How to become rich: Choose the right occupation

According to this research paper, these are the career fields of Americans in the top 1% of the income distribution (as of 2005):

• 31% are non-financial executives, managers, or supervisors
• 16% are medical professionals
• 14% are financial professionals, including management
• 8.4% are lawyers
• 4.6% are in technical fields (computers, math, engineering, etc.)
• 4.2% are in skilled sales, excluding real estate and finance
• 3.8% are in blue collar or miscellaneous services
• 3.2% are in real estate
• 3.0% are in non-finance business operations
• 1.8% are professors or scientists
• 1.6% are in arts, media, or sports

So much for the myth from late night infomercial pitchmen that real estate is the path to wealth! The top 1% are ten times more likely to be managers.

The career fields of the super wealthy—the top 0.1%—are similar, but slightly different:

• 43% are non-financial executives, managers, or supervisors
• 18% are financial professionals, including management
• 7.3% are lawyers
• 5.9% are medical professionals
• 3.7% are in real estate
• 3.0% are in arts, media, or sports
• 2.9% are in non-finance business operations
• 2.9% are in technical fields (computers, math, or engineering)
• 2.3% are in skilled sales, excluding real estate and finance

Judging by this list, and what I've posted previously, for enterprising high school or college students who would like a successful career but don't know what they want to study, a finance, accounting, economics, engineering, math, or computer science bachelor's degree followed by a dual MBA/JD would give you a fantastic head start in life. ...But above all else, get that MBA!

How to become rich: Education and marriage

Gallup has researched the difference between the top 1% of Americans and the rest. Not surprisingly, the wealthy are better educated and married:

To better understand who makes up the top 1%, Gallup combined 61 of its nationwide surveys conducted between January 2009 and November 2011. The resulting sample includes nearly 400 adults in households earning $500,000 or more annually, and more than 65,000 in households earning less than that. The official top 1% of American households in 2010 includes those with incomes of at least $516,633, according to data from the Tax Policy Center as reported in The Washington Post.

Advanced Education Separates the 1% From the 99%

Apart from their bank accounts, Gallup finds education to be the greatest difference between the wealthiest 1% of Americans and everyone else. The Gallup analysis reveals that 72% of the wealthiest Americans have a college degree, compared with 31% of those in the lower 99 percentiles. Furthermore, nearly half of those in the wealthiest group have postgraduate education, versus 16% of all others.

More generally, college education is strongly correlated with household income. Nine percent of Americans earning less than $20,000 per year are college graduates; this rises to majorities of adults in all income groups above $100,000. Similarly, few adults in low-income households have postgraduate education, and this rises only into the teens among middle-income adults. But it sharply increases among those earning $100,000 or more, peaking at 49% among those earning between $250,000 and $499,000, and those earning at least half a million.

The educational differences between the nation's "1%" and "99%" exceed all other demographic as well as political differences seen between these groups in the Gallup data. The next-most-significant distinction is marital status, with nearly three-quarters of the very wealthy (73%) being currently married, compared with half of all others (51%). Accordingly, by 49% to 31%, the very wealthy are more likely to have minor children in the household.

The impact of marriage is pretty simple to explain: Two salaries pay more than one. Regarding education, as I've said in the past level of education matters a lot, but what you study is every bit as important. Despite the fact that society indoctrinates high school students to try to attend high-ranking universities, choosing the right college major matters far more than going to the right school.

National Association of Realtors overstated existing home sales by 16.7%

Last week I blogged about the National Association of Realtors overstating existing homes sales over the past five years. At the time we didn't know how much the Realtors overstated the numbers. Now we know they overstated them by 16.7%:

Existing home sales during the housing bust were actually 14.3% worse than previously reported, a revision to Realtors' group numbers shows.

On Wednesday, the National Association of Realtors (NAR) revised home sale counts back to 2007 due to flaws in their original data analysis.

In 2007, there were actually just 5.04 million existing home sales, 11% less than the 5.65 million originally reported. Even worse were 2008 and 2009, when there were 16% fewer sales than originally reported. Sales in 2010 were 15% lower.

"The errors started in 2007 and continued to accumulate over time," said Lawrence Yun, NAR's chief economist. ...

The data is "key to the economic outlook," said Mark Zandi of Moody's Analytics, "and the revisions help to explain the severity of the housing crash." ...

Some industry sources had been critical of the organization's data. In February, CoreLogic charged that NAR data was overestimating sales by 15% to 20%.

When NAR investigated, it found a "notable upward drift" in the numbers compared to other measurements such as courthouse deeds records, said Yun.

For anyone confused about where the 16.7% in the title comes from, the first sentence of the quoted article says sales were 14.3% worse than previously reported, and 100 / (100-14.3) = 16.7.

Updated housing graph

I have updated my national housing graph. My metropolitan area graphs are still nine months out of date.

Housing starts spiked in November

Housing starts are up 24.3% year-over-year:

Home building spiked up in November to the strongest level in almost two years, as record-low mortgage rates and a surge in apartment and condo construction lifted activity.

Housing starts shot up to an annual rate of 685,000 in the month, up 9.3% from October and 24.3% higher than a year earlier. Building activity easily topped predictions of 627,000 starts economists surveyed by Briefing.com were expecting.

Building permits, a closely-watched reading that is less affected by weather than actual starts, also shot up, rising 5.7% from October and 20.7% from the year before to 681,000 homes annually. ...

Both permits and starts were the strongest readings since the spring of 2010, the original deadline for a homebuyer tax credit that sparked a temporary rebound in building and home sales.

I'd like to post some graphs, but the St. Louis Federal Reserve website hasn't updated their data. When they get around to it, the new housing starts graph will be here and the new housing permits graph will be here. The official Commerce Department press release is here.

Mortgage lenders suspend evictions for the holidays

Merry Christmas, delinquents! You get a free pass for about two weeks:

Happy holidays struggling homeowners! Fannie Mae, Freddie Mac and several large mortgage lenders have pledged not to foreclose on delinquent borrowers during the Christmas season.

For homeowners with loans through Fannie Mae and Freddie Mac, the moratorium will run from Dec. 19 to Jan. 2. During this time, legal and administrative proceedings for evictions may continue, but families will be allowed to stay in their homes, Fannie said in a statement.

"No family should have to give up their home during this holiday season," said Terry Edwards, an executive vice president for Fannie Mae.

Among some of the major banks that offer mortgage loans, Chase Mortgage said it will not evict anyone between Dec. 22 and Jan. 2. Wells Fargo will also suspend evictions during that period, but will not shut down its eviction machinery entirely. ...

Bank of America said that it would "avoid foreclosure sales or displacement of homeowners or tenants around the Thanksgiving and Christmas holidays."

The caveat is that these temporary suspensions only apply to loans in a bank's own portfolio. For loans the banks service for others, evictions will still occur.

On the rights of Palestinians

Does Israel have a right to exist? This question is often asked by defenders of Israel as a means to establish complete agreement on the right of Israel, because anyone who says "no" will be branded as anti-Semitic (i.e. as a bigot). The question left intentionally unasked is: Does Palestine have a right to exist? Personally, I believe both questions should always occur together. Asking the former, while omitting the latter, reveals the bias—and the bigotry—of the questioner. I believe the answer to both questions is yes, but a detailed answer requires a discussion of political philosophy. I'm a libertarian, and libertarians never miss an opportunity to discuss political philosophy.

States, countries, and governments do not have natural rights. Only human beings—or, in a broader sense, only living beings—have natural rights, rights endowed to us by our Creator. However, states, countries, and governments can have artificial rights—rights created by man—as a means to protect the natural rights of their people. Natural rights are inalienable, and superior to artificial rights.

When the natural rights of human beings collide with the artificial rights of states, justice requires that the natural rights of human beings should triumph. For example, during the U.S. Civil War, the South fought in favor of the artificial rights of states, while the North fought in favor of the natural rights of human beings. The North was right. The North was just. Thankfully for human liberty, the North won.

Israel has an artificial right to exist as a means of protecting the natural rights of Israelis. But the natural rights of Palestinians also need protecting. Currently, the Palestinians have no voice in the government that controls them. They are at the mercy of Israel. The Palestinians, constituting roughly 36% of the people under the control of the state of Israel, have no elected representation in the Israeli government. That is not modern democracy. The Israeli government regularly tramples on the human rights of the Palestinians. The Palestinians have no liberty. They deserve either full, elected representation in the Israeli legislature, the Knesset, or they deserve complete independence. Currently, they have neither.

So, yes, Israel has the right to exist. But a Palestinian state has the same right to exist—and for the same reason—to protect the natural rights of its people. The right of Israel to exist is no greater than, and no less than, the right of Palestine to exist. It is moral hypocrisy to support one and deny the other. So I ask you: Does a state of Palestine exist?

Realtors overstated home sales for 5 years

The National Association of Realtors has admitted that it overstated existing homes sales numbers for the past five years:

If you thought the U.S. housing market couldn't get much worse, think again.

Far fewer homes have been sold over the past five years than previously estimated, the National Association of Realtors said Tuesday.

NAR said it plans to downwardly revise sales of previously-owned homes going back to 2007 during the release of its next existing home sales report on Dec. 21.

NAR's existing home sales numbers, released monthly, are a closely followed gauge of the health of the housing market.

While NAR hasn't revealed exactly how big the revision to home sales will be, the agency's chief economist Lawrence Yun said the decrease will be "meaningful."

"For the real estate business, this means the housing market's downturn was deeper than what was initially thought," Yun said.

Senators propose easier visas for foreign home buyers

I am a strong supporter of immigration. There's no way America would have grown from a sparsely-populated wilderness to the world's sole superpower without it. However, this seems to me like yet another lame attempt by politicians to re-inflate the housing bubble they loved so much:

Two senators, Charles Schumer, a Democrat, and Mike Lee, a Republican, recently introduced legislation to fast-track visas for foreigners spending $500,000 on residential property. Their Visit USA Act would allow purchasers and their families to live in America for as long as they owned their houses, though not to work there or receive any federal benefits.

The senators envisage wealthy jet-setters and well-heeled retirees boosting America’s weak housing market. As buyers would have to live in their new homes for at least 180 days a year, they would also (very handily) be liable to pay American tax on any foreign earnings.

Occupy Wall Street comes to your neighborhood

The OWS movement is now protesting foreclosures:

In more than two dozen cities across the nation Tuesday, an offshoot of the Occupy Wall Street movement took on the housing crisis by re-occupying foreclosed homes, disrupting bank auctions and blocking evictions.

Occupy Our Homes said it's embarking on a "national day of action" to protest the mistreatment of homeowners by big banks, who they say made billions of dollars off of the housing bubble by offering predatory loans and indulging in practices that took advantage of consumers.

Hopefully the OWS protesters used the occupation of homes as an opportunity to take a shower. I've heard from several sources that these people, unshowered for months, smell like rotten eggs.

Paul Krugman bashes Friedrich Hayek

Paul Krugman tries to frame Hayek as an irrelevant macroeconomist:

Friedrich Hayek is not an important figure in the history of macroeconomics. ...

These days, you constantly see articles that make it seem as if there was a great debate in the 1930s between Keynes and Hayek, and that this debate has continued through the generations. As Warsh says, nothing like this happened. Hayek essentially made a fool of himself early in the Great Depression, and his ideas vanished from the professional discussion.

So why is his name invoked so much now? Because The Road to Serfdom struck a political chord with the American right, which adopted Hayek as a sort of mascot — and retroactively inflated his role as an economic thinker. ...

But the Hayek thing is almost entirely about politics rather than economics. Without The Road To Serfdom — and the way that book was used by vested interests to oppose the welfare state — nobody would be talking about his business cycle ideas.

First, let me point out that Krugman uses a straw man fallacy, as he often does. He states that people claim "there was a great debate in the 1930s," but that's not the way I've ever heard it. In The Commanding Heights, for example, Daniel Yergin and Joseph Stanislaw very explicitly point out that Hayek did fall out of favor during the Great Depression, but he came back into favor when cracks started to appear in Keynesian economic theory.

Second, what Krugman conveniently doesn't tell his readers is that Hayek is a Nobel laureate. Friedrich Hayek and Gunnar Myrdal won the 1974 Nobel Memorial Prize in Economic Sciences "for their pioneering work in the theory of money and economic fluctuations and for their penetrating analysis of the interdependence of economic, social and institutional phenomena." Krugman claims that "Hayek is not an important figure in the history of macroeconomics," but the theory of money and economic fluctuations are MACROECONOMIC concepts! And it should be obvious that the Swedes who award the prize are not part of "the American right."

That's OK. Krugman also regularly bashes Joseph Schumpeter, who gets his very own chapter in The Worldly Philosophers. In this poll, originally from a left-wing source, both Schumpeter and Hayek outrank Krugman as twentieth century economists. (Krugman's best work was done in the 1980s.)

It is true that Hayek's popularity is due in large part to politics, but the same is true of Krugman's popularity.

Unemployment rate drops to 8.6%

The unemployment rate hasn't been dropping steadily, but it has been dropping. Today it was announced that it has fallen to 8.6%, from 9.0% a month earlier.

S&P/Case-Shiller National Home Price Index declines 3.9% year-over-year

For the third quarter of 2011, the S&P/Case-Shiller National Home Price Index was flat quarter-over-quarter, but fell 3.9% year-over-year:

Data through September 2011, released today by S&P Indices for its S&P/Case-Shiller Home Price Indices, the leading measure of U.S. home prices, show that nationally home prices did not register a significant change in the third quarter of 2011, with the U.S. National Home Price Index up by only 0.1% from its second quarter level. The national index posted an annual decline of 3.9%, an improvement over the 5.8% decline posted in the second quarter. Nationally, home prices are back to their first quarter of 2003 levels. ...

The chart [above] depicts the annual returns of the U.S. National, the 10-City Composite and the 20-City Composite Home Price Indices. The S&P/Case-Shiller U.S. National Home Price Index, which covers all nine U.S. census divisions, recorded a 3.9% decline in the third quarter of 2011 over the third quarter of 2010. In September, the 10- and 20-City Composites posted annual rates of decline of 3.3% and 3.6%, respectively. Eighteen of the 20 MSAs and both monthly Composites had negative annual rates in September 2011, the only exceptions being Detroit and Washington DC.

U.S. government goes after mortgage scammers

It sickens me to see that some people will happily screw over people who are already in trouble:

The federal government is cracking down on scammers who target struggling homeowners looking to lower their monthly mortgage payments.

Hundreds of con artists have been taking advantage of victims through online advertisements on search engines Google, Bing and Yahoo!, promising to help homeowners modify their mortgages through the government-run program known as the Home Affordable Modification Program (or HAMP).

Last week, the agency that investigates fraud, waste and abuse in the government's Troubled Asset Relief Program, announced that it has shut down 85 scams that were advertising on Google. Then, on Monday, it announced it had halted another 125 shady advertisers on Yahoo and Microsoft's Bing search engine. ...

Ever since HAMP and other federal aid programs aimed at helping struggling homeowners were launched, scam artists have been finding ways to exploit them.

Government auditor: FHA at financial risk

I previously posted about an American Enterprise Institute (AEI) report claiming that the Federal Housing Administration (FHA) could be at financial risk. Now it's not just partisan think tanks making the claim. It's the FHA's own government auditor:

Chances are nearly 50 percent that the Federal Housing Administration will need a bailout next year if the housing market deteriorates further, the agency’s independent auditor said in a report released Tuesday.

The F.H.A., which offers private lenders guarantees against homeowner default, has just $2.6 billion in cash reserves, the report found, down from $4.7 billion last year.

The agency’s woes stem from the national foreclosure crisis. In the last three years, the F.H.A. has paid $37 billion in insurance claims against defaulting homeowners, shrinking its cash cushion.

The auditors determined the agency’s level of supplemental cash reserves by projecting losses on its mortgage portfolio and counting them against expected premium revenue. This year, the audit found that the F.H.A. supplemental reserve was less than one-quarter of a percentage point of its current portfolio: $2.6 billion against a $1.1 trillion mortgage portfolio, as of Sept. 30. Legally, the housing agency is required to keep a 2 percent cash buffer, a target it has not met since 2008.

The FHA is paying out $37 billion per year, but they only have $2.6 billion in cash reserves? That $2.6 billion of cash reserves insures a $1.1 TRILLION mortgage portfolio? Really? What could possibly go wrong?

Politicians are as reckless with money as Wall Street bankers

Congress wants to give a near-bankrupt agency a larger role in the housing market:

Taxpayers are finding that there may be a bill to pay one day for the government’s role in backing low down payment mortgages, even as Congress appears ready to double down on the agency backstopping those loans.

On Tuesday, the Federal Housing Administration is set to report annual finances showing that the agency barely has enough cash to cover anticipated losses. Meanwhile, Congress looks poised to take steps that will increase FHA’s role in the housing market.

This can't possibly go wrong!

AEI: Federal Housing Administration at financial risk

The American Enterprise Institute worries that the Federal Housing Administration could be headed for financial trouble:

Concerns are rising that the Federal Housing Administration could run out [of] money if the economy doesn't recover soon, raising the risk the agency would seek a taxpayer bailout for the first time in its 77-year history.

Since the mortgage crisis erupted five years ago, the FHA has played a critical role in housing finance as private lenders retreated. It backs about a third of all new mortgages originated for home purchases, up from around 5% in 2006.

But, as the FHA prepares to release its annual financial report next week, a forthcoming study by Joseph Gyourko, a real estate and finance professor at the University of Pennsylvania's Wharton School, estimates that the FHA faces around $50 billion in losses in the coming years.

The study says only a "quick and substantial economic and housing market recovery" can avoid "substantial losses for American taxpayers." The paper was commissioned by the American Enterprise Institute, a conservative think tank.

The study says the losses will be spread over a period of many years and are unlikely to bankrupt the agency this year or next.

The study isn't the first to predict the FHA's insolvency.

While reports from partisan think tanks should always be taken with a grain of salt, I have long worried that the federal government's attempts to prop up housing prices could be causing it to under-price the risk of government-insured loans.

The theory is simple: In the first half of the last decade, midsize banks like Countrywide Financial, Washington Mutual, and IndyMac supported a bubble by making bad mortgage loans. After the bubble burst and the financial crisis began, the federal government stepped in to prop up housing prices by... making bad mortgage loans.

Foreclosure filings down 31% year-over-year; up 7% month-over-month

The number of foreclosure filings rose 7% in October vs. September. This could mean foreclosures are starting to pick up again, but it's hard to know for sure because month-to-month numbers are naturally volatile.

The number of foreclosures climbed in October, as mortgage lenders started to work through the paperwork problems that had delayed new filings for much of the last year.

Foreclosure filings were reported on 230,678 properties nationwide in October, a 7% increase from September, reported RealtyTrac, an online marketplace for foreclosed properties. Despite the increase, filings were still 31% below year-earlier levels, though.

RealtyTrac said one in every 563 U.S. homes had either a default notice, a scheduled auction or a bank repossession filing during the month.

"The October foreclosure numbers continue to show strong signs that foreclosure activity is coming out of the rain delay we've been in for the past year as lenders corrected foreclosure paperwork and processing problems," said James Saccacio, RealtyTrac's CEO.

CoreLogic: home prices down 4.1% year-over-year

According to CoreLogic, home prices have fallen 4.1% from September 2010 to September 2011. Fitch Ratings predicts another 10% drop in U.S. home prices.

Prices fell 1.1% month to month, according to CoreLogic, both in seasonally adjusted and unadjusted terms. This is the second consecutive month of monthly drops, as we head into the slower fall season.

The more concerning aspect of the report is that while home prices including foreclosures and short sales fell 4.1 percent from September of 2010, they still fell 1.1 percent when you exclude distressed sales. ...

While the unemployment picture has weighed heavily on home prices all year, the new uptick in foreclosure starts will likely have a more drastic effect. Foreclosure start rates on severely delinquent loans have increased to over 10 percent a month in the private-label RMBS (residential mortgage backed securities) sector, according to Fitch, which is now estimating another 10 percent decline in home prices before they fully stabilize.

Home-ownership rate ticked up in Q3 2011

The U.S. home-ownership rate had a surprise quarter-over-quarter rise in the third quarter of the year. The year-over-year trend is still down, however:

The nation's home-ownership rate ticked up in the third quarter, suggesting a three-year decline in home ownership may be starting to bottom out. The rental vacancy rate also rose, in a sign that rising rents could be reducing demand.

The Census Bureau reported Wednesday that the nation's seasonally adjusted home-ownership rate stood at 66.1% in the third quarter, up slightly from 66% in the previous quarter, though down from 66.7% a year earlier. The rental vacancy rate was 9.8%, up from 9.2% in the second quarter and down from 10.3% a year earlier.

Industry watchers warn against reading too much into results from a single quarter. The increase is small and the number could begin declining again in the fourth quarter, when colder weather means fewer Americans buy homes.

Paul Dales, a senior U.S. economist with Capital Economics, said he was initially surprised by the increase. "I don't think this alters the long term trends that have been going on," he said. "The overall housing market will remain weak and the rental market will remain strong."

As I've said before, the overall U.S. housing bubble is completely deflated, although we still have large local bubbles in the Northeast and West Coast. With rents rising nationally, I think it won't be long before the U.S. home-ownership rate hits bottom. I don't think we're there yet, though. There is still a large backlog of foreclosed homes we have to get through. Only after we get through the backlog will home builders start building again, and only after builders start building again will we have a true bottom in the U.S. home-ownership rate.

Fiserv: Housing market to fall another 3.6% by June 2012

Fiserv is forecasting that home prices will experience a "triple dip" and fall to 35% below their 2006 peak by next June:

The besieged housing market has even further to fall before home prices really hit rock bottom.

According to Fiserv (FISV), a financial analytics company, home values are expected to fall another 3.6% by next June, pushing them to a new low of 35% below the peak reached in early 2006 and marking a triple dip in prices.

Several factors will be working against the housing market in the upcoming months, including an increase in foreclosure activity and sustained high unemployment, explained David Stiff, Fiserv's chief economist.

Should home values meet Fiserv's expectations, it would make it the third (and lowest) trough for home prices since the housing bubble burst.

The first post-bubble bottom was hit in 2009, when prices fell to 31% below peak. The First-Time Homebuyer Credit helped perk prices up by mid-2010, but by the time the credit expired, prices fell again.

In the second dip, which was reached last winter, prices were down 33%before staging a mild rally that was artificially spurred as banks slowed the processing of foreclosures following the robo-signing scandal, which found that loan servicers were rapidly signing foreclosures without properly vetting them.

Now that the scandal is mostly resolved, lenders are speeding more cases through the foreclosure pipeline and back onto the market, weighing on home prices even further.

Rents rising in the U.S.

As the home ownership rate in the U.S. continues to decline, it is pushing up rents:

Strong growth of rents and occupancy levels of rental apartments have pushed some building values to record levels as Americans shift away from home ownership.

While concerns about the economy are cooling the market for most other types of commercial real estate, apartment rents and occupancies continue to be boosted by demand from millions of people who are victims of foreclosure or are unwilling or unable to buy their own homes.

At the end of the third quarter, 5.6% of the nation's apartments were vacant, down from 5.9% in the second quarter, and the lowest level since 2006, according to Reis Inc., a real-estate data service.

My own rent got jacked up more than usual this year. Perhaps it's time to do the contrarian thing and become a homeowner. Nah!

New home sales flat year-over-year

New home sales for September were up a decent amount month-over-month, but down very slightly year-over-year:

Sales of new homes, a benchmark indicator both for the housing market and the overall economy, rose slightly but remained slow in September.

Sales reached a 313,000 annual rate in September, 5.7% more sales than the revised estimate for August, according to a monthly report from the Census Bureau released Wednesday. But sales were off 0.9% compared with 12 months earlier.

New-home sales have been hovering around the 300,000 mark for many months, a shadow of the activity of the boom years, when monthly sales peaked at an annual rate of 1.4 million units.

Economic growth rate climing again!

People fretting about a new recession over the summer were wrong:

The nation's economy gained some much-needed strength in the third quarter, as the pace of growth nearly doubled compared to the previous three months.

The nation's gross domestic product, the broadest measure of its economic health, grew at a 2.5% annual rate in the quarter after adjusting for inflation. That's up from the disappointing 1.3% growth in the second quarter and the anemic 0.4% pace in the first three months of the year.

I was right. Warren Buffett was right. If this continues (and it will) it might barely keep Barack Obama in office for four more years.

August Case-Shiller numbers up slightly month-over-month

...but down year-over-year:

S&P/Case-Shiller home-price data showed sideways movement in August, as prices were boosted from a month earlier thanks to seasonal factors but remained below year-ago levels.

The composite 20-city home price index, a key gauge of U.S. home prices, posted a 0.2% increase from July but fell 3.8% from a year earlier. Ten cities posted monthly declines, while the other 10 showed gains. Las Vegas was the only city that posted a new index level low and is 59.5% below its August 2006 peak.

Eighteen of the 20 cities posted annual declines in August, with just Detroit and Washington D.C. notching gains. On a seasonally adjusted basis, which aims to take into account the stronger spring-summer selling season, just six cities — Boston, Charlotte, Chicago, Dallas, Minneapolis and Washington, D.C. — posted monthly increases. The overall 20-city index was flat on a seasonally adjusted basis.

Regulators seize PMI Group!

I was wondering how private mortgage insurers were remaining in business. Now I guess I know. They're not!

Arizona regulators have taken over a big mortgage insurer and put restrictions on its claims payments, the latest indication that the housing bust is not finished taking casualties—and that lenders and investors are likely to suffer more losses.

PMI Group Inc.'s mortgage-insurance unit had been paying about $1.5 billion a year in claims to reimburse lenders and mortgage investors such as Fannie Mae, Freddie Mac and Wells Fargo & Co. for some of their losses when homeowners default.

Now, the insurer will pay just 50% of claims in cash, and the remainder will be deferred, the company said in a posting on its website. ...

PMI was the third-biggest private-sector mortgage insurer as measured by insurance in force at the end of June, according to Inside Mortgage Finance, a trade publication. PMI joins Triad Guaranty Inc., a much smaller rival, in facing regulatory restrictions on payments since the mortgage meltdown began.

The Arizona Department of Insurance, which regulates the insurer because it initially was licensed in the state, now has "full and exclusive power of management and control of PMI," according to an Oct. 20 order posted on PMI's website.

That's what you get for insuring people who put nothing down.

Existing home sales up 11.3% year-over-year; prices down 3.5%

Existing home sales for September were down slightly month-over-month, but up big year-over-year. One reason for the big year-over-year rise in existing home sales may be that prices are lower than they were a year ago. As I often say, "drop prices, sell houses."

Existing-home sales were down in September on the heels of a strong gain in August, but remain well above a year ago, according to the National Association of Realtors®.

Total existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, declined 3.0 percent to a seasonally adjusted annual rate of 4.91 million in September from an upwardly revised 5.06 million in August, but are 11.3 percent above the 4.41 million unit pace in September 2010. ...

All-cash sales accounted for 30 percent of purchase activity in September, up from 29 percent in August and 29 percent also in September 2010; investors make up the bulk of cash purchases.

Investors purchased 19 percent of homes in September, down from 22 percent in August; they were 18 percent in September 2010. First-time buyers accounted for 32 percent of transactions in September, unchanged from August; they were also 32 percent in September 2010.

The national median existing-home price for all housing types was $165,400 in September, down 3.5 percent from September 2010. Distressed homes – foreclosures and short sales typically sold at deep discounts – accounted for 30 percent of sales in September (18 percent were foreclosures and 12 percent were short sales), down from 31 percent in August and 35 percent in September 2010.

Total housing inventory at the end of September declined 2.0 percent to 3.48 million existing homes available for sale, which represents an 8.5-month supply at the current sales pace, compared with an 8.4-month supply in August.

Single-family home sales fell 3.6 percent to a seasonally adjusted annual rate of 4.33 million in September from 4.49 million in August, but are 12.2 percent above the 3.86 million-unit level in September 2010. The median existing single-family home price was $165,600 in September, down 3.9 percent from a year ago.

Existing condominium and co-op sales rose 1.8 percent a seasonally adjusted annual rate of 580,000 in September from 570,000 in August, and are 5.6 percent above the 549,000-unit pace one year ago. The median existing condo price was $163,800 in September, which is 1.0 percent below September 2010.

I have long believed that the best way to get the housing market thriving again is to drop prices to the point where supply equals demand. Home sellers might not like it, but it's good for buyers and it's great for Realtors. For Realtors, the best way to make more money is to sell houses quickly. The best way to sell houses quickly is to convince the seller to drop the price.

Housing starts up big; permits fall

U.S. housing starts were up 15% from August to September:

Housing starts rose 15 percent, or a seasonally adjusted rate of 658,000. That blew away analysts' forecasts of an increase to a 590,000-unit rate.

Starts surged in September at their fastest annual pace in 17 months on a big increase in groundbreaking for multi-family units, while permits for future construction fell.

Building permits dropped 5 percent to 594,000.

Housing starts for buildings with two or more units rose 51.3 percent to a 233,000-unit rate. Single-family home construction — which accounts for a larger share of the market — increased 1.7 percent to a 425,000-unit pace.

Economists look to both housing starts and building permits as leading indicators, but building permits forecast further ahead than housing starts do.

Home ownership rate declined over the past decade

Despite a home ownership boom in the first half of the last decade, the overall trend for the decade was down:

The percentage of Americans who owned their homes has seen its biggest decline since the Great Depression, according to the U.S. Census Bureau.

The rate of home ownership fell to 65.1% in April 2010, 1.1 percentage points lower than it was in 2000. The decline was the biggest drop since the 1930s, when home ownership plunged 4.2%.

The most recent decade-over-decade drop, however, only tells half the story.

Home ownership during the 2000s "was really high in the middle of the decade, up to almost 70% at one point around 2004," said Ellen Wilson, a survey statistician with the bureau.

The crash from that peak was more than 4 percentage points in just about five years -- a far more dramatic decline than the 1.1% drop over the 10-year period.

This last bit is for Partisan:

Among the states, New York had the lowest home ownership rate of 53.3%, but the District of Columbia's home ownership rate was below that at 42%.

Consumers pessimistic about home prices

U.S. consumers expect home prices to fall slightly over the next year:

Consumer expectations for U.S. home prices worsened significantly in September to register their weakest outlook in more than a year, according to a monthly survey from mortgage market enterprise Fannie Mae.

For its September reading, Fannie Mae said respondents now expect home prices to decline 1.1% over the next year, a steeper drop than the 0.5% decrease predicted in the August survey and the biggest decline expected to date.

Housing spending as a percentage of GDP

Warren Buffett: New recession unlikely

Billionaire investor Warren Buffett thinks the likelihood of a new recession is low:

Warren Buffett says Berkshire Hathaway has been buying stocks at bargain prices, including shares of his own company. ...

The Omaha billionaire isn't worried his new purchases will be caught up in a 'double-dip' for the U.S. economy. He thinks "it's very, very unlikely we'll go back into a recession... We're coming out of a recession."

I agree with him. I track eight specific leading indicators on the St. Louis Federal Reserve website. Of the eight, five are in positive territory, one is negative, and two are borderline. (For most of these indicators, I find the year-over-year percentage change to be a better leading indicator than the current level.)

Positive

• Initial jobless claims (YoY)
• Interest rate spread between 3-month and 10-year Treasuries
• Manufacturer's new orders of capital and durable goods (YoY)
• Money supply growth (YoY)
• New housing permits (YoY)

Negative

• St. Louis & Kansas City financial stress indices

Borderline

• ISM Manufacturing Index
• S&P 500 (YoY)

The two borderline indicators have a history of producing lots of false positives. As the saying goes, "The stock market has predicted nine of the past five recessions." The financial stress indices are probably negative because of what's happening in Europe, rather than because of what's happening here.

This graph shows the Leading Index for the United States through August. Notice that while it normally dips during or prior to recessions, there is no dip this time.

Pending home sales declined in August

Pending home sales, a leading housing market indicator, fell in August:

A gauge of future home sales fell in August to the lowest level in four months, underscoring the challenges facing the hobbled housing industry.

The National Association of Realtors’ seasonally adjusted index for pending sales of existing homes decreased 1.2% on a monthly basis to 88.6, the industry trade group said Thursday.

The decrease is the second in a row, following a 1.3% drop to 89.7 in July, and it dragged the index to the lowest point since April. For the month of August, pending sales fell in three of four regions: Only the South saw a gain.

The index tracks agreements to purchase homes, making it a good indicator of what’s to come in the market. A sale is considered pending when the contract has been signed but the transaction hasn’t closed; Pending sales typically close within a month or two. (A score of 100 equals the average activity level in 2001.)

New home sales fell in August

New home sales fell 2.3% in August compared with a month earlier:

New-home sales fell for the fourth-straight month in August to the lowest level in a half year as the bursting of the housing bubble continued to weigh on the U.S. economic recovery.

Sales fell 2.3% from a month earlier to a seasonally adjusted annual rate of 295,000, the Commerce Department said Monday. The pace was the weakest in six months, and the month was the seventh-worst on records dating to 1963. ...

Turmoil in financial markets after Standard & Poor's unprecedented downgrade of U.S. debt, fears of a renewed recession and Hurricane Irene all combined to keep buyers away in August. ...

New-home sales are down nearly 80% from their peak in July 2005. They remain far below healthy levels, which would be more than double August's rate.

Consumers have slowed their spending this year, pulling down economic growth and preventing unemployment from falling. Many people also can't get financing amid tight lending standards.

The Wall Street Journal didn't mention how sales compared with a year ago. The Los Angeles Times reports that new home sales were up 6.1% year-over-year, as if that's a bad thing:

The August read on new home sales showed properties selling at a seasonally adjusted annual rate of 295,000, down 2.3% from a revised July rate of 302,000 and just 6.1% above August 2010, according to the Commerce Department.

Meanwhile, MSNBC reports that 2011 is shaping up to be the slowest year on record for home sales:

Sales of new homes this year could hit the lowest levels in the nearly 50 years the government has been tracking the data. ...

Based on the trend for the first eight months of the year, sales this year are on track for about 302,000 units, which would be even lower than last year's record-low 321,000, said Patrick Newport, economist for IHS Global Insight.

Home prices continue seasonal rise; down 4.1% year-over-year

The S&P/Case-Shiller 20-City Index is down 4.1% from a year ago, but up 0.9% month-over-month. Adjusted for seasonal factors, the index was flat month-over-month:

Home prices in July climbed for the fourth month in a row, but are still down from a year ago.

According to the latest S&P/Case-Shiller home price index of 20 major cities, prices rose 0.9% in July compared with June, but they're still 4.1% lower than 12 months ago.

"We are far from a sustained recovery" said S&P spokesman David Blitzer. "Continued increases in home prices through the end of the year . . . must materialize before we can confirm a housing market recovery,"

Indeed, adjusted for seasonal differences, the 20-city index was flat month-over-month.

Some cities have shown surprising strength recently. In Detroit, prices jumped 3.8% month-over-month, after spiking 5.8% in June. Minneapolis prices increased 2.6% and Washington recorded a 2.4% rise.

Weakness continued in Las Vegas, which was down 0.2% month-over-month and in Phoenix, which edged 0.1% lower.

Since the bounce is entirely seasonal, I expect falling prices in the fall.

Existing home sales spike

Existing home sales jumped in August, but it is likely just a temporary blip:

Sales of existing homes took an unexpected and rare jump in August, rising 7.7 percent from July. Realtors say it's the result of delayed sales from the spring market, which they previously characterized as disappointing. The results were unexpected because the usual indicators no longer apply.

Mortgage applications have been falling steadily, down again over four percent this week, even though interest rates are hovering near record lows. But mortgage volume doesn't tell us much because fewer buyers are using mortgages. 29 percent of home sales in August were all-cash purchases, largely by investors who returned to the market after a brief respite. 22 percent of buyers were investors, up from 18 percent in July. ...

The bump from leftover Spring sales does not appear to have much mojo heading into the Fall, given the dip in consumer confidence and a change in the conforming loan limits that will push some housing markets into the jumbo range next month. Sales contract cancellations also jumped, with 18 percent of Realtors surveyed reporting at least one canceled sale. That's up from 16 percent in July and a norm of around 4 percent.

Here in Centreville, things are going swimmingly

I live on the ground floor of a three story apartment complex. Last night, the sprinkler system in the apartment above my neighbor went off, flooding the apartment. My neighbor's apartment also got flooded. The flooding went above my neighbor's baseboard and some of it spilled into my apartment. I was mopping up my kitchen and bathroom at about 5 A.M. To assist in the drying, maintenance has torn out much of the padding underneath my carpet. Now I've got an industrial fan running all day trying to get the water out of the carpeting. Tomorrow maintenance will bring in a second fan. The work to recover from the flooding is expected to take all week.

I like the warning on the fan being used to dry out the carpeting:

U.S. household incomes fall to 1996 levels

The U.S. Census Bureau reports that median household income has fallen to 1996 levels:

The income of the typical American family—long the envy of much of the world—has dropped for the third year in a row and is now roughly where it was in 1996 when adjusted for inflation.

The income of a household considered to be at the statistical middle fell 2.3% to an inflation-adjusted $49,445 in 2010, which is 7.1% below its 1999 peak, the Census Bureau said.

The Census Bureau's annual snapshot of living standards offered a new set of statistics to show how devastating the recession was and how disappointing the recovery has been. For a huge swath of American families, the gains of the boom of the 2000s have been wiped out.

Bank of America foreclosure rate surged in August

Diana Olick points out that new foreclosure notices by Bank of America doubled in August, compared to previous months:

Bank of America is ramping up its foreclosure processing, sending out far more notices of default to borrowers in August than in previous months, well over 200 percent more month-to-month.

A notice of default is the first stage of the foreclosure process in non-judicial foreclosures states, that is, where foreclosures do not go before a judge.

The notice of default is usually sent when a borrower is 90 days or more overdue in payments, but that timeline has been extended significantly during this housing crisis, due to the so-called "robo-signing" processing scandal and the sheer volume of troubled loans. ...

RealtyTrac, a widely followed foreclosure sale and data site, is also confirming a surge in overall notices of default in its August numbers, to be released later this week. They do not cite Bank of America specifically, which bought Countrywide Financial, taking on millions of troubled loans.

Will this push prices lower?

Labor Dept. investigating home builders

The U.S. Department of Labor is apparently probing the pay practices of home builders:

The Labor Department is investigating pay practices at many of the top companies in home building, hitting them with a broad demand for records that has led to complaints of regulatory overreach.

Recipients of the letters include PulteGroup Inc., Lennar Corp., D.R. Horton Inc. and KB Home, according to people familiar with the matter. A Labor Department spokeswoman confirmed the investigation but declined to discuss details.

A copy of one letter, dated Aug. 1 and reviewed by The Wall Street Journal, said the department was opening a probe under the Fair Labor Standards Act, which governs matters such as overtime pay and limits on using teen workers.

The letter instructed the home builder to immediately turn over the names, addresses, Social Security numbers, pay rates and hours worked for all employees over the past two years. It asked the names of all contractors hired in the past year. The letter didn't allege any specific violations of law. ...

Many larger home builders, while acquiring land for homes and marketing them, entrust much of the construction to carpenters, electricians and others employed by contractors. The contractors rarely are unionized.

Unions have for years complained about pay and working conditions in the industry, alleging pay scales below minimum wage and failure to pay overtime. The Laborers International Union of North America in 2008 issued a study that called employees at home builders the "newest victims" of the housing market crisis because of "underpayment." ...

"There has been a movement afoot in many instances fueled by the unions to force the subcontractors to be employees of the builders, because the next step is to unionize them," said Mr. Howard of the National Association of Homebuilders.

Federal Reserve cracks down on Goldman Sachs

Apparently a unit of Goldman Sachs engaged in robo-signing of foreclosure documents:

The Federal Reserve announced an enforcement action against Goldman Sachs Group Inc., saying the company's mortgage-servicing unit had engaged in "a pattern of misconduct and negligence" in its handling of home-mortgage loans.

The Fed's action on Thursday seeks changes in mortgage-servicing practices and unspecified monetary damages. ...

The Goldman Sachs order is modeled after a series of consent orders issued by federal banking regulators in April to 14 of the nation's largest mortgage servicers that require them to clean up their practices. Federal regulators began looking at other mortgage-servicing companies, including Goldman Sachs's Litton unit, after the initial reviews were completed.

In its order Thursday, the Fed said Litton employees engaged in robo-signing and took actions in foreclosure and bankruptcy cases "without always confirming that documentation of ownership was in order." The company also failed to staff up appropriately to handle a surge in delinquencies or to sufficiently oversee outside lawyers and establish "adequate internal controls," the order said.

The Fed action requires Goldman Sachs to retain an independent consultant to review foreclosures that were pending at any time in 2009 and 2010, and "to provide remediation to borrowers who suffered financial injury as a result of wrongful foreclosures or other deficiencies" identified by the review, the Fed said in issuing the order.

Economic podcast

Friday's Wells Fargo weekly economic podcast has a discussion of last week's economic news, including a four-and-a-half minute discussion of construction and housing from 1:38 - 5:58.

America slowly digging out of economic hole

The Aggregate Weekly Hours Index—one of the best measures of employment—shows that the U.S. is very slowly digging its way out of the recession. In the graph below, the blue line shows an index of the total number of hours that Americans are working per week. The red line shows an index of the growth in the civilian non-institutional population (i.e. civilians not in prison). As long as the blue line rises faster than the red line, it means that America's employment situation is improving.

Government to sue banks for bad mortgage loans during bubble

The bad news for banks just keeps coming:

The federal agency that oversees the mortgage giants Fannie Mae and Freddie Mac is set to file suits against more than a dozen big banks, accusing them of misrepresenting the quality of mortgage securities they assembled and sold at the height of the housing bubble, and seeking billions of dollars in compensation.

The Federal Housing Finance Agency suits, which are expected to be filed in the coming days in federal court, are aimed at Bank of America, JPMorgan Chase, Goldman Sachs and Deutsche Bank, among others, according to three individuals briefed on the matter.

The suits stem from subpoenas the finance agency issued to banks a year ago. If the case is not filed Friday, they said, it will come Tuesday, shortly before a deadline expires for the housing agency to file claims.

The suits will argue the banks, which assembled the mortgages and marketed them as securities to investors, failed to perform the due diligence required under securities law and missed evidence that borrowers’ incomes were inflated or falsified. When many borrowers were unable to pay their mortgages, the securities backed by the mortgages quickly lost value.

Fannie and Freddie lost more than $30 billion, in part as a result of the deals, losses that were borne mostly by taxpayers.

Speed up foreclosures; don't slow them down

CNN Money says the U.S. should speed up foreclosures, rather than the current approach of slowing them down:

If the Obama administration really wants to save the housing market, it should speed up the foreclosure process — not prolong the inevitable, experts say.

Four years into the housing crisis, the real estate market is still teetering on the edge. The Obama administration has tried one program after another to stem the tide of foreclosures with limited success. And it is continuing to look for ways "to ease the burden on struggling homeowners," though no new initiative is imminent, the White House said this week.

But some housing experts argue that the administration should go in a different direction than it has in the past. Instead, they say it's time to focus on pushing many of those delinquent borrowers through the foreclosure process and putting foreclosed properties back into use.

While some of the 2.2 million loans in foreclosure can still be saved, many are too far gone, they say. Some 37% have not made a payment in more than two years, while another 34% have not made a payment in 12 to 23 months, according to Lender Processing Services.

"Loans enter into foreclosure, but never come out," said Thomas Lawler, founder of Lawler Economic & Housing Consulting. "If this keeps going on, you have a continual overhang that never goes away."

I have long opposed the Obama administration's attempts to artificially keep delinquent borrowers in their homes (unless we are talking about currently unemployed borrowers, who may well have bought responsibly).

That said, I am also opposed to artificially increasing the speed of foreclosures if it weakens private property rights. Banks should still have the burden of proving their right to foreclose on a property.

Theoretically, however, if it could be done without weakening private property rights, I believe getting the pain over quickly is better than dragging it out as long as possible.

Updated housing chart

I have updated my national housing graph to reflect the new S&P/Case-Shiller numbers.

S&P/Case-Shiller national index down 5.9% YoY; up 3.6% QoQ

In the second quarter (Q2) of 2011, the S&P/Case-Shiller National Home Price Index was down 5.9% since Q2 2010, but up 3.6% since Q1 2011:

Data through June 2011, released today by S&P Indices for its S&P/Case-Shiller Home Price Indices, the leading measure of U.S. home prices, show that the U.S. National Home Price Index increased by 3.6% in the second quarter of 2011, after having fallen 4.1% in the first quarter of 2011. With the second quarter’s data, the National Index recovered from its first quarter low, but still posted an annual decline of 5.9% versus the second quarter of 2010. Nationally, home prices are back to their early 2003 levels.

As of June 2011, 19 of the 20 MSAs covered by S&P/Case-Shiller Home Price Indices and both monthly composites were up versus May – Portland was flat. However, they were all down compared to June 2010. Twelve of the 20 MSAs and both Composites have now increased for three consecutive months, a sign of the seasonal strength in the housing market. None of the markets posted new lows with June’s report. Minneapolis posted a double-digit 10.8% annual decline; Portland is not far behind at -9.6%. Thirteen of the cities and both composites saw improvements in their annual rates; however; they all are in negative territory and have been so for three consecutive months. ...

The chart [above] depicts the annual returns of the U.S. National, the 10-City Composite and the 20-City Composite Home Price Indices. ...

S&P Indices has introduced a new blog called HousingViews.com. This interactive blog delivers realtime commentary and analysis from across the Standard & Poor’s organization on a wide-range of topics impacting residential home prices, homebuilding and mortgage financing in the United States. Readers and viewers can visit the blog at www.housingviews.com, where feedback and commentary is certainly welcomed and encouraged.

Keep in mind that Q2 is the traditional spring buying season, when home prices typically rise. The seasonally adjusted numbers from Q1 to Q2 were basically flat (up 0.08%).

Pending home sales up 14.4% YoY

From the National Association of Realtors:

Pending home sales declined in July but remain well above year-ago levels, according to the National Association of Realtors®. All regions show monthly declines except for the West, which continues to show the highest level of sales contract activity.

The Pending Home Sales Index,* a forward-looking indicator based on contract signings, slipped 1.3 percent to 89.7 in July from 90.9 in June but is 14.4 percent above the 78.4 index in July 2010. The data reflects contracts but not closings.

Lawrence Yun, NAR chief economist, said sales activity is underperforming.

Thank the government, in part, for the high unemployment rate

Sometimes when politicians try to help people, they hurt people:

The painfully slow rate of job growth can be blamed at least in part on home mortgage modifications that reduce house payments for struggling homeowners, because such policies incentivize people to stay where they are instead of moving to better job markets, according to a new paper by researchers Kyle F. Herkenhoff and Lee E. Ohanian, both at UCLA.

The paper is one among a growing number papers that explore why mobility has decreased so drastically through the recession, and what the effects have been. Most economists would agree that reduced mobility increases unemployment: When people don’t move, they deny themselves the chance to find work in a city or state where jobs are more plentiful.

This week's housing news in summary

On Monday, the Mortgage Bankers Association reported that mortgage delinquencies are rising again:

In another hit to the beleaguered housing market, a report out Monday found that the number of delinquent mortgage borrowers -- those who have missed at least one payment -- rose during the second quarter.

The delinquency rate grew only slightly, up 0.12 percentage points to 8.44%, but that reverses the steady improvement of the past two years.

The increase, as reported by the Mortgage Bankers Association (MBA), may not sound like much, but it could mean that the recovery in the housing market will take even longer than thought.

On Tuesday, the Commerce Department reported declining new home sales for the third month in a row:

U.S. sales of new homes declined in July for the third straight month, a sign of continued woes in the housing market.

Sales fell 0.7% in July to a seasonally adjusted annual rate of 298,000, the slowest pace since February, the Commerce Department reported Tuesday. Sales had reached 316,000 in April before slipping.

New home sales were still up 6.8% year-over-year.

On Wednesday, the FHFA reported that home prices fell 5.9% year-over-year:

Home prices in the U.S. fell 5.9 percent in the second quarter from a year earlier, the biggest decline since 2009, as foreclosures added to the inventory of properties for sale.

Prices dropped 0.6 percent from the prior three months, the Federal Housing Finance Agency said today in a report from Washington.

Also on Wednesday came news that Australia's housing bubble may be popping:

One of the few bright spots in real estate amid a three-year global slump, Australia now faces falling home prices and fears of overbuilding.

A downturn in Australia's real estate market will add to concerns of a two-speed economy in the resource-rich nation. Mining profits are surging due to heavy demand from China and other fast-growing Asian countries, but consumer businesses and manufacturing have faltered under the weight of the swollen Australian dollar, which is trading near 30-year highs to the U.S. currency.

On Thursday, RealtyTrac reported that 31% of homes sold were in some stage of foreclosure:

Nearly one-third of all U.S. homes sold in the second quarter of 2011 were in some stage of the foreclosure process or had been repossessed by a lender, according to numbers released today by RealtyTrac, an Irvine, Calif.-based real estate data provider.

Also on Thursday, the National Association of Realtors says it's really a landlord's market:

NAR expects vacancy rates in multifamily housing will drop from 5.5% to 4.6% in the third quarter of 2012. Vacancies below 5% generally are considered a landlord’s market, the trade group noted.

On Friday, another reason not to be a homeowner: Hurricanes

As Hurricane Irene bears down on the East Coast, many Americans are preparing for the worst. But whether they are covered for the ensuing damage is another matter entirely.

Between Wilmington N.C. and Boston, there are nearly 1.9 million residences and businesses that are at risk of storm surge flooding, according to CoreLogic, the financial analytics company. And nearly half of those properties lie outside of a designated flood zone and are likely to lack flood insurance.

Mortgage lenders require homes that lie within designated flood zones to be covered by flood insurance. This low-cost coverage — which runs as low as $129 a year — is provided by the federal government and purchased through insurers like Allstate Insurance and Farmers Insurance Group.

But homes outside of flood zones often go uncovered, mainly because homeowners don't realize that their existing policies don't cover floods or because they don't feel their home are at risk.

If you rent and your place gets flooded, you may lose your belongings, but the landlord takes the expensive structural damage losses.

Was it worth it?

Via Paul Krugman, here is the Congressional Budget Office's forecast of the output gap—the difference between potential real GDP and actual real GDP:

That looks to me like seven years of subpar economic performance in exchange for about five or six years of rising housing bubble. But Krugman thinks the seven years may be optimistic:

No, I don’t know where that recovery in 2015 is supposed to come from; my guess is that it’s basically the CBO unwilling to project a depressed economy more or less forever.

He adds:

The CBO also projects unemployment staying above 8 percent until late 2014 — again, with no clear explanation of why it should fall sharply in 2015. This translates into a human catastrophe for the long-term unemployed.

My housing graphs were created to try to warn people of the housing bubble, but many didn't want to listen.

So here's the question: Was the party really worth the hangover?

The Huffington Post is lying about Governor Rick Perry's college record

I have no love for Texas Governor Rick Perry. I think he would be a disaster as president. However, I also hate dishonest journalism.

Last week The Huffington Post tried to paint Rick Perry as a C and D student during his college years:

A source in Texas passed The Huffington Post Perry's transcripts from his years at Texas A&M University. The future politician did not distinguish himself much in the classroom. While he later became a student leader, he had to get out of academic probation to do so. He rarely earned anything above a C in his courses...

The Huffington Post is lying. The article is titled, "Rick Perry's College Transcript: A Lot Of Cs And Ds." In fact, his transcript shows he got 20 B's, 27 C's, and 9 D's. That's twice as many B's than D's. An honest title for the Huffington Post article would be "Rick Perry's College Transcript: A Lot Of Bs And Cs," but an honest title wouldn't serve The Huffington Post's political agenda.

They said Rick Perry rarely got grades above C, but his transcript shows that he got lots of B's. They paint him as a C and D student when the transcript shows he got far more B's than D's. They said he was on academic probation when RICK PERRY'S TRANSCRIPT SHOWS NO RECORD OF ACADEMIC PROBATION.

Finally, let me just say that it is illegal for universities to release college transcripts without the student's permission. It doesn't matter whether it's a Democratic or Republican politician, or an ordinary person like you or me, publicly releasing college transcripts is a violation of personal privacy. This should offend anyone who cares about civil liberties.

Prospects for a housing recovery are declining

According to CNN/Money, the prospects for a housing recovery have slipped "out of sight":

Any glimmer of hope that the housing market will stage a recovery in the upcoming months has vanished, thanks to the recent spate of bad economic news that has been making headlines over the past several weeks.

According to the latest analysis of home price trends in 384 markets based on the Fiserv/Case-Shiller Indexes, it will be well into the first quarter of 2013 before median home prices across the nation will even be on par with prices from the first quarter of this year.

And that's not saying much. During the first quarter of 2011, prices fell in 302 of the 384 housing markets tracked by the Fiserv/Case-Shiller index, dropping by an average of 5.1% year-over-year.

As a result of continued weakness on the jobs front and the debt ceiling fiasco, Fiserv pushed back its projections of a housing market turnaround by three months. Now, it doesn't expect home prices to start gaining any ground until the second quarter of 2012.

Instead, Fiserv expects median home prices to continue to fall by an average of 3.1% between March 31 of this year and March 31, 2012. After that, it expects to see prices increase by 2.7% until the first quarter of 2013.

So, Fiserv expects the 5-year-old housing bust to continue for another year.

Mortgage giants downgraded

This was briefly mentioned in yesterday's post, but I'm giving it its own post for emphasis. The credit ratings of Fannie Mae, Freddie Mac, and other federal entities were downgraded by S&P yesterday:

Standard & Poor's on Monday downgraded the credit ratings of Fannie Mae, Freddie Mac and several other U.S. government entities, reflecting their dependence on federal support.

Included in S&P's latest downgrade were the senior issue ratings on debt issued by Fannie and Freddie, the giant mortgage-finance firms. Ten of the 12 Federal Home Loan Banks, which also provide funding for home loans, also received downgrades.

WSJ: S&P downgrade could discourage home buyers

Do the recent downgrades of Treasuries and the fall in the stock market discourage home buyers? The Wall Street Journal seems to think so:

When all is said and done, borrower psychology—and not mortgage rates—could face the bulk of any housing-market damage that stems from the Standard & Poor’s rating downgrades.

S&P downgraded the credit ratings of Fannie Mae and Freddie Mac on Monday morning to AA+ from AAA. That, of course, followed Friday’s rating cut for the United States. ...

At this point, it seems the downgrades are likely doing far more damage to consumer psychology than to mortgage rates, which have fallen to around 4.37% for a 30-year fixed rate loan, near historic lows.

The rout in the stock market, new worries about layoffs, and the euro-zone crisis will not help consumer confidence. “Who wants to get out of bed today, let alone buy a house?” says Lou Barnes, a mortgage banker in Boulder, Colo.

Bin Laden Group to construct world's tallest building

Oh, the irony:

Saudi Arabia's Prince Alwaleed bin Talal announced plans to build the world's tallest building in Jeddah less than two years after the Burj Khalifa opened in Dubai at a height that many thought wouldn't be surpassed for years.

The planned tower will soar to 3,281 feet (1,000 meters) and will include a hotel, luxury condominiums and offices. It would dwarf the Burj Khalifa, which is 2,717 feet (828 meters), and would also be the world's tallest man-made structure.

Prince Alwaleed at a news conference Tuesday said his company, Kingdom Holding Co., had signed a 4.6 billion Saudi riyal ($1.23 billion) deal with Bin Laden Group to build the tower, which is expected to take more than five years to complete. Bin Laden Group is the largest construction firm in Saudi Arabia and is owned by the bin Laden family, which in the 1990s distanced itself from Osama bin Laden.

Since a member of the Bin Laden family destroyed our 2nd and 3rd tallest buildings, should we... hmm... no... well... perhaps... no... payback would be a bitch, though.

Housing inventories declined in the second quarter

From The Wall Street Journal:

The number of homes listed for sale declined sharply in a number of U.S. cities during the second quarter, offering glimmers of hope that some housing markets are starting to recover.

At the end of June, nearly 2.34 million homes were listed for sale on multiple-listing services in more than 900 metro areas, the lowest level for that time of year since at least 2007, according to Realtor.com. In some cases, inventory levels are at their lowest levels since the housing downturn began five years ago.

Shrinking inventory often is seen as a positive sign for housing because it usually means demand is rising, which often leads to higher prices. But in the current environment, the decline in inventory may instead reflect how the market remains anything but healthy. While sales are picking up in some cities, analysts say the sharp decline in inventory also reflects the slow pace at which banks are processing foreclosures.

Home vacancies cause long-term damage. Luckily, they are declining.

CNBC's Diana Olick four days ago:

A new study by an economist at the Cleveland Federal Reserve finds today's foreclosures stay vacant far longer than the historical norm. Studying one Ohio county, Stephan Whitaker found, "foreclosed homes go through more than a year of very high vacancy rates following the auction and are substantially more likely to be vacant up to 60 months after the foreclosure." The higher the poverty rate in the area, the longer the property stays vacant.

Foreclosed homes obviously lower the value of surrounding homes, but Whitaker says the damage can go on much longer than we might think. "The data suggest that foreclosure may permanently scar some homes," he writes in his research.

The Wall Street Journal yesterday:

Fewer homes in the U.S. are sitting empty than earlier in the year. Residential vacancy rates ticked down during the second quarter from the first quarter as well as the year-ago period, to 9.2% for rental properties and 2.5% for privately owned homes. Both are below their recession-era levels but reflect continued weakness in the housing market.

Ten cities virtually untouched by the housing bust

Here's an interesting slideshow on CNBC.com.

A summary of last week's housing news

According to S&P/Case-Shiller, year-over-year home prices fell 4.5% in May while seasonally-adjusted month-over-month home prices were flat:

May home prices in 20 major cities dipped 4.5% from one year ago, marking a continued decline in the already battered housing market.

The S&P/Case-Shiller report posted declines in both its 20-city composite and its 10-city index, which declined 3.6% year-over-year.

But housing did show some signs of life in May. Home prices ticked higher for the second consecutive month following an eight-month slide.

In May the 20-city index gained 1% compared with a month earlier, while the 10-city index rose 1.1% month-over-month.

David Blitzer, a spokesman for S&P, was cautious in detailing the index gains. ...

Blitzer attributed much of the home price increase for May to seasonal effects. Spring is the hottest time of year for home buying and the added demand usually drives prices higher.

Taking those seasonal factors into account, the 20-city index was flat and the 10-city showed a gain of just 0.1%.

Meanwhile, new home sales in June rose 1.6% year-over-year, but fell 1% month-over-month:

Sales of new homes slipped for a second straight month in June, unexpectedly falling 1%, as homebuilders remained reluctant to boost production.

The Census Bureau reported an annual sales rate of 312,000 new homes last month, down slightly from a revised rate of 315,000 homes in May. Compared to new home sales a year ago, June sales were up 1.6%.

Despite the year-over year uptick, the results disappointed. Economists had forecast a sales rate of 320,000 new homes, according to consensus estimates from Briefing.com.

After falling to an all-time low of 278,000 in February, new home sales have been one of the weakest sectors of the economy.

The number of foreclosures fell 84% in the first half of 2011:

Foreclosures declined in more than 84% of U.S. metro areas during the first half of the year, according to the latest report from RealtyTrac, an online marketer of foreclosed properties. But that doesn't mean these markets are staging a turnaround.

"These dramatic decreases indicate the foreclosure pipeline continues to be clogged in many local markets across the country," said RealtyTrac CEO, James Saccacio, whose firm reported earlier this month that the national foreclosure rate fell 29% over the past 12 months.

Much of that backlog, he explained, is due to a glut of already-foreclosed properties that the banks are having a hard time selling and to the slowdown in the processing of foreclosures following the "robo-signing scandal" of 2010.

As a result of the scandal, in which the banks were accused of mishandling paperwork and failing to follow proper protocols, banks are being much more careful and many filings have been delayed.

The biggest decline in the number of foreclosures have come in judicial foreclosure states where defaults go through the courts and paperwork is scrutinized by judges.

And, finally, pending home sales—a leading indicator—rose in June:

Pending home sales increased in June following a wide swing down in April and then up in May, according to the National Association of Realtors®. Activity increased in the West and South but declined in the Midwest and Northeast; all regions show strong double-digit gains from a year ago.

Is a U.S. debt rating downgrade the end of the world?

The Wall Street Journal cites example of other rich countries that have suffered debt ratings downgrades:

Japan, Canada and Australia, among others, have suffered the ignominy of being downgraded from top credit ratings.

By and large, borrowing costs remained fairly steady and, in some instances, eventually declined. Stock markets wavered but generally rebounded, while the response in currency markets varied widely.

"When [a downgrade] happened in the past, was it the end of the world?" asks Nick Bennenbroek, head of currency strategy at Wells Fargo & Co. "The reaction wasn't positive, but it wasn't extreme."

For the U.S., history suggests the outcome could even be a long-term positive if a downgrade prods policy makers to get the government's fiscal house in order.

While circumstances and economic paths differed, the impacts of the ratings change itself weren't significant, analysts say. One reason is that ratings changes are usually well-advertised in advance, allowing markets to adjust gradually. But more important for the markets than the ratings moves, analysts say, are the country's underlying economic trends.

What happens if U.S. debt gets downgraded?

In this Wall Street Journal video, note the effect on the housing market:

Realtors fear a national debt default will hurt the housing market

...because it will. In fact, they claim the housing market is already being hurt:

The National Association of Realtors®, on behalf of its 1.1 million members, their clients and customers, and the nation’s 75 million homeowners, urges Congress to resolve the mounting debt ceiling crisis before the August 2 deadline.

Until a resolution is reached, Congress will be unable to address the myriad issues facing the nation’s families, communities, and economy. The indecision in Congress is paralyzing progress on other fronts, and it is harming home buyer confidence and negatively affecting home sales.

Typically bearish economist Paul Krugman puts it this way:

Just to make a point that could be overlooked in the confusing discussion about the effects of default on financial markets: It’s true that nobody really knows what effect failure to make full payment on the debt will have. It could produce calamity, or it could be contained, with borrowing rates for the private sector barely affected.

But what we do know is that if the government is forced to slash spending when the money runs out — if it stops sending out Social Security checks, or stops paying vendors, or whatever — this will have a huge negative impact on the economy. We’ll be doing a 1937 squared.

And yes, it will hurt the Washington, DC metro area.