I disagree…sales volume in greater Wenatchee is down 40% yet prices have only dropped in the single digits. My guess is that Wenatchee’s primary employers (ie the PUDs and ag industries and hospital) have been somewhat recession proof. People are simply able to hold on to their homes because they still have jobs.

Throw in the fact that East Wenatchee has not expanded its UGA in nearly 10 years and mounting anti-growth pressures from groups like Futurewise preventing any real competition for the same time span and you get high prices.

The dollar will rebound and oil is a bubble. Household wealth has been diminished by 1.7 trillion. I’m still sticking with monetary deflation with short term commodity price inflation.

Does any know that the 2009 property tax is decreasing? Talking about Snohomish County, I just checked my property tax and the value of the property went down.

Careful with that one. The assessment might decrease, but I doubt that the tax will.

Markets Haven’t Yet Properly Digested the Bad News

….Economics has a well deserved reputation for being wrong. So well it may be again. Here is what basic economics suggests about where we are now.

Where we had imported deflation from globalization, we will have inflation from rising global commodity prices and weak dollars. Where we had limited demands for wage increases and tax receipts the political wind will change and stressed households and governments are likely to want a larger share of the pie. Households spent the last 6 years borrowing – heavily against their rising house prices. This is running in reverse. They will need more money to pay-off past purchases. Some rebalancing will come as default and the rest as wage demands and lower consumption. Where we had asset prices rising much more rapidly than prices in general- inflation- we will have asset price increases lagging inflation. All of this will take place against an uncertain backdrop of stressed financial institutions and households. This will place significant structural pressure on the national economy. This will have local and global effects……

Well for starters in the 1930’s the US was the world’s largest oil producer AND exporter. Oil prices dropped tremendously in the 1930’s. Today oil prices are the highest ever and the US is the largest oil importer. If the USD keeps falling, oil keeps getting more expensive, which makes other consumables (you know like food) more expensive.

You see that’s the key. The US was a net producer in the 1930’s. If you produce more stuff than people can afford to buy, you get deflation. The US is now a net consumer. It has to buy stuff from the rest of the world, and the USD will keep falling as long as the US is living beyond its means. Which means higher USD prices for globally traded goods.

Bad debate form? I believe it was you that brought up the fed/inflation/deflation topic into this thread, not I. Did you not say this:

“Given these factors, which economic outcome will be more fervently avoided by our elected and unelected representatives:

1) Inflation
2) Deflation

I vote for (2).”

The proof of deflation is obvious. Hundreds of billions of dollars of credit has been destroyed i.e. home values, commercial paper, etc. BSC is done, LEH is on the ropes, CFC is toast, and C, BofA, WaMu are shells of their former self (see their 6 month stock performance). Extreme? Not at all.

It appears the Fed is indeed concerned about inflation

Whatever the Fed is concerned about is completely irrelevant. At the end of the day the Fed will always lower rates if stocks are crashing and t-bill rates are plumetting. Likewise, when stocks and t-bill rates are rising, the Fed will raise rates.

It’s that simple!

It’s not so much that the Fed has some secret agenga, it’s just that markets force their hand. Even Greenspan and Volker have said that the Fed is ultimately at the mercy of treasury rates (i.e. the Fed can’t defy the treasury market). Just look at the history of t-bill and Fed rates. You will see that the Fed is always following the direction of t-bills (sometimes a little faster than others). The Fed governors may well be concerned by any number of things (such as inflation), but they don’t have the luxury of going against the treausury market to do anything about it. Bernanke may be scared silly about inflation, and sincerely want to stop it, but given another pending financial disaster such as the near bankruptcy of Bear Stearns, he will cave over like a house of cards and drop rates while goosing liquidity.

U.S. Federal Reserve Chairman Ben Bernanke said rising long-term inflation expectations were a “significant concern” for policy-makers but dismissed worry a wage-price inflation spiral was developing…..

It appears the Fed is indeed concerned about inflation -

Treasuries Fall After Bernanke Says Inflation Indicators Rising

Treasuries declined for the first time in four days after Federal Reserve Chairman Ben S. Bernanke said that inflation is significantly higher than the central bank wants……

This is what happens when in I try to read without glasses. I read ” we’re staying in our 1946 Buick Tudor” and figured “Poor Ray…has to live in his car, and it’s not even a four door, it’s a tudor.”

Make your mind up. :)

“If we are truly seeing monetary inflation than why has the dollar index (USDX) bottomed at 70 and is currently rising?”

This seems to be a rhetorical question, so I won’t answer it.

“The big banks are on the verge of collapse and are struggling for liquidity. Tell me how this doesn’t resemble a deflationary spiral i.e. Japan or the U.S. via Great Depression?”

Bad debate form.. The onus is not on me to explain why we’re NOT going into a deflationary spiral because you brought up the topic. Instead, the onus is on you to explain why we ARE. Stating that the big banks are on the verge of collapse seems extreme. A few banks are doing very badly, and the fed will doubtless jump in (like it did already) to throw some tax payer guarantees into the mix. I don’t think we’re going to see any big banks actually collapse.

Really, talking as if we’re going to enter a depression, or experience a ten year Japan-style stagnation just seems rather extreme to me. Thing are bad, no doubt. I think you’ve jumped as far as you can to the extreme end of the spectrum. Too much Roubini? :)

We are already experiencing Japan style inflation. The only difference is that a bubble is being blown in commodity prices right now.

If we are truly seeing monetary inflation than why has the dollar index (USDX) bottomed at 70 and is currently rising? Why did all the goldbugs claim that gold was going to skyrocket to 1600 an ounce while it has actually fallen back to the 880 mark? Isn’t gold the ultimate hedge against inflation?

We have seen hundreds of billions of dollar wiped off our balance sheets by falling house prices and by contaminated commercial paper. The big banks are on the verge of collapse and are struggling for liquidity. Tell me how this doesn’t resemble a deflationary spiral i.e. Japan or the U.S. via Great Depression? The only difference might be high oil and food prices, but what if that is merely a short term bubble and the last place that people are stashing cash before it all falls apart? Oil rose to 134 a barrel but has bounced off that and is down to 123 a barrel right now.

LEH is borrowing money from the FED to BUY BACK THEIR OWN STOCK!!! Take a look at the Great Depression. Companies did the exact same thing and it was futile.

I agree that the FED and the Govt is more concerned with deflation, but they are powerless to stop it.

The offer not working out is quite alright. I have about a 10- 20% success rate on my GEM offers. I usually send my personal offers in via email to get a “taste” 1st. I like to see where I stand. Then I take the 30 min to formally write it up if I feel I’m within 10% of what I want.

This time someone stepped in….Its all destiny. ..It happens quite often….Were staying in our 1946 Brick Tudor with all its old world charm and character. For Now…..There are 8 other GEMS that I’m beginning to watch now in the GIG.

http://seattletimes.nwsource.com/html/nicolebrodeur/2004453731_brodeur03m.html

“Since announcing the price increase in April, Escala has had over $6 million in sales, Midby said. Other developers, he said, are following suit and raising their prices, too.
In doing so, they will build equity for those who have already bought, build anxiety for those on the fence, and build even more exclusivity within their walls.”

Building equity for those who already bought… wow, I would like some equity… maybe they can “build” some for me.

Am I the only one that thinks this developer will be going bankrupt by 2009?

So where do I think we’re headed?
- consumer price inflation
- stagnant nominal wages
- asset price (houses) deflation
”

Economist, we’re there already.

Why did we have wage inflation in the 70s? I’m guessing that it was because organized labor/unions were much stronger and had COLA raises built into their contracts. Today, if businesses aren’t making money or unemployment goes up, it’s much harder to have wage inflation, regardless of consumer price inflation.

Matthew, I don’t know. What I *do* know is that our elected officials will more aggressively avoid deflation than inflation. How they do that is likely beyond anyone on this blog’s knowledge. As we have recently seen, the fed is capable of doing more than just setting rates, and congress is capable of getting us into more debt than we previously imagined possible.

Regarding Japan: given that we saw what happened in Japan, and have studied why it happened, I think that makes it much less likely that we’ll experience the same thing. Are you seriously suggesting that we’re going to get into Japan-style deflation? If so, when? I’ll gladly take the other side of the bet.

Read this PDF from Merrill Lynch’s North American chief economist and get back to me once you have taken the red pill and understand what is really going on:

http://www.realclearmarkets.com/The%2520Market%2520Economist%252005%252009%252008.pdf

Market value is whatever a house sells for.

And for those people who say “Seattle is special so prices can be twice as much here as in Texas, etc forever”. The bottom line for business is the bottom line. They are not going to locate in a high cost metro if they can locate somewhere cheaper. The global economy does not care how “special” Seattle is.

Full employment according to who? The government figures that count a person having three jobs as 3 employed people? Jobless claims have been increasing, manufacturing is down, yes exports are increasing vs. imports but that’s only due to a weak dollar.

Only lenders and builders are weak? How about GM and Ford? (GM sales down 27.5%) How about the airlines? (united to park 100 planes) How about GE missing earnings for the first time in a decade? How about food prices up double and gas prices up over 100 percent in a year?

Are you living in an alternate world or what?

Geography has to have something to do with it. Texas has tons of space. Nothing but long expanses of desert and prairie. Want to put up a housing development? Boom! There you go. Supply can easily keep up with demand and since high population growth means more tax revenues coming in, the government is more than happy to make it easy to develop anything and everything. It’s cheap to operate businesses there, so more keep moving into town. The next thing that happens, though, is that people suddenly realize that they live two hours from work, their house looks like every other home in their neighborhood, and it is tough to find a restaurant nearby that isn’t an Applebee’s or a Chilli’s. Suddenly this cheap new area isn’t as good as it seemed and people start looking to move elsewhere. You’ve got a market filled with empty houses that all look the same that no one wants to buy. This is why the markets in Phoenix and Las Vegas crashed so much harder than others. There was nothing to constrain the growth (geography or public planning) and consequently there was nothing to constrain the fall either.

I will reiterate what I said before.

Nominal consumer prices (i.e. price in USD) will go up. This is because their prices are determined globally and the USD is falling. Like for oil and food.

Nominal wages are going nowhere because of weak US economy and globalization.

Because of the above two, house prices have to fall because people will have less money left over to spend on housing.

You can call that inflation, deflation, or a chocolate sundae for all I care.

The third follows logically from the first two.”

Only if everything else is equal. But they are not. Exports are rising and imports are falling. That allows housing to continue to resume its usual role as an inflation hedge. Commodities are rising because of demand from China and also the corn-based ethanol fiasco. As exports increase, the value of housing in export strong areas, such as Seattle, will be quite strong.

A drop of 10, 20, even 30% is not that big a deal considering the run-up that preceded it. Of course the effect is huge on the people who bought over their heads with an unwise mortgage, but most other owners are still sitting pretty.

The recent increase in sales volume seems to have stabilized listing prices, mostly, in SoCal. We will soon see if that extends to sales prices as well.

There are currently over two million vacant homes in the U.S., and the number is rising. How does that square with the idea that population growth will force prices up?

No. Some people just want to own a house, can afford the monthly payments, like the neighborhood, and plan on staying there for many years. To them, they realize they might get a better price in a year or two, but it doesn’t much matter.

Others are finding homes that are priced lower than market value and are convinced that prices won’t drop low enough for them to sustain a loss.
Not everyone who is buying right now is misguided or illogical or crazy, but some of the sure are.

If you have so much equity, why are you dicking around rejecting offers and sitting on the house you are trying to sell with small price decreases and whining? With that much cash sitting there I think I’d rather put it to work actually gaining money instead of losing it while surfing bubble blogs. But then again, I understand basic economics and investment.

I didn’t catch that your home was for sale. Perhaps that’s why you’re here.
How’s that going?

Sorry to hear that your offer didn’t work out.

Thanks for the T . Wore it the other day and got my first comment while I was shopping at Costco.

jst ggld t. m nt “&qt;lck&qt;d Brrwr”. My mrtgg s lss thn 20% f th skng prc n my hm nd hv n thr dbt whtsvr.

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Google “Another FB”, that will answer your question.

We are seeing monetary deflation and price inflation. You are wrong, I do get it, we can see some price inflation but ultimately deflation is what is affecting the monetary supply and the FED is powerless to stop it. Hundreds of millions of dollars have been destroyed from our system from the housing bubble and all the major banks are scrambling to raise capital. The Fed has exchanged T’s for crappy collateral, but they do not print money.

The situation we are in is more reminiscent of 1929 than it is the 1970’s. Commodities are just the next bubble that is being blown by people seeking a place to trade. The Fed has contaminated Treasuries, therefore people are trading commodities as the last place they feel they can make a quick buck.

Yes, MattD, I’m talking about your site:

Domain name: listingsupply.com

Registrant Contact:
Whois Privacy Protection Service, Inc.
Whois Agent (rwqnnnfwl@whoisprivacyprotect.com)
+1.4252740657
Fax: +1.4256960234
PMB 368, 14150 NE 20th St – F1
C/O listingsupply.com
Bellevue, WA 98007
US

RL = nthr FB
………………

wht s FB?

Mtthw, b mn nd nswr th qstn.< hrf="#" clss="rplyt" nclck="rplyt('49405','∓#91;trll∓#93;',''); rtrn fls;">Rply – < hrf="#" clss="qt" nclck="qt('49405','∓#91;trll∓#93;','Mtthw\r\n\r\nRL = nthr FB\r\n&crc;�&brvbr;&crc;�&brvbr;&crc;�&brvbr;&crc;�&brvbr;&crc;�&brvbr;&crc;�&brvbr;\r\n\r\nwht s FB?\r\n\r\n\r\nMtthw, b mn nd nswr th qstn.',''); rtrn fls;">Qt

Why not? Hasn’t Texas been one of the fastest growing states in the US for quite a while now? What are RE prices in Texas compare to the Northeast or Northwest?

I vote for (2).

What you and other posters don’t seem to get is that asset prices, consumer prices, and wages aren’t necessarily connected and can and do move in different directions. Asset prices are prices of capital goods like stocks or houses. The 70’s saw high consumer price and wage inflation but falling stock prices.

So where do I think we’re headed?
- consumer price inflation
- stagnant nominal wages
- asset price (houses) deflation

The third follows logically from the first two.

RL = nthr FB
………………

wht s FB?< hrf="#" clss="rplyt" nclck="rplyt('49399','∓#91;trll∓#93;',''); rtrn fls;">Rply – < hrf="#" clss="qt" nclck="qt('49399','∓#91;trll∓#93;','Mtthw\r\n\r\nRL = nthr FB\r\n..................\r\n\r\nwht s FB?',''); rtrn fls;">Qt

Plus I just closed on our New Office Monday!. I’ve been dealing with all those contractors and it sucked the life outta me. But, i thought I was just about there with the builder. I had to send a letter as to why my offer was so low. It was a great letter but alas………………The Dwelling Company didn’t bite…The bleeding was not profuse enough…Now I wait…..

I live in Bellingham. If I hear of another city that has just been “discovered” I’m gonna shoot myself. We’ve been “discovered” here since around 2004. Didn’t you hear? Every city is special and/or in the process of being discovered.

S wht hngng rnd ths blg ds t y?
Y hv bn tld t stck yr ffr jst lk th rst f ‘m hv bn tld.

mr rsnbl ffr mght hv gttn y th prprty bt N, y tk th Bbblhd rt nd lndd p wth nthn’ (jst lk th rst f th lsrs hr)

Ths st nd th pssmsm hr s TXC, nt mrcn, smwhr btwn sclsm nd cmmnsm.

Chrs!!!!< hrf="#" clss="rplyt" nclck="rplyt('49394','∓#91;trll∓#93;',''); rtrn fls;">Rply – < hrf="#" clss="qt" nclck="qt('49394','∓#91;trll∓#93;','Ry,\r\n\r\nS wht hngng rnd ths blg ds t y? \r\nY hv bn tld t stck yr ffr jst lk th rst f \'m hv bn tld.\r\n\r\n mr rsnbl ffr mght hv gttn y th prprty bt N, y tk th Bbblhd rt nd lndd p wth nthn\' (jst lk th rst f th lsrs hr)\r\n\r\nThs st nd th pssmsm hr s TXC, nt mrcn, smwhr btwn sclsm nd cmmnsm.\r\n\r\nChrs!!!!',''); rtrn fls;">Qt

Want to know what this means? My family stays in our GEM in North Tacoma and someone OVERPAID for that GEM!

I’m hoping for S A L E F A I L . The search continues!