Posted on 07/10/2008 10:23:46 PM PDT by Freedom_Is_Not_Free
Housing Bubble Correction Update: Fasten your seat belts, here comes the jobs crash
The housing market has fallen hard but it's not time to buy, no matter what you hear. Depending on where you live it's time to decide if you can afford not to sell before prices go lower, or grin and bear it. The choice depends on your likely future employment prospects and where you live.
In our first major update in our series of housing bubble forecasts since 2006 that began with our August 2002 Yes, it's a housing bubble analysis, we delve into the next phase of the housing bubble correction: regional housing price crashes caused by rising unemployment and falling incomes, especially in any state that has a poorly diversified economy not tied to energy or food production. The rate of growth in unemployment in some states may shock you, but our analysis turns up some positive surprises as well.
(Excerpt) Read more at itulip.com ...
Falling house prices is a GOOD thing! Would you want car prices to double just because you own a car?
Ping. A must read.
The sky is falling... we are all going to die!!!
Buy now... buy often.... sell when the time is right.
I always buy high and sell low.
Eliminates stress./s
sarcasm?... then you never play.
I am both a mortgage broker and realtor and you can take this to the bank: prices of bank owned properties have dropped to the point that a rational buyer sees a bargain. At least in AZ, I think we reached a bottom in April and are coming back up. When the price of homes dips below replacement cost, people will buy, and they are in spades. Most reasonably priced bank owned have MANY offers.
It appears that not a single one of you has read the article.
The article is not about housing. They are projecting future unemployment rates caused by the collapse of housing. The article is fascinating and is presented clearly but with an astounding level of detail. There is a ton of compelling information presented in the article for anyone who will bother to read it. Not just about housing, not just about projected unemployment, but about many economic topics besides those two.
This is a compelling article and even if you disagree with their projections, anyone reading this article stands to learn a great many things.
Please click on the link and take the time to read the article. It is very thought provoking.
Thank you, thank you for posting! I’m in the middle of making some large financial decisions and this was very informative and written in laymen’s terms.
That's good to hear, but this article is about the job market. If people have lost their jobs, they will not contribute to the economy, they will not buy houses, and they may lose their homes. And you don't even have to lose your job, you only have to fear that you will lose it. You may have reached the bottom, but you may stay there for a long time too.
No, I did read the article and the information is fascinating.
It stands to reason that jobs will now be jettisoned as companies stuggle with rising costs. I’ve lived through this cycle a few times.
I just posted what I did so I wouldn’t slit my wrists.
The point of this article is to project the increase in unemployment in the various states and to evaluate how that rising unemployment will impact home prices. It is something of a double-whammy. House prices go down, unemployment goes up, and unemployed people can’t afford homes which causes prices to go down further.
But the analysis is not simplistic. The analyst takes into account the various state economies and how that will impact unemployment and the resulting additional drag on home values in those states.
It is an exceptional article and well worth reading. As you can see from above, Rhode Island has seen the greatest increase in unemployment in the last year. Who would have thought that? I certainly wouldn’t.
Who would have thought that South Dakota would be poised to experience the least unemployment and the least damage to the price of houses?
Again, you may not agree with their assessment, but it is well worth taking the time to digest.
In that chart, all of the states except Wisconsin that are reducing unemployment can be explained by the boom in energy prices.
Hopefully your homes state is not one of the ones experiencing an increase in unemployment. I guess the odds are against that. I am an hour out of Sacramento, California and I agree with their assessment that unemployment is going to go way up, perhaps even double as they say.
I found their claim very interesting that the best leading indicator of future unemployment is duration of unemployment. We can see that job loss is not yet that bad, but the number of months people are going without work is indeed going up and they are saying that is a leading indicator of soaring future job losses. I have never heard that before. So I’ll be watching future unemployment numbers very carefully to verify or discount their claim. Very interesting.
I thought they made that clear in their analysis.
You are welcome. I was compelled to post it because it is a fantastic article, well written and because they source has so far been absolutely correct about the magnitude and duration of the housing bubble, and about its aftermath. They are predicting a very, very long time before housing truly recovers and it remains to be seen if this ruins their track record of being right about the housing bubble.
So far they have been dead right, and I am inclined to take a validated source much more seriously than one that has proven to be dead wrong over time. Industry analysts, talking heads, and bloggers who first said their was no housing bubble, and later kept calling bottoms and saying that prices would not go down this far, have absolutely no credibility. I would rather pay credence to those who have been proven so far to be right.
WARNING! This article is only going to be available for free to the general public for 2 days, until July 12th. If you bookmark for later read, there will BE NO LATER READ. After July 12th, the article will not be accessible unless you are a subscriber to iTulip.
I heavily recommend you MAKE THE TIME to read this analysis while it is available for free. If I sound like a commecial, oh well... But on July 13th, this knowledge is going to be lost to you, so read it or weep. You won’t get another chance.
I think their theory is correct. The housing collapse is one stage. Job loss is another stage and it follows the housing collapse.
What makes this time more ominous is that people are extended in credit, have no hard assets to fall back on,and are without savings. The things they have are not commodities to be exchanged, but toys that do not hold value, on a scale not seen before in America.
My state is Delaware and we have seen this rise in unemployment. In southern Delaware, where I live, the housing market is still fluid, as there is an influx of retirees coming into new housing due to the favorable tax climate here. That has offset a stalling of the non retiree portions of the housing market. House-on-market times for resales of 12 or more months is not uncommon.
More retirees would come but they cannot sell their existing homes yet, and that has stalled many new developments.
After 9/11 I never would have thought we could bounce back and have six good years after that. But this oil price rise will now affect every economic sector, whereas in the past, only some sectors were affected by changes in the economy.
Ground Zero state
National Unemployment Growth Rank: 4
Macro-economic Vulnerability: High
Unemployment Growth Rate: High
Estimated Post Recession Peak Unemployment Rate: 10%
Future Home Values Rating: Poor
I read the whole thing and I’m glad I live in Texas. According to this, we will be the least affected by a recession. Y’all come on down.
Excellent thoughts. Thanks.
Article mentions “total cost of ownership” for a house. 5 years into home ownership, folks who are living paycheck to paycheck are going to be hurting. Those cheap roofs on the cookie cutter homes are going to need work, paint fades, air conditioners go out - and so on.
Makes up for the mid-1980s. I had friends who went through the oil depression and it was brutal. I had friends who lost their homes, all the while the national economy was doing just great. So as bad as Texas was hit in the mid-1980s, you deserve a boom at this time. Enjoy it while it lasts because it won’t last forever, so ride it for all its worth! Everything goes in cycles.
They seem to think everything through, right to the fact that cash-strapped home owners won’t be able to afford to maintain their houses, and that will hurt property values even more. I hate the term “perfect storm”, but it seems appropriate when you look at all the factors that are combining to push house prices lower.
Sacramento area homes are down 30%-40% from peak and some people are calling them bargains and buying them now. This article provides some excellent food for thought whether current prices can truly be thought of as bargains in light of the escalating factors that are poised to push home values much further down.
It may not be a bad time to buy a house, but the conclusion of the article is that it is not a good time to buy a house unless you live in one of the states that is experiencing economic growth and won’t be affected by the rest of the national recession.
July 11 — Treasuries fell the most in three weeks after the New York Times said the U.S. may take over Fannie Mae and Freddie Mac if they keep deteriorating.
Notes slid and Asian stocks rallied as the newspaper reported the government may place the two-largest buyers of U.S. home loans under conservatorship, citing unidentified officials briefed on the plan. Ten-year yields may rise because efforts to help the companies ``should cause the flight-to-quality bid to fade,’’ Bank of America Corp. strategists led by Michael Cloherty in New York wrote in a report yesterday.
``The government needs to bail out those companies,’’ said Akira Takei, the general manager for international bonds at Mizuho Asset Management Co. in Tokyo, who helps oversee the equivalent of $37.3 billion. ``That will be bad for the U.S. Treasury market.’’
The yield on the benchmark 10-year note increased 7 basis points to 3.86 percent as of 7:33 a.m. in London, according to bond broker BGCantor Market Data. The price of the 3.875 percent security due in May 2018 declined 17/32, or $5.31 per $1,000 face amount, to 100 3/32. A basis point is 0.01 percentage point.
The MSCI Asia Pacific Index of regional shares rose 0.3 percent, erasing an earlier loss and curbing demand for debt.
Fannie Mae slid 14 percent yesterday to $13.20 in New York, down 67 percent this year. Freddie Mac declined 22 percent to $8. Their shares are plunging and their borrowing costs are climbing as investors speculate losses at the companies totaling $11 billion in recent months will keep increasing, the newspaper report said.
"This is where the right government policy moves will prove critical. Not politically expedient and uncreative wasted efforts to reflate the housing bubble or support home prices but tax reductions on the productive economy and other policies that reinforce the healthy parts of the US economy to provide real, sustainable employment: manufacturing, education, health care, energy, alternative energy, agriculture, and infrastructure development."
There is an answer to this whole mess, tax reductions, and congress could do it if they wanted to, but they won't. When are we going to demand that they do it? We just keep skirting around the real problem and solution, blaming oil companies, and mortgage companies, and putting bandades (like the stimulus checks) on it. All that is to keep from talking about the only real solution and one that no politician wants to do as it takes away their power over us.......... LOWER TAXES, and the economy will recover. Or better yet, enact the Fair Tax.
” I had friends who lost their homes, all the while the national economy was doing just great “
I’ve been hearing more and more ‘expert’ commentators, of late, making a distinction between “The Economy” and “The *Real* Economy” — one being a construct of overly massaged statistics and willful denial of inconvenient facts, and the other being where us great unwashed struggle to live.
In the ‘Real’ economy, my employer (a large big-box retailer - think ‘orange’) has quietly shed roughly 40% of its hourly labor force (through attrition) over the past year, and in the ‘rosy’ employment world of the ‘experts’, there is a real shortage of equivalent jobs out there for those of us who wish to abandon ship....
Make of that what you will....
read later
Great article. It supports what most reasonable people have been observing and saying for the past eight years.
It is very useful. The compilers of this do understand some economics. They also understand that the people in government with their hands on the levers they have inserted into the body of the Economy do not understand economics.If Hussein becomes president with the sort of Congress that appears to be in the cards, the responses will all be in the direction of taking over real estate and energy as government monopolies either in the Soviet form of outright nationalization or in the German form by disdaining paper title but micromanaging the industries as de facto owners.
I live in Florida. It is not just the housing decline which will afflict my resort town. The yankee tourists are declining in number noticeably. The business and rentals at the extreme ends of the resort area on this beach show the effects first and much worse than in the middle. If overall tourism declines by 5% the ends will suffer multiples of that because the vacancies in the middle are filled up by those whose tardiness in making arrangements last year left them out on the fringes and they get to be closer in this year.
What goes down will come back up, which could be a good thing for the person aware of and prepared for this fact of life. But the main difference between housing prices and car prices are that everyone expects (or at least should) the value of a car they own to decline.
For most people, a house is an investment, that will likely fund their retirement at some point. Falling prices here, especially for those whose only source of information is the lamestream media, can be quite gut wrenching.
Read NOW.
The kind of things that I notice is the value of a Dollar, which has dropped 30% during the Bush administration. Yes, I know the benefits of the cheaper dollar in reference to trade. I also have noticed the thousands of American businesses that have sold controlling interest in the past couple of years.
During the next few years we are going to see businesses make decisions that we will consider to be idiotic. That would be true but we’ll have forgotten that those businesses now have foreigners controlling them.
Then I look for wage increases across the board, not just one or two industries. How long has it been since you had a wage increase? Most folks can’t name when theirs was.
Yes, America is in trouble.
Very good read and I agree. Though housing and jobs, like politics is local. Some areas will and others won’t be as affected by the slow down. You probably know this, however.
I think if Obama gets in and starts raising taxes we’ll see a far longer stretch before the economy starts going again.
Here we underline energy costs in our 2005 forecast because a serious increase in energy prices and its impact on housing prices was not widely expected. We forecast it because we expected ongoing dollar depreciation in the wake of the housing bubble collapse.
1 John 4:4-5
4 You, dear children, are from God and have overcome them, because the one who is in you is greater than the one who is in the world.
NIV
A small number of states are what we call Energy Price Inflation States. The housing bubble left them mostly untouched and now they are benefiting from high energy and food prices. Examples are Oklahoma and Wyoming. These states are seeing either flat or, in the case of Oklahoma, falling unemployment.
I will NOW! I'm home from work!
bump for a must read
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