German Thrift Damps Lending as Cheap Money Is Distrusted – Bloomberg 07-25-14

Salient to Investors:

  • European countries including the UK, Denmark and Switzerland are enacting policies to stem housing bubbles, yet with German mortgage volumes at the highest in 16 years, Germans are taking out smaller home loans and repaying them faster as prudent borrowers and lenders bet that record-low interest rates and rising property values won’t last.
  • Nina Schrader at Deloitte & Touche said the craziness in other countries never took hold in Germany because of the way its banks operate and because Germans would not think of getting a 120 percent mortgage.
  • ECB report that mortgage interest payments comprise 12.8 percent of Germans’ incomes versus the average 15.9 percent in EU countries, while the loan-to-value ratio of German homes is 41.9% versus the EU average of 37.3%.
  • In Germany, average loans are 77.7% of purchase price versus 75% in the UK and 82% in the US.
  • House prices in Germany’s largest cities have risen more than 30% in the past 5 years.
  • The OECD reports that in Germany, private household debt equals 93% of net disposable income, versus 325% in Denmark, 150% in the UK and 151 percent in the US.
  • German households had a median net wealth of €51,400 in 2010, the lowest among Euro countries, partly because of a low home-ownership rate and comparatively inexpensive real estate,  and versus €115,800  in France and €173,500 in Italy.
  • Jochen Moebert at  Deutsche Bank said Germany has been less financially volatile than many other developed countries, with only 3 asset bubbles in 150 years.
  • Reiner Braun at Empirica said Germans don’t get a tax write-off for interest payments and have few incentives to borrow to buy a home in a rental-friendly culture that offers a diverse supply of apartments across all price levels. Only 53 percent of Germans are owners, versus 65 percent of Americans and 67 percent of Britons. Braun said Germans move less frequently and do not use second mortgages to pay for a vacation or a car, unlike in the US.
  • Helmut Straubinger at Bayerische LBS said German personal-liability laws means you cannot simply give back the key, like in the US. Straubinger said the low level of ownership could become a concern as Germany’s population ages and social security benefits are cut.



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German Apartment-Block Sales Jump 23 Percent to Most Since 2006 – Bloomberg 01-06-14

Salient to Investors:

German apartment portfolios valued at $18.8 billion changed hands in 2013, the most since 2006. German homes have been targeted by investors seeking to profit from steady rental income that is supported by a growing economy and low unemployment.

CBRE said companies spent 23 percent more on German homes, in groupings of at least 50 units, in 2013 than a year earlier, with German buyers accounting for 80 percent of deals. Konstantin Luettger at CBRE said supply, especially in large and economically strong cities, is insufficient to meet demand.

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Central Banks Drop Tightening Talk as Easy Money Goes On – Bloomberg 10-23-13

Salient to Investors:

Continued stimulus on cooling global growth led by weakening in developing nations amid stagnant inflation and job growth in much of the industrial world risks inflating asset bubbles central bankers will have to face later.

Talk of unsustainable home-price increases is spreading from Germany to New Zealand, while the MSCI World Index of developed-world stock markets is near its highest level since 2007.

Richard Gilhooly at TD Securities said central bankers are wildly pumping liquidity and promising to keep rates down – which is abnormal.

The IMF cut its forecast for global economic growth to 2.9 percent in 2013 and 3.6 percent in 2014, and says inflation across rich countries is short of the 2 percent rate favored by most central banks.

Michala Marcussen at Societe Generale said central banks are concerned we are seeing another false start in their economies, and we need to see 2 to 3 months of better numbers before they are will to contemplate an exit.

The median economist expects the Fed to wait until March before tapering.

Gary D. Cohn at Goldman Sachs said we are economically in the exact same place as a year ago, so if QE made sense a year ago, it probably makes sense today.

Derek Holt at Bank of Nova Scotia said tightening before the Fed is ready to tighten would drive up currencies against the dollar, to the detriment of exports. Holt said the easy-money bias across global central banks will persist until March or April 2014 as the Fed complicated the exit strategies for many central banks.

Joachim Fels at Morgan Stanley said we are at the cusp of another round of global monetary easing, and if the Fed’s delay extends the decline in the dollar, then the BoJ and ECB are also more likely to add fresh stimulus.

Citigroup said the ECB is likely to offer banks another round of cheap, long-term loans in Q1, and the BoJ may ease more to offset a 2014 consumption tax increase.

Thierry Wizman at Macquarie Group said the much weaker dollar will cause central banks to ease because they can be less worried about capital flight if the Fed is not tightening and the strength in their currencies is imparting some disinflation into their economies, giving them a window to cut rates.

David Hensley at JPMorgan Chase forecasts the average interest rate in developed economies to hold close to the current 0.40 percent for another year as it hard to see much changing on the rate front.

The Bundesbank said that apartments in Germany’s largest cities may be overvalued by as much as 20 percent. The BoE is rebutting suggestions of a housing bubble. Rightmove said London asking prices jumped 10.2 percent in October from the prior month.

Michael Ingram at BGC Partners said bubble conditions will remain.

Karen Ward at HSBC sees no rapid withdrawal of global liquidity any time soon as whatever their official mandates, central bankers are supposed to safeguard a nation’s real income.

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