If the automotive-housing industry business models are converging - becoming similar in their concentration, vertical integration & ability to 'manufacture demand - might this be similar to 'model year switch over'... just a pause before they get at building again in earnest this spring?
As long as the pipeline of credit is there my guess is the bean fields outside major cities should worry.
df, I saw this report as bad news for builders ... because it was so strong! Imagine near record production (and record October SFR starts), even though inventories are already are at record levels.
I was surprised the media played it the other way. Usually I just ignore starts and permits, but I had to add my brief comments.
Imagine near record production (and record October SFR starts), even though inventories are already are at record levels.
CR - that was how I felt the last couple years with the automotive build... something like 16 million vehicles every year, age of the existing rolling stock out there almost new, losing their ass on each one if they FULLY account especailly with the incentives & 0% financing and then on top of that seven year payment schedules. Insane.
But they (1) felt they had no choice due to the fixed cost structure and (2) the credit for buyers kept coming and coming... maybe from Asia, maybe OPEC, maybe God only knows where. So give'em away and make more.
These people will continue to build until there isn't any more money for their customers to borrow - that applies to both automotive & housing.
If housing follows automotive they will continue to builds even as home prices fall... maybe even accelerate the build because the lower margin won't cover enough overhead... so 'make it up with volume'. Build more!
Now maybe it won't follow automotive EXACTLY - remembering Vader's Law that history doesn't repeat it rhymes... but this is going to get real ugly before it is done... and we might be a long way from over.
Only once in the last century did US population decline. The flu of 1917-18. Otherwise it only dropped as low as 3/4 percent per annum in the depths of the depression but otherwise has been 1 percent plus per year. That's a million household formations per year.
A century ago there were 25 million households. Today, 125 million. Hpw many of the existing stock is 100 years old? See? Anything less than 1.3-1.5 million new and replacement DUs isn't going to meet demand.
Any scare about all the demand drying up is just that a scare. Don't confuse the housing industry as one for one the same as the real estate market.
And although we do have that net immigration every year and some of them can afford new cars and even a few can pay cash for new houses, most can't.
And generally auto incentives would not be there if the consumer was a little more flush. [Chevy corvettes have smaller incentives than Chevy impalas because the folks in that market are not too price conscious, but the ordinary guy?]
Could be that nearly 1/3 rent not because they love the landlord but because they just can't afford to buy. [The Fannie brag is that they have attained a record high 68% home "owner" rate, no?]
[Robert, one of us is having a bad day.]
OK, I give up. The difference between the housing industry and the real estate market is...?
Robert: Fundamentals are one thing, but at some point certain books have to be balanced. Otherwise we wouldn't have recessions, and everybody could go about their business without paying loans & bills.
When a lot of bills come due, the matching of supply & demand can be seriously disturbed, when the traction mechanism (money available to the demand side) fails.
And why have books to be balanced? Well, as a creditor you would insist a bit that your debtors pay back their loans in real money, not new IOUs, right?
'Real' Money is an IOU, just from a overextended government rather than an overextended individual.
Population growth may affect demand for housing, but demand and supply only determine price, not how many units will be sold at that price. If the average buyer cannot meet the average price, he is out of the market.
Demand is made up of two independent factors (1) desire to buy (2) ability to buy.
Just because I want a mini-mansion doesn't mean I can buy one. Samething applies to those newbies to our population... they may want a home but often can't afford one. Notice all the double ups in immigrant communities? It is not by choice.
The current binge has seen both demand factors in excess: (1) insane desire to consume... (2) cheap-n-easy credit.
And as cm points out... the supply side has constraints all its own as well... an established cost structure for the producers... both variable & fixed costs.
When the demand fails the supply side will have to readjust to match. Small adjustments can be made by building smaller houses or using cheaper materials but the relief they can expect from that is very limited. Plus those cuts will put even more downward pressure on their pricing ability. Not all that helpful.
Faced with hard facts the next step will be to attack the variable costs structure - specifically head count. Expect layoffs and a lot of them. And not just labor... administrative cuts will also follow since these builders aren't one man operations anymore... similar thing in the building supply industry & also financial industry associated with RE & building.
If the situation worsens they will then be forced to shed fixed cost structures... land & hard assets. But this they will do as a last resort to stave off liquidation.
In the end I expect some liquidations too but that will take a prolonged downturn as it appears the builders have sufficient assets to borrow against for at least a little while... if they haven't lied on their financial statements that is.
So layoffs, sell offs and business failures. Sounds like fun.
I would tend to agree on the above topic with CR- from my own experience with a housing bubble here in Connecticut (from 1983-1989) The rise in inventories was the first hint of problems in a housing market that had risen for 6 straight years. With stuff just sitting, the price reductions began (small ones, just like now) So in 1989 here, prices fell about 5%, then in 1990 5%, 1991 5% 1992 5% 1993 5% 1994 5% 1995 4% 1995 3% 1996 1% not a big pop but a solid hissing sound over several years-amounting to over a 35% fall- which was disastrous for the local economy, the current scenario looks startlingly familiar. Back here in the Hartford Metro area they said in 1989- 'prices will not fall much here'- 'we are in a great geographic location' and even this tired old line..'it's different here'. In any case it took 13 years for prices to reach what they where here in late 1988.
Wow, one little tiny ray of hope that just possibly there might be more demnd side pressure than is commonly assumed and I get lined up in the center of a circular firing squad. I'm being criticized from all sides.
calmo the 1st: 1/3 rent not because they love the landlord but because they just can't afford to buy.
The involuntary rental market is actually much smaller. Excise students, retired, military, employee housing and all the other voluntary renters and the 31.2% number you assume goes way down. And this is from the ACS at ACS: Ranking Table -- Percent of Occupied Housing Units That are Owner-occupied and not the unreliable mortgage reporting.
Regards auto industry comparisons; the FActs are quite a bit different than presented. The average age of the fleet is increasing dramatically not decreasing and like the housing market averg occupancy is going down. The auto industry has problems all its' own that do not translate to housing. Does anyone think the average new house sold rolls in $15,000 to $35,000 in home builder retirement costs? That's based upon the Q4 average auto of $28,000 and $270,000 home.
cm notes; Fundamentals are one thing, but...
Right but fundamentals are a BIG "one thing" and not as bad as those who think the entirety of the 2 million housing rate is exposed to the current downturn. It's always messy at the turn but I just want everyone to understand all this legitimate worry about record inventories needs to be moderated by two major demographic factors in demand; declining number of people per DU and increasing population. While not quite as necessary as eating or breathing it pays to remember housing is far more inelastic to the down side than is being assumed here.
Dryfly notes that the home builders are much larger and more vertical and self-contained. Those are deep pockets that will serve to cushion the fall. Won't stop the fall, won't reduce the size of the fall but it will serve to stretch it out.
Finally, the current angst about rising inventories. I don't think inventories are at record levels when rising population is included in the calculation. Besides, time on market, while rising, is only rising off historic lows nowhere near the highs.
The price reductions may be signalling a turn but then again they may be signalling a market clearing price of insane buyers. I wouldn't touch my principal house for even half its' neighborhood comp value but I am sure I could enter a 30 day escrow all cash deal within hours of listing at anything less than 90% of appraisal. But why would I do that when I can go fishing to see if there's any whackos out there willing to shell out 110%? An extra month on the market potentially nets me an extra quarter million and not coincidentally the broker/agent an extra $15,000. In other words these froth blow offs are not necessarily indicitive of underlying market weakness.
Here's PrudentBear's Doug Noland's 11/18/05 summary of latest mtg. numbers.
Freddie Mac posted 30-year fixed mortgage rates increased one basis point to 6.37%. Rates were up 66 basis points in ten weeks and were up 63 basis points from one year ago. Fifteen-year fixed mortgage rates added one basis point to 5.90% and were up 75 basis points in a year. One-year adjustable rates jumped 8 basis points to 5.20%. One-year ARM rates were up 72 basis points in eight weeks and 103 basis points from one year ago. The Mortgage Bankers Association Purchase Applications Index rose 2.6% last week. Purchase Applications were about unchanged from one year ago, with dollar volume up 2.7%. Refi applications dropped 5.4%. The average new Purchase mortgage declined to $239,700, while the average ARM fell to $352,900. The percentage of ARMs rose to 32.9% of total applications.
Rising population you say are the reason we 'should not worry' about a 'price fall' that is caused by rising inventory of unsold homes......'
Well they sure have a rising population in California- but most do not have the money to afford a 600K home- as the latest figures indicate-less then 14% of all Californians can afford to buy a home- therefore rising inventories DO MATTER- you seem rather confused with the concepts of 'rising population' and the affordability of homes.
Also take a look at basic economics- the laws of supply and demand. Is there going to be a huge demand by a rising population if they cannot afford to buy?
I will thank to not put words in my mouth. Especially pernicious misquotes like "should not worry" which is diametrically opposite of my views. There's lots to worry about. For instance, I touched upon it but didn't discuss the promise AND danger of smaller households. Danger side, the trend can easily reverse as noticed in some areas with boomerang children and illegal garage conversion in some markets.
I am not "confused" simply because I choose to point out possible mitigating factors. Any confusion here appear to be over the difference between effective rebuttal and insult.
The California experience shows the relatively minor importance of affordability indicies. Take my county, Ventura, poster child for unaffordable and sandwiched between two 800 lb gorillas of unaffordability Santa Barbara and LA. Supposedly only 13% of households can afford the median home. Who cares? People don't have to buy the median home, by definition half already pay less. Besides homes are merely sold to any one person not the median person and it only takes one. Thus Ventura County ownership rates are mysteriously slightly above the national average despite the supposed unaffordability.
Caution also is necessary with rising inventory worrys as current inventory is often so low even a small rise looks large on a percentage basis.
Don't mistake my caution for denial. What do I see for bubble places like Ventura County? Probably next spring we will clearly be in a massive correction. -15% 2006, -5% 2007, between -5% to +5% 2008. Vicious? Not at all. A combined 25% drop would bring prices back down to levels not seen for, for.. wel not seen since spring 2004. Go ahead, be real pessimistic. -20% next year, -10% 2007. That throws prices back to 2003. There are 260,000 DUs in the county and about 11,000 annual sales. Even that 30% drop only impacts 8-10% of all owners and even if the are losing out on investment they are still living in those homes.
Wow, one little tiny ray of hope that just possibly there might be more demnd side pressure than is commonly assumed and I get lined up in the center of a circular firing squad. I'm being criticized from all sides.
No one criticizes 'rays of hope' when they are backed by reason... but there really is very little rational about this bubble. No more rational that the dot.coms were... and stretching to make the insane sound sane is not optimism.
Look no one wants to see their property values go down but the system is unstable and will tumble... there is a LOT of room for argument about when, where it will be worse and how far it will go... anyone's guess is equal there. Love to hear your take on that.
And not all of us think it will be a complete meltdown in property values... I don't for one. My guess is we will never see 2000 prices again in our life... but I wouldn't be surprised one bit to see the increases from the last few years (say back to 1/1/2003) erased for as much as a decade.
But I think even a modest fall to 2000 price levels will have a very serious effect on the economy due to how much is invested & the large number of people employed by it. When that unwinds it will suck.
One last whine... you say the 'size' of the building industry will cushion the fall... I VERY MUCH DISAGREE... I agree it will prolong the fall but cushion it it won't. I've seen market failures from inside large institutions - I worked for a large grain trader & processor during the front end of the ag crisis - they don't show all the chaos of a collection of small entrepreneurs under stress but they have a very hard time handling the stress just the same.
An analogy: which is more likely to survive a rifle blast... an elephant or an beehive? Hit the beehive and chaos follows but little permanent damage (oh sure some bees get killed but there are more where they came from & the hive will be rebuilt over time)... Hit the elephant and maybe it lives, maybe it dies... depends on where hit and how bady... but the whole beast is wounded & effected and for a LONG time.
I work currently work with both smaller entrepreneurs & large tier II automotive supply chain companies... believe me the above anaology fits well.
In the past when there were a bunch of smaller independent builders it was like the beehive. It isn't like that anymore. It is now far less stable then in the past though you can't easily see it.
Supposedly only 13% of households can afford the median home. Who cares? People don't have to buy the median home, by definition half already pay less. Besides homes are merely sold to any one person not the median person and it only takes one. Thus Ventura County ownership rates are mysteriously slightly above the national average despite the supposed unaffordability.
The only reason ventura county can sustain price increases in the face of that horrible affordability ratio are: (1) in migration of people who have more assets and or income than the current existing median population... (2) credit markets are so loose as to shift the effective affordability curve. I think in much of California you have seen both effects... In migration going back to at least the 1920s much of it high income (not all Latinos & Arkies) and the recent funny money.
I have no idea how long the funny money will last... we'd have to be able to read the minds of the OPEC & Asian CB finance ministers to know that answer... but in migration to Cali has clearly slowed if what I'm reading is true... or at least in migration of people with assets... anyone along the border knows there is still plenty of in migration.
In the long run, in stable mature communities, there definitiely is a connection between MEDIAN incomes and MEDIAN property prices... typically in the range of properties equaling 2 to 3 time household incomes. This in part explains why so many immigrants double & triple occupy residential dwellings... they don't have the assets to buy down nore the incomes to support the median or below median home.
And just becaus 'half are less' says nothing unless you know the shape of BOTH curves... the home price curve & the income curve of the local population. In stable mature communities they match up nicely.
California has historically seen higher ratios as has Hawaii and parts of Florida (like Naples & the Gold Coast) due to in migration of asset heavy new residents - may are retirees. Again those demographics are an exception and won't hold up forever. There are older communities even in Florida where the in migration of asset heavy new residents has slowed and this can be seen pretty clearly... Dade County is one... their property values have not sky rocketed as much as say Naples... I have friends in both and it even amazes them.
Be as optimistic as you want... conjure up all the mitigation you can... but I doubt this thing is going to end well. And it won't just hurt the flippers. It is going to reach pretty deep into our consumption based economy. I doubt it will hurt anyone here more than it will hurt me. I am very susceptible to a consumption slow down. It sucks but that's life.
I like this idea of 'involuntary' renters, Robert, as it makes me reconsider ( here, how genuine is the issue of affordability, how large a segment are those who are gaming the market [ie those who have the luxury of being able to choose whether it is in their interests to sell and rent at this point], why have blacks not increased their ownership rates, how legitimate is poverty in our country and not merely the crowing of the Democratic Party, how pertinent is the growing disparity in wealth distribution in this country and how does the housing market respond to it (here and abroad --esp in France at the moment)...
Yes, there could be a small segment of demand still left out there (Berlusconi wants to buy next to the President's ranch in Crawford so he can get a close look at how cattle ranchers work.) and that segment might be quite large (using your link and examining Hawaii and DC for instance)[Thank you for that link showing the regional differences and the difference a strong wealth gradient makes.]
I appreciate those remarks about making a distinction between auto/housing and CR could (should, I insist!) start a new thread on this.
You have started me thinking about conscripted renters --a variant on 'involuntary' renters, thankyou for that.
Thank you cm for that note about balancing the books.
I can always count on you to show us the stage from which we are performing.
It has only been a few months since the federal government has made an about face from their 'deficits don't matter' --even before the hurricanes. I can only think that the foreign investment that bankrolls these deficits (and Greenspan's curious visit to Asia) has expressed some sentiments that have made an impression on the supply siders. Last month's foreign net investment flows ($100B) could be construed as a counterfactual but the preference away from tbills (and toward corp and agency debt)and the continuing withdrawal of Japan and China, was noteworthy.
So we have some (ok pathetic but still, some) budget cutting from the 'small government' Republicans to show some 'responsibility' and recognition of a disasterous couple of deficits (that just 'happened')[Ok Robert, that just happened to accelerate horribly from an already unacceptable position.]
The interest rate hikes may be in response to international (China) competition for those investment dollars --not merely trying to get hold of the housing market inflation.
with a mere 14% of Californians able to buy a 'median priced home'
it seems all your attempts to argue with me are made in vain- You can have in migration, 'population growth' or what ever, but if they cannot afford to buy, then your premise that population growth is the panacea for 'inventory bulge' is BS..
vader: What I meant by "real" money is credible IOUs, i.e. IOUs backed by current or future sellable assets (e.g. real property, commodities, or goods & services). At the end of the day, anybody who lends money wants to see something "tangible" in return, not unredeemable paper.
Robert: The (implied) argument of infinite elasticity often does not apply in actual, as opposed to model, markets. There are often nonlinearities. For example, a house with a large lien on it may have a negative effective price unless the lien is removed, and will thus be unsellable. Removing the lien will require some creditor to write off a loan (or the IRS to forgive a tax liability). I know of a department store building that was closed because of asbestos issues, and nobody wanted to touch it at any price for decades. Now it has been demolished, and I don't know what deal they had worked out.
Then there is the issue of "community externalities". As the housing & debt malaise ripples through the economy, a whole area may become undesirable, even though excess population and housing demand exists. Nobody wants to move into a ghost town in the middle of nowhere. Consider also transportation cost/commute time issues. I was recently looking for renting alternatives, and I remember one nice looking property in a subdivision with no stores beyond a 7/11 in walking distance, and also the area didn't look inviting for an afternoon walk, lots of anonymous houses, some small-time industry, and IIRC not a lot of sidewalks. I wouldn't want to live where the only way of moving in and out of my place is in a car.
Most money is not 'backed by current or future sellable assets (e.g. real property, commodities, or goods & services)'.
They are backed by the fact that someone will echange money for those things.
While most lenders want their money back, some lend for other reasons and expect something else back.
A counter example: Foreign folks send money to mortgage brokers and expect their money with profits back. The mortgage brokers, however have no money at hazard and make a profit by lending and taking a service charge for lending. The brokers 'lend' to be sure, but they do not have money at risk and have no expectation of getting their money back.
So not all lending activities are by folks expecting to get the money back with interest.
I thought I was arguing -agaist- infinite elasticity. Did I just do a poor job of explaining? 8.5 million per year so the last three years of buyers is less than 15% of all homeowners and a great many of them are not going to get hurt even on paper. They've been living someplace nice and accruing tax benefits to lessen even their pain.
Okay, so the unraveling/unwinding/leaking/popping that's going on is going to really hit the greediest and stupidest and yes, the merely unlucky but for the overwhelming majority of us its' going to be a spectator sport. If you are a sport fanatic that can be depressing just like the coming housing years will have an overall negative impact on the general economy.
There's an awful lot of people out there paying $1000/mo to live in million dollar homes who have not cashed out to pay for Benzes and vacations. We seem to focus on the iceberg we can see and forget about how much is is invisible to the things we worry about.
vader: Fair enough. You say a currency has to be exchangeable for "hard" goods, and that's precisely what I meant by "backed". Although maybe that's a misnomer as "backed" in the traditional sense means "convertibility into precious metals".
Also most corporate "stewards" are only intermediaries in a similar sense, taking a good cut in terms of their compensation package, but otherwise playing with "other people's money". Nevertheless many intermediaries have pesky legislation on their necks forcing them to exercise fiduciary duty at least in name. In a general aggregate I think what I said still holds water. Even if not all creditors want their money back, enough do. And with those that want other things, the other things often still can be characterized as assets.
Okay, so the unraveling/unwinding/leaking/popping that's going on is going to really hit the greediest and stupidest and yes, the merely unlucky but for the overwhelming majority of us its' going to be a spectator sport.
That is a bit naive... I lived in the midwest during the ag crisis and my friends & I were about as far from being a farmer as somebody in Manhattan... yet it had profound effects on all of us.
We couldn't get jobs, our kids & spouses couldn't get jobs... folks couldn't even leave the region because it took three years to sell a home even at a loss. I was a major problem for everyone in the region.
And that wasn't the only time I've run into things like this.
In the oil patch collapse (just prior to the ag crisis)... I knew a guy who owned a home in Houston... I can't recall the exact numbers but it went something like this:
He was a sr level manager in an oil company's QA/QC department... very high paid job. He had bought a home for $250 K and put $50K down on it (owed $200K)... this was circa 1980. In Houston at that time there was a shortage of 20K engineers - that many openings... like C Sci in Silicon Vally circa 1998... He felt VERY secure. Had I known him then I would have agreed - I was recruited to fill one of those chem engineering jobs in the oil patch and turned them down. It was for real... I had six classmates go to Houston from Minnesota.
Then the bottom fell out of oil prices... That 20K shortage turned into something like 30K unemployed engineers... in a period of a year to 18 months.
Anyway the sr level engineer lost his job and couldn't buy another one for love or money... no one could.
Eventually this guy had to get a job and so looked outside Houston & the oil patch... He got a job running the QA/QC dept of a company I worked with in Chicago.
So he tried to sell his home in Houston but with all the laid off folks housing values collapsed. His $250K home wouldn't get an offer above $150K... He had already dipped into his savings and didn't have the $50K to pay the bank to walk away from the loan and in those days BK wasn't as accepted... so he 'commuted' to Chicago... worked long hours & weekends for three weeks then took a week off & drove 'home'. He did this for three years until he was able to find a suitable job in Houston.
Now you might say California isn't Houston & isn't as one dimensional... and that would be true. But according to what I'm reading real estate is the big job engine now, especially in Cali... so when it starts to decline you could quickly see a snowball effect... housing values soften leading to more lay offs putting more folks under stressed selling driving values down further laying more off... Eventually spilling over into services, retail, you name it.
While YOU might not lose your job or home - whatever it is - plenty of others will. As a 'spectator sport' it could start to look a lot like minor league hockey where it is hard to seperate the fans from the players once the punches start to fly.
There is a problem looking at not seasonally adjusted by national numbers. The regional mix has been changing over the years. The South now is almost half of the total and in South Florida is a a big part. Now, winter being what it is in Florida, thje seasonality is much less acute than in other parts of the country. In October, all the regions except south fell on seasonally adjusted basis, but South actually held steady. Keep in mind that South fell sharply year becasue of the hurricane damage had made rebuilding a priority and new construction was delayed as a result.
Nevertheless, housing data are volatile and not much should be read into one data point.
We've had 30 years of rolling economic upheaval including the oil patch, rust belt, aerospace reentry, S&Ls, dotcom bubble, you know the drill. The run up in home prices isn't just a speculative tulipmania but also includes a sizeable amount that could be called restoration from depressed prices from those debacles. It's been a general run up in addition to those places we all can name that defy even the most irrational exuberance. People are most sensitive to the carrying costs of their housing. My 4.99% fixed with California Prop 13 taxes means that for me and millions like me those highly visible few percent out on the edge are not going to be able to ripple our lily pond. By the way, in case it isn't obvious, I'm playing devils advocate here, I don't believe any of this anywhere near as much as it may seem. Things are -a little bit- different this time. There's the greatest transfer of wealth between generations ever seen that is just getting started. More dual income families insulates against jobs problems. For any number of problems there appear to be at least a few positives in the mix. Those positives aren't gonna prevent a big fat, fast drop in the hot markets and orderly retreat in most markets but they are there to keep things from cratering and taking out the overall economy when the housing cycle, well cycles.
For a general rule, it is good. Used to be almost an absolute. You lent to a bad risk, you got burned. A nation's currenty was redeemed in gold or silver, or at least it's prudent honor. But no more.
The big mortgage brokers have fiduciary duty to be sure, but the exec running Freddy and Fanny seemed to have played fast and loose for their bonuses. Maybe they will have some legal consequence, but my guess that a black or brown dude doing a liquor store will do more time. The small fry will be long gone by the time the Sheriff shows up.
Dishonesty by the elite has little consequence.
Then again, in times past, good gold was paid for flower bulbs.
I was on the front lines the last time around and I agree with dryfly. When job losses hit realtors, appraisers, mortgage brokers, escrow offices, title insurors, home inspectors, termite companies, construction workers, suppliers of building materials and equipment, and those businesses which support them, the effect will be widely felt. I witnessed many people outside the defense industry lose their jobs and their homes in the early 90's. Real estate busts and recessions change the way people spend money and how they think about the future. Each time around there will of course be differences and hard numbers are great because they tell us what to expect in the coming months and years, however the psychological impact on communities should not be ignored.
The execs. at Fannie & Freddie with their hands in the money honey pots are ex-political operatives( largely Dems. and for years now). None other than the infamous Jamie Gorelick's a vp there (another idiot attorney ruining the country; remember also, she's the one who stopped our guys from access to terrorist-- invaders computers here[after stupid ICE screwed up and let them be in here])
She's been giving it away as fast as she can and openly says so.
CA is no longer the great state it used to be. Too many govt. jobs and service jobs. Prop 13 was a disaster of unequal taxation. The tipping point of becoming the wealthy and those who provide whatever services for them has arrived.
Also, too many taxpayer types are bailing out. (same is happening nationally as public pensions have in reality bankrupted govts. across the country; another topic for another day)
All those $500k+ houses and under Prop. 13? Or watch the proceeds be passed on while the rest are supposed to work to pick up the tab?
No way the rest (in CA or rest of U.S.) are going to pay for their health and Medicare costs.
They're "CA Dreamin'"
And, that's leaving out at this time, one of my favorite topics-- the unfunded govt. pension and benefits of not only CA but all levels of govt. across the country-- for another day.
There's the greatest transfer of wealth between generations ever seen that is just getting started.
The 'transfer of wealth' is highly concentrated... 'on average' it looks like a big number but you have Warren Buffet & the Waltons and you have thousands who will pass on nothing to the next generation. Unless the Buffets get generous it won't help a thing.
More dual income families insulates against jobs problems.
Only if their full cost of living can be supported by one income... otherwise it DOUBLES their risk... meaning only one need lose the job to take down the house of cards.
I would have agreed that this was a mitigating factot if folks were saving some of that 'other income'... no sign that they are to any meaningful extent.
Those positives aren't gonna prevent a big fat, fast drop in the hot markets and orderly retreat in most markets but they are there to keep things from cratering and taking out the overall economy when the housing cycle, well cycles.
That is possible... one thing I've learned having been through rust belt & the ag crisis & dot.bomb... was how resilient people are.
However I saw extreme pain that lasted for many years and some folks never came through completely whole. If you had asked them they would have told you that the economy had cratered... I guess it is like the definition of 'recession' vs 'depression'... you lose your job and I call it a recession, I lose my job and I call it a depression.
These are important aspects of the distribution of wealth: the transfer from the Boomer's parents to the Boomers; the transfer from the Boomers to their children; the concentration of wealth within families; the networking of wealthy faimilies to further enhance their positions.
It is not just a coincidence that 'family' values are part of election platforms. No one mentions how debilitating this is for the rest of the community or how this affects broader "community" values. Not even when millions of illegal immigrants are 'doing the jobs Americans don't like to do'.
Do you have a better suggestion for the transfer of wealth other than through families? Perhaps revive George McGovern's 100% inhiertance tax?
Anyway, you have the immigration situation reversed. The -only- reason those crummy jobs exist is because there are illegal immigrants to exploit. You mistake a push for a pull.
I see dozens of farmworkers in those fields where there should be a GIS coordinator, a robot repair technician and a software salesman. We pick strawberries the same damn way we did 100 years ago. What if we built cars that way? Why don't we buld highways that way anymore? As long as there's an exploitable workforce pool there's no incentive for agriculture to invest in robotic farming and such. Illegal immigration is a drain on our economy and a detriment to our quality of life and worse than all that a terrible crime against the source countries who are continually drained of the people they need the most to improve themselves.
Oh, and illegal immigration exacerbates the housing bubble. But you knew that one.
"Do you have a better suggestion for the transfer of wealth other than through families? Perhaps revive George McGovern's 100% inheritance tax?"
The picturesque view of government that I have Robert is that of an agent that redistributes the marbles so that Gates doesn't end up with all of them...so that the game can continue.
The picturesque view of illegal immigrants I have, are folks that send their wages back to Mexico to support families there that cannot find work because foreign investment does not generally head to Mexico (MNC are finding some expensive to ship items cheaper to manufacture there than China). These wages are higher than they could earn in Mexico, so a benefit to that country and because they displace American workers from these fields --to pursue careers in robotics, a benefit to our country.
I'm sure there are other versions of this story especially how the software is farmed out to aliens not working here but...in alien countries. It all improves our GDP and productivity. Few doubt this picture although some have reservations about what this means for the distribution of tasks in the labor component. The Fed, when it tires of price stability, is only concerned that the unemployment is low. (It is not the Salvation Army or Amnesty International.)
And, Robert, real estate Monopoly game and super inflation is one of the worst things that happened to this economy. Besides, CA Prop 13 put controls of the money pots in Sacramento and in the hands of the CA Dems (who are socialists).
Those who manipulated the U.S.tax codes the most are skimming off decades of the genuine investments and assets of this country.
Guess you want what the the British lords, etc. did to the Irish.
Gates' father wants an inheritance tax because he knows the consequences to a country.
Get a clue as to how genuint productive segments and genuine R&D investments made this country great and now so many of us are concerned about our America.
Really? Gates' father is for inheritance taxes? How about Gate's kids?
And do we want a tax system that crushes any and all wealth disparity? Do we want the robots to do all the work --even if picking strawberries is for some, fun 8 hours/day, 5days/week --atleast as much fun as writing codes for exception handling for the robot that runs into a squirrel that wants that same strawberry [Ok, no I have no idea what squirrels eat --surely they get tired of nut after nut forchrisake].
My suggestion for anyone wanting to be rich is to do the things rich people do. That includes accumulating assets.
That is s GREAT IDEA, I never would have thought of that... acquiring assets... everyone should start immediately, including me... now where did I put my ski mask & pistol.
Very Funny dryfly.
And very dramatic too.
Reminds me of the sign on the corner grocery store at Halloween: 'Remove all masks'. They were not taking any chances with those 'trick or treators', (sorta like realtors but not real) no matter how cute, no matter how small.
I can imagine the owner having a nightmare about letting the little ones keep their costumes intact and being robbed blind in full view with all cameras on, by that midget.
No, all masks would come off on Halloween. He was not going to be outwitted by some midget.
If the automotive-housing industry business models are converging - becoming similar in their concentration, vertical integration & ability to 'manufacture demand - might this be similar to 'model year switch over'... just a pause before they get at building again in earnest this spring?
As long as the pipeline of credit is there my guess is the bean fields outside major cities should worry.
df, I saw this report as bad news for builders ... because it was so strong! Imagine near record production (and record October SFR starts), even though inventories are already are at record levels.
I was surprised the media played it the other way. Usually I just ignore starts and permits, but I had to add my brief comments.
Best Regards.
Imagine near record production (and record October SFR starts), even though inventories are already are at record levels.
CR - that was how I felt the last couple years with the automotive build... something like 16 million vehicles every year, age of the existing rolling stock out there almost new, losing their ass on each one if they FULLY account especailly with the incentives & 0% financing and then on top of that seven year payment schedules. Insane.
But they (1) felt they had no choice due to the fixed cost structure and (2) the credit for buyers kept coming and coming... maybe from Asia, maybe OPEC, maybe God only knows where. So give'em away and make more.
These people will continue to build until there isn't any more money for their customers to borrow - that applies to both automotive & housing.
If housing follows automotive they will continue to builds even as home prices fall... maybe even accelerate the build because the lower margin won't cover enough overhead... so 'make it up with volume'. Build more!
Now maybe it won't follow automotive EXACTLY - remembering Vader's Law that history doesn't repeat it rhymes... but this is going to get real ugly before it is done... and we might be a long way from over.
Only once in the last century did US population decline. The flu of 1917-18. Otherwise it only dropped as low as 3/4 percent per annum in the depths of the depression but otherwise has been 1 percent plus per year. That's a million household formations per year.
A century ago there were 25 million households. Today, 125 million. Hpw many of the existing stock is 100 years old? See? Anything less than 1.3-1.5 million new and replacement DUs isn't going to meet demand.
Any scare about all the demand drying up is just that a scare. Don't confuse the housing industry as one for one the same as the real estate market.
And although we do have that net immigration every year and some of them can afford new cars and even a few can pay cash for new houses, most can't.
And generally auto incentives would not be there if the consumer was a little more flush. [Chevy corvettes have smaller incentives than Chevy impalas because the folks in that market are not too price conscious, but the ordinary guy?]
Could be that nearly 1/3 rent not because they love the landlord but because they just can't afford to buy. [The Fannie brag is that they have attained a record high 68% home "owner" rate, no?]
[Robert, one of us is having a bad day.]
OK, I give up. The difference between the housing industry and the real estate market is...?
Robert: Fundamentals are one thing, but at some point certain books have to be balanced. Otherwise we wouldn't have recessions, and everybody could go about their business without paying loans & bills.
When a lot of bills come due, the matching of supply & demand can be seriously disturbed, when the traction mechanism (money available to the demand side) fails.
And why have books to be balanced? Well, as a creditor you would insist a bit that your debtors pay back their loans in real money, not new IOUs, right?
Housing is building, RE is selling.
'Real' Money is an IOU, just from a overextended government rather than an overextended individual.
Population growth may affect demand for housing, but demand and supply only determine price, not how many units will be sold at that price. If the average buyer cannot meet the average price, he is out of the market.
Demand is made up of two independent factors (1) desire to buy (2) ability to buy.
Just because I want a mini-mansion doesn't mean I can buy one. Samething applies to those newbies to our population... they may want a home but often can't afford one. Notice all the double ups in immigrant communities? It is not by choice.
The current binge has seen both demand factors in excess: (1) insane desire to consume... (2) cheap-n-easy credit.
And as cm points out... the supply side has constraints all its own as well... an established cost structure for the producers... both variable & fixed costs.
When the demand fails the supply side will have to readjust to match. Small adjustments can be made by building smaller houses or using cheaper materials but the relief they can expect from that is very limited. Plus those cuts will put even more downward pressure on their pricing ability. Not all that helpful.
Faced with hard facts the next step will be to attack the variable costs structure - specifically head count. Expect layoffs and a lot of them. And not just labor... administrative cuts will also follow since these builders aren't one man operations anymore... similar thing in the building supply industry & also financial industry associated with RE & building.
If the situation worsens they will then be forced to shed fixed cost structures... land & hard assets. But this they will do as a last resort to stave off liquidation.
In the end I expect some liquidations too but that will take a prolonged downturn as it appears the builders have sufficient assets to borrow against for at least a little while... if they haven't lied on their financial statements that is.
So layoffs, sell offs and business failures. Sounds like fun.
Anonymous was me
You guys should check out a documentary on bittorrent called The Oil Factor.
Sorry. Page not found.
You can find it here:
oil factor, the › isoHunt › the BitTorrent & P2P search engine
Click on "Oil Factor, The" to download it. You should choose that particular one because I am hosting that file and I have a ton of bandwith here.
I would tend to agree on the above topic with CR- from my own experience with a housing bubble here in Connecticut (from 1983-1989) The rise in inventories was the first hint of problems in a housing market that had risen for 6 straight years. With stuff just sitting, the price reductions began (small ones, just like now) So in 1989 here, prices fell about 5%, then in 1990 5%, 1991 5% 1992 5% 1993 5% 1994 5% 1995 4% 1995 3% 1996 1% not a big pop but a solid hissing sound over several years-amounting to over a 35% fall- which was disastrous for the local economy, the current scenario looks startlingly familiar. Back here in the Hartford Metro area they said in 1989- 'prices will not fall much here'- 'we are in a great geographic location' and even this tired old line..'it's different here'. In any case it took 13 years for prices to reach what they where here in late 1988.
Wow, one little tiny ray of hope that just possibly there might be more demnd side pressure than is commonly assumed and I get lined up in the center of a circular firing squad. I'm being criticized from all sides.
calmo the 1st: 1/3 rent not because they love the landlord but because they just can't afford to buy.
The involuntary rental market is actually much smaller. Excise students, retired, military, employee housing and all the other voluntary renters and the 31.2% number you assume goes way down. And this is from the ACS at ACS: Ranking Table -- Percent of Occupied Housing Units That are Owner-occupied and not the unreliable mortgage reporting.
Regards auto industry comparisons; the FActs are quite a bit different than presented. The average age of the fleet is increasing dramatically not decreasing and like the housing market averg occupancy is going down. The auto industry has problems all its' own that do not translate to housing. Does anyone think the average new house sold rolls in $15,000 to $35,000 in home builder retirement costs? That's based upon the Q4 average auto of $28,000 and $270,000 home.
cm notes; Fundamentals are one thing, but...
Right but fundamentals are a BIG "one thing" and not as bad as those who think the entirety of the 2 million housing rate is exposed to the current downturn. It's always messy at the turn but I just want everyone to understand all this legitimate worry about record inventories needs to be moderated by two major demographic factors in demand; declining number of people per DU and increasing population. While not quite as necessary as eating or breathing it pays to remember housing is far more inelastic to the down side than is being assumed here.
Dryfly notes that the home builders are much larger and more vertical and self-contained. Those are deep pockets that will serve to cushion the fall. Won't stop the fall, won't reduce the size of the fall but it will serve to stretch it out.
Finally, the current angst about rising inventories. I don't think inventories are at record levels when rising population is included in the calculation. Besides, time on market, while rising, is only rising off historic lows nowhere near the highs.
The price reductions may be signalling a turn but then again they may be signalling a market clearing price of insane buyers. I wouldn't touch my principal house for even half its' neighborhood comp value but I am sure I could enter a 30 day escrow all cash deal within hours of listing at anything less than 90% of appraisal. But why would I do that when I can go fishing to see if there's any whackos out there willing to shell out 110%? An extra month on the market potentially nets me an extra quarter million and not coincidentally the broker/agent an extra $15,000. In other words these froth blow offs are not necessarily indicitive of underlying market weakness.
Here's PrudentBear's Doug Noland's 11/18/05 summary of latest mtg. numbers.
Freddie Mac posted 30-year fixed mortgage rates increased one basis point to 6.37%. Rates were up 66 basis points in ten weeks and were up 63 basis points from one year ago. Fifteen-year fixed mortgage rates added one basis point to 5.90% and were up 75 basis points in a year. One-year adjustable rates jumped 8 basis points to 5.20%. One-year ARM rates were up 72 basis points in eight weeks and 103 basis points from one year ago. The Mortgage Bankers Association Purchase Applications Index rose 2.6% last week. Purchase Applications were about unchanged from one year ago, with dollar volume up 2.7%. Refi applications dropped 5.4%. The average new Purchase mortgage declined to $239,700, while the average ARM fell to $352,900. The percentage of ARMs rose to 32.9% of total applications.
Robert Cote
Rising population you say are the reason we 'should not worry' about a 'price fall' that is caused by rising inventory of unsold homes......'
Well they sure have a rising population in California- but most do not have the money to afford a 600K home- as the latest figures indicate-less then 14% of all Californians can afford to buy a home- therefore rising inventories DO MATTER- you seem rather confused with the concepts of 'rising population' and the affordability of homes.
Also take a look at basic economics- the laws of supply and demand. Is there going to be a huge demand by a rising population if they cannot afford to buy?
Peter,
I will thank to not put words in my mouth. Especially pernicious misquotes like "should not worry" which is diametrically opposite of my views. There's lots to worry about. For instance, I touched upon it but didn't discuss the promise AND danger of smaller households. Danger side, the trend can easily reverse as noticed in some areas with boomerang children and illegal garage conversion in some markets.
I am not "confused" simply because I choose to point out possible mitigating factors. Any confusion here appear to be over the difference between effective rebuttal and insult.
The California experience shows the relatively minor importance of affordability indicies. Take my county, Ventura, poster child for unaffordable and sandwiched between two 800 lb gorillas of unaffordability Santa Barbara and LA. Supposedly only 13% of households can afford the median home. Who cares? People don't have to buy the median home, by definition half already pay less. Besides homes are merely sold to any one person not the median person and it only takes one. Thus Ventura County ownership rates are mysteriously slightly above the national average despite the supposed unaffordability.
Caution also is necessary with rising inventory worrys as current inventory is often so low even a small rise looks large on a percentage basis.
Don't mistake my caution for denial. What do I see for bubble places like Ventura County? Probably next spring we will clearly be in a massive correction. -15% 2006, -5% 2007, between -5% to +5% 2008. Vicious? Not at all. A combined 25% drop would bring prices back down to levels not seen for, for.. wel not seen since spring 2004. Go ahead, be real pessimistic. -20% next year, -10% 2007. That throws prices back to 2003. There are 260,000 DUs in the county and about 11,000 annual sales. Even that 30% drop only impacts 8-10% of all owners and even if the are losing out on investment they are still living in those homes.
Wow, one little tiny ray of hope that just possibly there might be more demnd side pressure than is commonly assumed and I get lined up in the center of a circular firing squad. I'm being criticized from all sides.
No one criticizes 'rays of hope' when they are backed by reason... but there really is very little rational about this bubble. No more rational that the dot.coms were... and stretching to make the insane sound sane is not optimism.
Look no one wants to see their property values go down but the system is unstable and will tumble... there is a LOT of room for argument about when, where it will be worse and how far it will go... anyone's guess is equal there. Love to hear your take on that.
And not all of us think it will be a complete meltdown in property values... I don't for one. My guess is we will never see 2000 prices again in our life... but I wouldn't be surprised one bit to see the increases from the last few years (say back to 1/1/2003) erased for as much as a decade.
But I think even a modest fall to 2000 price levels will have a very serious effect on the economy due to how much is invested & the large number of people employed by it. When that unwinds it will suck.
One last whine... you say the 'size' of the building industry will cushion the fall... I VERY MUCH DISAGREE... I agree it will prolong the fall but cushion it it won't. I've seen market failures from inside large institutions - I worked for a large grain trader & processor during the front end of the ag crisis - they don't show all the chaos of a collection of small entrepreneurs under stress but they have a very hard time handling the stress just the same.
An analogy: which is more likely to survive a rifle blast... an elephant or an beehive? Hit the beehive and chaos follows but little permanent damage (oh sure some bees get killed but there are more where they came from & the hive will be rebuilt over time)... Hit the elephant and maybe it lives, maybe it dies... depends on where hit and how bady... but the whole beast is wounded & effected and for a LONG time.
I work currently work with both smaller entrepreneurs & large tier II automotive supply chain companies... believe me the above anaology fits well.
In the past when there were a bunch of smaller independent builders it was like the beehive. It isn't like that anymore. It is now far less stable then in the past though you can't easily see it.
Supposedly only 13% of households can afford the median home. Who cares? People don't have to buy the median home, by definition half already pay less. Besides homes are merely sold to any one person not the median person and it only takes one. Thus Ventura County ownership rates are mysteriously slightly above the national average despite the supposed unaffordability.
The only reason ventura county can sustain price increases in the face of that horrible affordability ratio are: (1) in migration of people who have more assets and or income than the current existing median population... (2) credit markets are so loose as to shift the effective affordability curve. I think in much of California you have seen both effects... In migration going back to at least the 1920s much of it high income (not all Latinos & Arkies) and the recent funny money.
I have no idea how long the funny money will last... we'd have to be able to read the minds of the OPEC & Asian CB finance ministers to know that answer... but in migration to Cali has clearly slowed if what I'm reading is true... or at least in migration of people with assets... anyone along the border knows there is still plenty of in migration.
In the long run, in stable mature communities, there definitiely is a connection between MEDIAN incomes and MEDIAN property prices... typically in the range of properties equaling 2 to 3 time household incomes. This in part explains why so many immigrants double & triple occupy residential dwellings... they don't have the assets to buy down nore the incomes to support the median or below median home.
And just becaus 'half are less' says nothing unless you know the shape of BOTH curves... the home price curve & the income curve of the local population. In stable mature communities they match up nicely.
California has historically seen higher ratios as has Hawaii and parts of Florida (like Naples & the Gold Coast) due to in migration of asset heavy new residents - may are retirees. Again those demographics are an exception and won't hold up forever. There are older communities even in Florida where the in migration of asset heavy new residents has slowed and this can be seen pretty clearly... Dade County is one... their property values have not sky rocketed as much as say Naples... I have friends in both and it even amazes them.
Be as optimistic as you want... conjure up all the mitigation you can... but I doubt this thing is going to end well. And it won't just hurt the flippers. It is going to reach pretty deep into our consumption based economy. I doubt it will hurt anyone here more than it will hurt me. I am very susceptible to a consumption slow down. It sucks but that's life.
I like this idea of 'involuntary' renters, Robert, as it makes me reconsider ( here, how genuine is the issue of affordability, how large a segment are those who are gaming the market [ie those who have the luxury of being able to choose whether it is in their interests to sell and rent at this point], why have blacks not increased their ownership rates, how legitimate is poverty in our country and not merely the crowing of the Democratic Party, how pertinent is the growing disparity in wealth distribution in this country and how does the housing market respond to it (here and abroad --esp in France at the moment)...
Yes, there could be a small segment of demand still left out there (Berlusconi wants to buy next to the President's ranch in Crawford so he can get a close look at how cattle ranchers work.) and that segment might be quite large (using your link and examining Hawaii and DC for instance)[Thank you for that link showing the regional differences and the difference a strong wealth gradient makes.]
I appreciate those remarks about making a distinction between auto/housing and CR could (should, I insist!) start a new thread on this.
You have started me thinking about conscripted renters --a variant on 'involuntary' renters, thankyou for that.
Thank you cm for that note about balancing the books.
I can always count on you to show us the stage from which we are performing.
It has only been a few months since the federal government has made an about face from their 'deficits don't matter' --even before the hurricanes. I can only think that the foreign investment that bankrolls these deficits (and Greenspan's curious visit to Asia) has expressed some sentiments that have made an impression on the supply siders. Last month's foreign net investment flows ($100B) could be construed as a counterfactual but the preference away from tbills (and toward corp and agency debt)and the continuing withdrawal of Japan and China, was noteworthy.
So we have some (ok pathetic but still, some) budget cutting from the 'small government' Republicans to show some 'responsibility' and recognition of a disasterous couple of deficits (that just 'happened')[Ok Robert, that just happened to accelerate horribly from an already unacceptable position.]
The interest rate hikes may be in response to international (China) competition for those investment dollars --not merely trying to get hold of the housing market inflation.
Mr Cote
with a mere 14% of Californians able to buy a 'median priced home'
it seems all your attempts to argue with me are made in vain- You can have in migration, 'population growth' or what ever, but if they cannot afford to buy, then your premise that population growth is the panacea for 'inventory bulge' is BS..
vader: What I meant by "real" money is credible IOUs, i.e. IOUs backed by current or future sellable assets (e.g. real property, commodities, or goods & services). At the end of the day, anybody who lends money wants to see something "tangible" in return, not unredeemable paper.
Robert: The (implied) argument of infinite elasticity often does not apply in actual, as opposed to model, markets. There are often nonlinearities. For example, a house with a large lien on it may have a negative effective price unless the lien is removed, and will thus be unsellable. Removing the lien will require some creditor to write off a loan (or the IRS to forgive a tax liability). I know of a department store building that was closed because of asbestos issues, and nobody wanted to touch it at any price for decades. Now it has been demolished, and I don't know what deal they had worked out.
Then there is the issue of "community externalities". As the housing & debt malaise ripples through the economy, a whole area may become undesirable, even though excess population and housing demand exists. Nobody wants to move into a ghost town in the middle of nowhere. Consider also transportation cost/commute time issues. I was recently looking for renting alternatives, and I remember one nice looking property in a subdivision with no stores beyond a 7/11 in walking distance, and also the area didn't look inviting for an afternoon walk, lots of anonymous houses, some small-time industry, and IIRC not a lot of sidewalks. I wouldn't want to live where the only way of moving in and out of my place is in a car.
cm
Most money is not 'backed by current or future sellable assets (e.g. real property, commodities, or goods & services)'.
They are backed by the fact that someone will echange money for those things.
While most lenders want their money back, some lend for other reasons and expect something else back.
A counter example: Foreign folks send money to mortgage brokers and expect their money with profits back. The mortgage brokers, however have no money at hazard and make a profit by lending and taking a service charge for lending. The brokers 'lend' to be sure, but they do not have money at risk and have no expectation of getting their money back.
So not all lending activities are by folks expecting to get the money back with interest.
I thought I was arguing -agaist- infinite elasticity. Did I just do a poor job of explaining? 8.5 million per year so the last three years of buyers is less than 15% of all homeowners and a great many of them are not going to get hurt even on paper. They've been living someplace nice and accruing tax benefits to lessen even their pain.
Okay, so the unraveling/unwinding/leaking/popping that's going on is going to really hit the greediest and stupidest and yes, the merely unlucky but for the overwhelming majority of us its' going to be a spectator sport. If you are a sport fanatic that can be depressing just like the coming housing years will have an overall negative impact on the general economy.
There's an awful lot of people out there paying $1000/mo to live in million dollar homes who have not cashed out to pay for Benzes and vacations. We seem to focus on the iceberg we can see and forget about how much is is invisible to the things we worry about.
vader: Fair enough. You say a currency has to be exchangeable for "hard" goods, and that's precisely what I meant by "backed". Although maybe that's a misnomer as "backed" in the traditional sense means "convertibility into precious metals".
Also most corporate "stewards" are only intermediaries in a similar sense, taking a good cut in terms of their compensation package, but otherwise playing with "other people's money". Nevertheless many intermediaries have pesky legislation on their necks forcing them to exercise fiduciary duty at least in name. In a general aggregate I think what I said still holds water. Even if not all creditors want their money back, enough do. And with those that want other things, the other things often still can be characterized as assets.
vader: For example, easements, use rights, or favorable contract/treaty terms are what I mean by generalized assets.
Okay, so the unraveling/unwinding/leaking/popping that's going on is going to really hit the greediest and stupidest and yes, the merely unlucky but for the overwhelming majority of us its' going to be a spectator sport.
That is a bit naive... I lived in the midwest during the ag crisis and my friends & I were about as far from being a farmer as somebody in Manhattan... yet it had profound effects on all of us.
We couldn't get jobs, our kids & spouses couldn't get jobs... folks couldn't even leave the region because it took three years to sell a home even at a loss. I was a major problem for everyone in the region.
And that wasn't the only time I've run into things like this.
Continued...
In the oil patch collapse (just prior to the ag crisis)... I knew a guy who owned a home in Houston... I can't recall the exact numbers but it went something like this:
He was a sr level manager in an oil company's QA/QC department... very high paid job. He had bought a home for $250 K and put $50K down on it (owed $200K)... this was circa 1980. In Houston at that time there was a shortage of 20K engineers - that many openings... like C Sci in Silicon Vally circa 1998... He felt VERY secure. Had I known him then I would have agreed - I was recruited to fill one of those chem engineering jobs in the oil patch and turned them down. It was for real... I had six classmates go to Houston from Minnesota.
Then the bottom fell out of oil prices... That 20K shortage turned into something like 30K unemployed engineers... in a period of a year to 18 months.
Anyway the sr level engineer lost his job and couldn't buy another one for love or money... no one could.
Eventually this guy had to get a job and so looked outside Houston & the oil patch... He got a job running the QA/QC dept of a company I worked with in Chicago.
So he tried to sell his home in Houston but with all the laid off folks housing values collapsed. His $250K home wouldn't get an offer above $150K... He had already dipped into his savings and didn't have the $50K to pay the bank to walk away from the loan and in those days BK wasn't as accepted... so he 'commuted' to Chicago... worked long hours & weekends for three weeks then took a week off & drove 'home'. He did this for three years until he was able to find a suitable job in Houston.
Now you might say California isn't Houston & isn't as one dimensional... and that would be true. But according to what I'm reading real estate is the big job engine now, especially in Cali... so when it starts to decline you could quickly see a snowball effect... housing values soften leading to more lay offs putting more folks under stressed selling driving values down further laying more off... Eventually spilling over into services, retail, you name it.
While YOU might not lose your job or home - whatever it is - plenty of others will. As a 'spectator sport' it could start to look a lot like minor league hockey where it is hard to seperate the fans from the players once the punches start to fly.
CR,
There is a problem looking at not seasonally adjusted by national numbers. The regional mix has been changing over the years. The South now is almost half of the total and in South Florida is a a big part. Now, winter being what it is in Florida, thje seasonality is much less acute than in other parts of the country. In October, all the regions except south fell on seasonally adjusted basis, but South actually held steady. Keep in mind that South fell sharply year becasue of the hurricane damage had made rebuilding a priority and new construction was delayed as a result.
Nevertheless, housing data are volatile and not much should be read into one data point.
We've had 30 years of rolling economic upheaval including the oil patch, rust belt, aerospace reentry, S&Ls, dotcom bubble, you know the drill. The run up in home prices isn't just a speculative tulipmania but also includes a sizeable amount that could be called restoration from depressed prices from those debacles. It's been a general run up in addition to those places we all can name that defy even the most irrational exuberance. People are most sensitive to the carrying costs of their housing. My 4.99% fixed with California Prop 13 taxes means that for me and millions like me those highly visible few percent out on the edge are not going to be able to ripple our lily pond. By the way, in case it isn't obvious, I'm playing devils advocate here, I don't believe any of this anywhere near as much as it may seem. Things are -a little bit- different this time. There's the greatest transfer of wealth between generations ever seen that is just getting started. More dual income families insulates against jobs problems. For any number of problems there appear to be at least a few positives in the mix. Those positives aren't gonna prevent a big fat, fast drop in the hot markets and orderly retreat in most markets but they are there to keep things from cratering and taking out the overall economy when the housing cycle, well cycles.
cm
For a general rule, it is good. Used to be almost an absolute. You lent to a bad risk, you got burned. A nation's currenty was redeemed in gold or silver, or at least it's prudent honor. But no more.
The big mortgage brokers have fiduciary duty to be sure, but the exec running Freddy and Fanny seemed to have played fast and loose for their bonuses. Maybe they will have some legal consequence, but my guess that a black or brown dude doing a liquor store will do more time. The small fry will be long gone by the time the Sheriff shows up.
Dishonesty by the elite has little consequence.
Then again, in times past, good gold was paid for flower bulbs.
I was on the front lines the last time around and I agree with dryfly. When job losses hit realtors, appraisers, mortgage brokers, escrow offices, title insurors, home inspectors, termite companies, construction workers, suppliers of building materials and equipment, and those businesses which support them, the effect will be widely felt. I witnessed many people outside the defense industry lose their jobs and their homes in the early 90's. Real estate busts and recessions change the way people spend money and how they think about the future. Each time around there will of course be differences and hard numbers are great because they tell us what to expect in the coming months and years, however the psychological impact on communities should not be ignored.
The execs. at Fannie & Freddie with their hands in the money honey pots are ex-political operatives( largely Dems. and for years now). None other than the infamous Jamie Gorelick's a vp there (another idiot attorney ruining the country; remember also, she's the one who stopped our guys from access to terrorist-- invaders computers here[after stupid ICE screwed up and let them be in here])
She's been giving it away as fast as she can and openly says so.
CA is no longer the great state it used to be. Too many govt. jobs and service jobs. Prop 13 was a disaster of unequal taxation. The tipping point of becoming the wealthy and those who provide whatever services for them has arrived.
Also, too many taxpayer types are bailing out. (same is happening nationally as public pensions have in reality bankrupted govts. across the country; another topic for another day)
All those $500k+ houses and under Prop. 13? Or watch the proceeds be passed on while the rest are supposed to work to pick up the tab?
No way the rest (in CA or rest of U.S.) are going to pay for their health and Medicare costs.
They're "CA Dreamin'"
And, that's leaving out at this time, one of my favorite topics-- the unfunded govt. pension and benefits of not only CA but all levels of govt. across the country-- for another day.
There's the greatest transfer of wealth between generations ever seen that is just getting started.
The 'transfer of wealth' is highly concentrated... 'on average' it looks like a big number but you have Warren Buffet & the Waltons and you have thousands who will pass on nothing to the next generation. Unless the Buffets get generous it won't help a thing.
More dual income families insulates against jobs problems.
Only if their full cost of living can be supported by one income... otherwise it DOUBLES their risk... meaning only one need lose the job to take down the house of cards.
I would have agreed that this was a mitigating factot if folks were saving some of that 'other income'... no sign that they are to any meaningful extent.
Those positives aren't gonna prevent a big fat, fast drop in the hot markets and orderly retreat in most markets but they are there to keep things from cratering and taking out the overall economy when the housing cycle, well cycles.
That is possible... one thing I've learned having been through rust belt & the ag crisis & dot.bomb... was how resilient people are.
However I saw extreme pain that lasted for many years and some folks never came through completely whole. If you had asked them they would have told you that the economy had cratered... I guess it is like the definition of 'recession' vs 'depression'... you lose your job and I call it a recession, I lose my job and I call it a depression.
These are important aspects of the distribution of wealth: the transfer from the Boomer's parents to the Boomers; the transfer from the Boomers to their children; the concentration of wealth within families; the networking of wealthy faimilies to further enhance their positions.
It is not just a coincidence that 'family' values are part of election platforms. No one mentions how debilitating this is for the rest of the community or how this affects broader "community" values. Not even when millions of illegal immigrants are 'doing the jobs Americans don't like to do'.
Calmo,
Do you have a better suggestion for the transfer of wealth other than through families? Perhaps revive George McGovern's 100% inhiertance tax?
Anyway, you have the immigration situation reversed. The -only- reason those crummy jobs exist is because there are illegal immigrants to exploit. You mistake a push for a pull.
One of my primary residences overlooks farmland. [ See: http://users.adelphia.net/~techscan/Backyard3.jpg ]
I see dozens of farmworkers in those fields where there should be a GIS coordinator, a robot repair technician and a software salesman. We pick strawberries the same damn way we did 100 years ago. What if we built cars that way? Why don't we buld highways that way anymore? As long as there's an exploitable workforce pool there's no incentive for agriculture to invest in robotic farming and such. Illegal immigration is a drain on our economy and a detriment to our quality of life and worse than all that a terrible crime against the source countries who are continually drained of the people they need the most to improve themselves.
Oh, and illegal immigration exacerbates the housing bubble. But you knew that one.
Regards, Robert
Do you have a better suggestion for the transfer of wealth other than through families?
Ya all eight of them.
RC: Do you have a better suggestion for the transfer of wealth other than through families?
dryfly: Ya all eight of them.
And your suggestion for the 110 million other familes?
My suggestion for anyone wanting to be rich is to do the things rich people do. That includes accumulating assets.
"Do you have a better suggestion for the transfer of wealth other than through families? Perhaps revive George McGovern's 100% inheritance tax?"
The picturesque view of government that I have Robert is that of an agent that redistributes the marbles so that Gates doesn't end up with all of them...so that the game can continue.
The picturesque view of illegal immigrants I have, are folks that send their wages back to Mexico to support families there that cannot find work because foreign investment does not generally head to Mexico (MNC are finding some expensive to ship items cheaper to manufacture there than China). These wages are higher than they could earn in Mexico, so a benefit to that country and because they displace American workers from these fields --to pursue careers in robotics, a benefit to our country.
I'm sure there are other versions of this story especially how the software is farmed out to aliens not working here but...in alien countries. It all improves our GDP and productivity. Few doubt this picture although some have reservations about what this means for the distribution of tasks in the labor component. The Fed, when it tires of price stability, is only concerned that the unemployment is low. (It is not the Salvation Army or Amnesty International.)
Agree calmo ...and others.
And, Robert, real estate Monopoly game and super inflation is one of the worst things that happened to this economy. Besides, CA Prop 13 put controls of the money pots in Sacramento and in the hands of the CA Dems (who are socialists).
Those who manipulated the U.S.tax codes the most are skimming off decades of the genuine investments and assets of this country.
Guess you want what the the British lords, etc. did to the Irish.
Gates' father wants an inheritance tax because he knows the consequences to a country.
Get a clue as to how genuint productive segments and genuine R&D investments made this country great and now so many of us are concerned about our America.
Enough for now.
Really? Gates' father is for inheritance taxes? How about Gate's kids?
And do we want a tax system that crushes any and all wealth disparity? Do we want the robots to do all the work --even if picking strawberries is for some, fun 8 hours/day, 5days/week --atleast as much fun as writing codes for exception handling for the robot that runs into a squirrel that wants that same strawberry [Ok, no I have no idea what squirrels eat --surely they get tired of nut after nut forchrisake].
My suggestion for anyone wanting to be rich is to do the things rich people do. That includes accumulating assets.
That is s GREAT IDEA, I never would have thought of that... acquiring assets... everyone should start immediately, including me... now where did I put my ski mask & pistol.
Very Funny dryfly.
And very dramatic too.
Reminds me of the sign on the corner grocery store at Halloween: 'Remove all masks'. They were not taking any chances with those 'trick or treators', (sorta like realtors but not real) no matter how cute, no matter how small.
I can imagine the owner having a nightmare about letting the little ones keep their costumes intact and being robbed blind in full view with all cameras on, by that midget.
No, all masks would come off on Halloween. He was not going to be outwitted by some midget.