China Home Prices Slip for First Time in Two Years

Average housing prices in China fell on a month-to-month basis in May for first time in nearly two years, as new data indicated that more cities are showing price declines and weaker sales.

Average new home prices fell 0.3% in May from April, a turnaround from the 0.1% gain recorded in April and the first decline since June 2012, data provider China Real Estate Index System said on Friday.

Compared with a year earlier, average new home prices were up 7.8% in May, as the rate of increase slowed for the fifth straight month, the firm said. April’s pace was 9.1%; March’s, 10%.

Beijing is taking action:

Super-Size Me! China’s ’Mini’ Stimulus Starts Expanding China’s so-called mini-stimulus is beginning to morph into something larger.

Nomura Holdings Inc. economists said measures including central bank loans for low-income housing are “starting to amount to something quite significant” as they scrapped their forecast for a second-quarter cut in banks’ reserve requirements. UBS AG said the government has gradually strengthened its mini-stimulus over the past couple of months and the central bank “has quietly eased liquidity conditions.”

“That’s quite natural, as Premier Li Keqiang has urged local governments to show real action.”

The Finance Ministry on May 28 called for faster spending of budgeted funds, a move Bank of America Corp. analysts said will be positive for expansion. (…)

U.S. Pending Home Sales Rise 0.4%

The National Association of Realtors said Thursday that its seasonally adjusted index of pending sales of existing homes rose 0.4% in April from March to 97.8. It was the second straight gain for the index after declining for eight consecutive months.

But the increase was well below 2.0% gain that economists surveyed by The Wall Street Journal had forecast. From a year earlier, pending home sales are down 9.2%.

Watch this now:

(Haver Analytics)

And this:

(Bespoke Investment)

And that:

Minimum Wage Increases Advance From California to Seattle

California would increase the state’s minimum to $13 an hour by 2017, the highest state rate in the nation, under a bill passed yesterday by the Democratic-controlled state Senate. Seattle’s city council signaled approval of a $15 minimum yesterday, the highest of any big U.S. city and more than double the federal standard of $7.25.

Thirty-four states are considering increases, according to the National Conference of State Legislatures. Chicago lawmakers introduced a bill this week to adopt a $15 minimum wage. (…)

Seattle’s economy has been growing briskly, with cranes erecting new skyscrapers for Amazon.com Inc. and other large employers changing the skyline. The population growth of 2.8 percent from July 2012 to July 2013 was the fastest among the biggest 50 U.S. cities, the Census Bureau says.

Growth is so strong that wages may have risen even without the measure, said Kurt Dammeier, owner of Beecher’s Handmade Cheese, a seller of artisan cheese in Pike Place Market.

“It isn’t as high a drama as it sounds on paper,” he said. “It is getting increasingly hard to hire people with any skills below $15 an hour.” (…)

“I Feel Good” :

Borrowers Tap Their Homes at a Hot Clip A rebound in house prices and near-record-low interest rates are prompting homeowners to borrow against their properties, marking the return of a practice that was all the rage before the financial crisis.

Home-equity lines of credit, or Helocs, and home-equity loans jumped 8% in the first quarter from a year earlier, industry newsletter Inside Mortgage Finance said Thursday. The $13 billion extended was the most for the start of a year since 2009. Inside Mortgage Finance noted the bulk of the home-equity originations were Helocs.

While that is still far below the peak of $113 billion during the third quarter of 2006, this year’s gains are the latest evidence that the tight credit conditions that have defined mortgage lending in recent years are starting to loosen. Some lenders are even reviving old loan products that haven’t been seen in years in an attempt to gain market share.

In 2013, lenders extended $59 billion of Helocs and home-equity loans. The last pre-boom year near that level was 2000, when lenders extended $53 billion, according to Inside Mortgage Finance. (…) 

Unlike home-equity loans, in which the borrower receives a lump sum, borrowers can draw on Helocs as needed. They can sometimes take a tax deduction on the interest from the credit line.

Some individual banks have seen their Heloc originations rise much faster than the national average. Bank of America Corp., which has increased marketing for Helocs, said customers opened $1.98 billion in Helocs in the first quarter, up 77% from the first quarter of 2013. Matt Potere, who leads Bank of America’s home-equity business, said many customers are taking out Helocs to pay for home-improvement projects that were delayed during the housing bust. (…)

“That is the No. 1 product that customers want,” said Kelly Kockos, Wells Fargo senior vice president of home equity.

During the housing boom, Helocs were a source that many consumers tapped to remodel their homes, buy new cars and boats, travel and send their children to college. Lenders often let them borrow up to 100% of their home’s value, in the expectation that prices would continue to rise. However, when prices fell and borrowers weren’t able to repay, banks faced steep losses.

(…) During the boom, homeowners could borrow up to 100% of their home’s value, said Mr. Gumbinger. Now it is most common to see a maximum of 80% and sometimes 85%, he said. (…)

Some lenders are even bringing back “piggyback” loans, which serve as a second mortgage and cover part or all of the traditional 20% down payment when purchasing a house. Piggybacks nearly vanished during the mortgage crisis.

Banks have been emboldened to originate new Helocs in part because new regulatory requirements completed this year and last year make it less burdensome to do so. And in an era where interest rates are expected to rise in the future, some lenders say they prefer Helocs over some other home-equity products because interest rates on Helocs rise as interest rates rise, making the products potentially more profitable. (…)

Moody’s Warns on EU New Banking Rules

Moody’s Investors Service Inc. MCO -1.01% has become the latest of the three big debt rating firms to warn that new European Union rules could make stakeholders more vulnerable to losses in any future banking crisis.

In response to the EU’s so-called Bank Recovery and Resolution Directive, under which shareholders, bondholders and some depositors may have to stomach big losses or commit to so-called “bail ins” to help rescue ailing banks, Moody’s has cut its long-term rating outlook on 82 European banks to negative. That means the banks’ debt ratings are more likely to be downgraded than affirmed or upgraded over the next year to 18 months.

(…) By country, 12 German banks are affected, 10 French banks, eight in Austria, five in Sweden, four in Italy, three in the Netherlands, two in Spain and one in the U.K.

The BRRD also states that countries—through taxpayers’ money—can provide additional capital support to a lender only when a bank bails in at least 8% of the total liabilities, or at least 30% of risk-weighted assets. (…)

Bond investors borrow to boost returns Low rates provide cheap loans to buy low-yielding debt

(…) The longer the Fed keeps its key borrowing rate anchored near zero and repeats the message that rate rises are well over the horizon, so the prospect of greater leverage being deployed to pump up returns from low yielding bonds will intensify. (…)