The Potential For Untimely Reversal Of The Economy
Readers suggested a topic on the economy. “Economy getting better?”
A reply, “How long will it take for DOW to hit 20,000,000?”
One said, “Meanwhile in 2013, another 2 million Americans joined the ranks of the not working.”
And finally, “Is there any way to end ,or at least mitigate, the regulatory capture of the federal government? It’s totally understandable that when leaders of companies are appointed to high level cabinet posts, that they’ll try to advantage their friends, who will then advantage them. Time in DC is a time to make connections and build relationships, and is very brief. Geithner is a prime example, stating he wouldn’t go into industry, then promptly doing so. He’s a person just like you and me, he’s got bills to pay, mouths to feed. Leaving hundreds of millions of dollars on the table would be absurd.”
“FCC: Tom Wheeler, Cabinet: Jack Lew, Henry Paulson, Fed: Stanley Fisher, CFTC: Blythe Masters, Federal Reserve Banks: Many industry leaders. Even Jamie Dimon was on the NY Fed board of directors. This sort of thing seems like it is tailor made to lead to, and reinforce, regulatory capture.”
From Politico. “Starting with Robert Rubin – a former Citi CEO – three of the last four Treasury secretaries under Democratic presidents have had Citigroup affiliations before or after their Treasury service. (The fourth was offered, but declined, Citigroup’s CEO position.)”
The Enid News in Oklahoma. “For the third year in a row, Enid will go without a Parade of Homes. Local homebuilders have passed again on the annual spectacle, citing a simple reason: ‘Nobody’s got any excess inventory, quite honestly. It’s selling so fast,’ said David Ritchie, who recently broke ground on Chisholm Creek Village.”
“Despite the bullish housing market, developers haven’t put out the cash to feed it. Developers had their reasons, though. In a study released last year, industry professionals said they weren’t building in Enid for three reasons: High costs of construction, a feeling that community leaders did not prioritize housing and, in the study’s own words, ‘An existential concern, or even outright fear, about the potential for untimely reversal of the local economy.’”
From CNBC. “The one constituency housing needs most is the one struggling the hardest in the jobs market. Employment among those age 25-34 fell in May to 75.3 percent; this compares to pre-recession rates of 78 to 80 percent employment, according to the Bureau of Labor Statistics. First-time homebuyers have been markedly absent from the housing recovery. In April they accounted for just 29 percent of existing homebuyers, according to the National Association of Realtors. Historically, their share hovers around 40 percent.”
“Even those who are employed are finding themselves more financially strapped than previous generations. Non-homeowners consistently cite financial instability as a contributing factor for not buying a home, regardless of household income, according to a recent survey by RateWatch, a financial data company owned by TheStreet.”
“‘It’s understandable that someone making less than $25,000 a year doesn’t feel like they can afford a home, but it’s shocking that someone who makes over $150,000 a year feels equally poor,’ noted Debra Borchardt, markets analyst for TheStreet. ‘Higher home prices could be a good reason why, with homes hitting record high prices and inventories hitting a low.’”
The Fiscal Times. “In their new book House of Debt, Amir Sufi of the University of Chicago and Atif Mian of Princeton point out that consumer purchases dropped sharply well before the September 2008 Lehman bankruptcy, and most deeply in places where home prices fell the most. They found that steeper declines in net worth — many homeowners were completely wiped out by falling home prices — led to far sharper reductions in consumer spending, and bigger job losses.”
“The normal channels of fiscal and monetary policy have difficulty dealing with highly leveraged household balance sheets. House of Debt correlates these features of recessions, and really targets debt as the core problem, arguing that it needs to be restructured during crises and prevented during better times.”
“‘The primary reason we wrote the book was because we believed this narrow banking view became the central focus of policy,’ Sufi said. However, he argues, the idea of recapitalizing banks so they can resume lending falls apart upon scrutiny. ‘If you walk through it, we just think it doesn’t make sense. How can an economy with so much debt need more lending?’”
‘House of Debt…targets debt as the core problem, arguing that it needs to be restructured during crises and prevented during better times’
These guys want the FB’s to get a write-down. OK, a couple of things; open up your wallet gentlemen. Oh, you want us to pay for it! Or is it the pension funds and life insurance companies? Solving big problems is easy if you dream up ways to make others pay for it. No matter, mass write-downs would lower house prices quite a bit. But that would be kinda deflationary.
Did Yellen just have a stoke?
‘If you walk through it, we just think it doesn’t make sense. How can an economy with so much debt need more lending?’
Of course it doesn’t. Unless bankers are running things. And also it’s not going to work. Actually, it’s been enough time now to prove it hasn’t worked. When are we going to get off this merry-go-round?
“off this merry-go-round”
Stepping off without trauma is no longer an option.
Liquidation is an equalizer, the lender is impoverished and the borrower is freed (with less baggage). What we have been doing is continuing to tilt the table toward the lender, making him more wealthy and the borrower more poor. The borrowers are still in a mania, thinking they are getting more when they are getting less. Looks crazy to you and me, but not to most.
These House of Debt guys have it half right. Isn’t foreclosure a write down too? If you just write down loans and they stay in the house, what happens the next time borrowers finds themselves in a pickle? Forgive the debt again? And the next time?
It’s not like anyone (much) is pursuing FB’s for the loss. For the longest time, there weren’t even tax consequences, and there still isn’t in California. (How this state got special treatment from the IRS is a story in itself).
And then there’s the question of people who borrowed to buy a house in the latest run-up. These writers are missing the real issue:
‘How can an economy with so much debt need more lending?’
Who decided this was the way to go and why?
I may be wrong, but my impressions is the bankers decided, with the support of the politicians and economists they employ.
Will abandoning mortgage reforms bring on a new housing crisis?
Here we go again. I laughed, I cried and I felt like it was 2006 all over again while reading the financial press this week cheerlead administration steps designed to “ease mortgage credit.” What’s really happening is, in an incredible gift to banks and investors, Fannie Mae and Freddie Mac have now officially completed their horror-movie-like rise from the dead. Expect to see Housing Bubble 2 in neighborhood theaters near you very soon, with investors laughing all the way to the bank.
Mel Watt, the new director of the Federal Housing Finance Agency, gave his first public speech on Monday, and made clear that the notion of winding down Freddie and Fannie was dead. In fact, he called for increasing their role in greasing housing sales. Headline after headline expressed relief that it’ll be easier to get mortgages, and what a great thing that is for the economy. The same lack of curiosity by financial journalists that helped create the housing mess — if banking regulators say it, it must be true! — has reared its ugly head again.
Let’s go through what really happened. It’s not all bad, just mostly bad.
Citing fear that would-be homeowners are stuck on the sidelines because credit is too tight, Watt called for a series of measures that would encourage banks to lend, and make things easier for those with less-than-perfect credit. There’s a lot of half-truths there. First off, it’s not that hard to get a mortgage. FHA loans, and their tiny down payments, are thriving. Buyers can put down as little as 3.5% and get an FHA-backed mortgage. According to the Mortgage Bankers Association, 15% of loan applications were FHA loans in April. (During the bubble years, FHA loans dropped well into the single digits as a percent of loans, dipping to 3.77% in 2006.) FHA loans come with high fees — we’ll get to that in a minute — but it’s a myth to say without qualification that lending standards are very tight.
You will see a lot of conflicting data about how tight or loose lending standards are for marginal buyers right now. The Wall Street Journal says that less than 1% of buyers have a credit score under 620 right now, compared to 13% in 2001. Is that a good or a bad thing?
Throwing Money at the Problem
Housing is already becoming dangerously unaffordable again, even during this uneven recovery, when comparing median incomes and median home prices in most local markets. This is more a function of income than housing prices. Encouraging riskier lending is a terrible strategy for making things more affordable, however. Throwing more dollars at a limited number of goods just raises the prices. More mortgage approvals will raise housing prices. It is good for those who earn fees off the transactions, however.
The Housing Recovery Is Uneven, But Not a Disaster
Home purchase rates were down in March. That was scary, but so was the awful weather around the country. April purchase of Fannie-and Freddie-backed loans was up 24% over March. It was still down 4% from last year — this is an uneven recovery, one Trulia compares to drunken stumbling — but it’s not a crisis that needs dramatic priming. You know what is a crisis? Slightly higher mortgage rates have pretty much killed the refinancing market, so banks are pretty desperate to find new loans. Last year, refinances made up 78% of the mortgage market, but in the first quarter of this year, that figure plunged to 47%, according to the Wall Street Journal.
Avoiding the Real Problem
About those refinances. So it’s great that well-off folks were able to refinance every 12 months for the past four years and save another few hundred dollars on their monthly bills, but that didn’t help the real problem dogging the housing market, the recovery and the economy at large — the estimated 10 million mortgage holders who are still underwater. That’s one in five mortgage holders.
Being underwater is psychologically punishing, but it has real-life impacts, too. Mortgage holders who can’t sell their homes without owing the bank a big check can’t relocate for new jobs. In many cases, they can’t refinance and enjoy lower rates, either (or their path is much harder). There is one simple, tried and true, obvious method for helping these folks: forcing banks to write down principal. In one of thousands of practical examples of how this would help, Professor Peter Dreier tells the story of a family being evicted from their home because they defaulted on their $400,000 mortgage. The family could afford a $200,000 mortgage, which is also today’s real value for the home and the price the bank will get for the house when it forecloses. Everyone is better off keeping that family in that home. The family, the neighborhood, and even, probably, the bank. But Mr. Watt has no innovative plans to help them, or other families like them. He’s too busy helping banks originate more new loans.
The Higher Down Payment Is Dead
During the height of the crisis, there were signals that Freddie and Fannie would some day soon only back mortgages when consumers put 20% down. That idea was scuttled early, replaced by a compromise that would require 10% down. Now that’s dead, too. Why are we in such a rush to sell $200,000 homes to people who can’t save up $20,000?
Keeping High Mortgage Limits for Freddie & Fannie
A bit like the fiscal cliff or expiring tax cuts, there was a doomsday looming for the mortgage market. During the crisis, the limit on mortgage size for Fannie and Freddie was dramatically raised — up to $417,000 for most of the country, and even higher in expensive markets. The plan was always to drop those limits, allowing free-market investors to buy the loans instead. Such a move would indeed hurt the fragile housing recovery right now.
Watt said he would postpone it, and that’s sensible — most importantly, it signals stability to investors. Similarly, Watt said he would postpone a step that would force more banks with poorly performing loans to buy them back from Freddie and Fannie, which is probably a good idea, though it is disturbingly like the moral hazard we are always so afraid of creating by giving homeowners a break. Watt also said he would create an appeals process for banks that are told to buy back bad loans. Sure wish foreclosed homeowners had the same opportunity.
One More Positive
FHA loans, which do a lot to help first-time homeowners with very little down payment get involved in the housing market, have a dark side. They cost buyers huge fees, which go into a fund that pays banks back if the homeowners default. The upfront fee was supercharged to 1.75% during the housing crisis (in addition to monthly insurance costs). FHA upfront fees basically add 1.75% to the price of a home for lower-income buyers, which is punishing. Watt suggested FHA buyers could lower their fees by enrolling in personal finance classes, which would be a welcome change.
As you read more stories about Fannie and Freddie, and their impressive rise from the ashes, keep asking yourself this: There is tremendous bias in our tax code and our banking policy toward buying a home over renting. Why is that? Who benefits from it? There’s an obvious answer: banks who make money from mortgage volume through fees. But there’s another group that might be a surprise: hedge funds that bought up millions of shares in the distressed entities. They are suing the federal government in an effort to protect their investment, and lobbying housing regulators to save Fannie and Freddie. If Fannie and Freddie were wound down, as originally planned, these investors would likely have worthless shares. Instead, they stand to earn millions if the firms are re-privatized. Heck, they earned millions when shares leapt from $4.35 to $4.80 on the news.
The real problem for the sluggish housing market, aside from underwater homes, isn’t tight credit. It’s a generation of would-be young homebuyers who came of age during the housing meltdown and see no advantage to buying over renting. In fact, 25- to 35-year-olds won’t even buy cars. Throw in their portion of the $1 trillion student loan debt owed by Americans, when you already have a $29,000 student loan “mortgage” on your future, what’s appetizing about adding another one?
Lowered lending standards. Abandoning down payment requirements. Forgiveness for banks that originate underperforming loans. And most of all, pressure to prime a sluggish market and a sluggish economy using any means possible — and a green light from Washington, D.C. – these are all the elements that were place back in 2001 that led to the housing bubble. And while rules that have largely put an end to terrible “liar loans” and other extremely risky lender behaviors might limit the damage, you have to wonder: As we head down the road of looser lending standards again, how loose will they eventually get? It is unfathomable to think we could make the same mistake again, so soon after the last time. But then, plenty of tech observers will tell you we are living through the second Internet stock bubble right now. With housing prices rising, and our only solution being to encourage riskier buyers with looser credit, there’s plenty of reason for concern that we are headed for a sequel.
http://finance.yahoo.com/news/abandoning-mortgage-reforms-bring-housing-123052660.html
“Being underwater is psychologically punishing, but it has real-life impacts, too. Mortgage holders who can’t sell their homes without owing the bank a big check can’t relocate for new jobs. In many cases, they can’t refinance and enjoy lower rates, either (or their path is much harder). There is one simple, tried and true, obvious method for helping these folks: forcing banks to write down principal. In one of thousands of practical examples of how this would help, Professor Peter Dreier tells the story of a family being evicted from their home because they defaulted on their $400,000 mortgage. The family could afford a $200,000 mortgage, which is also today’s real value for the home and the price the bank will get for the house when it forecloses. Everyone is better off keeping that family in that home.”
What about the family of Joe Tenant, who rents the drab, smallish, relatively unattractive home down the street from Underwater Wally, who bought a home he really couldn’t afford at peak bubble prices. Will Joe Tenant really be better off if Underwater Wally is handed a $200K check that makes him whole and lets him keep his home off the market forever?
i would never read all that. How about a digest of your fraud rantings?
TL; DR.
Here is a “digest”:
What a fraudster.
Thanks Whac! My response is then: the second trip to rehab after falling off the no heroin wagon comes quicker than the first.
It’s great to see Chicago School economists weigh in on the folly of using a hair-of-the-dog debt stimulus cure for the massive hangover left behind by the worst borrowing binge in U.S. history.
“These guys want the FB’s to get a write-down.”
What about the idea of applying royalties from their book sales to fund write-downs? It would be great if the writers put their money where their mouths are.
Ben and Folks it has been a long time. I was on here daily thru the 2004-2008 time period but got busy doing fraud analysis and have been doing so for these many years. I review appraisals for various entities and have been at it for over forty years.
I really had nothing new to report as the very wise people here were all over every trend I saw. But in keeping with a big change I am writing today. I am in Orlando and we are sitting on tons of empty homes and builders are throwing up new stuff all over. Remember that shadow inventory? It is here and they are adding to it. But that is not the news. This date I was reviewing a current appraisal and not a retro back to 2005 which I do daily. This report was not adding up from the get go but it was in March so I had some intervening knowledge and that can make a difference.
This was on a home built by a national builder and it they used t build a decent unit. BUt this house reminded me of the old voluminous KB barn having more bathrooms than bedrooms. They are illegal alien units which house many families under one roof. BUt this builder was a high end finish group. Not today. At any rate once i dug into it I found that they had been sitting on a ton of inventory since last summer. Some new homes sitting for over a year.
In this project I had the first big reduction home of roughly 4700 sf and a 10,000 sf lot. It is located in the south end of town and near Windemere of Tiger Woods fame. This was the first big reduction from $660,000 to $540,000 and after this one they began to fall like a rock. They are no under $500,000. Sadly this rookie appraiser did not analyze anything but chose to go with the older sales he had. Here is the rub. I have to go along with him. There is no indication from sales data(hard recorded) to say he is wrong.
The worm has turned here. We are at 2006 again but at much lower figures. Instead of $175 per square foot we are at $135. Assuming this shadow inventory of pre foreclosure homes is on the way as the banks can no longer plan on selling higher, builder reductions, and the coming dumping of hedge fund no performance rentals I expect the housing world to suffer a crushing blow. I mean really bad as many people who were beginning to think they could dig out will throw up their arms and run thus adding to the debacle.
It’s like rain in the distance, first a cool breeze, then the smell of rain and then it hits. I give it till spring.
That is the best most logical answer to this insane dumb idea.
KB barn having more bathrooms than bedrooms. They are illegal alien units which house many families under one roof.
Good report. As we’ve maintained all along, 25 million excess empty houses can’t be hidden in place site. If you were taking about currency, gold or cocaine, the yes.
One important note to add. If the new construction has been sold, the builder has already earned his profit and at the current price you quoted ($135/sq), prices have a long downward movement to get to a competitive price point with new construction which is roughly $55/sqft(lot, labor, materials and profit).
It looks like FL and CA will once again be the epicenter of the resumption of the housing price collapse.
I should also mention….
Time wise, we’re at the peak of the business cycle, i.e. 2006/2007. Given the near 100% subprime nature of the 07-2014 cycle(massive subprime auto, undisposed foreclosures), the current decline is going to be far deeper than the previous and far more severe than anyone ever imagined possible.
Thanks Jack, please keep us informed on what you are seeing.
“I mean really bad as many people who were beginning to think they could dig out will throw up their arms and run thus adding to the debacle.”
Thank you so much for the awesome ground-level FL report. Get ready to hear this oft-repeated line from the 2008 financial collapse again any day now: ‘Nobody could have seen it coming!’
“It’s like rain in the distance, first a cool breeze, then the smell of rain and then it hits. I give it till spring.”
I was born in Florida, and according to my mom’s report, I slept through a hurricane during my first year of life. I lived in Florida for long enough to learn one lesson: The thing about rain in the distance in Florida is that some times it is a harbinger of an incoming hurricane.
Now we know where your nightmares come from, Whac. It wasn’t the midwestern tornadoes. Lots of people have recurring nightmares about stuff that happened when they were too young to form solid memories.
I used to have a nightmare about getting almost eaten by dogs. When I was 15, I found out that it all really happened when I was less than one, right down to the tiniest details of the dream, which seemed very important during the dream itself (even though they were details of slight consequence).
I’m pretty sure it was the tornadoes — blame it on watching the twister scene in The Wizard of Oz* too often at a tender age. And then there was the day in third grade when I raised my hand in class to ask the teacher if there was going to be a tornado after noticing angry black clouds while looking out the window. She took pains to reassure the class that there was nothing to worry about, but within ten minutes not only my class but the whole school was marched down to the basement level of our building. I will always remember seeing a window blow out of our gymnasium and land on the floor (luckily not on a kid!) and also the view of the front doors of the school sucked wide open by the pressure drop as we walked past. Turns out the twister hit just across the freeway from my school, damaging a hotel building within walking distance. Luckily it was something like an EF2 — no major damage.
Through my growing up years in St. Louis, I lived under the impression that we were somehow buffered against the really big twisters that seemed to always hit outlying areas away from the city. It wasn’t until later in life that I discovered that EF3-EF4 twisters (the kind that kill people and inflict major damage) hit the city in 1871, 1896, 1927 and 1959, about one major tornado every 29 years.
Are you saying that they were selling houses in this development for $660k, but now equivalent houses are going for no more than $500k after sitting for a year?
<i“Why pay more than new construction cost ($55 per square foot) for a rapidly depreciating 20+ year old resale house?”
Let me guess…… Because realtors tell you that the cost of a house cannot be evaluated using math?
“Housing as a rental investment is a huge gamble considering it’s negative cash flow at current inflated asking prices of resale housing.
Beware.”
Exactly
“Housing is a depreciating asset and a loss, always. Your losses are magnified tremendously if you finance it.”
BINGO
If you take on mortgage debt at current massively inflated housing prices, you’ll enslave yourself for the rest of your life.
“Debt is bondage.”~Suze Orman, May 11, 2013
In other words, don’t buy housing at these massively inflated prices.
Don’t Be A Debt Junkie®
Debt is slavery.
debt is part of the american dream!
‘An existential concern, or even outright fear, about the potential for untimely reversal of the local economy.’
What an awesome line!
‘Mortgage credit was slightly more available in May than in April, according to the Mortgage Bankers Association (MBA) on Thursday. Its Mortgage Credit Availability Index (MCAI) moved up 1.14% to 115.1 compared to 113.8 in April. The index, which is benchmarked to 100 in March 2012, is up slightly due to increased availability of jumbo mortgages, as well as some investors lowering credit scores required for FHA loans.’
‘Including the increase in May, credit availability still remains well below housing bubble levels. According to MBA, its credit gauge would have been at a peak of nearly 900 in 2006.’
‘Prior to the housing crisis, FHA loans accounted for 5% of all mortgages, which grew to 40% in 2010. Jumbo loans, meanwhile, have become more common in 2014 with loosening restrictions. In 2012, only 16% of jumbo loan applicants were denied, down from 2008, when 30% of applicants were denied.’
‘The share of new single-family homes sold to first-time home buyers over the past 12 months hit just 16% in May, according to the National Association of Home Builders. This compares to 20% in June 2013. In terms of existing home sales, first-time buyers accounted for 29% of sales, down from a long-term average of around 40%.’
The MBS Purchase index has been in steady decline since 2007. It now stands at 1992 levels and shows no sign of leveling out.
Buckle up.
“MBS Purchase index”
Do you mean MBA Purchase Index?
“It now stands at 1992 levels…”
Is this whatsoever surprising, given how the all-cash investor brigade has pushed home prices out of reach for most American families’ finances in the wake of the Great Recession?
A tiny sliver of buyers are keeping hot air under prices? BS.
Yes I meant MBA. Housing demand is at 1992 level, and continues to grind down steadily.
The population has increased by 60 million (24%) since 1992.
Moorpark, CA Housing Prices Collapse 28% YoY; Inventory Balloons 20%
http://www.movoto.com/moorpark-ca/market-trends/
Is there any way to end ,or at least mitigate, the regulatory capture of the federal government?
Maybe actually pass some strict laws to prevent revolving doors right back to the companies they regulate? Could easily be done from a simplicity standpoint. Won’t actually be done from a practical reality standpoint because the biggest regulatory capture has been the capture of the government by the plutocratic elites.
We need a REFORM party like never before. Heck, before that we need a social movement. But to get there people need pain to motivate them. Lots and lots of pain and suffering. Why change if you are too comfortable?
In a word, no. When the very people needed to employ change are the ones who benefit from the current system, you get what we have.
‘people need pain to motivate them’
Let me say this. My parents eventually had seven kids, moved to my hometown and started a business (dry cleaning) with maybe 15-20k. Bought a big house for 21k, using a 15 year mortgage and paid it off in 10 years.
I could have seven kids, but they’d all be on welfare. Who can start much of a business today for that amount? And even if they do, what chance they’d lose it all. How much does a house cost me? In Flagstaff a dump would cost 10 times what my parents paid.
People younger have it worse. Student loan debt, crappy jobs prospects. I’d say we’ve been getting kicked around for so long that we don’t know how bad we have it.
But you can be like my buddy, run up debts, borrow from Peter to pay Paul, live paycheck to paycheck and live the dream. New cars every 3 years, new house on an adjustable rate or interest only 3 percent down loan. Vacations on the credit cards. Nice furniture. On and on. Borrowed from 401k to get out of one bad house.
Yeah, the real pain is coming though. Right now the powers that be are avoiding it with bread and circuses, for some.
I’d rather feel poor than live high on the credit hog.
Just my personal preference…
“I’d rather feel poor than live high on the credit hog. Just my personal preference…”
I spend an inordinate amount of time ruminating on this here conundrum.
I say I sleep better at night following the rules, but do I?
Yes?
Interesting, live like a king on credit then die or live with in your means (low on the hog) and die.
“I’d say we’ve been getting kicked around for so long that we don’t know how bad we have it.”
Apparently much of the problem comes from the influx of outside printing press monies targeted at special asset classes (e.g. housing) by the central planners. Once you push basic needs out of reach of local incomes, everyone becomes dependent on the Wall Street / K Street alliance.
By contrast, my parents’ growing up years resembled your family’s experience. They grew up in areas where local economies were largely self-sufficient and self-sustaining. There wasn’t a lot of money around back in the not-so-Great Recession years of the 1930s, but a lot of money was not needed to raise a family.
Most people are familiar with bubbles and the negatives. But one thing that is usually only mentioned is that areas of the economy that are starved by bubbles. Potentially strong industries or fields may lack resources needed to grow. People become flippers instead of going into something sustainable. It’s impossible to put any numbers to something like this, but year after year of these money printing episodes has probably layered mal-investment on top of mal-investment.
Another thing I was reading about recently (I should have saved it but didn’t). Junk bond issues have gone nuts, and at stupid low rates. These corporations are using a lot of this money to buy back stock, raising the price above where it would otherwise be. These stock buy-backs don’t add anything to productivity or profitability. They do add lots of debt to the balance sheet. Another printing press unintended consequence.
I always think back on the way financial stuff used to be discussed. What bond prices were “telling us”, for instance. It used to be we could detect recessions and expansions this way. Right now, treasuries are telling us there is a lot of risk. Junk bonds and stocks are saying it’s time to party! But who knows, as there is so much funny money sloshing around.
Fundamentals-based explanations of how asset prices behave are pretty much out the window for the time being.
They do add lots of debt to the balance sheet.
There was an editorial in the Phoenix paper today about how Arizona municipalities had added a ridiculous amount of debt to their balance sheets also in the last ten years, nearly doubling it. In the prior ten years it had only grown by 50 percent. Moving away from voter approved debt.
It is a shell game, but eventually the debt comes due.
buying back shares lowers the # of shares in the earnings per share calculation that companies generally report earnings to wall street and shareholders.
earnings/ share = if you lower the number of shares in this calculation and earnings don’t move you still look like your making more money.
Revenues are not growing. Its bush math but its making company insiders rich.
There are articles from the 70’s saying the same thing, municipalities always cry the blues, they want federal help, as soon one hail stone drops they claim a federal disaster area.
All I know is where I live the streets are clean, and being paved, police cars are washed, and the town looks good.
Yes big box retailers are going away but this had to happen, to many of the same stores sell the same thing. For crying out loud folks how many Pharmacies and Starbucks in one plaza tells you to much of everything so it needs to clear out.
This doesn’t mean a bad ecomony, it means getting back to basic living and forget the excess, going to fewer restaurants a good thing, not having a TV in every room a good thing, two cars instead of three a good thing, eating healthier and taking less drugs a good thing, and I could go on and on.
This country is in a reveloution of sorts in the early 21st century, we are seeing a shake out of everything, don’t get scared folks, in the long run getting back to basics is good, the era of three of everything is over, spending a fortune on colleges is changing, living longer in your house and fixing it up is the new way to save.
investors start learning to invest In something else, your days of waiting to steal a house and flip is all but dead. For homeowners , if you must sell then maybe break even or a small loss, you learned your lesson I hope, a house will soon bb back to being a home to enjoy not to turnover to investors?
Pick yourself up off the floor and cheer.
Remember… Falling housing prices to dramatically lower and more affordable levels is postively bullish and good for the economy.
We could do what they do with animals that go to the fair… they’re all slaughtered when the fair is over.
Here we go again, the facts just look at closed property most were listed and then sold at 3 to 8% off listed price. What does that tell you, plenty of folks have money to spend on a house, but when the buyers start with this we want to steal your house at 10 to 50 % off sellers are saying take a walk.
The markert has changed from desperate sellers to desperate buyers who better realize a deal is not going to be getting a house at 08′ prices.
My wife and I visited several open houses on Sat, all but one owner said before I give my house away I will torch it. You see, before it was short sale it, foreclose on it, whatever, for the most part most owners can afford the payments now and they will deal, just not going to give the farm away to carpet baggers?
‘all but one owner said before I give my house away I will torch it. You see, before it was short sale it, foreclose on it, whatever’
You’re getting kind of weird about this.
Not getting weird Ben, we went in a home everything nicely done a very good buy, some guy comes in and knocks everything and tells the agent if they come down 100k we can talk.
The agent said and rightfully so, these people have come down and although I have to present any offer 100k off? not going to happen, investor walk out.
Moral of the story, sellers are also buyers, if they give away their homes now where to they end up, they should just suck it up and stay put.
Why “stay put” when the losses grow the longer they hold onto it?
Doom, I think you are flipping out. How are buyers desperate when everyone is predicting prices to increase at a pace just slightly higher than inflation from here on out? And those are the optimistic ones. Some people are thinking it’s possible for some cities to drop by 25-50% again. And you really heard everyone talking about torching their houses? Do you live in near a prison? Because normal people don’t usually say stuff like that.
Also, if you haven’t figured out why many people must move, then you must have been born within the past two years. Because there were three housing busts that I’m aware of before that in recent history. One in CA, one it TX, and one all over the industrialized world (including the US). I may be missing some that happened in other countries.
There can be no believing that overall, the owners of overpriced houses will stay put until they manage to get a price that is not affordable. If investors are walking, then the house is not getting sold, and the price will not reach what the would-be seller is demanding.
“The markert has changed from desperate sellers to desperate buyers who better realize a deal is not going to be getting a house at 08′ prices.”
The manipulated market has changed from . . .
“My wife and I visited several open houses on Sat, all but one owner said before I give my house away I will torch it.”
They’d be crying for write-downs were it not for mo-credik Mel.
Dow 20,000 can you imagine it, well I guess so, who could have imagine a 1,250sq ft shack houses in San Jose selling for $1.2m or more?
Where is the buyer at that price?
Remember…. I can ask $60k for my 12 year old Chevy pickup but where is the buyer at that price?
it seems the higher asset prices go, the more money is created out of thin air.
Working is for poor people.
It doesn’t seem to be working.
Remember….Housing demand has cratered to 19 year lows… and falling.
it works until there is no incentive to got to work anymore due to inflated prices and easier to get govt free cheese.
But it doesn’t work. Housing demand is at 19 year lows and cratering further.
How do I get all this government “free cheese?” All I see is $159 in food stamps, and it keeps people from stealing your food or going to jail ($50k per yr per prisoner). Why do people like to fill jails, but scream if food stamps rolls go up? Why do GOP’ster want government jobs created, but then want less gov?
Still yammering about that detractive junk eh Fool?
Zilker, TX (Austin Area)Housing Prices Tumble 11% YoY As Sellers Get Desperate
http://www.zillow.com/local-info/TX-Austin/Zilker-home-value/r_271667/#metric=mt%3D18%26dt%3D1%26tp%3D5%26rt%3D8%26r%3D271667%26el%3D0
Double Oak, TX (Dallas) Housing Prices Plunge 14% YoY As Inventory Skyrockets
http://www.zillow.com/local-info/TX-Double-Oak-home-value/r_8674/#metric=mt%3D18%26dt%3D1%26tp%3D5%26rt%3D8%26r%3D8674%26el%3D0
SPH/Denver Housing Prices Crater 19% YoY As Sellers Seek A Buyer
http://www.zillow.com/local-info/CO-Denver/South-Park-Hill-home-value/r_268740/#metric=mt%3D19%26dt%3D1%26tp%3D5%26rt%3D8%26r%3D268740%26el%3D0
California Housing Demand Plunges In 54 Out Of 58 Counties Statewide
http://www.zillow.com/local-info/CA-home-value/r_9/#metric=mt%3D30%26dt%3D1%26tp%3D6%26rt%3D4%26r%3D9%252C3101%252C1286%252C2841%26el%3D0
Why buy when you can rent for half the monthly cost?
Clicking on “Sale Price” instead of “Sold in Last Year (%)” provides a far more interesting picture:
1) Most counties went up year-on-year, though a few areas saw declines.
2) The month-on-month picture is much more interesting, as a far higher percentage of counties saw month-on-month declines; not sure to what extent that reflects a changing market versus greater variation in the month-on-month versus year-on-year comparison.
Bellingham, WA Housing Demand Plunges 10% YoY; Falls To 2-Year Low
http://www.zillow.com/local-info/WA-Bellingham-Metro-home-value/r_394378/#metric=mt%3D30%26dt%3D1%26tp%3D6%26rt%3D6%26r%3D394378%26el%3D0
‘Analysts are looking to China’s May industrial output measure, due on Friday, for some reassurance that the world’s second largest economy is regaining momentum. The consensus forecast is for 8.8 percent growth on the year, up from 8.7 percent. “China, after all, has been the engine of global growth for the past decade, and its recent sputtering has caused jitters among investors. Soothing data from China is just what investors need at the moment,” Neum said.’
‘Investors will also watch China’s urban investment data on Friday. Growth is predicted to slow to 17.1 percent year-on-year in May from 17.3 percent in April. “An increasing headwind is coming from investment in real estate due to accumulated oversupply as well as manufacturing due to efforts to slash overcapacity,” UniCredit wrote in its weekly focus.’
‘The ECB cut rates on Thursday and will pump in money in an effort to steer the bloc away from the economic quicksand of deflation, promising to do more if all this is not enough. After the bank deployed pretty much every measure it had left, bar printing money, the question is if and when quantitative easing becomes a live possibility. There is, however, a high bar for such an action.’
“If we see a sort of vicious circle emerge out of (low) inflation and an unanchoring of expectations and an outward shock that would create a reverse spiral, that would require a broad program of asset purchases,” ECB Vice President Vitor Constancio said on Friday.’
Talk about one huge ponzi scheme over there built on inflating asset prices to the moon.
locally in the sacramento area log exporters are busy gathering logs to ship to china via port of oakland.
Logs of federal land cannot be exported to another country so the logs are gathered from private landowners.
How many more natural resources will be needlessly wasted on construction of surplus never-to-be-occupied Chinese housing units before the Ponzi scheme collapses?
“Economy getting better?”
Ask a member of the vanishing middle class.
Opinion 6/07/2014 @ 12:01PM
Middle Class Jobs Are Disappearing And The Fed Is The Culprit
Two big disappointments in the recent recovery have been the sluggish job growth and the continued underemployment of many people who had solidly middle class jobs before the recession but are now struggling to make ends meet with much lower incomes. Rick Newman recently detailed how routine jobs which used to help populate the middle class are disappearing. Essentially, lots of low-wage jobs are hard to automate and the same is true for most high-skill jobs. Unfortunately, many middle class jobs are “routine” according to the Dallas Federal Reserve Bank and can be automated. Thus, machines replace people and we get a jobless recovery. What is missing from this story is the villain, but I can reveal its identity here.
While many are bemoaning the lack of job growth in the recovery, policy makers need to understand that they are a large part of the cause.
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Unfortunately for the millions of unemployed (both official and those not counted anymore because they have given up), policy makers are actually encouraging employers to reduce employment rather than increase it.
When businesses face a decision about which of two inputs to use, they examine the relative price of the inputs compared to their relative productivity. In today’s economy, employers face constant decisions about whether to employ labor or capital in order to increase their output. Should they hire people or should they automate? Since the decision comes down to relative prices, a policy maker wanting to encourage hiring should be making labor cheaper.
Instead, the Federal Reserve and the Obama administration have moved the relative price ratio in the opposite direction. Obamacare is driving up labor costs by raising the total compensation cost of an employee thanks to the addition of either more expensive health insurance or the penalty on employers for not providing insurance. At the same time, the Federal Reserve has been using every tool it has, plus some it is inventing as it goes, to lower interest rates. Lowering interest rates has the effect of lowering the cost of capital, meaning that buying machines that automate more tasks becomes cheaper than hiring more employees.
Policy makers thought that lower interest rates would boost business lending and help the economy and employment to expand. However, they neglected the simultaneous effect of the low interest rates on the relative price of capital versus labor. It is an empirical question which effect will dominant: will growth increase employment faster than relative prices push employers to automation? After six years of the Federal Reserve’s various low interest rate and easy money policies I would argue that the answer is in and automation is winning.
A measure of total national output, real GDP, went 42 months between the pre-recession peak and when it regained that level, while employment needed 76 months to match its pre-recession mark. Clearly, the production process has shifted, and it’s not in favor of labor.
The important lesson for policy makers is that this shift against labor and in favor of capital is not some inevitable march of technological progress. Yes, technology is good and more capital can make labor more productive which means higher pay. However, those rewards go mostly to those who still have jobs and, more specifically, to those jobs with rising productivity (which is not something that has been rising uniformly across the labor force).
If policy makers want employment to go up, they need macro policies that favor labor, not policies that make labor more expensive and capital cheaper. When the Fed makes it inexpensive to replace people with machines and computers, nobody should not be surprised when employers do exactly that.
EDITORIAL: New Gilded Age bodes badly for middle class
By The Bee Editorial Board
June 7, 2014
The median pay package for a CEO in this country has now climbed past $10 million. What this means, among other things, is that a retired corporate executive can cheerfully drop $2 billion on a National Basketball Association team.
How rich are the super rich?
So rich just in California that Oracle CEO Larry Ellison — one of the billionaires who was outbid for the Los Angeles Clippers by former Microsoft CEO Steve Ballmer — could have bought that team and still had enough cash to buy, oh, a couple of California counties.
So rich that record tycoon David Geffen could have purchased the Clippers and still paid off the student loans of every kid in the UC system.
Of course, it’s another story for the 38 million-plus Californians who aren’t among the 111 billionaires on Forbes’ list occupying the courtside seats of the state’s economy.
For everyone else, this is a state where a median-priced house is now nearly eight times the state’s median income, and where, according to Redfin Research, more than 80% of the homes are unaffordable on a teacher’s salary.
Where the income gap between the top 1% and the middle 20% has doubled in a generation. Where the long-ago promise of a free education for every Californian has given way to soaring student debt and steep hikes in tuition and fees.
Not that basketball isn’t fun, and not that successful executives aren’t to be applauded, but at what point do we do more than gape at our economic disparity?
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Wednesday, Jun 4, 2014 07:48 AM PST
9 reasons the American middle class is dying
One percent of Americans now own more than a third of the country’s wealth. Raising the minimum wage isn’t enough
Peter Van Buren, TomDispatch.com
Last year eight Americans — the four Waltons of Walmart fame, the two Koch brothers, Bill Gates, and Warren Buffett — made more money than 3.6 million American minimum-wage workers combined. The median pay for CEOs at America’s large corporations rose to $10 million per year, while a typical chief executive now makes about 257 times the average worker’s salary, up sharply from 181 times in 2009. Overall, 1% of Americans own more than a third of the country’s wealth.
As the United States slips from its status as the globe’s number one economic power, small numbers of Americans continue to amass staggering amounts of wealth, while simultaneously inequality trends toward historic levels. At what appears to be a critical juncture in our history and the history of inequality in this country, here are nine questions we need to ask about who we are and what will become of us. Let’s start with a French economist who has emerged as an important voice on what’s happening in America today.
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Do you still call yourself middle class?
by Lizzie O’Leary
Friday, June 6, 2014 - 02:31
An ice sculpture reading Middle Class is displayed in Tampa, Florida.
Joe Raedle/Getty Images
I put that question to an online network of people willing to be interviewed on Marketplace. It’s a fascinating question to me, because it gets at both where we are five years after the recession, and to our definition of “middle class” itself. Recent research shows that while the economy as a whole is improving, more and more of us aren’t using the term “middle class” anymore.
One woman, DeeDee in San Diego, wrote that she now considered her family poor. She said her income has been declining since 2002. Here’s what being middle class would look like to DeeDee:
Across the six dozen or so responses I received, most people felt that being in the middle class meant the ability to educate children, provide a home for them, and plan for a comfortable retirement. And many said they’re not sure they can get there.
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More Americans see middle class status slipping
By CHRISTOPHER S. RUGABER
— Apr. 2, 2014 4:09 PM EDT
WASHINGTON (AP) — A sense of belonging to the middle class occupies a cherished place in America. It conjures images of self-sufficient people with stable jobs and pleasant homes working toward prosperity.
Yet nearly five years after the Great Recession ended, more people are coming to the painful realization that they’re no longer part of it.
They are former professionals now stocking shelves at grocery stores, retirees struggling with rising costs and people working part-time jobs but desperate for full-time pay. Such setbacks have emerged in economic statistics for several years. Now they’re affecting how Americans think of themselves.
Since 2008, the number of people who call themselves middle class has fallen by nearly a fifth, according to a survey in January by the Pew Research Center, from 53 percent to 44 percent. Forty percent now identify as either lower-middle or lower class compared with just 25 percent in February 2008.
According to Gallup, the percentage of Americans who say they’re middle or upper-middle class fell 8 points between 2008 and 2012, to 55 percent.
And the most recent General Social Survey, conducted by NORC at the University of Chicago, found that the vast proportion of Americans who call themselves middle or working class, though still high at 88 percent, is the lowest in the survey’s 40-year history. It’s fallen 4 percentage points since the recession began in 2007.
The trend reflects a widening gap between the richest Americans and everyone else, one that’s emerged gradually over decades and accelerated with the Great Recession. The difference between the income earned by the wealthiest 5 percent of Americans and by a median-income household has risen 24 percent in 30 years, according to the Census Bureau.
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