Maybe I am too eager to believe it, and...

..I expect to be smote down for saying it, but I think the two month old, mediocre, Case-Shiller number that came out today is consistent with the idea that the housing market will really come back big this year (I said so in the paper and on the radio today, so I might as well say it here).


Inventories in many hard hit markets are now low by historical standards.  Time on market has fallen.  HARP II can accelerate amortization (which is its most important feature).  Prices are really cheap, both when the user cost they produce is compared with rent, and when compared with incomes (by World standards).

State growth and the composition of spending

Paul Krugman rightly calls out Arthur Laffer's junk economics on the impact of state and local taxes on economic growth (I have no idea about why anyone listens to Laffer about anything, but that is for another day).  At the same time, however, a good, liberal friend of mine told  me yesterday that for the first time in his life, he will vote against a tax increase in California--the temporary tax increase proposed by Jerry Brown that will be on the ballot on November 6.

My friend has no issue with government spending per se; his problem is that he gets to observe the doings in Sacramento quite closely, and as he puts it, "it is even worse than you think up there."

California's state and local governments spend a lot of money.  We ranked 4th in 2010 among the 50 states in per capita state and local spending.     Yet if one looks at education spending, we are only average.  Even worse (from the standpoint of my parochial pride, anyway), we trail Texas in education spending per capita.

My understanding is that once upon a time, California had among the most efficient and accountable governments in the country.  The public schools were a particular source of pride.  But the vast amounts of money are not being well managed now--such mismanagement is harmful whether it occurs in the public or private sector.  How well government money is spent may be just as important as how much money is spent.

Hannah Green:What is the purpose of protesting? - The Daily Northwestern - Northwestern University

She writes:

As we took the Red Line back from the protest, I continued to have mixed feelings about it. I thought that the rally especially had been too disorganized and too angry. I thought that Salek was making fun of me when he said that a protest wasn’t the same thing as an academic forum (He later told me that he wasn’t). A rally isn’t meant to convince people of anything, he said, but to get people who were already convinced energized. He said that there wasn’t enough time during the rally for all those with important issues to completely clarify their positions subtlety. There had been forums and discussions earlier in the week for that.

I then became nostalgic for a time that I had never lived in. I thought of protests from the ’60s and ’70s that I’d heard about. Protesters were convincing because they made their cases by showing their humanity rather than their anger. But this is a different kind of protest, Salek said. There was a wider variety of problems on the table. Part of the point was to just make people aware of the diversity of the issues and stake, and, yes, to give people a place to (peacefully) channel their anger. That’s how a movement can gain its momentum.

Omit needless words...

My dear friend Steve Malpezzi on John Quigley

He writes:

I first encountered Professor Quigley through his research; later, we connected through our mutual friend the late Steve Mayo. I was honored to count John as a friend, but he was also a professional and scholarly inspiration to me, and to many, many others. Professor Quigley was an active researcher and teacher for over four decades; a long career by some standards, but he left those of us who knew him, and his work, wishing we could have had a fifth, if not a sixth.

In the history of the allied fields of urban economics, real estate economics and finance, after the original generation of William Alonso, Richard Muth, Edwin Mills and John Kain, John Quigley shaped our field like no one else. The breadth of his contributions, in urban, housing, public finance, finance, and many other fields, is breathtaking.

I’m not alone in that judgment, and those of us that hold it can easily show that it’s not simply sentiment for a passed friend. Many colleagues share my high opinion of John Quigley, and have said so, unbidden, for years, long before his illness. Several years ago, for fun, I asked six PhD students to write down the name of the person who, according to their study, all-in, made the greatest contributions to our field. (I told them they couldn’t name anyone from Wisconsin, but of course that was to save face :-).

Five wrote “Quigley.” Well, it wasn’t all six, but I’m not going to stretch the truth for the sake of the story!

Read the whole thing.

Yongheng Deng, Gary Painter, and Christian Redfearn on the Life of John Quigley

Yongheng, Gary and Chris write a lovely tribute for AREUEA:

Monday, May 14, the community of AREUEA was deeply saddened to learn that John Quigley passed away on Saturday, May 12, 2012.

Since our early years at Berkeley, John has been a wonderful mentor and friend to us. John has been a member of 84 PhD committees since 1990, chairing 26 of them (including the three of us). He was a distinguished academic, a mentor for his students throughout their entire career. He excelled in each of the areas we value: research, teaching, and service. He published 22 articles in just the past three years alone, and his work has earned more than 10,000 citations. His service to the profession is unparalleled.

Within AREUEA, John served in many capacities including President and most recently as the chair of the International Selection Committee. He served as the chair of the Department of Economics at UC Berkeley, the editor of Regional Science and Urban Economics, and as a role model to many. Beyond these which can be counted, John's mix of conviction, energy, and laughter made him a singular character in our worlds. We will remain ever grateful for his guidance and advice, but beyond all of it, we also just liked him. He was good company--on a panel just as he was on the train from Shanghai to Beijing. John made life fun. He not only helped us join a profession, but helped us become part of a community. Simply put, we would not be the academics that we are today, if it not for him. We feel so fortunate that we have had him as a teacher, mentor, friend and collaborator.

We will always cherish the memory of John in our heart as a great scholar, a wonderful human being, a man of great intelligence, kindness, dedication, generosity, and profound integrity. We will forever miss him and miss him dearly.

Yongheng Deng (NUS), Gary Painter (USC), and Chris Redfearn (USC)

AREUEA Officers and Board Members

$920 million for 12 mph

I have taken the new Expo line now three times from USC to downtown LA.  According to Google Maps, the distance is 2.5 miles.  The trip has, on average, taken 13 minutes.  This works out to 11.5 mile per hour.

Metro spent $920 million on a line that does not get signal priority at traffic lights--in other words, it expended huge capital costs on a large bus that is stuck on one route. 

Should Ohio Taxpayers assure that Ohio State students assume less debt?

The New York Times had a story yesterday about a "generation hobbled by the soaring cost of college."

The piece featured some disturbing stories--particularly about a student who had $120,000 in debt as the result of attending a college that I had never heard of before.  On the other hand, I also read that, "Three out of five undergraduates at Ohio State take out loans, and the average debt is $24,840."


Ohio State is a world class research university.  I am quite sure that graduates of Ohio State earn much higher lifetime incomes than the average Ohioan.  So higher subsidies to Ohio State students from Ohio taxpayers would effectively be a regressive transfer.  


Should the state subsidize the University?  Almost surely, because its research and its college graduates produce positive externalities.  But does an average debt load of $24,840 keep large numbers of students away from Ohio State?  Enough that it diminishes the positive externalities created by their attendance?  That would be a much tougher argument to make.  My guess is that almost everyone who goes to Ohio State would go to some college, one way or another (just as it is the case that nearly every homeowner who takes the mortgage interest deduction would be a homeowner in its absence).


In order to stimulate upward mobility, there must be financial aid (in the form of grants, not loans) to students coming from low-income households.  But for everyone else, well, it seems like $25K in debt in exchange for an Ohio State education is a very good financial proposition.

Dowell Myers: Those born in California stay in California. Nevadans, not so much.

From Dowell's piece in Zocalo Public Square:

Do Californians really care how many New Yorkers move back to New York or on to Las Vegas? For the most part, no. What local residents care about is how many of our own friends, especially our children, leave the state. If native Californians start fleeing, then we know we are in trouble. So what do the data tell us on this?

California, in fact, holds its own. When it comes to retaining native sons and daughters, California has the fifth-strongest attraction of all 50 states. Among California-born adults who were at least 25 years of age and old enough to have moved away, fully 66.9 percent were still choosing to reside in the Golden State in 2007, the last year of high migration before the recession held people down. Texas, with 75.1 percent of native Texans still living in the state, has the strongest loyalty, and the other three rounding out the top five are Wisconsin, North Carolina, and Georgia. California’s top-five ranking is all the more impressive when you take into account the state’s high living costs and other negatives. We must have something going for us.

Nevada, as you can see here, ranks in the bottom five of states’ retention of native-born population, despite being touted as a beacon for those fleeing California. If you can’t hold your own, you’re not worth the chips you’re built on. On this key measure, California is a full house, Nevada a busted inside straight. And yet you’d never know how enticing California is for its native-born residents from the overwrought narratives.

This is indeed cheering news for those of us who live in California.  It is also striking how good Texas looks..again.

If it is all about age, what should the homeownership rate be?

Last week's report of a continuing drop in the homeownership rate to its 1997 rate of 65.4 percent made me decide to revisit a question I looked at in a paper some years ago: holding demographics constant, would should the homeownership rate be?

I don;t think anyone would argue that 1990 was a year in which the homeownership rate, at 64.2 percent, was unnaturally high.  In fact, the rate had been stuck around 64 percent for around 20 years.

One of the reasons for this is that the country at the time was moving through a period with lots of young adults.  In 1990, the homeownership rates by age were as follows:

15 to 24 years	17.1%
25 to 34 years	45.3%
35 to 44 years	66.2%
45 to 54 years	75.3%
55 to 64 years	79.7%
65 to 74 years	78.8%
75 and more years	70.4%

Source: 1990 Census of Population and Housing

At the time time, the age shares of household heads at the time were:

15 to 24 years	5.5%
25 to 34 years	21.6%
35 to 44 years	22.2%
45 to 54 years	15.6%
55 to 64 years	13.5%
65 to 74 years	12.5%
75 and more years	9.2%

Source: 1990 Census of Population and Housing

Now let us look at age shares in 2010.  They are:

15 to 24 years	4.6%
25 to 34 years	15.4%
35 to 44 years	18.2%
45 to 54 years	21.3%
55 to 64 years	18.3%
65 to 74 years	11.6%
75 and more years	10.6%

Source: 2010 Census of Population and Housing

If we apply those population shares to the homeownership rate by age in 1990, we get an "age-predicted" homeownership rate of 67.0 percent.  This suggests that the rate has fallen below where it "should be."  Why might this be?  Let's look at the ownership rate among non-hispanic whites and everyone else in 1990:

White (non-hispanic)	69.1%
Non-white or hispanic	44.6%

Source: 1990 Census of Population and Housing and my tabulations.

In 1990, 80 percent of household heads were non-hispanic whites; according to the 2009 American Housing Survey, 70 percent of household heads that year were non-hispanic white.  If we hold ownership rates by race constant (as well as age) and allow race/ethnicity of household heads to vary, we would have seen a decline in the ownership rate to 61.9 percent.  Age by itself therefore pushed up the rate by 2.8 percentage points, and race/ethnicity reduced it by 2.3 percentage points, so if the effects of age and race stayed constant (and we ignore interactions of age and race for now), we would expect the ownership rate in 2010 to be about 64.7 percent.

I do wish to emphasize that the difference in ownership rates across races and ethnicities is NOT acceptable; one cannot explain difference by just looking at such things as economic status and marital status.  My reading of the literature is that African-Americans and hispanics continue to suffer from discrimination in the housing market.  All that said, it is not difficult to explain why the ownership rate is returning back to where it was.  I also think there is no reason to believe it will settle at a much lower rate than where it is right now.

  

Who (or what) is an insider?

Christopher L. Foote, Kristopher S. Gerardi, and Paul S. Willen have a paper on the mortgage crisis that argues that most commentary about the sources of the crisis has been misguided, if not outright wrong.  They produce twelve things they call facts in order to support their point of view.  Among the most pointed is Fact 10: that "insiders" were the big losers in the crisis.  Therefore, the argument goes, there could have been no "inside job."

But their evidence that the insiders lost is that large financial institutions--Citigroup, UBS, etc.--were large losers.  But this suggests that the institutions--and their shareholders--were insiders.  I think it more likely that the shareholders were outsiders.  The insiders were corporate senior management, traders, and mortgage brokers.  I don't know for sure whether they came out ahead or not, but I sure have my suspicions...

Update: the paper does note that Bear Stearns executives invested in (and lost money on) mortgage backed securities.  That is the only evidence that executives might have been net losers from the mortgage business.