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The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Name:Ben Jones
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State ethics czar wants disclosure when campaigns pay bloggers:
PolitiCal / April 19, 2012
On politics in the Golden State / LA Times
Ravel said some bloggers have admitted to her that they have received undisclosed funding from partisan interests.
In 2009, Chip Hanlon, chief executive of the blog site Red County, announced that one of its writers had been let go after it was discovered the writer was taking payments from a consultant for gubernatorial candidate Steve Poizner “for favorable coverage.” Although candidates must disclose their spending, the true source of the funding is hidden when payments are made to consultants, who then pay the bloggers.
“I think we have to examine disclosure for bloggers and other Internet pundits who receive funding for their endorsements,” Ravel said during a conference on campaign funding co-sponsored by USC. “If we made a connection between a funder and somebody’s opinion so that opinion isn’t really that of the blogger, or the perception is that it might not be, people should be able to know about it.”
Principle write-downs at F&F:
1) Are they a go?
2) Who wins and who loses if they are?
April 17, 2012, 6:14 PM
GOP Senators: Forget Write-Downs, Pay Down Debt Instead
By Alan Zibel
Two U.S. Senate Republicans are urging the Treasury Department to cancel its plans to subsidize debt forgiveness for troubled homeowners, saying the money would be better off reducing the federal debt.
In a letter sent Tuesday to Treasury Secretary Timothy Geithner, Sens. David Vitter (R., La.) and Jim DeMint (R., S.C.) criticized an Obama administration plan to encourage mortgage giants Fannie Mae and Freddie Mac to reduce borrowers’ loan balances. Earlier this year, the administration announced it would use money from the 2008 financial industry rescue to encourage those write-downs.
The letter adds further heat to an intense political debate over whether the two government-controlled companies should reverse their policy and allow loan write-downs.
The two companies, which buy up loans and package them into investments, and their federal regulator have been facing pressure from Democrats and the Obama administration, which want to see write-downs. Republicans, however, are concerned that doing so will encourage borrowers to intentionally default.
In their letter, Messrs. Vitter and DeMint also argue that big banks that hold second mortgages such as home equity loans will benefit from write-downs. The plan “will pay off the mega banks with taxpayer cash in exchange for reducing the principal balance on some mortgages,” the lawmakers wrote. “We write to urge you, on behalf of the taxpayers, to reconsider and, instead, return this money to the Treasury to pay down the national debt.”
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Pay down debt instead.
You know, if they had said, “Forget cramdowns, that’s not fair to renters and responsible owners,” I would be all in agreement with these Republican Senators. Instead, they chose to use the weak tea talking point of paying down the debt.
They lost all credibility on the debt point in 2001 and 2003, when the US had a surplus. Instead of “paying down debt,” they said we had too much money and cut taxes instead.
use the weak tea talking point of paying down the debt.
Who says this is a “tea talking point”? Are you sure that’s their motivation? Do you really think it’s not good to try to pay down our national debt?
I agree that it sure would be nice for policymakers to acknowledge they’re being unfair to renters/responsible folks. But ISTM you’re just trying to take a swipe at folks not for their position but due to a personal bias.
“Weak tea” is not tea party. But if they were really interested in paying down debt, why didn’t they advocate it 10 years ago when the US actually had to money to do it?
Are you sure that’s their motivation?
Yes. You’ve been fooled once. Do you really need it one more time?
DeMarco Warns of the Dangers of Large-Scale Forgiving of Mortgage Debt
David C. John
April 15, 2012 at 9:05 am
To hear certain parts of the press tell it, the acting director of the Federal Housing Finance Agency (FHFA), Ed DeMarco, announced that the agency is willing to consider wholesale write-downs of underwater mortgages in a recent speech on the subject. However, a closer reading of DeMarco’s speech and the news stories shows that he actually understands the dangers of such a move. Even The New York Times noted that “His comments left doubt about whether he would change his long-held stance against principal reduction.”
The agency—which now controls both Fannie Mae and Freddie Mac, since those two housing giants essentially failed back in 2008—has been under heavy pressure from consumer organizations and some more liberal Members of Congress. In fact, many of them have been calling for DeMarco’s firing because of his opposition to such a move.
The press has focused on the fact that a new FHFA study unveiled at the recent speech showed a combined $1.7 billion reduction in expected losses for the mortgage entities under FHFA’s control. This would reduce the amount that taxpayers must pay to cover those losses. However, DeMarco also noted that under one of the many Obama mortgage refinancing programs, Treasury would provide a total of $3.8 billion in incentive payments for that action, thus leaving taxpayers with a net additional cost of $2.1 billion.
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Real Estate
Building a Better Bailout: Can Fannie and Freddie Help American Homeowners?
By Christopher Matthews | @crobmatthews | April 17, 2012
Since the financial crisis, American taxpayers have collectively made all sorts of investments that would have been unthinkable ten years ago. We bought stakes in the auto and insurance industries and, perhaps most significantly, the residential housing market. Fannie Mae and Freddie Mac, the Government Sponsored Entities (GSEs) that the American government has taken under conservatorship, own or guarantee 60% of the outstanding mortgages in America. That’s right, we are financially exposed to over 48 million mortgages. If a given home owner pays back his loan, plus interest, we’ll make a nice return on the investment. But if that homeowner defaults, we’re all on the hook for the loss.
Ed DeMarco, the man in charge of these two GSEs, therefore has a lot riding on his shoulders. When Congress passed the law allowing the federal government to take over Fannie and Freddie at the height of the financial crisis, it gave DeMarco’s Federal Housing Finance Agency (FHFA) two mandates: to prevent further loses on mortgages that the taxpayers now owned, and to continue to promote the stability of and liquidity in the U.S. housing market.
DeMarco’s problem is just how to go about achieving these goals. The housing market has entered uncharted territory. Between 2005 and 2011, according to the Federal Reserve, the total decline in housing wealth has been over $7 trillion. The total amount of “negative equity” (that is, the amount owed on American homes that are “underwater” minus their combined market value) is over $700 billion. Simply put, the taxpaying public owns a whole bunch of questionable loans that will probably continue to cost us money.
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“That’s right, we are financially exposed to over 48 million mortgages.”
How exactly did that happen?!
If a given home owner pays back his loan, plus interest, we’ll make a nice return on the investment. But if that homeowner defaults, we’re all on the hook for the loss.
Who gets the nice return, and who’s on the hook for losses?
“…who’s on the hook for losses?”
My recollection is vague, but it seems the Treasury Department summarily slapped federal guarantees onto all of the GSE debt after they collapsed; don’t recall if this was on Bush’s or Obama’s watch.
The upshot is that the U.S. Treasury (however defined — i.e. as the tax base, monetary base, or otherwise) is presumably on the hook for losses, whether due to default or write downs of GSE debt.
+1, rms. The author is clearly an ignorant idiot.
The bondholders will get the nice return.
The taxpayer will be on the hook for any losses.
The government has _guaranteed_ the mortgages, so taxpayers will bear all losses.. But the taxpayer does not hold the mortgages themselves, since they were securitized; the holder of the mortgages (e.g. the bondholder) will get the return.
This article, adivsing their is no alternative to ever increasing debt, might be good to discuss more. It was at the top of the Thursday Bits Bucket.
http://www.marketwatch.com/story/capitalism-is-dead-credit-new-king-says-duncan-2012-04-18
Of course, when total indebteness eventually reaches 10,000 percent of GDP, the entirety of U.S. economic output would go to bondholders leaving workers to slave away without food, water, shelter, anything. But perhaps by that point the sun will Supernova — or everyone now over 55 will be dead and gone.
I agree that this guy has an interesting slant on the crisis. He uses Austrian School ideas but calls for Keynesian solutions. Has he squared the circle?
While Duncan’s talk of sound gold-backed money and overreliance on credit sounds close to standard libertarian and Austrian school arguments, his policy recommendations are downright Keynesian.
In suggestion a future course for the U.S., Duncan warns against repeating Japan’s mistake of squandering stimulus money on useless make-work projects and instead invest in sectors that would give an edge in future technologies that could be commercialized to help bring global trade back into balance.
Building a national solar-energy grid that could tap the arid landscapes of Nevada are among Duncan’s recommendations.
Duncan said he first outlined his thinking on government-led investment in a 2008 book. On speaking tours, he encountered the “greatest push-back” from free-market, libertarian thinkers who are skeptical of government involvement in the economy.
He says many libertarians “are with me along through the argument” on causes of the global crisis, but that they tend to be “very surprised” by his conclusion that part of the solution requires governments to spend more — not less.
Duncan says he tried to counter those views by bringing up previous examples of successful government initiatives, ranging from victory in World War II to the invention of the Internet.
“I’d like to offset the toxic effect cable news television has had on the way the economy works and what needs to be done to fix this crisis,” Duncan said.
Is the U.S. economic recovery on track?
TODAY’S MARKETS
Updated April 20, 2012, 9:49 a.m. ET
U.S. Stocks Open Higher
By CHRIS DIETERICH And TOMI KILGORE
NEW YORK—Stocks rose, buoyed by better-than-expected quarterly reports from Microsoft, (MSFT +5.16%) McDonald’s (MCD +2.50%) and General Electric, (GE +1.83%) as firm economic data in Europe tempered worries about the region’s ongoing sovereign-debt issues.
The Dow Jones Industrial Average rose 84 points, or 0.7%, to 13049, and the Standard & Poor’s 500-stock index advanced seven points, or 0.5%, to 1383. The Nasdaq Composite gained 13 points, or 0.5%, to 3021. The benchmarks are on pace to record their first weekly gains of the second quarter.
Three Dow components led the benchmark’s advance. Shares of Microsoft rallied 3.9% after the blue-chip software company reported fiscal third-quarter results late Thursday that exceeded both revenue and earnings expectations. A modest rise in demand for personal computers drove sales of its flagship operating system as the company readies its latest iteration, Windows 8, which is set to run on PCs and tablets later this year.
McDonald’s gained 1.9% after the world’s largest fast-food chain’s first-quarter earnings rose 4.8%, and sales grew slightly faster than expected.
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Evidently, yes.
TODAY’S MARKETS
Updated April 20, 2012, 9:49 a.m. ET
U.S. Stocks Open Higher
By CHRIS DIETERICH And TOMI KILGORE
NEW YORK—Stocks rose, buoyed by better-than-expected quarterly reports from Microsoft, MSFT +5.50% McDonald’s MCD +2.49% and General Electric, GE +1.83% as firm economic data in Europe tempered worries about the region’s ongoing sovereign-debt issues.
The Dow Jones Industrial Average rose 84 points, or 0.7%, to 13049, and the Standard & Poor’s 500-stock index advanced seven points, or 0.5%, to 1383. The Nasdaq Composite gained 13 points, or 0.5%, to 3021. The benchmarks are on pace to record their first weekly gains of the second quarter.
Three Dow components led the benchmark’s advance. Shares of Microsoft rallied 3.9% after the blue-chip software company reported fiscal third-quarter results late Thursday that exceeded both revenue and earnings expectations. A modest rise in demand for personal computers drove sales of its flagship operating system as the company readies its latest iteration, Windows 8, which is set to run on PCs and tablets later this year.
McDonald’s gained 1.9% after the world’s largest fast-food chain’s first-quarter earnings rose 4.8%, and sales grew slightly faster than expected.
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Let’s see. You have some manufacturing moving back on shore. Consumers and financial companies have develeraged a little. Housing prices are down from peak levels. Housing production is low enough that it won’t subtract anything else from GDP. Some bad debt has been written off.
Yes, the recovery is on track. We are four years down a track that is 20 years long.
Evidently, no.
TODAY’S MARKETS
Updated April 19, 2012, 6:37 p.m. ET
U.S. Stocks Slide
By MATT JARZEMSKY
Stocks fell after a trio of disappointing economic readings overshadowed better-than-expected earnings reports from Travelers (TRV +1.35%) and other companies.
Stocks were little changed as a handful of upbeat earnings reports offset disappointing readings on the domestic jobs and housing markets. Chris Dietrich has details on The News Hub. Photo: AP.
The Dow Jones Industrial Average declined 68.65 points, or 0.53%, to 12964.10. The Standard Poor’s 500-stock index shed 8.22 points, or 0.59%, to 1376.92, and the Nasdaq Composite fell 23.89 points, or 0.79% to 3007.56.
The information-technology and industrials sectors led the S&P 500 lower amid downbeat labor, housing and manufacturing readings.
Just three of the Dow’s 30 components advanced. Travelers gained $2.23, or 3.7%, to $61.70 and Verizon Communications (VZ +1.75%) rose 49 cents, or 1.3%, to 38.15 after both reported first-quarter results that beat analysts’ projections. General Electric (GE +1.77%) gained four cents, or 0.2%, to 19.14 ahead of its results Friday.
“This whole market ran out of steam halfway through the day,” said Jonathan Corpina, senior managing partner of New York Stock Exchange floor broker Meridian Equity Partners. “It just seems to be getting worse and worse as the day goes on. All the European headlines are really catching up right now.”
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This kind of news should help keep the Treasury bond rally on track.
ECONOMY
Updated April 19, 2012, 9:10 p.m. ET
Economic Reports Fan Fears
Dimmer Jobs Picture and Sluggish Home Sales Cast Doubt on Recovery’s Footing
By BEN CASSELMAN And NICK TIMIRAOS
Rising layoffs, falling home sales and slowing manufacturing activity are sparking fears that the economic recovery is headed for a springtime stall for the third year in a row.
New data Thursday provided fresh evidence that the job market is losing the momentum it built earlier this year, which could pressure fragile housing markets that have been showing signs of life. Separate reports this week suggested that the factory sector, a source of strength in the recovery, now is being hurt by weak growth overseas.
However, recent signals have been mixed, with worrisome indicators following positive ones—such as consumer confidence and auto sales—that suggest the recovery remains on track. Economists generally believe total economic output in the first three months of the year grew at a rate a bit above 2%—slower than at the end of 2011 but significantly stronger than the same period a year ago.
“It’s been the weakest recovery in the post-World War II period, and that hasn’t changed,” said David Rosenberg, chief economist for investment firm Gluskin Sheff.
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Is the I.M.F. trying to talk down the recovery in order to lay the foundation for QE3?
Fears Rise That Recovery May Falter in the Spring
Published: Friday, 20 Apr 2012 | 9:46 AM ET
Annie Lowrey
Some of the same spoilers that interrupted the recovery in 2010 and 2011 have emerged again, raising fears that the winter’s economic strength might dissipate in the spring.
In recent weeks, European bond yields have started climbing. In the United States and elsewhere, high oil prices have sapped spending power. American employers remain skittish about hiring new workers, and new claims for unemployment insurance have risen. And stocks have declined.
There is a “light recovery blowing in a spring wind” with “dark clouds on the horizon,” Christine Lagarde, managing director of the International Monetary Fund [cnbc explains] , said Thursday, at the start of meetings here that will focus on Europe’s troubles and global growth. Ms. Lagarde implored world leaders not to become complacent.
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April 19, 2012, 7:35 a.m. ET
FX HORIZONS: QE3 And The Looming Danger Of Currency War 2
(This article was originally published Wednesday.)
By Michael J. Casey
A DOW JONES NEWSWIRES COLUMN
Like Pavlov’s dog, which would salivate at the sound of a bell, U.S. stock market investors will these days launch into a buying frenzy at the faintest hint of more monetary stimulus.
But if Federal Reserve officials’ assurances of continued support for the U.S. recovery have released feel-good endorphins among wishful thinkers on Wall Street, their subtle admissions that a third round of “quantitative easing,” or QE3, is not off the table may equally have sent emerging market central bankers into a cold sweat.
Financial authorities in developing countries fear their economies will be in the line of fire if U.S. economic conditions deteriorate so much that the Fed again starts buying bonds to anchor U.S. interest rates. They know from experience that many of the dollars the Fed injects into the financial system would flow offshore and into their currencies, whose higher yields are more attractive to investors. This “hot money” would push up their exchange rates to the detriment of their exporters and leave their capital markets vulnerable to volatile turns in sentiment.
If these policymakers were to respond to QE3 as many did to QE2–by buying dollars in the foreign exchange market, cutting interest rates or otherwise quelling exchange rate appreciation–they would revive what Brazilian Finance Minister Guido Mantega alarmingly described in 2010 as a “currency war.” With their export leaders complaining of a loss of competitiveness, central bankers would come under immense political pressure to protect vital industries and to go soft on inflation, often a byproduct of a weaker currency. And this time, global conditions are such that their actions could set off a self-perpetuating cycle of competing devaluations that does considerable damage to the world trading system.
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The “recovery” is on track for the 1%er pigmen and their corporate/media/political fluffers. For the Lucky Duckies, and the majority of the formerly middle class who are joining the their ranks, there is no recovery
Is QE3 a go?
April 17, 2012, 3:16 PM
Fed Survey Asks Banks About Their Thoughts on QE3
By Cynthia Lin
The Federal Reserve‘s routine survey of primary dealers ahead of a policy meeting this month included more “topical” questions about what economic changes would need to happen to warrant more monetary stimulus that would expand the central bank’s balance sheet.
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ft dot com
Last updated: April 18, 2012 10:24 pm
Big investors bet Fed will embark on QE3
By Michael Mackenzie and Dan McCrum in New York
For many it’s all over. But a coterie of investors are patiently biding their time and betting that the Federal Reserve will have little choice but to embark on a third round of large-scale bond purchases later this summer.
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Is QE3 necessary with the IMF providing global plunge protection services?
IMF gets $430 billion to combat global economic woes
By Martin Crutsinger, Associated Press
Updated 30m ago
The IMF’s Christine Lagarde chats Friday with a South Korean official at the G20 ministerial meeting in Washington.
By Nicholas Kamm, AFP/Getty Images
WASHINGTON – The International Monetary Fund says it has raised more than $430 billion in an effort to assure finance markets that it has sufficient firepower to handle any new problems from Europe’s prolonged debt crisis.
IMF Managing Director Christine Lagarde announced the new figure at the conclusion of the discussions among finance officials of the Group of 20 major economic powers on Friday. She said that some countries including Russia, India, China and Brazil had made private pledges but did not want to issue public commitments until they had conferred with officials in their home capitals.
But she said when the public and private commitments were combined, the total raised would exceed $430 billion, nearly doubling the IMF’s available resources to make loans to nations in trouble.
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The future of foreclosures
Editorial
This week, state lawmakers are set to take up a series of mortgage-related bills backed by Atty. Gen. Kamala Harris.
April 16, 2012
A foreclosure sign hangs on a fence in front of a foreclosed home on April 6, 2011 in Richmond, Calif. This week, state lawmakers are set to take up a series of mortgage-related bills backed by Atty. Gen. Kamala Harris, beginning with a measure (AB 1602) to enshrine the national settlement’s safeguards into California law and apply them to all borrowers in the state.
It’s been five years since the housing bubble burst, yet hundreds of thousands of California homeowners remain in default and en route to foreclosure. Some of these troubled borrowers will benefit from new consumer protections included in a nationwide settlement that five major banks agreed to in February, including a requirement that foreclosure proceedings wait until the bank considers a modified mortgage that would be less costly to borrower and lender alike. Those protections, however, extend no further than the five banks and the loans they service. This week, state lawmakers are set to take up a series of mortgage-related bills backed by Atty. Gen. Kamala Harris, beginning with a measure (AB 1602) to enshrine the national settlement’s safeguards into California law and apply them to all borrowers in the state. Also included in the package are proposals to improve lenders’ record keeping and extend the statute of limitations for prosecuting certain mortgage-related crimes.
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extend the statute of limitations for prosecuting certain mortgage-related crimes
I’d love to extend it to prosecute TBTF. But why do I think that it won’t be extended for them?
Update:
The Two-Boob house SOLD!!! for $375K
http://www.zillow.com/homedetails/18510-New-Hampshire-Ave-Ashton-MD-20861/37206011_zpid/#hdp-photo-lightbox
The picture shows “Margie and her daughters” (a caption which I saw a week ago but which has since been taken down), and a LOT of leaves to rake. I can’t tell if they got a good deal.
And only $110K under its Zestimate. Shouldn’t they change that to match when it was sold last month? Seems that it wasn’t really worth $484,500….
That was my thought, exactly. How could the home’s price “dip” to $375K the day it sold, only to bounce right back up to just under $500K?
I don’t know about this one Polly. It’s an unusual entertainment house on 4.5 acres of woods north of the last of the suburban sprawl. I haven’t seen anything like it; not just in size but in style, distance from the city, land type.. There is no comp to speak of. I’m sure it confused zillow as much as it confused me.
Based on land and sq footage alone and subtracting for commute and woods, I would peg the house at about $400K, but that’s a dart toss at best. We also don’t know the condition of the place either. Empty in the woods for months — half the rafters could be coon-eaten for all we know.
Just guessing here, but since you have dubbed it the “Two Boob House” and say it is at the end of the road (commute), it is probably the equavilent of the geodesic dome; the hippi house, now frequented on the weekends by the not so successful should be yuppie kids. Recycled materials and particle board. Clueless layout. Runoff issues.
Just guessing.
No, it wasn’t geodesic domes, it just had two peaked roofs that had a certain mammary resemblance. It looked like a neat house, but was set up more like a clubhouse than a SFH. You had to wonder about its history and original purpose. I personally quite liked the house and its surrounding woods, but I do hate long commutes.
What would you say commute time to DC would be, Oxide?
Irrational exuberance can last a lot longer than underwater deadbeats can stay solvent.
April 20, 2012 9:29 pm
The property predicament
By Robert Shiller
The idea that rapidly rising home prices are positive is often based on unrealistic expectations
What would happen if, as so many people are hoping, home prices were to go up dramatically again as they did in the early 2000s? Would such a change really benefit society?
People who most ardently desire this are homeowners who are underwater on their mortgages, who took out mortgages at the peak of the boom and now find that their homes are worth less than they owe on them. They would just feel relieved to get out of the red as soon as possible.
But should they really be wishing for this, if they were to take into account all the effects and their humane concerns for all people?
In my new book Finance and the Good Society I argue that we should be hoping for better financial arrangements, a democratised and humanised financial capitalism, not for some price increase. We should be hoping for prices that are formed in markets in which all people participate with realistic expectations, prices that reflect contracts that treat everyone fairly and that reward good behaviour.
Thinking that large home price increases would be a good thing seems very widespread. But the effects of any such future price boom would not be so clearly beneficial, and would depend on the causes of the price increase and the financial arrangements that were made for them. The issues are much more complex than most people seem to imagine.
Note that in the latest bubble home prices in the US and the UK rose rapidly relative to the cost of renting. It was not a rental boom. It was thus financial in origin, not caused by a rise in the real scarcity value of housing services that people want to consume. It was instead a change in the investment demand for ownership of a claim on a stable flow of rents.
Before we can answer what would be the effects of large future home price increases relative to rents, we would have to ask why those increases would be happening. Let us consider why they increased the last time, in the early 2000s. The reasons are basically the same in both the US and the UK.
Price increases were related to a loosening of credit standards and weakening of the banking system due to complacency about the possibility of price falls. The result has been serious trouble in the banking sector, and the necessity for government bailouts.
Home price increases were also related to unrestrained and unrealistic public expectations for future price increases. In a survey of homebuyers in four US cities that Karl Case and I carried out in 2004, at the peak of the housing expectations, we found that the (trimmed) mean home price increase expected for the succeeding 10 years was 12.6 per cent a year. Maybe our respondents didn’t quite understand what they were implying: that would mean more than a tripling of home prices in the succeeding 10 years from an already high level.
At the least, home buyers must have thought they would make a ton of money: those who borrowed 90 per cent of the money to buy their house in effect saw their investment levered up 10 to one, and so these high expected price increases would be magnified 10-fold for their investment. No wonder people felt so pleased with the boom while it lasted.
Already eight of those 10 years have passed, and the actual rate of increase in US nominal home prices on average for the eight years was minus 3.6 per cent a year. Long-term public expectations were way off. And yet, even in the fact of this evidence, expectations have come down only slowly and gradually. Expectations for annualised 10-year price increases dropped to 5.6 per cent a year by 2011, though that is still high: it would imply a doubling of home prices in about a dozen years.
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