Reading Highlights for January 29, 2013

Here are some highlights of a few of the articles we read today and that we hope you might find informative:

Berson [David Berson] from Nationwide Insurance, called out—and in some cases debunked—some of the potential risks to housing’s full recovery. Most of these, he noted, are macroeconomic and political, such as how Washington ultimately deals with the deficit, rising debt, and new lending rules. He didn’t think any single action would be enough to push the country back into recession, even if it caused the monthly job creation rate to fall below 100,000. However, he was quick to note that “the job market [remains] the most important thing” affecting housing.

As for builders’ capacity to finance growth, Berson didn't expect banks to ease their tightening lending policies until some risk is…

A Full Housing Recovery Is Still Less Than Certain – Economic Conditions, Home Prices, Business, Housing Data – Builder Magazine.

Steve Keen, the author of the following, is without doubt, one of the most astute economists (post-Keynesian) in the world.

The result is a superficial economic boom driven by a debt-financed bubble in asset prices. To sustain a rise in asset prices relative to consumer prices, debt has to grow more rapidly than income—in other words, if asset prices are to rise faster than consumer prices, then rather than merely rising, debt has to accelerate. This in turn guarantees that the asset price bubble will burst at some point, because debt can’t accelerate forever. When debt growth slows, a boom can turn into a slump even if the rate of growth of GDP remains constant.

"Economics in the Age of Deleveraging," by Steve Keen. January 28th, 2012.

I contend that the problem starts with the appraisal management company (AMC) industry and how it has driven the best appraisers out of business or pushed them into different valuation emphasis besides bank appraisals by splitting the appraisal fee with the appraiser (the mortgage applicant doesn’t realize that half their appraisal fee is going to a bureaucracy).

"Broken Appraisal: Lack of Market Knowledge Overpowers Lack of Data," by Jonathan Miller. January 27, 2013.

"Homebuilding activity will likely remain the strongest growing component of the economy in 2013," said Keith Hembre, chief economist of Nuveen Asset Management. "After several years of excess supply, demand and supply conditions are now in much better balance."

"Housing to Drive Economic Growth (Finally!)," by CNNMoney. January 28, 2013.

Introductory economics textbooks have long talked about the Keynesian multiplier effect: the recipients of federal spending – or of consumer spending stimulated by tax cuts or transfers – respond to the increase in their incomes by spending more as well, as do the recipients of that spending, and so on. Again, the multiplier is much more relevant under current conditions than in more normal situations where the expansion goes partly into inflation and interest rates, and thus crowds out private spending. By the time of the 2008-09 global recession, even those who believed that fiscal stimulus works had marked down their estimates of the fiscal multiplier (intimidated, perhaps, by newer theories of policy ineffectiveness). The subsequent continuing severity of recessions in the UK and other countries pursuing contractionary fiscal policies, apparently to the surprise of the politicians enacting them, suggested that multipliers are not just positive, but greater than one, as the old wisdom had it. The IMF Research Department (Blanchard and Leigh 2013) has reacted to this recent evidence and bravely confessed that official forecasts, including even its own, had been operating with underestimates of multiplier magnitudes.

"Monetary alchemy, fiscal science," by Jeffrey Frankel. January 29, 2013.

“It’s an extraordinarily generous approach for companies still in debt to American taxpayers,” said Phillip Swagel, a professor at the University of Maryland’s School of Public Policy in College Park, Maryland. “We’re giving people an incentive to walk away, right when the housing market is starting to right itself.”

"Fannie, Freddie to let underwater homeowners out of mortgages," by Tara Steele. January 29, 2013.

A federal appeals court ruled on Friday that the president’s recess appointments to the National Labor Relations Board—which were made at the same time as Mr. Cordray’s appointment—were unconstitutional. Though the case doesn’t directly address the legitimacy of Mr. Cordray’s appointment, the coordinated timing of the two greatly raises the prospect that the court would rule the same way in a similar suit challenging Mr. Cordray’s authority.
[…]
… the QM [Qualified Mortgage] rule that was issued on Jan. 10 might not be enforceable, were it challenged in court, if Mr. Cordray’s appointment was deemed invalid.

"How the NLRB Ruling Could Scramble Mortgage Markets," by Nick Timiraos. January 28, 2013.


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