The Housing Market and the Obama Depression
Timothy Birdnow
The housing market is in sorry shape, and growing more feeble, acccording to John Burns Real Estate Consulting.
http://www.linkedin.com/news?actionBar=&articleID=582610065&ids=0Pcz0Ucz0Ne3kIcPsNc3wRczwRb3wPej0Pdz0UdiMVdP8Uc3sNe3kIdjoMc34SczwR&aag=true&freq=weekly&trk=eml-tod-b-ttle-44
According to the article:
'“The existing home market continues to remain weak, with most indicators still grading at poor levels and almost all of the indicators we track falling further this month,” the report said.
The National Association of Realtors recorded a seasonally adjusted drop in annual resale activity to just over 5 million residences, with median resale prices down 5.4 percent in year-over-year statistics, up only according to month-to-month data.
The Standard & Poor/Case-Shiller U.S. Index collapsed in the first quarter of 2011 to a low “not seen since 2002,” the report said, adding that both its 10 and 20 market composite indices similarly bottomed out.
[...]
Accordingly, JBREC’s Consumer Confidence and Consumer Comfort Indices saw decreases, inversely correlating to an uptick in the aptly-named Misery Index (unemployment + inflation), which increased to 12.16 percent – a number that the report ranked “significantly higher” than its historical average of 9.46 percent over the last 60-plus years."
End excerpts.
The report also explains that this is one of the best times for actually buying a property - a sign of economic distress, since everyone is trying to cut a great deal.
The misery index; haven't heard about that in a long, long time. According to Invesopedia:
http://www.investopedia.com/articles/financial-theory/09/misery-index.asp#axzz1PX1WtNNU
"The misery index, created by economist Arthur Okun (and often incorrectly attributed to Robert Barro), is calculated by adding the inflation rate and the unemployment rate. Government statistics provide both numbers, with the yearly change in the Consumer Price Index (CPI) serving as half of the equation and the national unemployment rate serving as the other half."
End excerpt.
In 1980 Carter had a misery index of 20.76%, but that was using real unemployment numbers of 7.18 and high inflation of 13.58% - both of which we aren't seeing now BECAUSE we are calculating them differently so as to avoid (drumroll please) a high misery index. Unemployment is much higher than the numbers would suggest because they aren't calculating people who have given up their job search and others who "don't qualify", for instance, if they worked a temporary job (such as the census). Inflation, too, does not include food or energy - so as to drop the numbers considerable.
The unemployment rate, not adjusted to remove discouraged workers, is closer to 22% http://www.shadowstats.com/alternate_data/unemployment-charts and the inflation rate closer to 11%
http://www.shadowstats.com/alternate_data/inflation-charts
We are in Great Depression territory with these numbers, and we have a misery index of 33% more or less in real terms - far higher than the 12.16% official (high) figure.
If history is any guide, there will be a political bloodbath in November.
Be that as it may, the numbers are bad and pointing in the wrong direction. Housing is a key; it isn't called Real Estate for nothing. Land has intrinsic value, although houses and other improvements can lose value. Previous bubbles (the tech industry comes to mind) were largely built on virtual wealth, on things that really only existed in the minds of people. This is different; it is PROPERTY that has lost value, and continues the slide. What does that mean? It means that something that has inherent material value is declining, meaning the U.S. economy is itself declining. This isn't a short-term correction, a bursting of an over-inflated balloon. But why?
Because government is active. By redefining the terms, the meaning of wealth and the solidity of contracts they have devalued property. Under the banner of "affordable housing" they have systematically distorted the market, making kings and paupers based not on the intrinsic worth of real estate but on the machinations of government. Fannie Mae, Freddie Mac, the Community Reinvestment Act, subprime mortgages, all drove the actual value of real property down by making contracts worthless. The value in a thing stems from the value of a contract; if gold has value it's because both buyer and seller agree that gold has intrinsic value at a given exchange rate. Gold holds it's value because the buyer and seller agree on this, while paper money has only the value that the government imputs to it, and should government print too much or take other steps to devalue the currency gold will still have it's value to the contractors. Real property used to be that way, too, but the government stepped in, and began distorting the value of property with environmental laws, with restrictions on building, with social justice concepts (a seller cannot discriminate, for instance, which actually does change the value of a property), with eminent domain, with changes in contract law.
Government has been VERY active since Bill Clinton updated the Community Reinvestment Act (Frances Fox Piven and Richard Cloward - radical activists who seek to "overwhelm the system" were honored at the signing ceremony) which fundamentally changed the way real estate is financed. Banks, under threat from government over redlining laws, had little choice but to make bad loans. They began bundling loans, much like a health insurance company bundles healthy clients with sickly ones to make money. Every step of the way the lending industry was led by the nose to produce a sea of bad paper. The land no longer acted to secure those mortgages, because the prices artificially inflated; the land was never worth what the buyers were paying. When the collapse came there was too much perceived value and not enough intrinsic value.
Now the securing device (the property) itself is sliding, because nobody can buy it.
And it will continue it's long, excruciating slide, because government continues to be active in this market. Gold would be equally worthless if it were under such restriction and regulation.
The Obama Administration has engineered the actual destruction of wealth, not just the bursting of a bubble. This is the ultimate triumph of liberal theory; America has too much of the world's wealth, and should be cut down to size. Mr. Obama and company have done precisely that.
Hey buddy, can you spare a dime?
The housing market is in sorry shape, and growing more feeble, acccording to John Burns Real Estate Consulting.
http://www.linkedin.com/news?actionBar=&articleID=582610065&ids=0Pcz0Ucz0Ne3kIcPsNc3wRczwRb3wPej0Pdz0UdiMVdP8Uc3sNe3kIdjoMc34SczwR&aag=true&freq=weekly&trk=eml-tod-b-ttle-44
According to the article:
'“The existing home market continues to remain weak, with most indicators still grading at poor levels and almost all of the indicators we track falling further this month,” the report said.
The National Association of Realtors recorded a seasonally adjusted drop in annual resale activity to just over 5 million residences, with median resale prices down 5.4 percent in year-over-year statistics, up only according to month-to-month data.
The Standard & Poor/Case-Shiller U.S. Index collapsed in the first quarter of 2011 to a low “not seen since 2002,” the report said, adding that both its 10 and 20 market composite indices similarly bottomed out.
[...]
Accordingly, JBREC’s Consumer Confidence and Consumer Comfort Indices saw decreases, inversely correlating to an uptick in the aptly-named Misery Index (unemployment + inflation), which increased to 12.16 percent – a number that the report ranked “significantly higher” than its historical average of 9.46 percent over the last 60-plus years."
End excerpts.
The report also explains that this is one of the best times for actually buying a property - a sign of economic distress, since everyone is trying to cut a great deal.
The misery index; haven't heard about that in a long, long time. According to Invesopedia:
http://www.investopedia.com/articles/financial-theory/09/misery-index.asp#axzz1PX1WtNNU
"The misery index, created by economist Arthur Okun (and often incorrectly attributed to Robert Barro), is calculated by adding the inflation rate and the unemployment rate. Government statistics provide both numbers, with the yearly change in the Consumer Price Index (CPI) serving as half of the equation and the national unemployment rate serving as the other half."
End excerpt.
In 1980 Carter had a misery index of 20.76%, but that was using real unemployment numbers of 7.18 and high inflation of 13.58% - both of which we aren't seeing now BECAUSE we are calculating them differently so as to avoid (drumroll please) a high misery index. Unemployment is much higher than the numbers would suggest because they aren't calculating people who have given up their job search and others who "don't qualify", for instance, if they worked a temporary job (such as the census). Inflation, too, does not include food or energy - so as to drop the numbers considerable.
The unemployment rate, not adjusted to remove discouraged workers, is closer to 22% http://www.shadowstats.com/alternate_data/unemployment-charts and the inflation rate closer to 11%
http://www.shadowstats.com/alternate_data/inflation-charts
We are in Great Depression territory with these numbers, and we have a misery index of 33% more or less in real terms - far higher than the 12.16% official (high) figure.
If history is any guide, there will be a political bloodbath in November.
Be that as it may, the numbers are bad and pointing in the wrong direction. Housing is a key; it isn't called Real Estate for nothing. Land has intrinsic value, although houses and other improvements can lose value. Previous bubbles (the tech industry comes to mind) were largely built on virtual wealth, on things that really only existed in the minds of people. This is different; it is PROPERTY that has lost value, and continues the slide. What does that mean? It means that something that has inherent material value is declining, meaning the U.S. economy is itself declining. This isn't a short-term correction, a bursting of an over-inflated balloon. But why?
Because government is active. By redefining the terms, the meaning of wealth and the solidity of contracts they have devalued property. Under the banner of "affordable housing" they have systematically distorted the market, making kings and paupers based not on the intrinsic worth of real estate but on the machinations of government. Fannie Mae, Freddie Mac, the Community Reinvestment Act, subprime mortgages, all drove the actual value of real property down by making contracts worthless. The value in a thing stems from the value of a contract; if gold has value it's because both buyer and seller agree that gold has intrinsic value at a given exchange rate. Gold holds it's value because the buyer and seller agree on this, while paper money has only the value that the government imputs to it, and should government print too much or take other steps to devalue the currency gold will still have it's value to the contractors. Real property used to be that way, too, but the government stepped in, and began distorting the value of property with environmental laws, with restrictions on building, with social justice concepts (a seller cannot discriminate, for instance, which actually does change the value of a property), with eminent domain, with changes in contract law.
Government has been VERY active since Bill Clinton updated the Community Reinvestment Act (Frances Fox Piven and Richard Cloward - radical activists who seek to "overwhelm the system" were honored at the signing ceremony) which fundamentally changed the way real estate is financed. Banks, under threat from government over redlining laws, had little choice but to make bad loans. They began bundling loans, much like a health insurance company bundles healthy clients with sickly ones to make money. Every step of the way the lending industry was led by the nose to produce a sea of bad paper. The land no longer acted to secure those mortgages, because the prices artificially inflated; the land was never worth what the buyers were paying. When the collapse came there was too much perceived value and not enough intrinsic value.
Now the securing device (the property) itself is sliding, because nobody can buy it.
And it will continue it's long, excruciating slide, because government continues to be active in this market. Gold would be equally worthless if it were under such restriction and regulation.
The Obama Administration has engineered the actual destruction of wealth, not just the bursting of a bubble. This is the ultimate triumph of liberal theory; America has too much of the world's wealth, and should be cut down to size. Mr. Obama and company have done precisely that.
Hey buddy, can you spare a dime?
posted by Timothy Birdnow | 5:08 AM
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