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March 30, 2013

MBS workers were personly long housing in 2006: did not expect problems in the wider housing market. Certain groups of securitization agents particularly aggressive in exposure to housing


New research suggests that financial workers involved in the mortgage-securitization business -- ground zero for the misaligned incentives that are supposed to have helped inflate the bubble -- were true believers in the housing boom.

In 2006, there were 1,760 registered attendees at the American Securitization Forum's conference in Las Vegas -- the major annual confab for the securitization industry. Screening out people who didn't work in mortgages, and making sure to oversample firms that worked at large financial institutions, as well as institutions that played a prominent role in the financial crisis, like Lehman Brothers, economists Wei Xiong at Princeton and Sahil Raina and Ing-Haw Cheng at the University of Michigan's Ross School of Business came up with a list of 400 mortgage-securitization professionals.

These were basically midlevel managers -- the people directly involved in the slicing and dicing of mortgage loans into the myriad of mortgage securities that institutional investors were lapping up during the boom years.

Using the LexisNexis database of legal documents, the economists collected data on all the properties the people on their list ever owned, including location, time of sale and price. They then created two control groups to repeat the exercise with. The first was a list of equity analysts who worked for a similar set of finance firms as the securitization workers, and who didn't cover housing companies. The second was a list of lawyers who didn't work in real estate law -- a wealthy group that reflects how people outside of finance behaved during the bubble.

The economists found that the securitization workers showed no awareness that housing was about to become undone. To the contrary, during the peak of the bubble, they were far more apt to swap into more expensive homes and buy second homes than the control groups were. And workers at firms like Bear Stearns and Lehman Brothers were among the most aggressive with their own home purchases.

To the argument that the aggressive home purchases of securitization agents might have reflected the higher bonuses they received during the boom years relative to, say, the equity analysts in the control group, Mr. Xiong points out that if were true, if they had any sense that their future income was at risk they would have plowed their money into something other than houses. Indeed, after the housing bust came, the securitization agents were far more likely to put their houses back on the market than the control groups, which suggests they were getting forced into sales.

The upshot, says Mr. Xiong: "These guys might have had bad incentives, but there's no sense they knew about the bubble."

August 23, 2010

Housing prices to be flat


The notion of housing as an investment first began to blossom after World War II, when the nesting urges of returning soldiers created a construction boom. Demand was stoked as their bumper crop of children grew up and bought places of their own. The inflation of the 1970s, which increased the value of hard assets, and liberal tax policies both helped make housing a good bet. So did the long decline in mortgage rates from the early 1980s.

Despite all these tailwinds, prices rose modestly for much of the period. Real home prices increased 1.1 percent a year after inflation, according to Mr. Shiller's research.

By the late 1990s, however, the rate was 4 percent a year. Happy homeowners were taking about $100 billion a year out of their houses, which paid for a lot of good times.

"The experience we had from the late 1970s to the late 1990s was an aberration," said Barry Ritholtz of the equity research firm Fusion IQ. "People shouldn't be holding their breath waiting for it to happen again."

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August 14, 2009

Falling home prices, to continue falling ?

Republican neighborhoods are going to fall next. Why? Because they're broke. Ever listen to the ads on conservative talk radio? Talk about targeting a demographic.

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July 11, 2009

Housing Prices, Income, by City, animated

1987 February to 2009 June, median income and MSA housing price index.
Housing prices grew faster than the income needed to support them.

Comments:

There is one income but 20 cities. Could show some housing/income ratio for each city. Income varies by city.
Histograms should show high water mark, at least after peaking.
Good jazz.

June 30, 2009

Danger of home equity, home appreciation

"The conventional view is that housing appreciation is good because it reduces (default) risk. Not according to my theory, which is housing appreciation is bad. It encourages junior-lien borrowing. When appreciation stops, somebody is going to be left in a bad position."

-- Michael LaCour-Little, finance professor at Cal State Fullerton.

June 28, 2009

Bubble: Shiller @2005

YALE ECONOMIST ROBERT SHILLER delivers his forecast for U.S. housing with a scholarly diffidence that only slightly mutes his stark message: The market is in the throes of a bubble of unprecedented proportions that probably will end ugly.

Such unsettling talk is cheap, of course, especially from a tenured academic, and many sources, including Barron's, have wrongly predicted housing's downfall several times in the past few years. But the Ivy League professor's forecasts of coming trouble have been right before. His best seller Irrational Exuberance, predicting a bear market in U.S. stocks, hit the bookstores in March 2000, less than a week before the Nasdaq began a dizzying descent from above 5000 that would destroy 75% of its value in a little over 2½ years.

In the real-estate market, Shiller contends, a price slide could begin at any time with the crescendo of what he describes simply as "talk" -- a word that he uses to cover everything from the recent Time magazine cover story on the vertiginous rise in home prices and the popularity of cable-television shows about rehabilitating and investing in real estate to the breathless newspaper stories of Miami condos being "flipped" for profit a half-dozen times before construction even begins.

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July 27, 2008

Urban Digs:economics of NYC real estate

urbandigs tracks real estate in NY -- more aimed at investors than at consumers.

Update 2010 Nov.:

blog compares Midtown East with Midtown West.

See also time series charts: Noah Rosenblatt of UrbanDigs has created a unique realtime tool for tracking Manhattan RE.

Urban-diggs.png

[ via BigPicture. ]