Visualizing Life In America From 1983 To Today Submitted by Tyler Durden on 04/23/2013 18:55 -0400 Gross Domestic Product SWIFT A lot has changed in 30 years - from Miami Vice and Flashdance to Hunger Games and Taylor Swift; but away from the end of legwarmers (and rolled-up jacket sleeves), GDP has more than tripled from $3.5 trillion as household incomes, home prices, and employment have shifted dramatically but not equally... Image source: www.topdegreesonline.org Average:
There is some interesting data on the deleveraging that is occurring with the American household. Since the peak in Q3 of 2008, US households have lowered their outstanding debt by $1.3 trillion. It is important to understand how this deleveraging is occurring. First of all, Americans are largely paying down existing debts much faster and are no longer on a debt binge like they were pre-2007. Yet a significant amount of the deleveraging has occurred via mortgage defaults. So while lower debt is a good sign, it is important to understand in what context this is occurring. Another point that will be highlighted is the amount of student loan borrowing in the US household equation. This segment of debt was untouched by the recession as younger Americans financed their college educations through more expensive debt. After a few years, Americans have pushed off some $1.3 trillion in household debt. Let us examine how this debt weight was lost. Removing $1.3 trillion in household debt Without question most of this reduction in debt has occurred because of mortgages being written off thanks to the housing bubble popping. Yet another part of the equation is that Americans have tapered off their borrowing ways and are not back to pre-recession levels . It is likely that this is a structural change given that most of the previous decade’s borrowing came courtesy of a once in a lifetime bubble. Let us examine how this debt was removed via the housing process: The big increase in US household debt from 2000 onwards was largely based on massive growth of mortgage debt. In 2000 outstanding mortgage debt went up nearly $600 billion. It dropped a bit in 2001 likely in line with the tech bubble bursting. After that, it was bubble city yet again. In 2002 it was well over $600 billion. From 2003 to 2005 it ranged in the $800 to $900 billion category. In 2006 it went over the nutty $1 trillion mark and even in 2007 it was over $900 billion. Trillions of dollars added in mortgage debt thanks to the housing bubble. To be exact, a stunning $6.2 trillion in mortgage debt was added between 2000 and 2008. Yet in 2008 even with problems emerging net mortgage debt went up. Only in 2009 through 2011 did we see actual mortgage debt go down. $241 billion in mortgage debt was paid down and as you can see from the chart above, a large amount of mortgage debt went away because of the housing bubble bust . All in all $968 billion in mortgage debt has been written off from 2009 to 2011. Underlying all of this of course is that banks have dealt much better from the bust since the Federal Reserve has helped banks directly with countless programs and bailouts. For example, home values are down over 30 percent from their peak. However banks have not come close to adjusting mortgage debt by 30 percent. Even the chart above reflects this trend and demonstrates that most of the deleveraging has occurred on the balance sheets of US households. Part of this has come from lower mortgage rates as well. U.S. mortgage rates are down from August , touching 3.77 percent APR for a 30 year fixed mortgage The growing student debt While practically all areas of consumer debt fell once the recession hit, student loan borrowing continued unabated: While the bubble in housing clearly has caused massive deleveraging in household debt, the higher education bubble continues to rage on. You have mixed signals being thrown out to students that yes, education is going to make you more money in the long-run but this kind of generalist advice provides very little guidance. There is a big difference between what career you choose and also where you go to study. It is insane that some poor quality institutions are charging students $50,000 per year and the only way this can occur is via the student loan system. Think about the fact that US households are essentially earning what they did in 1995 yet the cost of going to college has gone up even quicker than housing did during the peak of the bubble. While it is true that US households are in the painful process of deleveraging, banks are once again levering up and speculating in all sorts of markets. The Federal Reserve is essentially handing out free money to member banks so they can continue to speculate in whatever they see fit. Of course the unforeseen changes are coming via hidden inflation and a declining standard of living. Need we remind you that the Fed was largely at the core of the initial housing bubble? With no real changes to the financial system the Fed is essentially funneling billions of dollars each month into the housing market to try and re-inflate asset values. US households have a firm grasp on what is happening with over 46.5 million Americans on food stamps and nearly
Are We Halfway Through Our Lost Decade? (4 Charts Inside) by JT McGee Tweet Tweet Housing crises tend to create debt crises. And debt crises are generally far more damaging than recessions caused by bloated asset values. I took a quick trip through FRED and Wikipedia only to be shocked at what I found. We’re Broke, But It Sure is Cheap Allow me to introduce you to this chart, the percentage of disposable income used to service the debt of an American household: You’ll notice that consumers seem to be doing very well when it comes to paying their debts. We are very capable of making our monthly obligations. This is why the default rate on credit cards and auto loans is now at a multi-year low. In fact, credit card delinquencies are coming in a sloth-like pace we haven’t seen since 2001 , while only 1/300 people are late on their car payments . Impressive, huh? Most impressively, the debt service costs of the average American continue to drop while the amount of debt consumers finance has only gone up. Observe the change in this chart, a chart of the total amount of household debt relative to disposable income. Notice that in 1980 Americans had debt equal to roughly 70% of their disposable income and debt service payments equal to 11% of their income. In 2012, we spend 11% of our disposable income to finance debt worth as much as 110% of our disposable income. Basically, $11 of debt demands as much from the American consumer budget as $7 of debt did in 1980, adjusting for changes in income. Are the Boom Years Coming Back? Much has been made of a falling debt service ratio. Economists believe that a falling ratio will allow for economic expansion in that borrowers are capable of carrying more debt now than they were before the collapse. I think this is half true. I think consumers are in a position where they can afford to borrow to spend. That’s good, I suppose, from the perspective of economic growth. However, it doesn’t address a critical problem – where will consumers find the money to borrow and spend? That’s the real issue. I want to introduce you to another chart of mortgage equity extraction, or the amount of money that households pulled out of home equity with financed dollars. Here’s a chart: Not pretty. As we know, real estate fueled much of the consumption boom from 2002-2006. In fact, it is believed that 75% of all GDP growth during that period was financed by home equity. Basically, without the real estate boom, the economy would have grown at one-fourth the pace it did from 2002-2006. It would not have grown. It would have just stagnated, kind of like the economy is stagnating right now. This is an important realization. It reminds us that the American economy will go nowhere without housing. Housing is a major source of financial leverage for American balance sheets. Take a look at just how much we inflated our “incomes” with home equity during the boom years: This is why I think we’re still only halfway through our lost decade. While homeowners are deleveraging, building in room in their budgets for debt, they will not be capable of borrowing for major purchases. Homeowners will not be capable of buying homes, or extracting home equity. Borrowers are capable of financing TVs, cars, or washing machines, but these are relatively unimportant when we talk about the grand scheme of things. We still have a long way to go. Yes, interest rates are low. And yes, we are spending significantly less on debt than we have in years gone by. But we are not in a position where we can add significantly more to our personal balance sheets. A credit card here and there and a car loan (secured!) just might fit, but a home equity loan – the source of most American liquidity – is still out of the picture.
And Now The Facts About Retail Appetite For Japanese Bonds... Submitted by Tyler Durden on 11/17/2012 13:09 -0500 Dennis Gartman Japan One of the more persistent, and pernicious, misconceptions about the unshakable - at least to date - tower that is Japanese debt, all Y1 quadrillion of it, is that there is no need to worry (literally, see prior ) because the bulk of it is held by retail, i.e., domestic household, investors and as long as that is the case, nothing can possibly go wrong: after all the Japanese population holds its own debt, and as such is a beneficial creditor to the world's largest sovereign debtor. Alas, as so often happens with conventional wisdom, it just happens to be completely wrong. And while one may be entitled to their own opinions, the facts in this case belong squarely to the Japanese Ministry of Finance. The Japan MOF chart below summarizes the true state of retail appetite for Japanese bonds. In the wise words of Dennis Gartman, the chart is unmistakably headed from the top left to the bottom right, in perfectly obvious terms. Source: Japanese Ministry of Finance Average: 5 Your rating: None Average: 5 ( 8 votes) Tweet Login or register to post comments 6143 reads Printer-friendly version Send to friend Similar Articles You Might Enjoy: Silver, Wine, Art and Gold (SWAG) To Protect From Inflation Guest Post: Cashing In On Japan's Debt Conundrum? Olympic Calm Before Coming Financial Storm Guest Post: On Currency Swaps And Why Gartman May Be Wrong In Focusing On The Adjusted Monetary Base Kyle Bass Vindication Imminent? Largest Japanese Pension Fund Begins To Sell JGBs
How to increase home prices in the face of stagnant household incomes. Submitted by drhousingbubble on 11/02/2012 13:20 -0400 Federal Reserve fixed Housing Market Las Vegas Real estate Underwater Homeowners It is easy to get swept into the momentum of the housing market. The Federal Reserve has managed to push interest rates to historically low levels creating additional buying power for US households. As we enter the slower fall and winter selling season, there is unlikely to be any major changes until 2013 as the election year concludes. We do face major challenges ahead. This current momentum in housing isn’t being caused by flush state budgets or solid wage growth. No, this is being caused by low inventory, big investors crowding out households, and a concerted effort to push mortgage rates lower. If you simply follow the herd, you would think that prices are now near peak levels again (or soon will be) and household incomes are hitting record levels. Let us examine where things stand today deep in 2012. California and nation It is clear that 2012 has pushed home prices higher overall. This has occurred both on a nationwide basis and also for California. Yet California home prices are far away from that peak reached in 2006. However, some mid-tier markets never really corrected and we are now seeing flippers selling homes for prices that are near peak levels. The argument is that overall things corrected but then this is applied to niche areas where prices are now back near peak levels (at least with the current prices being seen with some flips). The low inventory and the narrative that the bottom is here is causing a flood of people to buy especially with low interest rates. In lower priced areas, a good portion of the market is being over bought by Wall Street and big money investors . This is still anything but a normal market. US home prices It is evident that US home prices have hit a new trend in 2012. Prices are moving up. Yet the driving force behind this is low interest rates, low inventory, and the high amount of investors buying up properties. Keep in mind that low interest rates and especially investment buying is finite. This money will dry up. In housing what you want to be seeing is sustainable appreciation in combination with rising household incomes and a healthy employment market. Those should be the driving forces instead of the Fed committing to another $500 billion of MBS purchases via QE3. Median household income This is the one argument that is always missing from the home boom 2.0 narrative. Is it possible to have sustained rising home prices when household incomes are falling or stagnant? It isn’t and the Fed and banks are fully aware of this. So the Federal Reserve has decided to push affordability via low rates as far as they can. It is a win-win for the financial industry. They can unload properties at much higher prices courtesy of the low interest rate. Some people think this comes at no expense. It does. Carrying a negative interest rate is pummeling those on fixed incomes and also, with one out of seven Americans on food stamps many are seeing those monthly deposits not going so far when they go shopping for food. Ultimately the cost is being shouldered by those who can least afford it. Ironically this flood of investors has also pushed rental prices higher as well creating a double-whammy. LA Tiered home prices Probably one of the better measures of price is the Case Shiller Index. This looks at repeat home sales so we are measuring apples to apples. The median price is also important but it is prone to changes with the mix of sales. Right now, the big drop in foreclosure resales is causing prices to surge. Yet it is important for trend shifts and also because the media and the public rely on this for their purchasing behavior. As you can see from the chart above, each tier in Los Angeles County has shifted up a bit. We are far from peak prices and given the mania in certain areas , you would think this would be rising much faster. You are not missing anything. For those thinking they are missing something you might as well go to Las Vegas and try your hand at the tables. There is a mini mania in prime areas of California happening right now. As you see from the above charts, household incomes simply do not justify this movement. The momentum right now is in favor of higher prices but for fleeting reasons. Home sales and trends If things are so hot, why are home sales not running at a higher pace? The 12 month moving average is running a little bit higher than 35,000. This is the pace we’ve had since 2009 when the market was flying off a cliff. From 1998 to 2007 the moving average was above 45,000 sales per month. So what really is going on then with prices rising so fast overall? The explanation comes from a few items: -1. Inventory is low (we even hear complaints from real estate agents about this) -2. Low rates increased leverage in the face of falling incomes (refer to earlier chart) -3. From the bottom everything is higher (the increase is big from the bottom but put into context, still has us way below the 12 month moving average from over a decade ago) -4. You are competing with big money investors This is why sales are not exactly off the charts given all the favorable elements that are being perceived. For this market to continue on this path, nothing from the above can be removed. Keep in mind that with the “fiscal cliff” some items on the table include the mortgage interest deduction cap. This will hit California hard especially in these mania locations. There is no reason for the nation to allow mortgage interest deduction above a certain level (i.e., $500,000 or capped at certain income levels). “( LA Times ) But since only about one-third of taxpayers itemize on their returns — the rest opt for the standard deductions — who's really getting these tax savings? As you might guess, people who have higher incomes are more likely to itemize and claim mortgage interest and other housing deductions. Citing the latest data on the subject, published by the IRS in 2009, Kolko found that only 15% of households with incomes below $50,000 took itemized deductions, while 65% of those with incomes between $50,000 and $200,000 did. Just about everybody with incomes above $200,000 — 96% — itemized on their returns.” And guess who was number one on the list? “California ranked No. 1 in the size of home mortgage deductions, with $18,876 on average. Next came Hawaii ($16,730), the District of Columbia ($16,720), Nevada ($15,502), Washington ($14,262), Maryland ($14,162) and Virginia ($14,094).” There is little reason for the mortgage interest deduction to allow for such a large write-off especially when the typical US home price ranges from $150,000 to $170,000. We are in massive debt and for the nation to subsidize expensive California housing does not make sense. Underwater Even with home prices moving up we still have over 9,000,000 underwater homeowners. This is a sizeable number. The above chart highlights underwater mortgages at various increases or decreases in home prices. The distressed inventory is still large but is decreasing. The thing with the housing market is that it largely isn’t a market anymore. So with all of these market incentives and the fiscal situation looming next year, there has to be a catch. We have yet to see household incomes increase. The economy is still on shaky ground. Yet in many pocket markets you have people ignoring the macro economy and just running around their little enclaves with blinders on. Hot money is flowing in. There is no doubt about that. Yet it is not sustainable. Since election years usually produce very little change, we’ll have to wait until 2013 to see if this trend actually has some real teeth. Do you think household incomes are important when it comes to home price? Did You Enjoy The Post? Subscribe to Dr. Housing Bubble’s Blog to get updated housing commentary, analysis, and information. Average: 4 Your rating: None Average: 4 ( 6 votes) Tweet drhousingbubble's blog Login or register to post comments 4553 reads Printer-friendly version Send to friend Similar Articles You Might Enjoy: Rising home values in the face of stagnant incomes A theory on the bounce and slog housing market. A modern day feudal system for real estate The resurgence of the low down payment market The Canadian Real Estate Bubble?
About Raising Taxes As The "Solution" To The Fiscal Cliff... Submitted by Tyler Durden on 10/26/2012 10:45 -0400 Deficit Spending Guest Post Submitted by Charles Hugh-Smith of OfTwoMinds blog , Raising taxes is the "solution." Too bad incomes are declining. What will raising taxes do to household savings, spending and the economy? We all know cutting Federal spending is politically impossible, so that leaves raising taxes as the only "solution" to the "fiscal cliff." Since most income tax revenues flow from household income, let's look at some charts of the workforce and household income: As a percentage of the population, the workforce has contracted to levels of the late 1970s. As a percentage of national income, labor's share is in a free-fall: Hourly earnings have been trending down for years: Income for every age group other than 65+ seniors has declined sharply: The income of those in their peak earning years 45-54 have been slammed: Household debt loads have soared far above wages: Meanwhile, government expenditures are up, up and away: Yes, I know: the solution is to "tax the rich." The Problem with "Tax The Rich": It Won't Work (May 28, 2010) Will "Tax the Rich" Solve Our Deficit/Spending Crisis? (December 28, 2011) Do the Parasitic Elite Pay Any Taxes? (June 13, 2012) The parasitic Elites should certainly pay as much as the heavily taxed middle class ( The Real-World Middle Class Tax Rate: 75% (July 5, 2012), but since the parasitic Elites have captured the machinery of governance, the chances of Congress actually raising taxes on the top 1/10th of 1% are nil. There will be noises made, of course, for perception management and public relations, but when April 15th rolls around we will find tax revenues are stagnant: loopholes and tax breaks will have blossomed like mushrooms, magically enabling the parasitic Elites to escape any serious reduction in their income. Even if we were able to squeeze some additional taxes out of the parasitic Elites, their income stream is dwarfed by the Federal spending that looms ahead: The Fiscal Cliff and Demographic Drag . The top 1/10th of 1% cannot pay the rapidly expanding Federal benefits of the 99.9%, even if we confiscated every dollar of their incomes. How can tax revenues increase when household incomes are declining? Transfer more of the national income to taxes and that leaves less for savings, investment and consumption. The economy contracts, reducing the workforce and wages further. If that isn't a death spiral, it is a close approximation of one. Average: 3.75 Your rating: None Average: 3.8 ( 12 votes) Tweet Login or register to post comments 4586 reads Printer-friendly version Send to friend Similar Articles You Might Enjoy: Guest Post: Now That The Easy Stuff Has Failed, All That's Left Is The Hard Stuff Guest Post: The Fiscal Cliff and Demographic Drag Guest Post: The Future of America Is Japan: Runaway Deficits, Runaway Debts Guest Post: The Future of America Is Japan: Stagnation Guest Post: The Real Reverse Robin Hood: Ben Bernanke And His Merry Band Of Thieves
Rising home values in the face of stagnant incomes Submitted by drhousingbubble on 09/07/2012 16:06 For the first time since September of 2010, nearly two years ago, has the Case Shiller 20 City Index realized a year-over-year gain. Does this signify a sustainable turning point for the market? At this point it is too hard to tell for a couple of reasons. The first has to do with the composition of homes being sold but also, at a more profound level, household income has fallen for well over a decade. Much of the sustained gains have come from astoundingly low interest rates offering buyers more leverage, low available inventory for sale, and a continuation of low down payment mortgages . You will notice that none of these reasons include household incomes rising to meet current prices. It really is unsustainable unless incomes can follow in conjunction. This year, according to the Case Shiller Index home values are now up 3.86 percent. Household incomes are not up. So what justifies this significant move? The CPI is up 1.3 percent so why are overall home values moving up at a rate 3 times higher than the overall index? You also see Millennials taking the brunt of the negative equity situation. Young and underwater Zillow recently came out with data showing that a whopping 48% of homeowners under 40 are in a negative equity position. This rate would look even worse if we considered how many of these homeowners actually bought with say FHA insured 3.5 percent down loans and have a razor thin level of equity. The reality is, we have two groups in the US right now when it comes to housing. You have younger Americans confronting a very tough employment market and purchasing homes during the manic 2000s and you have many older Americans that bought pre-2000s and enjoyed the multi-decade long bull market of the US, including steady rising incomes and home values: Income is absolutely important and as we discussed previously, younger Americans that are in a deeper underwater state also saw the biggest decline in their earnings potential: Source: The Washington Post, Sentier Research So how is it possible that home prices are rising so strongly in spite of weak income growth? First, there is an unusual mix of buying going on. You first have investors competing for a lower amount of distressed inventory. Take a market like Las Vegas were over 50 percent of all sales last month went to all cash buyers, a continuing multi-year trend except inventory is lower now. Cash buyers in Las Vegas are now paying 19 percent more for their summer 2012 purchases versus the purchases made in summer of 2011. For Phoenix 41 percent of buyers paid all cash last month. The vast majority are investors as noted by their absentee status. Nationwide investor buying is a big segment of the market and with falling distressed inventory and people chasing yield, prices have been pushed up as many investors are likely opting to purchase non-distressed homes that carry a higher price tag. The other segment is coming from the low down payment FHA first time buyers. Rates are at incredibly low levels. Interest rates have fallen substantially in the last year. The 30 year fixed rate mortgage has fallen by 28 percent in the last year alone from an already very low level. So even with stalled out incomes, many Americans found that they could afford more house with the same or even lower household income. With slim pickings for inventory, many bid prices up. Think inventory isn’t low? Take a look at this: Source: ISI Group Inventory is at a 30 year low and probably even lower if we had data going further back. Yet as we noted earlier, half of those under 40 are underwater. We discussed that there might be a bounce and slog market as we move along since rising prices will bring more people to the table to unload properties. Banks are methodically dumping distressed real estate . What is concerning overall is the price rise has come from artificial factors. The low interest rates are already having hidden leakage costs in other sectors of the economy . You also condition the market to low down payment loans that are defaulting in mass in spite of rising home values. And of course the low inventory pushes prices higher given access to more leverage via lower interest rates and also investors competing for a smaller pool of properties in a tight market. It would be one thing if household incomes were moving up in tandem with home values. But even this year, home values measured by the Case Shiller are moving at a clip 3 times higher than that of the overall inflation rate. Household income absolutely matters and has been a good metric to use for multiple decades. Only recently have we seen such artificial stimulus in the market where it has the ability to push home values up in spite of slow income growth (i.e., Alt-A or lower quality loans during the mania, low down payment FHA loans and massive levels of investor buying in the current market). The interesting point of rising home values is that it will likely drag out some of the underwater inventory and thus add more supply to the market. Did You Enjoy The Post? Subscribe to Dr. Housing Bubble’s Blog to get updated housing commentary, analysis, and information. Average: 4.4 Your rating: None Average: 4.4 ( 10 votes) Tweet drhousingbubble's blog Login or register to post comments 4479 reads Printer-friendly version Send to friend Similar Articles You Might Enjoy: A theory on the bounce and slog housing market. The resurgence of the low down payment market The twin lost decades in housing and stocks Watch The NAR's Larry Yun Explain The Pending Home Sales Miss And The Downtrend Returns: Inflation Disappoints As Empire Manufacturing Posts First Sub-Zero Print Since October 2011
标签: household经管大学堂：名校名师名课
京公网安备 11010802022788号
论坛法律顾问：王进律师
知识产权保护声明
免责及隐私声明
