patrick.net

Newbie123 says

At some point we will see another recession. In a job-loss recession housing prices will start to come down.

https://fred.stlouisfed.org/graph/?g=eUvz
blue is total jobs, dotted green is full employment (showing we're still ~5M short of the 1999 full employment)

Red is annual YOY % rise in consumer debt (right axis) and in my book were the drivers of the 1990 and 2000 recessions, and of course the 2007-2009 Great Recession.
Falling consumer debt take-on also preceded the 1960-1980s recession, too.

Thing is, 2010-2012 cleared a lot of balance sheets, and aside from the $1T in student loans they're saddled with Gen Y is going to start borrowing a lot of money this decade and next. The Fed adding trillions 2009-2013 didn't hurt, either.

And their parents are going to start consuming a lot of health dollars, and spending their retirement income, and also leaving trillions to said Gen Y as they start dying en-masse next decade (~4M/yr boomers entered this world 1946-1964 so ~4M boomers/yr are going to leave by 2036)

Recessions are not exogenous events, there have endogenous causes -- the seeds of destruction are within the larger economy as it grows.

Newbie123 says

Unless the market comes down by 30%+ I wont buy

errc says

Patrick.net has come full circle.

We came here in wait for the housing bubble to burst. Now we're rehashing old hat.

So what is the bubble, waiting to froth right now?

Stock Market? Will it double yet before crashing?

I don't know if anyone could even imagine that interest rates would ever drop to near 0 and they would print their way out of the problem. Most thought that printing was not an option. Now that it doesn't seem to matter, anything is possible. But those with access to the billions can and will buy all the good stuff and leave the regular folk to fight over the high priced crumbs.

A few comments on the economy in general.

The labor force participation rate (LFPR) is still at historical lows but seems to have stabilized. https://tradingeconomics.com/united-states/labor-force-participation-rate
You also have to look at wages. If good manufacturing jobs are being replace by barista and waiter jobs, that can’t be healthy.

Slow wage growth is a key sign of how far the U.S. economy remains from a full recovery.
http://www.epi.org/nominal-wage-tracker/
And lest you think that retiring boomers are driving the LFPR down, in workers 65 and older, the LFPR has been heading up. Perhaps many cannot afford to retire. https://fred.stlouisfed.org/series/LNU01375379

komputodo says

I don't know if anyone could even imagine that interest rates would ever drop to near 0 and they would print their way out of the problem.

Right at the bottom I posted somewhere that it was probably a good time to buy since the Fed's QE would turn things around.

What I didn't appreciate was that interest rates would stay down in such an environment.



Blue is QE pulses, red is prime rate, green is Fed Funds rate.

The Fed turns the dials, the economy responds.

"And lest you think that retiring boomers are driving the LFPR down, in workers 65 and older, the LFPR has been heading up. Perhaps many cannot afford to retire."

No, an aging workforce is absolutely driving the LFPR down. True the LFPR has been heading slightly up for workers 65 and older, but it's still WAYYYY below the LFPR for workers 25-50. As the workforce ages, the overall LFPR goes down (even when the 65 and older LFPR rises slightly).

Patrick says

The richest people already have the best houses. They are not really a factor in housing for ordinary people.

When I say the richest I mean the people above average. There a lot of young people with good incomes that need and can get a house. This still leaves out a large portion of the population.

Bellingham Bill says

Deflation in other segments allows more income thrown into housing.

This may be a reason why authorities feel it's necessary to push up housing prices (and healthcare and education) but doesn't explain how the market goes up.

Newbie123 says

Unless the market comes down by 30%+ I wont buy.

Hate to say it, but that sounds like a recipe for renting forever. You had 30% lower prices a few years back, but instead of buying, you went out and bought Patrick's book and fence sat.

I think Herc is correct. The only reason for housing to continue to rise like it has over the last 20-30 years is supply is not increasing as fast as demand. We can argue the reasons as to why this has been the case, but it undoubtedly is true.

Bellingham Bill says

Housing expenses / all expenditures

Deflation in other segments allows more income thrown into housing.
Plus lower interest rates continue to push price up.
Plus also dis-saving. If home prices go up & up, people's home equity becomes their life savings, augmenting if not taking the place of 401k contributions etc.

All other markets are even more nuts than the USA -- Canada, Australia, England, the Nordic countries, probably even Germany by now.

Japan crashed a long time ago but the home prices in Tokyo are still quite high compared to the US (but 1% interest rates help out there a lot)

First off the US has had house cost inflation from the Subprime/CRA that has gone up. US has had dramatic reduction in manufacturing/R&D and wagers. However public sector wages and retirement have increased significantly compared to private section.

Regulation of all sorts and higher % of tax dollars going to civil servants and the effects have not fully hit yet.

ZIRP was a temporary fix that essentially rewarded bad banks and CRAer/Cwider twice. 1) bail out of banks and buyer who spent excessively with bad credit creation. 2) ZIRP which continues to reward those that created the financial mess.

Where did the $10Trillion bubble money go to then? Its getting tranfered into lower interest rates and higher debt and malivestment. We have job security for public servants and the close associate lawyers and accountants and denizon of social sciences.

Entitlemented says

First off the US has had house cost inflation from the Subprime/CRA that has gone up. US has had dramatic reduction in manufacturing/R&D and wagers. However public sector wages and retirement have increased significantly compared to private section.

Regulation of all sorts and higher % of tax dollars going to civil servants and the effects have not fully hit yet.

ZIRP was a temporary fix that essentially rewarded bad banks and CRAer/Cwider twice. 1) bail out of banks and buyer who spent excessively with bad credit creation. 2) ZIRP which continues to reward those that created the financial mess.

Where did the $10Trillion bubble money go to then? Its getting tranfered into lower interest rates and higher debt and malivestment. We have job security for public servants and the close associate lawyers and accountants and denizon of social sciences.

Agreed ZIRP was a disaster, widening the gap, causing undue inflation in all essential goods/services and rewarding those who caused the crisis. Housing markets in Europe are much saner due to less speculation. Always easier to kick the can down the road than to rip off the band-aid for some true organic healing.