patrick.net

RobSTL says

If housing prices continue to fall, I predict the future generations will earn less than half of what the median income is currently, which will then lead to even more falling housing prices…the death spiral.

Falling home prices are no more a death spiral than falling energy costs. They are a boon.

Home valuations do not or at least should not drive wage income.

Whenever home valuations drive incomes, you have a bubble, since this is a feedback loop that cannot last forever.

If wages go up, home values will go up. And the opposite, if wages go down.

If taxes go up, home values will go down. And the opposite.

If interest rates go up, home values will go down. And the opposite.

If mortgage underwriting is loosened, home values will go up. And the opposite.

If amortization is not required or even negative, home values will go up. And the opposite if amortization is increased.

Home values are simply set at what we can afford to pay, specifically the how-much-a-month value.

Valuation is not wealth. Wealth is the actual utility that the housing good and locational good of the property in question, and this does not change with the price.

The price is driven largely by exogenous factors.

I have seen many folks take the position that "slums" in the developing world should not be included in the "median" multiple calculations. Let us look into the irony of this. Prices in the developing world are so high, higher than even in the developed world, that 80% of the developing world's population cannot afford to ever buy a government registered house in their lifetime. This majority lives in slums, resigned to their fate. There is no social uprising, no talk of a bubble etc. Here in the USA, a decent starter home is within easy reach of the working class, and yet, we call it a bubble and want it cheaper. Go figure !!

Troy says

If wages go up, home values will go up. And the opposite, if wages go down.

If taxes go up, home values will go down. And the opposite.

If interest rates go up, home values will go down. And the opposite.

If mortgage underwriting is loosened, home values will go up. And the opposite.

There is no reason for employers to pay higher wages when cost of living, of which housing is the most major component, is going down. Corporate America has never had it this good, and the working class is being exploited.

Loan interest rates have risen in India to double digits over the past many years, yet home prices have gone up during this time. Loan rates have dropped dramatically in the USA during the past 5 years, yet house prices have fallen.

Thanks for your continued comments. We will never agree, as our positions and opinions are total opposites.

RobSTL says

We will never agree, as our positions and opinions are total opposites.

You're denying the existence of the U.S. housing bubble. In a world of 6b people, you have to be the only non-realtor who's that delusional.

RobSTL says

I have seen many folks take the position that “slums” in the developing world should not be included in the “median” multiple calculations.

Didn't you just base your entire fucking hypothesis on "single family homes" in India and China, concluding the median price is over $1m? You have zero credibility and zero room to accuse others of not being inclusive.

RobSTL says

There is no reason for employers to pay higher wages when cost of living, of which housing is the most major component, is going down. Corporate America has never had it this good, and the working class is being exploited.

If discretionary income is the same during this process, there is no undue "exploitation", it's how the market works.

Workers generally never get to see much of the value of the product of their labors, the labor market alone determines wages. That, and the minimum wage.

Loan interest rates have risen in India to double digits over the past many years, yet home prices have gone up during this time. Loan rates have dropped dramatically in the USA during the past 5 years, yet house prices have fallen.

This is a useful point for me to clarify, as each element in that list was "ceteris paribus" as all of them work in parallel / cross purposes.

In India's case, they have wage inflation:

"On an average across the services industry, which accounts for more than half of the country's gross domestic product, Indians expect a 14% increase in their income annually, and up to a 40% gain if they change jobs, according to Aon Hewitt, a human-resource consultancy."

http://online.wsj.com/article/SB10001424052748703786804576138212218225544.html

In the US's case, all the bubble loan underwriting and home equity withdrawals of 2002-2006 started going away in 2007 and stopped in 2008.

Dropping rates only created a soft landing for an otherwise crashing market

klarek says

You’re denying the existence of the U.S. housing bubble. In a world of 6b people, you have to be the only non-realtor who’s that delusional.

Like I said in myth buster #4, "bubbles" are relative. Americans are able to purchase large luxury 5-star quality homes at 3-5 times their annual income, while the majority of that 6 billion people in Asia and Africa cannot buy even a 1-star home with their entire lifetime income. And yet the USA is the one with the bubble?

I see that you have not created a "post" on your own. Why don't you create one, and tell us what you think is reasonable for the median American home. Please define exactly what you consider the median home first, list the typical features that you expect in this median home, pick some cities, and then suggest a reasonable price for this median home in those cities.

RobSTL says

And yet the USA is the one with the bubble?

Not any more, no. But yes, we had one helluva bubble:

"Because low-paying agriculture and service industries account for at least a third of the area's jobs, fewer than two in 10 Monterey County households can afford the area's median-priced house"

http://www.bizjournals.com/sanjose/stories/2003/07/21/focus5.html

As you can see, this was in 2003!

Price went from $220,000 new in 1998 to $450,000 in 2003 to $750,000 in 2006 to $300,000 in 2010.

http://www.redfin.com/CA/Salinas/1748-Lennox-Way-93906/home/14890923

Troy says

Falling home prices are no more a death spiral than falling energy costs. They are a boon.

Home valuations do not or at least should not drive wage income.

Whenever home valuations drive incomes, you have a bubble, since this is a feedback loop that cannot last forever.

If wages go up, home values will go up. And the opposite, if wages go down.

If taxes go up, home values will go down. And the opposite.

If interest rates go up, home values will go down. And the opposite.

If mortgage underwriting is loosened, home values will go up. And the opposite.

If amortization is not required or even negative, home values will go up. And the opposite if amortization is increased.

Home values are simply set at what we can afford to pay, specifically the how-much-a-month value.

Valuation is not wealth. Wealth is the actual utility that the housing good and locational good of the property in question, and this does not change with the price.

The price is driven largely by exogenous factors.

and in response

RobSTL says

There is no reason for employers to pay higher wages when cost of living, of which housing is the most major component, is going down.

Loan rates have dropped dramatically in the USA during the past 5 years, yet house prices have fallen.

I've read this entire thread and Troy wins.

Rob, your first sentence implies deflationary wage pressures. I agree. Wait... you said deflation's a myth (#3). To be accurate, only one type of inflation drives home prices upward -- WAGE inflation. In fact, other types of inflation, in the absence of wage inflation, put downward pressure on home prices as other rising costs compete for a bigger slice of not-growing/shrinking pie.

Regarding loan rates dropping, you're pretty disingenuous here. Low rates HAVE supported prices. Prices would be EVEN lower if a 30yr fixed mortgage was 7.5%, as some potential buyers would adjust their price targets lower to achieve the same monthly expense.

RobSTL - please just consider the following relationships:
1 Wages and investment income determine dollars available for spending
2 Dollars available for spending determine dollars available for spending on housing
3 Dollars available for spending on housing determine home prices

Interest rates don't matter (much). Low rates, while lowering monthly payments, bring additional buyers into the market, driving up competition, driving up their purchase price. High rates, while pricing some month-to-month buyers out, reduce competition for cash buyers, driving down their purchase price. So in the end, wages determine home prices. It was true from 1900 to 2000. We took a little break from reality from 2000-2007 but we're going back. In 2050, we'll see that wages and home prices both grew at roughly the same rate (probably ~3.25% annually) for the previous 150 years.

RobSTL says

Loan rates have dropped dramatically in the USA during the past 5 years, yet house prices have fallen.

That's because we were in the largest financial asset bubble in history, something that you and only you will deny.

Coogan99 says

I’ve read this entire thread and Troy wins.

Rob, your first sentence implies deflationary wage pressures. I agree. Wait… you said deflation’s a myth (#3). To be accurate, only one type of inflation drives home prices upward — WAGE inflation. In fact, other types of inflation, in the absence of wage inflation, put downward pressure on home prices as other rising costs compete for a bigger slice of not-growing/shrinking pie.

Regarding loan rates dropping, you’re pretty disingenuous here. Low rates HAVE supported prices. Prices would be EVEN lower if a 30yr fixed mortgage was 7.5%, as some potential buyers would adjust their price targets lower to achieve the same monthly expense.

First, this discussion is not to decide who wins. I believe all American "primary" homeowners and renters are losers, and that includes me as I am a homeowner too. Homeowners lose because of stagnating/falling home values that fails to grow their wealth. Renters lose because they are spending more on rent than they could in buying a home. Non-primary homeowners/landlords are the ones that have been winners. When the rest of the world is flourishing and prospering with increasing home values and rising wealth, the USA is falling behind rapidly.

I said in my myth buster #3 that while there is actual commodity inflation and the dollar losing its value rapidly, the government and top economists have continued to claim low inflation. Bernanke continues to say any current inflation is transitory. It is a conspiracy by the government and corporate America to deny inflation, so that they can continue to keep wages stagnant. The collapse of home values could be part of their grand scheme to spread the perception that not everything is going up in cost.

I totally agree that wage inflation goes together with higher home prices. Where I totally differ is pointed out in myth buster #8. Like one of the comments above from someone that was very succinct, it is a question of which comes first, chicken or egg. Most of you, including Troy, believe that higher wages lead to higher home prices. I believe it is the other way around - higher asset prices lead to job growth and wage inflation. The rest of the world is "inflating" itself to prosperity. Troy provided a link to double digit wage increases in India, something that I am extremely aware of. He thinks that wage increase leads to higher home prices there. I say the opposite. With home prices and even the prices of onions shooting through the roof, there is no option for employers to NOT pay double digit wage increases every year.

Regarding loan rates and home prices, I was just addressing Troy's statement that rising loan interest rates lead to lower home prices. That sounds right in theory, but in reality, the opposite effect has happened in the USA and India.

Whenever I hear or read "just a patriotic American middle-class citizen" I immediately cringe and prepare myself to a doze of insanity. Never fails.

klarek says

RobSTL says

Loan rates have dropped dramatically in the USA during the past 5 years, yet house prices have fallen.

That’s because we were in the largest financial asset bubble in history, something that you and only you will deny.

Klarek owns this thread. I can't believe these realtards even take time to post their utter bullshit!

Tony FL says

Whenever I hear or read “just a patriotic American middle-class citizen” I immediately cringe and prepare myself to a doze of insanity. Never fails.

It's like when someone describes their self as being "honest to a fault". That tells me they're either completely full of shit, or aware that they're completely naive.

Ever notice you don't hear any war vets call themselves "patriotic"? People who aren't insecure about their patriotism or unsure of what it means to be patriotic are the types of folks who won't be using it as a label or a way to self-promote.

APOCALYPSEFUCK says

In a year, every American will be able to buy a small country and all its occupants and live the life of Pharaoh!

The truly talented and insightful will be able to buy all the sanded-cement condos in China!

AMERICA WILL RETURN TO ITS GLORY!

Vote Lawrence Yun for President, he will make it happen.

His first act will be to roll up the IRS and NAR into one entity and charge a 6% commission on everybody's yearly earnings, just for filing their papers. Then they'll mail us all a bunch of cheap, Chinese-made magnets with their photos, a mini-calendar, and a cute catchphrase.

“just a patriotic American middle-class citizen”

Middle-class will be eliminated in the future.
It will be either Chinese-type workers or banker-type rich people.

The only true middle-class will be strippers and fancy restaurant chef which cannot outsource to China.

Tony FL says

Klarek owns this thread

You are praising a jobless burrito eater who is yet to create his own post and state his position on anything for the past many years. Right, klarek does not "self-promote". He just hires TonyFL to lick his lazy behind.

“Great minds talk about ideas, average minds talk about events, and small minds talk about people.”

APOCALYPSEFUCK says

What America needs is negative down-payment, negative interest loans

The amazing thing is that these actually existed, though not in combination, but with a recast limit of 125%, there still could be a combo . . .

GMAC Residential Funding Introduces Home Solution 107 LTV Mortgage Product

http://www2.prnewswire.com/cgi-bin/stories.pl?ACCT=104&STORY=/www/story/10-29-2000/0001351586&EDATE=

"In 2003, only about 8 of every 1,000 people buying a home or refinancing a mortgage in California got a pay option loan ...

Last year, 1 in 5 loan applicants got one.

In the first eight months of 2006... Nearly 1 in 3 California loan applicants are now choosing them."

http://www.calculatedriskblog.com/2006/12/la-times-loan-thatll-get-ugly-fast.html

RobSTL says

You are praising a jobless burrito eater who is yet to create his own post and state his position on anything for the past many years. Right, klarek does not “self-promote”. He just hires TonyFL to lick his lazy behind.

I'm not jobless. I went into work today (Memorial Day), and didn't even have to. So you can EABOD.

I must confess, I have not climbed the echelons of internet superstars like you and created my own thread yet. Rest assured, if and when it happens, it won't compete with the level of asinine stupidity that you created here.

I think it's been a good three years since I've heard somebody deny that there was a housing bubble, or that it was the fault of some random person on the internet for housing prices to have dropped and trillions in equity vanished. Even NAR knows where to draw the lines on the bullshit they think they can get away with, and they stopped that one a while ago.

I'm certain that if I ordered a pizza right now and asked the kid who delivered it what he knew about the housing market, he could give me a more informative, honest, and realistic depiction than you. It's so undeniable what happened (shady loans, low rates, made-to-fail mortgages), what resulted (housing prices doubling nationally in just a few years), and what the fallout was when the loans ended (housing price reversion), that they could teach it to kindergartners in between recess and doing their ABC's. Perhaps if that were to start happening, you could sit in, learn a few things, then bail out before nap time.

RobSTL says

Homeowners lose because of stagnating/falling home values that fails to grow their wealth.

Valuation is not wealth. Whenever someone gets something for nothing -- in any economy -- someone somewhere else is getting screwed.

You want to grow the wealth in your home. refurb it.

Rising home values are totally a zero-sum game. For you to cash-out more, someone else has to cash-in more. The actual added wealth in this picture is ZERO, without any further investment from you into your property.

When the rest of the world is flourishing and prospering with increasing home values and rising wealth, the USA is falling behind rapidly.

You really love that cart-before-the-horse thinking.

Thing is, we're sending hundreds of billions of paycheck money to the third world and it ain't coming back into OUR paycheck economy, it's hitting THEIRS.

$20B/mo deficit with China. $5B/mo with Mexico. $20B/mo with oil exporters.

Every $8 we import from India, we only send $4.50 in wealth back to them.

We're importing $1B worth of oil a day, and the profits from this aren't coming back to our economy as capital investment, instead it's going elsewhere to fund third-world enterprise that has a greater return.

This is why we're going down and they're going up. Their booming housing markets are symptoms of their growing prosperity / lessening poverty, and whatever inflationary monetary policies they've got going alongside that, plus the natural speculative premium that appears in rising markets of any kind that allow specuvestors to play. And of course real estate is always ground zero for the specuvestor class, especially in overcrowded areas like China and India where ground rents really skyrocket due to the ever-increasing population density.

When the density doubles, so do the ground rents. It's a beautiful thing, for the landowner.

I said in my myth buster #3 that while there is actual commodity inflation and the dollar losing its value rapidly, the government and top economists have continued to claim low inflation. Bernanke continues to say any current inflation is transitory.

Later on you begin to reach understanding as to what the Fed thinks inflation is -- simply, the Fed thinks "inflation expectations" is wage inflation.

So yes, when they say inflation is transitory, they are wanting to make the statement that there won't be a wage-price spiral started, prices might go up in some areas but the cost of living and/or standard of living will go down in others to compensate

Most of you, including Troy, believe that higher wages lead to higher home prices. I believe it is the other way around - higher asset prices lead to job growth and wage inflation.

It can work either way, but only the latter is sustainable.

The 1970s actually had a tight job market and all the baby boomers making money was very inflationary, and this inflation and supply pressure of household formation pushed up real estate along with price inflation in general.

Here's rise in real personal incomes:

http://research.stlouisfed.org/fred2/graph/?g=E1

Note the 1970s was rather high 5% - 7.5%, outside the '75 recession, which was caused by the Fed tapping the brakes:

In this graph I've zoomed in and added the Fed Funds Rate in red:

http://research.stlouisfed.org/fred2/graph/?g=E2

Fed policy throttling wage growth in 1973-74 and 1977-80 is clear.

The 1990s also had increasing employment and real wage growth, which started heating up the market.

What happened in the 2000s, though, was the substitution of the bubble machine for actual productive enterprise or capital investment.

We were quite literally making good money selling houses to each other!

That could only last until the greatest fool stopped making payments on the loan he could in no way repay without continued appreciation.

Things actually started cooling off in 1H06 and the 2006-2007 period was just the smart money leaving the market to the bag-holders.

The rest of the world is “inflating” itself to prosperity.

ahah aha ahah. This only works until it doesn't.

Regarding loan rates and home prices, I was just addressing Troy’s statement that rising loan interest rates lead to lower home prices.

I made a list of many drivers. All work independently of each other. Your ability to ignore any counter-argument and stick to your guns is admirable, but, in the end, intellectually dishonest.

So let me break this down a bit more so you can't skate yourself past it so easily:

Nominal wages were down between 2008 and 2010:

http://research.stlouisfed.org/fred2/graph/?g=E4

that actually doesn't look too bad (since the top quintile is masking the lower quintiles) but the true picture is more like this: http://research.stlouisfed.org/fred2/series/U6RATE -- the unemployment picture doubling between 2007-now.

Taxes are steady or down, which is a mild positive stimulus to housing.

http://research.stlouisfed.org/fred2/graph/?g=E5

Interest of course is way down:

http://research.stlouisfed.org/fred2/series/MORTG

but mortgage underwriting is much more tightened now, preventing people with good FICOs from underwriting their own loans with NINJA/SISA loans.

Negative amortization has been purged from the market since 2008. This is an immense effect for the bubble markets, where 30% or more the loans were negative-am in 2006.

Geez Troy,
why you wanna dignify someone like that wasting your intellect calories? -It's not like they're reading Rob's arguments on Fox News Sunday.

Troy says

bob2356 says

What resources did Vietnam have exactly other than tea plantations?

rubber, rice, free labor ready to be incorporated into the dollar bloc. The general idea was for Vietnam to in the periphery our our US -> Japan trade relationship. In itself Vietnam was not of immense promise, but it was land and a people up for grabs between us and the communist bloc in the 1960s.

You are seriously suggesting one of the big reasons for the Vietnam war was rubber and rice? Especially since natural rubber was replaced by petroleum based products decades before. Free labor? Land up for grabs? We didn't look to colonize, we didn't have a clue what we wanted to accomplish, that's why we lost.

Troy says

but if the people were well treated and had a good standard of living the communists would have gotten nowhere.

as I mentioned elsewhere, Vietnam had a very high level of absentee landlords.

Absentee landlords is the very definition of colonization. What is your point? Like I said communism rose around the world because colonization was falling after centuries of exploitation. American leaders weren't smart enough to see the difference and continued to back repressive corrupt regimes around the globe in the name of anti communism. It is possible that for considerably less money than it cost to fight communism militarily we could have launched a Marshall plan type of economic aid into these area's and forestalled or prevented communist takeover. Except it wouldn't have worked either because but the money simply would have been stolen by the leaders we had committed to supporting because they were "anti communist". Ironically communism has now fallen because it is inheriently an unworkable system.

The same forces are again at work around the world as we speak. The post colonialist oppressors are being called to account finally thanks to the internet and cell phone. Lets see if American leaders can get it right this time.

"Sweden was neutral for the 20th century and profited immensely for that. None of these countries needed significant military establishments to defend their interests from the Soviets or anyone else."

Given what happened in Hungry in '57 and Czech in '67 I wouldn't be so sure. Since the USSR already had half of poland prior to the german invasion (molotov ribbontrov pact) it can be argued that they did want europe.
http://en.wikipedia.org/wiki/Sweden_during_World_War_II_%28Timeline%29
I know plenty of people from Eastern Europe and frankly they didn't feel free after ww 2
Sweden wasn't "really" neutral
http://en.wikipedia.org/wiki/Swedish_neutrality
"In the early 1960s U.S. nuclear submarines armed with mid-range nuclear missiles of type Polaris A-1 were deployed outside the Swedish west coast. Range and safety considerations made this a good area from which to launch a retaliatory nuclear strike on Moscow. The submarines had to be very close to the Swedish coast to hit their intended targets though. As a consequence of this, in 1960, the same year that the submarines were first deployed, the U.S. provided Sweden with a military security guarantee. The U.S. promised to provide military force in aid of Sweden in case of Soviet aggression. This guarantee was kept from the Swedish public until 1994, when a Swedish research commission found evidence for it. As part of the military cooperation the U.S. provided much help in the development of the Saab 37 Viggen, as a strong Swedish air force was seen as necessary to keep Soviet anti-submarine aircraft from operating in the missile launch area. In return Swedish scientists at the Royal Institute of Technology made considerable contributions to enhancing the targeting performance of the Polaris missiles.[2]"

Hosting missiles and keeping them secret I don't think is really neutral. To be fair there was a report/book by the carter administration that predicted if war broke out that warsaw pact would stand down..red army would have logistical problems.
The Cold War was just a lot of bullshit, except out in the periphery like Vietnam where it was very much an important struggle to prevent Moscow and/or Peking from increasing its access to if not outright control of the third-world resource base.

"This is not to say the illiberality and corruption of the global communist movement should not have been opposed, but our reactions to its provocations were often self-defeating and immensely wasteful over the long haul."
I see your point. It reminds me that the movie Fog of War illustrated how just a small assumption (that china would back the vietcong) prevented troops from pushing up north.

"The story of the 21st century is probably going to be the US losing its ability to consume 10-20% of the world’s global wealth output. We’re going to see this in energy, and also even food. As the yuan strengthens, the Chinese will be getting a better deal in the trade exchange with us.

Right now a Chinese factory worker has to work about 4 hours to buy a gallon of gas. As the yuan strengthens and the Chinese wage level increases to match ours, this will eventually fall to 1 hour."

But the paradox also is the pegging. Labor advocates try to say that the yuan is undervalued by 40%. If that is true and is fully unpegged it means anything made in china goes up in price 40%..BUT it means (since oil is priced in dollars and precious metals etc) go DOWN 40%. It is interesting as China sort of sets the price of gasoline. While I was there it was the summer of '08 and one day the price of gas went up 8% overnight. No riots, no protests etc. They can only hedge it so long up or down though. I've toured factories in china. I'm not sure what they get paid but working conditions vary dramatically.

"Of course, as their buying power increases, the price of gas is going to rise, and this is going to be the dynamic that forces the American consumer out of the global gasoline market. $10/gallon gas is most certainly in our future."
Price relative to the USA. In China it might be less but that's due the value of the yuan. A similar story happened with DeLorean. He could have made the car in San Juan PR but did it in Belfast instead. The value of the pound surged and he had to raise prices 50%.

"And with food, should the Chinese start redirecting their trade surplus into food purchases from us, this will take food out of our economy, putting more price pressure on domestic food prices. When the yuan doubles, we will have to double the wealth we send to them for the same amount of goods from them. Good thing we’re so fat already."
That's a interesting theory but I think China ultimately is going to add more regulation to the food market.I could take photos nearly anywhere but fish markets for some reason were the only ones to shun you away. I could add that simply taking the sanctions off of cuba could yield more demand.Sanctions in a economic downturn make little sense.

"But that’s not wealth. What I meant by “wealth-creating opportunities” is productive work that creates something that satisfies human needs and wants.
Consumer goods and entertainment IP. That is the meat of any economy. That is why we have an economy, to trade things that satisfy our needs and wants.
But as productivity increases, peripheral jobs in the machine are being lost. Eg. retail and transport:"

I hear you but then again simply shopping online could also cause that. I would argue we have an economy based on wants and not needs.Wants can change but needs don't. If people don't want then we don't have as much of an economy.

"Same story with IT:
http://research.stlouisfed.org/fred2/graph/?g=Dq
sector employment has fallen by 40%, from 17 IT jobs per 1000 at the dotcom peak to 10 jobs now."
I remember the dot com crash I have a AS in CS. I sobered up around 2000 when I realized that non physical work can go anywhere. Internet access is everywhere for the most part.

"Manufacturing of course is a horror show:
http://research.stlouisfed.org/fred2/graph/?g=Ds
Falling from 1 out of 6 jobs in 1970 to 1 out of 13 today.
Now, in the macro sense this decline is not a bad thing, since having an economy where everyone sits in a factory making stuff 20 hours a day is a pretty dreary economy."
I agree. You might like the book Reframing Organizations as it talks about some factory work and how it is boring as hell.Make no mistake we can manufacture anything in the USA but it's the costs that make the difference. On the inverse if gas does go to $10 then wouldn't consumers be forced to buy more locally?

"This is the systemic stresses that are building up. Too many people and not enough wealth-creating jobs."
But what if the desire for "wealth" is no longer needed.As houses go down in price that lowers cost of living. If an individual lives in a city then they don't need a car. The biggest factor in this might simply be population growth.What if we eliminate child tax credits and give one for being single? If there is openness of trade and a growing population and more and more being automated could it be argued that there is simply less work to be performed on the planet? Are western countries actually overdeveloped?

"rising from 1 out of 50 jobs in 1950 to 1 out of 12 today. These are relatively good jobs — helping people — but their pay has to come out of the productive economy, and health services at least has immense producer pricing power over the consumers.
We already pay twice the rest of the world for medical care, and this is also why we’re circling the bowl now."
True to a point but that could invert.A local paper of mine noted that the same procedure in just two cities (next to each other) varied in price by 6K (18K vs 25K) one is boston and one is quincy.Some assume more money means better care but without empirical data to back it up it's hard to say.The consumer doesn't care as the HMO pays but what if the HMO wants to create a industry priceline.com for this thing?

How can we claim to have a strong dollar when we have really no interest rates and have high government spending and lower taxes relative to the 1990’s?

"The housing market will also not respond favorably to mortgage rates going from the ~5% to ~6%.

http://research.stlouisfed.org/fred2/series/MORTG/
This minimal 100bp rise is in fact a 20% rise in the cost of credit."

Well those on lower incomes are getting nothing in bank accounts. CD rates are next to nothing as well. The market has scared the crap out of people the past few years. I'd say we have to raise the rates it's simply a matter of by how much.

The biggest issue I'd say is no one has specifically said how the baby boomers will retire without liquidating the stock market. You can't buy food with stock certificates. Buying something without the ability to sell it is nearly entrapment. Before 2008 I thought what if the market went down 100 or so points a month for a decade or so. Now I see the outright traditional mantra being scrapped (so no kids, no house..maybe no higher ed)
I'd say people are being smarter with their money and the days of mindless consumption that props up various groups is over.

bob2356 says

You are seriously suggesting one of the big reasons for the Vietnam war was rubber and rice?

yes, because while keeping the Mekong Delta in the USD bloc had a small incremental payoff, this was an investment being made with OPM -- and blood -- so the small payoff didn't really matter.

That was 1955 though, by 1969, economics wasn't the sole driver, most of the commitment of the late 1960s was committed to protect the previous commitment of the early 1960s, which was committed to protect the previous commitment of the late 1950s, which came about in our initial creation of the Diem regime to run the place -- essentially a martingaling thing going on.

And in 1955 and 1965 it wasn't just about the resources in SVN. It was about stopping the Maoist global movement and keeping the third-world in our trading bloc and out of the competing Soviet/Chinese bloc(s).

When the French moved out of Saigon we saw a vacuum that we needed to fill, and our failure to keep Saigon and its small but geostrategically significant land in our bloc would ripple out from SE Asia -- SVN, then Cambodia, then Thailand, Malaysia, Indonesia, the Philippines, then Africa, then Latin America.

Also, in the 1950s, OUR economy didn't need Vietnam's rubber, rice, and labor, but the general scheme of things was to retain a resource and commercial outlet for Japan to help its postwar recovery along, a their recovery would help strengthen the overall USD trading bloc.

Troy,

I do not believe that there is any dishonesty in your comments, and I can assure you that there is absolutely none from my side. I appreciate the time and research that you are putting in to post your civil comments.

Having said that, we are just seeing things completely differently on much of this, and I will point them out as I get time over the next few weeks.

A quick one regarding rents : I pointed out that both homeowners and renters "lose" in USA. It is a "lose-lose" situation for both parties in the USA. In India and China, both homeowners and renters win. It is a win-win situation there. How so? Rental yields there, unlike what you posted, have continued to be very low. An apartment that costs USD 200k can be rented for less than USD 5k per year, so instead of buying the apartment with a 10% mortgage and spending 20k per year, the renter wins by renting it for just 5k. The owner wins too, because the apartment appreciates 10-20% per year. Many Chinese apartment owners do not even bother renting out their vacant apartments, as the rent is not worth degrading the apartment. It is better to keep it pristine and let it appreciate a lot every year.

Comedy Central, brought to us by Patrick.net:

apartment owners do not even bother renting out their vacant apartments, as the rent is not worth degrading the apartment. It is better to keep it pristine and let it appreciate

sybrib says

Comedy Central, brought to us by Patrick.net

Ha, that's nothing:

RobSTL says

I do not believe that there is any dishonesty in your comments, and I can assure you that there is absolutely none from my side.

RobSTL says

Myth #4 : There was a huge home price bubble in the USA

http://www.bloomberg.com/news/2010-08-17/at-least-half-of-apartments-in-shanghai-beijing-are-vacant-daily-reports.html

myth #4 is a myth, because over here in the Cool and Hip Bay Area we have our Fortress neighborhoods coveted by wealthy foreigners and wealthy immigrants. Also as has been pointed out, there are other such Fortress neighborhoods coveted by them in the large urban areas of the Left Coast like Socal, Seattle, Vancouver.

As Sir Greenspan said, since all real estate is local, no bubble but lotsa froth.

No bubble in our Fortresses clustered along the Left Coast, though.

RobSTL says

It is better to keep it pristine and let it appreciate a lot every year.

just shoot me.

but this is, of course, a very old game to play, waiting for the land to "ripen".

land is better than gold as an inflation hedge.

At the end of the day nobody needs gold. But people always need a place to live on this planet.

And so the renters will always lose, by not winning like those with a spot on the housing ladder.

Same thing here, except our inflation is over, done.

The Japanese killed their economy in 1987-89 the same way we later did, 2004-2006.

http://research.stlouisfed.org/fred2/series/JPNCPIBLS

Just took the whole land game one spin too far -- 00 came up, and everyone still in the game lost their stake.

Though they have their strengthening yen that is generally pretty deflationary to their macro situation, a stronger yen makes imports cheaper.

I made it to the 5th point of the original post before I decided to not waste anymore time on it. It's one thing to have a differing opinion on a topic, but this person is just grossly misinformed and/or intentionally leaving out other relevant information to their points. China's avg house price is 1 MIL, but the average salary is 5k? That doesn't even make any sense...and if it is true, that's not owning, that's called renting with creative financing.

We live in a free market economy, so when prices fall, that means people CANT or ARENT willing to pay the original price.

This person needs to take an Econ 101 class

Total garbage. Just what you can expect from a realtor. Nothing in this article is true, just twisted to fit a realtor's mind.

Good, RobSTL should be out there buying any housing in sight. Considering that he thinks housing costs do not have to track income, I expect he can "afford" to buy at least a few hundred homes. It shouldn't be too hard to flip each one for a 30% profit and soon RobSTL will be the richest man in North America.

RobSTL says

The owner wins too, because the apartment appreciates 10-20% per year.

Definition of a ponzi scheme = empty apartment appreciating by double-figures every year, forever. Never ending appreciation without any rents tied to it. These magical condos will just get more and more valuable! Just sit on them! Buy now or be priced out forever (etc.)!! And yet, one can rent them for a tiny fraction of the carrying costs.

This is perhaps the most asinine thread to date, although I do remember a few by bearmarket way back when (on the other end of the spectrum).

Only a delusional individual could call all housing prices before 2001 abnormal while calling prices that were double the cost of renting "affordable".

Please get a clue RobSTL, for your own sake and ours.

I am a Realtor...and a middle class family man here in Huntington Beach. I suppose what I would like to hear from you is a description of how Asians (in particular) purchase property. They pool their resources as do Latin Americans. That is how many purchase property. In America, our society has always been taught to be independent and that, in my humble opinion, is hurting a large portion of America.

FredEx says

In America, our society has always been taught to be independent and that, in my humble opinion, is hurting a large portion of America.

1) I would disagree on what "our society" thinks. It seems like American society is about self-sufficiency, but that doesn't mean you can't ask your family for help. This would seem to be what Asian and Latino families stereotypically do, but plenty of white families have the Bank of Mom and Dad loan junior his/her first down payment.

2) Even if this is true, how does this hurt America? People in extended families tend to buy bigger houses, so if smaller families are buying smaller houses, and larger families are buying larger houses, who's getting hurt?

3) It seems like you're suggesting that Asians and Latinos are more likely to be able to buy houses than whites, for example, and that this hypothetical factor makes them better off. If the return on real estate is not that much when you exclude inflation, then why would people who buy a house be better off? If the return isn't very high, then home buying mainly serves as forced savings. Why is forcing people to save (and receive a lower return on savings) better?

"I suppose what I would like to hear from you is a description of how Asians (in particular) purchase property. They pool their resources as do Latin Americans. That is how many purchase property. In America, our society has always been taught to be independent and that, in my humble opinion, is hurting a large portion of America."

I can take that statement (or collection) a few different ways.

1) In other countries sometimes there isn't as much of a history of banking insurance. In Mexico (I'm not claiming this is indicative of all Latin American countries, I'm just using it as an example) China has banking but I'm not totally sure as to how their functions works.
Russia just started banking insurance in 2003! How does this relate? Well if deposits are not insured people are less apt to use banks. Without banking the only way to have more money is to simply bank it and have it on hand...

2) Mortgages themselves differ. In Mexico I've heard (can't find the link) that the majority of homes are paid with cash. Then a certain amount are built by hand and the remaining are mortgages. I've also heard foreigners cannot buy coastal (within five miles) property. In china it is more of a social aspect towards getting married.
http://www.chinadecoded.com/2010/09/11/homeownership-almost-a-prerequisite-for-marriage/

3) Without getting into a left or right political argument some of the differences here stem from colonialism. What is the most successful former colony (I'm sure someone would say Hong Kong) but it's the USA. Those that are in a colony have to do things themselves and as time goes on it gets ingrained. Going forward in history there was relative peace on the mainland since outside of 1812 and 9/11 there were no attacks from other countries. So building things yourself, doing things yourself became the norm. In Europe, Asia and Africa conflicts have happened on a continuous basis. One could say this fosters a togetherness eventually

Wrong.... real wrong on most of your myths, but I suspect your post was to solicit responses like mine anyhow and not based on fact or common sense...

If I can summarize your post, you obviously believe that a country, like the USA, can be a sustaining economic power by building and trading houses at ever increasing prices... you need to put down the Alan Greenspan books and wake the heck up fella...

thunderlips11 says

This is misleading. The $150k * 3 = $450k. $50k * 3 = $150k. The median household income is $50k, which means the median home price should be $150k. However, there are problems with the median household income. One being, 40 years ago, most households had only one income, typically the wife was a new unit of labor that could enter the workforce in bad times. That option no longer exists, both spouses are generally fully engaged in the workforce. So to compensate for the 1960s typical family, we should be using perhaps 2/3 of a median income.

I don't quite get this one. If both spouses are working and the median income is 50k, total household income would be 100k, using the 3x salary rule, fairly priced houses should be 300k.