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Monday, August 16, 2010

They Never Fail To Astound

Exhibit 1: A rather good WSJ article on boomer and retiree spending. The article notes that even in 2008, retiree spending had dropped significantly compared to 1999:
As of 2008, the latest data available, people aged 65 to 74 were spending 12.3% less than they did ten years earlier, in inflation-adjusted terms. They cut spending on cars and trucks by 46%, household furnishings by 35% and dining out by 27%. At the same time, they spent 75% more on health care and 131% more on health insurance.
No kidding. For retirees who have saved, the change in Social Security (CPI calculation change constantly lowers Social Security) has been cutting away at them even as most have seen much higher "must" expenses. Among those expenses not listed are that for many, their property taxes have risen sharply over the last ten years. Now they are looking at a decade of very low returns on their savings. Most boomers near retirement have seen hefty investment losses and will not recoup them over the next decade.

Exhibit 2: Carliner of the Harvard University Joint Center for Housing Studies writes in Bloomberg. You should read this article for its deep and profound insights amounting to stand-up comedy. This article defines Ivy retardation.

Carliner's basic thesis is that housing must appreciate before most people will buy. This is quite wrong, of course - only speculators buy with the expectation of rolling houses for their appreciation. Housing is driven by first-time buyers, and first-time buyers buy when they can afford to do so, and that is usually when the MONTHLY COST OF BUYING is close to or less than the cost of renting.

That's why, historically speaking, low mortgage rates have stimulated the housing market. All the evidence shows that first-time buyers do not generally know what the heck they are doing and will buy on an affordable mortgage even if it means that they will lose their shirts three to five years out. They're generally young, generally dumb, and generally over-optimistic. That's youth, and that's what keeps the world rolling along.

Carliner ends with this:
The reality is that the real estate market won’t fully recover until builders and consumers start believing once again that housing is a relatively safe investment with reasonable returns, and that will take some time.
Hmm. All this carefully avoids any helpful projections, doesn't it?

I will slowly be returning to blogging action, and I will comment further on these two articles.

If you want to read these articles and think about them, here are a few questions that Ivy retards apparently aren't asking:

A) Might the failure of low, low, low mortgage rates to stimulate housing have anything to do with demographics?

B) Might the failure of low, low, low mortgages to stimulate housing have anything to do with lower real wages for the young-dumb-optimistic crowd?

C) Wasn't the failure of the "affordable-and-innovative mortgages" of the housing bubble preordained because it could get people into homes but couldn't make those homes affordable in the long run?

D) Can a general housing tax credit EVER make homes more affordable over the long run for most people?

The lack of appreciation in housing does, however, remove the #1 argument for selling suckers on a house they can't afford with a teaser-rate mortgage that'll blow up in a few years; "By then, your house value will have gone up enough that you'll have enough equity to refinance into a better rate, so don't worry about the rates going up in 3 years!"

As big a factor, of course, is the way the economic situation and (linked) employment situation have blunted the optimism of those young first-time buyers. A lot of them are earning less than they would have, before; a lot of couples are now one-income, not two, or worried about one or both of their jobs' stability.

All low interest rates and tax credits do is change how much someone can pay for a house -- but they affect everyone equally, and many home-buyers buy whatever they can afford with a fixed monthly amount to spend on housing, so all they do is raise the amount of mortgage people can afford and thus, in the end, raise house prices.

They don't actually create buyers. What they do do is raise house prices -- good news for underwater sellers and for homebuilders, perhaps, but not actually much good news for the buyers. In essence, artificially low rates and tax credits are subsidies, allowing home sellers to make more money.

Most people are not buying houses with a primary eye on making money. After all, you've only really made money if you cash out and leave the market.
Nobody will believe in the faith and integrity of the housing market until morons like Barney Frank can no longer dick around with that market.

Until he and his cronies are gone, the market is toast.
Retirees may be spending less money because more and more programming is aimed at glorifying stupid behavior and stupid lifestyles for the young that promote getting in debt at an early age.

Television appears to becoming the place where most of the new programming is aimed at long term debt indenturing.

Why try and get a 55 year old person in debt when a 25 year old person will be in debt for at least 30 years longer.

It's the real reason behind Barack Obama's victory over Hillary Clinton in 2008,

Click here to learn about the bankster conspiracy
I've thought for a long time that the flaw with the "asset prices will go up much more than inflation" model of baby boomer investment behavior was that they didn't have a good answer to the question "and who will you sell that asset to, when you retire and need the money?"

The cohorts behind them (Gen X and Gen Y) are smaller. Ain't going to find enough greater fools there, especially if their wages are stagnant and their taxes are going up.
MoM,once I understood that members of the Ivy league wrote for a very small audience (They are courtiers after all)that they needed to please in order to recieve the largesse that they felt entitled to I felt a different kind of contempt for them. Logic and sense have no inherent place in these screeds,their sole purpose is to please and reassure. And thus they are proof against any argument based on fact,especially one from an upstart from the lower classes who does not make her own reality,sniff.
Without an ever increasing population, the US economy is like an engine that is losing compression.
Of course China has the opposite problem, too many
people for the resources they have.

All low interest rates and tax credits do is change how much someone can pay for a house

Mathematically speaking, yes.

In practice, all they do is change how much house people can buy for their payment.

The bigger problem was the low low low down payments. 20% down took the dumb and overly optimistic out of the market. But builders, bankers, and especially vote- sellers/property-taxers smelled lots of money by getting the dumb and overly optimistic into the market.

The fact that we're getting the dumb and overly optimistic OUT of the market IS THE RECOVERY. All the king's builders and all the king's bankers cannot put the humpty dumpty housing market together again.
Bear in mind that the government ordered banks to find ways to get less-qualified buyers into loans. Reno and Cuomo (under Wm Jeff Clinton) threatened banks with prosecution if their balance sheets were too good.
From the "They Never Fail To Astound" collection....

Jeremy Siegel just compared my inflation protected treasuries to the tech stocks of the last decade.

The Mother of All Sarcasm Reports (v.58)

I've never been in snarkier mood.
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