Over the past week, so much has been thrown back and forth over the “bitter” comments Senator Obama made about small town Americans in Pennsylvania. When I first heard of this while flipping through the radio news circuit, I wondered to myself, “what in the world did he say?” Bitter this and bitter […]
Related Posts:
■Real Homes of Genius: Today We Salute you Huntington Park. Tweedledum and Tweedledee of housing. $500,000 Homes in Wonderland.
■The Evolution of the Los Angeles Housing Bubble. 50 Years in Perspective.
■Housing Voyeurism: What Kind of Housing Personality are You?
■What goes up must eventually come down. Especially when going up consisted of using Houdini like smoke and mirrors.
■Dissecting a County of 10,000,000 People: The Housing Demographics of Los Angeles.
Over the past week, so much has been thrown back and forth over the “bitter” comments Senator Obama made about small town Americans in Pennsylvania. When I first heard of this while flipping through the radio news circuit, I wondered to myself, “what in the world did he say?” Bitter this and bitter that they kept saying. My initial gut response was that he had said something horrifyingly demeaning. But after reading the text of what was said I am now completely convinced that the media is a flat out tool wanting to discuss bathroom gossip topics.
Here we have oil going over $114 a barrel, housing tanking, jobs being lost because we are in a recession, the war still sucking us dry financially, and they want to discuss this? Do they think Americans only have the attention span of a gnat? Apparently they do since they don’t discuss anything that requires more than two minutes of analysis and like putting up enough graphics to put anyone into an epileptic shock. Ticker tape on the bottom, multiple graphics in the background usually floating an American flag, and a talking torso telling you what to think. Here is the exact text referencing what Senator Obama said:
“But — so the questions you’re most likely to get about me, ‘Well, what is this guy going to do for me? What is the concrete thing?’ What they wanna hear is — so, we’ll give you talking points about what we’re proposing — to close tax loopholes, you know, roll back the tax cuts for the top 1 percent. Obama’s gonna give tax breaks to middle-class folks and we’re gonna provide health care for every American.
But the truth is, is that, our challenge is to get people persuaded that we can make progress when there’s not evidence of that in their daily lives. You go into some of these small towns in Pennsylvania, and like a lot of small towns in the Midwest, the jobs have been gone now for 25 years and nothing’s replaced them. And they fell through the Clinton administration, and the Bush administration, and each successive administration has said that somehow these communities are gonna regenerate and they have not. And it’s not surprising then they get bitter, they cling to guns or religion or antipathy to people who aren’t like them or anti-immigrant sentiment or anti-trade sentiment as a way to explain their frustrations.
Um, now these are in some communities, you know. I think what you’ll find is, is that people of every background — there are gonna be a mix of people, you can go in the toughest neighborhoods, you know working-class lunch-pail folks, you’ll find Obama enthusiasts. And you can go into places where you think I’d be very strong and people will just be skeptical. The important thing is that you show up and you’re doing what you’re doing.”
Of course people are bitter! They have reason to be angry and frustrated. Have you seen the Real Homes of Genius we have been featuring since 2006? I’ve written nearly 300 articles examining this from Wall Street greed, broker malfeasance, and flat out speculator boondoggles that we are now dealing with the fallout. All of us are now being asked to support poor financial decisions by many through taxpayer support. You can arrive at your own conclusions after reading the text above but if you are going to the mainstream media for your investment and political advice, I simply would ask you try to dig deeper beneath the surface.
What does this have to do with housing? Actually a lot. The first time I started thinking something was wrong was when in late 2000, home prices in Los Angeles County hit a whopping get this, $209,000. You need to remember that $200,000 for housing at that time was actually a high median price for a county. Yet I really started to question the economic fundamentals when in late 2001, the median price for Los Angeles County hit $233,000. I thought to myself, “how can housing go up if we just hit a recession?” Then the wheels came off and I knew something was utterly wrong. From 2002-2004 the median price in Los Angeles County went from $235,000 to $418,000. During this time I knew 100 percent that we were in a bubble. I started going on alternative media sites for information and went on various sites to discuss the housing market. One of the main places I would casually go to was Craigslist in their housing discussion forum. It is a fascinating place. Suffice it to say that a raging battle was going on between so-called “housing-heads (HH)” and “bubble-heads (BH).” You need to remember this is during 2003, 2004, and 2005. A conversation would go something like this:
HH: Prices will keep going up because mortgage products make your monthly payment extremely low. You can sell in a few years and make a nice profit. There really isn’t a better time to buy.
BH: But what about incomes? The only way you can buy a home in the current market is if you get an exotic mortgage product and become a speculator. There is no guarantee prices will go up.
HH: Nothing in life is guaranteed! If you don’t jump in right now you’ll be tossing your money as a renter. That is flushing money down the toilet. Why not build equity and have a place of your own?
BH: We all need a place to live. But again, current home prices are not justified by current incomes. I was looking at an inflation adjusted chart and prices are way out of line. Prices need to correct. Plus, renting is much more affordable.
HH: You’re just a doom and gloomer. Fine, leave money on the table you bitter renter. Remember, the 1st of the month is when rent is due.
BH: Isn’t that when your mortgage payment is due as well? Keep on being a delusional housing perma-bull.
Of course this conversation has many variations but you get the gist. This went on for years and of course, each subsequent month only solidified the argument for the housing bulls. But the reality is we are in a decade long bubble. Simply because prices kept going up did not mean they would go on forever. The argument many times got heated and I would simply read and chime in sometimes but you could sense the absolute anger and frustration with many. If anything, I learned more about bubble psychology by reading the forum in those past years than actual housing economics. Of course, many lied but really there wasn’t anything to gain either way. This was a tipping point for herd mentality and many people bought into the argument and decided to buy a home. At this point I decided to start the site to have a place trying to expose the lunacy of the housing market which I felt the media was not covering. Of course once you own a home, it is hard to be impartial since of course you want your home to go up in value. Heck, I want to say a few of my sports cards are worth thousands but in reality, I know they are not. I’m actually a renter and an owner of multiple investment properties. Maybe that explains my cognitive dissonance. I’m not delusional to think that an overall correction will not hurt property values throughout the country and possibly even hurt rental rates but again, if you invest conservatively you have a much larger cushion. Plus, it is the best thing for our country to get back into a saving mentality and put aside this crack addicted hamster on a meth spinning wheel spending addiction we currently have. Having an economy based on massive debt is not good for our long-term prosperity and the U.S. Dollar is showing this:
Here is a common article of why so many of those that stood firm in the bear camp became bitter during these years:
“Posted 6/10/2005
By Jim Jubak
Why there is no housing bubble
The sky is not falling. Yes, home prices are sky-high, but we really don’t have a housing bubble that is anywhere near bursting. Here’s why.
Housing bubble? What housing bubble?
With the 10-year U.S. Treasury bond yielding below 4% and 30-year mortgages available at 5.1%, there isnt a housing bubble
Mind you, I’m not saying that U.S. consumers don’t have too much debt, or that the U.S. economy isn’t dangerously dependent on the housing sector for growth, or that all the money sloshing around the globe isn’t encouraging dangerous speculation.
But those are different problems from the one getting all the headline attention at the moment.
It’s just that, for all the teeth-gnashing and pundit-moralizing, we really don’t have a housing bubble that’s anywhere near bursting. Current 10-year interest rates are just too low. And I certainly don’t see interest rates rising enough in the next year or so to burst a bubble, either.”
If you are not aware, the 10-year U.S. Treasury bond is still below the 4% mark and you can still find conforming loans with good credit for 5.75 to 6.25%. Clearly the argument at this time was that rising rates would be the main culprit of a bursting bubble. Well rates didn’t rise and the fact that he dismissed crushing debt was completely wrong. This isn’t a credit crunch but a debt crunch. Nothing exemplifies this more than our negative savings rate. People lived on the edge and had no safety cushion. Here is more of the argument:
“What we’re seeing in the housing market is monetary inflation. Pure and simple. Economic theory says that when more money chases a limited quantity of goods, the price of those goods increases. So nationally, cheaper money drives up the price of houses — which does lead home builders to increase supply at higher prices. In areas where adding supply is harder — the land for building a large number of apartments in Manhattan is scarce, as is land to build in Silicon Valley, on the Miami waterfront or in the core of San Francisco, to name a few other super-hot real estate markets — new supply is extremely constrained at any price and prices for existing housing soars as a consequence.
Of course, this is all an extreme generalization. Adjustable and interest-only mortgages, as they become a bigger part of the mix, increase the supply of cheap money and drive up prices even faster, for example. Demographic trends increase prices faster than average in areas with more jobs, for example, or where cheap land lets builders construct new housing for the country’s growing population of retired (or semiretired) workers.
But you get the idea: cheap money drives up housing prices.”
He uses cheap money various times in the article. What we now realize is that it wasn’t cheap money but fraud, no documentation mortgages, no down payment products, and flat out ridiculous toxic financial instruments. He called it cheap money. I call it fraud and market manipulation. But this is the reason so many people were fed up and angry hearing this logic over and over being blasted by the media. Of course being cautious he hedges his bets in the article:
“None of this means that the housing market can go up forever, or that we won’t have a day of reckoning someday. And I think any sensible person should use the current drop in interest rates as an opportunity to get his or her own financial house in order. It would be unwise to expect that another, and then another, of these refinancing opportunities will come along in the future.
It’s just that those who are predicting a housing bubble and its bursting may have much longer to wait than they expect right now.”
Well two years in the scheme of things isn’t too long especially given that prices in Los Angeles County are now back to 2004 levels, even prior to the 2005 article. Here is a post from a Google Group discussion in August of 2001 which you can already see the seeds of speculation forming:
“Aug 29 2001, 8:08 am
You guys really ought to do some studying.
There are more people than housing; the population keeps increasing, as well
as immigration. There is no real estate bubble. There are all kinds of
deals to help people buy real estate; there is a shortage of apts.
everywhere. Robert, you should know about Florida. Do some reading, man.
Go over this weeks Barron’s, not for the opinions, but for the provable
statistics. There won’t be a burst; if there is a decline in prices in
certain areas, there are still increases in other areas; especially Florida.
And overall, no burst, maybe a decline in prices, but still a demand. It’s
not like the overvaluation situation with stocks.”
A little early but some areas in Florida are now quickly approaching prices of 2001. If you are interested in seeing how the trend morphed in the last few years here is a good measure of consumer sentiment, the oracle otherwise known as the Google Search box:
The peak year for the search “housing bubble” was in 2005. Incredibly, the search terms “housing crash” and “house flipping” look identical which is probably another tidbit of information showing how poor some people timed this market. Even still, the search for information regarding the housing market on the downside still seems to be leaning towards, “how can we keep prices propped up further” and this is only reflected by the multiple bailouts being thrown out in the current arena. Unfortunately it looks like we are going to have a few bailouts. But we need to voice our concern (click on the box on the right sidebar to find your representative) and make sure that no money is allocated to those on Wall Street, builders, lenders, and the main greasers of the bubble. If we have a choice between helping someone in Pennsylvania or Michigan to keep current on their $120,000 mortgage or helping a Wall Street investment firm stay solvent with $30 billion, I choose to help the owner. Do I support a bailout for California? Absolutely not. In fact, I would go as far as putting a cap near the median home price for the United States at $200,000. Anything beyond that and you have the option of reworking your note with your lender, selling if you have equity or short-selling if you are underwater, or if the circumstances warrant a foreclosure. It seems like we don’t have option C which is to let the market correct on its own. Adam Smith is busting windmills in his grave each time these Wall Street firms go hat in hand to Washington when times get tough.
People are angry and many are bitter. Is there a problem saying the truth? Should we close our eyes again and pretend there is no recession? Maybe if we click our slippers hard enough and believe in the Wizard of Oz (aka Ben Bernanke) then all will be better tomorrow. There is reason to be angry and frustrated given the current health of the economy and the horrific policies that got us here. We didn’t get here overnight and we won’t solve the problem by sending Wal-Mart vouchers of $600 to the American public to go out and spend on Chinese products and thus reinforce the behavior that put us here in the first place. Take a look at the current CPI. I was amazed to hear on NPR today someone say, “energy and food went to record highs but the good news is apparel costs are down 1.9 percent.” Bwahaha! Who needs food and gas to get to work when you can dress yourself up in Gap clothing and run around the neighborhood screaming how bitter you are?
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Related Posts:
■Real Homes of Genius: Today We Salute you Huntington Park. Tweedledum and Tweedledee of housing. $500,000 Homes in Wonderland.
■The Evolution of the Los Angeles Housing Bubble. 50 Years in Perspective.
■Housing Voyeurism: What Kind of Housing Personality are You?
■What goes up must eventually come down. Especially when going up consisted of using Houdini like smoke and mirrors.
■Dissecting a County of 10,000,000 People: The Housing Demographics of Los Angeles.
Via [DrHousingBubble]
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