When looking at the graph above, keep in mind that from the mid-1990s until 2007, unemployment generally ranged from 4-6%, with NAIRU (essentially the natural rate of unemployment) being about 5%. Furthermore, since 1947 there have only been three times when the unemployment rate exceeded 8%: the mid-1970s, the early 1980s, and now.What effect do you think sustained high unemployment will have on foreclosures and home prices? What effect will sustained high unemployment have on mortgage rates? What effect will those mortgage rates have on home prices? Would we have had such high unemployment if there had never been a housing bubble? Add your thoughts in to the comments.
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Tail, dog, irrelevant, or just the trigger?
ReplyDeleteHousing is a big deal but is it bigger than the DJIA, 401(k)s, investment and trading accounts?
Housing was the spark but the stock market and savings were the real collapse.
I do not interact with my home equity in quite the same way that I track and trade my stock, mutual fund, CD's, and other investments.
It is those investments that give me a month by month (or daily if I so choose) temperature reading. The "sense" of those investments may influence my spending in other areas. These are small things, not housing.
Housing? If my investments shot up $100K, I won't buy a house. If they fell $100K, I won't sell mine.
My investments have done well. I bought a $700 flat panel TV.
"Housing? If my investments shot up $100K, I won't buy a house. If they fell $100K, I won't sell mine."
ReplyDeleteWhat if they shot up $400K and then dropped $100K? What would you do then? Post on blogs about how lucky you were and say that everyone should buy right now cause if you rent you are a sucker?
I think the question "Would we have had such high unemployment if there had never been a housing bubble?" is the most interesting, and my answer is no. The unemployment level would be lower if there hadn't been such a huge housing bubble. The massive growth of investment in residential and commercial real estate was a huge misallocation of economic resources. According to this chart based on BEA data (http://bp1.blogger.com/_CQyU4ayBifw/SHt7uIi8ugI/AAAAAAAABEk/dVvtosYCKuE/s1600-h/Image+9.jpg) residential housing investment as a percent of GDP more than doubled from 1991-2007. So our economic resources and job creation went into an industry that was unsustainable and just producing way beyond real long term demand. In additional it was creating vast amounts of paper wealth via the home equity ATM. Of course this had to crash with several destructive effects including but not limited to 1) Millons of people directly employed in real estate sales, construction etc lost their jobs. 2) Millions who thought they were getting rich on their house and spending accordingly suddenly were a couple hundred grand in the hole. 3) Bank lending tightens dramatically across the board as they try to repair their balance sheets full of garbage mortgage related assets. 4) Many small banks and lenders like CIT who support cash flow for small business go bust.
ReplyDeleteSo a bunch of human and financial capital went into building houses and office buildings no one wanted instead going into useful, sustainable industries. We all know, or at least have our opinions on what drove the madness but I think its unquestionable that it drove unemployment far above what it would otherwise have been. Unless of course there was some other crazy bubble in tulips or million dollar pet rocks or something.
Good article, and anyone who's taken Economics 101 knows that to create jobs you have to have business's that are hiring. When inflation and taxes are high companies have to cut back.
ReplyDeleteum, neither inflation nor taxes are particularly high right now. In fact inflation is negative. what's killing job growth is the lack of aggregate demand post bubble popping.
ReplyDeleteThis is a very interesting topic and very interesting comments, thanks for giving me much to think about.
ReplyDeleteGiven how hard it is to start a business and run it at a profit, versus buy some real estate and rent it out flip it or sit on it and make a profit, people made the obvious choice.
Personally felt like a fool for years for not going into debt to buy a bunch of real estate but now am glad just have the one house and one mortgage.
"The Topiary Cow said..."
ReplyDeleteBubble Meter welcomes all its Plantae and bovine visitors. It's great to have more than just one species reading this blog.
"What if they shot up $400K and then dropped $100K? What would you do then? Post on blogs about how lucky you were and say that everyone should buy right now cause if you rent you are a sucker?"
ReplyDeleteWhat do my gains or losses in the stock market have to do with you being or not being a sucker?
My point is that the economy is complicated and the large equity losses, job losses, might be decoupled from housing assessments/prices. If there is a connection, is the recent rise in equities fueling house purchases? Which is the tail and which is the dog?
I don't depend upon my home equity to fund purchases. I'm sure some people do but I don't.
Folks getting laid off from jobs that are outsourced overseas can find what type of new jobs? What is the rate of jobs being sent overseas now compared to the rate 10, and 20 years ago?
ReplyDelete"What do my gains or losses in the stock market have to do with you being or not being a sucker? "
ReplyDeleteI dont know, I was replying to this...
"Housing? If my investments shot up $100K, I won't buy a house. If they fell $100K, I won't sell mine."
So I was answering your "housing?" to your housing statement with another housing question. Now had you said..."stock? If my investments shot up $100K I wontbuy more stocks." etc.
But thats not what you said.
Read this web site about the UN Agenda 21 if you want actual answers -- http://www.green-agenda.com
ReplyDeleteOtherwise, continue drinking the Cool-Aid.
"But thats not what you said."
ReplyDeleteReread the first post, it'll sink in that the question is, how do equities, jobs, RE, etc, interact, if at all.
I made some money in the market this year, it didn't compel me to buy a house.
Is the converse true? No one is calling you a sucker.
There's really no need to guess what's going on anymore. If you simply transfer your four hours of daily TV-watching time over to a few hours on alternative and independent news sites about the economy, you would know what is going on.
ReplyDeleteThe information is not hidden. Do a search on "Michael Hudson" or "Gerald Celente" or "Michel Chossudovsky" or "Max Keiser" and you will find what you need to know to make smart decisions about your financial future.
To sum up: Buy physical gold and especially silver. Get out of US dollars before hyperinflation hits. Expect a new round of losses in the housing market as the US economy continues to shrink. Keep a close on "Cap and Trade" legislation and the Copenhagen Summit in Dec. 2009 (to see if Obama signs the climate treaty).