In January, a record 4 million people are expected to gather in Washington, DC to take part in the Inauguration celebration. Hotels near the area sold out nearly the day after Obama was elected. Luckily, where traditional lodging failed, Craigslist saved the day. People all around Washington, DC (and I mean all around, including from places like Baltimore which is nearly 40 miles away) have been so kind as to offer up their couches, rooms, whole houses, and even offices to those in need of a place to stay for the event. That is, if you are willing to sell your first born child!

Prices for a room are ranging from $50 per night to above $4,000. It is quite common to see rooms rented for an average of $2,000 per night. In fact hundreds of DC entrepreneurs a day are jumping for the opportunity to make their month’s rent in one night of sleeping on a friend’s couch so they can rent their apartment. While the prices are often unbelievable, many offers include breakfast, a ride to the metro, and even babysitting.

We thought it would be interesting to see where these people’s room/homes were, if they were actually located anywhere near to the inauguration site (or DC for that matter) and how much they were charging based on their location.

We took a 3 day sample of ads from Craigslist, geo-coded them and then added some attributes based on prices and amenities. You can find this dataset in Finder!.

This first map shows the entire DC metro area and beyond to demonstrate the distribution of rooms for rent.

The next two maps show the DC area with rooms based on price per room, per night, as well as metro stops. It seems like there is very little relationship between the location of the room and the price. Go figure!

So if you are still looking for a place to stay, or if you want to check out how much you can get away with charging for your floor and a sleeping bag, check out this dataset in Maker!.

Popularity: 14% [?]

On one of many flights this week I was asked the question, “what would you do with the $700 billion of bailout money?” Not an easy question to answer and there has been lots of arm chair quarterbacking on the topic. I’m hardly an expert on financial policy, but in short this was my layover induced answer.

There seem to be two fundamental problems, of many, worsening our current economic quagmire. 1) The housing bubble pushed home prices to levels most working Americans could not afford and to keep the bubble going the financial community became very creative with mortgages and how the risk associated with them was calculated. The end result was lots of people in houses they could not really afford and very little transparency in the risk this created in the financial markets. There is a lot more to the story but for the sake of brevity we’ll leave it at that. 2) Credit liquidity in the current market has almost ossified causing our collective economic gears to come to a rattling halt. Wall Street freaks…the media freaks…the consumer freaks (no spending)…sales of goods plummet…Wall Street freaks again…media fuels more freaking…rinse and repeat.

To break the cycle it would seem logical that liquidity needs to be injected into the market. A lot of pundits have looked at this being solved by the government buying up the bad assets, giving capital to the banks in return for equity stakes, and several other derivative plans. While all these ideas have their merits and risks the idea I exposed on the plane was slightly different. Back to the core issues - I saw the biggest failing being lack of market transparency and a fundamental mismatch between supply and demand in the housing market. So how could we restore transparency to the market while getting people in homes they can actually afford thus freeing capital for consumer spending and financial investment.

My answer was a foreclosure clearing house. This may be Polly Anna and not feasible, but it made for a fun intellectual exercise. There has been lots of talk around providing bail outs to people whose homes are foreclosing, but even this will be short term and will not solve the fundamental problem that they are in a home they cannot afford. The only real solution is to put these individuals and families into homes they can afford. The easy credit and risk shell game that banks ran has created a basic mismatch of people buying supply with demand they did not really have.

The clearing house is a simple idea of providing a transparent market place where people can trade down to houses they can afford and have new loans guaranteed to do so. The loans could be guaranteed by the government but competed for by the banks. Banks that already have the mortgages on existing properties could have the choice of refinancing the house so the owner could afford the payments (that would be their own risk calculation) or entering the home into the clearing house. Also the home owner could have the choice to enter their home into the clearing house if they would like to trade down voluntarily.

The clearing house itself could run like many of the existing home real estate market places matching buyers and sellers (Zillow, Trullia. RedFin etc.). In fact the government could probably contract with one of the sites to run the technology side of the clearing house at a reasonable cost. Once a person’s home was identified for purchase they would then be free to look for a new home in the clearinghouse they could afford. The government backing would allow loans to be made so the individual, now free of the foreclosed home, could buy a new home they could afford. Banks would still compete to provide the best rate and terms to new owner, but the risk would all be transparent to the government since they would be providing financial backing and to the owners so they were not mislead into buying more house than they could afford (again).

In theory this should introduce liquidity back into the market and with a little time put liquidity back into the consumer market since the majority of a person’s paycheck would no longer be going to a mortgage. The market would be transparent again but not run or partially owned by the government. I would argue that it was not capitalism or the market economy that broke during this financial crisis, but a loss of transparency and a resulting hiding of risk. In fixing the crisis the government’s role should be ensuring transparency in the market place so that it can function effectively. My idea is most likely off the deep end, but I do hope government action is centered around restoring transparency and restoring liquidity to the market. If you were Sec. Paulson for a day what would you do with $700 billion? There are no shortage of smart people around the globe. Can we crowdsource an answer?

Popularity: 18% [?]

The wild stock market run of the 90’s and the more recent boom in the housing market share a similar property: irrational exuberance. In his book “Irrational Exuberance”, Yale Economics Professor Robert Shiller describes the phenomenon “as a situation in which news of price increases spurs investor enthusiasm, which spreads by psychological contagion from person to person, in the process of amplifying stories that might justify the price increases and bringing in a larger and larger class of investors, who, despite doubts about the real value of an investment are drawn to it partly through envy of others’ successes and partly through a gambler’s excitement.”

In the statistics world, irrational exuberance manifests itself in the numbers as something called serial autocorrelation. Simply put, that just means that the prices we see today were largely determined by what we saw yesterday. But, what about the role of space, particularly in real estate markets where location is such a prominent force in dictating the price of assets. In a speculative housing bubble, is there is a spatial dimension to the psychological contagion that Shiller says is a defining characteristic of irrational exuberance?

To begin to explore this, we look at an index of housing prices that the Office of Federal Housing Enterprise Oversight (OFHEO) publishes quarterly for a large number of MSAs across the United States. The index, called the HPI, reflects the average price changes in repeat sales or refinancing of single-family homes whose mortgages were financed by Fannie Mae or Freddie Mac. While the HPI has been criticized for providing a dampened perspective of market prices, owing to the 400k cap on Fannie and Freddie loans, it does offer the best spatio-temporal coverage out of all publicly available sources of information on housing prices.

The maps in the slideshow below, which show percent changes in the 3d quarter HPI by MSA going back to 1988-89, do provide some evidence of spatial contagion. (Note: on each map, warmer hues indicate price appreciation while on the other end of the continuum the darker colors are areas of depreciation. All maps are on the same scale – i.e., in reference to the minimum and maximum change in HPI over the 19 time periods.) Towards the beginning of this decade, areas of northern California and the northeast begin to heat up, quickly spilling over into more locations along the east and west coast and Florida, and then to cities inward. The once hot markets eventually take a sharp downturn in 2006-2007.

How can we measure the spatial contagion? One way is through the Global Moran’s I statistic, which is a measure of the spatial counterpart to serial autocorrelation. It is a number that ranges from -1 to 1, where values in the negative territory would indicate a checkerboard pattern in the phenomenon being analyzed and those on the positive side just the opposite: spatial clustering of similarly, high valued units.

Shown in the figure below is the Moran’s I statistic computed for each time period on the lags of the changes in HPI. While it is important to keep in mind that the values of the statistic during the bubble may be lower than what they should be due to limitations of the HPI in terms of the cap on loans, there is a sharp and rapid incline during that period suggesting that irrational exuberance in real estate markets may in fact involve a spatial dimension.

More data can be found here:

OFHEO Housing Price Index (HPI) by MSA/CBSA - 3d Quarter (1988-2007)

Housing Variables (Prices/Supply/Demand) by MSA (2000-2007)

Popularity: 13% [?]

What’s so special about Cumberland, MD-WV? This energetic, small town is one of a select number of cities around the country that appears to be weathering the housing storm. While in many metropolitan areas housing prices are either stabilizing or are on a downward spiral, Cumberland’s market continues to climb. One indicator of prices, the OFHEO Housing Price Index, shows a growth rate of nearly 11% for the last year. The market is also still quite affordable. Over 80% of the households in that area with the city’s median income can afford homes that are currently up for sale.

Hot housing markets can also be found in large parts of Texas, North Carolina, Pennsylvania and other more localized areas of the country. Below is a heat map showing those hot spots. The cities used to generate the map include those whose OFHEO’s Housing Price index has risen over the last year and Wells Fargo/NAHB Housing Opportunity Index is currently above the national average of 40%. A normalized index was created to weight cities based on their relative ranking on both criteria. Cumberland comes out at the top of the pack.

Hot Housing Markets

Other notable cities on the list include:

The Gazelle: Housing prices in Midland, TX are surging. Over the last year, that city’s OFHEO HPI rose by 12.5%, which is the the higest growth rate out of all cities on the list. On the downside, the market appears to be out of reach for many who live in that city. It’s HOI is only 41.2 and declining.

Best on a Budget: The most affordable market on the list with an HOI of 87.5 is Indianapolis, IN. Prices in this market though, have risen at only a modest rate in the past year. The city’s HPI grew by just .7%.

Big City Sizzler: Austin, TX is one of the larger metro areas on the list whose housing prices are growing at a relatively high rate and it’s housing remains more affordable than the national average. This 16th most populated city’s HPI increased 7.2% and it’s HOI is currently around 53.1.

Housing Price Indices, Housing Opportunity Indices and other market attributes for all 76 cities on the list are available for interactive mapping at geocommons.

Popularity: 14% [?]