Tuesday, June 29, 2010

Government owns 46 percent of foreclosed inventory

Cross posted at Mises Economics Blog

The latest data for the S&P/Case-Shiller Home Price Index were released today. The home price index for April is still down considerably from the July 2006 peak:

As of April 2010, average home prices across the United States are at similar levels to where they were in late summer/early autumn of 2003. From their peak in June/July of 2006 through the trough in April 2009, the 10-City Composite is down 33.5% and the 20-City Composite is down 32.6%. The peak-to-date figures through April 2010 are -30.5% and -30.0%, respectively.

To paraphrase Donald Rumsfeld from a different context, it is close to impossible now to deny that the housing markets are in for a long, hard slog. Well, the places that have hit bottom are in for a slog. Some places, such as Las Vegas, are still on their way down. Comparing year over year, Las Vegas home prices actually fell 8.5 percent. April of 2009 was a disastrous month for home prices, but Vegas is now below even that.

This all assumes an owner's perspective, of course. It's a nice buyers' market out there right now for some people.

This is April data, so it doesn't compare directly to the May data I commented on here a few days ago, but the data continues to drive home the fact that home prices simply aren't going to bounce back. Thanks to bad public policy and perennial but unwarranted bullishness about real estate, lenders assumed that prices were going to bounce back. Consequently, mortgage servicers and investors have been dragging their feet on approving short sales and the liquidation of foreclosed properties.

Nevertheless, the holders of REO properties (foreclosed properties returned to the bank) are going to have to do something with them sooner or later. And worse yet, almost half of those REOs are held by the government:

Based on Radar Logic’s analysis, the federal government’s REO inventory — including homes owned by Fannie Mae, Freddie Mac, HUD, and the Department of Veterans Affairs (VA) — has increased steadily for over 24 months and now accounts for approximately 46 percent of the nation’s total REO supply.

Looking at information from the GSEs and HUD, Radar Logic says the government currently owns 209,500 homes as a result of foreclosure, and the company estimates there could be an additional 9,560 homes held by the VA, for a total of 219,060 government-owned foreclosed homes.

This will create additional downward pressure on prices for the foreseeable future.

In a larger context, the protracted growth of non-performing loans will likely continue to have a deflationary effect as lender portfolios contract with the value of residential real estate.

Monday, June 28, 2010

Twilight of the Economists

by Ryan McMaken

Cross posted at LRC blog.

The economics profession is experiencing a crisis of legitimacy. Well, not the whole profession, just the mainstream neo-Keynesian part that comprises the majority of the professional economist corps. Austrian economics, on the other hand, is in a state of renaissance since the old Keynesian sloganeering obviously isn't working anymore.

So, in response, an economist who works for the Federal Reserve, Kartik Athreya whines that the economics bloggers are mean and are undermining the real economists with PhD's who sit around with their computer models and debate whether the government should tax everything at a rate of 40 percent or 50 percent.

In reality, this isn't a matter of PhD's, since many brilliant economists from Ludwig von Mises to Joseph Salerno have had PhD's or an equivalent degree. So what Athreya really means is that non-PhD'ed economists -who point out the Olympus-like heights to which the non-Austrians have reached in being wrong about almost everything- should just shut up.

The Screed Against The Bloggers should be recognized as its very own genre of non-fiction now. It is a genre first developed by professional journalists who couldn't stand the fact that they were being upstaged by more informative, balanced and interesting bloggers who were gaining readership at the expense of the "official" organs of public information. Now the economists have joined in the game, and it's just as unseemly.

It is also worth noting, that there is no true real distinction between an economist with a PhD and one without. The National Association of Business Economists is filled with professional economists who lack PhD's but who are paid, professional economists. Yes, the economists with PhD's perhaps make up the majority of the NABE rolls, but Athreya's claim that real economists have PhD's is an arbritary novelty invented by Athreya in an effort to perhaps make himself feel better about all those years spent writing for obscure scholarly journals that no one ever reads.

Tax Credit Pumps Up Latest Home-Buying Bubble

by Ryan McMaken
Cross posted at Mises Economics Blog

Existing home sales did not do as well as expected in May, while new home sales fared even worse.

Last week's new home sales data released by HUD and the Census Bureau revealed yet again the underlying weakness in the housing markets in the United States. New home sales, not to be confused with existing home sales, fell 32.7 percent from April to May. The negative month-over-month change was expected by many in the real estate industry, although most major media outlets called the drop "surprising." The drop surprised no one who was watching to see the response to the expiration of the home buyer tax credit in April.

So, while the April to May drop was expected, the year-over-year drop signaled a significant lack of demand for new housing. From May 2009 to May 2010, new home sales dropped 18.3 percent. This is especially noteworthy since May 2009 was near the bottom of the market following the financial panic of late 2008.

One would be tempted to think that there was no where to go but up when comparing real estate trends to the first half of 2009, but the 18 percent drop put an end to that hope.

Existing home sales fared better. According to data released last week by the National Association of Realtors, existing home sales were up 2.2 percent from April to May and increased 19.2 percent from May 2009 to May 2010. The year-over-year increase from the doldrums of May 2009 was correctly anticipated.

Now, the lackluster performance of home sales in the absence of the homebuyer tax credit has spurred talk of extending the tax credit yet again. Staff at Moody's Economy.com admits that the proponents of the tax credit had miscalculated how the tax credit would stimulate home buying.

Some supporters had "expected the tax credit to pique buyer interest in a manner that would carry over for months following the credit's expiration." How exactly this was supposed to happen remains a mystery. Real estate agents who work daily with buyers knew that the tax credit was merely cannibalizing buyers from later in the year. In other words, people who were planning to buy in, say, August, moved up their plans to take advantage of the tax credit. There has been very little evidence that the tax credit created any significant number of buyers who hadn't otherwise been considering a home purchase.

Now, with many of the summer's buyers electing to purchase before the end of April instead, the summer is looking to be particularly grim for home purchasing.

The latest real estate bubble isn't much of an argument in favor of a tax credit with the sole purpose of increasing spending on residential real estate. All things being equal, tax credits are good because they mean more control can be exercised by the taxpayer over his or her wealth. However, a tax credit that exists only to convince people to spend more money faster is problematic.

The answer is not to end tax credits, but to make them far more broad. Why do renters not deserve tax credits? And why must one buy a house to get a tax credit? If the Keynesians in government want to really increase spending, shouldn't they just give everyone an $8,000 tax credit? Or they could cut tax rates.

Policymakers won't do this, however, because they fear that people would use such an open-ended tax credit or reduction to save money or pay off debt, which is totally unacceptable for the Paul Krugmans of the world.

Politics explains a lot in this case also since renters simply don't enjoy a powerful lobby as do the real estate agents, mortgage brokers and home builders. Thus, tax "breaks" are written to subsidize a single industry rather than provide relief for the taxpaying population overall.

Even if the tax credit were extended again, it would not produce any income growth or job growth any more than did the last extension of the credit. Without job creation and income growth, there will not be any sustainable increases in demand for home buying. Despite many claims to the contrary, demand for real estate will improve when the economy produces jobs and income growth, and not the other way around.

The need for actual job growth will especially be seen among younger home buyers, or lack thereof. One of the ways that the home buying bubble was sustained during the last decade was to make home purchasing available to younger and younger segments of the population. Job creation during the bubble allowed for wildly optimistic estimates of future job prospects and earning power for twenty-something who then looked to homebuying as the next logical step. Combined with incredibly low requirements for down payments and credit histories, 25-year-olds were buying up houses.

Today, with unemployment among twenty-somethings at 25 percent, and with income growth near zero, there is nowhere from where to draw new households looking to buy houses. The tax credit can be extended, but like so many of the "stimulus" efforts that have been used in the last two years, this one may have run out of steam.

Personal Income Rises With Government Spending

by Ryan McMaken

Cross posted at Mises Economics Blog.

Personal income information released this week by the Bureau of Economic Analysis shows total personal income increasing 0.4 percent, or $54 billion, from April to May 2010. Year over year, personal income is up 1.6 percent, or $191 billion. In spite of recent growth, total personal income is still down $24.4 billion, or 0.2 percent, from the peak reached during May of 2008.

In short, personal income has gone nowhere over the last two years as it plummeted $479 billion, or 3.9 percent, from May 2008's peak to March 2009's nadir. It has generally increased each month since.

Now that personal income has nearly recovered to where it was during the peak time, it is important to look at where the income has come from.

Job creation has been extremely weak since 2008. More than 7 million jobs have been lost, and as new high school and college grads have entered the work force, there simply haven't been enough jobs to provide for growth in the work force. Hence, unemployment hovers near 10 percent, and job creation in the private sector is essentially zero.

So, how is it that income growth has recovered? The answer lies in what is included in the income numbers. Total personal income statistics include wages earned, whether from public-sector or private-sector jobs, and will also include wages from government-funded stimulus jobs such as highway construction and other similar projects.

But more important for our analysis here is the fact that personal income totals also include "personal current transfer receipts" which include "benefits received by persons for which no current services are performed." Such benefits show up as personal income in the form of Medicare, food stamps, unemployment compensation, public assistance and a variety of other forms of income.

While personal income peaked in 2008, then crashed and slowly recovered, income in the form of transfer receipts have only increased. At the same time that personal income fell 0.2 percent from May 2008 to May 2010, personal current transfer receipts increased 12.2 percent. During those two years, as personal income saw a net decrease of 24.4 billion, transfer receipts increased 244.3 billion.

Indeed, a look at the last ten years shows that transfer receipts increased far more, both in absolute terms and in percentage increases, during the last two years than during any previous economic downturn dating back at least to 1959. (Although, there are almost certainly would have been very large increases in transfer receipts had they been measured during the New Deal.)

Today, the Dow rallied on news that personal income had grown faster than spending and that households were beginning to save more. This would be excellent news if this income had been produced by increases in wealth and income in the private sector, but unfortunately, increased personal income, while not totally due to public sector spending, has been largely buoyed by public sector spending, and has been a very significant portion of the growth in income that is now being trumpeted as proof that the recovery is taking hold.

However, as long as income growth is largely dependent on public-sector spending, growth is just a matter of income being redistributed from net tax payers to tax receivers, which is largely why personal income continues to improve in spite of only very small gains in private-sector employment. Ultimately, however, economic "growth" that is driven by mere transfer payments, cannot be growth founded any any true creation of wealth.

Friday, June 25, 2010

Wilma Zeimmer, RIP

My grandfather's sister, Wilma Zeimmer, recently died back in Indiana. Requiescat in pace.

Here is the funeral home's obituary:

Born: January 14, 1912
Died: May 23, 2010

J. WILMA ZEIMMER, 98, of Fort Wayne, passed away on Sunday, May 23, 2010, at Coventry Meadow Nursing Home. Born Jan. 14, 1912, in Fort Wayne, she was a daughter of the late Henry W. McMaken and Jessie (Freck). She was a homemaker and member of Arcola United Methodist Church. Surviving are three daughters, Mary Grepke and Norma (Terry) Closson, both of Fort Wayne, and Janice (Bob) Bell of Geneva; stepdaughter, Roxanna Baker of Tucson, Ariz.; stepson, Ronald Zeimmer of Ashville, N.C.; brother-in-law, Kenneth Becktol of Roanoke; 15 grandchildren; 30 great-grandchildren; and eight great-great-grandchildren. She was also preceded in death by her first husband, Joseph Carroll; second husband, George H. Zeimmer; daughter Lorraine Schorey; sons-in-law, Stan Fink, Harry Beatty and Tom Grepke; brother, Herbert McMaken; sister, Margaret Van Hoozen; and grandchildren, Joey Grepke, David Fink and Mick Blockson.

Wilma was actually the last of 6 brothers and sisters to die. Not mentioned here are her other siblings: Ruth, Henry and Edith. The siblings were all born between 1902 and 1914 and they grew up on a prosperous farm in Aboite Township, Indiana.

Wednesday, June 23, 2010

Free Sholom Rubashkin!

Bill Anderson has an excellent piece on this case today:

This week, Sholom Rubashkin, who was the vice-president of what was once the largest kosher meat processing supplier in the world, was sentenced to 27 years federal prison for "financial fraud." Prosecutors had asked for 25 years, and this is essentially a life sentence for Rubashkin, who is 51. However, a lot of other people, including a number of former U.S. attorneys general, called for leniency and are outraged by this sentence that was motivated more by politics and not by the law.

I will go against all of them. Sholom Rubashkin, in my view, does not need "leniency." He needs to be freed, period, for the man is not a criminal, which is more than I can say for the people who hounded and prosecuted him and destroyed his business, Glatt kosher Agriprocessors of Postville, Iowa. Let me begin.

Rubashkin is a Hasidic Jew, his family having fled the U.S.S.R. after the Nazi invasion. They came to the United States and set up a butcher shop in New York City. After marriage in 1989, he and his new bride moved to Atlanta on shlihut to do kiruv (Jewish outreach). That same year, Rubashkin’s father started a kosher meat processing business in Postville to better enable Jews living outside of main Jewish centers to be able to obtain kosher meat.

Before Glatt kosher Agriprocessors began to expand its business, Jewish families could only purchase kosher meat from small butchers and specialty stores that catered to Jews. This made things more difficult for Jewish families who did not leave near these kinds of stores, but by expanding the amount of kosher meat for sale, the firm was able to bring kosher meat to regular grocery stores, which was not a small development for jewish families.

Read more.

Tuesday, June 22, 2010

The market for news

Cross-posted at the Mises Economics Blog: http://blog.mises.org/13055/the-market-for-news/

Historically, newspapers have made money in two ways. They make money from readers, and they make money from advertisers. Originally, most of the money that newspapers made came from readers. In the late 19th century and early 20th century the old newsboy sales model was based on incentives to move as many newspapers as possible at the highest possible price. Advertising was a source of revenue, to be sure, but not the primary source.

Over time, the emphasis would shift away from revenue provided by readers and toward advertiser revenue. Eventually, advertiser revenue would make up at least 70-80 percent of all revenue. Essentially, newspapers gave up on getting the readers to cover the full cost of the news a long time ago. The daily cost of a newspaper subscription is, more often than not, well below the cost of producing a paper copy of a newspaper. Until the last few years, the real money was to be made in advertiser dollars.

But with the significant decline in circulation (see here) advertisers know that they get less bang for their buck every month that circulation drops.

So, one day, after years of plummeting circulation and revenue, the newspapers suddenly realized they'd better get the readers to start paying for the news. Their most brilliant ideas revolved around erecting pay walls around content. In other words, the newspapers, to solve their revenue problem, returned to a revenue model that hadn't been used in decades. It hasn't been working out.

Mashable today carried a nice piece on some newspapers that are finally starting to look at innovative ways to make money. Primarily, they're finding ways new ways to make money off of advertisers.

The new innovation that some papers are showing results from the fact that some papers are finally starting to come to grips with reality. The new reality is that news can and will be produced without traditional newspapers.

For the last several years, the entire business model of the newspapers seemed to be "you'll miss us when we're gone, so give us money," which wasn't a rock-solid strategy to say the least.

But other organizations have already moved in to displace them. As the Mashable article notes, laid off journalists from closed and downsized papers have started to produce their own news. Here in Denver, at least one online newspaper aggregates news from a variety of blogs written by former newspaper writers and other bloggers. The blogs are sometimes funded by private firms, such as in the case of this real estate blog.

It has become clear that journalism will be funded, but that the new reality is far more decentralized, complex, and competitive.

The days are gone when one could ask "did you read the paper today" and everyone could discuss the same few news stories selected by even fewer news editors. Today, people can get the news they want, and different people are interested in different things. The market loves this kind of diversity and will move in to serve it in even more diverse ways.

The market is currently in transition, and transitions in the market produce winners and losers, but we're not sure yet who the big winners are in this. The losers are already pretty obvious. Capital needs to be moved to where it is demanded. That is to say, it will be moved away from physical printing presses and old-timey newspapers and toward new innovative leaders in delivering news. Some newspaper organizations will get learn to make money from this, and many will not.

Monday, June 21, 2010

Uh-oh, bigots don't like me

There's a web site called VDARE which many corporate web-surfing programs block for "racist content." They're a site that spins a variety of bizarre theories about the inferiority of non-Anglo Saxons and so on. Articles criticizing me for my moderately pro-immigration views have appeared more than once. On this site, a writer seems to (or at least did at one time) attribute to me the famous "Go back to Boston" tirade by Augustin Cebada of the Brown Berets. Comments that are a bit fiery for my tastes, and somewhat violent and in poor taste. And, I never wrote them. [Here is the original piece, although I don't want to link directly to such a site: http://www.vdare.com/misc/080514_pendleton.htm]

This is simply an occupational hazard of writing a lot, I suppose, since sooner or later, someone would attribute something to me that I never wrote. In my original posting in which I quote (without endorsement) Cebada's views, I did point out the hypocrisy of those who claim to be so horrified by such a statement, while supporting similar sentiments in favor of Anglos. My piece is basically a historical analysis, which is why I compare modern sentiments to those of John C. Calhoun, although for some people, everything is a cause for histrionics. [Here's the archived link, since my old blog posts prior to 2007 have been deleted.]

Which brings me to why I ever brought this up. The "racialists" (as they call themselves) who support these hyper-nationalistic views have twice now hurled insults at me in the comments section of the Mises Economics blog. Personally, I find it rather bizarre that some people have so much free time as to sit around starting fights over articles that were published 4 years ago. But there's a lot of variety out there I suppose.

Friday, June 11, 2010

Flat is the new 'up'

With the next several years looking quite grim, it seems that just neutral economic news will be good news.

From the Aurora Sentinel today:

Higher earners far from immune on foreclosure

AURORA | Not a single economic class or neighborhood in Aurora is immune to foreclosures.

Although foreclosures are more saturated in low-income neighborhoods, they are also dispersed throughout middle- and high-income neighborhoods, according to 2009 data from Arapahoe County.

Until recently, foreclosures were most prevalent in lower-income neighborhoods, among homeowners who were living paycheck to paycheck, afflicted with job losses and unable to pay their mortgages.

But as high unemployment persists and the aftermath of the recession continues to ripple across the state, wealthier neighborhoods with higher-income homeowners are becoming vulnerable to foreclosures as well.

Although the Arapahoe County Assessor’s office doesn’t track the incomes of people who have been affected by foreclosures, they do track the prices of homes that have been foreclosed upon.

Judging by those statistics, it’s evident that the rate of foreclosures has jumped from 2009 to 2010 in all levels of home prices — and, presumably in all economic classes.

“Every category did increase,” said Corbin Sakdol, Arapahoe County Assessor. “However, the heavy foreclosures are still in the $250,000 and below range.”

Since January, there were about 1,300 foreclosed homes in Arapahoe County in the price range of $250,000 and below, up from about 1,000 from January to June of 2009, Sakdol said.

In the price range of $250,000 to $500,000, there have been about 160 foreclosed homes since January, up from about 110 foreclosures in the same period of 2009.

The trend continues all the way up to the homes in the price range of $1 million and above. In that range, there have been 16 foreclosed homes since January, up from 11 in the same period of 2009.

Aurora still has the highest number of foreclosures out of any area in Arapahoe County, Sakdol said.

But data from the state of Colorado’s Division of Housing show that foreclosures are trending away from Aurora and into counties such as Jefferson, Douglas and Boulder.

“The fact that foreclosures have become more numerous in places like Douglas and Jefferson indicates that foreclosures are moving up the income scale,” said Ryan McMaken, community relations director for the state of Colorado’s Division of Housing. “We’re seeing movement in foreclosures toward areas that have more expensive homes, whereas they used to be centered in Denver, Adams, Arapahoe, and especially in Aurora.”

Foreclosures are quick to impact those people without college degrees, who most likely haven’t built coffers of savings to sustain them through a lull of unemployment, he said. That explains why the number of foreclosures were originally most concentrated in places like Adams County and Arapahoe County.

But since late 2008, as homeowners in high-income neighborhoods have slowly run out of money because of unemployment, they are now in the same position as those lower-income homeowners.

“The length of time that unemployment has been high is now starting to affect people with higher incomes because they are running out of savings,” McMaken said. “But people toward the lower end of the income scale are most impacted by the recession.”

Recent data suggests that the rate of people going into foreclosure statewide, including in Aurora, has reached a plateau.

McMaken said last month’s figures show the lowest foreclosure filings for counties since May 2009.

“Flat is the new ‘up’ in terms of good economic news,” he said. “Flat is what you like to see. Rather than foreclosures going up, if they can just stay flat for a while then you’re happy about that, and that seems to be what we’re looking at right now.”

Friday, June 4, 2010

#2 of ten things to not Tweet about

I especially enjoyed this one:

Translation: I don't have any actual knowledge about any actual industries. I just like to communicate about communications.

From The Oatmeal

More economic pain ahead

From my post at Libertarianstandard.com:

In the chart below, provided by chartoftheday.com, one can see how grim the job situation has become. The long term-trend experienced since 1961 has been abandoned for what can only be described as stagnation in job creation. As jobs remain flat, of course, the size of the job force will continue to grow as more young people graduate from college and secondary school. This is partly why unemployment among teens and twentysomethings is now about 25 percent.

According to chartoftheday.com:
Today, the Labor Department reported that nonfarm payrolls increased by 431,000 in May. It is worth noting that a large majority of last month's gain in payrolls was due to the hiring of temporary workers for the 2010 census. Today's chart provides some perspective on the US job market. Note how the number of jobs steadily increased from 1961 to 2001 (top chart). During the last economic recovery, however, job growth was unable to get back up to its long-term trend (first time since 1961). More recently, nonfarm payrolls have pulled away from its 40-year trend (1961-2001) by a record percentage (bottom chart). In fact, the number of US jobs is currently at level first reached in early 2000.

So far, the current "recovery" has produced a net loss of 133,000 jobs. During the same point in the last recovery (2003), the economy was adding 200,000 to 300,000 jobs per month. Calling the current situation a recovery is risible to anyone who is out looking for a job right now, especially since workers are now experiencing the longest periods of joblessness experienced in decades.

We can add to this the fact that the debt crisis in Europe has now spread to Hungary. So now, Greece, Portugal, Ireland, Italy, Spain and Hungary are all now facing serious debt crises and even risk of default. The European economy is in disarray, and investors were not pleased as the Dow plunged more than 300 points to below 10,000.

The homebuyer tax credits are gone, the stimulus is beginning to wear off, and there is nothing left that the feds can do to stave off another crisis since interest rates are already effectively zero and the federal government is more more broke than ever. State and local governments are in even worse shape.

Needless to say, this does not bode well for the "recovery."