A weekend topic starting with Civil Beat. "When University of Hawaii economists were assembling 'The Hawaii Housing Factbook,' they decided to look beyond a metric often used to show housing costs in the Aloha State – and how those costs have increased over time. The result: as much as home costs seem to have increased in the past two decades, the situation is worse than it has seemed, based on median home sales prices, a standard way of measuring the cost of buying a house. 'The normal way looks pretty bad,' said Justin Tyndall, an assistant professor of economics and the lead author. 'But it’s even worse.'"

"The scholars looked at homes bought in 2000 and sold in 2022. They found 39 single-family homes in Hawaii that met that criteria. Such a home could be bought for an average of $334,000 in 2000, the report says. By 2022, the average price had increased by 340% to $1.47 million. 'A young person wanting to buy the exact home their parents bought 22 years ago will need to pay 4.4 times as much,' UHERO reported. 'Considering this type of scenario demonstrates why the 260% increase in median home price can actually understate the severity of the housing crisis as experienced by Hawai‘i residents.'"

The Star Advertiser in Hawaii. "Oahu homebuyers snapped up properties at a relatively quick pace in June as the housing market cooled from a year ago amid a dip in prices. The median price for single-family home resales stabilized in June but remained above seven figures at $1,050, 000. That was down 4.5 % from $1.1 million a year ago and off 5.3 % from $1, 109, 000 in May, according to the Honolulu Board of Realtors. High mortgage rates have cut into both inventory and sales. 'It's definitely affecting the market,' said Realtor Chris Zhu of Coldwell Banker Realty of Hawaii. 'It reduces the buyer's purchasing power. The higher interest rate lowers the loan amount they can get. The less they can borrow, the less they can afford. It will drive the prices down.'"

The Los Angeles Times. "Four days a week, Leticia Ortega de Ceballos sleeps in her car so she can pay for a house more than 100 miles away. Her workweek begins with the Sunday night shift at Loews Hollywood Hotel, where she cleans the hallways and lobby. When she finishes, exhausted, there’s just an hour until she starts her second job cleaning hotel rooms at the Hilton in Glendale. Then she has six hours to shower, eat and sleep before she starts all over again. Loews, Hilton, shower, eat, sleep. The 56-year-old sees the house in California City and the family within it on weekends."

"Gladis Ávila, 39, can spend more than two hours in traffic commuting to her job at the W Hollywood Hotel from her new house in Victorville, a 90-mile drive away. Some nights she gets home just as her youngest children are getting ready for bed. 'At the end of the day, when I’m heading home,' Ávila said, 'I wonder if it’s worth it.' The women grapple with all the difficulties of the housing market in California today, the high prices that push first-time buyers increasingly far from work, the scarcity of anything they can actually afford."

"But Ortega de Ceballos and Ávila are looking for more than just shelter. Sure, they want a home to live in now. But they also want to one day give their children the financial footing they themselves never had. The key is more than just hard work and a savings account with a laughably low interest rate. The key is a house, the kind of investment that can grow over time. 'Traditionally, owning a home has been the way that most families accumulate wealth,' said Marisol Cuellar Mejia, a research fellow at the Public Policy Institute of California. 'That has happened for many years, and that was in some ways a manifestation of the American dream.'"

The Real Deal. "Tides Equities’ showed its hand last week. If this were poker, folding would be a good option. Instead, the multifamily syndicator asked investors to cough up more capital to salvage properties with negative cash flow and declining occupancy. In the past few years, Tides acquired a $7 billion multifamily portfolio by taking out floating-rate loans at dirt-cheap interest. When the Fed hiked rates, the firm’s debt service ballooned. Now, 20 percent of its portfolio faces distress, co-founder Ryan Andrade told investors in a letter. Without a capital infusion, Andrade warned, properties would not have 'sufficient holding power.'"

"Tides isn’t alone. A number of small-time investors, lured by the cheap money of yesteryear, employed the same value-add strategy. So-called syndicators pooled money from well-heeled yet largely unsophisticated investors, promising outsized returns on multifamily deals. The premise was that rent increases, made possible by renovations and constrained supply, would boost revenue. But the music has stopped, insiders say. Rental housing is supposed to be a good investment in the event of high inflation because rents can be raised, but the Federal Reserve’s hiking of interest rates to fight inflation made floating-rate loans very expensive, very fast. When those loans mature, refinancing them will be painful if not impossible for many borrowers."

Kelowna Now in Canada. "Last month in the Central Okanagan, 456 homes of all kinds (single-family, townhouse and condominium) changed hands, according to the Association of Interior Realtors. Last month the single-family benchmark was $1,063,800, up from $1,048,900 in May, $1,051,100 in April and $1,001,500 in March. June's benchmarks are still well off the record highs set in the spring of 2022 -- $1,131,800 for a single-family home. Current sales pace is down considerably from 957 in April 2021 when the market was booming as people went into a pandemic buying frenzy to get the home they wanted in the area they wanted."

"While buyers acted with abandon during the boom, today's buyer is cautious. 'The costs of carrying mortgages could impact sales activity as interest rate sensitive buyers can no longer afford what they could have a year or so ago,' said Chelsea Mann, president of the Association of Interior Realtors."

The Globe and Mail. "Agustín Carstens is general manager at the Bank for International Settlements. Risks to financial stability loom. Debt and asset prices exceed those in past periods of interest rate hikes. The resulting financial strains will likely come through credit losses. Weak banks risk losing their footing. Historically, banking stress often goes in tandem with higher interest rates. High debt, high asset prices and high inflation add to the risks. The current episode ticks all the boxes. How should policy makers respond to these challenges? The task of central banks is clear: They must restore price stability. A shift to permanent high inflation would have enormous costs, especially for the most vulnerable in our societies."

"Policy makers must be realistic about what they can achieve. High inflation and financial instability did not emerge by accident. They were the result of a long journey, reflecting in no small part an overly ambitious view of monetary policy’s ability to hit a small inflation target and a more general belief that macroeconomic policy could support growth indefinitely, without stoking inflation."

The Telegraph. "The Bank of England was captured by groupthink that blinded it to obvious warning signs over the inflation crisis and prevented it from stamping out price rises, former top officials have said. Sir Charlie Bean, who was a deputy governor of the Bank until 2014, told MPs that the previous decade’s experience of trying to boost low inflation with ultra-low interest rates and money printing meant officials across the world missed the opposite problem looming."

"Speaking to MPs on the Treasury Select Committee, he said: 'There was a problem of groupthink across the central banking fraternity.... You had all of these discussions about negative interest rates and other ways to inject more demand. Connected to that was the idea of trying to signal interest rates would stay low for long and thereby put downward pressure on long-term interest rates. And really you had all central banks in that mindframe. I think they were all too slow to pivot to the dangers of a significant increase in inflation and the need to withdraw some of the, in my view, excessive monetary stimulus injected during the pandemic.'"

From The I News. "Homeowners are having to knock as much as £20,000 off their asking price in an effort to find a buyer, housing insiders have revealed. Figures published by Halifax on Friday showed there has been a 2.6 per cent fall in house prices across the UK in the past twelve months. The country’s biggest mortgage lender said it is the biggest fall in prices since 2011 following the global financial crisis and amounted to around £7,500 being wiped off the average UK house price in cash terms. Some regions of the UK have been hit harder than others."

"Alan Greenin, a mortgage broker based in Kent, told i: 'I’ve got clients trying to find a buyer and they’re struggling at the moment. They’ve have had to lower their expectations. I think it’s the knock-on effect of interest rates and not knowing where they’re going to be. I had a client lower their price yesterday and another this morning. This chap has had to lower it by £20,000, from £385,000 to £365,000, and he might take it down another £5,000 from that. He’s been on the market for a month and a half and only had two viewings.'"

From Mises.org. "First Republic, Signature Bank, and Silicon Valley Bank have all failed, and that’s not the only thing they have in common. Western Alliance Bank’s Ken Vecchione was jealous of these three large regional banks. The chief executive admitted to the New York Times, 'We were, I have to admit, a bit envious of them.'"

"Obviously Vecchione was and likely still is oblivious to problems at his bank and others. He doesn’t understand the fragility of fractional reserve banking. 'We certainly didn’t see this coming,' Mr. Vecchione told the Times. Murray Rothbard saw it coming decades ago, writing, 'Banks are ‘inherently bankrupt’ because they issue far more warehouse receipts to cash (nowadays in the form of ‘deposits’ redeemable in cash on demand) than they have cash available. Hence, they are always vulnerable to bank runs.'"

"Western Alliance’s chief financial officer Dale Gibbons and Mr. Vecchione were described as 'gape-mouthed' by the Times as long-standing clients decided to withdraw deposits and ask questions later. 'These runs are not like any other business failures, because they simply consist of depositors claiming their own rightful property, which the banks do not have,' wrote Rothbard. 'The entire system of fractional-reserve banking, therefore, is built on deceit, a deceit connived by the legal system,' Rothbard explained. Perhaps that’s why there is a banking crisis every ten to twenty years. The system must be propped up by an increasing number of schemes that can be described as government force."

"There is no mention of the Federal Home Loan Bank (FHLB) in Rothbard’s book The Mystery of Banking. Created in the Great Depression, the FHLB was created to grease the wheels for financial institutions to make home loans. Now, the $1.5 trillion government behemoth is a go-to source for illiquid banks to obtain funding. According to Bloomberg, Silicon Valley Bank held $15 billion from an FHLB at the end of 2022; Signature Bank had $11 billion; and by this April, First Republic Bank ended up with more than $28 billion from FHLB. All three banks collapsed."

"FHLB didn’t take a loss with these failures because as Bloomberg writer Heather Perlberg explains, '[The FHLBs] have a so-called super lien on the money they lend, putting them at the front of the line to get repaid if a bank collapses. The FHLBs note that any secured lender would take priority in the event of a bank failure.' 'You can look at who they are lending to and see it’s not because they’re doing a good job screening for bank quality' said Kathryn Judge, a Columbia Law School professor who focuses on financial regulation. 'It’s a byproduct of the fact there’s a mechanism in place to protect their interests.'"

"Bloomberg found two former long-time FHLB employees who said they never saw a loan turned down, no matter how poor the financial health of an institution. According to them it’s all about the collateral—US Treasuries, home loans, mortgage-backed securities, and other real estate assets. My experience is they would not lend against land loans or loans involving petroleum use, but little due diligence was done. Standard and Poor’s and Moody’s have said their credit ratings for the FHLB system would be several notches lower if not for the government’s presumed backing. According to Bloomberg, the CEO of the Council of Federal Home Loan Banks Ryan Donovan said, 'The implied guarantee is also not something that’s conveyed by the government. It’s something the market perceives that we’re a safe place, that our debt that we issue is solid.'"

"Bloomberg’s Perlberg explains, 'The FHLBs don’t track how banks use their financing. The lifelines can help troubled banks avoid fire sales of assets. But if a firm’s balance sheet is in bad shape, collateralized lending may do little more than postpone the bank’s inevitable demise, potentially letting losses worsen. The Federal Deposit Insurance Corp. is left to clean up the mess.' 'That delay makes a difference,' said Judge, the law professor. 'Fresh liquidity allows them to limp on longer rather than evaluate their own viability.' Yes, that’s the idea."

"The system’s total loans to members surged 28 percent to $1.04 trillion in the first quarter, beating a record set in the third quarter of 2008. In March the Federal Reserve created another facility to backstop the nation’s banks called the Bank Term Funding Program (BTFP). BTFP provides loans with maturities of up to a year to banks, savings associations, credit unions, and other eligible depository institutions. Banks can borrow at 100 percent of the par value of the US Treasuries and mortgage-backed securities among other securities. 'This will allow banks to fund potential deposit outflows without crystalizing losses on depreciated securities,' Goldman Sachs wrote the Sunday after the Fed announced the program."

"'Because the pledged collateral is going to be valued at par, this new facility will ensure that other banks with similarly impaired hold-to-maturity portfolios will be able to easily leverage them to access liquidity, rather than have to realize significant losses and flood the markets with paper,' according to Jefferies economists in a Reuters article."

"Remember, the BTFP was just created in March. On June 14, aggregate BTFP borrowings reached just under $102 billion. Of course, we can’t forget about the Fed. But, while 'the members certainly could go to the Fed, the challenge is there is a reputation risk associated with that. In talking with member institutions, they feel that the stigma is real.' All that keeps bank depositors from pulling their money out is reputation, and more than a little help from bankers’ growing list of friends, old and new."