Thursday, September 05, 2019

Mortgage Spreads are Rising (although maybe it's a blip).

I check out mortgage rates at least once a week, because, well, it is my job to know what they are. 

Recently, I have been expecting to see mortgage rates fall a lot, because 10-year Treasury Yields have fallen a lot.  But they haven't.  Here is the spread of 30-year mortgages over 10-year Treasuries:

As you can see, the spread is at its highest level in at least five years (BTW, 10-year Treasuries are from Fridays, and the Freddie PMMS is from Thursdays, but still...). 

I am eagerly awaiting next week to see if this continues.


Tuesday, August 27, 2019

Robustness in Economics and Econometrics: Interview with William "Buz" B...



This took me back (with pleasure) to my graduate school days.  I have been privileged to learn from many amazing people, but I think I learned more from Professor Brock than anyone else (and I think I learned only about 1/3 of what he tried to teach me).


Monday, August 26, 2019

By world standards, the middle class in the US still does very well

After reading Biyamen Applebaum's thought-provoking piece in the NYT today, I thought about how economists measure well-being, and how measures other than GDP per capita better reflect social welfare.  One obvious measure is median disposable income--a good representation of middle-class affluence, in that it is at the middle, and is not skewed by the top end of the distribution.

After looking at OECD data that I myself adjusted for exchange rates, a Wikipedia article based on OECD data, a Mises report also based on OECD data, and World Population Review, the consensus ranking of the US for median income is fourth, after Luxembourg, Norway, and Switzerland.  The top five is rounded out by Australia.  Median income here is the disposable median, meaning after taxes and transfers.

This is not to say the US couldn't be doing better.  As I noted in an earlier post, median income is pretty stagnant here.  I would also be curious about the variance of disposable income at the household level.  If people have steadier incomes at the median in other places, they may feel more economically secure.

Nevertheless, if we were to list our most serious economic issues, failing the middle class, at least relative to other countries, would not be on the top of the list.


Sunday, August 11, 2019

The median male earner--the top line overstates progress

Has the median man made progress economically since 1980?  Not really.  While male median income rose (in 2017 $) from $35,589 to $40,396, or 13.5 percent,  this modest increase masks the fact that the share of men in their peak earnings years has increased, and that earnings at the median within peak earnings years categories have decreased.

Share in Age Category Median Earnings (2017 $)
1980 2017 1980 2017
15-24 0.216 0.120  $13,057  $13,734
25-34 0.232 0.183  $44,252  $40,575
35-44 0.161 0.167  $56,911  $52,403
45-54 0.136 0.169  $56,732  $53,985
55-64 0.127 0.165  $45,200  $48,863
65+ 0.127 0.196  $20,845  $32,654

Note that population share for 35-64, prime earnings years, rose from 1980 to 2017; earnings fell for every population group between 25 and 54.  The median 30 year old is making less than their counterpart from 27 years earlier, as is the median 40 year old, as is the median 50 year old.

Had income within each age category remained constant at 1980 levels, current median income for men could be $40,306, or almost exactly where it us now.  On an age adjusted basis, there was no median income growth.  But that probably overstates economic well being at the middle--the one category where income has risen rapidly is the 65+ group, which may reflect the fact that 65 year olds no longer feel that they can retire.  So when current generations think they are not keeping up with the past, they are on to something.

Some notes: (1) I use 1980 as the base year, because how median income was measured changed that year, and so previous years are not as comparable.  (2) I look only at men, because the labor force participation rate among women has changed so much that 1980 and 2017 data are not comparable (although it is no doubt the case that women are far more economically independent now than in 1980). 

Source: US Census Bureau: Current Population Survey, Annual Social and Population Supplements.  Table P8.   

Sunday, August 04, 2019

1984: Something happened to Rent CPI

Using one of the world's most useful websites, FRED, I drew a graph of rent CPI and all CPI going back to the beginning of the series.


Until 1984, rent growth and CPI growth pretty much matched each other, meaning inflation adjusted rents stayed nearly constant.  And then, a departure began between the two: rents have been rising faster than inflation, and the difference between he two is accelerating.

In a well functioning housing market, rents should stay fairly constant across time.  If rents rise above inflation, builders have incentive to build, until they create enough vacancy that real rents fall again (in the old days, this would usually entail a little bit of overshooting).

We do not, alas, have a well functioning housing market in the US.  My hypothesis is that this is because builders, unlike, say, auto manufacturers or farmers, need to get permission from governments to respond to demand pressures, and often do not get it.     

Friday, August 02, 2019

Should young people borrow to get their 401(k) match?

I think the answer is yes.  Suppose you are a young person, early in your earnings years.    Your employer offers you a one to one 401(k) match on, say, 5 percent of your income.  The employer match gives you a guaranteed 100 percent immediate return on your investment (I know of no other deal like this).  But after paying rent, college (or other school) debt, utilities and food, you haven't got five percent of your income left over.  Should you take on credit card debt to finance the 401(k) contribution?

If (and that is a big if) you are a prime borrower, the answer is likely yes.  Suppose your investments earn an eight percent return and, as a prime borrower, you pay 15 percent interest on your credit card.  You are creating a $200 asset for every $100 of debt you take on.  The asset grows by 8 percent, compounded, per year, and your debt grows by 15 percent, meaning that in year 11 the value of your debt will exceed the value of your assets.  (Clearly, if credit card interest is in the 20s, it is a completely different story.

But, one expects income to increase over the early part of the life-cycle, making it possible to amortize the credit card debt over time.  It is important to be disciplined, and not use any more credit card debt than necessary, and to pay it off as soon as possible, but it also makes sense not to leave money on the table.  

Monday, July 29, 2019

I host a podcast.

It's a chat about Robert Galbraith's Career of Evil.  Panelists Lisa Schweitzer and Aubrey Hicks made is work.