patrick.net

RobSTL says

There will be no recovery in the USA unless all such entitlements are scrapped, but we are a doomed society.

Norway, Sweden, Denmark, Germany all have these massive "entitlement" programs you speak of.

The difference between them and us, however, is that they also have the political maturity to institute the high tax rates necessary to pay for them.

Well, Germany and France aren't doing so hot on that last part, but better than us at least.

We are a doomed society largely due to the lack of wealth-creating opportunities in this country, and this largely comes from the strong dollar we still have compared to our major trading partners (China, Mexico, Japan, Germany will pull $400B in trade surplus from our economy this year) and also the $400B/yr of paycheck money that bleeds out to our oil providers, never to come back -- $200B of trade deficits with just Venezuela, Canada, KSA, Nigeria, and Russia.

The problem with this economy is simply the rich getting richer, via rentierism in land and wage arbitrage via the strong dollar, globalization, and the trade deficits we're running.

We're privatizing the profit and socializing the costs.

RobSTL says

5. I would love for you guys to Google facts about Asian real estate. Here is a recent ad on CraigsList from Bangalore, India. A house on 2400sqft of land in a closer to town suburb has an asking price of USD 500,000.
http://bangalore.craigslist.co.in/reb/2393888219.html
And here is one in a far off suburb for USD 1 million :
http://bangalore.craigslist.co.in/reo/2380269841.html

I don't have to google it I've been there. You might be able to come up with your numbers by looking at a few select fortress area's of any third world city, but saying it's the norm is just absurd. You totally ignore literally miles and miles of slums where the value is very low. I can go to any third world city and find enclaves where the price is very high. Calling it the medium is just silly.

I don't consider Bangalore representative anyway. It's the wealthiest, most developed city in India by far. That's like taking Manhattan without the outer boroughs and calling it representative of American cities. I read somewhere that something like 15% of the people in Bangalore live in slums, where most Indian cities the number is well over 50%.

Gee I wonder who the people advertising on craigslist in English are and who they might be marketing to?

RobSTL says

I absolutely stand by that, because that is obvious common sense. Perception is reality. Whether the cost of something is going to go up or fall in the future and how needed is that thing currently drives buyer’s behavior.

I refuse to believe anybody can be as stupid as you are pretending to be. This is the largest asset bubble in modern history. Home price to per capita GDP ratios exceeded previous PEAKS by over seven-fold. No sentient being with an IQ over 50 could argue that it wasn't a bubble unless they were trolling.

This wasn't caused by an anonymous internet poster refusing to buy, or their ability to see that it was unsustainable. What they were able to see, you doubtlessly ignored. Not out of a sense of pseudo-nationalistic and enlightened righteousness like you pepper your posts with now ("just a patriotic American middle-class citizen with a wide international perspective"... GFY), but out of utter ignorance and unwillingness to acknowledge the data/facts.

RobSTL says

Indians and Chinese have continued to believe for the past 30 years that real estate will double in value every few years, so there is strong demand for it all the time there with the “buy now” attitude. If Chinese real estate is compared with the rest of the world and if public perception realizes that it is the most absurd bubble destined to collapse, then the Chinese will stop investing in it and this will lead to the collapse of China. Top economists are waking up to the Chinese bubble recently, so this may soon become reality.

Stop your bullshit about China/India. Nobody is discounting the possibility of a bubble there, yet you are framing your entire idiotic rant around it, and using very selective frames of reference to use it as a model of a bubble. When it's capable of triggering a global recession, maybe it will be worth discussion on a U.S. housing forum. But I think I'm in the majority here in saying that it's not only irrelevant to my/our interests, it's also intellectually insulting for you to whitewash the U.S. bubble with this bullshit.

RobSTL says

Americans, including me, have lost all hope that real estate will ever recover in the USA, primarily because we have converted housing into a massive entitlement and “redistribution” program, just like all the other self-destructive entitlement programs that we already have. There will be no recovery in the USA unless all such entitlements are scrapped, but we are a doomed society.

Wait, I thought it was OUR fault the bubble (which you say is a myth) lost its air.

RobSTL says

Listen, I will not stoop to your extremely low level and begin calling you names. Just the fact that you are doing pretty bad in life to spend all your time here just screaming at everyone here without providing any clarity in what you say only evokes my sympathy for you.

If I make bold, baseless assertions, then I deserve to be called out on them and be name-called. You're the retard insisting that there was no U.S. housing bubble. Every time you try to repeat, back up, or corroborate other posters' opinions, they ignore you out of shame. You're accusing others of triggering a multi-trillion-dollar financial collapse, which ought to embarrass you more than anything I or others have to say.

"We’re privatizing the profit and socializing the costs."

Bingo.

I don't know of anyone on this site Conservative, Moderate or Liberal that wants that (which is the reality). And here we bicker...

LOL! Be carefull, someone may sell you some Indian/Chinese MBS, CDO or what ever house bubble security, due to so called high demand growing incomes and booming economy.

We pretty much heard it all time and time again in the SFBA over the past 10 years.

thomas.wong1986 says

LOL! Be carefull, someone may sell you some Indian/Chinese MBS, CDO or what ever house bubble security, due to so called high demand growing incomes and booming economy.
We pretty much heard it all time and time again in the SFBA over the past 10 years.

House security is right, the more nuclear saber rattling going on with Pakistan and the more crackdown in response to unrest in Communist China, the more security a house security appeal is in The Fortress. It happened before in the buildup to 1997.

wow. i read up to Myth #4 and gave up. What an assclown.

"Norway, Sweden, Denmark, Germany all have these massive “entitlement” programs you speak of.The difference between them and us, however, is that they also have the political maturity to institute the high tax rates necessary to pay for them.
Well, Germany and France aren’t doing so hot on that last part, but better than us at least."

I can agree with that to a point but the fact of the matter still remains is that Europe got a free ride for much of the 20th century (or at least post ww2). The Marshall plan didn't end it simply became the OECD.Much of the military defense during the cold war pretty much was the USA.So obviously without military spending governments could afford a large social benifits package. I could also argue on a moral sense Europe had a major war or conflict with each generation (franco prussian, ww 1, ww 2) The USA had the civil war but that was largely it. Outside of the war of 1812 and 9/11 the mainland did not have much for bloodshed inside inflicted by another country.

"We are a doomed society largely due to the lack of wealth-creating opportunities in this country, and this largely comes from the strong dollar we still have compared to our major trading partners (China, Mexico, Japan, Germany will pull $400B in trade surplus from our economy this year) and also the $400B/yr of paycheck money that bleeds out to our oil providers, never to come back — $200B of trade deficits with just Venezuela, Canada, KSA, Nigeria, and Russia."

I understand your argument but most precious items like gold, silver, oil are priced in dollars and most banking is still performed in the USA. What exactly is "wealth". We have a global economy based on wants, not needs. Simply making something doesn't mean wealth if just mere pieces of paper are the exchange.One could counter your claim by saying that one printing press in the USA can command entire factories in other countries. It's nearly symbonic. If consumption ended it would lead to massive surpluses in other countries and lead to a economy downturn there as well.

"The problem with this economy is simply the rich getting richer, via rentierism in land and wage arbitrage via the strong dollar, globalization, and the trade deficits we’re running."

Well I add a bit to it. 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? I can't see the dollar being srong as you say because of the inflation we've seen. Interest rates have to go up at this point..even a one basis point move is better than nothing. If things went too fast last time simply go up a basis point every six months or so..I don't think that's too fast. I'd prefer a basis point every three months. The longer it goes the less of a increase it will feel.

"We’re privatizing the profit and socializing the costs."
I've heard that for quite some time and it can be true but I just don't see it for everything.

mdovell says

“Norway, Sweden, Denmark, Germany all have these massive “entitlement” programs you speak of.

They don't when it comes to buying a house. Lending in France and Germany is and has always been super strict. 20% down, is a minimum.

Their real estate market has not had a crash like ours. Prices are brutal, duplex in a city is 700k euro's. But Germany has something going that we don't. They export - everything. Pretty impressive for a small country that had 2 world wars and was completely destroyed only 60 years ago. Now they are the 2nd biggest exporting country in the world (behind China). They make $hit and we buy $hit. They have pride in craftsmanship and engineering, we just want to make a quick buck on everything.

I don't know about Sweden or Norway but they play no important part in europe anyways. France and Germany = Europe. I hope I am not offending anybody. :)

Man, this guy talks like a realtor. If he is an honest person, then he is plain stupid. Right now home price is 50% the peak and I barely can afford to buy one, how can we afford to buy when it's double? And we are a professional couple making 6 figure income. How is it that $800k house is better for your family than $400k? Stop posting this stupid article.

ltremai says

Right now home price is 50% the peak and I barely can afford to buy one, ... And we are a professional couple making 6 figure income.

See myth #4, it sounds like you are limiting yourself to The Fortress.

Like you, my partner and I are professionals and could barely afford that kinda housing cost but it is a false choice.

Give up on it.

We've lived (rented and "owned") in a neighborhood that is not in The Fortress; most of our adult neighbors are the kind of people who clean your office building at night, repair your roof or car, clean your teeth, etc. They are decent and friendly people.

My kids went to public K-12 in our section outside The Fortress, in high school they've taken all the AP classes they could handle, my oldest got accepted to all the UC's she applied to except for Berkeley. My kids did not get jumped and beat up by gangsters and they also learned how to live among and get along with all sorts of other kids besides just an entire campus grade-grubbing cohort.

You professional couple can barely afford it because you are limiting yourself to The Fortress.

mdovell says

the fact of the matter still remains is that Europe got a free ride for much of the 20th century (or at least post ww2).

I think you are confusing "not stupid enough to blow trillions of dollars on a confrontational global military posture" with "free ride".

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.

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 understand your argument but most precious items like gold, silver, oil are priced in dollars and most banking is still performed in the USA. What exactly is “wealth”.

commodities being priced in our currency does not actually give us strategic control over these resources.

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

If consumption ended it would lead to massive surpluses in other countries and lead to an economy downturn there as well.

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.

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.

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.

What exactly is “wealth”.

So far, we've been allowed to think it's pieces of paper with promises to pay.

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:

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

has fallen to 1/7th the job force and will continue to fall to 1/8 and eventually 1/10 if not smaller.

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.

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.

But the key thing is we actually need service sector jobs to arise and be sustainable on this smaller wealth-creating base. I think the stupendous rise in consumer debt:

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

indicates it is not. (CMDEBT includes mortgage debt, but mucho consumption was funded from home equity in the 2003-2007 bubble period)

This is the systemic stresses that are building up. Too many people and not enough wealth-creating jobs.

The one positive job trend has been health and education:

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

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.

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?

We have a strong dollar because the wage level in China is 1/6th ours. Mexican factory workers make $6000 a year or so. if there were no trade imbalance this would be a perfectly great thing for us, but of course we have a $250B/yr trade deficit with China, and even a $60B/yr imbalance with Mexico.

Interest rates have to go up at this point..even a one basis point move is better than nothing

I think you mean 100bp. That's sounds reasonable in theory, but a with our $10T national debt that's another $100B a year we will have to borrow or tax.

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.

I’ve heard that for quite some time and it can be true but I just don’t see it for everything.

My original was:

"The problem with this economy is simply the rich getting richer, via rentierism in land and wage arbitrage via the strong dollar, globalization, and the trade deficits we’re running."

We're throwing $200B in price subsidies at housing with the MID and Section 8, plus another $80B in food stamps to keep people from stealing to feed their families. Plus another $600B in unemployment payouts since 2009.

People with money and/or jobs prosper from globalization and the wage differential between us and our trading partners (of course, 1 out of 6 people who want to work in this country can't find the employment they need).

This wage differential is being supported by the continued trade imbalance though, which is driven by a dollar that is way too strong.

We sent 150,000 troops to secure our oil in Iraq, we break out the Nintendos to take out Khaddafi, to keep the oil flowing at a cost we can pay.

We're spending $1.5T more than we tax trying to keep the system together. People really need to do a thought experiment about what would happen if we cut $1T out of government spending instantly.

Not counting SS, the Feds are spending $3T/yr, each $100,000 of that has to be supporting a job in this country, so a $1T cut would be ten million jobs, putting us directly into Great Depression levels of misery.

Plus that loss of employment would collapse everything else, too, in a great ball of cross-default.

The problems this nation faces are very very serious. Which is odd, since 10 years ago things were not that bad. The mistakes we made in these 10 years, however, are easy enough to see.

Troy says

Which is odd, since 10 years ago things were not that bad. The mistakes we made in these 10 years, however, are easy enough to see.

It has a lot to do with the dirty deals between the Chinese corrupted government officials and the greedy US companies.

Normally, China should be bankrupted by now by selling things so cheap. However, Chinese created a housing bubble. It makes all Chinese believe that they are rich.

This is a lot like US around 2003 to 2007. US lost lots REAL jobs oversea. However, Americans still think that they are rich because of the house values. They borrow to keep spending.

xenogear3 says

China should be bankrupted by now by selling things so cheap. However, Chinese created a housing bubble. It makes all Chinese believe that they are rich.

What China is actually doing is a pretty interesting experiment. They are monetizing their trade deficit with us -- expanding their money supply for every dollar they retain in trade surplus.

It's my understanding that if a factory sells us $1M of stuff for $200,000 in materials, the $800,000 trade surplus is kept by the central bank and the factory receives 4.8M printed yuan (Y6/USD) in return.

It's this monetary expansion that is driving inflation in China, and it's this inflation that is driving people to invest in real estate.

However, Americans still think that they are rich because of the house values. They borrow to keep spending.

yup, that was the story of 2002-2007, when consumer debt rose from $8T to $14T:

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

This chart is annual increase in consumer debt / GDP:

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

it went from 4-6% in Clinton's second term to 9-10% during the bubble, doesn't seem like much maybe but it was a trillion dollars a year of stimulus during the peak. At $50K per job that would be TWENTY million jobs being supported by bubble debt take-on.

Troy says

if a factory sells us $1M of stuff for $200,000 in materials, the $800,000 trade surplus is kept by the central bank and the factory receives 4.8M printed yuan (Y6/USD) in return.

This is true. If they don't, Chinese currency will go up.

Troy says

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.

What resources did Vietnam have exactly other than tea plantations? They were exporting tea, rice, a little timber, and some coal in the 50's, not items the US needed badly enough to go to war over.

The domino theory was always neocon bs. Communism took over country after country because the colonialist governments or even worse post colonialist dictators that existed were so corrupt and exploitative many of the average people felt they had nothing to lose with communism, it couldn't possibly be worse. Yes China and Russia meddled like crazy, but if the people were well treated and had a good standard of living the communists would have gotten nowhere. What country with a good standard of living and reasonable wealth disparity has ever gone communist? Only countries with a huge poor population enslaved by a tiny ultra wealthy upper class.

Troy says

The Cold War was just a lot of bullshit,

Hey,
Waiddaminute.

The Cold War was Good Times in the Bay Area. The Bay was ringed with facilities, the payroll was many tens of thousands, probably more than 100,000, or even more than that. Cold War put me through grad school working parttime at a defense contractor.

Good times, lotsa redistribution of money collected from other parts of America to employees active duty and civilian around here, every one of us a U.S. citizen.

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.

Plus Vietnam was the bulwark on Chinese expansion into SE Asia, losing Vietnam would make holding Thailand, Burma, and Indonesia in our orbit more difficult.

McNaughton memo to McNamara in 1965:

ANNEX-PLAN OF ACTION FOR SOUTH VIETNAM

1. US aims:

70% --To avoid a humiliating US defeat (to our reputation as a guarantor).
20% --To keep SVN (and then adjacent) territory from Chinese hands.
10% --To permit the people of SVN to enjoy a better, freer way of life.

Looks about right.

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.

"In no small way, the fate of South Viet Nam has long hinged on the fortunes of the restless, landless peasants whose rebellion against an intolerable feudal way of life was one of the original causes of the war. In the 1950s, the Viet Cong cut a wide swath through the Vietnamese countryside by importing Ho Chi Minh's formula of routing the landlords and distributing "land to the tiller." Today, the leading advocate of Ho's thesis is none other than President Nguyen Van Thieu."

http://www.time.com/time/magazine/article/0,9171,905909,00.html

Troy says

Why are you rooting for a higher cost of living? Are you rooting for food prices too?

I answered this in my mythbuster #1. As housing prices, which in my belief were already low compared to the rest of the world, fell more in the last few years, we have seen job losses and severe wage cuts. Most posters in this blog seem to mistakenly assume that salaries will stay the same or go up even with deflation in general and falling housing prices. 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.

I believe a little inflation is good for the economy. Deflation should be avoided at all costs, especially if it is happening just in our country.

I respect the many posters that disagree with my opinion and state their points clearly and consistently. Clearly, klarek is not one of them. Eating just burritos and being jobless for many years while living on government handouts ought to be a miserable life. My sympathies again....

Great post,it would make more sense posted on April 1st.

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.