patrick.net

save while renting then buy

Austinhousingbubble says

Even hypothetically speaking, I think static incomes is probably a pipe dream going ahead for most sectors of the working public.

that statement makes me laugh... I think you're a little overly pessimistic, even by your own standards.

Anecdotally, I am seeing what looks like long-term reductions in household income in my local community. For example, in one family, the husband lost his job about a year ago and has not been able to find anything that can really replace his income, which was significantly more than his wife's part-time income. She dialed up her hours as much as her company would allow, and he just found a part-time job that will, in the end, pay about 1/6 of what he used to make. They can make it but will gradually have to eat their retirement savings. A neighbor has a similar situation, though he has managed to pick up contract work about half the time, so he is at about 1/2 his previous income. His wife works part-time and has not been able to find full-time work. Again, they are gradually eating their retirement. A third family had a family business which has tanked over the past two years. The wife has taken on babysitting while they wait this out, but, even though they both work for the business and otherwise, they are hitting the savings pretty hard, and the savings is almost gone.

I mention this because I do think that it is relevant to rents. None of the people I mentioned are unemployed at this time--they have jobs, just not the better jobs that they used to have. None of them look as though they are in major financial distress--they still pay their bills and dress like grown-ups. But they are using up savings or possibly moving into debt in order to maintain a relatively modest standard of living, and it is not clear that they will find better employment anytime soon. It only takes one underemployed person in a family to dramatically change what that family can afford with regard to rent in the long-term. So I would suggest that future rents are pretty dependent upon the employment situation going forward, not just how many people have jobs but how good those jobs are. Is the work full-time? Is it an employee or contract relationship? Is the pay at a reasonable professional level, or is the employer getting a discount? Is health insurance paid by the employer, or will the employee need to set aside money to pay for insurance? These things matter, because in the long-term they will change what people are able to pay for rent.

that statement makes me laugh… I think you’re a little overly pessimistic, even by your own standards.

Glad to see you're keeping your snide gland firing.

Clearly, you have done very little reading on the matter of labor.

Austinhousingbubble says

Glad to see you’re keeping your snide gland firing.
Clearly, you have done very little reading on the matter of labor.

I've heard that if you don't use it, then it might stop working--and we wouldn't want that to happen, would we?

I've done little reading? So, if someone disagrees with you--that means that they are uneducated? Who's being a little snide now?

That's not what I meant to imply -- I only meant that I'm incredulous how any reasonable soul could have such a different take-away from well-established data points regarding labor trends/middle class. I didn't think they were that open to interpretation. It's not poetry!

xenogear3 says

I think the problem is NOT “don’t have land”, “too many people move in”, “Too many high pay jobs” or “Unemployment rate is only 3%” in the Bay Area.

It is something to do with the government policy.

Ah, just a taste of whats to come! This is what happens when regular working conservative people are vastly outnumbered by Liberal wackos! Enjoy your fruits and nuts, California! And enjoy your Nazi Governor!

Austinhousingbubble says

That’s not what I meant to imply — I only meant that I’m incredulous how any reasonable soul could have such a different take-away from well-established data points regarding labor trends/middle class. I didn’t think they were that open to interpretation. It’s not poetry!

I'm confused. Please show me the data points/trends showing that incomes are decreasing and will continue to decrease in the future.

Please show me the data points/trends showing that incomes are decreasing and will continue to decrease in the future.

Not much information for 2010 yet, but there's this:

http://www.washingtontimes.com/news/2010/apr/13/personal-income-falls-32-during-obamas-15-months/

And then this brief WSJ article from last Sept which shows changes in household incomes by state:

http://blogs.wsj.com/economics/2009/09/10/lost-decade-for-income-change-for-households-by-state/tab/article/

Of course, median incomes wouldn't even have to technically decrease for the middle class to see diminishing returns if we experience a real inflationary scenario going forward.

Here's one other interesting piece (with chart) I read just recently regarding median incomes:

http://www.epi.org/economic_snapshots/entry/where_has_all_the_income_gone_look_up/

If you want more data, check out some of the essays/lectures (some of which are on Youtube) by noted scholars like Elizabeth Warren, Robert Reich, Mark Barenberg and the recently departed Willard Wirtz.

...as for continued decreases in the future, I fail to see how median wage/salary earners in America are going to regain traction and see any real returns without major reforms when it comes to trade agreements/tariff law/international workers rights, etc. Our exploitation of cheap labor/goods goes hand-in-hand with the erosion of the working middle class here in America - two sides of the same coin.

Austinhousingbubble says

Our exploitation of cheap labor/goods goes hand-in-hand with the erosion of the working middle class here in America - two sides of the same coin.

Ahem... Arizona.

Austinhousingbubble says

…as for continued decreases in the future, I fail to see how median wage/salary earners in America are going to regain traction and see any real returns without major reforms when it comes to trade agreements/tariff law/international workers rights, etc. Our exploitation of cheap labor/goods goes hand-in-hand with the erosion of the working middle class here in America - two sides of the same coin.

OK--now we're getting somewhere. Yes, wages decreased during a bad recession. Of course they did. They always do... They are already starting to rise according to the last data for 2010.

Going forward, you just don't see how they can rise--fair enough. I'll put my money on them increasing--there are problems with the US economy no doubt. But somehow, we always manage to find ways to move forward. This time it might be different, but I'm betting it won't.

Yes, wages decreased during a bad recession. Of course they did. They always do…

Things were exacerbated by the recession, yes, but this doesn't address the real crux; middle class compensation has been steadily whittled away at starting long before the last two recessions thanks to a variety of factors that have only grown in force.

They are already starting to rise according to the last data for 2010.

For which income groups?

Going forward, you just don’t see how they can rise–fair enough.

Adjusted for real inflation, full-time incomes today allow the average employee to command only a fraction of their share of the GDP as it did back in the late seventies. Further exacerbating this phenomena has been our increased trade with China. Economist Robert Scott calculated recently that 2.4 million American jobs were lost between 2001 and 2008 as a result of our trade deals. Granted, the *affluenza* fueled by the housing bubble/HELOC abuse and other forms of easy credit served as a stopgap this last decade, but I think that might be a closed book. Maybe not. In any event, I don't see anything in place in the way of labor or trade reform to reverse the highly erosive forces at work on the working class.

But somehow, we always manage to find ways to move forward.

I only hope our next big gambit isn't just another new & improved shell game.

Austinhousingbubble says

For which income groups?

For the US as a whole. I didn't know we were talking specifically about any group in particular

Austinhousingbubble says

Adjusted for real inflation, full-time incomes today allow the average employee to command only a fraction of their share of the GDP as it did back in the late seventies.

Do you have any data to back that up? Regardless, I didn't know we were talking about real wages. Because the original point of this discussion was about house prices, and inflation will affect nominal wages and house prices. Even if real wages remain constant, house prices will rise with inflation...

It comes as no surprise that someone named 'Austinhousingbubble' is arguing this way. This liberal elitism is most definitely emanating from California. 911 chased out a lot of those attitudes from NY. Texas and Arizona stand for a pro-middle class conservative outlook.

For the US as a whole. I didn’t know we were talking specifically about any group in particular.

US as a whole? Does such a thing exist when you have such stark income inequality? Please provide data. Anyway, I was talking median income earners. As for data, please see Dr. Elizabeth Warren's amazing lectures on the subject of the erosion of the middle class. They are readily available on Youtube.

Also, take some time and check out this excellent piece:

http://rortybomb.wordpress.com/2010/01/13/stagnant-wages-and-the-financial-bubble/

I agree that housing/rents will increase in the long term. More people will simply be spending more of their stagnant incomes on housing than on savings or discretionary purchases. Nothing to celebrate.

It comes as no surprise that someone named ‘Austinhousingbubble’ is arguing this way.

Not really an argument, just dialogue.

Austinhousingbubble says

Not really an argument, just dialogue.

these conservative states will be way more desirable places to live than CA. Not only will CA be unbelievably overpriced, but overrun with illegal aliens making employment impossible, crime will be rampant, and general quality of life will become a surreal joke.

Austinhousingbubble says

US as a whole? Does such a thing exist when you have such stark income inequality? Please provide data

From today's headlines

"personal incomes edged up just 0.3 percent"

"An inflation gauge tied to consumer spending showed a slight 0.1 percent rise in March and the same 0.1 percent increase excluding food and energy."

http://finance.yahoo.com/news/Economic-outlook-is-cautious-apf-134515370.html?x=0

So, incomes are rising faster than inflation at last report.

Like I've said before, it may be that this time is different but I'm betting that US will continue to achieve productivity gains in the future...

I think we need to look at those figures within their proper context. The paragraph in its entirety states:

Consumer spending rose 0.6 percent in March, matching economists' expectations. But personal incomes edged up just 0.3 percent, raising new worries about lackluster income growth. At the same time, the personal savings rate fell to 2.7 percent of after-tax incomes. It's the lowest level since September 2008.

Also, from the article is the following:

"Households are spending again but their incomes are not keeping up and that is a worrisome sign," said Joel Naroff, chief economist at Naroff Economic Advisors Inc. "Household spending can only be supported if we get better income growth."

AND

stagnant pay and weak hiring will likely restrain the economic rebound in coming months.

AND

Economists caution that the overall picture is clouded by a weak hiring outlook. A report Friday is expected to show no change in the nation's 9.7 percent unemployment rate.

AND LASTLY

High unemployment is likely to continue to keep a lid on income growth. Unless businesses boost hiring, households won't be able to support a high level of consumer spending, which accounts for 70 percent of economic activity. That could weaken the economic rebound.

...It was a good article.

....a slight 0.1 percent rise in March and the same 0.1 percent increase excluding food and energy.

...and while we're at it, why would they exclude food and energy from inflation measurements?

So people made a bit more money, but spent even more, during a recession. Savings rates fell.

People spend more when they feel more comfortable, lots of great sales out there now, lots of pent up demand.

Savings is something you do when you're worried about the future. If you're saving less, it has a decent probability that you're feeling more comfortable with your current economic position. If you're unemployed, with no job prospects and you've savings are dwindling, you're not likely to buy a new LCD tv. A steady job, with a small raise or the same raise means more confidence and thus more likely to spend a bit more.

If inflation isn't causing a problem, then people are spending more for a reason, most likely they want to do it.

@Austin

OK-now I'm confused. What is the point that you are trying to make? Because you've completely changed your story now. Do you agree that incomes are rising, and faster than inflation? Because that is exactly the opposite of what you were arguing earlier.

To answer your other question--economists often like to exclude food and energy because they are very volatile and their price changes don't necessarily correlate with US inflation. The FED, for example, probably would rather use the rate excluding food and energy when deciding whether or not to raise rates...

the situation thats happening in California will be devastating to the professional class there. Basically, they increasingly rely on outsourced labor, and relabeling of products to 'value add' to the customer. This is just a fancy way of saying 'marketing'. In the California model, everyone is a marketer. The problem is in order to meet margins that scale to the ever increasing costs of living, that 'value add' gets more preposterous, useless and expensive. Most importantly it requires increasingly ridiculous laws to support it (IP laws primarily). Apple is the main example of this. Californians will increasingly be unable to do business due to increasing taxation to support their political regime and rising costs of living.

In all scenarios, the Bay Area in particular is going to become very distorted and insane. LA will not be far behind but it will be more manageable. There very well could be rioting in CA when you've got millions homeless, starving, poor, govt support programs broke, illegal aliens, gangs, and a government who refuses to be 'racist'. The demographic characteristics of CA will keep these politics in place for a very long time despite outrage of the minority of regular working people. Only the super elites will be left holding the cards.

Why are you confused and when did I change my story? I merely quoted chunks from your article that support my main thrust, which was and remains: THERE HAVE BEEN AND CONTINUE TO BE DIMINISHING RETURNS FOR THE MIDDLE CLASS EARNER AND THAT THIS WILL NOT CHANGE. I have never wavered from that stance, and I have supplied ample and reputable documentation to that effect above -- none of which you have bothered to review. That's fine, but cherry-picking one Yahoo article for some sunny gristle does little to support your stance when the rest of the article is decidedly gloomy and bearish on, among other things -- income growth!

And no, personally, I do not agree that incomes are rising faster than inflation, despite what the article states -- particularly because I think the Boskin method for measuring the CPI/inflation is totally misleading (weighting/substitution/hedonics/etc). The Farm Bureau is a better source for real inflation numbers.

Citing consumer spending as an indication of consumer confidence is oversimple. If the public anticipates prices to rise, they tend to spend their money now, which in turn serves to fuel further inflation.

Meanwhile, the numbers released by the ABC Consumer Comfort Index, which spans a broader sampling of the population and is updated weekly don't at all jibe with the recent Consumer Confidence Index numbers.

Interesting article on that, with charts.

http://www.zerohedge.com/article/why-consumer-confidence-most-manipulated-economic-indicator

Savings is something you do when you’re worried about the future. If you’re saving less, it has a decent probability that you’re feeling more comfortable with your current economic position.

This mentality alone has played a major part in keeping J6P over the barrel.

That is fine, the data above doesn't point to that though. You now pointing to other data, and saying that points to another conclusion. That data is showing increased spending, less savings and little inflation compared with wage increases.

What data that I have supplied doesn't support my point? None of the data I have pointed to has reflected 'little inflation' and/or wage increases.

"The likelihood is that as the economy struggles to recover...the median wage will continue to fall—as it did between 2001 and 2007, during the last so-called recovery.

More Americans will be working, but for pay they consider inadequate. The approaching recovery will be tepid because so many people will lack the money needed to buy all the goods and services the economy can produce.

Americans will once again be employed, but they will also be back on the downward escalator of declining pay they rode before the Great Recession."

Robert Reich WSJ - April 2010

This sums things up rather tidily. In keeping with the original thread topic, I would add that increasing rents (and fuel costs, which figure into everything else) will only further exacerbate the declines.

http://online.wsj.com/article/SB10001424052702304222504575173780671015468.html?mod=rss_Today%27s_Most_Popular

pkennedy says

Savings is something you do when you’re worried about the future. If you’re saving less, it has a decent probability that you’re feeling more comfortable with your current economic position. If you’re unemployed, with no job prospects and you’ve savings are dwindling, you’re not likely to buy a new LCD tv. A steady job, with a small raise or the same raise means more confidence and thus more likely to spend a bit more.

I happen to disagree. I would imagine there is less savings, because people are drawing/liquidating their savings to pay bills, mortgage/rent, etc. Some also liquidating to purchase RE.
I will be glad if I am wrong, but how do you measure if new savings are made or not? By comparing $ put away at two points. If rate of growth slowed down, that means less is saved, but not necessarily that more is spend on additions, rather on sustaining. (especially that so many are unemployed)

Well if you compare savings with income increases and inflation, you'll come up with a number that shows if you're eating into savings or not. The numbers said inflation .1% up, wages up .3, spending up .6%. The general idea is that you're making more, inflation is less than your increase in wages, so you should be able to spend .2% more in theory, but people are spending .6% more 3x their wage increase. Savings are down to their lowest rates since 2008, which implies that people who saved starting at the recession are saving less now. They're feeling more confident, and starting to loosen up.

Again, it's cherry picking numbers and/or over simplifying the whole process. But it's an easy way to look at things from a super high level.

Austinhousingbubble says

THERE HAVE BEEN AND CONTINUE TO BE DIMINISHING RETURNS FOR THE MIDDLE CLASS EARNER AND THAT THIS WILL NOT CHANGE.

But that's not at all what the article said, or what you quoted. Wages are rising faster than inflation. Bottom line. So, that is increasing returns.

Austinhousingbubble says

I have never wavered from that stance, and I have supplied ample and reputable documentation to that effect above — none of which you have bothered to review. That’s fine, but cherry-picking one Yahoo article for some sunny gristle does little to support your stance when the rest of the article is decidedly gloomy and bearish on, among other things — income growth!

Whoa--cherry picking one article? I just found the latest report--from today's headlines! I could have picked the report from last month just as easily because wages were rising faster than inflation then as well. The rest of the article says to not get too excited just yet. Unemployment is still high, and there are still risks to the recovery. And I agree with this assessment.

Austinhousingbubble says

And no, personally, I do not agree that incomes are rising faster than inflation, despite what the article states — particularly because I think the Boskin method for measuring the CPI/inflation is totally misleading (weighting/substitution/hedonics/etc). The Farm Bureau is a better source for real inflation numbers.

Well, no offense, but you can't ask me to post data and then just say you don't believe it. Further, wages were increasing 3 times faster than inflation, so my guess is that using any numbers the story is the same--increasing returns.

Austinhousingbubble says

What data that I have supplied doesn’t support my point? None of the data I have pointed to has reflected ‘little inflation’ and/or wage increases.

What data have you supplied at all? A lecture from Elizabeth Warren? That is a very loose definition of "data". A post from a random blog? That blog didn't even support any of your claims--all it said was that consumer confidence survey is noisy and that you need to average a few months of data to really understand the trend. Big whoop--I think most people could have figured that one out on their own...

Austinhousingbubble says

“The likelihood is that as the economy struggles to recover…the median wage will continue to fall—as it did between 2001 and 2007, during the last so-called recovery.
More Americans will be working, but for pay they consider inadequate. The approaching recovery will be tepid because so many people will lack the money needed to buy all the goods and services the economy can produce.
Americans will once again be employed, but they will also be back on the downward escalator of declining pay they rode before the Great Recession.”
Robert Reich WSJ - April 2010
This sums things up rather tidily. In keeping with the original thread topic, I would add that increasing rents (and fuel costs, which figure into everything else) will only further exacerbate the declines.
http://online.wsj.com/article/SB10001424052702304222504575173780671015468.html?mod=rss_Today%27s_Most_Popular

Again--fine. That's his opinion and he may be right. You are welcome to agree with him. But, again, that's not data and it's not what is happening right now.

But that’s not at all what the article said, or what you quoted.

Come on -- you never even read it.

Wages are rising faster than inflation.

No. They're. Not.

Typing the words WAGE INFLATION into Google News and cherry picking around some otherwise bearish news in the first article you suck off the top of your query is not really what I'd call compelling research by which to gird your rather bold statement.

Just for starters, your own funeral looks 10X rosier using the bullshit methods crafted by the Boskin Commission for distorting the CPI, which renders it totally useless for measuring inflation. How do you think inflation stayed near zero during the Bush years despite double-digit price increases? Fraud, that's how.

DATA:

Throughout the Elizabeth Warren lecture I suggested, she CITES much data, (it's an hour long -- I'm sorry, but I'm not going to sift through it for you to compile specific data points. It's a very compelling lecture, as is her book). You will find Robert Reich's article likewise loaded with official data if you go back and read it in its entirety. It's good, sound stuff.

Personally, I wouldn't rate Zero Hedge as just some random blog, but besides, I actually posted that for another poster who stated he thought the CCI and the diminishing savings rate reflected bullishness in the consumer. Given the data from the more thorough ABC Consumer Comfort Index mentioned in the blogpost and the corresponding chart depicting the disparity between the two indexes, it does not. Personally, I think that is a rather big whoop, when the CCI is used to suggest everything is fine and guys like you read it and run it up the flagpole as a bullish indicator of everything being hunky-fucking-dory.

Austinhousingbubble says

But that’s not at all what the article said, or what you quoted.

Come on — you never even read it.

Wages are rising faster than inflation.

No. They’re. Not.
Typing the words WAGE INFLATION into Google News and cherry picking around some otherwise bearish news in the first article you suck off the top of your query is not really what I’d call compelling research by which to gird your rather bold statement.
Just for starters, your own funeral looks 10X rosier using the bullshit methods crafted by the Boskin Commission for distorting the CPI, which renders it totally useless for measuring inflation. How do you think inflation stayed near zero during the Bush years despite double-digit price increases? Fraud, that’s how.

Are you kidding? I was reading yahoo news and saw that article in the morning. So, I went back and posted it. I knew what the tone of it was but I didn't care because the data is all I was interested in. I don't care what the reporter's opinion of what the data means--I just wanted the actual data.

OK--I think we're done. If you're going to try to tell me that CPI is worthless then we have nothing further to discuss. Because no matter what data I provide, you're just going to say it's wrong. It's just a waste of my time.

Austinhousingbubble says

Personally, I think that is a rather big whoop, when the CCI is used to suggest everything is fine and guys like you read it and run it up the flagpole as a bullish indicator of everything being hunky-fucking-dory.

lol--I don't recall anyone saying everything is hunky-dory. That's a common mistake you see to make. If I disagree with you that the world is ending, then I must be saying that it's all roses... I've consistently said that the worst is over and the economy seems to be in the very early stages of recovery. Not sure how you interpret that to mean things are hunky dory...