Free Markets, Free People

Daily Archives: February 10, 2010

Musings, Rants and Links over the 18th Fairway: February Housing Edition

On the heels of last weeks delightfully mixed bag of employment data (job creation looks like it may be out of reverse and into neutral) we get some new housing data. There the signals are more disquieting, if expected (at least by me.) The housing market may now be heading back down.

The interesting aspect of this is that so many people see this as unlikely. So let us list some reasons why this is a real risk, if probably not as rapid a fall as we saw previously.

  • Prices are still above a long term stable level. This could be taken care of by stagnating prices and inflation, but there is little inflation right now.
  • The price to rent ratio is out of whack, and rents are still falling, in fact, accelerating. Little wonder, since there is an 11% vacancy rate.

Source: Gary Shilling

  • There are 231,000 newly built housing units sitting vacant.
  • There are 3.29 million vacant homes for sale.
  • Then there is the shadow inventory of homes that are off the market for various reasons (such as foreclosed homes banks are unwilling to sell yet to avoid realizing losses.)
  • Defaults are accelerating, with the largest source of pain now prime loans. As I have maintained for a long time this is not, and never has been, a subprime problem. Subprime was just what collapsed first being the weakest link in the housing market.

Source: Gary Shilling

  • That acceleration is unlikely to slow any time soon as not only are workers still losing jobs and few new potential owners getting jobs, but the length of unemployment is unprecedented in the post war era. The longer a worker is unemployed, the more likely they are to default.

Source: Gary Shilling

  • Lending is still tight for many mortgage seekers.
  • We are forming households at a reduced rate, thus lessening demand for new homes.

Source: Gary Shilling

  • More than 20% of homeowners are currently underwater. Nothing correlates more closely with default rates than negative equity.
  • Worst of all, we need to revisit an old topic of mine that is no longer a longer term risk, but right around the corner. The likely huge wave of defaults represented by Alt-A and Option Arm Loans about to reset. Defaults have followed with a lag each wave of resets, and the largest wave, from the era with the worst underwriting is about to hit. Notice, subprime is receding. With the system as fragile as it is now, what will this wave bring on?

I always am nervous about calling anything a prediction, but further housing deterioration is a very grave possibility.

Needless to say, this has led to further problems at Fannie, Freddie with more to come. Not that you should be concerned about that, the mission has changed. On their way to probably 400 billion in losses (I remember when I was an alarmist claiming that the losses would be far more than the 20-30 million the government was claiming, probably 200 billion. It turns out I was a cockeyed optimist) the government has officially eliminated any limit on their exposure. Why? It seems to be so that they can take losses!

Freddie’s federal overseers nevertheless have instructed Mr. Haldeman to focus on something that isn’t likely to make the bleak balance sheet look any better: carrying out the Obama administration plan to allow defaulted borrowers to hang onto their homes.

On a recent afternoon, employees at Freddie’s headquarters here peppered Mr. Haldeman with concerns about the company’s future. He responded that they were “fortunate” to have such a clear mission—the government’s foreclosure-prevention drive. “We’re doing what’s best for the country,” he told them.

Then there is the poor FHA:

FT Alphaville is certainly in the skeptical camp referred to by Ms Burns, and we were not reassured when the housing agency released its December monthly report on Tuesday.

According to the report, the default rate in the FHA’s single-family portfolio hit 9.12 per cent in the fourth quarter of 2009, compared with 6.82 per cent in the same period a year prior.

In absolute terms, that means the number single-family mortgages insured by the FHA and in default reached 531,671 in the fourth quarter of 2009. That’s a 66 per cent increase versus the same period in 2008.

The agency is being hit hardest by the 2007 and 2008 mortgage vintages; the performance of these loans is so dismal the FHA expects to have to pay claims on at least one out of every four loans made in those years.

Cross Posted at: The View from the Bluff

The War Against The Filibuster (Update)

Scott Brown wins in Massachusetts and already those rowdy Republicans are filibustering.  Now that they have that 41st vote, by gosh they are committed to saying no to everything, to include a “routine” nomination of some poor inconsequential slob (lead counsel for the SEIU) to a nothing job (National Labor Relations Board) where his power is limited (has indicated he’d find a way to implement “card check” without Congressional approval).

That’s what you’d believe if you listened to the left today. Craig (let’s unilaterally expand the bureaucratic powers of the NLRB) Becker’s nomination didn’t garner the 60 votes necessary to pass and thus it’s the Republicans fault. The vote?

52 -33.

But wait, you say, that’s only 85. Aren’t there 100 Senators? Well yes. But 15 didn’t vote.

Really? And now many of those were Republican?

I’m glad you asked. 10 were Republican.

So, obviously then 5 were Democrats.

Well 4 Democrats and a Socialist Independent. And had those 5 voted “yea”, the Democrats would have had 57.

Uh huh. So were all those who voted “nay” Republicans?

Well, no. 2 were Democrats.

So let me get this straight – if every Democrat and “Independent” had voted “yea” yesterday, they’d have had 59 votes, correct?


But they didn’t. Two Democrats voted “nay”.


And 31 Republicans voted “nay”.


So with 10 Republicans not voting, how are we sure the Republicans “filibustered” this vote? Were they just assumed to be a nay vote? And isn’t it true that even if the Democrats had retained their 60 vote filibuster proof majority it appears only 58 would have voted “yea” on this nomination?

Uh, yes.

Just sayin’.

UPDATE: The Hill identifies what happened yesterday for what it really was – the result of a “hold”:

On Tuesday, Republicans successfully blocked the nomination of Craig Becker to the National Labor Relations Board by using a hold, which is similar to a filibuster in that it requires that 60 senators vote to break it.

Remember, it’s “like a filibuster”, but not a filibuster.  Regardless note who is on the blame line.  However, the same argument applies. Even with 60 votes it appears the Dems would have only been able to muster 58.  As a commenter said, it was a bi-partisan rejection.

In another development, it appears the White House plans on using the filibuster as a campaign issue.  That whine is sure to garner tons of sympathy and votes.  Especially among the majority who think the country is headed in the wrong direction and the 75% who are angry at government.

Lastly, John Cornyn makes the appropriate points about the filibuster on of all places, Twitter:

Cornyn: RT @thenote: re: filibuster. Bipartisan support for protecting minority rights. What goes around comes around.

Indeed (and Republicans will surely see it come around again to the benefit of Democrats – we call that gridlock and we find it to be good). And good luck trying to get it changed anytime soon – to do so would take a 2/3rds vote (67).



What Bi-Partisanship Really Means

Especially in cases like this. Mark Knoller nails it:

When a sitting president calls for bipartisanship by the opposition – he really means surrender. And if they block his proposals, its “obstinacy” and not political views they hold as strongly as he holds his.

Bingo. Spot on. So why, again, are the Republicans agreeing to this televised “bi-partisan” health care summit?

“At this late date, it is hard to see how bipartisanship is going to occur,” said Ron Pollack, the executive director of the healthcare reform activism group Families USA. “Quite frankly, I don’t understand how this dialogue is going to move the process forward other than by demonstrating that the opposition only cares to derail reform.”

Liberals see the summit as a chance for Obama to be seen responding directly to Republican critiques and for him to critique their ideas. “It isn’t going to change the prospects of passing reform,” said Richard Kirsh, national campaign manager of Healthcare for America Now, a union-affiliated activism organization. “It’ll be one more chance for people maybe to understand that Republicans have no ideas to actually solve the healthcare crisis.”

That last line is it’s purpose and, if it is anything like the performance at the Republican retreat, that will be the outcome. With the president saying he won’t reset the process or trash the present version of the bill, it should be obvious that this isn’t really about bi-partisanship or any desire to include the GOP or its ideas. It is a plan to embarrass them publicly and gain political points.

House Republicans are fresh from an encounter with the president at their retreat in Baltimore last month, where he garnered rave reviews for his performance taking questions from GOP lawmakers on live television.

“It may be that the president came off looking pretty good during the Republican retreat and maybe they think there is a political gain to be had from this. My side needs to plan very carefully for this,” said Rep. Michael Burgess (R-Texas). “It’s a press event, not a policy event.”

Of course it is. So again, why has the GOP agreed to participate?

And, of course, the irony is that a process which has been entirely closed to the public, after a campaign promise of transparency, is now suddenly thrown open to the cameras? Yeah, no reason to be suspicious about that, is there?

The Republicans: Oz’s scarecrow of politics.



Quote Of The Day – Debt Edition

Has anyone ever considered the fact that so much debt and borrowing is a national security problem?

“From 1789 through 2008, the U.S. government borrowed a total of $5.8 trillion. In 2009, the federal budget deficit exceeded $1.4 trillion. The administration now expects the 2010 deficit to break that record, topping $1.6 trillion. And in 2011, it would only fall to about $1.3 trillion. Thus, in just three years, the debt will have jumped an astonishing $4.2 trillion.” – James Capretta, a Fellow at the Ethics and Public Policy Center

Those to whom we own money – especially as much as we do – hold some pretty powerful leverage. The Chinese military has been stomping around all week urging their government to use it. They want China to sell some US bonds to deliver a little “economic punch” to get our attention, apparently.

“Bush made me do it” won’t work when piling up this much debt.  The GOP’s ready-made economic and national security issue is found within the quote.  That assumes they don’t just placidly go along with the mammoth increase in the debt.  And that’s never a safe assumption.



Stimulus Watch: Green Jobs Created Overseas

I’m sure the politicians who wrote, didn’t read and passed the $787 “Stimulus” bill would tell you they never intended for your hard earned tax dollars to “stimulate” foreign manufacturers. But in the field of wind energy, that’s precisely what has happened.

Nearly $2 billion in money from the American Recovery and Reinvestment Act has been spent on wind power, funding the creation of enough new wind farms to power 2.4 million homes over the past year. But the study found that nearly 80 percent of that money has gone to foreign manufacturers of wind turbines.

“Most of the jobs are going overseas,” said Russ Choma at the Investigative Reporting Workshop. He analyzed which foreign firms had accepted the most stimulus money. “According to our estimates, about 6,000 jobs have been created overseas, and maybe a couple hundred have been created in the U.S.”

In fact, the American Wind Energy Association has reported a drop in U.S. wind manufacturing jobs last year. Again, our central planners have screwed up. And what do they have to say? Well let’s hear from one of the more vocal ones who usually never misses a chance to tell everyone how well he does his job:

Sen. Chuck Schumer, D-N.Y., called the flow of money to foreign companies an outrage, because the stimulus, he said, was intended to create jobs inside the United States.

“This is one of those stories in Washington that when you tell people five miles outside the Beltway, or anywhere else in America, they cannot believe it,” Schumer told ABC News, “It makes people lose faith in government, and it frankly infuriates me.”

Yeah – like this is the first time the results of actions by Schumer and his colleagues has caused people to “lose faith” in government. Seen the polls lately Chuckie?

Meanwhile the administration is engaged in pure and unadulterated lying about the subject:

Matt Rogers, the senior adviser to the Secretary of Energy for the Recovery Act, denied there was a problem.

“The recovery act is creating jobs in the U.S. for American workers,” said Rogers, “That is what the recovery act is about, that is what it is doing. Every dollar from the recovery act is going to create jobs for the American workers here in the U.S.”

Really Mr. Rogers? Then explain this:

Iberdrola, one of the largest operators of renewable energy worldwide, is based in Spain and has received the most U.S. stimulus dollars — $577 million. It buys some of its turbines from another Spanish manufacturer, Gamesa, which has a U.S. connection. Gamesa has two facilities to manufacture turbine blades in Pennsylvania, but the company said the market forced it to temporarily lay off nearly 100 workers.

Half a billion dollars plus to a foreign manufacturer and the net result is 100 US workers end up being layed off.

Your tax dollars at work, spent by an inept and out-of-touch Congress and administered by a clueless administration who will tell you with a straight face that they’re “creating and saving” jobs when the facts say otherwise. The same administration which is now threatening increased taxes for US companies with overseas operations is handing out borrowed money in the billions to wholly owned foreign corporations.

Now, with this new “jobs bill” they’re going to want more money (anywhere from $85 to $150 billion) when only a 1/3 of the previous “stimulus” has actually been spent, and, as indicated above, not very well. Naturally, the GOP is making noises about supporting the latest effort.

And they wonder why there are Tea Parties.