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MUFG's Brown: Real Estate Investors Reluctant To Sell (Audio) · Bloomberg Intelligence

• 0:01
  Speaker 1: You're listening to Taking Stock with Kathleen Hayes and Pim
• 0:04
  Speaker 1: Fox on Bloomberg Radio. Home prices. They are on the
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  Speaker 1: rise on average in the top twenty US cities tracked
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  Speaker 1: by the SMP core Logic Case Shiller Home Price Index.
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  Speaker 1: The twenty city Property Values index increased five point one
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  Speaker 1: percent from June of last year. It matched the median forecast.
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  Speaker 1: It's the smallest game since August, and that's probably no
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  Speaker 1: small comfort to you if you're trying to buy a
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  Speaker 1: home in a city like Seattle or San Francisco or
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  Speaker 1: so many where the market is so very very hot.
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  Speaker 1: Let's bring in Brendan Brown now he's chief economist and
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  Speaker 1: head of economic research at Mitsubishi u f J Securities
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  Speaker 1: to talk about home prices, talking about the housing market,
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  Speaker 1: the fed in the markets, and and a bit too
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  Speaker 1: about what is driving and what has driven prices so
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  Speaker 1: much higher in some cities. Brendan, welcome back to the show.
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  Speaker 1: So let's start with what we're seeing in the latest
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  Speaker 1: Caselar Home Price Index A rose just over five percent. Uh.
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  Speaker 1: It is the smallest game since August. In it it
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  Speaker 1: does seem to sort of look like it's leveled out
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  Speaker 1: a bit. How do you analyze it? Yes, I would
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  Speaker 1: say it's a very heterogeneous picture, and what we are
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  Speaker 1: seeing is the most expensive part of the real estate
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  Speaker 1: market is where the softening is occurring, and that may
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  Speaker 1: very well be in Manhattan, and of course the Northeast
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  Speaker 1: was one of the weaker areas in the case Shiller
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  Speaker 1: report today. So it's very much um case by case,
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  Speaker 1: but I think the overall frost um in some cases
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  Speaker 1: has actually diminished with it. Why did think that's happened.
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  Speaker 1: I think the overriding issue in Manhattan and Florida, for example,
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  Speaker 1: has been the increased monitoring by the US Treasure Department
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  Speaker 1: of foreign purchases, particularly through offshore companies, and that really
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  Speaker 1: was a very important part of both the storytelling in
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  Speaker 1: in those markets and also in terms of the biggest transactions.
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  Speaker 1: You know, Brendon, you recently pooh pooed in National Mortgage
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  Speaker 1: News the role that foreign money has played the last
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  Speaker 1: few years over this extreme price appreciation. I have interviewed
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  Speaker 1: many people in Boston real estate agent, UM in California
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  Speaker 1: demographic expert, many people saying that in fact, there has
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  Speaker 1: definitely been an influx of foreign money and at least
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  Speaker 1: on the margin, it has contributed to some pretty outsized
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  Speaker 1: games and home prices. You're blaming this on the media,
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  Speaker 1: which strikes me as kind of odd because it seems
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  Speaker 1: to me there's a lot of people who know this
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  Speaker 1: market very well who would disagree with you. Absolutely. The
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  Speaker 1: foreign demand has been a significant element in the flow,
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  Speaker 1: and we see that in some of the hottest markets
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  Speaker 1: in Manhattan earlier. If you cross over to Canada, we
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  Speaker 1: have the notorious bubble, if one wants to describe as
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  Speaker 1: that in Vancouver, where Chinese billionaires buying there has has
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  Speaker 1: been very much part of the story. But what I
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  Speaker 1: what I do in that recent article you mentioned, is
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  Speaker 1: one has to step back in any speculative market like
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  Speaker 1: this and realize that there's huge stocks of these assets
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  Speaker 1: being held UM which are many times greater than the flows.
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  Speaker 1: And even in looking at the flows for Chinese buying
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  Speaker 1: in Vancouver or the foreign buying in Manhattan, probably doesn't
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  Speaker 1: account for more than ten or twenty central flows. So
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  Speaker 1: what you have to ask is, when you get a
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  Speaker 1: big price appreciation, why there isn't more UM indigestion or
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  Speaker 1: selling of those who already hold stock can have made
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  Speaker 1: the big price appreciation. And and that's where I make
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  Speaker 1: the connection with this whole environment of zero interest rates
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  Speaker 1: or very low interest rates. That creates a climate where investors,
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  Speaker 1: even if they see a big gain and they realized
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  Speaker 1: a big game, are reluctant to take them because the
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  Speaker 1: alternative is so so I'm exciting, um, whether whether it's
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  Speaker 1: cash or any or short term bonds. So so, the normal,
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  Speaker 1: the normal mechanisms which tend to keep these stories in
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  Speaker 1: check or the excess price fluctuations, doesn't work so well
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  Speaker 1: in this environment of monetary distortion. So quick, I'm gonna
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  Speaker 1: get a couple of quick questions in here. Number one
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  Speaker 1: Stanley Fisher Advice. Here, the FED says that the negative
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  Speaker 1: rates seem to be working in many countries. Do you
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  Speaker 1: agree that zero or negative rates are a good idea
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  Speaker 1: for central bankers? Absolutely not. Negative interest rates as practiced
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  Speaker 1: in Europe and Japan have basically tools of currency depreciation,
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  Speaker 1: and even there they haven't really been as effective as
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  Speaker 1: we can see with the big rebound of them we've
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  Speaker 1: had this year. Um, they create a lot of anxiety.
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  Speaker 1: In Germany, you're probably getting more savings because desperation amongst
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  Speaker 1: citizens about how they're going to say for their pensions.
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  Speaker 1: And you've got a lot of distortions as as in
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  Speaker 1: real estate markets and other asset markets, and in particularly
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  Speaker 1: in private equity. So you get so much distortion, malinvestment
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  Speaker 1: and potential bubbles which will subsequently burst. But it's a
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  Speaker 1: very non optimal path to take. All right, Well, Brendan Brown,
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  Speaker 1: my question too is about the Federal Reserve. Will say
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  Speaker 1: that for your next appearance on taking Stocks. So nice
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  Speaker 1: of you to join us today. Very interesting comments about
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  Speaker 1: the housing market and what is driving up from Brendan Brown.
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  Speaker 1: He's chief economist and head of economic research at Missubishi
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  Speaker 1: UFJ Securities. Up next, Mr Wonderful from Shark Tank. You
• 5:53
  Speaker 1: know him right well, he's got a new company he's
• 5:56
  Speaker 1: involved in, Shark Reach. Very interesting. This is Bloomberg