Even though I believe that the housing market has peaked near term, it doesn't look to me that a severe downturn is in the works. Clearly the Fed see's some possible slowing in the future and is preparing for it, or at least I hope so.
Banker,
I realize that 90% of America agrees with you, but don't you see the acceleration in foreclosures as a large problem? If you are a banker, do you have access to information that the current trend is going to subside?
I see this as a personal cash-flow problem multiplied across a huge percentage of people who bought or refinanced to recent valuations.
Having said that, I'll also say I see alot of large capital and technology projects being initiated. Therefore I'm not as bearish as some here with respect to the general economy.
Not sure if you're being sarcastic...and not sure what you mean by severe.
5% is severe to a homeowner facing a reset they cant afford.
According to Forclosure.com there were 5500 active forclosures in California in early December. Now, there are 11300 active forclosures in California. These are distressed inventories to be added to the empty new homes, along with all the other normal existing homeowners that face resets, get divorces, need to move, lose their job etc. We are already back up to record levels of inventory after a 3 month drop during the last quarter. That is will declining sales and tighter lending standards around the corner.
Why would anyone think this is even really begun let alone almost over? The number of bank owned homes sold is miniscule. The inventory is rapidly increasing and they have yet to start liquidating it. (anyone with stats on REOs that have actually sold?) None in my neighborhood have.
When these start moving and inventory of REO starts to plateu is when it will be the thick of it.
It's like saying "this ride aint to scary!" as you slowly ratchet to the top of the rollercoaster.
I certainly can't argue with your current bullishness. It certainly has paid so far to be a bull. There sure are alot of "looming" issues that the bulls dismiss away without much discussion.
It reminds me of my sister-in-law who tells me that it's cheaper to own than rent. And with her option arm at $1500 a month and rent in a comparible at $2500, it's tough to argue with her...today. But there's a reset in the future that she will have to deal with, but she wont be bothered with it.
It's tough to argue against the present with the future.
The skydiver with no parachute will argue with you all the way down that falling out of a plane without a parachute isn't fatal...and he'd be right...until he hit the ground.
Sebastian, are you suggesting the ground aint coming and if so why not? CR is describing something fast aproaching that looks hard and may hurt when we hit it. I hear you saying, "I feel great!". Not sure this explains away what many here see. Would love to know your thoughts on how we navigate through the coming problems related to housing rather than getting a current diagnosis.
Lama said: "I realize that 90% of America agrees with you, but don't you see the acceleration in foreclosures as a large problem? If you are a banker, do you have access to information that the current trend is going to subside?..."
This isn't a significant trend, however much the headlines, talking heads and other pundits say it is.
Employment, or rather UN-employment, is what drives serious, painful housing weakness. The only time that happens is when there are poor business conditions in multiple sectors simultaneously. Which isn't happening, and for which there is no evidence that it's coming anytime soon.
If you'd like an easy-to-follow "warning" indicator, watch employment. Non-farm payrolls should start to show one or more months of extremely low or negative monthly job growth. Also, the unemployment rate should rise sharply from a low level for a quarter or more.
There can't be a recession without at least the beginning of recession-like conditions.
Sebastian, what you are describing regarding employment isn't correct historically. The only employment indicator that usually gives a hint about a possible recession is Weekly Unemployment Claims - and you have to be very careful with that indicator too.
It's great that employment has been strong (and I've noted it every month). But that tells you nothing about the future.
How do you explain the drop in house prices and sales when lending conditions, jobs, stock market, etc are so healthy? Saying it can't happen when it's happening is not very persuasive.
And why can't what is happening now cause what you say needs to happen?
CR sure has made a pursuasive case that a drop in housing can lead to job losses. Which I guess is what you require before housing starts to drop....?
Average Joe said: "...Would love to know your thoughts on how we navigate through the coming problems related to housing rather than getting a current diagnosis..."
This problem isn't a significant one, that's the main thing to keep in mind.
It's like pointing to the 4.7% unemployment rate and saying "Aha, see?! Millions of people out of work! Conditions are bad, and going to get worse!" Yes, that portion of society is in genuine difficulty (and we've all been there at one time or another).
However, extrapolating their condition out to the entire economy and assuming it's going to spread like a virus is hysteria, not logic.
Hate to burst your fantasy, but that cliche about "unemployment drives hosusing weakness" applies to a world past. In that world, as long as one was employed, one could pay the mortgage.
In the brave new world, there's a new paradigm "as long as housing appreciates, one can pay the mortgage".
Really, it is very simple.
Most of last few years prices are based on ARMs (subprime, and Alt-A.)If appreciation slows, they will suffer payment shock.
It does not matter about how little of US housing are these toxics. What matters is the ratio between these toxics and housing sales .i.e toxics as a fraction of the float, in stock market parlance.
And if you think this is not going to affect the economy, you might want to read this by Martin Wolf, who puts it much nicer than I could
"Where prices have risen far faster than underlying incomes, only two possibilities exist.
Either prices have moved to a higher equilibrium level, in which case future purchasers will have to save more and consume less. That would itself have significant economic implications. Or they have reached an unsustainable level, in which case they will fall in real terms. That would have far more significant economic implications.
The future will tell us which and where - possibly quite soon."
"Even though I believe that the housing market has peaked near term, it doesn't look to me that a severe downturn is in the works."
Maybe you are correct. If so, I know about 12,000 jobs that will be leaving the state in 2 to 3 years.
Companies, excluding Google, just cannot to hire people from out of state anymore. Sadly, the UC system/Stanford/USC does not produce enough of the skill sets that industry requires. So we go out to Penn state, MIT, and a few others for 60% of our hires. Well... we used to. Out of state people won't come in state anymore.
Besides, CR has done a great job talking about the MBS market. Its toast at too many levels. Credit tightening always tanks RE prices. We've seen it several times before here in California.
IMHO Bernanke's friendly words were surprising. Explanations are:
1. He was reacting to subprime weakness and is a real "dove" which is long run dangerous since it encourages excessive risk taking.
2. He has access to data which indicate the economy is weaker than it appeared Wednesday.
Jobless claims, industrial production and the flow of events are making me think 2 is more likely.
CR said: "Sebastian, what you are describing regarding employment isn't correct historically. The only employment indicator that usually gives a hint about a possible recession is Weekly Unemployment Claims - and you have to be very careful with that indicator too..."
CR, we must agree to disagree, then. Weakening employment is absolutely a leading indicator of recession. When companies perceive a slowdown in business conditions, one of the first things they do is cut back on hiring.
Think about what you're saying: What is a rise in unemployment claims but a different indicator of employment weakness?
Sebastian, you are rather tiring. When I have ample time in the near future, Im going to put the kabosh on you. Unlike you, it seems, I'm too busy working right now.
Average Joe said: "How do you explain the drop in house prices and sales when lending conditions, jobs, stock market, etc are so healthy? Saying it can't happen when it's happening is not very persuasive..."
Froth. The speculation and excesses are being wrung out. Also, overheated markets like California, Virginia, New Jersey, etc., aren't representative of the rest of the country. Using nationwide statistics, housing prices in general have hardly budged.
Although I prefer hard data to anecdotes, here in NC we can't build houses, schools or roads fast enough to accomodate the influx of people. (Some of whom came from places like California and are enjoying far more reasonable housing prices here.)
Why would anyone think this is even really begun let alone almost over?
Here in San Diego, the momentum for NOD's and Foreclosure Sales is still accelerating to the upside.
Based on those two key indicators alone, we are no where near a market cycle bottom and there is no relevant evidence that I'm aware that speaks differently.
After rising 200% in 9 years, I don't see how anybody in their right mind could even think that a bottom is in after only a 10% to 20% correction in 18 months after the peak.
IMO, history's record of CA real estate doesn't even come close to supporting that type of belief and/or theory.
CR states: "Sebastian, what you are describing regarding employment isn't correct historically. The only employment indicator that usually gives a hint about a possible recession is Weekly Unemployment Claims - and you have to be very careful with that indicator too."
Geoff said: "...I'm going to put the kabosh on you..."
Good luck with that. Seriously. If you can offer persuasive data that shakes my position(s), I'll have learned something new and I'll be in your debt.
A few years ago I got so fed-up with the poor quality of forecasting from various economists, mutual fund managers, gurus, pundits, etc., that I decided to pull together all the meaningful economic data available and actually look at it first-hand, testing it for forecasting ability.
It's not a job I would wish on anyone, but because I did it I can say this now: There won't be any 600,000 residential jobs lost this year. There will be no recession in 2007, and 2008 isn't looking like a promising recession year, either.
Can't say I'm surprised about WMC. Fleck was all over this story last week and the way he was describing the situation, it seemed as if they were basically closing up shop. At the time a lot of trolls were bagging on him because he wouldn't disclose his source, but Fleck is pretty reliable and seems to know what's going on. BTW: ml-implode lists WMC as the 8th largest subprime lender.
The housing bear-osphere just doesn't get it. Housing prices went up because of dollar devaluation. At its extreme end in 2005 things got a little nutty. But by and large housing prices aren't that out of line now.
Denominated in gold terms the average US house is close to its 20 year average.
"There will be no recession in 2007, and 2008 isn't looking like a promising recession year, either."
Got to disagree on that one. The way that the Fed is restating GDP downward, we are probably in a recession right now. As Max pointed out, Mish did a pretty good write-up on employment being a lame recession indicator. M3 and M2 are also pretty lame. You should check it out.
You also might want to spend some time reviewing shadow statistics, it's a good site and explains a lot of the GDP anomolies and how the Fed and the Gov cook the books on inflation, employment, and a bunch of other stuff. Remember, it's not a one-for-one trade when a good manufacturing job gets replaced with a poor service sector job.
"But by and large housing prices aren't that out of line now."
Huh. I wonder why so many subprime lenders, GF's, and FB's are cracking up then? If housing is pretty much at historic norms than this shouldn't be happening, should it?
Your statement doesn't seem to pass the smell test.
" Some of whom came from places like California and are enjoying far more reasonable housing prices here."
Maybe they will all come there. A lot of them sure can't afford it where they are now. Sad but true. Also many will be forced to relocate to less exspensive areas and try to find work.
Joseph Ellis book "Ahead of the Curve" makes a compelling case that employment rate is a lagging indicator for recessions. The common sense gloss of his position is that companies amidst or forseeing a slowdown cut everything except employment because it's hardest to retrain/rehire people once the slowdown ends.
When they finally cut workers - a painful decision - it usually presages the end of the slowdown.
MozoMaz: re font size - on my Mac/Safari I can Apple-A to select all text in the haloscan window & then "+" to increase font size. Also, your browser preferences probably allow a blanket increase in font size...but it will probably affect all webpages...
That's a hell of a crystal ball you have there Sebastian . Mine is showing an asteroid destroying the earth in 08, guess I'll have to get it calibrated.
Gold doesn't have the oversupply problem that housing does Fullcarry.
Wow, is there a high level of cognitive dissonance at work here, or what?
Sebastian, 50% of the gross value of U.S. real estate resides in the coastal states. Anything that happens on the coast will definitely affect everyone.
Fullcarry, people don't buy houses with gold, they buy them with cash. If people had more gold, maybe they wouldn't be losing those same houses now. You don't happen to have charts showing any historical gold/housing correlations, do you?
It was working great when it read sell your house in CA in 05 and move to the mid-west and buy smaller but just as usefull one for 1/10 of the price. Maybe it got bumped in the move.
An old gold bug story has it that the median home price should go for 400 ounces of gold.
But Gold is irrelevant to my argument.
I simply use Gold as an unbiased denominator to get a sense of real, inflation adjusted housing prices. The CPI is just too flawed and historically inconsistent to be of much use.
In the 1970s the CPI included housing prices as a major component.
If median income is flat to down in real terms over a prolonged period of time, while housing shoots up, it doesn't really matter that the price of gold is also shooting up.
We have a situation where the median price of housing bears little relation to median income throughout much of the western world. In the absence of easy credit, either incomes have to rise dramatically or housing has to fall.
It sounds to me like you believe income will continue its short rise while housing meanders along until the two regain some sort of reasonable relationship. I hope you're right, but I fear that declining house prices will probably cause as much fear on the way down as they did greed on the way up, and people will need to start saving a whole nlot more, so a hard landing will be difficult to avoid.
Here's how you can control font size in IE 6 and 7:
Close the comments box and then select Tools from the main menu, then Internet Options and then Accessibility. Put a check in the box labeled "Ignore font sizes specified in webpages", and click OK and OK.
Now you can select View from the main menu and then Text Size whenever you want to change size, but you have to do it when the comments window is closed.
Some of use have lost money on gold and watched it bounce around at lows for years. So we have little regard for folks that are recently infatuated with it.
Gold is not money and is unlikely to be.
Gold may or may not be a store of value, it is just another commodity.
Ask yourself how a modern capitalist society can run using a gold standard and you will quickly find that gold is not flexible enough to fund a modern society.
Yes, I'm fully aware of the value of gold and the bogus CPI. However, valuing housing in gold misses the point.
Gold is rising in response to the rapidly expanding money supply and a general sense of unease with global imbalances. Housing, OTOH, is responding to that money supply (liquidity) being made available as cheap credit.
Housing reached the limits of (toxic loan) "affordability" in 2005. Since then real comparable prices have gone down whilst gold has continued to trend upward. The coming debt destruction and credit contraction will continue to hammer housing and boost gold.
"Froth. The speculation and excesses are being wrung out. Also, overheated markets like California, Virginia, New Jersey, etc., aren't representative of the rest of the country. Using nationwide statistics, housing prices in general have hardly budged."
(sigh)
Nationwide statistics, eh?
Ok.
Here's a little pop quiz:
Q: According to the Federal Housing Index, for the 5 year period ended 12/31/05 the national median home price increased by what percentage?
a) 12%
b) 21%
c) 36%
d) 58%
Did you pick (d) 58%? Nicely done!
Now, a math quiz. What's the result we get (assume no compounding) where 5 is the divisor and 58 is the thing that sits on top of the 5 with a straight line in between? Yeah, almost 12.
The NATIONAL rate of home median price appreciation, from 2001-2005, "barely budged" almost 12% annually. Just a little bit better than inflation, huh?
Note to CR: Can the font size in these comments be bumped up a little? Or perhaps - don't define a font size at all, so that browsers can override it?
MozoMaz: In Mozilla Press Ctrl+ to increase the font size in a window/tab and Ctrl- to decrease it. If your using Internet Exploder this is the least of your worries. :>
First, the economy has to stop producing so many new jobs.
What economy? We've shipped all our manufacturing to China and our NAFTA partners over the past 10 years.
Factor out mortgage equity extraction (ie selling future income for present/past consumption) we've had basically a break-even GDP growth rate over the past 5 years.
Factor out government-sector employment growth and there haven't been any net new jobs the past 5 years, either.
Factor in a million or two vanishing real-estate related jobs over this new Year of the Pig . . . Katie, bar the door.
Now that it's clear that residential real estate isn't coming back anytime soon, the chorus begins to sing that commercial construction will take it's place as a locomotive. Anecdotally, in my region (Silicon Valley) that is not going to happen. Every morning I commute past acres of "see-through" industrial buildings still unoccupied since the tech bust of 2001. What people don't realize is that service jobs just occupy less space than manufacturing jobs. We don't build 10 acre steel foundries or even 50,000 square foot cleanrooms anymore. You can fit a lot of desks into an industrial park. There will not be a lot of industrial construction for at least 10 years in my area.
"Now that it's clear that residential real estate isn't coming back anytime soon, the chorus begins to sing that commercial construction will take it's place as a locomotive. Anecdotally, in my region (Silicon Valley) that is not going to happen."
Doesn't seem likely, Godzilla, does it? CR has posted a graph showing the historical relationship between residential and non-residential construction, which is consistent with the commercial construction component of GDP over the past 3 quarters:
2Q06 - 20.3%
3Q06 - 15.7%
4Q06 - 2.8%
Not the trend you'd want to see if your Goldilocks scenario relies, even in part, on this sector of the economy.
Nice distinction between commercial and industrial construction (service and manufacturing jobs), Godzilla. The stats did show a slight rebound in C&I construction as residential faded but it was not the great hand-off to some revitalization of the economy that some of the 'soft-landers' were desperately hoping for.
Either wages/income make serious advanced or house prices make serious declines.
Is the problem that those house prices need to come down so that ordinary first time buyers can participate in the economy rather than be treated like illegal aliens?
Even though I believe that the housing market has peaked near term, it doesn't look to me that a severe downturn is in the works. Clearly the Fed see's some possible slowing in the future and is preparing for it, or at least I hope so.
Banker,
I realize that 90% of America agrees with you, but don't you see the acceleration in foreclosures as a large problem? If you are a banker, do you have access to information that the current trend is going to subside?
I see this as a personal cash-flow problem multiplied across a huge percentage of people who bought or refinanced to recent valuations.
Having said that, I'll also say I see alot of large capital and technology projects being initiated. Therefore I'm not as bearish as some here with respect to the general economy.
Banker,
Not sure if you're being sarcastic...and not sure what you mean by severe.
5% is severe to a homeowner facing a reset they cant afford.
According to Forclosure.com there were 5500 active forclosures in California in early December. Now, there are 11300 active forclosures in California. These are distressed inventories to be added to the empty new homes, along with all the other normal existing homeowners that face resets, get divorces, need to move, lose their job etc. We are already back up to record levels of inventory after a 3 month drop during the last quarter. That is will declining sales and tighter lending standards around the corner.
Why would anyone think this is even really begun let alone almost over? The number of bank owned homes sold is miniscule. The inventory is rapidly increasing and they have yet to start liquidating it. (anyone with stats on REOs that have actually sold?) None in my neighborhood have.
When these start moving and inventory of REO starts to plateu is when it will be the thick of it.
It's like saying "this ride aint to scary!" as you slowly ratchet to the top of the rollercoaster.
"...it doesn't look to me that a severe downturn is in the works..."
Me, neither. First, the economy has to stop producing so many new jobs.
Sebastia
Something to consider Banker:
Bay Area home sales fell in January, continuing a 24-month slide as prices dropped to their lowest level in the last year and a half.
Last time around home prices fell for about 4 years after sales began to recover.
How much are foreclosures expected to add to inventory over the year?
Sebastian,
I certainly can't argue with your current bullishness. It certainly has paid so far to be a bull. There sure are alot of "looming" issues that the bulls dismiss away without much discussion.
It reminds me of my sister-in-law who tells me that it's cheaper to own than rent. And with her option arm at $1500 a month and rent in a comparible at $2500, it's tough to argue with her...today. But there's a reset in the future that she will have to deal with, but she wont be bothered with it.
It's tough to argue against the present with the future.
The skydiver with no parachute will argue with you all the way down that falling out of a plane without a parachute isn't fatal...and he'd be right...until he hit the ground.
Sebastian, are you suggesting the ground aint coming and if so why not? CR is describing something fast aproaching that looks hard and may hurt when we hit it. I hear you saying, "I feel great!". Not sure this explains away what many here see. Would love to know your thoughts on how we navigate through the coming problems related to housing rather than getting a current diagnosis.
Look out for strife in Year of the Pig
The prediction was one of several made by various fortune-tellers on what the world can expect in the Year of the Pig that begins Sunday.
They say the world can expect a rollercoaster ride of conflict and unrest, natural disasters and a plunge in global stock markets.
Look out for strife in Year of the Pig - The Standard
Lama said: "I realize that 90% of America agrees with you, but don't you see the acceleration in foreclosures as a large problem? If you are a banker, do you have access to information that the current trend is going to subside?..."
This isn't a significant trend, however much the headlines, talking heads and other pundits say it is.
Employment, or rather UN-employment, is what drives serious, painful housing weakness. The only time that happens is when there are poor business conditions in multiple sectors simultaneously. Which isn't happening, and for which there is no evidence that it's coming anytime soon.
If you'd like an easy-to-follow "warning" indicator, watch employment. Non-farm payrolls should start to show one or more months of extremely low or negative monthly job growth. Also, the unemployment rate should rise sharply from a low level for a quarter or more.
There can't be a recession without at least the beginning of recession-like conditions.
Sebastia
Sebastian, what you are describing regarding employment isn't correct historically. The only employment indicator that usually gives a hint about a possible recession is Weekly Unemployment Claims - and you have to be very careful with that indicator too.
It's great that employment has been strong (and I've noted it every month). But that tells you nothing about the future.
Best to all.
Sebastian,
The employment picture got a little bit murkier today:
Jobless claims jump 44,000 to 357,000
Continuing claims rise to highest level in a year
Sebastian,
How do you explain the drop in house prices and sales when lending conditions, jobs, stock market, etc are so healthy? Saying it can't happen when it's happening is not very persuasive.
And why can't what is happening now cause what you say needs to happen?
CR sure has made a pursuasive case that a drop in housing can lead to job losses. Which I guess is what you require before housing starts to drop....?
Average Joe said: "...Would love to know your thoughts on how we navigate through the coming problems related to housing rather than getting a current diagnosis..."
This problem isn't a significant one, that's the main thing to keep in mind.
It's like pointing to the 4.7% unemployment rate and saying "Aha, see?! Millions of people out of work! Conditions are bad, and going to get worse!" Yes, that portion of society is in genuine difficulty (and we've all been there at one time or another).
However, extrapolating their condition out to the entire economy and assuming it's going to spread like a virus is hysteria, not logic.
Sebastia
Hate to burst your fantasy, but that cliche about "unemployment drives hosusing weakness" applies to a world past. In that world, as long as one was employed, one could pay the mortgage.
In the brave new world, there's a new paradigm "as long as housing appreciates, one can pay the mortgage".
Really, it is very simple.
Most of last few years prices are based on ARMs (subprime, and Alt-A.)If appreciation slows, they will suffer payment shock.
It does not matter about how little of US housing are these toxics. What matters is the ratio between these toxics and housing sales .i.e toxics as a fraction of the float, in stock market parlance.
And if you think this is not going to affect the economy, you might want to read this by Martin Wolf, who puts it much nicer than I could
"Where prices have risen far faster than underlying incomes, only two possibilities exist.
Either prices have moved to a higher equilibrium level, in which case future purchasers will have to save more and consume less. That would itself have significant economic implications. Or they have reached an unsustainable level, in which case they will fall in real terms. That would have far more significant economic implications.
The future will tell us which and where - possibly quite soon."
The article appeared in FT long back, but is archived here
http://www.libertypost.org/cgi-bin/readart.cgi?ArtNum=137657
-billy (not billy banks)
"Even though I believe that the housing market has peaked near term, it doesn't look to me that a severe downturn is in the works."
Maybe you are correct. If so, I know about 12,000 jobs that will be leaving the state in 2 to 3 years.
Companies, excluding Google, just cannot to hire people from out of state anymore. Sadly, the UC system/Stanford/USC does not produce enough of the skill sets that industry requires. So we go out to Penn state, MIT, and a few others for 60% of our hires. Well... we used to. Out of state people won't come in state anymore.
Besides, CR has done a great job talking about the MBS market. Its toast at too many levels. Credit tightening always tanks RE prices. We've seen it several times before here in California.
Got popcorn?
Neil
IMHO Bernanke's friendly words were surprising. Explanations are:
1. He was reacting to subprime weakness and is a real "dove" which is long run dangerous since it encourages excessive risk taking.
2. He has access to data which indicate the economy is weaker than it appeared Wednesday.
Jobless claims, industrial production and the flow of events are making me think 2 is more likely.
CR said: "Sebastian, what you are describing regarding employment isn't correct historically. The only employment indicator that usually gives a hint about a possible recession is Weekly Unemployment Claims - and you have to be very careful with that indicator too..."
CR, we must agree to disagree, then.
Weakening employment is absolutely a leading indicator of recession. When companies perceive a slowdown in business conditions, one of the first things they do is cut back on hiring.
Think about what you're saying: What is a rise in unemployment claims but a different indicator of employment weakness?
Sebastian
Sebastian, you are rather tiring. When I have ample time in the near future, Im going to put the kabosh on you. Unlike you, it seems, I'm too busy working right now.
Note to CR: Can the font size in these comments be bumped up a little? Or perhaps - don't define a font size at all, so that browsers can override it?
(One workaround I have found, is to copy and paste the comments into MS Word, that increase the font size there or use the "%size" dropdown tool.)
Think about what you're saying: What is a rise in unemployment claims but a different indicator of employment weakness?
I dunno. Mish (for all his weaknesses) did a pretty good job looking at recession indicators:
Unemployment - A Lagging or Coincident Indicator
Average Joe said: "How do you explain the drop in house prices and sales when lending conditions, jobs, stock market, etc are so healthy? Saying it can't happen when it's happening is not very persuasive..."
Froth. The speculation and excesses are being wrung out. Also, overheated markets like California, Virginia, New Jersey, etc., aren't representative of the rest of the country. Using nationwide statistics, housing prices in general have hardly budged.
Although I prefer hard data to anecdotes, here in NC we can't build houses, schools or roads fast enough to accomodate the influx of people. (Some of whom came from places like California and are enjoying far more reasonable housing prices here.)
Sebastia
Mozo Maz, I didn't see anything in the Haloscan settings regarding font size. Sorry.
Best to all.
Very Interesting rumor posted on Piggington.
WMC Going Under | Piggington's Econo-Almanac | San Diego Housing Bubble News and Analysis
Mozo Maz,
Use Firefox. Then, Ctrl-+ (or Ctrl-mouse wheel) increases font size to anything you want.
Here in San Diego, the momentum for NOD's and Foreclosure Sales is still accelerating to the upside.
Based on those two key indicators alone, we are no where near a market cycle bottom and there is no relevant evidence that I'm aware that speaks differently.
After rising 200% in 9 years, I don't see how anybody in their right mind could even think that a bottom is in after only a 10% to 20% correction in 18 months after the peak.
IMO, history's record of CA real estate doesn't even come close to supporting that type of belief and/or theory.
CR states: "Sebastian, what you are describing regarding employment isn't correct historically. The only employment indicator that usually gives a hint about a possible recession is Weekly Unemployment Claims - and you have to be very careful with that indicator too."
http://i12.photobucket.com/albums/a216/Pixbucket/initialclaimstn4.gif
Thanks for the laugh!
Geoff said: "...I'm going to put the kabosh on you..."
Good luck with that.
Seriously. If you can offer persuasive data that shakes my position(s), I'll have learned something new and I'll be in your debt.
A few years ago I got so fed-up with the poor quality of forecasting from various economists, mutual fund managers, gurus, pundits, etc., that I decided to pull together all the meaningful economic data available and actually look at it first-hand, testing it for forecasting ability.
It's not a job I would wish on anyone, but because I did it I can say this now: There won't be any 600,000 residential jobs lost this year. There will be no recession in 2007, and 2008 isn't looking like a promising recession year, either.
Sebastia
Mozo Maz,
Can't say I'm surprised about WMC. Fleck was all over this story last week and the way he was describing the situation, it seemed as if they were basically closing up shop. At the time a lot of trolls were bagging on him because he wouldn't disclose his source, but Fleck is pretty reliable and seems to know what's going on. BTW: ml-implode lists WMC as the 8th largest subprime lender.
The housing bear-osphere just doesn't get it. Housing prices went up because of dollar devaluation. At its extreme end in 2005 things got a little nutty. But by and large housing prices aren't that out of line now.
Denominated in gold terms the average US house is close to its 20 year average.
http://investmenttools.com/images/re/re_div_gold.gif
"There will be no recession in 2007, and 2008 isn't looking like a promising recession year, either."
Got to disagree on that one. The way that the Fed is restating GDP downward, we are probably in a recession right now. As Max pointed out, Mish did a pretty good write-up on employment being a lame recession indicator. M3 and M2 are also pretty lame. You should check it out.
You also might want to spend some time reviewing shadow statistics, it's a good site and explains a lot of the GDP anomolies and how the Fed and the Gov cook the books on inflation, employment, and a bunch of other stuff. Remember, it's not a one-for-one trade when a good manufacturing job gets replaced with a poor service sector job.
"But by and large housing prices aren't that out of line now."
Huh. I wonder why so many subprime lenders, GF's, and FB's are cracking up then? If housing is pretty much at historic norms than this shouldn't be happening, should it?
Your statement doesn't seem to pass the smell test.
Fullcarry,
How is the median income doing in gold terms?
In any currency devaluation median income is usually the last to catch up.
In the past 12 months personal income is up 6.5% and hourly earnings are up 4% the highest level since the late 90s.
Sabatioan
" Some of whom came from places like California and are enjoying far more reasonable housing prices here."
Maybe they will all come there. A lot of them sure can't afford it where they are now. Sad but true. Also many will be forced to relocate to less exspensive areas and try to find work.
Sebastian,
Joseph Ellis book "Ahead of the Curve" makes a compelling case that employment rate is a lagging indicator for recessions. The common sense gloss of his position is that companies amidst or forseeing a slowdown cut everything except employment because it's hardest to retrain/rehire people once the slowdown ends.
When they finally cut workers - a painful decision - it usually presages the end of the slowdown.
MozoMaz: re font size - on my Mac/Safari I can Apple-A to select all text in the haloscan window & then "+" to increase font size. Also, your browser preferences probably allow a blanket increase in font size...but it will probably affect all webpages...
inquiringMind
That's a hell of a crystal ball you have there Sebastian . Mine is showing an asteroid destroying the earth in 08, guess I'll have to get it calibrated.
Gold doesn't have the oversupply problem that housing does Fullcarry.
Kevin,
Bruce Willis destroys the asteroid. Your ball is definitely defective.
Wow, is there a high level of cognitive dissonance at work here, or what?
Sebastian, 50% of the gross value of U.S. real estate resides in the coastal states. Anything that happens on the coast will definitely affect everyone.
Fullcarry, people don't buy houses with gold, they buy them with cash. If people had more gold, maybe they wouldn't be losing those same houses now. You don't happen to have charts showing any historical gold/housing correlations, do you?
Steve,
It was working great when it read sell your house in CA in 05 and move to the mid-west and buy smaller but just as usefull one for 1/10 of the price. Maybe it got bumped in the move.
tj et al:
An old gold bug story has it that the median home price should go for 400 ounces of gold.
But Gold is irrelevant to my argument.
I simply use Gold as an unbiased denominator to get a sense of real, inflation adjusted housing prices. The CPI is just too flawed and historically inconsistent to be of much use.
In the 1970s the CPI included housing prices as a major component.
Fullcarry,
If median income is flat to down in real terms over a prolonged period of time, while housing shoots up, it doesn't really matter that the price of gold is also shooting up.
We have a situation where the median price of housing bears little relation to median income throughout much of the western world. In the absence of easy credit, either incomes have to rise dramatically or housing has to fall.
It sounds to me like you believe income will continue its short rise while housing meanders along until the two regain some sort of reasonable relationship. I hope you're right, but I fear that declining house prices will probably cause as much fear on the way down as they did greed on the way up, and people will need to start saving a whole nlot more, so a hard landing will be difficult to avoid.
I see. Sorry for the comment above. You believe the dollar has been so devalued that house prices make sense, but income just hasn't caught up yet.
I guess it depends on how much faith we're all willing to put into government statistics.
Insurance Guy,
Fair enough, you are stating my position accurately enough.
I guess I am much more concerned with the dollar losing value than with an over-supply of housing.
I don't mean to minimize the credit issues here, but as long as interest stay down, I think we will muddle through.
Mozo Maz,
Here's how you can control font size in IE 6 and 7:
Close the comments box and then select Tools from the main menu, then Internet Options and then Accessibility. Put a check in the box labeled "Ignore font sizes specified in webpages", and click OK and OK.
Now you can select View from the main menu and then Text Size whenever you want to change size, but you have to do it when the comments window is closed.
Garrison, thanks for the link: the graph clearly shows that unemployment rises after the onset of recessions, and thus has little predictive power.
Thanks, BaltBob.
How foolish of me, to think that a clear and easily accessible feature like "View->TextSize" would override web pages by default?
Some of use have lost money on gold and watched it bounce around at lows for years. So we have little regard for folks that are recently infatuated with it.
Gold is not money and is unlikely to be.
Gold may or may not be a store of value, it is just another commodity.
Ask yourself how a modern capitalist society can run using a gold standard and you will quickly find that gold is not flexible enough to fund a modern society.
Fullcarry,
Yes, I'm fully aware of the value of gold and the bogus CPI. However, valuing housing in gold misses the point.
Gold is rising in response to the rapidly expanding money supply and a general sense of unease with global imbalances. Housing, OTOH, is responding to that money supply (liquidity) being made available as cheap credit.
Housing reached the limits of (toxic loan) "affordability" in 2005. Since then real comparable prices have gone down whilst gold has continued to trend upward. The coming debt destruction and credit contraction will continue to hammer housing and boost gold.
...gold is not flexible enough to fund a modern society.
Oh, the old "barbarous relic" argument? Human nature doesn't change, vader.
On text size...
In IE you can also 'CTRL Scroll' and the fonts zoom up or down & only in the window that is active-open.
I'm using a laptop w/touch pad scroll region & it works slick - I zoom in & out as my tired old eyes require.
Even works in Halo & nuthin' works in Halo.
Vader, you can always 'buy' money with gold. But you can not always 'buy' gold with money. I have seen it!
"Froth. The speculation and excesses are being wrung out. Also, overheated markets like California, Virginia, New Jersey, etc., aren't representative of the rest of the country. Using nationwide statistics, housing prices in general have hardly budged."
(sigh)
Nationwide statistics, eh?
Ok.
Here's a little pop quiz:
Q: According to the Federal Housing Index, for the 5 year period ended 12/31/05 the national median home price increased by what percentage?
a) 12%
b) 21%
c) 36%
d) 58%
Did you pick (d) 58%? Nicely done!
Now, a math quiz. What's the result we get (assume no compounding) where 5 is the divisor and 58 is the thing that sits on top of the 5 with a straight line in between? Yeah, almost 12.
The NATIONAL rate of home median price appreciation, from 2001-2005, "barely budged" almost 12% annually. Just a little bit better than inflation, huh?
Note to CR: Can the font size in these comments be bumped up a little? Or perhaps - don't define a font size at all, so that browsers can override it?
MozoMaz: In Mozilla Press Ctrl+ to increase the font size in a window/tab and Ctrl- to decrease it. If your using Internet Exploder this is the least of your worries. :>
First, the economy has to stop producing so many new jobs.
What economy? We've shipped all our manufacturing to China and our NAFTA partners over the past 10 years.
Factor out mortgage equity extraction (ie selling future income for present/past consumption) we've had basically a break-even GDP growth rate over the past 5 years.
Factor out government-sector employment growth and there haven't been any net new jobs the past 5 years, either.
Factor in a million or two vanishing real-estate related jobs over this new Year of the Pig . . . Katie, bar the door.
Now that it's clear that residential real estate isn't coming back anytime soon, the chorus begins to sing that commercial construction will take it's place as a locomotive. Anecdotally, in my region (Silicon Valley) that is not going to happen. Every morning I commute past acres of "see-through" industrial buildings still unoccupied since the tech bust of 2001. What people don't realize is that service jobs just occupy less space than manufacturing jobs. We don't build 10 acre steel foundries or even 50,000 square foot cleanrooms anymore. You can fit a lot of desks into an industrial park. There will not be a lot of industrial construction for at least 10 years in my area.
"Now that it's clear that residential real estate isn't coming back anytime soon, the chorus begins to sing that commercial construction will take it's place as a locomotive. Anecdotally, in my region (Silicon Valley) that is not going to happen."
Doesn't seem likely, Godzilla, does it? CR has posted a graph showing the historical relationship between residential and non-residential construction, which is consistent with the commercial construction component of GDP over the past 3 quarters:
2Q06 - 20.3%
3Q06 - 15.7%
4Q06 - 2.8%
Not the trend you'd want to see if your Goldilocks scenario relies, even in part, on this sector of the economy.
Nice distinction between commercial and industrial construction (service and manufacturing jobs), Godzilla. The stats did show a slight rebound in C&I construction as residential faded but it was not the great hand-off to some revitalization of the economy that some of the 'soft-landers' were desperately hoping for.
Either wages/income make serious advanced or house prices make serious declines.
Is the problem that those house prices need to come down so that ordinary first time buyers can participate in the economy rather than be treated like illegal aliens?