patrick.net

RobSTL says

Corrupt countries like India and China in general do not publish median figures, ...

Have you been to China?

India and China are two totally different countries. Stop put them together in one sentence !

Also you sound like US has no corruption.
The last time I checked. It is US house bubble caused world recession.

corntrollio says

I, myself, am still shocked that klarek all by himself was able to take down our robust financial markets and cause the biggest housing bust since the Great Depression. Bad klarek!

His retarded remarks were directed at one of my fellow minions. We sit beneath a hollowed out volcano, protected by sharks with laser beams on their heads. We spread bad thoughts which crash markets, like our perfectly healthy housing market!

Our ransom before we do it again... one quadrillion dollars!

APOCALYPSEFUCK says

Now that I think about it, sure, yeah, the bubble was a myth and everyone in the universe is complete asshole for not bidding up the price of a 900 s/f condo in St Louis to $15 million.

It makes me feel like a horrible American for not putting my meager earnings into it. Just a little bit more.... just a one more buyer could have saved everything and kept it going in perpetuity.

Tumbleweed says

I’d like to see how Troy would build anything around here with “zero wealth.” Fact is it takes a tremendous amount of wealth to create a place to live.

Here's the annual increase in home valuations, 1990-now:

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

in 2006 it increased by $3T, $250B/month.

Housing starts:

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

in 2006 were 175,000 per month for an average of $1.4M increase per housing start.

We weren't building homes with an average construction cost of $1.4M in 2006.

There was also some refurbishing going on in 2006 -- "Flip that House" etc but the doubling of home values between 2000 and 2005:

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

was not due to the doubling of the housing wealth in this country.

Obviously.

Value is not wealth.

A primary definition of wealth is that which satisfies human needs and wants. You can't eat money, and you can't eat value. You can eat wealth, the edible forms of it at least.

That chart of annual valuation change:

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

shows a valuation loss of $4T in 2008-2009.

No, we weren't being bombed by Martians and losing our housing stock. That was just valuations bleeding away. No actual wealth was lost during this adjustment, well not much at least.

APOCALYPSEFUCK says

Maybe because he was being arrested for fraud the last time I was talking to him Opportunities.

realtors being arrested for fraud.... let's not pretend this is utopia.

APOCALYPSEFUCK says

Seriously, a lot of Realtors are indeed being indicted, convicted and sentenced.

For crimes other than being a realtor? Do we celebrate when a chainsaw-wielding murderer gets a speeding ticket?

I joined a friend on a ski trip to N Tahoe in early 2005. We stayed in Incline Village and one of the other people on the trip happened to be a Nevada realtor and the subject came up about the string of rental houses he had assembled at that date. Of course inside I wanted to throw a fondue fork at him.

Realtors rooking buyers is one thing, but I am more offended by their inside position in the industry that they leverage to snipe the best housing deals, either to flip or convert into rental properties.

This manner of operating has the hallmarks of the insider abuse that goes on in overly centralized and corrupt economies.

It's funny, cuz I'm totally with you on that. The insider shit... like a realtor excluding offers on an REO, letting his fuckhead investor friend scoop it up for "cheap" or flip it for a quick $100k profit.... those people are the scum of the fucking planet. No pain is great enough for those who the game is rigged for.

I just don't quite get your hatred for a guy that's willing to put his ass and money on the line, buy a place, and spend years waiting for it to even become profitable. FFS... you are begrudge somebody for getting monthly cash flow.

Troy says

they leverage to snipe the best housing deals

Troy says

insider abuse

As long as there are buyers willing to pay what they want this will keep going. Fenced people from this site are just a drop in the bucket. First off, all sellers need to reject all realtors to get rid of 6% commission.

redfin apparently charges a net 2.75% if it's on both ends of the transaction, which is a step in the right direction, though on a $600,000 purchase that's still $16,500 being raked.

If real estate ladying nets say $80,000 per year and it takes 20 hours of work to sell a house, that would be a sales volume of 2 home closings a week at $800 commission each. Double that to handle the back-end and $1600 per sale would be generous.

If it takes more than 20 hours to sell a house the industry really needs to get more time-efficient FFS.

klarek says

you are begrudge somebody for getting monthly cash flow.

"cash flow" without associated wealth creation is, essentially, theft.

http://en.wikipedia.org/wiki/Economic_rent

in isolation it's no big deal but all these economic rents add up, sucking up money out of the paycheck economy and having it collect in the rich man's economy.

We all can't be rent-seeking investors. Somebody's got to do the productive labor in this country.

Real estate is always a crowded trade, rife with rent-seekers. It is costing this country a helluva lot of lost productivity and needless debt burden

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

A (somewhat weak) analogy would be if 30% of the buyers at gas stations were not consumers but speculators taking supply off the market waiting for inflation.

People just trying to get to work would have to deal with not getting gas because the speculators pumped the station dry, or having to deal with successful speculators, for in this analogy world the supply of new gasoline never rises more than demand. Also in this analogy world the speculator cannot transport the gas to provide any form of useful redistribution service -- his purchase merely takes it off the market for a while.

Land speculation is actually much worse than this weak analogy. Where it leads to underdevelopment, like all the self-storage companies buying up land and waiting for it to ripen, it requires the community to literally route around the speculation. Churchill called this the "dog in the manger" in his 1909 speeches.

And of course land is a much more critical component to life than even gasoline. I spent the first 14 years of my adult life having only bought maybe 20 tanks of gas. I spent over $120,000 on rent, much of it ground rent since the housing stock I lived in wasn't all that deluxe or spacious.

Churchill also described how attempts at public charity end up in the landlord's hands at the end of the month.

Section 8 is obvious, but less obvious is SNAP food cards -- $80B per year -- and even the minimum wage itself.

Welfare that flows to a large number of people in a community like the $200/mo SNAP inevitably end up supporting higher rents, for the landlord always charges what their renter(s) can pay, and welfare adds to their renter(s) resources.

Burrito's example of his $200,000 purchase with a built in long-run 6% cap rate was also an example of how public money leaks into the LLs hands -- the DOD in its infinite wisdom cuts ~$1500/mo checks at the NCO level.

http://www.fortlewis.com/housing-bah-rates.php

It's really great that our tax money is going directly into a LL's balance sheet, and Burrito isn't the only investor feeding at this trough.

Only barely did the election of Governor Brown stop the stupid idea of selling state property to investors and then leasing it back from them -- that was close.

Anyhoo, as you might be able to tell I'm of the firm opinion that unless we clean out the speculation element from our land market we'll never have a functional society, due to the corruptive and dead losses the productive economy suffers to its successful rent-seeking, losses that are on the order of the $400B+ of oil we import each year*. At least with oil we're getting something for our money.

* 120m households, 1/3 renting, $1000/mo ground rent each.

This is a good topic. I am bored, so let me answer it.

Myth #3 : There is low inflation in the USA
Labor cost and rent are the biggest factors. They are flat or negative in the last 3 years.

Myth #4 : There was a huge home price bubble in the USA
Home prices has a lot to do with the local economy.
US is losing REAL manufacturer jobs while the house price is going up. This is clearly a bubble.

China and India are gaining jobs. A high house/income ratio is expected.

Myth #5 : Home price appreciation increases inequality
This is true only in the developing world where only a small percent of the population owns homes.

Home ownership in China is 80%. You call that small percent?

Myth #7 : Median home prices should be at most 3 times the median income to be affordable.
Why should this multiple remain “3″ whether the mortgage rate is 20% like it was in the 1970s or 4% like it is now

When people move, they have to sell their houses. If the interest is very high when they are moving, they will lose tons of money.

I suspect that the OT was a house flipper. Now a landlord with no choice :)

klarek says

Only a completely braindead moron would say this and believe it:

Home values collapsed because YOU succeeded in spreading the perception that the home price appreciation that we had just in some parts of the country was totally unjustified, and so the whole country should suffer a massive correction in prices. You will continue to spread that perception, until all American homes are totally worthless. I already stated that perception is reality. If the perception changes that home values will rise 10% in the following year, how many current homeowners will foreclose intentionally?

You still stand by those words? Dumbass.

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. 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. 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.

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.

I agree with everyone on this board that views realtors negatively. It is a profession that I have low regard for, as most realtors really know very little about the houses they represent, but charge a hefty commission for essentially very little work. I have very low regard for Wall Street financial firms and banks too, as they steal too much for essentially just being middlemen in financial transactions between 2 parties. I hope the internet eliminates all these dubious professions in the future.

RobSTL says

Perception is reality.

it's salesmen that say perception is reality.
that's because their job is to sell perception, not realty. you always make more money this way.

this assume the buyer is a fool that cannot distinguish between reality and the sales pitch.
and most buyers are fools that buy the perception.
like the home owners that bought in 2005 thinking it was a great time to buy.

I give you credit for going into the lions den here...

"When the current generation is getting utterly destroyed and losing its savings and wealth because of stagnating or falling prices, they cut back on all spending. This results in the retailers and service providers not making enough sales, which then leads to job cuts and low wages, which then leads to further cutting back in spending, and this cycle goes on with vastly decreased hiring and much lower wages. With competition between the current generation and the next younger generation for the few available jobs, lower wages etc, how exactly is this better for future generations? New college graduates are finding it extremely difficult to get jobs."
One of your links is an opinion page. I'm a grad and I've turned down job offers because I'm in graduate school. The workload is a tad heavy. I think you are making a interesting arguement here as much of the future battles will be baby boomer vs everyone else. BUT this has little to nothing to do with housing. Lower housing prices means more people can afford them pure and simple. They made way too many houses and it didn't help. As for retailers I worked for one housing related for 3.5 years and frankly there's cash in the bank. I don't think any retailer has outright stopped opening new stores.

"There is ample proof around the world to prove this to be a complete and baseless myth. Countries with the most absurd housing price appreciation and bubbles in the past 30 years like India and China, are flourishing with high GDP growth, wage increases etc. Countries where home prices have stagnated or fallen over the past 30 years like in the USA and Japan have collapsed. Enough said…"
No not enough said. I've spent some time in Asia as well. In China housing is driven by the desire to have a spouse. In western countries you buy a house AFTER marriage. In china it is the opposite. You do realize that inflation can be imported and can have nothing to do with GDP or GNP for that matter. Oil prices proved this in the early and late 70's..

"Even per Case/Shiller, home prices need to at least keep up with inflation. By faking extremely low inflation numbers, the government and economists with ulterior motives have claimed housing to have risen more than inflation. The truth is that house prices have vastly underperformed inflation, and housing in the USA is vastly undervalued compared to the rest of the world."
Huh? higher inflation doesn't mean higher housing prices. Housing is not connected with the price of gold. The USA is overvalued since there's nearly 19 million empty houses in the country (bloomberg). We don't have 19 million homeless people! There's a housing surplus. We could give a house to every man, women and child in Cuba and Austria combined and STILL have houses remaining.

"Myth #4 : There was a huge home price bubble in the USA
The most absurd housing bubbles are in India and China, and not in the developed world. The median single family home price in India’s and China’s metros is currently over 1 million USD, though the local median annual income in those metros is less than 5000 USD, so it is a median home to median income multiple of 200 in these Asian metros, compared to less than 8 in the United States “bubble” metros even at the peak of the housing price in 2006. Home prices have appreciated about one thousand times (100000.00%) in the past 30 years in India and China, compared to about 3 times in the United States during the same period. Also, these million dollar homes in India and China are extremely small, with no luxury features, and utter squalor all around. When comparing, size, quality, features, surrounding infrastructure and beauty, homes in the USA are unbelievable and absurdly cheap compared to every other country in the world."
Um 3 million dollar homes in China are pretty good..Heck just look at Hong Kong and Shanghai. The Bund district looks like Prague and the Pudong looks like Blade Runner! Keep in mind property taxes are based on assessment and rate. If they can't raise one then the other will be raised. This is how a 140K house can become a 300K house in a few decades (but the rate stays the same..go figure)

"The intentional home price collapse in the United States is a conspiracy to transfer massive wealth from the American middle class to the ultra-rich and to buyers from India and China, who can easily buy dozens of luxury homes in America if they sell their small apartments in their Asian metros."
Huh? The bubble didn't happen in mass as there was no pop..same with DC.

"See above myth busters. Homes prices never became “unaffordable” in the USA, especially compared to the rest of the world. What actually happened was that low-income people were allowed to buy dream homes that they could never afford in the first place, thanks to lax lending from banks. As Warren Buffet said recently, it should not be America’s social goal to get every family into their dream home, but into a home that they can afford. Housing, especially luxury housing, is not an entitlement, and to expect that palaces of gold should be easily affordable to even the lowest income families is just self-destructive socialistic agenda."

Ok I can give you that one but not everyone could get a ninja loan..and yes housing was unaffordible. I know a women who became a doctor in mass but moved to Baltimore to work at John Hopkins. NO ONE stays in mass after graduating if you can move to a place cheaper. Who cares if you make less if you can afford more. Few people actually move to the state.

Myth #7 : Median home prices should be at most 3 times the median income to be affordable

This myth/expectation is just plain laughable because the advocates of this multiple never define what the median home is. Should we not divide this at least into apartments, low end homes (1000 sqft or less), middle tier homes (1000-2000 sqft), high end homes (2000 sqft+), and super luxury homes first before we talk about what should be affordable? Then, if the median income cannot easily buy even the apartment or low-end home, you can state the case of unaffordability. Also, how are mortgage rates not part of the calculation of this affordability multiple? Why should this multiple remain “3″ whether the mortgage rate is 20% like it was in the 1970s or 4% like it is now?

"it is actually the other way around. Jobs follow only when housing is strong and people feel the wealth effect. So long as housing prices keep falling or stagnate, there will never be a true jobs recovery in America."
huh? How does that explain Mass then? How does that explain NH then? We didn't have a bubble and we have lower unemployment then the rest of the country.

"While this may be true in a few places, in most American cities, it is now far cheaper to buy a home than to rent it. Low prices and very low mortgage rates have led to this situation, which is a boon for rich landlords. Rents are also going up in most cities as foreclosed families begin to rent. Beware the bloggers who want median home prices to fall even more from their currently already extremely cheap levels. The goal of these bloggers is to buy those at rock-bottom prices and become very profitable landlords."

Heck I've even seen hotel rooms that are cheaper than apartments! People don't care about amenities. If something works then it works. We have an economy based on wants but people don't want, therefore shelter is a need and you don't need a house. I suppose you might also write that people want SUV's with $4 gas

No it is not cheaper to get a home than rent as houses require maintence, apartments don't. Who wants to rake the leaves, shovel snow and do the countless repairs if they own a home? I can't tell you how many clueless customers wanted to half ass home repairs or had no idea how much contractors cost. And yet all they'd have to do is get an apartment and not have to worry about this.

"State this to any of the billions of people outside the United States and they will kill themselves laughing. Homes have and continue to be the biggest purchase made by most families in the world, throughout history. They are not fools to make it their biggest purchase if it is going to cause them to lose their hard earned wealth."

IF a house is to quote Bringham Young "This IS the place" and that is where someone will live for the rest of their lives then certainly that is fine. BUT globalization has proven otherwise. Who honestly lives in a place 30+ years given the job climate? If you cannot move then why would an employer invest in you?

I highly recommend you read some of the works of Richard Florida. The book Who's Your City outlined a bit of why home ownership is not good. It limits mobility and thus opportunity. If someone cannot move they why have a house? A house is not that liquid. If someone has an apartment they can pack up their stuff and go. It can easily take months if not years to sell a house these days..that's way too long for companies to put up with..I've seen it happen. My family could have easily kept a house in a nice area after a relative passed but the costs for maintence were too high and it would not make sense to retrofit it for a rental (ADA alone..probably lead paint and asbestos). Renting doesn't require finance. The housing bubble scares the crap out of some because it means people don't have to work as hard for housing. The most expensive things people will ever buy would be a house, a degree and a car. Well if someone already has a degree and lives in a city..then they are set. If they don't have kids that saves even more. Locking people into given areas fully knowing the concept of a mortage is ancient is just wrong.

RobSTL says

Americans, including me, have lost all hope that real estate will ever recover

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

This is utterly bizarre.

Patrick of course occasionally flips the wording on his news headlines to drive this point home.

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 !!