Category Economic Policy

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.

Yes, Eminent Domain’s Use in Richmond, CA is Pure Fraud

Danny Vinik 4 Comments

Let the lawsuits begin.

I wrote last week about Richmond, CA had been duped by Mortgage Resolution Partners (MRP) into using eminent domain to “help” underwater borrowers refinance their homes through principal reduction. MRP supplied capital to the city so that it could purchase the mortgages from investors. Except MRP refused to pay more than 85% of the value of the home. For borrowers who were current on their mortgages, this was a blatant rip off. The value of those mortgages would likely be worth more than 85% the value of the original loan, significantly more than the value of the home. The question was: Were borrowers who are current on their loan part of Richmond’s plan?

The answer is a resounding yes and now investors have filed suit against the city:

The initiative has targeted mainly the loans of borrowers who are current on their payments, which make up 444 of the initial batch in Richmond, where the city council still hasn’t formally authorized the use of eminent domain. Mayor McLaughlin vowed to take the step on a July 30 call with reporters.

Richmond is going after 624 loans, of which more than 70% are held by borrowers current on their mortgages! This is an absurd rip off for investors, who are claiming they’ll lose $200 million under the plan. I’m not sure if that $200 million figure is right, but investors certainly will lose a huge amount of money. I can’t see how any judge will be fooled into thinking this is the “market value” of the loans. I’m pretty shocked that Richmond fell for MRP’s idea. This is just so blatantly illegal. It’s fraud. Yves Smith has more here, but all you have to know is that MRP is using Richmond to defraud investors and the city will ultimately pay the price.

PolitiFact vs. the Liberal Blogosphere

Danny Vinik Leave a comment

There was a bit of a dust-up between liberal bloggers and the fact checking site PolitiFact yesterday over House Majority Leader Eric Cantor’s (R-VA) comment this weekend that the government should be “focused on trying to deal with the ultimate problem, which is this growing deficit.” The deficit isn’t growing. It’s shrinking at a rapid pace, but PolitiFact rated the statement as “half-true.” So, what gives? How can the deficit be shrinking and Cantor’s statement be half-true? Let’s take a look:

Steve Benen, one of the first bloggers to jump on PolitiFact today, wrote about Cantor’s comments the day before. In fact, he quoted the following exchange in his post:

CANTOR: Here is the problem. What we need to have happen is leadership on the part of this president and White House to come to the table finally and say, we’re going to fix the underlying problem that’s driving our deficit. We know that is the entitlement programs and unfunded liability that they are leaving on this generation and the next.

WALLACE: So, are you’re saying you are willing to get — you’re willing, if you could get a compromise on entitlements, then you would give up on the sequestration?

CANTOR: What we have said in the House as Republicans, leadership and members alike, is that we want to fix the real problem. The real problem is entitlements. We’ve also said sequester is not the best way to go about spending reductions. It was, as you know, a default mechanism because Congress couldn’t do the job it was supposed to a couple of years ago. We’ve always said that. But, in fact —

WALLACE: You’re willing to give up on sequestration?

CANTOR: But, in fact, Chris, we’ve always said, president, come join us.

The full interview is here. That exchange is right before Cantor made his false “growing deficit” comment. But clearly, Cantor isn’t talking about the current debt. He’s talking about the long-term deficit. Entitlements are driving our long-term deficit while our current deficit is the result of two wars, the Bush tax cuts, and increased spending on the safety net during the recession. That’s the context of Cantor’s comment and if you are going to grade its truthfulness, you have to take that into account.

That’s what PolitiFact did. They realized that Cantor’s remark was 100% false, but in the context of what he was talking about, Cantor is right. The ultimate problem with the deficit is entitlement spending. Cantor misspoke and that’s why his statement isn’t correct. But it also can’t be called a “Pants on Fire” lie. PolitiFact responded to the criticisms today and pointed all of this out.

Kevin Drum explained this as well and noted that this is the problem with fact-checking in general. When most people think about fact-checking, they want the specific comment checked for accuracy. But this isn’t really fair. How can you analyze something without including the context? Cantor’s comment taken out-of-context is flatly wrong. In context, it makes much more sense and is more Cantor mis-speaking than anything else.

What’s most frustrating about this is that as soon as Benen posted his critique of PolitiFact, it spread around the blogosphere quickly. Paul Krugman, Ed Kilgore, Greg Sargent and Brian Beutler all criticized the fact-checking. All of those are well-respected journalists whose work I read daily. But they chose to look at Cantor’s quote out of context (except for Sargent, who put it in context of the debt ceiling when it actually referred to the problems driving the long-term deficit). Kilgore relied upon Benen’s analysis while Sargent quoted Krugman’s. It’s easy to jump on PolitiFact and make fun of Cantor for his remark, but it just creates more partisan bickering and further harms PolitiFact’s reputation. That’s not helpful for anyone.