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  • From: Don Bowen <don.bowen AT earthlink.net>
  • To: homestead AT lists.ibiblio.org
  • Subject: Re: [Homestead] The Sound of One Bubble Bursting
  • Date: Tue, 15 Aug 2006 12:18:49 -0500

Whether it is a bubble or just froth, the real estate stagnation is going to cause problems. Just how big a problem is open to opinion, you can find "hard landing" and "soft landing" comments all over the place. One important point is that in some areas, most notably Southern California up to 30% of the employment gains over the last several years was in the housing industry. Even a stagnation of prices will increase unemployment. Also since there has been no real appreciation of middle class wages in the last 6 years, much of the spending has come from pulling equity from houses. Not having that money to spend will ripple though the economy.

Using Southern California and the west as an example has another set of problems. Much of the new development is in areas such as the "inland empire" of Riverside County and the desert in northern Los Angles County. These areas are far from jobs with almost no mass transit. Gasoline prices have remained high this year and have siphoned off monies and made those cheaper houses less desirable.

See:
http://www.calculatedrisk.blogspot.com/ Southern California economics.
http://www.rgemonitor.com/blog/roubini/ 70% chance of a hard landing in Q4.
http://www.angrybear.blogspot.com/ Somewhat left of center economics.
http://www.nymex.com/index.aspx Metals prices
http://www.econbrowser.com/
http://economistsview.typepad.com/




Don Bowen Awl Knotted Up KI6DIU
http://www.braingarage.com
My travel journal
http://www.braingarage.com/Dons/Travels/journal/Journal.html

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Just how big a problem is open to opinion, you can find "hard landing" and "soft landing" comments all over the place.

Indeed, Don, and no mistake. It's getting harder to manipulate the data and harder still to misrepresent it. Too many people watching it.

For example, on another such topic, the oil depletion watchers are told that Saudi Arabia has two million barrels per day reserve production so not to worry when supplies elsewhere are disrupted. This is apparently true, the oil exists. The Saudis say they are sitting on millions of barrels but they don't increase production because no one is buying what they have. On closer examination the reserve capacity the Saudis have is almost all heavy, sour crude that no one can use. I, as well as many others, have become used to looking beyond the one liner to see what's what.

Ditto for the housing market. As you pointed out, if prices just stabilize and frequency of sales slacks off, if that is all that is happening, then a great many people are still very screwed. But the numbers suggest that's not all that's happening.

A depressing number of people I know had this plan: borrow money on the increased equity of their house. If they need money in the future, their house will have risen in value so much they will borrow more, then again, then again. Finally when they don't need or want that much house, they will sell it in the final great rise in the prices and then buy a much smaller house. That is, no one in the country need work at anything any more, we just take money out of our houses ever increasing in value and everyone has plenty of money. I've always thought raw horse sense instinct would tell people better. Apparently not.

As to gas prices figurning into it, consumer credit balance - mainly revolving credit cards - have been increasing for some time at a rate of 3 1/2 percent a month. In May, right when a fresh round of gas price increases hit, it jumped 11% and in June another 9%. Likely a great many people have been absorbing the higher gas prices with their Visa and MC. It seems too that people have the unshakable faith that gas prices will go down again, this is all temporary.

The figures come with a great number of provisoes now of days, and as you said, it's still just an opinion as to what is going on and where it will lead. But the raw data on the housing, IMO, precludes it being just 'froth'.




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