By Tyler Durden
One month ago we discussed why according to the recent data, the “Housing Market Headed For “Broadest Slowdown In Years.” Fast forward to today, when we received the latest confirmation that the US housing market appears to have recently hit a downward inflection point: according to the just released July 2018 U.S. Foreclosure Market Report released by ATTOM Data Solutions, foreclosure starts in July increased by 1% from a year ago — the first year-over-year increase following 36 consecutive months of decreases.
Foreclosures rose from a year ago in 96 of the 219 metropolitan statistical areas, or 44% of the markets analyzed in the report; 33 of those areas posted their third straight monthly increase. A total of 30,187 U.S. properties started the foreclosure process for the first time in July, up 1 percent from the previous month and while the increase was less than 1% from a year ago, it marked the first annual increase in exactly 3 years.
21 states posted a year-over-year increase in foreclosure starts in July, including Florida (up 35 percent); California (up 3 percent); Texas (up 7 percent); Illinois (up 7 percent); and Ohio (up 2 percent).
Metro areas posting year-over-year increases in foreclosure starts in July included Los Angeles, California (up 20 percent); Houston, Texas (up 76 percent); Philadelphia, Pennsylvania (up 10 percent); Miami, Florida (up 29 percent); and San Francisco, California (up 10 percent).
“The increase in foreclosure starts is not just a one-month anomaly in many local markets given that July represented the third consecutive month with a year-over-year increase in 33 metro areas, including Los Angeles, Miami, Houston, Detroit, San Diego and Austin,” said Daren Blomquist, senior vice president with ATTOM Data Solutions.
“Gradually loosening lending standards over the past few years have introduced a modicum of risk back into the housing market, and that additional risk is resulting in rising foreclosure starts in a diverse set of markets across the country. Most susceptible to rising foreclosure starts are affordability-challenged markets where homebuyers are more financially stretched and markets with some type of trigger event such as a natural disaster or large-scale layoffs.”
The data comes shortly after a separate report found that there has been a plunge of sales in ultra-luxury real estate in New York City, where apartments that cost $5 million or more have seen their sale plunge more than 31% in the first 6 months of the year.
The surprising reversal in the US housing sector comes at a time when the US economy is reportedly firing on all four cylinders, with the stock market at all time highs and not long after the Department of Commerce revised income and spending data to “discover” that US households had actually saved twice as much as previously expected. Which begs the question: is the rise in interest rates a sufficiently adverse development to offset all the other favorable trends in the economy, or is something more sinister – and unknown – taking place in the US economy.
As a reminder it is housing – and not financial markets or stocks – that has traditionally been the most relevant, and aspirational, asset for the US middle class and as such is the best indicator of economic prosperity (or lack thereof) for a majority of the US population. And recent trends are anything but optimistic.
America Is Overdue For Another Economic Disaster
A trader monitors screens on the New York Stock Exchange. (Lucas Jackson/Reuters)
Underneath the current economic boom, there are some truly worrying signs.
Eric Sevareid (1912–1992), the author and broadcaster, said he was a pessimist about tomorrow but an optimist about the day after tomorrow. Regarding America’s economy, prudent people should reverse that.
This Wednesday, according to the Financial Times‘ Robin Wigglesworth and Nicole Bullock, “the U.S. stock market will officially have enjoyed its longest-ever bull run” — one that rises 20 percent from its low, until it drops 20 percent from its peak. And September 15 will be the tenth anniversary of the collapse of Lehman Bros., the fourth-largest U.S. investment bank. History’s largest bankruptcy filing presaged the October 2008 evaporation of almost $10 trillion in global market capitalization.
The durable market rise that began March 6, 2009, is as intoxicating as the Lehman anniversary should be sobering: Nothing lasts. Those who see no Lehman-like episode on the horizon did not see the last one.
Economists debate, inconclusively, this question: Do economic expansions die of old age (the current one began in June 2009) or are they slain by big events or bad policies? What is known is that all expansions end. God, a wit has warned, is going to come down and pull civilization over for speeding. When He, or something, decides that today’s expansion, currently in its 111th month (approaching twice the 58-month average length of post-1945 expansions), has gone on long enough, the contraction probably will begin with the annual budget deficit exceeding $1 trillion.
The president’s Office of Management and Budget — not that there really is a meaningful budget getting actual management — projects that the deficit for fiscal year 2019, which begins in six weeks, will be $1.085 trillion. This is while the economy is, according to the economic historian in the Oval Office, “as good as it’s ever been, ever.”
Leavening administration euphoria with facts, Yale’s Robert Shiller, writing in the New York Times, notes that since quarterly GDP enumeration began in 1947, there have been 101 quarters with growth at least equal to the 4.1 percent of this year’s second quarter. The fastest — 13.4 percent — was 1950’s fourth quarter, perhaps produced largely by bad news: The Cold War was on, the Korean War had begun in June, fear of the atomic bomb was rising (New York City installed its first air-raid siren in October), as was (consequently) a home-building boom outside cities and “scare buying” of products that might become scarce during World War III. Today, Shiller says, “it seems likely that people in many countries may be accelerating their purchases — of soybeans, steel, and many other commodities — fearing future government intervention in the form of a trade war.” And fearing the probable: higher interest rates.
Another hardy perennial among economic debates concerns the point at which the ratio of debt to GDP suppresses growth. The (sort of) good news — in that it will satisfy intellectual curiosity — is that we are going to find out where that point is: Within a decade the national debt probably will be 100 percent of GDP and rising. As Irwin Stelzer of the Hudson Institute says, “If unlimited borrowing, financed by printing money, were a path to prosperity, then Venezuela and Zimbabwe would be top of the growth tables.”
Jay Powell, chairman of the Federal Reserve, says fiscal policy is on an “unsustainable path,” but such warnings are audible wallpaper, there but not noticed. The word “unsustainable” in fiscal rhetoric is akin to “unacceptable” in diplomatic parlance, where it usually refers to a situation soon to be accepted.
A recent IMF analysis noted that among advanced economies “only the United States expects an increase in the debt-to-GDP ratio over the next five years.” America’s complacency caucus will respond: But among those economies, ours is performing especially well. What, however, if this is significantly an effect of exploding debt? Publicly held U.S. government debt has tripled in a decade.
Despite today’s shrill discord between the parties, the political class is more united by class interest than it is divided by ideology. From left to right, this class has a permanent incentive to run enormous deficits — to charge, through taxation, current voters significantly less than the cost of the government goods and services they consume, and saddle future voters with the cost of servicing the resulting debt after the current crop of politicians has left the scene.
This crop derives its political philosophy from the musical Annie: Tomorrow is always a day away. For normal people, however, the day after tomorrow always arrives.