Wednesday, October 17, 2012

Today's links

1--Family debt worse than expected; housing bubble burst feared, calgary herald

Canadian households are even more in debt than anyone imagined, according to a revised Statistics Canada calculation that gives a more accurate picture of family finances.
The revisions place household credit market debt in the second quarter at 163 per cent of disposable income, well above the previously reported 152 per cent, although the two levels are no longer a direct comparison.
The new numbers remove non-profit institutions from the household category, giving a more accurate accounting of family finances.
The revision shows debt growth over the last decade that looks “eerily similar to the U.S. experience, just before their dramatic housing bust,” said David Madani, an analyst with Capital Economics.
“Overall, this supports our bearish view that Canada’s housing boom is unsustainable and the eventual correction, which we think is already underway, is likely to have a material negative implications for growth,” he said

2--Puncturing the Housing Optimism Bubble, firedog lake

The housing bulls have really started to run wild now. One of them planted this rose-colored story in Bloomberg arguing that consumer deleveraging points to happy times ahead for the economy. The only problem is that the deleveraging comes from defaults rather than any paying down of debts. And these defaults are destructive for an economy, not a sign of hope.

It’s a similar story with some of the other housing fundamentals. Cullen Roche rightly points out that the housing recovery, when viewed over a longer time horizon, looks completely pathetic, and the bulls are being overcome with recency bias. There’s upward movement over the past two years off an incredibly low bottom, and viewed against the historical average it barely looks like movement at all....

You can call this a “recovery” if you want, but if there are 400,000 less homes for sale, it follows that, amid constrained supply, any increase in demand will cause prices to rise. The demand increase is coming from institutional investors scooping up homes to rent out. Low mortgage rates haven’t hurt, assuredly, but most of the mortgage activity is coming from refinancing. The investors pay cash for their homes...
People aren’t selling their homes to “step up” into new ones because they cannot come up with the down payment. Banks are keeping other homes in their inventory off the market to structure supply. So prices, which are artificially derived at this point, does not necessarily account for sales. In fact, as we move out of summer, we are likely to see a sales drop. Sales in California fell 16% month-over-month in September, and it was even a 2.7% drop year-over-year.

3--Fed's Beige Book, credit flat, Bloomberg

Overall loan demand increased slightly on net since the last Beige Book report. New York, Philadelphia, Cleveland, Richmond, Atlanta, St. Louis, and San Francisco reported stronger loan demand on balance, while Kansas City and Dallas reported flat demand and Chicago reported somewhat weaker demand. ..., New York noted some tightening for consumer loans and residential mortgages, while Richmond and Chicago reported some easing for commercial and industrial loans. Still, loans remained difficult to obtain for many small businesses in the Cleveland, Richmond, and Chicago Districts

4--Housing Sales Are Back to Trend, CEPR

Both the NYT and USA Today have convinced themselves that house sales are well below their trend level, with the latter telling us that a 5.5 million annual sales rate of existing homes considered healthy. In fact, we are pretty much back to trend levels of sales. In the mid-90s before the bubble began to distort the market, sales averaged about 3.5 million a year. A simple adjustment for the 15 percent population growth over this period would imply an annual sales rate of 4 million existing homes. That is somewhat below the current 4.5 million sales rate.
The gap between the current sales rate and the trend more than makes up for the continued weakness in new home sales. So, what are these folks talking about?

5--Property Flippers Are Back as Housing’s New Middle Men, CNBC

6--Housing Starts increased sharply to 872 thousand SAAR in September, cal risk

From the Census Bureau: Permits, Starts and Completions
Housing Starts:
Privately-owned housing starts in September were at a seasonally adjusted annual rate of 872,000. This is 15.0 percent above the revised August estimate of 758,000 and is 34.8 percent above the September 2011 rate of 647,000
Total starts are up about 80% from the bottom start rate, and single family starts are up 70% from the low.

7--Home loan hiatus, Big Picture chart

8--Obama's Good War Turns Bad--Losing Their Grip in Afghanistan, counterpunch

9--What would make a strong foundation for a recovery? , OC Housing

First, a housing recovery should be built on solid job growth — something that isn’t happening. Job growth of high-paying jobs would translate to more mortgage originations and purchases by owner occupants. Since job growth stimulating owner-occupant purchases should be the foundation of a recovery — and since that isn’t happening — the recovery is being built on a shaky foundation. The recent price rally — call it a housing recovery if you wish — is built on two things: 1) lender restricted inventory, and 2) low interest rates. If either of those two factors change, the housing recovery could easily be snuffed out. After all, the real demand behind a recovery simply isn’t there yet...

If the federal reserve cannot keep mortgage interest rates low with its guaranteed $40B monthly purchase program, then I will re-evaluate my opinion on future house prices. My belief today is that mortgage interest rates will stay low for the next two or three years at least. If that assessment is wrong, affordability could plummet, and house prices will plummet along with affordability. The reason prices are rising right now isn’t just because inventories are tight. Buyers have the capacity to raise their bids. Once interest rates go up, buyers won’t have this ability, and the rally will stop dead in its tracks.

10--Apartment Bubble Inflating Fast, Realty Check

Housing construction numbers for September were “blowout” and “smashed consensus,” according to analysts who follow the sector. Single family starts rose 11 percent from August and are up nearly 43 percent from a year ago. This from the depths of the housing recession. ...

Peter Boockvar of Miller Tabak: “At a starts level of 872,000, it comes close to matching the level of starts at the depths of the 1991 recession when starts fell to 798,000 and before that, starts bottomed at 837,000 in the recession of 1981. This of course is not adjusted for population growth where we had about 250 million people in 1991 and 225 million in 1981 versus 310 million today.”

The bottom line is we’re up, but we are up from the very bottom, so these big single family starts percentage jumps don’t mean that we are anywhere close to even normal times. What’s driving the starts? Demand, plain and simple. 
In the aftermath of September 2008 and the onset of the global financial crisis, the international meetings of the major capitalist powers were characterised by a degree of unanimity, at least on the surface. All were agreed that vast amounts of money had to be pumped into the financial system to prevent a collapse.
No action would be taken against the banks and financial institutions whose speculative activities had sparked the crisis. In fact they would be rewarded with trillions of dollars in bailout money.
This was accompanied by claims that such action was necessary to prevent a global disaster. Government leaders, it was asserted, had learned the lessons of the 1930s. There would be no return to the conflicts of that era, and action would be taken to ensure there was no repeat of the experiences of the Great Depression.
Today, it is a very different picture. The world economy is moving deeper into recession, and the conditions for a new crisis are being created because of the ever-increasing commitment of central banks around the world to propping up international financial markets.

14--More contaminated drugs linked to US meningitis outbreak, WSWS

15--Biderman on CNBC: the new bubble is securitized credit, Trim Tabs video

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