Sunday, June 29, 2008
It is bad enough that where we happen to be born has so much to do with how life turns out for us. It is worse when something as artificial as national frontiers prevent those born into bad circumstances from improving their lots in life.
But perhaps more interesting are anecdotes I heard at the Pacific Coast Builders Conference in San Francisco last week--buyers are going on REO "bus tours" and purchasing multiple homes--with their own money. It is not all all clear how widespread this phenomenon is, but if we see large numbers of vultures in a market using equity to sweep up REO properties and short sales, we have seen the bottom of the market.
Tuesday, June 24, 2008
I did forget to list NW among airlines. It is funny, because I think after United I have flown on it more than any other. There must have been a traumatic experience that made me want to forget....
Monday, June 23, 2008
So here is my list, best to worst, of domestic airlines I have flown:
The Old TWA (RIP)
The bottom two tie for worst--I try to avoid them.
Among international carriers, my list is
Singapore (in my egalitarian dream, everyone gets to fly it at least once)
The Ukrainian National Airline--soviet era plane smelled of oil
She said the issue is that the flight attendants love the travel benefit (talk about your busman's holiday!). I asked the HR woman whether the travel benefit compensated for the pay lost not working in other areas. She said no--that many workers could make tens of thousands more, which would, of course, suffice to pay for a large number of plane tickets. But beyond this, people could use the money to buy things other than plane tickets, were they to chose.
This seems like a classic example of framing. Flight attendants see their travel benefit as an entitlement, and they would have to be paid something more than the value of the entitlement to let it go. Economics needs to get better at figuring this stuff out.
Sunday, June 22, 2008
Stuart (my Econometrics TA in Graduate School) has been tracking this relationship for some time. Looks pretty robust to me.
Duke Ellington at Interlochen. His technique was not all it once was, but who cared...
Count Basie accompanying Ella Fitzgerald at Carnegie Hall.
Maurizio Pollini playing the Wanderer Fantasy at the Kennedy Center.
Two Rudolph Serkins: Beethoven Op. 81 and Schubert B-flat at Symphony Hall in Boston, Beethoven Op 53 at the Kennedy Center.
Ivan Morevic playing the Appasionata in Jordon Hall in Boston. He just exploded into the coda.
Bobby Short at the Cafe Carlyle, and at the Kennedy Center
Mitsuko Uchida playing Mozart (in particular the C-minor Fantasy and Sonata)at Strathmore, our magnificent new hall in Montgomery County, Maryland.
Alfred Brendal playing the List Sonata at the Kennedy Center
Strangely, I have never heard my favorite piece (The Goldberg Variations, with which I have something of an obsession) in concert. I can't wait to hear the Disney Hall.
For me, the only hard thing to give up would be travel. Walking the streets of London, Paris, Florence, Rome, Stockholm, Amsterdam, Kiev, Krakow, Hong Kong, Tokyo, Seoul, Cairo, Dubai, Mumbai, Hyderabad, Singapore, Quito, Lima Dhaka and even TJ has taught me as much about urban and real estate dynamics as any spreadsheet or map--and I love spreadsheets and maps. If environmental conditions require us to do less of this kind of thing, I will cooperate. But I won't be happy about it.
I myself am befuddled--but this recording is quite wonderful--the phrasing during the first 40 seconds is magic, and the ability of the pianist--whoever it is--to articulate while playing quite rapidly is remarkable.
Friday, June 20, 2008
I looked at the Citibank web site this morning: they were requiring five (five!) points to get a 30-year fixed rate mortgage; the difference in APRs was more than 200bp (and this assumes points are amortized over the full term of the loan--the real gap is actually larger).
I looked at the National City web site this morning: they are not quoting rates on jumbos.
Historically, the jumbo-conforming spread is less than 50 basis points. It is going to be very difficult for coastal markets to get unstuck so long as so much fear is gripping the market.
Neil Irwin in The Washington Post had a similar complaint, and argued that people's pessimism arose from the fact that the indicators they see on a regular basis, such as gas prices, have been alarming to them.
But I think Mark Thoma has the real answer:
Part of the problem is the presumption in the question, which has been around for several years now and is basically "why are people so gloomy when the economy is doing so well?" If you ask instead, "why are people so gloomy when the economy has all these problems, reduced economic security, stagnant real wages, rising health care costs, falling home values, rising college costs, rising food costs, loss of employer based retirement programs, rising energy costs, worries about the future, etc., etc.," there's really no mystery.
I think both the "economist" at the meeting and the Washington Post reporter have limited capacity to think about what it must be like to be the median income household now. The median income household has now had (at best) many years of stagnant living conditions and worsening economic security.
Wednesday, June 18, 2008
My freshman year college roommate introduced me to Lhevine's playing. I didn't much care for my freshman roommate, and when I for some unaccountable reason googled him, I saw that he gave money to Swift Boat Veterans for the Truth. But, he both motivated me to find great roommates (Curt, Harry, John and Jon) for my remaining college years; he also had great taste in pianists.
My suspicion is that we are not alone. So the first difference in television ratings between last year's British Open and this year's might help establish a lower bound for Woods' marginal productivity. A robustness check will be the first difference between this year and next year. (I have tried to find how ratings points translate into advertising rates per minute, so far without success).
Monday, June 16, 2008
Bumsoo Lee, Peter Gordon, James E. Moore, II, and Harry W. Richardson tell us how many trips we take, and the reasons we take them.
They find that less than one out of five trips is for work, and that in 2001, the average person made more than four trips per day (reinforcing my point in my last post on gas prices and urban land).
I should also mention that according to Zillow, for the Washington area, house prices in nearby Montgomery County have fallen by 7 percent in the last years, while in exurban Prince William County they have fallen by 24 percent. Paul Carrillo and I have done preliminary estimates that show that prices in the District have not fallen at all.
As for changing urban form, it will take awhile, but it could happen. Houses in the exurbs will likely not be torn down, but they will depreciate rapidly, while houses near employment centers and amenities will increase in relative value, meaning there will be incentives for dense redevolopment. For a good treatise on "filtering," see Ed Olsen's classic AER paper.
Sunday, June 15, 2008
The show's first year was 2004. Should have tipped us all off....
I have found one here: in 2001, the average American made four trips per day. The average household has a little more than 2.5 people, meaning that the average household made ten trips per day. According to the US Census, 77 percent of these trips involve a driver without passengers; 11 percent involve carpooling. If the average car pool has two passengers (that is probably too high), then car trips per day per household is more like eight than five. From a static standpoint, I underestimated the impact of gas prices on urban form. But as one commenter noted, dynamics will tend to attenuate some of the impact (on the other hand, close in places where transit is a choice will now be at a greater advantage than places on the fringe).
People often wonder why European densities are so much higher than US densities. Part of it is history (Paris and London largely developed before automobiles); but part of it is that Europeans have been paying high prices for gasoline for a long time, and that they have had transit as an alternative. That said, the dynamics of European cities has been toward sprawl--central Paris has been losing population to its suburbs for the past fifty years. But I will leave the discussion of that to another post.
Saturday, June 14, 2008
June 26, Pacific Coast Builders Conference, San Francisco
September 11, Commercial Property News Conference, New York
September 18, Multihousing World, Denver
Let's say the average household makes five one-way trips per day--for work, shopping, entertainment, etc. Let's also say that the average car gets 20 mpg in city driving. Each mile of distance to work, shopping, etc. is therefore now 50 cents per day per household more expensive than before. A household living immediately adjascent to work and shopping should then be willing to pay $5 per day more in rent than a household 10 miles away compared with six years ago, all else being equal. This becomes $150 per month, or $1800 per year. Assuming a five percent cap rate for owner occupied housing, this translates to $36,000 in relative change in value. Given that the median house price in the US is about $220k, this is kind of a big deal.
The assumptions here are pretty crude (particulalry the ceteris paribus assumption), but if gas remains at its current real price, we will see the shape of US cities change.
Thursday, June 12, 2008
The Rosin article advances a fascinating hypothesis about why murder or crime rose in Memphis and in the rest of the country. It gets one important detail wrong. Crime did not rise in Memphis or in the rest of the country.
Here is a fairly long time series for UCR murders in Memphis (UCR excludes justifiable homicide, law enforcement, and murders that did not occur in the jurisdiction of the Memphis Police Department):
1997 138 Rosin says the trouble started here
2005 138 they stopped moving people out of the projects here
2007 129 preliminary
If you treat murders as Poisson variables, only the 2004-2005 and 1999-2000 increases approach 2 se, but murders are really stuttering Poisson, which has greater variance. So going from 1996 until today, which is the natural comparison for the effect of project demolition, you have a decrease from 161 to 129. You can slice it many different ways, but my reading is essentially nothing happened. Remember also that the projects get emptied out long before demo. Since the title of the article is murder, i think it's very fair to look at murder.
What about nationally? Everybody knows that murders have come down a lot since the mid 90s nationally. The national rate stabilized around 2000 and has had only minor random blips since. The new data for 2007 show a small drop of 2.7% from 2006, but this is not significant to me. Rosin makes a big deal of the increase in cities 500k-1 m. Again, murders went down in these cities 2006 to 2007.
Rosin also cites the Police Executive Research Foundation report. This was about the change in murder in a non-random sample of large cities 2005 to 2006. Murder went up in about half of those cities, it went down in the other half, and the authors chose to report on all the increases. Half go up and half go down is what you expect from pure white noise.
Brendan says more, including the fact that Jens Ludwig has a regression that more convincingly ties the crime rate in New York to the success of the Yankees than the work that ties murder in Memphis to Section 8.
So last April, when I made a visit to USC to prepare for my move this coming August, I used transit to get around LA to see what it was like. In terms of convenience, it is actually not too bad--buses go nearly everywhere, and the routes are sensible. It is also very cheap. Yet there was one huge difference between DC and LA transit--and I am not referring to the fact that Washington's Metro rail system excellent and LA's Metro rail system doesn't go enough places to be all that useful. Rather, it is the fact that one sees all economic classes on transit (including buses) in Washington, but not in Los Angeles (perhaps I am making too much of an assumption based on people's attire, but I don't think so.) A conclusion one might reach is that people who don't have to take transit in Washington do so anyway, while only people who have no choice but to take transit do so in Los Angeles.
Perhaps a reason for the difference is that Washington Metro rigorously enforces its rules prohibiting eating, drinking and loud noises. While I long thought the eating and drinking rules were extreme (especially when I really want a coffee during my ride in), I have to admit that one of the reason Metro is so pleasant is that it remains very clean. On the other hand, when I rode transit in LA, I encountered three winos drinking out of brown paper bags. And the vehicles themselves were no where near as clean and pleasant as their DC counterparts. I must confess that such conditions make me less likely to use transit.
It is important for transit to be considered an acceptable option for travel for all economic classes--it is one of the ways to develop a political consensus behind it. While once upon a time I couldn't imagine myself saying this, perhaps all transit systems should consider adopting Washington's rules--and enforcing them.
Wednesday, June 11, 2008
Ryncsynski supports Saarinen's own view that the Finnish architecht's best building is Dulles Airport. When one drives up to Dulles, it is indeed magnificent--particularly at dawn and dusk. Its large mass is made human by its airiness.
But as a functional airport, Dulles is pretty much a disaster, in part because of the mobile lounges that are Saarinen's invention. I use Dulles between once and twice a month (Reagan National, a wonderful airport, doesn't do international flights or frequent flights to the West Coast, and Baltimore is too far away), and it is even more irritating than most airports. When one departs, the security lines move slowly, and when one arrives, it takes about 45 minutes to get from the airplane to one's car in daily parking. Among large airport terminals in the United States, O'Hare, San Francisco, Dallas and the new Detroit airport, while not as astehtically attractive as Dulles, work far better (note that I am talking about the buildings, not the air traffic sitution).
Tuesday, June 10, 2008
HUD has actually eliminated the old "take one, take all" Section 8 policy as well as the "endless lease" policy, since, I believe 1994. The change has made landlords more willing to accept vouchers, but, as the problems with the "Moving to Opportunity" program show, it is difficult to convince receipents, even with counseling and even with landlord consent, that they should move away from high-poverty neighborhoods. Maybe that is because they understand what the empirical evidence now shows: the benefits are minimal at best.
Update: Congress repealed the "take one, take all" provision in 1998. Some states, however, maintain the provision; there is currently an argument over whether federal law preempts the right of states to have such a provision. Courts in New York and New Jersey have order landlords to keep Section 8 tenants after their leases have expired (see Rosario v Diagonal Realty, LLC for NY, and Franklin Tower One v. N.M for NJ).
I will try to find out more, but so far as I can tell, Tennessee (the subject of The Atlantic piece) respects the repeal provisions.
Monday, June 09, 2008
One passage in the Rosin piece, though, really hit me:
Studies show that recipients of Section 8 vouchers have tended to choose moderately poor neighborhoods that were already on the decline, not low-poverty neighborhoods. One recent study showed that...voucher recipients seemed not to be spreading out, as they had hoped, but clustering together.
I have for some years argued that Section 8 has been the country's most successful housing subsidy program. The program, which provides recipients a voucher that fills the gap between 30 percent of family income and area market rent, has been a far more efficient mechanism for providing subsidy than public housing or Low Income Housing Tax Credits. Yet the piece's point is likely correct.
It may also be a product of the program's design: on the one hand, landlords can refuse to take any Section 8 tenants; on the other, once a landlord takes one Section 8 tenant, he needs to take any Section 8 tenant. Perhaps a rule that would require all landlords to accept Section 8, but would also allow them to cap any one building to, say, 30 percent Section 8, would help reduce the problems described in the Rosin piece.
Sunday, June 08, 2008
This produces a perverse and wasteful outcome, especially at our airports. My family and I were dropping off a visiting friend at Dulles today, and on the way back I noticed a bunch of empty DC and Maryland cabs on the Dulles access road. The distance from Dulles to DC is about 25 miles--this implies substantial time is wasted and greenhouse gases emitted every day for no good reason. Once upon a time this might have been a small thing, but that is no longer the case.
From the standpoint of mortgage performance, it is nominal, not real, house prices that matter, because mortgage balances do not adjust to changes in the price level. So long as nominal prices rise, the incentive to default is low, because home equity will be increasing.
Just as problematic, Shiller is applying the Case-Shiller Index to make conclusions about Fannie/Freddie performance. But for evaluating Fannie/Freddie, the OFHEO purchase index is best, because it only contains loans that Fannie/Freddie actually fund, and because it is based only on transactions. This index has fallen 3.1 percent from peak so far. This is nothing to celebrate, but it is well within the realm of what Freddie modeled.
Friday, June 06, 2008
Thursday, June 05, 2008
Long story short: Douglas soldiered on, imploring his constituents to remember the favors they had received from the Democratic Party—entree, for one thing, into the world's first mass middle class of factory workers. To no avail. Percy won in an upset. Pundits said it was because Percy's daughter had just been brutally murdered; it was a sympathy vote. But if people voted for Percy because he was a grieving father, the ratio of the sympathetic to the callous was suspiciously high in the Bungalow Belt neighborhoods where Martin Luther King had marched. A ward analysis demonstrated that in Chicago neighborhoods threatened by racial turnover, new Percy voters were enough to account for Douglas's 80 percent decline in the city since 1960. Pundits also pointed to people's unwillingness to vote for such an old man. But in the backlash wards younger Democrats declined almost as significantly.
No, it was voters like this, from 4315 W. Crystal:
A few years ago I had written you a letter stating how I and my family would welcome the opportunity to vote you in to the highest office in the land--The Presidency. Since that time however your support of the open occupancy bill has caused me to change my support of your candidacy for senator of Illinois, and believe me sir there are many more in my category who are changing in their support of you.
Here is the fundamental tragedy of the backlash: Voters like this empowered a party that decided they didn't need protection against predatory subprime mortgage fraud. Didn't need affordable, universal health insurance; made it easier for companies to rape their pensions; kept on going back to the well to destroy their Social Security; worked avidly to shred their union protections. Fought, in fact, every decent and wise social provision that made it possible in the first place for mere factory workers to live in glorious Chicago bungalows, or suburban homes, in the first place.
Now a black man from the city King visited in 1966 and called more hateful than Mississippi is running for president, fighting for all those things that made the mid-century American middle class the glory of world civilization, but which that middle class squandered out of the small-mindedness of backlash.
This post is for Chicago. This post is for America. This post is for our future. This post is for our history—that we may redeem it. This post is for a man who, had he walked down the wrong street in his own city 42 years ago, might well have been beaten to death.
This passage brought back to me a long suppressed memory: that when I was a boy growing up in Wisconsin, I was brought up to despise Richard Daley's Chicago. When my parents (who brought me up to be a non-knee-jerk liberal, and who gave volunteers for Gene McCarthy a place to sleep in our finished basement) introduced my brother and me to big cities, it was to New York and Boston (our roots) and Minneapolis that we went. I am pretty sure my first visit to the Art Institute came while I was in college, and I think the first time I heard the Chicago Symphony live was the summer before college (actually, I remember that quite well--James Levine conducted, Stephen Bishop played piano, Mozart K 467, Tchaikovsky 4).
Now Chicago is my favorite American city, in part because it seems so...diverse. And it is a place that has reinvented itself from being a manufacturing city to a business services center, and that has among the most diversified economies in the country. Somehow, when I think of Chicago now, I think only of the city that it has become, and of the city depicted in Bill Cronon's Nature's Metropolis and in Wytold Rybczynski's City Life.
But Rybczynski writes about how Chicago's reconstruction out of brilliant white stone after the Great Fire led it to be known as "White City." Unfortunately, until much too recently, many of its residents took that sobriquet all too literally.
Perhaps I should have been more careful in my wording when I referred to Dr. Shiller having an incentive to "scare" the market. Dr. Shiller has been one of the most pessimistic prognosticators regarding the housing market forecast for the next several years - with U.S. home prices falling to the tune of 40 percent over the next decade. Who in their right mind would buy a home if such predictions are to be believed? When people ask me if Dr. Shiller is purposely trying to scare the market for his financial benefit, I reply that he is a well-respected scholar and I believe he genuinely believes that home prices will deeply contract. I further add that I do not think he wants to personally profit from people using hedging strategies as offered by his company MacroMarkets. It is a financial innovation that may indeed bring many societal benefits at some point by spreading risks to those who can presumably better handle them. However, one key element that has been missing in this discussion is disclosure.
Bob Shiller has never hidden his relationship with MacroMarkets. In fact, nowadays when he writes paper and goes on TV, he is identified as being with Yale and MacroMarkets. I am not sure there is much more that he could do to disclose.
So that I disclose fully, I worked for the Wisconsin Realtors Association when I was a graduate student from 1987-1990, and consulted with NAR on their existing home sales rebenchmarking. I think the EHS series is well done, but of course I have every reason to think so.
Wednesday, June 04, 2008
"I face this challenge with profound humility, and knowledge of my own limitations."
From John McCain yesterday:
"They might think me an imperfect servant of our country, which I surely am."
I very much prefer one to the other, but I have to ask, when is the last time we had a President would would say something along these lines?
Tuesday, June 03, 2008
ScienceDaily (Jun. 2, 2008) — A new study examined consumers’ self-assessments of their credit rating and found that respondents were more likely to believe they had average or above average credit and those who overestimated their credit quality were less likely to budget, save, and invest regularly.
The study's author, Vanessa Gail Perry, Assistant Professor at the George Washington University School of Business, concludes that "Overestimating credit ratings is partly a function of a lack of financial sophistication. In addition, it appears that people who have overestimated their credit rating take less care in managing their finances.”
Professor Perry analyzed data from the Freddie Mac Consumer Credit Survey. The survey collected data on attitudes, behaviors, knowledge and experiences with credit and financial management from around 23,000 people. Results indicate that approximately 32 percent of respondents overestimated their credit ratings, while only four percent underestimated their credit ratings. The findings support previous studies in judgment and decision-making that show that individuals are more likely to be overconfident about their knowledge or abilities.
Those who overestimated their credit ratings had lower incomes, less formal education, and were less likely to own their homes. They were also more likely to be African-American, Hispanic, or female. One possible explanation for these results is that minority consumers in general have less experience with financial markets which in turn affects their tendency to overestimate their credit rating.
Monday, June 02, 2008
1) Case-Shiller and OFHEO look at repeat purchases and exclude new home purchases, but OFHEO also throws in appraisals that are generated when people refinance their homes. As we have all become very cognizant of lately, what a house will appraise for and what a house will actually sell for on the market can be very different things.
2) OFHEO doesn't consider transactions involving loans that are too big or too risky to be guaranteed by Fannie and Freddie, and acknowledges that homes with these mortgages on the upper and lower price ranges are seeing bigger price declines than the homes it tracks.
3) NAR looks sales of existing homes listed by MLSs, and reports median home prices, which reduces the impact of price volatility in upper price ranges.
The result is that the Case-Shiller index can show more extreme swings in price -- both up and down -- than NAR or OFHEO's numbers.
There are actually three Case-Shiller indexes -- monthly 10- and 20-city surveys, and a quarterly report that looks at all nine U.S. Census regions. The monthly survey is the one people tend to get the most worked up about, because it looks at 20 metropolitan statistical areas that include hard-hit areas like Detroit, Las Vegas, L.A., Miami, Phoenix, San Diego and Washintgton D.C. -- all of which have experienced double-digit price declines in the last year.
To the extent that the monthly Case-Shiller index can mistakenly be interpreted -- by a cursory reading of a headline, perhaps -- as representing the state of the nation's housing markets, that's a problem. And Ross is not alone in pointing out that Case-Shiller can also miss trends in micro-markets, like Manhattan, because it doesn't track sales of condos and co-ops.
He also points out that Lawrence Yun, Chief Economist of NAR,
...goes after Robert Shiller, the Yale economist who helped develop the Case-Shiller index, claiming that as a co-founder of MacroMarkets LLC, he profits from the trade of housing and futures options on the Chicago Mercantile Exchange and has a financial incentive to "scare" the market."
"The more hedging of bets that occur, the more profits go into Dr. Shiller’s bank account," Yun claims. "And more hedging of the bets will take place if people believe there will be a crash in housing values."
This is a disgraceful smear. I don't always agree with Shiller (I thought and still think he called the housing bubble prematurely), but he is a great and scrupulous scholar. His work has been cited on google scholar more than 10,000 times; Lawrence Yun has been cited twice. Despite this, I have seen Shiller express becoming modesty about his attempts to get a futures market going--something that would very much benefit consumers, were it to work, and that could reduce volatility. I am actually skeptical about whether futures markets can work in the housing market, and people actually hedge themselves pretty well by using mortgages (which are essentially a short position). But I very much admire Shiller's efforts to get one going--it is rare that such a first rate academic tries to create something so useful. As for Lawrence Yun's potential conflict of interest, let's not go there. But he owes Case and Shiller both apologies.
(1) Every person in the room but one thought that the country was either in or headed into a recession. This may have reflected more about current conditions in California--and in particular in the Inland Empire--than the country as a whole. Then again, California is by itself an awfully large part of the country.
(2) Commercial real estate transactions have dropped precipitously. One person did report closing on a deal with a 4.9 percent capitalization rate, but many in the room were saying that transactions were off by as much as two-thirds from a year earlier. The story: bid-ask spreads are very wide, and because market fundamentals are good, sellers do not feel pressure to sell at a fire sale price.
The implication to me is that capitalization rates have risen. Given that spreads have risen in other financial markets, it seems to me that cap rates should be at least 100 basis points higher than a year ago, and perhaps 200 basis points higher. This would imply shadow values falling by between 15 and 40 percent. This will begin to create a problem when commercial mortgages, which usually feature balloon payments, begin getting refinanced in large numbers over the next few years.
(3) Raw land in the inland empire has less than zero value.