Why did Americans (and Spaniards and Irish) borrow so much against housing in the 2000s, only to find themselves stuck with more debt than assets? It sounds like a simple question, but it’s surprisingly difficult for economists to agree on an answer.
The standard approach is to attribute the excesses to changes in the behaviour of lenders, who, for whatever reason, became much more eager to give mortgages to people they previously would have avoided with terms they previously would have considered reckless. (For more on the European cases, see here.)
For example, about a third of all mortgage debt originated in 2005 and 2006 was either subprime or “alt-A”, according to data from Inside Mortgage Finance, compared to the stable 1990-2003 average of about 10 per cent. Subsequent experience tarnished these product segments so badly they effectively disappeared. Read more
You know where price discovery is less obvious than in the stock market?
Anyway… As Patrick McGee says, China property is once again becoming the asset of choice in China.
It’s not super evenly spread but that’s always been an issue and the point is well taken…
A few charts from the latest English Housing Survey, out on Wednesday…
Canada’s housing market could be as much 30 per cent overvalued; the share of new mortgages that are subprime is rising rapidly; and Canadian household are already among the most indebted in the rich world. Other than that, what else is there to worry about?
Quite a bit, according to the Bank of Canada’s latest “Financial System Review,” which was published on Wednesday: market illiquidity, foreign capital flight, hazards involving synthetic ETFs, and cybersecurity breaches are all discussed. For now, however, we want to focus on the vulnerabilities of Canadian households to the frothiness of the housing market in the Great White North. Read more
When city-dwellers moan about their high cost of living, they often elicit the unsympathetic retort that they should shut up and praise the ghost of Jane Jacobs for the cultural vibrancy of their neighborhoods, the lucrative jobs, and the artisanal pizza.
Living in a great city is a consumption good, you whinging ninnies — you SHOULD have to pay for it! Why do you think you’re entitled to live wherever you want?
The European Central Bank’s latest quarterly bank lending survey shows that lending standards are getting looser and that demand for credit is rising. Lorcan Roche Kelly of Agenda Research summarised the main findings with this handy chart:
Negative numbers for the orange-ish lines mean that lending standards have loosened (slightly), meaning credit is easier to get. Positive numbers for the green and blue lines mean that demand for loans is increasing. Overall the supply of loans is still shrinking, but not as fast as it was in recent years and loan growth could even return by the end of 2015 if current trends hold up. That said, we can’t help but note the large difference visible in the chart between loans to households (orange and beige) and loans to businesses (red). Read more
The vast majority of US mortgages made since the crisis have been guaranteed and securitised by government agencies, while many of the resulting bonds have been purchased by the Federal Reserve and will probably be held to maturity. For better or worse, the US residential lending market has effectively been socialised.
That’s the context for an important piece in today’ FT from former Alphavillain Tracy Alloway on the US government’s attempts to revivify private-label mortgage securitisation. Apparently the Treasury department is unhappy with the current situation:
Authorities are having to walk a fine line between encouraging private capital back into the mortgage market while ensuring availability of credit to less-than-pristine borrowers and simultaneously avoiding a repeat of the subprime bubble that brought the financial system to its knees in 2008…Sales of private-label MBS total just $4.5bn so far this year, compared with $17bn sold last year. Some $726bn worth of private-label MBS was sold in 2007, at the height of the subprime mortgage bubble.
Oh look, China’s property market has worsened again:
From Tomas Hirst, editorial director of Pieria, commissioning editor at the World Economic Forum and sometime playwright…
Commentators have been huffing and puffing themselves breathless with warnings of an imminent market correction in Britain’s property market. Even the European Commission has got in on the act warning policymakers of the risk of “excessive house price rises and increases in mortgage indebtedness”.
What there is no disagreement over is that prices have been rising strongly. According to the Nationwide House Price Index the average UK house price sold for a record £186,512 in May pushing annual pace of price growth up to 11.1 per cent:
When Morgan Stanley’s Huw Van Steenis and his colleague Charles Goodhart ventured into these pink pixels last September, arguing that Britain needed a housebuilding and house-buying support scheme if the economy was going to achieve ‘escape velocity,’ the analytical duo probably didn’t count on getting dragged through the august columns of the FT editorial page.
But that’s what happened… Read more
The latest RICS survey shows that house prices are continuing to boom in the UK.
This is despite the fact that the net balance of surveyors reporting house price gains edged down from 58 per cent in November 2013, which was the highest since 2002, to 56 per cent in December. As Citi’s Michael Saunders notes the overall rate remains very high and consistent with house price gains of at least 10-15 per cent year-on-year, especially since the reading for house price expectations is the highest since 1999.
What’s more interesting, however, is that the boom is no longer as London/South-East centric as it has been. Read more
Paul Krugman had an insightful post this week on secular stagnation. It alluded to the fact that bubbles may increasingly be coming to our rescue by inadvertently propping up our economy in a way that usually boosts employment.
We might try to figure out why we seem to need leverage and bubbles to have full employment, and try to fix it. More thoughts on that on another day. But what if that isn’t an option?
As a coda to the regional problems with trying to create national, ‘prudential’ policies for UK house prices… here’s this chart, via the ONS on Tuesday: Read more
The Q2 results from Wells Fargo and JP Morgan have again raised the issue of declining mortgage refinancings (if rates stay elevated), along with spurring more general worries about the housing market.
Here’s the Wall Street Journal on Friday: Read more
SocGen’s bathed-bear Albert Edward has been forced by overwhelming rage to look past the rich vein of Abenomics to the UK’s George Osborne. It’s the Chancellor’s latest meddling with the housing market that has got Edwards so inflamed:
George Osborne in his March budget proposed an unusually misguided piece of government interference in the housing market.
Peek under the lid of the Dutch housing market. It’s awfully idiosyncratic in there. Also it’s doing rather badly and has been the subject of recent, significant tax reforms that will drastically change its shape in the coming decades.
Right into the deep end, with this chart released last week by Statistics Netherlands (CBS):
Courtesy of Goldman Sachs.
Mortgage markets come in many different flavours. Some American states, for example, like theirs to be non-recourse. In such locations, a homeowner can walk away from their mortgage, and send the house keys to the lender secure in the knowledge that the only asset that can be seized is the property.
Such tastes no doubt contribute to a higher proportion of non-performing loans, as mortgage-holders are quite aware of their right to walk away — an option that becomes increasingly more attractive in an economic and housing downturn.
And now it would appear that the Spanish might prefer their mortgage market to have a taste of the non-recourse mortgage in future, as a pressure group succeeded on Tuesday in getting the country’s parliament to debate an initiative for making the change. Read more
Since housing generally went bust in 2007-2009, the sector’s performance has been a mixed bag globally. This has given the economics team at Goldman Sachs a chance to use the verb “bifurcate”, which is quite frankly one of the most brilliant words in the English language Read more
“Immobilie porn”, suggests Google Translate but we’re open to correction.
Either way, this piece from the FT on Tuesday makes for good reading. It suggests there may be a bubble building in the German property market with Berlin in particular looking peaky, although that must be caveated with the relatively sedate nature of the market previously. Read more
We noted our growing love for one John Mann MP before and it looks like his proposals are gaining some traction. From earlier in August:
Mann is suggesting that incentivising measures should include a suspension of all town centre car park fees up to Christmas, a reduction of Vat on DIY product, a crash programme of building pensioner bungalows and a re-introduction of green technology incentives such as solar panels.
Last week we wrote about how US lending standards for mortgages have continued to tighten — in severe contrast to standards for other kinds of loans.
This was reinforced by the Fed’s senior loan officer survey for July, but we didn’t take a very close look at other parts that also shed some light on what’s happening with banks and the housing market. Read more
We promised you the second part of Hinde Capital’s “Britain is doomed” analysis…
… so here are some choice extracts from the report (which is now up in its entirety on their website): Read more
Total comprehensive income of $3.1bn (net income $2.7bn) vs dividend payments to Treasury of $2.8bn in 2012′s first quarter. Meaning – Fannie Mae hasn’t had to draw from the Treasury to pay back the Treasury for the first time… in a while.
The Spanish government may be bailing out Bankia by injecting cash in return for contingent convertibles to the tune of some €7-10bn, but many analysts have reacted with something along the lines of: “Haha! That’s cute! They are like ever so slightly less delusional about the trouble their banking sector is in! Adorable!”
Bankia is no canary in a coalmine. It’s more like the first sign that the inevitable support of the banking sector is finally materialising. Indeed, prime minister Mariano Rajoy was quoted saying: ”If it was necessary to reactivate credit, to save the Spanish financial system, I wouldn’t rule out injecting public funds, like all European countries have done,” in an interview with radio station Onda Cero, as reported by the WSJ. Finally playing catch up, are we? Read more
From the weird and wonderful head of Nicholas Colas, ConvergEx Group chief market strategist and bringer of alternative economic indicators galore.
This one’s focused on mobile home sales, a.k.a “manufactured” housing. Read more
Almost three times as many skyscrapers and high-rises are being built in Toronto than in New York, reviving fears that Canadian property prices are unsustainable, reports Bloomberg. Investors have rushed into Canadian housing in response to record low interest rates. Toronto’s condominium market has grown rapidly, with over a hundred housing units either under construction or in the planning stages. The “condo surge” of supply alone could drive down prices in the next few months even if interest rates remain low well into 2013, Bank of America analysts have warned.
With so much pessimism heading into 2012, we thought it would be prudent to discuss the possibility of positive surprises.
That’s the festive spirit of the economists at Bank of America Merrill Lynch, writing in a report released on Tuesday. Read more
US equities could be in line for a secular bull market as soon as next year, but European stocks should be handled with care.
That is a synopsis of the latest thinking from Citi. For more details read on: Read more
A question we’ve been pondering lately is just why there’s been such a renewed, intense policy focus on the US housing and mortgage markets in particular.
Or rather what we’ve really been wondering is, why now and not sooner? Read more