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Today's news: " US housing starts jump "


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2010 Apr 16, 3:55am   10,531 views  30 comments

by michaelsch   ➕follow (0)   💰tip   ignore  

http://www.cbc.ca/money/story/2010/04/16/us-housing-starts.html

and hundreds of similar articles all over the news.

OK, so while we have an oversupply of tens of millions of housing units they build much more.

Why? Simply because prices are high enough to justify building unneeded houses.

So we keep wasting on something nobody really need, because this waste is heavily subsidized.

Personally i don't see how it's different from all those roads to nowhere.

However, one thing is absolutely clear: US economy is not strong enough to support this waste of resources for much longer.

The conclusion is very simple: housing prices have to crash and the will. Either they will crash by themselves or they will crash the whole economy before they crash.

#housing

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1   grywlfbg   2010 Apr 16, 4:00am  

Meanwhile: FORECLOSURE ACTIVITY INCREASES 7 PERCENT IN FIRST QUARTER
http://www.realtytrac.com/contentmanagement/pressrelease.aspx?channelid=9&itemid=8927

2   Patrick   2010 Apr 16, 5:45am  

Darn, still got that bug where some people's ID doesn't get recorded with their comment. OK, think I fixed it...

3   michaelsch   2010 Apr 16, 7:06am  

SF ace says

“So we keep wasting on something nobody really need, because this waste is heavily subsidized.”

“However, one thing is absolutely clear: US economy is not strong enough to support this waste of resources for much longer.

The conclusion is very simple: housing prices have to crash and the will. Either they will crash by themselves or they will crash the whole economy before they crash.”
I don’t get this rant as well.

If they keep building, while there are 17 million vacant units, it means prices are way too high. What is not to understand here?

Annual housing building rate is 626,000 per year, which is well, about 25% - 33% of average. Most of these appear to be multi-family type building which are smaller than single family homes. That 626K annual rate is about .6% of US households, lagging population growth and destruction of older homes and/or vacant homes. Building in reality is at an absolute standstill and is reflected in loss of construction jobs.

US natural population growth is .545%, the rest (.432%) is immigration. So they build more new units than natural growth. Beside this there are all kind of expansion projects people do with and without permits. Also with aging baby boomers the natural growth will quickly decrease in the next couple of years. So, .6% growth in the number of units will keep the market oversupplied for about 50 years.

You should be happy that at least some homes are being built, do you really want a long period of very low housing starts, that will guarantee a housing shortage and drive up home and rent price down the line.

Hey, i'm very happy about it, since it guarantees falling prices in the future, though it would be much better to let housing prices fall to were they belong, i.e. about 50% from today's and let Americans start doing something more meaningful than building large wooden boxes that consume tons of energy.

I'm also happy they mostly build multi-family houses with smaller units. At least all new emigrants will easily find homes.

4   michaelsch   2010 Apr 16, 10:07am  

SF ace says

Good to know, let me know when prices fall 20% from today before we talk about 50.

Well, my point is that spending 30+% on housing devastates our economy. That's what a typical middle class family spends. This is not sustainable. In the long run this percentage should be no more than 15%.

Please note: I'm talking about middle class, which is the people who actually pay income tax. Those with low enough income to qualify for all kind of extra deductions/credits are in a different category, as well as really reach ones. For the first ones this percentage may be higher (which is not necessary the case today due to housing programs), For the second ones it is naturally much lower, since they can afford much nicer things than housing to waste their money.

In fact, rising medium income would fix the problem as well as falling housing prices. Income rising by 25% would be equivalent to prices falling 20%. Doubling the income - equivalent to housing prices falling 50%.

I reality, both need to move, so we'll have real prices falling by 20% and this will happen quite soon, i'd say nationwide it should take less than 3 years, much faster in the "fortresses" of California.

Falling by 50% (in real value) would take longer. In best case it may happen within 5 years if the bond market collapses and interest rates jump to double digits, in the worst case scenario take as long as 12-15 years until most baby boomers retire.

5   pkennedy   2010 Apr 16, 10:32am  

@michaelsch

People don't have to spend 30% on housing, they do. They spend more than that, using every way possible to do so.

They will spend the maximum they possibly can. Even if housing dropped over night to half of what it is today, the first couple of buyers would get a good deal and then people would bid things right back up. If interest rates go up, people will simply pay more interest and less on the house. People will pay whatever they can for a house. Saying "no more than 15%" isn't realistic. People will do it, and find a way to do it.

6   michaelsch   2010 Apr 16, 10:38am  

pkennedy says

@michaelsch
People don’t have to spend 30% on housing, they do. They spend more than that, using every way possible to do so.
They will spend the maximum they possibly can. Even if housing dropped over night to half of what it is today, the first couple of buyers would get a good deal and then people would bid things right back up. If interest rates go up, people will simply pay more interest and less on the house. People will pay whatever they can for a house. Saying “no more than 15%” isn’t realistic. People will do it, and find a way to do it.

It's abnormal. It's like saying most people are insane or constantly on drags. I agree this mentality exists now, but it was cultivated. Forces that built it are much weaker now. Well, yes detoxing takes time but we have no other way to go.

7   Leigh   2010 Apr 16, 1:58pm  

Post number 2 is me and I am speaking specifically about the Portland metro area. Yes, we do have some more fallin' to do. Yes, they are still building, yes, we have 600 condo units for sale in the downtown area, yes, we have a higher rental vacancy rate, yes, rents are falling, yes, our bankruptcies and foreclosures are spiking again, no, we don't have the Californians moving here with their wads of cash supporting our bubble. I give Portland metro another 9 months before we level out at bottom.

8   B.A.C.A.H.   2010 Apr 17, 4:34pm  

One difference nowadays compared to 1992/1983/1974 and every other recession year in the whole history of the USA is babyboom demographics.

9   azrob00   2010 Apr 18, 2:49am  

mathematics applied to economics was my research area.

10   tatupu70   2010 Apr 18, 2:51am  

Well, I tend to judge based on the content of one's posts, not their self proclaimed titles...

11   azrob00   2010 Apr 18, 2:53am  

yes, how can we consider Greece or Iceland.. After all Greece has massive federal deficits, and Iceland's banks are insolvent. I'm certainly glad the US doesn't have either of those problems! Good thing we have a balanced budget, and don't have to bailout our banks!

when I first wrote that housing prices would collapse, I cited Japan as an example. at that time everybody told me "how can you compare the US to japan, US prices will never go down..."

12   tatupu70   2010 Apr 18, 3:50am  

azrob00 says

You have used the “if interest rates rise, who cares, prices rise with rates” line at least a dozen times on here; Now you are contradicting yourself. clearly if rates rise now, your statements logic is obvious: it won’t matter for house prices, when it obviously will. Why do you think the government drove mortgage rates down to 5%? because rate means nothing to home prices? good thinking!

As someone with a PhD, I would think you would see the flaw in your logic. Interest rates won't rise (much) during a recession with so many out of work.

13   B.A.C.A.H.   2010 Apr 18, 4:38am  

The prices are set by what is paid. So, the graph of price versus year is the graph of what buyers paid versus the year.

It means that the graph of home prices in Japan versus the year is the graph of prices the buyers paid versus the year.

Therefore I suppose around about the year 1994 buyers in Japan were saying things like,

"We are now 4.3 years after the (..) peak in real estate! I know it doesn’t seem like it has been that long but it has. Prices go up from here.

14   B.A.C.A.H.   2010 Apr 18, 5:57am  

I don't have prediction for the next 12 months.

Probably though you will share some of my view for the long term of the region, not in the next 12 months or by the end of this year but over the next decade

prices will be continue to be higher here than in most of the rest of the US,

workers will continue to get "less house for more money" (ie, the the purchasing power of their wages will not scale with the cost of housing) here than in most of the rest of the US,

elite Asian families will continue to buy their kids into the Bay Area via the graduate school route,

the region will not become the next Detroit although some of its industries may,

new industries will emerge as they have done in the past, but we will not be able to predict what they will be because like the other industries that emerged here, they were beyond imagination at the time when they coulda been predicted,

The high cost of living (housing) here will continue to drive a lot of working class folks out of the region which will bring the labor market back into balance.

15   B.A.C.A.H.   2010 Apr 18, 11:46am  

Yep.

I think what was different then, an anomaly that lasted about as long as Bush-Greenspan were using (succeeding at) loose monetary policy to goose credit. I don't think it will work anymore, at least not for awhile. You have wrote on here a lot (to paraphrase) that loose credit and easy money will rise again.

We shall see, then you can tell me I'm wrong again for another seven years.

16   tatupu70   2010 Apr 18, 12:12pm  

sybrib says

I think what was different then, an anomaly that lasted about as long as Bush-Greenspan were using (succeeding at) loose monetary policy to goose credit

Not to put too fine a point on it, but loose monetary policy and loose credit are two completely different animals. There is very little correlation between the two.

17   B.A.C.A.H.   2010 Apr 18, 1:42pm  

maybe two different animals, no argument there.
We had them both

18   tatupu70   2010 Apr 19, 12:26am  

azrob00 says

History doesn’t repeat, it rhymes, and this crisis will play out differently, but it will play out. and with something like 15% of homeowners not paying their mortgages, you can rest assured it isn’t finished playing out!

Where did you see the 15% number. Last I saw it was like 6.5% of homeowners 30 days + behind on their mortgage?

19   azrob00   2010 Apr 19, 12:34am  

15% is arizona, nevada, florida. Cali is something like 11% Nation as a whole is probably your number.

20   michaelsch   2010 Apr 19, 2:34am  

E-man says

SF ace says
Warren Buffet recently said that we need to build on an average 1.2 million new homes annually to keep up with demand. He predicted that we would see a housing recovery in 2011. Wow, he’s pretty optimistic. So the less they build, the better it is for the housing market down the road.

I don't believe in Oracles. Neither one of the two.

21   tatupu70   2010 Apr 19, 5:36am  

michaelsch says

But this is not the case now.

Basically your entire post boils down to that statement. This time it's different.

Maybe you are right. But, that's exactly what the housing bulls were saying when people brought up the fact that it looked a lot like a bubble...

22   tatupu70   2010 Apr 19, 5:37am  

michaelsch says

2010 is radically different than 1992 or 1983 or 1974, or for this matter also 1929 because in all those years US had real economy producing real goods and services consumed in US and abroad.

And I have to comment on this. I'm so tired of people implying that we don't manufacture things in the US anymore. Bullshit.

23   Claire   2010 Apr 19, 5:39am  

Let the government remove it's buying incentives and support of the banks, and then I'll call bottom. I still think 2012 (and now maybe 2014 after all the government intereference and bank shenanigans) will be closer to bottom in the fortress areas.

For example we have the house next door up for sale. We didn't know that back in 2000 or whenever, they bought for $200,000 over asking on an interest only loan - they can now not get it refinanced and have to sell - some quick tricks and a new kitchen and they now want $1.249m for it. Let's see what it gets shall we? I'll update you when we hear.......

My point is - I think there are a lot of people out there that we assume got safe loans that actually did some kind of fancy financing and are now hitting brick walls.

24   Leigh   2010 Apr 19, 10:20am  

tatupu70 says

michaelsch says

2010 is radically different than 1992 or 1983 or 1974, or for this matter also 1929 because in all those years US had real economy producing real goods and services consumed in US and abroad.

And I have to comment on this. I’m so tired of people implying that we don’t manufacture things in the US anymore. Bullshit.

Well, then let us hear about our manufacturing. What do we manufacture and how does it compare to the days of automakers, steel, appliances etc.

25   tatupu70   2010 Apr 19, 10:35am  

Leigh says

Well, then let us hear about our manufacturing. What do we manufacture and how does it compare to the days of automakers, steel, appliances etc.

I think it's been posted on here previously, but I'll try to get a breakdown. In the meantime, just a quick fact-- US is world's largest manufacturer with a 2007 industrial output of $2.69T

26   Austinhousingbubble   2010 Apr 19, 10:57am  

One distinction worth noting is our comparatively anemic exports. Germany is actually the largest exporter of manufactured goods (high quality goods, I might add). It is also worth noting that employee compensation (except, of course, for C level executives) in manufacturing is also a fraction of what it was ten and twenty years ago in America.

Futurists cite this as merely part of creative destruction, insisting that America will reinvent itself to become a population of inventors and entrepreneurs while total automation takes over where manufacturing leaves off. That's where I smell bullshit.

27   Leigh   2010 Apr 19, 11:40am  

I work in hc and read labels frequently out of curiosity. Plus, I was in a recent debate about where our medications are manufactured. Sure we might ASSEMBLE some stuff in the USA but I'd guess we import even more.

I stumbled upon this interesting site while searching for data: http://www.worldsrichestcountries.com/top_us_imports.html

Note the "Medicinal preparations" from Austria, Belgium, Switzerland, Norway, Sweden, Germany, France, UK. Italy and Spain

Then there is the "Other medical equipment"

Total US imports of "Medicinal preparations" is $78.9 BILLION$ in 2008

And here is the link for US Exports: http://www.worldsrichestcountries.com/top_us_exports.html

I wonder what the difference is between 'medicinal preparations' and 'pharmaceutical preparations'. Is that like the difference between 'crude oil' and 'fuel oil'?

28   LAO   2010 Apr 19, 3:17pm  

It could be easily argued ENTERTAINMENT.... Tv shows, movies, music and pop culture / Celebrity in general is one of the united states greatest exports! AVATAR and most movies make far more overseas than they do in the US.

29   dhmartens   2010 Apr 20, 7:57am  

Can someone tell me the price of a house in China? I figure in the the US it won't drop below that level. I think I read it was about $60k-$80k. Anyone?

30   tatupu70   2010 Apr 21, 9:26pm  

Landru3000 says

No? Sorry, but who do you think we are competing with for jobs and wage levels? I’d say wages are going to settle somewhere between what they mexico, and china.

Are you predicting the same for Eurpoeans?

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