June 23, 2010
Links for 2010-06-23
Tim Duy thinks the fanfare about a new Chinese currency policy is overdone:
The PR overload suggests the Administration is desperately in need of a "win," no matter how trivial.... While China appears willing to adjust the parity rate, changes are likely to be more window dressing than anything else. The industrial base shifted from the US to China over the past twenty years, a transition aided by the Clinton Administration's commitment to a strong dollar, and it is not going to come rushing back for a few percentage points of currency value. The structural shift has happened, and it won't reverse easily.
When Bill McBride says he expects house prices to decline, I pay attention:
When months-of-supply is below 6 months, house prices are typically rising-- and above 6 months-of-supply, house prices are usually falling.... We are much closer to the price bottom now than in 2008, and I don't expect that severe of a price decline. But I do expect house prices to fall in the 2nd half of 2010 and into 2011-- probably another 5% to 10% for the major house price indexes (Case-Shiller and CoreLogic).
A federal judge overturned the moratorium on new deepwater offshore drilling:
"An invalid agency decision to suspend drilling of wells in depths of over 500 feet simply cannot justify the immeasurable effect on the plaintiffs, the local economy, the Gulf region, and the critical present-day aspect of the availability of domestic energy in this country," [U.S. District Judge Martin] Feldman wrote....
The temporary injunction by [Judge] Feldman appears unlikely to bring a swift resumption of deepwater drilling: Oil companies say they're reluctant to start new ventures as an uncertain appeals process unfolds.
Posted by James Hamilton at June 23, 2010 06:20 AMdigg this | reddit
...said the judge whose investments are largely in the offshore drilling industry.
Posted by: Anonymous at June 23, 2010 08:37 AM
The Judge has a rather cloudy recent past, and a conflict of interest issue on this particular case:
Posted by: russell1200 at June 23, 2010 09:23 AM
On house prices: There's still an overhang of unsold houses. But we're also coming to the end of a period of sharply falling prices. During deflation, would-be buyers postpone their purchase because they expect a better price next year. So there's also an overhang of deferred demand. When the collective wisdom turns to "the bottom is in", it will be self-fulfilling.
Posted by: lilnev at June 23, 2010 11:01 AM
So let me get this right - a judge who according to his financial disclosure form has probably hundreds of investments, has small amounts in entities with "offshore" or "drilling" in their names, is supposed to have a conflict of interest?
Number one - the portion of his assets in these entities is probably on the order of 1% or less, and number two, how do you know that these are involved in the Gulf?
Sounds like a smear job to fool the not-so-bright.
But the country is in the best of hands.
Posted by: Rich Berger at June 23, 2010 11:10 AM
"....the critical present-day aspect of the availability of domestic energy in this country."
Um.....local judges in your country can overrule the adminstration if they disagree with its energy policy?
Posted by: Simon van Norden at June 23, 2010 03:18 PM
For sale signs in Princeton look to be running 2.5x normal. It looks like sellers, having held out in expectation of a recovering 2010, are looking to capitulate.
Interesting question is rental v sale market. A number of these homes are under water in terms of equity, but many of the owners have very good incomes. So do you sell it and take your lumps, or rent it at half the carrying costs and hope for the best? I expect a terrific rental market come the fall (with considerable volatility at renewal time).
Another interesting question is real estate taxes. For fun, we took a look at a new house asking $2 million. Real estate taxes are $40k.
You can buy the same house cheaper 20 min away in Pa., with taxes at maybe $10k. The difference is enough to pay full ride for your child at a local private school (the 'Tuition Unit' being the preferred measure of value in Princeton).
Older people are moving out of the area. Average real estates taxes are higher than social security income. We're very keen on affordable housing in Princeton...unless you live there.
Posted by: Steven Kopits at June 23, 2010 04:46 PM
People are looking for a "real" bottom in the housing market, so CR's forecast of declines through middle of next year sound like reasonable forecasts. The behavior is what is important. The last thing we need is another home buyer's tax credit, i.e. If the Fed is SO concerned about keeping bank assets tied to housing from souring, then they better get to whipping up some REAL inflation. Can they do it? I'm wondering whether they could even if they *tried*, and maybe that's why they are not really TRYING. Can you imagine if the Fed actually STATED that they wanted to make inflation happen, and tried to do it, and it failed? Whoops.
Posted by: Doc at the Radar Station at June 23, 2010 05:31 PM
Schumer doesn't seem to be buying China's revaluation. He's pushing for a currency manipulator bill. Wonder whether this is real or just to get the heat off.
Posted by: adam gold at June 23, 2010 07:33 PM
It is hard to imagine that the bottom for housing prices is near when they still benefit enormously from artificially low interest rates...something that cannot go on indefinitely.
Posted by: Bryce at June 23, 2010 07:38 PM
Housing prices have remained above longer term levels on price-rent ratios and just plain old levels on Case-Shiller for some time, maybe by about 10%. So, a further decline is certainly possible, although as noted by Bryce, with interest rates so low, some staying above those earlier levels looks not too unreasonable.
The kicker that is not mentioned here is the ending of the tax break for new home buyers at the end of April. I have simply been mystified by all the stories I have read claiming that somehow this tax break was expected to favorably influence housing sales in May. Maybe there are some lags there, but basically I do not get that argument. However, to the extent that the May decline reflected the end of that break, it may not be so reasonable to forecast ongoing further declines over the next few months.
Regarding the yuan/rmb, I thought it was a joke that there was so much immediate reaction to the report. I expect them to let it appreciate quite gradually, so much so that there will be very little impact on trade flows, certainly at least in the near term.
Posted by: Barkley Rosser at June 24, 2010 10:20 AM