Home Price Growth Accelerates To 5.9% YoY While Hourly Earnings Growth Is At 2.31% YoY (Seattle Leads Growth At 13.5%, DC And Chicago Last At 3.3%)

The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 5.9% annual gain in July, up from 5.8% the previous month. The 10-City Composite annual increase came in at 5.2%, up from 4.9% the previous month. The 20-City Composite posted a 5.8% year-over-year gain, up from 5.6% the previous month.

Seattle, Portland, and Las Vegas reported the highest year-over-year gains among the 20 cities. In July, Seattle led the way with a 13.5% year-over-year price increase, followed by Portland with a 7.6% increase, and Las Vegas with a 7.4% increase. Twelve cities reported greater price increases in the year ending July 2017 versus the year ending June 2017.

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The SLOWEST growing cities? Washington DC and Chicago at 3.3% increase YoY.

The Case-Shiller 20-City home price index YoY is still 2.52 times hourly earnings growth for most workers.

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The Case-Shiller index is now at an all-time high!  Along with the S&P 500 index.

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US household equity holdings to GDP are back to bubble highs!!!

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Instead of tiny bubbles, we have big bubbles!

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$5.5 Billion In CMBS Exposed To Toy’s “R” Us Bankrutpcy

Trepp findings show that 109 outstanding loans totaling about $5.5 billion currently carry Toys “R” Us exposure. A large portion of the loans are CMBS 2.0 and 3.0 notes issued after 2010. Backed by 123 Toys “R” Us and Babies “R” Us stores, the $404.7 million Toys R Us portfolio is the loan with the largest CMBS exposure. The loan is the only one behind the single-asset/single-borrower TRU 2016-TOYS transaction, and also includes a $102.4 million freely payable portion. Those 123 collateral properties span a combined five million square feet across 29 different states. The loan, which amortizes on a 30-year schedule, features relatively conservative underwriting metrics. At securitization in 2016, DSCR (NCF) and LTV clocked in at 1.85x and 58.3%, respectively.

  • The $380 million Bronx Terminal Market loan, which is split into a $140 million piece that makes up 12.06% of COMM 2014-CR17, a $135 million note that comprises 13.96% of COMM 2014-CR18, and a $105 million piece that represents 10.13% of COMM 2014-UBS3. Toys “R” Us is listed as the fourth-largest tenant (8.43% of the net rentable area) at the 912,333 square-foot, superregional mall in Bronx, New York with a lease that runs through January 2020.

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  • The $123 million The Plant San Jose note, which makes up 8.76% of WFRBS 2013-C14 and matures in May 2023. As the second-largest tenant, Toys “R“ Us/Babies “R“ Us occupies 13.35% of the 485,895 square-foot regional mall in San Jose, California under a lease that expires in January 2023. The retail center was 90% occupied for the first quarter of 2017 and generated a DSCR (NCF) of 2.75x.
  • Toys “R“ Us is the second-largest anchor behind the $61.1 million Plaza La Cienega note, which comprises 6.13% of JPMBB 2013-C14. Backing the loan is a 308,146 square-foot, mixed-use property in Los Angeles, California. The retailer leases 20.11% of the property’s space through November 2020. Scheduled to mature in August 2023, the loan generated a DSCR (NCF) of 1.97x on an occupancy rate of 98% last year.
  • The $31.5 million Summerhill Square loan is secured by a 125,862 square-foot community shopping center in East Brunswick, New Jersey. Toys “R“ Us occupies 51.45% of the retail center’s space on a lease that runs through December 2023. For the 2016 fiscal year, the property was fully leased while DSCR (NCF) clocked in at 1.50x. Scheduled to mature in May 2023, the loan represents 2.28% of the remaining collateral behind MSBAM 2013-C10.

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Toys R Us Joins The Retail Armageddon (Big Box Closures, CMBX BB Hits All-time Low)

The privately-held children-focused retailer Toys R Us has just declared bankruptcy.

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Their 7 3/8% corporate bond has recently gone from near par ($100) to $25.86.

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While Toys R Us files for Chapter 11 bankruptcy, their stores remain open (for the moment). With Toys R Us’ filing, that leave $14 billion in retail debt in Chapter 11 bankruptcy.

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While Toys R Us isn’t closing their stores quite yet, here is a list including many prominent retailers (including The Limited, Radio Shack, Payless, JC Penney,  Macys and Sears) that closed stores in 2017.

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The CMBS reference security CMBX BB S6 has just hit an all-time low.

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Too much space built coupled with on-line retailing is causing a retail armageddon.

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1-Unit Housing Starts Struggle To Get Back To 1991 Levels (5+ Unit Start Back To Stable Levels)

The home construction numbers are out for August 2017. 1-unit starts rose 1.55% MoM while 5+ unit (multifamily) starts fell =5.83% MoM.

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Yes, 1-unit starts are finally back to 1991 levels. The Fed’s contribution to the housing bubble can be seen by their rapid rate cuts followed by rapid rate increases as housing construction boomed and then went bust.

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5+ unit (multifamily) starts fell MoM and are at same level of growth that existed from 1995 to 2007.

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BIS Hunts for ‘Missing’ Global Debt, Inflation (Try Including Housing!)

Just like global central banks, the Bank for International Settlements can’t seem to find inflation and $114 trillion in off-balance sheet FX derivatives.

ZURICH – Nonfinancial companies and other institutions outside of the U.S., excluding banks, may be sitting on as much as $14 trillion in “missing debt” held off their balance sheets through foreign-exchange derivatives, according to research published Sunday by the Bank for International Settlements.

These transactions, which resemble debt but for accounting purposes aren’t classified that way, aren’t new. Rather, researchers from the BIS — a consortium of central banks based in Basel, Switzerland — used global banking data and surveys to estimate the size of this debt for the first time.

The implications for financial stability are unclear because FX swaps are backed by cash collateral and can be used to hedge exposure to currency swings, thus promoting stability. Still, the debt “has to be repaid when due and this can raise risk,” the authors wrote.

According to the paper, published with the BIS’s quarterly update on global financial conditions, non-banks outside the U.S. owed roughly $13 trillion to 14 trillion through foreign-exchange swaps and forwards. That exceeds the nearly $10.7 trillion in dollar debt held on their balance sheets at the end of the first quarter

“Non-banks” include nonfinancial companies, households, governments, and certain financial institutions that aren’t classified as banks and international organizations.

Globally, there are $58 trillion in FX swaps and related exposures, BIS said, which equals about three-quarters of global gross domestic product.

The authors explained that “in an FX swap, two parties exchange two currencies spot and commit to reverse the exchange at some pre-agreed future date and price.” In a forward contract, parties agree to swap currencies at a future date and price. “Accounting conventions leave it mostly off-balance sheet, as a derivative, even though it is in effect a secured loan with principal to be repaid in full at maturity,” the paper noted.

This short-term funding is backed by cash and it carries little credit risk. “Even so, strains can arise,” the authors wrote, citing the funding squeeze experienced by European banks during the global financial crisis.

The BIS’s quarterly review didn’t just examine missing debt, it also examined what it called “missing inflation” in the global economy, which has helped spur risk taking and drove up financial asset values in recent months.

The implications are big for stock and bond markets that have moved largely in tandem, with bond yields staying super low while equity markets reached record highs. Whereas faster growth typically implies higher inflation and central bank rate increases, the prospect of significantly tighter monetary policy in the U.S. and other big economies has receded.

“This puts a premium on understanding the ‘missing inflation’, because inflation is the lodestar for central banks,” said BIS chief economist Claudio Borio.

Annual inflation in the U.S., measured by the price index for personal-consumption expenditures, was 1.4% in July. Annual eurozone inflation was 1.5% in August. Both are well below the 2% rate that most big central banks consider optimal. Economists typically cite sluggish wage growth, heightened global competition, low oil prices and the effects of technological changes as explanations for subdued price pressures.

“Despite subdued inflation in advanced economies, the global macro outlook was upbeat. Market commentators label such an environment the Goldilocks scenario — where the economy is ‘not too hot, not too cold, but just right,'” BIS said.

Still, there are risks if bond yields eventually start to rise on the back of firmer global growth, given the sensitivity of the private and public sectors to debt.

Thus, the absence of inflation “is the trillion dollar question that will define the global economy’s path in the years ahead and determine, in all probability, the future of current policy frameworks,” said Mr. Borio.

Dear Federal Reserve and BIS. Try including house prices which are growing at fantastic rates of growth.

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Tell folks in New Zealand and Australia that there is “no inflation.”

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The US almost looks tame in terms of housing pirces compared to Britain and its former colonies where housing prices are growing over twice as fast as wage growth for the majority of the population.

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New Zealand takes the cake for crazy housing prices, particularly in Auckland, their largest city.

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There BIS. We found your missing inflation. 

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Where’s The Unwind? Fed Actually Adds $15 Billion To Balance Sheet (As “Inflation” Remains Low And Home Prices Soar)

The Federal Reserve has been jawboning their intent to unwind their almost $4.5 trillion balance sheet, nearly all of which is either Treasurys or mortgage-backed securities.

The Fed’s Balance Sheet has pretty much been on hold (treading water) since 2014 and the end of QE3, their third round of asset purchases.

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But the System Open Market Account (SOMA) report from 9/13/2017 shows that The Fed actually added around $15 billion to its balance sheet.

soma091317So, no balance sheet unwind yet.

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Remember, The Fed’s notion of inflation (US Personal Consumption Expenditure Core Price Index YoY) remains under their target rate of 2% at 1.40% YoY.

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And core CPI growth YoY is at 1.7%, also under the 2% target.

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And with asset prices such as for housing exceeding wage growth by over 2x, The Fed has quite a bit to consider before pulling the handle on the balance sheet unwind.

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The US Treasury 10Y-2Y curve slope has declined from around 280 basis points in 2010-2011 to under 82 basis points today.

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Here is inflation that is hiding that The Fed doesn’t want to consider.

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Real Median Household Income Rises To $59,345, Barely Beating 2002 and 2008 Levels (No Real Growth For Households)

According to Sentier Research, Median Household Income for May 2017 rose to $59,345.  This figure exceed the previous highs of 2002 and 2008.

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What is remarkable about these figures is that real median household income in the US has not risen since 2002.

Yet home prices rose dramatically in the 2000s only to collapse. Home prices are rising again (with the FHFA Purchase-only home price index now exceeding the 2007 bubble highs).

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No real median household income growth since 2002 yet home prices at rising at around 4% YoY in real terms.

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