Morning Report – Housing affordability still above pre-bubble days 3/11/15

Stocks are bouncing back after yesterday’s sell-off. Bonds and MBS are down small.

Mortgage Applications fell 1.3% last week. Purchases were up 1.9% while refis fell 2.9%.

Attitudes about the US economy are finally turning around, according to the Fannie Mae National Housing Survey. More people think the economy is on the right track than the wrong track. Also interesting is that consumers sense that mortgages are becoming easier to get.

Inflation remains low, partly because the rally in the dollar is keeping a lid on import prices. Ever since the ECB began the march towards full QE, the dollar has been screaming. The dollar is approaching parity on the Euro – start thinking about that summer vacation in the South of France. Fun fact, when the euro was trading around 86 cents on the dollar, you could stay at the Ritz in Paris for roughly about the price of a good business hotel in Manhattan.

Housing affordability has decreased a bit since the trough of 2012, but still remains well above the pre-bubble years of 2000 – 2002, at least as measured by mortgage payment to income ratio. Pre-bubble, the DTI ratio for the median income and mortgage payment was about 26%. It rose to almost 35% during the bubble, fell to 17.6% in the trough, and is now around 21%. If you look at the chart below, you can see how much interest only and negative amortization loans factored into the bubble years. Pretty amazing to think that almost 1 in 5 mortgages was an IO / neg am during the go-go days of the bubble.

Interesting story about the mess that is Detroit. As downtown begins its gentrification / hipster renaissance, the rest of the city is struggling, and the biggest problem are these sales based on quitclaim deeds, which can leave the buyer with massive liabilities for back taxes.

In February of 2008, Bank of America was added to the Dow Jones Industrial Average, just as the financial sector was beginning its swan dive. At that time, Apple was a $100 billion dollar company. What would have happened to the index if Apple was added instead of Bank of America?

32 Responses

  1. Ahem.

    Frist!

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  2. Ted Cruz freaks them out

    Nah. He’s a total joke, but there are too many people right now who are humor-impaired.

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  3. And, clearly, the IRS tax code does have more words than the Bible, so they have to spin the fact that he was right and making more of a general point–i.e., “more words than the bible and not one of them as good”. Really missing the point.

    That being said, if he’s even beginning to suggest a president Cruz would make a meaningful dent in that cornucopia of confiscatory bureaucracy, he’s very naíve.

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    • KW:

      That being said, if he’s even beginning to suggest a president Cruz would make a meaningful dent in that cornucopia of confiscatory bureaucracy, he’s very naíve.

      Given the precedents that Obama has set, don’t be too sure. If Obama can effectively change immigration law or the ACA via executive discretion, why can’t a President Cruz do the same with the tax code?

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  4. BTW, @kevinwillis1: you’ve been in fine form on PL this morning! Just sat down to lunch and I’ve been scrolling through the Morning Plum.

    And I want to see NoVA’s boots, too!

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  5. Who here thinks the Executive Branch is too powerful?

    Just right?

    Not powerful enough?

    Given your opinion, what candidate(s) do you support that would at least make a good faith effort to accomplish your desire?

    I think the executive is too powerful and I think Rand Paul is the only one running that might, might try and freeze Executive Power. There is not mainstream candidate willing to roll it back.

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    • McWing:

      Who here thinks the Executive Branch is too powerful?

      I do.

      Given your opinion, what candidate(s) do you support that would at least make a good faith effort to accomplish your desire?

      None. I agree with you. Having said that, R’s tend to appoint the kinds of Supreme Court justices who are more likely (even if not entirely likely) to place limits on unconstitutional executive power grabs than are justices appointed by D’s. So the odds say you have to vote R over D, even if the odds of either are not very good.

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  6. Interesting WW II factoid:

    “In a nutshell, the Japanese during World War II were committed to figuring out how to bomb the US mainland, but lacking the forward air power to do so, they tried instead launching 9,000 hydrogen balloons (made by school girls) with bombs attached.

    US authorities kept the balloon bombs secret during the war even after a number of them went off—including one incident at a picnic at which several people were killed.”

    http://www.lawfareblog.com/2015/03/radiolab-episode-on-japanese-balloon-bombs/

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  7. But, jnc. . . we were the war criminals!

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  8. True.

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  9. The automation controls on the balloons were impressive for the time:

    http://en.wikipedia.org/wiki/Fire_balloon

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  10. @Scottc1: “Given the precedents that Obama has set, don’t be too sure. If Obama can effectively change immigration law or the ACA via executive discretion, why can’t a President Cruz do the same with the tax code?”

    Well, there is that. If he raises taxes with an EO, then, heck, all bets are off. But one would think eventually the congress would, I dunno, do it’s job and do something to stop the usurpation of it’s role by the president.

    But as death and taxes are the only thing we are assured, I feel the Ted Cruz Radical Tax Simplification EO would somehow, at the end, magically leave us with a tax code still bigger than the Bible.

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    • KW:

      But one would think eventually the congress would, I dunno, do it’s job and do something to stop the usurpation of it’s role by the president.

      Hasn’t happened yet. Although I will grant you that an Imperial Cruz would face a lot more media outrage and opposition than does an Imperial Obama, and so yes, an abuse of power under a Prez Cruz would probably be more likely to fail than the abuses of power we have witnessed under Obama.

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  11. @michigoose: “you’ve been in fine form on PL this morning! ”

    It’s the only form I have!

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  12. @jnc4p: ““In a nutshell, the Japanese during World War II were committed to figuring out how to bomb the US mainland, but lacking the forward air power to do so, they tried instead launching 9,000 hydrogen balloons (made by school girls) with bombs attached.”

    And we firebombed Tokyo. And dropped a-bombs on Nagasaki and Hiroshima.

    That’s the kind of ratio I like.

    Still, a clever idea. Ultimately, though, it was doomed. Even if they had sent out 90,000 balloons and gotten 9000 to the US, civilian defense and air wardens and Balloon Bomb Watch Squads would have been posted and they might have started a few more fires and cause a few more casualties, and ended up with another 20,000 firebombs on Yokohama.

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  13. Like

  14. Salon has convinced me. Tom Cotton is a crackpot as evidenced from his college writings.

    “Self-Made at Harvard
    The Illusory Appeal of Libertarianism

    By Thomas B. Cotton, March 15, 1997”

    http://www.thecrimson.com/article/1997/3/15/self-made-at-harvard-pbtbwo-recent-books/

    Source:

    http://www.salon.com/2015/03/11/spare_me_the_diversity_seminars_a_sampling_of_tom_cottons_college_columns/

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  15. Kevin, this was the real danger:

    “Much worse, the Americans had some knowledge that the Japanese had been working on biological weapons, most specifically at the infamous Unit 731 site at Pingfan in Manchuria, and a balloon carrying biowarfare agents could be a real threat.”

    http://en.wikipedia.org/wiki/Unit_731

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  16. @jnc4p: Again, I feel justified in both the use of the a-bombs and the firebombing of Tokyo. Not that I did personally, but one of the reasons they apparently abandoned the program was our bombing had taken out two of the three factories making the hydrogen the balloons needed. Yay, America!

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  17. Yeah, Thomas Cotton sounds like . . . a guy who wrote some stuff. The letter, while perhaps being unwise and ill-advised, and some of the other stuff he’s said . . . sounds to me like a guy playing politics and trying to come up with novel angles. He doesn’t sound like a crackpot, he’s sounds like a guy who, like every politician in Washington, may be a little full of himself and feel a little too entitled. Or he may have seen an opening for himself to emerge on the national stage that was risky, but it was an opening, so he took it. I love how people throw around terms like “crackpot” and “insane”, when these are terms to describe extremes, when in fact the behavior, if not exactly moderate, is both rational in context and, at worst, a really bad idea.

    Ah, well. His Harvard piece seems imperfect but non without rational consideration. Nothing about aliens or the voices in his head anywhere.

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    • KW:

      His Harvard piece seems imperfect but non without rational consideration. Nothing about aliens or the voices in his head anywhere.

      I think anyone who shows such a lack of appreciation for libertarian ideals must be a crackpot.

      More seriously, the idea that government is the means through which “community” acts, or that there are such things as “community” rights, or that government exists to “provide” for “society”, while certainly common (especially on the left) and so perhaps not strictly “crackpot”, are all pretty questionable notions.

      However, I’m not sure I would want to be judged based on what I was writing as a sophomore in college.

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  18. a really bad idea

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  19. Wonder what his grades were.

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  20. @ScottC1: “More seriously, the idea that government is the means through which “community” acts, or that there are such things as “community” rights, or that government exists to “provide” for “society”, while certainly common (especially on the left) and so perhaps not strictly “crackpot”, are all pretty questionable notions.”

    Well, I think the ideas themselves are rational and not particularly crackpot, as they are simply ways of thinking of things. Disagreement, even profound disagreement, doesn’t make the other person insane, or an idiot, imo.

    His production of such a thing is even more rational in context, as it would likely be received much better at Harvard, and likely some particular fellow students or professors, than an Ayn Randian declaration of objectivism. Which is just a rational response to incentives.

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    • KW:

      Which is just a rational response to incentives.

      I don’t know if it makes sense to attribute a one-off op-ed in a college newspaper to existing “incentives”. I wrote for my college newspaper and my articles were most definitely not the product of the “incentives” existing at BC at the time.

      But anyway, I took jnc’s “crackpot” remark to be a joke on the back of Cotton’s less than warm embrace of libertarianism, not a serious critique.

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  21. Yes. It’s a play on Waldman at the PL condemning him as a crackpot based on the letter to Iran and apparently a desire to sanction members of the Iranian government based on their human rights abuses.

    Once it was clear from Salon’s digging that he was actually one of those community types who likes to argue against Libertarianism based on the premise that the only institution in society to counterbalance hyper-individualism is government, then I started to think that maybe Waldman might have a point.

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  22. @ScottC: “I wrote for my college newspaper and my articles were most definitely not the product of the “incentives” existing at BC at the time.”

    Bah! Everything involves incentives. Your incentives may have been to style yourself as a contrarian and a rogue rather than a conformist, or your incentives may have been to get something done before a deadline so nobody hassled you . . . but there are always incentives!

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    • KW:

      …but there are always incentives!

      Of course, but not the type you were referring to, ie those that derive from pleasing others or saying what others want to hear. Personally, my incentive was to have my views expressed in a public forum and I didn’t give a crap whether anyone else was or wasn’t pleased with what I had to say. (The more things change, the more they stay the same, I guess.)

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  23. Indeed, a primary failing of Marxism is the belief that a largely incentiveless system would work in a real world populated by people motivated to improve their own position and emotional states, thus highly incentivized to do things other than toil as a cog in a machine without reward, where there place in the world would be exactly the same as any other. One of the reasons why their ended up being numerous incentives to not produce, to sabotage the productivity of others, and so on, in the Soviet economy.

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  24. @Scottc1: Ah, but I was referring to incentives generally, and that responding to incentives of any kind, whether or not it’s pleasing a certain audience (a reasonably possibility) or pleasing oneself in a reasonable way is normal and typical, not crackpot behavior, as I think exploring political strategies that aren’t typical, but may excite your base or make you a hero within a certain context, is also rational, and not crackpot at all. The worst one could say about Cotton would be that his approach was inappropriate, atypical, skirting decorum, etc. It was not insane or “retarded”, two views I’ve seen espoused. I.e., nothing different from what Obama has been doing with his excessive executive orders, which may certainly be stretching the bounds of what is constitutional from the office of the president, but is not crazy.

    Like

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