Author Danny Vinik

The Housing Recovery Has Stalled

Danny Vinik Leave a comment

Over the past year, everyone has come to agree that a housing recovery is happening. It wasn’t happening everywhere, but overall , the country was seeing a housing revival. But over the past couple of months, this recovery has started to stall and most people haven’t noticed yet.

Look at housing starts:

Housing Starts.
Housing starts increased from the end of 2011 through most of 2012, but have since fluctuated between around 850,000/month and 1,000,000/month. In fact, starts are in a downward trajectory the last couple of months. In July, single-family housing starts fell 2.2%, against expectations of growth, to reach their lowest levels since November of last year. The data may be noisy, but the overall trend in 2013 is clear: housing starts have stalled.

So far, it’s not clear that people have noticed. Take Wonkblog’s Neil Irwin, who wrote about housing starts last week. He noted the dual forces of increased housing starts and rising mortgage rates, concluding:

But the July data is the first real evidence we’ve seen of whether higher mortgage rates will affect the housing industry more broadly. And the early signs, at least, are that builders are not being scared off by higher mortgage rates that make the houses they sell less affordable.

The data seems to tell the exact opposite story.

As Irwin notes, interest rates have risen dramatically since May:MortgageSince then, housing starts have fluctuated. The increase in July was just the result of a poor result in June. Housing starts are still below there May level. So, as mortgage rates have risen, are builders “not being scared off”? The answer is unclear. It’s certainly, not a “yes,” as Irwin writes. It’s also only a couple of months of data. But it’s worrisome data at that. The economy is already recovering at a tepid place and a slowdown in housing would further reduce it.

This is yet another fundamental reason that President Obama should nominate Janet Yellen to head the Federal Reserve. Yellen is more dovish than Larry Summers and at least one economist believes the recent rise in rates is because Wall Street fears a Summers-led Fed would reduce asset purchases faster than a Yellen-led one would. If Obama does select Summers and interest rates rise, it could lead to even further contraction in the housing market and hamper the recovery even more. Given the recent data, that’s not a risk the President should take.

Introducing A New Blog Title: Political Algebra

Danny Vinik 34 Comments

Some news about the blog today. The title “Across All Sports” is a thing of the past. I’m a bit sad to change it, as “Across All Sports” was a great representation of my work for many years. But those years are long gone as I rarely write about sports. The “Across All Sports” title just confused potential readers about the content of the blog.

So today, I’m retiring the title and introducing a new one: Political Algebra. It may not make sense at first, but let me explain a little bit. I was a math nerd in school and algebra was possibly my favorite subject. I loved solving for multiple variables using multiple equations. I found a beauty in taking complex equations and deriving answers from them.

In politics and policy, I see many similarities to algebra. The political world involves a number of complicated moving parts. Every Congressman, lobbyist and adviser has his or her own strategy and goals. Each one is a complicated equation with many variables. I can examine different bills – such as the immigration bill – and analyze which House members will vote for it, what could potentially switch their votes, and what that means for the odds of the bill’s passage. It’s certainly not an exact science – I can’t just line up two equations like in my algebra class – but it’s more than just guesswork.

As for the policy world, algebra matches up even better. When I look at different proposed policies, I evaluate them in two ways. First, in an ideal world, what’s the best solution to the given problem? Second, given the political constraints, is this solution feasible and if not, what is the best solution within those constraints? The two answers are rarely the same. But in both situations, I take complex topics and look at the theoretical models, academic research and empirical evidence on them. In this way, both policy analysis and algebra are academic exercises with concrete solutions. Algebra is just numbers and variables. There are no outside influences or biases involved – and that’s the standard I hold myself to in this blog as well.

Unfortunately, not every equation has a simple solution. You can’t always solve for every variable. The same is true in the political and policy worlds. I try to narrow down competing ideas and political analyses to simple, unbiased facts. Sometimes, those answers will be neat and clear-cut. Other times, they’ll be complicated and messy.

So, that’s the story of the new blog title. I hope it gives a better understanding to how I approach each issue and the goals of my blog posts. I’m also adding in a background to the site that will be up shortly – please let me know what you think of it, especially if it’s inhibiting your reading in anyways.

Lastly, I’m officially a DC resident full-time and am looking forward to delivering some first-hand reporting here. I’m very excited to get going so check back often to Political Algebra!