New mortgage rules to subsidize housing.

From Matt Yglesias:

The FHFA is going to be less of a tight-ass in a number of regards, essentially upping the level of subsidy that is provided to mortgage lenders. This will make it cheaper for some wannabe home buyers to buy homes, it will increase the value of some existing home owners' houses, and it will generate plenty of profit-seeking opportunities for realtors and banks.

and...

Unfortunately, it's also a proposition that exacerbates and entrenches everything that's wrong with the past generation of housing policy. There are two real ways to make houses more affordable. One is rising wages, and the other is greater abundance of housing supply. Tinkering with credit policy offers a short-term boost, but doesn't do anything to address the underlying issues.

This policy isn't about housing affordability or even (to my mind) access to credit. It's about stimulating the economy by manufacturing more buyers for an expensive durable good (a new house) without having to improve their actual financial standing. More jobs and more income from those jobs is a better course.

#2014-10-22

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Should subprime come back?

if wages rise and people get to buy nicer houses, that's great. But if houses don't become cheaper and wages don't rise, what is actually achieved by making it easier for people to go into debt to buy them?

I think the answer to that question is that we're trying to juice the economy by incentivizing debt-financed purchases of cars and homes with the hope that the increased economic activity somehow finds its way into household income somewhere down the line. It seems like a pretty desperate plan.

#2014-09-23

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Fascinating piece on how monetary policy has become more dependent on Wall Street for its effectiveness.

Accordingly, getting out of a Liquidity Trap with monetary policy playing the lead role necessarily involves a Dornbuschian sequence of rational overshooting: The Fed must drive up Wall Street prices, which move quickly, so as to get to Main Street prices that move up slowly, most importantly, wages.

This sequencing implies that Wall Street's prices axiomatically will, in the short run, "overshoot" their long-term fair value, as the Fed appropriately and credibly commits to staying at the ZLB, until paper wealth creation endogenously deleverages private sector balance sheets sufficiently to restore animal-spirited risk taking on Main Street.

This sequencing implies that Wall Street prices must become very rich relative to Main Street prices in order to achieve so-called escape velocity from the Liquidity Trap. At the transition point, Wall Street prices will be rationally "overvalued" relative to their long-term "fair value."

It still sounds like a trickle-down policy to me. And in this formulation it seems like wealthy asset holders get to participate in both the Wall Street recovery and the Main Street recovery while people dependent on labor income participate primarily in the latter and with a substantial (and personally risky) lag. McCulley's point, of course, is that this is not ideal, it's just the nature of the system we have built. Better political functioning could potentially decrease Wall Street's relative early outperformance and decrease the lag in the Main Street recovery.

#2014-09-10 [ via ]

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High home prices in California correlate with outmigration.

Once again, high and rising home prices are not an unambiguous good. In this case it appears the drawbacks may include the loss of middle and low income households.

#2014-06-17

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Rising home prices are contributing less to GDP growth

We think it is officially time to stop cheering for higher house prices. They aren't having much of an impact on the economy anyway, and the resulting higher rents are hurting many.

#2014-04-24