Tag Archives: Housing market

Trouble Ahead For The Housing Market, Adam Taggert

Posted on July 18, 2018 | Leave a comment

Housing may not initiate the next financial crisis, like it did the last one, but it will certainly contribute to it. From Adam Taggert at peakprosperity.com:

Our good friend John Rubino over at DollarCollapse.com just released an analysis titled US Housing Bubble Enters Stage Two: Suddenly Motivated Sellers.

He reminds us that housing bubbles follow a predictable progression:

  • Stage One: Mania — Prices rise at an accelerating rate as factors like excess central bank liquidity/loose credit/hot foreign money drive a virtuous bidding cycle well above sustainably afforable levels.
  • Stage Two: Peak — Increasingly jittery owners attempt to sell out before the party ends. Supply jumps as prices stagnate.
  • Stage Three: Bust — As inventory builds, sellers start having to lower prices. This begins a vicious cycle: buyers go on strike not wanting to catch a falling knife, causing sellers to drop prices further.

Rubino cites recent statistics that may indicate the US national housing market is finally entering Stage Two after a rip-roaring decade of recovery since the bursting of the 2007 housing bubble:

  • the supply of homes for sale during the “all important” spring market rose at 3x last year’s rate
  • 30 of America’s 100 largest cities now have more inventory than they did a year ago, and
  • mortage applications for new homes dropped 9% YoY

Taken together, these suggest that residential housing supply is increasing as sales slow, exactly what you’d expect to see in the transition from Stage One to Stage Two.

If that’s indeed what’s happening, Rubino warns the following comes next:

Stage Two’s deluge of supply sets the table for US housing bubble Stage Three by soaking up the remaining demand and changing the tenor of the market. Deals get done at the asking price instead of way above, then at a little below, then a lot below. Instead of being snapped up the day they’re listed, houses begin to languish on the market for weeks, then months. Would-be sellers, who have already mentally cashed their monster peak-bubble-price checks, start to panic. They cut their asking prices preemptively, trying to get ahead of the decline, which causes “comps” to plunge, forcing subsequent sellers to cut even further.

Sales volumes contract, mortgage bankers and realtors get laid off. Then the last year’s (in retrospect) really crappy mortgages start defaulting, the mortgage-backed bonds that contain their paper plunge in price, et voila, we’re back in 2008.

Rubino’s article is timely, as we’ve lately been seeing a proliferation of signs that the global boom in housing is suddenly cooling. I’ve also recently encountered similar evidence that the housing market in my own pocket of northern California is weakening, and I’m curious to learn if other PeakProsperity.com are seeing the same in their hometowns.

To continue reading: Trouble Ahead For The Housing Market

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What Will Rising Mortgage Rates Do to Housing Bubble 2? by Wolf Richter

Posted on January 20, 2018 | Leave a comment

Rising interest rates will increase the cost of financing a house with a mortgage. If they go up enough, expect the housing market to falter. From Wolf Richter at wolfstreet.com:

Oops, they’re already rising.

The US government bond market has further soured this week, with Treasuries selling off across the spectrum. When bond prices fall, yields rise. For example, the two-year Treasury yield rose to 2.06% on Friday, the highest since September 2008.

In the chart, note the determined spike of 79 basis points since September 8, 2017. That was the month when the Fed announced the highly telegraphed details of its QE Unwind.

September as month of the QE-Unwind announcement keeps cropping up. All kinds of things began to happen, at first quietly, without drawing much attention. But then the trajectory just kept going.

The three-year yield, which had gone nowhere for the first eight months of 2017, rose to 2.20% on Friday, the highest since October 1, 2008. It has spiked 82 basis points since September 8:

The ten-year yield – the benchmark for financial markets that most influences US mortgage rates – jumped to 2.66% late Friday.

This is particularly interesting because the 10-year yield had declined from March 2017 into August despite the Fed’s three rate hikes last year, and rising short-term yields.

At 2.66%, the 10-year yield has reached its highest level since April 2014, when the “Taper Tantrum” was winding down. That Taper Tantrum was the bond market’s way of saying “we’re shocked and appalled,” when Chairman Bernanke dropped hints the Fed might eventually begin tapering what the market had called “QE Infinity.”

The 10-year yield has now doubled since the historic intraday low on July 7, 2016 of 1.32% (it closed that day at 1.37%, a historic closing low):

Friday capped four weeks of pain in the Treasury market. But it has not impacted yet the corporate bond market, and the spread in yields between Treasuries and corporate bonds, and particularly junk bonds, has further narrowed. And it has not yet impacted the stock market, and there has been no adjustment in the market’s risk pricing yet.

To continue reading: What Will Rising Mortgage Rates Do to Housing Bubble 2?

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The Sound of One Wing Flapping, by James Howard Kunstler

Posted on May 1, 2017 | 7 comments

Things have gone all calm, according to James Howard Kunstler, calm enough for a black swan or two to land. From Kunstler at kunstler.com:

And suddenly the storms of early Trumptopia subside, or seem to. The surface of things turns eerily placid as the sweets of May sweep away the toils of an elongated mud season. Somebody stuffed Kim Jong Un back in his bunker with a carton of Kools and the Vin Diesel video library. France appears resigned to Hollandaise Lite in the refreshing form of boy wonder Macron. It’s been weeks since The New York Times complained about the Russians stealing Hillary’s turn as leader of the free world. We’re given to understand that Congress managed overnight to cook up a spending bill that will avert a Government shut-down until September. Rest easy America… oh, and buy every dip.

A calm surface is exactly what Black Swans like to land on, though by definition we will not know they’re out there until our reveries are broken by the sound of wings flapping. Some kind of dirty bird showed up on Canada’s thawing pond last week when that country’s biggest home loan lender suffered a 60 percent pukage of shareholder equity and had to be bailed out — not by the Canadian government directly, but by the Ontario Province’s Health Care Workers Pension Fund, a neat bit of hocus pocus that amounts to a one-year emergency loan at ten percent interest.

If that’s a way for insolvent public employee pension plans to find enough “yield” to meet their obligations, then maybe that could be the magic bullet for the USA’s foundering pension funds. The next time Citibank, Goldman Sachs, JP Morgan, and friends get a case of the Vapors, let them be bailed out by the Detroit School Bus Drivers’ Pension Fund at ten percent interest. That ought to work. And let Calpers take care of Wells Fargo.

The situation across Western Civilization is as follows: virtually every major financial institution has become a check-kiting operation or a Ponzi scheme, and we’ve reached the point where they can only pretend to be rescued. Bailout or not, the Toronto-based Home Capital Group is still stuck with shit-loads of non-performing sub-prime mortgage loans — its specialty — and Canada’s spectacular real estate bubble has hardly begun to pop. The collateral is starting to turn, like dead meat in the May sunshine, and the odium will waft across the border.

To continue reading: The Sound of One Wing Flapping

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Panic Bank Run Leaves Canada’s Largest Alternative Mortgage Lender On Edge Of Collapse, by Tyler Burden

Posted on April 30, 2017 | Leave a comment

Absent government intervention, Canada’s largest alternative mortgage lender is going belly-up, and its depositors know it. From Tyler Durden at zerohedge.com:

After two years of recurring warnings (both on this website and elsewhere) that Canada’s largest alternative (i.e., non-bank) mortgage lender is fundamentally insolvent, kept alive only courtesy of the Canadian housing bubble which until last week had managed to lift all boats, Home Capital Group suffered a spectacular spectacular implosion last week when its stock price crashed by the most on record after HCG revealed that it had taken out an emergency $2 billion line of credit from an unnamed counterparty with an effective rate as high as 22.5%, indicative of a business model on the verge of collapse .

Or, as we put it, Canada just experienced its very own “New Century” moment.

One day later, it emerged that the lender behind HCG’s (pre-petition) rescue loan was none other than the Healthcare of Ontario Pension Plan (HOOPP). As Bloomberg reported, the Toronto-based pension plan – which represented more than 321,000 healthcare workers in Ontario – gave the struggling Canadian mortgage lender the loan to shore up liquidity as it faces a run on deposits amid a probe by the provincial securities regulator. Home Capital had also retained RBC Capital Markets and BMO Capital Markets to advise on “strategic options” after it secured the loan.

Why did HOOPP put itself, or rather its constituents in the precarious position of funding what is a very rapidly melting ice cube? The answer to that emerged when we learned that HOOPP President and CEO Jim Keohane also sits on Home Capital’s board and is also a shareholder. But how did regulators allow such a glaring conflict of interest? According to the Canadian press, Keohane had been a director of Home Capital until Thursday, but said he stepped away from the boardroom on Tuesday to remove the conflict of interest when it became clear HOOPP might step in as a lender.

To continue reading: Panic Bank Run Leaves Canada’s Largest Alternative Mortgage Lender On Edge Of Collapse

 

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Chilling Thing Insiders Said about Canada’s House Price Bubble, by Wolf Richte

Posted on April 29, 2017 | Leave a comment

Home Capital, Canada’s largest “alternative” mortgage lender, is borrowing at 15 percent to issue mortgages that will yield less than 15 percent. It’s an interesting business model, but it’s also probably a pretty good bet that Home Capital won’t be around too much longer. From Wolf Richter at wolfstreet.com:

What are homes & mortgages worth when push comes to shove?

Home Capital is Canada’s biggest “alternative” mortgage lender. It’s not a bank – which today is part of its problem because it cannot create money to lend out; it has to obtain it first by attracting deposits and borrowing money through other channels. Through its subsidiary, Home Trust, it specializes in high-profit mortgages to risky borrowers, with dented credit or unreliable incomes who don’t qualify for mortgage insurance and were turned down by the banks. This includes subprime borrowers.

Since revelations of liar loans – What, liar loans in Canada?! – surfaced in 2015, things have gone to heck. Now it’s experiencing a run on its deposits. Teetering at the abyss, it obtained a $2 billion bailout loan on Thursday. The terms are onerous. And on Friday, the crux of the deal emerged – the amount of mortgages it has to post as collateral. It’s a doozie.

It sheds some light on what insiders think mortgages and the homes that back them are worth when push comes to shove. A bone-chilling wake-up call for the Canadian housing and mortgage market.

This is when the whole construct started falling apart:

On July 15, 2015, Home Capital announced that originations of high-margin uninsured mortgages had plunged 16% and originations of lower-margin insured mortgages had plummeted 55%, and that it had axed an unspecified number of brokers. Shares plunged 25% in two days [Largest “Alternative” Mortgage Lender in Canada Denies “Systemic Problem” in Housing Market].

On July 30, 2015, it disclosed, upon the urging of the Ontario Securities Commission, the results of an investigation that had been going on secretly since September 2014 into “falsification of income information.” Liar loans. It suspended 45 mortgage brokers who’d together originated in 2014 nearly C$1 billion in residential mortgages, or 12.5% of its total [Liar Loans Pop up in Canada’s Magnificent Housing Bubble].

To continue reading: Chilling Thing Insiders Said about Canada’s House Price Bubble

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How Much Money Laundering is Going On in the Housing Market? A Lot, by Wolf Richter

Posted on February 24, 2017 | Leave a comment

Dirty people with dirty money have propped up high end housing markets. Who knew? Well, just about anyone with half a brain who was paying attention. From Wolf Richter at wolfstreet.com:

Answers trickle in. Tough luck for New York, San Francisco, Miami…

“I am shocked – shocked – to find that money laundering is going on in here!” – Borrowed and twisted from Casablanca.

The US Treasury Department’s Financial Crimes Enforcement Network (FinCEN) announced on Thursday that it would extend for another 180 days a “temporary” program that was due to expire on Thursday, and that it had originally kicked off in January 2016 and expanded in July, to identify and track secret homebuyers who hide behind shell companies and “other opaque structures” for the purpose of money laundering.

And it has already gleaned some insights.

The US housing market has been a perfect platform to launder large amounts of money, no questions asked. Brokers, banks, and other industry professionals played along. There were no reporting requirements. Everyone in the world knew it. And they came to launder their cash by buying expensive homes.

But FinCEN, via its evocatively named Geographic Targeting Orders (GTO), wants to know who these opaque homebuyers are. To find out, the GTOs “temporarily require US title insurance companies to identify the natural persons behind shell companies used to pay ‘all cash’ [i.e. without bank financing] for high-end residential real estate in six major metropolitan areas.”

FinCEN is soliciting the help of title insurance companies “because title insurance is a common feature in the vast majority of real estate transactions,” and these companies can provide “valuable information about real estate transactions of concern.”

In its July announcement, when the program was expanded from two metros – Manhattan and Miami Data – to six metros, FinCEN Acting Director Jamal El-Hindi wouldn’t say to what extent money laundering was involved, but he did throw in a tantalizing tidbit: “The information we have obtained from our initial GTOs suggests that we are on the right track.”

This time around, FinCEN gave a number, a percentage of “suspicious activity”:

FinCEN has found that about 30% of the transactions covered by the GTOs involve a beneficial owner or purchaser representative that is also the subject of a previous suspicious activity report. This corroborates FinCEN’s concerns about the use of shell companies to buy luxury real estate in “all-cash” transactions.

30%!

To continue reading: How Much Money Laundering is Going On in the Housing Market? A Lot

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Three “Red Flags” That US Housing Is Starting To Roll Over, by Tyler Durden

Posted on July 14, 2016 | Leave a comment

Don’t tell the stock market, but many parts of the US and global economy have been rolling over for months, and now that may include the housing market. From Tyler Durden at zerohedge.com:

With the S&P500 hitting new all time highs every day, one question that has emerged is whether this newfound “paper wealth” is finally trickling down into the US housing sector which still has to surpass its pre-crisis levels.

Alas, a new report shows that a new threat is emerging for US housing. Or rather, an old and very well-known one: house flipping by third party investors at auction is back with a vengeance. According to RealtyTrac, the share of foreclosures snapped up by third-party investors at auction just hit a record 31% in June. This is a redux of the “same fervent speculation that pushed the housing bubble.”

Call it Red Flag #1:

As Bloomberg puts it, “almost nine years after the housing-market bust helped trigger the most recent recession, RealtyTrac senior vice president Daren Blomquist sees the industry waving a red flag.”

According to Blomquist, many of the third-party buyers are inexperienced “mom and pop” investors with less experience, said Blomquist. At the same time, institutional investors, a subset of the third-party investors who purchase at least 10 properties a year and who are more familiar with the nuances of market supply and demand are ducking out of the market.

“It’s somewhat counterintuitive — as the market gets better and there are fewer foreclosures available, demand for those good deals, those bargains in the market goes up,” said Blomquist. “When you see this high percentage of the properties going to third-party investors, that is a sign that these speculators may be over-inflating the market.”

Bloomberg adds that the third-party investors are gaining a bigger share of a shrinking pie, as foreclosure auctions made up 8 percent of all home sales in June, the lowest since August 2006. Meanwhile, institutional buyers made up about 38 percent of those investor purchases at foreclosure auctions in June, down from a steady trend of around 50 percent in the first five years of the expansion, the data show. They accounted for 2.5 percent of all home purchases in June, down from a peak of 9.8 percent in February 2013.

While investors at foreclosure auctions could rely on about a 40 percent discount from the previous sales price in the early years of the expansion, this year they’re only garnering about a 30 percent markdown, Blomquist said.

“The pressure is building in the pressure cooker, and at some point that’s going to need to be released,” Blomquist said. There’s a little time — “probably not in the next month or two but in the next couple of years,” a downturn should set in, he said.

Overall, the housing market looks great so the latest data showing a rise in speculation by non-professional investors was an early warning signal, Blomquist said. “Real estate is cyclical — it’s not this steady trend upward.”

Why is this a red flag? Because the same kind of decline in institutional buyers was a dramatic harbinger of the last downturn as more seasoned stakeholders headed for the sidelines.

“Their analytics are telling them it’s not a good time to buy — that’s definitely another red flag that they’re pulling back at the same time as the less savvy investors are ramping up,” he said.

To continue reading: Three “Red Flags” That US Housing Is Starting To Roll Over

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Housing Bubble 2: Investor Purchases Hit Record, Small Investors Pile in, ‘Smart Money’ Gets Out, by Wolf Richter

Posted on May 2, 2015 | Leave a comment

Wolf Richter, at wolfstreet.com, provides a good overview of the housing market, and the shifting ownership of the housing stock:

People buying homes to live in – rather than as investments to be rented out – form the bedrock of a healthy housing market. It was once called the American Dream. Then came the bubble, its collapse, and the new boom that is already a bigger bubble than the prior one in many cities. And in some metro areas, investors are now the majority of buyers!

In the first quarter, the proportion of owner-occupant buyers fell to 63.2% of all residential sales, down from 65.8% in the fourth quarter last year, and down from 68.6% a year ago, RealtyTrac reported today. It was the lowest quarterly level in the data series going back to 2011.

Who were the other buyers? Investors. The report defined them as buyers who purchased a property but then had their property tax bill mailed to a different address. And these investors accounted for a record of 36.8% of all home sales.

In some metro areas, investors went hog-wild, elbowing owner-occupants into minority status. Here are the metro areas with a population of at least 500,000 where this miracle of our “healed” housing market has occurred in Q1, the miracle being that investors make up the majority of all homebuyers:

In some states, a similar picture is developing. Of course, there’s tourist-paradise Hawaii which is fully loaded with vacation-rental condos, to where 78.5% of all home sales in Q1 were to investors. But note the next three states in line. So here are the 10 states where investors play the largest role:

This is what happens when the Fed “heals” the housing market with its six-year money-printing and interest-rate-repression campaign. It doused the land with nearly free money so that investors could take this money and buy assets and drive their prices into absurdity, and thereby raise the costs for people who want to live in those assets.

http://wolfstreet.com/2015/05/01/housing-bubble-2-investor-purchases-hit-record-small-investors-pile-in-as-smart-money-gets-out/

To continue reading: Housing Bubble 2

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