We haven’t had a recession yet, we have only seen the froth come out of the real estate market. Prices were still jumping like crazy in 2005, 2006 still had lots of high prices paid, 2007 has been a bust, but the level of transactions has dimmed, there are huge numbers of homes which were pulled, are not going on the market, despite it making economic sense for the seller, etc.
I think the problem is that we haven’t really had a downturn in real estate, just a quick reversal of the excesses. The rats are still in the ship, the ship is taking on water but the rats haven’t fled. It took years and years of price increases to fuel the insanity which has become the housing market here in San Diego (and California and to a much lesser extent the US).
[img_assist|nid=4763|title=housing costs as a percentage of wages|desc=|link=node|align=left|width=466|height=466]
Hey folks… This is the AVERAGE! It includes all the these people have lived in their home for years…. It is the average for the state. The number of people who pay 50% is huge as well. So for each dollar earned, there are lots of people out there paying .40 cents of it on housing. This is unsustainable
When prices went up, and up, and up, the market turned over, people cashed out and left, others picked up the high costs. We are now experiencing a huge shift in employment and there are no places to pick up that employment.
The Fed is claiming a 1 in 3 chance of recession. They are always wrong to the optimistic side. Most of the markets believe that the number is 1 in 2. The folks with a real understanding of risk think it is inevitable.
We will look back at this period and laugh (or cry). The risk has just been shifted with lots of the players jumping ship. The mortgage brokers, banks, wall street, Realtors, construction companies, and all the ancillary businesses have just realized that the game is over. The economy is just starting to shift from it. Inflation is out of control (but not according to the government). Health care, oil, commodities (milk & wheat especially) are raising like crazy. Our engine is sputtering, the world is replacing our growth vehicle, and they will suffer along with us, but prices are high, job prospects are low, and the housing market will go down accordingly.
To go back to the original point. Did I have an original point?! It will take years of unwinding, huge job losses, a recession, pricing pressures, and an unwinding of the US dominance in many markets.
Not the least of our problems:
– A hugely expensive war which shows no signs of letting down.
– Recession in jobs and wages.
– Housing costs which will have to deflate significantly and will keep a huge brake against the ability to get out of recession.
– A negative savings rate (it’s only the savings of Asia which has propped us up so far – it is unsustainable) as per the Fed.
– Loss of manufacturing base.
As it gets worse, and it will get worse, the way our society is set up will accelerate the pain for the vast portion of our society. Just as in the depression, the folks with real money will hunker down, and the others will starve. It’s called capitalism and while we have all been taught that it is the best system, it really is the best system for the folks with significant money, and brutal for most others.
During the excessive downturn the following will happen:
– Our farmers will ship goods to where they can maximize profits.
– Our jobs will be / have been outsourced for the 5% of our population’s benefit.
– Job security which has never been strong will be non-existant.
– Wage deflation will be rampant along with downsizing.
– Our politicians support the wealthy vs. the middle class / lower class.
– The world will move to a better hedge than the US economy, while it suffers as well.
Oh well – sorry for the rant. I have to go to the gym now, personal defense and strong muscles will be critical for the bad times!!! Hope I’m just kidding!
