Eurozone -2.0%
U.S -1.6%
Japan -2.6%

’60s…. 10%
’70s…. 5
’80s…. 4
’90s…. 1.5
’00s…. -2 All adjusted for inflation

Once the bottom is thought to be in, the money in treasuries will leave them for hard assets as an inflation hedge, even if the inflation doesn’t materialize. Japan has been able to finance its deficit at essentially zero interest during its recent deflationary past. Eventually the deflation will end, and interest rates will ramp up to the more traditional levels of 3-4%. With a national debt of over 1.5 times its GNP, what do you think happens when interest goes from zero to even 2%? What happens to the government and its budget?

Japan goes “BOOM.” Do we want the same result?

The money won’t be easy, because the deficit will force interest rates higher

I am not so sure. US deficits have been increasing for almost a decade yet the continued growing demand for (the ever more plentiful) treasuries has kept driving interest rates lower. Look at Japan. Their deficits have kept rising consistently for 20 years, yet Japanese interest rates are at all time lows.

We could wind up with a situation where interest rates are incredibly low, but the economy still tanks, with job losses and asset price declines.

I have spelled out how this can happen in my podcast on deflation. http://www.surkan.com

Is this on top of the 4500? I hear the 7X7 is getting order cancellations today too, just as Seattle Bubble predicted.

We need more lower paid H-1Bs to rid ourselves of Seattle’s vanishing Middle Class….lol…..

Assuming our tax laws are unchanged year to year is a good bet, but not a for sure….best check the 2008 1040 book [it keeps getting thicker every year] for today’s or last years info.

Keeping a box of receipts is a good idea now matter what, you never know what our wiley government has in store for us in bailout tax increases, any of us too, irrespective of incomes.

The money won’t be easy, because taxes and fees will have to be increased to pay the higher interest on the increasing federal and state debt.

The money won’t be easy, because higher unemployment will suppress wage increases and benefits.

All of the above will lead only to less freedom, less security, and less lifestyle.

Email or call your senators/congressman and tell them to vote NO!

But the related debt is very real, and will be with us for a generation … or two… or three…

My wife and I are currently living in San Francisco, saving aggressively for a down payment on a home. The plan was to stay in our rent-controlled apartment for a couple years, sock away money, and then move back to Seattle and buy a place.

But, part of that assumption was that I’d be able to get my old job back with Microsoft (and yes, I actually liked working there.)

The original plan was to move back to Seattle sometime in late 2009, but now that looks far less likely. Our savings isn’t the problem (knock on wood), but I need to be able to find a good job to make the move feasible.

No job, no move. No move, no home purchase. Just one story, I know… just throwing it out there.

Yes as prices on houses continue to fall, that is destroying money. However, in the past 6 months, housing inventory has dropped by 1 million units. When another 1,000,000 houses are taken off the market by the $800B stimulus, house price will no longer be falling, and we will have enormous deficits and lots of people demanding these spending programs continue. The result will be years of massive deficits funded by printing of treasury bills.

http://www.bloomberg.com/apps/news?pid=20601087&sid=a8iAOfphtXQU&refer=home

It looks like Boeing is playing a game of one-upmanship with Microsoft. They just announced another 5500 job cuts, bringing the layoff total so far to 10,000.

http://seattlebubble.com/forum/viewtopic.php?f=5&t=2014&p=18122#p18122

“Boeing to cut 10,000 jobs.”

Housing consultancy Zelman & Associates compared what houses cost to how much people earn and found plenty of markets — including Portland, Miami, Norfolk, Philadelphia, Los Angeles and Salt Lake City — where homes would have to shed at least another 30% in value to get back to being as affordable as they have been historically.

I wonder what Zelman is saying about Seattle. It would be nice to get some analysis from some other sources. (Not saying Tim isnt doing a great job by any means, but its always nice to have independent confirmation).

And I think you can forget a quick return to appreciation when we finally bottom out. Consider that americans are broke, they have no money ( the average credit card balance is something like $3000 and the avergae savings rate is negative ) and banks do no longer lend money to broke people. There is no horse power that can power any rapid appreciation. And it’s not going to change quickly during a recession/depression. Companies will not start hiring in numbers just becuase the housing market hits bottom. Housing will be limping for many, many years.

Take a look at Peter Schiff’s Mortgage Banker speech in Nov 2006 – amazing how accurate this guy is. Basically, he tells 1000 mortgage brokers to find other work…

http://www.youtube.com/results?search_query=peter+schiff+mortgage+bankers&search_type

It might take time, but I would watch all eight segments…

Price increases are not the same as inflation. Price increases and stable wages just mean decreases in lifestyle for a lot of unhappy consumers.

I think the decline is perfectly on target. If you look at the decline since peak chart, Seattle is right about in the middle. If you look at Japan’s decline in the heart of its bubble, you see a similar level of stickyness. From my perspective, Seattle house prices are an exact model of what a housing bubble looks like when it pops.

WA historically lags the rest of the country in recessions, so it makes sense it also lags in house price declines. It’s important to note WA also typically lags the nation during recovery. Thus I expect to see other places come closer to historical price:rent/income ratios sooner than Seattle and begin to correct while Seattle continues to take a beating. In the end, the prices must adjust to historical fundamentals, and this will happen at different rates across the country. Many places will overshoot the bottom, and Seattle could very well just touch the bottom through being supported by the leading correction elsewhere.

Although Tim says his charts are not predictive, I believe they are very predictive of the rate prices will decline when a housing bubble pops. Certainly macreconomic fundamantals can influence the rate of decline, but the overall economy is bad enough to be able to somewhat extrapolate a rough line into the future. This means continued downward pressure in Seattle.

“I think that one of the big misconceptions that the mainstream has about inflation is that it is like someone spreading peanut butter over a piece of bread — that it increases all prices more or less equally. This may be true over VERY long timeframes, but in the shorter term, inflation tends to seek out that which has the most limited supply or the highest demand.”

Can I interest you in one of those “limited in supply” condos or new homes?

“As of now, housing is oversupplied, so it is unlikely to be a big beneficiary of inflation. But if the oversupply gets worked through at some point, that could change.”

That’s gonna take quite some time.

Think inflation is going to “price you out” again?

LOL!

There will be several bull-traps on the way down.

Here is a thought: Forget about timing the bottom, but rather use cap rates to decide when to buy. I plan on buying when home prices have returned to their historical relationship with rents. We are not even close yet.

As far as the inflation vs. deflation argument, remember there is a new factor in play: global wage arbitrage. The inflationistas never seem to bring that up for some reason…

Toscano’s article wasn’t very convincing IMO.

I don’t understand the argument, made more than once in this thread, that prices have to be flat for a long period before trending upward.>

Major market bottoms (in any kind of asset) are always market by long lengthy periods of sluggish growth. Take a look at any previous significant real-estate decline, and you will see that it took years for prices to really start appreciating significantly. The greatest appreciation (percentage wise) always occurs in the tail end of a given price cycle (i.e. just before a crash).

That said, this down cycle is going to be MUCH lower, and prolonged, than anything we have seen in 2 or 3 generations. Again, I suggest you look to what’s happened in Japan over the last 20 years for a hint of what is in store in the US.

If you want to understand more as to why I feel we are in for a prolonged period of deflation, check out my blog, and podcast, at http://www.surkan.com.

Maybe I’m thinking too simplistically, but price valuations (of anything) seem to be a blend of positive and negative feedback, one of which is generally winning out over the other. Perfect equilibrium — exact balancing resulting in perfectly flat price — is not a natural state. Unless you count Seattle and our equilibrium between rain and dry air: called “drizzle”.