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Sellers Are Starting To Accept The Realities Of The New Marketplace

It’s Friday desk clearing time for this blogger. “Look around Phoenix and you see cranes and construction sites, new buildings everywhere. New home construction in Phoenix largely came to a halt during the recession, but land speculation continued. ‘In the early 2000s, a property would be priced at about $10 a square foot for a completely vacant piece of land and near downtown Phoenix. And often after being bought and sold about six times in the span of two years, these properties went up to over a hundred dollars a square foot. So in many times these properties went up tenfold and value without any, any improvement whatsoever being done to the property itself,’ said Ben Stanley is a postdoctoral researcher at ASU’s School of Sustainability.”

“‘It doesn’t seem especially sustainable, not just for actual environmental reasons, but just for economic reasons that how do you have an economy that it constantly requires more people to move to the, so the area is constant, requires unending construction and so on?’ Stanley asked.”

“Arizona lead the nation in new mortgage debt, most of which comes from homeowners refinancing loans to take advantage of lower interest rates. If you add up all the home mortgages Arizonans owe, they total $53.8 billion. That’s over a 2% increase from March. George Mason University real estate finance professor Tony Sanders said refinanced loans make up the majority of all new home loans in Arizona. ‘And so what’s happened is that since housing prices in the entry sector have really skyrocketed since their lows, that’s what’s really driving a lot of the debt coming in out of Phoenix for housing,’ Sanders said.”

“So how likely is a recession? And could Southern Nevada be impacted? ‘It was really difficult to get capital, it was really difficult to find credit from banks, and now, it’s not as difficult. It’s just that the banks are scrutinizing people more closely, so I feel more secure in that,’ said Dana Berggren, commercial real estate broker. ‘Everybody has been a lot more conservative in their business dealings.'”

“It’s getting harder and harder to buy a home in San Diego. But according to Veterans United Home Loans, VA loans in California are surging, and they’re up 15 percent this year in San Diego. VA purchase loans in California are up 66 percent from 2013 to 2018. Chris Birk, Director of Education at Veterans United Home Loan, says in some cases veterans and service members, if they qualify, can get a VA loan for no money down. ‘They don’t have to build pristine credit,’ adds Birk.”

“Vets like Wendell Stone and his wife Tessie rented for 30 years. That’s when their daughter-in-law Aurora Perez, a realtor at Century 21, helped them understand they could qualify for a VA loan. ‘They were able to purchase a home with my help in the Temecula area,’ says Perez. ‘And then they were able to purchase another home in Oceanside and turn that into an investment property.'”

“Currently, there is a $690,000 cap on VA loans in San Diego County. But Perez says the laws are about to change and next year if a veteran or service member can qualify, there will be no cap for VA loans.”

“In the once red-hot Bay Area, home values aren’t just growing more slowly, but have actually fallen – the value of the typical home fell 10.5% last month in San Jose and 1.1% in San Francisco compared to July 2018. For reference, at the same time last year home values grew 24% annually in San Jose, a 34.5 percentage point difference.”

“Inventory was also up year-over-year in 30 of the nation’s 50 largest markets. For-sale inventory grew the most from a year ago in Las Vegas (up 53.5% year-over-year), San Jose (32.6%) and Denver (26.9%). Unlike prior months, recent inventory gains look to be driven largely by growth in newly listed homes – and not necessarily homes lingering longer on the market. Sellers put more than 385,000 homes on the market in July, up 5.7 percent from a year ago and the first annual gain of the year.”

“The price on a Napa Valley estate owned by San Francisco restaurateur Pat Kuleto has been cut by $2.8 million since it was first listed more than a year ago. The 6,000-square-foot home went on the market in May 2018 for $8.499 million and has since seen a series of reductions, including one this week that pushed the price down to $5.699 million. Listing agent Lisa Sheppard of Compass real estate said the new price is a reflection of a ‘normalizing’ market.”

“The Twin Silo estate, now for sale in Doylestown, has just experienced a $350K price drop. The property, dating back to 1710, is now priced at $5.9M. On Aug. 13, the price was lowered by $350K. It’s the second price drop for the property this year. The house was listed May 15 for $6.75M. Attempts to sell the house for $10.5M in 2014 were not successful.”

“A former political candidate last month cut the price on his massive French Regency-style mansion in Winnetka to $4.9 million, almost half of its asking price when it was first listed seven years ago.”

“Median home sales prices declined once again last month in Seattle. The survey also found that the July median home price in the Seattle area was 2.6 percent lower than it was in June – an average drop of about $14,000 per home in one month. ‘July home prices and sales were weaker than I had expected, especially given that falling mortgage rates have been luring homebuyers back to the market since early spring,’ said Redfin chief economist Daryl Fairweather.”

“Any Hamptons real estate professional asked will agree that the South Fork market was off to a shaky start in the first half of 2019. Ann-Marie Horan: I think its part of the trifecta: That, plus eight years of price appreciation, coupled by 750,000 lost jobs on Wall Street over the last 10 years.”

“Jennifer Friedberg: It’s a buyers’ market and sellers are starting to accept the realities of the new marketplace. That said, inventory is up and buyers are even more price sensitive, spending longer looking and kicking tires. Aimee Fitzpatrick Martin: To my eye, it feels like the scale has tipped a bit in favor of buyers. This is not the time for a seller to ‘test the waters’ on pricing. If sellers truly want their house to sell and not have it sit on the market, they have to price their home accordingly. Realistic sellers are selling their homes.”

This Post Has 134 Comments
  1. I didn’t have room for all the US crater, much less the international stuff.

    ‘if they qualify, can get a VA loan for no money down. ‘They don’t have to build pristine credit’…Currently, there is a $690,000 cap on VA loans in San Diego County. But Perez says the laws are about to change and next year if a veteran or service member can qualify, there will be no cap for VA loans’

    Yeah, lending is super tight. VA loans are subprime.

    1. ‘VA purchase loans in California are up 66 percent from 2013 to 2018’

      A recent report stated VA loans went from 2% of the market in 2008 to 12% now, nationwide.

          1. Negative interest mortgages….that’s pretty funny Carl. I did see a guest on Nightly Business Report last night who said he expects the 10-yr to go to 0%, so maybe you’re right.

            I had breakfast with a friend who sold a San Diego marina district condo in 2016. I went down there in 2017, thinking we might want to live there, but it’s too dicey an area for us. Anyway, he bought in 2012 for $450,000, sold in ’16 for $800,000. He just noticed it was for sale today at $789,900.

            When we went to SD in 2017, there were 225 listings in the marina….today there are 450+. It does seem the market is changing, but it does seem like a glacial pace….and not a Greenland glacier…..😀

          2. Negative interest mortgages….that’s pretty funny Carl. I did see a guest on Nightly Business Report last night who said he expects the 10-yr to go to 0%, so maybe you’re right.

            I’m just thinking…what kind of ridiculous manipulations are still possible if TPTB are determined to go around again and reblow the bubble one more time? That’s the most obvious one. I can see everyone gleefully signing up to get paid to be a homeowner instead of a loser renter and more appreciation is a feature, not a bug. Housing only goes up for those smart enough to buy the dip.

          3. Real estate crash is like a slow motion train wreck…you won’t see 800 points down then 500 points up the next day movement here LOL

          4. Just realized this is where REIC and the Universal Basic Income (UBI) free money crowd might get some synergy going. Basically you sign up for a million dollar mortgage but don’t actually have to make any payments. You just owe the money forever and somewhere in the accounting for that is the UBI. That’s how you get EVERYBODY in a million dollar plus mortgage…and create a bunch more dollars for Mr. Banker and everybody who already owns a house.

          5. So when I purchased my model 3 I could have paid cash. I chose not to because the auto loan was 1.99%. And the CDs on offer at the time for 5 year were 3.6%. So my car loan is basically a negative interest rate of -1.6%.

          6. Negative interest rates would actually be good for me (and other homeowners). House values would immediately skyrocket and every homeowner would instantly refi.

          7. It’s path dependent. If negative interest mortgages followed a 30% crater in prices, there would be little joy in the Ownership Society nor refinancing activity. However, folks who sheltered savings from the mania would finally have a chance to buy.

      1. It’s really sad that because of VA loans, this next crater will hit vets particularly hard. I knew they had a higher percentage than before, but 12%, wow. Often times, service people–at least at the enlisted level–are not the brightest people, in the traditional IQ sense. They are some of the best friends you could ever have, and definitely the people you would want around in a crisis. But they are especially vulnerable to financial scams.

        I knew of one airman who got a call that he was due a refund from the IRS, but they needed his bank information to be able to send it. He was excited and told his sgt about the refund he was about to get, and sgt did his best to try to convince him it was a scam, the refund would not come, and the airman needed to notify the bank and freeze his account. The airman did not because he wanted to get his refund. Of course, he was wiped out.

        Scammers know this and target service people, and it makes me sick. Because that same airman knows his job inside out, is brilliant in that job, and would literally die for us. UHSs pushing VA loans should be shot for treason.

          1. Terrific story. I get those calls, mostly I just hang up. One time I played along and just kept saying “OH NO” louder each time the guy said something. He finally caught on, said I think you’re playing with me and hung up.

          2. epic version
            It truly was. Got funnier with every email (the posters!) but the video was the icing on the cake. Three months for him to give up 🤣

          3. The Lil’ Sebastian, Walter White, Hillary Clinton, and Hamburglar references were too much for me! I love that it the title of his little charade was “housing heist”. Very apropos for this blog!

    2. I believe the VA has always been 100% self supporting, never needing any government bailouts. There is a 3.3% VA funding fee, always charged to the seller, which goes into pool insurance. When a vet gets a VA loan, the vet only gets a “provisional title”. The VA gets full title and if the vet doesn’t make the payments, there is no foreclosure. The VA works with the vet to modify the loan or otherwise move the vet out and sell the house. No prolonged process, just fair and efficient.

      1. ‘if the vet doesn’t make the payments’ there’s your foreclosure.

        Of course you really like these handouts like the government backed “investor” loans you took advantage of. Why are we subsidizing your shack gambling?

        1. Because they risked their lives for their country.

          That said, VA loans should be limited to primary residence, full stop. None of this garbage about acquiring a no-down house each time you are re-assigned and by age 40 you have a little rental empire along with a sweet pension.

          1. ‘Because they risked their lives for their country’

            I had a few friends in the military. You know what they told me they did most of the time? Pick up trash.

          2. If a vet has been reassigned, keeping the old house in the former location is a fools game. In fact, buying any house while on active duty is not a good move. Renting is the better option, with a normal cancelation clause for reassignment.

          3. Jingle Male, I guess it works if they bought a house near a military base. A service member can keep the old house and rent it out to another military family assigned to that base, while he buys a new house at his new base. By the time he retires, he could have 4-5 houses all rented out.

        2. “Why are we subsidizing your shack gambling?….”

          No one has ever subsidized me. I’ve always paid my debt service and often get better deals from credit unions than agency lenders. Credit unions keep their loans.

          Now that I get Medicare and Social Security, I guess I am actively being subsidized now. It’s an interesting feeling to have $2,300/month show up in my bank account every month.

          1. You should look up the definition of subsidize, because it seems like you have it backwards.

            – Over the past century, Uncle Sam has increasingly subsidized home ownership over rentership, culminating with Ben Bernanke’s massive quantitative easing housing market reflation program in the post-2009 period. If you were purchasing, or already owning, investment properties during this period, then you were a beneficiary of government subsidized housing appreciation.

            – Your Social Security and Medicare are prepaid out of payroll taxes that were taken out of your paycheck to the tune of 15.3% (employer + employee share). And if you were a high earner, then you get back a lower share of the payments you made into the system over your working years than lower income workers do; in other words, you are subsidizing someone else’s retirement.

  2. ‘the July median home price in the Seattle area was 2.6 percent lower than it was in June – an average drop of about $14,000 per home in one month. ‘July home prices and sales were weaker than I had expected,’ said Redfin chief economist Daryl Fairweather’

    Not only that Daryl, you guys said it was to the moon Alice! last spring.

  3. ‘In the early 2000s, a property would be priced at about $10 a square foot for a completely vacant piece of land and near downtown Phoenix. And often after being bought and sold about six times in the span of two years, these properties went up to over a hundred dollars a square foot. So in many times these properties went up tenfold and value without any, any improvement whatsoever being done to the property itself’

    But spotting bubbles is unpossible, says central banker. Phoenix is a heat sink, (150 people die every summer heat related) and downtown Phoenix is the hottest part of the city.

    1. This quote highlights the entire sham in a nutshell. Speculation is real estate is bad. It is a pox on the eCONomy.

      1. And often after being bought and sold about six times in the span of two years, these properties went up to over a hundred dollars a square foot

        So.. 4 to 5 million bucks an acre or higher? What sort of commercial use would even support anywhere near that?

      1. The dip is here…20% at most. Better buy before they launch QE forever. In 10 years a million dollar house will seem cheap 😀

        1. It might be worth waiting to see if prices bottom out about five years after the onset of the next recession, the way they usually do. Why rush to catch yourself a falling knife when you can buy for 30% less after the crater?

    2. One question about this: If the original buyer had held for the same amount of time would it have gone up that much? Or were all those transactions required to make that happen? If so you would think that kind of activity should trigger a money laundering investigation every time.

  4. “Vets like Wendell Stone and his wife Tessie rented for 30 years. That’s when their daughter-in-law Aurora Perez, a realtor at Century 21, helped them understand they could qualify for a VA loan. ‘They were able to purchase a home with my help in the Temecula area,’ says Perez. ‘And then they were able to purchase another home in Oceanside and turn that into an investment property.’”

    This will end well!

          1. A heaping helping of baked crow would wash down real good with a bottle of ripple and squirrel tamales.

    1. Since when does a veteran need a realtor to “help them understand they could qualify for a veteran’s administration loan”? Did he not understand he was a veteran?

  5. ‘refinanced loans make up the majority of all new home loans in Arizona’

    Refi’s make up the vast majority of loans nationwide.

    ‘the value of the typical home fell 10.5% last month in San Jose and 1.1% in San Francisco’

    Eat yer crowz Thornberg.

    ‘Inventory was also up year-over-year in 30 of the nation’s 50 largest markets. For-sale inventory grew the most from a year ago in Las Vegas (up 53.5% year-over-year), San Jose (32.6%) and Denver (26.9%). Unlike prior months, recent inventory gains look to be driven largely by growth in newly listed homes – and not necessarily homes lingering longer on the market. Sellers put more than 385,000 homes on the market in July’

    Where are these hundreds of thousands of shacks coming from, month after month?

    1. It’s one big bloated debt orgy that grows by the day. Now that the Fed has decided to completely reverse course and drop rates to zero, I fully expect this debt orgy to go on much longer. Finally, one day long into the future, the whole charade will implode, and then we will hear about how “nobodycouldaseenitcoming,” and the bailouts will start.

    1. Huh. Never thought of how you could use the legal system that way if you had a lot of money.

      He was a sex addict. 3x/day just to function if the rumors are correct. So he found a way to get a fix even in jail. Just call her a lawyer and do some private consulting.

        1. Seen at an In-N-Out with a book on the secret lives and deaths of CIA agents.

          That’s what makes me think at this point she/they are actively trolling people. Not sure why anyone would think that was a good idea.

          1. In the old west somebody standing below might help with a hard lift and drop/yank on the rustler’s feet to save them from slow strangulation.

    2. Seems like a guy with that kind of money could get transferred to one of those country club prisons where Wall Street types do their time.

  6. AZ mortgage debt rises due to refinancing.

    YTD 2018 vs. 2019.
    Cash out refinanced were up 87%
    Non-Cash OuT refinances we’re Down 21%.
    Actual data but small sample size.
    Rate and term ReFIs being down surprised me because y-o-y rates have come down substantially.

  7. ‘It was really difficult to get capital, it was really difficult to find credit from banks, and now, it’s not as difficult. It’s just that the banks are scrutinizing people more closely, so I feel more secure in that,’ said Dana Berggren, commercial real estate broker. ‘Everybody has been a lot more conservative in their business dealings.’

    I hope they mean everyone since 2008 has been very conservative in business dealings and lending. After all, the Narrative is lending has been very tight for a decade now, no subprime or bad loans at all.

    1. Lending was comparatively tight when I bought. They did allow me to put only 10% down, but other than that I got a 1980’s style financial reaming. Right down to demanding financial statements in a certain type of PDF, bank statements signed by a VP, W-2s, etc. In 2012 no strawberry pickers need apply.

        1. I think standards started to decline again late in 2013, which is when residential started blowing up again. Even then, standards have not declined as much as HBB would have you believe. Yes, we’re seeing some no money down mortgages, which is somewhat lax. We’ve even seen a couple of dicey banks toy with stated income. But neither of those will help much if you have to pony up a high payment that first month and every month. What really blew up the bubble was the ARMs, I/Os, and neg-am mortgages, which allowed anyone to basically pay half the monthly nut that they should have been paying. There are none of those, at least not for the general public.

  8. “A former political candidate last month cut the price on his massive French Regency-style mansion in Winnetka to $4.9 million, almost half of its asking price when it was first listed seven years ago.”</em

    Chase that market down, greedhead.

    1. Zero or negative interest??? And when will credit cards be below 8% …….or new car loans 0% for 96 months?

      1. And when will credit cards be below 8% …….

        Never. That doesn’t help create more money. It just costs Mr. Banker money. So it won’t happen.

        or new car loans 0% for 96 months?

        This will only happen if it assists in borrowing large sums of money into existence. But housing is a much more efficient way to do that and easier to be sure it goes to the “right” people. So I doubt we’ll see this.

        1. No matter what happens I don’t think it’ll be clearly communicated until after the next election.

          1. If it happens under Trump you will hear about it prior to it happening. However, right now according to the Atlanta Fed it looks like we will have over 2% growth in the Third Quarter despite all the pessimism expressed in the MSM.

        2. Honestly, I am still trying to figure out if we were in a recession in the fourth quarter of 2007, how come the numbers still show growth in the first few quarters of 2018.

  9. There has never been a better time to issue long-term government debt.

    Markets
    U.S. Contemplates 50- and 100-Year Bonds After Yields Plummet
    By Alex Harris
    and Emily Barrett
    August 16, 2019, 1:07 PM PDT
    Updated on August 16, 2019, 2:28 PM PDT
    Treasury conducting an outreach on ultra-long debt issuance
    Announcement follows slide in 30-year yield to record low

    With interest rates on 30-year U.S. debt hitting all-time lows this week, the government is once again considering whether to start borrowing for even longer.

    The U.S. Treasury Department said Friday that it wants to know what investors think about the government potentially issuing 50-year or 100-year bonds, going way beyond the current three-decade maximum.

    1. How about 100 year zero coupon bonds at 0 percent?

      Those under the age of 60 have a limited moral obligation toward all those debts, government and otherwise, run up by Generation Greed.

      Those under 45 have no such obligation.

      1. Spot on. I kind of think that the youngest among us should probably have more of a say than the oldest since they will feel the effect of policy decisions for the longest. It seems kind of odd to let those at the dinner table order everyone else’s dinner when they are going to leave in 15 minutes.

        1. Actually, they are just ordering takeout, and leaving the bill. You ain’t gettin any.

    1. I spent a bit of time years ago in Poway. I cant wrap my head around the thought of someone who would pay that kind of money to live there. There’s nothing of significance there, or anywhere near there frankly (for reference I lived in Lake Hodges and worked in Rancho Bernardo at the time). Maybe thats what is likeable about it, not as many tourists and the associated traffic and incessant noise like you’d find at the coast. The houses themselves appear quite opulent which is in stark contrast to the landscape which is largely barren and devoid of character. A careless cigarette butt in a dry year and all that luxury is so much ash in the blink of an eye.

      1. I spoke with someone last week who recently moved to North Poway from the Del Mar/Carmel Valley area. Crowding and congestion along the I-5 corridor were the reasons given. Del Mar Heights is looking like UTC ten years ago. The Mid-Coast Trolley, not yet finished, makes UTC unrecognizable.

        I know Del Dios Hwy well! 🙂

      2. noticed the same thing happened on the hwy 65 corridor from Roseville to Wheatland the past 10-20 years:

        used to be a barren, rock strewn wasteland. came back to the area after traveling to see thousands of new houses.

        WTF moment? who the hell would want to live out here!?

        apparently . . . a lot of people.

        quite a change as the main feature of Sacramento area & burbs was it’s boring reputation.

        1. “WTF moment? who the hell would want to live out here!?”

          Keep driving until you can afford the mortgage.

  10. The Financial Times
    The Big Read Global Economy
    Markets yield to fears of a global downturn
    The original fear gauge suggests that a recession may be looming but is it correct?
    Robin Wigglesworth in Oslo 10 hours ago

    The nearest thing the global economy has to a doomsday clock ticked a little closer to midnight this week, triggering fear across financial markets. On Wednesday, the US yield curve — the slope formed by the interest rate paid by Treasury bonds of various maturities — turned upside down for the first time since the summer of 2007, with the US government now paying less to borrow for 10 years than two years.

    Although seemingly obscure, the yield curve enjoys a cult following among investors as the leading market forecaster of recessions. Normally, countries should pay less to borrow money for shorter time periods. When this relationship flips it has historically been an omen of economic downturns — presaging every US recession since the second world war.

    This week’s inversion rattled global stock markets even though the move was widely forecast, extending the FTSE All-World index’s decline in August to over 4 per cent as investors fret that the countdown to the next recession may now have begun.

    “The yield curve is one of the best signals out there,” says Robert Michele, chief investment officer at JPMorgan Asset Management. “Its accuracy is eerie.”

      1. “A few more 4 percent monthly declines could add up quickly.”

        Yes and I few 4 percent monthly increases will get you far above record highs. The article below is a great read just for the China story. You can see how close Trump really is of causing an economic collapse of China. Of course to the globalists who are invested in China that is a horrible thought. Thus, the pressure to get Trump to stop the trade war asserted both through the MSM and the Fed. However, what is really interesting is looking at the financial situation of companies by country. US countries are in great shape. Germany and China considered by many as our economic rivals, have companies which would take forever to pay off their debts based on their cash flows. It is no wonder that weak data in Germany and China made investors so worried. However, over the longer term that is even more likely to attract capital to the US:

        https://seekingalpha.com/article/4265826-china-crushed-debt

        1. Is $17 trillion alot?

          Markets
          Ways to Profit From $17 Trillion of Negative-Yielding Debt
          By Stephen Spratt
          August 15, 2019, 3:00 AM PDT
          Updated on August 15, 2019, 11:41 PM PDT
          – Carry-and-roll can generate 3.5 basis-point margin in Spain
          – Currency hedging offers positive returns for dollar investors

          Investors fleeing risk have boosted the global mountain of negative-yielding bonds to almost $17 trillion. Putting money into assets guaranteed to return less than their face value seems like a fool’s errand — but there are ways they can be traded for a profit.

          1. No. What I am saying is that the globalists are in meltdown mold because they see two possible outcomes of the trade war if they cannot force Trump to change course and they are both bad for globalism but both good for everyday Americans. First, Xi continues to be stubborn and takes his country over the cliff instead of cutting a deal with Trump. The world’s economy goes into recession and growth in the US is at least slowed but maybe we go into recession. But the threat from China is greatly diminished and US manufacturing has a chance to recover due to tariffs on China. Second scenario, Trump gets a great trade deal out of China, his reelection is ensured and globalists have to tolerate an anti-globalist in the White House for four more years and US manufacturing recovers.

          2. I don’t always agree with AbqDan, but on this point I do agree very much. China stands to lose a lot more than the US the trade war for the simple fact that exports make up such a large percentage of their economy. US is better positioned because so much of our economic activity is with ourselves.

          3. ABDan, I agree with your two scenarios as being likely resolutions the current trade tensions. Any thoughts on which is most likely?

          4. The US-China “trade war” seems analogous to “Project Fear” and Brexit — globalist fear-mongering to delay or derail unilateral economic divorce.

  11. I disagree with every conclusion they make but I think the graph is very informative. It shows why the last recession was so hard on the working people of the US. Even while, Americans were being thrown out of jobs, immigrants both illegal and legal were increasing their numbers in the workforce. Cheap labor for the globalists, while Americans were being forced on unemployment and food stamps and the national debt grew. Forcing housing prices down is difficult when the population is increasing. I do not think the housing bubble is as uniformly across the country this time. It is concentrated where immigrants move and where foreigners will send capital to buy homes both overlap almost completely:
    https://finance.yahoo.com/news/why-trump-efforts-to-keep-immigrants-out-hurts-us-economy-141438311.html

  12. Now that we are about a decade out from the advent of quantitative easing in the U.S., the jury is still out on whether it “worked.”

    I note a few points on this topic:

    1) The policy was never fully unwound in the U.S. or the Eurozone, leaving behind massive central bank balance sheet debt and epically low interest rates and related risk premiums on financial assets.
    Very low interest income on traditional safe haven assets such as CDs and Treasurys is a result, harming retirees who would prefer to not have to gamble on stocks or other risky investments.

    2) With a recession either approaching or underway in many parts of the developed world, the traditional means of combatting it through reducing interest rates are unavailable where rates are already near or below zero. The alternative appears to be a resumption of quantitative easing, with a predicted outcome of still more negative yields than have already been realized. (This explains why hedge funds have been profitably gobbling up negative yielding sovereign bonds as of late.

    3) Some commentators are beginning to suspect a link between the post-2009 resumption of runaway housing price inflation and quantitative easing that was concentrated on the housing market.

    4) It is unclear whether the market mechanism that underlies traditional bank lending is economically viable when interest rates are ultra-low or negative. The prices of Eurozone banking stocks may offer some hints.

    1. To point 1):

      Bloomberg Businessweek
      QE May Be Over, But the Fed’s U.S. Debt Hoard Is About to Soar
      By Liz McCormick
      and Alex Harris
      May 21, 2019, 2:00 AM PDT
      Updated on May 21, 2019, 2:00 PM PDT
      – Balance sheet seen soaring past crisis-era levels in a decade
      – ‘It will feel like QE’ for anyone who’s been in debt markets

      If you thought the Federal Reserve was done with quantitative easing, you might only be half right.

      As soon as next year, analysts say the Fed will resume large-scale buying of debt securities — this time just U.S. Treasuries — in amounts that may ultimately exceed its crisis-era purchases. According to an estimate by Wells Fargo & Co., the central bank’s balance sheet will rise past its historic peak as it adds over $2 trillion to its Treasury debt holdings in the next decade.

    2. On point 2):

      The Financial Times
      Negative interest rates
      How hedge funds are thriving in a world of negative-yielding debt
      The unnerving world of sub-zero rates still offers managers ways to eke out gains
      © FT montage; Sir John Tenniel/CC
      Laurence Fletcher in London August 14, 2019

      The growing pool of negative-yielding debt makes this a hostile environment for most bond investors. Yet some hedge funds have still managed to find ways to turn a profit from the advent of sub-zero rates.

      Concerns over weak global growth and drooping inflation have pushed around $15tn of bonds to trade with negative yields — meaning a buyer is sure to lose money if they hold the bonds to maturity.

      Some money managers trading these bonds have nevertheless chalked up big gains for the year. One of the most obvious strategies has involved simply riding the big rally. Yields fall as prices rise; managers who clung on to their holdings as yields tumbled below zero have reaped juicy profits.

    3. More on 2):

      Business News
      August 14, 2019 / 8:03 AM / 3 days ago
      U.S. yield curve inversion highlights recession fears, Fed dilemma
      Karen Brettell

      NEW YORK (Reuters) – When the U.S. Federal Reserve cut interest rates last month for the first time in more than a decade, it signaled that further reductions in borrowing costs might not be needed. Bond markets vehemently disagree.

      Sliding bond yields and the inversion of a key part of the U.S. yield curve on Wednesday for the first time in 12 years show that bond investors have a far gloomier outlook for the U.S. and global economies than the U.S. central bank.

      The rates market rarely lies and globally it looks like it’s expecting a day of reckoning,” said Tom di Galoma, a managing director at Seaport Global Holdings in New York.

      Fears are also rising the Fed may not only be behind the curve in cutting rates, but that central banks may be running out of ammunition to stimulate growth as countries offset each other’s attempts to boost growth with looser fiscal policy.

    4. And to point 4):

      Business News
      August 15, 2019 / 4:51 AM / 2 days ago
      Euro zone bank share meltdown brings prices to brink of 1980s
      Thyagaraju Adinarayan

      LONDON (Reuters) – Negative interest rates, toppling bond yields, greater regulation and rising recession signals have wiped out most of the value of European banks, with their shares now at meltdown prices approaching the days of the Berlin Wall.

      The index of the bloc’s big banks plunged on Thursday to the level it hit in 2012 at the peak of the euro zone debt crisis.

      That means the banks are worth now what they were when Greece, Ireland and Portugal needed bailouts, Cyprus ordered its banks to seize some deposits and Spain’s banks were saved from collapse only by a government rescue.

      Though it still hasn’t quite matched the bottom of the 2008 financial crisis, the index has lost 84% of its value since its peak in 2007.

      It is now a few points away from hitting levels seen in the 1980s, when the euro was barely a dream and some of the countries that now use it were still using Soviet roubles.

      The wider banking sector for the bloc is now worth less than half a trillion dollars — about half the size of Microsoft. It was down nearly 3% on Wednesday after Germany’s economy shrank and the U.S. bond market showed red flags pointing to recession.

    5. “I don’t always agree with AbqDan, but on this point I do agree very much.”

      I think in ten years you will agree with my positions more. Twenty years ago, I was listed by a publication as one of the leading legal experts on solar energy. I think it was an exaggeration but I was pleased. I am disgusted how the green movement has been coopted by the globalists to justify globalism and countries such as China were allowed to damage the world’s environment without any repercussions while false issues such as CAGW received all the attention. That said, eventually we do need to replace fossil fuels and we need to continue to fund basic research to do just that. However, I will not support movements which ignore problems with present alternative energy sources such as bird and bat kills, toxic metals, and disposal issues when we weigh the pros and cons of energy sources. Europe and diesel engines is an example of green becoming religion and not science where pro and cons are weighed. Cutting Co2 emissions was more important than examining what was really being put into the air people breathed. The overemphasis on co2 emissions is only to force people to accept world government. We can and do reduce real pollution in this country but global co2 emissions can be used to justify global taxation and government.

      1. I think in ten years you will agree with my positions more.

        Let’s check back in 10 years. I am pro-renewables (wind, solar, hydro) and support a complete phase out of carbon energy sources.

        The two leaders for SLC mayor race have made air quality the crux of their message and they dominated the primaries. Because everyone in this valley knows how bad the air has gotten and there are serious studies by the University of Utah and BYU that are linking the tailpipe emissions from vehicles trapped along the Wasatch Front to asthma, low birth weigh, allergies, strokes, heart attacks, autism, stillborn children, etc. It’s disgusting to see the results of tailpipe emissions. I drove in last night and I couldn’t even see the mountains.

        The only way this problem gets solved is by fully transitioning away from gas/diesel vehicles. Utahans are beginning to understand that:

        https://www.sltrib.com/news/politics/2019/08/04/salt-lake-city-voters-say/

        1. You guys and LA have bigger tailpipe emissions problems than most other places, due to your proximity to mountain ranges that trap air pollution and keep it locked over heavily populated areas. And the large number of oil refineries at the base of the Wasatch Front north of SLC can’t help the breathability of the air one bit.

          1. This is true. The mountains and the temperature change create the dreaded “inversion” which makes tailpipe emission and other pollution (a good chunk of emissions comes from buildings themselves) much worse than it might otherwise be in the absence of our geography. But tailpipe emissions is a problem for any large city with sufficiently large number of high-polluting vehicles (exhibit A: any large city in China). This is also why many German cities are banning older diesel cars, which is causing a bit of an uproar because of VW’s heavy ties to the economy. This is also why VW is not going fastest towards EVs of all the traditional auto manufacturers.

          2. My inlaws just relocated from Bountiful to Farmington, so I have experienced the much dreaded inversions during holiday visits. It seems like Utah’s laissez faire political orientation doesn’t help much for citizens’ rights to defend themselves against environmental toxins spewed by polluting industries operating in close proximity to residential areas. Perhaps I am missing something, but with only a very limited part of the state’s land area along the Wasatch Front supporting the population of a few million, it seems like the refineries could be moved out into the middle of the desert where only a few fringe polygamists, lizards and snakes would face breathing challenges.

          3. My inlaws just relocated from Bountiful to Farmington, so I have experienced the much dreaded inversions during holiday visits.

            Farmington is gorgeous. It’s probably my new favorite city. We had a season pass to Lagoon and I have fallen in love with the area.

            As bad as the refineries are, it is a small percentage of the problem. Vehicles are by far the largest contributor:

            “Sources of PM2.5 are broken down into three categories: point sources, mobile sources, and area sources. Point sources (13 percent of a typical inversion) are large stationary industrial or commercial facilities. Mobile sources (48 percent of a typical inversion) are non-stationary sources such as vehicles, trains and aircraft. Area sources (39 percent of a typical inversion) are smaller stationary sources. These include emissions from home heating, smoke from wood burning, and emissions from small businesses like restaurants and dry cleaners.”

            https://deq.utah.gov/communication/news/featured/understanding-utahs-air-quality

  13. To point 3):

    The Financial Times
    Opinion Property sector
    The Fed has exacerbated America’s new housing bubble
    Loose monetary policy has buoyed assets but did not create meaningful supply
    Rana Foroohar
    March 17, 2019

    Hyman Minsky would have had a field day with last week’s US inflation numbers. One of the key points in the late, great economist’s Financial Instability Hypothesis was that there are two kinds of prices — prices for goods and services, and asset prices. Inflation in the two areas should, as a result, differ. And indeed they have, quite markedly. The latest Consumer Price Index figures show that almost all core inflation, which was weaker than expected, was in rent or the owner’s equivalent of rent (up 0.3 per cent). Core goods inflation, meanwhile, was down 0.2 per cent.

    Very simply, this means that the housing market is once again completely out of sync with the rest of the economy. A decade on from the subprime bubble, housing, which is not only shelter but also the biggest financial asset for most Americans, is the only major component of the CPI with a national inflation rate that is consistently above the overall number.

    Why is this? Because, just as Minsky would have predicted, loose monetary policy over the past several years buoyed assets, but didn’t create meaningful new supply or, consequently, enough demand in construction and other home-related areas. The point is illustrated in an academic paper, “What the Federal Reserve got totally wrong about inflation and interest rate policy” from the Mario Einaudi Center for International Studies at Cornell University. As its author Daniel Alpert says: “What we have now is a form of inflation that’s never been seen before — it’s all concentrated in housing.

    Over the past decade, the cost of shelter has risen sharply compared with everything else, the report notes. It hit a historic high of 81 per cent of core inflation in the summer of 2017 and remains “the lion’s share”.

    There have not been commensurate salary increases. Median household income adjusted for inflation remains hardly higher than it was at the turn of the century.

    1. The Fed has exacerbated America’s new housing bubble

      The Fed doesn’t “exacerbate” bubbles. It causes them.

    2. What the Federal Reserve got totally wrong about inflation and interest rate policy

      Thanks for the link to the Cornell study professor. I’ve bookmarked that one to listen to on my drive back to my home base.

    3. “What we have now is a form of inflation that’s never been seen before — it’s all concentrated in housing.”

      It’s “never been seen before” because it’s not inflation.

      Price fixing? Sure.

      Market rigging? For certain.

      Inflation? Not remotely close.

    4. It makes sense that prices for “stuff” should go down. People figure out how to make more stuff better and cheaper all the time. Case in point, flat screen TVs. Especially in this era of declining population growth (not to mention widening inequality eroding the buying power of the majority), we should not expect to see inflation in “stuff” prices. In this context, it is really unsurprising that all the lose money policy manifested itself directly in housing prices.

      1. 9:12 am
        “It makes sense that prices for “stuff” should go down.”

        Prior to the federal reserve there were decades when prices actually dropped for just about everything.

  14. Boots on the ground in Philly.

    My wife and I have recently moved to a trendy neighborhood. We chose it because rent is good and the commutes are excellent. Purchase prices, however, are sky high. I’ve been hanging out in coffee shops for the free internet while waiting for our stuff to arrive. On consecutive days I have overheard the local HODLERs telling others with glee that “my neighbor just listed for $600k.” One was a pastor telling his sheep that god wants him to buy. The other was typical yuppy gloating. The audience was eating it up with serious FOMO.

    Seems Philly is at peak mania.

  15. Business Insider, run by Henry Blodgett – the disgraced tout who along with Mary Meeker was the poster child for bought-and-paid-for “analysts” putting “strong buy” recommendations on tech stocks they knew were garbage – now assures us that growing fears about a housing bubble are baseless, and that all is well.

    So there you have it, Ben – might as well shut down the HBB, since all this housing related doom and gloom is overblown and we can all party on.

    https://www.businessinsider.com/us-housing-market-mortgage-rate-troubles-overblown-opinon-2019-8

  16. If you look at these numbers you see that just about the only way you get a serious recession in this country is much higher interest rates not the way we are going with or without Fed assistance. Of course, the low rates encourage taking on more debt so someday when interest rates rise sharply there will be a problem but it just does not look likely in the next twelve to eighteen months, after that it is anybody’s guess.
    https://www.fxstreet.com/analysis/should-we-worry-about-american-debt-part-ii-201906201255

  17. If U.S. interest rates are too low for a recession to happen, then it seems curious that Germany somehow finds itself in a recession, with the entire bond yield curve deeply underwater below the zero bound. Perhaps it’s different in Germany?

    1. Merkel meltdown as Germany’s ‘deep’ recession to plummet EU into ‘existential’ crisis
      GERMANY could force the European Union to face “existential risks” after latest reports showed the economy of the eurozone giant contract in the second quarter of the year.
      By Aurora Bosotti
      06:46, Fri, Aug 16, 2019 | UPDATED: 06:51, Fri, Aug 16, 2019

      Germany’s economy shrank by 0.1 percent in the second quarter sending markets into a frenzy over fears of a recession due to lower exports. Berlin lamented the impact the ongoing trade war between the US and China has been having on the country’s outbound trade, with manufacturing slipping into reverse amid slowing global growth. But FX strategy expert John Hardy told Bloomberg Germany could force the European Union to grapple with “existential risks” as recession for the eurozone giant looms: “It’s not necessarily a deep recession if you look at the broader economy but certainly the manufacturing sector, the export sector.

      “Germany is already in a deep recession there. It’s going to go back to spreading recession risks across the EU and all of the EU existential risks that we’ve classically revisited since the EU sovereign debt crisis.

      “That was never really solved, it was just papered over by ECB’s Mario Draghi’s impressive programme of money printing.”

    2. The new commonplace
      Six charts that explain the state of markets
      Making sense of investors’ mood
      Aug 17th 2019

      IN THE AUTUMN of 2008, strange and novel things happened in financial markets, such as the emergence of negative yields on Treasury bills. In times of fear, the safest assets are at a premium.

      What was once strange is now ordinary. Negative yields are a familiar feature of European bond markets. But such is the anxiety about the world economy that they are spreading. In Germany, interest rates are negative all the way from cash to 30-year bonds (chart 1). In America yields are still positive. But the curve is inverted: interest rates on ten-year bonds are below those on three-month bills (chart 2). The last seven recessions in America have been preceded by an inverted yield curve.

      1. “Nervous investors are reaching for the safety of the dollar.”

        American taxpayer’s sphincters still have some elasticity that hasn’t been tapped-out yet.

  18. “If U.S. interest rates are too low for a recession to happen, then it seems curious that Germany somehow finds itself in a recession, with the entire bond yield curve deeply underwater below the zero bound. Perhaps it’s different in Germany?”

    Yes, it is different. Germany does not have a shale oil and gas boom. It does not have low electricity rates, its people pay three times the price for electricity as the US. It does not have chemical plants going up to take advantage of cheap NG. It has housing prices averaging nine times income as a national average and it has very weak, undercapitalized banks. Yes, Germany is very different. Interest rates are low enough in the US to service our debt and we are presently growing about 2% per year. Germany is already in negative growth. The final point relates to China. For years, China sold high end goods to China including machinery. China paid for it with money it earned by selling junk to the US. Germany is collateral damage in the trade war. As far as your earlier question for which there was no link to respond, I honestly do not know if China will give Trump a trade deal before the election or will go over the cliff. I do not think at this point even Xi knows. He does know he should not have listened to former Obama officials who told him that Trump would not impose tariffs. However, he now has the problem that being president for life is not as secure as some people on this board think, when you are surrounded by people who have no problem taking life.

    Americans can service their debts

    1. “He does know he should not have listened to former Obama officials who told him that Trump would not impose tariffs.”

      Is Xi really that stoopid? He appears sagacious in all of his photo shoots.

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