The Phaserl


Three Mini-Bubbles Are Bursting

by John Rubino, Dollar Collapse:

he world has gotten so used to ultra-low interest rates that even economists and money managers seem to be shocked by what happens when rates start creeping back towards normal levels.

Some of the mini-bubbles that formed in an essentially free-money environment are now starting to leak. Notably:

US Housing
While the action in this sector is nothing like the raging mania of the 2000s, prices in many hot US markets are at all-time highs, while affordability is at or near an all-time low. And now rising mortgage rates are beginning to bite.

Pending Home Sales Reflect “Dispirited” Buyers.

(Mortgage News) – Pending sales, which were widely expected to make a good showing in November, pulled back sharply instead. The National Association of Realtors® (NAR) said its Pending Home Sales Index (PHSI), a forward-looking indicator based on contracts for existing home purchases, declined 2.5 percent to 107.3 in November from 110.0 in October. NAR said “the brisk upswing in mortgage rates and not enough inventory dispirited some would-be buyers.” The decrease brought the PHSI to its lowest level since January of this year and it is now 0.4 percent below the index last November which stood at 107.7.
Analysts polled by Econoday had been upbeat about the November outlook. The consensus was for an increase of 0.5 percent with some analysts predicting as much as a 2.0 percent gain.

Lawrence Yun, NAR chief economist said, “The budget of many prospective buyers last month was dealt an abrupt hit by the quick ascension of rates immediately after the election. Already faced with climbing home prices and minimal listings in the affordable price range, fewer home shoppers in most of the country were successfully able to sign a contract.”

US Auto Sales
Cars and trucks have been one of the economy’s bright spots for several years — which seems to have gotten everyone just a little too excited. Auto financing practices have lately begun to resemble those of the subprime mortgage bubble: Today’s average loan is for more money, lasts much longer, and is held by a much weaker credit than ever before. Now, with interest rates rising and pretty much every potential buyer already locked into a car mortgage, the bubble optimism is evaporating.

GM Plant Closures Could Signal Trouble for U.S. Auto Industry

(NBC) – General Motors will temporarily idle five U.S. assembly plants next month in a bid to reduce bloated inventories.
The cuts focus on plants building sedans and coupes, such as the Chevrolet Cruze, Cadillac CTS and Chevy Camaro, which have been losing momentum as American motorists by the millions shift from passenger cars to utility vehicles and other light trucks.

But the move could also signal a broader slowdown of the U.S. automotive market after three consecutive years of record sales. The big questions are how fast and how far a slide the industry could be facing.

Forecasts by IHS Automotive and other research firms say sales could slide by 200,000 vehicles or more, with a variety of factors threatening to create even more of a downturn. These include rising fuel prices and increasing interest rates. Automakers could offset higher monthly payments by offering new loan and lease subsidies, but such moves would, in turn, impact industry profitability.

GM’s decision to cut production at plants in Michigan, Ohio, Kansas, and Kentucky comes as it watches inventories surge, in some cases, to nearly three times what the industry considers the norm: about 60 to 65 days’ worth of vehicles on dealer lots. The company has a 177-day backlog of Camaros, while its overall inventory grew from a 79-day supply in October to 84 days at the end of November.

That the world’s second largest economy — with a debt load that has quintupled in the past seven years — can be called a “mini-bubble” illustrates the size of the meta-bubble in which it has emerged.

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