This is a Common Labor Market?

ZeroHedge provides the following graph that illustrates the perils of monetary union when language and culture inhibit labor mobility:



In the Unites States workers tend to move from state to state in search of jobs. In Europe, this apparently isn't happening; so Spain continues to suffer high unemployment and rising interest rates on its sovereign debt, even though theoretically its unemployed could find work in Germany. American work force mobility provides for a more robust economy because local conditions in North Dakota, for example, provide high levels of employment that can sop up unemployed workers from other parts of the country. However, I believe that the housing crisis uniquely harmed the U.S. economy because it interfered with this key corrective. Under more normal circumstances, people are able to sell their homes at only slight losses to move to other locales to take jobs. With the collapse of the housing bubble, many people are holding out, perhaps irrationally for a recovery of their home prices, before they make a move.

The administration's policies have contributed to the prolonged recession in two ways. First, by intervening in the housing market, and propping it up, the administration prevented the market from hitting bottom and perhaps recovering. I believe, though with only anecdotal evidence, that people are clinging to their homes, not wanting to sell. This is inhibiting labor mobility as people stay put. Second, by prolonging unemployment benefits, people are encouraged to try to hang on longer in their perhaps underwater homes; waiting for a recovery.

SHOCK? Overcounting Home Sales

The Drudge headline says SHOCK: Realtors: We've Overcounted Home Sales for Five Years... I guess someone is shocked that the very people who stand to benefit from painting a rosy picture on housing have been providing inflated numbers? Count me shocked as well, like Captain Renault.




Supposedly the revised numbers won't affect home prices, but how do those guys know? They're in shock. This blog has consistently said that home prices still have a ways to fall. We still haven't changed our mind.

Housing Prices Continue to Decline

As predicted here and here, housing prices continue to fall, because the administration has not allowed this bubble to burst and housing is still overvalued when compared to rental values. Zero hedge has the news.

I need to find the update to this chart, which shows that the correction isn't quite complete.

Romney Quote on Mortgages

I earlier posted about Mitt Romney taking heat for getting it right on mortgages. I neglected to include his quote. He is responding to the question of what should be done about housing and foreclosures.

"One is, don't try and stop the foreclosure process. Let it run its course and hit the bottom. Allow investors to buy homes, put renters in them, fix the homes up. Let it turn around and come back up. The Obama Administration has slow-walked the foreclosure processes that have long existed, and as a result we still have a foreclosure overhang."

Anyone who doesn't think that is the swiftest way for the market to recover should demand their tuition back for their economics classes at Columbia and Harvard. If they took economics, because we don't know; there is no transcript available.

Grocery Workers Voting on Contract

I would urge any grocery workers who may read my blog to vote in favor of the deal reached between the union leaders and the grocery chains that operate Ralphs, Vons and Albertsons. The contract preserves their own health care fund, although I am not sure how affordable it will remain under Obamacare. Although there might never be a good time for a strike, the following U-T headline indicates that striking now would be especially unfortunate:

Poverty rate in county hits 30-year high

More county residents faced financial hardship last year than at any other time in the past three decades, a record reflected in the poverty rate’s sharp rise and stagnating median household incomes, according to new data from the U.S. Census Bureau.

I am also afraid that the housing market will also remain down until the government stops intervening, as predicted in today's Wall Street Journal.

Economists, builders and mortgage analysts are predicting the weakened U.S. economy will depress housing prices for years, restraining consumer spending, pushing more homeowners into foreclosure and clouding prospects for a sustained recovery.
Home prices are expected to drop 2.5% this year and rise just 1.1% annually through 2015, according to a recent survey of more than 100 economists to be released Wednesday. Prices have already fallen 31.6% from their 2005 peak, as measured by the Standard & Poor's Case-Shiller 20-city index.

Our current problems starting with the mess in the secondary mortgage markets, partly the result, partly the cause of an overheated housing market. Continued efforts by government to prop up the market will cause more economic weakness which will in turn continue to push people into poverty. Somehow, keeping home prices high is compassionate.

Exit question, does a double dip in housing prices forecast a double dip recession?

Tighter Lending Standards and the Housing Market

Yesterday's WSJ seemed to lay the blame for the lack of zip in the housing market at the feet of banks, as well as Fannie Mae and Freddie Mac for being too tight with standards for lending. It is argued by some interviewed that this is an overreaction to the excesses of the last decade. In fairness, they also interviewed experts who thought the tightened standards were appropriate. Fannie and Freddie come in for blame because loans that don't meet their standards will not be purchased by the quasi-governmental organizations. The whole article just goes back and forth on the minutia of the arguments, so I am not recommending reading it.

Here is what I do know. Fannie and Freddie are political creatures of the federal government. Their lending standards are therefore set by politics, not market conditions. Surely there will be pressure for them to loosen their standards by those politicians for whom this will be expedient. This is why Fannie and Freddie need to be broken up into smaller entities and divorced from their status as Government Sponsored Entities. (I can't find that term in the constitution.) The new companies, by competing on how well they assess the riskiness of loans, will find the correct equilibrium for the housing market. Further, these companies could seek out innovative ways to hold banks and other loan originators liable for bad loans that were due to lack of due diligence. This seems like a great way to inject true free market principles to re-vitalize the housing market.

What will the new default rate be? I have no idea, I just know it will be more likely to be beneficial to the economy as a whole. Further, without the taxpayers on the hook for losses, it will cause the system to work out the correct risk level and prevent another expensive bailout.