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Another Housing Crash
- Thread starter Doug Wegener
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Overimprovement
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RKinney--love the graphs, and also that the sources are identified and reputable. Nation is definitely speeding fast down the wrong road here...we never learn do we!
Randolph Kinney
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As interest rates go up, more income is required to service debt. Who can afford to buy a house in California adding that debt to your existing debt?
Overimprovement
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When I was a commercial lender, one question I would always ask is "what happens when, not if, your business hits a speed bump?" The more leveraged individuals are, the more any future income disruptions will affect them. Because almost implicit in the debt discussion is savings--when folks have higher debt, they have lower savings. Most of this debt is not buying assets paying 10%, while the debt costs 5%. Its already spent money, or personal cars or personal homes. Normal consumer debt.
There WILL be speed bumps. Put the lid on those hot coffees because this bus ain't slowin down and we know what happens then...
Randolph Kinney
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Low interest rates. Easy credit. Poor regulation. Toxic mortgages.
But today increasing danger lurks in the mortgage market, and economists say it could put the financial system at "even greater risk" when the next recession strikes or too many borrowers fall behind on their mortgage payments.
A growing segment of the mortgage market is being financed by so-called non-bank lenders — financial institutions that offer loans to consumers but don't provide saving or checking accounts.
Borrowers with poor credit have increasingly turned to these alternative lenders instead of traditional banks. The alternative lenders are subject to far less regulation and have fewer safeguards when borrower defaults start to pile up.
"A collapse of the non-bank mortgage sector has the potential to result in substantial costs and harm to consumers and the US government," economists at the Federal Reserve and the University of California, Berkeley, write in a paper released Thursday at a Brookings Institution conference.
As of 2016, non-bank financial institutions originated close to half of all mortgages. They originated three-quarters of mortgages with explicit government backing, underscoring the risk to taxpayers.
"What happens if interest rates rise and non-bank revenue drops? What happens if commercial banks or other financial institutions lose their taste for extending credit to non-banks? What happens if delinquency rates rise and servicers have to advance payments to investors?" the authors write.
http://money.cnn.com/2018/03/08/news/economy/housing-economics-nonbank-lenders-brookings/index.html
The warning is there. Non-banks are not insured. They have no additional source of revenue. Rising interest rates will stress the financial system.
But today increasing danger lurks in the mortgage market, and economists say it could put the financial system at "even greater risk" when the next recession strikes or too many borrowers fall behind on their mortgage payments.
A growing segment of the mortgage market is being financed by so-called non-bank lenders — financial institutions that offer loans to consumers but don't provide saving or checking accounts.
Borrowers with poor credit have increasingly turned to these alternative lenders instead of traditional banks. The alternative lenders are subject to far less regulation and have fewer safeguards when borrower defaults start to pile up.
"A collapse of the non-bank mortgage sector has the potential to result in substantial costs and harm to consumers and the US government," economists at the Federal Reserve and the University of California, Berkeley, write in a paper released Thursday at a Brookings Institution conference.
As of 2016, non-bank financial institutions originated close to half of all mortgages. They originated three-quarters of mortgages with explicit government backing, underscoring the risk to taxpayers.
"What happens if interest rates rise and non-bank revenue drops? What happens if commercial banks or other financial institutions lose their taste for extending credit to non-banks? What happens if delinquency rates rise and servicers have to advance payments to investors?" the authors write.
http://money.cnn.com/2018/03/08/news/economy/housing-economics-nonbank-lenders-brookings/index.html
The warning is there. Non-banks are not insured. They have no additional source of revenue. Rising interest rates will stress the financial system.
Randolph Kinney
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Fed policymakers today are focused on overheating risks, while overlooking the likely slowdown. The Fed's latest projections, issued when the Fed hiked rates in March for the first time this year, penciled in two more rate hikes in 2018, three in 2019 and still two more in 2020. That would lift the Fed's benchmark rate from 1.62% now all the way to 3.375%. If that happens, the 10-year yield could head for 4% and the 30-year fixed-rate mortgage might near 6%.
The bond market's reaction to the more hawkish Fed outlook was swift. Within a week, the spread between the 2- and 10-year Treasury yield narrowed to less than 50 basis points, then fell to as little as 40 basis points in mid-April. The spread is around 47 basis points in the stock market today, with the 2-year yield at 2.53% and the 10-year at 3%.
Dec Mullarkey, managing director of investment research at Sun Life Investment Management, told IBD that he expects the 10-year Treasury yield to rise to 3.5% within a year as the Fed follows a path of accelerated tightening. He predicts one rate hike per quarter through 2019, "which ultimately will lead to recession" in 2020.
Deutsche Bank estimates that U.S. Treasury issuance will soar from $1 trillion in 2017 to $1.5 trillion this year and $2.3 trillion next. The surging federal deficit is the main culprit.
Corporations carry a record $8.8 trillion in debt that will be more costly to refinance, working at cross-purposes with the tax-cut stimulus.
Meanwhile, higher U.S. interest rates have begun to push up the dollar. That acts to tighten financial conditions not only at home but in developing economies where companies often borrow in dollars.
https://www.investors.com/news/economy/10-year-treasury-yield-fed-interest-rates/
With all the consumer debt, corporate debt and federal debt, each quarter point rise in the federal funds rate causes more debt servicing costs, less for spending. Wages and incomes are not keeping up with inflation. Home prices are rising faster than incomes and rising mortgage interest rates makes homes more unaffordable.
Look out 4Q19 or 1Q20.
djd09
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Has the Subprime Auto Bubble Burst?
Thursday, 12 April 2018
It looks like the subprime auto loan bubble has popped.
Last year, we reported that the auto industry’s check engine light was on. Now it looks like the thing is totally breaking down. Small subprime auto lenders are starting to go belly-up due to increasing losses and defaults. As ZeroHedgenoted, “we all know what comes next: the larger companies go bust, inciting real capitulation.”
Bloomberg recently reported that not only are subprime auto lenders facing tough business conditions, there are also allegations of fraud and under-reporting of losses.
Growing numbers of small subprime auto lenders are closing or shutting down after loan losses and slim margins spur banks and private equity owners to cut off funding. Summit Financial Corp., a Plantation, Florida-based subprime car finance company, filed for bankruptcy late last month after lenders including Bank of America Corp. said it had misreported losses from soured loans. And a creditor to Spring Tree Lending, an Atlanta-based subprime auto lender, filed to force the company into bankruptcy last week, after a separate group of investors accused the company of fraud. Private equity-backed Pelican Auto Finance, which specialized in ‘deep subprime’ borrowers, finished winding down last month after seeing its profit margins shrink.”
We’ve heard this song and seen this dance before. As Bloomberg noted, the pain among small auto lenders “parallels with the subprime mortgage crisis last decade, when the demise of finance companies like Ownit Mortgage and Sebring Capital Partners were a harbinger that bigger losses for the financial system were coming.”
The common denominator here: rising interest rates. Easy money pumped up both the housing and auto loan bubble. When the Fed takes away the punchbowl, bubbles burst.
http://news.goldseek.com/GoldSeek/1523539878.php
Tip of the iceberg.
Thursday, 12 April 2018
It looks like the subprime auto loan bubble has popped.
Last year, we reported that the auto industry’s check engine light was on. Now it looks like the thing is totally breaking down. Small subprime auto lenders are starting to go belly-up due to increasing losses and defaults. As ZeroHedgenoted, “we all know what comes next: the larger companies go bust, inciting real capitulation.”
Bloomberg recently reported that not only are subprime auto lenders facing tough business conditions, there are also allegations of fraud and under-reporting of losses.
Growing numbers of small subprime auto lenders are closing or shutting down after loan losses and slim margins spur banks and private equity owners to cut off funding. Summit Financial Corp., a Plantation, Florida-based subprime car finance company, filed for bankruptcy late last month after lenders including Bank of America Corp. said it had misreported losses from soured loans. And a creditor to Spring Tree Lending, an Atlanta-based subprime auto lender, filed to force the company into bankruptcy last week, after a separate group of investors accused the company of fraud. Private equity-backed Pelican Auto Finance, which specialized in ‘deep subprime’ borrowers, finished winding down last month after seeing its profit margins shrink.”
We’ve heard this song and seen this dance before. As Bloomberg noted, the pain among small auto lenders “parallels with the subprime mortgage crisis last decade, when the demise of finance companies like Ownit Mortgage and Sebring Capital Partners were a harbinger that bigger losses for the financial system were coming.”
The common denominator here: rising interest rates. Easy money pumped up both the housing and auto loan bubble. When the Fed takes away the punchbowl, bubbles burst.
http://news.goldseek.com/GoldSeek/1523539878.php
Tip of the iceberg.
Randolph Kinney
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Southern California house hunters are putting 9 percent fewer existing homes into escrow this spring, a dip that caused one analyst to make “Cracks Appearing” the title of his latest report.
ReportsOnHousing tracks regional homebuying patterns found in real estate broker networks: supply (active listings); demand (new escrows in past 30 days); and “market time” (a measure of selling speed of days it takes a typical listing to enter escrow).
Steve Thomas, the man behind ReportsOnHousing, wrote: “Noticeable cracks have appeared that illustrate a cooling market. It is not as if housing has suddenly tilted in favor of buyers. No, there are still multiple offers and plenty of homes flying off the market and into escrow just moments after the FOR SALE sign is pounded into the front yard. Buyers are still frustrated by the lack of available homes on the market below $1 million. Sellers are still in the driver’s seat. Nonetheless, trends have surfaced that highlight a cooling marketplace.”
Take the four-county region covered by the Southern California News Group. Thomas’ data from May 3 shows demand at 13,669 new escrows — down 1,341 sales contracts in 12 months or 9 percent. That’s also off 5 percent vs. the previous five years at this time of year.
Four-county supply of 29,118 listings was down just 46 residences in a year but 5 percent lower vs. ’13-’17.
That translated to local homes taking slightly longer to sell. Estimated market time in Los Angeles, Orange, Riverside and San Bernardino counties was 64 days — listing to escrow — up from 58 a year earlier and equal to the early-May average of 64 days in 2013-2017.
https://www.ocregister.com/2018/05/...n-california-housing-market-one-analyst-says/
ReportsOnHousing tracks regional homebuying patterns found in real estate broker networks: supply (active listings); demand (new escrows in past 30 days); and “market time” (a measure of selling speed of days it takes a typical listing to enter escrow).
Steve Thomas, the man behind ReportsOnHousing, wrote: “Noticeable cracks have appeared that illustrate a cooling market. It is not as if housing has suddenly tilted in favor of buyers. No, there are still multiple offers and plenty of homes flying off the market and into escrow just moments after the FOR SALE sign is pounded into the front yard. Buyers are still frustrated by the lack of available homes on the market below $1 million. Sellers are still in the driver’s seat. Nonetheless, trends have surfaced that highlight a cooling marketplace.”
Take the four-county region covered by the Southern California News Group. Thomas’ data from May 3 shows demand at 13,669 new escrows — down 1,341 sales contracts in 12 months or 9 percent. That’s also off 5 percent vs. the previous five years at this time of year.
Four-county supply of 29,118 listings was down just 46 residences in a year but 5 percent lower vs. ’13-’17.
That translated to local homes taking slightly longer to sell. Estimated market time in Los Angeles, Orange, Riverside and San Bernardino counties was 64 days — listing to escrow — up from 58 a year earlier and equal to the early-May average of 64 days in 2013-2017.
https://www.ocregister.com/2018/05/...n-california-housing-market-one-analyst-says/
Randolph Kinney
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- Apr 7, 2005
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- Retired Appraiser
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- North Carolina
"In many cases rent control appears to be the most efficient technique presently known to destroy a city – except for bombing," opined Swedish economist Assar Lindbeck.
He's right on target given that rent control destroys housing markets because it takes away the incentive to build new apartments, reduces the willingness of landlords to upgrade and maintain their properties, and encourages tenants to squat indefinitely in their below-market units.
Californians need to ponder this unpleasant reality given that community activists appear to have gathered enough signatures to place a statewide initiative on the November ballot that would overturn state limits on local rent-control ordinances. The 1995 Costa-Hawkins Act forbids California localities from placing rental-price caps on single-family homes, condos and newer construction. It also bans vacancy controls, meaning that landlords in rent-controlled cities are free to raise the rent to market rates once tenants vacant the property.
https://reason.com/archives/2018/05/11/rent-control-initiative-could-obliterate
He's right on target given that rent control destroys housing markets because it takes away the incentive to build new apartments, reduces the willingness of landlords to upgrade and maintain their properties, and encourages tenants to squat indefinitely in their below-market units.
Californians need to ponder this unpleasant reality given that community activists appear to have gathered enough signatures to place a statewide initiative on the November ballot that would overturn state limits on local rent-control ordinances. The 1995 Costa-Hawkins Act forbids California localities from placing rental-price caps on single-family homes, condos and newer construction. It also bans vacancy controls, meaning that landlords in rent-controlled cities are free to raise the rent to market rates once tenants vacant the property.
https://reason.com/archives/2018/05/11/rent-control-initiative-could-obliterate
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