It's much easier to govern when you only have a few cornfields to regulate.

^WTF is that supposed to mean?  Take away Chicago & the state doesn't even have another city over 200k in population.

Eaaaassssy Trigger.  No need to get pissy.  Just take a look at the states which are in the best shape financially.  They tend to be the least populated (both in numbers and density), the least diverse (in all respects), with economies largely based on use of natural resources (oil, agriculture, etc.).  All I was saying is that it is a lot easier to govern a state made up of people with not a wide range of demographics and values.  A state like Ohio, with wide ranging differences in its various parts is much more difficult to govern than a state like Nebraska.  I would think that is common sense.  Maybe not.  Didn't mean to offend.

I've been house shopping with my sister this week in Columbus.  From hearing what the Realtors and bankers are saying that 3% price dip is going to look modest compared to what's going to happen when foreclosures start back up.  My sister and her husband will likely give up the idea of finding a new home (which they desperately need for space and ease of access for a disabled child) because they're being told that once foreclosures open up it will be 6-9 months before the glut of foreclosures can be cleared out.  So it's highly likely they won't be able to sell their home.

I think the 60 Mins piece is more a focus on poor government leadership & lack of fiscal responsibility, essentially giving up too much to public employee unions.  I didn't take much away at all regarding "diversity" or cornfields.  Texas has a huge budget, tons of immigrants (diversity) and isn't mentioned in the fiscal emergency that states like California & NJ are.  On the other hand, Arizona is basically desert, has all the vast majority of population centered in Phoenix metro.  Unless desert is statistically different from your cornfield analogy, Arizona shouldn't have a budget crisis like it does?

 

In Ohio, the state budget is basicly one third education, one third social services, and one third everything else put together. For all the highway bashing in the 3-C thread, ODOT is only a very small part of the state budget.

 

Its pretty clear that states with a lot of urban poor have a pretty big burden from both the education and social services side. When the economy is declining, its even worse than normal.

 

For perspective, Phoenix, Arizona is now the nation's fifth largest city, having recently passed Philidelphia.

I think the 60 Mins piece is more a focus on poor government leadership & lack of fiscal responsibility, essentially giving up too much to public employee unions.  I didn't take much away at all regarding "diversity" or cornfields.  Texas has a huge budget, tons of immigrants (diversity) and isn't mentioned in the fiscal emergency that states like California & NJ are.  On the other hand, Arizona is basically desert, has all the vast majority of population centered in Phoenix metro.  Unless desert is statistically different from your cornfield analogy, Arizona shouldn't have a budget crisis like it does?

 

Texas' economy is heavily based on natural resource extraction.  I think that their oil industry has a lot more to do with their fiscal position than anything that has to do with diversity or density, or even governance and public employee unions.

If something tends to be true, that doesn't mean it is true in every instance. 

 

Which States are in the best fiscal shape?  Places like Alaska and Texas, of course, due to natural resources.  After that, they TEND to be largely homogenous and almost fully rural states like North Dakota and Nebraska.

^you make up facts on this board so regularly and offer backup so rarely, it's ridiculous

No need for personal attacks tough guy.  You wanna back that claim up?  Show me a single fact that I made up in any thread and I will provide the backup you apparently need.  Just one.... single.... fact.

 

How many people here feel I regularly make up facts?

 

An opinionated A-hole, I certainly can be.  A liar, I am not.

If something tends to be true, that doesn't mean it is true in every instance. 

 

Which States are in the best fiscal shape?  Places like Alaska and Texas, of course, due to natural resources.  After that, they TEND to be largely homogenous and almost fully rural states like North Dakota and Nebraska.

 

Texas seems to be held up as some Republican utopia - the only way to run a state government. I'm not sure why.

 

Texas has a nearly as big of deficit as California. Maybe they solved it(probably on the backs of the poor). The recession has ravage everyone(except the top 2% who need tax cuts to create a half a job). There's always going to be fat to trim. It's a never-ending process.

No need for personal attacks tough guy. You wanna back that claim up? Show me a single fact that I made up in any thread and I will provide the backup you apparently need. Just one.... single.... fact.

 

"Tough guy"?  Why start with the name calling?  I certainly can't be the first person to challenge the accuracy of your posts.  And just because you post on here non stop doesn't add credibility either.  Why don't you provide a teenie bit of backup once in awhile for your comments, starting with the one above, about how the states in best fiscal shape TEND to be those that are largely rural.  I countered that claim initially because Illinois is largely a rural state outside of Chicago, yet it is mentioned first & foremost as a state in financial emergency.  Maybe you're correct, maybe you're not, but a quick link with a few facts here & there would definitely add to the creative discussion.  If you can't support the statement, perhaps your post should say "my suspicion is that ...."  or "my experience would lead me to believe that...."

^

Texas has a nearly as big of deficit as California. Maybe they solved it(probably on the backs of the poor).

 

I've never quite understood why reducing freebies counts as "on the backs of the poor."  The underlying logic is that the moment the government gives a handout once, it is obligated to do so in perpetuity.  I have serious problems with that, particularly when the ever-increasing demands become as divorced from fiscal reality as they have.

No need for personal attacks tough guy.  You wanna back that claim up?  Show me a single fact that I made up in any thread and I will provide the backup you apparently need.  Just one.... single.... fact.

 

"Tough guy"?  Why start with the name calling?  I certainly can't be the first person to challenge the accuracy of your posts.  And just because you post on here non stop doesn't add credibility either.  Why don't you provide a teenie bit of backup once in awhile for your comments, starting with the one above, about how the states in best fiscal shape TEND to be those that are largely rural.  I countered that claim initially because Illinois is largely a rural state outside of Chicago, yet it is mentioned first & foremost as a state in financial emergency.  Maybe you're correct, maybe you're not, but a quick link with a few facts here & there would definitely add to the creative discussion.  If you can't support the statement, perhaps your post should say "my suspicion is that ...."  or "my experience would lead me to believe that...."

 

I guess you can't cite to a single fact I have made up.  I have over 4000 posts, but you can't cite to one made up fact.  It is one thing to say I didn't provide support, it is another to say I am making stuff up - i.e. lying.  Here is a link to projected state budget deficits for 2010 if you care to look - http://www-958.ibm.com/software/data/cognos/manyeyes/visualizations/state-budget-deficits-2010-estimat  North Dakota didn't have a projected deficit.  South Dakota had the smallest, followed by Arkansas, Nebraska, Maine, West Virginia, New Hampshire, Vermont, Idaho, Mississippi, Delaware, Alabama, Oklahoma.  All mostly rural states.  FYI, all states are "mostly rural"... even NY and California.  But these states, for the most part, lack large urban cores like.... ummmmmmm..... Chicago.  I didn't make that up either.  Chicago is quite large.  Just trust me on that one, as I don't think I should have to provide a link.

I wonder how many of the 3+million that have exhausted their unemployment benefits this year and have fallen off the unemployment numbers found a job? or should a couple of million more be added to the total number of the still unemployed?

 

Weekly jobless claims drop below 400,000

 

"Initial claims for regular state unemployment insurance benefits fell 34,000 to a seasonally adjusted 388,000 in the week ended Dec. 25, hitting the lowest level since July of 2008, the Labor Department reported Thursday."

 

"In the week ended Dec. 18, the number of people who continued to receive benefits under state unemployment programs rose 57,000 to a seasonally adjusted 4.13 million."

 

"Altogether, about 8.87 million people received some kind of unemployment-insurance benefit in the week ended of Dec. 11, on an unadjusted basis. That level was down about 35,000 from the prior week.

 

Workers in states with the weakest labor markets can receive up to 99 weeks of unemployment-insurance benefits, while workers in other states are eligible for shorter spans of benefits. Around 3 million to 3.5 million people this year have exhausted their eligibility for unemployment-insurance benefits, according to the National Employment Law Project, a New York-based advocacy group."

http://www.marketwatch.com/story/weekly-jobless-claims-drop-below-400000-2010-12-30

America's housing bubble still deflating

As they failed to spot the bubble, most economists seem oblivious of the threat of further market falls to come

 

"How many economists does it take to see an $8tn housing bubble?

 

The answer to that question has to be many more economists than we have in the United States. Very few economists saw or understood the growth of the $8tn housing bubble, whose collapse wrecked the economy. This involved a degree of inexcusable incompetence from the economists at the Treasury, the Fed and other regulatory institutions who had the responsibility for managing the economy and the financial system.

 

There really was nothing mysterious about the bubble. Nationwide house prices in the United States had just kept even with the overall rate of inflation for 100 years from the mid 1890s to the mid 1990s. Suddenly, house prices began to hugely outpace the overall rate of inflation. By their peak in 2006, house prices had risen by more than 70%, after adjusting for inflation. Remarkably, virtually no US economists paid any attention to this extraordinary movement in the largest market in the world."

 

"House prices in the United States are again declining and most of the economics profession remains clueless. The Case-Shiller 20-city house price index for October (the data is released with a two-month lag) showed a decline of 1.3% from September. This implied an acceleration from the prior month's decline, which is now reported as 1.0%. In other words, house prices are again declining at double-digit rates."

http://www.guardian.co.uk/commentisfree/cifamerica/2011/jan/03/useconomy-economics

 

 

I wonder how many of the 3+million that have exhausted their unemployment benefits this year and have fallen off the unemployment numbers found a job? or should a couple of million more be added to the total number of the still unemployed?

 

This is a long thread, but somwhere upthread are some posts by me looking at Ohio employment numberrs based on BLS stats, for the private sector.

 

I think these are probably more indicative of whats happening in the job market, and they have improved, but have not begun to take this state out of the hole it dropped in during 2007-2009. 

 

Based on the monthly BLS private sector numbers we appear to be in a recovery during 2010, as the pattern of gains and losses mirror that of when the state economy wasn't in recession, but the recovery isn't adding jobs to move us to, say, 2007 employment levels, for the foreseable future. 

 

The period to look at will be the next few months, February through July, to see how many more jobs are added, as its during this time period that the state economy actually adds jobs. 

 

This seems to indicate that the quote above is probably right.  By looking at the drop in unemployment, we could just be seeing a statistical artifact due to how this is measured.  The unemployed are just not being counted anymore since they are not "in the labor force" or "not in the job market" or whatever wording is used to describe this phenomenon. 

 

It doesnt mean the jobs are coming back. 

 

 

Texas seems to be held up as some Republican utopia - the only way to run a state government. I'm not sure why.

 

Texas has a nearly as big of deficit as California. Maybe they solved it(probably on the backs of the poor). ...

"Texas is like Mississippi, with great highways" -- Molly Ivins

 

Their spending on schools and social services is slight, so it is not the welfare-types that are wrecking the state budget in Texas, or elsewhere.  Those who want to blame someone must look  somewhere else for an answer.

 

In Ohio, I would point to the prison budget, for one.  Or how about highway spending from general receipts?  We are subsidizing cross country motorists who are driving through our state.

Great news today. It is getting easier to find a job and labor force numbers were revised up for the last couple of months.

 

103K new jobs in Dec. point to slow, steady growth

Economy adds 103K jobs in December, unemployment rate falls to 9.4 pct. as fewer seek work

Christopher S. Rugaber, AP Economics Writer, On Friday January 7, 2011, 10:32 am EST

 

WASHINGTON (AP) -- The nation's economy added 103,000 jobs in December and the unemployment rate dropped to 9.4 percent last month, its lowest level in 19 months.

 

But the job growth fell short of expectations based on a strengthening economy. And the drop in unemployment was partly because people stopped looking for work.

 

Private employers added a net total of 113,000 jobs last month and the government shed 10,000 jobs, the Labor Department said Friday.

 

"It's a bit of a mixed bag," said Ryan Sweet, an economist at Moody's Analytics. Many analysts hoped to see larger job gains, and the drop in the unemployment rate is unlikely to be sustained, he said.

 

"The labor market ended last year with a bit of a thud," he said. "But I think things will get much better this year."

 

The economy has shown signs of steady improvement in recent weeks, leading many economists to expect more job creation. The Labor Department said Thursday that fewer people applied for unemployment benefits over the month than in any four-week period in more than two years. An increase in consumer spending made this past holiday season the best in four years.

 

There were positive signs in the December jobs report. Government revisions showed more people were hired in previous months than the government first estimated. The economy added 210,000 jobs in October, above the previous figure of 172,000. November's total was revised to 71,000, up from 39,000.

 

http://finance.yahoo.com/news/103K-new-jobs-in-Dec-point-to-apf-555289343.html?x=0

How many of them jobs were temporary for the holidays??

^Not sure, but look at October! That's better than keeping up with the population.

How many of them jobs were temporary for the holidays??

 

I think that's compared with the previous December.

Time has a cover story on the jobs situation.  Two parts:

 

Where the Jobs Are

 

>snip<

 

General Electric is also trying to poach some Motown engineers to staff its expansion at Appliance Park, in Louisville, Ky., and three other locations where it is establishing "centers of excellence" in refrigeration technologies. The company is in the middle of a $1 billion investment in its appliance sector that will create 1,300 jobs at all levels over the next four years. GE has repatriated — insourced, if you will — a refrigerator-manufacturing line from South Korea (thanks in part to a new union deal and a weaker dollar that makes U.S. labor more competitive) even as it waits for the housing market to rebound enough to restore demand for fridges. "We think it's going to be a slow crawl back over the next several years, which, for us, is why we are investing now," says James Campbell, CEO of GE Appliances & Lighting....

 

>snip<

 

(to note that GE is making SW Ohio a center of expertise in aerospace and electric systems, which benefits Daytonnati)

 

 

...and

 

Where the Jobs Aren't

 

They're not in Ohio, based on the maps accompanying this article, which is about structural unemployment and how this is lockin-in in manufacturing and construction....

 

>snip<

 

The inability to confront the structural-unemployment question is a greater threat to future prosperity than high unemployment itself. Other countries have seen many years of high unemployment go hand in hand with solid economic growth: Britain and West Germany in the mid-1980s, Australia in the early 1990s, Canada in the mid-1990s, South Africa today. Unlike these other countries, the U.S. has no recent experience with chronic high unemployment and sees itself as a job-creation engine that may occasionally stall but never seizes up completely. The idea that the problem may be deeper and structural barely registers.

 

>snip<

 

The article set also talks about how this recession is affecting men more than women.  And this might account for why we arent seeing "Depression" levels of hurt, since if most blue-collar families are dual earners the wifes income (say she is a nurse or med tech or something like that) helps pay the bills.  Just speculating on the impact of dual earner households.

 

Anyway, according to the article set, the job growth is in the various medical fields and in proffessional and technical services.  Pretty much what we've seen all along. 

Here is a quick snap shot of data for Supplemental Nutrition Assistance Program (SNAP - food stamps) since 2007.

 

2007 - 26.2 million people received SNAP

2008 - 28.1 million people received SNAP

2009 - 33.4 million people received SNAP

2010 - 40 million people received SNAP

 

I find this type of data another way to get a snapshot of what is happening on Main Street. Hopefully these numbers will start declining soon.

 

One hand creates and the other hand buys.

 

The Fed’s QE2 Traders, Buying Bonds by the Billions

 

"Deep inside the Federal Reserve Bank of New York, the $600 billion man is fast at work.

 

In a spare, government-issue office in Lower Manhattan, behind a bank of cubicles and a scruffy copy machine, Josh Frost and a band of market specialists are making the Fed’s ultimate Wall Street trade. They are buying hundreds of billions of dollars of United States Treasury securities on the open market in a controversial attempt to keep interest rates low and, in the process, revive the economy.

 

To critics, it is a Hail Mary play — an admission that the economy’s persistent weakness has all but exhausted the central bank’s powers and tested the limits of its policy making. Around the world, some warn the unusual strategy will weaken the dollar and lead to crippling inflation."

 

"The smallest miscalculation, a few one-hundredths of a percentage point here or there, could unsettle the markets and cost taxpayers dearly. It could also embolden critics at home and abroad who say QE2 represents a dangerous expansion of the Fed’s role in the markets."

http://www.nytimes.com/2011/01/11/business/economy/11fed.html?_r=1

Jeffery, thanks for sharing that Time article. I wonder how many GE will ever employ in Dayton. The $7M grant from the State plus the (assuming) tax-free location on a Catholic university campus is going to be a real win-win for them.  If you read through the articles about it, they're going to build a big building and have like 10-20 researchers in there with UDRI people and it MIGHT increase to something like 100 or more if they meet their targets.

 

I'm rooting for it regardless.

 

####

 

Does anyone want to guess where the NYSE will be on 1/1/2012? I'll guess 14000-14500.

Jeffery, thanks for sharing that Time article. I wonder how many GE will ever employ in Dayton. The $7M grant from the State plus the (assuming) tax-free location on a Catholic university campus is going to be a real win-win for them. If you read through the articles about it, they're going to build a big building and have like 10-20 researchers in there with UDRI people and it MIGHT increase to something like 100 or more if they meet their targets.

 

I'm rooting for it regardless.

 

####

 

Does anyone want to guess where the NYSE will be on 1/1/2012? I'll guess 14000-14500.

 

You think the NYSE will almost double this year? Do you mean the DJIA? I think 14k is very optimistic even for that. I would be THRILLED with 13k. 14k...break out the Cristal, man.

As of this moment the Dow is at 11,769.55..... 14,000 is my OPTIMISTIC guess :)

I think it's not impossible that the Dow will break 14,000 by Christmas, especially if the Christmas 2011 season looks to be a good one.  That should not be confused with a broad-based economic recovery.  The DJIA is *a* measure of the economy's strength, not *the* measure (and I say this as someone with the significant majority of his personal assets in equities, since I don't own a home and save very little in cash beyond what I need to pay current bills).

 

I also think it's quite possible that the Dow could fall back below 10,000 even as rapidly as 2Q2011.  That said, I'm considering that a less likely scenario than I did even just a month ago.

So if the Dow ever got back to 14000 would all the pensions be saved? Remember they lose big if they sale low.

A step back to look how far US home prices have fallen from their peak.

 

Home price drops exceed Great Depression: Zillow

 

"(Reuters) - Home prices fell for the 53rd consecutive month in November, taking the decline past that of the Great Depression for the first time in the prolonged housing slump, according to Zillow.

 

Home prices have fallen 26 percent since their peak in 2006, exceeding the 25.9 percent drop registered in the five years between 1928 and 1933, the housing data company said in a report on Monday. Prices fell 0.8 percent over the month."

 

"Declines are accelerating, and it will take a while before falling unemployment and other signs of economic improvement support the market, Zillow said.

 

Home prices fell at a 0.78 percent pace in November, the fastest since February 2009, the company said."

http://www.reuters.com/article/idUSTRE70961E20110110

 

November home prices fall 5%, expected to fall more

 

"U.S. home prices fell 5.1% in November from a year earlier and are expected to go lower as the housing market struggles to find its recovery, according to a report Tuesday.

 

Real estate analytics firm CoreLogic said that single-family home prices declined for the fourth month in a row and at a faster pace. They dropped 3.4% in October year-over-year."

http://www.usatoday.com/money/economy/housing/2011-01-12-Homeprices12_ST_N.htm

 

They need to keep falling if you ask me.  It will cause some short term pain for sure, but way too much of our $ goes towards house payments.  The prices nearly doubled, even in stagnat areas, over the last decade or so.

Hts +1.  And after they've fallen a little bit more, they need to stay low for a while.  Long enough for at least half a generation to grow up dispelled of the illusion that houses are a real investment rather than a reasonably long-lasting durable good.

 

You may turn a slight nominal profit on a house that you've held for 30 years, but a real profit after you discount the aggregate cost of ownership is highly unlikely.  The benefit that a house provides is not a tangible return when you sell; it's a tangible (and intangible, hopefully) benefit while you own it, which more fits the mold of a durable good.  Pricing houses like investments--i.e., with expectations of real profits built into the purchase prices--was part of what inflated the bubble.  That cultural belief has shown remarkable resistance to reality.

Screw the Dow, it's price-weighted and only has the 30 largest public companies. I know it has the largest psychological effect on "consumer confidence", but it's actually one of the least useful financial yardsticks out there.

What Gramarye said was pretty much how housing used to operate in the postwar period.  If it was an investment, the idea was you'd make a little at the end, but it was seen more as a way of "getting your money back" at the end, (and a locked-in periodic payment) instead of renting  (presuming long-term ownership, which is what the 25- or 30-year mortgage implied).

 

The housing deflation probably reflects coming off a bubble in some areas, but for Ohio it probably reflects the decline in incomes and employment, i.e, a decline in demand. Which is what Hts121 implies, that housing prices have to come into line with incomes....that the housing market is adjusting to whats going on in the 'real economy'.

 

 

I agree with Hts121 as well. I still think the houses are priced way too high for what's being offered. I know people are underwater and "need" to sell at a certain amount or they end up owing, but that doesn't mean the prices are right.  Or as my Mom has always said, it's not a bargain if you can't afford it.

I agree too, housing prices still need to come down a lot from where they are now.  It makes no sense for them to outpace wage growth and that's exactly what happened for way too long.  Of course, higher wages would also solve the problem.  But somehow that would be socialism.

I have always felt that the US housing market must return to the historic balance between cost and income. This process is happening and will continue despite the efforts of the FEDs and many others to ensure otherwise. But this return to historic data will significantly hinder the economy's recover efforts. It comes down to having short term pain for better longer term economic stability.

 

U.S. Foreclosure Filings May Jump 20% in 2011 as Crisis Peaks

 

"The number of U.S. homes receiving a foreclosure filing will climb about 20 percent in 2011, reaching a peak for the housing crisis, as unemployment remains high and banks resume seizures after a slowdown, RealtyTrac Inc. said."

http://www.bloomberg.com/news/2011-01-13/u-s-foreclosure-filings-may-jump-20-this-year-as-crisis-peaks.html

 

How a housing slump will slow the job train

 

"It seems impolite to ask, what with employment growth sucking wind already. Companies added just around 100,000 jobs a month over the past year, a rate Fed chief Ben Bernanke dismissed Friday as "insufficient to materially reduce the unemployment rate." Not a pretty picture But it gets worse. Economists at Bank of America Merrill Lynch say one key to a jobs recovery is an improvement in housing -- because so much job creation is driven by new businesses that have in recent years been financed in part by home equity borrowing. This sort of job creation has been missing the last couple years, thanks to the housing crash. If U.S. house prices embark as expected on a new decline, the long-awaited hiring renaissance could be put on hold yet again."

http://finance.fortune.cnn.com/2011/01/12/how-a-housing-slump-will-slow-the-jobs-train/?section=money_topstories&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+rss/money_topstories+(Top+Stor

Second the housing prices are too high. They still need to plummet if this generation is to be responsible buyers. Rent is way too high as well. That's actually the biggest issue.

Applications for U.S. jobless benefits rise

New claims jump 35,000 to 445,000; paperwork delays cited

 

"WASHINGTON (MarketWatch) — The number of U.S. workers who filed new applications for jobless benefits jumped 35,000 last week to 445,000, the highest level in more than two months, as a government official attributed the sharp increase largely to administrative backlogs.

 

Still, the sharp rise in new claims, which had fallen steadily since last summer, is likely to put investors on guard following a disappointing December employment report last week."

http://www.marketwatch.com/story/us-jobless-claims-jump-35000-to-445000-2011-01-13-840290

Small businesses on Main Street are being starved to death for funds, while the big boys get money on the cheap.

 

Side note from the video attached to the article.

In 1995 America's 6 biggest banks made up 19% of GDP. Today they make up 64% of GDP. Their ability to control Washington continues to grow rapidly.

 

SIMON JOHNSON: Now US Taxpayers Are Subsidizing Goldman's Investment In Facebook--This Madness Must End!

 

"Although most Americans may think that the financial crisis and Wall Street bailouts are now just an embarrassing and regrettable moment in the country's history, this is far from the case, MIT Sloan School of Management professor Simon Johnson says.

 

In fact, the taxpayer subsidies for the major Wall Street banks continue to this day.

 

These subsidies, professor Johnson says, take the form of special access to the Fed's "discount window" and ongoing, unwritten "Too Big To Fail" guarantees that the US taxpayers will cover any major losses the banks incur--by bailing them out all over again.

 

These subsidies allow the big banks to borrow money at a lower cost than their smaller competitors, and, thereby, win market share and produce higher profits.

 

Bizarrely, professor Johnson adds, the subsidies mean that the US taxpayer is even subsidizing Goldman Sachs' recent $450 million investment in Facebook, one of the hottest tech companies on the planet."

http://finance.yahoo.com/tech-ticker/simon-johnson-now-us-taxpayers-are-subsidizing-goldman's-investment-in-facebook--this-madness-must-end!-535808.html?tickers=gs,skf,xlf,jpm,goog,xlk

I agree with Hts121 as well. I still think the houses are priced way too high for what's being offered. I know people are underwater and "need" to sell at a certain amount or they end up owing, but that doesn't mean the prices are right. Or as my Mom has always said, it's not a bargain if you can't afford it.

 

If that's the case, then people may need to be more willing to talk with their bank about a short sale or deed in lieu, particularly a short sale.  You're right that it's not a bargain if you can't afford it--but sometimes that applies equally to staying *and* leaving, since "staying" means staying locked into mortgage payments that will devour your income for 20+ more years.

 

I agree too, housing prices still need to come down a lot from where they are now. It makes no sense for them to outpace wage growth and that's exactly what happened for way too long. Of course, higher wages would also solve the problem. But somehow that would be socialism.

 

Higher wages alone are not evidence of socialism; indeed, higher wages are one of the principal benefits of capitalism.  However, while wages are a significant part of the equation here, there is also a difference between income and disposable income, which higher wages alone do not address.  Unless we address the cultural misperceptions that cause people to overspend on real estate, all increased wages would do would be to encourage people to overspend even more on real estate.  After all, if an "investment" is indeed a good "investment," you want to "invest" more in it.  That would encourage someone to spring for a 4000sf McMansion when they have one kid (probably in his teenage years already and therefore moving out soon anyway) and no other particular real need for the extra space.

 

I have always felt that the US housing market must return to the historic balance between cost and income. This process is happening and will continue despite the efforts of the FEDs and many others to ensure otherwise. But this return to historic data will significantly hinder the economy's recover efforts. It comes down to having short term pain for better longer term economic stability.

 

[...]

 

How a housing slump will slow the job train[/u]

 

"It seems impolite to ask, what with employment growth sucking wind already.  Companies added just around 100,000 jobs a month over the past year, a rate Fed chief Ben Bernanke dismissed Friday as "insufficient to materially reduce the unemployment rate." Not a pretty picture But it gets worse. Economists at Bank of America Merrill Lynch say one key to a jobs recovery is an improvement in housing -- because so much job creation is driven by new businesses that have in recent years been financed in part by home equity borrowing. This sort of job creation has been missing the last couple years, thanks to the housing crash. If U.S. house prices embark as expected on a new decline, the long-awaited hiring renaissance could be put on hold yet again."

 

Two points on this:

 

(1) Merrill Lynch analysts have been wrong before.  That's part of the reason they're no longer an independent company.

 

(2) I understand that some small businesses borrow against home equity for startup capital.  Maybe your local neighborhood pizza shop got started that way.  However, people generally have to be fairly old before they have significant equity in their homes; young entrepreneurs in particular will seldom have access to that source of capital anyway.  There are other sources of small business startup capital.  Also, a great many small startups fail--meaning that even if it's true that a much larger portion of such businesses got their startup capital by borrowing against the owner's house, I'm not entirely certain that that's the greatest of positives.

Housing did get too expensive, but a connected problem is dramatic swings in the type of housing that people consider acceptable. We went from dense cities filled w/ lots of multi-family housing to sprawling single family cities, w/ related devalue of older styles. The next step was the dramatic growth in the size of homes starting in the mid-60s and peaking in '06-7. With each of those steps up in size, the acceptability of the older housing shrank. Throw in some crappy construction in the '50s and the weird styles of the late 60s boom - the bi and tri-levels and you've got real problems in older markets.

 

It is also ever more important to disaggregate real estate valuations. The biggest drops are still highly localized to the boom/bust of the Sunbelt. The culture of treating a house like a car in terms of long term commitment does not lend itself to stable long-term valuations of housing.

I agree with Hts121 as well. I still think the houses are priced way too high for what's being offered. I know people are underwater and "need" to sell at a certain amount or they end up owing, but that doesn't mean the prices are right.  Or as my Mom has always said, it's not a bargain if you can't afford it.

 

If that's the case, then people may need to be more willing to talk with their bank about a short sale or deed in lieu, particularly a short sale.  You're right that it's not a bargain if you can't afford it--but sometimes that applies equally to staying *and* leaving, since "staying" means staying locked into mortgage payments that will devour your income for 20+ more years.

 

I agree too, housing prices still need to come down a lot from where they are now.  It makes no sense for them to outpace wage growth and that's exactly what happened for way too long.  Of course, higher wages would also solve the problem.  But somehow that would be socialism.

 

Higher wages alone are not evidence of socialism; indeed, higher wages are one of the principal benefits of capitalism.  However, while wages are a significant part of the equation here, there is also a difference between income and disposable income, which higher wages alone do not address.  Unless we address the cultural misperceptions that cause people to overspend on real estate, all increased wages would do would be to encourage people to overspend even more on real estate.  After all, if an "investment" is indeed a good "investment," you want to "invest" more in it.  That would encourage someone to spring for a 4000sf McMansion when they have one kid (probably in his teenage years already and therefore moving out soon anyway) and no other particular real need for the extra space.

 

I have always felt that the US housing market must return to the historic balance between cost and income. This process is happening and will continue despite the efforts of the FEDs and many others to ensure otherwise. But this return to historic data will significantly hinder the economy's recover efforts. It comes down to having short term pain for better longer term economic stability.

 

[...]

 

How a housing slump will slow the job train[/u]

 

"It seems impolite to ask, what with employment growth sucking wind already.  Companies added just around 100,000 jobs a month over the past year, a rate Fed chief Ben Bernanke dismissed Friday as "insufficient to materially reduce the unemployment rate." Not a pretty picture But it gets worse. Economists at Bank of America Merrill Lynch say one key to a jobs recovery is an improvement in housing -- because so much job creation is driven by new businesses that have in recent years been financed in part by home equity borrowing. This sort of job creation has been missing the last couple years, thanks to the housing crash. If U.S. house prices embark as expected on a new decline, the long-awaited hiring renaissance could be put on hold yet again."

 

Two points on this:

 

(1) Merrill Lynch analysts have been wrong before.  That's part of the reason they're no longer an independent company.

 

(2) I understand that some small businesses borrow against home equity for startup capital.  Maybe your local neighborhood pizza shop got started that way.  However, people generally have to be fairly old before they have significant equity in their homes; young entrepreneurs in particular will seldom have access to that source of capital anyway.  There are other sources of small business startup capital.  Also, a great many small startups fail--meaning that even if it's true that a much larger portion of such businesses got their startup capital by borrowing against the owner's house, I'm not entirely certain that that's the greatest of positives.

 

Many small businesses actually borrow against their business property (if they own). Since commercial re has dropped in value so significantly they no long can tap that option. Another place that small businesses go for loans is to State bonds (Private Activity Bonds). This market has all but dried because no one is willing to buy the bonds or the interest rate is too high on the bonds to make it feasible.

 

Other sources for small businesses loans came from smaller, localized banks that don't have direct access to the fed window and are losing ground in their own industry to be 'big boys' and are struggling themselves. In the tech and bio industries many of the small start ups were accessing gazelle funds which have also seen their investment levels reduced significantly.

 

While there are other ways for small businesses to access capital, may of the primary sources for small business capital have become very limited.

It is also ever more important to disaggregate real estate valuations. The biggest drops are still highly localized to the boom/bust of the Sunbelt. The culture of treating a house like a car in terms of long term commitment does not lend itself to stable long-term valuations of housing.

 

Perhaps, but I would rather people think about their houses more like cars than they do; it's people thinking about them as something more than cars--as stores of intrinsic value rather than depreciating assets--that helped inflate the asset price bubbles, especially in eras of easy money like the late 70s and mid-2000s.  For a couple looking to build up real wealth, your chances of long term returns are much better if you buy a $150,000 home and put $100,000 in the stock market than if you buy a $250,000 home.  You won't pay property taxes or insurance on the portfolio (a constant annual cash drain), nor incur commissions, loan origination fees, and interest.

My dad always said your house/car/whatever is worth whatever someone will pay for it.  I don't blame the seller.  I don't blame the lender.  The buyer has to take some responsibility here.  Don't buy a house that cost 3x what you make in a year.  That would be a good start.  My parents bought their 3 bdrm home in Cle Hts in 1978 for $36,000.  That house just sold for $120,000.  That's crazy.

I agree houses are questionable investments, but they are not like cars. Cars lose a big chunk of their value the second they leave the lot. By 100,000 miles, they're already heading towards worthless. By 200,000 miles, they're scrap. I had a Ford Windstar that made it to 208,000 miles before the tranny blew, and I just gave it away because I knew nobody wanted a soccer mom van from 1995.

 

Houses don't work that way. A well-built house in a good location holds value over generations, something that cannot be said about cars (unless you've got something like a '71 Challenger or '68 Chevelle). Cars are disposables. Houses are not. They don't go to hell through constant wear and tear like an automobile does. They go to hell through neglect or abandonment. If maintained, a good house can last centuries. Hell, I lived in a house in college that was built in 1805. But of course houses are constant financial drains due to property taxes, insurance, general upkeep, etc. I guess the only real big difference is gasoline, but you'll spend that on utilities. In terms of purchases, the object with fewer moving parts (house) is going to hold its value much better than the object with lots of moving parts (car). It's a lot smarter to buy a well-maintained $50,000 house in Toledo (about the norm in nice urban parts of the city) than a $50,000 car.

 

For a couple looking to build up real wealth, your chances of long term returns are much better if you buy a $150,000 home and put $100,000 in the stock market than if you buy a $250,000 home.  You won't pay property taxes or insurance on the portfolio (a constant annual cash drain), nor incur commissions, loan origination fees, and interest.

 

Agreed.

C-Dawg:  That was why I described them as a "particularly long-lasting" durable good in my earlier post.  A well-built house in a good location can indeed hold value for generations (though I note that once-good locations can become less-good locations over the course of those generations--there are still some beautiful homes in neighborhoods you wouldn't want to live in in different places around the state).  I don't deny that.  What I *am* skeptical of, however, is the notion that you can actually get more out than you put in, when you look at the complete costs of ownership.  I don't think you really disagreed with that point ("questionable investments").

 

The big difference between houses and cars is that you lose money less rapidly with a house than with a car.  The difference in the rate of depreciation (and accumulating costs of ownership) doesn't take housing into a completely new category, though.

 

By contrast, the big difference between a residence and a stock portfolio is that my portfolio has no consumption value.  I cannot eat it.  I cannot live in it.  It won't keep me warm at night (though I admit it does help me sleep).  Heck, owning stock in Panera doesn't even get me a discount on their sandwiches.  A residence, by contrast, does have consumption value--if you've got a house you like, in fact, it has significant consumption value.  In fact, it provides many essential or nearly-essential functions for everyday existence.  That does not, however, mean that more of it is always better--or that it is always better to own it yourself rather than rent it from someone else.

I would push it even further and say it is a shame that homes are no longer the family homestead in which the monetary value extractable from the property is of little importance. By long-term, I mean folks staying in the same place through multiple stages of life - 40 plus years at least.