Lead Story….. Home prices are up big in a lot of markets since they bottomed in 2011, leading some to speculate that we are in another housing bubble. The Federal Reserve Bank of San Francisco put out a research piece earlier this week that makes a solid case that we are not in a bubble: House price-to-rent ratio and the mortgage debt-to-income ratio rose together in the mid-2000s, creating a self-reinforcing feedback loop. Since 2011, however, the two ratios have moved in opposite directions; the recent increase in housing valuation has not been associated with an increase in household leverage. Rather, leverage has continued to decline, reflecting a return of prudent lending practices, more vigilant regulatory oversight, and efforts by consumers to repair their balance sheets. The “red flags” are not evident in the current housing recovery. These observations help allay concerns about another credit-fueled bubble.
Economics
On the Move: Mobility is more important than ever in determining financial success. Here’s why.
Recession Redux: We have now reached the point in the economic cycle where recession calls are no longer only the domain of perma bears, broken clocks, gold bugs and other somewhat nefarious characters. In other words, the adults are starting to speculate. The latest call comes from Blackstone LP President Tony James who says that we MAY enter a recession in 2017.
The Changing Debt Landscape: Americans debt patterns are changing. A new report from the Urban Institute has some surprising statistics.
Piling In: Dollar bulls are making big bets ahead of the Fed’s next meeting. See Also: The dollar’s rise is bad news for commodities.
Commercial
Eating is the New Shopping: The amount of space in retail centers allocated to food and beverage is soaring.
Behemoth: Marriott is buying Starwood’s hotel division in one of the largest real estate deals in recent memory.
Office Space: Here are the 10 most expensive streets for office space in the US.
Residential
Fixer Upper: The housing market looks great right now from Home Depot’s point of view.
Not What I Expected: A John Burns study found that tech buyers make up a much smaller portion of San Francisco Bay Area cash transactions that commonly though. However, the VC impact on the market is still quite substantial and the folks at JBREC have the Bay Area on their radar as a market due for a correction.
Positive Outlook: Pent up demand and a lack of supply mean that housing is likely to have a positive impact on the economy in 2016 even if rates go up a bit.
Efficiency Deficiency: Americans are buying larger homes than ever before. The average house is nearly 60% bigger than it was in the 1970s and those McMansions require a ton of energy even when advances in technology are taken into account.
Drought
Out to Sea: Every year, hundreds of billions of gallons of storm water wash into the Pacific Ocean in California when it (rarely) rains since most of our water infrastructure was designed to take water away from cities to avoid flooding in the rainy season. Some new retrofit programs could help to store and conserve some of that water before it goes down the drain.
Profiles
The Man Who Wants to Rule the World (or at least LA): Due to his secretive nature, Stan Kroenke is probably the most powerful sports owner that you have never heard of. He has a plan to make a major splash in LA by bringing an NFL team to Inglewood.
Marathon, Not a Sprint: Amazon is killing it by eschewing short term profitability and focusing on dominating the retail business for the long term.
Stress Cracks: Reid Hoffman of LinkedIn thinks half of the so-called tech Unicorns with “values” of $1 billion or greater might not make it. See Also: Square’s disappointing IPO shows the risk of overvaluation in the private market. And: Ride share service Lyft recently raised a new VC round. Someone leaked their financials which show just how difficult it is to play second fiddle to Uber.
Financial Literacy FAIL: The US might be the richest country in the world but we are more illiterate than Floyd Mayweather when it comes to our finances.
Chart of the Day
Housing valuation and leverage ratios
Source: Flow of funds, Bureau of Economic Analysis (BEA), CoreLogic, and BLS. Data are seasonally adjusted and indexed to 100 at pre-recession peak.
State-level house prices
Source: CoreLogic, data indexed to 100 in 2002.
Note: Largest boom states: HI, FL, NV, CA, and AZ. Smallest boom states: MS, ND, OK, SD, KY, CO, ID, NE, OH, IN, and MI.
WTF
Hero: Meet the web developer who came up with Nickelblock, an app that plays Nickelback when you try to contact your ex or view their photos on the internet.
I Picked the Wrong Profession: People are now getting paid for instagramming their food. Seriously.
Novel Defense: As if you needed another excuse to not eat at Subway, ex-spokesperson Formerly Fat Jared Fogle’s attorney claimed that their food turned him into a pederast.
Cheesehead Logic: Some Packers fans have an interesting reason for Aaron Rogers’ recent streak of poor play.
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