patrick.net

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...

I don’t care what the reporter’s opinion of what the data means–I just wanted the actual data.

The Yahoo article wasn't technically an opinion piece.

Because no matter what data I provide, you’re just going to say it’s wrong. It’s just a waste of my time.

Well, a ten-cent google news search couldn't have taken you much time anyway. By the way, your intransigence on the matter is no less wearisome than mine. I think the middle class is in trouble and the recovery is mostly a sham (except for the already very wealthy), and you think not. Huzzah.

If you’re going to try to tell me that CPI is worthless then we have nothing further to discuss.

Have you ever looked at how CPI is measured these days? The verdict was in on Boskin ages ago. No serious analysis can be arrived at using that methodology because it effectively understates inflation. It doesn't even include home ownership in its measurements. It's regarded as a fraud by several notable economists. Do a little research.

Some more data that I just read here over breakfast from the Bureau of Labor Statistics:

Personal income is up by $36 billion. On the surface, that sounds like growth, until we see that only $12 billion came from wages while $24 billion came from unemployment payments and other entitlements. Two thirds of this income growth being cited is coming in the form of extended emergency unemployment benefits.

Meanwhile, personal consumption expenditures rose by $56 billion. That means consumers spent $20 billion more than they brought in. Couple that with the savings rate which is way back down to 2.7% and the *recovery* looks a little dubious. I'm guessing a lot of people are plowing through their savings just to make ends meet.

http://www.bea.gov/newsreleases/national/pi/2010/pi0310.htm

Austinhousingbubble says

Have you ever looked at how CPI is measured these days? The verdict was in on Boskin ages ago. No serious analysis can be arrived at using that methodology because it effectively understates inflation. It doesn’t even include home ownership in its measurements. It’s regarded as a fraud by several notable economists. Do a little research.

I have done research and I proved you wrong earlier. Did you forget?? Home costs are included. As are the other costs you claimed weren't. Don't believe everything you read on the interwebs...

Austinhousingbubble says

Well, a ten-cent google news search couldn’t have taken you much time anyway. By the way, your intransigence on the matter is no less wearisome than mine. I think the middle class is in trouble and the recovery is mostly a sham (except for the already very wealthy), and you think not. Huzzah.

lol--you really think I did a google search for that article? Anyways, the rest of your post is fine. But that is not at all what you were saying earlier. I'm glad you've come to make more sense now...

I don't agree, but that's OK. Reasonable people often don't agree...

I have done research and I proved you wrong earlier.

No hard feelings, but I really don't see any evidence of that, let alone where you've proven much of anything. And I'll shit my slacks if you mention those massaged yahoo numbers again.

Did you forget?? Home costs are included.

I actually stated 'home ownership.' This is a fact, and you can look it up. The home costs you refer to represents rental dwelling units, NOT owner-occupied housing units. Big distinction. It does not include the cost of acquiring and maintaining a home or the average monthly changes in mortgage interest rates, property taxes, property insurance, and maintenance/repair, in addition to return-on-equity and capital gains or losses. Go look it up. No...really.

As are the other costs you claimed weren’t.

I only mentioned home ownership. The article you posted left out food and energy costs, preferring core inflation measurements.

Don’t believe everything you read on the interwebs…

I'm a skeptic, so belief doesn't even enter into it. The Boskin Commision's methodology has been the defacto standard in measuring inflation since 1995. Among other things, it helped the BLS gig the COLAs for SS recipients and it also helped Greenspan gig the interest rates during the Bush admin, as the CPI data at the time reflected no inflation despite double digit increases. So no, I'm not a fan of inflation readings using that method. Neither should you be. It's a complete turd.

But that is not at all what you were saying earlier. I’m glad you’ve come to make more sense now…

Despite the odd blood-sugar dip, I've never not made sense, or vacillated from my main point: middle class; dying on the vine. The end. I feel like a broken record. I'll go ahead and let you hurl the last brickbat on this, though, as my energy level for any subject is ultimately finite.

OK just to set the record straight...

Austinhousingbubble says

I only mentioned home ownership. The article you posted left out food and energy costs, preferring core inflation measurements.

The article mentioned both inflation and core inflation. Here is the quote for you again

“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.”

Austinhousingbubble says

I actually stated ‘home ownership.’ This is a fact, and you can look it up. The home costs you refer to represents rental dwelling units, NOT owner-occupied housing units. Big distinction. It does not include the cost of acquiring and maintaining a home or the average monthly changes in mortgage interest rates, property taxes, property insurance, and maintenance/repair, in addition to return-on-equity and capital gains or losses. Go look it up. No…really.

I posted this already for you in a different thread. The CPI includes something called "owners equilivent rent" which is what it uses for owner occupied housing. It does this on purpose--I'd encourage you to look it up as well.

Austinhousingbubble says

Among other things, it helped the BLS gig the COLAs for SS recipients and it also helped Greenspan gig the interest rates during the Bush admin, as the CPI data at the time reflected no inflation despite double digit increases. So no, I’m not a fan of inflation readings using that method. Neither should you be. It’s a complete turd.

OK--we'll agree to disagree. I strongly disagree that there were double digit increases in inflation over the time period you mentioned..

Austinhousingbubble says

Despite the odd blood-sugar dip, I’ve never not made sense, or vacillated from my main point: middle class; dying on the vine.

I don't think I'd go quite that far, but I agree that the middle class is definitely hurting. My disagreement is when you say wages in general are going to decrease for the next 10 years or the economy isn't improving.

Rents are still insanely high. We pay $2000 a month for a small 2B 2Bath. But it is still much cheaper than buying as I describe in this post:

http://activerain.com/blogsview/1629869/what-are-sonoma-real-estate-buyers-waiting-for-

Notice the real estate agent's attitude:

"the message to buyers is this: if you are looking for Sonoma real estate today, and you see something that strikes your fancy, make an offer now. Sonoma real estate prices and values will rise again. I think it will happen sooner than many anticipate. So what are Sonoma real estate buyers waiting for? I'd love to know."

I.E. Buy now! Buy now! Buy now!

Sorry, while renting is still expensive... buying is all the more so.

thomas.wong1986 says

A good dose of deflation should reset peoples mindset and get back to savings

Real estate sector takes all savings. If you make enough to save your LL is gonna raise your rent.

You may make enough to save over the mortgage, but new buyers at any level have to bid against each other, and any savings in this situation requires committing to less house in the race to the bottom of zero saving.

Just think, without Social Security or other "big gobernmet" requiring people to put away money from every paycheck (hence losing "freedonm"), nobody would save anything.

This was the situation that obtained in the early part of the 20th century.

AltonS says

Yes, more government will solve the problem!

I think we need to look to the city that brought us Barry Goldwater.

AltonS says

Yes, more government will solve the problem!

More government and less special interest and corporations pulling the strings of politicians... yes that would solve alot of our problems.

How to change our government so that politicians can't be bought and sold... that's the real question.

A practical, un-biased referee style government is necessary.. You couldn't play a baseball game, football game, basketball game ect.. without an ump or referee to call the fouls... you need a strong government to do the same for capitalism to work.

The problem is all the umps in D.C. have been bribed...

More declines to come. It didnt take long.

http://blog.redfin.com/sfbay/2010/04/case-shiller_home_prices_beginning_to_fall_again_in_the_bay_area.html

I can hear the thump of a dead cat bouncing.