RE craters, no problem, foreclose, write-off the "debt" (more tax benefits) and get bailed out again.
5. Rinse and repeat

Wed, 06/05/2013 - 04:28 | 3625582 ebworthen
ebworthen's picture

And the loans are being bundled and securitized, then bought to the tune of $40+ Billion per month by the FED.

Wed, 06/05/2013 - 05:46 | 3625598 FreeNewEnergy
FreeNewEnergy's picture

eb, exactly the point I've been making the past year or so, that the Fed, buying all this shit paper, is basically bankrupt, but that shouldn't surprise anyone, as the biggest, baddest bank of them all is just another pile of lies.

When this whole REO-to-rent business began, I thought that it would never work. My sister and her master carpenter husband own about 30 units, and they keep him busy full-time and she chips in time collecting rents and doing the books. These investment firms that went into the landlord business didn't know the first thing about it and are about to learn some valuable lessons.

But, bottom line, the Fed is holding billions at face values which cannot ever be reconciled with reality. End the Fed? Why bother? They're doing it to themselves. Hope they all go up in huge, vaporizing flames.

Wed, 06/05/2013 - 10:56 | 3626271 NihilistZero
NihilistZero's picture

"...the Fed, buying all this shit paper, is basically bankrupt..."


The Bank "never goes broke." If the Bank runs out of money, the Banker may issue as much as needed by writing on any ordinary paper. - MONOPOLY Rules

The plan was always tomove all the toxic paper from the banks to the FED.  They just took there time doing it so most of the sheeple wouldn't notice or understand.  This is why there is an end date for QE and interest rates will rise, the shell game must go on.

Wed, 06/05/2013 - 17:42 | 3627704 kchrisc
kchrisc's picture

When I heard about corps buying and renting homes to the public I had to laugh. I don't know too much about it all but I did once rent apartments to the public in an apartment complex of 474 units (and I once stayed at a Holiday Inn Express, but I digress). I have also had friends with a home or two for rent and none of them were happy about it.

In the complex I rented for, everything was the same and bought in bulk. Most problems were routine and parts and experience were on hand to take care of them and yet it was still expensive and difficult.

My first thought based on my limited knowledge was that homes have different everything maintenance wise, geographic separation and differing tenant demographics. It is also much easier for a tenants to abscond over a weekend. Conclusion: gonna cost twice as much to maintain and operate.

Add that to the finance side and kaboom!"


Wed, 06/05/2013 - 00:54 | 3625461 resurger
resurger's picture


Tue, 06/04/2013 - 23:39 | 3625376 q99x2
q99x2's picture

You mean that the FED can predict all that into an annual business cycle without anything going wrong. That be some ChairSatan.

Wed, 06/05/2013 - 01:02 | 3625465 G-R-U-N-T
G-R-U-N-T's picture

'You mean that the FED can predict all that into an annual business cycle without anything going wrong."

The "annual business cycle" they haven't a clue, but the 'anal' business cycle, more their expertise, especially when it comes deflating the masses while reaming them into a primal scream!   



Tue, 06/04/2013 - 23:43 | 3625379 the grateful un...
the grateful unemployed's picture

it was around the time, when wayne angell said that of course they were lowering rates, because thats how you fight inflation in this market. what it means is the triangle between the fed, private equity and the economy is just a direct conduit. lower rates mean lower prices, and vice versa. the problem with rising home prices is NOT ENOUGH QE, now if that thought scares you [it does me] imagine what happens if rates actually do move higher which is another way of saying a 324k house costs 1/2M because credit is tight. if this bizarro statement is correct wall street has bailed out too soon, and it may be that just because home prices rise that rents will not, which is what the fed uses to measure CPI by the way. 

Tue, 06/04/2013 - 23:49 | 3625382 ghostfaceinvestah
ghostfaceinvestah's picture

The impact of rising rates will be brutal.  the Freddie PMMS bottomed out at 3.35% back in Nov/Dec.  Now a 30 year fixed is about 4%.  If you do the math, assuming the average Fannie/Freddie LTV of 70%, that means, to keep the same P&I payment, the borrower can afford 6% less in house.  Or, all else equal, house prices will have to fall 6% to maintain the same level of affordability.

If rates go to 4.5%, that translates into about an 11% drop in house prices.

And, as Mark Hanson mentions, the impact on the mortgage industry will be enormous.  Not only will there be job losses, but a lot of big banks have warehouse lines out to these mortgage banks who are set up to service a 75% refi market.  When refis drop to 20%, these mortgage banks will fold.

Wed, 06/05/2013 - 00:13 | 3625412 mayhem_korner
mayhem_korner's picture



Rising interest rates is not only the death knell for housing, but it's also the death knell for the global economies.  Servicing that $17T "mortgage" the US has rung up is going force Ben to put the printing presses into overdrive.  Which lends to the irreconcilable paradox - the strategy to avoid accelerated printing later (to service debt) is to accelerate printing now (to keep yields from rising). 

You know things are FUBAR when the remedy and the problem are one and the same. 

The CBs are running out of fingers to plug the holes in the dyke.  I've said before but it bears repeating - this slow motion train wreck seems like it is forever in playing out, but once it is here in earnest it won't seem like it took so long.

Wed, 06/05/2013 - 01:04 | 3625476 resurger
resurger's picture

If the CB's are trying to help the economy, why didnt they offer to buy all the real estate in America from the average joe at face value?!

They have to floor it, it wont be long from now untill the CB's reverse repo all RE at face value for cheap cash +  they pay interest on the lent cash.

 NOTE: There is no way they can allow the 30000X Leveraged towers to fall, you need an earthquick which will only come from people and blood.


Wed, 06/05/2013 - 08:18 | 3625754 spine001
spine001's picture

You are describing a single bifurcation in a fractal system of a non linear dynamic feedback loop system. When it starts bifurcating hang on to your pants... Inflation/deflation cycles will follow each other until a new attractor (set of conditions that makes the system stable again) is found. Do you want to be scared for real? Well, economists were not taught anything at all about this. Onky physicists and control engineers do know this field. That is why the hedge funds hire physicists for algo design. How do I know? Well, I signed up into an MBA program and have PhDs in finance as Proffesors. Chaos theory is something esoteric for them. I was exposed to it in 1983...

zerohedge published one article and promised more but they stopped, may be they found out/understood finally what I am saying... and it became too negative even for zero hedge. Basically there is no way out inside the current set of paradigms we have now...Steve Hawkins knows this and he indicared in one of his last conferences on video tube that humanity is at its most dangerous point in history and he wonders if it will survive for the next hundred years. Being in good company doesnt help me, I'd very mych prefer to not understand what is going on...

Until next time, Engineer






Wed, 06/05/2013 - 09:00 | 3625861 Orange Pekoe
Orange Pekoe's picture

Tell us more. I've been looking forward to reading a chaos book by James Gleick recommended by Robert Sapolsky to help explain biology. (Thumbs up for Sapolsky's bio course in iTunes!)

Wed, 06/05/2013 - 11:04 | 3626299 NihilistZero
NihilistZero's picture

"Rising interest rates is not only the death knell for housing, but it's also the death knell for the global economies."

Treasury and mortgage debt don't always move in lock step.  Also the FED could basically buy all new Treasury debt (where the interest is returned to the Treasury) while exiting the mortgage market.  Then you'd have mortgage interest actually being paid and Treasury interest being monetized.  If that's the case you could easily have an intrest rate based crash in RE that could be contained from the Treasury market.  Unless I am missing something...

Tue, 06/04/2013 - 23:51 | 3625383 PiltdownMan
PiltdownMan's picture

Oy vey!

Wed, 06/05/2013 - 00:10 | 3625410 Agent P
Agent P's picture

Oh yeah? If the housing recovery isn't real, then why was FBN down 21% today?



Wed, 06/05/2013 - 00:16 | 3625418 otto skorzeny
otto skorzeny's picture

USG took a nice hit too. Funny how USG was hours away from bankruptcy a few years ago and then Uncle Warren took a stake in them and now it's all good.

Wed, 06/05/2013 - 00:17 | 3625420 TahoeBilly2012
TahoeBilly2012's picture

OMG I have never been so happy to NOT own a home. Too bad I am in construction, I love buildings and such, when they are OTHERS.

Wed, 06/05/2013 - 02:25 | 3625534 TheMerryPrankster
TheMerryPrankster's picture

My house is paid for.i use it as a residence, not as a bank. its pretty nice not paying rent or a mortgage. i can cut a hole in the wall and put in a pachinko machine if i want. i can plant corn in my front yard.

Its not bad to own a home, but its a bitch to be renting from the bank and be upside down.

do i have to do maintenance? law of entropy says yes, but only til i die. I enjoy working around the house. I like knowing the quality of repairs and the materials used. It does one good to learn how to be self sufficient.


Wed, 06/05/2013 - 09:28 | 3625982 nowhereman
nowhereman's picture

The myth of home ownership sparkles in your eyes.  Just try not paying the ever increasing property tax and see what happens.

Wed, 06/05/2013 - 12:29 | 3626564 pazmaker
pazmaker's picture

let's property tax of $958.00 per yr on my paid off home on 5 acres of land where I raise chickens, rabbits garden(basically all my own food)......or pay $980.00 per month to rent a 3 bed 2 1/2 bath on 5 acres of land.......hmmm I think I'll take the myth of homeownership! 

Wed, 06/05/2013 - 12:54 | 3626678 nowhereman
nowhereman's picture

I dare say that you also hold a job  $958/year is a sweet deal, I must say. 5 acres you say. How much does it cost you for upkeep? Gas and oil? Machinery? Maintenance? Insurance? Or does your horse do all the work? The myth of which I speak, is the myth that you actually think you own it.  You don't! The municipality owns it, and like I said, if you don't pay the taxes (in your case, minimal) they will take it away.  Now, if you live on your acerage and make enough money off of your labor to provide for the costs involved and have enough left over at the end of the year to pay your taxes then you truly are a lucky man.  But somehow I doubt that this is the case.  You are still a debt slave and are blissful in your ignorance of that fact.

Wed, 06/05/2013 - 13:11 | 3626752 pazmaker
pazmaker's picture

you and math don't get along too well do you?


Rent:958x12 = $11496.00

Electricity= 110 x 12 = 1320

Gas and oil:  according to you it is free when you rent

Insurance:  again it must be free when you rent(according to you)

Somehow I think it's useless explain the math to you.


So pray tell who is more of the debt slave you -the renter who is paying your landlords mortgage at $11496 a year?

or me paying $958 a yr?


Or clue us in tell us how we can all live for free and pay nothing to no  one(besides living in mom's basement)


I think you are the one living in ignorance my friend.

Wed, 06/05/2013 - 15:14 | 3627249 nowhereman
nowhereman's picture

Jeez my friend, it's not about the math, it's about the fact that home ownership is a fallacy that you can't seem to wrap your head around. You are tightly in the grasp of the Matrix.  Stay plugged in my friend, even though you know this to be true, pretending it's not can keep you comfortable.  (at least for a while)

Wed, 06/05/2013 - 02:14 | 3625421 Angus McHugepenis
Angus McHugepenis's picture

Sorry Fonz, you're still one of the players trying to make a living from the system you hate. What a mess...

Wed, 06/05/2013 - 00:35 | 3625442 booboo
booboo's picture

shhhhhh! I almost have a contract on the house, don't scare the blue pill popping bag holders er, I mean the children.

Wed, 06/05/2013 - 00:35 | 3625443 dunce
dunce's picture

It seems we have a bifurcated real estate market and it seems to be split between blue and red states so we are back to location, location, location. I am in the wrong location maybe, i have been trapped for 5 years.

Wed, 06/05/2013 - 01:01 | 3625469 Judge Crater
Judge Crater's picture

The entire business of buying homes by the thousand to convert the houses to rentals is based on false assumptions.  Costs to maintain a home are skyrocketing, from the cost of insurance to energy to the cost for repairs.  See a few episodes of the series "Holmes On Homes" to see the problems you have when your contractor is not Michael Holmes.  Right now, I think Donald Trump was right when he said "cash was king."  

Wed, 06/05/2013 - 05:56 | 3625602 buzzsaw99
buzzsaw99's picture

Also the assumption that people who can't pay the mortgage will have to pay much more in rent. It's funny that "smart money" couldn't tell that people are broke.

Wed, 06/05/2013 - 06:54 | 3625630 andrewp111
andrewp111's picture

An assumption that could even be true, at least in jurisdictions where landlords can evict easily. Many underwater borrowers put the mortgage on low priority if they know they can get away with staying there for years rent-free. But in states like VA, not paying the rent will get you tossed within a short time.

Wed, 06/05/2013 - 07:46 | 3625678 MilwaukeeMark
MilwaukeeMark's picture

Watch for vote pandering pols to enact laws to help the victims of rental abuse (aka 'the landlird is busting my balls cuz I can't pay my rent') to enact tough laws on eviction. Of course thay will be trotted out as the "renters fairness act" or some such bullshit.

Then ... in part two of the melodrama ...see pissed off renters (who are now convinced they are the real victims) start to abuse the asset/house. Then watch as politicians, ever more eager to pander for tv and votes, enact tough standards on maintaining rental property, which will be called something like "fairness minimum maintenance act", which will come loaded will all sorts of renters' rights to sue.

Let's see how the REIT's cash flow modeling works then.

Wed, 06/05/2013 - 10:05 | 3626120 Goner
Goner's picture

I agree, but they already have all those laws. Trying to evict people is a pain and once you do evict collecting from them is next to impossible for the back rent as well as the damage they did while living in your home NOT paying rent. They move onto the next house and do the same thing.

But I suppose they could make it even worse, to be fair and for the children of course

Wed, 06/05/2013 - 13:50 | 3626629 MachoMan
MachoMan's picture

They don't really have them here...  It's all about the landlord lobby...  the simple fact is that laws are paid for and well...  deadbeats don't get many favorable laws passed.

Here, if you want to contest getting evicted, then you have to pony up the amount alleged to be owed into the court's registry...  and you have 5 days from the filing of the complaint to do it or a writ of possession gets issued.  I've never seen a single person meet the requirements...  although, I've seen a lawyer (debtor) try to contest an eviction, but once it went to court, he lost for failing to pony up the cheese.  [of course, anyone that could pony up the cheese would simply settle with the landlord, prior to any court action, so as to save attorneys' fees].

Treble damages for commercial tenants too.

Just depends on the landlord lobby...

Wed, 06/05/2013 - 06:41 | 3625622 goldenbuddha454
goldenbuddha454's picture

no jobs=no renters=no income=no asset appreciation=enuff said.....

Wed, 06/05/2013 - 01:02 | 3625473 robertocarlos
robertocarlos's picture

We used to have a laugh over those "Suzy says" Real estate ads. The husband, no doubt, bought the house and then blew his brains out.

Wed, 06/05/2013 - 01:14 | 3625488 jonjon831983
jonjon831983's picture

"JPMorgan’s Alabama Debacle Set to Cost Bank $1.5 Billion"


From one tax payer to another... or something like that.


"The biggest U.S. bank by assets agreed to forgive $842 million of debt owed to it by Jefferson County, Alabama, where it took the lead in arranging risky securities deals that pushed the county into the largest U.S. municipal bankruptcy."

Wed, 06/05/2013 - 05:58 | 3625605 buzzsaw99
buzzsaw99's picture

Dimon should go down to Jefferson County and order "The Special".

Wed, 06/05/2013 - 07:18 | 3625650 JungleJim
JungleJim's picture

.38 or .44 ?

Wed, 06/05/2013 - 01:23 | 3625491 TradesForDays
TradesForDays's picture

False inventory controls by banks. delaying the foreclosure process creates less supply ie artificially inflating prices coupled with free money from PE and HF to pick up the "slack from banks" when they start to breach "unhealthy levels of real estate holdings" on their balance sheets. It's a second story central banker circle jerk and the ordinary joes and janes will be left with nothing but a pearl necklake.

But no need to panic, ben and the boys are doing fantastic at creating wealth and keeping inflation low. HAHA

SP 1250 by sept, 10 YR pushing 3 by Oct.. it will be ugly.

Wed, 06/05/2013 - 02:04 | 3625518 css1971
css1971's picture

Initial Public Offering (IPO);

Bailing. Dumping to the idiots.


Wed, 06/05/2013 - 03:24 | 3625560 Tenshin Headache
Tenshin Headache's picture

Nice piece Tylers.

Wed, 06/05/2013 - 03:55 | 3625574 Dan The Man
Dan The Man's picture

Just a silly-assed question...But could it happen that raising interest rates in a long term ZIRP environment might actually accelerate buying out of a sort of Volcker fear, a la 1981?

Wed, 06/05/2013 - 06:50 | 3625626 andrewp111
andrewp111's picture

Sure. But only to the limit where buyers have money to buy, or can get loans. Until personal income rises in the aggregate, there is no way that the housing market can do more than just bounce along the bottom in a mini boom-bust inventory cycle.

Wed, 06/05/2013 - 04:11 | 3625579 pfairley
pfairley's picture

How about making your long sentences shorter, less parenthetic, more coherent, more readable?

Wed, 06/05/2013 - 04:58 | 3625588 kareninca
kareninca's picture

Mark Hanson used to be "Mr. Mortgage."  I've been reading his stuff for years.  He is truly great.

Wed, 06/05/2013 - 05:57 | 3625604 FreeNewEnergy
FreeNewEnergy's picture

So, this means we should all BTFD, right?

Bullish, bitchez! </s>

Wed, 06/05/2013 - 06:11 | 3625607 CHX
CHX's picture

If indeed even Dora knows, then it is about bubble popping time. Enjoy :-)

Wed, 06/05/2013 - 06:43 | 3625623 notadouche
notadouche's picture

The first generation to consider 5% interest rates as being catastrophically high.  What does that tell you?  Can you imagine how, if your old enough, a family back in tme late 70's would've felt about having a mortgage rate of below 8%?  My gosh they woud've been estatic!  The saver of that time would've been heartbroken for getting 8% on a CD rate.  Man what I would do for an 8% CD rate!

Wed, 06/05/2013 - 08:45 | 3625811 DOT
DOT's picture

Be patient, that 8% rate will be available about 5 mins. before the 9% rate.

Wed, 06/05/2013 - 08:27 | 3625766 spine001
spine001's picture

Somebody has to explain what interest rates really are and where they come from historically speakin Tyler. That would be a great article and it will show why current levels are not sustainable for the long haul no matter what the FED does...

Wed, 06/05/2013 - 11:16 | 3626341 moneybots
moneybots's picture

"There’s a lot of -- bluntly -- stupid money that jumped into the trade."


Isn't it really getting to be all stupid money?  Is it smart for the "smart money" to destroy this country?  What are they going to be bringing onto themselves?

Wed, 06/05/2013 - 11:27 | 3626386 moneybots
moneybots's picture

"Based on cost of ownership" for the 70% who need a mortgage loan to buy, CA houses are more expensive today than from 2003 to 2007.


Houses were pretty expensive for those who were foreclosed on in the 2008 bust.

Wed, 06/05/2013 - 13:00 | 3626711 boeing747
boeing747's picture

Most of forclosed homers are already owned by Ben thru MBS purchases, local banks just Bens' property managements. House is Asset on the balan-sheet of local county and lender, but it's Liability on your balan-sheet.

Wed, 06/05/2013 - 13:08 | 3626744 boeing747
boeing747's picture

I believe that if you buy a new house in san jose, then in first 5 years you have pay 3-5% property tax to offset the cost of public roads, utility pipes and landscapings.


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