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.