We had wondered what would happen once private equity players decided enough was enough and foreign oligarchs finished their real estate money laundering transactions. Well, we might be about to find out. According to RealtyTrac, foreclosures for homes worth $5 million or more are up 61% this year despite the fact that overall foreclosures are down 23%. The question is, does this merely represent holdouts from the prior housing bubble, or is it a sign of things to come? Only time will tell.
It seems, despite the Fed's efforts to unscamble the treasury complex's eggs, that the rate shock of a taper/no-taper decision has become sticky in the housing market. With the fast money exiting, existing home sales missed expectations for the 4th month in a row - dropping to the lowest annualized number since June (very much against the trend in recent years). This is the biggest month-over-month drop in existing home sales since June 2012 but, of course, NAR has an excuse... "low inventory is holding back sales." So, in other words, they could sell loads more houses if only there were more available for sale (or prices were lower...)...
- Contractors describe scant pre-launch testing of U.S. healthcare site (Reuters)
- Carney Says BOE Revamp Offers Wider Access to Cheaper Funds (BBG)
- Help wanted in Fukushima: Low pay, high risks and gangsters (Reuters)
- Merkel and Hollande to change intelligence ties with US (FT)
- Twitter IPO pegs valuation at modest $11 billion (Reuters)
- NSA monitored calls of 35 world leaders after US official handed over contacts (Guardian)
- Officials alert foreign services that Snowden has documents on their cooperation with U.S. (WaPo)
- Scottish Nationalists Lose Vote After Plant Threatened With Axe (BBG)
- Fernández contemplates a train wreck in Argentine elections (FT)
- Irish Government will consider ‘best options’ for bailout exit (Irish Times)
As RealtyTrac observes in its latest flipping report, while home-flipping among high-end homes, or those reserved exclusively for the New Normal aristocracy which buys and sells with reckless abandon almost exclusively on an all cash basis, is up 34% over the prior year with flipping on houses priced between $2 and $5 million was up a ridiculous 350%, overall flipping activity is finally starting to subside and in the third quarter was down by a third from Q3 and over 10% down from the the prior year. Not surprisingly, the bulk of the ultra-luxury flips were limited to New York and the four core California bubble markets. "More than three-fourths of all high-end flips were in five markets: the New York metro area and four coastal California markets — Los Angeles, San Francisco, San Jose and San Diego. Flips on homes priced between $1 million and $2 million increased 42 percent year over year, while flips on homes priced between $2 million and $5 million increased 350 percent year over year."
The 19% increase in the Case-Shiller home price index since March 2012 is widely thought to have boosted the prospects for overall household spending via the “wealth effect” transmitted by rising prices and cash out refinancing. But as Bloomberg's Joseph Brusuelas notes, claims that spending is about to snap back should be interpreted with caution.In fact, there is little evidence that the bottoming out of cash out refinancing is translating into rising demand for the moribund service or non-durable retail sectors. Perhaps a lesson for Ms. Yellen here?
Five years later, while some are congratulating themselves on avoiding another depression, no one in Europe or the United States can claim that prosperity has returned. The financial system may be more stable than it was five years ago, but that is a low bar – back then, it was teetering on the edge of a precipice. Those in government and the financial sector who congratulate themselves on banks’ return to profitability and mild – though hard-won – regulatory improvements should focus on what still needs to be done. Some are pleased that the economy may have bottomed out. But, in any meaningful sense, an economy in which most people’s incomes are below their pre-2008 levels is still in recession. An The glass is, at most, only one-quarter full; for most people, it is three-quarters empty.
Meet The Monster Of The Housing Market: Presenting "Vampire REOs" Where Half Of Americans Live Mortgage-FreeSubmitted by Tyler Durden on 10/03/2013 08:44 -0500
Over a year ago, in addition to the money-laundering aspect (confirmed previously) and the REO-To-Rent scramble by PE firms and hedge funds (which is now over as PE become active sellers of apartment rental properties), we highlighted the third implicit subsidy to the housing non-recovery: Foreclosure stuffing. We explained this scheme by banks to limit the amount of available for sale inventory as follows: "since the properties not entering the foreclosure pipeline are effectively kept out of inventory, even shadow inventory, and thus the distressed end market, the monthly drop in foreclosures has acted as a form of subsidy to the housing market, as month after month less inventory than otherwise should, enters the market.... What this has resulted in is a logical increase in prices of the properties that are on the market." Today, the mainstream has finally caught on, and courtesy of RealtyTrac has come up with its own name for this subsidy: Vampire REOs.
Why Treasuries will likely rally and the dollar sell-off in response to the FOMC.
President Obama's speech last during the 50th anniversary of MLK may seem sadly ironic now. As he noted, "Dr. King explained that the goals of African-Americans were identical to working people of all races: decent wages, fair working conditions, livable housing..." but the facts are that, as Bloomberg reports, while, for most Americans, the real estate crash is finally behind them and personal wealth is back where it was in the boom. For blacks in the U.S., 18 years of economic progress has vanished, with a rebound in housing slipping further out of reach and the unemployment rate almost twice that of whites. The homeownership rate for blacks fell from 50% during the housing bubble to 43% in the second quarter, the lowest since 1995. The rate for whites stopped falling two years ago, settling at about 73%, only 3 percentage points below the 2004 peak. As Rev. Alvin Love, who knew Obama in the 80s notes, "it's going to take a generation to get back to the point where homeownership can build wealth in this community."
Schaeuble and Merkel have very recently confirmed what was leaked a month ago - that Greece will likely get yet another 'helping hand' aid program. Some have noted that this may be financed using EU funds instead of additional loans from EU-area countries (or the IMF) yet Merkel's comments (perhaps playing to her electioneering needs) appeared to dismiss this - prompting talk of a 'bail-in' based on the new normal 'template' applied to Cyprus. Greece has so far received two bailout packages totaling EUR240 billion (with about EUR22 billion still to be released) which is 130% of Greece's GDP (which stands at EUR186.2 billion) and while the thord package appears smaller (for now) at EUR10.9 billion (based on IMF funding gap forecasts), this covers only the period through 2015 (and we know how accurate the IMF has been in the past with its hockey-sticks). Greece remains mired in the sixth year of a recession with more than 6 out of 10 young people unemployed.
There are very few segments of the U.S. economy that are more heavily affected by interest rates than the real estate market is. When mortgage rates reached all-time low levels late last year, it fueled a little "mini-bubble" in housing which was greatly celebrated by the mainstream media. Unfortunately, the tide is now turning.
- "Ooops": Barclays reveals £12.8bn balance sheet hole (FT), Barclays Bows to Pressure With Share Sale (WSJ)
- Bank of Italy Inspecting Top Lenders' Books (WSJ)
- Obama to propose 'grand bargain' on corporate tax rate, infrastructure (Reuters)
- China injects funds into money markets, quelling fears (FT)
- Berlusconi faces verdict that could endanger Italian government (Reuters)
- Shale Threatens Saudi Economy, Warns Prince Alwaleed (WSJ)
- Qatar Finds Revolution Abroad Not as Easy as Stock Picks (BBG)
- Cities Begin Hiring Again (WSJ) - not to mention filing for bankruptcy
- Big Question Hangs Over Small-Caps (WSJ)
- China Politburo Pledges to Press On With Restructuring Economy (BBG)
- Bank Revenues Surge on Trading Over What Fed Will Do (BBG)
The optimism over the housing recovery has gotten well ahead of the underlying fundamentals. While the belief was that the Government, and Fed's, interventions would ignite the housing market creating an self-perpetuating recovery in the economy - it did not turn out that way. Instead it led to a speculative rush into buying rental properties creating a temporary, and artificial, inventory suppression. The risks to the housing story remains high due to the impact of higher taxes, stagnant wage growth, re-defaults of the 6-million modifications and workouts and a slowdown of speculative investment due to reduced profit margins. While there are many hopes pinned on the housing recovery as a "driver" of economic growth in 2013 and beyond - the data suggests that it might be quite a bit of wishful thinking.
"For years, the City has spent more than it takes in and has borrowed and deferred paying certain obligations to make ends meet. The City is insolvent" - Kevin Orr
Banks are NOT looking to hang onto REO property. Read Basel III. 150% risk weight for distressed...