Look what the Republicans have done to our economy by following their core "trickle down" economic ideology, which really means borrow and spend. They have run up a massive debt which combined with no oversight, a near total removal of regulations on corporate conduct, and watched and let Neil Bush run a savings and loan (oh, sorry, that was that other Bush presidency -- when S&L owners and Republican campaign contributors robbed us blind and bribed Senators like John McCain and then got a massive government bailout.)
We have all been hearing a lot about housing prices falling, and about the effect housing prices have on the economy. The impact to date, while real, is actually overstated. Why? Well, housing markets and their impact are the turtle of economics, they happen very very slowly. Prices have to fall and people have to sell, when they sell they, if they get less than they expected, may not spend as much as they would have if they had reaped a huge profit.
Of course, the lack of higher equity is hurting those home equity lines people were tapping like McCain at an open bar. But ask yourself, honestly, how many people do you actually know who have either been forced to sell or have sold and not made a profit? Not that many -- yet. People are still holding out.
Unquestionably the economy is slowing. Consumer debt is massive, companies are cutting jobs, inflation is rising, unemployment is a full percentage point ABOVE where it was a year ago, and with a work force of 200 million plus, that's 2,000,000 newly unemployed Americans.
Just this morning, we saw that planned July Job Cuts skyrocketed to over 100,000 meaning that unemployment will continue to climb, the economic impact of those layoffs won't be felt till mid-fall at the earliest when severance packages run out and the reality becomes apparent, new jobs are hard to come by.
But now the time is arriving when we will start to see and feel the real impact of the slowing economy -- layoffs will pick up over the next year and the forecast is for increasing and increasing unemployment, it almost surely will be another point or more higher next year than it is now.
Slowing economies manifest themselves in many ways. But the most prominent is in the corresponding fall in housing prices. In every modern recession, the fall in housing prices follows the economy slowing down. What we have yet to see is the falling economy's effect on housing prices. So if you think prices have already dropped, and might even be reaching a bottom, we think it's the other way around: prices are about to start dropping.
Former Federal Reserve Chairman Alan Greenspan said falling U.S. home prices are "nowhere near the bottom'' and the resulting market turmoil isn't showing signs of abating.
How can this be?
How can prices that have fallen 25% in Los Angeles year over year be about to start falling? Well, because unlike every other real estate boom of the past century, this past boom was, in fact, a boom and a bubble. This numbers below, from the Case-Schiller Housing Index showcase that and how the first bubble may have popped, the excess speculation bubble, but the underlying bubble remains, and now will begin to deflate.
Prices in San Francisco were set to an index of 100.00 in January of 2000.
By January 2004 prices had jumped to 155.93, a massive jump by historical standards. This alone is a real estate bubble.
By January 2007, they had already softened a bit but still were at 211.78. This is the second bubble.
Now the index stands at 162.70. Still up 60% since January 2000.
The prices have lost some of the home equity / no money down madness bubble, but have let to be impacted by the slowing economy. And they will be
How far will they go down? Well, economics is ruled by larger trends and post bubble, prices eventually revert to the historical mean.
For example in the ten years from January 1987 to January 1997, prices increased 22%. And, fyi, that's after inflation, meaning a house purchased for $400,000 in January 1987 was actually worth less, in real dollar terms, in 1997, ten years later.
That's not a rant, that's a fact, all of these prices don't include inflation.
In real dollar terms, house prices really don't escalate much. Some studies of ONE HUNDRED YEAR time frames of the US Market show, in real dollar terms, that house prices remain flat.
How can that possibly be?
Well, we've been inundated with ten years of powerful powerful advertising messages that tell us, "housing prices always go up."
We borrowed money and spent it like good Republicans, because housing prices always go up.
We just know we can buy more and more because housing prices always go up.
But they don't.
So how can you estimate what the actual value of a house in San Francisco really is? How far can they fall? Another 40% to historical norms of growth? More? Well, Dave recently calculated how far prices in the San Francisco Bay Area could fall using three different methods.
The first was the rent to price ratio. With this method you take the average rent and calculate the amount of money you need to put into a decent investment to make the same amount. For example, if you are clearing about $833.33 per month ($10K oer year) from a rental property unit (remember to account for maintenance and property taxes and something for your time...) then the price of the property would be around $100,000 for a 10% return ($10K is 10% of $100K) and $200,000 for a 5% return (sufficiently higher than a CD pays right now).
So if houses in your area are renting for about $1400-1500 per month this is a rough way to tell that similar houses might be worth around $150K at best. If you double that and they rent for $2800-3000 then house prices would be $300K. And those prices assume that rental prices are not dropping.
James lives in a rental house in Boston which at market peak might have sold for $800,000 or $900,000 but now rents for $2,400. What does the landlord clear? Not $28,000 because he pays the taxes so more like $20,000. If you had $400,000 in the bank would you be happy with 5% return? Perhaps. But that's the highest amount you can estimate the house is worth in the market. And guess what? 10 years ago, the house was worth about $350,000. So it actually is about the right value.
The next method involved the average person in the area's income affording an average priced property. Look around at prices in your area, and average wages. At what price can the average person (or husband-wife) (or husband-husband/wife-wife in Dave's California and James' Massachusetts) buy a house? Right: uh-oh.
The third method is to look at the historic mean plus inflation. When prices triple in a few years, then when they correct they have to fall to 1/3 of the peak (plus inflation). It's just the way it is.
When Dave calculated these for the Bay Area all three methods came out the same and showed that prices can still fall as much as 30-40%. We say "can" but an economist might say "should."
If it falls 30% from that index where it is now, it only drops to 112. Can't happen? Well, remember that 1987 - 1997 DECADE, it was up 22%. Now, after 8 years, it would be up 12% on that index. That's pretty normal growth to be honest.
And what is cumulative inflation of the past 8 years? Let's make it easy on ourselves, and we'll say an average of 3%. The 100 Index goes from 100 to 126 with the combined effect of eight years of Inflation at 3%.
You see, housing is not the perfect "always goes up" investment. And it is clear that the housing prices in San Francisco and many more places could have 30% - 40% to go down from where they are today.
But, you guessed it, the news is actually worse than this. First, there is a huge amount of excess housing inventory on the market. So this needs to be factored into your thinking about where prices can go. On top of the need for prices to revert to the mean, these extra houses have to find buyers before prices can stabilize. This is supply and demand, nothing more, nothing less.
Next is the effect of gas prices. Many, many housing developments have gone up in areas that are far from city centers and far from non-automobile transportation like light rail or even buses, and buyers are going to be factoring the price of gas now. Along with this, the price to heat and cool the monster homes that developers tended to build will become a consideration and will reduce demand for these houses.
Another factor is that the "boomers" are starting to retire, and will be selling the larger homes in which they raised their families or ended their careers, looking for apartments, condos and even senior facilities. This will also reduce demand.
And, just as the price of energy was not considered when these houses were designed and built but has lately become a factor, one day the implications of global warming will start to sink in. In particular, is the house sufficiently above sea level? Is it located near an area that is experiencing increased fire danger? LOTS of Californians are starting to think about these issues.
But if you think we're wrong, and the above factors are non factors. Consider the recent decline in the stock market, General Motors and their 15.5 billion dollar quarterly loss, that's the recession that's here.
This is the big one: A falling economy always forces housing prices to fall. Even when housing prices are not in a bubble to start with a recession forces prices down. And this hasn't even started acting on housing prices yet -- the falling prices we have seen are not because the economy is slowing, they are causing the economy to slow. The slowing economy will make this worse as people are laid off around the country. The foreclosures we are seeing today are not the result of people losing their jobs, but they are causing people to lose their jobs. THEN the foreclosures that come FROM people losing their jobs will start.
There are no, none, nada, zilch factors that we see driving any hope for a "bottom" in housing prices any time soon.
Thanks Republicans for ignoring the country's problems for so long, refusing to regulate the financial companies, refusing to address the need to find alternative energy sources, refusing to fund mass transit alternatives and refusing to provide oversight and enforcement of our laws. Thanks for bringing us to where we are today.
They borrowed and spent. We borrowed and spent and drove the housing prices up through a double bubble. One bubble may have popped. The next one will soon.
Post-Script: We worked on this post last week and over the weekend. This morning, The New York Times has this article: Housing Lenders Fear Bigger Wave Of Defaults. It echoes many of our arguments in this piece.
Where else but Venice, California, would you go to hear an outraged crank argue for indicting the sitting president of the United States for murder in a gymnasium packed to the gills with wild-eyed radicals cheering his every charge?
Which is exactly what we did this past Wednesday, except the crank was no crank, but rather the world-famous former district attorney and best-selling author Vincent Bugliosi, and more than a few radicals in the audience looked to have day jobs and mortgages to pay.
So today, I received the latest volley of Steve Francis mailers (it's been an average of two a day for the last two weeks). Today, there was the regular Francis stuff, but also another one that would seem to be clearly targeted at people who think (for a change). This one only mentions Steve Francis in the return address.
It has a big picture of Mayor Jerry Sanders standing next to George H.W. Bush, with the caption "Why has the Republican Party endorsed Jerry Sanders for Mayor?" It goe on to answer with statements such as "Because Sanders has no plan to protect the environment . . . Because Sanders gives favors to fat cat developers . . ." and so on.
This is really funny to me, because as I understand it, Francis is a Republican too (we do have a rather pathetic set of options this time - but I can't blame anyone for not wanting the job anyway). You really would think the Democratic Party, or a labor union made up this mailer.
At this point, I am inclined to think that Steve Francis really does not have any ambition beyond Mayor, because I can't think that clowns like Ron Nehring will ever forgive him for something like this.
In any case, it is the first time I've actually seen proof of a Republican (and yes, I know that it's a nonpartisan office - LOL) actively running against GWB in this way. I frankly have been skeptical that any Republican would actually violate St. Ronnie's commandment about speaking ill of another GOPer, but there it is.
Is it really a trend? Has anyone else seen something like this? This really is a remarkable election year.
So-called Pres. George W. Bush initiated a war of aggression and limitless occupation against the sovereign nation of Iraq in order to exact revenge on Sadaam Hussein over Hussein's assassination attempt on former Pres. George H.W. Bush and to secure Iraqi oil for Bush's Texas oil cronies. Sen. John McCain and Rep. Mary Bono Baxely Mack, absentee Congresswoman, have supported every Bush war policy without reservation. In fact, McCain is prepared for the U.S. to continue the occupation of Iraq 'for 100 years.'
The U.S. Army recently released a study on the impact of the Bush war of aggression on the mental health of U.S. troops (The Associated Press, by Pauline Jelinek, dated March 7, 2008). The findings of the report are devastating to the Bush occupation efforts and reveal the harmful impact on a significant percentage of U.S. troops.
Update: Everything failed cloture. McConnell's bad amendment failed and so did Reid's good-ish 30-day extension. Which means that nothing has changed and we're back to where everything was last week. Except that now President Bush has some nice fodder for his speech. Updated update: Senators Boxer and Feinstein voted against cloture on McConnell's and for cloture on Reid's extension. Good votes all.
All sorts of interesting developments on the FISA debate over the weekend as we swing into the next phase of the showdown. First, the New York Times blasted leading Senate Democrats in an editorial for even considering an extension of Bush's protections. It also went ahead to say what so many of us know already: the notion that amnesty for telecom companies is anything but an attempt to cover up what this administration has been up to is...well...crazy. The President contends that amnesty is necessary to get cooperation in the future, but it just doesn't pass the smell test. If the law is followed, it's not a problem. And if there's any question about legality, the time to sort it all out isn't well after the fact. That's the whole point of having a FISA court in the first place.
Senator Feinstein holds one of the votes that could be vacillating this week as FISA winds through vote after vote. Call her and speak your mind about the ugly notion of providing amnesty to the telecoms. She has many phone numbers:
202-224-3841 (Washington, DC)
310-914-7300 (Los Angeles)
415-393-0707 (San Francisco)
619-231-9712 (San Diego)
559-485-7430 (Fresno)
Rep. Jane Harman teamed up today with Rep. Peter Hoekstra (R-MI) to editorialize in the Wall Street Journal on why Bush isn't so badThe Limits of Intelligence. Leaving aside the hilarious range of jokes afforded by the title, it's a nearly letter-perfect exculpation for the Bush Administration. To hear Reps. Harman and Hoekstra tell it, the information produced from the Intelligence community is inherently flawed and suspect. As a result, any conclusion could be right or wrong at any given point and assigning a value judgment is just silly:
Still, intelligence is in many ways an art, not an exact science. The complete reversal from the 2005 National Intelligence Estimate on Iran's nuclear-weapons program to the latest NIE serves as its own caution in this regard. The information we receive from the intelligence community is but one piece of the puzzle in a rapidly changing world. It is not a substitute for policy, and the challenge for policy makers is to use good intelligence wisely to fashion good policy.
"Our nation pledged $15 billion over five years for HIV/AIDS prevention, treatment and care in many of the poorest nations on Earth...This investment has yielded the best possible return - saved lives."
Please, let me stop laughing. The so-called President has oftentimes promised much and then provided little to nothing for AIDS, Education, Ethnic Minorities, the poor, the disenfranchised, etc. Now, he 'pledges.' Pledges. Berlin said it best:
"No more words
You're telling me you love me while you're looking away
No more words, no more words
And no more promises of love
Please Mr. So-Called President, no more promises, show us the money!
Friends, things are going to get interesting. Since 9/11 changed everything, the Bush Administration's approach to congress has been the steamroller/cement mixer/napalm bomb approach. But since last fall's elections, the Republican Administration has focused on trying to ensure that they are not held accountable for everything they've screwed up. Case in point, the retroactive immunity law to give amnesty to the big phone companies who sold all of us out without a warrant. Think about that next time you pay your phone bill.
During the GOP domination years, they would have sold this by calling up their Joe Klein friends and scaring Democrats into support with threats from the "so-called left" voices and yelling that Rush Limbaugh was spot on. But that stunt was cut short when America realized that Social Security is not in crisis (disclosure, I ran the www.ThereIsNoCrisis.com campaign) and Democrats finally realized that solidarity for honesty could make our Party invincible.
While the Nixon "Enemies List" was a badge of honor, I think the Democrats whom are named early on this time-frame will be wearing a different patch.
This will be an amazing insight into the thoughts of the Bush team's post lame duck status. The early names will be the names of the Democrats the Bush Administration thinks will throw themselves on the sword for big business despite the little detail we call the 4th Amendment of the Bill of Rights. And we get to know it all in a couple of weeks.
Predictions on who was the first call out of the California delegation?
For the first time in the history of the Gallup Poll, 50% say they "strongly disapprove" of the president. Richard Nixon had reached the previous high, 48%, just before an impeachment inquiry was launched in 1974.
It seems the budget deal in the Assembly has been reached. Some cynics might say that the Assembly reached this deal out of a hope to help pass the term limits measure. At least that's what some cynics might say. But, here's what I have to say: Removing tax credits from teachers and redistributing them is some seriously f*d up VooDoo Supply-Side Economics. Go to the 3:50 mark in this video, although you'll enjoy the whole thing if you are a Ferris Bueller fan. The words of the GOP in the Assembly are eerily reminiscint of days we should be wary of returning to:
"This package is designed to stimulate the economy in the state," said Assemblyman Rick Keene, R-Chico. "We have the data showing that it will actually increase revenues." (SacBee 7/20/07)
Well, you know what, I have a different theory of economics. And it worked for us for over 50 Years, and it made John Maynard Keynes a pretty famous guy. And, oh yeah, it lifted us out of the Great Depression. So, the Republicans have asked for, and received from Democratic Legislators, about a Billion of tax credits for Hollywood studios and multinational corporations with secret data that will show that these will result in higher revenues. Everybody knows this is bull, but apparently nobody in the Assembly is willing to say it.
George Bush has spoken: no guaranteed healthcare, not for kids, not for nobody. Thank you Mr. Bush for putting your unpopularity behind the private insurance sector--just as their "individual mandate" laws in Massachusetts are running into trouble. Bush's veto provides the single-payer movement with the greatest strategic opening in memory.
President Bush will be lobbying Senate Republicans in support of the immigration bill, hopeful of a revival. Hey, why not? He still thinks Iraq will turn around too.
The Belmont smoking ban back and rocking again. I have my own thoughts on outdoor smoking, but hey, it's an open thread.
And as a dedication to your favorite and mine, here's one for the tired-of-being-sexy Nicole. Because music is everyone's hot sex. Cansei de Ser Sexy - Alala
"You're so cool
Can i be your friend?
I'll drive till the end"
As noted by me first here and then here last night, I'm very disappointed in Susan Davis' vote yesterday. She has a strong record of opposition to this war, which makes this vote all the more frustrating. I'd be much more willing to work on moving forward if it weren't for her justification of her vote:
WASHINGTON - Congresswoman Susan Davis released the following statement on her vote to continue funding current operations in Iraq and Afghanistan for the coming few months.
"As someone who voted against going to war and supported a timeline for bringing home the troops, there is no doubt in my mind that we must end this war. The reality is opposing this bill would not end the war.
"Cutting off war funding today will not only impact the troops in the field, many of whom are from San Diego, but will also impact military families at home as President Bush would take funding from other sources to fund his war.
"I look forward to supporting measures that will end the war and will not put our troops at risk."
I'm sorry Rep. Davis, but I do not accept your premise. I do not accept the notion that this bill would leave troops undersupplied because 1. they already are, 2. there's a lot of money in the Defense budget already and 3. this isn't the last bill you can send to the President.
But most of all, I don't accept the fundamental defeatism here. Susan Davis has just said, in so many words, that no matter what Congress does, Bush cannot be stopped. She has just conceded the complete impotence of Congress. Well you know what? Do your job. The President's approval rating is reaching all-time lows, 76% of the country thinks the war is at least going "somewhat badly" and Americans keep dying faster and faster in Iraq. Do your job.
Two weeks may have passed between the Democratic Convention and today, but that hasn't stopped us from speculating over whatactuallyhappened during that weekend. During these two weeks, everyone seems to have developed a theory on who knew what ahead of time, who was conspiring to silence the progressives, and who was really behind the mysterious quorum call. Two weeks have passed since then, and I'd like to do my part to end all the speculation NOW.
Last Thursday, I hopped on over to OC Drinking Liberally. John Hanna, Co-chair of the Resolutions Committee, also happened to be there. Pretty soon, hekebolos showed up, and we all went to the back room of Memphis to discuss what really happened at the convention. Later on, we also talked about what we can do better next time, but I'll talk about that part of the discussion another time.
Right now, I'm inviting you to follow me after the flip to find out WHAT REALLY HAPPENED TO ALL THOSE RESOLUTIONS. I have been collecting information from a few brave individuals for quite some time now, and my meeting with John Hanna on Thursday put an end to my own speculation on all these rumors. So why not join me after the flip, so that you can also toss the speculation and just find out what happened?
Syndicated columnist and member of the San Diego Union-Tribune editorial board Ruben Navarrette Jr. has been fluffing up Alberto Gonzales a lot recently (March 7, March 21), so it should come as no suprise that he's continuing to shovel muck today in a special CNN commentary. What's shocking is the entirely new level to which he takes the insanity.
A couple of weeks ago, I wondered out loud whether we would get a chance to see where California legislators stand on the Bush's Iraq escalation. The following press release just hit my inbox:
Assemblyman Mark Leno (D-San Francisco), who authored the first anti-Iraq war resolution in the country as a member of the San Francisco Board of Supervisors in October of 2002, announced that he would author a resolution in the State Assembly that would support efforts at the Congressional level to hold the President accountable for the failed Iraq war policy and oppose his plan to send more troops into the war.
The release says a, "strong majority of Assembly Democrats" will be co-authoring the resolution. It will be good to see where Republicans stand, are they with Bush and Schwarzenegger or with the vast majority of Californians?
Check out the live webcast of the governor's energy experts contrasting their boss's energy plan with the president's as laid out in last night's SOTU.
Message: Arnold's plan = good; Bush's plan = baaaaaad.
Choice quote:
"The president's plan does not go far enough and in some cases if not done right would increase greenhouse gas emissions."
UPDATE: It's over. Some key differences between the two plans over the flip...
Hotline on Call has the list of pre and post game commentators, including Congresswoman Ellen Tauscher on CNN.
"If your net is not with us, it is against us" and the online coverage doesn't look to be too favorable for Mr. 28% to present his lame duck agenda. The blogosphere will be the source for info and links to the online polls measuring initial reactions. I'll post the full text after the jump when it hits the blogosphere (way up there in the sky).
If you have good links, it would be cool if you posted them in the comments.
UPDATE: Full, embargoed speech after the jump courtesy of Think Progress who keep their steak alive.
