The Guardian Needs a New Finance & Economics Editor

The Guardian Needs a New Finance & Economics Editor

Somehow I was directed this week to a recent opinion column by the Guardian’s “US finance and economics editor” Heidi Moore: Don’t be fooled by the false economic recovery

Obviously, I love a good contrarian argument. Unfortunately, this piece is far from good.

Take the consumer confidence numbers, which are measured every month by the Conference Board and act as one of the more foolish hinges on which to hang our hopes. Consumer confidence in May jumped to 76.2, on a scale of 100.

Just three paragraphs into the article and we’ve already run into the first error. Consumer confidence is not measured “on a scale of 100.” It’s indexed to 1985 = 100. She might know that if she had bothered to look at the Conference Board’s public documentation (pdf).

In the popular interpretation, that indicates that consumers believe the economy is improving.

No, all it means when the consumer confidence index reads 76.2 is that consumers are ~24% less confident than they were in 1985. What’s important is the direction the index is moving, which is definitely up. Less than two years ago the index sat at 40.9. Is she seriously trying to argue that 76.2 is not a dramatic improvement from 40.9?

The May data shows the highest measure of consumer confidence since February 2008. That was a time in which a housing crash was already well underway, and only a month before before Bear Stearns collapsed and confirmed that the country was in a financial crisis. At least six months before that, in August 2007, three major hedge funds invested in subprime real estate had to be bailed out by the French bank BNP Paribas, and the Federal Reserve and other central banks started pumping $300bn into the global banking system. Any collective confidence back in February 2008 was foolish and unwitting of the crisis that had already started in the higher rungs of finance.

Again she completely misses the point. In February 2008, consumer confidence was plummeting, having dropped 35.5 points in just 8 months. The current rising trend is obviously good news. To imply that it isn’t is either dishonest or ignorant. Things aren’t great, but they’re getting better.

Consumer Confidence

Housing prices have risen at the fastest rate in seven years, as the Case-Schiller Index of national housing prices showed today.

Apparently neither she nor her editor knows how to spell Robert Shiller’s name correctly.

The housing recovery, for instance, seems to be just another stage of the foreclosure crisis. Note that the areas where house prices have risen the most – Arizona, Las Vegas and California – are all areas that were hurt most deeply by the housing crash. So pry between the boards of the housing recovery and the termites start crawling out.

Home prices are rising fastest in these areas for a number of reasons. These places are where prices fell the furthest, overcorrecting in some cases, so it’s natural for prices to come up a bit to match local incomes.

Phoenix-Area Home Prices and Incomes

Also, foreclosures were a huge share of sales in these markets, but over the last year foreclosures have dramatically declined, so the mix of sales has shifted toward non-distressed inventory, which is naturally higher-priced.

There is evidence that lenders are controlling the housing supply by reducing the number of houses for sale. Last year, AOL Real Estate’s reporting suggested that as many as 90% of available properties were not even really on the market, but just polished for sale and being held back to keep supply low.

Then, last month, three major banks, including Citigroup and Wells Fargo, halted all their sales of homes in foreclosure; this also reduced the supply of homes on the market. The reduction in housing supply, then, is largely artificial, designed by the banks and institutions that hold thousands of houses and thus have the most to gain from higher house prices.

It couldn’t be that the number of foreclosures on the market is decreasing because the number of homes being foreclosed is decreasing, thanks to rising prices and a gradually improving economy. No, there must be a conspiracy by the banks to withhold inventory! Yeah! I’ve looked into this data and found nothing to suggest that banks are doing anything other than putting foreclosures on the market at the same rate that they’re foreclosing on homes.

A recovery allows real estate agents and banks to tell Americans that they can’t borrow money for the home they want, that they can’t participate in the housing market, while wealth private investors scoop up as much as they can.

Um, what? That doesn’t even make any sense.

Anyway, if you’ve read any contrarian arguments recently that aren’t rambling illogical messes full of basic factual errors, I’d love it if you shared them in the comments.

  

About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

20 comments:

  1. 1
    mike says:

    This kind of data analysis skill will certainly qualify her for a position with Fox News.

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  2. 2
    Ron says:

    She said “A recovery allows real estate agents and banks to tell Americans that they can’t borrow money for the home they want, that they can’t participate in the housing market, while wealth private investors scoop up as much as they can.”

    That has to be one of the kookiest lines I’ve heard in awhile. What was she thinking!

    It’s easy to highlight data and predict that the end is near for America. I’ve heard that all my life especially while growing up in the Detroit area but there is also a lot of convincing data that things are on the mend. As long as the average American spends like there is no tomorrow and doesn’t save, we’re screwed because an economy based on debt will always struggle.

    If the US sucked, people would leave but I don’t see that however Mexicans are no longer coming like they were which is an important indicator. I just don’t buy into doomsday scenarios but maybe it’s because I’m not a religious person who was raised on the notion of Armageddon.

    I believe in this recovery probably because I’ve got a stake in the game. Volatility is here to stay…as with stocks, 20% up, 20% down, etc.

    One lesson to be learned here – don’t OVER leverage.

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  3. 3
    doug says:

    Heidi Moore in that article was positively spot on. One of the few very smart writers who know exactly what is going on. Peter Schiff Jim Rogers George Soros and Heidi Moore very rarely make mistakes when commenting on the financial markets and real estate.

    Everybody who reads this blog would be very wise to follow Heidi Moores advice on real estate. Real Estate almost everywhere except North Dakota is clearly being manipulated by big investors and big banks.

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  4. 4
    ChrisM says:

    “Anyway, if you’ve read any contrarian arguments recently that aren’t rambling illogical messes full of basic factual errors, I’d love it if you shared them in the comments.”

    Hmm, how about this one: http://brucekrasting.com/on-the-social-security-annual-report-to-congress/

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  5. 5
    doug says:

    “Consumer Confidence is getting better” NOT — If it was then there would be jobs everywhere, everywhere,everywhere. All these charts are about to go off a cliff
    and as far as ripping Heidi Moore well

    People who live in glass houses shouldnt throw stones!

    http://www.guardian.co.uk/commentisfree/2013/jun/07/may-jobs-report-economy-recovery

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  6. 6
    Erik says:

    RE: doug @ 5
    Read the red line in the consumer confidence graph. As you can see, consumer confidence has been increasing over time for the last year and a half. National unemployment has decreased.

    Why do you feel this data is incorrect? Do you think the data collector is in on the conspiracy too?

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  7. 7
    Blurtman says:

    I think if you go back and look up consumer confidence before the Lehman Bro. meltdown, you’ll likely see it was pretty high. What do consumers know, anyway?

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  8. 8
    Saulac says:

    First off I agree that her use of definition/terminology is pretty poor.

    With that said…she said banks “halted all their sales of homes in foreclosure..” by definition, “homes in forclosure” mean homes that are in the process of being foreclosed, but have not been foreclosed yet…She may mean the same thing as you that “the number of homes being foreclosed is decreasing”. What we have to thanks for this is another topic…
    You found banks list REOs at the same rate as they complete foreclosing…Have you look into if banks complete foreclosure the same rate as people default?

    Can we put the last quote into the context of the article? Maybe she meant: this is a false recovery that “allows real estate agents…” does that make more sense?

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  9. 9
    ARDELL says:

    I read Heidi’s article a few days ago, and while no one agrees on everything, I see no reason to tear her a new one over this piece. Just because the 100 is “based on 1985″ does not mean it isn’t…100.

    There is no comparison to consumer confidence today compared to 1985. That consumer confidence is currently “better” than when we were heading for, or pulling out of, another Great Depression…isn’t really saying much.

    Consumer Confidence is not the driver of this upturn. It’s fear…of rising rates and rising prices and low inventory.

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  10. 10
    Jonness says:

    Also, foreclosures were a huge share of sales in these markets, but over the last year foreclosures have dramatically declined, so the mix of sales has shifted toward non-distressed inventory, which is naturally higher-priced.

    Tim:

    At a glance, the way I interpret your statement is, the 10% YOY increase is not accurate because of the higher number of non-distressed sales in the mix. This parallel’s Kary’s assertion about MLS median price over-reporting when foreclosures wane because more of the homes that sell are higher quality better cared for homes and cost more. So if people bought a bunch of cheap homes the year before and more expensive homes this year, the rise in median price doesn’t translate perfectly to an actual increase in home prices. Part of the increase can be due to people having bought more expensive homes a year later rather than homes that went up in price.

    We know Case-Shiller is a repeat sales index, so Kary’s assertion doesn’t apply to it.

    So I suspect what you actually mean is, homes that sold for high amounts pre-bubble later foreclosed and were sold for blow-out prices by the banks. This caused prior YOY Case-Shiller numbers to be artifically low in comparison to non-distressed sales. Thus, now that foreclosures make up a lower percentage of sales, we are seeing more legitimate YOY numbers compared to non-distressed sales. So the rise in Case-Shiller YOY compared to prior reported months YOY is partly due to less foreclosures being included in the mix. But the currently reported 10% YOY increase in house prices is pretty accurate.

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  11. 11
    whatsmyname says:

    Heidi’s argument is that a weak recovery is a false recovery, and that you are not recovering unless you have already recovered. That is nonsense.

    And this statement: “A recovery allows real estate agents and banks to tell Americans that they can’t borrow money for the home they want” is simply bizarre. Is that what a recovery does? Are real estate agents and lenders hoping to not do business? Has Heidi ever met a real estate agent or lender?

    Tim is right.

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  12. 12
    David Losh says:

    You may not agree with the statistics, or the way she presented them, but the premise is pretty valid.

    Consumer Confidence? as an indicator of anything is a fiction. It’s a meaningless set of statistics, as much as Case Shiller is.

    Real Estate is an individual purchase compared to other individual purchases. Your home in Everett doesn’t compare to those properties across town, let alone across the county.

    We have become a bunch of Real Estate statistic watchers rather than what properties are good, and which aren’t worth owning.

    Real Estate agents are probably the worst judges of what is or isn’t good for the buyer, because of that incentive of a commission sales structure. Agents, and lenders both use these statistics to make sales pitches.

    The Fed has mercilessly manipulated our market place, and it will now need to be sorted out. Banks have also, to a lesser extent, manipulated the statistics by the way they have unloaded properties. I think banks have played a brilliant game, and made the best of what was a bad situation.

    Bottom line is that we will see in the next year where Real Estate stands in the investment community. I personally think most of the big investors will move on, the Fed will move on, and small portfolio investors will be left holding long term mortgage payments.

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  13. 13
    Chris says:

    excellent commentary, the Tim

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  14. 14
    chrisM says:

    RE: ChrisM @ 4 – My earlier comment may have been too vague (but the linked article is well worth reading). Was the comment “if you’ve read any contrarian arguments recently that aren’t rambling illogical messes full of basic factual errors, I’d love it if you shared them in the comments.” mere rhetoric?

    I see a demographic shift, which isn’t original. Young people cannot afford to buy houses like previous young people in prior years could, due to a couple of factors:
    1. student debt
    2. tax burden reflected in a) less powerful dollars b) higher taxes

    Student debt is by now a well known phenomenon. I’m not sure how well-known unfunded government pensions are, but they are a significant problem. In my opinion (and I’m in Clark county, so I watch Oregon pretty closely), home owners become trapped by ever-increasing property tax increases. In Oregon, the property tax increases are dedicated to government pension shortfalls, and have very little (or nothing) to do with education improvement. I can’t find the article I’m looking for (which basically admitted the proposed property tax increase for education was instead going to the pension system), but this one is pretty good if you read between the lines:
    http://www.oregonlive.com/business/index.ssf/2013/05/in_one_oregon_family_of_teache.html

    IMO, there is a large segment of homeowners who are trapped in their property – they cannot sell without taking a loss, which they cannot afford to pay. In the meantime, property taxes are on a never-ending increase, to pay for unfunded gov’t pensions, and services are declining. We’ve read articles about decreasing (and abnormal) mobility, which affects our national ability to come out of the recession.

    Back to my original comment, I remain amazed that young people aren’t up in arms about Social Security. However, I’ve also been amazed AARP isn’t up in arms about the non-existent interest rate on savings accounts & CDs.

    Does anyone believe that young people (I’ll define that as under 35) are in the same economic straits as the equivalent demographic 20 years ago? Doesn’t that in itself disprove the entire thesis of this thread?

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  15. 15
    Feedback says:

    Thank you, Tim. You’re very smart, much smarter than are most “reporters” for widely-read media properties. I’m glad you’re here.

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  16. 16
    Blurtman says:

    RE: chrisM @ 14 – A simple (listic?) explanation – when you are young, you don’t think about what you will need when you are much older. And if you do, it may be in easy to ignore abstract terms, versus the very real near term challenges and diversions of daily life.

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  17. 17
    mmmarvel says:

    By Erik @ 6:

    RE: doug @ 5
    Read the red line in the consumer confidence graph. As you can see, consumer confidence has been increasing over time for the last year and a half. National unemployment has decreased.

    Why do you feel this data is incorrect? Do you think the data collector is in on the conspiracy too?

    Not sure if I buy into a conspiracy theroy, and I know that the factors that they’ve been calculating unemployment are (more or less) the same. BUT – at some point you’ve got to wonder if the way we do/the way we have been calculating unemployment is correct? I also KNOW that the number of people in the work force is less now, than when Obama took office, I know the number of people on food stamps keeps getting larger. Based on those numbers … hard to believe that we’re doing better.

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  18. 18
    Erik says:

    RE: mmmarvel @ 17
    That’s why I prodded doug to tell us why he believes that the numbers are not correct. He didn’t reply which means he must not know. For now I assume he is someone that is a repeated “nay sayer.” Some people live in fear and always assume the worst. That may be doug’s case?
    I think things are getting better for now, based on the stock market and home prices, but I don’t know if employment is really getting better or not.

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  19. 19
    Larry says:

    Here is an example of the type of real estate buyers who are included in sales stats of the past few years.
    Blackstone
    http://www.blackstone.com/businesses/aam/real-estate/our-approach
    Blackstone and other institutional investors have been purchasing REO’s at a rapid rate since the mortgage meltdown and housing crash happened. The money funds that are set up to fix and flip, such as Blackstone, sell to other investor groups, as evidenced by the text in the Blackstone website. Many of those secondary investor-buyers choose to rent to tenants for cash flow. As Heidi Moore inferred in her article, after the mortgage meltdown of 2007-2008, banks have set their lending guidelines so that it is near impossible for the average Joe/Jane, with a not so great credit score, to qualify for a loan. It is only the stellar borrower, the wealthy, and institutional investors that have been able to get bank loans and take advantage of the super low interest rates that the Fed has instigated. Joe and Jane America are still struggling to maintain their lifestyle by working extra hours at jobs that pay less than the jobs they had during pre-recession times. Heidi Moore is spot on.

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  20. 20
    Larry says:

    From Heidi Moore’s article:
    [my edits in brackets]
    A [mythical] recovery allows real estate agents and banks to tell Americans that they can’t borrow money for the home they want, that they can’t participate in the housing market, while wealth[y] private investors scoop up as much as they can. A [mythical] recovery allows lawmakers to pretend that their destructive policies of deficit cutting and austerity were productive, rather than destructive.

    A mythical recovery, in short, gives cover to a lot of irresponsible people hoping that Americans won’t look behind the curtain.

    There is a momentary discomfort in realizing that the recovery is weak. When the absurd illusion of a “better economy” is gone, lawmakers and CEOs may be forced to stop believing in the myth of a good economy and actually start working to create the reality of it.

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