Morning Report – Existing Home Sales rise 3/23/15

Markets are flat this morning on no real news. Bonds and MBS are up.

Existing Home Sales rose to an annualized pace of 4.88 million in February, up slightly from 4.82 million in January. Note this is probably a weather-driven number and February is still in the seasonally slow period. The median home price was $202,700 which is up 7.5% year-over-year. Median income is about $55,000 or so, which means the median house price to median income ratio is sitting at 3.68x, which is on the high side. Historically, that ratio has sat in a range of 3.15x – 3.55x. It means that house prices are probably not going to flatten until we start seeing wage inflation.

The Chicago Fed National Activity Index slipped in February as production-related indicators fell. Employment related indicators slipped however were still positive. Poor weather undoubtedly played a role.

The housing reform bill is making its way into the House. This bill, called The Partnership to Strengthen Homeownership Act envisions winding down Fan and Fred, and increasing the role of Ginnie Mae. Private mortgage insurance will bear the first 5% of severity with the government bearing losses beyond that. It sounds like this bill is gaining support of Congressional Republicans as well, however understand this bill is the left’s wish list. The left wants to continue social engineering via the housing market while the right wants to decrease the government’s footprint. The social engineering (aka “affordable housing”) stuff will probably be the biggest sticking point. The plan envisions Ginnie Mae’s 10 basis point guarantee fee will be used for affordable housing goals. Note the government plans to wipe out Fannie and Freddie stockholders, although those two stocks are litigation lottery tickets at this point.

The low price points in urban areas are beginning to decline again. In many urban areas, the suburbs have recovered, while the inner cities remain weak. I wonder how much property in the inner cities was bought by professional investors who are starting to eye the exit. Rental prices continue to rise, but at some point pros will want to monetize these investments. Of course this also demonstrates one of the issues with the CRA: it demands that bankers ignore location when considering the riskiness of the underlying collateral when pricing credit, when location clearly matters.

34 Responses

  1. An economic program the NYT can get behind: Utopia.

    http://www.nytimes.com/2015/03/22/opinion/sunday/why-not-utopia.html

    This conveys all you need to know about how seriously to consider this article:

    And since wealthy people don’t spend nearly as high a percentage of their incomes as poor people do, much wealth is sitting around not doing its job.

    /snicker/

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  2. “And since wealthy people don’t spend nearly as high a percentage of their incomes as poor people do, much wealth is sitting around not doing its job.”

    Fascinating. So the companies bankrolled by their investments, and the banks that lend out the money deposited with them by wealthy folks, aren’t “doing their jobs”? Yada yada.

    I understand the argument that additional income provided to the poor and middle class, through whatever means, is more likely to find itself immediately injected into the domestic economy, and thus act as a financial stimulus. But the idea that invested and deposited money sits around all day and does nothing is . . . interesting.

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  3. sounds like Aletheia, with the USSR did state capitalism argument…

    And yes, the left somehow believes the formula for GDP is C + G + X – M

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  4. @brentnyitray : How long is the voting open for your guitar competition?

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  5. I think through the end of the month…

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  6. Would you mind posting the link again? I cleared cookies over the weekend, so I’m in the mood for some ballot box stuffing. 🙂

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  7. Thanks, Scott! BTW, I neglected to mention it the first time, but I like the Wisconsin headgear there, Brent! I’ve got MSU beating the Badgers for the championship. . .

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  8. Worth a read on the EPA:

    “According to EPA, in enacting the 1990 amendments to the Clean Air Act, Congress effectively created two different versions of Section 111, and the agency should be allowed to pick and choose which version it wishes to enforce. According to EPA, since 1990 the U.S. Code has reflected the wrong version of Section 111, and EPA has discovered a mistake made by the Office of Law Revision Counsel of the House of Representatives – the part of Congress responsible for compiling enacted bills into statutory books. According to EPA, both the D.C. Circuit and the U.S. Supreme Court have previously misinterpreted Section 111. According to EPA, the two different versions of Section 111 have created “ambiguity” triggering deference to the agency’s statutory construction under Chevron U.S.A., Inc. v. Natural Res. Def. Council, Inc.

    Every part of this narrative is flawed. The 1990 amendments did not create two different versions of Section 111. The Senate amendment was a substantive amendment, and the House amendment was a conforming one that merely updated a statutory cross-reference. Both were enacted. Once the Senate amendment was made law, the House amendment was rendered moot, as the Office of Law Revision Counsel in the House of Representatives properly concluded. Such a situation – where a substantive amendment moots a conforming one – is a familiar occurrence in the U.S. Code, and EPA’s position would call into question dozens if not hundreds of statutory changes throughout the Code. Instead of harmonizing legislation, as Supreme Court precedents instruct, EPA’s argument would lead to chaos.

    Moreover, EPA’s interpretation of Section 111 would raise serious constitutional questions. If there were indeed two versions of Section 111, EPA’s claim that it is entitled to pick and choose which version it prefers represents an attempt to seize lawmaking power that belongs to Congress. Under Article I, Article II, and the separation of powers, EPA lacks the ability to make law.”

    http://www.masseygail.com/pdf/Tribe-Peabody_111%28d%29_Comments_%28filed%29.pdf

    WSJ Op-ed

    http://www.wsj.com/articles/laurence-tribe-the-epas-clean-power-plan-is-unconstitutional-1419293203

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    • Under Article I, Article II, and the separation of powers, EPA lacks the ability to make law.

      Would that it were so. What the EPA lacks is the constitutional authority to make law. Unfortunately, as experience has made all too obvious, the lack of authority to do something does not translate into a lack of ability to do that thing.

      In my mind the regulatory bureaucracy is far and away the greatest extant danger to the long term existence of the Republic. I seriously don’t understand how anyone who is committed to the constitution, and the notions of separation of powers and federalism that informs it, can possibly support or defend the regulatory bureaucracy as it has come to exist today.

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      • BTW jnc, I thought it worth noting that Tribe quotes Justice Kennedy in one section:

        [i]f agencies were permitted unbridled discretion, their actions might violate important constitutional principles of separation of powers and checks and balances. To that end the Constitution requires that Congress’ delegation of lawmaking power to an agency must be ‘specific and detailed.’

        I understand that Tribe is just bolstering his case with the words of the Justices themselves, but where does the Constitution say anything even remotely suggestive of what Kennedy claims? I don’t think the Constitution “requires” any such thing precisely because the power to delegate its lawmaking powers to another institution isn’t authorized under any circumstance, whether “specified and detailed” or not. Seems to me Kennedy was just making shit up.

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        • And yet more:

          http://www.philly.com/philly/news/nation_world/20150322_FEMA_to_deny_funds_to_warming_deniers.html

          The Federal Emergency Management Agency is making it tougher for governors to deny man-made climate change. Starting next year, the agency will approve disaster-preparedness funds only for states whose governors approve hazard-mitigation plans that address climate change.

          Is this policy going into effect as the result of a new law passed by congress? No, of course not. The president/FEMA simply decided that it should be policy so it made it so. In other words, the executive is making new law.

          Has there ever been another administration in history as consistently contemptuous of the constitution as Obama’s?

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        • To that end the Constitution requires that Congress’ delegation of lawmaking power to an agency must be ‘specific and detailed.’

          Now an old test, not invented by Kennedy.

          How this was supposed to play out, for example:

          Congress puts a tariff on vegetables but not one on fruits. Treasury gets to collect the tariff against vegetables. When Treasury calls a tomato a “vegetable” the tomato importers say it is a “fruit”. The publication of a list of veggies by Treasury and the opportunity to argue the list, before published Treasury Regs call tomatoes veggies is supposed to save the Supremes from deciding the issue – an issue it actually did decide, calling the tomato a “veggie”. So the Supremes gave the executive the supposedly strictly limited authority to regulate under that test, over 100 years ago. Congress would not have to think up a laundry list of veggies, it could just say “veggies”, and leave the executive to publish lists for folks to argue about.

          I am happy with the test applied strictly, but unhappy with the myriad of delegated agencies that are not even Cabinet departments. I know that no law of general application can microdefine all circumstances, but I also know that the habit of “writing a statute to create an agency to broadly regulate under the statute creating the agency” is actually quite lazy, as opposed to the mere addressing of nitpicking inconvenience. No one but the executive can execute the law and no one but congress can write one, so each new agency is quasi, not truly a commission of Congress under the internal rules of the body and not completely an executive agency, either.

          An infinity of such offices is actually countenanced by the Constitution, btw.

          He shall have Power, by and with the Advice and Consent of the Senate, to make Treaties, provided two thirds of the Senators present concur; and he shall nominate, and by and with the Advice and Consent of the Senate, shall appoint Ambassadors, other public Ministers and Consuls, Judges of the supreme Court, and all other Officers of the United States, whose Appointments are not herein otherwise provided for, and which shall be established by Law: but the Congress may by Law vest the Appointment of such inferior Officers, as they think proper, in the President alone, in the Courts of Law, or in the Heads of Departments.

          I am sure the writers meant to allow for convenience in the creation of offices as necessary, but the clause is a great big invitation to abuse. The US Marshal service is one thing and the EPA is quite another.

          Here is an interesting Congressional view:

          http://www.gpo.gov/fdsys/pkg/CHRG-106hhrg71984/html/CHRG-106hhrg71984.htm

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        • Mark:

          Now a 120 year old test, not invented by Kennedy.

          Tribe quoted the Court (Kennedy) as saying “To that end the Constitution requires that Congress’ delegation of lawmaking power to an agency must be ‘specific and detailed.’”

          But he also quoted the Court (Scalia) as saying (emphasis original) “Legislative power is nondelegable. Congress can no more delegate some of its Article I power to the Executive than it could delegate some to one of its committees. What Congress does is to assign responsibilities to the Executive…”

          These two things cannot both be true. And my reading of the Constitution tells me that the latter is true. No where does the Constitution grant congress the power to delegate its powers to the executive, under any circumstances. Therefore, when Kennedy claims that the Constitution sets out specific circumstances in which Congress can delegate its lawmaking powers, I think he is making it up. What he claims simply does not exist in the Constitution.

          I get that the line between making judgments in pursuit of enforcing an ambiguity in the law and establishing policy itself can sometimes be blurry. But we are not talking about tough cases here. The difference between deciding whether a tomato falls under vegetable regulations and deciding whether to re-classify cheese as a vegetable so that it can be regulated as a vegetable is neither small nor debatable. We have long since moved past the point at which the agencies are making the former decision (although they still do that too) and are well into the area in which the agencies are routinely doing the latter.

          The fact that we have even gotten to this point shows that the executive branch (the agencies) cannot be trusted to have any leeway at all. While, in the abstract it may seem perfectly fine to allow an agency to determine whether a tomato qualifies to be regulated under laws referring to vegetables, experience shows us that it should never have been allowed to make such a decision. To the extent that there is any ambiguity in a given law that seems to call for a regulatory judgement, then non-enforcement must be the default position. To do anything else is to invite an increasing abuse of power. If it is not clear that a tomato is undeniably a vegetable, then it can’t be regulated as one, unless and until congress explicitly says so. If there is any ambiguity as to whether coal should be regulated under section 111(d), then it can’t be regulated under that section, unless and until congress explicitly says it should be. If there is any ambiguity as to whether FEMA should be withholding funds from states that reject global warming theology, then it can’t withhold those funds unless and until congress explicitly says it should.

          If experience has taught us anything, it is that to give the executive any discretion at all to resolve ambiguity in favor of more enforcement is to invite the abuse of that power to no end.

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        • Scott – I agree that the Constitution doesn’t say that – my point is that Kennedy’s words were not new to him.

          I agree that non-delegability has been killed by the Court since probably the tariff case Taft decided – when he announced “intelligible principle”. But it was dying in the earlier tariff cases after the tomato case. Here is a quote from the tea case in 1904:

          ‘The basic question in this case is as to the true construction of the act of Congress of March 2, 1897,* entitled ‘An Act to Prevent the Importation of Impure and Unwholesome Tea.’ Section 1 makes it unlawful ‘to import or bring into the United States any merchandise as tea which is inferior in purity, quality, and fitness for consumption to the standards provided in 3 of this act, and the importation of all such merchandise is hereby prohibited.’ Section 2 provides for the appointment by the Secretary of the Treasury, immediately after the passage of the act, and on or before February 15 of each subsequent year, of the board of tea experts, ‘who shall prepare and submit to him standard samples of tea.’ Section 3 provides that the Secretary of the Treasury, upon the recommendation of said board, ‘shall fix and establish uniform standards of purity, quality, and fitness for consumption of all kinds of teas imported into the United States,’ samples of such standards to be deposited in various custom-houses, and supplied to importers and dealers at cost, and declares that ‘all teas, or merchandise described as tea, of inferior purity, quality, and fitness for consumption to such standards shall be deemed within the prohibition of the first section hereof.’

          The Court never had a moment’s pause in upholding the Treasury Reg as within the law contemplated by Congress.

          The claim that the statute commits to the arbitrary discretion of the Secretary of the Treasury the determination of what teas may be imported, and therefore in effect vests that official with legislative power, is without merit. We are of opinion that the statute, when properly construed, as said by the circuit court of appeals, but expresses the purpose to exclude the lowest grades of tea, whether demonstrably of inferior purity, or unfit for consumption, or presumably so because of their inferior quality. This, in effect, was the fixing of a primary standard, and devolved upon the Secretary of the Treasury the mere executive duty to effectuate the legislative policy declared in the statute. The case is within the principle of Marshall Field & Co. v. Clark, 143 U.S. 649 , 36 L. ed. 294, 12 Sup. Ct. Rep. 495, where it was decided that the 3d section of the tariff act of October 1, 1890 [26 Stat. at L. 567, chap. 1244], was not repugnant to the Constitution as conferring legislative and treaty- making power on the President, because it authorized him to suspend the provisions of the act relating to the free introduction of sugar, molasses, coffee, tea, and hides.

          The growth of delegation started with the understanding of general non-delegability, with permitted exceptions. First, there was what I would call “filling minor details” – the Supremes could make rules for conduct in the lower courts. And a federal court could decide on its own that a document sworn before a state notary or county clerk was sufficient to support false swearing in a Homestead Act dispute in fed court even though Congress had not deputized state officials to take oaths.

          Also early on, there were contingent statutes – these go way back to our shipping disputes with England and France. The POTUS could do X if Britain did X, etc.

          Back to CJ Taft. 1928, Hampton. I had to look it up to get the quotations.

          ”[O]ur jurisprudence has been driven by a practical understanding that in our increasingly complex society, replete with ever changing and more technical problems, Congress simply cannot do its job absent an ability to delegate power under broad general directives.”

          ”common sense and the inherent necessities”

          ”intelligible principle”

          These three quotes in that case effectively killed the non-delegation doctrine.

          It has been dead for 87 years. It died because both political branches persuaded the Court that it was impossible to govern without it “in our increasingly complex society.”

          Yes, there should have been a constitutional amendment, instead of a Court doctrine. But no Court is going to reverse field now. Not even an all conservative court.

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        • Mark:

          First, thanks for the research and citations. I appreciate it.

          Yes, there should have been a constitutional amendment, instead of a Court doctrine. But no Court is going to reverse field now. Not even an all conservative court.

          Undoubtedly true, but then the Court should be honest and simply acknowledge that it no longer finds it amenable to enforce the constitution. It should not lie and pretend that the Constitution requires it to do that which it simply finds expedient to do. And this fact simply reinforces my previously stated belief that the regulatory bureaucracy represents the greatest threat to the long term existence of our constitutional order (or at least that which hasn’t yet been destroyed already). It will simply keep expanding and SCOTUS, having abandoned already constitutional principle, has no justification for stopping it.

          BTW, with regard to the whole “complex society” argument, I would argue that if Congress thinks it can’t do its job without following the constitution, then perhaps Congress (and the courts) doesn’t really know what its job is. Imposing the force of government against citizens, which is all that law is, is not supposed to be easy. The founders understood that government was as dangerous to liberty as it was necessary to secure liberty. Would that more people understood that today.

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        • 9 Reasons Ted Cruz is exactly like Barack Obama

          http://thefederalist.com/2015/03/25/9-reasons-ted-cruz-is-exactly-like-barack-obama/

          This line gave me a chuckle:

          Obviously, Obama drew first blood here with his ruinous dog turd of a signature legislative achievement [Obamacare]. Among its many, many unintended negative consequences, we see now that it also gave Cruz a path to the presidency.

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  9. Michi, the rule last year was that every time I had a gig, the Badgers won…

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  10. And your schedule for this year?

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  11. I agree with Jonathan Adler that the rule making by the EPA based on trying to bootstrap a Chevron argument is essentially the same issue as with the IRS’s rule being litigated in King.

    http://www.washingtonpost.com/news/volokh-conspiracy/wp/2015/03/17/could-the-federalism-arguments-in-king-v-burwell-sink-the-epas-clean-power-plan-prof-larry-tribe-thinks-so/

    Tribe argues that the EPA rule is overreach, but that the IRS rule is fine. I don’t see how he can square those two positions.

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  12. “Has there ever been another administration in history as consistently contemptuous of the constitution as Obama’s?”

    Adams’ and arguably Lincoln’s. Maybe Nixon’s? Of course, Lincoln had a civil war to contend with and the fate of the nation lay in the balance. I think it’s hard to argue that with Obama’s administration. The question is, will the next occupant of the Whitehouse keep up this strategy? Presumably most Republicans would use the same executive power to peel back such things.

    Although this seems to me, more than Obama, individual agencies taking on more and more law-making capacity.

    That being said, I expect many politicians will be crafty enough to figure out how to take the money and apply it in ways that conform with the letter of the “law” while otherwise skirting it, leading to more unintended consequences. Which tends to happen more and more when a centralized entity tried to micromanage everything in the chain.

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    • KW:

      Adams’ and arguably Lincoln’s.

      Perhaps Lincoln’s. Not sure about Adams. What do you have in mind? Nixon strikes me as more contemptuous of ordinary law (It’s not illegal if the president does it) than of the constitution itself. McWing makes a good point with regard to FDR. The damage he did to the constitutional order is pretty steep.

      Although this seems to me, more than Obama, individual agencies taking on more and more law-making capacity.

      At the behest of the executive. Remember that they work for and are answerable to the executive. If Obama didn’t want them to be doing this stuff, they wouldn’t be doing it. They are implementing Obama policy. (Although the issue of agencies operating without even executive control is certainly something that is concerning.)

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  13. Tribe is getting paid to litigate against the FEMA overreach. Might be a subtle message that he could come around re: the IRS, should the right people start writing checks.

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  14. Worth noting what bothers the Obama administration:

    “The espionage didn’t upset the White House as much as Israel’s sharing of inside information with U.S. lawmakers”

    http://www.wsj.com/articles/israel-spied-on-iran-talks-1427164201

    Yes, the problem isn’t the spying. It’s sharing information with Congress.

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  15. Wilson? Roosevelt? Johnson?

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  16. @Scottc1: With Adams, I think the Alien & Sedition acts might count. With Nixon, I’ve never felt the government had constitutional authority to set market prices and wages.

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    • KW:

      With Nixon, I’ve never felt the government had constitutional authority to set market prices and wages.

      Agreed but I think that bridge had been crossed long before Nixon.

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  17. Wage and price goes back to at least FDR if not Wilson.

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  18. Of I should put FDR and Wilson in the same boat, for the same reason. All worse than Obama in terms of ignoring the constitution. Not that he’s awesome, given he considers the constitution a mistaken document filled with negative rights, rather than “positive” rights. But that’s another discussion.

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  19. I’m a big fan of Thomas Jefferson, but he believed the constitution should be torn up and rewritten by every new generation. While that has happened in a sense, the original constitution is, at least, still under there somewhere (behind the penumbras and emanations from the judicial, legislative, and executive branches). I suspect it would only be much worse if, by some decree, we had a new constitutional convention every 33 years. I can only imagine what I constitution being drafted now would consist of. I imagine it would be mind-numbingly long. And cater endlessly to the desires of special interest groups, such that it would end up specifying a transexual American’s specific rights to bathroom choices.

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    • KW:

      I suspect it would only be much worse if, by some decree, we had a new constitutional convention every 33 years.

      It would be worse for some and better for others, as the nation would undoubtedly have split up as a result.

      I can only imagine what I constitution being drafted now would consist of. I imagine it would be mind-numbingly long. And cater endlessly to the desires of special interest groups, such that it would end up specifying a transexual American’s specific rights to bathroom choices.

      Probably for the Coastal States of America it would be. For the Flyover States of America I suspect it would be much different.

      Like

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