Tag Archives: Housing

Canada’s Housing Bubble Explodes As Its Biggest Mortgage Lender Crashes Most In History, by Tyler Burden

Posted on April 27, 2017 | 2 comments

This is how debt implosions get started. From Tyler Durden at zerohedge.com:

Call it Canada’s “New Century” moment.

We first introduced readers to the company we said was the “tip of the iceberg in Canada’s magnificent housing bubble” nearly two years ago, in July 2015 when we exposed a major problem that we predicted would haunt Home Capital Group, Canada’s largest non-bank mortgage lender: liar loans in particular, and a generally overzealous lending business model with little regard for fundamentals. In the interim period, many other voices – most prominently noted short-seller Marc Cohodes – would constantly remind traders and investors about the threat posed by HCG.

Today, all those warnings came true, when the stock of Home Capital Group cratered by over 60%, its biggest drop on record, after the company disclosed that it struck an emergency liquidity arrangement for a C$2 billion ($1.5 billion) credit line to counter evaporating deposits at terms that will leave the alternative mortgage lender unable to meet financial targets, and worse, may leave it insolvent in very short notice.

As part of this inevitable outcome, one which presages the company’s eventual disintegration and likely liquidation, Bloomberg reports that the non-binding rescue loan with an unnamed counterparty will be secured by a portfolio of mortgage loans originated by Home Trust, the Toronto-based firm said in a statement Wednesday. Home Capital shares dropped by 61% in Toronto to the lowest since 2003, dragging down other home lenders. Equitable Group Inc. fell 17 percent, Street Capital Group Inc. fell 13 percent, while First National Financial Corp. declined 7.6 percent. In short, the Canadian mortgage bubble has finally burst.

To continue reading: Canada’s Housing Bubble Explodes As Its Biggest Mortgage Lender Crashes Most In History

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Bond “Carnage” hits Mortgage Rates, Aims at Housing Bubble 2, by Wolf Richter

Posted on March 13, 2017 | Leave a comment

The relationship between the housing market and higher interest rates isn’t as straightforward as many people think. Sometimes rates rise and the housing market does well for the same reason: the economy is strong. Interest rates probably hit bottom in July, 2016, and have embarked on a long-term rising trend. It remains to be seen how that will affect the housing market. From Wolf Richter at wolfstreet.com:

“Many fear the Fed is behind the curve. The market is even further behind: This is clearly a dangerous situation.”

US government debt took another beating today. As prices fell, yields rose to new multi-year highs. The 10-year Treasury yield rose 5 points to 2.625%, the highest since September 2014, when it just briefly kissed that level. At this pace, the yield will soon double from the record low of 1.36% in July last year.

This chart shows the progression of the 10-year Treasury yield since late August (chart via StockCharts.com):

When yields were surging maniacally in November and December – broadly called the “bond massacre” or the “bond meltdown” or similar – I pontificated that eventually yields would fall back some, “on the theory that nothing goes to heck in a straight line.” And they did start falling back in mid-December. But that three-month breather has now been totally undone.

Two-year Treasuries took it on the chin too today, and the yield jumped to 1.40%, the highest since June 2009.

To continue reading: Bond “Carnage” hits Mortgage Rates, Aims at Housing Bubble 2

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What’ll Happen to Housing Bubble 2 as Mortgage Rates Jump? by Wolf Richter

Posted on November 17, 2016 | 1 comment

If mortgage rates keep rising, it is self-evident what will happen to housing bubble 2: it will pop. From Wolf Richter at wolfstreet.com:

Oops, they’re already jumping.

In the few days since the election, we got a flavor of what might happen when the bond market sees hues of inflation, expects the Fed to respond, and suddenly (after years of closing its eyes to it) dreads a tsunami of government deficit spending, on top of the flood of deficit spending already washing over the land.

The US government borrowed on average $850 billion per year over the last two fiscal years, in total $1.71 trillion. Very soon, the gross national debt will hit $20 trillion. And with a little help from the next administration’s plans, the annual new debt to be issued by the US government could balloon far beyond $1 trillion a year.

These bonds will have to be sold to someone, but the Fed is no mood of buying; instead, it has been flip-flopping about raising rates.

And the biggest foreign holders of US Treasuries are now net-sellers, according to the Treasury Department’s International Capital Data for September, released today. China dumped another $28.1 billion in Treasuries, bringing its stash down to $1.16 trillion, the lowest since September 2012. Japan, the second largest holder, shed $7.6 brillion, cutting its pile to $1.14 trillion. Saudi Arabia has been selling hand over fist for eight months in a row. Its holdings are now down to $89.4 billion. In total, foreign holders dumped $76.6 billion of Treasuries in September.

When the election moved Trump’s campaign promises of fiscal stimulus spending a step forward, with buyers scarce and sellers plentiful, Treasury prices, which had been declining since July, fell hard and yields soared. This is the “Trump spike” of the 10-year Treasury yield, including today’s much needed breather – the little hook adorning the spike (chart via StockCharts.com):

Since July, the 10-year yield went from 1.35% to 2.25%, with about half of that journey in the days since the election. And mortgage rates follow Treasury yields.

The Mortgage Bankers Association (MBA) reported today that the average 30-year fixed rate mortgage with conforming loan balances ($417,000 or less) jumped from 3.77% last week to 3.95% this week.

According to Mortgage News Daily, the average 30-year mortgage rate had hit 4.02% on Tuesday, up 0.40 percentage point in three trading days (Friday the bond market was closed). It was the biggest three-day spike in mortgage rates since the Taper Tantrum in the summer of 2013.

And this spike in rates immediately hit demand for mortgages during the week. According to the MBA, mortgage applications dropped 9.2% seasonally adjusted and 10% not seasonally adjusted from the prior week, with refinance activity dropping 11% and purchase activity dropping 6%. The report explained the phenomenon this way:

Following the election, mortgage rates saw their biggest week over week increase since the taper tantrum in June 2013, and reached their highest level since January of this year. Investor expectations of faster growth and higher inflation are driving the jump up in rates….

But it wasn’t just this week. According to the report, rates have increased in four of the past five weeks.

To continue reading: What’ll Happen to Housing Bubble 2 as Mortgage Rates Jump?

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Could China’s Housing Bubble Bring Down the Global Economy? by Charles Hugh Smith

Posted on January 14, 2016 | Leave a comment

More about unsustainable trends in China. From Charles Hugh Smith at oftwominds.com:

Who’s going to buy the tens of millions of empty flats held as investments?

I’ve been writing a lot about China recently because it’s becoming increasingly clear that China’s economy is slowing and the authority’s “fixes” are not turning it around. That means the engine that pulled the global economy out of the 2009 recession has stalled.

Many people see China’s slowdown as the source of the next global recession, but few seem to realize the extreme vulnerability of China’s vast housing market and the many knock-on consequences of that market grinding to a halt.

I’ve just completed a comprehensive review of China’s housing market, and now realize it’s much worse than the consensus understands.

The consensus view is: Sure, China’s housing prices are falling modestly outside of Beijing and Shanghai, but since Chinese households buy homes with cash or large down payments, this decline won’t trigger a banking crisis like America’s housing bubble did in 2008.

The problem isn’t a banking crisis; it’s a loss of household wealth, the reversal of the wealth effect and the decimation of local government budgets and the construction sector.

China is uniquely dependent on housing and real estate development. This makes it uniquely vulnerable to any slowdown in construction and sales of new housing.

To continue reading: Could China’s Housing Bubble Bring Down the Global Economy?

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Housing Bubble 2 in One Chart, by Charles Hugh Smith

Posted on December 3, 2015 | Leave a comment

From Charles Hugh Smith at oftwominds.com:

Now the gap between real house prices and real earnings is even wider than it was in Housing Bubble 1.

We know two things about housing bubbles: they always pop, with devastating consequences, and apologists and pundits always deny housing is in a bubble.And so it is no surprise that here we are in Housing Bubble 2, the second housing bubble of the 21st century, and the usual suspects are denying housing is in a bubble.

Courtesy of longtime correspondent B.C., we have a chart that not only identifies housing bubbles but explains why they inevitably collapse.

I know this will come as a great shock to apologists and pundits who have never seen a bubble until it has imploded, but the income of buyers actually matters in housing.

We have become so accustomed to housing being propped up with 3% down-payment FHA loans, foreign buyers paying with cash and Fed-favored financiers buying 10,000 homes to rent to former homeowners that we tend to forget that in the longer term, housing sales depend on buyers with enough income to pay the mortgage, property taxes, repairs, etc.

To continue reading: Housing Bubble 2 in One Chart

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Subprime “Alt”-Mortgages from Nonbanks, Run by former Countrywide Execs, Backed by PE Firms Are Hot Again, by Wolf Richter

Posted on December 2, 2015 | Leave a comment

From Wolf Richter at wolfstreet.com:

Housing Bubble 2 comes full circle

Mortgage delinquency rates are low as long as home prices are soaring since you can always sell the home and pay off the mortgage, or most of it, and losses for lenders are minimal. Nonbank lenders with complicated corporate structures backed by a mix of PE firms, hedge funds, debt, and IPO monies revel in it. Regulators close their eyes because no one loses money when home prices are soaring. The Fed talks about having “healed” the housing market. And the whole industry is happy.

The show is run by some experienced hands: former executives from Countrywide Financial, which exploded during the Financial Crisis and left behind one of the biggest craters related to mortgages and mortgage backed securities ever. Only this time, they’re even bigger.

PennyMac is the nation’s sixth largest mortgage lender and largest nonbank mortgage lender. Others in that elite club include AmeriHome Mortgage, Stearns Lending, and Impac Mortgage. The LA Times:

All are headquartered in Southern California, the epicenter of the last decade’s subprime lending industry. And all are run by former executives of Countrywide Financial, the once-giant mortgage lender that made tens of billions of dollars in risky loans that contributed to the 2008 financial crisis.

During their heyday in 2005, nonbank lenders, often targeting subprime borrowers, originated 31% of all home mortgages. Then it blew up. From 2009 through 2011, nonbank lenders originated about 10% of all mortgages. But then PE firms stormed into the housing market. In 2012, nonbank lenders originated over 20% of all mortgages, in 2013 nearly 30%, in 2014 about 42%. And it will likely be even higher this year.

That share surpasses the peak prior to the Financial Crisis.

As before the Financial Crisis, they dominate the riskiest end of the housing market, according to the LA Times: “this time, loans insured by the Federal Housing Administration, aimed at first-time and bad-credit buyers. Such lenders now control 64% of the market for FHA and similar Veterans Affairs loans, compared with 18% in 2010.”

To continue reading: Housing Bubble 2 comes full circle

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Is the Echo Housing Bubble About to Burst? by Charles Hugh Smith

Posted on July 23, 2015 | Leave a comment

From Charles Hugh Smith at oftwominds.com:

Echo bubbles aren’t followed by a third bubble.

Speculative bubbles that burst are often followed by an echo bubble, as many participants continue to believe that the crash was only a temporary setback.

The U.S. housing market is experiencing a classic echo bubble. Exhibit A is the Case-Shiller Housing Index for the San Francisco region, which has surged back to levels reached at the top of the first bubble:

Exhibit B is the Case-Shiller 20 City Housing Index, which has notched a classic Fibonacci 62% retrace of the first bubble’s decline.

Several things pop out of the Case-Shiller San Francisco chart. One is the symmetry of the two stages of the initial housing bubble: the first leg rose 80% from 1997 to 2001, and the second leg also rose about 80% from 2003 to 2007.

There is also a time symmetry, as each leg took about five years.

The echo bubble has now inflated for roughly the same time period, and has almost fully retraced the 45% decline from the 2007 peak. Though recent buyers may hope this bubble will be different from all previous bubbles (i.e. it will never pop), history suggests the echo bubble will be fully retraced in a sharp decline lasting about two to three years, in rough symmetry with the collapse of the first housing bubble 2008-2010.

The broader 20-city Case-Shiller Index reflects the same time symmetry: the echo bubble and the initial housing bubble both took about the same length of time to reach their zenith. Once again, we can anticipate a symmetrical decline that roughly parallels the 33% drop from 2007 to 2009.

There is one key difference between the first bubble and the echo bubble: echo bubbles aren’t followed by a third bubble. Markets often give second-chances, but they rarely offer third-chances.

http://charleshughsmith.blogspot.com/2015/07/is-echo-housing-bubble-about-to-burst.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+google%2FRzFQ+%28oftwominds%29

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Why Do We Celebrate Rising Home Prices?, by Ryan McMaken

Posted on June 13, 2015 | Leave a comment

Ryan McMaken asks a good question, one for which there is no good answer. From McMaken, at mises.org:

In recent years, home price indices have seemed to proliferate. Case-Shiller, of course, has been around for a long time, but over the past decade, additional measures have been marketed aggressively by Trulia, CoreLogic, and Zillow, just to name a few.

Measuring home prices has taken on an urgency beyond the real estate industry because for many, home price growth has become something of an indicator of the economy as a whole. If home prices are going up, it is assumed, “the economy” must be doing well. Indeed, we are encouraged to relax when home prices are increasing or holding steady, and we’re supposed to become concerned if home prices are going down.

This is a rather odd way of looking at the price of a basic necessity. If the price of food were going upward at the rate of 7 or 8 percent each year (as has been the case with houses in many markets in recent years) would we all be patting ourselves on the back and telling ourselves how wonderful economic conditions are? Or would we be rightly concerned if incomes were not also going up at a similar rate? Would we do the same with shoes and clothing? How about with education?

With housing, though, increases in prices are to be lauded, we are told, even if they outpace wage growth.

https://mises.org/library/why-do-we-celebrate-rising-home-prices

To continue reading: Why Do We Celebrate Rising Home Prices?

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Underwater Homeowners “Here To Stay” Zillow Says, from Zero Hedge

Posted on March 21, 2015 | 1 comment

The rising tide of “recovery” didn’t lift all boats. From zero hedge.com:

A few weeks back we commented on the rather disturbing news that repeat foreclosures jumped in January:

According to Black Knight Financial, both new and repeat foreclosures hit a 12-month high during the first month of the year with repeats (i.e. the borrower was rescued but has since entered the foreclosure process again) jumping 11% M/M. More troubling is the trend in repeat foreclosures which accounted for only 15% of total foreclosures during the crisis but now make up a startling 51%.

Here’s what the trend looks like:

Now, a new report from Zillow seems to offer further evidence that the US housing market may not be the picture of health after all (as if we needed more proof after housing starts cratered 17% in February). The percentage of homeowners underwater in the US was flat from Q3 to Q4 which doesn’t sound all that terrible until you consider that this figure had fallen for 10 consecutive quarters. Things look particularly bad in Florida and the midwest where Zillow notes more than 25% of borrowers are sitting in a negative equity position.

http://www.zerohedge.com/news/2015-03-20/underwater-homeowners-here-stay-zillow-says

To continue reading: Underwater Homeowners “Here To Stay”

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Housing Industry Frets About the Next Brick to Drop, by Wolf Richter

Posted on March 1, 2015 | Leave a comment

All is not well in housing. From Wolf Richter, wolfstreet.com:

Cashing out of the “Bet on America” might get messy.

Stephen Schwarzman, CEO and co-founder of Blackstone Group, the world’s largest private-equity firm with $290 billion in assets under management, made $690 million for 2014 via a mix of dividends, compensation, and fund payouts, according to a regulatory filing. A 50% raise from last year.

The PE firm’s subsidiary Invitation Homes, doped with nearly free money the Fed’s policies have made available to Wall Street, has become America’s number one mega-landlord in the span of three years by buying up 46,000 vacant single-family homes in 14 metro areas, initially at a rate of $100 million per week, now reduced to $35 million per week.

As of September 30, Invitation Homes had $8.7 billion worth of homes on its balance sheet, followed by American Homes 4 Rent ($5.5 billion), Colony Financial ($3.4 billion), and Waypoint ($2.6 billion). Those are the top four. Countless smaller investors also jumped into the fray. Together they scooped up several hundred thousand single-family houses.

A “bet on America,” is what Schwarzman called the splurge two years ago.

The bet was to buy vacant homes out of foreclosure, outbidding potential homeowners who’d actually live in them, but who were hobbled by their need for mortgages in cash-only auctions. The PE firms were initially focused only on a handful of cities. Each wave of these concentrated purchases ratcheted up the prices of all other homes through the multiplier effect.

Homeowners at the time loved it as the price of their home re-soared. The effect rippled across the country and added about $7 trillion to homeowners’ wealth since 2011, doubling equity to $14 trillion.

But it pulled the rug out from under first-time buyers. Now, only the ludicrously low Fed-engineered interest rates allow regular people – the lucky ones – to buy a home at all. The rest are renting, in a world where rents are ballooning and wages are stagnating.

Thanks to the ratchet effect, whereby each PE firm helped drive up prices for the others, the top four landlords booked a 23% gain on equity so far, with Invitation Homes alone showing $523 million in gains, according to RealtyTrac. The “bet on America” has been an awesome ride.

But now what? PE firms need to exit their investments. It’s their business model. With home prices in certain markets exceeding the crazy bubble prices of 2006, it’s a great time to cash out. RealtyTrac VP Daren Blomquist told American Banker that small batches of investor-owned properties have already started to show up in the listings, and some investors might be preparing for larger liquidations.

http://wolfstreet.com/2015/02/28/housing-industry-frets-about-the-next-brick-to-drop/

To continue reading: Housing Industry Frets

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