November 01, 2007

A HOUSINGPANIC SHOCKER: UNITED STATES HOUSING PRICES MAY NOT FALL AS MUCH AS YOU THINK (IN DOLLAR TERMS)


Are you sitting down?

I believe that US home prices (in dollar terms) may no longer fall as much as everyone here thinks.

No, nobody hijacked my keyboard. Yes, I'm sober.

Well then what the fu*k???

Pretty simple HP'ers: Inflation and dollar destruction.

The planned and purposeful destruction of the US dollar by Ben Bernanke and the US Federal Reserve Bank is now throwing us into an inflation spiral that will take the real prices of goods, services, commodities and assets to the moon. In dollar terms.

Meanwhile, the purchasing power of the dollar will be destroyed, and the loss of purchasing power of the unsuspecting sheeple making dollars will be even more dramatic. So watch for foreigners making Euros, Pounds, Renminbi or Rupee's to eventually swoop in and buy everything in sight.

So the NAR will trumpet that "median home prices are flat!", although when you factor in inflation (true inflation, not the government's bullshit number), or you convert the dollar price to gold or oil or Euros or soybeans or, well, pretty much anything, real house prices will plummet. In many towns by 50% or more from the peak. And you'll still have the 20% to 30% real price haircuts already seen in towns like Phoenix, Vegas, Miami, etc.

Here's some math - gold is up 28% vs. last year in dollar terms, while Case-Shiller median home prices are down 5% in dollar terms. So home prices have already dropped 33% this year (in gold terms). Get it now?

But in dollar terms, over time, it won't look so bad. And that's what Bush, Bernanke, the bankers and the NAR have planned.

The only question is - will the sheeple (and China) be smart enough to see through the scam?

Welcome to the New Serfdom.

112 comments:

Anonymous said...

If, or perhaps when, inflation results in wage inflation you'll be right on the money.

Until then, US$ wage earners still face the affordability problem. And I suspect wage inflation will lag real inflation so I think house prices will continue to fall for some time yet.

Haggis

Lesson to you kiddies said...

Before you wonder about what happened to decency, law and common sense remeber this written back in the 1930s by Ayn Rand:

Did you really think that we want those laws to be observed?” said Dr. Ferris. “We want them broken. You’d better get it straight that it’s not a bunch of boy scouts you’re up against – then you’ll know that this is not the age for beautiful gestures. We’re after power and we mean it. You fellows were pikers, but we know the real trick, and you’d better get wise to it. There’s no way to rule innocent men. The only power any government has is the power to crack down on criminals. Well, when there aren’t enough criminals, one makes them. One declares so many things to be a crime that it becomes impossible for men to live without breaking laws. Who wants a nation of law-abiding citizens? What’s there in that for anyone? But just pass the kind of laws that can neither be observed nor enforced nor objectively interpreted – and you create a nation of law-breakers – and then you cash in on guilt. Now that’s the system, Mr. Rearden, that’s the game, and once you understand it, you’ll be much easier to deal with.”

Anonymous said...

Buy the miners, oil majors and commodities as fast as you can

concerned said...

Keith....

Don't be stupid.

Deflation is still the major concern. You are not about to see hyper-inflation anywhere !!! Did it happen in Japan when they lowered interest rates close to 0 ?

There will certainly be pockets of inflation....but there will not be hyperinflation.

For hyperinflation to occur.....wages need to increase dramatically......and that HAS NOT BEEN HAPPENING and IT WILL NOT HAPPEN.

The banksters are trying to avoid deflation because they know it will hurt their books. However it cannot be avoided.

Don't push commodities and energy so much. This sort of group mentality is what got most people into trouble with real estate.

Right now I would be thinking of selling gold and commodities.

keith said...

On deflation, you're missing the point.

The buying power of the US dollar is being destroyed. It now take 100 dollars to buy a barrel of oil (vs 30). It now takes $800 to buy an ounce of gold (vs. $300). It now takes $8 to buy a bushel of wheat, vs. $4. Yet American incomes are flat and not projected to rise.

Traditional inflation is too many dollars chasing too few goods. This inflation has some of that (thank you China and India) but it's a mainly currency devaluation causing price inflation (too many dollars being created). Just look at the money supply chart and it should make sense.

And if it doesn't, just go to the grocery store or gas station next year. Or come to Europe.

keith said...

Also, remember that Japan was a nation of savers. When tough times hit, they hunkered down with their yen, stopped buying, and prices dropped.

In our situation, Americans are negative savers and credit junkies. Demand for goods, services and assets should contract, causing prices to decline, but the debasement of our currency (helicopters) will cause dollar-based prices to rise. In addition, dollar flows from overseas buying up our assets will stabalize prices, even if Americans can no longer afford them.

Anonymous said...

Keith ... you've be so very right before ... it's just I'm counting on house prices tanking - my own schadenfreude, I guess sort of mean spirited, n'est-ce pas?. On the other hand inventory (homes) is high for reasons you've laid out claerly - so doesn't the law of supply and demand come into play? - no mention of Greenspan's weird book "hey like you know what maybe I was wrong - sorry world - Am Bad? - love and kisses - Al Baby"

Paul E. Math said...

I have to agree with Haggis. People ultimately pay for their homes with their incomes. Without a rise in incomes then any rise in home prices beyond the historic averages is destined to be temporary.

I don't see unions having enough power to negotiate wage increases and now that the illegals are here they are going to continue to depress wages for unskilled and semi-skilled labour.

Sure, the rich will get richer, as they always do, so the $1M+ homes may not experience much decline.

I don't disagree that the dollar will continue to decline so I would agree on investing in a mixed bag of commodities and international miners.

But I don't see foreigners swooping in to buy US real estate when many of them have already lost a lot of money on this asset class due to the declining dollar and declining home prices.

keith said...

To be crystal clear:

Inflation-adjusted housing prices will crash.

Non-inflation-adjusted housing prices will drop, but not crash

Bubble cities will see 50% inflation-adjusted drops from peak to valley. But if you adjust for inflation (real inflation, not bogus inflation) they may only be down 10% or 20%. All depends on how bad inflation and the dollar downfall get.

Debasing the currency will allow the NAR to claim housing prices haven't tanked as bad as we all know they will. Welcome to the spin room.

keef said...

Yup, David Ranson was right.
http://piggington.com/wsj_article_is_housing_undervalued

Land is a commodity like gold. The reason Japan land deflated so far is that the dollar price of gold went down during the 90s. Japan finally put the helicopters in motion in 2002, but they were too stubborn to pull a Bernanke and rescue their housing market. BERNANKE SIMPLY WILL NOT ALLOW A MEANINGFUL HOUSING DEFLATION. Vacant homes will keep rents down, and rents are a major component of CPI. So Bernanke is free to inflate away until rents start going up (not likely with 2 million vacant homes).

concerned said...

Keith,

Be aware that the money supply increased these past years DUE TO CREDIT. Credit might cause asset bubbles to occur, with a spill over to commodities, but it will cause hyperinflation across the board.

As I said, their are and will be pockets of inflation . e.g this bio-fuel fad has caused corn to double in price in Europe.....meaning an increase in the price of meat. Poor rainfall in Australia has cause wheat to jump in price. etc etc etc.

Personally I believe that the dollar will gain vale once again. Once deflations hits, and trillions vanish into thin air....the dollar will resume it's place as the global currency.

Personally as a contrarian investor, I would be thinking of buying the dollar.

As for the gold bugs.....it amazes me that they always think they are in a win-win situation...inflation buy gold.....deflation buy gold.......sound familiar ?

The USD are receiving a beating right now......but don't count it out just yet.

Anonymous said...

Keefer:

You are saying owning a home and lots of debt is the right strategy. By your logic if I borrow $100,000 today and buy a house, sometime in the future, that house will be worh $100,000 but my debt will only be worth $50,000 due to hyperinflation.

Tell me again why I should save and get 4% a year while renting.

concerned said...

People speak of hyper-inflation as if it is the easiest thing to accomplish.

Hyper-inflation CAN ONLY occur if wages rise.

Do you see wages rising in an hyper-astronomical way Keith ? I certainly don't.

I live in Europe....and it's bubble territory here as well......

I am a professional who has seen a 15% rise in my wages these passed 4 years.......not exactly a great jump Keith.

Deflation is on the cards Keith.....both in the US, Europe, Australia and all the bubble nations.

Anonymous said...

I have to agree with Haggis on this. House prices will drop unless there is widespread wage inflation. Even if the property is cheap to foreigners, they will only end up buying property in the nice vacation spots and not in the suburbs or cities. Without wage inflation there cannot be rent inflation either, so those properties are still bad investments for foreigners. The only way that I know of to induce wage inflation in by raising the minimum wage. Considering the house inflation percentages, do you think they will be willing to increase the minimum wage 100-200% (10-$15/hour)? That is the only way to keep house prices flat.

Anonymous said...

Here's some math - gold is up 28% vs. last year in dollar terms, while Case-Shiller median home prices are down 5% in dollar terms. So home prices have already dropped 33% this year (in gold terms). Get it now?

==================================

You gold bugs have this irrational idea that gold matters. How about housing prices relative to the Wii? Or relative to a Mark McGwire rookie card? Or a 1972 Shelby?

Seriously, gold is just one arbitrary measurement and really only matters if you own gold.

At the end of day what is happening now is pockets of inflation. Some will be hurt most won't. All depends on your specific situation in life.

I know HP dismisses what I'm about to say but I'll say it anyway. In the past few months I have not noticed any difference in my daily life. The restaurants/bars I frequent are as packed as ever. I fly 2-3 times a month and every flight is full. I am going to the Auburn/Georgia game next Saturday (go Dawgs) and cheapest seats I could find from a scalper were $220. This is in a 90,000+ seat stadium. You'd think with all the supposed desperation out there, prices would be cheaper as people would sell for anything. And you'd also think that with a depression happening as you say, no way in hell anyone would pay $220 for a college football game. And $220 is nosebleed section for good seats it's $400 and up and those are even harder to find.

And most importantly I have more work than I know what to do with. I am working 50-60 hour weeks and could work 80 hours if I wanted to. I estimate I will gross about 22-25% more this year than last year. Yet my costs for day to day living are up maybe 5%.

Sorry but I simply do not see any signs of this end of the world calamity you keep talking about.

a.creampuff said...

Thanks for making our day, Keith.

Now what?

keith said...

Rents will fall as jobs go away and the economy goes into recession. Plus there's 18 million empty homes out there, many desperate for renters.

Current homedebtors with mortgages are getting a gift right now from Ben Bernanke, as their dollar-based debts are devalued. But if their incomes remain flat, or their jobs go away, it's not much of a gift.

Anyone thinking of buying a home today has the benefit of taking out a dollar-based loan (IF they can get one) which will be easier to pay back with devalued dollars. However they'd need to ensure that the speculative-bubble discount has already been taken, and that they could rent the home out for positive cash flow. Bank-owned oreclosed homes will have much of the discount taken. Normal seller homes likely will not - they still have farther to fall (in real terms)

The dollar downfall and inflation will muddy the waters. But this must now be factored in, by all parties. It will present some with great opportunity, and others with massive pain.

Anonymous said...

Fed Cuts Rate to Help Ease Housing Slump

Federal Reserve Cuts Interest Rate to Help Ease Strain of Housing Slump on Economy

WASHINGTON (AP) -- The Federal Reserve sliced an important interest rate Wednesday -- its second reduction in the last six weeks -- to help the economy survive the strains of a deepening housing slump that is likely to crimp growth in coming months.

Fed Chairman Ben Bernanke and all but one of his colleagues agreed to lower the federal funds rate by one-quarter percentage point to 4.50 percent at the end of a two-day meeting.

"The pace of economic expansion will likely slow in the near term, partly reflecting the intensification of the housing correction," the Fed acknowledged in a statement explaining its action.

The funds rate affects many other interest rates charged to millions of individuals and businesses and is the Fed's most potent tool for influencing economic activity.

In response, commercial banks, including Bank of America, Wells Fargo and KeyCorp., announced that they were cutting their prime lending rate -- for certain credit cards, home equity lines of credit and other loans -- by a corresponding amount, to 7.50 percent.

The rationale behind the cuts is that the lower borrowing costs will induce people and businesses to boost spending, energizing economic activity.

Eric said...

Don't forget the the other advantage of renting.... easily picking up and moving to find work.

Anonymous said...

Pretty simple HP'ers: Inflation and dollar destruction.

_________

I've been thinking this for a while. The economists I read have been saying that Helicopter Ben WILL sacrifice the US Dollar to keep things 'flated. And the housing market is everyone's worry wart now, so it will get special attention, and dollar destruction will be a part of that.

Anonymous said...

You are currently seeing both Inflation (Imports) and Deflation (Housing).

If deflation wins..then we have another Depression. Especially with the credit markets and personal debt as high as they are. It would be truly scary.

The deflation scenario could play out as the credit goes down.


http://housingdepression.blogspot.com

Stuck in So Pa said...

You are right on about property being cheap for foreigners now. But services, like vacation packages, are also cheap along with houses and land.

My car club had a function last weekend in a major PA tourist trap. The town was jammed, and I swear to God, you had to listen hard
while walking the sidewalks to hear somebody speaking English! The place was packed with Asians and Europeans. The tourism industry should really pick up as our dollar hits the sh#tter!
I guess that one poster was right; you CAN put a positive spin on anything!

we have a winner said...

Ding! Ding! Ding!

Keith finally gets it! Inflation will wash away the debt burdens, private and public, and the crash will be in the USD, not RE prices. Renters and cash-hoarding bubble sitters will be screwed.

Anonymous said...

Yaaaa, I don't think so. SOMEONE still has to sell and the fundamentals are not there. People cannot afford the avg priced home with the avg wage. THAT is the problem. We are looking at STAGFLATION, not inflation. My wages has not gone up 33%, so still no house for me.

Anonymous said...

An exagerated fear of hyperinflation could land you in the same boat as all of the messed-up housedebtors out there...

I tend to agree that the bigger threat is deflation. When credit bubbles burst, deflation is the result (not inflation). The Fed and the big banks are doing everything in their power to avoid deflation. The problem is that they can only do so much.

If you go out and buy a house for the primary purpose of trying to hedge against inflation, then what makes you any different that all of the hordes of sheeple who made the same mistake over the past 7 years?

Deflation seems more likely to happen rather than hyperinflation. Deflation is much scarier, but for those persons who have prepared for it, they can rest easy and not worry.

Anonymous said...

The things you are not considering in this equation are widespread losses (worldwide) among banks and property "investors" across the globe, fraud, mounting foreclosure activity and the further losses that those unpaid contracts will give to lenders accross the globe, etc. This pain will be felt in most areas of the world. The Fed has been able to put out fires in the past but they've allowed a large amount of underbrush to go "unburned" for several years. Junk that should have been torched via past recessions has been left on the forest floor if you will and the coming problems with unpaid contracts (mortgages that go into foreclosure) are going to start a fire that clears out this accumulated scrub brush and dead wood. As in nature, fire has a purpose to clear out the old to make way for the new. Just as the fire service here in the US was sucessful in snuffing out small fires as they arose over a decade of time, the Fed will become the "victim" of its own past sucesses.

Smug Bastard

Peter T said...

There is obviously disagreement on the board on what inflation will do - what does the market say about CPI? Market expectation of CPI are found in the difference of prices in TIPS and regular treasuries. CPI might underreport inflation, but can still serve as a measure for it, especially wage inflation, which is most important for house prices. Has market expectation for CPI markedly increased recently?

Anonymous said...

Keith,

Unfortunately, it seems that one of my favorite blogs has "jumped the shark".

Best of luck to you and your blog.

Mike

Anonymous said...

Keith-

You are correct so far as this:

What KIND of inflation are you talking about?

If there ultimately is WAGE inflation, then yes, home prices will adjust so that they are down in REAL terms, but not necessarily in dollar terms,

BUT:

If the continued outsourcing of jobs occurs, and IF the economy slows substantially, the inflated dollars may not find their way into the pockets of workers; in which case it is my OPINION that the dollar-price of houses will decline further. No matter what, I am convinced that the historical income-to-price ratio will be reestablished.

Comments, please?

Brian

Anonymous said...

Keith,

My best guess is that we will experience deflation, much like the Japanese experience. The problem is credit expansion, in order to increase equilibrium prices of housing, for instance, lenders must be willing to lend. Japan's experience is an example of where even 0% rates could not induce lending, which therefore led to both real and nominal depreciation.

However, don't underestimate the power of the Fed. They could hyperinflate if they wanted to. It would be quite easy to get housing to rise nominally. The Fed could simply BUY houses, printing the cash to pay for them. They could buy used plasma TVs for that matter. This is a variation of what Weimar did (printed money to pay government salaries and benefits, among other things). However, it didn't end well for Weimar, and I stroingly suspect that the US is not ready to follow that course.

I think they will try to engineer somewhat higher inflation (say, 5-10%) without resort to printing, in order to soften the blow to housing and asset (think stock) prices. I suspect that they will not be successful, though, because of the problem of inducing credit reflation that I alluded to above, but who really knows??

LauraVella said...

House prices have to fall 60% here in the bay area.

For one thing, the median incomes can't afford these prices, secondly, only 20% downpayments and excellent credit will qualify for new (traditional)loan standards. Some are knife catchers, plopping down huge downpayments. Thirdly, this country shipped it's manufacturing base to Chindia.

I will agree however, the FED is very scared, and they are trying feverishly to save the housing market by dropping rates. The 10 year housing boom has to end sometime! Prosperity can't go on forever!

Anonymous said...

The planned and purposeful destruction of the US dollar by Ben Bernanke and the US Federal Reserve Bank is now throwing us into an inflation spiral that will take the real prices of goods, services, commodities and assets to the moon.

________

I'm glad you're seeing the light, Keith, rather than believing that hack who thought "stuff" was gonna deflate. I talked myself blue in the face on your blog saying that the gummint was gonna keep creating money out of thin air.

STUFF is good to have. To own it free and clear. Stuff like gold, silver, even land. The important thing is not to have bought these things at high prices. So wait for dips to buy more, or to start buying if you haven't bought any yet.

Edgar said...

Unless they emigrate to the U.S. foreigners are not going to buy $500k crap shacks in the ghetto. They end up paying for maintenance, property taxes, and insurance if they do that. They may buy some commercial property, but they will lose there too. Houses will go down, everything else will go up due to hedge fund speculation. Thanks Bernanke, Paulson, you maggots.

wc said...

Didn't the Japanese swoop in and buy everything at the over-inflated prices in the U.S. right before their economy tanked? I oddly don't feel worried and I worry a lot

Anonymous said...

Anonymous said...
I have to agree with Haggis on this. House prices will drop unless there is widespread wage inflation.
-------------

And what will happen to wages (and wage inflation) when the construction bubble pops? When 17.9M vacant homes is enough. When not one house gets built in a calender year.

What will happen to wage inflation when Hillary lets more illegals in? When will illegals start working office jobs when all the construction jobs dry up? What will happen then?

LauraVella said...

Concerned said:"For hyperinflation to occur.....wages need to increase dramatically......and that HAS NOT BEEN HAPPENING and IT WILL NOT HAPPEN".
------------------------

I agree with you Concern.

During the 1970's, the computer industry created tons of new jobs, which caused house prices to quadruple here in the bay area.

We're in stagnant times -nothing new is being invented or manufactured for new job/salary growth.

Housing prices have to crash. I noticed most of the houses for sale here in my area are staged and vacant. Lights are on, but nobody is home...

Anonymous said...

What's really scary is, what will happen in Europe.
british and most of the EU housing bubble is way worse then here and when they go bust, Pounds and Euros will be worth less then dollars
the big difference is that no one would want to buy all those vacant properties even for dramatic price reductions.

Hold on and fasten your seatbelts, within the next 6 months, those of us who understand the fundamentals and hold on to
the dollars will be able to help feed the hungry all across the EU.

What is soo amazing is that the glaring obvious condition of the EU economy is not much talked about.
Sheeple are being told invest in 'international markets' and a lot take it to mean anywhere but the USA.
smart money understands that 'international markets' really mean Asia.
Japan
India
China
Israel

Stay away from Europe there is no footing underneath it, Inflation has been quietly eating up everything since about 2000.
Keith has not only been paying $30 for burgers and $300 for dinners, everything is expensive relative to income
as things stay today most people in Europe are considered poor compare to Americans, imagine what it would be like
when reality kicks in.

sam said...

Keith,

Think you're wrong here, except for the "superstar cities" like NY and vacation areas that have the ability to attract foreign investment in residential real estate.

The bottom line is there is little-to-no international demand for ex-urban McMansion's, condos in Baltimore, or endless sprawl in California.

Dollar declines don't help sell this crap to foreigners. That being said, there is some construction cost increase, though most of these are produced domestically (drywall, cement, lumber) and have high shipping costs. Copper is going higher, but people will substitute PVC.

Moreover, the Democratization of Extreme Leverage has made home valuation highly dependent on financing costs. As dollar declines lead to higher credit costs (in addition to the complete elimination of junk mortgage products), valuation will decline.

Anonymous said...

I'd say we are in uncharted territory, while we can look back to past recessions, depressions, panics and there aftermath, this time we have all these gov't and market mechanisms that were put in place in response to them. On one had you'd think these mechanisms would avert disaster, but on the other they all seem to be manipulating us and they actually keep us from seeing what is really happening. One thing is for sure, banks have over-levered enough assets to the point that defaults are occurring on a massive and unprecedented scale and the banks as a result will suffer billions in losses and it will threaten the global financial systems, the social costs from this fallout will be huge and will tax gov't at a time when they are overextended and experiencing fall offs in revenue and they will be limited in their ability to borrow/spend themselves out of the problem. The results will not be pretty, and there will be alot of suffering. In the end we will right ourselves but only after relearning in the most painful way the lessons of the past. Good Luck.

Anonymous said...

You gold bugs have this irrational idea that gold matters. How about housing prices relative to the Wii? Or relative to a Mark McGwire rookie card? Or a 1972 Shelby?
===================



"Gold is money, and nothing else"-
testifying before the Pujo said at Comittee in 1913 about banking and financial instabilities. J.P. Morgan, industrialist, financier & banker (1837- 1913)


The Wii, a rookie card, and a '72 Shelby are not money. The USD is not money, it is a debt based fiat money substitute.

Charles said...

Keith you are way off...

How can this happen in the absence of "wage" inflation? Salaries are NOT rising for working people! While the McMansion market won't be hit as hard if Upper middle class folks wages rise, the majority of working people have no leverage to argue for increased wages and with the rising cost of goods how can prices not adjust significantly even in inflationary terms.

Jesus Christ even Screenwriters can't get a raise! The lowest priced homes in the SGValley here in SoCal are still in the mid 300,000s asking prices. With inflation taking an extra $200 a month out of peoples pocjets in the near future (Gas, Food, etc.) how do you think prices won't fall even further. My stepdad makes some pretty good Jack at a chrmical company and he ain't concerned about a wage increase he's hoping against a wage decrease.

This is where the majority of people are at they don't have stocks that are taking advantage of this BS run up.

This is going to precipitate an even further decline faster than expected,.

WAGES ARE NOT RISING FOR WORKING PEOPLE! And they are still the vast majority of the country!

Anonymous said...

You catch on sloooowww, boy...
Fixed rate ( or reasonably capped rate ) debt is PURE GOLD in a hyperinflation...

Ron said...

Yes, what you are talking about Keith is correct, however the impact you perceive is not going to be able to shadow supply and demand and serious price drops. The bottom line is affordability and programs availability both of which are very small to none. If you couple in what you are talking about, to the problems which alone are bad enough, you get to understand why some whisper of the word depression again.

Anonymous said...

I postulated this exact possibility several months ago by comparing prices in Toronto.

After the local housing boom went bust, banks held on to properties and used them as tax write offs. This prevented the market from cratering.

Prices did fall slowly - but within 10 - 15 years, inflation caught up to the prices and then they started to go up again.

Here's the patern for the house prices (roughly):

1975 - 50K
1980 - 200K
1985 - 300K
1990 - 300K
1995 - 275K
2000 - 250K
2005 - 300K
2007 - 350K

People who bought in 85 to speculate - were screwed. The same thing is happening today.

The best time to buy will be 10 to 15 years from now.

Same thing happened in Japan btw.

However, if the US hits a hyperinflationary wave (which Toronto and Japan didn't to a large extent) - all bets are off.

Hyperinflation could force companies to increase workers salaries for people to buy basic necessities like bread or milk - meanwhile house prices would stagnate and could become realistic in 5 years or less.

Why would companies raise salaries? Well why would anyone go to work if their salary couldn't buy necessities? At some point it makes sense to stay home and raise goats, chickens, or rabbits and have a garden rather than work for nothing. At least you'll eat.

The problem is - the HI wave would wipe out the middle class and essentially everyone would be poor. Anyone who saved would be labeled a fool since even 500K in savings could be wiped out and become a months salary.

For a similar comparison - go and study what happened in Yugoslavia when they had over 3000% inflation. Since the government paid all salaries - people who had a huge mortgate one year could pay it off for a month's salary the following year.

How was this possible? The US was funding the communist government of Yugoslavia to not be swayed by the USSR and be in their orbit. At one point one dollar in every seven paid to workers was directly from the US.

When the 'wall' collapsed - the US funding dried up, and Yugoslavia collapsed with it.

The US however is in a very different boat. In Yugoslavia, people were accustomed to growing their own food - this made up for the lack of products. Even city dwellers had a couple of pigs growing in the back yard. The biggest problem today is that the EU is demanding all farm animals be moved to farms outside city limits from any eastern european country which wishes to join the EU. This would make city dwellers dependent on corporations to provide a salary - otherwise they starve. With no access to your own food, you need money to buy it.

The US and Canada already have laws ensuring that you can't grow your own food. By law - even the tomatoes you grow in your back yard cannot be eaten by you until it has been approved by an inspector as being safe to eat. Currently, those laws are not enforced... yet - but they are still on the books and need only be applied when the times require it.

For a good overview of the (possible) coming collapse, I suggest this website:

http://www.energybulletin.net
/23259.html

Anonymous said...

concerned said...
'Personally as a contrarian investor, I would be thinking of buying the dollar.'

You are absolutely right..

When the herd was stampeding to buy houses in the past 5 or so years i stayed away
now the herd seems to be blindly stampeding towards foreign paper money, I'll stick with the greenback.

Easy-- same folks who were screaming invest in realestate are now screaming buy Pounds and Euros.

Anonymous said...

Yeah jobs are going away. Maybe for you union slobs that's true. Every union jobs SHOULD go away ASAP.

For someone like myself with an education and a skill to offer plenty of jobs.

Sorry renting fools, once again you lose.

devestment said...

Here on earth, "Los Angeles" everyone I know who is self employed or on commission is having trouble making ends meet due to inflation and a stagnate job market. At the same time, groceries and energy are inflationary; wages are becoming deflationary and competing for less available work. This is clearly stagflation.

If you go to Craigslist you will see an abundance of assets looking for liquidity, not to find opportunity but simply to sustain life. This is depression, recession, and deflation.

Talk to the man who has big money in commodities and you are talking to the happy genius of the day. This is inflation.

So we have had tremendous inflation in all asset classes except holding capital "interest rates" and deflation in all asset classes except commodities.

Incomes that inflated with real estate are now deflationary. In the feds view more rate cuts are in order. They tell you different to keep you from pricing it in.

Bankers make money. Next stop election year, then high interest to keep those weak dollars out of circulation.

Mark in San Diego said...

It is difficult to sort through so much information, but this morning's Financial Times also has an item about dollar APPRECIATION. . .he made the point that of the S&P 500 companies, 50% of their profits are now coming in from abroad. . .the item felt that the dollar collapse may be nearing the end. . .

My take - this sh#t is now hitting the fan on the streets, and gasoline consumption in USA will start to fall (as well as other consumer expenses) this will lower the price of oil somewhat. . .

My prediction - $80 oil by January
- housing prices continue to fall - US in recession by early 2008 -

Osman said...

So you would keep or raise interest rates...?

Don't forget that the realization of a recession often occurs in hindsight.

Anonymous said...

THE DOW TUMBLED 250 points in early trade, more than erasing yesterday's Fed rally, hurt by a raft of bad news, including fresh credit-market jitters and a Citigroup downgrade. Markets were weaker in Europe and mixed in Asia. 10:19 a.m.
• Data: Markets Overview | Treasurys | Forex | Crude
• MarketBeat: Citigroup: Will Work for Food

Chrysler announced plans to cut more than 10,000 jobs and pare its model lineup as part of a broad restructuring. The job cuts are in addition to the 13,000 layoffs announced in February. (Statement) 11:15 a.m.

Exxon Mobil posted a bigger-than-expected 10% drop in profit on lower refining and chemical margins, even as the company set a quarterly revenue record of $102.34 billion. 9:46 a.m.
• U.S. Effort to Tap Oil Profits Suffers Blow
• Desktop News Alerts: See a sample, sign up

The Fed cut interest rates by a quarter point to 4.5%, but strongly discouraged expectations of further reductions, saying the risks of weaker growth and higher inflation were roughly balanced. 8:59 a.m.
• Morning Brief: Fed Confidence and Market Pitfalls
• Econ Blog: The Lone Dissenter: Hoenig
• Vote: Did the Fed Make the Right Move?

Personal income rose 0.4% in September, while growth in spending slowed to 0.3% growth. Meanwhile, inflation excluding food and energy was steady at a 1.8% annual rate. 11:08 a.m.
• Econ Newsletter Sign-Up: HTML | Text

Bush defended Mukasey's refusal to say whether he regards waterboarding as illegal torture, in an effort to bolster the former judge's nomination as attorney general. 10:48 a.m.
• Law Blog: The Nomination of Michael Mukasey

Sprint Nextel's profit sank 77% as customers continue to flee the wireless carrier. The company expects subscriber losses to continue in the fourth quarter. 10:51 a.m.

Credit Suisse said net profit slipped 31%, and it had written down $1.9 billion for unsold leveraged loans and structured products such as mortgage securities. 9:12 a.m.
• Citi Senior Traders Leave Amid Fallout
• Subpar Scorecard: How credit problems have hit profits

Wal-Mart filed a motion seeking to block public access to certain court documents in a tax dispute with North Carolina. 9:22 a.m.

AstraZeneca reported a 15% fall in net income, hurt by restructuring and acquisition costs as well as generic competition for some key drugs. 8:07 a.m.

Anonymous said...

Paul E Math said:
"But I don't see foreigners swooping in to buy US real estate when many of them have already lost a lot of money on this asset class due to the declining dollar and declining home prices"
----------------------------
Absolutely! That is the core issue here, isnt it. With the millions of vacant homes, property prices DECREASING, and a Japanese style housing downfall precedent, all these factors indicate that Foreigners will NOT "en masse" buy up properties to the extent that they will make any significant difference in the housing price CRASH that is currently enfolding.

Foreigners buying up property want to do so for a reason, Correct? That reason would mainly be to make a profit! What profit? From the declining value, inflation adjusted or non inflated adjusted, no matter, it doesn't make any sense that you will buy it and then flip it for a profit in this marginally declining market. Then maybe what about RENTING it out? Still, NO Profit, because now we are forced to address the real economic issue of substantial wage increases (WHICH WILL NEVER HAPPEN UNLESS HELL FREEZES OVER!) -Can you imagine Wal Mart or Home Depot saying to its employees "Okay now everybody, your $6 dollar an hour job will now be $16 dollars an hour so we can all bail out the foreign investors who have purchased US homes with their Euros and Yens because they want to make a profit". Like I said, When Hell freezes over. Not gonna happen.

So Yes, House prices decline BIG TIME, Just give it TIME!

Anonymous said...

The dollar is grossly oversold, a result of global growth disparities. You gold bugs are in for a bitch slappin'.

Anonymous said...

"Yeah jobs are going away. Maybe for you union slobs that's true. Every union jobs SHOULD go away ASAP.

For someone like myself with an education and a skill to offer plenty of jobs."

Well, I am glad that you at least obtained that education, because you have clearly shown that you have absolutely no brains.

It's not the unions dipshit. And no, I am not in a union.

keith said...

Think about this headline folks.

'UNITED STATES HOME PRICES CRASH 33% IN THE PAST 12 MONTHS"

Because that's what has actually happened.

Open your minds. Stop thinking in dollars. And start thinking in purchasing power.

It doesn't matter how many dollars you earn or save. What matters is what they can buy.

Pithia said...

Keith, you are missing the point here. Approach this as a simple Geometry problem. In geometry you always solved problems after you accepted a basic premise.

The premise here is that the FED is a private Bank and that its source of power is the USD and the treasury bill/bond/Credit issuance.

What is the advantage of the leading central bank in the world in destroying its source of power via hyperinflation, and putting itself and the entire fiat currency consruct out of business?


ANS: None, it will never happen, when this bubble deflates, not if it is only a matter of time, all asset classes will deflate,including gold.

Housing will drop the gold. Th USD will rebound in terms of other fiat currencies at least in the near term. I expect the USD to reverse its trend and make a rapid accent to 1:1 with the Euro while this mess is unfolding over the next couple of years.

Stay liquid/cash, there will be issues of day to day survical and dirt cheap housing everywhere within a few years.

ApleAnnie said...

Anonymous said...
November 01, 2007 3:30 PM

For someone like myself with an education and a skill to offer plenty of jobs...

Every union jobs SHOULD go away ASAP...

You must have slept through English 101 at Harvard.

AA

Marinite said...

People speak of hyper-inflation as if it is the easiest thing to accomplish.

Hyper-inflation CAN ONLY occur if wages rise.


Exactly, and thanks to globalization, there's a lot of relatively new pressure keeping wages down. Hyperinflation can still happen of course, but it is still far from likely.

Just my $0.02 (or is it $0.000002 these days?).

Marinite said...

You gold bugs have this irrational idea that gold matters. How about housing prices relative to the Wii? Or relative to a Mark McGwire rookie card? Or a 1972 Shelby?

Seriously, gold is just one arbitrary measurement and really only matters if you own gold.


How absurd. Not entirely arbitrary. Gold has had universally accepted value for thousands of years. The Wii will lose almost all of its value in a year or so, after it becomes obsolete and is replaced by the next version or something else altogether.

Mark in San Diego said...

Purchasing power crosswinds. . . Keith - "all I know" is that I can buy more house here in SD (in USD) than this time last year. . .ditto used cars (especially high end sports cars) yachts (see repoyachts.com) and other "luxury" goods. . .agree - groceries, gas, etc. have risen - and we won't even go into the fact I won't buy a Coke at Heathrow if I change planes there . . .luckily the CHF is somewhat linked to the dollar, and is still at .86 up from .84 last year this time. . .so I can still go to Zurich.

This could break any way at this point - hyperinflation, disinflation, recession/depression, etc. It is pretty frightening out there!

Anonymous said...

I don't agree with that assertion. So long as wages are paid in US dollars, housing will inexorably be linked to those wages.

The number of available "foreigners" to buy our homes is miniscule. Keep in mind that although our Fed is inflating more so than the central banks overseas, they are also inflating. So Euros and Pounds will also feel the pinch.

In my opinion (and this was mentioned in Greenspan's book), is that the Fed is doing short term damage control to protect the more prominent US banks. But they give less than a canary poop about the general joe sixpack and his interest only mortgage. At some point, when they believe they have created enough tentative stability in the banks, they will begin to hike up interest rates, probably to double digit levels to stave off the dollar's fall.

honica jewinski said...

I've been saying this on this very blog for over a year now.

PablitoRun said...

I am suprised you only came to this conclusion now Keith.

The Economist magazine has been prediciting this as the most likely outcome for several years now.

Let's inflate our way out of trouble! They won't let inflation get out of hand, but I wouldn't be suprised to see it run 4-5% over the next few years.

FORECLOSUREBOY said...

I agree with Devestment.

Welcome to prisonplanet my fellow working class slobs.

Anonymous said...

I'm Canadian and friends of mine have already bought a car in the US (saving about $12K in the process vs Canadian prices) and are now looking at US real estate. With our "loonie" worth more than the US dollar and at a 130 year high things are mighty cheap just south of the border.

Anonymous said...

=========================================================================================================

THIS NEEDS ITS OWN THREAD

http://youtube.com/watch?v=JCCVUot-hBo

THE FUTURE OF THE USA

=========================================================================================================

Anonymous said...

keith, congrats on the mention of HP on a WSJ article:

http://finance.yahoo.com/real-estate/article/103796/Now-That-Housing-Has-Soured,-Renters-Are-Glad-They-Didn't-Buy;_ylt=AiQUEWGanGFZ7Et.NlY54Ei7YWsA

Anonymous said...

>> Personal income rose 0.4% in September.

Is everybody except me getting a raise *every month*?

I call BS on this statistic...

Frank@Scottsdale-Sucks.com said...

I know HP dismisses what I'm about to say but I'll say it anyway. In the past few months I have not noticed any difference in my daily life. The restaurants/bars I frequent are as packed as ever. I fly 2-3 times a month and every flight is full. I am going to the Auburn/Georgia game next Saturday (go Dawgs) and cheapest seats I could find from a scalper were $220. This is in a 90,000+ seat stadium.

In that case you need to visit a bubble city. 1-2 years ago in Phoenix you couldn't even get into a restaurant on a weekend without a 2 hour wait. Now they're dead and are beginning to close one after another. The Arizona D-Backs made it to the NLCS this year, and the stadium sat more than 20% empty - unheard of for the playoffs! Compare that to Arizona in the 2001 and 2002 playoffs when you could't even get tickets.

Here in Newport Beach the restaurants are still packed due to the sheer # of rich who live here but you don't have to go too far inland to see the effects and the endless "for sale" and "for rent" signs as far as the eye can see.

vegas carsh watcher said...

The only alternative for most people is the Euro, and that is just a token issued by a museum. In 20 years, it won't even be around. The Yen and Yuan aren't acceptable to most people. And you have to sell your gold eventually to take your profit.
So the the dollar strengthens, gold and oil weaken. Deflation can't be stopped.

Mark in San Diego said...

LET the Litigation Begin:

First American sued over alleged appraisal scheme
Worked with Washington Mutual to inflate home appraisals, suit charges - Marketwatch

Anonymous said...

and when all those funny money british and european loans come home to roost then it will swing back the other way and people will be clamoring to get back into the $.

I'm gonna start shorting the Canadian $, Euro and Pound.

I still am bullish on gold however.

Anonymous said...

Anonymous said...
>> Personal income rose 0.4% in September.

Is everybody except me getting a raise *every month*?

I call BS on this statistic...

November 01, 2007 5:24 PM


=============

Damn dude are you that dumb? I swear nobody can the that stupid. Keefer I'm on to you dude, you are making these comments up yourself.

honica jewinski said...

Pablitorun, 4-5% ??????????

Are you f@(kin' stoned?

10-20% would be more like it?

Anonymous said...

The Arizona D-Backs made it to the NLCS this year, and the stadium sat more than 20% empty - unheard of for the playoffs! Compare that to Arizona in the 2001 and 2002 playoffs when you could't even get tickets.

=========

In 2001 the D-backs were a novelty. Now it's ho-hum.
Nobody gives a shit about baseball, good or bad economy. In Atlanta there were empty seats for World Series games in the 90s. Didn't mean anything in terms of the economy then either.

Baseball is dead.

Happy Homedebtor said...

As for wages not keeping pace with housing inflation...actually, mine managed to exceed it, and I haven't even finished school yet. ('99 I was making $42K) I didn't run the #s mentally until just now, but when I started working, I could've bought the house I grew up in with about a 5:1 ratio, and now, pre-discounts, it's less than 4:1, probably 3:1 ultimately. I guess in short: I'm just better than all of you? :)

Wife and I bought a 3.25:1 in March, and after January it'll be around a 3:1, and I'm not even done with school yet. Yeah, you all are just bitter slackers...it's ok, I still love you. Did I mention we're in probably /the/ best school district outside of $1M+ areas in NoVa/MoCo?

Yeah, less traffic, killer schools, good location for commutes - fundamentals DO matter! ;)

Happy Homedebtor said...

Welcome to being a financial analyst: where you and everyone else have the exact same data, and all interpret it differently. Ultimately, it's all guessing - which is why Ben Stein's "stupid investor"s usually do the best: they're almost guaranteed to win since they're long-term.

If things stablize ahead of schedule in the next 3-6 months, and gold plummets back to earth around half it's current value, Keith/gold-bugs will find a way to spin it positively...despite losing 50% of their money, with no realistic way of getting it back in this lifetime.

Buy low, sell high. Or, buy whenever something isn't at an all-time peak, and sell it when you need to. Diversify, diversify, diversify. Sheesh.

Anonymous said...

Hey Keith,
did you eat that rye bread last weekend in France?
The symptoms sound very much like hallucinations related to Ergotism

You aught to be a lot more careful with what you eat, when you run around gallivanting like a gypsy.

Calm down now, we all understand the mental impact of walking around all day on those same-colored narrow streets
looking for an Internet cafe that has connectivity for more then 6 minutes at a time.

Take a little trip back to the 'states' (european for America) rent a big convertible Cadillac for a couple of days
(yes, Hertz and Avis still accept dollars) and go for a cruse on a real Highway with 5 lanes in each direction,
look around and enjoy the huge custom 18 wheelers blowing by, and sometime the roar of a chromed-out Harley Davidson.
Take a lunch break and treat yourself to a giant Biggie size loaded bacon triple cheese burger for only $4.00, then wash it down with a
pitcher of Iced Tea for only $1.00, take home a big doggie bag of left over onion rings and live a little.

Point is, you have forgotten the grandeur of this great country.
RealEstate got out of hand in the past few years, it is now in the process of getting back to normal,
It will be a painful process for those who forgot there are no free lunches.
Many nubie investors from Europe will feel the pain.

but over all: I would not bet against the dollar just yet!

PS, in this country you can get yourself a cheap laptop with all-time wireless connectivity and no more waiting for that web page to load.
PPS, If you're worried that Ron Paul will be president and that is why you don't want to come, Don't worry, he wont ... guaranteed.
PPPS, for the price of renting a 4x4 flat with a moldy smell, you can rent your very own penthouse with an ocean view.

keith said...

The Fed just tossed $41,000,000,000 more depreciating dollars into the bonfire today. Yes, just today.

Worthless little pieces of green paper, with so many hopes and dreams tied to them.

WASHINGTON - The Federal Reserve pumped $41 billion into the U.S. financial system Thursday, the largest cash infusion since September 2001, to help companies get through a credit crunch.


The action comes one day after Fed Chairman Ben Bernanke and all but one of his central bank colleagues voted to slice a key interest rate for the second time in six weeks to protect the economy from the ill effects of collapse in the housing market, aggravated by the credit troubles.

The cash injection also came as Wall Street took a nosedive Thursday. The Dow Jones industrials were down more than 260 points in afternoon trading.

http://news.yahoo.com/s/ap/20071101/ap_on_bi_ge/fed_markets

Anonymous said...

IVE BEEN RECESSED SINCE GAS WENT ABOVE A BUCK A GALLON, AND I TURNED OFF THE WINTER HEAT AND SUMMER AIR CONDITIONING WHICH IN THE DESERT I LIVE IN IS A HARD HEAT....

Anonymous said...

Let me do 1, 2, 3...

1. look at rent vs buy (for example nytimes calculator). I was just looking at Denver, place rents for $900 but sale price is 220K???? And Denver is really not that bubbly?? Just do one of these calculators and you're losing buckets of money. Conclusion: in absense of real appreciation, prices must fall dramatically to meet renting reality.

2. hyperinflation: bankers are not stupid, they would lose so much.

3. wages: c'mon, they are stagnant. To person who can work 80 hours a week to make more money: go ahead, you'll get sick and spend all your money on health care. It's just stupid.

4. house: is just a box that gets run down each year. They don't make any more land??? There is more land sitting around than one can possibly imagine. Buyers are in short supply though.

5. fair market value of house is one that makes money if you rent it. By far most houses today are not. Most houses today have 'emotional price' - read: angry homeowners don't want to be fools in Ponzi scheme. But they are. Anger takes time to flush out. Waiting is best now. Don't buy, you will be just another fool.

6. traditionally, 30% should be reserved for housing. Except for some pockets, most people pay 50% or more. If Fed wants to reinvigorate economy, they need to ease the burden of housing. 20% of income is huge. Imagine how much more Wii could average person buy for it??

7. in hyperinflation, it's nearly impossible to get a loan. Homes must be sold for cash. If that happens, real prices of homes will drop to cost of a year of renting.


conclusion: housing is a bubble that's bursting. smart money is moving away to greener pastures. it's the transition that fed is mitigating. soon enought, nobody will give a damn about anguish of people who lost 70% of their equity but are stuck with paying it.

don't buy now. prices are slated for continuous fall. maybe 2 years from now will be a good time.

Anonymous said...

Keith,

I'm starting to wonder if living in London has begun to cloud your judgment a bit here.

Certainly higher inflation will reduce the nominal drop in home prices over time. But that won't happen overnight or fast enough in the next couple of years to make a major impact. It will take a few percentage points off the drop but not that much -- with the caveat that the Fed doesn't push rates dramatically lower and totally destroy the dollar. Besides, word is that rate cuts are done and they can't drop rates any more really without risking a dramatic run on the dollar and a deep recession/depression.

More importantly your conclusion that foreigners will buy up all our assets tells me that you are confusing corporate assets with residential assets. The might swoop in and buy commercial property on the cheap but that won't make a major impact on residential prices.

One could argue that the rest of the world will start moving to the US because homes are cheaper, but with wages falling due to dollar depreciation and booming economies throughout the world, there are plenty of great alternatives to living in the US. Heck you are a living example of that.

Bubbles aside, residential gains are tied to income gains which are quite flat and shouldn't increase substantially in the near future. Housing prices will decline over the next 2-4 years until prices fall in line with incomes. I know you know that but seems your gold and oil fever are getting the best of you.

I will not say you are 100% wrong because higher inflation will lead to higher asset prices overtime. But your assumption that it will have a major impact in the short term is definitely wrong. When bubbles pop, the slide is faster and more pronounced than the build and will happen faster than hyperinflation and wage inflation can substantially impact.

ALL THAT ASIDE, there's been some great articles recently about algae as a biofuel. It consumes massive amounts of C02, creates 50-100 times as much energy per acre as soy and corn and easily converts into gasoline, ethanol or jet fuel.

It is estimated that a resonably large facility in the desert equal to less than 10% of our farmland would provide enough fuel to make the US a net EXPORTER of energy.

The cost? $150 billion to setup and run, producing oil at a cost of $35 to $40 a barrel. That's less than 1/2 the price of oil right now and less than 25% of what we've already spent on the Iraq War.

So the problem here is not Iraq, peak oil, high commodity prices or high home prices. The problem is that we've got an oil man running this country whose friends make money every time oil goes up in price.

A nominal investment of $150 billion by the US in biofuel would drop oil prices down to $30 to $40 and bankrupt Venezuela, Iran and the Soviet Union who are only able to fund their economies due to the high price of oil. They've made major long term financial commitments to communist type social programs based on the assumption that high oil prices are here to stay. Take those prices away and their false economies crumble.

We just need to get this a*shole out of office first.

Anonymous said...

Stuck in so pa said: "The tourism industry should really pick up as our dollar hits the sh#tter!
I guess that one poster was right; you CAN put a positive spin on anything!"

I wouldn't count on it. The US immigration dept fingerprints everybody with a foreign passport. Personally I find that offensive and avoid travel to the US because of it.

nattering nabob said...

"I think they will try to engineer somewhat higher inflation (say, 5-10%) without resort to printing,"

LOL - have you bought anything in the past 12 months? Price inflation is already running at 10% in the general economy. Food, energy, medical costs, almost anything made domestically is more expensive than a year ago. The only exceptions I see are houses and crap made in China or Japan. Housing is a case of oversupply & restricted credit, and as for China and Japan, both manipulate their currency to support their exporters.

The rest of the economy is seeing rampant price inflation. Posters here claim there is no wage inflation, and I say bullsh_t. Where I live average wages have increased 25% in the past three years and unemployment is at a record low. Places like McDonalds and Burger King have to offer $9/hr starting pay to attract workers, and the oil patch is paying high school kids $20/hr training wages.

Inflation is here, it's real, and it will drastically change our financial future.

Anonymous said...

I don't get it. So what - buy now because house values are here to stay. Someone explain in short simple terms....I don't get it!

Anonymous said...

I HUMBLY disagree.

Until that inflation (which is occuring for said assets)reaches the average joe via his paycheck prices MUST come down. The real issue is A-F-F-O-R-D-A-B-I-L-I-T-Y!!! why cant people see that!!!!

Paul E. Math said...

Okay, I don't have time to read all 80 of these posts but after reading your post that immediately followed mine, Keith, I think we're in agreement.

It is VERY important to look at home prices in REAL terms, not just nominal. The nominal price of homes will not drop the full 40 or 50% that we expect but the real price will.

One of the guys at bostonbubble.com does a great job of graphically showing the real decline in home prices in Massachusetts using MAR prices and cpi. It show a 15.29% decline in real prices in Massachusetts since the peak of June 2005.
http://www.bostonbubble.com/forums/viewtopic.php?t=512

The author acknowledges that the conclusions would be both significantly lower and more accurate if home price data from the Warren Group or Case-Shiller were used but I think that would mean redoing a lot of work or something. I think the findings would be more accurate if there were a more accurate and honest guage of inflation but all we really have is the numbers put out by the government.

I'm not sure what is out there to show other regional home prices or national home prices in real terms. But I would like to know.

Anonymous said...

"Yeah jobs are going away. Maybe for you union slobs that's true. Every union jobs SHOULD go away ASAP.

For someone like myself with an education and a skill to offer plenty of jobs.

Sorry renting fools, once again you lose."

is your 401k getting kicked in the nuts as of late? I sure hope so. I loathe you Gordon Gecko types I really do.

Anonymous said...

Keith, I've agreed with you on almost everything, however while one of the ramifications of the falling dollar is the decrease in the spending power of the American consumer, I fail to understand how this will result in housing prices not falling much further. If the sheeple aren't receiving $100,000 pay increases then they will lack the finances to afford $500,000 homes even if gold goes to $2000. The downpayment rules and other credit tightening rules would have to be amended. It's the credit tightening that will home prices down.

turdly said...

Ok, I'm calling basic bullshit, not full bullshit. In defense of what Keith says; Mortgages have to go to 2.5 times annual income, and wages have basically stagnanted since 1998. But the gold versus buying power is Bullshit. It's a house versus a commodity. We messed up by treating houses as commodities. They are not.

sam said...

"I'm Canadian and friends of mine have already bought a car in the US (saving about $12K in the process vs Canadian prices) and are now looking at US real estate. With our "loonie" worth more than the US dollar and at a 130 year high things are mighty cheap just south of the border."

Don't get too attached to that real estate. We're still going to deport you. Not because we don't like you, but we want to be fair fair and nondiscrimatory to the Mexicans.

Anonymous said...

I've a question for you then.

How can housing prices be supported after the easy credit is withdrawn unless there is meaningful wage inflation ?

Housing prices are determined by what we can afford - which is determined by what we get paid.

If all our other "must have" things like gas and food sky rocket - yet there is no wage inflation - surely that puts MORE not less pressure on housing prices ?

Edgar said...

Ford sales down 9.5%, yeah, the Canucks will save us. LMAO!

Anonymous said...

I wouldn't count on it. The US immigration dept fingerprints everybody with a foreign passport. Personally I find that offensive and avoid travel to the US because of it.
________________________________

I find this offensive too and I'm an American! Our border control efforts are pathetic and a joke. We're totally rigid about airline flights but our southern border is so porous we've got millions of illegal aliens who have simply walked across!

Anonymous said...

duh.

There have been a number of posts that have said this over the past year or so I have been following this blog.

The fed is going to try to raise and control inflation, devalue the dollar, in an attempt to right this ship. It will be painful for the working stiffs who have no idea what is going on. If they pull it off, we will "hurt less" than other economies.

It would suck right now to work in the Canadian tourism industry or any industry (pope and talbot anyone?) that depends on exports to the US.

Anonymous said...

Anonymous said...
'I wouldn't count on it. The US immigration dept fingerprints everybody with a foreign passport. Personally I find that offensive and avoid travel to the US because of it.'

You are soo right…

On the other hand if the world would not have been soo selfish and helped the US in its war against Islamo fascism, we all could have been on the offense crush those insane murderers, and we would not have had create all these defensive measures.

Anonymous said...

Keith .... I think you're are wrong on this one ... wages aren't rising to make up for the higher costs of housing, goods etc.

Anonymous said...

Yeah jobs are going away. Maybe for you union slobs that's true. Every union jobs SHOULD go away ASAP.

For someone like myself with an education and a skill to offer plenty of jobs.

Sorry renting fools, once again you lose.


Like the contemporary American philosopher, Snoop Dog, would say: "Right back up in your arse, mofo"

Anonymous said...

Why would foreign investors buy residential real estate in the US?

They are not stupid like the typical buyer here has been. They know the burbs are worthless without cheap energy (oil will crack $100 before 08), McMansions were built with inferior materials by illegal labor, etc...

The dollar will tank further and the homes will sit idle while the real cost of living will surge. What kind of social unrest this will cause is the question at hand.

Anonymous said...

.





Mmmmmmm........sheep!








.

LaTechDude said...

i'm of the opinion that the only true measure of inflation is average annual income growth. any model to create a "basket" of goods that we spend our money has many flaws.
here is what i see as typical major expenses for various demographics that follow what me and people i know spend the majoritory of their money on:

college age: tuition, loan interest, auto insurance (Cali), music, booze

out of college/no job: interest expense, travel, booze

out of college/first job: rent, car, eating out, tv (consumer electronics)

mid to late 20s: cars, computer, furniture, rent, travel, entertainment

30s-40s: mortage payments, furniture, travel

boomers: cars, boats, travel, interest expenses

for me it's: video games, computers, sports tickets, poker tournements, travel

or course there are many other cases, (no college employed, no college living at home etc, retired) that would have completely different spending patterns as well

ten years ago, my biggest expenses were car insurance, computers, tv, consumer electroncs and music. all of which are cheaper now. my car, (a low end chevy) cost me about 13K, if i was to get a new one, would be about the same.

i fill up my gas tank once a week have no idea what i spend on groceries per week, but it's far less then a dinner for 2 at nice restaurant. my friend in nyc doesn't even have a car and spends most of his money on travel and going out.



and whether you spend a lot of money on food eating out every night vs buying food at costco depends alot on how comfortable you are at your current job and your disposible income. these are often very volitle as well

basically people will spend either all of their money, (or budget) on something, and if the prices of everything goes up, they will (eventually) buy less of one or more of those goods until they reach their spending limit. demand for some good(s) then falls

Anonymous said...

Keith after reading all of the posts, I think you should close this thread down and label it "Myth Busted". It appears that your thesis does not stand up.

Anonymous said...

Ok everbody your house is now worth $10000000 and rents average $5000 / month. How stupid and unbelievable does this sound.

The fundamentals are nonexistent.
Prices will crash.
Rents will go down.
Prices are crashing!!!

Read your real estate history.
Unless if we get 100000 dollar raises.

Anonymous said...

Mcdonald's still has double cheese burgers for $1.00

The 99 cent store still has aisles full of cheap chinese crap for 99cents.

The fact that a bubble(housing) bursts doesn't make it deflation. When you could buy a house with zero down and stated income it didn't matter if the house was $300,000 or $600,000, hence the "doubling" of prices in bubble cities in a relatively short time period. But if sanity is returning and you now need 20% down and prove income the natural reaction would be to a return to more sane prices. That's not deflation any more than insane speculation was inflation. Ordinary market forces are not at work in oil and gold either. oil has cartel problems and gold has central bank problems.

Anonymous said...

Keith, Sounds like you've just discovered real prices.
You make a good point.

LauraVella said...

Anon said:"When you could buy a house with zero down and stated income it didn't matter if the house was $300,000 or $600,000, hence the "doubling" of prices in bubble cities in a relatively short time period".

Agree Anon. buyers only cared about the monthly payment.

Reality will be painful.

Anonymous said...

Where I live average wages have increased 25% in the past three years and unemployment is at a record low.

Where do you live? I want to move there ASAP!

You won't answer because you are full of s#it!

Anonymous said...

150 billion for bioethanol fuek self suficiency and self sustainability is 80 percent to high priced.....like you said we get wars for 150 billion, sarcasm????

Anonymous said...

crack me up sam, while you destroy my hopes of an affordable place to flee to as i avoid the rich and poor banging down my door wasting their time....aint dat somethin

Anonymous said...

i find those double cheeseburgers mightily tasty, and remember them lately at 70 cents...long time I been away....think i will upgrade my raman...

Anonymous said...

Keith after reading all of the posts, I think you should close this thread down and label it "Myth Busted". It appears that your thesis does not stand up.

_____

What in these posts convinces you the thesis is wrong?

The destruction of the US Dollar is underway. You'd better pay attention and shake yourself out of any cognitive dissonance you may have.

nattering nabob said...

"Where do you live? I want to move there ASAP! You won't answer because you are full of s#it!"

Use the internet and find it for yourself dickhead. BTW, we really don't want any more slack-asses like you out here, our booming economy has attracted way too much road dirt already. So stay in your filthy little apartment with the doors locked.

Anonymous said...

"Where do you live? I want to move there ASAP! You won't answer because you are full of s#it!"

Use the internet and find it for yourself dickhead. BTW, we really don't want any more slack-asses like you out here, our booming economy has attracted way too much road dirt already. So stay in your filthy little apartment with the doors locked.



HAHAHAHA, cracker box renting types crack me up. Come'on where you at? Mississippi? Arkansas? Alabama? Way back in the hills makin' shine. Biofuel is up so I guess shine making is profitable and a "boom" for your local. Oh, yea, keep an eye out for the smokey when your runnin' jugs up and down the subdivisions...