Multifamily Starts Rise 37.4% In October, Largest Increase In 2017 (West Declines 3.70% As Lonzo Ball Forgets How To Shoot)

Housing starts rose 13.7% MoM in October to 1,290K units SAAR (or 1.29 million). However, the largest share of housing starts were in the 5+ unit (multifamily) category. Multifamily units grew at a rate of 37.4% MoM.

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October was the highest growth in 5+ unit starts in 2017.

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1-unit (detached) housing starts grew at 5.28% MoM, also the best month in 2017. You can clearly see the housing construction bubble that peaked in early 2006.

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The biggest gainer? The Northeast US at 42.16% MoM. The South grew at only 17.17% while the West actually declined at -3.70%.

This is the Lonzo Ball Effect. This is where your starting point guard goes 1 for 9 from the floor, 0 for 6 from the 3-point line for a dismal 2 points and the opponent doesn’t even bother the foul him.  A clear sign of stagnation in the West.

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Perhaps Lonzo Ball should consider changing the name of his basketball shoe company name from Big Baller to Small Baller.

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ECB’s Loose Monetary Policy Has Created Asset Bubbles, But Little Inflation (Hasn’t Helped Deutsche Bank Much Either)

(Bloomberg) — The European Central Bank’s unprecedented monetary stimulus has done little so far for inflation. For asset prices, it’s a different story. A gauge measuring weighted price developments of property and financial assets of German households rose 8.7 percent in the third quarter compared to the previous year, the most since at least 2005.

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For a closer look at German existing home prices and the DAX (German Stock Market) compared to ECB stimulus, look no further. Yes, both German home prices and the DAX have skyrocketed with the ECB’s massive monetary stimulus.

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Deutsche Bank’s stock price has declined from over 90 Euros per share in May 2007 to 16 Euros today (after Cerberus (aka, “The Hound of Hades”) was revealed as DB’s top shareholder). All that monetary stimulus and DB is still under 20 Euros???

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And then there is the EU’s paltry core inflation rate at 1.1% YoY after all that monetary stimulus.

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Queue up Don Ho and his hit song “Tiny Bubbles.” 

Cheers!

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Trapped! Dodd-Frank And The Demise Of Bank Real Estate Lending

Nothing has been the same since the financial crisis and the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into federal law by President Barack Obama on July 21, 2010. Dodd-Frank created the Consumer Financial Protection Bureau (CFPB).

Whether you like more regulation or not, Dodd-Frank and the CFPB have had a chilling effect on the mortgage market. Note that before The Great Recession, real estate loan growth at commercial banks YoY regularly exceeded M2 Money Stock growth YoY. Not so starting in late 2008. With the exception of a brief respite in 2016, M2 Money Stock growth YoY has exceeded Real Estate Loan growth YoY.

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An alternative explanation of the slowdown in Real Estate Lending YoY since 2008 is the growth of excess reserves of depository institutions.

To deal with the 2008 financial crisis, the Federal Reserve pumped large amounts of reserves into the banking system and introduced new programs that altered the terms of the trade-off banks make when deciding their level of excess reserves. In short, the marginal benefit of holding additional reserves has increased, whereas the marginal cost has decreased. As a result of these new Federal Reserve policies, holding reserves is now much more attractive to banks. It is more attractive because the cost of holding excess reserves—in the form of forgone interest—is significantly lower than it was before the crisis.

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So, the US still has excess reserves trapped in the Federal Reserve system. Between excess regulatory burden (Dodd-Frank, CFPB) and slow wage growth, we have a problem with the banking industry. It is not generating sufficient lending growth to stimulate the economy.

Will The Federal Reserve raise the interest rate on excess deposits that will encourage commercial banks to jump back into the residential mortgage market? Currently, a number of non-bank lenders are leading the mortgage market, such as Quicken Loans and PennyMac.

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An alternative to the traditional depository institution lending model is represented by Quicken Loans. These loans are NOT kept on Quicken’s balance sheet, but sold to other market plays and can be securitized.

So, we continue to have a mortgage lending hangover thanks to the excesses of the subprime and ALT-A markets of the last decade. It resulted in the predictable regulatory overreach which has discouraged traditional banks from making residential mortgage loans (except Wells Fargo, of course).

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Here is CFPB Director Richard Cordray!

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UMichigan House Buying Conditions Continues Downward Trend (Interest Rate Fears)

The University of Michigan Consumer Survey was released this morning … and it wasn’t good news for housing.  Their index for housing buying condtions declined.

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One of causes of confidence loss? The fear that The Fed will raise rates and unwind too quickly.

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Not to worry with The Fed only unwinding $300 last week.

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Instead of “Give Me Three Steps,” The Fed is singing “Give Me One Itsy-Bitsy Step” to raise rates.

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Senate’s No Salt Diet, Million Dollar Cap on Mortgage Interest Deductions (MIDs)

Yes, the US Senate has released details of their NON-tax reform bill. That is, just a simple massage.

Instead of the 3 (or 4) tax brackets from the House Tax Massage bill, the Senate will advocate tax brackets  of 7%, 12%, 22.5%, 25%, 32.5%, 35%, and 38.5%. The 38.5% rate   starts at $500k for individuals.

The Senate Finance Committee’s tax overhaul plan will keep an interest deduction for existing mortgages up to $1 million, twice that amount  mention by the initial Trump/GOP of $500,000.

The Senate tax massage will eliminate SALT (State and Local Tax) deductions from Federal tax computation.

The Senate tax massage will keep the $7,500 tax credit for electric vehicle purchases so craved by Telsa and General Motors.

House Ways and Means Chairman Kevin Brady suggests a cap on the property tax break at $10,000.

Finally, the Senate tax massage would delay cutting the corporate tax rate from 35 percent to 20 percent until 2019.

That is all I know as of now. NO TAX REFORM, just a gentle massage.

Hey Congress! How about a FLAT tax? 

The Senate Massage!

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Trump/GOP Tax Plan Released (Not Large Home Friendly)

The Trump/GOP tax plan has been released. 363297702-Trump-Tax-Plan

  • Lowers individual tax rates for low- and middle-income Americans to Zero, 12%, 25%, and 35%; keeps tax rate for those making over $1 million at 39.6%
  • Increases the standard deduction  from $6,350 to $12,000 for individuals and $12,700 to $24,000 for married couples.
  • Establishing a new Family Credit, which includes expanding the Child Tax Credit from $1,000 to $1,600
  • Preserving the Child and Dependent Care Tax Credit
  • Preserves the Earned Income Tax Credit
  • Preserves the home mortgage interest deduction for existing mortgages and maintains the home mortgage interest deduction for newly purchased homes up to $500,000half the current $1,000,000
  • Continues to allow people to write off the cost of state and local property taxes up to $10,000
  • Retains popular retirement savings options such as 401(k)s and Individual Retirement Accounts
  • Repeals the Alternative Minimum Tax
  • Lowers the corporate tax rate to 20% – down from 35%
  • Reduces the tax rate on business income to no more than 25%
  • Establishes strong safeguards to distinguish between individual wage income and “pass-through” business income
  • Allows businesses to immediately write off the full cost of new equipment
  • Retains the low-income housing tax credit
  • Proposal will call for new tax of 1.4% on endowment income at colleges and universities where the funds total more than $100k per student and will exempt small schools.

So, what are the proposed tax brackets?

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If let in tact, the tax subsidy for larger/more expensive homes is reduced. It is also a tax on expensive coastal cites like New York City, San Francisco, Los Angeles and Seattle.

The reaction for homebuilding companies?

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This is the start of the process. Let’s see how the Democrats react.

Home Price Growth Gains Momentum, Over 2X Wage Growth (Seattle Fastest, Washington DC Slowest)

The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 6.1% annual gain in August, up from 5.9% in the previous month. The 10-City Composite annual increase came in at 5.3%, up from 5.2% the previous month. The 20-City Composite posted a 5.9% year-over-year gain, up from 5.8% the previous month.

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Seattle, Las Vegas, and San Diego reported the highest year-over-year gains among the 20 cities. In August, Seattle led the way with a 13.2% year-over-year price increase, followed by Las Vegas with an 8.6% increase, and San Diego with a 7.8% increase. Nine cities reported greater price increases in the year ending August 2017 versus the year ending July 2017.

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And yes, Washington DC is once again the slowest growing metropolitan area in the USA in terms of home price growth.

Just like during the infamous housing bubble of the late 1990s and 2000s, home price growth (6.07% YoY) is over 2X wage growth (2.41% YoY).

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The rapid rise in home prices relative to wage growth followed a flurry of banking deregulation starting in 1992 and the Presidency of William Jefferson Clinton.

  • Housing and Community Development Act of 1992 (P.L. 102-550, 106 STAT. 3672).Established regulatory structure for government-sponsored enterprises (GSEs), combated money laundering, and provided regulatory relief to financial institutions.
  • RTC Completion Act (P.L. 103-204, 107 STAT. 2369).Required the RTC to adopt a series of management reforms and to implement provisions designed to improve the agency’s record in providing business opportunities to minorities and women when issuing RTC contracts or selling assets. Expands the existing affordable housing programs of the RTC and the FDIC by broadening the potential affordable housing stock of the two agencies.

    Increased the statute of limitations on RTC civil lawsuits from three years to five, or to the period provided in state law, whichever is longer. Provided final funding for the RTC and established a transition plan for transfer of RTC resources to the FDIC. The RTC’s sunset date is set at Dec. 31, 1995, at which time the FDIC assumed its conservatorship and receivership functions.

  • Riegle Community Development and Regulatory Improvement Act of 1994 (P.L. 103-325, 108 STAT. 2160).Established a Community Development Financial Institutions Fund, a wholly owned government corporation that would provide financial and technical assistance to CDFIs.

    Contains several provisions aimed at curbing the practice of “reverse redlining” in which non-bank lenders target low and moderate income homeowners, minorities and the elderly for home equity loans on abusive terms. Requires the Treasury Department to develop ways to substantially reduce the number of currency transactions filed by financial institutions. Contains provisions aimed at shoring up the National Flood Insurance Program.

  • Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (P.L. 103-328, 108 STAT. 2338).Permits adequately capitalized and managed bank holding companies to acquire banks in any state one year after enactment. Concentration limits apply and CRA evaluations by the Federal Reserve are required before acquisitions are approved. Beginning June 1, 1997, allowed interstate mergers between adequately capitalized and managed banks, subject to concentration limits, state laws and CRA evaluations. Extends the statute of limitations to permit the FDIC and RTC to revive lawsuits that had expired under state statutes of limitations.
  • Gramm-Leach-Bliley Act of 1999 (P.L. 106-102, 113 STAT 1338).
  • Repeals last vestiges of the Glass Steagall Act of 1933. Modifies portions of the Bank Holding Company Act to allow affiliations between banks and insurance underwriters. While preserving authority of states to regulate insurance, the Act prohibits state actions that have the effect of preventing bank-affiliated firms from selling insurance on an equal basis with other insurance agents. Law creates a new financial holding company under section 4 of the BHCA, authorized to engage in: underwriting and selling insurance and securities, conducting both commercial and merchant banking, investing in and developing real estate and other “complimentary activities.” There are limits on the kinds of non-financial activities these new entities may engage in.