I wonder where the jobs will be after housing adjusts. I am imagining a general exodus from the bubble areas, further hurting the local economies. Is the future view of McMansion ghost towns complete with squatters and rusty auction signs too extreme?
island42, I think that view is too extreme (I definitely hope its wrong!). One of the problems with housing related jobs - if they go away - is these are relatively high paying jobs considering the educational / skill backgrounds of the employed. Many of these people will probably have difficulty finding jobs that pay anywhere near what they are currently making.
Note: Some of these people are highly skilled in a trade, but I don't know if that skill will be transferable to other employment.
Is the future view of McMansion ghost towns complete with squatters and rusty auction signs too extreme?
While that scenario makes for a great made-for-tv-movie (I'd tune in for sure!!! I'd wake Who up in the break room, bring popcorn & beer for that)... But I think it isn't too likely to happen on a massive scale.
We'd have to have some kind of severe 'externality' on top of a general RE decline to see that... and I doubt Helicopter Ben would sit on his wallet through a period like that.
My WAG is that housing slows, valuations stagnate & inflation eats the bubble over about a decade or so.
In such a scenario there will be lotsa jobs lost and I have no idea where the workers will end up... but it is likely to be very slow & not as 'noticeable' as a result.
ed - I just see RE prices as so sticky on the way down that they will more likely stagnate and inflation will work on them than crash like a stock market. It will only look like a 'burst' if you compress the time scale sufficiently & calculate in real inflation adjusted terms... that is my 'prediction' - take it or leave it.
However if a major 'externality' occurs (say dollar crisis over a devaluation or war with Iran shutting off oil flows from the Gulf)... then all bets are off. But also - if any of that happens RE won't be the only asset puking.
I hear what you're saying about real estate being sticky, but I'm sure you've checked out the latest post by Mish on the Miami condo supply.
There could be a SIX year supply hitting the market. This may be an extreme case, but I doubt those condo prices will be too "sticky" as the market corrects.
Here in downtown San Diego, the oversupply of condos won't be quite as bad but its still going to be BAD.
Hear ya' Robert... question is will they given'em away or just hang on to them FOREVER or rent them out at a loss... or heaven forbid, have a mysterious rash of fires in condos all over Miami... hmmmmm? Sounds like the makings of a Hiassen novel.
Seriously - I think there will be pain but not a 'Black Friday' like crash. We'll get old (or even older) waiting for this play out.
That is unless there is an 'externality'... of course.
In the last few years the under-25 and 25-29 age cohorts have been an important component of home buying. The ownership rates for those cohorts are now at record levels. The last time they were near current levels marked the peak of that housing bubble, and they fell substantially from there. People in those age ranges can and will move back in with their parents, or double up with roommates. As their ownership is especially concentrated in condos, this will make the condo inventory glut even worse.
I think a soft landing via the inflation route would take a very long time under the current economic circumstances as while there is some general inflation there is very little wage inflation. With real wages falling, houses are not going to become more affordable.
the colorado springs economy, from 1978 to 1986, was real estate driven. 20,000 extra homes were built in the area in anticipation of the coming 'star wars' job explosion, that never materialized. when the smoke cleared, after the real estate crash, 60 MINUTES did a show on the city's massive number of foreclosures. most of the homes in the city, had been purchased with fha loans ,3% down, or va loans, nothing down. during the meltdown, people just walked away from their homes. today's zero down, home loans should give rise to a similar situation in many parts of the country.
the exodus of construction workers was even more harmful to the springs economy than the foreclosures. rental vacancies soared, and many restaurants, that depended on a robust lunch business, closed. the town found out that construction had been the real engine of growth for that eight year period. for one year during that period, colorado springs had been the third fastest growing city in the country.
Let me through around some numbers. From 2001-05 the US economy has created less than 2 million jobs. Our population is close to 300 million, and it is safe to say that a minimum of 2 million jobs in the past 5 years have been taken from new immigrants. A good guess to the number of native-born Americans that have left the job market in the past 5 years is 5 million. It is also safe to assume that 2 million jobs are due to the housing bubble (new realtors, etc.). After the bubble deflates (in whatever manner) there will be 2-4 million less native-born Americans employed than there were at the end of 2000. The housing ATM has allowed at least a few million Americans to use debt as a substitute for jobs. The five-year rate of growth in US employment will turn negative for the first time since the Great Depression.
Island42: Most of the debt I see being accumulated is in housing. This is mostly done by people with jobs or people perfectly capable of holding jobs if they weren't full-time real estate speculators.
Jobs? Sure people working at Starbucks
or Auto body repair shops or as a waitress- where have the jobs been created? At mortage firms? With Intel laying off and Microsoft suffering- you tell me what jobs have been created that can account for the high price of housing in many areas of the USA....
Alot of downsized folks with homes have started up business as "consultants" with few clients and little income but for the draws they take on their home equity loans. Technically, they are not unemployed. As long as house prices were rising at a rapid rate, the fact that they were not making any money did not matter. Times will change.
"Jobs are jobs, and that's good, and that produces income," Thornberg said. "But you hope that some of the other industries will replace any losses when housing slows down.
It is very important that people don't start saying "we need to keep housing prices up because we need to keep the jobs." This is foolish thinking.
If we are in a bubble (which I believe), then that bubble better burst quickly. There has been a massive reallocation of resources (workers, capital) from other sectors into housing. So you've got way too many RE agents and way too many construction workers, for example. If the housing bubble bursts, all those people will go into other professions, where they will be more productive and helpful to the economy.
Workers WILL find new jobs, and it will be better for the economy.
peterbob: Sure, jobs are jobs, as long as you got one of the better ones.
A number of companies, while they don't have outright hiring freezes, are carefully "managing" their domestic staffing levels. Overall, for a req to be created, another position must have been "freed up" first, by either a voluntary or involuntary termination. In my own employer coworkers tell me a lot of people get hired lately, yet the US employee count is roughly flat for a year or so, which means others must be leaving or be dismissed (by appearances more the former).
Of course that means both those who leave and those that get hired "find new jobs". To some extent it's a merry-go-round where people effectively trade places between competitors and firms in the larger industry. But in the aggregate it simply doesn't look like an awful lot of "value adding" jobs outside leisure/hospitality/retail/RE related industries are created. Those are typical "local job multiplier" categories that come and go in proportion to changes in underlying "fundamental" business related to trade outside the local region. Not to poo-poo those jobs and their holders, but they are not very self-sustaining and "marginal" in the above sense.
I wonder where the jobs will be after housing adjusts. I am imagining a general exodus from the bubble areas, further hurting the local economies. Is the future view of McMansion ghost towns complete with squatters and rusty auction signs too extreme?
island42, I think that view is too extreme (I definitely hope its wrong!). One of the problems with housing related jobs - if they go away - is these are relatively high paying jobs considering the educational / skill backgrounds of the employed. Many of these people will probably have difficulty finding jobs that pay anywhere near what they are currently making.
Note: Some of these people are highly skilled in a trade, but I don't know if that skill will be transferable to other employment.
Best Wishes.
Is the future view of McMansion ghost towns complete with squatters and rusty auction signs too extreme?
While that scenario makes for a great made-for-tv-movie (I'd tune in for sure!!! I'd wake Who up in the break room, bring popcorn & beer for that)... But I think it isn't too likely to happen on a massive scale.
We'd have to have some kind of severe 'externality' on top of a general RE decline to see that... and I doubt Helicopter Ben would sit on his wallet through a period like that.
My WAG is that housing slows, valuations stagnate & inflation eats the bubble over about a decade or so.
In such a scenario there will be lotsa jobs lost and I have no idea where the workers will end up... but it is likely to be very slow & not as 'noticeable' as a result.
Unless that 'externality' thing happens...
So this will be the first Bubble in history that doesn't burst. A nice soft landing like the NASDAQ in 2000.
Sure, "This time it's different."
Sure, "This time it's different."
ed - I just see RE prices as so sticky on the way down that they will more likely stagnate and inflation will work on them than crash like a stock market. It will only look like a 'burst' if you compress the time scale sufficiently & calculate in real inflation adjusted terms... that is my 'prediction' - take it or leave it.
However if a major 'externality' occurs (say dollar crisis over a devaluation or war with Iran shutting off oil flows from the Gulf)... then all bets are off. But also - if any of that happens RE won't be the only asset puking.
dryfly,
I hear what you're saying about real estate being sticky, but I'm sure you've checked out the latest post by Mish on the Miami condo supply.
There could be a SIX year supply hitting the market. This may be an extreme case, but I doubt those condo prices will be too "sticky" as the market corrects.
Here in downtown San Diego, the oversupply of condos won't be quite as bad but its still going to be BAD.
Hear ya' Robert... question is will they given'em away or just hang on to them FOREVER or rent them out at a loss... or heaven forbid, have a mysterious rash of fires in condos all over Miami... hmmmmm? Sounds like the makings of a Hiassen novel.
Seriously - I think there will be pain but not a 'Black Friday' like crash. We'll get old (or even older) waiting for this play out.
That is unless there is an 'externality'... of course.
In the last few years the under-25 and 25-29 age cohorts have been an important component of home buying. The ownership rates for those cohorts are now at record levels. The last time they were near current levels marked the peak of that housing bubble, and they fell substantially from there. People in those age ranges can and will move back in with their parents, or double up with roommates. As their ownership is especially concentrated in condos, this will make the condo inventory glut even worse.
I think a soft landing via the inflation route would take a very long time under the current economic circumstances as while there is some general inflation there is very little wage inflation. With real wages falling, houses are not going to become more affordable.
the colorado springs economy, from 1978 to 1986, was real estate driven. 20,000 extra homes were built in the area in anticipation of the coming 'star wars' job explosion, that never materialized. when the smoke cleared, after the real estate crash, 60 MINUTES did a show on the city's massive number of foreclosures. most of the homes in the city, had been purchased with fha loans ,3% down, or va loans, nothing down. during the meltdown, people just walked away from their homes. today's zero down, home loans should give rise to a similar situation in many parts of the country.
the exodus of construction workers was even more harmful to the springs economy than the foreclosures. rental vacancies soared, and many restaurants, that depended on a robust lunch business, closed. the town found out that construction had been the real engine of growth for that eight year period. for one year during that period, colorado springs had been the third fastest growing city in the country.
Let me through around some numbers. From 2001-05 the US economy has created less than 2 million jobs. Our population is close to 300 million, and it is safe to say that a minimum of 2 million jobs in the past 5 years have been taken from new immigrants. A good guess to the number of native-born Americans that have left the job market in the past 5 years is 5 million. It is also safe to assume that 2 million jobs are due to the housing bubble (new realtors, etc.). After the bubble deflates (in whatever manner) there will be 2-4 million less native-born Americans employed than there were at the end of 2000. The housing ATM has allowed at least a few million Americans to use debt as a substitute for jobs. The five-year rate of growth in US employment will turn negative for the first time since the Great Depression.
sp. throw
Let me know what you think;
Island42: Most of the debt I see being accumulated is in housing. This is mostly done by people with jobs or people perfectly capable of holding jobs if they weren't full-time real estate speculators.
Island42
Jobs? Sure people working at Starbucks
or Auto body repair shops or as a waitress- where have the jobs been created? At mortage firms? With Intel laying off and Microsoft suffering- you tell me what jobs have been created that can account for the high price of housing in many areas of the USA....
Alot of downsized folks with homes have started up business as "consultants" with few clients and little income but for the draws they take on their home equity loans. Technically, they are not unemployed. As long as house prices were rising at a rapid rate, the fact that they were not making any money did not matter. Times will change.
"Jobs are jobs, and that's good, and that produces income," Thornberg said. "But you hope that some of the other industries will replace any losses when housing slows down.
It is very important that people don't start saying "we need to keep housing prices up because we need to keep the jobs." This is foolish thinking.
If we are in a bubble (which I believe), then that bubble better burst quickly. There has been a massive reallocation of resources (workers, capital) from other sectors into housing. So you've got way too many RE agents and way too many construction workers, for example. If the housing bubble bursts, all those people will go into other professions, where they will be more productive and helpful to the economy.
Workers WILL find new jobs, and it will be better for the economy.
peterbob: Sure, jobs are jobs, as long as you got one of the better ones.
A number of companies, while they don't have outright hiring freezes, are carefully "managing" their domestic staffing levels. Overall, for a req to be created, another position must have been "freed up" first, by either a voluntary or involuntary termination. In my own employer coworkers tell me a lot of people get hired lately, yet the US employee count is roughly flat for a year or so, which means others must be leaving or be dismissed (by appearances more the former).
Of course that means both those who leave and those that get hired "find new jobs". To some extent it's a merry-go-round where people effectively trade places between competitors and firms in the larger industry. But in the aggregate it simply doesn't look like an awful lot of "value adding" jobs outside leisure/hospitality/retail/RE related industries are created. Those are typical "local job multiplier" categories that come and go in proportion to changes in underlying "fundamental" business related to trade outside the local region. Not to poo-poo those jobs and their holders, but they are not very self-sustaining and "marginal" in the above sense.