I don’t have a very high opinion of The Evergreen State College, but a forum on the Olympia area’s “housing crisis” that was organized for a class and held last week actually sounds like it would have been an amusing spectacle.
Seven panelists at a forum Thursday night agreed that there isn’t enough affordable housing but differed about the different solutions.The panel was in a packed City Council chambers at Olympia City Hall.
Nick Federici of the Washington Low Income Housing Alliance said it will take money, political will to prioritize funding, and policies that make it easier for people to keep housing.
“We are worse than just treading water,” he said of keeping a good stock of affordable housing. “We have losses.”
Olympia Master Builders President Mark Shaffer said impact fees that governments tack on to housing prices are making houses more unaffordable, adding more than $18,000 to the price of a home.
“Our belief is that the fees themselves are more of an impediment to buyers than a benefit to governments,” he said.
…
Speakers gave their own sets of statistics to support their arguments. The common ground was this: housing prices in Olympia have risen much faster than incomes.“It’s a crisis,” said Mark Kitabayashi of the Olympia- Thurston County Association of Realtors. “We do believe that as well.”
He cited statistics that showed average house prices jumped from $163,500 in 2001 to $290,800 in 2007.
…
Audience members asked questions of the panel for more than an hour.One of them, Jim Lazar of Olympia, said that Americans need to reduce their expectations of “the American Dream.” He responded to statistics that Americans are building bigger homes while fewer can afford them.
“I think we’ve got to get the American Dream under control,” he said. “We’ve created a culture that tells people to expect a 2,400-square-foot home as the American Dream.”
Sounds like everyone was beating around the bush to me. Oh, housing is too expensive because of government fees, or inadequate government funding… I think it’s a lot simpler: Ridiculously easy financing + “housing is the best investment ever” mass psychology = out of control home prices.
The solution? Well, just wait a few years and I bet it will work itself out. Especially down in Olympia, where they barely have any of Seattle’s “specialness.”
(Matt Batcheldor, The Olympian, 06.01.2007)
I agree that house prices are set for a significant decline throughout Washington in the next 4 or 5 years. However, I doubt very much this will improve “affordability”. If anything, the decline in wages and employment which will accompany the falling values of real-estate will make housing even MORE unafordable for the average person than it is today.
But I suspect that affordable housing will be the least of our priorities when we reach the bottom of the real-estate cycle. We will be much more concerned about setting up soup-kitchens and hostels for the unemployed than finding inexpensive homes for people to buy. Moreover, NO ONE will even consider the idea of buying a home as things progress, renting will be thought of as by far the wiser financial decision.
Whatever happened to all the “armchair economists” that were calling for the recession of all recessions….something worse than a depression?
It sure has been quiet on these posts lately…and definantly not as humorous as before.
….I bet elaue and synthetik lost there shirts on there shorts
– Nice call guys
–I also believe some guy named matthew called the top a while ago…i guess their silence says it all….
Looks like the economy is doing just fine…almost too good as we will likely see rate increases now…
kaleetan said,
on June 4th, 2007 at 1:50 pm
Kaleetan said: “Whatever happened to all the “armchair economists” that were calling for the recession of all recessions”
Actually, the disappearance of many bears in recent months is an ominous sign in and of itself. The more bears throw in the towel, the more one should be worried about the economy.
I would like to trade my tulips for some of kaleetan’s gold. kaleetan, patience.
kaleetan -
yeah, that 0.6% GDP growth they just revised down is blockbuster, the economy is doing too good with that kind of insane number. the only reason rates will be raised this year is because the us dollar is quickly becoming toilet paper. been to canada lately? its trading almost 1-1 these days.
A lower dollar is not always such a bad thing….
http://www.epi.org/content.cfm/briefingpapers_may03bp_lowerdollar
The benefits of a lower dollar
How the high dollar has hurt U.S. manufacturing producers and why the dollar still needs to fall further
by Robert A. Blecker
The current decline in the dollar will provide a much-needed stimulus to the U.S. economy. The falling dollar will bring especially welcome relief to the internationally competitive U.S. manufacturing sector, which has suffered disastrous consequenceslost jobs, reduced profits, and decreased investmentas a result of the dollar’s overvaluation for the past several years. However, although the dollar has come down significantly from its peak in February 2002, it has not yet fallen nearly enough to reverse the damage caused by its high value since the late 1990s.
Folks, do you expect 30 yr interest rates to drop in the next 2 years? I am trying to find out if I should pay closing costs or not when buying a home or just take higher rate, cause we will re-fin any ways within 2 years. What are your thoughts?
Kaleetan, they used to say that low currency values were a good thing in Canada about 10 years ago as well. My position on that always has been, how low is good then? If a lower U.S. dollar is better, how low is best? Zero?
kaleetan -
A single paper from 2003? I wonder if Mr. Blecker still thinks the dollar should sink further, four years on. I would be surprised if that was his take.
Sandy said: “Folks, do you expect 30 yr interest rates to drop in the next 2 years?”
I suspect that the yield on 30 year treasuries will not rise much in the next 2 years, and may possibly drop. If they do drop, I don’t know how much, but I am fairly confident in saying they won’t rise.
However, this doesn’t necessarily give a lot of guidance regarding a mortgage. Mortgage rates do not necessarily follow the treasury yields. More importantly, I strongly believe we will see a massive divergence of mortgage rates based on risk/quality. People with 40% equity and stellar credit may get unbelievably low rates, but those will any credit blemishes at all, or just 10% equity, could see rates go through the roof.
The general scene I am predicting is that an implosion of the credit bubble will make lenders get EXTREMELY cautious as assets prices fall substantially. Who would want to lend money to homes that are falling 10% a year in value?
On the other hand, the ending of the credit bubble will cause investors to flee for safety, abandoning mortgage-backed securities, real-estate, commodities, etc, and increase demand for the sovereign debt of developed nations. Thus, an increased demand for US T-bills could very well push interest rates down. But the tightening of credit standards will mean very few people will even be able to borrow.
Dollar is down 30% this year, Gas is up a buck a gallon. Kaleetan, do you think there is a relationship?
Honestly, except for airplanes and debt – we don’t export much from this country anymore. Go to your kitchen and read the labels on where stuff is made.
A lower dollar is not always such a bad thing….
You serious? Wow, if that’s the case can I have a couple grand off you? serious… I mean, the dollar’s just going to go lower anyway, might as well give me some…
Ridiculous. If you want to see the glory of a devalued currency head down to South America with hyper-inflation. Get paid in the currency of Big Macs… oh, but everyone will invest there now, right?… wrong. The more basket case an economy gets, the bigger de-investment of its currency.
There’s a region the Gulf States (Persian.. that is) have gone to gold and euros, the dollar is cooked, the rats are fleeing.
sniglet, do you think the fed will do nothing and watch when the homes fall by 10% each year? dont you think they will do something to save the situation. That will clearly spill over into the broader economy and the fed will start cutting rates. In that case, wont mortgage rates come down?
Ah Kaleetan, my favorite of all the trollz! Don’t worry buddy, I’m still here, just been traveling lately and haven’t had as much time to devote myself to the blog. That and the disappearance of the open forums has kept my attention elsewhere.
My “calling the top” a while ago was actually me calling April the top. I said we wouldn’t see YOY losses until year until Fall or Spring 2008.
Sandy said: “do you think the fed will do nothing and watch when the homes fall by 10% each year? dont you think they will do something to save the situation.”
I don’t think they will have much of a choice. Did the Fed have a choice to prevent the stock crack-up of 2001/2002? Did the Japanese central bank have a choice to prevent the collapse of asset prices in the ’90s?
Sure, the Federal Reserve can lower interest rates to 0% but that doesn’t mean it will help juice the economy. The Japanese kept interest rates BELOW 0% and that didn’t help. Once a credit bubble bursts, people won’t borrow money even if the interest rates are great: they just don’t want to owe money on depreciating assets no matter what the interest rate.
Of course, the standard belief is that the Fed would just “print money”. But I think the power to print money is much over-rated. Yes, the US treasury could print money, and the Fed could start monetizing debt at a furious rate, but to do so would INSTANTLY destroy the currency, and even the Fed isn’t that stupid. It’s not like the 1930s when governments could inflate currencies with impunity for a while until the reality of inflation hit home. In today’s economy, as soon as the Fed becomes the biggest purchaser of bonds, everyone will dump. There will be a rush to the exits to sell treasuries like you wouldn’t believe. In an instant the Fed would become the purchaser of first AND last resort.
Seeing as how the consequences of rank monetization and currency inflation would be so immediate, I don’t think it is really an option anyone would ever use.
Interestingly, I think the Feds fiercest critics and greatest friends share one thing in common: the belief that the central bank is all-powerful and able to undertake all manner of manipulations of the economy. I susbsribe to neither of these views, and believe that the Fed is as much a victim of circumstances as anyone else.
sandy said >> Folks, do you expect 30 yr interest rates to drop in the next 2 years? I am trying to find out if I should pay closing costs or not when buying a home or just take higher rate, cause we will re-fin any ways within 2 years.
Should just be an algebra problem right?
Lower Rate + Closing Cost = Higher Rate
Figure out the break even point given the different rates and whichever side of 2 years it falls on determines your answer.
Are you talking closing costs though or points?? Should work either way though…
Sandy said: “do you think the fed will do nothing and watch when the homes fall by 10% each year? dont you think they will do something to save the situation.”
Not necessarily. They can raise or lower the Fed rate …lowering it makes borrowing cheaper and increases investment (or possibly creates a bubble) …raising it slows the economy and redices inflation.
The Fed ALWAYS fights inflation over unemployment. The last time they didn’t was in the 70s and it resulted in stagflation. If they fight unemployment in a time of inflation it becomes a vicious cycle that ends in a death spiral…
So it depends if you think inflation is going to increase. Offshoring and globalization have kept wages low so we have not seen much until recently. Gas and food prices probably have the Fed a bit worried though.
Further, if housing prices are falling, but we are at full employment …the Fed will NOT lower rates to save the houses …just jobs.
Finally, the comments about the dollar …the falling $ has made US goods look cheap which is part of the reason our economy has done well. Cheap $s also make T-Bills and Real Estate look cheap too though. This has assisted the bubble by adding more RE competition in the US and alot of cheap money floating around the world.
Anyway, I’ve said it before …I think it is going to be one hell of a hangover after this party ends.
When I said:
Lower Rate + Closing Cost = Higher Rate
I meant the current lower and higher rate. Then calculate payments at each rate and add them up.
It shouldn’t matter what the 30 year rate is in 2 years if you are bound and determined to refi. Unless you are getting a loan with a rate that resets though I don’t know why you would decide this now. That’s the beauty of a fixed rate …only refi if it goes lower …otherwise inflation will reduce the (real) amount you pay over time anyway.
Not sure if you should be buying right now though. Seattle appreciation might hit 0% by the end of the year and then go negative or flat for a long time.
The bond yeilds shot up today..more bad news for real estate market?
One of the people at the meeting quoted in the article hit the nail right on the head: “One of them, Jim Lazar of Olympia, said that Americans need to reduce their expectations of “the American Dream.” He responded to statistics that Americans are building bigger homes while fewer can afford them. “I think we’ve got to get the American Dream under control,” he said. “We’ve created a culture that tells people to expect a 2,400-square-foot home as the American Dream.”
The US Census Department released a study recently which showed that US home sizes have been getting bigger: “American homes are getting bigger — at least when measured by the number of bedrooms they have — according to a new analysis of data from the U.S. Census Bureau’s American Community Survey. In 2005, one in five occupied homes (20 percent) had four or more bedrooms, compared to 17.7 percent in 2000.” Maybe that’s a blinding flash of the obvious when you drive around new developments, but it’s good to see some hard data to back up what you think you are seeing.
Ironically, at the same time, the number of people per household in the US is shrinking per the Census Department: “Average household size in 2006 was 2.57 people, down from 3.14 in 1970.” So families are shrinking, but their houses are getting bigger. Something about that doesn’t compute.
Kaleetan,
Nice bell-ringer of a post there, bud.
Whatever happened to all the “armchair economists” that were calling for the recession of all recessions….something worse than a depression?
It sure has been quiet on these posts lately…and definantly not as humorous as before.
….I bet elaue and synthetik lost there shirts on there shorts
– Nice call guys
–I also believe some guy named matthew called the top a while ago…i guess their silence says it all….
Looks like the economy is doing just fine…almost too good as we will likely see rate increases now…
I’m still here. I find the new format to not be as user friendly, and I miss the open threads. You could learn alot on those threads, engage in a cyber food-fight, and be annoyed by ‘Shug all in one thread.
Did I lose my shirt in the past few months? Yup. Of course I made a few shirts just prior to that, so I’m hovering just below break-even. Not bad for stepping in front of a 78 year storm…
I wouldn’t gloat too much here. If the past three weeks isn’t a topping pattern, I don’t know what is. Watch the 10 year bond. It has been cratering over the past three weeks.
Shanghai lost 20% in less than a week. Do you think that can’t happen here? We are more leveraged than they are, but their fundamentals are more speculative.
The reason the FED might raise rates (I still don’t believe they will) is the dollar is getting crushed against everything other than the Yen and the Zimbabwe dollar. When you have an economy that is “growing” by 0.6% (and that is an inflated government number), while inflation is hovering around 10%, I would call that a contracting economy.
Yes, I called an inflection point. I still think we will take out the March lows before July is over. I COULD BE WRONG. The path of least resistance is down.
The action is currently in the debt markets. With all the leverage out there, and the razor-thin margins, it won’t take much to get this party rocking to the downside.
It is nice to be missed.
E
Keep in mind that my “call” was on the catalyst, not the chart top. The catalyst is still in play. Housing is dragging everything down. There has been absolutely NO improvement in the mortgage finance fundamentals. They have deteriorated significantly since March, all while the stock prices have climbed to just off their 5 year highs.
If you are so sure, write some puts. We need more.
Kaleetan,
If you really want to endzone dance, Cramer just named the “Four Horsemen” of the latest stock craze: RIMM, AMZN, AAPL, and GOOG.
I’d load up, if I were you. After all, an economy needs an overpriced search engine, electronic doo-dad maker that has 15% of the market, an low-margin online retailer, and an obsolete, juiced-up cell phone subscription service with a TON of competition.
Back in the previous stock mania, he named: CSCO, INTC, MSFT, and DELL. Two years later those “Four Horsemen” were 60% off their peak. I bet we eclipse that within 18 months.
It is my opinion that the Y2K equity market was much more fundamentally underpinned than today’s insanity. Believe it or not, we have outdone ourselves.