Housing Bubble Correction Update: Here comes the jobs crash (Part I)

[GRG55]

Re: Housing Bubble Correction Update: Here comes the jobs crash (Part I)

Housing Bubble Correction Update: Fasten your seat belts, here comes the jobs crash (Part I)

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...

This sounded decidedly UN-bank-Chairman-like:

House prices could fall for two years: Citigroup

Sat Jul 19, 2008 4:10am EDT
LONDON (Reuters) - Citigroup chairman Win Bischoff has warned that house prices in Britain and the United States are likely to keep falling for another two years.

The chairman of one of the world's most powerful banks told the BBC in an interview that he expects it will take two years for the markets to stabilise.

He also said he expected the credit crunch could continue through until 2009.

Bischoff told the BBC that there would be redundancies at the bank, which employs 12,000 people in Britain, and warned that some of them would be compulsory.

No further details were released of the interview which is due to be broadcast later on Saturday on the BBC News

[jk]

Re: Housing Bubble Correction Update: Here comes the jobs crash (Part I)

This sounded decidedly UN-bank-Chairman-like:

House prices could fall for two years: Citigroup

Sat Jul 19, 2008 4:10am EDT
LONDON (Reuters) - Citigroup chairman Win Bischoff has warned that house prices in Britain and the United States are likely to keep falling for another two years.

The chairman of one of the world's most powerful banks told the BBC in an interview that he expects it will take two years for the markets to stabilise.

He also said he expected the credit crunch could continue through until 2009.

Bischoff told the BBC that there would be redundancies at the bank, which employs 12,000 people in Britain, and warned that some of them would be compulsory.

No further details were released of the interview which is due to be broadcast later on Saturday on the BBC News

my guess is that he knows there are a lot more write-offs ahead, so he's immunizing himself from investor lawsuits.

[phirang]

Re: Housing Bubble Correction Update: Here comes the jobs crash (Part I)

Why is the CIC buying into HSBC? Is there something I'm missing?

[dave_cohen]

Re: Housing Bubble Correction Update: Here comes the jobs crash (Part I)

Our readers ask, With these huge declines in major housing markets, isn't the worst over? No. All the decline we have seen so far has been the dissipation of asset price inflation created by too much housing credit chasing too few homes between 2002 and 2005. In the manner of all asset price inflations prices will continue to revert to the mean – then overshoot.

The overshoot in this bubble case will occur as housing prices once again correlate to regional incomes and employment as they have for a century before the housing bubble, except for the post WWII period when pent up demand sent prices reverting to the mean but in an upward direction.

Home prices fall whenever and wherever unemployment is rising and incomes are falling, and now that the recession is starting to produce unemployment, home prices will follow falling incomes down.

It's impossible to disagree, but I would add that times have changed -- oil prices will also drive house values. From
Rising energy prices inflate costs of suburbia and beyond

In Atlanta, Philadelphia, San Francisco and Minneapolis, homes beyond the urban core have been falling in value faster than those within, according to an analysis by Moody's Economy.com.

In Denver, housing prices in the urban core rose steadily from 2003 until late last year compared with previous years, before dipping nearly 5 percent in the last three months of last year, according to Economy.com. But house prices in the suburbs began falling earlier, in the middle of 2006, and then accelerated, dropping by 7 percent during the last three months of the year from a year earlier.

I'm not sure if we have a good set of historical data on this to guide us. As oil prices inevitably rise, we should expect additional falling values in more auto-dependent areas with concomitant value increases in urban areas.

When oil hits a sustained level of $140-$160/barrel, I think the effect will become quite pronounced. Let's face it, some areas will never recover because oil will never be cheap again. Talk about multiple failures.

[FRED]

Re: Housing Bubble Correction Update: Here comes the jobs crash (Part I)

It's impossible to disagree, but I would add that times have changed -- oil prices will also drive house values. From
Rising energy prices inflate costs of suburbia and beyond

I'm not sure if we have a good set of historical data on this to guide us. As oil prices inevitably rise, we should expect additional falling values in more auto-dependent areas with concomitant value increases in urban areas.

When oil hits a sustained level of $140-$160/barrel, I think the effect will become quite pronounced. Let's face it, some areas will never recover because oil will never be cheap again. Talk about multiple failures.

Thanks and welcome. The IHT article seems to confirm our forecast as mentioned in this article: " The last update Housing Bubble Update: Geographic Regions Cascade, March 2006 explained how asset inflation correction combined with rising fuel prices was due to hit rural areas harder and first before urban areas. This was confirmed by stories like this one about Vermont home buyers avoiding locations that require long commutes. One of our members reported an early instance of the phenomena in High Commuting Costs Push Rural Property Owners Past the Tipping Point, June 2006."

Our ongoing research suggests the best places to live will have, as always:

• Well educated population with high paying jobs, creating a strong tax base to fund high quality K-12 education
• Well diversified economy

In addition, new factors for home values will be:

• New Energy Era, education, and other new growth industries
• Or close to the above

Our theory is that the commuting cost factor will be mitigated in many areas by the communitization of disparate communities, a process by which currently isolated areas dependent in imports of goods – economic islands – develop independent sources of much of what they are able to import now due to cheap energy and develop unique community capabilities in trade for those that they cannot. Communities that do not do this will become ghost towns and the property virtually worthless.

This is a 20 - 30 year process, however.

[Chris Coles]

Re: Housing Bubble Correction Update: Here comes the jobs crash (Part I)

Thanks and welcome.

Our theory is that the commuting cost factor will be mitigated in many areas by the communitization of disparate communities, a process by which currently isolated areas dependent in imports of goods – economic islands – develop independent sources of much of what they are able to import now due to cheap energy and develop unique community capabilities in trade for those that they cannot. Communities that do not do this will become ghost towns and the property virtually worthless.


This is a 20 - 30 year process, however.

Which might also apply to a country just as it will apply to localities within countries.

[c1ue]

Re: Housing Bubble Correction Update: Here comes the jobs crash (Part I)

Well educated population with high paying jobs, creating a strong tax base to fund high quality K-12 education

I am watching the evolution of this in action with great interest.

For those states with Proposition 13 - there has been a severe dislocation of the property tax base. The property tax is what is used to pay for K-12 education.

Some economic classes have compensated by going to private schools, but for the rest even the semi-functional present system will be further dislocated as home sales volume falters and sold home are generally lower in price, not higher.

The result is "10 little indians, 9 little indians, etc" until the budgets are seen to be completely unrealistic due to the equally discriminatory property tax laws.

[zoog]

Re: Housing Bubble Correction Update: Here comes the jobs crash (Part I)

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The second update, Housing Bubble Correction Update, Fifteen Years to Revert to the Mean, December 2005, laid out a seven step process, A to G, of the eventual correction.
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We are three years into the housing bubble correction process we defined, at Step D.
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Next housing bubble correction stage: The jobs crash

On a national scale, housing will continue to decline in line our 2005 forecast for at least another five years, and in some regions prices may not recover for decades. But not all locations will decline as much as others will nor in the same manner.
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Found this on SacramentoLanding. Click the link for their post and link to larger size chart that's easier to read. Acknowledging that this is just one city in one state and one previous local housing valuation wave, it is interesting to note how early in the decline the regional job growth rate went negative and affordability hit ~50%.

[metalman]

Re: Housing Bubble Correction Update: Here comes the jobs crash (Part I)

gov't has always been able to get debt growth going again. what if they can't this time?

[jk]

Re: Housing Bubble Correction Update: Here comes the jobs crash (Part I)

gov't has always been able to get debt growth going again. what if they can't this time?

the gov't can always grow its own debt and give the money away in new stimulus programs.

[Jim Nickerson]

Re: Housing Bubble Correction Update: Here comes the jobs crash (Part I)

the gov't can always grow its own debt and give the money away in new stimulus programs.

I think I heard or read last night, Obama's energy program is give everyone 1K bonars.

[EJ]

Re: Housing Bubble Correction Update: Here comes the jobs crash (Part I)

I think I heard or read last night, Obama's energy program is give everyone 1K bonars.

This is the crux of my long standing and, I hope, good natured feud with deflationists since 1999: the government can and will print money. It's not a complicated idea, but for some reason it has still not sunk in in some quarters. The only problem the government has is maintaining the purchasing power of the money it prints, because as it does so to meet its political obligations at home, foreign creditors may be less enthusiastic about the impact on their portfolios of treasury and agency debt, not to mention corp. bonds. So far they are on board, as depreciated dollars are still better than worthless ones. And they don't want to take it too far, in any case; WWII, readers may recall from college history, resulted primarily from the insistence of foreign creditors that Germany pay its debts. In the event it did, with a vastly depreciated currency.

The danger, as I have long warned, is that if US inflation exports result in economic pain that exceeds the ability of our creditors to absorb them politically, serious and unpredictable consequences will result. (See Economic M.A.D.)

[Chris Coles]

Re: Housing Bubble Correction Update: Here comes the jobs crash (Part I)

To my way of thinking, China has made all the right decisions. It takes US Treasuries and uses their credibility to fund an enormous raft of internal investment, infrastructure being one example. Everything points towards a decline of the industrial base in the US matched by an increase in the base industrial strength of China. It is investing long term as against the West continuing to invest only to inflate short term paper assets.

Turning to Iran, we must ask the question; what if, they are in fact simply investing in peaceful uses of nuclear energy? Can they then be seen as being particularly prescient in seeing that their oil reserves are worthless if the global warming continues and everyone is forced to move to nuclear energy. They then become a significant player in that energy market.

Perhaps we should see the threats made against Iran as in fact the oldest game after sex, gun boat diplomacy to retain control of long term markets?

I return to my previous statements regarding the potential for sea level rises beyond the normal. If, (yes a big IF), but if sea levels suddenly start to rise, say by the minimum 20 feet suggested in the February edition of Scientific American, consequentially inundating every large city beside any form of sea - then just as suddenly, oil becomes worthless. Why?

The ports are unusable, the people will have to abandon the cities and the whole planet will be in chaos. I repeat, oil will become worthless. Nuclear might well become the only game in town, Iran will be standing on great strength and future potential..

Now look at the UK as an example of how to get it wrong. We were one of the pioneers of nuclear energy, yet we have now lagged behind many other countries with almost no investment and now no capacity to create new nuclear power plants. On the other hand, France has many nuclear power plants and holds all the cards. Any nation with nuclear capacity and an educated technical and industrial population will hold the rest of the planet's future in their hands.

Bombs in that circumstance are needed like a hole in the head; civil nuclear technical know how on the other hand will be worth its weight in gold.

Think about that?

Just in case you all think I am being alarmist take a look at some recent postings on the subject of ice and sea levels. The first is a very long article from February's Scientific American which I suggest you go to print out and sit down and read

http://www.sciam.com/article.cfm?id=the-unquiet-ice

http://www.sciam.com/article.cfm?id=...ice&print=true

The rest are even more recent articles. The primary concern is that, if sea levels suddenly rise, the cat will be well and truly out of the bag. I have recently seen a map of England as seven islands. The moment the sea rises above the normal, all hell will let loose. THAT is what concerns me.

This is last May, mid winter in Antarctica an ice shelf believed to be holding back one of the largest land based ice sheets lost 600 hundred square miles.

http://www.sciam.com/article.cfm?id=...tarctic-winter

This is a report of a water lake on Greenland suddenly disappearing. April 2008

http://www.sciam.com/article.cfm?id=...peeding-to-sea

http://www.sciam.com/article.cfm?id=...peeding-to-sea

More on the break up of the Antarctic ice shelf.

http://www.sciam.com/article.cfm?id=...ce-shelf-break

This from the Independent

http://www.independent.co.uk/environ...le-855406.html

[touchring]

Re: Housing Bubble Correction Update: Here comes the jobs crash (Part I)

The US wants China to finance its wars and deficit, not the other way round.

To my way of thinking, China has made all the right decisions. It takes US Treasuries and uses their credibility to fund an enormous raft of internal investment, infrastructure being one example. Everything points towards a decline of the industrial base in the US matched by an increase in the base industrial strength of China. It is investing long term as against the West continuing to invest only to inflate short term paper assets.

[Chris Coles]

Re: Housing Bubble Correction Update: Here comes the jobs crash (Part I)

The US wants China to finance its wars and deficit, not the other way round.

And classically, you are missing the point; the only winner is China. All wars are money down the drain. At the end of WW2, the UK was bankrupt. In that case the US funded the war. Right now the wars started by the US are in the process of leaving the US in much the same position as the UK was post WW2.

The US is making money on armaments yes, but have you not noticed that by the same token the price paid has been the loss of much of the non military industrial capacity, this time in this case to China.

Yes, if at the end of the wars oil remains valuable then you might say they have succeeded. But your argument completely vanishes if in the end, oil becomes worthless. In that case, the whole exercise will be seen as the greatest waste of any nations greatest resource, its own capacity to create industrial products for its own markets.

If oil becomes worthless, where do you get the funding for the re-establishment of your industrial base...... China?

Anyone can guess the answer the US will receive..... please, don't make me laugh! Exactly the answer the US gave the UK post WW2.

And that answer led the US to create a huge rise in its international power base. Exactly the same is about to happen to China. The US started a war and the result leads, inevitably, to the consequential rise in the industrial might of China.

Your leaders have sold you all down the same road to fiscal hell. Impoverished currency, no industry, cap in hand to every other nation.

I have lived all my life in such a nation. You would not wish that experience on your worst enemy. And we still have not learnt the lessons.