More of my thought on this is that I believe that inflation is going to be crazy over the next couple years. That means the fed raises and interest rates go up. What if we end up seeing rates in the 9's and 10's again?
I suspect we are going to see the exact opposite. The decision by the US government to issue gobs more debt to finance the bail-outs is going to be deflationary and suck money out of the economy. It will also lead to asset prices crashing even further as people become ever more fearful of putting their money into private investments.
T-bill rates will drop even more as US treasuries become the ONLY thing anyone wants to buy (who would want to buy real-estate, stocks, or commodities, which are dropping 20% in value every year).
Thus, we can expect to see interest rates remain very low and asset prices continue to crash.
The only way this debacle will end is when all the derilict assets are finally placed on the open market to find a clearing price. This is the point from where the economy can finally begin to recover. All these bail-outs merely postpone that day of reckoning and increase the deflationary pressures that are growing apace.
I suspect you're right Sniglet. I don't fully grasp the sum of events/consequences that lead to it, but the articles I read about Japan's deflation show that the US is following in their footsteps so far.
The dollar's value should fall, putting upward pressure on the price of imports, which is most of the stuff in the stores. It seems that for deflation to occur on imports, either demand would have to contract enough for downward pressure to overwhelm the upward pressure (assuming there's still profit to be had), or the US would have to take the world down with it (so the dollar doesn't fall too far).
Peter Schiff predicted that the price of a new Toyota would soar, whereas the price of a used Toyota would plummet (maybe not the Prius though).
That's a tough comparison (Japan 1990 to USA 2008). The USA economy is much larger than Japan's was (percentage WDP (world domestic product)). It's entirely possible that our failure would more negatively impact the global economy than Japan's did. Meanwhile, the world at large is both stronger economically and less stable.
Twenty years ago, there were the first world and the third. Now, you've got places like India, China, South Korea, Russia, Brazil, Argentina, Chile, Turkey, Ukraine, and Mexico where the economies are actually growing quite rapidly but they don't have the stability the more entrenched nations do. Meanwhile, the entrenched nations are largely running deficits and import more of their consumables than ever before. This is true in pretty much any country that doesn't export hydrocarbons (Europe for example) even if it's more pronounced here in the states.
Add on top of that, this was a credit boom, not a housing boom and credit boomed around the world. It's unwinding here, but also in Spain, UK, and Australia just to name a few specific places. To cap it all off, the US financial markets have been the gold-standard for years now. Institutions across the globe have significant money in US bonds or T-Bills or other financial devices. If we stop paying those, it will definitely impact not just us.
While I like the comparison to Japan just so we can apply some lessons learned (dragging out the crash only makes it more painful), I think there is ample reason not to apply the analogy too deeply.
Interesting article in last sunday's Oregonian about similarities/dissimilarities between our crash and the early 90's Japan debacle.
the author, who lived in Japan through the crash, comes out on the side of the differences being important enough that it can't really be used as a road map
Economists, however, point to key differences between Japan's long fall and this U.S. financial crisis. The contrasts go well beyond the fact that disgraced American executives don't scrape and bow -- they grab golden parachutes.
In Japan during the 1980s, banks held huge amounts of stock in nonfinancial companies, which had borrowed heavily against inflated real-estate assets. "Mom-and-pop markets would say, 'I got a parking lot out back, and if I built on that, it would be worth a lot, so I'm going to borrow on that,'" says Adam Posen, a Washington, D.C., economist who has written two books on the Japanese crisis.
"So imagine the whole loan dynamic in the U.S., except far more extreme for companies," says Posen, who advised the International Monetary Fund during Japan's fall. "They had a commercial and residential real estate, stock market and bank crash -- all simultaneously."
FWIW, I find most comparisons of the two made on this site and others usually lacking in specifics on the situation in Japan - as a result I am more inclined to agree with the author than to jump in with the "we're all doomed" camp.
FWIW, I find most comparisons of the two made on this site and others usually lacking in specifics on the situation in Japan - as a result I am more inclined to agree with the author than to jump in with the "we're all doomed" camp.
Don't you think you can do both? Agree that Japan is hardly a road map (besides, even if it were what Japan did lead to nearly two decades of turbulence...hardly a road map I'd follow) and that *we're all doomed.
*we're all doomed is metaphorical, since I believe the economic crisis will only serve to rebalance lifestyles around human interaction, levity, and the simpler things in life while encouraging Generation Y to take over and perhaps patch up the mantle the Boomers are so busy pissing on and rubbing in the dirt.
The theory about how rental properties will boom as the broader housing market tanks (i.e. since people have to live somewhere) is looking ever more spurious. It turns out that people really do downsize their housing needs when faced with a tough economy.
"Nine straight months of job losses have begun to cut into the demand for apartment residences," said Mark Obrinsky, NMHC's Vice President of Research and Chief Economist. "While favorable demographics and a lower homeownership rate will benefit the apartment industry over time, owners and managers will first have to work their way through the current economic downturn before the benefits of that increased demand are likely to show up. Until then, economic worry will cause some people to "double up" by moving in with a friend or returning to their parents' house."
Fortunately, at least in a number of places, the housing mess is creating additional rentals. Craigslist says its rental listings nationally have grown by 257% in the past two years.
I noticed that in the time I was looking for a new rental, the market seemed to have more supply. Two home that I was looking at have given up and are trying to sell. I think we just passed peak rents in the area.
I noticed that in the time I was looking for a new rental, the market seemed to have more supply. Two home that I was looking at have given up and are trying to sell. I think we just passed peak rents in the area.
So...if you gave up on selling and decided to rent your property only to find that it won't rent so you must give up on renting it...what do you do then?
Fortunately, at least in a number of places, the housing mess is creating additional rentals. Craigslist says its rental listings nationally have grown by 257% in the past two years.
I noticed that in the time I was looking for a new rental, the market seemed to have more supply. Two home that I was looking at have given up and are trying to sell. I think we just passed peak rents in the area.
that CL stat is probably a bit misleading, as I would bet that Craigslist listings for everything have doubled in the last two years just based on organic growth - irrespective of the economy
Anecdotally, my wife and I moved this summer because our former landlord was tired of losing money on the house he bought in 2005 by renting to us. We found a newer, more spacious home in a better location about a half-mile away for a little less money.
His house is still for sale and tenant-free. He's lost about 10k since we moved out in rent.
If I were a landlord, I'd be cutting prices right now to prevent losses like these. It's no wonder prices are dropping.
I just moved because my landlord was tired of losing money and having to be a landlord (i.e. obey landlord-tenant laws) so he told us he was going to sell the house. Well, I went back to visit a neighbor and whadaya know, there's a For Rent sign up. Asking $100 more for that dump. The light in the garage was on and there was a short ladder underneath the leaking drain pipe that we had been trying to get him to fix for a few months (it had been leaking well before we moved in).
Something dramatic is clearly occuring with the rental market. I am just AMAZED at how the volume of advertisements for 3 bed/2 bath domiciles for $1600 or less has ballooned on Craigslist in the last 3 months. Even more incredible is the desperation landlords are resorting to in order to entice renters. I am just amazed to see how almost every other listing is trying to give something away. All the come-ons to people with poor credit, and free plasma TVs, just blow me away!
What has happened to make things change so swiftly? Have masses of people suddenly decided to leave the Puget Sound, thereby decreasing rental demand? I can't believe renters have suddenly decided to buy instead (the sales stats don't bear that out).
Here are some samples of the Craigslist listing I am seeing.
- $1550 / 3br - Bright Edmonds TownHome 4 Lease to Own! Bad Crdt OK!! - (Edmonds)
- $1495 / 3br - Puyallup Quadrant Home - Ready to Move in Now! We Work with Bd Credit! - (Puyallup)
- $1395 / 3br - Marysville - Charming Lease to Own Rambler - Bad Crdt OK!! - (Marysville)
- $1500 / 3br - Call About Manager's Specials!
- $1503 / 3br - Would you like $1009 Free Rent? - (Redmond, WA)
- $1401 / 3br - Don't get left in the Cold, Come check out our Great Specials ! - (Redmond, WA)
- $1199 / 3br - Lowest Prices Of The Year! Your New Home Awaits You! - (Bellevue/Lakemont)
- $1599 / 3br - **Didn't get a FLAT SCREEN for Christmas? We'll give you one!!**** - (Bothell)
- $1599 / 3br - 2.5 Bathroom Town Home **FREE is a four letter word** - (Bothell/Canyon Park)
- $1600 / 4br - Lease takeover - last + deposit paid, you keep deposit! - (Bellevue)
- $1400 / 3br - ►ONE MONTH FREE W/ YEAR LEASE. Mountain Views! - (Issaquah)
- $1480 / 3br - Make $72k a year or under. Then we have a 3 bedroom just for you!! - (Bellevue)
- $1200 / 3br - $1200 per mo. 3bd/2ba **No Credit Check** - (SHELTON)
Sniglet - I was going to post a similar observation
I am noticing buildings on Capitol Hill - really prime locations that are always fully rented - that now are advertising vacancies. I have lived up there for 2+ years and am seeing signs for available units at places that have never had vacancies. And not just a few - they are everywhere.
Not scientific - I know, but there does seem to be a noticeable trend
My 3-mile commute through residential Bellevue/Redmond has had no more than 2 rental signs up at any given time (and usually none at all) in the 5+ years I've been driving it. I counted today and there are 4 "for rent" signs up now.
Where are all the in-city 3-4BR, 3.5BA SFH w/ 3-4 car garages?
I think the lack of such buildings is clearly a sign that we're at the bottom and rents will be rising rapidly and drastically. Buy now or be priced out forever.
- $1599 / 3br - **Didn't get a FLAT SCREEN for Christmas? We'll give you one!!**** - (Bothell)
So...I've always figured the "buy this house and get a plasma TV for *free" deal was a crock, but getting one for renting isn't so bad. Unless you have to sign a three year lease.
*free means you paid at least $10k more than the home is worth and that you will make payments on that $10k TV for 30 years.
That is just a way for them to lower the rent without publishing a lower rent. Publishing lower rent prices encourages everyone else to lower rent prices too.
That is just a way for them to lower the rent without publishing a lower rent. Publishing lower rent prices encourages everyone else to lower rent prices too.
I know that's the argument when a builder offers goods in exchange for not lowering the price on a home. I don't know that it holds as much water for rent. Most of these look like one-of deals, and I doubt the holder of house X is thinking if I lower my price it will push down all these other guy's rents as well!!!
Most likely, someone has a house they need to rent and a lightly used TV they can't afford and they are looking to kill two birds with one stone.
That is just a way for them to lower the rent without publishing a lower rent. Publishing lower rent prices encourages everyone else to lower rent prices too.
I know that's the argument when a builder offers goods in exchange for not lowering the price on a home. I don't know that it holds as much water for rent. Most of these look like one-of deals, and I doubt the holder of house X is thinking if I lower my price it will push down all these other guy's rents as well!!!
Most likely, someone has a house they need to rent and a lightly used TV they can't afford and they are looking to kill two birds with one stone.
Who said they had to buy a $4K plasma TV on a loan? Why can't people live within their means?
Who said they had to buy a $4K plasma TV on a loan? Why can't people live within their means?
I think you missed the sarcasm in my statement. The point was that sellers are charging $10k more for a house with a TV than a house without, and that anyone who buys that house because of the TV is essentially paying an extra $8k ($2k TV to begin with) that they are financing for 30 years.
It's literally the single stupidest way you could buy a new TV. If you get the TV with your rent, it's a little different. You sign 12 month lease for $100 over the going rate, and you've basically bought the TV for $1200. The landlord is stuck with the carrying costs (if they financed it) or lost interest (if they bought it with cash), so it's not that bad of a deal for the renter.
In other words, nobody has to finance a TV, but only a fool finances it for 30 years.
Who said they had to buy a $4K plasma TV on a loan? Why can't people live within their means?
I think you missed the sarcasm in my statement. The point was that sellers are charging $10k more for a house with a TV than a house without, and that anyone who buys that house because of the TV is essentially paying an extra $8k ($2k TV to begin with) that they are financing for 30 years.
It's literally the single stupidest way you could buy a new TV. If you get the TV with your rent, it's a little different. You sign 12 month lease for $100 over the going rate, and you've basically bought the TV for $1200. The landlord is stuck with the carrying costs (if they financed it) or lost interest (if they bought it with cash), so it's not that bad of a deal for the renter.
In other words, nobody has to finance a TV, but only a fool finances it for 30 years.
There are still way too many fools ready to be parted from their meagre incomes.
The unemployment rate climbed to 5.6% in November 2008 compared to 3.7% in November 2007.
I don't know if this has come up, but in some ways I think a really low unemployment rate makes the eventual crash feel even worse. Unemployment rose 2% overall, which is like a 60% spike in one year. If you go from 10% to 12%, your overall suffering is worse than here, but the "shock" part is less significant as it's a smaller relative change.
It also creates a default scenario where the rent is raised on renewal. You get the same price, but you don't get the same bonus.
I'd say this is a big motivation for rental bonuses and rebates vs. just lowering the rent. People don't like rent increases, but if the nominal rent stays the same, they hardly notice that they didn't get the "bonus" in their renewal. Also, some jurisdictions place limits on rental rate increases, but don't consider bonuses and rebates in the calculations.
I'd also note that in terms of marketing to new customers, many people tend to base their perceptions of value on the nominal price, especially the first time they see a price for that item. Saying "$1500/month with one month free" makes them feel like they got something worth $1500 for free one month. Saying "$1375/month" makes them feel like they are getting something worth $1375 and paying full price.
Comments
I suspect we are going to see the exact opposite. The decision by the US government to issue gobs more debt to finance the bail-outs is going to be deflationary and suck money out of the economy. It will also lead to asset prices crashing even further as people become ever more fearful of putting their money into private investments.
T-bill rates will drop even more as US treasuries become the ONLY thing anyone wants to buy (who would want to buy real-estate, stocks, or commodities, which are dropping 20% in value every year).
Thus, we can expect to see interest rates remain very low and asset prices continue to crash.
The only way this debacle will end is when all the derilict assets are finally placed on the open market to find a clearing price. This is the point from where the economy can finally begin to recover. All these bail-outs merely postpone that day of reckoning and increase the deflationary pressures that are growing apace.
The dollar's value should fall, putting upward pressure on the price of imports, which is most of the stuff in the stores. It seems that for deflation to occur on imports, either demand would have to contract enough for downward pressure to overwhelm the upward pressure (assuming there's still profit to be had), or the US would have to take the world down with it (so the dollar doesn't fall too far).
Peter Schiff predicted that the price of a new Toyota would soar, whereas the price of a used Toyota would plummet (maybe not the Prius though).
Twenty years ago, there were the first world and the third. Now, you've got places like India, China, South Korea, Russia, Brazil, Argentina, Chile, Turkey, Ukraine, and Mexico where the economies are actually growing quite rapidly but they don't have the stability the more entrenched nations do. Meanwhile, the entrenched nations are largely running deficits and import more of their consumables than ever before. This is true in pretty much any country that doesn't export hydrocarbons (Europe for example) even if it's more pronounced here in the states.
Add on top of that, this was a credit boom, not a housing boom and credit boomed around the world. It's unwinding here, but also in Spain, UK, and Australia just to name a few specific places. To cap it all off, the US financial markets have been the gold-standard for years now. Institutions across the globe have significant money in US bonds or T-Bills or other financial devices. If we stop paying those, it will definitely impact not just us.
While I like the comparison to Japan just so we can apply some lessons learned (dragging out the crash only makes it more painful), I think there is ample reason not to apply the analogy too deeply.
the author, who lived in Japan through the crash, comes out on the side of the differences being important enough that it can't really be used as a road map
FWIW, I find most comparisons of the two made on this site and others usually lacking in specifics on the situation in Japan - as a result I am more inclined to agree with the author than to jump in with the "we're all doomed" camp.
Don't you think you can do both? Agree that Japan is hardly a road map (besides, even if it were what Japan did lead to nearly two decades of turbulence...hardly a road map I'd follow) and that *we're all doomed.
*we're all doomed is metaphorical, since I believe the economic crisis will only serve to rebalance lifestyles around human interaction, levity, and the simpler things in life while encouraging Generation Y to take over and perhaps patch up the mantle the Boomers are so busy pissing on and rubbing in the dirt.
http://calculatedrisk.blogspot.com/2008/11/apartment-market-weakens.html
I noticed that in the time I was looking for a new rental, the market seemed to have more supply. Two home that I was looking at have given up and are trying to sell. I think we just passed peak rents in the area.
Are you saying that the rental market is so weak that some landlords are deciding to seel their properties, even in a bad market?
So...if you gave up on selling and decided to rent your property only to find that it won't rent so you must give up on renting it...what do you do then?
Insurance Fraud?
that CL stat is probably a bit misleading, as I would bet that Craigslist listings for everything have doubled in the last two years just based on organic growth - irrespective of the economy
His house is still for sale and tenant-free. He's lost about 10k since we moved out in rent.
If I were a landlord, I'd be cutting prices right now to prevent losses like these. It's no wonder prices are dropping.
What has happened to make things change so swiftly? Have masses of people suddenly decided to leave the Puget Sound, thereby decreasing rental demand? I can't believe renters have suddenly decided to buy instead (the sales stats don't bear that out).
Here are some samples of the Craigslist listing I am seeing.
- $1550 / 3br - Bright Edmonds TownHome 4 Lease to Own! Bad Crdt OK!! - (Edmonds)
- $1495 / 3br - Puyallup Quadrant Home - Ready to Move in Now! We Work with Bd Credit! - (Puyallup)
- $1395 / 3br - Marysville - Charming Lease to Own Rambler - Bad Crdt OK!! - (Marysville)
- $1500 / 3br - Call About Manager's Specials!
- $1503 / 3br - Would you like $1009 Free Rent? - (Redmond, WA)
- $1401 / 3br - Don't get left in the Cold, Come check out our Great Specials ! - (Redmond, WA)
- $1199 / 3br - Lowest Prices Of The Year! Your New Home Awaits You! - (Bellevue/Lakemont)
- $1599 / 3br - **Didn't get a FLAT SCREEN for Christmas? We'll give you one!!**** - (Bothell)
- $1599 / 3br - 2.5 Bathroom Town Home **FREE is a four letter word** - (Bothell/Canyon Park)
- $1600 / 4br - Lease takeover - last + deposit paid, you keep deposit! - (Bellevue)
- $1400 / 3br - ►ONE MONTH FREE W/ YEAR LEASE. Mountain Views! - (Issaquah)
- $1480 / 3br - Make $72k a year or under. Then we have a 3 bedroom just for you!! - (Bellevue)
- $1200 / 3br - $1200 per mo. 3bd/2ba **No Credit Check** - (SHELTON)
I am noticing buildings on Capitol Hill - really prime locations that are always fully rented - that now are advertising vacancies. I have lived up there for 2+ years and am seeing signs for available units at places that have never had vacancies. And not just a few - they are everywhere.
Not scientific - I know, but there does seem to be a noticeable trend
I think the lack of such buildings is clearly a sign that we're at the bottom and rents will be rising rapidly and drastically. Buy now or be priced out forever.
So...I've always figured the "buy this house and get a plasma TV for *free" deal was a crock, but getting one for renting isn't so bad. Unless you have to sign a three year lease.
*free means you paid at least $10k more than the home is worth and that you will make payments on that $10k TV for 30 years.
I know that's the argument when a builder offers goods in exchange for not lowering the price on a home. I don't know that it holds as much water for rent. Most of these look like one-of deals, and I doubt the holder of house X is thinking if I lower my price it will push down all these other guy's rents as well!!!
Most likely, someone has a house they need to rent and a lightly used TV they can't afford and they are looking to kill two birds with one stone.
Who said they had to buy a $4K plasma TV on a loan? Why can't people live within their means?
I think you missed the sarcasm in my statement. The point was that sellers are charging $10k more for a house with a TV than a house without, and that anyone who buys that house because of the TV is essentially paying an extra $8k ($2k TV to begin with) that they are financing for 30 years.
It's literally the single stupidest way you could buy a new TV. If you get the TV with your rent, it's a little different. You sign 12 month lease for $100 over the going rate, and you've basically bought the TV for $1200. The landlord is stuck with the carrying costs (if they financed it) or lost interest (if they bought it with cash), so it's not that bad of a deal for the renter.
In other words, nobody has to finance a TV, but only a fool finances it for 30 years.
There are still way too many fools ready to be parted from their meagre incomes.
http://finance.yahoo.com/real-estate/article/106480/Rents-Drop-Nationwide-as-Vacancies-Spike
From TFA
I don't know if this has come up, but in some ways I think a really low unemployment rate makes the eventual crash feel even worse. Unemployment rose 2% overall, which is like a 60% spike in one year. If you go from 10% to 12%, your overall suffering is worse than here, but the "shock" part is less significant as it's a smaller relative change.
I'd say this is a big motivation for rental bonuses and rebates vs. just lowering the rent. People don't like rent increases, but if the nominal rent stays the same, they hardly notice that they didn't get the "bonus" in their renewal. Also, some jurisdictions place limits on rental rate increases, but don't consider bonuses and rebates in the calculations.
I'd also note that in terms of marketing to new customers, many people tend to base their perceptions of value on the nominal price, especially the first time they see a price for that item. Saying "$1500/month with one month free" makes them feel like they got something worth $1500 for free one month. Saying "$1375/month" makes them feel like they are getting something worth $1375 and paying full price.