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here we go again

https://www.wsj.com/articles/rising-home-prices-push-borrowers-deeper-in...

is this part 2?

Quote:

About 20% of conventional mortgages this winter went to borrowers spending more than 45% of their monthly incomes on mortgage and other debt payments, according to the report. That’s almost triple the proportion of such loans from 2016 and early 2017, and the highest ratio since the housing crisis.

At issue, say economists, are home prices rising at a faster pace than incomes.

For realtors like ReMax (NYSEARCA:REMX) and Realogy (NYSE:RLGY), it could mean the spring selling season will be a weak one.

For Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC) - where the amount of these high debt-ratio loans soared 73% in 2017’s second half (mostly thanks to Fannie) - it might be worth remembering how they got into this government conservatorship mess in the first place.

"You want a quote? Haven’t I written enough already???"

RIP

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I didn’t look into these claims but they trend to pick post crisis starting points, where things look very different from pre crisis. Things got really tight afterwards so you’d expect some loosening 

Credit Markets are a joke right now across the board in terms of censorship/underwriting standards. However, corporate debt is probably going to be the first chip to fall. Commercial RE not looking great either. In all seriousness though, the MAIN problem I see is the craft brewery bubble. That’s really getting out of hand haha

One difference, of course, is that financial institutions are safer now. So even with higher rates of mortgage defaults, like in a recession, we won’t probably see cascading bank failures like Lehman Brothers, Bear Stearns, and so on.

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[quote=ohai]

One difference, of course, is that financial institutions are safer now. So even with higher rates of mortgage defaults, like in a recession, we won’t probably see cascading bank failures like Lehman Brothers, Bear Stearns, and so on.

[/quote

+1

i dont see bank failures again but these subprime securitizations could cause some pain. 

add this: https://www.autofinancenews.net/auto-abs-delinquencies-rise-to-22-year-h...

and there could be some issues

"You want a quote? Haven’t I written enough already???"

RIP

US financial system is definitely safer, but I think the middle class never quite fully recovered from the last recession, sovereign finances are a mess, corporate leverage is definitely higher (on low rates) and China is definitely not positioned to withstand a major disruption in its end markets.

So if things were to slow down today (not my base case) it seems like it would be a more protracted but maybe less severe downturn.  I do scratch my head at the economics of consumer lending and real estate prices right now though.  Makes no sense.

#FreeCVM #FreeTurd #2007-2017

i know 4 people that in the last 1-2 years became part time realtors. they are making bank the demand is crazy i have no idea where people are getting money to buy more homes. it has to be looser lending standards.

"You want a quote? Haven’t I written enough already???"

RIP

igor555 wrote:

i know 4 people that in the last 1-2 years became part time realtors. they are making bank the demand is crazy i have no idea where people are getting money to buy more homes. it has to be looser lending standards.

Yep! Dude I worked with at a restaurant during undergrad is now a realtor and posts obnoxiously on instagram about all the $$$ he’s making and “poppin bottles”. Probably won’t have a job in 12 months, told him he better start saving now. 

Funny, I know two people that became real estate agents in the last 18 months both having left established careers.

#FreeCVM #FreeTurd #2007-2017

Make Housing Bubble Again.

"You want a quote? Haven’t I written enough already???"

RIP

there was a wsj article that showed that mortgage payments are more than half of incomes now. also the credit of fha borrowers has fallen from 700 in 2012 to 670 in 2018. for comparison fha score in 2007 was 630.

I love my cheese. I got to have my cheddar.

Black Swan wrote:
US financial system is definitely safer…

House of cards. China shakes the table.

CSI300 wrote:

Black Swan wrote:
US financial system is definitely safer…

House of cards. China shakes the table.

Is this PA 2.0?  China isn’t exactly in a much better situation either given it is at or surpassed 300% debt/GDP; this represents a 2x increase in under a decade or so.  I think the IMF stated that there are only a handful of times in history that kind of debt binge hasn’t resulted in some financial calamity.

Technically the us is just as bad. It’s juse our debt is comprised of public debt while theirs is mostly private. But we are both around 250 to 300. The most ****ed place is Japan though with 400 percent. The funniest thing is their rates are like slightly negative or 0. 

I love my cheese. I got to have my cheddar.

Nerdyblop wrote:

Technically the us is just as bad. It’s juse our debt is comprised of public debt while theirs is mostly private. But we are both around 250 to 300. The most ****ed place is Japan though with 400 percent. The funniest thing is their rates are like slightly negative or 0. 

This stops short of reaching a valid conclusion.  About half of Japan’s sovereign debt is held interagency, so it could be netted out.  They owe it to themselves.

Beyond that, CN vs US, rate of accumulation matters, given the likelihood of bubbles having developed and misallocated resources.  This is why to the IMF’s point, such hurried debt builds almost never end well.

#FreeCVM #FreeTurd #2007-2017

would love to see China’s economy just absolutely dive into the shi**er. i think the mother of all crash is coming for them

Be yourself. The world worships the original.

given that, would you buy japan debt or china? cuz really thats what the bottomline is.

people who make the most money (highest roi) should borrow more money (assuming its a lot lower) to make more money (make the difference). china makes money.

I love my cheese. I got to have my cheddar.

Nerdyblop wrote:

given that, would you buy japan debt or china? cuz really thats what the bottomline is.

people who make the most money (highest roi) should borrow more money (assuming its a lot lower) to make more money (make the difference). china makes money.

Yeah but you do have to factor in stability.  Kind of like how utilities have high leverage and nobody cares.

#FreeCVM #FreeTurd #2007-2017

true. actually fun fact. if you look at stocks by sector. utilities have the highest percentage of companies that outperformed the S&P 500 i nterms of total return in the last 10 years.

with that said they have a ton of debt are way overlevered when looking at NI or FCF.

I love my cheese. I got to have my cheddar.

Nerdyblop wrote:

given that, would you buy japan debt or china? cuz really thats what the bottomline is.

people who make the most money (highest roi) should borrow more money (assuming its a lot lower) to make more money (make the difference). china makes money.

who makes money? China?? what using child labor to make office chairs we’re sitting on or smart phones?? US makes money. We invent and design stuff and train chinese and other 3rd world how to make it for cheap so we rake in more money….we have the best universities and if our education system is so damn broke why do we have foreign students paying triple what we pay to get one year of education at a state school in the US?

look at all the tech in use by the civilian world….most likely invented in the US by American firms - with the backing of US govt to provide capital. I used to semi-cover defense sector….

case in point is F35 program which at a cost over 1.5 trillion. But in 10 years those patents will slowly spill over into the civilian world not to mention absolute superiority over loving but aged A10. F35s DLINK abilities, and the JTAC tech will enable 35s to be out of sight but pinpoint in real time troop movements without visual or laser sightings. many many more the media fails to acknowledge. 

I’d buy US debt if i have to choose between Japan and Chinese debt. whats wrong with tax exempt 4% coupon. coupled with occasional 15% rally like we’ve seen a few years ago.

Be yourself. The world worships the original.

china has been able to increase their gdp per capita and overall gdp at a faster rate than the us in the last 50 years. china has done something incredible. it doesnt matter if what they did is considered backwater or immoral. they were able to do it, wheras the us with all that technology was not as good at generating the bottomline: which is productivity! 

also i didnt ask about us debt because we all have home bias. id bet the chinese think the same way.

I love my cheese. I got to have my cheddar.

China is not doing anything incredible….they’re merely following the footsteps of other Asian countries that have made this trip in the 70s and 80s and blueprint made and designed by American companies with help of US government with sometimes forceful trade treaties. China is a country that bans certain postings online and use of certain apps outright and create their own and force everyone to use that app (appoint a CEO who is connected with Big Brother and pay in some offshore accounts) and their gdp per capita is a quarter of that of US. Both socially and economically…they have long long ways to go…

I get super annoyed when some chinese guy i meet in some high finance network boasts about China…….really?? just 10 years weren’t you guys killing off your daughters and eating dirt?? Now, you think you’re the ruler of the world because…….1 in 6 people in the world is Chinese or because what??

HUH?? you’re saying China’s productivity figure is superior to that of the US??? US is top 5 and CHina is outside of top 50 in the world….look up reports from OECD and World Bank and heck even our own Fed….

Be yourself. The world worships the original.

you are looking at current gdp per capita.

i am talking about the growth of gdp per capita.

to grow gdp per capita with their population is godly

I love my cheese. I got to have my cheddar.

I mean look, in reality they’re both screwed not least of which because they’re co-dependent.  Sovereign debt has filled the gap for most expansion in the wake of the global baby boomer demographic.

The real situation is the US has let it’s infrastructure erode beneath it and under invested in its asset base while funding its median lifestyle and benefits growth with debt that was siphoned into corporations while the median American fell behind in competitiveness.  All of these great advancements in tech are made by elite innovators in a country both socially and economically defined by massive dispersion.  The day is rapidly approaching where reality is going to strike for the US as infrastructure and aging boomer liabilities come due.

China is equally screwed because the majority of their growth in the last 10 years has been purely debt and speculation funded.  There are major dispersions there as well and the reality is having a debt level commiserate with the US with a GDP per capita 1/3 of ours (meaning long road of development that will likely require debt yet ahead) is not going to end well and they don’t have the mechanisms to deal with it.  The boomer problem is even more magnified in China demographically and they will be fighting the effect of a declining population with no real safety net.

But these are all long term problems, not sure when they’ll hit, but the next 10 years will definitely have some interesting moments.  It’s no longer just a permabear debate.  I’ve seen this get serious airtime recently from Rick Rieder and Gundlach just put on a clinic on this in his last two calls.  For anyone interested in this topic, I highly recommend checking out the Total Return webcast replay from March 12th and going to the Deficit segment around the 21 minute mark starting on slide 24.

https://doublelinefunds.com/webcast-schedule/

#FreeCVM #FreeTurd #2007-2017

Yeah I agree with you. “I do scratch my head at the economics of consumer lending and real estate prices right now though.” This really cracked me up. Same here though