Monday, June 24, 2019

Who Can Still Afford to Buy a Home?

The Mortgage Corner

That question of who can still afford to buy a home is up in the air, as we say, since home sales have been trending lower of late and there is still a housing shortage. MarketWatch’s Andrea Riquier believes housing sales peaked in 2018, dropping below combined sales of 6 million for the first time in two years, per her graph of existing and new-home sales, and won’t go higher this year—in the 11th year of the recovery from the housing bubble.

Sales are falling because Ms. Riquier maintains home buying is still out of the price ranges most young adults can afford for various reasons, including a low inventory of affordable homes for sale, and lower earning potential than in past recoveries for young adults with college degrees still digging out from under student loans.

Yet total existing-home sales’,, completed transactions that include single-family homes, townhomes, condominiums and co-ops, jumped 2.5 percent from April to a seasonally adjusted annual rate of 5.34 million in May, per the NAR.

The share of first-time home buyers continued a three-year decline, falling 33 percent (34 percent last year), for homes at or below the $277,000 median home price. This number has not been 40 percent or higher since the first-time home buyers credit ended in 2010.  It was a 2-year Obama initiative that gave a $7,500 tax credit to first-time buyers.

Total sales are down 1.1 percent from a year ago (5.40 million in May 2018), but when combined with surging May new-home sales of 673,000 reported by the Census Bureau, the total is 6.01 million. So total sales are rising again; maybe because of the recent interest rate decline to post-recession lows?   

NAR chief economist Lawrence Yun said the 2.5 percent jump shows that consumers are eager to take advantage of the favorable conditions. “The purchasing power to buy a home has been bolstered by falling mortgage rates, and buyers are responding.”

Rates are down because the 10-year Treasury bond benchmark yield that most lenders use to set mortgage rates has fallen to 2 percent at this writing, which puts it back to yields that prevailed during the Great Recession, and the 30-year fixed conforming mortgage is holding at 3.50 percent for less than one origination point.

But can builders keep up with the declining inventory of homes for sale? Residential investment has fallen for five straight quarters though the second quarter for starts is up overall with the new May report.

Privately‐owned housing starts in May were at a seasonally adjusted annual rate of 1,269,000, said the Census Bureau. This is 0.9 percent (±12.9 percent) below the revised April estimate of 1,281,000 and is 4.7 percent (±8.9 percent) below the May 2018 rate of 1,332,000. Single‐family housing starts in May were at a rate of 820,000; this is 6.4 percent (±9.5 percent) below the revised April figure of 876,000.

Single-family homes starts were actually very weak in May, in other words, for a 12.5 percent year-on-year decline, as I said. Multi-units, in contrast, are up a yearly 13.7 percent at a 449,000 rate.
So it really looks like more new households are opting to rent, even with record-low interest rates.

What else can they do with fewer purchasing options? One problem highlighted by Ms. Riquier is current homeowners are staying longer in their residence, thus reducing the housing supply—up to 10 years in recent surveys, says Riquier, vs. staying put for the more normal average 4 years before moving on..

It sounds like we need those record-low interest rates to keep the housing market alive. All the predictions are they could even go lower this year, but for how long?  It also looks like another first-time home buyers tax credit is needed to make homes more affordable to first-timers.

Harlan Green © 2019

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Sunday, June 23, 2019

Answering the Kennedys’ Call to Promote Greater World Peace & Freedom


I was one of 88,000 wide-eyed, mostly white, middle class students that came to hear President John Kennedy speak on March 23, 1962 in Berkeley, California to commemorate the 94th anniversary of the University of California’s founding. We wanted to see and hear what our future might look like. We were ready to believe in Kennedy’s vision that the cold war with Russia could end and lead to more peaceful collaborations.
“…The processes of history are fitful and uncertain and aggravating,” said Kennedy that day. “There will be frustrations and setbacks. There will be times of anxiety and gloom. The specter of thermonuclear war will continue to hang over mankind; and we must heed the advice of Oliver Wendell Holmes of "freedom leaning on her spear" until all nations are wise enough to disarm safely and effectively.”
We need such leaders as JFK with his unifying vision of cooperation over confrontation even more today. That is the most important question for me, a person who lived through the social upheavals and activism of those days. For if we do not find ways to grow that idealism to make the world a better place for all—both social and economic change that will preserve a livable planet and prevent future wars—then I cannot see a hopeful future.

Recognizing the many ways such a spirit of service is restoring communities and hope for a better future is the reason for this essay. In fact, the sense of community and common purpose that prevailed in the sixties via new technologies and shared values in community-building and peace-making is the path that can restore our faith in western democracies imperiled by the rise of authoritarian governments and immensely wealthy oligarchs.

Leaders have emerged in the upcoming presidential election—Senator Elizabeth Warren’s fight to curb Wall Street excesses, Senator Sanders call to right record income inequality—but they are leaders of factions fighting injustices without a unifying vision to bring younger Americans in particular together to make the changes that might save their future, as well.
One 30 year-old in 2013, 50 years after President Kennedy’s death, said “Though his goals were typically big, what he sought from individuals was often rather small. Not everyone was expected to join the Peace Corps or become an astronaut or participate in the Freedom Rides. But citizens were asked to do their part — to think about how they could improve their community or make another person’s life easier — to look past their differences and focus on our common humanity. We badly need this message again. I believe it is one that resonates very deeply with young Americans who are yearning for a time when we can search for new frontiers and once again be part of the same team.”
Many of us followed paths of alternative service, of selfless service that I learned was the shortest path to inner peace, as well as peace among communities and nations. President Kennedy’s most famous words memorialized worldwide were in his inaugural speech—“Ask not what your country can do for you, ask what you can do for your country.”

JFK gave us the picture of a new future on that beautiful March day in Berkeley, Kennedy promised a peaceful settlement to the cold war with Russia, of scientific research and alternatives for peaceful service that could benefit all nations; while joking that Jackie was having all the fun riding on an elephant in India with Ambassador John Kenneth Galbraith.
“Yet we can have a new confidence today in the direction in which history is moving,” Kennedy continued. “Nothing is more stirring than the recognition of great public purpose. Every great age is marked by innovation and daring--by the ability to meet unprecedented problems with intelligent solutions. In a time of turbulence and change, it is more true than ever that knowledge is power; for only by true understanding and steadfast judgment are we able to master the challenge of history.”
We did not know that the Cuban missile crisis would happen in just seven months—October 16-28, 1962—that could have turned into a nuclear war, if Kennedy and Russian Prime Minister Nikita Khrushchev had not negotiated a peaceful resolution.

JFK’s words may sound like the voice from a distant past to those who have lost their faith in service of any cause, when there is no general prosperity, or hope of a more peaceful post-9/11 world. Treaties are being ripped apart, and allies shunned that would maintain peace because there is no longer a national vision of one for all and all for one.

His vision of a new frontier of possibilities began an era of higher technological growth that has brought the world’s citizens closer together, of global warming threatening cities and countries causing mass migrations, of greater economic cooperation accompanied by greater income inequality in a revolution that hasn’t yet benefited the majority of its citizens.

Keeping that spirit alive is a daunting challenge, needless to say. Today we have a young population that is generating new, diverse communities having survived generational wars between red and blue states, between young and old ages, rich and poor regions that will find their own leaders.

John F Kennedy, Bobby Kennedy, Martin Luther King, Jr., and Cesar Chavez were leaders that gave our generations hope for greater equality and liberty in a new frontier of possibilities. It was a time when communities of the political and economic classes had a consensus that progress was possible, movements formed that swept one up in causes much larger than the individual—the environmental movement, anti-war, or non-violent civil rights’ protests, and a farmworker movement that advanced minority and immigrant rights.

The boundless optimism that Americans such as myself believed could accomplish anything, solve any problem is needed as much today because of the terrible cost of continuing wars, the drug culture, and those regions of America that no longer believe they live in the United States of America.

We of the so-called silent and baby boomer generations dealt with similar obstacles by looking at what we had in common; that we are all created equal, regardless of race, gender or ethnicity, and desired the best for ourselves, our families and communities.

This is important because younger generations; like the 30-year old millennial on the 50th anniversary of JFK’s death; say they want to continue to work. Studies show they wish to make the world they have inherited a better place to live. Their preferences will be influential for no other reason than they are the largest generation ever, born from 1980 to 1996, outnumbering even their baby boomer parents. They are also a much more diverse and tolerant population, which is why they are picking up where we left off in their preference for making worthwhile life choices..
“Almost two-thirds (64 percent) of millennials said they would rather make $40,000 a year at a job they love than $100,000 a year at a job they think is boring,” the Brookings Institution recently noted in a report by Morley Winograd and Michael Hais titled “How Millennials Could Upend Wall Street and Corporate America.”
It cites a 2013 survey of over 1,200 U.S. adults that found Millennials to be the generation most focused on corporate social responsibility when making purchasing decisions.

Almost all Millennials responded with increased trust (91 percent) and loyalty (89 percent), as well as a stronger likelihood to buy from those companies that supported solutions to specific social issues (89 percent). A majority of Millennials reported buying a product that had a social benefit and 84 percent of a generation that accounts for more than $1 trillion in U.S. consumer spending considered a company’s involvement in social causes in deciding what to buy or where to shop. In 2013, 89 percent of all American consumers said they would consider switching brands to one associated with a good cause if price and quality were equal.

“The sixties was a period of monumental social and political change, altering virtually every aspect of American life for future generations,” touts a popular CNN documentary film, The Sixties. “No other decade of the Twentieth Century has acquired the mythological status of the 1960s,” said British Historian M J Heale in his book, The Sixties in America, (2001, Edinburgh University Press Ltd, Edinburgh, UK).

The United States had already been through World War II, the Korean War, and was under the threat of nuclear annihilation in a Cold War with the Soviet Union. Yet it was also a period of unprecedented economic and social growth, when many believed in a better future—not only for U.S. citizens, but those in the developing world.

America’s annual economic growth rates in the sixties equaled that of China and the fastest-growing, developing countries today. Annual U.S. Gross Domestic Growth rates—our best measure of national business activity—were as high as 8.9 percent in 1950, and consistently higher than 6 percent through most of the 1960s. Median family incomes grew 214 percent from 1945 to 1975, and haven’t grown faster than inflation since 1975.

It was also a time of protest against all forms of authority—against loyalty oaths that foreswore radical beliefs, against segregation in the schools and workplaces, and a government continually at war. The anti-war protests created Rock-n-Roll music and Bob Dylan; who was a poet as well as a musician that portrayed the times many Americans were living through. He warned of the hardships ahead, as had his mentor, Woody Guthrie, the dust-bowl folksinger who sang for those dispossessed by the Great Depression.

Dylan songs such as Blowin in the Wind portrayed a land without peace: “how many deaths will it take 'till he knows that too many people have died?” and a rebellion against the old order in The Times They Are a-changing when: “your sons and your daughters are beyond your command.

Then the euphoria was gone almost as quickly as it came; times had changed; but not for the better for many in America. Good paying jobs began to disappear; energy shortages and soaring inflation caused deep recessions.

Younger Americans now must deal with a world that seems to have limited possibilities, with the greatest income inequality in the developed world—which means today’s children may not be able to earn more than their parents. Studies show that only half the children born in the 1980s grew up to earn more than their parents. That’s a drop from 92 percent of children born in 1940. They also face a faster, more competitive world with challenging opportunities.

The larger economic picture is that successive recessions since the 1970s have led to catastrophic drug use and high suicide rates in regions of blue-collar America that lost entire industries due to modern economies charging ahead at warp speed. Blue-collar, high school educated Americans once earned enough to enter a middle class standard of living that meant homeownership and upward mobility.

The economic death of these regions has resulted in an un-civil war between its inhabitants that has torn apart communities and created a dysfunctional national government unable to meet the urgent needs that modern times require. The overall health and well-being of Americans has declined; Americans are no longer the tallest people, live the longest, are the best educated in the developed world.

Workers have had to travel farther and move more frequently in search of a decent paying job, and better education. Social scientists such as Harvard sociologist Robert Putnam have studied the breakup of communities in his best-selling book, Bowling Alone, The Collapse and Revival of American Community. “Once we bowled in leagues, usually after work—but no longer,” he said in his portrayal of our fractured society. 

Yet it is possible to rebuild broken communities in such difficult circumstances. The loss of national consensus—which at heart is the belief that Americans share common interests and goals—is at the bottom of most of our problems. It is the antithesis of a well-functioning democracy.

President Kennedy’s speeches moved us because nuclear annihilation was always in the back of our minds. I had read Nevil Shute’s 1957 novel On the Beach. It was a terrifying tale of Australians awaiting the arrival of a deadly radiation cloud spawned by a nuclear war. World War III had just devastated most of the populated world, polluting the atmosphere with nuclear fallout and killing all human and animal life in the Northern Hemisphere. 

The icon of that age was the Peace Symbol designed by Gerald Holcomb, a British conscientious objector in despair over the possibility of nuclear annihilation. He is said to have combined naval signal semaphore codes of N with D that stood for Nuclear Disarmament into the symbol we know today. And perhaps because of the threat of nuclear annihilation hanging over us, we preferred to make love rather than war.

What could be more disheartening than the disappearance of all life? We also lived through the anti-communist witch hunts of the McCarthy era that resulted in the House of Un-American Activities Commission hearings to weed out communists and other subversives, even though membership in the American Communist Party was legal.

But those problems could be solved, because so many believed the cold war and wartime institutions were based on outmoded beliefs and ideologies, as do the young today. Wars were fought because governments saw a world of scarcity, and conflict the only solution. The U.S. with just five percent of the world’s population maintained a large military in order to have access to 25 percent of the world’s resources; such as oil.

That is why many of my generation believed in President Kennedy’s vision of a new frontier of possibilities for peaceful coexistence. All things are possible with the spirit and mind-set that enabled us to serve causes that bettered the lives of others, as opposed to the ‘me first’ narcissism so prevalent in much of American culture today. This dedication to service in peaceful ways was first realized in

President Kennedy’s call to form the Peace Corps, where I and more than 200,000 have served.
Brother-in-law Sargent Shriver, the first Director of the Peace Corps and many Great Society programs, added to that vision with his call to service above self, the Peace Corps credo, if one wanted to work to create a more peaceful and just world.

In his acceptance speech at the 1960 Democratic National convention, Kennedy said, “We stand today on the edge of a New Frontier — the frontier of the 1960s, the frontier of unknown opportunities and perils, the frontier of unfilled hopes and unfilled threats. ... Beyond that frontier are uncharted areas of science and space, unsolved problems of peace and war, unconquered problems of ignorance and prejudice, unanswered questions of poverty and surplus”

President Kennedy also benefited the poor and seniors by signing social legislation raising the minimum wage and increasing Social Security benefits. He heard Martin Luther King Jr.’s call for greater justice for African Americans by ordering his Brother and Attorney General Bobby Kennedy to protect the freedom riders in the South supporting James Meredith's attempt to enroll at the University of Mississippi.

This work in service is even more important today for the underserved. A better future for young and old is possible because of the lessons we learned; such as the non-violent tactics of Gandhi and Martin Luther King advocating peaceful coexistence. Cesar Chavez’s farm workers adopted those tactics as well, which promoted greater inclusivity and fairness among all races and ethnicities.

Working in service to higher ideals can be a spiritual quest. I learned the basic elements needed to build and strengthen communities because of the opportunities to work as a Peace Corps volunteer, with the US Environmental Protection Agency and Cesar Chavez’s United Farmworkers Union. Implementing the community development principles first realized in those earlier efforts leads to a better understanding of how to organize our own communities and provide aid in other parts of the world that gives them the tools to develop their own communities.

Domestically, we have made progress in confronting some of the inequities of race and color, yet American society is still recovering from a Great Recession; the worst economic downturn since the Great Depression that has yet to benefit the majority of Americans. There is much more that needs to be done to aid the financial recovery of Main Street households, rather than Wall Street financiers. How much time do we have? The Great Depression of the 1930s lasted ten years and didn’t fully recover until World War II.

There are solutions to what may seem like unsolvable problems that came out of that era. The sixties brought out the best and worst of America, because it was a time of transformation; of new-felt social freedoms from old customs and cultures, greater civil rights, the environmental and peace movements. There were also the darker days of Vietnam, the assassinations of JFK, Bobby Kennedy, and Martin Luther King; which caused many Americans to lose faith that change could be beneficial, or even possible.

The differences between those who see a world of limited wealth and unlimited possibilities is understandable when looking at the growing disparities that have disenfranchised large parts of the Midwest and south—whose citizens tend to blame government for their problems, when in fact these states are most dependent on government aid due to their high levels of poverty.

The debate over who benefits from western countries’ capitalist model hasn’t been resolved between the followers of Adam Smith, who saw self-interested behavior as the path to a general prosperity, and Lord John Maynard Keynes’ model of shared wealth via government programs and regulation that was the basis of the New Deal.

Yet there is no country that hasn’t adopted some elements of the capitalist model with all its deficiencies because it is able to generate almost unlimited wealth—for the few, in many cases.

In fact, we no longer live in a world of scarcity with limited resources that was a basis for the eye-for-an-eye belief system Mahatma Gandhi opposed with his tactics of non-violent protest. Survival of the fittest in a world of brutal competition was the life earlier hunter-gatherer and tribal societies faced, as described by evolutionary psychologist Steven Pinker in his best-seller, The Better Angels of Our Nature.

This is no longer the case, even in the developing world. Our modern, technological economies of almost endless innovation and invention have created the possibility of a world of super-abundance, but not how to share it equitably. In fact, many of the most developed countries, including the U.S., are suffering from the effects of overabundance—obesity, high rates of infectious diseases, cancer, higher suicide rates and the overuse of drugs.

A world of super-abundance is more suited to win-win outcomes, a term used in conflict-resolution and business negotiations. It is the opposite of a winner-take-all, win-lose mentality, because the possibility of a non-confrontational solution enables both sides to benefit in some way. That’s easy to see in limited purchase transactions between a buyer and seller, but not in more complex conflicts involving national entities.

All can profit from such abundance, as we find better ways of sharing this wealth. The sixties world believed in a sharing society, even though we had nothing like the super-abundance modern technology has provided. Only a more sharing and caring society can bring about greater peace and less conflict.

Many new developments are helping to solve the inequities generated by the enormous changes—including a new understanding of financial behavior that can mitigate the frequent recessions and growing inequities of the past four decades. It relates to implementing systems that encourage economic cooperation over competition; systems like the Green New Deal that younger leaders are beginning to propose during this presidential election season.

The U.S. became the technology leader in the sixties, a goal that President Kennedy first set at the beginning of his Presidency. We are the first (and only) nation to land on the moon, explore Mars, and send satellites beyond our solar system. But we are just beginning to develop the environmental and health sciences to create a safer, more predictable world, such as new alternative energy sources that help to mitigate the effects of global warming from the overuse of fossil fuels.

And we still fight among ourselves and in foreign wars. This is while earth’s temperature continues to rise; and why it is so necessary to participate in the efforts to restore communities, as well as strengthen organizations that seek a peaceful resolution to the environmental crises and decreased opportunities for the less fortunate.

Such efforts are succeeding because the legacies of those leaders we lost continue to resonate with the best of America. The Kennedys and King instilled the belief that service above self is more important than self-interested behavior underpinning today’s consumer-driven society of unmet wants and needs. They called for participating in the building of a more universal community that transcends loyalty to ethnic origins and political parties.

Writers from M Scott Peck to President Barack Obama since then have touted the importance of community development in bringing people together to accomplish what cannot be done individually.

A well-functioning community is able to live within the normal boundaries of peaceful coexistence. There are the usual disputes, but ways are found to compromise among the factions because a common sense of mission gives them the will to coexist, rather than become polarized into immovable opposites.

The agents of change usually include individuals that believe diversity is an essential component uniting a community or organization. This is what motivates volunteer organizations such as the Peace Corps, and Rotary International that focus on service above self in the poorest communities and countries.

The recent proliferation of non-governmental organizations (NGOs) also helps to address poverty and wealth-sharing issues in the U.S. and underdeveloped world. Rotary International’s 35,000 clubs have 1.2 million members in some 150 countries that include national leaders. More than 23,000 domestic community and non-profit organizations nurture local initiatives to further community goals and aspirations in the U.S.

The National Collaboration for Youth, an interagency council of the nation’s 50 major youth-serving organizations, notes that its member agencies serve more than 40 million young people each year, making this system second only to the public schools in the number of youths served annually. Indeed, nearly 50 percent of eighth graders in the nationally representative sample surveyed by the U.S. Department of Education reported participation in programs sponsored by one of these groups.

There are also more than 36,900 such youth organizations, according to’s web database, including such long-standing programs as 4-H, Boy Scouts, Girl Scouts, Boys and Girls Clubs, YMCA, YWCA, Girls Incorporated, Camp Fire, Big Brothers/Big Sisters, and Junior Achievement. These organizations are creating the leaders of tomorrow who will bring order to the seeming chaos brought about by the sixties’ tsunami of youthful energy that swept all before it.

How much time is left for Americans to come together in a more peaceful and caring way, a way that allows greater peace of mind and freedom of expression of our better angels? How much time do we have before 50 percent of Miami is under water; hurricanes and cyclones devastate whole regions and even countries, and North Korea or an as yet unknown terror group unleashes a nuclear weapon?

In reality, there are many methods of sharing that would mitigate the effects of growing populations and a changing climate—such as better trade agreements between the developed and developing countries, and the new Paris Accord to reduce global warming that the U.S. and Syria continue to oppose.

ow do we build a world community that lives in shared values and recognizes common aspirations? It will take patience and a determined effort to find commonalities between the various races and religions, yet we all belong to Homo sapiens—the one species in charge of Planet Earth. Recognizing those commonalities will provide the vision of that new frontier of possibilities we glimpsed in the sixties; and which inspired many of us to find a path that leads to a better place for America and the world.

We know how much President Kennedy’s vision influenced other countries as well as our own from the countless memorials that honor him. They help to remind us what needs to be done, as much as what has been done. It will happen as the newer generations find their call to serve, just as we found ours.

Harlan Green © 2019

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Thursday, June 20, 2019

Can We Provide Housing For Everyone?


I said in an earlier column “that part of the solution to the housing and homeless crisis has to be the responsibility of governments.” But the Silicon Valley giants Google, Apple, and Washington State’s Microsoft are finding it necessary to also boost housing supply, for no other reason than to make it affordable for their employees being priced out of their own markets.

San Francisco’s median home price has reached $1.5m, for instance, In January, the Chan Zuckerberg Initiative, the San Francisco Foundation, Facebook, Genentech, and others announced a new $500 million fund to build or preserve more than 8,000 homes in five Bay Area counties over the next five to 10 years, reported the San Jose Mercury News.

And Microsoft has committed $500 million to build affordable housing and tackle homelessness in the Seattle area, while Wells Fargo recently said it would spend $1 billion for affordable housing as part of a broader national philanthropic push.

But Google, said in a blog post cited by the Mercury News it would spend $750 million to build housing on its own land. Aimed at freeing up space for 15,000 homes, the  process could take up to 10 years. Google would work with cities to rezone land that is mostly designated now for office or commercial uses. In 2018, 3,000 homes were built in the South Bay, Google noted.

Regarding the homeless crisis, a recent Project Syndicate article by UC Berkeley economist Laura Tyson, and Lenny Mendonca, Chairman of New America, highlighted just how much government support will be needed to take some of the half million homeless off the streets, a number that has grown sharply just since 2017 as housing rents and prices have soared with the economic recovery.

According to the U.S. Department of Housing and Urban Development (HUD), there were roughly 554,000 homeless people living somewhere in the United States on a given night last year. “A total of 193,000 of those people were "unsheltered," meaning that they were living on the streets and had no access to emergency shelters, transitional housing, or Safe Havens. Despite a booming stock market and strong economic growth, a large swathe of America is still struggling to make ends meet.”
Affordability is the real problem. “Of 3,007 counties in the US, a worker earning the federal minimum wage of $7.25 per hour can afford a one-bedroom rental in only 12,” said Project Syndicate. “In San Francisco, where the median house price is over $1.5 million, a single mother earning the minimum wage would have to work 120 hours per week to meet her basic needs. And even outside of high-cost regions, nearly two-thirds of US households lack the savings to cover a $500 shock such as a car repair or health-care expense. For these families, one bad turn can result in homelessness.”
The most common-sense solution would be to build more homes for all socio-economic strata, but surveys have shown that a majority of the home owning public thinks in NIMBY (Not-in-My-Backyard) terms; which means the most affordable housing is being built on least-desirable land usually far from population centers. is one such advocate and clearing house for the building of affordable housing under its Mission Statement: “For the United States to be a prosperous country, it must have strong cities, towns and neighborhoods. Enduring prosperity for our communities cannot be artificially created from the outside but must be built from within, incrementally over time.”

For instance, California would need to build around 180,000 more new housing units each year – about 100,000 more than are currently being built – just to keep up with population growth. Since 2010, eight times as many jobs as housing units have been added in San Francisco, where the average cost of building “affordable apartments” has jumped to $425,000. King County, Washington, which includes Seattle, estimates that it would need 14,000 more units to house its homeless population.

Not providing lodgings and services for the homeless can be even more expensive. There are many studies that show how costly it can be to leave the homeless on America’s streets; as much a two times the cost of providing shelter when healthcare and other public costs are incurred.

Many local and state governments have developed what have been called ‘Housing First’ programs to help subsidize the 30 percent of homeless with mental illnesses in particular. Chronically homeless people are regular visitors to emergency rooms, and each visit results in a hefty bill. They also frequently use mental health and addiction treatment services and tend to rack up arrests, leading to costly jail terms.
“Housing First is a homeless assistance approach that prioritizes providing permanent housing to people experiencing homelessness, thus ending their homelessness and serving as a platform from which they can pursue personal goals and improve their quality of life,” said its program statement. “This approach is guided by the belief that people need basic necessities like food and a place to live before attending to anything less critical, such as getting a job, budgeting properly, or attending to substance use issues.”
Philip Mangano, the former homelessness policy czar under President George W. Bush was an early government official that had the foresight to expand housing-first programs -- with federal dollars behind them -- into cities around the country.

Using data from the 65 cities -- of all different sizes and demographics -- the cost of keeping people on the street added up to between $35,000 and $150,000 per person per year, said Mangano.

One lack that has yet to become part of this conversation is the dearth of alternative transportation modes that service the Bay Area. Even BART, the SF Bay Area’s sole rapid transit system, has yet to encircle the Bay that would connect it to Silicon Valley, which means congested freeways for years to come, and more than 2 hour commutes to Silicon valley jobs for those that live in the more affordable housing markets outside the Bay Area.

We must find a way to care for the homeless and those rendered hopeless by the Great Recession, loss of good-paying jobs and record income inequality that has now lasted decades. Or, the richest country on earth risks becoming the poorest provider of care for our citizens, and our democracy.

Harlan Green © 2019

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Tuesday, June 18, 2019

Who Pays For the Tariff Wars?

Popular Economics Weekly

It’s unfortunate that we have to keep returning to the most unpleasant of topics--- higher taxes. But that’s what the White House is doing with their various Chinese, Mexican, and European tariffs. They seem to be waging an economic war with most of the world; on top of implementing N Korean, Iranian, and Russian sanctions.

Americans pay for it in the end, since it raises the price of items; particularly imports that are taxed as they enter the U.S.  But U.S. exports are also taxed by those same countries in retaliation for our tariffs.

There’s a precedent for the damage such uncoordinated actions cause (i.e., unilateral actions without coordination with allies). The Smoot-Hawley Tariff act of 1930 (also engineered by a Republican administration) taxed imports thus raising their prices and helping to precipitate the Great Depression. There were many other causes as well—record income inequality, and a Federal Reserve that then began to restrict credit with falling prices.

Sound familiar? It’s scary when such histories repeat themselves—mostly out of ignorance of the lessons. And now, an expanding body of research has found that the most recent tariffs has mostly fallen on U.S. consumers and businesses

One of the latest papers published on the topic and cited by a CNBC report, is with economics researchers from the International Monetary Fund, Harvard University, University of Chicago and the Federal Reserve Bank of Boston. “Using price data collected at the U.S. borders and at retailers, the researchers found “nearly complete pass through of tariffs” to America. In other words, little cost is falling on the Chinese manufacturers,” said the CNBC report.

The Harvard report said the Trump administration has imposed import tariffs ranging from 10 to 50 percent on goods including washing machines, solar panels, aluminum, steel, and roughly $250 billion of goods from China. In response, Canada, China, the European Union (EU), and Mexico have imposed retaliatory tariffs. On a scale not seen since the 1920s, the world’s largest economies have passed measures making it far more costly to buy goods from each other.

It is frightening, not just because it brings back memories from the Great Depression. Isn’t that also one definition of insanity, doing something over and over again, yet expecting different results?

It is partially the fault of congress that hasn’t pushed back, or authorized legislation that opposes such actions the White House says are “in the interest of national security,” when most of the tariffs are being enacted against our allies, and therefore increase the threat to national security.

In fact, it is the tariffs themselves that pose the greater danger to future growth. We are in the tenth year of the soon-to-be longest economic recovery ever, while interest rates are plunging and nervous investors rush to safe havens like Treasury securities; and restrict their spending, while corporate profits are declining.

This shouldn’t be the time to create more economic uncertainty, in other words, when we are nearing the end of the longest economic expansion in our history.

Harlan Green © 2019

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Saturday, June 15, 2019

Saving Capitalism--Part II

Popular Economics Weekly

Nobel laureate Joseph Stiglitz’s plea to save capitalism is important for a number of reasons; foremost is the survival of liberal democracy itself. Modern liberal democracies that we have known since WWII cannot survive if we cannot ‘fix’ modern capitalism to serve the majority rather than minority of its citizens.
“There are many reasons for our plight, including corporate power and greed centered on immediate profits and little regard for the impacts business decisions have on low-income Americans and the environment,” said Stiglitz. “Corporations have translated their economic power into political power, lobbying for policies that give them free rein to despoil the environment; and the swamp President Donald Trump promised to drain has been overflowing.”
It cannot survive without greater government programs to improve lives, and better control of financial markets, advantages that countries like China, the world’s second largest economy, have in competing in world markets for resources, and winning trade competitions.

One answer is what is called Modern Monetary Theory, or MMT, that both progressives and conservatives are talking about. It’s really a reincarnation of the New Deal that enabled America to pay for the Great Depression and WWII with a large amount of government debt, without raising taxes at the time that would have impeded economic growth.

Conservatives have railed against versions of MMT since Roosevelt and his Labor Secretary Francis Perkins created the New Deal—giving millions of jobs to jobless Americans, creating the social safety net and much of the early infrastructure (dams bridges, energy grids) that need updating today.
But it’s now become obvious from their 2017 tax cuts that Republicans love debt as much as anybody when it suits their purpose.

Conservative publication Barron’s Magazine portrays in this graph from 1985 to 2016 the actual U.S. net savings as a percentage of GDP. It highlights the wide fluctuations in the line graph—when there were 4 years of federal budget surpluses 1996-2000 (midgraph), to the low point in net savings during the Great Recession with the massive federal deficit. Foreign net savings are in red, domestic household and business net saving in blue and gray.

MMT is being touted as a possible way to pay for AOC’s Green New Deal, universal health care and other Democratic initiatives that will create jobs for all.

But debt has to be paid back in one form or another. In post-WWII economies, 1) it does get paid back if used in advancing growth that increases revenues, and 2) debt is extremely cheap today with the world awash in excess savings that investors are begging to place where it will give a decent return. Financing U.S. budgets with ‘other people’s money’ is not so risky when there’s no safer place to put it than in U.S. dollar investments.

WWII’s 120 percent of GDP debt was paid down to less than 40 percent in the post-war years with massive growth and productivity-enhancing investments like public highways, the Internet, modern healthcare improvements and government basic research.

We are in a much better position today with a fully-employed economy. But it does subject investors to the vagaries and vacillations of the Treasury bond market, which is the safest haven for investors afraid of an economic downturn that could crater stock prices.

Democracies are also in danger with authoritarian governments springing up in Eastern Europe using Russia and China’s authoritarian examples that control the courts and public media to maintain their power.

However modern capitalism with its checks and balances has enabled the growth of prosperous middle classes at the heart of liberal democracies. No other economic system is able to produce the quantity of goods and services required for a healthy liberal democracy.

Radosław Sikorski, Polish Minister of Foreign Affairs, speaking of recent anti-democratic trends in Eastern Europe at the Wrocław Global Forum, an annual summit organized by the Atlantic Council, the city of Wrocław, Poland, and other partners, noted a startling fact--there is a common assumption that dictatorships may be better at some economic tasks because they do not have to pay attention to public opinion. Yet communist governments in Central and Eastern Europe failed to live up to that supposed economic advantage.
Sikorski explained, “My thesis is this: contrary to received wisdom, dictatorships also have public opinion and dictatorships are usually more cowardly than democrats. That is why fundamental economic reform under dictatorships – in Chile for example – is the exception, not the rule. It is usually the democrats who have to tidy up the mess, including economic mess, left by dictatorships.”
The club of rich democracies is not easy to join, per a recent piece in the Economist, but those who get in tend to stay there. Since the dawn of industrialisation, no advanced capitalist democracy has fallen out of the ranks of high-income countries or regressed permanently into authoritarianism.

This is not a coincidence, say Torben Iversen of Harvard University and David Soskice of the London School of Economics, in their recent book, “Democracy and Prosperity”. Rather, they write, in advanced economies democracy and capitalism tend to reinforce each other, as I’ve been saying. It is a reassuring message, but one that will face severe tests in years to come.

What are those tests? The largest may be how to grow an economy that benefits more of the middle and lower-income classes with greater government-funded programs, such as happened with the New Deal. That obviously hasn’t been the case since 2009 and the recovery from the Great Recession. It is already being tried successfully in many Northern European countries that reward its citizens with a larger social safety net, shorter working hours, and more leisure time.

Professor Stiglitz, Torben Iversen, David Soskice and a growing number of economists show just how liberal democracies have survived multiple wars and global recessions; by modernizing capitalism to fit modern needs. Perhaps “capitalism is the worst economic system, except for all the others,” to paraphrase Winston Churchill’s famous aphorism.

Harlan Green © 2019

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Friday, June 14, 2019

How Strong is 2019 Housing Market--Part II?

The Mortgage Corner

We asked just how strong is the housing market last month with interest rates beginning to fall again. Lawrence Yun, NAR’s chief economist, said he is not overly concerned about the trending drop in existing-home sales reported in May.
“First, we are seeing historically low mortgage rates combined with a pent-up demand to buy, so buyers will look to take advantage of these conditions,” he said. “Also, job creation is improving, causing wage growth to align with home price growth, which helps affordability and will help spur more home sales.”
So-called ‘house-flipping’ (homes sold that are owned less than 2 years) is becoming a significant trend, meaning housing prices have risen enough that home buyers are beginning to buy homes they intend to sell in less than 2 years; which also happened in early 2000s when the housing bubble took off. Speculators are hoping to make a quick buck, in other words, as there is a rather severe lack of available inventory in the affordable and mid-price ranges.

That has left a big market for rehab specialists who can get their hands on physically distressed or out-of-date properties for peanuts. The median sales price of flipped homes during the first quarter was $215,000, according to Attom Data Solutions, a real-estate information firm.
ATTOM Data Solutions just released its Q1 2019 Home Flipping report and found that 7.2 percent of all home sales during the first quarter reached a new high flipping rate, the highest since Q1 2010.

The 7.2 percent flipping rate is up from 5.9 percent in the previous quarter and up from 6.7 percent a year ago. However, while flippers are flipping, gross profits are stumbling.

“Homes flipped in Q1 2019 sold at an average gross profit of $60,000, down from an average gross flipping profit of $62,000 in the previous quarter and down from $68,000 in Q1 2018 to the lowest average gross flipping profit since Q1 2016’” said the report.

This is further evidence of the lack of affordable housing inventory, even though sales of previously-owned homes have fallen in three out of four months this year. However new-home sales are running about 7 percent higher than last year’s pace, says MarketWatch’s Andrea Riquier. This is while home prices accelerated in April for the first time in a year.

Mortgage applications increased 26.8 percent from one week earlier. Refinance applications are up 48 percent and purchase applications up 20 percent without seasonal adjustments, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending June 7, 2019.
"Mortgage rates for all loan types fell by a sizeable margin for the second straight week, pulled down by trade tensions with China and Mexico, the financial markets reacting to more bearish communication from several Fed officials, and weaker than expected hiring in May," said Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting. "Despite the less positive outlook, both purchase and refinance applications surged, driven mainly by these lower rates. The refinance index jumped 47 percent to its highest level since 2016."
No wonder, as the 30-year conforming fixed rate is holding at 3.50 percent for less than a 1 pt. origination fee, as interest rates are back to historic lows last seen during the Fed’s QE programs, as I said. The super-conforming fixed rate with loan amounts to $625,500 also now available at 3.50 percent.
Harlan Green © 2019

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Monday, June 10, 2019

May employment Not Looking So Good

Popular Economics Weekly

Total nonfarm payroll employment edged up in May (+75,000), and the unemployment rate remained at 3.6 percent, the U.S. Bureau of Labor Statistics reported today. Employment continued to trend up in professional and business services and in health care.

This MarketWatch graph tells it all. Mostly lower-paying businesses in the service-sector; Leisure/Hospitality, Education/Health, and Professional Services gained 76,000 jobs; whereas those in higher-paying construction, manufacturing, wholesale trade, retail and government lost 75,000 jobs.

And since annual wages are barely rising above inflation—now 3.1 percent vs. 3.4 percent in earlier reports—some 5.8 million workers choose either part time work or no work at all, which is basically unchanged for months and means the labor participation rate has probably peaked, prior to the next slowdown (or recession).

The economy has now created an average of 151,000 new jobs in the past three months, down from as high as 238,000 at the start of the year.

So what happened to the consensus for BLS numbers of 180-200k+ payroll growth in May? It certainly looks like the manufacturing industries in particular are losing growth per the ISM manufacturing and non-manufacturing indexes, as I said yesterday. Guess why, with how many trade wars going on, and Midwest farmers now drowning in mud as well as debt? Manufacturers are affected because they have to either import or export most of their parts and products, whereas the service industry is mostly domestic industries (though computer software is exported).

As an example, the factory sector is a listing vessel based on the ISM manufacturing index for May which came in on the low side of estimates at only 52.1. This is the weakest score since October 2016 and shows modest-to-moderate rates of growth for production (51.2), new orders (52.7) and employment (53.7). Backlogs are sharply lower and in contraction, down 6.7 points in May to 47.2 for an unfavorable indication on June employment. But it still shows positive growth.

Whereas today’s ISM non-manufacturing index showed how strong the service sector is, and where most of the lower-paying jobs are created. Employment jumped 4.4 points to 58.1 in the best showing since October last year. New orders are also up 5 tenths to a very strong 58.6 which points to gains for the business activity index (production) in future months. Business activity in May was already very strong, over 60 at 61.2 for a 1.7 point gain.

The real issue will be how to fill the more than 7.5 million vacancies in the earlier JOLTS report. The March Job Openings and Labor Turnover Summary really showed how many more of those lower-paying jobs remain unfilled; and which a rising number of workers are refusing to fill. It’s why wages have risen so slowly for years and inflation has dropped to almost deflationary levels.

It also explains why housing hasn’t taken off during this recovery from the housing bubble. The median income of young adults in the 25–34 year-old age group that are the majority of new homebuyers was up just 5 percent from 1988 to 2016, according to the 2018 report from Harvard’s Joint Center for Housing Studies.

Meanwhile, gross domestic product per capita, a measure of total economic gains, increased some 52 percent from 1988–2017. If incomes had kept pace more broadly with the economy’s growth over the past 30 years, they would have easily matched the rise in housing costs—underscoring how income inequality has helped to fuel today’s housing affordability challenges, as well as economic growth in general.

Harlan Green © 2019

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Tuesday, June 4, 2019

Professor Stiglitz’s Plea to Save Capitalism

Popular Economics Weekly

Nobel laureate economist Joseph Stiglitz has been saying he wants to make capitalism work for everyone again in various writings, just as it did post-WWII, including this CNN commentary on the recent Earth Day. Is there even a viable alternative?
“America's economy has not been working for a large portion of the country. Workers at the bottom of the income scale earn wages, adjusted for inflation, that are not much higher than what they were 60 years ago, while the income of a typical full‐time male worker hasn't budged much from 40 years ago. In addition, life expectancy is in decline. But the economy is not only failing American citizens. It's failing the planet, and that means it's failing future generations.”
So how do we make it work for more Americans in the face of almost united opposition by the Republican Party? Firstly, we have to recognize the actual problem—Republican attempts to disempower large segments of Americans—women and blue-collar workers, for starters that have suffered the most from rollbacks in healthcare and workers’ collective bargaining rights.

We know the cost of the 2017 Republican tax cut bill; more than $1.5 trillion of spending cuts in Medicare and Medicaid coverage over 10 years in an attempt to lessen the projected $1 trillion annual budget deficit it is already costing; not to mention the endless attempts to cripple or outright abolish Obamacare without an alternative, and ban abortions, if not contraception outright.
And “In a new study for the Brookings Institution’s Hamilton Project, we report survey results in which we find that one in five workers with a high school education or less are subject to a noncompete. A quarter of all workers are covered by a noncompete agreement with their current employer or a past one,” reports the NYTimes.
This means they are banned from working for a competing company in a similar line of work for a certain period, limiting their mobility and hunt for a better job.

This is why Americans’ life expectancy is on the decline, while rising in all other developed countries; which have universal health care, pay for the costs of state-run, higher education institutions, and in general protect their citizens with an extensive social safety net.

Why does America have more than ten times the per capital prison population than other developed countries, and stratospheric gun violence—now 40,000 per year killed with white males the largest segment of gun suicides—whereas other developed countries annual gun deaths number in the 100s?

We don’t need to be diverted by the many “crimes and misdemeanors” of POTUS and the White House. Republicans have been rolling back social benefits and increasing inequality since at least 1980 by commandeering the levers of power—Wall Street with the repeal of Glass Stegall and deregulation of whole industries, corporate America with now unlimited fund-raising due to their Supreme Court win in citizens vs. united, and gutting of the Voters Rights Act that weakened federal enforcement of voter discrimination against minorities in states with a history of discrimination.

The list goes on and on. So what can be done about it? Make government(s) again the solution, rather than the problem that Reagan liked to intone to his supporters, and that ran up the first record public debt. It wasn’t until President Clinton’s successful attempt to actually create a budget surplus in his last four years (1996-2000) that America first began to pay down that debt.

But the Bush/Cheney government frittered it away with multiple budget cuts and foreign wars, increasing it again rather than diverting the savings to domestic programs that would strengthen America, and led to the Great Recession.

The lesson is obvious. Government wasn’t ever the problem, since Republicans have been willing to spend taxpayers’ money to support their own programs and run up record debt without any intention to pay it back to the American taxpayer.

Instead, government has worked very well when it funded their wars, higher corporate profits, or gone into the pockets of their high-net worth supporters. We should never buy Republicans’ attempt to brand-name government as the problem, particularly when it has benefited them far more than the average American.

Will it save capitalism, as we know it?  Only if we don’t buy the Republicans’ mischaracterizations.  Modern capitalism is really the creation of modern liberal democracies, with its ability to nurture growth and innovation that accompany the democratic checks and balances to prevent its excesses.

So  in saving democracy, we can save a modern capitalism that works for the many.

Harlan Green © 2019

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