Counterparties: Green shoots in the housing market

By Ben Walsh
August 8, 2012

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It’s now five years since August 2007, which means that the US is now halfway into its very own lost decade. There is, however, a bit of good news coming from the housing market, as the WSJ’s Nick Timiraos reports:

Prices rose by their largest percentage in at least seven years during the second quarter, propelled by low inventories of properties for sale and high demand for bargain-priced foreclosures… Prices rose by 2.5% in June from a year ago, and by 6% from the previous quarter, said CoreLogic Inc., a Santa Ana, Calif., data firm. The quarterly jump was the largest since 2005… Separately, Freddie Mac, which uses a different methodology, said home prices during the second quarter jumped by 4.8% from the previous quarter. That was the largest jump since 2004.

It’s been long enough since we last saw this kind of rise in home prices that Bill McBride of Calculated Risk thinks it’s worth remembering the economic effects even modest gains in home prices can have. There’s increased profitability at Fannie and Freddie, fewer homeowners with negative equity, lower mortgage delinquency rates, fewer fear-driven sellers adding to excess inventory, and increased private residential investment. That last data point, McBride says, is the “the best leading indicator for the economy”.

Still, that doesn’t mean that younger Americans are going to become home buyers en masse anytime soon. Not only does student debt loom over many first time buyers, but as Bloomberg’s Caroline Fairchild notes, median wages for college graduates fell 10% from 2009-2011 compared to 2007. As a result of this decreased cash flow, the workforce’s newest entrants prefer to rent; they’re delaying making other large purchasing decisions like cars, too.

That isn’t necessarily a bad thing. A less-indebted and more mobile population should be a source of economic strength. But if, as Felix thinks it will, the housing crisis lasts a full decade, those benefits will largely be wasted in a sputtering economy. We really need a housing recovery: let’s hope Calculated Risk is right, and Felix is wrong. – Ben Walsh

On to today’s links:

Tax arcarna
“Should I be preparing to leave the country?”: France’s wealthy react to proposed 75% top marginal tax rate – NYT

The market is one step ahead: as earnings growth slows, stock returns increase – Market Watch

Popular tax break silly, possible sign of national failure – Matt Yglesias

Good Ideas
Forget congestion pricing. Instead, pay commuters to drive outside rush hour – Arstechnica

Light Touch
Morgan Stanley pays $4.8 million to settle electricity price-fixing that cost consumers an estimated $300 million – Reuters
Treasury and the Fed would prefer “public shaming kept to a minimum” re allegations of banking rogue states – Reuters

Report: 16% of China’s wealthy have already left the country and 44% intend to soon – Economist

New Normal
Extended unemployment benefits weren’t “designed to deal with a stagnating labor market of the sort the US” now has – WaPo

The Fed
Bernanke’s “prolonged low interest rate environment has been hurting US households” – Credit Writedowns


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Affordability is a function of price, income, and interest rates. Incomes remain under pressure. Interest rates surely can’t drop much further, and should eventually rise. I don’t see much room for housing prices to increase in that environment.

I can imagine a “double dip” scenario in which we are rocked by a second steep recession (and prices fall further). I can imagine five to ten years of stagnation, in which housing values are eroded by inflation. But it is very hard to imagine a real recovery at this time.

Posted by TFF | Report as abusive

Good Counterparties today. In reading the comments on the commuting/congestion article (Good Ideas), it occurs to me that neither that author nor most of the commenters hold down commercial jobs (they seem largely academics). In my experience, most employers give lip service to flextime (especially the more extreme flextime that this plan entails), but in practice still schedule 4:30PM meetings, and have little tolerance for those who arrived at 6:30 or 7:00 in the morning. What say the rest of you?

Posted by Curmudgeon | Report as abusive

Curmudgeon, rather than pay people to change their driving habits, I would rather make mass transit in cities free. Add as many buses and trains as necessary, and pay for it with gas taxes and tolls.

I know, not gonna happen.

Posted by KenG_CA | Report as abusive

About this –

“Light Touch

Treasury and the Fed would prefer “public shaming kept to a minimum” re allegations of banking rogue states – Reuters”

Hunted (in vain) for the quoted words in the cited piece – but why be pedantic about details like that?

HSBC and StanChart – if these two willing and eager felony-participants in ongoing criminal enterprises don’t deserve the corporate ‘death penalty’ – who does?

Posted by MrRFox | Report as abusive


There you go! Being reasonable, constructive and sensible on us, eh?

What’s next? Are you gonna suggest that job creators should pay taxes?

You must be some sort of a commie :-)

Posted by Frwip | Report as abusive

France is an interesting country for taxes.

There is one group you are not going to see leave the country anytime soon, billionaires. People like Bernard Arnault and the such. If you think taxes (not) paid by the top 0.001% in this country are an outrage, then don’t look at what their peers (do not) pay in France. It would make you want to sing “Ah, ça ira” and reach for a guillotine.

Taxation for the very rich in France is literally (and I mean “literally” in a very literal way) a bargain, essentially a lump sum negotiated each year between such individuals (well, their advisers) and the Ministry of Finance, based on all sorts of factors far beyond the normal tax code. Amazing sausage making process.

But for the mere millionaire, wealthy professionals, entrepreneurs, SMB-owning families and the such, France is absolute hell and the gov just cranked the heat one more notch to show they are doing something.

If they really wanted to raise money, they would start looking in corporate tax avoidance by foreign investors through transfer pricing, non-taxation of interests, etc.

Posted by Frwip | Report as abusive

Frwip, you don’t want to get me started on taxes. My long rant would just kill this thread.

My take is that people who consider themselves job creators are usually the opposite, kind of like draft dodgers who claim others who served avoided service (I know it’s 8 years old, but it’s a great analogy).

I’m the opposite of a commie – I believe in the free market. I just want to eliminate the distortion and externalization of costs that are often employed by those who wish to control the market (and hence make it not free).

Posted by KenG_CA | Report as abusive

***Bernanke’s “prolonged low interest rate environment has been hurting US households”***

Low interest rates are designed first and foremost to support asset values, including the stock market, Treasury debt, and housing prices. There is a HUGE difference in implied value when you use a 2% implied discount rate rather than a 5% discount rate.

Interest rates only impact economic growth if people are investing, borrowing, and lending. Right now that activity remains subdued, except for mortgages to purchase/refinance houses that continue to trade at inflated values.

Posted by TFF | Report as abusive

re. Light Touch…

Gaming of the electricity markets is endemic; it was facilitated by deregulation, begun in the 1970s and continuing to this day. Like banking, the worst of deregulation came under Clinton.

Almost very “market” that has an independent system operator pays much higher rates than those which are do not. Regions with public power agencies or cooperatives pay some of the lowest rates.

Electric deregulation is financialization of electricity markets — privatized profits, socialized losses.

Posted by upstater | Report as abusive

For once I have to agree with Matt Yglesias, the proposal to exempt Olympic winnings from federal taxes is awful policy. Shame on Sen. Rubio, the President, and any other official who is supporting this moronic idea. Credit to Sen. Coburn and any other official who is opposing it.

Posted by realist50 | Report as abusive

Realist, thanks for pointing that out – I thought they were just going to exempt the value of the medals for taxes, which seems reasonable (they can be taxed as income when sold). But what surprises me more than anything is that Coburn is against a tax cut.

Posted by KenG_CA | Report as abusive

“Green shoots in the housing market”
The housing market gets measured, and measured, and measured, every day, in every way, with the hope that it is BIGGER.
Kinda of reminds me of a friend who bought…male enhancement” pills (OK penis pills). And he measured every day, in every way, with every type of measuring device, his penis. But the chicks don’t lie. Don’t buy the penis pills….

Posted by fresnodan | Report as abusive