Some Stories To Chew On Over Your Weekend
Yahoo! Finance
Housing Bottom? No, the Mother of All Head Fakes
...Whitney Tilson of T2 Partners calls the May numbers "the mother of all head fakes." He--and the two analysts below--think house prices will resume their decline in the fall. We're in that camp, too...
Econobrowser
Been down so long it looks like upThe Commerce Department reported ( Read more... )
Housing Bottom? No, the Mother of All Head Fakes
...Whitney Tilson of T2 Partners calls the May numbers "the mother of all head fakes." He--and the two analysts below--think house prices will resume their decline in the fall. We're in that camp, too...
Econobrowser
Been down so long it looks like upThe Commerce Department reported ( Read more... )
First fact: in 1970, a house cost $17K. Inflation indexing to today brings that price to $70K. That's what a modern 3 bed, 2 bath house is worth, in real terms, setting aside utilities limitations and location.
Second fact: in 1970, mortgage rates were around 15%. Right now mortgage rates are around 7%, but most heads think that with the bond market mess we should easily expect rates to return to 1970's levels again, so a 15% mortgage rate is reasonable by 2013, when housing prices are likely to bottom out.
Third fact: wages today are falling, and consumer confidence is low. There's a lot of consumer debt and fear is making paying off that debt a priority, as all of us have memories of our grandparents or great grandparents' stories about how poor they were during the Great Depression and how they wished they hadn't taking out that loan on the family farm and ended up in that shack down by the river (etc) with nothing but spit and shoe polish to their names. Uphill, in the snow, both ways! With the current collapse of retail and finance industries, and the death of manufacturing a decade ago, we are very likely to see families go from two incomes to one, leaving even less money available for a mortgage.
Less available money, higher interest rates, continued collapse of housing prices until 2013... well, you have the education. You do the math. I can easily see an inflation adjusted $80K for a house in the Bay Area, and that's after the financial markets stabilize. It will almost certainly drop below that first, due to mass panic, and lower than even that due to the cost of taxation to pay for solar panels and wind turbines and probably a nuclear power plant or two just to deal with water supplies and pumping issues, and the fewer the people, the less water to pump but the higher the taxes have to be.
Somewhere a middle ground will be reached, and my suspicion is that many neighborhoods will empty with foreclosure signs, as empty as Brentwood is now (something like 45% empty but I expect a lot of rentals there in the near future). Since prices have already fallen 40% from its 2006 high. Another 25%, as you suggest puts it combined down 65%, which is a third instead of a fifth, like I think we'll see. That $17K house from 1970 sold for $400K in 2003 and appraised at $430K in 2006. Its still worth about $70K when all is said and done, and that's a drop of 84%, if all goes well. Whether the current resident of the Oval Office likes this or not is irrelevant. The economy is out of control of both the Executive Branch and the Federal Reserve. Perhaps if that house gets a few solar panels on the roof and puts in a ground source heat pump on its postage-stamp lot. I doubt it, however. Some locations are just dumb, and stupid is as stupid does. I've visited a couple dozen ghost towns in the Southwest, and they all have things in common: they were built for a specific purpose. When that purpose ended, they either found something else or the population packed up and left. And mostly, they packed up and left.
Reply
Reply
My answer? "Nothing. I can't think of a single thing which is safe."
We're up that special effluvium creek, without a paddle. Even the Great Depression had an ending. We will have to live long enough for a generation to grow up without memories or expectations of the Good Old Days like we grew up with. Only when they are in charge of business and government will things improve. Only then. Our expectations are too high, our flexibility, our willingness to give up indoor plumbing, incomes, safe food and water. All that is stuff we'll have to struggle to keep and learn to put up with the messes we've already caused. I am downstream from the entire Central Valley (Sacramento and San Joaquin Valleys), from the Sierras, from the Gold Country mines. There's heavy metals, traces of antidepressants and birth control pills and PCBs which flows right through the treatment plants and through my tap. I'm just like the other 12 million residents of the Bay Area. We're all getting poisoned by this. We're getting screwed. And you know what? Its not worth it, for these slightly higher wages and free natural air conditioning. Its not good enough for the costs of living here, for the poison, the crime, the overcrowding, the failing utilities and tax burden, the bad schools and arrogant employers. This is why I believe that California is dying. It is no longer worthy of being a land where dreams come true. Its mostly a land of indigestion, stress headaches, and rip-offs. When the general public figures this out and tells the rest of the country, California is DEAD.
Reply
Leave a comment