May232014
Will weakness in housing prompt more stimulus?
Weak housing numbers will not cause the federal reserve to change its policies because aggregate debt is rising and mortgage rates are still low.
In the minds of some people, unlimited support of inflated house prices is an absolute, not to be questioned or wavered from. If house prices are weak, stimulus is required. If sales are weak, stimulus is required. Since we no longer have a free market in anything, every gyration in house prices or demand is greeted with more calls for stimulus; however, this time, I believe the calls will fall on deaf ears. The federal reserve is not going to employ lower interest rates or unconventional stimulus measures to prop up flagging demand, despite pleas from loanowners, realtors, and bankers to do so.
Why won’t the federal reserve get involved? For one, the problem is not high interest rates. When the federal reserve began tapering its purchases of mortgage-backed securities, many feared interest rates would rise sharply and pummel affordability. The opposite occurred. Since the federal reserve announced they were tapering their asset purchases, mortgage interest rates have steadily moved lower. If interest rates would have moved higher, perhaps the federal reserve would consider buying more to stabilize rates, but since mortgage rates actually went down, why would they buy more mortgages? Rates are already low.
The second reason the federal reserve won’t taper is because aggregate debt is rising again, as the steady deflation of mortgage debt over the last six years finally ended. With debt rising again, the federal reserve doesn’t need to inject money directly into the economy by printing money. I believe one of the main reasons the federal reserve decided to taper was the increase in aggregate debt because they no longer needed to counteract the disappearance of money through debt deflation.
Household Debt Inches Higher
O. Emre Ergungor and Daniel Kolliner, May 8, 2014
Household debt began to shrink in early 2009 and dropped by nearly $1.4 trillion before bottoming out in mid-2013. According to the most recent data, consumer debt has increased in back–to-back quarters for the first time since early 2008. The Federal Reserve Bank of New York reports that household debt has grown from $11.28 trillion in the third quarter of 2013 to $11.52 trillion in the fourth quarter.
In the fourth quarter of 2013, 75 percent of household debt consisted of obligations secured by real estate (mortgages and home equity loans), 6 percent of credit card debt, 7.5 percent auto loans, and 9.3 percent student loans. Mortgages were responsible for 63 percent of the increase in household debt, followed by student and auto loans. However, going forward, mortgage lending may face stronger headwinds if mortgage rates continue to rise.
Households’ net worth has been increasing since the end of 2009 and has averaged 7.4 percent year-over-year growth since then. There are two reasons that household net worth can increase: liabilities can decrease or assets can increase. In the current case, household net worth is increasing because households’ financial assets are increasing faster than their liabilities. Households’ total real estate holdings increased 11.5 percent from the fourth quarter of 2012 to the fourth quarter of 2013. Meanwhile, year-over-year mortgage growth was just 0.2 percent.
Since banks aren’t handing out HELOCs with the same enthusiasm they demonstrated in 2006, home values are increasing faster than debt levels. That’s a good thing… for as long as it lasts.
According to the National Association of Realtors (NAR), the number of existing single-family home sales decreased from 4.36 million in March of last year to 4.04 million in March of this year. In a quarterly survey of senior loan officers, a net 26 percent of respondents reported that demand for prime mortgages is down (that is, the reports of decline exceed the reports of increase by 26 percentage points). A net 16 percent reported a decline in demand for nontraditional mortgages, while a net 14 percent reported a decline for subprime mortgages. As recently as the third quarter of 2013, a net 49 percent and 25 percent of loan officers had been reporting stronger demand for prime and subprime mortgages, respectively.
The steep decline since last summer has everyone worried, so worried they are talking about stimulus again. I’m sure it sounds like a great idea to bankers, loanowners, realtors, and anyone else who wants to see more sales at higher prices.
How housing weakness may change the Fed’s game
Ron Insana | @rinsana, Monday, 12 May 2014 | 11:27 AM ET
It has been a winter of discontent for the economy, as a whole, but even more so for sales of new and existing homes, housing starts, mortgage applications and refinancings. Home-price appreciation has slowed in certain parts of the country, as well, but that hasn’t yet sparked a pick-up in demand.
Even with long-term Treasury rates falling to 2.6 percent, pushing mortgage rates back down toward historic lows, the flow of credit to potential home buyers has been choked off, creating a headwind in housing, and for the overall economy, from what was a tailwind a year ago.
If the spring fails to deliver any new “green shoots” to residential real estate, the Fed may do one of several things.
Why should the federal reserve do anything? At what point is enough, enough?
It could “taper the taper,” taking a couple months off and then re-start the taper if real estate picks up, or stop for a protracted period.
But with the cost of credit still quite low by historic standards, the Fed may have to reach into its toolbox and try some other unconventional means of reigniting the home fires in residential real estate.
So stimulating housing through interest rate stimulus isn’t enough?
It could stop paying banks the quarter point interest for deposits held at the Fed, potentially forcing banks to take that money and make loans.
Such a move would likely be opposed by banks, that are earning a tidy risk-free sum from the central bank, but the net effect could be quite forceful. It would force nearly $3 trillion of bank reserves held at the Fed into the economy.
Since banks would be earning zero, or even less than zero, on their deposits at the Fed, their incentives to lend could change quickly, particularly if the Fed were to adopt a negative deposit-rate policy — something no one is currently expecting. With that dramatic step, the Fed could actually charge a fee for holding those deposits. The Fed has written about such a maneuver in its myriad studies on how to get a deflationary economy moving again.
Let’s imagine the federal reserve does change its policies to force money back into circulation; why would those new loans go toward housing? Such a policy change may stimulate lending, but it wouldn’t necessarily stimulate real estate lending.
The Fed, FDIC and Comptroller’s Office, could also begin to relax credit standards so that qualified U.S. buyers can gain access to cheap money from banks.
Mortgage credit remains as tight and unavailable to most buyers today as it was at the depths of the credit crisis in 2009.
Relaxing credit standards? What could go wrong?
I am not suggesting that regulators relax credit to the extent they did in the years leading up to the real-estate bubble and bust.
Yes, you are.
However, allowing bankers to make traditional 10-percent down mortgage loans to people with decent, but not perfect, credit should get the looky-loos buying again.
When did the “traditional” down payment become 10%? This guy is attempting to rewrite history with bullshit to support a weak argument.
I am betting that the Fed has a few more tricks up its sleeve to take a more targeted approach to getting the economy to fire on all cylinders.
If the federal reserve had any more tricks, wouldn’t they have used them already?
If it doesn’t “taper the taper,” I still expect the Fed will continue unconventional efforts to get the economy, and more specifically, real estate, rising again.
No, they won’t because it’s not warranted, and it’s not a good idea. If it were, the arguments presented here would be much more convincing.
The economy needs all tailwinds, and virtually no headwinds, if the Fed expects the economy to return to its fullest potential and allow it, ultimately, to restore policy to normal — whatever normal means in a post-crisis environment.
blah, blah, blah.
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Federal Reseve is insolvent. Color laser toner is not secured collateral.
“The whole purpose of propaganda is to make the obvious seem obscure, or offensive.”
– Stefan Molyneux
In theory, the federal reserve can never be insolvent as they can always print more money. Their collateral is the total value of goods and services produced in our economy.
You’re absolutely right, however it’s really not a theory. Our debt is guaranteed by the full faith of the United State of America to repay that debt (and QE is debt). In turn, the USA has the ability to Tax its citizens at whatever level is necessary. And this goes back to your statement … “Their collateral is the total value of goods and services produced in our economy.”
http://crooksandliars.com/2014/05/jon-stewart-makes-tim-geithner-squirm
There has been some speculation that the HUGE and RIDICULOUS increase in Belgium’s US Treasury holdings has been due to a rotation from equities to safe haven. I say speculation, (and uninformed), because the numbers associated with safe haven rotations are miniscule compared to Belgium’s accumulations over the last 6 months.
The following shows safe haven rotation type numbers”
The Great Unrotation: Biggest Inflow Into Treasury Funds Since 2010; $7 Billion Outflow From Stocks
I understand that eyes glaze over when numbers of billions are the issue, so if it helps remove the 9 zeros and look at it from that perspective.
“Everything, in retrospect, is obvious. But if everything were obvious, authors of histories of financial folly would be rich . . .”
― Michael Lewis
Problem is, once the compounding equation has rolled over on itself, stimulus does not change reality, only the perception of reality.
For the federal reserve and politicians that support it, the perception of reality is reality.
until reality so blatantly disagrees with the propaganda
What a weird article.
Ron Insana notices that what the Fed is doing isn’t working, so he suggests they do “more of the same” for as long as it takes.
Okay.
He talks about the Fed having more “tricks up their sleeve” ignoring the fact that first Q GDP was just revised to negative, unemployment is still soaring and the economy is on the rocks.
57% of respondents in a recent Gallup poll think the “economy is still in recession”.
That’s how effective the “recovery” propaganda has been. No one believes a word the government says.
Everyone knows what’s wrong with the economy, and every survey reveals the same thing: People, by wide majority, believe the most important thing is jobs… good paying jobs. The kind of jobs we used to create in America before the dimwits and ideologues took over.
More people work, they buy house, everyone’s happy.
It’s easy, right?
..OR we do another 6 years the “Ron Insana” way and end up in the shitter like we are today.
Fu** the stimulus and fu** the monetary policy. People want jobs. And, more important, they want politicians who know how to create jobs.
I’ll shut up now.
They all have the mindset that says the only way to create jobs is with more stimulus. If we don’t have enough jobs, then to them, we obviously don’t have enough stimulus. If stimulus fails, then we simply need more.
When your only tool is a hammer, everything starts to look like a nail.
Open market actions and paying banks interest to hold their reserves was never going to create jobs. Quite the opposite. Feature, not bug. Keynes rolls over in his grave. Might as well call Patton a communist as to call this farce keynesian. Stop paying banks and that money will go somewhere, but where?
If people keep looking to politicians to create jobs, the same inequities will continue. It is not the government’s responsibility to create jobs. Jobs are created by demand, not legislation. Trying to legislate jobs into existence is like trying to legislate away the laws of physics.
gov and fed are bleeding the economy dry of capital; until both are massively diminished we will stay the course.
4 things doom-and-gloomers got totally wrong
Opinion: Their predictions — from Dow 1,000 to $5,000 gold — are dangerous
That story is specifically written to pander to people’s optimism bias by undermining anyone who would say anything negative. Articles like this one allow people to dismiss good and accurate information they don’t want to hear because they can label it as coming from those doom and gloomers who are always wrong.
+1
Ironically, the people who’re most dangerous are NOT the doomers, but talking-head ‘puppets’ who pump a given market(s) on-air to cajole the public into buying something, so the
prosinsiders can sell the highs.Yet you consistently disregarded my doom-and-gloom regarding gold and missed the opportunity to sell near the highs. Sad really.
You post here as ‘Mellow Ruse’, so I think your comment(s) need to be read in that context.
He’s been hammering you pretty hard lately, but I have to give you the +1 on that one. I laughed out loud when I read it.
So you think folks should more highly regard your musings so that they do not miss out on opportunities? And you think people should act on the opinions you voice here?
I don’t think folks in general should because they don’t know me, but el O has known me since 2008. It’s ironic that he would listen to talking-head ‘puppets’ pumping gold over somebody he’s known for years with a record of good calls. None of his sources for information have gotten gold correct, but he continues to put faith in them.
Of course I can not speak for el O, but I personally do not know of any good calls you have made, regarding gold or anything else.
Of your gold trade, bought at 660, sold at 1630, I believe you, but I do not think it a good call. It is a trade you will regret, even if you do not admit it.
I don’t think he feels much regret right now….
No doubt, he was feeling quite smug. I would put odds at 75/25 that he is terrified that his call will be wrong. After his wrong 500k death grip call, he made about 500k excuses. You don’t do that if your self worth does not depend on other’s perceptions and acknowledgements.
Not claiming clairvoyance, but in 2009 I wrote that “easy credit got us into this mess, and it will take easy credit to get us out and into a position in which the mess can be unwound so slowly that the commoner doesn’t even notice”. I’ll stand by that. Bring on 10% /700 as the temporary new normal, and inflate to the point that reasonable amount of new construction makes sense.
Anyone who wants to post their horror story anonymously is welcome to do so here.
Mortgage Collectors Silence Homeowners with ‘Gag Orders’
A curious piece of text is appearing in some homeowner’s loan modification agreements—by accepting a modification from the bank or non-bank servicer, the homeowner agrees to never publicly say, write, or post anything negative about the company doing the modification.
As originally reported by Reuters, Ocwen, Bank of America, and PNC Financial Services Group are adding new terms to their modification contracts to prevent homeowners from publicly disparaging the companies as part of a mortgage modification agreement.
Essentially, the gag orders are being used when distressed homeowners use litigation to resolve foreclosure and loan modification cases, making the modification contingent upon a homeowner’s silence. The deal often extends to lawyers handling litigious cases on behalf of the injured parties.
Reuters cited, “A 2013 report by the National Consumer Law Center found that servicers routinely lost borrowers’ paperwork, inaccurately input information, failed to send important letters to the correct address—or sometimes just didn’t send them at all.”
“These clauses can hurt borrowers who later have problems with their mortgage collector by preventing them from complaining publicly about their difficulties or suing, lawyers said. If a collector, known as a servicer, makes an error, getting everything fixed can be a nightmare without litigation or public outcry,” Reuters noted.
According to the original report, the restrictive text is also now showing up when servicers grant regular modifications outside of the courtroom.
These new requirements are creating problems for homeowners—and ire from regulators. New York’s Superintendent of Financial Services Benjamin Lawsky said he is investigating Ocwen’s use of these clauses.
“Reports that Ocwen is imposing a gag rule for certain struggling homeowners—preventing them from criticizing the company—are troubling and deeply offensive,” said Lawsky in an emailed statement to Reuters. “We will investigate this issue immediately.”
PNC’s vice president of external communications, Marcey Zwiebel, told Reuters that “these clauses are part of the consideration we receive for agreeing to settle the case. This helps to ensure that the discussion is not re-opened in public after the case has been settled.”
Modifications still play an important role in the ongoing housing recovery. According to the U.S. Department of the Treasury, 1.3 million loan modifications have been completed under the Home Affordable Modification Program (HAMP). Servicers have completed an additional 5.6 million modifications.
“The banks are attempting to hold our clients hostage with a provision they know we cannot agree to,” said University of Notre Dame law professor Judith Fox to Reuters, who runs a clinic for troubled homeowners and who has also petitioned the Indiana Bar Association over attempts to muzzle attorneys. “It is coercive and unethical.”
Wow. Can we can now add the new real estate term to Wikipedia: “Modifuckation”.
Home sales up 1.3%, Inventory up 16.8%
For the first time this year, existing-home sales and total inventory increased in April, while home price growth moderated. According to the National Association of Realtors (NAR), total existing-home sales, which the group defines as single-family homes, townhomes, condominiums, and co-ops, rose 1.3 percent to a seasonally adjusted annual rate of 4.65 million in April 2014.
Existing-home sales in April increased from March’s total of 4.59 million, but sales in April are still 6.8 percent below the 4.99 million properties sold in April 2013.
“Some growth was inevitable after sub-par housing activity in the first quarter, but improved inventory is expanding choices and sales should generally trend upward from this point,” said Lawrence Yun, NAR chief economist. “Annual home sales, however, due to a sluggish first quarter, will likely be lower than last year.”
Total housing inventory as of the end of April rose 16.8 percent to 2.29 million. The inventory at the end of April represented a 5.9-month supply, up from a 5.1 month supply in March. Unsold inventory is 6.5 percent higher than last year, when there was a 5.2-month supply.
“We’ll continue to see a balancing act between housing inventory and price growth, which remains stronger than normal simply because there have not been enough sellers in many areas. More inventory and increased new-home construction will help to foster healthy market conditions,” Yun added.
On average, properties were on the market for 48 days in April, down from 55 days in March but up 43 days from April 2013.
Home prices also slowed for the month, finally settling on a median home price of $201,700. Year-over-year, home prices have increased by 5.2 percent. “Current price data suggests a trend of slower growth, which bodes well for preserving favorable affordability conditions in much of the country,” Yun noted.
Ten percent of sales in April were foreclosures, and 5 percent were short sales. Foreclosures sold for an average of 16 percent below market value while short sales saw an average discounted price of 10 percent, according to NAR.
Regionally, existing-home sales were unchanged in the Northeast at an annual rate of 600,000 in April. Home sales slipped in the Midwest by 1.0 percent to a pace of 1.03 million, but increased in the South by 1.0 percent to an annual level of 1.94 million. The West region saw an increase as well, up 4.9 percent to 1.08 million.
Is there any data on listing by owner occupants vs flippers? I was looking at homes the other day and everything looked like a flip vs a lived in home.
What a joke. Last month was atrocious, and because we ticked up 1% this month it’s a recovery! ROFL.
Sorry, but a 1% improvement from a terrible place is still, a very terrible place. Love how the media can spin this crap.
Cheers!
Sad really.