[studenteconomist]

I don’t think the credit bubble is having a reversal of the concentration of wealth in this country. In fact, I think it is the opposite, albeit only a small amount. About 70% of Americans “own” their homes (or at least have a mortage for their home). Thus if the average price for housing drops in the US, then most of us have a lower net worth. Now, does the average American or the richest Americans have a higher percentage of their total wealth in real estate? It should be pretty obvious to most people that the average American has most of their net worth in the home, while the same is not true of the rich. Thus the average American is seeing his net worth decline due to the housing bust while the rich may or may not be suffering (it depends on how their non-real estate assets are performing).
On another point, globalization has shown no letup this decade, and this trend is due to the rapid concentration of wealth much more than housing is. So I think that you will see increased concentration of wealth throughout this decade and probably much longer. I would agree that this is mostly a bad thing, but there are some positives in this trend.

[studenteconomist]

I don’t think the credit bubble is having a reversal of the concentration of wealth in this country. In fact, I think it is the opposite, albeit only a small amount. About 70% of Americans “own” their homes (or at least have a mortage for their home). Thus if the average price for housing drops in the US, then most of us have a lower net worth. Now, does the average American or the richest Americans have a higher percentage of their total wealth in real estate? It should be pretty obvious to most people that the average American has most of their net worth in the home, while the same is not true of the rich. Thus the average American is seeing his net worth decline due to the housing bust while the rich may or may not be suffering (it depends on how their non-real estate assets are performing).
On another point, globalization has shown no letup this decade, and this trend is due to the rapid concentration of wealth much more than housing is. So I think that you will see increased concentration of wealth throughout this decade and probably much longer. I would agree that this is mostly a bad thing, but there are some positives in this trend.

[studenteconomist]

I don’t think the credit bubble is having a reversal of the concentration of wealth in this country. In fact, I think it is the opposite, albeit only a small amount. About 70% of Americans “own” their homes (or at least have a mortage for their home). Thus if the average price for housing drops in the US, then most of us have a lower net worth. Now, does the average American or the richest Americans have a higher percentage of their total wealth in real estate? It should be pretty obvious to most people that the average American has most of their net worth in the home, while the same is not true of the rich. Thus the average American is seeing his net worth decline due to the housing bust while the rich may or may not be suffering (it depends on how their non-real estate assets are performing).
On another point, globalization has shown no letup this decade, and this trend is due to the rapid concentration of wealth much more than housing is. So I think that you will see increased concentration of wealth throughout this decade and probably much longer. I would agree that this is mostly a bad thing, but there are some positives in this trend.

[studenteconomist]

I don’t think the credit bubble is having a reversal of the concentration of wealth in this country. In fact, I think it is the opposite, albeit only a small amount. About 70% of Americans “own” their homes (or at least have a mortage for their home). Thus if the average price for housing drops in the US, then most of us have a lower net worth. Now, does the average American or the richest Americans have a higher percentage of their total wealth in real estate? It should be pretty obvious to most people that the average American has most of their net worth in the home, while the same is not true of the rich. Thus the average American is seeing his net worth decline due to the housing bust while the rich may or may not be suffering (it depends on how their non-real estate assets are performing).
On another point, globalization has shown no letup this decade, and this trend is due to the rapid concentration of wealth much more than housing is. So I think that you will see increased concentration of wealth throughout this decade and probably much longer. I would agree that this is mostly a bad thing, but there are some positives in this trend.

[studenteconomist]

Wow, did you see the sales price history on this particular house? It was purchased pre-construction in 1989 for $181k and sold in 1997 for $169k. They lost $12,000 on the property after buying at the peak and selling 8 years later!! This is an example of the amount of time it takes for bubbles to unwind. We have a few years before the bottom is reached, I am afraid.

[studenteconomist]

Wow, did you see the sales price history on this particular house? It was purchased pre-construction in 1989 for $181k and sold in 1997 for $169k. They lost $12,000 on the property after buying at the peak and selling 8 years later!! This is an example of the amount of time it takes for bubbles to unwind. We have a few years before the bottom is reached, I am afraid.

[studenteconomist]

Wow, did you see the sales price history on this particular house? It was purchased pre-construction in 1989 for $181k and sold in 1997 for $169k. They lost $12,000 on the property after buying at the peak and selling 8 years later!! This is an example of the amount of time it takes for bubbles to unwind. We have a few years before the bottom is reached, I am afraid.

[studenteconomist]

Wow, did you see the sales price history on this particular house? It was purchased pre-construction in 1989 for $181k and sold in 1997 for $169k. They lost $12,000 on the property after buying at the peak and selling 8 years later!! This is an example of the amount of time it takes for bubbles to unwind. We have a few years before the bottom is reached, I am afraid.

[studenteconomist]

Most all of my best friends have moved in the last two years out of state. The #1 reason is housing, but some moved for other reasonsas well. I am looking to move my family out for the same reason currently. Me and my friends fit the late 20s/early 30s set and almost all have masters or doctorate degrees. It does make you wonder what the future of the SD economy will be with few non locals willing to move or stay here. I am guessing it will stall the economy, and make for a much less vibrant economy than what was witnessed in the 1990’s. If housing were to drop, that trend would probably reverse. As it stands, it is likely that the SD school district will have fewer and fewer students each year, as it has for the past 4 years.

[studenteconomist]

28 yo with 4 degrees (1 PhD and 2 Masters) and $0 monthly income (currently unemployed):( Married with our first child due in 1 week! Getting desperate for a job that would pay just the family median. Getting a PhD at UCSD (Biochemistry) a huge financial mistake, trying to rectify it by moving into financial services (with my MBA). Family income of 45k (wife working). Anyone here need a new employee with exception analytical skills (both scientific and financial)?

[studenteconomist]

28 yo with 4 degrees (1 PhD and 2 Masters) and $0 monthly income (currently unemployed):( Married with our first child due in 1 week! Getting desperate for a job that would pay just the family median. Getting a PhD at UCSD (Biochemistry) a huge financial mistake, trying to rectify it by moving into financial services (with my MBA). Family income of 45k (wife working). Anyone here need a new employee with exception analytical skills (both scientific and financial)?

[studenteconomist]

PerryChase, where do you supposed that I look for an apartment? I have to move out of my current place next month, and other then the For rent magazines, only Craig’s list comes to mind. What are some other websites for finding apartments in San Diego. Since I haven’t yet found a job (I just graduated with my PhD in science and my MBA), I am looking at max $1500 for a 2-bedroom. I would like to find a great deal you say are out there.
Thanks,
P.S. Anyone in the biotech industry looking to hire a business analyst with a PhD/MBA with some biotech experience should contact me immediately.

No longer studenteconomist, no looking-for-employment-economist.

[studenteconomist]

I disagree with most on this site because I feel that not many luxuries will disappear. I fully expect SUVs, “affordable luxury” items, large houses and what not to still be around after the bust. It may be that people consume less of those, or they may only have some but not all the trappings of excess, but let’s look at history. The 1980’s were called the decade of greed, but they were handily outdone by the 90’s dot com era excess. And the 00’s with their rapper lifestyle and absurdly expensive purses and cell phones makes the 90’s look modest. See the trend? The 10’s will be even more absurd, as the increase in the wealth of the world just keeps on going up. Don’t see that trend ending in the next two decades for certain. The housing bust will redistribute the wealth to different people (possibly foreigners) but it will go somewhere. It is not the valuation of houses which is really allowing us to have more stuff, it is the increasing production of goods, worldwide, that increases our material wealth. I can’t see that trend decreasing over the long haul (more than a decade).

[studenteconomist]

I’m 27, at least for one more day and I will be graduating with my PhD in exactly one month from UCSD. I moved here from Washington because of the biotech possibilities here, as well as the lifestyle. Five years later I can say other things are more important now. I am leaving CA, as most of my friends have already done for the last 6 months. My wife has family here, but I don’t. We decided that our lives will be much better moving to a place that is colder but cheaper. Considering the stress of trying to earn that extra 20% to live in a decent sized house, it really is not that attractive of a lifestyle to live in CA for someone in my situation, in my opinion. I have found that looking for a job in biotech is not easy, even with an MBA, and being flexible about moving is the only way of getting a job paying what you are worth with a PhD. To poorgradstudent, good luck getting that biotech position, it won’t be easy here unless you think post-doc salaries (40k).
I think young adults (20s) with graduate degrees here are struggling a lot more than most people think, and would probably be happier somewhere else. San Diego’s loss is other cities gain, I guess.

[studenteconomist]

My experience (gained through second hand knowledge) is that properties will never cash flow, after all expenses, with just 0-10% down. Why would they ever? It has to do with the attractiveness of investment. If I could get a 100% loan and break even on a house the first year, I would make enormous profits over the next years as both rents increased and the equity increased. That kind of investment would blow away any other type (stocks, money markets, etc.) for total returns, especially considering the tax benefits of equity build-up. Equity would definitely increase in this environment because it is a function of rent increases, and they could go up at least the level of inflation. I, and everybody else who has a rational investment attitude, would continue buying houses until they were bid up to so that the total return on the property in the long run was no more attractive then alternative investments of similar risk. This is what happened in the 90s and early part of this decade. As the investment environment of stocks (dot com bust) and money markets (interest on T-bills, bonds) dropped to multi-decade lows, people bid up houses to the point their total returns matched those other investments. This was a rational process, and my mind it was until 2002-2003. But, as is usually the case, the bidding went way past the rational price and reached bubblemania where prices got way ahead of themselves, which was the situation the last 2 years.
Given the current interst rate environment and the other returns on attractive uses of capital, prices and rents will not reach the 12.0X gross rent multiplier, ever. The new rational level given interest rates at the moment is probably 14-16X times rent. I guaranttee you will never see an 8-12X ratio given our current investment opportunities and economy. The only way to see that level is to have interest rates climb back to where they work in 1995 (>8.0%) or have much higher unemployement (>7.0%). If these become the case we will be back to 1995, and it will repeat.

[Author]

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