Counterparties: Why your house is getting more valuable

By Ben Walsh
November 30, 2012

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Two things you don’t expect to see together are the nation’s highest foreclosure rate and a housing shortage. Yet as Bloomberg’s John Gittelsohn and Prashant Gopal report, that’s exactly what Stockton, California is experiencing right now. While there are lots of foreclosures, they’re not happening at heavily-discounted prices. “People see a foreclosed home for sale in this area and they’re going to jump on it”, said one longtime Stockton realtor.

There’s also evidence that Obama administration’s much-maligned foreclosure relief program is now picking up pace. Susan Wachter, a Wharton professor, was particularly impressed:

Changes to Obama’s loan-modification program had the biggest impact on reducing pending foreclosures since late 2010 by creating a template that lenders followed, Wachter said. That included incentives to compensate loan servicers for reducing principal on loans for delinquent borrowers. In January, the administration tripled the award to 63 cents for every $1 in writedowns.

Nationally, there’s been some very good housing news of late: the Case-Shiller home price index showed prices rising 3.6% nationally year-on-year. Especially impressive were the gains in areas that have been hard hit by the housing bubble: 20% in Phoenix, 7.6% in Detroit, and 7.4% in Miami.

Bill McBride of Calculated Risk points to new data showing that the government-supported refinance boom has been continuing. Refinancing has a smaller impact on the economy than does a boost in home sales, but it does provide a way for banks to finance a portion of the recovery by giving homeowners more cash to spend each month. In an economy that’s growing at less than 3% annually, even modest increases in consumer spending are helpful. One thing that certainly won’t help: unless Congress acts many of the very same homeowners who’ve gotten help from their lenders will see those savings taxed as income. — Ben Walsh

On to today’s links:

New Normal
The problem with the much-hyped return of US manufacturing: crappy pay – Felix

EU Mess
How Spain ended up with 25% unemployment – Sober Look

“It never gets easier, you just make more money” and 9 other rules for I-bankers – Epicurean Dealmaker

Tax Arcana
Most Americans pay less in total taxes than they would have 30 years ago – Binyamin Appelbaum

Jeff Gundlach is just waiting for “something to go kaboom” – Bloomberg

The Fed
Examining the dove-to-hawk ratio at the Fed – FT Alphaville

Financial Arcana
Wall Street is still trying to securitize energy efficiency loans to consumers – Slate

Philosopher Bankers
“Greg Davies, head of behavioral and quantitative investment philosophy for Barclays” – Forbes

An editor at passed a stock tip to his dad, then the FBI called – WSJ

Citigroup is lowering bonuses and cutting more banking jobs – Bloomberg

7 ways of looking at the news that Mitt Romney’s dad got free McDonald’s for life – Gawker

More From Felix Salmon
Post Felix
The Piketty pessimist
The most expensive lottery ticket in the world
The problems of HFT, Joe Stiglitz edition
Private equity math, Nuveen edition
Five explanations for Greece’s bond yield
8 comments so far

“Why your house is getting more valuable”

The supply of $ out-’n-about is rising faster than the supply of houses – duh.

Posted by MrRFox | Report as abusive

Your home isn’t getting more valuable, your dollars are getting less valuable. As MrRFox said.

Also, a large fraction of refinancing activity is either bringing down the mortgage term or bringing down the principal. This round of refinancing is part of the broader deleveraging process, and is not pushing consumption activity.

Posted by TFF | Report as abusive

@TFF – Did you check out this -

“The multi-billion-dollar fight for national sovereignty – Felix TV”

Embarrassing. (Plays smoother on youtube than TR’s site)

Posted by MrRFox | Report as abusive

Didn’t and won’t, sorry MrRFox. I find video annoying. Care to summarize?

Posted by TFF | Report as abusive

Best not to try that – the piece itself is the ‘best evidence’ of its contents. It came across to me as not particularly informative and insightful, which the best of FS’s stuff is. The light (to say the least) tone seemed at odds with the purported seriousness of the issues, as well.

Posted by MrRFox | Report as abusive

Uh, TFF and MrFox, then why aren’t we seeing across the board inflation?

Posted by KenG_CA | Report as abusive

KenG, it is because your labor is getting less valuable at the same rate. :-)

It is a natural tautology, but in this case I think there is some truth to both perspectives.

Posted by TFF | Report as abusive

@KenG – because money isn’t (for the time being) flowing into things measured by the CPI.

$40 billion a month is flowing into toxic MBS trash that cousin Benny is buying with QE3$ from his clan-members (and future paymasters) on The Street. Bet a bunch that the prices-paid for those dud-assets reflect this largess. We’ll just have to guess about that though – neither Benny nor his brethren will tell us who sold what, at what prices or on what terms – muppets don’t get to know that.

Posted by MrRFox | Report as abusive
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