36 comments on Home Buyers Demand Short Commutes, Efficient Homes (with Backyards, Parking, Lots of Square Feet)
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36 comments on Home Buyers Demand Short Commutes, Efficient Homes (with Backyards, Parking, Lots of Square Feet)
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First of all, anything that emerges from the National Association of Realtors has to be taken with a grain of salt. The NAB is always on the 'sunny' side of the street with regards to housing growth, particularly detached, suburban tract housing. The NAB is a mouthpiece for the large, publicly traded house construction companies, the 'Home Builders'. That, after all, is where the money is.
As for what 'homebuyers' want ... well, they will want to have some food in their starving bellies as the current and future trends in the credit emergency play themselves out in Washington and on what is left of Wall Street. The person who does not have faith that Robert Rubin or Larry Summers represent any change from the stasis quo is very astute. Mr. Obama (or O'Bama, America's first Irish president) has been in government for exactly twelve years, holding elected public office in the Illinois state legislature and in the US Senate. He a) doesn't know anyone, and b) never took charge or exerted leadership with regard to any energy- or economic- related situation while he held those offices. He never held hearings, never subpoenaed witnesses, never investigated issues that were relevant except to take money from energy companies and vote for legislation favoring the energy companies. If O'Bama had to prove he actually was in the US Senate, he would have a tough time. He was the 'Shadow Senator'.
Now, we have a Shadow President. What does this mean?
It means a spirited defense of the stasis quo. Whatever Americans are used to ... will be oontinued into the future as long as Saudi Arabia and China are able and willing to buy our Treasuries. There will be more roads. There will be more subsidies of ethanol and for the light- water reactor nuclear industry. There will be subsidies for the US auto companies. There will be subsidies for the airlines. There will be capital improvements to build shopping centers, overpasses, parking garages, coil fired power plants. Shipping canals will be dredged, seawalls will be built, causeways and large highway bridges will be constructed ... The states and the Corp of Engineers have long lists of highway and maritime improvements that have been set aside as piece by piece approval has not allowed them to gain financing; some of these projects have languished for decades ... these will all be approved. The big contractors will take half of the money allotted off the top, subcontract the balance; that sub- contractor will do the same and the work will be done by tweny men with machines. More bridges/tunnels/locks/overpasses/intercounty connectors/parkways/parking garages will be built at ten times the actual cost and with no visible use or function other than to demonstrate the US government has lost its way and has surrendered itself to brain lock and corruption.
Oh yeah, there will be some tax breaks for solar panels and wind farms.
What will happen next?
-- The Fed will buy bonds that the Treasury Department sells and force the longer term bond rates lower. This is called 'quantitative easing' and is the same thing as creating inflation. The bond market will rise ... for awhile, as there will be a floor under bond prices. There is a bubble brewing in bonds and like the other bubbles, this one also will burst, taking the bond market ... and the dollar ... with it.
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aP5uFzsclsDQ
Jim Rogers is to commodities as Matt Simmons is to petroleum; he is worth paying attention to.
-- Another scenario that is possible is the Treasury will defaolt; it will suspend interest payment on a particular segment of US debt; this will cause a 'run' away from the dollar and turn the currency market into a version of the new car market.
This chart represents the Credit Default Swap spread on the US Ten Year bond, which is a speculation on default.
http://www.prudentbear.com/index.php/commentary/guestcommentary?art_id=1...
What is happening now in the US partcularly and in the rest of the world is the cause and consequences of credit revultion. Credit being the most sensitive part of the postmodern economic ecology. Whether Peak Credit does in the 'American Way of Life' before we even get to Peak Oil depends upon how lucky we are. Whether suburbia will survive this is an open question.
"Jim Rogers is to commodities as Matt Simmons is to petroleum; he is worth paying attention to."
Even Saint Simmons can make an ass of himself. I offer his remarks on CNBC on July 14, 2008. This was a day or so before oil peaked at $147. Paraphrasing Mr. Petroleum, he said oil was going higher, maybe way higher. The price was not going to collapse, there was no oil bubble, and so on. Google it, I am sure you can find videos and comments all over the web. "Experts" are often wrong especially when they let their belief systems crowd out that fact that oil is, was, and will always be a commodity that is subject to the laws of supply and demand.
"The dollar is ``going to lose its status as the world's reserve currency,''
That statement very well may be true. (Just as Paul Krugman's forecasting a recession every six months for the last five years is now true.) But how long before this happens and it may pass with a whimper rather than a bang. I was around when the US stopped settling balances with gold and citizens could start purchasing gold. Life on main street pretty much went on as usual.
At the moment, however, the dollar has been strengthening as the world economy weakens. I offer you this article for a good read on the dollar in today's Journal:
http://online.wsj.com/article/SB122860234998085639.html
"Since the start of August, the dollar has strengthened 23% against the euro, 34% against the British pound, and still more against some currencies in developing countries," and "Safe port in a storm" seems to make a lot of sense to world wide investors.
There are a lot of people that believe the recent run up in many commodities was the result of people doing exactly what Jim Rogers is preaching. "Investing" in commodities and, boy, that has certainly paid off well for them hasn't it?
You are old enough to remember when the premise of China controlling or dictating policy to the United States would have been considered science fiction. Yes, there are fluctuations, but so far the plan to have Robert Rubin run the USA hasn't been a roaring success for the nation.
Have you been paying attention to China's economic situation lately? China is not recession proof and is currently having massive layoffs and labor problems with all the unemployed factory, mine, and service workers. China is no position to "dictate" or "control" our economic policy. Their economic bailout, so far, is a much greater percent of GDP than any country. There have been recent articles in IBD and WSJ lately. Check them out. The notion of China dictating US economic policy, currently, is that of the person holding a gun to his head and saying, "You had better do so and such or I will blow my brains out and show you!"
It is hard to define 'confidence' or figure where it comes from, but when investors in credit default swaps (usually banks and hedge funds) act on the sense that the US Treasury will default (either the old fashioned way or by devaluation- by- monetizing) this should be taken seriously. The Treasury spread in spring of 2007 was around 2 basis points.
So ... how does one generate confidence?
- In 2007, the Fed balance sheet was $900 billion and all Treasuries. It is now $1.9 trillion and is all junk or worse. If the Fed's balance sheet was similar in extent to the 'good ol' days', the Fed could be accused of neglgence, but becoming the buyer of last resort for all kinds of crap indicates the Fed doesn't know or care or is bought off. Not a confidence builder ...
- The dollar is trading against currencies of countries that are also facing economic hardships. If the hardships continue, the dollar will trade strongly against them ... but is a world- wide recession/depression the price that must be paid for a strong dollar? How dos that inspire confidence?
- The incoming president has an economic team that includes the same people who created this mess in the first place! Where is Phil Gramm? I bet Obama has his phone number. If O'Bama had one decent economist rather than his museum collection of 'Powerful White Dudes', it might be possible to have some confidence in the government getting a handle on the situation. Right now Obama acts as if he doesn't know enough, which means he's not qualified, or he likes to watch people argue which means he is interested in winning elections but little else. How can either generate confidence?
- The incoming president refuses to tell the truth about US petroleum dependence. He's won the election already, he has nothing to lose! He either knows and is lying or he is ignorant and refuses to learn ... just like the millions of other 'Peak Oil Deniers' who populate suburbia. In either case he is not doing his constitutional duty to defend the country; he is already a sitting Senator and he has an obligation! How can this be a confidence builder?
- The level of corruption in business and government is profound. What is needed is a 'force'; an individual with fierce determinatioon and high competence to ferret out wrongdoers and put them in prison where they belong. Someone who can put the word 'honest' alongsode 'government' so that people don't laugh. Why not hard- hitting Andrew Cuomo as Attorney General rather than another Clinton hack? Eric Holder was easily bought off by Marc Rich. Having a corrupt Attorney General is hardly a confidence builder.
- The institutions that bought stock/bonds/commodities in order to 'keep the markets liquid' ... or some other rationalization for manipulating them ... have gone out of business (Lehman Brothers) or have no more credit (Citigroup). The Fed is the last remaining player and they still do (and have and will continue) to manipulate the bond market. Without 'pricing support' ... a floor under prices, the markets swing wildly. Commodities swing down today, swing upward tomorrow. As the market capitalizations shrink, smaller amounts of capital can have the effect of moving prices, in any direction to a very large degree. How can the market gyrations generate confidence ... in markets?
- The price relationship of supply and demand still works. The oncoming massive expansion of supply of Treasury securities will certainly affect price; it has to. If it didn't it would suggest market mechanisms are broken. If it does ... it suggests the Treasury is reckless. Neither condition is particularly inspiring. At the same time, the Fed will force prices higher by buying all Treasury bonds with counterfeit money; it will manipulate the market until it cannot do so any more. The charade will end, the resulting bond bubble with burst. Does this inspire confidence in the bond market, the Fed and the Treasury?
Trust and confidence are fleeing the market institutions. The US government is not immune from these forces. Unless confidence can be maintained in the government and its proxy - the dollar - investors will eventually refuse it in favor of other stores of wealth, be these commodities like gold or silver or petroleum or even raw land. It would be ironic if the value of real estate is, in the end supported by the collapse of the dollar.
What a confidence builder!
LIfe in main street is far from normal, today. It is the beginning of the recession, the effects of it on the dollar have not been felt, yet. When this happens it will be noticed on main street.
The first casulties of the credit problems are home loans and auto loans followed by credit cards and commercial real estate most of it malls, strip malls and suburban office buildings. This is the financial base of modern suburbia and its weakness is it cannot survive ever lower housing prices.
Worse housing is coming off a massive bubble so we are not talking about a 10% reduction not unusual in past recession but in many places a 50% drop just to get back to a generally sane price followed by a 20% drop in all probability as a result of the recession. This is a 70% drop in prices from peak prices over the next few years.
On top of this and starting is the demographic shift of baby boomers retiring most having lost a substantial amount of their investments many will opt to sell there homes to pay for retirement. Even with these huge price drops most would still make a substantial amount from less their homes. Or at least the first ones to sell will.
This could easily trigger and additional price decline of 5% vs peak values.
Next consider we should see with peak oil a effectively never ending deep recession aka depression with even higher unemployment this should shave 5-15% more off of home values as with a big factor being people moving in much denser
living condition to save money. Right now the US has a density of about 2.4 or so people per housing unit if this went to 3.4 or say increases by about 30% then we have about 30 million excess housing units.
If you read stories about the Great Depression on obvious theme was the number of people living in a home often doubled.
As you can see you quickly get a situation that the forces effecting suburbia lead to a potential decline in prices of over 100% this means of course that many housing units will eventually have no worth i.e they will go to zero.
And we have not even mentioned peak oil and spiraling transportation costs coupled with a rapid drop in the number of people who can afford new more fuel efficient cars or EV's. Expect automobile manufacturing to fall to a fraction of its current level inline with the decline in home prices.
And we have not even addressed taxes and keeping the massive road infrastructure viable under these conditions.
The bottom line is Americans are facing the results of decades of misallocation of resources with no recourse.
You can see that the real problem with suburbia is that it collapses in the face of a long recession/depression and
dwindling resource base. The primary problem is it is dependent on inflation and long term credit.