Housing
razib | December 9, 2009At Reuters Felix Salmon has been making the case that a home should not be thought of as an investment. Here's the the Google Trends for "investment property":
I think the biggest argument that one should be careful about viewing a home purchase as an investment is that many people will now roll their eyes at you when you moot the idea. In other words, a substantial proportion of young adults are going to view the idea of getting locked down into a mortgage with a great deal more skepticism than they would have a few years ago. The cultural shock of the late real estate correction is going…
mikethemadbiologist | October 26, 2009That's a great phrase that the NY Times headlined Gretchen Morgensen's article about judges who are backing borrowers when the mortgage documentation is non-existent (and you heard it first from the Mad Biologist). I know I'm beating this to death (a bit, anyway), but the potential for billions, many billions of dollars of housing loans to disappear is gaining steam. Morgensen (italics mine):
One surprising smackdown occurred on Oct. 9 in federal bankruptcy court in the Southern District of New York. Ruling that a lender, PHH Mortgage, hadn't proved its claim to a delinquent borrower's home…
mikethemadbiologist | October 24, 2009...Big Shitpile is looking more and more shitty. Last week, I wrote about how the dissolution of the bond between lenders and borrowers could lead to a home owner debtors' revolt. One of the key issues is that, when mortgages are bundled and sold to other parties, such as investment banks, the mortgage assignments are often made illegally--or perhaps more accurately, extralegally, since they are often not registered with the appropriate government authorities.
This makes a recent decision from the Massachusetts Land Court very interesting:
The blank mortgage assignments they possessed…
mikethemadbiologist | October 22, 2009Blogger Maha is one of my favorite political bloggers. She brings a unique perspective to politics, and her background is really interesting. Recently, like a lot of people, her income has been hit (although it seems to have bounced back a bit). Nonetheless, her co-op association is jerking her around, and essentially trying to steal all of the equity she built up in her home:
There it was, stuck on the door to my co-op apartment with chewing gum -- a court summons. "Notice of petition to recover real property non-payment," it said.
This had to be a mistake. Yes, I had gotten three months…
mikethemadbiologist | October 17, 2009One problem stemming from the collapse of housing prices is that many households, even if they can still make their overpriced mortgages, are going to be paying far more for their houses than they should. That means less money for other things, from the frivolous to the important. So I've always wondered if we'll ever get a flood of walkaways--people who let the bank foreclose on the house. I realize some people will want to stay in their homes--maybe they don't want to pull their kids out of a school they like, or it's just the wrong time to think about a move. But for many, the rational…
mikethemadbiologist | July 31, 2009There's been a recent spate of articles describing how a minor uptick in the Case-Shiller housing price index means that the recession is nearing a close. Leaving aside some outstanding issues such as the looming ARM recasts (which might roll on for five years), it's remarkable that a slight uptick is being heralded as a 'green shoot.' But there's a very disturbing assumption whether or not one thinks housing prices will stop sinking.
We are assuming that housing prices should increase back to where they were ~2005 - 2006. Why would that be a good thing?
As I noted a while ago, houses cost…
mikethemadbiologist | July 16, 2009One of the goals of several of the federal interventions was to keep subprime loans high. If the prices for these loans dropped too much, then the banks holding these loans would be insolvent (loans are counted as assets under the assumption that they will be paid back)--the amount of money they owe to stockholders and bondholders, and other debt payments would be greater than their assets.
That's why I call the pile of ridiculous loans Big Shitpile: these loans, due to plunging property values leading to defaults (or walkaways), are only worth only a fraction of their face value--and far…
mikethemadbiologist | July 12, 2009By way of Calculated Risk, I came across this Reuters article about apartment vacancies reaching their highest rate in twenty years--and might soon break the record. Currently, the national rate is 7.5%. This matches my impression of the Boston rental market, even in the supposedly 'recession-proof' neighborhoods of Back Bay and Beacon Hill. In large apartment buildings (i.e., not smaller houses that have been chopped up into three to eight apartments), the vacancy rate is higher. Using Google cache, rents in the same buildings are down five to fifteen percent in nominal dollars as…
mikethemadbiologist | June 19, 2009Recently, I described how absurd it is to get excited over the second derivative when it comes to unemployment. A decrease in the rate at which unemployment is increasing is hardly good news (it beats the alternative, but "green shoots", this is not). Now, we're hearing similar noises about housing starts (building of new houses): they're increasing, we must be doing better! Admittedly, this is a gain--the first derivative. But Paul Krugman, using a really nifty St. Louis Federal Reserve site, puts this in context:
Let me help, just in case you missed it:
A seventeen percent increase…
mikethemadbiologist | June 16, 2009...and the Mad Biologist told you so. A while back, I looked at median incomes and median housing prices and concluded that housing prices had to drop twenty to forty percent from their highs. I also thought that, given the ARM recasts due in 2010 and that too many in the U.S. are already over their heads in debt, it would be much closer to forty percent than twenty. Well, by way of Calculated Risk, we find that Fitch Ratings concurs:
The projected losses also reflect an assumption that from the first quarter of 2009, home prices will fall an additional 12.5% nationally and 36% in…
mikethemadbiologist | May 9, 2009Between around 1999-2007, I never understood how so many people appeared to have so much money. Yes, some were actually rich and earned a lot of money, but I knew many people--too many people--who just didn't make that much money, but somehow were able to afford a home, payments on two nice cars, lots of nice clothes, and child care expenses. Then I ran across this piecever at the Irving Housing Blog, IrvineRenter describes the mentality that led to and fed upon the housing bubble:
...Southern Californians (with a little help from their own Big Brother, David Lereah, president of the…
mikethemadbiologist | April 12, 2009Economist Dean Baker makes an excellent point about the supposed complexity of the housing crisis:
There are some very basic points here that everyone should understand. The details of any form of regulation will be "complicated." For example, the actual fire safety rules for schools are undoubtedly very complicated. How many of us could write up the appropriate safeguards to ensure that our children will be protected from fire risks as they study? Similarly, the safety rules that are necessary to ensure that our food is not contaminated would also require background that very few of us have…
mikethemadbiologist | March 25, 2009My thanks to the readers who noted that I accidentally used adjusted income in my calculations of the ratio of the median house price to the median wage. Below are the updated figures:
Below, on the Y-axis, is the ratio of the median house price (not adjusted for inflation; from here) to the median income (not adjusted for inflation; from here). So a value of 1.0 means that the median house costs as much as the median income, a value of 2.0 means that the median house costs twice as much as the median income:
Here are the underlying numbers; obviously, median housing price is the higher…
mikethemadbiologist | March 25, 2009Update: Thanks to the readers who caught my error. I've updated the post here.
A tale of two graphs. But before I get to them, I have to admit that this post by Amanda gave me the needed kick in the ass to write about the huge increase in housing prices relative to annual income. Amanda writes:
...above all, I'm concerned about this belief that housing prices must be maintained at the ridiculously high levels they reached during the bubble, no matter what... My feeling is that we're taking a hit on the economy any way you slice it, so why can't housing costs come down to a point where…
mikethemadbiologist | March 24, 2009Can we please stop claiming that prices and wages are determined by the invisible hand? This supposed inscrutable force is often quite scrutable and goes by the name power. Consider this hate email liberal activist David Sirota received after a TV appearance (boldface original):
I made a simple point that America is now more economically unequal than it was just before the Great Depression. I subsequently received a wave of very angry hate mail...[one such email]:
I think I am in the majority of Americans who are sick and tired of the unproductive living off of the government. They have…
mikethemadbiologist | March 23, 2009Paul Krugman succinctly lays out why the Geithner/Obama* plan won't work:
Yes, troubled assets may be somewhat undervalued. But the fact is that financial executives literally bet their banks on the belief that there was no housing bubble, and the related belief that unprecedented levels of household debt were no problem. They lost that bet. And no amount of financial hocus-pocus -- for that is what the Geithner plan amounts to -- will change that fact.
You can't walk back a lost bet, and doubling down isn't an option.
We can spin this around and around and throw up spaghetti code arguments,…
mikethemadbiologist | February 27, 2009If you want to know what a housing bubble is, you only need look at Maricopa, AZ:
In 2005, her husband, Zachary Campbell, accepted a transfer from San Diego to Phoenix to manage a recreational-vehicle store. For the first time, the Campbells figured, they could afford their own home, though that meant moving to Maricopa, about 20 miles from Mr. Campbell's store. They scraped together a $50,000 down payment to buy a new four-bedroom home in Maricopa, for $250,000. It came with black granite countertops, cherry kitchen cabinets and a pool in back.
Today, Ms. Campbell figures, the home is worth…
mikethemadbiologist | February 22, 2009Over at Beat the Press, economist Dean Baker describes his plan to deal with the wave of foreclosures:
1. Gives homeowners facing foreclosure the option of renting their home for as long as they want at the fair market rate. This rate is determined by an independent appraiser in the same way that an appraiser determines the market value of a home when a bank issues a mortgage.
2. The proposal requires no taxpayer dollars or new bureaucracies. It would be administered by a judge in the same way that foreclosures are already overseen by judges. It simply changes the rules under which…
mikethemadbiologist | December 31, 2008By way of Edward Glaeser's post (via ScienceBlogling Jonah) about the relative stability of housing prices in the New York City area, I was looking at the S&P/Case-Shiller Seasonally Adjusted Home Price Values (I really need new hobbies...). The really odd thing I noticed is that in the metro areas that had huge crashes (greater than twenty percent of the maximal value), there was a huge spike in home prices from 2005-2006 (and which sometimes started in mid-2004), while, in metro areas that haven't crashed, there was no 2005-2006 spike. So what the hell happened in 2005?
Consider…
mikethemadbiologist | December 14, 2008I recently finished Dolores Hayden's Building Suburbia, and I recommend it highly.
Hayden describes how all of the arguments we have today about land use and transportation have been with us in one form or another for over 150 years. But what struck me was this section--and keep in mind, this book was published in 2003 (italics mine):
In 2003, Americans have had almost two centuries of experience with suburban boosters and their growth machines. Living farther and farther from older city centers, Americans spend an increasing proportion of their income on home mortgages and car payments,…