Wonkbook: Is the housing market back?

October 18, 2012

Welcome to Wonkbook, Ezra Klein and Evan Soltas's morning policy news primer. To subscribe by e-mail, click here. Send comments, criticism, or ideas to Wonkbook at Gmail dot com. To read more by Ezra and his team, go to Wonkblog.

Wonkbook dashboard

RCP Obama vs. Romney: Romney +0.4%; 7-day change: Romney +0.9%.

RCP Obama approval: 49.4%; 7-day change: -0.3%.

Intrade percent chance of Obama win: 64.6%; 7-day change: +0.9%.

Wonkbook's Number of the Day: 38 percent. That's the percentage increase in housing starts from this September as compared to last September. Much of it comes from a 15-percent gain last month alone, a substantial jump signaling rising momentum for the housing sector.

Economists had been observing "green shoots," or the small improvements at the edges, for much of this year -- but the latest numbers may suggest that the full-on bloom has begun. Accommodative monetary policy from the Fed, in particular, may be helping housing's climb back from recessionary lows. The question is now whether these gains will continue in the coming months, and if so, at what pace. The answer will determine whether housing, which had held back the recovery, becomes one of the engines pushing it forward amid headwinds from abroad and fiscal contraction at home.

Top story: Housing's rebound

Housing starts are up 15 percent in September. "The number of homes that were started increased 15 percent from August to a seasonally adjusted annual rate of 872,000. That's the fastest rate since July 2008. Single-family homes, which made up more than two-thirds of the new construction, rose 11 percent to 603,000. That was also the quickest rate in four years. Apartment construction, which can be more volatile from month to month, rose 25.1 percent. And applications for building permits, a sign of future construction, jumped nearly 12 percent to an annual rate of 894,000, another high point since July 2008." The Associated Press.

@Neil_Irwin: [T]hese are the best housing numbers we've seen in a long, long, time. Starts at highest rate since July '08.

It's beginning to look a lot like recovery. "Some blockbuster housing numbers released Wednesday mean it is finally time to start grappling with a happy possibility: What would a housing recovery look like in this economy, anyway?... It is still anybody’s guess how long the upswing will last and whether the worst is truly over for housing. But Wednesday’s numbers are the most solid evidence yet that the improvement is for real...In the second quarter of 2012, residential investment was 2.39 percent of GDP. As a rough estimate of the longer-term trend for that number, let us use its average level for the entire decade of the 1990s: 4.07 percent...If residential investment converged to that longer-term average, it would add 1.7 percentage points to overall growth in the coming year." Neil Irwin in The Washington Post.

@davidfrum: If housing is accelerating, whoever wins may soon be presiding over a real recovery. No wonder the candidates are getting testy...

Should Ben Bernanke get the credit for the housing recovery? "One big question, meanwhile, is whether Ben Bernanke should get any credit for the September surprise in housing. After all, the Federal Reserve announced its expanded 'quantitative easing' program to reduce interest rates and bolster economic expectations back on Sept. 13. Two weeks later, we’ve got what looks like a housing surge. Coincidence?" Brad Plumer in The Washington Post.

@conorsen: Today's the day when the popular press is allowed to admit the housing recovery is real. Big money's already been made.

But a big economic boom might not be right around the corner. "The surge in housing starts for September was real, but it doesn’t necessarily mean that boom times are here for the sector or the broader economy...This move forward from the bottom was inevitable, says Patrick Newport of IHS Global Insight...'Housing has a self-correcting mechanism — it’s called population growth. Every year, the U.S. population increases by about 3 million, and the number of households increases by 1.1-1.3 million. New homes have to be built to meet demand from this segment.'...'How far can the rebound go with unemployment where it is? From our perspective, not much farther,' said economist Steve Blitz at ITG Investment Research, Inc. 'The notion housing will now lead rather than reflect the overall economy is a bit too optimistic. The demographics lean against a national boom in home construction as does the limited availability of mortgage credit.'" Phil Izzo in The Wall Street Journal.

@wesbury: Blow out housing starts and permits data signal little chance of recession. However, weakness elsewhere says "still the Plow Horse."

There may be a link between housing prices and income inequality, in fact. "Why is the gap between rich and poor in America yawning ever wider?...[O]ne interesting explanation boils down to the high price of housing. A recent paper by researchers at Harvard University argues that the prohibitive cost of living in the areas with the greatest economic opportunities has forced low-wage workers to migrate instead to areas with inferior opportunities...It doesn’t have to be this way. High housing prices are the result of public policies that discourage new development." Binyamin Appelbaum in The New York Times.

@BCAppelbaum: Housing is recovering. Looks like government can create jobs.

Top op-eds

KLEIN: Mitt Romney's George W. Bush problem. "It’s George W. Bush, not Barack Obama, who has made voters skeptical of many of Romney’s core policies. It’s George W. Bush, not Obama campaign strategist David Plouffe, who persuaded voters that our economic troubles aren’t mainly Obama’s fault. And so it is, in a sense, the electorate’s lingering fear of George W. Bush, as much as its residual affection for Barack Obama, that Romney needs to beat if he’s to become president. At Tuesday’s debate, Romney was given a chance to do just that." Ezra Klein in Bloomberg.

@pourmecoffee: Romney: I differ from Bush in that I'm not caught up in that compassion nonsense.

WESSEL: Decoding new rules for banks. "Big U.S. banks are bigger than before the financial crisis. In 2001, the assets of the five largest U.S. bank holding companies accounted for 25% of all U.S. bank assets. Last year their share was 53%...[But] postcrisis rules do penalize the biggest banks...[C]apital cushions have three purposes: to make institutions less likely to fail because they will have more capital to absorb losses, to limit the damage they inflict on others if they do fail, and, in effect, to tax them for being so big in order to offset the advantage of being seen as too-big-to-fail. This will prod some big banks to shrink." David Wessel in The Wall Street Journal.

WILL: The Fed's mission creep. "For the first 64 years of its existence, the Fed’s mandate was price stability — preserving the currency as a store of value by tightly controlling inflation. But in 1977, Congress stipulated maximizing employment as the Fed’s second mandate...Brady’s Sound Dollar Act, which has 48 House sponsors, would restore the single mandate...Brady agrees that today’s membership on the policymaking Federal Open Market Committee -- seven members of the Reserve Board, the president of the New York Fed, and rotating four of the presidents of the regional banks -- gives excessive weight to New York and Washington. The Sound Dollar Act would give permanent FOMC voting rights to all 12 of the Fed bank presidents." George F. Will in The Washington Post.

YGLESIAS: Stop talking about small business and income tax rates. "There are plenty of good ideas out there to spark small business hiring, but to make them happen, politicians need to take a break from their obsession with arguing about the top marginal-income tax rate and look instead at payroll taxes and monetary policy...The incredible growth of state-level occupational licensing schemes also continues to go completely ignored in national politics though business owners cite it as the No. 1 policy drag on their success." Matthew Yglesias in Slate.

BEREZOW: Biotech on the ballot. "[T]he innovations of biotechnology appear to be limited only by our imagination. Yet strong opposition exists to this revolutionary technology. Anti-biotechnology groups such as Greenpeace frequently mislead the public about GMOs by playing down the known benefits while overhyping small, theoretical risks. The result is that biotechnology is being held back by a scaremongering group of environmentalists who seem to think that saving the planet requires banning science and thwarting human progress." Alex Berezow in The Wall Street Journal.

HEGSETH AND RIECKHOFF: Our broken VA system. "[M]isdirection is a tactic that's alive and well today at the Department of Veterans Affairs, where officials boast about things they should be ashamed of...[I]n 2009, the VA inventory of pending claims was about 400,000. Today it is about 880,000...Gen. Shinseki has pledged to solve the backlog by 2015, and the VA has added 4,000 new employees since 2008. But the numbers already suggest we're headed in the wrong direction...[I]n the Los Angeles area wait an average of 377 days for a response to their claims. In New York City, the average wait is 373 days. In Waco, Texas, the average wait is 413 days. The backlog in claims processing represents real men and women with serious needs who aren't being served, after they have fought and sacrificed on behalf of our nation. Their stories are heartbreaking." Pete Hegseth and Paul Rieckhoff in The Wall Street Journal.

Top long reads

Jonathan Cohn looks at a division of our nation -- the varying views of the social contract and what's warranted in terms of a social safety net: "In all kinds of real and practical ways, the United States today is not one nation, but two. We’ve come to think of 'blue' and 'red' states as political and cultural categories. The rift, though, goes much deeper than partisan differences of opinion. The borders of the United States contain two different forms of government, based on two different visions of the social contract. In blue America, state government costs more—and it spends more to ensure that everybody can pay for basic necessities such as food, housing, and health care. It invests more heavily in the long-term welfare of its population, with better-funded public schools, subsidized day care, and support for people with disabilities...In the red states, government is cheaper, which means the people who live there pay lower taxes. But they also get a lot less in return. The unemployment checks run out more quickly and the schools generally aren’t as good. Assistance with health care, child care, and housing is skimpier, if it exists at all. The result of this divergence is that one half of the country looks more and more like Scandinavia, while the other increasingly resembles a social Darwinist’s paradise."

John Heilemann examines the Clintons' end of the bargain in helping Obama to re-election: "What Obama stands to gain from the transaction is plain enough to see. The support of the political figure with the highest approval rating, 69 percent, of any in America. The suasive services of a surrogate who can talk the owls down from the trees. The imprimatur of a former president associated with a period of broad and deep prosperity...The potential payoff for Clinton is more ineffable but no less substantial. Last time around, recall, Obama’s candidacy was based in part on the consignment of Clintonism to the dustbin of history. But now, with Obama running unabashedly as the inheritor of that creed, Clinton is reveling in seeing his legacy restored to what he regards as its rightful status: a restoration that will mightily benefit his wife if she hurls herself at the White House again in 2016...What’s taking place is the revivification -- and the ­Godzilla-scale enlargement -- of Clinton himself. In 2008, a not insignificant number of white liberals and African-Americans assailed him as, if not a racist, a race-baiter; he was battered and bruised, scalded and scarred, mired in self-pity. But in 2012, he has emerged as the Democrats’ own Dutch: revered by his party, respected so much by the GOP that it dare not cross him, sanctified by the great heaving middle."

XKCD interlude: The problem with statements like "no candidate/party has won the election without [fill-in-the-blank]." .

Got tips, additions, or comments? E-mail me.

Still to come: the pessimism of execs; 'sticky' health insurance; rising college costs as a public-policy challenge; a historic shift in the oil trade; and what economists really think.

Economy

The profound pessimism of the American corporate executive. "Executives from around the world are profoundly pessimistic about the ability of companies operating in the U.S. to compete in the global economy and to pay high wages to U.S. workers, a survey of more than 6,800 Harvard Business School alumni found. Some 58% of the respondents expect the U.S. to weaken on one or both of these two dimensions of competitiveness over the next three years. Only 25% expect the country to improve on one or both but decline on neither." David Wessel in The Wall Street Journal.

@RobinBew: EU summit could mark progress in euro crisis. Bold measures on agenda. But I suspect it will just highlight how far apart countries are.

A modest agenda for the Euro summit. "The European leaders set to gather here Thursday to discuss the future of the euro zone will be meeting during a rare patch of calm in their three-year-long crisis. But the tough decisions they had been expected to make about binding their countries more tightly together have been postponed, officials and analysts say, leaving many of the continent’s fundamental problems unaddressed...European leaders plan to begin discussing a common euro-zone budget and to talk more about a shared supervisor for European banks." Michael Birnbaum in The Washington Post.

Links you can use interlude: Counter-skepticism to the global warming skeptics.

Health Care

The problem for premium support: Seniors don’t always choose the best plan. "Numerous studies have examined how seniors select their prescription drug benefit. They tend to find that these insurance plans are very 'sticky': Seniors stick with the plan they have, even as its costs go up and up. Once a senior chooses a plan, he or she rarely switches, even when more low-cost options are available...In the journal Health Affairs this month, University of Pittsburgh’s Chao Zhou and Yuting Zang looked at whether seniors bought the prescription drug coverage plan that would be most cost-effective for their health care needs. Only 5.2 percent chose the least expensive plan based on their medication needs." Sarah Kliff in The Washington Post.

Humana comes out winning from health reform's quality bonuses. "Humana Inc. (HUM) will get 5 percent more in Medicare payments and a 'five-star' rating for one of its health plans under a U.S. program that may be helping to improve care for the elderly, according to an analysis that quickly spurred Republican criticism. The program provides bonuses to health insurers who beef up Medicare Advantage plans by limiting how many members are re- admitted to the hospital after a discharge, increasing the amount of preventative care and getting acceptable ratings on patient satisfaction surveys, among other criteria. " Alex Wayne in Bloomberg.

Domestic Policy

Who would win under Romney's cap plan? "Despite its vagueness, Mitt Romney’s proposal to cap itemized deductions is prompting some insightful analyses from reputable think tanks...The numbers also show that such a plan would mainly benefit top earners...This is scaled according to how many people are in each group. The majority of Americans who make under $70,000 a year would get a tax cut of 0.13 percent to 1.07 percent. But those in the 95th percentile of earners, making $148,000 a year, would see a 2.6 percent cut. The top one percent and the top 0.1 percent of earners would get smaller cuts, owing to the large amount of deductions they currently claim, but they would still make out better than the bottom 90 percent as far as income tax relief." Dylan Matthews in The Washington Post.

We can lower the top tax rate to 23 percent while cutting the deficit by $1.2 trillion. Here’s how. "How much can we lower taxes simply by getting rid of tax loopholes and deductions to keep it all revenue-neutral? The Committee for a Responsible Federal Budget argues in a new paper that we can go a lot farther than recent news may suggest...[T]he group says you should look at a 2005 study by the Bush Treasury Department if you actually wanted to see how much you could lower rates through abolishing nearly all possible tax expenditures...According to that experiment, you could get the top rate as low as 23 percent by eliminating expenditures -- a whopping 34 percent cut from the levels under the Bush tax cuts, while lowering deficits by $1.2 trillion." Suzy Khimm in The Washington Post.

Wonkblog explains: The second presidential debate in graphs.

Rising college costs are a test for public policy efficacy. "[President Obama's] record, more activist than any recent predecessor’s, includes greatly expanding the federal government’s role in granting college loans, increasing aid to community colleges, and even taking steps to try to stem soaring tuition...But while many education experts laud his efforts, analysts of varying political stripes have also questioned how much impact some of the president’s policies will have, noting that the prices charged by colleges, and student borrowing, continue to climb...[B]ehind the headlines about soaring costs, the reality is more complex and wildly uneven, because a growing number of students receive financial aid, and only relatively high-income families pay those fast-rising sticker prices. Adjusted for inflation, the College Board calculates, the average 'net price' changed little over the last decade at private schools, and rose only modestly at public ones." Richard Perez-Pena in The New York Times.

What economists think interlude: New IGM survey data shows full agreement that the job-creation effects of public policy is, at best, a "rough guess".

Energy

A historic shift in the oil trade. "Mexico, Nigeria, Saudi Arabia, UK, Venezuela: the origins of tankers docking at the Texas port of Corpus Christi once read like a roll call of top oil-exporting nations. The list has now shortened. And, for the first time since the 1940s, the port is handling outbound crude shipments as millions of barrels flow from the nearby Eagle Ford shale region...Corpus Christi is at the centre of a historic shift under way in global crude oil trading. As production has rebounded in North America, import and export patterns are changing. The International Energy Agency forecasts a decline in intercontinental crude trading until 2017, reversing years of steady growth." Gregory Meyer and Javier Blas in The Financial Times.

@Ben_German: The post-BP spill deepwater drilling freeze probably a big factor in steep FY '11 decline in offshore oil production after 2 years of gains

How energy production may be straining the water supply. "The federal government must better monitor the nation's water supply as expanded domestic energy production threatens to further strain water resources, warns a Government Accountability Office (GAO) report released Tuesday. With an earlier Congressional Research Service study projecting the energy sector to account for 85 percent of the growth in domestic water consumption between 2005 and 2030, the GAO report says the federal government must improve oversight on the nexus between water and energy. The report calls for the Energy Department to institute an oversight program to evaluate water availability and use by energy producers." Zack Colman in The Hill.

What we can learn from Europe’s cap-and-trade system. "Back in 2005, the E.U.-15 began implementing its Emissions Trading Scheme to curtail greenhouse-gas pollution from key industries across the continent. There was a hard cap on overall emissions that would grow steadily more restrictive over time...[E]missions in the affected sectors have dropped 13 percent between 2005 and 2010. That’s further than anyone expected even given economic conditions...It appears that Europe is starting to sever the traditional link between carbon emissions and economic growth...Data from European Environmental Agency’s greenhouse-gas viewer suggest that the reductions in emissions between 2005 and 2010 have been spread out across multiple industries, with fuel combustion and the electricity sector falling the most, followed by manufacturing, construction, and industrial processes." Brad Plumer in The Washington Post.

Insurance giant cites climate in rising North American disaster costs. "North America incurred $510 billion in insured losses from weather catastrophes over the last three decades, and climate change is emerging as one of the reasons why, reinsurance giant Munich Re said Wednesday...'The study shows a nearly quintupled number of weather-related loss events in North America for the past three decades, compared with an increase factor of 4 in Asia, 2.5 in Africa, 2 in Europe and 1.5 in South America...Climate change particularly affects formation of heat-waves, droughts, intense precipitation events, and in the long run most probably also tropical cyclone intensity.'" Ben German in The Hill.

Gasoline is cheap in swing states. "Gasoline prices are as predictable a political issue in a presidential election campaign as taxes or unemployment, even though presidents have little if any control over them...So how big an impact might gas prices have on the outcome of the election?...[G]asoline prices are below the national average of $3.75 a gallon in most of the swing states -- Virginia, Florida, Iowa, Colorado, Michigan and Pennsylvania -- that could determine the victor. Ohio, potentially the most pivotal state, has a price of $3.55 -- among the cheapest in the nation. The big exception is Nevada, where the average gallon of regular gasoline is $3.95, 20 cents above the national average." Clifford Krauss in The New York Times.

Wonkbook is produced with help from Michelle Williams.

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