Home Starts Chilled By Winter Weather
Housing starts fell in February as record snowfall in parts of the U.S. hampered construction, while fewer building permits signaled the recovery in real estate will take longer to unfold.
Builders broke ground on 575,000 homes at an annual rate, down 5.9 percent from 611,000 in January, Commerce Department figures showed Tuesday in Washington. February starts reflected declines in the Northeast and South, which experienced winter storms. Prices of goods imported into the U.S. fell more than anticipated in February, another report showed.
"Some of the numbers reflect the severe snowstorms, but apart from the weather, there's no evidence of a pickup in activity," Michael Feroli, an economist at JPMorgan Chase & Co. in New York, said about the real estate market. "If we see the job market pick up, it'll eventually feed through to housing."
Homebuilders' shares reflect the optimism. The S&P Supercomposite Homebuilding Index, which includes Pulte Homes Inc. and Lennar Corp., has increased about 16 percent so far this year.
Housing starts were projected to fall to 570,000 after a previously reported 591,000 in January, according to the median forecast of 71 economists surveyed by Bloomberg. Estimates ranged from 510,000 to 610,000.
Building permits, a sign of future construction, decreased 1.6 percent to a 612,000 annual rate after a 4.7 percent drop in January. Permits were forecast to decrease to a 601,000 annual pace, according to the survey median.
Paul Dales, an economist at Capital Economics, said the February weakness stemmed from severe winter weather which prevented builders from breaking ground on new projects. But he said the housing outlook remains bleak because of a huge glut of unsold homes, reflecting the weakness in sales and the continued crisis with home foreclosures.
He said that in addition to 3.8 million homes for sale currently, foreclosures could dump another 5 million to 6 million homes on the market.
http://www.pe.com/business/realestate/stories/PE_Biz_W_homebuilding17.3c23cbc.html
Home Sales Down In Inland Region
The Inland region remained the exception in Southern California where more homes were sold last month than a year ago, according to the latest report from MDA DataQuick of San Diego, a housing research firm.
In Riverside County, 3,199 homes were sold, 6.5 percent fewer than in February last year and nearly the same number sold in January.
The median price increased 3.7 percent to $197,000 compared to February 2009 and inched up a couple thousand dollars since January.
In San Bernardino County there were 2,095 homes sold last month, 9.9 percent fewer than a year prior. The median price dropped a slight $3,000 to $150,000. That price remained unchanged from January although there were 157 fewer homes sold month to month.
The two-county region has far fewer homes for sale than it did a year ago when sales were near record highs on a hefty supply of foreclosures, said Andrew LePage, spokesman for DataQuick.
"Prices had dived to levels we hadn't seen in a long time," he said of the Inland region in 2009. Year-over-year comparisons will continue to show decreases as a result, he said.
The flood of foreclosures to the market has since slowed.
"We hear about the vast array of foreclosed homes that the banks may be holding ... but they're not hitting the market," said Steve Johnson, director of real estate consulting firm Metrostudy of California based in Riverside.
The region's record high unemployment level has affected the pool of prospective buyers, too, he said.
Just eight fewer homes were sold in San Diego County last month compared to a year ago. Los Angeles, Orange and Ventura counties all saw more homes sold than a year prior.
For 20 months in a row, Southern California home sales have continued to tick up when compared to the same month a year ago.
"It's possible the stars won't line up this way again for many years. With prices and mortgage interest rates this low, the cost of ownership is about as low as we've seen it in decades," said John Walsh, MDA DataQuick president in a statement.
Foreclosure sales still accounted for 42.3 percent of all resold home sales last month, still high but lower than the peak last February when distressed homes accounted for 56.7 percent all sales.
The number of homes flipped, essentially re-sold within three weeks to six months of being bought, was 3.4 percent in February, up from 1.6 percent last year
http://www.pe.com/business/realestate/stories/PE_Biz_W_dataquick17.3c234c4.html
Financing the Cassandra Effect – People Choose to Ignore Economic Facts Contrary to Their Benefit. MLS in Southern California Going Up? Distress Inventory 3 Times the MLS Data. Big Salaries of Mortgage Brokers Gone.
In recent months we have seen many articles talking about the lack of predictability in big bubbles like the current credit crisis. Some of these authors argue that bubbles are impossible to predict and therefore preparation is futile. This observation is false simply because history is littered by people that have predicted events including the Great Depression. And it is nonsense on the surface because if you see your friend having 20 shots of tequila it is very likely that it will not end pretty even though it is fun in the moment. What makes bubbles seem impossible to predict during the mania is this collective groupthink where the herd dominates most of the conversation drowning out opposing views. We’ve highlighted many homes during the years here in California and the obvious explanation was a bubble was here and it would burst at a certain point. Yet there is little reward for being the messenger of bad news and this was the tragedy of any modern day Cassandra.
I’ve noticed a few people in other articles and blogs talk about how great of a deal they got on a California home. 30, 40, or even 50 percent off the peak price. Yet this discount in itself is meaningless unless we put it into context of the local economy, incomes, and inflation-adjusted home prices for that area. Yet even today, we see the same psychological trappings of those that bought in 2006 and 2007. “Well it has to go up because it went up in 2002, 2003, etc” and this was the basis of prices heading higher. Today, it is more like “I got a home for 30, 40, or even 50 percent off therefore it is a good deal.” But price alone does not tell you everything. If a low price was the measure of value, then Detroit would be the ultimate value play but there is a reason homes that once sold for $100,000 which seemed cheap a decade ago are now going for $1,000 or even $500.
Now why bring this up? We are seeing unique trends in the housing market. For example, there has been a large amount of sale activity in the Inland Empire:
Source: DataQuick
The amount of sales in distressed markets is astounding. From data showing financing on these purchases, we see that many investors are rushing out to buy homes. But are prices making sense even in these areas where prices are down 50 or even 60 percent? It is hard to tell because these local economics are feeling the brunt of the recession. For example the above chart shows some areas in Riverside County part of the Inland Empire. The sales volume above is intense. For example, in the Temecula zip code above 38 home sold in December of 2007. Today that volume is three times that. The Hemet zip code above is running at double the pace. So the volume is there. But take a look at the unemployment rate in the Inland Empire:
Source: BLS
There is a reason for the extraordinarily cheap housing prices when headline unemployment is 14 percent (meaning the underemployment rate is upwards of 25 percent). As an investor it is hard not to be tempted by low prices. But going out there to view the market, you see in some cases, home after home either boarded up or completely uncared for. Many of these communities are dealing with a large surge of Section 8 renters. Just look at how many rentals are available in these areas and you can see that many investors are getting in over their heads. They are only focusing on one side of the equation in price. They are failing to examine the local economy or trends in the area.
MLS
For the first time in three years of tracking the MLS data have I seen a significant jump in inventory for Southern California. The six counties in Southern California currently have 69,000 homes listed on the MLS. This is up from the low reached in October of 2009 with 64,000 properties listed. Part of this has to do with a large number of short sale properties hitting the list but also, the expiration of HAMP offers for many who simply do not qualify. The housing market has gone from a manic casino to a slow payout slot machine. But only looking at the MLS data is misleading as we already know. We recently found out the massive gimmick Lehman Brothers was using to hide toxic assets. Well the MLS does not tell the entire story.
If we look at distress inventory, we find out that it is true that many Southern California communities have a large amount of distress properties:
Source: Foreclosure Radar
This is being reflected in the median sale price. The median sale price in Southern California has gone up since it hit a low in January of 2009 of $250,000 for almost a year. However, last month it dipped by $17,500. Part of it has to do with the fact that California has a 12.5 percent unemployment rate. A lot of the housing volume has come from investors. Last month 28.9 percent of all Southern California home purchases were all cash. So either people are looking to flip again or purchase to create rentals. But the rental market is already saturated:
The California vacancy rate is the highest on record. So if these investors plan on turning these units into rentals, by supply and demand prices will be pushed lower so hopefully they are factoring this in. Some are taking solace that there will be no tsunami but in that belief, they assume that there will be no further price corrections. This is one large fallacy going around today. Tsunami, trickle, or any other weather comparison prices will correct in many areas simply because they do not reflect the current market. Did we also mention the massive California budget deficit?
Estimated Balance on Distress Properties
One way to get a sense of how much correcting we have, I dug deeper into the distress data. Take for example the top 1,000 properties in Los Angeles County that are scheduled for auction or bank owned:
These homes haven’t hit the market. A handful are on the MLS but not many. If these homes sell today for the estimated value (unlikely since it is a bit high) we would see an average loss of $195,175. Now this is only a sample of the 63,000 distress properties in Los Angeles County. Banks clearly have this data so they rather take on people that have stopped paying their mortgage then realize that $195,175 loss. But this has a timeframe attached to it. Just look at a couple of the mortgage balances. $470,000 would carry a $3,000 to $4,000 total housing payment depending on the interest rate. The loss on that property is roughly $210,000. So they can hold off for 4 years ($4,000 x 48 months) but this won’t happen. The most I’ve seen has been 18 months from when the NOD was filed. Yet the loss at a certain point will be realized. And make no mistake, the reason banks are not lending is because of this. Their internal cash flow is bleeding. They are simply hoping for a bubble resurgence which obviously is not going to happen. Why?
California Big Salaries Down
What people don’t want to talk about deals with the reality that many of the high paying jobs were basically cogs of the bubble machine. Many mortgage brokers, agents, and bankers were getting lucrative income for being sellers of this financial mess, the biggest since the Great Depression:
“(May 2007) Brokers can earn higher commissions – up to 3 percent instead of the typical 1 percent – by having customers buy loans with interest rates that are higher than market rates, with prepayment penalties charged if the loan is paid off before a certain date, and with little or no verification of the borrower’s income, known as “stated income” loans. That’s the difference between a $12,000 and a $4,000 commission on a $400,000 loan.
Leonard said he believes such practices are common, partially because there is no state law requiring the broker to disclose that the borrower is eligible for a lower rate.
Many loans offering the highest commissions have been subprime loans, higher interest rate loans that often are sold to those who have low credit ratings or present other risk factors, such as undocumented earnings. Mortgage industry experts say the majority of defaults in the last two years are tied to these loans.”
With option ARMs outlawed and other toxic junk finding no market in Wall Street, the only game in town is government backed loans that certainly do not carry a $12,000 commission. So what we have is this:
And many of these people were buying in prime areas like the Westside with inflated bubble salaries that are now gone. So the pool of qualified buyers is down for mid to upper tier markets. Going back to the Cassandra effect, the state was satisfied as well because they were collecting large amounts of taxes from these people. They were getting good money from payroll taxes but also, solid revenues from properties that were now assessed at absurd prices. There was no incentive for the state to stop the party. California was an economy that was built by the housing bubble both in employment and housing values. It is now suffering on both ends of the spectrum. That is why our unemployment rate is still at the peak while nationwide the unemployment rate seems to have leveled off. It is also the case why our state government is in an absolute mess. They counted on the bubble revenues:
So what this means is get ready for higher taxes or more cuts. Unless we decide to recreate the housing infrastructure to start another bubble but Wall Street is already done with the housing market and is on to better bubbles to chase with taxpayer money. In other words, California is going to have a stagnant housing market for years to come.
http://www.doctorhousingbubble.com/financing-the-cassandra-effect-%e2%80%93-people-choose-to-ignore-economic-facts-contrary-to-their-benefit-mls-in-southern-california-going-up-distress-inventory-3-times-the-mls-data-big-salaries/
The Five Steps Of The Global Geopolitical Dislocation Phase
A reminder that this phase can only be a precursor to a sustained reorganisation of the international system if, between now and the middle of this decade, the consequences of the collapse of the world order inherited from the second world war and the fall of the Iron Curtain fully come home to roost. In particular, this development requires a complete recasting of the international monetary system based on an international currency, replacing the current system founded on the US Dollar, the value of which would be based on a basket of the major world currencies weighted according to the respective size of their economies.
At the same time last year we took a full page in the Financial Times on the eve of the G20 summit in London, pointing out that the ideal « window of opportunity » to effect such a radical change would be between spring and summer 2009, failing which the world would be involved in the phase of global geopolitical dislocation at the end of 2009 (1).
. constant worsening of Sino-US relations (Taiwan, Tibet, Iran, Dollar-Yuan parity (5), declining purchases of US Treasury Bonds, numerous commercial disputes,…)
. increasing transatlantic dissent (Afghanistan (6), NATO (7), contracts for US Air Force in-flight refueling tankers (8), climate control, the Greek crisis,…)
. Washington’s decision-making (9) paralysis
. Middle Eastern (10) instability without respite and the intensification of potential Israeli-Palestinian and Israeli-Iranian crises
. increasingly good reasons for having regional blocs (Asia, Latin America (11), and Europe in particular)
. increased monetary (12) and financial (13) volatility in the world
. increasing sovereign risk worries
. the growing criticism of the role of US banks linked to regulation targeting a regionalisation of financial markets (14)…
In this context, LEAP/E2020 believes that the phase of world geopolitical dislocation will take place in to five successive steps, laid out in this GEAB issue. That is to say:
0. Beginning of the phase of global geopolitical dislocation
1. Step 1: Monetary disputes and financial shocks
2. Step 2: Trade disputes
3. Step 3: State crises
4. Step 4: Socio-political crises
5. Step 5: Strategic crises
In addition, in this GEAB issue, our team discloses the eight countries which seem to it to be more dangerous than Greece on the matter of sovereign debt ; whilst also giving its analysis of how the post-crisis financial economy will work out compared to the real one. Then LEAP/E2020 gives its monthly suggestions (currencies, shares,….) including a number of criteria to more reliably interpret data in the particular context of this world geopolitical dislocation phase.
Notes:
(1) Joseph Stiglitz and Simon Johnson commentary is now is nothing other than a statement that they consider that the crisis was a missed opportunity to reform the world financial system and will rapidly lead to further pain and suffering. Source: USAToday, 03/12/2010
(2) Americans and Europeans have diametrically opposite positions thereon and Barack Obama’s accession to the US Presidency only made the European’s public position more complicated (because they declared themselves to be « Obamaphiles » straight away) without changing the deal fundamentally.
(3) Even in the field of research, the United States is dropping back rapidly. In the world classification of the best research institutes there are only six American in the first fifteen, as against four European and two Chinese, and not one in the first three. Source: Scimago Institutions Rankings 2009, 03/2009
(4) As shown by Israel’s attitude which now acts in a manner almost damaging to Washington. It is an important sign because no one is better positioned than closest allies to perceive the extent of an empire’s weakness. Enemies or even new or distant allies don’t have the same vision not having the same close contact with the powers-that-be, nor enough historical perspective to be able to decipher such a change. Thomas Friedman’s New York Times editorial of the 03/13/2010 clearly illustrates US elite’s disarray in the face of the increasingly off-hand attitude of their Israeli ally and, equally, the failure of the US administration to react firmly to it.
(5) The tension has risen considerably on this issue which has become a symbolic power play as much as an economic one for both Beijing and Washington. Source: China Daily, 03/14/2010; Washington Post, 03/14/2010
(6) The likely withdrawal of a large number of NATO troops from Afghanistan in 2011 has led Russia and India to develop a joint strategy, notably with Iran, in the event that the Taliban return to power! Source: Times of India, 03/12/2010
(7) Over and above the Dutch government’s fall over the issue of Afghanistan, Germany is now coming round to the idea of incorporating Russia in NATO, an good old Russian idea, on the pretext that NATO is no longer relevant in its current format. Source: Spiegel, 03/08/2010
(8) Europeans are all very angry at Washington’s de facto removal of the European bid for the large contract to replace the US Air Force’s airborne refueling tankers. This decision almost certainly brings to an end the myth (in fashion in Europe) of a transatlantic arms market. Washington will not allow other companies other their own to win such large contracts. Europeans are, then, going to have to seriously consider supplying themselves from their own defence industry. Source: Financial Times, 09/03/2010
(9) Even the Los Angeles Times of 02/28/2010 echoed the concerns of the British historian Niall Ferguson who considered that the « US Empire » could collapse from one day to the next, just like the USSR.
(10) And the fact that all the Arab world is now seriously affected by the world economic crisis will add to chronic regional instability. Source: Awid/Pnud, 02/19/2010
(11) Venezuela arms itself with Chinese fighter planes, which would have been a science fiction scenario only five years ago. Source: YahooNews, 03/14/2010
(12) As anticipated in previous GEAB issues, with the dissipating of the « Greek crisis », there would be a return to the reality of the major trends of the crisis and, indeed, over the last few days we are starting to see, once again, analyses which put a perspective on the United States’ loss of its AAA debt rating, and the end of the Dollar’s reserve currency status. Source: BusinessInsider/Standard & Poor's, 03/12/2010
(13) The chart below shows the ever-increasing volatility characterising financial markets and which is, according to LEAP/E2020, an indication of major systemic risk. Looking at the New York Stock Exchange’s profitability over more than 180 years, one can see that the years of the last decade (2000-2008 and, most probably, 2009) have produced the very best and very worst results. The result is statistically improbable, except if the financial markets, and the trends which move them, have entered a phase of crucial uncertainty, uncoupled from the real economy and its inertia. Order size on financial markets has fallen by 50% in five years, due to the effect of computer and « high frequency » trading, increasing their potential for volatility. Source: Financial Times, 02/21/2010
(14) The recent warning by the Treasury Secretary, Timothy Geithner, over financial regulation of transatlantic derivative risks is only the latest indication of this development. Source: Financial Times, 03/10/2010
(15) Sweden is the latest example, which believed it had come through the crisis only to find itself plunged into recession again when very poor numbers for the fourth quarter of 2009 were released. Source: SeekingAlpha, 03/02/2010.
(16) US unemployment is now around 20%, rising to 40-50% for the disadvantaged classes. To avoid having to face up to this reality the US authorities substantially distort the numbers of people in work and those seeking work. Steven Hansen’s article published on SeekingAlpha on 02/21/2010 called « Which economic world are we in? » offers an interesting insight on this topic.
(17) An analysis, extreme certainly but very well documented, and quite relevant to this situation written by David DeGraw on Alternet on 02/15/2010
(18) Source (including comments): MarketWatch, 02/25/2010
(19) It is the belief that a “Communist” is hiding inside every trade unionist and every demonstrator for social causes.
(20) Even in the United States where students demonstrated against increased enrolment fees, and where the population worries about the closing of half the public schools in Kansas City, whilst in New York 62 fire crews will be made redundant. Sources: New York Times, 03/04/2010; USAToday, 03/12/2010; Fire Engineering, 03/11/2010
(21) From Joe Stack to Tea Parties the US middle class has become more radical since the middle of 2009.
(22) Nominal spending is the total amount of spending in an economy not corrected for inflation. It is, in fact, the value of total demand. Note on this chart how the crisis marks a collapse in demand.
(23) The term « regional » is used in a geopolitical sense here of regional groups (EU, ASEAN…).
(24) In South Korea, household debt continues to worsen because of the crisis, whilst businesses accumulate cash reserves instead of investing, since they do not believe a recovery is at hand. Source: Korea Herald://, 03/03/2010
http://www.leap2020.eu/GEAB-N-43-is-available!-The-five-steps-of-the-global-geopolitical-dislocation-phase_a4420.html
Homebuilder Index Sagging
Confidence among U.S. homebuilders unexpectedly declined in March, a sign the housing recovery is having trouble gaining momentum.
The National Association of Home Builders/Wells Fargo index of builder confidence dropped to 15 this month from 17 in February, the Washington-based group said Monday. A reading below 50 means most respondents view conditions as poor.
The report showed traffic of prospective buyers dropped to a one-year low, indicating an extension of a tax credit for purchases is sparking little interest. Projections of record foreclosures this year, a lack of job growth and an end to Federal Reserve purchases of mortgage-backed debt are hurdles for the real estate market.
"This is a clear negative for the struggling housing market," said Jennifer Lee, senior economist at BMO Capital Markets in Toronto. "The sector, which had stabilized up until recently, has entered another rough patch of turbulence."
The builder confidence index was forecast to hold at 17, according to the median forecast of 43 economists surveyed by Bloomberg News. Projections ranged from 15 to 19.
The index, first published in January 1985, averaged 15 last year.
The confidence survey asks builders to characterize current sales as "good," "fair" or "poor" and to gauge prospective buyers' traffic. It also asks participants to gauge the outlook for the next six months.
The group's index of current single-family home sales declined to 15 in March from 17 the prior month.
The gauge of buyer traffic fell to 10 in March, the lowest level in a year, from 12. A measure of sales expectations for the next six months decreased to 24 this month, the weakest reading since April 2009, from 27 in February.
Confidence dropped in two of four regions, led by the Midwest, where it fell to 10 from 13.
Confidence in the South declined to 18 from 19. The Northeast showed a gain to 23 from 18, while the West posted an increase to 15 from 14.
While housing is no longer in freefall, distressed property sales and foreclosures are holding down prices. A record 3 million U.S. homes will be repossessed by lenders this year as unemployment and depressed home values mean borrowers are unable to make their house payment or sell their property, according to a RealtyTrac Inc. forecast.
President Barack Obama in November extended a tax credit of as much as $8,000 for first-time homebuyers, and expanded it to include some current owners. The extension covers closings through June as long as contracts are signed by the end of April.
http://www.pe.com/business/realestate/stories/PE_Biz_W_homebuilders16.406dda4.html
Shoe Maker Lauded For Creating Jobs In Moreno Valley
Video: Governor highlights jobs creation at Moreno Valley groundbreaking
In the same week when state officials revealed the unemployment rate in Riverside and San Bernardino counties reached a record 15 percent, Gov. Arnold Schwarzenegger and local officials stood in the middle of a Moreno Valley field to cheer job creation for a project first proposed in late 2007.
The construction of a 1.8 million-square-foot distribution hub for Skechers USA Inc. stretching 2,850-feet long between Redlands Boulevard and Theodore Street south of the 60 freeway will require 1,100 workers, they said.
Once built by early next year, the shoe-maker's North American distribution and warehouse headquarters would employ 1,000, about the same number who already work for the company in Ontario.
"Out of the thousand, half of those would be new jobs," said Michael Greenberg, president of Skechers, acknowledging that a good deal of workers at its current Ontario facilities would work in Moreno Valley.
Schwarzenegger called the shoe-maker "courageous" on Friday for growing during an economically depressed time, but Skechers had been looking to grow since at least late 2007 when the company expressed interest in Moreno Valley.
The Manhattan Beach-based shoe-maker leases 1.6 million square feet of space in five warehouses and distribution buildings in Ontario.
"To manage distribution through five building is ineffective. It's ineffective, it's costly, there's waste involved," Greenberg said.
Large swaths of the region's commercial real estate space have been vacated during the recession. Of the 18.9 million square feet of industrial space in Moreno Valley and Perris, about 17.1 percent is vacant, according to brokerage firm Grubb & Ellis.
Skechers agreed to a 20-year lease worth $224 million with the proposed building's developer Highland Fairview and its president Iddo Benzeevi.
"We were hoping to do it much faster," Benzeevi said. "What ached me the most throughout the process is ... while things are taking longer, there's thousands of people losing their jobs and losing their homes that could have had jobs and could have provided for their families and saved their homes."
The project, approved unanimously by Moreno Valley's city council in Feb. 2009, faced opposition from community members, environmental groups and government agencies who delayed early approvals.
Riverside County Supervisor Marion Ashley said the development would create "badly needed, family-saving" jobs.
"Right now, any job looks great," he said.
The project has been criticized for creating warehouse and distribution jobs rather than highly skilled high-paying positions, but Greenberg said there would be a variety.
"To ship 100 million pairs of shoes annually, it takes more than just labor jobs to do so," Greenberg said. "There's middle-management and senior management that will be based in the community."
Skechers has about 4,000 employees worldwide, half in the United States.
http://www.pe.com/business/realestate/stories/PE_Biz_W_gov13.30cec29.html
Dollar Bulls Beware
By late 2009, as the U.S. dollar flirted with multi-year lows against most foreign currencies, big investment players crowded into trades that shorted the greenback. Commentators noted that the anti-dollar momentum had taken on a life of its own and that the trade had become too crowded. It is true that markets have a nasty tendency to move against the crowd. When a lot of traders agree on a particular trade, it's more likely that in the short-run the opposite trade will be a winner.
The 2008 "flight to safety" rally of the U.S. dollar was a once in a lifetime event that presented huge opportunities for aggressive currency traders. By December 2008, after rallying 25% over the previous five months, the dollar topped out. However, there were many speculators who had come somewhat late to the party, as well as many others who had ridden the dollar up and were thus sitting on huge unrealized gains.
Those technical reasons, combined with the re-emergence of strong growth in emerging markets and solid earnings from overseas companies, redirected investment flows away from the dollar. 2009 became a year of dollar weakness, with the buck giving back nearly all of its gains. At that point, most people made the reasonable conclusion that the decline would continue.
As is often the case, an unforeseen event came along that made mincemeat out of the consensus' well-conceived strategy. Once some fiscal squabbling grabbed headlines in the eurozone, the negative sentiment that had built up on the dollar was suddenly diverted to the euro. Catalyzed by the Greek debt crisis, the greenback surged by about 8% in six weeks.
From a technical standpoint, the short dollar trade of late 2009 was too crowded; but from a fundamental standpoint, I don't think it was crowded enough. As with stocks, there can be no long-term substitute to examining a government's fundamentals to determine its currency's worth. Based on the fundamentals, far too many investors remain far too confident about the greenback's underlying viability.
In fact, I do not think I have ever seen so rapid a change in sentiment in my career. The crowd had completely switched sides, with most now betting on the demise of the euro rather than the dollar. This is looking like July 2008 all over again, with the dollar poised to put in over-sized gains. It also presents a good opportunity for those who keep their heads.
In my opinion, the market is now perfectly positioned for a massive dollar sell-off. The fundamentals for the dollar in 2010 are so much worse than they were in 2008 that it is hard to imagine a reason for people to keep buying once a modicum of political and monetary stability can be restored in Europe. In fact, the euro has recently stabilized.
My gut is that the dollar sell-off will be sharp and swift. Once the dollar decisively breaks below last year's lows, many of the traders who jumped ship in the recent rally will look to re-establish their positions. This will accelerate the dollar's descent and refocus everyone's attention back on the financial train-wreck unfolding in the United States.
Any doubts about the future of the U.S. dollar should be laid to rest by today's announcement that San Francisco Federal Reserve President Janet Yellen has been nominated to be Vice Chair of the Fed's Board of Governors, and thereby a voter on the interest rate-setting, seven-member Open Markets Committee. Ms. Yellen has earned a reputation for being one of the biggest inflation doves among the Fed's top players.
Looking for an ally to paper over the administration's gaping fiscal holes, it is not surprising that president Obama made this selection. Yellen has consistently downplayed the dangers of inflation and has made statements that indicate she views the Fed as an extension of the Labor Department, rather than a guardian of our currency. Last month, in discussing what she saw as the Fed's obligation to promote employment, she said, "If it were possible to take interest rates into negative territory, I would be voting for that." She may very well make Chairman Bernanke look like a tightwad by comparison.
It is anyone's guess which sparks will be responsible for igniting the falling dollar powder keg. From a trader's perspective, a sharp reversal in the dollar will catch many investors completely off guard. Those who stepped off the short-dollar train will be stuck on the platform as it speeds away. Those who refused to give up their seats are in for a hell of a ride.
Fewer Foreclosures Despite Mortgage Trouble
Foreclosure activity in Inland Southern California and the nation declined in February, compared to a year earlier, which may reflect the efforts of government and banks to prevent a new avalanche of repossessed houses from flooding the market and depressing home prices.
The metropolitan statistical area composed of Riverside and San Bernardino counties last month continued to be a foreclosure hotbed, ranking fourth in the nation. It had one foreclosure related filing--including notices of defaults, trustee sales and bank repossessions--for every 133 households.
Still the total amount of filings at 12,840 was almost 29 percent fewer than in February 2009 and 4 percent fewer than in January.
Daren Blomquist, spokesman for RealtyTrac, which released the monthly foreclosure figures late Wednesday, credited the attention and money that the federal and state governments and financial institutions have put into managing foreclosures. Blomquist said he expects that the controls probably will prevent the dramatic increase in foreclosure activity in 2010 that was seen in previous years.
But a lower foreclosure rate through attempted loan modifications and delay does not mean that the root problem of foreclosures--the inability of homeowners to pay their mortgages--has been solved. According to First American CoreLogic, a mortgage research firm, the mortgage delinquency rate in the Riverside-San Bernardino-Ontario area has been increasing. In January, more than 19 percent of the region's mortgages were at least 90 days delinquent, compared to 13.67 percent a year earlier.
Beacon Economics economist Chris Thornberg called the improvement in foreclosure figures artificial. "How can you have rising numbers of mortgage delinquencies and falling foreclosures. It doesn't make sense," he said.
Thornberg said apparently financial institutions are holding back homes in the foreclosure pipeline and many other delinquent borrowers have not even received notices of default, the first step in the foreclosure process.
Blomquist said more mortgage failures will be generated by high unemployment and a mountain of adjustable-rate loans scheduled to reset to higher monthly payments in coming months. Also he said it is not certain that the downward trend in foreclosures will continue. He noted that although default notices in the two-county Inland area last month declined to 5,456 from 9,504 a year earlier, they increased 21 percent from January.
"There is a little bit of a roller coaster in the numbers and that indicates to me we are not on a long term, consistent downward trend," Blomquist said. He said various government actions, including periodic foreclosure moratoriums and the introduction of loan modification programs, have caused "an erratic trend in the numbers."
Pete Nyiri, owner of Corona-based Top Producers Realty that sells bank-owned houses, said he figures that a surge in notices of trustee sales, the last step in foreclosure, shows that many homeowners are failing to qualify for loan modifications promoted last year by the Obama Administration. Last month, notices of trustee sales were posted for 5,001 homes in Inland Southern California, up from 3,983 in February, 2009.
Nyiri noted that the federal government is shifting into gear a new program to encourage lenders to allow more short sales, where owners sell their houses for less than the mortgages on them.
Under the rules of the Affordable Foreclosure Alternative Program, which becomes effective next month, short sales would be preferred to foreclosure when loan modifications that would allow owners to remain in their homes don't work. The program provides monetary incentives to loan servicers, borrowers, loan investors and second lien holders.
Short sales could resolve a failed mortgage without the borrower entering the foreclosure process.
"If the short sale program gains traction and works, we could see a pretty dramatic impact on the (foreclosure) numbers," said Blomquist. Short sales, he said, "could be a bit of a game changer in 2010."
http://www.pe.com/business/realestate/stories/PE_Biz_W_foreclosures11.41b01dd.html
California Doing a Rendition of the Housing Industry on the Budget – $20 Billion Budget Deficit and Massive Amount of Distress Inventory. How Banks Raided the U.S. Treasury with the aid of the Federal Reserve and have Damaged Housing Further.
The banking system has captured our government and frustration is boiling over. Yet those in the housing and banking industry seem complacent and even self congratulatory that we “have avoided Great Depression 2.0.” Really? Now we’re taking advice from the same group of cronies that led the economy off the financial cliff. And the most troubling thing is we are at the height of unemployment even though the headline rate seems to have steadied out. California’s unemployment rate still continues to move upward hitting 12.5 percent. Yet all is well in delusional banking world since their idea of a solution is simply not foreclosing. What is even worse, these banking crooks are now offering fire sale deals to other banks and hedge fund investors! I’ve contacted a few banks about short sales and in many cases, preference is being given to “all cash” investors. Glad those bailouts are supporting the crony banking system.
One of the most troubling trends is the belief that all is well because banks aren’t foreclosing on homes or the fact that there is no second wave. Really? Let us look at nationwide foreclosure filings shall we?
Who needs a second wave when the first wave is still in place? Some in the housing industry seem to be patting their back that there won’t be a second wave of foreclosures (even though it is still high) and base this on the mounting distress inventory with Alt-A and option ARMs but no actual foreclosure filing. The wave is hitting as people stop paying their mortgage. Take for example option ARMs. Nearly 50 percent of all outstanding option ARMs are at least 30 days late. In other words, the borrower isn’t paying the mortgage! Yet in some form of twisted abracadabra housing logic, this is avoiding the wave because banks are ignoring the problem. The wave was the distress. Foreclosures are still on the market. The bank balance sheet is still loaded with mortgage junk. But just because banks are putting their hands over their eyes doesn’t mean the issue was avoided. In fact, it is corrupt to the core and the way they acknowledge this is absolutely stunning. The fact that we have no solid financial reform after 2 years of major crisis is incredible. Banks simply ignoring missed payments while taking trillions demonstrates what has become of our financial system and their idea of dealing with the problem.
Take for example HAMP:
“(Huffington Post) As of the end of January there were over 116,000 permanent modifications and over 67,000 permanent modifications pending final approval,” Geithner wrote in his letter, which the panel received last week. “This group of approximately 180,000 permanent and pending permanent modifications represents about a third of the population of total modifications who have completed the trial modification and are at a point in the process where they are able to convert to permanent.”
HAMP has been an absolute failure. Yet HAMP is symptomatic of the bigger issue. Banks were able to raid the entire U.S. Treasury and Federal Reserve for $13 trillion in backstops and bailouts, with no questions asked but then start talking about moral hazard when it comes to HAMP:
“Kucinich was pessimistic about the ability of any program that doesn’t involve principal reductions to help floundering homeowners. “Instead, we’re going to stay on this slow path to default, foreclosure and personal bankruptcy,” Kucinich said. “And our economy is going to continue to suffer.”
He added: “It’s funny that moral hazard is a concept when it comes to Main Street but not to Wall Street,” a reference to the massive bank bailouts.
More than 2.8 million homes were lost to foreclosure last year, according to data provider RealtyTrac. The firm expects a record three million foreclosures this year.”
I’ve talked with colleagues who are Republicans and Democrats and both are absolutely appalled by what is going on with Wall Street and the housing industry. They have transformed our economy into one giant casino and houses are now life sized Monopoly tokens that are traded on the New York Stock Exchange with no regard to local economies. Moral hazard applies to the masses yet those rules don’t apply to the plutocracy that sits on Wall Street. While the stock market soars from the March low by a stunning 68%, job creation is nowhere to be found:
Where are the jobs? Last month they blamed the snow and now next month, we can expect a big boost because of Census hiring. That is great that we have thousands working at $16 or $17 an hour with no benefits but then what? Are we going to do the Census every month? Most Americans realize that things aren’t as rosy as Wall Street is leading on. And California is certainly not doing any better:
California Doing a Housing Industry on the Budget
“SACRAMENTO, Calif.—Gov. Arnold Schwarzenegger said Tuesday that he vetoed the largest piece of legislation in a package of budget bills because it did not take immediate steps to cut spending.
Democratic lawmakers said the bill would have shaved $2.1 billion from the $20 billion shortfall projected for California’s budget through June 2011. So far, the Legislature and governor have agreed to just $200 million in spending cuts.
“It’s extremely important that we immediately jump into action and make midyear cuts,” Schwarzenegger told reporters on Tuesday. “We’re spending, right now, $600 million a month more than we’re taking in. It’s irresponsible.”
This came out on Tuesday by the way. We still have a $20 billion shortfall and are spending $600 million a month more than what is being brought in. So what does that mean? It means more cuts or higher taxes. How is this good for housing? More importantly, how is this good for the state economy? If we look at the unadjusted unemployment rate California is up to 13.2 percent unemployment (headline). We are seeing 23 percent underemployment. This is something none of us have seen in the modern era. Yet those in the banking and housing industry are claiming mission accomplished just because banks aren’t moving on foreclosures. This is their ultimate solution. Because that is all they have. This suspension of belief is their idea of avoiding the second wave. Humor them and take this out to the logical conclusion.
Many Californians are underemployed as we have highlighted. Those that are employed, can expect tighter wages and higher taxes thus cutting into their disposable income. So how does this create higher home prices? Even if banks “trickle” out inventory once that inventory hits the market it confronts the economic realities people have to live by. That is why when we show examples of short sales they are selling at deep cuts. Home prices have to reflect local area incomes and what people can afford. Unless we plan on bringing back toxic waste mortgage sludge like Alt-A and option ARMs, people can only buy what their income can support.
If things are so fantastic in the housing market for California, I’m sure builders are out there in mass right?
Not exactly. Because there is a glut of housing on the market. And more importantly, that second wave of housing is sitting on the banks balance sheet. So they won’t be making construction loans when they realize just how much inventory is really out there. Just look at the above chart. Building permits and construction jobs are at the trough. No visible turn around. And take a look at notice of defaults and foreclosures:
The only reason the foreclosure number has fallen was because of HAMP (which as we now know is a failure meaning more short sales or foreclosures will hit the market soon because many on trial mods will not make it to permanent modification status). Whether it is a flood or just a steady trickle, this will happen. And these homes sell for lower prices thus pushing area prices lower. This is the next round for mid to upper tier markets. They have bought some time but it is running out. Eventually there will have to be some realization of local economic factors.
I was curious to see what industries were adding jobs:
Who will be buying the homes in 2010? More importantly, why would people be overpaying for homes? The above chart shows no real improvement in the real economy. In fact, all the banking industry is doing is stalling the inevitable but at the same time sucking the taxpayer dry. With the $13 trillion in bailouts and backstops we could have had enough to pay off every single residential mortgage in the United States and taken everyone to Disneyland. Instead, we are financing the crony banking system full throttle robbery of the American people.
http://www.doctorhousingbubble.com/california-doing-a-rendition-of-the-housing-industry-on-the-budget-20-billion-budget-deficit-and-massive-amount-of-distress-inventory-how-banks-raided-the-u-s-treasury-with-the-aid-of-the-federa/
Proposal To Exempt Victims Of Foreclosures And Short Sales From Big Tax Bills
State legislation to protect people who lose their houses in foreclosure or short sales from a big tax bill passed a significant hurdle this week, winning Assembly approval. The state Senate is expected to vote on the proposal Thursday.
Passing the Assembly by a 47-27 vote, the bill authored by Sen. Lois Wolk (D-Davis) would exempt people who did short sales or received loan modifications or lost their houses in foreclosure last year from having to pay state tax on any mortgage debt that was forgiven. Otherwise the forgiven debt would be considered income for the homeowners even though they received no money from the sale of their home.
Both the state and federal government extended a lifeline to homeowners in 2007 when the market was flooded with mortgage failures by temporarily exempting the tax on forgiven debt. However, while the federal exemption continues through 2012, the state's expired at the end of 2008.
With an April 15 tax deadline approaching, tax accountants say many of their clients are scared and uncertain how they would pay the added tax if the state does not pass legislation.
Brian Winter, a tax preparer at Jackson Hewitt in Riverside said a lot of his clients facing a big state tax bill because of the expiration of the state exemption don't have jobs or enough money to meet the obligation.
Winter said a person with an annual income of $50,000 and $100,000 of debt cancelled on a house would be "on the hook" for about $8000 in additional income tax. He said most likely some of his clients would be forced into bankruptcy.
Many people who thought they were exempt from the debt forgiveness tax under both the state and federal law, Hewitt said, were shocked to receive 1099 forms in the mail from their lenders that need to be filed with their tax returns to report the cancelled debt.
As state law now stands not all homeowners who have a foreclosure, short sale or loan modification will take a state tax hit. According to the Senate Revenue and Taxation Committee, for example, debt forgiven on a first mortgage used to buy a house even now is not taxable. That is not true, however, if the original mortgage is refinanced and money taken out to buy a car or for another investment.
Sandi Aplin, a tax accountant in Moreno Valley, said the tax laws pertaining to forgiven debt are very complex and require the attention of a professional tax preparer. She advised that those who have had mortgage debt forgiven should apply for extensions on filing their 2009 state tax returns to give the state government time to take action to help them.
Winter said he recommends that his clients hold off on preparing their state tax returns until the first week in April.
Prospects for the Wolk legislation are clouded by uncertainty whether Gov. Schwarzenegger will sign it. The governor vetoed similar federal conforming legislation in the past because of the attachment of a provision that would establish new tax penalties on individuals and businesses that file unfounded claims for tax refunds.
Craig Reynolds, Wolk's chief of staff, said a clause with the same purpose is included in the new legislation but the proposed penalties are narrowed to apply only to large corporations and the super-wealthy.
The governor has argued that the controversial clause should be taken out of the bill and considered in separate legislation, said Schwarzenegger Secretary Aaron McLear.
http://www.pe.com/business/realestate/stories/PE_Biz_W_taxbreak10.27c43b3.html