Here's a Urban Institute / Zillow study (via Kevin Drum) that confirms what lots of other evidence already suggested: that the Housing Bubble of 2003-2006 was led by over-inflated expectations about Hispanics. The yellow line above represents home values in Hispanic-plurality communities (not among Hispanics households themselves). All types of communities by largest racial group are indexed against their average residence price in 2000. By the time of George W. Bush's 2002 White House Conference on Increasing Minority Homeownership, Hispanic plurality communities are starting to take the lead in price gains and pull away through 2006, then drop catastrophically from 2007 to 2009.
A recent academic study of a big panel of households found that mortgage delinquency rates among Hispanics were 4.7 times the rate among whites by 2009.
A recent academic study of a big panel of households found that mortgage delinquency rates among Hispanics were 4.7 times the rate among whites by 2009.
The big run up in home prices was to a notable extent a Ponzi scheme based to a striking extent on the notion that there was a never-ending quantity and unimpeachable quality of people moving in from some south of the border, and that it would be racist to question whether they would be able to earn enough to pay back their mortgages or to make desirable enough neighborhoods to sell out to somebody else.
By the way, this graph explains in large part why Bush did moderately well with Hispanics in 2004, winning about 40% of their vote, while the equally pro-immigration McCain won only 31% in 2008: Bush's "Ownership Society" was intended in part to turn Hispanics into Republicans by making it easy for them to get loans to buy homes. Times were very good for Hispanics by November 2004, as the Housing Bubble put mortgages into their hands and provided lots of jobs in contructions, real estate, and mortgage selling. By November 2008, Hispanics had been hammered economically by the popping of the Hispanic Housing Bubble.
Of course, everybody else in the media seems to interpret the difference in Hispanic share between Bush and McCain as proving that the GOP needs to open the floodgates even wider.
As for blacks and the Housing Bubble, well, we hear a lot about "lenders of last resort." But, judging by this graph, black communities apparently served as borrowers of last resort.
As for blacks and the Housing Bubble, well, we hear a lot about "lenders of last resort." But, judging by this graph, black communities apparently served as borrowers of last resort.
Of course, this study [PDF] is oblivious to the obvious, and instead pounds the drums for more hair of the dog that bit us:
A House Divided:
How Race Colors the Path to Homeownership
Key Findings
Fewer minorities apply for conventional mortgages. Although Hispanics and blacks make up 17 percent and 12 percent the U.S. population, respectively, they represented only 5 percent and 3 percent of the conventional mortgage application pool.
Blacks experience the highest loan application denial rates. 1 in 4 blacks will be denied their conventional loan application, as opposed to 1 in 10 whites.
Wide disparities in homeownership rates among ethnic groups persist. 73.9 percent of whites own a home, whereas 60.9 percent of Asians, 50.9 percent of Hispanics, and 46.5 percent of blacks own.
The rise and subsequent fall of home values in the U.S. housing bubble disproportionately affected black and Hispanic homeowners, measured by indexed home values between the peak of the market and the bottom, or “trough.”
“It’s been more than 50 years since Dr. King fought for equality, yet it is apparent that the American dream of homeownership is not equally shared by all, even today. Our research shows that minority home buyers are encountering difficulties that often aren’t shared by white home buyers, and that even after they achieve the dream, they have been less likely to see a similar return on their investment."
Dr. Stan Humphries, Zillow Chief Economist
So, buckle up because influential people are starting to want to go for another ride on the Diversity Lending Rollercoaster.
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27 comments:
OT, Good Obama Gold Graphic, Hi Steve, your home boy Nicholson is still in the lead.
http://swampland.time.com/2014/01/03/obama-golfs-with-new-zealand-prime-minister/
I've been very tangentially involved in the regulatory efforts to set mortgage standards following the financial crisis.
Needless to say, virtually all sensible standards have a disparate impact. Buckle up for round 2 indeed.
Has more to do with sand states that have higher Hispanic populations and higher real estate prices. If all else were equal, I don't think Hispanics would be the worst.
Not saying the hypothesis isn't true, but this isn't sufficient evidence. The analysis suffers from major omitted variable bias.
Occam's razor would suggest that in the run-up to the bubble, areas that had been experiencing the highest growth would also experience the highest increase in housing prices. Historical analysis prior to 2008 would tell you that lending to Phoenix or Tampa is prone to much less foreclosure loss than Detroit or Cincinnati.
Similarly Hispanics, being disproportionately made up of recent immigrants, have probably settled in areas with the highest recent growth. It's unlikely that a new immigrant with no previous roots would choose to settle in economically weak Detroit over job-plentiful Las Vegas.
Bubbles are caused by hot money, in some sense immigrants are "hot" workers, choosing to go to the at-the-time best economic regions. Under this hypothesis Hispanics didn't "cause" the housing bubble, but were merely an indicator of which places were the most inflated.
I had thought that the 40% number had been debunked.
ZeroHedge regularly shows a graphic of deposits with the Fed in excess of loans. It's something like $1.3 trillion. Their point is, that with the taper on, liquidity taps looking to ease off, and the equity markets looking toppy, the banksters will be looking to offload on the usual chumps and start hawking loans on street corners to put all that dough to good use.
Not to worry if the borrowers credit is no good, as long as the collateral is good ie. da gubmint backstopping everything. And they can phoney up any accounting they want. After all, FASB 157 is still suspended to my knowledge.
Bubbles are caused by hot money, in some sense immigrants are "hot" workers, choosing to go to the at-the-time best economic regions. Under this hypothesis Hispanics didn't "cause" the housing bubble, but were merely an indicator of which places were the most inflated.
Right. There have been periodic real estate booms around the country for centuries now regardless of Hispanics. The Florida land boom in '20s involved wealthy northeastern whites:
https://en.wikipedia.org/wiki/Florida_land_boom
Home ownership rates need to be adjusted for public housing and section 8 beneficiaries. And maybe military and University housing. I wonder what % of each group gets public housing?
"ZeroHedge regularly shows a graphic of deposits with the Fed in excess of loans. It's something like $1.3 trillion. Their point is, that with the taper on, liquidity taps looking to ease off, and the equity markets looking toppy, the banksters will be looking to offload on the usual chumps and start hawking loans on street corners to put all that dough to good use. "
ZeroHedge is considered a joke by anyone who actually works in finance. In this case the analysis does not fail to live up to that blog's usual sloppy standards.
Banks (and their constituent "banksters") make up virtually none of the demand for Fed deposits. Banks almost universally invest excess cash in the inter-bank market or T-bills where returns are more attractive.
Almost all Fed deposits are indirectly held by GSEs (like the Federal Home Loan Banks). They simply pass through banks (for a small fee) because they don't have direct access since GSEs are not official Deposit Institutions:
"The elevated excess reserves environment as well as the Federal Reserve Banks paying IOERappears to have created a new trading dynamic in the fed funds market. In this environment, those fed funds market participants which are not eligible to earn IOER on their balances at the Federal Reserve Banks because they are not DIs (such as the GSEs), appear to have become the primary sellers of fed funds. These institutions sell fed funds to DIs which have an incentive to borrow funds below IOER, to then hold the funds in their reserve account and earn IOER on those funds, though not all of these transactions are to address real funding needs. In addition to this arbitrage activity, a small percentage of fed funds trades appear to continue to occur between DIs, reflecting periodic cash management or other funding needs."
http://www.newyorkfed.org/aboutthefed/fedpoint/fed15.html
It'll be round 4, after the home price bubbles of the '70s and '80s. Housing bubbles are part of the status-striving / inequality cycle. So is immigration, which makes things worse (more tenants bidding up the price). But that seems like more of a secondary effect.
The main one is a shift in mindset among average Americans, toward treating their home as an asset that will only go up long-term (with the occasional setbacks), and as a target of conspicuous consumption.
http://akinokure.blogspot.com/2013/12/history-of-home-prices-and-conspicuous.html
…why Bush did moderately well with Hispanics in 2004, winning about 40% of their vote…
Huh? I thought this 40% figure was demolished long ago. In fact, I thought Steve himself pushed the detonator. Wasn't Bush's Hispanic vote only marginally above McCain's, especially among real Hispanics?
Perhaps I was remiss in omitting the detail of the article from ZeroHedge.
"Naturally, these are not deposits in the conventional sense, but merely the balance sheet liability manifestation of the Fed's excess reserves parked at banks."
The point being, I think, is that the Fed is buying treasuries and agency bonds from the big banks, who also might be primary dealers, and leaving these funds with these same banks, who are then using them to speculate in various markets.
If market opportunities make it worth their while to speculate rather than lend, then I suspect that is indeed what they'll do. However, if market risk is too high, or they believe a prolonged bear market will take away longer term opportunities, then they'll return to lending.
Not being a Wall Street crook, I don't know what the general opinion of ZeroHedge is, but it all makes sense to me.
Needless to say, virtually all sensible standards have a disparate impact. --Foseti
In short, standards are racist. Thus they have to go.
Except gun control standards. They get a pass. Nowhere is "disparate impact" greater than in those statutes that bar felons from concealed carry permits.
In other words, the other side already concedes that disparate impact is hokum!
"If market opportunities make it worth their while to speculate rather than lend, then I suspect that is indeed what they'll do. However, if market risk is too high, or they believe a prolonged bear market will take away longer term opportunities, then they'll return to lending."
You're creating a false dichotomy between "lending" and "speculation." If I go out and make a loan to Jim and hold it to maturity that counts as lending. What if someone else makes the loan to Jim and I buy it from them? Still pretty much the same thing as lending.
Now what about if someone makes a loan to Jim, Bob, Anne and Dave and I buy the pool? Or a senior tranche on the pool that gives me the right to the first 90 cents on the dollar of cash flow? Or I a CDS on that contract? Or the interest only portion of that CDS which hedges my risk to pre-payment exposure?
At the end of the day, it's all economically the pretty much the same thing. I'm looking at the credit-worthiness of Jim, deciding how much I want to loan to him and at what rate (or what price I'd pay for the derivative exposure). If I overestimate Jim's creditworthiness I lose money, if I don't I make money.
If bank's risk appetites shrink because of the Fed taper that's just as likely to affect "lending" as it is "speculation." In fact many of the activities that you would classify as "speculation" are actually much less risky than traditional lending because the broad risk exposures are easier to hedge away in the market. For example banks lost far more in their traditional lending portfolios in 2008 than they did from their trading desks.
The point being is that I think the hypothesis is flawed. A hard impact on bank liquidity (assuming that would be the case, a big assumption), would probably lead to a significant contraction in lending.
So, basically, macroeconomics in the 'gold rapidly turns to shit' days were largely the bastard child of a certain Dr. Fischer.
One thing that always puzzled me about the naive Friedmanism that ruled the roost then and continues to rule the roost now - depite what it wrought is this: Basically, the hard-core Friedmanism required both 'free trade' with nations the USA couldn't possibly compete with on wage costs and 'free immigration' of the entire global population, (not just 'workers' mind you, but potential welfare claimants), able to afford a plane ticket. Therefore the idea that labor can be rationalized into higher productivity activities by trading goods with low wage nations is entirely negated by the influx of low wage individuals who recreate that low prodctivity job! - all seems rather self-defeating to me, and a sure-fire recipe for a race to the bottom for the USA.
But what do I know?
One thing that always puzzled me about the naive Friedmanism that ruled the roost then and continues to rule the roost now - depite what it wrought is this: Basically, the hard-core Friedmanism required both 'free trade' with nations the USA couldn't possibly compete with on wage costs and 'free immigration' of the entire global population, (not just 'workers' mind you, but potential welfare claimants), able to afford a plane ticket.
What Friedman actually said:
Because it is one thing to have free immigration to jobs. It is another thing to have free immigration to welfare. And you cannot have both. If you have a welfare state, if you have a state in which every resident is promises a certain minimal level of income, or a minimum level of subsistence, regardless of whether he works or not, produces it or not. Then it really is an impossible thing.
... if you come under circumstances where each person is entitled to a pro-rata share of the pot, to take an extreme example, or even to a low level of the pie, than the effect of that situation is that free immigration, would mean a reduction of everybody to the same, uniform level. Of course, I’m exaggerating, it wouldn’t go quite that far, but it would go in that direction. And it is that perception, that leads people to adopt what at first seems like inconsistent values.
Look, for example, at the obvious, immediate, practical example of illegal Mexican immigration. Now, that Mexican immigration, over the border, is a good thing. It’s a good thing for the illegal immigrants. It’s a good thing for the United States. It’s a good thing for the citizens of the country. But, it’s only good so long as its illegal.
That’s an interesting paradox to think about. Make it legal and it’s no good. Why? Because as long as it’s illegal the people who come in do not qualify for welfare, they don’t qualify for social security, they don’t qualify for the other myriad of benefits that we pour out from our left pocket to our right pocket. So long as they don’t qualify they migrate to jobs. They take jobs that most residents of this country are unwilling to take. They provide employers with the kind of workers that they cannot get. They’re hard workers, they’re good workers, and they are clearly better off.
The figure most often cited is that Bush got 44% of the Hispanic vote, which has been thoroughly debunked; the actual percentage was 37-38%, IIRC. This does not however prevent people like Michael Medved from using the higher figure when they shill for amnesty and large scale Hispanic immigration.
"ZeroHedge is considered a joke by anyone who actually works in finance. In this case the analysis does not fail to live up to that blog's usual sloppy standards"
Yeah sorry if I don't have a high opinion of the same idiots who melted down the economy last time and are continuing to monkeywrench everything while declaring that we're in a recovery.
Idiot.
Has more to do with sand states that have higher Hispanic populations and higher real estate prices. If all else were equal, I don't think Hispanics would be the worst.
Surely they would, because they can always default and leave the country. They have no skin in the game.
Occam's razor would suggest that in the run-up to the bubble, areas that had been experiencing the highest growth would also experience the highest increase in housing prices. Historical analysis prior to 2008 would tell you that lending to Phoenix or Tampa is prone to much less foreclosure loss than Detroit or Cincinnati.
Similarly Hispanics, being disproportionately made up of recent immigrants, have probably settled in areas with the highest recent growth.
According to the Census Bureau, Texas's Hispanic population increased by 43% between 2000 and 2010. The five fastest-growing states in that period were Nevada, Arizona, Utah, Idaho, and Texas, whose population grew at more than twice the rate of California's. The populations of 19 states grew faster than California's.
Yet California had a huge bubble, while Texas had none.
I think you need a sharper blade in that razor of yours.
Huh? I thought this 40% figure was demolished long ago. In fact, I thought Steve himself pushed the detonator.
Steve debunked a 44% figure. I also thought he initially determined that the number was less than 40%, but the starting point for his analysis was a claim that Bush got 44% of the Hispanic vote. I believe the 40% figure comes from the polling company's own concession of error rather than from an independent analysis by Steve.
"Lending and speculation are pretty much the same thing at the end of the day."
You have to be kidding. The Glass Steagall Act was put in place to prevent banks from using depositers' money to speculate on their own account because of the the collapse of the banking system in the 30's, largely due to unwarranted speculation.
The business of banking is lending. That's why they have credit departments and demand quality collateral to hold against loans. Lending to business helps create economic growth. There is no shortage of speculation in the market but it doesn't need to be done by regulated banks who have government guarantees on their deposit base.
We can also assume with little doubt, that this speculation by the banks is also highly leveraged. All they have to do is use these cash deposits as collateral in marginable trading accounts, making the actions even more risky.
And if you don't think so, recall the London Whale trade, and how long it took JP Morgan to unwind that trade at a great loss. That was a bet they made against the divergence of the market price of the IG9 index (credit default swap price index) vs what their model was pricing. It ultimately resulted in a trading loss of $2 billion.
Given the leverage the banks operate under, it's dangerous for them to be engaging in any other practice than their traditional business, lending. If they want to become hedge funds then they can get out from underneath government guarantees and regulations and cease being banks.
You're like the academic who says "well that's all good in practice but how well does it work in theory".
Bubbles are caused by hot money, in some sense immigrants are "hot" workers, choosing to go to the at-the-time best economic regions. Under this hypothesis Hispanics didn't "cause" the housing bubble, but were merely an indicator of which places were the most inflated.
No. This "bubble" was caused by people not being able to pay back the loans they were given. Had 100% of the loan recipients been Swedes or Germans, it wouldn't have been a "bubble," it would have been a vigorous housing market.
It's only a bubble when it bursts, and it burst because so many of the people receiving loans shouldn't have received them (should not even have been trying to get them), and they failed on their obligations, to a great extent because culturally they HAVE no sense of obligation. So they very much "caused" it. Even more so when so many of the lenders at the street level were fellow Hispanics happily grifting their compadres.
There are no great economic "forces." There are only people taking actions.
There's a connection here to Stanley Fischer. The strongest item in his resume is not his academic research (yeah, he's no slouch but he's unlikely to win a Nobel). It's that Israel, during his tenure, managed to avoid the Great Recession better than most any OECD country. For Israel, which had a very stormy macroeconomic 1940s, 50s, 60s, 70s and 80s, that's huge.
Except gun control standards. They get a pass. Nowhere is "disparate impact" greater than in those statutes that bar felons from concealed carry permits.
In other words, the other side already concedes that disparate impact is hokum!
Hey, good point.
Ever wonder what we could do with a university and a tap into gubbmint funding?
peterike nailed it. Had the people continued to pay their mortgages, we'd never have known there was a bubble. It was only a bubble when it burst. And it burst because too many walked away. As Ben Tillman wrote, "...because they can always default and leave the country. They have no skin in the game."
I just tweeted this:
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.@amybo @DavidWLocke: here's why you can't trust the point of @StanHumphries 's study: peekURL.com/zqzgMtL #immigration #tcot #ows
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That's a link to this post. That took less than 10 minutes, which includes the time spent to log in to my site, this site, fire up my homebrew Twitter searcher looking for those talking to him, and writing this comment.
I urge others to do the same: it takes little time but if enough people do it they'd get the message.
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