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Mid-Year Housing Bubble Predictions

What’s your mid-year housing bubble predictions? From six months ago: “In Q1, house prices start lapping the 2018 conventional loan limit increases. As a result, we will start seeing YOY price declines in larger markets. The increase in loan limits in 2019 will help some secondary cities continue to the bubble, since the median price isn’t as inflated as larger cities.

“The increase in loan limits in 2019 will help some secondary cities continue to the bubble, since the median price isn’t as inflated as larger cities. The massive amount of debt issued by the US government will keep pressure on the 10 year yield and therefore pressure on mortgages rates. If mortgages rates fall it will likely be due to a stock market sell off which would not be good for housing.”

“There will be no policy change to tighten lending standards in 2019. But also won’t be any major policy to loosen them either (about as loose as they can get). If they try to privatize Freddie and Fannie it will just cause mortgage rates to increase.”

Another said, “It seems likely that long-term Treasury yields will keep gradually declining for the near term.”

From one year ago, ” Here is my prediction. Both Trump’s so called trade war, and the Fed accelerating interest rate hikes at the same time is no coincidence. I believe Trump is trying to force the Feds hand at keeping interest rates lower, or even reversing direction, so US housing and stocks can continue on climbing higher. The fed will give in, stalling and even possibly making cuts to interest rates, including slowing or stopping the offloading of the Fed’s balance sheet, just like Trump wants.”

“The pressure will come from emerging markets crashing combined with trade war pains. Trump will also propose and pass a second tax break. All of this will keep the stock market and housing market inflated and growing into his re-election. Basically Trump wants the same easy money accommodations given to Oblamer by the fed during his term, and Trump is willing to play hard ball to get it. It was essentially a free ticket for Oblamer, so why wouldn’t Trump want the same thing.”

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    1. With the drop in interest rates, anything under 600k seems to be moving in San Diego. The upper half of the market looks weak. As soon as broad based y-o-y price declines hit over the summer, where it goes from there will depend on how effective and draconian policy by central planners will be with respect to asset price inflation. I’m astonished by how much mileage they get out of these bubbles, wouldn’t even venture a guess.

      1. I predict high-end buyers will start buying low-end properties, driving up low-end prices and dessicating inventory, as the high-end continues the slow burn of slowing sales, rising inventories, and eroding prices.

        This will happen up until the onset of the next recession, at which point the usual crash-and-burn will ensue, including rising unemployment and foreclosures, accompanied by significant price declines across all quality tiers.

        Quantitative easing may be used in an attempt to prop up prices, but is likely to be less effective than previously, as the market expects it and has priced it in.

        1. Is this informed by your observations in the SF area during the last bust? Will an impending recession and another fear-mongering election scare buyers at all?

          1. A mysterious aspect of recessions is that although they have occurred on a fairly regular basis for as long as humans have engaged in large-scale economic production and trade, governmental economists, including those employed at central banks, maintain a steadfast conviction that “this time is different” and the next recession can somehow be indefinitely forestalled.

            Unfortunately, the various tactics employed in their attempts to postpone the next recession also create incentives for a more careless form of economic risk taking amongst firms which presume themselves to be too-big-to-fail, making the eventual recession far worse than if occasional Darwinian winnowing of foolish risk takers were allowed to play out in a natural way, sans bailouts.

  2. The Fed will make minor cuts in interest rates which will prevent any meaningful declines in national home prices in the second half of the year. There are too many knife catchers just waiting to qualify for a house. However the SALT limitations will still impact expense homes particularly in high tax states.

      1. How? The “how much per month crowd” has not been the quoted lower price for homes or for vehicles. As far as the inverted yield it just shows that the Fed has short term rates too high compared to future inflation expectations.

    2. Fed rate cuts are already priced into the bond market… won’t help housing one bit. The current bump is what the market gets.

  3. My personal housing bubble barometer is the inventory in Manitou Springs, CO., an mountain town of about 5,000 to the west of Colorado Springs. It’s a nice town, albeit one with a serious greedhead infestation. In 2008, once the inventory of shacks for sale edged over 100, that was a harbinger that some serious cratering lay ahead. Well guess what, friends and neighbors: Manitou Springs might’ve just hit the tipping point for Housing Bubble 2.0, as ridiculously overpriced shacks (literally, in many cases) are sitting unsold and inventory just hit 100 from its more normal range in the mid-70s.

    Better get to sawin’ and slashin’ iff’n you want to move those shacks, Greedheads of Manitou.

    https://www.realtor.com/realestateandhomes-search/Manitou-Springs_CO

      1. I’ve passed by that one while visiting a friend up in Crystal Park, a private gated community in the mountains overlooking Manitou Springs. Waterfall Loop is up around the 8300 foot elevation, and you get there by driving up the windiest road in North America (literally). From the gate and guard shack at the bottom (you have to live there to buzz someone in) it’s about a 20-minute drive – gorgeous, but not something you want to do daily, and can be treacherous in the winter. In addition, if there’s ever a wildfire up there, those houses are toast. All things considered, I wouldn’t be interested in that house unless they cut the price in half.

        Anecdotal, but a lot of guys move up to Crystal Park with wifey, then end up getting divorced because the wives can feel too isolated up there – exactly the reason guys love it up there. The scenery is beautiful (heavily forested mountains) and you don’t have to worry about riffraff because no one gets past the gate guard unless they live there or are invited by someone who does. It’s also a very tight-knit community, from what I can tell.

        1. Ha. I love the isolation. I am sure I was a guy in most of my previous lives ;). Have there ever been wildfires around there?

          1. I love it up there, though am leaning more toward the western slope when I eventually retire. During the Waldo Canyon Fire in 2012, Manitou Springs, including Crystal Park, had to be evacuated. Luckily the fire didn’t jump I-25, or that whole area probably would’ve been at high risk. A lot of people that lived in Crystal Park sold their houses after that. I went to a community get-together about a year after the fire, and that topic was still very much on people’s minds. They have a helipad near the top of the mountain, because there’s only one two-lane road down to the main gate.

            https://www.youtube.com/watch?v=ZBA7eHY022k

        3. “In addition, if there’s ever a wildfire up there, those houses are toast.”

          +1 The terrain looks too steep for egress on foot, which leaves narrow windy roads that are not ideal in a panic.

          1. Correction: narrow windy road (singular). That’s why they have a helipad up around the 8,000 ft elevation, because the one road out would quickly be clogged with evacuees or cut off in the event of a fast-moving fire. They also have a small but top-notch fire department, but in a forest fire they would probably be overwhelmed.

        4. “windiest”

          Dumb question: Is this because the wind blows hard or the road is very crooked?

    2. I have a relative in Colorado Springs, and have been to your town. I seem to recall a great place to get doughnuts there.

  4. The fed will give in, stalling and even possibly making cuts to interest rates, including slowing or stopping the offloading of the Fed’s balance sheet, just like Trump wants.”

    The Fed has the same disdain for Trump as the rest of the globalist oligarchs. Powell turned into a dove for exactly the reason I predicted all along: the Fed’s asset bubbles and Ponzi markets started cratering once the punchbowl got taken away.

  5. I know an area in New Mexico much more beautiful where houses would be a fourth those prices

          1. Isolated, burglary, dirty campgrounds and if not Hispanic never accepted.
            But great fly fishing and scenery. I think it burned recently and killed off the trout.

      2. Honestly do not want to tell it is a small area I have not bought, I may want to buy when I retire in about five years. No real work in the area but has a lot of artists seeking cheap housing and a beautiful location. It is looks like Sedona with a lake but at an elevation more like Flagstaff

        4. Albuquerquedan what do you think of Rio Rancho ? I’m planning a trip in August to see the area in Summer time , check out the heat, etc. Although I used to live in Phoenix so know a little about heat. Perfect weather where I live now but I also want to retire in a few years. If I was richer I would check out SLO CA.

          1. Rio Rancho has far less crime than Albuquerque and I think New Mexico had great weather. I think you would like it.

  6. Wild guess – Recession in Q4, rates get slashed down to nothing, housing prices don’t crash but don’t rise either due to lower rates from the Fed’s growing appetite for GSE MBS. I think the Fed will binge on mortgage backed securities because nobody really cares about their balance sheet and they don’t have much wiggle room with rates. I don’t think home prices will really fall hard until we’re all maxed out on affordability with rates near zero and we hit the next recession (after this one). Trump can’t stop a recession but he will absolutely throw the Fed under the bus for not cutting rates sooner, we’ll get some weird conspiracies about how Obama controls the fed to rally his base, mark my words.

    2. “…housing prices don’t crash but don’t rise either due to lower rates from the Fed’s growing appetite for GSE MBS.”

      Even though housing prices are already falling against a backdrop of record low unemployment and interest rates, this time is different, and housing prices won’t crash, because the Fed will magically put a floor under housing, below the floor that is already in place?

      It’s turtles all the way down!

  7. Feel-good story of the day: more Real Journalists are being told to hit the bricks as the growing number of “woke” Americans means a diminishing appetite for globalist propaganda and DNC talking points packaged as “news.” If you look at the reader comments, the overwhelming reaction is gleeful schadenfreude that the liberal media is hemorrhaging money and subscribers due to its aversion to printing real news and real truth.

    #LearnToCode BWHAHAHAHAAAA!!

    https://news.yahoo.com/us-media-sector-braces-brutal-jobs-140425656.html

    2. “Members of the media, especially journalists, have had a tough few years”

      Ben Jones can you please embed the .gif file of the tiny violin playing?

      “Real journalists” are getting a financial beatdown just like the actual beatdown that non-Dianne Feinstein approved journalist Andy Ngo received from Portland Antifa last weekend.

      #LearnToCode

  8. The Fed can cut rates all it wants.

    My question is: Where are the wage increases going to come from to service all this debt?

    Even households that I am familiar with solid 6-figure incomes are tapped out, maxed out, and beyond their eyeballs in debt primarily due to completely unconstrained, undisciplined, unnecessary spending on too many kids, overpriced real estate, student loans, cars and the latest consumer junk.

    Anything to fit into this “fake it to you make it” world we live in.

    1. ” …due to completely uncon$trained, undi$ciplined, unnece$$ary $pending”

      They’ve learned well from their Uncle $am!

    2. Refinancing the mortgage will help. Seem to remember last time a country or two where the mortgage rates went slightly negative. Think of the demand that could create.

    3. “My question is: Where are the wage increases going to come from to service all this debt?”

      Wage increases? What be dat?

      Wages don’t need to increase, prices of assets is what needs to increase. Increasing asset prices creates wealth, don’t you know? Increasing asset prices powered by borrowed money.

      Get with it! If you think increasing wages are going to be your future then you are destined to be left behind.

      1. Can’t homoaners just cash out their home equity gains to pay off their debt?

  9. Lots of peak bubble talk last few days.
    Over heard two co -worker Engineers today talking about the second homes they are trying to buy for investments. Also my plumber was telling me to never sell my house. All this money has to go away to money heaven soon it always does.

    Prediction by the end of 2020 a recession.

    1. My old real estate agent told me every house in DC will be worth $1,000,000 in ten years.

      Yeah, probly time to get out.

  10. trump tweet: “China and Europe playing big currency manipulation game and pumping money into their system in order to compete with USA. We should MATCH, or continue being the dummies who sit back and politely watch as other countries continue to play their games – as they have for many years!”

  11. This is knot a prediction! … (it’$ a gleeful “anticipation”!)

    Thee Dow will be below: 26,743.51 bye Sept 19th 2020

    With any Chine$e luck, before Sept 19th 2019!

  12. My predictions:
    June and July numbers will be flat to good for sales, August and beyond will be terrible and get worse.
    High end houses continue to get crushed, tamping down prices through the rest of the market.
    Powell keeps rates unchanged and POTUS throws several Twitter fits.
    Dem candidates rally against unaffordable houses but don’t mention the B word.
    Students returning to college in the fall do not sign enough leases, keeping vacancy rates high in the student luxury market.
    Mnuchin sees the writing on the wall and leaves the Treasury Department to restate his realm as “The King of Foreclosures”. Another Government shutdown happens on October 1st.
    Stock market throws another end of the year Christmas tantrum as recession talks heat up.

    And the Yankees beat the Dodgers in 6 to win the 2019 World Series.

  14. Zillow says Boise is going up 10.4% next year.

    that is like having a free house and then some! hurry!

  15. Mid-2019 predictions for Denver: alot more potential buyers in Denver are realizing that it’s just not worth it. Denver sellers are asking coastal prices in a metro with flyover incomes.

    They will either continue to rent (and save alot of money, like me), or they will leave Denver.

    “This sucker could go down” — George W. Bush

  17. The wild card is geopolitical risk factors. Iran just shot down a $250 million dollar U.S. strategic drone over international waters, and did so with impunity as for all of Trump’s bellicose tweets, he showed that when push comes to shove, he values the “stability of the markets” above all else, and will quickly back down. That is going to embolden adversaries like Iran, China, and probably North Korea to escalate their challenges to the U.S. If they overplay their hand, and finally get a military response, then all hell could break loose. $300 a barrel oil would quickly implode the $1.2 quadrillion dollar derivatives pyramid, and take down the global financial system with it. In that scenario, cratering shack prices would be the least of our concerns.

    1. Hey I am the oil bull on this blog and I really cannot see oil going much passed $100 a barrel for more than a month or two and cannot see $300 without hyper inflation caused by money printing. Trump’s actions in Syria and Iraq showed the world he will act when necessary. We did react with a cyber attack on Iran which is undereported. Trump also tighten the sanctions. Trump did not want to unite the Iranian people against us with a large loss of human life for a piece of equipment. If Obama would have done it people would be calling it a genius move.
      As far as the price, Iranian production can be totally replaced with Saudi and fracked oil at $100 a barrel in a matter of weeks or a few months, the market knows it why then would it Spike to $300?

    2. Who shot down whom, who sunk whom, who mined whom, who assassinated whom, who bombed whom, who spied on whom, who EMP’d whom, who gassed whom….

      The first casualty of war is truth. When the bombs are detonating and the bullets are flying, there is only one thing you can be sure of: The first thing you hear will be a lie.

      2. “The first thing you hear will be a lie.”

        …i.e., the president will address the nation.

  18. A 4th of July thought:

    “She [America] goes not abroad in search of monsters to destroy. She is the well-wisher to the freedom and independence of all. She is the champion and vindicator only of her own.”
    — John Quincy Adams

  19. Predictions?

    That’ll I’ll lose 20 pounds by year’s end? or is that wishful thinking?

    I see a decent chance of economic downturn in Q4, how much though is anyone’s guess. Too much jerking around of rates and credit to call it.

    Housing price wise, I think we’ll see accelerating/steepening declines in Q4. It’ll get blamed on the weather, etc, but a LOT harder for the MSM, etc to ignore or talk over than it is currently.

    I’ll be offline here in a day or so to do some traveling to Texas, then back for my surgery next week and 4-8 weeks of recovery/rehab. I’ll bet everyone will still be here when I get back.

    4. “…my surgery next week and 4-8 weeks of recovery/rehab.”

      Get your La-Z-Boy set-up with books, computer and phone nearby!

    5. “That’ll I’ll lose 20 pounds by year’s end? or is that wishful thinking?”

      You might want to try gluten free foods. I lost 10 lbs in under 6 months without trying too hard…

  20. US Mortgage Applications Stagger At 1998 Level As Housing Prices Sink

    https://bit.ly/2xuFuie

    -Housing demand will continue plunging as prices crater

    -Fraud and defective documents will continue unless a GSE whistleblower steps forward

    -TeamBFB will expand operations to all corners of the interwebs with falling price reports until fully saturated and all beg for mercy

  21. I want the prices to crash fast to put a end to more potential loss. The government is backing a lot of loans, so the taxpayer no doubt will get stuck with it.

    1. House prices are nowhere near “crashing” in most places right now, unfortunately. In fact, this bubble is much, much worse than the first one for a number of reasons, the main one being that not only are prices higher than last time, the duration of the bubble has now gone on much longer, so more suckers got drawn in.

    2. “The government is backing a lot of loans, so the taxpayer no doubt will get stuck with it.”

      😁

  22. “Chinbabwe
    January 1, 2019 at 12:13 pm
    I predict Bitcoin will breach the $1,000 mark to the downside.”

    Wow, I really whiffed big time on this. Just goes to show that I have no idea what this Ponzi will do next.

    1. In the current environment, anything absurd should be bet to the upside. Self driving tricycles for toddlers, solar powered AI tissue boxes that hand you a Kleenex whenever you sneeze, car tires you inflate with toothpaste, GMO vegetables that change color to tell you when they are perfectly cooked, blank.com which creates completely blank webpages….stuff like that.

    2. A pair of scissors for barbers that only cuts one hair at a time. That’’s where the money is.

  24. I predict that dumbed-down Americans will be even more in debt by the end of the year, and that Chinese speculator scum will continue to bid up the price of shelter across the US and around the globe, as well as run up the prices of Sh!tcoin and other “cryptos,” as their “capital flight” schemes continue as a result of their out of control money printing.

    2. I predict that more local governmental entities will adopt the successful Vancouver model of adopting policy measures to prevent foreign speculators from pricing out local taxpaying citizens from their own housing markets.

  25. Late on a Friday afternoon in October after market close Elon Musk declares that Tesla will default on its outstanding bonds as it has burned through its last remaining stockpile of cash. Its creditors force it into a Chapter 7 bankruptcy liquidation over the weekend as its share price goes to $0 and fires its entire workforce. This causes a loss of faith in the stock market in general which has seen the S&P 500 reach new all time highs of 3150 in August before plunging 60% to close at 1200 for the year. A rush to safety causes the 10 year Treasury to fall to 0.5% by year end as the Fed ends QT and cuts the Fed funds rate to 0%, but to no avail. The crash in risk asset prices causes unemployment to quickly soar to 20% as Silicon Valley, the auto industry, and the REIC all go tits up simultaneously. A trend of insurance fraud spreads across the country as many McMansions spontaneously go up in flames and RVs are found at the bottom of ravines with no one at the wheel. Foreclosures spread like wildfire starting in Silicon Valley and rapidly marching from west to east as speculators and unemployed FBs alike mail in the keys. The Case Shiller housing index absolutely goes off a cliff with no bottom in site. No one is buying, so no one is selling either. The only asset anyone wants is cash. A singularity has been reached which means nothing is supporting shack prices.

    2. Does that mean I should buy my self-immolatimg, I mean, self-driving coal-powered, I mean, sustainable energy fueled dream car by the end of summer?

  26. I frequently come across idiotic people who think Oscama led a real economic recovery while Trump is presiding over a bubble!

  27. I will say one thing about the more outlandishly dire posts above. When I saw similar extremely negative predictions in the runup to the 2007-2009 financial collapse, I thought they were excessively pessimistic.

    Then they came to pass.

    1. I really think Tesla is living on borrowed time and it or one of its golden child compatriots going bust will be the “black swan” that causes this whole house of cards to collapse. There is a lot riding on many different companies that only burn up investor cash as a business model.

      1. And there seems to be no shortage of such companies at the present…much like the situation circa 2000 leading up to the tech stock collapse. One minute it seemed like the bubble could last forever, and the next it seemed like the crash would never bottom out.

    2. Right Professor Bear, I remember this blog 14 years ago trying to predict.

      I had my positive thoughts, but another side of me only saw the worse. The fact that a meaningful correction did not take place, and the bubbles were just reinflated was not what I wanted, including the unjust bail outs.

  28. I predict that below-investment-grade corporate debt will play a similar role in the next financial crisis to that of subprime mortgage lending in the 2007-2009 episode, and that there will be a massive propaganda effort by major players in the financial sector to retroactively distance themselves from such products after the next financial crisis has played out.

    1. This certainly does sound like a flavor of “too big to fail”!

      June 30, 2019, 6:30 am
      Highly Leveraged Zombie Companies Threaten the Global Economy
      Mayra Rodriguez ValladaresContributor
      Banking & Insurance
      Corporate zombies’ high indebtedness levels should worry legislators and financial regulators around the world.

      Zombie companies could endanger financial stability as the global economic downturn is deeper than expected. The very detailed analysis and graphs, from the Bank for International Settlement’s (BIS) Annual Economic Report, show in no uncertain terms that one of the biggest signs of overheating in the global economy is the level of below investment grade corporate debt and the $3 trillion dollars of leveraged loans. As prolonged trade tensions impede corporations’ ability to plan for the future, geopolitical tensions intensify, and the Chinese continue to deleverage, any of these factors could trigger a significant recession in multiple countries.
      …

  29. I predict that the inverted U.S.Treasury yield curve will continue to perplex and captivate financial reporters up until the point when the bad economic outcome it portends becomes a present reality.

    1. US economy
      US yield curve is still inverted, still worrying investors
      Long-term rates dip further below short-term rates after weak economic data
      Joe Rennison in New York yesterday

      One of the financial markets’ most reliable indicators of a coming recession is spooking investors again, ahead of a new reading on US employment that could determine whether the Federal Reserve cuts interest rates this month.

      The yield curve, which shows interest rates on bonds of varying maturities, has now been inverted for a full month, cementing a dour outlook for the US economy, and the extent of the inversion deepened on Wednesday as markets digested a new round of weak economic data.

      Sliding long-term interest rates suggest economic weakness is approaching, and the yield on the 10-year Treasury bond has fallen sharply below that on the three-month government debt. The gap between the two is closely watched by investors and policymakers, and at 26 basis points on Wednesday it is back close to its most negative level of the year.
      …

    2. Economy
      What Just Happened Also Occurred Before The Last 7 U.S. Recessions. Reason To Worry?
      June 30, 2019, 9:25 PM ET
      Heard on All Things Considered
      Bobby Allyn
      Michel Martin
      The floor of the New York Stock Exchange. An economic indicator known as the “yield curve inversion” hit the three-month mark, an occurrence that has preceded the past seven U.S. recessions.
      Richard Drew/AP

      Signs are pointing to a coming U.S. recession, according to an economic indicator that has preceded every recession over the past five decades.

      It is known among economists and Wall Street traders as a “yield curve inversion,” and it refers to when long-term interest rates are paying out less than short-term rates.

      That curve has been flattening out and sloping down for more than a year, raising worries among some analysts that investors’ long-term view of the market is not positive and that an economic downturn is looming.
      …

  30. Easy prediction: Given the widely-shared perception that central bankers around the world are queuing up a new round of quantitative easing, the share of sovereign debt in the global economy priced to offer negative yields will soon reach unprecedented levels.

    1. The most reliable predictions are those which have already come to pass.

      Markets
      In Land of Sub-Zero Debt, a Whole Yield Curve May Turn Negative
      By Anchalee Worrachate
      June 19, 2019, 7:23 AM CDT
      – Denmark’s 20-year yield hit record low after Draghi’s comment
      – Amount of bonds globally with sub-zero rates hits fresh high

      The entire government yield curve in Denmark is a hair’s breadth away from turning negative, setting a milestone in the history of interest rates as investors wager on more monetary stimulus in Europe.

      The benchmark yield on Denmark’s debt due 2039, the longest maturity for government securities, dropped to a record low of 0.028% on Tuesday after dovish comments by European Central Bank President Mario Draghi. Denmark pegs its krone to the euro, forcing the central bank in Copenhagen to closely track the ECB’s every step.

      The amount of bonds globally with negative yields surged to a record $12.5 trillion this week. Danish two-, five- and 10-year securities are already trading with below-zero yields, while 30-year Swiss obligations fell into negative territory Tuesday.
      …

      1. Would these negative Danish bond yields be properly termed a “yield curve submersion”?

        Davos
        July 3, 2019 / 8:13 AM / Updated 20 hours ago
        “Sad” milestone as all Danish government bond yields dip below zero

        July 3 (Reuters) – Denmark has become the first developed economy in this year’s global plunge in bond yields to have negative yields on all its government bonds, in what a senior official at its central bank called a milestone on a “slightly sad” global background.
        …

    2. Is $850 billion alot?

      All $850 Billion of Germany’s Bond Market May Soon Yield Nothing
      By Brinkwire on June 23, 2019
      …
      “If you had asked me just two weeks ago about the prospect of 30-year German yields going below zero, I would have taken a couple of days to get over the laughing fit,” said Luke Hickmore, a money manager at Aberdeen Standard Investments. “Now, we seem to have transitioned to a completely different market environment with yields set to test more eye-watering lows and negative levels around the world. The significance is massive.”

      The amount of bonds globally with negative yields surged to a record $12.5 trillion this week after ECB President Mario Draghi gave the clearest signal yet that the institution is weighing up interest-rate cuts and quantitative easing. He has joined the U.S. Federal Reserve and others in mooting renewed stimulus on the growing threats to global economic growth.
      …

      1. Why is Draghi still at the helm? Can bankers fail indefinitely and never lose their jobs?

          1. We’re soon going to learn the consequences of major central banks run by an endless succession of policy doves.

            Bonds News
            July 3, 2019 / 1:12 AM / 2 days ago
            Euro zone bond yields at new lows as EU picks France’s Lagarde to head ECB

            LONDON, July 3 (Reuters) – Government bond yields in much of the euro zone fell to fresh record lows on Wednesday, after European Union leaders agreed to name France’s Christine Lagarde as the new head of the European Central Bank.

            Analysts expect Lagarde to continue current ECB chief Mario Draghi’s dovish policy stance. If approved by the European parliament, Lagarde would succeed Draghi when his term expires at the end of October.
            …

      2. Markets
        German Yields on Brink of ECB Deposit Rate Point to Lost Decade
        By John Ainger
        July 2, 2019, 11:00 PM CDT
        Updated on July 3, 2019, 2:22 AM CDT
        – Yields on 10-year bunds are fast approaching the -0.40% rate
        – Milestone will be symbolic, may drive a push into riskier debt

        Germany’s 10-year bond yields are threatening to drop below the European Central Bank’s deposit rate for the first time.

        A surge in Europe’s safest and most liquid bond market has taken yields close to the minus 0.40% rate that the central bank pays on money parked with it. Analysts predict bunds will keep rallying on the conviction that Christine Lagarde, who is set to succeed Mario Draghi as ECB President, will increase stimulus through rate cuts or fresh quantitative easing. Goldman Sachs Group Inc. sees a slide in the benchmark yield to minus 0.55% by end-2019.
        …

    3. Economics
      Negative Yields on the Longest Bonds Trigger a Warning in Sweden
      By Amanda Billner
      July 3, 2019, 6:11 AM CDT
      Updated on July 3, 2019, 6:00 PM CDT

      In Scandinavia, where unemployment is low, inflation is rising and the economies are growing, bond traders are bracing for gloom.

      On Wednesday, the Danish central bank drew attention to an historic event in its debt markets as yields on 20-year government bonds went negative for the first time. In neighboring Sweden, yields on 10-year bonds have been hovering around zero since mid-June. The development has been dubbed “absurd” by one economist, while the head of Sweden’s central bank says he doesn’t know what’s motivating bond traders.

      Stefan Ingves, the governor of the Riksbank in Stockholm, said the economic data he’s looking at is very different from the signals coming from the bond market. After fighting off multiple economic crises during roughly three decades as a public servant, Ingves says there’s no real reason why Swedish 10-year yields should be below zero.
      …

    4. If investors are pulling away from risky assets, how come headline US stock market indexes rally to new highs every day?

      Bonds
      Bond yields are falling to record lows as investors pull back from risky assets
      Published Thu, Jul 4 2019 8:56 AM EDT
      Updated Thu, Jul 4 2019 9:09 AM EDT
      Elliot Smith
      Key Points
      – On Thursday, the yield on the 10-year German bund, an important benchmark for European fixed income assets and viewed as a safe haven for investors, was down at -0.398%. Meanwhile, French 10-year bond yields had fallen to -0.12%.
      – In times of uncertainty and challenging market environment, investors tend to move their investments from perceived riskier assets into safe havens like gold and government bonds.
      – Capital Economics’ Chief Markets Economist John Higgins projected in a note Tuesday that even with euro zone bond yields at all time lows, there is still headroom for the rally to continue.

      Government bond yields in most major economies worldwide have been flirting with all-time lows in the last few days, indicating that investors are wary of an impending recession.

      German and French 10-year bond yields hit record lows this week, both falling into sub-zero territory after comments from European Central Bank (ECB) official and Dutch central bank chief Klaas Knot buoyed expectations for monetary policy easing, with the aim of boosting inflation in the euro zone. Yields were then pushed down further by bets that potential ECB chief Christine Lagarde will maintain a dovish stance to buoy the euro zone economy.
      …

    5. Is the total value of negative yielding bonds now over $13 trillion?

      The Financial Times
      Value of negative yielding debt hits record $12.5tn
      Central bank dovishness has sent a jolt through fixed income markets
      Robin Wigglesworth in New York
      June 19, 2019

      The universe of negative-yielding bonds has jumped to a new record of $12.5tn, after the European Central Bank poured more fuel on the global fixed income rally by hinting that it could restart its “quantitative easing” programme.

      The global bond market has been buoyed by rising concerns that economic growth is petering out, and bets that central banks in the US, Europe and Asia will all have to ease monetary policy to prevent another downturn. The resumption of trade hostilities between the US and China have stirred investor fears, and sent bond yields tumbling.

      The Federal Reserve is expected to cut interest rates three times or more this year, and ECB president Mario Draghi on Tuesday indicated that the central bank might also trim rates and resume its bond-buying should inflation continue to languish well below its 2 per cent target.
      …

  31. I predict that the current falling-rates environment will lure in a new round of clueless U.S. real estate investors who have been trained over a quarter of a century of bubble experience to believe that real estate prices always go up. The wailing and moaning of these hapless victims in the next real estate downturn will not be met with bailouts, as they were in the last real estate bust, due to a “too big to bail” situation.

    1. OneAgainstMany,
      I answered your response in the July 2 thread about the Agenda 21 stuff.

      But, as far as predictions go for now, I don’t have any illusion that the right decisions will be made. It’s all about keeping Casino Nation going by every contortion possible.

      1. I predict the Federal Reserve Board will continue the long-held tradition of “removing the punch bowl after the party gets started” which will eventually lead to a balanced budget and assured fiscal solvency.

        (just kidding)

    2. I predict that Mayor Pete will adopt 401’s favorite quote “this sucker could go down” as his campaign slogan.

  35. ….”too big to bail.”

    That’s exactly what the issue is at this point.

    1. Lehman Brothers provided a good example of how things play out when a too-big-to-bail firm implodes.

  36. I just looked up my predictions from 6-months ago. Not bad. Here are a few more:

    The Fed will cut rates twice. Millennials still will not be able to afford houses, though some will become knife catchers. They will continue to delay important milestones such as marrying and having children and will continue to look at alternative living arrangements, whether living with family or co-living arrangements with multiple families in one household.

    High end properties stagnate and continue to lose value. The lower end still will be supported. US auto sales continue to decline. EVs continue to take more market share. Builders will shift to building smaller, more affordable tract-style homes (townhouses, rowhouses, condos, etc.). Multi-family housing will spread further into the suburbs. Longer commutes become necessary as cost of living in urban centers is still an issue.

    Still about 9 years out from a truly monumental correction as demographics still continue to play out with the boomers.

    1. OneAgainstMany,

      Do you really think it will take almost a decade for a major real estate correction to take place?

      1. Seems pretty optimistic, given that we are already seeing price declines in California against the backdrop of low rates and unemployment. It only took a couple of years from the comparable point (2006?) to see large scale collapse last time, and rates didn’t start out nearly this low. Central bankers never got around to reloading their bazookas before the current leg down in home prices was already underway.

      2. I sincerely hope it happens sooner. But predictions are about what I think will happen, not what I want to happen. What I think is more realistic is that the REIC will do everything in their power to continue to support bubbilicious prices. As long as interest rates are abnormally low, I think assets will be abnormally high. The only impetus that I see overriding the monetary policy would be tightening of lending restrictions or major tax change. But that won’t happen because lots of people believe that property tax is unconstitutional. So a demographic change is still a ways off. Boomers retiring will not force them out of their homes. It usually happens not in 60s or 70s, but in 80s when mobility/Alzheimers/dementia is an issue.

        With the national debt where it is now, I can’t see a normalization of interest rates because of how that would impact federal spending on safety nets, military, etc.

        The other thing I think that could change housing prices would be self-driving because it would change the calculus of housing prices being high because of proximity to strong job centers. But I think true self-driving would will take lots of regulation to ensure self-driving-only vehicles don’t mix with human ones.

        So in short, I still think we are a long way from a full correction. “The market can remain irrational longer than you can remain solvent” (alive) and all that.

          1. Mar 6, 2019, 7:47 am
            Millions Of California Homeowners To See Big Tax Increases Under Trump Tax Plan
            David Rae, Contributor
            Personal Finance
            I write about having a Wealthier Healthier and Happier Life
            The Trump Tax Plan is a disaster for millions of California homeowners who will see increased tax bills under the new plan.

            In case you have not heard, people are upset about their shrinking tax refunds. But it will most likely be those taxpayers, who are expected to be negatively impacted by limits on the state and local tax (SALT) deduction, who will be the angriest. According to a report, the Treasury Inspector General expects about 11 million people to be impacted. Those taxpayers are expected to lose out on more than $321 billion of tax deductions because of this change that is part of the new Tax Cuts and Jobs Act (TCJA).
            …

          2. Why the lemming rush to close ahead of tax hikes?

            New York real estate weakness intensifies amid tax changes, hikes
            By Brittany De Lea
            Published July 02, 2019
            Economic Indicators
            FOXBusiness
            Potential luxury homebuyers rushing to close ahead of tax hikes

            New York City has been running into real estate trouble since the implementation of the Tax Cuts and Jobs Act, which imposed a $10,000 cap on state and local tax (SALT) deductions.
            …

          3. Major tax change hit the higher income properties. But the major tax change we need will be like a vacancy tax or a foreign ownership tax. Also, we’d need to eliminate MID completely. With a $500k limit on MID, it’s still only half-way. A good start, but not enough to completely pop the bubble in my view.

          4. The high end is interconnected with the low end. Once high-end prices fall, so do the prices of all houses of less quality or value.

          5. $500k limit on MID

            $750K limit on MID. California would be MUCH worse off if it were $500K.

          6. $750K limit on MID. California would be MUCH worse off if it were $500K.

            I stand corrected. Yes, I wish it were $500k.

            @professor I do agree that higher and lower are connected. But I see a huge lag because more supply of lower priced isn’t being brought on quickly (if at all) and meanwhile people still need to live somewhere, like now.

            Also, NIMBYism, excessive regulation and single-family-only zoning still choke much building that could occur at the lower end. The lower priced units get bid up because of supply and demand. Until much more lower-priced supply is brought online or a bunch of demand is eliminated by people living with family, living in cars/RVs, or becoming homeless, the prices on the low-end won’t crater as hard as the high end. Just my perspective.

          7. Until much more lower-priced supply is brought online or a bunch of demand is eliminated by people living with family

            A bunch of “low high end” can become “high low end” pretty quickly and change all the equations. We were well on our way 10 years ago before the Fed hijacked the process.

        2. I agree one and the other factor is homebuilding is half of what it was before the last collapse. Consequently home building is less than half the share of the economy as then. This means it is unlikely to trigger the same magnitude of a recession as last time.

          1. The supply side is only half the story.

            The current market has record investor penetration, and that share of demand seems certain to evaporate in the face of cratering prices. As investors reposition themselves from the demand side to the supply side of the market, downward pressure on prices will sizably increase.

            Once flipper demand is gone, fundamental demand will take over, but given crushing consumer debt loads, this will prove a paltry substitute. And if the widely anticipated recession comes to pass, you can stick a fork in US housing demand.

          2. Real Estate
            Investors Are Buying More of the U.S. Housing Market Than Ever Before
            Their interest poses a challenge for millennials and other first-time buyers
            By Laura Kusisto
            Updated June 20, 2019 7:12 pm ET

            The share of investor purchases of U.S. homes have climbed to an all-time high, a sign that rising home prices have done little to dampen demand for flipping homes or turning them into single-family rentals.

            Big private-equity firms, real-estate speculators and others that buy properties comprised more than 11% of U.S. home purchasers in 2018, according to data released on Thursday by CoreLogic Inc.
            …

        3. “So in short, I still think we are a long way from a full correction.”

          What is it about falling home sales and prices against a backdrop of falling interest rates and low unemployment that is so difficult to grasp?

          Home Sales and Prices are Declining
          June 26, 2019 by Brian Kline

          The data is still early and a little sketchy but there are reliable indications that the residential market is entering a period of decline – probably a soft landing. Since last summer, sellers have rushed houses onto the market to take advantage of high prices. At the same time, buyers have been backing away from the market because houses are unaffordable.
          …
          Seattle – An Exception or Trend Leader?

          Seattle is a massive metropolitan area that overall is referred to as the Seattle-Bellevue-Tacoma metro area. But in fact, the suburbs of available housing sprawls well beyond those three cities. However, it’s within the Seattle city limits that the most dramatic price increases have occurred. Today, the median home value in Seattle is $717,800 (Zillow.com). As high as that is, values have declined -4.5% over the past year and Zillow predicts they will fall -3.8% within the next year.

          Even as prices decline, Seattle now has 2,370 more homes on the market than at the same point last year – an increase of 24%. Based on declining prices and increasing inventory, Zillow now rates Seattle as a buyer’s market. But buyers aren’t in a hurry to lay down massive down payments just yet.
          …

          1. against a backdrop of falling interest rates and low unemployment

            I don’t think you’re repeating this enough. 🙂

          2. I’m not sure whether my problem is not repeating it often enough, or not conveying the relevance.

            In short, the Fed normally enters a housing downturn with a fair amount of ammunition to either reduce interest rates or, as in the 2007-2009 episode, to expand its balance sheet. Given that interest rates are already near historic lows and the balance sheet was never unwound after the last crisis response, I’m wondering what ammunition they have available to keep the air in the Housing Bubble?

          3. I’m not sure whether my problem is not repeating it often enough, or not conveying the relevance.

            You’re talking about a change in the historic paradigm of ever lower interest rates and mortgage rates (going that way since the 80s); ever higher household debt (though purportedly the debt service payments have dropped, but that is belied by the GSEs now accepting 50% DTIs, 620 Ficos and 3% downpayments); and the consumer believing buying a house is the key to financial freedom.

            Eventually the first two will reach natural limits; and passively increasing property taxes will push housing carrying costs on a paid-off house up to rent costs; and that will change the historic housing paradigm.

            When is that going to happen? I dunno. I don’t know how low mortgage rates can go. Even if they actually started actually paying people to borrow money (i.e. still have to pay the principal back minus the negative interest rate), changed the tax laws to radically benefit mortgage holders, there’d still be that property tax/carrying cost issue on a paid-off house.

            A friend of mine, whom I respect, has a rule of thumb that has served him well: Whatever the (truly) wealthy and well-connected are invested in are the things to be invested in because the government will not let those investments go bad (and with modern monetary policy, it’s easier than ever to redistribute via seignorage, to those favored sectors). The problem is, pleasing short term choices can lead to difficult long term costs. Like ever lower interest rates and ever higher debt eventually plateauing, and the vague “yadda yadda” that was supposed to create sustainable prosperity never materialized.

          4. “Whatever the (truly) wealthy and well-connected are invested in are the things to be invested in because the government will not let those investments go bad (and with modern monetary policy, it’s easier than ever to redistribute via seignorage, to those favored sectors).”

            The Romanov family dynasty lasted some 300-yrs, but nothing lasts forever.

          5. “Eventually the first two will reach natural limits;…”

            Like the zero bound on interest rates / bond yields?

            “…and passively increasing property taxes will push housing carrying costs on a paid-off house up to rent costs;…”

            Albeit very slowly in CA, thanks to Proposition 13; however the SALT law created a bump in the road to real estate riches.

            The other big question is whether double-digit annual home equity gains can go on forever. Recent anecdotal evidence suggests not (once again!).

          6. “Albeit very slowly in CA, thanks to Proposition 13; “

            That wouldn’t apply to a purchase would it? Wouldn’t the assessment be based on the purchase price? I was under the impression Prop 13 was to protect existing homeowners from skyrocketing property taxes.

          7. IIRC Proposition 13 locks in the tax basis at the purchase price, and puts a 2% ceiling on annual increases. It’s basically a mechanism to protect house-rich Californians who bought decades ago while screwing new buyers with a basis based on current prices. For instance, we had the bizarre situation of a higher property tax basis on our lowly Richmond condo than did SFR owners who bought decades ago in the Berkeley Hills.

          8. Wouldn’t the assessment be based on the purchase price?

            Assessment is initially based on purchase price. It also appears that the assessed value can increase a max of 2% per year. I was just looking at the property tax bill for a potential 1031 replacement property and saw this. The increased reassessed value every year explains why the property tax bill for my existing property is where it is, which is still much lower than market value.

  39. Dumb prediction: Although the stock market will win the race over the long run, high quality sovereign bonds will surprisingly win it over the next couple of years, once the current QE-anticipation sugar high that is driving up both asset classes fades away, and despite the appearance that yields are already as low as they can get. Fundamentals over the foreseeable future do not favor risk assets.

    2. Once issued, Treasurys never suffer earnings recessions.

      Earnings recession risk increases as a flood of warnings hit
      By Tomi Kilgore
      Published: July 5, 2019 6:59 a.m. ET
      S&P 500 earnings set to decline for a second straight quarter, and maybe a third
      Getty Images

      The S&P 500 looks set to suffer its first earnings recession in three years, as the number of companies cutting guidance is among the highest seen in the past 13 years.

      The unofficial start of the second-quarter earnings reporting season is less than two weeks away, and preliminary reports suggest the outlook keeps getting worse. The blended year-over-year growth estimate for earnings per share for the S&P 500 (SPX, -0.93%) , which represents already reported results and the average analyst estimates of coming results, is negative 2.67% as of Friday, with six of 11 sectors estimated to post declines, according to data provided by FactSet.

      Actual reports, however, have been much worse. With 21 of the 505 S&P 500 companies, or 4.2%, having already reported results, actual reported EPS is down 14.18% from a year ago.

      Adding to the negative outlook, 114 S&P 500 companies have issued EPS guidance as the second quarter ended, with 88 companies, or 77% of that total, providing guidance that was below the average estimate of analysts. That is well above the five-year average of 74 companies that warn of earnings misses, and the second most since FactSet began tracking data in 2006.
      …

    3. It’s ‘hallucinatory’ to expect a half-point Fed rate cut now — but economists still expect a quarter-point reduction
      By Greg Robb
      Published: July 5, 2019 10:42 a.m. ET
      Quarter-point rate cut move seen as done deal
      Getty Images
      Fed Chairman Jerome Powell testifies next week on Capitol Hill.

      The solid June jobs report removes any chance that the Federal Reserve will cut interest rates by a half-point at the next meeting at the end of the month, economists said Friday.

      “I think we’ll get 25 basis points. Anything more is hallucinatory,” said Brian Bethune, chief economist for Alpha Economic Foresights.
      …

  40. The funny thing about speculation buying in shelter is that it requires major increases yearly. The closing costs going in and out are high, (15 to 20%).

    These spec buyers are short term thinkers that play real estate like it was stock.

    Long term end users might still buy if the rates go down, but you still have the lack of affordable with reduced interest rates. They would have to go full speed with the sub-prime type loans with low downs to get a rally going at this point.

    1. I expect an air pocket will have to be taken out of the recent speculative bid before fundamental (end user) demand establishes a new affordable equilibrium.

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