Who Are You Going to Believe on the Economy?

Let’s have a little economic review, shall we?

Early 2006 — We were told by “economists” that all is well in the housing market, and we were just headed for a soft landing. Definitely zero risk to the economy.

January 27, 2006
“All the hype about the housing market falling apart is exaggerated,” Tim Rogers, Boston-based chief economist for Briefing.com, an economic research firm, said in an interview. “Mortgage rates are around 6 percent and that’s going to keep supporting housing. It’s falling off of record highs but I don’t think anything is plunging here.”

Mid-to-Late 2006 — Whoops. Turns out the housing market is in fact slowing down faster than the economists expected. But not to worry, they say, there’s still no risk to the economy.

July 27, 2006
“The economy is still performing reasonably well,” said Michael Moran, chief economist at Daiwa Securities America inc. in New York. “The housing market is definitely slowing, but the drop is not precipitous enough to do serious damage.”

September 25, 2006
The Fed’s Fisher said aside from the housing market, which is experiencing a “serious correction,” the U.S. economy “is healthy and robust.”

Late 2006 – Early 2007 — Whew! That was a rough year. The housing slowdown almost started to affect the economy, but thankfully the economists assure us that it’s not a problem going forward. Now the economy is ready to roll without being dragged down by housing.

January 8, 2007
“The worst of the drag on the economy from construction is behind us,” says Chris Varvares, president of St. Louis-based Macroeconomic Advisers Llc. As a result, he says, growth should pick up to an annual rate of more than 3 percent in the second quarter, from 2-1/4 percent in the current quarter.

Subprime loans are defaulting by the thousands on the gates of the economy.  But be assured, the economy is safe, protected.
Subprime loans are defaulting by the thousands on the gates of the economy. But be assured, the economy is safe, protected.

Early 2007 — Whoa, where’d this subprime mess come from? Yuck! Nobody worry though, the economists assure us that it is completely, 100% contained. Zero effect on the overall economy—for reals.

April 3, 2007
Fed Chairman Ben S. Bernanke, who still expects the economy will expand at a “moderate” pace, last week told lawmakers he expects the subprime fallout “is likely to be contained.”

Mid-2007 — Economists: “Guess what guys? The economy is still going gangbusters! Anyone that tells you a recession is on the horizon is a fool. We have the data right here that proves it.”

July 27, 2007
As recently as May, traders were certain of a rate cut by the end of 2007, only to be dissuaded by continued growth in employment and comments by Fed officials that recession isn’t likely. Some economists said traders may again be getting ahead of themselves.

“The Fed should be pretty happy with these numbers,” said David Wyss, chief economist at Standard & Poor’s in New York, referring to the second quarter figures for gross domestic product. “I don’t think the Fed does anything this year.”

September 2007 — “Holy crap! If the Fed doesn’t cut rates RIGHT NOW, we’re headed for a certain recession.” Fed cuts rates 50 points. “Whew! The Fed has come to the rescue! Now the economy is in the clear!”

September 18, 2007
The Federal Reserve lowered its benchmark interest rate by a half point to 4.75 percent, the first cut in four years, to protect the U.S. from sinking into a recession sparked by fallout from the housing-market collapse.

“Today’s action is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets,” the Federal Open Market Committee said in a statement after meeting today in Washington. The central bank will “act as needed to foster price stability and sustainable economic growth.”

Just look carefully, I only want you to look carefully. Do not repeat the lies of liars. Do not become like them.
Just look carefully, I only want you to look carefully. Do not repeat the lies of liars. Do not become like them.

Is it just me, or have the so-called professional economists pretty much lost all credibility at this point? They were wrong about the extent of the pain the housing market would endure. They were wrong about the containment of the subprime mess. They were wrong about the effect of housing on the overall economy. They were wrong about the risk of a recession.

But now we’re supposed to believe them when they say that the Fed can wave their magic wand and keep the economy from experiencing all this bad stuff that wasn’t supposed to be a risk in the first place? Huh?

Somebody please explain this to me. Seriously, what the heck.


About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

59 comments:

  1. 1
    Garth says:

    What do you expect analysts to say?

    Bears are only right once every 20 years for a short period and don’t make much cash, so the incentive to be a bear is really low.

    When Greenspan was still in charge the fed said housing was a “froth”, which by definition is a collection of small bubbles. That description remains more accurate than anything I have seen put forward by the bubbleheads.

  2. 2
    CCG says:

    “Somebody please explain this to me.”

    I had a long-winded explanation written out, but then I realized it could all be boiled down to: people are dumb. Yeah, I think we’ll just go with that.

  3. 3
    Peckhammer says:

    “When Greenspan was still in charge the fed said housing was a “froth”, which by definition is a collection of small bubbles. That description remains more accurate than anything I have seen put forward by the bubbleheads.”

    Now that Greenspan is no longer in charge, he says there is a housing bubble. I watched his interview last evening. Not froth, a bubble. Thus, he apparently agrees with the bubbleheads.

  4. 4
    northseattleguy says:

    Economists predicted 0 of the last 9 recessions … why ruin a perfect record?

    http://www.fxstreet.com/fundamental/analysis-reports/market-comment/2007-09-14.html

  5. 5
    AndySeattle says:

    I will take the Devil’s Advocate approach and say that while I generally agree with you there is some risk in hand-picking some quotes and then converting those few opinions to equate to all economists.

    Sure the economists that you picked were wrong… But you had the benefit of looking back and scrutinizing their opinions. How about a wider cross-section of economists from the same time frames?

  6. 6
    jon says:

    Those comments from economists lines up pretty well with my recollections. It’s amazing the economy hasn’t tanked already with the price of gas and the war. And now the stock market is back close to it’s high.

    I tend to be an optimist, but I do think the cheap dollar and low interest rates will pull us through again. And the job market in Seattle continues to expand. More jobs -> more houses.

  7. 7
    Grvetti says:

    And the job market in Seattle continues to expand. More jobs -> more houses.

    … as long as they’re not jobs in the Real Estate industry (like we’ve seen in Seattle in the past 5 years, accounting for a huge swath of job growth)

  8. 8
    Garth says:

    Greenspan 2 days ago:

    http://www.ft.com/cms/s/0/31207860-647f-11dc-90ea-0000779fd2ac.html

    He said he still thought froth – a collection of bubbles – was a better description, because of the variation in house price appreciation in different local housing markets. But he said “all the froth bubbles add up to an aggregate bubble”.

  9. 9
    deejayoh says:

    northseattleguy said,

    on September 19th, 2007 at 11:36 am

    Economists predicted 0 of the last 9 recessions … why ruin a perfect record?

    I think the correct joke is that economists have predicted 9 of the last 5 recessions

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

    Not only is it funnier, but the quotee also won a Nobel Prize.

  10. 10
    plymster says:

    I think some of the economists are genuinely stupid and follow the conventional wisdom of the professional economists and government statisticians.

    However, most professional economists (ie: David Lereah, Alan Greenspan, etc) are industry mouthpieces. It’s their job to lie to the public. It’s the classic con game that our economy has become. This is no different from Phillip Morris “scientists” claiming that cigarrette’s don’t cause cancer, or Exxon-paid “scientists” claiming that global warming is a hoax.

  11. 11
    Matthew says:

    Seattle is part of the froth.

  12. 12
    notabull says:

    Everyone wants to hear good news, so the MSM deliberately finds people that have good news. What would you rather hear, that we are about to enter a recession and your friends and families may lose their jobs, or that things are looking OK?

    Would you like to hear that there is no end in sight for the housing slump, or would you rather hear that things are going to perk up really soon?

    I did a search at Amazon.com and got 3 pages of results for “Positive Thinking”. It’s all about the “Power of Positive Thinking” and expelling those nasty negative thoughts. Positive thinking is a strength and will bring happiness to your life. Negative thinking is weak, gloomy, depressing and self defeating.

    It’s only natural that we (and the media) would have a bias towards news that makes us feel happier and/or less depressed about the situation.

  13. 13
    notabull says:

    “When Greenspan was still in charge the fed said housing was a “froth”, which by definition is a collection of small bubbles. That description remains more accurate than anything I have seen put forward by the bubbleheads.”

    I saw someone else describe “froth” as a collection of bubbles placed on top of a sea of liquidity. :)

  14. 14
    Buceri says:

    As long as people don’t see “transaction rejected” in the signature panel at the registers, the economy will roll on.
    And with the holidays around the corner, we might have air until January.
    On the other hand, October will be the pick of loan adjustments with $ 50 billion changing interest rates. From there on, adjustment levels will go down slowly. As a result, people will be able to make one payment or two before falling behind. The last 3 months of the year will be horrible.

  15. 15
    SunTzu says:

    “What would you rather hear, that we are about to enter a recession and your friends and families may lose their jobs, or that things are looking OK?

    Would you like to hear that there is no end in sight for the housing slump, or would you rather hear that things are going to perk up really soon?”

    I just want to hear the Truth….

    We’re living 1984.

  16. 16
    A says:

    SunTzu, people that don’t realize what they’re living are fine. It’s the ones thinking too much who are unhappy.

  17. 17
    Pankaj Arora says:

    I thought you might all find this link interesting:

    http://money.cnn.com/2007/09/19/real_estate/steep_home_price_drops_coming/index.htm?postversion=2007091915

    Seattle made the list as #84:
    84 Seattle-Bellevue-Everett WA 07Q3 08Q3 -2.9

  18. 18
    Brian says:

    Well lowering rates will definitely help cushion the blow from housing for 2 reasons:
    1. lower interest rates (although fed rates have little correllation to long-term mortgage rates)

    2. higher inflation. There’s probably not a better thing to cushion the housing market than inflation.

  19. 19
    Denny Retrograde says:

    Old favorite:
    An economist is an expert who will know tomorrow why the things he predicted yesterday didn’t happen today.
    – Laurence J. Peter, discoverer of the Peter Principle

  20. 20
    uptown says:

    Economists tell you what you want (pay) to hear.
    1) Lower dollar will boost the economy.
    2) Rate cuts will help the banks bottom line.

  21. 21
    Garth says:

    2.9% ?????

    How on earth are the bubbleheads going to get their Japan scale price drops if the bottom is the third quarter of next year and prices only drop 2.9%?

    :)

  22. 22
    The Tim says:

    The CNN predictions aren’t worth the bandwidth used to transmit them over the internet. Check out how well they predicted the 20 Case-Shiller-tracked cities last year in the discussion on the forum. Not what I’d call impressive.

  23. 23
    Garth says:

    Looks pretty accurate for Seattle

    Seattle / CNN- +10.50% / Case-Shiller +9.06%

    For the other 20 cities from a percentage standpoint, it is more accurate than any bubblehead predictions I have seen here.

  24. 24
    patient says:

    Garth I think you need to realize that most people are on this blog just because they do not buy into the MSM or re-industries predictions. That MSM is now predicting any type of decline is huge and should be very worrysome for housing bulls.

  25. 25
    Old Ballard says:

    So, if “cheap money” is what created the finance/housing bubble, then why does anyone believe “cheap money” will get us safely out of trouble?

    That’s like me helping a friend to stop smoking cigarettes by giving him an extra pack a day?

    Shouldn’t common sense come into play at some point?

    I tend to be very skeptical, if not cynical, of the so called expert “economists.” My definition of an expert “economists” is someone who wants you to loss your money first, so he doesn’t have to loss his.

  26. 26
    Garth says:

    Patient,

    I am no raging housing bull, but many of the predictions here are so foolish that they need to be challenged too. (Mostly from sniglet or softwareengineer)

    I read this blog because the discussion is generally more interesting and based on data than any other source I have found.

  27. 27
    Alan says:

    The cheap money is running out too quickly. The Fed is trying to taper off the cheap money slowly so that we do not see a sudden crash.

    Its like a heroin addict who runs out of money and goes into withdraw. The Fed is supplying the addict with heroin, but less than he was using before, so that he doesn’t have to go cold turkey.

  28. 28
    Old Ballard says:

    Brian,

    The whole inflation idea only works if wages increase in a way that expands the total member of people coming into the “housing market.” This means that wage increases CAN NOT BE LIMITED TO THE TOP 10 PERCENT. There can not be more homes than buyers. If wages remain flat or decrease for the bottom 90 percent then fewer people will enter the “housing market” and the inflation of housing prices in the long run will do more harm than good. The dog will have caught it’s tail.

    Here are a couple of links:

    http://www.epinet.org/content.cfm/issuebriefs_ib196

    http://www.bls.gov/news.release/pdf/realer.pdf

    A lot of the numbers are from 2000 to 2004, but that also correlates to last run of Fed rates below 4.5 percent. There are also current numbers.

  29. 29
    wreckingbull says:

    Most of the purported exports quoted by the MSM are not acting as economists in the traditional sense of the word. They are salesmen.

    Matthew Gardner, David Lereah, Lawrence Yun, Nicolas Retsinas….they are all trying to sell a bill of goods. Some more directly than others, but salesmen nonetheless.

  30. 30
    DocG says:

    Garth
    From my perspective the Bubble is real and documented. I don’t live in Seattle, I live in the middle of one of the bursting bubbles, Las Vegas.

    A few actual sales from my neighborhood, these are all foreclosures.
    Bubble price $520,000. Sale this month $389,500, on the market 5 months and the only reason it sold that high is that the buyer was from Hawaii.

    Bubble price $500,000 sale in January $355,000. The buyer put it on the market the next day for $420,000. It sits empty, and is now on the 3rd realtor, listed at an overpriced $389,000 with 100% seller financing available.

    Bubble price $290,000 Sale this month $177,500. This was a REO that was sold through a public auction. The bank repoed it with $249,274 owing.

    At the same auction, Bubble price $610,000 High bid at the auction $282,500. This one has not closed and is still listed in the MLS for $356,500.

    Another point, the above sale this month at $389,500 will be thrown into the mix to determine the phony “Median Price” number at the end of the month. The fact that THAT PARTICULAR house represents a 25% decline in the real price will be ignored and that sale will help hold the publicized median up at the current $290,000 level. Thus giving the folks with their heads in the sand another chance to pretend that everything is just fine.

    We aren’t even close to our bottom yet in Vegas. Seattle may not be hit as bad but the chart posted here a couple of months ago showing a consistant 16 month lag time in Seattle price changes makes me think that the bubble denial folks will soon be proven wrong.

  31. 31
    Blake says:

    This Florida real estate broker just spent a week in Seattle and has some comments abotu the Seattle market:
    http://www.treasure-coast.us/weeklyupdate09-09-07
    His blog is worth reading:
    http://www.treasure-coast.us/weekly-updates

  32. 32
    AndyMiami says:

    The fact that the Fed opted for a 50 basis point decrease in the Fed Funds rate should alarm everyone. The main reason for the decrease is all about the potential for a huge housing depression leading to a severe overall recession. How can the Fed change its stance so quickly in just six weeks? Because they realized that several banks and investment banks could have gone under. There was a run on deposits at Countrywide, and now at Northern Rock. The credit/housing bubble is world wide. Who knows what Seattle will experience, but would you buy (if you have the down payment and stellar credit history and not just a meaningless FICO) today in this market? I bought a condo in 1989 in Cambridge, Mass, when I was a naive commercial banker and will not make that mistake again until fundamentals re-align, which they inevitably do..even if it takes 5 years. GARTH, you are an idiot…

  33. 33
    Brian R. says:

    Many good posts above. One of the reasons why we need economists is that they make astrologers look good. And as another serious note, even given the recent cooling of housing prices in most of the country, those prices remain wholly out of whack with incomes. Do any of you industry insiders know whether ARM’s are gaining an increasingly larger share of the market in the greater Seattle area? I saw the recent median figure of $501,000 for single-family homes in Seattle. Perhaps Seattle is becoming even more like San Francisco, dink land.

  34. 34
    Garth says:

    AndyMiami,

    Your argument is so weak you have to call me names?

    Do you believe Seattle is going to see a Japan style crash still, even though there is no Japan style crash in Florida?

    At least I am not in Miami :)

  35. 35
    deejayoh says:

    even though there is no Japan style crash in Florida

    A “japan-style” crash would be long and slow, wouldn’t it? No need for name calling, but it is a little early in the first quarter to be calling the game over.

  36. 36
    Garth says:

    Here is the seattle part of the blog Blake posted

    On The Road – I spent a week in Seattle, which is touted to be one of the most secure markets in the country. Well, it is . . . and it isn’t. For sales of existing single family homes, it is on top of the world. And that distinction is due to one reason, and one reason only. Production builders were not in this market. There was nowhere to build huge communities. The Seattle market is primarily an existing home market with a thriving industry catering to renovations of older homes. But the Seattle market did not escape the condo craze. It is certainly nowhere near Miami proportions, but I hear the same thing from brokers and flippers that I hear from Miami, Orlando or Vegas. There are already problems selling and leasing existing condos, without the crunch coming from delivery of all the new stuff going up. More on this for clients, including some great pictures.

    On the plus side, Seattle has a robust job market from the technology and biotech industries, as well as a variety of other healthy industries from logging to shipyards. There will be pain in Seattle, but there will also be opportunities for sharp money to step in for condos, office buildings and commercial space.

    His production builders point is interesting, and one I have not seen called out before, but I wonder if the real reason KB homes never came to Seattle is more related to Quadrant Homes being fully owned by Weyerhaeuser Real Estate Company which is fully owned by Weyerhaeuser . If I was KB it would seem foolish to try and compete with a company that probably bought the land 100 years ago and can build the houses using the trees they harvest providing cash flow for 3 divisions of the company.

  37. 37
    AndyMiami says:

    AndyMiami,

    From Garth…apologies for the emotional name calling

    Your argument is so weak you have to call me names?

    Do you believe Seattle is going to see a Japan style crash still, even though there is no Japan style crash in Florida?

    At least I am not in Miami

    OH GOD, YOU HAVE NO IDEA…I sold my house a year ago in South Beach and moved to Seattle…Thank the LORD, even though I am not overly religious…

    As far as a Japan style downward movement, I believe that there will be much more proactive action by our centralist government..i.e. MORAL HAZARD, which began over the last month…

    However, the increases in residential real estate values throughout all US metro areas is unjustifiable in terms of fundamentals of what people can really afford. Miami was an extreme example, driven by capital inflows from traditional Latin American buyers, but propelled by New York, Boston, Chicago buyers who wanted a piece of the SoBE lifestyle, then throw on top of it the Europeans…

    Seattle did not experience this equation, but certainly there was plenty of local speculation as well as Asian capital…Again, no one can predict how low the Seattle market will fall, if at all, but my point is would YOU BUY TODAY, even of WAMU gave you a 20% down loan…

    Again, apologies, but I think sometimes we all miss the bigger picture of what capitalist bubbles are all about and how they tend to mesmerize even the most intelligent minds..

    Sleep well..and cheers…

  38. 38
    The Tim says:

    Garth said,

    Do you believe Seattle is going to see a Japan style crash still, even though there is no Japan style crash in Florida?

    I think we should maybe define terms here. When I refer to a “Japan style crash,” I mean a long, slow decline, lasting 10-15 years.

    I don’t see how you can say “there is no Japan style crash in Florida” as of right now, barely more than a year into the decline.

    How do you define a “Japan style crash”?

  39. 39
    AndyMiami says:

    The Japan downward cycle was a 1990’s event and quite local..we are living in a globalized world where the credit bubble was fulled by capital flows from all over the world. As a result, no one, even the Paulson’s of the world have no clue of how fast or slow the bubble will unwind. That is why we had such an abrupt change in Fed policy. They fear of a very rapid unwinding and hope for a Japanese unwinding..how low did interest rates drop in Japan and for how long, and where did Japan end up in the world economy… and how did China’s predominance come about…capitalism is perplexing and intriguing hence lots will make money and not during the great unwinding..

  40. 40
    stephen says:

    “but my point is would YOU BUY TODAY, even of WAMU gave you a 20% down loan”

    Yep. It sucked to do so (couple of months ago) but I hated renting and love owning. After four years and five moves enough was enough.

    Life’s too short. Look if you buy what you can easily afford and plan to stay put for eight to ten years, no sweat. Even The Tim has said this several times.

    Prices on things we want out of life go up and down. A house is your home and not an investment. It it makes money, great but as everyone here has repeatedly shown, historically, a house barely beats inflation. Only a moron would not understand that the past five years has been a cheap credit induced bubble that peaked six months ago. Sure some have gone up but a lot have been flat of down for months. So I got some cheap money on an inflated house. Will prices drop 5, 10 or 25%? Who knows. I drove an overpriced car for four years that lost 60% of it’s value. A friend of mine has a car that has tripled in value since he bought it 20 years ago.

    I’ve been reading this blog for about a year, spent 6 months looking for the place and could care less if it goes down, figured it would/might. Mine comped at a summer ’06 price and many out there now are doing the same.

    Regardless of the barbs, I’m not an idiot with my head in the sand, just not going to put my life on hold waiting for some magic time to buy.

    I’m not saying don’t take it seriously but don’t stress on it. Get a nice place you can afford. If you can’t afford a nice place then wait until the prices drop and then buy. It is definitely a buyers market right now and will be at least for the next year or so.

    If renting is a fine lifestyle save the dough and do that. It most certainly cost more to own a house than to rent a house.

  41. 41
    AndyMiami says:

    Stephen,

    All above is totally correct. If you can afford a place based on fundamentals and you are sure you do not need to move for several years, then buying makes total sense, and it is not an investment. I have owned three places in the past 15 yrs and absolutely beats renting in terms of quality of life. Very well written…

  42. 42
    Dudette says:

    Fed’s aggressive rate cut is clearly inflationary. The dollar is already falling. We might head for hyper-inflation. If you can afford it, house is one of the best protection your family can have. I do not believe a housing collapse. There is in fact no house appreciation at all if you measure house price in terms of oil and gold.

    I feel it will be a mistake to sell.

  43. 43
    what goes up comes down says:

    Stephen,

    I would add that it is somewhat common sense that if you can buy something tomorrow at a lower price than today than it is obvious you would wait. But that is the problem with markets you never know for certain if tomorrow the item will be cheaper. So you try to educate yourself and make a decision based on the information you have. It seems to me that at this point it makes more sense to wait and see how things shake out but if you are happy with your decision than more power to you.

  44. 44
    Garth says:

    In Japan he stock market crashed about 65% in 18-24 months early 1990 until 3rd quarter or so of 1992. Banks were doing 0% interest loans and then using their stock to buy real estate, Rockafeller center for example.

    To me a Japanese style crash is going to come down 50% plus in the stock market and 60% plus in real estate in about two years from the real estate peak (1989-1991). Then the slow part starts (1992-2006?)

    1990 is a little before google ranked anything, and as a result searching google brings up pages of new blogs. I remember more from a great international business class I took in 97 then I have found through google.

  45. 45
    anonymous economist (ha ha, that rhymed!) says:

    Well, here’s an explanation as good as any.

    One local economist recently presented a report on a certain local economy that predicted growth until nearly 2030. Any such prediction is pure fantasy. Predictions five years out are likely unreliable, let alone something twenty years out. But when this economist was told that an accurate forecast was impossible, that didn’t deter him. The customer asked for data twenty years out, and they were going to get it.

    In fact, this local economist is often asked his opinion on the local economy, which he always paints a rosy picture of. Every quote from the guy over the last couple of decades says something like “the Seattle economy is going to grow thanks to Microsoft and Boeing!” Duh. I would NOT trust this man to predict the future of anything. A good day for him is when he isn’t urinating in front of people.

  46. 46
    deejayoh says:

    Garth – I think the Japanese real estate market’s 50% decline from peak occurred pretty steadily over ~15 years.

    Heres a chart from the economist that shows the trend

    http://en.wikipedia.org/wiki/Image:EconomistHomePrices20050615.jpg

  47. 47
    johnnybigspenda says:

    this blog continues to impress me… as a microcosm of the WA realty market… when you look at the ‘sentiment’ over the past couple of months based on all the posts here, its always interesting to see how the pendulum swings…one week its 100% doom and gloom and the next week there are 20% postive people, 20% neutral and 60% negative…

    Kindof a qualitative perspective… but I think it fits since realestate is also less quantitative and more about ‘feelings’…

  48. 48
    patient says:

    Hopefully not to far off topic.
    It seems like the fed and the rest of the government is preparing more band-aid to the housing market. This time it’s being considered to allow Fanny and Freddie to buy jumbos.

    If this continoues and goes to the extreme and say that the government will buy any loans including stated loans and only require interest to be paid indefinately without any requirement to pay off the prinicipal how far are we from the median price-roof? I.e how much interrest can the median home buyer afford? The median King co home is now $500k. With the current 30 year fixed rate at 6% it would cost you ~$2500/month in interrest. Can the median home-buyer take on much more than that? I.e are we already at the roof almost independent of what the government do?

    Also, did I miss-calculate something or can you think of any other government measures that could move the prices higher?

  49. 49
    DocG says:

    Patient asked:
    “Also, did I miss-calculate something or can you think of any other government measures that could move the prices higher?”

    You sure did, inflation. If the Fed keeps pumping money out we will certainly see it, either steady and controled or hyper.

    My parents bought the house I grew up in for $10,200 in 1960. I just looked it up on Zillow and found a peak bubble value of $325,000. It is in Sacramento so the current zillow price has dropped to $258,400.

    There obviously will be a bottom in the Real Estate market some time in the future. I think it will be when inflation takes off. The Bush era deficits, the trade deficit, and the price of fuel combined with the falling dollar and Fed policy will most likely move us into a period of hyperinflation. Real Estate prices will reflect that reality. Of course that $10,200 house that now sells for $258,000 is still the same house and in relative terms my parents and the current homeowners are probably in about the same middle class economic situation. So the price doesn’t matter, it is the buying power of a dollar that matters.

  50. 50
    Old Ballard says:

    “So the price doesn’t matter, it is the buying power of a dollar that matters.”

    Oh no, if that’s the case we’re all in deep shit. The dollar hit an all time low today. The U.S. dollars is at parity with the Canadian Dollar. First time in thirty years.

    http://today.reuters.com/news/articleinvesting.aspx?type=bondsNews&storyID=2007-09-20T211936Z_01_N20369170_RTRIDST_0_MARKETS-CANADA-DOLLAR-BONDS.XML

    Thiry years ago? Nixon…huh…Cater….huh…Reagan….huh….Bush….not again! The seventies are back.

    And if that isn’t enough to keep you awake Crude-oil hit an all time high too!!! $83.32 a barrel!!!

    http://money.cnn.com/2007/09/20/markets/oil_record/?postversion=2007092017

  51. 51
    Garth says:

    deejayoh,

    That image is popular on bubble blogs, but I have never seen any data to match it.

    I found this graph, which is closer to what I remember for housing:

    http://www.mises.org/images3/Shostak/03-03-2004/4.gif

    Here are stock prices:

    http://www.econreview.com/events/japan/japan-n225.png

    Wikipedia and google are just not very authoritative sources for the japan bubble :(

  52. 52
    deejayoh says:

    >>Wikipedia and google are just not very authoritative sources for the japan bubble

    Garth – um, its from The Economist… heard of it?

    Perhaps not as esteemed as “Mises.org” (???) but the chart is the same. just over a longer time period and with a deceiving x axis starts at 400

  53. 53
    Garth says:

    deejayoh,

    Look at page 22 of this pdf from the Bank of Japan referenced from the wikipedia article.

    http://www.imes.boj.or.jp/english/publication/edps/2003/03-E-15.pdf

  54. 54
    deejayoh says:

    Garth –
    I am assuming you are referring to the chart at the top of the page? The unit is % Change YoY. The graph shows negative land price changes from 1991 on.

    The Economist chart shows an index of home prices. The slope of the index is negative every year after 1990.

    Negative year over year changes. Negative trend on absolute price index. Isn’t it basically the same trend reflected two different ways? Am I missing something?

  55. 55
    Ira Sacharoff says:

    Economists are like weather forecasters. Nobody pays much attention to the fact that they’re wrong 90% of the time.
    When they’re talking about how healthy the economy is, they’re often talking about corporate earnings and stock price increases. Some of this is attributable to sending jobs to China and elsewhere, so it’s not such a healthy economy to the person whose job is now in China.

  56. 56

    […] I enjoyed Tim’s sly take on the economy and the housing market. See his timeline over here. […]

  57. 57

    […] picture stuff closely enough to have a good handle on what is really going on. However, given the unimpressive recent record of “economists” and government mouthpieces when it comes to predicting the direction of […]

  58. 58
  59. 59

    […] Yikes. I guess when folks were going around touting Seattle’s economy as special and stronger than elsewhere, they didn’t really consider the far-reaching effects of the bursting bubble. The bottom line seems to be that this mess runs deeper than anyone really realized. […]

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