2008 a 1992 redux through housing

September 24, 2007 – 1:55 pm

This struck me as an interesting point from Capital Commerce, one of my favorite blogs that links economics and politics:

"A record 26 percent of U.S. homeowners say the value of their homes has fallen during the past year, above the previous peak of 24 percent seen in 1992, a survey released on Friday showed. Reflecting the extent of the prolonged housing slump, 21 percent of homeowners polled in September expect the value of their home to decline in the year ahead, up from 18 percent in August, according to the data from Reuters/University of Michigan Surveys of Consumers." By the way, 1992 was a year when a Republican lost the White House despite a so-called good economy as measured by GDP growth.

Patrick Ruffini has pointed out to me that we lost New Hampshire and California in that year over the housing slump.

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Foreclosures up… Again

September 18, 2007 – 10:10 am

Top line numbers:

The number of foreclosure filings reported in the U.S. last month more than doubled versus August 2006 and jumped 36 percent from July, a trend that signals many homeowners are increasingly unable to make timely payments on their mortgages or sell their homes amid a national housing slump.

Same bad places for both primaries and swing states:

Nevada, California and Florida had the highest foreclosure rates in the country last month, the firm said.

Nevada reported one foreclosure filing for every 165 households — more than three times the national average. The state had 6,197 filings in August, an increase of 21 percent from July and more than triple the year-ago figure.

California’s foreclosure rate was one filing for every 224 households. The state reported the most foreclosure filings of any single state with 57,875, up 48 percent from July and an increase of more than 300 percent from August 2006.

Florida had one foreclosure filing for every 243 households. In all, the state reported 33,932 foreclosure filings, up 77 percent from July’s total and more than twice the year-ago total.

Georgia, Ohio, Michigan, Arizona, Colorado, Texas and Indiana rounded out the 10 states with the highest foreclosure rates.

I don’t know all the details, but we are looking at over 30k foreclosures in Nevada so far this year.

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How housing plays out

September 16, 2007 – 10:13 am

I have argued that housing will be a big issue in 2008.  Matt Stoller of Open Left has a great example of one way that this is playing out in a Maryland Democratic primary. The Washington Post has a story about how the housing crisis is impacting the Fort Myers community. Some of the facts:

Across this city, even businesses that have little to do with real estate are reeling. Unemployment is up, sales are down and redevelopment ambitions have been scaled back….

"We are in a real estate recession," said Laurance Baer, manager of the Fort Myers-based Baer’s Furniture chain, where sales are plummeting. "And we have an economy that’s much more tied to real estate than anyone realized." …

The region added jobs at a 9.2 percent pace in 2004, and the jobless rate fell to 2.5 percent. …

The job market followed. The unemployment rate was up to 4.7 percent in July. But the real picture may be worse than the numbers indicate, says Michael Reitmann of the Building Industry Association. The jobless rate does not account for the workers, many of them immigrants who have simply moved away as the economy has softened.

I do not believe that this is a map for the future of the country, simply because Fort Myers is one of the municipal areas most severely hit by the housing crisis. However, Las Vegas, Denver, Miami, Phoenix, Jacksonville, Columbus, and Tampa are cities that have been. If those areas go through this kind of economic pressure, it is going to be very hard. And those are all in swing states or swing regions.

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Where’s the economics? Romney’s tax plan is new

September 10, 2007 – 11:07 pm

James Pethokoukis at Capital Commerce asks an important question. Where is the economics in the GOP primary?

Talk about weird. It was as if Wednesday night’s Republican presidential debate hosted by Fox News was beamed in from an alternate reality— Earth 2 or something—where the economy is still booming and housing prices are still rocketing higher. Because here on Earth 1, the six-year economic expansion is stumbling thanks to a credit crunch caused by the imploding housing market.

In some ways, it is probably telling that in today’s environment in a GOP primary health care plans came out before tax plans. James points out in another post that Mitt Romney’s tax plan has something to recommend for it:

Romney may have begun to address that issue–and differentiate himself from his rivals–with his populist-yet-pro-growth Middle Class Savings Plan, the details of which he recently released.

Romney said:

I have proposed changing the rate of taxation on capital gains, dividends and interest to 0 percent for middle class Americans. … Under my plan, any taxpayer with Adjusted Gross Income of under $200,000 would pay a tax rate of absolutely 0 percent on all of the income they earn from their savings. This will allow over 95 percent of American families to save and invest tax-free without worrying about the federal government reaching into their pockets and snatching a share of their savings income each year.

I asked a Democratic friend who used to work on the Hill about it. Other than disagreeing, he made two important points. First, it would be difficult for Democrats to object to this. And, second, once it passes, it creates a principle in the tax code for a zero capital gains tax. Once that passes, it becomes hard to raise it again, on the one hand. On the other hand, Congress just negotiates over levels. Is $200k the right level? What about $300k?

Assuming a Democratic Congress, what would Romney do if a Democratic Congress, seemingly more and more likely, were to let the Bush tax cuts expire and replace them with this? Who would get credit for that?

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Thoughts on the Huckabee conference call

August 31, 2007 – 3:40 pm

Excuse the disorder of my notes. This should have somewhat more organized thoughts. In some real sense this was my first exposure to Huckabee as a candidate. I had interacted with him previously through the Young Republicans, and I knew that he was doing what he was doing to move his candidacy. But I was never forced to process him in the same way that I did today. So please excuse the structure of this.

The first thing that struck me is that no one that I had heard of was asking questions. Huckabee said that they have 150 "Bloggers for Huckabee," and they are clearly different people. Every question, except mine, started with an expression of support or love. This is not how it works for Rudy Giuliani or John McCain. The people on those calls are high-traffic national blogs focused on politics. The people on the Huckabee call were, at least, local blogs, often focused on things other than politics. At the very least this is a different model than the McCain and Giuliani are taking. It is very possible that it is closer to what Mitt Romney’s campaign is doing online, namely developing a blogger community that talks primarily to supporters. Thompson’s seems some of a hybrid. This is interesting, although I am not sure what to make of it.

Second, I asked a question about Huckabee’s economic populism. The answer is pretty striking, and you aren’t likely to hear it from any other GOP candidate in the field. He attacked CEOs and hedge fund managers. Perhaps the most interesting passage was:

As a Christian, [this is] not just an economic issue, but a moral issue. When you have real success, you share it with the people who helped you.  … That’s the difference between capitalism and greed. … A President has to show the moral leadership of the country, not just policy leadership. …

And:

The basic way that the rules have been written to favor a few. …  You have a tax policy that encourages boards a huge tax incentive to give a huge salary to the CEO."

This language could have come out of Barack Obama’s or John Edward’s mouths with little trouble. It probably couldn’t come out of Hillary Clinton’s mouth. I don’t think that she does populism like that. Unlike many of the national blogs out there, I think that there is a real openness in the GOP base for this. The Fabrizio poll that examined the base of the party found an awful lot of people who are not economic conservatives or who view a more activist government as a good thing. Mike Huckabee could make a real play to turn Romney into the candidate of the country-club set, if he tried. And I’m not sure how much of the country club set is still Republican.

Third, he is quite serious about health care, and he talks about it differently than Rudy or Romney do. They are talking about tax credits and pools of risk, etc. These are, of course, tremendously important. However, it is hard to relate to that. Huckabee’s language, befitting a preacher, is much more grounded in the reality of a person’s experience. Look at what he said:

Giving people a $500 discount for doing a health risk assessment. … Free quit smoking classes… Free weight-loss classes. … Studies show that health costs are 60% or more, even 80%, lower after they reduce their obesity…  Turn this thing toward preventive health…

I might even agree with a lot of this. There’s plenty of evidence that preventative medicine pays back plenty over time. (that’s one of the reason that I have a certain sympathy to the Medicare Part D bill.) It is also notoriously hard to score (no way that the CBO or OMB got it right for Part D, and it is clear that, in some cases, they over-estimated the cost) and would be very difficult to get through in that context if there was real penny-pinching going on.

The way he talks about it also makes health care reform a problem of "helping the person" (especially the person acutely aware of their own problems) not "fixing the system." If I am the candidate, I want to be where he is. But can that be converted into a real plan? We shall see.

This was a very interesting call. I still don’t know what to make of Huckabee. There is a lot that I like about him, although I have a gut aversion to populism, and I think that he is wrong, wrong, wrong about how to deal with globalization. But if he continues to gain, he is by far the most credible social conservative and populist in the field.  Those are convertible to victory in Iowa and South Carolina, but probably not in New Hampshire and Florida, and he seems to know that. I wonder where he will go with this.

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Republicans, Democrats, and taxes

August 31, 2007 – 11:45 am

I am really surprised that the tax fight hasn’t been engaged really. There was some, but not too much, noise when the tax-raising budget was passed by a Democratic Congress. But this is going to come back.

In theory, the Bush administration helped the 2008 GOP nominee because imminent, steep tax increases are on the horizon. One question will be how these will be presented over the next couple of years as this debate winds down. Capital Commerce has some great thoughts on this:

The Republican presidential candidates seem to be assuming that their Democratic rivals are going to push for repeal of all the Bush tax cuts. That’s why they are always talking about a potential $2 trillion-plus tax hike when those reductions expire at the end of 2010. More likely, Democrats will call for only the tax cuts on wealthier Americans to be repealed—such as raising the top rate from 35 percent to 40 percent—and for keeping most of the middle-class tax cuts, including rate reductions and a higher child tax credit.

The flip side of this is that the Democrats are going to propose lots of new spending, in the form of health care, etc. How are they going to pay for it? Especially, if they keep the middle-class tax cuts, etc.? Again, Capital Commerce:

Of course, Democrats are going to have to explain how they will pay for keeping the Bush tax cuts after 2010. Even if a Democratic president and Congress let them all expire, none of the new tax revenue—assuming there is any and the economy doesn’t tumble into a recession—could be spent on new programs like healthcare under current congressional budget rules.

Somehow, a circle is going have to get squared in this debate.

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More on Huckabee’s endorsement by Machinists

August 31, 2007 – 11:05 am

I think that this is fascinating. Here’s what the Machinists say:

“Mike Huckabee was the only Republican candidate with the guts to meet with our members and the only one willing to figure out where and how we might work together,” said Buffenbarger. “He is entitled to serious consideration from our members voting in the upcoming Republican primaries.”

Mike Huckbee’s campaign fills out a little what they talked about:

Huckabee spoke before over 700 members of the IAM in Orlando, Florida on Monday about jobs, globalization, health care, and other 21st century domestic issues.

What does that mean? Specifically, on trade, or "fair trade" as Huckabee calls it:

Huckabee also said he believes in fair trade. “Free trade has to be fair trade. We are losing jobs because of an unlevel, unfair trading arena that has to be fixed. Behind the statistics, there are real families, real lives, and real pain. I’m running for President because I don’t want people who have worked loyally for a company for 20 or 30 years to walk in one morning and be handed a pink slip and be told, ‘I’m sorry, but everything you spent your life working for is no longer here.’"

What does this mean? Why aren’t we losing jobs because the skill sets and technology are changing. Protectionism isn’t going to help that. New skills are.

I repeat. Mike Huckabee is running as an economist populist, the likes of which this party has not seen in a while. BTW, he is going to suck up lots of oxygen from Duncan Hunter with this. And this is going to be very, very, very powerful in South Carolina, where the main division in the last US Senate race was between free-trading Jim DeMint and (now coke-head) Ravenel. Between that and the whole Southern Baptist thing, Huckabee could really do well. Especially if his numbers keep going up in Iowa.

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Foreclosure rates going up, but mostly investors

August 31, 2007 – 10:44 am

The AP has a story on Bush’s proposals on housing and the subprime mess. I am glad to see that "no bailout" is part of the answer. A lot of people are saying that we have pulled out of it. There were two sentences that should remind people that the worst, at least on the subprime side has yet to come:

Mortgage foreclosures and late payments are expected to worsen. Some 2 million adjustable rate mortgages are to reset to higher rates this year and next.

Perhaps this reality has been priced in, but I don’t think so. In the short term, things can be done to make these ARM resets less painful, as Bush is proposing. But foreclosures and late payments mean continued weakness in liquidity, lower home prices, etc. This situation is not going away.

Now the question of the political impact is still up in the air. The WSJ has a story that is important to notice:

A survey by the Mortgage Bankers Association found that mortgages on properties that aren’t occupied by the owner — mostly investment homes — account for between 21% and 32% of the defaults on prime-quality home loans in Arizona, California, Florida and Nevada, states where overdue payments are mounting fast.

We are still talking about massive numbers of people.

Also, the Big Picture has some great points about the timing of all of this.

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More housing mess

August 21, 2007 – 12:17 pm

This week the stock market seems a little more stable, and the fed has injected more liquidity in the markets. But don’t be confused. Things are bad and could get much, much worse.

The top-line story is that July foreclosures are 9% above June. Recall several facts. First, foreclosures come about 6 months after default. And if ARM resets are a predictor of future default and foreclosure rates, the amount of subprime loans reseting in January and February (these numbers) will double by the end of this year. And these levels of default and foreclosure will stay pretty solid through the end of 2008. Just to be clear, some analysis from John Mauldin:

Research by RBS Greenwich (assuming I read it right) suggests that 20-23% of the subprime loans made in 2006 will go into default and foreclosure. I talked with one head of a mortgage brokerage business in California this week (he has over 800 brokers who work for him) and he thinks that home values in certain areas he services could drop by as much as 50%.

That doesn’t make happy voters. Remember that there’s aren’t just speculators, but people getting second mortgages, new housing, or other perfectly reasonable people, except that they didn’t know what they were buying. And a lot of these were just out of reach:

"The loan application and review process for ‘no-doc’ loans was so lax that such loans are referred to as ‘liar loans.’ In a recent report by Mortgage Asset Research Institute, of the 100 loans surveyed for which borrowers merely stated their incomes on loan documents, IRS documents obtained indicated that 60% (!) of these borrowers overstated their incomes by more than half.

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Does it matter if the political world ignores the economy?

August 15, 2007 – 4:44 pm

Marc Ambinder was sent a letter by a Democratic economist and asks whether the political world is ignoring the economy. I wonder if it matters?

Doesn’t the economy re-assert itself? re:

"When I come back I want to come back as the bond market, because then you can intimidate everybody." — James Carville, Political Consultant

I have certainly been arguing that the housing market is an important issue.

For my gloom and doom of the day, yesterday RealtyTrac released their Midyear Metropolitan Foreclosure Report. The full table is on the right, but here are some highlights:

  • One in 31 households are in foreclosure filings in the Las Vegas area. That’s a swing state and a primary state.
  • One in 46 in Miami, 20k.
  • Another one in 50, for 16k more a little up the road in Ft. Lauderdale.
  • 19k, or one in 50, in the Cleveland area.

There are real people behind these numbers. And their pain will reassert itself, no matter what the politicians try to ignore

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