3 Reasons Real Estate Could CRASH That Investors Should Focus On Today

Is the real estate market on the brink of collapse? The US economy is headed for a recession if not a depression and as a result, real estate prices may drop. But there are no certainties, only probabilities. These are catalysts that could trigger incredible amounts of selling, which would flood the market with additional supply.  IF this type of forced selling takes place, prices could collapse.

Will it play out like 2008-2012? Most likely not, but it could rhyme and the net result would be the same, prices plummeting in real terms (adjusted for inflation). If you’re interested in real estate, the housing market or the future of the economy, George Gammon dives deep into the demographic setup that may foreshadow much of tomorrow’s residential real estate market.

 

Opting Out, American Style

Virtually nothing in America’s top-down financial and political realms is actually transparent, accountable, authentic or honest.

Opting out will increasingly be the best (or only) choice for tens of millions of people globally. Opting out means leaving the complicated, costly and now unaffordable / unbearable life you’ve been living for a new way of life that is radically less complex, less costly and less deranging.

Opting out is as diverse as the individuals who choose to opt out. For many people in China, for example, the obvious choice when you’ve lost your job and can no longer afford expensive urban life is to return to your ancestral village, where you’re likely to have grandparents, parents or aunts / uncles with a house and a patch of agricultural land.

Since urbanization has been a feature of American society for generations, this is not an option for most Americans, who are by and large rootless cosmopolitanswho rarely even know their neighbors, as they move around the country out of necessity or ambition.

Just as “capitalism is no longer attractive to capitalists,” (per Wallerstein), urban living has lost its luster in ways few dare even discuss. Urban centers on the Left and Right Coasts have been magnets for jobs and capital, drawing in hundreds of thousands of new residents seeking higher paying employment. This vast influx pushed rents and housing valuations to nosebleed heights, and as a result all the local governments reckoned tax revenues would skyrocket every year like clockwork and all the developers building tens of thousands of over-priced rental units also assumed the trend would continue forever.

Too bad they didn’t read Laozi and learn that The Way of the Tao Is Reversal:whether you call it the Tao or merely reversion to the mean, demanding $3,000 a month for cramped apartments and $1 million for decaying bungalows were extremes that begged for a reversal.

The federal unemployment payments and bailouts make it easier to extend the delusion and denial for a few more months, but eventually the gravity of reality will overpower magical thinking and everyone counting on overvalued assets and overpriced rent, healthcare, childcare, college tuition, etc. remaining at pre-pandemic levels will have to start dealing with deep, permanent declines in sales, employment, income, asset valuations, tax revenues, etc.

The higher the costs and taxes, the greater the sacrifices that will be needed to slash and burn budgets and spending. For high-cost, high-tax urban areas, it’s unlikely the political leadership will be able to force such sacrifices on self-serving insiders and government clerisies. The only real force for evolution / adaptation will be collapse and bankruptcy, which are already baked in as the end-game for every high-cost, high-tax urban region.

Lacking any rooted family place to return to, Americans will have to do what they do best when there’s no other option: re-invent themselves, and in pursuing this, they will re-invent small town and rural living as a by-product of opting out of what’s no longer affordable or bearable.

In my view, the author who best understood the American process of re-invention is Herman Melville. Though famous for his sprawling novel of the sea and whaling, Moby-Dick, my favorite novel of Melville’s is his under-appreciated classic, The Confidence-Man, a book I discussed in Do We Actually Want To Be Conned? All Too Often: Yes (September 3, 2008).

Every con depends on trust, and as trust and confidence are lost, cons become more difficult. Part of the process of re-invention is to find places, people and processes you can trust because they continually demonstrate their authenticity via transparency, accountability, reliability and honesty.

Virtually nothing in America’s top-down financial and political realms is actually transparent, accountable, authentic or honest. Everything in these realms is a simulated, completely self-serving projection intended to fool us–The Big Con.

In re-inventing themselves via opting out, Americans will have to learn to contribute productively to small, localized beach-heads of trust, transparency and accountability that function on the local level in an anti-fragile fashion, meaning that they actually improve and get stronger as the top-down Big Con collapses under the weight of its own lies, frauds and corruption.

The Savior State’s promises to maintain your private status quo regardless of reality are false promises, delusions based on the Big Con that we can create trillions of dollars out of thin air and give them to the top .01%, and this will magically prompt an unsustainable system to keep issuing false signals of stability.

The promises are on permanent back-order, along with trust, transparency and accountability. The choice isn’t whether to opt out or continue hoping delusions and denial will work some sort of magic, but to choose whatever form of opting out works best for you and your household.

Source: by Charles Hugh Smith | Of Two Minds

America’s Largest Mall On Verge Of Default After Missing Two Loan Payments

Even before the coronavirus pandemic, US malls were in a crisis, with vacancies in January hitting a record high.

However, in the post-corona world, commercial real estate has emerged as one of the most adversely impacted sectors (perhaps because the Fed has so far refused to bail it out), with the number of new delinquencies soaring to a record high in recent weeks.

The gloom facing malls has also helped push the Big Short trade, which was the CMBX Series 6 BBB- tranche (the one with the most exposure to malls), to a fresh all time low last week.

And now, the implosion of the US retail sector has reached the very top, because according to Bloomberg The Mall of America, the largest US shopping center, has missed two months of payments for a $1.4 billion commercial mortgage-backed security, in confirmation that no business is immune to the devastating consequences of the coronavirus.

“The loan is currently due for the April and May payments,” according to a report filed by the trustee of the debt, Wells Fargo & Co., which is also the master servicer for the loan. “Borrower has notified master servicer of Covid-19 related hardships.”

Mall owners reported rock-bottom April rent collections, including about 12% for Tanger Factory Outlet Centers Inc., roughly 20% for Brookfield Property Partners LP and 26% for Macerich. Retailers and their landlords, hurt by competition from online stores before coronavirus-spurred shutdowns made things worse, are struggling to make rent and mortgage payments.

The 5.6 million-square-foot (520,000-square-meter) mall was ordered closed on March 17, and has announced plans to begin reopening on June 1, starting with retailers, followed later by food services and attractions, such as the mega-mall’s aquarium, cinema, miniature golf course and indoor theme park.

“Reopening a building the size of Mall of America is no small task, but we are confident taking the necessary time to reopen will help us create the safest environment possible,” the mall said in a statement on its website.

The Mall of America is owned by members of the Ghermezian family, whose holdings also include the West Edmonton Mall, a 5.3 million-square-foot complex in their Canadian hometown, and American Dream, a 3 million-square-foot mall in East Rutherford, New Jersey.

Source: ZeroHedge

Washington State Loses “Hundreds Of Millions” To ‘Appearance’ Of A Nigerian Unemployment Claims Fraud Scheme

Just when you thought the world has reached a level of peak absurdity, the Nigerian scheme makes a grand reappearance.

Washington state officials admitted losing “hundreds of millions of dollars” to an international fraud scheme, originating out of Nigeria, that robbed the state’s unemployment insurance system and could mean even longer delays for thousands of jobless workers still waiting for legitimate benefits.

As the Seattle Times reported, Suzi LeVine, commissioner of the state Employment Security Department (ESD), disclosed the staggering losses during a news conference Thursday afternoon. LeVine declined to specify how much money was stolen during the scam, which she said appears to be orchestrated out of Nigeria but she conceded that the amount was “orders of magnitude above” the $1.6 million that ESD reported losing to fraudsters in April.

While LeVine said state and law enforcement officials were working to recover as much of the stolen money as possible, she declined to say how much had been returned so far. She also said the ESD had taken “a number of steps” to prevent new fraudulent claims from being filed or paid but would not specify the steps to avoid alerting criminals.

Thursday’s disclosure helped explain the unusual surge in the number of new jobless claims filed last week in Washington, which as we showed this morning was the state with the highest weekly increase in claims.

On Wednesday, the state’s monthly employment report for April showed Washington with a seasonally adjusted unemployment rate of 15.4%, up from 5.1% in March. The national unemployment rate for April stood at 14.7%, seasonally adjusted.

For the week ending May 16, the ESD received 138,733 initial claims for unemployment insurance, a 26.8% increase over the prior week and one of the biggest weekly surges since the coronavirus crisis began. That sharp increase came as the number of initial jobless claims nationwide fell 9.2%, to 2.4 million, according to data released earlier in the day by the Labor Department.

Indeed, the surge in claims made Washington the state with the highest percentage of its civilian labor force filing unemployment claims – at 30.8%, according to an analysis by the Tax Foundation, a nonpartisan Washington, D.C., think tank. Nevada, the next-highest state, reported claims from 24.5% of its civilian workforce.

It now appears that many of those claims were fictitious and emanated from some computer in Nigeria.

Love & Hip Hop: Atlanta Star Maurice Fayne Back Home Following Arrest For Blowing $2,000,000 PPP Wuflu Loan On Luxury Goods And Child Support

Love & Hip Hop: Atlanta star Maurice Fayne is back home after he was arrested for allegedly using a $2 million PPP coronavirus loan to buy luxury items and make child support payments.  

The reality star, 37, was pictured taking a phone call outside of his home in Georgia over the weekend. 

Fayne was sitting upon a slick red BMW and drinking a soda as he pressed the phone against his ear, appearing deep in thought. 

Fayne was dressed comfortably in a white T-shirt and flashy red sweatpants. 

Fayne was sipping from the soda bottle as he listened intently to the call, before eventually returning back inside his house. 

Authorities say Fayne used an emergency loan from the federal government to lease a Rolls Royce, make child support payments and purchase $85,000 worth of jewelry.

Fayne, who goes by Arkansas Mo on the VH1 show ‘Love & Hip Hop: Atlanta,’ was arrested Monday on a charge of bank fraud, the Department of Justice said in a news release.

Fayne is the sole owner of transportation business Flame Trucking and in April he applied for a loan that the federal government was offering to small businesses decimated by the coronavirus pandemic, officials said. 

In his application, Fayne stated his business employed 107 employees with an an average monthly payroll of $1,490,200, the release said. 

Fayne requested a Paycheck Protection Program loan for over $3,000,000 and received a little over $2,000,000, officials said.

He used more than $1.5million of the loan to purchase jewelry, including a Rolex Presidential watch and a 5.73 carat diamond ring, the release said. 

Fayne also leased a 2019 Rolls Royce Wraith and paid $40,000 in child support.

‘At a time when small businesses are struggling for survival, we cannot tolerate anyone driven by personal greed, who misdirects federal emergency assistance earmarked for keeping businesses afloat,’ said Chris Hacker, Special Agent in Charge of FBI Atlanta.

When he met with investigators last week, Fayne denied spending the loan on anything besides payroll and business expenses.

But last Monday, federal agents searched Fayne’s home and seized the jewelry and around $80,000 in cash, including $9,400 Fayne had in his pockets, the release said.

Fayne’s attorney Tanya Miller said there was ‘considerable confusion’ about PPP guidelines and over whether owners could ‘pay themselves a salary’ when asked about the charges by CNN.

She added that she hopes these ‘issues’ will be better explained in the near future.    

He was released on $10,000 bond. 

Fayne appeared on several episodes of ‘Love & Hip Hop: Atlanta’ as the love interest of Karlie Redd, a longtime cast member, news outlets reported.

Source: By CHRISTINE RENDON and RYAN FAHEY FOR MAILONLINE and ASSOCIATED PRESS

Weekly Mortgage Applications Point To A Remarkable Recovery In Home Buying

If mortgage demand is an indicator, buyers are coming back to the housing market far faster than anticipated, despite coronavirus shutdowns and job losses.

(CNBC) Mortgage applications to purchase a home rose 6% last week from the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. Purchase volume was just 1.5% lower than a year ago, a rather stunning recovery from just six weeks ago, when purchase volume was down 35% annually.

“Applications for home purchases continue to recover from April’s sizable drop and have now increased for five consecutive weeks,” said Joel Kan, an MBA economist. “Government purchase applications, which include FHA, VA, and USDA loans, are now 5 percent higher than a year ago, which is an encouraging turnaround after the weakness seen over the past two months.”

As states reopen, so are open houses, and buyers have been coming out in force, if masked. Record low mortgage rates, combined with strong pent-up demand from before the pandemic and a new desire to leave urban down towns due to the pandemic, are driving buyers back to the single-family home market. It remains to be seen if this is simply the pent-up demand or a long-term trend.

Buoying buyers, the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of up to $510,400 decreased to 3.41% from 3.43%. Points including the origination fee increased to 0.33 from 0.29 for 80 percent loan-to-value ratio loans.

Low rates are not, however, giving current homeowners much incentive to refinance. Those applications fell 6% for the week but were still 160% higher than one year ago, when interest rates were 92 basis points higher. That is the lowest level of refinance activity in over a month.

“The average loan amount for refinances fell to its lowest level since January — potentially a sign that part of the drop was attributable to a retreat in cash-out refinance lending as credit conditions tighten,” said Kan. “We still expect a strong pace of refinancing for the remainder of the year because of low mortgage rates.”

Federal regulators this week changed lending guidelines for Fannie Mae and Freddie Mac, allowing refinances on loans that were or still are in the government’s mortgage bailout, part of the coronavirus relief package. Those loans can be refinanced once borrowers have made at least three regular monthly payments. Given tough economic conditions and rising unemployment, more borrowers may be looking to save money on their monthly payments.

Weaker refinance demand pushed total mortgage application volume down 2.6% for the week. 

The refinance share of mortgage activity decreased to 64.3% of total applications from 67% the previous week. The share of adjustable-rate mortgage activity increased to 3.2% of total applications.

Source: by Diana Olick | CNBC

United Airlines Only Needs 3,000 Of Its 25,000 Flight Attendants Now

Nothing paints a better picture of how bad things have gotten for the airline industry – and for its working class – than the fact that United Airlines is barely using over 10% of its flight attendant staff. 

The airline said this week it only has work for 3,000 of its 25,000 flight attendants in June and said that job losses could be next if demand doesn’t recover by the time the government ends its payroll aid, according to Reuters

United still intends to pay its flight attendants until September 30 thanks to $5 billion in aid the airline got from the taxpayer’s purchasing power government. The CARES Act prohibits layoffs or pay cuts before October.

United is just one of many airlines feeling the pain of the coronavirus lock down. Its flight schedule is down by an astonishing 90% and it has – along with other airlines – significantly cut the number of flights it is making on a daily basis. Major airlines are burning about $10 billion in cash per month.

United’s managing director of inflight crew resourcing, Michael Sasse, said: “If you just look at a way in which our network is flying we’d need about 3,000 flight attendants to fly our schedule for June.”

United says they will keep their flying schedule at about 10% of normal until demand starts to tick back up. 

United President Scott Kirby said: “But if demand remains significantly diminished on Oct. 1, we simply won’t be able to endure this crisis … without implementing some of the more difficult and painful actions.”

United is burning about $40 million in cash per day and executives have said they want to be up front with employees about potential cuts. The airline has warned that its administrative staff will be about 30% smaller by the time Fall comes around.