‘Great Comeuppance’ Depends On Jobs: Forecast
Inman News reports on the latest UCLA forecast. “The housing market will not crash unless the job market weakens significantly, though home prices are expected to stagnate for at least five years during this down cycle, according to the latest Anderson Forecast.”
“The forecast calls for the market prices of homes to hold steady over the next five years, which equates to a drop of about 15 percent to 20 percent in real terms because of projected inflation.”
“It could take 6.3 years to 16.5 years to work off excess home-price appreciation in California, the report suggests. ‘In other words, these problems are likely to be with us for a long time,’ forecast director Edward Leamer states in the report.”
“Already, home prices have dipped in some markets. ‘There are some cities and some states that have experienced slight price declines so far this year, but we are very far from a Great Comeuppance in which the extraordinary appreciation of the last five years is taken away,’ the report states.”
The Union Tribune. “The California real estate market will remain sluggish through at least 2008 and spark widespread layoffs among construction and financial firms, according to the latest UCLA Anderson Forecast.”
“‘Real estate-related employment has moved from a major engine of growth in 2005 to a drag on growth in 2006,’ UCLA economist Ryan Ratcliff wrote. Ratcliff predicts that nearly 100,000 construction workers will lose their jobs over the next 2½ years.”
“‘A 100,000-job loss would be the outer limit of what I expect. It’s unlikely but not impossible,’ said Kenneth Simonson, chief economist with the Associated General Contractors of America.”
“‘San Diego gets all the bad press, but Sacramento is the story that nobody knows about,’ Ratcliff said. ‘Sacramento has gotten the most pummeled over the last year.’”
“Michael Pento, a strategist foran investment firm in Huntington Beach, said a slowdown in construction is needed, since the creation of new houses has outstripped population growth nationwide. ‘It will take years to work out all the excess supply of homes, especially since home builders are still adding fuel to the fire,’ Pento said.”
“‘For the real estate market to recover, you have to wait for incomes to catch up with the home prices, and growth in income has been negative after adjusting for inflation,’ he said.”
“‘Housing contribution to GDP (the gross domestic product) will be very weak, with building and finance and real estate commissions suffering significant declines,’ Leamer said.”
“Leamer cautioned that the outlook was based on data trumped by recent reports showing that housing sales and starts were sliding more rapidly than the group had projected. If the trend accelerates, he said, ‘then our forecast is too optimistic.’ Leamer said, ‘the unhappy home builder is not going to have anything to do.’”
“‘Since builders are much more willing to lower home prices than owners, the handful of areas where new homes account for an above-average share of total sales activity could see some price declines,’ Ratcliff said.”
“In recent months, local real estate brokers and agents have bemoaned the negative effects on the existing-home market because of some new-home price cuts and especially, incentives of up to $100,000 per home to lure buyers.”
“Building permits issued for single-family homes in California dropped 41.8 percent in August compared to August 2005, the California Building Industry Association reported today.”
“CBIA chief economist Alan Nevin said that new-home construction in California is expected to continue to cool for the remainder of the year. Builders will continue to reduce their standing inventory of unsold homes that are under construction or completed, he said, and are now using aggressive marketing techniques to reduce their inventory.”
“Layne Marceau, 2006 CBIA chairman, said affordability is a major problem in the state. ‘For far too many California families, home prices today are simply not affordable, and even if the real estate naysayers’ predictions of a drastic market correction came true, housing would still be unaffordable for most first-time buyers,’ he said.”
Mr. Leamer as aan economist should explane who is going to help home buyers to get $150000 YEARLY INCOME TO PAY FOR THOSE HOUSES.
Household budgets don’t matter much so long as prices keep going up and you can borrow money at 40%+ of your income with a 0% down Option ARM.
And this is why even flat appreciation causes a blood-bath. I can see this, explain to me why a UCLA economist cannot.
Do you work for a research institute whose funding source is controlled by REIC decisionmakers who might cut you off if you publicized your honest opinion? Of course, I am not 100% sure that all economists get the flat appreciation problem, as it is a bit too practical of an issue for many ivory tower thinkers to grasp.
That is valid reasoning, but it seems weak in this case. The UCLA report is valued and gets a lot of attention specifically because they are known for making tough calls about economic cycles correctly or very close to it. If anything some controversy about an up or down call is very likely to fall in the “there is no bad publicity” column for these folks.
Sorry, Mole Man, it is my best shot at explaining what I don’t fully understand. However, I do believe they have toned down the bearishness of their true opinion for whatever reason.
“making tough calls about economic cycles correctly or very close to it”
That sounds like the spin machine of the NAR. correctly or very close to it??? My curious mind says
PROVE IT…and what exactly is close to it mean??
Check back to UCLA forecast about real estate in May 2000..they were no where near projecting a stron upturn in housing… If they missed it on the way up, why should I accept what the forecast on the way down.
“I do believe they have toned down the bearishness of their true opinion for whatever reason.” and “a research institute whose funding source is controlled by REIC decisionmakers who might cut you off if you publicized your honest opinion?”
Getstucco, you’re spot on…
To NOT tone down bearishness would be committing vocational/economic suicide. Look at the “Solomon Asch Study.” Rarely, and I mean RARELY will folks put their rears on the line–against the larger acquiescing group–even when they know they’re right and the group concensus is full of holes. And that’s when one’s economic livelihood ISN’T on the line.
DOC
Does it seem odd to anyone here that:
- A year ago Chris Thornberg was very bearish and said so.
- Six months ago, Mr. Thornberg was less bearish
- Now Mr. Thornberg is gone, and the tone is more even lighter?
At the same time:
- A year ago Permabulls were still bellowing.
- Six months ago, The MSM was not yelling so loudly about the bubble
- Now the bubble is evident and the MSM is telling us that the bubble has popped?
Coincidence?
The UCLA Anderson forecast was so far off on the timing of a Bay Area dotcom “recovery” it wasn’t even funny. They started calling for an upturn around here about three years before it was noticeable.
So based on that, and a few other gaffes, I’d say that Leamer is wrong at worst, and soft-pedaling the real picture at best.
So “flat in five years” (before inflation), barring exogenous events (including helicopters), might work in some of the best neighborhoods in the state (I can count those of that kind on one hand here in the inner SF Bay), but for everywhere else there’ll be “damage” of some kind, including cratering.
I have to totally concede this point. The UCLA group have change their view to favor a “sofr landing” scenario recently apparently with respect to their funding sources. In my defense I would argue that the apparent corruption of this entity represents the scale of the bubble that has occurred. &frownie
There is a UCLA bldg which is named after Kaufman, who i believe is a mega RE mogul and a big UCLA donor/benefactor. Could this have something to do with the soft-pedaling of the Anderson Forecast?
posted “And this is why even flat appreciation causes a blood-bath. I can see this, explain to me why a UCLA economist cannot.”
Easy, because they belive the earth is flat.
posted ““The housing market will not crash unless the job market weakens significantly, though home prices are expected to stagnate for at least five years during this down cycle,”
Tell that to the couple that gross 4,000.00 dollars per month. With a 4200.00 monthly house payment.
Someone needs to ask these E-Con-Whores: Why home prices were going up and bubble was building in 2002 when jobs were being lost?
Jas Jain
Exactly, Jas. Interestingly enough, Ed Leamer was one of the most bearish economist in 2003 (I believe I even saw him reference the “housing bubble” in 2001/2002). Now, he’s all about “plateauing” prices. Interesting…
The forecast calls for the market prices of homes to hold steady over the next five years, which equates to a drop of about 15 percent to 20 percent in real terms because of projected inflation.”
“It could take 6.3 years to 16.5 years to work off excess home-price appreciation in California, the report suggests. ‘In other words, these problems are likely to be with us for a long time,’ Leamer states in the report.”
Why don’t these guys look at the history of RE markets the last 35 years and they will see prices don’t just stay flat. Prices are cyclical and go up and down. This is true for almost all asset markets. They better hold on tight as it will be a rough ride down.
“It could take 6.3 years to 16.5 years to work off excess home-price appreciation in California, the report suggests. ”
I don’t know about you all, but after reading that I’m dying to buy a house.
If it’s gonna take 16.5 years, I might end up dying *before* I buy a house.
At least you won’t have to die deeply underwater in debt.
“At least you won’t have to die deeply underwater in debt.”
i thought that was the whole point of the new paradigm.
I plan to die as deeply in debt as possible!
Yes, shot by a jealous husband or a pissed off creditor in my 90’s will be fine.
Yes, shot by a jealous husband or a pissed off creditor in my 90’s will be fine.
Preferrably one and the same?
Yes, a FLH - F__ked Lender Husband.
Since I’m really now past the point of seriously considering a traditional home anyway I’m starting to believe that I’ve graduated from being a bubble sitter to being a “bubble watcher”? It may be more frugal for a guy in my position to simply look for a modest vac./2nd home (which is almost certain to crash sooner and harder) and just chuck it in. 16 years from now I’d be almost 64 years old! WTH am I going to do with a 30 year mortgage at that age? Hell I don’t like the idea now! For many here it may now make more sense just to withdraw from this market altogether and seek value in the “resort/retirement” areas anyway! There goes a whole other demographic right out of the market.
Don’t get me wrong, this will crash and crash hard and I DO mean from coast to coast, but really what’s the point? Given that timeline even if I bought say 5 years from now I would have another 10+ years of neg.-zero appreciation. What’s that helping? Better to find a place off the beaten path you can go to on weekends/vac./retirement and continue to “rent your luxury” at an ever more affordable price. Down the road your, now retirement home will be fully improved (and fully paid) and your last day in your lux. rental will be your retirement party. Oh and you can keep the deposit.
My wife are doing what you suggest. We are renting in SF and looking @ purchasing a home in Las Vegas as prices head down the next 12-18 months. 30 years of vacation time and family reunions - paid off and ready to retire. CA is the worst place to buy a new home. My office mates property taxes our 1/2 my rent a year. They have over an hour communte each way…I walk 10 minutes to the office.
No, buy 5 years from now and ride the next 11 up just like the period 1990-1995-2006. The Anderson forecast has never been right. they missed the run up they missed the top and now they miss the coming decline.
They are insane just to even think the prices will remain flat for 10+ years!! This is what they said in the 70’s and early 90’s. It will be a long slow flat process to get back to reality- My Ass People have to sell more then they have to buy. We will hit the bottom in 3-5 years!! All those toxic loans that come due and can’t pay, This will be a painful correction and it ain’t going to take 15+ years . I loved the bead of sweat on the brow comment. Absolutely correct the sellers are the ones nervous now. Many people have to move every year and these people could barely afford 1 house payment. They will lower their price once they run out of options!!
“They are insane just to even think the prices will remain flat for 10+ years!!”
Not insane, just dishonest. But you would have to either be ignorant or insane to take some of their predictions at face value.
When you add all that to the change in Bankruptsy laws.. its going to be ugly! People will not have this mess out of their system for 7 years… thats 7 years of monthly payments to your old loans.. not just a mark on your TRW!
posted “If it’s gonna take 16.5 years, I might end up dying *before* I buy a house.”
“We are all renters” Mohamad Ali
Hmm, renting at half the cost of buying is sounding better and better Mr. Leamer.
Leamer was the first guy I saw talking about how the price/earnings (aka price/rent) ratio on homes was way out of whack to the high side. That was back in 2002.
GS, I saved a LA Times article from Oct 2003 in which Leamer/Anderson said then that the housing market was over valued by about 40% and was approaching bubble territory. He’s certainly downplaying his remarks currently.
Most messengers would prefer to not get killed for their efforts.
October 2002 Fortune Magazine “Is Housing Next?” They were talking about house prices being totally disconnected from rents.
Ya think?
How about renting at more than the cost of a monthly mortgage? Right now, I can show you a house in my neighborhood that is vacant, and the owner wants more rent than I pay in mortgage each month. And I bought this place back in ‘04.
I think they are saying we are going to have five or more years down probably dropping 30-60% total, a couple of flat years and the five to eight years of appreciation after that bringing us back up to even, without saying it. Therefore working off the excess home price appreciation. F’tard talk.
Why should I even think about buying now? The Japanese market took 15 years before an uptick. There are still many in the US who do not believe in a bubble. Yes it is cyclical and we are on a 15 year down turn.
These guys do deserve the Nobel Prize, they’ve invented new laws of economics.
Thornberg was a very bearish economist at UCLA, but he left last month. The UCLA Anderson School is funded by the Mortgage industry. It’s important to know on which side your bread is buttered.
I think they are now trying to confuse people by turning bust into a chicken-and-egg dilemma. They said “the housing market will not crash unless the job market weakens significantly.” But RE related jobs account for 1/2 of new jobs created in the past 5 years in CA, so if the market doesn’t crash, those jobs will be kept and therefore the job market won’t weaken significantly. So everything will stay the way. How brilliant!
We just recorded a 42% yoy drop in building permits, and the “new”Anderson School some how would have us believe only 100,000 jobs (about 10%) of the sector will lose jobs in two and a half years? And the other guy actually begs to differ that this is too high. Either they totally fail to understand modern American slash and burn labor practices, or are smoking something about a recovery in activity.
Absolutely, there’s no way prices can stay flat. Who wants to be mortgaged to the gills for no appreciation?? Why bother??
“Who wants to be mortgaged to the gills for no appreciation??”
————————
You hit the nail on the head. This is why *monthly payments* will go down, as well as actual prices. Folks, do not only look at what the same monthly payment should buy. Calculate a much lower median monthly payment by the time this bottoms.
“If the trend accelerates, he said, ‘then our forecast is too optimistic.’ Leamer said, ‘the unhappy home builder is not going to have anything to do.’”
Does this mean no more free car with that home purchase?
It means free condo with a car purchase.
LOL! Excellent
Could this be part of the reason Thornberg moved on… perhaps he did not share their optimism?
Or perhaps the “optimism” was part of the grant.
Deb,
how are things in SFV these days?
Slow. As I have mentioned, I don’t actually sell anymore, I just keep my license and MLS access, etc. My friend still in the business tells me the newbie agents are disapearing, lots of empty desks. Lots of inventory just sitting with CRAZY list prices. I have seen a few great reductions come through just in the past week or so, we’ll see how quick those go.
We’ve got 8500+ houses on the market, and about 1100-1200/ mo sales pace. That pace should slow dramatically in the coming weeks with the holidays, etc. We could be up to 10 months worth of inventory by next month. Lots and lots of reduced listings.
I keep waiting for the downturn to pick up steam . I think we may see that as we move through the fall.
10 months of inventory coming up! Can you say price reduced three times? Sellers won’t know what hit them in the next few months.
NorCal! Didn’t you read the Anderson Forecast…..Prices flat.
Get with the program.
“downturn pick up steam” - well, of course. Now that the MSM are reporting on the bust, that 1100-1200 pace should slow to a couple of idiots here and there, or maybe just auction bidders. What is the rate of auctions in your area?
‘Christopher Thornberg, the UCLA economist whose California forecasts last year called for the housing bubble to burst with dire consequences, recently left the school’s forecast group to form his own consulting firm. He said last month that his expectations were growing more gloomy.’
Ya think? Leamer’s ‘caution’ about the forecast being based on dated data says a lot - CYA all over this report.
” Could this be part of the reason Thornberg moved on… perhaps he did not share their optimism? ”
Maybe he couldn’t dump those troublesome attributes lost to the new cult of money and greed…integrity and ethics.
Sarcasm toggle off.
DOC
Home prices stagnating means the sellers don’t really need to sell and have the relative luxury of waiting it out. While certainly true for some of the market, I don’t buy that premise at all for a noticeable enough portion to screw the comps, thereby voiding the “stagnant” notion. Glad my folks didn’t have to pay USC-level tuition for my education.
“Home prices stagnating means the sellers don’t really need to sell and have the relative luxury of waiting it out.”
Only if you have a mortgage with fixed payments. If the ones with the exotic loans had the luxury of waiting it out, they wouldn’t have taken out an exotic loan in the first place. I still think prices are going to come down.
“Home prices stagnating means the sellers don’t really need to sell and have the relative luxury of waiting it out.”
Or it means that they’re underwater on their loans and can’t afford to lower their price and they’re just waiting the six months to a year it takes for the bank to process a forclosure.
lol — whoops — UCLA prices. Must’ve been thinking of the USC cheerleaders, the only traditional ones left.
LOVE those sweaters.
Hey, I paid USC-level tuition! Oh, you mean UCLA?
But seriously, I have to agree, they can’t possibly think prices will just stagnate for 6-15 years! Especially in SoCal where the historical growth of home prices have been the best roller coaster ride in RE.
“‘For the real estate market to recover, you have to wait for incomes to catch up with the home prices, and growth in income has been negative after adjusting for inflation,’ he said.”
Fine, then I guess I’ll be waiting …..
Was that 6.3 – 16.5 years? Okee-dokee. Run that little “waiting” assessment past today’s sellers and see which one of us develops sweat on their brow first.
Excellent post Lefantome.
Was that 6.3 – 16.5 years? Okee-dokee. Run that little “waiting” assessment past today’s sellers and see which one of us develops sweat on their brow first.
Yep. I hear the comments that buyers do not have to sell all the time… and I see the moving trucks going out to Texas and other lower cost of living areas.
I’m also looking at the “mortgage quality” of the buyers of their homes and its pretty obvious that those people will have trouble making payments in 12 to 24 months.
I flat out told a realtor I wouldn’t consider buying for two years as our company is having trouble hiring at these home prices and I first want to see if I’m tranfered out of state. The expression back was… interesting.
Neil
“I flat out told a realtor I wouldn’t consider buying for two years as our company is having trouble hiring at these home prices and I first want to see if I’m tranfered out of state. The expression back was… interesting.
Neil ”
I’m guessing the expression back was a slack-jawed, blank stare? Priceless. The invisible hand of economics finally coming into play . . .
Actually, it was slack-jawed, but not quite blank. It was a total lack of comprehension that someone who qualified to buy wouldn’t consider it. Her snipit back was “what, are you waiting for, interest rates to go up?” I returned a stare with only the words “are you aware of the inverted yield curve?”
Neil
I’ve had that same reaction with realtors, but I am going to start going to open houses again because I’ve noticed the ones who still have open houses are cuter, younger, and more scantily clad than ever. Next year one will have to go to a strip club to meet such women and I’ve never had the nerve to go into such a place.
Get the nerve… it’s worth it! -
“Ratcliff predicts that nearly 100,000 construction workers will lose their jobs over the next 2½ years.”
I wonder what percentage of those who lose their jobs are US citizens or does it really matter?
It could potentially matter from a household savings standpoint (that is, if Americans had any net savings), as foreign workers tend to send remitances back to their families at home. But from a regional economic activity standpoint, a job is a job, as local consumption spending is likely pretty similar whether or not a worker is foreign or a resident.
Those illegal aliens who are now longer employed by the construction/landscaping industry…will they compete with Americans for the remaining retail/burger flipping jobs, go home or scam a way to draw benefits from the system? And if they don’t leave, whose property taxes are going up to pay for their kid’s education? Buying a house looks more and more like a sucker’s game.
we need illegals, who else is going to pay into SS and not collect!!!
Anyone under 30.
That system will be remade or collapse under its own weight in less than twenty years which means anyone under 45 is already doomed. When poor savings and retirement planning are taken into account this has potentially severe implications for future housing markets. We are not going to be able to afford to live as we have been.
Mole Man,
What about those MBS and hedge fund investments which are creeping into pension fund asset portfolios in order to juice up the yields? This is another looming financial disaster waiting to happen IMO.
“…will they compete with Americans for the remaining retail/burger flipping jobs..”
Yes, and they already are. Here in Washington, I have been seeing more and more hispanics (non english/broken english) working as supermarket baggers, deli workers, etc. But they are taking jobs nobody wants right? Dead wrong. These are first jobs for many young people during high school, summer, etc. I, personally, believe the illegal immigrant population to be above 25 million nationwide.
I would like to make my position regarding this clear. I do not fault the illegal workers, though I do not support or advocate entering ANY country illegaly. I fault the federal ans state governments, and big business and it’s upper management which reaps huge rewards off the backs of cheap labor, driving wages down, and padding their own pockets along the way.
“…but we are very far from a Great Comeuppance in which the extraordinary appreciation of the last five years is taken away,’ the report states.”
I have learned over the decades that whatever, “they” say is usually the opposite, sooo we must be getting close to a big drop-off.
Right. For instance, I cannot begin to count how often the MSM experts have been quoted to say “There will not be a crash” in recent days.
When they put alot of emphasis on something that means they know its going to happen. I guess you have to give these guys some slack. What if the NAR, UCLA Anderson forecast, and the MSM held a consensus view that “Yep this is going belly up”, it would probably create more panic than we are about to experience anyway. They have to manage the message.
So you advocate officially lying to the public as means to coddle the masses.
You got me. That’s actually a very good question. My answer is basically No. I’m just making an observation more or less. It’s like working at a company that is going through some tough times, the company’s officers will manage the message to maintain moral, if they don’t that company will disappear for sure. Where I find fault with the powers that be was when this market became disconnected with fundamentals in the first place and they continued to hype it to the extreme. That was some bald faced lying. There is a gray area here, by giving false information you are leading people to monumental bad financial decisions of which they will not recover, on the other hand as I stated if the powers that be all came out and said this thing is really going to tank, then it would probably be a worse crash than it already is going to be which would harm more people financially of they will not recover. They should have never let it get to this point in the first place.
I don’t advocate this stance but the NAR, and all of the people in line waiting for their handot do!! They have become dependant upon the easy money they have received. It is much easier to lie in order to continue the gravy train. Work is so overrated!!! Words cost them nothing but they have everything to gain from them!!
“So you advocate officially lying to the public as means to coddle the masses.”
Never, NEVER startle the herd.
they could have just shut up.
“a Great Comeuppance” is going to happen tomorrow when the FB’s look at the headline and realize they are stuck. The flippers are going to squirm thinking of their evaporated “appreciation”, the FB’s living on equity are going to end up in divorce etc.
The world wide ramifications of the 7th largest economy in the world grinding to a halt are already being posted in Japan, Chian and India. This small piece of writing is causing trillions of dollars to change hands. I define this as “comeuppance”.
maybe the “Great Comeuppance” won’t be tomorrow, but maybe next month:
http://www.sdcounty.ca.gov/ttc/pt_general.html#calendar
Gotta love those new tax bills being printed today and mailed in the start of October. I’m sure those flippers stashed away a little extra in case they couldn’t flip their property
One day late gets a 10% penalty - that seems to be pretty SOP for local government pigs. Does one day late on a credit card payment mean a 10% penalty? Once people stop being able to pay these confiscatory taxes (Oh yeah, I know, I know, the SD firemen are underpaid at 100K/year, and all the other SD county workers with their precious govt jobs are definitely not overpaid one dime, in fact, their salaries should be raised and more workers should be hired) - somewhere down the road - there is going to at least be a call for penalty and interest forgiveness. Which, in fact, there should be.
Notice that nobody in the private sector could ever get away with the kinds of penalty and interest local governments charge for late payments. I know the “bashees” of choice on this blog are the Fed, the economists, the lenders, etc., but for me it is definitely LOCAL GOVERNMENT - they make me sick.
Rubbish.
If you believe ‘nobody in the private sector could ever get away with the kinds of penalty …’, then I suggest you buy something on ‘24 months interest free’ terms and see what happens if you’re one day late with one of your payments.
I just took a temporary job with Riverside County. Rest assured that I am not being overpaid ($14.75/hr for a programmer with a degree from a good school) I did, however, look at the pay of some of my managers. Amazing. The head of my department makes $270k/yr.
http://agency.governmentjobs.com/riverside/default.cfm?action=viewclassspec&ClassSpecID=1027&Agency=9&ViewOnly=Yes
“‘Since builders are much more willing to lower home prices than owners, the handful of areas where new homes account for an above-average share of total sales activity could see some price declines,’ Ratcliff said.”
The most accurate of all forecasts are the ones which predict something that has already occurred.
One of my favorite truisms:
“Economics is the art of predicting the past.”
Then there’s this one: “Economists are people without the personality to become accountants.”
from dean baker
“The August report also showed a modest 1.3 percent (nominal) decline in median prices. This nominal price drop, which is approximately a 5 percent real price decline, in fact hugely understates the true fall. Builders in many of the formerly hot markets are giving large concessions in the form of free add-ons, below market mortgages, subsidized closing costs, and buyer side realtor bonuses. An accurate accounting of these concessions would certainly push the true price down further.”
http://www.prospect.org/deanbaker/2006/09/august_new_home_sales_more_bad_1.html
barely into this and we’re already down almost 5% while everyone is too busy looking at the dow almost clost at it’s old high.
Perhaps stocks are going to be the new bubble?
I think you are right. The DJIA seems to have achieved a permanently high plateau — right up to its (nominal) record level as of six years ago once again. (Not sure exactly why that matters after six years-worth of inflation, though…)
A commentor over there had an interesting analogy”
“The effect of lowered housing prices on the economy will not be a crash or a crunch or a deflating bubble. It will not be a single event or impact. It’ll be more analogous to a bowling ball rolling down a flight of stairs: one thud after another, with the impacts growing both louder and frequent as the ball picks up speed.”
Never thought about it quite that way before, but it sounds plausible.
sounds like the opposite of lereah’s rolling boom. a “rolling bust.”
more like a wrecking ball in Phoenix, Miami, and downtown San Diego.
Now transfer this logic to places like Phoenix or Sacramento, where the bulk of the economy is in real estate or related fields, and there aren’t other large sectors of the economy to balance things out. Ouch.
“Building permits issued for single-family homes in California dropped 41.8 percent in August compared to August 2005, the California Building Industry Association reported today.”
I don’t claim to be any kind of economic forecasting expert, but for a wild guess, wouldn’t a 41.8 percent drop in building permits today suggest there might be about a 41.8 percent drop in real estate construction work tomorrow?
No, because much of the work is off the balance sheet and doesn’t officially exist.
Those nonexistent jobs will create a ripple effect throughout the regional economies from which they cease to not exist.
Hah! With language like that, you should have been Greenspan’s successor.
Construction is a long term prospect. Projects take on a momentum of their own. The money has been loaned and needs to be spent, so the building continues.
But anyone who thinks that the Builders don’t know who will get axed and when has their head in the sand.
The California real estate market will remain sluggish through at least 2008 and spark widespread layoffs among construction and financial firms, according to the latest UCLA Anderson Forecast
Sluggish as in it will leave a trail of slime everywhere it goes?
LOL. Don’t make me laugh … I guess the flippers aren’t to pleased with the sluggish report that means there is no exit with a 2007 rebounding market like the NAR/DL said .
so what city has NOT come off 10% since last may ……….hmmmmmmm
name one
“stagnate”
“steady”
“work-off excess”
“dipped”
“cooling”
How much longer until we don’t have to hear these BS terms anymore? Just this past summer has seen a “crash” in sales activity, and a solid 10 to 20% decrease in asking prices by sellers still trying to find the price at which someone will be stupid enough to catch a falling knife. I guess a “crash” for these shills won’t be admitted until prices have dropped 50%. Oh well, I guess I can listen to their Orwellian nonsense for one more year.
“The forecast calls for the market prices of homes to hold steady over the next five years…”
—————————————————————————–
Sure glad I chose not to go to UCLA business school! What a bunch of nonsense. Do the business geniuses at UCLA really believe that “market prices” will just hang in suspended hibernation for the next 5 years or am I interpreting their prediction incorrectly? The National median price today will be the same 5 years from now?
The big assumption there is people will not have to sell and hang on to there lovely homes. But, this forecast misses the critical factor that got us here and that is the Flipping mentality with loose credit standards and easness of getting the loans with IO , choose your payment, etc. This all worked while flippers were selling to each other but the music stops and there were only few seats which are taken by home builders and through there cost model can still sell the house with shrinking margin and scresing the comps for the flippers. IO only can not wait for 6.3 years yet 6 months and will be forclosed in next 3 months. Result comps deterioration and this is a slippery slope that RE industry is trying to dodge. Lireah changed his tone like for people to start believing him and then he will lead the crowd to altar after 3-4 months when the MARKET IMPROVE as he claims. Good Luck Suckers, look at the bag you ar eholding it has no bottom.
Yeah, this is why they deserve the Nobel Prize, some how markets won’t be priced on the margin by home “owners” who need to sell but by a new magic law of economics whereby the wishing price mentally intimidates the few remaining buyers into honoring the will of stubborn “luxorious” home owners who don’t need to sell even though there are desparate ones who do.
Exactly. When an asset is projected to lose real value over the next five years — for example, a bond with a coupon below the expected rate of inflation — its price drops, to discount the future earnings.
For long-term home owner-occupiers, it may make sense to sit the adjustment out. But prices aren’t being set by owner-occupiers. They’ve been set by speculators — either outright investors or people who’ve used speculative loans to get into houses they can’t afford (and can’t retain if prices don’t continue to rise rapidly, because they can’t afford the higher payments when their adjustables adjust).
They are saying nominal prices won’t change but “real” (after inflation) housing prices will decline.
I wish they’d show one asset market where, when predictions of no price appreciation for 5 years were expoused, buyers were willing to pay the prevailing prices. Just one example would suffice.
The buy and hold mentality. How did that work out for you during the dot-com bust?
UK prices are up 8% this year
man ,that’s wierd
I was in the UK for vacation a few weeks ago. It is still humming along. London is basically replacing New York as the worlds financial center so there seems to be some big money pouring in. Don’t get me wrong its still a bubble. Also it is my understanding that what separates the US from other countries is the extent that we used exotic loans. I have limited knowledge here so if somebody has little more in depth analysis it would be appreciated. I know that the housing bulls are looking at the UK as a hopeful model of what will happen here.
Uk is almost al arm loans
outer burbs are soft, but these numbers are wierd
Yep, ARM loans all around in the UK. When they talked “fixed mortgage”, they usually mean fixed for a couple of years, and then float. So they are far more at the mercy of Bank of England than we are overall with the Fed.
Lucky for them, BoE has kept rates stable for the last year or so (4.75 then 4.5 then 4.75%). Will that continue? There’s talk that it might, but then again the BoE governors are worried about inflation and might want to raise rates later this year. That would directly affect a lot of mortgage holders.
As for London’s RE market, it is indeed crazy. I spent lots of time there in recent years, and it just amazes me what business associates pay, those who own anyway. I’ve been expecting a bubble to burst there for some years now, but it keeps hanging on, and even going up. Madness.
Yet my RE-owning friends STILL anticipate huge annual gains to continue indefinitely! Not just expect them, some depend on them because they are paying so much for their flat that now they have no money, as in zero, to put towards retirement. Their apartment unit *is* their retirement.
Now what it would take it to burst the bubble there? Higher interest rates, surely would, as they did in the 1990 range (I forget the year but do have several friends who had to hang on for 10 years to sell because they were “underwater”). I keep thinking that an increasing price:wage ratio will stop it, but they keep pressing on to new hegiths with that, much as California does here.
This is classic bubble, though, just in slow motion. When values go beyond what reason dictates and exuberance takes hold, who knows where it finishes, and even when you think it’s at the top, two months later it could be even higher — or much, much lower.
U.K. has long used the 100-year IO loan (it worries me to even mention this, lest it give our State-side mortgage “innovators” any bright ideas), which has kept house values stratospherically above incomes.
U.K. has long used the 100-year IO loan
Say whaaaaat? Exactly what is the benefit of taking on a 100-year I/O mortgage over renting? The “privilege” of pretending one is a home”owner” and deluding oneself into thinking your perma-debt = membership to the owner/landlord class? Oh, and the “benefit” of having your entire net worth tied up in an undiversified and illiquid asset, plus assuming all downside risks of any market correction.
For what exactly? I just don’t get this so-called “ownership”-at-any-cost mentality.
In the UK, there was no building boom like in the US, as far as I know.
True, especially in places like London. They’ve built what looks a first thought like a lot of high-rise blocks, but considering the size of London, it’s just not that many. (And boy are they pricey!) Lots of housing seems to have also been “created” in recent decades via dividing up houses into flats (legal or otherwise), but again, not enough. Doubling or tripling up in flats seems definitely to be the rule when you’re young, and not just in college — we’re talking IT programmers, finance guys, etc. who live in much better apartments/condos here in the USA.
Even the purpose-built towns they put up to create masses of housing, like Bracknell west of London for instance, are notable for their uniqueness. There’s nothing like the rolling waves of new rooflines you see sprouting up in DC’s Virginia suburbs. At least, nothing from this era.
So as long as their employment situation stays reasonbly good, or at least good enough to attract people from other areas and keep them in London despite the horrendous costs, then they can probably keep the RE market there in decent shape. Because it’s different there, you know.
Just wait until they get sucked into the US market downdraft. That will be sweet!
Why on God’s green Earth is economics even seen as a social science? Psychologists understand more about statistics and experimental methodology than these people do. They just spout correlations with no understanding of control factors.
Well, I suppose if there’s no appreciation for 16 years then maybe there indeed wouldn’t need to be any nominal price drop. Nevertheless, I really doubt the accuracy of this prediction.
Personally, I wouldn’t want to be on record as an economist for any prediction like this considering the fact that 1.7 trillion resets next year. Prices so far have come down only slightly YOY because we haven’t seen the inevitable 1.7 trillion deluge hit us yet. We first had to get rid of the outrageous initial asking prices from late 2005 until around May 2006 that assumed double digit appreciation on top of the 2005 peak prices. Once the peak asking prices weren’t being offered by buyers, they fell in line with peak 2005 prices, and now they’re sliding lower than 2005. This all happened within about a 3-4 month period.
The point is, sellers will soon either have to sell at a loss or face foreclosure (assuming they work out a deal with the bank), and the HBs and sellers with REAL equity will always be able to undercut these people for the scarce buyers. This reality is just beginning to dawn on people. Once the slow fall and winter selling seasons slap the sellers in the face with more financial hardship and depressing housing news they’ll be primed to lure the buyers that come out in the Spring.
Summer and Fall 2000 in the stock market= Summer and Fall 2006 with the housing market.
Then look what happened in 2001 and 2002 once reality set in.
And yes, I’ll be seriously looking at a house in the first few months of 2008.
“Prices so far have come down only slightly YOY because we haven’t seen the inevitable 1.7 trillion deluge hit us yet.”
Don’t forget the lag in the data — the most up-to-date price indexes report on deals done three months ago.
try xmas eve 2008 and dress up like J Montgomery Burns
make an offer good for 10 minutes……….
early 08 is my earliest target date as well for SOCAL, For Las Vegas High Rise Condo’s Early 09 due to most inventory hasn’t even been built yet.
Fraud in Oregon
http://www.oregonlive.com/news/oregonian/index.ssf?/base/news/115932211250650.xml&coll=7
“‘San Diego gets all the bad press, but Sacramento is the story that nobody knows about,’ Ratcliff said.”
Su-u-ure… I would bet my bottom dollar that Ahnold’s inner circle is watching this unfold with rapt attention.
Governator supposedly made a lot of money in real estate over the years. It was evidence of his fitness for office.
“and even if the real estate naysayers’ predictions of a drastic market correction came true, housing would still be unaffordable for most first-time buyers,’ he said.”
Pish-posh. OC’s median-income family, making $65,000, can reasonably stretch to afford $345,000 worth of house. That would involve about a 44% haircut from the present $638,000, or a loss of a mere 2.5 years’ worth of appreciation. Lower interest rates, and you need an even smaller drop.
Once there is a full correction to what fundamentals (incomes and interest rates) will support, we can go back to sustainable, steady appreciation. It really wouldn’t take all that much.
HAHAHAHAHAHA! That’s a funny one there. Would you consider a reasonable stretch bending over and kissing your ass goodbye? $65,000 affording $345,000, that’s funny stuff!
Well, considering you can hardly find a two-bedroom apartment in OC for less than $1,500 a month, a payment of $1,782.50 per month ($345,000 * 6.2% / 12), which amounts to the standard 33% of gross income as housing expense, doesn’t look all that bad. Like it or not, California’s expensive, and people ARE paying about that much for housing.
Well first off I don’t get your math as it seems more likely that a 30 year with no down would run about $2100/mo.
Secondly you’re playing the monthly payment moron game which is absolutely foolish and you know it.
Thirdly the 33% has always been considered a maximum amount that should be paid, that is until recently when 50% somehow became an acceptable maximum.
Next, how many people living in the OC on that average $65,000 could come up with a $70,000 down payment if the lending institutions actually begin raising standards back to the pre 2000 days? I’d would hazard a guess that it would be less than 10% of the population.
My definition of affordable would be a household making $120,000 would find a $345,000 house affordabe meaning that all the money coming into the household doesn’t just go into owning a house.
Even at the depths of the last downturn in 1996-1997, your pricing standards didn’t apply. Not even Newport Beach had a $120,000 median income then. (I don’t think it quite gets there even now.) I remember the cheapest house in 92660 being for sale in 1997 for $399,000. It was a piece of junk in the “girl streets” (the cheapest house in the area is now listed at $1.2 million). Mind, that was the cheapest house. Most of the houses in that neighborhood were priced in the 400-600K range before they started rising steadily from 1998 onwards.
A median OC price in the low to mid $300Ks would mean that prices had increased at a steady 6% since 1975. Long term, real estate has been shown to appreciate at about 1.5% greater than inflation. Inflation ran pretty high in the late seventies and early eighties, and didn’t get really low until recently. So 6% appreciation doesn’t sound all that off to me.
Keep in mind that we’d be talking about a 44% haircut just to get to $325,000. It’s not as if I’m anticipating a soft landing. That kind of decrease would absolutely butcher most recent buyers. I’m just not sure we can realistically expect the kind of 60%+ drops you seem to be thinking about.
Don’t forget that California real estate prices always go up, which means that 33% of gross income as housing expense is different here than in, say, Fargo ND.
Santacruzsux is right. Your payment of $1782.50 is interest only. For a fully amortizing, 0 down, 30 year loan at 6.2%, the payment is $2113.02, which is about 39% of gross income. Plus you need to add in taxes and insurance, and that puts your housing expense somewhere around 45%, and that doesn’t even consider maintenance costs or PMI. Add those in, and you’re looking at close to 50%.
You are kidding, right?
“Pish-posh. OC’s median-income family, making $65,000, can reasonably stretch to afford $345,000 worth of house.”
A family making $65K shouldn’t be spending more than $200K on a house, tops.
Actually, for California, 5X gross HH income is probably closer to the long-term average since the 1970s, unlike the rest of the U.S., which is closer to 3X. In the most bubbly areas, the median price is running about 10-12X incomes right now, so that would imply a 50-60% haircut in real terms. Doesn’t sound that unreasonable.
California is different in at least two ways:
1) Everyone wants to live here, or at least own a second home if they are sufficiently wealthy, implying the long-term equilibrium demand for housing is greater than in flyover land.
2) Everyone wants to live here, or at least to work here for a period of time, which implies the long-term equilibrium labor supply is higher than in flyover land.
Point 1) implies higher housing prices, and point 2) implies lower wages for the same job elsewhere; put them together and you have a higher home price to income ratio than in Milwaukee.
3) Half the population of Mexico wants to live here –scratch that– DOES live here. This dramatically increases downward pressure on wages –especially blue and lower-end white collar jobs, and also helps to explain CA’s higher long-term income-to-price ratio vs. other states.
GetStucco,
Many professionals can work in California and own real estate or rent elsewhere. Many contract engineers and nurses fly into LA Sunday night or Monday morning for a 5 day work week and fly out Friday night back to Arizona / Nevada / New Mexico where real estate is cheaper. There are major tax breaks for this long distance commuting. I’ve been doing this 6 years. This will be the trend of the future. The money is great for now, but won’t be so great when more professionals get the same idea. Economics in the future (higher unemployment rates) will force more degreed professionals to be footloose like this. The pay will always be higher than the pay for someone stuck in Mayberry for 30 years. I love the pay in California (and its climate) and hate the taxes, so I mostly live in Arizona.
“It could take 6.3 years to 16.5 years to work off excess home-price appreciation in California, the report suggests.
What’s with the 6point3 and 16point5? It’s as if the fine tuned specifics of the time frame they give will lend credence to their forecast like we really crunched the numbers and thought really hard about it and here ya go.
The Village Idiot could throw bones in the air and come up with similar predictions.
No kidding. We can narrow it down to “only” a ten-year window, and then we throw in decimal places to make it look more accurate. wtf?
Perhaps they had a bet on how many decimal places the MSM would reproduce in their articles?
LOL.
Great observation.
So let’s see… for every legal construction worker here in CA there are at least 3 illegal workers (that’s probably being way conservative). More like 300-500K job loss in construction. They pay for rent/mortgage, food, staples just like everybody else. Throw that into the equation.
Sell Bud-light short.
Nah… too many people will be “crying into their beer”.
“The housing market will not crash unless the job market weakens significantly, though home prices are expected to stagnate for at least five years during this down cycle, according to the latest Anderson Forecast.”
“‘Real estate-related employment has moved from a major engine of growth in 2005 to a drag on growth in 2006,’ UCLA economist Ryan Ratcliff wrote. Ratcliff predicts that nearly 100,000 construction workers will lose their jobs over the next 2½ years.”
——————————————————————————–
(Shakespeare understood very well the concept of “kill the messenger”):
Messenger
As I did stand my watch upon the hill,
I look’d toward Birnam, and anon, methought,
The wood began to move.
MACBETH
Liar and slave!
Messenger
Let me endure your wrath, if’t be not so:
Within this three mile may you see it coming;
I say, a moving grove.
MACBETH
If thou speak’st false,
Upon the next tree shalt thou hang alive,
Till famine cling thee: if thy speech be sooth,
I care not if thou dost for me as much.
I pull in resolution, and begin
To doubt the equivocation of the fiend
That lies like truth: ‘Fear not, till Birnam wood
Do come to Dunsinane:’ and now a wood
Comes toward Dunsinane.
Does Leamer talk to Ratcliff? Sure doesn’t seem like they’re speaking from the same vantage point. Although maybe 100,000 construction jobs plus the ripple-through is not enough to constitute “significant” job losses in Leamer’s opinion.
HOUSING SLOWDOWN NOT SEEN SPREADING
Chairman of the White House Council of Economic Advisers tells Senate committee the soft housing market will be a “significant drag” on 3Q economic growth but doesn’t appear to be spreading to other areas of the economy.
How the hell does he know! By the time he finds out the damage is already done as economic data only shows past history.
I wish I could get paid big bucks for statements like that!!!
You can! What is stopping you? Here is the recipe:
1) Get a PhD from a top-rated graduate econ program.
2) Get a job at a top-rated graduate econ program and write lots of books and papers.
3) Make connections with people in high places.
4) (Optional) Win a top prize in economics such as the John Bates Clark award.
5) Make sure you do nothing too politically controversial.
6) Get asked to chair the prez’s Council of Economic Advisors.
The problem with the UCLA forcast is that people who are trying to sell their houses aren’t going to wait 10-15 years for incomes to catch up. If they are trying to sell their house, as record numbers of people are at the moment, they are going to lower prices. Prices WILL NOT just sit for 10 years.
You are too logical to be an economist!
Sigh. It may be time to say eCONomist…
Any idea when and why ZipRealty no longer shows listing date?
“Ratcliff said that hiring at hotels, restaurants and professional service firms should help blunt the construction job losses.”
Sure. Bus boys and bell hops will save the housing market.
And why does Ratcliff think that hotels and restaurants are going to be hiring when the housing ATM is out of money and people are losing their jobs? Seems to me that those people aren’t going to be traveling or eating out too much, so those industries should be hurting, not hiring.
All they have to do to get me into a new house is offer to pay the mortgage until I can sell it for more than I bought it for.
http://money.cnn.com/2006/09/27/real_estate/help_home_for_sale_letters/index.htm?postversion=2006092815
“The way I would put it, the odds of recession have risen over the past month,” said Mark Zandi, chief economist for Moody’s Economy.com. “Today I would put recession odds at 1 in 4. A month ago, it was 1 in 5. A year ago, 1 in 10.”
Next month 2 in 4 and in 2 months …..Drum roll
Oh, boy. I obviously did something wrong in a previous life to have to listen to these “smart” university economists.
Has this guy heard of speculation in property in places like Las Vegas or Florida, etc, where the fb speculators are having to pay the mortgage on a empty, probably physically deteriorating property? (I still remember all the boarded up and neglected properties in the last two boom and busts and they were NOTHING compared to this sucker - oh, yeah! I forget. This time it’s different.)
Does he think financially stretched speculators are going to hold onto these properties for between 5 and 16 years with no cash or negative cash flow? This guy is a f**king idiot if he thinks jobs in the US are going to jump from (being generous) $25,000 a year to $150,000 a year so people can buy $600,000 plus houses. (Don’t forget property taxes.) If anything, wages are going to stagnate for the majority because, despite what our master-of-the-spin president says, the bulk of jobs being created are minimum wage or just above. Forget the Bush b.s spin about this being a great economy. It’s not. Forget inflation at 2%. It’s not. It’s at 7% at least. Let the people who follow Maria Bimbolini on CNBC listen to that cheerleader crap. The Dow is reaching a high but ONLY 10 STOCKS are driving it!
Then of course, there’s health care and pensions which are slowly being taken away by employers who can no longer afford it. Thus, a BIG chunk of any wage increases will get eaten up by people paying for their own insurance and, if there’s anything left, contributing to a pension fund. If they don’t pay medical bills and end up going bust over (even a 3 night hospital stay for many people means they would have to shell out half their yearly earnings) unpaid medical bills they will NEVER get a mortgage ’cause new bank loan rules are on the way and they will be pretty rigid once the horror story of exotic loans and the consequences of those loans become full blown and create thousands and thousands of defaults.
It amazes me to think the majority of these economists, after all their bad predictions, even get into print. Now, I am NOT a university educated economics professor. In fact, I never even went to college. However, I have done pretty good financially and I didn’t sit in a nice warm university office with a framed MBA degree on the wall (which means nada) getting paid to write crap. Here’s MY prediction:
The top might be in on property BUT we could get a dead-cat bounce which will not last. Too many would-be buyers will be scared and will hold off. A negative psychological factor has come into play. It will simply be a dip buying episode.
Depending on the area and the amount of inventory, I fully expect a 40% to 50% drop in prices (using 2001 as a bench mark) over the next few years in some places.
Naturally, in places like Armpit, Indiana or JimsOneHorseCity, Kansas, the prices will be fairly static because who the hell wants to live there?
We will see a tsunami (not a big flood but a tsunami) of “walk away owners/defaults” in the next 2 to 3 years. A mixture of speculators, dead beat buyers with terrible credit records who got into exotic loans with no down payment who found a carpet bagger mortgage broker who cooked the applicants income to qualify (and there are a LOT of both of them).
As prices fall, the dead beats will see a house or apartment up the street which is renting for less than they are paying for their mortgage. If they are struggling to pay the mortgage which, in all likelyhood they will be as the loans reset, they will walk away. It will just be another negative on their lousy credit ratings so why should they care.
In some places where the job market cannot support (A) The population. (B) Those who want to buy but cannot because of STILL inflated prices (C) Not enough jobs and those that can be had do not pay enough to support a big mortgage on a house, there will be many empty and deteriorating properties. Las Vegas and Florida come to mind but there were plent in places like Los Angeles in the last couple of busts.
Finally, the “unknowns”. One has to factor these things in even though they might not happen. California first. Take a 30 year history of earthquakes in California or hurricanes in Florida. It’s pretty scary. The good news was you could get good earthquake and flood insurance to cover ALL of the damage. That was then. This is now. You CANNOT get good earthquake and flood insurance to cover all the damage.
There is a lot of talk of a recession. ALL capitalist societies have frequent recessions. A flood of construction workers, real estate office people, mortgage broker workers, escrow workers and all the other employees involved in housing from workers who make fridges to lumber stores, will be looking for work. Many have bought those overpriced properties. Many have sucked the ATM house dry to buy, buy, buy. Expensive vacations, Hummers or BMW’s, big screen t/v’s, etc, all the goodies which go along with upgrades. Credit cards are maxed out and NOBODY is saving. Which is why cash will be king.
Terrorist attack. Let me preface it by saying (if you haven’t realized it by now, that we are being lead by the most incompetent, useless administration EVER. Why? Because they fail to understand who they are dealing with where terrorists are concerned. The idiot in the White House keeps telling us we have not been attacked because of the systems (his great leadership) put into place. WRONG! We have not been attacked because these guys will use their own timetable. Not George W. Bush’s timetable. You have to take in the time factor where these people are concerned. To most of us in the west, two or three or five years seems a pretty long time. To these characters, 5 years is a nothing. 20, 30 40, 50 or even 100 years might be their time frame. Thus, they will do what they want to do on their timetable. Not the Rhode Island Cowboy’s timetable. The bad thing is we don’t know WHAT they are planning (and it’s a 100% guarantee they are planning) but, if it is a dirty bomb attack (or worse because they will try and make it bigger than 9/11) they will do it in a highly populated area…………would you want to own property in a city where a dirty bomb has gone off or been subjected to a chemical attack?
One more thing. I hear this statement all the time. “The US is the most powerful country in the world economically and militarily.” Well, it might have been in the 1940’s, 50’s, 60’s, 70’s, 80’s but that was then. This is now. 2006. 9/11 changed everything. Much more than the majority realize. America is now bankrupt and stands very little chance of paying off it’s massive (and still growing) debts. 2 asian countries (China and Japan) hold the bulk of our gambling I.O.U’s. The population of the US have maxed out their credit. They cannot or will not save. The big money making industrial corporations which were the foundation of America’s power are mostly reduced to, “also ran” status. Ford and GM being good examples. The new world belongs to the new industries which are high tech. Problem. The Chinese and Japanese and asian Indians are catching up fast (in some areas passing the US) and they do it for less.
As a non-economics professor, what does this tell me? That we are living in a country which is broke. We are printing money on a “as needed” basis. We live in properties where the economic fundamentals just do not match what’s going on. That’s why we could see a very serious decline in property values (and possibly a crash) within the next few years.
“That we are living in a country which is broke.”
I guess you don’t buy the “dark matter” theory of the US trade deficit cooked up by some Harvard U economists, which explains why foreigners are so happy to exchange their valuable manufactures for our green paper without any future hope for payment in kind?
That’s an inteesting theory. My feelings are, the guys on the street in these countries who might be a small business owner buy a lot of gold. They’ve done it for years (centuries). Where governments like China are concerned, they are making a big enough surplus to cover the loss as the US declines BUT, I understand, China and Japan have been dumping US dollars. A close friend in Europe told me the other day the US dollar exchange rate is a joke. As for following Economists at Harvard? I’m afraid I cannot give you an answer on this blog in case Bush’s “Thought Police” are monitoring for infractions….including profanity.
“A close friend in Europe told me the other day the US dollar exchange rate is a joke.”
Wow, a close friend. Sounds really intelligent. Then why doesn’t he and everyone else sell dollars against the Euro and profit handsomely? You’re an idiot.
Thanks for the compliment. Actually, everyone is selling dollars if they have the knowledge to trade. The person I mentioned doesn’t trade but he did buy a house in the UK in the 1970’s for $30,000 and it’s now worth $480,000. Unlike the US, prices for property in Europe is still holding up because there is a LOT of money in europe and people like to live in London or Paris, etc. Will the UK property crash? Maybe……..
Good article Mike… well done. Have you noticed how big China’s army is? I hope we can pay our bills.
Nice rant. Make that multiple dead cat bounces, as huge booms always result in many false bottoms on the way down to the real lows.
As far as the terror thing, it seems true that is a very long term cycle. Back in 1950 the US bludgeoned to death the Iranian government that might have been the key to sorting out the middle east because they were afraid they might work with the Soviets. In the name of the cold war the US and the USSR then proceeded to cut down anyone they did not like. This is a huge contributor to the bizarre period of protracted stagnance in South and Central America. The Soviets fell flat on their faces and we might do the same. If we don’t succumb then we have to stop offing whatever government we don’t like and start apologizing. It is cheaper to be kind and bribe people than to be the one country everyone hates and making war continuously, yes continuously. Seriously, how hard can it be not to wage continuous war when there is no way we can afford it? It is hard to say because the low tax crusaders, yes say it crusaders, see no limits to the need for war.
There was a time we were agrarian isolationists and that time might return.
On the history of Iran, Iraq, and the Middle East, see Robert Newman’s “The History of Oil” (a comedy performance combined with history). It’s on Google Video.
Mike,
you’re right, you’re much too smart to be mistaken for an economist.
You probably couldn’t even play on on t.v.
Great post.
Check out this quote from the LA Daily News:
‘It’s not going to be a pleasant experience to sell a home, Leamer said of the evolving real estate market. The most important advice I would give to current homeowners is to stop reading the real estate pages because the news is going to seem real bad.
That’s great advice, Professor Leamer — bury your head in the sand, bury a statue of St. Joseph in the front yard, price it high, and pray!
It’s funny how on the way up in 2004 and 2005 - nobody was saying potential buyers shouldn’t pay attention because all the news they were going to hear was going to seem real bad for them…
Here’s some odd quotes out of the upcoming UCLA Anderson forcast:
“But we are very far from a great comeuppance in which the extraordinary appreciation of the last five years is taken away.”
“The forecast, similar in tone to June’s, calls for modest job growth in California and the nation through 2008. That will cushion the housing sales slide and preserve much of the 150 percent increase in Los Angeles County home prices between 1999 and 2005, noted forecast economist Ryan Ratcliff.”
Sounds as if some major forces/power players behind the Anderson school told them to soft-pedal the projections. (The fix is in). OR they are not taking into account a number of scenarios which could upset their rosy predictions(another middle eastern War or terrorist attack,
Oil shooting up again, rise in interests rates on the long end, Massive bond sell-off, Hedge-fund blowup, massive increases in foreclosures, ect)
“As builders retreat, the report said, the construction sector will lose about 100,000 jobs over the next two years. Slowing home sales will also erode real estate-related employment in the financial services sector, but this will be offset by gains in leisure and hospitality sectors.”
Good trade-off: construction and real estate employment for leisure/hospitality jobs!
Most of the construction job money was sent to Mexico anyway, at least that is the case in California. Most builders hired immigrants, legal or illegal because they work harder for less money.
The Orange County Register:
‘Building permits in Orange County fell 56 percent last month compared with a year ago, figures released today show.’
Nonetheless, I am sure that the construction industry will only have to cut back 10% or so in The OC, right?
Just goes to prove that “experience” always trumps a degree (and I have a doctorate). Well-written.
“Michael Pento, a strategist for an investment firm in Huntington Beach, said a slowdown in construction is needed, since the creation of new houses has outstripped population growth nationwide. ‘It will take years to work out all the excess supply of homes, especially since home builders are still adding fuel to the fire,’ Pento said.”
Yes!!! The MSM has finally found an honest real estate expert to quote
This is all just pre-meltdown damage control. They said the same things in 1989, just before prices cratered 50% in bubbly areas like Westwood and Santa Monica and 21% statewide. It’s like the “Housing sales shoot up” MSM headline that came out yesterday after the hokey numbers showing a 4.1% increase in new homes sales, but those stories neglected the little detail that the margin of error of 11% which makes that 4.1% number meaningless by definition. A headline of “New Homes sales reports meaningless data” just isn’t what the public wants to hear. Luckily, we have some well connected REIC scholars who can produce reports with some hints at reality to maintain credibility and some fluff so that their sponsors don’t kill the messenger. Watch the HB stocks. That is the way to tell what’s going on.
I think once the supply of new homes is taken up, the pressure on used homes will subside and the prices will remain flat for a couple years, but they will sell. I do not belive we will see anything like 40% drops, but possibly 30% before things level off. Just an opinion, but I truly think interest rates will go lower to prop this market up and even bail out a few folks that can still re-fi out of an adjustable.
I think once the supply of new homes is taken up, the pressure on used homes will subside and the prices will remain flat for a couple years, but they will sell. I do not belive we will see anything like 40% drops, but possibly 30% before things level off. Just an opinion, but I truly think interest rates will go lower to prop this market up and even bail out a few folks that can still re-fi out of an adjustable.
“HAHAHAHAHAHA! That’s a funny one there. Would you consider a reasonable stretch bending over and kissing your ass goodbye? $65,000 affording $345,000, that’s funny stuff!”
I’m laughing too. What happened to three times one’s salary for purchase price?
No, I don’t think California real estate will be flat the next 5 years. I’m talking coastal areas and the central San Joaquin Valley areas. Some prices in the South Bay (Redondo Beach) have already fell 6%. I anticipate price drops of 40% to 50% the next 5 years. I anticipate health care costs, college costs, food costs, and oil / transportation costs to go up 5 to 6% per year the next 5 years. Money is being printed like crazy in the U.S. and in most industrialized nations, thus inflation. Relative to inflation, I would expect the real price drops at the end of 5 years to be near 60% cuts from today’s prices, including ocean view homes in California.