The US budget is 3 trillion dollars (I rounded the numbers to keep it simple). We have 300 million in population. Divide the population into the budget and we get a tax bill of $10,000 per person. Through taxes this year, we raised 1.5 trillion, so there is $5,000 loan per person being spent and added to the national debt for each and every one of us. Divide 300 million into the national debt and everyone owes $47,000. So a family of four owes 200K, and will have to pay the interest, but that's another story.
The neat thing about the National debt is that it is inheritable. It’s a weird concept, you die and a newborn somewhere in the US takes over your balance owed ---and you thought Congress didn't know what they were doing. We like to envision our passing where the kids get our assets, and the banks get to fight over our debts --- Not a chance!
Money in the bank is paying zero interest, but at the same time, Gold has gone from $1,000 to $2,000. The pundits suggest that silver and gold coinage is not necessary in today’s world. Of course if you go back 100 years, all of our debts were payable in gold and silver. In 1965 our silver currency was worth more melted down and disappeared from circulation. In 1982 the mint stopped producing copper pennies. The copper in the penny was worth more than its face value. We now have zinc, copper clad pennies. The words "deadbeat superpower" come to mind for some reason. The funny thing about gold and silver, they are a universal currency without a border or the need for a banker.
In 2006 everyone was buying houses with no money down with an 80/20 25/5 interest only loan with no PMI. Today, it is difficult to qualify for a home loan even with a large down payment. Plus the investment qualities of home ownership have evaporated. On top of that, everyone that ever dreamed of owning a home got one; and now they don’t know what to do with it. Real estate is going nowhere, which is kind of an understatement, unless its a mobile home.
A peculiar thing about real estate statistics is that when the market tanks, the average median sale price of housing tends to increase. What happens here, is that the rich buy houses when they feel like it. On the other hand, working stiffs with a poor credit scores can’t even get in the bank door to negotiate a loan. It is the low price homes sales in a good market that drag the median price down. Say normal sales are 10 starter homes to every high priced one. In bad times, the ratio could drop to 2 to 1. The new data would show prices are increasing when in actuality they're not; the number of low price homes in the data has dropped dramatically.
Politicians are commenting about the possibility of a double dip recession. Is the double dip reference, a car salesmen close? Accepting as fact; we have a chance of going back into a recession, implies we've bought the concept, that things have gotten better when they haven’t. The wheels were kicked off of the financial sector back in 2008 and it is not getting better.
We could be in the eye of a financial hurricane. The disaster hits and then calm and sunlight—and a sigh of relief. And then . . . . . . . that monster from your childhood years, that lurked under your bed or in your closet . . . . . . . I think it’s back, you can smell the fear in the air.
13 comments:
Excellent point about average house prices. And I agree completely about the non-end of the recession.
Many of the high priced homes took huge haircuts in price, far greater in both percentage and in absolute dollars. A $150,000 home, in the worst of times, would lose about 33% of its value max, even as an REO.
A $1.5 million dollar home could see a 50% value cut.
That value lost on the $1.5 million dollar home would have a huge effect on median home prices especially when so many of them lost value on that magnitude.
National median home prices are a number you can routinely ignore for the next few years. They are no longer a worthwhile market measuring tool.
Hi Drewbert
I think you are right, the median home price doesn't mean much in todays market (there's a pun there). I also see the higher price homes dropping faster than the lower priced ones.
Here in the San Diego area, there are better deals on high end housing. The starter homes have only dropped 100k and they are everywhere. No Realtor signs, just a lock box and a brown lawn. Why buy a starter home when you can upgrade your choice from junk to nice for 100k? I guess that the banks out here can't read between the lines.
There are areas of the country now where homes are selling well below construction costs of $80,000. I talked to a marine moving to Michigan that bought a home for 28K with 3 acres. Not sure what he got, I don't care for the winter weather out there, his wife seemed excited.
The only thing I can conclude so far, it that the real estate mess is far from over yet. Our area has hardly been hit compared to Florida and Michigan.
Your punctuation and syntax makes what otherwise should be a very easy read, difficult. Nonetheless, you make some interesting points. As for the "mess" being far from over, I would tend to agree. Unfortunately for a great many people, the ride is not even close to an end. :o(
I have no issue reading Jim's posts. I find them much more entertaining than the main stream media.
Drewbert makes good sense as do many of the comments.I agree with the piece at hand, yet we cannot lose sight of the idea that high-end property is relevant (as most 700K plus properties still are not high end IMHO per se but over priced) yet none of it is immune. I read that it is the high end 1M plus that isn't selling (no surprise when some price what are to me 50K dumps at 750K hello California) and most of that market is leveraged. When that falls it drags everything down. The entire market is overbloated and overvalued to me. I look forward to future posts.
Hi Anon 12:53
Be thankful that I edit what I publish several times. The mistakes are even obvious to me when I read them months later. I have improved somewhat, over time (I like to think). There use to be a retired English teacher that dropped me a comment now and then on my use/abuse of the kings English.
Maybe when I retire, I'll take a writing class-- English wasn't a favorite course of mine in school. And believe it or not, I've got a degree in Journalism and Im a wousy spealler two:>)
Hi Anon 1:02
Thank you for the compliment. Its nice to have someone covering my backside--never know when you'll run up against an English teacher;>)
Hi Edward
The thing that worries me, is if the government prints enough dollars, the present housing prices may appear reasonable a few years down the road.
That could be endgame with all this. One way to get people above water on mortgages. The banks and politicians pat them selves on back. Only problem will be that gas costs $20/gal
Hi Rob
I already spend a dollar a gallon on drinking water. Buying water at the store every two weeks is like getting gas $24, or $48 a month.
Yet, I see people paying $1.50 for a 12 oz bottle of water and can't quite figure it out.
If we get that inflation, it will ruin the retiree's that have saved all their lives. The banks don't have any skin in the game, it is all depositors funds.
Of course the politicians could take the credit, but if they do, the silver foxes will be on a payback vendetta.
I agree,it is an end game. Sadly, the government has to be blatantly obvious before the hoi poloi catch on.
Jim
I guess that is one good thing about living where I am. I have drilled well that has overflow. Sort of a low pressure gusher. I have been living in my house for over five years it has never stopped even on hottest day of summer. So my drinking water costs me nothing. Still not much good if I can't afford to heat house in winter.
It still amazes me that powers that be can continue to game the system. I think final act in end game is near. The power utility in my province is planning more rate hikes. I should feel hard done by but it is happening in most juristictions. At some point the people on fixed/low incomes are going to realize that they cannot maintain any semblance of their standard of living. The rest of us working stiffs can continue staggering on for a while papering over financial problems with HELOCS and credit cards. Ignorance is bliss for the majority of people. I have had the luxury of living in poverty so if at some point I have to revert to that it shouldn't be too much of a shock. The people used to having everything as some god given right are in for a big surprise. Still this whole thing could play out as a death of a 1000 cuts which as your blog notes will only be seen clearly with the benefit of hindsight by historians.
The trade imbalances in world are at root of problems. At one time a good war would solve this but with all the nuclear weapons around this isn't a good idea anymore. We are left to pick on low hanging fruit in middle east to prop up our economies. This won't work long term as it is akin to injecting a crack addict with penicillin. It clears infection for a while but does nothing for the fix.
"It’s a weird concept, you die and a newborn somewhere in the US takes over your balance owed "
I see a new source of revenue. The government can charge your estate debt forgiveness tax. :)
(like the concept of short sale debt forgiveness tax)
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