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

[c1ue]

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

Paul,

The nationalization of Fannie and Freddie will mark a turning point in the writeoff of previously accumulated crap mortgages, but it does not fix the other major problem: The entire securitization process is broken.

Unless another method is developed to provide cheap and easy credit, the housing markets are still going to be crippled by the lack of credit - its lifeblood.

While it may be hyperbole to say so, I do think it is quite possible that nominal housing prices may return to pre-securitization level - i.e. 1999 before the 'bottom' is reached.

The only reason I'm not more certain is that we have the inflation variable. One very possible result is a price which bottoms out at 2003, but a purchasing power equivalent which goes back much further.

The ironic situation now is that the so called dollar strengthening will only hurt the entire nationalization process: the US as a debtor nation doesn't need a stronger currency.

[metalman]

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

Paul,

The nationalization of Fannie and Freddie will mark a turning point in the writeoff of previously accumulated crap mortgages, but it does not fix the other major problem: The entire securitization process is broken.

Unless another method is developed to provide cheap and easy credit, the housing markets are still going to be crippled by the lack of credit - its lifeblood.

While it may be hyperbole to say so, I do think it is quite possible that nominal housing prices may return to pre-securitization level - i.e. 1999 before the 'bottom' is reached.

The only reason I'm not more certain is that we have the inflation variable. One very possible result is a price which bottoms out at 2003, but a purchasing power equivalent which goes back much further.

The ironic situation now is that the so called dollar strengthening will only hurt the entire nationalization process: the US as a debtor nation doesn't need a stronger currency.

the dream that this eu/japan/china intervention will last has legs like the last desperate attempt to maintain a dying international currency regime...

[Chris Coles]

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

the dream that this eu/japan/china intervention will last has legs like the last desperate attempt to maintain a dying international currency regime...

There is nothing to say we have to use the existing money system; indeed, any money system. Why not construct one of our own and bring everyone into it. This is after all a society that depends upon competition. Why not compete? Why not construct our own system and completely bypass the banking system that is so dysfunctional?

The only thing that limits our capabilities is negative thinking. Thinking positively, we can do anything we set as a task. So why not?

http://en.wikipedia.org/wiki/Credit_union

http://pandp.eusa.ed.ac.uk/campaigns/coops/coop.html

[c1ue]

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

There is nothing to say we have to use the existing money system; indeed, any money system. Why not construct one of our own and bring everyone into it.

There is not a capability barrier to changing a money system.

There are, however, a LOT of people and a LOT of existing money which does not desire any change.

That's why you get Cultural Revolutions.

[phirang]

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

There is not a capability barrier to changing a money system.

There are, however, a LOT of people and a LOT of existing money which does not desire any change.

That's why you get Cultural Revolutions.

People use $'s because then they get weapons, more $'s themselves, and miiltary support.

Governments are mafias a la prusse.

[Chris Coles]

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

I am not saying do not use the $ or Ł, what I am saying is the underlying system of banking is defunct and we do not have to use it. We can walk out the door to our own competitor.

Phirang, -- Right on the button. Give some people a government job in a fine government building and they turn into monsters.

Power crazy!:eek::mad:

[KyBOOM]

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

I feel that when "High-Tech" companies lay off workers, the "US" just celebrates capitalism. When Detroit, Indiana, Texas old manufacturing lose jobs, that's when the "US" starts talking bailout.
So let's give money, in the form of low-interest loans, to GM etc to create an electric car. IF all those people getting the benefit of this government behaviour don't vote Democrat then they don't understand the values that are (trying to) keep them employed.

Long live the New Economy!

[Tulpen]

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

But you wouldn't know it reading Ben Stein.

Why do you even quote Ben Stein? Did you take a look at his miserable articles in the Yahoo Financial Experts column?

Sorry but anyone who reads Ben Stein deserves to lose his money, it is first rate garbage.

[zoog]

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

Why do you even quote Ben Stein? Did you take a look at his miserable articles in the Yahoo Financial Experts column?

Sorry but anyone who reads Ben Stein deserves to lose his money, it is first rate garbage.

FYI, iTulip has a long history of ridiculing Ben Stein.

[FRED]

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

Why do you even quote Ben Stein? Did you take a look at his miserable articles in the Yahoo Financial Experts column?

Sorry but anyone who reads Ben Stein deserves to lose his money, it is first rate garbage.

Ben Stein sucks but Been Stooge is the best!

Another View of the Economy from Abroad
Grease my Palm with Big Oil
Buy Financials! Catch a falling knife!

[FRED]

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

Keep your seat belts fastened

July this year we warned readers to "Fasten your seat belts, here comes the jobs crash." After today's announcement of a "surprising" jump in unemployment to a 14 year high, we compare our forecast to see what we got right and what we got wrong so we can learn from it and refine our analysis. The big story: a stunning rate of increase in unemployment.

In Part II our analysis ($ubsriber) we we broke our per-state jobs forecasts down into four categories, most predictable loser, most surprising loser, most surprising winner, and fastest crashing economy. Here are the forecasts compared to the actuals.

Most predictable loser (July 2008)


Housing Bubble Ground Zero state
National Unemployment Growth Rank: 2
Macro-economic Vulnerability: High
Unemployment Growth Rate: High
Estimated Post Recession Peak Unemployment Rate: 10%
Future Home Values Rating: Poor

Most predictable loser (Sept. 2008)

In three months since July, unemployment is up 1% from 5.6% to 6.6% in Florida. Given that unemployment is typically a lagging indicator and the current recession officially started April 2008, current course and speed unemployment in Florida will reach our 10% forecast by June 2009.

Most surprising loser (July 2008)

National Unemployment 16
Macro-economic Vulnerability: High
Unemployment Growth Rate: High
Estimated Post Recession Peak Unemployment Rate: 8%
Future Home Values Rating: Poor

Most surprising loser (Sept. 2008)

In three months since our last report, unemployment is up modestly from 4% to 4.6% in Montana. The rate of change of all of these charts is the real news. Note that even in the 1980s recessions unemployment never increased by more than 20% year over year. In Sept. unemployment increased in Montana by 43%. Current course and speed unemployment in Montana will reach our 8% forecast by June 2009.

Most surprising winner (July 2008)

Energy and Food Price Inflation state
National Unemployment Growth Rank: 46
Macro-economic Vulnerability: Low
Unemployment Growth Rate: Low
Estimated Post Recession Peak Unemployment Rate: 4%
Future Home Values Rating: Good

Most surprising winner (Sept. 2008)

In three months since July, unemployment is up modestly from 3% to 3.2% in South Dakota. Not exactly earth shattering unemployment growth at 15% y-o-y but it does call into question our assumption that South Dakota is relatively immune from the developing US depression. We expect to see the rate of unemployment growth increase as the retail, manufacturing, construction, and finance industries shed jobs. Based on the increase in the rate of increase in unemployment, we are raising our estimate from 4% to 6% and expect to see that level reached by June 2009.

Fastest crashing state economy (July 2008)

Macro-economic Vulnerability: High
Unemployment Growth Rate: High
Estimated Post Recession Peak Unemployment Rate: 11%
Future Home Values Rating: Poor


Fastest crashing state economy (Sept. 2008)

In three months since our last report, unemployment is up 1% from 6.2% to 7.2% in Tennessee. At this rate unemployment in the state will reach our target of 11% by Q3 or Q4 2009.

The rate of change in unemployment is the story here as it exceeds the rates we saw in the worst of the recessions of the early 1980s. Combined with sales data, such as this chart of recent light truck sales, prospects are grim.

Unemployment will kick off a series of feedback loops. One, as we pointed out in July, is the feedback loop of rising unemployment, falling incomes, increases in mortgage defaults and foreclosure, and further declines in home prices. For 100 years before the housing bubble home prices were correlated to incomes. Now that the bubble is over and unemployment is rising, home prices will correlate to incomes again, and incomes will soon be falling as unemployment rises.

The rate of increase in unemployment will take cities, towns, and states by surprise. This is not what was forecast by the mainstream business press. Property and income tax revenues will plummet. Strains on the Federal budget will be epic.

Cash will continue to be king until heroic monetary and fiscal stimulus finally increase inflation expectations in the economy. We expect commodity prices will continue to soften except for those that are the most sensitive to future inflation as implied by the growth of money aggregates over the past year.

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[mercerbear]

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

Thoughts welcome on this.....

Let's say I want to buy a house in TN where we expect unemployment to continue increasing and housing prices to continue falling and I have cash on the sidelines to make this purchase. Ideally, I would want to wait until the final months of Ka, right before Poom hits, right?

Let's change that and say I want to build a new house instead of purchasing an existing home. Ka would definitely be a good time for this as input prices are down and builders are desperate for work, right? Expecting poom, would it be a better idea to take out a mortgage and let dollar devaluation effectively lower the cost of my mortgage payments or pay up front in cash?

Please, anyone feel free to give me your take on this one. I'm a professional basketball player in Europe for the moment but I plan on living in TN sometime in the next 5 years and I'm trying to figure out the best way to take advantage of the current situation regarding housing.

Any ideas on timing would be great also...

Thanks!

[Chris Coles]

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

Thoughts welcome on this.....

Let's say I want to buy a house in TN where we expect unemployment to continue increasing and housing prices to continue falling and I have cash on the sidelines to make this purchase. Ideally, I would want to wait until the final months of Ka, right before Poom hits, right?

Let's change that and say I want to build a new house instead of purchasing an existing home. Ka would definitely be a good time for this as input prices are down and builders are desperate for work, right? Expecting poom, would it be a better idea to take out a mortgage and let dollar devaluation effectively lower the cost of my mortgage payments or pay up front in cash?

Please, anyone feel free to give me your take on this one. I'm a professional basketball player in Europe for the moment but I plan on living in TN sometime in the next 5 years and I'm trying to figure out the best way to take advantage of the current situation regarding housing.

Any ideas on timing would be great also...

Thanks!

In a very real sense you show exactly why everyone is in a mess, you just cannot let go of the idea that somehow, very soon, everything is going to return to normal and you will be able to continue to make money from property.

It is all over. By the time property reaches bottom, the prices will be so low, and the earnings so improbable, you will be hard put to make any money for a decade. Try and scratch an income for a few months is one thing, but try and struggle for several years and the rents you will be able to achieve will not give you anything other than a subsistance return.

We have to wait for the bottom and then the money to be made will be in creating new employment, industrial employment. All those exported jobs will now have to be re-created. You can have 3% of your population living on a park bench, but when you reach 10% or more, you have to change direction.

Keep your powder dry and remember the words of Adam Smith "All jobs are created in direct proportion to the amount of capital employed". Use your capital wisely.

[mercerbear]

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

In a very real sense you show exactly why everyone is in a mess, you just cannot let go of the idea that somehow, very soon, everything is going to return to normal and you will be able to continue to make money from property.

It is all over. By the time property reaches bottom, the prices will be so low, and the earnings so improbable, you will be hard put to make any money for a decade. Try and scratch an income for a few months is one thing, but try and struggle for several years and the rents you will be able to achieve will not give you anything other than a subsistance return.

We have to wait for the bottom and then the money to be made will be in creating new employment, industrial employment. All those exported jobs will now have to be re-created. You can have 3% of your population living on a park bench, but when you reach 10% or more, you have to change direction.

Keep your powder dry and remember the words of Adam Smith "All jobs are created in direct proportion to the amount of capital employed". Use your capital wisely.

Thanks for the reply Chris. Let me clarify one thing...I am not looking to "profit" on this house by renting it out or flipping it. I am actually going to live in this house long term. I am just trying to decide whether to buy an existing home or build a new one, and also, how to finance it since I could either pay outright or take a mortgage. The last part was just a question about when I should do this. Thanks again.

[FRED]

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

Thoughts welcome on this.....

Let's say I want to buy a house in TN where we expect unemployment to continue increasing and housing prices to continue falling and I have cash on the sidelines to make this purchase. Ideally, I would want to wait until the final months of Ka, right before Poom hits, right?

Let's change that and say I want to build a new house instead of purchasing an existing home. Ka would definitely be a good time for this as input prices are down and builders are desperate for work, right? Expecting poom, would it be a better idea to take out a mortgage and let dollar devaluation effectively lower the cost of my mortgage payments or pay up front in cash?

Please, anyone feel free to give me your take on this one. I'm a professional basketball player in Europe for the moment but I plan on living in TN sometime in the next 5 years and I'm trying to figure out the best way to take advantage of the current situation regarding housing.

Any ideas on timing would be great also...

Thanks!

I'd like to point out a potential misunderstanding of Ka-Poom Theory.

Either way, whether prices are inflated a little or a lot, or if we are completely wrong and we get modest deflation, it's all the same thing: we are all poorer. We will have less purchasing power either way because in any case the purchasing power of income is falling.

The advantage of inflation under conditions of indebtedness is that it allows past debt to be paid down more quickly out of income and also means that more money can go to other uses than paying down debt. For this reason there is less unemployment if a debt deflation is managed down with modest inflation as part of the program.

In modest inflation home prices will continue to decline–asset price deflation vs commodity price inflation–but interest rates will rise. In terms of your purchasing power it's all the same.

If we are right about inflation then you should be able to exchange inflation hedges for inflated goods prices, but there is no net gain, only an avoidance of losses that might otherwise be experienced if deflating assets are held instead.

Growing up in an era of continuous real estate price inflation, the hardest thing for us to get our heads around is that there will be no money to be made in property for ten or twenty years. In the wake of the housing bubble residential real estate is dead as an asset class.