Columbia University economics professor Rajiv Sethi discusses identifying stock market bubbles in real ti...
Sabtu, 30 Januari 2010
Jumat, 29 Januari 2010
The effects of easy money on mortgage lending
Simon Constable of Dow Jones Newswires points out the harmful side-effects of easy money on mortgage lending:When Bernanke says low interest rates weren't the cause of the housing bubble, he is at best being disingenuous. Instead, he points to lax lending standards as the key fuel for inflating home prices.But the truth is rather different.His assertion is similar to claiming that it isn't the fall from a skyscraper that breaks your bones, but the sharp stop when your body reaches the street.Low interest rates and lax lending standards are also...
Kamis, 28 Januari 2010
Yes, Virginia, there is still a housing bubble
Dean Baker, the first economist I'm aware of to spot the housing bubble (although he was still a year-and-a-half behind me), says we've still got a housing bubble and the government isn't helping people by encouraging mortgage lending:Housing economist Dean Baker, the co-director of the Center for Economic and Policy Research, laid out his case at a risk conference last week for why we still have a housing bubble. Adjusted for inflation, home prices are still 15-20% higher than they were in the mid-1990s. “There’s no plausible fundamental explanation...
Selasa, 26 Januari 2010
CNN cheerleads the home buyer tax credit
CNN staff writer Les Christie acts as a cheerleader for the home buyer tax credit:There is some hope that this good thing could live on after June 30. If the housing market and the economy is not in full recovery mode by late spring, there is already discussion about Congress extending the tax credit again, according to Jaret Seiberg of Concept Capital, a Washington-based research group.In the article, CNN tells happy stories about people who receive the money, but completely ignores the fact that other people have to pay for it eventually, plus...
More bubbles?
Fortune magazine sees four new asset bubbles. Also, the European Central Bank sees bubbles in emerging markets and some commodities. Jim Chanos sees a bubble in Chinese real esta...
Sabtu, 23 Januari 2010
Paul Volcker for Fed chairman!
I keep hearing people arguing for the renomination of Ben Bernanke by claiming that there's no one else who can do the job. That's status quo bias taken to an extreme. (Four years ago, many people thought no one could replace the Maestro.)Ben Bernanke was on the Federal Reserve Board of Governors from 2002-2005, when it willfully ignored the growth of the housing bubble. Thus Bernanke is like an arsonist firefighter, who creates a crisis and then...
Bernanke out as Fed chairman?
The New York Times reports bad news for Ben Bernanke. He may not have the votes to be confirmed:The confirmation of Ben S. Bernanke to a second four-year term as chairman of the Federal Reserve ran into further trouble on Friday, as two more Democratic senators said they would vote against him.The White House came to Mr. Bernanke’s defense Friday, but the Senate majority leader, Harry Reid, is believed to be struggling to come up with the 60 votes...
Rabu, 20 Januari 2010
Mortgage terms in plain English
New rules this year clarifies mortgage terms for borrowers:Shopping for a mortgage has just gotten simpler.Lenders are now required to use easy-to-understand forms providing basic loan terms and good-faith estimates of closing costs. And closing agents are required to provide a settlement statement that clearly compares borrowers' final and estimated closing costs, according to the U.S. Department of Housing and Urban Development.The new rules, added to the Real Estate Settlement Procedures Act, went into effect Jan. 1.The new, simplified documentation...
Selasa, 19 Januari 2010
The fed funds rate: Too low for too long?
Here's an interesting graph. It shows the fraction of the time in each decade that the real fed funds rate was negative, i.e. the nominal fed funds rate was below the inflation rate. In the 1970s, we had significant consumer price inflation. In the 2000s, we had a credit bubb...
Senin, 18 Januari 2010
Option ARM resets
Looking at this graph, it looks like Option ARM resets begin to become a problem in about the mid-point of this year, and really shoot up around mid-2011. According to Calculated Risk, most Option ARMs are negative equity. The prevailing interest rate will not likely be a problem, since mortgage interest rates are lower now than they were five years ago. The problem is that many Option ARM borrowers have probably not been paying much of their principal...
Minggu, 17 Januari 2010
Sabtu, 16 Januari 2010
The case for a bank tax
Greg Mankiw, a Republican, makes the economic case for President Obama's proposed bank t...
Jumat, 15 Januari 2010
Sixty years of residential fixed investment
Here's a look at six decades of real private residential fixed investment. Notice that it has fallen by more than half since the peak. Also notice that it appears to have bottomed.Note that, in economics, building new housing is considered investment but purchasing existing housing is not. Thus, a real estate "investor" who buys an existing condo as a rental property does not directly contribute to residential fixed investme...
Kamis, 14 Januari 2010
Mortgage defaults hit record in 2009
RealtyTrac reports that mortgage defaults rose 21% in 2009 compared to 2008:Almost 3 million homeowners received at least one foreclosure filing during 2009, setting a new record for the number of people falling behind on their mortgage payments.RealtyTrac, the online marketer of foreclosed homes, reported that one in 45 households — or 2,824,674 properties nationwide — were in default last year. That's 21% more than in 2008, and more than double 2007's tot...
Rabu, 13 Januari 2010
U6 not the real unemployment rate
Cato says U6 is not the "real" unemployment rate.I think U6 is attractive to permabears and "progressives" because it fits their pessimistic view of the world.I don't think it matters whether you use U1, U2, U3, U4, U5, or U6, because they move in lock step with each other. Just pick one and stick with it. U3 is the official unemployment rate and is most widely reported.What matters is not the unemployment rate per se, but the unemployment rate compared to the natural rate of unemployment (i.e. NAIRU, "full employment"). For U3, the natural rate...
Adam Smith's "invisible hand" in context
Princeton University economics professor Alan Blinder puts Adam Smith's concept of the "invisible hand" in context:When economists first heard Gekko's now-famous dictum, "Greed is good," they thought it a crude expression of Adam Smith's "Invisible Hand"—which is one of history's great ideas. But in Smith's vision, greed is socially beneficial only when properly harnessed and channeled. The necessary conditions include, among other things: appropriate incentives (for risk taking, etc.), effective competition, safeguards against exploitation of...
Selasa, 12 Januari 2010
Fed economist: housing is a bad investment
Federal Reserve economist Karen Pence says housing is a poor investment compared to other asset classes for several reasons:It is an indivisible asset. If you own stocks and bonds and suddenly need a little cash, you can sell some of your stocks or bonds but not all. With a home, on the other hand, “you can’t just slice off your bathroom and sell it on the market.” It is undiversified. You can buy stocks or bonds in industries or countries all over the world. A home is a bet on one single neighborhood. Transaction costs are very high when you...
Senin, 11 Januari 2010
How to lose money in real estate
12008 Thornbrooke Ct., Bristow, VA 20136June 12, 2006 purchase price: $619,000Current list price: $324,900That's a loss of almost $300,000 in 3½ years!If the house is in good shape, it may be a good de...
Minggu, 10 Januari 2010
December 2009 employment data
Pundits are making a fuss about the fact that official December job losses increased from November's unbelievable numbers. Monthly job losses still show a longer-term gradual decline. (Source.)Perhaps looking at ADP's private job loss numbers does a better job of putting the trend in perspective:The official unemployment rate remained unchanged at 10.0% in December:The year-over-year percent change in aggregate weekly hours worked shows an upward...
Sabtu, 09 Januari 2010
Did predatory lending cause the housing bubble?
Or, for that matter, did the Community Reinvestment Act? Paul Krugman compares housing prices to commercial real estate prices and draws a conclusion I agree with:From my perspective, the CRE bubble is highly significant; it gives the lie both to those who blame Fannie/Freddie/Community Reinvestment for the housing bubble, and those who blame predatory lending. This was a broad-based bubble.This doesn't mean that predatory lending didn't exist. It...
Jumat, 08 Januari 2010
My DC housing predictions for the new decade
Unless the Feds succeed in sparking a new bubble, I suspect the long-term housing trend inside the beltway will be stagnant nominal home prices and slowly declining real home prices. In fact, according to Zillow.com that's basically what's been happening over the past five years (except that there was no inflation in 2009).These graphs show nominal prices per square foot:I predict that a decade from now, DC and Arlington nominal home prices will...
Kamis, 07 Januari 2010
Home prices forecasted to fall in 2010
From CNN Money:After four months of gains, home prices flattened in October. Worse yet, industry insiders think that they'll soon start to fall.Prices have risen more than 3% since May, according to S&P/Case-Shiller.But most forecasts predict price declines in 2010, with possible losses ranging from anywhere from 3% on up. Fiserv Lending Solutions, a financial analytics firm, forecasts that prices will fall in all but 39 of the 381 markets it covers, with an average drop of 11.3%. ...There are three main reasons for the reversal: a coming flood...
Rabu, 06 Januari 2010
Senator Dodd to retire
Good news:Leading Democratic Senator Christopher J. Dodd, chairman of the Banking Committee, will announce Wednesday that he is retiring, NBC News has learned.Dodd is a centrist and his popularity fell as the economy was gripped by a long recession brought on by the financial crisis.Over the years, the Connecticut senator has raised millions of dollars from employees of Wall Street firms.Senator Chris Dodd is a buffoon. He's the chairman of the Senate...
Senin, 04 Januari 2010
5 housing issues to watch in the new year
From The Wall Street Journal:The housing market, which brought the economy to its knees in 2008, struggled to recover in 2009. The modest gains of the past year can be credited in many ways to federal support that will be removed at some point in 2010. ... That makes for an uncertain outlook for the year ahead...Here’s our list of five big issues to keep an eye on in 2010:Mortgage rates: The Federal Reserve has kept mortgage rates low for most of 2009.... Whether the private market is ready to fill the gap when the Fed exits is one of the hottest...
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