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There Is A Bit Of A Panic And Frenzy Start To Develop

A report from the Wall Street Journal. “Inflated bond ratings were one cause of the financial crisis. A decade later, there is evidence they persist. In the hottest parts of the booming bond market, S&P and its competitors are giving increasingly optimistic ratings as they fight for market share.”

“When S&P again proposed loosening its criteria this year, a group representing more than 100 professional bond investors wrote a letter to the company, reviewed by the Journal, saying the changes ‘will lead to a weakening of credit protection for investors at a time where we need it most.’ S&P proceeded. It says the changes ‘take into account the evolution of the CLO market over the past decade.'”

“David Jacob, who joined S&P in 2008 to head its structured-finance sector, says he ran monthly reports explaining to his boss why S&P wasn’t selected to rate deals. The answer was almost always that its criteria were tougher than another’s. ‘Little by little it weakens,’ says Mr. Jacob, who lost his job in a reorganization in 2012 and is retired. ‘If you have the tightest criteria, who’s going to use you?…The incentives are wrong. They stayed wrong.'”

From Property Lines at Curbed. “Riding out the rises and falls of the real estate market has become tougher as of late, with appreciation decelerating, sales slowing, and anxiety over a potential recession casting a pall on purchases. Those factors have cooled down the market for foreign buyers of U.S. property, according to a recent report from the National Association of Realtors, impacting potentially billions of dollars worth of real estate purchases.”

“The NAR reported native Chinese investors purchased $13.4 billion worth of residential property, a 56 percent drop from the previous year, and commercial investment has sharply decreased for the last year. ‘All these little factors add up,’ says report co-author Gay Cororaton. ‘The capital controls in China were a big factor, but once you factor in EB5 and all these toxic trade talks, the direction [of investment] will be negative. We’ve already seen a significant decline, as well as a significant decrease for next year at least.'”

From KITV on Hawaii. “Oahu’s new law cracks down on illegal short term rentals. It could also be the reason there has been a surge in Waikiki condos up for sale. At the Waikiki Banyan, a condo-hotel, the number of units up for sale has quadrupled since the law was passed. While inventory goes up, prices could be going down. Those prices may not be the only financial factor falling in the future.”

“‘At Waikiki Banyan there were over 100 owners who got a letter that said you can’t do short term rental anymore. Those units were managed by Aqua Resorts,’ said Hawaii Living broker George Krischke. Some of those former rental properties are already up for sale, and more are expected to hit the market. Not just from that property but all around Waikiki.”

“‘There is a bit of a panic and frenzy start to develop,’ said Waikiki Banyan General Manager Tom Lonigro.”

“One bedroom units at the Waikiki Banyan can cost $150,000 more than other 1 bedroom units in nearby buildings, but owners can pay for the higher mortgage by renting it short term. Now, those without non-conforming use certificates can’t. ‘Some of the units without NUCs will drop in value, down to other units. That will be quite a drastic drop for some of those properties,’ added Krischke. ‘This has the possibility of creating a direct and devastating economic impact,’ said Lonigro.”

The Bothell-Kenmore Reporter in Washington. “For Mike Beck, a managing broker out of the John L. Scott Redmond office, July didn’t have the ‘craziness’ his team saw last year. The current market gives buyers a bit of breathing room, and solidifies for sellers the importance of ensuring your home will be positioned well to stand out and make a positive first impression.”

“‘I’m not seeing as much craziness as I saw last year in our local market,’ said Beck. ‘We’re in a stable, healthy market, and I don’t expect that to change. We may see prices drop a bit more in the months ahead.'”

“As the summer winds down, some sellers may be affected by this disbursed buyer energy and may not see the movement they’d like on their listing. Beck said if a seller has a home on the market and it hasn’t sold yet, they have two main courses of action.”

“‘Sellers in this situation can choose to either stay the course and keep it listed, or they can take it off the market and re-list,’ said Beck. ‘If they re-list, they can opt to wait 60 days for the listing to reset, which would give the home a new number and fresh start on the Multiple Listing Service.'”

From Westword in Colorado. “The amount of money sellers earn from a home purchase has fallen 5 percent in Denver over the past year. ‘Caution should be taken here in reading too much into a year-over-year change for a single quarter,’ warns Todd Teta, ATTOM’s chief product and technology officer. ‘The number is down a bit from the second and third quarters of last year, but still really excellent. Nevertheless, any potential seller or real estate agent paying attention to the Denver-area market will see that profit margins have ticked downward. Even though prices are at all-time highs, the downward profit trend is a key factor to look at, given that real estate markets run in cycles and this one has never been higher.'”

“Does that suggest the local market has peaked, potentially triggering the aforementioned change to a buyer’s market? Teta doesn’t dismiss the prospect. ‘Despite the usual spring price boost, the Denver-area numbers were kind of tepid and followed a period last year when prices declined a bit.’ Nonetheless, he continues, ‘the Denver-area market has blown past pre-recession highs better than most areas of the country, and it’s still a big-time sellers’ market. But recent trends suggest that the regional market, like many around the country, may be cooling down and ready for some kind of dip.'”

The San Jose Spotlight in California. “A new report forecasting the real estate market in California shows a fairly sunny outlook for the Bay Area, though it notes the region may be facing some headwinds where it matters most: housing. This year the survey showed a notable slump when it comes to multifamily development optimism, even as demand for new homes remains at a fever pitch in the Bay Area.”

“‘In the last six months, Bay Area developers have pulled back on new (multifamily) development, and half of the panelists stated that they were not planning to start a new development in the next 12 months,’ the report states.”

“That pessimism may be tied to ‘a growing movement toward rent control,’ in the area, paired with rising costs to develop, the report added. Indeed, Silicon Valley developers and cities are reporting that housing projects aren’t easy to pencil, or make work financially.”

“That’s significant because real estate often shows the earliest signs of weakness or strength as economists attempt to predict booms and busts. And murmurs of the next economic downturn have been creeping into Silicon Valley forecasts and fears for the past year, though notably not due to a slowing economy, but because history tells us that what goes up must come down, and the current economic cycle has been on an unprecedented run, with nearly a decade of growth.”

This Post Has 78 Comments
  1. ‘Inflated bond ratings were one cause of the financial crisis. A decade later, there is evidence they persist. In the hottest parts of the booming bond market, S&P and its competitors are giving increasingly optimistic ratings as they fight for market share’

    Eat yer crowz jingle male.

    1. Too much money in rating bad debt as good debt and selling it off. Rinse repeat until pop goes the weasel.

      Why not, there’s nowhere else to put the Yellin Bucks.

      1. This works for two reasons:

        1. The population has been sufficiently dumbed-down to the point where such stupidity is considered to be a wonderful idea.

        2. The money being used belongs to somebody else.

        1. “In the hottest parts of the booming bond market, S&P and its competitors are giving increasingly optimistic ratings as they fight for market share.”

          Note: Successfully fighting for market share generates fees. Those who win this fight prosper; Those who lose this fight starve.

          ‘If you have the tightest criteria, who’s going to use you?…The incentives are wrong. They stayed wrong.’”

          And there it is.

          1. What really changed? Fannie and Freddie had enormous amounts of corruption. When they couldn’t produce financials because of it, they weren’t delisted from the stock exchange (which would have ended their bond markets and all the AAA shenanigans). Think of how much fall out from the housing bubble could have been prevented if just this one legality had been enforced.

            I have documented in the past two weeks zero-down, no-doc loans. We read about builders giving out 120% plus loans in California. Think about how that works. “Here’s a loan for 20% more than the shack sold to the guy next door. Now I’m a gonna take it.”

            Oh, but there’s no fraud! Hardly a week goes by that some dozens of Chinese find out they’ve been had by a visa rip off.

          2. Not to mention the defective mortgages and appraisals fannie and freddie are complicit in producing.

          3. Let’s play 2008 or 2019, shall we?

            “Moody’s had assigned high grades to many securities containing Countrywide mortgages. Those securities and mortgages, issued during the lending spree of recent years, later soured — leaving investors with large losses and homeowners and communities struggling with foreclosures.

            “That was not the only time Moody’s softened its stance on Countrywide securities. It elevated ratings several times after Countrywide complained, the people briefed on the matter say.

            [spoiler…]

            “Since the subprime mortgage troubles exploded into a full-blown financial crisis last year, the three top credit-rating agencies — Moody’s, Standard & Poor’s and Fitch Ratings — have faced a firestorm of criticism about whether their rosy ratings of mortgage securities generated billions of dollars in losses to investors who relied on them.”

            https://www.nytimes.com/2008/12/07/business/07rating.html

  2. ‘At the Waikiki Banyan, a condo-hotel, the number of units up for sale has quadrupled since the law was passed. While inventory goes up, prices could be going down’

    Who could have known an illegal arrangement would blow up in the faces of speculators? Good thing this is only happening on Oahu.

    1. This is surely an isolated, one-off occurrence, Ben. Surely our intrepid Real Journalists and dedicated public servants in our ever-vigilant enforcement and regulatory agencies would move swiftly to take appropriate action if this was a systemic issue. Remember, Sheriff Fauxahontus is casting her beady eye on all these financial sector scofflaws, cuz she’s the champion of the middle class. She said so.

    2. Every day I see more million dollar+ listings pop up in the islands and they were not lived in full time, only rented out and probably not all that often. Many were purchased in the last few years.

      Local magrag (Honolulu) had articles over the past 3-4 years pimping some of the condo towers with stories about young families “finding good value” in condos that run 600K for a 2 bedroom with insane monthly fees. Guaranz (guaranteed) it was all speculators and none of these families were looking to live in them, they wanted the kala (money)!

      Goin’ be like one giant nalu (wave) sweep away dese wannabe high maka makas. They can kiss my okole!

      1. Goin’ be like one giant nalu (wave) sweep away dese wannabe high maka makas. They can kiss my okole!

        Love the perspective, keep it coming BruddahKai! The closest thing I get to Hawaii these days is a really good hole-in-the-wall poke bowl place!

        1. During my few years in Honolulu (07-09), I lived in the Fairway Villa. There were blocks of rooms rented out for vacationers. Mind you this was waaaay before AirBNB and the like. It was mostly families and never seemed to be any trouble other than just seeing new faces.

          A few years later stayed at a condo at the Watermark rented by the company I worked for. That building is a 30 day minimum stay. My company had it for a few months but I did see a notation on the lease agreement reminding people if they were ever asked to say they were there for 30 days which leads me to believe this was the start of the circumventing the rules.

  3. ‘We may see prices drop a bit more in the months ahead’

    But redfin? Shacks outside of Seattle are red hot?

    ‘As the summer winds down, some sellers may be affected by this disbursed buyer energy and may not see the movement they’d like on their listing. Beck said if a seller has a home on the market and it hasn’t sold yet, they have two main courses of action’

    ‘Sellers in this situation can choose to either stay the course and keep it listed, or they can take it off the market and re-list,’ said Beck. ‘If they re-list, they can opt to wait 60 days for the listing to reset, which would give the home a new number and fresh start on the Multiple Listing Service’

    And the UHS casually discuss manipulating market statistics etc. Oh, tell us how many short weeks of inventory there is!

    1. Ben, is it legal to manipulate MLS numbers?

      I look in my area and most homes from the 1960s have a sales history beginning in August 2019. If I dig deeper I generally see the house was last purchased in 2016-17..

  4. ‘The amount of money sellers earn from a home purchase has fallen 5 percent in Denver over the past year. ‘Caution should be taken here in reading too much into a year-over-year change for a single quarter,’ warns Todd Teta, ATTOM’s chief product and technology officer. ‘The number is down a bit from the second and third quarters of last year, but still really excellent. Nevertheless, any potential seller or real estate agent paying attention to the Denver-area market will see that profit margins have ticked downward. Even though prices are at all-time highs, the downward profit trend is a key factor to look at, given that real estate markets run in cycles and this one has never been higher’

    See, these “reporting” companies have all caved to boosterism. This used to be a foreclosure database company. Now zillow and redfin are flipping shacks and constantly seeing an emerging sellers market. Surprise, surprise!

    1. LOL@ another recent Denver article posted here quoting a REALTOR saying “the easiest way to make $100,000+ is buy a used house in Denver and wait three years.”

      1. Welcome to the casino eCONomy, where everything is based on speculation dependent upon Fed liquidity.

  5. Seems fair to say these condos were really built to be used as illegal hotels; and now that the gubment is finally up to the scam buyers are losing interest.

  6. ‘The Journal’s analysis suggests a key regulatory remedy to improve rating quality—promoting competition—has backfired. The challengers tended to rate bonds higher than the major firms. Across most structured-finance segments, DBRS, Kroll and Morningstar were more likely to give higher grades than Moody’s, S&P and Fitch on the same bonds. Sometimes one firm called a security junk and another gave a triple-A rating deeming it supersafe’

    Wow, so the gubberment fudged this whole thing up again. Surprise!

    ‘In a May speech, Federal Reserve Chairman Jerome Powell compared CLOs to precrisis mortgage-backed debt: “Once again, we see a category of debt that is growing faster than the income of the borrowers even as lenders loosen underwriting standards.”

    Surprise!

    1. “Once again, we see a category of debt that is growing faster than the income of the borrowers even as lenders loosen underwriting standards.”

      A nation of dummies.

    2. The government fudged it up… by letting the free market handle it?

      I guess government better than free market at *some*thing, I suppose.

      1. ‘by letting the free market handle it’

        We really see some incredible statements here don’t we? The federal government has created a near monopoly in housing loans. From the central bank and interest rates, to guarantees to issuers, and to the rating agencies. They have failed miserably and it’s the fault of free markets.

        One of the basics of free markets is: you use your own money! Nobody is using their own money. How bout those non-banks like Quicken? Nope. Lines of credit, loans backed by unca’ sugar. Ever heard of fractional reserve banking? Oh that little multi-trillion dollar fiasco. And if that builder handing out 120% loans goes bust? Won’t hurt them, they just fold the LLC and head to the beach for a few years. Is that having some skin in the game? Who set that racket up, Adam Smith?

        1. “Nobody is using their own money.”

          DebtDonkeys don’t have money. That’s why they’re DebtDonkeys.

  7. ‘The Democratic Socialists of America are hard to take seriously. But don’t write them off. The priorities and convictions that were on display at the activist group’s national convention in Atlanta last weekend have advanced so far within the Democratic Party that the DSA doesn’t need to make itself respectable.’

    ‘Early on, National Director Maria Svart asked DSA delegates to turn off their phones. Standing before a hall of millennial socialists, this was brave—and doomed to fail. Members tweeted nonstop, complaining of “reactionary” rival factions and leaders who staged a test to see if fellow socialists were sufficiently antiracist.’

    ‘Party discipline was more effective at eliminating clapping. “Loud bursts of noise” can be dangerous to “disabled comrades,” a young man sporting a red kerchief explained. “Please don’t clap,” he said. “Instead shoot up these.” He thrust his hands above his head and wiggled his fingers. The DSA even set aside “quiet rooms,” one of which banned “anything that’s, like, an aggressive scent.”

    ‘The DSA’s Medicare for All committee even reported that their socialist principles have “permeated the discourse” on health care and “define the demands of our coalition as well as those co-sponsoring single-payer bills” in Congress. They’re right.’

    ‘Democrats can’t match every new DSA resolution—“solidarity with the Cuban socialist struggle,” for instance—but they’re swallowing these socialists’ major critiques of the American way, one by one. It’s no accident that Joe Biden found himself hard-pressed last week to explain why national borders are legitimate. Many Democrats agree with DSA member Brandon Rey Ramirez, who called the U.S. immigration system “morally indefensible at its core” and added: “We need open borders and the complete dismantling of ICE and CBP in order to respect the dignity that every person deserves.”

    ‘Democrats don’t share the DSA’s goal of abolishing capitalism, but they have an increasingly hard time explaining why not. They all but concede that America’s political and economic order is rooted in white supremacy and exploitation. Their base thrills to Sen. Bernie Sanders’s automatic denunciations of capitalist greed and his calls for “political revolution.” Even moderate Democrats accept the socialist critiques, if not the solutions. That’s why they struggle to parry attacks from the left.’

    https://www.wsj.com/articles/democratic-socialists-sound-like-democrats-11565214408

    1. Yeah, let’s take all the money from the wealthy business people and make the already wealthy politicians even wealthier. That will solve all of this country’s problems.

      But the naive, gullible suckers will vote for it anyway.

    2. Paul J. You-know-who has a video out on this.

      I appreciate that the organizers were trying to avoid audio sensory overload with the clapping, but what about the people who got visual sensory overload from all those waggling jazz hands? Don’t they get no respect?

    3. Socialism seems like a extreme answer to the wealth disparity. Certainly other solutions to keep free markets aren’t discussed and that’s suspicious .

      1. Socialism seems like a extreme answer

        The key to Socialism appears to be belonging to the elite group in charge, not in the group that is being helped.

    4. “Please don’t clap,” he said. “Instead shoot up these.” He thrust his hands above his head and wiggled his fingers. The DSA even set aside “quiet rooms,” one of which banned “anything that’s, like, an aggressive scent.”

      The Onion might as well close its doors, since its business model has been rendered non-viable by stories such as this that you could never make up.

      1. Actually, the Babylon Bee is much more likely to do this kind of satire than the Onion. And it keeps getting fact checked, apparently because its too hard to distinguish between its satire and actual positions of the Left.

  8. For the HOA file:

    Homeowner shoots wife of HOA president over unpaid dues, police say.

    “A Lancaster man is facing criminal charges after shooting his neighbor multiple times over a homeowners association dispute, police said Monday. The argument centered around a lien that was placed on Haggerty’s home for allegedly not paying HOA fees, Thompson said. ”

    https://www.wfaa.com/article/news/homeowner-shoots-wife-of-hoa-president-over-unpaid-dues-police-say/287-8fb525eb-b615-4e4d-823c-af888c6a4c1f

    Apparently the HOA was disbanded, but the former president continued to pursue collection of HOA fees, filed liens, etc. Sounds like a nice neighborhood.

      1. If you allow section 8 with no behavioral screening , yes it will but you know the ACLU will find it racist to inquire about content of character

    1. “The memo cited the smallish size of the units, proposed rental rates above the Orlando average, the lack of full kitchens and inadequate play space for families with children… “When people dream of their future in this community, their dream is not, ‘We want to raise our family in a motel room,’ “”

      No wonder there’s a lack of affordable housing! Here you have a company that has been providing affordable housing by converting dilapidated hotels, but now even that’s not acceptable. Of course the units are small! They’re meant for single people. There are plenty of single or couples starting out who need such places, both young and old. Just what do these people want? 3/2 SFH with a yard and a picket fence for $500/month?

  9. ‘One bedroom units at the Waikiki Banyan can cost $150,000 more than other 1 bedroom units in nearby buildings, but owners can pay for the higher mortgage by renting it short term. Now, those without non-conforming use certificates can’t’

    Who loaned these people hundreds of thousand$ based on illegal rental arrangements? Again, it wasn’t somebody loaning out their own money.

    In the real world, if you had say several million dollars. And somebody said, “hey I want to buy into a condo-tel in Hawaii, what will you charge?” Chances are you wouldn’t lend into that in a million years. And even if you were foolish enough to do it, what would the interest rate be? 15%? More? The risk is off the chart.

    Oh, but lending is sound. Rock solid. There’s no fraud cuz an anonymous person on the internet insisted.

  10. In the hottest parts of the booming bond market, S&P and its competitors are giving increasingly optimistic ratings as they fight for market share.”

    The Obama Justice Department ensured that none of the ratings agency officials who gave AAA ratings to toxic-waste mortgage-backed securities (MBS) bundles sold to “investors” were ever held criminally accountable for their actions. In the absence of consequences, it should surprise no one that the ratings agencies are up to their old tricks again.

  11. ‘All these little factors add up,’ says report co-author Gay Cororaton.

    A 56% drop in Chinese investment isn’t exactly a “little factor,” Gay.

  12. The amount of money sellers earn from a home purchase has fallen 5 percent in Denver over the past year.
    ? wtf

    1. WTF? No mention of the 2% rates in pension plans, and student loan interest rates are currently 5%. Better to pay that off as fast as possible, IMHO.

  13. Housing Crisis Grips Ireland a Decade After Property Bubble Burst
    New York Times
    Ed O’Loughlin
    August 8, 2019

    “DUBLIN — For generations, the Irish took for granted that affordable, plentiful housing was the bedrock of their economic security and government policy. Not long ago, Ireland had one of the world’s highest rates of homeownership.”

    “The last several years have torn up those assumptions, leaving the country in the grip of a worsening housing crisis. Homeownership has dropped, evictions and homelessness have climbed sharply, surging demand for rental units has led to a shortage, and soaring rents are fodder for daily conversation, political campaigns and street protests.”

    It now costs far more to rent than to pay off a mortgage. The property website daft.ie recently reported that the monthly mortgage payment on a two-bedroom house in the city of Cork would be about $700, but the same house would cost almost $1,300 to rent.”

    1. Sounds like somebody is trying as hard as they can to blow a housing bubble there but something is stuck. So it’s blowing up in rents but not in house prices.

        1. As much as I’d like to think their pukes are that much smarter than ours, I’m skeptical that’s the explanation.

  14. https://www.fastcompany.com/90386799/this-startup-wants-to-put-a-free-tiny-house-in-your-backyard

    This startup wants to put a free tiny house in your backyard

    Rent the Backyard will get a tiny house into your backyard in a matter of weeks—and hopes it can add some cheaper apartments in cities to help alleviate the housing crisis.

    …For now, the company plans to focus on the Bay Area, where high rents make the business model particularly feasible; the company covers the cost of everything, including ongoing maintenance, but can recoup those costs as it takes half of the rent. Owners split the rent with the company over 30 years, at which point they own the ADU outright.

    The apartments will rent at the fair market value, but because they’re small studios—with a large living area, kitchenette, and bathroom—they will be at the lower end of that scale. By beginning to fill the enormous gap in available units, the company could help play a role in lowering the region’s average rental prices. CASA, a local organization that studies housing, estimates that 300,000 backyard homes could be added to the Bay Area. “There’s huge potential to build these all over,” says Burleigh.

    1. Yeah… it’s a bubble. So they want 150K for tiny 400sf of living space in a backyard… Jokers.

      why can’t they just put a single wide trailer for 20K and be done?

      it’s all a scam.

  15. Wall Street Journal (when you click the link from Drudge you can read the whole article, not sure if they paywall barrier it for clicking from elsewhere or if the free article expires after a few hours):

    “The FBI is soliciting proposals from outside vendors for a contract to pull vast quantities of public data from Facebook, Twitter Inc. TWTR 0.81% and other social media “to proactively identify and reactively monitor threats to the United States and its interests.” The request was posted last month, weeks before a series of mass murders shook the country and led President Trump to call for social-media platforms to do more to detect potential shooters before they act.”

    https://www.wsj.com/articles/fbi-and-facebook-potentially-at-odds-over-social-media-monitoring-11565277021

    Ben Jones, is not buying an overpriced used house, even when you could afford one, considered a form of “economic domestic terrorism?”

    I wish I could buy my current rental, at an affordable price. There are no housing purchase options here that meet my short and long term financial goals, therefore I continue to rent.

    And save money.

    And not spend money.

    REALTOR, you’re not selling anything I want or need, so I’m not going to buy until I move away from Denver in the next few years…

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