Housing Numbers and the Debt Ceiling

Wednesday, July 20, 2011

housing, house, foreclosure, foreclosing House in foreclosure. (Respres/flickr)

Welcome to Politics Bites, where every afternoon at It's A Free Country, we bring you the unmissable quotes from the morning's political conversations on WNYC. Today on the Brian Lehrer Show, Felix Salmon, finance blogger for Reuters, discusses the debt deadlock in Washington and why housing starts are up but home sales are lagging.

A bipartisan agreement seems to be emerging in the Senate that not only breaks the debt ceiling deadlock but would also cut $4 trillion for the national debt over the next decade and reform the existing tax code.

Felix Salmon said while that may sound hopeful, it’s still not clear what’s in the deal.

It’s incredibly vague. There are promises to cut spending... at some point in the future, and we’re not quite sure how but we’ll commit ourselves to doing it. So I think a bunch of this is sort of saying we want to cut the deficit, but we’re not quite sure how, but we’ll commit ourselves to doing it in the future, but first lets get this debt ceiling issue out of the way.

He said it is promising that there seems to be genuine bipartisan agreement. Senator Mark Warner (D-VA), interviewed on All Things Considered yesterday, said that the agreement would actually lower top tax rates while simultaneously closing a lot of existing loopholes, giving both parties the ability to claim victory.  

Any agreement that increases tax revenue through closing loopholes while lowering the top tax rates is closing some large loopholes indeed, and in fact is likely going to be addressing not just loopholes but standardized deductions. Additionally, the $3 trillion in spending cuts indicates a new bipartisan willingness to cut into Medicare entitlements. Salmon is skeptical that the agreement will be sustainable.

I think both parties are in on a conspiracy to claim that they will magically find Medicare cuts, somehow. And as long as they claim that with a straight face they’ll agree to pretend to believe each other, at least until we can get to the other side of this debt ceiling vote, and then they’ll have a big fight.

He said no one in the House seems able to reliably deliver the votes for any plan, and that poses a real problem, given how soon the deadline looms.

There’s a lot of things which the House Republicans can suddenly wake up and decide they don’t like. If they think that they have twelve or thirteen days left to do this, if it doesn’t work, if something goes wrong in the House, there’s no time left to scramble together some kind of a plan B.

Stimulus has noticeably been left out of the conversation. The political unpopularity of the concept, especially in the House, makes it likely that any stimulus the president would be able to get passed would be too small to have any significant effect. Salmon thinks leaving out stimulus is a mistake.

The way you get the economy moving is not by cutting spending. Clearly what we need is stimulus… and there is absolutely no indication that it is a remote possibility.

Existing home sales number released today show a small decrease in June, of 0.8 percent. They were down almost four percent in May. Salmon said these numbers were much worse than expected. He said 0.8 percent is actually significant because it indicates that the market is not rebounding, as was expected, but continuing to fall.

Local housing numbers also show a decrease, with the median housing price in the New York City metropolitan area dropping from $414,000 to $401,000—a three percent decline. Sales also fell, with a seventeen percent decline in sales in June in this area, compared to last year’s June.

Salmon pointed out that this is especially bad given that last year’s June was also depressed for sales.

Every time the housing market plunges everyone gets this big hope that, hey, we’ve had this big plunge and now we can have what is known as a means reversion—we can bounce back, because this is such a low figure. And every time we think we’re going to bounce back, it just gets worse.

He said you cannot build equity in that sort of decline, which leads to more homeowners ending up underwater with their mortgages, and fewer people buying, and thus more delinquencies and foreclosures.

Yet housing starts were up. Housing starts numbers refer to ground-breaking on new housing projects. Salmon explained that most of these were in multi-family homes, indicating rental units.

What builders are seeing… is that people are getting over this American dream of homeownership. They realize it can turn into much more of an American nightmare—that a house, in reality, is much more of a liability than an asset, and people prefer to rent than to own.

Thirty percent of the sales were of distressed homes, the majority of which are most likely short sales by mortgage-holders who are underwater. While this might seem, on the positive side, to serve as a purging out of some of the most overpriced stock, Salmon does not think it will lead to more affordable housing. Many of the sales were cash, meaning the buyers were likely speculators planning to get their return in rent.

The relationship between the depressed housing market and people’s ability to find jobs is also important in interpreting the housing numbers.

Home ownership is antithetical to labor mobility. If you own your home, and especially if you’re underwater or it’s difficult to sell your home, then it’s very difficult to move to where the jobs are. If you rent it’s much easier. So in terms of improving the employment picture, what we want is exactly what we’re seeing.


Felix Salmon


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Comments [10]

Mike from Manhattan from Manhattan

Brian, what I heard you suggest earlier in the program about Obama’s political calculations having to do with stimulus and debt reduction was really disheartening. You said that some people are suggesting that because he thinks there’s no way to get another stimulus through congress at this point, he’s not even going to try and that instead he is going for an agreement on debt reduction that will position him better for reelection, after which, if the economy still needs it, he will try for another stimulus. Man, is that sad - another example of the kind of tortured rationalization that people on the left have had to engage in over and over to explain this president’s astonishing lack of leadership. Time after time I've scratched my head over his apparent passivity, or his insistence on compromise with a cynical and dishonest opposition. Why is he not out there making the case for real reform, even when polls support his supposed position (on health care, on the deficit, on immigration, on financial regulation)? Beyond a certain point, political calculations amount to self defeat. We need a leader who will use the power of his office to set and fight for agendas that are just and in the best interest of the country, not someone who seems to pursue a pointless ideal of consensus at the expense of justice and progress.

Jul. 20 2011 12:09 PM
Economist from Montreal

As an economist, the reason to build a shopping center is to collect revenue. That revenue is the lease rent from the stores that will locate there.

By the same reason, the economic choice to OWN your home is as a substitute for RENTING the place where you live.

At each level of interest rate and risk, as rents for homes goes up, so too should prices for homes. Because OWNing and LEASEing any durable asset (be it trucks or homes) are SUBStitutes, their prices should move together in tandem.

Jul. 20 2011 11:25 AM

"we let housing get to be too big a part of our economy"

Exactly! Unfortunately housing has become the latest "get rich" scheme and there's no end in sight. Home sales should be lagging because the prices are too high and our incomes are too low.

Jul. 20 2011 10:44 AM

The Republicans have been trying to undermine (read, "kill") SocSec since FDR proposed it, and same for Medicare and Medicaid.

I don't hear Obama talking about marginal untility, which David Cay Johnston brought up on your show (NOR have I heard it mentioned when you or any of your substitute hosts talk about the effects of Obama's policies).

Remember that basic concept? The last dollar of someone making, oh, $15,000, $25,000 a year is valuable and necessary to that person, while the last dollar can't even be noticed by someone making, oh, $150,000, a million a year.

Then, talking about "compromises," Obama did mention that "shared sacrifice" (the little people get sacrificed, the powerful and wealthy take their share), and some strengthening changes (chained cost of living, leading to lower COLA increases for seniors or about .25% per year, which does add up for the 80 year old) to SocSec might mean $100 to $200 a year less for SocSec recipients, but it was only fair, that sharing of sacrifice stuff..

Ah, just $100-200: Maybe even at the low end that means a diabetic, which still getting reimbrusement for the protective shoes still can't afford the cushioning socks which prevent rubbing and subsequent injuries which might not heal -- and then require skin grafts and being laid up. (I was in St. Barnabas Burn Center and it finally dawned on me that some of the patients weren't in for burns, but for sores which would not heal. D'uh.) Or, it means less or low quality nutritionally food. Maybe cutting back on heating, no AC when the heat waves hit. Just hope the extra blankets in winter or a direct fan (which still costs in electricity use, and may not be affordable!) get the elderly through those thngs.... Or, not using public transportation or one's own car (the elderly in suboonia and rural areas don't have much public transportation) can make becoming a hermit the only way to live.

There are serious consequences of Obama's desire to cut SocSec. With the higher deductibles Lieberman wants, will people who don't have that $3,750 before Medicare reimburses just put things off? Avoid seeing the doctor for something which seems like a cold? Maybe develop complications and die? Lieberman thinks old people see doctors too often and he wants to make it more difficult for them to go to a save Medicare expenditures. OKaaaay. And Lieberman often serves as Obama's stalking horse.... He was his hitman for the so-called "public option" btw.

We needed a Democratic president and all we got was this stealth Republican.

Again, do remember:


Read David Cay Johnston on how the tax system was manipulated to transfer wealth to the...wealthy.

Jul. 20 2011 10:41 AM

Re: Murdoch: impressionist David Frye recorded a watergate-era comedy album in which he does Nixon saying "I take full responsibility -- but not the blame."

Jul. 20 2011 10:41 AM
Mike from Inwood

Murdoch has 300,000 employees and doesn't know what they all do? Murdoch may not know what a random janitor who works for him ate on his lunch break, but I'm sure he knew what the people immediately reporting to him were doing and probably even those reports two or three levels away.

Jul. 20 2011 10:41 AM
Smokey from LES

Maybe we let housing get to be too big a part of our economy and we should just admit it and forget about those numbers and move onto something else.

Jul. 20 2011 10:31 AM
amalgam from NYC by day, NJ by night

The most effective stimulus on the housing front (and probably for the rest of the economy) would be to design a massive program of mortgage refinancing that acknowledges the loss in value of house prices and reset the market. This would more quickly bring about the "New Normal."

More money in people's pockets from lowered mortgage payments and the eventual bottoming out of the housing market.

The problem is, of course, that banks and other note holders will have to take big haircuts...

Jul. 20 2011 10:31 AM

Thanks Mr. Salmon for your great comments on the need for economic stimulus.

Without it, no amount of cuts will balance the budget.

And without stimulus to generate consumer demand (70% of our economy) more layoffs, private & public will follow.

Jul. 20 2011 10:24 AM

Tax writeoffs for all Big Pharma Lawyering -- most often employed to hold onto already-expired patents for a little bit longer in order to squeeze more dollars out of off patent blockbuster drugs -- don't add up to trillions but do account for hundreds of millions per year.

With apologies to corporate lawyers -- does the taxpayer need to be supporting this activity?

Jul. 20 2011 10:22 AM

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