Illness and Foreclosure (h/t Vanessa Perry)

Christopher T. Robertson , Richard Egelhof, and Michael Hoke have a paper:

Abstract:
In recent years, there has been national alarm about the rising rate of home foreclosures, which now strike one in every 92 households in America and which contribute to even broader macroeconomic effects. The "standard account" of home foreclosure attributes this spike to loose lending practices, irresponsible borrowers, a flat real estate market, and rising interest rates. Based on our study of homeowners going through foreclosures in four states, we find that the standard account fails to represent the facts and thus makes a poor guide for policy. In contrast, we find that half of all foreclosures have medical causes, and we estimate that medical crises put 1.5 million Americans in jeopardy of losing their homes last year.

Half of all respondents (49%) indicated that their foreclosure was caused in part by a medical problem, including illness or injuries (32%), unmanageable medical bills (23%), lost work due to a medical problem (27%), or caring for sick family members (14%). We also examined objective indicia of medical disruptions in the previous two years, including those respondents paying more than $2,000 of medical bills out of pocket (37%), those losing two or more weeks of work because of injury or illness (30%), those currently disabled and unable to work (8%), and those who used their home equity to pay medical bills (13%). Altogether, seven in ten respondents (69%) reported at least one of these factors.

If these findings can be replicated in more comprehensive studies, they will suggest critical policy reforms. We lay out one approach, focusing on an insurance-model, which would help homeowners bridge temporary gaps caused by medical crises. We also present a legal proposal for staying foreclosure proceedings during verifiable medical crises, as a way to protect homeowners and to minimize the negative externalities of foreclosure.

Links to Cousins!

My counsin Jon's site:

http://www20.kellogg.northwestern.edu/facdir/facpage.asp?sid=1299

My cousin Scott's site:

http://www.google.com/search?hl=en&q=scott+rifkin+ph.d.+yale&btnG=Google+Search

If other cousins have sites, I will link to them too.

About today's awful Case-Shiller number

A month ago, David Stiff of Fiserve informed me, "in general, sales of bank-owned (REO) properties are included in the repeat sales pairs used to estimate the indexes if they occur at least 6 months after a previous arms-length transaction."

There are currently markets in which foreclosure sales make up 40 to 50 percent of all sales. These transactions are almost surely not representative of the housing stock, and so the CSI is currently a biased estimate of house price changes. I admire both Case and Shiller a lot, but they really need to fix this.

Did California Overbuild its Housing Stock?

It all depends on the relevant time frame. If we look at the 00's in isolation, California overbuilt.

But California has grew by 7 million people between 1990 and 2015 and added about 2.43 million housing units (all data are from US Census-- assume that 98 percent of units permitted are actually built). The average household in California has 2.9 people (which is the second highest in the country, and compares with 2.5 nationally), which means that even without removals from the stock and no change in household size, the state needed 2.41 million new housing units. So if we look at the 18 year horizon, California did not overbuild--there we almost surely more than 20,000 demolitions over an 18 year period.

What if we go back to 1980? California grew by 13 million people and added 4.4 million housing units. At 2.91 people per unit, California demanded 4.46 million units. Again, it is safe to assume 60,000 demolitions over 28 years, so it is hard to make a case for long-run overbuilding.

Certainly, some housing was built in the wrong places, or was the wrong type of housing for the place (Lancaster and Beaumont come to mind). But it is hard to make a case that in aggregate California now has too many housing units.

See Milk

Sean Penn is truly wonderful, and the story is both uplifting and tragic. MBA courses in organizational behavior could also use it as a teaching tool.

Ten favorite American Buildings

These are just personal favorites. One rule: no more than one building per city. There is no particular order to the list

1. Trinity Church, Boston (Richardson). Copley Plaza is among the best urban spaces I know.
2. Seagram's Building, New York (Mies van der Rohe and Johnson). It also has my favorite restaurant in it.
3. East Building, National Gallery, Washington (Pei)
4. Carson, Pirie, Scott, Chicago (Sullivan)
5. City Hall, Philadelphia (MacArthur and Walter) It is a silly, overdone, wonderful building.
6. IDS Building, Minneapolis (Johnson again). The rare, iconic, financially successful building.
7. Indiana University Campus, Bloomington. This is cheating, but I think IU has the nation's most beautiful college campus. And no, I never went or taught there.
8. Eastern Building, Los Angeles (Beelman). The city's best building is a lovely Art Deco number from 1930. The Wiltern Building is special too.
9. Coit Tower, San Francisco (Brown and Howard)
10. Terminal Tower, Cleveland (Van Sweringen brothers)

Where is the J-Curve?

Paul Krugman notes that Exports have off-set declining housing investment:

http://krugman.blogs.nytimes.com/2015/12/29/why-we-havent-had-a-recession-so-far/

Jim Hamilton actually made this point some time ago:

http://www.econbrowser.com/archives/2015/11/some_observatio.html

All this is a natural result of the depreciation of the dollar. My question, though, is whether to be surprised by the fast improvement in net exports. I thought that when the currency depreciated as rapidly as the dollar has, the terms of trade effect in the short run is more important than how consumers adjust to changes in relative prices. That is, because foreign goods are more expensive, and because it takes awhile to substitute out of foreign goods, the net export position should actulaly worsen for awhile.

I am not complaining, but am rather looking for an explanation...

An Obvious Point, but....

The large numbers of defaults in Inland California, Nevada, Arizona and Florida will cause pain for homeowners and endanger macroeconomic stability. That said, prices in these markets got well beyond fundamentals, and more corrosively, turned affordable housing markets into expensive markets (the USC group did some great work on how once inexpensive Riverside and San Bernardino Counties became havens for Southern Californians seeking homeownership.)

When prices in these places return to normal--and it is likely that they will--middle class household will again have large markets in which they can afford housing without strain. And that will be a good thing.

Anthrax outbreak near Scone, Upper Hunter

I was struck by a report (and here) that there had been an anthrax outbreak in the Upper Hunter, killing a number of cattle. I did not know that anthrax is a relatively common occurrence, with an anthrax belt from Victoria along the Western Slope to about Moree.

The outbreak in the Upper Hunter is unusual since this is not a known anthrax area, with the last reported outbreak in the 1940s. However, anthrax can survive dormant in soil for very long periods.

In the latest case, it seems possible that the recent drought breaking rains exposed the bacteria.

PE Ratios for Housing

Mark Thoma passes along comments from Paul Krugman and Brad Delong on the PE ratio for housing:

http://economistsview.typepad.com/economistsview/2015/12/more-links.html

Krugman thinks a 50 percent fall along the coasts is possible. I am doubtful. The problem with using a PE ratio is the composition of the rental stock evolves differently from the compostion of the owner stock--the quality of owner occupied housing is generally improving more rapidly than the quality of the renter stock. For a working paper on this, see my piece with Cutts and Chang:

http://www.gwu.edu/%7Ebusiness/research/workingpapers/Chang%20Cutts%20and%20Green%203-17-2005%201%20.pdf

This is under revision for a journal--I guess it is time to finish it up!

The Breadth of House Price Declines

The Case-Shiller Index is declining in most cities (see http://blogs.wsj.com/economics/2015/12/26/home-prices-few-metro-areas-spared/).

So far as I know, this is unprecedented in the post-WWII era. In the past, even when a few housing markets have seen price declines, most have not. This means thar default risk and cost has been managable to investors in Mortgage Backed Securities.

The current environment is much tougher to deal with, and could mean that default costs arising from sub-prime mortgages will be higher than I expected earlier. It also cannot help but have a negative impact on house price expectations nearly everywhere. As I have said before, it is hard to see a turnaround coming anytime soon.

One bright side: when the commerical real estate market collapsed in the early 1990s, some analysts thought it would take a decade to recover--instead in took around 3-4 years to do so. Strong population growth in Arizona and Neveda should put some cushion underneath those markets (although the slowdown in Florida's population growth will further weaken a market that is already pretty devastated).

Memorial for Arthur Goldberger at AEA meetings.

Sunday, January 3, 2015: 10:15 am, Atlanta Marriott Marquis, Atrium Ballroom A Remembering Arthur S. Goldberger Presiding: James Heckman (University of Chicago) Speakers:
Lawrence Klein (University of Pennsylvania)
Glen Cain (University of Wisconsin)
Kate Antonovics (University of California-San Diego)
Gary Chamberlain (Harvard University)
Charles Manski (Northwestern University)
with remarks from Harry Kelejian (University of Maryland) read by James Heckman

Some Great Scholarship at GW

The Eleanor Roosevelt Papers project is at GW. Information about it is here:

http://www.gwu.edu/~erpapers/publications/

This is something for which the university should be proud.

GW Studies itself for Reaccreditation

Our report is here:

http://www.gwu.edu/~gwaffirm/gwselfstudy/index.cfm

I was involved with the Chapter on the University's finances.

Ports and Social Costs

Yesterday the LA Times had a story on the "greening" of the two big ports in LA:

http://www.latimes.com/news/local/la-me-port25dec25,1,1611877.story?coll=la-headlines-california

Two paragraphs stand out:

A month ago, they [the ports of Long Beach and San Pedro] approved a joint mandate to replace the area's fleet of 16,800 dirty cargo trucks with new or retrofitted models by 2012. Last week, the two ports approved a cargo fee to raise $1.6 billion to put the cleaner trucks into service.

and

The stakes are indeed high. The clean trucks program could yield a cumulative economic benefit of $5.9 billion from reductions in premature deaths, lost work time and medical problems, according to the Southern California Air Quality Management District.

If these numbers are remotely correct, then the policy of requiring the clean trucks is a no-brainer. Yet there is still a question about whether it will in fact get done, for reasons given in the remainder of the story.

The Coasian solution is to just assign property rights and step aside. If the people living near the port have the property rights, they can insist that the trucks get cleaner, and if the port is still profitable in the aftermath of incurring the costs, the port will continune to operate with lower levels of pollution (otherwise it will shut down, but this is highly unlikely); if truckers have the rights, the neighbors should find it worthwhile to pay for the trucks to get cleaner. The problem, though, is a coordination problem--it is difficult to get everyone to cooporate to get to the best economic outcome. This is why sometimes regulations really are the only practical method for getting something close to an economically efficient outcome.

Nouriel Roubini forecasts a hard landing...soon

It is here:

http://www.rgemonitor.com/blog/roubini/234115

To some extent, this sounds like a liquidity trap story: regardless of interest rates, people won't invest because they don't trust anything or anyone. The stubbornly high spreads on LIBOR and prime jumbo mortgages suggest that there is something to this. It also explains why people such as Larry Summers think a fiscal stimulous is necessary.

But even with a fiscal stimulous, it is hard to see how housing will not be a drag for awhile. Inventories are high, meaning house prices will have to come down in some markets to restore equilibrium. This will put pressure on mortgage performance, which will make lenders even more wary. Ironically, once prices fall to equilibrium levels, mortgages going forward will again be very safe loans. But evidence from Jeremy Stein in one paper and David Genesove and Chris Mayer in another implies house prices are sticky downward, so it may be awhile before we reach that equilibrium point.

It's A Wonderful Life Fan Trailer

News item on Fannie/Freddie CEO pay

Bob Hagerty in the Wall Street Journal says they will make $6 million each. This is absurd--they are now government agencies. It would not be unreasonable to cap GSE CEO pay at the President's pay (by that I mean the US President). I would even let them have a rent-free house. I could even see giving them a bunch of shares, so if by some miracle the GSEs became going concerns again, the CEO would benefit. But the current arrangement is bizarre.

When technology fails

My iPod is frozen, I can't get it unstuck, and I have a coast-to-coast flight tomorrow. Sigh.

Season's greetings to all the New England diaspora

I still have some part completed posts to bring up, but it is now Christmas eve. If I wait until all the back posts are complete it will be past Christmas. So I will run this post now and bring the others up over the break.

This blog began back in April 2006. Since then I have written some 224 posts on New England issues. I hope that I have played a small part in raising awareness on New England issues and in helping to keep the million or so - no one knows exactly how many there are - New England expats in touch with home.

I am looking forward to 2015. My feeling is that the blog is finally starting to play a useful role.

I wish all New Englanders everywhere the best for Christmas and the new year. May 2015 be a great year for all of us.