Monday, June 23, 2014

Housing Looking Toppy

Inflection points are notorious to predict and impossible not to see in retrospect. Looks more and more like It is that time again. Remember August 2006? Yes, eight long years ago. Here's what I wrote:

 Nothing like disaster staring you personally in the face to sharpen the mind and narrow focus to the important facts. These things are “brainers.” The problem is so many people sleepwalking or in denial. It is important to remember that housing is priced at the margins. That’s also why the bubble won’t be as injurious to the general economy as some here believe. Imagine getting a letter in the mail saying you won a million dollars. Next day you get another letter saying a mistake was made, you only won $400,000. Did you just lose $600,000? Only if you went out the night before spent it all (MEW). [Calculations below.] I’m not too worried about the coming and needed recession even if it is late and thereby harder than necessary. The jobs that will be lost are largely parasitical and not ultimately productive nor are they the jobs we wish to have created in a modern economy. Obsolete jobs are best cleared out. A recession will ease our crushing immigration pressures here in California as well. Schools are already talking about closing buildinngs, saving billions. Lower taxes, less crowded schools; what’s not to like? Maybe the national psyche can find enough breathing space to heal as well.

More at the link.  

Back to 2014.  Are we any better now?  Yes.  Much, much better.  Back then there weren't many paying attention.  Back then the blogosphere was lonely.  Back then there were very few who ever dare suggest a plateau never mind a massive decline.  I took no end of respectful dissent for suggesting "stickiness" was a thing of the past. 

Okay, on to the data.  

First, the Zero Hedge observation:
The Great Bifurcation continues apace.  As usual California leads the way. 

Second, Dataquick and the the American Community Survey (JCHS):

The typical monthly mortgage payment that California buyers committed themselves to paying last month was $1,523, up from $1,496 the month before and up from $1,157 a year earlier. ~ DQ

 JCHS ~ The recent deterioration in rental affordability comes after a decade of lost ground. The share of cost-burdened renters increased by a stunning 12 percentage points between 2000 and 2010, the largest jump in any decade dating back at least to 1960. The cumulative increase in the incidence of housing cost burdens is astounding. In 1960, about one in four renters paid more than 30 percent of income for housing. Today, one in two are cost burdened. Even in 1980, following two decades of worsening affordability, the cost-burdened share of renters was just above a third.

Prices, both rent and purchase need to come down to come back in line.  Higher wages, lower prices, lower interest rates, transfer rates.  Any guesses as to the mix that gets us back in balance?  I'll post mine after a bit. 


Cinco-X said...

It is important to remember that housing is priced at the margins. That’s also why the bubble won’t be as injurious to the general economy as some here believe.

Do you still believe that?

Rob Dawg said...

Of course not.

It was half in jest at the time. I did not expect the damage we see to this day but reading further down note I called the gutting of the middle class to a fine point.

You also have to remember August 2006 when "this sucker's going down" was the cry. I was more "very bad, vary deep, much faster" but wasn't willing to speculate on the other side.

Cinco-X said...

I wasn't involved in discussion in 2006. Was planning my new house, but never pulled the trigger as I didn't think houses were worth what builders were asking...