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REMINDER: All investment, economics, and finance related material now appears at the new IaconoResearch.com. For the time being at least, this has become a personal blog covering a variety of mostly unrelated topics.

Is This the Year for a Bottom in Home Prices?

On January 16, 2012, in Housing, by Tim

Not a day goes by, or so it seems, without someone writing another upbeat article about the U.S. housing market in 2012 (a refrain that has been heard at least a few other times before since the housing bubble burst a half-decade ago) and today’s entry comes via this story in USA Today that cites all the usual factors.

Optimism is building that the housing industry is nearing a bottom — finally.

Home sales and home building are forecast to rise this year after sliding steeply the past five years in housing’s worst downturn since the Great Depression.

Recovery is expected to be slow, and home prices are widely expected to fall this year. But investors are betting on the start of an upturn, bidding up home builder stocks and causing them to outperform the broader stock market.

Chief executives are more positive. JPMorgan Chase’s Jamie Dimon said last week that housing is near its bottom but could stay there a year. Stuart Miller, CEO of home builder Lennar, said the market has started to stabilize because of low prices and record-low interest rates.

Market researcher RBC Capital Markets has also turned from a “bearish” view on housing to saying that 2012 “will mark a step in the right direction.”

To me, one of the more surprising turnarounds came last week when the Orange County Register reported that early housing bubble-spotter Christopher Thornberg (those of you were around back in 2005-2006 should recognize the name) turned from bear to bull.

While home prices will probably continue to fall early in the year as the foreclosure pipeline begins to empty into the market again, there are still opportunities for the best mortgages since the Eisenhower Administration and, given all the optimistic press reports  in the New Year, buyers just might decide to return.

Of course, that’s the best case scenario and, given the disappointment seen in the U.S. and global economy in recent years, not something one should count on.

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Bulk REO Sales a Hot New Topic in 2012

On January 13, 2012, in Housing, by Tim

The idea of selling foreclosed properties in bulk seems to be gaining lots of interest in both New York and Washington, at least  according to this story at CNBC, and Rick Sharga (formerly of Realty Trac, but now venturing out on his own) talks about how he has a half billion dollars in investor money looking for a good deal.

It’s hard not to conclude that any new efforts to aid the nation’s housing market this year will be about as successful as the ones already taken since the housing bubble burst a half-decade ago, but that probably won’t stop them from trying.

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Greenspan Sycophants, In Praise of Susan Bies

On January 13, 2012, in Debt, Housing, by Tim

Sorry, but after downloading the transcript(.pdf) for the January 31st, 2006 FOMC meeting with the intention of looking at all the praise heaped on Alan Greenspan on his last day as Fed Chairman in order to relay selected misguided quotes in this post, the 78 page length of the document proved too daunting, especially after all the joking around in the beginning of the document at a time that the central bank could actually have done something to prevent or mitigate the financial market disaster that followed a few years later.

Instead, relying on the many poor souls in the financial media who had to slog through transcripts for all eight meeting that year, we find that Treasury Secretary Tim Geithner (New York Fed President at the time) appears to have been the most misguided as to the legacy of the outgoing Fed chief when he noted:

I’d like the record to show that I think you’re pretty terrific, too. [Laughter] And thinking in terms of probabilities, I think the risk that we decide in the future that you’re even better than we think is higher than the alternative. [Laughter]

Surely you can understand better now…

More confirmation of the Peter Principle and that economists are particularly ill-suited to run an economy were provided in this assessment of the Greenspan tenure at the Fed by San Francisco Fed President Janet Yellen who, since, has been promoted to Fed Vice Chair:

Needless to say, it’s fitting for Chairman Greenspan to leave office with the economy in such solid shape. And if I might torture a simile, I would say, Mr. Chairman, that the situation you’re handing off to your successor is a lot like a tennis racquet with a gigantic sweet spot. [Laughter]

Again with the laughter.

(more…)

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Federal Reserve Blissfully Unaware in 2006

On January 13, 2012, in Debt, Housing, by Tim

The intertubes were abuzz yesterday after the release of the Federal Reserve’s 2006 policy committee meeting minutes in which it seems the central bank was blissfully unaware of the trouble ahead for housing and credit markets, a point nicely illustrated below from the Wall Street Journal’s Little Alarm Shown at Fed At Dawn of Housing Bust($).

“So far we are seeing, at worst, an orderly decline in the housing market,” he said.
…
Mr. Bernanke predicted a “soft landing” for the economy as 2006 ended, not a housing bust that would trigger the worst financial crisis since the Great Depression.
…
Timothy Geithner, then president of the New York Fed and now Treasury Secretary, playfully offered this forecast about Mr. Greenspan’s legacy: “I think the risk that we decide in the future that you’re even better than we think is higher than the alternative.”

Amazing stuff (no, not really)… For those still playing catch-up on this, some more links:

FOMC: Transcripts and Other Historical Materials, 2006 – Federal Reserve
Inside the Fed in 2006: A Coming Crisis, and Banter – NY Times
Fed 2006 Transcript: Riding Housing Roller Coaster With Eyes Shut – WSJ
Fed’s image tarnished by newly released documents – Washington Post
Richard Fisher Compares the Housing Bubble to Brad Pitt’s Baby – WSJ
On bank self-regulation and other Greenspan fairy tales – Credit Writedowns
The Fed’s Undistinguished Macro Discussions Circa Jan 2006 – Capital Spectator
Comments from FOMC meetings which resulted in laughter – Economist
So This Central Banker Walks Into a Bar…. – Crossing Wall Street
The Federal Reserve Is…Gasp…Funny – NetNet

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What Greenspan Should Have Done

On January 12, 2012, in Housing, by Tim

In this story at Aljazeera(?), Dean Baker, co-director of the Center for Economic and Policy Research, looks back at the late, great housing boom that turned to bust and offers some suggestions for what Federal Reserve Chairman Alan Greenspan should have done.

First, the Fed has responsibility for maintaining the stability of the US economy. Alan Greenspan should have recognised the bubble and done everything in his power to burst it before it grew to such dangerous levels.

Step one in this process should have been to document its existence and show the harm its collapse would bring. This means using the Fed’s huge staff of economists to gather the overwhelming evidence of a bubble and to shoot down anyone who tried to argue otherwise.
…
Second, the Fed has enormous regulatory power beginning with setting guidelines for issuing mortgages. They first issued draft guidelines in December of 2007. It was not hard to find abusive and outright fraudulent practices in the mortgage industry, if anyone in a position of authority was looking for it.

Finally, the Fed could have used interest rate increases to rein in the bubble. This should have been a last resort, since higher rates would have slowed the economy at a time when it was still recovering from the collapse of the stock market bubble.

To maximise the impact of any rate increases, Greenspan could have announced that he was targeting the housing market. He could have said that he would continue to raise rates until house prices were brought back to a more normal level.

This surely would have gotten the attention of the mortgage industry and potential homebuyers. Would it have been an extraordinary action from a Fed chair? Sure, but so what? It might have prevented the devastation now ruining tens of millions of lives.

Well, if there’s one thing no one has ever accused Greenspan of it’s being a party-pooper.

All of these actions – though sensible – would have required the former Fed Chief to dramatically change his way of thinking that, at the time, saw markets as self-regulating, a view that he later, famously found a flaw in (see Greenspan finds a flaw from 2008).

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It’s Romney By a Mile

On January 11, 2012, in Housing, by Tim

This report at Zillow on the value of the homes owned or rented by the remaining GOP candidates for President was just crying out for a graphic and I was happy to oblige.

Of course, there are some caveats related to the numbers above. For example, gazillionaire Mitt Romney owns a few homes in various parts of the country and the $9.6 million one listed above is about to be torn down to make room for a bigger one. Also, Texas Governor Rick Perry has been living in the Governor’s Mansion for years and the figure above is for a rental property he used a few years ago when the state residence was being renovated.

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