These Trends Seem To Wander Up Into The Northwest
The Missoulian reports from Montana. “Missoula builder Joe Stanford doesn’t need fancy statistics or color-coded foreclosure maps to tell him America’s subprime mortgage crisis has arrived here. Like other builders and real estate agents, his deals have been scotched or delayed by buyers who first must sell their homes in stagnant markets. He’s stuck when out-of-state buyers who want to relocate to his Lolo and Missoula residences can’t sell their houses in Denver, Chicago and Los Angeles.”
“‘We’ve put deals together here, but everything is contingent on them selling their homes. They got into subprime loans and bought houses they couldn’t afford unless they financed it with those. When the market dropped, they lost their chance to sell,’ he said. ‘I have multiple builder friends who’ve called me with the same concerns. I think the trickle-down will affect the economy.’”
“In Montana, about 22 percent of the loans were considered subprime, or 7,342 out of the 34,152 loans that originated in 2006, according to the Home Mortgage Disclosure Act.”
“Mary Marry, president of the Missoula Organization of Realtors, has several clients who are stuck, though. They must sell homes in Las Vegas and Arizona before they’re able to purchase one here.”
“Broker Sherril McCabe said there have been some jittery buyers. ‘Everybody was looking at the national news. They sit at home and say, ‘It’ll be us next.’ But we’re never next,’ McCabe said. ‘They don’t realize we’re Missoula, Montana. We’re different and always have been. It isn’t doom and destruction in Montana; it isn’t like other states.’”
“Agent Julie Lynch said sellers’ homes are staying on the market longer, but the market is active. ‘There was an overall price drop,’ she said. ‘It was difficult to explain in our market because people were used to seeing the prices increase more than they could believe.’”
“Last year at this time, Stanford had six homes presold in a Lolo subdivision and built a dozen during the year. He has gross sales of $2.4 million in 2007 - about double his 2006 sales - for his three-year-old firm, Homes In General.”
“But with about 60 percent of his business derived from out-of-state clients who are in stale markets, he’s uncertain how 2008 will unfold. ‘I own 14 building lots in the subdivision and I’m concerned about what the winter holds for us,’ Stanford said.”
“Rebecca Babin, board secretary for the Missoula Building Industry Association, said builders report there are plenty of homes for sale in Missoula, especially in the $250,000 price range. Coupled with low interest rates, she said this is a good time to buy.”
“‘There is so much negative press that the public is losing sight that they can still buy a house,’ said Babin, a real estate loan officer at Community Bank Missoula.”
“Tighter credit is likely to alter the behavior of some homebuyers who have been living off the rising equity in their homes for years.”
“‘Maybe people shouldn’t use their homes as an ATM. People have taken the equity out to pay off other debt,’ Marry said. ‘They got used to their homes appreciating enough and that is a dangerous thing to rely on.’”
The Idaho Statesman. “Idaho’s housing foreclosure numbers have already more than doubled the total for all of last year, with December’s figures yet to be tallied, according to a report.”
“November’s 667 filings were 11 percent above the previous month. Ada and Canyon counties accounted for 393 filings or 59 percent.”
“Shaun Tracy, an associate broker with Re/Max Capital City., said that the spike in foreclosures might be just the medicine needed to cure the state’s ailing single-family residential housing market.”
“Tracy believes that as desperate homeowners slash their asking price housing affordability will return to the Treasure Valley, where the housing boom of 2005 and 2006 priced many area residents out of the market.”
“According to the Intermountain MLS, the median price of an Ada County home has risen 43 percent since 2004, or from $169,900 to $232,900 at the end of 2006. Canyon County’s median prices went from $107,0000 to $161,900, or an increase of 51 percent for the same two-year period.”
“‘It (the rise in foreclosures) might help re-establish where the market needs to be in order to stimulate sales,’ Tracy said.”
“Marc Lebowitz, CEO of the Ada County Association of Realtors, wasn’t convinced that higher foreclosure numbers would translate into higher housing sales. ‘Usually, when a person sells a house they buy another one,’ he said. ‘But some of these people are going to be forced into the rental market, at least for a while.’”
The Mail Tribune from Oregon. “During the housing boom earlier this decade, Larry Kellems’ company built and sold 102 houses in 2004 and 96 in 2005. When the real estate market bellied up last year, Kellems didn’t have to read about it. Overnight, the market dried up.”
“He sold 17 units in 2006. Although 2007 has been marginally better — he sold 21 houses through November — Kellems was forced to make tough choices. And he’s not alone.”
“A review of the more than 750 default notices compiled by LandAmerica Lawyers Title suggests about 10 percent of mortgage defaults belong to builders or developers.”
“Many builder-related defaults were to private lenders, who fronted money at higher than market rates. ‘The smaller builders are the ones we’ve seen having issues,’ says John L. Scott Real Estate agent Ron Galbreath, who has been involved in sales of property that went into default. ‘You find some of the younger builders overextended themselves.’”
“When houses were moving rapidly, developers gobbled up property virtually any time and — all too often — at any price.”
“‘When things were going well, two, three, four years ago, we bought property for the future,’ Kellems says. ‘A lot of us got caught when the market changed. Some of us have been stuck with developments that we have been unable to sell very well and can’t maintain the overhead to keep for future development.’”
“Kellems says he has a dozen projects in various stages of development. He also has a pair of development properties, totaling nearly four acres in Medford, that are going back to his lender, a local family trust.”
“‘It takes deep pockets so you can ride through these times when there is no cash flow,’ Kellems says. ‘It takes a certain amount of money every month to keep (payments) current. You’ve got to pick and choose which ones you want to keep.’”
“He sold the two lots now in default to other builders at the height of the market and then took the property back in July. ‘It was their first time in development and I had to take it back,’ Kellems says. ‘They couldn’t make the payments and then I couldn’t make the payments and was stuck in the middle. It caused a ripple effect.’”
“Mark Knouff, one of the Falcon Meadows developers, believes timing was perhaps the biggest factor for investors who came late to the party and are now caught between falling values and payments reflective of peak prices.”
“‘We weren’t building starter homes before (the White City project), but it was the right fit and a good value,’ Knouff says. ‘There was such a feeding-frenzy.’”
“‘Everybody was buying there as quick as it was offered for sale. There was a trend — people thought they had missed out and saw this as another opportunity,’ he says. ‘A lot of people made money in a short period of time fixing up places and selling them … and then there were a lot of people got in over their heads.’”
The Oregonian. “Portland’s standing as a bright spot in the U.S. housing market eroded a bit in November, according to data released Tuesday. Homes also continue to take longer to sell and the inventory of unsold homes remains stubbornly high.”
“And the worst may still be on its way. ‘I’m not really sure we’ve found bottom,’ said Jerry Johnson, a Portland housing economist.”
“Nancy Wheeler can see the effects of the slowdown in a foursquare home on Northeast 21st Avenue. The freshly renovated house, which sits in Portland’s popular Irvington neighborhood, has granite countertops and cherry wood cabinets. Wheeler, a broker for John L. Scott Real Estate, listed the home for sale in July for $800,000.”
“She got no offers, so she lowered the price by $20,000 in September. That didn’t bring any offers. She lowered the price by another $20,000 in October.”
“Today, the home is still for sale at $759,900. High-priced homes, Wheeler says, are tough to sell in the slowing market because fewer buyers can afford a $4,000 monthly mortgage payment. ‘There’s lots and lots of homes for sale,’ Wheeler said. ‘It’s just taking longer to sell.’”
“Wheeler’s home also competes with more houses for sale than at any point in the past four years. The Regional MLS — which lists 14,000 homes in Clackamas, Columbia, Multnomah, Washington and Yamhill counties — said closed sales fell by almost 20 percent in November. There were 2,249 closed sales in November 2006 and 1,623 in November 2007.”
“Across the Columbia River, Clark County continued to struggle. Inventory is 11 months, and the median home value was up 2.5 percent to $260,000.”
“Johnson predicts the region’s home values will be flat in 2008. In other words, your house won’t be worth any more in December 2008 than it is worth today. ‘We’ve got to work out the inventory,’ Johnson said, ‘and it’s going to take 2008 to do it.’”
The Olympian from Washington. “This was a healthy year for South Sound real estate sales though sales through November were down about 12 percent compared with 2006, according to Northwest MLS data for Thurston County. The market of 2005 and 2006 was active and resulted in record sales in 2006.”
“‘You just have to remember those years we were so over the top,’ said Jeff Pust, general manager of Van Dorm Realty. ‘We needed a correction year.’”
“Active listings of homes and condo have increased 86 percent from 2005, from 1,120 units late in 2005 to 2,087 units this November.”
“Though the inventory of homes for sale has grown significantly the past two years, Pust is optimistic that buyers will absorb it. He said that’s partly because of low county unemployment and steady job creation. New Cabela’s and Kohl’s stores that opened in Lacey this year, and a Great Wolf Lodge resort expected to open in Grand Mound early next year will create about 1,000 retail jobs, Pust said.”
“A small percentage of homeowners are struggling to make mortgage payments, Thurston County Auditor’s records show. Through Thursday of last week, the department had issued 635 notices of auctions to homeowners who were behind on their mortgage payments, compared to 435 issued all of last year, nearly a 46 percent increase in sent notices.”
“‘I don’t think we do have enough affordable housing,’ said Ken Anderson, broker and owner of Coldwell Banker Evergreen Mortgage. ‘We’ve seen examples of where people have overreached.’”
“At the same time, Anderson said that overall, 2007 was a year when lenders tightened up on liberal credit, some of which led to foreclosures. ‘We’re glad to see a year like this,’ he said. ‘We can get rid of the speculation we’ve seen.’”
The Seattle PI from Washington. “King County had 767 foreclosure filings in November, up 127 percent from October and 93 percent from November 2006, according to RealtyTrac.”
“Seattle-area foreclosures have been on the rise since the spring, said Stephen Routh, CEO of the state’s largest handler of foreclosures, because softening prices have made it harder for people to sell their homes for as much as they owe.”
“‘These trends seem to wander up into the Northwest. The perfect storm is starting to descend on us here,’ he said.”
“‘I would view that (surge) as an anomaly right now,’ Routh said. ‘If it happens again next month, then I’d scratch my head maybe and try to rethink that.’”
“As Seattle-area foreclosures have risen, King County’s median house price declined by nearly 10 percent between July and November. The median price for houses and condos that sold in November was $405,000 in Seattle and $385,990 for all of King County, down from a year ago and from recent highs this summer, according to the Northwest MLS.”
Here’s one for the inflationists out there:
‘The price of house-framing lumber, such as two-by-fours, dropped to $165 per thousand board feet this month, down 28.3 percent from $230 per thousand board feet a year earlier. It was $348 in 2005, according to Random Lengths, a Eugene, Ore.-based company that tracks regional forestry production. Lower prices haven’t spurred a rush of home building, leaving suppliers with steadily rising stacks of unsold lumber. Prices are continuing to drop with the increasing supply, said Hayden Davis, branch manager of the Hazel Dell Lumbermens building supply store.’
‘Retail prices are equal to or lower than they were in the early 1980s,’ said Davis, who has worked in the business for 24 years.’
‘For example, Lumbermens is selling two-by-fours for $1.29 apiece, the same price as in 1983, Davis said. ‘This is about as low as they can go,’ Davis said.’
I think there was a spike in prices of most useful things (lumber, food, gas etc.) during the bubble years. It was unsustainable because incomes didn’t keep pace while the production capacity expanded greatly in India, China, Korea etc. Deflation is palpable.
In early 2005, I changed jobs that let me go casual to work. I went to look for good jeans at a bargain and Wal-mart had them for ~17 dollars apiece. Now I can go to local Wal-mart and find a nice pair of men’s jeans for under $12. That is -30%. We used to pay $3.29 for a gallon of 1% milk in the neighboring 24-hr store. Since November, it has been $2.99. That is -10%. There are many such instances.
Cash is King! Long live the King!
What do K-Mart and Michael Jackson have in common? They’ve both got boys’ jeans half off.
I slay me!
This one is for you, Sammy:
http://www.youtube.com/watch?v=txoJQZfObb8
If you want a good pair jeans even cheaper, hit your local Salvation Army. Especially if your losing weight, and haven’t reached your goal, this is a great place to buy good looking clothes at a cheap price.
Hey - I’m sorry about my comments yesterday. I had a very bad experience with an AA over my new lemon at a new car dealership so I just assumed… (and we all know what happens when one ASS-umes…)
I did think your retort was very funny, though. You and nycboy both got my understanding up to speed on all of the job functions AAs have to perform.
Also, I just about have given up on the purchase of new pants and shirts. Almost all of mine is at the Goodwills. Lots cheaper, already broken in, and lots of different sizes to try on. You can come out of these Goodwills looking really good in clothes that are a perfect fit
Once again, sorry. My Bad.
tcm_guy thank you for your apology.
I took no offense from you and everyone else comments. I understood the comments posted were in good humor with tongue planted firmly in cheek.
I hope you get your car problem resolved.
Take care.
Yes I got my car problem resolved. I traded out of that Pontiac for a Honda
Yes, I got my car problem resolved. I traded out of that Pontiac for a Honda
..
The builders will survive by building right underneath the FB’s noses.
Land prices are down, lumber is down, “green” and energy efficient is in.
We will see a return to 1800 sqft homes with low ceilings…..probably in the 3X multiples of median income for any specific area.
Here in Florida, you may be able to get a well-constructed 3bdr/2ba home, brand new, for around $ 150K. Thats what it should cost…and in the end….thats what it will cost.
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5X income-what a joke! 3X income was the old metrix.
Remember wages have been stagnant for the past 6 years and costs have exploded in that period of time.
Most families are paying an extra $2000 per year in fuel costs.
An extra $2000 -$5000 per year in insurance (health and HO)
An extra $1000-3000 per year in property taxes.
An extra $3000 per year in food expenses, milk eggs ect…
An extra $1000-2000 in revolver debt
With expenses up about $10K per year for the avg family in the past 7 years, it wipes out about $150K of mortgage buying power.
At this point, the new multiple for homebuying could be reduced to 1-1.5X income. Expect to be reading about this in the upcoming months.
‘The builders will survive by building right underneath the FB’s noses.’
It’s not just that. In the OR builder piece, the one guy is choosing which lots to fold on and which to hold onto. This is because he expects the market to improve next year. So he is basically chasing the market down. In other words, next year he will fold on even more, IMO.
Here’s another one for the inflationists. I bought a gallon of milk yesterday for $4.09. Three months ago in the same store it was $3.89. Not much more than a year ago it was $2.99.
It’s fun when you cherry-pick your statistics.
Sure, cherry pick. I just posted several links to articles showing home prices falling over a huge region. I do this every day now, for almost every market in the WORLD. And you post one anecdote on milk? I don’t even drink milk. Talk about cherry pick…
Ben:
Its stealth inflation….product downsizing everything from 56oz “half gallon” ice cream to Paul Newman’s sockarooni sauce 24oz from 26, Hellmans mayo 30 oz from 32…now even bleach 60 oz from 64 oz….
I also note less shelf space given to house brands…and things on sale run out quicker. Or now have strict quantity limits….
Remember its all scanned so when they say 1 to a family with club card they can easily verify that….and the second item is full price. I tried that last week had Perdue chicken breasts 99 cents lb.. bought one pack on Monday went back on Wednesday, and was charged the full price of $3.99 lb.
Get multiple club cards
Wont work anymore, most place mail them to you the next day…so its one per address too..
That was my point. We’re retired and own our home outright. Looking at our outgo for the last two years (by category, so it’s not skewed by one-time purchases), it’s clear that our living expenses have been rising.
Yes, home prices are falling and rents are declining due to the oversupply. The worst is yet to come. Demand for building supplies is way down, so you’d expect those prices to fall. But our food (especially food), fuel, utilities, and insurance have all gone up.
Food prices are a function of gasoline. Once the global economy enters a meaningful slowdown, gas should fall and food should too. Meanwhile, the single largest expense for almost every single person is dropping.
Ben, actually the increase in food prices is NOT as attributable to the price of fuel so much as it is attributable to the conversion of the corn supply from use as food to using it for ethanol.
Diverting the corn to ethanol means corn prices go up which in turn sends up the price of anything using corn:
Milk (feed the cows corn)
Cheese (comes from milk)
Meat (feed the animals corn)
Anything with corn syrup in it (breads, baked anything, cereals, jams, …….)
And those prices are NOT going to come down unless and until (1) the ethanol craze ends and the corn supply returns to being used as food and/or (2) more corn is produced.
What was the excuse for high grain prices in 1988? Oh yeah, a drought. Then corn drops throughout the years to under $2 a bushel. This ethanol excuse is baloney. Trade commodities for awhile and you will see how much price is a function of mania like everything else.
Well said, Ann. The ethanol swindle is designed to help agribusiness cash in, not alleviate America’s energy needs. Consider this as well: The millions of tons of corn that are being diverted from feedstock for cattle, or export, are already causing the price of corn to soar.
Pop quiz: Who’s the largest importer of US corn? Mexico! And what is that impoverished country’s staple food? Tortillas! Which are made from…corn!
What happens when impoverised Mexicans can’t afford to buy corn for their tortillas, because the price of corn is soaring?
Riots and social unrest.
And we all know what happens when Mexico experiences economic, social, and political unrest - we, the people of Del Norte, get innundated with desperate Mexican enconomic migrants.
Think about that next time someone Agri-business shill touts the benefits of ethanol.
“What happens when impoverised Mexicans can’t afford to buy corn for their tortillas, because the price of corn is soaring?”
They switch to ‘tortillas de arina.’
http://www.counterpunch.org/dawson12202007.html
As food prices soar, stand by for the return of the bread riot.
corn based ethanol works in brazil…who is energy independent.
Brazil ethanol comes from sugar cane not corn and yes they are energy independent.
Indeed. Sugar Ethanol is something like 10x more efficient then corn. Corn Ethanol is a joke.
bought a gallon of milk yesterday for $4.09. Three months ago in the same store it was $3.89. Not much more than a year ago it was $2.99.
Sorry but that IS a steep jump in prices. That is a 36.7% increase in price.
IMO, what most miss about price trends is the difference between permanent and temporary. A good example is the current hop shortage. There was over supply for years. Producers cut back, and the industry found itself unable to meet demand. It takes years to develope the root stock, so prices have soared. I talked with some distributers; beer is going to go up 1.50/six pack soon.
But guess what? These high prices will almost certainly result in overplanting and we will see this ST imbalance move back to equilibrium. These are really functions of time lag and imperfect management. IMO, this isn’t to be confused with actual inflation.
Oil is the same way. Mexico is now a net importer of oil, even though they sit on vast amounts of the stuff. Why haven’t they invested in developing enough new fields? IMO, because prices were too low for so long, there wasn’t enough incentive and they are just not managing the resources well.
Petroleos Mexicanos is state owned. Like our government, they have very little incentive to plan past the next election.
lets see housing prices exploded for years and have fallen what maybe 8%. No way are we in deflation.
Food, engergy, entertainment, TAXES are all skyrocketing.
INterest rates continue to fall, thanks BenB. The more you save the more you lose to inflation
I wish I was wrong because I am the consumate saver with no debt. Feeling pretty stupid for not playing the game right
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And what was it 5, 10, 15, 20 & 25 years ago?
The biggest cost in pizza is cheese, a milk product. How much has price for “cheap & nasty” pizza gone up in 5, 10, 15, 20, 25 years?
In SoCal it has gone up 30-50% for the past 20 years. We have had a “controlled inflation” regime in the US for the past 25 years. But it wouldn’t last forever. My forecast is that we will move to deflation rather than run away inflation. Most likely, in 2008 if the home prices drop more than 10% during 2008.
Jas
And yet, builders have hardly been lowering prices here in the Pacific Northwest. On the way up, rising material costs were blamed, but now that they have fallen dramatically builders resist lowering prices significantly.
In the PNW we are in the “incentives” phase, and it will probably take until next fall for builders/developers to really accept that prices are falling.
Can anyone explain to me why Plum Creek Timber (PCL) stock is performing so well in the current environment? The PE is now over 35. Are we expecting their trees to just grow into the current valuation?
It might be the book value of all the land they hold. They’ve been talking about selling it off to developers for trophy houses.
Anecdotally, I drive by a lumber mill nearly every day, in Oregon, and have never seen such a large amount of finished lumber sitting in the yard, waiting to be shipped. I’d guess a minimum of 50 large truckloads. There are also alot fewer trucks carrying raw logs into the mill.
A very good friend in LA, a lumber broker, told me last week that he hasn’t had a call for two months. He services most of all the large lumber yards in the basin.
Driving north out of Sparks, NV you can see the lumber cars on the north spur stretching from Sparks up past the junction, thirteen miles
of rail cars sitting idle. Up in southern Oregon
we see miles of cars sitting on silent spurs.
It’s a dead business.
Hi Ben,
Well, I’m one of those inflationists out there, and I don’t see a contradiction with housing related materials, houses, and real estate in general losing value in this generally inflationary time. We should expect to see decreased business activity during this time of the collapse of the dollar. At first glance, it might seem as if depression and inflation are mutually exclusive, but they aren’t. It simply depends on the conditions at hand. Think of these things that occur in nature at the seashore, namely, riptides. The effect of being in the riptide is that you are being carried AWAY from shore, despite the fact that the waves in general are coming IN to shore. People need to stop assuming that because falling housing prices are in themselves deflationary, that this describes the entire unfolding economic trend. Housing related deflation is a significant but not over-riding trend within the more sweeping inflationary wave of the collapsing dollar. Housing is the riptide, fiat currency debacle is the ocean. If you are caught in the riptide, the housing price crash, it may seem to you as if EVERYTHING is deflating. However, viewed from above or afar, you see the picture for what it is, a treacherous cross current within a more predictable system, best to avoid if you can. In the coming year, US real estate will fall, unemployment will rise, foreclosures will rise, bankruptcies will rise, gold will rise, inflation (outside housing and housing related commodities) will rise, the dollar will fall, municipal defaults and taxes will rise. The overall economy is slipping into the New Depression and the repudiation of debt through devaluing the dollar will be one of its primary characteristics, as counterintuitive as this may initially seem.
Nice analogy!
I totally agree, MT. The “deflation” in housing prices is merely a natural correction from an unsustainable mania.
“Lower prices” does not necessarily equal “deflation”.
In my view, the Powers That Be have no option but to inflate, with view to minimise future debt.
We priced the building of a long-planned house in Florida in 2005 and got quotes that ran to $300/sq ft.
This was a home we intended to live in ourselves, as a retirement home, on a largeish parcel (20 acres) of pre-bubble land (free of HOA and CC&R) we’ve had for a while.
Since we thought that was outrageous, we put the plans on hold.
Now, the builders who quoted us are calling back with quotes of nearly half that! I think there was just pure greed going on back then, compounded with the fact that most people simply didn’t care how much things costs, as long at they could afford the “howmuchamonth” for the teaser period.
(As we were going to pay cash, and intended to live in the home, we were unusual that we cared about all costs involved)
Now, two years later, the crime rate in Orange County has more than doubled, there’s talk of getting rid of inflation protection on property tax, building a home in Florida is just downright silly. For the cost of *property tax alone*, I can rent a nice place 6 months out of the year, and have enough left over to pay for a housekeeper!
There will be no more “snowbirds” with money buying homes in Florida! They’ll just rent. This way you can do one winter in South Beach, another in Tampa, and another in Palm Beach. It’s a much better deal all around.
AH! I was just going to post this in Bits….hahaha we’re different here!
Also, it’s a great time to buy! All sorts of houses for 250k, only 5x median!
This is classic.
Your area seems to be the last US holdout. Although it might just be the media that is slow to report, via REIC manipulation…
Yes, the Lambros family is very big here, along with the Prudential (former Gillespie) outfit and lots of others. They have the media by the cajones and I’ll bet they’ve been sitting on this story for awhile. I see their footprints at my site.
So they wait until the slowest time of year, andthen hope people won’t notice due to the holiday weekend.
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Seattle Area has dropped from #1 in YoY price gains in July to #3 September (the latest available) according to Radar Logic.
http://www.radarlogic.com/index.html
Great site, but IT DOES NOT REFLECT AREA-MIX, I.E., RELATIVE # SALES IN HIGH-PRICED VERSUS LOW-PRICED AREAS.
I gather extensive data for Santa Clara Co., a good proxy for San Jose Metro. Since spring of 2006 the mix has shifted more and more to high priced areas due to GOOG and AAPL. Area mix has given a 10-15% boost to the median price for SFH. The median listing price for SCC is down 25.5% from the peak in March 2006.
Every data series on housing prices has some or other anomaly and we just need to know what it is. The worst by far is the HPI from OFHEO; it doesn’t correct for area mix, obviously, as well as home modernization, which has been a major phenomenon in recent years.
Jas
THE TREND IS WANDERING EVERYWHERE-JUST NOBODY IS TALKING…YET
Banks are losing money
Insurance companies are losing money.
Municipalities losing revenues.
State deficits rising higher and higher.
Commercial real estate prices crashing.
Residential real estate prices crashing.
Mortgage backed securities values crashing.
Coroporate bond values declining.
Municipal bond values declining.
British real estate funds halting withdrawals.
State investment pools halting withdrawals.
Costs rising for everyone while wages stagnant or declining.
Layoffs beginning to increase.
Really, the only asset class that has suffered material decline is the stock market. Should equity be the first to feel a squeeze?
With most asset classes mortgaged to the hilt, RE, municipal debt, ect…..what’s going to happen when people need cash?
“Really, the only asset class that has suffered material decline is the stock market”
has should read “has not”
in the next sentence
should intended to read “shouldn’t”
It will crash during the recession. Right now there are lots of ppl with tremendous amounts of wealth, and billions of dollars which would otherwise be invested in real estate and mortgage backed securities now are flowing into the stock market. Unlike me (not normally, but given current conditions), most ppl feel that their money must either be in equities or real estate. They are unwilling to accept less than 10% returns. As the flow is diverted from one area to another, it creates minibubbles. Note that the overleveraged borrower for the most part was not also the investor (as one incurring excessive amounts of debt is not likely to have much to invest). It is only when the overleveraged borrowers go belly up, and no longer buy goods and services that it will effect the broader economy. Sure this is starting and inevitable, but most ppl are not as forward thinking as we are. Many still view it as a real estate specific problem, hence they pull out of real estate and weight their portfolio more heavily into equities. Im not saying its smart, Im just saying it thats what’s happening.
Markets don’t move at the same time in the same direction, period. There is no correlation between things like oil and the Dow Jones - pure fantasy. The credit crunch will affect everything in time, but like all markets, the stock market does not move straight down or straight up to match some perceived value.
What is it with these people? How can anyone afford anything more then a mobile home on a retail salary?
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and a Great Wolf Lodge resort expected to open in Grand Mound early next year will create about 1,000 retail jobs, Pust said.”
“I’m not really sure we’ve found bottom,’ said Jerry Johnson, a Portland housing economist.”
Economists faced with data showing rising inventory and foreclosures, the highest deviation from historical rental/income/sales price ratios in U.S. history, the presence of a Wall Street credit and liquidity crisis, and tighter lending standards, are still “not really sure” what direction the housing market will go short term. I think it might go down, but I dunno as he shrugs his shoulders and goes back to his favorite porn site. At least this gives hope to all those former realtors that pretty much anyone can find employment. I wish when ppl came to me for advice and guidance, rather than looking at the numbers, perhaps running some econometrics and doing some modeling, I could just say “i’m not really sure about that” and not only not get fired, but get quoted in the media. On second thought, I couldnt do that. There are some ppl out there that actually put effort into these things and care about gettting it right. I’m cant guarantee my predictions, but I can make an educated guess based on facts and take a position. I guess thats too old-school these days. Today everyone is a winner and special.
Jeff Pust, general manager of Van Dorm Realty. ‘We needed a correction year.’”
“Active listings of homes and condo have increased 86 percent from 2005, from 1,120 units late in 2005 to 2,087 units this November.”
“Though the inventory of homes for sale has grown significantly the past two years, Pust is optimistic that buyers will absorb it. He said that’s partly because of low county unemployment and steady job creation. New Cabela’s and Kohl’s stores that opened in Lacey this year, and a Great Wolf Lodge resort expected to open in Grand Mound early next year will create about 1,000 retail jobs, Pust said.”
And the linked article also says that:
“• Median sales prices continue to grow, which shows sustained demand for South Sound homes. Medians have climbed annually from $242,000 in 2005 to $260,500 through November this year, an increase of 7.6 percent for the time period.”
What a complete moron if he thinks that people are going to be able to buy houses on the wages paid in retail, restaurants and hotels. Low wage jobs do NOT pay for houses - or at least not for houses priced above $150,0000 even if there are two retail/hotel/restaurant incomes and actually more in the $90,000 -120,000.
$260,000 houses on incomes from Cabellas and other retail jobs is not going to happen.
No bits bucket today. This is from the opposite corner of the country (Florida), but it paints a clear picture of the fallout from the housing bust.
http://www.heraldtribune.com/article/20071223/NEWS/712230311
That was a puff piece compared to all the scary articles I am used to reading at 7 am california time.
When I read a thrilling story I can clean my whole house, this one will leave a messy wake.
What’s the weather like in Montana this morning? I can’t imagine what would drive someone from California or Arizona there. Beautiful place, no argument, but how can you tell if it’s too cold to go outside half the year?
East of the continental divide can be frigid in the winter and blazing hot in the summer, though absent the humidity of TX. West of the divide is relatively milder. Missoula has a decent climate for that latitude. Generally tolerable in the winter and lot better than Phoenix in the summer.
The hook for Californian’s is the relatively lower cost of housing. But wages are also a lot lower. At the moment, housing’s no bargain there either. Not at $250K when the median wage is no more than $40-45K.
I like snow and used to be a downhill skier so I came here in 1975. It can’t snow enough for me. Besides, in Missoula it’s different! Seriously, the wind is not as bad and it’s a bit warmer than east of the mtns. Depressing this time of year, but you learn ways to get through it, and it used to serve as a good foo barrier. Not so much anymore.
Once you get below zero it pretty much all feels the same.
(Proud eastern MTian)
New Cabela’s and Kohl’s stores that opened in Lacey this year, and a Great Wolf Lodge resort expected to open in Grand Mound early next year will create about 1,000 retail jobs,
__________________________________________________
These sounds like the kind of jobs that will keep home prices elevated. Keep dreaming.
Those Cabela’s jobs will feel like a windfall for all the young men who’ve been unemployed loggers for a few years, living in a mildew-stained mobile home at the edge of their parents’ property, making just pocket money on their meth lab sales.
“Broker Sherril McCabe said there have been some jittery buyers. ‘Everybody was looking at the national news. They sit at home and say, ‘It’ll be us next.’ But we’re never next,’ McCabe said. ‘They don’t realize we’re Missoula, Montana. We’re different and always have been. It isn’t doom and destruction in Montana; it isn’t like other states.’”
I’ve got a new term for these MORONS…it’s “MAROON,” they’re marooned on their own island of denial, delusion and disconnect. It’s her head, she’s living in it…look it’s shrill mcabe and the Moron twins…how many more of these clowns are they going to keep giving the mike to? pure vitriol…i tire…
got neil?
crush
hey, you gotta understand - this is the first time the local paper has acknowledged it, so naturally we have to go through ALL the classic phases of denial!
I’m loving it. Affordable housing, here we come!
‘It was difficult to explain in our market because people were used to seeing the prices increase more than they could believe.’”
After the dotcom mania subsided, real estate picked up where it left off. Maybe, just maybe, we will get a break from funny money and the “this time it is different” attitude.
What a great morning Post! There are so many Jackass stories that it is hard to comment, my mind is racing!
Of course if SoCal is going down, so is the rest of the country. How do these jackass realtor / builders contiue to think that they and their ’special area’ are different?
“‘We’ve put deals together here, but everything is contingent on them selling their homes”….. the dream continues.
When the Fed opens up the window to borrow money without being named, can those banks/borrowers invest that money in stocks? i wonder if that’s what’s going on in the stock market right now? It makes no sense that the market is heaving right now…i know dec is usually a strong month, but it seems a bit much right now.
crush
Just another SUCKER Rally! I was a broker for too many years. Have seen it happen many times. Wait ’till early January.
The lead front page headline in the Sunday Times/PI here in Seattle is of course about how we are different:
“Region likely to dodge economic doldrums”
in large, dark, type. Yes, when you get the paper this morning, that’s all you see. We are different. Lead paragraph:
“While the rest of the country worries about catching economic pneumonia next year, the worst the Seattle area and Washington state should face is a case of the sniffles”
Good luck to us.
5X income-what a joke! 3X income was the old metrix. Remember wages have been stagnant for the past 6 years and costs have exploded in that period of time. Most families are paying an extra $2000 per year in fuel costs. an extra $2000 -$5000 per year in insurance (health and HO)
An extra $1000-3000 per year in property taxes. An extra $3000 per year in food expenses, milk eggs ect… An extra $1000-2000 in revolver debt. With expenses up about $10K per year for the avg family in the past 7 years, it wipes out about $150K of mortgage buying power. At this point, the new multiple for homebuying could be reduced to 1-1.5X income. Expect to be reading about this in the upcoming months.
And you are actually forgetting the two single largest expenses for average middle-class families. And both have skyrocketed:
Retirement
College educations.
Remember back in the 60s and 70s when 3x income was the norm? Back then the majority of middle class workers had some sort of defined benefit pension they could cound on in retirement. The pension combined with social security would guarantee freedom from poverty in old age. Today, unless you have some sort of gold-plated executive retirement package, you’d better be maxing out your 401k and Roth IRAs and putting a whole lot more money towards retirement during your earning (and homebuying years) than your parents ever needed to a generation ago.
And college educations? My Dad worked his way through college at a private liberal arts college by logging and working in lumber mills in Oregon during the summers in the 1950s and graduated without debt. Today it is absolutely inconceivable that a college student could pay for college costs with a summer job. Today the cost of a 4-year college education exceeds the cost of a middle class house in many parts of the country. A family with small children had better be doing some serious saving if they expect their kids to ever attend college without taking on obscene levels of debt.
Point being. The prudent middle class family with kids needs to be saving a considerably larger percentage of their household income today than they ever did a generation ago. Yet exactly the opposite is happening, primarily for two reasons…housing costs have gone through the roof (the famous 5x income) and consumer spending on expensive toys and lifestyle accoutrements like granite, whirlpool baths, plasma TVs, new cars, etc.
5x income? The thought just astonishes me. And, I suspect these are the very folks who think their house is going to act as both their retirement and college savings fund. We all know how well that is working out.
Reminds me how many ppl, including my own parents, view declining real estate prices as the destruction of their retirement even though they own their home outright. They just dont seem to grasp the concept, or just dont care, that no other generation had such a windfall (to the extent they were able to cash out in time), and that it came at the expense of the savings and retirement of the younger generations. It really wouldnt bother me so much other than the fact that they view this as something they were entitled to rely on, as opposed to a fluke that never should have occured. No ppl, your home is not your retirment plan, your college savings plan, etc. That’s what prudent savings and investing are for. Most ppl dont even know what that means anymore.
Forget this stuff about “such a windfall (to the extent they were able to cash out in time), and that it came at the expense of the savings and retirement of the younger generations” nonsense.
Bottom line is that a house is NOT a liquid asset nor an asset which one can use to cover epenses unless you SELL IT. It is not a thing that you can do without like, say, a painting. You have to have somewhere to live. Sell that one, buy another of similar desirability? The money is a wash unless they are moving from NYC to WV and then houses are a lot cheaper.
BTW until Social Security was created, except for maybe 5-10% of the population, PEOPLE DID NOT RETIRE.
There was no such thing as ‘retirement’ for 90% of the population. They worked until they died. If they became too ill or too feeble to work here were the options: (1) live with the children or other relatives who took over supporting them or (2) end up in a county-run old age home (called the ‘poor house’ in Charles Dicken’s novels.) In 1933, 1/2 of the elderly resided in the old age homes - and we are not talking fancy shmancy retirement homes but dormitories. The 1/2 of the elderly either were still working (or trying to work), or living with relatives - and very very very few actually had the money to be able to ‘retire’, keep their home and pay the bills. Some public employees had pensions, a tiny number of employers offerred pensions (wiped out in the Crash) and the rest were on their own. The result? Poverty, old age homes and depending upon younger relatives.
Never, in the recorded history of mankind, were the elderly able to ‘retire’ as is meant now by the word. That is a mid-20th century invention.
So stop whining about those who were hoping to sell, move to a smaller place and have some money left for retirement. Pensions started going south in the 80s. The average Social Security is $1100. Would you prefer to take your parents and grandparents in and support them or send them to the old age/poorhouse?
Your comment about “That’s what prudent savings and investing are for. Most ppl dont even know what that means anymore” is completely inaccurate.
The vast majority were NEVER able to save enough from income to retire until Social Security was created in the 30s and pensions became common place beginning in the 40s. Now pensions are gone, Social Security hasn’t begun to keep up with the increases in the the cost of living and we have returned to the delusion that somehow everyone should be able to do what has never been done before in history - save enough to retire by the age of 65 (and even more is needed now because of longer lifespans.)
AnnScott,
100% correct.
I do wish more people had a basic grasp of even US history (hoping they were knowledgeable about world history is really pie-int-the-sky.)
The unemployment rate at the height of the Great Depression was around 20%. The lowest in got down to in the 30s was 14%.
On the other hand, the unemployed workforce count included
(1) children and I do mean ‘children’ as in as young as 8,9 or 10 years old who worked in the mills, particuarly the cotton and textile mills; and
(2) the elderly - the ones we now believe should be retired by 65 at the latest.
FDR insisted on the child labor laws not so much out of the desire to protect the children but to get them out of the workforce so employers would have to hire the unemployed adults at higher wages. (Kids were paid a lot less per hour.)
Ditto Social Security. The needed to be away to get the older workers out of the workforce but still provide them with some income so they wouldn’t be destitute.
Too many workers, not enough jobs.
If today, there were no child laor laws so 12,14 and 15 year olds were out trying to find jobs and no Social Security so that many over 65 still had to work, there is no way the economy could absorb those workers.
The unemployment is supposedly around 4.7% of those in the workforce or about 4,000,000.
There are 18,000,000+ people between the ages of 65-75. If 2/3rds of them had to keep working (full or part-time) that would add 12,000,000 to the labor pool.
Unemployment would be very close to 13% today.
Ann do you not realize that most ppl in their 20s-30s actually have a lower standard of living then their parents did, and have less prospects of ever being allowed to retire?
There is a big difference between the 1930’s and today - middle and upper class woman as a major force in the economy. (Poor women always worked.) They are in the economy and unemployment numbers it was much less of an option in those days. 13% or 20% unemployment might have a much smaller impact today if it means that only 1 breadwinner is working as opposed to the only one not working.
*sigh*
“They are in the economy and unemployment numbers it was much less of an option in those days.” should have read:
They are in today’s economy and unemployment numbers. Women working to support a household was much less of an option in the 30’s.
Comment by Sarah
2007-12-23 14:30:15
Ann do you not realize that most ppl in their 20s-30s actually have a lower standard of living then their parents did, and have less prospects of ever being allowed to retire
Sarah -
I HAVE A LOWER STANDARD OF LIVING THAN MY PARENTS AND I AM OVER 45!
And this is despite having 3 times the number of college and post-grad degrees that they did and having eared 3 times more than they did when incomes are adjusted to be comparable.
The last generation for whom the social contract (work hard, keep your job, healthcare etc) worked was that of my parents who would be the 20-30 year olds grandparents.
There really were only 2 generations who could rely upon that contract. My parents and my grandparents (in their 20s when the Depression hit but after 1940, the contract worked.)
The 45 and ups were the 1st generation (after the 2 preceding groups) to learn what a RIF was, and being told they were on their own.
Frankly, the standard of living and the social contract are reverting to what it was in my great-grandfather’s day. (Yes, I knew him - he lived until I was in college.) It is now you are own your own to try to survive and if you fail…..
BTW, if you mean 20-40s can’t afford the 3000 sq ft house at that age, well neither could most anyone of any generation. the thing about startng out is that your standard of living is always lower than the older generations who have been working longer. Don’t remeber anyone I knew (professional circles) going skiing in Colorado with their kids in their 30s or having the big house or the Lexus or anything else like that.
Actually about 20-30% of households were headed by women in the 30s. (Death or desertion rather than divorce.) Problem is they were the first fired when there were cutbacks if the job could be done by men or women.
Women took a lesser hit in the discharges during the Depression as they were largely employed in fields such as teaching which were not subject to the lack of demand as, say, the steel industry where women were not employed.
Right. The problem is that we need to get rid of the idea of retirement. I’m for an SS system that is both means and ability tested. What I mean by that is that if you are able to to work, SS might fill in gaps but if you are 80 with no savings but perfectly capable of working then that’s how you put food on the table. The reality is that SS tax is already too high and there’s just not enough young workers to fund the baby boomer’s retirement the way it was for my grandparent’s generation. SS works great as disability insurance - we just need to get rid of age as a “disability”.
I thought pensions came into being in the 40’s as a way to both get around wage controls and a way for corporations to defer and reduce compensation. They were based on the same premise as SS - most people didn’t make it to retirement age. They looked like an ideal combination at the time. Obviously, they don’t look so good when a majority of the people live in retirement for as long as they worked.
We personally don’t go too nutty saving for retirement. It’s really our “too old and too sick” to work for fund. There’s no point in not living somewhat for today for something that’s not happening for us, anyway.
Comment by Vermontergal
2007-12-23 13:51:02
Right. The problem is that we need to get rid of the idea of retirement. I’m for an SS system that is both means and ability tested. What I mean by that is that if you are able to to work, SS might fill in gaps but if you are 80 with no savings but perfectly capable of working then that’s how you put food on the table
SS will have to become what it should have been all along: a poverty program designed to prevent penniless, ill elderly from begging in the streets. It cannot be a way to fund a middle class retirement and keep “people in their homes” and all that nonsense.
(1) Pull that means testing stuff and SS will be a welfare program and go the way of anything else that affects the poor – cut, dropped and maligned so the better-off can feel self righteous about punishing those ‘undeserving poor.’
That is EXACTLY why it was made inclusive in the first place.
(2) “What I mean by that is that if you are able to to work, SS might fill in gaps but if you are 80 with no savings but perfectly capable of working then that’s how you put food on the table”
(a) Yep, the 80 year old waitress can keep on waitressing. Oh for heavens sake try to think it through. Those least likely to have the assets are going to be those who did the most physical work.
(b) Employers DO NOT HIRE older workers. Kiss of death is looking over 50 – try looking over 70.
(c) That increase the supply of workers when there are already not enough jobs to employ those 4,000,000 plus looking for work.
(2) SS will have to become what it should have been all along: a poverty program designed to prevent penniless, ill elderly from begging in the streets.
That was considered and rejected. It wasn’t intended to ‘allow’ people to retire. It was intended to get them out of the workforce to make room for younger workers. Like I said, where would 12,000,000 – 18,000,000 jobs come from for the current population who are over 65 and under 75?
(3) It cannot be a way to fund a middle class retirement and keep “people in their homes” and all that nonsense.
Yeah right. The average Soc. Sec. Retirement is $1100 a MONTH. Medicare B is $95, Medicare D around $35 plus a $3000 hole in coverage and a Medigap policy to cover the 20% Part B copays and the Part A $1100 deductbile per hospitalization plus 20 % copays is around $250..
Yeah, that $1100 a month less the medical of $380 sure leaves a lot to fund a ‘middle class’ retirement on $720.
What in the world do you think Social Security pays? $40-60K a year per person???? Good grief!
Hmm..this is somewhat turning into the conversation I feared it would be. I mostly agree with you. What’s not clear (to me at least) is what you are expecting Americans at large or me to do about the problem.
On one hand, I’m perfectly aware that an annual income level of $13,200 is very low and not really “middle class” although that’s the general expectation, I suspect, of most ready to retires. On the other hand, we cannot afford as a nation to simply give away $13,2000 (adjusted for inflation) per year per citizen for the rest of their lives merely because they’ve reached a certain age. With a 4:1 worker ratio, that means that $3300 per year per worker must go directly to SS per worker. 3:1 puts us at $4400 per year - all before federal, state, and local taxes, living, eating, and debt servicing. At our income level, which is higher than average, it would take us a month of income per year to pay just the SS bill alone. (I’m aware of the employer match but for the sake of simplicity I’m assuming it to be a 100% reduction of income. I’m self-employed so I pay all of my SS taxes.)
I really do feel sympathy for the 80 year old trying to find work - it’s no picnic at any age. But the cold hard numbers are trying to tell us that universal retirement is unaffordable given an aging population. SS did start out as a program to get old people out of the work place (which didn’t work, as the case with almost all New Deal programs) but that this point it has morphed into America’s retirement program. We have lots of hard choices coming up because we will not have enough young workers to fund the retirement of a large population.
“So stop whining about those who were hoping to sell, move to a smaller place and have some money left for retirement. Pensions started going south in the 80s. The average Social Security is $1100. Would you prefer to take your parents and grandparents in and support them or send them to the old age/poorhouse?”
Your posts are usually very insightful, but this one seems way off the mark. All I said was that ppl should not feel entitled to sell for 2 to 5 times what their house was worth a few years ago to fund their retirement. Your response is ambiguous at best. Are you saying prices are justified and should stay up because home appreciation in rates in excess of 10% are the appropriate way to fund retirement? Are you saying that young ppl should pay 500k for a starter home and be forever in debt to fund this retirement plan? Your gripes should be with the government and corporate handling retirement, not making the a case that the bubble is warranted and necessary to fund retirement. I respect your opinions, but I really disagree with this one.
Also please note that the average retirement age is increasing not decreasing. Why dont you feel the concerns you are voicing respect to the current retiring generation do not apply to future generations?
My parents will be able to sell their house for over a million and retired at the age 55. My brothers and sisters could work all their lives and never afford such a grand home. Debt has never been greater for ppl between 20-40. You seem focused on benefiting one generation at the expense of the other.
My parents will be able to sell their house for over a million and retired at the age 55. My brothers and sisters could work all their lives and never afford such a grand home.
Ben doesn’t like posts much about generational issues, I think partly because they degrade into “which generation is better” stuff, which is distracting nonsense.
However, I do believe the disparity of wealth between the generations will be a real point of contention and a serious society fault line developing in the next 2 decades. Increasing wealth and retirement for each generation “works” when each generation is significantly bigger than the last. In that sense the boomers “forgot” to have enough kids to fund their retirement but appear to be fully expecting a retirement like their parents.
Whether or not the current generation of about to retirees “deserve” retirement is irrelevant. There are not enough workers to produce the income stream required to make it happen, period. Raising taxes enough to cover SS as it stands today would grind the economy to a halt, not to mention make it impossible for young workers to cover all their debts.
SS will have to become what it should have been all along: a poverty program designed to prevent penniless, ill elderly from begging in the streets. It cannot be a way to fund a middle class retirement and keep “people in their homes” and all that nonsense.
I should also point out they have a net worth of over 2.5 million, and own an ocean front house. My mom never worked a day in her life. Those retiring today did not lose their asssets as part of the Great Depression. Rather, they were given the opportunity to buy cheap housing because of it. Today both parents usually work and often hold off having kids until they are 30.
Thank you Vermontergal for calming me down. Just to clarify, I respect everyone’s opinions and realize there are serious issues with retirement which I was not trying to address. My personal belief is that no matter how bad it is now, this ever increasing debt overhang is only gonna make it worse. I also agree there will be serious issues as those ready to retire will be looking for the younger generation to fund it. It’s a generation already too much in debt to help. I agree serious changes are needed in this regard but dont see ever increasing home prices as an appropriate remedy. I love you all. Merry Christmas.
“Are you saying prices are justified and should stay up because home appreciation in rates in excess of 10% are the appropriate way to fund retirement? Are you saying that young ppl should pay 500k for a starter home and be forever in debt to fund this retirement plan? ”
No that is not what I am saying.
Anyone stupid enough to pay more in a mortgage, taxes and insurance than a place will bring in rent needs their head examined and a guardian appointed to handle their financial affairs.
There is a, however, a problem with expectations of about the type of home that one buys the first time. I see it here. The ones at risk with the ARMs resetting are the 30-somethings that just had to have the original architectural design house with 3-4 bedrooms and more bathrooms than people and 3 different places to eat.
I compare what is now considered ‘basic’ with what my grandparents bought in 1931 and what my parents bought as young newlyweds.
My grandparents got lucky - bought a 3 year old house out of sheriff’s sale that was confiscated from a bootlegger. (Really cool secret door to the secret cellar where he had the still and stash.) The bedrooms are maybe 10 x 11, 11 x 11 and 9 x11. In around 1500 sq ft, it had one bath, kitchen, dining room, living room and an enclosed heated porch plus basement - and a dishwasher installed by grandparents the year dishwashers first came out. The heated porch sunroom was the office for their business for nearly 35 years. House is still pretty much the same today except the enclosed porch was converted to a bath and laundry when my grandmother had a stroke and couldn’t handle the stairs repeatedly during the day. Now however, even though there are fewer people in a household than in the 30s, that house would be considered totally inadequate even with the 2nd bath. No master bedroom suite, no walk in closets, no double lavs in the bath, no breakfast area or snack bar, no family room,…….
The house my parents purchased was around 1100 sq ft with 2 bedrooms and 1 bath. I was in high school when they saved up enough money to remodel, expanding it to 1300 sq feet and adding a 2nd bath off the master bedroom and (yeah!) a dishwasher that was not me. Still no double lavs, no family room, breafast area etc - just 2 bedrooms, 1 3/4 baths, living room, dining room and kitchen.
Sorry but I don’t see the 30-somethings lining up to buy small houses like that. And therein lies a large part of the difference in affordability.
On the other hand, there is some innate inflation due to the passage of years. That will result in a house purchased in 1965 being worth a lot more in 2007. Normally incomes have kept up with (and from 45 -mid-70’s surpassed) this rate of inflation so this gradual inflation in housing wouldn’t have been as noticeable.
Now, incomes have actually decreased relative to costs. A 35 year old male today has less disposable income than their father did in 1970. The only thing holding households level with costs is the entry of the 2nd breadwinner into the workforce. (BTW, the 2nd income was a huge driver in the rise in housing prices - more households were competing for the ‘good neighborhoods and the schools.’)
So if you are saying that those selling after 20, 30 or whatever years should not really get more for the house than they paid, that is not true. Sometimes too there are changes in the area that increase value - a highway is built to replace the 2 lane road, schools are built nearby, businesses move into the area which creates more jobs….that sort of thing will add more value to the property because of the additional amenities and increased demand. That price increase is justified,
If you are saying that the bubble prices are nuts and not to be relied upon in planning one’s ability to downsize and set aside cash for retirement, I agree. (Like I said, I have never seen a house as being a cash cow - you have to live in something and swapping one 2000 sq ft house for another 2000 sq ft house is pretty much a wash financially. The first one may have cost less whenyou bought it and gained value over the years but so did the one you are buying. ) Downsizing to a smaller house should produce an amount of money equal to the purchse price of the original house plus the time-inflation less the price of the new house.
BTW you write “My parents will be able to sell their house for over a million and retired at the age 55. My brothers and sisters could work all their lives and never afford such a grand home.”
(1) They haven’t sold it yet. Anything short of having the check in hand is speculation.
(2) You may not be able to afford a house of that size in that location today but what about in 20 or 30 years?
That not being able to afford what our parents had is true for us over 45 as well. I grew up spending the summers at the yacht club on board my parents’ 38 ft boat. Adjusting their income for inflation, I made 3 times what they did - and didn’t have a hope in hell of being able to afford that boat. A lot of things are getting priced out of the reach of the middle class because of the lack of real income growth relative to inflation.
The point I was making is that retirement at any age is an idea that did not really come into widespread existence until after WWII. My grandparents were able to retire. My parents were able to retire. Pensions and similar things were still around and still reliable. Those in the 45-62 age group are looking at needing part-time jobs after the age of 65 to pay the $95 for Medicare B (non-hospital charges), the $250 for a Medigap policy(those 20% copays are killers), the $35 for Medicare D (prescriptions) and the $3000 gap in prescription coverage. (Yep - a couple can expect to be paying out over $760 a month in premiums.)
In 1935, there was no such thing as ‘retirement’ for the vast, vast majority of the population. With Social Sec, and then pensions, retirement became a possbility and a probability. 65 was the magic age in the 1960s. Don’t remeber what it was for SS in the 40’s - might have been 60 because of life expectancy. Now it is 66 (but you have to start paying for Medicare at 65 or get charged a whole lot more.) It is going to 67. Makes sense because of longer life expectancy.
Thing is with the demise of reliable pensions, and SS being so low, complete retirement is not going to be a possibility for a majority of the over 45s. The ‘deal’ as it was when those now over-45 entered the workforce was ‘workhard, follow the rules, be loyal to your employer and you get healthcare, a pension and Soc.Sec.” Someone moved the cheese starting in the 80s when that demographic was 20-40 years old. Pensions gone, healthcare gone, new words like RIf and Downsizing…. Took most people sometimeto come to grips with the idea that they were being tossed out on their own. At least the under 45’s KNOW there is no cheese and the mice are on their own to survive. Scary thing.
You write “Debt has never been greater for ppl between 20-40.” True but also the amount of debt being carried by the over-45 group has also never been higher for that age bracket. EVERY AGE GROUP IS IN HOCK TO THEIR EYEBALLS!
Social Security is NOT in trouble - despite all the deliberate obfuscations trying to claim it is. The projections which suggested it might be were done 10-15 years ago and used far lower projections on the rate of growth in the GDP than has occurred. Using what has really happened with the GDP (and not what they thought might happen), the fund is not in danger of running short.
It would be a very good idea to raise the cap on incomes so that people contribute completely based upon earnings rather than getting a free pass on someof their earnings. Doing so would allow a large pad in case of unforeseen events. I have no problem slapping a surcharge on unearned income to help fund Medicare. God knows Paris Hilton can afford it.
Until that time, people (90% of them who were not in the serious upper income) did not retire because they could not afford to do so. It wasn’t because they didn’t save and didn’t work. It was because there was simply no way to save enough to allow them to quit working. Looks like that is the way it is going back too. 401(k)s are not exactly what one could call a sure bet in view of the historical behavior of the stock market.
It is NOT a generational war. It is a war with the powerful economic interests who caould care less what happens to the mice in the maze.
Better stop - using up all of Ben’s space.
I don’t disagree with this post other than with respect to first time buyer’s expectations. I guess areas are different, but here in ATL it is the 35+ crowd that is buying the McMansions. Many of those in their 20s or 30s would love an intown 1930 craftsman bungalow, which as you describe are usually between 1100 and 1300 sq feet, have one bathroom, and virtually no closet space (i note you didnt say whether the homes you referred to were in town); they, however, sell for 450k+ now in good neighborhoods (morningside, buckhead, virginia highlands, etc.). Most 20-35 somethings here are either renting or looking at 1 bdrm condos because they cannot afford such luxuries. For the most part, the have no expectation, nor could they afford, what their parents bought at their age.
I didnt mean to imply that sellers should not expect any appreciation, I was saying they should not have expected or relied on appreciation rates in excess of 5%. My parents live in Bethesda, Maryland. There are lots of ppl complaining about prices dropping slightly when they have at least tripled in price recently and are mostly in the 1-10 million dollar range. At the same time, my brothers and sisters in their 20s are putting off having kids because they can just afford a small one bedroom condo, or a place in the ex-urbs with a 1.5 hour commute.
As for my parents, they were considering to sell to move to a lake front home surrounded by golf courses (they will still keep their Nags Head home as a rental, which is also paid off). They complained at Thanksgiving that they can probably only get about 1.5 million now and wanted more because they could have gotten 1.7 last year. They paid 300k for the home and it is paid off in full. They were saying this in front of some ppl that have dual income families and cant even afford a small house that needs work in a decent area due to the bubble. So when young ppl complain, note that they are not disrespecting the old, they are ppl that want to have families and not be forever in debt. As these prices it seems unlikely.
We all know things always do, and will, change.
The time and thought that goes into your posts is greatly appreciated. I have a feeling we are not so part in our beliefs, just looking at the same issue from different sides. Have a great holiday. I look forward to reading your future posts.
Sorry but I don’t see the 30-somethings lining up to buy small houses like that. And therein lies a large part of the difference in affordability.
This 30 something would, but builders don’t build them. I honestly don’t know if the issue is 30 somethings wouldn’t buy them or it’s because they *can’t* buy them new. Higher square footage=better markup and 2 incomes make a bigger house “affordable”. As it is, I actually rent close the space described.
Social Security is NOT in trouble - despite all the deliberate obfuscations trying to claim it is. The projections which suggested it might be were done 10-15 years ago and used far lower projections on the rate of growth in the GDP than has occurred. Using what has really happened with the GDP (and not what they thought might happen), the fund is not in danger of running short.
Umm…yes it is. SS is a “pay as you go system” (and the surplus was “invested” in Treasury bonds - ie already spent by the government and must be paid back with interest.) We currently have a worker to retiree ratio of around 5 to 1. By 2030, it’s predicted that will be down to around 3 to 1. It’s demographic problem, pure and simple - SS is in trouble as a program as it stand today because there won’t be enough young people to fund it.
It is NOT a generational war. It is a war with the powerful economic interests who caould care less what happens to the mice in the maze.
Maybe it didn’t start that way, but it has the very real potential to head that way. What happens to me in a decade when my Dad (and all others his age) retire and I’m supposed to through taxes fund his retirement (with the help of 3-4 other workers, less as time goes on) and my kid’s education and then somehow also live and fund my retirement? (Which is why I came to the conclusion that saving for my personal “retirement” was pointless…) Regardless of debt loads, it’s not going to work.
And do you suppose my Dad is going to equate my relative economic squeeze with his “promised” retirement? He might not, but I certainly might. What I’m saying is that it’s easy to see how a rift along the generations would develop, given the circumstances.
No, the SS system is not in trouble in the way you describe. Projections re retirement, availabe income and the other things you read are simply not reliable. Based on 10-20 year forecasts and projections? That is worthless, only used as propaganda as a tool to try to dismantle the current SS system.
Take a look at medicare, that is a far more serious problem.
But if you want to look at a disconnect, just track the stock markets for a couple of weeks. They are sooo far removed from reality.
The boomer retirement was built into the original funding requirements. People also seem to forget that there is a cap on income that is subject to SSI payments. Over a certain amount (and it’s not all that high) and you don’t pay any more into the fund.
I’ve felt for three years that the large houses being built would be tremendously expensive to heat, especially since they have central heating that will not let you choose to leave some rooms unheated. Folks also need to understand that the boom in houses took a lot of farmland out of production too, resulting in higher food prices eventually.
Ann please note that the Great Depression was over 65 years ago. There seems to be a generation skip in this thread which is leading to disconnects.
I am talking about the origin of POLICY.
There were only 2 generations that had SS and pensions - my grandparents and parents. Anyone under the age of 70 got to play in the wonderful world of RIFs and lost pensions.
If you don’t understand history and where we have been, you don’t have anything to which to compare events. That is called “ignorance.”
“Today the cost of a 4-year college education exceeds the cost of a middle class house in many parts of the country. ”
And there’s ANOTHER bubble eh? And what is the average college student really getting for all that debt? Too many are going into debt for non-marketable degrees, and then whining about it (and then getting good govt jobs).
maybe…did you see sallie mae’s conf call? Dude totally sucks
Considering how many good jobs are no longer being created in America
Maybe we should close HALF of the colleges since whats the point of having so many severely underemployed BA MA’s working at starbucks?
And then we should invest in Teaching High School English and Economics, and in Vocational schools. And with 1/2 the college students remaining, maybe those will be able to compete head to head with India and Chinese graduates
I concur. Many of the students at open enrollment public universities are learning remedial stuff that should have been learned in HS.
I say let those who can not or will not learn in HS flunk out. No diploma for these people.
This will reduce the use of public funds to pretend that we are educating at a higher level. The result of our present broken system is too many people with worthless ass-wipe university degrees.
High school is now a “necessity” for everyone because the economy doesn’t produce many good paying jobs that don’t require an advanced education. Therefore administrators are under much pressure to graduate as many bodies as possible and send them all off to college. The easiest way to do that? Lower standards,both behavioral and academic, to push more bodies through.
Of course, that doesn’t change the actual need for more education so now the end of high school gets pushed gets pushed off until the first 2 years of college, where more people are able to fail. Of course, that pushes what was the first two years of college into the last 2 years and the rest of an old bachelor’s into a master’s degree.
I call it “education inflation” - everyone needing degrees that were unnecessary a few decades ago because standards are lowered at almost every level of education. Combined with that has been a crazy increase in the amount of credit available to go to college - which inflates the cost out of control. If student loans stopped receiving their gov’t guarantees, I can pretty much guarantee that college education costs would go down.
Hey Vermontergal, I agree with a lot of what you are saying, but there are exceptions. My daughter is in the last year of high school and is taking advanced placement classes that include calculus, fourth year French, AP history that really teaches history, both the good and bad, and advanced biology and english courses. I finished high school too long ago to want to remember when, and I must say I am pretty impressed with what she is doing. It is true that you absolutely have to have a college degree to make any kind of money, and that has driven ‘education inflation’, but my experience is that there are quite a few bright students out there who are learning a lot and enjoying it. Maybe I’m just lucky to have a smart, dedicated daughter, but with her advanced placement classes she will be effectively skipping the first year of college. Looks like she will be on a full scholarship to a very good Eastern woman’s school, which is pretty exciting. Just saying that it’s not all bad.
Just saying that it’s not all bad.
I totally agree. Some there some good modern education trends like Title X and the teaching of history from a viewpoint other than a WASP male.
The problem, I think, is that your daughter’s high school diploma, earned with advanced college courses, looks the same as the one given on the other end of the scale - the one who hates school and can barely read. (It is possible for extremely disabled students have an IEPs that allow them to get a diploma for simply showing up.) In essence, your daughter *must* get a college degree to differentiate herself from the warm bodies, where a few decades ago lots of people would have been impressed with the high school education she had earned.
Having been in your daughter’s position of done APs courses, etc, I can say it’s frustrating to have to spend so much of your youth navigating the education system. College can be a great experience but I’m afraid I wasted most of mine wanting to get a break from formal education.
And congrats to your daughter on the full scholarship!!! If she’s headed off to Smith college (I think the other “big” woman’s college left in the east is Wesleyn) and heterosexual she should be aware as of 10 years ago or so there was a strong homosexual community/culture there.
My sister spent her freshman year at Smith (which is where the above remark/knowledge came from). Smith was not a good fit for her in general and the culture added to some of her woes. Not a big deal in general, but my family and my sister in particular wasn’t quite prepared for the culture shock.
Gee, I graduated from high school so long ago that they didn’t even have AP classes. At least, they didn’t have them at my school. Not to say some of the classes weren’t of that level, you just couldn’t get college credit for what you took in high school.
And maybe that is the difference in college then and now. Back in those days when I started college the 1st week they gave achievement tests on various subjects. You could opt out of the intro courses but that didn’t matter, you just substituted more advanced courses in those opted out subjects. The amount of college credit required didn’t vary, you still took the same number of semester courses for graduation.
Also, the SAT did count for something. No PSATs back then but score less than 1000 (probably more like 1100 today) and you were considered something like the village idiot if your goal was college. And note, I attended a small-town local public high school.
When my daughter was in high school a few years ago I’d sometimes look at her text books and was astounded at just how weak and watered down they were. And after talking to a few of her teachers I’m convinced they WERE the village idiots who somehow were allowed to teach. And I’m not knocking teachers, some of hers were outstanding others NOT.
Thousand Oaks,ca. Seeing all kinds of signs pointing to trouble up ahead:
Property: Two single family homes on my street have been For Sale for about 6 months. No movement. Another house has been foreclosed and another is looking pretty run down and could be foreclosed soon. On the drive from Thousand Oaks to Westlake (about 5 miles) I have noticed a lot of the For Sale signs have come down and been replaced by For Lease. Also, for some reason which I THINK is because financing was already in place, there are several small building developments (10 sfh or less) still under construction in a saturated, over built area. This in an area where property is probably 50% + over valued. On the 101 Freeway going toward Oxnard (30 miles away), large developments by DH Horton and other big box builders. All grossly overpriced. $400,000 properties wich are possibly worth $200,000. Nobody buying. Values have dropped (much more to come) in my area. At the top they were selling for $700,000 give or take $25,000 depending on condition. Now they would be lucky to get $575,000. The final indicator on the property market? I used to get little “promotional gifts” left on my doorstep by several local realtorwhores touting for business. A calender, a scratch note pad, newsletter, etc. In the past 2 months I have not seen any “gifts”. I think the realtorwhores have gone into hibernation because sellers are simply demanding too much and the realtorwhores know they cannot sell their properties - so they don’t take the listing. No point in spending money on promotions and sitting in an Open House when nobody comes.
Bad indicators: Quite a few smaller stores have gone out of business in the area. Almost every small corner mall has a Store For Lease sign. Probably going to get worse after Xmas. Having been through several recessions, this is always a sign that a recession is in the making but many small business owners hang on thru xmas which is a profitable period. Big stores weather financial storms better because the banks lose big time if they fold so are more inclined to increase credit limits. With smaller stores, it’s the individual owner not having a bank behind him and a big line of credit who goes under.
Next year: Get out your financial safety belts. Once we enter the new year, the financial screws will tighten. It’s going to be downhill for a good period of time. We might get a dead cat bounce in property prices in the spring, especially with the coming tsanami of advertising with the usual, “Now is a good time to buy,” crap from the NAR. The bounce will NOT last and prices will resume their decline well into late 2009 and probably beyond. Lots of government plans are in the works to rescue FB’s and avoid a recession. That’s NOT good news.
First, Godfather Henry Paulson is going to do everything he can to bail out the Financial Gangster Families Of Wall Street. The Bush administration will, of course, go along with it. Above and beyond EVERYTHING, remember that The Wall Street Financial Gangsters couldn’t give a rat’s ass about Joe Sixpack and if it means the survival of the Wall Street Families, they will give Joe a pair of cement feet and a trip to a deep lake in the blink of an eye.
As for government? How does government bail out financially drowning financial entities? They have 2 ways and ONLY two ways. Tax or print money or both. With a “mole” like Godfather Henry Paulson handling the purse strings (not good for the average american) that means a bigger dollar devaluation. The USA is now deeply in debt as far as the eye can see and the US dollar is a Banana Republic currency. When a third world country refuses to take dolars for the price of admission to one of their museums, it’s not a good sign. Worse, the countries of world (mostly asia) who have been more prudent handling their financial affairs, are becoming increasingly bored with the US acting like a prodigal son who keeps coming back for another handout because his latest gambling scheme didn’t pay off.
Another fear concerns the billions of US dollars which are under floorboards and mattresses in many third world foreign countries. If those people owning those dollars decide to dump the greenback in favor of something else - gold or a more stable currency - and that confetti money comes flooding back, the dollar could really take a nose dive.
The good news? All recessions end.
Trouble ahead isn’t necessary a bad thing. Hard times act as a crucible to refine the gold from the dross. A true depression would force some long-overdue societal changes.
Imagine if all the Pod People, who have retreated from reality in front of their computers, or by being permanantly plugged in to their iPods, social networking sites, or cell phones - text or voice - suddenly have to stare hard reality in the face. What if all these boys who have been raised by women, suddenly have to start assuming manly responsibilities - not just pulling their weight around the house, but even protecting their mothers and siblings from the many predators who will be on the prowl. What will happen when millions see first-hand the grinding poverty and utter hopelessness of those who made poor life-choices and had no family safety nets to help get them through.
The Great Depression gave us the so-called Greatest Generation, that knew something about sacrifice. They in turned spawned the Baby Boomers, who, to be charitable, did not grow up to be better men and women than their parents.
As Tyler Durden said in FIGHT CLUB, this generations’ Great Depression is a spirtual depression. Being forced to take care of others and get one’s priorities in order could go a long way toward remedying that void.
The Great Depression gave us the so-called Greatest Generation, that knew something about sacrifice. They in turned spawned the Baby Boomers, who, to be charitable, did not grow up to be better men and women than their parents.
I disagree. I think most of the FBs today are probably post baby-boom (born after 1965 or so)
My parents were born in 1931 and 1933. (not quite the “greatest generation” because they weren’t old enough to go to war during WWII, though my father’s older brother did, and his older sister’s husband died fighting. My father is a disabled Korean War vet)
Anyway, having “depression era” parents was the greatest gift I could have ever had. My parents never had a lot of money, but were never in debt!
I had no idea we weren’t well off. And we’d do fun things, like drive the station-wagon we bought second hand cross-country. We grew up in Brooklyn, but took trips by car to Canada, Washington DC, Virginia, etc., staying at Motel 6 along the way, etc. To this day, I don’t think my father has ever had a new car! (And one of his first jobs when he got out of the Navy was as a car salesman!)
I’m doing a bit better than my parents in terms of income, but I’m just as frugal/careful. It would never have occurred to me to get an “adjustable mortgage” when fixed rates were below 6%. (My 15-year fixed rate mortgage on my Sunnyvale, CA home is paid up.) I’ve never been taken by any “get rich quick” scheme, just slow and careful savings/investing that has done OK. I fully realize that bank accounts, stocks, and homes can lose all their value.
(Those car trips helped me learn about house value. Seeing at age 6 neighborhoods with boarded-up houses makes me know that if once-nice neighborhoods in New jersey can become boarded up and worthless, so can Celebration, Florida.)
People in their 20s today, with parents born after WWII, may not have learned these valuable lessons in time, and we’re all paying the price for it.
And who is responsible for the raising of the boomers? I know that my mother wanted to spare me the things she had been through and I suspect that others did the same. That’s how quickly you can see a change in society.
Here’s another financial genius:
“But with about 60 percent of his business derived from out-of-state clients who are in stale markets, he’s uncertain how 2008 will unfold.”
I can tell you how it will unfold, idiot.
Your business is EQUITY LOCUSTS who have travelled the country from Various inflated locals, looking for cheap “bargains” to get some more price inflation going.
Then a trip to the mortgage lender to “cash in”.
You are sunk, unless the FED can re -inflate this economy.
It usually can’t once sentiment goes south.
“‘You just have to remember those years we were so over the top,’ said Jeff Pust, general manager of Van Dorm Realty. ‘We needed a correction year.’”
And, if the ensuing fraud investigations aren’t impeded by an intensive NAR lobbying campaign, you might get several more correction years - as in years at a corrections facility…
Isn’t this a case of people not reporting their income, rather than a bias against self-employed?
“Cathy Swofford, broker and owner of Missoula Mortgage, sees fewer mortgages with no money down and little paperwork. She said verifiable income and assets are needed for today’s tighter loan requirements.
“She expects mortgage rates to rise as lenders seek ways to recoup their losses. Self-employed people, which state economists estimate comprise 20 percent to 25 percent of Montana workers, are finding it difficult to qualify for conventional loans, she said.”
I was a self-employed consultant for 5 years. This idea of no-doc loans to help the self-employed is bullshit. My taxes were never more complicated then when I was self-employed. And I had plenty of documentation of income starting with my tax returns.
If you are reporting your income properly you have documentation of income, simple as that.
No-Doc loans, in the “old days” weren’t to exaggerate your income! It was for exactly the opposite purpose. You may not want to document all your income if, for example, your Ex-Wife was trying to squeeze more alimony from you.
People wanted “no doc” loans when they were trying to make it look as if they earned LESS $$ than they actually did, not more.
So, if you could put 35% down, you’d get a mortgage, no questions asked There’s really nothing wrong with that.
But ‘no doc’ loans with NO MONEY DOWN is pure nonsense! That’s not why they had no-doc loans.