Following up on Krugman’s pessimism, here’s some housing market analysis from Hal “Bondad” Stewart at 538:
What does all this mean?
1.) The existing home sales market has farther to fall. There is simply far too much inventory on the market for prices to remain stable.
2.) During the recession, the economy lost a total of 7,281,000 million jobs. Of these, 2,102,000 or 28% were construction workers. Given the massive inventory overhang in the existing home sales market it is highly doubtful that we’ll see large construction employment gains in the near future.
3.) Housing wealth is one determinant of consumer behavior. If housing prices continue to move lower, expect lower consumer spending to follow.
This weekend, I talked with someone who works for a big property management firm here in Rochester. He said that lending is still tight, their rental units are full, and his company is building large units (2-3 bedroom townhomes) for rent. I’ve know this guy for years, and I consider his business “smart money”. The smart money in this town is making a long-term bet that more families who used to be buyers will be renters, at least until they save up for bigger downpayments.
harlana peppper
What have I done that text here runs off the screen? Is it me, or some issue with BJ?
Well, never mind, it’s fixed now
Napoleon
It should be mentioned, and I am sure this is related, but home loan rates are crazy low. I figured out over the weekend that if I refinanced my loan which has 25-26 years to go with one at current rates but a 20 year term my payment would be almost exactly the same, but with 4 or 5 less years of payments.
lonesomerobot
man, the dissonance here. I don’t read Bonddad any more. Months ago on DKos he declared – sunny skies and hallelujah – the recession was over. Then he got mad and left when people challenged him on it (and yes I know people were rude to him).
But the problem is this – 2 posts down on this blog is K-Thug declaring we’re in a full-fledged depression. Now you’re quoting B-Dad from savants-r-us.com, already strongly on record as saying the recession is over (with charts & graphs! and even here he refers to the recession in past tense), talking about how housing is in the dumps.
Bonddad, while a master of the charts & graphs, is just a new type of blog-pundit, the savant class, you might say. But his ability to be *right*, to my mind, hasn’t been that well demonstrated in the least. He just knows how to overwhelm with charts.
Comrade Javamanphil
@lonesomerobot: OTOH, if he is revising his earlier assessment based on new data then good for him. Much rather have somebody who makes an occasional wrong conclusion if they are willing to look at the data anew and reconsider.
lonesomerobot
@Comrade Javamanphil: well I don’t think he is at all revising his earlier assessment. In the blockquote here, he says, “During the recession, the economy lost a total of 7,281,000 million jobs.” That’s past tense. As far as BD is concerned, recession over. All I’m saying is that the point of K-Thug’s writing this morn is to say economy = depression, but B-Dad couldn’t support that with his stance on where things are, could he?
Is this housing mess is a separate issue as far as he is concerned? Which IMO is daft, if true. Housing has everything to do with where we are right now and he seems to be treating it as a separate, sort of compartmentalized issue.
And man jobs are certainly a lagging indicator. They continue to lag.
Dave Fud
@Comrade Javamanphil: I agree with this. No one (who is not completely insufferable) is going to be right all of the time. I just prefer the humility of those who can un-conclude and start again – I’ll give ’em a few strikes. After all, we give them three in baseball every time a batter goes to the plate. Seems sort of uncharitable to not give an economics/markets blogger some leeway for error considering it is often a random walk, not a clear path.
zmulls
I thought Krugman was not necessarily saying we’re *in* a Depression, but that we’re headed to a series of forks in the road which could lead to one. That the harbingers of policy discussions are leading to deficit reduction, belt-tightening, tax-cutting, spending cuts, etc. which would lead to austerity (for the little people) and a Depresion; rather than more spending to encourage job growth and lower unemployment, etc. (i.e., not a Depression).
His (series of) column(s) are a bitch-slap to the whole financial community saying “Dudes — keep talking like that, Depression City, lots of downs and few ups, over the next ten years.” He also says he thinks it would be like the smaller Depression of the late 1800’s, not as bad as the 1930’s one (small comfort).
And I have to say, in recent months, I’ve been thinking about all the money that has been sucked away by mortgage interest in my life, and wondering whether I should have been renting all these years. I dream of living in a small apartment in a city and walking everywhere, simplifying my life — but I’ve got the whole family in the suburbs thing, with mortgage interest and property maintenance to worry about.
JimF
Where in Rochester, are they currently building? I’m getting tired of my current rental.
Jim
Comrade Javamanphil
@lonesomerobot: Perhaps so although what he has written is a bit thin in my mind to determine where he thinks the broader economy is going. If after writing that third point (expect lower consumer spending) he does not conclude we are heading for another recession, then he would be quite foolish.
mistermix
@JimF: I think this was somewhere on the west side, IIRC, maybe Greece?
@lonesomerobot: I’ve found his analysis to be generally helpful.
Here’s the “recession is over” article: http://www.fivethirtyeight.com/2010/05/closer-look-at-fridays-gdp-report.html
He’s saying that, technically, based on the agreed-upon definition of a recession and recovery, the recession is over. He didn’t say there wouldn’t be a double dip, and he followed up the “recession is over” post with a warning post that included a bunch of negative indicators:
http://www.fivethirtyeight.com/2010/05/storm-clouds-on-economic-horizon.html
Similarly, today’s report is anything but rosy. I don’t think there’s a major contradiction between it and Krugman’s post.
PeakVT
Stewart isn’t exactly charting new territory with his comments on housing. In fact, one of the reason so much emphasis was put on construction during the first stimulus debate was because there was (and is) so much spare capacity in the construction industry. And it isn’t just housing that is overbuilt; the commercial sector is oversupplied as well. Both sectors are going to be depressed for years.
homerhk
The recession is over. The recovery is, however, weak.
This article on housing may not be as depressing as presented. Not everyone can be home owners and the encouragement of all people being home owners is a contributing factor to the recession. Overvalued housing stock has returned to its real value. It’s hard to know the “liberal” or “right wing” position on this but can’t we all agree that inflated house prices don’t do anyone any favours (at least in the long term).
RSR
Just curious if the company is Natapow? My brother-in-law used to work for them, pretty high up.
Wegmans continues to grow, too.
lonesomerobot
well, how’s this for awesome – a bonddad post from 2009 that refers to Krugman saying “Economy Is Stabilizing and May Have Hit Bottom”
Economists. I would never want to be an economic prognosticator.
that BD post was in the run-up to when he left DKos in 2009. a few doomsayers there weren’t having his message that the nosedive was over and recovery was beginning. I know there’s a technical definition for recession, but maybe that’s my point – BD’s analysis, I always felt, was all in the numbers and had little to do with the psychoses — what people actually believed was happening in the economy. He’s not a psychologist so I’m not saying it’s wrong for him to do what he does, and yes he does it well. But part of what caused the DKos revolt which resulted in his leaving there was rooted in exactly this sort of dispassionate reliance on the numbers, the charts, the graphs. Whatever, it’s not for me to say how he should do what he does. But AFAIC, he’s just a guy that popped up about 2 years ago with no track record (on my radar, anyway), but with an ability to craftily present graphics that seemed to support his findings. And yet I still don’t know how much, if at all, I can rely on what he says.
Let’s just say that for my eyes and ears, as an economic doomsday doctor, I’ll take Krugman’s bedside manner over BD’s. But then maybe that’s just apples & oranges anyway.
New Yorker
Correct me if I’m wrong, but didn’t Rochester come out of the housing bust relatively unscathed? I was under the impression that most of Upstate NY didn’t see massive housing price declines.
So imagine what things must be like in Phoenix or Miami.
liberal
@lonesomerobot:
I don’t read DKos, but when I saw this post I had a very faint recollection that Bonddad was not someone whose economics I trusted.
liberal
@lonesomerobot:
That’s not completely true—I thought he is/was in the FIRE sector (hence bonddad).
If so, he’s guilty until proven innocent.
Fleem
@New Yorker:
As I understand it, housing prices in Rochester were already dirt cheap –they didn’t have very far to fall, relatively speaking.
I would guess the biggest factor pushing people out of home ownership there would be mortgage default due to job loss. Those folks won’t be able to get new loans.
But yeah, Phoenix and Miami are totally screwed.
TJ
Technically, the recession is not over until the fat lady sings (that being the NBER). And there has been no song as of yet.
NBER
chopper
@lonesomerobot:
i think you’re misreading k-thug. he himself, in that article, states that the recession “arguably ended last summer”. however, we’re still possibly in the beginning of a depression.
remember, ‘recession’ is pretty narrowly defined by growth. ‘depression’ is not. you can have slow, inexorable growth with high unemployment and nastiness all around and be called a ‘depression’. remember, our economy in general bottomed out in 1933 but the depression went on for some time.
mistermix
@New Yorker: Rochester’s crummy economy meant that nobody was dumb enough to erect tracts of homes and entice people to overextend to buy them. My accountant told me about a couple of cases where people are underwater due to home equity abuse (unrealistic appraisal leads to big HELOC, now the homedebtor can’t get out of the house) but there wasn’t enough housing market appreciation to make this a big problem.
That said, we’re still getting hit by the tight lending market. Even though housing prices are flat or down slightly, the new requirements mean that people who would have previously purchased a home are renting for a few more years.
mds
@mistermix:
Yeah, it figures. There are so many miles of Ridge Rd W that aren’t malls and schlocky housing; they aren’t even to Lewiston yet. When in doubt, create even more car-centric sprawl, and our problems will be over. (Yes, I’m glad for a resurgence in rental housing, but I’d much rather see increased density a little closer in.)
New Yorker
@Fleem:
Yeah, that’s what I figured was the case with upstate NY: things were so cheap to begin with, and with a sluggish economy, there was no bubble to burst. Nobody was building luxury condos on the Genesee River.
Still, you have a massive housing crisis in Detroit and Cleveland, two rust-belt cities that were probably in worse shape than Rochester to begin with, so it definitely could be worse for upstate NY.
Mnemosyne
Too bad we can’t use all of that spare construction capacity for, say, repairing schools and other infrastructure rather than building more cheap, poorly-constructed houses that people can’t afford anyway.
lonesomerobot
@chopper: well perhaps not misreading as much as having a literary distinction? Another thing to recall is that the term “recession” isn’t nearly as old as the term “depression” – before the 1920s the word “recession” — meant in the economic sense — didn’t exist.
So in that sense my take on what Krugman’s saying is that the “recession” may have ended, but the “depression” began in September 2008 and continues to this day and for years to come. He’s been saying this all along – the Great Depression began with the stock market collapse of 1929, FDR’s initial reforms helped reverse the economy in the early 30s (an expansion), but then cutting spending turned things around again. All in all, it’s a depression, but there were moments of recession and expansion during the years 1929-1939.
Maybe what I’ve found lacking in BD’s posts is much macro-analysis that addresses the long-term effects of a full-on housing depression and long-term unemployment. It means, to me, a slow and subtle lifestyle adjustment for America. And this, I think, was mistermix’s point when he made this post.
Either way, it’s all probably my bad because I realized earlier that comparing the two is a waste of time.
Adrian
@mds: Especially when there are so many vacant houses and properties in the middle of the city.
ksmiami
Hey – I’m back after a vacation and a move to the midwest (MI actually)… Just to chime in with what I know. Basically, Bush and co let the housing bubble balloon into the Hindenburg and then it exploded and the fallout in construction, mortgage lending and the like is going to plague us for a long time. Additionally, by paying out the tax cut leftover by Clinton (and all the wars), Bush left no cushion for lean times and so there are not as many levers available to Obama to crank to get the economy running. Not to mention the TOXIC Republican meme that all govt spending = bad and people’s unwillingness to subsidize infrastructure like high speed rail, advancing stem cell and free wifi across the country, well you see why there is no magic bullet to fix the economy. We squandered our blood and treasure in Iraq and we can’t have clean, efficient energy or trains, because that would make George Will sad. I hope Obama can counteract the foolishness, but his press team is not as effective as it was during the campaign.
opium4themasses
@New Yorker: I work as a leasing agent now and was considering a move to Phoenix. (Lots of foreclosed homes in theory means lots of renters)
However, the new immigration law is scaring off lots of potential renters. So, I have since reconsidered.
The same law is scaring off plenty of people looking to buy food, clothes, pay utilities. It’s like Phoenix decided they wanted to make their recession even longer.
PurpleGirl
@opium4themasses: I don’t remember who developed the number but someone (an organization?) said that the immigration law could potentially cost AZ several hundred million in economic activity and maybe 200,000 jobs of people who sold to and worked with the immigrant population. Stores and services that those people would ordinarily deal with — clothing, hair dressers, etc. etc. — would lose business as immigrants stopped shopping or going out. Even if immigrants decided to stay and not return to Mexico (or where ever), they might stay indoors and close to home. It would have a huge impact on the state’s economy.
Tim Ellis
@JimF – they are opening up a new rental lot here in the South Wedge (downtown area), which is an excellent location right on South Ave. Should be finished in a month or two.
@mds – I agree with the need and desire for more density. I can’t speak for the rest of downtown but I know the South Wedge is actively pushing for this. There’s a very active neighbourhood group and a lot of community spirit. I’ve been here about a year and I’ve fallen in love with it, which is the last thing I expected from rust-belt Rochester.
Speaking of which, Rochester is much better than you think it is – http://www.rochesterbiz.com/Business/Regional/Facts.aspx
Not to sound like a Rochester shill, I’ve just really come to appreciate this place.