Results for “housing”
704 found

Housing the homeless in shipping containers

I was sceptical at the outset, but quickly won over. The toilet and shower unit is exactly the same as my daughter had in her student accommodation and she much preferred it to having to share bathrooms and toilets with other students. Who wouldn’t?

What really excites me about this opportunity is that land that might otherwise lie idle for five years will be brought back into life and used to provide much-needed temporary accommodation for 36 men and women in Brighton and Hove.

…Before embarking on this venture, we spoke with our homeless clients about the concept. They loved it. In particular, they loved the fact residents would have their own kitchen, bathroom and front door. They felt that being self-contained is far more desirable than a room in a shared house even though the floor space, at 26 sq m, is roughly the same as they would have if they were sharing.

…When it was suggested that we house homeless people in steel shipping containers in a scrap metal yard, I thought it was either April Fool’s Day or we had lost all concept of decency.

There is more here.  For the pointer I thank a loyal MR reader.

Why the housing market imploded

In a recent paper, Christopher L. Foote, Kristopher S. Gerardi, and Paul S. Willen report (pdf):

This paper presents 12 facts about the mortgage market. The authors argue that the facts refute the popular story that the crisis resulted from financial industry insiders deceiving uninformed mortgage borrowers and investors. Instead, they argue that borrowers and investors made decisions that were rational and logical given their ex post overly optimistic beliefs about house prices. The authors then show that neither institutional features of the mortgage market nor financial innovations are any more likely to explain those distorted beliefs than they are to explain the Dutch tulip bubble 400 years ago. Economists should acknowledge the limits of our understanding of asset price bubbles and design policies accordingly.

Scott Sumner summarizes the twelve points here:

Fact 1:  Resets of adjustable rate mortgages did not cause the foreclosure crisis.

Fact 2:  No mortgage was “designed to fail.”

Fact 3:  There was little innovation in mortgage markets in the 2000s.

Fact 4:  Government policy toward the mortgage market did not change much from 1990 to 2005.

Fact 5:  The originate-to-distribute model was not new.

Fact 6:  MBSs, CDOs, and other “complex financial products” had been widely used for decades.

Fact 7:  Mortgage investors had lots of information.

Fact 8:  Investors understood the risks.

Fact 9:  Investors were optimistic about home prices.

Fact 10:  Mortgage market insiders were the biggest losers.

Fact 11:  Mortgage market outsiders were the biggest winners.

Fact 12:  Top-rated bonds backed by mortgages did not turn out to be “toxic.” Top-rated bonds in collateralized debt obligations (CDOs) did.

Addendum: There was earlier Boston Globe coverage here.

So much for cheap housing the culture that is Fairfax

A zoning board in Fairfax County, Va., is standing firm in its decision to order a war veteran to destroy a tree house he built for his two young sons.

County officials determined Mark Grapin, an Army aviation specialist, violated zoning regulations when he built a tree house in his backyard.

“The boys wanted a tree house,” Grapin told Fox News Radio, explaining it was a promise he made to his 8-year-old and 10-year-old sons before he left for Iraq. “It was a commitment I made to the boys and, frankly, we should do our best to keep our commitments to our children.”

There is more here and thanks to Rob Nelson for the pointer.

Should we let housing prices fall?

Many smart people say we should.  It seems increasingly clear that we must.  For how long can the government prop them up?  Are we never to have a private market in mortgages again?

Yet what happens if we let them fall?  Arguably many banks would once again be "under water."  Enthusiasm for another set of bailouts is weak, to say the least.  Our government would end up nationalizing these banks and it still would be on the hook for their debts.  The blow to confidence would be a major one, especially if along the way we saw a recreation of a Lehman or Bear Stearns or A.I.G. episode.

I increasingly believe there is no easy way out of this dilemma and it is a major reason why the U.S. economy remains stuck.  Housing prices must fall, yet…housing prices must not fall.

Here is a very good Dave Leonhardt piece on two different views of housing.  It's where to go, if you are looking for the case for optimism.  I am more pessimistic than David because I see the private sector interest in mortgage securities as remaining quite weak, which suggests the market knows which way prices have to move.

How much did interest rates matter for the housing boom?

Both theory and data suggest that lower real rates cannot account for more than one-fifth of the boom in house prices.

That's from Edward Glaeser, Joshua Gottlieb, and Joseph Gyourko; here is more.  Here is some of the theory:

If people expect to move in the future, low interest rates today will not lead them to bid up prices so much now because they realise they might have to sell later at a lower price when rates are higher. The option to prepay also weakens the link between current interest rates and house prices for the same reason. Rates also should have little or no impact on prices in elastically supplied markets as shown in Glaeser et al. (2008).

Finally, if people are credit-constrained, lower rates today need not lead to higher prices. After all, if the marginal buyer cannot take advantage of those lower rates, they should not affect the buyer’s valuation of a home. Taken together, we show that these factors can reduce the predicted impact of interest rates on home prices by about two-thirds, bringing it down to 6 or 8 from previous conclusions of around 20.

What to think of Obama’s housing plan

The ever-worthy Mark Thoma rounds up reactions and analyses, including some critical remarks from CalculatedRisk and some praise from Felix Salmon.  Willem Buiter is negative (worth a read).  Simon Johnson says it's not enough.  WSJ surveys a few reactions as well.  I'll add some observations:

1. Housing prices ought to be lower, and as quickly as possible.  So aiding homeowners cannot be justified on the grounds of propping up prices, which is difficult to accomplish anyway.  Such aid has to be justified in some other way.  The main argument is that our ex post procedures for foreclosures are not what we would have chosen ex ante, had we known that such a severe housing and financial crisis could be possible.  That opens up some room for beneficial intervention, but a good plan it still hard to pull off.

2. When it comes to refinancing the Fannie and Freddie loans, and expanding those agencies, how many foreclosures will this avoid?  We should be reducing the size of the mortgage agencies rather than putting another $200 billion into them.   

3. We should not be helping people stay in their homes if their mortgage payments are at 43 percent of their income.  (The bill requires banks, in such cases, to lower interest rates until monthly payments are at 38 percent of income.  The government then steps in to lower payments to 31 percent of income.)  I don't feel moral outrage (although it is morally outrageous), I just don't think it is a good use of money.  I also wonder how it works when your income is quite variable year to year.  Are they sure there is no way to game this?

It will in the short run prevent some (enough to matter?) foreclosures.  But it won't keep up the long-term price of homes or prevent eventual foreclosures when the home has negative equity.  It adjusts interest rates on the payments, not principal on the loans (thank goodness).

Most of all it is a bad precedent which we will live to regret.  It is a significant move away from the idea of commercial decisions based on contract. 

One source,
by the way, suggests that lenders will have veto rights over these
"renegotiations" by choosing to foreclose instead of accepting the lower payments.  But foreclosure is quite costly for the bank, so I don't feel so much better.

By the way, aren't we trying to help the banks?

4. Sellers receive various bonuses for modifying eligible mortgage loans.  This is ideally a Pareto improvement if more of these contracts could be modified than is currently the case.  My doubt is whether the subsidy will affect many modification decisions; so far I don't see that lenders are putting a lot of effort into renegotiations.  Here is a good article on when modifications work and when they do not.  I doubt if an extra 1k will make much difference.

5. Guidelines for modifying eligible mortgage loans are established.  Ideally this could give more scope to the Coase theorem, but see my reservations under #4.

Felix Salmon, who likes the plan, nonetheless offered up a scary bit:

But really nobody has a clue how much it will cost: that's entirely
dependent on whether or not the plan succeeds in arresting the fall of
house prices.

The bottom line: #3 is a deal-killer for me.  Just say no, and you don't even need a moral hazard argument (they are overrated, anyway) to see why this is troubling.  I'd like to see the plan's proponents predict how many foreclosures it will forestall and be willing to take their lumps if they are wrong.

The difficulties of a housing stimulus

Ed Olsen, one of the nation's foremost housing experts, points out that it's much harder to stimulate housing than many people think because you have to take into account the rental market.

The primary effect of many proposals directed at the housing market would be to decrease the demand for rental units by about the same amount as they would increase the demand for owner-occupied units. This would be the effect of the proposed tax credits or loans at below-market interest rates to new homebuyers.

 …The impact of preventing foreclosures on housing prices is overstated for the same reason. The overwhelming majority of families who default on their mortgages move to another unit that they do not share with others. Therefore, preventing foreclosures would have little effect on the total demand for dwelling units and hence little overall effect on market prices.

 …Subprime mortgages did induce some people to buy houses beyond their means, and foreclosures would decrease the demand for the types of houses bought by these people. This would decrease the prices of similar houses. However, when they default on their mortgages, the families involved move to more modest houses or apartments, thereby increasing the demand for other types of units in other locations and the prices of units of these types. Preventing foreclosures would lead to higher prices for some properties and lower prices for others.

Read the whole thing (doc).

Did the Gramm-Leach-Bliley Act cause the housing bubble?

No.  That is one common myth among the progressive left.  Because it involves financial deregulation and the unpopular Phil Gramm, the Act is vilified and assumed to be part of a broader chain of evil events.  Here are some of the articles which promulgate the myth that the Act caused or helped cause the housing bubble.  One version of the claim originates with Robert Kuttner, but if you read his article (and the others) you’ll see there’s not much to the charge.  Kuttner doesn’t do more than paint the Act as part of the general trend of allowing financial conflicts of interest. 

Most of all, the Act enabled financial diversification and thus it paved the way for a number of mergers.  Citigroup became what it is today, for instance, because of the Act.  Add Shearson and Primerica to the list.  So far in the crisis times the diversification has done considerably more good than harm.  Most importantly, GLB made it possible for JP Morgan to buy Bear Stearns
and for Bank of America to buy Merrill Lynch.  It’s why Wachovia can consider a bid for Morgan Stanley.  Wince all you want, but the reality is that we all owe a big thanks to Phil Gramm and others for pushing this legislation.  Brad DeLong recognizes this and hail to him.  Megan McArdle also exonerates the repeal of Glass-Steagall

Here is a good critique of GLB, on the grounds that it may extend "too big to fail" to too many institutions.  That may yet happen but not so far.   

The Act had other provisions concerning financial privacy.

Maybe you can blame some conflict of interest problems at Citigroup and Smith Barney on the Act.  But again that’s not the mortgage crisis or the housing bubble and furthermore those problems have been minor in scale.  Ex-worker has a very sensible comment.  The most irresponsible financial firms were not, in general, owned by commercial banks.  Here’s lots of informed detail on GLB and the bank failure process.  Here is another good article on how GLB didn’t actually change Glass-Steagall that much.

Here’s a Paul Krugman post on GLB; he attacks Phil Gramm but he doesn’t explain the mechanism by which GLB did so much harm.  The linked article has no punch on this score either, although you will learn that Barack Obama has scapegoated GLB, again without a good story much less a true story. 

I may soon cover the Commodity Futures Modernization Act as well.

Tyrone on the fall in housing and asset prices

I was sitting here peacefully, weeping, when I received the strangest email from Tyrone:

Tyler, cheer up!  The decline in housing prices is a godsend.  Isn’t it a standard line — from both left and right — that we are spending too much on the elderly and not enough on the young?  Isn’t lack of upward mobility, for the generation on its way into the world, the new problem?  Aren’t the American poor to expect an even greater squeeze in the future?  There’s a simple remedy for all of these problems at once — lower housing prices!  Lower stock prices too!  You don’t even have to get a bill passed through Congress, or overcome AARP, and we all know how hard that is these days.  The housing stock is still there, the relatively established homeowners are a bit poorer, and those poor strugglers on the way up can now buy their dreams at lower prices.  Even better, lots of the laid-off construction workers are Mexican immigrants, who for years have been keeping wages down for low-skilled American workers.  This is an economic nationalist’s wish list, no?

Poor, poor, deranged Tyrone.  Isn’t this what you would expect from an abject failure who has never managed to buy a home?  Tyrone isn’t even subprime.

Ed Leamer says “Housing IS the Business Cycle”

Leamer writes:

Of the components of GDP, residential investment offers by far the best early warning sign of an oncoming recession.  Since World War II we have had eight recessions preceded by substantial problems in housing and consumer durables.  Housing did not give an early warning of the Department of Defense Downturn after the Korean Armistice in 1953 or the Internet Comeuppance in 2001, nor should it have.  By virtue of its prominence in our recessions, it makes sense for housing to play a prominent role in the conduct of monetary policy.  A modified Taylor Rule would depend on a long-term measure of inflation having little to do with the phase in the cycle, and, in place of Taylor’s output gap, housing starts and the change in housing starts, which together form the best forward-looking indicator of the cycle of which I am aware.  This would create pre-emptive anti-inflation policy in the middle of the expansions when housing is not so sensitive to interest rates, making it less likely that anti-inflation policies would be needed near the ends of expansions when housing is very interest rate sensitive, thus making our recessions less frequent and/or less severe.

Here is the paper, try this link too

This kind of talk makes me nervous.  The Fed "matters" for at least two reasons.  First, short-term interest rates affect the real economy.  Second, Fed policy is a focal point in a noise trader game and also in a macro "should we expand or should we contract output?" multiple equilibria game.  Given the second factor I am reluctant to strangle so many booms in the cradle.  Furthermore, identified macroeconomic relationships become less stable the very moment a policymaker tries to act on them ("Goodhart’s Law," which is related to the Lucas critique).

We can’t reject unit root models (many of which suggest a gain in the growth rate is on average permanent, noting that "do not reject" is not the same as "accept"), so I say let her rip and don’t take the punch bowl away.  Who knows what tomorrow will bring?

The bottom line: I didn’t feel comfortable in Leamer’s world.  I would sooner say "Comovement IS the Business Cycle."

Housing futures

Read James Surowiecki.  Excerpt:

At a new online site called HedgeStreet, investors can bet on changes
in home prices in certain cities. And later this month the Chicago
Mercantile Exchange is going to start trading futures contracts pegged
to housing-price indexes in ten major metropolitan areas. The Chicago
plan, which is the brainchild of two economists, Karl Case, of
Wellesley, and Robert Shiller, of Yale, is straightforward: if you just
spent, say, $1.5 million on a two-bedroom apartment in Manhattan, and
you want to hedge against the risk that it might be worth $1.2 million
three years from now, you can sell contracts that will reap you a
profit if local prices fall, allowing you to lock in the current value
of your home. Alternatively, if you think the housing boom in Los
Angeles still has a ways to run–or if you’re interested in buying a
year from now but are afraid that you’ll be priced out of the
market–you can place a bet that will pay off if prices keep going up.

Why Eric Rasmusen does not worry about the housing bubble

Housing is a special form of wealth…If its price falls after a bubble, the cost of consumption is falling at the same time as the amount of wealth. In fact, the country has become richer, because all the same real assets exist, but their replacement cost has fallen.

Also, since houses are mortgaged, the wealth loss is shared by household and banks, while the consumption cost gain is entirely to households. The real wealth of households will thus have risen, and consumption should increase (I am thinking that banks are owned by richer people, who save more). Am I right on this?

Here is the link.  Here is my previous post on this topic.  So is Eric right not to worry?