The pace of U.S. existing home sales fell to an annual rate of 3.83 million units in July, a drop of 27.2 percent from June and a drop of 25.5 percent on a year-over-year basis.
Sales are at the lowest level since [the National Association of Realtors] total existing-home sales series launched in 1999, and single family sales – accounting for the bulk of transactions – are at the lowest level since May of 1995.
At the same time, inventory increased 2.5 percent to 3.98 million units, an effective supply of over twelve months (a metric with which seasonality can wreak havoc), and the median sales price increased 0.7 percent on a year-over-year basis.
As as plugged-in people know, however, increasing medians shouldn’t be confused with increasing values. Consider that a year ago 66.6 percent of home sales were below $250,000 while this past July it was 65.3 percent (i.e., the mix of higher priced home sales has increased).
∙ July Existing-Home Sales Fall as Expected but Prices Rise [realtor.org]
∙ Existing U.S. Home Sales Pace Declines But With Year-Over-Year Gain [SocketSite]
∙ Medians Are Up, But Don’t Confuse That With Increasing “Prices” [SocketSite]
Tax credits generally don’t cause people to buy that otherwise wouldn’t, but they do cause people that are in the market to pull their purchase forward to capture it. So you often see a pattern of a spike in sales followed by a bust after the credit expires.
This would be a great time to offer 20% off recent comps. There’s always a desperate seller, and not a lot of buyers.
12.5 months of supply nationally!
http://www.calculatedriskblog.com/2010/08/existing-home-sales-lowest-since-1996.html
UPDATE: With respect to increases in medians versus an increase in values, based on our calculations the distribution of home sales below $250,000 shifted from 66.6 percent in July 2009 to 65.3 percent in July 2010, a shift which would mathematically increase the median regardless of any changes in the actual underlying values.
^^^ The Bay area looks comparatively good then with significantly less supply.
Tax credits generally don’t cause people to buy that otherwise wouldn’t
Well, 8K + leverage = 40K more purchasing power. People that were marginally priced out of a home because of a lack of downpayment could now afford it. Compound this with historical low rates and you’ve got the perfect starter home debt trap.
Of course when that incentive is gone, both the forward buyers and barely-making-the-cut people are out.
What does that mean for SF?
If you think SF exists in a vacuum, good for you Mr Salesman, and I hope you have enough acorns saved for the ongoing dry spell. If not, just wait and let it play out. This is Q3 2008 all over again.
The Bay area almost always has lower months of inventory than the national average, so one needs to compare it to the Bay area’s history to get an indication of the health of the real estate market here.
The Bay Area market might ‘look’ good compared to the national market but as it has been shown again and again the Bay Area market follows the exact same national trends as everywhere else.
So if the national market is doing poorly, again, expect the Bay Area market to follow right along.
Will SF perform ‘as poorly’ as the rest of the US? Probably not. But no one leverages 5 figures of cash to spend seven figures on an illiquid asset for it to perform ‘slightly less poorly’ then if they has invested the money else where.
the collapse in sales was completely expected by anybody who analyzes real time data.
mortgage purchase applications collapsed IMMEDIATELY after the cessation of the first time homebuyer credit.
as expected, New home sales collapsed shortly after this (because those sales are recorded at time of contract signing).
add in the lag (since existing homes are tabulated at closing, not at contract signing) and today’s result was inevitable.
not to mention the fact that the economy is clearly more sluggish than bulls had hoped for Q3 2010 and poor housing results are unsurprising.
only those involved in making “the consensus” were surprised by the level of the collapse.
Tom Lawler (highlighted at Calculated risk) estimated the number would be 3.95 million units, very near the headline number. It’s good to have at least one economist who actually analyzes the true data and has an interest in truth.
pity more economists aren’t like him.
====
since this result was completely foreseeable, the question in my mind is what will the Government do about it?
will it lead to more housing support? (covert and overt?)
will it hasten Quantitative Easing part 2 (as I have hypothesized for early 2011)?
Double Dip recession is becoming more obvious by the day (unless you are of the opinion that the recent technical recovery was more of a dead cat bounce as opposed to true recovery, in which case we have more evidence of the dreaded “L” recession)
unfortunately, we still have years to go in this mess. too bad we are mainly bailing out connected insiders and ignoring the structural problems in the economy.
Yesterday CNBC warned us that this was coming:
http://finance.yahoo.com/news/Julys-Home-Sales-Have-a-Lot-cnbc-4116328275.html?x=0
It has been obvious for a while that housing would slow down as soon as stimulus was removed. This is not really a bad thing, we have gotten through the risk of a full blown Depression.
I still think there will be no “double dip” though the growth rate will be sub par for a long time.
What structural problems are you talking about ex SF-er? Some of the biggest problems in the American economy are definitely going in the right direction: the savings rate is up, overall debt/GDP ratio is down, people are consuming less and saving more. These are all good things.
The one really big problem is the trade deficit, which was improving for a while, but has started growing again.
What do you think that the unaddressed structural problems are?
An extra layer on these numbers: This is 27% under DOWNWARDLY REVISED June sales.
Meaning they were wrong in June, corrected it today. This brings the decrease under 30%.
Anyone wanna bet they’ll revise the July numbers next month?
Your argument that the rise in the median price is due entirely to mix may or may not be true but it is not supported by the observation that “the distribution of home sales below $250,000 shifted from 66.6 percent in July 2009 to 65.3 percent in July 2010”. Such a shift would happen if values had increased and if the mix had changed. It thus can’t be used as evidence one way or the other.
[Editor’s Note: As written in our update above, “a shift which would mathematically increase the median regardless of any changes in the actual underlying values.”]
I think that trade deficit is a major issue, NoeValleyJim…it shows that when we do spend, even a little, much of the money goes abroad because our manufacturing has been so hollowed out over the years. Obama was hoping for an export-led recovery…but that presumes we have something to export.
Dear NoeValleyJim – please see Unemployment Rate – Over 9% – on page 12 of your textbook for unaddressed structural problems.
Beyond being merely historically hight, its also been historically hight for a LONGER period of time that other post-WWII recessions. And given present and projected rates of job growth, it will become high for a much longer time than anything we’ve seen since the Great Depression. To make matters even worse, a far greater percentage of the unemployed are long-term unemployed – folks who have been unemployed for 6 months, 12 months, 18 months… This is dramatically different than any other post-war recession, where even if UE rates were high, ther was a high rate of turnover of the individuals making up the unemployed.
In short, we have a vast portion of our labor force that have no jobs to return to and will need to find new skils and new occupations in the middle of an economy that will be adding jobs in only dribs and drabs for the next 5+ years.
I could also gone on a rant about the condition of our public infrastructure or complele lack of national industrial policy.
NoeValleyJim wrote:
The unemployment rate. And even if that gets resolved, which is by no means certain in the near future, that doesn’t bode well for overall American standard of living. According to Richard Florida:
Florida doesn’t come out and say it quite this way, but having a huge percentage of people working for low pay and low benefits in service jobs, because the high-wage manufacturing and service positions have almost all been offshored and outsourced is what I call an unaddressed structural problem.
Providing ever-cheaper geegaws at Wall Mart imported from China for these low-wage workers to buy so they can feel better about the situation is not a long-term solution, either.
What do you think that the unaddressed structural problems are?
1) too big to fail banks. these have gotten bigger, not smaller making them even more TBTF.
2) severe international trade imbalances, worsened by the world’s largest Debtor (US) owning the reserve currency which is being pegged by the world’s largest creditor nation (China). This is causing an over valuation of the dollar and an undervaluation of the Renminbi which is leading to monetary problems in China and a structural unemployment problem in America.
3) over-indebted private sector. The private sector is over-indebted without a way to pay back these debts. The answer is typically to restructure the debt to lower the debt burden. Instead, the government is doing as much as it can to avoid debt restructuring. (relaxing accounting regulations, buying toxic assets and putting them on the public balance sheet, trying to prop up asset valuations, etc)
worse, the govt is taking the PRIVATE debt onto it’s PUBLIC balance sheet, which puts the taxpayer at risk and also causes potential currency crisis.
4) zombie banks. we continue to favor our zombie banks. lax accounting rules, Zero Interest Rate Policy, Fed purchases of toxic assets, Govt guarantees of lots of different assets, etc.
this preferential treatment makes it harder for small and regional banks to compete. thus, the zombie banks grow and eat the smaller competition, making bigger zombies.
worse, the zombie banks have learned that if they gamble and win they get UNFATHOMABLY GINORMOUS bonuses (witness 2006 and 2009 bonuses). if they gamble and lose they get REALLY REALLY BIG bonuses (witness 2007-2008).
thus, the zombies are gambling more and more with our money.
5) derivatives mess.
6) the increasing “unfairness” of the equity markets with algorithm/HFT/frontrunning trading techniques that are possibly legal but obviously not in the best interest of the average investor.
I’d go on, but I’m just wasting electrons since it’s unlikely that much will be done about this since the same people who created the problem are still in control (Larry Summers, Tim Geithner, Ben Bernanke, Jamie Dimon, Hu Jintao, etc). On a side note, many of the problems I’ve discussed have been going on for decades under republicans AND democrats. In the recent past it was able to be papered over with debt. sure, the Average Person wasn’t keeping up with inflation, but didn’t mind so long as s/he could HELOC their rapidly appreciating house or live off of ever escalating credit cards.
to make this topical to Socket Site: the average American needs 3 things to buy housing.
-1) income
-2) access to credit.
-3) savings
how are we going to bring back jobs to our country when our currency is overvalued relative to our trading partners? how will we “compete” with a trading partner that has little to no worker safety rights, little pollution control, few child labor laws, etc?
what should we do about access to credit? should we go back to the days of giving Illegal alien strawberry pickers loans for $700k housing? because that’s part of how house prices got where they were.
likewise: why would a bank extend credit to a possibly risky borrower when they can instead just borrow money at 0% and “invest” it into risk-free Treasuries at 1-3%? or better yet, they can borrow at 0% and then speculate it in commodities. if they screw up no big deal they’ll just get bailed out.
ex sf-er, Appreciate the well reasoned and presented thoughts/facts and how it does tie to SS. such comments make SS a worthwhile read.
Yippie! We are finally through the buying distortion** from the home buyers credit! Thank goodness.
While SF homes typically close in 30 days, many other places (such as Iowa) require 60 days to close. This means May and June were still artificially inflated from the home buyers credit. July is the bottom–and it is a nice low bottom.
We will finally begin to climb upward. With interest rates remaining low and foreclosures keeping prices down, we will gradually return to the real market demand. I predict home sales will gradually and consistently rise going forward nationally, providing a solid base for economic recovery.
Just watch–three months of consistently rising sales and there will no longer be talk of a double-dip recession.
**The distortion is demand acceleration, rather than any real demand stimulation.
NOTE TO POLITICIANS: The home buyers credit was a dismal failure!
well said, exsfr
QE2 is now a truly foregone conclusion (it’s already priced into the equity markets – see reaction to the huge (but not unexpected to those paying attention) rise in housing inventory – minimal if any impact on financial stocks, since they now know more free money is coming to their rescue, even as their assets continue to decline in value).
If QE2 does not show up, expect a vicious sell off in equity markets, and a much bigger than expected further drop in housing prices (again, this will not be ‘allowed’ to happen).
The Fed already floated the trial balloon in today’s WSJ, and my guess is we will hear from Mssr. Bernanke this Friday.
My guess is that the 5, 7, and maybe 10yr will be ‘capped’ at a yield ceiling, perhaps 1.0 for the 5 yr, 2.25 or even 2.0 for the ten year. Outright monetization, and further pushing on the string.
If QE2 were a transfer of actual dollars to the poorest first, then with less going to those with more money, it would actually succeed in increasing the money supply, and also the velocity of money appreciably, lifting the price level (this is the so called helicpter approach).
I would actually support a form of this QE2, but the Fed neither wants nor has the tools to do it, and our creditors (China) would go ballistic, and just engage in further competitive devaluation. t would get very ugly, with a real risk of true hyperinflationary crisis or crises.
So instead, it’s mo money for the bankers, not so much for those who would actually use it (or need it).
The beat goes on…
Wow, NVJ knows how to stir up a debate.
We have been ignoring structural imbalances for 20 years… Don’t get me wrong, the US is still at the source of much of the world’s innovation and entrepreneurship.
It’s just that we’ve discarded a what built us and sold it overseas for a one time windfall.
Take the following analogy:
A milk producer has 1000 acres and 2000 grazing cows living on it.
He decides to industrialize. He maximizes his land potential to grow soy and some forage and can now have 10000 cows who are now confined indoors in a 100% controlled environment.
Productivity skyrockets. He’s becoming quite wealthy.
But the growth is not there anymore. He decides to sell his land to an outside source who will sell him back forage and soy cakes cheaper than he was doing itself. The farmer cashes out the land, makes some more profit on the cheap supply, which he invests to improve productivity which itself produces more growth.
Now, he’s sold his land, the cows are producing as much as is bovinely possible. But everyone in his trade has done like him and price of milk goes rock bottom with no real demand growth.
He mortgages his farm and invests it into a new business: outsourcing milk production. The cows are gone to a foreign land, so is his high-tech barn. He’s fired all his hired hands. He’s up his eyeballs in debt and he piles on more debt with the hope that demand will pick up.
Then the outsourcing company decides to work for themselves…
then the outsourcing company cuts corners and ends up importing tainted milk that kills people.
Where we going with this analogy?
NoeValleyJim wrote:
> Some of the biggest problems in the American
> economy are definitely going in the right direction:
>1. the savings rate is up,
The government reports that the “savings rate” is up because personal income is above personal outlays, but most of this “savings” is really people just paying down their credit cards at 18% (that will be going even higher thanks to “financial reform”)…
http://www.suntimes.com/business/currency/2629882,CST-NWS-CARDS24.article
> overall debt/GDP ratio is down,
Can you point me to a site that says “the overall debt/GDP ratio is down” when we have added trillions to the national debt (not counting any of the trillions off the balance sheet) over the past couple years?
What structural problems are you talking about ex SF-er?
I don’t believe we can move forward until state and local government payrolls (and, perhaps, pension obligations) are right-sized (normalized to pre-bubble levels). At that point, I hope, we will have reached the bottom and can move forward at sustainable levels.
Rillion wrote:
Where he was going is that the dairy farmer was a graduate from the Booth School of Business.
The people killed when the outsourcing company imported the tainted milk supplied the demand for the milk while they were alive. Similarly, the hired hands on the dairy farms that got laid off when the farmer outsourced were either buying the milk themselves or used their wages to buy other things from other people in the community who used those funds to purchase milk from the farmer, again supplying demand for the farmer’s milk. Same goes for the feed suppliers while the farmer was actually raising actual dairy cows.
Needless to say, since these people are either no longer living or unemployed, they aren’t buying real estate in the community, so the real estate brokers and salespeople, and mortgage brokers, aren’t bringing in the commissions.
The above is a more sophisticated and developed version of the following:
DEMOCRAT
>
> You have two cows.
>
> Your neighbor has none.
>
> You feel guilty for being successful.
>
> You push for higher taxes so the government can provide
> cows for
> everyone.
>
> REPUBLICAN
>
> You have two cows.
>
> Your neighbor has none.
>
> So?
>
> SOCIALIST
>
> You have two cows.
>
> The government takes one and gives it to your
> neighbor.
>
> You form a cooperative to tell him how to manage his
> cow.
>
>
> COMMUNIST
>
> You have two cows.
>
> The government seizes both and provides you with
> milk.
>
> You wait in line for hours to get it.
>
> It is expensive and sour.
>
> CAPITALISM,
> AMERICAN STYLE
>
>
> You have two cows.
>
> You sell one, buy a bull, and build a herd of
> cows.
>
>
> BUREAUCRACY,
> AMERICAN STYLE
>
> You have two cows.
>
> Under the new farm program the government pays you to
> shoot one, milk the
> other, and then pours the milk down the drain.
> AMERICAN
> CORPORATION
>
> You have two cows.
>
> You sell one, lease it back to yourself and do an IPO on
> the 2nd one.
>
> You force the two cows to produce the milk of four
> cows
>
> You are surprised when one cow drops dead.
>
> You spin an announcement to the analysts stating you have
> downsized and are
> reducing expenses.
>
> Your stock goes up.
> FRENCH
> CORPORATION
>
> You have two cows.
>
> You go on strike because you want three cows.
>
> You go to lunch and drink wine.
>
> Life is good.
> JAPANESE
> CORPORATION
>
> You have two cows.
>
> You redesign them so they are one-tenth the size of an
> ordinary cow and
> produce twenty times the milk.
>
> They learn to travel on unbelievably crowded trains.
>
> Most are at the top of their class at cow school.
>
> GERMAN
> CORPORATION
>
> You have two cows.
>
> You engineer them so they are all blond, drink lots of
> beer, give excellent
> quality milk, and run a hundred miles an
> hour.
>
> Unfortunately they also demand 13 weeks of vacation per
> year.
>
> ITALIAN
> CORPORATION
>
> You have two cows but you don’t know where they
> are.
>
> You break for lunch.
>
> Life is good.
>
> RUSSIAN
> CORPORATION
>
> You have two cows.
>
> You have some vodka.
>
> You count them and learn you have five cows.
>
> You have some more vodka.
>
> You count them again and learn you have 42 cows.
>
> The Mafia shows up and takes over however many cows you
> really have.
>
>
>
> TALIBAN
> CORPORATION
>
>
> You have all the cows in
> Afghanistan , which are
> two.
>
> You don’t milk them because you cannot touch any
> creature’s private
> parts.
>
> You get a $40 million grant from the
> US government to find
> alternatives to milk production but use the money to buy
> weapons.
>
> IRAQI
> CORPORATION
>
> You have two cows.
>
> They go into hiding.
>
> They send radio tapes of their mooing.
>
>
> POLISH
> CORPORATION
>
> You have two
> bulls.
>
> Employees are regularly maimed and killed attempting to
> milk them.
>
>
> BELGIAN
> CORPORATION
>
> You have one cow.
>
> The cow is schizophrenic.
>
> Sometimes the cow thinks he’s French, other times
> he’s Flemish.
>
> The Flemish cow won’t share with the French cow.
>
> The French cow wants control of the Flemish cow’s
> milk.
>
> The cow asks permission to be cut in half.
>
> The cow dies happy.
>
> CALIFORNIA
> CORPORATION
>
> You have millions of cows.
>
> They make real
> California cheese.
>
> Only five speak English.
>
> Most are illegal.
>
> Arnold likes
> the ones with the big udders.
Where we going with this analogy?
NVJ doesn’t see the imbalances. Brahma answered it best. I spilled my coffee on OneEyedMan’s post.
We’ve gone through a couple of cycles of move-up/extract profit. The first ones were done through hard work and science. The last ones were done through business deals and financial finesse. Now we’re losing the science and expertise little by little.
Please read this Bloomberg column that was posted yesterday. It is very well put.
I don’t believe we can move forward until state and local government payrolls (and, perhaps, pension obligations) are right-sized (normalized to pre-bubble levels)
I agree. Higher salaries for firemen and policemen were justified to catch up with higher cost of living, which was mostly a side effect of the housing bubble. Now housing is cheaper, the revenue from RE taxes is compressed. Time to roll back the insane payroll increases.
Along the milk analogy post…
In the mid 1960’s …I worked in the metallurigical lab of a major steel company. We had a seniority list posted with the start dates of all people in the department. There were people hired during the depths of the depression…1932-33-34.
My point…the mills were still there during the lean years. Nowadays, they’ve been torn down or the jobs outsourced to other countries. There was something to base your hope on back then. Now??
The government reports that the “savings rate” is up because personal income is above personal outlays, but most of this “savings” is really people just paying down their credit cards at 18%
That is a problem? This is a great thing, the consumer is deleveraging as fast as he can!
Can you point me to a site that says “the overall debt/GDP ratio is down” when we have added trillions to the national debt (not counting any of the trillions off the balance sheet) over the past couple years?
Sure here you go, though I am pretty sure I posted this before:
http://www.economagic.com/em-cgi/charter.exe/var/togdp-totalcreditdebt
Consumers and financial institutions have been deleverging faster than the government has been borrowing.
I don’t believe we can move forward until state and local government payrolls (and, perhaps, pension obligations) are right-sized (normalized to pre-bubble levels).
The private sector is growing, while the public sector is shrinking:
http://voices.washingtonpost.com/ezra-klein/2010/08/jobs_report_public_sector_lose.html
This has been going on for a while, btw.
Unemployment is not a structural problem though it can be evidence of one. We have too many people trained to build houses as a hangover of the housing bubble. If we can’t eventually figure out how to get them to work then it becomes structural. I don’t think we are even close to that level yet.
The claim that all the high value manufacturing and service jobs have been sent overseas doesn’t stand up the slightest scrutiny. Average wages have been going *up* not down and this is true for a while. What we have mostly lost in the downturn is lower skill jobs.
http://data.bls.gov/PDQ/graphics/CES0500000003_20454_1282700531460.gif
How can the average wage be going up if what has been lost is the higher skill jobs? The obvious question that the anti-Free Traders ignore is how to explain Gemany and Canada? They go on about China but ignore the fact that two countries with higher wages than the United States (and stronger unions and higher taxes to boot!) are both economically outperforming us. We have gutted education and other public investments to the point where we simply cannot compete on the global scale any more. The solution to this problem is more investment in public goods, not less. Public goods meaning infrastructure and eduction in this case.
China isn’t even our largest trading partner, Canada is:
http://en.wikipedia.org/wiki/List_of_the_largest_trading_partners_of_the_United_States
“This recession has hit all industries, but in terms of sheer numbers, retail, construction and service jobs have been hardest hit, and those typically have lower or moderate wages,” said Kelly Cunningham, economist with National University’s Institute for Policy Research. “There haven’t been nearly the amount of technology-related jobs that have been lost, and those typically come with higher pay. But that hasn’t been calculated into the average.”
(I hope that works, I think that the BLS graphs are not kept in cache forever)
We agree about the trade imbalances. “If something cannot go on forever, it must stop.” It is hard to imagine what will take its place though.
I don’t think that the banks are Zombies, but you are pretty sharp in this area ex-SF er. Can you point me to info that indicates that they are? The banks seem to be doing fine. It is true that they are being handed a lot of advantages, but they need them to clean up their balance sheets. Do you have evidence that their balance sheets are either getting worse, or not changing at all?
Fannie Mae and Freddie Mac are certainly Zombies, but they were sacrificed on purpose to avert the Great Depression II.
Hopefully my other post will be approved soon.
Sources of the trade deficit:
http://useconomy.about.com/od/tradepolicy/p/Trade_Deficit.htm
Our trade deficit is overwhelming driven by oil consumption, not trade with China.
too much talk of a bottom means we probably have not hit bottom.
NoeValleyJim wrote:
This is the conventional wisdom alright, and there are any number of tenured, academic economists at all the right Ivy League universities to tell us this, over and over again when the “free trade” orthodoxy is even the slightest bit challenged, most notably and recently Raghuram Rajan.
And if I said that “all the high value manufacturing and service jobs have been sent overseas” now or today, then I miswrote, I was decrying the disturbing trend towards more and more Americans having low wage service jobs and more and more high value manufacturing and service jobs being outsourced and offshored. The other part of the same trend is that economists measure increased output with a smaller number of workers (in some cases due to offshoring and outsourcing) and then conclude that American workers are being more productive, justifying higher rewards for executives that made the decision to outsource when in fact, it’s just that fewer Americans are involved in production. Here’s Alan Tonelson:
Emphasis added. As an aside, ever notice how no one ever tells real estate agents or mortgage brokers to “retrain themselves” because there are too many people trained to sell land and houses and mortgage loan contracts as a hangover of the housing bubble?
Tonelson continues:
As they say in the blogosphere, go read the whole thing.
If you want to see the graph for average hourly earnings since 2006, go to:
http://www.bls.gov/home.htm
Under “Average Hourly Earnings” on the right, click on “historical data”
Now I don’t really like that presentation, but it does show that hourly earnings is mostly positive.
Click on “more formatting options” then “original data” to get a pretty upwardly sloping graph.
how to explain Gemany and Canada? They go on about China but ignore the fact that two countries with higher wages than the United States (and stronger unions and higher taxes to boot!) are both economically outperforming us
I know first hand that Germany has become more productive through hard work and sacrifice. They WERE more expensive to work with originally, but saw the writing on the wall, stopped increasing salary, got very smart on quality and time management. In the end they became more productive per $ earned. And their health care are not very costly. Vacation-wise, what do you prefer? An employee who hasn’t taken a real time off for 5 years and is losing it, or a rested fast working guy who has a sane balance in his life? Productivity is not hours on the job. Hours on the job just means dedication, not efficiency.
Canada more expensive because of the safety net? I’ll stop you right there. That’s yet another Republican lie that managed to stick! Having an efficient safety net IS CHEAPER OVERALL THAN NOT HAVING ONE. Look at $/person spent in all the OECD. Not treating people before their illnesses become catastrophic is extremely wasteful to the US. France spends 1/2 of us and treats everyone. People there live healthier and longer too. 1/2 price! Canada is in the same proportion too. You were forced-fed a lobbyist swill!
It is not terribly surprising that an article by two leaders in “The Small Business Council” would argue for more government intervention to support small businesses. But to consider their argument in detail:
In reality, though, wage gains for the average worker have lagged behind productivity since the early 1980s, a situation that free-traders usually attribute to workers failing to retrain themselves after seeing their jobs outsourced.
This statement is incorrect. The main driver of wage inequality is technological innovation, not free trade. I can point you to numerous articles that argue this if you like. There are very few economists that accept the claim that the main driver of increasing inequality is trade. It is at best a very small factor in the equation.
Also, the BLS includes the cost of inputs from overseas components and subtracts them from the value of the finished goods before determining productivity. It is quite likely that recent changes have made it harder to measure this input, but to claim that the value of input is ignored is false.
Why generate some elaborate construct for why US workers have not seen a raise in 30 years in spite of increased productivity when the answer is staring you right in the face?
http://www.stateofworkingamerica.org/tabfig/03/SWA06_Table3.47.jpg
I am sure the value of banker’s salaries have risen even faster.
To tie it all back to SF real estate, economic gains have fallen disproportionately to the top 1% of incomes and should continue to do so, causing the value of real estate in superstar cities like San Francisco to continue to outperform. This is only likely to change if rich people decide that they no longer want to live here for some reason.
And your snark about real estate agents is unwarranted Brahma, many of them have had to change professions due to the downturn. I am sure this is true of other ancillary professions. If this blog was not so hostile to real estate agents, I am sure some of them would share their stories.
Oops. I meant “You” in the general term, like “We”. Not for you, NVJ.
“causing the value of real estate in superstar cities like San Francisco to continue to outperform.” (NoeValleyJim)
“Most of the popular attention that the “superstar cities” theory has received merely reflects the psychology of the housing boom that we have been seeing, as well as a wishful thinking bias. People want to believe that the boom will continue, and that their investments in their favorite city are thus special and exciting. But there is no generally applicable reason to make aggressive investments in superstar cities. On the contrary, there are many reasons to worry about investing in such places.” (Robert Shiller)
http://www.project-syndicate.org/commentary/shiller49
Really NoeValleyJim, “superstar city” is soooo 2005. I thought we put that to rest on this blog 3 years ago. If Tokyo was not a “superstar” I don’t know what is. NVJ, you now dispute not only Andy Grove, but Robert Shiller too?
Shiller as pop psychologist? Japan of the recent past is quite a different place than here, where recent censuses show urban center population growth. Anyone can play Robert Shiller quote machine too: “As for Mr. Shiller, who didn’t provide a forecast for the survey, in an interview he called the average forecast, calling for a 12% price rise over five years, “a plausible scenario.” Translation: He’s hedging his bets”
http://blogs.wsj.com/developments/2010/05/19/robert-shiller-offers-consensus-view-on-home-prices/
Okay, after further considering, I am willing to change my mind on the structural vs. cyclical unemployment question. Here are some good links on the topic, if anyone is interested:
http://www.slate.com/id/2264929/
http://delong.typepad.com/sdj/2010/08/identifying-cyclical-vs-structural-unemployment-a-guide-for-slate-writers.html
Some of our unemployment is definitely cyclical, meaning that as the economy improves, unemployment will drop. I had assumed that a weak recovery was the main driver of sluggish employment growth. But it is also likely that it is going to be hard to impossible to retrain unemployed workers into new growth professions. How many journeyman bricklayers are going to be able to convert to healthcare or computer programming jobs?
As mentioned in another thread, technology is a “force multiplier” that vastly amplifies the work of one creative worker. A small team of Apple designers effectively directs the work of an army of Foxconn workers in China. So even a small gain in their performance not only increases Apple’s profitability, it should increase jobs and wages in China and improve the standard of living of people who buy cheap good consumer goods in America. So the value of industrial designers gets bid up and they are very well compensated indeed.
US Manufacturing is as vibrant as ever in some terms: the percentage of GDP contributed by manufacturing has been constant for a while and productivity has gone way up, but this means that jobs have been lost. So it has been a “one-two punch” of China and Germany competing for manufacturing jobs and the United States shedding them due to technology and industrial improvements.
As a center of technological innovation and change, San Francisco has outperformed both on the way up *and* on the way back down, in spite of the gloom and doomers prediction that home prices would have dropped 50% from the peak by now. If my explanation of events is wrongheaded anon94123, than you need to come up with another one that fits the facts: why has San Francisco real estate done better than almost anywhere else in the country during the bust?
Something else to consider NVJim: The private+public debt/gdp quotient is being distorted — the gdp number itself (denominator) contains deficit spending (which ends up in the numerator too) — more importantly, the quotient combines a balance sheet number (debt) with a period number (annual gdp), which makes it even easier to distort.
A simplistic example is a bank paying you a special “income bonus” so that you can afford a house under an arbitrary 300% debt to income rule:
Your old ratio 500k/100k — cant afford it.
New ratio (after the bank gives you an income boost) 600/200k — good!
Note the bank can sell you an 0%-interest-only loan and pay you 100k a year for four more years before your ratio returns to the old (presumably untenable) ratio [700/200,800/200,900/200, 1000/200].
But if they take the deficit away, it immediately skyrockets to twice the old (untenable) ratio [1000/100].
If you back out deficit spending (so gdp actually falls), the ratio looks approximately flat to *higher* (depending on how you handicap deficit passing through to gdp) — so private debt is being xferred to the public (while a small number of elites continue to skim and benefit).
In any case, this can go on for a long time (longer than four years), the population has proven surprisingly willing to go along with its externalities to date.
Mostly lost in the seriousness is an appreciation and THANKS to OneEyedMan for the humor!!
(Not that I don’t appreciate this thread- it’s what keeps me coming here. Just have to acknowledge the good laugh along the way….)
“If my explanation of events is wrongheaded anon94123, than you need to come up with another one that fits the facts: why has San Francisco real estate done better than almost anywhere else in the country during the bust?”
A few thoughts I have on this:
1) real estate affordability is largely dependent on income, and there has certainly been tech money created here, even in the last 4 years (the “Google Indicator” some refer to, especially after Google did their repricing of options)
2) SF has a number of artificial constraints on real estate development, as I’ve mentioned several times on SS. This is best detailed in an article about Silicon Valley (http://www.scu.edu/civilsocietyinstitute/events/upload/SVHousing.pdf), but these constraints are true about SF and the rest of the Bay Area as well. We could easily build more housing here if the rules were changed, although perhaps the NIMBYs in SF would still be resistant. Let’s not forget that large parts of SF consist entirely of single family homes
3) unemployment in SF among homeowners and people who could be homeowners is likely lower than in many other cities, and there are other factors that have caused SF to weather slightly better
People always say “it’s different here,” but it’s usually not. Let’s not that we’re only 2-3 years into the bust here in SF, and that in typical housing busts prices stay relatively flat nominally for quite a while (which accounts for the real losses over time).