As more families experience homes as economic albitrosses, their children may become reluctant buyers of homes...just as the boomers need to "cash out" to enjoy their retirements.
Perhaps eliminating all non-economic immigration restrictions? If we allow enough wealthy families to immigrate, then there will be a demand for those beautiful McMansions an hour's drive from anywhere. Of course, that may need to be an immigration requirement:
Welcome to America, if you can afford to buy a boomer's house!
Already made the move and not for a transfer. Better place to live with kids and cheaper, too. Kept the job and moved the family and now the job search is the problem. Life got in the way (needed a new hip) and so kinda oops as the employment picture has really changed. Must accept fault myself for being the mid-management generalist and therefore one of many.
Financially, I expect it will still work out but the travel is eating into the wallet. Already have extended time between trips home.
The question has become lifestyle. Its quit and go find a job and be out of work (ok, bad option), take any job at lower pay to be home at night with the wife and kids ( or not, as that won't send the message to the boss you want to move up) or maintain a rental and the house and barely support the wife and kids from afar.
I suspect lots of others have to look at the cash flow problem and make lousy choices also.
This is why I remain a renter. As an employee of a continually downsizing company (Pfizer), I long ago recognized the advantage of having no relocation expense when changing employers.
Of course, mobility comes with a price - I don't know my brothers and sisters anymore. I often wonder if corporate America realizes the damage they have done to our society in the pursuit of profits. We tolerate so much and now many will be stuck in dead end jobs. No such problems in India and China.
This could put wage pressure on employers that transfer employees. Or they may choose to train and upgrade wages for those employees who stay in one place.
Not only is this an issue with employers and employees, but also retirees. I live in an area that has recently become popular with out-of-state retirees looking for their little 5-acres of heaven. What this sudden popularity has done is too drive up the prices of real estate to the point where the locals can not afford to live in their own community.
The positive to this stop in-migration will be a return (hopefully) of sane housing prices. The negative is . . . wait, I'm thinking. . . . gosh, I can't think of one, except the local used-housing salesmen and women are going to have to get off the gravy train and find real jobs.
The major difference between the loss of industrial jobs and today is that when industrial jobs were lost, high school kids knew that they would have to focus on college instead of being a mill hunk. But today, there are no obvious alternatives.
Also, housing prices now reflect the expectation that there will be many upper middle class jobs available that will justify those prices. Greenspan, who spent a lot of verbiage touting the flexibility of the American workforce, never addressed the impact that his ruinous policies would have on future labor flexibility.
It's hard to relocate when you're upside down on your mortgage, and mobility is critical to labor flexibility.
Factoid. My son recently completed the management training program of a subsidiary of a huge company (General Electric) and got sent to his first assignment. One of his similarly-situated buddies was inclined to buy a house (condo unit, actually), and was counselled against it by the older district/divisional/regional or whatever managers who mentor the newbies, with the observation that 'we move you guys around a lot.' The kid did not buy. There's a real world adjustment to the new reality for you.
Prediction. For every person whose career path is suddenly stymied by the inconvenient truth that in real estate as in all else what goes up does, occasionally, come down, there is somebody else who can now accept an attractive position on the West Coast that Bay Area or SCal. real estate 'values' had previously zoned them out of. You'll hear a lot more about the former, who feel violated by fortune, than the latter, who are pleasantly surprised.
An observation. The unfolding of this housing crisis is beginning to resemble peeling the layers of an onion. First, we peeled the the financial sector. That brought tears. Then we peeled the economy. That brought more tears. Now we've reached the layer that may be called the real lives of real people. Interesting to see what that brings on . . .
A boomer colleague of mine never forgets to remind me of the ordeal he faced after buying a house in 1988. A year into the purchase he lost his job. He found lots of opportunities outside the state[NJ] but couldn't take them because his house wouldn't sell.
The plant here in the midwest that I worked at closed late last year and I can relate to this. I got two decent job offers in Denver and Boston, but few people are buying anything but foreclosed properties here and to compete with them (and sell it quickly), I would lose nearly all my equity despite having only a 1st mortgage, no HELOC debt, and I have been in it 10 years! I turned the jobs down and have returned to school instead since nothing pays close to what I made before here.
There are three engineers that I worked with that have three different stories:
1) One accepted a job right away out of state and rented an apartment. She put her house up for sale and it still hasn't sold (8 months now). She's stubborn and has only reduced it once.
2) Another accepted a good job right away, but within a day's drive back home. He rented an apartment and left his wife and kids in the house here while they tried to sell. He commuted home 500 miles every weekend. Eventually sold the property last month after three reductions at a big loss.
3) Another accepted a job out of state and rented, but couldn't sell his house. He finally found a job back here, but with a big pay cut and moved back into his vacant home.
We had a situation in Texas (DALLAS) in the late 80's early 90's where middle class Californians would sell their 1800' house and buy a depressed market 3500' house here for cash.
Given equity extraction (mortgage debt for non real estate purposes) this probably won't happen to the same degree.
On the other hand, if prices depress enough, I might spring for a condo in Redondo. Crazy world.
When prices in Aspen decline, I will know there is blood in the water.
Good post CR. Sociological implacations of a housing bust. It should make a good term paper for a B-school student.
Is there some government program that can assist these poor people that have lost equity? Does the TAF that Ben made up to assist the poor stock brokers apply?
"We had a situation in Texas (DALLAS) in the late 80's early 90's where middle class Californians would sell their 1800' house and buy a depressed market 3500' house here for cash."
People did that back in the 70's also. I knew a guy that moved from SoCal to Dallas, lived there a few years, and then moved back to SoCal. He couldn't afford to buy back his old house in SoCal.
A neighbor back in the late 70's worked for IBM. Their policy was to buy employees homes at appraised value when they were transfered.
Big companies with multiple sites might consider taking over mortgages of employees even if they have to eat a little equity. They could then put a new employee in the home. They could even issue script in lieu of dollars!
This seems like a largely positive impact. Worker mobility has contributed directly to the rootlessness and lack of social cohesion and group identification in modern America.
Losing the part where our society is a bunch of rootless hobos abandoning their siblings, offspring and parents to the winds of fate is hardly a negative.
If it seems economically uncompetitive, how many constant concerns about fraying social safety nets would be alleviated if kinship and artificial kinship bonds hadn't been almost deliberately destroyed in the 20th century.
I think we would do well to be keenly aware of how much we have sacrificed with the American fantasy of the journey to the "frontier" at nominal adulthood, followed by the carving-out of prosperity from the suburban "wild" and the abandonment of one's own children just when they have reached nominal adulthood and show the potential of economic return.
IMO, earning potential should be balanced against the very real opp. costs of the way we do business. I think the gain, especially the mean per-capita gain, might be entirely nominal. I would speculate it is probably pretty close to net 0 or running fairly negative, given how much our milieu shows the signs of social strain that I think would be masked or alleviated if it was a genuine engine of wealth generation.
[Heliben writes:
Relocation services don't guarantee to sell your house for what you owe on it.]
Depends entirely on how much the firm wants you to move. I got my purchase price back in the early 90s, which was above market when I played hardball. I didn't want the move that bad and was willing to stay.
The feeling toward housing will change once people have been disabused of the neurotic American Dream nonsense. The homeownership "orientation" will go the way of the family farm, from little plots of log cabin fantasies to huge corporate mega-complexes. From the point of view of efficiency, flexibility, mobility, cost ...are you kidding? All the time, energy, money the average suburban homeowner wastes on the maintenance, upkeep, and cleaning sucks a good chunk of their lives out of them.
In the future, Mean-Median-Mode Joe and Jane rent, the mega-complex takes care of the four walls and a roof.
If the job's good enough, most can afford to loose $100 - $150,000. It hurts, but it's not the end of the world...ahem, some recent experience myself...Look, these decisions hinge on more than just the financial aspect. Life's more than an economic equation.
The real issue is first time buyers who bought with their earned savings, vs move-up windfalls. They're the ones who'll be having the hard times. Of course, I tend not to feel too sorry for those who heloc'd/overbought their way to servitude.
and negative equity situations will limit the ability of companies to transfer these senior employees.
Then, as others pointed out, those companies can, and should, offer relocation assistance, as has been done in the past when companies need more employees than they can find in a specific area.
I'm suspecting the bigger problem is for less senior employees, who may not benefit from such assistance, but whose services are still needed, and who find employment opportunities in their own region limited.
I'm guessing that the price of gas, coupled with negative equity, may pose a big problem for people who, traditionally, wouldn't be seen as "relocating", but whose prospective "new job" would put them among the Road Warriors.
It would seem as if the phenomena of under-water home owners being unable to re-locate is just as difficult to prove as the mythical ruthless defaulter (i.e. walking away from a mortgage despite their ability to make payments). There is just no way to get quantifiable data on it. Sure, we might be able to find anecdotes here and there, but how would we ever know if it was a REAL problem?
Even if many Fortune 500 companies started saying the declining housing market was harming their ability to recruit that wouldn't prove anything. We have lots of lenders claiming that borrowers are ruthlessly defaulting, but that doesn't mean it is true.
"This seems like a largely positive impact. Worker mobility has contributed directly to the rootlessness and lack of social cohesion and group identification in modern America.
Losing the part where our society is a bunch of rootless hobos abandoning their siblings, offspring and parents to the winds of fate is hardly a negative..."
Just standing up on my chair and applauding this entire comment.
When young, I lived in a co-op townhouse in Park Forest Ill. I had to pay a fee for "improvements" which was $2000. The monthly fee was $225 when comparable condo housing was $30,000. During the three years I lived there, the cost did not rise and the co-op did a new roof paid for by the monthly fees, no added charges. Co-op setups can be great values for the residents but not as great returns for the developer as condos are. I also belonged to a food co-op where food was 1/3 off the local retail price. Every member had to kick in 2 hours per month of time and there was one paid exec director to manage the operation. In both co-ops, if a member does not hold up his end of the deal in time, maintenance, etc., then the co-op has the right to kick him out. Communism works great as long as everyone pulls his weight.
Consider the option that at some point, people might suck it up and abandon the house to take a job elsewhere.
If they are unemployed, if the house's value continues to sag (and thus their equity), if they're short on money and nobody will loan them anything on the remaining equity... at some point it becomes a no-brainer to just start over with a new job and cut the past loose.
So now the corporate drones are stuck in the distant suburbs, where they belong. Now they can't trade in their McMansions for empty-nest condos in the city, where they don't belong.
I remember years ago someone telling me that relocation wasn't a big deal. Their company gets them a realtor in the new location to help find a house. If they have trouble selling their own home the company buys it from them at market value.
The impression I got was that this was a pretty common practice. Though times were different a couple of decades back.
While I think house prices are going to take a huge tumble and a lot of new home buyers and those that took equity out of their homes are going to get screwed, not all home buyers will be in such bad shape provided they can find a buyer for their homes.
If you owned a home before the bubble and moved for work or into a bigger home, you're probably ok as the rise in equity in your home should mitigate a good portion of the effects of the rising home prices.
There seem to have been a lot of first time homeowners though. The lax lending practices that caused the house price to income ratio to rise from 3.0 to over 4.5 nationwide meant more money in more people's hands. That with the decrease in the price of oil and interest rates really drove up home prices.
Well in our case we have been looking for a perinatal sonographer for over a year. Nobody can sell there house so they all eventually decline. One sonographer who came still hasn't sold after 15 months. I sold in 2006 and still kiss the ground daily.
Ross: just got back from Aspen.
Never seen so many houses for sale there.
Anecdotally, looks like asking prices are down 15-20%. Local paper noted 38% y-o-y decline in sales.
Am figuring a lot of people overextended and need to dump their 2nd home in Aspen to stay above water.
Oh, and 75% of conversations on local buses seemed to be about who had lost how much on real estate.
You should have read my commentary (long time ago) when Viagra pumped up PFE. Scam Lovers, aka stock market bulls, are among the easiest to identify born-and-bred dopes. There is always some story for the ready dopes.
Breeding dopes has been the most profitable investment for America's ruling elite. And it shows!
"Get Osama Bin Laden before I leave office, orders George W Bush."
Bin Laden is laughing his ass off and just like Afghanistan bankrupted and brought down Russia, the empire is now facing the same fate. There is no greater fool then a fool seeking revenge.
"Consider the option that at some point, people might suck it up and abandon the house to take a job elsewhere."
"If they are unemployed, if the house's value continues to sag (and thus their equity), if they're short on money and nobody will loan them anything on the remaining equity... at some point it becomes a no-brainer to just start over with a new job and cut the past loose." -Bob Dobbs
Bob, thanks for the post. I saved a lot of money prior to my job loss and paid off all debt except the mortgage, so I can afford to hold out for a couple of years. I just can't get comfortable with the idea of "abandoning the house". Part of that rests with wanting to keep it regardless of the current market value, and part of it has to do with the vaporous quality of jobs nowadays, generally. Let's say I take a good job elsewhere, abandon my house, ruin my credit, go bankrupt, and then my new employer goes belly-up or downsizes within a few months of accepting the job offer? The market is making your plans for you faster than you can plan for the market.
For mid level executive and technical jobs, the relo packages should be good enough for most people to handle a move. If they are seriously upside down, they may have problems, but a corporate relo is going to be the best that it gets.
I actually looked at something in Westchester last year and couldn't deal with the prices.
I don't know how much difference it will make -- as someone else commented, people will be able to consider California and other areas previously impossible to afford.
Anyway, it will give your company or prospective company a way to show how much they care about you.
At least somebodys cleaning up in the foreclosure debacle
The house at 7927 W. Constantinople Ave. may be a foreclosure but it is not empty, because of all the trash, and it is not uninhabited, because of the smell.
It greets you at the door, climbs up your nose and tries to escape through your eye sockets.
Obviously a lot of white collar & professionals hang out here so no surprise at all the 'well if they want me to move, they had better pay me or buy my house' type talk...
Doc's stories of the plant closing is closer to the reality for most people in a down turn even though he sounds like he had a 'white collar' position too.
I've seen lotsa blue collar or low level white collar supervisory people lose work, be underwater on their home because of the hit the whole economy took when THE plant shut down - now they HAVE TO MOVE or starve & if the only asset you have is your house and a now bankrupt company pension - then immobility is a very serious problem.
They will move - walk away with nothing - because they also can't stay.
When we get there then we'll know its a real ball buster of a recession. I'm old enough to have seen a couple of those - this one could get there with just a little more bad luck and even worse policy.
Tom writes:
I remember years ago someone telling me that relocation wasn't a big deal. Their company gets them a realtor in the new location to help find a house. If they have trouble selling their own home the company buys it from them at market value.
From my experience in 'tech' (DEC/Compaq/HP) as a senior engineer for the past 30 years that's the way it was during the 70's and 80's. By the 90's the corp. relocation services packages had been scaled back. By 2000 or so it was rare to be offered a full blown 'relocation package' wherein everything was provided by the company unless they had exhausted all other options and your position was critical.
The thing is that most mid-level tech and mgmt positions which get shuffled around are staffed by those with families. When faced with a move they most often have houses - which they roll over for 'more' house at the new location (McMansion, bedroom community with good schools...). Those that did so since 2000 now find themselves facing significant losses when 'offered' the next career advancement. Given the extent of consolidation efforts and reorganizations within the likes of HP these days the specter of losses associated with a relocation is very real to those folks.
When we get there then we'll know its a real ball buster of a recession. I'm old enough to have seen a couple of those - this one could get there with just a little more bad luck and even worse policy.
Hey Dryfly:
Curious to hear what you consider to be good policy alternatives?
Perhaps eliminating all non-economic immigration restrictions? If we allow enough wealthy families to immigrate, then there will be a demand for those beautiful McMansions an hour's drive from anywhere. Of course, that may need to be an immigration requirement
That's not that bad of an idea. Under section 203(b)(5) of the Immigration and Nationality Act, the US provides 10,000 visas for "immigrant investors" in commercial enterprises that create 10 or more jobs. Alternatively, they can purchase an existing business, with the amounts lessened for high-unemployment areas (which explains Apu and the Kwik-E-Mart).
While the alien would not be providing the jobs directly, he or she is still injecting money into the economy, like the Fed, and getting the taxpayer off the hook.
I've no doubt this recession is going to be very, very bad -- and on top of that, I can't see what is going to pull us out.
In the past, nearly all recessions were due either to excessive inventory buildups that had to be worked off, or to the Fed deciding they had to cool off an overheated economy -- something that in the days when most mortgages came from S&Ls they used to accomplish by raising short-term interest rates, making it impossible for the S&Ls to profitably borrow short and lend long, sending homebuilding into the tank. So when the inventory overhang was worked off, or the Fed took its feet off the S&L's air hoses, the economy would reliably rebound.
An important factor in the housing-led downturns was that the home ownership rate never got so high that there wasn't some real pent-up demand to drive sales when the feet came off the S&L air hoses, and there was never such a glut of spec homes sitting vacant. (Next time CR puts up a chart of new home construction or sales rates going back decades, note how sharp the declines used to be, and how rapidly they were followed by skyrocketing rebounds.)
But this recession wasn't started by a manufactured goods inventory glut, or Fed feet on home mortgage source air hoses. It was started by the playing out of manic ownership rate bubble built up by the air hoses feeding a potent oxygen-enriched mixture to the mortgage lenders, such that low rates and fog-a-mirror qualification sucked forward years' worth of future demand and even created virtual demand out of the quantum vacuum (soon to self-annihilate).
This time 'round, the inventory glut is in housing itself and is just going to keep increasing as the recession deepens, with mortgage availability also getting steadily worse.
As this downturn started with mortgage lending as loose as it could possibly get, there's no way it can be reversed by making it looser.
I can't see anything that's going to pull us out, except enough population growth to absorb four-million-plus housing units built before their time.
If the Asian vendor-financing ATM (e.g., China et al buying US bonds so we can buy their imports) is shut down, the interest rate spike will make things even worse.
I second Mistah Bonzai. I have not seen what happened before the Y2K/dotcom craze, but right then lots of people bolted left and right to join all those dotcoms, and the companies from where they left, as well as the dotcoms with money to spend, saw themselves in the position of having to bring in desirable employees from outside the area(s). (Note I didn't say "they couldn't find locals", I said "desirable" workers in terms of demographics and "matching" certain hyped credential profiles.)
That prompted fairly generous relocation and housing assistance packages, which were promptly scaled down once the dotcom phenomenon subsided. (Together with all the other goodies that employers saw fit to provide in order to placate their employees.)
Now it's "back to normal" (with the caveat of offshoring, which puts an additional, if marginal, damper on domestic jobs).
Regarding the main topic of the housing bust interaction with job relocation situations ...
Although some companies will pay relocation costs for some employees, some will also command transfers without offering such assistance as a way of getting rid of people without having to actually fire them.
I've been told that IBM did this even back in the good-ole-days.
One friend once worked for a software company whose top management moved the whole company from the Mid-West to Boston -- offering relocation assistance only to themselves and their buddies -- as a way to dump nearly all of a development staff they blamed for their product problems. (They failed in Boston, too, so perhaps the dumped developers were right about the real problem being the management -- he said, she said ...)
I've brought this topic up before, but can't take credit for the idea. Any of you guys read Talbot's book "The Coming Crash in the Housing Market"? He nailed so many aspects of this bust -- including workforce immobility -- way back in 2003, before most even knew there was a bubble.
Apparently workforce mobility is considered by many to be one of the key factors in keeping America's economy one of the most dynamic and adaptable in the world. It's all a matter of optimal resource allocation.
tj & the bear: On top of the issue of regional moves, today's and future expected gas prices even put a question mark on local mobility let's say within larger metro areas, where probably most of the job moves happen, with or without moving house.
Its funny that the term 'negative equity' needs explaining in the US. In the UK everyone knows what it means because it was rife in the last housing recession in the 90s.
I remember years ago someone telling me that relocation wasn't a big deal. Their company gets them a realtor in the new location to help find a house. If they have trouble selling their own home the company buys it from them at market value.
The definition of market value is what you can sell your house for on the open market, so your last sentence doesn't make much sense.
The problem people are having today is that they owe more than the market value on the house.
Solution: remodel the house so it is secretly a duplex, then each take a part to live in.
This is what divorced couples used to do in the USSR because it was impossible to find another place to live - just put a curtain down the middle of the apartment.
Curiously the outcome of the "ownership society" increasingly resembles a society where ordinary people didn't own anything at all.
I work in the commercial nuclear power industry, which is desperately trying to staff-up for the Renaissance. Problem is that my company only does full relocation services (buyout of current mortgage) for a certain paygrade. That paygrade is at or above what Supervisors are getting paid. So we're now in the position of having to hire individual contributors at a wage above their Supervisor. So these folks show up in the org chart as working directly for a Manager or Director, but really report to a Supervisor. Odd situation.
Yearning,
Love it. Golden cage! Well I guess if you still have equity it might not be so very bad. I have visions of Steve McQueen on Devils island in that little rusting caged cubicle sustaining himself with morsels of cockroach...
Really interesting ideas published here...
Somehow the term 'involitary servitude' keeps windmilling in my mind.
Curious to hear what you consider to be good policy alternatives?
RhodesianRidgebackinAZ | 06.15.08 - 1:06 am | #
Razorback - I think there have been a number of unfortunate decisions - primarily by the fed - that could make the current situation even more awkward going forward.
excessively low FFR
lending way too loose at the TAF
Bear Stearns 'shot gun' marriage
confusing solvency w/ liquidity
Fed needs to get back to fundamental 'central banker' principals & let the market impose discipline on the rogues. I have no problem w/ the Fed being part of the 'mop up' afterwards but there has to be a moral hazard reckoning & resultant 'afterwards' before it should start mopping up.
I think Ben seriously overstepped - especially wrt Bear Stearns.
If you have what it takes and know what you're doing then work virtual from your home. One of my consulting clients is in Europe and another in New England. And I live in WA State. I only travel for occasionla conferences and events and crucial F2F client meetings.
Although some companies will pay relocation costs for some employees, some will also command transfers without offering such assistance as a way of getting rid of people without having to actually fire them.
I've been told that IBM did this even back in the good-ole-days. - jm
Yup. It was common in the good ole daze too & not just IBM.
This is what divorced couples used to do in the USSR because it was impossible to find another place to live - just put a curtain down the middle of the apartment.
Curiously the outcome of the "ownership society" increasingly resembles a society where ordinary people didn't own anything at all.
Maybe that was why the Bush PR Team rejected the phrase 'Owners Paradise'... and went with 'Ownership Society' instead. [/sarcasm]
The lack of a universal health care system already limits labor force mobility in the US: many people are tied to their employer-provided health insurance, and the most unhealthy are most tightly bound to their employers.
Superimpose housing-related reductions in labor force mobility, and you could experience serious problems moving people to where the jobs are.
Curiously the outcome of the "ownership society" increasingly resembles a society where ordinary people didn't own anything at all.
yogurt | 06.15.08 - 9:27 am | #
Yes, everybody seemed anxious to sell whatever they could as fast as they could. Got equity?, can't enjoy leaving it in the house, gotta tap it to get a loan on a car!
Buddy: When the phenomenon will become prevalent enough, they will probably adjust to that reality. OTOH if this doesn't lead to animosity among the troops and particularly along reporting chains (difficult for me to imagine), it could go on for a long while.
Even when people don't know the numbers, they know (or more likely suspect) that the pay structure often correlates well with the org chart structure, judging by how obsessed quite a few of my coworkers are with reading the entrails of the org chart. Often it's not just about money but also the prestige of "reporting higher up".
cm writes:
"Buddy: When the phenomenon will become prevalent enough, they will probably adjust to that reality. OTOH if this doesn't lead to animosity among the troops and particularly along reporting chains (difficult for me to imagine), it could go on for a long while."
New super-Supervisor positions are being created to adjust to the high pay of the new hires. And the grey-hair troops are restless (looks like retention bonuses are in the offing).
as a Mover for 30 years, I have watched people take advantage of a bubble (housing, dotcom, etc) to cash out, move to another location with the goal to continue working while at the same time improving their financial and emotional lives...
these folks show me pictures of their new, much cheaper home and smugly smile because they think they've hit the fastball "out of the park"...in retrospect most of them hit only a Single, or, if they sold just before the market truly cratered they may have hit a Double...
(A retiree who sold before the prices tumbled may indeed have hit a Home Run. Those retirees that didn't sell and leave California before 6/07 are all still standing in that terribly crowded On Deck Cirlce.)
Since 2003 many of my customers thought they sold at the top of the market, but most of moved well before the top of the market.....so, they hit a Slow, Fat, Fastball for a solid Single...pretty much a no-brainer!
The trick for these people is how they hit the Curveball that life continually throws at them/us....and, once life starts throwing Curves, many of these people Strike Out....and they always say, "Whocoodanode?"..
What happens to those that can't hit the Breaking Ball?? (1) New company lays them off and they have references in the new town, so they can't easily find another job...(2) the economy tanks, cities layoff newly hired teachers, cops and municipal employees since the Last Ins are the First Outs....(3) The DotCommers wound up in the Silicon Valley with no job and a ridiculously priced house....(4)the Handyman, who moved to Grants Pass, Oregon found out that he's not the only handyman who moved to Grants Pass... (4) When bubble prices collapse, a wider range economic downturn always follows and it hurts a lot of people....
Finally, in the past two years I have moved a lot of people to less expensive areas, who say their employer will allow them to move to Colorado/Texas/Oregon and keep their current job and work from home......QUESTION: When the downturn comes, I'll betcha most of these work from home type jobs fall by the wayside........ If these folks can hit the Curve and quickly obtain a new job in their new locale, then their move will be a success....but a lot of these folks will "Go down, Looking."
to point out the obvious math if it hasn't already been done:
It's almost always the case that a good paying job vs no job or a low pay job is far more important than say $50K in equity unless the job security is considered suspect.
In other words, folks aren't doing the math in some instances.
Most American management and hiring managers are pretty mediocre-to-lousy in selecting 'talent', partially thanks to the cyclical gutting of HR since the big downturn of 79-82. HR is reduced to Benefits Specialists who can't train hiring managers are effective hiring.
So the difference in actual performance quality between the mediocre hiring manager's 1st, 2nd and 3rd choice are not so 'bottom-line' critical as we'd like to think.
This is a rare case where America's managerial mediocrity puts a brake on a bad situation. So if 1st choice can't sell the house & relocate, the 2nd choice candidate will suffice.
Anonymous: I don't think HR would in any case be qualified, or able to "train" others, how to identify suitable candidates for a given subject matter (except perhaps HR itself).
I was told by an admittedly rather cynical HR professional that HR means "Hiring Roadblock", and on a more serious note that the primary function of HR is to supervise compliance with employment regulations, i.e. keeping the employer out of legal trouble. Sounds quite plausible to me. I don't know whether it used to be otherwise.
I admit that "back in the day" when companies were hiring people out of high school or college and train them up, HR could have helped in selecting "quality material". Not so where subject-matter judgement is needed, i.e. when hiring "experience" (not that many hiring managers or recruiters are necessarily much better).
CM, I was going to write something very similar before I saw your post. HR people should all be canned - let the managers hire their own people (yes, you need a few admin people to do paperwork for benefits and payroll, etc.) Most personnel people, excuse, me, "HR", are on a power trip, as they do have so much say-so in areas where they know nothing.
Oh, and get rid of "purchasing" people too. That's another waste of cash and other employees' time.
Big Business in this country is almost as stupidly run as goverment. They could use to learn something from the Japanese. I say "something", not all - especially about not hiring MBA's who know nothing about the industry in question, and the importance of having managers who have formerly done the "grunt work"
OK, back to the topic at hand, and they are very interesting posts, I will say.
Dave Lincoln: It's a tradeoff. Forcing every small one-off purchase through the gauntlet of Purchasing may be unreasonable overhead (but may be effective towards cost reduction by discouraging purchases), but OTOH for large or recurring orders Purchasing may get volume discounts or research a better supplier. Well, at least in theory, and in many cases theory is a fairly generous abstraction of reality.
As more families experience homes as economic albitrosses, their children may become reluctant buyers of homes...just as the boomers need to "cash out" to enjoy their retirements.
Perhaps eliminating all non-economic immigration restrictions? If we allow enough wealthy families to immigrate, then there will be a demand for those beautiful McMansions an hour's drive from anywhere. Of course, that may need to be an immigration requirement:
Welcome to America, if you can afford to buy a boomer's house!
--
Let us get to the next topic -- Will the Housing Bust Impact Marriages?
Jas
Already made the move and not for a transfer. Better place to live with kids and cheaper, too. Kept the job and moved the family and now the job search is the problem. Life got in the way (needed a new hip) and so kinda oops as the employment picture has really changed. Must accept fault myself for being the mid-management generalist and therefore one of many.
Financially, I expect it will still work out but the travel is eating into the wallet. Already have extended time between trips home.
The question has become lifestyle. Its quit and go find a job and be out of work (ok, bad option), take any job at lower pay to be home at night with the wife and kids ( or not, as that won't send the message to the boss you want to move up) or maintain a rental and the house and barely support the wife and kids from afar.
I suspect lots of others have to look at the cash flow problem and make lousy choices also.
This is why I remain a renter. As an employee of a continually downsizing company (Pfizer), I long ago recognized the advantage of having no relocation expense when changing employers.
Of course, mobility comes with a price - I don't know my brothers and sisters anymore. I often wonder if corporate America realizes the damage they have done to our society in the pursuit of profits. We tolerate so much and now many will be stuck in dead end jobs. No such problems in India and China.
We're screwed.
This could put wage pressure on employers that transfer employees. Or they may choose to train and upgrade wages for those employees who stay in one place.
Not only is this an issue with employers and employees, but also retirees. I live in an area that has recently become popular with out-of-state retirees looking for their little 5-acres of heaven. What this sudden popularity has done is too drive up the prices of real estate to the point where the locals can not afford to live in their own community.
The positive to this stop in-migration will be a return (hopefully) of sane housing prices. The negative is . . . wait, I'm thinking. . . . gosh, I can't think of one, except the local used-housing salesmen and women are going to have to get off the gravy train and find real jobs.
I wrote this in May of last year:
The major difference between the loss of industrial jobs and today is that when industrial jobs were lost, high school kids knew that they would have to focus on college instead of being a mill hunk. But today, there are no obvious alternatives.
Also, housing prices now reflect the expectation that there will be many upper middle class jobs available that will justify those prices. Greenspan, who spent a lot of verbiage touting the flexibility of the American workforce, never addressed the impact that his ruinous policies would have on future labor flexibility.
It's hard to relocate when you're upside down on your mortgage, and mobility is critical to labor flexibility.
Economist's View: "We Need Alan Blinder to Pull His Weight"
A factoid, an prediction, an observation.
Factoid. My son recently completed the management training program of a subsidiary of a huge company (General Electric) and got sent to his first assignment. One of his similarly-situated buddies was inclined to buy a house (condo unit, actually), and was counselled against it by the older district/divisional/regional or whatever managers who mentor the newbies, with the observation that 'we move you guys around a lot.' The kid did not buy. There's a real world adjustment to the new reality for you.
Prediction. For every person whose career path is suddenly stymied by the inconvenient truth that in real estate as in all else what goes up does, occasionally, come down, there is somebody else who can now accept an attractive position on the West Coast that Bay Area or SCal. real estate 'values' had previously zoned them out of. You'll hear a lot more about the former, who feel violated by fortune, than the latter, who are pleasantly surprised.
An observation. The unfolding of this housing crisis is beginning to resemble peeling the layers of an onion. First, we peeled the the financial sector. That brought tears. Then we peeled the economy. That brought more tears. Now we've reached the layer that may be called the real lives of real people. Interesting to see what that brings on . . .
A boomer colleague of mine never forgets to remind me of the ordeal he faced after buying a house in 1988. A year into the purchase he lost his job. He found lots of opportunities outside the state[NJ] but couldn't take them because his house wouldn't sell.
"Let us get to the next topic -- Will the Housing Bust Impact Marriages?"
Jas
Jas Jain | 06.14.08 - 7:35 pm | #
Yup,
Chris
Now that I haven't seen so far. So far the reasons for divorce are the usual suspects.
Isn't this what relocation services were supposed to be about?
The plant here in the midwest that I worked at closed late last year and I can relate to this. I got two decent job offers in Denver and Boston, but few people are buying anything but foreclosed properties here and to compete with them (and sell it quickly), I would lose nearly all my equity despite having only a 1st mortgage, no HELOC debt, and I have been in it 10 years! I turned the jobs down and have returned to school instead since nothing pays close to what I made before here.
There are three engineers that I worked with that have three different stories:
1) One accepted a job right away out of state and rented an apartment. She put her house up for sale and it still hasn't sold (8 months now). She's stubborn and has only reduced it once.
2) Another accepted a good job right away, but within a day's drive back home. He rented an apartment and left his wife and kids in the house here while they tried to sell. He commuted home 500 miles every weekend. Eventually sold the property last month after three reductions at a big loss.
3) Another accepted a job out of state and rented, but couldn't sell his house. He finally found a job back here, but with a big pay cut and moved back into his vacant home.
We had a situation in Texas (DALLAS) in the late 80's early 90's where middle class Californians would sell their 1800' house and buy a depressed market 3500' house here for cash.
Given equity extraction (mortgage debt for non real estate purposes) this probably won't happen to the same degree.
On the other hand, if prices depress enough, I might spring for a condo in Redondo. Crazy world.
When prices in Aspen decline, I will know there is blood in the water.
Good post CR. Sociological implacations of a housing bust. It should make a good term paper for a B-school student.
Relocation services don't guarantee to sell your house for what you owe on it.
Is there some government program that can assist these poor people that have lost equity? Does the TAF that Ben made up to assist the poor stock brokers apply?
"We had a situation in Texas (DALLAS) in the late 80's early 90's where middle class Californians would sell their 1800' house and buy a depressed market 3500' house here for cash."
People did that back in the 70's also. I knew a guy that moved from SoCal to Dallas, lived there a few years, and then moved back to SoCal. He couldn't afford to buy back his old house in SoCal.
Does the TAF that Ben made up to assist the poor stock brokers apply?
Oops - my comment is in Haloscan hell.
It should have said:
LOL - that's a good one. Sorry, no.
A neighbor back in the late 70's worked for IBM. Their policy was to buy employees homes at appraised value when they were transfered.
Big companies with multiple sites might consider taking over mortgages of employees even if they have to eat a little equity. They could then put a new employee in the home. They could even issue script in lieu of dollars!
I owe my soul to da company sto!
Just one more advantage to renting....
[Jas Jain writes:
Let us get to the next topic -- Will the Housing Bust Impact Marriages? ]
You're married ? LMAO!!!
[Jas Jain writes:
Let us get to the next topic -- Will the Housing Bust Impact Marriages? ]
Well, 50% of marriages end in divorce. So now it goes to 60%? So what?
This seems like a largely positive impact. Worker mobility has contributed directly to the rootlessness and lack of social cohesion and group identification in modern America.
Losing the part where our society is a bunch of rootless hobos abandoning their siblings, offspring and parents to the winds of fate is hardly a negative.
If it seems economically uncompetitive, how many constant concerns about fraying social safety nets would be alleviated if kinship and artificial kinship bonds hadn't been almost deliberately destroyed in the 20th century.
I think we would do well to be keenly aware of how much we have sacrificed with the American fantasy of the journey to the "frontier" at nominal adulthood, followed by the carving-out of prosperity from the suburban "wild" and the abandonment of one's own children just when they have reached nominal adulthood and show the potential of economic return.
IMO, earning potential should be balanced against the very real opp. costs of the way we do business. I think the gain, especially the mean per-capita gain, might be entirely nominal. I would speculate it is probably pretty close to net 0 or running fairly negative, given how much our milieu shows the signs of social strain that I think would be masked or alleviated if it was a genuine engine of wealth generation.
"will the housing bust impact marriages."
Yup. I'm already looking for a second maybe third wife to put to work so I can pay the mtg.
No more pink collar cost centers, sez I.
Let us get to the next topic -- Will the Housing Bust Impact Marriages? ]
Well, 50% of marriages end in divorce. So now it goes to 60%? So what?
Usually the house gets sold in a divorce, as neither partner can afford the monthly nut.
Now the choice is to stay married to the partner you hate, divorce but continue living together(shudder), or both parties bring a check to closing.
Hey, this might decrease the divorce rate!
Get Osama Bin Laden before I leave office, orders George W Bush
don't underestimated this patriotic surge of adrenaline!
[Heliben writes:
Relocation services don't guarantee to sell your house for what you owe on it.]
Depends entirely on how much the firm wants you to move. I got my purchase price back in the early 90s, which was above market when I played hardball. I didn't want the move that bad and was willing to stay.
Sociological? How about just plain old logical.
The feeling toward housing will change once people have been disabused of the neurotic American Dream nonsense. The homeownership "orientation" will go the way of the family farm, from little plots of log cabin fantasies to huge corporate mega-complexes. From the point of view of efficiency, flexibility, mobility, cost ...are you kidding? All the time, energy, money the average suburban homeowner wastes on the maintenance, upkeep, and cleaning sucks a good chunk of their lives out of them.
In the future, Mean-Median-Mode Joe and Jane rent, the mega-complex takes care of the four walls and a roof.
If the job's good enough, most can afford to loose $100 - $150,000. It hurts, but it's not the end of the world...ahem, some recent experience myself...Look, these decisions hinge on more than just the financial aspect. Life's more than an economic equation.
The real issue is first time buyers who bought with their earned savings, vs move-up windfalls. They're the ones who'll be having the hard times. Of course, I tend not to feel too sorry for those who heloc'd/overbought their way to servitude.
and negative equity situations will limit the ability of companies to transfer these senior employees.
Then, as others pointed out, those companies can, and should, offer relocation assistance, as has been done in the past when companies need more employees than they can find in a specific area.
I'm suspecting the bigger problem is for less senior employees, who may not benefit from such assistance, but whose services are still needed, and who find employment opportunities in their own region limited.
I'm guessing that the price of gas, coupled with negative equity, may pose a big problem for people who, traditionally, wouldn't be seen as "relocating", but whose prospective "new job" would put them among the Road Warriors.
It would seem as if the phenomena of under-water home owners being unable to re-locate is just as difficult to prove as the mythical ruthless defaulter (i.e. walking away from a mortgage despite their ability to make payments). There is just no way to get quantifiable data on it. Sure, we might be able to find anecdotes here and there, but how would we ever know if it was a REAL problem?
Even if many Fortune 500 companies started saying the declining housing market was harming their ability to recruit that wouldn't prove anything. We have lots of lenders claiming that borrowers are ruthlessly defaulting, but that doesn't mean it is true.
"This seems like a largely positive impact. Worker mobility has contributed directly to the rootlessness and lack of social cohesion and group identification in modern America.
Losing the part where our society is a bunch of rootless hobos abandoning their siblings, offspring and parents to the winds of fate is hardly a negative..."
Just standing up on my chair and applauding this entire comment.
No currency intervention. Good or Bad?
- NY Times
When young, I lived in a co-op townhouse in Park Forest Ill. I had to pay a fee for "improvements" which was $2000. The monthly fee was $225 when comparable condo housing was $30,000. During the three years I lived there, the cost did not rise and the co-op did a new roof paid for by the monthly fees, no added charges. Co-op setups can be great values for the residents but not as great returns for the developer as condos are. I also belonged to a food co-op where food was 1/3 off the local retail price. Every member had to kick in 2 hours per month of time and there was one paid exec director to manage the operation. In both co-ops, if a member does not hold up his end of the deal in time, maintenance, etc., then the co-op has the right to kick him out. Communism works great as long as everyone pulls his weight.
Consider the option that at some point, people might suck it up and abandon the house to take a job elsewhere.
If they are unemployed, if the house's value continues to sag (and thus their equity), if they're short on money and nobody will loan them anything on the remaining equity... at some point it becomes a no-brainer to just start over with a new job and cut the past loose.
So now the corporate drones are stuck in the distant suburbs, where they belong. Now they can't trade in their McMansions for empty-nest condos in the city, where they don't belong.
I remember years ago someone telling me that relocation wasn't a big deal. Their company gets them a realtor in the new location to help find a house. If they have trouble selling their own home the company buys it from them at market value.
The impression I got was that this was a pretty common practice. Though times were different a couple of decades back.
While I think house prices are going to take a huge tumble and a lot of new home buyers and those that took equity out of their homes are going to get screwed, not all home buyers will be in such bad shape provided they can find a buyer for their homes.
If you owned a home before the bubble and moved for work or into a bigger home, you're probably ok as the rise in equity in your home should mitigate a good portion of the effects of the rising home prices.
There seem to have been a lot of first time homeowners though. The lax lending practices that caused the house price to income ratio to rise from 3.0 to over 4.5 nationwide meant more money in more people's hands. That with the decrease in the price of oil and interest rates really drove up home prices.
At least that's my opinion.
Well in our case we have been looking for a perinatal sonographer for over a year. Nobody can sell there house so they all eventually decline. One sonographer who came still hasn't sold after 15 months. I sold in 2006 and still kiss the ground daily.
Ross: just got back from Aspen.
Never seen so many houses for sale there.
Anecdotally, looks like asking prices are down 15-20%. Local paper noted 38% y-o-y decline in sales.
Am figuring a lot of people overextended and need to dump their 2nd home in Aspen to stay above water.
Oh, and 75% of conversations on local buses seemed to be about who had lost how much on real estate.
--
Paul,
You should have read my commentary (long time ago) when Viagra pumped up PFE. Scam Lovers, aka stock market bulls, are among the easiest to identify born-and-bred dopes. There is always some story for the ready dopes.
Breeding dopes has been the most profitable investment for America's ruling elite. And it shows!
Jas
"Get Osama Bin Laden before I leave office, orders George W Bush."
Bin Laden is laughing his ass off and just like Afghanistan bankrupted and brought down Russia, the empire is now facing the same fate. There is no greater fool then a fool seeking revenge.
"Consider the option that at some point, people might suck it up and abandon the house to take a job elsewhere."
"If they are unemployed, if the house's value continues to sag (and thus their equity), if they're short on money and nobody will loan them anything on the remaining equity... at some point it becomes a no-brainer to just start over with a new job and cut the past loose." -Bob Dobbs
Bob, thanks for the post. I saved a lot of money prior to my job loss and paid off all debt except the mortgage, so I can afford to hold out for a couple of years. I just can't get comfortable with the idea of "abandoning the house". Part of that rests with wanting to keep it regardless of the current market value, and part of it has to do with the vaporous quality of jobs nowadays, generally. Let's say I take a good job elsewhere, abandon my house, ruin my credit, go bankrupt, and then my new employer goes belly-up or downsizes within a few months of accepting the job offer? The market is making your plans for you faster than you can plan for the market.
I considered this aspect of the bust a couple years back, looking forward to it with optimism, like Byzantine above.
Americans need to build solid communities again. They're actually pretty dang good at it when compared to many other parts of the world.
But it can't be done (well) when the neighbors are packing up and leaving every two years.
For mid level executive and technical jobs, the relo packages should be good enough for most people to handle a move. If they are seriously upside down, they may have problems, but a corporate relo is going to be the best that it gets.
I actually looked at something in Westchester last year and couldn't deal with the prices.
I don't know how much difference it will make -- as someone else commented, people will be able to consider California and other areas previously impossible to afford.
Anyway, it will give your company or prospective company a way to show how much they care about you.
At least somebodys cleaning up in the foreclosure debacle
The house at 7927 W. Constantinople Ave. may be a foreclosure but it is not empty, because of all the trash, and it is not uninhabited, because of the smell.
It greets you at the door, climbs up your nose and tries to escape through your eye sockets.
At least somebody’s cleaning up in the foreclosure debacle - Thursday, June 12, 2008 | 2 a.m. - Las Vegas Sun
Yum, Yum
Obviously a lot of white collar & professionals hang out here so no surprise at all the 'well if they want me to move, they had better pay me or buy my house' type talk...
Doc's stories of the plant closing is closer to the reality for most people in a down turn even though he sounds like he had a 'white collar' position too.
I've seen lotsa blue collar or low level white collar supervisory people lose work, be underwater on their home because of the hit the whole economy took when THE plant shut down - now they HAVE TO MOVE or starve & if the only asset you have is your house and a now bankrupt company pension - then immobility is a very serious problem.
They will move - walk away with nothing - because they also can't stay.
When we get there then we'll know its a real ball buster of a recession. I'm old enough to have seen a couple of those - this one could get there with just a little more bad luck and even worse policy.
Tom writes:
I remember years ago someone telling me that relocation wasn't a big deal. Their company gets them a realtor in the new location to help find a house. If they have trouble selling their own home the company buys it from them at market value.
From my experience in 'tech' (DEC/Compaq/HP) as a senior engineer for the past 30 years that's the way it was during the 70's and 80's. By the 90's the corp. relocation services packages had been scaled back. By 2000 or so it was rare to be offered a full blown 'relocation package' wherein everything was provided by the company unless they had exhausted all other options and your position was critical.
The thing is that most mid-level tech and mgmt positions which get shuffled around are staffed by those with families. When faced with a move they most often have houses - which they roll over for 'more' house at the new location (McMansion, bedroom community with good schools...). Those that did so since 2000 now find themselves facing significant losses when 'offered' the next career advancement. Given the extent of consolidation efforts and reorganizations within the likes of HP these days the specter of losses associated with a relocation is very real to those folks.
Dryfly writes:
When we get there then we'll know its a real ball buster of a recession. I'm old enough to have seen a couple of those - this one could get there with just a little more bad luck and even worse policy.
Hey Dryfly:
Curious to hear what you consider to be good policy alternatives?
Well, I had some profoundly trenchant remarks to make--until I read this:
...the smell... greets you at the door, climbs up your nose and tries to escape through your eye sockets.
The imagery wiped my brain clean.
Zillowing the W Constantinople house above:
09/24/2007:\t $282,165 *
08/27/2004:\t $139,950 *
08/10/1995:\t $140,000
Happy family in 1995, divorce in 2004, back to the bank in 2007.
List price is $215,000, zillow estimate is $290,000. Home value has been declining $9000/mo for the past 2 years.
Fascinating what happens when you build out too much over residential demand.
Perhaps eliminating all non-economic immigration restrictions? If we allow enough wealthy families to immigrate, then there will be a demand for those beautiful McMansions an hour's drive from anywhere. Of course, that may need to be an immigration requirement
That's not that bad of an idea. Under section 203(b)(5) of the Immigration and Nationality Act, the US provides 10,000 visas for "immigrant investors" in commercial enterprises that create 10 or more jobs. Alternatively, they can purchase an existing business, with the amounts lessened for high-unemployment areas (which explains Apu and the Kwik-E-Mart).
USCIS - Immigration through Investment
While the alien would not be providing the jobs directly, he or she is still injecting money into the economy, like the Fed, and getting the taxpayer off the hook.
dryfly,
I've no doubt this recession is going to be very, very bad -- and on top of that, I can't see what is going to pull us out.
In the past, nearly all recessions were due either to excessive inventory buildups that had to be worked off, or to the Fed deciding they had to cool off an overheated economy -- something that in the days when most mortgages came from S&Ls they used to accomplish by raising short-term interest rates, making it impossible for the S&Ls to profitably borrow short and lend long, sending homebuilding into the tank. So when the inventory overhang was worked off, or the Fed took its feet off the S&L's air hoses, the economy would reliably rebound.
An important factor in the housing-led downturns was that the home ownership rate never got so high that there wasn't some real pent-up demand to drive sales when the feet came off the S&L air hoses, and there was never such a glut of spec homes sitting vacant. (Next time CR puts up a chart of new home construction or sales rates going back decades, note how sharp the declines used to be, and how rapidly they were followed by skyrocketing rebounds.)
But this recession wasn't started by a manufactured goods inventory glut, or Fed feet on home mortgage source air hoses. It was started by the playing out of manic ownership rate bubble built up by the air hoses feeding a potent oxygen-enriched mixture to the mortgage lenders, such that low rates and fog-a-mirror qualification sucked forward years' worth of future demand and even created virtual demand out of the quantum vacuum (soon to self-annihilate).
This time 'round, the inventory glut is in housing itself and is just going to keep increasing as the recession deepens, with mortgage availability also getting steadily worse.
As this downturn started with mortgage lending as loose as it could possibly get, there's no way it can be reversed by making it looser.
I can't see anything that's going to pull us out, except enough population growth to absorb four-million-plus housing units built before their time.
If the Asian vendor-financing ATM (e.g., China et al buying US bonds so we can buy their imports) is shut down, the interest rate spike will make things even worse.
I second Mistah Bonzai. I have not seen what happened before the Y2K/dotcom craze, but right then lots of people bolted left and right to join all those dotcoms, and the companies from where they left, as well as the dotcoms with money to spend, saw themselves in the position of having to bring in desirable employees from outside the area(s). (Note I didn't say "they couldn't find locals", I said "desirable" workers in terms of demographics and "matching" certain hyped credential profiles.)
That prompted fairly generous relocation and housing assistance packages, which were promptly scaled down once the dotcom phenomenon subsided. (Together with all the other goodies that employers saw fit to provide in order to placate their employees.)
Now it's "back to normal" (with the caveat of offshoring, which puts an additional, if marginal, damper on domestic jobs).
Regarding the main topic of the housing bust interaction with job relocation situations ...
Although some companies will pay relocation costs for some employees, some will also command transfers without offering such assistance as a way of getting rid of people without having to actually fire them.
I've been told that IBM did this even back in the good-ole-days.
One friend once worked for a software company whose top management moved the whole company from the Mid-West to Boston -- offering relocation assistance only to themselves and their buddies -- as a way to dump nearly all of a development staff they blamed for their product problems. (They failed in Boston, too, so perhaps the dumped developers were right about the real problem being the management -- he said, she said ...)
I've brought this topic up before, but can't take credit for the idea. Any of you guys read Talbot's book "The Coming Crash in the Housing Market"? He nailed so many aspects of this bust -- including workforce immobility -- way back in 2003, before most even knew there was a bubble.
Apparently workforce mobility is considered by many to be one of the key factors in keeping America's economy one of the most dynamic and adaptable in the world. It's all a matter of optimal resource allocation.
tj & the bear: On top of the issue of regional moves, today's and future expected gas prices even put a question mark on local mobility let's say within larger metro areas, where probably most of the job moves happen, with or without moving house.
Its funny that the term 'negative equity' needs explaining in the US. In the UK everyone knows what it means because it was rife in the last housing recession in the 90s.
"will the housing bust impact marriages."
Solution: remodel the house so it is secretly a duplex, then each take a part to live in.
One thing is for sure guys. Sales of antidepressants are going to go up big time.
The term I've used for this phenomenon is "golden cage"
it was present btw in California even during boom years though due to Proposition 13.
people couldn't sell and relocate to a new home in-state because their property taxes would reset too high...
I remember years ago someone telling me that relocation wasn't a big deal. Their company gets them a realtor in the new location to help find a house. If they have trouble selling their own home the company buys it from them at market value.
The definition of market value is what you can sell your house for on the open market, so your last sentence doesn't make much sense.
The problem people are having today is that they owe more than the market value on the house.
Solution: remodel the house so it is secretly a duplex, then each take a part to live in.
This is what divorced couples used to do in the USSR because it was impossible to find another place to live - just put a curtain down the middle of the apartment.
Curiously the outcome of the "ownership society" increasingly resembles a society where ordinary people didn't own anything at all.
I work in the commercial nuclear power industry, which is desperately trying to staff-up for the Renaissance. Problem is that my company only does full relocation services (buyout of current mortgage) for a certain paygrade. That paygrade is at or above what Supervisors are getting paid. So we're now in the position of having to hire individual contributors at a wage above their Supervisor. So these folks show up in the org chart as working directly for a Manager or Director, but really report to a Supervisor. Odd situation.
Buddy
Yearning,
Love it. Golden cage! Well I guess if you still have equity it might not be so very bad. I have visions of Steve McQueen on Devils island in that little rusting caged cubicle sustaining himself with morsels of cockroach...
Really interesting ideas published here...
Somehow the term 'involitary servitude' keeps windmilling in my mind.
Hey Dryfly:
Curious to hear what you consider to be good policy alternatives?
RhodesianRidgebackinAZ | 06.15.08 - 1:06 am | #
Razorback - I think there have been a number of unfortunate decisions - primarily by the fed - that could make the current situation even more awkward going forward.
Fed needs to get back to fundamental 'central banker' principals & let the market impose discipline on the rogues. I have no problem w/ the Fed being part of the 'mop up' afterwards but there has to be a moral hazard reckoning & resultant 'afterwards' before it should start mopping up.
I think Ben seriously overstepped - especially wrt Bear Stearns.
If you have what it takes and know what you're doing then work virtual from your home. One of my consulting clients is in Europe and another in New England. And I live in WA State. I only travel for occasionla conferences and events and crucial F2F client meetings.
Although some companies will pay relocation costs for some employees, some will also command transfers without offering such assistance as a way of getting rid of people without having to actually fire them.
I've been told that IBM did this even back in the good-ole-days. - jm
Yup. It was common in the good ole daze too & not just IBM.
This is what divorced couples used to do in the USSR because it was impossible to find another place to live - just put a curtain down the middle of the apartment.
Curiously the outcome of the "ownership society" increasingly resembles a society where ordinary people didn't own anything at all.
Maybe that was why the Bush PR Team rejected the phrase 'Owners Paradise'... and went with 'Ownership Society' instead. [/sarcasm]
Dryfly, if only the next President would hire you as his economic adviser, I believe there would be hope for us yet.
Michael Hudson did a good job describing the current economic scenario (iTulip):
"The New Road to Serfdom"
New Road to Serfdom - iTulip.com
I think this article originally published in Harper's Magazine is a classic.
The lack of a universal health care system already limits labor force mobility in the US: many people are tied to their employer-provided health insurance, and the most unhealthy are most tightly bound to their employers.
Superimpose housing-related reductions in labor force mobility, and you could experience serious problems moving people to where the jobs are.
The secret duplex plan would probably help preserve a lot of happy marriages as well. And it's a lot more humane than sending hubby to the doghouse.
Curiously the outcome of the "ownership society" increasingly resembles a society where ordinary people didn't own anything at all.
yogurt | 06.15.08 - 9:27 am | #
Yes, everybody seemed anxious to sell whatever they could as fast as they could. Got equity?, can't enjoy leaving it in the house, gotta tap it to get a loan on a car!
Buddy: When the phenomenon will become prevalent enough, they will probably adjust to that reality. OTOH if this doesn't lead to animosity among the troops and particularly along reporting chains (difficult for me to imagine), it could go on for a long while.
Even when people don't know the numbers, they know (or more likely suspect) that the pay structure often correlates well with the org chart structure, judging by how obsessed quite a few of my coworkers are with reading the entrails of the org chart. Often it's not just about money but also the prestige of "reporting higher up".
cm writes:
"Buddy: When the phenomenon will become prevalent enough, they will probably adjust to that reality. OTOH if this doesn't lead to animosity among the troops and particularly along reporting chains (difficult for me to imagine), it could go on for a long while."
New super-Supervisor positions are being created to adjust to the high pay of the new hires. And the grey-hair troops are restless (looks like retention bonuses are in the offing).
Buddy
as a Mover for 30 years, I have watched people take advantage of a bubble (housing, dotcom, etc) to cash out, move to another location with the goal to continue working while at the same time improving their financial and emotional lives...
these folks show me pictures of their new, much cheaper home and smugly smile because they think they've hit the fastball "out of the park"...in retrospect most of them hit only a Single, or, if they sold just before the market truly cratered they may have hit a Double...
(A retiree who sold before the prices tumbled may indeed have hit a Home Run. Those retirees that didn't sell and leave California before 6/07 are all still standing in that terribly crowded On Deck Cirlce.)
Since 2003 many of my customers thought they sold at the top of the market, but most of moved well before the top of the market.....so, they hit a Slow, Fat, Fastball for a solid Single...pretty much a no-brainer!
The trick for these people is how they hit the Curveball that life continually throws at them/us....and, once life starts throwing Curves, many of these people Strike Out....and they always say, "Whocoodanode?"..
What happens to those that can't hit the Breaking Ball?? (1) New company lays them off and they have references in the new town, so they can't easily find another job...(2) the economy tanks, cities layoff newly hired teachers, cops and municipal employees since the Last Ins are the First Outs....(3) The DotCommers wound up in the Silicon Valley with no job and a ridiculously priced house....(4)the Handyman, who moved to Grants Pass, Oregon found out that he's not the only handyman who moved to Grants Pass... (4) When bubble prices collapse, a wider range economic downturn always follows and it hurts a lot of people....
Finally, in the past two years I have moved a lot of people to less expensive areas, who say their employer will allow them to move to Colorado/Texas/Oregon and keep their current job and work from home......QUESTION: When the downturn comes, I'll betcha most of these work from home type jobs fall by the wayside........ If these folks can hit the Curve and quickly obtain a new job in their new locale, then their move will be a success....but a lot of these folks will "Go down, Looking."
to point out the obvious math if it hasn't already been done:
It's almost always the case that a good paying job vs no job or a low pay job is far more important than say $50K in equity unless the job security is considered suspect.
In other words, folks aren't doing the math in some instances.
good post Beaver.
Most American management and hiring managers are pretty mediocre-to-lousy in selecting 'talent', partially thanks to the cyclical gutting of HR since the big downturn of 79-82. HR is reduced to Benefits Specialists who can't train hiring managers are effective hiring.
So the difference in actual performance quality between the mediocre hiring manager's 1st, 2nd and 3rd choice are not so 'bottom-line' critical as we'd like to think.
This is a rare case where America's managerial mediocrity puts a brake on a bad situation. So if 1st choice can't sell the house & relocate, the 2nd choice candidate will suffice.
Anonymous: I don't think HR would in any case be qualified, or able to "train" others, how to identify suitable candidates for a given subject matter (except perhaps HR itself).
I was told by an admittedly rather cynical HR professional that HR means "Hiring Roadblock", and on a more serious note that the primary function of HR is to supervise compliance with employment regulations, i.e. keeping the employer out of legal trouble. Sounds quite plausible to me. I don't know whether it used to be otherwise.
I admit that "back in the day" when companies were hiring people out of high school or college and train them up, HR could have helped in selecting "quality material". Not so where subject-matter judgement is needed, i.e. when hiring "experience" (not that many hiring managers or recruiters are necessarily much better).
CM, I was going to write something very similar before I saw your post. HR people should all be canned - let the managers hire their own people (yes, you need a few admin people to do paperwork for benefits and payroll, etc.) Most personnel people, excuse, me, "HR", are on a power trip, as they do have so much say-so in areas where they know nothing.
Oh, and get rid of "purchasing" people too. That's another waste of cash and other employees' time.
Big Business in this country is almost as stupidly run as goverment. They could use to learn something from the Japanese. I say "something", not all - especially about not hiring MBA's who know nothing about the industry in question, and the importance of having managers who have formerly done the "grunt work"
OK, back to the topic at hand, and they are very interesting posts, I will say.
Dave Lincoln: It's a tradeoff. Forcing every small one-off purchase through the gauntlet of Purchasing may be unreasonable overhead (but may be effective towards cost reduction by discouraging purchases), but OTOH for large or recurring orders Purchasing may get volume discounts or research a better supplier. Well, at least in theory, and in many cases theory is a fairly generous abstraction of reality.