Three snapshots for Wednesday
Spanish house prices fell 7.2 percent in the first quarter from a year earlier while Spanish banks’ bad loans rose to their highest level since October 1994 (see chart).
The Bank of England is poised to turn off its money-printing press next month. Minutes of the Bank’s April meeting, combined with a stark warning on inflation from deputy governor Paul Tucker on the same day, signalled a sharp change in tone that could bring forward expectations for interest rate rises.
Does the E in PE need a reality check too?
No hard landing for Chinese real estate
The desperate days when Chinese property developers offered free cars as an inducement to homebuyers look to be over.
Sales and earnings figures indicate some of the gloom is lifting as developers have enjoyed a second straight month of rising sales. Vanke, China’s biggest developer by sales, said last week that March sales had risen 24 percent year on year, while 2011 profits rose 30 percent. Another firm, China Overseas Land, posted a 21.5 percent profit rise last year.
The mood is reflected in stock prices. While the Shanghai shares index has risen less than 5 percent this year, a sub-index of Chinese property companies has risen 13 percent. Shares in Vanke and COL are up 13 percent and 22 percent respectively. A Reuters poll of fund managers showed that investors had upped their weighting for property stocks to 10.9 percent at the end of March, the highest level in two years.
The share rally has continued even though the government has dashed hopes it will soon wind down its two-year campaign to bring down property prices. It has also bucked a broad housing market slowdown (home prices fell for the fifth straight month in February) amid signs that Chinese authorities are unlikely to provide the economy with any further stimulus. Analysts at Citi said in a recent note:
Developers’ comfort under current tightening (policy) and confidence in a stable outlook suggests the toughest time for China’s property sector is over.
For a long time, the country’s real estate market — and the possibility of a crash there — has generated fear in the minds of China-watchers. That danger is by no means over — economic growth is cooling but inflation remains high. Companies too have warned that tough times still lie ahead.
But many such as Karine Hirn, Shanghai-based chief representative of asset manager East Capital, have never believed in an outright property sector collapse. China has an 80 percent home ownership rate and 25 million people work in construction, she points out. Real estate accounts for 13 percent of China’s GDP. So it is unlikely the government would ever have risked a property price crash. Hirn also points out that while sales in cities like Beijing and Shanghai are indeed slowing sharply,the market remains robust in Tier-3 cities – home to over half of China’s urban population.
Three snapshots for Friday
Yesterday’s much worse than expected PMI data from the euro zone has pushed the Citigroup economic surprise index for the region below zero.
Germany has been one of the strongest performing equity markets this year but is still in the middle of the pack compared to other European countries on valuation.
U.S. new home sales slipped 1.6 percent to a seasonally adjusted 313,000-unit annual rate. Economists polled by Reuters had forecast sales at a 325,000-unit rate in February.
Three snapshots for Tuesday
U.S. February housing starts fall slightly to a 698,000 annual rate:
UK inflation edged down to 3.4% in February:
Spanish banks’ bad loans highest since August 1994
from Reuters Investigates:
China’s rebalancing act puts consumer to the fore
Wal-Mart, the world's largest retailer, now has 189 stories in China, according to its website. Soon it will have many more. The U.S. chain has announced plans to open a series of "compact hypermarkets", using a bare-bones model developed in Latin America, the Financial Times said.
Wal-Mart stores are a bit different than the one's you might find in, say, Little Rock Arkansas. They sell live toads and turtles for one thing, The Economist reported. But they also sell the appliances, gadgets, and housewares that Wal-Mart stores merchandise everywhere.
And business is booming. Third-quarters sales in China soared 15.2 percent from a year earlier, according to the Financial Times story, compared with a paltry 1.4 percent inthe United States.
China's consumption has been growing. Quite fast, in fact. Yet it still acounts for just a third of GDP, compared with around 60 percent in Europe and about 70 percentin the United States. But that is starting to fundamentally change. A Reuters Special Report by Alan Wheatley, "The Chinese Consumer Awakens" notes that wages are rising fast. People are moving into new cities in China's vast interior, and manufacturers and retailers are following them. Call it China's great rebalancing act, as the government tries to promote more consumption and rely less on cheap exports from "the workshop of the world" for future growth.
Timothy Geithner certainly hopes to see this. The U.S. Treasury Secretary is counting on hundreds of millions of Chinese to spend more and save less. That way, Chinese factories would produce more for domestic consumption and less for export, helping to narrow the trade imbalances that are destabilizing the global economy.
Photo caption: Chinese vegetable vendor sleeping in open air market in Changzhi, Shanxi province. REUTERS/stringer
Besides chocolate what other US products can you find in a chineese Wal-Mart or is the word trade just a loose term for Company Store.
Act now or forever hold your (b)-piece, Obama
It appears the penny has finally dropped in Washington.
Bank bailout watchdog Elizabeth Warren, chair of the Congressional Oversight Panel, has unveiled a report that outlines the perilous state of the U.S. commercial mortgage sector, which left unaided could spark “economic damage that could touch the lives of nearly every American”.
The Havard Law School Professor and her panel colleagues are talking the kind of apocalyptic language that may just shock the White House and its star policy advisers into facing problems banks have now rather simply obsess about those they may or may not encounter in the future.
The global banking system may well need some kind of Volcker-esque guidelines to curb the next generation of excessive risk-takers but critics say Obama is putting the cart before the horse in his efforts to haul the economy back on track.
Certainly, the U.S. government has toiled long and hard to stabilise the U.S. housing market, like propping up Fannie and Freddie and their dysfunctional offspring, but the subprime mess has distracted attentions from the toxic commercial market, where the clean-up task is no less important.
Warren reckons there is about $1.4 trillion worth of outstanding commercial real estate loans in the U.S that will need to be refinanced before 2014, and about half of them are already “underwater,” an industry term that refers to loans larger than the property’s current value.
But some believe bank brains are wasting too much time figuring out how the so-called “Volcker rule” might affect their operations and future profitability, instead of getting their arms around the real estate loans that could snap their institutions in two long before the anti-risk measures even take hold.
has it ever occured to people that the Obama administration is not there to fix anything ? just asking
Swine flu shakes Spanish property bargain hunters
It must be tough to be a Spanish homeseller right now.
Just as investors pluck up the courage to once again dip a toe in the Mediterranean housing market, along comes a killer flu pandemic that keeps bargain-hunting foreigners thousands of miles from a purchase.
Earlier this week, Palma Property Auctions – one of Spain’s biggest holiday home auctioneers – said rising swine flu fears among clients had forced it to shelve its eagerly-awaited summer sale.
“We had nine concrete cases of people who called us to say they wanted to have a look at a property and possibly take part in the auction, but they were not going to because of swine flu,” Daniel Westerlund, a spokesman for Palma Property Auctions, told Reuters.
Very strange, I can’t say that I knew of any body canceling plans to come to Spain because of swine flu last year, probably a good excuse to stop all of the sales calls from Real Estate agents and not to be dragged around looking at houses!
I would really like to know where they get the stats for house prices because we do not see this is our line of industry and in our area, yes prices have fallen but not as much as the media let on.
Investing with Dante
You know things are bad on financial markets when an investment research note starts talking about Dante‘s visit to the nine circles of Hell with tormented lustful souls and gluttons living in filthy slush.
In the case of State Street Global Markets’ latest report, however, there is a more direct link than simple hyperbole about the way investors are feeling. The firm recently had a chat with former U.S. Treasury Secretary Larry Summers who defined what he saw as the five vicious circles of the current financial crisis.
It goes like this:
Circle One: House prices fall in value, putting some people into negative equity and leading some to default on mortgages. Foreclosures further erode asset values.
Circle Two: Falling asset prices erode bank capital, making banks more hesitant to lend, leading to further asset price falls and lower capital levels.
Circle Three: A slowing real economy reduces financial asset prices, leading to less lending and less investment. This causes the economy to slow further.
Circle Four: A slowing economy means less demand for goods and services, leading to lower employment and even less demand.
Rug pulled away on UK bank funding
Britain’s banks may have borrowed over 200 billion pounds from the Bank of England, four times the amount they were expected to take under an emergency liquidity scheme. It leaves them facing a sharp funding strain next month when the rug gets pulled away.
Alastair Ryan, analyst at UBS, reckons banks have taken over 200 billion pounds under the BoE’s Special Liquidity Scheme since it was offered in April. They had been expected to borrow about 50 billion pounds, although estimates were lifted to near 100 billion as wholesale markets stayed closed. The scheme allows banks to exchange hard-to-trade mortgage assets for government bills.
The problem is the BoE isn’t planning to extend the funding beyond a Oct. 20 deadline . If the borrowing from UK banks has been as high as Ryan estimates, it will have eased a short-term problem but shows how much the liquidity is needed. It also leaves even more medium and long-term funding that the banks will need to replace at some point.
European and U.S. central banks aren’t closing their funding windows. By shutting its window the BoE is pinning its hopes on securitisation markets re-opening, but that seems unlikely soon and could force banks to further shrink their mortgage books at a tough time for them and the housing market.
As the deadline looms, UK regulators, criticised for their handling of Northern Rock at the start of the credit crunch, will face mounting pressure to extend the scheme as confidence among UK banks clearly isn’t back yet.
Golden state continues to lose its real estate luster
New figures show the once-soaring housing market in California continuing an earthbound descent. According to an index that tracks home sales in major metropolitan areas, the price of a single-family home in June fell an average of 15.9% from last year. But the same index, the Standard & Poor’s Case-Shiller Composite-20, released Tuesday, also reported a 25.3% price drop in Los Angeles, a 24.2% decline in San Diego and a 23.7% drop in the San Francisco Bay Area. Only Las Vegas, Miami and Phoenix fared worse, with home prices falling 28.6%, 28.3% and 27.9%, respectively.
The S&P figures come on the heels of equally gloomy numbers from the real estate industry. On Monday the National Association of Realtors said the number of existing homes across the U.S. sold in July rose 3.1% on a seasonally-adjusted basis, while the national median price of an existing home fell around 7% to $212,400. For the same month the California Association of Realtors reported a 43% uptick in the number of existing homes sold statewide but a 40% median price slump, to $350,760, for existing homes.
Lower prices could help those Californians who’ve been priced out of the once-booming housing market, but the state is also among those hardest hit by the real estate bust, and sales volumes in many areas is being pushed by “deeply discounted, distressed sales,” according to CAR President William Brown.
Earlier this month foreclosure tracking company RealtyTrac said more homes across the U.S. are ending up in the hands of mortgage lenders. The company tracks preforeclosure actions including notices of default sent to borrowers, public auctions of homes and bank repossessions. Last month some 28% of foreclosure activity nationwide involved banks repossessing properties under default, while almost a third of foreclosure activity in the Golden State involved so-called real estate-owned properties. Nationwide, foreclosure activity rose 55% on a year-over-year basis, but was up 85% in California.
Analysts don’t see the housing correction easing any time soon. In a research note Tuesday Merrill Lynch said home prices remain well above those reached before the bubbly heights of the housing boom and sees prices nationally falling a further 15% to 20% by the end of next year.
BMO Capital Markets echoed that view.
“Increasingly, our national housing crisis is slowly becoming a series of regional crises with most of the pain felt in Florida, Arizona, Nevada and California. That said, regional price declines will be with us for a while and given that California represents roughly one-third of our GDP, housing will be a drag on economic growth for at least the next four quarters,” the broker wrote to clients Tuesday.
