Why housing prices are going up, despite higher interest rates

 

From The Economist:

Three factors, however, explain why housing markets have so far brushed off higher rates. 

1. Increased Demand: The pandemic seems to have made people more hermit-like: they work from home more and spend relatively more time on home entertainment than on going out. People thus place a higher value on their living space, raising demand for housing. 
2. Fixed-rate mortgages: Between 2011 and 2021 the share of mortgages in eu countries on variable rates fell from nearly 40% to less than 15% (although some of the rest are fixed for only a few years). The effect has been to delay the impact of rate rises. Since 2021, the average mortgage rate across the rich world has only risen by half as much as the average central-bank policy rate. 
3. Richer Homeowners: Following the property crisis that began in 2007, many governments introduced tougher regulations, shutting out less creditworthy borrowers. Richer folk find it easier to weather higher interest bills. In addition, many borrowers are still sitting on large “excess savings” accumulated during the pandemic...

Nash Equilibrium Intuition from "A Beautiful Mind"

 

I could quibble but it does pretty good in under a minute.

2019 REPOST: Is this collusion?

We report, you decide:

If you are looking for an interesting case to discuss with your classes, I recommend to you the Commission’s complaint against Valassis.  The product at issue in the case was free-standing inserts – the booklets of coupons that come in Sunday newspapers. Historically, two companies each had about half the market – Valassis and News America Marketing, a subsidiary of NewsCorp. According to the complaint, in June 2001, Valassis raised its prices by 5%. When News America did not follow suit, it gained market share.

With News America sticking to its old prices, Valassis decided in February 2002 to abandon its attempts to raise prices and instead to try to regain its lost market share. From February 2002 until the middle of 2004, a price war ensued, with prices dropping more than 15% from those that prevailed in June 2001. At that point, the complaint alleges, Valassis decided to give up on recovering its market share and instead decided to raise prices. It did not, however, want to repeat the experience of raising prices without having News America follow suit. As a result (again, according to the complaint), Valassis decided to communicate its plans during a stock analyst conference call. In that call, the CEO announced 1) that it was raising its prices, 2) that it would not cut prices in order to attract News America’s customers, 3) that it would cut prices to whatever it had to in order to retain its existing customers, and 4) it would only stick with its strategy if News America made it clear that it was not going to try to take Valassis’s existing customers. It even provided details about specific outstanding pricing offers. The text of the conference call is available as Exhibit A to the Commission’s complaint in the case. I suggest you take a look at it and consider using it as case material in your courses.

Equity risk premium for stocks at all time low

 

WSJ:  Whatever happens to change it, there is a consensus on Wall Street that the equity-risk premium can’t stay this low forever.

ANALYSIS:  This is the Chapter 9 logic to value stocks relative to bonds, and right now it looks as if the stock market is over valued relative to bonds. 

DISCLAIMER:  if I really knew, I wouldn't be teaching school and I would charge you for the information.

House prices going up again

 

• Home prices came in exceptionally strong in August, rising a seasonally adjusted +0.68% from July; August’s non-adjusted gain (+0.24%) was more than 60% larger than the 25-year same-month average (+0.15%)

How do sales taxes deter the movement of assets to higher valued uses?

IMAGINE A SALES TAX OF 8%:

SELLERS COST IS AT 10

SELLER RECEIVES PRICE*(92%)

 

TRANSACTION TAKES PLACE IF PRICE IS ABOVE SELLER’S VALUE.  SO SELLER WILL NOT SELL UNLESS 

 

SELL IF .92*PRICE>10 OR PRICE>10/.92=10.8696

 

SO SELLER ACTS AS IF HER BOTTOM LINE PRICE RISES FROM 10 TO 10.87

BOTTOM LINE: 

TRANSACTION WILL NOT OCCUR IF BUYER VALUE IS LESS THAN 10.87

TRANSACTIONS THAT CREATE LESS THAN 8.7% OF WEALTH DO NOT OCCUR.  

            

Luke Froeb on Jon Hartley's Capitalism and Freedom in the 21st Century

Luke Froeb Nov 4, 2023 

Antitrust Policy, The Chicago School Consumer Welfare Standard and The Rise of the New Brandeisians 

A Discussion with Luke Froeb, former Chief Economist at the FTC and former DOJ Antitrust Division 

 Luke Froeb joins the podcast to talk about his career in economics, what it's like to be the chief economist at the FTC and DOJ antitrust division, how these agencies make decisions about merger cases, the history of the Chicago School consumer welfare standard and the types of analytical tools and modeling that underlies the approach, along with the rise of the New Brandeisians and their failures thus far.

Jon Hartley is an economics researcher with interests in international macroeconomics, finance, and labor economics and is currently an economics PhD student at Stanford University. He is also currently a Research Fellow at the Foundation for Research on Equal Opportunity, a Senior Fellow at the Macdonald-Laurier Institute, and a research associate at the Hoover Institution.

Trade Deficit

 

Source:  Laffer Associates

Dollar Stronger against Euro and Japanese Yen

 

Source:  Laffer Associates

A stronger $ helps US consumers, but hurts US producers.  

Speculation: It may be a consequence of fear (flight to safety?) and/or trade restrictions against China.  

Organizational Form and Enforcement Innovation

  Antitrust Law Journal, Volume 85, Issue 2, (Oct 30, 2023)

Luke Froeb, Bruce H. Kobayashi, and John M Yun

• Antitrust agency economists are uniquely situated to develop, adapt, and disseminate new methodologies to improve enforcement accuracy because of the multiple and conflicting roles that they play.
• When economists arrive at the agencies, they are often thrust into decision-making roles where they must render judgments on messy, real-world cases, often in conflict with agency attorneys, political appointees, or the economists and attorneys who appear on behalf of parties.
• We examine how the relationship between academia and the agencies can encourage what has become known as “enforcement R&D,” i.e., the development and application of new methodologies for screening and evaluating competitive effects.