Home prices may fall 25 percent to 30 percent from their peak in 2006 and not hit bottom until 2010, with greater drops still in subprime mortgage debt markets, he said.
May have changed since you looked at it. 25-30% from the peak is pretty vanilla. IMO.
and that would put real prices at the lowest level since the Case-Shiller Index started in 1987
Given the damage to the mortgage industry, the overbuilding, and the reversal in household formation trends wouldn't it be reasonable to expect exactly this to happen?
Wouldn't it be highly out of the ordinary for a bubble not to overcorrect?
An additional 30 percent drop in housing prices would only put prices in my area back to where they were in early 2001, before the easy money fully kicked in. That would be a decline of what, 10-15 percent adjusted for inflation?
In normal times, that wouldn't be the end of the world. But in normal times you wouldn't have an enormous, totally bogus RE bubble inflate and deflate between then and now.
Home prices have essentially not even budged, and then there is land. Where I live we have a 67 month supply of land (467 land parcels) so yah, pricing pressure is going to force a lot of people to look at the cash burn of taxes, interest and upkeep!
I, too, think that 30% further drop NATIONALLY is unlikely.
but certain areas will most certainly see another 30%. some areas haven't dropped barely at all lately (example: SF). they are certainly due for some correction
also: could it be "different" this time? Prices only went up to current levels due to a credit bubble and very lax lending. without that credit bubble prices COULD have fallen these last 8 years, since income certainly hasn't raised much.
instead, prices rose and we overbuilt... thus it would make sense that real prices may end up lower than they've ever previously been per Case Shiller.
Don't flatter yourself, CR. You would be known as The Premature Bottom Caller.
Only the true pessimists are going to be proven to have the correct diagnosis of the ugly housing situation created by evildoers at the Fed and the USG. The real cause is:
The System of the Crooks...
The idiotic American democracy that has supported this criminal financial system will collapse and must collapse. McPain vs. Oh-nah-nah?
The American econo-political system is fundamentally unsound and now we are seeing the results. The problems are lot deeper than what we see discussed here.
The big taco bell one house over just sold. Initial asking was $8mil. On the market for 2 years approx. Per sq ft around here is approx $1000. A couple of places just came on the market in the $2mil range so they will be a local benchmark on price and time on market.
The coolaid is still flowing.
I suspect the ever compiling REOs will drag housing down much faster than many people think over the next two years. Then prices will crawl along the bottom for several years. How much they decrease just depends on how motivated the seller is. Anyone who doesn't buy their home from a distressed seller is a fool.
Well GB never had any "grip" to begin with. But the disintegration was never so clear as now. Did you see the buffoon doing his cheerleader dance recently on the steps of the WH? An idiot personified.
Anyhoo, back to the topic. I don't think anybody has a clear idea yet of how bad it will be. If oil continues upward to $250 a barrel as predicted by the head of Gazprom, well....calculate, calculate.
Yearning to Learn, yes, I also expect some areas to get especially hard hit - just wait for the Option ARM, HELOC, Alt-A problems to hit the mid to upper price ranges!
It led to fears that Gordon Brown's plea to motorists not to panic ahead of a four day walk out by Shell's delivery drivers over the weekend could have backfired.
His appeal came as drivers were bracing them for even more bad news with the head of the Russian oil giant, Gazprom, predicting that oil prices could hit $250 a barrel in the "foreseeable future".
The conspiracy theorist in me wonders if Russia could be waging a new cold war through the oil markets.
Maybe all those old KGB agents are futures traders now.
"They diluted the shareholders that much, and now they may need more capital? There's a real crisis of confidence in management here," said Bill Smith, chief executive officer of Smith Asset Management, which sold its Lehman shares at the open Wednesday morning.
The conspiracy theorist in me wonders if Russia could be waging a new cold war through the oil markets.
Well four Russian billionaires who are involved with BP in its Russian venture are putting severe pressure on BP to fork over more control to the Russians. BP gets about a quarter of all its revenues from its 50% of the venture, so yes the Russians want more or all of their oil for themselves.
"The coolaid is still flowing."
dilbert dogbert | 06.11.08 - 12:35
You should see the foreign cool aid around here. The number of lots bought up at 15-30k is astounding. Somewhere around 80(approx 120 sales). The good part. The lots are only worth 3-6k. This whole thing is a long way from over. Yes some areas are gonna get hit much worse...
Yearning,
This is only the beginning. Each sale lessens the available pot of buyers while the supply of REOs explodes. In order to sell next year, $500,000 houses at the peak might go for $150,000.
The house around the corner that didn't sell through a realtor,then a live auction,then through Realtybid is back on the market.
What did the bank do?
Fired the previous realtor and brought in Remax. Did they lower the price? NOPE.
Heck they turned down a solid bid of 126k(195k note) on Realtybid...
Like I said,what ya'll gonna do when you hold auctions and nobody shows(to bid)???
In March and April, users of the Lehigh Valley's paratransit service for disabled riders opposed a planned 17 percent fare increase, saying the limited resources of many Metro Plus riders made the added expense a burden.
In response, Lehigh and Northampton Transportation Authority officials discussed an alternate rate increase, to be imposed gradually, in steps, over time. But soaring fuel prices have tossed that plan off the bus.
Instead, LANTA board members on Tuesday approved an all-at-once increase of 24 percent,
"This is only the beginning. Each sale lessens the available pot of buyers while the supply of REOs explodes. In order to sell next year, $500,000 houses at the peak might go for $150,000."
Elvis | 06.11.08 - 12:44 pm | #
Already here in SW Florida. The pile up under 100k is freakin huge. 550+ listings . Last year? 50,maybe.
Before NAR completely changed the site yesterday the stuff I tracked showed 2k+ listings OVER 350k. Median county income? Approx 35k.
Fun,fun,fun.
I sometimes wonder if housing will ever be affordable in desirable locales for the middle class. Here in mordor-on-potomac 30% off means that with a typical household with a 200k annual income can afford a crackhouse in Alexandria or a Meth lab in leesburg.
Sigh. God I wish flyover country had good paying engineering jobs for PhD engineers...
I REALLY want to know who's propping SBUX.....I've got Jan 12.50, again 09 and 10. I know Peltz bought in but how that remains above 15 let alone 17 is ridiculous....
People falling off the wagon and back on the Starbuck's crack. Of course, they had to eat the family dog instead of beef to afford it, but, damn, it's worth it.
house prices dropped --
investors came out --
multiple bids on every property--
prices of home are edging back up --
thats the true real life story.
Just when it was affordable to buy for the average person the investors push the price of homes back up, some bidding wars have raised the homes up to 40k more then the listing price. Many times investors use cash.
Buying a home is like trying to get on a merry-go-around, when it slows you try to jump on...however the investors have all the seats.
the British periodical, Banking Times is reporting that the Bank for International Settlements (BIS) issued a warning that world economic events are spinning dangerously out of control and a risk of a great depression is a possibility.
Yes Venting, Unsophisticated investors tend to buy early. There are no shortage of unsophisticated investors in real estate. And soon, there will be no shortage of broke unsophisticated real estate investors.
CR, You're edge on the housing fiasco, for years, has been that you've been conservative & not easily swayed by perma-bears. Like PIMCO's BG, I think you've always been hoping some way we'd be able to escape the worst of the inevitable fall-out.
The simple probability is - Housing prices WILL revert the sector's historical growth rate. I'm sticking with '02 levels, what do your lines think now?
--
Annual Rate of Price Change Since July 2007 (As Per Radar Logic data)\t\t
Sacramento\t-33.1%\t
Las Vegas, NV\t-31.0%\t
Los Angeles\t-27.1%\t
Phoenix, AZ\t-27.1%\t
San Diego, CA\t-26.9%\t
Miami, FL\t-25.5%\t
San Fran, CA\t-24.3%\t
Tampa, FL\t-23.8%\t
Boston, MA\t-20.7%\t
\t\t
25 MSA Composite\t-19.5%\t
\t\t
Detroit, MI\t-17.9%\t
San Jose, CA\t-16.8%\t
Chicago, IL\t-15.6%\t
Denver, CO\t-14.9%\t
Washington\t-14.7%\t
Jacksonville\t-12.3%\t
New York, NY\t-12.0%\t
Minneapolis\t-11.1%\t
Cleveland\t-10.6%\t
Atlanta, GA\t-10.4%\t
Seattle, WA\t-9.8%\t
Philadelphia\t-9.8%\t
\t\t
How much decline is to be expected in 3.5 years (Jul'07-Dec'10)?\t\t
As one can see, the Wall Street Propaganda Machine IS Undersating the declines. And CR is way behind the curve because he likes to be on the safe side.\t\t
\t\t
Jas
I am in Sonoma county,and our peak median price was $619K.at that time median family income was $53K.Our economy is heavily dependent on construction and tourism and many people have long commutes.people are hurting here already annd prime retail space is becoming available for lease or sale and sitting,sitting...
Ceilingfan writes:
I fully expect another 30% drop.
Ditto.
mock turtle writes:
on a more serious note
the British periodical, Banking Times is reporting that the Bank for International Settlements (BIS) issued a warning that world economic events are spinning dangerously out of control and a risk of a great depression is a possibility.
Gulp! I still think we'll just see a deep recession. We're seeing enough forward looking indicators show that business will grow. (it might be argriculture... but there will be growth out there).
Chris:
Russia has transformed from a Kleptocracy to a Chirocracy (rule by club, and not the kind you join.) Up until recently, they were plugging pipeline leaks with tree branches. IF they ever really partnered with American O&G, they could be producing 15 mil a day. Gazprom, Lukoil, Rosneft etc. were producing 14 mil a day in 1980.
On the other hand, if they keep running the industry the way they are now, maybe someday $250 will be a given. Kto znyet?
Venting- has the pace of foreclosures slowed at all? that's all you need to know. Investors don't have unlimited amounts of cash to buy up everything coming down the pike.
I think it was part of his Inaugural Address that would have been in 1933.
Yeah... I think the timing was apt then. I'm suggesting we might look back on 2008 as more comparable to 1930 than when that statement was originally made.
CR
To guess how low prices will go you have to come to some conclusion re: the long term trend, i.e. the CPI. In the last housing downturn prices went below trend, compensating for the earlier period spent above trend. In this period houses went far above trend, so it is logical to think the area under the CPI curve will once again equal the area above it... otherwise there will be a new, higher trend. IMO prices will fall 2/3 from peak in the bubble states CA/FL/NV. As an aside, prices will need to fall that far for investors to be able to fully recover costs through rents... an example of this is minimum bid prices at US auction, currently at or near that 2/3 down price point where rents look to be able to cover costs.
And, other headwinds suggest lower house prices: much higher energy costs, falling employment, a correcting trade balance reducing foreign investment, retiring boomers looking for smaller/cheaper homes, coming higher taxes, etc. All the trends boosting prices are ebbing.
Russia has transformed from a Kleptocracy to a Chirocracy (rule by club, and not the kind you join.) Up until recently, they were plugging pipeline leaks with tree branches. IF they ever really partnered with American O&G, they could be producing 15 mil a day. Gazprom, Lukoil, Rosneft etc. were producing 14 mil a day in 1980.
On the other hand, if they keep running the industry the way they are now, maybe someday $250 will be a given. Kto znyet?
Sounds like a case study in why you need social structure and morality to build a genuinely wealth country. Robbery doesn't cut it. Likewise for bubbles, gambling, money printing, and shopping orgies.
BY KARA SPAK Staff Reporter kspak@suntimes.com
One bicyclist was dead and another injured two days into a week promoting safe bicycle commuting in the Chicago area.
A white bicycle on the 900 block of North La Salle stood in tribute Tuesday to Clinton Miceli, the fifth bicyclist killed in a collision with a vehicle in Chicago this year.
Calculated Risk writes:
Yearning to Learn, yes, I also expect some areas to get especially hard hit - just wait for the Option ARM, HELOC, Alt-A problems to hit the mid to upper price ranges!
Here in Arizona I am also astonished how much the lower end of the housing market is coming down hard, whereas the upper end has hardly budged or has just begun to dip. Patience is of the essence here.
O-Joe
Jas Jain, I agree, the entire political-economic system in the US (but not only) is badly broken.
If you think we'll be able to skate through this economic downturn in the form of a recession, look at the big picture: spectacular housing collapse, incredible insolvency of the banking system, roaring inflation, the huge indebtedness of Americans and their government, the rapidly falling dollar, imminent war with Iran... (I could go on). Do the math.
About a week ago, you posted this (Santa Maria Facing 5 Years of Negative Absorption for Housing): " To reach a cap rate of 7% (similar to the REO in Oceanside), this house would have to sell for from $157K (rent of $1300 per month) to $192K (rent of $1600 per month). "
Q: Where does one find good cap rate info these days?
Am hearing on CNBC that middle class Americans are earning 200k.
OK! so who are really middle class here ?
I make $175k with very little mortgage debt (and no other debt). I consider us strictly middle class.
jere | 06.11.08 - 1:19 pm | #
mock turtle says:
our household income last year was much less than 100,000 a year.
the median income in america, without looking it up, was around 40,000 per year
CNBS article sounds polluted with smoke...(ps like you, we have no debt, zero, except co-signed sallie mae loans for 3 college kids, and we are paying it off for them...just cause.... debt less than 1 year annual income for us.
Chris:
"The conspiracy theorist in me wonders if Russia could be waging a new cold war through the oil markets."
This is no conspiracy; it is geo-politics. The NYT had an article last week how the new President of Russia (ex-Chairman of GazProm) basically said that the US financial system could only hide that America is resource-deficient for so long and that we needed Russia. Why does state-owned GazProm even publicly announce $250 oil other than to stoke fears?
One of the problems with the neo-con label is it's become synonymous with the corrupt, corporate-driven GOP (Bush, DeLay). The original neo-cons (Wolfowitz, Feith) were generally academic or political strategists; they knew that the Achilles heel of American hegemony was oil dependence; we needed our own puppet government in the Middle East because energy dependence was at least a decade away. In hindsight, the US over-estimated our friendship with OPEC; the adage of "the enemy of my enemy is my friend" is apropos. With Saddam Hussein gone, we eliminated any pressure for OPEC to increase supply, to be happy with negative real interest rates, to lay off the SWFs, etc.
Annual Rate of Price Change For Transactions Originating Since March 1, 2008 (As Per Radar Logic data)\t\t
Phoenix, AZ\t-43.4%\t
Miami, FL\t-39.2%\t
Tampa, FL\t-31.9%\t
Los Angeles, CA\t-27.9%\t
New York, NY\t-27.5%\t
Detroit, MI\t-24.3%\t
St. Louis, MO\t-24.3%\t
San Fran, CA\t-22.7%\t
San Diego, CA\t-19.6%\t
Washington, DC\t-18.9%\t
Sacramento, CA\t-18.0%\t
\t\t
25 MSA Composite\t-16.8%\t
\t\t
San Jose, CA\t-10.3%\t
Las Vegas, NV\t-9.7%\t
\t
You can imagine how bad the Summer, Fall and Winter are gonna be.
Most of the above are high-price areas. Wall Street and CR are in denial.
\t\t
Jas
The said decline is plausible if health care cost continue to rise and more seniors are forced to liquidate their houses to pay for medical costs and longterm care. 2011 is when baby boomers will begin to hit 65. IMO we need a good recovery before then otherwise this scenario may materialize. This decline may be over many years or decades as US gets older; similar to Japan.
MS I got starbucks puts at 12 also although I think it could go to ten. Whats holding up the stock may be rumors of foreign investors wanting to take a stake as starbucks is still very new and popular outside the N Am.
mock beat me to it, but man, Jere, if you think $175k is middle class, I dont know what kind of cluelessness you are living in. Perhaps you were just being sarcastic. But seriously, have you ever looked at the US household income distribution? Take a small guess at where your 175k would put you in terms of percentiles. I assure you it isnt in the 35-65% range, or even close.
the median income in america, without looking it up, was around 40,000 per year
I remember looking at the housing data for some of the suburbs around DC which had about the highest household incomes in the nation and IIRC they were somewhere around the 90k mark.
I placed a bid on a Countrywide REO on Monday late afternoon in SoCal and have not heard back. Does anyone know the average response time from Countrywide.
All told, of the $9.689 trillion in U.S. residential property value, the Case-Shiller national index covers markets valued at $6.68 trillion, or 71 percent (even less than the 74 percent you give them credit for).
But so what? What we need to be asking is whether this is a representative sample of properties that gives us an accurate picture of the national housing market.
When you see a national opinion poll, would you be distrustful if the polling firm only surveyed 213 million people (70 percent of the U.S. population)? The fact is, you can get very accurate results talking to just 2,000 people -- if you are careful to pick a representative sample.
Does Case Shiller have a representative sample? Does NAR? Does OFHEO? How about you tell me, if you still want to make the argument that "less than 100 percent allows you lots of salt for the fries."
Yes, probably, in the bubble zones where you need an upper-class income to live what used to be a middle-class life.
When I grew up, college was tuition-free, pensions were plentiful and well-funded, the medical care we had was affordable, and the price of a house was two or three years' pay. Doesn't cost much to be middle class in that kind of society.
and the names of the "Credit Cruch is Over, Worst is behind us" start's with...
To Treasury Secretary Hank Paulson "it" is the credit crunch. "I am encouraged. I am feeling better about the markets. In terms of the capital markets, I believe we are closer to the end than the beginning. . . . The worst is likely to be behind us." Before you attribute that to the usual cheer-leading expected of a Treasury Secretary, consider the words of legendary investor Warren Buffett, "The worst of the crisis on Wall Street is over."
Looks like the rapidly vanishing middle class has been blindsided by Wall Street and their puppet government and sucker punched and bitch slapped by the reality of a new global economy. We've been bent over the proverbial barrel and we all know what's coming next. There seems to be an ever increasing ugly mood developing. French Revolution dejas vu. 1789-1798 = 2000-2008; George Bush = Louis XV/Louis XVI. Naaahhhh..... Well maybe...... Ya think?
"Buyers do seem to be responding to the drop in home prices," said Russell Price, senior economist at H&R Block Financial Advisors, to Bloomberg News. The S&P/Case Shiller home price index fell 14% in the first quarter of 2008 from the same quarter a year ago.
However, Price cautioned that "credit availability is much tighter than it was previously, and this will delay the sector's recovery."
Mortgage applications jumped 10.9% in the week ending June 9, compared to the last week in May, the Mortgage Bankers Association reported this morning.
Refinancing applications rose 8.4%, and filings for mortgages to buy homes increased 12.8%. Total applications were still down 16.5% from the same week in 2007.
Rates on 30-year fixed mortgages averaged 6.24% last week, up slightly from 6.17% the previous week. The average rate on 15-year fixed mortgages rose to 5.78% last week from 5.7%.
Last year, the average rate on a 30-year fixed mortgage was 6.61%.
Go ahead and speculate in a house with higher mortgage rates and hyperinflation. Your alking into a money burning machine!
Sigh. God I wish flyover country had good paying engineering jobs for PhD engineers...
@ badger boy:
I'm sure there are many possibilities in flyover land. depending on what your PhD in engineering is in of course. Minneapolis and Chicago have lots of great paying jobs, and the COL is significantly cheaper, at least in Minneapolis
I have friends with Engineering degrees making very good money here in Mpls anyway. And you can live very easily on $200k/year.
not only that, Salaries are HIGHER in Mpls than on most of the east coast except for perhaps Boston and NYC.
I'm sure you'll protest how Chicago and Mpls just don't have jobs for you... most of the Coast folk tend to rule out the midwest before even looking.
Everytime Buffett buys more shares of WFC he thinks that, and everytime he has been wrong. I respect Buffett enormously, but I wonder why he doesn't understand the depths of the problem.
I would welcome any new movement that starts deporting idiot ingrates like Jas Jain. How America let itself get populated by such a class of immigrants that only use the benefits of the USA with absolutely no sense of appreciation of the natural-born citizens and the American system, is the problem question we really need to answer.
Deporting the anti-citizenry might be the first step to a better nation.
Yes, probably, in the bubble zones where you need an upper-class income to live what used to be a middle-class life.
no, $175k is still not middle class, regardless of where you live. you may feel like you are middle class, but remember even in the most expensive of markets the large majority of people make far less than $175k/year.
so look at how you live on $175k/year... then think of how the truly middle class live in your part of the country.
recently the SF paper showed income distribution in San Francisco, a high cost high income city. The median income of the top 5-10% (I forget if it was the top 5 or the top 10%) of households was $200k... That means that half of those 5-10% people made LESS than $200k.
The median household income in the US is 50K (varies +/- 5k depending on which source you use). If you assume one car payment, no other debt, and 10% down payment and a 30 year conforming mortgage, this supports a median house price of approx. 175k. The median house price peaked around $260k, so this would represent a nominal drop of 33%, which is in-line with this forecast. Note that only brings house price down to minimum affordability levels, and the median household carries more consumer debt, so a real house price drop of 40% isn't unrealistically bearish.
"The Census Bureau released income based on the CPS for calendar year 2001 on September 24, 2002. Median household income for all households is $42,228; for White non-Hispanic households $46,305; for Black households $29,470; and for Hispanic households $33,565."
Crude oil for July delivery rose $6.20, or 4.7 percent, to $137.51 a barrel at 12:50 p.m. on the New York Mercantile Exchange. Futures reached a record $139.12 a barrel on June 6.
if you think $175k is middle class, I dont know what kind of cluelessness you are living in.
Let's clear the confusion here. CNBC didn't say that the middle class was 175K. This morning they had Obama and McCain surrogates on air talking strictly about tax cuts. So the Obama surrogate repeated the line about "middle class tax cuts" and one of the hosts was like "define middle class" and channeled his inner Chris Matthews. He was like is 100K middle class, what about 150K, etc. and the Obama surrogate refused to answer. I think he got up to 400K actually. We might be replacing one empty suit for another.
In Manhattan, 175k allows you to rent a 3.5k/month apartment, which would be a nice 1 br or a crappy 2 br. Add another $400 a month if you want to park a car. By US standards, 175k isn't really even middle class here. Unless you have a killer job, I really wonder why people live here.
drone said: "drone writes:
Where's Sebastian? Seems MIA in this last market swoon. Is he having problems seeing the keyboard after losing his rose colored glasses?"
As I mentioned before, this race has already been run and won so I'm concentrating on playing past current conditions. That's not a subject of interest here (except to howl about how much worse it's going to get, how anybody that doesn't get it is ignorant, how clueless/criminal politicians/journalists are, etc.), and since I can tell from reading the headlines what CR is going to blog about and what he's going to say...there's no value for me here.
Fed Releases Beige BookU.S. Markets are open. 1hr 48 minutes until close.Stocks are are off their worst levels, but continue to post substantial losses.
down 1 or 2% are not substantial losses.
there a wake up call to act before they become Subtantial losses.
MBA mortgage applications index rose 10.9% last week with refis up 8.4% and purchasing applications up 12.8%. The fixed 30-yr mortgage rate rose to 6.24% (+7 basis points) while the 15-yr went up to 5.78% (+9 bps) & 1-yr adjustable rate mortgages actually poked up to 6.87% (+7 bps).
REfi's up as a direct result of hyperinflation; refi's will continue to climb as people are forced to lock in rates!
I am not being snarky.
I make $175k, have $80k mortgage left on a suburban middle class So Cal home. We drive a 2006 toyota and a 2002 Explorer. Both were paid with cash. We clip coupons.
I have no pension besides my 401(k), so we save whatever we can. We have been married 15 years and took vacations using a plane twice.
We have two kids that will need help with college.
Do the math on what it will take to retire, if I don't want to wait until I am a doddering old man.
Say what you want, I consider myself middle class all the way. Maybe upper middle. Everything about my life screams middle class.
I wish people would hear this stuff in my little central valley CA town. It's a sellers market here with houses going pending within a few days of hitting the MLS. Prices have dropped over 50% from 05 though, so here's to that.
One house we looked at was 269K and sold new in 2001 for 340K, 600K in 06. I can't see prices in this area dropping much more.
We'll miss you Sebastation, but not as much as you'll miss us. This blog is your crack and as much as you want to stop smoking the glass pipe, you cannot. Farewell until the next relapse.
"no, $175k is still not middle class, regardless of where you live. you may feel like you are middle class, but remember even in the most expensive of markets the large majority of people make far less than $175k/year.
so look at how you live on $175k/year... then think of how the truly middle class live in your part of the country."
I think Jere answered it better than I could.
Still: our family income was ~$175K for a few years, but is less than half that now. We pay cash, don't do debt, don't travel, have no kids, and paid off a small house. We live comfortably (though beans figure in the menu weekly), but have no pensions. We bank savings, but not enough on our current salaries to pay for retirement if that's all we ever made -- thank God for the nest egg we put aside when things were fat.
So: a little house, few major expenditures, a modest savings rate, no pension to fall back on, not able to maintain a comfy lifestyle on current income if we had kids -- that's working class.
The graph above was created using college tuition data from the National Center for Education Statistics (with estimates for 2007 and 2008), Consumer Price Index data from the BLS, and average annual oil price data for West Texas Intermediate Oil from Global Financial Data. All series are set to an index value of 100 in the base year of 1976. Comments:
During a 22-year period from 1982-2003, real oil prices were below their 1981 level.
College tuition has increased by almost 10X since 1976, compared to a 7.48X increase in oil prices over the same period.
200K Middle Class? Flip it like Jere- most don't feel like they're rich. As your income goes up, so does your definition of rich,...kind of like the definition of old. To a ten year old, thirty is old.
The Senate's government run restaurants were so badly managed that they lost millions of dollars in the past few years, as much as $2 million so far this year alone, and their food was so horrible that senators routinely dined at the privately run House restaurants.
As a result, upon the recommendation of Senator Dianne Feinstein, last week the Senate finally voted, at night mind you, to privatize its restaurants.
The focus is oil and The Senate can't run a few snack bars!
Jere, you're not being snarky, but I think you are the outlayer, you don't finance your lifestyle. Basically, you're the profile of my immigrant parents, who can't understand how their neighbors who are both doctors (250K combined) can barely make ends meet.
Let's see:
recently bought a 500K house.
own a BMW and Volvo
at least $20/day at Starbucks
Eat out 5 days a week
probably $500/month on subscription fees (digital cable, netflix, cell, golf)
$300K in student loans
the list goes on and on, and half the neighborhood is like this. And that's why Obama won't define the middle class: he'll burn one of bases, either the "affluent" earning over 75K or working class.
"Mike writes:
I wish people would hear this stuff in my little central valley CA town. It's a sellers market here with houses going pending within a few days of hitting the MLS. Prices have dropped over 50% from 05 though, so here's to that."
What town is that, Mike? I assume some place with big employers nearby rather than 80 miles away...
Sebastian has a new hobby. He's taken to cruising academic economic blogs and critisizing any post, study or reference that suggests all is not well with the US economy. This site is clearly entrenched with the four horsemen of the apocalypse, but there are other souls that can be saved before the infectous, un-American evil of CR spreads.
You're laughable. If the market was going up you'd be here telling everyone they are fools. Instead, for today anyway, you're going to take your ball and go home.
Your portfolio will deserve what it gets. Russell 2000 is trading where it did at the end of 2005. Stick that in your pipe and smoke it.
Does anyone feel just a little bit of "It serves you right" attitude. I read where people talk about fly over country, the place where folks just get up every morning and go to work and to a large degree live within their means. During the hay day it seems there were individuals promarily in four or five states that couldn't understand why the common folk would actually work for their money. The "sophisticated" folks knew you just bought a house, a lot of house, and sucked money out of it in perpetuity. They reaped the reward in good times and now have created a pile of crap the rest of the country has to deal with. I am not in danger of losing my home, the values are not going down significantly anywhere I am familiar with, I don't know anyone filing bankruptsy, etc. I do know I try to save a little money and my mother, in her 80's, has saved a little money, problem is we have negative effective interest rates to bail out the dumb asses that didn't think you had to work for a living. Man I am frustrated.
I almost forgot. You told me you didn't care about the dollar going down because your money is spent "domestically". Hmmmm... keep telling yourself that when you fill up your tank on the way back to your depreciating home
I don't doubt that you might FEEL middle class, and you might even live what you consider a middle class lifestyle... but you are not middle class.
I make a lot of money, not a ton, but a lot. I recognize intellectually that I am nowhere near middle class. And yet I FEEL middle class.
sdtf said it well... being "rich" moves like the horizon... the closer you get the further it moves away. I didn't feel "rich" when I made $200k, nor when I made $300k nor when I made more than that...
I have never bought a new car, I live in a middle class neighborhood (next door neighbor is a welder and the other side is a landscaper), I shop for food at costco and clip coupons. I eat out using the "Entertainment" coupons.
I feel totally middle class. But I'm not. because in the end, I make substantially more than those "in the middle" and my income is probably in the top 1-5% somewhere...
I just feel it's a little disingenuous to say "I make $175k and am Middle class" when true middle class people make 1/3rd to 1/4th of what you make.
but when speaking about economics I find it important to try to keep at least a modicum of standards when discussing economic tranches. and there is no way that one could construe $175k/year as the middle. it is 3.7x the median MANHATTAN household income.
Middle class or not, most Americans generally don't have anywhere near enough money to sustain prices even at pre-boom levels. Why? No more income, less savings, no equity, much higher debt, much higher energy, food & healthcare costs. Face it, people are in far worse shape than they were a decade ago.
While everyone talks about housing and oil, those are just symptoms of the root problem. Since Reagan, we were an economy that required us to consumer, given that our manufacturing offshored. That's the ultimate dilemma. We want people to live like you and be frugal, but if everyone did, we would have been in a 30 year recession.
I continue to be puzzled by CR's belief that prices won't fall as much as 40%, as in "An additional 25% to 30% decline in nominal prices over four years would be close to an additional 40% decline in real prices - and that would put real prices at the lowest level since the Case-Shiller Index started in 1987."
From 1965 through 1996, the highest figure ever posted for home ownership rate in the US was 65.6% in 1981 -- at the culmination of the last previous frenzied housing bubble. Throughout most of those years it was below 65%, and often below 64%. At bubble peak, it reached 69.2%, and in Q1 of this year had still fallen only to 67.8%. So never in those years was there as little unsatisfied demand for homes as there is today. And that is even more true if you look at the ownership rates among the younger age cohorts -- the pool of potential first-time buyers, without which existing owners cannot "move-up", is severely depleted.
Never in those years were there so few potential buyers in the market.
Never in those years did we have anything like the glut of vacant homes we have today.
And we are returning to mortgage lending standards like those of the past.
Why are record-low prices not the most likely outcome of record-low demand and record-high supply?
"Well said, and neither of us even mentioned the huge demographic shift taking place in the coming years."
Which affects both housing and the stock market -- all those 401Ks.
The 401K cash-in can start right now for people born in '48 and earlier, no need to wait for 65, no need to pay a penalty. Interesting to see how this plays out in hard times. Within five years, close to half of all boomers will be able to draw on their 401Ks without penalty.
Considering the Debt Bubble (enabled by the "insurance scheme" of derivatives) has inflated total gross US$ denomiated debt to over 260% of GDP (when the range had been between 110-140%), and most of that debt being real estate related...
...what prevents a 50% correction in prices?
Or, how will lending standards be loosened again to re-enable debt-a-holics to resupport the valuations?
How will the current $35 Billion in quarterly mortgage origination be returned to the $250B/Qtr that sustained the late 2006 valuations (or 25% less those valuations)?
Possibly, given $250B less 25% we would need to see origination return to the heady pace of $190B per quarter. If so, then we need to find a mechanism which would add another $160B to the originations.
Apparently, JPM just recently read my book, which made the same forcast two years ago. Imagine how much investors could have made (or not lost) if JPM had used its huge distribution portal to communicate this forecast in 2006. Anyone who bothered to look at a chart of home prices could predict a 30% correction. It's not rocket science.
I hate to beat a dead horse but I want to emphasize that one cannot ever rely on Wall Street, economists or Washington for timely and accurate analysis. Investors should demand these charades end. Wall Street always manages to take the money from the average investor using these deceitful tactics.
No Way!
That's suicidal!
I agree and with gas prices, hyperinflation will help pick up the pace of this decline. Recovery in 2015.
He's not that bearish. From the linked story:
Home prices may fall 25 percent to 30 percent from their peak in 2006 and not hit bottom until 2010, with greater drops still in subprime mortgage debt markets, he said.
May have changed since you looked at it. 25-30% from the peak is pretty vanilla. IMO.
and that would put real prices at the lowest level since the Case-Shiller Index started in 1987
Given the damage to the mortgage industry, the overbuilding, and the reversal in household formation trends wouldn't it be reasonable to expect exactly this to happen?
Wouldn't it be highly out of the ordinary for a bubble not to overcorrect?
"Wow. And I thought I was bearish on housing!"
An additional 30 percent drop in housing prices would only put prices in my area back to where they were in early 2001, before the easy money fully kicked in. That would be a decline of what, 10-15 percent adjusted for inflation?
In normal times, that wouldn't be the end of the world. But in normal times you wouldn't have an enormous, totally bogus RE bubble inflate and deflate between then and now.
Matt in HB, they corrected the story!
Best Wishes.
I fully expect another 30% drop.
Home prices have essentially not even budged, and then there is land. Where I live we have a 67 month supply of land (467 land parcels) so yah, pricing pressure is going to force a lot of people to look at the cash burn of taxes, interest and upkeep!
Meao
speaking of gas prices:
Signs of panic petrol buying as queues build - Telegraph
GB is losing his grip....
Ciao
MS
I, too, think that 30% further drop NATIONALLY is unlikely.
but certain areas will most certainly see another 30%. some areas haven't dropped barely at all lately (example: SF). they are certainly due for some correction
also: could it be "different" this time? Prices only went up to current levels due to a credit bubble and very lax lending. without that credit bubble prices COULD have fallen these last 8 years, since income certainly hasn't raised much.
instead, prices rose and we overbuilt... thus it would make sense that real prices may end up lower than they've ever previously been per Case Shiller.
--
"And I thought I was bearish on housing!"
Don't flatter yourself, CR. You would be known as The Premature Bottom Caller.
Only the true pessimists are going to be proven to have the correct diagnosis of the ugly housing situation created by evildoers at the Fed and the USG. The real cause is:
The System of the Crooks...
The idiotic American democracy that has supported this criminal financial system will collapse and must collapse. McPain vs. Oh-nah-nah?
The American econo-political system is fundamentally unsound and now we are seeing the results. The problems are lot deeper than what we see discussed here.
Jas
The big taco bell one house over just sold. Initial asking was $8mil. On the market for 2 years approx. Per sq ft around here is approx $1000. A couple of places just came on the market in the $2mil range so they will be a local benchmark on price and time on market.
The coolaid is still flowing.
I suspect the ever compiling REOs will drag housing down much faster than many people think over the next two years. Then prices will crawl along the bottom for several years. How much they decrease just depends on how motivated the seller is. Anyone who doesn't buy their home from a distressed seller is a fool.
Elvis:
I agree somewhat.
the house across from me went into foreclosure, and is now up for sale at a 60% discount from it's last sale price.
admittedly, the pipes broke and froze and there is mold all over it now... but even I was shocked at how low they listed it for sale.
that said, there were 42 showings yesterday (on a Tuesday) so the bank is aggressively pricing it.
"GB is losing his grip...."
Well GB never had any "grip" to begin with. But the disintegration was never so clear as now. Did you see the buffoon doing his cheerleader dance recently on the steps of the WH? An idiot personified.
Anyhoo, back to the topic. I don't think anybody has a clear idea yet of how bad it will be. If oil continues upward to $250 a barrel as predicted by the head of Gazprom, well....calculate, calculate.
Yearning to Learn, yes, I also expect some areas to get especially hard hit - just wait for the Option ARM, HELOC, Alt-A problems to hit the mid to upper price ranges!
Best to all.
anonymous said
GB loosing his grip
GB= Gordon Brown-George Bush, both? neither?
It led to fears that Gordon Brown's plea to motorists not to panic ahead of a four day walk out by Shell's delivery drivers over the weekend could have backfired.
His appeal came as drivers were bracing them for even more bad news with the head of the Russian oil giant, Gazprom, predicting that oil prices could hit $250 a barrel in the "foreseeable future".
The conspiracy theorist in me wonders if Russia could be waging a new cold war through the oil markets.
Maybe all those old KGB agents are futures traders now.
Newsflash:
Lehman shares drop after capital-raising report
Lehman shares drop after capital-raising report
| Reuters
"They diluted the shareholders that much, and now they may need more capital? There's a real crisis of confidence in management here," said Bill Smith, chief executive officer of Smith Asset Management, which sold its Lehman shares at the open Wednesday morning.
Looks like Einhorn was spot on.
The conspiracy theorist in me wonders if Russia could be waging a new cold war through the oil markets.
Well four Russian billionaires who are involved with BP in its Russian venture are putting severe pressure on BP to fork over more control to the Russians. BP gets about a quarter of all its revenues from its 50% of the venture, so yes the Russians want more or all of their oil for themselves.
"The coolaid is still flowing."
dilbert dogbert | 06.11.08 - 12:35
You should see the foreign cool aid around here. The number of lots bought up at 15-30k is astounding. Somewhere around 80(approx 120 sales). The good part. The lots are only worth 3-6k. This whole thing is a long way from over. Yes some areas are gonna get hit much worse...
Chris
the house across from me went into foreclosure
Oooooh, perfect. Buy it and bail! Tell us how that goes.
Hahahahaha... the person who made this statement deserves some kind of award. Or maybe a pointy cap:
"As long as people are told not to panic, then they will be fine."
Yearning,
This is only the beginning. Each sale lessens the available pot of buyers while the supply of REOs explodes. In order to sell next year, $500,000 houses at the peak might go for $150,000.
Blackrock's Fink : LEH is not a Bear Stearns.
Wanna bet?
"As long as people are told not to panic, then they will be fine."
Channeling Roosevelt:
Hey the only thing we have to fear is
fear itself.
Very apt for a depression scenario.
Where exactly, are the buyers for all this housing hitting the market expected to materialize from?
Just curious.
There has been fear and loathing in Las Vegas for some time. No wonder the housing market is in shambles.
Channeling Roosevelt:
Hey the only thing we have to fear is
fear itself.
That may have been true in 1934.
1930... not so much.
How far are we from the end?
The house around the corner that didn't sell through a realtor,then a live auction,then through Realtybid is back on the market.
What did the bank do?
Fired the previous realtor and brought in Remax. Did they lower the price? NOPE.
Heck they turned down a solid bid of 126k(195k note) on Realtybid...
Like I said,what ya'll gonna do when you hold auctions and nobody shows(to bid)???
Chris
GB=Gordon Browne
Didn't you read the article???
Guess not.
Ciao
MS
I think the New Jersey retirement group members should file lawsuits against the plan managers. LEH down $2.40 since they invested 2 days ago.
So how many of you ponied up for those LEH Jan 08 puts when we chatted about them awhile ago? I did...
LF-
Had 'em before the noise got louder.
Strike price of yours???
I have 20 strikes in '09 and '10
Ciao
MS
"It's the gas prices stupid"
In March and April, users of the Lehigh Valley's paratransit service for disabled riders opposed a planned 17 percent fare increase, saying the limited resources of many Metro Plus riders made the added expense a burden.
In response, Lehigh and Northampton Transportation Authority officials discussed an alternate rate increase, to be imposed gradually, in steps, over time. But soaring fuel prices have tossed that plan off the bus.
Instead, LANTA board members on Tuesday approved an all-at-once increase of 24 percent,
"This is only the beginning. Each sale lessens the available pot of buyers while the supply of REOs explodes. In order to sell next year, $500,000 houses at the peak might go for $150,000."
Elvis | 06.11.08 - 12:44 pm | #
Already here in SW Florida. The pile up under 100k is freakin huge. 550+ listings . Last year? 50,maybe.
Before NAR completely changed the site yesterday the stuff I tracked showed 2k+ listings OVER 350k. Median county income? Approx 35k.
Fun,fun,fun.
Chris
I got the 20's.
They were cheap... then.
I sometimes wonder if housing will ever be affordable in desirable locales for the middle class. Here in mordor-on-potomac 30% off means that with a typical household with a 200k annual income can afford a crackhouse in Alexandria or a Meth lab in leesburg.
Sigh. God I wish flyover country had good paying engineering jobs for PhD engineers...
Badger boy,
Start your own company and live anywhere you want. If you are good at what you do, it shouldn't be a problem.
OMG!
Am hearing on CNBC that middle class Americans are earning 200k.
OK! so who are really middle class here ?
I REALLY want to know who's propping SBUX.....I've got Jan 12.50, again 09 and 10. I know Peltz bought in but how that remains above 15 let alone 17 is ridiculous....
ANy idea's...?
Ciao
MS
JPM? haven't we already proven that securities analysts are not very good at predicting real estate prices and cycles?
People falling off the wagon and back on the Starbuck's crack. Of course, they had to eat the family dog instead of beef to afford it, but, damn, it's worth it.
SBUX substantivize support is both from PPT metaphorically rich hands and realistic thirst.
Set me free, Starbucks.
anonymou MS
yes i did read the article
was trying out my new snark deployment device...i overcharged it with hydrogen and it blew up in my face
sorry
Temecula California
house prices dropped --
investors came out --
multiple bids on every property--
prices of home are edging back up --
thats the true real life story.
Just when it was affordable to buy for the average person the investors push the price of homes back up, some bidding wars have raised the homes up to 40k more then the listing price. Many times investors use cash.
Buying a home is like trying to get on a merry-go-around, when it slows you try to jump on...however the investors have all the seats.
Just venting.
Gazprom = Gasbag. I know those clowns personally. Just talking their book.
That may have been true in 1934...
I think it was part of his Inaugural Address that would have been in 1933.
on a more serious note
the British periodical, Banking Times is reporting that the Bank for International Settlements (BIS) issued a warning that world economic events are spinning dangerously out of control and a risk of a great depression is a possibility.
Central bank body warns of Great Depression
VENTING
Your terms are not quite correct. Please change "investors" to "knife catchers".
Ross:
We can hope you are right. Are you 100% positive they are "clowns"?
Yes Venting, Unsophisticated investors tend to buy early. There are no shortage of unsophisticated investors in real estate. And soon, there will be no shortage of broke unsophisticated real estate investors.
It's become the battle of the IB.
also known as F*! your neighbor.
i'm sure JPM has flipped to net short, and will now squeeze the credit as much as possible.
remember this prudent deal
Torrent of trouble rattles financial sector - MarketWatch
that was not for you Mock....
All-
Here's an opinion piece in the WSJ that is actually worth reading:
Why Is Bush Helping Saudi Arabia Build Nukes? - WSJ.com
Can't say I've had the opportunity to say that in the last year or so.
Ciao
MS
12% for yur money...
Halifax offers up to 12% on Regular Saver
CR, You're edge on the housing fiasco, for years, has been that you've been conservative & not easily swayed by perma-bears. Like PIMCO's BG, I think you've always been hoping some way we'd be able to escape the worst of the inevitable fall-out.
The simple probability is - Housing prices WILL revert the sector's historical growth rate. I'm sticking with '02 levels, what do your lines think now?
--
Annual Rate of Price Change Since July 2007 (As Per Radar Logic data)\t\t
Sacramento\t-33.1%\t
Las Vegas, NV\t-31.0%\t
Los Angeles\t-27.1%\t
Phoenix, AZ\t-27.1%\t
San Diego, CA\t-26.9%\t
Miami, FL\t-25.5%\t
San Fran, CA\t-24.3%\t
Tampa, FL\t-23.8%\t
Boston, MA\t-20.7%\t
\t\t
25 MSA Composite\t-19.5%\t
\t\t
Detroit, MI\t-17.9%\t
San Jose, CA\t-16.8%\t
Chicago, IL\t-15.6%\t
Denver, CO\t-14.9%\t
Washington\t-14.7%\t
Jacksonville\t-12.3%\t
New York, NY\t-12.0%\t
Minneapolis\t-11.1%\t
Cleveland\t-10.6%\t
Atlanta, GA\t-10.4%\t
Seattle, WA\t-9.8%\t
Philadelphia\t-9.8%\t
\t\t
How much decline is to be expected in 3.5 years (Jul'07-Dec'10)?\t\t
As one can see, the Wall Street Propaganda Machine IS Undersating the declines. And CR is way behind the curve because he likes to be on the safe side.\t\t
\t\t
Jas
Thanks for that one day relief awesome Fed peoples.
Where do I send the gift basket?
July crude jumps $6.38, or 4.9%, to $137.69/brl in NY
I am in Sonoma county,and our peak median price was $619K.at that time median family income was $53K.Our economy is heavily dependent on construction and tourism and many people have long commutes.people are hurting here already annd prime retail space is becoming available for lease or sale and sitting,sitting...
Ceilingfan writes:
I fully expect another 30% drop.
Ditto.
mock turtle writes:
on a more serious note
the British periodical, Banking Times is reporting that the Bank for International Settlements (BIS) issued a warning that world economic events are spinning dangerously out of control and a risk of a great depression is a possibility.
Gulp! I still think we'll just see a deep recession. We're seeing enough forward looking indicators show that business will grow. (it might be argriculture... but there will be growth out there).
Got Popcorn?
Neil
Chris:
Russia has transformed from a Kleptocracy to a Chirocracy (rule by club, and not the kind you join.) Up until recently, they were plugging pipeline leaks with tree branches. IF they ever really partnered with American O&G, they could be producing 15 mil a day. Gazprom, Lukoil, Rosneft etc. were producing 14 mil a day in 1980.
On the other hand, if they keep running the industry the way they are now, maybe someday $250 will be a given. Kto znyet?
Venting- has the pace of foreclosures slowed at all? that's all you need to know. Investors don't have unlimited amounts of cash to buy up everything coming down the pike.
OMG!
Am hearing on CNBC that middle class Americans are earning 200k.
OK! so who are really middle class here ?
I make $175k with very little mortgage debt (and no other debt). I consider us strictly middle class.
That may have been true in 1934...
I think it was part of his Inaugural Address that would have been in 1933.
Yeah... I think the timing was apt then. I'm suggesting we might look back on 2008 as more comparable to 1930 than when that statement was originally made.
If you read Robert Shillers book you get the idea that home prices (nationally) might not make new inflation-adjusted high for 20 years.
the speculator real estate first at theinvestingspeculator.com
boom = bust, 5 year boom = 5 year bust 2010 sounds right and then stagnate thanks to all the interference form CONgress and the FED.
ac writes:
"That may have been true in 1934."
1934 has me thinking of a prop bet.
The S&P500 or the Dow???
Channeling Roosevelt:
Hey the only thing we have to fear is
fear itself.
CR
To guess how low prices will go you have to come to some conclusion re: the long term trend, i.e. the CPI. In the last housing downturn prices went below trend, compensating for the earlier period spent above trend. In this period houses went far above trend, so it is logical to think the area under the CPI curve will once again equal the area above it... otherwise there will be a new, higher trend. IMO prices will fall 2/3 from peak in the bubble states CA/FL/NV. As an aside, prices will need to fall that far for investors to be able to fully recover costs through rents... an example of this is minimum bid prices at US auction, currently at or near that 2/3 down price point where rents look to be able to cover costs.
And, other headwinds suggest lower house prices: much higher energy costs, falling employment, a correcting trade balance reducing foreign investment, retiring boomers looking for smaller/cheaper homes, coming higher taxes, etc. All the trends boosting prices are ebbing.
Russia has transformed from a Kleptocracy to a Chirocracy (rule by club, and not the kind you join.) Up until recently, they were plugging pipeline leaks with tree branches. IF they ever really partnered with American O&G, they could be producing 15 mil a day. Gazprom, Lukoil, Rosneft etc. were producing 14 mil a day in 1980.
On the other hand, if they keep running the industry the way they are now, maybe someday $250 will be a given. Kto znyet?
Sounds like a case study in why you need social structure and morality to build a genuinely wealth country. Robbery doesn't cut it. Likewise for bubbles, gambling, money printing, and shopping orgies.
Somebody send Washington the memo.
Hey you do the right thing and see what happens:
BY KARA SPAK Staff Reporter kspak@suntimes.com
One bicyclist was dead and another injured two days into a week promoting safe bicycle commuting in the Chicago area.
A white bicycle on the 900 block of North La Salle stood in tribute Tuesday to Clinton Miceli, the fifth bicyclist killed in a collision with a vehicle in Chicago this year.
anonymuos MS
Salve!
very interesting article you linked
grazie
If you hold an auction and no one comes, does it still make a sound?
Calculated Risk writes:
Yearning to Learn, yes, I also expect some areas to get especially hard hit - just wait for the Option ARM, HELOC, Alt-A problems to hit the mid to upper price ranges!
Here in Arizona I am also astonished how much the lower end of the housing market is coming down hard, whereas the upper end has hardly budged or has just begun to dip. Patience is of the essence here.
O-Joe
Jas Jain, I agree, the entire political-economic system in the US (but not only) is badly broken.
If you think we'll be able to skate through this economic downturn in the form of a recession, look at the big picture: spectacular housing collapse, incredible insolvency of the banking system, roaring inflation, the huge indebtedness of Americans and their government, the rapidly falling dollar, imminent war with Iran... (I could go on). Do the math.
RE: Case-Shiller Index
Hello CR,
2008 Q1 Case-Shiller National Index = 159.18
About a week ago, you posted this (Santa Maria Facing 5 Years of Negative Absorption for Housing): " To reach a cap rate of 7% (similar to the REO in Oceanside), this house would have to sell for from $157K (rent of $1300 per month) to $192K (rent of $1600 per month). "
Q: Where does one find good cap rate info these days?
jere wrote:
OMG!
Am hearing on CNBC that middle class Americans are earning 200k.
OK! so who are really middle class here ?
I make $175k with very little mortgage debt (and no other debt). I consider us strictly middle class.
jere | 06.11.08 - 1:19 pm | #
mock turtle says:
our household income last year was much less than 100,000 a year.
the median income in america, without looking it up, was around 40,000 per year
CNBS article sounds polluted with smoke...(ps like you, we have no debt, zero, except co-signed sallie mae loans for 3 college kids, and we are paying it off for them...just cause.... debt less than 1 year annual income for us.
Chris:
"The conspiracy theorist in me wonders if Russia could be waging a new cold war through the oil markets."
This is no conspiracy; it is geo-politics. The NYT had an article last week how the new President of Russia (ex-Chairman of GazProm) basically said that the US financial system could only hide that America is resource-deficient for so long and that we needed Russia. Why does state-owned GazProm even publicly announce $250 oil other than to stoke fears?
One of the problems with the neo-con label is it's become synonymous with the corrupt, corporate-driven GOP (Bush, DeLay). The original neo-cons (Wolfowitz, Feith) were generally academic or political strategists; they knew that the Achilles heel of American hegemony was oil dependence; we needed our own puppet government in the Middle East because energy dependence was at least a decade away. In hindsight, the US over-estimated our friendship with OPEC; the adage of "the enemy of my enemy is my friend" is apropos. With Saddam Hussein gone, we eliminated any pressure for OPEC to increase supply, to be happy with negative real interest rates, to lay off the SWFs, etc.
--
The Worst Spring Selling Season?
Annual Rate of Price Change For Transactions Originating Since March 1, 2008 (As Per Radar Logic data)\t\t
Phoenix, AZ\t-43.4%\t
Miami, FL\t-39.2%\t
Tampa, FL\t-31.9%\t
Los Angeles, CA\t-27.9%\t
New York, NY\t-27.5%\t
Detroit, MI\t-24.3%\t
St. Louis, MO\t-24.3%\t
San Fran, CA\t-22.7%\t
San Diego, CA\t-19.6%\t
Washington, DC\t-18.9%\t
Sacramento, CA\t-18.0%\t
\t\t
25 MSA Composite\t-16.8%\t
\t\t
San Jose, CA\t-10.3%\t
Las Vegas, NV\t-9.7%\t
\t
You can imagine how bad the Summer, Fall and Winter are gonna be.
Most of the above are high-price areas. Wall Street and CR are in denial.
\t\t
Jas
The said decline is plausible if health care cost continue to rise and more seniors are forced to liquidate their houses to pay for medical costs and longterm care. 2011 is when baby boomers will begin to hit 65. IMO we need a good recovery before then otherwise this scenario may materialize. This decline may be over many years or decades as US gets older; similar to Japan.
MS I got starbucks puts at 12 also although I think it could go to ten. Whats holding up the stock may be rumors of foreign investors wanting to take a stake as starbucks is still very new and popular outside the N Am.
mock beat me to it, but man, Jere, if you think $175k is middle class, I dont know what kind of cluelessness you are living in. Perhaps you were just being sarcastic. But seriously, have you ever looked at the US household income distribution? Take a small guess at where your 175k would put you in terms of percentiles. I assure you it isnt in the 35-65% range, or even close.
the median income in america, without looking it up, was around 40,000 per year
I remember looking at the housing data for some of the suburbs around DC which had about the highest household incomes in the nation and IIRC they were somewhere around the 90k mark.
Ac I read that the average household income where at least one person is employed of self employed was 48-56k
I have hear it said that the value of single family houses is determined by comps, not cap rate.
For all hhs, all ages in 2006, $175k would put you approximately at the top 4.5% of the income distribution. Just in case you really want to know.
I placed a bid on a Countrywide REO on Monday late afternoon in SoCal and have not heard back. Does anyone know the average response time from Countrywide.
Venting, For your sake, I hope you don't get it. Patience.
All told, of the $9.689 trillion in U.S. residential property value, the Case-Shiller national index covers markets valued at $6.68 trillion, or 71 percent (even less than the 74 percent you give them credit for).
But so what? What we need to be asking is whether this is a representative sample of properties that gives us an accurate picture of the national housing market.
When you see a national opinion poll, would you be distrustful if the polling firm only surveyed 213 million people (70 percent of the U.S. population)? The fact is, you can get very accurate results talking to just 2,000 people -- if you are careful to pick a representative sample.
Does Case Shiller have a representative sample? Does NAR? Does OFHEO? How about you tell me, if you still want to make the argument that "less than 100 percent allows you lots of salt for the fries."
News analysis: Where's the beef in Case-Shiller attacks? | Real Estate and Technology News for Agents, Brokers and Investors | Inman News
very instructive article about the complexities of the breakdown in annual income statistics...clear, easy to understand
bottom line 2005
for wage eraneers over 25 years old
male 39.5K female 26K
Personal income in the United States - Wikipedia, the free encyclopedia
eraneers= earners sorry
Err.. something wrong with my screen.. says oil is at 138...?
ope BB you have a correct quote....
unfortunate...but correct.
Ciao
MS
Getting back on topic, a 30% drop in real estate and the destruction of real estate speculation is very realistic!
$175 middle class?
Yes, probably, in the bubble zones where you need an upper-class income to live what used to be a middle-class life.
When I grew up, college was tuition-free, pensions were plentiful and well-funded, the medical care we had was affordable, and the price of a house was two or three years' pay. Doesn't cost much to be middle class in that kind of society.
We are mostly working class now.
the headlines will be filled with news about the fraud and manipulation that was going on in the oil markets in 07-09 by 2010
Venting-
for some insight on the countrywide reo process.
check out a recent post on bubbleinfo.com
and the names of the "Credit Cruch is Over, Worst is behind us" start's with...
To Treasury Secretary Hank Paulson "it" is the credit crunch. "I am encouraged. I am feeling better about the markets. In terms of the capital markets, I believe we are closer to the end than the beginning. . . . The worst is likely to be behind us." Before you attribute that to the usual cheer-leading expected of a Treasury Secretary, consider the words of legendary investor Warren Buffett, "The worst of the crisis on Wall Street is over."
credit crunch over - Google Search
Looks like the rapidly vanishing middle class has been blindsided by Wall Street and their puppet government and sucker punched and bitch slapped by the reality of a new global economy. We've been bent over the proverbial barrel and we all know what's coming next. There seems to be an ever increasing ugly mood developing. French Revolution dejas vu. 1789-1798 = 2000-2008; George Bush = Louis XV/Louis XVI. Naaahhhh..... Well maybe...... Ya think?
"Buyers do seem to be responding to the drop in home prices," said Russell Price, senior economist at H&R Block Financial Advisors, to Bloomberg News. The S&P/Case Shiller home price index fell 14% in the first quarter of 2008 from the same quarter a year ago.
However, Price cautioned that "credit availability is much tighter than it was previously, and this will delay the sector's recovery."
Mortgage applications jumped 10.9% in the week ending June 9, compared to the last week in May, the Mortgage Bankers Association reported this morning.
Refinancing applications rose 8.4%, and filings for mortgages to buy homes increased 12.8%. Total applications were still down 16.5% from the same week in 2007.
Rates on 30-year fixed mortgages averaged 6.24% last week, up slightly from 6.17% the previous week. The average rate on 15-year fixed mortgages rose to 5.78% last week from 5.7%.
Last year, the average rate on a 30-year fixed mortgage was 6.61%.
Go ahead and speculate in a house with higher mortgage rates and hyperinflation. Your alking into a money burning machine!
Sigh. God I wish flyover country had good paying engineering jobs for PhD engineers...
@ badger boy:
I'm sure there are many possibilities in flyover land. depending on what your PhD in engineering is in of course. Minneapolis and Chicago have lots of great paying jobs, and the COL is significantly cheaper, at least in Minneapolis
I have friends with Engineering degrees making very good money here in Mpls anyway. And you can live very easily on $200k/year.
not only that, Salaries are HIGHER in Mpls than on most of the east coast except for perhaps Boston and NYC.
I'm sure you'll protest how Chicago and Mpls just don't have jobs for you... most of the Coast folk tend to rule out the midwest before even looking.
Where's Sebastian? Seems MIA in this last market swoon. Is he having problems seeing the keyboard after losing his rose colored glasses?
Everytime Buffett buys more shares of WFC he thinks that, and everytime he has been wrong. I respect Buffett enormously, but I wonder why he doesn't understand the depths of the problem.
I would welcome any new movement that starts deporting idiot ingrates like Jas Jain. How America let itself get populated by such a class of immigrants that only use the benefits of the USA with absolutely no sense of appreciation of the natural-born citizens and the American system, is the problem question we really need to answer.
Deporting the anti-citizenry might be the first step to a better nation.
DEPORT JAS JAIN NOW!!!!
$175k middle class?
Yes, probably, in the bubble zones where you need an upper-class income to live what used to be a middle-class life.
no, $175k is still not middle class, regardless of where you live. you may feel like you are middle class, but remember even in the most expensive of markets the large majority of people make far less than $175k/year.
so look at how you live on $175k/year... then think of how the truly middle class live in your part of the country.
recently the SF paper showed income distribution in San Francisco, a high cost high income city. The median income of the top 5-10% (I forget if it was the top 5 or the top 10%) of households was $200k... That means that half of those 5-10% people made LESS than $200k.
The median household income in the US is 50K (varies +/- 5k depending on which source you use). If you assume one car payment, no other debt, and 10% down payment and a 30 year conforming mortgage, this supports a median house price of approx. 175k. The median house price peaked around $260k, so this would represent a nominal drop of 33%, which is in-line with this forecast. Note that only brings house price down to minimum affordability levels, and the median household carries more consumer debt, so a real house price drop of 40% isn't unrealistically bearish.
Deporting the anti-citizenry might be the first step to a better nation
Begin with wallstreet and then congress and the senate!
if you live in an expensive area like MANHATTAN?
Manhattan's Median household income, 1999: $47,030
So $175k is 3.7x the median household income of the Typical Manhattanite.
http://quickfacts.census.gov/qfd/states/36/3651003.html
ALSO:
Income - Frequently Asked Questions
"The Census Bureau released income based on the CPS for calendar year 2001 on September 24, 2002. Median household income for all households is $42,228; for White non-Hispanic households $46,305; for Black households $29,470; and for Hispanic households $33,565."
TURBO + 1
Crude oil for July delivery rose $6.20, or 4.7 percent, to $137.51 a barrel at 12:50 p.m. on the New York Mercantile Exchange. Futures reached a record $139.12 a barrel on June 6.
if you think $175k is middle class, I dont know what kind of cluelessness you are living in.
Let's clear the confusion here. CNBC didn't say that the middle class was 175K. This morning they had Obama and McCain surrogates on air talking strictly about tax cuts. So the Obama surrogate repeated the line about "middle class tax cuts" and one of the hosts was like "define middle class" and channeled his inner Chris Matthews. He was like is 100K middle class, what about 150K, etc. and the Obama surrogate refused to answer. I think he got up to 400K actually. We might be replacing one empty suit for another.
In Manhattan, 175k allows you to rent a 3.5k/month apartment, which would be a nice 1 br or a crappy 2 br. Add another $400 a month if you want to park a car. By US standards, 175k isn't really even middle class here. Unless you have a killer job, I really wonder why people live here.
yesirreebob,the french kings were more competent and less vicious than bush,look to spain for comparisons.
drone said: "drone writes:
Where's Sebastian? Seems MIA in this last market swoon. Is he having problems seeing the keyboard after losing his rose colored glasses?"
As I mentioned before, this race has already been run and won so I'm concentrating on playing past current conditions. That's not a subject of interest here (except to howl about how much worse it's going to get, how anybody that doesn't get it is ignorant, how clueless/criminal politicians/journalists are, etc.), and since I can tell from reading the headlines what CR is going to blog about and what he's going to say...there's no value for me here.
Sebastia
Fed Releases Beige BookU.S. Markets are open. 1hr 48 minutes until close.Stocks are are off their worst levels, but continue to post substantial losses.
down 1 or 2% are not substantial losses.
there a wake up call to act before they become Subtantial losses.
MBA mortgage applications index rose 10.9% last week with refis up 8.4% and purchasing applications up 12.8%. The fixed 30-yr mortgage rate rose to 6.24% (+7 basis points) while the 15-yr went up to 5.78% (+9 bps) & 1-yr adjustable rate mortgages actually poked up to 6.87% (+7 bps).
REfi's up as a direct result of hyperinflation; refi's will continue to climb as people are forced to lock in rates!
I am not being snarky.
I make $175k, have $80k mortgage left on a suburban middle class So Cal home. We drive a 2006 toyota and a 2002 Explorer. Both were paid with cash. We clip coupons.
I have no pension besides my 401(k), so we save whatever we can. We have been married 15 years and took vacations using a plane twice.
We have two kids that will need help with college.
Do the math on what it will take to retire, if I don't want to wait until I am a doddering old man.
Say what you want, I consider myself middle class all the way. Maybe upper middle. Everything about my life screams middle class.
Oil will break $140 this week easily!
I wish people would hear this stuff in my little central valley CA town. It's a sellers market here with houses going pending within a few days of hitting the MLS. Prices have dropped over 50% from 05 though, so here's to that.
One house we looked at was 269K and sold new in 2001 for 340K, 600K in 06. I can't see prices in this area dropping much more.
Don't put it above the CFTC, FED and GOV. to put in some sort of controls to prevent that.
Am thinking something in the magnitude of Bear Stearns will kick in pretty soon but this time in the commodities market.
We'll miss you Sebastation, but not as much as you'll miss us. This blog is your crack and as much as you want to stop smoking the glass pipe, you cannot. Farewell until the next relapse.
Why is Morgan Stanley so quiet? According to Reggie Middleton's blog, they were the most levered IB. Yet there's been complete radio silence.
I for one, don't think that the silence is a good thing. Time to look at some MS Puts...
"no, $175k is still not middle class, regardless of where you live. you may feel like you are middle class, but remember even in the most expensive of markets the large majority of people make far less than $175k/year.
so look at how you live on $175k/year... then think of how the truly middle class live in your part of the country."
I think Jere answered it better than I could.
Still: our family income was ~$175K for a few years, but is less than half that now. We pay cash, don't do debt, don't travel, have no kids, and paid off a small house. We live comfortably (though beans figure in the menu weekly), but have no pensions. We bank savings, but not enough on our current salaries to pay for retirement if that's all we ever made -- thank God for the nest egg we put aside when things were fat.
So: a little house, few major expenditures, a modest savings rate, no pension to fall back on, not able to maintain a comfy lifestyle on current income if we had kids -- that's working class.
What About Tuition Gouging, Windfall Endowments
CARPE DIEM: What About Tuition Gouging, Windfall Endowments
The graph above was created using college tuition data from the National Center for Education Statistics (with estimates for 2007 and 2008), Consumer Price Index data from the BLS, and average annual oil price data for West Texas Intermediate Oil from Global Financial Data. All series are set to an index value of 100 in the base year of 1976. Comments:
200K Middle Class? Flip it like Jere- most don't feel like they're rich. As your income goes up, so does your definition of rich,...kind of like the definition of old. To a ten year old, thirty is old.
Just wondering..Are lottery ticket sales up?
OT: Senate votes to privatize its restaurants
Senate votes to privatize its restaurants (Wizbang)
The Senate's government run restaurants were so badly managed that they lost millions of dollars in the past few years, as much as $2 million so far this year alone, and their food was so horrible that senators routinely dined at the privately run House restaurants.
As a result, upon the recommendation of Senator Dianne Feinstein, last week the Senate finally voted, at night mind you, to privatize its restaurants.
The focus is oil and The Senate can't run a few snack bars!
For another take, look at Andrew Tobias' "Getting by on $100,000 a Year" written in the 1970's.
Jere, you're not being snarky, but I think you are the outlayer, you don't finance your lifestyle. Basically, you're the profile of my immigrant parents, who can't understand how their neighbors who are both doctors (250K combined) can barely make ends meet.
Let's see:
recently bought a 500K house.
own a BMW and Volvo
at least $20/day at Starbucks
Eat out 5 days a week
probably $500/month on subscription fees (digital cable, netflix, cell, golf)
$300K in student loans
the list goes on and on, and half the neighborhood is like this. And that's why Obama won't define the middle class: he'll burn one of bases, either the "affluent" earning over 75K or working class.
up , up and away!
i'll agree pn the 175k. In major markets.
not so much east of i15 and west of i85
My last year in sf i made 175k(6monthsonly) and would never have thought about sinking into middle classdrom unless i was making WAY more.
"Mike writes:
I wish people would hear this stuff in my little central valley CA town. It's a sellers market here with houses going pending within a few days of hitting the MLS. Prices have dropped over 50% from 05 though, so here's to that."
What town is that, Mike? I assume some place with big employers nearby rather than 80 miles away...
Sebastian has a new hobby. He's taken to cruising academic economic blogs and critisizing any post, study or reference that suggests all is not well with the US economy. This site is clearly entrenched with the four horsemen of the apocalypse, but there are other souls that can be saved before the infectous, un-American evil of CR spreads.
Sebasstion-
You're laughable. If the market was going up you'd be here telling everyone they are fools. Instead, for today anyway, you're going to take your ball and go home.
Your portfolio will deserve what it gets. Russell 2000 is trading where it did at the end of 2005. Stick that in your pipe and smoke it.
Bwhahahahahahahha.
Does anyone feel just a little bit of "It serves you right" attitude. I read where people talk about fly over country, the place where folks just get up every morning and go to work and to a large degree live within their means. During the hay day it seems there were individuals promarily in four or five states that couldn't understand why the common folk would actually work for their money. The "sophisticated" folks knew you just bought a house, a lot of house, and sucked money out of it in perpetuity. They reaped the reward in good times and now have created a pile of crap the rest of the country has to deal with. I am not in danger of losing my home, the values are not going down significantly anywhere I am familiar with, I don't know anyone filing bankruptsy, etc. I do know I try to save a little money and my mother, in her 80's, has saved a little money, problem is we have negative effective interest rates to bail out the dumb asses that didn't think you had to work for a living. Man I am frustrated.
Sebasstion-
I almost forgot. You told me you didn't care about the dollar going down because your money is spent "domestically". Hmmmm... keep telling yourself that when you fill up your tank on the way back to your depreciating home
Bwahahahahahaha. Bwhahahahahahah.
Can someone Call the close... i have no clue.
1338 was a good trade around number last time we were in the zone.
Home prices may fall 30%.
Home prices may fall 40%.
But I am going with 80% in real vs. nominal dollars.
Hope everybody saw Dilbert yesterday. The CEO (the pointy-haired boss's boss) is reporting that the company made $48 billion in bad loans.
He blames this on "lax regulatory oversight."
Venting - Anybody who bids up the price of a home in this market is a moron.
jere:
I don't doubt that you might FEEL middle class, and you might even live what you consider a middle class lifestyle... but you are not middle class.
I make a lot of money, not a ton, but a lot. I recognize intellectually that I am nowhere near middle class. And yet I FEEL middle class.
sdtf said it well... being "rich" moves like the horizon... the closer you get the further it moves away. I didn't feel "rich" when I made $200k, nor when I made $300k nor when I made more than that...
I have never bought a new car, I live in a middle class neighborhood (next door neighbor is a welder and the other side is a landscaper), I shop for food at costco and clip coupons. I eat out using the "Entertainment" coupons.
I feel totally middle class. But I'm not. because in the end, I make substantially more than those "in the middle" and my income is probably in the top 1-5% somewhere...
I just feel it's a little disingenuous to say "I make $175k and am Middle class" when true middle class people make 1/3rd to 1/4th of what you make.
YTL
FWIW:
my goal isn't to slam you... far from it...
but when speaking about economics I find it important to try to keep at least a modicum of standards when discussing economic tranches. and there is no way that one could construe $175k/year as the middle. it is 3.7x the median MANHATTAN household income.
Middle class or not, most Americans generally don't have anywhere near enough money to sustain prices even at pre-boom levels. Why? No more income, less savings, no equity, much higher debt, much higher energy, food & healthcare costs. Face it, people are in far worse shape than they were a decade ago.
Prices will blow the bottom out of Case-Shiller.
YTL:
While everyone talks about housing and oil, those are just symptoms of the root problem. Since Reagan, we were an economy that required us to consumer, given that our manufacturing offshored. That's the ultimate dilemma. We want people to live like you and be frugal, but if everyone did, we would have been in a 30 year recession.
250K - I'm not middle class.
Although my expenses could be supported by anyone in middle class.
Haven't had time to read the thread, but in Miami Dade it is a half off sale.
I continue to be puzzled by CR's belief that prices won't fall as much as 40%, as in "An additional 25% to 30% decline in nominal prices over four years would be close to an additional 40% decline in real prices - and that would put real prices at the lowest level since the Case-Shiller Index started in 1987."
From 1965 through 1996, the highest figure ever posted for home ownership rate in the US was 65.6% in 1981 -- at the culmination of the last previous frenzied housing bubble. Throughout most of those years it was below 65%, and often below 64%. At bubble peak, it reached 69.2%, and in Q1 of this year had still fallen only to 67.8%. So never in those years was there as little unsatisfied demand for homes as there is today. And that is even more true if you look at the ownership rates among the younger age cohorts -- the pool of potential first-time buyers, without which existing owners cannot "move-up", is severely depleted.
Never in those years were there so few potential buyers in the market.
Never in those years did we have anything like the glut of vacant homes we have today.
And we are returning to mortgage lending standards like those of the past.
Why are record-low prices not the most likely outcome of record-low demand and record-high supply?
jm,
Well said, and neither of us even mentioned the huge demographic shift taking place in the coming years.
"Well said, and neither of us even mentioned the huge demographic shift taking place in the coming years."
Which affects both housing and the stock market -- all those 401Ks.
The 401K cash-in can start right now for people born in '48 and earlier, no need to wait for 65, no need to pay a penalty. Interesting to see how this plays out in hard times. Within five years, close to half of all boomers will be able to draw on their 401Ks without penalty.
Bring it on bennie boy!
Russ,
Considering the Debt Bubble (enabled by the "insurance scheme" of derivatives) has inflated total gross US$ denomiated debt to over 260% of GDP (when the range had been between 110-140%), and most of that debt being real estate related...
...what prevents a 50% correction in prices?
Or, how will lending standards be loosened again to re-enable debt-a-holics to resupport the valuations?
How will the current $35 Billion in quarterly mortgage origination be returned to the $250B/Qtr that sustained the late 2006 valuations (or 25% less those valuations)?
Possibly, given $250B less 25% we would need to see origination return to the heady pace of $190B per quarter. If so, then we need to find a mechanism which would add another $160B to the originations.
Apparently, JPM just recently read my book, which made the same forcast two years ago. Imagine how much investors could have made (or not lost) if JPM had used its huge distribution portal to communicate this forecast in 2006. Anyone who bothered to look at a chart of home prices could predict a 30% correction. It's not rocket science.
I hate to beat a dead horse but I want to emphasize that one cannot ever rely on Wall Street, economists or Washington for timely and accurate analysis. Investors should demand these charades end. Wall Street always manages to take the money from the average investor using these deceitful tactics.