[Diego Mamani]

A refresher course in Statistics 101 is what Schwartz needs. He argues that the average is preferable to the median because high-end mansions skew the latter? Actually is the other way around: we use the median because it is less sensitive to changes in the most expensive houses.

Actually, price drops in mid-range houses will be more readily captured by the median, rather than the mean.

His other comment is about the seasonal character of this business. Well, duh! that’s why we compare June 06 to June 05, so that we have an apples to apples comparison.

Other than my points above, I agree with Schwartz’s article’s main points: we are heading towards some serious depreciation, even in nominal terms.

I noticed he’s not a full-time RE guy, as he also has interests in Internet businesses, which probably make him far less biased than the typical contributors in Realtytimes.

[Diego Mamani]

Thank you for sharing PS.

I have short-term funds parked in ING Direct, Emigrant Direct, and Citibank’s e-Savings account. I checked the ratings for free at Bauer:

http://www.bauerfinancial.com/home.html

There are also free ratings at Bankrate.com, but I don’t know how reliable they are.

[Diego Mamani]

Blanket statements…

What DOES bug me is your constant use of blanket statements to make your point.

And worst of all, many such blanket statements are based on anecdotal evidence!

On another news… today’s LA Times’ Business section had two stories on the cooling housing market. OTOH, my small, community paper (south Ventury Co.) has completely ignored the deflating bubble. Of course, their main source of revenue are all those realtors’ and mortgage brokers’ ads!

[Diego Mamani]

That 21% drop…

The house you refer to, isn’t that a 21% drop?

Yes, a 21% drop in the asking price. Asking prices are not very informative. An unrealistic seller may list the same house for $1 mil or even $2 mil. A true market price is not what people ask for an item, but rather what the item actually sells for.

[Diego Mamani]

Rising inflation and slowing economy? Really?

Ben is data dependent, and inflation keeps rising. The economy is slowing because consumers overspent…

Inflation rising and economy slowing at the same time? If the economy is slowing, then the Fed doesn’t have to worry about fighting inflation. The reality, of course, is that the economy is in fairly good shape. The stagflation scenario (high inflation and slowing economy) was a reality in the 1970s, when overactive policy makers thought they could stimulate the economy by printing more money. It didn’t work.

We have a far better Fed today than then, so the risk of stagflation is negligible. Note that stagflation is not something that occurs naturally: it is almost always the result of pumping too much liquidity.

In his testimony, he explained he does not rely on CPI, but on many other data points as well.

The CPI is the outcome variable of interest, which in turn is affected by many other variables, all closely watched. The Fed does rely on the CPI, and energy prices, and payroll numbers, and housing starts, and foreign trade, and exchange rates, and govt spending, etc.

So we can’t think he is fooled by the massaging of CPI numbers, since that is only one of the many inputs he considers.

I saw one other post where you wrote about the “real” inflation versus the manipulated numbers released to the public. The CPI is computed in a technical fashion, by skilled people. To suggest that the government, or some other entity, manipulates the CPI numbers, is ludicrous.

If we start thinking that official statistics are manipulated or massaged, then any intelligent discussion of macroeconomics would have to be disassociated from reality. In a world where official statistics are “lies”, then the “true” numbers would be what any charlatan wants them to be to fit his or her argument.

I still don’t get why some people say the Fed will pause.

We don’t know for sure, but it can be argued that high oil prices already serve the purpose of cooling down the economy. Note the distinction between higher price levels due to expensive oil (a one time jump in prices) as opposed to higher inflation (a sustained increase in prices). The point to make is that the former does not necessarily imply the latter.

Another reason is that the Fed may want to see if the recent hikes in short term rates will (or not) affect long term rates. Certainly you don’t want to keep pushing S-T rates up more than necessary, because then you risk really slowing down the economy.

[Diego Mamani]

I agree with DaCounselor. My guess is that prices will not drop too much in nominal terms. However a small nominal drop, followed by 5 or 6 years, or more, of wage and general price increases, will make housing relatively affordable in real terms (i.e., inflation-adjusted house prices will drop considerably).

We can’t compare 2006-2007 with the 1992-93 price drop because we are unlikely to see the job losses that followed the closing of many aerospace employers at the end of the cold war.

Also, technological improvements have resulted in huge gains in labor productivity, which translates into higher incomes, and cheaper consumer goods. Global trade is an even stronger factor in making consumer goods less expensive. All this translates in more disposable income left over for housing. Compare how much typical household items cost at WalMart today(relative to salaries), versus the same ratio 20 years ago. My point is that salaries have a lot more purchasing power than in the past, and it’s natural that some of the slack will go into housing.

Is the housing bubble over? Yes. Will house prices drop? Most likely, but no one can’t tell by how much. Is the sky falling? No way.

[Diego Mamani]

Actually, Mamani is an Andean pseudonym I’m using these days.

[Diego Mamani]

C’mon people! SUVs are necessities?

Despite the rosy numbers, today the typical American family pays for groceries with a Visa card, utilities with a home equity loan, has a six-year loan on their SUV, has no savings, and has both parents working just to keep the family one-step ahead of its creditors. With all this supposed non-inflationary economic growth, why do Americans borrow to pay for everyday necessities which used to be easily financed from incomes, and why has a nation of savers been transformed into one of debtors?

We are an overindulged society that feels entitled to have everything and have it NOW. We have such huuuge salaries compared to the rest of the world, that if we were to drive smallish cars, live in houses of under 1650 sf, and not buy every stupid NEW gadget under the sun, we would be able to save enough to retire in our 40s. We are just spoiled, we want to comsume, and then consume some more. And what’s all this junk we consume? 4000 sf MacMansions? Humongous SUVs, PlayStations?, Designer clothes? It’s all junk. By calling them “necessities” we only fool ourselves and fall deeper into debt.

[Diego Mamani]

As an economist, I’d say stay put. I was in a similar situation as yours last year, but decided to sell b/c I knew I was going to move within the next couple of years. In fact, I got a job offer and had to move last year anyways (the new employer even paid for by closing costs, RE commission, etc., but I digress).

If you are happy with your house and you expect to live in the same town for at least 5 yrs, then don’t sell. Instead, focus on paying off your mortgage faster, by paying double the principal, or more. (Of course, if you invest your money at a higher rate of return, considering the interest tax deduction, then this may not be the best course of action).

If you cash out, the money you put into a CD will barely cover the rent of a comparable house. And anything that pays higher than a CD will definitely be riskier too.

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