Housing Bust Impacts Worker Mobility
Submitted by
CalculatedRisk on Wed, 04/02/2008 - 9:06pm (50 comments)
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OT, but yah, if you can't sell a house, why would you move into a job that might be downsized/
April 2 (Bloomberg) -- Moody's Investors Service is the least accurate assessor of the risks of subprime-mortgage securities among the three largest credit-rating companies, while Fitch Ratings is the best, according to UBS AG.
Moody's assigns Caa2 or lower ratings to just 12 percent of the 292 bonds underlying benchmark Markit ABX indexes that UBS analysts expect to default. Both Fitch and Standard & Poor's tag 57 percent of the bonds with equivalent rankings, according to a report from the New York-based analysts yesterday. A rating of Caa2 or CCC is eight levels below investment grade.
``Moody's trails badly,'' UBS analysts including Laurie Goodman and Thomas Zimmerman wrote.
Ratings firms have been pilloried by lawmakers and investors for failing to foresee a record surge in U.S. foreclosure rates and then being slow to downgrade debt tied to homeowners with poor credit, enabling looser lending ahead of the crash and costing bondholders. The rating services are based in New York.
Fitch was rated the most accurate also because it doesn't have AAA ratings on any securities tracked by ABX indexes that UBS expects to default, while Moody's has 35 ranked the equivalent Aaa and S&P has 24 with top ratings, the report said. Fitch also rated the fewest ABX subprime bonds -- only 200 of the 400 rated by Moody's and S&P -- meaning it was the ``most conservative'' when assessing new deals in 2005, 2006, and 2007.
``Fitch has been the fastest of the rating agencies to recognize and correct its subprime mistakes,'' the UBS analysts wrote.
As I mentioned before here or elsewhere, welcome to "Eurosclerosis".
This is the fundamenal error in the "ownership society" myth. Economics studies show inverse correlation in developed economies between homeownership and standard of living.
Even in good economic times, if you need to move to achieve a better income, a home ownership with its high transaction costs is an anchor.
My thinking is our government encourages home ownership because it provides a debt-source for consumers to borrow and spend, and it strengthens the entire downstream of home-ownership industries. Renters don't need granite, marble, stainless steel, etc.
First of all, where are workers needed in a recession? The economy is shedding jobs and homes are going down in value.
Second, think bagholders:
Plastic bags are a favorite of grocers because of their price, around 2 cents per bag compared to 5 cents for paper. Used widely since the 1970s, environmentalists now estimate between 500 billion to a trillion bags are produced annually worldwide. Made from fossil fuel-based polymers, the bags are virtually indestructible, taking years to break down and commonly ending up in landfills.
It wasn't enough to just read the UberNerds. Now I have to break out the medical dictionary to figure this "economics" thing out.
The next economy will be based on cleaning up waste, like toxic bank securities, construction crap and pollution ignored by Bush and the defunct EPA:
New jobs!!
Banned foam products would include plates, trays, "clamshells," and hot and cold beverage cups. Seattle Public Utilities will hire inspectors to check stores to make sure they weren't using the products, Nickels' office said.
Several bills have been introduced in Hawaii to ban plastic bags and foam takeout containers, but the measures haven't found any traction in the Legislature.
Seattle mayor wants bag tax, foam box ban - Pacific Business News (Honolulu):
Anonymous:
I'll take a bunch of those bags.
I have a retriever with a spastic colon and they'll help on the walks.
My thinking is our government encourages home ownership because it provides a debt-source for consumers to borrow and spend, and it strengthens the entire downstream of home-ownership industries. Renters don't need granite, marble, stainless steel, etc.
Eventhorizon | 04.03.08 - 1:49 am | #
My thinking home ownership is way to indenture ourselves. According to this video money does not exist until we sign on the dotted line.
You are not being loaned money. You are promising your future labor to the bank in exchange for the right to live there. Money is created upon your promise.
YouTube
- Broadcast Yourself.
More on people trapped in homes looking for bags and jobs; it's all about the economy stupid!
My question is: How is WMT ripping these kids off? What is the value of a bag by weight?
Re: After joining the program, schools receive collection bins and a supply of 60-gallon collection bags from Wal-Mart. Students are then encouraged to bring plastic retail and grocery bags to their schools for recycling from September 1, 2006 to March 30, 2007. For each collection bag the school fills with plastic bags and brings to a local Wal-Mart store, Wal-Mart will donate $5.00 cash to the school.
JOBS & bags and economics; The New World Order!!
According to the United States Environmental Protection Agency, only 1% of plastic bags were recycled in 2000.
When one ton of plastic bags is reused as something else other then plastic bags or recycled, the energy equivalent of 11 barrels of oil is saved.
High-density polyethylene (HDPE) is a polyethylene thermoplastic made from petroleum. It takes 1.75 kilograms of petroleum (in terms of energy and raw materials) to make one kilogram of HDPE.
Flexible packaging is a $23.5 billion industry in the United States.
An estimated 812,010,000 pounds of post-consumer film (including plastic bags) was
recovered in 2006, according to the 2006 National Post-Consumer Recycled Plastic
Bags and Film Report conducted by Moore Recycling Associates, Inc. of Sonoma,
California. This represents a 24% increase from 652,477,000 pounds recovered in 2005.
Hilex Poly, a leading plastic bag manufacturer, established a program that recycles old bags into
new ones called Bag-2-Bag. The program encourages consumers to return their used
bags back to the store and then the store and Hilex do the rest. Last year Hilexs work with
consumers and stores recycled the equivalent of 400 million bags and reduced the use of
new material by 8 million pounds.
OT confirmation from IMFnews (sorry if posted already)
Agency Share of MBS Market Climbs to Record 94% in 1Q08
If there was any question that the U.S. residential mortgage market has effectively become a government-agency market in the current credit-starved lending environment, first quarter numbers should put any uncertainty to rest. According to new data compiled by Inside Mortgage Finance, the agency share of new mortgages that were securitized in the first three months of 2008 soared to a record-busting 94 percent. Fannie Mae and Freddie Mac together accounted for a record-high 83 percent of new securitized mortgage volume, while Ginnie Mae activity represented an additional 11 percent. Meanwhile, non-agency mortgage security activity namely those involving subprime, Alt A and jumbo mortgages sunk to just 6 percent in the first quarter. That was the lowest market share for the non-agency sector seen in 17 years.
FYI,the total number of plastic bags collected would have been aprox 3,364,011 or 34,680 bags per school
Also:
Mortgage approvals fall to near decade low as two more banks suspend lending
Mortgage approvals fall to near decade low as two more banks suspend lending -
Business News, Business - The Independent
Mortgage approvals fell close to a decade low in February as the property market slumped and cash-strapped banks reined in lending, Bank of England figures showed yesterday.
The figures were revealed as two more banks took action after First Direct suspended lending on Tuesday. The Co-Operative Bank has withdrawn its two-year mortgage deals, while Lehman Brothers, the US investment bank, stopped lending at its two British mortgage businesses, South Pac-ific and Preferred, last night.
Ah yes, another freebe from appreciating real estate leaves us .... minimal transfer housing incentives. Now everybody will need help out of the existing or help in.
Rapid RE appreciation actually supressed the need for wage growth and tax growth. Municipalities found plenty of growth related income streams to fluff up pensions and salaries while the average joe refied a defered tax bonus every year. Not to let investors off the hook, they relied on false CDO models for ... lets admit it .... unrealistic returns.
Now we all have to make money the old fasion way.... work.
Now we all have to make money the old fasion way.... work.
Work doing what? We've outsourced all the actual work to developing countries. That leaves only wealth management services for Americans to do. They don't call it financial engineering for nothin'. All the real engineering is long gone.
As for mobility, I agree with one of the commenters above. Mobility and home ownership were bound to collide once the bubble started. This is good. Now perhaps we can start having actual families again. You know families - it's those people you only see every other Christmas.
In many ways home ownership works against the owner. How many times have you heard people say that they can't afford to take risks because they have a mortgage to support? This burden makes people fearful and docile. You can become a slave to your possessions in the same way a person can become a slave to a drug habit. People have also been encouraged to purchase far more than they need. Years ago I knew a couple who built a 6,000 square foot house and they had only one child. They thought a smaller house was insufficient development of the land.
Y'know what's the worst polluting plastic? I think it's those little individual cream cups for coffee that they use at 7-11s and other convenience stores. The waste-to- useable product ratio is enormous.
When we all start feeling the effects of plastics poisoning, I think I'll run for local political office based on their abolition.
You are not being loaned money. You are promising your future labor to the bank in exchange for the right to live there. Money is created upon your promise.
Ding ding ding, we have a winner! Once again the ability of the readers of this blog to distill things down to their essence amazes me.
So taking things a step further, the most radical and damaging thing we can do to fight back is to:
I'm doing #2. It's my way of giving the finger to the banks.
BTW excessive mobility is not good for the soul or the community. Living in the same town for many years allows one to become integrated into a community and put down roots.
New York City's rent control laws have also destroyed family mobility. Many people get frozen in place because they have this cheap housing. They feel they can't ever move. They can't give up the security blanket of their rent controlled apartment. What looks like a benefit actually turns out to be a burden in the long run.
I think moving as a homeowner is costly enough already, even before all this kicked in. In the UK, we not only pay realtor charges and the rest, but also a stamp duty that has to be found upfront in cash on house purchase. This tax in itself also drives house prices higher as people who want to move 'need' to make the tax as profit from their old home in order to pay it -- most people do not have this sort of cash at the ready.
"You are not being loaned money. You are promising your future labor to the bank in exchange for the right to live there. Money is created upon your promise."
I really dont have a problem with this.
ie the bank creates money in return for my integrity as collateral.
The problem arises when:
Or
Banks are now accumulating cash given to them via CB's in return for almost dodgy collateral but the banks do not want to pass that cash onto others regardless of their proven integrity.
So what do you do now?
As i see it:
Number 1. has happened and is in the past
Number 2. needs to be oiled up a bit and got moving before the whole system destroys us all.
Unpalatable thought it might seem TINA applies here.
There Is No Alternative.
Once things are normalised then hopefully we can get back to focusing on the meaning of integrity.
Either way there are simple facts involved here.
Number one being that the lessons of history are never learned.
It is the same old same old
It is the way the world has always been and always will be
Utopia is not arriving to a town near you any time soon.
Deal with it. And move on.
If you want to prosper focus on what is happening not on what you want to happen.
I'm just returning from China to get my dose of bloggy pessimism and honest economic talk. The FED still seems to talk about the economy as clearly as "The Party" talks about the Dalai Lama.
On a happy note: Fafblog! is back to save the universe!
Fafblog! the whole world's only source for Fafblog.
Or it's all a big Joke.
I just don't understand that reasoning. In an environment of high unemployment less mobility will negatively affect some people individually. But I would think that there would be MORE available workers locally to fill the spot that would have gone to the out of towner.
How does low housing reduce worker mobility?
I paid $100k for a house. A house in another city costs $100k. I break even, less transactions costs.
Now I can only sell for $50k. The house in another city costs $50k. I break even, less transactions costs.
New York City's rent control laws have also destroyed family mobility. Many people get frozen in place because they have this cheap housing. They feel they can't ever move. They can't give up the security blanket of their rent controlled apartment. What looks like a benefit actually turns out to be a burden in the long run.
I pay market rate rent, I'd love to meet anyone who has a rent controlled apartment and feels like it's a burden.
I would consider the need to move in order to get a job/promotion to be an incentive to walk away. So either the economy slows (even more) due to low mobility, or walk aways increase as workers do what they have to in order to further their careers.
Less worker mobility = tough times for the companies like U-Haul, Ryder and Penske ?
richard writes:
How does low housing reduce worker mobility?
I paid $100k for a house. A house in another city costs $100k. I break even, less transactions costs.
Now I can only sell for $50k. The house in another city costs $50k. I break even, less transactions costs.
Richard, if you paid $100k for a house and have a $80k mortgage you the prices of houses have dropped to $50k you owe $80k on a $50k house. If you sell for $50k and buy another $50k house you still have to pay $30k in lump sum right now to the bank. A bank will not give you a new $80k mortgage on the new $50k house so you have to pay the $30k you owe from savings. Even if you had that $30k saved, would you want to pay it all right now and deplete your savings/emergency fund?
Just another reason there should be land value taxation.
Ya'll are misunderstandeding what I was talking about in that speech thing I gave so long ago.
Ah was talkin' about the Owership Society.
Seems like that's workin' out quite well. Ya'll owe a lot more for your houses than they worth.
There is a great opportunity here for an internet 'house exchange' site.
Exchange your loser house in Buffalo with some guy who has got a loser house in Denver. A lose-lose deal for everybody!
Richard,
You are ignoring the reality of the mortgage which would make it difficult for properties to sell when the homeowner is underwater.
Having to pony up tens of thousands just to get out of your old house would be a huge disincentive to move in most cases.
Give tax incentives to businesses that hire local. Save greenhouse gases and dwindling oil stock.
Earlier this week a 7 year old wasn't picked up afterschool at his busstop. Mom's boyfriend was supposed to pick him up and never showed. Child was missing for 24 hrs when he went to a friend's house after waiting. Mother lives on Market St in Lawrence MA (probably the poorest street in the poorest MA city), started a new job in WORCESTER MA (an hour away) and wasn't allowed to take personal phone calls during work time so she never knew what was going on til she got out of work at 11pm. Does one living so poorly, in a city of 100k, really have to travel 50 miles for employment?
At my company low income laborers travel 50 miles each way to make about $10/hr if lucky.
There are solutions to problems.
LOL - Walk aways increase labor mobility. Walk aways, selfless agents of economic growth!
ouch! lousy labor data again. who could've thought! well, looks like fool's day hysterical buyers will be sent down the drain along with their lehmans, ubss and other financial crap even sooner than i thought
Sen. Dodd says will not 'second-guess' Bear Stearns bailout
REBear
Sen. Dodd has been around forever. You know why, becuase he PLAYS the game at our expense. He is senator from my state. Smooth as silk. He and Lieberman are a joke. But that what the sheople want.
How big is this problem? The Times story suggests about a half-million-plus decline in mobility year to year, but doesn't try to tie it directly to housing. I imagine mobility is affected by many economic factors.
Also, the story kind of glides over two different issues. The man profiled is probably underwater. But the article also mentions sellers who simply can't get "what they think the house is worth." Two different groups.
At minimum: Why are banks still approving mortgages for people who still own their old house without a signed P&S to sell?
saul,
You do not want to mess with contributors in an election year! In a way this is good 'if' the media picks up on it.
The media are like cops in a movie. They show up at the very end.
I don't get it. This homeowner is only tied to this house because he isn't willing to admit that his home has a market value different than what it was years ago when last "appraised." The article also makes a very brief mention that the homeowner isn't willing to settle for a price that just pays off his mortgage. Under the circumstances, this sounds like a great long term alternative that leaves him relatively unscathed and would allow him to get on with his life. You've previously held the NYT to task for incomplete or misleading reporting on this issue. This is just another example of selective reporting.
Worker mobility keeps workers politically unaware of what's going on around them, and keeps easily manipulated by the quadrennial mass media shows known as "presidential elections."
Worker immobility is probably not a huge factor in the grand political scheme of things, but it certainly isn't good for the stability of the Powers That Be, which depend on watered-down political awareness among the citizens and anemic local political participation.
BTW excessive mobility is not good for the soul or the community. Living in the same town for many years allows one to become integrated into a community and put down roots.
Exactly.
Sadly, if it doesn't boil down to an unbound variable in a complicated differential equation, our friends in economics pretend it doesn't exist.
From Why Wall Street fails to anticipate disaster - Apr. 3, 2008
Trying to model something that escapes modelization is the heart of the problem.
I'm not a fan of Taleb's attitude at times, but I have a hard time finding fault with what he said in that admittedly shallow interview.
Cheers,
prat
Now I am certain our congress have lost their collective minds.
The stealth bailout in the works for homebuilders
First developing news: The Republicans in the Senate, evidently fearing voter backlash, have agreed to work with Democrats on a big housing bailout. From The New York Times: "With both parties in Congress voicing a new urgency to help millions of homeowners at risk of foreclosure, the Senate voted overwhelmingly on Tuesday to move forward with a package of housing legislation."
The L.A. Times: "The breakthrough came after lawmakers returned from a two-week spring recess during which the federal government stepped in to rescue investment bank Bear Stearns Cos. and the country's economic troubles dominated the presidential campaign."
Now part of the bailout you haven't heard much about: tax breaks for homebuilders. "Corporate homebuilders -- including those responsible for the mortgage and housing crisis -- would receive billions of dollars in tax breaks under a provision of the Foreclosure Prevention Act currently pending in Congress," the Laborers' International Union of North America argued in a news release today.
More from the union: "Under the bill's little publicized 'carry-back' provisions, builders would get billions in tax breaks. The carry-back provision would allow homebuilders to apply losses from 2006 and 2007 as far back as five years against taxes paid on profits."
Bloviation: When Congress is through with the omnibus foreclosure prevention legislation, it says here it will resemble the world's largest Christmas tree, with boxes of bailouts, goodies and giveaways for every Who down in Whoville and every interest group and corporate lobby remotely connected to the business of building, buying or financing houses. Don't be surprised if the homebuilders find two piles of goodies under the tree: carry-back provisions to reduce taxes, and new tax incentives to encourage buyers to purchase new homes.
The tipping point in this debate was when the Fed backed the bad assets of Bear Stearns. Whether that event is most accurately described as a bailout, a liquidation or a burial is irrelevant. It opened the floodgates. "If we can bail out Bear Stearns, we can certainly provide aid to... (fill in the blank)."
Our leaders have all gone mad. Our lobbyists have all gone to the bank to get more money for our leaders.
What about lack of mobility from overpriced housing in bubble markets. High income people have been fleeing California for years because bubble housing has distorted the cost of living.
I don't get it. This homeowner is only tied to this house because he isn't willing to admit that his home has a market value different than what it was years ago when last "appraised."
Right. See, it doesn't really matter whether homeowners aren't moving because they're actually underwater or because they're not psychologically ready to sell for so much less than what they thought they had. Homo Economicus is a myth. Many more realtors know this than economists, though. A house is a big psychic investment in addition to its financial value. Tell a couple who stretched and have been house poor for over a decade that appreciation has been zero or negative, and you're telling them that they've been suffering for a misconception for ten years of their life.
I have been in consumer sales for a National Moving company for over 30 years.....this is my third major Boom/Bust Cycle
..downward home prices actually increases U-Haul business...but decrease the revenue for the Major National Moving Companies...when home prices dive, the customer packs his own boxes, but when prices rise they let the mover pack the boxes which is important reveneue...
folks who have lost money on their home, in many cases, sell furniture and make their shipment small enough to fit in a U-Haul or the back of their Escalade....
since October most of my customers who moved out of state for a job had to rent out their CA home because there were no buyers....
interestingly, a number of potential customers are unemployed mortgage/RE folks who are moving in a U-Haul and leaving their underwater house behind
Retirees, who wanted to move out of state, are not moving because they can't get the price they want...many of them are in a neighborhood with a FC or REO property and until those houses sell the hiugher price Retiree owned property will just sit there...
Renters are moving, but most of them use U-Haul
Unemployed drywallers, masons, carpenters are moving...but they use their pickups and head back to Mexico
for the past few years we moved a lot of people into homes in CA, but if they are now in FC, they move out in U-Haul.....
for the past 4 years the industry moved scads of 30-40 year olds to CO, TX and NC from CA....I worry that when the recession causes them to lose their job or their adjustable loan adjusts that they may have to move back in a U-Haul ....
the Major Employer Companies still provide major financial assistance to their key employess such as housing cost differential, buying the old house, paying for RE fees and moving expenses........but, this business will decrease as employers try to hire locally
one group that got hammered are the major RELO companies, such as Prudential, that got caught holding a bunch of corporate housing that they purchased from corporate transferees
and couldn't sell 'em before the market froze and prices collapsed.....
I don't understand the big problem for the gentleman in Detroit. It sounds like he is doing the right thing and trying to make the best of a bad situation. Sometimes, things don't go according to plan and you need to change your approach and/or take your lumps. Isn't that what life is all about? Hope and work for the best and deal with what actually happens.
Eventhorizon:
Could you give a link or quotation on some of these studies? While renting makes people more flexible, ownership gives them an incentive to resist socialism, e.g. government hand-outs that have to paid by taxes; and owning your home is the most elementary form of ownership of an asset.
One of the wealthies countries in Europe, Switzerland, has a high ratio of renters and had no housing boom - last time I looked, they were not socialist either.
Nice treatment of the ownership society in the Atlantic back in November 07
Housebound - The Atlantic
(December 2007)
Well said, CR.
Some jobs will go unfilled longer and workers will be unable to earn more. This is a growth suppressing factor.
John,
I'm buying a Uhaul
What are plastic bags made from? Something toxic that used to be biomass. We have to find a way to make these bags more biodegradable than crude oil. Isn't anyone on GMO bacteria that'll eat this stuff? Aren't there bacteria that will eat oil already?
The real crime is wasting petrochemials just burning them. Although if we can find a way to put it into biomass instead of the atmosphere (greenhouse gases), is that really so wrong?