Wow - Northern NJ listed by Forbes as one of the "25 Weakest Housing Markets" (Newark: bank owned, buying a house)

[JamesBoyer]

Read comments below.

Originally Posted by Lusitan

I know enough about what happened during the Great Depression. When people aren't stampeding others to death in a Black Friday rush to buy flat-screen TVs, come talk to me about the Great Depression. When people no longer consider cell phones and cable TV as "the basics", come to talk to me about the Great Depression. When putting enough food on the table is a problem rather than historic levels of obesity, come talk to me about the Great Depression. As it stands, we are so far off from anything even approaching the Great Depression that it's an example of how narcissistic we've become that we are bandying about that term at the mere thought of having to make any reductions in our bloated and unsustainable lifestyle.

It seems you don't really. What followed the black Friday, about 18 months later actually was the spiral down into deflation. All the tight money government and banking policies caused people to save money not spend it, and business contracted, more people lost jobs, and so more people stopped spending and saved even more, banks would not lend, and it just spiraled out of control.




And your statement presumes that falling house prices will inevitably lead to a "deflation spiral". I disagree. Houses went through an "inflation spiral" without dragging up the price of everything else in the economy (see the skyrocketing house prices from 2000 thru 2008, as compared to just about any other item in the market), and just the same houses can get back down to Earth without dragging anything else down with them.

No it does not, my statment was that if housing were to go to 1999 levels that would be a strong indication that we were in a deflationary spiral. Lots of other things will be falling in price as well as people refuse to spend.

As things sit right now, we are in the beginning stages of deflation. Lots of different business types are reporting that the only way they can currently generate any sales is to continually cut prices.

The likelihood is that if prices fall anything like what Moody's has predicted, this recession we are in will devolve into a depression. Why? because people feel rich or poor to an extent by what their investments are worth including their homes, and they set their spending accordingly. Take those things down another 20% or 25% and spending will fall further than it has.

It is predicted that in addition to the large retailers who have gone under already, there are about 150 medium sized retailers (those employing 100 to 5000 people) who are on the brink of going under already. Take more spending out of the economy and those retailers most assuredly will go under, and more retailers become very weak and likely go under as well.



No, you've missed the point of what I said. People cannot afford houses at the prices they are at today. People need to stop buying things they cannot afford. Hence, if anyone is to buy a house, prices need to fall drastically, back to the level where people can afford it. (See the old rule of thumb about people spending no more than 2x to 3x their annual income on a house).

There are plenty of people who can afford homes now. Here are some examples:

• 260 families could afford homes in Morris Twp NJ in 2008
• 167 families could afford homes in Morristown NJ in 2008
• 130 families could afford homes in Madison NJ in 2008
• 230 families could afford homes in Chatham NJ in 2008
• 4207 families could afford homes in Morris County NJ in 2008
• 3633 families could afford homes in Essex County NJ in 2008
• 3084 families could afford homes in Union County NJ in 2008
• 2304 families could afford homes in Passaic County NJ in 2008
• 1384 families could afford homes in Sussex County NJ in 2008
• 861 families could afford homes in Warren County NJ in 2008

That is 15,473 homes that people could afford just in those 6 Counties here in New Jersey during 2008.

We need to do everything we can to dissuade people from spending on things they cannot afford. And that includes houses at current bubble prices.

Yeah right, spending on things they cannot afford is one thing. I assure you that the banking standards are so tight right now, that someone who is not very well qualified for a mortgage, will not be getting one.




It's not a "housing market recession" - I see you cannot bring yourself to call it what it is -- the biggest speculative bubble in the history of the nation. The housing market is a bubble that is (and needs to continue) deflating back down to historic levels. It happened to tulips and it happened to the now-worthless dot-coms, and it will happen to housing as well. It was a speculative bubble - nothing more.

In some parts of the country there was a bubble, in other part including New Jersey, there really was not. If you care to provide your evidence that there was a bubble in the New Jersey, that was even a third the proportions of what went on in parts of Florida, Arizona, California, and Nevada I sure would love to see it.



And FDR was no better. FDR and his massive spending programs did not bring us out of the Great Depression -- World War II did. Our economic recovery was the result of being the only civilized nation left standing with any capacity for growth after the destruction.

Not even going there

But it's a different world anyway. Back then, average Americans were frugal and we were an export-driven nation. Those days are gone. Using old FDR-style "solutions" to try to solve today's problems is no better than using Hoover's "solutions".

But of course, "spending more money!" is the easy way out, which is why we're likely to try it before it makes things even worse.

We live in a consumer and service driven economy, take the consumer out and you don't have a job.

[JamesBoyer]

Originally Posted by theoakman

I would like you to point to one historical example of where the long term health of the economy was achieved by debasing a currency. I can supply you with at least a dozen examples where it hasn't worked.

Why should I??

I have not said anything yet about debasing a currency making a economy strong!!

You quoted this statment "Keeping the dollar strong can only be achieved by having a strong economy. The housing market recession is a big reason we have gone into this, you have to solve the underlying problems to get of of the mess." Where in that statment have I said we should debase the currency?

Housing has been week for 2 years + now, people have been holding back on spending since they have felt poorer because of the perceived net worths including the values of their homes. In my opinion, and dare I say the majority of economists who have made public statments, the recession we are in now can be largely attributed to what has been happening in the housing markets.

You can argue all you want, as to who's fault it is, but we are where we are. Take values in housing down more, and what do you get? More Foreclosures, more very large bank bail outs or large bank failures or some combo of the 2 depending on how things are reacted too.

The fed has said they are going to do what ever it takes to end the housing recession. They will spend what ever it takes, they will make it painful for you to hold cash, or keep money in cash. How are they doing it? they are driving interest rates down, they are forcing money into the economy, they are trying to create inflation. They are going to do everything they can to make cash investments pay you as close to 0% as possible.

[theoakman]

Where in that statment have I said we should debase the currency?

Your entire post was made with the emphasis that we need to prevent a deflationary spiral. The only way to prevent deflation from happening is by inflation through debasement of the currency.

You also wrote:

Keeping the dollar strong can only be achieved by having a strong economy. The housing market recession is a big reason we have gone into this, you have to solve the underlying problems to get of of the mess.

You talk about "solving the underlying problems" (decreasing housing prices) and "getting out of this mess" (recovery and a strong economy). The only way to stop housing prices from declining is through debasement of the currency. You claimed that once we stopped pricing from declining, we will move on or "get out this mess" (which would imply a stronger economy than we presently have on January 19, 2009).

Hence, stronger economy through debasement.

You cannot claim you want to stop housing prices from decreasing without claiming you want to debase the currency. You can't have one without the other.

[theoakman]

The fed has said they are going to do what ever it takes to end the housing recession. They will spend what ever it takes, they will make it painful for you to hold cash, or keep money in cash. How are they doing it? they are driving interest rates down, they are forcing money into the economy, they are trying to create inflation. They are going to do everything they can to make cash investments pay you as close to 0% as possible.

I wholeheartedly agree. But as I explained before, in the beginning stages of inflation following a crisis in which housing is already overvalued because it's run up far outpaced inflation, you will see decreasing housing prices while commodity prices increase (just as saw in 2005-2008). The primary reason for this is because foreigners will compete with us to buy commodities, which are sold on the global market. The money world wide will chase oil, natural gas, coal, and food while the money domestically will chase oil, natural gas, coal, food, and finally housing. With commodity prices rising and wages trailing (much like they did in the 1970s), there will initially be less capital available to compete for housing, which is already heavily depressed. At some point, the nominal increases in wages will cross a line where the monthly mortgage payment someone can make will exceed the market value for homes being sold. Not until then, will you see housing prices rise.

Your concept of housing prices rising in the near future because inflation cannot address the fact that commodity prices rose while housing prices declined in the past 2.5 years. It's a race upwards, and housing had a 5 year headstart. Housing is now out of breath while commodities have played catch up. When new money is created, it has a nasty habit of going into things that are already increasing rather than things that are decreasing. That's why you didn't see the Nasdaq blown back up to 5000 when Greenspan lowered interest rates down to 1%.

[halfoffpeak]

Originally Posted by JamesBoyer

The fed has said they are going to do what ever it takes to end the housing recession. They will spend what ever it takes, they will make it painful for you to hold cash, or keep money in cash. How are they doing it? they are driving interest rates down, they are forcing money into the economy, they are trying to create inflation. They are going to do everything they can to make cash investments pay you as close to 0% as possible.

The fed cannot hold a gun to our head. Economy has its own dynamics unless its not free anymore and the fed becomes soviet union. The fed decreased rates to 0% and house prices continue to plunge. Even if prices stabilize they will eventually reach historical levels (i.e. 1999 inflation adjusted) you want it or not. In fact, house prices were depressed for most of the 90s and-guess what-economy was OK

[theoakman]

Originally Posted by licnyc

The fed cannot hold a gun to our head. Economy has its own dynamics unless its not free anymore and the fed becomes soviet union. The fed decreased rates to 0% and house prices continue to plunge. Even if prices stabilize they will eventually reach historical levels (i.e. 1999 inflation adjusted) you want it or not. In fact, house prices were depressed for most of the 90s and-guess what-economy was OK

yeah, if people didn't have to dedicate so much of their paycheck to a mortgage payment, then it would free up capital to invest in other productive industries or gasp, consume.

The problem is, our economy was built based on consumption via borrowing of the equity of alleged "increasing home values". Turns out, it wasn't real, and everyone who built a business on the idea that people can afford to consume their goods is going to go out of business. Car dealers, retailers, wedding planners, whoever... There's no way to get that equity back without taking the capital from somewhere else, which will still be a net loss for the economy because it's a zero sum game. If we could generate purchasing power out of thin air, poverty would cease to exist as we know it.

[JamesBoyer]

Originally Posted by theoakman

Your entire post was made with the emphasis that we need to prevent a deflationary spiral. The only way to prevent deflation from happening is by inflation through debasement of the currency.

You also wrote:



You talk about "solving the underlying problems" (decreasing housing prices) and "getting out of this mess" (recovery and a strong economy). The only way to stop housing prices from declining is through debasement of the currency. You claimed that once we stopped pricing from declining, we will move on or "get out this mess" (which would imply a stronger economy than we presently have on January 19, 2009).

Hence, stronger economy through debasement.

You cannot claim you want to stop housing prices from decreasing without claiming you want to debase the currency. You can't have one without the other.

ok, your putting many of your own thought into what I have said.

I said solve the problem, then I later said what the fed is doing. I did not say debase the currency, though that could partly be the result of what the fed is doing, though there is a chance the Dollar holds up anyway since Europe and Britain are in worse shape than we are and so their currencies are not really gaining in a large way against the dollar.

The housing downturn is what kicked off the mess we are in, without it we likely would not have seen the bank failures and bail outs. Without it we likely would not have seen the credit markets tighten to the point where the US auto industry had to stop leasing cars, or giving auto loans to anyone. Without it we would not have seen for a time, credit being so tight that people with 710 credit scores, 20% down and less then 32% debt to income levels unable to get a Jumbo mortgage (such mortgages are now possible but much more expensive then non Jumbo mortgages).

People base a large part of their disposable income spending on how rich or poor they feel. For most people, their home is their biggest investment...

[JamesBoyer]

Originally Posted by licnyc

The fed cannot hold a gun to our head. Economy has its own dynamics unless its not free anymore and the fed becomes soviet union. The fed decreased rates to 0% and house prices continue to plunge. Even if prices stabilize they will eventually reach historical levels (i.e. 1999 inflation adjusted) you want it or not. In fact, house prices were depressed for most of the 90s and-guess what-economy was OK

Your missing the point. We did not see home prices go down to the magnitude that is being discussed in this thread. In fact what most people did see was home prices go flat. That is very different than what Moody's is predicting.

In essence the fed can hold a gun to your pocket book though. If they manage to pull off what they are trying too do, we will not see any price decline similar to what is being talked about by Moody's but in fact housing prices will bottom sometime between now and sometime in the 2nd quarter of 2009. Then the chances become really good that we get a very heavy dose of inflation, and the fed has to delicately deal with that as well.

[halfoffpeak]

Originally Posted by JamesBoyer

The housing downturn is what kicked off the mess we are in, without it we likely would not have seen the bank failures and bail outs.

True if it is meant that the end of the housing bubble was followed by a mess. That's what happens during a correction. However, one cannot run a bubble forever, just as madoff could not fool his customers forever. Hoping that the housing ponzi scheme runs forever is to put it mildly a case of denial and asking people to jump in it is irresponsible.

[halfoffpeak]

Originally Posted by JamesBoyer

In fact what most people did see was home prices go flat. That is very different than what Moody's is predicting.

I'm in the market myself and, in the region I am looking into, prices are continually decreasing. And spring is around the corner. A correction is long due. If not this summer then the next one, or the one after. One needs to be patient.