Market Conditions: Foreclosure Filings Jump 67% in Cook County in October Year-Over-Year
Illinois had the dubious distinction of being 3rd in the nation in October for the number of foreclosure filings with 19,946, the highest monthly total since January 2005. It beat out states such as Michigan, which ranked 7th.
One in every 263 homes in Illinois received a filing.
In Cook County, the closest set of data we have for the city of Chicago, foreclosures filings spiked 67% from a year ago to 11,494. It was also 131% higher than September.
There are government forces at work which led to the sudden spike.
From the Associated Press:
The rise in Illinois in October compared with September can largely be attributed to foreclosure activity catching up in the wake of a state law signed in April giving delinquent homeowners more time to work out deals with lenders, says Rick Sharga, senior vice-president at RealtyTrac.
The law created artificially low numbers for a several months earlier this year in Illinois, Sharga says. The numbers have increased as lenders have learned how to work through the process in the wake of the law.
Illinois third highest state with foreclosures [Sun-Times, Francine Knowles, Nov 12, 2009]
Local foreclosure activity jumps after artificially low period [Associated Press, Nov 12, 2009]
Illinois is only a little late in following the path of California, Nevada, and Florida.
The bulk of the foreclosures nation-wide still lie before us. Chicago mortgage broker Michael White at http://www.thenewmortgagecompany.com/articles/deepdepreciation.html is recommending everyone who can to SELL their properties and predicts that prices will fall another 40% from current levels, based on the Case-Schiller trendline.
I’d like to see a heat map of Illinois and Chicago/Cook to see where they are clustering at.
This neat little chart of quotes made by pompous prognosticators made it’s round on the interest a few years ago and resurfaced around the time of the crash last year; if you’ve never seen it you should take a look at it; it’s pretty funny
http://www.gold-eagle.com/editorials_01/seymour062001.html
Monthly mortgage payments for too many households is unsustainable. They borrowed money during a time period when incomes were high and the future looked as if there was unbridled prosperity. Many never considered that their incomes could go down – just like real estate, they believed their incomes would only go up! I’ve got plenty of clients who made $100k and more most years this decade – until last year – and now their incomes have been cut by 40% or more. The house of cards is toppling down upon them.
I don’t think most people properly adequately prepare for a reduction or loss income. They may have some savings put aside but when they lose their job, even if only for a few months, a $2,700 or $3,000 a month mortgage payment plus expenses will burn through savings rather quickly. Unemployment insurance pays only a little more than $1,200 a month, maybe a little more if you have children. Hence, they fall behind on the mortgage rather quickly, leading to foreclosure.
I have a dear but misguided friend who finagled a $450k loan and tore down her old house and built a new one on the lot a few years ago. In the meantime, she lost her job, the loan reset making her monthly payments double. I know she’s been unable to pay the mortgage for over a year now, but only last month did the bank file foreclosure. I still think a lot of the big banks have been feet-dragging to not have to claim all this loss on their books.
I have no idea how she ever thought she could manage a loan that big, much less how anyone could have lent her that much money. If she was earning $60k a year, I’d be surprised, although at the time she had a windfall inheritance in the bank. That’s all gone now, as well as her 401k. Yet, she believes she MUST keep that house, and she’s waiting on a miracle. WTF?
We’ve got a long way to go before all this crud shakes itself out…
What was not mentioned in the articles was the current tax reassessment on the property tax bills due Dec 1. This is another hit that may push shaky homeowners over the edge. In some areas, the property tax bill went up 40%
REWatcher – That story was depressing….
It’s simple, really. There isn’t enough income in this country to service the debt required to maintain inflated RE prices.
“There isn’t enough income in this country to service the debt required to maintain inflated RE prices.”
The gubbermint will print money and continue to give money away until this little problem goes away. I wonder how many jobs this retarded health care plan will generate? LOL
The government and its economists want you to believe that printing money is all it takes to inflate home prices…but it’s not just the amount of money, it’s the velocity of money.
I saw two tv commercials the last few days….the first one was a pizza hut add saying they’ve lowered the price of their pizzas by a couple of bucks per pie; and the second is for Six Flags Great America saying “our entrance fee hasn’t been this low in 17 years!”
We’ve already had our inflationary period, it was during the 90’s when home prices and the price of nearly everything else increased through the expansion of credit; now that credit is contracting, so will the prices of everything, including the cost labor i.e. salaries.
“#Sonies on November 13th, 2009 at 9:46 am
“There isn’t enough income in this country to service the debt required to maintain inflated RE prices.”
The gubbermint will print money and continue to give money away until this little problem goes away. I wonder how many jobs this retarded health care plan will generate? LOL”
sorry I meant 90’s and 00’s…
CK,
I really want to see a map like that too. there was one posted on a thread here back in the early summer wish i save the book mark.
i will be lazy and just wait for anon to login in and find. (internet genius i tell you!)
Helicopter Ben is too predictable, there will be inflation hell or highwater. My guess is high inflation and low interest rates will occur at the same time.
“high inflation and low interest rates will occur at the same time.”
Again? HD correctly pointed out that this already happened.
Yeah, as Sonies points out inflation is much more likely than deflation. See, all time high on dollar denominated gold.
If you believe that inflation is coming you want more of your worth in hard assets (which yes, includes real estate). If you think deflation is coming you should sell, sell, sell because prices are going to drop. However, if inflation is coming it *may* not be bad to tie up a portion of your net worth in a fixed asset. You can pay off the mortgage with cheaper dollars in the future. There might be a short term drop in pricing, but so long as we see inflation as carrying through longer than the price adjustment you are better off net in the fixed asset.
So put me in the more likely to see massive inflation than even mild deflation camp because of the the current governments approach to print money and spend us out of our economic problems.
G, are you saying we will see high inflation and high interest rates in the future?
In that case you need to buy today and lock in a low fixed rate!
(which I say only half in jest)
Crain’s chicago website has a foreclosure mashup with google maps.
““high inflation and low interest rates will occur at the same time.”
Again? HD correctly pointed out that this already happened.”
Yes again, what a stupid thing to say!
Supposedly the government is going to stop buying mortgage backed securities in a few months. It will be interesting to see if they follow through with that promise and if they do what impact that will have on mortgage rates. I don’t see how they can borrow all this money without interest rates going through the roof.
Now, what is interesting is that you would think this would kill home prices but the last time we had huge interest rates that didn’t happen. Go figure.
Gary,
the last time we ahd high interest rates we also had comparable wage increases, as opposed to the last decade, where we ahd flat or falling wages
Yeah well the dollar is going ot be near worthless at our current spending rate so who is to say wages won’t increase too ?
Since 95% of extant mortgages are one way or the other backed by GNMA, FNMA, FMAC, or FHA, you can figure that once government support of mortgages is pulled, interest rates will hike very sharply. Current rates do not price in the risk of lending.
When that happens, prices will drop through the floor.
I don’t believe Bernanke will be successful in re-inflating the economy even though he and his confreres are giving it their best shot. Hyperinflation will kill investment and destroy our currency completely. As it is, oil will soon cease to be denominated in the dollar, which will mean a world of pain we can’t imagine here yet.
Laura,
Hyperinflation is not the only inflation choice. They can easily achieve low single digit inflation.
I don’t understand all the commotion about how you denominate oil. Oil is already denominated in every currency via the foreign exchange markets. All you do is exchange currencies.
No hyperinflation. We are in a deflationary spiral. To get hyperinflation the Feds have to print money at a much faster rate than money is destroyed through default/bankruptcy/foreclosure. Even then the printed money has to make its way into to the hands of producers and consumers. Which has yet to happen. Credit lines are being cut daily, mortgage apps are more painful than a lower GI, mortgage apps are at 9 year lows; the number of car loans are 40% lower than they were a year and a half ago; leveraged buyout deals are blowing up like chinese firecrackers on the 4th of July. Money is being destroyed exponentially faster than the government can print it, lend it out and forcing consumers to spend it.
In China the government is also printing money and spending it through public works, building cities where no one lives, building malls where no one shops, building roads that no one drives upon. AFter the money is spent it is lost; The US government is spending equal amounts of money propping up insolvent bankers, and it’s merely throwing good money after bad, like flushing it down the toilet. And there are significant political implications to this rampant spending, and the political party in power may take a hit in 2010 elections due to the rampant freewheeling spending going on (at our children and grandchildren’s expense).
All of these things seem to point to deflation, deflation, deflation. Wiemar Germany had inflation because they printed money, literally, on paper. Post WW-I they had a shrinking number of goods to purchase and an increase in the paper money supply to buy those limited number of goods. Same with Zimbabwe. There’s a lack of infrastructure to get the goods to market which compounds the scarcity of goods.
We have no shortage of goods in the United States (or Japan). We have too many goods to buy and sell, and not enough money floating around to pay for it all at current prices. There are acres of car lots filled with brand new unsold vehicles, ports are filled to the brim with packed cargo containers with nowhere to go; we have a record number of vacant homes just waiting to be lived in; the government can print and print all it wants; in the great depression they killed farm animals and stockpiled wheat attempting to create scarcity to keep prices artificially high and that failed spectacularly.
that spending was started when I was born. back in the 80’s.
“and the political party in power may take a hit in 2010 elections due to the rampant freewheeling spending going on (at our children and grandchildren’s expense).”
I know, I know, it started in the 80’s with Reagan and during the 90’s with Clinton (despite the illusory budget surplus) and W was the worst of them all up to that point, and now O is spend 4x as much as W ever did, but current polls and last week’s elections showed that the population is having second thoughts about decades of freewheeling spending; which is why I predicted that the current party may take a hit which is what happens when there is a change in gear aka 2006/2008 elections tossing out the (R). That’s all I meant to say. I’m not trying to delve into politics.
Actually, FDR started the crazy spending and LBJ took it to a new level beyond that, locking us into a cycle of government entitlement spending. We’re about to embark on a new wave altogether.
Homedelete,
If we were in a deflationary spiral commodities wouldn’t be skyrocketing right now.
HD: “last week’s elections”
What, b/c the Blagojevich of NJ running agst the NJ equivalent of Pat Fitzgerald and a nobody-running-a-bad-campaign in VA lost guv races? If you’re going to get into political commentary here, at least be serious.
HD: “O is spend 4x as much as W ever did”
And this one–you do know that the federal FY is 10/1-9/30; thus the current budget year was almost 1/3 during W’s term. I’m not defending what’s being spent and where, but if you’re going to bring it up, at least be honest about it.
Gary: “FDR started the crazy spending and LBJ took it to a new level beyond that, locking us into a cycle of government entitlement spending”
It *really* got locked in by Tricky Dick. Nixon pushed thru all sorts of insanity. Hello, wage-price spiral.
Inflation vs. deflation. I think you have to be careful about how you define the terms. I do agree we are probably not printing enough money to have hyperinflation. The velocity of money is going down as we have high savings rate and de-leveraging of all balance sheets (except the government).
I tend to think we see deflation in services (plenty of labor) and potentially housing. Hard goods where input costs are key and inputs are scarce I tend to envision inflation.
The banks are recklessly speculating in commodities – just like earlier this decade – and look what happened. I don’t suppose the result of this lately round of commodity speculation will be any different.
If commodity prices are rising then why is Jewel lowering prices by up to 20% store wide? Why has pizza hut lowered the price of its pies by a few dollars? Why does McDonald’s/Wendys/Taco Bell push its value menu like it’s the only food in the restaurant? Why is Wal-Mart continuing to roll back prices? Why are laptops and LCD tv’s cheaper than they’ve ever been? Why are home prices continuing to fall?
“If commodity prices are rising then why is Jewel lowering prices by up to 20% store wide?”
What Jewel are you going to? Seriously! Because all my groceries do is go up in price.
Why has pizza hut lowered the price of its pies by a few dollars? Why does McDonald’s/Wendys/Taco Bell push its value menu like it’s the only food in the restaurant? Why is Wal-Mart continuing to roll back prices? Why are laptops and LCD tv’s cheaper than they’ve ever been? Why are home prices continuing to fall?”
You really need answers to that?
ITS A RECESSION DUMKOFF of course businesses are going to advertise their cheap stuff just to get people in their store!
And Pizza hut is getting bombed by competition, since people are starting to realize that their pizza sucks.
Electronics always fall in price!
and everyone here knows why housing has fallen in price, but that doesn’t mean we’re in a deflationary spiral! LOL
Your examples suck.
Sonies, I gave you four or five examples of symptoms of deflation, the falling of price of things, and you admit that things are falling in price, but come up with a different reason for each example.
http://www.jewelosco.com/eCommerceWeb/SaveAction.do?action=getSaveContents
The Big Relief Price Cut up to 20% on thousands of items store wide.
I suppose if you buy your groceries at Fox & Noble in River North of course price reductions won’t be as obvious;
Even Whole Foods is pushing it’s private label Everyday Value goods as lower a cost alternative.
“if you buy your groceries at Fox & Noble”
And buying your books at Barnes & Obel?
“Whole Foods is pushing it’s private label Everyday Value goods as lower a cost alternative”
On which they make more money. So they have dual incentives.
sorry, fox & obel. Hey, i’m giving example after example of wholesale price decreases across the board. Of course you can come up with a specific reason of why each example has a lower price…but it’s like missing the forest for the trees. Here’s another example:
http://blogs.zdnet.com/BTL/?p=14571
Hp lowers salaries by 10% across the board. Even the cost of labor is going down!
The government has a ZIRP policy, put in place, again, to try and stop deflation…Lower interest rates are prevalent in deflationary environments. Nobody wants to borrow money, so lenders have to lower rates to encourage businesses/people to borrow.
How many more examples do you want of nearly every aspect of the financial world deflating?
Fox & Noble wtf is that…
I go to the Jewel(s) in RN and haven’t seen any price drops.
“Sonies, I gave you four or five examples of symptoms of deflation, the falling of price of things, and you admit that things are falling in price, but come up with a different reason for each example. ”
I didn’t say that things are falling in price, I explained why companies are advertising their cheap stuff…
You know that MCDonalds has an angus burger that costs $5 right? And the dollar menu, well the double cheezeburger that used to have two slices of cheese? Yeah that only has one slice of cheese now.
As for the rest of the dollar menu items at other places, they advertise “as though its the only thing in the store” because they want you in the door to buy a combo and some dollar menu POS at the same time.
As for Wal Mart “rolling back their prices”? LOL thats been their advertising slogan for well over a decade now!
Electronics depreciate in cost all the time due to oversupply and is a stupid example.
how come a new Camaro is 35k?
I couldn’t tell you the price of a Camero if my life depended on it. The Angus burger is supposed to be $3.99.
I know about the second slice of cheese debate; that’s a dispute between the franchaise operators and corporate. that’s pennies. you’re missing the forest for the trees.. next time you go to jewel look at the price cuts. they’re everywhere, you can’t miss.
lol arguments about angus burgers and cheese slices! i love it.
yes jewel has lowered a bunch of prices at the two i shop at (highland park and broadway in lakeview) and advertised the crap out of it.
for those of you interested in the inflation or deflation argument John Mauldin has been covering that in his articles over the past few months and shows good arguments for both sides. he says this question is “the most fundamentally important question of the day”
http://www.2000wave.com/archive.asp
“next time you go to jewel look at the price cuts. they’re everywhere, you can’t miss.”
Ok but my $150 goes a hell of a lot less far than it did just a year ago at Jewel. Hopefully when I go this weekend it will be different. not counting on it.
I sleep easy knowing sonies and homedelete are on it.
the most fundamentally important question that is
Home prices are up the last 4 months – at least in Chicago.
“Home prices are up the last 4 months – at least in Chicago.”
Really? Not in the hoods covered on CC.
“the last time we ahd high interest rates we also had comparable wage increases, as opposed to the last decade, where we ahd flat or falling wages”
Yep, you nailed the difference, haywood.
“I tend to think we see deflation in services (plenty of labor) and potentially housing. Hard goods where input costs are key and inputs are scarce I tend to envision inflation.”
Yes, GLS, if it can be exported and is desired elsewhere, I see inflation eventually. That ain’t housing.
Well, that’s what the Case Shiller index shows. It’s the only objective measure out there. Everything here is anecdotal and doesn’t allow you to track a change from one month to the next.
“Home prices are up the last 4 months – at least in Chicago.”
I win 🙂
CS does not show that “Home prices are up the last 4 months – at least in Chicago.”
That is deceptive. It shows that the greater metro area has increased. Extrapolating that to Chicago alone is as useless as quoting changes in median prices.
What hoods featured on CC have seen price increases in the past 4 months?
comparing groceries by neighborhood, and using it as a yardstick is tricky, as Jewel (and all other grocery stores) use complicated predictive models to set price and develop store layouts. A loaf of bread in River North, may not be priced the same as in Edgewater, even if its the same brand, the same type of bread, bought in the same lot in many cases. They also build there models around particular types of consumers, and market baskets, if someone outside the defined parameter shops at the store, it’s a bonus.
The marketing about price cuts is designed to appeal to popular notions
Wow, who knew my thesis would ever prove useful!
I think the blind following of CS is a little misplaced. Everybody worships that stupid index.
“The Big Relief Price Cut up to 20% on thousands of items store wide. ”
cuts in advertising dollars (extracted from mnf.), in aggregate compared to sales/vol. they really raised prices.
We have no way of knowing whether or not specific neighborhoods have gone up or down in prices in the last few months. All we have is specific homes that are selling for various amounts less than what they were bought for at various dates in the past. There is no way to quantify a general price trend from that data without a ton of work. The Case Shiller index, as limited as it is, is the best thing we have.
BTW, inventories and market times have improved dramatically over the last few months – and this I have by neighborhood. I’m working on an update now. Unfortunately, the system I pull this from just changed their reporting methodology and the data only goes back 2 years now.
OK. Glad to see someone at least admits CS is limited.
Jason(TFO), yes the CS is limited. But we don’t have anything better. Certainly the CS is better than peoples’ “feelings” and “intuition” or whatever else people like to base their case on.
CS has flaws, you need to know them when you look at it, but it is the best data point that anybody has readily available. Certainly better than average closing price changes month over month.
Anon,
What did Nixon create that comes even close to the burden of Social Security, Medicare, HUD, and Medicaid?
Gary: “what did Nixon create”
He aided and abetted the entrenchment of the Great Society by not rolling anything back and, indeed, proposing things that went further (tho they failed). Dick proposed minimum guaranteed income, ferchrissake. It’s not just about creating programs; it’s about allowing them to continue.
Also, the largest single general fund entitlement program ever created was thx to W. The problem arises with single party control of WH + HoR + Sen, not which party has control.
“Gary: “what did Nixon create””
TIME magazine in 1972 – http://www.time.com/time/magazine/article/0,9171,878465,00.html
“BTW, inventories and market times have improved dramatically over the last few months – and this I have by neighborhood”
Totally predictable in CC hoods where sales volumes are still very low and prices are still falling. The debt slaves are giving up on fantasy pricing and choosing to wait. You will know that prices are rising when inventories rise to reflect the rush back into the market by all those who attempted and failed to sell the past 18 months. Then, of course, prices will drop again due to the increased supply.
The collapse is slowly moving up the food chain. The bottom markets in CS Chicago Metro Index show increases due to their previous precipitous price declines and the current govt funny money (‘dough for dumps’ & FHA as the new subprime) which have resulted in gains for the overall index.
“We have no way of knowing whether or not specific neighborhoods have gone up or down in prices in the last few months.”
Gary, there are plenty of similar condos in CC hoods that are interchangeable. Where have any similar units increased in price the past 4 months? That really shouldn’t be difficult for a broker to ascertain.
” by not rolling anything back and, indeed, proposing things that went further (tho they failed.)…It’s not just about creating programs; it’s about allowing them to continue.”
That will be proven to describe the current presidency as well.
G,
It’s not just properties being taken off the market – of which there is some – but contracts are way up. Granted, this may just be the affect of the tax credit but we’ll see soon enough.
I think it would be really hard to tell if prices have gone up in 4 months at a neighborhood level. The sample size is just too small and there are too many differences in individual properties to measure a 5% affect.
Give up sheeple, Obama is your overlord. Home prices will never be affordable. Suck it up and buy because it’s not going to get any cheaper. Five years from now you will regret not buying when everyone around you owes and you are still a bitter renter in your vintage apartment. Good Chicago zips will never be any lower than prices are today!! The government will do everything to prevent it. And as they say, you can’t fight city hall!
prices are up, MOM, as a seasonal effect. Nothing more. Prices will resume their precipitous decline this winter.
netdsgnr,
That Time article only talks about Nixon increasing spending on existing programs. It’s a world of difference from creating new programs that can’t be paid for and burden society into perpetuity. Not that I’m a Nixon fan. He did not understand economics. Then again, I don’t think any president ever has. It should be a job requirement.
” by not rolling anything back and, indeed, proposing things that went further (tho they failed.)…It’s not just about creating programs; it’s about allowing them to continue.”
“That will be proven to describe the current presidency as well.”
—
lets hope that will change
money is flowing to hard assets including housing. and housing is one of the only commodities that is lower in price than compared to a few years ago. people (expt homeless) always need somewhere to live.
homedelete,
Prices are up way more than they ever have been at this time of year. It’s more than seasonality. It may be the tax credit though.
“That will be proven to describe the current presidency as well.”
Yes, it likely will. But that would just put O in the same league as *every* modern president. Only combo that got anything done as far as rolling anything back was Clinton + Gingrich, and that was really pretty minor (note that we (ie, USA!USA!) have also accomplished something small in rollbacks this year–partially breaking the entreached “balance” in weapons-system development/procurement b/t the 3 branches; it’s a harebrained system that has amounted to an entitlement for the M-I complex for 40+ years).
“Suck it up and buy because it’s not going to get any cheaper. Five years from now you will regret not buying when everyone around you owes and you are still a bitter renter in your vintage apartment.”
Dude, not that I think this will come to pass, but what if it does? Can we expect you to eat a giant pie full of crow?
That typo of “owes” instead of “owns” was pretty funny.
“people (expt homeless) always need somewhere to live.”
Problem is, there is more vacant housing today than ever. Employment/income trends will also mean more people per housing unit.
Was that a typo? I thought he meant owes but if so it was a priceless typo.
“Prices are up way more than they ever have been at this time of year. It’s more than seasonality. It may be the tax credit though.”
You might be right. But we all know this government intervention can’t last forever. Lets see what happens to housing prices after April 2010 when the government finally removes the tax credit and the Fed stops keeping interest rates artificially low via quantitative easing.
In fact lets see what happens to house prices at the end of 2010 when the Fed is expected to start raising interest rates. My prediction is they have only one direction to go: down.
Studies have shown house prices are payment based. Its better to buy a home in a high interest rate environment as the price will be lower and you can always refinance in the future if/when rates go down. If you buy a home in a low interest rate environment it is impossible to renegotiate your purchase price in the future when rates rise.
Young people buying homes in the current environment are fools.
can’t make generalities, Bob they aren’t true.
“Young people buying homes in the current environment are fools.”
It wasn’t a typo but I didn’t intentionally type either; the ‘n’ key isn’t anywhere near the ‘e’ key. That was straight from my subconscious. Wow.
Gary,
1. You say presidents should understand economics. It depends what kind of economics. This Keynesian nonsense of spend spend spend isn’t an area of economics I want my presidents subscribing to.
2. I’ve heard anecdotally that some markets in the country are hot hot hot; and I suppose some areas in Chicago are too. Less inventory and tax credits make a powerful combo.
3. On the flipside, I’ve got dozens of cases of my docket, spread among foreclosures, bankruptcies, loan mods, where debtors haven’t made payments in literally years. I’m personally handling a veru desirable Logan Sq. property where the owner hasn’t made a payment since June of ’07. And the owner still lives there. Its in foreclosure, but the bank is taking its sweet time; it appears the bank sold the note/mbs/servicing rights to some investors. They want to give the owner a loan mod! 2.5 years, no payments on a stated income and they want to offer a loan mod? How about $800 a month! hahahaha I can imagine there are hundreds if not thousands and maybe tens of thousands of these in the pipeline in various neighborhoods around the city.
So the moral of the story is: buy now or be priced out forever!
Banks are indeed taking their sweet time and it makes sense as their very survival depends on the smoke and mirrors of pretending things aren’t as bad as they actually are.
An Ohio lawmaker is working on putting forth a bill to force the banks to act on foreclosures or not do them altogether. We can only hope this bill passes and we see similar things in other states.
You can’t have a sound economy with a banking system based on deception.
http://housingstorm.com/2009/11/ohio-bill-foreclose-quickly-or-not-at-all/
It’s just not fair, people are jumping into the market thinking they’re getting deals b/c it’s 20% off the 2006 price; when there is a tsunami of foreclosures ahead, pricing is so misleading as to what lies ahead.
The moral of the story: Suzanne researched this!
The moral of the story: our entire economy and economic growth over the past eight years was based on ponzi economics of an asset bubble. The misallocation of resources was massive and the government is powerless to stop the inevitable reallocation.
Go forth young people and buy that 500k house a boomer paid 200k for back in 1990. The boomers very retirement depends on it!
It just kills me how people are bidding up home prices by $10,000-$20,000 or more, just so they can take advantage of an $8,000 tax credit. Similar to those people who will go into a store any buy something just because there’s a sign on the product that says “Sale”, never mind that the store down the road always sells the same product for less. For some people, if you just mention a discount it turns off their logic processor and convinces them they’re getting a great deal automatically.
The whole idea of the tax credit is to support housing prices at current levels and keep them from dropping further. But we’ve gone as far as we can go on running the housing market and the economy in general on easy borrowing and government subsidies.
We soon will be forced to do what we should have done in 1980, when it was obvious that our old industrial economy had collapsed and that our domestic oil supplies had peaked and were in steep decline, and that is to rebuild our industrial economy from the ground up. But that would have meant a drop in our standard of living during the rebuild period, as all such massive shifts do, and so we decided create fake prosperity by means of debt creation. Real incomes dropped while household debt levels soared, and the income divide between the wealthiest and the rest of us widened greatly. Meanwhile, we gutted what remained of our heavy industry, to the point where we could not now mobilize for a real, all-out war.
Now we’re so far in debt collectively and individually that we scarcely have the capital to invest in the new industries we will need going forward, but we’re going to have to do it anyway. Many analysts consider that salaries and wages in this country will have to drop steeply in order for our workforce to compete with those of the third world countries, and that would auger ill not only for house prices but for the consumer economy in general. We just won’t have the scratch to buy all the stuff we’ve been buying with HELOCS and credit cards for the past 20 years. It means that prices on consumer goods, which include houses and condos, not to mention hotel rooms, will have to deflate greatly to meet demand. And forget about retail. We have 38 sq ft of retail space per man, woman, and child in this country, vs. 4 sq ft in 1960. We will see shopping malls shuttered all over the land.
All of this augers very ill for real estate appreciation going forward.
Very well stated Laura. Although you make s strong case for deflation, the extensive government borrowing, unprecedented deficits and entitlement spending will ultimately result in inflation because the number of dollars neeeded to service the debt will require the printing presses to roll out of control, despite the fact that we will have too many houses, stores, and the like.
Well, destave, in that case we will be Weimar Germany all over again, and that’s something our great student of the Depression, Bernanke, seems never to have studied.
I see a lot of creepy parallels between the u.s. of the present, and pre-Hitler Germany, enough to make me lose sleep.
A spate of hyperinflation would absolutely gut whatever capital remains, and thoroughly impoverish about 98% of us. It would not enable more house-buying at any price. Wages might rise, but prices would rise much faster, and no one would have any buying or borrowing power at all. Entire industries would be quickly wiped out, even faster than in deflation. Essential commodities would become ludicrously expensive, and that is where the investment capital would flow, instead of into productive new enterprise.
The situation we are in reminds of Woody Allen’s memorable quote:
“More than at any other time in history, mankind faces a crossroads. One path leads to despair and utter hopelessness. The other, to total extinction. Let us pray we have the wisdom to choose correctly.”
Hyperinflation…reduced government spending….or selective default. I see benefit cuts in the future. America has its problems but we’re no post WW1 Germany or Zimbabwe.
There will eventually be a democratically elected government in the future that will make harsh but necessary spending cuts. I don’t know when but it is inevitable. Life will go on.
“There will eventually be a democratically elected government”
Our government is already democratically elected. 47% of Americans pay no income taxes. Its representation without taxation. This is not going to change any time soon. Those pumping out the babies by and large aren’t those who pay the taxes.
“Hyperinflation…reduced government spending….or selective default. I see benefit cuts in the future.”
Nay, nay, nay then yea. Benefit cuts in the future is the most likely outcome. Where do you see the drive to hyperinflation? We are Japan circa 20 years later–theres no hyperinflation–or inflation at all in Japan. In the 1970s when we were the only labor game in town we had steep inflation due to energy costs. Nowadays there is less unionization and more globalization and labor costs aren’t going to go up.
Those predicting inflation are based on old, outdated data. Our economy is in for a long (10-20yr) stretch of higher unemployment, stagnant wages and deflation. Our government has already tried keeping open the spigots of cheap debt and its not working very well and not sustainable.
No Weimar Germany for the Estados Unidos de America. Instead look for politicians each election cycle to promise relief and similar “stimulus” used in Japan during their slog. Our credit bubble might not be as bad but our government has mimicked theirs almost to a tee regarding how to deal with their failed financial system.
Those bankers who fostered the asset bubble are those who can afford the lobbyists and they remain in business. The rest of the economy suffers longer term as a result.
Japan never took its medicine of letting the banks who took bad risks fail and neither did our country. We’re Japan part deux.
Actually our credit bubble is much worse. We have the largest overhang of public and private debt relative to GDP of any economy ever to exist so far.
We’re in for a lot more pain one way or the other. Let it be deflation- at least prudent savers and retirees will not be inflated out of the wherewithal to eat. Deflation will level the playing field and take housing values back to the trendline, where they belong, and the business environment would be less risky for new investment. There is much money waiting on the sidelines to invest in new industries and old ones that are relevant, but the current business climate is very intimidating.
It won’t be painless, but it is an alternative favorable to hyperinflation, which would effectively wipe out much of the capital and would destroy most of the population financially.
“largest overhang of public and private debt relative to GDP of any economy ever to exist”
Cite, please? *Any* economy, ever? Really?
My source is American Theocracy:The Peril and Politics of Radical Religion, Oil, and Borrowed Money in the 21st Century, by Republican analyst Kevin Phillips.
Phillips used the debt statistics as of year 2004. This book was published 2006.
I’m sure most posters here have read the book, but if you haven’t, it’s a Must Read.
Howmuchamonth? $6,199 a month with a 5/- plus taxes!
http://www.redfin.com/IL/Chicago/3842-N-Kedvale-Ave-60641/home/13458662
Why do they continue to build this? Do you think this will be another foreclosure statistic?
homedelete, I can’t believe anyone would build a house like this on speculation in this financial climate.
No wonder most small-time homebuilders fail.
I think its more like 500k each for both the front and back Monet paintings of a plain looking house then 600k for the structure, whatever it looks like from the outside.
America’s Newest Land Baron: the FDIC
ATLANTA — In the waning days of the Great Recession, the federal government is still jumpstarting the economy and propping up financial markets.
It is also trying to sell Dresden Heights, a failed condo development on a noisy freeway ramp next to a Motel 6, a Waffle House and a Do-It-Yourself Pest Control.
For more than a year, the Federal Deposit Insurance Corp. has been seeking a buyer for 36 partially built condos it inherited from a high-flying, short-lived Atlanta bank. The agency has been fending off vandals, haggling with architects and uncovering the developer’s blunders, all in a bid to dispose of this condo project, just one of the 2,554 foreclosed assets dumped onto its books…
http://online.wsj.com/article/SB125840904423151209.html
“… , by Republican analyst Kevin Phillips”
Well then, it must be the truth. KP probably also does analysis for Fox.
“I’m sure most posters here have read the book”
You and G at least.
“Well then, it must be the truth. KP probably also does analysis for Fox.”
This couldn’t be further from the truth. Kevin Phillips is best described as an Independent, even though he worked for Nixon. He surely lets both sides have it in any of his writing.
I’m a republican?
Nevermind. When has runnerrunner ever posted anything intelligent here anyway?
“Why do they continue to build this?”
Is it actually under construction? WOW. There are a couple of houses near me marketed as teardowns or per plan builds (as this one looks to be from the listing pix). If they actually started construction, that’s crazy.
Just think you can buy that house on kedvale and live within 20,000 feet of one of the shittiest neighborhoods in the country!
“live within 20,000 feet of one of the shittiest neighborhoods in the country”
?? You probably live about 25,000 feet from the same neighborhood (depending what ‘hood you’re refering to). 4 miles is a long way in the city.
Illinois third-highest state in foreclosure filings
http://www.suntimes.com/business/1934965,illinois-foreclosure-filings-121209.article
“Illinois posted the third-highest state total of homes receiving foreclosure filings last month, RealtyTrac’s latest report shows.
Filings were reported on 19,946 properties—the highest monthly total for Illinois since January 2005 and up 57 percent from a year earlier and up 56 percent from September. One in every 263 homes in Illinois received a filing…”