10.7 million homeowners by the end of 2008 that will have no equity in their house...the real nightmare that we are waking up to with The American Dream boasting 69% "ownership rates", yes?
The distinction between liquidity and solvency problems is a classic one. We can easily understand the distinction for individual firms. As Krugman points out, just getting hold of cash for long enough will solve a liquidity problem. Solvency problems cannot be solve by getting one more loan.
Other than intractibility (again, as Krugman points out) are there distinct differences in the macroeconomic impact of liquidity and solvency problems? Other than central banks not being able to cure a solvency problem, are there other characteristics we anticipate from solvency problems that we would not see from liquidity problems?
CR, thanks for the great blog. I was just wondering how and if reverse mortgages are being counted in Househould Percent Equity statistics. When a house is considered mortgage free, is that reverse mortgage free also? I ask because I would guess that most of the free and clear homes are owned by elderly people and they are the target of the horrible reverse mortgage product which is starting to make the airwaves en masse.
I don't see why the price to rent ratio will NOT return to historic norms. If you look at the chard, the ratio was remarkably consistent since the 1970s. And this covered a couple previous boom-and-bust cycles. The run up in the ratio this time (due fully to prices rising, NOT rents declining) stands out as incredible.
Of course, that means that the drop in prices will be incredible if the ratio returns to historic numbers.
A big question is how far lending standards will go toward returning to pre-2000 standards. If they do, then demand for housing will really dry up, and prices should fall quite a bit. But it seems to me that even if lending standards are permanently looser to some degree (less documentation, lower downpayments, etc.) then eventually building supply will catch up, and we will still have the price to rent ratio return to historic levels.
With nominal home prices down 3% nationwide and inflation up to a 4.2% annual rate real home prices will fall 7.2% this year nationwide. Real declines in many bubble areas will be 20%+.
I've always made the same argument--that housing can't recover until prices come down a lot. The only other possibility is flat prices over many years of inflation. Somehow, I can't imagine that inflation alone can balance the disparities between incomes, rents and home prices.
Dr Roubini at RGE Monitor has also made the insolvency argument. IMO he is the best macro-analyst around.
My take is that house prices will decline (in real terms) until the mortgage payment on a median priced home equals one weeks take home pay for the median household income. This was the rule of thumb for a long time and I am a big believer in reversion to the mean.
The problem in housing is solvency. The first step in the solution is insolvency of the homebuilders (BK). Only when this happens in mass will the supply overhang be corrected.
Krugman said: "First, we had an enormous housing bubble in the middle of this decade. To restore a historically normal ratio of housing prices to rents or incomes, average home prices would have to fall about 30 percent from their current levels."
Two points.
One, he (like CR) doesn't differentiate between housing markets. Even assuming that housing prices "must" fall that far in California to reach "affordable" levels, in many other places housing is already and/or still affordable.
Two, I've been having a similar debate with stock market bears for years, who insist that stock prices "must" return to long-run average valuation ratios. Between 2000-2002 we had the biggest bear market of our generation and valuations still didn't return to "long-run average" valuations. Anyone waiting for them has been sorely disappointed, and I think housing bears are going to be equally disappointed. The housing markets in Stockton ("The RepoBus") and the Inland Empire are far from being typical. A tough-to-afford home that's a 2-hour commute from a decent job is a cinch to fall substantially in value. A tough-to-afford home with a much-shorter commute, or an easier-to-afford home with a much shorter commute will not be impacted in nearly the same way.
I can see it now. CR guest blogging for Krugman, Tanta replacing Morgansen on the housing beat. I would then actually start getting some news from the nytimes again.
Well if you have a fixed rate mortgage, and falling prices drive you to no equity in your home, and you can make your payment, then really all you need to do is hold down the fort for however long the market stays down.
My point it not all homeowners will negative equity are going to be in trouble, it will just prevent them from draw money out of the house.
I think negative equity in itself is trouble. The real question is how will most people handle their trouble. My guess is a significant portion will walk.
Defenders of the American econo-political system must of necessity defend the rule of legally sanctioned criminal "Gangs Of New York." Nothing was done, or could have been done, while 30,000,000 American households were piped with financial poison gas, i.e., construction of Debt Concentration Camps.
Does anyone doubt the fully anticipated financial deaths of 30M American households once the house of cards built by the gangs cant be held up?
Was "sub-prime" problem not anticipated? Only by crooks and dopes.
The real story here is born-and-bred dopes economically ruled over by criminal gangs. The rest of the commentaries are saucy details of the greatest financial rape of a population. Collapse of this system is not in doubt. The only question is, when?
One, he (like CR) doesn't differentiate between housing markets. Even assuming that housing prices "must" fall that far in California to reach "affordable" levels, in many other places housing is already and/or still affordable.
he's using national price-to-rent data, sebastian, so he's right to call for nationwide mean reversion of 30%. in places like southern california, i think one should expect something in excess of 50%.
Two, I've been having a similar debate with stock market bears for years, who insist that stock prices "must" return to long-run average valuation ratios.
i'd suggest solon's warning here. i'm quite sure people in 1971 thought they had seen the worst of the equity market correction that began in 1966, and believed that valuations simply wouldn't revert to long-term means.
then came 1973-74. and 1977-78. and 1981-82.
i think the bears are essentially right on this point w/r/t valuations. the market today is supported by a massive lending construct that is of its essence unsustainable. the unwinding of the leverage is likely to make dividend investing fashionable again in time. just imo, of course.
Krugman: "How will it all end? Markets wont start functioning normally until investors are reasonably sure that they know where the bodies I mean, the bad debts are buried. And that probably wont happen until house prices have finished falling and financial institutions have come clean about all their losses. All of this will probably take years."
He is very right. I have suggested several times to raise rates, which will bring home prices lower sooner to where they need to be for affordability levels. Home prices should be tied to income and rent instead of the exotic financing.
This will drag for years but BB is going to be like a hero in Greek tragedy: The hero tries to avoid his destiny but each of his actions leads him there un knowingly. BB spend all his life to find out what the Fed did wrong that lead to the Great D and here he is : Fed Chairman leading into the next longest down turn in US history. Will it be another great D ? This is not up to BB but so far he is doing his best to prolong the crisis.
Metrics Wonk asked: "...My point is not all homeowners with negative equity are going to be in trouble, it will just prevent them from drawing money out of the house."
That was exactly my experience with the first two houses I owned. I was "upside-down" on one of them for 6 years.
This problem is one of insolvency for some homeowners. A problem of short-term illiquidity for others, and a relatively insignificant problem for others.
I'm wondering how fast that no equity shift is going to be. Several posters talked about maxing the HELOC now, to get the cash ahead of the price declines. While I'm sure that they're all doing it for sound reasons, it's still going to add a little velocity to the shift.
OT- Do you think Krugman needles GM every time Tanta does a post on her stuff(I couldn't resist)? Or is he as considerate a gentleman as CR?
You know, this really is serious stuff. We are at a place where our economy has never been before. We might slip and slide through all this, but the potential for major disruption does exist.
I can't wait for the krugman piece where he admits he was completely wrong about the impact of housing and he should've listened to "Sebastian and Optimistic Joe" instead of CR and Tanta.
Those will be good times.
Housing is<a href="http://lookinginatiowa.wordpress.com/2007/12/08/iowa-city-area-median-housing-price-up-15-cedar-rapids-down-by-500/""> up in Iowa City. When will you people get it?
your points are relatively good ones, except for one point IMO:
the RE market is really determined at the margins more than anything. At any one given time, only a small % of homes are up for sale, and a smaller number yet actually sell.
Thus, it doesn't necessarily matter what the majority of homeowners do (in terms of valuations), it matters what those on the margins are doing.
thus a large decrease in RE valuation can occur with just a small number of people in mortgage trouble
It is similar to the run up. On my block only 3 houses sold in 7 years... but all 3 happened the same 12 month period, and all for almost triple what anybody else had ever paid in the past...
thus, those 3 homes (out of 24) determined the new market value for all 24. (and they tripled housing values too!)
Now there is one person on my block in trouble (the latest house that sold a year ago... they're underwater big time). this person now has the house on the market for $100,000 less than what was paid for it just last year... when that sells, the other 23 houses on my block will take a "hit" too.
On the return the the historic price/rent ratio-
If rates are low and/or loan terms are very forgiving (I/O, neg am) then home prices can climb higher than usually compared to rents, since the same monthly mortgage payment buys more house.
That's the only way to break the historic norm. People just aren't going to buy when its twice as expensive as renting unless they expect massive appricition. And those expectations are going away.
The mortgage industry will continue to feel the impact of the deflationary housing market and rising credit costs and needs to shed a third of its roughly 400,000 jobs in the next year if it is to generate a profit, an analyst said Friday.
Friedman, Billings, Ramsey & Co. Research Analyst Paul J. Miller lowered his 2008 mortgage origination forecast to around $1.8 trillion from $2.2 trillion, citing the ongoing tightening of credit guidelines in the industry.
"Bottom line, too many loan brokers are chasing too few loans!" he said in a research note. "Until the mortgage industry eliminates back-office personnel and loan officers, which could take several quarters, we believe the mortgage industry will not generate an economic profit."
"I've always made the same argument--that housing can't recover until prices come down a lot. The only other possibility is flat prices over many years of inflation. Somehow, I can't imagine that inflation alone can balance the disparities between incomes, rents and home prices.
Bill "
So what if house prices stay flat while the cost of other goods rise with inflation?
That is useless in adjusting price to the ability of the buyer to pay because INCOMES HAVE BEEN BASICALLY FLAT for 6-7 years.
House stays the same price, income stays the same (adjusted for the inflation of everything else) and everything else goes up. Still can't afford the house at that price. Inflation in other areas has absorbed the income gains - if any gains at all happen.
Incomes have to rise at more than the rate of inflation and/or prices have to fall more than the rate of inflation.
Sebastian, you keep treating the housing run-up as an independent variable with respect to location. Truth is prices to rent ratios are out of whack everywhere there were loose lending practices. IOW everywhere.
At least you and our affable and our oh so tolerant hosts are in accord on one aspect; consumer behavior this time will follow historical patterns as to defaults and hanging on and riding out the decline. Of course last times there weren't anywhere near the number of adjustable mortgage products in circulation as we have now. That allowed inflation to close the equity gap. As we've seen with the LIBOR and "stubborn" mortgages rates inflation this time won't do those borrowers any good.
Houses in Raleigh won't be hammered like here in LA. (Sebastian lives in Raleigh)
But what you're missing from the triangle Seb is what we see in LA. You wouldn't believe it. I was at a fancy Christmas party last night thrown by a mega wealthy trust fund couple from NoCal. An extremely successful westside realtor was there, who routinely sells 2-20 million dollar houses.
One 5 million LA house is worth 20 houses in Raleigh, OK? The loan on that house is 20 times bigger. If a tree falls in LA, it's like a small forest going down in NC.
Anyway, the realtor told me over his second tini that Brentwood is FILLED with couples who make 300-500K a year who own a 5 MILLION DOLLAR HOUSE. They both have Range Rovers and the kids school runs at about 50K a year. That's for elementary school, btw.
They got in the house with a million dollars cash from the run up on their last house and borrowed 4 MILLION FREEKIN DOLLARS. They pay an INTEREST ONLY LOAN that resets in late 2008.
Anyway, the realtor is like"I go to all these houses, and a lot of them don't have furniture. They can't afford furniture for the house. The reset is bearing down. We're underwater on the value of the house." This is not Inland Empire, homey. This is BRENTWOOD. PACIFIC PALISADES. The real estate loans for those two neighborhoods probably exceed the total loans made in ALL OF THE Carolinas.
The realtor goes on: rich people are going to lose a lot of houses. I told him (just to goose him) that I was actually thinking of buying. He told me he liked me too much, and his advice would be to not even think about it until late 2009. Told me I would save "a lot". I asked him how much. He said "40%". Across the board? says I. Not across the board, but there will be people that HAVE to sell, and there will be outrageous deals.
But those 'OUTRAGEOUS DEALS' become the new comps. The asset gets marked down.
Sebastian, I think you are a good guy, so I'm not being a hater because you have a different viewpoint. You take a lot of abuse but maintain civility. So I respect you.
But when I read your posts, which I know have a Raleigh perspective (i'm from N.C. originally--go Heels); and I bounce off my life here in LA for the last decade, I feel kind of like you're seeing the war from Washington and not the Green Zone.
Based on my reading of the Repobus Article I think Stockton houses could go down 75%. This happened in Detroit, huge exspensive houses went to $0, yes $0, when the economy tanked.
Great blog post, as usual but I'm starting to be scared for my childrens' future. Even though I don't live in the US, if 20 million Americans loose their homes we're all screwed...
CR is about the most creditable, and comprehensive, source on the subject. I would expect a lot more citations in the future. Then, of course, the blockbuster book, with CR and Tanta being wined and dined on their book tour. A movie? I'm not too sure about that....
With regard to CR's "Household Percent Equity" chart, it shows a long-term downtrend since 1952. Does this mean that the health of the U.S. consumer and the U.S. economy has been cumulatively deteriorating for 50+ years? And is finally going terminal (even though this chart has looked equally "bearish" many, many times since 1952)?
Or is this a reflection of other factors in our society and financial system that make this "normal"?
Your answer will have material impact on other questions regarding housing prices, price-to-rent ratios, and vacancy rates, so be very careful.
Goods inflation outstripping wage gains will put downward pressure on house prices, as there will be less money to devote to mortgage payments and renting property will be that much more attractive.
Plus, if inflation stays high, interest rates will rise at the same time, putting further pressure on housing prices.
Housing is up in Iowa City. When will you people get it?
Having grown up near there, I can say that the only thing that IC has in common with the rest of Eastern Iowa is the area code. Although if prices are up despite the god-awful drinking water, then perhaps they'll sail through.
Seriously though, as goes the U of I so goes Iowa City. If the state budget take a big hit, there will be pain.
I'm in Boston now, but spent 3 years in the Triangle. I think you hit the nail on the head regarding Sebastian's perspective.
The Triangle never got too far ahead of itself (if you don't believe me, check incomes, rent, and prices). I would be willing to argue it has much less to fall.
Boston, on the other hand, is in a much more grim situation...
X-man,
You make a good point. It is relatively easy to make a bunch of money when there is excess liquidity. However, it is even easier to lose these easily begotten gains when liquidity evaporates and you are using significant leverage. The rich will suffer as well.
Fannie Mae's CEO told shareholders Friday he does not expect a housing market recovery until late 2009, "at the earliest," and that the mortgage-finance company is strong enough to ride out the downturn.
The Triangle never got too far ahead of itself (if you don't believe me, check incomes, rent, and prices). I would be willing to argue it has much less to fall.
The Triangle may not fall, but Wilmington (where my family live) is sure as hell going to crash and burn.
In case you missed it equity valuations are a function of interest rates, that whole DCF thing..that same zero percent financing provided the added "juice" of leveraged recap mania. So what we have are artifically inflated earnings per share with stagnating top lines, no more "juice" and buldging costs. Let's ruminate for a momment...Dow 20,000, actually 50,000 why not
Check out the graph of historical interest rates (30 yr mtg) in the early 70s they were about where they are today and the typical house was a 2 multiple of average salary. Today that multiple is 6-7x. In the prime markets, they are 6-9x. So explain how the deflation express gets halted? kruugman for all his flaws gets it.
Equity valuations are also a function of excess liquidity formation, just like commodities and treasuries and houses (for that matter tulips). I'll leave it to Pimco to discuss the shadow banking system and attendant risks.
if the Fed hadn't continued to change the game and artificially push out the inevitable, then those folks back in 2002 would have been correct, you house would be worth maybe 15% more on a normalized basis, which politely ignores the stagnant to declining wages and historically low interest trate environment.
perhaps you should be asking yourself why did the Fed take such drastic measure beginning in the late 1990s to prolong what waas so clearly artificial? Was it to mask the stagnating incomes? Was it to sell globalization? Was it to enrich the bankers? Was it try and artifiicially create a compeitive advantage in the financial services business as a contra argument to a manufacturing industry robbed of its advantage permanently by a few billion others? Was it because greenspan wasn't as stupid as he appears - maybe he got it?
is paying 30x anything really rational? Ask any tech analyst why you buy it and they just say becasue that is the way it is? just do it. Forget the esotericism of a debate about valuation. The point is Americans have become purveyors of black magic. Want a stcok to go up - call it "tech" and pay 35x for it. Wa la - wealth creation.
Maybe the premium multiple the US has always garnered was the anomoly not the emerging market discount.
Great blog post, as usual but I'm starting to be scared for my childrens' future. Even though I don't live in the US, if 20 million Americans loose their homes we're all screwed...
Carlomagno | 12.14.07 - 1:49 pm |
The real issue is not home equity, or people losing their homes, it's repaying all the expended mortgage equity extraction from the last years. Various entities will have to foot the bill: Banks losing solvency because of foreclosures, investors losing money on SIV investments, taxpayers funding bailouts - the only way this could all possibly be benign is if the entire bill were paid by sovereign wealth funds.
That is all assuming that long-lived disruptions in the financial systems do not bring the entire economy down. And that dislocation of people from unaffordable homes does not wreak similar havoc.
I just got back from Pasadena. Went down one, very ritzy, street absolutely littered with for sale and for rent signs.
I can't say I know the area well other than visiting an in-law there for the last 20 years but if anyone thinks x-man is blowing smoke.....well, I seriously doubt it.
By the way, the in-law had an income property (neg cash flow however) that I all but begged them to sell....they did in June (interestingly, an all cash deal). Something tells me I'll always be welcome there.......
OT question: do houses sell better with or without furniture in them? Without the buyer can imagine his own being there. With the buyer may despise the owner's taste and that might sour him on purchasing. Any knowledgeable brokers to comment?
"Inflation is what sends the stock market down and is the prime cause of severe recessions."
No way, stock market only goes up. All news is good news. Just need the right spin, that's all. After all, according to Rove et al. we can create our own reality on an ongoing basis right?
Eras actually end. It's hard for humans to see it. The Roman empire decayed decayed decayed, and then suddenly the legions upped and started leaving places. From the perspective of Britain, the decay of Rome manifested in the fateful days the legions left, quite suddenly from their perspective. The decay had been happening for some time.
The events with which we define changes in eras are dramatic but somewhat artificial. What will our event be?
No, no you are a Gibbon dupe. Rome mutated. The empire became the Roman church; archbishops replaced governors; the Pope replaced the Emperor; the dioceses replicated the secular subdivision of the old Empire. The level of economic activity probably declined somewhat, more north of the Alps than in the Mediterranean and learning retreated into monasteries, but there was no "fall." No thud was heard.
This is just a matter of perspective. Sebastian disputes the validity of focusing on CA, Phoenix, LV, FL and the Northeast. If Raleigh is given equal weight to the above listed places, part of the arguement is valid.
All this ignores any effects of liquidity, but maybe people won't need loans.
I just got back from Pasadena. Went down one, very ritzy, street absolutely littered with for sale and for rent signs.
Do they do month to month leases out there? It's cold and snowy where i'm at and i wouldn't mind a month on the west coast in the sun. I don't need furniture, just something near the water. How's $2 grand sound?
"Yeah that's what I say when I am in my silly/cynical mood. History says different. History rules."
History is anything but objective. I can rewrite history at the drop of a hat. In order for you to do your duty and help keep America great (*TM). you are really going to have to take some lessons in the art of the spin. Otherwise I'm not going to invite you on my talkshow.
This is just a matter of perspective. Sebastian disputes the validity of focusing on CA, Phoenix, LV, FL and the Northeast. If Raleigh is given equal weight to the above listed places, part of the arguement is valid.
The error is in not recognizing that some part of the Triangle's success has to do with CA/Northeast equity flight. U-Haul index one way versus reverse rentals: 4:1 Boston, 2:1 Los Angeles. When the equity locusts stop arriving the demographic/economic protection evaporates.
James-
Not a broker, but I do know for a fact that empty homes take significantly longer to sell. Many people will rent furniture and stage the house to increase its likelyhood of selling.
James,
Re: your question.
Google "Staging Home for sale". I know someone who does this for a living (not much of a living these days). I think it's a good idea if done well.
FWIW, my brother bought a condo in Houston at the peak of the oil boom (early 80's) and it took the market 20 years for his condo to appreciate from the bottom in the mid-80s to his original price.
A corollary question to MW's original question is how long can people afford to be underwater? My brother was the exception.
ABX's seemed to have calmed down quite a bit - most are up 10+% in the past 2 weeks. Buying interest in this paper has picked up in the past couple weeks. We'll see if it lasts and where prices settle out....
Robert Cote,
There's also the "half-back phenominon" where people settle in the southern states permanently instead of going from the NE to FL back and forth.
A colleague's wife is still flipping homes (one at a time) and making money in East Tennessee...imagine that.
I can corroborate xman's observations about LA. Last summer I was chatting with friends in the Palisades when I bemoaned the use of phony baloney loan products when a friend, who had just bought in Santa Monica Canyon (cheapest houses run upwards of 2 mill) spat out, what's wrong with an I/O? I couldn't believe it. Same group of friends (all at my daughter's preschool) at a party where again I flapped my gums about the upcoming housing apocalypse and again a friend was flabbergasted that I thought his 1 million dollar Palisades condo might actually not be worth that. Both friends work in entertainment and I guarantee are sweating bullets the longer the WGA strike goes on. I won't bore you with other stories I've heard, but this is a very small group I'm sampling, and there's already a lot of potential distress. Anyone who thinks that the Palisades and other westside areas are not going to get hit hard are clearly not paying close attention.
"The events with which we define changes in eras are dramatic but somewhat artificial. What will our event be?"
I like to compare such things to a sudden building collapse; those do happen, especially in older cities. The mortar between the bricks weaken, termites go to work on the beams, water damage from leaky pipes accumulates over the years, the foundation begins to shift. But the whole enterprise still appears livable, if drafty and creaky and without doors that close correctly, until some sudden shock -- or even just a subtle cumulative breaking point of all components of the system -- impacts it.
The shock could be anything. It could be something that has happened before, not a unique or unheard-of event. But this time, affecting a system that is no longer strong enough to cope with it: Continued and worsening mistrust of securitized debt as assets, a continually declining dollar, world-wide downturn in the consumer products market, trouble in the Persian Gulf, too-high energy prices, a suddenly two-foot rise in sea level, any combination of the above; name your poison.
Do houses sell better with or without furniture in them?
Homes that are staged for sale do much better than those that are not.
As an appraiser, my stock answer to the question "what can I do to increase my home's value?" is -- fresh paint, and decorate it to look like a model home.
PS I have heard that the scent of baked bread turns buyers wild. Can one buy cans of "baked bread" scent to spray around the house before viewers come?
The 1-3 million dollar coastal SoCal house crowd describes exactly my holiday circle of friends and casual aquaintances. Around the punchbowl talking there's a distinct bifurcation. Two groups: 1) The settled comfortable group who are well positioned discussing the price implosion and 2) the really, really quiet. Malibu/PacPal/Soviet Monica/Redondo/Huntington Beach... Prices may appear to stay high but the individual carnage will be incredible.
"PS I have heard that the scent of baked bread turns buyers wild. Can one buy cans of "baked bread" scent to spray around the house before viewers come?"
For guys, it's cinammon. The smell of cinammon buns drives guys wild. And yes, you can buy cinammon-flavored spray. Google it.
With regard to CR's "Household Percent Equity" chart, it shows a long-term downtrend since 1952. Does this mean that the health of the U.S. consumer and the U.S. economy has been cumulatively deteriorating for 50+ years? And is finally going terminal (even though this chart has looked equally "bearish" many, many times since 1952)?
sebastian, i think you have to consider the circumstances of the starting point. emerging from the great depression and the rationing of world war 2, it's hard to imagine how the savings rate could have been higher at any point in american history than the late 1940s. that of course is reflected in the lack of financialization in housing.
fwiw, i would offer that the democratization of credit is a secular trend that has accompanied cultural changes in western civilization. mortgage availability is certainly one of the areas of change, and i for one don't expect it to go away. moreover, securitization as a lending model will almost certainly stick around in a more regulated form once this is done.
but, while 80% home equity rates are unlikely to be revisited outside of the aftermath of widespread bank failures and total war, i don't think it takes a genius to see that we are emerging from a period where credit underwriting standards approached non-existence. easier terms of credit are really difficult to imagine. so it makes sense that a tightening is at hand, and that -- in due time, following transitory effects -- will force the household percent equity higher.
much the same effect can be seen on the chart in the bank credit unwind of 1965-1982.
The next thing I'd like to hear from Krugman (I assume you are reading the comments on this blog too!) is a comparison of the Asian crisis of the late 90s with the present.
He essentially made his name by predicting a meltdown before it occured (although I would argue he was only partially right on asian growth being driven by overinvestment rather than productivity). Seems to me to ryhme, if not repeat - lots of sunk investments in unproductive assets tied up with a currency crisis. So what appeared a liquidity crisis was at least partially a solvency crisis.
"the percent homeowner equity has fallen significantly (because of mortgage equity withdrawal 'MEW')"
Could be many other factors.
New housing stock would start with lower equity.
Aging population selling (mostly) paid off homes so the homes end up with a larger mortgage.
Besides, the percentage equity figure may be misleading if the measuring progressively deeper debt hole is what the goal of putting this chart together is. Higher priced areas probably have disproportionately higher percentage of mortgages on the wrong end of the equity percentage chart. Raw dollar of homeowner debt inflation adjusted may be a nice number to chart.
I'll be passing it to my wife right now. We're the only folks that I know at our La Jolla school ($25K per year per kid, but look at those placement statistics: College Counseling at Bishop'sThe resource cannot be found. who saw this coming and have been renting since '05.
Life is good for most of our friends, now, but after commercial real estate tanks (inevitable), I see lots of spots opening up at our school.
I haven't read all the comments yet, but I was wondering if anyone has commented on what was left unstated in Krugman's description of how the Fed handles liquidity and solvency issues.
As he stated, with a Bank if a liquidity crisis occurs the Fed makes the institution a short term loan to tide it over. If however, the Bank is insolvent, the FDIC (or related institution) steps in, relieves the owners of their keys and makes whole the depositors up to the statutory limit. The stabilized bank is then sold off or it's assets are. In the old days when we had more of a bank-oriented financial system (as opposed to market-oriented), this was generally all that was required to stabilize the economy.
The problem I see is that there are NO SUCH MECHANISMS for the new non-bank financial institutions (PIMCO's "shadow banking" institutions - private equity, SIVs, MBS, CDO, etc.). The Fed is currently having a hell of a time injecting liquidity in to these institutions and there is NO established FDIC-like path that can be utilized to unbury the bodies and restore the vital counter-party confidence that is the social lubricant of all healthy economies.
i would argue, james, that when the romans awoke to find alaric camped outside the city in 410, there was a very audible 'thud' in the chest of every citizen.
declines are long processes with many such moments -- but they occur and we shouldn't pretend that, because the catholic church adopted a parallel bureaucracy to the roman civil service, no one in rome noticed the decline of their society.
--
DH: "Jas- You are naive to think this kind of crap is not a worldwide phenomenon."
I know it is. It is an American export! India is one of the best examples -- badly copying what goes on in America.
One should not underestimate the bad American influence in many areas, including the fast food. Crooks all over the world are learning from Americas crooks. Criminal gangs of New York have been replicated in all financial centers.
James, while I'm no great fan of Gibbon, I'd like you to consider the physical evidence: the city of Rome circa 1400. I'm not as certain as you seem to be that transition from empire to Papacy didn't involve an unpleasant and inconvenient interim.
when the romans awoke to find alaric camped outside the city in 410..
Well Rome was no longer that capital of the empire at the time; the capital had been moved to Ravenna. Doubtless the Romans were shocked, but the process was a long one. In the provinces such as Gaul life on the great estates proceeded calmly and harmoniously as indicated by the letters of Sidonius Apollinaris, who by the way was a bishop of the kind who were replacing the Roman governors. We tend to compress history since we don't live through it. Time passes more slowly in reality than in reading about it.
that transition from empire to Papacy didn't involve an unpleasant and inconvenient interim.
There was no "interim". The Papacy developed within the bosom of the Empire. And the Lateran Palace occupied by the Popes was a previous Imperial palace. The Papal garb (even today) replicates largely the garb worn by the late Emperors. That's why I say the Empire "mutated" gradually into the Church. And the Christian Roman Empire was not held together by Roman soldiers but by the more cohesive bonds of faith. Replacing the rather chaotic system of the multiple gods of ancient Rome with the one God of Christianity bound the new empire in a cohesive whole better than did the Roman legions.
An odd place to take this up, James, so I'll keep it brief - and peripherally on the point of significant turns in history.
While I'm well aware of Catholicism's adoption of Roman forms and antecedents, it doesn't at all mask an enormous economic and cultural contraction. One might as well point out the ceremonial costume of Cambodia to discount the collapse of Angkor Thom.
I'm waiting for someone to propose softening the decline in housing values by using fundamentals other than financing - namely, basic supply and demand. If you want to prop up the price, you can reduce supply, which isn't practical for existing homes, or you can increase the demand, which for housing means increasing the population, and the easiest way to do that is open immigration...
My kids are just into high school. I figure maybe we keep our heads down and plow through this and college and perhaps some semblance of rationality will have returned to the r/e and credit markets by then.
Yes there was an economic contraction and cultural too, I didn't say there was not. But the continuity was what was important. You must understand that commerce did not die out at all in the Mediterranean (Lopez contradicting Pirenne) and Byzantium remained the center of a flourishing economy. Europe had sufficient vitality to engage in the Crusades (the first imperial venture of the post Roman West) by the end of the 11th century. And there was an intense economic and cultural life in Muslim Spain. The area north of the Alps (France and Germany and England) were never places of rich economic life even during the heyday of the Empire.
"One 5 million LA house is worth 20 houses in Raleigh, OK? The loan on that house is 20 times bigger. If a tree falls in LA, it's like a small forest going down in NC."
But if a tree falls in LA - do those of us in Raleigh NC or Jacksonville FL hear it? Or even care about it? Probably not - except perhaps insofar as it affects our personal investments - taxes - and the like.
Which I guess is just another way of saying that - to a reasonable extent - all real estate is still local. Roby
James,
I would suggest that to call it "decay" or "mutation" is one of semantics and perspective. My point was that things were changing in a negative way (by our modern materialist definitions), mostly slowly, but definitely punctuated by dramatic events. My perspective is that the rise of the papacy was decay, especially if you were not catholic.
Can you imagine looking at all that infrastructure and not being able to replicate it? It is poignant to me that those that replaced the Romans tried pretty hard to copy its laws and structure but increasingly badly.
Whether it is appropriate or not we humans define eras by significant events. You are right that nothing really fundamental changed when in 476 the last emperor was removed but there it is.
476, 1929, 1453, 1054 etc etc
I would speculate something big is coming. Maybe not like the dates above, but maybe like 1971? But maybe it will be big. Exciting!
"But the continuity was what was important. You must understand that commerce did not die out at all in the Mediterranean (Lopez contradicting Pirenne) and Byzantium remained the center of a flourishing economy."
True true. But I bet ya that Americans will not be happy when the economic center shifts away from New York to Byzantium.
x-man said: "One 5 million LA house is worth 20 houses in Raleigh, OK? The loan on that house is 20 times bigger. If a tree falls in LA, it's like a small forest going down in NC."
Is this comparison valid, in terms of economic impact? One job vs. 20? How many automobiles does that LA family own vs. the number that the 20 NC families own? How many kids is the one LA family buying clothes, food, and iPods for vs. the 20 families in NC?
How much sales tax, income tax and property tax revenue is being generated by the one well-to-do family vs. 20 other families of median income in NC?
Respectfully, your example is overly simplistic, one-dimensional. Also, as so many others posted here, not representative of anything approaching real-life, since very few people have $300k-$500k incomes and live in $5 million homes.
As Tanta sagely put it, a simple answer to a complex problem is rarely the correct one.
Krugman is using the wrong indicator. It's not price to rent that matters. It's cost of ownership to rent that matters. Changing interest rates changes the cost of ownership, even if it takes a while for that to change prices.
If you do the calculations on cost of ownership vs rent, you still get a drop, but not 30%. More like 10-15%.
Tanta and CR:
Congratulations on the recognition. It is about time. I just hope that the sucess will not attract spammers as I learn more from your blog and vistor's comments than other blogs. Keep up the good work and happy holidays. I think 2008 will be an interesting time.
Yes, but what did Roman villa values do?
Pretty funny. But actually Rome underwent one of the great urban population collapses from its ancient peak to somewhere in the Middle Ages, from 1 million or more down to, says here, about 20,000. One finds slightly different numbers elsewhere, but that 's the gist. The Rome we see today is physically founded on the Renaissance city, not the ancient one.
I believe they also lost the technique of making roman concrete for a while back then. People and cultures can survive ruin all right#&8212;but ruin there sure can be.
jg said "We're the only folks that I know at our La Jolla school ($25K per year per kid, but look at those placement statistics"
If you were my parents I would ask you to put the 300k you are going to spend on grades 7-16 in the bank for me and just let me screw around for 10 years.
"perhaps you should be asking yourself why did the Fed take such drastic measure beginning in the late 1990s to prolong what waas so clearly artificial? Was it to mask the stagnating incomes? Was it to sell globalization? Was it to enrich the bankers? Was it try and artifiicially create a compeitive advantage in the financial services business as a contra argument to a manufacturing industry robbed of its advantage permanently by a few billion others? Was it because greenspan wasn't as stupid as he appears - maybe he got it?"
grats CR for teh bigz times.
Does this number include the pick your payment neg/am loans? With those even without loss your under water. Just curious
10.7 million homeowners by the end of 2008 that will have no equity in their house...the real nightmare that we are waking up to with The American Dream boasting 69% "ownership rates", yes?
I'm scared now.
Krugman just said something I've been saying for like a year now.
I gotta go see if there are any pigs in the sky.
Cheers,
The distinction between liquidity and solvency problems is a classic one. We can easily understand the distinction for individual firms. As Krugman points out, just getting hold of cash for long enough will solve a liquidity problem. Solvency problems cannot be solve by getting one more loan.
Other than intractibility (again, as Krugman points out) are there distinct differences in the macroeconomic impact of liquidity and solvency problems? Other than central banks not being able to cure a solvency problem, are there other characteristics we anticipate from solvency problems that we would not see from liquidity problems?
In other words: it's the solvency, stupid.
CR, thanks for the great blog. I was just wondering how and if reverse mortgages are being counted in Househould Percent Equity statistics. When a house is considered mortgage free, is that reverse mortgage free also? I ask because I would guess that most of the free and clear homes are owned by elderly people and they are the target of the horrible reverse mortgage product which is starting to make the airwaves en masse.
I don't see why the price to rent ratio will NOT return to historic norms. If you look at the chard, the ratio was remarkably consistent since the 1970s. And this covered a couple previous boom-and-bust cycles. The run up in the ratio this time (due fully to prices rising, NOT rents declining) stands out as incredible.
Of course, that means that the drop in prices will be incredible if the ratio returns to historic numbers.
A big question is how far lending standards will go toward returning to pre-2000 standards. If they do, then demand for housing will really dry up, and prices should fall quite a bit. But it seems to me that even if lending standards are permanently looser to some degree (less documentation, lower downpayments, etc.) then eventually building supply will catch up, and we will still have the price to rent ratio return to historic levels.
With nominal home prices down 3% nationwide and inflation up to a 4.2% annual rate real home prices will fall 7.2% this year nationwide. Real declines in many bubble areas will be 20%+.
I've always made the same argument--that housing can't recover until prices come down a lot. The only other possibility is flat prices over many years of inflation. Somehow, I can't imagine that inflation alone can balance the disparities between incomes, rents and home prices.
Calculated Risk
Now you know why I have talked about panic in the housing market.
Fox and CNBC don't get it!
Dr Roubini at RGE Monitor has also made the insolvency argument. IMO he is the best macro-analyst around.
My take is that house prices will decline (in real terms) until the mortgage payment on a median priced home equals one weeks take home pay for the median household income. This was the rule of thumb for a long time and I am a big believer in reversion to the mean.
The problem in housing is solvency. The first step in the solution is insolvency of the homebuilders (BK). Only when this happens in mass will the supply overhang be corrected.
James, I'm pretty sure a reverse mortgage would be included in the First American data. But people with reverse mortgages aren't upside down.
BTW, Tanta did a great post: Reverse Mortgages: An UberNerditorial
- a must read for anyone interested in the topic.
Best Wishes.
Wow, CR in the New York Times. What a frickin great blog this has been.
Soooo...If I'm upside down and get a reverse mortgage does that mean I get paid???? ;>}
Krugman said: "First, we had an enormous housing bubble in the middle of this decade. To restore a historically normal ratio of housing prices to rents or incomes, average home prices would have to fall about 30 percent from their current levels."
Two points.
One, he (like CR) doesn't differentiate between housing markets. Even assuming that housing prices "must" fall that far in California to reach "affordable" levels, in many other places housing is already and/or still affordable.
Two, I've been having a similar debate with stock market bears for years, who insist that stock prices "must" return to long-run average valuation ratios. Between 2000-2002 we had the biggest bear market of our generation and valuations still didn't return to "long-run average" valuations. Anyone waiting for them has been sorely disappointed, and I think housing bears are going to be equally disappointed. The housing markets in Stockton ("The RepoBus") and the Inland Empire are far from being typical. A tough-to-afford home that's a 2-hour commute from a decent job is a cinch to fall substantially in value. A tough-to-afford home with a much-shorter commute, or an easier-to-afford home with a much shorter commute will not be impacted in nearly the same way.
Sebastia
I can see it now. CR guest blogging for Krugman, Tanta replacing Morgansen on the housing beat. I would then actually start getting some news from the nytimes again.
Well if you have a fixed rate mortgage, and falling prices drive you to no equity in your home, and you can make your payment, then really all you need to do is hold down the fort for however long the market stays down.
My point it not all homeowners will negative equity are going to be in trouble, it will just prevent them from draw money out of the house.
-No?
Nothing a bit of hyperinflation wont solve!
At least that seems to be where the Fed is going.
I think negative equity in itself is trouble. The real question is how will most people handle their trouble. My guess is a significant portion will walk.
--
Krugman does get it.
Defenders of the American econo-political system must of necessity defend the rule of legally sanctioned criminal "Gangs Of New York." Nothing was done, or could have been done, while 30,000,000 American households were piped with financial poison gas, i.e., construction of Debt Concentration Camps.
Does anyone doubt the fully anticipated financial deaths of 30M American households once the house of cards built by the gangs cant be held up?
Was "sub-prime" problem not anticipated? Only by crooks and dopes.
The real story here is born-and-bred dopes economically ruled over by criminal gangs. The rest of the commentaries are saucy details of the greatest financial rape of a population. Collapse of this system is not in doubt. The only question is, when?
Jas
One, he (like CR) doesn't differentiate between housing markets. Even assuming that housing prices "must" fall that far in California to reach "affordable" levels, in many other places housing is already and/or still affordable.
he's using national price-to-rent data, sebastian, so he's right to call for nationwide mean reversion of 30%. in places like southern california, i think one should expect something in excess of 50%.
Two, I've been having a similar debate with stock market bears for years, who insist that stock prices "must" return to long-run average valuation ratios.
i'd suggest solon's warning here. i'm quite sure people in 1971 thought they had seen the worst of the equity market correction that began in 1966, and believed that valuations simply wouldn't revert to long-term means.
then came 1973-74. and 1977-78. and 1981-82.
i think the bears are essentially right on this point w/r/t valuations. the market today is supported by a massive lending construct that is of its essence unsustainable. the unwinding of the leverage is likely to make dividend investing fashionable again in time. just imo, of course.
Krugman: "How will it all end? Markets wont start functioning normally until investors are reasonably sure that they know where the bodies I mean, the bad debts are buried. And that probably wont happen until house prices have finished falling and financial institutions have come clean about all their losses. All of this will probably take years."
He is very right. I have suggested several times to raise rates, which will bring home prices lower sooner to where they need to be for affordability levels. Home prices should be tied to income and rent instead of the exotic financing.
This will drag for years but BB is going to be like a hero in Greek tragedy: The hero tries to avoid his destiny but each of his actions leads him there un knowingly. BB spend all his life to find out what the Fed did wrong that lead to the Great D and here he is : Fed Chairman leading into the next longest down turn in US history. Will it be another great D ? This is not up to BB but so far he is doing his best to prolong the crisis.
Senate passes bill to help cash strapped homeowners
404 Error, No such article | Chron.com - Houston Chronicle
Wow a Godwin violation on a financial blog, don't see that every day.
Metrics Wonk asked: "...My point is not all homeowners with negative equity are going to be in trouble, it will just prevent them from drawing money out of the house."
That was exactly my experience with the first two houses I owned. I was "upside-down" on one of them for 6 years.
This problem is one of insolvency for some homeowners. A problem of short-term illiquidity for others, and a relatively insignificant problem for others.
Sebastia
I'm wondering how fast that no equity shift is going to be. Several posters talked about maxing the HELOC now, to get the cash ahead of the price declines. While I'm sure that they're all doing it for sound reasons, it's still going to add a little velocity to the shift.
OT- Do you think Krugman needles GM every time Tanta does a post on her stuff(I couldn't resist)? Or is he as considerate a gentleman as CR?
I like to thank Dr. Peter Navarro of UC Irvine and Matt Davio for recommending CR to their readers in 2004, as well as CR himself.
Jas- You are naive to think this kind of crap is not a worldwide phenomenon.
You know, this really is serious stuff. We are at a place where our economy has never been before. We might slip and slide through all this, but the potential for major disruption does exist.
I can't wait for the krugman piece where he admits he was completely wrong about the impact of housing and he should've listened to "Sebastian and Optimistic Joe" instead of CR and Tanta.
Those will be good times.
Housing is<a href="http://lookinginatiowa.wordpress.com/2007/12/08/iowa-city-area-median-housing-price-up-15-cedar-rapids-down-by-500/""> up in Iowa City. When will you people get it?
Metrics wonk/Sebastian:
your points are relatively good ones, except for one point IMO:
the RE market is really determined at the margins more than anything. At any one given time, only a small % of homes are up for sale, and a smaller number yet actually sell.
Thus, it doesn't necessarily matter what the majority of homeowners do (in terms of valuations), it matters what those on the margins are doing.
thus a large decrease in RE valuation can occur with just a small number of people in mortgage trouble
It is similar to the run up. On my block only 3 houses sold in 7 years... but all 3 happened the same 12 month period, and all for almost triple what anybody else had ever paid in the past...
thus, those 3 homes (out of 24) determined the new market value for all 24. (and they tripled housing values too!)
Now there is one person on my block in trouble (the latest house that sold a year ago... they're underwater big time). this person now has the house on the market for $100,000 less than what was paid for it just last year... when that sells, the other 23 houses on my block will take a "hit" too.
oops... there are 22 houses on my block. (not that anyone cares... but there it is)
I like 12th's corollary to the "as long as it's cold outside global warming isn't happening" argument.
As long as real estate is up SOMEWHERE, a decline isn't imminent.
As goes Iowa City, so goes the world.
Yearning to Learn,
I care. 24 homes sounded very suspicious to me.
Re: FFDIC | 12.14.07 - 1:26 pm
I'm getting tired of this. Why don't we just do away with all of this nonsense and cut to the inevitable endgame. Massive taxpayer bailout.
I mean 23...
For the record I really was asking a question, in my original post, not asserting that declines in value didn't matter.
Yearning to Learn,
I care. 24 homes sounded very suspicious to me.
Elvis | 12.14.07 - 1:39 pm | #
YTL- Do you work for the BLS or NAR?
Great point Yearning to Learn.
Congrats CR and Tanta for being the reference of Krugman. Finally 20%-30% potential drops are going mainstream.
Was wondering if people will invest/trade differently within their retirement accounts once/if these huge drops materialize?
Thought that either under water homeowners will become very conservative or they will go the opposite way, gambling for resurrection.
Tiny sample: an underwater friend of mine (musician and financially illiterate) asked me how to buy options.
On the return the the historic price/rent ratio-
If rates are low and/or loan terms are very forgiving (I/O, neg am) then home prices can climb higher than usually compared to rents, since the same monthly mortgage payment buys more house.
That's the only way to break the historic norm. People just aren't going to buy when its twice as expensive as renting unless they expect massive appricition. And those expectations are going away.
The mortgage industry will continue to feel the impact of the deflationary housing market and rising credit costs and needs to shed a third of its roughly 400,000 jobs in the next year if it is to generate a profit, an analyst said Friday.
Friedman, Billings, Ramsey & Co. Research Analyst Paul J. Miller lowered his 2008 mortgage origination forecast to around $1.8 trillion from $2.2 trillion, citing the ongoing tightening of credit guidelines in the industry.
"Bottom line, too many loan brokers are chasing too few loans!" he said in a research note. "Until the mortgage industry eliminates back-office personnel and loan officers, which could take several quarters, we believe the mortgage industry will not generate an economic profit."
Business finance news - currency market news - online UK currency markets - financial news - Interactive Investor
Sebastian you little pump monkey.
"I've always made the same argument--that housing can't recover until prices come down a lot. The only other possibility is flat prices over many years of inflation. Somehow, I can't imagine that inflation alone can balance the disparities between incomes, rents and home prices.
Bill "
So what if house prices stay flat while the cost of other goods rise with inflation?
That is useless in adjusting price to the ability of the buyer to pay because INCOMES HAVE BEEN BASICALLY FLAT for 6-7 years.
House stays the same price, income stays the same (adjusted for the inflation of everything else) and everything else goes up. Still can't afford the house at that price. Inflation in other areas has absorbed the income gains - if any gains at all happen.
Incomes have to rise at more than the rate of inflation and/or prices have to fall more than the rate of inflation.
Sebastian, you keep treating the housing run-up as an independent variable with respect to location. Truth is prices to rent ratios are out of whack everywhere there were loose lending practices. IOW everywhere.
At least you and our affable and our oh so tolerant hosts are in accord on one aspect; consumer behavior this time will follow historical patterns as to defaults and hanging on and riding out the decline. Of course last times there weren't anywhere near the number of adjustable mortgage products in circulation as we have now. That allowed inflation to close the equity gap. As we've seen with the LIBOR and "stubborn" mortgages rates inflation this time won't do those borrowers any good.
Sebastian is right
Houses in Raleigh won't be hammered like here in LA. (Sebastian lives in Raleigh)
But what you're missing from the triangle Seb is what we see in LA. You wouldn't believe it. I was at a fancy Christmas party last night thrown by a mega wealthy trust fund couple from NoCal. An extremely successful westside realtor was there, who routinely sells 2-20 million dollar houses.
One 5 million LA house is worth 20 houses in Raleigh, OK? The loan on that house is 20 times bigger. If a tree falls in LA, it's like a small forest going down in NC.
Anyway, the realtor told me over his second tini that Brentwood is FILLED with couples who make 300-500K a year who own a 5 MILLION DOLLAR HOUSE. They both have Range Rovers and the kids school runs at about 50K a year. That's for elementary school, btw.
They got in the house with a million dollars cash from the run up on their last house and borrowed 4 MILLION FREEKIN DOLLARS. They pay an INTEREST ONLY LOAN that resets in late 2008.
Anyway, the realtor is like"I go to all these houses, and a lot of them don't have furniture. They can't afford furniture for the house. The reset is bearing down. We're underwater on the value of the house." This is not Inland Empire, homey. This is BRENTWOOD. PACIFIC PALISADES. The real estate loans for those two neighborhoods probably exceed the total loans made in ALL OF THE Carolinas.
The realtor goes on: rich people are going to lose a lot of houses. I told him (just to goose him) that I was actually thinking of buying. He told me he liked me too much, and his advice would be to not even think about it until late 2009. Told me I would save "a lot". I asked him how much. He said "40%". Across the board? says I. Not across the board, but there will be people that HAVE to sell, and there will be outrageous deals.
But those 'OUTRAGEOUS DEALS' become the new comps. The asset gets marked down.
Sebastian, I think you are a good guy, so I'm not being a hater because you have a different viewpoint. You take a lot of abuse but maintain civility. So I respect you.
But when I read your posts, which I know have a Raleigh perspective (i'm from N.C. originally--go Heels); and I bounce off my life here in LA for the last decade, I feel kind of like you're seeing the war from Washington and not the Green Zone.
I like 12th's corollary to the "as long as it's cold outside global warming isn't happening" argument.
hey, I just spent a good chunk of the last 24 hours shoveling and snowblowing. If it snows anywhere on the planet there is no global warming, right?
Based on my reading of the Repobus Article I think Stockton houses could go down 75%. This happened in Detroit, huge exspensive houses went to $0, yes $0, when the economy tanked.
The Destruction of the William Livingstone House - Detroit
Telegraph- World bankers resort to firebreak..."This is a drastic action..."
World bankers resort to firebreak - Telegraph
CR,
Great blog post, as usual but I'm starting to be scared for my childrens' future. Even though I don't live in the US, if 20 million Americans loose their homes we're all screwed...
CR is about the most creditable, and comprehensive, source on the subject. I would expect a lot more citations in the future. Then, of course, the blockbuster book, with CR and Tanta being wined and dined on their book tour. A movie? I'm not too sure about that....
So, here's a question.
With regard to CR's "Household Percent Equity" chart, it shows a long-term downtrend since 1952. Does this mean that the health of the U.S. consumer and the U.S. economy has been cumulatively deteriorating for 50+ years? And is finally going terminal (even though this chart has looked equally "bearish" many, many times since 1952)?
Or is this a reflection of other factors in our society and financial system that make this "normal"?
Your answer will have material impact on other questions regarding housing prices, price-to-rent ratios, and vacancy rates, so be very careful.
Sebastia
Good point, Ann.
Goods inflation outstripping wage gains will put downward pressure on house prices, as there will be less money to devote to mortgage payments and renting property will be that much more attractive.
Plus, if inflation stays high, interest rates will rise at the same time, putting further pressure on housing prices.
Housing is up in Iowa City. When will you people get it?
Having grown up near there, I can say that the only thing that IC has in common with the rest of Eastern Iowa is the area code. Although if prices are up despite the god-awful drinking water, then perhaps they'll sail through.
Seriously though, as goes the U of I so goes Iowa City. If the state budget take a big hit, there will be pain.
Nothing a bit of hyperinflation wont solve!
Coming soon. Yearly inflation June 2007=2.7%; yearly inflation November 2007=4.3%. Rising fast.
Nice post, x-man.
I'm in Boston now, but spent 3 years in the Triangle. I think you hit the nail on the head regarding Sebastian's perspective.
The Triangle never got too far ahead of itself (if you don't believe me, check incomes, rent, and prices). I would be willing to argue it has much less to fall.
Boston, on the other hand, is in a much more grim situation...
X-man,
You make a good point. It is relatively easy to make a bunch of money when there is excess liquidity. However, it is even easier to lose these easily begotten gains when liquidity evaporates and you are using significant leverage. The rich will suffer as well.
I gotta go see if there are any pigs in the sky.
That's funny, I'm just looking for some skies withOUT pigs.
Almost time for the 2:30 rally. Inflation up, it's good news, no?
Fannie Mae's CEO told shareholders Friday he does not expect a housing market recovery until late 2009, "at the earliest," and that the mortgage-finance company is strong enough to ride out the downturn.
Business finance news - currency market news - online UK currency markets - financial news - Interactive Investor
Expired
Inflation is what sends the stock market down and is the prime cause of severe recessions.
The Triangle never got too far ahead of itself (if you don't believe me, check incomes, rent, and prices). I would be willing to argue it has much less to fall.
The Triangle may not fall, but Wilmington (where my family live) is sure as hell going to crash and burn.
Sebastion,
Pass the bong...
In case you missed it equity valuations are a function of interest rates, that whole DCF thing..that same zero percent financing provided the added "juice" of leveraged recap mania. So what we have are artifically inflated earnings per share with stagnating top lines, no more "juice" and buldging costs. Let's ruminate for a momment...Dow 20,000, actually 50,000 why not
Check out the graph of historical interest rates (30 yr mtg) in the early 70s they were about where they are today and the typical house was a 2 multiple of average salary. Today that multiple is 6-7x. In the prime markets, they are 6-9x. So explain how the deflation express gets halted? kruugman for all his flaws gets it.
Equity valuations are also a function of excess liquidity formation, just like commodities and treasuries and houses (for that matter tulips). I'll leave it to Pimco to discuss the shadow banking system and attendant risks.
if the Fed hadn't continued to change the game and artificially push out the inevitable, then those folks back in 2002 would have been correct, you house would be worth maybe 15% more on a normalized basis, which politely ignores the stagnant to declining wages and historically low interest trate environment.
perhaps you should be asking yourself why did the Fed take such drastic measure beginning in the late 1990s to prolong what waas so clearly artificial? Was it to mask the stagnating incomes? Was it to sell globalization? Was it to enrich the bankers? Was it try and artifiicially create a compeitive advantage in the financial services business as a contra argument to a manufacturing industry robbed of its advantage permanently by a few billion others? Was it because greenspan wasn't as stupid as he appears - maybe he got it?
is paying 30x anything really rational? Ask any tech analyst why you buy it and they just say becasue that is the way it is? just do it. Forget the esotericism of a debate about valuation. The point is Americans have become purveyors of black magic. Want a stcok to go up - call it "tech" and pay 35x for it. Wa la - wealth creation.
Maybe the premium multiple the US has always garnered was the anomoly not the emerging market discount.
Tyr not to get run over
From x-man . .
Anyway, the realtor is like"I go to all these houses, and a lot of them don't have furniture. They can't afford furniture for the house. . . .
The realtor goes on: rich people are going to lose a lot of houses.
Sorry to break it to them and the realtor but these people aren't rich.
Real Estate has gone down before, it will go down again. Why is everyone surprised? I can hear the Hyundai commercial - DuH!
Good for my kids.
Great blog post, as usual but I'm starting to be scared for my childrens' future. Even though I don't live in the US, if 20 million Americans loose their homes we're all screwed...
Carlomagno | 12.14.07 - 1:49 pm |
The real issue is not home equity, or people losing their homes, it's repaying all the expended mortgage equity extraction from the last years. Various entities will have to foot the bill: Banks losing solvency because of foreclosures, investors losing money on SIV investments, taxpayers funding bailouts - the only way this could all possibly be benign is if the entire bill were paid by sovereign wealth funds.
That is all assuming that long-lived disruptions in the financial systems do not bring the entire economy down. And that dislocation of people from unaffordable homes does not wreak similar havoc.
Fannie CEO: Housing Trouble Until 2009
x-man,
I just got back from Pasadena. Went down one, very ritzy, street absolutely littered with for sale and for rent signs.
I can't say I know the area well other than visiting an in-law there for the last 20 years but if anyone thinks x-man is blowing smoke.....well, I seriously doubt it.
By the way, the in-law had an income property (neg cash flow however) that I all but begged them to sell....they did in June (interestingly, an all cash deal). Something tells me I'll always be welcome there.......
OT question: do houses sell better with or without furniture in them? Without the buyer can imagine his own being there. With the buyer may despise the owner's taste and that might sour him on purchasing. Any knowledgeable brokers to comment?
"Inflation is what sends the stock market down and is the prime cause of severe recessions."
No way, stock market only goes up. All news is good news. Just need the right spin, that's all. After all, according to Rove et al. we can create our own reality on an ongoing basis right?
Eras actually end. It's hard for humans to see it. The Roman empire decayed decayed decayed, and then suddenly the legions upped and started leaving places. From the perspective of Britain, the decay of Rome manifested in the fateful days the legions left, quite suddenly from their perspective. The decay had been happening for some time.
The events with which we define changes in eras are dramatic but somewhat artificial. What will our event be?
Yeah that's what I say when I am in my silly/cynical mood. History says different. History rules.
Scenario:
Two people have the same income.
One lives below their means and saves for retirement.
The other lives above their means, spending future dollars now.
Who has the better quality of life?
Does Quality of Life mean the same thing as Financially Sound?
Is America's current standard of living proof of financial security or financial malpractice?
The Roman empire decayed decayed decayed
No, no you are a Gibbon dupe. Rome mutated. The empire became the Roman church; archbishops replaced governors; the Pope replaced the Emperor; the dioceses replicated the secular subdivision of the old Empire. The level of economic activity probably declined somewhat, more north of the Alps than in the Mediterranean and learning retreated into monasteries, but there was no "fall." No thud was heard.
This is just a matter of perspective. Sebastian disputes the validity of focusing on CA, Phoenix, LV, FL and the Northeast. If Raleigh is given equal weight to the above listed places, part of the arguement is valid.
All this ignores any effects of liquidity, but maybe people won't need loans.
Wow a Godwin violation on a financial blog, don't see that every day.
Hitler would never say that!
I just got back from Pasadena. Went down one, very ritzy, street absolutely littered with for sale and for rent signs.
Do they do month to month leases out there? It's cold and snowy where i'm at and i wouldn't mind a month on the west coast in the sun. I don't need furniture, just something near the water. How's $2 grand sound?
"Yeah that's what I say when I am in my silly/cynical mood. History says different. History rules."
History is anything but objective. I can rewrite history at the drop of a hat. In order for you to do your duty and help keep America great (*TM). you are really going to have to take some lessons in the art of the spin. Otherwise I'm not going to invite you on my talkshow.
This is just a matter of perspective. Sebastian disputes the validity of focusing on CA, Phoenix, LV, FL and the Northeast. If Raleigh is given equal weight to the above listed places, part of the arguement is valid.
The error is in not recognizing that some part of the Triangle's success has to do with CA/Northeast equity flight. U-Haul index one way versus reverse rentals: 4:1 Boston, 2:1 Los Angeles. When the equity locusts stop arriving the demographic/economic protection evaporates.
James-
Not a broker, but I do know for a fact that empty homes take significantly longer to sell. Many people will rent furniture and stage the house to increase its likelyhood of selling.
James,
Re: your question.
Google "Staging Home for sale". I know someone who does this for a living (not much of a living these days). I think it's a good idea if done well.
Sebastian, MW,
FWIW, my brother bought a condo in Houston at the peak of the oil boom (early 80's) and it took the market 20 years for his condo to appreciate from the bottom in the mid-80s to his original price.
A corollary question to MW's original question is how long can people afford to be underwater? My brother was the exception.
As long as they aren't planning on moving and they can make the payments, forever. Yeah, just those two minor points.
ABX's seemed to have calmed down quite a bit - most are up 10+% in the past 2 weeks. Buying interest in this paper has picked up in the past couple weeks. We'll see if it lasts and where prices settle out....
James-
And I did stay at a Holiday Inn last night! Well, maybe not.
Robert Cote,
There's also the "half-back phenominon" where people settle in the southern states permanently instead of going from the NE to FL back and forth.
A colleague's wife is still flipping homes (one at a time) and making money in East Tennessee...imagine that.
I can corroborate xman's observations about LA. Last summer I was chatting with friends in the Palisades when I bemoaned the use of phony baloney loan products when a friend, who had just bought in Santa Monica Canyon (cheapest houses run upwards of 2 mill) spat out, what's wrong with an I/O? I couldn't believe it. Same group of friends (all at my daughter's preschool) at a party where again I flapped my gums about the upcoming housing apocalypse and again a friend was flabbergasted that I thought his 1 million dollar Palisades condo might actually not be worth that. Both friends work in entertainment and I guarantee are sweating bullets the longer the WGA strike goes on. I won't bore you with other stories I've heard, but this is a very small group I'm sampling, and there's already a lot of potential distress. Anyone who thinks that the Palisades and other westside areas are not going to get hit hard are clearly not paying close attention.
"The events with which we define changes in eras are dramatic but somewhat artificial. What will our event be?"
I like to compare such things to a sudden building collapse; those do happen, especially in older cities. The mortar between the bricks weaken, termites go to work on the beams, water damage from leaky pipes accumulates over the years, the foundation begins to shift. But the whole enterprise still appears livable, if drafty and creaky and without doors that close correctly, until some sudden shock -- or even just a subtle cumulative breaking point of all components of the system -- impacts it.
The shock could be anything. It could be something that has happened before, not a unique or unheard-of event. But this time, affecting a system that is no longer strong enough to cope with it: Continued and worsening mistrust of securitized debt as assets, a continually declining dollar, world-wide downturn in the consumer products market, trouble in the Persian Gulf, too-high energy prices, a suddenly two-foot rise in sea level, any combination of the above; name your poison.
Who has the better quality of life?
Who'll win this race, the tortoise or the hare? That depends on where the finish line is. Perhaps the finish line has been miscalculated.
Do houses sell better with or without furniture in them?
Homes that are staged for sale do much better than those that are not.
As an appraiser, my stock answer to the question "what can I do to increase my home's value?" is -- fresh paint, and decorate it to look like a model home.
After the money's gone;
What used to be right is wrong;
Wish that I had a strong
Arrrr, arrr, AAARM!
After the money's gone...
Thanks for the answers. I am not selling but I might be in another five years, if the market recovers. I will leave my furniture in.
PS I have heard that the scent of baked bread turns buyers wild. Can one buy cans of "baked bread" scent to spray around the house before viewers come?
The 1-3 million dollar coastal SoCal house crowd describes exactly my holiday circle of friends and casual aquaintances. Around the punchbowl talking there's a distinct bifurcation. Two groups: 1) The settled comfortable group who are well positioned discussing the price implosion and 2) the really, really quiet. Malibu/PacPal/Soviet Monica/Redondo/Huntington Beach... Prices may appear to stay high but the individual carnage will be incredible.
Who'll win this race, the tortoise or the hare? That depends on where the finish line is. Perhaps the finish line has been miscalculated.
Wile E. Coyote crossed the finish line ahead of the Road Runner, only to find the line was actually the edge of a cliff...
How does one go long on baked bread futures. Does anyone know/
"PS I have heard that the scent of baked bread turns buyers wild. Can one buy cans of "baked bread" scent to spray around the house before viewers come?"
For guys, it's cinammon. The smell of cinammon buns drives guys wild. And yes, you can buy cinammon-flavored spray. Google it.
I have heard that the scent of baked bread turns buyers wild. Can one buy cans of "baked bread" scent to spray around the house before viewers come?
Old Realtor trick -- a few drops of vanilla extract in a hot oven makes the house smell like baking cookies.
Truth is, our olfactory sensors are stronger memory triggers than the visual, sensory, or auditory.
Wow, all this food-smell talk sounds so cruel to the starving homeowners.
With regard to CR's "Household Percent Equity" chart, it shows a long-term downtrend since 1952. Does this mean that the health of the U.S. consumer and the U.S. economy has been cumulatively deteriorating for 50+ years? And is finally going terminal (even though this chart has looked equally "bearish" many, many times since 1952)?
sebastian, i think you have to consider the circumstances of the starting point. emerging from the great depression and the rationing of world war 2, it's hard to imagine how the savings rate could have been higher at any point in american history than the late 1940s. that of course is reflected in the lack of financialization in housing.
fwiw, i would offer that the democratization of credit is a secular trend that has accompanied cultural changes in western civilization. mortgage availability is certainly one of the areas of change, and i for one don't expect it to go away. moreover, securitization as a lending model will almost certainly stick around in a more regulated form once this is done.
but, while 80% home equity rates are unlikely to be revisited outside of the aftermath of widespread bank failures and total war, i don't think it takes a genius to see that we are emerging from a period where credit underwriting standards approached non-existence. easier terms of credit are really difficult to imagine. so it makes sense that a tightening is at hand, and that -- in due time, following transitory effects -- will force the household percent equity higher.
much the same effect can be seen on the chart in the bank credit unwind of 1965-1982.
You could burn some tires in the bathtub. Those would smell like my wife's cookies.
The next thing I'd like to hear from Krugman (I assume you are reading the comments on this blog too!) is a comparison of the Asian crisis of the late 90s with the present.
He essentially made his name by predicting a meltdown before it occured (although I would argue he was only partially right on asian growth being driven by overinvestment rather than productivity). Seems to me to ryhme, if not repeat - lots of sunk investments in unproductive assets tied up with a currency crisis. So what appeared a liquidity crisis was at least partially a solvency crisis.
Thanks professor!
"the percent homeowner equity has fallen significantly (because of mortgage equity withdrawal 'MEW')"
Could be many other factors.
New housing stock would start with lower equity.
Aging population selling (mostly) paid off homes so the homes end up with a larger mortgage.
Besides, the percentage equity figure may be misleading if the measuring progressively deeper debt hole is what the goal of putting this chart together is. Higher priced areas probably have disproportionately higher percentage of mortgages on the wrong end of the equity percentage chart. Raw dollar of homeowner debt inflation adjusted may be a nice number to chart.
x-man, thanks for the story. Very interesting.
I'll be passing it to my wife right now. We're the only folks that I know at our La Jolla school ($25K per year per kid, but look at those placement statistics: College Counseling at Bishop's The resource cannot be found. who saw this coming and have been renting since '05.
Life is good for most of our friends, now, but after commercial real estate tanks (inevitable), I see lots of spots opening up at our school.
I haven't read all the comments yet, but I was wondering if anyone has commented on what was left unstated in Krugman's description of how the Fed handles liquidity and solvency issues.
As he stated, with a Bank if a liquidity crisis occurs the Fed makes the institution a short term loan to tide it over. If however, the Bank is insolvent, the FDIC (or related institution) steps in, relieves the owners of their keys and makes whole the depositors up to the statutory limit. The stabilized bank is then sold off or it's assets are. In the old days when we had more of a bank-oriented financial system (as opposed to market-oriented), this was generally all that was required to stabilize the economy.
The problem I see is that there are NO SUCH MECHANISMS for the new non-bank financial institutions (PIMCO's "shadow banking" institutions - private equity, SIVs, MBS, CDO, etc.). The Fed is currently having a hell of a time injecting liquidity in to these institutions and there is NO established FDIC-like path that can be utilized to unbury the bodies and restore the vital counter-party confidence that is the social lubricant of all healthy economies.
No thud was heard.
i would argue, james, that when the romans awoke to find alaric camped outside the city in 410, there was a very audible 'thud' in the chest of every citizen.
declines are long processes with many such moments -- but they occur and we shouldn't pretend that, because the catholic church adopted a parallel bureaucracy to the roman civil service, no one in rome noticed the decline of their society.
--
DH: "Jas- You are naive to think this kind of crap is not a worldwide phenomenon."
I know it is. It is an American export! India is one of the best examples -- badly copying what goes on in America.
One should not underestimate the bad American influence in many areas, including the fast food. Crooks all over the world are learning from Americas crooks. Criminal gangs of New York have been replicated in all financial centers.
Jas
50% price drops were pretty much the norm in the post-bubble Tokyo real estate market.
Can the U.S. RE market get away with 30% drops?
Funny, I work for the school uniform company that outfits Bishops. The world is full of interesting coincidences...
I wonder how the school uniform business will fare in the coming downturn... glad I work in tech/mechanical.
Who has the better quality of life?
Isn't this more ant vs grasshopper than tortoise/hare?
jas, glad you came back. I'm having a holiday party tomorrow night at 8, the address is
Regarding Gibbon dupes.
James, while I'm no great fan of Gibbon, I'd like you to consider the physical evidence: the city of Rome circa 1400. I'm not as certain as you seem to be that transition from empire to Papacy didn't involve an unpleasant and inconvenient interim.
Ooooh, a party! Can I bring my Lasser's tax guide for Trivial Pursuit?
Or, maybe we can discuss the Roman Empire and it's lack of corruption?
"As Krugman notes: The current crisis is not a liquidity problem, it is a solvency problem."
Surprised I'm the first to point this out, these are the EXACT words Mish has been speaking for a while now.
when the romans awoke to find alaric camped outside the city in 410..
Well Rome was no longer that capital of the empire at the time; the capital had been moved to Ravenna. Doubtless the Romans were shocked, but the process was a long one. In the provinces such as Gaul life on the great estates proceeded calmly and harmoniously as indicated by the letters of Sidonius Apollinaris, who by the way was a bishop of the kind who were replacing the Roman governors. We tend to compress history since we don't live through it. Time passes more slowly in reality than in reading about it.
that transition from empire to Papacy didn't involve an unpleasant and inconvenient interim.
There was no "interim". The Papacy developed within the bosom of the Empire. And the Lateran Palace occupied by the Popes was a previous Imperial palace. The Papal garb (even today) replicates largely the garb worn by the late Emperors. That's why I say the Empire "mutated" gradually into the Church. And the Christian Roman Empire was not held together by Roman soldiers but by the more cohesive bonds of faith. Replacing the rather chaotic system of the multiple gods of ancient Rome with the one God of Christianity bound the new empire in a cohesive whole better than did the Roman legions.
Lateran Palace - Wikipedia, the free encyclopedia
Notable too is that the form of early Christian churches (basilicas) was a replica of Roman law courts.
Roman law court/Christian basilica
The Early Christian Basilica
An odd place to take this up, James, so I'll keep it brief - and peripherally on the point of significant turns in history.
While I'm well aware of Catholicism's adoption of Roman forms and antecedents, it doesn't at all mask an enormous economic and cultural contraction. One might as well point out the ceremonial costume of Cambodia to discount the collapse of Angkor Thom.
I'm waiting for someone to propose softening the decline in housing values by using fundamentals other than financing - namely, basic supply and demand. If you want to prop up the price, you can reduce supply, which isn't practical for existing homes, or you can increase the demand, which for housing means increasing the population, and the easiest way to do that is open immigration...
M_M, do you work at Sue Mills?
Yep, lots of coincidences and near-misses in the world.
Yes, but what did Roman villa values do?
My kids are just into high school. I figure maybe we keep our heads down and plow through this and college and perhaps some semblance of rationality will have returned to the r/e and credit markets by then.
Yes there was an economic contraction and cultural too, I didn't say there was not. But the continuity was what was important. You must understand that commerce did not die out at all in the Mediterranean (Lopez contradicting Pirenne) and Byzantium remained the center of a flourishing economy. Europe had sufficient vitality to engage in the Crusades (the first imperial venture of the post Roman West) by the end of the 11th century. And there was an intense economic and cultural life in Muslim Spain. The area north of the Alps (France and Germany and England) were never places of rich economic life even during the heyday of the Empire.
X-Man wrote:
"One 5 million LA house is worth 20 houses in Raleigh, OK? The loan on that house is 20 times bigger. If a tree falls in LA, it's like a small forest going down in NC."
But if a tree falls in LA - do those of us in Raleigh NC or Jacksonville FL hear it? Or even care about it? Probably not - except perhaps insofar as it affects our personal investments - taxes - and the like.
Which I guess is just another way of saying that - to a reasonable extent - all real estate is still local. Roby
James,
I would suggest that to call it "decay" or "mutation" is one of semantics and perspective. My point was that things were changing in a negative way (by our modern materialist definitions), mostly slowly, but definitely punctuated by dramatic events. My perspective is that the rise of the papacy was decay, especially if you were not catholic.
Can you imagine looking at all that infrastructure and not being able to replicate it? It is poignant to me that those that replaced the Romans tried pretty hard to copy its laws and structure but increasingly badly.
Whether it is appropriate or not we humans define eras by significant events. You are right that nothing really fundamental changed when in 476 the last emperor was removed but there it is.
476, 1929, 1453, 1054 etc etc
I would speculate something big is coming. Maybe not like the dates above, but maybe like 1971? But maybe it will be big. Exciting!
"But the continuity was what was important. You must understand that commerce did not die out at all in the Mediterranean (Lopez contradicting Pirenne) and Byzantium remained the center of a flourishing economy."
True true. But I bet ya that Americans will not be happy when the economic center shifts away from New York to Byzantium.
Will life go on? Yes.
x-man said: "One 5 million LA house is worth 20 houses in Raleigh, OK? The loan on that house is 20 times bigger. If a tree falls in LA, it's like a small forest going down in NC."
Is this comparison valid, in terms of economic impact? One job vs. 20? How many automobiles does that LA family own vs. the number that the 20 NC families own? How many kids is the one LA family buying clothes, food, and iPods for vs. the 20 families in NC?
How much sales tax, income tax and property tax revenue is being generated by the one well-to-do family vs. 20 other families of median income in NC?
Respectfully, your example is overly simplistic, one-dimensional. Also, as so many others posted here, not representative of anything approaching real-life, since very few people have $300k-$500k incomes and live in $5 million homes.
As Tanta sagely put it, a simple answer to a complex problem is rarely the correct one.
Respectfully.
Sebastia
HousingWatch is Coming Soon!
Sorry about the formatting, but this data shows losses across numerous cities.
Region\tmedian asking price\tchange
Anchorage, AK\t$269,900\t-8100 (2.91%)
Atlanta, GA\t$200,000\t-10000 (4.76%)
Baltimore, MD\t$245,999\t-23001 (8.55%)
Boise, ID\t$259,990\t-25010 (8.78%)
Boston, MA\t$389,000\t-30000 (7.16%)
Chicago, IL\t$275,000\t-19000 (6.46%)
Cincinnati, OH\t$153,900\t-11000 (6.67%)
Cleveland, OH\t$130,150\t-14850 (10.24%)
Columbus, OH\t$154,900\t-9100 (5.55%)
Dallas, TX\t$155,900\t-4090 (2.56%)
Denver, CO\t$229,900\t-8500 (3.57%)
Des Moines, IA\t$174,400\t-5600 (3.11%)
Detroit, MI\t$94,500\t-20500 (17.83%)
Hartford, CT\t$259,000\t-20900 (7.47%)
Honolulu, HI\t$507,500\t-17500 (3.33%)
Houston, TX\t$161,310\t-1690 (1.04%)
Indianapolis, IN\t$130,000\t-9900 (7.08%)
Irvine, CA\t$589,000\t-60900 (9.37%)
Kansas City, MO\t$169,900\t-9000 (5.03%)
Las Vegas, NV\t$289,000\t-30900 (9.66%)
Los Angeles, CA\t$539,000\t-50000 (8.49%)
Louisville, KY\t$159,000\t-4900 (2.99%)
Memphis, TN\t$164,900\t-5000 (2.94%)
Miami, FL\t$328,000\t-30500 (8.51%)
Minneapolis, MN\t$225,000\t-22900 (9.24%)
Nashville, TN\t$229,000\t-10900 (4.54%)
New Orleans, LA\t$210,000\t-15000 (6.67%)
Omaha, NE\t$165,000\t-19000 (10.33%)
Orlando, FL\t$260,000\t-25000 (8.77%)
Philadelphia, PA\t$180,000\t-19900 (9.95%)
Phoenix, AZ\t$295,000\t-28075 (8.69%)
Pittsburgh, PA\t$124,900\t-5100 (3.92%)
Portland, OR\t$338,900\t-26000 (7.13%)
Raleigh, NC\t$245,484\t-4416 (1.77%)
Reno, NV\t$350,000\t-29000 (7.65%)
Riverside, CA\t$379,000\t-60900 (13.84%)
Sacramento, CA\t$289,500\t-59450 (17.04%)
Salt Lake City, UT\t$274,900\t-25100 (8.37%)
San Antonio, TX\t$177,750\t-2250 (1.25%)
San Diego, CA\t$429,995\t-59005 (12.07%)
San Francisco, CA\t$688,000\t-36000 (4.97%)
San Jose, CA\t$608,000\t-59000 (8.85%)
Santa Barbara, CA\t$819,900\t-15100 (1.81%)
Seattle, WA\t$425,000\t-4900 (1.14%)
St Louis, MO\t$169,900\t-10000 (5.56%)
Tampa, FL\t$225,000\t-20000 (8.16%)
Tucson, AZ\t$250,000\t-11000 (4.21%)
Washington, DC\t$380,000\t-50000 (11.63%)
\t
\tTotal regions up=0, down=48, Unchanged=0 \t
\t=52wk high *=52wk low
The * above are all 52 week lows for median listing SF and CDO combined.
James, I think we're talking past each other. I cede your points to the extent I agree there was no instantaneous 'fall', nor did life fail to go on.
I'm no great admirer of what followed, though, and view the transition and following centuries as dark ages.
Krugman is using the wrong indicator. It's not price to rent that matters. It's cost of ownership to rent that matters. Changing interest rates changes the cost of ownership, even if it takes a while for that to change prices.
If you do the calculations on cost of ownership vs rent, you still get a drop, but not 30%. More like 10-15%.
Sebastian, For every person in Raleigh, there are 12 in LA. Do the 12 people own 12 times as many cars? At least.
List of United States cities by populatio - Wikipedia, the free encyclopedia
Re: James
We tend to compress history since we don't live through it. Time passes more slowly in reality than in reading about it.
James | 12.14.07 - 4:02 pm |
Reminds me of a saying I heard that every parent I know agrees with:
"The years pass quickly and the days pass slowly."
mjc
Tanta and CR:
Congratulations on the recognition. It is about time. I just hope that the sucess will not attract spammers as I learn more from your blog and vistor's comments than other blogs. Keep up the good work and happy holidays. I think 2008 will be an interesting time.
Yes, but what did Roman villa values do?
Pretty funny. But actually Rome underwent one of the great urban population collapses from its ancient peak to somewhere in the Middle Ages, from 1 million or more down to, says here, about 20,000. One finds slightly different numbers elsewhere, but that 's the gist. The Rome we see today is physically founded on the Renaissance city, not the ancient one.
I believe they also lost the technique of making roman concrete for a while back then. People and cultures can survive ruin all right#&8212;but ruin there sure can be.
jg said "We're the only folks that I know at our La Jolla school ($25K per year per kid, but look at those placement statistics"
If you were my parents I would ask you to put the 300k you are going to spend on grades 7-16 in the bank for me and just let me screw around for 10 years.
Walker,
Tell me more about your view of Washington real estate, I need your perspective. Thanks.
s said
"perhaps you should be asking yourself why did the Fed take such drastic measure beginning in the late 1990s to prolong what waas so clearly artificial? Was it to mask the stagnating incomes? Was it to sell globalization? Was it to enrich the bankers? Was it try and artifiicially create a compeitive advantage in the financial services business as a contra argument to a manufacturing industry robbed of its advantage permanently by a few billion others? Was it because greenspan wasn't as stupid as he appears - maybe he got it?"
answer D). All the above