Direct Loans

Thursday, October 13, 2011

House price cuts helped sales surge by nearly 10pc last month

The great house price stand-off, where vendors are reluctant to cut prices to levels at which buyers are willing and able to buy, may be about to end with a burst of activity. But will vendors or buyers blink first?

Property sales increased by 9.5pc last month as prices continued to drift 2.3pc lower over the last year, according to analysis of Land Registry figures by LSL Property Services, owners of estate agents Your Move and Reeds Rains.

David Newnes, a director of LSL, claimed: “It’s certainly not all doom and gloom for homeowners. Buyer activity is picking up as transactions have been much higher than we would normally expect at this time of the year.

“Increasing activity means buyers currently feel properties represent good value and that shows there is still plenty of confidence among both buyers and mortgage lenders that prices won’t plummet in the coming months. Add to that the fact that mortgage finance is currently cheaper than ever before, and there are plenty of positives to focus on when assessing the market.”

David Hollingworth of London & Country Mortgages was less bullish: “There are certainly two ways of looking at this from a homeowner’s perspective. On the negative side, prices appear to have fallen but on a positive note there is buyer demand with purchasers ready to go ahead when they feel they are getting the right price.

“We may now be seeing some vendors readjusting their expectations about what price they can realistically achieve. It appears that those vendors that are prepared to accept buyers’ offers are finding that the sale can go ahead.”

Bank of England base rate remaining frozen at 0.5pc for 31 months has helped support sales and prices, according to Stephen Smith, a director of Legal & General Mortgage Club: “Improved availability of higher loan to value deals is starting to help engender some movement in the housing market, and this may be making sellers feel that now is the time to strike a deal.

“Although the main high street lenders may still be restricting lending to those with larger deposits, a range of smaller building societies and specialist lenders have become active over the last few months.”

But housing turnover remains far below normal and Ray Boulger of John Charcol said it is too early to predict how the stand-off between buyers and vendors will end: “The market varies so much in different parts of England and Wales that there is no single pattern to the increased number of transactions.

“In some areas it is definitely a buyers’ market but elsewhere sellers have the upper hand. Furthermore, strong rental demand has pushed rents up to a level where rental yields are close to underpinning property values.”

Births, deaths and divorce – along with less dramatic factors such as moving to find work – prompt hundreds of thousands of property sales in a typical year. But many of these transactions have been put on hold since the credit crisis began. September's figures suggest that dam may be about to break but it is not yet clear whether this will be the start of a decisive downward movement in house prices.

Chinese inflation remains high amid signs of economic slowdown

Inflation in China moderated in September for the second consecutive month, but still remained stubbornly high amid growing signs of a global slowdown.

China’s consumer price index, the main gauge of inflation, grew 6.1% from a year earlier, down slightly from a 6.2% rise in August.

The index remains far above the 4% annual target set by the central government, making it difficult to loosen monetary policy if China’s economy is pulled into a global decline.

There’s evidence that the world’s second-largest economy may be slowing down.

Trade data released Thursday showed Chinese exports decreased in September over slackening European demand and a strengthening yuan, the country’s currency.

Prices for crude oil and copper fell on news of the data, reflecting jitteriness in China’s ability to import commodities as voraciously as it has in the past.

Meanwhile, thousands of small businesses in China’s coastal provinces are reportedly being squeezed by the country’s credit crunch. China’s State Council said it would support the small firms by increasing loans and offering tax breaks.

But central leaders say reining in inflation remains an overall priority –- dulling expectations that policymakers will loosen credit, drop interest rates or lift buying restrictions in China’s stagnant residential property market.

“For the moment, we remain in policy stasis -– no more tightening, but no real loosening -– while Chinese authorities nervously eye developments in the Eurozone,” said Alistair Thornton, an analyst for IHS Global Insight in Beijing. “It is the Eurozone and U.S. that form the greatest downside risk for China’s outlook.”

China calls on U.S. to oppose currency legislation

Senate OKs sanctions for nations holding down currency values

-- David Pierson

Twitter.com/dhpierson

Photo: Customers look at prices for vegetables at a supermarket in Hefei, China. Credit: Reuters

Rent vs. Buy

CATHERINE RAMPELL

Dollars to doughnuts.

For years my colleague David Leonhardt has been helping people calculate whether it makes more sense to rent or buy a home, based on the relative costs of each decision. This week, the economists at Capital Economics noticed an interesting phenomenon related to this tradeoff: For the first time in three decades, the median monthly mortgage payment is about the same as the median rental payment:

Dollars to doughnuts.

Of course, this chart is a little bit misleading because it excludes many of the upfront expenses of buying a home, such as a down payment and closing costs. Perhaps more important, not everyone has the option to buy.

Credit conditions are still significantly tighter than they were a few years ago, despite the Federal Reserve’s efforts to loosen credit markets. Many lenders now require a credit score of 700 as opposed to 650, the previous standard. Capital Economics estimates that that requirement alone has shut 13 million households out of the mortgage market.

Debating a Labor Contract on Facebook

DETROIT — As Ford’s 41,000 hourly workers weigh the merits of their proposed four-year contract in plants and union halls across the United States this week, their debates have spilled onto Facebook, providing a glimpse into which issues are influencing their votes most.

For the first time, the United Automobile Workers union has been using social media to communicate with its members during the contract talks in Detroit, and the most intense back-and-forth has occurred in the last few days, as ratification voting got under way at Ford.

Some bemoaned the lack of a wage increase while Ford’s two top executives got bonuses totaling about $100 million. Others criticized the continuation of a two-tier wage scale.

Even those who said they supported the deal acknowledged being unhappy with many portions of it. Some suggested the deal would be much better received if it covered just two years instead of four, so the terms could be revisited sooner.

One of the union staff members who administer the “U.A.W. Ford Department” page and worked closely with the bargaining team during talks, conceded that the agreement was less than ideal but argued that circumstances did not allow for anything better.

“In 2015 we will do better,” the post said. “This is not the last agreement we will ever settle and hopefully our economy, our image, and our ability to bargain with a bigger stick will be better in the future. But this is not the time to wage this war.”

As it became apparent that more workers were voting “no,” talk turned to the possibility of a strike as soon as next week.

A man who identified himself as working in the body shop of Ford’s Kentucky Truck Plant in Louisville, said the mood had become “somber and quiet” there.

A few workers noted that Ford’s chief executive, Alan R. Mulally, was an executive at Boeing during a 69-day strike in 1995, saying that the deal that workers at that company eventually approved was worse than the one they rejected to begin the walkout.

A Ford worker in Louisville expressed concern that any gains made by a strike against Ford would be overshadowed by wages lost while on the picket lines. The U.A.W. pays its members $200 a week for strike duty, roughly one-fifth of full wages.

The U.A.W. had posted updates to Facebook on Tuesday and Wednesday mornings indicating that early voting was around 50-50.

California plans $2-billion bond sale amid rising yields

California will sell $2 billion in bonds next week, and the state probably will have to pay significantly more to borrow than it did three weeks ago.

That may lure more yield-hungry individual investors to the securities.

Treasurer Bill Lockyer plans to offer $1.8 billion in tax-free bonds and $200 million in taxable issues to raise cash for voter-approved infrastructure projects. The general obligation bonds typically are sold in maturities ranging from one year to 30 years.

The state borrowed $2.4 billion via bonds on Sept. 20, its first sale of 2011. That turned out to be near the recent low point for muni bond yields, which had been falling for much of this year in tandem with the decline in yields on other types of bonds, including U.S. Treasury issues.

But the rush into Treasury bonds as a haven has ebbed since mid-September, as worries about Europe’s debt crisis have eased somewhat and as U.S. economic data have pointed to slow growth but not recession.

The result: Treasury bond yields have rebounded, pulling other interest rates up as well.

California sold five-year bonds at a tax-free yield of 1.61% in the Sept. 20 sale. Now the market yield on five-year California debt is about 2.08%, said Joe Lee, a muni trader at De La Rosa & Co. in Los Angeles. Ten-year California bonds are yielding around 3.5%, up from 3.17% at the Sept. 20 sale.

Chris Ihlefeld, who manages the Thornburg California Limited-Term Municipal bond fund in Santa Fe, N.M., said yields may have to rise further to get the deal done next week. The muni market “is very sensitive to an uptick in issuance,” he noted.

The state still will be paying much less than it shelled out to borrow late in 2010, when muni bond yields were soaring on fears of widespread defaults by cash-strapped state and local governments in 2011. That default wave never came. (Remember Meredith Whitney?)

California paid a yield of 2.66% on five-year bonds in November 2010 and 4.23% on 10-year bonds.

Even at today’s lower yields, California bonds are attractive relative to other kinds of debt because the interest paid is exempt from state and federal taxes for California residents. The higher your tax bracket, the more appealing muni yields are -- assuming you don’t expect a dramatic surge soon in interest rates in general, or that President Obama will succeed with his proposal to limit the tax break on muni bonds for high-income investors.

For the California sale, the state will give preliminary yield estimates on Monday, and individual investors will be allowed to place orders with brokers that day and on Tuesday (the state doesn’t sell its bonds direct to investors). Institutional investors will place orders on Wednesday, which is when the yields on the bonds will be set.

Individual investors who don’t like the final yields have the option of canceling their orders.

The bonds are sold in minimum blocks of $5,000. For more information on the sale, go to Lockyer’s website, buycaliforniabonds.com.

Muni bond market was a big winner as stocks dived

California sells $2.4 billion in bonds as yields fall

Investing: Is the bond market at a crossroads?

-- Tom Petruno

Milken Conference: Where are the game-changing (political) ideas?

A common feature of learned panel discussions aimed at eliciting solutions for pressing problems is that the participants spend all their time stating the problem, and none offering solutions. At Thursday's Milken Institute 2011 State of the State conference, the morning panel on how to get Californians back to work was such standard fare.

The lineup included Lt. Gov. Gavin Newsom and California Chamber of Commerce Chairman Shariq Yosufai. It was moderated by Los Angeles real estate lawyer Lewis Feldman, who did a thorough job outlining the crisis, which is defined as 1.3 million jobs lost in this state from 2007 to 2009. Then he opened the discussion by asking Newsom to explain the structural obstacles preventing state government from coming to grips with the problem.

Beyond complaining that in Sacramento "bipartisanship doesn't exist" (no, really?) Newsom merely restated the crisis ("18 counties with unemployment north of 15%...."). Ideas for simplifying the state's tax structure or budget process, or professionalizing the legislature by removing term limits? No word. All the panelists acknowledged that preserving the state's higher education institutions is crucial for California's future competitiveness, but how to do that when the alpha and omega of policymaking in Sacramento is cutting taxes? No word.

It might have been instructive to pair that panel with the one that immediately followed it on the conference schedule -- gathering three successful entrepreneurs with Caltech President Jean-Lou Chameau. All agreed that despite its expenses and problems, California remains the best place in the world to raise venture capital. Said Henrik Fisker, co-founder of Anaheim-based electric-car maker Fisker Automotive, "People here believe in dreams."

-- Michael Hiltzik

Princess Cruises to return to Mexican ports

Months after growing crime-related violence in Mexico prompted Princess Cruises to cancel stops at Mazatlan and Puerto Vallarta, the company has added the two Mexican ports to next year's itinerary.

No other cruise line has yet to follow Princess' lead.

Princess, owned by Carnival Corp., announced in August that it would no longer drop anchor in Mazatlan and Puerto Vallarta because of growing concern about drug violence in the country.

In place of stops to Mazatlan and Puerto Vallarta, Princess added cruises from Los Angeles to Cabo San Lucas and Hawaii.

Other cruise lines that operate out of Los Angeles, including Carnival Cruise Lines and Disney Cruise Line, have also pulled out of Mazatlan over the last few months because of fears of crime-related violence.

But Princess this week announced a tentative plan to return to Mazatlan and Puerto Vallarta when it released its itinerary for 2012 and 2013.

The cruise company said it will monitor the violence in Mexico to determine if it would continue to serve the two ports.

"We are planning for a long way out," said cruise line spokeswoman Julie Benson. "We look forward to returning to these ports and putting them back on the schedule."

Mexico has been in the grips of violence in recent years as powerful drug cartels battle for shares of the drug trade. Tourism officials have been quick to say that popular spots such as Mazatlan are safe for tourists.

But that changed after a Feb. 22 shooting that left two dead in the parking lot of a hotel in Mazatlan's tourist area.

A travel warning by the U.S. State Department, issued in April, said the violence in Mexico usually targets "Mexican citizens associated with criminal activity," but it went on to say that "the security situation poses serious risks for U.S. citizens as well."

Mexico: Disney, Norwegian cruise lines cancel stops in Mazatlan after deadly shooting

-- Hugo Martin

Photo: The Sapphire Princess sails from Los Angeles to Mexico. Credit: Princess Cruises