Bubble? New Home Sales Disappoint (555k vs 571k Expected) — Back To 1990 Levels

New home sales for January 2017 were released and they were not up to expectations. 571k was the expectation, but only 555k were delivered. But there was a 3.74% MoM gain since December 2016.


New home sales continue to disappoint after the massive mortgage credit bubble of the last decade and are only at 1990 levels.


But the median price for new home sales continues to escalate and is well above the peak of the housing bubble.


Are we in a house price bubble?


Let me answer that this way. “Does your dog bite?” I am sure that Fed Chair Janet Yellen would answer “That is not my dog.”















Landlords Are Taking Over the U.S. Housing Market (Remnant of Credit Bubble Persists)

Bloomberg — As rising home prices, slow new home construction, and demographic shifts push homeownership rates to 50-year lows, the U.S. is increasingly a country of renters—and landlords.

Last year, 37 percent of homes sold were acquired by buyers who didn’t live in them, according to tax-assessment data compiled in a new report published by Attom Data Solutions and ClearCapital.com Inc.

That number may include second homes, or properties acquired by investors who seek to fix up old homes and resell them at a profit. But it’s also a strong indication that landlords are playing a larger role in the U.S. housing market.

Actually, the US homeownership rate in Q4 2016 to Q4 1985 levels, making it the lowest in just over 30 years (although it was lower in Q2 2015 and Q2 2016). And as foreclosure inventory lessens, the homeownership rate will rise.


Aside from not being the lowest in 50 years, but the share of US home sales for which the owner doesn’t live in the home is growing quite rapidly.


But the homeownership rate is around the 1985-1995 STABLE rate before the Clinton Administration launch the National Homeownership Strategy: Partners in the American Scream.

Take the inland empire of California, Las Vegas and Phoenix. For the most part, investor-owned homes are in greater percentages in those post credit apocalyptic counties. The coast, for the most part, has a lower percentage.


Continued efforts to transform America into higher homeownership rates have ended in disaster.


FHFA House Price Index Rises 0.4% in December (+6.2% YoY) — Growth Rate Slows As Fed Halts New Asset Purchases

The FHFA released their house price index this morning. The HPI showed growth of 0.4% in December and 6.2% YoY.

The rate of growth in house prices has slowed to a nice steady pace after The Fed ceased new asset purchases.


Of course, slow wage growth for most of the US population isn’t helping house prices to grow. House prices continue to grow at almost 3x wage growth.


Unfortunately, not all cities have roared upwards with The Fed’s massive stimulus.


There is a danger of The Fed pumping so much air into housing prices.



Fannie, Freddie Drop; Court Rejects Most Holder Claims (Unlawful Taking By Government Withheld)

For the moment, the seizing of private property by the Federal government has been upheld by Judge Stein.

Under the original terms of the agreement, Treasury received warrants to acquire nearly 80 percent of the companies’ common stock along with a new class of “senior” preferred shares that originally paid a 10 percent dividend.

At issue in the lawsuits is the 2012 decision by Treasury and FHFA to change the bailout terms so that instead of a set 10 percent dividend, the government would take all profits and not require a dividend when they had a loss.

Today (as in 8/14/2014)  common shareholders of the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) filed suit in the U.S. Court of Federal Claims seeking to remedy the federal government’s unlawful taking of shareholders’ rights and property in Fannie and Freddie and other violations of law. The shareholder plaintiffs are three individuals and Pershing Square Capital Management, L.P. (“Pershing Square”). The defendant is the United States government, including the U.S. Department of the Treasury and the Federal Housing Finance Agency (“FHFA”).

The complaint challenges the government’s ongoing confiscation of all profits of Fannie Mae and Freddie Mac (the “Companies”). According to the filing, the government is expropriating the Companies’ profits through a 2012 arrangement (the “Net Worth Sweep Agreements”) by which FHFA, purportedly acting as the conservator of the Companies, and Treasury agreed to strip all earnings from both Companies and sweep them to Treasury in cash, every quarter, in perpetuity. These Net Worth Sweeps implement what internal Treasury documents had earlier described as the Administration’s “commitment” to “ensure existing common equity holders will not have access to any positive earnings from the [Companies] in the future.”

Now, the ruling by Judge Stein.

(Bloomberg) -By Felice Maranz- D.C. Circuit appears to have rejected most Fannie, Freddie shareholders’ claims, except contract-based claims regarding liquidation preferences and dividend rights,  which are remanded to district court for further proceedings:
* Stein cites ruling:
** “We also reject most of the stockholders’ common-law claims.
Insofar as we have subject matter jurisdiction over the stockholders’ common-law claims against Treasury, and Congress has waived the agency’s immunity from suit, those claims, too, are barred by the Recovery Act’s limitation on judicial review”
** “As for the claims against FHFA and the Companies, some are barred because FHFA succeeded to all rights, powers, and privileges of the stockholders under the Recovery Act”
** “Others fail to state a claim upon which relief can be granted”
** “The remaining claims, which are contract-based claims regarding liquidation preferences and dividend rights, are remanded to the district court for further proceedings”
* NOTE: Earlier, federal appeals court in Washington affirmed “in part” a ruling dismissing a challenge to U.S. govt’s 2012 decision to capture billions of dollars in profits generated by FNMA, FMCC after their bailout; court also remanded “in part” portions of the case
* FNMA slumps 8.4% after earlier rising 3.6%; FMCC falls as much as 6.5% after earlier rising 3.3% intraday 

Wow. So, unlawful taking is allowed by the Federal government.

Here is a chart of Fannie Mae Operating income before the crisis and after. After operating income losses in 2007-2011, Fannie Mae has been an income making dynamo (for the US Treasury). You can see why The Feds want Fannie and Freddie under their wing, so to speak.


The reaction?


A closer look.


Was it Judge Stein or Judge Valkenheiser from the film Valkenvia that made that ruling?




Fear! Yellen wants to leave the Fed’s balance sheet alone for now

Pedro da Costa had a nice piece for Business Insider on Yellen wanting to leave the Fed’s balance sheet alone.

Essentially, Yellen is extremely cautious about unwinding The Fed’s almost $4.5 TRILLION balance sheet for fear on upsetting the proverbial apple cart.

Since The Fed’s started expanding its balance sheet back in late 2008, the stock market and both residential and commercial real estate prices have been going gangbusters. Only recently has retail real estate suffered downturns (thanks primarily to Amazon).


Critics of the bond buying programs, known as quantitative easing or QE, warned that it would lead to runaway inflation. They were very wrong. Instead, inflation has struggled to even reach the Fed’s 2% target, suggesting the labor market is still too weak to push up wages significantly.

True, the labor market remains weak despite glowing adulation from the media cheerleaders about low unemployment rates. Which is not helping retails sales for the big box stores.


Yes, Yellen and The Feds are fearful of a fundamentally weak economy and its sensitivity to winding down The Fed’s balance sheet.



Son Of SAM: The New Shared Downpayment Mortgage From Unison (You May Leave Your Savings In San Francisco)

The legendary shared appreciation mortgage (SAM) has been around for decades. It was an attempt to trade off the mortgage rate for a share of appreciation in the home. Instead of an 18% mortgage rate, the borrower only pays, say, 10% on their mortgage, but promises to give up 50% of the gain on the home upon sale (or a predetermined date). The SAM concept was also used in the UK where elderly households received cash in exchange for a percentage of their home price. It wasn’t very popular after UK home prices skyrocketed.

As you can see, a London England property purchased in 1997 would a 50% share would generate quite the payoff for the lender.


Since FHA insurance is available for 3%, the Shared Downpayment Mortgage will be used in JUMBO markets like San Francisco where borrowers may have problems accumulating 20% down for a million dollar home. The is where Unison comes in. 


Unison will split the downpayment and take 35% of the housing gain.

Of course, there are always asterisks!!!!

1. The examples presented in the table above are intended only to demonstrate the basic operation of the Unison HomeBuyer Agreement. Many other transaction structures and outcomes are possible. Unison is not a lender and Unison HomeBuyer is not a loan program. Any loan terms reflected herein are for illustrative purposes only. Loan rates and terms available from participating lenders may differ.

2. At closing you will pay all transaction costs, including third party fees (such as credit and appraisal reports, and title and escrow fees), any lender origination fees, and Unison processing and transaction fees. This will increase the amount of cash you need to contribute to the purchase transaction at closing.

3. When you sell your home you will be responsible for repaying any outstanding balance on your mortgage in full from your portion of the sales proceeds. The Unison HomeBuyer Agreement has no impact on this – you would have to pay these expenses whether you have a Unison HomeBuyer Agreement or not. The example assumes a 30-year loan, 4% interest rate, and ten year holding period. Ten years of monthly loan payments brings the loan balance down by approximately $170,000 from $800,000 to $630,000.

4. When you sell your home you will also be responsible for paying all selling costs, including brokerage commissions, which can typically amount to 6-9% of the sale price, from your portion of the sales proceeds. Selling costs are not shown in the example. The Unison HomeBuyer Agreement has no impact on this – you would have to do this whether you have a Unison HomeBuyer Agreement or not. If the sales proceeds are not sufficient to pay the mortgage balance, whatever amount is due to Unison, and the selling costs, you will be required to make up any shortfall. For example, assuming selling costs of 7.5% and a sale price of $1,200,000, your selling costs would be $90,000. If your Unison HomeBuyer Agreement is settled other than by sale of your home, such costs will not apply.

So, it is not a true risk sharing agreement.

To paraphrase Tony Bennett, you may leave your savings in San Francisco if home prices continue to rise. But you did get someone to chip in 50% of your down payment. So do your homework!


Cones Of Dunshire: Yellen Speaks As M2 Money Velocity Lowest In History Despite Doubling Of Federal Debt And Fed Expansion

Fed Chair Janet Yellen spoke to Congress this morning at her semi-annual monetary policy testimony. Trying to juggle inflation and unemployment (Humphrey-Hawkins) is difficult … like the Parks and Recreation’s game Cones of Dunshire.  Yellen testified  “waiting too long to hike (rates) is unwise.”

Well, the 10 year Treasury yield jumped on her statement.


Oddly, Yellen forget to mention that the US Public debt has doubled since 2008 while M2 Money Velocity has crashed to an all-time low.


Although little has been discussed about the unwinding of the Fed’s balance sheet other than “the Committee has continued its policy of reinvesting proceeds from maturing Treasury securities and principal payments from agency debt and mortgage-backed securities. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, has helped maintain accommodative financial conditions.”


Or what to do about the exploding pension liabilities and how The Fed’s zero interest rate policies have helped increase the vulnerability of state pension funds.


Or that average hourly earnings have gotten progressively worse with the additional Federal debt and all The Fed’s easing.


Here is The Fed’s Assistant Chair Stanley Fischer explaining the rules of the economy to Fed Chair Janet Yellen.