Feb222013
Will reflating the housing bubble drive out California’s middle class?
During the housing bubble, the infusion of HELOC spending money stimulated the California economy. The resulting job growth caused wages to rise as employers scrambled to find help to meet the Ponzi demand. One of the biggest hurdles potential employers faced was the enormous cost of housing. Potential employees from out-of-state were faced with selling their $300,000 homes to buy a $750,000 comparable home if they moved to California. Many decided not to make the move for this reason. A $20,000 raise sounds enticing until you consider housing will cost $40,000 a year extra to enjoy the same standard of living.
Inflated house prices causes two problems for California. First, as described above, it creates a barrier for middle class families who don’t already own houses from entering the state to fill job vacancies (not that we have many of those right now). Second, it creates an underclass of young professionals in their 20s and 30s who are priced out of the real estate market and unable to make a permanent home here. The people who would ordinarily be buying starter homes and condos to climb aboard the California housing ladder end up choosing not to because the cost of ownership gets inflated to a ridiculous multiple relative to rent. This group works for a couple of years and ends up moving to a state like Texas where jobs are abundant and houses are affordable.
If we reflate the housing bubble, we will face these same problems again. Those starting out in their careers and much of the middle class will simply leave.
More Bubble Trouble in California?
Just six years since the last housing bubble, California is blowing up another. This may seem like good news to homeowners and speculators alike but it could further accelerate the demise of the state’s middle class and push more businesses out of the state.
On its face, a real estate turnaround should be a strong sign of an economic recovery. In Southern California, home sales have jumped 14 percent over last year and the median price is up 16 percent, some 25 percent in Orange County. We may not quite be at 2007 super-bubble levels but we’re getting there, particularly in the more desirable areas.
Asking prices are up almost 30% over the last year, and with the limited inventory, some sellers are getting their WTF asking prices.
Yet, before opening the champagne, we need to look at some of the downsides of this asset recovery. We are not seeing much new construction, particularly of single-family homes, so the supply is not being replenished as inventory sinks. Meanwhile, many of the homebuyers are not families seeking residences, but flippers, Wall Street types and foreign investors. A remarkable one-in-three Southern California home purchasers paid with cash, up from 27 percent from last year.
The high percentage of investor buyers and the large percentage of underwater borrowers will cause the move-up market to suffer for another decade.
It’s clear that this increase is not being fueled primarily by income growth among middle-class Californians; these “prices are rising disconnected from household incomes,” notes one analyst.
The entire so-called housing recovery is entirely based on federal reserve stimulus. Low interest rates give potential buyers much more borrowing power on their stagnant incomes. The danger in this is what happens when this stimulus is removed. The federal reserve has pledged to keep rates this low through 2015, but there is dissension in the ranks, and Bernanke is up for reappointment in 2014, and he likely won’t retain his position. The future of federal reserve policy is anything but certain.
Indeed, California incomes have been dropping somewhat more rapidly, down $2,600 per household from 2007-11, according to the American Community Survey, compared with a $200 drop nationwide.
California incomes are still 13 percent higher than the national average, but a lot less so than in the past, particularly given the much higher costs and taxation.
So Californian’s incomes are 13% higher, but our real estate is 100% higher. What’s wrong with that picture?
This leads to what is becoming the biggest problem facing the state – a decline in the rates of affordability. The previous bubble left us a legacy of more-affordable housing, an advantage we may now be losing. Historically, and in much of the country, the median multiple, which compares the median-price home to median household income, was in the three range. At the height of the previous bubble, the median multiple for the Los Angeles-Orange County metropolitan area, reached 11.5 in 2007, then fell to a still-elevated 5.7 in 2009, notes demographer Wendell Cox. It remained steady in 2011, but in just the past year the measurement has shot up to 6.2. A few more years at this rate, and housing affordability could worsen materially.
The new bubble can be seen elsewhere in the state. The most prominent inflation in housing values can be seen in the San Francisco Bay Area, which has enjoyed the most buoyant recovery from the recession. Never a cheap area, in 2006, San Francisco reached a median multiple of10.8 and Silicon Valley (San Jose) rose to 9.3. When the bubble imploded, the median multiple fell to 6.7 in both metropolitan areas, still well above any level recorded before the housing bubble. But now, amidst a concentrated boom in the western side of the Bay, the median multiple rose the equivalent of 1.1 years of income in San Francisco (to 7.8) and 1.0 years of income in San Jose (7.9) in a single year.
Of course, you can argue that the higher prices in the Bay Area are explainable at least in part by a growth in employment and wealth generated by tech start-ups. But what about soaring prices in places like the Inland Empire (Riverside-San Bernardino), Sacramento or Fresno, where economic growth has been torpid, and unemployment remains well north of 10 percent? Over the past year, Sacramento’s median multiple has risen from an affordable 2.9 to 3.2, the Inland Empire from 3.2 to 3.7 while Fresno’s has gone from 3.1 to 3.5.
I like his argument, but price-to-income ratios are not an effective tool for measuring affordability when interest rates fluctuate so wildly. If you look at the cost of ownership, which factors in the true cost of borrowing, recent price increases haven’t hurt affordability much because interest rates are still at historic lows. Further, the cost of ownership relative to rents is the lowest it’s been since 1988.
As these prices rises, the California dream, already increasingly off-limits in the coastal areas, begins to become less achievable even in the inland areas. Already, barely 55 percent of Californians own their own home, down from the bubble-period high of 60 percent in 2005 and compared with upward of 65 percent nationally.
Traditionally, the pent-up demand for houses would be met in the marketplace, but California’s Draconian planning laws make this very difficult. In the first 11 months of 2012, the Census Bureau reports that the Los Angeles-Orange County metropolitan area had half as many construction permits than much smaller Dallas-Fort Worth, 60 percent of Houston’s permits and fewer even than the relatively tiny Austin, Texas, metropolitan area. More to the point, more than 70 percent of L.A.’s construction was in multifamily units while the majority in most areas, (except for such areas as New York, San Francisco, San Jose and San Diego) was in single-family homes.
Although new construction is well below historic norms, homebuilders are busy meeting the demand created by the vacuum on the MLS. Further, apartment developers have added thousands of more units over the last few years to respond to demand for new rental housing created by the diminishing home ownership rate.
Given the state’s planning preference for high-density housing, even in suburban and exurban areas, there’s little hope that California single-family home buyers can expect much relief. As millennials age, and seek out this form of housing as they start families, they will likely look increasingly elsewhere, for example, in Dallas-Fort Worth, Houston, Phoenix or Atlanta. The great California exodus, which slowed during the housing bust, will likely pick up, joining up with the continued movement of employers to more business-friendly states.
In the short run, of course, not everyone loses from a new bubble. Owners of homes, particularly along the coast, will see a big increase in their net worth.
I don’t think so. The move-up market will suffer for another decade.
There could be good times ahead again for what author Bob Bruegmann calls “the incumbent’s club.” With projected new units running at one-half their 2007 level until 2015, scarcity will help the state’s graying gentry. These same citizens also enjoy a double bonus, since most are protected by Proposition 13 from paying higher property taxes on their rising property values.
We are saving the banks and baby boomers at the expense of future buyers.
The bubble may also have short-term positive impact on local governments, which may benefit from high property taxes if more homes change hands at higher prices. The “wealth effect” could also bring new capital-gains income to a state government whose revenue stream increasingly depends on the upper-class taxpayer, particularly after the passage of Proposition 30, which increased the state’s reliance on high-income earners. In this sense, the asset inflation could help Gov. Jerry Brown enjoy his much-trumpeted surplus, and he may even avoid the deficit projected next year by the Legislative Analyst.
These positive effects may be outweighed by bigger concerns. The pushback against single-family homes will restrain the growth of the construction industry, still down 400,000 jobs from its 2006 peak. This is particularly critical for working-class Californians, many of whom previous made decent livings in this industry.
Industry hiring is picking up, but any job opening is inundated with applicants who’ve been waiting six years for a recovery.
But workers and homebuilders won’t be the only ones affected; so, too, will consumers. Without a loosening of regulatory constraints, pent-up demand for housing, particularly the single-family variety, will remain largely unaddressed. This will further inflate the bubble even in unfashionable areas. We may soon see a surplus of rental apartments, but not enough single-family homes; the ownership market, as evidenced by the rising median multiples, will continue to tighten, and prices could rise even more, even in a mediocre economy.
The groups hit hardest by this scenario will be middle- and working-class Californians, particularly above the age of 30-35, most of whom desire to own their own home. Unable to qualify, or unwilling to overleverage, many will be forced either to give up their dreams or look elsewhere, taking their talents and, eventually, their offspring, with them.
Another way to get locked out of housing ownership is to get divorced.
I owned a house next to Eaton Canyon (Altadena) with my first wife since 1985 and she wound up getting the house. (no children she just had some separate money) I was born in California 1952 (Alhambra) and stayed in So Cal all my life, I left California in 2012 to take a job in the Florida pan handle. I was unwilling to over leverage even after waiting since 1997 for my post-divorce situation to correct itself and all the time working a full salaried career job. I read OC Housing news (then Irvine Housing News) every day since it first started in 2006 and found it more interesting than the blogs in the Weekly.
So for half the price of an average house in crowded OC I signed an FHA loan for a beautiful spacious house built in 1990 with pool & landscaping next to a resort city that offers everything. This place would cost over a million anywhere similar in SoCal. The bay is all around me here, okay there’s no mountains, but leaving California really paid off for me and my wife. What a difference!
I’m glad to hear you’re doing so well. I imagine many people who’ve moved out of state have a similar experience. The standard of housing goes up, the cost of living goes down, but you have to give up the weather — which isn’t as much of a loss if you moved to coastal Florida.
The weather is a big factor, but so is proximity to family. I could move to DC today and double my salary (and probably my hours), but not only am I scared of the weather, it would take us 5 hours from family.
Housing Lobbyist?
You must know that housing expense in and around DC is even worse than coastal SoCal.(i.e. Maryland, Virginia)
” proximity to family is a big deal ”
Agreed, and that’s another benefit of having moved across the country. 😉
The weather isn’t so much a factor for me. I think SoCal weather is beyond boring, but I know I’m in the minority thinking that.
My wife and I could move to Dallas and take our salaries with us, but both of our families are in LA/OC, so it’s a non-starter with my wife. The cost of living delays retirement somewhat, but we’ll both be inheriting our family’s overpriced SoCal properties someday so I guess that offsets it.
While I don’t believe OC is perfect by any stretch, there are far worse places to live. Even if you are confined to a rental, living in a beach city can be much more exciting than owning a “cheap” McMansion in a plains state. Ain’t that right el O?
Not a housing lobbyist – there are just a lot of large firms headquartered in DC that practice financial services and they’re all hiring (Dodd Frank et al.).
Inventory at Lowest Level Since 1999
Sales declined in January
Existing-home sales rose 0.4 percent in January to 4.92 million after December sales were revised downward, the National Association of Realtors (NAR) reported Thursday. Economists had expected the sales pace to drop to 4.9 million from December’s originally reported 4.94 million.
Prices declined in January
The median price of an existing single-family home fell to $173,600 in January, the lowest level since last March.
Inventory decline blamed on recently falling prices
The inventory of existing homes for sale fell 4.9 percent to 1.74 million, the lowest level since December 1999. At the reported sales pace, that represents a 4.2 month supply of homes for sale, the lowest supply since April 2005. The inventory of homes for sale is off 25.3 percent from a year ago and has fallen for five straight months.
Weak prices could be contributing to the reluctance of homeowners to list their homes. Though up 12.3 percent from a year ago, the median price of an existing single-family home has fallen for five of the last six months and is down 24.6 percent from the July 2006 peak of $230,300. The median price is also off 8.1 percent from the 2012 peak of $188,800 in June.
First-time buyers down 10% year-over-year
First-time buyers accounted for 30 percent of purchases in January, the NAR reported, unchanged from December; they were 33 percent in January 2012.
Existing home sales in West are down
Existing-home sales in the West fell 5.7 percent to a pace of 1.15 million in January and were 5.7 percent below a year ago. The median price in the West was $239,800, the lowest level since June but 26.6 percent above January 2012.
Servicers Give $46B in Bailouts to Imprudent Borrowers Since National Settlement
A year after the nation’s largest mortgage servicers reached a monumental settlement with 49 state’s attorneys general and several federal agencies, the five servicers have reportedly provided assistance in the amount of $45.83 billion to 550,000 homeowners, according to the Office of Mortgage Settlement Oversight.
The independent settlement monitor released his third progress report since the agreement Thursday.
With the release of the report, HUD Secretary Shaun Donovan specifically touted the efforts made through principal reductions.
Ignoring negative consequences
“We have already surpassed our initial expectations, and the settlement is a testament to the fact that large scale principal reduction can be used as an important tool in our efforts to prevent foreclosures without incurring negative results,” Donovan said.
The greatest portion of the total $45.83 billion distributed since the settlement went to “relief to support home ownership.” About $24.7 billion went to these efforts.
Half of settlement was credits for losses on short sales
Short sales made up another significant portion of servicers’ efforts, totaling $19.5 billion.
First-lien modifications were insignificant
First-lien modifications totaled $6.04 billion, and active trials in progress currently stand at $3.49 billion.
Refinance relieve totaled $2.209 billion, and forgiveness of pre-March forbearance reached $1.37 billion.
In the fourth quarter of 2012, servicers doled out $23.9 billion in consumer relief to 276,413 homeowners.
Very few hit the principal reduction lottery
A little more than 33,000 homeowners received first-lien modifications amounting to about $3.86 billion in principal forgiveness.
Banks got credit for writing down worthless second mortgages.
Another nearly 120,000 homeowners received second-lien modifications or extinguishments, totaling $8.76 billion.
Relief through short sales in the fourth quarter totaled $6.41 billion and went out to 55,580 homeowners.
I thought the agreement amount was $25 billion and second agreement was smaller? So, are they counting private mods and short sales?
I can’t believe I was excited when this settlement was reached. What a fool. I actually thought there was a possibility, albeit remote, that my completely underwater second lien owned and serviced by BoA would receive at least a rate reduction, even if only for a few years. I will never do business with BoA again and I shame anyone I know who does. Pull-out a BoA ATM card near me, and be prepared for rude unsolicited comments and advice…
They weren’t going to give you a break because you are prudent and conservative, so they reasoned you would pay them back regardless. The real breaks are going to the most imprudent and reckless borrowers who never should have received loans in the first place.
Stories celebrating people who keep paying until they are no longer underwater proliferate when prices rise. This provides hope which keeps other loanowners paying until they get back above water, probably many years from now. Check out the ridiculous headline.
Zillow: 1.9M Homeowners Released from Negative Equity in 2012
Over the course of last year, nearly 2 million homeowners were released from negative equity, Zillow reported Thursday.
Data from Zillow revealed 1.9 million homeowners came out of negative equity due to two main reasons: sustained high foreclosure rates and rising home values, which increased by 5.9 percent year-over-year, according to the Zillow Home Value Index.
Zillow further projects at least 999,601 homeowners will be released from negative equity in 2013.
“As home values continue to rise and more homeowners are pulled out of negative equity in 2013, the positive effects on the housing market will be numerous,” said Dr. Stan Humphries, Zillow’s chief economist.
Humphries explained, “homeowners will have more flexibility, and some will likely choose to list their home for sale, helping to ease inventory constraints and moderating sometimes dramatic, demand-driven price increases in some markets.”
Zillow also estimated 13.8 million mortgages were still underwater at the end of the Q4, down from 15.7 million in the same quarter in 2011. The most recent figure represents 27.5 percent of homeowners with a mortgage, down from 31.1 percent a year ago. Zillow’s report uses data from TransUnion and looks at current outstanding loan amounts for owner-occupied homes and compares them to the current value of the homes.
In dollar terms, homeowners were collectively underwater by more than $1 trillion at the end of 2012.
I keep hearing these days is this middle class running away from California.
Here is my anecdotal evidence as a counter point.
I keep wondering about all the people that own their homes. In my current neighborhood in Lake Forest, just through reviewing zillow I see that on my street/cul-de-sac there are nine house. Of those nine, six were sold only once at the time of development. The neighborhood is mid 70s in origin. I would think those houses are entirely paid off. Those middle class people aren’t leaving.
Then, my story. Worked for ten years, saved a 50 percent down payment for the house I bought last year, after waiting for prices to go below rental parity. Now I pay less for a 4/3 in lakeforest than I did for a 1/1 apartment in Irvine back in 2005 when I came to California. I don’t make an exceptional amount of money, but I don’t blow it eating out, drinking, or at strip clubs. I’m not leaving either, and I’m glad because I love it here for so many reasons. I have many friends that did not save, and they are miserable now for it. So, it really feels like a choice to me. If people want to be here they will make the decisions required to stay and be happy, and they can do it and be comfortable if they choose
I agree with you that many people will chose to stay, particularly those who made good financial decisions like you did. The people who can’t afford the cost of living or feel they can never get a house are the ones who will leave. Are there enough of these people on the margins to make a difference? Maybe. California has experienced a lot of out-migration, and if the cost of living gets pushed up too high relative to salaries, the out-migration will likely continue.
A very important question is how close to the “brink” people are with their monthly budgets. I’ve been getting the feeling that food and gas will continue to surge, and if they end up moving up due to all of the stimulus (speculation) then those who are close to the red will need to compromise or kick the can of their own personal finances with more credit, and suffer more later.
So many people I know are “zombie debtors”, they are dead but they don’t know it. They keep kicking the can somehow year after year after year. I wonder where all the money/credit comes from. Half the people I know at work have under water mortgages, but they refuse to change their situation and keep paying.
The psychological motivation to stay is very strong, and very few will change until they are experiencing extreme misery.
“So many people I know are “zombie debtors”, they are dead but they don’t know it. They keep kicking the can somehow year after year after year.”
This is a great analogy. Thanks for coining it.
It sickens me how many people I know that can’t get ahead simply because their entire existence is devoted to servicing debt. Not just mortgage debt, but credit card debt, luxury car debt/leases, and even the supposedly good kinds of debt, like school loans and small business debt.
You can preach the message of avoiding debt bondage but you can’t make people listen.
How dare you sacrifice your standard of living and save for years! That money should be taxed at 50% and distributed to your friends who are suffering from this Great Recession!
I could have gotten my loan in Florida conventional 10% or even 20% down but that would have strapped me and I also I didn’t want to trust that the housing market would stay up.
I wanted to maximize the safetyof my liquidity and I don’t mind paying an extra few hundred a month for a while to get the lower FHA rate and hold on to my money and do cash for keys if the market caves in like it should have in the first place.
I still feel that the market should collapse worse than it did in 2008. In that case I have the option to walk and still keep my savings. Okay I’m paying more monthly payment but if I really want to in 4 more years I can pay the 20% and eliminate the FHA loan insurance just as I turn 65 years old. I could even use the 401k to pay off the whole house if that makes sense.
Growing up in California is touted as the best place to live in the country. However, I think that is no longer the case. You have very high housing costs. Gas, utilities, food, and medical care are all more expensive here. Then you have long commutes to the good suburbs to the job centers, but really the middle class areas shrinking. Finally, you have much more difficult time saving for retirement here. Schools are hit and miss…they are either very good or very bad.
Now, some people in my age group has left California, which was deemed the worse thing you could do. They are doing quite well and are happy.
In a phase California living is over hyped.
Yes, we certainly pay a premium to live in the Golden State. I suppose everyone has their reasons (weather, family, etc.) but for me, California’s biggest allure is its diversity — diversity of people and places. Beaches, mountains, deserts. Highest peak, lowest valley. Biggest trees, tallest trees, oldest trees. Entrepreneurs, entertainers, hippies, immigrants from all over the world.
To me, the difference between the Bay Area and Southern California is as palpable as the difference between New York and Florida. Big Sur and the Coachella Valley feel worlds apart.
Do I live in a bubble? Perhaps. I’ve traveled around some and even considered moving away a few times, but after 38 years, myopia persists. It seems every time I try to achieve escape velocity, I read a blurb like this one in a recent newsletter from my alma mater:
“California is home to 5,862 species and 1,169 subspecies or varieties of native plants. This figure is comparable to all the species in all the other states combined.”
It’s tough to put a price on the value of diversity, I know. Perhaps Irvine Renter can tweak his rent vs. own calculator into a stay-or-go calculator and make it blatantly obvious to me and 38 million other schmucks what a raw deal we’re getting by hanging out in this corner of the world.
Nouriel Roubini Is Bullish…For Now: “The Mother of All Bubbles” Has Begun
By Aaron Task | Daily Ticker – 1 hour 41 minutes ago
Two days of weakness in stocks after the Fed hinted it might “vary the pace of asset purchases” has some folks ready to declare the bull market over and done.
“Exit any and all bullish constructed positions and rush to the sidelines,” declares veteran trader and newsletter writer Dennis Gartman.
Others, including Pimco’s Mohammed El-Arian, “Gloom Boom and Doom” author Marc Faber and hedge fund manager Doug Kass have made similar comments in recent days, albeit sans Gartman’s dramatics.
Given this backdrop and with the economy facing myriad headwinds from the payroll tax hike, rising gasoline prices and the pending sequester it may come as a surprise that one notable guru is very bullish on financial assets, at least for the near term: Nouriel Roubini.
As with most financial issues these days, the NYU Professor and chairman of Roubini Global Economics says it all come down to the aggressive policies of the Federal Reserve and other global central bankers, notably Japan.
“The risk of the end game from QE is not going to be goods inflation, it’s not going to be a rout in the bond market,” Roubini says. “The risk is like during the 2003-06 [cycle] – we’re exiting very slowly and we got an asset bubble.”
Actually, Roubini predicts the coming (arguably ongoing) asset bubble is going to be “bigger than the one we had in 2003-06,” which is somewhat shocking given the massive excesses that occurred in that era, especially in housing and related finance.
Roubini’s rationale for “the mother of all asset bubbles,” is that Federal Reserve is going to be even more reluctant to pull back now vs. the prior cycle, when they executed a steady stream of 25 basis point rate hikes in 2004-2006.
That’s because unemployment is much higher today in most ‘developed’ economies and there’s more debt on both public and private balance sheets: “So if you exit very fast you’re going to kill the bond market [and] you’re going to kill the consumer in terms of debt servicing,” he says.
Roubini being Roubini, he doesn’t predict a happy ending to the Fed’s current experiment. ”We could create an asset bubble worse than the previous one which could lead to another financial crisis not this year, not next year but two or three years down the line if we keep on doing these policies,” he says. “You’re building the financial leverage that’s going to lead you to [another] bubble and eventual crash.”
Off camera, Roubini sums up his analysis of all this as “short-term bullish, long-term catastrophic.”
Again, I’d like to stress that while some other gurus are saying the ‘bubble’ in financial assets is about to burst, Roubini is suggesting that it’s just getting started and also that he frequently referred to a similarly themed speech by Fed governor Jeremy Stein. I’d like to further stress that while some are freaking out over hints the Fed might “vary the pace of asset purchases,” talk is cheap and the Fed is miles away from taking any action. Heck, if the global economy continues to weaken and U.S. unemployment rises again, the Fed’s next move might be additional accommodation, i.e. QE5 (or is it 6? I’ve lost count.)
Check the accompanying video for more on the above and to hear the famed professor’s view on recent talk of “currency wars” and why gold has been falling despite all the global money printing.
“As with most financial issues these days, the NYU Professor and chairman of Roubini Global Economics says it all come down to the aggressive policies of the Federal Reserve and other global central bankers”
What does that say about capitalism?
Apparently, the centrally planned economies of the old Soviet Union were not as economically backward as we thought.
It tells me there is no capitalism, just misnomer.
ALL centrally planned economies are economically backward. No exceptions.
“Roubini’s rationale for “the mother of all asset bubbles,” is that Federal Reserve is going to be even more reluctant to pull back now vs. the prior cycle, when they executed a steady stream of 25 basis point rate hikes in 2004-2006.
That’s because unemployment is much higher today in most ‘developed’ economies and there’s more debt on both public and private balance sheets: “So if you exit very fast you’re going to kill the bond market [and] you’re going to kill the consumer in terms of debt servicing,” he says.”
His analysis is right on. Eventually, the federal reserve’s policies will be very inflationary. They will be forced to keep interest rates low no matter what the inflation reading is.
All of this talk about bubbles … …
Bah!
Bernanke: “There Is No Bubble”
“Federal Reserve Chairman Ben S. Bernanke minimized concerns that the central bank’s easy monetary policy has spawned economically-risky asset bubbles in comments at a meeting with dealers and investors this month, according to three people with knowledge of the discussions.
http://www.zerohedge.com/news/2013-02-22/bernanke-there-no-bubble
343 days until Bernanke is gone, not that I’m counting or anything.
The biggest bubble maker of all time (perhaps second to Greenspan) tells us there is not bubble? I wonder if this is feigned ignorance or if he really believes it? Since they completely missed the painfully obvious housing bubble, it’s hard to tell.
I don’t know… Things feel a bit frothy to me.
After reading yesterday’s thread, it seems that el O misses the old days of being called out on his horribly wrong predictions. I feel honored to be the person that he thinks of first when he needs accountability. In that spirit here is el O talking about one of his fav indicators:
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el ORACLE says:
June 10, 2010 at 8:13 am
Enjoy it while it lasts.
The ECRI leading index rolled-over in positive territory into a downward trend in Nov 2009; now going to be reported this Friday as moving into negative territory. The last time it went negative was in Oct of 07.
That means the next ‘official’ recession is going to begin with unemployment in the 9%+ range instead of the previous 5% range and the fed-FR already at 0%. You heard it hear first.
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LOL… And then a year later….
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el ORACLE says:
June 17, 2011 at 11:20 am
oh la la, a 7.2% increase? ……tomatoe, tomahto, tomatillo………….
in other news:
ECRI rolling over with conviction.
The feds QE mini bubble’s action clearly charted, with each intervention costing more yet producing less. tictictic
tic…
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And now 20 months later still no recession….
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https://www.youtube.com/watch?feature=player_embedded&v=hwxcXnFW07s
Um… honored just the same 😀
Now, let’s have a look back…..
http://www.financialsense.com/sites/default/files/users/u618/images/2013/0111/ECRI-WLI-YoY-since-2000.jpg
Just because the ‘establishment’ hasn’t officially called a recession during that timeframe, doesn’t mean there wasn’t/still isn’t a recession. Reminder: the establishment/system is based-on CONfidence.
Tip: If you focus on one dot, you lose your peripheral vision and then you can’t see how the other dots connect.
Cheers!
The el numeraire doesn’t seem to be backing you up on this one.
Good point, but despite its ‘Standard of Monetary Value’ status, what is going on with el numeraire in todays world is no different than what goes on in any other
marketcasinomanipulation.You two are funny.
Lincoln-Douglassel O versus Mellow RuseReality bats last.
Timing it is a fool’s errand. Be early.
We are in the midst of a recession/depression masked by cheap money and money printing. Do you deny this truth?
el O might miss the timing, but he understands the charade and its unsustainability.
Really, when it comes to matters of economics and investing, timing is everything. (I believe IR has a post entitled similarly to this.)
However, I do see what is going on with the Fed and all of my bets have been based, in part, on Fed action. I believe stocks are in for another dramatic fall, as are bonds. Real estate may take a small hit, but a lot of the excess has already been wrung out of this sector.
Gold will take the worst hit of all. Study the 1980-83 gold charts to see what happens when rising rates mix with a gold bubble. Rising rates win the day.
Timing helps but more in a macro fundamental sense – understanding which way the tide is going and more importantly why.
USA is in a far different financial position than 30 years ago. We refi’ed 30 year paper for increasingly cheaper short term debt, and much more of it. I created a term: AELOC (American Equity Line Of Credit). Using the early 1980s as a gold bear argument might not be the best idea.
The Fed has painted itself into a corner. All it can do is print. We must first deal with the bond bubble/sovereign debt crisis before we can even talk about a gold bubble.
Investors will flee gold for the same reason they flee bonds. Fear of loss and higher, safer returns to be had elsewhere.
There are other factors that make California housing overpriced…the diminishing “wage premium” of employment in the Golden State. It used to be that while it cost more to live in California, jobs here paid more. I don’t think that’s true anymore, although in all honesty I don’t have hard data to support it. Yes, there are high paying sectors in California like technology and health care, but they require a specialized skill set that many prospective employees don’t have.
Large employers are increasingly putting the bulk of their employees in other states and just keeping a small number of highly paid professionals in California. For example, I was looking into Deutsche Bank…many of their employees in the US are based in Jacksonville, FL. TIAA-CREF, a major pension/financial services firm HQ in New York City (yes, that’s right) has many of its employees in North Carolina and just a few professionals in California.
The other factor – not to be overlooked – is the diminishing quality of public services. We can debate all the reasons – but if unions succeed in pushing up wages for police and fire professionals cities cannot afford to higher as many of them.
I still love the Golden State – but economic and vocational realities have to seen in a sober light.
The data was in Monday’s post (I think). The salary premium in California is 13% over the rest of the country, but it’s been declining. It hardly justifies our house prices that are at least double.
Ponzi 2.0?
They Bailed On Their Homes — Now They Want Back In
By Diana Olick | CNBC – 39 minutes ago
Home sales are slowly climbing back, thanks to investor demand, improving consumer confidence in housing, and the surprising return of former homeowners who once walked away from their commitments.
These so-called, “strategic defaulters,” some of them investors and some owner-occupants, are coming back to the market, despite damaged credit, and apparently the market is welcoming them back.
(Read More: The Real Estate Recovery — in Your Neighborhood)
A new survey of past clients by YouWalkAway.com, a website that assists borrowers in the legal pitfalls of strategic default, found that nearly 80 percent expressed a desire to buy a home again within the next twelve months. It also cites data by Moody’s analytics, showing that the number of eligible home buyers who have had a previous foreclosure will be 1.5 million by the first quarter of 2014.
Crashing home prices and sketchy mortgage products caused millions of Americans to default on their loans and eventually lose their homes. For some, it was a tragic fight to the end to keep their single largest investment; for others it was a conscious decision to walk away from their mortgage commitments, given the real fact that they would likely not see home equity again for many years to come.
Some saw this as morally reprehensible, others as a sensible business decision.
While home ownership has fallen dramatically since the recent housing boom, from a high of 69.2 percent in 2004 to 65.4 percent at the end of 2012, according to the U.S. Census, the desire to own a home is still strong. 70 percent of Americans surveyed by online real estate website Trulia.com said homeownership was still a part of the “American Dream.” 65 percent of those surveyed by Fannie Mae in January of 2013 said that if they had to move, they would buy a home, rather than rent.
Coming back to home ownership may not be as difficult as some think. Consumers who only defaulted on their mortgage during the recent recession were far better risks than those who went delinquent on multiple credit accounts, like credit cards and auto loans, according to a 2011 study by TransUnion.
“There appears to be a pocket of opportunity among mortgage-only defaulters that is not the result of excess liquidity, but rather the unique circumstances of the recent recession,” said Steve Chaouki, group vice president in TransUnion’s financial services business unit in the study release. “This new market segment that the recession created is an important one for lenders to understand. They have the potential, today, to be stronger and more reliable customers.”
Not surprisingly, given this potential, YouWalkAway.com is launching the “AfterForeclosure.com Pass/Fail App,” which claims to tell potential borrowers in just one minute, “if they have a shot at home ownership.”
“We want people to know that it’s possible and, in a lot of cases, it’s advantageous,” says Jon Maddux, former CEO and co-founder of YouWalkAway.com.
It is possible, but mortgage underwriting is far more strict today than during the housing boom, and there are varying waiting periods before former homeowners who went through foreclosure can qualify for a new loan. The Federal Housing Administration, the government insurer of home loans which now backs just over 20 percent of new loan originations, requires a three-year wait. Fannie Mae and Freddie Mac, which own or guarantee the bulk of the remaining new loan originations, require up to seven years for a strategic defaulter to qualify again for a mortgage.
One last one, since this California related…
Thousands May Have Been Exposed To Deadly TB Epidemic Downtown
February 21, 2013 11:32 PM
LOS ANGELES (CBSLA.com) — The feds are descending on downtown Los Angeles to combat a dangerous outbreak of a drug-resistant strain of tuberculosis.
KCAL9′s Jeff Nguyen went downtown in search of people who may have been exposed.
John Williams started living at the Weingart shelter on LA’s Skid Row two weeks ago. Before he could be admitted, he had to undergo a screening for tuberculosis.
“They make you go get checked before you get into one of these programs because they don’t want it spread out in there,” Williams said.
With nearly 80 cases of tuberculosis being identified in LA County since 2007 — thirty of which have been on Skid Row — tuberculosis screenings are more important than ever for some.
In fact, the Centers for Disease Control and Prevention has launched a coordinated effort to contain the area’s largest outbreak in a decade.
“We are really putting our resources into this,” said Dr. Jonathan E. Fielding, the director of the Los Angeles County Department of Public Health.
Anthony Stallworth, who pastors Central City Community Church of the Nazarene on East 6th Street, also volunteers at the LA Mission.