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On Employment and Real Estate Recovery
A regular commentator on BoomBustBlog has been attempting to make the
case for a housing recovery based upon rising employment metrics. One of his primary arguments was rising hourly earnings. I thought I would
take this time to point out that average hourly earnings can rise due
to the fact that less people are working. The aggregate employment in
the US has literally fell off of a cliff. Since you know that I love
pictures, let’s do this graphically…
Below you have a chart of total hours worked in the US with the
average hourly earnings superimposed on top. As you can see, two and a
half years and trillions of dollars of stimulus and QE later, we have
barely budged. There was no multiplier effect. In essence, what you had
was a divisor effect, and the money would have shown up more on a dollar
for dollar basis if it was simply given to the populace! Of course,
that wouldn’t have kicked the inevitably deflation of the banking system
down the road, now would it have?
Notice that despite the severe drop in total hours worked, average
hourly earnings have increased. This can easily mislead someone who is
not paying attention. Read more on this topic here: Inflation + Deflation = Stagflation ~ Lower Real Estate Values!
and on the real estate issue…
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You da man, bro. Great stuff--but keep it simple. Any 101 equity analyst knows this real estate disaster. "Once the confidence is obliterated the price only moves in one direction." DOWN! And government vis a vis real estate today has done exactly what it did vis a vis the stock market in the Great Depression: nothing but cause further pain. i say "don't sweat it"--if you're feeling sick of Frenemy Nation "by that 3500 sq footer in AZ" and deal with the desert. Maybe they'll throw in a horse for free!
"A regular commentator on BoomBustBlog has been attempting to make the case for a housing recovery based upon rising employment metrics."
Oh great, try to suck us into the drama from BustedBlogGoesBoom.
Maybe you posted this on the wrong blog? Any sucker who would pay you to comment on your ridiculous speculation really should stay on BustedBlogGoesBoom.
~D'jean Splicer
REITs, IYR, RMZ all at 52 week highs and setting new highs daily (including today, of course).
Yea, this is legit.
the economy is large and diverse and many people can make it big and rich at any time, as even many people did in the great depression, but your average working person in great depression was poor, you hear people from those times say, "everyone was so poor" does not mean there was no middle class and no rich and no opportunity, but for most really tough times.
I'm skewed because I'm in construction but I don't know one friend that has gotten more than a 2 percent raise in 3 years, most people I know that work regular jobs for regular corps, big and small have had their wages frozen, if not outright cut in pay or hours (I have experienced both). The aggregate of everyone I know in everyday manufacturing jobs are less employed than last year and everyone without a job is hoping for job making less than the last one and can't even get that. Everyone, except one of all I know laid off in last 3 years has gotten a job making less than they were before. The only exception is a sales guys whose new job paid this year more than old job, after making much less than before for two years while building up commission base.
I also know many small business people, contractors, lawyers, retail etc, and none of them are doing much if any better than last 3 years,t hey are just plugging along.
I also know people have dropped jobs due to gas costs. People making low wages with a long commute are dropping those jobs, often seasonal and part time work, so much income eaten up by commute they just quit.
Every extra dollar spent on fuel is one less dollar in US economy with the exception of a few oil producing areas of US, like say ND or gulf coast.
But generally high fuel prices are like a tax of a foreign occupier, little of money spent in US, it just leaves to other economies. I don't see how that is overall going to lead to higher wages in US, if retail stores seen less buying, people drive less, consolidate households.
Quite simply, US corporate management not only outsourced our jobs overseas throughout the 80, 90's and 00's, but later in the 90's and 00's gave away our workers' most precious asset - our processes.
You can kiss goodbye any notion of an industrial rebound with real growth. Like pumping air in a blown tire.
Only those people who are in the business of manufacturing and engineering know what the real story is, and just how bad it has gotten.
Yeah i have toyed with the idea of expanding my widget factory and making more like my buddy did....damn his rotten soul!
But when looked at the costs of high quality benefits for a small mom and pop widget factory it was 50 percent of salery, and i would be shoveling money into the business a year before breakeven.
So i have 1 1/2 employees, pay them 20 percent more than average, work the shit out of them, and stay small and lean.
commercial real estate new 52 week high. meh
".....basically saying that higher energy prices are all but irrelevant to the consumer." Prices for gasoline and food are also irrelevant to the Chairman of the Fed Reserve....and he is holding all the cards. As long as the unemployment rate stay high and CONgress refuses to deal with the banksters you can expect housing to stay in the crapper.
Hastings on Bloomberg, Richard Hastings from Global Hunter
video http://www.bloomberg.com/video/69034740/
He could quite possibly be the most bullish analyst out there basically saying that higher energy prices are all but irrelevant to the consumer.
Reggie,
You misunderstand how money flows and your post perfectly illustrates your misnunderstanding. During monetary inflation or what should be called just simple old inflation wages are one of the last things to rise. The money first finds its way into commodities then consumer prices then wages. Dumping a bunch of money into the system doesn't create instant price rises across the board. It takes time for the money to flow.
We are now starting to see money flowing to wages. As illustrated by your chart.
The bulk of lost hours are most likely a result of an increase in unemployment and retirements but unemployment going from 6-12% only affected 6% of the entire population that is eligible to work. While this isnt good it is no reason to believe residential real estate which is going at a 50% discount of 2007 prices will not start to firm and then go up. Especially considering the increase in wages your chart illustrates.
In addition your chart is misleading. Lots of those lost hours are being recouped by pension outlays, under the table work, and other unmeasured wages.
In short far more people can afford a home today than could in 2007. The bottom is in.
Real wages are dropping, on top of trillions and trillions of lost household wealth people who still have jobs are working longer for less, when you add in fictional CPI data that grossly under reports price increases REAL wages are still going down. And this is on top of the reality that housing was in a major bubble which is not yet finished popping, the bust in the market was only slowed temporarily via fraudulent accounting practices and massive bailouts, then QE1 and 2, soon to be 3. So far this is very similar to what we went through in the late 1960's and early '70's, though now the data is manufactured to report a different story this looks just like the stagflation/oil shock era of those days. Only this time there is no Paul Volker willing to pull the trigger on bond prices/yields to vanquish the worst of inflation.
When I was in college in the early to mid nineties for a career change to finance I could see even then that median residential RE prices being asked and paid were not supported by by median earnings, even then the traditional ratios of earnings to house prices were growing absurd and depended upon creative financing and the herd belief that houses would always rise, thus equity would pay the loans for people, and that they themselves had the ability to jack up their incomes, maybe the folks were getting on in years and they expected they could hold out till they inherited, I knew several people that held that idea, till they found out that Mom's healthcare costs had eaten their entire legacy.
Then 2005-6 the bubble hit the blow off phase and the absurd prices went parabolic, at least in population centers where people actually lived, in many places in California for example median house prices were rising at 12,000 per month.
The bottom will be in when demand rebounds to levels that account for excess supply, as well as obsolescence of older units, and we start to see speculation again, then and only then can one claim the bottom is in, but I say from my experience I might not live long enough to see that (I am 52 and relatively healthy).
"similar to what we went through in the late 1960's and early '70's,"
And that was a terrible time to buy real estate...hahahaha
http://photos1.blogger.com/blogger/950/508/1600/US%20Median%20House%20Prices3.JPG
Real wages are falling...Because you say so? So you disagree with the chart in this post?
Real wages have skyrocketed relative to the cost of a house. They have gone up over 100% relative to the cost of housing.
Man alive. Copper the public play x2. The more nonsense I read on this post the more I want to buy property.
I don't get why one area bubbled while others didn't, I think its some sort of delayed feed back loop, like Cali real estate from 70s to 2005, it was always up up up (pretty much) because initially so many people moving there for wonderful weather, great jobs, like in aerospace etc..but then salaries crashed but housing market did not notice due to free money/loose loans. But I kept looking at prices of houses in Indianapolis compared to LA (huge difference, especially in 2005) but the median wages hardly different...it never made sense to me.
Can you please produce charts (and/or hard data) that quantifies: pension outlays, under the table work, and other unmeasured wages? I would be interested in seeing those. Thank you.
Don't forget charts/data that quantify wealth received from the Tooth Fairy, Easter Bunny, Santa Claus, etc., etc., which are certainly contributing to the dramatically improving financial conditions most Americans are enjoying but that we just can't see for some reason.
How is housing going to reboud when interest rates are set to rise, tax-deductibility of interest may be terminated, rising fuel costs and property taxes, on the back of stagnant *real* wages?
The democrats won't touch the mortgage deduction, because it would destroy West Coast and Northeast. Home prices are higher in those areas, so elimination of the MI deduction would be like punching half of their voter base in the face.
How? It is one of the only investment that offers near 100% leverage, depreciation, and the bar none best historical inflation hedge known to man.
Apart from that some wages will be stagnant not all wages.
Time will tell on whether or not tax deductibility of interest is removed. I would bet it won't be. Regardless the net difference to most tax payers is negligble.
Regarding property tax, the government will only tax so much. They prefer other means of extracting wealth.
Interest rates will not rise faster than inflation (including housing prices). There is tons and tons and tons of cash in this system with much more headed our way.
There are only so many places that even offer the chance of storing value. Precious metals are one potentially great option but as many mention you cant eat them and while looking at them is fun you still need income to buy them and/or shelterto store them. Real estate offers the opportunity for both.
Couple all of the above with the fact it is in the banks best interest for housing to rise and you have housing boom 2.0 x 5. This won't happen until dotcom 2.0 occure but it will happen.
One other note...prepare to meet your new next door neighbor, Mr and Mrs Chin They only live here part time and will gladly pay you to house sit while vacationing at one of their other homes.
Lolz. The Chin's.
You make a lot lot of sense. What are yo doing on The Hedge? You must be lost.
i like reggie and think he is spot on on most things, but only a fool would short the best company in the world, all the analysis in the world is no good without common sense
and i am not talking about jpm
Makes sense, the top execs don't usually eliminate their own positions and rarely take pay cuts.
The housing market will continue to fall in the US until it matches the earning power of the average homebuyer.
Unfortunately, that too is falling.
There will be no equillibrium in the housing market for a long, long time...
Good news for banks though!
They get their properties back, and get to keep their bailout/loan graft!
Exactly. And the historic "house price-to-income" ratio is something like 2.5 to 1.
So with an average household salary of around $50,000 the average house price should be around $125,000.
We've got a long way to fall.
Well said, Popo. Now that is simple brilliance, right there.
Well said, Popo. Now that is simple brilliance, right there.
Good news for banks though!
They get their properties back, and get to keep their bailout/loan graft!...
What's more, when they receive the payback of debt from the hapless borrower, they take interest first with meager reductions in principle, while the borrower/buyer's chart of ownership:obligation is an inverse proportion
So, they received most of their initial "investment" (actually, cipher generated frn equivalencies) before the borrower was unable to secure additional frns to service the onerous and ballooning promissory note's required payback schedule.
I waited till the residential market collapsed to buy in a new neighborhood where houses that were listed at over $200k, but I waited till I could get one at 119k, the responsible thing yes? Except a funny thing happened, the banks listed neighboring foreclosures at 99k then 89k then 79k then 69k then 59k thus gutting the values of all other houses in the area, within a year I was upside down to the tune of about 50% of my twelve month old mortgage, and the real pisser is that the banks listed these empty places at under 60k but refuse to accept any offers under 100k. A few cash investors come in and pay the 100k and rent out the units to meth addicted carnies and I mailed my keys back to the bank more than a year ago, but according to the county I still own the place, the foreclosure auction has been postponed every month since last August. Some of the houses have been empty since 08/08 and the people who bought still listed as owners, but the mortgage companies that took the places are no longer even in business, they are essentially ownerless.
Here is what really boils my head, at origination the funding for the mortgage came from GinnyMae, and the original mortgage company was Eagle Mortgage, for a week till they sold the loan to Chase, when I quit paying Chase cried to the fed and got a huge bailout because deadbeats like me boo hoo refused to be ripped off any longer, several bailouts in fact with more to come, but they never had a penny of their own money at risk. They were nothing more than the servicer really, yet they got all the bailouts, and when the original source of funding goes tits up no doubt they too will be bailed out.
Under the laws of this state I am the only entity with the right to occupy the house, and until it is sold at auction I am legally responsible for anything that happens to the place, though I may not buy insurance on a house I am not residing in. Chase has bought a policy in my name (no doubt a subsidiary of JPMChase) for almost 1500 per year, consider that my homeowners policy with generous liability upgrade, was $400 per year, theirs is almost 4 times that and only covers their financial losses in the event of the destruction of the collateral. Nice work if you can get it yes? Now all they have to do is wait till the collateral is destroyed and they can collect on the place while sticking me with the premiums for this obscene insurance, maybe they will just destroy it themselves and blame it on the meth addicts across the street. I really do not give a shit anymore, and of course eventually I will have no choice but to file chapter 7 over it all, which will be an financial and credit improvement from my current situation, but I have put it off because when I have to file so that an elite wealthy class can ruin millions of lives and a beloved republic in the process, well that will be the day I leave America for good.
Non monetary benefits now avg 35% of monetary wages,
is there a reason this is hardly if ever included in articles regarding compensation.
"Non monetary costs now avg 35% of monetary wages"
I fixed that for you.
Reggie,
Are you still holding your JPM and AAPL shorts?
Now that AG and JPM are near parity, I think we should all purchase JPM puts, whenever MathMan comes on here and claims to have reloaded his SLV puts. He buys 5 SLV 40 puts, I'll buy 5 JPM 40 puts.
We'll see who does better...