MacroScope

Right time to pump up UK housing market?

The British government is poised to announce the extension of its “help to buy” scheme for potential home owners.

As of today, any buyer(s) of a property up to a value of 600,000 pounds ($960,000) who can put up a five percent deposit, will see the government guarantee to the lender a further 15 percent of the value so a bank or building society will only be lending on 80 percent of the property’s value. Until now, demands for cripplingly large deposits have shut many prospective buyers out of the market.

The big question is whether now – with property prices rising by around 3 percent nationally and by a heady 10 percent annually in London – is a sensible time to be doing this given Britain’s long history of housing bubbles.

With buying/selling and lending activity below long-term norms, the government and Bank of England argue there is no threat yet (although finance minister George Osborne has just given the BoE more powers to intervene if it changes its mind).

The real solution would be to build many more homes. If housebuilders leap into the fray on the back of this scheme then all may be well and good. But if they don’t…

New twist in Hungary’s Swiss debt saga. Banks beware.

A fresh twist in Hungary’s Swiss franc debt saga. The ruling party, Fidesz, is proposing to offer mortgage holders the opportunity to repay their franc-denominated loans in one fell swoop at an exchange rate to be  fixed well below the market rate.  This is a deviation from the existing plan, agreed in June, which allows households to repay mortgage installments at a fixed rate of 180 forints per Swiss franc (well below the current 230 rate). Households would repay the difference, with interest, after 2015.

If this step is implemented and many loan holders take up the offer, it would be terrible news for Hungary’s banks. The biggest local lender OTP could face a loss of $2 billion forints, analysts at Budapest-based brokerage Equilor calculate.  Not surprisingly, OTP shares plunged 10 percent on Friday after the news, forcing regulators to suspend trade in the stock. Shares in another bank FHB are down 8 percent.

But Fidesz’ message is unequivocal.  ”The financial consequences should be borne by the banks,”  Janos Lazar, the Fidesz official behind the plan says. The government is to debate the proposal on Sunday.

from Tales from the Trail:

Muddy manse

Selling your house? Worried about having to lower the price to get it to move?

How about a $1.275 million price reduction? That’s how much former Fannie Mae CEO Daniel H. Mudd had to cut the asking price on his 11,500 square foot, six bedroom, six full bath (plus three half baths) mansion to find a buyer.  Originally listed for $8.9 million on September 11, the transaction closed on December 11 for $7.625 million.

 

Don’t worry too much for Mr. Mudd, though. He paid $5.15 million for the place in June 2000, leaving him with a 48 percent return on his investment, excluding any renovation costs. And even though he was booted from Fannie Mae when the government took over the housing giant in September 2008 and reportedly wasn’t paid his multi-million dollar severance package, he’s landed on his feet. New York’s Fortress Investment Group named him CEO in August.

 

Wondering what you could have bought from the son of the former NBC News anchor Roger Mudd? Here’s the listing agent’s description:

Housing “W”hipsaw looms

After months of cheerier data, the housing market is set for another tumble, according to John Burns Real Estate Consulting in Irvine, California. The consultants, who provide advice for builders, developers and banks, are calling for a “W”-shaped recovery, marked first by the plunge that Americans living off of home equity would rather forget.

America has breathed a sigh of relief since April, as the summer selling season kicked in and the $8,000 first-time homebuyer credit nudged consumers off the fence into the most affordable market in years. These factors, along with easy financing from the Federal Housing Administration, was the first leg up for the “W,” said Lisa Marquis Jackson, a vice president at John Burns.

The onset of the weaker selling months, a building pipeline of foreclosures and expiration of the tax-credit on Nov. 30 will likely bring rising prices upturn to a halt, creating a “false peak” and fresh downturn, the group says. Federal efforts have slowed foreclosures but have not addressed many issues including unemployment and underwater mortgages, leaving a heavy “shadow inventory” set to knock prices to fresh lows.

An extension to the first-time homebuyer credit — bandied about by the Obama administration — may soften, but not prevent another leg down, the John Burns group said.

Hey buddy, you can keep your dime

It probably isn’t a big surprise that banks are cracking down on consumer loans, but the Federal Reserve’s latest survey of senior loan officers turns up an interesting twist: consumer demand for loans is also falling dramatically.

The headline-grabbing figures read like a classic credit contraction. Nearly 60 percent of banks said they had tightened lending standards on credit card loans in the past three months, and 70 percent had done so on mortgages to “prime” borrowers with good credit histories.

Half of domestic banks said they had become either somewhat or much less willing to make consumer installment loans, up from 35 percent in the previous survey, for the largest percentage in more than two decades.