October 24, 2013

There are so many investors buying US real estate that there is chatter that end-users are being squeezed out of the market:

Home purchases by institutional buyers reached a record high in September and all-cash buyers accounted for almost half of sales as investors responded to rising demand from renters.

Institutional purchases accounted for 14 percent of sales, according to a report today from RealtyTrac. That was the highest share since the real estate data firm began in 2011 to track transactions by that group, which it defines as buyers of 10 or more homes a year. All-cash sales rose to 49 percent from 40 percent in August and 30 percent a year earlier, a sign that rising mortgage rates since May have kept some people out of the market and that smaller investors are stepping up purchases.

“Both investors and traditional buyers are trying to snap up cheap homes before prices go higher, but the investors have the advantage of paying cash and not having to go through a convoluted mortgage process,” said Michael Hanson, a former Federal Reserve economist now working for Bank of America Corp. in New York. “People are being bid out of some markets because of investor demand.”

High-end real-estate in the Hamptons is surging:

Josh Guberman paid $3.4 million in 2011 for a house that had lingered on the market in New York’s Hamptons for almost a year. He knew what it was missing.

Guberman tripled the size of the 3,400-square-foot (316-square-meter) property in Southampton, creating nine bedrooms, a wine cellar and zen garden, before putting it on the market again. In July, a buyer paid $8.8 million, $50,000 more than the asking price.

In Suffolk County, home to the Hamptons, 188 residential properties priced at at least $750,000 changed hands within a year of the previous purchase, according to third-quarter data from RealtyTrac. That’s up from 22 such high-end flips at the same time in 2012, the Irvine, California-based firm said.

Treasuries are responding to the wider economy:

Treasury 10-year note yields traded at almost a three-month low as signs of a loss of momentum in global economic growth stoked bets the Federal Reserve will delay slowing its stimulus program until next year.

U.S. government debt was poised for a weekly gain as more Americans than forecast filed applications for jobless benefits last week and the trade deficit was little changed in August as imports and exports stalled. Treasury Inflation Protected Securities headed for the biggest two-month increase in more than a year as a sale of $7 billion of 30-year TIPS drew strong demand in the first auction since lawmakers voted to raise the debt ceiling. The U.S. will sell $96 billion in notes next week.

Liquidity rules in the US are being used as an instrument of financial repression:

The biggest U.S. banks would be required to hold enough easily sold assets to survive a 30-day credit drought under Federal Reserve liquidity rules that exceed international standards adopted earlier this year.

The Fed liquidity coverage ratio proposal approved unanimously today at a meeting in Washington continues the U.S. trend of pushing further than Basel III accords, calling for earlier execution than in the European Union. The U.S. plan, most stringent for banks with more than $250 billion in assets or substantial international reach, seeks implementation by 2017 — two years ahead of the Basel deadline set in January.

The banks can use an unlimited amount of cash, Treasuries and central-bank reserves to fulfill the requirement and can also keep 40 percent of it in less liquid assets.

Those other assets can include sovereign debt with a 20 percent risk weight and debt from Fannie Mae and Freddie Mac (FMCC) — subject to a 15 percent haircut. A narrower 15 percent of the liquidity can be in investment-grade corporate debt and publicly traded company stock, with a 50 percent haircut.

Equities as part of a liquidity reserve, even with a 50% haircut? One wonders at the dealmaking process that produced that decision.

David Parkinson of the Globe remarks:

And what happened when the Fed decided at its mid-September policy meeting not to begin tapering after all? Since then, the U.S. 10-year yield has backtracked 35 basis points – and Canada’s 10-year yield has matched it point-for-point.

There’s another ridiculous article on Canadian mortgages:

It was expected that higher interest rates would do the rest of the work. But that’s now in question, after the Bank of Canada pushed out the timeline for raising short-term rates.

There are some minor moves that Ottawa is already planning that could have a bit of a cooling impact on the market. Sources say the Department of Finance has circulated a discussion paper on portfolio insurance. It proposes some changes such as limiting portfolio insurance to terms, such as five years, rather than having it be for the full life of the mortgages, and taking away the ability of banks to substitute one mortgage for another within a portfolio. Changes such as these would further reduce Ottawa’s exposure to the housing market.

Of course, selling less mortgage insurance would also reduce Ottawa’s exposure to the housing market. And charging more for it would certainly mitigate and probably reduce Ottawa’s exposure to the housing market. Why isn’t Spend-Every-Penny’s recklessness in fuelling the housing boom ever addressed?

It was a good day for the Canadian preferred share market, with PerpetualDiscounts winning 18bp, FixedResets up 9bp and DeemedRetractibles gaining 6bp. A surprisingly lengthy Performance Highlights table shows no clear patterns. Volume was very high.

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 0.1860 % 2,500.6
FixedFloater 4.25 % 3.52 % 26,899 18.36 1 0.5848 % 3,950.7
Floater 2.71 % 2.96 % 62,860 19.81 5 0.1860 % 2,699.9
OpRet 4.62 % 2.79 % 66,089 0.43 3 -0.0385 % 2,639.8
SplitShare 4.78 % 5.31 % 68,759 3.97 6 0.0389 % 2,938.1
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0385 % 2,413.9
Perpetual-Premium 5.81 % 3.66 % 106,889 0.08 7 0.0341 % 2,287.6
Perpetual-Discount 5.53 % 5.58 % 166,896 14.38 30 0.1816 % 2,354.3
FixedReset 4.98 % 3.68 % 230,541 3.56 85 0.0930 % 2,444.6
Deemed-Retractible 5.13 % 4.36 % 188,247 6.72 43 0.0620 % 2,386.7
Performance Highlights
Issue Index Change Notes
IAG.PR.A Deemed-Retractible -3.22 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.66
Bid-YTW : 6.35 %
IFC.PR.A FixedReset -1.73 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.86
Bid-YTW : 4.41 %
BNS.PR.Y FixedReset -1.43 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.41
Bid-YTW : 3.96 %
MFC.PR.F FixedReset -1.42 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.14
Bid-YTW : 4.92 %
POW.PR.B Perpetual-Discount 1.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-10-24
Maturity Price : 23.32
Evaluated at bid price : 23.60
Bid-YTW : 5.70 %
CIU.PR.C FixedReset 1.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-10-24
Maturity Price : 20.21
Evaluated at bid price : 20.21
Bid-YTW : 4.13 %
SLF.PR.E Deemed-Retractible 1.17 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.55
Bid-YTW : 6.30 %
TRI.PR.B Floater 1.19 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-10-24
Maturity Price : 20.45
Evaluated at bid price : 20.45
Bid-YTW : 2.58 %
BAM.PF.B FixedReset 1.23 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-10-24
Maturity Price : 22.66
Evaluated at bid price : 23.80
Bid-YTW : 4.59 %
BAM.PF.A FixedReset 1.55 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-10-24
Maturity Price : 23.14
Evaluated at bid price : 24.93
Bid-YTW : 4.63 %
MFC.PR.B Deemed-Retractible 1.68 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.75
Bid-YTW : 6.38 %
TRP.PR.A FixedReset 2.34 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-10-24
Maturity Price : 23.57
Evaluated at bid price : 24.05
Bid-YTW : 3.98 %
Volume Highlights
Issue Index Shares
Traded
Notes
RY.PR.E Deemed-Retractible 105,725 RBC crossed 60,000 at 25.18; TD crossed 25,000 at the same price.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-02-24
Maturity Price : 25.00
Evaluated at bid price : 25.19
Bid-YTW : 4.01 %
CM.PR.L FixedReset 87,416 TD sold 10,000 to Nesbitt at 25.49, then crossed 75,000 at 25.50.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-04-30
Maturity Price : 25.00
Evaluated at bid price : 25.48
Bid-YTW : 2.51 %
SLF.PR.F FixedReset 67,457 Scotia crossed 25,000 at 25.57; RBC crossed 25,000 at the same price.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-06-30
Maturity Price : 25.00
Evaluated at bid price : 25.57
Bid-YTW : 3.24 %
CU.PR.D Perpetual-Discount 67,000 Nesbitt crossed blocks of 25,000 and 40,000, both at 23.50.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-10-24
Maturity Price : 23.18
Evaluated at bid price : 23.50
Bid-YTW : 5.28 %
RY.PR.N FixedReset 64,123 RBC crossed 60,000 at 25.19.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-02-24
Maturity Price : 25.00
Evaluated at bid price : 25.16
Bid-YTW : 2.76 %
GWO.PR.M Deemed-Retractible 63,525 TD crossed 50,000 at 25.45.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.41
Bid-YTW : 5.69 %
There were 58 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
MFC.PR.F FixedReset Quote: 22.14 – 22.78
Spot Rate : 0.6400
Average : 0.4204

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.14
Bid-YTW : 4.92 %

CIU.PR.A Perpetual-Discount Quote: 20.81 – 21.26
Spot Rate : 0.4500
Average : 0.2756

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-10-24
Maturity Price : 20.81
Evaluated at bid price : 20.81
Bid-YTW : 5.62 %

IAG.PR.A Deemed-Retractible Quote: 21.66 – 22.28
Spot Rate : 0.6200
Average : 0.4724

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.66
Bid-YTW : 6.35 %

TRI.PR.B Floater Quote: 20.45 – 21.09
Spot Rate : 0.6400
Average : 0.4968

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-10-24
Maturity Price : 20.45
Evaluated at bid price : 20.45
Bid-YTW : 2.58 %

HSB.PR.C Deemed-Retractible Quote: 24.97 – 25.29
Spot Rate : 0.3200
Average : 0.2055

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.97
Bid-YTW : 5.20 %

BNS.PR.L Deemed-Retractible Quote: 25.18 – 25.46
Spot Rate : 0.2800
Average : 0.1796

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.18
Bid-YTW : 4.41 %

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