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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: bentway who wrote (28101)	3/12/2005 3:27:39 PM
From: Crimson Ghost	Respond to of 306849

China's Bond Binge Distorting Yields JBGlobal Macro Compass 250 Mercer Street Suite D-202 New York, NY 10012 (Tel) (212) 388-9873 March 10 – Is it possible that a faraway currency gambit is responsible for our housing bubble? Yes, if you consider that China must buy massive amounts of dollar-denominated assets, including treasury bonds, in order to maintain its much maligned peg of the yuan to the dollar. Even Maestro Greenspan has called the stubborn cap on long-term rates a "conundrum." The investment community has rounded up the usual suspects: deflation, recession, pension allocations, etc. None of these fully explains an artificial suppression of long-term rates that has persisted through 3.8% gross domestic product growth and a recent pickup in job creation. An artificial distortion like this occurs when a large and well-heeled buyer makes purchases without regard to any of the typical investment rationales (like price or risk) — in order to peg a currency, for example. China must buy our bonds to peg its currency, in order to possess enough dollar-denominated assets to serve as a backstop to the yuan. This gun to their head shanghais them into buying treasury bonds without regard to our deficits or low yields — the type of thing a normal investor would care about. The artificial buying of our bonds without regard to price causes our yields to be lower than they would be in a truly rational market. This yield distortion is fueling the easy money that has led Americans to binge on real estate. With brokers pushing adjustable rate mortgages (ARMs) at 3.85%, any six-figure Babbitt can afford a McMansion on Main Street — that is until rates climb. Long rates have indeed risen over the past year, from a low of 3.2% in July of 2003 — just not as fast as short-term rates. But in the past week, the 10-year bond has seen a large spike up to 4.49%. Could it be that traders are getting savvy to the irrationality of the bond market? Could they finally be forcing the hand of bond holders? If so, long rates will spike further and the yield curve will start to look normal again. That spells unpleasant news for real estate as ARM yields rise and recent buyers start to default. The end of easy money is always most difficult for those who can least afford it. -- James Berman -----------

To: bentway who wrote (28101)	3/12/2005 10:41:53 PM
From: orkrious	Read Replies (3) \| Respond to of 306849

When these guys walk, they dump the houses on the banks, which sell them at a discount - driving prices down and increasing inventory. This won't be happening in the non-bubble areas. sure it will. they said the same thing in japan 25 years ago. there is a decent percentage of the population on ARMS and another decent percentage who require two incomes to pay a mortgage. there are going to be people losing their jobs and people who can't make the payments at higher interest rates. there are going to be more sellers at the margin then there are buyers, and it is going to go on for a long time.

To: bentway who wrote (28101)	3/13/2005 4:12:03 PM
From: John Vosilla	Read Replies (1) \| Respond to of 306849

When these guys walk, they dump the houses on the banks, which sell them at a discount - driving prices down and increasing inventory. This won't be happening in the non-bubble areas. Many nonbubble markets have record foreclosures today. For instance I was shocked to find out Tarrant county,Texas (Ft Worth) has as many foreclosures as the whole state of Florida. This just confirms the ability to use the home as an ATM has delayed to inevitable in the coastal bubble markets.