Reuters blog archive

from Counterparties:

Halfway homes?

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The American housing market is looking better. That’s not entirely surprising, given that there was nowhere to go but up after the big bust of 2008. Some indicators — the number of housing starts, for instance — look quite healthy. But a team of researchers from the New York Fed, looking over a treasure trove of new data on the benefits and drawbacks of homeownership, have concluded that the divide between owners and renters is still one of the biggest fault lines in America.

Over the last nine years, the percentage of Americans who own their own homes, typically a marker of middle-class respectability, has fallen from 69 to 65 percent. Moreover, sales of both new and existing homes were about 5 percent lower over the first half of 2014 than over the first half of 2013. There is vigorous debate over why this is the case. The Fed researchers write that the main reasons preventing renters from becoming owners “are weak balance sheets (low savings or high debt), low income, and lack of access to credit.” Lack of desire to own a home doesn’t really factor into it. Nick Timiraos concurs, “The good news from the standpoint of the real-estate industry is that there’s less evidence of a structural shift in Americans’ preference for owning homes.”

The people who can afford to buy their homes these days, Jonathan J. Miller says, are more likely than ever to be wealthy. Seven properties have already sold for over $50 million in 2014, and while these ultra-pricey transactions are outliers, it’s broadly true that wealthy investors are doing better than ever while “the majority of U.S. homebuyers remain dependent on access to credit. And today's tight lending conditions aren’t expected to ease anytime soon.” Emily Badger points out that the line between owners and renters is becoming more blurred than ever. Neighborhoods that used to shun renters have to get used to a new normal: “Picture low-density, single-family neighborhoods dotted with rentals that look architecturally indistinguishable from the owned homes,” Badger says. This is especially the case in places like Las Vegas, Phoenix, and Florida, which were hit hardest by the housing bust.

So what’s left for the increasing number of renters? One trend that’s been underway for some time is so-called “rental securitization,” in which investment banks and other firms buy rental housing, largely single-family homes, and package them much as they did with mortgages. The New York Times recently reported on how this phenomenon is becoming widespread in lower-income suburbs like Ferguson, the Missouri suburb recently torn apart by protests over the police shooting of an unarmed black teenager. And in cities where single-family houses are rare, Alexis Stephens says, the new trend of “property funds” allows outside investors to put money in the housing stock of once-gritty neighborhoods like New York’s Bedford-Stuyvesant, and reap the profits when prices go up—putting further stress on a neighborhood where “the average monthly apartment rent is up 46 percent over the past five years.” — Jordan Fraade

from Counterparties:

More sensible homes

U.S. housing prices fell 0.2% in June from May, the latest data from the Case Shiller index shows. Compared to June last year, prices were up 8.1%, but the pace of the increase is still slowing down. May’s numbers showed a year-over-year change of positive 9.4%.

Cullen Roche noted that the yearly growth in housing prices was nearly 15% earlier in 2014. Calculated Risk’s Bill McBride says he’s “been expecting a slowdown in year-over-year prices as ‘For Sale’ inventory increases, and the slowdown is here!” June's yearly increase was the smallest since December 2012 and June was the third-straight month of inflation-adjusted declines in housing prices.

from Breakingviews:

France’s housing slump is sign of deeper woes

By Pierre Briançon

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

François Hollande could live with a housing bubble. That would at least signal euphoria in a significant part of the French economy. But house prices are declining, a reflection of the depth of the country’s economic woes, and its president’s inability to address them.

from Counterparties:

MORNING BID – The economic state of things

The jobs report takes a bit of heat off of Thursday’s selloff, which was predicated in part on some nonsense out of Europe and more importantly some kind of growing consensus that the economy is getting hot enough that it might force the Federal Reserve to start raising rates a bit earlier than expected, given a sharp and unexpected rise in the employment cost index on Thursday. And while it’s fair to suggest the stock market has gotten a bit ahead of itself when the Fed is rapidly moving toward the end of its stimulus policies, it’s also possible that stocks have gotten ahead of themselves for a far more prosaic reason – the economy isn’t strong enough to support the kind of valuations we’re seeing in equities right now.

That’s not to say we’ve got bubbles all over the place in stocks – they’re pretty few and far between – but credit standards in various places have loosened, and if the Fed starts raising rates we’re going to see a pretty quick reversal of that before long. There are significant signs of concern emerging in places like the high yield market, which has dropped off sharply in recent days, particularly among the weakest credits, and the housing and auto markets, which are better leading indicators than the jobs data, also suggest that the slack credit standards may end up hitting a wall before long.

from Data Dive:

Millennials: forever renters or just delayed homeowners?

The White House wants to help you move out of your parents’ basement. That was the message from Jason Furman, the chairman of the White House’s Council of Economic Advisers, at the Zillow Housing Forum in Washington yesterday.

Here are the basics: housing is a big driver in the U.S. economy. Young people aren’t buying houses during the recovery at as high a rate as they did historically, which is at least part of the reason that the housing recovery (and thus the great economic recovery) from the Great Recession has been sluggish. The question is why, and to what extent will this trend become permanent?

from Breakingviews:

London real estate at an inflection point

By George Hay

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Most real estate valuers in London think property prices in the UK capital are about to fall. That prediction has been easy to make and easier to get wrong in the last five years. This time, the evidence that global investors’ favourite housing market has peaked is looking credible.

from Expert Zone:

When are house prices a worry?

(Any opinions expressed here are those of the author and not of Thomson Reuters)

As I speak with a relatively recognizable British accent, travelling by taxi in many Asian countries has become something of a trial in recent years. Whenever my nationality is recognized, I am (courteously) asked for my views on the London property market, and where to buy. In a world of low interest rates, property has become increasingly fashionable, and somehow housing advice delivered in a British accent has become highly sought after.

The development of One Hyde Park is seen in LondonProperty prices in London are now over 30 percent above their pre-crisis level. For the rest of the UK, house prices are now back where they were before the onset of the economic crisis (it should be noted that the economy is around 13 percent larger in nominal terms over the same period, so the house price to GDP ratio has fallen for the country as a whole). In the United States, house prices have yet to regain their pre-crash levels, but they are up 20 percent from their lows. Even in the Euro area, not an economy noted for its vibrancy, German property prices are 10 percent higher than they were before the crisis.

from MacroScope:

New EU takes shape


The new EU aristocracy will be put in place this week with the European Parliament to confirm Jean-Claude Juncker as the next European Commission President today and then EU leaders gathering for a summit on Wednesday at which they will work out who gets the other top jobs in Brussels.

Although Juncker, who will make a statement to the parliament today which may shed some light on his policy priorities, is supposed to decide the 27 commissioner posts – one for each country – in reality this will be an almighty horse-trading operation.

from Counterparties:

MORNING BID – Closet cases

Usually when retailers warn of earnings weakness - particularly if they're saying the entire economy is in a funk - there are two possible explanations:

1: They're right, and the real economy is truly suffering, or
2: It's all their own fault.

from MacroScope:

Bank of England, the first mover?


After the European Central Bank kept alive the prospect of printing money and the U.S. economy enjoyed a bumper month of jobs hiring prompting some to bring forward their expectations for a first U.S. interest rate rise, the Bank of England holds a monthly policy meeting.

There is no chance of a rate rise this time but the UK looks increasingly nailed on to be the first major economy to tighten policy, with the ECB heading in the opposite direction and the U.S. Federal Reserve still unlikely to shift until well into next year. Minutes of the Fed’s last meeting, released yesterday, showed general agreement that its QE programme would end in October but gave little sign that rates will rise before the middle of 2015.