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Post by unlawflcombatnt on Aug 23, 2006 17:41:44 GMT -6
Wednesday's Existing Home Sales report provided further evidence that the housing bubble is deflating. The annualized rate of Existing Home Sales fell from 6.60 million in June to 6.33 million in July. (June's number was also downwardly revised from its original 6.62 million annualized rate down to 6.60 million. This can be seen by comparing June's numbers between the top chart and lower chart below.) This is the lowest level since January 2004. This marks a 4.1% decline for July, or an annualized decline in the rate of - 270,000. The current 6.33 million number is a 270,000 greater decline than market analysts had predicted, who originally predicted an annualized Existing Home Sales rate of 6.60 million rate for July. Since August of 2005, the annualized rate of Existing Home Sales has declined from 7.28 million/year to 6.33 million/year, or 13%. The rate of annual Existing Home Price appreciation has declined from its peak in October 2005 of 16.6%/year down to 0.9%/year in July 2006. Inventories of unsold homes are now at 3.86 million, a record high. (See Yahoo News Story Existing Home Sales ).Since August of 2005, the inventory of unsold homes has increased from 4.7 months' supply to a 7.3 month supply. Below is a modified copy charts taken from Briefing.com since January 2006, showing the decline in existing home sales since August of 2005. The current numbers can be found at Briefing.com Existing Home SalesHome sales are clearly declining at a rapid rate, while the inventory of unsold homes is increasing rapidly. Price appreciation continues to decline, and can be expected to decline into negative territory in the next few months. With so much of our economy depending home the real estate boom, and the jobs and home equity extraction it provided, a major slowdown in the economy appears almost guaranteed.
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Post by liberalcapitalist on Aug 24, 2006 8:16:40 GMT -6
I hope this link works-it discusses the housing bubble and the links to job creation/maintenance that so many depend on.
from the article- "This is the biggest housing slump in the last four or five decades: every housing indictor is in free fall, including now housing prices," Roubini said. The decline in investment in the housing sector will exceed the drop in investment when the Nasdaq collapsed in 2000 and 2001, he said.
link to article and related articles worth reading-
Recession will be nasty and deep, economist says
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Post by lc on Aug 25, 2006 9:06:36 GMT -6
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Post by unlawflcombatnt on Aug 25, 2006 15:04:21 GMT -6
Here's the link to economist Nouriel Roubini's 8/23/06 article on the Housing Bubble collapse: www.rgemonitor.com/blog/roubini/142759/I also have posted a general link to his site in the "links" section. Roubini seems to have an excellent grasp of the big picture on the U.S. economy. And it's not based on the false and illogical optimism usually heard in the press and media.
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Post by unlawflcombatnt on Aug 25, 2006 16:34:05 GMT -6
California home sales declined 25.3% in the 2nd quarter, according to Contacto Magazine. 44,250 homes were sold in California in July. This is 28% less than were sold in July of 2005. The median price paid for a California home in July is 5.3% greater than a year ago, but has declined since last month. Given a CPI increase of 4.3%, the annual increase amounts to only a 1.0% real increase in California home prices since last year.
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Post by lc on Aug 26, 2006 8:52:00 GMT -6
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Post by kennethjkranz on Aug 26, 2006 13:02:39 GMT -6
you hit the nail on the head. what we are in a transitional phase where the US will be less dominant player in the global economy. In this transition I expected there would be less demand for US Treasury debt and MBS's, but demand for these instruments has been strong. In fact we see an inverted yield curve. Do institutional investors see a recession and a move by the Fed to cut and slash? somewhere along the line central banks have to diversify meaning a weaker dollar and higher long term rates.
Now what about this slowdown in housing? housing with respect to GDP was running a little over 6% of GDP. so when it slows by say 20% thats a direct hit to GDP of about 1.5%. Whats out there to replace that growth? the slowing job growth numbers aren't surprising. housing historically has been between 3.5 and 4% of GDP. If it moves back to those numbers thats a hit of 2.5%. thats not a soft landing.
The other thing that is troubling is the lack of wage growth. I live in Michigan which in my opinion is still in the recession. We had a new auto parts supplier move in offering jobs at $10.00 per hour. It made the national news because of the line outside the job fair. The guys who worked for Delphi and the other suppliers were making 20 to 22.00 an hour. Productivity growth is nice when it is driven by output growth and not input reduction.
Its nice to look at the numbers and stats when they come out but I have started to look at another indicator. The number of signs in front yards. On my block about 10% of the neighborhood is for sale. In the next block its about 30%.
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Post by unlawflcombatnt on Aug 26, 2006 14:44:01 GMT -6
Thanks for the link Unlawful. I am actually really impressed that the collapse has been so soft so far. I am too. I think the delay in the collapse can be attributed to several factors. The biggest factor is the ability of consumers to extract spendable wealth from their homes. Even the ability to do this has been extended by the massive propaganda campaign by the real estate industry to deny the existence of a housing bubble, and later to deny there'll be a crash. I suspect National Association of Realtors president, David Lereah, has spent more time propagandizing over the last 6 months than he's done in his entire life prior to this. The media and blogosphere is just flooded with real estate propagandists hoping to deceive the public about the housing bubble. (I've run into many of them myself. And they get very angry when you talk about their bubble bursting.) The imaginary wealth that homeowners perceive has lead to a continued spending spree based on "wealth effect." This delusion of wealth creation has been exacerbated by propagandists such as Alan Greedspan, who touts the "increased" wealth creation under Bush. In fact, a great portion of this pseudo-wealth creation has come from home price appreciation. And this pseudo-wealth creation is based on the market price of the 3.5 to 4.5 million homes that are currently on the market. If all 125-135 million American homes were on the market at the same time, their average resale value would be a fraction of what the current number is. As such, assigning the average market value of the current homes on the market to all American homes in existence is absurd. That's simply artificial, completely imaginary wealth. Again, however, consumers have been able to spend much of this imaginary wealth, increasing consumer spending while real wages decline. In my opinion, this is where the biggest contribution to inflation is coming from. Consumers are artificially increasing demand for goods by purchasing them with spendable money derived from imaginary wealth. As you've stated previously, the true reserve requirement of banks is minuscule. They create money through loans, and the demand for loans is only limited by the "creative" ability of banks. They've nearly eliminated any previous loan requirements for borrowers. The result is an astronomical increase in the number of loans. Now almost anyone can borrow money and spend money they don't have. All borrowers need is a pulse. Banks have transferred most of the risk for such loans to 3rd parties, such as via mortgage-backed securities. If the loans are defaulted on, the 3rd party assumes most of the risk. Since there are few good investment opportunities at present, mortgage-backed securities become a more attractive investment option. Higher portions of employee pension plans are also being invested in these securities, often without the knowledge of their inherent risk. With Bush's reverse Robin Hood tax cuts, increased disposable income of the most affluent, and record Corporate profits, there is plenty of money available for 3rd party purchase of these securities. Also, there is, at least, an assumed backing of the banks and these securities by the Federal government. (When large banks and financial institutions have failed in the past, the Federal government has usually bailed them out, regardless of whether there was any legal obligation to do so.) So I think that the collapse has been greatly delayed by the artificial wealth creation of the housing bubble, and the spendable wealth it has made available. In addition to that, investors have been deceived by the propagandists hired by the major median networks to "talk up" the economy. Larry "I-lost-my-straitjacket" Kudlow is the 1st who comes to mind, whose favorite phrase is "The economy, the greatest story never told." Arthur Laffer is another one who just pulls facts out of thin air, and then builds a theory around them. In general, Corporate-paid economists are paid to take any positive information and spin it into an optimistic story about the economy. More importantly, they're paid to tell us that certain negative information is actually positive-- such as how a slowing in home appreciation is a "good" thing for the economy, or how a slowdown in the growth rate is a "good" thing. (For some reason, unemployed American workers, and those whose wages real wages have declined, have a lot of trouble with the latter.) Another very temporary delay has been the last month's increase in consumer credit. More people are increasing their non-home equity credit load. At least some of this has been accomplished by credit card companies simply raising credit card limits. Again, this is a very temporary delay. August's Consumer Credit increase of $10.3 billion was $6.6 billion more than the $3.7 billion anticipated by the market. July's Consumer Credit increase was revised upward an additional $1.5 billion, from the original $4.4 billion to $5.9 billion. This is an $8.1 billion increase over original estimates for the last 2 months. Unless credit card companies are going to continue increasing limits on credit cards, this is not even sustainable over the short-run. In summary, I think the collapse has been delayed by mis-perceptions of our economy perpetuated by media propagandists, and the banking industry's ability to help consumers convert imaginary wealth into actual spending power. I'm sure the derivatives market has helped as well. But I'll leave that explanation to you, LC.
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Post by lc on Aug 27, 2006 9:55:08 GMT -6
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Post by unlawflcombatnt on Aug 27, 2006 15:11:49 GMT -6
I agree that there is a global currency devaluation. That's what I'd conclude from the 140% rise in gold price since early 2001, and an equivalent rise in silver, platinum, and palladium prices. Needless to say, the increase in price of oil has been even greater. However, the price increases in homes have outstripped the income increases necessary to sustain those increases many times over. Regardless of whether inflation comes into play, home price increases cannot continue to exceed wage increases of buyers. The difference between the increases in wages and home price increases are huge. Average nominal wages have increased only 17% since January of 2001, as per the Bureau of Labor Statistics. A copy of hourly nominal wage changes can be seen in the chart below. The above chart can be found at the Bureau of Labor Statistics. In contrast to the 17% increase in nominal wages, home prices have increased over 100% in many areas, in some areas nearly 200%. Not only was the previous rate of price appreciation not sustainable, the current prices themselves are not sustainable. Adding to this, over-appreciation of home prices started in the 1990s, when home prices first started rising faster than the income necessary to purchase them. Thus, comparing actual wage increases with actual home price increases, there is a complete disconnect. It may well be that real wages, using a more accurate measure of true inflation, declined far more than the real wage estimates of the Bureau of Labor Statistics. But nonetheless, home prices increases have far outstripped income to purchase them, by any measure used. This is the underlying reason why home prices will fall, and fall a lot. Prices have been bid up by the increasing ability of consumers to borrow and spend beyond their means. Lax loan requirements have allowed them to buy homes that necessitate devoting over 50% of their income to mortgage payments. Creative loans have allowed many to forestall making even full interest payments each month, as well as putting 0 money down. This artificial increase in demand has caused home prices to skyrocket, allowing buyers to devote even more money (that they don't have) into bidding up home prices. Again, all of this easy credit has allowed prices to far exceed the basic fundamental of price changes paralleling income & employment changes. This will not be a "soft" landing or a minor "correction." It'll be like a fall off the top of Mount Everest. In the long run, home prices have always returned to levels consistent with income and employment increases. Prices have a long, long way to drop before they return to these historic levels.
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Post by lc on Aug 28, 2006 7:23:47 GMT -6
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Post by unlawflcombatnt on Aug 28, 2006 12:40:49 GMT -6
In the long run, home prices have always returned to levels consistent with income and employment increases. Prices have a long, long way to drop before they return to these historic levels.
I am not certain that this will occur every time. More important than whether home price increases keep pace with income increases are the comparative values of home price to annual salary and what % of annual salary is spent on the purchase of homes (or housing costs generally). If the median income is $34,000/year and the median home price is $240,000 I am not at all sure that the world will not adjust to that new relationship even if it does mark a departure from historical norms.... Owning a home may become something that simply consumes a larger % of most peoples lifetime income. LC, As usual, you've made excellent points here. Will the fraction of income devoted to home payments remain the same, or will it increase? That's a very good question. However, my belief is that even if it this fraction stabilizes at a higher level than it's been historically, it will not remain at current levels. Clearly the fraction of income devoted to housing costs cannot rise indefinitely. When I was younger an acceptable fraction of income that could be devoted to housing/rent was 20%. Most recently it has been upgraded to 30%. However, many buyers in the most "bubble-ish" areas are paying a higher fraction than that. I don't believe this trend will continue. Many buyers are paying higher fractions of their incomes with the mistaken assumption that their home values will continue rising, or that their income will eventually rise enough to reduce the fraction of income devoted to payments. With the exception of those in the top 1% income bracket, neither of these assumptions are reasonable. Average real wages have declined for 3 straight years. Excluding the top 1%, median family income has decreased even more over the last 5 years. There is no indication these trends will change. The total money available to spend for housing payments is shrinking for most Americans. The only way to perpetuate rising prices, or even maintain current levels, is to reduce spending in all other areas. With prices rising on most items (and far more than the government's concocted 4.3% CPI), this will be very difficult. Buyers will simply have to cut back on the amount spent on homes.[/quote] I couldn't agree more. "Global wage parity" does not mean 3rd world wages will rise to U.S. levels. What it does mean, however, is that U.S. wages will decline to 3rd world levels. Clearly this will reduce the ability of workers to buy homes, as well as bid the price of homes up, as has happened in the past. "Global wage parity" will be a complete disaster for American workers and the American middle class. And, in the long run, it will be a disaster for American producers. Who'll buy their goods if American consumers cannot? With 80% of current production being sold to Americans, who'll pick up the slack when Americans can no longer afford to buy American goods? How will Corporate America maintain its profits, when American consumer spending power declines to that of a 3rd world country?
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Post by graybeard on Aug 28, 2006 20:54:05 GMT -6
CNN's "Lou Dobbs Tonight" tonight showed that home morgage defaults are up 60% in Chicago area in the 2nd quarter, vs. the first quarter, up 42% in Michigan, and up 34%, IIRC, in Calif.
I wonder how many of these were bogus loans made to just about anybody, including illegal aliens? We Middle Class taxpayers get left holding the bag. Who's gonna' pay the taxes when we get forced into the lower class? GB
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Post by unlawflcombatnt on Aug 28, 2006 21:15:40 GMT -6
CNN's "Lou Dobbs Tonight" tonight showed that home morgage defaults are up 60% in Chicago area in the 2nd quarter, vs. the first quarter, up 42% in Michigan, and up 34%, IIRC, in Calif. I wonder how many of these were bogus loans made to just about anybody, including illegal aliens? We Middle Class taxpayers get left holding the bag. Who's gonna' pay the taxes when we get forced into the lower class? GB Graybeard, I heard the same broadcast on Lou Dobbs. Actually, I thought they'd put the foreclosure rate even higher in California. I have the same questions you have -- how many of those home loans were to just anyone with a pulse, as well as how many were to illegal aliens? Slowly the truth about the housing bubble is starting to come out. It'll be a lot worse than just a "correction." "Calamity" seems more appropriate. Prices are now officially declining in most areas of the country, especially Southern California. One example of the upcoming calamity is home construction employment in San Diego. According to one source, they had been creating 12-14,000 jobs per month. In July, construction jobs actually declined in San Diego. I think this is just the beginning. I've noticed that the Kudlow and Laffer mythology team are running out fantasies to prop up the confidence of their viewers. They're finding out that an economy can't survive on hot air alone.
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Post by graybeard on Aug 29, 2006 7:48:24 GMT -6
There's an upside to the downside: Construction jobs are held largely by illegal aliens. It's far larger than agricuilture. We'll see, "If there are no jobs, they won't come." That won't slow the criminals and terrorists, however.
I'm ready to hire out some drywall work in my house. I've heard there's nobody but illegals doing this work in SoCalif, so I have real misgivings. GB
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Post by lc on Aug 29, 2006 9:23:24 GMT -6
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Post by lc on Aug 29, 2006 9:30:31 GMT -6
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Post by unlawflcombatnt on Aug 29, 2006 13:26:35 GMT -6
www.washingtonpost.com/wp-dyn/content/article/2006/08/25/AR2006082501197.htmlUnlawful a freind sent this just minutes after I responded to your post yesterday. Today, the county's median family would have to spend 54 percent of its income to afford the county's median home; in 2000, the figure was 26 percent......One-third of Americans now spend at least
30 percent of their income on housing...Eventually, politicians may rediscover housing -- not as an urban poverty issue, but as a middle-class quality-of-life issue, like gas prices or health care. Homeownership is often described as the American dream, but these days many workers would settle for a decent rental that won't bankrupt their families.The American dream is changing LC, Thanks for the post and the link. I have far too much to say about this article to address it right now. I strongly disagree with the author's implied theme that we need to offer even more subsidies to potential home buyers. Nothing could be more counterproductive. It does nothing but raise prices, increase speculation, and worsen the problem for those not qualifying for subsidies. Increases in Federal assistance for homeowners has the almost direct effect of increasing prices. The real solution is to reduce the direct and indirect subsidies to home speculators, such as eliminating the combined annual $36 billion in capital gains exemptions on home sales. We should also reduce the limit on mortgage interest deductions, which currently cost American taxpayers $76 billion/year in lost revenue. All federal subsidization that drives home prices upwards needs to be reduced or eliminated. In my mind, the only justifiable subsidization is low income rental assistance. Such assistance would be less costly and more efficient if it came in the form of government-owned and controlled low-rent apartments, not government handouts to renters in privately-owned dwellings. Again, such subsidies simply raise rental rates, and serve as an indirect handout to apartment owners. In a general sense, anything the government subsidizes should have some form of price controls. Government subsidies destroy the free-market demand effects on price. As such, there's no reason for beneficiaries of government subsidies (i.e., apartment owners and home sellers in this case) to profiteer by an artificially increased demand -- one that is created by taxpayer-funded handouts. One of the biggest reasons home prices have gotten out of control is the multifaceted, often obscure, subsidization of the real estate industry. Exempting capital gains from real estate sales is absolutely insane. That's a nearly direct subsidy to the real estate industry and home speculators. Pumping more government money into housing subsidies looks like "trickle-up" economics at first glance. But in reality, it's more an example of "siphon-up" economics. The rich get richer. And the poor get even poorer. No one is better off except the home sellers and the apartment owners. This all just further redistributes wealth upward.
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Post by unlawflcombatnt on Aug 29, 2006 17:13:31 GMT -6
There's an upside to the downside: Construction jobs are held largely by illegal aliens. It's far larger than agricuilture. We'll see, "If there are no jobs, they won't come." That would be an upside to the housing crash. Speaking of illegal immigration, did you hear about the Maywood protest? Illegal immigrants apparently attacked several of the anti-illegal immigrant protestors, as well as taking down the American flag and raising the Mexican flag at the Maywood post office. I found this at Democratic Underground. I'll try to post a link to this later. It includes links to actual U-tube videos of the event. This is the link to the post at DemocraticUnderground
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Post by graybeard on Aug 29, 2006 21:34:15 GMT -6
Again, this was covered on CNN's "Lou Dobbs Tonight" last night. Caught it on tivo. Thanks for the link, anyhow.
The banner is interesting: "We are Indigenous, the ONLY owners of this continent." What hypocrisy! Something like 80% of Mexicans are Mestizo - a mix of native American and European. Mexicans and Guatemalans are just as prejudiced against their Native American peoples as any other group prejudice anywhere. They make fun of the square-headed Mayans, etc. GB
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