| Permanently High Plateau Theory Touted for Australia Housing; Real Estate Agents Refuse to Disclose Sale Prices Posted: 09 Jul 2011 11:43 PM PDT At the height of every boom, bullish clowns inevitably come out of the woodwork touting the "permanently high plateau" prices will not drop much theory. Such a theory is presented in the Herald Sun although one might not quickly spot it because of the headline Decade of pain for Melbourne's property marketThe good news for homeowners is that AMP Capital chief economist Shane Oliver and Grattan Institute program director Saul Eslake - the ANZ's chief number cruncher for close to 14 years - say Victoria will avoid a US-style property crash which saw prices plunge by 30 per cent.
Instead, house prices will continue their single-digit slide into 2012 before stagnating for five to 10 years as wages catch up with a median house price which has climbed 133 per cent since 2000.
"We are facing a situation where we are just spinning the wheels for up to 10 years until incomes catch up with property prices," Mr Oliver said. "You could have a five to 10-year period where you have prices rise before they come off again and basically track sideways within a range." Totally New Paradigm, Permanently High PlateauThat does not sound like a decade of pain, nor is it a "bleak" outlook. Rather, it's none other than the entirely laughable "Totally New Paradigm, Permanently High Plateau" theory. Flashback March 26 ,2005: It's a Totally New Paradigm
Ron Shuffield, president of Esslinger-Wooten-Maxwell Realtors says that "South Florida is working off of a totally new economic model than any of us have ever experienced in the past." He predicts that a limited supply of land coupled with demand from baby boomers and foreigners will prolong the boom indefinitely.
"I just don't think we have what it takes to prick the bubble," said Diane C. Swonk, chief economist at Mesirow Financial in Chicago, who was an optimist during the 90's. "I don't think prices are going to fall, and I don't think they're even going to be flat."
"I look at this as a short-term investment," said Mr. Farquharson, 36, who works for a venture capital firm, "and plan to unload it as soon as things look dangerous."
Now there's a laugh. By the time it looks dangerous will there be anyone looking to buy?
Talk of "new paradigms" or "new economic models" has been associated with every major bubble in history, typically near the peak. Wasn't it just 5 short years ago that Greenspan proclaimed the "productivity miracle" and everyone was counting "clicks" on dot coms as the "new economic model"?
Just as soon as I finished writing this post, I found a new quotation to add.
It's perfect.
Gregory J. Heym, the chief economist at Brown Harris Stevens, is not sold on the inevitability of a downturn. He bases his confidence in the market on things like continuing low mortgage rates, high Wall Street bonuses and the tax benefits of home ownership.
"It is a new paradigm" he said.
Scroll back up and take a look at that first chart again. Current talk of "New Paradigms" and "New Economic Models" should tell you exactly where we are and where we are ultimately headed.
Flashback June 7, 2005: It's time to shift the arrowYes, Mish readers I am pleased to announce that housing has now reached "A permanently high plateau". I offer the following quotes from a New York Times article as evidence:
"I think we don't expect prices to continue to rise at this pace, however, we don't see a bubble bursting either," he said. "I don't recall a real estate bubble ever bursting that wasn't preceded by bad economic conditions or some dramatic shock, and nobody is predicting any of that right now."
"The interesting thing we're seeing is, it's a very stable, brisk market," said Steven B. Schnall, the president of the New York Mortgage Company, a mortgage lender. Mr. Schnall pointed to continued low interest rates as the most important factor in the market. "I don't see prices continuing to skyrocket," he said. "They've reached a very high level and this almost appears to be a new normal, and interest rates are helping that."
Flashback ...
"Stock prices have reached what looks like a permanently high plateau."--Irving Fisher, esteemed economist, October 1929 Flashback November 01, 2005: Thoughts on Housing ConstructionMany seem to thing that housing will plateau and there is no fear of a real slump. At the top of the list in believing the "permanently high plateau" theory is David Seiders, the chief economist for the National Association of Home Builders. According to Seiders, single-family starts numbered about 1.6 million, in 2004. He expects another record this year, even as the industry begins to hit "the plateau we've been watching and waiting for."
Also chiming in on the permanently high plateau theory is Erik Bruvold of the San Diego Regional Economic Development Corp. in the San Diego News article Housing economists raise yellow flag over San Diego.
Mr. Bruvold predicted a flattening in prices rather than a dramatic falloff. Already, the inventory of homes on the market is growing and sales prices are lower than asking prices. "I think we've hit a plateau," Bruvold said. "I would not refer to it as a turning point."
David Berson chief economist of Fannie Mae and David Seiders, chief economist for the National Association of Home Builders also seem to be giving some credence to the "plateau theory". "Prices are so high that at some point there is the possibility people may simply decide it's too expensive to move there," Berson said. "Alternatively, prices may simply slow for a period of slow or no price gains." No one seems to be as optimistic as the Toll Brothers according to the New York Times article Closing Ground.
At the moment, Toll controls enough land for nearly 80,000 houses. Its competitors, which tend to build lower-priced houses on smaller lots, have even larger accumulations. K. Hovnanian has land for more than 100,000 houses. Pulte Homes holds 350,000 sites. Still others - Lennar, Centex Homes, D. R. Horton, KB Home - control hundreds of thousands as well. And all of them are in ferocious pursuit of more.
The company expects to grow by 20 percent for the next two years and then will strive for 15 percent annually after that. Those estimates suggest that the company's expected production of around 8,600 houses this year will expand to at least 15,000 houses by 2010. Individual Toll developments now range in size from a few dozen to 3,000 houses.
"Why can't real estate just have a boom like every other industry? Why do we have to have a bubble and then a pop?" asked Toll.
....
This cycle will not be any different. I do expect some home builder bankruptcies out of this mess but it is not easy to predict which ones.
Here is what the housing evidence suggests:
- Homebuilders are clearly ignoring business cycles, affordability issues, tightening credit, and liquidity concerns. Money has been too easy for too long for anyone to understand what might happen in a liquidity crunch.
- Homebuilders will keep buying more and more land and adding more and more to housing inventory in a foolish attempt to grow 20% every year fighting for "market share" right at the peak of the boom.
- No one seems to see or believe the devastating consumer led recession that is staring them in the face. It's simply "build or die".
- People will likely borrow to buy this housing bubble until lending literally seizes up.
I believe we can now answer Toll's question: "Why can't real estate just have a boom like every other industry?"
My answer is "Patience Mr. Toll, you will, and it will end up looking a lot like the telecom bust of 2000 as well." We are now hearing exactly the same nonsense out of Australia. Agents Withhold House Price DataPlease consider Agents Withhold House Price DataMELBOURNE real estate agents and vendors are increasingly withholding or manipulating data provided to the Real Estate Institute of Victoria, prompting calls for the mandatory reporting of all property sales to protect consumers.
A Sunday Age investigation has found that 27 per cent of all auction results published by the industry body in June were missing critical information - including the sale price, passed-in price or the reserve. Many auctions were not reported at all, distorting clearance rates that are used by buyers and sellers to gauge market strength.
Nearly one in five properties sold at auction are now reported to the REIV with the price marked ''undisclosed'' - a significant increase from last year's property boom, up from 11 per cent then to 18 per cent now.
The investigation also revealed that 43 per cent of properties scheduled for auction in June had no published quote range, further frustrating buyers' attempts to obtain basic information.
Last month, agency RT Edgar sent a newsletter to clients warning there was a ''serious question mark'' over media reporting on the market because many agents were withholding sale prices and passed-in results.
REIV head Enzo Raimondo defended the institute's voluntary reporting methodology, saying the ''small increase'' in the number of undisclosed results did not affect the integrity of the system.
''It is not the role of the REIV to force home owners to publicly declare the amount for which their homes sell. If a person really wants to know the price for which a home sells, they can attend the auction,'' Mr Raimondo said. Favorite Comments From the Article- Moral of the story? Don't buy now. Wait. And with every day that passes take comfort in knowing that property investors and RE agents are dying the death of a million cuts (with every month, comes more news of further price falls)
- "If a person really wants to know the price for which a home sells, they can attend the auction,'' Mr Raimondo said." Bit of a childish, simpleton's response there, Mr Raimondo. As head of the REIV your attitude only serves to underscore your industry's dodgy reputation.
Dear Real Estate Buffoons- Prices are falling whether you disclose them or not
- Not disclosing prices makes people mistrustful and rightfully so. That will hurt, not help sales
Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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| Boehner says Chance of Budget Deal in Few Days "Maybe 50-50", NYT says Sides Still Far Apart; How to Tell if the Deal is a Good One Posted: 09 Jul 2011 03:02 PM PDT Conflicting stories from Reuters and the New York Times suggest one thing for certain: The sides are at least still talking. However the miserable jobs report on Friday complicates matters. Democrats now want more stimulus, and stimulus will add to the deficit. Reuters reports Boehner says chance of budget deal "maybe 50-50"Speaker of the House of Representatives John Boehner told his Republican members on Thursday that chances of reaching a budget deal within the next few days "was maybe 50-50," a party aide said.
"Whether or not it happens is really dependent on whether they (Democrats) continue to insist on tax hikes" over Republican objections, the aide said. Boehner offered his assessment at a closed-door meeting with members shortly before White House talks with President Barack Obama and other congressional leaders. Interestingly, the New York Times says Boehner has agreed to some tax hikes but Republicans and Democrats Still 'Far Apart' on Debt, 2 Sides Will Seek Broader CutsThough the president and Congressional leaders did not close wide gaps on the issues of spending cuts or new tax revenues, officials briefed on the talks said, they emerged with a consensus to aim for the biggest possible deal — one resulting in up to $4 trillion in savings — and a recognition of the dire consequences of not acting before Aug. 2, when the government will lose its authority to borrow.
Later, top lawmakers and Congressional officials said that they thought a narrow opening existed for a far-reaching agreement, and that the next 48 hours and the Sunday meeting would prove pivotal. If an acceptable package cannot be agreed upon, they predicted a fallback plan in the range of $2 trillion or more, based on the earlier negotiations overseen by Vice President Joseph R. Biden Jr.
With the White House and the lawmakers promising not to divulge details of the talks, the specifics of an eventual deal were not yet clear. But Mr. Obama has put popular entitlement programs like Medicare and Social Security on the table, while Speaker John A. Boehner has signaled for the first time his openness to up to $1 trillion in new revenues. The money could presumably be raised through closing loopholes but would also probably require changes to the tax code that would have to be worked out later.
The prospect of cuts in health care benefits and Social Security has alarmed Democrats. On Thursday, Representative Nancy Pelosi, the House Democratic leader, said she wanted to give the president room to negotiate a broad agreement but would resist efforts to tie the deal to Social Security.
"Do not consider Social Security a piggy bank for giving tax cuts to the wealthiest people in our country," Ms. Pelosi said to reporters on Capitol Hill after the meeting. "We are not going to balance the budget on the backs of America's seniors, women and people with disabilities."
The White House took pains on Thursday to play down reports that Mr. Obama was open to substantial cuts in Social Security benefits as part of a deficit-reduction deal. The press secretary, Jay Carney, said that the president had vowed in his State of the Union address in January to put Social Security on a firmer footing, and that he would not place the subject off limits in negotiations to reduce the deficit.
Among the proposals is an adjustment to the price index that measures cost-of-living increases, which would whittle its payments to recipients over time.
Mr. Obama, seated between Mr. Boehner and the Senate majority leader, Harry Reid of Nevada, told the lawmakers he would not sign an interim deal, only one that extended through the 2012 election.
Then he surveyed the eight leaders about their preference for three deals of different sizes — the largest being up to $4 trillion in deficit reduction over the next decade, according to aides briefed on the discussion.
Six of the eight expressed their support for the biggest deal, the aides said. But Representative Eric Cantor, the House majority leader, and Senator Jon Kyl of Arizona, the ranking Republican on the Senate Finance Committee, favored the midrange $2 trillion, voicing doubts about how they could sell a $4 trillion deal to their rank and file, officials said, since it would involve tax increases. Jobs Report Muddies PictureBloomberg reports Democrats Press Obama to Include Stimulus in Debt Deal After Jobs ReportDemocrats pressed for some form of economic stimulus in the debt deal President Barack Obama is negotiating with Republicans following a U.S. Labor Department report yesterday showing job growth slowing.
Senator Charles Schumer of New York, the chamber's third- ranking Democrat, called for an "immediate jolt" to the economy by extending and enlarging a one-year payroll-tax cut that's set to expire Dec. 31. He asked for action "as quickly as possible by including it in the final debt-limit agreement."
Jared Bernstein, until recently Vice President Joe Biden's chief economic adviser, predicted the White House would step up efforts to include in the debt deal additional infrastructure spending or a new temporary payroll tax reduction.
Republican presidential candidate Mitt Romney said the "abysmal jobs report confirms what we all know -- that President Obama has failed to get this economy moving again."
Former Utah Governor Jon Huntsman, also a Republican presidential candidate, said "extremely anemic job creation" demonstrates "we need free-market, pro-growth policies to spark a wave of job growth." Another temporary payroll tax cut will not create any jobs. No one will hire anyone for a promise of lower taxes. Budget Deficit MathThe budget deficit is somewhere between $1.4 and $1.6 trillion a year. Cutting $2 trillion over 10 years is not even a down payment for what needs to happen. Heck, $4 trillion is barely a reasonable down payment. I much prefer a $4 trillion deal than a $2 trillion one. Then regardless of what the deal is, I would slash another $2 or $3 trillion over 10 years out of defense spending. Any deal that hits $4 trillion probably will include some small tax hikes. So be it. The ratio of 3-to-1 or 3.5-to-1 budget cuts vs. tax hikes seems like a reasonable compromise to me. Republicans should take the opportunity to slash $8 trillion ($800 billion a year) out of the deficit if Democrats are willing to stick to those ratios I mentioned. How to Tell if the Deal is a Good OneThe deal will not be a good one if it is all back loaded. Nor will it be a good deal if it cuts less than $4 trillion. We need huge cuts this year and every year forward, not back-loading that may never happen. Slashing $400 billion would have Krugman whining. Slashing $800 billion would have Krugman and the Keynesian clowns howling like mad. In general, the louder Krugman howls, the better the deal it will be. Helping Cities, States, Municipalities Unfortunately, what I proposed above does nothing for states. Cities, states and local governments need relief as well. The way to help cities and states is to kill collective bargaining for public unions and scarp Davis-Bacon. Those two acts will lower costs, spur hiring, and reduce layoffs. Unfortunately, those actions do not appear to be under discussion. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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| China's Inflation Hits 6.4%, Food Prices Soar 14.4%; Chinese Central Bank Downplays Soaring Costs; BRIC Inflation High Across the Board Posted: 09 Jul 2011 09:17 AM PDT Those looking for price inflation can easily find it if they open their eyes and look at the much beloved BRICs, Brazil, Russia, India, and China, as opposed to where everyone is looking, which is to say the United States. MarketWatch reports China's June inflation rises 6.4%Monthly data released by the National Bureau of Statistics of China showed the consumer price index for June climbed 6.4 % from the same period the year before. Many economists had expected the rise to be between 6.2% and 6.4%.
That increase compared with a 5.5% jump in May, which was itself the fastest rise in CPI since a 6.3% increase in July 2008. Chinese Central Bank Downplays Soaring CostsLike all central banks react when they don't want to react, PBOC chief suggests not to overreact to inflation China's central bank chief Friday suggested markets shouldn't over react to a large rise in year-on-year inflation for June, saying that month-on-month figures are a better gauge of prices.
"It's better to use month-on-month inflation (data)...seasonally adjusted and annualized," said People's Bank of China Gov. Zhou Xiaochuan.
"In China, we use the year-on-year inflation figure without seasonal adjustment: that's the problem," Zhou told a financial conference. "You always try to think about the base effect." Nonsense From ZhouAs long as you are comparing the same month to the same month a year ago, there is no price comparison distortion. The "base effect" is zero. Month by month comparisons without seasonal adjustments are flawed. Middle Class Inflation Woes Hit RussiaThe Financial Times reports Inflation severs Russia's material comfortsWhile the collapse of communism in the 1990s destroyed most Russians' standard of living, something resembling a middle class began to appear again between 2000 and 2008, as real incomes doubled and oil revenues kept wages and pensions well ahead of inflation.
However, since the onset of the economic crisis in 2008, real incomes have been stagnating as wages have been frozen – while inflation gallops on.
Since the onset of the economic crisis in 2008, which saw gross domestic product fall 8 per cent in 2009, wages in most sectors have been frozen, while inflation, temporarily damped by the crisis, has now picked up. In the first quarter of 2011, real wages fell 2.9 per cent, driven by higher inflation than expected.
While official inflation for the year sits at a little more than 9 per cent, many think this statistic is fudged. "I think the real inflation rate is being understated by official statistics," says Sam Greene, a professor of political science at the Moscow-based New Economic School.
Over the past five years, official statistics show prices rising 62 per cent but most Russians feel much greater increases.
"The middle class is splitting in two," says Mikhail Chernysh, head of the social mobility section of the Russian Academy of Sciences Institute of Sociology. "One part is in danger of falling out of the middle class, while the other part is gaining.
"Getting into the middle class is very difficult in Russia and once you are there, it is hard to stay." India Hikes Rates 10 Times in 16 Months to Combat InflationAsia Times reports India Maintains Inflation FightThe Reserve Bank of India (RBI), the central bank, has raised interest rates for a record 10th time in 16 months, grimly continuing its efforts to choke inflation by checking money flow.
But belt-tightening, the RBI has decided, remains one of the critical ways to tackle inflation, which rose to 9.06 % in May, up from 8.66 % in April.
"High input prices, rising finance costs and global uncertainties are adding to negative sentiments ... and a high interest rate environment will most certainly put brakes on new investments," Associated Chambers of Commerce and Industry of India president Dilip Modi told Agence France-Presse.
RBI governor Duvvuri Subbarao is unimpressed by such pleas, declaring in a statement that the immediate priority was to kill inflation, not to feed growth. Note: The above link may trigger unwanted popups. Credit Crisis in BrazilOn July 5th I posted an email from a Brazilian reader regarding inflation in Brazil. Please see Credit Crisis in Brazil: Consumer Loan Rates Hit 47%, Defaults Soar, Debt Service Tops 50% of Disposable Income for details. Otavio, my Brazilian reader thinks Brazil's currency, the Real is "extremely overvalued". I agree for the reasons he gave. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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