Mortgage and Housing at Seeking Alpha

• Why Houses Are Like Dishwashers
  Felix Salmon submits:

  A lot of people have been quoting this passage from Chip Case’s op-ed on housing as an investment:

  For people with a more realistic version of the American dream, buying a house now can make a lot of sense. Think of it as an investment. The return or yield on that investment comes in two forms. First, it provides what is called “net imputed rent from owner-occupied housing.” You live in the house and so it provides you with a real flow of valuable services. This part of the yield is counted as part of national income by the Commerce Department. It is the equivalent of about a 6 percent return on your investment after maintenance and repair, and it is constant over time in real terms. Consider it this way: when Enron went belly up, shareholders ended up with nothing, but when the housing market drops, homeowners still have a house. And this benefit is tax-free.

  
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• What Role Did the Fed Play in the Housing Bubble?
  David Beckworth submits:
  I really did not want to revisit this question since I have already covered it here many times before. Folks, however, are talking about it again given its coverage at the Fed's Jackson Hole conference. Mark Thoma, for example, has posted several pieces on it in the past few days. Most of this renewed discussion has taken a less critical view of the Fed's role during the housing boom, specifically the role played by the Fed's low interest rate policy. I feel compelled to rebut this Fed love fest since there are compelling reasons to believe the Fed did play an important role in creating the housing boom. To be clear, I do not see the Fed as the only contributor--far from it--but it does appear to be one of the more important ones. Here is my list of reasons why:
  (1) The Fed kept its policy interest rate, the federal funds rate, below the natural or neutral interest rate for an extended period. It is not correct to say the Fed kept interest rates very low and thus monetary policy was very loose. Interest rates can be low because the economy is weak, not just because monetary policy is stimulative. Interest rates only indicate a loosening of monetary policy if they are low relative to the neutral interest rate, the interest rate level consistent with a closed output gap ( i.e. the economy operating at its full potential). There is ample evidence that the Fed during the 2002-2004 period pushed the federal funds rate well below the neutral interest rate level. For example, see Laubach and Williams (pdf) (2003) or this ECB study (2007). Below is graph that shows the Laubach and Williams natural interest rate minus the real federal funds rate. This spread provides a measure on the stance of monetary policy--the larger it is the looser is monetary policy and vice versa. This figure shows that monetary policy was unusually accommodative during the 2002-2004 period. This figure also indicates an important development behind the large gap was that the productivity boom at that time kept the neutral interested elevated even as the Fed held down the real federal funds rate.
  Click to enlarge

  

  
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• Now Is the Time to Buy Says Guy Who Helped Invent Case-Shiller
  The Business Insider submits:

  Karl E. Case, the lesser-known of the "Case-Shiller" pair has an op-ed in the New York Times that basically argues that it's a great time to buy a house.

  Yes, the old American Dream -- having a house that appreciates 30% year-on-year -- is dead, as Case acknowledges. But that doesn't mean the math isn't compelling.

  
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• July Pending Home Sales: It Could Take a Decade to Fully Recover
  Sold At The Top submits:
  Today, the National Association of Realtors (NAR) released their Pending Home Sales Report for July showing a slight increase with the seasonally adjusted national index climbing 5.2% since June but remaining a whopping 19.1% below the level seen in July 2009.
  
  On a non-seasonally adjusted basis the national index as well as all regional measures declined significantly with the national index falling 7.2% since June and 20.1% since July 2009.
  
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• Do Information Asymmetries Explain the Housing Bubble?
  Felix Salmon submits:

  Adam Levitin and Susan Wachter have a new paper out which reckons it can explain the entire housing bubble by looking at the supply of private-label mortgage-backed securities in the market, and the information asymmetries embedded in them.

  They do have a point: since the banks putting together these private-lable securities, or PLS, knew much better than the buyers (and, for that matter, the ratings agencies) what was going into them, there was an opportunity — grasped with both fists — to take advantage of those asymmetries:

  
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• Construction Spending Falls in July
  Zacks.com submits:

  By Dirk van Dijk, CFA

  Total Construction Spending fell in July to a seasonally adjusted annual rate of $805.2 billion, down 1.0% from June, and down 11.7% from a year ago. The decline was greater than the 0.7% decline that was expected. In addition, June was revised down to be 0.8% below May rather than the 0.1% increase originally reported.

  
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• Analyzing Market Schizophrenia
  New Finance submits:

  It was a rainy day this morning and traffic was bad, but nothing out of the ordinary. Or so I thought. After diving into some work, and engaging some clients, I decided to check up on the markets (something I had neglected to do last night and early this morning). What I saw literally blew my mind.

  Dow Jones up nearly 2.5% at 10am EST? What? How? It turns out, there was a manufacturing report from the Institute for Supply Management showed an increase to 56.3 in August from 55.5 in July. China growth has apparently only been “moderating” as opposed to slowing down. This is marginally good news, of course, as any reading above 50 indicates growth. This, apparently, has turned bears to bulls and frozen the deepest chasms of Hell into winter wonderlands.

  
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• Residential Construction Spending Mirrors Other Housing Numbers
  Sold At The Top submits:
  Today, the U.S. Census Bureau released their July read of construction spending showing near-trough level spending for residential construction with a continued slowing trend while indicating a slight monthly increase in non-residential spending.
  
  With this months release it's plain to see that residential construction spending is trending similarly to other measures of performance for the residential housing markets reverting back down to the the worst levels seen in early 2009.
  
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• The Misinterpretation of Economic Data
  Richard Suttmeier submits:

  The yield on the 10-Year US Treasury continues to trade around my quarterly pivot at 2.495. A new monthly pivot is 2.562 with my semiannual risky level at 2.249. Gold is trekking towards its all time high at $1266.5 set on June 21st with my semiannual and monthly risky levels at $1260.8 and $1263.8. Crude oil has a new monthly pivot at $74.45. The euro remains below its 50-day simple moving average at 1.2789. The Dow shows a new monthly pivot at 10,164 for September with today’s value level at 9,876. The miss-interpretation of economic data.

  
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• Little Hope for Housing
  Jon D. Markman submits:

  Just when you thought the housing market couldn't get worse, it did.

  New single-family home sales slumped 12.4% in July to a record-low annual rate of 276,000 units, as homebuyers shunned their realtors in the absence of government support. The consensus expectation was for a slight up-tick to a 333,000 unit annual rate, so I suppose it's time to throw out the models. Sales over the prior three months were also revised lower by 9,000 units.

  
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