Can Anyone Afford To Retire These Days?
Readers suggested a topic on retirement. “Weekend topic can anyone afford to retire these days? Or is it work until you can’t anymore?”
A reply, “Retire? Those that set up income streams will be doing better than the rest. Think Capital Gains, not 1099’s or W-2’s for income in your later years.”
The Press Democrat. “Still hovering in the shadow of the recession, 2012 is expected to produce business growth, but at a rate that in earlier recoveries would have been considered sluggish. The county’s unemployment rate, a key measure of economic health, averaged about 9.9 percent for 2011, down from 10.5 percent in 2010. A key reason unemployment remains so high is due to the collapse of the real estate and construction sectors.”
“For existing homes, the median single-family home price was $325,000 for the first 11 months of the year, down 3 percent from the same period in 2009 — previously the worst year since prices plunged. The annual median price is now the lowest in more than a decade. It peaked in 2005 at $595,000.”
“For the coming year, economic threats remain, especially due to potential debt crises in Europe and elsewhere around the globe. But even if the threats disappear, county residents likely will see relatively high unemployment and rather tepid economic activity. ‘We have just have to get used to the idea that the next few years are going to be stable,’ said Sonoma State University economist Robert Eyler, ‘but it’s just going to be at a lower growth rate.’”
The Seattle Times. “Buyers aren’t purchasing homes as short-term investment vehicles anymore, says principal Jeff Bell of Cobalt Mortgage in Kirkland, and that’s a huge shift. ‘The whole system is different now,’ he says. ‘We’re going back to the way real estate was 20 or 30 years ago.’”
“Seattle economist Matthew Gardner, who analyzes the market for Windermere Real Estate, concurs. Before the bust, he says, ‘it wasn’t, ‘This is my home.’ It was, ‘This is going to make me money.’ Among buyers today, Gardner says, that expectation is all but gone.”
The Financial Post. “Canadians owed more than a trillion dollars on their mortgages as of March of 2011, according to a report released Thursday by the Canadian Mortgage and Housing Corp., which says the record level of household debt in this country is a ’serious issue.’”
“The CMHC reported that housing-related spending of about $330 billion a year in 2010 has risen by 67 per cent since 2001 and now comprises 20.3 per cent of Canada’s gross domestic product in 2010 — which underlines the importance of that debt load, and what might happen to the economy if for any reason Canadians crack under its burden.”
“‘Concerns expressed about household indebtedness have been largely driven by the total household debt-to-disposable income ratio,’ the report says, noting that the ratio hit a record high of 1.506 in the second quarter of 2011. ‘The major risk in the mortgage market is impairment in a household’s ability to pay, often due to job loss. Recession or other adverse economic scenarios, such as rising interest rates, could certainly pose a challenge for some Canadian households.’”
“Meanwhile, low interest rates, and a relatively small inventory of homes for sale, helped push existing home prices 5.8 per cent higher in 2010, to an average $339,042, and the new housing price index rose 2.2 per cent last year.”
From Presseurop. “Victims of unemployment, the housing bubble and bank loans too easily offered, thousands of families have been forced to abandon their homes. They have lost their jobs, their house, their furniture, their illusions, their hope. Instead, they live with a debt clinging to their ankles, one that will drag along after them for the rest of their lives.”
“Paradoxical as it may seem, the worst is not to be without a home, but what comes after the foreclosure. ‘I’m condemned for life to have no property in my name. I cannot collect a salary, or have a telephone contract, or buy a car, or pay rent if I don’t want them to come after me for the debt,’ laments Elena Parrondo, sitting next to her husband in their flat in the Madrid suburb of Meco that they’re about to lose.”
“‘It’s not something to be relished – being put out into the street with two young children. If we don’t pay the mortgage it’s not because we don’t feel like it, but because we can’t. The banks should be more aware of families’ situations. They’re being left with thousands of homes that remain unoccupied after the foreclosure,’ Elena insists.”
“Lino Samuel Moreno has suffered deeply from the auction of his home. His property went up in smoke, along with his dream of living in Spain. Coming here from Ecuador, he never thought that his dream would become a living nightmare. He arrived around 2002, and in 2006, with all his papers in order, he decided to take the plunge and buy a flat in the Madrid suburb of Valdemoro.”
“Everything went smoothly until he lost his job in 2008. Since then he hasn’t managed to find work for more than four months at a time. The first monthly payment that year went unpaid, then the second, then the third… He tried to renegotiate the payment, but in vain. On October 7 of last year, the dreaded court order to vacate the flat arrived. ‘At 10 a.m., the police showed up to tell us to leave. I embraced my wife. At that moment we got a call from the court telling us we had been granted an extension of three months – but we no longer had any furniture,’ Lino adds, his voice quivering. He now lives in a rented house in Valdemoro, thanks to the City Council, and pays 450 euros a month for it.”
‘The major risk in the mortgage market is impairment in a household’s ability to pay, often due to job loss. Recession or other adverse economic scenarios, such as rising interest rates, could certainly pose a challenge for some Canadian households.’
Anyone who experienced the Texas oil bust of the early 1980s first hand might have an inkling of what fate could impair Canadian households’ ability to pay.
On a radio show in 2005 it was mentioned that the percentage of people in the US owning houses had never been so high. I countered that the equity they owned in these houses was at an all time low.
“I countered that the equity they owned in these houses was at an all time low.”
Compared to U.S. home equity levels today, I guess those 2005 home equity levels don’t look half bad?
U.S. Home Prices to Fall in 2012: Zillow
By Prashant Gopal - Dec 20, 2011 7:08 AM PT
U.S. home prices will continue to decline through late 2012 or early 2013 as negative equity and weak job growth hinder a real estate recovery, according to a survey by Zillow Inc.
After 2013, prices may rise about 3 percent a year through 2016, which is slightly below appreciation rates experienced before the residential market collapsed, Seattle-based Zillow said in a statement today. The real estate data provider surveyed more than 100 economists, property experts and investment and market strategists.
The survey is based on the projected path of the S&P/Case- Shiller U.S. National Home Price Index over the next five years. Home prices have fallen 31 percent from a July 2006 peak through September, based on a Case-Shiller index of values in 20 U.S. cities.
“There is a consensus among the nation’s top housing experts that we have not yet reached a bottom and are instead working through a prolonged bottoming process,” Stan Humphries, Zillow’s chief economist, said in the statement. “Negative equity, unemployment and low consumer confidence remain the key factors delaying a true recovery.”
About 29 percent of U.S. borrowers had negative equity, or owed more than their houses were worth, in the third quarter, Zillow data show. The nation’s jobless rate, 8.6 percent in November, was 9 percent or higher for all but three months in the last two years.
…
I believe it was in 2006 that President Bush (gee we don’t hear much from him anymore, do we) bragged in a State of the Union address, that under his Administration, the number of Homeowners had reached an ALL TIME HIGH. I nearly gagged.
I couldn’t believe his speechwriters were dumb enough to have him take “credit” for the worst financial fiasco in American History.
But then, he gave us the TSA, too, a true Republican hero….cough, gag, spit.
“I couldn’t believe his speechwriters were dumb enough to have him take ‘credit’ for the worst financial fiasco in American history.”
But this was in 2006 and at that time “the worst financial fiasco in American History” hadn’t yet occured.
It was being set up to occur but, hey, at that time nobody could have possibly seen it coming.
/sarc
We all saw it coming here. And who are we? Just everyday people with some sense that you just can’t inflate your way to the heavens to accommodate a “consumer” society.
We watched the HELOC and the Cash-OUT refi’s go bonkers and sat in disbelief, knowing that someday, someone would have to pay for all this. We hoped it would be the DEBTORS, who spent their houses. Instead it is Us, the average taxpayers.
All this was predictable to anyone who cared to look at it logically.
The FED money grubbers and their bankster pals didn’t want to be logical. The wanted their graft, and got it.
“Instead, they live
with a debtclinging to their ankles…”On first reading, my eyes somehow skipped over “with a debt” in the above passage…
“They’re being left with thousands of homes that remain unoccupied after the foreclosure,’ Elena insists.”
That sounds so similar to the situation in America, it almost leads one to wonder whether the whole international subprime lending scheme was centrally planned and executed.
What does one mean by retirement? It once meant a few years of rest after a long life of work. More recently, some have sought one or more years in “retirement” for every year worked.
Companies that promised this went bankrupt. Governments that promised this and did not pay for it are raising taxes and cutting services as a result. One cannot have one or more years in “retirement” for each year worked, without doing so at someone else’s expense.
I suspect that the Social Security problem can be solved simply by dropping the set retirement age and legislating that the ratio of those paying in to those taking out shall be three, with the outpay no greater than the revenues. The current formulae could be used to divide up the funds available.
That, a paid off house and some savings ought to be enough to get by one year for every three years worked. How well one lived after working would depend on how much one set aside while working, and how long one worked.
In short, people can afford to retire, and eventually their decline will force a retirement. But they can’t take cruises for 25 years. Short the cruise ship industry because once Generation Greed passes on, those coming after will be much poorer in old age.
By the way, I hope someone is collecting a video library of all those ads featuring relatively young “retired” seniors living high-consumption lifestyles. To be viewed by those 54 and younger when they get old, to remind them what they paid for for those who came before but could not, and did not receive, themselves.
“ads featuring relatively young “retired” seniors living high-consumption lifestyles”
Oh, come now. Those ads are no more representative of the majority of us than the December to Remember Lexus ads.
HEY! I am a senior and drive a Lexus SC300. Built in 1993. I drive
about 3K miles per year.
It now has 130,000 miles and has been religiously maintained.
Worth about $4,700 on KBB or Autotrader.
Will meet 200k long before I expire.
Paid $7k five years ago - soon to be a classic!
Sorry to not be a part of the recovery -
Those are more popular than you’d think. It’s because a mid 90s Supra turbo drivetrain will bolt directly in. There are some insanely fast ones driving around, at least as of a few years ago.
“What does one mean by retirement?”
The Three Boxes of Life and How to Get Out of Them: An Introduction to Life/Work Planning [Paperback]
Richard N. Bolles (Author)
“But they can’t take cruises for 25 years.”
!
I’ll do my best to prove you wrong, down to the last canoe/tent trip.
My sister went on the QEII and told me there were many rich widows living full time on board.
She told me to learn those old dance moves and they would probably pay my way just to have a dance partner.
You touch upon a problem I have pointed out numerous times, only to be blasted by the government types on this blog. Their retort is that their retirements, taken at age 50 to 55, after 25 to 30 years of “service” are “FULLY FUNDED”.
This, of course, is another lie. If they are Fully Funded, then they have 100% of the money in their accounts to pay out 30 to 35 years of ‘benefits’. They don’t.
This whole fiasco was predicated on moronic financial planner’s modelling who made “calculations” about how much money was available given a fixed percentage of GROWTH in their plans.
The typical “growth” has been estimated to be 8 to 8.5% in adfinitum. Some even higher.
It hasn’t happened. It won’t happen. I can’t happen So they are UNDERFUNDED. Period.
The receiver’s of the benefits are unconcerned. They cut a deal. They are now entitled to the benefits they ‘negotiated’. Tell that to all the Pensioners of Bankrupt companies.
They have always held one trump card. They Courts have said if the governments agreed to it, then they have to pay it. So they will raise fees and taxes. There is one out……………..municipal bankruptcy.
It will be interesting to see if benefits can and will be reduced, or if the NON-government working taxpayers will be paying for more pleasant cruises for former Government workers.
I have relatives with such lovely packages and they are always at the mall and taking trips and eating out every week. They have new cars. It’s great for them. So, yes, retirement is good for some.
They say I just need to work longer, and it’s too bad I didn’t get a government job. But, that’s the way the cookie crumbles. Too bad.
Those computer models have sure been a great replacement for common sense.
Ah, so.
One with common sense will be shouted down if he goes against someone armed computer data.
BTW, we don’t hear much from Quants anymore, do we?
“So they are UNDERFUNDED”
In some cases, the 8%+ projections were made so that the pension funds could be underfunded.
BINGO!
those coming after will be much poorer in old age ??
I agree….
“Short the cruise ship industry because once Generation Greed passes on, those coming after will be much poorer in old age.”
The cruise ship experience appeals to a very small segment of the population. Money is only one factor. Desire to be stuck on a boat for days on end is another.
And I still say that anyone who touts Generation Greed is guilty of greed.
it takes one to know one
The thought of going on a cruise ship is absolutely dreadful to me.
You can’t swim?
I’m with Grizzly on this; I swim like a fish, but the thought of being stuck on a cruise ship sounds like punishment.
I guess I could see myself taking one to see distant shores, but only after I’m infirm enough that other travel options are no longer available.
I swim just fine, I just don’t like being cooped up for an extended period of time in a monstrous floating Norovirus incubation facility with a bunch of annoying strangers.
Don’t forget the “all u can eat”, 24 hour oinkfest with your fellow “super-sized” passengers
“can anyone afford to retire these days?”
My mother would say: “They’ll have to learn to live like we did.”
Agreed. If you can live simply then SS plus some savings could do it. If the definition is frequent cruises, vacation homes, dining out every other day, then for most people it’s not gonna happen.
That’s a falacy. Social Security will not do it even with “some” savings, whatever that means. If “some” means one million per head, then perhaps. Maybe that’s what “some” means to you.
One of my dad’s friends makes $70K annually as a retired federal worker. Has done so for 14 years already, and will continue to do so until he dies.
He makes $20K more annually than does today’s households. And he produces nothing. It’s obscene.
I don’t know how such people can live with themselves. How they can look in the mirror and find anything worthwhile there is beyond me. Not much different than the 1% if you ask me. Mindset is the same; scale is different. Take from some, unwilling else to feather one’s own nest.
And so it goes.
“One of my dad’s friends makes $70K annually as a retired federal worker. Has done so for 14 years already, and will continue to do so until he dies.”
I wouldn’t necessarily bet the farm that he’ll continue to do so until he dies. Things change.
But, this answers a question I wanted to ask, which was how do these folks manage to live the “snowbird” lifestyle, maintaining two residences, one in warmer climes, another “back home”? I know one couple of very modest means that manages to do so, they have small mobile homes in two different places. But they’ve still got to pay two lot rents, maintenance, etc. He was a goobermint worker of some sort, back in Massachusetts.
We have a lot of snowbirds around here, but I have noticed more of them sticking around in the summer, and going to visit family up north for a couple of weeks to a month during August.
“One of my dad’s friends makes $70K annually as a retired federal worker. Has done so for 14 years already, and will continue to do so until he dies.”
And he was probably in the top 5% of income earners all of his life. I would expect that most federal retirees have pensions that pay out substantially less. For most of their careers (future retirees excluded), they passed up better paying jobs in the private sector.
Would you prefer we pay federal workers a pittance and offer them no pension? Do you think we would get better workers for our dollars if we did so? Who would you rather speak to when you need an answer from IRS - someone who couldn’t make it in the private sector and is stressed due to financial hardship or someone who has made a choice for stability and deferred compensation and is less stressed?
…he was probably in the top 5% of income earners
That’s an important point there. I’m not prepared to get outraged about this person’s $70k pension until I know what he did for the government, how many years of service he had, and has age at retirement.
Or do some folks think that there should be a maximum pension level that applies to all federal retirees and that level should be much less than $70k?
Would you prefer we pay federal workers a pittance and offer them no pension? Do you think we would get better workers for our dollars if we did so?
Oh, make me laugh. That’s the same argument the Wall Street crowd used about the guys who crashed the system. They showed just how competent they are, and we have WAY too many of them. WE don’t need 20% growth in the “Financial Industry”.
And what better workers have we gotten. AT every level of government I have dealt with, they all pass the buck and send you to another agency, another clerk, don’t return calls and harass you if you don’t do things they way they want.
I have found few good workers, and LOTS of fraud, spending work time shopping, and various other privileges.
I could write an essay.
You should never be able to get rich while working for the government.
“And what better workers have we gotten. AT every level of government I have dealt with, they all pass the buck”
Based on the criteria we have set up in the last 40+ years, where government workers traded cash for security, we have gotten risk-averse people working in a political culture. It should not be surprising that they pass the buck, especially at the lowest levels where they are more likely to be in customer facing roles. Would you have a better outcome if they made a decision that was later overturned?
If you take the same caliber of people and add significant stress to their lives, I think you will have worse outcomes. If you are unable to get even good caliber people (like polly), then your experience would further degrade.
But I think I am talking to the wall. You have already made up your mind.
You should never be able to get rich while working for the government.
Well if you mean rich like Hank Paulson ‘
Who was paid 100 million a year to be our treasury secretary for 2 years then I agree.
If you mean you shouldn’t be able to become a lobbiest or get a cush banking job for whoring your self out I agree.
There are plenty of hard working gov workers, scientists, military, engineers, administrators who make a good living, live frugally and save a mountain of money.
I’m fine with that.
“Social Security will not do it even with “some” savings”
It depends. If you have a paid for home in a low property tax state and were an above average earner you might be able.
Lucky Duckies of course will have to pay rent during retirement (or maybe live in an old trailer) and their SS payouts will be on the smaller side of things. I was thinking of higher income earners.
Then again, I know people who are retired now on SS with either a smallish pension or some savings. They live simple lives and get by. One that comes to mind is a retired preacher that I know. He gets something like 1K per month from his denomination plus his and his wife’s SS. They live in a small town in Texas, in an old, small house that might be worth 60K. They have one older car. LIke I said, a very simple and spartan lifestyle.
Lots of boomers better get ready for this lifestyle. WSJ reported recently the average 401k balance of a near retiree was $67,000. At the rate many of them are spending, they’re retired for a couple of years before working at McDonalds overnight shift.
Retirement for them won’t be cruises, new SUVs every other year, fancy dinners.
Oh, and what happened to the time honored principle of retiring without a mortgage? My mom is 5 years into a 30 year mortgage, retired 3 years ago. She can handle it, but it’s tight, and was an idiotic decision.
Felt bad about calling my mom’s decision “idiotic”. But that’s how it feels. In 2005 she bought a condo in a high cost area up north, knowing retirement was only a few years away and she desired to move to the Gulf of Mexico. Many tried to talk her out of it, but the bubble was in full swing and she believes that renting is for ‘poor people’, and as such, paid 250k for a condo that can’t sell for 99k. (Never mind that she took a nice 30k loss on a condo from 1996-2000, roughly similar circumstances).
We actually had a talk about it, what to do if she were to pass suddenly, etc. I dread having to take care of it, and am afraid that to get her out of it will take her entire net worth.
My mother had a friend and her husband buy a two story house 5 years before retirement because “they got such a good deal on it”.
Now they are both retiring and the husband’s bad back makes the stairs extremely difficult.
Very bad planning on their part.
Where I live, for many, many years, private sector salaries and benefits (and bonuses) outpaced public sector salaries and benefits by a wide margin. It was the private sector employees who were able to buy the big, expensive houses, cars, furniture and toys and go on the twice annual tropical vacations. The public sector employees by contrast, either rented or purchased very modest homes, bought their furniture at Ikea, drove 10 year old used cars and vacationed (if they went anywhere at all) at the local camp ground.
During these “good times” for the private sector, you didn’t hear a peep from this group about the job security or the defined benefit plans that the lowly public sector peons enjoyed. These were “table scraps” that the affluent private sector “generously” conceded to their public counterparts because, after all, jobs and money were plentiful and if every cent earned was spent and nothing saved, there would always be that high paying private sector job somewhere.
Well, times have changed. Now, public sector employees are reviled and despised for having the advantages that the private sector previously disregarded and considered unimportant and inconsequential. Too late they have discovered that the once maligned package of job security, seniority and mandatory contribution to defined benefit plans, is the ticket to financial security in retirement. And they hate that and are doing everything in their power to change it so that the public sector will be as poorly off as they will be in their old age.
I am a public sector employee and have been for 25 years. To those who will try to diminish or remove the public sector benefits that I have sacrificed my entire working life for, I say… BITE ME! While you were living it up with your lavish lifestyle on your lavish salary and 50K bonuses every year, I was foregoing that massive salary in favor of job security, seniority and deferring a portion of my meagre paycheque every month to a pension plan. If I choose to, I could retire in 5 years when I’m 55. It would be a modest retirement, but I’m accustomed to a modest lifestyle, unlike most I know in the private sector. Or I might just continue working at my modestly paying, but secure public sector job, thwarting all the previously private sector employees who are lined up waiting to take it.
I am a public sector employee and have been for 25 years. To those who will try to diminish or remove the public sector benefits that I have sacrificed my entire working life for, I say… BITE ME!
You do realize that it is the private sector folks that afford you such a job, right? Without their income (and thus taxes) your salary could not be paid, nor your pension/benefits (assuming you’ve not been 100% funding your pension).
So when the private sector tanks and tax revenues are down - yeah, sorry hun but the money just isn’t there. Do you really think you personally are entitled to the money that I earn to fund your retirement? Somehow you’re more deserving of those dollars than I?
Notice how I’m not trying to take your earned dollars away from you? I’m not trying to take a portion of your salary (hard work and effort) to fund my lifestyle.
Your “bite me” comment says a lot about you and your sense of entitlement. I can tell you enjoy the thought of your friends, family, and neighbors struggling to get by because the government threatened them with jail unless they coughed up even more to pay for your retirement.
And our city administration put on a dog and
pony show for the city council showing how
the poor city employees were all going to suffer without their 1% raise this year. They
didn’t say anything about the increase in their
medical insurance or their PERS contributions,
all paid for by the voting public.
I wanted to strangle the living s%$# out of the
councilors who went along with this.
City also didn’t tell the councilors that the
administration would also get an automatic
raise.
Aaaaaaagh!!
drumminj said:
Notice how I’m not trying to take your earned dollars away from you? I’m not trying to take a portion of your salary (hard work and effort) to fund my lifestyle.
Governments have enabled the private sector to take away earned dollars from the public sector employees for the last 20 years. Perhaps the public sector would not feel so “entitled” to their benefits now if they had not had to sacrifice large wage increases and bonuses for the last 2 decades so that the private sector could enjoy low taxation and government subsidies at their expense.
Public sector pensions have existed for decades. However, as long as the private sector was getting their generous compensation, they were silent on the benefits afforded to the public sector. It’s a little too late now for the grasshopper to begrudge the providence of the ant.
What a CROCK!!! That’s typical of government parasites. The MAJORITY of working Americans NEVER got big bonuses, huge salary increases and all that crap you talk about. Maybe some big players on Wall Street. IN FACT, most Americans have gone NOWHERE in terms of earnings the last 10 years or longer. They have gone backward.
The HOUSING BUBBLE, with its gross OVERVALUATION of property prices lead the way to higher TAXES, which led the way to higher government incomes, which led the way to bigger and better Contracts, assuming that the BUBBLE was the NEW NORM!!!
You are simply lying about the facts.
The working people of this country in the private sector have paid all your benefits.
That imbecile in the White House talks about “shared sacrifice”. There isn’t any. It’s a pure ENTITLEMENT mentality. I got my “contract”, now pay up. Problem is, it’s not a contract, because the rest of us didn’t get in on the negotiation. That was done by INSIDERS in government, against our wishes, much like all the BAILOUTS. The majority of Americans were against them, but the Congress pushed them through, anyway.
50k bonuses?
HAHAHAHAHAHAHA…someone in the DMV has left the door open and the fumes are getting to them.
For once I agree with drumminj 100%. Lola needs a reality check.
For once I agree with drumminj 100%
Wow, I think everyone here needs to drink to that!
Without a doubt the income advantages in both government and the private sector have gone to those with a college degree. The exception is where great personal risk is involved. The best deal is probably an educated married couple, one working in government, one in the private sector; thus maximize benefits and income. FWIW, I know a woman (no college) who works at the DMV in California, and she makes “fair” money, but she also manages a flock and has twenty-five years there too. No thanks!
“Social Security will not do it even with “some” savings, whatever that means. If “some” means one million per head, then perhaps. Maybe that’s what “some” means to you.”
Some is dependent on when you expect to retire, how long you expect to be retired, and what inflation will do in the interim. I expect that inflation will continue to outpace interest rates for the foreseeable future. Some people will manage to have returns that outpace inflation. Can all of us do that? I am not confident that I can guess correctly enough of the time to be able to and I am above average in intelligence and education. So I expect to work until nobody will pay me to do anything.
The brother of a friend is a retired cop. He started on the force at age 21, and retired at 51 after 30 years of service. He gets $70k per year, and is thrilled with it.
Yes, I can afford to retire now…in Tucson. I don’t need much. Had a one bedroom apartment there in 2000 for $600 per month. They are now $700 per month. I can ride my bike around the area like I used to. Or walk to movies, mall, hooters, fitness swimming pools. I don’t need more than that. Rebalance my assets annually and anticipate a 4.7% annual gain above the typical 3% inflation rate.
Houses in Vegas are getting cheaper by the day. Arizona may lose out on those lucrative retirees.
Vegas is an armpit.
Huge loss in home values cratered the Bay Area economy
By Pete Carey
Posted: 01/01/2012 07:00:00 AM PST
Updated: 01/01/2012 07:52:27 AM PST
Bay Area homes have lost more than a third of a trillion dollars in value since the housing bubble burst about four years ago. And in the process, they have taken a big chunk of the economy with them.
During the boom, homeowners borrowed against that mountain of money, fueling a huge surge in everything from yacht sales in Silicon Valley to home heating upgrades in Antioch. Later, when home prices collapsed, their loss of money and confidence crushed those same businesses.
Adding more strain, while the equity went away, the debt remained, further hobbling those who hung on to their homes.
While the devastation of the housing crisis has been well reported — foreclosures; people stuck in homes they can’t sell; houses sold for a fraction of their value — one issue that has received less attention is the remarkable loss of housing values and its impact on the economy. Home equity loans, for example, are running at about one-tenth the level they hit four years ago.
But it’s probably not overstating the issue to say that the economy’s ultimate recovery depends on restoring stability to the housing market. “Consumer spending won’t fully recover until the housing market stabilizes and people feel that their main assets — their home — will grow in value,” said Jed Kolko, chief economist with the real estate website Trulia. And consumer spending makes up about two-thirds of the American economy.
In a reversal of the “wealth effect” that had homeowners spending freely during the bubble because their home equity made them feel rich, the loss of equity when the bubble burst “magnified the income and jobs effect in the recession,” he said. “Both of those hold back consumer spending. It especially hurt industries that served a local market — retail, restaurants and local services.”
…
“Bay Area homes have lost more than a third of a trillion dollars in value since the housing bubble burst about four years ago.”
The number of Bay Area households was recently reported at around 2.5 million. On a per-household basis, that third of a trillion in lost home equity comes out to
$1,000,000,000,000/(3*2,500,000) = $133,333.33 per household.
Of course, since my calculation’s denominator includes all Bay Area households including renters, the actual average loss per homeowner household is larger than $133K.
Not my sister!
She’s smart (and she listens to her brother.)
I can’t get over that $133K+ underwater figure for Bay Area homeowner household that simple arithmetic suggests. I’m wondering where that 1/3 of $1t in value figure came from, and how that would look for the entire country?
My hunch is that the housing market bottom caller brigade is blithely ignoring the depth of underwater equity when they predict a housing bottom in 2012. This debt overhang appears far too large for its effect to wash through by midyear.
I’m curious why MSM writers don’t employ simple arithmetic, as I did above, to bring home the relevance of figures such as “a third of a trillion dollars” to the household level. Is it because they can’t do arithmetic, because they are lazy, or because they don’t want their stories to hit home?
By the way, I just came across a “Bay Area Census — San Francisco City and County” which shows a total of 376,942 total housing units, including rentals, owner-occupied and vacant. The 1/3 of $1t spread over this number comes out to an equity loss of (1/3*$1,000,000,000,000)/376,942 = $884K per housing unit. I realize I am probably undercounting the number of housing units compared to the scope of the area to which the 1/3 of $1t applies, but however you count the denominator, the magnitude of loss per housing unit is ginormous.
Bay area population is 7M. (Your number is based on SF population of 800K.) So number of housing units more like 3M. $1T/3/3M = $100K per household
“$100K per household”
Fair enough. I’m not a journalist, and don’t get paid anything to put the right denominator into the calculation.
That said, $100K per household is still a pretty good haircut, and I am happy that a lot of it hit landlords who thought real estate always went up, as the Bay Area has a disproportionately high percentage of renter-occupants compared with other places.
$133k underwater per homeowner in the Bay Area tis but a flesh wound. Every single person there makes high six figures minimum, and likely has that kind of scratch in the bank. Or so I am told..
My dad retired. He hit that generational lottery and he knows it. He was a paper salesman, yup, just like Michael Scott on The Office.
My mom, on the other hand (a TEA loon), thinks nothing of it and that we’re all dirty, lazy hippies. She had a choice, and she chose not to work.
Amazing.
My parents are unusual for their generation, in that each of their offspring had been better off than they had been at the same age. I didn’t live that way, as I am older than my siblings, came of age in the 1970s, and learned from that decade’s economy.
So when I’d make the case to may parents that younger generations were becoming worse off, they would respond that they didn’t see it, because of how well their kids were doing.
Well guess what, they don’t think that anymore. At a time in life when my Dad’s career finally took off, my siblings have faced hard times due to the economy. They’re still OK, but have had to cash out retirement savings and not save for college.
The consumer debt balloon covered up generational inequality, as well as allowing the top 1 percent to rake in money.
Working for a company that didn’t go bankrupt and cancel thier pensions/healthcare was more luck than skill in the ’70s.
Now that new public employees are out of the pension lottery, retirement will be a distant dream.
“The consumer debt balloon covered up generational inequality, as well as allowing the top 1 percent to rake in money.”
Which (the top one percent raking in money part) is now in the process of reversing now that the debt balloon has morphed into the debt bust.
The lower income people borrowed and spent and chunks of this borrowing and spending flowed upstream and ended up supporting the one percenters. Now that the borrowing and spending has ground to a halt people on both ends of the economic spectrum are now taking or are about to take an economic hit.
Those on the bottom get to feel the pain right away; Those at the top get to enjoy living in denial a bit longer.
My dad retired. He hit that generational lottery and he knows it. He was a paper salesman, yup, just like Michael Scott on The Office.
Same for mine. Got a nice pension from Lucent - something not too far from $100k/year if I recall correctly. I don’t know that he realizes how lucky he got, though.
Mine, too, got a nice pension from Pacific Telesis, but not until 65. He got a late start due to the Depression.
His sons didn’t even make it to the glory days of the the heloc ATM, having lost their jobs in the early 90s. My father supported them, and they never knew the kind of debt people have nowadays.
Seeing them made me stay with the same s*** job for all these years, afraid to move. It might get me to 66, it might not.
If the companies have their chance, they will start re-cycling workers when they hit 40 and start over with 20 year olds.
If anyone is thinking of retiring to Florida, I would really, really encourage you to think this over, and perhaps rent here for a year before committing fully.
I rant on about a lot of things, but the main thing is that you become house-locked because everything requires a car to get to and fro.
My grandmother-in-law has entered the ‘no driving’ phase and is very depressed about it. Meanwhile, she talks to her friends back in Ithaca, and they take daily strolls downtown even on cold days.
That isn’t just true of Florida. That’s true of anyplace built after 1950, certainly anyplace built after 1980.
My in-laws retired Upstate, but they did it wrong. They built a house on a hill, rather than buying something in town. They need to drive everywhere.
My parents are aging in place, but they already live in a place where they have to drive everywhere.
The decline of small town and urban America means there just aren’t as many walkable, socially and economically viable places as there used to be.
“They built a house on a hill, rather than buying something in town. They need to drive everywhere.”
From what I’ve been reading on line, one of the major mistakes made by retirees to the mountains of western North Carolina is getting a house at elevation. It soon dawns on them that getting up and down the mountain (or even out of the driveway) during colder weather is no picnic.
No seems to ever think a day will come when walking or driving will be difficult.
One of the reasons I like our current location is that I can walk a half mile to stores and buses. When the weather gets foul, I do not have to drive.
Muggy
I am looking forward to being able to spend a lot of time in Florida in my own home in Orlando (when I buy it), but not on a full time basis. I have to travel a lot and will use my airline pass to get me back and forth. I plan to work until 75. My wife prefers the warm weather.
I didn’t realize that commuting was such a problem. I plan to purchase a used car and store it in the garage, taking a taxi to and from the airport. I also plan to hire a gardener / pool service company to keep the property clean and looking like it is occupied.
I am not familiar with crime stats in the Lake Buenevista area, and not even sure if that is the right area to locate in. I would like something close to the airport and to Disneyworld (grandkids).
Any suggestions?
I’m retired, sorta, at 69.
My wife and I started and ran our own companies for decades. We invested in Commercial RE and bought lots of munies. When we finally decided to hang it up, we sold out and bought a ranch here in southern Oregon after looking at all the western states as potential retirement locations. We did not count on SS to be any form of retirement, just
a couple of extra bucks to used as discretionary
spending.
Ranching to us was retirement, even though it just meant a different kind of work. We sold the ranch in 2005, with a 180% return after 7 years, and moved into town. We realized that we needed to be closer to stores and doctors.
Our income is six figures and we don’t touch
our savings. We have minor debt, stuff paid
off on a monthly basis.
That being said, I found myself getting bored and am starting another business. I act as the
supervising engineer and my wife is acting
as financial adviser and banker. By the time
we reach production, hopefully mid March, we’ll
have dropped 30k to get it going.
Retired? Yep! Quitting? Nope, having to much
fun.
Are you looking for a pat on the back, or just gloating?
I thought he was just sharing his recent life story. Gloating or fishing for a pat on the back are fairly negative interpretations.
I for one hope I am still actively engaged in whatever I am up to when I hit age 69 and beyond. Sounds to me like Rancher has figured out the key to happiness after age 65…
I guess after reading the same story from him so many times, my interpretation has turned negative.
PS- I guess I am just not that interested in the life and times of the 1%’ers.
Even with a $100K income in retirement, he is nowhere near a 1%’er. Check your data.
Last I looked, and income of roughly $500K was required to enter the rarified air of the 1%’ers.
He never said $100k, he said “six figures.” He’s talked about himself enough over the years where I think I’m spot on.
Varies: $100K TO $130K….
Grizz, I don’t gloat, neither does my wife.
What I did was relate to this group that some
of us “retired” did it on our own, with little,
if any, help from the government.
And I for one respect that, Rancher!
It your post didn’t come across as gloating to me, and I appreciat eyou sharing your position & perspective.
Though I would be keenly interested in how you are generating a significant retirement cash-flow in today’s climate, if you are willing to share…
Rancher
I too am pleased that you made your post. What we need in our economy today is more entrepreneurial skillsets - and we need people to tell us about what they did to encourage the new flock.
At 69 myself, still flogging the dogs, but enjoying it more than ever.
The car-dependent lifestyle is a choice, not the rule.
http://www.walkscore.com/
I visited St Petersburg for the first time in November and was impressed with how unlike the rest of Florida it seems. St Pete has a walkability score of 85, compared with Pompano Beach where I have spent a lot of time visiting family, which has a score of only 63.
Depends where in St. Pete you live. There’s a lot of it that is unwalkable, and parts of it that may be walkable, but you wouldn’t want to walk there even if you could.
Now Tampa, THERE’S an almost completely unwalkable city if I ever saw one. For a couple of months, I had to drive a road called Fletcher Ave. from the exit at I-75 to I-275, pretty much from one side of the northern part of Tampa to the other. Much of it through parts of the USF area. Really depressing area. One stretch featured disabled senior citizens and other disabled folk trying to navigate the sidewalks of the main thoroughfare in mobility chairs or scooters
St. Pete spent the last 20 years “revitalizing” the downtown area, beginning with the creation of the Baseball stadium. Many businesses moved back in, in anticipation of the growing downtown community. It is also near the waterfront district which has a somewhat vibrant area which adjoins the waterfront parks.
HOWEVER, this assumes you live in the downtown core.
Immediately north and south are what I would refer to as the Ghetto districts, which always surround the core, as part of the “community”.
I would not locate in ANY area within 3 to 5 miles of these areas, if not in the immediate downtown vicinity. So, there goes the “walkability”. Read the crime sheets before you go house shopping.
“Immediately north and south are what I would refer to as the Ghetto districts, which always surround the core, as part of the “community”.”
Ahh, the joys of dodging bullets in “th’ cohmmuhnitay”.
Retire? Get over it.
“Retirement” is purely a 20th century western notion. It worked well during the heyday of manufacturing where an employer “retired” older workers and “rehired” new workers.
Welcome to the post-industrial reality. The 401k and retirement lobby is powerful and keeps you all deluded with the false promise of your mom and dads retirement. It’s time to accept reality my friends. You’ve been lied to with phony counterfeits like images of blue hairs in a condo on the beach.
Pay attention to the 401k/retirement lobby. They own you. And remember all the inversions we’ve discussed. War is peace, enslavement is freedom, debt is wealth, etc etc.
Doubt me know. Concur with me later.
“Pay attention to the 401k/retirement lobby”
LOL, I had a discussion with my sis this morning about this very subject. She opined that the “401K” scam is just a device for the financiers to get more of your money. Or at least have it on reserve, in case of need.
At least in the early days employers provided decent matches. Now maybe you’ll get 3% and it has a 5 year vesting period.
Some people made bank when the match was in company stock.*
*pre 2001 only
“Retirement” is purely a 20th century western notion.
I think that the notion or retirement cam about before the 20th century. However, the idea of retirement as 20- or 30-year vacation at the end of life is fairly. In the past it was viewed as a calamity. A person retired when he or she became too old to work. So you can’t work and you’re not dead yet. How do you feed yourself? This is why Social Security was seen as a form of insurance that would protect people who were afflicted unfortunate situation of surviving past the age when they could no longer work.
Right. Just to put it in perspective, if you go back to the 1950s and 1960s the labor force participation rate for those 65 and over was much higher than today for married men and single women.
It hit a low point 20 or so years ago, and has been rising again.
My retirement plan is a six pack and a pistol.
Mine is a Fifth wheel in a RV park and part time job greeter at Walmart.
If you think yours isn’t, you’re going to be shocked.
You can take the grocery entrance, I’ll take the other one.
lmao. You got it.
I hate statements like this
A key reason unemployment remains so high is due to the collapse of the real estate and construction sectors.”
No a key reason unemployment is so high is that our trade policy and dollar policy have pushed most manufacturing jobs overseas and the unemployment that this caused was hidden using a real estate bubble. This of course created far more and far larger homes than we need and now we are stuck working off the inventory. There fixed it.
Those that were born at the right time got to compound their savings 16 to 18 percent for 20 years. They are the ones living high on the hog. Those born at the wrong tome have seen there saving not budge for 12 years. They/ we are the ones who are screwed,