- Have more fun with real estate,
- Help my clients have more fun and success with their r.e. deals,
- Visit more food trucks when they come to Studio City, Burbank and the San Fernando Valley.
New Year's resolutions
Sewell Chan: Economists consider ethics code
It's about time. I do think it is a good thing when economists participate in both business and policy--such things inform both teaching and research. But disclosure is important. We may all think of ourselves as forthright and objective, but we are in fact shaped by experiences (and as economists never cease to remind us, by our paychecks). Gary Becker's line in Chan's piece about replicability curing all ethical problems doesn't really hold up, because lots of economic theory has never been or has been inadequately tested against data (George Akerlof does a very good job demonstrating this in his AEA Presidential Address from 2007).
We seem as a profession to have a difficult time dealing with ethics--it makes us squeamish, because mainstream economics often celebrates avarice. But one of Adam Smith's earth shattering works was called The Theory of Moral Sentiments, so he wasn't squeamish about thinking about such things as all.
I have within this blog from time-to-time disclosed my relationships when such things might matter to what I am writing. The two most important are with Realtors (when I was a graduate student I worked for the Wisconsin Realtors Association, and I was a consultant on Existing Home Sales in the late 1990s and early 2000s) and with Freddie Mac (where I worked for less than a year and a half in 2002-03). My center at USC has a large number of donor members. I have also consulted for the World Bank. These relationships have been rewarding to me financially and intellectually, and while I like to think I play things straight, I would be foolish to pretend that these experiences have had no influence on my outlook. I leave it to readers to determine the impact of such influence on the validity of what I write.
We seem as a profession to have a difficult time dealing with ethics--it makes us squeamish, because mainstream economics often celebrates avarice. But one of Adam Smith's earth shattering works was called The Theory of Moral Sentiments, so he wasn't squeamish about thinking about such things as all.
I have within this blog from time-to-time disclosed my relationships when such things might matter to what I am writing. The two most important are with Realtors (when I was a graduate student I worked for the Wisconsin Realtors Association, and I was a consultant on Existing Home Sales in the late 1990s and early 2000s) and with Freddie Mac (where I worked for less than a year and a half in 2002-03). My center at USC has a large number of donor members. I have also consulted for the World Bank. These relationships have been rewarding to me financially and intellectually, and while I like to think I play things straight, I would be foolish to pretend that these experiences have had no influence on my outlook. I leave it to readers to determine the impact of such influence on the validity of what I write.
How the NCAA undermines the academic enterprise
I love major college sports; I have enjoyed having athletes in class--they actually tend to run the gamut in terms of how well they do, and I appreciate the time management skills required to be a varsity athlete while performing well in class.
But part of the academic enterprise is instilling in students the importance of not bullshitting. The NCAA undermines this when it states things like:
But part of the academic enterprise is instilling in students the importance of not bullshitting. The NCAA undermines this when it states things like:
Money is not a motivator or factor as to why one school would get a particular decision versus another. Any insinuation that revenue from bowl games in particular would influence NCAA decisions is absurd, because schools and conferences receive that revenue, not the NCAA.But who are the members of the NCAA? The schools! This statement meets Harry Frankfurt's criteria for bullshit, and is an example of why bullshit is harmful. Frankfurt:
Someone who lies and someone who tells the truth are playing on opposite sides, so to speak, in the same game. Each responds to the facts as he understands them, although the response of the one is guided by the authority of the truth, while the response of the other defies that authority and refuses to meet its demands. The bullshitter ignores these demands altogether. He does not reject the authority of the truth, as the liar does, and oppose himself to it. He pays no attention to it all. By virtue of this, bullshit is the greater enemy of the truth than lies are.It seems to me that those of us who have anything to do with colleges and universities have an obligation to avoid bullshit.
My colleague Lisa Schweitzer gently scolds me, and then teaches me something about LA Metro project management
In response to my post, she starts by writing:
First off, it’s a bad idea to conclude anything about work effort based on what you observe by walking by. That’s like the people who judge professors by saying we “only teach two hours a week.” It’s not a valid sample, and it’s very had to evaluate other people’s work effort when you have never done the job yourself— and that’s particularly true of white collar workers passing judgment on blue collar workers engaged in dangerous and often tiring work–during a recession, no less, where anything that extends their work hours has direct implications for their family’s ability to eat and pay rent (unlike salaried work).It is worth reading the whole thing.
More to the point, Richard is mistaken when he concludes that people are not upset. The LA Weekly recently published a story called L.A.’s Light-Rail Fiasco which eviscerates the CEO of the Exposition Metro Line Construction Authority, Rick Thorpe, for salary and his conduct. Rick Thorpe is exactly the sort of transit guy who becomes a free agent and CEO: relentlessly self-promotional and confident, any previous successes get attributed to his leadership. So he picks up stakes, gets recruited away, commands an enormous salary, and builds a brand for himself that he delivers projects on time and on budget.
2208 Willetta in Hollywood Dell closed
*This was one part of a three-part transaction involving Morse (see below). I can't go into detail here without risking legal action, but if you want to phone me, I might be able to give you details. Hint: if you call me, ask me about the lender on Morse.
Suddenly, some members of the GOP realize they actually will be part of the government
Alan Zibel writes in the Wall Street Journal:
The conservative complaint about Fannie and Freddie is that they privatized profit while socializing risk. This is doubtless true. I just don't see how it is any less true for banks.
[update: just to be clear, I am all for FDIC, and I think on net TARP left the country better off. The point is that we will always rely on the public sector to some extent, whether some people like it or not].
Earlier this year, leading House Republicans proposed to privatize mortgage giants Fannie Mae and Freddie Mac or place them in receivership starting in two years.I actually don't think the mortgage market will ever be truly a private sector enterprise. Suppose Fannie and Freddie were to go away: the most likley entities to step into the residential finance market would be banks. Would this be privitization? Not really. Banks receive explicit guarantees (FDIC) and, as we know from recent events, implicit guarantees as well (TARP was nothing if not the execution of an implicit Federal guarantee).
Now, as Republicans prepare to assume control of the House next week, they aren't in as big a rush, cautioning that withdrawing government support in the housing market should be gradual.
"We recognize that some things can be done overnight and other things can't be," said Rep. Scott Garrett (R., N.J.), incoming chairman of the House Financial Services subcommittee, which oversees Fannie and Freddie. "You have to recognize what the impact would be on the fragile housing market as it stands right now."
The conservative complaint about Fannie and Freddie is that they privatized profit while socializing risk. This is doubtless true. I just don't see how it is any less true for banks.
[update: just to be clear, I am all for FDIC, and I think on net TARP left the country better off. The point is that we will always rely on the public sector to some extent, whether some people like it or not].
Keynes on the "Psychology of Society"
My wife gave me a Kindle for Christmas. The first thing I should say is that it is really great: my eyesight isn't what it once was, and I find it very easy to read.. The second is that I will continue to buy books at Vroman's (a Pasadena bookstore), because I want them to stay in business. Third, I downloaded the Economic Consequences of the Peace, which I hadn't read in four or five years. It has a section early on that really struck me:
Europe was so organized socially and economically as to secure the maximum accumulation of capital. While there were some continuous improvements in the daily conditions of life of the mass of the population, Society was so framed to to throw a great part of the increased income into the control of the class least likely to consume it. The new rich of the 19th century were not brought up to large expenditures, and preferred the power which investment gave them to the pleasures of immediate consumption. In fact, it was precisely the inequality of the distribution of wealth which made possible those vast accumulations of fixed wealth and of capital improvements which distinguished that age from all others. Herein lay, in fact, the main justification of the Capitalist System. If the rich had spent their new wealth on their own enjoyments, the world long ago would have found such a regime intolerable. But like bees they saved and accumulated, not less to the advantage of the whole community because they themselves held narrower ends in prospect.
The immense accumulations of fixed capital which, to the great benefit of mankind, were built up during the half century before the war [WWI], could never have come about in a Society where wealth was divided equitably. The railways of the world, which that age built as a monument to posterity, were, not less than the Pyramids of Eqypt, the work of labor which was not free to consume in immediate enjoyment the full equivalent of its efforts.
Thus this remarkable system depended for its growth on a double bluff or deception. On the one hand the laboring classes accepted from ignorance or powerlessness, or were compelled, perusade or cajoled by custom, convention, authority, and the well-established order of Society into accepting a situation in which they could call their own very little of the cake that they and Nature and the capitalists were co-operating to produce. And on the other hand the capitalist classes were allowed to call the best part of the cake theirs and were theoretically free to consume it, on the tacit underlying condition that they consumed very little of it in practice.
Is the Mortgage Interest Deduction a "Middle-class" benefit?
Yesterday, I was on the Larry Mantle program on KPCC debating Lawrence Yun about the merits of the mortgage interest deduction. Lawrence is the chief economist of NAR, and is, as such, not disinterested about the issue, but he is an honest advocate (full disclosure: when I was a graduate student, I worked for Wisconsin Realtors, and I consulted on benchmarking the Existing Home Sales series in the late 90s and around 2002 or so ).
He said a couple of things, however, that bothered me. He sort of dissed renters, by saying they pay only five percent of federal income taxes, ignoring the fact that they pay FICA, state and local taxes. One would think Realtors would like renters, since they do, after all, pay rent to property owners. But he also characterized the mortgage interest deduction as being a "middle-class" deduction. This all depends on the defintion of "middle-class."
Let me turn to Eric Toder and colleagues:
He said a couple of things, however, that bothered me. He sort of dissed renters, by saying they pay only five percent of federal income taxes, ignoring the fact that they pay FICA, state and local taxes. One would think Realtors would like renters, since they do, after all, pay rent to property owners. But he also characterized the mortgage interest deduction as being a "middle-class" deduction. This all depends on the defintion of "middle-class."
Let me turn to Eric Toder and colleagues:
The percentage reduction in after-tax income from eliminating the deduction would be largest for taxpayers in the 80th to 99th percentiles of the distribution. These upper-middle-income households would be affected more than tax units in the bottom four quintiles because they are more likely to own homes and itemize deductions and because the higher marginal tax rates they face make deductions worth more to them than to lower-income taxpayers. The very highest income taxpayers, however, will experience a relatively small drop in income (about 0.4 percent on average) because, at the very highest income levels, mortgage interest payments decline sharply as a share of income.So it is probably correct to characterize the mortgage interest deduction as an "upper-middle-class" deduction. The very rich don't benefit that much from it, because they don't really need mortgages. The bottom 80 percent don't benefit much, because their marginal tax rates are low, they are more likely to be renters and perhaps don't itemize their tax deductions. My guess is that people between the 80th and 99th percentile don't need a lot of encouragement to become homeowners.
4552 Morse in Studio City is closing today
More about this transaction in future posts. It closed at $615,000.
Small reasons that government drives people crazy
A light rail line going by USC--the Exposition Line--has been under construction for some time now. For a considerable time, the site featured a sign that said the line would open in 2010. Now the estimates are that it will open some time in 2011 or 2012. At the same time, when I walk by the project, I can't say that the workers building it show a great deal of, shall we say, urgency about getting the thing done.
At the same time, I don't hear a lot of people who are upset about how far behind schedule the project is. Maybe this is because no one is planning to take the Expo Line. Maybe it is because peoople have such low expectations of LA Metro that they are not surprised, and therefore not outraged. Either way, it suggests a problem.
I continue to believe that we need government to do certain things (rail tunnels under the Hudson and a more modern power grid, for starters) for the economy to perform well. But when government doesn't perform well, it turns positive NPV projects into negative NPV projects, and it undermines political consensus for the necessity of government.
At the same time, I don't hear a lot of people who are upset about how far behind schedule the project is. Maybe this is because no one is planning to take the Expo Line. Maybe it is because peoople have such low expectations of LA Metro that they are not surprised, and therefore not outraged. Either way, it suggests a problem.
I continue to believe that we need government to do certain things (rail tunnels under the Hudson and a more modern power grid, for starters) for the economy to perform well. But when government doesn't perform well, it turns positive NPV projects into negative NPV projects, and it undermines political consensus for the necessity of government.
Bethany McLean on the GOP "primer" on the financial crisis
She writes:
Second, to say that the Affordable Housing Goals were major contributors to the crisis is silly, because as people like Wallison liked to point out, the GSE's continually lagged the market when it came to advancing mortgages to low income borrowers and underserved areas. Wallison specifically said in 2006 that GSEs were "not doing the job they should for low income borrowers. Finally, the Community Reinvestment Act did not cover many of the financial institutions that originated the most toxic loans.
What bothers me about the entire Republican narrative is that it continues a pattern of argument that suggests that when it comes to finding fault, borrowers are always more culpable than lenders; low income people are always more culpable than high income people; and underrepresented minorities somehow have gotten an unwarranted good deal.
Update: Barry Ritholtz has 10 questions for the GOP members of the commission.
This narrative isn't completely wrong—but it is shockingly incomplete, which makes it, in the end, a ludicrous distortion of what happened.Three points. First, I have never, ever, seen Peter Wallison suggest that banks are ever anything by morally upright and wise, despite lots of evidence to the contrary (I would welcome a correction on this point).
Second, to say that the Affordable Housing Goals were major contributors to the crisis is silly, because as people like Wallison liked to point out, the GSE's continually lagged the market when it came to advancing mortgages to low income borrowers and underserved areas. Wallison specifically said in 2006 that GSEs were "not doing the job they should for low income borrowers. Finally, the Community Reinvestment Act did not cover many of the financial institutions that originated the most toxic loans.
What bothers me about the entire Republican narrative is that it continues a pattern of argument that suggests that when it comes to finding fault, borrowers are always more culpable than lenders; low income people are always more culpable than high income people; and underrepresented minorities somehow have gotten an unwarranted good deal.
Update: Barry Ritholtz has 10 questions for the GOP members of the commission.
An opportunity for Burbank businesses to go green
The Burbank Green Alliance is working with the City of Burbank to host 3 classes through the Team Business Training Series. Here's the info:
GOING GREEN-Business Lecture Series
These three distinct courses will help you save money and resources, design your green business blueprint, build customer satisfaction, and incorporate product stewardship in your purchases and services!
For more information on cost, location, and speakers visit www.burbankgreenalliance.org/events.html
Wednesdays, 6:30pm to 9:00pm
(It is not necessary to attend all three courses)
January 5th Greening Your Restaurant & Food Service
Speaker: Leslie VanKeuren, Founder, Sustain LA
January 12th Concrete Strategies for a Green Business
Speaker: Brad Cracchiola, Senior Sustainability Engineer, BMW Group DesignworksUSA
January 19th Embracing Cradle-to-Cradle Concepts
Speaker: Heidi Sanborn, Executive Director, California Product Stewardship Council
To Register visit www.teambusinessburbank.com or call (818) 238-5198
"Why can't my mortgage lender get my loan done?"
I'm hearing about problems with mortgage lenders more frequently these days. I currently have my own horror story to tell, but I'm going to wait to expound on it until the new year.
But there are excellent mortgage brokers out there who can get loans closed in a timely manner. Two of my favorites can be found by clicking here, or visiting the "Local Partners" page on JudyGraff.com.
But there are excellent mortgage brokers out there who can get loans closed in a timely manner. Two of my favorites can be found by clicking here, or visiting the "Local Partners" page on JudyGraff.com.
Jonathan Weinstein on Fairness in Tax Policy
It is worth reading the whole thing; here is the conclusion:
As a 1st approximation, someone in a highly scalable profession would keep roughly(Full disclosure: Jon is my cousin).
half their income, since they enter the game with, on average, half the population
present. (See a more carefully worked out example in the appendix.) There are
many possible adjustments to this estimate; for one, if the inventor or entertainer
is extracting rents from network e ects and they are not actually much better than
a replacement, their Shapley value might be much less than half their income. On
the other hand, someone in a non-scalable profession creates roughly the same value
regardless of the size of society, so they would keep more of their income. Whether
these considerations re
ect fairness is, of course, ultimately a value judgment, but a
50% top marginal tax rate is well within the historical range, so such an outcome
would not be radical.
The great intellectual advances that illuminated the enormous bene ts of the free
market, starting with Adam Smith and continuing into the 20th century, have long
since been assimilated into our political discourse. The danger is that in some circles
the lessons have been learned just a bit too well. The free market then becomes a
21st-century deity whose dictates are perfectly fair and should not be questioned,
lest its manna of prosperity cease to rain down upon us. Warning about this is, of
course, unnecessary for economists, who, whatever their political stripe, understand
perfectly the limits of core equivalence and welfare theorems. Keeping any nuance
is very di cult when intellectual advances are distilled for a larger population, so
responsible academics always have to be very careful in how they discuss the practical
impact of abstract results.
Yves Smith gives Five Rules for Private Label Mortgage Securitization
They are:
1. Mortgages must be seasoned 12 months before they can be securitized
2. The originator must retain at least a 5% interest in the credit risk of the assets sold
3. The interest of all parties to a transaction must clearly be disclosed, along with their fees
4. Re-securitizations (meaning CDOs) are severely restricted (note a disconnect here; the e-mailed and verbal reports suggested they were banned entirely; the language at the FDIC website seems to indicate that they are allowed in limited circumstances, but any use of synthetic assets, meaning credit default swaps, in a asset-backed CDO is verboten)
5. Compensation to servicers will include incentives for loss mitigation
The mortgage securitization industry apparently opposed this, which is odd, in light of the fact that it is doubtful securitization will return in the absence of such rules.
Yesterday's NYT: A Secretive Banking Elite Rules Trading in Derivatives
In the aftermath of The Big Short, one would think we would try to stop this kind of thing. It is one thing to be OK with some people making a lot of money; it is another thing to think it is OK for people to make lots of money because of a rigged game in their favor. I worry that the extraordinary increase in unevenness in wealth is not the result of merit, but the result of the game being more and more rigged.
Density and the use of public transportation
I am grading papers from students in my Advanced Urban course, and a number are reviewing literature on density and use of public transport. The literature suggests that doubling density is associated with something like an eight percent increase in public transit use, but of course, it is difficult to tease out cause and effect: I suspect those who like living densely are also more likely to want to use public transportation.
I can't help but think about a trip I made to a UN conference on urban issues. The conference took place in Barcelona, which has among the easiest to use transit systems in the world--more than half the people there live within walking distance of a metro stop. As it happens, I went to dinner with some officials from the Bush Administration, and when I suggested we use the metro instead of cabs, my companions were, well, stunned at the very idea. I pursuaded them to go, and learned that a bunch of people who lived in a city which has an excellent metro, Washington, never used public transportation.
I could be wrong, but my sense was that taking the metro in Barcelona was a foreign adventure for them in all kind of ways, and one that they did not particularly wish to repeat at home.
I can't help but think about a trip I made to a UN conference on urban issues. The conference took place in Barcelona, which has among the easiest to use transit systems in the world--more than half the people there live within walking distance of a metro stop. As it happens, I went to dinner with some officials from the Bush Administration, and when I suggested we use the metro instead of cabs, my companions were, well, stunned at the very idea. I pursuaded them to go, and learned that a bunch of people who lived in a city which has an excellent metro, Washington, never used public transportation.
I could be wrong, but my sense was that taking the metro in Barcelona was a foreign adventure for them in all kind of ways, and one that they did not particularly wish to repeat at home.
From today's LAT: re-fi turns foreclosure nightmare
If you've read this blog before, you'll remember my BofA refinance saga. My husband and I tried to do a simple home refinance in January 2009. We were immediately approved, but somehow it still inexplicably took six months to go through.
Here's my question, as a bank customer and also a Realtor who deals with short sales: why, two years into the lending crisis, haven't the banks ramped up enough to service their own loans in a timely, correct manner? Have they just not hired enough people? Are they stalling? What's going on?
Too cute for real estate - animals singing deck the halls
Okay, it's precious and twee, but it will lighten you up.
I see that the Adminstration's deal on taxes is being characterized as a "compromise"
It is not a compromise. It is a capitulation.
The Residences at LA Live may become LA's icon
After the Hollywood sign, of course. I heard Victor McFarlane give a talk last night; MacFarlane Partners did the Residences at LA Live:
The picture comes from the LA Architecture Awards web site. I drive by this building every day, and enjoy it every day. The place still needs to stand the test of time, but I love the fact that the building is distinctive and doesn't relay on mass or extreme height to be striking.
The picture comes from the LA Architecture Awards web site. I drive by this building every day, and enjoy it every day. The place still needs to stand the test of time, but I love the fact that the building is distinctive and doesn't relay on mass or extreme height to be striking.
The Realtor makes an offer, Chapter 4: How will this end?
We did not get the Toluca Lake townhouse that we made the offer on.
We offered full price. So did the listing agent's clients.
Our terms were good. So were the listing agent's clients.
We were going to put 20% down. The listing agent's clients were putting more down. According to the listing agent, that's what persuaded her seller to take their offer and not ours. Of course, the listing agent will get the full 6% commission, but I'm sure that had absolutely nothing whatsoever to do with who the listing agent's seller picked.
Will we continue to look? Maybe. Maybe not. Right now, we're busy licking our wounds.
We offered full price. So did the listing agent's clients.
Our terms were good. So were the listing agent's clients.
We were going to put 20% down. The listing agent's clients were putting more down. According to the listing agent, that's what persuaded her seller to take their offer and not ours. Of course, the listing agent will get the full 6% commission, but I'm sure that had absolutely nothing whatsoever to do with who the listing agent's seller picked.
Will we continue to look? Maybe. Maybe not. Right now, we're busy licking our wounds.
Should house prices still be falling?
I'm not sure. According to the National Association of Realtors, the median house price in the US is $170,500. The most recent American Housing Survey data from 2008 shows median rent at $ 808 per month, and the CPI-Rent index is essentially flat since 2008. This means the cash flow cost of renting is $9696 per year.
If we assume the mortgage interest rate on a 30-year fixed rate mortgage is 4.5 percent, the cost of home equity is 10 percent, a buyer puts 20 percent down on a house, property taxes are one percent of house value, marginal income tax rates (state and local) are 25 percent, maintanence costs are one percent per year, and amortized closing costs are another one percent per year, the cash cost of owning is $12,162 per year.
But the median rental unit is 1300 square feet and the median owner unit is 1800 square feet, so owning the median owner unit costs about 10 percent less per square foot than renting the median rental unit. This means house prices could fall and, in some places at least, still leave the owner better off than renters.
Neither renter nor owner markets are national, but I am hard pressed to think of a time when owning on a cash-flow basis looks so reasonable relative to renting.
If we assume the mortgage interest rate on a 30-year fixed rate mortgage is 4.5 percent, the cost of home equity is 10 percent, a buyer puts 20 percent down on a house, property taxes are one percent of house value, marginal income tax rates (state and local) are 25 percent, maintanence costs are one percent per year, and amortized closing costs are another one percent per year, the cash cost of owning is $12,162 per year.
But the median rental unit is 1300 square feet and the median owner unit is 1800 square feet, so owning the median owner unit costs about 10 percent less per square foot than renting the median rental unit. This means house prices could fall and, in some places at least, still leave the owner better off than renters.
Neither renter nor owner markets are national, but I am hard pressed to think of a time when owning on a cash-flow basis looks so reasonable relative to renting.
The Realtor makes an offer -- Chapter 3: the negotiation
The townhouse is still not available to be shown as painting is being completed, but will be ready right before Thanksgiving for Realtors and their clients to view.
On Tuesday, the listing agent tells me the seller wants to wait to respond to offers until after her Sunday-after-Thanksgiving open house and is stuck on her asking price. Fair enough.
On Thursday, Thanksgiving Day, the listing agent calls me to tell me there is another good offer in and it is comparable to ours in price, terms, etc. She sends a $439,000 counter offer to us. We sign off -- appraisal be damned, my husband really loves this place -- and send it back.
The listing agent calls to tell me that she is representing the clients who are bringing the other offer (I wondered how anybody else got in to see it so soon) and they too have signed off on the full-price counter. This goes without saying between agents, but she will make 6%, not 3.5%, if she double-ends this.
Next: how will this end?
Ingrid Ellen, John Tye, and Mark Willis on Covered Bonds replacing GSES
They write:
Covered bonds have three potential advantages over MBSs as a method of mortgage finance.
First, they have the potential to reduce principal-agent problems, because the banks themselves
would hold the loans underlying covered bonds, giving them an interest in originating better
loans. Second, because the mortgage loans would simply remain on bank balance sheets and not
be put into special trusts subject to the incentives of servicers, banks could modify failing loans
far more easily than MBS trusts can. This could reduce foreclosures and maximize loan value.
Third, depending on how they are implemented, covered bonds also hold the possibility of
improving the options available to homebuyers who find themselves underwater. In Denmark,
covered bonds operate according to the “balance principle.” The balance principle requires a
match between each mortgage written and every bond issued. It permits homebuyers two options
for paying off their debt: they may either pay off their mortgage at par, or they may repurchase
their lender’s bonds on the open market, in an amount corresponding to the size of their
mortgage, and return those bonds to the lender. Falling house prices will often depress the
corresponding bond prices (though this may not always happen). When house and bond prices
fall together, homeowners can sometimes refinance their homes at the new, lower house price,
by buying back their bonds at the lower bond prices, and surrendering the bonds to the original
lender. This new option for refinancing could reduce foreclosures in the event of a widespread
decline in housing prices.
There is uncertainty, however, in the extent to which covered bonds would deliver the same level
of liquidity as GSE MBSs, because in a covered bond system, mortgage loans remain on bank
balance sheets. Moreover, it may be difficult for covered bonds to achieve the minimum efficient
scale to compete with government-backed GSE MBSs. As in Denmark, an effective covered
bond market would require standardized bond forms, and a high-volume market that could
demonstrate liquidity to potential buyers. If covered bonds were issued by hundreds of banks
across the country, each with different underwriting standards and bond structures, the extensive
market fragmentation would seriously reduce trading volume and liquidity for any particular
covered bond issue. The Danish covered bond system is effective because the market is highly
structured and homogenized, with only a few participating banks.
Me again: one of the selling points of covered bonds is that they remain on bank balance sheets, and, in Denmark anyway, have no explicit of implicit backing from the government. But do they really lack such backing? If the government is willing to inject liquidity into banks (and in Denmark, it is), do the bonds really lack a guarantee? I am not so sure.
The Realtor makes an offer - Chapter 2: Kitchen worries
We went to Lowes and got cabinet catalogs. And had a contractor who we've used in the past take a look. (This contractor can sell ice to Eskimos.) Yes, the kitchen can be remodeled, built out, expanded, etc. -- and will cost a minimum of $20k just to do a medium-line build out, probably more. In cash.
Yikes. That's on top of our 20% downpayment. During this time, we were also watching HGtv remodeling shows. Yes, a medium-line kitchen will cost $20k plus.
Other flaws become evident. The rooftop patio has water intrusion issues. The master bath doesn't have a tub. There's one less closet than we need, although perhaps we can do something in the garage. The carpet is shot.
Although we had our doubts, the pluses outweigh the minuses, at least to my husband. We went ahead and made an offer anyway, about $9k less than full price. We won't sell our existing house until the Spring, and we can close in 30 days. We're approved by a lender.
And the place hasn't been shown yet as it's being painted (but is on the mls), so we figure the early bird is going to get the worm. The listing agent is in my office, is a friend, and has gotten us to see it in advance of the marketing.
Next: our negotiation
The Realtor makes an offer - Chapter 1: Money worries
My husband and I made an offer on a townhouse in Toluca Lake. The seller will make a decision this weekend. We like our current place, but our current neighborhood is not what it was. This townhouse has more space, is newer, has an attached garage, a patio with a view, etc. It also needs a new kitchen and carpet. You'd think we'd be sanguine about this, but no. This decision was fraught with the same worries that most buyers have:
- Can we truly afford it? Our monthly nut will go up!
- What if either one of us loses our job? And my husband is close to retirement!
- Is it wise to dip into savings for the downpayment?
- What about the higher property tax?
- Can we get what we think we can get for our current home?
Stay tuned...
- Can we truly afford it? Our monthly nut will go up!
- What if either one of us loses our job? And my husband is close to retirement!
- Is it wise to dip into savings for the downpayment?
- What about the higher property tax?
- Can we get what we think we can get for our current home?
Stay tuned...
A thought experiment on airport screening and jobs
As noted in earlier posts, my students and I discussed Bill Cronon's Nature's Metropolis this past week. One of Cronon's explanations for Chicago's extraordinary growth was its role as a distribution center: railroads had both eastern and western terminals in Chicago, and so lots of stuff got collected and moved in the city. Chicago is not the only city whose development came about in part because of transshipments; one could tell such stories about Hong Kong and Singapore as well.
Coincidentally, Nate Silver had a blog post this week where he estimates that extra post-9-11 security screening reduced air travel by 6 percent. This begs the question as to how much impediments to movement are also impeding the broader economy.
I wrote a paper a few years back that linked passenger traffic at airports to employment. The finding was that an increase of one passenger per capita per year produced a 3 percent increase in jobs. A typical large city has four boardings per year per capita, so let's run the math: -.06*4*.03 is a .72 percent reduction in jobs. The US has about 139 million jobs, so a .72 percent reduction is about a million jobs. So it is possible that impediments to travel mean we have a million fewer people working than we otherwise would.
This is very much a first cut, rough kind of number, but it does give one pause. Is what we are doing at our airports worth sacrificing a meaningful number of jobs? Perhaps. But we should still think about the trade-offs explicitly.
Coincidentally, Nate Silver had a blog post this week where he estimates that extra post-9-11 security screening reduced air travel by 6 percent. This begs the question as to how much impediments to movement are also impeding the broader economy.
I wrote a paper a few years back that linked passenger traffic at airports to employment. The finding was that an increase of one passenger per capita per year produced a 3 percent increase in jobs. A typical large city has four boardings per year per capita, so let's run the math: -.06*4*.03 is a .72 percent reduction in jobs. The US has about 139 million jobs, so a .72 percent reduction is about a million jobs. So it is possible that impediments to travel mean we have a million fewer people working than we otherwise would.
This is very much a first cut, rough kind of number, but it does give one pause. Is what we are doing at our airports worth sacrificing a meaningful number of jobs? Perhaps. But we should still think about the trade-offs explicitly.
Burbank's Holiday in the Park
Is US success a product of bailouts?
Hamilton "cemented" the Union by getting congress to agree to assume the states' debts from the American Revolution; in exchange, he gave up his desire to have New York be the federal capital. Ron Chernow's recounting of Hamilton's genius at getting assumption done.
These thoughts cross my mind as I hear people say that the solution to our mortgage problems is to get rid of non-recourse loans. We have long been more generous about bankruptcy than Europe, and it may explain why our economy is more dynamic and innovative. The US is a country about second chances in so many ways (including education); it is a country where it is OK to fail and then come back. We need to be careful about messing with that.
These thoughts cross my mind as I hear people say that the solution to our mortgage problems is to get rid of non-recourse loans. We have long been more generous about bankruptcy than Europe, and it may explain why our economy is more dynamic and innovative. The US is a country about second chances in so many ways (including education); it is a country where it is OK to fail and then come back. We need to be careful about messing with that.
The NBC Universal Expansion Plan, Burbank and the Burbank Leader
Today's Burbank Leader has an article about the NBC Universal Expansion plan and how it may effect Burbank. The environment impact report link is here -- but it's 27 volumes. Burbank's Community Development Department is in the process of reviewing the report's findings, and comments about the report can be submitted to the City Council by Jan. 3. The report states that traffic will only be minimally impacted, because everybody will take the bus. Oh, please.
More about 1435 Pass, Burbank or the trouble with "auction prices"
I think that if the sellers had priced this a little closer to the comps, it would have taken a longer to sell. That's a bad thing. But I also think they would have ended up with a higher price -- and that's a good thing, if you're a seller.
More BIll Cronon
I just finished my third reading of Nature's Metropolis, which I am teaching tomorrow. It is among the best works on central place theory and aggomeration that I know.
He also paints vivid pictures of wheat being harvested and shipped to the White City's great grain elevators, the lumbermills of Marquette and Marrinette, of timber sliding down ice flows and floating down rivers and lakes; we can smell the entrails from the slaughtered cattle and pigs, and imagine how the Chicago River South Branch bubbles with potions not even the Weird Sisters could have imagined. He established how it became a metropolis by not becoming a new center of the center, but rather the center of the periphery.
We can see how the city raised living standards--standards that 130 years later we would (rightfully) deem appalling. His picture of Chicago, warts and all, is far more entralling than Sinclair's picture.
Couldn't we get him to do Tokyo now? Mexico City? How about Los Angeles? Kevin Starr has written a great history of California, but Cronon's angle would be different.
He also paints vivid pictures of wheat being harvested and shipped to the White City's great grain elevators, the lumbermills of Marquette and Marrinette, of timber sliding down ice flows and floating down rivers and lakes; we can smell the entrails from the slaughtered cattle and pigs, and imagine how the Chicago River South Branch bubbles with potions not even the Weird Sisters could have imagined. He established how it became a metropolis by not becoming a new center of the center, but rather the center of the periphery.
We can see how the city raised living standards--standards that 130 years later we would (rightfully) deem appalling. His picture of Chicago, warts and all, is far more entralling than Sinclair's picture.
Couldn't we get him to do Tokyo now? Mexico City? How about Los Angeles? Kevin Starr has written a great history of California, but Cronon's angle would be different.
I may want to buy 10645 Bloomfield in Toluca Lake for myself
Need a laugh? Agent comments from the multiple listing service
Today's post from our friends at AgentGenius.com is a "blooper reel" of comments written by listing agents on the multiple listing service. Sample: “Beautiful satan wallpaper in foyer” (No doubt it’s a flame print.)." No doubt many of these were from Realtors in the San Fernando Valley. Click here for more.
One hand clapping for the Deficit Commission Co-chairs' powerpoint
It is not much of a report, but it emphasizes two things that do matter:
(1) Tax expenditures are about $1.1 trillion, and deficit reduction requires scaling them back. While there has been gnashing of teeth about a proposed top marginal tax rate of 23 percet, the powerpoint contemplate this only in the context of full elimination of tax expenditures. This would surely be more efficient--it is also possible that it would be more progressive, as the biggest tax expenditures (exclusion of the employer contributions for health care, exclusion of employer contributions to pension contributions, and the mortgage interest deduction) tend to go to those with higher incomes. It is an empirical question as to how these things net out, but it is an empirical question worth answering (a similar analytical exercise was done in the middle-1990s, but the world is now different). If someone can create a tax code that brings in more revenue under static assumptions (i.e., is not projecting revenue based on Voodoo economics), is more progressive, and has lower rates because of the phase out of tax expenditures, I am all for it. FWIW, as someone who has a California mortgage and pays California state income taxes, this is probably not in my personal self-interest.
(2) I do think we need to do something about the retirement age, but it should somehow be linked to occupation. I have a cushy job, and there is no reason why I can't keep doing it until I become demented. But those who do physical labor just wear out, and it is not reasonable to ask a 60 year old lineman (the telephone kind, not the football kind) to "retrain."
(1) Tax expenditures are about $1.1 trillion, and deficit reduction requires scaling them back. While there has been gnashing of teeth about a proposed top marginal tax rate of 23 percet, the powerpoint contemplate this only in the context of full elimination of tax expenditures. This would surely be more efficient--it is also possible that it would be more progressive, as the biggest tax expenditures (exclusion of the employer contributions for health care, exclusion of employer contributions to pension contributions, and the mortgage interest deduction) tend to go to those with higher incomes. It is an empirical question as to how these things net out, but it is an empirical question worth answering (a similar analytical exercise was done in the middle-1990s, but the world is now different). If someone can create a tax code that brings in more revenue under static assumptions (i.e., is not projecting revenue based on Voodoo economics), is more progressive, and has lower rates because of the phase out of tax expenditures, I am all for it. FWIW, as someone who has a California mortgage and pays California state income taxes, this is probably not in my personal self-interest.
(2) I do think we need to do something about the retirement age, but it should somehow be linked to occupation. I have a cushy job, and there is no reason why I can't keep doing it until I become demented. But those who do physical labor just wear out, and it is not reasonable to ask a 60 year old lineman (the telephone kind, not the football kind) to "retrain."
More on 1435 N. Pass, Burbank
See the post farther down on the page. Here's the email string between the listing agent and me.
Mike, your email went into my spam folder. I will remove the comment about offers over listing, although I'm sure you did get offers over listing. That's all. I think you should thank me -- that post has gotten lots and lots of site vists, and I suggested that any buyers bring their A+ game and not mess around with making lowball offers. It may turn out that your prevailing buyer took my advice, which is to the benefit of your sellers. Further, my listing two doors away closed at $480k just a little over six months ago and I stand by my estimate of the value of this listing.
Judy Graff
Mike, your email went into my spam folder. I will remove the comment about offers over listing, although I'm sure you did get offers over listing. That's all. I think you should thank me -- that post has gotten lots and lots of site vists, and I suggested that any buyers bring their A+ game and not mess around with making lowball offers. It may turn out that your prevailing buyer took my advice, which is to the benefit of your sellers. Further, my listing two doors away closed at $480k just a little over six months ago and I stand by my estimate of the value of this listing.
Judy Graff
-----Original Message-----
From: Mike Babakhanyan <soldbymikeb@gmail.com>
To: Info@JudyGraff.com
Sent: Wed, Nov 10, 2010 11:47 am
Subject: Your Blog on my Listing
Thank you,
From: Mike Babakhanyan <soldbymikeb@gmail.com>
To: Info@JudyGraff.com
Sent: Wed, Nov 10, 2010 11:47 am
Subject: Your Blog on my Listing
Judy,
I read your blog regarding my listing on 1435 N. Pass Ave.
1435 N. Pass, Burbank: real price or auction price?
You certainly have the right to express your opinion when blogging, but you have information that is misleading and I want you to remove certain comments immediately.
1. I never informed you anything about the prices of our offers. You asked if I have multiple offers and I said YES. I never said anything about the offers being over asking price.
2. You are commenting that the price of the home will sell between $460k-$480k. Today’s comps don’t justify a sales price that high. You are misleading and I need you to remove that.
My office is ready to file a complaint at the Professional Standard Hearing Board if the corrections are not made.
Thank you,
Mike Babakhanyan
Prudential California Realty
Prudential California Realty
More animal statues in Burbank, CA!
3301 Brookshire Ct., Burbank for $2,599,000 - office exclusive listing
Why? Because it's an "office exclusive." This means the house is for sale, but is not yet in the multiple listing service. The seller has decided that buyers at this point in time must be represented only by Realtors from the listing agent's office -- that's us, Dilbeck Realtors. How does that benefit anybody? The sellers chose to do this as they want to wait to publicize the listing until after the holidays, but wish to make the home available for (really) motivated buyers now.
Residential Foreclosure Temptation
Making money by purchasing foreclosed homes sounds like an easy way to turn a profit, but buyer beware: The unwary purchaser may be buying a financial disaster.
Residential real estate foreclosures have been on the rise nationwide for the past several years with little sign of slowing down in the near future. The adjustable rate mortgage phenomenon coupled with general economic factors of our time have created a perfect storm of disaster for many homeowners, and the result is that many homeowners are finding their homes in foreclosure. With these foreclosures comes an excellent opportunity for a knowledgeable investor.
For the ill-informed, however, buying a foreclosed property at a sheriff’s sale can be confusing at best, and at worst it can be financially disastrous.
Become Familiar With The Foreclosure Process In Your State
The foreclosure process in each state is dictated by statute and case law, and the procedure differs greatly from state to state. In some states, such as Texas, the entire process can take less than three months. In other states, such as Wisconsin, the process can easily take nine months to a full year, or even longer if the homeowners file for bankruptcy protection or otherwise work to delay the process.
Each state has its own methods and procedures, and the first step to success is understanding the foreclosure process for your state in its entirety. If you plan on making foreclosure investment a serious venture, you may even wish to enlist the assistance of an attorney who can advise you on the foreclosure process and help you better understand the full procedure for your state.
Do A Thorough Title Search
In many states, properties are sold at foreclosure sales subject to any liens and encumbrances already on the property. This can include judgment liens, tax liens, prior mortgages, real estate taxes or any number of other financial or title issues which the purchaser at the foreclosure sale can inherit. An unwary purchaser may buy a property that seems like a great bargain only to find out that it was sold subject to tens of thousands of dollars worth of other liens, or worse.
Do not rely on the statements of other potential purchasers, the attorneys for the foreclosing bank, or even those of the homeowner when it comes to the status of the title to the property. Either enlist the assistance of a title company or become familiar with searching the judgment rolls, tax records and real estate records. It is absolutely essential to exercise due diligence and research the status of title for each property before even considering placing a bid at a foreclosure sale.
Be Skeptical About The Property’s Condition
Unlike a traditional real property transaction, there is rarely an opportunity to view the interior of the foreclosure property prior to purchase. Further, the properties are purchased as-is with absolutely no warranties as to their condition. Some interested buyers do contact the homeowners and ask to view the interior of the property, but not all owners are willing to show their houses and in many cases the property has been abandoned or the owners are difficult to locate. As your only evaluation of the property’s condition is likely to be from the exterior, it is essential to think critically about the interior’s condition.
When residential properties go into foreclosure it almost always related to the owner’s financial difficulties. This means that there may be maintenance issues with the property that were ignored due to their expense, or serious repairs that should have been done but were neglected due to the cost. As a purchaser of a foreclosure property, you must be willing to take on whatever problems the interior or structure of the property may have.
There Will Always Be More Properties
Foreclosures are showing no sign of slowing down. If you have serious reservations or unanswered about a property it may simply be best to hold off and wait for the next one. If you cannot go into a foreclosure sale armed with complete knowledge of the property you want to bid on – knowledge of the status of title, the interior and exterior condition, and any other issues that might be of concern to you – you may be better off waiting for the another property.
Residential real estate foreclosures have been on the rise nationwide for the past several years with little sign of slowing down in the near future. The adjustable rate mortgage phenomenon coupled with general economic factors of our time have created a perfect storm of disaster for many homeowners, and the result is that many homeowners are finding their homes in foreclosure. With these foreclosures comes an excellent opportunity for a knowledgeable investor.
For the ill-informed, however, buying a foreclosed property at a sheriff’s sale can be confusing at best, and at worst it can be financially disastrous.
Become Familiar With The Foreclosure Process In Your State
The foreclosure process in each state is dictated by statute and case law, and the procedure differs greatly from state to state. In some states, such as Texas, the entire process can take less than three months. In other states, such as Wisconsin, the process can easily take nine months to a full year, or even longer if the homeowners file for bankruptcy protection or otherwise work to delay the process.
Each state has its own methods and procedures, and the first step to success is understanding the foreclosure process for your state in its entirety. If you plan on making foreclosure investment a serious venture, you may even wish to enlist the assistance of an attorney who can advise you on the foreclosure process and help you better understand the full procedure for your state.
Do A Thorough Title Search
In many states, properties are sold at foreclosure sales subject to any liens and encumbrances already on the property. This can include judgment liens, tax liens, prior mortgages, real estate taxes or any number of other financial or title issues which the purchaser at the foreclosure sale can inherit. An unwary purchaser may buy a property that seems like a great bargain only to find out that it was sold subject to tens of thousands of dollars worth of other liens, or worse.
Do not rely on the statements of other potential purchasers, the attorneys for the foreclosing bank, or even those of the homeowner when it comes to the status of the title to the property. Either enlist the assistance of a title company or become familiar with searching the judgment rolls, tax records and real estate records. It is absolutely essential to exercise due diligence and research the status of title for each property before even considering placing a bid at a foreclosure sale.
Be Skeptical About The Property’s Condition
Unlike a traditional real property transaction, there is rarely an opportunity to view the interior of the foreclosure property prior to purchase. Further, the properties are purchased as-is with absolutely no warranties as to their condition. Some interested buyers do contact the homeowners and ask to view the interior of the property, but not all owners are willing to show their houses and in many cases the property has been abandoned or the owners are difficult to locate. As your only evaluation of the property’s condition is likely to be from the exterior, it is essential to think critically about the interior’s condition.
When residential properties go into foreclosure it almost always related to the owner’s financial difficulties. This means that there may be maintenance issues with the property that were ignored due to their expense, or serious repairs that should have been done but were neglected due to the cost. As a purchaser of a foreclosure property, you must be willing to take on whatever problems the interior or structure of the property may have.
There Will Always Be More Properties
Foreclosures are showing no sign of slowing down. If you have serious reservations or unanswered about a property it may simply be best to hold off and wait for the next one. If you cannot go into a foreclosure sale armed with complete knowledge of the property you want to bid on – knowledge of the status of title, the interior and exterior condition, and any other issues that might be of concern to you – you may be better off waiting for the another property.
Paul Willen says self-amortizing mortgages were abundant before the 1930s
He sends me the following table:
It has long been "established" that self-amortizing mortgages were rare before the existence of the Home Owners Loan Corporation, whereas this source suggests they made up 40 percent of loan originations between 1925-1929. What this table doesn't tell us is how long the amortization period was. So the importance of the HOLC may have been the establishment of long-term self-amortizing mortgages.
I would love to get actual mortgage contracts with their terms from the 1920s.
It has long been "established" that self-amortizing mortgages were rare before the existence of the Home Owners Loan Corporation, whereas this source suggests they made up 40 percent of loan originations between 1925-1929. What this table doesn't tell us is how long the amortization period was. So the importance of the HOLC may have been the establishment of long-term self-amortizing mortgages.
I would love to get actual mortgage contracts with their terms from the 1920s.
A really nice paper on the Home Owners Loan Corporation
This morning I read a July 2010 NBER paper from Charles Courtemanche and Kenneth Snowden. The abstract:
Unfortunately, the paper is behind the NBER firewall, but if you belong to a subscribing university, you can get a link to a downloadable version sent to you.
The Home Owners’ Loan Corporation purchased more than a million delinquent mortgages from private lenders between 1933 and 1936 and refinanced the loans for the borrowers. Its primary goal was to break the cycle of foreclosure, forced property sales and decreases in home values that was affecting local housing markets throughout the nation. We find that HOLC loans were targeted at local (county-level) housing markets that had experienced severe distress and that the intervention increased 1940 median home values and homeownership rates, but not new home building.
Unfortunately, the paper is behind the NBER firewall, but if you belong to a subscribing university, you can get a link to a downloadable version sent to you.
The change in time today reminds me of one of the many things I learned from William Cronon's Nature's Metropolis
Until the railroads came to prairie towns after the Civil War, each town set its clock using the sun. It was impossible to run railroads under such circumstances, and so railroads developed "standard time zones," for the United States. They became the standard well before they were codified into law.
Own a condo in Burbank or the San Fernando Valley? You may wind up paying your neighbor's bills
Here's a story from today's L.A. Times (yes, again) regarding condo associations and how finances are handled, especially when several home owners association members are in foreclosure. Yes, the remaining members have to take up the financial slack.
What the article doesn't say is that it can be very difficult to sell a condo, even if you're not in arrears in your dues, if the HOA finances aren't healthy. That's because banks don't want to make loans on these projects -- they believe, rightfully so, that the value may decline due to lack of reserves, inability to pay for maintenance, inability to pay insurance, etc. Just this year I've experienced this for condo projects in the north San Fernando Valley, Burbank, Toluca Lake or Studio City. If you are interested in purchasing a townhouse or condo in any of these areas, please contact me and we'll find out about the Association's financial health before you make an offer.
What the article doesn't say is that it can be very difficult to sell a condo, even if you're not in arrears in your dues, if the HOA finances aren't healthy. That's because banks don't want to make loans on these projects -- they believe, rightfully so, that the value may decline due to lack of reserves, inability to pay for maintenance, inability to pay insurance, etc. Just this year I've experienced this for condo projects in the north San Fernando Valley, Burbank, Toluca Lake or Studio City. If you are interested in purchasing a townhouse or condo in any of these areas, please contact me and we'll find out about the Association's financial health before you make an offer.
Universal City expansion: necessary for growth or traffic nightmare?
"The 39,000-page report identified noise and solid waste removal during the construction process as the primary negative effects of the development. " Hmm, since construction is slated to go on for twenty years...
"Our principal concern continues to be traffic," said Daniel Savage, president of the local residents group Hollywood Knolls Community Club. "Especially traffic driven by the apartments on the back lot." I'm with you, Daniel. Traffic comes to a standstill on Barham on a regular basis.
"About half the $100 million would be spent on improving traffic flow on nearby streets and intersections, which would have to handle an additional 2,750 car trips each afternoon. That's similar to the traffic generated by a regional shopping center (italics mine), said Patrick Gibson, a traffic consultant for NBC Universal. Mitigation measures such as street widening would ease the flow at most intersections, though Lankershim would remain a bottleneck where it is flanked by the subway on one side and an office tower on the other." Yes, that's similar to a regional shopping center -- especially on those days when all 2,750 cars try to get into the Costco lot between 6:05 pm and 6:15 pm.
I just don't see that traffic won't be a nightmare. I also don't see that the area needs another 3,000 housing units.
I comfort myself with the opening of Adam Smith's Theory of Moral Sentiments
How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it. Of this kind is pity or compassion, the emotion which we feel for the misery of others, when we either see it, or are made to conceive it in a very lively manner. That we often derive sorrow from the sorrow of others, is a matter of fact too obvious to require any instances to prove it; for this sentiment, like all the other original passions of human nature, is by no means confined to the virtuous and humane, though they perhaps may feel it with the most exquisite sensibility. The greatest ruffian, the most hardened violator of the laws of society, is not altogether without it.