December 1, 2014
Smith and Harper have posted Home Equity Insurance & The Demise of Home Value Insurance Corporation to SSRN. The abstract reads,
This study uses the demise of the Home Value Insurance Company (HVIC) to explore whether the concept of home equity insurance is implementable. Shiller, R. and Weiss, A. (1999) and Goetzmann, W., Caplin, A., Hangen, E., Nalebuff, B., Prentce, E., Rodkin, J., Spiegel, M. and Skinner, T. (2003) have provided a platform to evaluate this concept by questioning whether a product that allows homeowners to transfer the risk associated with a decline in housing prices should be structured as insurance. This study explores the cost associated, in the U.S. Real Estate Market, with this risk transfer process in the pre- and post-mortgage crisis periods by simulating the cost of insurance using the theoretical pricing of ATM (at the money) put options based upon the Black Scholes Option Pricing Model from 1989 to 2013. As the U.S. Housing Market transitioned from the pre-crisis to the post-crisis periods the hypothetical breakeven cost of insurance increased from 0.60% to 20.85% of the starting value of the index. The demise of HVIC seems to be a cautionary tale: Given the recent changes in the underlying dynamics of the U.S. Real Estate Market it does not seem prudent (for insurers) to use insurance contracts to transfer the risk associated with a decline in the value of U.S. Residential Equity Wealth.
This is all a bit technical, but basically it is an investigation of a clever idea that did not seem to pan out. Robert Shiller and others proposed that home owners could insure against a decrease in the value of their home. But a company based on that proposal failed in its first year of operation. The article finds that the cost of such insurance would be unsustainable. I am not sure that this article definitively demonstrates that this concept is impossible to implement, but it certainly raises a lot of questions that would need to be answered if someone were to want to give it another go.
November 28, 2014
The Urban Institute’s Housing Finance Policy Center has posted a research report, Measuring Mortgage Credit Availability Using Ex-Ante Probability of Default. This report tackles an important subject:
How to strike a balance between credit availability and risk to achieve a sustainable housing market is a much-debated topic today, but these discussions are not grounded in good measurements of credit availability and risk. We address this problem below with a new index that measures credit availability and risk simultaneously
November 27, 2014
In the morning as the storm begins to blow away
the clear sky appears for a moment and it seems to me
that there has been something simpler than I could ever
simpler than I could have begun to find words for
not patient not even waiting no more hidden
than the air itself that became part of me for a while
with every breath and remained with me unnoticed
something that was here unnamed unknown in the days
and the nights not separate from them
not separate from them as they came and were gone
it must have been here neither early nor late then
by what name can I address it now holding out my thanks
by W.S. Merwin from The Pupil
November 26, 2014
The New York City Council released a report, Engines of Opportunity: Reinvigorating New York City’s Manufacturing Zones for the 21st Century. I am always worried that discussions of increasing manufacturing jobs, especially in a city as expensive as New York, are informed by a romantic vision of a past that cannot be recaptured. This report seems to be aware of that trap. It focuses on marginal improvements that can be made to support the kind of manufacturing and creative economy jobs that can survive the brutal competition for space and skilled employees that New York companies have to deal with.
The report makes three land use policy recommendations:
November 25, 2014
The Urban Institute has posted its November Housing Finance At A Glance. This is a really valuable resource. The introduction provides a nice overview of recent developments in the area:
November 24, 2014
MaintStreet quoted me in How to Avoid War Between Homeowner Associations and Residents. It reads in part,
When Robert Stern moved into the Sedgefield retirement community in Ocean Isle Beach, N.C. four years ago, all he could see was four golf courses, a pool and club house on multiple wooded acres.
“Our home is on the 14th hole of Lion’s Paw golf course where there is beautiful water lining the green,” Stern told MainStreet. “It is common to see egrets, herons, geese, turtles and other wildlife coming in and out of the area.”
But lurking under the beautiful scenery was the Homeowners Association, which Stern discovered when he left for six months to live in his Nevada retirement home. Stern is among the 63 million Americans living in communities across the country under the jurisdiction of an HOA, according to the Community Association Institute.
“Our property was being neglected and is currently a mess and the dysfunctional Sedgefield Committee won’t take responsibility for not having performed contractual compliance inspections,” said Stern.
“An HOA is a double edged sword,” said David Reiss, professor of real estate with the Brooklyn Law School. “HOAs allow residents to have a lot of sway over their environments but they also make decisions that individual residents don’t like. If you don’t agree with the decision, whether it be over a big or small issue, it can grate no matter what the decision is.”
How to Resolve Disputes
Resolving a dispute with an HOA can involve litigation or joining the club.
“When it comes to the tyranny of the board, we have met the enemy and it is us,” Reiss told MainStreet. “A very effective technique to contest a decision with which you disagree is to run for the board.”
Under most HOAs, boards are elected by residents.
“Those who are willing to do the work end up calling the shots,” Reiss said.