Warren Buffett on the U.S. economy

As always, Warren Buffett—the most successful investor alive—is optimistic about the long-term future of the United States economy:

Money will always flow toward opportunity, and there is an abundance of that in America. Commentators today often talk of “great uncertainty.” But think back, for example, to December 6, 1941, October 18, 1987 and September 10, 2001. No matter how serene today may be, tomorrow is always uncertain.

Don’t let that reality spook you. Throughout my lifetime, politicians and pundits have constantly moaned about terrifying problems facing America. Yet our citizens now live an astonishing six times better than when I was born. The prophets of doom have overlooked the all-important factor that is certain: Human potential is far from exhausted, and the American system for unleashing that potential – a system that has worked wonders for over two centuries despite frequent interruptions for recessions and even a Civil War – remains alive and effective.

We are not natively smarter than we were when our country was founded nor do we work harder. But look around you and see a world beyond the dreams of any colonial citizen. Now, as in 1776, 1861, 1932 and 1941, America’s best days lie ahead.

David Lereah's home, revisited

For those who weren't readers of Bubble Meter during the housing bubble peak years, Bubble Meter has long had a tiff with David Lereah, the former chief economist at the National Association of Realtors. David Lereah regularly deceived people by making rosy housing market predictions during the bubble, in order to encourage them to buy homes that were overvalued.

The housing bubble peak was five years ago. Here is the value of David Lereah's 3,068 square-foot home since then:

And, yes, David Lereah lives in the Washington, DC metro area, which gives lie to the idea that home prices in the DC area don't fall.

According to The Wall Street Journal, David Lereah drives to Dunkin' Donuts or McDonald's for breakfast every morning. The closest to his home are both in the same strip mall right by the GMU Fairfax campus.

Case-Shiller: Home prices still falling

Year-over-year home prices are down 4.1% according to the latest S&P/Case-Shiller data. Yale economist Robert Shiller predicts prices could fall 15% - 25% more.

Home prices took a big hit at the end of 2010, even as the rest of the economy gained steam.

National home prices fell 4.1% during the last three months of 2010, compared with 12 months earlier, according to the latest report from the S&P/Case-Shiller home price index, a closely watched indicator of market trends. ...

And things may get a lot worse, said Robert Shiller, a Yale economist and half of the Case-Shiller team, in a web conference after the report's release.

"There's a substantial risk of home prices falling another 15%, 20% or 25% more," he said.

The full press release is here.

Shadow Stats

From Paul Krugman, Nobel-laureate in economics:

An interesting exchange between John Quiggin and Jonathan Chait on right-wing agnotology — that is, culturally-induced ignorance or doubt. ...

I mean, I see it all the time on economic statistics: point out that inflation remains fairly low, that the Fed isn’t really printing money, whatever, and you get accusations that the data are being falsified, that you yourself are cherry-picking by using the same measures you’ve always used, whatever. There really is epistemic closure: if the facts don’t support certain prejudices, that’s because They are hiding the truth, which we true believers know.

Here Paul Krugman is talking about the right wing in general, especially Tea Party types, but the paragraph on economic statistics could easily be applied to the Shadow Stats website and its cult members followers.

Housing "immunozones" getting hit

According to The New York Times, America's housing "immunozones" are continuing to suffer home price declines, even as some of the early crash cities start to recover:

The rolling real estate crash that ravaged Florida and the Southwest is delivering a new wave of distress to communities once thought to be immune — economically diversified cities where the boom was relatively restrained.

In the last year, home prices in Seattle had a bigger decline than in Las Vegas. Minneapolis dropped more than Miami, and Atlanta fared worse than Phoenix.

The bubble markets, where builders, buyers and banks ran wild, began falling first, economists say, so they are close to the end of the cycle and in some cases on their way back up. Nearly everyone else still has another season of pain.

With that in mind, here's a home price graph for my local Washington, DC housing market. The city of Washington, DC has seen median home prices fall $65,000 (15%) since the peak, and they're still sliding down slowly.

Washington, DC has been the most immune of the immunozones due to its ability to suck on the federal government's teat. What's the biggest threat to that teat? Senator Rand Paul.

Graph of the day: Government propping up the housing market

This graph from The Wall Street Journal shows the number of new mortgages backed by the government vs. those not backed by the government.

Fannie and Freddie to go bye-bye

Apparently, the Obama administration is going to propose killing off Fannie Mae and Freddie Mac:

The Obama administration will issue a proposal later this week recommending the gradual elimination of government-sponsored mortgage backers Fannie Mae and Freddie Mac, a White House official said Wednesday.

The highly-anticipated "white paper," which is expected to be released Friday, will include three different options for reducing the role government plays in the mortgage market, the official said.

While the paper would mark an important development in the debate over what to do with Fannie and Freddie, a final decision by Congress is not expected any time soon.

After being rescued by the government in 2008, Fannie and Freddie have presented a major conundrum for policymakers in Washington.

The problem is that phasing out the two publicly traded companies could raise borrowing costs for homeowners and jeopardize the fragile housing market.

At the same time, Fannie and Freddie represent a major liability for taxpayers, who are on the hook for about $150 billion in federal aid the two institutions have received.

What will we do without the government subsidizing home buying? Oh, wait, there's still the home mortgage tax deduction.

Anybody want to start the bidding on a pretty nice piece of Washington, DC real estate? It's probably not a good time to go job hunting there, though.

Real estate junk mail

As with many renters, I frequently get junk mail advertising new home construction. I got this one yesterday:


Apparently you get to live in a closet.