Peek at the peak of R.E. madness
 

I was alerted to a 'great deal' today: a 13XX square foot house on a 5,000 sq ft lot in West L.A. for under $800K(!!!)

Check out the madness here:

http://www.themls.com

Click on 'guest site.' Search to your heart's content.

A Good value! http://www.pelicanparts.com/support/.../gaapslaap.gif

I guess when compared with the mobile home in Malibu for $1.8 million, it is.

Like I said...

If someone wants to live there bad enough....

The END is nigh at hand....

They don't call it la-la land for nothing...

Found this on housing bubble blog:

USA Today article about mortgage rates

"We find that the red hot housing sector alone, which typically represents just 5% of the total economy, accounted for an astounding 50% of the overall growth in the U.S. economy by the first half of this year, and more than half of the private payroll jobs created since 2001 fall were in housing-related sectors," a Merrill Lynch report said this week.

I smell a recession if this bubble explodes, because there will be not a single strength in the economy.

Although many would like to dispute it, we have not recovered from the recession that started in April of 2001. We are still down in terms of total employment and the Dow is only about 4% higher than it was then. -- v.s a historical average of closer to 4% a year.

It will not take a dramatic turn to precipitate a wave of foreclosures. Right now, there's no clear signal:

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The rising foreclosure rate in Texas, Florida and other prime real estate country may be the early warning signs of an implosion, or they may be just a blip. But whatever the big picture turns out to be, any foreclosure is an unmitigated tragedy for the family that loses its home.
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From Yahoo! News:

"The statistics suggest that many home buyers are stretching their budgets well beyond their means. The risk is that recent buyers have such minuscule equity in their homes that if prices fall, they could owe more on their mortgages than their homes are worth."

I see promising signs, now, finally, after nearly 4-1/2 years. But overall employment today in the U.S. is 1,000,000 less than it was in January 2001.

Retroactively revised economic assessments of the beginning and end of a recession and a 'slow down' are common, and what I'm measuring against is "full recovery" to where the economy was in the first quarter of 2001 -- and we haven't gotten there yet.

You live in So Cal, Brian. You know we have not had a full recovery here. You can see it. Well, sorry, apparently you dont see it, but businesspeople I deal with do.

Similar situation in Northern Cal: http://www.pressdemocrat.com/evergreen/stories/112004_fricker.html

When I see a UCLA biz school type saying the 'recovery is coming' in November '04, I somehow don't think he believes we've already enjoyed it.

No question, a pop in the R.E. bubble will be devastating here.

Morgan Stanley's bearish Steven Roach talks about the consumer-driven economy

"While this penchant for spending may make sense in normal periods, it is the height of recklessness in the face of an energy shock. In the two oil shocks of the 1970s, the personal saving rate averaged about 9.5%, whereas in the oil shock just prior to the Gulf War of early 1991, it was around 7%. That means that in each of those earlier instances, US consumers had a cushion of saving they could draw upon in order to maintain existing lifestyles. Today's "zero" saving rate underscores the total absence of any such cushion. The only backstop available to support the spending excesses of American consumers is the saving that is now embedded in their over-valued homes. Yet with the housing bubble now in the danger zone, that's not exactly a comfort zone."

The recession definitely ended some time ago, by the conventional GDP-based definition of recession, and we have been in an economic expansion for over a year.

However, it has been a very uneven expansion. The services sector has expanded while the manufacturing sector has continued to contract. Job and wage growth have been weak. Public sector budgets remain severely in deficit. Consumer balance sheets have remained heavily indebted and the household savings rate has not recovered. Corporate revenue has grown only modestly, but cost cutting has allowed corporate income to recover strongly, and corporate balance sheets have become strong as companies have chosen to pile up cash rather than increase investments.

A lot of this is due to ever-rising employee productivity and offshoring to low-wage countries. Not as many jobs are being created in this expansion as in past ones, and many of those new jobs are in China and India. A lot is also due to tax cuts. Governments, specifically the federal government, are piling up debt because tax receipts aren't rising at a rate to match the country's GDP growth. Some is due to the war. $300BN of war spending, much of which is going overseas and none of which is driving sustainable economic growth. Buying bullets, helicopter engines, and HumVee armour, that promptly get fired, worn out, and blown up in Iraq, doesn't do anything for future US growth.

The expansion has been fueled by an asset bubble. In 1996-2001 it was the stock market bubble, now it is the housing bubble. The expansion has also been fueled by the Fed cutting short-term interest rates to historic lows, helped by foreign governments (especially the Chinese) who have been cooperatively buying up US treasury debt and thus helping to keep longer-term interest rates low.

Nothing lasts forever, including economic expansions. This one is already getting old. GDP growth is decelerating and the Fed is raising rates and trying to reduce liquidity. Housing prices cannot inflate forever. If you follow the performance of the different stock market sectors, the early-cycle sectors were outperforming last year and now it is the mid and later-cycle sectors that are doing better - investors see this expansion slowing and are positioning for the eventual slowdown.

I guess I'm just rambling. Anyway, my point is, for capital (the Fortune 1000, and asset owners) it has been a decent recovery, but to labor (the individual employee) it has been a weak fitful recovery.

Brian, we can disagree. I have no problem with that, but you're not only disagreeing with me, but with some fairly smart folks at UCLA.

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... to the UCLA economists, the sizzling housing market has masked a number of weaknesses in California's economy, including job growth that is not as good as it looks. Employment and personal incomes in California have gained only modestly in the last year, UCLA's Thornberg said. Yet, many Californians "feel" wealthier because they perceive their homes to be worth a lot more.
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From your talk about luxury cars, it sounds like you're looking at consumer spending and thinking what you're seeing is good times instead of a savings rate of zero (or less, as home equity is used for consumer goods purchases).

(edit for typo)

As a response to the statement that fewer people are employed now than 4-1/2 years ago, this shows a real blind spot. BLS shows overall unemployment down since 1Q/2001 by a million workers, and since the average population growth from 1980-1985 was 11,000,000, we have a shortfall of employed persons -- not even dealing with the issue of underemployment.

There are three terms here: recession, economic growth and recovery. We have had some economic growth since the '01 recession. We have not recovered from it. So you can certianly argue with my tag, but not with the fact that we are not even back to the 1Q/2001 level of economic health, let alone where we should be with a historic average level of GDP growth (somewhere in the 3% range) since then.

No, the two things are completely linked. Overspending has helped create a false notion of a 'recovering economy.'

And again, 'recovering' isn't 'recovered.'

I appreciate your flexibility, Brian. I will change my tag... but perhaps not to exactly what you had in mind. I think I'll hold off until my 5,000th post.

:-)

Interestingly, the same Chinese govt buying US treasury debt cheaply means that the bulk of mortgages in New Zealand are being written on 3-5 years terms at a rate which is low compared to our equivalent to the Fed rate (which is high, to try and stop inflation as we have almost full employment right now).

So, your govt's attempt to stimulate monetary conditions is having a partial side-effect of restricting our govts ability to tighten it.

Did you all see this story? Santa Barbara, CA....homes over-valued by 69%!!! The rest of the list ain't pretty either, especially for California and Florida. It's gonna hurt bad when this bad boy breaks....

http://www.usatoday.com/money/economy/housing/2005-08-16-home-prices-usat_x.htm

I guess it all comes down to your interpretation vs. mine, which is fine.

I'm waiting for that big shiny train (and so is my stock portfolio).