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Thursday, July 19, 2012


Real retail sales and some key unemployment rates. Good thing there's no correlation!

As to the comment about retail earlier, yes, I do believe you are right, John Henry. We seem to have peaked out at levels below 2006. Six years + no growth = Many empty stores turning into many empty abandoned stores.

The problem is that we pretend to pay workers, and they pretend to have money to spend. Occasionally, they wake up and realize credit is not the same as income. We call this a recession. When we get a recession, economists rush to blame it on wages being too high.
David, I think you are right in the west. But one of the reasons people have used credit is because their real incomes are falling, and the idea was that you would buy on credit and reap the inflation windfall. Unfortunately it turned into a whirlwind for so many....

Until people can save from their incomes without borrowing, the economy will not be able to build future impetus. All those young people really need to save for a home deposit now. And pay back their student loans.

Existing home sales really were bad, but what does anyone expect? It takes years to build up the piggy banks to build that kind of purchasing power.
Back in 2005 I pulled together the CA income distribution data to see what % of households could actually afford a subprime loan on the median house at 7%. The answer was way, way fewer people than were taking them out. I think Wall Street has very little clue as to what a median family budget looks like. That's the only explanation for all the bullishness I hear on a housing recovery.
That's why we needed no-doc loans!

And that worked out so well. We are being asked to pick between Wall Street and Main Street, but it's a false choice. Where Main Street goes, Wall Street must follow.
I work in a field with a few young chaps that are making enough to buy a home in their late 20's. Even though they have a 10 percent deposit saved, they have found government programs that allow them to borrow over 250,000 dollars without putting in a dime of deposit money (other then closing costs). It is bizarre. If those that are making sufficient money to save a down payment are not doing so, how can the market be said to be back to anything approaching normal? As these young folks are buying completely on borrowed money, what happens if the interest rate goes up to 7 percent, a rate we saw as recently as 2001 if I recall correctly?

By the by, the fellow is buying a ~270,000 dollar home, he makes 60 K his wife to be 36 K. It is one of the last vestiges of the old time consumer products field.

The other odd thing I have noted is how the young fellows want and expect to be able to buy the same sort of home as their parent had; the idea of a starter home seems to have disappeared.

It makes me glad I am not young; I think my wife and I were lucky we grew up when we did.
I don't care how low interest rates are, why pay interest if you don't have to? It's not like mortgage interest rates have zero correlation to returns elsewhere in the market. A mortgage may be 3.5%, but the overall market is close to ZIRP/NIRP that it's still foolish to pay more interest just because the rate is low.

What kind of education/advice are these people getting??
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