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Thursday, June 2, 2011
Northern Virginia Bits Bucket 6/2/2011
Posted by Harriet at 6:00 AM
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21 comments:
On the news this morning, they said that we are headed for another dip in housing prices, to make it a double dip recession at best. do you think it will likely hit this region or pass us by for the most part again?
What consists of the DC Metropolitan area? Like where are the boundaries?
strange bed-fellows:
http://www.cnbc.com/id/43257844
Lord, help us.
The area includes the following counties, districts, and independent cities:
[edit]District of Columbia
Washington, D.C.
[edit]Maryland
The following counties are categorized as part of the Washington–Arlington–Alexandria, DC–VA–MD–WV Metropolitan Statistical Area:
Calvert County
Charles County
Frederick County
Montgomery County
Prince George's County
Though associated with the Washington Metropolitan Area, the following counties are categorized as part of the Baltimore-Towson, MD Metropolitan Statistical Area:
Anne Arundel County
Howard County
Though associated with the Washington Metropolitan Area, the following county is categorized as part of the Lexington Park, MD Micropolitan Statistical Area:
St. Mary's County
[edit]Virginia
Counties
Arlington County
Clarke County
Fairfax County
Fauquier County
Frederick County
Loudoun County
Prince William County
Spotsylvania County
Stafford County
Warren County
Independent cities:
City of Alexandria
City of Fairfax
City of Falls Church
City of Fredericksburg
City of Manassas
City of Manassas Park
[edit]West Virginia
Jefferson County wva
interesting, some of the surveys are now saying "Majority of renters don't want to buy houses"....
that may be a good sign for health in the market
contrarian
if it gets that bad, ammunition will be much more important then food.
Nice business, peddling to end-of-the-worlders.
Hardly post anymore, but I feel I need to correct one major flaw in thinking.
Housebuyer posted :
"Most of the savings reside with the few very rich and with people in different countries. So I am effectively recommending a redistribution of wealth from the wealthy (in our country and other countries) to the poor/middle class in our country."
Completely fallacious.
In general, the rich have debt and lots of it . . . way more than the poor. They have access to credit that the poor can't even dream of.
Inflation will benefit the rich at the expense of the poor.
One key aspect to inflation is being missed: 1st access to the money.
The rich due to their connections, funds, etc. will obtain the newly created dollars before prices adjust upwards to compensate for the new quantity of money. They will and are buying massive amounts of assets at cheap prices with newly created dollars before those assets rise in prices.
Wages are the very last thing to rise (if they do rise) in an inflationary bout. The wage earner has access to the newly created money last after the rich have bought assets and driven up prices. They are in effect more poor because they wait until everything rises before they get an increase.
While inflation does make debt worth less, you really need high wage increases vs. interest rates to make it remotely beneficial.
For fun, I recently ran some numbers on the place I bought. Homes nearby sold for ~60k in the early 80s, at 18% interest it needed to sell for more than 260k for the owner to break even 30 years later. At 8% interest, 126k 30 years later. The last sale in '03 was for 130k. It probably would have sold at the peak for ~160-180k. I purchased it for <60k cash.
gte-
Yes rich people have more debt than the poor, but not relative to their paper assets. The rich people use debt, to mostly buy paper assets. These assets (bonds & stock) do very poorly during inflationary times. Real returns of stocks and bonds were terrible during inflationary times. On the other hand the poor mostly use debt to buy hard assets like houses. Look how houses did during the 80s. Median housing prices over doubled form 1970 to 1980. So a poor person who put 3K down to buy a 30K house in 1975 would have had 33K 10 years, which is a 1000% return. The rich people who instead borrowed money to buy stocks or companies did poorly as stocks went up ~45%, which is dramatically less than they would have paid to borrow the money.
Also I am not sure why you think that inflation comes from newly created dollars. If you look at the growth in money supply and inflation over almost anytime frame there is a negative correlation. For example the fed has pumped unprecedented amounts of money into the system from 2008-2010 and we have had very low inflation over this time frame. Instead if you compare wage growth with inflation there is a very high correlation. You can also compare things like industrial utilization and find it is correlated with inflation, because inflation comes from too many people wanting to buy things and not enough supply being created.
Sure in the extremes like Zimbabwe money creation causes inflation, but in the US money is created through lending not printing of bills. So its not like the rich people have secret funds that give them access to this money.
Also for your housing example the point is that the poor people already have the loans and most housing loans are a fixed rate. So they will continue to pay low payments while the money they are paying becomes worth less.
Contrarian
The rfi is for a supplier who can deliver 14,000,000 meals over 7 days for a catastrophic earthquake in the newmadrid fault system.
No surprises there
housebuyer,
the poor will not get the benefits of inflation as they will pay higher interest rates above the prevailing inflation rate. The uber-rich were not playing in the stock market in the 70s, they were in housing, futures, bonds.
Inflation absolutely comes from newly printed or created dollars. You are confusing prices with inflation.
The price of a good is subject to the following factors: supply of good, demand for good, supply of money and demand for money.
The supply of money can grow dramatically yet if people have a high demand for it (say they want to hold it in case they lose their jobs) prices will not rise if the supply and demand of the good stay stable.
This is in general what is occurring today, the demand for money (aka velocity of money) is very high (the velocity is very low). . . higher than it has been in 20+ years. People want to hold money b/c they need to repair their balance sheets and or are afraid of losing their jobs.
This doesn't mean inflation isn't happening, it is and at a really scary rate, we just aren't seeing the effects yet.
Looking at prices to determine inflation distorts the picture. For example, as a society becomes more productive it can produce more of a good increasing the supply and driving down the price. If productivity increases faster than the printing occurs, prices will drop.
This is extremely evident in technology and computers. More productivity, more supply lower prices in the face of a great deal of inflation over 30 years.
Our economic system is set up to inflate, that is what it does. The dollar has lost ~98% of its value since 1913. Do you really believe that the rich and powerful who created the system would set up a system that would not benefit them?
That is why the rich get richer and the poor get poorer, our monetary system is designed that way.
This chart tells you all you need to know about the mess we are in:
http://research.stlouisfed.org/fred2/series/BASE
The Feds hope is that when the time comes they can shrink this to a more normal level. If they can not, it will be real interesting.
If you want it in text format since the 70s.
http://www.federalreserve.gov/releases/h3/hist/h3hist4.txt
What occurred in 2008 was pretty close to unprecedented. The only time that could possible compare was '29 and the aftermath. Benny boy is a student of the GD and gave a speech in 2002 "Making sure it doesn't happen here" and by it meaning deflation. If you read the speech it is a playbook to the T of what they have done and what they will do.
They think they can control it, I think they will lose the handle and inflation will get out of control. Yet as someone remarked in the GD, it's almost worth a depression to find out how little our big men know.
gte-
I think you missed my point that most of the debt that people have is fixed rate debt. So this means the debt that they currently have will become easier to pay because dollars will become worth less. I agree for people who take out additional debt during inflationary times they will pay high rates, but the inflation will help make the high debt loads they already have more manageable.
As for your definition for inflation that sounds like a definition from an outdated econ book. The definition has since switched to something more like "a persistent, substantial rise in the general level of prices". I don't think anyone cares if there is more money if the prices of things don't change. Second, because wages are sticky on the downside it is much better to have moderate levels of inflation, so you can get out of a bust in the business cycle by having prices/wages stay flatish rather than if you normally don't have inflation they would need to go down. So all your comment about the dollar losing 98% of its value over 100 years means that we have had on average 3.5% inflation.
As for your demand of money argument QE2 has clearly shown that was wrong. Maybe you could argue that peoples demand of money was really high during the recession, but seeing that QE2 dramatically increased the money supply and prices have remained relative stable you would have to believe that peoples demand for money is dramatically higher now than it was in the height of the crisis. There is no possible way you can reasonably make that argument.
Also the richest people have always owned pretty much the entire stock market Plus owning bonds before the inflation happens is a terrible deal, because at yields go up the prices went down. So for them to do well you would need to believe they owned stocks and bonds through the 60s and traded them all in 1970...
http://www.usatoday.com/money/economy/housing/2011-06-02-foreclosures-may-have-crested_n.htm
USAToday says Foreclosure wave may have crested nationally.
Probably true.
Now all the miserable foreclosures need to work out through the system.
http://www.usatoday.com/news/nation/census/2011-06-03-fewer-children-census-suburbs_n.htm
Dogs don't buy houses
Cherie,
This delayed marriage, delayed kids will drive the low-mid priced properties. This will happen thru landlords buying up the lower-end and singles/couples buying condo's and townhouses. This is my opinion and I see it happening now.
Due to the low prices and mortgage rates and high rental demand, investors are snapping up the low end (under 200K). The inventory is very low; at least in the areas I follow.
The increase in the preference of renting vs. owning will reverse in time. Memories are short and the desire to own is ingrained. In the meantime, it's great to be a LL.
The "dog thing" is quite true in my experience. I don't quite understand it as I have a dog and believe pets can be quite a burden in terms of freedom to travel, etc. Not that we don't love our little doggy, but it's a long commitment.
Harriet, I enjoyed that story you posted. That is one savvy attorney. We can relate to the frustration of big companies' making mistakes and ignoring appeals to fix them, a la the woman who took a sledgehammer to her Comcast office--but in this case, totally legal. Let's hope the banks learn something from this attorney's action action.
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