California Budget and Mega Housing Analysis – MLS Listing Shows 115,000 Homes and Shadow Inventory has 273,000 Homes Statewide. Cities Running out of Money and Tax Collections at 2000 Levels.

Back in May of 2008, the city of Vallejo California filed for Chapter 9 bankruptcy in what became the largest city in California to actually go bust.  Most of California missed this because it was enthralled with the toxic mortgage cookie monster eating away from every city from Anaheim to Yuba City.  Yet this bankruptcy was foreshadowing what was to come for the entire state.  For the entire decade, large salaries and mega pension commitments really were hidden because tax revenues were looking fabulous.  The FIRE economy was spitting so much money that the embezzlement behind the scenes was being hidden in the shower of ill gotten cash.  Sales were raging, unemployment was low, and even if you had no job you could get massive cash advances on credit cards and get by for a few years.  But of course all of this was one giant bubble.  And this Monday a little city know as Los Angeles announced that it’ll be running short on cash by May 5th.

“(LA Times) Los Angeles Controller Wendy Greuel on Monday said she expects the city’s general fund “will be out of money” by May 5 and that L.A. will likely deplete its reserve funds and be in the red by June 30.

Greuel alerted Mayor Antonio Villaraigosa and the City Council of the city’s dire financial situation after the head of the Department of Water and Power stated he would oppose sending $73.5 million in utility revenue to the city treasury. Interim General Manager S. David Freeman said the council’s vote to block a proposed electricity rate hike last week threatens to put the utility in a deficit.

Greuel urged the council and mayor to immediately tap the city’s reserve funds so that city has enough cash to cover payroll.

“This is the most urgent fiscal crisis that the city has faced in recent history, and it is imperative that you act now. That is why I am asking you to immediately transfer $90 million from the city’s reserve fund to the general fund so I can continue to pay the city’s bills, and to ensure the fiscal solvency of the city,” Greuel said.”

Now when Vallejo went into bankruptcy, many commentators were stating that this was an isolated event.  But what isn’t isolated is the implosion of tax revenues, the lifeblood of state government.  I went ahead and updated the below chart with the latest data:

The above has led to a California state budget disaster.  I spent time over the weekend reading about various issues in the current economy.  One issue that is probably going to hit many from left field is the municipal debt markets.  Unlike the federal government states (and certainly cities) don’t have the liberty of using the Federal Reserve and U.S. Treasury to print their problems away.  Many states including California are required through their constitution to balance their budget.  The above chart with collapsing tax revenues does not help in reaching the goal of balance especially when expenses are still surpassing revenues.  The equation is simple; you either cut further or you raise taxes.

And those pension fund liabilities are coming due as well:

“(LA Times) The state of California’s real unfunded pension debt clocks in at more than $500 billion, nearly eight times greater than officially reported.

That’s the finding from a study released Monday by Stanford University’s public policy program, confirming a recent report with similar, stunning findings from Northwestern University and the University of Chicago.

To put that number in perspective, it’s almost seven times greater than all the outstanding voter-approved state general obligation bonds in California.

Why should Californians care? Because this year’s unfunded pension liability is next year’s budget cut to important programs. For a glimpse of California’s budgetary future, look no further than the $5.5 billion diverted this year from higher education, transit, parks and other programs in order to pay just a tiny bit toward current unfunded pension and healthcare promises. That figure is set to triple within 10 years and — absent reform — to continue to grow, crowding out funding for many programs vital to the overwhelming majority of Californians.”

And all this ties into more pressure for the housing market.  Heck, the housing market is a footnote with some of these bigger issues on the horizon.  Let us however focus on the housing market with this as our backdrop.

California Housing Years of Problems

The first and obvious problem is our 12.5 percent unemployment rate (underemployment over 23 percent).  What this means is we have a smaller pool of qualified buyers and sellers out in the market.  We already know that one-third of all mortgage holders in California are underwater.  So the market has some serious issues.  But let us look at the overall MLS data.  First, Southern California:

Then we add in Northern California:

Through this search we find 90,540 homes on the MLS.  But I wanted to expand the search:

With a wider search we find 115,000 properties (this includes condos).  So let us say that California has 120,000 to 125,000 homes listed on the MLS for public view just to be conservative.  Now this certainly doesn’t seem like a large number for a state with some 38 million people.  In any given time, (this will come off as captain obvious) you should not have more distress property than healthy property on the market.  Right now, the shadow inventory dwarfs the MLS data:

In total California has over 273,000 foreclosure filings (i.e., notice of defaults, scheduled auctions, and bank owned homes).  Keep in mind that the MLS reflects a large percentage of this.  When I was tracking this data carefully for SoCal it was roughly one-third of MLS data.  So in reality, California may actually have 75,000 to 100,000 healthy homes on the market and 273,000 distressed homes.  We have never been in a position like this so to say we are seeing signs of a healthy market are nonsense.  Many are making a bet that things can’t get worse in some markets.  Yet we’ve never had this much distress property so there is no historical tale to give us a hint as to how things will play out.

People do quick math as well on these things.  They say that California last month sold 28,000 homes; of this 44 percent (12,320) were foreclosure resales.  At that rate we’ll burn through the distress inventory in:

273,000 / 12,230 = 22 months

This assumes that foreclosure filings freeze in time today.  Well with option ARMs and other junk entering their judgment period, this number will increase.  Plus, people tend to forget that life actually goes on.  People retire, marry, divorce, have kids, and leave for jobs and this is part of the normal market in typical times.  People ask me what is a good metric to use to figure out when we reach a more normal market.  First, we should look at notice of default filings:

Source:  Calculated Risk, my edits added

2009 was the worst year on record.  Over a 14 year period in more “normal times” (aka no option ARMs, interest only, and other craptastic mortgages) the average number of default notices filed was 100,000.  But keep in mind, that in these times foreclosures were low as well because many loans “cured.”  Take for example Q4 of 2009:

NODs:   84,000

Trustees Deeds Recorded:          51,000

But run these numbers for another time and you’ll see how out of whack things are today:

Q3 2001

NODs:                   18,673  (4 times less than Q4 of 2009)

Trustees Deeds Recorded:          5,104 (10 times less than Q4 of 2009)

Keep your eye on that NOD figure:

Step one in seeing a recovery in housing?  Getting that NOD number back at a rate of 100,000 per year.  But this isn’t some pie in the sky economic theory.  When NODs get filed (if they even get filed if banks aren’t sitting around doing absolutely nothing) this is a reflection of someone struggling.  This is someone that hasn’t paid their mortgage for at least three months.  I’ve had people e-mail me telling me they have yet to get a NOD after 12 months of no payment!  It seems recently things have streamlined but make no mistake, NODs are a reflection of actual economic pain.  So this has to fall before any recovery talk.

The next indicator?  Tax revenues.  Since California taxes everything (i.e., sales, property, income, corporations) we have actually a fairly good read on the pulse of the state.  If you look above at the first chart, tax revenues are still at the low of this contraction.  Until this improves, no recovery.  And make no mistake, that warning from that L.A. Controller will likely mean higher taxes or less services.  That is the only way to balance.  I’ve talked with a few investors renting property in lower priced areas and they are “shocked” how slow city services are to respond.  Just wait until they have an issue with a tenant.  California is not a landlord friendly state.

Until that time, I’m cautious about any recovery talk especially for the state.  I’m now seeing more mainstream articles talking about the second wave tsunami.  Some of this is coming from an increase in short sales and from banks gearing up the crap that was built up after HAMP failed because it didn’t address the obvious.  Of course it failed.  This is what happens when you spend two years ignoring the main nucleus of the crisis, jobs.  In fact, we are so deep in the rabbit hole that Citi is now offering a $500 temporary mortgage payment for the unemployed!  What the hell is this?  What about renters that are unemployed?  Apparently they don’t count just like the 273,000 properties in shadow inventory that supposedly don’t exist.

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41 Responses to “California Budget and Mega Housing Analysis – MLS Listing Shows 115,000 Homes and Shadow Inventory has 273,000 Homes Statewide. Cities Running out of Money and Tax Collections at 2000 Levels.”

  • I always find it interesting that the government always wants to bail out the homeowners, but they don’t give a good cahoot about the renters. Hey, people who bought with no money down and are upsidedown in their mortgage are renters too. They don’t own anything.

  • You just keep hammering Doctor! Somehow jobs are being ignored…unless census takers can buy a house!

  • wheresthebeef

    Another excellent post by the doctor. That was actually scary to read. Anybody who thinks we turned the corner and blue skies are forever here again better get their head out of the sand. This recession (especially in Ca) will linger for years to come.

    Raising taxes will not be tolerated anymore as was seen in last year’s special election. Services will be cut and the public sector will have to shed jobs, salaries and benefits…plain and simple. For the most, the public sector has been immune to the Great Recession. This will change very soon. As far as housing goes, there really aren’t any good reasons to buy now, there is just too much risk and virtually zero reward.

  • I literally got the chills looking at these numbers.
    However all this excitement about putting state and municipal workers out of work ignores one thing: those are JOBS, people, and cutting more JOBS means having fewer JOBS that people need in order to, like, you know, LIVE. And recover this flustercluck economy. My impression of much of this talk is that Schadenfreude is more at work than economic thinking.
    Pay cuts for public workers–I can see that if done fairly rather than in retribution. Bennies? I dunno. I would never have bothered to take the low pay, abuse, and miserable working conditions of state employment except for the stability/benefits of those jobs. All such reductions will mean is the flight of skilled people away from the public sector to other states and nations in the world, and the race to the bottom continuing. Which is exactly why I left state service. Good people cost money, and excellence give one many options.
    A nation is only as strong as its middle and working classes. Unfortunately we have spent most of our energy propping up parasites at the top and bottom. And reviling workers thoroughly while worshipping and excusing parasitism.
    I’d say there are many options, Doc. One is reducing tenure at public colleges/universities to 8 years. Let university professors actually compete in a free market, and don’t EVEN honk at me with this nonsense about tenure contributing to academic freedom. It’s well established by now that professors get more conservative as they get older, and if anyone needs academic freedom it’s those establishing their careers. Tenure for life is a mediaeval invention; END IT. And gear professors’ salaries to the actual salaries of their graduates. In other words, if you’re a social work professor, and the mean income of all your students is $11,000 per year, you get twice that, tops.
    Raise tuition…though I’m not sure how many people will want to go to such schools in areas where, for instance, infrastructure and services are crumbling. If anyone takes more than 4 years to get their degree at a public university, without a damn good reason, levy fines on them, stiffer each semester.
    Get the damn computers out of K-12 classrooms. Make computer use conditional upon the student demonstrating a tenth grade competence in arithmetic, reading, and writing. Force the computer companies to stop using school systems and property taxes for their socialized bling, and actually get the hell out in the free market and COMPETE.
    Make Prop 13 do what it was supposed to (protect Grandma, not give welfare to the private sector).
    Don’t let public retirees cash out for more than X times the mean income of their last ten years of employment. If necessary develop formulas that tie the retirement total benefit to more than, say, just the three highest years of income. This will require adjustment on the part of many Boomers’ expectations, who thought they’d hit the public lottery in retirement. And move to OUR part of the world and be our local landed gentry.
    Deal with this whole illegal immigration thing. California could save $10 to 12 billion alone on direct services to illegal aliens, not to mention the cascading indirect costs.
    Withdraw incentives to go on the state and federal teat. Tax people for having more than two kids, rather than giving them tax breaks.
    Tax waste, not work. Tax things we want to disincentivize, like private car ownership and the solo commute. Bump the single-occupant HOV drivers’ tolls up by a factor of ten.
    Last but surely not least, TAX THE CHURCHES–their income, their property, their investments. It is RIDICULOUS that these organizations get a pass. And any church whose message is somebody is going to hell? TAX THEM DOUBLE. And then some.
    OK, sorry to run on, and yell at me all you want now. Yes, I’d also tax GE, etc., but that won’t end up going to the states. Corporations hold states hostage. Until we learn to sunset corporate charters a la POCLAD, that’s not likely to change.

  • Foreclosures to standard listings ratio 2:1? My God! Here up in North we hardly know what foreclosure is, luckily…
    I believe the right solution was to let the prices fall as fast as possible. I know, it sounds harsh, but prolonged pain is even worth. Anyway, it seems we have left the time of zombie banks and now we are in period of zombie states. Just look at the Europe – Greece’s default is expected every while, Iceland runs on IMF funds, Spain, Portugal, Italy, they are are completely bounded to low interest rate, which keeps them running. We have forgotten that ANY country can default like nothing…


  • More on this from Today’s NYT:

    “Currently, governments discount pension values by using the return they expect their pension investments to earn over the long term. For most public pension funds, that means about 8 percent. In California, the teachers’ fund uses 8 percent, Calpers uses 7.75 percent, and the University fund uses 7.5 percent.

    The Stanford team found fault with that approach. The researchers wrote that in today’s economic climate, such rates are associated with more speculative securities that carry some degree of risk, like those of emerging markets. Pensions, by contrast, are constitutionally protected and therefore the payments to public employees and retirees should carry almost no risk.

    After the researchers applied a risk-free rate of 4.14 percent, equivalent to the yield on a 10-year Treasury note, the present value of the promised benefits ballooned. The researchers came up with a $425 billion shortfall for the three funds.”

    Did you get that? Most ignore that these funds are living with projections that are based on an 8% return, but, to get that, as we all know, involves risks much greater than a pension fund should be dealing with. I’d love to be assured of 8% in today’s markets with my near retirement money, but, where can I find that without the risk of another 20-30% loss down the line? But, the geniuses managing a lot of these public pensions are jumping right back into the deep end, and doubling down.

  • California had this coming for many years, it is just that the recent past bubble fiasco nailed it home. However, from what I see and read, that yes makes me laugh, is that they still haven’t learned that an average house anywhere in that state is NOT worth 500K. IT JUST ISN’T, SORRY and the ones who purchased an average house in CA for 500K or more will now just have to man up and eat it.

  • Many cities in Ca. pay janitors and landscapers (who cut park grass), nearly $100,000. a year, in salary, overtime,free medical, and very generous pensions.
    You could hire private firms to do the same job for $25,000. a year. Privatize most local government jobs, and there would be no “crisis”. Labor unions refuse to even discuss salary reductions. But elected officials won’t take on the unions, so expect “temporary” parcel taxes of around $1,000. per home, to be on the ballot up and down the state. Alameda, CA. is proposing it’s third “temporary” parcel tax in 10 years. Parcel taxes can be used to increase employee salaries and retirement benefits. Bond measues cannot.
    Pensions of $100,000. a year are common in CA. see

  • Another well-researched post from the Doctor.

    The Doc is allergic to rose-colored glasses.

  • You all need to spend 12 minutes going through the last month’s postings at Ron Kaye’s blog ( ). You folks in LA are getting fleeced and don’t expect the mainstream media to cover this. They are shifting costs over to the water and power which is WAY worse than giving the city a loan. It’s up to you.

  • I worked for three LA County Departments as a IT Consultant. I can tell you that 50% of them are dead wood. Somehow they got IT positions but they are not capable of doing IT jobs but enjoying hughes salaries, 4 Day work week, Pension etc… I remember I asked one Department to offer me a job (50/Hr) and they denied and 12 months later they paid my company 250/Hr and I worked for the same department. My point is LA County is huge and they are wasting tax payer’s money. Have you seen LA County hiring process ? It is totally Corrupt and I am sure this is true for other Goverment agencies as well. Plesee send DHB link to your friends.

  • I find it interesting that foreclosures are picking back up at the same time the tax credit is ending and the fed purchase program is over. I guess the California tax credit will offset some of this for the summer, but it’ll be real interesting to see where this all goes coming into the fall. If interest rates can hit 6% while these other programs are ending we could see some nice drops. Kinda wish I hadn’t pulled the trigger and paid cash for a small crappy place with all the money I saved from not paying my mortgage.

  • Doc, you mentioned California wasn’t landlord friendly. California is not friendly at all when you look at their efforts to form a social utopia. CA is anti-business, anti-consumer, anti-property owner, anti-entrepreneur, ant-oil and regardless of the “green” movement, ant-alternative-energy (think permits/regulations). Yet we have knuckleheads running the state scratching their heads, thinking we need more money.
    keep up the good reporting

  • Let’s not consider doing anything “radical” like individually committing to purchasing 1/4 to 1/2 less “stuff” each year (and further be “completely certifiable” by “choosing to pay” 10-30% “more” for each remaining item purchased – required to be largely manufactured in the U.S.) in order to maintain our prosperity and the financial health of that endangered species known as the middle class (like my parents – members of the “greatest generation” – did). Nah…this could never work! Instead, let’s just continue buying increasing quantities of “low cost” (we would never say “cheap”) toxic products made in China and sold by Walmart (and Apple, etc.,) and cheerfully “enjoy” our “race to the bottom” – eh?
    ‘What It’s Like To Work In China’s Gadget Sweatshops Where Your iPhones And iPads Are Made’
    Given the popularity of iPhones, iPads, and other gadgets, the world needs to have a better understanding of the conditions under which they are produced. With this in mind, here’s a refresher.
    – Foxconn makes gadgets for companies like HP, Apple, and Nintendo.
    – An entry-level employee working 12-hour days earns about $220 per month at Foxconn. That’s about $.85 per hour.
    – Foxconn factory workers aren’t allowed to talk during work.
    – China Labor Watch says Foxconn workers “Lack of rest days as required by law; regular workers have one day off every two weeks.”
    – Foxconn employees get one hour break each day, during which they eat lunch. Employees are fined if they don’t finish their rice.
    – China Labor Watch says employees complain that Foxconn dorms smell like garbage.
    – Four workers at Apple-supplier Foxconn’s Longhua plane have tried to kill themselves in the past month.
    – These events follow another suicide last summer and the roughing-up of a Reuters reporter that tried to investigate the factory.
    – Despite conditions many Americans wouldn’t suffer, Foxconn is considered a desirable place to work.

  • Corporations have been abusing prop 13 for years to dodge paying their fair share of taxes. Immediate audit and adjustment would yield great income for the state right off.

    Also- I worked in the finance dept at UCLA for years, and I have to say- the professors haven’t had a pay raise for YEARS.
    It’s the overpaid chancellors and administrators who are draining our system one HUGE over-compensated perk-filled contract at a time. Too many corporate executives are using our CSU/UC system as a fat retirement plan. If we REALLY want to cut the fat in the State college system, we need to put our foot down and insist that no administrator be paid more than 2x the base salary of the highest paid professor. Trust me, that would slash MILLIONS from our budget!! Our new professors are so poorly paid that it’s actually hard to attract professors in disciplines that don’t allow them to augment their income by research grants because they can’t afford to live here.
    And take away the Chancellors’ ability to vote THEMSELVES raises. Since when did giving someone the ability to raise their own salary end well for the organization overall?

    Another stop-loss? STOP subsidizing the college education of every other state/country’s kids!!
    Stop using the 3 years residency=in-state tuition rule we use right now- too many students from other states are moving here to exploit it (without paying into the system). AND then pass a law that says 1- you MUST be a citizen and 2- For every FOUR years you attend k-12 in California (public, private or state-certified home schooled at a CA address), you get ONE year in-state tuition
    in the CS/UC system. That would slash our costs and make our colleges affordable once more. I’m also for a compromise for non-citizen kids who grew up here and whose parents paid taxes. Maybe a proof of residency and a tax ID showing 12 years of tax-paying residency.

    But you’re right- there’s a long long way to fall. And if my husband’s federal-funded job falls through, we’d be out of CA like a shot. Not because we WANT to- but because there’s no way he’d find another decent paying job here. I’m already out of work (and as a public-health worker, you can imagine, there’s not a lot of prospects).
    And if my husband’s job holds- we’re not dumb. There’s no way we’re going to buy a house that cost $200k in 20002 for $550k! Once it drops to 400k MAYBE, but I am betting that they’ll drift down to $350k before this whole sad mess is over.

  • To FYI,
    $220/month is a desirable amount to have for most people coming from rural areas of China. It equates to 1500 Yuan per month. It can pay for all the necessities and save a good percentage to keep in the bank or spend on other things. There are 1.3 billion people. Most of them are poor and from rural areas. What they make in the factories like Foxconn helps their family back home buying their first refrigerator and washer machine ever in family history. Overall living condition is really low. You don’t need to go very far to see in it too. In Shanghai, you can go from the extreme rich to the poor just around the corner. Remember the article the Doc did on Brazil. It’s like that. Also, if it is not China, it will be some other country. People in other parts of the world had to work twice as hard or more to get things we take for granted here. They are willing to endure what Americans would not so they hope they or their children can have a better living standard.

    We need to stop blaming those poor people for taking these kind of jobs away. Let’s blame the corporations – their capitalistic nature makes them relentlessly look to increase their profit margin so they can pay their executives and shareholders millions of dollars. Once they find out how low maintenance workers in other countries are, they are addicted. These jobs are never coming back. If iPhone is made here, they will cost over $2,000 a piece. No too many people will buy it and it will never take off in the market.

  • What is $8000 going to do for houses that are more than 100k over priced?

    You think this is bad, just wait till they raise the interest rate.

  • Which computer maker would you suggest us buy from then?

    All of them are either made by Foxconn or Asus or some other Taiwanese company with a factory in China. I like how everyone gets angry at China, while the single place that benefits from it the most (Taiwan) is not even mentioned.

    Yeah btw those harsh sweatshop rules are imposed by those Taiwanese company also.

  • When state a local govt lay off 15% we’ll see real fear in the market place. Trying to raise taxes on a dwindlng work force is a tough sell for politicians But when the govt lays off people, that’s a message to the whole system that this is the real deal. No one is safe, and yes, it’s that bad.

  • Sad…really… Sad…But what can you expect from a state (So Cal) that wants to keep homes and use them to fund their high end purchases, to keep up with the million dollar homes in Beverly Hills, Malibu, “O.C.”…Use them as ATM’s to buy their “toys”, GUCCI, FENDI, LV, and ESCALADES TO DRIVE DOWN TO THE LOCAL McDonald’s to buy .99 cent cheeseburgers with pride! Wow! some American dream this has become…Never mind if we are all now being supported by uncle EDD, this will all passover. Just two more months of bad news and it will all be behind us!
    Then by summer time we can hear all the pseudo news on positive real-estate numbers! All the agents will come out in their pom-pom outfits and give more cheers on the state of real estate “its a great time to buy!” “Every market is different, BUY, BUY, BUY!” “Your local taxpayers will support your mortgage!” NO WORRIES!
    Sad…Really Sad…

  • @Rose
    Good points and classic writing style. The evil that lurks at the fringes trying to defer just-wrath by calling out the pensioners. This all goes back to phony money and I think a continuing ruse. The government are stooges and pansies, but the perpetraters–the master minds that plotted all of this so carefully are solely to blame. They are the ones who have so cleverly enslaved the bottom 99%. Yes the pensions will default in short order. The only solution will be the Kevorkian syndrome. Us older folk are already being snuffed out by the medical community. It’s simple arithmetic–not a matter of if, a matter of when. Production / Production Capacity = Efficeincy. At some point young folks will simply not have capacity to produce for their family and xN pensioners/retirees. If you can’t get the kite off the ground and can’t buy a breeze, the only way to fly is over the cliff.
    How long can the music keep playing? We’re amazed it is still playing at all. Every month is one closer to reckoning. Housing prices won’t move much until they totally collapse, looking at if from a mathematical perspective. Like a hole in the damn it will rip the whole thing open and undermine the very foundation. By the time the price is right there will be a lot more to worry about than PITI. Funny that acronym is a homonym of pity…also a synonym…maybe even a pseudonym in time.
    But there’s always hope that the problems can be kicked down the road until the next election.

  • And as for retirees- yeah, it’s going to be brutal for the Boomers. AND for their kids. (However, it won’t be because of the “medical community snuffing them out”. The average life expectancy is years longer due to advances in cardiology and the Pharmaceutical industry’s response to the Boomers’ demand for drugs to make their aging easier. Mission accomplished.) Problem is, as a generation, they did not save well and lots of them chased the whole “house as retirement piggy bank” sales pitch.
    There’s going to be a lot of demand for duplexes and pre-fab “Mother in Law bungalows” from families whose parents are going to be moving in with them instead of living the retirement out of a Napa Valley B&B brochure that they expected. And those are going to be the lucky ones with kids who are willing to take therm in (and can afford something beyond just clearing out the back room or basement).
    That’s one of my worries- that as a Gen-Xer just starting her family, I’ll soon be looking at buying a home with an eye to where to put the nursery AND if it has a first floor suite for my parents to live in (and if my marriage will survive the strain.).

  • @compassrose – which professors are you suggesting you eject into the free market? Science profs? Because in the free market, many would make MORE money, and would abandon academia. Liberal arts? Maybe, but, are they really making that much money?
    Those are probably higher than what people are earning today because of furloughs. But, the gist of it is that a regular prof with a doctorate (or maybe masters) in the CSU makes around 90k – but that’s if they are full time, and it appears that many are not. It’s good pay, but, consider that a tenured schoolteacher makes 70k. It doesn’t sound so impressive.

    Flip it around – the City and State both hire consultants who charge well over $100 an hour. As noted, one is charging $250 an hour.

    How about simply HIRING some of these high-cost consultants instead of paying for all the overhead of having them maintain two places of work, support twice as many accountants, and paying for their parking.

  • Midwestern Man

    The idea of “buying American” proposed above is naive. There is no way a family could survive that way for even one year. Ford Fusion Hybrid- made in Mexico. Chevy Camero- made in Canada. “Hawaiian” pineapple- Hawaii no longer grows pineapple for shipment off the islands- most pineapple come from Mexico. In winter, nearly all our produce comes from South America.Batteries for your laptop or camera- made in Asia. Major appliances made in U.S. – none.
    Underwear made in U.S. – none.Dress shirts made in U.S. – none.

  • “…makes them relentlessly look to increase their profit margin so they can pay their executives and shareholders millions of dollars.”

    Executive pay at 500 % of worker pay is ridiculous. While capping the amount one can make is unpopular perhaps we should consider capping the amount an executive can make relative to their workers?

    And having to please shareholders…privately owned companies are able to adapt faster and easier to changes in the market and tough times because they aren’t burdened by this. By allowing big corporations to buy up and drown out competition from smaller companies we have put our entire economy in a fragile situation where too big to fail endangers so many. Monopolies and mega corporations are unhealthy for any society that needs to weather economic ups and downs. Bigger is not always better.

  • The whole reason there was a housing bubble is because it is the only industry that cannot be outsourced. You can build modular homes and ship them in from canada or mexico; you can build prefabs to assemble here that come off a ship, but you can only build McMansions here. Of course there weren’t enough contruction workers so we opened the floodgates from mexico and pretended we can’t do anything about it. Now we’re paying unemployment and foodstamps for a zillion contruction workers. How’d that work out?
    Every principle party was contracted for this bubble. It was no accident. It is our new economic model: Maniulate financial formulas, embondage the fools with usury, live lives of unimagined wealth and power.
    Thanks for your participation.
    Love, Khazars of Manhattan.

  • This is not a big govt issue. Free market is what shut down all our industries and shipped it to China. Free market is what outsourced all our hi tech jobs and now even regular business jobs to India. Not only did we ship our jobs, we also gave them our know how and how to design and make them. Talk about killing the goose that lays the golden egg.

    America still has power, but the day the Chinese and Indians grow big enough to not need us as a market anymore-we will have nothing left. One option is, if we simply collapse, then the dollar will be cheap enough for us to compete with India and China again.

    I just hope we can come back into a balance with free trade-nothing wrong with protecting your own?

  • “Flip it around – the City and State both hire consultants who charge well over $100 an hour. As noted, one is charging $250 an hour.

    How about simply HIRING some of these high-cost consultants instead of paying for all the overhead of having them maintain two places of work, support twice as many accountants, and paying for their parking.”

    Agree. Since the City and State still need to hire consultants, why don’t they just lay out their full-time IT employees. That’s what many private companies do now. Though the over $100 consulting fee might seem stiff at a glance, it actually saves money over all. Because the consultants come over and get the job done in a few hours and leave, only the hours they worked will be billed. There are no expenses like office space, supplies, medical benefits, insurances, 401K, vacation / sick day benefits, social security & medicare, and pensions.

  • Toronto real estate agent,
    I don’t believe your “luck” will last…
    Canadian Housing Boom-Boom Around The Corner

    Good luck, you’re going to need it.

  • The idea of laying off government workers, and replacing them with consultants is not legal under most state laws.
    States and cities have signed contracts with the various unions, which prohibit that practice. Contracts which are emforcable in a court of law.

  • @SG we need to do evaluation of State/County/City staff. I can tell you that majority of the folks in high skill category are not keeping their skills up to date and therfore can not do their jobs. They don’t have to do anything because they know they are well protected. If you want to win next time you should not enjoy your loss. Today majority of the loosers in this Country enjoy their loss and never think about winning.


  • From a logical perspective, everything DHB says makes sense. But we’re NOT dealing with logic here!


    Mortgages require income, which come from jobs. Prices should fall in the absence of jobs.
    Fewer people should be able to afford mansions. Prices should fall in the absence of people to pay $500k for a shack.

    But we’re missing some important facts:

    1- California attracts people worldwide who want to live on the coast and experience “American Life.” They will pay for this privilege, so you’re competing against people who do NOT live in that county for real estate. Nicer areas will always have someone waiting to get in.

    2- The upper class that controls our country (how many poor or middle class people can afford to run for office these days?) will insure that they do not lose this game. Nobody is around to fight for the little guy, so the middle class will get slapped around (again). Policies will be enacted to save housing from cratering.

    3- Nobody knows what is going to happen, because the banks and their buddies in government HOLD ALL THE CARDS. They can decide which houses to foreclose upon. They can decide to allow banks to write the losses off their books. You as a middle class person have to just hold on for the ride. Will they extend homebuyer credits? Hold down interest rates? Allow you to write off a loss on a house? Not under your control, and NOT up for debate.

    Will CA ever come in line with normal prices? No. I don’t think it ever has. It has always been expensive to live in Beverly Hills or Malibu or Santa Monica. If you don’t want the house, someone else who lives in another state does, and their income is not reflected in local records (I believe, but please correct me) or affected by local policies. Tiger Woods has a house in Newport Beach but lives in Florida. Which other state has that sort of draw for a competitive market (New York of course, but look at their prices).

    What I’d like to see is income for homeowners, not income for a county or zip. We have no idea where that money is coming from, but in most cases, you just can’t compete with it.

    So buy your house in the middle of nowhere, because you want to live there for 30 years. Just don’t buy it thinking you’ll flip it or that new fake lake is going to make it attractive. People aren’t going to move from Florida to buy in your neighborhood. You will only be able to sell to the locals, who have the same income.

  • I worked all my life in private IT and have worked as both a consutltant and an employee. Just because someone gets paid 100$ or 250$ an hour, does not mean they know any better. I was fresh out of college for one of the bigger consulting firms and they paid me 125$ an hour -well they paid my company. That is common practice, to have a team lead who knows what he is doing and get in a few newbies who learn on the job and get paid on the company’s dime! Also unless someone is doing a demo or some such, no company will come and do 1 hr or two hrs worth of work and walk away. Not worth it.

    It is a myth that consultants are better-unless we are talking some brand new package. Even then, the model I mentioned above is very common. Plus the consultants have to come in and learn the business model and in short projects-that is all but impossible. With offshoring-they don’t even understand the culture. Very often a CIO may decide to take the plunge in consulting, simply because he can charge it as an asset(projects and such) as opposed to employees. Also vacation time is not a waste-most employees schedule vacation when work is slow -so it really doesn’t make a difference.

    Having worked in corporate America for most of my life-I think we give way too much credit to the corporations. All they care is how the next quarter looks-then they can get a better bonus. The average tenure of a top level official is 2-3 years and they have to make their money in that time and so they don’t care long term. It has shifted so much that except top level employees, there is no value for workers in America and now we are seeing the results. If workers are valued and payed accordingly, we can spend and keep the economy going. if not -well we are looking at the end result..

  • Well, my husband and I just got married and we can’t find a house in torrance that we can afford. My husband is a doctor and I am a CPA. If we can’t afford to buy a house in southern california, you tell me how healthy the housing market is. A mortage payment that is $4000 a month seems too high… and there is also utilites, upkeep, and property taxes that aren’t included… We can’t find any house in a decent neighbourhood that is about $2000 mortgage payment a month, which we will be comfortable with. A decent house in Torrance with curb appeal and in good streets and far away from the crummy areas like the Campton or Carson…are 900K and a lot are even over 1 million…

    We are currently renting a 2 bedroom 2 baths top floor apartment in Redondo Beach that is within walk to the beach and the Redondo Beach Villiage. Our rent is $1750 a month. So….what is the incentive for us to buy a house now???

    Until the housing prices go down from 900K to 550K to 600s K, we just can’t afford to buy a house in a similar neighbourhood where we are renting.

    I don’t know how many people’s houshold income are over $250K a month like ours. Yet, we are still renting….

    Those people who are buying houses now are idiots and are just pushing the prices high again and creating new bubble. I guess the gov’t’s an always raise my husband and my taxes to bail out those losers who buy houses that are over half a million and who are making under 100K..

    The prices now are still much higher than 2003 when there were a lot more jobs, stocks were rising… I just don’t get it…I thought this was the depression. How come houses are still so much more expensive than boom time? My salary didn’t have a 200% between 2003 and 2010. I don’t know why the housing prices are like that, a house that is $300K in 2003, now are selling for $650. I just don’t get it, just there is a huge gap between income increase and housing price increase..

  • Anyone here read Cory Doctorow’s book “Makers”?
    He wrote it before the melt-down, but it is set in a scarily accurate post-melt-down future where the US economy is in a doldrums due to corporate overgrowth and job exportation. The book’s message is that local production and small business/individual innovators built the US economy in the first place, but our system has grown away from supporting the very building blocks that made it great.
    I believe that production jobs WILL make their way back to the US…eventually.
    The developing countries who are taking production jobs now can only do so as long as they have a large, under-educated and mostly poor population willing to be exploited. Think the US at the turn of the 19th century. But this is already starting to change in these countries.
    In a decade or so, the rise of demands for environmental safety/workers rights in developing populations and the inevitable rise of oil/fuel prices to a point that makes shipping from Asia less cost-effective than making it locally WILL push production back to the US.
    But then, that does nothing for our out-of-work population NOW.

  • Did anyone see the Case Schiller new report that predicts housing recovery in Ca post 2025. (Actually post 2039 for Sacramento) This confirms Dr Housing Bubble, although FiServe did not directly list S cal, it shows it as post 2025 to recover. Although they see Orange county coming back between 2015 and 2025.
    As to the jobs issue they will come back to be done by silicon units (robots and computers) carbon units (people) will not get those jobs back. From the point of view of an employeer a silicon unit is to be far prefered, it does not need to be paid.

  • NewWife,
    Welcome to the craziness!! My husband and I lived in LA (renting in Miracle Mile for many years) and we just moved to OC (city of Orange- “old town”) where we have been renting a small duplex for less than a year with are almost 4 year old son. We have been looking at real estate in both of these areas over the last 5 years. Nothing has really changed in the “decent” areas. We are both working professional with the same employment for the last 12 years. Our salaries have been pretty much the same over these years at about $180k – 190k combined. We have no debt, excellent credit, $$ for a decent down payment and yet we are in no position to buy in the “middle class” areas of OC or LA. It is truly incredible how long this has lasted…we are optomistic for a 2nd dip in the housing market (maybe it will be more significant than the 1st!).
    By the way, one of my colleagues has been looking in Torrance over the last 7 years and he is also priced out, but is happy renting!

  • @NewWife
    Very smart. We are all mortals and no matter how much we possess under the sun, the most we can take with us is our spirit. Ownership is incredibly overrated, but the Manhatters (note one letter from Man-Haters) make all the movies, control all the media, tell us how we should live and how great a financial move it is to buy a home. The only way it’s a good deal is if you have no ability to save otherwise and you would have blown the money anyway, and then maybe sell into the next bubble. But sometimes the next bubble is a decade or more away, a job change, a divorce–risky. Renting is not the perfect answer, but most of the time it makes a lot of sense and affords the flexibility needed in the fluid world we live in today.

  • to RL:
    If you have a combined income of $180K, you should easily be able to save
    $45,000. to $50,000. a year. (On an income of $130k in San Francisco, we save about $35,000. a year.)
    Save for 5 years, and you would have a 50% down payment, on a $500,000. house.

  • to Banner,
    Thanks for the advice. We are saving a lot. But that still does not mean we want to use are hard earned savings to buy a house not worth its price tag!
    – not even close.

  • CAP all future and CURRENT PUBLIC pensions in California at 80-100K. Roll back all pensions above 100K!!!

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