Mortgage Debt Relative to Economy Size : Australia, Canada, U.S.

Australia
1.6 trillion (AUS) GDP
1.3 trillion (AUS) residential mortgage debt
81%

Canada
1.55 trillion (CAN) GDP
1.2 trillion (CAN) residential mortgage debt (http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/fin21-eng.htm)
77%

U.S.A.
16 trillion (US) GDP
11 trillion (US) residential mortgage debt (http://www.federalreserve.gov/econresdata/releases/mortoutstand/current.htm)
69%

Record gap between Canadian and U.S. house prices

Canada-U.S. House Price Gap Hits A Record High: BMO Is there a fundamental reason why Canadian prices would be 50% more expensive, or is it just offsetting cycles?

The graph from the article says it all.

Truck Tonnage Index Indicates U.S. Economy Got a Lift in May

Seasonally adjusted, up 2.3% month on month, 6.7% year on year
By raw numbers up 5.4% month on month. ATA Truck Tonnage Index Surged 2.3% in May

Some of the increase is attributable to factory output rising in May for the first time since February (+0.2%) and retail sales performing stronger than expected in May (+0.6%). Costello added, "The 6.8% surge in new housing starts during May obviously pushed tonnage up as home construction generates a significant amount of truck tonnage."

. . .

He added that tonnage continues to outpace the number of loads hauled as heavy freight (e.g., housing construction materials and sand and water for hydraulic fracturing) is outperforming box trailer (i.e., dry van) freight.

And some background:

Trucking serves as a barometer of the U.S. economy, representing 67% of tonnage carried by all modes of domestic freight transportation, including manufactured and retail goods. Trucks hauled 9.2 billion tons of freight in 2011. Motor carriers collected $603.9 billion, or 80.9% of total revenue earned by all transport modes.

Ad: USDOT Truck markings, decals for commercial haulers

Former Bank of America employees claim homeowners ripped off customer by lying to them about their loan modifications

When literally no one likes a company, it's probably not just all in the customers' heads.

Former Bank of America workers allege it lied to home owners

The bank allegedly used these tactics [lying about status and denying modifications to qualified applicants] to shepherd homeowners into foreclosure, as well as in-house loan modifications. Both yielded the bank more profits than the government-sponsored Home Affordable Modification Program, according to documents recently filed as part of a lawsuit in Massachusetts federal court.

For example, an employee who placed 10 or more accounts into foreclosure a month could get a $500 bonus. At the same time, the bank punished those who did not make the numbers or objected to its tactics with discipline, including firing.

. . .

The testimony from the former employees also alleges the bank falsified information it gave the government, saying it had given out HAMP loan modifications when it had not.

What does it take to justify making this bank cease to exist? It is not a benefit to banking, the country, the markets, or customers. Or taxpayers.

The court documents paint a picture of customer service operations where managers roamed the floor with headsets, able to listen into any call without warning. Service representatives were told to lie to homeowners, telling them their paperwork and payments had not been received, when in reality they had.

JP Morgan's Fraud Contributed Excessive Credit to the U.S. Bubble

E-Mails Imply JPMorgan Knew Some Mortgage Deals Were Bad

Rather than disclosing the full extent of problems like fraudulent home appraisals and overextended borrowers, the bank adjusted the critical reviews, according to documents filed early Tuesday in federal court in Manhattan. As a result, the mortgages, which JPMorgan bundled into complex securities, appeared healthier, making the deals more appealing to investors.

The trove of internal e-mails and employee interviews, filed as part of a lawsuit by one of the investors in the securities, offers a fresh glimpse into Wall Street’s mortgage machine, which churned out billions of dollars of securities that later imploded. The documents reveal that JPMorgan, as well as two firms the bank acquired during the credit crisis, Washington Mutual and Bear Stearns, flouted quality controls and ignored problems, sometimes hiding them entirely, in a quest for profit.

In an initiative called Project Scarlett, Washington Mutual slashed its due diligence staff by 25 percent as part of an effort to bolster profit. Such steps “tore the heart out” of quality controls, according to a November 2007 e-mail from a Washington Mutual executive. Executives who pushed back endured “harassment” when they tried to “keep our discipline and controls in place,” the e-mail said.

Even when flaws were flagged, JPMorgan and the other firms sometimes overlooked the warnings.

Corrupt Chinese Officials Panic Selling (UPDATED)

But still buying gangbusters in California

The great China corruption fire sale

Thousands of Chinese communist officials have been panicked into a fire sale of their illicit properties and billions of pounds have been smuggled overseas as the country's new leaders intensify a campaign to root out corruption.

The CDIC report, which was obtained by the Economic Observer newspaper, suggested that nearly 10,000 luxurious homes had been sold by officials in Guangzhou and Shanghai last year. It also claimed that $US 1 trillion, equivalent to 40 per cent of Britain's annual gross domestic product, had been smuggled out of China illegally in 2012. Economists and experts cast doubt on the figure, but said the flow of money was dramatic. Li Chengyan, a professor at Peking University, suggested that about 10,000 officials had absconded from China with as much as pounds $US100 billion.

The CDIC said 1,100 government officials had fled China during last year's national holidays in October and that 714 had been successful in getting away. In the United States, the National Association of Realtors said properties worth more than $US7 billion had been bought by Chinese in the US last year. Some high-end homes were now built for rich Chinese, with ponds for koi carp and a second kitchen for pungent cooking.

UPDATE

The threat stated in the above article came from the creation of a property database. Officials Offload Property Original article in the Economic Observer

According to a university professor who has been helping a city government in Anhui Province set up a home ownership database, officials with a greater degree of political awareness are unwilling to deal with the new property register.

The professor didn't give a clear response when asked why anyone would refuse the simple task of entering data into a computer. Instead, he tactfully noted that "The best solution to the problem is to pass the work on to a university, get them to submit a report, and, once funds have been allocated, find some students to do the work. In this way, both research and work can be done, and they won't have to worry about the risk of leaking information."

A person in charge of a real estate agency told the Economic Observer that since November last year, the instances of officials hurriedly offloading their properties had increased around the country, and these properties are often luxury residences, sometimes worth more than 10 million yuan if they're located in first-tier cities.

Only a portion of these houses are being sold through real estate agents.

Some property owners prefer to let state-owned institutions or even professional agents handle the sale. In this way, they won't need to expose themselves during any part of the process.

According to statistics posted on the website of the Beijing Municipal Commission of Housing and Urban-Rural Development, 7,940 contracts for second-hand housing deals had been signed in the first half of January 2013, an increase of 360 percent over the number of transactions completed in the capital over the same period last year.

Hat tip: UBC in Crisis Mode commenting at Vancouvercondo.info

Hong Kong most unaffordable English-speaking, Vancouver second

Demographia's 2013 survey is out. Demographia 2013 International Housing Affordability Survey

All numbers are median multiple, which is the median house price divided by the median income for the given geography.

Hong Kong 13.5
Vancouver 9.5 (and improvement from 10.6 last year)
Sydney 8.3
San Jose 7.9
San Francisco 7.8
London 7.8
Melbourne 7.5
Adelaide 6.5
Perth 5.9
Toronto 5.9 (a surge from 5.1 last year)
Brisbane 5.8

California appears to be re-inflating the bubble. If interest rates aren't normalized soon, the U.S. is going to repeat the cycle already. 20 major markets were ranked as affordable down from 24 last year.

Demographia is pretty single minded about what causes housing in-affordability. For example, in the report Honolulu and London are mentioned as being severely unaffordable, no reason is given why this might be true in Honolulu, but London's dear market is caused solely by restrictive land use policies. The report doesn't mention what any local could tell you: outside money is pouring into both markets. Basically, capital inflows is not discussed in these reports and cheap credit given only a nod.

Each of Australia's major markets, with the exception of Sydney had housing affordability within the 3.0 Median Multiple norm during the 1980s, before the widespread adoption of urban containment policies, which is referred to as "urban consolidation" in Australia.

Somehow (not explained why) these policies had negligible effect on prices for a decade and a half. Then, suddenly, oddly enough, when financial markets were deregulated at the end of the 1990s and into 2000s, the end result of which cheap mortgages were being pushed at anyone and everyone, then prices soared into unaffordable range.

Land use policy is a symptom. Municipalities engage in it to reduce externalities and improve quality of life. Something Demographia doesn't want to grasp. I get the sense reading their reports that they resent that developers cannot always socialize so much of their costs. Or I guess they dream that if people could just build at will on the side of old spatter cones, and in tsunami inundation zones, Honolulu's high prices would just magically vanish.

U.S. GDP per capita is significantly higher, why are house prices lower?

Global MetroMonitor Interactive Graph from the Brookings Institute

A chart of "real GDP per capita and employment change for the largest 300 metropolitan economies"

As a little thought experiment, do a cross-border comparison of GDP per capita between the U.S. and Canada. Seattle: 65k, Vancouver: 41k. Or more startling Toronto: 43k, Buffalo: 58k.
Where in the world is the wealth generation supposedly coming from to justify double the house price in Canada?

Financial Corruption from Bubble Still Haunts U.S. Years after Crash

The saying about the tide going out applies to transparency for the financial system as well. Profits gloss over a lot of corruption. And regulatory capture and blackmail by behemoth institutions adds another layer of inertia to a fundamentally flawed system.

As part of the settlement over bad mortgage practices the banks agreed to write down debt. Good news is, they are. Bad news is, it's debt that doesn't exist anymore.

How to Erase a Debt That Isn’t There

“You are approved for a full principal forgiveness of your Home Equity Account,” says another, from Bank of America. Jackie Esposito, of Guilford, Conn., got a letter like that. But she wasn’t elated — because she doesn’t owe the money anymore. She and her husband filed for bankruptcy three years ago. The roughly $64,000 they owed Chase has been legally wiped out.

Cast your mind back to February. Five of the nation’s big banks, including Chase and Bank of America, agreed to pay $25 billion to settle state and federal claims over questionable mortgage practices and promised to work harder to help borrowers who were in trouble. To prod the banks, the government said it would give them credits against the amounts they agreed to pay.

Neil Crane is a lawyer in Hamden, Conn., who represented Ms. Esposito and her husband in their bankruptcy. He says four of his other clients have recently received letters from banks claiming to forgive discharged debt.

The banks claim it is a phrasing problem. That they are simply noting that the lien has been released.

But even this is incorrect in Ms. Esposito’s case, Mr. Crane said. Her lien was actually eliminated back in 2009, during her bankruptcy proceeding.

The loan forgiveness is taxable for the former owner, so this could be a serious problem for those caught up in this.

All of this made me wonder: are the banks’ forgiveness letters a way to gain credits for debts these institutions are improperly claiming to have extinguished? The banks say no.

And we can completely trust them on that.

Canadians buying up Florida Real Estate

Northern flight: Canadians gobbling up Southwest Florida real estate

From July 2011 to June 2012, foreigners accounted for 19 percent of the home sales volume in Florida, led by Canadians, according to an industry report by Florida Realtors, a statewide trade group. In that year, sales to foreigners in the state reached an estimated $10.7 billion — out of a total of $58 billion. Canadians accounted for 31 percent of those foreign purchases, putting them in first place among all nationalities.

In the Cape Coral-Fort Myers market, Canadians ranked as the top country for foreign home buyers in the year ending June 30, with a 56 percent share, according to the National Association of Realtors' 2012 Profile of International Home Buying Activity. That was followed by Germany with 17 percent, then the United Kingdom and Honduras, each with 6 percent.

I wonder what percent of these buyers are taking out equity back in Canada to fund these purchases?

Glen Bigness, a Realtor with Premiere Plus Realty Co., said in an email that he sees a great number of Canadians visiting his websites.

He's in regular contact with lenders who provide loans to foreign nationals.

"Most tell me money is tight, and qualification is very narrow and stringent for them, so most deals seem to still be cash at closing," Bigness said.

His company offers a "buy and fly" program to Canadians. Buyers who spend at least $200,000 get up to $500 at closing to pay for their flight to Southwest Florida.

If you can't afford a plane ticket, how can you afford to be a long distance owner?

When these foreign markets also adjust, U.S. housing is going to find another bottom.

Heard This One?

Based on the official housing statistics, you might have guessed that the sellers would have made out just fine, despite all the talk of a real estate slump.

House prices nearly tripled in the first half of this decade, and speculators, who are more likely than residents to sell a house in a panic, flooded into the area in recent years.

The truth is that the official numbers on house prices — the last refuge of soothing information about the real estate market on the coasts — are deeply misleading. Depending on which set you look at, you’ll see that prices have either continued to rise, albeit modestly, or have fallen slightly over the last year. But the statistics have a number of flaws, perhaps the biggest being that they are based only on homes that have actually sold. The numbers overlook all those homes that have been languishing on the market for months, getting only offers that their owners have not been willing to accept.

Unfortunately, there are also a lot of families that took on huge mortgage debts based on the ephemeral peak values of their properties. In effect, they cashed in on the housing boom without cashing out. As Ed Smith Jr., the chief executive of Plaza Financial Group, a mortgage brokerage firm near San Diego, said, “So many people picked up their homes, turned them upside down and shook them like a piggy bank.”

The withdrawals have been so big that the average household in Boston now has slightly less equity in its home than it did in 2000, according to an analysis by Moody’s Economy.com that took inflation into account.

All of the above are from this article: What Statistics on Home Sales Aren’t Saying New York Times 2006

Flash forward to 2012:

In addition to the level of debt, the way it is employed may also affect out- comes during periods of economic stress. If debt has been used to finance household consumption, for example, consumption may be constrained following a shift toward reducing debt burdens. In “Household Borrowing and Spending in Canada,” Jeannine Bailliu, Katsiaryna Kartashova and Césaire Meh focus on how the accumulation of debt is related to household expenditures, specifically consumption and spending on home renovation. They observe that the share of consumption financed by home-equity extraction has risen since 2000. They also note that a much larger share of spending on home renovation is financed by these debt flows. Home-equity extraction in turn has been supported by rising house prices and financial innovation. Simulation results suggest that a negative shock to house prices could have a relatively large impact on consumption.

--Bank of Canada

Check out the associated chart:

House prices have doubled, but Canadian housing equity has been falling. (Looks about level with 2000 values or up very slightly, but this is in an environment of greatly increasing "values". It's nuts.) Of all the parallels with the U.S. worth panicking over, this should be high on the list.

That crossover point where the growth in mortgage debt begins to exceed the growth in real estate values . . . that's interesting marker. That's the point where the central bank lost control through relaxation of mortgage standards.

Back to the article, the trigger for the angst was an auction of foreclosed property.

The highest bid on one three-bedroom ranch house with a pool was $671,000. In 2005, the same house sold for $809,000. Another house, just steps from Naples Bay, received a high bid of $880,000, compared with $1.35 million a year earlier. On average, the bids suggested that the houses at the auction had lost about 25 percent of their value since 2005, according to Thomas Lawler, a real estate consultant who analyzed the results.

More coverage from that era:

Realtors fume over property auction

Some local real estate professionals are livid. It’s bad enough that sales of single-family houses in the Naples area has dipped nearly 50 percent.

Now, an impending auction of 45 prime properties has locked up the market, Realtors contend.

. . .

However, the proposed auction has tied up the real estate market for the next few weeks, some Realtors protested in early October.

People have stopped buying so they can wait and see what they can pick up at the Oct. 21 sale, at which they can bid online or at the Naples Beach Hotel & Country Club for some 45 homes primarily in The Moorings, Lake Park, the northern boundaries of Old Naples and Cape Coral.

. . .

Real estate professionals say it is especially obnoxious because many of the properties that will be sold on the auction block — by seller desire, not because they can’t pay the taxes — were purchased by speculators who likely attempted to manipulate the market.

“The majority of investors are selling off with little or no profits. Look at the 11 homes (in Lake Park) going up for auction by an investor now,” says longtime Naples resident and Remax Elite real estate agent Jerry Krecicki.

Noting that assessed value and sales price are a matter of public record, Turner cited a house at 1121 10th Ave. N. that listed for $569,000 on March 5, 2005. Moorings resident Marjorie S. Dresner bought the house on March 7, 2005, and closed on it on April 26, 2005.

For $585,000, Turner said.

The Buyer Today is Going to Wait for Prices to Soften

The Naples News reports from Florida. “The deadline for closing on properties purchased in an Oct. 21 auction has been moved back to Dec. 6. Auction operator Paul Drake said he wasn’t aware that one of the properties for which he’d announced a high-bid price is now in foreclosure.”

“In legal ads printed in the Daily News, Washington Mutual Bank announced foreclosure on 1121 10th Ave. N., although the ads refer to it as Lot 22, Resubdivision of Block A, Lake Forest. The owner of record, Marjorie Dresner, had numerous properties listed in Drake’s auction.”

“Shortly after the event, Drake said that property at 1121 10th Ave. N. drew a contract price of $341,000. Public records show that Dresner bought the house in May 2005 for $585,000, with an April 26, 2005, loan from Washington Mutual. Mortgage documents show Dresner took out a loan worth $468,000 plus interest.”

“That is part of the problem, real estate professionals protested, before and after Drake’s advertised auction. It was unrealistic, because many of the top bid prices were far less than the mortgage prices, they said.”

“While Drake had denied financial hardship was involved for people who had put their properties up for auction, real estate analysts noted that a few days before the auction, Dresner had taken out a second mortgage on most of her participating properties.”

“News of the auction ignited debate about Naples’ real estate market, and whether sales prices were dropping drastically.”

Well, let's go take a look, shall we?

Zillow Map

Back to the 2006 NYT article:

Over the last few decades, the world’s financial system has endured a crisis roughly once every three or four years. There was the stock market crash of 1987, the Asian and Mexican meltdowns in the 1990s, the dot-com implosion of 2000 and, most recently, the aftermath of Sept. 11, 2001. We may now be living on both borrowed money and borrowed time.

Are prices re-inflating in Australia and the U.S.?

Misleading title, as this article is about price reinflation around the globe. Australia's evolving property puzzle

Until we get more data, this is just seasonal noise.

The obvious question to ask is: Why are these hard assets rising? Consider the abyss the world’s central banks faced in 2007. Before the panic, global assets equalled, let’s pick a number – $100 trillion. Global liabilities equalled, lets say $80 trillion. The difference represents the world’s pre-GFC wealth, i.e. $20 trillion. Trillions is a pretty nonsensical number for most of us to grasp, so let's keep it real simple. In 2007 the world owned about $100 in assets less about $80 liabilities giving net worth around $20.

Suddenly stupidity (sub prime) and later fraud (Madoff, Stanford, Libor) is uncovered. In the space of a few days to weeks, asset values drop by say 35-50 per cent. At that point the world’s global balance sheet looks like this. Assets - between $50-65. But liabilities stuck at $80. As my daughter would say – “busted”!

Stage two is a little trickier. Reducing liabilities is impossible without triggering a default. So if liabilities can’t be changed, the only other alternative is to reflate asset values back to 2007 levels. Hmmm.

But what are the real inflation figures. You can't inflate just housing and not everything else, like wages, and have a stable situation. Surely we've learned that, no?

I think there is a much simpler explanation, there is a lot of wealth, a planetary boatload of wealth, seeking safety. It's in the hands of just a few % of people and it moves in great fashionable sloshes. You want the economies of the world back on track, the wealth needs to be growing in the working class as well as the moneyed class. Otherwise, the system just gets more imbalanced. That's how this whole journey began back in the late 90s with rapid imbalances in wealth accumulation and the middle class using debt to retain a middle class lifestyle.

Luxury homes in particular are on the march. In the Hamptons on Long Island, transaction volumes rose nearly 10 per cent in the June quarter.

Who is Buying US Real Estate?

I missed this report earlier. But it's a good one.

It's the Profile of International Home Buying Activity

International buyers are a mere 10% of the market in dollar terms, $82 billion out of $846 billion in sales. But they tend to buy in states that the domestic market seems to be shunning, or that is so grossly oversupplied that domestic demand cannot make an appreciable dent in the supply. (Florida, Arizona, etc.) And 82 billion is a significant increase over the 66 billion of last year.

The international home sales market in the U.S. isconcentrated in terms of purchasers ’ home country andpreferred destination. International buyers came from nearlyall over the globe, but five countries (Canada, China (PRCincluding Hong Kong), Mexico, India, and the United Kingdom)accounted for 55 percent of transactions in the recent study.There is international activity throughout the country. Fourstates (Arizona, California, Florida, and Texas) accounted for 51percent of the purchasers

So, while ~10% does not seem sufficient to drive any market, even one set on the margins, they are disproportionately represented in the areas where they are shopping.

I really wish they had this by absolute dollar as well because it is difficult to discern if investment from the UK, for example, is really declining or just flat in absolute terms and being out muscled only by percentages.

Forty-five percent of international purchases were under $250,000. There appears to bea gradually increasing trend towards purchases in the $250,000 to $ 500,000 range. There was a jump in the sales of homes valued at $1 million and up

The median for all sales in 2012 as 165,000 and the median for international was 252,000. A big jump and sales of 10 million plus homes is said to be surging. 62% were cash purchases due to difficulties getting financing in the U.S.

 If only there were such a report for Canada, eh?

Will some housing areas be protected in a decline?

The short answer is yes. The long answer is: it depends on what you mean by "protected". In LA, California, there is an area called Manhattan Beach. It is a very desirable neighborhood. As a result, there is slightly more pent-up demand for houses there than in many other areas of LA. Declines in prices are seen as an opportunity to move in, therefore it attracts imported wealth from other parts of LA.

So, let's take a look at the two markets. Here is a random house in LA on zillow  The house value isn't important (apparently I clicked on a flipper special, i.e. the $ signs marking sales. Odds are I was going to). What we care about are the other two lines. LA as a whole peaks at 605k and troughs at say 365k. That's a 40% decline.

 
 Meanwhile on the second graph of Manhattan Beach. Peak to trough it went from 1.5 million to 1.1 million. That's only a 28% decline.


So, yes, desirable areas will do a bit better. For some measure of "better."

Chinese Heavily Shopping for U.S. Property

When the credit taps in China, Canada and Australia get cut off, I expect the U.S. market to start another downward leg. It's still overpriced by 7%. Chinese Buy Expensive U.S. Homes

In the U.S., the Chinese are now the second-largest foreign buyers of homes, behind Canadians, accounting for $7.4 billion of sales in the 12 months ended March 2011, up 24% from the previous 12 months, according to the National Association of Realtors. Buyers from China and Hong Kong also spent $1.71 billion on commercial property in the U.S. in 2011, more than quadruple their investment in 2008, says Real Capital Analytics.

Those numbers likely understate Chinese investment, as investors may buy property under business entities they've set up in the U.S., says Patrick O'Neill, founder of ONeill Group, a Hong Kong-based company that helps Chinese buyers find U.S. property.

One of her recent mainland Chinese buyers paid $5 million for a 5,000-square-foot home in Pasadena that the family expects to occupy for one month a year, she says. "They treat it like a hotel without room service," says Chang, who estimates that a quarter of shoppers in the $3 million-plus market in her area are from mainland China.

Mainland Chinese also account for a third of the buyers at luxury home builder Toll Bros.' new home development, The Heritage in Vista Del Verde in Yorba Linda, Calif., southeast of downtown Los Angeles. In the San Francisco Bay Area, Realtor Stanley Lo of Green Banker real estate says mainland Chinese — a third of his clientele — are looking for homes priced at $800,000 and up. Most of his clients are Chinese business executives, who can afford second homes. They follow friends, relatives or work colleagues to the suburbs between San Francisco and the Silicon Valley.

. . .

In New York City, mainland Chinese are increasingly paying cash for $20 million "trophy apartments," says Pamela Liebman, CEO of The Corcoran Group, a residential real estate brokerage company. Based on current trends — and the increasing numbers of mainland Chinese buyers — Liebman expects they'll account for one in 10 uber-luxury buyers in the next year or two.

Foreign Buyers Put Floor Under US Market

Existing home sales: Foreigners are buying. What's their impact?

Foreign sales in Florida may be doing more than buoying the market. "Iit may be enough to turn it around, depending on the selling pressures," writes Susan Wachter, professor of real estate and finance at the University of Pennsylvania's Wharton School in Philadelphia, in an e-mail. "It is not just that a quarter [of buyers] are foreigners, it is that foreigners are likely to be the marginal buyers – those that are offering top dollar. Their wealth has not been hit by the crisis, unlike the balance sheet of the US buyer."

(I assume she meant NOT marginal buyers...)

Two other states hit hardest by the housing bust are among the four most popular states for international buyers, according to the NAR: California (12 percent of international sales in the US) and Arizona (6 percent). The US is also the most popular locale for international buyers of commercial real estate. Perennially the No. 1 destination of investment money, the US received fewer first-place votes in 2011 than in 2010, as other locales, such as Brazil, grew in popularity, according to a survey released in January by the Association of Foreign Investors in Real Estate, based in Washington. Still, 60 percent of the commercial investors in the survey said they planned to increase their property purchases in the US this year.

Overpaying Leads to Default

A little note to those who can't see past the bank fraud in mortgage issuance as the cause of the U.S. housing mess. The credit bubble, and rise of prices over fundamentals was the root of the problem. All the rest (subprime, ratings agencies rating junk as AAA, brokers being coached to fudge loan applications, prime borrowers getting subprime mortgages because brokers made more money on those . . . etc. etc.) were merely symptomatic of a broader problem, which is deregulation leads to shadow banking, which leads to a credit bubble. People buy houses with leverage, so the bubble shows up there most prominently.

If you think your market is going to escape because banks only issue prime mortgages, here's a stat for you: 40% of Prime Jumbo mortgages (i.e., too big for Fannie and Freddie) are in strategic default.

Strategic Mortgage Delinquencies as High as 27%

For Alt-A loans, considered between prime and subprime in terms of expected defaults, the share is about 35 percent, up from about 30 percent. For subprime loans, the amount is about 25 percent, up from less than 20 percent, their report showed.

The ratio is about 15 percent for loans less than $100,000, compared with almost 35 percent for mortgage larger than $400,000, according to the analysts. The share among borrowers with the highest credit scores was more than 40 percent, compared with about 20 percent for those with the lowest.

Why do people default? Very simple. Because they paid to much for their house.

Record numbers of church foreclosures

Banks foreclosing on churches in record numbers

Since 2010, 270 churches have been sold after defaulting on their loans, with 90 percent of those sales coming after a lender-triggered foreclosure, according to the real estate information company CoStar Group.

In 2011, 138 churches were sold by banks, an annual record, with no sign that these religious foreclosures are abating, according to CoStar. That compares to just 24 sales in 2008 and only a handful in the decade before.

China's U.S. Treasury Holdings Falling

Doom was supposed to descend when China stopped buying Treasuries, let alone started selling them. Turns out, not so much. Japan will overtake China as the largest holder.

What Happens When China Stops Buying Our Debt?

Of the $5 trillion rise in debt owned by the public in the past decade, $3.3 trillion was financed by foreign investors, half a trillion by U.S. individuals, half a trillion by pension funds, and the rest by banks, mutual funds, and state and local governments. Since 2000, China has increased its Treasury holdings by about $900 billion, and Japan by roughly $700 billion.

It's also possible that the recent numbers are deceiving. China has been known to funnel some of its Treasury purchases through money managers in the U.K. When it does, the Treasury counts the U.K., not China, as the owner until the data is reconciled once a year. Last March, for example, the Treasury increased China's estimated holdings of Treasuries by 30%, and the U.K.'s down by an equal dollar amount, to reflect who truly owned the assets. But it doesn't look like that's happening this time. Since July, both China and the U.K.'s Treasury holdings have declined. In fact, total foreign ownership of Treasuries fell in December by almost $20 billion -- one of the only net monthly declines in the last five years.

OECD and Deutsche Bank Rank the Most Overvalued Countries

The Most Overpriced Housing Markets In The Developed World
Country - Over valued by:
Italy - 10%
Denmark - 17%
Finland - 22%
Sweden - 25%
Spain - 33%
UK - 34%
Netherlands - 36%
Australia - 39%
France - 42%
New Zealand - 44%
Norway - 48%
Canada - 54%
Belgium - 56%

I don't actually agree with this analysis that the U.S. is 9% undervalued. I would have put it at 7-8% overvalued. But given the wide differences between markets, it probably comes down to the weightings. For example, because Las Vegas and Arizona overbuilt without regard to lower population, many of those houses simply shouldn't count in the analysis. Also, if they are using average incomes, that completely ignores that most of the gains in the last decade went to the top few percent and isn't available to the middle class at large to invest. But this isn't about places finding a bottom. It's about those that are doing an excellent impression of Wile E Coyote.