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« Weighing the Week Ahead: Entering a Season of Fear? | Main | Information you need.......and do not get! »

October 13, 2012

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oldprof

RB -- As usual, you raise a number of interesting questions. I'll try to delve deeper but tonight (Mrs. OldProf's birthday) is not a good time.

Let's just say that I personally know many young people from the echo generation who have recently bought.

Let's not look at this as a light switch, but something where some will qualify, and others will not.

And some people are able to buy on 5% down with mortgage insurance, the same way I did in my first home....

Jeff

oldprof

Proteus -- Bernanke's term is up in January, 2014. So what is likely to change from the election?

For the moment, let's stick with the Romney victory side.

My expectation is that a President Romney would behave differently from a Candidate Romney. This should not surprise anyone who has followed Presidential politics for more than a few years.

My working forecast has three parts:

1) Romney cannot change the voting membership of the Fed in the short term.

2) New Fed Chairs, from either party, tend to see the organization as activist. People forget that Bernanke was a Republican appointee.

3) Sitting presidents do not advocate tight money. I invite an examination of history. A President Romney might well replace Bernanke, but the new candidate would not reject the current Fed policy.

This obviously deserves an actual post, but this is my best effort in the comments. See here for a balanced analysis: http://thehill.com/blogs/on-the-money/economy/261823-romneys-plan-to-dump-bernanke-sparks-anxiety-on-wall-street

Good question, and thanks!

Jeff

RB

As described here , one of the biggest hindrances to home-ownership by echo boomers is student loan debt and the inability to meet down payment requirements despite renting being more expensive than monthly cost of ownership. I guess there could be a tie-up with Steve Keen's debt deflation theory here.

RB

Altman and Garcia seem to argue that household formation will drive a housing recovery which will lift the economy. As outlined here however, the echo boomers have been hit hard by the economy. What seems to be clear from demographic trends is (a) baby boomers will be net sellers (b) rental demand is likely to be strong over the coming decade. What is not clear is when echo boomers are likely to be in a position for home-ownership. It seems like a chicken-and-egg situation - which goes first, home-ownership by echo boomers driving an economic recovery or the other way around?


Proteus

Jeff, I'm a bit surprised about your comment on the market liking Romney. Several other blogs have posited Wall St secretly favors Obama, since he would likely support Bernanke, and Romney probably wouldn't. Any thoughts on this?

RB

Jeff,
With regards to housing, given that we are scheduled to be closing escrow in a week (and hopefully that will be a smooth process), I'm not exactly a doomsdayer on housing. For me, the reasoning was simply that in 2012, buying became cheaper than renting (20% lower in our neighborhood in Orange County, CA). I suspect that there are many with my viewpoint, for whom price trend is less important than monthly payment especially after having waited for many years (i.e., pent-up demand). This sort of attitude could help in stabilizing house prices in desirable neighborhoods.
Having said that I'd be curious on your take on this analysis by Steve Keen (hat tip @dafowc), particularly Figures 4 and 5 correlating mortgage acceleration with house price changes. The shadow inventory, re-defaults from HAMP loan mods, sluggish growth per blue chip forecasts and demographic shift (baby boomers selling rather than buying) could perhaps keep a lid on price appreciation for a few years at least.

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