Comments on: Investing for the Future: The American Housing Market. The United States has Enough Housing for Years. Will this Economy Change our Habits? http://www.doctorhousingbubble.com/investing-for-the-future-the-american-housing-market-the-united-states-has-enough-housing-for-years-will-this-economy-change-our-habits/ How I Learned to Love Southern California and Forget the Housing Bubble Sat, 31 Jul 2010 22:55:07 +0000 http://wordpress.org/?v=2.9.2 hourly 1 By: Jose Roncal http://www.doctorhousingbubble.com/investing-for-the-future-the-american-housing-market-the-united-states-has-enough-housing-for-years-will-this-economy-change-our-habits/comment-page-1/#comment-30323 Jose Roncal Fri, 02 Jan 2009 05:43:50 +0000 http://www.doctorhousingbubble.com/investing-for-the-future-the-american-housing-market-the-united-states-has-enough-housing-for-years-will-this-economy-change-our-habits/#comment-30323 In the book I co-authored—The Big Gamble: Are You Investing or Speculating—I wrote a chapter during the first quarter of 2008 entitled, The Mother of all Crisis: Haven't We Learned? The following appears on page 86: "Foreclosures in 2006 increased by 42 percent compared to 2005, according to Realty Trac. By 2007, the increase was 75 percent compared to 2006. Things got worse as we entered 2008. For the first quarter of the year, foreclosure filings, according to the Realty Trac index, were now 112 percent higher compared to the same period during 2007. […] By the first quarter of 2008, home vacancies and foreclosures in the United States had hit an all time record, as people kept losing their homes, or simply walking away from their mortgages. Robert Shiller […] warned that house prices could drop by over 30 percent. A worst drop than was registered during the 1930s depression." Since writing that, things have gone from bad to worse. Today there are nearly a million repossessed homes on the market. Statistics reveal that on average, foreclosed homes are priced almost 40 percent lower than normal real estate listings. Home prices in 20 major U.S. cities declined at the fastest rate on record because of increasing foreclosures and slumping sales. None of this should come as any great surprise. For the past two years we’ve seen the same question being raised over and over again, “Is the housing bubble about to burst?” That question in and of itself implied that we all knew that the big party going on in the housing market was unsustainable. The Fed are unquestionably implicated. Back in January 2001, former Fed Chairman Greenspan attempted to jump start the economy out of recession by slashing the federal funds target from 6.5 percent down to a ludicrous 1 percent by June 2003. Then they steadily ratcheted back up to 5.25 percent by June 2006. By then, the build up had generated more than $8 trillion in housing bubble wealth and it was inevitable that we’d end up in this mess. Not only did Greenspan do nothing to halt the growth of the bubble, he actually encouraged it by recommending that we all take out adjustable rate mortgages. He even dismissed those who warned of the impending bubble, assuring us that everything was under control. Was it just coincidence that these interest rate moves ran parallel to the pumping up and popping of the housing bubble? Or was it a case where artificially low interest rates lead to poor investment decisions that would require a recession to correct? It’s now obvious that Shiller was optimistic when he estimated a 30 percent drop in housing prices. If that figure is now at 35 percent, what’s going to happen when you factor in the record job losses, consumer paralysis, retail and other business bankruptcies. We are probably looking at an even worse scenario in the coming year. This country is placing an inordinate amount of hope and trust in the incoming administration. But in our opinion, it’s going to take a team of super heroes to come up with a workable plan to get the housing market stabilized and back on track. And until we get our house in order here at home, the economies around the globe could continue to suffer and slide further into the abyss. This comment was posted by Jose Roncal, co-author of "The Big Gamble: Are you investing or speculating?" - For more information, visit www.financialspeculation.com In the book I co-authored—The Big Gamble: Are You Investing or Speculating—I wrote a chapter during the first quarter of 2008 entitled, The Mother of all Crisis: Haven’t We Learned? The following appears on page 86:

“Foreclosures in 2006 increased by 42 percent compared to 2005, according to Realty Trac. By 2007, the increase was 75 percent compared to 2006. Things got worse as we entered 2008. For the first quarter of the year, foreclosure filings, according to the Realty Trac index, were now 112 percent higher compared to the same period during 2007.

[…] By the first quarter of 2008, home vacancies and foreclosures in the United States had hit an all time record, as people kept losing their homes, or simply walking away from their mortgages. Robert Shiller […] warned that house prices could drop by over 30 percent. A worst drop than was registered during the 1930s depression.”

Since writing that, things have gone from bad to worse. Today there are nearly a million repossessed homes on the market. Statistics reveal that on average, foreclosed homes are priced almost 40 percent lower than normal real estate listings. Home prices in 20 major U.S. cities declined at the fastest rate on record because of increasing foreclosures and slumping sales.

None of this should come as any great surprise. For the past two years we’ve seen the same question being raised over and over again, “Is the housing bubble about to burst?” That question in and of itself implied that we all knew that the big party going on in the housing market was unsustainable.

The Fed are unquestionably implicated. Back in January 2001, former Fed Chairman Greenspan attempted to jump start the economy out of recession by slashing the federal funds target from 6.5 percent down to a ludicrous 1 percent by June 2003. Then they steadily ratcheted back up to 5.25 percent by June 2006. By then, the build up had generated more than $8 trillion in housing bubble wealth and it was inevitable that we’d end up in this mess.

Not only did Greenspan do nothing to halt the growth of the bubble, he actually encouraged it by recommending that we all take out adjustable rate mortgages. He even dismissed those who warned of the impending bubble, assuring us that everything was under control. Was it just coincidence that these interest rate moves ran parallel to the pumping up and popping of the housing bubble? Or was it a case where artificially low interest rates lead to poor investment decisions that would require a recession to correct?

It’s now obvious that Shiller was optimistic when he estimated a 30 percent drop in housing prices. If that figure is now at 35 percent, what’s going to happen when you factor in the record job losses, consumer paralysis, retail and other business bankruptcies. We are probably looking at an even worse scenario in the coming year.

This country is placing an inordinate amount of hope and trust in the incoming administration. But in our opinion, it’s going to take a team of super heroes to come up with a workable plan to get the housing market stabilized and back on track. And until we get our house in order here at home, the economies around the globe could continue to suffer and slide further into the abyss.

This comment was posted by Jose Roncal, co-author of “The Big Gamble: Are you investing or speculating?” – For more information, visit http://www.financialspeculation.com

]]> By: compass rose http://www.doctorhousingbubble.com/investing-for-the-future-the-american-housing-market-the-united-states-has-enough-housing-for-years-will-this-economy-change-our-habits/comment-page-1/#comment-30289 compass rose Thu, 01 Jan 2009 19:43:56 +0000 http://www.doctorhousingbubble.com/investing-for-the-future-the-american-housing-market-the-united-states-has-enough-housing-for-years-will-this-economy-change-our-habits/#comment-30289 Re: DHB 12/27. Flaminia, a 2006 piece by Michael Hudson over at iTulip on the "new rentier economy" may further flesh out the connection between FI and RE. ~ The new road to serfdom http://www.itulip.com/forums/showthread.php?t=966 ~ Your question raises a larger issue. ~ This economy may change some habits of some people...but my sense is that "the real problem" is much larger. The conversion of everything into real estate (territory that can be fenced off, legally or militaristically defended, marked up, traded, etc.) has been going on since Mesopotamia. Hudson also studies this--the origins of contemporary banking/finance in the ancient Near East. (The "cradle of civilization.") ~ Even in the past century only REAL things (land, houses) could be REAL estate. But now even ideas and genes and images and contracts are being treated within the so-called "free market" model as concrete, tradeable entitites. One example is genomics. Corporations have changed patent law (renaming it "intellectual property"--i.e., real estate that exists only in documents) so that, for example, whoever sequences a genome can apply for and be granted ownership of it. ~ This system of thinking generates tulip economies out of obsession with the novel...rather than wealth defined by real goods, services, skills, etc. The goal of tulip wealth is to rocket past the modest wealth gained (and lost) in the slow, incremental, natural growth (and decline) of ecosystems. The goal is to concentrate wealth and palm off costs. ~ It's one thing to take a degree in statistics--which isn't hard--and to spend decades applying those numbers games in ways that generate pixel wealth for someone who will pay you a handsome salary. Entire industries in the '80s, '90s, and '00s were built on this, with the newfound power of desktop computers absolutely exploding the potential for mathematical modeling. The "research departments" of many banking and finance companies were packed with numbers-crunching whiz kids who could make numbers do a certain profitability thing. Then it was up to the field staff to do whatever it took to ensure those profits. This is why later in the housing bubble mortgages were handed out without regard to the borrower's ability to repay: assuring a fee-based profit stream in the present, to hell with the future. ~ The arithmetical increase of numbers is theoretical, abstract, and endless. We cannot expect concrete systems to behave that way. But we can manipulate economic and social systems so that they appear to follow the numbers for a time...and then change what we're counting as soon as this becomes way too costly, or ceases to work. Politically, things must keep going up. There is no winter in politics, where it's always bigger better faster more. ~ This is precisely what happened with the GNP/GDP. Doc, the reason that housing came to account for such a large part of leading economic indicators is that they were constantly changed to reflect whatever was going up. ~ I noted in mid-October how the "Dow Jones Industrial Average" has been changed over time and hardly has ANY actual industrial content anymore. Of those 30 stocks, there are only 9 "industrials." The rest are consumer, drugs, entertainment, financial, and tech. A similar thing has happened with many other indicators. ~ And fields/industries. To go back to Flaminia's question, what is so laughably called the "insurance" industry went from having some grounding in reality (a pooled set of resources to help bridge people through times of catastrophe, based on modest and prudent assessment of actual statistical risk) into the most massive mega-speculation on actuarial tables, converted into financial derivatives "products" by other numbers crunchers. ~ Like gambling addicts we know just enough about numbers to get ourselves in trouble. We may have some hope if we go back to counting what's real, and aligning our expectations with that. Rather than worshipping numbers and going all helpless and angry where material reality and abstract concepts diverge. But it's not going to be an easy transition, especially given that most people don't know how to calculate a 10 tip in their heads, nor realize that a flat percentage increase over time yields an exponential curve of increase. ~ rose Re: DHB 12/27. Flaminia, a 2006 piece by Michael Hudson over at iTulip on the “new rentier economy” may further flesh out the connection between FI and RE.
~
The new road to serfdom
http://www.itulip.com/forums/showthread.php?t=966
~
Your question raises a larger issue.
~
This economy may change some habits of some people…but my sense is that “the real problem” is much larger. The conversion of everything into real estate (territory that can be fenced off, legally or militaristically defended, marked up, traded, etc.) has been going on since Mesopotamia. Hudson also studies this–the origins of contemporary banking/finance in the ancient Near East. (The “cradle of civilization.”)
~
Even in the past century only REAL things (land, houses) could be REAL estate. But now even ideas and genes and images and contracts are being treated within the so-called “free market” model as concrete, tradeable entitites. One example is genomics. Corporations have changed patent law (renaming it “intellectual property”–i.e., real estate that exists only in documents) so that, for example, whoever sequences a genome can apply for and be granted ownership of it.
~
This system of thinking generates tulip economies out of obsession with the novel…rather than wealth defined by real goods, services, skills, etc. The goal of tulip wealth is to rocket past the modest wealth gained (and lost) in the slow, incremental, natural growth (and decline) of ecosystems. The goal is to concentrate wealth and palm off costs.
~
It’s one thing to take a degree in statistics–which isn’t hard–and to spend decades applying those numbers games in ways that generate pixel wealth for someone who will pay you a handsome salary. Entire industries in the ’80s, ’90s, and ’00s were built on this, with the newfound power of desktop computers absolutely exploding the potential for mathematical modeling. The “research departments” of many banking and finance companies were packed with numbers-crunching whiz kids who could make numbers do a certain profitability thing. Then it was up to the field staff to do whatever it took to ensure those profits. This is why later in the housing bubble mortgages were handed out without regard to the borrower’s ability to repay: assuring a fee-based profit stream in the present, to hell with the future.
~
The arithmetical increase of numbers is theoretical, abstract, and endless. We cannot expect concrete systems to behave that way. But we can manipulate economic and social systems so that they appear to follow the numbers for a time…and then change what we’re counting as soon as this becomes way too costly, or ceases to work. Politically, things must keep going up. There is no winter in politics, where it’s always bigger better faster more.
~
This is precisely what happened with the GNP/GDP. Doc, the reason that housing came to account for such a large part of leading economic indicators is that they were constantly changed to reflect whatever was going up.
~
I noted in mid-October how the “Dow Jones Industrial Average” has been changed over time and hardly has ANY actual industrial content anymore. Of those 30 stocks, there are only 9 “industrials.” The rest are consumer, drugs, entertainment, financial, and tech. A similar thing has happened with many other indicators.
~
And fields/industries. To go back to Flaminia’s question, what is so laughably called the “insurance” industry went from having some grounding in reality (a pooled set of resources to help bridge people through times of catastrophe, based on modest and prudent assessment of actual statistical risk) into the most massive mega-speculation on actuarial tables, converted into financial derivatives “products” by other numbers crunchers.
~
Like gambling addicts we know just enough about numbers to get ourselves in trouble. We may have some hope if we go back to counting what’s real, and aligning our expectations with that. Rather than worshipping numbers and going all helpless and angry where material reality and abstract concepts diverge. But it’s not going to be an easy transition, especially given that most people don’t know how to calculate a 10 tip in their heads, nor realize that a flat percentage increase over time yields an exponential curve of increase.
~
rose

]]> By: Tom Joad http://www.doctorhousingbubble.com/investing-for-the-future-the-american-housing-market-the-united-states-has-enough-housing-for-years-will-this-economy-change-our-habits/comment-page-1/#comment-30215 Tom Joad Wed, 31 Dec 2008 12:08:33 +0000 http://www.doctorhousingbubble.com/investing-for-the-future-the-american-housing-market-the-united-states-has-enough-housing-for-years-will-this-economy-change-our-habits/#comment-30215 @robinthomas They had to know, but wanted to smoke all the crack before the cops busted up the party, I think. It seems there are two powerful forces in contrary vectors (magnitude and direction). They appear to cancel one another out, but deflation wins this battle, because ultimately it's like Gilligan's Island. Howell had all that cash, but it was worthless on the island. The professor was the most valuable man on the island because he could produce. Since we've decided to produce services and pensions instead of products, even with lots of cash there won't be products to consume eventually. If folks are afraid to buy there will be demand-side deflation and supply-side inflation. An explosive mix, I'd say. @robinthomas

They had to know, but wanted to smoke all the crack before the cops busted up the party, I think. It seems there are two powerful forces in contrary vectors (magnitude and direction). They appear to cancel one another out, but deflation wins this battle, because ultimately it’s like Gilligan’s Island. Howell had all that cash, but it was worthless on the island. The professor was the most valuable man on the island because he could produce. Since we’ve decided to produce services and pensions instead of products, even with lots of cash there won’t be products to consume eventually. If folks are afraid to buy there will be demand-side deflation and supply-side inflation. An explosive mix, I’d say.

]]> By: Tom Joad http://www.doctorhousingbubble.com/investing-for-the-future-the-american-housing-market-the-united-states-has-enough-housing-for-years-will-this-economy-change-our-habits/comment-page-1/#comment-30214 Tom Joad Wed, 31 Dec 2008 11:48:23 +0000 http://www.doctorhousingbubble.com/investing-for-the-future-the-american-housing-market-the-united-states-has-enough-housing-for-years-will-this-economy-change-our-habits/#comment-30214 One of the actions that pushed the world over the cliff in the prior Great Depression was protectionism. Unfortunately, the bailouts perform just that. Most evident are the auto bailouts. If a business cannot compete successfully as it is structured, and the government supports them financially, that is protectionism. Not saying it's the wrong thing to do here, but it is what it is. Support of other institutions that do international business will perform the same. Is there truly a solvent state, county or municipality in the CONUS outside of Texas? Most of us don't know the actual paper that is involved in our 'safe' money market accounts. I feel that the next big bailout will be banking flagship BOA. How are they going to digest all poison they've eaten in the last few years (Countrywide, Merrill, LaSalle) without some powerful medicine ? How much pay-option cancer has been festering in that beast? One of the actions that pushed the world over the cliff in the prior Great Depression was protectionism. Unfortunately, the bailouts perform just that. Most evident are the auto bailouts. If a business cannot compete successfully as it is structured, and the government supports them financially, that is protectionism. Not saying it’s the wrong thing to do here, but it is what it is. Support of other institutions that do international business will perform the same. Is there truly a solvent state, county or municipality in the CONUS outside of Texas? Most of us don’t know the actual paper that is involved in our ’safe’ money market accounts. I feel that the next big bailout will be banking flagship BOA. How are they going to digest all poison they’ve eaten in the last few years (Countrywide, Merrill, LaSalle) without some powerful medicine ? How much pay-option cancer has been festering in that beast?

]]> By: kittyfool http://www.doctorhousingbubble.com/investing-for-the-future-the-american-housing-market-the-united-states-has-enough-housing-for-years-will-this-economy-change-our-habits/comment-page-1/#comment-30213 kittyfool Wed, 31 Dec 2008 11:31:13 +0000 http://www.doctorhousingbubble.com/investing-for-the-future-the-american-housing-market-the-united-states-has-enough-housing-for-years-will-this-economy-change-our-habits/#comment-30213 Thanks, doc, great graphs! If you have the time, could you answer a couple of questions? 1) I just saw a graph that shows the housing bubble vs. income, showing the diversion that occured in 1990. However, it was not current - do you have that data to do a graph with current statistics? 2) I read that we now have around 10 trillion dollars stuffed in our mattresses (not mine). Is this a bubble? What happens when a money bubble implodes? Inflation? Just trying to divine the future : ) Thanks, Less than Zero - I'm suspecting that the insurance scam is why Obama is trying to prop this industry up. It's unbelievable that the talking heads are still recommending insurance companies, nursing homes and big pharma. I'm thinking that that scam is about to collapse. Of course, the government has the power to tax us to the nibs, maybe that will keep it going for a little while, until they figure it out that unemployed people can't pay alot of taxes, especially with the inflation that will result from the bailout illusion. Or does make-believe money cause inflation? Thanks, doc, great graphs!
If you have the time, could you answer a couple of questions?
1) I just saw a graph that shows the housing bubble vs. income, showing the diversion that occured in 1990. However, it was not current – do you have that data to do a graph with current statistics?
2) I read that we now have around 10 trillion dollars stuffed in our mattresses (not mine). Is this a bubble? What happens when a money bubble implodes? Inflation?
Just trying to divine the future : )
Thanks, Less than Zero – I’m suspecting that the insurance scam is why Obama is trying to prop this industry up. It’s unbelievable that the talking heads are still recommending insurance companies, nursing homes and big pharma. I’m thinking that that scam is about to collapse. Of course, the government has the power to tax us to the nibs, maybe that will keep it going for a little while, until they figure it out that unemployed people can’t pay alot of taxes, especially with the inflation that will result from the bailout illusion. Or does make-believe money cause inflation?

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