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This Is How The Trouble Begins

A weekend topic starting with Kenneth R. Harney. “According to the Urban Institute Housing Finance Policy Center’s latest quarterly credit availability report, mortgage lenders are reaching out to borrowers who might have been marginal — or rejectees — in the past. The institute’s study suggests that Fannie Mae and Freddie Mac, the dominant players in the market, both have been taking on more risk ‘steadily since the financial crisis.'”

“John Meussner, executive loan officer with Mason-McDuffie Mortgage Corp. in San Ramon, California, sees hints of trouble ahead. ‘I have definitely noticed a fast uptick in ‘creative’ (loan) products coming out,’ he told me. ‘Recently we saw one investor roll out a product offering up to $2 million in financing for FICO scores down to 600.'”

“The loan allows borrowers to have made a late payment on a mortgage within the past 12 months and have multiple credit incidents (such as a bankruptcy or foreclosure). The loan also requires the borrower to have just three months of reserves for loan amounts to $1 million. ‘This is something we haven’t seen since before the crash,’ Meussner said.”

“He said some lenders are dumbing down on FICO scores, as well, soliciting applications with scores in the mid-500s in combination with relatively skimpy down payments and ‘varying degrees of risk layering.'”

“Within the past 18 months, Meussner said he has seen a sizable jump in loan offerings that contain layers of risk piled on top of one another, plus ‘increasingly ‘creative’ documentation standards.'”

“He emailed me one example of how documentation rules — the bedrock of sound underwriting practices in the post-crash era — can be compromised. In an online lenders’ chatroom, a sales representative of a wholesale mortgage company said his firm would approve a loan to borrowers who can’t or won’t document their earnings — essentially a ‘stated income’ loan.”

“‘Typically,’ Meussner said, ‘this is how the trouble begins.'”

The Washington Post. “Adjustable-rate mortgages, known as ARMs, are back, despite having earned a bad reputation at the height of the housing crisis. In January 2019, 8.6 percent of new mortgage loans had an adjustable rate, compared with 5.5 percent in January 2018, according to Ellie Mae, a software company that processes 35 percent of mortgages in the United States.”

“Post-crisis borrowers saw them as risky because of their changing interest rates and blamed the glut of foreclosures on the inability of homeowners to handle higher payments when the loans reset.”

“‘The rates on ARMs can be significantly lower than on a fixed-rate loan, so I hope that buyers and homeowners who are refinancing consult a mortgage professional who can talk them through all their options,’ says Ann Thompson, a retail sales executive for Bank of America in San Francisco. ‘Lots of people don’t stay in their home for that long, so an ARM can make sense. They just have to understand what it could look like if they do stay after the loan adjusts.'”

The Wall Street Journal. “Ginnie Mae is taking steps to curb repeated mortgage refinancings that it says are hurting both borrowers and investors. The government-backed firm, which promotes homeownership by guaranteeing government mortgage bonds, is considering barring some loans backed by the Department of Veterans Affairs from inclusion in its flagship bonds.”

“Its proposal, released on Friday, is aimed at stopping so-called ‘churning,’ a practice in which lenders push borrowers to refinance their home loans over and over in a bid to boost fees to the lenders. Ginnie Mae has made churning a priority in recent years. It started taking action against individual lenders last year when their activity suggested they were pushing refis on borrowers, even when the borrowers wouldn’t benefit from it.”

“Its portfolio of outstanding bonds has ballooned in recent years and now makes up nearly a third of all agency-backed mortgage debt. Now, Ginnie Mae is focusing on mortgages where a borrower pulls cash out of their home during a refinancing, resulting in a loan that is more than 90% of the value of the property. The firm is seeking input from investors and others before completing the policy.”

“Ginnie has found that despite past efforts to curb churning, it remains most pronounced among VA cash-out refis where the loan to value is over 90%, according to the proposal. VA mortgage refinancings allow service members to pull more cash out than typical loans. Such loans can be as much as 100% of the value of the property, when including closing costs, and used to be higher until the Department of Veterans Affairs capped it in February.”

“In conventional mortgages, cash-out refinances are typically capped at 80% of the property value, and for Federal Housing Administration loans, cash-outs are capped at 85%.”

And from NPR. “The latest S&P/Case-Shiller Index numbers give us a peek at the direction of home values. The index tracks national home prices. It’s an important indicator, but it’s only really finance nerds who talk about it, which is weird because Americans hold about $26 trillion of their wealth in their houses. That’s about a quarter of their entire net worth.”

“Robert Shiller, a Nobel Prize-winning behavioral economist, who co-created this index with his colleague, has long been skeptical of whether buying a house is really a surefire investment. His index shows that home prices haven’t really grown much over the long run. Should you use your life savings to buy a home? It’s debatable.”

“In his classic book Irrational Exuberance, Shiller looked at the history of home prices going back as far as 1890. He found that they’ve gone up and down, but over the long haul, they’ve actually grown very little. Between 1890 and 2019, national housing prices grew by less than 0.6 percent per year (after accounting for inflation). That’s pitiful!”

“A few months ago, Shiller warned the world again about a potential housing bubble. As the graph shows, since 2012, we’ve been seeing the third biggest housing boom in modern U.S. history. ‘I think we should be concerned,’ Shiller says. ‘Home prices have been going up since 2012 at a good, strong clip.’ He says it could take awhile, but booms like this come to an end. ‘With the housing market showing signs of slowing down, the turning point could be at hand already for us.'”

This Post Has 122 Comments
  1. ‘VA mortgage refinancings allow service members to pull more cash out than typical loans. Such loans can be as much as 100% of the value of the property, when including closing costs, and used to be higher until the Department of Veterans Affairs capped it in February’

    Cashed out more than 100% until February.

  2. ‘He emailed me one example of how documentation rules — the bedrock of sound underwriting practices in the post-crash era — can be compromised. In an online lenders’ chatroom, a sales representative of a wholesale mortgage company said his firm would approve a loan to borrowers who can’t or won’t document their earnings — essentially a ‘stated income’ loan’

    Senator Running Deer said this was unpossible on her watch.

    1. The entire bubble, just like last time, is built upon fraud. That’s how you get prices which are completely divorced from incomes. The question is why was this allowed to happen, AGAIN?

      1. “The question is why was this allowed to happen, AGAIN?”

        What has been will be again,
        what has been done will be done again;
        there is nothing new under the sun.

        – Ecclesiastes 1:9
        New International Version (NIV)

      2. Still looking for a state by state breakdown of these garbage loans. California must be ground zero. There is just no way they can be selling this many homes at these prices without another epidemic of shady mortgages.

        1. That would be nice to see. Seems they are “loosening” the loan requirements quite a bit. I had another friend join the FB movement recently with a 4-1 DTI. (better than my other new FB friend that went with an FHA and got a 560k home with a 60k yr income).

          1. A friend of mine bought a house in CA last year with a no income documentation mortgage and it wasn’t difficult to get either.

          2. “…a 560k home with a 60k yr income…”

            Anyone who took a commission from that deal should be in prison.

    2. Here we go again. Some of those at lenders making UW decisions were in high school or slightly older during the last debacle and do not really know what happened, were affected, or care.

      All big events are forgotten with time, especially if there is money to be made in the present. This is why history repeats. It is due to the consistency of human nature and behaviour, which do indeed repeat.

      The more various pontificators say it cant happen again, the more it looks like it will. It’s ok, starting to eye some waterfront houses that have been sitting stale for a while and our traditionally slow season is just beginning here in SW Florida. Feel sorry for the repeaters however. Storm is comming.

      1. All big events are forgotten with time

        Except that the full force of the last event was prevented from realization. It will make the eventual reckoning worse and more prolonged. That, when it happens, will not be forgotten for generations. It is the biggest credit bubble in history.

  3. ‘In an online lenders’ chatroom, a sales representative of a wholesale mortgage company said his firm would approve a loan to borrowers who can’t or won’t document their earnings’

    How sophisticated! An online chatroom. Mighty hard for feisty regulators to crack down on that – unless it’s perfectly legal. It’s been called a race to the bottom. It doesn’t cause bubbles, it’s a symptom. Lenders run out of borrowers and resort to lower standards. Not really hard to understand since we’ve seen this movie before, and -tada!- it’s been going on for years.

    Remember the shack loans to illegal aliens who can use their auntie’s income or unlimited numbers of potential roommates to qualify? That had to be 4 years ago.

    Anyway, the refi thing is the elephant under the rug. When I first got into the foreclosure biz, every single default I saw for 6 months was a serial cash-out refinancer. Drop off the key, Lee, and set yourself free…

  4. “Its proposal, released on Friday, is aimed at stopping so-called ‘churning,’ a practice in which lenders push borrowers to refinance their home loans over and over in a bid to boost fees to the lenders.”

    So long as prices are going up by double-digit rates, it seems like there can be evermore money to go around for lenders and borrowers to wnjoy.

  5. ‘Between 1890 and 2019, national housing prices grew by less than 0.6 percent per year (after accounting for inflation)’

    Suggests this is an aberration:

    ‘Home prices have been going up since 2012 at a good, strong clip’

    ab·er·ra·tion
    /ˌabəˈrāSH(ə)n/
    noun
    noun: aberration; plural noun: aberrations

    a departure from what is normal, usual, or expected, typically one that is unwelcome.

    synonyms: anomaly, deviation, divergence, abnormality, irregularity, variation, digression, freak, rogue, rarity, quirk, oddity, curiosity, mistake

    1. ab·er·ra·tion

      The Dallas Fed did a study in 2012 that looks at house prices in 14 countries going back to 1870. They can find no explanation why global house prices headed to the moon since the 1980s.

      1. I am sure it had nothing to do with the collapse of the gold standard in the 1970s and the result of fiat economies creating vast amounts of “money” or globalist controlled countries encouraging escalating home prices to create demand through asset appreciation which could encourage globalization.

        1. Welcome back. Not much has changed around here, aside from the advent of recent signs that HousingBubble 2.0 is caout. Oil remains firmly below $80/bbl, all these years since you predicted it would climb above $80 and stay there.

          fastFT Markets
          Oil prices extend slide as US stockpiles ease Iran pressures
          Edward White in Seoul May 2, 2019

          Oil prices extended their slide in Asia trading on Friday after supply pressures linked to tension in Venezuela and sanctions on Iran were offset by rising US oil stockpiles.

          Brent crude, the international benchmark was off 0.5 per cent at $70.40 a barrel in the early afternoon in Hong Kong, while US price West Texas Intermediate was down 0.3 per cent at $61.64 a barrel.

          The moves followed steeper declines overnight with Brent closing 2 per cent lower on Thursday and West Texas Intermediate down 2.8 per cent on the day. The drop came after data showed the biggest weekly gain for US oil inventories this year.

          1. Hardly in the twenties per barrel where your posted articles said it would be. Fracking oil companies have lost hundreds of billions of dollars because they produced oil when it was lower than $80. It is the price that was and is still needed for reasonable profits. When you have the courage to make a prediction about oil, we can bet on the future price.

          2. “I’m rooting for higher oil prices personally.”

            Of course you are, because you just bought a Tesla and it all fits your narrative. The reality is that high gasoline and oil prices are extremely hurtful to citizens, financially speaking, but your selfishness as you root for pain for the masses does not surprise me.

          3. I’m rooting for higher oil prices personally.

            I’m laughing but it’s not funny. You are wishing for the next leg up on the price of necessities for most of humanity. This will not square your spendthrift purchase of a luxury scooter (at half its production cost) which took much more oil/coal to produce/operate than a conventional car, and pulled that demand forward by decades. Not to mention the 300 mile commute one way to work, It’s not exactly a low footprint example. You are waging war on the rest of us.

          4. “Not to mention the 300 mile commute one way to work, It’s not exactly a low footprint example.”

            Exactly. A 600 mile round trip is generally reserved for airline travel, but both are extremely high in terms of carbon footprint.

            The thing that jumped out to me regarding his comment about him “rooting” for high priced oil is the fact that most Tesla comments sections are packed with fanbois attacking those who don’t drink the Kool-Aid, accusing them of “rooting” for Tesla’s demise, nevermind the fact that it’s the business model that’s at issue, specifically the financial losses. I think it’s projection on the part of these holier than thou types.

          5. your selfishness as you root for pain for the masses does not surprise me.

            If you are for lower oil prices, you should be thanking every EV driver you meet because they are voluntarily reducing their consumption and creating lower demand which creates lower prices. Contrary to what you claim, I am actually make it more economical for you and BlueSkye to keep driving internal combustion vehicles at the price you feel you ought to pay.

          6. I am actually make it more economical for you and BlueSkye

            No you are not. You have used many multiples of the carbon based energy I use and call it virtuous. You have increased consumption and pulled it forward. This makes nothing cheaper for us, you work against that.

          7. @BlueSky

            I’m sorry, you are wrong. I know you think you are right, but you are getting bad information and I can’t say it any other way. From the Union of Concerned Scientists:

            “A full-size long-range (265 miles per charge) BEV, with its larger battery, adds about six tons of emissions, which increases manufacturing emissions by 68 percent over the gasoline version. But this electric vehicle results in 53 percent lower overall emissions compared with a similar gasoline vehicle (see Figure ES-2). In other words, the extra emissions associated with electric vehicle production are rapidly negated by reduced emissions from driving. Comparing an average midsize midrange BEV with an average midsize gasoline-powered car, it takes just 4,900 miles of driving to “pay back”—i.e., offset—the extra global warming emissions from producing the BEV. Similarly, it takes 19,000 miles with the full-size long-range BEV compared with a similar gasoline car. Based on typical usages of these vehicles, this amounts to about six months’ driving for the midsize midrange BEV and 16 months for the full-size long-range BEV.”

            If you care to dig in:

            Enough with the ‘Actually, Electric Cars Pollute More’ BS Already
            Michael Ballaban
            Jalopnik

          8. “The US is not the largest oil producing country,…”

            2 May 2019
            Top 10 countries by oil production
            By Umar Ali

            Offshore oil and gas is a multi-million dollar industry, with countries all over the world developing their energy infrastructures. But what is the oil production by country? Offshore Technology looks at the top 10 countries by oil production.

            USA – 12,000,000bbl/day

            The US is the world leader in oil production, producing approximately 12 million barrels of oil per day (mbbl/day).

          9. From the Union of Concerned Scientists

            I could be absolutely wrong, but this would be an unlikely group to demonstrate it. They have a horrible pedigree and long history of pushing political agendas and dodgy opinion polls.

            My opinion is rather like this: Our economy and activities are mostly all based on energy consumption, which in today’s world is gas, oil and coal. Everything we buy sits on top of energy used to produce materials (get them out of the ground), refine them, transport them and shape them package them & etc. The workers that make things are using their wages to buy all their stuff that’s made with oil and such too, including their food. Of every dollar you spend most of it ends up eventually paying for energy consumption.

            So, if a thing doesn’t make sense financially, I think it doesn’t make sense from a conservation standpoint. A $50K Tesla cost $100K or more (so far) to produce, which makes it more than fair game. It needn’t cost half that much to push one person to SLC twice a month over a lifetime (approximately). I’ve no doubt it’s fun to drive while looking out the side windows, but I can’t agree that it is virtuous or conservative.

          10. “From the Union of Concerned Scientists”

            Card carrying and self admitted Stalinists and communists.

            Strike 1.

          11. Brent still over $70 and only down by a little today says just the opposite, $80 a barrel is a real possibility. Smart money was looking for a buying opportunity.

          1. The fact of the matter is that high oil prices hurts some in the US, and benefits others. The US is not the largest oil producing country, so a high oil price is actually beneficial for the economy, regardless of your angle on pollution, carbon footprint, etc.

            The higher the oil price, the quicker we get to mass EV adoption. Doesn’t have to be Tesla. Can be any EV maker.

            By the way, my commute is done 2x a month now is lower carbon footprint that the average commuter doing 30 minutes a day one-way.

          2. What Happens To A Factory Town When The Factory Shuts Down
            New York Time Magazine
            Dan Kaufman
            5/1/2019

            “Management walks in 15 minutes late,” Green recalled, “and they say, ‘Hey, we’re going to unallocate the plant’ — that was it.”

            On that same day, Mary Barra, the chief executive of G.M., announced that the company would unallocate four other North American plants and cut roughly 6,000 unionized hourly positions and 8,000 salaried positions. The largest affected plants manufactured sedans, and sedans would no longer be a major part of G.M.’s domestic production; instead, the company would focus on building S.U.V.s and trucks, which generate much higher profits.

            SHARE
            98
            The Money Issue
            How America’s Oldest Gun Maker Went Bankrupt: A Financial Engineering Mystery
            Can an Art Collective Become the Disney of the Experience Economy?
            What Happens to a Factory Town When the Factory Shuts Down?

            For more than 50 years, life in Lordstown, Ohio, has
            revolved around the G.M. plant at the edge of town.

            In March, the plant ceased production.
            These were the last cars off the line.

            This is the story of what happens to a
            factory town when the factory shuts down.
            The End of the Line
            Photo Essay by LATOYA RUBY FRAZIER
            Text by DAN KAUFMAN
            Early in the morning on Nov. 26, 2018, Dave Green, the president of Local 1112 of the United Auto Workers, which represents workers at a General Motors plant in Lordstown, Ohio, received a call from the plant’s personnel director. Green needed to be at the plant at 9 a.m. for a meeting. The personnel director rarely called Green, and when he did, it was almost always bad news. Green got into his car — a silver Chevy Cruze — and sped toward the hulking 6.2-million-square-foot factory, which had manufactured nearly two million Cruzes since the car was introduced in 2011.

            “Management walks in 15 minutes late,” Green recalled, “and they say, ‘Hey, we’re going to unallocate the plant’ — that was it.”

            “Green had never heard the term before, but he soon found out that it meant his members would no longer have a car to build. The Cruze was finished, and G.M. had no plans to make anything else at Lordstown. Green followed the managers to the production floor, where they shut down the assembly line before repeating the same brief message to more than a thousand workers. “Some people started crying, and some people turned white as a ghost and looked like they were going to throw up,” Green said. “It felt like, ‘Oh, the end is coming.’ ””

            “On that same day, Mary Barra, the chief executive of G.M., announced that the company would unallocate four other North American plants and cut roughly 6,000 unionized hourly positions and 8,000 salaried positions. The largest affected plants manufactured sedans, and sedans would no longer be a major part of G.M.’s domestic production; instead, the company would focus on building S.U.V.s and trucks, which generate much higher profits. Manufacturing trade publications like IndustryWeek heralded Barra’s “willingness to wield the ax,” while Wall Street investors cheered the shedding of the “legacy” costs — pensions, health insurance — associated with G.M.’s American workers. On the day of Barra’s announcement, the company’s stock closed nearly 5 percent higher.”

            “Barra’s decision reflected many trends: declining small-car sales, an increasingly overvalued dollar that makes American exports more expensive and the continuing rise of American automobile manufacturing in Mexico, where autoworkers make an average of $2.30 an hour (last year, G.M. became that country’s largest vehicle manufacturer).”

          3. The US is not the largest oil producing country.

            Thanks for pointing that out professor. I actually knew that the US had become the largest oil producing country, that was my point.

            I meant to say “The US is now the largest oil producing country.”

      2. In 1982, Ronald “Mommy?!” Reagan deregulated banking and liberalized credit. Congress passed the Garn-St. Germain Depository Institutions Act. It removed restrictions on loan-to-value ratios for savings and loan banks. Up, up and away!

        1. The housing bubble did not occur under Reagan, it occurred under Bush II and Barney Frank did not only not stop it, he continued it when even Bush II wanted to dial it back particularly loans to people who could not pay them back.

          1. “They can find no explanation why global house prices headed to the moon since the 1980s.”

            I hit the wrong reply attempting to answer this question.

          2. “The housing bubble did not occur under Reagan…”

            Agreed.

            While the Community Reinvestment Act of 1977 deserves its share of blame, when President Bill Clinton signed into law the Taxpayer Relief Act of 1997 that included a major revision to Internal Revenue Code that defines the treatment of a capital gain from the sale of a principal residence, it was definitely “game-on” in Spring 1998.

      3. “They can find no explanation why global hou$e price$ headed to the moon since the 1980’$.”

        Well certainly they can find some attribute$ to “credit” it to?

        Reckon using x2 full.time work income$ had in$ignificant effect$.

        1. The two persons working full time is as much a result as a cause of the escalation in prices. The height of real wages is around 1973, the government likes to show household incomes because it reflects two people working and it continued to rise decades after we went off the gold standard. However, after 1973, families had to have both parents working just to survive. So yes the two parents working allowed housing prices to escalate and still be affordable but the wage stagnation after 1973 forced them to work. Getting off the gold standard meant that huge trade deficits could be financed, thus globalization was encouraged by the multinationals.

    1. You can’t have “affordable housing” during a housing bubble. The two are mutually exclusive. Until the machinations which enable these bubbles are extinguished, there will be no affordable housing. What’s remarkable is you get all these “affordable housing programs” in all these areas which don’t even address the root cause. You can’t solve a problem until you identify what it is. Treating symptoms is a fool’s endeavor.

      1. “Treating symptoms is a fool’s endeavor.”

        Especially when the treatment worsens the symptoms…

        1. Anybody who survived an introductory college course in microeconomics can draw the supply-and-demand graph to demonstrate how demand-side stimulus, in the form of affordable housing loans to the unwashed masses, will result in higher housing prices than would have otherwise occurred. What the simple graph cannot show is the pile-on effect of speculators chasing yield to create a mania in response to excessive hair-of-the-dog stimulus measures.

  6. So if inflation since 2008 has been about 20 percent and you add average annual appreciation of .6 percent for another 6 percent (should actually be a bit higher because of compounding), then you would have to add 26 percent to a 2008 price level to account for average appreciation during that time.

    1. Considering houses were never allowed to find their true market value, I’d say your math is wildly inaccurate.

    2. So if inflation since 2008 has been about 20 percent and you add average annual appreciation of .6 percent for another 6 percent (should actually be a bit higher because of compounding), then you would have to add 26 percent to a 2008 price level to account for average appreciation during that time.

      In 2008 the bubble was still deflating. Case-Shiller was 161 in September of 2008. It didn’t bottom out until Jan of 2012 when it was 135. Of course we know that housing didn’t find a natural floor, the Fed massively reflated the bubble with massive QE experiments and an easy money binge.

      Looking at a point in time and trying to extrapolate 26% forward is not very instructive if that point is 2008 because we were still in la la land when it came to housing prices. But let’s do some back-of-the-envelope math:

      Feb 2012 Case Shiller: 134
      Feb 2019 Case Shiller: 205

      % increase in 7 years: 52%.

      BLS CPI inflator shows 11% inflation during this 7-year time period.

      So if you were to apply 11% inflation over this period and then add on another 4% for historical housing appreciation per Shiller, your expected Case-Shiller would be 154 today, not the 205 that it currently is.

      That would imply housing needs to drop 25% nationally to be back to where it was in 2012. Of course we know some markets are far more frothy than others, so a 30-40% correction is probably warranted. Furthermore, reversion to the mean implies an over correction the other way, not just a return to historical averages. So a larger correction, at some point, is expected. My money is on the baby boomers selling en masse.

      1. Who says 2012 is the magic “right level”? I’m simply making the point that even if we have once again reached our bubble top (let’s say that was 2006), you would have to add another 30 percent or so to actually be reaching the same theoretical level of overvaluation. I don’t think we are anywhere close to that in most markets. In lots of places, we haven’t caught up to the bubble height in unadjusted numbers.

        1. the same theoretical level of overvaluation

          I think it is irrelevant. The biggest housing mania in history, worldwide, and instead of a single blowoff top it did the double peaks. If the credit bubble behind it collapses, the deflation will shatter your concept of “theoretical” prices.

        2. you would have to add another 30 percent or so to actually be reaching the same theoretical level of overvaluation

          This is a fair point. Over time if housing prices grow less than inflation and wage gains, the housing bubble can reduce itself and become less onerous. I think that would be the central bankers best case scenario (e.g. a soft landing).

          But have we seen that happening? Hardly. Housing prices have outpaced wage gains for probably the last 10 years. So unless you see wage gains outpace housing for the next 10, you should be thinking unsustainable by any metric.

          I also have my doubts about the usage of CPI as an inflation metric that is useful to extrapolate from for housing. For one thing, imputed rent is a fairly large percentage of BLS’s definition of inflation. So in a housing bubble like we have now, inflation is overstated to the degree that asset prices (e.g. housing) is bid up. We have had massive inflation in housing and CPI draws upon that data as a yardstick for inflation. In other words, it’s somewhat self-referential. When things stagnate or go in the other direction, you could get pretty large deflation a la Japan.

  7. The globalist Fed will try to crash the economy just prior to the 2020 elections just as it gave the economy the “bends” just prior to the 2018 election. I said late summer early fall in 2018 that reducing the balance sheet while raising the interest rates more in one quarter than an entire year under Obama would cause the bends. Of course, the Fed did it on purpose , there was no outbreak of inflation that mandated the aggressive policy but there was a political agenda.Do not get me wrong, I think interest rates should be raised gradually, for one reason just to save social security, but the Fed will not get aggressive until just before the election. Our rising wages and low unemployment is due to Trump fighting globalism and open borders. But the powers that be which include Soros and the Koch brothers who made billions due to the policies will do everything they can take him out. Until then, the status quo will continue and I notice that the discussion really has not changed since I last posted. Yes, prices are falling in some areas but the millennials are finally moving into more affordable cities so overall we are just trending water. 5 and 6% mortgages could do the trick but the Fed is saving that for just prior to the 2020 election.

    1. “Fed is saving that for just prior to the 2020 election“

      I have a similar hunch about this as well. I think as long as our current RE mogul holds his title, we won’t see any real CR8R happen. The “everything is awesome” economy is propped up by a printing presses and no one has the guts to turn it off. 2020 is going to be interesting IMO

      1. “2020 is going to be interesting IMO”

        Some date in the future is going to be interesting. I just don’t know exactly when.

    2. “Our rising wages and low unemployment is due to Trump fighting globalism and open borders.”

      Economic logic, attorney style: Trump will maintain control of the business cycle, so long as the stock market goes up, unemployment remains low, and GDP booms. The moment anything bad happens, the Fed will get all the credit.

  8. But Delusional Danielle Hale said demand was STRONG and will continue for 5 more years. Something something demographics.

    1. Tell me thi$ Danielle, if demographic$ are so $trong, why do lender$ have to re$ort to $ubprime tactic$?

  9. “Between 1890 and 2019, national housing prices grew by less than 0.6 percent per year (after accounting for inflation). That’s pitiful!”

    And that pitiful 0.6% per year return is only calculated using 2019 as the end point near bubble peak.

  10. Speaking of trouble, if yesterday’s rocket attack from Gaza into Israel doesn’t justify a U.S. ground invasion of Iran, I don’t know what will.

    “Bomb bomb bomb, bomb bomb Iran” — Late Senator John McCain

    1. If Trump was not president it might. However, Trump is not so interested in making the middle east safe for multinationals as Bush I, II and Obama were. If you believe in globalism you have to invade, if you do not an occasionally bombing is sufficient.

    2. In the past 24 hours alone, hundreds of rockets and mortars have been fired from the Gaza Strip at cities and communities in southern and central Israel. Hundreds of Iron Dome interceptor missiles have been launched to down them, and in many cases saved lives. Nevertheless, Iron Dome cannot provide hermetic protection on its own, and the casualties and wounded in this latest round of escalation are proof of that.

      The cost of a single Iron Dome interception is about $80,000. The cost of the batteries themselves and their operation is also high. If we need to use the David’s Sling system or Arrow 2 missiles, the average cost of a single interception will jump to about $2 million.

    3. Israel and Saudi Arabia share the same national anthem: Onward Christian Soldiers.

  11. uh oh…..Ticket prices plunge for Bill and Hillary Clinton’s speaking tour Tickets to the latest stop on Bill and Hillary Clinton’s speaking tour were going for as little as $20 on the secondary market as their 13-city adventure continued to struggle to find an audience.

    The best seats in the house at Seattle’s WaMu Theater on Friday could be had for $829, a steep 54% drop from the $1,785 that the former first couple fetched when the tour was announced in early November.

    But organizers soon had to slash listed prices and even offer discount ducats through Groupon to boost sales.

    The official prices for Friday’s appearance ranged from $66.50 to $519, the Seattle Times reported.

    “I really believe that we are in a crisis, a constitutional crisis,” Hillary Clinton opined during the 90-minute performance, presented as an interview of her and her husband by actor Bradley Whitford. “This is a test for our country.”

    “These people, they don’t believe the same set of rules apply to them that apply to everyone else,” Bill Clinton said of the Trump administration.

    1. Bob Dylan is a much better blast from the past, he does not need to discount prices.

      1. Well, she is correct.. in the since that the election was supposed to rigged in her favor. It’s almost as if a good part of the county recognized that…

        1. We need an “Edit” button Ben… Maybe on a 5 minute timer. Put it in the wishlist.

          Supposed to have typed: “In the sense that”

          /used to write for paid publication on the side, and had to deal with editors…

    2. People continue to wake up to the facts that these people are liars and crooks.

    3. ““These people, they don’t believe the same set of rules apply to them that apply to everyone else,” Bill Clinton said”

      Pot, kettle, black.

  12. “This Is How The Trouble Begins” –
    – Began like last time:
    – The Fed reflating asset prices using “cattle prod” of low/zero rates, easy credit, liquidity, alphabet soup unconventional policies, $ printing (debt monetization).
    – Yield-starved investors turned into yield-seeking unconventional buyers (speculators). Let’s blow some more bubbles, since, our economy debt-based, and the Fed knows no other way (one-trick pony).

    This is How The Trouble Ends –
    – Ends like last time:
    – Prices go too high
    – Smart $ and unconventional buyers exit, leaving bag-holders.
    – TPTB attempt to keep the game going a little longer, by extending the pool of bag-holders. Note: bag-holders have limited financial knowledge and don’t know their either already, or soon to be bag-holders.
    – USDA 0% down | VA 0% down | FHA 3.5% down | Non-bank 0% down (?)
    – Psychology turns from FOMO to FOBK. Bubble deflates. Game over.
    – Bag-holders get wiped out. Rinse and repeat. Same result: Increased wealth inequality as more $ is transferred from 99% to 1%.

    https://mymortgageinsider.com/100-financing-home-loans-zero-down-mortgage/
    Why Lenders Still Offer 100% Loans

    “Many new homebuyers wonder why most types of loans require a down payment. Why can’t the bank just finance 100% of the home’s purchase price?”

    “It all comes down to the fact that the bank, lender, or investor wants to be paid back.”

    “After many studies, banks and lending institutions have determined that the higher the down payment on a loan, the lower the chances of the borrower defaulting. In fact, down payment amount is more important in determining risk than even credit score.”

    “Click here to get pre-approved for a zero-down mortgage.”

    “That’s why, years ago, the standard down payment amount became 20%. Anything less than that required some kind of insurance, such as private mortgage insurance (PMI), so the lender would get their money back if the borrower failed to pay the loan back.”

    “Fortunately, there are programs for which the government [read taxpayer] provides insurance to the lender, even though the down payment on the loan is zero. Following are a few of these loan types.”

    – So, just where are the regulators in all this? What about the fabulous Consumer Financial Protection Bureau (CFPB)? I’m no mortgage banker, nor economist, but even I can see what’s coming. It’s almost like the regulators don’t regulate or something…

    1. Quick follow-up comment:
      So, with GSEs and other gov’t agencies relaxing standards and increasing risk again – in other words reducing borrower’s “skin in the game” via higher LTV + lower FICO scores – how exactly do these gov’t. entities themselves have any “skin in the game” when essentially all of the financial risk of loss is borne by the taxpayer? How is this different? “Do as I say, not as I do.” Still a “maximum moral hazard” situation, IMHO, and as-per-usual, the taxpayer is on the hook. “Other people’s money.” I’m sure Senator Running Deer’s CFPB is “on it.”

        1. “So far the economy is not running on the home equity $cam it really has improved …”

          Myopic:
          my·op·ic /ˌmīˈäpik/ adjective

          near$ighted.

          synonyms: $hort-$ighted;
          lacking imagination, foresight, or intellectual insight.

          “the government still has a myopic attitude to public spending”

          synonyms: unimaginative, uncreative, unadventurous, narrow-minded, lacking foresight, small-minded, short-term, narrow;

          As U.$. Debt Rate Rise$, Auto Loan Delinquencie$ Hit Record High
          De$pite a strong economy, American$ still $truggle to pay some of their bill$.
          Kris Kinkade | Feb 13, 2019 | The Motley Fool

          “The $ubstantial and growing number of distre$$ed borrower$ suggests that not all Americans have benefited from the strong labor market,” noted economists in a blog the New York Fed produces. The report said there were more than a million “troubled borrowers” at the end of 2018 — when unemployment was 4% — compared to 2010 (10% unemployment).

          Key Figure$ Behind America’$ Con$umer Debt:

          Type$ of Debt in America

          Con$umer debt was approaching $14-trillion in the third quarter of 2018, according to the New York Federal Reserve. It was the 17th con$ecutive quarter for an increa$e.

          The record $13.51-trillion of debt for Q3 of 2018 was up $219 billion from the previous quarter and up $837-billion over the previous peak ($12.68-trillion in the third quarter of 2008).

          There has been con$istent growth in four main areas of debt — home$, auto$, $tudent loan$ and credit card$

          http://www.debt.org

        2. Prosper has on their main landing page an advert saying the following:

          “Home Equity Lines of Credit (HELOCs) are coming to Prosper’s platform in 2019.”

          What could go wrong?

      1. ‘…how exactly do these gov’t. entities themselves have any “skin in the game”…’

        Do they rely in some way on elections?

    2. “– So, just where are the regulators$ in all this? ”

      NON.bank$ make 60% of homemoanerloan$

      The is no $ingle government agency re$ponsible for regulating NON.bank$

      The Federal Res$erve is the only cavalry to come to the re$cue

      Let’$ play yahtzee, you throw x5 dice, eye get to throw x10, let’s bet who win$ the game!

  13. nice summary red pill. Still wondering what will be the pin that pricks the current mega credit bubble. Consumers binged on cheap & easy credit and couldn’t pay their mortgages, setting off the last wave of defaults. Corporations have done the same thing with all the BBB debt, frequently wasted on share buybacks. All those BBB bonds are looking kind of “pinny” to me

    1. We’ve already got over 7 million people who are over 90 days late on their auto loans and in default. That doesn’t count the massive amount who are over 30 and 60 days late, of which most will never catch up. And, this is in supposedly GOOD times. This credit/debt bubble is overcooked.

      1. “We’ve already got over 7 million people who are over 90 days late on their auto loans and in default.”

        Used to be that anything over 90-days had no chance of a return to the debtor. Those vehicles were headed straight to the auction following the repossession activity.

    2. 1) No need for identify a “trigger” to set off the coming “correction”. The Fed ensured this by blowing “The Everything Bubble“. The Grand Unwind is “Baked into the cake” as it were. I think the phrase “fait accompli” about covers it. Hyper-valued markets all. Team DJT and the Fed jawboning the markets won’t save it. Just bought a little time only. Gov’t/Fed interference=centrally planned markets=financial socialism. Never works. Free markets work, but alas, not to be found.

      “Ladies and gentlemen, the Captain has turned on the fasten seat belt sign. We are now crossing a zone of turbulence. Please return your seats and keep your seat belts fastened. Thank you.”

      2) Any bond credit rating below Baa3/BBB- is “speculative (aka high yield (HY)/junk). Much of “investment grade” (IG) corp. debt is only a notch above HY. Corp. credit quality + cov (covenant)-lite is a likely epicenter for trouble to start, IMHO. Another credit cycle (courtesy of your not-so-friendly central banker) bites the dust.
      3) Global debt levels and asset prices are insane.
      4) Stock buybacks have been propping up stocks. Should be illegal (again). This is where capex went. Sad. Weak job creation as a result, but insiders make out like bandits. Financed by cheap credit. See (2), above.
      5) Just noticed that China “trade deal” is off. Dow futures off >400 pts. I’m sure it’s nothing.

  14. “While the Community Reinvestment Act of 1977 deserves its share of blame, when President Bill Clinton signed into law the Taxpayer Relief Act of 1997 that included a major revision to Internal Revenue Code that defines the treatment of a capital gain from the sale of a principal residence, it was definitely “game-on” in Spring 1998.”

    Yes, but the bubble prices and resulting crash still could have been avoided in 2006. However, big banks were making too much money on subprime loans and the debt was fueling the importing of goods produced cheaply abroad by the globalists so no one was that interested in stopping the slow motion train wreck.

  15. Much of California’s “prosperity” has been built on escalating housing prices. If California had the average U.S. housing prices with its existing mortgages the state would be worse off than Nigeria. Instead for decades people have been able to tap home equity. Apparently, during the housing bubble many bankers thought that the income to housing price ratio which was the norm for California could be sustained at least for decades in the U.S. as a whole. In the short run, more debt in an economy can result in more income. The more economically conservative states have paid a short term price of not enjoying the full housing bubble. However, housing prices do not have to plummet to have that change. Just housing price stagnation eliminates the “wealth effect” and then the repaying of the debt is a real drag on an economy.

    1. If California…the state would be worse off than Nigeria.

      China is a more interesting Petri Dish.

  16. On a slightly different topic, seeing mention of historical housing prices, etc. has me wondering…

    How much has the increase in population (USA) over the last 70 years: From 158 Million in 1950 to 329 Million (official, probably +10-20m more illegally) now impacted the cost of housing, both it’s construction and sale/resale?

    Not all land is created equally, and I would assume the more desirable locations have factors – not just proximity to the central city areas – but things like quality of terrain, climate, air quality, proximity to major travel routes and distribution of commerce and goods, proximity to locations that need employment (some would be fixed like on a river, by a mine, etc), overall density of the greater area (county level), and so on.

    Maybe it was coming of age in the 70s and early 80s, with things like ‘the population bomb’ that put the idea in my head, but I’ve done enough economic/systems simulation work to know that often there’s a “sweet spot” in a complex system, and push a key variable way past it’s optimal point, and you’ll usually see decay in other output variables.

    1. the increase in population

      The vast majority of our landscape sits open. It’s potential to produce income has become irrelevant. It’s capacity to go up in price via speculation is everything. It’s a mania.

    2. things like quality of terrain, climate, air quality, proximity to major travel routes and distribution of commerce and goods, proximity to locations that need employment

      This is upfront an center along the Wasatch Front. Lots of companies expanding and relocating to the greater Salt Lake Area. The mountain range is already a natural bowl and so the density and commuting sprawl creates tons of trapped pollution (e.g. the dreaded “inversion”) that is especially bad in the winter. It’s on the path towards what LA was before EPA regulation cleaned it up a bit.

      I guess on the morbid side, the increased air pollution leads to more heart attacks and strokes, which leads to more housing stock and lower housing prices.

    1. Frankly Wall Street is overdue for a little stress testing, after going up all year like there is no tomorrow.

      Global stocks drop after Trump risks ‘full-on’ trade war with China
      By Rob McLean and Julia Horowitz, CNN Business
      Updated 6:01 AM ET, Mon May 6, 2019

      New York (CNN Business) President Donald Trump sent shivers through global markets on Monday, with stocks plunging after he threatened new tariffs that would escalate the US-China trade war.

      The Shanghai Composite plunged 5.6%, while Hong Kong’s Hang Seng fell nearly 3%. The Stoxx Europe 600 index opened down 1.2%. Oil futures dropped while gold prices increased.

      US stock futures also pointed to a slump. The S&P 500 was set to open down nearly 1.6%, while the Nasdaq was poised to fall 1.8%.
      Trump renewed threats to raise tariffs on Chinese goods over the weekend, a threat that could derail a round of trade talks with Beijing scheduled to start on Wednesday.

    2. $80 oil anytime soon is looking more and more like a mirage.

      fastFT Oil
      Oil slides 2% on Trump threats for higher tariffs on Chinese goods
      Siddarth Shrikanth in Hong Kong yesterday

      Oil prices fell sharply on Monday after Donald Trump threatened higher tariffs on Chinese goods, raising the risk of an escalation in the US-China trade war.

      Brent crude fell below the $70 mark for the first time in a month, dropping as much as 2.1 per cent in morning trading in Asia. West Texas Intermediate, the US marker, fell as much as 2.6 per cent.

      Mr Trump, in a pair of tweets on Sunday, said that the current 10 per cent tariffs on $200bn of Chinese goods would rise to 25 per cent on Friday. He also claimed that the levies were “partially responsible for our great economic results” and had “little impact on product cost”.

  17. This is how the trouble begins…Turkish Lira plunges in value, making all those billions in euro- and dollar-denominated loans taken out by Turkish developers to go on a debt-fueled speculative building spree unpayable. Turkish developers default, leaving Eurozone banks holding the bag. Draghi and the ECB confidentially proceed to transfer those non-performing loans to the public ledgers, a la the Fed with the banksters’ toxic mortgage-backed securities, only to run into a buzzsaw up opposition from surging nationalist and populist movements in Europe who want no part of becoming a Goldman Sachs looting colony. And suddenly, Draghi runs out of road to kick the can.

    Oh dear….

    https://www.zerohedge.com/news/2019-05-06/lira-plunges-below-6-turkey-nears-rubicon

      1. Other than the empty palatial turreted buildings it resembles a California spec house neighborhood.

  18. Two old grifters with no more influence to peddle, trying to replenish their depleted slush fund by trying to rally the hard-core brain dead. Tragic, really…while the awake and aware guffaw at Bill & Hillary having to resort to Groupon to hawk tickets for their insipid recitations of The Narrative, this is merely a case of true price discovery reasserting itself. The only reason Screech and her most chaste husband were able to command such high speaking fees a few years ago is that Goldman Sachs and the other Wall Street grifters who reaped billions from the repeal of Glass-Steagall on Bill Clinton’s watch or who escaped justice for causing the 2008 financial crisis due to corrupt AGs Holder and Lynch lavished payola on the Clintons in the form of a huge advance for Hillary’s scribbled book-length ravings and huge speech fees. But now those bribes have been paid in full and the Clinton Crime Family has no more influence to peddle. Soon Hillary will be stumbling around in the woods drinking directly from a bottle of cheap vodka while railing about Putin stealing the election.

    https://www.zerohedge.com/news/2019-05-05/tickets-see-clintons-selling-less-10#comment_stream

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