Justin Sullivan/Getty Images
Job seekers wait in line to enter the San Francisco Hire Event job fair in San Francisco. They could be in the wrong place.
Just in time for last week's terrible jobs report from the Labor Department (150,000 new jobs expected, a mere 69,000 new jobs added, and that's U-G-L-Y), American Enterprise Institute resident scholar and economist Aparna Mathur wrote a piece about the bad numbers, arguing that they may not be something that we can easily blame on sluggish job creation:
Every month when the Bureau of Labor Statistics reports the unemployment rate, the underlying assumption in the minds of most consumers of the report, is that firms created fewer jobs and therefore hiring was low. Less well understood is the idea that while the jobs exist, firms may be unable to find workers to fill those positions.
I called Mathur to explore this idea a bit more deeply. Bear in mind that AEI, based in Washington, D.C., is generally regarded as a conservative think tank. Their resident scholars will tend to stress market-based solutions, rather than relying on government to extract us from problems.
U.S. Attorney General Eric Holder and U.S. Housing and Urban Development Secretary Shaun Donovan announce that the government and 49 state attorneys general have reached a $25 billion settlement agreement with the five largest mortgage lenders to redress foreclosure abuses, in Washington, February 9, 2012.
UPDATE: California Attorney General Kamala Harris wasted no time in leaping ahead to a provision of the deal that could up the settlement to $45 billion, with California homeowners getting $18 billion. The U.S. Department of Justice says $7 billion, and adds that "[s]ervicers that miss settlement targets and deadlines will be required to pay substantial additional cash amounts." Maybe she doesn't like the size of the stated number all that much, either?
We have a mortgage settlement at last between the big banks and the states. California and New York, the two staunchest holdouts, have signed on. But then there's the actual number: $25 billion (initially reported as $26 billion). It just isn't that much. And although the news of the settlement has been greeting positively, for the most part, it's far from clear that it will ultimately turn the housing market around.
David McNew/Getty Images
A recent ProPublica/NPR report on Freddie May refusing to refinance mortgages for struggling homeowners shows that the market is still coming to terms with new ways of measuring risk.
Jesse Eisinger and a ProPublic co-author, Cora Currier, along with NPR's Chris Arnold, have followed up on their original story about Freddie Mac allegedly betting against homeowners being able to refinance their mortgages. To summarize without getting too deep into risk-mitigation instruments and complex financial jargon, Freddie was using these things called "inverse floaters," and more or them than Eisinger originally reported ($5 billion), to...well, what exactly? Eisinger argues that they were being used to bet against homeowners refinancing out of high interest rate mortgages — a neat trick, given that Freddie could set the refinancing rules.
Some bloggers, myself included, have asked whether this really what was going on. Eisinger posted a lengthy comment on my blog and also Felix Salmon's blog at Reuters, helpfully addressing many of the issues that the debate over the story has raised. Felix fires up his analogy-o-matic and provides a good, simple explanation of what Freddie was up to (it involves, cleverly, a real-estate hook). Ultimately, he agrees with Eisinger:
Ethan Miller/Getty Images
Well, this is interesting. The Federal Reserve has produced a white paper that tackles the Very Big Problem of the ongoing housing crisis and submitted it to Congress. It's a veritable treasure trove of clear-eyed analysis about why the housing market is still in such rotten shape. But beyond that, it offers a suite of equally clear-eyed ways to fix the problem.
One of these is particularly intriguing: taking foreclosed properties and, instead of trying to sell them to new homeowners — which requires mortgage financing which isn't now widely available to any but the most creditworthy borrowers — turning them into rentals. And who will do the renting? Real estate investors are the secret sauce (just a bit of translation: "REO" means "real estate owned," i.e. foreclosures):
To date, REO holders have avoided selling properties in bulk to third-party investors because the recoveries that REO holders receive on such sales are generally lower than the corresponding recoveries on sales to owner occupants. Investors considering such bulk-sale transactions tend to demand a higher risk premium than owner occupants and thus will purchase only at lower prices. Investors in such transactions also might have more difficulty obtaining debt financing than owner occupants. Although mortgage products are available for individual one- to four-family houses and for multifamily properties (albeit currently at tight terms), no mortgage products currently exist for a portfolio of single-family homes. [My emphasis] In addition, REO holders must absorb the costs of assembling inventory for bulk sale — that is, holding properties off the market until enough properties have been assembled to cover the fixed costs of a rental program. Until the inventory is assembled, the REO holder receives no revenue from the property but incurs direct financing costs; carrying costs such as taxes, utilities, and maintenance expenses; and the continued depreciation of the property.
An REO-to-rental program that relies on sales to third-party investors will be more viable if this cost-pricing differential can be narrowed. REO holders will likely get better pricing on these sales if the program is designed to be attractive to a wide variety of investors. Selling to third-party investors via competitive auction processes may also improve the loss recoveries.
KPCC's business commentator and LABiz blogger Mark Lacter takes a look at the SoCal housing markets, checking in with the DataQuick numbers. What we notice is that August sales volume was up from August of last year, but sales prices are down. Here's DataQuick's analysis:
The region’s overall median sale price is suppressed somewhat by abnormally low sales of newly built homes, which typically sell for more than resale homes. Southland builders sold 1,184 new houses and condos last month, down 14.3 percent from a year earlier and the lowest new-home tally for an August in DataQuick’s records back to 1988.
But despite that, what's worrying is that price deflation still seems to be a major factor in the regional housing market. These numbers jumped out at me:
The typical monthly mortgage payment that Southland buyers committed themselves to paying was $1,101 last month, down 4.6 percent from $1,154 in July and down 4.9 percent from $1,158 in August 2010. Adjusted for inflation, current payments are 52.5 percent below typical payments in the spring of 1989, the peak of the prior real estate cycle. They are 61.1 percent below the current cycle’s peak in July 2007.