News Alerts, Aug. 13, 2013: Real Estate Plus

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  1. Jobs Gap

    The Hamilton Project:

    "If the economy adds about 208,000 jobs per month, which was the average monthly rate for the best year of job creation in the 2000s, then it will take until April 2020 to close the jobs gap."

  2. Calculated Risk: Fannie, Freddie, FHA REO inventory declines in Q2 2013

    "REO [Real Estate Owned; repossessed] increased for the FHA for the 2nd consecutive quarter – this is something to watch."

  3. The Ghost of Inflation Future by Brigitte Granville – Project Syndicate

    Great economics backgrounder by Brigitte Granville, Professor of International Economics and Economic Policy, School of Business and Management, Queen Mary, University of London:

    Site's post description: Of all the problems afflicting the world economy nowadays, inflation may seem like the least of our worries. But an understanding of how the Great Inflation of the 1970's was tamed offers important lessons for addressing today's economic challenges, however different they may be.

    "In the decades following World War II, the doctrine that inflation needed to be traded off against employment — based on the relationship that William Phillips described in 1958 — dominated economic thinking. But the Phillips curve fared poorly in the 1970's, when many countries experienced "stagflation" (high levels of both inflation and unemployment).

    "This vindicated criticism by Milton Friedman and Edmund Phelps, among others, who had already begun to argue that the Phillips curve represented merely a short-term relationship. If people do not expect inflation, the illusion of increased purchasing power can boost employment and output for a relatively short period. But once workers realize that real wages have not increased, unemployment will return to its "natural" level consistent with stable inflation.

    "Later, "new classical" economists like Robert Lucas and Thomas Sargent demonstrated that once people understand that inflation is being manipulated to generate market optimism, the monetary authorities' actions lose their impact. The result is higher prices and no job creation."

  4. Remodeling Rebounds in U.S. With Contractors: EcoPulse – Bloomberg

    Site's post description: Economist Russell Price decided to get a head start on work he'd been putting off for more than 10 years at his own house as he began to see an improvement in home-renovation data.

    "Trends in home-improvement projects reflect a broader phenomenon: The economic expansion is maturing at different paces depending on consumers' incomes, Price said. While many wealthy Americans have seen "a significant rebound in home values and investment markets," their lower-income peers "still are waiting for benefits from the recovery to accrue."

    "'Frustrating Disparity'

    "This reflects the "frustrating disparity" between increasing asset values and lackluster wages in the U.S., said Jack Ablin, who helps oversee about $66 billion as chief investment officer of BMO Private Bank in Chicago. A broader base of increasing home values, wages and job gains is needed to encourage more homeowners to spend on renovation, he said."

  5. Foreclosure Fears Less Haunting to Housing Recovery | Realtor Magazine

    "Fears over a large overhang of potential foreclosures that could threaten the housing recovery have failed to materialize — and aren't likely to do so — according to the Mortgage Bankers Association."

    Do you think the huge, all-cash buyers actually propped up the economy (got the ball rolling enough), that without them, there would have been significantly more foreclosures?

    Do you think the banks may be deliberately underreporting delinquencies?

  6. How To Collect Rent After Tenant Breaks the Lease

    "… valuable tool is signing the new tenant up to Report Tenant Pay Habits. This carrot-and-stick strategy of tracking rent payments and providing a Certificate of Satisfactory Tenancy serves as an incentive to those tenants who want to build a good credit history, and a deterrent to the others who don't want to wreck their credit by failing to pay rent."

  7. Calculated Risk: Update: The Shrinking Deficit

    "For the current fiscal year (ends September 30th), the CBO is projecting a deficit of 4.0%. This is down sharply from 7.0% last year. And the CBO expects the deficit to fall to 2.1% of GDP in 2015" then rise a bit again.

  8. Sober Look: Wages in the US remain suppressed

    "Compensation as a percentage of GDP has been falling since the end of 2008 and now stands close to a 13-year low."

    "…with wage growth suppressed and consumers still driving over 70% of the nation's GDP, weak economic growth should not be a surprise."

  9. Chinese Reform Goes Local by Zhang Monan – Project Syndicate

    Site's post description: China's government is now attempting fiscal decentralization to revitalize the public-finance position, while adopting financial decentralization to maintain currency stability. Indeed, the quest for macroeconomic balance has become the main goal of economic policy.

    "Zhang Monan is a fellow of the China Information Center, a fellow of the China Foundation for International Studies, and a researcher at the China Macroeconomic Research Platform." She cites the following to help make her case:

    "Over the last three decades, the gradual decentralization of China's fiscal-management system enabled it to regulate fiscal transfers to sub-national governments, with the primary aim of clarifying revenue and expenditure at all levels of government. Why, then, did local-government balance sheets swing from surplus to deficit over the same period?

    "In 1994, China's economic-reform process reached a turning point with the introduction of a tax-distribution system that reduced the proportion of tax revenue held by local governments from 78% in 1993 to 52% in 2011, while raising the proportion of expenditure from 72% to 85% over the same period. Faced with intense competition to contribute to GDP growth, local governments were compelled to seek other ways to augment fiscal revenue.

    "As a result, they turned to land transfers and debt financing, exacerbating the problem of soft budget constraints. Cash-strapped local governments began seizing farmland in order to sell it to commercial real-estate developers, while accumulating massive debt through off-balance-sheet loans and short-term interbank funding to finance local-government investment vehicles and real-estate investment. In doing so, they dramatically increased their financial vulnerability."

    "By forcing banks to offer lower interest rates to state-owned enterprises, the government drove private firms and households to informal lenders, fueling the emergence of a large and risk-laden shadow-banking sector.

    "Likewise, the requirement that banks offer very low or even negative real interest rates to private depositors drove them to invest in fixed assets, leading to overcapacity in some sectors, such as real estate."

  10. Sober Look: What is causing the summer economic slump in Japan?

    "1. The Japanese remain uneasy with the growing government debt…"

    "2. The looming sales tax hike (which is meant to address the above) remains a major risk to spending and growth…"

    "3. While economists tend to think that inflation is quite healthy for Japan after years of deflationary pressures, it may be difficult for the consumer to adapt to the new regime."

    What about the after effects of the Tsunami, the lingering effects of Fukushima, and the prolonged stress with the island dispute with China?

    What are your thoughts?


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