Since both Australia and England seemed to be ahead of us in the game, I've been watching it unfold there. Were they able to lower and avoid a massive crash because the speculative gorilla hasn't died yet? I think the market itself will take the heads of the worst flipping offenders while the fed is paused, but speculation and credit will continue to expand until inflation is so bad the fed cannot credibly deny it, forcing their hand in raising rates (as is happening now in England and Australia).
The market blows off some steam and the Fed gets to claim they are surprised by a run up in inflation, while looking tough AFTER letting inflation do the dirty work. "How could we have known, boys and girls, since monetary policy lags 6 months?" They understand monetary transmission mechanisms pretty well but they play pretty dumb. The day of reckoning comes when they finally have to confront inflation and slaughter the speculators (wedgies for hedgies!). Wonder if that will be in my lifetime? What is the conscription age, by the way?
And just in case the housing crash deflation is too rough they can always do some more pipeline maintenance or escalate the middle east to create an energy bubble. And when the people cry Uncle, good ole Kennedy rides to the rescue with a minimum wage bill.
The gap between wages and home prices will close. I wish I was older so I could have watched this the last time around. Oh well, next time they let inflation rip I'm going to be making money hand over fist!
Let me offer up another anecdotal indicator - which can be checked against almost all domestic geographies. In my marina the policy on reserving slips changed from April final confirmation to prior Dec. commitment with Jan final payment several years ago. This year, for the first time in a long time, they had open slips on every one of several docks and were still advertising them in July. Nobody saw this coming, it surprised everyone and it appears to be accelerating. Even during the downturn the early confirmation policy and excess demand for slips held up; by that I mean there was (maybe) 1-4 open slips in the whole marina (of about 150) instead of 4-8/dock (25-40 ? perhaps). This appears to be true at every marina in this well known NE/LI marina chain which is one of the best run and high-service ones I've seen.
This strikes me as the 1200 lb canary in the coalmine.
This strikes me as the 1200 lb canary in the coalmine.
My sister sees a similar thing happening in the Eastern Great Lakes - Huron & Erie but attributed it to the collapse of mfg and not the housing ATM. Housing never ballooned that much there.
However there were a lot of well paid workers & white collar who because housing was so cheap could funnel discretionary income into their personal 'hole in the water where one pours money'.
Those jobs have been disappearing. My sis knows two ex-GM employees who were very well compensated, lost their job, took what they could in seperation settlement, sold their home and are leaving the country - taking their boat to the Caribbean.
Dryfly, et.al. - shall we play with this ? While it seems clear (to me anyway) that we've been running on MEW, housing related employment/investment and the housing ATM there are, as you imply, deeper structrual issues. My own analysis (discussed previously) shows that employment growth never recovered the lost jobs using 150K/month as the benchmark for neutral. Instead we're in the hold approx. 2+ million jobs from the end of 2000 to now. In other words the economy never made it back to internall self-generating growth and with the drop in housing related demand we're facing a bigger problem than is as yet recognized by any pundit.
Steven Schwaber, a bankruptcy attorney in the Pasadena, Calif., area, says he's getting more calls from small-business owners who had refinanced into ARMs, tapping their equity in an effort to keep their businesses afloat. "All of the sudden their budgets are out of whack because their house payment went up by 25% or 30%," he says, at the same time fuel prices are rising. Some would have wound up filing for bankruptcy anyway, he adds, but rising interest rates have pushed others over the edge.
I wonder the extent of this type of financing by small-businesses.
Lots of stories going around that there is a massive amount of homes on Cape Cod on the market. We know there is inventory but it's not just a problem for the new home builders like Toll Brothers.
Also, heard there were 200 homes for sale in the Hamptons last summer. This summer there are 2,000+. Now, not sure how many people are forced sellers as opposed to peopel trying to lock in gains but that's a lot of high end supply.
To your point and to elucidate my previous post a tad. I was trying to get at the idea of small business being a major driver of jobs. I can imagine a lot of small restaurant owners taking out a HELOC hoping to keep their business going. Guess, there is no easy way to get at the effect that this housing downturn might have on the economy beyond its direct effect on housing and related industries.
Ultimately it does all come down to jobs & incomes and unless you are at the top (where there has been income & job growth) then you have been screwed.
It won't get better anytime too soon either. The world is 'flat' so there is little upside potential to average peoples earnings but the downside floor is set in places like Shanghai & Bangalore... even for 'skill workers'. And its way down there people. Waaaay down there.
Dilbert,
Telephoto, schmelephoto. I live in Carlsbad, next to Encinitas. There aren't enough cheap-money option-ARM liars' loans coming down the pipe to improve the picture.
These signs are popping up like dandilions in our vacation paradise and if bubble money was Round-Up there isn't enough to kill 'em... but many will be dead by winter. Ooops!!
I'm just a photo guy so the photo was an interesting example of how teles forshorten, compress, the field of view.
Don't know where the housing market or anything is going. Just watching and waiting. As I remember a lot of people thought the crunch would occure last year. Now maybe next? I also remember talk like that just before the tech boom went bust. It is different this time? Well, we shall see.
And guess where the downpayment came from to purchase these 2nd homes?
From increased earning? Nope.
From savings? Nope, sorry.
Yep, you probably already know the downpayment came from HELOCs - leveraging one overvalued asset to purchase another overvalued asset.
I've seen this movie before, and I doubt the ending will change.
"Margin", anybody?
Since both Australia and England seemed to be ahead of us in the game, I've been watching it unfold there. Were they able to lower and avoid a massive crash because the speculative gorilla hasn't died yet? I think the market itself will take the heads of the worst flipping offenders while the fed is paused, but speculation and credit will continue to expand until inflation is so bad the fed cannot credibly deny it, forcing their hand in raising rates (as is happening now in England and Australia).
The market blows off some steam and the Fed gets to claim they are surprised by a run up in inflation, while looking tough AFTER letting inflation do the dirty work. "How could we have known, boys and girls, since monetary policy lags 6 months?" They understand monetary transmission mechanisms pretty well but they play pretty dumb. The day of reckoning comes when they finally have to confront inflation and slaughter the speculators (wedgies for hedgies!). Wonder if that will be in my lifetime? What is the conscription age, by the way?
Woohoo! High paying jobs for everybody in Australia:
Australia's Employment Surges More Than Expected (Update4) - Bloomberg.com
Wow blokes, let's pretend like we didn't see this one coming! What a surprise!
Bank of England Drafts First `Dear Gordon' Note: Mark Gilbert - Bloomberg.com
And just in case the housing crash deflation is too rough they can always do some more pipeline maintenance or escalate the middle east to create an energy bubble. And when the people cry Uncle, good ole Kennedy rides to the rescue with a minimum wage bill.
The gap between wages and home prices will close. I wish I was older so I could have watched this the last time around. Oh well, next time they let inflation rip I'm going to be making money hand over fist!
Let me offer up another anecdotal indicator - which can be checked against almost all domestic geographies. In my marina the policy on reserving slips changed from April final confirmation to prior Dec. commitment with Jan final payment several years ago. This year, for the first time in a long time, they had open slips on every one of several docks and were still advertising them in July. Nobody saw this coming, it surprised everyone and it appears to be accelerating. Even during the downturn the early confirmation policy and excess demand for slips held up; by that I mean there was (maybe) 1-4 open slips in the whole marina (of about 150) instead of 4-8/dock (25-40 ? perhaps). This appears to be true at every marina in this well known NE/LI marina chain which is one of the best run and high-service ones I've seen.
This strikes me as the 1200 lb canary in the coalmine.
This strikes me as the 1200 lb canary in the coalmine.
My sister sees a similar thing happening in the Eastern Great Lakes - Huron & Erie but attributed it to the collapse of mfg and not the housing ATM. Housing never ballooned that much there.
However there were a lot of well paid workers & white collar who because housing was so cheap could funnel discretionary income into their personal 'hole in the water where one pours money'.
Those jobs have been disappearing. My sis knows two ex-GM employees who were very well compensated, lost their job, took what they could in seperation settlement, sold their home and are leaving the country - taking their boat to the Caribbean.
Their slip will be empty next summer too.
Dryfly, et.al. - shall we play with this ? While it seems clear (to me anyway) that we've been running on MEW, housing related employment/investment and the housing ATM there are, as you imply, deeper structrual issues. My own analysis (discussed previously) shows that employment growth never recovered the lost jobs using 150K/month as the benchmark for neutral. Instead we're in the hold approx. 2+ million jobs from the end of 2000 to now. In other words the economy never made it back to internall self-generating growth and with the drop in housing related demand we're facing a bigger problem than is as yet recognized by any pundit.
Thoughts and reactions ?
Dear CR
I am sure you have already seen this from WSJ:
Homeowners Start to Feel The Pain of Rising Rates
By Ruth Simon
August 10, 2006
Homeowners Start to Feel The Pain of Rising Rates - WSJ.com
One interesting side-quote (to me, anyway):
Steven Schwaber, a bankruptcy attorney in the Pasadena, Calif., area, says he's getting more calls from small-business owners who had refinanced into ARMs, tapping their equity in an effort to keep their businesses afloat. "All of the sudden their budgets are out of whack because their house payment went up by 25% or 30%," he says, at the same time fuel prices are rising. Some would have wound up filing for bankruptcy anyway, he adds, but rising interest rates have pushed others over the edge.
I wonder the extent of this type of financing by small-businesses.
Lots of stories going around that there is a massive amount of homes on Cape Cod on the market. We know there is inventory but it's not just a problem for the new home builders like Toll Brothers.
Also, heard there were 200 homes for sale in the Hamptons last summer. This summer there are 2,000+. Now, not sure how many people are forced sellers as opposed to peopel trying to lock in gains but that's a lot of high end supply.
Dear DaveL
To your point and to elucidate my previous post a tad. I was trying to get at the idea of small business being a major driver of jobs. I can imagine a lot of small restaurant owners taking out a HELOC hoping to keep their business going. Guess, there is no easy way to get at the effect that this housing downturn might have on the economy beyond its direct effect on housing and related industries.
Regards,
Ultimately it does all come down to jobs & incomes and unless you are at the top (where there has been income & job growth) then you have been screwed.
It won't get better anytime too soon either. The world is 'flat' so there is little upside potential to average peoples earnings but the downside floor is set in places like Shanghai & Bangalore... even for 'skill workers'. And its way down there people. Waaaay down there.
Its going to be rough getting used to it.
CR - that UPDATE photo from Encinitas is a great one. Sort of tells all.
That photo really is something else! And I thought some streets near me looked like an economic disaster had just happened ... I take it back!
CR,
Aren't you sick of this.
Your JAN 2005 post is "New Home Sales off in December "
Your AUG 2006 post "vacation home sales off"
How long will you keep posting same old stuff ?
Why dont you diversify and talk abt RMB, USD, Fed, Deficits etc ?
Why do you chose to be a boring guy ?
CR re photo: Tell them about how a telephoto lens works. They are wonderful for compressing the depth of field.
Dilbert,
Telephoto, schmelephoto. I live in Carlsbad, next to Encinitas. There aren't enough cheap-money option-ARM liars' loans coming down the pipe to improve the picture.
These signs are popping up like dandilions in our vacation paradise and if bubble money was Round-Up there isn't enough to kill 'em... but many will be dead by winter. Ooops!!
I'm just a photo guy so the photo was an interesting example of how teles forshorten, compress, the field of view.
Don't know where the housing market or anything is going. Just watching and waiting. As I remember a lot of people thought the crunch would occure last year. Now maybe next? I also remember talk like that just before the tech boom went bust. It is different this time? Well, we shall see.