Sunday, April 28, 2013

Today's links

1---Shiller: Today’s Dream House May Not Be Tomorrow’s, NYT

 A MacArthur Foundation survey, conducted by Hart Research Associates in February and March, asked Americans if they thought that, “given our nation’s current situation,” buying a home had become more or less appealing. Fifty-seven percent said it had become less so, with only 27 percent saying it had become more appealing. When asked if they agreed with the statement, “For the most part, renters can be just as successful as owners at achieving the American dream,” some 61 percent agreed; 28 percent did not....

If you want to settle down for a quiet life and watch your children grow up in a nice neighborhood, you might well act now to lock in an ultralow mortgage rate. Then again, if you’re restless, ambitious and determined to be mobile, it might be sensible to rent rather than own. Calculating the best economic return may not even be possible, given the uncertain investment potential.

2---Heading the wrong way, NYT

Since the recession ended in mid-2009, quarterly growth has averaged around 2 percent. Every acceleration from that pace has inevitably petered out, which is why unemployment is high and pay is low nearly four years into what is officially an economic recovery.
      
Worse, there are signs in the latest report of a renewed slowdown. Excluding inventories, which tend to artificially depress growth in some quarters and raise it in others, growth in the first quarter of 2013 was only 1.5 percent, compared with 1.9 percent in the fourth quarter of 2012 and 2.4 percent in the third quarter.
      
Underneath it all is the fiscal drag from ill-advised and ill-timed austerity measures. With the expiration this year of the payroll tax break, personal income declined sharply last quarter, forcing consumers to draw on their savings to support their spending. That is unsustainable, presaging weaker consumption in the months to come and, with it, weaker overall growth.
 
At the same time, cutbacks in government spending took a big chunk out of growth, reflecting, in part, the onset of automatic budget cuts under the sequester. The hit from lower public spending will only intensify in the quarters to come as the sequester takes full effect, threatening to push growth below its already paltry 2 percent average.
       
There is a tendency, in the gloom, to look for bright spots. Housing, for example, showed continued growth in the first quarter, but it was more than offset by the drag from cuts in government spending. If overall growth remains sluggish or even slows down, that could overwhelm the housing recovery, because the pace of home sales is inseparable from the pace of the economy. Without enough growth to power jobs and pay, potential homeowners will simply not have the income and credit profiles to buy.
      
Lack of demand is also bound to take an increasing toll on corporate earnings, which also have been a bright spot. Already, some prominent companies, including I.B.M. and Caterpillar, have reported disappointing results, a reflection of waning demand not only in the United States but in recessionary Europe and in China, where growth has been below expectations. The longer and more widespread the weakness is, the less faith investors will have in the ability of the Federal Reserve to engineer a rebound. The real danger in the Fed’s efforts to revive the economy is not that its actions will cause inflation — of which there is no evidence — but that they will fail to revive the economy by any meaningful measure, denting investor confidence and, in the process, the stock market.
 
That is not to blame the Fed. For years, Congress and the Obama administration have been working at cross-purposes to the Fed, as strategies to cut the budget have taken priority over strategies to increase growth, jobs and pay. Republicans have insisted on austerity for ideological and political reasons. The administration has done better by adding new taxes and investments to the cuts, but the reductions are still deep and damaging. The budget fights have endured even as the intellectual arguments for near-term deficit reduction have collapsed. They have endured even as the economies that have enforced budget cuts most strenuously have contracted, notably in Britain and in much of the rest of Europe. And they endure even as the United States remains impaired by fiscal wounds that are, unfortunately and undeniably, self-inflicted
 
 
In an audit last year, then-San Francisco Assessor-Recorder Phil Ting found apparent legal violations in 84 percent of foreclosures in the city between 2009 and 2011. These ranged from procedural defects, such as not alerting homeowners that they were in default, to significant breaches of the law, including transferring loans in which banks appeared to have no legal ownership right......
 
Despite recent settlements with state and federal regulators and a new California law that tightens rules for the mortgage industry, banks and their subsidiaries continue to file invalid documents and foreclose on properties to which they appear to have no legal right, an analysis of thousands of pages of property records and wrongful foreclosure lawsuits shows. 
 
At the center of much of this is Bank of America, which plays the largest role of any bank in Bay Area foreclosures. From July 2008 through October, Bank of America's foreclosure trustee, ReconTrust, handled 1 in 5 defaulted properties in the Bay Area, roughly 70 percent more than the next biggest trustee, according to RealtyTrac Inc., a real estate information company. During the past five years, 184,000 Bay Area properties went into default; last year, the value of these loans exceeded $11.6 billion.
Jay Patterson, a forensic accountant and certified fraud examiner in Arkansas; Ben Weber, who formerly worked for the city of San Francisco analyzing property records; and Marie McDonnell, a private auditor in Massachusetts, reviewed hundreds of loan documents and property records for this story at the request of CIR and NBC Bay Area. All three agreed there is evidence that Bank of America and its subsidiaries skirted proper procedures in foreclosure filings. These practices included lying on fraudulent loan transfers and altering dates on property records, which allowed Bank of America to initiate foreclosure and collect payments and fees for home loans it did not own.
 
Patterson said an average homeowner looking through property records cannot tell if they are fraudulent; a public document that appears to transfer ownership of a mortgage can be fabricated. Patterson traced the true chain of ownership for mortgages on behalf of CIR and found that in many cases, banks were filing false documents.

“Banks didn’t have them and were making them up to foreclose,” said Patterson, who serves as an expert witness for plaintiffs' attorneys in wrongful foreclosure lawsuits.

5---How to Fix the Great Real Estate After-Bubble, Huffington Post

What could prevent this disaster? Homeowners who bought or refinanced during the bubble period up to 2008 found themselves "underwater" after the crash, owing more on their mortgages than the value of their homes. The lost value is gone -- or rather it wasn't there in the first place. Many homeowners have defaulted and gone into foreclosure; many more will default in coming years. Banks could prevent these foreclosures by writing down mortgage principal to the new low market value. There's even a Treasury and Housing Department Principal Reduction Alternative program to help homeowners get a write-down from banks; it's not working because it's voluntary. The big banks, though they have been willing to lower interest payments, understandably fear that mortgage principal write-downs will set a bad precedent. They'd rather foreclose and sell to the real estate companies.

Congress could remove this obstacle by legislating a mandatory write-down program strictly limited to those owner-occupants who purchased or refinanced during the bubble years before 2008. Otherwise the senseless destruction of lives and housing will continue.

6---Roundup, An Herbicide, Could Be Linked To Parkinson's, Cancer And Other Health Issues, Study Shows, HP

7---The Iraqi Civil War, Round Two, antiwar

8---Pick Your Dystopia, counterpunch

What we don’t have is a political/philosophical vision of the future. Or a historical political program; political parties are only worried about winning the next election.

How would a post-state system look like? Independent minds don’t trust mammoth, asymmetrical, wobbly blocs like the EU, or the G-20, or even aspiring multipolars such as the BRICS (Brazil, Russia, India, China, South Africa – which still do not represent a real alternative to the Western-controlled system). No one is thinking in terms of a structural mutation of the system. Marx was beyond right on this: what determines history are objective, concrete, palpable processes – some of them very complex – affecting the economic and technological infrastructure.

What is possible to infer is that the real historical subject from now on is technology – as Jean-Francois Lyotard and Paul Virilio were already conceptualizing in the 1980s and 1990s. Technology will keep advancing way beyond the capitalist system. Techno-science is on the driving seat of history. But that also means war.

War and technology are Siamese twins; virtually all technology gets going as military technology. The best example is how the Internet completely changed our lives, with immense geo-economic and political ramifications; Beijing, in a 2010 white paper, may have hailed the Internet as a “crystallization of human wisdom”, but no state filters more information on the Internet than China. Pushing the scenario to a dystopian limit, Google’s Eric Schmidt argues, correctly, that with a flip of a switch, soon an entire country could even disappear from the Internet.

9---Wealthiest Americans Only Winners in Recovery, Pew Says, Bloomberg

10---Canada is toast, Huffington Post

Ben Rabidoux

Nearly half of Canada's GDP growth since 2005 has been driven by housing-related industries, to the point that the finance, insurance and real estate sector makes up about 27 per cent of the country's GDP, he said.
As Canada's housing industry ramped up development, it began to employ more people in construction. In 1998, slightly more than five per cent of the labour force worked in construction, compared with 7.4 per cent today. Those jobs could be vulnerable to a housing slowdown.
But housing-related jobs aren't just limited to construction. They also include mortgage lenders, realtors and appraisers, all of whom could see their earnings fall as a result of a slowing market.
Ultimately, if Canada's housing starts were to drop to 150,000 (they were close to 180,000 in January of this year, down from 250,000 in 2012), it could mean up to 250,000 job losses in the housing industry, Rabidoux said.
"That's going to hurt, that's not a soft landing," he said....

I'll just say that the narrative floating around out there is that the banks are insulated from a housing correction ... I can spend more time explaining why I think that's wrong, but there's a lot of exposure that the banks have to housing and associated industries, so let's say that."

11--Canada: On thin ice, Economist

12---Canada's Reckless Banks Inflate House Price Bubble, thetyee

Housing-driven

And the problem is that housing is still the only source of real growth in the economy. While most people would assume, from all the talk about the stupendous wealth of the tar sands, that we are a "resource-driven" economy, the truth is that resources pale in comparison to housing and related financial services. According to the Conference Board of Canada, the resource sector (energy, forestry, mining, agriculture) accounted for a mere seven per cent of GDP in 2012 while housing (finance, real estate, construction) accounted for 27 per cent. If the housing market goes south, just what sector does Mr. Carney think is going to replace it as a growth driver? He has now given "certainty" that rates won't rise until late 2014 -- something that is supposed to spur business investment.

But the additional certainty was insignificant and will not have the desired effect. No one expected Carney to touch the rate and even with a one per cent interest rate the economy grew by a pathetic annualized rate of .6 per cent in the third quarter and .5 per cent in the last quarter of 2012. Over two-thirds of the economy is domestic and Canadians are amongst the most indebted people in the world: personal debt is at 160 per cent of annual income compared to the U.S. at 110 per cent. We are a citizenry maxed out on credit and borrowing like mad on our slowly devaluing houses. Home equity loans total $206 billion, equal to 12 per cent of Canadian GDP. In the U.S. the equivalent figure is four per cent. Exports are down and staying there, so just why would business (which is already sitting on some $600 billion in cash) go to the banks to borrow when there is no prospect for new demand?

Here comes the glut
The fact is, neither Flaherty nor Carney have a clue what to do about the housing market or sluggish economic growth. Flaherty's dilemma is that he dare not deal any more decisively with the mortgage madness for fear of driving the economy into recession. Housing sales are already down across the country due to his credit tightening but building continues at a rapid pace in places like Toronto (with some 50,000 units in the pipe). So just as re-sales slow, tens of thousands of new units will come on the market in 2013 creating a new glut and pushing prices further down.
No one can fix this.

13---The Biggest Housing Bubble in the World Is in ... Canada, Atlantic

The chart below, from The Economist, looks at the price-to-rent ratios across different countries, and measures how under-or-overvalued housing is, with negative numbers corresponding to the former and positive ones to the latter.

HousingPrices.png
 
It's the biggest hit-the-brakes we've seen in land investment."  George Carras, president Realnet
 
March, 2013 New Home Sales
High rise sales down -47% from last year
Low rise sales also down -47% from last year
In total this is the second worst March sales figures in over a decade!
 
 
New condo sales in Toronto fell 47 per cent in the last quarter of 2012, even as the number of units under construction hit an all-time high, according to data from market research firm Urbanation.
There were 3,841 new condos sold in Toronto in the last three months of 2012, compared with 7,226 sales in the same period a year earlier.
At the same time, the number of total condo units under construction in Toronto hit a record high of 56,866 in 2012. The number of construction starts also hit an all-time high, at 24,388.

Yet Urbanation doesn’t appear concerned about overbuilding in the country’s largest real estate market — something that has worried some policy makers, including Bank of Canada governor Mark Carney, in recent years.
“Despite concerns over the level of unsold supply in the new condominium market, the ratio of sold to unsold units has consistently been above the long-run average in recent years,” Urbanation executive vice president Ben Myers said in a statement, noting the ratio of sold units in Toronto was 79 per cent, just higher than the long-run average of 78 per cent.
However, the record-high number of condos under construction is not reflected in current sales data, because those condos are not yet on the market except in the form of pre-sales.

16---Canadian housing and economic trends: The good, the bad, and the ugly, economic analyst


Consumer and mortgage credit growth: Slowing dramatically
Difficult to know whether this is a "good" data point or not.  Certainly most (including the Bank of Canada) agree that consumer debt levels in Canada are dangerously high, so a consumer deleveraging of sorts is in the long-term best interest of the country.  But short term economic pain associated with a consumer deleveraging is anything but good.  Long term gain for short term pain!  On the mortgage front, we find credit growth has slowed to decade lows, while in the non-mortgage consumer credit front, growth is currently running at 20 year lows.

Toronto's condo market: All-time high inventory, loads more in the pipeline
In March, active MLS inventory in the Toronto condo market hit a new all-time high for the month.  And with a record 55,000 condo units under construction in the GTA, with the bulk of them set to complete in late 2013 and through 2014, this is one market worth following closely.  But believe it or not, there are at least three other major metros with condo markets WAY uglier than Toronto's at present...

Bankruptcy filings:  Starting to rise in key provinces
Most of the country continues to see consumer insolvencies (bankruptcies + consumer proposals) fall on a y/y basis.  The very notable exception is Quebec where Q4 2012 saw the first quarterly insolvency reading that was up on a y/y basis for the first time since mid 2009.  The trend continued in January 2013 when insolvencies surged almost 20% y/y.  Ontario and BC also saw small jumps in consumer insolvencies in January.

3)  Housing starts:  Moderating....more to come...

Manufacturing PMI: First sub 50 print since index created
A major miss in the Canadian PMI (Purchasing Manager's Index) for March.  For those not familiar with the index, PMIs are widely-followed measures of manufacturing activity in various countries.  They tend to give a glimpse into the future strength of the economy.  Bottom line here is that a sub-50 print is bad news.  Canada's manufacturing PMI came in at 49.3 last month.


THE UGLY:
1)  Vancouver's housing market: Sales down dramatically, inventory up, prices down
You can't say you didn't see this one coming.  I laid it out as clearly as I could in this post last August when it was blatantly obvious the market was rolling over.  Things have gone from bad to worse in Vancouver, where sales remain very weak (March sales were almost 20% below an already-weak 2012 level) and existing MLS inventory remains elevated.  To add insult to injury, the backlog of unsold new homes is growing, units under construction remain high, and the strong population growth needed to absorb all this inventory is nowhere to be found.  It's going to be another rough year for Vancouver, but on the bright side, we can expect the y/y comparisons to get more favourable throughout the year.  Vancouver sales fell off a cliff in late 2012.  It's quite unlikely we'll be seeing 20-30% y/y declines come late summer given how depressed sales were last year. ...

Employment:  Huge private sector job losses in March.  More to come?
The Labour Force Survey produced by Stats Canada is notoriously volatile.  At the risk of making a mountain of a statistical molehill, I will point out how unbelievably attrocious the March employment numbers really were.  The headline figure showed a net loss of 55,000 jobs in Canada, but note below that March saw the second largest monthly decline in private sector employment since at least 2000 as the Canadian economy shed 85,000 private sector positions (all of them full-time).  Thankfully that terrible reading was partially offset by a curiously large jump in the "self employed" category, otherwise the headline print could have been markedly worse.


5)  Canadians' exposure to the housing market in their investment portfolios: A hard landing will hurt!

17---The coffin corner, macronomics

The financial markets are currently riddled with divergences and contradictions. High debt, low growth; record high stocks, record low bond yields; a bull market in US and Japanese real estate stocks; a bear market in Chinese real estate stocks. The Great Divergences are best explained by the war between deflationary debt fundamentals and aggressive reflationary policies. Real estate and banks remain the best barometer of policy success." - source Bank of America Merrill Lynch.

Could the below picture be the picture of the "Coffin Corner? Low growth and high debt:
- Source Bank of America Merrill Lynch.

Or could that be the one when one looks at the discrepancy between record low bond yields and record high equities?
- Source Bank of America Merrill Lynch....
 
Tightening policies to preserve price stability and unwind some of the trillions of dollars pumped into global economies since 2007 via quantitative easing will require interest rate hikes, and may also necessitate asset sales by central banks, according to April's IMF Stability Report. Increased credit and securities losses would be the major negative impacts for banks as rates rise. Bank funding may also be disrupted if asset sales do take place." - source Bloomberg

No comments:

Post a Comment