patrick.net

ZippyDDoodah says

Bubbles never deflate in a straight line. The current bounce in home prices in some markets is almost entirely the result of artificial lowering of interest rates coupled with govt spending through tax credits and loose credit money with HUD. E-man makes an interesting prediction, but I’ll take the other side.. home prices will drop 10% average nationwide in 2010 as compared to 2009 even with massive govt deficit spending to prop it up. The S&P will hit a euphoric 1350 on the “hope” that things are turning around before sliding below 800

I predict the same...

Elevator go UP
Elevator go DOWN
Elevator go UP
Elevator go DOWN
Elevator go UP
Elevator go DOWN

The bubble will be up and down for the next 5 seasons of football then it will stabilize just in time for me to buy...or it could go up, up, up and I will continue renting in the same areas for 1/3 the cost.

ROTF

inflection point says

Camping.
The point is that there is a practical limit to how far anyone can extend a ponzy scheme. The ponzies are you and me. A ponzy scheme assumes there are willing victims. If printing money was a good solution don’t you think Zimbabwe would be a world power?
My predictions for 2010:
1. More bailouts
2. More foreclosures.
3. Increased interest rates.
4. Increased taxes.
For Christmas I would like to see Bernanke, Geithner, Obama, and Congress resign.

What, you want more Bush in your life?...If I remember it was his continuance of Bush Sr., Clinton policies that brought us to this point. Lets judge Obama in 4 years when the facts are in.

SMH

4X,

I do not have any respect for either Bush or Clinton.

Obama has owned this since January. No one said he would have it easy or he did not start off with a handicap. His honeymoon is over.

There are already many facts in. Perhaps you could see them if there was a little more transparency in Government. I am sure that is coming any day now.

Home prices on 2010 will depend on the Government's ability to keep the public call and prevent mass walk-aways.

If people think there's a chance we're near bottom, they may accept a mod and try and stick it out. If they start feeling like everyone else is bailing, then they will too.
Then, the downward spiral begins again.

http://immoralhazard.housingstorm.com/2009/12/29/will-we-keep-our-faith-in-2010/

One word, "Crash!"

wish i was lucky says

Do you really think Social Security will last much longer? They aren’t paying a cost of living increase this year - even though food and medical costs are going up.

LOL, people who've been paying into SS have over-paid by over two trillion dollars, including accrued interest. If the General Fund defaults on that debt it will be the greatest theft in history, since the people (and their heirs) who benefited from the tax cuts vs.the FICA payers who funded those cuts are largely disjoint sets.

maybe then people will realize that they really cannot afford to pay more than $1000 for rent or mortgage. Then what will that do to the housing market?

This is my thesis, yes. Real estate is not a good like new TVs and cars. It has a VERY low production cost, in economic terms the amount we pay for housing is dominated by economic rent, ie pure surplus. A house once built also continuously provides its utility for decades, unlike TVs and cars.

IMO you don't understand economics if you don't internalize this very simple fact. Housing is not a secondary part of the economy, it is the dominant expense in most of our lives. We can bid it up to fantastic heights, and it can crash spectacularly, but it can never be truly affordable, since demand for usable land always exceeds the supply.

Troy says

This is my thesis, yes. Real estate is not a good like new TVs and cars. It has a VERY low production cost, in economic terms the amount we pay for housing is dominated by economic rent, ie pure surplus. A house once built also continuously provides its utility for decades, unlike TVs and cars.

I'm not sure I understand your thesis. When you say real estate, do you just mean land? Or do you mean shelter? Because I would argue that someone's house is a good, and it doesn't have a very low production cost. Try getting a house built and tell me how low the production cost is...

Ultimately, house prices, like the price of any good, is driven by supply and demand. The cost to make it is really irrelevant. Price and cost of any good theoretically should have no correlation.

And the last decade notwithstanding, house prices have pretty much followed inflation. That is, they haven't risen in real dollars so I'm not sure why they would drop dramatically. Once this bubble has popped, of course.

tatupu70 says

When you say real estate, do you just mean land? Or do you mean shelter?

Both. What secures the mortgage we get. During the boom, while the physical shelter component increased in size, quality, and labor costs, the main price increases came from extrinsic valuation, since the replacement cost of the improvements sure as hell didn't double or triple, 2000-2008.

Try getting a house built and tell me how low the production cost is…

Construction has a very long service life, 50 to 100 years on much of it. A $250K construction should depreciate at $400/mo or so IMO.

And the last decade notwithstanding, house prices have pretty much followed inflation. That is, they haven’t risen in real dollars so I’m not sure why they would drop dramatically.

In the past, general inflation has come with wage inflation, ie a wage-price spiral. Thanks to NAFTA, a new middle class in India willing to work @ 10c on the dollar, a working class in China willing to work at 4c on the dollar, even with a deflating dollar I think we may see wages NOT rise to keep up with overall inflation.

This is a core problem of a service economy untethered to fundamental wealth production.

The primary sector of resource extraction generally has low economic rents and is thus enjoys pricing power to that extent. If they can't raise prices to cover production cost, they will just leave the land fallow and the pithead closed. Sucks for them on the micro scale, but the sector overall will reduce supply and prices will adjust upwards for those able to survive the adjustment.

Manufacturing has been largely offshored except for the aerospace and military niche. Labor in this sector does have some pricing power, due to unions and the national security aspect both limiting offshoring and H1Bs from entry.

So I think it's possible that as OPEC extorts higher prices from us, the healthcare sector continues its similar rack rent extortion, taxes are re-set back to 1990s levels at least, unless the consumer can get a raise from the boss, something's gotta give. And that something is land value and the rents that drive it.

Also, what wish i was lucky said ^. Land value is a very funny thing that I didn't grok to really late in life. It is like a treadmill, the further we get ahead with productivity and wealth-creation, the more we bid up land values, resulting in nobody getting ahead, unless they're lucky in the real estate speculation game (and millions of people are given the positive trend of the latter half of the 20th century).

What a funny way to run an economy.

Troy will be bitching about the Obama administration before the year is out.

He's like the only one of 5 people in America that still clicks the yes button on the CNN Obama popularity poll.

^ LOL. I really fail to see what the best (edit: least crappy) course of action is going forward.

My favorite analogy is the Thunderbird crash at Mountain Home AFB in 2003.

http://www.youtube.com/watch?v=LuzVl5Z4xdU

When the pilot went inverted at 0:19 the situation was dangerous but retrievable, say like 2004 was.

But at 0:22 the pilot committed his aircraft into a maneuver he didn't have the energy budget to complete in the little airspace he had. Once his velocity vector was sufficiently off the horizon, there was nothing that he could do but pick along which axis to crash his aircraft.

After 2004 Americans owed $8.2T on their homes. At Peak Debt, 1H08, this was up to $11.1T.

Three trillion dollars of borrowed money in three years, largely spent on consumption and not capital formation.

Three trillion dollars of bad bank assets held in RE loans. A couple of years ago on CR I was saying 10% losses were guaranteed, 20% likely, and 30% losses entirely possible. I was optimistic.

Someone set us up the bomb in 2004-2006. If I were on Obama's team I'd look at Jobs, Jobs, Jobs. And higher taxes on the wealthy, phased in over 10 years, to pay for it all.

Basic Socialism 101.

No if I was Obama(and I'm not thank God) first thing I would have done was end every bad Bush policy he promised he would. Which he hasn't even stopped one frigging disastrous thing Bush did. He's a perfect course of Bush's policy.

It wouldn't have been hard to tell Wall Street to get a Job.
It would have been very easy to Veto the military Pork.
It would have been very easy to "Draft" his own medical plan(since he proposed the idea and all.)

This is just taxing the Democrats out of office for at least 40 years.

America will take 10 Bush's moving forward, and that's the sick part.

Everyone should be screaming for a third party(No not some Zombie made up rehash of the Republican or Democrat party) but refresh America's core fundamental ideas.

A party that recognizes the minimal social services we need in a society with out the poor turning Helter Skelter on the rest of us. And some of Conservative views that knows what it takes to foster a healthy economy. Somewhere in the middle of the two Zombie parties we have now.

I agree with Tenouncetrout. Obama is just not reversing any of the harms Bush caused or ignored. We're still sold out to Wall Street, maybe even more so now. We're still in Iraq. The very rich still pay only 15% income tax while the middle class pays 28%. Lobbyists still protect unreasonable medical (especially insurance and drug) profits and force us to choose between bankruptcy and death. We still don't have the campaign finance reform needed to defeat lobbyists.

As president, he could talk to the country in very simple terms and get them to FORCE their Congressmen to do the right things by naming names on national TV.

But he won't, and that's why we need the Bull Moose party back, with a basic platform of getting corporations out of government.

Tenouncetrout says

It would have been very easy to Veto the military Pork.

Yeay, more unemployment. I was on the ground in Southern California 1990-92, and it wasn't pretty. All Clinton managed to do was hold growth under GDP. If I were King I'd shoot for a $150B/yr defense budget, but to get there from here is pretty non-trivial.

It would have been very easy to “Draft” his own medical plan(since he proposed the idea and all.)

Congress makes the law. The Executive administrates it.

A party that recognizes the minimal social services we need in a society

30% of the country has no discretionary income after the rent and food. 10% of the country owns two-thirds or more of the wealth. Two-thirds of the country believes mankind magically appeared on the planet as described in the Jewish creation myths.

And some of Conservative views that knows what it takes to foster a healthy economy

What would that be? It's been all downhill on that front since Henry Ford and Henry Kaiser -- they would be considered socialists today by the teabaggers.

AFAICT as long as we think high land values and home prices are a good thing we will continue to be fucked as a nation.

Clinton was rotten at military stuff. He just didn't need a Military, he didn't piss people and their countries off.

But he didn't LIE to them either.

2010 WHAT I WANT: Bay Area home prices will revert to 1997 prices + inflation
2010 WHAT WILL HAPPEN: Same thing as always. A shit load of people in the Bay Area will continue to receive multi-million dollar inheritances and keep prices ridiculously high... everyone except me.

inflection point says

4X,
I do not have any respect for either Bush or Clinton.
Obama has owned this since January. No one said he would have it easy or he did not start off with a handicap. His honeymoon is over.
There are already many facts in. Perhaps you could see them if there was a little more transparency in Government. I am sure that is coming any day now.

I understand, some of the decisions that have been made I dont agree with but I also see a certain level of pragmatism that is necessary when making decisions. Obama has to counter the negative attacks made by Republicans and choose the right paths else he will open the flood gates for negative attacks. Even if Obama chose the Republican views for healthcare, economy and war he will still get attacked.

Healthcare - If he did nothing to push reform, Republicans would attack that he did not fulfill his campaign promise

Economy - If he did not push tax credits, cash for clunkers, bailouts, etc., Republicans would attack that he sat on his hands.

War - He sent more troops, which is exactly the same thing Republicans have been preaching about not standing down....yet Republicans attack him for spending more.

There is no winning for President Obama, Republicans are going to attack everything in attempt to sway public opinion.

Tenouncetrout says

Troy will be bitching about the Obama administration before the year is out.
He’s like the only one of 5 people in America that still clicks the yes button on the CNN Obama popularity poll.

The Republican attack machine is swaying public opinion, even convinced many of you that Healthcare reform is a bad thing making it difficult to cut profits of the doctors, insurance companies that are gouging. I see you are joining the sheeple Trout, you might want to try thinking about the benefits of these bills before allowing the Republican attack machine to influence your stances.

"The Republican attack machine"

Where do they keep it, next to their "Republican Love Machine"

You guys invent the craziest shit, when you can't explain your parties crappy policies.

At LEAST republicans that loved Bush and his practices, just keep focused on the man, when you talked about him. They didn't venture off and give the Democrats credit for his failings.
My brother would defend Bush as long as the day light. Never blames the democrats, just admits those things we hated, is what he likes about him. He's a career military though, where did you get your Koolaid?

At the risk of being stoned as a false prophet, I predict housing, with the exception of various but very limited pocket markets, will continue to be stagnant, in spite of the predictable hype that prices and sales are "increasing." The banks are withholding literally millions of foreclosed properties from the market in an attempt to keep the supply somewhat manageable. Unemployment will continue to worsen which will further diminish the confidence of a high percentage of otherwise potential home buyers. Also, buyers of foreclosed properties have decreased which will further increase the glut of the unsold foreclosed units. The next huge financial shoe to drop will be commercial foreclosures which will further erode confidence. 2010 will be a very pivotal year. The Federal Government has already played most of the cards they have in the deck and it hasn't worked. Borrowing huge amounts from foreign lenders, printing enormous sums of fiat money without obtaining results spells a lot of trouble if things don't turn around dramatically in the very near future.

He’s a career military though, where did you get your Koolaid?

It's pretty simple. There's only two choices right now, seeing my country actively destroyed by the far-right or somewhat mismanaged by the center-right.

Can you honestly attempt to say the 1990s and the 2000s were equally bad??? Granted, a lot of the bad stuff of the 2000s got rolling in the late 90s (trade deficit with China, expansion of the money supply).

It's a scam, but I don't blame the parties, I blame the American people, nearly half of whom now think Palin might make a good president.

Social Conservatives form a pretty impressive voting bloc; they may only be 30% of the vote, but they swing 80-90% Republican. That's a pretty strong core to build a coalition on, as demonstrated by the Bushies in 2000 and 2004.

I'm not a Democrat because I love their policy, I'm a Democrat because Republicans are fucking idiots. I hope we can at least agree on that.

again your making my case, but you fail to realize that Obamamonium is just a continuation, he hasn't exhibited one single thing that would suggest to me. That we will have any positive growth moving forward. I don't care who started it, he's been at this for a year. And until someone actually addresses all of the leaks that is killing free trade and market forces turing around and creating a healthy economy, it will be a year or so from that point. He's been in office since Janurary. We should be at a turning point, where the horizon is literally months away. But it's still years.

Obama is really putting that... that thing... that stuff... umm umm, he does to use...

What did he say his qualifications were when he was running, again?

Tenouncetrout says

all of the leaks that is killing free trade and market forces turing around and creating a healthy economy

could you expound on this in some detail? I'm not entirely sure what "market forces" we need right now. Their work 2003-2008 -- in Wall Street finance, mortgage lending, oil trading, health care -- kinda reminds me what Katrina did to NOLA. "Free trade" sounds great but we have a rather serious trade deficit with China and OPEC and I think this is impoverishing us on the macro scale, not to mention the major move of offshoring and H1Bing all sorts of tech-y jobs to lower-wage Indians this decade. Moving to a Walmart-centered service retail economy isn't going to really work in the long run.

AFAICT we can't have a "healthy economy" with one-third of us with no discretionary income, 10% owning the majority of the wealth while one in four children living in relative poverty, and 750,000 people cycling through prison every year, and $700 billion being borrowed to police the middle east, defend Poland and Ukraine from Russia, and Taiwan from China.

Tenouncetrout says

What did he say his qualifications were when he was running, again?

No (R) on the ballot after his name is good enough for me. After 8 years of active neo-conservative and corporatocratic "creative destruction" it's going to take a lot of time just to figure out what the hell to do going forward. "I don't have any solution but I certainly admire the problem."

blind hate makes you part of the problem, and not part of the solution. Your automatic skipping of any "R" is not only sophmoric, but it shows a lack of individual thought. Shame.

An article I read said, "Now comes the hard part: Removing the tubes without killing the patient."
I guess the economy is the patient, the liquidity they've been putting into economy is tube, and those guys in washington are the doctors.

The funny thing about doctors is, most of them are not the patient, they never been, but they still say they understand the pain and know how to treat it.

And what we got there in washington are not even real doctors, most likely are spin doctors. No wonder if they've been putting wrong painkiller in wrong tube into wrong hole.

We will see what's gonna happen when the effect of painkiller is thinning out.

Wow it is interesting to see the politics injected into a blog about real estate.

To everyone reading this:

Bap33 says

Your automatic skipping of any “R” is not only sophmoric, but it shows a lack of individual thought. Shame.

I'm talking at the national level. Mr "Bomb Bomb Bomb Iran" was just echoing the dangerous neo-con FP adventurism that has cost this nation over a trillion dollars this past decade, and his employment of Gramm "The economy's fine -- you're all just a bunch of whiners" as economics advisor betrayed McCain's alignment with the economic policy of the conservative Republican establishment, the same policy that is also going to cost us around a trillion or so in misinvestment. Then we get to Supreme Court picks; I don't want to see any more Roberts and Alitos on the bench, TYVM.

I actually voted for Tom Cambell for Senate in 2000 and don't regret that vote since that bitch Feinstein isn't just a moderate Republican. I'd rather have a liberal Republican rather than a fake Democrat, but as long as the current Republican party is just a coalition of religious whackjobs, militarists, and right-libertarians, I'm forced to take my vote elsewhere.

camping says

Why are you quoting a 2008 speech? We’re about to enter 2010. Things have changed quite a bit since that speech. Everything he has been saying recently is that the Fed has to fight deflation - hence interest rates at 0-.25%. With such rates he’s trying to create inflation - it’s obvious.

And failing miserably. Jawboning is one weapon in the arsenal. Colorado just lowered minimum wage in recognition of the FACT of deflation.

http://abcnews.go.com/Business/wireStory?id=9456010&source=patrick.net

The problem is that the majority of Republicans and Democrats no longer represent the people that put them in office. Everyone is out for themselves. Lobbyists and special interests buy their votes. Its going to take something significant to break that chain.

Both parties have cornered the market in greed and stupidity. We just get left paying the bill.

Tenouncetrout says

“The Republican attack machine”
Where do they keep it, next to their “Republican Love Machine”
You guys invent the craziest shit, when you can’t explain your parties crappy policies.
At LEAST republicans that loved Bush and his practices, just keep focused on the man, when you talked about him. They didn’t venture off and give the Democrats credit for his failings.
My brother would defend Bush as long as the day light. Never blames the democrats, just admits those things we hated, is what he likes about him. He’s a career military though, where did you get your Koolaid?

Name one public policy sponsored by Republicans over the past 50 years that has been aimed at improving our lives?

Troy says

Tenouncetrout says

What did he say his qualifications were when he was running, again?

No (R) on the ballot after his name is good enough for me. After 8 years of active neo-conservative and corporatocratic “creative destruction” it’s going to take a lot of time just to figure out what the hell to do going forward. “I don’t have any solution but I certainly admire the problem.”

You failed to mention that arch-conservatives liked him simply because he was willing to invade Iraq, Afghanistan.

4X says

Name one public policy sponsored by Republicans over the past 50 years that has been aimed at improving our lives?

The clean air and clean water acts. Although that's getting pretty close to your 50 year window and way before what could be called (in polite company at least) the modern Republican party.

The sponsor of the Clean Air Act was Ed Muskie, a Democrat from Maine. It did pass Congress with 100% support from both parties.

On occassion, Republicans will vote for social changes but does that make them pro-citizen?......I am starting to feel that Republicans truly have no concern for social welfare and only want to focus on business intiatives.

Your thoughts?

4X says

Republicans truly have no concern for social welfare and only want to focus on business intiatives

you say this like it's a bad thing. To the conservative, business creates the wealth and owns the table and all the money on it. Labor is entitled to what it can negotiate from Capital, and not a drop more.

I am somewhat sympathetic to this, as it is generally aligned to how the world works. I see a role for government to break and redistribute the economic power of the few to the benefit of the masses, but as the Soviets demonstrated one cannot liquidate the capitalists wholesale and expect to run an efficient ship. The Russians repeated and indeed compounded the error in the 90s by giving away all the previously collectivized natural wealth to private entities, impoverishing the masses to the great benefit of essentially mob bosses and the connected.

Name one public policy sponsored by Republicans over the past 50 years that has been aimed at improving our lives?

Well, Nixon did end our Biowar programs in '69, including testing on US citizens and the dissemination of BW agents over the states of California, Texas and Florida.

Love him or hate him, this qualifies as an improvement.

wish i was lucky says

We aren’t used to the poverty that they have in other countries - so when the hard times really hit there’s going to be one huge pissed off mass of people.

We can live for decades on all the crap we've bought since 1995. Seriously. 1998 wasn't so bad, and anyone can buy a 1998 car, a 1998 TV, a playstation, etc. for pennies now.

All that remains is food, energy, housing, health care. Food can be subsidized (hello gov't cheese), energy too, that just leaves housing, there are like 20 million vacant properties right now, most with minimal costs involved in bringing them back into use. Obamacare for all.

E-man says

If we want to control our government and have them work for us, we have to split up our votes

? I'm a leftist -- I'm what everyone who calls Obama a socialist is thinking of.

I fail to see how voting for theocrats is going to result in more liberalism, other than through some aikido-like realization of the inherent contradictions of capitalism that the Republicans have a demonstrated talent for creating. Hoover 1929, Eisenhower in 1958, Nixon during the oil shock, Ford with Whip-Inflation-Now, Reagan with the S&L Crisis, Bush with the 1991 recession (my first as an adult), another Bush with the 2001 recession (we can agree that this is Clinton's doing insofar as recessions can be blamed on Presidents) and the follow-on Mother of All Bubbles 2002-2007.

Perhaps McCain winning last year would have worked out for the best. Funny thing is, I'm old enough now that it doesn't really matters who presides over the decline, my children aren't going to have English as a first language anyway.