NEW YORK (TheStreet) — About 44% of homeowners with mortgages cannot afford to sell their homes, according to a recent blog post from real estate company Zillow.
Despite a recovery in prices, over a quarter of homeowners with mortgage loans still owe more than their homes are worth. “But another 18.2 percent of homeowners with mortgages, while not technically underwater, likely do not have enough equity to afford to move,” according to the blog post.
43.6% of homeowners have less than 20% equity in their homes. That makes it hard for them to move or trade-up, given the considerable costs involved in buying and selling a home, including the cost of a down payment for the next mortgage.
You know it’s getting frothy when… “We’re seeing many people cash out 401(k)s or IRAs because they want to take advantage of the [real estate] market.” As CNNMoney reports, in order to get in on hot housing markets, amateur investors are buying up homes and taking risky measures – like tapping their retirement accounts – to fund the deals. As one adviser noted, “our average client has retirement accounts of about $150,000 and is looking to buy one or two properties,” he said. “After 2008, they didn’t trust Wall Street. They wanted hard assets.” but as with every bubble there is always the greater fool to rely on – “They bought a lot of stuff cheap last year, but now they’re paying market value,” said Jack McCabe, a Florida-based real estate consultant. “Sometimes they’re overpaying… There’s no way they can get an 8% return buying at today’s market prices.” The problem, of course, is amateur investors sometimes spend all their free cash on their purchases, as “a whole lot of the people in the markets are not experts.” If the real estate market turns south again, that could leave a lot of investors in dire financial condition for their golden years. Continue reading »
“Inflation is a state of affairs in which there is too much money,” Jim Grant notes in this Bloomberg TV interview, however, “It’s not too much money chasing too few goods,” he corrects the misnomer, “the thing this money chases is variable.” Whether it is Iowa farmland, housing, stocks, or bonds, central banks are stuffing us with it. Yes, equities are high, but Grant explains, “beneath the surface of things or not so far beneath the surface of things,” it is not at all good, adding that, “Central bank ‘original sin’,” is akin to Revolutionary France, and he shows no concerns over Gold’s recent dip, noting “a general fatigue animus towards gold,” that seems predicated on more confidence in central bankers; to Grant, “that confidence is utterly misplaced!”
… house prices fell by -8% in the year to December 2012 to be down -18% since prices peaked in 2008, pulling many Dutch households into negative equity …
More than a decade ago, the Dutch central bank recognized the dangers of [the housing] euphoria, but its warnings went unheeded. Only last year did the new government, under conservative-liberal Prime Minister Mark Rutte, amend the generous tax loopholes, which gradually began to expire in January. But now it’s almost too late. No nation in the euro zone is as deeply in debt as the Netherlands, where banks have a total of about €650 billion in mortgage loans on their books.
Consumer debt amounts to about 250 percent of available income. By comparison, in 2011 even the Spaniards only reached a debt ratio of 125 percent.
The Netherlands is still one of the most competitive countries in the European Union, but now that the real estate bubble has burst, it threatens to take down the entire economy with it. Unemployment is on the rise, consumption is down and growth has come to a standstill.
Even €46 billion in austerity measures are apparently not enough to remain within the EU debt limit. Although [Dutch Finance Minister and Euro Group Chief] Jeroen Dijsselbloem has announced another €4.3 billion in cuts in public service and healthcare, they will only take effect in 2014.
“Sticking the knife in even more deeply” would be “very, very unreasonable,” Social Democrat Dijsselbloem told German daily Frankfurter Allgemeine Zeitung, in an attempt to justify the delay.
When the bond market finally does crack, it is going to be one epic nightmare that is going to make 2008 and 2009 seem like a picnic. It will be a different kind of a crisis; but it will be an enormous crisis. These people that are bullish about stocks and bonds and the bond market, they do not understand anything.
We will hit a moment in time where there will be a rapid acceleration of the perception that people are being cheated via inflation by these money-printing policies. Why Americans seem to think there is no inflation just because the CPI says so, when their checkbooks every day ought to tell them there is, I cannot explain that. But there will be a change in psychology, and there will be a massive stampede into gold here and everywhere else around the world, because it is the only way you can protect yourself against these policies.
Pity the wise money manager these days. Our juiced-up financial markets, force-fed liquidity by the Fed the other major world central banks, are pushing asset prices far beyond what the fundamentals merit.
If you see this reckless central planning behavior for what it is – a deluded attempt to avoid reality for as long as possible – your options are limited if you take your fiduciary duty to your clients seriously.
The dumbest of the dumb money has finally decided now is the time to buy Manhattan apartments. The California Public Employees’ Retirement System (colloquially known as Calpers) just loves taking assets off of other people’s hands at the top. Let’s not forget the 10,200-acre desert site in Arizona they bought for $400 million in 2006, which was then sold for $32.5 million in 2011. Well the not so savvy managers of California’s retirement funds are at it again, once again paying the sum of $400 million, but this time for 345 apartments in Manhattan’s wildly overinflated real estate market. If there was ever the equivalent of a bell ringing at the top this has to be it.
From Bloomberg:
The California Public Employees’ Retirement System bought 345 apartments in two adjacent Manhattan towers from a partnership including Carlyle Group LP (CG), gaining rentals in New York as lease rates approach a peak.
Despite reassurances from D-Boom that “Spain can once again be the engine of growth for Europe,” the troubled nation appears to be going from bad to worse. House prices dropped 9.7% YoY in Q4 2012, its biggest drop on record, taking the price back to 2004 levels. This price pressure merely exacerbates the Spanish banking system’s delinquent loans and drives up unemployment. But Spain is not alone, Slovenia, which many have their eye on for being the next bail-in, saw house prices slide 8.8% according to IBTimes. Perhaps there is a correlation between house price bubbles (cough US cough) and banking/sovereign collapse.Growth Engine?
House prices fell at the fast pace on record in Q4 2012…
and Spanish non-performing loans are increasing at an ever-faster rate to September
Infamous for little boys plugging holes with their fingers and grown-ups plugging their mouth with their foot (D-Boom), it seems Holland, Berlin’s most important ally in the goal of greater fiscal discipline in Europe, has fallen into an economic crisis itself. As Spiegel reports, the once exemplary economy is suffering from huge debts and a burst real estate bubble, which has stalled growth and endangered jobs.
The statistics make for some worrisome reading: no nation in the euro zone is as deeply in debt as the Netherlands, where banks have a total of about €650 billion in mortgage loans on their books; consumer debt amounts to about 250% of available income – by comparison, in 2011 even the Spaniards only reached a debt ratio of 125%; unemployment is on the rise; consumption is down; and growth has come to a standstill.
The trouble for Holland is that despite their proclamations of the need for Fiscal conservatism, even EUR46 billion in austerity measures are apparently not enough to keep the nation’s deficit within the EU debt limit. The Dutch were long among Europe’s most diligent savers, and in the crisis many are holding onto their money even more tightly, which is also toxic to the economy, as “one of the main problems is declining consumption.”
The nationalization on SNS in February brought this reality home and as Spiegel reports, “there is no end to the crisis in sight.”
Six years after the onset of the traumatic US housing crisis, the optics are there that suggest a stabilization is occurring. Whether real or manufactured by record-low foreclosures, bank supply withdrawals, and fed-subsidized cash REO-to-rent trades, the sad truth is that jobs (and the GDP-enhancing multiplier effect that they create) are just not coming. Even Bob Shiller prefers the potential for 4% gains in stocks over housing risk in the medium-term as he points out that – inflation-adjusted – house prices are back at levels first seen in 1894… now that is a long-term investor.
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