It was pretty lonely forecasting those kinds of GDP numbers several months ago!

While the 8% budget deficit keeps it all muddling through at modest levels of growth, it’s still a far cry from being ‘acceptable’ in my book, as it’s just barely enough to reduce the output gap.

And letting FICA go up at year end or somehow paying for continuing the current level could trim quite a bit of Q1 aggregate demand.

Karim writes:

Although still likely, FOMC may have a lively debate on extending ‘conditional commitment’ beyond mid-2013.

While it’s relatively small potatoes, it’s misguided. Without a proactive fiscal adjustment/larger deficit, the economy can’t do much more than muddle through without an increase in private sector credit expansion. And traditionally housing has been a substantial source of credit expansion. So, given their presumed desire for lower unemployment, hiking the price of housing credit- the only actual change come Jan 1 as FICA deduction are only not going to increase-seems counter productive.

In other words, the only change from Q4 to Q1 is the fee hike.

Cost of Tax Cut: Another $17 a Month on Most Mortgages

By

Dec 17 (Reuters) — Who is paying for the two-month extension of the payroll tax cut working its way through Congress? The cost is being dropped in the laps of most people who buy homes or refinance beginning next year.

The typical person who buys a home or refinances starting on Jan. 1 would have to pay roughly $17 more a month for their mortgage, thanks to a fee increase included in the payroll tax cut bill that the Senate passed Saturday. The White House said the fee increases would be phased in gradually.

The legislation provides a two-month extension of a payroll tax cut and long-term unemployment benefits that would otherwise expire on Jan. 1. It would also delay for two months a cut in Medicare reimbursements for doctors that is scheduled to take effect on New Year’s Day. The House is expected to act on the bill early next week. Two more months of the Social Security tax cut amounts to a savings of about $165 for a worker making $50,000 a year.

To cover its $33 billion price tag, the measure increases the fee that the government-backed mortgage giants, Fannie Mae and Freddie Mac, charge to insure home mortgages. That fee, which Senate aides said currently averages around 0.3 percentage point, would rise by 0.1 percentage point under the bill.

For the holder of a typical $200,000 mortgage, that means their monthly housing payment would be about $17 higher.

The 0.1 percentage point increase will also apply to people whose mortgages are backed by the Federal Housing Administration, which typically serves lower-income and first-time buyers.

The higher fee would not apply to people who currently have mortgages unless they refinance beginning next year.

Because of the weak housing market and the huge numbers of foreclosures in the last few years, private insurers have not competed strongly for business with Fannie Mae and Freddie Mac, which have the backing of the federal government. As a result, about 9 in 10 new home mortgages are backed by Fannie Mae, Freddie Mac and the FHA.

President Obama and many congressional Democrats and Republicans want to curb Fannie Mae’s and Freddie Mac’s dominance in the mortgage market. Obama earlier this year proposed raising the mortgage guarantee fees they charge as one way to do that.

Reads like the inflation problem was worse then most thought, and that a hard landing might still actually be happening. No way to actually tell in real time.

With China a first half/second half story, as previously discussed, January will bring a fresh slug of new govt. lending/spending that should at least moderate any fall that’s in progress.

However, if the anti inflation fiscal policies continue, and spending/lending is materially down from last year, the weakness should persist and potentially get a lot worse.

Property Prices Collapse in China. Is This a Crash?

By Gordon Chang

November 6 (Forbes) — Residential property prices are in freefall in China as developers race to meet revenue targets for the year in a quickly deteriorating market. The country’s largest builders began discounting homes in Shanghai, Beijing, and Shenzhen in recent weeks, and the trend has now spread to second- and third-tier cities such as Hangzhou, Hefei, and Chongqing. In Chongqing, for instance, Hong Kong-based Hutchison Whampoa cut asking prices 32% at its Cape Coral project. “The price war has begun,” said Alan Chiang Sheung-lai of property consultant DTZ to the South China Morning Post.

About time!

Obama to announce action on mortgages

By Kate Mackenzie

October 24 (Financial Times) — US regulators on Monday plan to unveil a major overhaul of an under-used mortgage-refinance program designed to help millions of Americans whose home values have tumbled, the WSJ says. The plan will streamline the refinance process by eliminating appraisals and extensive underwriting requirements for most borrowers, as long as homeowners are current on their mortgage payments. The measures will not require congressional approval, says Reuters, and the first of the initiatives will be unveiled during Obama’s three-day trip to western states beginning Monday. He will discuss the changes in mortgage rules at a stop in Nevada, which has one of the hardest-hit housing markets in the country. The Obama administration has been working with the Federal Housing Finance Agency, the regulator for Fannie Mae and Freddie Mac, to find ways to make it easier for borrowers to switch to cheaper loans even if they have little to no equity in their homes.

1. A full FICA suspension to end that highly regressive, punishing tax and restore sales, output, and jobs.
2. $150 billion in federal revenue sharing for the state goverments on a per capita basis to sustain essential services.
3. An $8/hr federally funded transition job for anyone willing and able to work to facilitate the transition from unemployment to private sector employment.
4. See my universal health care proposals on this website (Health Care Proposal).
5. See my proposals for narrow banking, the Fed, the Treasury and the FDIC on this website (Banking Proposal).
6. See my proposal’s to take away the financial sector’s ‘food supply’ by banning pension funds from buying equities, banning the Tsy from issuing anything longer than 3 month bills, and many others.
7. Universal Social Security at age 62 at a minimum level of support that makes us proud to be Americans.
8. Fill the Medicare ‘donut hole’ and other inequities.
9. Enact my housing proposals on this website (Housing proposal).
10. Don’t vote for anyone who wants to balance the federal budget!!!!

1. US Regulators can make it illegal for their banks, housing agencies, and other publicly supported entities to refuse to refi on the basis of appraisals and income. Those loans were made, and priced, with the understanding that when long rates fall they get refinanced at the lower rates.

2. A rent to own option where a homeowner has the option to sell his home to the govt. at the lower of his mtg balance or current appraisal before a foreclosure sale, and then rent the home at fair market rent for two years. At the end of two years the home gets offered for sale at fair market prices, and the homeowner has right of first refusal to buy it and finance it at current market interest rates if he has paid his rent as agreed.

The housing crisis is still with us only because these proposals were not implemented when first proposed in 2008.

Falls under ‘even a fish wouldn’t get into trouble if he kept his mouth shut’ ???

Bill Clinton: How to fix the economy

October 7 (CNN) — How to fix the economy and create jobs

First, Congress and President Obama can adopt strategies designed to unleash the massive amount of capital that is accumulated but not being invested. There’s some $2.2 trillion in cash in American banks that is not committed to loans. A couple hundred billion has to be held back for bad mortgages, but there’s about $2 trillion that could be used in cash reserves for up to $20 trillion in loans. So, in theory, that would take the world out of recession. And U.S. corporations have about $2 trillion more that they have decided not to invest.

SORRY, MR. PRESIDENT, LENDING DOES NOT ‘USE’ OR ‘USE UP’ RESERVES WITH TODAY’S NON CONVERTIBLE CURRENCY/FLOATING EXCHANGE RATE REGIME. THE WAY YOU SAID IT APPLIES WITH A GOLD STANDARD OR OTHER FIXED EXCHANGE RATE POLICIES.

IN OUR BANKING SYSTEM, THE CAUSATION RUNS FROM LOANS TO DEPOSITS. IF THE BANKS MADE $2 TRILLION IN LOANS TODAY, $2 TRILLION IN NEW DEPOSITS WOULD BE CREATED IN THE BANKING SYSTEM, AND RESERVES WOULD REMAIN UNCHANGED.

The second thing is to accelerate the resolution of the home mortgage crisis, which would make businesses more eager to borrow, expand and consumers more willing to spend. These kinds of financial crises typically take about five years to get over. What we’re really trying to do is beat the historical trend by getting over it more quickly. We can’t do that unless we do on a larger scale what we did in the S&L crisis, which is to flush the debt quicker.

OK, BUT REMEMBER THE S AND L CRISIS LED TO THE CRASH OF 87, WITH THE HIGH LEVEL OF DEFICIT SPENDING SUPPORTING OUTPUT AND EMPLOYMENT.

The third category includes things that will strengthen our position today and tomorrow. We need to bring back manufacturing. We need to focus on exports. We need to focus on green technologies. There are dozens of things we could do that would create jobs.

MR. PRESIDENT, DON’T FORGET THAT EXPORTS ARE REAL COSTS, AND IMPORTS REAL BENEFITS. ECONOMICS IS THE OPPOSITE OF RELIGION. WITH ECONOMICS IT’S BETTER TO RECEIVE THAN TO GIVE. REAL TERMS OF TRADE AND STANDARDS OF LIVING ARE OPTIMIZED BY IMPORTING AS MUCH AS POSSIBLE IN EXCHANGE FOR AS FEW EXPORTS AS POSSIBLE. AND THE DOMESTIC ECONOMY CAN ALWAYS BE KEPT FULLY EMPLOYED BY APPROPRIATE FISCAL BALANCE.

AND DON’T FORGET THAT GLOBALLY, WITH INCREASING PRODUCTIVITY, MANUFACTURING EMPLOYMENT IS FALLING EVEN AS OUTPUT GROWS. MUCH LIKE AGRICULTURE, MANUFACTURING WILL CONTINUE TO DECLINE IN RELATIVE IMPORTANCE WITH REGARDS TO EMPLOYMENT WITH TIME.

Thanks, if private sector borrowing to spend is going to kick in this is as likely a spot as any:

>   
>   On Thu, Oct 6, 2011 at 10:30 AM, EDWARD LASHINSKI, ABN AMRO CLEARING CH wrote:
>   
>   Recent news that US holiday sales are expected to be up 2.8% ( http://bit.ly/nIjmtE ) as well
>   as September sales estimates exceeding estimates at 6.1% (vs. 5.1%) with 13 of 21 retailers
>   beating consensus is constructive. If tomorrow’s NFP is at all modest it will portend very
>   positively for the US economy’s improving prospects in Q4, which could be a game changer.
>   

U.S. Homebuilders’ Improving Markets Index

By Kristy Scheuble

October 6 (Bloomberg) — Following is the text of the Improving Markets Index (IMI) from the National Association of Home Builders.

Number of Improving Housing Markets Nearly Doubles in October

The second edition of the National Association of Home Builders/ First American Improving Markets Index (IMI), released today, shows 23 individual housing markets now qualifying as “improving” under the new gauge’s parameters. This is nearly double the 12 housing markets that made the list last month.

The index reveals metropolitan areas that have shown improvement for at least six months in housing permits, employment and housing prices. The following metros were listed in October:

· Alexandria, LA · Amarillo, TX · Anchorage, AK · Bismarck, ND · Casper, WY · Fairbanks, AK · Fayetteville, NC · Houma, LA · Iowa City, IA · Jonesboro, AR · Kankakee, IL · McAllen, TX · Midland, TX · New Orleans, LA · Odessa, TX · Pine Bluff, AR · Pittsburgh, PA · Sherman, TX · Sumter, SC · Waco, TX · Waterloo, IA · Wichita Falls, TX · Winston-Salem, NC

“Both the number and geographic diversity of improving housing markets expanded this month, with Iowa, Illinois and South Carolina all newly represented by one entry or more on the list,” said National Association of Home Builders (NAHB) Chairman Bob Nielsen, a home builder from Reno, Nev. “This is further evidence that, despite the tough conditions that persist in many cities, pockets of improvement are emerging in local housing markets across the country.”

“While Pittsburgh and New Orleans remain the two largest improving markets, the October IMI is heavily weighted by smaller cities in which energy and agriculture are the primary economic drivers and where the effects of the recession have been less pronounced,” said NAHB Chief Economist David Crowe. “In particular, Texas stands out for its seven entries on the improving markets list.”

Bangor, Maine, was the only area to drop off of the improving markets list in October, due to a decline in local building permits.

The IMI is designed to track housing markets throughout the country that are showing signs of improving economic health. The index measures three sets of independent monthly data to get a mark on the top improving Metropolitan Statistical Areas. The three indicators that are analyzed are employment growth from the Bureau of Labor Statistics, house price appreciation from Freddie Mac, and single-family housing permit growth from the U.S. Census Bureau. NAHB uses the latest available data from these sources to generate a list of improving markets. A metro area must see improvement in all three areas for at least six months following their respective troughs before being included on the improving markets list.

Editor’s Note: The NAHB/First American Improving Markets Index (IMI) is released on the fourth business day of each month at 10:00 a.m. ET, unless that day falls on a Friday – in which case, the index will be released the following Monday. A full calendar of 2011 release dates can be found at www.nahb.org/imi.

Lots of refi’s with the low rates but not much in the way of new purchases:

MBA Weekly Mortgage Applications Survey: Market Composite Index increased 4.1%, Refinance Index increased 8.0% and the Purchase Index decreased 10.1%.

>   
>   (email exchange)
>   
>   On Thu, Jul 14, 2011 at 9:55 AM, wrote:
>   
>   I see Bernanke is speaking your language now…
>   

Yes, a bit, but but as corrected below:

“DUFFY: We had talked about the QE2 with Dr. Paul. When — when you buy assets, where does that money come from?

BERNANKE: We create reserves in the banking system which are just held with the Fed. It does not go out into the public.

Not exactly, as all govt spending is done by adding reserves to member bank reserve accounts. Reserve accounts are held by member banks as assets, and so these balances are as much ‘out into the public’ as any.

What doesn’t change is net financial assets, as QE debits securities accounts at the Fed and credits reserve accounts.

But yes, spending is in no case operationally constrained by revenues.

DUFFY: Does it come from tax dollars, though, to buy those assets?

BERNANKE: It does not.

Operationally he is correct, and in this case, to the extent QE does not add to aggregate demand, he is further correct. In fact, to the extent that QE removes interest income from the economy, it actually acts as a tax on the economy, and not as a govt expenditure.

However, and ironically, I submit he believes that QE adds to aggregate demand, and therefore ‘uses up’ some of the aggregate demand created by taxation, and therefore, in that sense, it would be taxpayer dollars that he’s spending.

DUFFY: Are you basically printing money to buy those assets?

BERNANKE: We’re not printing money. We’re creating reserves in the banking system.

Technically correct in that he’s not printing pieces of paper.

But he is adding net balances to private sector accounts, which, functionally, is what is creating new dollars which is generally referred to as ‘printing money’

All govt spending can be thought of as printing dollars, taxing unprinting dollars, and borrowing shifting dollars from reserve accounts to securities accounts.

DUFFY: In your testimony — I only have 20 seconds left — you talked about a potential additional stimulus. Can you assure us today that there is going to be no QE3? Or is that something that you’re considering?

BERNANKE: I think we have to keep all the options on the table. We don’t know where the economy is going to go. And if we get to a point where we’re like, you know, the economy — recovery is faltering and — and we’re looking at inflation dropping down toward zero or something, you know, where inflation issues are not relevant, then, you know, we have to look at all the options.

DUFFY: And QE3 is one of those?

BERNANKE: Yes.

Very hesitant, as it still looks to me like there’s an tacit understanding with China that there won’t be any more QE, as per China’s statement earlier today.

PAUL: I hate to interrupt, but my time is about up. I would like to suggest that you say it’s not spending money. Well, it’s money out of thin air. You put it into the market. You hold assets and assets aren’t — you know, they are diminishing in value when you buy up bad assets.

But very quickly, if you could answer another question because I’m curious about this. You know, the price of gold today is $1,580. The dollar during these last three years was devalued almost 50 percent. When you wake up in the morning, do you care about the price of gold?

BERNANKE: Well, I pay attention to the price of gold, but I think it reflects a lot of things. It reflects global uncertainties. I think people are — the reason people hold gold is as a protection against what we call “tail risk” — really, really bad outcomes. And to the extent that the last few years have made people more worried about the potential of a major crisis, then they have gold as a protection.

PAUL: Do you think gold is money?

BERNANKE: No. It’s not money.

(CROSSTALK)

PAUL: Even if it has been money for 6,000 years, somebody reversed that and eliminated that economic law?

BERNANKE: Well, you know, it’s an asset. I mean, it’s the same — would you say Treasury bills are money? I don’t think they’re money either, but they’re a financial asset.

Right answer would have been gold used to be demanded/accepted as payment of taxes, which caused it to circulate as money.

Today the US dollar is what’s demanded for payment of US taxes, so it circulates as money.

In fact, if you try to spend a gold coin today, in most parts of the world you have to accept a discount to spot market prices to get anyone to take it.

PAUL: Well, why do — why do central banks hold it?

BERNANKE: Well, it’s a form of reserves.

Yes, much like govt land, the strategic petroleum reserve, etc.

PAUL: Why don’t they hold diamonds?

Some probably do.

BERNANKE: Well, it’s tradition, long-term tradition.

PAUL: Well, some people still think it’s money.”

“CLAY: Has the Federal Reserve examined what may happen on another level on August 3rd if we do not lift the debt ceiling?

BERNANKE: Yes, we’ve — of course, we’ve looked at it and thought about making preparations and so on. The arithmetic is very simple. The revenue that we get in from taxes is both irregular and much less than the current rate of spending. That’s what it means to have a deficit.

So immediately, there would have to be something on the order of a 40 percent cut in outgo. The assumption is that as long as possible the Treasury would want to try to make payments on the principal and interest of the government debt because failure to do that would certainly throw the financial system into enormous disarray and have major impacts on the global economy.

So this is a matter of arithmetic. Fairly soon after that date, there would have to be significant cuts in Social Security, Medicare, military pay or some combination of those in order to avoid borrowing more money.

If in fact we ended up defaulting on the debt, or even if we didn’t, I think, you know, it’s possible that simply defaulting on our obligations to our citizens might be enough to create a downgrade in credit ratings and higher interest rates for us, which would be counterproductive, of course, since it makes the deficit worse.

But clearly, if we went so far as to default on the debt, it would be a major crisis because the Treasury security is viewed as the safest and most liquid security in the world. It’s the foundation for most of our financial — for much of our financial system. And the notion that it would become suddenly unreliable and illiquid would throw shock waves through the entire global financial system.

And higher interest rates would also impact the individual American consumer. Is that correct?

BERNANKE: Absolutely. The Treasury rates are the benchmark for mortgage rates, car loan rates and all other types of consumer rates.”

“BERNANKE: A second problem is the housing market. Clearly, that’s an area that should get some more attention because that’s been one of the major reasons why the economy has grown so slowly. And I think many of your colleagues would agree that the tax code needs a look to try to improve its efficiency and to promote economic growth as well.”

While housing isn’t growing as in the past, housing or anything else is only a source of drag if it’s shrinking.

It’s not that case that if housing were never to grow we could not be at levels of aggregate demand high enough to sustain full employment levels of sales and output.

We’d just be doing other things than in past cycles.

G. MILLER: Well, the problem I had with the Fannie-Freddie hybrid concept was the taxpayers were at risk and private sector made all the profits.

BERNANKE: That’s right.

That’s the same with banking in general with today’s insured deposits, a necessary condition for banking. Taxpayers are protected by regulation of assets. The liability side is not the place for market discipline, as has been learned the hard way over the course of history.

G. MILLER: That — that’s unacceptable. What do you see the barriers to private capital entering mortgage lending (inaudible) market for home loans would be?

BERNANKE: Well, currently, there’s not much private capital because of concerns about the housing market, concerns about still high default rates. I suspect, though, that, you know, when the housing market begins to show signs of life, that there will be expanded interest.

I think another reason — and go back what Mr. Hensarling was saying — is that the regulatory structure under which securitization, et cetera, will be taking place has not been tied down yet. So there’s a lot of things that have to happen. But I don’t see any reason why the private sector can’t play a big role in the housing market securitization, et cetera, going forward.”

As above, bank lending is still a public/private partnership, presumably operating for public purpose.

See my Proposals for the Banking System, Treasury, Fed, and FDIC (draft)

And there’s no reason securitization has to play any role. Housing starts peaked in 1972 at 2.6 million units with a population of only 200 million, with only simple savings and loans staffed by officers earning very reasonable salaries and no securitization.

“CARSON: However, banks are still not lending to the public and vital small businesses. How, sir, do you plan on, firstly, encouraging banks to lend to our nation’s small businesses and the American public in general?

And, secondly, as you know, more banks have indeed tightened their lending standards than have eased them. Does the Fed plan to keep interest rates low for an extended period of time. Are the Fed’s actions meaningless unless banks are willing to lend?

CARSON: And, lastly, what are your thoughts on requiring a 20 percent down for a payment? And do you believe that this will impact homeowners significantly or — or not at all?

BERNANKE: Well, banks — first of all, they have stopped tightening their lending standards, according to our surveys, and have begun to ease them, particularly for commercial and industrial loans and some other types of loans.

Small-business lending is still constrained, both because of bank reluctance but also because of lack of demand because they don’t have customers or inventories to finance or because they’re in weakened financial condition, which means they’re harder to qualify for the loan.

Right, sales drive most everything, including employment

“PETERS: Do you see some parallels between what happened in the late ’30s?

BERNANKE: Well, it’s true that most historians ascribe the ’37- ’38 recession to premature tightening of both fiscal and monetary policy, so that part is correct.

Also, Social Security was initiated, and accounted for ‘off budget’, and, with benefit payments initially near 0, the fica taxes far outstripped the benefits adding a sudden negative fiscal shock.

The accountants realized their mistake and Social Security was put on budget where it remains and belongs.

I think every episode is different. We have to look, you know, at what’s going on in the economy today. I think with 9.2 percent unemployment, the economy still requires a good deal of support. The Federal Reserve is doing what we can to provide monetary policy accommodation.

But as we go forward, we’re going to obviously want to make sure that as we support the recovery that we also keep an eye on inflation, make sure that stays well controlled.

No sign here of aggregate demand increasing:

Mortgage Applications Drop for 4th Week

July 13 (Reuters) — Applications for U.S. home mortgages fell last week for the fourth week in a row, hurt by a drop in refinance demand even as interest rates tumbled, an industry group said on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, fell 5.1 percent in the week ended July 8.

The MBA’s seasonally adjusted index of refinancing applications lost 6.2, while the gauge of loan requests for home purchases dipped 2.6 percent.

The refinance share of mortgage activity decreased to 65.6 percent of total applications from 66.4 percent the week before.

Fixed 30-year mortgage rates averaged 4.55 percent, down from 4.69 percent.

How does that go again about low rates helping housing?

Mortgage Applications Dipped Last Week

June 29 (Reuters) — Applications for U.S. home mortgages slipped last week as demand waned, even as mortgage rates dropped, an industry group said Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, fell 2.7 percent in the week ended June 24.

The MBA’s seasonally adjusted index of refinancing applications fell 2.6 percent, while the gauge of loan requests for home purchases lost 3.0 percent.

The refinance share of mortgage activity increased to 69.5 percent of total applications from 69.2 percent the week before.

Fixed 30-year mortgage rates averaged 4.46 percent in the week, down from 4.57 percent.

This is what happens when the Fed scares the heck out of global portfolio managers with otherwise benign QE2, and they deallocate dollar holdings to the point where the currency sells off enough to find real buyers of dollars who want them to buy cheap real assets like US real estate. That’s how ‘price discovery’ finds the real bid side for the dollar for large scale selling.

And when the deallocating stops, this process ends, as that selling pressure fades.

And with the Fed’s portfolio removing maybe $10 billion/month in interest income that otherwise would have gone to the economy, and lower crude prices and a narrowing trade gap in general making $US harder to get overseas, market forces then work to find the offered side of the dollar for that much size.

Foreigners Make Run on US Housing Market

By Diana Olick

June 15 (CNBC) — Falling home prices may be plaguing the US economy, but they are candy to foreign investors, who already have a weak dollar on their side.

Buyers from overseas spent roughly $41 billion on US residential real estate last year, a bump up from the previous year. US real estate agents report a surge this Spring especially, as foreign buyers see continued pressure on home prices and ample bargains.

“I don’t think they’re so concerned about the prices dropping as they are about getting value for their money,” says Rick Ambrose, a Coldwell Banker agent in Lake Mohawk, NJ.

Ambrose and his colleague Mary Pat Spekhardt recently hosted two groups of Japanese investors searching for homes on the scenic lake just about an hour outside of New York City.

“They can work here, be close to the city, be close to their corporations and still feel like they’re on vacation. I think that’s really what grabbed everybody. That’s what got them,” says Spekhardt.

The group of about 35 from Japan also toured properties in Las Vegas and Los Angeles, which are more popular choices among foreign investors.

A new survey by Trulia.com that tracks searches from potential foreign buyers found LA ranked number one in potential interest traffic, trailed by New York City, Cape Coral, Fl, Fort Lauderdale, FL and Las Vegas.

The greatest interest is from buyers in the UK, Canada and Australia.

“Prices now in the US are generally 30-40 percent off from the peak.

In addition, the weakness of the dollar gives the Japanese an advantage, as it does the Europeans, of another 20-25 percent off, so they’re seeing real bargains and opportunities,” notes Ambrose.

The interest is pretty widespread, with Brazilians trolling Miami and Russians and Chinese hunting in Chicago, according to Trulia’s survey.

What’s so interesting to me, though, is that foreigners are so much more ready to jump into the market now than US investors. Granted, they have, as noted, the weak dollar on their side, but they also seem to have a longer term view. US buyers are so afraid to a lose a little in the short term on paper, they don’t realize they could gain a lot in the long term. Of course foreign buyers are largely using cash, which many US buyers are lacking. Credit, or lack thereof, is playing against the US investor.

Prices in Miami are actually beginning to recover, especially in the condo market, thanks to foreign buyers, so much so that the foreigners are beating out the Americans.

I remember all the rage a long time ago when the Japanese were buying up commercial real estate in New York City.

Everyone was so appalled. Not so much now, even up in Lake Mohawk, NJ…

“It isn’t popular. It is unforeseen territory, and it’s unique. I think it’s a very smart choice. It’s not where everyone is looking,” says Spekhardt.

Looks like those low rates aren’t all they’re cracked up to be.

Once again, we need:
a FICA suspension
$500 per capita fed distribution to the state govts
$8/hr federally funded transition job for anyone willing and able to work

And institutional structure that facilitates GDP growth with less energy consumption

Mortgage Applications Fell Last Week

May 25 (Reuters) — Applications for U.S. home mortgages fell last week, pulled lower by a decline in refinancing demand, an industry group said Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, fell nearly 4 percent in the week ended May 27.

The MBA’s seasonally adjusted index of refinancing applications lost 5.7 percent, even as interest rates tumbled.

“The last time mortgage rates were this low, refinance volume was more than twenty percent higher,” Mike Fratantoni, MBA’s vice president of research and economics, said in a statement. “It is likely that many borrowers still cannot qualify to refinance given the lack of equity in their homes.”

The refinance share of mortgage activity fell to 65.7 percent of total applications from 66.8 percent the week before. The gauge of loan requests for home purchases was essentially unchanged.

Fixed 30-year mortgage rates averaged 4.58 percent in the week, down from 4.69 percent the week before.

From Art Patten, Symmetry Capital Management, LLC

A brief overview of our current thinking on the financial market and economic outlook—please see important disclosures at the bottom of this email:


Yesterday’s rally provided a reprieve from strong selling pressures, but was low-conviction judging by trading volumes and bond market behavior. I suspect it will prove temporary and that the current trend will remain negative. Normally we could ascribe that to seasonal dynamics—for example, the old “sell in May and go away” adage—but there are some really strange forces at work, and almost all of them are bearish. They may not cause much damage in the coming quarters, but at some point they will. Our current guess is 2012, but it could start earlier.

• Recent commodity market volatility indicates to us that the trade is highly levered on the bullish side, and thus increasingly fragile. As long as there’s real demand, the investment (speculative!?) demand from developed world investors can do OK (and then some, in recent quarters). But there are now rumors of commodity supplies being used in China in much the same way that houses were used in some western countries 2005-2007, tech stocks 1998-2000, and so on here), and monetary and credit indicators from China do not bode well for commodity prices right now.
• There are similarly fragile dynamics in Europe, where continental banks levered up on the debt of countries that now can’t pay their bills, as they surrendered monetary autonomy to join a union with no fiscal authority (and a real anti-fiscal fetish, as embodied in the Maastricht Treaty). Money and credit indicators out of Europe look absolutely horrific at the moment.
• Either of those fragile equilibria could break hard in 2011, with the usual contagion to financial markets and asset prices. If they are not managed proactively (a serious possibility given (1) the zero-bound on central banks’ interest rate targets and (2) the prevailing deficit and debt phobias around the world) it will spread to the global economy yet again, against a backdrop of already-high unemployment and painful relative price shocks from food and fuel.
• On a relative basis, the U.S. looks attractive. However, in 2011-2012, the proportion of young adults in the U.S. economy turns negative here), something that is strongly associated with recessions.
• Fiscal austerity will only worsen things. In fact, we’re not surprised by the softness in U.S. leading indicators, given announcements that federal tax receipts were better than expected. Remember—today, the federal budget deficit is what gold mines were in the 19th century. In an over-levered economy slowly recovering from recession, it would have been very hard to produce too much new gold (money) back then, and the last thing you would have done is re-bury whatever gold was produced. But ‘fiscal discipline’ today amounts to the very same thing! Granted, it’s rational to worry that larger deficits will mean higher tax rates, as few politicians—and far too few economists!—grasp the reality of our monetary system and how it interacts with fiscal policy.
• The current trajectory of the debt ceiling negotiations is depressing. The GOP believes that government spending crowds out private investment, as though money comes from somewhere ‘out there’ or is still dug out of the ground. The Dems can’t get over their beloved ‘Clinton surpluses,’ ignoring the fact that they, like every other significant federal budget surplus, were followed by a recession. For the last few weeks, a few members of the GOP have been pointing out (correctly) that the U.S. will not default. It will direct revenues to Treasury debt holders first, and be forced to make severe spending cuts elsewhere. This will further undermine an already anemic level of overall demand. In fact, fiscal authorities in most parts of the world are doing all they can to undermine global aggregate demand. The U.S. Congress is just now joining the party.
• U.S. equity markets aren’t indicating an imminent recession, but keep in mind that they were more of a coincident than a leading indicator when the last one started in December 2007. I expect a similar dynamic this time around, with a sideways trend eventually giving way to one or more financial shocks and the eventual realization that we’ve driven ourselves into the ditch yet again.
• Longer-term, we’re heading into an environment in which the relative impotence of monetary policy will become a new meme, a 180-degree turn from the last four or five decades. And it will probably take at least a decade for macro policy to adjust (Japan’s policymakers still haven’t, over 20 years later). More lost decades ahead? We’re starting to think it’s a wise bet.
• The only factors that look benign at the moment are in U.S. credit markets. They imply that the employment picture should continue to improve and that the U.S. economy is not nearing recession. If we had to guess, we’d predict one or two financial market shocks ahead, but depending on their timing, there could be something of an equity market rally after the usual summer doldrums. But it might involve significant sector rotation, and our outlook for 2012 is rather pessimistic at the moment.

Finally, here’s a chart that the NYT ran in January that makes a compelling case that a 1970s-style inflation is off the table. If time allows, I’ll pen an Idle Speculator piece this summer on why that is. In the meantime:

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Not even a dead cat bounce in the important component:

Mortgage Applications up on Refinancings

May 18 (CNBC) — Applications for U.S. home mortgages jumped last week for the third week in a row as falling mortgage rates fueled demand for refinancing, an industry group said Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, climbed 7.8 percent in the week ended May 13.

The MBA’s seasonally adjusted index of refinancing applications surged 13.2 percent, while the gauge of loan requests for home purchases dipped 3.2 percent.

If this is actually the jist of the proposals they make no sense to me.
For me the starting point is the question,
‘Is there public purpose supporting home ownership for lower income earners?’

Under current institutional arrangements, I’d say yes, and come up with an entirely different set of proposals, as I did
a while back for my website.

As is, looks to me like an obstacle to higher levels of output and employment.

Mortgage Costs to Rise As Government Lessens Role

February 11 (AP) — The Obama administration laid out three broad options Friday for reducing the government’s role in the mortgage market. All three would almost certainly lead to higher interest rates and costs for borrowers.

The administration said in a report that the government should withdraw its support for the mortgage market slowly, over five years or more. The report describes a path for winding down the troubled mortgage giants Fannie Mae and Freddie Mac.

But rather than making a single recommendation, the administration offered Congress three scenarios and will let lawmakers shape the final policy.

The options are:

— No government role, except for existing agencies like the Federal Housing Administration.

— A government guarantee of private mortgages triggered only when the market is in trouble.

— Government insurance for a targeted range of mortgage investments that already are guaranteed by private insurers. The government guarantee would kick in only if those private companies couldn’t pay.

Still no sign of private sector credit expansion from housing.

US Home Loan Demand Drops, Rates at 10-Month High

February 9 (Reuters) — Applications for U.S. home mortgages dropped last week as the highest interest rates in 10 months sapped demand for home loan refinancing, an industry group said Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, fell 5.5 percent in the week ended Feb. 4.

The MBA’s seasonally adjusted index of refinancing applications fell 7.7 percent last week.

The gauge of loan requests for home purchases was down 1.4 percent.

Fixed 30-year mortgage rates averaged 5.13 percent in the week, up 32 basis points from 4.81 percent the prior week.

It was the highest rate since the week ended April 9, 2010.

Karim writes:

Doesn’t seem like someone looking to tighten for a while….but things change and some probability of a hike for later this year or early next needs to be priced in…

Although it is likely that economic growth will pick up this year and that the unemployment rate will decline somewhat, progress toward the Federal Reserve’s statutory objectives of maximum employment and stable prices is expected to remain slow. The projections submitted by Federal Open Market Committee (FOMC) participants in November showed that, notwithstanding forecasts of increased growth in 2011 and 2012, most participants expected the unemployment rate to be close to 8 percent two years from now. At this rate of improvement, it could take four to five more years for the job market to normalize fully.

FOMC participants also projected inflation to be at historically low levels for some time. Very low rates of inflation raise several concerns: First, very low inflation increases the risk that new adverse shocks could push the economy into deflation, that is, a situation involving ongoing declines in prices. Experience shows that deflation induced by economic slack can lead to extended periods of poor economic performance; indeed, even a significant perceived risk of deflation may lead firms to be more cautious about investment and hiring.

I agree that their belief that very low inflation poses the risk of deflation will keep the Bernanke Fed from hiking at least until their inflation forecast picks up, and especially with unemployment north of 8%.

And I don’t see reported inflation picking up without crude oil rising enough and remaining high long enough to drag up core inflation.

Nor do I see any move towards fiscal expansion. Quite the contrary, Congress and the President are in consolidation mode, including cutting Social Security and Medicare expenditures, one way or another.

Nor do I see a burst of domestic credit driven buying anywhere on the horizon.

So still looks to me that fear of being the next Greece continues to work to cause us to be the next Japan.

Still at extremely low levels, but moving up none the less, along with car sales, as happens at the early stages of a consumer credit expansion, supported by the trillions in financial equity from federal deficit spending that continues to add large quantities of income and savings to the economy.

Risks for equities remain the possibility of a near term dollar reversal, proactive fiscal tightening by Congress, and the ECB changing its mind with regards to supporting member funding needs.

Mortgage Applications in U.S. Increase for Third Week on Gain in Purchases

By Courtney Schlisserman

November 25 (Bloomberg) — The number of mortgage applications in the U.S. rose as purchases increased for a third straight week and refinancing picked up.

The Mortgage Bankers Association’s index increased 5.8 percent in the week ended Nov. 5, the Washington-based group said today. Refinancing rose 6 percent and purchase applications were up 5.5 percent, the most since Oct. 1.