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Economic Predictions: 2006


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2006 Jan 9, 12:47pm   18,401 views  134 comments

by San Francisco RENTER   ➕follow (0)   💰tip   ignore  

Okay folks, Happy New Year to you all and good tidings (even if you're a Republican) and yada yada yada. Let's get down to business: what do YOU think 2006 has in store for the US Economy? I know most of us see a housing slowdown as a foregone conclusion at this point, and the past 2 to 3 months of data seem like a whole lot more than just a "Holliday slowdown." But how much of a housing drop do you see, what areas of the country will lead the charge, and how will it affect GDP and our countries' overall economic health? How will the stock market fare in '06? We've already seen the beginning of the "January effect" in the stock market with a nice rally to start the year off ; how long will it last? How about the bond market, are lower prices and higher yields finally in the cards for '06? Can the American consumer continue to spend despite 6 straight months of a negative savings rate? Will the current account defecit and our addiction to cheap Asian Wal-Mart plastic crap continue?! Is gold the next bubble?! Will energy prices stay high or will we see demand erosion with an economic slowdown??!! So many issues, so many possibilities. Come on now armchair Economists, now's your chance to weigh in!

#housing

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1   surfer-x   2006 Jan 9, 3:07pm  

Ca housing starts down 57.45%, median price down 12.3%

2   surfer-x   2006 Jan 9, 3:08pm  

I have a suggestion, when posting meaningless data, name your fucking source.

3   Jimbo   2006 Jan 9, 3:15pm  

The homebuilders rallied hard today, on the expectation that the housing boom will continue, albiet at a slower pace.

I think California home prices will go down 5-10%, nationwide they will be stagnant.

The economy will bumble along, with slower reported GDP than today, but still not in an official recession.

I think inflation will pick up a bit and will continue to outpace incomes, making most people feel like they are treading water.

Corporate profits will remain strong and lending costs will remain low.

4   surfer-x   2006 Jan 9, 3:54pm  

SQT, shit man, whoops.

Mr. UP, I'm sorry, especially about the whole "wife with an ass an axe handle wide" comments. But then again, you can drink em pretty but you kain't drink 'em thin.

5   ric   2006 Jan 9, 11:03pm  

Just an opinion, but...

All markets will revert to 2000 levels, with approximately 3% per year inflation since then taken into account, which is pretty much in line with the reversion to the results of the recent national housing study that said (for example) that Naples FL is 84% overvalued.

It will take several years, it's a long way down, and everyone who bought after 2000 will take a hit in real terms by the time it is over.

6   DinOR   2006 Jan 9, 11:57pm  

I've sat in on a number conference calls over the last several weeks and the over riding theme has been, "more of the same". At least where equities are concerned, so while not a great deal to get excited about it's good to see the market return to some semblance of fundamentals.

I will revisit "tech" for the first time in a long time. Mort. "Backed" Securities may well become the lead story in the debt paper arena. With so many "homeowners" commiting serial re-fi and "buying time" as ARMS/IO's reset how will investors ever be repaid? This will become a serious disruption to their income stream. Think "seasoned" loans if you need exposure to this asset class. Selectivity and "special situation" stocks will continue to provide the majority of the thunder. Don't be afraid to take concentrated positions. Be nimble!

For the consumer, I think Jimbo nailed it when he talked about an un-official recession and people feeling like they are treading water. Any prediction of YoY home price increases will not mean much to people that are underwater.

2006 will be about having OPTIONS! As consumers and investors. Those with liquidity will be able to exploit short term trades for respectable profits and those with an albatross (RE leverage) well, it will boil down to how to "dispose" of it and somehow save face.

Any discussion of "tightening lending standards" in 2006 will be moot. These are conversations that should've taken place in 2003. Damage control will be the order of the day and lenders/appraisers/sales will be subjected to the same level of scrutiny as the "Mutual Fund Scandal".

NOT INV ADV.

7   Briana   2006 Jan 10, 12:02am  

Finally some news on Santa Clara County, thanks Patrick for that link.....finally showing some signs of a slow down.....whew, lets hope it continues....

8   HARM   2006 Jan 10, 3:24am  

FYI, we did a thread on this last August: "Fucked County.com"
I will stand by my original predictions.

http://patrick.net/wp/?p=55

9   HARM   2006 Jan 10, 3:56am  

Serial refinancing or surreal financing?

anotherfuckedborrower.blogspot.com/2006/01/serial-refinancing-or-surreal.html

10   Michael Holliday   2006 Jan 10, 4:41am  

surfer-x Says:

"I have a suggestion, when posting meaningless data, name your fucking source."

Yeah, name that source. And if we don't like your source, then you will be declared a giant goofball...And once declared a giant goofball, you'll never be able to buy a house in Silicon Valley again!

NOW NAME YOUR SOURCE, damn it. Hurry up!

11   San Francisco RENTER   2006 Jan 10, 4:50am  

"38% ROE on 20% down is fantastico!" --Harry Rich

Wow, that sure is a great return! This guys investment plan for the new year is to "wish upon a star." Boy, if I imagine myself getting a great return on an investment, it will surely happen to me, because I am surely blessed. All is well in my little world! Right guy, and any second now monkeys will fly out of my butt.

13   HARM   2006 Jan 10, 6:49am  

Hi, Harry,

Thank you for your participation. It's reassuring to know that no matter what the RE market does, there will always be clueless arrogant trolls like you around to use as foils.

14   surfer-x   2006 Jan 10, 9:34am  

Oddly enough, CSFB, the home to the troll'ist of all trolls, MP, has offices in Sao Paulo.

Is Sao Paulo PRIME?

15   Michael Holliday   2006 Jan 10, 9:52am  

This is a very good post, and I will be very happy to answer your questions:

Sunnyvale_Renter Says:

1. "HARM you’re bringing up just what I’ve been wondering about: Let’s say we have a big crash and RE drops 50%. So, Joe Blow Homedebtor is suddenly “worth” say $250k instead of $500k. Where did $250k go?"

Elves. That's where the money went. Santa's Christmas Home Equity Elves mysteriously swept in and made off with the residual $250K to be spent on presents for all the good little kids around the world. You see the population is increasing and Santa ran out of money so he got together with Alan Greenspan of the Fed (a former Christmas Elf himself, or hims-elf, if you please) and cooked up a Merry little method of wealth transfer from the greedy, to the needy.

2. "This is the problem with paper, fiat, Weimar money. I can take say $1000 in it out of the bank and burn it, and it’s gone. I don’t get to go back to the bank and get replacement pieces of paper. Now, I could have $1000 in gold and melt it, or even vaporize it and it would settle on the surfaces around here and have to be carefully collected again, but it doesn’t disappear. Gold and silver are elements, right there on the periodic table. They’re real. Fiat money and the consensus illusion called home “value” are not."

Look, you can't eat gold or fiat money. But you can drive a Fiat!
Plus, if you take a $100 dollar bill and roll it into a super-duper Baby Boomer-sized doobie, you can smoke it, Bill Clinton style.

So even if it "vaporizes" you at least get a residual high from it.
It's the hippy-ass Boomer way.

I don't advocate it, but fiat money is used for many things besides buying McMansions in the Golden Ghetto of Silicon Valley...

Oops, I think I lost my marbles...

16   praetorian   2006 Jan 10, 3:02pm  

I predict that I will continue my strong tradition of incorrectly predicting the future:

* Stocks up 10% (As money flees real-estate)
* Gold goes up or down. Or up.
* Dollar moderately tanks.
* Median price down 10% nation-wide (20% in CA, FL)
* Google hits my original predicted value of $50 a share as investors realize that online ads are an easily commoditized technology, and google gives away everything else for free.
* Roe v Wade is overturned within 18 months. _ducks_

Hell, I've been wrong for four years now (nearly 15% of my life!). What's one more?

Cheers,
prat

17   praetorian   2006 Jan 10, 3:32pm  

“Doom and gloomer?” You bet, and proud of it.

_smile_

"He is a sane man who can have tragedy in his heart and comedy in his head."
-GKC

Cheers,
prat

18   Michael Holliday   2006 Jan 11, 4:28am  

"Economic Predictions 2006" you ask?

Well, on a macro level one could expect the following scenario:

Since the "nesting instinct" in women is such a force, when the
housing bubble collapses, you can expect a gaggle of them to be
running around like chickens with their heads cut off because their
"nests" have just been shaken out of their trees. Soon feathers will
begin to fly!

In a micro, or individual level, I expect Surfer-X to keep his priorities straight, old-school-Cali-style, & just keep on surfin...!

19   Michael Holliday   2006 Jan 11, 4:46am  

Food for thought, grounds for further research:

http://www.newsmax.com/archives/articles/2006/1/10/220213.shtml

Here's an excerpt from an article entitled "America's Superpower Days are Over":

In 2005, for the first time on record, consumer, business and government spending exceeded the total income of the country. Net national savings actually fell.

America can consume more than it produces only if foreigners supply the difference. China recently announced that it intends to diversify its foreign exchange holdings away from the U.S. dollar. If this is not merely a threat in order to extort even more concessions from Bush, Americans' ability to consume will be brought up short by a fall in the dollar's value, as China ceases to be a sponge that is absorbing an excessive outpouring of dollars. Oil-producing countries might follow China's lead.

Now that Americans are dependent on imports for their clothing, manufactured goods and even high technology products, a decline in the dollar's value will make all these products much more expensive. American living standards, which have been treading water, will sink.

A decline in living standards is an enormous cost and will make existing debt burdens unbearable. Stiglitz did not include this cost in his estimate.

Even more serious is the war's diversion of attention from the disappearance of middle-class jobs for university graduates. The ladders of upward mobility are being rapidly dismantled by offshore production for U.S. markets, job outsourcing and importation of foreign professionals on work visas. In almost every U.S. corporation, U.S. employees are being dismissed and replaced by foreigners who work for lower pay. Even American public school teachers and hospital nurses are being replaced by foreigners imported on work visas.

The American Dream has become a nightmare for college graduates who cannot find meaningful work.

This fact is made abundantly clear from the payroll jobs data over the past five years. December's numbers, released on Jan. 6, show the same pattern that I have reported each month for years. Under pressure from offshore outsourcing, the U.S. economy only creates low-productivity jobs in low-pay domestic services.

Only a paltry number of private sector jobs were created -- 94,000. Of these 94,000 jobs, 35,800 -- or 38 percent -- are for waitresses and bartenders. Health care and social assistance account for 28 percent of the new jobs, and temporary workers account for 10 percent. These three categories of low-tech, nontradable domestic services account for 76 percent of the new jobs. This is the jobs pattern of a poor Third World economy that consumes more than it produces.

America's so-called First World superpower economy was only able to create in December a measly 12,000 jobs in goods-producing industries, of which 77 percent are accounted for by wood products and fabricated metal products -- the furniture and roofing metal of the housing boom that has now come to an end. U.S. employment declined in machinery, electronic instruments, and motor vehicles and parts.

Two thousand six hundred jobs were created in computer systems design and related services, depressing news for the several hundred thousand unemployed American computer and software engineers.

When manufacturing leaves a country, engineering, R&D and innovation rapidly follow. Now that outsourcing has killed employment opportunities for U.S. citizens and even General Motors and Ford are failing, U.S. economic growth depends on how much longer the rest of the world will absorb our debt and finance our consumption.

How much longer will it be before "the world's only remaining superpower" is universally acknowledged as a debt-ridden, hollowed-out economy desperately in need of IMF bailout?

20   DinOR   2006 Jan 11, 4:52am  

BA,

Good call! I've had my fill of Bulls trying to feed us that, "Yeah, there might be a bubble "here and there" but not here. Whatever. Everyone in America has pretty much the same access to mort. money and we've all been feeding at the same trough. Taking endless pains to quantify which areas are and which aren't in a bubble has gotten tedious. When you're getting a steady diet of hard evidence from places as far flung as Madison, WI? Some may be quick to ask what hard evidence?

Let's look at the fact that by virtually any parameter you so choose, things are either cooling or crashing depending on how much you were leveraged and where you bought. There was a time when folks that stayed in a home for the duration of the mortgage referred to it as an "investment" meaning that it was paid for! As in, "don't laugh, at least it's paid for". The impact on their retirement was primarily that they wouldn't be making mort. payments anymore and could afford to live on less. That "Old World" value has been totally dismissed. Now it's, "keep current on the payments for two years and you're retired baby"!

21   San Francisco RENTER   2006 Jan 11, 4:59am  

"How many US cities have to be considered overvalued before we go ahead an call it a national housing bubble?" --SQT

I'll call it one, because the areas that are over-valued are the major cities that are the major economic drivers of the US economy. That means that if those areas pop, it WILL affect the national economy and thus we have a national bubble. It doesn't matter if bum-fuck nowhere Iowa is over or under valued because the place is virtually inconsequential to the US economy.

22   surfer-x   2006 Jan 11, 5:03am  

Seems to me that I've been sucking it long and sucking it hard for about 42 years now, and I'm only 39. My prediction? The price of knee pads will skyrocket as us peons realize that we can be more comfortable whilst sucking it.

I'm tired of it. My other prediction? China will invade the Spratlys, Japan will send 3 or 4 destroyers in response, China will fire on them. The Shrub will thumb his chest but ultimately do nothing. China now embolden will invade Taiwan, the Shrub in response will send a squadron of F-22's to Guam and the Nimitz, Stennis, Vinson and Reagon to the South China Sea. In response the Chinese will stop buying Merikan debt instruments, and issue the following proclamation (translated from the original Middle Earth dialect) "suck it long, suck it hard". The McDebtors will rise up in protest but will ultimately be defeated by the collation of burrito folders against sucking it longer. In short burrito prices will skyrocket*

*Note: Not investment advice.

23   surfer-x   2006 Jan 11, 5:49am  

We don't think home prices, either new or resale, will advance in 2006, as they have in the past three years," Alan Nevin, chief economist at the California Building Industry Association, said in a conference call.

I also have articles written which indicate the Earth is flat, penned by the Flat Earth Society.

Consider the source, but my recommendation to you is buy now before it's too late. You clearly have done your homework and richly deserve the rewards coming to you. Again, buy now, real estate only goes up, remember the clear disconnect from thermodynamics means nothing, yes Timmy, something can always do just one thing, and Bay Area RE ONLY, I repeat ONLY goes up. Besides with the fat ass bonai Intel keeps doling out will only add yet another gold brick to the already paved with gold BA streets.

Buy now, before it's too late, you don't want to miss out now do you?

24   inquiring mind   2006 Jan 11, 5:50am  

Exaclty - don't trust Realtors or builders to EVER predict a market decline let alone crash.

25   inquiring mind   2006 Jan 11, 5:51am  

PS My question to these rosy forecasts is how low can affordability go - 2%, 1%? It's already in the single digits!!

26   surfer-x   2006 Jan 11, 5:52am  

@whatdoyouthinkofthislink.

Buy kneepads.

27   San Francisco RENTER   2006 Jan 11, 6:50am  

Read this if you want to feel dumber:

http://news.yahoo.com/s/bw/pi200601115912;_ylt=AvqdrYTKUhiOlX52Ru2K5m2b.HQA;_ylu=X3oDMTA3bGI2aDNqBHNlYwM3NDk-

I think that must have been written by a Sophomore HS Econ student who hit the bong too much before writing his article...

28   San Francisco RENTER   2006 Jan 11, 7:20am  

I deleted my prior post to remove profanity directed at Mr. "ILikeMoney."

Now, Mr. "ILikeMoney", should you believe that housing is a good buy right now, then I implore you Sir, make haste to leave this blog and go buy yourself a house. After all, it is your money, and you are most certainly free to invest it in whatever way you deem fit. But there's no time like the present to act on your convictions. Please put your money where your mouth is, as most of the other denizens of this blog have already done.

29   San Francisco RENTER   2006 Jan 11, 8:10am  

Housing is not a bad buy even at 2x rent Sunnyvale, if you are thinking long-term of course. Problem is, in the Bay Area, there's very rarely any such thing as finding housing for 2x rent. YET.

30   surfer-x   2006 Jan 11, 8:26am  

I still predict housing prices in San Jose-ish zip codes to increase in 2006.

I predict that San Jose will be official listed as the bunghole of california in '06

31   San Francisco RENTER   2006 Jan 11, 8:35am  

"I predict that San Jose will be official listed as the bunghole of california in ‘06" -- Surfer-X

But don't they have good burrito's in San Jose Surfer-X? That should keep it from falling all the way to "bunghole" status. Maybe "cornhole" though.

32   surfer-x   2006 Jan 11, 11:54am  

spazzer, welcome, I believe the correct spelling is $hitbox.

33   OO   2006 Jan 11, 12:12pm  

Hi guys,

I am curious about one thing. Will it be harder to finance buying a piece of land and building yourself? Because I seem to discover some kind of pricing discrepancy in the land price as opposed to home price.

Do you need to pay cash for land? Or is the lending guideline tighter? So I/O loans can be kept out of the land market? Thanks for any insights and feedback.

34   Michael Holliday   2006 Jan 11, 2:06pm  

Please try being upbeat and not so negative. Why the sorry faces?

You are privy to an economic inheritance of affluence and luxury.

Embraced the blessed fact that housing will rise, and rise, and rise forever.
For it's the dawn of a new and perpetually prosperous economy.

Who friggen' cares if salaries are stagnant or declining or even falling in real terms for that matter? Don't you people get it? Are you that fricken' stupid?

The housing equity rise is here to stay. This is THE new economy and the never ending pot of equity gold!

Let the fricken' Chinese and Indians have our manufacturing base and IT sector, I don't really give a sh-t and neither does the government and anyone else for that matter because we have found the fiscal sacred river Alph: the elixer of immortality!

No job and 400 FICO score you say?

Bwahahahaa!

So what?

You can still score a $100K, no interest loan, roll it into $10K down on ten houses X $100K per year per house appreciation, and Voila!

After one year minus taxes, transaction fees and loan repayment, you've still got a profit of $700K. Just keep doing it.

It's a new paradigm. You don't even need to go to school any more to become educated and have to earn a living. Our lives are changing unimaginably forever!

The Sorcerer's Stone has been unearthed, and real estate lead can be now be effortlessly changed to gold!

Oh, how lucky I am to be living in such a land of milk and honey. Oh how I thank my lucky stars and kiss the soil of Silicon Valley.

God bless you!

No, god bless everyone and god bless Tiny Tim!

35   San Francisco RENTER   2006 Jan 11, 2:29pm  

Check out the new Robert Kiyosaki column:

http://finance.yahoo.com/columnist/article/richricher/2188

I don't want to diss this guy too much, because he's not that bad at all, but in my mind he's got to be guilty of adding fuel to the housing bubble fire. I've read "Rich Dad, Poor Dad", and it's pretty decent, and I think it's cool the way Kiyosaki tries hard to advance the cause of financial literacy among the masses. HOWEVER, he has this mantra he is always spinning which seems to be "I made a fortune in real estate, and you should too. Real estate is where it's at, everything else is a riskier/more stupider investment." Hey, he made money in real estate, that's great, but sooner or later you've got to stop being a one-trick poney. You need a well-diversifed portfolio of which real estate can only be a part. That's the way it's alway been, and that's the way it always will be. Hell, if you've got conviction in something then you go right ahead and increase your exposure to it, but putting all your eggs in one basket will always be idiocy. Rant over!

36   surfer-x   2006 Jan 11, 3:12pm  

@Sunnyvale.

Sorry, I was at work. My feelings on San Hosebag being the biggest shithole on the planet are well know. I fucking hate* that place, I swear to fucking god** that if my fucking car runs out of gas in San hosebag, I'll fucking push it to Los gatos to get gas.

*hmmm, hate isn't really strong enough to describe my dislike for San Hosebag, lets see, I would rather have a rabid porcupine shoved backwards up my ass then spend 10 minutes there.

**Not the white Christian god, the pagan god Neptune, or perhaps you know him better as Poseidon

37   surfer-x   2006 Jan 11, 5:26pm  

@Sunnyvale_racist

Dude, if you put down your copy of Mein Kampf long enough you just might realize that your fucking hillbilly ass should just move the fuck back to Arkansas.*

*Note: Your redneck, hillybilly, butter loving self might just like Idaho too :)

**Note: Not investment advice

38   DinOR   2006 Jan 12, 1:01am  

ILikeBorrowedMoney,

Oh, just forget it.

Owneroccupier,

I find myself perusing some of these futile exercises myself. In an effort to somehow "side step" the bubble, create value and put myself in an enviable place without obligating myself to indentured servitude to infinity I've ventured down many a dark alley. Raw land requires substantial money down and while to a much lesser degree, it still carries property tax. Depending on how close you are to retirement (if not already there) one could consider using your IRA to purchase say, 10 acres in East Jesus, OR/CA. But first have the seller divide it into a 9.5 acre parcel (to be held in your IRA) and a .5 acre parcel on which to place your repo'd mobile home or build or whatever. This way, no neighbors and no IRS hassles! I realize this sounds like a desperate measure, but then again these are desperate times! If these are dollars "earmarked" for retirement we had best make damn certain we've targeted the most desperate seller in 3 counties. A 2x4 costs what a 2x4 cost I suppose, along with labor so most of the hyperinflated pricing we are seeing must be in the land. Use extreme caution! Great article today on builders being overextended posted today.

It really exemplifies the extremes this crash is forcing. Like 3 hour 1 way commutes, $400 per sq. ft. "lofts" downtown to beat the commute (on an I/O loan of course) and on and on. If you find yourself thinking things like, "That land I say on Ebay outside of Mojave wasn't so bad, I could set up a wind generator" or something like that, you're in a bubble!

Not INV. ADV.

40   DinOR   2006 Jan 12, 4:28am  

whatdoyouthinkofthislink?

Again, welcome to the 70's! This WAS great advice before the "buyers" you are bidding against are doing so with an Exotic Loan! We've got to really wonder if the guy that bought the 999K McMansion with an I/O EVER plans on paying that house off! Clue; he doesn't. These people have NO intentions of "building" equity. They want YOU to build it for them, someone here likened it to; "making somone else's retirement one payment at a time". They'll get a nice fat check and you'll get a nice fat payment booklet.

Liz Pulliam-Weston makes some great observations regarding 401K Plans in this country and more specifically what's wrong with them and their participants but she's just out of her depth here. Studying this entire HB issue truly requires commitment. It's not a casual undertaking and it's not for the timid. Again we see Bulls brow beating us for not recognizing the "new paradigm" yet retreating to conventional wisdom when it suits their needs. I'd have to call this a "fluff" piece.

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