• Category Archives Real Estate
  • Deutsche Bank: “The Fed’s ‘Transparency’ Killed Long-Term Investing”

    Two weeks ago, one of our favorite derivatives strategists, BofA Barnaby Martin wrote something we have said for years: “QE has been the most effective way for CBs to ‘sell vol’”, arguing that accommodative monetary policies across the globe amid QE have “clearly supported a strong rebound in fixed income markets.” This should not be a surprise: as Martin calculated, there is now some $51 trillion at risk should rates vol spike, not to mention countless housing bubbles that have been created since the financial crisis where the bulk of middle class wealth has been parked, which in turn have trapped central banks, preventing them from undoing nearly a decade of unprecedented monetary largesse that has pumped over $15 trillion in central bank liquidity.

    The BofA strategist showed that every time the Fed embarked on the different phases of its QE program, credit implied vols declined significantly, while during periods of no monetary easing or when the market started pricing the possibility of easing policy removal (tapering tantrum and the subsequent tapering phase) implied vols advanced.

    This post was published at Zero Hedge on Sep 23, 2017.


  • Household Wealth Hits A Record $96.2 Trillion… There Is Just One Catch

    In the Fed’s latest Flow of Funds report, today the Fed released the latest snapshot of the US “household” sector as of June 30, 2017. What it revealed is that with $111.4 trillion in assets and a modest $15.2 trillion in liabilities, the net worth of US households rose to a new all time high of $96.2 trillion, up $1.7 trillion as a result of an estimated $564 billion increase in real estate values, but mostly $1.23 trillion increase in various stock-market linked financial assets like corporate equities, mutual and pension funds, and deposits as the market soared to new all time highs thanks to some $2 trillion in central bank liquidity injections this year.
    Total household assets in Q2 rose $1.8 trillion to $111.4 trillion, while at the same time, total liabilities, i.e., household borrowings, rose by only $15 billion from $15.1 trillion to $15.2 trillion, the bulk of which was $9.9 trillion in home mortgages.

    This post was published at Zero Hedge on Sep 21, 2017.


  • Un)Affordable Housing Alert! FHFA Purchase-Only Home Price Index Rises 6.3% YoY For July (4.5x Fed’s ‘Inflation’ Rate and 2.73x Wage Growth)

    The FHFA’s purchase-only home price index is out for July. It shows that home prices grew at a 6.3% YoY rate, but only 0.2% MoM. The largest home price increases were in Pacific and Mountain states.

    This post was published at Wall Street Examiner on September 21, 2017.


  • Albert Edwards: “Citizen Rage” Will Soon Be Directed At “Schizophrenic” Central Banks

    Perhaps having grown tired of fighting windmills, it was several weeks since Albert Edwards’ latest rant against central banks. However, we were confident that recent developments out of the Fed and BOE were sure to stir the bearish strategist out of hibernation, and he did not disappoint, lashing out this morning with his latest scathing critique of “monetary schizophrenia”, slamming all central banks but the Fed and Bank of England most of all, who are again “asleep at the wheel, building a most precarious pyramid of prosperity upon the shifting sands of rampant credit growth and illusory housing wealth.”
    Follows pure anger from the SocGen strategist:
    These of all the major central banks were the most culpable in their incompetence and most prepared with disingenuous excuses. And 10 years on, not much has changed. The Fed and BoE are once again presiding over a credit bubble, with the BoE in particular suffering a painful episode of cognitive dissonance in an effort to shift the blame elsewhere. The credit bubble is everyone’s fault but theirs.
    First, some recent context with this handy central bank holdings chart courtesy of Deutsche Bank’s Jim Reid which alone is sufficient to make one’s blood boil.

    This post was published at Zero Hedge on Sep 21, 2017.


  • “So What Did We Learn From Yellen?”: Deutsche, Goldman Explain

    For those still unsure what Yellen’s rambling, disjointed press conference meant yesterday, or are still in shock over the Fed’s admitted confusion by the “mystery” that is inflation, here is a quick recap courtesy of Deutsche Bank and Goldman, explaining what we (probably) learned from the Fed and Yellen yesterday.
    First, here is DB’s Jim Reid:
    So what did we learn from the Fed and Yellen last night? Firstly we learnt that stopping reinvestment is a sideshow for now and that the market still cares more about the probability of a December hike and where the Fed thinks inflation is heading. Just briefly on the balance sheet run-off, they have committed to the plan from the June meeting of $10bn per month ($6bn USTs and $4bn Mortgages) with an incremental increase every 3 months until we get to $50bn. However on the rates and inflation outlook the committee and Yellen were on the hawkish side. As DB’s Peter Hooper discusses in his note, barring negative surprises in the months just ahead, the Fed is on track to raise rates once more this year and three times in 2018. Yellen recognised that inflation has been running low recently but put a higher blame on one-off factors than was perhaps anticipated. At the same time she noted that monetary policy operates with a lag and that labour market tightness will eventually push inflation up.
    The complication for markets though is that beyond 2017, the FOMC will see a huge upheaval in its membership which could easily mean current member’s thoughts are meaningless in a few months time and also that Mr Trump’s fiscal plans (or lack of them) have the ability to completely change the debate. So its difficult to read too much into the current FOMC’s forecasts. However for now December is very much live with the probability of a December rate hike moving from a shade under 50% to 64% by the US close (using Bloomberg’s calculator).

    This post was published at Zero Hedge on Sep 21, 2017.


  • Questions Remain as the Fed Finally Begins to Reverse QE

    Today the Federal Reserve announced that it will finally begin the process of reversing quantitative easing. Following the process it outlined earlier this year, the Fed will start allowing assets (Treasurys and mortgage-backed securities) to mature off its balance sheet, rather than re-investing them as had been its prior policy. The current plan is to start with a $10 billion roll off in October, and increasing quarterly until it reaches $50 billion by October of next year. Considering the Fed’s balance sheet currently stands $4.5 trillion, the Fed is envisioning a slow, multi-year process. As Philadelphia Fed president Patrick Harker described it earlier this year, the goal is for it to be ‘the policy equivalent of watching paint dry.’
    Of course the old saying about the ‘best laid plans of mice and men’ also applies to central planners, and as Janet Yellen once again noted today, ‘policy is not on a pre-set course.’ Should markets react negatively, as they did when Bernanke hinted at reducing their purchases in 2013, the markets have reason to expect the Fed to act. In fact, when asked, Yellen kept the door open to both lowering interest rates and stalling its roll off should market conditions worsen. In fact, it appears that markets are already betting on the Fed to not follow through on its projected December rate hike.
    As the Fed has been signaling for months now that a taper was in the works, the mainstream narrative suggests that tapering has been priced in (though stocks dropped on the news.) There are still major questions left unanswered.

    This post was published at Ludwig von Mises Institute on September 21, 2017.


  • ‘Hawkish’ Fed Fail? Yield Curve Flattens Most Since 2016 As Dollar Spikes

    More dismal housing data, a VIX 9 handle, and bank stocks ripping higher (despite a big flattening in the yield curve) – just another day in Fed-land…
    Stocks and the long bond unchanged post-Fed, Gold down and dollar up…

    This post was published at Zero Hedge on Sep 20, 2017.


  • This Fed is on a Mission

    QE Unwind starts Oct. 1. Rate hike in Dec. Low inflation, no problem. The two-day meeting of the FOMC ended on Wednesday with a momentous announcement that has been telegraphed for months: the QE unwind begins October 1. It marks the end of an era.
    The unwind will proceed at the pace and via the mechanisms announced at its June 14 meeting. The purpose is to shrink its balance sheet and undo what QE has done, thus reversing the purpose of QE.
    Countless people, worried about their portfolios and real estate investments, have stated with relentless persistence that the Fed would never unwind QE – that it in fact cannot afford to unwind QE.
    The vote was unanimous. Even no-rate-hike-ever and cannot-spot-housing-bubbles Neel Kashkari voted for it.
    The Fed also telegraphed that it could raise its target range for the federal funds rate a third time this year, from the current range of 1.0% to 1.25%. There is only one policy meeting with a press conference left this year: December 13, when the two-day meeting ends, remains the top candidate for the next rate hike.
    This has been the routine since the rate hike last December: The FOMC decides to change its monetary policy at every meeting with a press conference: December, March, June, today, and December.

    This post was published at Wolf Street by Wolf Richter ‘ Sep 20, 2017.


  • Will The Fed Really ‘Normalize’ It’s Balance Sheet?

    To begin with, how exactly does one define ‘normalize’ in reference to the Fed’s balance sheet? The Fed predictably held off raising rates again today. However, it said that beginning in October it would no longer re-invest proceeds from its Treasury and mortgage holdings and let the balance sheet ‘run off.’
    Here’s the problem with letting the Treasuries and mortgage just mature: Treasuries never really ‘mature.’ Rather, the maturities are ‘rolled forward’ by refinancing the outstanding Treasuries due to mature. The Government also issues even more Treasurys to fund its reckless spending habits. Unless the Fed ‘reverse repos’ the Treasurys right before they are refinanced by the Government, the money printed by the Fed to buy the Treasurys will remain in the banking system. I’m surprised no one has mentioned this minor little detail.
    The Fed has also kicked the can down the road on hiking interest rates in conjunction with shoving their phony 1.5% inflation number up our collective ass. The Fed Funds rate has been below 1% since October 2008, or nine years. Quarter point interest rate hikes aren’t really hikes. we’re at 1% from zero in just under two years. That’s not ‘hiking’ rates. Until they start doing the reverse-repos in $50-$100 billion chunks at least monthly, all this talk about ‘normalization’ is nothing but the babble of children in the sandbox. I think the talk/threat of it is being used to slow down the decline in the dollar.

    This post was published at Investment Research Dynamics on September 20, 2017.


  • Existing Home Sales Slump To 1-Year Lows, NAR Says “There’s Simply Not Enough Homes For Sale”

    After July’s housing sales data horrors, yesterday’s permits rebound prompted some hope (despite last week’s 9.7% collapse in mortgage applications) but August’s existing home sales just crushed that dream, dropping to one-year lows. Following a 1.3% MoM decline in July, August saw existing home sales tumble 1.7% MoM (against expectations of a 0.2% rebound) and up just 0.2% YoY.
    This is the 3rd monthly decline in a row…

    Dropping SAAR sales to one year lows…

    This post was published at Zero Hedge on Sep 20, 2017.


  • Fed to Launch Quantitative Tightening – Should You Be Worried?

    Expectations are currently that the Federal Reserve will announce plans to begin unwinding its balance sheet this Wednesday. When you consider that the Fed currently owns around 29% of the market for mortgage-backed securities and 17% of the market for Treasuries, you might be tempted to scream OMG!
    But before you do, recognize that plans have been in place for this for quite some time, and the market has already had plenty of time to react. Not only that, but the Fed will continue to take the same ‘steady as she goes’ attitude that has been a hallmark of Janet Yellen’s time as Fed chair.
    Back in June, the Fed outlined how this process would likely unfold. They will begin by allowing $10 billion of assets ($4 billion of mortgages and $6 billion of Treasuries) to roll off the balance sheet each month. As time goes by, assuming the economy and financial markets don’t throw too big a fit, the roll-off amounts will continue to rise, up to a maximum of $50 billion per month.
    One thing that’s important to understand is that during this process, the Fed will not actually sell any bonds. Instead, they will simply allow bonds to mature, and not reinvest the proceeds. This means that the incremental effect to the mortgage and Treasury markets should be mild, and not represent the ‘severe tightening’ that some analysts are making it out to be.

    This post was published at FinancialSense on 09/19/2017.


  • Meanwhile, The “Next Big Short” Is Quietly Blowing Up

    Back in March, when we detailed the ongoing catastrophic deterioration in the US retail sector, manifesting itself in empty malls, mass store closures, soaring layoffs and growing bankruptcies – demonstrated most vividly by the overnight bankruptcy of Toys “R” Us, the second largest retail bankruptcy in US history after K-Mart – we said that “just like 10 years ago, when the “big short” was putting on the RMBX trade, and to a smaller extent, its cousin the CMBX, so now too some are starting to short CMBS through the CMBX, a CDS index which tracks the values of bonds backed by various commercial properties. They are betting against securities backed by malls in weaker locations where stores could close in quick succession, triggering debt defaults.”
    We dubbed this retail short via CMBX the next “Big Short” trade, and others promptly followed.
    In a subsequent post just a few days later, we underscored why the correct way to short the great retail collapse was not so much through stocks, but CMBX:
    The trade, as we discussed before, is not so much shorting the equities where a persistent threat of a short squeeze has burned the bears on more than one occasion, but going long default risk via CMBX or otherwise shorting the CMBS complex. Based on fundamentals, the trade indeed appears justified: Sold in 2012, the mortgage bonds have a higher concentration of loans to regional malls and shopping centers than similar securities issued since the financial crisis. And because of the way CMBS are structured, the BBB- and BB rated notes are the first to suffer losses when underlying loans go belly up.

    This post was published at Zero Hedge on Sep 19, 2017.


  • Who Gets Hit by Mortgage Losses in Harvey and Irma Areas?

    ‘We need to ask for a policy change because the burden with these losses is too big.’ Somebody is going to pay for losses on mortgages of homes that were destroyed by Hurricanes Harvey and Irma. It’s a just a question of who.
    The taxpayer is on the hook, along with some investors. But then there are the servicers of mortgages guaranteed by the Government National Mortgage Association, for short Ginnie Mae. The largest of them is Wells Fargo, but they mostly include smaller non-banks such as PennyMac and Quicken Loans. The amounts could be large. And now they’re asking for a bailout of sorts.
    In total, 4.3 million properties with nearly $700 billion in outstanding mortgage balances are located in FEMA-designated disaster areas in Texas and Florida, according to a preliminary estimate by Black Knight Financial Services:
    Disaster areas of Hurricane Harvey: 1.18 million mortgaged properties with $179 billion in unpaid mortgages. Disaster areas of Hurricane Irma: 3.14 million mortgaged properties with $517 billion in unpaid mortgages. Many of these homes survived mostly unscathed. So the mortgage balances of homes that have been severely damaged or destroyed remain uncertain but are significant.

    This post was published at Wolf Street on Sep 19, 2017.


  • BIS Hunts for ‘Missing’ Global Debt, Inflation (Try Including Housing!)

    This is a syndicated repost courtesy of Snake Hole Lounge. To view original, click here. Reposted with permission.
    Just like global central banks, the Bank for International Settlements can’t seem to find inflation and $114 trillion in off-balance sheet FX derivatives.
    ZURICH – Nonfinancial companies and other institutions outside of the U. S., excluding banks, may be sitting on as much as $14 trillion in ‘missing debt’ held off their balance sheets through foreign-exchange derivatives, according to research published Sunday by the Bank for International Settlements.
    These transactions, which resemble debt but for accounting purposes aren’t classified that way, aren’t new. Rather, researchers from the BIS – a consortium of central banks based in Basel, Switzerland – used global banking data and surveys to estimate the size of this debt for the first time.
    The implications for financial stability are unclear because FX swaps are backed by cash collateral and can be used to hedge exposure to currency swings, thus promoting stability. Still, the debt ‘has to be repaid when due and this can raise risk,’ the authors wrote.

    This post was published at Wall Street Examiner on September 19, 2017.


  • Toys ‘R’ Us Bankruptcy: Another Wall Street Debt Slave Falls

    The year 2017 is likely to be remembered for devastating hurricanes and storm surges, waves of retail bankruptcies amidst record-setting household debt and a stock market that carelessly sailed through these dangerous waters to record highs.
    Toys ‘R’ Us was the latest in a growing string of retail bankruptcies to hit the mat last evening. Its bonds have been telegraphing trouble for some time, with one bond due next year careening from 97 cents on the dollar to 22 cents in a little more than two weeks. On September 6, Wolf Richter at WolfStreet.com provided the short narrative of how Toys ‘R’ Us found itself driving toward the ditch. Citing its leveraged buyout in 2005 by private equity firms Bain Capital, KKR & Co. and real estate firm Vornado Realty Trust, Richter wrote:
    ‘So here’s what the three PE firms did to Toys R Us: they stripped out cash and loaded the company up with debt. And these are the results: At the end of its fiscal year 2004, the last full year before the buyout, Toys R Us had $2.2 billion in cash, cash equivalents, and short-term investments. By Q1 2017, this had collapsed to just $301 million. Over the same period, long-term debt has surged 126%, from $2.3 billion to $5.2 billion… It takes a lot of expertise and Wall Street connivance to pull this off.’
    If the name, Bain Capital, sounds familiar to you, it’s because it’s the private equity firm that was co-founded by Mitt Romney in 1984 and overseen by him in the 80s and 90s. In his book, Turnaround, Romney writes that he owned 100 percent of the shares of Bain Capital. Romney went on to become the Republican Party’s nominee for President in 2012 and his varnished version of just what Bain Capital did for a living came under close scrutiny.

    This post was published at Wall Street On Parade on September 19, 2017.


  • Pine River Closing Master Fund Following Surge In Redemptions

    Back in January 2016, we reported that Pine River Capital Management, then run by noted hedge fund investor Steve Kuhn, was shuttering its Fixed Income fund, and returning roughly $1.6 billion to investors. The wind down was surprising for one of the industry’s most prominent names: Kuhn was one of four managers who helped the Pine River Fixed Income Fund score some of the industry’s biggest gains. They included a 93% return in 2009, fueled largely by bets on the housing market.
    Unfortunately, the hedge fund had remained unable to replicate its profitable ways in recent years, and according to both Reuters and Bloomberg, Pine River is closing its master fund following a wave of client withdrawals that would bring assets below $300 million.
    The fund, which started in 2002, had about $1 billion in assets prior to the latest redemption schedule. Because the withdrawals would cause the portion of illiquid assets to increase relative to the overall fund, the managers discussed placing those investments in a segregated account called a side pocket.

    This post was published at Zero Hedge on Sep 18, 2017.


  • Experian, Equifax & TransUnion want to sell you new mortgage credit scores

    This is a syndicated repost courtesy of theinstitutionalriskanalyst. To view original, click here. Reposted with permission.
    Some of the housing industry’s largest trade groups reportedly want housing finance agencies Fannie Mae and Freddie Mac to look at using new types of credit scores for assessing default risk on residential mortgages. These groups argue that existing scores are ‘unfair’ to low income borrowers.
    Housing Wire reported last month that the groups sent a letter to Federal Housing Finance Agency Director Mel Watt, the Mortgage Bankers Association, National Association of Realtors, the National Association of Home Builders, and other groups pressing Watt on the issue.
    Watt, a former congressman from North Carolina and long-time member of the House Financial Services Committee, threw cold water on the idea that Fannie and Freddie would begin using alternative credit scoring models at any point in the next two years.
    ‘Watt said that making any changes to the government-sponsored enterprises’ credit scoring models before 2019 would be a ‘serious mistake,’ reports HW. Ditto.

    This post was published at Wall Street Examiner on September 18, 2017.


  • Think Gentrification Is Bad? The Opposite Is Worse

    We’ve long been told that gentrification is the scourge of many communities, and we’ve become very familiar with the scenario: a stable middle-class community is destroyed when wealthy (usually white) people move in, drive up home prices, and force out the “diverse” population that had been there previously.
    There are problems with this narrative of course. Very often, the working-class homeowners who leave the neighborhood experience a windfall from selling their property to the incoming “up and comers” who buy out the aging homeowners. There is an upside.
    On the other hand, there are indeed downsides to gentrification. There are real social costs when a neighborhood disintegrates and the neighbors go their separate ways. As we’ve noted before, communities with a highly mobile population can often experience more crime, stress, and more health problems.

    This post was published at Ludwig von Mises Institute on Sept 13, 2017.


  • On Repairing/Rebuilding 100,000+ Damaged Houses

    >Almost lost in all the dollar estimates of property damage is the human loss, suffering and stress.
    I am not an expert in repairing flood damage, or in dealing with insurance companies, FEMA or all the other pieces that will go into homeowners getting the funding needed to repair or rebuild their homes.
    But I do know a bit about construction after 44 years in the field, and I have been soberly reflecting on the many hurdles that face everyone involved in restoring / repairing tens of thousands of homes, more or less all at the same time.
    Preliminary estimates set the number of flood-damaged homes in Houston at around 100,000. More recent estimates put the number at around 40,000.
    No one yet knows how many homes in Florida have been damaged by Hurricane Irma, but the number will undoubtedly be a big one.
    Here are some semi-random thoughts on the challenges of repairing/rebuilding so many dwellings in as short a period of time as possible:
    1. The average cost of homes in Houston is reportedly around $300,000. Many coastal areas in Florida are similarly valued. Just as a guess, many of the affected homeowners probably have mortgages in the $200,000 range.

    This post was published at Charles Hugh Smith on SUNDAY, SEPTEMBER 10, 2017.


  • Australia’s Dystopian Future: A Nation Of High-Rise Renters

    Authored by James Fernyhough via TheNewDaily.com,
    Young Australians are increasingly likely to live most of their lives in high-density rented accommodation – and that’s not necessarily such a bad thing.
    That was one of the more controversial findings of a major study into the housing market released in recent days.
    The Committee for Economic Development of Australia (CEDA) concluded that capital city home ownership would continue to be unaffordable for at least the next four decades.
    It was grim news for many young Australians, particularly those who have bought into the Aussie dream of owning their own house and backyard in a spacious suburb.
    But the study argued that a lower level of home ownership, and/or a greater level of high-density living, need not be a bad thing.
    In fact, examples from overseas – and even some in Australia – suggest it could be a positive. But this would require a massive shift in policy and, more importantly, attitude.

    This post was published at Zero Hedge on Sep 6, 2017.