If you want to take the temperature of the housing industry, the best place to go could be a car dealership.
Yes, you read that right. There is a strong correlation between the real estate market and auto sales particularly when it comes to the most iconic American vehicle of all, the pickup truck.
The reasons are piling up against selling your home.
One reason: Chances are, people who refinanced their homes from late 2008 through 2012 won't be able to secure the tantalizingly low rates they got back then when they buy a house now, according to research from the Institute for Housing Studies at DePaul University. So they'll stay put.
Economists Robert Shiller and Karl Case, experts in home prices, have been digging into the psyches of recent home buyers to figure out how they form expectations about home values.
Each year since 2003, the duo sent surveys to a random sample of 500 buyers in each of four metropolitan areas: Los Angeles and San Francisco (hot markets), Boston (a "cold" post-boom market) and Milwaukee (a relatively stable market.) They asked each buyer, among other things, to predict what would happen to the value of his or her home over the next decade.
The spectacular gain in home prices during the past two years is showing signs of leveling off, with month-to-month increases slowing down, according to a closely-watched index released Tuesday.
The Standard & Poor’s/Case-Shiller index shows that home prices last year posted the largest increase since 2005, rising 11.3 percent nationally in the fourth quarter from the same period a year earlier. Even more impressive gains were made when gauging prices in major metropolitan areas, including a 13.4 percent year-over-year increase in the 20-city index. Overall, average home prices are back to their mid-2004 levels.
The city of Junipero has a problem. Some of its citizens are starving, even as others gorge themselves on 28-course tasting menus. Food inequality has become a visible and painful symbol of class conflict. Activists accuse Junipero's foodies of snatching food from their neighbors' mouths. Some of the foodies have turned defensive, complaining aloud that people who forgot to pack a lunch are jealous of those who remembered.
It's five years after the worst of the housing crash, and we know a lot about the unsavory mortgage lending practices that helped bring it about. We even know how black and Hispanic people were disproportionately impacted by subprime lending, which led to a massive foreclosure wave in minority communities that still hasn't entirely cleared.
When the Federal Reserve began talking about scaling back its massive stimulus program this summer, the markets freaked out. But Americans? Not so much.
The Fed has been buying billions of dollars in long-term bonds each month to push down long-term interest rates and boost the housing market. The hint that the Fed might start winding down that program helped drive mortgage rates up an entire percentage point in 2013 a spike that some worried could damage the sector.
In something of an anticlimax, the Senate on Tuesday took a procedural vote that paves the way for Rep. Mel Watt (D-N.C.) to head the Federal Housing Finance Agency. Watt's nomination had been among a handful that Republicans had held up before Senate Majority Leader Harry Reid (D-Nev.) used the nuclear option, turning it into a hot debate over the role Fannie Mae and Freddie Mac should play in the housing finance system going forward.
Nouriel Roubini was one of the most presciently pessimistic analysts of the global economy in the run-up to the global financial crisis. And now he thinks it's happening again.
Roubini doesn't see bubbles in the places where they were most severe in the pre-2008 period. He doesn't mention the United States or Spain or Ireland. Rather, Roubini sees housing prices getting out of whack in quite a few small and mid-sized nations that are well-governed and managed to avoid the worst economic effects of the financial crisis: Switzerland, Sweden, Norway, Finland, France, Germany, Canada, Australia, New Zealand and the London metropolitan area in the U.K. He adds some key emerging markets that show the same dynamic: Hong Kong, Singapore, China and Israel, and major urban centers in Turkey, Indonesia, India and Brazil.
We asked earlier this morning if higher interest rates are killing the housing recovery. The answer provided by the latest data out Tuesday morning? A resounding 'No.'
The Commerce Department said Tuesday that the number of permits issued for new housing soared in September and October (the two months were released simultaneously due to the government shutdown). In August, builders took out permits to build new houses at an annual rate of 926,000 -- a number that rose 5 percent in September and 6 percent in October, leaping to 1.03 million. That is the highest since the summer of 2008.
One of the better tailwinds for the economy in 2013 has been a housing industry that is finally expanding. More homes are being built, more are being bought and sold, and they are trading at higher prices than they were this time a year ago.
But how dependent has that improvement been on ultra-low mortgage rates? And how much damage will the run-up in rates since the start of May do to the housing recovery?
Last week, the Bipartisan Policy Center co-hosted a fairly typical policy talkfest: Lawmakers, bankers, government officials, reporters, think tankers and other sundry wonks gathered at the Ronald Reagan Building in downtown Washington to talk about how to finally reform the sclerotic housing finance system.
Very early on a Wednesday morning in September, the city council of Richmond, Calif., did something that no American city had yet managed: It voted for a plan to wrest underwater mortgages from the hands of Wall Street, depriving investors of tens
of millions of dollars in order to save borrowers from foreclosure.
Way too small a share of federal housing expenditures is directed to those who need it most: low-income families who struggle to make rent. The main program serving those people is the Section 8 Housing Choice Voucher.
When it works, it works very well. The GAO has found it to be more cost-effective than other federal housing programs, and a randomized study found that housing vouchers significantly improve the health and happiness of all recipients. If those recipients use the vouchers to move to lower poverty areas, the vouchers lead to better income, employment, and educational outcomes.
After 7-hour meeting, it’s on: Richmond sticks with its plan to seize mortgages through eminent domain
After a marathon hearing that wrapped up in the wee hours of Wednesday morning, the City Council of Richmond, Calif., voted to allow the use of eminent domain to seize underwater mortgages, becoming the first city in the nation to take such a concrete step toward the novel and risky strategy for helping people avoid foreclosure.
The fate of the housing market, and the banks that profit from it, could come down to a single city council meeting in Richmond, Calif.
Tonight, the foreclosure-stricken town will decide whether the city will forcibly take underwater mortgages away from the investors that own them to keep people in their homes.
If you’re the typical American house hunter, might want to avoid looking at the following graph.
That’s right: According to the National Association of Realtors, it’s almost as hard to afford a house as it was back when the financial crisis started to hit in 2008. But is that good or bad for the economy?
Will Fischer, a housing expert at the Center for Budget and Policy Priorities, notes that in 2012 we spent about $270 billion in federal money subsidizing housing. Most of that didn’t go to the poor.
The part of this picture that gets the most attention usually is how heavily weighted upper-income subsidies are toward homeownership at the expense of renting. But more important is that households making over $100,000 a year — who represent less than 1 percent of households with severe cost burdens — get about 57 percent of the benefits from the programs included in the above chart. Our housing policy isn’t just heavily biased against renters. It’s hugely regressive too.
For policy ideas that have the potential of actually ending family homelessness, this report from the Corporation for Supportive Housing and the National Alliance to End Homelessness on “rapid re-housing” programs is a great place to start.
Two headlines today capture the forces that are pushing and pulling on the U.S. housing market: First, the Commerce Department reported Friday that housing starts rose to an 896,000 annual rate in July, way up from the 836,000 recorded in June. Builders are starting to build! But at the same time, in the bond market, interest rates are rising; the 10 year U.S. treasury yield rose to 2.84 percent Friday, the highest in two years. That in turn is putting upward pressure on mortgage borrowing costs.
Public Advocate Bill de Blasio is now in the lead in the Democratic primary race for New York mayor, garnering the support of 30 percent of likely voters, compared to 24 percent who favor City Council Speaker Christine Quinn and 22 percent who favor former comptroller Bill Thompson. Meanwhile the GOP primary is heating up, with former MTA chair Joe Lhota beating millionaire grocery magnate John Catsimatidis by six points, after leading by 14 only a few weeks ago.
When writers are forced to discuss the complicated world of housing reform, as they have had to do after President Obama's recent housing speech, they usually rush to one of two meta-conversations.
The first is whether or not we emphasize homeownership too much, and whether we should encourage more people to rent.
A dialogue of nerdiness.
To: Mike Konczal, Dylan Matthews
From: Jim Tankersley
Wednesday afternoon, Zillow CEO Spencer Rascoff did a half-an-hour question and answer session with President Obama on the housing plan he laid out Tuesday. The whole time, ZIllow's logo played on the screen, giving the real estate listing Web site more visibility -- and credibility -- among thousands of viewers who are probably more interested in buying a home than your average bear. The markets knew that would be a great idea: When the Q&A was announced on Monday, the company gained $250 million in value, as its stock took a huge jump after a few months of steady growth.
Yesterday, President Barack Obama delivered the third in a series of big economic speeches, this one about housing. Despite a remarkable market recovery, things still need fixing: Millions are stuck in underwater mortgages, parts of the country still have vast tracts of blighted and abandoned land, and several cities have supply crunches so severe that only the wealthy can afford to live there. Meanwhile, Fannie Mae and Freddie Mac are still around, under conservatorship, in a state of suspended animation.
For years, the Obama administration and regulators have been working to find ways to make it easier for Americans to refinance their mortgages, so that low interest rates might do more to stimulate economic growth. The president announced new proposals just this afternoon that includes streamlining paperwork, waiving closing costs for those with shorter-term loans and allowing families without government-backed mortgages to qualify.
Over the past few weeks, a quiet effort to deal with a pair of housing finance agencies still in conservatorship has been quietly trudging through committees in the House and Senate. There are now two bills in the hopper to overhaul the system, and battle lines are starting to form. Ellen Seidman, a senior fellow at the Urban Institute who's done the rounds of regulatory agencies and helped on a recent reform proposal, describes the camps in simple terms:
Today's Metro section has an excellent, long investigation of what went wrong at Temple Courts and Sursum Corda, the ramshackle collection of low-income housing, a few new residential buildings and parking lots a few blocks from Union Station in Washington, D.C.
The story in a nutshell: Big, complicated public land deals involving private investment, churches and mixed-up property records are really hard to pull off. When residents are moved out with the promise of returning to shiny new buildings, something nearly always goes awry.
Every few months, someone predicts the death of Silicon Valley--or at least, the rise of whatever city will supplant it. Most recently, it's Derek Thompson at The Atlantic , who heard Brookings Institution scholar Bruce Katz say on an Aspen Ideas Festival stage that young and tech-savvy people want to move to cities, and Silicon Valley just isn't, outside the hyper-expensive San Francisco. Katz, who's out with a book heralding the ascendance of metropolitan regions, says this jeopardizes the Bay Area's continuing preeminence as the epicenter of the tech economy.
James Bullard, the president of the Federal Reserve Bank of St. Louis, dissented from the Fed's policy statement Wednesday, arguing that it was unwise to start addressing an exit from quantitative easing policies when inflation has been falling and growth has been modest. He sat down with us Friday morning at the Madison Hotel in Washington to discuss his dissent, his views on the state of the economy and why Wednesday's Fed policy move represents a more hawkish FOMC. This transcript is lightly edited for length and clarity.
A couple years ago, New York Mayor Michael Bloomberg had a clever idea for dealing with cities like Detroit, whose populations are dwindling: let immigrants live there.
At the time, a spokesperson for Detroit Mayor Dave Bing dismissed the idea, saying, "There are things that would have to be considered before we just open the flood gates and say everyone come in." But new research from Jacob Vigdor, an economist at Duke, suggests that opening the floodgates a little bit might be worth it.
Home prices have been soaring over the past year, the sharpest gains in seven years; construction activity is picking up nicely. Both trends have been driven in no small part by a steady drop in home mortgage interest rates, which have made homeownership too good a deal to pass up for millions of Americans.
As surely as Guns N' Roses's "Chinese Democracy" is in the iTunes store and Duke Nukem Forever is on Steam, the fourth season of "Arrested Development" is, after seven years of hints and speculation, finally on Netflix.
The show's always had a political bent and the latest iteration is no exception. But while the first three seasons deal with the Iraq War, what with George Sr. making "lightly treasonous" deals with Saddam Hussein and Lucille forcing Buster into the Army because of taunts from a Michael Moore-like documentary maker, the fourth focuses on what the housing crash did to this family of real estate developers.
At some point during the 2000s, America reached an unexpected milestone: There are now more poor people living in the suburbs than in the inner cities.
That stat comes from a big new Brookings Institution book by Elizabeth Kneebone and Alan Berube, Confronting Suburban Poverty in America . They find that between 2000 and 2011, the number of suburban poor in the United States grew by 64 percent — more than double the rate in the cities:
We're still stuck in the muck.
That's the conclusion to draw from the new report on gross domestic product. The U.S. economy grew at a 2.5 percent annual rate in the first three months of the year, which was an improvement from the weak 0.4 percent of the final months of 2012. But Friday's report was nearly a percentage point below analysts' expectations, and for the last six months, number averages to only a 1.45 percent annual rate of growth.
Three months ago, when the Commerce Department reported crummy economic growth numbers, there was a saving grace.
Sure, GDP had shown a surprising 0.1 percent drop in the final months of last year (later revised to a 0.4 percent gain). But it was mostly for fluky reasons that would reverse later on. Businesses cut back on inventories, for example, and there was a steep and not well understood drop in reported defense spending. Growth should, by all rights, snap back in the first quarter of 2013, economists said then.
The housing market, finally, is recovering. Home prices are up 8 percent over the past year. And that is providing relief to a particular set of homeowners the underwater borrowers who owe more than their properties are worth. Over past year alone, 1.7 million homeowners have climbed out from being underwater.
Nowadays, younger Americans are becoming less likely to take out loans to buy a house or a car. One possible reason? They're too overloaded with student debt.
The paper starts by noting that student debt has grown dramatically over the last decade — some 43 percent of Americans under the age of 25 had student debt in 2012, with the average debt burden now $20,326. By contrast, back in 2003, just 25 percent of younger Americans had debt, and the average burden was $10,649.
It's critically important that we understand what went wrong in the financial market institutions that manage the mortgage market, both during the bubble and the crash.
One of those institutions is the mortgage "servicing" industry, which is responsible for collecting payments and handling problems for securitized mortgages. It is at the center for those seeking justice for past wrongdoing, and crucial for writing new regulations to prevent trouble in the future.
Here are two numbers that anybody who wants to understand the job market should look at: Builders started work on 27.7 percent more homes in February than they did a year earlier. Yet the number of construction jobs in the United States was only 2.9 percent higher, year-over-year.
Housing is finally coming back. But the construction jobs isn't. Why is that happening, and when might it change? A deeper dig into the data by economists at Goldman Sachs gives some answers. And it boils down to two words: Labor hoarding.
Friday morning, when the Labor Department puts out its February jobs report, it will be the latest window into the fundamental clash that is key to understanding the United States economy in 2013.
It pits on one hand the positive factors from the private sector driving the U.S. economy ahead, particularly a surging housing market but also rising stock prices and consumers who have made great progress in reducing their debt burdens. And on the other hand is a federal government that is tightening fiscal policy—through tax increases included in the fiscal cliff deal at the end of 2012, spending cuts in the debt ceiling deal of 2011, and now the sequester of immediate spending cuts that started March 1.
Here's how strange things have gotten in the world of housing finance. Fannie Mae and Freddie Mac, along with their regulator, are doing more to dismantle themselves than Congress can be bothered to do. Monday their regulator, Ed DeMarco of the Federal Housing Finance Agency, said that a new company will be formed that will do much of the back-office work of both firms, setting the stage for whatever Congress decides to do next to overhaul the mortgage sector.
Bloomberg Businessweek's bold adventures in cover art took a regrettable turn this week.
The image suggests that greedy minority homebuyers are trying to cash in on America's housing recovery—as some had accused them of doing the first time around. The actual story is far tamer: There are no racial insinuations and it suggests that it's just the natural search for profit — not untrammeled greed — that's driving the housing rebound. But the story also fails to answer the question that its controversial cover so blatantly raises in the first place: What caused the housing meltdown, and what should we be concerned about this time around?
Well, that didn't take long. After a blistering run over the last few months, the level of housing starts took a big step back in January, falling 8.5 percent. It is the first major read on the state of the housing market in 2013, and, at first glance at least, it isn't a very happy one.
Recall that most forecasters are counting on a housing surge to be one of the major drivers of economic growth this year, at a time when government is cutting back. If that optimism proves to be misplaced, this could turn out to be a gloomy year indeed.
In his response to the State of the Union, Sen. Marco Rubio said: "This idea that our problems were caused by a government that was too small it's just not true. In fact, a major cause of our recent downturn was a housing crisis created by reckless government policies."
For obvious reasons, this argument is very popular on the right, but there's precious little to back it up. The core claim can be a bit slippery, but it tends to go something like this: the existence and affordability goals of Fannie Mae and Freddie Mac (the GSEs) and the Community Reinvestment Act (CRA) were a major reason we had a subprime-driven housing bubble and then a crash. The only problem? Pretty much all the evidence on the housing crisis shows that that's not true.
This is the first of three posts looking at how the economy will do in 2013. Today, we consider why the fundamentals of the U.S. economy point toward a good year. On Thursday and Friday we'll look at the biggest risks to that positive outlook, first that the federal government will mess it all up, and second that international troubles could reemerge and dampen Americans' prospects.
Wall Street is betting big on housing. And that could bode well for the economy in 2013.
The highest return among stocks in the Standard & Poor's 500 index for the year so far is Pulte Homes, the major homebuilder; as of Wednesday morning it had returned investors 195 percent. No. 6 on the list is Lennar Corp., a Pulte competitor. S&P's overall index for the homebuilding industry is up 59.4 percent this year, and across the homebuilding industry, sentiment rose to its highest level since the middle of 2006, the National Association of Homebuilders said Tuesday.
More than anything, President Obama wants to fight inequality. As my colleague Zach Goldfarb has reported, that's become the president's major priority for his second term. To that end, he's pushing hard to raise top marginal income tax rates back to where they were under Bill Clinton. But House Republicans have made it clear that they won't have that, even if they concede that more revenue is necessary.
Lately, there has been quite a bit of excitement that the big overhang of debt left over from the financial crisis may be starting to ease. Treasury Secretary Timothy F. Geithner has noted that there's been a "significant reduction" of debt, and a number of indicators point to American households getting their finances in better shape.
There is a dirty little secret about economics writing. The thing that offers the surest path to glory to front page play for a story, to lots of Web traffic, to a pat on the back from editors is doom and gloom. When we can point out something that is awful, whether it is a collapsing job market or rising poverty or skyrocketing gasoline prices, the world seems a whole lot more interested in what we have to say. It's not for nothing they call economics the dismal science.
A housing comeback is now underway; that much is clear. Adding to a steady drumbeat of positive data for the sector, new data on Tuesday showed a surprising 3.6 percent gain in housing starts in October, which came on the back of a 15.1 percent rise in September.
The question now is how strong it will be and where it will take place. And to answer those questions it helps to look into the fundamentals of the major U.S. housing markets. These numbers suggest the future for housing is looking bright in the Atlanta, New York, and Chicago metro areas. But that's getting ahead of things.
The Queen of Versailles began as a documentary about a time-share billionaire, his ditzy wife, and their grotesque quest to build the largest house in the United States of America. It ended as perhaps the single best film on the Great Recession.
The movie was supposed to be about conspicuous consumption. David and Jackie Siegel were building a 90,000 square foot palace nicknamed "Versailles." The documentarians wanted to see what kind of people would do that. So they embedded with the Siegel family.
Here’s some encouraging economic news. Housing has long been a weak spot in the U.S. economy, but the sector appears to have performed exceptionally well in September.
New housing starts rose 15 percent last month, while the number of housing permits issued rose 11.6 percent, according to new Census Bureau data.* That was far ahead of what anyone had expected—analysts were predicting a mere 1.1 percent rise in permits. There’s also been a significant improvement since last year, with permits now up 45.1 percent over their level in September 2011.
One of the big drags on the U.S. economy right now is the housing market. Among other problems, about 10.8 million Americans are “underwater” on their mortgages right now — these are homeowners who owe more than their houses are currently worth.
Why is this a problem? For starters, underwater homeowners are more likely to fall into foreclosure, further depressing the housing market. Second, these homeowners can’t sell their homes and move without incurring a steep financial penalty. That’s a big impediment for young people who might want to seek jobs elsewhere — the research firm Zillow has estimated that nearly half of homeowners under the age of 40 are underwater right now. And it’s a drag on states like Nevada, which has both high underwater rates and high unemployment.
Housing policy has always gotten short shrift from the Mitt Romney campaign. It was, for instance, notably absent from its 59-point economic plan. To make matters worse, the candidate himself seemed to be having trouble choosing a direction. First he said: “Don’t try to stop the foreclosure process. Let it run its course and hit the bottom.” Then he argued that “the idea that somehow this is going to cure itself by itself is probably not real.”
The strongest case against the Obama administration’s economic policy goes something like this:
Early on, the Obama administration misunderstood the unusual nature of the crisis. You can see it in its forecasts, which predicted a rapid, “V”-shaped recovery even if Congress didn’t pass a stimulus bill. And you can see it in the administration’s policies, which focused on supporting the financial system while it kickstarted growth by putting people back to work, handing out tax cuts and stopping state and local governments from laying people off.
I mentioned below that there might be a legal barrier to Barack Obama firing chief Fannie and Freddie regulator Edward DeMarco, as the heads of independent agencies have to be fired for cause. This could frustrate liberals such as Paul Krugman who want DeMarco gone. But Adam Levitin, a professor at Georgetown University Law Center who is an expert on housing finance law, informs me that this worry is misplaced. Obama may not be able to fire DeMarco, but he sure can replace him. Here’s Levitin:
Note: A previous version of this post mischaracterized the proposal DeMarco rejected today.
Remember Ed DeMarco? He runs the Federal Housing Finance Agency, which was created in 2008 after the government’s takeover of Fannie and Freddie as an independent regulator of those firms. For the past year, he has been under pressure from liberal groups, congressmen like Barney Frank and economists like Mark Zandi to use that authority to help homeowners. He could, for instance, allow a mass refinancing of mortgages, granting a reprieve to families that are underwater (that is, owe more than their homes are worth). The effect could be a substantial stimulus, one which members of both parties support. Glenn Hubbard, one of Mitt Romney’s top economic advisers, has proposed a plan along these lines. Or he could have let Fannie and Freddie borrowers use the Treasury’s principal reduction plan, HAMP, so they’re paying interest on less mortgage.
“On July 1, Canada Day, Canadians awoke to a startling, if pleasant, piece of news,” writes Canadian author Stephen Marche. “For the first time in recent history, the average Canadian is richer than the average American.”
His source is a recent study by Environics Analytics WealthScapes, which concluded that the average Canadian has a net worth of $363,202 to $319,970 for the average American. I figured I’d check that figure against other estimates. It turns out, if anything, it lowballs Canadians’ wealth advantage.
Wells Fargo has agreed to pay at least $175 million to settle federal accusations that it had discriminated against Hispanic and black homebuyers, charging them higher mortgage rates. And new research may corroborate the Justice Department’s belief that there’s systemic discrimination in the housing market: A paper for the National Bureau of Economic Research finds that black and Hispanic homebuyers pay more for their homes, irregardless of their income, wealth, and credit profiles.
Ever since the financial crisis hit, Americans have found it harder and harder to live on their own. According to a new report (pdf) from the Census Bureau, the number of “shared households” increased by a whopping 2.25 million between 2007 and 2010:
In spring 2007, there were 19.7 million shared households. By spring 2010, the number of shared households had increased by 11.4 percent, while all households increased by only 1.3 percent.
The direct loss of wealth from dot-com bust was about the same size as from the housing meltdown. Perhaps even a bit less. So why did one create so much more economic damage than the other?
The difference, writes Peter Orszag, is that the housing crisis took place in “the highly leveraged financial sector.” And that’s why all the models missed the damage it would do: “The macroeconometric models used by the Fed -- like those used by the Congressional Budget Office, the White House and others -- had at best a very rudimentary financial sector built into them.” So “they treated the housing collapse as if it were merely dot-com bust 2.0.” And that’s still the case today, he says. Yikes.
The Obama administration has announced this morning a $26 billion fraud settlement with five of the nation’s banks over their flawed and fraudulent foreclosure practices Here’s what you need to know about it:
Why did foreclosure practices come under scrutiny in the first place? In September 2010, Ally Financial halted foreclosures in 23 states after discovering flaws in the way the eviction paperwork was processed. The company’s action came after a lawsuit was filed in which a single employee of Ally was accused of signing off on tens of thousands of foreclosures without properly reviewing the documentation. It soon became clear that this so-called robo-signing issue and other types of forgeries and shortcuts were widespread problems throughout the mortgage industry. Soon, other banks were joining Ally in freezing foreclosures. Less than two weeks later, J.P. Morgan Chase and Bank of America both announced that they would temporarily stop foreclosures in some states due to concerns over improperly prepared documents.
“I’ll be honest,” President Obama said this morning, “it didn’t work at the scale we’d hoped.” He was talking, of course, about the administration’s housing policy. And he was arguing that there was a way to fix it.
For the Obama administration, housing has been the toughest nut to crack. HAMP, a program meant to help underwater borrowers renegotiate their principal, is widely considered a failure. HARP, a program meant to help homeowners with mortgages backed by Fannie Mae and Freddie Mac refinance their loan, has underperformed. And while there are many issues where the administration can say they did absolutely as much as Congress would permit them to do, on housing, the White House made clear mistakes, including failing to nominate a director for Fannie Mae and Freddie Mac until November 2010 -- long after Democrats had lost their supermajority in the Senate.
Allan Sloan joins the movement. And over at the New York Fed, Joseph Tracy and Joshua Wright make quick work of the argument that the benefits of lowering payments for households are fully offset by the drawbacks of reducing payments to investors — as they note, and as you can see on the chart above, 47 percent of mortgage-backed securities are owned either by foreign investors or the federal government. Remember, this is that rare economic policy Obama could pass on his own.
From 2001 to 2003, Glenn Hubbard served as President George W. Bush’s chief economist. Today, he’s dean of Columbia University’s School of Business and one of Mitt Romney’s top economic advisers. But right now, the candidate who could most benefit from his advice is President Obama.
Hubbard is an advocate for using Fannie Mae and Freddie Mac to set off a nationwide wave of mortgage refinancing. In a paper co-authored with Columbia economist Christopher Mayer, Hubbard estimates that more than 75 percent of the homeowners with 30-year mortgages backed by Fannie or Freddie are paying interest rates higher than 5 percent. But for the past two years, interest rates have been closer to 4 percent. That means tens of millions of Americans are paying more than they need to every single month.
America has a problem: We’ve got too many houses and not enough people with the money or inclination to buy them. So we need one of two things: either fewer houses, or more people who have the means and the desire to buy a house.
Some banks are trying to go the “fewer houses” route. They’re paying to demolish vacant properties. But Sens. Chuck Schumer and Mike Lee have a better idea: There are people with the money and desire to buy a house in America who aren’t currently allowed to live in America. Why not get them over here and let them buy a home?
Earlier today, I summarized Macroeconomic Advisers’s analysis of a mass refinancing scheme. Joseph Gagnon, a fellow at the Peterson Institute for International Economics, took a look and he thinks they have underestimated the possible benefits. He e-mails his reasons:
1. They took a recent CBO study for their low range estimate of takeup of 10% and then added a high range estimate of 30%. But you should be aware that the CBO study assumed the 10-year Treasury yield would be 3.8% not the 2% that it currently is. At 3.8%, relatively few borrowers would want to refinance anyway. At 2%, the vast majority of borrowers will want to refinance. Of course, some of them will be able to do so without HARP, but many of them cannot. At current rates, I would say 30% is a low range estimate of additional refinancing from a HARP reform that truly removed the roadblocks to refinance.
Dave Weigel rounds up the mushy answers the Republican candidates gave Tuesday night when asked about the foreclosure mess. Here, for instance, is Bachmann:
I’m a mom. I talk to these moms. I just want to say one thing to moms all across America tonight. This is a real issue. It’s got to be solved. President Obama has failed you on this issue of housing and foreclosures. I will not fail you on this issue. I will turn this country around. We will turn the economy around. We will create jobs. That’s how you hold onto your house. Hold on, moms out there. It’s not too late.
Hoo boy. Conservative economics blogger James Pethokoukis is also unimpressed, and he offers three better answers the candidates could give next time. I’m still left yearning for the jobs debate on Earth 2.
Lately, the Obama administration has been talking up a proposal to get Fannie Mae and Freddie Mac to knock down the barriers keeping underwater homeowners from refinancing their mortgages. Columbia University’s Glenn Hubbard, who led the Council of Economic Advisers under President George W. Bush, is calling for a more ambitious version of the program.
A mass refinancing effort would basically encourage creditworthy homeowners to take advantage of low interest rates by getting a new and cheaper mortgage on their house. The hope is this will keep underwater homeowners away from foreclosure and help other homeowners save some money. But what is it likely to do for the economy? There have been estimates suggesting it would be equivalent to an $80 billion tax cut. But Macroeconomic Advisers is out with a detailed assessment of the policy, and their predictions aren’t very impressive: “At most, such a plan might boost GDP growth by 0.1 to 0.2 percentage points,” they write.
Christina Romer had traveled to Chicago to perform an unpleasant task: she needed to scare her new boss. David Axelrod, Barack Obama’s top political adviser, had been very clear about that. He thought the president-elect needed to know exactly what he would be walking into when he took the oath of office in January. But it fell to Romer to deliver the bad news.
So Romer, a preternaturally cheerful economist whose expertise on the Great Depression made her an obvious choice to head the Council of Economic Advisers, gathered her tables and her charts and, on a snowy day in mid-December, sat down to explain to the next President of the United States of America exactly what sort of mess he was inheriting.
Axelrod had warned her against pulling her punches, and so she didn’t. It was not a pleasant presentation to sit through. Afterward, Austan Goolsbee, Obama’s friend from Chicago and Romer’s successor, remarked that “that must be the worst briefing any president-elect has ever had.”
But Romer wasn’t trying to be alarmist. Her numbers were based, at least in part, on everybody else’s numbers: There were models from forecasting firms such as Macroeconomic Advisers and Moody’s Analytics. There were preliminary data pouring in from the Bureau of Labor Statistics, the Bureau of Economic Analysis and the Federal Reserve. Romer’s predictions were more pessimistic than the consensus, but not by much.
By that point, the shape of the crisis was clear: The housing bubble had burst, and it was taking the banks that held the loans, and the households that did the borrowing, down with it. Romer estimated that the damage would be about $2 trillion over the next two years and recommended a $1.2 trillion stimulus plan. The political team balked at that price tag, but with the support of Larry Summers, the former Treasury secretary who would soon lead the National Economic Council, she persuaded the administration to support an $800 billion plan.
The next challenge was to persuade Congress. There had never been a stimulus that big, and there hadn’t been many financial crises this severe. So how to estimate precisely what a dollar of infrastructure spending or small-business relief would do when let loose into the economy under these unusual conditions? Romer was asked to calculate how many jobs a stimulus might create. Jared Bernstein, a labor economist who would be working out of Vice President Biden’s office, was assigned to join the effort.
Romer and Bernstein gathered data from the Federal Reserve, from Mark Zandi at Moody’s, from anywhere they could think of. The incoming administration loved their report and wanted to release it publicly. Romer took it home over Christmas to double-check, rewrite and pick over. At 6 a.m. Jan. 10, just days before Obama would be sworn in as president, his transition team lifted the embargo on “The Job Impact of the American Recovery and Reinvestment Act.” It was a smash hit.
“It will be a joy to argue policy with an administration that provides comprehensible, honest reports,” enthused columnist Paul Krugman in the New York Times.
There was only one problem: It was wrong.
Americans have been migrating from coastal states such as New York and California to Sunbelt mainstays such as Texas for quite some time now. But why? Are wealthy New Yorkers fleeing from oppressive tax rates? Are poorer residents in cities such as San Francisco being priced out? Alon Levy sifts through the IRS data to get a better sense of who are actually packing their bags. And most of the migration, it turns out, appears to involve middle-class families who are seeking affordable housing: “The people moving to the Sunbelt,” he concludes, “really are being priced out.”