The wonders of academia

I became a full professor at the University of Wisconsin-Madison in 2001. Among the responsibilities of full professors are (1) to evaluate whether professor at schools other than ours merit promotion and (2) to chair and serve on promotion committees at our own schools.

So far as I can tell, senior faculty take these responsibilities very seriously. The strange part is that we take promotions of people at other schools very seriously, even though we compete with those very schools. I suppose one could make an argument that we at USC should try to blow up the cases of those who we deem to be good at other schools in California, while also waxing enthusiastic about weaker faculty at these schools. It is as if Honda were telling Toyota who to promote, and vice versa.

In the end, though, faculty at one school tend to recommend that faculty they deem meritorious at another receive promotion. While the process is certainly less than perfect, the good faith that most faculty show in these affairs helps explain why the US still has the best research universities in the world.

Did Californians break their contract?

Mark Thoma, whom I admire, approvingly posts Michael O'Hare's letter to his students. Professor O'Hare says something that really bothers me:

...for a variety of reasons, California voters realized that while they had done very well from the existing contract, they could do even better by walking away from their obligations and spending what they had inherited on themselves. “My kids are finished with school; why should I pay taxes for someone else’s? Posterity never did anything for me!”

As Professor O'Hare correctly notes in the header to his blog, "everyone is entitled to his own opinion, but not his own facts."

So before we accuse middle-aged Californians of being greedy, we should consider four things. First, California ranks 4th in state and local per capita spending in the country (and number one is Alaska, where the tax price of government service is essentially zero). Second, about 2/3 of California bond referenda that go to the public receive the 2/3 super-majority necessary to get passed. Third, we in Los Angeles County voted two years ago, in the middle of a recession, to tax ourselves to pay for transportation infrastructure. Finally, we absorb more people from the rest of the world relative to our population than any other state. These facts are more consistent with generosity than greed.

I understand Professor O'Hare's frustration with California's state budget process and with the threats against the wonderful UC and Cal State systems. Those who know me know that I enthusiastically support all kinds of public spending. But Professor O'Hare's rhetoric could well alienate many whom he wants on his side, and may actually give aid and comfort to the Sarah Palins and Glenn Becks of the world.

Maybe we are more like Homer Simpson than Spock

I saw Juan Carrillo of the USC economics department present a very nice paper testing auction theory using experimental data. The only problem was that the people in the experiment were Cal Tech students, who are not exactly representative. But even Cal Tech students, while likely more rational than the general population, and who certainly understand experiments better than the general population, are still far less than perfectly rational.

What is the correct downpayment?

If required down-payments are too low, we get the nonsense of the past several years. I am reasonably sure zero is too low. If required down-payments are too high, we, among other things, perpetuate wealth disparities (i.e., the only people who get credit are those that don't need it). I am reasonably sure that 25 percent is too high.

What is both socially optimal and just? We need to try to figure this out, but it would involve knowing the correct social loss function and then minimizing it. Social welfare functions are very, very tricky businesses.

In praise of Lawrence Yun

As Robbie Whelen notes in the Wall Street Journal, it could not have been fun to be Lawrence Yun, the National Association of Realtors chief economist, today. As Whelen notes, he must "toe the line between housing industry economist and housing industry motivational speaker."

I think Lawrence does this well--he is clearly on the side of the people who pay him, but he also takes his positions honestly. I assume that he had something to do with NAR's decision not to advocate for an extension of the home buying tax credit. More important, he is in charge of the data that NAR puts out, and bad days like today essentially prove that the data are credible (full disclosure: I, along with Orawin Velz and Kevin Thorpe, helped design the methods by which the Existing Home Sales data are produced, but I have nothing to do with the monthly estimates that NAR puts out). I am guessing that one or two members of NAR wish he would fudge the data, but he does not.

No more goosing with tax credits please.

The July Existing Home Sales number of 3.8 million units was abysmal--it was 1980s bad. I am guessing that a lot is it is that July gave back the tax credit driven boost of spring. If we look at average sales for the year, it is 5.1 million, which is pretty much normal. March, April, May and June were above normal, but all of that "strength" was given back in July. Credits just pull sales forward--they don't change the underlying dynamic, and they add to the deficit.

Russian buyers in Bulgaria

The property market in Bulgaria continues to be the first in the list of Russian property portal Prian.ru, which oversees the interests of Russian buyers of overseas property, two years now. Accordingly, in July the country's share of total search queries in the database offers the portal has grown to a record 21.55 percent. For the previous June, he was just under 20%.

Previous record in list Bulgaria has made in November 2008 - 21.27%.

Although the increased interest in Bulgaria difference between coming home and favorites do not increase as interest ranks second to Germany in July also increased compared to June

The ranking of the most popular destinations from Russian property buyers abroad remained stable third consecutive month, in top 10 occur only one amendment - Turkey gave the eighth place of Montenegro.

Estimated share continues to decrease the interest of Russians to the United States and Finland indicated by the portal. The property market in the Republic has ceased to decline in the rankings in May and June and again closer to fifth place, now occupied by Italy.

Reported by analysts on the site in May and June increased interest in "warm" countries in July has stabilized and even begun to decline. This is not surprising - in Moscow and St. Petersburg thermometers showed between 30 and 40 degrees. Most interest has fallen to the Russians to Turkey (from 3.93% to 3.32%) and Egypt (from 2.04% to 1.79%).

Outside the top 10 in July significantly increased interest in Thailand, Estonia, Sweden and Cyprus, while losing positions Lithuania and Hungary.

Top 10 countries in the interest of Russian property buyers abroad in July 2010
(The share of total search queries)

Bulgaria - 21.55%
Germany - 10.86%
Spanish - 7.22%
USA - 5.62%
Italy - 4.78%
Republic - 4.47%
Finland - 3.85%
Montenegro - 3.77%
Turkey - 3.32%
France - 2.88%

Monaco expensive housing markets in world

Monaco remains the most expensive housing market in the world class - the secondary housing market there seems to average 45 thousand per square meter, a study by the London-based real estate agency Chesterton Humberts.

Its closest competitor is the favorite destination of Millionaire - French resort of Saint Jean Cap Ferrand, where the price is 32 500 square meters, followed by London in third place with a price of 22,500 euros for a square.

However, London could claim that it is the most expensive housing in the world after the recent sale of the apartment complex at One Hyde Park for 220 million dollars, says the Real Estate Channel.

New York and Paris are lagging behind in this ranking, respectively, with prices from € 15,500 / sq. m and 13,500 euros / sq. m. From a total of 22 markets examined Mauritius Phuket and go with the most advantageous price of 3 thousand square meters of

For sales of new homes have led Hong Kong, New York and London respectively, with prices from 19,500 euros, 16,750 euros and 16,500 euros per square meter

Monaco is not the first time she decorates with that title, but lately there are some disagreements as to which particular area is currently the most expensive housing market.

According to the Financial News survey of the most expensive street to buy a home in the world is Severn Road in Hong Kong. The apartments there sell for an average of 54 thousand square meters, or about 70 thousand dollars. For comparison, the Avenue Princess Grace in Monaco, the average price is 60 thousand dollars since last year prices fell by 50%, reported by Financial News, as based on data from the consulting company Knight Frank and Savills.

Is housing the best way for low-income people to build wealth?

I was thrilled to be invited to the Future of Housing Finance conference held at the Treasury Department and co-sponsored by HUD this week. It was particularly nice to be seated next to Self-Help's Martin Eakes, whom I have admired for some time. Like Elizabeth Warren, Eakes long ago had insights into sub-prime lending that I wish more of us had taken seriously.

At the conference, Martin worried about a conversation that emphasized the need for robust underwriting standards for the mortgage market going forward. The three most important standards are loan-to-value ratio, payment-to-income ratio, and credit history. As Martin pointed out, African-Americans have less wealth available for down-payment than others (even after controlling for income), and have lower FICO scores than others, and therefore will be denied access to credit at a greater rate than others if underwriting standards are tough and uniform. Because much of the reason that African-Americans lack wealth is because they have been systematically stripped of wealth for many generations, policies that reduce access to credit disproportionately for African-Americans violate fairness.

The events of the past six or seven years show that loose underwriting does nobody any favors, either. Foreclosures are terrible things for the families who experience them and for the communities that have large numbers of them. The whole point of underwriting is to prevent default and foreclosure, and the unpleasant fact is that downpayment and FICO are predictors of likelihood of default.

In the era where almost all mortgages were self-amortizing, housing allowed families to build wealth because mortgages were a form of forced saving. Those who got a 20 year mortgage in 1960 owned their house free and clear in 1980; households gained wealth not because housing was such a great investment, but because they built equity, month after month. Housing was a particularly attractive way for those of modest means to save, because they could live in the very piggy bank they were building. In principle, however, these households could have rented and taken the difference between a mortgage payment and a rental payment and put it in another investment (a small business or the stock market). But we know that in the absence of nudges, people tend to save less.

Perhaps, then, the government could come at the savings issue more directly by giving low-income people a nudge toward saving. Suppose it developed a 401(k) type plan that matched the savings of those with below-median incomes at 2 to 1. This would encourage savings that then could be used for a down payment or a host of other investments (say a Vanguard index fund). This would cost taxpayers money, but perhaps less than mortgage programs built on thin underwriting standards. At the same time, getting people into the habit of savings could produce other social benefits as well. I am not sure such a plan is practical, but I think we do need to think about how we can help people who have been denied wealth for generations how to start accumulating assets without relying entirely on the housing finance system to do it.

European hotels attract investors

European hotels attract investors for stable values

Real estate investors will invest more money this year in the purchase of hotels in Europe than in the U.S. because European hotels managed to maintain its value due to poor construction, writes Bloomberg.

Acquisitions of hotels in Europe will amount to a total of about 5.5 billion in 2010 compared with 4.5 billion in North and South America, predicted by the consulting firm Jones Lang LaSalle Hotels. The transaction is expected to form in the U.S. about 90 percent of all purchases in the Americas, cited by London-based company for services in the field of investment in hotels.

Last year prices fell hotels in the U.S. than in Europe, as new buildings have increased the number of properties on the market, according to Real Capital Analytics Inc. However occupancy levels and room rates in Europe rose faster than America, led by Germany and France.

"In most American cities, if you can not get a hotel you want, you just have to wait 12 to 18 months and will be able to buy one that is being built now and is exactly what you want," said David Mongo, President and Founder of London-based investment banking company Avington Financial Ltd.

In Europe under way are projects to build 587 hotels with a total of just over 100 thousand rooms, according to analysis from December 2009 to STR Global. The U.S. plans are to be built hotels with a total of 3829 just over four hundred and one thousand room.

"The properties in Europe are more expensive, but tends to lose its value less because it is much more difficult to find a replacement asset," says Mongo.

Transactions this year is expected to grow more rapidly in the U.S. than in Europe because investment in the U.S. in 2009 were much less. The total cost for the U.S. is projected to increase more than twice that 2.1 billion dollars last year, while Europe is expected rise 25 percent to 4.4 billion dollars.

Employment in Europe increased 61% to 58% in the U.S. - 56% to 54%, according to the company in Tennessee based on studies in the field of hospitality Smith Travel Research Inc. The price per room per day in the U.S. fell 2 percent to 97.18 dollars, while Europe has registered a growth of 1.9 percent to 97 euros.

Greatest American Trust for investment in hotel properties by market capitalization - Host Hotels & Resorts Inc., In July announced the purchase of hotel Le Meridien Piccadilly in London, which has 266 rooms, 64 million pounds. 95% of the rooms of the company in the U.S..

"Many European markets have a very high barrier to entry for new construction, explains Gregory Larson, Executive Vice President Corporate Strategy at Host Hotels. "This limited growth in supply in the future. Such asset markets tend to retain high value, which in terms of the owner of the hotel is perfectly obvious. "

Chain Hyatt Hotels Corp., Controlled by Chicago Pritsker family, expected to have a higher share of rooms abroad than in the U.S. within the next 10 years, announced in January, its chief executive Mark Hoplamazyan. Company is looking for acquisitions in Italy and Spain.

Listnatata London company for real estate investments Redefine International Plc, formerly known as Ciref Plc, announced last month that it had bought five Holiday Inn hotels in London by the British operator Splendid Hotel Group for over 106 million pounds. Redefine considering other properties in London and other European cities.

As another advantage of Europe shows that markets are more diverse and less susceptible to overall economic crisis in December said Arthur Haas, CEO of Jones Lang LaSalle Hotels in July. Properties in countries such as France and Germany as well as in cities like London, has done "reasonably well" even when global economies shrugged last year, he added.

Many U.S. hotels, bought in 2006 and 2007 peak years were financed with a high percentage of debt, which has an additional pressure on the value.

"The European market fell so much in 2008 and 2009 and remained in liquidity from the U.S.. Also in Europe there is more capital. Overall debt levels in Europe are lower, "says Haas December.

Housing Markets in Scandinavia

Housing prices in Sweden, Finland and Norway can be thrown, which would put some of the strongest recoveries in Europe and threaten to return to their economies in recession.

The property market in Sweden could fall as 20 percent of borrowers with loans biggest difficulty with the payment of its debts, which are up to 46 times greater than their disposable income, considered by the Royal Bank of Scotland. The Central Bank of Norway said that low interest rates carry a risk of overheating of the property and credit markets in the country while in Finland said the housing market might be shaped balloon.

"I am very worried," said in an interview with Finnish Finance Minister Jyrki Katainen. 'Maybe there is a housing bubble in Finland. There is a risk that mortgage costs are too low. "

Housing prices in the three countries increased last year, although their economies are shrugged, and unemployment rose, sparking imbalances that must now be corrected. Higher interest rates in Sweden may lead to failure of some borrowers, said the RBS. The cost of loans in Finland, a member of the euro area does is determined by the European Central Bank, which makes more difficult the management of the local economy.

Housing prices in Swedish, the largest northern economy grew by 7% annually for the three months to July, which is the 15th consecutive period of increase. In Norway, it has risen by 19.6 percent from the end of 2008 until the past quarter. In Finland the prices of existing homes rose by 10% annually the past quarter, having recorded growth of 11.4 percent for the three months to the end of March.

Lars Magnusson, Director of the National Board to guarantee loans to the Swedish Finance Ministry, said in an interview a few days ago that housing in the country will lose a fifth of its value in the coming three to five years.

"A drop of 20% would probably cause or contribute to the deepening of re-recession," said Parr Magnusson, chief economist for RBS economies in northern Stockholm. "Re-recession may occur in all cases, the deterioration of international conditions for growth."

Liabilities of households in Sweden have equal 167% of disposable income at the end of last year to 104 percent a decade ago, according to calculations of the Riksbank. In Finland, this ratio has increased to 107% at the end of last year from 65 percent in 2000, according to central bank data. In Norway, the debt ratio is expected to increase to 197% of disposable income this year, which would have increased by 14.5 points compared to 2005, calculated by Norges Bank.

The main interest of the ECB of 1% may be inadequate for the needs of the Finnish economy.

"To prevent balonizirane would be better, of course, if Finland could become self-determined monetary policy," said Mikko Force, an economist at Roubini Global Economics in London. "Yet this is not enough in itself, as they say and the central banks in Sweden and Norway. Regulation is perhaps the best tool. "

Otherwise, the three economies are about to commemorate one of the most successful recovery in the EU. Finland's GDP may grow by 1.5 percent this year after declining from 8 percent in 2009, according to government estimates. In Sweden the central bank expects economic growth from 3.8 percent this year after last year's contraction of 5.1 percent. GDP in mainland Norway will increase by 1.75 percent this year after a decline of 1.6 percent last, predicted the central bank there.

According to RBS, however, risks to the real estate market today are greater than before the credit crisis, as well as households are more indebted and less unprotected from interest changes.

Decline of construction in Bulgaria

Bulgaria is among the countries with the largest decline in construction in June

For the tenth consecutive month Bulgaria ranks in the top three EU countries with the largest decline in new construction. This show Eurostat data for the construction sector of the EU in June.In this month Bulgaria reported 17.5% decline on an annual basis in its new building.

Larger decreases in June recorded only Hungary and Slovenia. Since September last year, Bulgaria every month located among the three countries, where annual new construction declined the most. The largest decline recorded our country in December, when the index plummeted 33.3% yoy.

A monthly basis (compared to May) the new construction in Bulgaria, however, reported growth of 0.2 percent. This corresponds with a monthly increase of construction in the EU from 3.5%. In some countries such as Romania, is adjusted monthly growth of over 16%.

Steady increase compared to May shows and new construction in Spain, which increased by over 7 percent (and annual - with more than 18%). Zhilishshtniyat sector of the country suffer even before the economy went into recession. This led to a decline in property prices, financial problems for many construction companies and growth in unemployment among Spaniards - currently the second highest after that in Latvia.

Pan-European data show that annually, on a monthly basis and there is growth in constructing a building within the EU. Over the past 12 months the new building is maintained primarily by infrastructure projects, while construction of buildings declined dramatically.

Therefore, these data can be taken as a signal that investment in property recovered smoothly after declined substantially in 2009 In June, constructing a building in the EU increased by 7.5% annually, but growth in the euro area is 6.4 cent.

Some of the most expensive real estate markets - such as the British already seen a small increase in housing prices. According to GDP data express the EU economy has expanded in the second quarter by 1.7% yoy. This is the biggest growth in gross product of the union since the economic crisis.

Despite these statistics, some analyst companies such as Yurokonstrakt "not optimistic. A month ago the agency launched an analysis in which the expected construction sector in Europe to shrink this year.

In 19 European countries with the largest construction market is expected to decline in the sector of 4% by end of 2010 because the suspension of state aid and the economy slow recovery. The construction sector in these countries declined by 3.1 percent in 2008 to 8.8 percent in 2009 and is expected to start growing before 2011, according to economists' Yurokonstrakt.