TW: Had not really focused on this angle, but it seems like a good one to me. Conservatives attempt to attribute much of the housing crisis to naive, do-gooder liberals who allegedly "forced" banks to lend money to poor people so that they could get in over their heads with housing. The vehicle for this lending being Fannie Mae etc. Krugman merely asks how banks managed to screw themselves up so badly in commercial real estate where there were no allegedly naive Dems forcing them to stuff their portfolios full of bad loans to vastly over-build office buildings, hotels, warehouses etc.
From Paul Krugman at NYT:
"Zombies, zombies, everywhere. One of the enduring myths of the financial crisis has been the claim that it was the result of (a) Fannie and Freddie (b) the Community Reinvestment Act, which forced poor, helpless bankers to make loans to you-know-who. It’s a myth that won’t go away — I get asked about it almost every time I give a public lecture — even though it has been extensively debunked. (See, e.g., here.)
But reading this scary piece about commercial real estate, I realized that CRE offers yet another debunking. After all, there was no federal act driving banks to lend money for office parks and shopping malls; Fannie and Freddie weren’t in the CRE loan business; yet 55 percent — 55 percent! — of commercial mortgages that will come due before 2014 are underwater.
The lenders didn’t need government urging to dive deep into a property bubble, and drown."
http://krugman.blogs.nytimes.com/2009/11/02/cre-and-the-cra/
Showing posts with label Real estate. Show all posts
Showing posts with label Real estate. Show all posts
Tuesday, November 3, 2009
Tuesday, July 28, 2009
Real Estate Half Full Or Half Empty
TW: The meme factories have moved from 2nd derivative gains, to green shoots to the recession is just about over. Perhaps all of them are true. But I remain skeptical.
This is the Bloomberg headline on June's existing home sales:
"U.S. Economy: New-Home Sales Climb 11%, Most in Eight Years"
This is Floyd Norris' take at NYT:
"Did new home sales really surge in June? No.
...That calculation is based on seasonally adjusted annual rates, which went from a rate of 346,000 in May to 384,000 in June, for the highest rate since November.
A year ago, when there were headlines about how bad sales were, the annual rate for June was 488,000, which was then the lowest for any month since 1991. Somehow a headline that says “sales fall 21 percent from year-ago levels” would not sound the same as the headlines that are now running.
In actual sales, the preliminary estimate is that 36,000 homes were sold, up 3,000 from May but down 9,000 from last June.
To put it another way, this was the second worst June since they began counting new home sales in 1963. It was not quite as bad as June 1982, when the country was mired in a deep recession and interest rates were sky high. Then 34,000 new homes were sold.
There are twice as many households in America as there were then, so relative to population this was the worst June ever, by far..."
http://norris.blogs.nytimes.com/2009/07/27/homes-sales-up-11-and-down-21/
Then there is this via the Big Picture blog:
“National New Home Sales, on a monthly basis, don’t even add up to half of the total foreclosure activity in California alone in a single month.”
-Mark M Hanson
This is the Bloomberg headline on June's existing home sales:
"U.S. Economy: New-Home Sales Climb 11%, Most in Eight Years"
This is Floyd Norris' take at NYT:
"Did new home sales really surge in June? No.
...That calculation is based on seasonally adjusted annual rates, which went from a rate of 346,000 in May to 384,000 in June, for the highest rate since November.
A year ago, when there were headlines about how bad sales were, the annual rate for June was 488,000, which was then the lowest for any month since 1991. Somehow a headline that says “sales fall 21 percent from year-ago levels” would not sound the same as the headlines that are now running.
In actual sales, the preliminary estimate is that 36,000 homes were sold, up 3,000 from May but down 9,000 from last June.
To put it another way, this was the second worst June since they began counting new home sales in 1963. It was not quite as bad as June 1982, when the country was mired in a deep recession and interest rates were sky high. Then 34,000 new homes were sold.
There are twice as many households in America as there were then, so relative to population this was the worst June ever, by far..."
http://norris.blogs.nytimes.com/2009/07/27/homes-sales-up-11-and-down-21/
Then there is this via the Big Picture blog:
“National New Home Sales, on a monthly basis, don’t even add up to half of the total foreclosure activity in California alone in a single month.”
-Mark M Hanson
Friday, July 17, 2009
Watch Real Estate Inflate Then Deflate
TW: Graphical depications are always fun. This does a great job of showing how the real estate market ballooned then has now deflated. The data starts in 1987 then proceeds through the present, note the benchmark median income green bar on the left. As one can see, median income has barely budged on an inflation adjusted basis during the past 20 years.
Wednesday, July 8, 2009
When Trends Diverge Watch Out
TW: There have a been a thousand charts created trying to dissect the housing bust. This one lays things out fairly clearly. It is also relevant for the overall stock market. Asset classes can diverge from the overall economy (i.e. GDP) for awhile but in the long-run they should largely converge.Real estate valuations moved roughly in line with overall GDP for decades, then moved ahead in the early 1980's but stayed anchored to GDP, then boom real estate shot ahead starting in the late 1990's, becoming completely unanchored. Those expecting a true bottom soon should pay heed.
The chart portrays another problem. The "false" positive of a new real estate paradigm (one not anchored to normal economic metrics) ran for almost ten years (late 90's to '06/'07). A trend running that long tends to suck in many folks and it takes a true crisis to reverse the false/new paradigm.
Monday, July 6, 2009
Oh the Irony...
(click on image to enlarge- via Calculated Risk)TW: Oh the irony of the Nat'l Assoc. of Home Builders, the folks who cheer-leaded one of the greatest most cynical bubbles of all-time, having to sub-lease space at their cheer-leading hub in D.C.
Friday, July 3, 2009
Schadenfreude Alert: Manhattan Real Estate Plunging
TW: I posted on my view of Manhattan real estate here back in October. The money quote:
"We lived in Manhattan for three years, awed the entire time by the real estate pricing and annoyed to the point of disgust by realtors who felt we were so blessed to have the opportunity to grace their beloved island (after all we were mere refugees from the wilds of Chicago). The only positive I relish in this whole mess is many of those folks taking a bath. But dagnamit it still ain't happenin'...."
Well it is happening now. Bite me Manhattan realtors.
From Bloomberg:
"Manhattan apartment prices dropped for the first time since 2002 in the second quarter as the collapse of Lehman Brothers Holdings Inc. and Bear Stearns Cos. caught up to property owners in the nation’s most expensive urban market.
The median price fell 18.5 percent from a year earlier to $835,700...“The standstill that existed after Lehman Brothers has been broken, and it was the sellers that cried uncle,”
Values are falling broadly in Manhattan for the first time in the almost four-year U.S. housing recession, with declines now seen in co-operatives and condominiums of every size and price.
...The price of studio apartments declined 16 percent from a year ago to a median of $405,000...One-bedrooms dropped 17 percent to $650,000 and two-bedrooms fell 23 percent to $1.27 million. Three-bedroom units fell 37 percent to $2.35 million and four-bedrooms plummeted 47 percent to a median of $3.92 million.
...James Rosenthal didn’t want to wait. Rosenthal and his Upper West Side neighbor on Riverside Drive near 77th Street put their adjacent apartments up for sale in February 2008 for $6 million, hoping to lure a buyer that wanted to maximize the 3,800-square feet of combined space...Then Bear Stearns collapsed and the neighbors cut their price to $5.75 million, then to $4.96 million. The properties sold for $3.6 million, a 40 percent discount from the original asking price, on April 20, said Rosenthal, who is a senior vice president at New York real estate brokerage Brown Harris Stevens as well as a recent seller.
...“People can’t borrow as much,” said Prudential Douglas Elliman Chief Executive Officer Dottie Herman. “So they can’t spend as much.”
http://www.bloomberg.com/apps/news?pid=20601213&sid=adzeEva9VcQo
"We lived in Manhattan for three years, awed the entire time by the real estate pricing and annoyed to the point of disgust by realtors who felt we were so blessed to have the opportunity to grace their beloved island (after all we were mere refugees from the wilds of Chicago). The only positive I relish in this whole mess is many of those folks taking a bath. But dagnamit it still ain't happenin'...."
Well it is happening now. Bite me Manhattan realtors.
From Bloomberg:
"Manhattan apartment prices dropped for the first time since 2002 in the second quarter as the collapse of Lehman Brothers Holdings Inc. and Bear Stearns Cos. caught up to property owners in the nation’s most expensive urban market.
The median price fell 18.5 percent from a year earlier to $835,700...“The standstill that existed after Lehman Brothers has been broken, and it was the sellers that cried uncle,”
Values are falling broadly in Manhattan for the first time in the almost four-year U.S. housing recession, with declines now seen in co-operatives and condominiums of every size and price.
...The price of studio apartments declined 16 percent from a year ago to a median of $405,000...One-bedrooms dropped 17 percent to $650,000 and two-bedrooms fell 23 percent to $1.27 million. Three-bedroom units fell 37 percent to $2.35 million and four-bedrooms plummeted 47 percent to a median of $3.92 million.
...James Rosenthal didn’t want to wait. Rosenthal and his Upper West Side neighbor on Riverside Drive near 77th Street put their adjacent apartments up for sale in February 2008 for $6 million, hoping to lure a buyer that wanted to maximize the 3,800-square feet of combined space...Then Bear Stearns collapsed and the neighbors cut their price to $5.75 million, then to $4.96 million. The properties sold for $3.6 million, a 40 percent discount from the original asking price, on April 20, said Rosenthal, who is a senior vice president at New York real estate brokerage Brown Harris Stevens as well as a recent seller.
...“People can’t borrow as much,” said Prudential Douglas Elliman Chief Executive Officer Dottie Herman. “So they can’t spend as much.”
http://www.bloomberg.com/apps/news?pid=20601213&sid=adzeEva9VcQo
Thursday, June 25, 2009
Regulatory Capture: The National Assoc. of Fradulent Realtors
TW: Have posted before about how evil the Nat'l Assoc. of Realtors can be. NEVER trust anything their PR machine spews out. Here they are going for some good old regulatory capture in order to resuscitate the moribund real estate market by cooking the appraisals. I think most who have dealt with appraisers know they can be pliant. There are good ones for sure but without proper incentives and supervision it is a role ripe for abuse. Count on the NAR to try to make things ripe for abuse.
From Barry Ritholz at Big Picture Blog:
"I am beginning to suspect that the Realtor’s association and the Mortgage Broker’s association are pro-fraud.
...I noted the bizarre (and potentially corrupt) statement from NAR economists Lawrence Yun calling for appraisers “familiar” with local neighborhoods:
“Lenders are using appraisers who may not be familiar with a neighborhood, or who compare traditional homes with distressed and discounted sales. In the past month, stories of appraisal problems have been snowballing from across the country with many contracts falling through at the last moment. There is danger of a delayed housing market recovery and a further rise in foreclosures if the appraisal problems are not quickly corrected.”
I called that a thinly veiled hint for “friendly” i.e., “corruptible” appraisals.
I did some more digging, and I quickly discovered what this contemptible suggestion was all about: It is part of a broader lobbying effort by the The National Association of Mortgage Brokers (NAMB) and The National Association of Realtors (NAR) against honest appraisals.
...Appraisal fraud was an enormous contributor to the unsustainable run up in prices during the boom period. Many (but not all) mortgage brokers and realtors referred buyers to appraisers that ALWAYS hit the number of the home purchase price.
A Bernie Madoff-like 100% success rate is often cause for suspicion, but we have much harder evidence than a statistical fluke. For that, let’s go to the big book of real estate fraud, Bailout Nation:
Fraud in Real Estate, Mortgages, and Home Building Minor amounts of real estate–related fraud have always existed. During the housing boom years of 2002 to 2007, it became a pandemic. These various fraudulent actions helped make the housing boom much bigger—and the bust that much more painful:
Appraisal fraud: Historically, there was no incentive to inflate appraisals. But with the rise of the mortgage brokers—many working closely with real estate agents—the business of steering appraisals to the most generous rose rapidly. By inflating appraisals, many appraisers found they could attract more referral business; some even managed to always hit the target prices given by real estate agents, which contributed significantly to the huge run-up in home prices. In 2005, more than 8,000 appraisers—roughly 10 percent of the industry—petitioned the federal government to take action against such abuses. But both Congress and the White House did nothing, allowing this rampant fraud to continue unabated.
So the very people who were enormous contributors to the credit bubble (mortgage brokers), and their colleagues who helped feed the housing boom and bust via friendly (i.e., corrupt) appraisals (RE Brokers, appraisers), are now mobilizing to make sure that honest appraisal reform is thwarted.
The NAR and NAMB apparently have no ethics to speak of. Their shameless self-interest, regardless of the damage it may cause, disgusts me ."
http://www.ritholtz.com/blog/2009/06/nar-namb-fighting-appraisal-reform/
From Barry Ritholz at Big Picture Blog:
"I am beginning to suspect that the Realtor’s association and the Mortgage Broker’s association are pro-fraud.
...I noted the bizarre (and potentially corrupt) statement from NAR economists Lawrence Yun calling for appraisers “familiar” with local neighborhoods:
“Lenders are using appraisers who may not be familiar with a neighborhood, or who compare traditional homes with distressed and discounted sales. In the past month, stories of appraisal problems have been snowballing from across the country with many contracts falling through at the last moment. There is danger of a delayed housing market recovery and a further rise in foreclosures if the appraisal problems are not quickly corrected.”
I called that a thinly veiled hint for “friendly” i.e., “corruptible” appraisals.
I did some more digging, and I quickly discovered what this contemptible suggestion was all about: It is part of a broader lobbying effort by the The National Association of Mortgage Brokers (NAMB) and The National Association of Realtors (NAR) against honest appraisals.
...Appraisal fraud was an enormous contributor to the unsustainable run up in prices during the boom period. Many (but not all) mortgage brokers and realtors referred buyers to appraisers that ALWAYS hit the number of the home purchase price.
A Bernie Madoff-like 100% success rate is often cause for suspicion, but we have much harder evidence than a statistical fluke. For that, let’s go to the big book of real estate fraud, Bailout Nation:
Fraud in Real Estate, Mortgages, and Home Building Minor amounts of real estate–related fraud have always existed. During the housing boom years of 2002 to 2007, it became a pandemic. These various fraudulent actions helped make the housing boom much bigger—and the bust that much more painful:
Appraisal fraud: Historically, there was no incentive to inflate appraisals. But with the rise of the mortgage brokers—many working closely with real estate agents—the business of steering appraisals to the most generous rose rapidly. By inflating appraisals, many appraisers found they could attract more referral business; some even managed to always hit the target prices given by real estate agents, which contributed significantly to the huge run-up in home prices. In 2005, more than 8,000 appraisers—roughly 10 percent of the industry—petitioned the federal government to take action against such abuses. But both Congress and the White House did nothing, allowing this rampant fraud to continue unabated.
So the very people who were enormous contributors to the credit bubble (mortgage brokers), and their colleagues who helped feed the housing boom and bust via friendly (i.e., corrupt) appraisals (RE Brokers, appraisers), are now mobilizing to make sure that honest appraisal reform is thwarted.
The NAR and NAMB apparently have no ethics to speak of. Their shameless self-interest, regardless of the damage it may cause, disgusts me ."
http://www.ritholtz.com/blog/2009/06/nar-namb-fighting-appraisal-reform/
Sunday, June 14, 2009
Why Not Bulldoze Empty Lots and Structures?
TW: This piece has garnered some blogosphere attention, most of it of the sensationalist variety (i.e. at Drudge-"Obama Era: Bulldoze Cities"). But our readers will recall we posted on the concept here a couple of weeks ago. The concept makes sense, it is not about "bulldozing cities" despite the piece's own hyperbolic title. It is about confronting challenging realities and deriving solutions. Many cities have much under or poorly used space. Clearing the land to create an environment for alternative uses only makes sense. I am thrilled they are apparently going to expand the concept beyond Flint, Michigan.
Should Americans be ashamed or fear the concept? Hell no, it demonstrates the ability to adapt and move on.
From the Guardian U.K.:
"The government is looking at expanding a pioneering scheme in Flint, one of the poorest US cities, which involves razing entire districts and returning the land to nature. Local politicians believe the city must contract by as much as 40 per cent, concentrating the dwindling population and local services into a more viable area.
The radical experiment is the brainchild of Dan Kildee...Kildee has now been approached by the US government and a group of charities who want him to apply what he has learnt to the rest of the country. Mr Kildee said he will concentrate on 50 cities, identified in a recent study by the Brookings Institution, an influential Washington think-tank, as potentially needing to shrink substantially to cope with their declining fortunes.
Most are former industrial cities in the "rust belt" of America's Mid-West and North East. They include Detroit, Philadelphia, Pittsburgh, Baltimore and Memphis.
..."The real question is not whether these cities shrink – we're all shrinking – but whether we let it happen in a destructive or sustainable way," said Mr Kildee. "Decline is a fact of life in Flint. Resisting it is like resisting gravity."
Karina Pallagst, director of the Shrinking Cities in a Global Perspective programme at the University of California, Berkeley, said there was "both a cultural and political taboo" about admitting decline in America.
...Flint, sixty miles north of Detroit, was the original home of General Motors. The car giant once employed 79,000 local people but that figure has shrunk to around 8,000.
Unemployment is now approaching 20 per cent and the total population has almost halved to 110,000.
...But Mr Kildee, who has lived there nearly all his life, said he had first to overcome a deeply ingrained American cultural mindset that "big is good" and that cities should sprawl – Flint covers 34 square miles.
...The local authority has restored the city's attractive but formerly deserted centre but has pulled down 1,100 abandoned homes in outlying areas. Mr Kildee estimated another 3,000 needed to be demolished, although the city boundaries will remain the same.
...Mr Kildee acknowledged that some fellow Americans considered his solution "defeatist" but he insisted it was "no more defeatist than pruning an overgrown tree so it can bear fruit again".
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/5516536/US-cities-may-have-to-be-bulldozed-in-order-to-survive.html
Should Americans be ashamed or fear the concept? Hell no, it demonstrates the ability to adapt and move on.
From the Guardian U.K.:
"The government is looking at expanding a pioneering scheme in Flint, one of the poorest US cities, which involves razing entire districts and returning the land to nature. Local politicians believe the city must contract by as much as 40 per cent, concentrating the dwindling population and local services into a more viable area.
The radical experiment is the brainchild of Dan Kildee...Kildee has now been approached by the US government and a group of charities who want him to apply what he has learnt to the rest of the country. Mr Kildee said he will concentrate on 50 cities, identified in a recent study by the Brookings Institution, an influential Washington think-tank, as potentially needing to shrink substantially to cope with their declining fortunes.
Most are former industrial cities in the "rust belt" of America's Mid-West and North East. They include Detroit, Philadelphia, Pittsburgh, Baltimore and Memphis.
..."The real question is not whether these cities shrink – we're all shrinking – but whether we let it happen in a destructive or sustainable way," said Mr Kildee. "Decline is a fact of life in Flint. Resisting it is like resisting gravity."
Karina Pallagst, director of the Shrinking Cities in a Global Perspective programme at the University of California, Berkeley, said there was "both a cultural and political taboo" about admitting decline in America.
...Flint, sixty miles north of Detroit, was the original home of General Motors. The car giant once employed 79,000 local people but that figure has shrunk to around 8,000.
Unemployment is now approaching 20 per cent and the total population has almost halved to 110,000.
...But Mr Kildee, who has lived there nearly all his life, said he had first to overcome a deeply ingrained American cultural mindset that "big is good" and that cities should sprawl – Flint covers 34 square miles.
...The local authority has restored the city's attractive but formerly deserted centre but has pulled down 1,100 abandoned homes in outlying areas. Mr Kildee estimated another 3,000 needed to be demolished, although the city boundaries will remain the same.
...Mr Kildee acknowledged that some fellow Americans considered his solution "defeatist" but he insisted it was "no more defeatist than pruning an overgrown tree so it can bear fruit again".
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/5516536/US-cities-may-have-to-be-bulldozed-in-order-to-survive.html
Saturday, May 30, 2009
Do We Really Need All Of These Real Estate Subsidies?
TW: This goes in the category of something that will NEVER happen, but probably should. Housing and real estate are supported by so many government subsidies. Many forget about the old capital gains rules whereby real estate gains were treated like other capital gains. Why should they be treated differently? Why for that matter should mortgage interest be deductible? The Canadians make do without it as does many other nations.
The other point is how decisions taken many years ago fester and then create implications far down the road. I have posted about pension decisions made during the 1990's coming back to haunt us. The 1990's were the real Goldilocks economy. There was a very real peace dividend related to the collapse of the U.S.S.R. and the favorable demographics of the baby boomers were at their peak. Many policies made back then are not sounding so useful now (Glass-Steagall was ended then as well).
From Ezra Klein at WaPo:
"...Bill Clinton might have left office before the worst of the financial sector's excesses. But he wasn't blameless in hyping the housing bubble:
In 1997 Congress made the first $500,000 of capital gains on the sale of a home tax-free for a married couple and $250,000 tax-free for a single person. This gave real estate a distinct advantage over other capital investments and distorted investment decisions from that time on. I'm sure you could find a graph that would show the beginnings of the housing bubble in 1997. I'm not blaming the entire crisis on this tax change or on the Clinton Administration but it definitely constituted a significant Governmental puff into the housing bubble.
This wasn't only Clinton, of course. Ceaselessly pushing homeownership has been a bipartisan preoccupation in America. For readers who want a fuller picture of this, I'd recommend Alyssa Katz's forthcoming book, Our Lot: How Real Estate Came to Own Us..."
The other point is how decisions taken many years ago fester and then create implications far down the road. I have posted about pension decisions made during the 1990's coming back to haunt us. The 1990's were the real Goldilocks economy. There was a very real peace dividend related to the collapse of the U.S.S.R. and the favorable demographics of the baby boomers were at their peak. Many policies made back then are not sounding so useful now (Glass-Steagall was ended then as well).
From Ezra Klein at WaPo:
"...Bill Clinton might have left office before the worst of the financial sector's excesses. But he wasn't blameless in hyping the housing bubble:
In 1997 Congress made the first $500,000 of capital gains on the sale of a home tax-free for a married couple and $250,000 tax-free for a single person. This gave real estate a distinct advantage over other capital investments and distorted investment decisions from that time on. I'm sure you could find a graph that would show the beginnings of the housing bubble in 1997. I'm not blaming the entire crisis on this tax change or on the Clinton Administration but it definitely constituted a significant Governmental puff into the housing bubble.
This wasn't only Clinton, of course. Ceaselessly pushing homeownership has been a bipartisan preoccupation in America. For readers who want a fuller picture of this, I'd recommend Alyssa Katz's forthcoming book, Our Lot: How Real Estate Came to Own Us..."
Tuesday, May 5, 2009
Shrink To Fit In Flint
TW: While understanding many of the roadblocks, I have always wondered why cities both urban and rural do not move more aggressively to address abandoned and decaying real estate within their borders. Flint, Michigan is the focus of this piece where the city is pondering not converting a mere house here and there but entire neighbors. The city's population has shrunk drastically over the past decades resulting in a spread out, inefficient and unsafe network of housing and commerce.
In order to take such drastic measures, folks are going to have to leave structures they may enjoy at the individual level. Some are going to scream the heavy hand of government is dictating how people live. But when the status quo is in total miserable with no signs of abatement perhaps drastic measures become necessary.
From NYT:
"...Instead of waiting for houses to become abandoned and then pulling them down, local leaders are talking about demolishing entire blocks and even whole neighborhoods. The population would be condensed into a few viable areas. So would stores and services.
“Decline in Flint is like gravity, a fact of life,” said Dan Kildee, the Genesee County treasurer and chief spokesman for the movement to shrink Flint. “We need to control it instead of letting it control us.”
...“A lot of people remember the past, when we were a successful city that others looked to as a model, and they hope. But you can’t base government policy on hope,” said Jim Ananich, president of the Flint City Council. “We have to do something drastic.”
Planned shrinkage became a workable concept in Michigan a few years ago, when the state changed its laws regarding properties foreclosed for delinquent taxes. Before, these buildings and land tended to become mired in legal limbo, contributing to blight. Now they quickly become the domain of county land banks, giving communities a powerful tool for change.
...Flint has begun updating its master plan, a complicated task last done in 1965. Then it was a prosperous city of 200,000 looking to grow to 350,000. It now has 110,000 people, about a third of whom live in poverty.
Flint has about 75 neighborhoods spread out over 34 square miles. It will be a delicate process to decide which to favor, Mr. Kildee acknowledged from the driver’s seat of his Grand Cherokee.
...On many streets, the weekly garbage pickup finds only one bag of trash. If those stops could be eliminated, Mr. Kildee said, the city could save $100,000 a year — one of many savings that shrinkage could bring.
...“If it’s going to look abandoned, let it be clean and green,” he said. “Create the new Flint forest — something people will choose to live near, rather than something that symbolizes failure.”
http://www.nytimes.com/2009/04/22/business/22flint.html?scp=1&sq=flint%20michigan&st=cse
In order to take such drastic measures, folks are going to have to leave structures they may enjoy at the individual level. Some are going to scream the heavy hand of government is dictating how people live. But when the status quo is in total miserable with no signs of abatement perhaps drastic measures become necessary.
From NYT:
"...Instead of waiting for houses to become abandoned and then pulling them down, local leaders are talking about demolishing entire blocks and even whole neighborhoods. The population would be condensed into a few viable areas. So would stores and services.
“Decline in Flint is like gravity, a fact of life,” said Dan Kildee, the Genesee County treasurer and chief spokesman for the movement to shrink Flint. “We need to control it instead of letting it control us.”
...“A lot of people remember the past, when we were a successful city that others looked to as a model, and they hope. But you can’t base government policy on hope,” said Jim Ananich, president of the Flint City Council. “We have to do something drastic.”
Planned shrinkage became a workable concept in Michigan a few years ago, when the state changed its laws regarding properties foreclosed for delinquent taxes. Before, these buildings and land tended to become mired in legal limbo, contributing to blight. Now they quickly become the domain of county land banks, giving communities a powerful tool for change.
...Flint has begun updating its master plan, a complicated task last done in 1965. Then it was a prosperous city of 200,000 looking to grow to 350,000. It now has 110,000 people, about a third of whom live in poverty.
Flint has about 75 neighborhoods spread out over 34 square miles. It will be a delicate process to decide which to favor, Mr. Kildee acknowledged from the driver’s seat of his Grand Cherokee.
...On many streets, the weekly garbage pickup finds only one bag of trash. If those stops could be eliminated, Mr. Kildee said, the city could save $100,000 a year — one of many savings that shrinkage could bring.
...“If it’s going to look abandoned, let it be clean and green,” he said. “Create the new Flint forest — something people will choose to live near, rather than something that symbolizes failure.”
http://www.nytimes.com/2009/04/22/business/22flint.html?scp=1&sq=flint%20michigan&st=cse
Tuesday, March 31, 2009
Real Estate the Not So Good Investment
TW: We have all heard for our entire lives BS about the immutability of real estate investments. These numbers should make one fairly skeptical of those claims. They symbolize the massive Ponzi scheme Americans (and many internationals) have participated in since about 1980 or so. Keep in mind these are nominal figures, if one were to inflation adjust the dates to which one would have to go to achieve break even would be farther back (1980's maybe 1970's for Detroit, 1990's for most others). Real estate figures by market:
From Floyd Norris at NYT:
Depth of Decline/How far back the decline takes you to achieve break even (nominally)
1. Phoenix -49%/February 2003
2. Las Vegas -46%/May 2003
3. Miami -43%/October 2003
4. San Francisco -43%/October 2000
5. San Diego -41%/August 2002
6. Los Angeles -39%/October 2003
7. Detroit -39%/August 1996
8. Tampa -37%/March 2004
9. Washington -32%/March 2004
10. Minneapolis -30%/June 2001
Twenty city composite -29%/October 2003
11. Chicago -22%/June 2003
12. Atlanta -20%/June 2001
13. Seattle -20%/September 2005
14. Portland -18%/August 2005
15. Boston -17%/April 2003
16. Cleveland -17%/August 2000
17. New York -16%/October 2004
18. Denver -13%/April 2002
19. Charlotte -11%/March 2006
20. Dallas -11%/May 2002
http://norris.blogs.nytimes.com/2009/03/31/how-low-can-they-go/
From Floyd Norris at NYT:
Depth of Decline/How far back the decline takes you to achieve break even (nominally)
1. Phoenix -49%/February 2003
2. Las Vegas -46%/May 2003
3. Miami -43%/October 2003
4. San Francisco -43%/October 2000
5. San Diego -41%/August 2002
6. Los Angeles -39%/October 2003
7. Detroit -39%/August 1996
8. Tampa -37%/March 2004
9. Washington -32%/March 2004
10. Minneapolis -30%/June 2001
Twenty city composite -29%/October 2003
11. Chicago -22%/June 2003
12. Atlanta -20%/June 2001
13. Seattle -20%/September 2005
14. Portland -18%/August 2005
15. Boston -17%/April 2003
16. Cleveland -17%/August 2000
17. New York -16%/October 2004
18. Denver -13%/April 2002
19. Charlotte -11%/March 2006
20. Dallas -11%/May 2002
http://norris.blogs.nytimes.com/2009/03/31/how-low-can-they-go/
Thursday, March 26, 2009
Misleading MSM Economic Reporting Permeates
TW: The latest meme is that the economy is bottoming in particular relative to housing,perhaps or perhaps not. One thing for certain though is MSM is really pounding some of these monthly numbers as positives when as Ritholz shows they are not really and what is certain is that the year over year numbers continue to be horrible. Monthly numbers are always tricky as our statistics are just not that accurate and noise can easily pollute a particular month.
I always focus on moving averages and the year over years. We have a huge economy most of these numbers are estimates with as the piece points out large +/- variances which ultimately will be revised. The revisions over the past year have been almost uniformly down. Most of these stats use historical trends for seasonality factors etc., when we encounter historically drastic circumstances those factors become especially tricky and less accurate.
Finally these are U.S. data some of the best in the world, if ours are sketchy use an extra grain of salt with other large countries (i.e. China).
From Various Headlines Painting a Rosier Housing Outlook:
"WSJ: Sales of new homes rose in February for the first time in seven months, the Commerce Department reported Wednesday, another sign that the housing market is thawing
Bloomberg Purchases of new homes in the U.S. unexpectedly rose in February from a record low as plummeting prices and cheaper mortgage rates lured some buyers. Sales increased 4.7 percent to an annual pace of 337,000 . . .
Marketwatch: The U.S. housing sector continues to see signs of improvement. The latest government data showed new home sales climbed in February for the first time in seven months, sending shares of home-building companies soaring.
From Barry Ritholz:
A parade of the mathematically innumerate business writers (and even worse headline writers!) continue to misread data. The latest evidence? New Home Sales. After incorrectly reporting the Existing Home Sales, the mainstream media misread the Census department report of New Homes.
No, New Home Sales data did not improve. In fact, they were not only not positive, they were actually horrific. The year over year number was a terrible down 41%. Sales from this same period a year ago have nearly been halved.
Why did the media report this as positive? If you only read the headline number, you saw a positive datapoint: February was plus 4.7% over January.
To get the the facts, you need to read below the headline. In the present case, it wasn’t the seasonality factor that was confusing, it was the “90-percent confidence intervals” — or as it is more commonly known, the margin of error.
From the Census Bureau:
Sales of new one-family houses in February 2009 were at a seasonally adjusted annual rate of 337,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 4.7 percent (±18.3%)* above the revised January rate of 322,000, but is 41.1 percent (±7.9%) below the February 2008 estimate of 572,000.
The median sales price of new houses sold in February 2009 was $200,900; the average sales price was $251,000. The seasonally adjusted estimate of new houses for sale at the end of February was 330,000. This represents a supply of 12.2 months at the current sales rate.
Note that the month over month data at 4.7% — plus or minus 18.3% — is statistically insignificant. (i.e., meaningless). The reported data does not inform us if sales improved month-over-month or not. It is a range, from down -13.6% to plus 23%. Since “zero” is part of that range, we can draw no conclusion. As the Census Department itself notes, “the change is not statistically significant; that is, it is uncertain whether there was an increase or decrease.”
The data does however, tell us that the year-over-year sales fell 41.1% plus or minus 7.9% gives us a range of -49% to -33.2%. The entire range is negative, therefore we can conclude sales fell year-over-year.
These are facts. This is data. This is how you interpret it. Most of the MSM reports (WSJ, Marketwatch, Bloomberg) were simply wrong. Not nuanced, not shaded, but 2+2=5 wrong.
Let me remind that many of these folks incorrectly misinformed you that Housing wasn’t getting worse in 2006, 2007 and 2008 — just as Home sales and prices went into an historic freefall. Now, these same folks are misinforming you that Housing has turned around and is improving. That is simply unsupported by the data."
I always focus on moving averages and the year over years. We have a huge economy most of these numbers are estimates with as the piece points out large +/- variances which ultimately will be revised. The revisions over the past year have been almost uniformly down. Most of these stats use historical trends for seasonality factors etc., when we encounter historically drastic circumstances those factors become especially tricky and less accurate.
Finally these are U.S. data some of the best in the world, if ours are sketchy use an extra grain of salt with other large countries (i.e. China).
From Various Headlines Painting a Rosier Housing Outlook:
"WSJ: Sales of new homes rose in February for the first time in seven months, the Commerce Department reported Wednesday, another sign that the housing market is thawing
Bloomberg Purchases of new homes in the U.S. unexpectedly rose in February from a record low as plummeting prices and cheaper mortgage rates lured some buyers. Sales increased 4.7 percent to an annual pace of 337,000 . . .
Marketwatch: The U.S. housing sector continues to see signs of improvement. The latest government data showed new home sales climbed in February for the first time in seven months, sending shares of home-building companies soaring.
From Barry Ritholz:
A parade of the mathematically innumerate business writers (and even worse headline writers!) continue to misread data. The latest evidence? New Home Sales. After incorrectly reporting the Existing Home Sales, the mainstream media misread the Census department report of New Homes.
No, New Home Sales data did not improve. In fact, they were not only not positive, they were actually horrific. The year over year number was a terrible down 41%. Sales from this same period a year ago have nearly been halved.
Why did the media report this as positive? If you only read the headline number, you saw a positive datapoint: February was plus 4.7% over January.
To get the the facts, you need to read below the headline. In the present case, it wasn’t the seasonality factor that was confusing, it was the “90-percent confidence intervals” — or as it is more commonly known, the margin of error.
From the Census Bureau:
Sales of new one-family houses in February 2009 were at a seasonally adjusted annual rate of 337,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 4.7 percent (±18.3%)* above the revised January rate of 322,000, but is 41.1 percent (±7.9%) below the February 2008 estimate of 572,000.
The median sales price of new houses sold in February 2009 was $200,900; the average sales price was $251,000. The seasonally adjusted estimate of new houses for sale at the end of February was 330,000. This represents a supply of 12.2 months at the current sales rate.
Note that the month over month data at 4.7% — plus or minus 18.3% — is statistically insignificant. (i.e., meaningless). The reported data does not inform us if sales improved month-over-month or not. It is a range, from down -13.6% to plus 23%. Since “zero” is part of that range, we can draw no conclusion. As the Census Department itself notes, “the change is not statistically significant; that is, it is uncertain whether there was an increase or decrease.”
The data does however, tell us that the year-over-year sales fell 41.1% plus or minus 7.9% gives us a range of -49% to -33.2%. The entire range is negative, therefore we can conclude sales fell year-over-year.
These are facts. This is data. This is how you interpret it. Most of the MSM reports (WSJ, Marketwatch, Bloomberg) were simply wrong. Not nuanced, not shaded, but 2+2=5 wrong.
Let me remind that many of these folks incorrectly misinformed you that Housing wasn’t getting worse in 2006, 2007 and 2008 — just as Home sales and prices went into an historic freefall. Now, these same folks are misinforming you that Housing has turned around and is improving. That is simply unsupported by the data."
Get Rid Of the Mortgage Subsidies
TW: Cows will fly first but I do strongly support eliminating or reducing real estates subsidies aka the sacrosanct mortgage interest deductions. I have never seen a compelling case for the subsidies. But the deductions are now so firmly entrenched in American psyche that they are likely impossible to displace (especially amidst the current crash, although obviously the bubble might have been mitigated with less aggressive subsidies). Why should housing receive such preferential treatment? You tell me.
The Republicans want to take the subsidies to new heights (in fairness the Dems fall over themselves as well). I say if no subsidies work for Swiss then it should work for us.
From Kevin Drum at Mother Jones:
"David Freddoso lauding the House Republicans' new housing plan. You will be non-shocked to learn that it consists of a bunch of new tax breaks, including — naturally — elimination of the capital gains tax on investment property. Yawn.
But wait! It turns out that the House GOP's plan has inspired some surprising comity between right and left: they both hate it. Jerry Taylor gives the conservative rationale for opposing the plan:
So: get rid of housing subsidies and we'd have both a freer market and bigger government. It's a win-win! Except for anyone who actually voted for it, of course. But at least we get this bonus factoidish wonkery from Taylor:
The Republicans want to take the subsidies to new heights (in fairness the Dems fall over themselves as well). I say if no subsidies work for Swiss then it should work for us.
From Kevin Drum at Mother Jones:
"David Freddoso lauding the House Republicans' new housing plan. You will be non-shocked to learn that it consists of a bunch of new tax breaks, including — naturally — elimination of the capital gains tax on investment property. Yawn.
But wait! It turns out that the House GOP's plan has inspired some surprising comity between right and left: they both hate it. Jerry Taylor gives the conservative rationale for opposing the plan:
I know that there is plenty of political capital to be gained by providing handouts to middle-class homeowners and little political capital in removing the same. But a political party that ostensibly stands for free markets and limited government should not be in the business of underwriting or subsidizing private investments in anything unless we can find some plausible market failure in need of correction (and perhaps not even then).Matt Yglesias provides the lefty view of why this plan sucks:
Preferential subsidies for investment in housing lead people to, on average,consume more housing and less stuff-that-isn’t-housing than they otherwise would. In other words, bigger houses instead of fancier clothes. This, in turn,has a substantial negative impact on the economy. Larger houses cost more to heat and cool, and larger houses lead to longer commutes. We shouldn’t stop people from buying big houses if that’s what they want to do, but it’s quite harmful to be specifically encouraging them to invest their resources in this way quite independently from the financial crisis. Reduce the tax-side subsidies to homeownership and we’d have somewhat faster economic growth, somewhat more public revenue, and a somewhat cleaner environment.
So: get rid of housing subsidies and we'd have both a freer market and bigger government. It's a win-win! Except for anyone who actually voted for it, of course. But at least we get this bonus factoidish wonkery from Taylor:
For what it is worth, Switzerland is the only major country I am aware of that does not implicitly or explicitly subsidize housing in any substantial manner.Home ownership rates are somewhere around 35% as a consequence. But no one thinks of Switzerland as poor or deprived somehow because it does not receive the positive externalities allegedly associated with private home ownership."
Thursday, February 19, 2009
Brief Overview Of the Obama Housing Plan
TW: I try not to get sucked into too many details on the various bailouts percolating out of DC, there are many of them (because we are in a precarious pickle) and they get very convoluted quickly. But Economist put together a readily digestible summary.
From Economist:
"...First, the administration will increase the number of homeowners able to refinance at current, low mortgage rates. Borrowers whose mortgages are owned or guaranteed by Fannie Mae or Freddie Mac will be able to refinance a loan up to 105% of the home's value (up from 80%, previously). This is expected to help about 4 to 5 million households who owe nearly as much or more than the value of their homes. This seems like a reasonable step to take, though as Calculated Risk notes, it's a bit of a lottery. Those whose mortgages haven't been purchased by Fannie or Freddie are basically out of luck.
The second part is the one that's grabbed headlines; the president has dedicated $75 billion toward efforts to prevent foreclosures. Chief among these efforts is a plan to reduce monthly payments for troubled borrowers. For those spending greater than 38% of their income on mortgage payments, up to 43%, the government will ask lenders to reduce interest rates to bring payments down to the 38% level. The government will then match lender dollars, one-for-one, in bringing down interest payments until the borrower is only spending 31% of income. Both borrower and lender will be eligible for $1000 payments when payments are reworked, and if the planned payments are made. If it's necessary to reduce principle, then Treasury will provide assistance with this, as well.
This portion of the plan has drawn criticism, since many homeowners with too-large payments are those who took on irresponsible loan structures or who simply purchased too much house—who behaved irresponsibly, in other words. Ideally, officials would no doubt prefer not to help such borrowers (just as they'd no doubt prefer to let bankers who'd made bad decisions go under). But frankly, that's not a top concern of mine. Rather, I'm interested in whether or not this is the best way to use $75 billion to halt foreclosures.
On that score, this is probably one of the better among a list of not-so-good options. Calculated Risk worries that this will only delay foreclosure, since interest payments are being reduced first, and principle written down only as a last resort (such that many who take advantage of the programme will nonetheless remain underwater). Perhaps, but by trying to leave principle alone, the government is avoiding excessive transfers of wealth to borrowers. A shared-equity plan might have been better, but this will halt some foreclosures and incent homeowners to stay in their homes longer. That's bad for economic mobility, but good for a glutted housing market. Ending the downward spiral of price declines, defaults, and bank sales leading to further, dramatic price declines has to be a top priority.
Another question concerning the plan is whether the incentives to rework the payments are sufficient. Presumably, it's already in the interest of lenders to reduce payments rather than foreclose, so it's unclear whether $1000 is going to alter the balance. This, I think, is a more serious point. The housing plan passed last year to help rework problem mortgages seriously underperformed—where some 400,000 borrowers were deemed to be eligible, actual applications numbered in the tens.
The final portion of the plan involves measures to "strengthen" Fannie and Freddie and to keep mortgage credit available and fairly cheap. All told, the plan will be funded to the tune of about $200 billion.
By itself, the plan is unlikely to turn the tide. In combination with the stimulus, the bank rescue, and the collapse in home construction, it has a chance. Still, what would have been really nice to see would have been a comprehensive plan to get borrowers out of ownership without forcing them into bankruptcy or rushing waves of new foreclosures to market—an own-to-rent programme, for instance. Defaults are an immediate concern, but for the long-term health of the economy, lingering debt is going to be an issue. If foreclosure rates slow, but households continue to battle to get their heads above water by drastically cutting spending to pay down debt, recovery will be a long time coming."
http://www.economist.com/blogs/freeexchange/2009/02/housing_repair.cfm
From Economist:
"...First, the administration will increase the number of homeowners able to refinance at current, low mortgage rates. Borrowers whose mortgages are owned or guaranteed by Fannie Mae or Freddie Mac will be able to refinance a loan up to 105% of the home's value (up from 80%, previously). This is expected to help about 4 to 5 million households who owe nearly as much or more than the value of their homes. This seems like a reasonable step to take, though as Calculated Risk notes, it's a bit of a lottery. Those whose mortgages haven't been purchased by Fannie or Freddie are basically out of luck.
The second part is the one that's grabbed headlines; the president has dedicated $75 billion toward efforts to prevent foreclosures. Chief among these efforts is a plan to reduce monthly payments for troubled borrowers. For those spending greater than 38% of their income on mortgage payments, up to 43%, the government will ask lenders to reduce interest rates to bring payments down to the 38% level. The government will then match lender dollars, one-for-one, in bringing down interest payments until the borrower is only spending 31% of income. Both borrower and lender will be eligible for $1000 payments when payments are reworked, and if the planned payments are made. If it's necessary to reduce principle, then Treasury will provide assistance with this, as well.
This portion of the plan has drawn criticism, since many homeowners with too-large payments are those who took on irresponsible loan structures or who simply purchased too much house—who behaved irresponsibly, in other words. Ideally, officials would no doubt prefer not to help such borrowers (just as they'd no doubt prefer to let bankers who'd made bad decisions go under). But frankly, that's not a top concern of mine. Rather, I'm interested in whether or not this is the best way to use $75 billion to halt foreclosures.
On that score, this is probably one of the better among a list of not-so-good options. Calculated Risk worries that this will only delay foreclosure, since interest payments are being reduced first, and principle written down only as a last resort (such that many who take advantage of the programme will nonetheless remain underwater). Perhaps, but by trying to leave principle alone, the government is avoiding excessive transfers of wealth to borrowers. A shared-equity plan might have been better, but this will halt some foreclosures and incent homeowners to stay in their homes longer. That's bad for economic mobility, but good for a glutted housing market. Ending the downward spiral of price declines, defaults, and bank sales leading to further, dramatic price declines has to be a top priority.
Another question concerning the plan is whether the incentives to rework the payments are sufficient. Presumably, it's already in the interest of lenders to reduce payments rather than foreclose, so it's unclear whether $1000 is going to alter the balance. This, I think, is a more serious point. The housing plan passed last year to help rework problem mortgages seriously underperformed—where some 400,000 borrowers were deemed to be eligible, actual applications numbered in the tens.
The final portion of the plan involves measures to "strengthen" Fannie and Freddie and to keep mortgage credit available and fairly cheap. All told, the plan will be funded to the tune of about $200 billion.
By itself, the plan is unlikely to turn the tide. In combination with the stimulus, the bank rescue, and the collapse in home construction, it has a chance. Still, what would have been really nice to see would have been a comprehensive plan to get borrowers out of ownership without forcing them into bankruptcy or rushing waves of new foreclosures to market—an own-to-rent programme, for instance. Defaults are an immediate concern, but for the long-term health of the economy, lingering debt is going to be an issue. If foreclosure rates slow, but households continue to battle to get their heads above water by drastically cutting spending to pay down debt, recovery will be a long time coming."
http://www.economist.com/blogs/freeexchange/2009/02/housing_repair.cfm
Wednesday, February 18, 2009
Looking For Some Office Space?
TW: This seems like a deal...12 months free...but you would have to pay utilitiesMonday, February 9, 2009
Our Economic House Of Cards
(click on image to enlarge, via John Maudlin at Big Picture)TW: I posted a couple of weeks ago a graph showing the equity withdrawals from homes during the 2001-2007 period. (http://treylaura.blogspot.com/2009/01/we-were-spending-like-drunken-fools.html). The graphic above reflects the impact of those withdrawals on our overall GDP. The impact obviously was massive and indicates the house of cards upon which our economy (and several others in particular the UK and Spain) rested during much of the past eight years. Working off this economic hangover will take years and will be extremely risky.
Sunday, February 8, 2009
In Defense of Pork
TW: Republicans draped the term "pork" all over the stimulus package. Pork is rife with negative connotations of ill-spent monies shepherded by feckless bureaucrats pursuing their pet interests. Some provisions in the stimulus are or were of dubious value but to let the Republicans tar any or most spending as porcine is wrong and can lead ineffective policy. Especially when, as appears to have happened, certain useful spending has been replaced by things like a housing credit.
Republicans will approve almost anything as long as the word tax cut or credit is attached. Yet many spending initiatives can be far more useful than tax initiatives. The bill sponsors claimed the housing credit will cost $18 billion, economists who have looked at it figure more like $35 billion. If someone needs to move, it may help subsidize their move but do little to help create new jobs (i.e. new demand, the thing that is the real problem). This is populist crack substituted for alleged pork, it is not progress.
From WaPo via Big Picture re spending:
"To Sen. Johanns of Nebraska [Republican] who branded it not a stimulus but spending plan that would not create jobs, Pearlstein says:
Johanns was too busy yesterday to explain this radical departure from standard theory and practice. Where does the senator think the $800 billion will go? Down a rabbit hole? Even if the entire sum were to be stolen by federal employees and spent entirely on fast cars, fancy homes, gambling junkets and fancy clothes, it would still be an $800 billion increase in the demand for goods and services — a pretty good working definition for economic stimulus. The only question is whether spending it on other things would create more long-term value, which it almost certainly would.
To Daniel Henninger, who objects to money being spent on government agencies, Pearlstein says:
Actually, what’s striking is that supposedly intelligent people are horrified at the thought that, during a deep recession, government might try to help the economy by buying up-to-date equipment for the people who protect us from epidemics and infectious diseases, by hiring people to repair environmental damage on federal lands and by contracting with private companies to make federal buildings more energy-efficient.
What really irks so many Republicans, of course, is that all the stimulus money isn’t being used to cut individual and business taxes, their cure-all for economic ailments, even though all the credible evidence is that tax cuts are only about half as stimulative as direct government spending."
From Calculated Risk re the house credit:
"...This is more of an incentive to get people to move as opposed to putting people back to work...The key problem for housing is prices are too high [TW- the remaining overhang from the bubble]. How does this tax credit help reduce prices? Why are we trying to artificially increase the turnover rate? And why are we targeting a tax credit at higher income individuals?This tax credit seems ill-conceived, and probably should be removed from the stimulus package. No one has adequately explained how this helps "fix housing first".
http://www.calculatedriskblog.com/2009/02/homebuyer-tax-credit.html
Republicans will approve almost anything as long as the word tax cut or credit is attached. Yet many spending initiatives can be far more useful than tax initiatives. The bill sponsors claimed the housing credit will cost $18 billion, economists who have looked at it figure more like $35 billion. If someone needs to move, it may help subsidize their move but do little to help create new jobs (i.e. new demand, the thing that is the real problem). This is populist crack substituted for alleged pork, it is not progress.
From WaPo via Big Picture re spending:
"To Sen. Johanns of Nebraska [Republican] who branded it not a stimulus but spending plan that would not create jobs, Pearlstein says:
Johanns was too busy yesterday to explain this radical departure from standard theory and practice. Where does the senator think the $800 billion will go? Down a rabbit hole? Even if the entire sum were to be stolen by federal employees and spent entirely on fast cars, fancy homes, gambling junkets and fancy clothes, it would still be an $800 billion increase in the demand for goods and services — a pretty good working definition for economic stimulus. The only question is whether spending it on other things would create more long-term value, which it almost certainly would.
To Daniel Henninger, who objects to money being spent on government agencies, Pearlstein says:
Actually, what’s striking is that supposedly intelligent people are horrified at the thought that, during a deep recession, government might try to help the economy by buying up-to-date equipment for the people who protect us from epidemics and infectious diseases, by hiring people to repair environmental damage on federal lands and by contracting with private companies to make federal buildings more energy-efficient.
What really irks so many Republicans, of course, is that all the stimulus money isn’t being used to cut individual and business taxes, their cure-all for economic ailments, even though all the credible evidence is that tax cuts are only about half as stimulative as direct government spending."
From Calculated Risk re the house credit:
"...This is more of an incentive to get people to move as opposed to putting people back to work...The key problem for housing is prices are too high [TW- the remaining overhang from the bubble]. How does this tax credit help reduce prices? Why are we trying to artificially increase the turnover rate? And why are we targeting a tax credit at higher income individuals?This tax credit seems ill-conceived, and probably should be removed from the stimulus package. No one has adequately explained how this helps "fix housing first".
http://www.calculatedriskblog.com/2009/02/homebuyer-tax-credit.html
Friday, January 30, 2009
We Were Spending Like Drunken Fools
Click image to enlargeTW: This chart shows the amount of net equity Americans were removing from their homes by quarter through last year. Net equity being home equity loans less principal payments. So if one was paying down a mortgage that value would have been subtracted from those borrowing against the value of their home. As one can see starting in early 2001 and continuing through all of 2007 Americans were pulling anywhere from $60 to $140 billion dollars quarterly out of their homes (again net of any principal payments!). In 2006 alone Americans pulled almost $500 billion of equity out of their homes.
Just one example of how empty our economic expansion such as it was during the 2001-2007 was. Our economy during this decade was built on a house of cards. Obviously this little game is over, the chart turned slightly negative in Q3 2008, updates will show homeowners finally paying down their principal.
Wednesday, January 7, 2009
"Shameless Hucksters"
TW: One of the most naive things I ever hear are folks saying, "if only the media would stop talking about 'declining house prices', 'bad economy', 'falling stock market' ". What folks miss are the VERY powerful PR forces puffing up those markets when they are doing well. Those efforts are the ones folks should be concerned about. PR is a poorly understood dynamic throughout society not only relative to real estate etc. NEVER trust 90% of the talking heads they have agendas much less trust industry spokesmen who are shameless hucksters.
From Barry Ritholz at the Big Picture Blog:
"Former NAR Economist David Lereah is a Jackass
By Barry Ritholtz - January 6th, 2009, 6:45AM
Alternative Title: David Lereah: Even More Full of Shit Than Previously Believed
Of all the various parties who contributed to the boom and bust in housing and credit, none have escaped more unscathed than the National Association of Realtors, and their former Baghdad-Bob-in-Chief, David Lereah.
The NAR turned a blind eye to fraud amongst realtors in terms of referrals to corrupt appraisers and mortgage brokers. They constantly cheerleaded prices, despite evidence to the contrary. For 3 years, they have been forecasting 2nd half price recoveries, dissuading realism amongst home sellers. They continually spun data, presented misleading commentary, and otherwise engaged in behavior that could only be characterized as sleazy.
I find EVERYTHING out of the NAR to be suspect, tainted and generally worthless. The NAR Housing Affordability Index is essentially worthless; from 1989 - 2009, the NAR showed housing as “Unaffordable” for just one month.
If you have any doubts as to whether or not the NAR are a bunch of shameless, lying hucksters who deserve to have glass catheters inserted in their urethas then shattered, consider this: Working for realtors, David Lereah was famously optimistic. Not anymore.
By Donna Rosato
As chief economist for the National Association of Realtors, David Lereah was famously optimistic. Now a private consultant, he’s abandoned what he calls the “positive spin.”
Q: Were you wrong to be so bullish?
A: I worked for an association promoting housing, and it was my job to represent their interests. If you look at my actual forecasts, the numbers were right inline with most forecasts. The difference was that I put a positive spin on it It was easy to do during boom times, harder when times weren’t good. I never thought the whole national real estate market would burst.
Q: The NAR’s latest forecast calls for a slight increase in home prices next year. Thoughts?
A: My views are quite different now. I’m pretty bearish and have been for the past year and a half. Home prices will continue to drop. I think we’ll see a very modest recovery in sales activity in 2009. But we’ve still got excess inventories, a bad economy and a credit crunch that will push prices down further, another 5% to 10% more. It’ll take a long time to get backto the peak prices we saw in many markets.
Q: Any regrets?
A: I would not have done anything different. But I was a public spokesman writing abouthousing having a good future. I was wrong. I have to take responsibility for that."
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