Tuesday, February 15, 2005

Housing revisited

Coincidentally, I was referred to two housing bubble reports today. This one is from FDIC, and these are slides from a talk by NY Fed VP Richard Peach. The latter is remarkably sanguine - it seems to say that price to rent and price to median income indexes are off because they don't adjust for improving quality of units sold (for instance, increased median square footages, etc. - sounds to me like the "hedonic" adjustments in the CPI that Bill Gross is suspicious about). Once that adjustment is made the housing market doesn't look overpriced, at least nationally. The Fed report also claims that while many buyers are motivated by low interest rates, few are buying in anticipation of near term price increases (classic sign of a bubble).

I guess I'm skeptical, and in any case there is a big difference between a national housing bubble and one in selected markets like CA, Boston, DC, etc. You can read the reports and decide for yourself...
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7 comments:

Anonymous said...

Steve,

Soory, Off-topic, but I have been meaning to ask you about this for quite some time.

Do you have any recommendations for the any good books/online materials that would be like an ' Applied Economics for physicists/scientists?' applicable in the real-world, such as different kinds of markets, their sizes, impact on economies etc...

I have seen two kinds of books:

* The freshman economics texts: well, they spend 50 pages explaining derivatives, plotting/interpreting graphs....
*Advanced texts (like Romer's Advanced Macroeconomics). Has good stuff, but not much information about markets.

One book I learnt quite a bit from was Krugman's Peddling Prosperity, particularly Keynes' subtle idea (recession is hoarding of cash; money supply is neutral in the long term, but not in the short term). But I would like something which gives information about the various kinds of financial instruments and their sizes and impacts. (For example, I did not know till recently that the bond market is much larger than the stock market.)

MFA

2:43 PM
Calculated Risk said...

The FDIC housing report is very informative. It is mostly an historical review of busts and booms ... but I was intrigued with the analysis of the current situation.

As an example: "Subprime mortgage loan originations surged by a whopping 25 percent per year between 1994 and 2003, resulting in a nearly ten-fold increase in the volume of these loans in just nine years. Subprime mortgages currently account for just over 10 percent of all mortgage debt outstanding."

my emphasis addedAlso, the discussion of leverage by many current homebuyers is alarming.

Best Regards!

2:53 PM
Anonymous said...

Aside, but there is building here :)

http://www.nytimes.com/2005/02/15/science/15origami.html?pagewanted=all&position=

Origami as the Shape of Things to Come
By MARGARET WERTHEIM

CAMBRIDGE, Mass. - "Some people don't even think this exists," says Dr. Erik Demaine, turning in his hands an elaborately folded paper structure. The intricately pleated sail-like form swooshes gracefully in a compound curve and certainly looks real enough - if decidedly tricky to make.

Dr. Demaine, an assistant professor of computer science at the Massachusetts Institute of Technology, is the leading theoretician in the emerging field of origami mathematics, the formal study of what can be done with a folded sheet of paper. He believes the form he is holding is a hyperbolic parabaloid, a shape well known to mathematicians - or something very close to that - but he wants to be able to prove this conjecture. "It's not easy to do," he says.

Dr. Demaine is not a man to be easily defeated by a piece of paper. Over the past few years he has published a series of landmark results about the theory of folded structures, including solutions to the longstanding "single-cut" problem and the "carpenter's rule" problem. These days he is applying insights he has gleaned from his studies of wrinkling and crinkling and hinging to questions in architecture, robotics and molecular biology.

Origami may seem an unusual route to a prestigious university job, but most things about Dr. Demaine defy academic norms.

As a child, he and his father, Martin, a goldsmith and glass artist who home-schooled his son as a single parent, traveled around the United States, settling somewhere new every 6 to 12 months.

At 12 years old, after Erik had become intensely interested first in computer games, then in computer programming, and finally in mathematics, he persuaded the administrators of Dalhousie University in Halifax, Nova Scotia, to let him take classes in math and computer science. His father sat in as an auditor. Erik Demaine received his doctorate at 20 and at the same age became the youngest professor ever at M.I.T. In 2003 he was granted a MacArthur "genius" fellowship.

Today, at 23, he has published over 100 academic papers in fields as diverse as computational geometry, combinatorial game theory, data stuctures and graph theory. Along with his interest in folding, Dr. Demaine is also an expert in algorithms. He is also one of the computing world's major collaborators, with more than 140 co-authors so far.

"He loves working with other people," says Dr. Joseph O'Rourke, a mathematician and computer scientist at Smith College who has been collaborating with Erik Demaine since he was 16. "He has a very broad understanding of a whole range of topics and he often brings in ideas that at first seem off the wall but really help to enrich what you are doing."

Yet for all Dr. Demaine's smarts, the pleated form in front of him is not giving up its secrets easily. The perplexing question is whether its concertina-like structure can be derived by purely mathematical transformations of a flat sheet, or whether the sheet must be stretched in places to take on this complex shape.

As Dr. Demaine explains, stretching would warp the intrinsic flatness thereby destroying the underlying geometry. If that were the case then, mathematically speaking, it would not exist. "But if it doesn't exist mathematically then something else is going on and it would be nice to know what that is," he says, setting the model down on his desk....

6:32 PM
Steve Hsu said...

...various kinds of financial instruments and their sizes and impacts. (For example, I did not know till recently that the bond market is much larger than the stock market.)MFA, this information is not readily available in any single source that I know of. The closest thing I can recommend is to read the Economist!

If something occurs to me I will let you know!

6:48 PM
Anonymous said...

Burton Malkiel "A Random Walk Down Wall Street" is excellent.

Anne

8:07 PM
Anonymous said...

We are in a global bull market: stocks, bonds, commodities, and real estate. But, except for real estate there is all sorts of worry. Except for real estate, judging by the breadth of the boom internationally.

Anne

8:13 PM
Anonymous said...

Anne and Steve thanks for the advice!

MFA

8:27 AM

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