foreclosure victims

Down With Tyranny uncovers the photo above, and lays out what’s new in the David Rivera alleged domestic abuse scandal. The photo, by the way, shows Rivera with the alleged victim’s mom. Drip, drip …

From the DWT blog:

There’s growing chatter in Miami political circles these days that one of its most influential and controversial politicians is about to fall from grace. Reliable sources tell me that several major South Florida media outlets will soon be reporting that Miami GOP Chair and candidate for Congress, David Rivera, has a repeat domestic violence record dating back to 1994 and was caught lying about it to the press, something first reported here at DWT early last month.

This story’s impeding breakthrough into the mainstream media is sure to cause trouble for conservative rising star Marco Rubio. David Rivera is a self proclaimed “disciple” of Marco Rubio and served as his protégé and strong arm in the Florida Legislature. The two Florida politicians own a house together that went into foreclosure last month. Rubio headlined a fundraiser for Rivera last month in Washington DC and the two have traveled to Las Vegas and Los Angeles together for fundraisers.

Rubio, the bright shiny object of both the Tea Party and FOX News, embarrassed by the Sharron Angles, Ken Bucks and Rand Pauls, will be placed in an awkward spot when it is made public that his best friend has been accused of Domestic Violence and furthermore that he has put forward the absurd excuse that it is merely a case of mistaken identity.

There’s plenty more, including details and timeline, at DWT. Most potentially damning:

A firsthand source told me that the NRCC asked Rivera of his domestic violence past in April, and he told them it’s a case of mistaken identity. Both the Miami New Times and the Miami Herald have also asked Rivera about his domestic violence record and he denies even knowing the woman, Jenia Dorticos. Given Rivera’s history of being caught red-handed lying to reportersabout the company he keeps (and just about everything), I dug a little deeper and here’s what I discovered.

• David Rivera the Republican politician is the only David M. Rivera that ever comes up when you conduct a public records search on the Miami Dade County public records website where you can find his mortgage deed, etc.

• Several of the victim Jenia Dorticos’ friends have refuted Rivera’s claim that he doesn’t know her and say the two dated in the 1990′s.

• Rivera is photographed with Dorticos’ mother at a fundraiser in April headlined by Scarface star Steven Bauer (“Manolo”). (above)

• Rivera has been dodging reporters now for 14 days and has kicked them out of recent Republican events and offices.

• Marco Rubio (again, Rivera’s closest friend) and David Rivera’s attorneys have been intimidating and threatening South Florida media outlets with a $10 million law suit if they report this story. Of course, if Rivera’s legal team wanted to, they could demand an injunction, but that would then force the state attorney’s office and Rivera to turn over all evidence related to this case in court.

Again, drip drip …

Demand: fewer new households

Household creation depends on the state of the economy. The combination of high unemployment, weak wage and salary growth, and tight credit has led to a decline in household growth over the past few years. The two main surveys of household formation from the Census Bureau – the Housing Vacancy Survey and Current Population Survey – show that about 500,000 households were created annually over the past three years compared to an annual average of about 1.2 million during the first half of the decade (Figure 6). How can we explain such a notable drop in household formation?

Moving in with the folks

The obvious answer is to look at homeownership rates, which have tumbled to 66.9% from a peak of 69.2% in 4Q04. This translates to a loss of nearly 2.5 mn homeowners. Most of these homeowners became renters, which means they remain a household, but not all. As can be seen by the surge in the rental vacancy rate to 10.6%, it seems that there was not a perfect shift from homeowners to renters (Figure 7). This begs the question: what happened to these former households? There was doubling up among economically stressed households; in other words people moved in with friends or family. Many of these former homeowners were probably foreclosure victims (Figure 8).

As Figure 8 shows, household formation can also decline if there are fewer young households created to replace the aging homeowners. Given the nearly 10 point surge in the unemployment rate among 16 to 24 year olds from the trough to peak during this cycle, it seems like this was a considerable factor. A recent paper sponsored by the Research Institute for Housing America estimates that the probability of a young adult forming a household declines by 4% during a recession, and up to 10% if unemployed. In addition to the slowdown in “headship rates” domestically, there was a drop in household formation from immigration. According to the Office of Immigration Statistics at the Department of Homeland Security, the number of unauthorized immigrants decline by 1.0 million from 2007 to 2009 compared to a net gain of 1.3 million from 2005 to 2007.

Household growth to improve, but with a lag

Household formation will naturally pick up as the economy improves, but if our forecast for a sluggish recovery is realized, household growth will also be lackluster. The main factor influencing household growth will be the state of the labor market. The above-referenced paper finds that the unemployment rate must fall by 2pp from current levels to return to normal rates of household formation of about 1.2-1.4 million a year. We do not expect the unemployment rate to reach the mid-7% range until 2013, implying another two and a half years of sluggish household formation of about 800,000 a year. This is also when we expect the pace of foreclosures to slow notably, which means that fewer households will have to double-up.

Looking ahead to 2013 and beyond, we use forecasts from the Joint Center for Housing Studies at Harvard University. They present two possible trajectories for household growth: 1) an average of 1.48 million annually through 2020 assuming net immigration returns to the 2000-05 pace and headship rates at 2008 levels; and 2) an average of 1.25 million annually through 2020 assuming the same 2008 headship rates but slower immigration. We believe the latter is more likely and use this as our baseline forecast (Figure 9).

Renters will take market share

Although we expect household formation to start to improve in 2013, the homeownership rate should still fall further, suggesting that most of the gain in households will be due to an increase in renters. This is because there is still a considerable number of homeowners with mortgages in some stage of delinquency that are likely to end in foreclosure. Based on data from the Mortgage Bankers Association, there are about 5.5 mn seriously delinquent mortgages currently outstanding.

A recent paper by economists at the NY Federal Reserve (Haughwout, Andrew, Richard Peach, Joseph Tracy. “The Homeownership Gap”, Federal Reserve Bank of New York Current Issues in Economics and Finance, Volume 16, Number 5, May 2010) attempts to quantify the effective lower bound for the homeownership rate. They make the assumption that underwater borrowers (negative equity), who currently account for about a quarter of mortgage holders, will transition to renters over time. Subtracting these underwater borrowers yields an “effective homeownership rate” of 61.6% (Figure 10). This would be a record low in the data which goes back to 1965. We do not expect such a precipitous drop because not all underwater homeowners will become renters. Indeed, a recent study by Trulia.com and RealtyTrac found that 59% of respondents would not go into foreclosure simply because of negative equity. We believe it is more likely that the homeownership rate will bottom at 65%, returning to mid-1990s levels.

It is plainly obvious why the demand-side is so often ignored in polite conversation: it is the consumer-driven aspect of the house price variable, over which neither the Fed, nor the Treasury, nor the FHA has any authority, and which is a function purely of expectations of the future. Alas, those right now are lously and getting worse. We expect that Demand-side housing economics will take on progressively more importance in the future, as it becomes obvious that no amount of Supply-side tinkering will prevent another 20% drop in prices.

And speaking of Supply, this is also a critical factor, if much more prevalent in the daily media. Alas, that in itself does not make the problem any easier to resolve.

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