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http://www.zerohedge.com/news/two-thirds-all-nevada-mortgages-are-underwater

The latest quarterly report out of CoreLogic is as usual full of curious insights about the state of US housing. Key among them is the finding that "negative equity and near-negative equity mortgages accounted for 27.8 percent of all residential properties with a mortgage nationwide in the fourth quarter, up from 27.1 in the previous quarter....

Neg%20Equity_0.jpg

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If you think we have had any actual austerity then you are a fool. Govt spending has increased since the recession.

I believe they have cut spending but tax receipts have also fallen leading to a minimal net effect.

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I believe they have cut spending but tax receipts have also fallen leading to a minimal net effect.

Nope

This is what people mean when they talk about cuts.

But in actual money terms - spending has increased and is projected to increase for the next 3 years.

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  • 2 weeks later...

price_rent3.jpgprice_rent3.jpg

http://www.economonitor.com/rebeccawilder/2012/03/19/housing-bubbles-less-frothy-but-europe-is-behind/

Spanning the years 2005 to Q4 2011 and indexed to 1997 Q1, home values peaked at roughly 1.7 times rent in the US, 1.8 times rent in Spain, and north of 2 time rent in Ireland and the UK. Since the peak, though, US home values have fallen to 1.0 times rent - a considerable reduction in asset prices toward fundamental value. In contrast, home values in Spain, the UK, and Ireland remain quite elevated to rents, 1.3 times, 1.6 times, and 1.4 times, respectively in Q4 2011. If 1.0 is deemed equilibrium, either home values in Spain, the UK, and Ireland must fall further and/or rents rise to normalize home values. That’s a tall order: rising rental values amid defficient and contracting domestic demand in Spain and possibly Ireland.

The UK has more of a fighting chance, given its relatively easy monetary policy, compared to Ireland and Spain, where more accommodative monetary policy is very lagged amid fiscal contraction. Without growth, though, default is probably the only answer left to normalize housing markets in Spain and Ireland.

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I couldn't quite work out what was going on there. I thought it a strange coincidence that the ratio of buying to renting was 1 in all these countries in 1997.

But there is a rather big assumption at the heart of this analysis...

Why would it be?

Basically it is a ratio of house price inflation to rental inflation over the intervening periods...with the ratio of house prices to rents in 1997 deemed to be 'equilibrium' and set to a fictional value of '1'.

She says the fundamental 'equilibrium' is when the 'flow of rents' = 'purchase price' i.e. = '1'

So it's a measure of fundamental 'value' not necessarily a cycle 'low'.

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;)

Note though, it is ONE of any number of ways to cut this. You could break out 'rich' and 'poor' components for instance or 'corporate' and 'private'.

The 'green' capital account is just shocking. The deterioration seem to have started when the capital controls were lifted and the Bretton Woods system ditched in 1971 with floating exchange rates instead. We've had three humungous credit booms each getting bigger thann the last since then, which fed the trade deficit and burgeouning private and public debts.

If there is an alternative way of cutting the cake which undermines the basic point I believe the graph makes which is (i) that public spending is necessary to enable private savings and (ii) government deficits are necessary during economic hard times to create the space for the private sector to pay down debt I'd be interested to see it.

What is interesting to me is the loss of private savings during the Clinton years sowing the seeds of the later disaster. I'd be interested to see a UK equivalent, though I think interestrateripoff's chart is interesting in showing a govt surplus in 1989 and 1990, pumping credit shortly before a nasty recession. It also shows Labour's spending was nothing special until the crisis, though to my mind that does not excuse the massive waste of the Labour years. My objection to them isn't the level of spending, but what it was spent on.

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If that is the case, how come all countries were in perfect equilibrium in 1997. All Labour's fault? B)

I think the argument being made is that that is the point at which rents v prices were fundamentally balanced. In the UK for instance, it marked (more or less) the lows from Lawson's boom/bust and the point at which prices started expanding again relative to rents. Rate cycle too from Major's ERM debacle.

Rental yields v prices seems like one sensible measure though.

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;)

Note though, it is ONE of any number of ways to cut this. You could break out 'rich' and 'poor' components for instance or 'corporate' and 'private'.

The 'green' capital account is just shocking. The deterioration seem to have started when the capital controls were lifted and the Bretton Woods system ditched in 1971 with floating exchange rates instead. We've had three humungous credit booms each getting bigger thann the last since then, which fed the trade deficit and burgeouning private and public debts.

Or when Volcker realised that in order to bring Asia/China into the world economy the US would have to run dollar deficits. It coincides too with the Western disinflation from Asia/China labour supply. Where else would Asia/China reserves come from?

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Working from the Bank of England Bankstats release:

Look how tracker rates drift down then suddenly reverse, worries about Credit Crunch II coming to an economy near you? (Those BoE base rate-LIBOR spreads have got pretty eye-catching too. They were lower the month before Lehmans collapsed.)

The%2Bnew%2Bnormal.png

What happened last time the tracker rate started closing in on the SVR rate? That would have been sometime between Q4 2007 and Q1 2008?

tracker%2Bspread.png

Given that less than 10% of mortgage lending is SVR, the SVR basically tells you what the lenders think is a mortgage rate that is guaranteed to make them money, in prevailing conditions. Doesn't that mean that to some extent it gives info on the most profitable rate the market will bear?

The tracker rate gives you some information about where the lenders think things are going and gives an up to the minute steer on their borrowing costs.

Presumably when the gap closes between the two that shows that the lenders can no longer borrow at prices which will make it profitable for them to lend, (without taking on massive risks).

Since the arrest of the 2008-2009 falls, the retail banks have been behaving like a madman poking at a dead dog with a stick, thinking that it might get up and run. But that ain't no dawg - that's a bubble...

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Given that less than 10% of mortgage lending is SVR, the SVR basically tells you what the lenders think is a mortgage rate that is guaranteed to make them money, in prevailing conditions. Doesn't that mean that to some extent it gives info on the most profitable rate the market will bear?

Is it still true that only 10% is SVR? I'm thinkiing post 2009

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