Implode-Explode Heavy Industries news feed http://implode-explode.com/ Tracking the many faces of the global credit implosion. en-us iehi-feed-60516 Wed, 24 Aug 2016 18:33:03 GMT US Housing is "Comradely capitalism" (PROBLEMS STILL FESTERING; NOW NATIONALIZED) http://implode-explode.com/viewnews/2016-08-24_USHousingisComradelycapitalismPROBLEMSSTILLFESTERINGNOWNATIONALI.html The trouble is that, in America, the banks are only part of the picture. There is a huge, parallel structure that exists outside the banks and which creates almost as much credit as they do: the mortgage system. In stark contrast to the banks it is very badly capitalised (see chart 2). It is also barely profitable, largely nationalised and subject to administrative control.

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America's mortgage-finance system, with $11 trillion of debt, is probably the biggest concentration of financial risk to be found anywhere. It is still closely linked to the global financial system, with $1 trillion of mortgage debt owned abroad. It has not gone unreformed in the ten years since it set off the most severe recession of modern times. But it remains fundamentally flawed.

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The supply of mortgages in America has an air of distinctly socialist command-and-control about it. Some 65-80% of all new home loans are repackaged by organs of the state. The structure of these loans, their volume and the risks they entail are controlled not by markets but by administrative fiat.

No one is keen to make transparent the subsidies and dangers involved, the risks of which are in effect borne by taxpayers. But an analysis by The Economist suggests that the subsidy for housing debt is running at about $150 billion a year, or roughly 1% of GDP. A crisis as bad as last time would cost taxpayers 2-4% of GDP, not far off the bail-out of the banks in 2008-12.

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iehi-feed-60513 Wed, 24 Aug 2016 00:58:22 GMT U.S. new-home sales climb to best level since late 2007 http://implode-explode.com/viewnews/2016-08-23_USnewhomesalesclimbtobestlevelsincelate2007.html New-home sales jumped 12.4 percent last month to a seasonally adjusted rate of 654,000 annual units, the strongest level since October 2007, the Commerce Department said Tuesday. The demand has eclipsed the pace of construction. Just 4.3 months' supply of new homes is available on the market, down from 5.2 months a year ago.

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The improved sales of both new and existing homes has supported the broader U.S. economy, which is still hampered by a global slowdown and weak worker productivity. Existing-home sales reached a seasonally adjusted annual rate of 5.57 million in June, the best performance since early 2007.

Happy times are hear again! Or, maybe, it's pretty much a peak...

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iehi-feed-60506 Tue, 23 Aug 2016 14:13:52 GMT Goldman Says It's Too Late to Chase the Booming Real Estate Sector http://implode-explode.com/viewnews/2016-08-23_GoldmanSaysItsTooLatetoChasetheBoomingRealEstateSector.html iehi-feed-60503 Tue, 23 Aug 2016 13:42:59 GMT Not The Best Time In History To Invest In Real Estate - Part 1 | The Wall Street Examiner http://implode-explode.com/viewnews/2016-08-23_NotTheBestTimeInHistoryToInvestInRealEstatePart1TheWallStreetExa.html iehi-feed-60492 Sun, 21 Aug 2016 13:38:32 GMT Canadian Debt Slaves Pile it on http://implode-explode.com/viewnews/2016-08-21_CanadianDebtSlavesPileiton.html iehi-feed-60481 Fri, 19 Aug 2016 19:20:31 GMT Housing: China's Fading Animal Spirits http://implode-explode.com/viewnews/2016-08-19_HousingChinasFadingAnimalSpirits.html "In the past, the economic players expanded supply first and created jobs so as to create demand, but that is gone now," Lo said in a telephone interview after Friday's disappointing data. "It has to clean out the excess capacity, which means the supply-expansion model has to change."

Another way of putting it: China's build-it-and-they-will-come strategy needs to shift to one where demand, not supply, is in the drivers' seat. It's a change companies are struggling to come to terms with, leaving private investment in the doldrums.

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iehi-feed-60475 Fri, 19 Aug 2016 14:07:06 GMT Vancouver Housing Market Implodes: Average Home Price Plunges 20% In 1 Month http://implode-explode.com/viewnews/2016-08-19_VancouverHousingMarketImplodesAverageHomePricePlunges20In1Month.html Global News obtained MLS sales data from several key Metro Vancouver markets and found the number of homes sold during the first two weeks of August in Greater Vancouver dropped by 85% on average. Richmond experienced a 96% drop in the number of sales and Burnaby North fell by 95%. Vancouver's West Side, West Vancouver, and Coquitlam also took major hits.

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Zolo, a Canadian real estate brokerage, keeps track of MLS home sales in real-time and reports prices as an average rather than the "benchmark price" used by the REBGV. It currently shows a major correction underway in most Metro Vancouver markets. According to the website, the City of Vancouver currently has an average home price of $1.1 million, down 20.7% over the last 28 days and down 24.5% over the last three months. The average detached home is $2.6 million, down 7% compared to three months ago.

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iehi-feed-60465 Wed, 17 Aug 2016 16:11:55 GMT Yes, We Do Have Inflation, We Do Have Inflation Today - The Wall Street Examiner http://implode-explode.com/viewnews/2016-08-17_YesWeDoHaveInflationWeDoHaveInflationTodayTheWallStreetExaminer.html The Fed first enunciated its 2% inflation target in 2012. It focuses on the core PCE, which clearly understates actual consumer inflation using mechanics which I have recently covered here and in numerous past posts. Using a less biased measure such as the Producer Price Index for Finished Consumer Goods, inflation has run at a compound growth rate of +2.1%. That slightly exceeds the Fed's target ever since it was first established.

... [But] The Fed focuses on Core PCE, which is an even more suppressed measure. The Fed has thus been able to pretend that inflation has been well below the target of 2%. Core PCE has a compound growth rate of 1.5% since 2012. That has been one of the Fed's main reasons for keeping interest rates near zero.

Not only is there no evidence that super low interest rates stimulate consumer inflation, there is plenty of evidence that ZIRP actually suppresses consumer prices... Money printing (QE) has stimulated inflation, just not the kind that economists define as inflation. They keep their focus strictly on the CPI and PCE, which are arbitrary baskets of consumption items designed to understate actual consumer inflation... The government, economists, and the Wall Street media make no pretense of measuring monetary inflation or asset inflation. Economists and policymakers completely ignore these kinds of inflation. In fact, asset inflation isn't even called "inflation." It's called "appreciation" or "gains" or "growth." It all sounds very benign.

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iehi-feed-60462 Wed, 17 Aug 2016 14:55:24 GMT The "Housing Crisis" in San Francisco Strangles Demand http://implode-explode.com/viewnews/2016-08-17_TheHousingCrisisinSanFranciscoStranglesDemand.html For teachers, the math doesn't work out. Average teacher pay for the 2014-15 school year was $65,000. And less after taxes. But the median annual rent was $42,000 for something close to a one-bedroom apartment. After taxes and utilities, there's hardly any money left for anything else.

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These are a scary numbers for the housing market! If only 13% can buy that median home -- when in a healthier housing market, over 50% should be able to buy a median home -- who the heck is going to buy the rest of the homes?

This puts a stranglehold on demand. To sustain these crazy home prices, San Francisco needs to bring in an endless flow of highly paid people, including absentee foreign investors, to replace the teachers and other middle-class households, the artists and shop keepers and office workers, and to push out city employees, nurses, and the like. That's how the process has worked.

But that endless influx of highly paid people and investors is grinding to a halt.

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iehi-feed-60424 Fri, 12 Aug 2016 16:27:39 GMT How Much Does Donald Trump Pay in Taxes? It Could Be Zero (THANKS TO RE TAX LOOPHOLES) http://implode-explode.com/viewnews/2016-08-12_HowMuchDoesDonaldTrumpPayinTaxesItCouldBeZeroTHANKSTORETAXLOOPHO.html "I would expect he's paying little or no tax," agreed Steven M. Rosenthal, a veteran tax lawyer and senior fellow at the Urban-Brookings Tax Policy center.

That's because Mr. Trump, as a prominent and active developer, can take advantage of some of the most generous tax breaks in the federal tax code to reduce his reported income to near zero, or even report a loss.

Few tax advisers to major real estate developers would speak for attribution, because their clients benefit from the same tax breaks available to Mr. Trump. But all told me they knew developers in Mr. Trump's league who pay little or no income tax despite hundreds of millions in cash flow.

"Real estate is notorious for throwing off huge deductions," Mr. Rosenthal said. "That coupled with wide latitude in the timing and recognition of income make real estate development extremely attractive from a tax standpoint."

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L.L.C.s pass on income tax-free (and, equally important, losses) to their owners. Real estate L.L.C.s can generate enormous losses, even with millions in revenue, because of depreciation, interest payments, real estate taxes and operating costs. Mr. Trump can use paper losses to offset taxable income, such as interest, dividends, royalties and employment income.

That's a loophole that was eliminated for most investors in the landmark tax reform legislation in 1986. But because of aggressive lobbying by the powerful real estate industry, so-called active developers like Mr. Trump were exempted from restrictions on using such paper losses to offset ordinary income.

The tax value of Mr. Trump's paper losses may well exceed his investment in the underlying properties, because he and other developers typically make minimal down payments and use as much debt as possible to finance a purchase. To take just one example, Mr. Trump bought what is now the Trump National Doral Miami resort and golf club for $150 million while it was in bankruptcy proceedings and financed the purchase with $125 million in loans from Deutsche Bank.

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At least interest is a cash payment. Depreciation is a noncash charge, and is largely an accounting conceit that benefits real estate investors. The theory is that real estate loses value over time and is eventually worthless. As everyone surely knows, most real estate has historically appreciated in value.

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Depreciation is ordinarily recaptured and taxed when an asset is sold. But Mr. Trump and other developers can benefit from provisions that make that unlikely. If they sell appreciated properties at a large profit but use the proceeds to buy other real estate, the transactions may be considered a "like-kind" exchange. If so, there's no tax on the gain.

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"It's a big loophole," Mr. Rosenthal said of the like-kind exchange provisions. "It allows well-to-do and well-advised taxpayers to defer their tax liability potentially until death."

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iehi-feed-60376 Thu, 04 Aug 2016 22:28:21 GMT Rental Appreciation Already Peaked According to New CoreLogic Index http://implode-explode.com/viewnews/2016-08-04_RentalAppreciationAlreadyPeakedAccordingtoNewCoreLogicIndex.html iehi-feed-60372 Thu, 04 Aug 2016 18:21:28 GMT Manhattan Luxury-Condo Glut Ends Developer Rush for Land Deals http://implode-explode.com/viewnews/2016-08-04_ManhattanLuxuryCondoGlutEndsDeveloperRushforLandDeals.html Sales of parcels for development are plummeting as builders, seeing signs that a once-hot property market is cooling, offer prices that sellers won't agree to. Just 48 land deals were completed in the first half of 2016, compared with 79 in the year-earlier period and 73 in 2014, according to brokerage Ariel Property Advisors. That may be a sign of a broader real estate slowdown to come, since land is often a leading indicator for the rest of the market.

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Residential properties, typically the most profitable use of Manhattan plots, are the primary drivers of land values in New York, according to Jon Epstein, a principal at brokerage Avison Young. A year ago, the baseline assumption was that a condo project could generate $2,500 per square foot when completed, he said. Now, that number is closer to $2,100. Bids for development sites are coming in 20 percent below what sellers were getting at the peak, leading to a stalemate, he said.

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iehi-feed-60370 Thu, 04 Aug 2016 01:54:12 GMT China's Trouble With Bubbles http://implode-explode.com/viewnews/2016-08-03_ChinasTroubleWithBubbles.html iehi-feed-60344 Mon, 01 Aug 2016 14:13:04 GMT End of an Era as China's Love Affair With U.S. Real Estate Fades (AMIDST CAPITAL CRACKDOWN) http://implode-explode.com/viewnews/2016-08-01_EndofanEraasChinasLoveAffairWithUSRealEstateFadesAMIDSTCAPITALCR.html ``The residential-property market here, especially for those priced between $2.5 million to $3 million, has been affected by China's measures to control capital flight," said the New York City-based Keller Williams Realty Landmark broker. "You need to cut the price, or it may take a real long time."... In terms of U.S. dollar value, the total share of Chinese buying of international sales dropped from 27.5% to 26.7%.

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The Chinese authorities have been compelled to increasingly tighten the noose on cross-border capital flows to defend the yuan and to slow down the burnout of the nation's foreign-exchange reserves since then. This includes increasing scrutiny of transfers overseas, to closely check whether individuals send money abroad by breaking up foreign-currency purchases into smaller transactions.

New measures were also introduced in December to crack down on illegal China UnionPay Co. card machines, which were suspected of being used to channel funds offshore via fake transactions. Meanwhile, illegal foreign-exchange transactions from underground banking were brought to regulators' attention, as China busted the nation's biggest underground bank, which handled $62 billion, according to a November report by the official People's Daily.

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iehi-feed-60326 Thu, 28 Jul 2016 21:06:44 GMT Millennials cause homeownership rate to drop to lowest level since 1965 http://implode-explode.com/viewnews/2016-07-28_Millennialscausehomeownershipratetodroptolowestlevelsince1965.html The drop in homeownership is largely due to a delay in homebuying by the millennials, who have the lowest ownership rate of their age group in history. Millennials are not only burdened by student loan debt, but they have also delayed life choices like marriage and parenthood, which are the primary drivers of homeownership.

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"Broadly speaking, the falling homeownership rate is a sign that renting isn't only for those just starting out or making a transition, but is becoming an increasingly viable longer-term option for many households," noted Svenja Gudell, chief economist at Zillow. "It also means incomes are not yet rising quickly enough to broadly support new homeownership, and that inventory remains too tight to allow for meaningful access to affordable housing."

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iehi-feed-60325 Thu, 28 Jul 2016 16:27:05 GMT Homeownership Rate in the U.S. Tumbles to the Lowest Since 1965 http://implode-explode.com/viewnews/2016-07-28_HomeownershipRateintheUSTumblestotheLowestSince1965.html The share of Americans who own their homes was 62.9 percent in the second quarter, the lowest since 1965, according to a Census Bureau report Thursday. It was the second straight quarterly decrease, down from 63.5 percent in the previous three months.

First-time buyers have been struggling to find affordable properties as low mortgage rates and an improving job market spur competition for a tight supply of listings. Home prices rose 5.2 percent in May from a year earlier, according to the S&P CoreLogic Case-Shiller index of values in 20 cities released this week.

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iehi-feed-60319 Thu, 28 Jul 2016 14:42:47 GMT San Fran's Lending Standards Put The Last Housing Bubble To Shame http://implode-explode.com/viewnews/2016-07-28_SanFransLendingStandardsPutTheLastHousingBubbleToShame.html iehi-feed-60314 Wed, 27 Jul 2016 18:19:34 GMT Behind The New Home Sales Data: A Darker Backdrop http://implode-explode.com/viewnews/2016-07-27_BehindTheNewHomeSalesDataADarkerBackdrop.html Sales have nearly doubled from the June 2010 and June 2011 lows of 28,000 to this June's 54,000. But this is still down sharply from the June 2005 peak of 115,000 units. At the same time, it barely exceeds the low of 47,000 reached in June 1991 and 53,000 in June 1992 during that recession...

From the 2002 recession until this year, nominal median household income has risen by approximately 32%, using estimated 2% increases for 2015 and this year, which is consistent with the BLS data on nominal wage growth. However, the rate of sales per million people has declined by almost 22% over that period

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iehi-feed-60303 Tue, 26 Jul 2016 16:57:34 GMT Home Prices in 20 U.S. Cities Rose Less Than Forecast in May http://implode-explode.com/viewnews/2016-07-26_HomePricesin20USCitiesRoseLessThanForecastinMay.html iehi-feed-60279 Sat, 23 Jul 2016 00:32:15 GMT Denmark Faces ‘Out of Control' Housing Market http://implode-explode.com/viewnews/2016-07-22_DenmarkFacesOutofControlHousingMarket.html Denmark's biggest mortgage bank is warning there's a risk the housing market may get "out of control," especially around cities, as long-term negative interest rates make borrowers complacent.

"To be concrete, there is a danger that Danes go blind to the risk of rates ever rising again," Tore Stramer, chief analyst at Nykredit in Copenhagen, said in an e-mail. "That raises the risk of a major housing price decline, when rates at some point or other start to rise again."

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With no other country on the planet having experienced negative rates longer than Denmark, the distortions the policy is wreaking may provide a preview of what other economies face should they go down a similar path. Danes can get short-term mortgages at negative interest rates, and pay less to borrow for 30 years than the U.S. government.

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