Another Bubble? Home Prices Rapidly Outgain Incomes

Another Bubble? Home Prices Rapidly Outgain Incomes

Continuing the “Another Bubble?” series we began yesterday, let’s take a look at another housing bubble metric: home prices compared to incomes.

For this post I’ll be using the Case-Shiller Home Price Index for the Seattle area (which rolls together King, Snohomish, and Pierce counties) and Bureau of Economic Analysis data on per capita incomes for King County.

Here’s a look at the home price to income ratio over the last 24 years:

Seattle-Area Home Price to Rent Ratio

The lowest the price-to-income ratio got after the housing bust was 5.26 in February 2012—about 8 percent below the long-term pre-bubble average. Since then it has shot up a whopping 19 percent, and in May it hit the highest level since September 2010.

As with the price-to-rent index, we’re still currently well below the levels that this measure saw during the housing bubble. During the height of the housing bubble frenzy in 2005 and 2006 the average price-to-income index was 7.51, about 20 percent higher than the current level.

Here’s another way of looking at the same data by just plotting each index next to each other. Note that the most recent income data is for 2012, so the 2013 and 2014 data is just a linear projection of the 2009-2012 trend. I’ve also added the faded line for the “flat incomes” scenario, as well as a line for median household income, which has not tracked with home prices since the late ’90s.

Seattle-Area Home Prices and Rents

As of May, the Seattle area’s Case-Shiller home price index is 8.2 percent above the per capita income index. As with the rent comparison, this is the largest difference since mid-2010, a time when home prices were still dramatically falling.

When I started Seattle Bubble in August 2005 the home price index was 27.8 percent above the rent index. The difference peaked at 38.2 percent in June 2007.

The home price to income comparison looks more bubbly than price to rent does, but we’re still nowhere near where things were during the last housing craze.

Later this week we’ll continue looking at other metrics such as the affordability index.

  

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.

39 comments:

  1. 1
    BacktoBasic says:

    Have you include historic low interest rate into the calculation? My 1st house interest was 7.5% in 1999 ( I even purchase 1% interest down) and now is 4.5%. If you complain the housing bubble, blame the Fed for all these. Actually, the drama of house card fall is due to the Mr. Greenspan lower the inerest and massive subprime loan. Now the subprime is gone and cash rich institute come in. How would this 2nd bubble pop? We are yet to see. The current monthly retailer report came out today. It is pretty soft. When people strained budget to pay for their housing need. There is less to spend on others. You only has this much paycheck. FYI, my insurance and property tax has recently increased. Am I happy with my house value increase 19% yoy? Hard to say. Because if I sell, where am I going to stay? My neighbor apt rent is also got a raise. Not my paycheck.

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  2. 2
    The Tim says:

    RE: BacktoBasic @ 1 – That comes in tomorrow’s post on the affordability index. Affordability factors together prices, incomes, and interest rates.

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  3. 3
    Shoeguy says:

    Has Per Capita income really gone up that high since 2009? I thought Americans were making less per capita adjusted for inflation than they were in 2007.

    Rate this comment: Thumb up 1

  4. 4
    BacktoBasic says:

    By Shoeguy @ 3:

    Has Per Capita income really gone up that high since 2009? I thought Americans were making less per capita adjusted for inflation than they were in 2007.

    The per captia income has been decreased compare since 2009. But that’s for the average. For top 1% income, may increased. But many home owner told me their house payment actually decreased quit a bit since they have refinanced from 7% to 3.5%. So basically your housing expense actually decreased by 1/2. That’s the reason inventory is so low, people with 3.5% interest don’t want to move to 4.5% interested rate. If you are 1st time buyer, you have to accept higher price but still low interest. But if the interested back to normal let’s conservative 5%, there will be less qualified buyer there. Unless wage increase can offset the mortgage payment, house price will drop or flat. Inventory will increase, that might be a good thing: a house in good shape will still attact buyers while a house in bad shape will sit unless owner lower the price.

    Rate this comment: Thumb up 1

  5. 5
    The Tim says:

    RE: Shoeguy @ 3 – The numbers in this post are not adjusted for inflation. Home prices are inflating, incomes are inflating. It doesn’t make sense to adjust for inflation when you’re looking at how much an item costs compared to income. That’s what inflation measures.

    Here’s a plot of King County and national incomes indexed to 1990 = 100 and adjusted for inflation using the CPI series for “All Urban Consumers – All Items”

    Rate this comment: Thumb up 1

  6. 6
    whatsmyname says:

    I always wondered what (besides Saint Robert Schiller) made 2000 the base year for reasonableness. Now, after nine years you are switching to 1990. It gives you a more “bubbly” result on your median household contrast, but at the price of bastardizing your CSI standard. That just doesn’t look good.

    Rate this comment: Thumb up 1

  7. 7
    The Tim says:

    RE: whatsmyname @ 6 – I haven’t said anywhere that 1990 is the “base year for reasonableness.” That’s just how far back I pulled the data. My “baseline” is the average of the values from 1991 through 2001.

    Rate this comment: Thumb up 2

  8. 8
    Erik says:

    RE: The Tim @ 7
    He is saying that because the graph you posted above has 1990 indexed at 100.

    Also, don’t tell others about this bubble please. I need it to last for another year. You could be driving prices down.

    Rate this comment: Thumb up 1

  9. 9
    whatsmyname says:

    Maybe I have tried to squeeze too many concepts into one sentence. Anytime one sets a point for continued comparison, there is an implication of normalcy for that beginning point.

    I see that your baseline in the per capita chart is the average of 1990-2001. My comment is about your chart for median household income. There you start with a 1990 value at 100 for all data lines. That makes 1990 your baseline. In the past you have presented pre-2000 data in a format to converge data at 2000 with both forward and backward dispersions. This change is awkward for comparison with your past work, and appears arbitrary.

    Rate this comment: Thumb up 2

  10. 10
    BacktoBasic says:

    By Erik @ 8:

    RE: The Tim @ 7
    He is saying that because the graph you posted above has 1990 indexed at 100.

    Also, don’t tell others about this bubble please. I need it to last for another year. You could be driving prices down.

    You will get another year or two. But the dynamic is changing, I don’t know it is seasonal or is general trend. Houses in south or north side of King Co are sitting there longer. Redfin keep sending me price reduction notice. Interest will go up next year. If you like to sell, it is the best time. But if you want to buy and with cash in hand, I would wait a bit.

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  11. 11
    Erik says:

    RE: whatsmyname @ 9
    I thought you were completely clear. Actually, you are one of the only people on here that make any dam sense. I think people like macro investor read an article and try to spit the words back out to sound smart.

    Rate this comment: Thumb up 0

  12. 12
    whatsmyname says:

    RE: Erik @ 11 – Thanks, and good luck on your project. I think I would not have chanced the no interior inspection. I hope that meant a huge enough discount for whatever you do find. Be sure and keep us updated. That should be worthwhile just for the people it makes crazy.

    Rate this comment: Thumb up 0

  13. 13
    Erik says:

    RE: BacktoBasic @ 10
    I just bought a place on the water in alki beach last Friday. I want to sell this thing for a healthy profit in a year or so when I get scared the market is gonna crash. When this bubble comes crashing down, I will have more money. I will buy as many low tier houses as I can afford when this thing dumps again. I want to work part time and collect sweaty renter cash moving forward.

    Rate this comment: Thumb up 1

  14. 14
    BacktoBasic says:

    By Erik @ 13:

    RE: BacktoBasic @ 10
    I just bought a place on the water in alki beach last Friday. I want to sell this thing for a healthy profit in a year or so when I get scared the market is gonna crash. When this bubble comes crashing down, I will have more money. I will buy as many low tier houses as I can afford when this thing dumps again. I want to work part time and collect sweaty renter cash moving forward.

    The market won’t tank. This time is not 2008. But the speed of gain will be slow. You have carrying cost (tax, insurance, interest, utility, etc). Uncless you got a very good deal (such as 20% below market value), it is very hard to make a profit (minus agent 6% and closing cost and fee). Why don’t you live there for a couple of year and wait for the inflation to pick up?

    Rate this comment: Thumb up 2

  15. 15
    M Hanson says:

    with regard to “house prices”, to me they are not as important as “monthly payments”.

    Have you run an apples to apples comparison using a 30 year fixed mortgage at 4% with the average house price today vs a 4.5% 5/1 interest only loan at the average price for 2004 and vs a 1.25% pay option arm at the average price for 2006?

    I think you will be surprised at how expensive houses really are today vs back then. That’s because back then the incremental buyer used those loans and today they use a 30 year fixed. Amazing really. In fact, in CA average priced house costs 30% more to the end user on a monthly payment basis than in 2003 and 2006 at the height of the price bubble.

    This exercise creates an apples to apples monthly payment comp for the end user buyer, the cohort that’s needed to carry housing into a long-term “durable” recovery.

    I contend what’s holding up the housing market nationally is the historical “all cash” cohort, which act much in the same way as exotic loans on house prices…buyers using all cash don’t have a “mortgage loan house price governor”.

    Key points on all-cash to consider.

    “Mortgage Loan House Price Governor”: In a “normal” housing market purchases dependent on “fully-documented” mortgages, rooting house prices solidly to “end-user” fundamentals

    From 2003–08, the “governor” was removed by wide acceptance of exotic loans.  Allowed house prices to detach from end-user fundamentals.  When the “governor” was reintroduced in ‘08 — on loss of exotic loans over a short period of time — house prices quickly “reset” to end-user fundamentals

    Enter, the 2010-13 Fed-inspired, “all-cash” driven, spec-vestor  — speculation & bond replacement — era when the “governor” was again removed

    Spec-vestor cohort quickly pushed house prices above end-users could pay. Without a “governor”, price paid is more often than not, subjective vs objective

    Low-to-mid priced houses up 30% – 60% in the past 2.5-years should send deafening warning signals; tell-tale sign prices have been influenced by something other than end-user fundamentals

    As spec-vestor demand wanes and macro demand moves back towards the end-user in regions in which new-era spec-vestors flocked first, sales volume is plunging and supply surging; just like in 2007

    Rate this comment: Thumb up 9

  16. 16
    wreckingbull says:

    RE: whatsmyname @ 9 – You better mention that to Bob, as the CS index starts in 1890, with an index of 100. The S&P product uses 2000 as its baseline. Is it really that hard to adjust your context?

    Rate this comment: Thumb up 0

  17. 17
    whatsmyname says:

    RE: wreckingbull @ 16 – Wonderfully pedantic, but whose CSI is baselined to 1990?

    Based on the graph in question, the median household income starts 2000 at about 25 index points below all the comparisons we have seen over the last 9 years. I can mentally move that line up, although I can’t adjust the slope with no numbers. More significantly, you can’t even do that because you failed to notice the impact of the differing baselines on your own – and that is where the comparison really gets awkward.

    Rate this comment: Thumb up 0

  18. 18
    Erik says:

    RE: BacktoBasic @ 14
    I was just thinking I would get my remodel done quickly so I can sit back with my hand on the trigger. If I see prices continue going up like crazy, I will sell.

    I am not so sure that we are not in for another bust. Prices could continue to rise. It seems like real estate has a momentum component to it. Once all the computer codes get written these programmers will be alleviated and real estate prices in the area will drop. That could happen. Boeing could move more jobs as they have been threatening Washington tax payers about for years. Prices could bust in 2016. It isn’t that far fetched.

    Rate this comment: Thumb up 0

  19. 19
    pfft says:

    By The Tim @ 7:

    RE: whatsmyname @ 6 – I haven’t said anywhere that 1990 is the “base year for reasonableness.”

    wrong answer.

    Rate this comment: Thumb up 0

  20. 20
    Dirty Renter in Banjo Country says:

    RE: Erik @ 13
    I remember a couple of years ago, you were debating whether to invest in real estate or the equity/bond market, with a goal of 10% return. It appears you cut a fat hog in the ass w/ your fixer upper and thus are going the real estate route.

    Rate this comment: Thumb up 1

  21. 21

    I Read Recently a 30% Cut in Defense Spending for 2015

    Sequestration.

    That makes the 2016 Boeing cuts too far out, try next year.

    Rate this comment: Thumb up 1

  22. 22
    Blake says:

    By BacktoBasic @ 14:

    Why don’t you live there for a couple of year and wait for the inflation to pick up?

    Inflation? You must be smoking some good sh!t dude… You see the economy overheating with wages rising and workers spending all their new wage gains bidding up the prices of everything?? Jeez… the central banks have their money spigots open full throttle and the world economy is still grinding to a halt. Deflation is the threat dude!

    IMF cuts U.S. 2014 growth forecast to 1.7 percent
    http://www.reuters.com/article/2014/07/23/us-imf-usa-dUSKBN0FS1P520140723

    http://online.wsj.com/articles/japan-economy-contracts-sharply-in-april-june-1407889750
    Aug. 12, 2014 10:31 p.m. ET
    TOKYO—Japan’s economy contracted sharply in the second quarter after a sales-tax increase in April sent household spending tumbling, which economists said could pressure the government to take additional stimulus measures. Real gross domestic product, the total value of all goods and services produced in the economy, shrank 6.8% in the three months through June on an annualized basis from the prior quarter.

    German economy shrank by 0.2% in the second quarter
    German 10-year yield below 1%
    2:14 PM ET, 08/14/2014 – MarketWatch
    The 10-year bund yield dipped below 1% after data showed the German economy shrank by 0.2% in the second quarter. Meanwhile, growth across the 18-nation shared-curency bloc was flat in the second quarter compared with the first three months of the year, translating to annualized quarterly GDP growth of 0.2%.

    That’s stoked fears of deflation and the possibility of a prolonged period of stagnation similar to that suffered by Japan… “Put it another way, at this point, I can see 10-year bunds breaking 1% before EUR/USD breaks %1.3333: and that just highlights Draghi’s problem,” wrote Kit Juckes, global macro strategist at Society Generale. “Too little growth to stop the debt snowball, a vicious cycle of fiscal austerity and lack of aggregate demand staying in place and dooming Europe to Japanification.”
    (end quote)

    We’re already 5 years into the worst US recovery since WW2, 90% of Americans have seen NO increases in real income through this recovery, and you guys are talking about speculating on real estate… now?
    https://confoundedinterest.files.wordpress.com/2014/08/20140806_obamainequality.jpg

    Rate this comment: Thumb up 3

  23. 23
    Matt the Engineer says:

    Is Per Capital Income and Home Price on the chart medians or means? If they are means that might explain why the median household income doesn’t track. And would explain something about changing homeowner demographics. (likely more high-income, likely higher high-end home values)

    Rate this comment: Thumb up 0

  24. 24
    redmondjp says:

    RE: Blake @ 22 – Blake – deflation? OK, if you mean that when I go into Safeway to buy a box of breakfast cereal, and the box is half as thick as it used to be but the price is the same as before, then I agree – we’ve had deflation!

    There are several types of/reasons for inflation (eg cost-push, demand-pull, etc), as I learned in Econ 320. One can have both price inflation and deflation at the same time (prices increasing for essential goods such as housing, food & energy, but decreasing for non-essential items such as boats, vacation homes, and swimming pools). And what about wage inflation? I’ll agree that we’ve not seen that – in fact, quite the opposite, from the news reports of late.

    Rate this comment: Thumb up 2

  25. 25
    The Tim says:

    By Matt the Engineer @ 23:

    Is Per Capital Income and Home Price on the chart medians or means?

    Per Capita = Total Personal Income / Population

    So by definition it’s the average income per person.

    Home prices are based on the Case-Shiller index, which measures home price changes using a repeat sales index. I’ve roughly translated that into a dollar amount for the first chart’s index, and just re-based it to 1990 for the second chart.

    Rate this comment: Thumb up 0

  26. 26

    By Matt the Engineer @ 23:

    Is Per Capital Income and Home Price on the chart medians or means? If they are means that might explain why the median household income doesn’t track. And would explain something about changing homeowner demographics. (likely more high-income, likely higher high-end home values)

    The other part of that is not everyone is in the market to buy a house, particularly over the short term. Income is a really lousy factor to consider for that reason.

    Rate this comment: Thumb up 0

  27. 27

    It’s deja vu all over again. When I started reading Seattle Bubble 8 years ago, The Tim was posting charts and data suggesting that things were out of whack, and that sooner or later we were going to see a housing price correction. It made perfect sense to me, and I was arguing those points in real estate classes( sure made me popular). I don’t think there was ever a point where Tim suggested something like ” The housing market will crash in July 2007, and we will see house prices drop by half in parts of King, Pierce, and Snohomish counties.”. There were a ton of frothing at the mouth real estate cheerleaders out there at the time, and it was refreshing to read something that was well thought out, instead of the industry’s, and their media shills spew out their usual pablum.
    Here we are eight years later. We will see a price decline locally within the next few years. It might be a minor or short lived decline, but it’ll happen.
    Some things you just can’t know. Take all the data you have, and you’re still not going to be able to know when the next decline will happen, or how deep and long the decline will be. We’ve seen an awfully large increase, in a relatively short span. The longer the price increases happen, the greater the chance that the decline will be larger or extended. So I say they might as well happen now, from a viewpoint of what’s best for the majority of the people. Houses that people can’t afford creates more of a schism between the haves and the have nots. It makes the American dream more unrealistic to more people. Every time home prices rise, the media and the real estate industry spokesmen make it sound like that’s a good thing. It’s not. That the market stayed frenzied and bloated for so long from 2001-2007 was not a good thing. If this market stays high, that’s won’t be a good thing either. I’m not wishing for a 40% decline. I just think that a couple of years of flatness or a slight decline would be healthy.

    Rate this comment: Thumb up 7

  28. 28

    By Ira Sacharoff @ 27:

    It’s deja vu all over again. When I started reading Seattle Bubble 8 years ago, The Tim was posting charts and data suggesting that things were out of whack, and that sooner or later we were going to see a housing price correction.. . .The housing market will crash in July 2007, and we will see house prices drop by half in parts of King, Pierce, and Snohomish counties.”. . . .We’ve seen an awfully large increase, in a relatively short span.

    I don’t entirely disagree. Just wanted to point out though that if you looked at the non-distressed median we never had anywhere near 50% price reduction–closer to only 20 or 25%. And while the recent current increases are alarming, they too are not that great, except in limited areas. I’d have to check, but I suspect the non-distressed median exceeded $420,000 at least once way back in 2011.

    And as in the other thread, I’d point out that the declines we did suffer had next to nothing to do with our local price increases. It was a national/international problem, related to housing yes, but primarily related to housing markets that had gone much higher (e.g. CA, AZ and FL). If we have another significant decline it will likely be due to a national (e.g. tech bubble) or international (e.g. default of a Euro country) event.

    Rate this comment: Thumb up 1

  29. 29

    By Kary L. Krismer @ 28:

    I’d have to check, but I suspect the non-distressed median exceeded $420,000 at least once way back in 2011.

    My suspicion was barely correct. The non-distressed median was $420,000 in September, 2011. Maybe that makes it barely incorrect, since it was $420,000. Anyway it was at or above $420,000 four times in 2012. Surprisingly it was at or above $420,000 three times in 2010!

    Also, as to the recent increases, the increase last Jan-July was greater than the Jan-July increase this year, both in absolute terms and as a percentage (obviously).

    Numbers from NWMLS and other sources, but not guaranteed.

    Rate this comment: Thumb up 0

  30. 30
    Blake says:

    By redmondjp @ 24:

    RE: Blake @ 22 – Blake – deflation? OK, if you mean that when I go into Safeway to buy a box of breakfast cereal, and the box is half as thick as it used to be but the price is the same as before, then I agree – we’ve had deflation!

    There are several types of/reasons for inflation (eg cost-push, demand-pull, etc), as I learned in Econ 320. One can have both price inflation and deflation at the same time (prices increasing for essential goods such as housing, food & energy, but decreasing for non-essential items such as boats, vacation homes, and swimming pools). And what about wage inflation? I’ll agree that we’ve not seen that – in fact, quite the opposite, from the news reports of late.

    So RJP… do you think the cost of that box of cereal is up because of “cost-push or demand-pull”… or more likely because there are only a few companies that make all the cereal in the US today and they are raising prices to make more $$$? Ongoing consolidation in most industries has reduced competition and that is one reason why corp profits continue to set records in spite of a terrible economy for most Americans! For example, 90% of the beer sold in this country is made by two companies (!!) and as a beer drinker I find it outrageous that it is hard to find good six pack for under $7 today!
    … this is a whole different beast than classic cost-push, demand-pull inlfation…

    Rate this comment: Thumb up 0

  31. 31
    Blake says:

    RE: Blake @ 30
    Btw; M2/money velocity is perhaps the best measure of classic inflation. It peaks when the economy is overheating due to the demand-pull and cost-push effect. It gets worse because people are anxious to buy/spend because it they wait a week or month then prices will be higher. But M2 is at ALL TIME Lows and the US Fed, the Germans and especially the Japanese are doing everything they can to spur inflation! But they are not succeeding… (W/o rising prices and wages it is hard for individuals and corps to pay off debts…)
    This is good: http://www.businessweek.com/articles/2014-01-17/the-recovery-and-the-speed-of-money

    Rate this comment: Thumb up 2

  32. 32
    Macro Investor says:

    By M Hanson @ 15:

    As spec-vestor demand wanes and macro demand moves back towards the end-user in regions in which new-era spec-vestors flocked first, sales volume is plunging and supply surging; just like in 2007

    Mark Hanson? If so, I used to enjoy reading your blog. “Used to” because it was a little too CA centered for me. Please keep commenting here.

    I don’t know of anyone who imagined hedge funds that previously only invested in stocks, bonds and derivatives would get into rental properties. That seems to be what’s driven the quick recovery and price gains we’ve seen in many areas.

    Does that peter out soon? If price/rent makes it unprofitable, then yes. It seems like this dynamic would put a floor on any price drops. Once price/rent becomes profitable enough, institutional money may jump right back in.

    Rate this comment: Thumb up 0

  33. 33
    Macro Investor says:

    By Blake @ 31:

    RE: Blake @ 30
    M2/money velocity is perhaps the best measure of classic inflation… the US Fed, the Germans and especially the Japanese are doing everything they can to spur inflation!

    Even in extreme cases like Greece, Spain and Portugal where the economies have crashed hard, few have jobs and the gov has no way to ever pay back it’s debt — interest rates are being held very low. How long can the central banks print money and do this before something explodes?

    Low velocity is because most of that printed money is just ballooning bank reserves… borrowing isn’t increasing other than student loans.

    With ONE IMPORTANT EXCEPTION. The US gov is spending $750 billion a year in borrowed money. That is inflation. It’s mainly showing up in foreign economies. That is why lots of people think the flash point will be when foreigners stop accepting inflated dollars, kicking off high inflation.

    Nobody knows when smoke will turn into fire. I believe the low interest rate party will continue for many more years. This will support housing prices in a range around where they are now.

    Rate this comment: Thumb up 1

  34. 34
    BacktoBasic says:

    By Blake @ 22:

    By BacktoBasic @ 14:
    Why don’t you live there for a couple of year and wait for the inflation to pick up?

    Inflation? You must be smoking some good sh!t dude… You see the economy overheating with wages rising and workers spending all their new wage gains bidding up the prices of everything?? Jeez… the central banks have their money spigots open full throttle and the world economy is still grinding to a halt. Deflation is the threat dude!

    IMF cuts U.S. 2014 growth forecast to 1.7 percent
    http://www.reuters.com/article/2014/07/23/us-imf-usa-dUSKBN0FS1P520140723

    http://online.wsj.com/articles/japan-economy-contracts-sharply-in-april-june-1407889750
    Aug. 12, 2014 10:31 p.m. ET
    TOKYO—Japan’s economy contracted sharply in the second quarter after a sales-tax increase in April sent household spending tumbling, which economists said could pressure the government to take additional stimulus measures. Real gross domestic product, the total value of all goods and services produced in the economy, shrank 6.8% in the three months through June on an annualized basis from the prior quarter.

    German economy shrank by 0.2% in the second quarter
    German 10-year yield below 1%
    2:14 PM ET, 08/14/2014 – MarketWatch
    The 10-year bund yield dipped below 1% after data showed the German economy shrank by 0.2% in the second quarter. Meanwhile, growth across the 18-nation shared-curency bloc was flat in the second quarter compared with the first three months of the year, translating to annualized quarterly GDP growth of 0.2%.

    That’s stoked fears of deflation and the possibility of a prolonged period of stagnation similar to that suffered by Japan… “Put it another way, at this point, I can see 10-year bunds breaking 1% before EUR/USD breaks %1.3333: and that just highlights Draghi’s problem,” wrote Kit Juckes, global macro strategist at Society Generale. “Too little growth to stop the debt snowball, a vicious cycle of fiscal austerity and lack of aggregate demand staying in place and dooming Europe to Japanification.”
    (end quote)

    We’re already 5 years into the worst US recovery since WW2, 90% of Americans have seen NO increases in real income through this recovery, and you guys are talking about speculating on real estate… now?
    https://confoundedinterest.files.wordpress.com/2014/08/20140806_obamainequality.jpg

    Min wage of $15 will be the law, it will push all other all the way up. Deflation, maybe you can buy comptuer cheap. All the essentials are up man.

    Rate this comment: Thumb up 0

  35. 35
    Blake says:

    RE: BacktoBasic @ 34
    Agree that prices for many items are up above the official inflation rate of 2-3%, but overall “inflation” is NOT the threat. We are getting screwed because industries have consolidated and they can raise prices w/o fear of competition… that’s a different problem than inflation. As for the years ahead I am not optimistic at all, but perhaps not bearish enough!?

    1. Soros has doubled his “put” bets to $2.2 billion, or 17% of his assets under management!
    http://etfdailynews.com/2014/08/15/soros-put-rises-to-record-betting-on-market-crash/

    2. Europe is mired in a depression WORSE than the 1930s (“Greater Depression” they are calling it!)
    http://www.washingtonpost.com/blogs/wonkblog/wp/2014/08/14/europes-greater-depression-is-worse-than-the-1930s/
    -snip- Europe needs inflation, and it needs it now. It would lower debt burdens, and make it easier for countries to regain competitiveness, both of which would increase growth. The European Central Bank (ECB) knows this, but it hasn’t been able to do enough about it because the Germans are so opposed. They have a haunting fear that somewhere, someone may get away with breaking the rules by inflating their problems away. That’s why the ECB will probably wait until it’s almost too late to start printing money, and even then, only do it half-heartedly. It’ll be enough to keep the euro from falling apart, but not their economies.

    The euro is the gold standard with moral authority. And that last part is a problem. Both are fixed exchange rate systems that can turn a recession into a depression, because they make countercyclical policy impossible. But people are even more attached to the euro today than they were to the gold standard then. Now, in the 1930s, people equated the gold standard with civilization itself, and were willing to sacrifice their economies for it. Double-digit unemployment, though, eventually cured them of this sentimentality—and recovery followed. But that hasn’t happened in Europe in recent times. That’s because the euro doesn’t just represent civilization, but the defense of it, too. After all, the past 60 years of civilization have all been about making sure it never happens again. Europe’s leaders aren’t going to give that up because of a little thing like a never-ending slump.

    So this greater depression will only get more so.
    (end quote)

    Blake sez: As Macro pointed out above, we are insulated from much of this because we are printing the reserve currency and exporting our inflation… how much longer? Look at the crashes of ’87… ’97… 2000… 2008… Economists like Simon Johnson have pointed out that each was worse than the one before and we can expect the next one to be even worse!? One thing I know is true: The Fed and US government are entering this next phase ALREADY with huge amounts of debt on their balance sheets AND interest rates near zero! wtf will they do?

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  36. 36
    Blurtman says:

    RE: Ira Sacharoff @ 27 – A housing market crash is good for trees and other living things.

    Rate this comment: Thumb up 2

  37. 37
    redmondjp says:

    RE: Blake @ 30 – I agree with you! Consolidation of power has made many of the conventional rules of thumb (including those from economics and investing) completely obsolete. One reason why I can no longer listen to many talk-radio hosts who continue to bleat “free market.”

    I am not optimistic about the future either. The corporatocracy has created such high barriers to entry (using environmental, safety and other such regulations) for new businesses that we are stuck with what we have now, and the PTB gets to select the winners and losers, not the consumer.

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  38. 38
    Blake says:

    RE: redmondjp @ 37
    Oh for just a little of Schumpeter’s creative destruction… to tear down the ossified institutions and start again anew! OK… perhaps we need more than just a little, but a lot of destruction! :-)

    >> In Schumpeter’s vision of capitalism, innovative entry by entrepreneurs was the disruptive force that sustained economic growth, even as it destroyed the value of established companies and laborers that enjoyed some degree of monopoly power derived from previous technological, organizational, regulatory, and economic paradigms. However, Schumpeter was pessimistic about the sustainability of this process, seeing it as leading eventually to the undermining of capitalism’s own institutional frameworks:
    “In breaking down the pre-capitalist framework of society, capitalism thus broke not only barriers that impeded its progress but also flying buttresses that prevented its collapse. That process, impressive in its relentless necessity, was not merely a matter of removing institutional deadwood, but of removing partners of the capitalist stratum, symbiosis with whom was an essential element of the capitalist schema. [... T]he capitalist process in much the same way in which it destroyed the institutional framework of feudal society also undermines its own.”

    Indeed… I think Lenin said something to this effect as well?

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  39. 39
    Macro Investor says:

    By Blake @ 35:

    RE: BacktoBasic @ 34
    We are getting screwed because industries have consolidated and they can raise prices w/o fear of competition… that’s a different problem than inflation.

    Yep, I wanted to agree with that earlier but my comment would have been to long.

    There are laws against monopoly practices. They aren’t being enforced because industry makes political donations (a nice name for “bribe”). The media is also controlled by a few giants so the message gets blocked, or they inundate everyone with lies about free markets.

    The biggest barrier to entry is all the zero/low interest money floating around. Imagine what you could do with nearly unlimited free money. Open thousands of stores like certain coffee houses or restaurants. No risk to doing that because they can fail and just declare bankruptcy. Small businesses have no chance against that.

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