July 4, 2009

July 4th Observations And Predictions

What do you see in your local housing market this holiday weekend? And what are your mid-year predictions? The Times Herald. “Travel on the national level is projected to decline by almost three percent with 37.1 million Americans, or 12.2 percent of the total population, traveling this weekend. Those from the Middle Atlantic region who are going to travel this weekend are planning an expedition on an average of 426 miles round trip, but more than 50 percent will travel 250 miles or less round trip, according to the release.”

“‘Philadelphia-area travel this holiday is essentially flat this year,’ said Catherine L. Rossi, Manager of Public and Government Affairs for AAA Mid-Atlantic. ‘Ongoing uncertainty about the strength of the economy, joblessness and sagging household incomes are making people think twice about traveling for Fourth of July, especially if they are already committed to another vacation.’”

The Associated Press. “Several states are facing the prospect of government shutdowns and program cuts as they enter the first weekend of the fiscal year and July Fourth holiday without a budget in place. ‘This downturn, even more so than previous downturns, really is affecting every state right now,’ said Brian Sigritz, a staff associate with the National Association of State Budget Officers.”

“States weathered similar problems in the recessions of the early 1980s, 1990s and earlier this decade. The confluence of so many problems hammering the economy at once make the present situation seem dire. ‘Numerous things look worse than some past recessions,’ said Bert Waisanen, a fiscal analyst with the Denver-based National Conference of State Legislatures. ‘The housing market is worse. Industrial production is worse. Wages are nearly worse.’”

The Las Vegas Sun. “With the Las Vegas economy mired in a deep recession, some are suggesting it’s time for the community to hit the reset button. That is the topic for the Lied Institute for Real Estate Studies, which will host its 12th-annual round table Aug. 19 and 20.”

“About 80 business leaders, academics and politicians will discuss ‘What’s Happened? What’s Next?’ The group will assess what happened to Las Vegas in the past 18 months and what can be done for future growth. ‘We sort of felt it was time for people to hit the reset button and find out how we can get out of this,’ said Debra March, Lied Institute’s executive director. ‘It is no different then when a computer crashes. We have been through a difficult downward spiral as a community, and it is time to reboot.’”

“John Vorsheck, regional manager of Marcus & Millichap, who serves as chairman of the round table, said the backdrop of the economy could be an impetus for business and government leaders to heed recommendations from the panel. ‘What do we look like once the dust settles?” Vorsheck said. “It is going to be our responsibility moving forward that we don’t fall victim to this again.’”

“Las Vegas went through such euphoria with credit flowing freely and expansion rapidly occurring, but now companies are contracting and reducing the space they need. Subdivisions that popped up overnight have many empty homes in them, organizers said. ‘I think everyone is coming to grips with what is the reality,’ Vorsheck said. ‘They understand what we experienced from 2002 to 2007 was not a normal market.’”

“UNLV economist Keith Schwer said anytime a community goes through a recession like Las Vegas is now, it’s a good opportunity to rethink what it is doing. The lesson to be learned is that Las Vegas isn’t recession-proof, and a lot of plans had been incorrectly based on that, he said. Second, Las Vegas has been overbuilt with commercial buildings and housing and will have to grow out of that excess, Schwer said. Because of that, Las Vegas will be slower to recover than other cities, he said.”

“‘The focus should be on the long-term Nevada question of how do we diversify our economy so we end up with less boom and bust,’ Schwer said. ‘We need to remind people that the last 25 years were unique, and there is no reason to believe we are going to have as prosperous times as we had in the past. People would be misreading things. That won’t happen.’”

Some predictions from the beginning of the year. “I think that a big part of the continued downward pressure on house prices will be the sobering reality that mortgage balances as a percentage of gross income will decline markedly. In the ‘old’ days, the acceptable ratio in most areas was 2.5 - 3.0X gross income. I think 2.5 will become the upper limit for safe borrowing that allows also some saving or a new car regularly, but not both. I think that a target of 2.0 will be the new goal among those wise enough to see the damage wrought by the bubble. If energy prices remained permanently low because of oil remaining permanently low - which I think there is almost no change of - then I’d go back to 2.5 as the ideal. Saving is in, finally. Modest living might become trendy.”

A reply, “If your prediction comes to pass, no amount of funny money printing or interest rate buydowns by the Fed will save the housing market from the ongoing, precipitous crash that is already underway.”

Another added, “If savings become trendy, couldn’t I argue that inflated Mc Mansions are toast? The Government along with NAR can not change trends. Once burnt twice shy. This trend is going to be forced upon millions like it or not. Now only if we can convince my high wage earning fiancé not to buy hundreds of shoes, coats, clothes etc and to follow this trend.”

And another, “Make spending too much money socially unacceptable! If it becomes ‘cool’ to live within your means, the REIC, banks and government can huff and puff and blow interest rates to zero and drop hundred dollars bills from helicopters until they are blue in the face and it won’t matter. It takes only one link to break in the chain.”

A reply, “We can figure out how to live on less - less credit, less eating out, smaller houses or more people in the houses, older cars, you name it. But the process of getting to the smaller economy that this level of consumption will demand is going to hurt like anything.”

One said, “The entitlement generation will never give in to something so unreasonable. How dare you suggest such a thing.”

One had this, “I have thought housing will bottom in a couple years; my only doubt is all the government intervention. By driving interest rates low they could spur some buying by those who have secure jobs. I bet they do something under Obama to help people stay in ‘their’ homes, or should I say government homes owned by Fannie and Freddie. So, if the price is right I’ll be buying in 2009! I may be early, but it will be a cash deal and cheaper than rent at this point. Although, I do feel I have a year or more to find the exact deal I want!”

Another said, “I wish they would stop calling it a housing or foreclosure ‘crisis.’ The ‘crisis’ happened when the regulators, politicians, Wall Street thugs, etc. forced or allowed prices to escalate like they did.”

“It’s only a bad market for sellers. For buyers — the other half of the equation — the market is quite good and getting better by the day. As a future buyer, I see no crisis…only sunny skies ahead!”

And finally, “I can’t predict the future any more than the next guy, but my guess is that this is a generational cycle, more than it is a next year, two years, or three years until it’s all good.”

“My father lost 50% on a house in 1960, in a micro economic event (Rt 190 in Buffalo planned through our block). He absolutely rejected the idea of buying a house for the next 30 years or so. My niece has lost 50% on TWO houses in Santa Rosa, one a step up and the other ‘would sell quickly.’ She and her husband will remember this pain for the rest of their lives I’d expect. The whole model we have lived with for decades is broken.”

“Three times income is a stretch for anyone raising a family. That is over half your takehome pay. Plus utilities and maintenance and you and are living like a slave and your kids like paupers. I have done that for decades and will not do it again. Will anyone do that with a mindset that a house is the worst investment ever? Add to it that those average incomes are going down and taxes are going up (half my friends are already in a bind with reduced income). With an economy that needs to be reinvented and a government hell bent on large scale forced malinvestment, we will be in pain for more than a couple of years.”

“My 82 year old mother says ‘people will learn to live like we did.’”

“The bottom is a long way down, but it won’t be a killer for those of us who are not in debt. I am glad to have a roof over my head and a job, no matter how transitory. Food in the cupbaord, savings, friends and freedom. Merry Christmas to all of you, may you recognize your blessings and enjoy living!”