Monthly Archives: August 2009

Housing Stuff

Go to page five. There? Good. Read with me, then…

1. The market for home purchases can be divided into segments of 26% for damaged REO, 23% for move-in ready REO, 14% for short sales, and 36% for non-distressed properties. That means about 2 out of 3 homes up for sale are distressed properties. There are even more homes owned by banks that aren’t on the market right now because the market’s already glutted enough.

2. Forty-three percent of homebuyers are first-time homebuyers, 29% are current homeowners, and another 29% are investors. OK, so yay for the first time homebuyers, but look at what they’re buying:

3. First-time homebuyers account for the majority of move-in ready REO sales while investors account for the majority of damaged REO sales. In other words, those damaged REOs aren’t getting snapped up as fixer-upper bargains. Will their prices fall further?

4. Current homeowners concentrate their home purchases on non-distressed properties and buy comparatively less damaged REO. Underscores the concern from #3.

5. Real estate agents expect appraisal issues to be the No. 1 reason for cancellations of signed Purchase and Sales agreements over the coming summer months. This is a big one. People are not going to agree with prices as they’re being set. Sellers want a higher price, and the buyers are hoping for lower.

6. Only 31% of non-REO home sale listings are unforced or optional; other major reasons for listings include financial stress (including short sales), long distance relocation, and divorce or estate sales. OUCH. This is a big one. This means about 10% of the market is “unforced or optional.” The economy is still in a very tough spot, and this shows it.

7. Homeowners are choosing to not list homes primarily because of “Falling prices”, followed by “Competition with distressed properties”. That means they want to sell, but they can’t get a price to equal what they put into it. Nobody wants to lose money on a huge deal, like a home sale.

8. For first-time homebuyers, “Government incentives to buy (tax credits, mortgage deduction)” is the No.1 motivation to buy. Take that motivation away, and the market takes a huge hit. Sad but true.

9. For current homeowners buying homes, “Retirement relocation” and “job relocation” are the No.1 and No. 2 motivations to buy, respectively. They’re not trading up, anymore. They’re either downsizing the empty nest or following that all-important job.

10. “Sale of residence” is the No. 1 impediment to current homeowners seeking to buy another home. OUCH #2. I know people that are selling their home, then renting it for about 3 months after the sale while they buy a home after having confirmed the sale on their current home.

11. “Down payment for mortgage” is the No. 1 impediment to first-time homebuyers seeking to buy a home, followed by “Slow answers on short sale offers.” If you can’t get the down payment together, you ain’t buying a home. In this economy, that’s going to be a big problem.

12. Seventy-six percent of first-time homebuyers accept a mortgage recommendation of the real estate agent, 68% of current homeowners accept a recommendation, and 53% of investors accept a recommendation. Not much to say there.

13. On average, mortgage servicers take 9.5 weeks to provide a “yes” or “no” response to an offer to buy a short sale property. Wow. That’s two and a half months of the home sitting on the market, doing nothing. That can’t be good.

14. According to real estate agent respondents, “Mandated one-week response time on short sales offers” is the No. 1 rated action that the government could take to increase home sales and stabilize prices. Sure, the real estate agents want this. But I can’t help but wonder if this wouldn’t somehow mess up the mortgage servicers.

15. According to real estate agent respondents, “Provide consistent one-week ‘yes’ or ‘no’ response to offers” is the No. 1 rated action that the mortgage servicers could take to increase short sales. Again, what’s going on in the mortgage servicing biz that’s keeping them from doing this?

16. According to real estate agent respondents, “Provide consistent one-week ‘yes’ or ‘no’ response to offers” is the No. 2 rated action that the asset managers could take to sell REO properties with lower overall losses; the No. 1 rated action is “Turn on utilities for inspections.” So people don’t want to buy distressed properties in the dark? I guess when banks feel like it’s worthwhile to switch on the lights, the economy’s good enough to move that house. Until then, we’ll all be in the dark…

If you go on past page 5, there’s some interesting anecdotal information about the condition of the market starting on page 19. One set of observations that caught my eye was that banks are wanting cash or conventional loans for their properties and are not taking FHA loans. Another lament was how the properties sitting off the market are getting more and more damaged and distressed, making them more difficult to sell.

The distribution of distressed properties is not even, not by a long shot. Some areas have no surplus of homes: others are awash in distressed properties, driving the market down hard. Banks are encouraging bid wars for their properties, but the homes don’t appraise for the bid value, causing a cancellation of the sale agreement.

One thing I see mentioned over and over is how prices are being driven lower and people are holding back from making purchases as they wait for the prices to go lower. That’s asset value deflation. That’s not a good thing at all. With ARM homes set for a reset this year and next, there will be even more downward pressure on home prices.

Arab Labor

First of all, thank you to LinkTV for showing this series. Because AT&T U-Verse doesn’t carry LinkTV, I’m not switching from Dish satellite to U-Verse no matter how much they beg me and offer me free HBO to do so. But this is not about LinkTV right now. That’s for another column for me to write.

This one’s about Arab Labor. This is, by far, one of the best sitcoms I’ve ever seen. It’s right up there with Yes Minister, Fawlty Towers, and Seinfeld. I just ordered season one on DVD. I plan to watch it repeatedly and to find a way to use it in class.

Some people complain about having to read subtitles, but I say it’s worth the effort when something’s really really good. Arab Labor is in Hebrew and Arabic with only smatterings of Russian and English, but it’s really really good, so it’s worth reading. It takes elements from classic comedies and reworks them in original plots set in Israel. The center of the series is Amjad, an Arab journalist who’s very loyal to Israel, even though he often gets hassled for being a minority. Like Seinfeld, Arab Labor doesn’t have the characters learning big lessons or hugging each other at the end of the episodes. They carry on being who they are, flaws and all, but they all work at accommodating each other.

To a point. I mean, there’s the episode where Amjad turns over his meddling mother-in-law to the police as a suspected terrorist. Or when Amjad’s Jewish friend tries to hide the fact that he’s dating an Arab from his not-too-liberal parents. Then there’s where Amjad’s father sells the Chametz on eBay. OK, so you may have to Google up a few terms in order to get the jokes, but it’s worth it. After all, one theme in the comedy is the difficulty of coming to an understanding between cultures, so why not participate and do a little research. There’s one gag in the season finale that involves knowing the history of Zionism, but if you read up on Theodore Herzl before you watch it, you’ll hit the comedy jackpot when you hear that punchline.

Even if you’re not up on your history, you can still enjoy the sheer joy of the comic apocalypses that Amjad and his family find themselves in. Amjad’s father is my favorite character, a sort of Archie Bunker/Fred G. Sanford type of unstoppable patriarch who never lets ethics get in the way of a business deal. Amjad himself is an Arab Woody Allen, totally uncomfortable in his own skin. Amjad’s wife is his opposite: well-grounded and someone who can accept herself for who she is. She’s Amjad’s link to reality. Their daughter is not the usual precocious TV brat: she’s very well behaved, but takes after her foxy grandpa in subtly getting her way when her father goes nuts. Amjad’s Israeli friend is a schlemiel trying to do good that doesn’t care if he’s barking up the wrong tree, so long as there’s love in the branches. His on-again, off-again girlfriend is an Arab lawyer that manages to carry on a verbally violent relationship with him. Even when they’re at peace with each other, there’s never a relaxation in the tension in the relationship, which means the comedy won’t stop with that pair. If they got married, the series would not jump the shark.

Heck, the writing’s so good, they even took on another possible bad turn: the birth of a baby. In the finale, Amjad’s wife has a son. In most sitcoms, that’s the kiss of death. In Arab Labor, it’s a gateway for more comic possibilities.

Watch this show, people. It’s totally worth it.

Robert Fisk on Tea

Robert Fisk is a great journalist. He won’t last forever, so I’ll enjoy him while I can. While most of his stuff is pretty grim due to the fact his beat is the Middle East and he pulls no punches, this article is a jolly nice bit of history with a rather low body count to it. It’s all about how tea helped sober up England and the rest of Europe so it could go on to have an industrial revolution.

As a historian, I like the fact that it’s an example of how China helped civilize Europe. Too often, people that teach world history fail to look much beyond Europe and North America, except when Europeans and North Americans showed up to colonize or otherwise muscle in on the locals. The fact is that, for much of its history, Europe was an uncivilized backwater with little to offer the rest of the world. All the swingin’ civilizations were around the Mediterranean, in India, and in China. The civilizations in Central and South America seem to have come along much later, but archaeology there is so difficult that we’re only beginning to realize that there’s a big possibility there was much more going on there much earlier than we ever expected.

Global contacts have existed for centuries. They have gotten more frequent and faster, especially in the last few years, but we’d all do well to recognize that no civilization is an island. No civilization is better or worse, just different. When we appreciate the differences, we prosper in so many ways.

“Ponyo” Hits a Home Run

Ponyo Went to see Ponyo today and had all my expectations met.

When I go to see a Miyazaki film, I expect nothing short of excellence. I’ve seen all his films except Howl’s Moving Castle, but I’ve ordered that just now on DVD. Although Ponyo does not share the same complex characters and situations as other Miyazaki works, it is a masterpiece, instantly accessible to children from pre-K on up to adulthood. It is the most accessible movie for little children, I think, surpassing Totoro in that category. The dividing line is simple: In Totoro, the mom is sick. In Ponyo, there’s nothing bad going on in the background. Not really. The grownups do seem to be involved in some serious matters, but those matters pale to what the children in the movie see.

What’s important to the kids in the movie is love. Nothing romantic: just a pure attachment of affection, innocent and free. I love that. As usual, Miyazaki and the rest of Studio Ghibli chose the right colors for the film. What I enjoyed especially is that instead of using his typical ligne claire style with flat colors (pardon my French, there…), he opted for more impressionistic backgrounds, adding a lovely storybook feel to the whole film.

The schools of fish and other water animals have to be considered as part of the cast of stars in the film. I loved watching them. While Pixar had a clever little aquarium and some nice fish scenes in Finding Nemo, Miyazaki’s underwater images will make me dream about living in an octopus’ garden tonight.

As I said, this is a storybook movie. The conflict is gentle; the resolution firm and joyous. The colors resound and the illustrations capture your breath and refuse to let go until the closing credits fade from view. I wept with joy as I watched the film, much as I do when I listen to Beethoven’s Pastoral symphony. Yes, the comparison to Beethoven is valid. Miyazaki is a genius and we are fortunate that he’s been given a forum to share his visions with a worldwide audience. Although the film is a beautiful storybook, it is not for everyone. I’m sorry, but it’s a sensitive film and there isn’t a crass joke anywhere in it. Kids looking for bathroom humor or crazy send-ups are not going to be happy with Ponyo. This film is for sensitive moods and open minds. For a child, it’s a wonderful, beautiful story. For an adult, there are subtleties that will pop up later on when discussing it with other adults. It is universal and it is wonderful. I don’t care if you see it: I’ve seen it and I found another reason to keep on keepin’ on today.

Moral Hazard and Financial Collapses

Government bailouts are supposed to be last-ditch resorts. Instead, they’re built into financial risk assessment as guaranteeing no negative returns for major players. Corporations bank on them – pun only slightly intended – to be there to prevent a sticky end for them at the expense of the taxpayers and all those businesses that weren’t too big to fail.

Worse, when the government tried to act like it wasn’t going to bail out the guys that gambled with everyone’s retirement money and let Lehman Brothers fail, the consequences were so horrendous that the government couldn’t show that tough love ever again. It had to keep the oligarchy of major financial institutions going, even if it meant abandoning the small businesses of America that were struggling just as much.

Moral of the story? First off, if you want to succeed, your corporation needs to be so huge that it can’t be ignored. Second, you have to gamble with other people’s money with guarantees from those people – or their government – to make good on your losses. Third, you need better political connections than Lehman had, so the government won’t let you fail… and so you can also get a preferred bid on the contract to buy up the remains of your competitor. Moral hazard all the way.

The market doesn’t always know best, particularly when it’s able to buy or otherwise demand government influence. Had there been no guarantees, those financial institutions would have had to been more careful, right?

Nope. There were no such guarantees in 1907, and the same thing that happened in 2008 happened then. That’s when we learned there was such a thing as “too big to fail.” The government then worked to keep financial institutions from getting that big again.

In the last 25 years, those century-old regulations were stripped away, and the financial sector became more and more reckless as it became bigger and less failworthy. The government promises to keep disaster from happening actually made the banks act as if disaster could never happen, and that’s the very definition of moral hazard.

Right now, Obama’s solution to the financial sector problems does not deal with the moral hazard that currently exists. Nothing’s on the table to get the industry back where it needs to be to keep another major collapse from happening.

GDP RIP vs. Top Gear

Guy on the AP Economics list sent this link to a NYT Op-ed: GDP RIP.

I started the article and thought, “Hey, this sounds like Henry Hazlitt’s ‘Economics in One Lesson’.” Got the fallacy of the broken window right up at the front of the article. I’m right there with him in saying GDP is not going to give a complete picture and that it’s often misleading.

But I have to ask how putting prices on everything will work out…

In theory, it’s wonderful. Say we price a wetland staying a wetland as $100 million in value. A developer comes along with a project that will drain the wetland and provide maybe $75 million in value. Sorry, Mr. Developer, but that project won’t fly.

Now in practice… The developer fudges his numbers so that he projects $175 million in value and possibly gets in good with the county commissioner to revalue the swamp at $50 million in value and then gets his buddy, the local newspaper editor, to write a scathing criticism of the mosquito problem coming from that dadgum $50 million swamp. Wouldn’t everyone benefit from a nice new development there? Swamp is drained, development goes up, development doesn’t deliver as promised, but all the big dogs got their money, so who’s to say it was a bad idea? Also, thanks to cooked numbers, that National Happiness Product or whatever just went up.

So say in the case of wetlands we avoid such shenanigans by setting a straight-up dollar value per acre. Valuation’s fixed, right? No, it’s not. That developer can still fudge the boundaries of the wetland and get his reduction. Or, going the other extreme, an area could be designated as wetland but, due to changing climate, dries out and becomes hardscrabble prairie. Developer tries to build on that but is told it’s technically still a $100 million wetland because the federal government won’t redesignate it as a $2 million hardscrabble prairie.

Then there’s the good side of GDP ignoring all that activity: do we really want a set value on, say, the value of having my kids mow the lawn? Put a number on that, and it won’t take long for some genius to figure out a way to tax it. Imagine if the value of my tutoring my own kids were calculated and then I had to start taking them to a private tutor with less qualifications for a tax break… Or simply go underground and teach ’em on the sly, bootlegging education to avoid the revenuers…

I agree that GDP is a pretty poor end-all measure. But the same way we cook books to boost GDP, we’ll find a way to cook books to boost whatever we switch to. Politicians and bureaucrats are not going to suddenly change stripes. Who gets to say what’s better? If we all lived in a high-rise stacked on top of each other, within walking distance of a metro line, we’d use up a lot less gas… But we’d need a king-size sewage and water system to handle the population density. Also, if we switched from “bad” single-family homes to “good” new urban dense residential town centers, we lose a lot more greenspace per person. We also have to put up with noisy neighbors… And tinier living space. What cost, those things? Or do they get ignored by the beancounters that decided they need to weight the calculations in favor of “greener” options?

Jeremy ClarksonAnd how do we calculate “green”? The author of the article seems to push for that change… So would we all drive a Prius? By one calculation, yes we would. By Top Gear’s calculation at Google Video and YouTube, the Prius isn’t all that green. So, again, who’s to say? If we tossed GDP, what’s the guarantee that we would be getting a slightly smaller load of rubbish with the new system?

OK, so why is this also in the “Reason to Live” category? Because of Top Gear, mate! I love that show. Jeremy Clarkson is genius. Seriously, if anyone wants to buy me Top Gear on DVD, email me and we’ll work out the details. If I could teach my class with Top Gear, the world would be a better place. I don’t know what I’d call that class, but everyone would want to take it.

Here’s another Top Gear link, just for the heck of it: Listen for when Clarkson’s car makes a bad noise…