KeNo's Housing and Economic Portal: Friday July 15 2016 Housing and Economic stories

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In New York, a Falling Market for Trophy Homes in the Sky - (www.nytimes.com) New York City’s ultraluxury real estate frenzy — with its sky-piercing condominium towers and $100 million price tags — has finally come to an end. Even with every conceivable amenity, the eight- and nine-digit prices attached to trophy homes with helicopter views and high-end finishes never bore much relation to actual value. Rather, a class of superrich investors primarily drove the market, choosing high-priced real estate as their asset of choice, because it was less volatile than other investments and they could use shell companies to hide their identities. But today a four-year construction boom aimed at buyers willing to spend $10 million or more has flooded the top of the market just as global market turmoil has caused wealthy investors to pull back and the federal government has moved to scrutinize some all-cash transactions. It’s not just the volatility of financial markets that has big spenders sitting on their wallets. Other global trends that have put the lid on high-end spending include China’s tightened restrictions on capital outflows, uncertainty surrounding Britain’s decision to leave the European Union, lower oil prices curbing wealth in the Middle East, and tax increases and other measures that have driven up property transaction costs in some countries.

U.S. Regulator Flags Auto-Lending Risks - (www.cnbc.com) A U.S. banking regulator warned about growing credit risk in the auto-lending sector, raising the prospect of fresh regulatory pressure in the area. The Office of the Comptroller of the Currency, which supervises large national banks including many of the largest banking firms in the U.S., highlighted the risks in its twice-annual report Monday. The OCC said auto-lending risk is increasing “because of notable and unprecedented growth” across all types of lenders. “As banks have competed for market share, some banks have responded with less stringent underwriting standards,” the report said. The report highlighted the role of indirect auto lending, in which banks provide cash to auto dealers, who in turn lend to individuals. The report said indirect lending represents “an area of significant fair lending risk” amid rapid growth and “simultaneous changes in underwriting standards.”

Negative rates leading to 'day of reckoning' fear on Wall Street - (www.cnbc.com) The reason anyone would buy negative-yielding debt is actually pretty simple: Because they have to. They are central bankers looking to help promote economic growth. They are insurance companies, pension funds and money managers who have to match liabilities with assets. They are not, by and large, retail investors who are so afraid of risk that they're willing to pay for the privilege of lending money to a government. Together, those buyers have helped build a nearly $12 trillion funnel of negative-yielding sovereign debt — unprecedented in world history. Ostensibly, the global race to the bottom was supposed to stimulate growth, and it may just well keep pushing risk assets higher. But what awaits on the other side is adding to the worries of investing professionals. "Ultimately, there will be a day of reckoning," said Erik Weisman, chief economist at MFS Investment Management. "When that will be remains very much to be seen."

Energy Failures Push U.S. High-Yield Default Rate to 6-Year High - (www.bloomberg.com) U.S. high-yield bonds in default reached the highest levels in at least six years as more energy companies buckled under pressure from stagnant oil prices. Speculative-grade U.S. defaults spiked to 5.1 percent of the total outstanding in the second quarter from 4.4 percent in the first, according to a July 12 report from Moody’s Investors Service. The global high-yield default rate could finish the year at 4.9 percent, with the U.S. as much as 6.4 percent, Moody’s said. Missed payments on high-yield or speculative bonds are already near levels that prevailed in 2009 and 2010, according to analysts at Moody’s and Fitch Ratings, who are forecasting defaults will get worse before they get better next year. At $50.2 billion, U.S. high-yield defaults have already surpassed the $48.3 billion total for all of 2015, and they’re on course to reach as much as $90 billion by year-end, according to a separate July 12 report from Fitch.

Junk-Bond Defaults Keep Climbing - (www.wsj.com) U.S. stocks might be setting record highs, but all isn’t well with the health of American companies. The trailing 12-month junk-bond default rate hit a 6-year high in June at 4.9%, says Fitch Ratings, highlighting the ongoing pain from the oil patch. Energy companies defaulted on $28.8 billion of debt the first half of this year, Fitch calculates, putting the sector’s default rate at 15%. For exploration and production, the rate is 29%. Notwithstanding this year’s 20%-plus rebound in crude, commodity prices remain too low to support the debt of some energy producers that loaded up on bonds and loans when oil hovered around $100 a barrel, market participants say. Two weeks ago, Denver energy producer Triangle USA Petroleum became the 85th oil-and-gas producer to file for chapter 11 or a similar in-court restructuring process in Canada from the start of 2015 through June, according to a tally by law firm Haynes & Boone LLP. And Fitch says the defaults aren’t done in the oil patch, noting Halcon Resources said last month it will be filing for bankruptcy protection in its effort to eliminate $1.8 billion of debt.

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