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Existing Home Sales Fall 3.8 Percent

On June 21, 2011, in Housing, by Tim

The National Association of Realtors reported that existing home sales fell 3.8 percent in May to an annual rate of 4.81 million units and home values continue to decline on a year-over-year basis, the median price down 4.6 percent from a year ago to $166,500.

Distressed home sales accounted for 31 percent of all sales in May, down from 37 percent in April, and all cash transactions dropped from 31 percent t0 30 percent as more traditional homebuyers entered the market in the spring, the beginning of the seasonally strong mid-year months for property sales.

The months of supply metric rose from 9.0 months to 9.3 months in what many see as further confirmation of the ongoing “double-dip” in housing, but NAR chief economist Lawrence Yun remains optimistic, noting that temporary factors are now holding back the market. “Spiking gasoline prices along with widespread severe weather hurt house shopping in April, leading to soft figures for actual closings in May,” he said. “The pace of sales activity in the second half of the year is expected to be stronger than the first half, and will be much stronger than the second half of last year.”

Yes, we’re starting to hear a lot about a “second half recovery”, that is, after the first half of 2011 has proved to be such a disappointment.

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18th Century France: “If you really wanted to insult someone, you called them a banker”

On June 21, 2011, in Currencies, Our Culture, by Tim

James Turk of GoldMoney.com and Max Keiser have produced some new videos about paper money’s disastrous appearance in France during the 18th century, a period of history that most people are either unaware of or, somehow, think bears no relationship to what we’ve seen in the last few decades on a global scale.

Since John Law is the subject of part I in the video above (part II is here), now’s the perfect time to point to the online version of Charles MacKay’s 1848 classic, Extraordinary Popular Delusions And The Madness Of Crowds. If you haven’t already done so, reading the first 100 pages is highly recommended as it just might radically change how you think about paper money and speculative bubbles.

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Livin’ Ain’t Easy in the U.K.

On June 20, 2011, in Debt, Europe, by Tim

A report in the U.K.’s Telegraph today describes what it’s like in the world’s other fading Anglo-Saxon empire, this empire in a much more advanced stage of decay than ours where the effects of a late stage financial economy have now all but vanished, leaving the citizenry to rack up more credit card debt just to put food on the table and heat the house.

Britons’ finances have suffered their steepest decline since the recession in June as people loaded up with more debt to finance the rising cost of living, according to the monthly household finance index from Markit.

Six times as many households (36pc) saw their financial position worsen from May, compared to those who saw an improvement (6pc), the leading monthly survey from the financial information firm showed. Data was collected between June 8 and 14.

People’s finances deteriorated as they delved into their savings and took on more debt to cope with increasing prices and falling incomes. That helped the index’s headline measure drop to 35.1, the lowest level since March 2009, when the UK was still mired in recession.
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The findings support predictions from the Office for Budget Responsibility (OBR), the independent fiscal watchdog, that households will borrow more to maintain their living standards – £500bn more within four years, or £20,000 per family.

Inflation, currently more than double the target, at 4.5pc, means prices are rising much faster than people’s wages, resulting in “real” cuts which leave families squeezed. By 2015, debt as a proportion of income will have jumped by 15 percentage points to 175pc, passing even 2007’s record 173pc level, the OBR predicts.

This is what some are now calling the “New Road to Serfdom” (that is, so long as the banks don’t cut these people off), a condition that is already showing up here in the U.S. and one that will likely get much, much worse in the years ahead.

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A Government Owned Mortgage Market

On June 20, 2011, in Banks, Housing, by Tim

During a week when more bad news on housing is likely to come (existing home sales on Tuesday and new home sales on Thursday), this Wall Street Journal story reminds us how sickly the U.S. mortgage market is, having been almost completely supported by the U.S. government for more than three years now with little chance of that changing anytime soon.

What you see circled in the graphic above is summarized as follows:

Together with the Federal Housing Administration and federal agencies, Fannie and Freddie are behind nine in 10 new mortgages. The firms don’t make loans; instead, they buy them from lenders, repackage them for sale to investors as securities, and offer guarantees to make investors whole if borrowers default.

With investor appetite for mortgage backed securities waning, maybe it would be better to get rid of the big banks and mortgage securitization and make borrowing and lending local again, that is, when you looked across the table at the banker down the street and the two of you decided if you wanted to enter a long-term relationship.

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Wells Fargo Exits Reverse Mortgages

On June 17, 2011, in Banks, Housing, by Tim

This item at Housing Wire should strike fear into those thinking that home prices might recover sometime in the foreseeable future since another big U.S. bank no longer wants to take the chance that prices will keep falling.

Wells Fargo will no longer originate reverse mortgages because of unpredictable home values and restrictions on those loans.

A reverse or Home Equity Conversion Mortgage allows the borrower, who must be at least 62 years old, to convert a portion of the equity in the home for cash. No repayment is required until the borrower no longer uses the home as a principal residence, often in the event of death.

In March, Wells moved its reverse mortgage originations in house and away from brokers. But now it will cease the product line all together. In 2010, reverse mortgages totaled roughly 2.2% of the bank’s $392.5 billion mortgage volume.
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Bank of America ceased its reverse mortgage lending in February. Wells said the 1,000 member staff of the reverse mortgage department will be able to apply for other positions at the bank.

Anyone approaching the age of 62 with plans to take out a reverse mortgage is probably getting a little worried too since many seniors are house rich/cash poor and, despite their high fees, these loans offer a unique opportunity for those with few other choices.

Having become familiar with this subject over the past few years as a result of experiences with family members, at a time when no one’s sure whether home prices will fall another 5 percent or another 50 percent, banks’ unwillingness to issue more reverse mortgages is quite understandable since, in many cases, they are legally bound to keep on paying the borrower well beyond the point that they’ve got a negative equity position in the property.

In the aftermath of the housing bubble bust, this was once one of banks’ few growth areas since fewer people were buying homes, but seniors still needed a way to buy their Meds.

But, as prices continued to fall – wiping out more of seniors’ equity, particularly in the hardest hit states where price declines have been extreme – even these loans started to look like losers and my only question is, “What took the banks so long to realize this risk?”

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More Tarnish on the Goldman Shine – Part 63

On June 17, 2011, in Banks, Commodities, by Tim

Officials at Coca-Cola and elsewhere are complaining loudly about the undue influence Goldman Sachs, JP Morgan, and other investment banks now have on metals markets and the availability (and price) of, for example, aluminum. The Wall Street Journal reports($) (go here if no WSJ sub) that the London Metals Exchange is now looking into the matter.

Goldman Sachs Group Inc. and other owners of large metals warehouses are being scrutinized by the London Metal Exchange after being accused by users like Coca-Cola Co. of restricting the amount of metal they release to customers, inflating prices.
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In recent years, investment banks like Goldman and J.P. Morgan and commodities houses like Glencore have been snapping up warehouses around the world, turning the industry from a disperse grouping of independent operators into another arm of Wall Street. The LME has licensed about 600 warehouses around the world.

Glencore bought the metals-warehousing operations of Italian family-owned Pacorini Group and J.P. Morgan bought Henry Bath as part of its purchase of some of the commodities assets of RBS Sempra.

The transformation has raised questions about whether the investment banks, which also have big commodity-trading arms, are able to use their position as owners of warehouses to manipulate prices to their advantage.

The warehousing issue alarmed one trader enough to seek government intervention. Anthony Lipmann, managing director of metals trader Lipmann Walton & Co. Ltd., gave evidence to the U.K. House of Commons Select Committee in May 2011, raising concern about large banks and trading houses owning facilities that store other people’s metal.

The banks have said they have walls between their various operations.

Of course they have walls… Everything is on the up-and-up and record profits in their commodity trading arms are just a coincidence (an unfortunate one for users).

Goldman should probably be proactive here and further ramp up that inner-city do-gooder advertising campaign they’ve been using in recent months to improve their image that was badly damaged as a result of their role in the financial crisis and the “vampire squid” moniker they’ve been saddled with.

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