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Our Thinking Is When’s The Next Crash?

A report from the San Francisco Chronicle in California. “Bay Area home prices slumped for a sixth straight month in August, according to CoreLogic. Prices year-over-year have now been flat or falling for six consecutive months. From last fall into early this year, inventory grew and price cuts started appearing. Four Bay Area counties posted year-over-year price drops in August, the largest being Santa Clara’s 8% decline.”

“Santa Clara and Sonoma counties have seen ‘the most dramatic cooling’ since the middle of last year, said Patrick Carlisle, chief market analyst with the Compass. Those had been the Bay Area’s two hottest markets before the market shifted in the spring of 2018.”

“By early 2018, prices in both counties had reached the breaking point. ‘It’s almost like people were saying, ‘I can’t do this anymore,’ Carlisle said.”

“Jordan Levine, the California Association of Realtors deputy chief economist said the new $10,000 limit on the federal deduction for state and local taxes is weighing on home sales and prices in the Bay Area. The limit ‘has definitely made renting more attractive than it was a year ago,’ he said.”

The Mercury News. “Prospective home buyers abandoned the pricey Bay Area market in August, as home sales dipped to a nine-year, monthly low despite falling interest rates and more choices. Sales of existing and new homes fell 5.7 percent from the previous August and were off more than 20 percent from the month’s historic norms, according to CoreLogic. Residential real estate transactions have dropped for 13 straight months, compared to the previous year.”

“Median prices for existing homes dropped 8.1 percent in Santa Clara to $1.13 million and fell 4.2 percent in Alameda to $862,000. Santa Clara County prices have fallen in nine of the last 10 months. Long-running trends also show steep declines in both new and resale homes. Sales of existing homes have dropped 7.7 percent though the first eight months of the year, and new home sales have plummeted 21 percent.”

“Bay Area new home sales in January hit their lowest levels in at least two decades. Local agents said the market has cooled since a peak last spring, when the median sale price hit $928,000. Buyers have more options and have been more willing to wait for the right home, neighborhood and school district.”

“In recent months, shoppers have been willing to wait. Homes that drew 7 to 9 offers last year are fetching 2 or 3 bids this year, said San Mateo agent Jeff LaMont. ‘Buyers are being more cautious,’ he said.”

The Orange County Register. “Agents gathered at the California Association of Realtors conference in downtown Los Angeles weren’t surprised by news the local housing market cooled in August, saying many potential clients are holding back because they don’t want to buy at the peak of the market.”

“For example, Frank Hernandez of Century 21 Realty Masters in Montebello, said many would-be homebuyers are wary that the current economic cycle has gone on so long. ‘Aren’t we at the point where the market changes? It’s gone past the seven- to 10-year point. So our thinking is when’s the next crash?’ Hernandez said. ‘Everyone’s waiting for the drop.'”

“At the same time, Hernandez said, some home sellers still are holding out for higher prices. Displaying listings from Downey on his iPhone 6 Plus, Hernandez pointed out the wide disparity in prices for a half-dozen three-bedroom, two-bathroom homes, with asking prices ranging from $639,000 to $850,000.”

“‘What they’re hoping they sell for doesn’t mean it’s the true price of the homes,’ Hernandez said. ‘Some of our sellers are going, we all want top dollar for our home. They’re not being realistic, I would say. They expect prices to drop, (but) they want to see if the buyers will bite.'”

“Mission Viejo agent Danube Mazeika, part of the Mazeika team with her husband and son, said many potential first-time homebuyers are staying in their parents’ homes either because they’re waiting for prices to drop, they can’t save for a down payment because they’re paying off student loans or because they don’t understand the benefits of homeownership.”

“Mazeika and her son, Conrad, said they worked with several clients who are taking over the loan for their parents’ home and sharing the house with the older generation. Other millennials are skeptical about homebuying because they saw what happened to their parents during the housing crash of 2008. ‘They keep asking, when are home prices going to go down,’ Mazeika said.”

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  3. ‘new home sales have plummeted 21 percent…Bay Area new home sales in January hit their lowest levels in at least two decades’

    Oh dear…

    2. Redfin lists 2,000 homes for sale in DC city limits. Last spring it was 1,300. That’s like a 55% increase in listings. Probly not a good sign.

  4. “Homes that drew 7 to 9 offers last year are fetching 2 or 3 bids this year”

    Day trading houses in a falling market sounds rather painful.

    1. https://www.youtube.com/watch?v=y3KEhWTnWvE
      Mary Hopkin – Those Were The Days – 1968
      25,684,470 views | May 15, 2013

      “Those were the days my friend
      We thought they’d never end
      We’d sing and dance forever and a day
      We’d live the life we choose
      We’d fight and never lose
      For we were young and sure to have our way.
      La la la la…”

      https://www.youtube.com/watch?v=iR6oYX1D-0w
      Aloe Blacc – I Need A Dollar (Official Video)
      34,168,571 views | Apr 4, 2010

      “I need a dollar, dollar a dollar is what I need
      hey hey
      Well I need a dollar, dollar a dollar is what I need
      hey hey
      And I said I need dollar dollar, a dollar is what I need

      And if I share with you my story would you share your dollar with me
      Bad times are coming and I reap what I don’t sow
      hey hey
      Well let me tell you somthing all that glitters ain’t gold
      hey hey”

    2. Get a Job
      The Silhouettes
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  5. – On the “Repo Conundrum”… What’s up with that?

    https://www.bloomberg.com/opinion/articles/2019-09-26/repo-meltdown-shows-budget-deficit-has-limits

    Repo Meltdown Shows Budget Deficit Has Limits

    Ballooning Treasury auctions have placed a heavy burden on the financial system, forcing the Fed’s hand.

    By Brian Chappatta
    September 26, 2019, 5:00 AM MDT

    …the amount of U.S. Treasury securities outstanding has roughly tripled since the financial crisis…

    This growth was mostly under control in the years after the financial crisis because the Fed had been buying up large chunks of the Treasury market through its quantitative easing programs. But it was gradually reducing the size of its balance sheet from late 2017 until July, precisely at the same time that the Treasury Department was increasing the size of its monthly auctions to finance the bigger budget shortfalls.

    Primary dealers, a select subset of banks that are obligated to bid at Treasury auctions, were saddled earlier this year with the most Treasuries ever — an outright position of almost $300 billion. Even now, their holdings are more than double what they were a year ago as they’re required to take down larger pieces of the U.S. government’s debt sales.

    There are simply too many bonds (or, in the language of the repo market, “collateral”) sloshing around in the financial system and not enough cash on the other side of the trade. America’s budget deficits are being financed domestically and leading to a relentless drain on reserves:

    Boiling down the New York Fed’s repo operations to their most basic level, the central bank is effectively coming into the market every morning, taking excess securities from dealers and giving them cash instead. This is a quick fix to offset the liquidity imbalance, but it’s not a permanent solution. Fed Chair Jerome Powell said last week that it’s “certainly possible that we’ll need to resume the organic growth of the balance sheet earlier than we thought,” and indeed it seems likelier by the day that policy makers will announce such a move by their next interest-rate decision on Oct. 30.

    The financial system, as it is today, is choking on Treasuries. And only the Fed can perform the Heimlich.

    – OnU.S. budget deficits and debt:
    “Trees don’t grow to the sky.” – German Proverb

    – But, but, but… MMT!, MMT!, MMT! Deficits don’t matter! Oh, wait…

    2. Doesn’t “too many bonds” translate into “lower bond prices” or “higher bond yields”? I seem to be missing a piece of the puzzle here.

    3. There is nothing modern about MMT, it was tried during the revolutionary war and created the expression not worth a continental.

    4. BTW,
      Most here on this blog know this already, but worth recapping.
      – Where’s the Fed getting $ to save repo market? It’s once again expanding it’s balance sheet. This was never normalized. Now growing again, without any announcement whatsoever. The Fed is buying Treasuries now essentially directly (semantics). This is known as monetizing the debt. Banana republic stuff. Just so everyone knows the road we’re on. Think Weimar Germany, Zimbabwe. Not different. Only the name of the country.

      2. “Think Weimar Germany, Zimbabwe. Not different. “

        Very grey data released on what’s actually happening. Some say they are printing new money and others say it’s the same money going back and forth. I hope it’s not the later.

        1. Fed speak = Orwellian ‘newspeak’. Think “Quantitative Easing (QE)”. QE = Debt Monetization. There! Fixed it!

  7. When you stop voting for socialism.

    “They keep asking, when are home prices going to go down,’ Mazeika said.”

    None of this would be possible without:

    Bank bailouts after bank bailouts
    ZIRP
    QE to infinity
    TARP
    Operation Twist
    Adding more to the deficit than all previous administration combined
    Destruction of 100 years of contract law with the GM bailout
    Not one banker in jail
    Nationalization of the mortgage market
    Mel Watt
    Etc.

    1. Think of how twisted a government is when they are intentionally trying to make shelter as expensive as possible for their citizens.

      1. Think of how twisted a citizenry is that thinks debt-driven price rises for expensive-as-possible shelter translates to extraordinary increases of wealth.

        1. The “wealth effect”… What won’t these goobers believe? It’s not hard to fool a bunch of zombies staring at reality TV and sportsball.

    2. I don’t think many of those things are associated with socialism or… whatever the opposite of socialism is. It seems to me that the fed isn’t left or right, it’s just completely dominated by and beholden to the financial sector.

      I do agree though that government intervention in the housing sector is left-wing, and it is without a doubt a bad thing.

  8. Think how even more twisted government is by taxing those shelters more and more so that “public servants” can retire on $200,000 OT spiked work on 20 years COLA pensions with free medical for life.

  9. Why ask such a stupid question in the first place?

    Why Buy 1 House In California When You Can Get 6 In Texas?

    “Texas is a state that’s booming in terms of population and business. Increasingly, more and more Americans are migrating to the Lone Star State, lured by jobs and affordable housing. According to Zillow, the median price for a single-family home in Texas is $277,062 — half of what the same home would cost in California.”

    https://www.forbes.com/sites/andrewdepietro/2018/10/24/price-california-home-versus-us/#b2ad887d6a01

    1. Why Buy 1 House In California When You Can Get 6 In Texas?

      MGSpiffy could easily answer that question.

      1. Well, to start with… why the hell would you want to buy one house in California???

        I’ve mentioned a few times that despite offers from companies in California, there’s no way I would relocate there.

        According to Zillow, the median price for a single-family home in Texas is $277,062

        All I can say is that god damn Texas has gotten a lot more expensive too. Median price there was half that 10-15 years ago, and wages haven’t doubled.

        The biggest downside to me about Texas is the weather. If you believe that we’re going to get even hotter in the years ahead, it spells even more reliance on consuming a lot of energy (for AC mostly) just to live. The flip side of the heat is the storms. Weather there had a tendency to be violent, especially compared to the midwest or here in the PNW. It seemed like we were replacing our roofs once or twice a decade in DFW due to hail storms.

        I could go on, but.. why bother. (Spiffy is pretty mentally exhausted lately)

        1. “The biggest downside to me about Texas is the weather.”

          Any of the states with Gulf of Mexico coastline have that issue as the warm water adds lots of energy into the atmosphere, and when it collides with cold air from Canada that moves freely southward through the mid-west violent storm cells ensue.

      1. In 2008 I sold my house in Texas. 4500 Sq Ft, 3 1/2 car garage. 14 rooms, 5 separate HVAC systems. Lots of custom touches (originally lived in by the builder of the subdivision). 1400 sq ft of deck with spiral staircase connecting the levels. 40K gallon pool. 2/3 acre one row back from the lake. 27 trees on the lot including a couple huge oaks (I think, it’s been a while). Infinite number of geckos.

        Sold for $245K at a loss (purchase was $299k). A few years later it was in foreclosure. I think someone picked it up in 2012 or 2013 for $195k.

        Learned my lesson.

  11. In a bar watching the iggles. More gloating about gains. Some chick has lived here 15 years and she CANT BELIEVE the prices now. The old divorcee that just bought DID happen to get into a bit of a bidding war.

    Die die die.

    1. Bonus coverage: the long time owner chick is in this bar cause her new dog walker locked the dead bolt. Which apparently they never do/they dont have the key to that. Her job is apparently publicizing esports. She told her husband one of the “athletes” is french and asked how to say “I speak a little french.” Of course, this clearly means ahe speaks no french.

      I cant. Wait. For this bubble to end.

      1. “She told her husband one of the “athletes” is french and asked how to say “I speak a little french.”

        Voulez vous coucher avec moi ce soir

          1. It is real. You do have to wonder how much of it is a 2nd or 3rd order effect from the Yellenbucks. Like all the really fast cars out there now. A lot of current jobs and toys wouldn’t exist in an economy based on productivity.

    1. I work in tech and I think the IPO unicorn bubble is popping. I still believe the Tech Bubble 2.0 will pop in early 2021 (what a surprise, right after the election!). I have no proof or evidence to back this up. Just observation. Tech companies that are making profits are still hiring but the rate has slowed significantly. However, those IPO companies that are losing billions each quarter, not doing so well. I think only a handful will survive but I can see more layoffs as Unicorn companies will cut the fat. I can’t believe Uber has 24,000 full time workers. This is not counting the “contractor” drivers. WeWork has 12,500! How many people to maintanence an App LOL????

  13. “…many potential first-time homebuyers are staying in their parents’ homes either because they’re waiting for prices to drop, they can’t save for a down payment because they’re paying off student loans or because they don’t understand the benefits of homeownership.”

    So if you aren’t buying you’re either a loser that lives at home, a pauper, or too stupid to understand. Great stuff.

    1. Our Society has failed in regards to younger people, and in general to the majority working class.

      Something as basic as housing is a get rich scheme.
      The Government would like you to think that it’s racism and need for bigger Government that’s the problem, and bribes of hand outs will solve the fact that the politicans sold us out years ago. I think they all need to be kicked out, but not replaced by the nuts who think consuming beef is the problem.

      1. politicans sold us out years ago. I think they all need to be kicked out

        Traitors deserve the death penalty.

        1. Really, I look at a Nation like a big bee hive. All sectors of the bee hive have to function. When shelter prices tracked with wages it was a much better world. It’s all about balance of power so the bee hive can function and thrive. Now they got the bee hive turning on each other.

          1. Now they got the bee hive turning on each other.

            When the majority of bees are making more honey the system works. When they all stay in the hive flipping honey futures to each other the system falls apart.

          2. When the majority of bees are making more honey the system works. When they all stay in the hive flipping honey futures to each other the system falls apart.

            LOL!

      2. Bourgeois culture, any culture, can only stand if it is rewarded. In prior times bourgeois culture was fundamentally supported by the upper classes, who invested in America, creating vast wealth. They modeled sobriety, hard-work, risk and reward. The working classes modeled the behavior through church and labor unions, standing together for each other and nation.
        The wealthy have abandoned America, and the working classes have abandoned religion, unions, and each other. Into that void steps cultural anarchy.
        Bourgeois culture requires hard-work, and discipline. It requires accountability, primarily of the wealthy. I tire of articles that lament the loss of culture without holding those accountable who have abandoned their responsibilities.

  14. What is keeping negative bond yields from reaching the U.S.?
    The Fed is not expected to go negative, but global market forces will continue to drive U.S. yields lower
    Sep 25, 2019
    By Jeff Benjamin

    For the most part, U.S. fixed-income investors shouldn’t be too concerned about the negative bond yields seen overseas reaching domestic markets. But even if the U.S. bond market avoids the negative-yield trend, as is expected, financial advisers will need to up their game when navigating the new world of fixed-income investing.

    With more than $15 trillion worth of bonds in Europe and Japan generating unprecedented negative yields, fixed-income experts and market watchers are admittedly only able to estimate the ultimate impact on the global financial markets.

    “Negative yields leave a lot of us scratching our head, and it is certainly a much-discussed topic,” said Lyle Minton, chief investment officer at Keel Point.

    “I’m an old fixed-income trader in a prior life, and I’ve never seen an environment like this,” Mr. Minton said. “It’s totally uncharted territory.”

    The uncharted territory dates back five years to when Japan and parts of the eurozone dropped interest rates to negative territory to try and stimulate economic growth. It is an extreme example of lowering rates to encourage borrowing, spending and allocations to riskier assets.

    In Germany, for example, the 10-year bund, which is comparable to the U.S. 10-year Treasury, is yielding negative 60 basis points. That means investors are paying to own the security.
    …

    1. The Financial Times
      Opinion Global Insight
      Elizabeth Warren will be the winner from Trump impeachment
      Eruption of ‘Ukrainegate’ is only likely to deepen Joe Biden’s difficulties
      Edward Luce
      20 hours ago

      It was coincidence that Elizabeth Warren took the lead in the Democratic presidential race on the first day of the Donald Trump impeachment process. It was nevertheless a poetic one. Ms Warren is running against a “rigged system” that serves the wealthy elites. She warns that the global marriage of “authoritarianism and corrupt capitalism” is pushing America down the slippery slope to kleptocracy. The fact Mr Trump could be impeached for exactly what Ms Warren is running against is something of a windfall. It is pure bonus that Ms Warren’s chief rival, Joe Biden, is also caught in the cross fire.

      It may be too early to cement Ms Warren as the frontrunner. It is not too soon to say that Mr Biden’s campaign is faltering badly. This week, Quinnipiac showed Ms Warren two points ahead of Mr Biden nationally. In August, Mr Biden had a 13 percentage point lead. Moreover, polls show Ms Warren beating Mr Biden in the crucial early states of Iowa and New Hampshire. Ms Warren also beat Mr Biden on calling for Mr Trump’s impeachment earlier this week. Mr Biden only halfheartedly endorsed impeachment for the first time after the process had been launched on Tuesday.

      Events could quickly slip away from him.
      …

      1. Eruption of ‘Ukrainegate’ is only likely to deepen Joe Biden’s difficulties

        One can hope…go Warren.

    2. One would think so…but all that MMT will continue to go towards speculation, and backfire spectacularly in her face.

      Stocks and real estate to the moon if Warren is elected. Bitcoin will easily hit 50K

    3. She’s only as effective as the Congress she gets. IMO, the path to a democratic senate majority is slim to none.

  16. The Wall Street Democrats have already said they will not support her, vote harvesting is very expensive. Republicans get to the polls largely on their own. Without being able to out spend the opposition on ads 2to 3 to one and pay people to pick up mail in and absentee ballots the Democrats could be in trouble. Democrats lost over 60 House seats in 2010, Republicans lost just over 40 in 2018 but a high percentage of those occurred when the harvested votes were counted. No mun, no fun for the Democrats.

  18. Would you believe it if a researcher told you the findings that stocks always outperform bonds, in the long run, was all wrong?

      1. The stocks have gotten out of line. Despite record profits as a share of the economy, unsustainably high profits, the dividend yield is low, as all the money has been harvested by executive pay.

        But the executives have arranged things so that bondholders have almost as much risk as stockholders after they finish stripping the assets. Their control of the government, and bailouts, have exacerbated this.

      2. The crash of 2008-09 wiped out all stock market gains in excess of Treasury bills all the way back to 1995.

      3. Stocks performed well when the rest of the world was bombed flat from the 2nd Great War. It’s competitive now, and swindling is how it’s done, again.

  19. Any thoughts on how, why and when the era of negative yield bonds will end?

    Meanwhile, it must be a great time to be a government who needs a loan.

    fastFT Italian economy
    Italy sells €7.5bn in new debt at lowest borrowing cost on record
    Rome looks to seize on vigorous rally in bond market in recent weeks
    Tommy Stubbington in London 3 hours ago

    Italy sold €7.5bn of new debt at record-low borrowing costs as the country’s new government capitalised on a powerful bond rally in recent weeks.

    The sale of new five-year and 10-year bonds comes three weeks after the centre left Democratic party and the populist Five Star movement ended weeks of political uncertainty by agreeing to form a new coalition. Investors responded by piling into Italian debt, pushing yields to all-time lows.

    Rome locked in those lower funding costs on Friday, selling five-year debt at a yield of 0.26 per cent and 10-year debt at 0.88 per cent. Both auctions attracted solid demand from investors, who are navigating markets where more than two-thirds of eurozone government bonds trade at negative yields. The majority of those yielding more than zero are Italian.

    “In a world where interest rates are going to remain very low for a very long time, we would expect yields to fall further,” said Mark Dowding, chief investment officer at BlueBay Asset Management, which favours Italian debt in its portfolios.

    Mr Dowding said the recent decline in yields — which has gained added impetus from the recent resumption of bond-buying stimulus by the European Central Bank — has created a virtuous circle for Italian debt. As yields fall, Rome’s massive debt pile of more than 130 per cent of GDP looks more sustainable, drawing in further buyers.
    …

      1. Italy and Greece are two different beasts economically. Greece is 2nd world and a bit lawless, with government sponsored businesses likely bleeding red ink. Italy is much wealthier.

    1. Would you invest in housing if it were predicted to earn less home equity appreciation than carrying costs?

      California’s housing market probably will slow in 2020, Realtors say
      September 26, 2019 By Kathleen Howley
      Median home price probably will rise only 2.5% to $607,900

      Economic uncertainty and high prices are muting the housing market in the nation’s most populous state, according to the California Association of Realtors.

      The median home price in California likely will increase by 2.5% to $607,900 in 2020, slowing from a projected 4.1% annual gain in 2019, CAR said in a forecast Thursday. Sales of existing single-family homes probably will gain 0.8% in 2020 to reach 393,500, following a 3.1% drop this year from 2018’s level, the group said.
      …

    2. How does the CAR come up with its forecasts for rising prices when prices are currently cratering?

      Bay Area home-price slump continues
      Photo of Kathleen Pender
      Kathleen Pender Sep. 26, 2019 Updated: Sep. 26, 2019 11:25 p.m.
      Two newly constructed homes sit on a dirt lot in the fire-ravaged Coffey Park neighborhood of Santa Rosa in January. The number of new and existing Bay Area homes and condos sold last month fell 5.7% from last August, according to CoreLogic.

      Bay Area home prices slumped for a sixth straight month in August, according to a report issued Thursday by research firm CoreLogic.

      The median price paid for a new or existing Bay Area home or condo was $810,000 last month, down 0.7% from July and down 2.4% from August of last year. Prices year-over-year have now been flat or falling for six consecutive months. The last increase was in February.

      Although the Bay Area’s frantic housing market started cooling around June 2018, prices year-over-year continued rising at double-digit rates until September of last year, when the market downshifted amid a jump in interest rates and a stock market selloff. From last fall into early this year, inventory grew and price cuts started appearing, but the median price continued rising until March, when it fell for the first time in 83 months. The biggest dip this year was 4.1% in July.
      …

  22. other bubble signs
    carvana -buying a car in your pj’s
    pelaton – $40 a month to ride a bike
    etc

    constructing a portfolio for the next hard money times

    1. pelaton – $40 a month to ride a bike

      Did Rocky Balboa have one of these?

      I am a very fortunate guy. There is a beautiful sidewalk that goes by my house.

      1. I have a good road bike which I ride quite frequently and enjoy very much, but I do wish I enjoyed running instead. A pair of shoes every six months is much cheaper than all the tires, bike shorts, inner tubes, etc. Unfortunately, I just find running incredibly boring.

          2. “Before we get to the new stuff, let’s just make sure we’re on the same page with regard to the old “running will ruin your knees” thing. It won’t. Numerous studies have compared groups of runners and non-runners over the course of many decades, and found no evidence that runners are more likely to develop knee osteoarthritis or need knee replacements. In fact, in many studies runners seem to be less likely to develop knee problems, perhaps due to their lower weight, reduced systemic inflammation, and the ability of cartilage to adapt and get stronger in response to regular exercise.”

        2. A pair of shoes every six months is much cheaper than all the tires, bike shorts, inner tubes, etc.

          My shoe budget is actually quite high. I put in about 50-100 miles a week running, so I am going through a pair of shoes a month. So I reckon I spend about $1000 to $1200/year on running shoes. My secret is to buy the ugly colors of running shoe styles/brands I like on Amazon for super cheap. I also use Runner’s Warehouse because they have great deals.

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