Why is housing inventory for sale increasing in TX and FL?

From CalculatedRisk.com:

Q: What is causing the sharp increase in inventory in the South, especially in Florida and Texas?

Inventory is up sharply, and already above 2019 levels in many parts of Florida. I think the primary reason is the lack of affordable homeowners’ insurance because of destructive storms and rising sea levels due to climate change. A year ago I wrote: The Long-Term Housing and Population Shift. I noted that a combination of water availability and widespread use of AC drove the growth in the West and South over the last 60 years. However, climate change might make some areas further north more desirable. I think we are starting to see the start of that trend

Brainiacs drive growth, but our education system is producing fewer of them

The Economist:

 
Better educated students drive growth, and growth makes the pie larger.

"...pushing up maths and science skills in the workforce by an amount equivalent to around 25 points on pisa tests (roughly the gap that separates American teenagers’ maths scores from those of their more numerate British peers). They found that this would increase annual gdp growth in rich countries by half a percentage point. They reckon that if a country were to start pumping out these smarter youngsters in 2030, it would finish the century with an economy about 30% larger than otherwise."

Growth means that we avoid a zero-sum fight over a fixed pie.

Incentives matter: induce labor to avoid taxes

 From MarginalRevolution:

There is in fact a pronounced “baby bump” in December. ...

Why? In the US, ... an extra child brings you a $3,600 child tax credit per year.

So — speaking strictly about the tax implications, of course — a New Year’s Eve baby is better than New Year’s baby: You can claim that little bundle of joy as a dependent for the entire year, even though they were only there for a day of it. 

Ranking countries by GDP/person

 Economist:  Take America first. Its gdp has been the largest at market exchange rates for over a century. But by income per person it falls to sixth, behind Luxembourg (first) and Switzerland (second). Adjusting for America’s higher prices pushes it down to ninth; accounting for its long workdays and limited holidays, to tenth. The results for China—the world’s second-largest economy in nominal terms—are even starker: it falls to 69th by gdp per person, 75th at local prices and 97th after accounting for hours worked.

Market Power and Political Power

The last four years of antitrust policy has reversed course on 40 years of a Chicago School inspired goal of promoting a "consumer surplus" in favor neo-Brandeisian"anti-bigness." In simplest terms, the Chicago School would ignore bigness, or firm profits, and only consider whether consumers are better off, for example as could be the case with economies of scale. Neo-Brandeisians' main argument is that this static calculation does not include all of the possible harm from bigness because bigger post-merger firms are better at skewing laws and regulation in their favor to the harm of consumers, for example by erecting legal entry barriers. 

Most academic antitrust economists, on the left and on the right, embraced the Chicago School thinking as more and more carefully conducted studies provided evidence for the ideas. The evidence for the Neo-Brandeisian view has largely been speculative. But recently, Cowgill, Prat, and Valletti have provided a model and some evidence that merging firms significantly increase their post-merger lobbying expenditures. This is not conclusive but it is a start. We still do not know if this lobbying effort tips the scales or is in response to a knee-jerk anti-bigness bias. But it is a welcome contribution. The future of antitrust policy should be settled by evidence and not polemics.

The last refuge of a vacant liberal mind: "Greedflation"

During the debate, President Biden once again blames inflation on corporate greed.  This follows an old, albeit-debunked, strategy that I first heard about as undergrad in the 1970's.  Here are some modern takes on it

 NYT (12/23):  

As rising inflation threatens his presidency, President Biden is turning to the federal government’s antitrust authorities to try to tame red-hot price increases that his administration believes are partly driven by a lack of corporate competition.

On Christmas 2021, the headline in the NY Times business section was "As Prices Rise, Biden Turns to Antitrust Enforcers."  Larry Summers immediately bashed the idea:

“The emerging claim that antitrust can combat inflation reflects ‘science denial,’ ” tweeted Harvard economist Lawrence Summers, a senior official in the Obama and Clinton administrations. “There are many areas like transitory inflation where serious economists differ. Antitrust as an anti-inflation strategy is not one of them.”

In the late 1970's at Stanford, I heard John Kenneth Galbraith, the economist in charge of price controls during WWII, call the idea "the last refuge of a vacant liberal mind."  The turn of phrase was so elegant and shocking--at the time, I was a liberal--that it has stayed with me.

Tractor Supply Ditches DEI, ESG After Online Attacks

• We will review and consider revising our current DEI goals while still ensuring a respectful environment. [Diversity, Equity, Inclusion]

• Withdraw our data on emissions and focus on our land and water conservation efforts. [ESG=Environmental, Social, Governance]

Stories: Bloomberg, Zerohedge

See also:

• The paradox of ESG investing
• What happens if we cannot measure ESG?
• How Saudi Aramco, world's largest oil company, became "green."

Higher interest rates in the US strengthen $ (or depreciate ¥)

Economist: The Japanese yen fell to around ¥160 against the dollar, its weakest level in almost 40 years. The currency has been falling because of the large gap in interest rates between Japan and America. 

• Investors earning 1% in Japan liquidate their investments, sell ¥ to buy $ to invest in the US where they can earn 5%; or
• Carry Trade:  Investor's borrow in Japan, sell ¥ and buy $ to invest in the US and earn money on the spread between the cost of borrowing (1%) in ¥ and what they earn on $ investments (5%).

 In both cases, the increase in demand for $ drives up the price of a $ (FX) relative to the ¥.

Why are house prices increasing?

 

It is likely that high mortgage rates are causing existing homeowners with low interest rate (3%) mortgages to stay in their current homes rather than buy new houses which would require taking out new mortgages at 7%.  This means that the supply of homes for sale is very low which drives up the price.  

Note that the supply of homes is usually measured by "months of inventory" which is calculated by asking "at the current rate of sales, how many months would it take to sell all the houses currently for sale?"  In the graph below, we see a negative relationship between months of inventory and the change in house prices.  When months of inventory is below 6 months, prices are likely to increase, and vice-versa.  

Currently there are four months of supply in the US.  But market definition matters here.  Most real estate markets are local, so it would be best to measure months of supply locally.  

Vertical Integration in Movie Distribution

A new paper, "Vertical Integration and Market Foreclosure in Media Markets: Evidence from the Chinese Motion Picture Industry," by Gil et al. casts even further doubt on vertical foreclosure strategies. The claim is that a retailer integrated with a producer could increase profits by disadvantaging independent producers. Alternatively, vertical integration could alleviate double marginalization issues so that profits increase by offering lower prices to more consumers. In the US, the Paramount decision required movie studios to divest their movie theaters based on the possible competitive harm from vertical foreclosure. But China still has both integrated and independent theaters.

... there is no evidence consistent with anticompetitive input and customer foreclosure in integrated theaters. On the one hand, integrated and independent theaters screen the same share of integrated and independent movies. On the other hand, revenue differences between continued theater-owned movies and discontinued independent movies are inconsistent with customer-market-foreclosure motives given existing differences in distribution incentives between integrated and nonintegrated structures.

The authors go on to estimate that integrated theaters deliver a higher level of utility with integrated movies due to moving down the demand curve with lower prices.

This finding is important to current events in antitrust policy for two reasons. Part of the FTC's current Amazon case, as with its other enforcement vertical actions, alleges foreclose of independent merchants. Movie distribution was the poster child for this theory. More broadly, it underscores the power of a consumer surplus standard. Why interpret the law so severely that it harms consumers?