Morning Report – More Zillow / Trulia 7/29

Markets are higher this morning as earnings reports continue to come in. Bonds and MBS are up as well.

Consumer Confidence improved dramatically in June, according to the Conference Board. The present situation index rose from 86.3 to 88.3, but the expectations index rose from 86.4 to 92.7. In other words, the increase is being driven more by expectations of the future, which may or may not come to pass. Consumer confidence is back to October 2007 levels, where the first indications of the financial crisis were beginning to be felt. This was the beginning of the buyer’s strike where the big buyers of structured product were saying no mas and banks were beginning to lug paper they couldn’t move.

The S&P Case-Shiller index dropped 31 basis points in month-over-month in May, but is still up 9.34% on an annual basis. This is the seasonally-adjusted number. The non-seasonally adjusted number rose 1.1%. This is the first month-over-month drop since real estate bottomed in early 2012. Prices are back to summer 2004 levels. San Francisco, Tampa, and Chicago led the way with price appreciation.


Mortgage REIT giant American Capital Agency reported good second quarter numbers. They reduced their leverage by shrinking their balance sheet, which is a bearish signal on MBS. Of course everyone knows rates are going up, but you don’t want to lighten your exposure until it is imminent. Interestingly, they cite the favorable supply / demand relationship with MBS, which seems to be unaffected by the Fed’s tapering. This speaks to how lousy origination volumes have been this year.

Will the Zillow / Trulia merger do to real estate brokers what Expedia did to travel agents? That is the fear of many, although Zillow adamantly denies that is where it is going. “We sell ads, not houses.” said Spencer Rascoff, CEO of Zillow. That may be true, but given the sheer size of broker commissions, it is probably inevitable that technology will cut in on their business model. Still, this is a merger of #1 and #2 and it could get blocked on antitrust grounds. If the NAR pushes the regulators to block the deal, it might be curtains. FWIW, the risk arbitrage community thinks this one is a long shot, with the arbitrage spread trading at 9.25% gross. This is very, very wide. On a back of the envelope basis, it looks like arbs are giving this one a 1 in 3 chance of blowing up.

Educational Exception to Copyright: from Volokh

Fourth Circuit strikes down

Virginia ban on same-sex


July 28 at 2:57 PM
In a 2-1 decision in Bostic v. Schaefer, a panel of the Fourth Circuit has invalidated Virginia’s ban on same-sex marriage. The majority opinion was written by Judge Henry Floyd (an Obama nominee, but previously a George W. Bush choice for the district court) and joined by Judge Roger Gregory (Clinton nominee). It’s the second post-Windsor appellate court, after the Tenth Circuit, to strike down an exclusion of gay couples from marriage. Judge Paul Niemeyer (George H.W. Bush) dissented, the second appellate court judge to do so since Windsor. The case was argued by Ted Olson, who recently co-authored a book with David Boies about their challenge to Proposition 8.

The Fourth Circuit majority held that the ban violated gay couples’ fundamental right to marry. Specifically, the majority placed heavy reliance on both Windsor and Lawrence v. Texas as establishing the equal validity of gay couples’ intimate and relational choices:

Lawrence and Windsor indicate that the choices that individuals make in the context of same-sex relationships enjoy the same constitutional protection as the choices accompanying opposite-sex relationships. We therefore have no reason to suspect that the Supreme Court would accord the choice to marry someone of the same sex any less respect than the choice to marry an opposite-sex individual who is of different race, owes child support, or is imprisoned. Accordingly, we decline the Proponents’ invitation to characterize the right at issue in this case as the right to same-sex marriage rather than simply the right to marry.

In what has become fairly common, the panel closed its decision with broad thoughts on the underlying issue of same-sex marriage. But this time the court explicitly used the word “segregation” to describe the exclusion of same-sex couples from marriage:

We recognize that same-sex marriage makes some people deeply uncomfortable. However, inertia and apprehension are not legitimate bases for denying same-sex couples due process and equal protection of the laws. Civil marriage is one of the cornerstones of our way of life. It allows individuals to celebrate and publicly declare their intentions to form lifelong partnerships, which provide unparalleled intimacy, companionship, emotional support, and security. The choice of whether and whom to marry is an intensely personal decision that alters the course of an individual’s life. Denying same-sex couples this choice prohibits them from participating fully in our society, which is precisely the type of segregation that the Fourteenth Amendment cannot countenance.

The idea that laws limiting marriage to opposite-sex couples are a form of segregation is historically loaded, especially for a court sitting in the heart of the old Confederacy. Analogies to the black civil rights movement, and in this context specifically to anti-miscegenation laws and second-class status, have become a staple of gay-rights political and legal arguments. Rarely have they gained quite this explicit an endorsement from a prominent court.

The dissenting opinion is a foretaste of the response to the fundamental-rights argument that we will likely hear in the Supreme Court from (at least) four Justices. It proclaims neutrality on the policy question but leans on judicial restraint in the definition of fundamental rights:

This analysis is fundamentally flawed because it fails to take into account that the “marriage” that has long been recognized by the Supreme Court as a fundamental right is distinct from the newly proposed relationship of a “same-sex marriage.” And this failure is even more pronounced by the majority’s acknowledgment that same-sex marriage is a new notion that has not been recognized “for most of our country’s history.” [citation omitted] Moreover, the majority fails to explain how this new notion became incorporated into the traditional definition of marriage except by linguistic manipulation. Thus, the majority never asks the question necessary to finding a fundamental right — whether same-sex marriage is a right that is “deeply rooted in this Nation’s history and tradition” and “implicit in the concept of ordered liberty, such that neither liberty nor justice would exist if [it was] sacrificed.” [citations omitted]

We don’t know yet whether Virginia will seek review by the entire appeals court before seeking review in the Supreme Court, which would slow down the process. The 10th Circuit case seems to be on a fast track, with state officials eschewing en banc review. It’s likely that more circuit courts will speak to this issue in the coming months, including possible opinions from the 5th and 6th Circuits.

UPDATE: North Carolina’s attorney general, Democrat Roy Cooper, has announced his office will no longer defend the state’s prohibition on gay marriage: “Since the US Supreme Court ruled in the Windsor case, all the federal courts have rejected these arguments each and every time. So it’s time for the State of North Carolina to stop making them.” (HT: Chris Geidner)

Dale Carpenter is the Distinguished University Teaching Professor and Earl R. Larson Professor of Civil Rights & Civil Liberties Law at the University of Minnesota Law School. He teaches and writes in the areas of constitutional law; the freedoms of speech, association, and religion; and sexual orientation and the law.
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