Tag: Mortgage Rates

Low to Negative Mortgage Rates in Europe Have Distorted Property Markets

NYT – Mortgage Rates Below 1% Put Europe on Alert for Housing Bubble – Liz Alderman 12/17/19

Money is so cheap — a 20-year mortgage can be had in Paris or Frankfurt at a rate of less than 1% — that borrowers are flocking to buy apartments and houses. And institutional investors, seeing a chance for lucrative returns, are acquiring swaths of residential real estate in cities across Europe.

In some parts of Europe, said Jörg Krämer, the chief economist at Commerzbank in Frankfurt, valuations have already returned to or exceeded levels that preceded the Continent’s debt crisis a decade ago, igniting concerns that the property boom could end badly.

“The risks are real, because negative interest rates in Europe are cemented,” Mr. Krämer said. “What’s important for the economy as a whole is to prevent the emergence of a dangerous new bubble.”

Demand has surged in the five years since the European Central Bank pushed one of its benchmark interest rates below zero, a step never before tried on such a scale. Prices jumped at least 30% in Frankfurt, Amsterdam, Stockholm, Madrid and other metropolitan hot spots, and are up an average of over 40% in Portugal, Luxembourg, Slovakia and Ireland.

While low rates helped produce a rebound in the eurozone, economists say the policies now appear to be doing more harm than good, clouding the bank’s efforts to reverse inequality. They have not resolved fundamental problems like weak business investment. Nor have they revived inflation — which helps lift wages — anywhere but in the housing market.

The Bundesbank, Germany’s central bank, said recently that real estate in German cities had been overvalued by 15 to 30% — in other words, that there is a bubble. The UBS survey cited Munich, Frankfurt, Amsterdam and Paris as cities at risk. And a study by the global accounting firm Deloitte & Touche cautioned that average house prices “will exceed pre-crisis levels” if the European Central Bank keeps interest rates at zero, as planned.

Housing prices have risen sharply in the United States as well. But there, the boom has been driven by individual buyers, household debt has been held in check and lending standards have remained relatively tight — all factors that reduce the chance of another collapse. Moreover, while benchmark interest rates in the United States have been kept low, they were never negative — and have now been above zero for several years.

The scarcity of affordable housing is fueling resentment and political strife. In Madrid and Barcelona, home prices have jumped more than 30% since 2016, pushing rents up as landlords sought bigger returns. Prime Minister Pedro Sánchez capped rents in Spain this summer at the rate of inflation, now 0.4%, limiting income for property owners.

In Paris, where 70% of residents are renters, Mayor Anne Hidalgo imposed new rent controls. While rents are limited by strict housing regulations, they have risen 40% between 2000 and 2018. As property prices keep climbing — they recently broke a record of 10,000 euros on average per square meter, or about $1,000 per square foot, one of the highest prices in Europe — Ms. Hidalgo is taking other steps to prevent the city from becoming a “ghetto for the rich.” Her plans include building subsidized housing that families with modest incomes can purchase at half the market rate.

Few places have felt the impact as sharply as Berlin. Since the fall of the Berlin Wall 30 years ago, workers, artists and students have increasingly been displaced by an influx of young professionals with families. But property prices and rents have skyrocketed in recent years as home buyers and investors double down.

The city imposed a five-year rent freeze, the toughest in Europe, in the summer after rents jumped more than 50% in five years, and gave tenants the right to demand reductions if rents go too high. German real estate stocks have slumped since the ruling.

In Denmark, which is not part of the euro but closely tracks E.C.B. monetary policy, benchmark interest rates have been negative for seven years. Seeking greater returns, some Danish pension funds are buying large holdings of prime real estate and new buildings to offer for rent. But rents have grown so high that the city is considering capping them, which could cut into those investments.

At the same time, rates are so low that bargains being offered by banks are hard to pass up. In August, Jyske Bank of Denmark began offering 10-year fixed-rate mortgages at negative 0.5% interest before fees, meaning the amount outstanding on the loan will be reduced each month by more than the borrower has paid. Nordea Bank is offering 20-year loans at zero interest.

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May 21, 2018

Perspective

WSJ – U.S. Births Hit Lowest Number Since 1987 – Janet Adamy 5/17

  • “The figures suggest that a number of women who put off having babies after the 2007-09 recession are forgoing them altogether. Kenneth M. Johnson, senior demographer at the University of New Hampshire, estimates 4.8 million fewer babies were born after the recession than would have been born had fertility rates stayed at prerecession levels.”
  • “One bright spot in Thursday’s figures, which are preliminary, is a continued sharp decline in teen births, which fell 7% last year. Since 2007, the teen birthrate has declined by 55%, and is down 70% since its peak in 1991. Children born to adolescents are more likely to have poorer educational, behavioral and health outcomes throughout their life.”
  • “Mr. Johnson estimates that lower teen fertility accounts for about one-third of the overall decline in births among U.S. women.”
  • “The increase in women attending college is another force behind the birth decline, researchers say. Those with more skills face a greater trade-off if they interrupt their careers to have children.”

Worthy Insights / Opinion Pieces / Advice

A Wealth of Common Sense – Thinking Outside the Box – Ben Carlson 5/18

Markets / Economy

WSJ – Daily Shot: US Continuing Jobless Claims 5/17

  • “The number of Americans receiving unemployment benefits hit the lowest level since 1973. Layoffs are becoming increasingly rare as the job market tightens further.”

WSJ – Daily Shot: FRED – US Job Vacancy Duration 5/18

WSJ – When It Comes to Tech, Venture Capital Grows Less Venturesome – Jacky Wong 5/18

  • “More big deals for already large private companies means less left for early-stage startups.”

Real Estate

FT – Young left out of US boom in housing wealth – Sam Fleming 5/17

  • “America’s housing wealth has staged a complete recovery since the financial crisis, but the holdings are increasingly skewed towards older borrowers and those with strong credit ratings and away from the young, the Federal Reserve Bank of New York said.” 
  • “Home ownership rates among those under 45 have slid sharply since the previous boom. As a result, many younger Americans have missed out in a house price resurgence that has taken values up by 50% from the crisis-era trough.”
  • “The New York Fed’s finding suggest that, on an aggregate level, America’s stores of wealth have fully rebounded from the crash, buoyed by a recovery that has now been running for 106 months, one of the longest on record. Financial wealth, which includes stocks and other financial assets, now stands at more than $80tn, more than 75% above the 2009 trough.”
  • “Yet the prosperity boom has been concentrated in a relatively small sliver of the population. The top 10% of households own 84% of stock market wealth, for example.”
  • “Housing wealth tends to be more widely distributed, but here too there are signs that larger sections of the population are missing out, in part because mortgage lending standards are far tighter than before the crisis.”

WSJ – Mortgage Rates Hit Seven-Year High as Ultracheap Era Ends – Laura Kusisto and Christina Rexrode 5/18

Finance

WSJ – Daily Shot: NY FED – US Non-Housing Debt Balance 5/18

WSJ – More Than 200 China-Listed Stocks to Join MSCI’s Indexes – Joanne Chiu 5/15

Asia – excluding China and Japan

FT – Malaysian police seize 284 boxes of handbags in ex-PM probe – Alice Woodhouse and Harry Jacques 5/18

  • “Malaysian police said they had seized 284 boxes of luxury handbags and more than 70 bags of jewelry from properties in the country’s capital as part of the new government’s probe into billions of dollars missing from the country’s 1MDB fund.”

 

April 6, 2018

If you were only to read one thing…

Bloomberg Businessweek – How Facebook Helps Shady Advertisers Pollute the Internet – Zeke Faux 3/27

  • Affiliate networks (‘affiliates’) = companies/brokers that design advertisements and pay to place them on social media sites on behalf of merchants.
  • “Granted anonymity, affiliates were happy to detail their tricks. They told me that Facebook had revolutionized scamming. The company built tools with its trove of user data that made it the go-to platform for big brands. Affiliates hijacked them. Facebook’s targeting algorithm is so powerful, they said, they don’t need to identify suckers themselves—Facebook does it automatically.”
  • “The basic process isn’t complicated. For example: A maker of bogus diet pills wants to sell them for $100 a month and doesn’t care how it’s done. The pill vendor approaches a broker, called an affiliate network, and offers to pay a $60 commission per sign-up. The network spreads the word to affiliates, who design ads and pay to place them on Facebook and other places in hopes of earning the commissions. The affiliate takes a risk, paying to run ads without knowing if they’ll work, but if even a small percentage of the people who see them become buyers, the profits can be huge.”
  • “Affiliates once had to guess what kind of person might fall for their unsophisticated cons, targeting ads by age, geography, or interests. Now Facebook does that work for them. The social network tracks who clicks on the ad and who buys the pills, then starts targeting others whom its algorithm thinks are likely to buy. Affiliates describe watching their ad campaigns lose money for a few days as Facebook gathers data through trial and error, then seeing the sales take off exponentially. ‘They go out and find the morons for me,’ I was told by an affiliate who sells deceptively priced skin-care creams with fake endorsements from Chelsea Clinton.”
  • “In a sense, affiliate scammers are much like Cambridge Analytica. Because Facebook is so effective at vacuuming up people and information about them, anyone who lacks scruples and knows how to access the system can begin to wreak havoc or earn money at astonishing scale.”
  • This is not a new game.
  • Affiliates are “…applying tricks on Facebook that had been invented by email spammers, who’d in turn borrowed the tactics of fax spammers in the 1980s and ’90s. New forms of media have always been hijacked by misleading advertising: 19th century American newspapers were funded in part by dishonest patent medicine ads. Within days of Abraham Lincoln’s inauguration, the makers of Bellingham’s Onguent were placing ads claiming the president had used their product to grow his trendy whiskers.”
  • “Fake personal endorsements and news reports are still the most effective tricks. Dr. Oz, the Shark Tank judges, and Fixer Upper co-host Joanna Gaines are among the most popular imprimaturs…”

Perspective

howmuch.net – How Much Income You Need to Afford the Average Home in Every State in 2018 – Raul 4/2

WSJ – Daily Shot: Deutsche Bank – US Households with Zero or Negative Home Wealth 4/5

WSJ – Daily Shot: Deutsche Bank – Road Quality in the US 4/5

Worthy Insights / Opinion Pieces / Advice

A Wealth of Common Sense – Situational Awareness – Ben Carlson 4/5

Bloomberg Businessweek – The Ancient History of Bitcoin – Peter Coy 3/29

  • “Cryptocurrencies may seem brand-new and disruptive, but look to the past and it’s clear they can be regulated.”

Civil Beat: The Associated Press – Hawaii’s Low Unemployment Rate Masks Underlying Problems 4/4

  • “In a state with a jobless rate of 2.1%, island residents have work if they want it. But their incomes often don’t pay the bills.”

NYT – Why China Is Confident It Can Beat Trump in a Trade War – Steven Lee Myers 4/5

  • “In the political realm, however, Mr. Xi enjoys advantages that may allow him to cope with the economic fallout far better than Mr. Trump can. His authoritarian grip on the news media and the party means there is little room for criticism of his policies, even as Mr. Trump must contend with complaints from American companies and consumers before important midterm elections in November.”
  • “The Chinese government also has much greater control over the economy, allowing it to shield the public from job cuts or factory closings by ordering banks to support industries suffering from American tariffs. It can spread the pain of a trade war while tolerating years of losses from state-run companies that dominate major sectors of the economy.”
  • “’The American agricultural sector is quite influential in the Congress,’ said Wang Yong, a professor of economics at Peking University, explaining why China has targeted farm products such as soybeans with possible retaliatory tariffs. ‘China wants the American domestic political system to do the work.’”

Visual Capitalist – The Jump from Millionaire to Billionaire, and How Long That Takes – Jeff Desjardins 4/4

WSJ – Even After a Tumble, the Stock Market’s Price Isn’t Right – Spencer Jakab 4/4

WSJ – At Quarter End, Tesla Suddenly Got Busy – Michael Rapoport 4/4

Markets / Economy

howmuch.net – How Vulnerable is Each State to a Trade War – Raul 3/27

Real Estate

WSJ – Daily Shot: LendingTree – Home Mortgage Purchase APR by Credit Score Range 4/5

Energy

FT – Alphabet becomes biggest corporate renewable energy buyer in US – Leslie Hook 4/4

  • “Alphabet bought enough renewable energy last year to match the power needs of all its data centers and global operations, making it the biggest corporate buyer of renewable power in the US.”
  • “The company has secured 3GW of renewable energy, making it the largest corporate buyer of renewable power, according to Bloomberg New Energy Finance, while Amazon and Apple are in second and third place.”
  • “Amazon has pledged that its cloud computing business will be 50% matched by renewables in 2017, while Apple has promised to source four gigawatts of renewable power by 2020, and has been trying to reduce the emission footprint of its supply chain.”

Finance

WSJ – Bill Ackman’s Pershing Square Faces Wave of Investor Redemptions – David Benoit 4/5

Cryptocurrency / ICOs

WSJ – Daily Shot: Barchart.com – Bitcoin 4/4

Automotive

WSJ – Car Makers Step Back From Cars – Mike Colias and Christina Rogers 4/4

  • “GM to stop production of the Chevrolet Sonic, Ford plans to end U.S. sales of Fiesta and Taurus amid Detroit’s broader exodus from passenger cars.”

China

Reuters – China’s HNA to sell some or all of $6.3 billion Hilton stake – Ankit Ajmera and Koh Gui 4/5

 

February 26, 2018

Perspective

Economist – Daily Chart: Are alpha males worse investors? 2/20

WSJ – Household Debt Sees Quiet Boom Across the Globe – Josh Zumbrun 2/18

WSJ – Daily Shot: United Nations – Global Population Trends 2/23

  • “The global population pyramid is expected to invert by 2100 as the population gets closer to peak levels.”

Markets / Economy

WSJ – Daily Shot: Credit Suisse – Domestic Equity Flows 2/23

Real Estate

WSJ – Daily Shot: FRED – US mortgage rates 2/23

Finance

WSJ – Daily Shot: U.S. 3-Month LIBOR Exchange Rate 2/20

WSJ – Daily Shot: U.S. Borrowing Costs Among Highest in Developed World – Richard Barley 2/21

Cryptocurrency

WSJ – Daily Shot: Bitcoin 2/22

China

Economist – The rapid rise and fall of the Anbang empire 2/23

  • “China’s government takes control of its would-be financial colossus.”

WSJ – Daily Shot: BMI, Chinawealth – China Wealth Management Product Growth 2/22

WSJ – China’s Communist Party Proposal Sets Stage for Xi to Hold Onto Power – Chun Han Wong 2/25

  • “Proposal would eliminate the constitutional cap on presidential terms.” Currently set at two terms of five years each.