‘A Huge Glut Of Overpriced Homes’ In Utah
The Deseret News reports on the housing bubble in Utah. “Land speculators, a wave of retiring baby boomers and second-home buyers are fueling the biggest real estate rush in the Washington County’s history. ‘In absolute terms there has been no period like the past three years in Washington County history,’ James Wood said. ‘It’s a frenzy. That’s all anyone talks about is housing prices and how much money they have made.’”
“‘We are probably 20 to 30 percent cheaper than the average view lot around the county,’ (developer) Doug Rogers said. ‘I’m sure that over the next six months there could be some price raising. Any lot that is bought right now, my guess would be that they’ll gain 20 to 30 percent over the next one to three years.’”
“But with runaway appreciation, even modest homes in Washington County are becoming expensive. Home prices in St. George increased an average of 35.27 percent in the fourth quarter of 2005 compared to the same quarter in 2004. Many homeowners are wondering how long the party will last. According to some experts, it may be over already.”
“Allan Carter, of Southern Utah Title Co., said you don’t have to look far to see that real estate price growth has slowed. ‘As you go up in the price of a home, it is taking longer and longer to sell,’ Carter said. ‘For example, if you’ve got a home to sell at $1 million right now, it will take you 27 months to sell it. In November, it took nine months to sell that same home. We have a huge glut of overpriced homes on the market.’”
“By the end of this year, Carter expects 6,000 more building lots to be recorded in Washington County, a 62 percent increase over the 3,710 lots that were platted in 2005. ‘We will need 3,500 of them,’ Carter said. ‘Already we are seeing a deduction in pricing on lots of about 10 percent. There are selected areas where lots will fall 20 percent.’”
“Vardell Curtis, CEO of the Washington County Board of Realtors, said a glut of new real estate inventory has flooded the market over the last six months, which may result in a ‘tapping on the brakes’ in 2006. ‘We’re transitioning from a period of time where you might have had eight people that wanted to buy your home, now to a period where you might have to have a little help to find a qualified buyer,’ Curtis said. ‘With more inventory, I think what that’s going to mean to sellers are they might now have to allow for a contingency or wait for a buyer’s closing until they sell their home.’”
“(Developer) Joe Larsen said some people are blaming high-end buyers for Washington County’s escalating home prices. ‘People would come out here and say, ‘Gee, they’re getting $700,000 to $800,000 for a 2,300-square-foot house.’ In other parts of town a 2,300-square-foot house was $300,000. So people would say, ‘Look, they’re the ones that have made this happen.’ But obviously not all 2,300-square-foot homes are created equal.’”
“James Wood, of the University of Utah, said most people in Washington County blame the presence of investors and speculators over the past 18 months for high land and housing prices. ‘Unfortunately, there are no data on speculators or investors,’ he said. ‘Those working in the market are convinced that hundreds of people have made big money buying and selling land. However, the bloom is off the rose. Since prices have escalated so fast, it is very difficult to find developable, cheap land or to rent investment property and generate enough revenue to cover high mortgage payments. And the farmers have wised up. They want top dollar for their land.’”
“Brett John, vice president a St. George-based excavation company, blames last year’s land speculation partly on people who took out home equity loans and bought up land in hopes of flipping it at a profit. ‘It’s been artificially inflated, but it’s going to correct itself without a doubt,’ John said. ‘It’s absurd to think that a $125,000 home in 18 months rocketed in value to $460,000.’”
“Stephen Wade, who sits on the board of directors for Sun First Bank, said St. George’s real estate market is overvalued right now. ‘There are people out there that are speculating, and they don’t know what they’re doing. Our bank is really nervous about that,’ Wade said. ‘I had a guy call me from Salt Lake and say, ‘Stephen, I’ve got an extra $30,000 to $40,000. Will you help me invest it in St. George so I can make some money? But I’ve got to have my money back in six months.’ Well it doesn’t work that way. You may have to get it back in six years.’”
Brett John: ‘It’s absurd to think that a $125,000 home in 18 months rocketed in value to $460,000.’”
Stephen Wade: Well it doesn’t work that way. You may have to get it back in six years.’”
Stunning and refreshing!! Two bank people who don’t want insanity and bubble behavior to infect their community. All bankers and RE people should react ths way. It just shows even more how corrupt people like David Lareah are.
It is an absurd bubble on the face of it, and the ‘flood’ of lots coming on the market will wipe these speculators out. ‘Even the farmers have wised up.’
wised-up Utah Farmers = shoe shine boys of the 2000s — one for the Annals of Financial Manias
Undeveloped land can be one of the hardest things in the world to sell. I’ve lived in areas where you can find acreage that’s been up for sale for 10+ years without selling.
Try 16 years and you’ll be lucky if you beat a CD return.
We spent the night in St. George last summer, visiting that town for the first time since 1993. Boy what a difference twelve years can make! Areas that were previously relative wilderness (as long as you discount the possibly high level of lingering radiation from the nuclear testing that took place nearby a few years back) had been turned into sprawling condo parks, and there was visible evidence that the town had as much real estate construction underway as a major city. I probably said it already last summer, but this was one of the clearest bits of evidence in support of the incipient burst of the bubble that I have ever seen…
The 1920’s land boom drowned in a Florida swamp. This one will die of thirst in the Southwest desert.
‘I’m sure that over the next six months there could be some price raising. Any lot that is bought right now, my guess would be that they’ll gain 20 to 30 percent over the next one to three years.’
My guess is that we will be able to laugh about that prediction for the indefinite future.
Last night I said to myself ” I wonder if the fever hit UTAH ?” Its Nation wide … few places have escaped it … it became a Nation wide disease . To bad it wasn’t stopped sooner .
I guarantee that the run up is primarily due to speculators from California and Arizona that looked at similar style homes in St. George and saw what they percieve as bargains as well as some cash flush transplants from those same areas. I researched this area last year a potential place to live but decided it is to small and the closest “city” is Las Vegas, which isn’t the culture that I want to immerse my family in. The appeal will not be far flung and I think any specualtion in this area will run it’s course quickly.
This last year, it even infested Northern Utah (Salt Lake area). Utah has THE SINGLE highest bankruptcy rate anywhere in the US. I saw dumps that would have barely sold for 100K 1 1/2 years ago go for 275K to a couple that makes $8.00/hr.
When I inquired about a home 3 months ago in a new development because my family and I were considering a move to be closer to my wife’s family on the West Bench of SLC, you could almost visibly see the dollar signs appear in the sales person’s eyes when I said I was from Orange County. She said, “you’ll feel right at home here. About 80% of our homes are sold to California residents.” I almost laughed at that, but instead said, “Really, how many of them are moving here?” She said, Oh, I don’t know, I think all of them.
BWAHAHAHAHAHA!
Just go check craigslist, and there are so many homes for rent with phone numbers that are 949, 818, 310, 714, 619, and 858, you can probably arrange for a Utah rental easier by walking down a random street in OC than you can by living in Utah.
His exact words are: “I’m sure there [...] could” .
This is an intentionally noncomittal prediction.
This is really interesting- and correct. I’ve actually talked to people about all the housing being built in Utah. Now, I like to go hiking there. But basically, that’s all there is for me there. Anyway, on my last trip, I spotted a brand new condo complex being built (I believe) in the Town of Hurricane Utah. Hurricane. Now, nothing against the good people of Hurricane, but it’s a small town, with no perceivable economy, literally in the middle of nowhere.
Also, I saw a ton of building in the town that leads to the south entrance of Zion park. Yes, Zion is great. Yes, its weather is more temperate than other parks. But rows of $350k to $600k housing at Zion Park?? C’mon! Puh-leeze.
BubbleTrack.blogspot.com
Be sure to pronounce that one correctly: ‘hurr-a-kin’
St. George = the town that leads to the south entrance of Zion park
I’ll bet you Moab is bad too. I loved that area years ago.
All these cheap ant farm housing tracts going up all over the country destroying the beauty of some of these areas . Didn’t the builders determine that the Baby Boomer demand would be spread out for 15 years because they all retire at different times .They are building like all the boomers are retiring all at once.
As Ben noted yesterday, there is a good chance the future of some of these ant farm tracts in Nowheresville, UT lies in the hands of the guy who drives bulldozers for a living…
‘With more inventory, I think what that’s going to mean to sellers are they might now have to allow for a contingency or wait for a buyer’s closing until they sell their home.’
Good luck — not much is closing these days…
‘Stephen, I’ve got an extra $30,000 to $40,000. Will you help me invest it in St. George so I can make some money? But I’ve got to have my money back in six months.’ Well it doesn’t work that way. You may have to get it back in six years.’
OR YOU MAY LOSE EVERYTHING!!!
I guess every real estate market is local. But the more money that comes into these retirement areas and boosts prices there, must mean that demand is being siphoned out of the retirees’ originating markets. Here in coastal Maine we feel the coming waves of New Yorkers, Jerseyites, etc. These folks vacationed here their whole lives and upon retirement, some are making it a permanent vacation. And many manage to go south for a few months in the winter. If it’s this crazy here, it must be really crazy in warm weather vacation meccas.
Of course as Yogi Berra said, “this place is so crowded people don’t come here any more”. Eventually too many people migrate and they have again what they ran from.
What ever happened to Zero Population Growth? I thought it was a pretty good idea. We hit 300 million this year and 400 will come a lot faster than 300 did.
We’re crushing under the weight of 300. You’ll never see 400.
Our country is much younger than others. Their population densities are way beyond what we would have at 400. So it’s only a matter of time, unless we have ZPG.
See the comments responding to the SF Gate colum about the breeders in Arkansas with 16 kids and wanting more. Now the guy was a bit snarky and hit below the belt but I agree with him in principal. You can’t compare 16 kids who will each probably have 5 more of their own to latte sipping singles in SF who drive 100 miles a day. Those people may never have any kids. A more fair comparsion would be if the SF singles commuted to work every day in their own helicopter.
I don’t agree with Morford at all because he is a godless communist, but if I was going to go for zero population growth, I’d start by deporting the source of that growth.
Because Morford is a communist, he ignores this easy solution and makes racist and bigoted attacks on the people who actually have higher claim to be here.
Actually, we do have ZPG or really negative population growth if you take out immigration. Here is a list of fertility rates for all countries of the world. A fertility rate of 2.1 is ZPG, and the US is at 2.08. It reality the US is losing population slightly, (again if you take out immigration).
Interesting. Then I guess we need a higher emmigration rate. I would suggest we jump start this by deporting every illegal immigrant that is crushing our system.
In looking at the site you referred me to, I see the number one fertility rate is Somalia’s 6.84. That is particularly interesting in that several thousand Somali refugees have been resettled by Catholic Charities in Portland and Lewiston, Maine. The organization saw that Maine was the whitest state in the country and set out to help diversify our population by resetlling the Somalis as it would build a stronger Maine. Unfortunately a very high percentage of the Somalis immediately went on welfare the minute they arrived and continue to stay on welfare. It’s not like we’re a wealthy state or anything. Rather we have one of the most generous welfare programs in the country - or so I’m told anyway. The moment Catholic Cahrities dropped the refugees off in Maine, it became the resposibility of an already overburdened sytem to help them.
The Somalis are all legal immigrants as far as I know. In my opinion we should help others but need to find a better balance then what has happened here in the People’s Republic of Maine.
As for the ILLEGAL immigrants, it’s high time we put a stop to this. Better rude than robbed!
In my opinion we should help others but need to find a better balance then what has happened here in the People’s Republic of Maine.
These groups are usually liberal/socialist fronts. They have little to do with real Christians. Christians take care of their own family before they look after others. Christians do missionary work in other lands, they don’t bring non-believers into Christendom and then abandon them to the state.
These are all activities of socialists.
Here’s a similar report from Montana:
‘We knew it was going to come, with the Flathead growing the way it is,’ said Buck Schermerhorn, president of the Tobacco Valley Community Development Council. ‘Eureka is next in line to be discovered.’ Gigantic subdivisions with golf courses seem like deja vu for Eureka residents. Five years ago, RiverStone Ranch was proposed southeast of Eureka by a Canadian developer offering a 550-acre ‘lifestyle community’ with a golf course, business park, hotel and 520 dwelling units.’
‘That project went away totally,’ Commissioner Marianne Roose said, noting that the project needed sewer extensions that never materialized.’
‘You do see some excitement in the air,’ Mason said. ‘There’s not much money in ranching and timber, and with the mill closure [these new subdivisions] will be replacing those jobs with construction jobs and related services like lawn care.’
‘You do see some excitement in the air,’ Mason said. ‘There’s not much money in ranching and timber, and with the mill closure [these new subdivisions] will be replacing those jobs with construction jobs and related services like lawn care.’
Now that we’ve rid ourselves of those dirty manufacturing jobs we can all make a living by building each other homes and mowing lawns.
Ben –
Last summer I had a conversation with a friend who was relocating to Missoula, MT. My housing market words of wisdom to her were, “Don’t buy just yet…”
Idjit. He thinks they will need 3500 because he’s comparing to flipper, specuvestor period not the basal demand. I love the Census, they don’t care about wishes or dreams. They tell me that Washington County, Utah is adding about 5,000 people per year. Less than 1,500 households per year. Homeownership is already around 75%. In a downturn 1,500 is too many. Interesting FAct: the county has 25% more housing units than households. Do the math.
Vacant houses …..Vacant houses……..Vacant houses….
Yes, and how many of the last 5 years of arrivals have been in construction, real estate, banking? How many more in the usual service industries; Circle-K, Starbucks, Target checkout cashiers, auto sales to meet the demand of that segment?
Places like Washington County don’t have the critical mass necessary to remodel on a different economic base.
yep
OT:
LA Times article on revisions to NAR/CAR ethics codes.
http://www.latimes.com/classified/realestate/news/la-re-shop26mar26,0,7523219.story?coll=la-home-realestate
It looks like they are trying to get out in front of the ethics issues and future regulation.
Kind of like the rabbit that says oh no don’t through me into the briar patch.
“Bawn’n'bred in a briar patch…”
When they start building McMansions in the dumpy (and thirsty) little town of Escalante, UT, I’ll know the world’s gone mad.
Sorry to deviate from this fascinating topic (condo parks blooming in the UT desert), but here is a recent news story that has huge ramifications for the fate of the housing bubble. Sheople who keep bidding up stock prices up to new highs and buying ever-larger McMansions ought to take note: One of America’s largest corporations, emblematic of late-20th century American economic hegemony, has just offered severence payment to ITS ENTIRE UNION LABOR FORCE…
“What’s bad for General Motors is bad for the rest of America.”
“Historic Union Deal Will Pare Down GM
“Buyouts Offered to Tens of Thousands
By Sholnn Freeman
Washington Post Staff Writer
Thursday, March 23, 2006; Page A01
It is unclear how many of the auto goliath’s 105,000 hourly workers will take the buyouts, though a significant portion are expected to. About 13,000 workers at Delphi — GM’s largest parts supplier — will also be eligible for the buyouts.”
http://www.washingtonpost.com/wp-dyn/content/article/2006/03/22/AR2006032202398.html
On a related OT note, at least one nationally syndicated columnist is seeing a problem with the disconnect between American consumerism and the lack of underlying fundamental economic support:
LYNN O’SHAUGHNESSY
Has a wish for rich life passed our ability to pay for it?
March 26, 2006
http://www.signonsandiego.com/uniontrib/20060326/news_lz1b26has.html
But Henry K. Hebeler, the author of “J.K. Lasser’s Your Winning Retirement Plan” and the founder of AnalyzeNow.com, a wonderful financial Web site, insists that the theory that homeowners don’t have to save when housing prices are escalating is as bogus as the excuse we heard during the feverish rise of the dot-coms.
Back then, some experts encouraged unchecked consumerism by suggesting that people didn’t need to save because Wall Street’s fangs had been clipped and our investments were growing on autopilot.
“Then the market fell and we didn’t hear from these economists again until the recent escalation of home prices,” Hebeler says. “Now they have again come out of their scholarly cubicles with the same story based on the theory that home prices will continue to grow.” Of course, he warns, you shouldn’t believe it.
Just read the article - great. The author is quite a good writer.
I knew things were bad here in MI but I spent half-an-hour with my jaw to the floor and my eyes rolled back imagining this…GM actually offered a buy-out offer to over 110,000 workers. It’s truly mind-boggling. And they expect a lot to take them. Maybe they’ll be movin’ to Utah then!
You can almost feel the ground unsteady here…and there’s a hush.
It’s scary.
There was an article about the Chinese car co. Geely (sp?) wanting to set up shop in MI though, so maybe some of them will get new jobs at half-pay making the $8500 sedans they want to build. I’m really freaked out now…
Huge builder incentives in NoVA
Amazing number of incentive ads in the Washington Post RE section today:
NV Homes: “Spring Savings of Up to $45,000!”
Lennar: “Thousands of dollars in luxury extras at no extra cost!”
Ryan Homes: “As You Like It Festival of Savings” [$15K add'l features]
Hovnanian: “$10,000 off a new home and a FREE 42-inch Plasma TV”
Ryan Homes [2-page spread]: “TAKE $20,000 to $70,000 OFF A RYAN HOME IN NORTHERN VIRGINIA UNTIL MARCH 31ST, 2006!”
Brookfield Homes: “Savings up to $100,000!”
Beazer Homes: “Incredibly Low Prices! $10K Realtor Bonus!”
VanMeter: “TO THE MANY REASONS WE’RE SO RESPECTED, WE’VE ADDED 80,000 MORE. RECEIVE UP TO $80,000 IN SAVINGS. HURRY! ONLY THE NEXT
3522 CONTRACTS WILL RECEIVE…”Beazer: SEASON’S BEST SELLOUT EVENT! Take advantage of unbelievable sell-out incentives of $100,000 or more.
Michael Harris Homes: SAVE UP TO $100,000
Mitchell and Best: “Just Reduced $50,000 for Immediate Delivery!”
Stanley Martin: “Free Home Theater or $15,000 in Closing Costs”
Ryan Homes [2-page spread]: “TAKE $20,000 to $70,000 OFF A RYAN HOME IN NORTHERN VIRGINIA UNTIL MARCH 31ST, 2006!”
Then, after March 31st, you can take $40,000 to $90,000 off!
“Brett John, vice president a St. George-based excavation company, blames last year’s land speculation partly on people who took out home equity loans and bought up land in hopes of flipping it at a profit.”
My sense is that there is a lot more of this than we realize, and it will take a while for the losses and debt to work it’s way through the system. Average folks will be saddled with debt that will take decades to pay off. 50-60% RE declines may take say 5 years, but it will be more like 10-15 years before the public will think of RE as a “good investment.” So 15 years down to flat?
As mentioned on this thread, we will see 400 million population, estimated around 2070 I think. It’s not a question of if, it’s a question of when. Birth trends do turn around but not that fast. As also noted above, the people who tend to have more kids also tend to raise their kids to want more kids of their own (e.g. religious upbringings in cheap, rural communities with not much else to do). I have seen this in rural (even up to 100k population) areas of Texas. There is not much to do after high school and an attempt at junior college. The girls get pregnant and have babies and go on state aid. Some get married but most don’t. Lots of assistance available to these people, no discincentives to having more and more children. So, in the next two generations, we will need to find places for another 100 million people. That’s a lot of people.
Also, I know there is a lot of pessimism among the frequent posters here, who are rightfully disillusioned with a real estate madness that has made purchasing a home hard or impossible for large groups of hard-working Americans. Pessismist or not, it’s important to face the facts. Huge numbers of people are going to be retiring in the next 20 years with secure, stable pensions. Some 3 million people will be retiring with a military pension. Another few million on civil service pensions. Another 5-8 million on municipal pensions (firefighters, police, teachers, etc). All of these pensions are COLA’d (Cost Of Living Adjusted) meaning that inflation can’t reduce their burden to the system.
Even ignoring retirees with private pensions, this adds up to tens of millions of people. And these public pensions are not low. In Massachusetts, where I’m posting from, a full teacher’s pension is about 50k. A public school administrator’s pension would be higher. A retired cop would make even more. Most retired military pensions range from 30k (enlisted) to 60k (officers). A lot of these people are retiring now and working in another career, building up more savings and more retirement cash.
I have dual income relatives in this age cohort who have combined public service pensions of >100k COLA’d for life. I know a ton of others like this. Ignoring “savings” these people will have a lot of purchasing power until they die. Purchasing power to buy retirement homes, vacation homes, homes for their kids and grandkids. I am on the ground in a lot of developing states looking at opportunities. This week alone, I have spoken to developers, realtors, and others in 23 cities and towns in 11 different states. A lot of RE speculation in places like Utah, Idaho, and North Carolina involves smart people making bets on the “loaded” public pension retirees moving to those states. Most individual speculators are morons, to be sure. But there is still a lot of smart RE money at work in lots of different corners of the country.
My point is this, keep your eyes open, and don’t become too smug. A home is a place to live. Housing will not crash 50% and if you wait for that to buy, even if you can afford it before, then you will rent forever. There is a huge amount of capital and income security out there not reflected in any statistics that you see. I have been looking for a good blog explaining the worldwide, macro-economic conditions that are contributing to and fueling the run-up in housing and commodities prices. If I don’t find one, I might get some help and start one, because I think it’s important for people to understand the bigger picture driving the markets.
You make some salient points, no doubt. But, to say that prices can’t crash 50% when they have risen by a multiple of that in a very short time due to uninformed and uneducated speculation is not defendable either. Let’s say for the sake of argument that the average retiree in 20 years has a pension and social security income (a BIG assumption, there) of 80K/year. Assuming that there is no further inflation (also a BIG assumption), how can you imagine that this income will support a house payment of $3000 per month or more? And that assumes that these people who have huge senses of entitlement to “the finer things in life” will be content to spend all their money on housing and have little left over for entertainment, expensive medications and medical treatments (which they feel they deserve), not to mention the endless handouts and bailouts to their own kids, who they generally raised like wolves. More debate on this would be interesting.
Salient points? Not even close. Badly misinformed and overly optimistic.
http://www.laborresearch.org/story.php?id=210
Less than half of American workers have any pension at all outside SS. SS’s average benefit is $800/month.
Also, in 1989, 49% of Households had a traditional pension plan; by 1998, (just 9 years later), that had dropped to 35.5%. Read Wolff’s report “Retirement Insecurity”
No, most baby boomers will be as poor as their parents because of their poor savings habits, and will have much higher medical expenses to deal with. Just wait for the medical expenses fire sales in a few years; don’t worry, it will come.
I once read a statistic (I think it was Wolff) that said that the average retiree over the past 10 years has had less than 1 year’s worth of basic expenses saved at retirement. To think they will be making $3000 i/o payments in perpetuity is breathtakingly delusional.
Also, the developers, realtors, etc. you are “on the ground with” have an incentive for you to believe what you have just written. They either want to sell you something or have you invest with them. The really smart people in RE (Barrack, etc.) have left the building already in a fairly high profile way. I am sure they will be back when the landscape is again favorable for investors, which it is not now by any measure.
I think the most important point you have missed in your research is the fact that most, if not all, state and muni pensions are terribly underfunded. There is no friggin way those bloodsuckers will ever receive all they were promised. Most of these pension systems will buckle under and go broke. The entire US finacial system is a house of cards. The Illinois pension system has been underfunded for more than 20 years. Social Security will unwind like all Ponzi schemes. The idea that retirees will be owning multiple properties when they are worried about their pensions is nieve.
I hate to ruin your optimism, but you may not have heard about the pension problems in private industry. Many of those, most notably United Airlines, is being turned over the US government Pension Guarantee Corp., who has already admitted that they are hopelessly underfunded. Many other private businesses will follow. As far as government, new GAAP accounting rules are starting to expose the gross deficiency in government of meeting the promises that have been made. It’s a matter of time until this problem surfaces. Lastly, social security ….. need I say more? Many of us who have planned for a comfortable retirement are going to be disappointed. You can’t take a promise to the grocery store.
many pensions will be a bust, as stated above. And those that do get pensions are going to live within their means, conscious that continued payments are at risk, conscious of increasing medical costs, and soon being called upon to bail out their spendthrift children. They won’t be running around buying McMansions on golf courses.
The bigger picture driving the markets is cheap liquidity, and the liquidity tap is already being slowly turned off.
What signs do you see of decreasing liquidity? I see more global capital on the move than ever. Combined with low rates, this explains a significant amount of price increases. Lots of capital leads to decreased returns and the CAP rates for rentals have declined as expected. One reason that rent will never equal PITI in the near term unless global capital dries up is that a CAP rate under rent=PITI is high (8%-10%). Investors are content with 4%-5%. If you see signs of liquidity drying up, I would be interested to see them.
As far as public pensions going broke, I don’t think is possible. Under the law, those pensions have to be serviced, and if Governments are good at one thing it is extracting taxes from people. Illinois might go broke but that does not discharge them from their pension obligations. Schools, hospitals, current workers, etc must be cut to meet pension obligations. Taxes would rise. If a major city tries to default on its pension obligations (and I think this has happened in the past), then the state will take it over and do what it takes. Since public pensions are COLA’d there is not much inflation can do to lessen their burden either.
Private pensions are a different ballgame and I am not too familiar with them. Auto and airline companies are getting hammered but a lot of other companies are secure. But compared to private pensions, the public guarantees are the sweetest deal around. And these people all have free health care (medicare) at 61 or 62. No one I know is worried about health care after that age, but rather maintaining adequate coverage until then.
News in Detroit is that the city is approximately 300 million in the hole this year, and the healthcare costs for their retirees are going up by like 170million over the next years. They’re currently trying to renegotiate with their pensioners, but no luck so far. The city is already cutting garbage pickup and senior services, social workers, etc. I get the feeling that the hugely cash-strapped state ain’t gonna come in and pick up the pieces. Will the feds do it, do you think, if the state won’t?
Michigan might be the canary-in-the-globalization-while-we’ve-ignored-all-our-huge-economic-problems-coalmine!
Well I think that under the law, public pension obligations have to be honored and can’t be cut or dumped to the PBGC. If Detroit goes bankrupt, someone has to step in, either the state or the feds. I don’t think pensioners have an incentive to negotiate in this case.
beaconst,
There’s simply not enough money at any level of government to support both past & current public servants plus services. Taxes won’t do it, either. Something has got to give, and it will. Retirees can vote, but workers can revolt.
TJ,
You’re absolutely right. And, municipalities will realize soon that if they raise their taxes, companies will take their business (and employees) somewhere else to do business; defeating the purpose of raising taxes.
The pension obligations of many even in the private sector will be “renegotiated” by legislation. The best part of being the king is that you get to make the rules. Legislatures would try to find some way around it but, there will not be any way that the voting populace will support exorbitant pensions when they themselves barely have a few nickles to rub together.
Get Stucco said,
“As Ben noted yesterday, there is a good chance the future of some of these ant farm tracts in Nowheresville, UT lies in the hands of the guy who drives bulldozers for a living…”
I read yesterday’s post and disagree. I think the government has let this go on for a reason………. These houses will not be bulldozed. In spite of the debate about curtailing ILLEGAL IMMIGRATION that will be happening this week, i believe the end result will be:
Government bails out losses on overbuilding with similar tack as the RESOLUTION TRUST Corp. This time:
LEGALIZED Aliens need low income housing. Government writes check to provide housing for the NEW GUEST WORKERS.
There are 14 MILLION acknowleged ILLEGAL MEXICANS here. They all need houses. They will not go home. Both political parties will see this as a remedy to the problem…..Saving the housing collapse and providing help to the poor disadvantaged “new workers”.
I am sure that this will not play out as most of you believe.
The volume of housing construction and conversions is just too overwhelming. It will be absorbed, with government assistance and new age thinking to make the world a better place…….
I admit i was wrong about the State of Union address going into this, but in retrospect, it would have been too controversial. The fireworks will begin this week. Most AMERICANS are OPPOSED to illegals and want the influx STOPPED…..Let’s see what the government of the people, by the people really does.
I think the timing of the housing collapse is all too opportune.
Where’s the money for all this going to come from?
I am one of those people who just goes purple when I see this stuff about illegals buying houses and getting mortgages here. When I saw the headline about the immigration protest in LA, I naively thought it was Anglos protesting to send the Mexicans back. Stupid me. LOL
I’d like to live in Australia or NZ but they won’t let me just sneak into the country and lend me money to buy a house. This is just insane.
Helicopter Ben Bernanke will print it.
Soon it will be cheaper to build a house out of dollar bills than 2 x 4’s.
I naively thought it was Anglos protesting to send the Mexicans back. Stupid me. LOL
Have to remind folks again; Anglo is not a substitute for White, unless you’re a Mexican speaking Mexican. Please have proper respect and dignity for yourselves, and use the proper term.
Anglo (noun)
1. Informal. An Anglo-American.
2. An English-speaking person, especially a white North American who is not of Hispanic or French descent.
I researched moving to Austrailia and NZ as a lark…found out you need to have like a $Million+ in hard assests to invest in their market (CD, Stock, etc.) and provable pension income around 60K+ to get consideration to legally immigrate. I have enough to pay cash for a house in NZ and live comfortablly off my investment and pension income, but I don’t qualify for immigration into NZ. Go figure.
I am very happy to hear that you have a far more reliable crystal ball than any of the rest of us have. I will anxiously await the political approval numbers of whatever politician it is who proposes that the surplus housing be earmarked for guest workers formerly known as illegal aliens.
I’ve also found the same thing- the quality of construction in CA is generally terrible. I couldn’t believe so many 10 or 20 year-old homes and shops had leaky roofs. The combination of water damage, bad construction quality, and many big earthquakes coming means I would be paying $1M to be buried alive had I bought a home in CA.
Poor St. George…since my parents moved there in the late 80’s, I have watched that town grow from a pleasant little community to a traffic-snarled, sprawling mess in less than 20 years. And to think they are gloating over the fact that they recently beat out Tucson for a glass manufacturing plant that will pay an average annual wage of only $24k? Those employees certainly won’t be buying homes there anytime soon, unless it’s some goverment-assisted trailer park going in near the flood-prone river bottom.
Txchic57,
I too go nuts when I see all the bizarre goings on in America these days. My parents neighborhood has been completely “browned out” in just the past few years. They all speak Spanish. Where did they come from? How can they afford all these houses and brand new cars? That is why i believe the immigrant numbers released by the Fed are a lie. I think the numbers are much higher.
But continuing about the immigrants and taking in the ZERO Population Growth discussion, i don’t believe this will stop, because it cannot. The prior comments about all the rich baby-boomers with vast pensions is a delusion.
The pensions need to be supported by other vast armies of workers. Those promises were made under the 1950’s business model with a growing population, and ever expanding work force. Because the leftist view of the 1960’s overtook America and Europe, there is close to ZERO population growth from the native populations.
That is why Europe now has 30 Million immigrant Muslims in their midst and riots in France. They don’t have enough population growth to replace the retiring workers. The ZPG crowd really didn’t think this through to its logical conclusion.
We now have the same problem. But that is coupled with the Global Wage Arbitrage which is straining the incomes of Americans. We are having to compete with 3rd world countries, along with the illegal population here. The net result is slowing incomes and rising inflation.
Based on income levels alone, this housing mania will collapse upon itself, as it is unsustainable, but the prior comments about the demographics of retirees is totally off-base. Think about GM, Ford, currently. Remember the NorthWest Airline pilot pensions. They are getting not all they hoped for. The economics simply doesn’t work out. There will be many other pension fund failures, and many companies are currently replacing DEFINED PENSIONS with 401k and other worker paid “savings programs”, but few are saving.
The truth is, that the lies about “core inflation” are necessary because if true figures were used , then Social Security checks would be 70% higher. That would bankrupt the rest of us. The other defined pension plans will slowly come unglued, since the CREDIT BUBBLE, caused by CHEAP, CHEAP money made sound, money market and bond funds worthless the past 5 years. Pension fund managers have needed to meet the obligations and have gotten into more secure Mortgaged-backed securities. Are you beginning to see where this is going>??
America, like Europe, needs more workers because we didn’t have children. We will continue to import to support the lifestyle of the baby-boomers and their parents who are now draining our resources at a much greater rate than they ever “invested” into their retirement funds. The ponzi-scheme is coming apart and will be filled by cheaper labor, but the Guaranteed Pension funds will probably not withstand the stress of the collapse of the MBS scams… Derivatives will help bring down even more.
But no matter what happens, without a future generation, the Country will be over-run with “New Americans”.
I don’t see a happy outcome here. The baby-boomers don’t have any savings and I don’t think promises will be kept…..they will be redefined and inflated away.
Now I need to go find my happy place and think happy thoughts…………..
You haven’t said a thing I disagree with.
Which is why I do not contribute to the Social Security system, do not anticipate or depend on any pension and have trained myself and my husband to live on a very low income despite the fact we could spend a lot more than we do. We anticipate being able to live on 25-30K a year in retirement even though we will have plenty of savings to spend much more.
Ever seen the movie, “Off the Map?” That’s ideal living IMO.
This was the point of my earlier post. There is a huge amount of wealth out there, in the form of investments, secure private, and public pensions, that you aren’t accounting for. America is not “broke” despite all the grumbling in the media. Articles about the negative savings rate are almost all misleading, not representing IRAs, Coverdell ESAs, 401ks, and other tax advantaged accounts which people use first and foremost.
One argument I would agree with is that the gap between the “rich and the poor” is growing. But this doesn’t mean there aren’t tens of millions of rich people out there looking to consume.
That “huge amount of wealth” is tied up in Treasuries, MBS, and a host of stocks and bonds that will all collapse within the next year or two, right along with everyone’s home equity.
Oh, and there simply aren’t enough rich people to make up for everyone else.
There are a lot of boomers who don’t have all those investment products or a public pension. The only pension they have is Social Security which they have paid into for many many years.
Over the years, a lot of private pensions have been converted into tiny little IRAs or rolled over into tiny little 401K plans. Funds have been borrowed from those 401Ks for things like house downpayments, etc. Maybe the early boomers are just rolling in bucks but I sure don’t see it for a lot of people under 50.
Since the late 1970s, it’s been hard to keep jobs long enough to establish a good pension (if you didn’t work for the government). A lot of companies have failed, merged or been bought out over the years.
Unfortunately I agree with you 100% Anyone that really analyzes what’s going on can not come up with any other answer. What makes it worse is that the politicians will continue to go after these new votes and cater to the masses. In 20 years we will definately be what is currently defined as a 2nd world country. In 50 years we will be headed lower than that, with no distinction between Mexico and the Southern United States. What do we do?
WOW, this blog is getting really depressing. And everyone I know calls me depressing!
Oh man, I just realized my comment was depressing! Where’s my Valium?
“Don’t worry…be happy…
Don’t worry, be happy, don’t worry, be happy, …”
Bobby McFerrin
so, wait, should I go have another baby then (i’ve got two, but would love an excuse to have a third!)? but then I can’t afford to send them to college?! are they gonna have to stand in line for crap-salaried jobs next to illegals who don’t speak english?
they’re very smart kids, really…I’ve stayed home (and so, we rent!) to raise them…
and I want to know from beaconst how the “pros” know what to invest in…please excuse my ignorance, but if things are really going to be driven by massively wealthy boomers retiring to the outskirts of zion national park and to n. carolina and buying oceanfront condos as vacationhomes, then aren’t the small-time specuvestors doing the “wise thing” as well?! or are they just impatient and need to wait a couple more years til the bigtime pensions kick in and the echo boomers start hitting up mom and dad? is it a matter of timing or the right location or what that separates the smart RE money from the individual morons?
cheers all!
I did tell y’all, didn’t I, to be on topic re Utah, that a neighbor actually had a house fail to appraise in Salt Lake City?! Maybe they have really honest and civic-minded appraisers and bankers there!
Yes, have the third baby. My wife and I feel somewhat guilty at only having two (one boy, one girl), which will replace us when we die, but not build on the population base of what WAS defined as a traditional North American. The new immigrants are defining the future of North America and it won’t be anything like what our parents or we grew up in.
There should be one or two honest bankers and appraisers in SLC. But many scam artists too. Don’t know who you can trust. McMansions in St. George, future bulldozer work. The old folks won’t want those. And the Walmart greeters won’t be able to pay 500K+. Hurricane? What funny stuff are these developers thinking? Anybody paying those prices deserve to lose it.
(developer) Doug Rogers said. ‘I’m sure that over the next six months there could be some price raising. Any lot that is bought right now, my guess would be that they’ll gain 20 to 30 percent over the next one to three years.’”
That’s an interesting statement by Mr. Rogers. As someone else has already noted the equivocation in the “sure…could” construction, I’ll just look at the math. At the high end you have 30 percent appreciation in a year. At the low end, 20 percent in 3 years or about 6 percent annual per year. Quite a range there eh?
How do you know when the bubble’s about to pop (or deflate slowly) - Baldy starts reading RE. I started a year or so ago, IIRC. I also started investing in stocks in late 1999… Luckily, I didn’t have much money then to lose. It’s now like 2000, in that yields are inverted at least some of the time, for severl months now. OH- my mom gave me shoe shine kits for Christmas…
From watching the news here, it seems the SW is becoming North Mexico. How do these people who are supposedly the “backbone” of our country, “doing the work Americans won’t do,” afford these homes? CA has native CA’ians leaving, if it weren’t for the immigrants, CA would be another rust belt state. Just like the condomania around the US (its here in Pittsburgh too), I don’t understand how people can afford these things. Just saw a bunch of ads for homes $800k+ here - NEW homes, in the burbs, where $100k was the high end in 1980. They are MUCH bigger, but still. Even though housing is local, there is a national bubble. The burbs here, and some parts of city itself have bubble prices. $1M “townhomes” buit in 2004. Only half sold.
I just read some of Ben’s posts from Feb 2005. SCARY. We had plenty of warning, as did Congress. GSEs, systemic risk warnings from Greenspan…