Spanish banks could be €50bn short of new capital requirements, says Moody’s, revising its previous estimate of €17bn based on old requirements. This is roughly 5 per cent of Spanish GDP and considerably higher than the Spanish government’s estimate of €20bn.
Overall savings banks’ exposure to the real estate sector is €217bn, by Bank of Spain data. Of that, €100bn, or nearly half, is considered “problematic”. €28bn are under surveillance and considered risky; a further €28bn are more than 90 days past due; and €44bn are foreclosed. Problematic indeed. The most troubling sentence from the Moody’s report is that just 40 per cent of the €217bn loan exposure is collateralised by finished, completed housing:
Shock news in the Bundesbank’s latest monthly bulletin: German house prices have gone up. The more-or-less flat profile of residential property prices over the past decade has been one of the defining features of Europe’s largest economy over the past year. It meant the country escaped a house price bubble, the downside of which is now being seen in the US, UK and, within the eurozone, in Spain and Portugal. (Instead German investors piled into US subprime mortgages – but that’s another story.) Read more
“Monetary policy is still expansionary”, says the central bank, but will be a little less expansionary from February 1 when the base rate rises from 2 to 2.25 per cent. It will be the first rate rise in four months and it is likely more will follow*. The tightening move follows the introduction of a 10 per cent reserve requirement on foreign derivatives, effective January 27.
House prices have risen 17.3 per cent in the past year in Israel, a trend that accelerated last month. “The volume of new housing loans increased steeply in December,” adds the Bank. “The outstanding balance of housing loans at the end of 2010 was 14.7 percent higher than that at the end of 2009.”
It is likely the fear of a housing bubble has prompted the timing of Israel’s rate hike. Read more
With the political fate of the $858bn deal to extend Bush-era tax rates beginning to clear – the Senate is expected to advance the legislation in a first procedural vote on Monday - the winners and losers of the proposed legislation are also becoming more apparent.
Victorious in the battle are clearly the wealthiest Americans, who will benefit from current tax treatment of income, as well as capital gains, dividends, and their inheritance, through 2012. There are also some strong provisions designed to boost business investment, which have been cheered by corporate America. And there is some reason for comfort to middle and lower income Americans, who will benefit the extension of a series of individual tax credits that were part of last year’s $787bn stimulus bill. Depending on whether you talk to Republicans or Democrats – each of these provisions could be critical to strengthening the US economic recovery.
But not everyone is happy with the outcome. Read more
Feel the pain and move on in the UK housing market. Specifically, set up a UK Tarp to buy troubled mortgage-backed assets from banks. That’s advice to the Bank of England from Fathom Consulting’s monetary policy forum, quoted by Stephanie Flanders.
Fathom argues that the US and UK are falling into the Japanese trap – only drip-feeding cheap debt to households rather than businesses. In so doing, they argue, households feel richer and spend more, and lenders safeguard the value of the assets they are lending against. But the problem doesn’t go away. Far from it. The problem is just postponed, and at the current rate of house price decline, will amount to a £180bn funding gap by 2012 when the BoE’s Special Liquidity Scheme is due to end.
The report is only available to members, but I recommend a read of Stephanie’s take: Read more
As the BoJ and ECB report easing credit standards, the Bank of Ireland has just proposed a new consumer code that includes stricter tests for mortgages and consumer credit. New provisions for housing loans include a 2 per cent stress test on the bank’s standard rate and stricter rules on what will and won’t count as proof of income. Self-certified declarations of income, for instance, would be out.
Another significant suggestion in the mortgage market applies to brokers. Mortgage intermediaries are not currently covered by rules that bind insurance brokers, for instance, to disclose the commission they receive on certain products. The new code would extend this requirement to them. Read more
One of the key debates within the Federal Reserve and US economic policy circles in recent months has been whether the high unemployment rate is mainly due to structural or cyclical factors.
In the end, the prevailing view is that although there are some mismatches in skills and geography in the US labour market, the main problem is a broad-based lack of demand, which will hopefully be aided by even lower borrowing costs – hence next week’s likely move towards a second round of quantitative easing.
But a survey out today by Challenger Gray & Christmas, may, on the margins, challenge that certainty. A quarterly poll by the Chicago-based employment group found that the “relocation rate” of American workers – or the percentage of job seekers who found a new position and moved to a different region as a result – hit a record low of 6.9 per cent in the third quarter (the survey started in the 1980s).
To be sure, US labour market mobility – traditionally one of the strengths of America’s economic structure – has been on the decline. The annual average relocation rate in 1990 was 30.5 per cent, sliding to 22.9 per cent in 2000 and 13.3 per cent in 2009. But it has taken a plunge this year, with the average for 2010 now at 7.3 per cent. Read more
Ben Bernanke, chairman of the US Federal Reserve, said on Monday that regulators were “intensively” probing banks’ foreclosure practices and expected to produce results next month. Some of the largest US banks have halted moves to claim back homes from borrowers after it emerged that they had cut corners in preparing paperwork; state attorneys general are investigating allegations of fraud.
The Fed chairman told a conference on the future of housing finance that regulators were “looking intensively at the firms’ policies, procedures, and internal controls … and seeking to determine whether systematic weaknesses are leading to improper foreclosures”. Read more
The impact of foreclosure documentation problems on the housing market is “still uncertain” and may cast a cloud over the sector for “the foreseeable future”, said William Dudley, president of the Federal Reserve Bank of New York.
Mr Dudley, a member of the Fed’s policy-setting Federal Open Market Committee, is a supporter of further monetary easing, saying recently “further action is likely to be warranted” by the central bank. This was interpreted as a sign that purchases of US Treasuries by the Fed – quantitative easing – would step up in November. Read more
The Great Recession of 2007-2009 hit hardest in two areas: sun-belt states such as Arizona and Florida that were exposed by the housing boom and bust, as well as rust-belt states like Michigan and Ohio that were already suffering from the erosion of America’s manufacturing base. Interestingly enough, Texas and the Midwest, which bore the brunt of the 1980-1982 recession, managed to escape most of the pain this time around.
The worst-off communities in this cycle were the focus of a conference this morning organised by the Brookings Institution’s Hamilton Project, which conducts research on economic policy and counts Robert Rubin, former treasury secretary, and Roger Altman, former deputy treasury secretary, as senior advisers. Read more
When the IMF evaluates a situation, the result is usually evenly balanced: it’s quite bad, they might say, but then this and this are quite good. So you notice right away if that counter view is missing and they say simply: this is quite bad.
This is how US real estate has been evaluated in the IMF’s latest Global Financial Stability Report. Look for the box Risks of a Double Dip in the US Real Estate Markets (p. xxxiii) – and then look for the good news.
“Powerful downside risks” to residential property prices include low demand; surplus of houses for sale; high rate of foreclosures; and rising ‘strategic’ defaults. But commercial real estate is worse.
“Banks face about $1.4 trillion in CRE loans expected to mature in 2010-14, nearly half of which are seriously delinquent or ‘underwater’,” Read more
The tide is perhaps turning. Eurozone mortgage interest rates have begun to rise, according to data just released from the European Central Bank.
The steady fall in the cost of borrowing for house purchases has been one of the less remarked upon economic trends of the past two years. But it has undoubtedly helped the eurozone’s economic recovery. Even in Germany – which avoided the property booms of the past decade – there are signs of the housing market picking up. With ten year fixed-rate mortgages available for less than 4 per cent, it makes sense to buy a house (especially if you are one of those Germans who fear galloping inflation is just around the corner). The pick-up has been even more pronounced in Paris. Read more
House purchase borrowing rose significantly last month in France and Italy, while continuing to fall in many of their eurozone peers. Annual growth in house purchase lending rose by 50bp to 6.3 per cent in France, and 30bp to 8.6 per cent in Italy.
Lending is still contracting in Ireland, for example, and growing at a falling rate in Portugal, Spain and Greece. Even in Germany, where many economic indicators look strong, growth in house purchase lending is static, and at just 0.5 per cent annually. Read more
Central banks are debating whether they should extend their remit to spot asset price bubbles – but research from the Bank for International Settlements has just found that the ageing population will depress, if not reverse, price rises in future.
“In English speaking countries it seems that baby boomer purchases drove up house prices in the past, while their sales will drive real house prices down in the future,” writes author Előd Takáts. The US has apparently enjoyed an 80 basis point per annum (bppa) boost to date, but is facing a negative impact of 80bppa in future. Read more
Eurozone housing markets are springing back to life. The European Central Bank reported on Tuesday that mortgage lending grew in June at the fastest annual rate for almost two years. Its latest bank lending survey, based on responses from 120 banks, showed second quarter demand for mortgages was the strongest since early 2006.
All of which tells a positive story about the eurozone—at least for eurozone optimists. While attention has focused on the problems of Greece, Spain and Portugal, households elsewhere have spotted that mortgage interest rates are at exceptionally low levels, and have been sufficiently confident about their economic prospects to buy a house.
A less positive interpretation is that consumers are worried about the stability of the euro and see bricks and mortar as a better investment. Gilles Moec, European economist at Deutsche Bank, warns that the ECB might also be less than pleased. He points out the sharp contrast between the revival in mortgage lending and the lifelessness of lending to companies. Read more
To say that Janet Yellen, Sarah Bloom Raskin and Peter Diamond got off lightly at their confirmation hearing before the Senate banking committee would be an understatement.
With most members distracted – or absent- by the imminent final vote in the Senate on financial regulatory reform, the event itself only lasted about 90 minutes. And if ever it was in doubt, it now seems abundantly clear that the three nominees will be comfortably, and swiftly, confirmed to the Federal Reserve board of governors.
Nevertheless, I was able to extract a few interesting nuggets from question-and-answer period. The most timely question came from Jeff Merkley of Oregon for Janet Yellen, who is slated to take over from Don Kohn as vice-chair. He asked where she stood on the dominant debate over US fiscal policy – should there be more stimulus or should authorities immediately start reining in the deficit ? Read more
It was a rough day on the economics beat here in Washington. Rough in terms of America’s hopes for a strong economic recovery, that is.
Let’s recap. At 8.30am, the labor department released its weekly jobless claim figures. They were up unexpectedly to 472,000. Back in April, when job creation seemed to gathering momentum, many economists were looking at the stubbornly weekly jobless claims data as an aberration. Eventually, the numbers would have to move closer to 400,000. But now, the opposite seems true and private payroll growth looks destined to be modest, with persistently high unemployment and therefore high jobless claims. We’ll know more tomorrow from the more important monthly government jobs report, but still, the labour market outlook is not rosy.
Then, at 10am, a double punch in the face. The ISM manufacturing index dropped a lot more than expected in June, suggesting that one of the bright stars of the recovery is beginning to fade. Most economists knew that after inventories were restocked, there would be some loss of momentum. Read more
If rumour is true, things are looking up for the 100,000 Hungarians more than 90 days past their mortgage due date. What’s left of Hungary’s international loan may end up in a mortgage-relief fund, intended to allow people to rent their homes, reports Reuters.
The new fund – reported in daily Magyar Hirlap and not yet confirmed by officials - would buy property (that would otherwise stand to be repossessed) from commercial banks, allowing mortgage-holders to rent the property. The paper also said that the bad loans of households would be replaced by state loans, though it did not name a source. Read more
The US census bureau figures today on new home sales in May are pretty rotten: at a seasonally adjusted, annualised rate of 300,000 they are the worst since the series began in 1963.
Yet the Federal Reserve contented itself with saying that “housing starts remain at a depressed level”. I think it’s likely that they’ll be looking at something like the chart below, and concentrating on the six-month moving average (in pink), rather than the absolute number (the bars). Read more
The 30-year fixed rate mortgage rate in the US fell this week to a five month low of 4.93 per cent, according to Freddie Mac.
Mortgage rates had spiked above 5.20 per cent early last month, just after the Federal Reserve ended its $1.250bn plan hatched during the financial crisis to purchase mortgage-backed securities and support the housing market. Read more