Part two of the article from last week.
The only way people cope with the middle-class meltdown is by falling into debt.
You've probably heard that the average U.S. household carries $9,300 in credit card debt. But that misleading statistic includes the debt of the self-employed and some small businesses. The 2004 Survey of Consumer Finances, which does not include business debt, showed that 54% of households had no credit card debt after paying their monthly bill and that the average household credit card debt was just over $2,300.[end self serving lies]
Mortgages, which represent 79% of all debt, are the more pressing concern. But even according to the most pessimistic estimates, only 1% to 2% of homeowners will be forced into foreclosure in the next few years. Assets have grown faster than debts for most middle-class families. Median net worth has grown 35% since 1989, according to the Federal Reserve Board, and only 15% of households have debt payments worth more than 40% of their income or are 60 days late on any debt payment.
Again with the cute aggregation/disaggregation dissembling. Compound that with out-of-date statistics and you can make anything look sanguine. Look at this graph courtesy NYTimes:
See the low point? 2004. Read above where they pulled the $2300 credit card number. 2004. And they don't even mention MEW. I mean, look at this poor girl. Her parents can't even afford new jeans.
41 comments:
Credit cards are heroin for most people.
Oh yeah, first.
BTW, I have a family member who became instantly hosed over the past week because of credit card debt. This family member dutifully paid at least the minimum each month. For reasons that aren't clear, their interest rate more than doubled last week.
There's no point in lecturing the person. "You shouldn't be carrying a balance in the first place" is correct, but it doesn't do any good to say that now. $40k (!!!) in credit card debt. I can't understand how someone with a good job can dig themself that deep a whole, but it happens a lot.
I hear ya, Lou.
I've been dirt, dogshit poor yet never ever have I spent more than I made.
But I too have family members that I dearly love who have acted finacially irresponsible.
Must confess I carry a hefty balance. The nice company lets me have all that dirty money for a tax deductible 0.9% rate. I just make sure that if the nice company ever tries one of those dirty deals like bumping my rate I have enough to pay it off. The great credit unwind will be interesting.
While I respect the fact that credit card debt is a problem for some people, I once again think it's a little harsh to call these statistics lies.
Do you think your perception is a little tainted because you live on the west coast? These statistics are national. Where I live home prices have dropped only a little bit, there are very few foreclosures and people selling just have to wait a little longer. No big deal. I personally don't know of a single person that has a subprime adjustable rate mortgage. I feel sorry for those who do. Now while the mortgage crisis is very real and foreclosures are too high, much like news coverage of a plane crash, the people in foreclosure are getting all the news coverage, while the 98% of Americans who are fine get overlooked.
The sky is not falling everywhere.
The sky is not falling everywhere.
Yet. That's one of my central claims. This is an international credit bubble. The housing price bubble is a symptom.
The sky actually is falling everywhere. It just hasn't fallen far enough yet for eveyone to notice.
Dawg,
I have you beat. I am carrying $41,900 in credit card debt at 0%. I love getting the junk mail credit card offers - it's like finding free money in the mail.
TK
Rob Dawg,
Do you agree with the data in the charts you posted? If so, they show credit card debt increasing by less than 4% per year for the entire period between mid 2003 and mid 2006. That's far less than the increase in median wages. Credit card debt did start to increase in mid 2006, about the same time that people could no longer use their home as an ATM machine. While the increase is certainly not good, I don't think the 7.5% current annual increase is a major catastrophe. It certainly can't be sustained and people will slowly have to be trained to not spend beyond their income levels like they've been accustomed to in previous years.
People who have been living beyond their means are going to get screwed. People who tried to make free money by leveraging real estate will get screwed. A few unfortunate people who were trying to buy their first home and got suckered into an adjustable rate mortgage so they could afford the payments will also get screwed. The low income factory worker who had to buy that plasma TV on credit 3 years ago for $8,000 because he wanted to outdo his neighbor for his superbowl party will get it as well. The average Joe should be just fine.
I got some 0% too but thought it would look like bragging because I do have some 0.9% as well but yes, you got me beat.
I notice a recent drop in offers. Probably a combination of being in California and their own problems. Face it it is easier to redline the whole State than to figure out ho is a decent risk. This will become a sore point as soon as the poor risks figure it out.
I carry a rather large credit card balance at 0% and 1.9% as well. Keep in mind that all of us smart people with large credit card balances at incredibly low interest rates are included in the large credit card debt averages. We are not the only ones. There are many people out there like this. It takes a small pecentage of people with $50-$100K balances at 0-3% to raise the entire national average and make it seem like the average credit card debt is high.
"The sky actually is falling everywhere. It just hasn't fallen far enough yet for eveyone to notice."
I beg to differ. Just because California has forest fires doesn't mean the rest of the country will.
There's also a big difference between a falling sky and a little rain.
The problem isn't the total unsecured consumer debt but the distribution. Those of us at EN are obviously rare in the general population. The people who I worry about are probably carrying small balances but also are living paycheck to paycheck. The credit contraction is going to hamper their consumption with ripple effects in the general economy.
With 77 of 150 Metros reporting declines and the first modern era national decline I am of the opinion that the sky is just falling unevenly, some places slower and/or starting to fall later. PJM, it isn't arrogance but if California stumbles the whole country skins its knee.
Am I the only responsible adult in America? I don't think so...
I carry zero consumer debt from month to month. Which is not to say I don't use my AmEx for points, I just pay it in full every month, no matter how painful the bill is.
The credit markets are crazy, I keep reading about how tough it is to get credit yet I've had three offers in the last week for 0% interest on balance transfers/cash advances.
My only debt is a small mortgage balance (less than $50K), and I live in California.
I have to think PJM is right in calling this less than spectacular for the majority. We're seeing the 10-25% spectacular failures here. And they are spectacular. Hugely spectacular. Horrendously spectacular.
We're seeing the flame out of the newer buyers of RE. And it's horrible, I agree with that sentiment, but how big of a problem is it?
No, I cannot sell my house right now but I don't need to. I have to believe that there are a lot of people like me who haven't HELOC'd their homes to death and are okay financially. Would I have been better off to have sold my house two years ago? Hell, yes. I'll kick my ass forever for not doing it but it doesn't destroy me financially for not doing it either.
It's a grim time, no doubt. But that doesn't make things grim for everyone.
Banks are practically begging people with good credit to borrow, it won't be long before every merchant follows the same strategy.
I don't look forward to the coming depression but I feel (hope) that I've set my family up to weather it well.
I agree 100% and also worry about those who are living paycheck to paycheck. Most, however, have brought it on themselves. If you live in a big house, drive a lexus, go out every weekend, have 3 big family vacations a year, but are living paycheck to paycheck, you've made some bad choices. For these people, their lifestyles will have to change. But the truth is that they should have never had that kind of extravegant lifestyle to begin with.
As far as their lower consumption having a ripple effect on the economy, it definately will. I'm not preaching roses and sunshine here. I guess I just don't think it's going to be as bad as you do.
Banks are practically begging people with good credit to borrow, it won't be long before every merchant follows the same strategy.
Yeah but the terms and conditions are not acceptable to those qualified to actually borrow. What would we do with the money anyway? RE is still too expensive. The markets are toppy, commodities irrational. See, that's the real problem the expectation of the kind of lending offered is that it causes consumption and/or price support for inflated assets.
How bad you think I think things will get? My thesis has been that a solid recession is needed and my worry is that the responses due to an irrational fear of the economic cycle will be exactly the wrong things because we are in uncharted waters with the same old set of tools. So far my predictions have been pretty accurate except that the current downdraft in prices was expected last fall.
"Yeah but the terms and conditions are not acceptable to those qualified to actually borrow. What would we do with the money anyway?"
What's wrong with the terms and conditions. I know things have changed and you actually have to show that you can pay it back now. But other than that, what are the new conditions?
As far as what you would do with the money. Well, you could start a business, send your kid to college, go back to school yourself and get a masters degree, invest in your business with capital improvements, refinance your home to a lower fixed rate (about 5.5% for a 30-year fixed is historically dirt cheap. My first mortgage in the early 80's was 9.5%). Or, you could buy a house if you don't yet own one. There are great deals out there and if you have a stable job and get a fixed rate mortgage that you can easily afford, it's not the end of the world if prices go down a little more. No one will ever be able to perfectly pick the bottom.
"How bad you think I think things will get?"
I don't know. From reading your blog I got the feeling that you thought we were going to enter a great depression or something. I'm sorry if I got the wrong idea.
I carry zero consumer debt from month to month. Which is not to say I don't use my AmEx for points, I just pay it in full every month, no matter how painful the bill is.
That's what I do. Credit cards, when used properly, are quite useful. I use my CC for just about every purchase, even if I am buying a Happy Meal for my kids. Then I pay off the balance every month. Thanks for the family trip to Disney World this summer, Citi.
Then again there are studies that show people who use credit cards instead of cash spend more, even if they have the means to pay off the balance every month. Like I said, heroin.
The new administration, whoever it is, is gonna really drop the hammer on the credit card business.
From reading your blog I got the feeling that you thought we were going to enter a great depression or something.
Wrong place. You want the Housing Bubble Blog. Besides steady talk of the Coming Depression, you can read about personal safety and living in a remote cabin on canned goods, learn about Joshua trees, get popcorn, and enjoy Peter M.'s brilliant descriptions about life in LA. As a bonus, they post a lot of conspiracy screeds by Lyndon LaRouche and treat him seriously.
Did you happen to see this chart in this thread on Socketsite.com?
Does anyone know (1)the last time reserves went negative, and (2) is there some reason this isn't news?
Rob, can you repost this thread in a year?
Rob, can you repost this thread in a year?
Yeah, she is pretty isn't she but by then she'll be like... old maybe 19 or something.
Seriously, sure I'll remember but we can also use the archive bar on the right and see what was going on a year ago too. heck this picture.
@Lex,
That chart is frightening indeed, as those negative unborrowed reserves are covered by loans which must be paid back at some point... and the loans are big, because the banks had to borrow enough to bring their reserves up to the legal minimum. The amount borrowed can be estimated by the distance from the top to the bottom of that cliff you see on the right hand side of the chart.
On credit cards, I use them all the time, but always pay them off these days. The last time I carried a balance was in 1994, when I was self-funding a start-up. I remember that it was a scary time, and I felt much better after my business paid them off. It took about a year to zero them out.
Despite your implication of nefarious motives, those "out-of-date" statistics from way back in 2004 were likely the most recent available. The Consumer Finances survey is only conducted every three years, and it will be months before the 2007 data is ready.
Also note that the "low point" of 2004 only represents a low in the year-over-year change in debt, NOT a low in the level of debt, so choosing 2004 does not confer any real advantage to the author's argument.
If you really feel it makes that much of a difference, you can use the NY Times data to adjust the $2300 figure to the present. With about a 4% change in 2005, 5% in 2006 and 8% in 2007, it comes to about $2700. Still a heck of a lot less than $9300, wouldn't you say?
Can you actually point out a single specific statement in those two paragraphs which is a lie (self-serving or not)? And then provide a link to authoritative data or other proof, rather than just expecting us to trust in your exalted status as an all-knowing blogger??
bcubbins:
Above you'll see that I make the same point. I also made the point in the last 'lies' article that I found to be 100% factual.
Strangely neither of us ever gets any replies as to why Rob Dawg thinks these articles are misleading or 'lies'. In the February 3, 2008 entry "Lies Damn Lies and Statistics" Rob goes as far as calling the author of the reprinted article a "nasty lying bastard". The only misleading thing I found was Rob Dawg's incorrect interpretation of the data leading to a personal attack on the author.
I sense a personal agenda here, not a discussion.
But even according to the most pessimistic estimates, only 1% to 2% of homeowners will be forced into foreclosure in the next few years.
Total lie.
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RISMEDIA, June 5, 2007-More than two million homes will be foreclosed in the U.S. in the next two? and a half years, accounting for the highest number of foreclosures since the U.S. Savings and Loan Fraud scandal, according to a new forecast by Housing Predictor.
The forecast is based on an analysis of the nation’s largest 100 metropolitan real estate markets by researchers and journalists conducted over the last month. Housing Predictor.com forecasts more than 250 local housing markets futures in all 50 U.S. states and since its inception the Web site has maintained more than an 85% accuracy rating.
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Destin, FL, February 18, 2008 --(PR.com)-- The U.S. foreclosure crisis is worsening and the number of foreclosures will even become higher over the next few years, according to the latest forecast by Housing Predictor. The information driven web site is extending its foreclosure forecast into 2011.
The original foreclosure forecast issued by Housing Predictor, which tracks and forecasts more than 250 local housing markets in all 50 states called for more than 2.5 million foreclosures in the nation through 2009 and was then increased to more than 3-million. The research firm is nearly doubling that forecast as the credit crunch combined with rising unemployment and weakening consumer confidence damages real estate markets in the over-whelming majority of the country.
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Any more questions/accusations?
Rob Dawg:
Yes, I have a question.
Why do you use 4 references to support your point that all stem from 1 source, HousingPredictor.com?
Houseingpredictor.com is obviously a web site set up in a quick way to generate Adsense income. Their predictions are sensational with no supporting data and no sources. I can find no reputable University, economist or agency that takes anything they say seriously.
Some people do have comments about HousingPredictor.com:
"The guy behind HousingPredictor is good at promotion. He's very good; I'll give him that. But as far as accuracy of predictions, no way."
"Interestingly, the site provides no information about who's behind it, and the domain is "anonymized" by "Domains by Proxy," a branch of GoDaddy, through which the URL was registered. So it appears that HousingPredictor doesn't want you to know much about its operations. It's not hard to track down, though. It's based in Destin, Florida."
"They cite absolutely no sources, the writing style is one of persuasion: say a bunch of stuff that the reader might agree to, then boom: unsubstantiated prediction. Biggest lack of credibility is failing to demonstrate how their previous predictions were correct, and keeping their WHOIS information absolutely secret."
"And, for a bit of fun, the guy behind HousingPredictor used to run RealEstateAdd.com. In fact, that site is forwarded to HousingPredictor. And let's see how reliable those predictions were. Here's his prediction from 2005: "The state of Texas may provide the next big boom market in
the nation. The U.S. Census Bureau says 46% of the nation's
population will live in Texas, California and Florida by 2030.
All three states are gaining in population."
Heck, I can start a website and make a prediction that the economy with increase 10% this year and foreclosures will go down to 0 by year end. By your definition, any article that states "even the most optimistic estimates show foreclosures to be above 0 by year end" would be called a lie and the writter a "nasty lying bastard" because I had a more optimistic forecast.
I will concede that the writer should have included the word "reputable". While you can call it an oversight, mistake or just poor writing, it is not a lie.
What about Housing Predictor is not reputable? They are engaged by major investment firms and have been used by the MSM for many years as a reputable source.
This was but one instance of lying. You only asked for one. You are not satisfied. EXACTLY how many lies do you need pointed out to concede the entire point rather than try to hang on a claim of poor writing?
Can I just stay on this point and reference a few of the DOZENS of places that indicate that 1-2% over the next several years is far too low? Is there a metric for reputable or a number that will satisfy you?
I call the author a lying nasty bastard because he is deliberately mixing apples and oranges in his running commentary in a way that cannot be accidental.
It's your blog. I'll just quitely disagree and go away. If you're now defending HousingPredictor.com as reputable I have nothing more to say. That's like saying Casey had a reputable foreclosure help site.
EN never tries to push away. I want to satisfy your concerns.
It isn't "my" blog in the sense you project. I'm not perfect but I also take it seriously and go back 3 plus years and look at the accommodations to circumstance. Housing Predictor is not storied in tradition but they've been right. If you like we can go over all the sources and show storied sources that were wrong and are now forced to admit that 1-2% is far too low.
Let's assume that HousingPredictor.com is legit. (This is a stretch for me.)
You state that they say: "More than two million homes will be foreclosed in the U.S. in the next two? and a half years." and "called for more than 2.5 million foreclosures in the nation through 2009." You list this proof as 1 reason why Stephen Rose is a liar because he stated " even according to the most pessimistic estimates, only 1% to 2% of homeowners will be forced into foreclosure in the next few years."
Well, the US census estimates 126,316,181 homes in 2006. (By now it's likely much higher).
2,000,000 / 126,316,181 = 1.58%
2,500,000 / 126,316,181 = 1.98%
both within the 1%-2% range.
I have agreed with most of what you say over the years (yes, I've been reading that long). I'm only troubled by how quickly you label someone as a liar with ulterior motives.
The article you cited was published in the New York Times on December 23, 2007, but was mostly a reprint of an article first published in the WSJ on October 24, 2007 that was based on his paper first published as a progressive policy institute paper on October 3, 2007 and likely written and researched several months before that. So you can't hold the guy accountable for predictions that came out after he wrote the article.
Stephen Rose is a respected economist who has been doing research in this field for over 30 years. He has worked for the Department of Labor, the Joint Economic Committee of Congress, the National Commission for Employment Policy, as an advisor to Secretary of Labor Robert Reich and the Washington State Senate. HousingPredictor.com is a for profit website with no credentials that may or may not have made some correct predictions in the past..
All I'm saying is that Stephen Rose has a viewpoint and credentials to at least be taken seriously. His use of statistics are only as misleading as anyone else who is trying to use data to back their argument. You can agree, disagree and critique. My only objection is when you call him a " lying nasty bastard " because you don't agree with him.
Well, the US census estimates 126,316,181 homes in 2006. (By now it's likely much higher).
Actually lower. Per the same Census. Not the problems/issues. The 126,316,181 is dwelling units not the 68% who own their homes.
You point out that I deliberately used "outdated" information. Guilty. Is the latest data any less supportive?
I am honored pjm, long time reader. What did you used to post as?
Rose is the lowest form of liar. He is deliberately conflating unrelated statistics. I take him seriously because I think he is a menace. Maybe I am being being a sloppy blogger or maybe I am being the same blogger I've been for all these years and luring an audience. Lies Parts 3 through 6 are already in the que.
If you count all dwelling units in the foreclosure numbers (the numerator) you must also count them in total units (the denominator). You wouldn't want to be accused of comparing apples to oranges, would you?
To put it another way, if you only count homeowners in the total number of homes, you must then subtract all investment properties from the foreclosure number to arive at a proper percentage.
Perhaps you're right about him. All I know is what you've posted so far and from that I see no blatant lies or deception.
I look forward to those posts.
"You point out that I deliberately used "outdated" information."
I never accused you of that. I only wanted to point out that if someone says in July no one is predicting x and then in August someone does predict x, the original person is not a liar because in July when it was written it was true.
1:13PM above:
Our good buddy Casey alone has increased the foreclosure number by 5 and as far as statistics are concerned, he was not one of the 68% who own their own home because he did not own the placed he lived in.
There is no way to tell how many of the foreclosures were investment properties gone wild. On the books, all 5 of Casey's foreclosures were single-family owner occupied residences. Casey was not the only one.
Well, now we're getting somewhere. Finally a specific accusation and evidence to evaluate. We'll be able to see if there's any basis to your wild accusations that Stephen Rose is a "nasty lying bastard" and a "menace" to society.
Of course, you can hardly expect Rose to be aware of a prediction that was published AFTER his article. Regardless, as pjm has already pointed out, Rose was probably referring to predictions by reputable economists, banks and think tanks, and not by any anonymous individual who throws up a blog or web site.
And by pjm's analysis, your evidence actually seems to support Rose's claim.
You say "Housing Predictor...have been used by the MSM for many years as a reputable source." HousingPredictor says "HousingPredictor.com was launched November 11, 2006." (http://www.housingpredictor.com/about.html) Many years indeed. Who's lying now?
pjm, it also crossed my mind that Rob might have a personal grudge against Rose. But more likely, he's just so entrenched in his negative 'the glass is 5% empty' view that he'd consider any fact that runs counter to it to be a nasty lie.
I'm also looking forward to part 3.
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