Morning Report – Housing overvalued again? 11/06/13

Posted on November 6, 2013 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1764.5 8.0 0.46%
Eurostoxx Index 3056.8 20.9 0.69%
Oil (WTI) 93.94 0.6 0.61%
LIBOR 0.239 0.001 0.40%
US Dollar Index (DXY) 80.54 -0.169 -0.21%
10 Year Govt Bond Yield 2.65% -0.02%
Current Coupon Ginnie Mae TBA 106 0.1
Current Coupon Fannie Mae TBA 105 0.2
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.23
Markets are higher this morning on strength in overseas markets. Market darling Tesla Motors (TSLA) fell in premarket trading after missing its quarter. Abercrumble (ANF) was down 9% after missing as well. Bonds and MBS are up small. At 10:00 we will get the Index of Leading Economic Indicators, which shouldn’t be a market mover
Tomorrow starts the big data, with GDP and then the jobs report on Friday. The bond market has clearly been spooked by the strong ISM numbers and the language out of the FOMC statement.
In politics last night, Chris Christie cruised to a win in New Jersey, while McAuliffe won in Virginia. Dinkins got another term in New York City.
Mortgage applications fell by 7% last week as mortgage rates rose 5 basis points. The purchase index fell by 5.2% while the refi index fell by 7.9%.
Homeprices are 17% overvalued according to Fitch’s models, with much of coastal California > 20% overvalued. Their model is based on unemployment, income, rental prices, population levels, housing units, and mortgage rates. Note that the median house price to median income ratio is back above its historical range again. This is based on NAR’s median house price, which is probably over-emphasizing the red-hot California markets due to its repeat sale methodology. All real estate is local, and I doubt we are overvalued all that much outside of a few markets like Washington DC, Manhattan, and the hot West Coast markets. In the judicial states (primarily in the Northeast) we have yet to see any sort of meaningful rebound in prices.

The homeownership rate edged up last quarter to 65.3% from 65% in Q2 and is now back to levels we haven’t seen since the mid-90s, when HUD began to aggressively push to increase homeownership in this country.

Interesting article on the fiscal drag (aka “austerity”) by the AEI. Without the Fed’s stimulus, nominal GDP would have fallen by 2%. Note that most of the drag is coming from the tax increases, not the spending cuts, as the tax hikes have a much higher multiplier than spending cuts. They cite a San Francisco Fed study which found that 90% of the fiscal drag came from increased taxes. This is not surprising as taxes were increased much more than spending was cut, but I found the difference in multiplier interesting. The spending cuts have a .60 multiplier while tax hikes have a 1.8 multiplier. This means that a $1 reduction in government spending reduces GDP by 60 cents, while a $1 increase in taxes reduces GDP by $1.80.

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55 Responses

  1. Michigoose, on November 6, 2013 at 8:58 am said:

    NoVA/jnc: Any thoughts on the VA elections? I was shocked that E.W. Jackson got as many votes as he did, otherwise it was about what I was expecting. As a newbie to the area. . .

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  2. jnc4p, on November 6, 2013 at 9:04 am said:

    See the previous thread.

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  3. ScottC, on November 6, 2013 at 9:08 am said:

    Brent:

    Dinkins got another term in New York City.

    LOL. Well, it worked out so well last time, why not give it another go?

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  4. Troll McWingnut or George, whichever, on November 6, 2013 at 9:22 am said:

    How was NYC’s Sandanista turnout?

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  5. jnc4p, on November 6, 2013 at 9:26 am said:

    “Dinkins got another term in New York City.”

    Neither of you two actually live in the city correct? Any idea how much of the new taxes you can avoid?

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    • ScottC, on November 6, 2013 at 9:47 am said:

      jnc:

      Neither of you two actually live in the city correct? Any idea how much of the new taxes you can avoid?

      I still have to pay New York State taxes, but I believe that the NYC tax is strictly a residence tax, so it doesn’t apply to those that just work in NYC. It used to be different, but I think it changed several years ago.

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  6. Brent Nyitray, on November 6, 2013 at 9:34 am said:

    I don’t live in the City anymore. But certainly if I got a job offer in the City, it would have to pay a lot more than my current salary to make it worth it.

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    • ScottC, on November 6, 2013 at 10:49 am said:

      jnc (from the link):

      The irony is rich: Wall Street created the conditions for millions of foreclosures, then they sweep in to buy up the homes and rent them out, often to the same people they kicked onto the street.

      Sigh. It is difficult to read on after this kind of thing. Makes me skeptical that this guy has any clue at all.

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  8. jnc4p, on November 6, 2013 at 10:55 am said:

    And no where in the piece is mentioned that this is the direct result of the Obama administration’s housing policies. It’s by design. The banks and hedge funds are actively working with the administration to help make the policy work.

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  9. jnc4p, on November 6, 2013 at 10:56 am said:

    And apparently he’s not actually against Wall Street as long as it’s helping to fund his personal policy preferences:

    “Additionally, securitization in the abstract is not necessarily something to fear. When done right, it efficiently allocates capital to productive investment opportunities that could even have social value. For example, the solar power company SolarCity just announced solar securities, which could boost the renewable energy space.”

    Personally, I find rental based securitization much less risky in abstract than solar power securitization. He should do Goldman’s next ad copy.

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  10. Brent Nyitray, on November 6, 2013 at 11:25 am said:

    The irony is rich: Wall Street created the conditions for millions of foreclosures, then they sweep in to buy up the homes and rent them out, often to the same people they kicked onto the street.
    Sigh. It is difficult to read on after this kind of thing. Makes me skeptical that this guy has any clue at all.

    I did. He doesn’t. The left should just stop talking about derivatives. It never ceases to amaze me that these people do not understand the concept of overcollateralization. That you can create a very safe bond out of risky mortgages if you overcollateralize the crap out of it. For some reason the idea that a security of subprime loans can in fact be AAA is an alien concept and they cannot get past that.

    And of course he still inserted the obligatory “Wall Street greed caused the financial crisis” as if the Fed and the government had absolutely no role in the housing bubble.I also love how we are this homogeneous mass of moustache-twirling evildoers. “Wall Street” kicked them out and is now profiting. CALPERS and Magnetar? Same thing.

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  11. Troll McWingnut or George, whichever, on November 6, 2013 at 11:33 am said:

    From Larry Sabato.

    @LarrySabato: Why did Cuccinelli close fast + have higher than expected base turnout? One word: Obamacare. His post-shutdown theme.

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    • ScottC, on November 6, 2013 at 11:39 am said:

      jnc/nova:

      One thing I do not understand about VA…why did the change in the R nomination process from a primary to a convention force Bolling to drop out?

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    • ScottC, on November 6, 2013 at 12:02 pm said:

      nova:

      didn’t force him to. he knew he’s lose, so he decided not to play.

      Was he likely to win in a primary contest? I’m just trying to understand the charge that Cuccinelli is responsible for the schism (as jnc put it earlier) in the party.

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      • ScottC, on November 6, 2013 at 12:17 pm said:

        nova/jnc:

        Also, since you both say that your vote was in support of gridlock, I’m curious about exactly what you hope gridlock will prevent. I presume that both of you would actually welcome certain changes in policy that would require agreement between the legislature and the executive. For example, if I am reading jnc correctly, he opposed the removal of the exemption that abortion clinics enjoyed from the rules that regulated other outpatient surgery facilities, and would therefore welcome reinstating that exemption, which is much less likely to happen when the legislature is controlled by the R’s and the governor’s office controlled by the D’s. So in that sense gridlock would be frustrating one of jnc’s policy goals. In other words, your desire for gridlock can’t be the result of a belief that the state of policy at this moment in time is just right, and therefore you don’t want anything to change.

        So what is it, exactly, that you fear will change if either party controls both arms of government, and which you hope to prevent by making sure the arms of government are split?

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  13. jnc4p, on November 6, 2013 at 12:08 pm said:

    Both Bolling and McDonnell wanted a primary. Cuccinelli decided that he could avoid having to actually win one by stacking the convention with his supporters, the same people who saddled him with E.W. Jackson. That required changing the Republican nomination process rules, which he achieved.

    Everyone who wasn’t a Cuccinelli supporter already knew what was up.

    Keep in mind also that Bolling had specifically gone out of his way not to challenge McDonnell when he ran for governor under the understanding he would be up next. Cuccinelli decided not to “wait his turn” which was his right, but coupled with stacking the convention to avoid a primary rendered any calls for party unity behind him a sick joke.

    Cuccinelli was all about Cuccinelli, not the Republican party.

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    • ScottC, on November 6, 2013 at 12:21 pm said:

      jnc:

      Cuccinelli decided that he could avoid having to actually win one by stacking the convention with his supporters

      How was Cuccinelli in a position to stack the convention whereas Bolling was powerless to do the same?

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  14. jnc4p, on November 6, 2013 at 12:26 pm said:

    Actually, with the passage of the transportation deal last General Assembly session there really isn’t anything that needs to be done legislatively.

    Number one goal of gridlock is probably to prevent any additional taxes or gun regulations.

    Number two goal of gridlock is to prevent any Republican social conservative legislation.

    In terms of the abortion clinic regulations, McAuliffe will be able to address that via his nominations to the Virginia Board of Health and simply overruling Cuccinelli’s legal opinions. If the Attorney General ends up being the Republican, that gets more complicated but it doesn’t require new legislation regardless.

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    • ScottC, on November 6, 2013 at 12:45 pm said:

      jnc:

      Thanks. So if it is indeed the case, as you suggest, that you think the state of legislation at the present moment is just right, at least on those issues that are most important to you, then I agree it makes perfect sense to vote for gridlock.

      On the abortion thing, I thought that the only thing Cuccinelli did was eliminate the use of the grandfather clause. Even if his interpretation was subsequently changed, the legislation would still apply to new clinics, which would put them at a regulatory disadvantage relative to existing clinics, the remedy for which would require either re-instatement of Cuccinelli’s interpretation or a legislative change in the law, no?

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  15. novahockey, on November 6, 2013 at 12:51 pm said:

    short answer – i’m just a curmudgeon and don’t trust them to do what they say.
    long answer .. mind if I punt on that and give it some more thought for you?

    i’m about [this…close] to become a single-issue gun voter.

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    • ScottC, on November 6, 2013 at 1:05 pm said:

      nova:

      i’m about [this…close] to become a single-issue gun voter.

      I am pretty much a single issue voter, at least at higher levels of government…taxes/spending. (Does that count as one or two issues?)

      Which is why I will never vote for any Democrat that I can imagine. In any contest between a D and an R, the R is less likely to raise taxes/spending than the D. Even if it is true that the R is likely to raise taxes/spending, it is still the case that he will be less likely than the D to do so. It’s all about the probabilities.

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  16. novahockey, on November 6, 2013 at 1:14 pm said:

    I had the kid’s station on the radio this mornings commute. this has been going through my head all day. the only way to get it to stop is to pass it one. i’m sorry.

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  18. Troll McWingnut or George, whichever, on November 6, 2013 at 1:16 pm said:

    Adoring Obama supporters discover the lie.

    “In a few cases, we are able to find coverage for them that is less expensive, but in most cases, we’re not because, in sort of pure economic terms, they are people who benefited from the current system … Now that the market rules are changing, there will be different people who benefit and different people who don’t.”

    I’m sure they appreciate and accept their needed sacrifice.

    Funniest part of the article.

    That’s little comfort to Hammack. He’s written to California’s senators and his representative, House Minority Leader Nancy Pelosi, D-Calif., asking for help.

    “We believe that the Act is good for health care, the economy, & the future of our nation. However, ACA options for middle income individuals ages 59 & 60 are unaffordable. We’re learning that many others are similarly affected. In that spirit we ask that you fix this, for all of our sakes,” he and Brothers wrote.

    This makes me think about Gulag inmates who wept when Stalin died because they figured he didn’t know suck a horror existed.

    “We’re not changing our views because of this situation, but it hurt to hear Obama saying, just the other day, that if our plan has been dropped it’s because it wasn’t any good, and our costs would go up only slightly,” he said. “We’re gratified that the press is on the case, but frustrated that the stewards of the ACA don’t seem to have heard.”

    Choke on it!

    http://www.propublica.org/article/loyal-obama-supporters-canceled-by-obamacare?utm_campaign=bt_twitter&utm_source=twitter&utm_medium=social

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  19. jnc4p, on November 6, 2013 at 1:16 pm said:

    “Even if his interpretation was subsequently changed, the legislation would still apply to new clinics, which would put them at a regulatory disadvantage relative to existing clinics, the remedy for which would require either re-instatement of Cuccinelli’s interpretation or a legislative change in the law, no?”

    Correct. But if in fact the critics are right, that’s the difference between closing all the existing clinics and keeping them all open.

    As some of these changes apparently require reworking various physical aspects of the building, I’m fine with grandfathering.

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    • ScottC, on November 6, 2013 at 1:37 pm said:

      jnc:

      But if in fact the critics are right, that’s the difference between closing all the existing clinics and keeping them all open.

      They are almost certainly wrong. Other (non-abortion) surgical outpatient facilities manage to keep their doors open under the same regs. It is far more likely to be the difference between a more expensive abortion and a less expensive abortion.

      But even if the critics are right, why should abortion clinics be allowed to operate under less stringent safety regs than other surgical outpatient facilities? If the safety regs are justified, then they should apply to all such facilities. If they are not, then they shouldn’t apply to any.

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  20. jnc4p, on November 6, 2013 at 1:20 pm said:

    “novahockey, on November 6, 2013 at 1:14 pm said:

    I had the kid’s station on the radio this mornings commute. this has been going through my head all day. the only way to get it to stop is to pass it one. i’m sorry.”

    One upping you.

    http://www.boston.com/ae/tv/blog/2013/11/snl_parodies_yv.html

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  21. jnc4p, on November 6, 2013 at 1:26 pm said:

    Troll, this one was linked to yours:

    “You’ve been particularly critical of the administration’s transparency and follow-through on its own rules.

    A. Presidential executive orders have long required cost estimates and impact analyses for every major proposed or final rule. In Executive Order 13563, President Obama reiterated the longstanding requirement and further directed each federal agency “… to use the best available techniques to quantify anticipated present and future benefits and costs as accurately as possible.” A Regulatory Impact Analysis (RIA) must be prepared for rules with economically significant effects — anything with an impact of $100 million or more in any one year. Obviously, every ACA rule had an impact of over $100 million.

    However, early on CMS stopped providing cost estimates for rules implementing the Affordable Care Act. Most were omitted entirely, others watered down to be meaningless statements the analytical equivalent of saying, “The hell if we know what will happen.” They even started explicitly saying in ACA rules — including the massive Medicaid expansion rule — that the rule didn’t have an impact of over $100 million because, in effect, everybody expected it.

    My understanding is that CMS was directed by the White House Office of Management and Budget (OMB) to stop publishing the cost estimates and impact analyses with the ACA rules. They were concerned the information, coming from the CMS Office of the Actuary, would be used as ammunition by the House and other critics of Obamacare. That is certainly true but no excuse for ignoring 30 years of executive orders and the President’s own stated commitment to open government. ”

    http://www.propublica.org/article/why-health-insurance-cancellations-shouldnt-be-a-surprise

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  22. jnc4p, on November 6, 2013 at 1:44 pm said:

    Depends on if you consider an abortion “surgery”. I’d have to review the history of abortion clinic oversight to have an opinion on whether new regulations were necessary, but as I said before, I don’t trust Cuccinelli to execute the law in good faith.

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    • ScottC, on November 6, 2013 at 2:14 pm said:

      jnc:

      Depends on if you consider an abortion “surgery”.

      According to this list of abortion clinics The Falls Church Healthcare Center (I believe the one that is challenging the VA regulation in court) offers both “Medical abortions” and “Surgical abortions”.

      My guess is that, as these regulations were originally put in place, the abortion movement has successfully lobbied its friends in government to be classified such that it avoided falling under them, even though as a matter of objective definition they should. It has little to do with what is or isn’t “necessary”, and more to do with keeping abortion as cheap and accessible as possible as a matter of politics. The finance industry isn’t the only industry capable of getting regulations implmented to its advantage.

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  23. Troll McWingnut or George, whichever, on November 6, 2013 at 1:56 pm said:

    Just curious, does Obama truly believe Republican resistance to his statism is driven by racism?

    If so, how does he explain Clinton impeachment?

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  25. Michigoose, on November 6, 2013 at 3:32 pm said:

    NoVA and jnc–did you stock up?

    “In an attempt to get out the vote on Election Day, Quantico Tactical
    in Woodbridge, VA handed out free 30-round AR-15 magazines to anyone
    who showed a Virginia voter ID”

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  26. Troll McWingnut or George, whichever, on November 6, 2013 at 3:43 pm said:

    You supported the law. Choke on it.

    @kirstenpowers10: I just learned that I have to buy my insurance on the Maryland exchange (even tho i live in DC). Just went there…site isn’t working.

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  27. Michigoose, on November 6, 2013 at 5:44 pm said:

    McWing:

    Astrodome–welcome defeat or disappointed?

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  28. Troll McWingnut or George, whichever, on November 6, 2013 at 6:45 pm said:

    The Astrodome was always a sucker’s bet for taxpayers. Waste of money then and waste of money now. These projects are bullshit everywhere. The construction companies finance municipal elections and they get construction contracts in return. The taxpayer gets bent-over.

    I did not vote to refurbish it. I will bet money though that the city still gets it refurbished at my expense.

    It’s completely galling.

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    • ScottC, on November 6, 2013 at 7:34 pm said:

      From Ace. Watch this clip and note the new word Wasserman introduces into the English language at around the 1:10 mark. Is there any possible explanation for this other than that Wasserman is actually reading from a teleprompter in what is supposed to be a live and unscripted interview, and just mangled the word she was unthinkingly repeating for the audience?

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      • ScottC, on November 7, 2013 at 8:20 am said:

        I continue to be amazed and fascinated by this Wasserman-Schulz interview. Is there any innocent explanation at all to the fact that she mangles the word “mis-led” and pronounces it “mizled”? If she was in fact reading from a teleprompter, is this a regular occurrence and what does this reveal about MSNBC or the media in general?

        I have to admit that this is beyond even anything I have imagined they were capable of, and I am a huge cynic about the media.

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  29. Michigoose, on November 6, 2013 at 8:25 pm said:

    McWing–

    Well, Seattle did get rid of The Wart eventually. Of course, they built two stadiums to replace it, but they’re at least attractive.

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  30. Troll McWingnut or George, whichever, on November 7, 2013 at 8:43 am said:

    It wouldn’t surprise me in the least. This is NBC after all, the network that likes to employ President’s daughters and fluffs this President in particular. I’m sure the load a Teleprompter for her after the producers receive the talking points from the White House.

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  31. markinaustin, on November 7, 2013 at 8:45 am said:

    This means that a $1 reduction in government spending reduces GDP by 60 cents, while a $1 increase in taxes reduces GDP by $1.80.

    I would expect the greatest effects to be felt by either direct spending on the poor or taxation on the poor, as that puts or pulls money from those who would spend it most quickly. If my expectation were to be borne out, then the reversal of the payroll tax half holiday would have had the greatest impact of any single measure.

    Do we have a breakdown?

    Just curious.

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    • ScottC, on November 7, 2013 at 9:03 am said:

      Mark:

      I would expect the greatest effects to be felt by either direct spending on the poor or taxation on the poor, as that puts or pulls money from those who would spend it most quickly.

      If the speed with which a dollar gets spent was really a dominant factor, then why would taxation be a drag at all on GDP, no matter who was taxed? Given that the government regularly runs deficits, it spends those dollars faster than anyone else.

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      • markinaustin, on November 7, 2013 at 9:41 am said:

        Scott, you haven’t answered my question but you have raised another issue altogether.

        I recall GDP, which is measured on an annual cycle, to equal private consumption, plus investment, plus government spending except for transfer payments, plus net exports – which actually means minus net inports.

        Private consumption is much bigger than any other component.

        So theoretically private consumption is most easily stimulated by more money in the hands of the people who spend fastest, for food, say, so that grocers buy more food and farmers grow more food within the annual cycle. And theoretically ending a payroll tax holiday would slow growth.

        But I want to know if theory was borne out here, and someone has crunched those numbers and Brent is a good bet to know that.

        None of this is to say I ever approved the tax holiday in the first place, but its stated purpose was stimulus and I would like to know if it worked while it was in place as intended, and then worked in reverse when the holiday ended.

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        • ScottC, on November 7, 2013 at 10:37 am said:

          Mark:

          Scott, you haven’t answered my question but you have raised another issue altogether.

          Yes, that is right. I don’t have an answer to your question, but I do wonder about the premise regarding the speed of spending. That is, that a tax break for less well off people is necessarily better for the economy than a tax break for the more well off. It’s not as though the wealthy take their money and bury it in the back yard until it is needed. They invest it, at which point it is spent by those in whom it is invested.

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  32. novahockey, on November 7, 2013 at 9:06 am said:

    “This is NBC after all, the network”

    don’t forget, when they couldn’t get a van to explode in their faulty gas tanks witch hunt, they stuffed with explosives.

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    • ScottC, on November 7, 2013 at 9:20 am said:

      nova:

      don’t forget, when they couldn’t get a van to explode in their faulty gas tanks witch hunt, they stuffed with explosives.

      Yeah. And NBC isn’t alone. Still, shouldn’t this be a fairly notable scandal?

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  33. novahockey, on November 7, 2013 at 9:30 am said:

    it would if anyone cared what DWS had to say. she’s just a progressive chatty-cathy doll*.
    pull the string: “war on women!” or “inequities”

    I much prefer the Al Gore one: http://www.youtube.com/watch?v=HHVxjMT1-os

    *obligatory anytime such a doll is referenced.

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    • ScottC, on November 7, 2013 at 9:43 am said:

      nova:

      t would if anyone cared what DWS had to say

      Sure, but that leads into just what I want to know…how common is this? Who else is doing this?

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  34. novahockey, on November 7, 2013 at 9:55 am said:

    i’ve never heard of it before, but i’m not really tapped into the media. i have friends who are. i’ll ask around.

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    • ScottC, on November 7, 2013 at 10:48 am said:

      nova:

      i’ve never heard of it before, but i’m not really tapped into the media. i have friends who are. i’ll ask around.

      I know a TV news producer in DC who covers the White House. This is what he said when I asked him about it:

      Wow! I just watched this an would have to agree that it would appear she could be reading from prompter… HOWEVER, I cannot possibly imagine a news organization even one as liberal as MSNBC would allow or provide a prompter for an interview. That is unethical and absurd. I know your thoughts on the media but I do believe that line would not be crossed.

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  35. jnc4p, on November 7, 2013 at 10:53 am said:

    “it would if anyone cared what DWS had to say”

    Bill Maher tried his best to get DWS, Rob Reiner and even Neil deGrasse Tyson to admit that President Obama had lied with the “You can keep your healthcare” line to prove that progressives weren’t “like them” when it came to being in a bubble.

    DWS flat out denied it and said that Obama had told the truth (i.e. full White House spin regurgitation), Reiner tried to say it wasn’t relevant and refused to engage the premise and Tyson just sort of looked bemused while also dodging.

    http://www.hbo.com/real-time-with-bill-maher#/real-time-with-bill-maher/episodes/0/299-episode/index.html

    It was an illuminating exchange on the issue of equivalency in spin, but not the way that Maher wanted.

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