The blog now has over 5000 members, and about 40 of them crowded into a small room in the FlatIron district of New York to hear me give a talk on debt-deflation. Since I had the luxury of more time than you get at an academic conference, and an engaging and intelligent audience, I gave a lot more detail on my modelling approach. The questions were also superb, and would have continued for much longer if I hadn’t called quits at an opportune point (the whole caboodle of presentation and discussion is almost 70 minutes long). My answers come through loud and clear on this video; I just hope that the questions themselves can be heard by better ears than mine!
Steve Keen's Debtwatch Podcast with Stuart Cameron
The presentation slides are linked here, and the paper here. The presentation is new and much more detailed than the one I gave at the Levy; the paper is the same as that linked to the Levy presentation.
I am still doing some development work on this model, including expanding it to include fiat as well as credit money (and I hope ultimately to fit it to the US data as well), but for now it’s the most complete single sectoral model of debt-deflation I’ve put together.
I’ve also linked an MP4 format file here, since the Flash Video compression seems to result in rather hard to read text on the slides.
PS I’ve just checked part of the video above, and after a while there’s a very large gap between the visuals and my commentary. This is probably due to my stuff-up when I got back from New York: I used an automatic backup program to transfer files from the camera to my computer, and then deleted the files from the camera–only to find that the New York material hadn’t been transferred!
An undelete program saved my bacon (thank you File Restore Plus), but in such operations there’s always some problem, and this is one of them. Nonetheless it’s better than losing the whole thing. So please put up with the disconnect.
July 14th, 2010 at 11:12 pm
[...] more from the original source: New York Debtwatch Talk: Modelling Debt Deflation | Steve Keen's … Comments [...]
July 15th, 2010 at 2:03 am
[...] See the article here: New York Debtwatch Talk: Modelling Debt Deflation | Steve Keen's … [...]
July 15th, 2010 at 6:41 am
What are the publics views on the new Prime Mininster? Does anyone see her as being substantially different than Rudd? Especially in the economy?
July 15th, 2010 at 11:51 pm
China: Mother of all housing bubbles.
China just announced that its Q2 GDP came in at 10.3%, just below a consensus estimate of 10.5%. Surprisingly, for some odd reason the market seems to believe this “data.” Although in retrospect, based on China’s bottom up GDP goalseeking, the number, which we will show in a second is completely irrelevant, could very easily be true, based on two just announced stunners about the Chinese economy. The first comes from Fitch, which in a report released today titled Informal Securitisation Increasingly Distorting Credit Data, uncovers that China has in fact been massively underrepresenting the actual amount of new loans in the first half of 2010, courtesy of precisely the kinds of securitization deals that blew up half of our own banking system: “Adjusted for informal securitisation activity, Fitch estimates that the net amount of new CNY loans extended in H110 was closer to CNY5.9trn, or 28% above the official figure of CNY4.6trn…on a flow basis the volume of credit being shifted off balance sheets in recent times has been large and rising. Activity also is largely concentrated among just a few dozen banks, and institution?specific exposure is often much higher.” And some are wondering why China’s AgBank was scrambling to raise $20 billion via a hurried IPO… Yet this data pales in comparison with disclosure from a recent article in South China Morning Post, in which an economist at the Chinese Academy of Social Sciences noted estimates from electricity meter readings that there are about 64.5 million empty apartments and houses in urban areas of the country! This number is five times larger than the roughly 12 million in total US public (3.89 million) and shadow (8 million as estimated by Morgan Stanley) home inventory available currently. Forget Stephen Roach – China is covertly funding and creating a housing bubble that is at least 5 times as big as that of the United States. We leave it up to you to imagine the consequences of that particular bubble’s bursting…
July 16th, 2010 at 1:02 am
Starting from the tautology
pQ = mV –> dq/q + dQ/Q = dm/m + dV/V
dm/m = dL/L + dP/P where L = loans to finance output and
dP/P is inflation.
let D = debt percentage = L/pQ so that L = DpQ and
dL/L = dD/D + dp/p + dQ/Q
Collecting 0 = dD/D + dP/P + dV/V –> (d(DV)/dt)/DV = -(dP/dt)/P
In 1961, my father bought a Buick for $4000. A comparable 2010
model costs $36,000, so (dP/dt)/P = ln(9)/49 = .045 = 4.5%
So, DV = exp(-.045t) –> 0
Does this mean that inflation causes output to go to zero?
Does your new model incorporate inflation?
July 16th, 2010 at 2:52 am
I am no economist nor am I very familiar with this topic but I read Debunking economics and found it very interesting. However I hated the figures many of which were badly labelled, hard to see and not well explained.
Now I opened this presentation and look at figure 1. The title says “Private Debt to GDP ratios” the Y axis is labelled as “Years (Percent of GDP)”. Am I the only one that is annoyed by such small inconsistencies?
July 16th, 2010 at 3:00 am
Steve,
Good job. As an engineer who has been using differential equations and matrices for a while I suggest you should start using Laplace Transforms (or some other transforms) else as your models get more complicated it will get very hard to track and understand various issues involved.
July 16th, 2010 at 7:54 am
It’s a dimensionally correct statement markmark8–the only error is that I should have stated it as “Years expressed as percent of GDP”:
Debt ($) / GDP ($/Year) has the dimension of Year.
I do agree re the graphs in Debunking Economics however–they were straight from my Mathcad program in some cases, Corel Draw in others. A good graphic artist should have intervened but it was produced by a low budget publisher.
July 16th, 2010 at 12:11 pm
Steve, great presentation, really informative.
I was particularly intrigued by the modeling you showed, that included the results from govt injection attempts to counteract deflation.
Unfortunately that graph that showed what you indicated as being “australia” and “usa” was not clearly visible in the video, is there a online link to it ?
Maybe i missed it in previous postings, but it seemed in the video you where suggesting the near future and long term projections for the economy suggested a stagnent non growth kind of plateau.
Just wondering if i understood that right ?
I would also assume a stagnet non growing economy would put an end to the ponzi style credit binge weve had of the last 10 years.
July 16th, 2010 at 2:12 pm
Steve,
I remember watching some of your old interviews (SBS, 7:30 Report). In those there was lots of talk about a depression being this close.
Based on your current models (and assuming that govt. spending doesn’t change anywhere), how long could it potentially last? Bear with me if you’ve already answered this.
July 16th, 2010 at 6:18 pm
Here is an interesting perspective on the US housing system that I hadn’t considered.
http://articles.latimes.com/2010/jun/14/opinion/la-ed-default-20100614
July 16th, 2010 at 6:37 pm
Hi soho,
Firstly I’d better acknowledge that the government response to the crisis was far larger and initially more effective than I had anticipated; however that said, on a comparison of the GD trajectory to today, the level of unemployment in the USA is worse now than then (comparing the U6 measure of unemployment today to the historic measures of the 1930s).
To properly answer your question I’d need to integrate a Chartalist model of fiat money–and fiscal policy–into my debt-deflation model; but my basic feeling is that this will be untractable until policy embraces debt moratoria. I certainly don’t expect any change out of a decade.
July 16th, 2010 at 6:38 pm
Hi spooky,
If you download the PPT file you’ll find that presentation embedded into it; install the vissim viewer and you can watch it on your own PC.
And yes to the next two questions. There’ll be several attempts to restart the Ponzi Scheme which will all run out of steam before people realise that it’s the Scheme itself that’s the problem.
July 16th, 2010 at 6:51 pm
A picture is worth a thousand words.
July 16th, 2010 at 11:24 pm
[...] New York Debtwatch Talk: Modelling Debt Deflation | Steve Keen's … [...]
July 17th, 2010 at 4:20 am
I’m trying to not recycle posts that we all know about already. So we’ll see how this goes.
Obama is going to sign The New “Reform” Law (for the markets). What he doesn’t say is that it’s so weak you’d ask, why bother?
The answer? Mid-term elections. The Democrats have been desperate for something to spin against the neocons. And now this seems to be it.
Meanwhile in the real world, the number of homeless keeps going up. Are they really homeless (or working a scam)? I don’t know. But what I do know is that sadly the haves vs. the have not gap is getting really wide.
Obama says vets will get better access to PTSD treatment. But, nobody says anything about the public getting help as well. And, one of his new “heath care” czars was one of the key people who stopped the “public option” from becoming law.
I’m just really happy that I recently renewed my passport.
July 17th, 2010 at 6:21 am
I’m just a very average nobody, but I just wanted to say “thank you” Steve for posting this.
Educational.
Please keep up the good work.
July 17th, 2010 at 12:11 pm
Here’s a long term economic forecast.
We always hear about the military industrial complex. But, I’ve never heard an economist talk about this.
What if govts finally got smart and switched the massive military spending to infrastructure, alternate energy sources and more? Has anyone ever seen any economic models of the short and long term benefits?
Plese post links if you have any.
July 18th, 2010 at 11:44 am
Cutting debt or taking more on?
Retailers say consumers are reducing debt: http://www.theage.com.au/business/shoppers-hold-out-for-discounts-20100717-10f6j.html
Dun and Bradstreet say a new round of debt is coming:
http://www.heraldsun.com.au/business/signs-credit-is-coming-back-into-vogue/story-e6frfh4f-1225891822860
In the US evidence seems sharper: http://www.businessinsider.com/disappointing-deflationary-double-dip-2010-7?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+clusterstock+%28ClusterStock%29
July 18th, 2010 at 9:23 pm
[...] Nonetheless it’s better than losing the whole thing. So please put up with the disconnect.Steve Keen’s DebtwatchThis is a “remedial” post: I have just posted “Are We It Yet?” to this site, [...]
July 19th, 2010 at 2:27 am
Day 18 and I’m still debt free…….
July 19th, 2010 at 5:48 am
Hi Steve,
Just saw your recent spot on Al Jazeera. Nice job.
A hypothetical. If the ABC rang you tomorrow and offered you a fulltime commentator spot on their Late Night Business show, would you do it? Of course, push hard for the option of apperances on various related shows. Unlike here in the States, that doesn’t seem to be a big deal in Australian media?
Why do I mention this? Because literally, there’s no economic stuff worth watching here. Go to any bookstore, and 99% of the business magazine/newspaper content is all Big Business. Thye same for the bestseller lists. I’m getting almost all of my accurate information from abroad. Doesn’t say much for my mutual funds, either (come to think of it).
Then again, I recently read that the head of the ABC thinks that climate change skeptics are being “discriminated” against. This might be a problem.
July 19th, 2010 at 10:33 am
Hi soho,
Unless it gave me 4 free days (out of a seven day week) I’d turn it down, because I need the time to get my book written! At the moment that’s the first priority, especially now since I have developed all the dynamic models I need and the crisis is becoming obvious once more–and may ultimately become so down here in Oz too.
July 19th, 2010 at 4:06 pm
Steve, When do you see a correction happening in the housing market? I’ve been waiting 4 long years for something to happen! Thank you, Housewatching.
July 19th, 2010 at 4:28 pm
Hi Housewatching,
Though I’m sure bb will disagree with me -):, I doubt that you’ll have to wait another year. The first stage in this is always an increase in the backlog of unsold properties, and that appears to be building right now with declining auction clearance rates and a 25% fall in the number of buyers compared to the same period as last year.
July 19th, 2010 at 5:17 pm
Longterm Steve Keen bagger/Hater. First time actual reader. First time acknowledger that I have had absolutely no idea what I’m talking about and I have a lot of reading ahead of me
July 19th, 2010 at 6:11 pm
we are due for a correction after a 20% year, my bet is that it won’t go lower than 20% and you will see sellers withdrawing and buyers coming back if the price drops that much.
July 19th, 2010 at 8:14 pm
Wow! That’s quite an intro Bankruptcy Ben. Welcome, and I hope you enjoy the reading, and the discussions on this very civil blog.
July 20th, 2010 at 9:58 am
Lots of talk these days here about who’s “overpaid”.
An example. A Russian hockey player is signing a 17 year, $100 million contract. The NHL (and other pro sports commissioners offices) typically are really slow in responding to these situations. Which means that there’s a good chance it will be approved.
The goalie in question is 22. In 17 years he’s 39. And realistically, he won’t be a top player the whole time.
I don’t know about Aussie rules football, cricket, etc. But in North America, baseball is really the only sport with no salary cap. Other pro sports collective bargaining agreements will expire soon.
If you were this guy, would you want your money spread out over the whole deal? Or, would you take as much upfront as possible? (FYI: The biggest baseball contract so far has been 10 years/$252 million).
Factors to consider:
Taxes
Short and long-term tax implications
What will the next collecitve bargaining contract bring?
I only have a small window to make as much as I can.
If the players call a strike, how long will that last?
Now, what is it that NOBODY talks about?:
Unchecked govt. borrowing
Justifying huge salaries when many fans are possibly laid off (or homeless).
I understand that we’re in a global corporate culture. And, you’ll get the standard lines from both the players and owners.
But an underlying element of this is the power of unions. In other areas, union power has significantly gone down. A few major ones (pro sports, movie/TV, etc.) aren’t afraid to use their power when necessary.
Yet, what does this say for everyone else? In the U.K., the govt. wants to seize money in dormant bank accounts (“for the public good”). And since the U.K. and the States copy each other so much (“cash for clunkers” is another example), how do we know Obama won’t start this as well?
And for anyone who might think that I’m dealing in all hypotheticals, keep this in mind. Many states are this close to bankrupt. Umeployment rates in California and Michigan are 30%. Many key industries are nationalzied. But the govt. doesn’t like to say “nationalized”. So instead, they say bailout.
Can the govt. seize dormant accounts in Australia?
July 20th, 2010 at 10:56 am
great presentation Steve. You focus on Oz and the US for obvious reasons, do you see the UK following in a similar fashion in that they are playing the same game ?
July 20th, 2010 at 11:29 am
Hating to break away from the theme of these psost, I really wanted to forward this reflection of mine in relation to Australia house prices.
I can’t see the life of me how house prices can fall in Sydney, Melbourne cities when similar vibrant cities around the world have not had a big house price drop even with the GFC. I take this comment from Rory Robertson (demon) but can’t help to agree with him.
http://www.theaustralian.com.au/business/opinion/extreme-predictions-on-house-prices-will-continue-to-be-wrong/story-e6frg9if-1225892981265
“Meanwhile, growing coastal cities that dominate their regions tend to be relatively expensive, typically around six to nine times income. The most expensive include Vancouver, Sydney, Honolulu, Melbourne, New York and San Francisco.”
July 20th, 2010 at 11:31 am
housewatching @ 24,
Steve is absolutely correct – I do disagree with him.
As I have said on numerous occasions, higher house prices will encourage a supply response. That is what we are seeing today both in the primary market (new dwellings) and the secondary market (existing stock).
An increase in supply of existing stock does not change the fundamentals of the market. There are still a certain number of people who need accommodation, and a certain number of dwellings which can provide accommodation. Anyone who sells a house, and not buy another house, will need to rent a house (unless we have negative pop growth like Japan).
I agree with Truth – if the increase of secondary stock does not sell, it will be withdrawn and the market will simply move sideways or down a bit for a while (which is a positive).
It is the increase in supply of NEW dwellings which will affect the market – just like what happened in the US between 2004 and 2006. This has yet to occur in Australia (although there are signs of excess supply creeping into Melbourne. Funnily enough, this is the market with the highest recent price growth…so no surprises there….).
In short, there is no reason to expect house prices to crash in the near term (2-3 years). If they do crash, it will be because prices will continue to increase at a +20% rate so that Prices exceed replacement cost by a significant margin. This will cause a big jump in NEW dwellings, ultimately forcing prices to crash back below cost (ie the US) until this supply is absorbed by natural household formation. Over time, we will ultimately move back to replacement cost, which is roughly where we are today.
Therefore, so long as you can afford it, and are sensible with a relatively secure job, I see no reason as to why you should to delay your purchase.
Now I’m sure the following people with disagree with me…Peter_W, Homes4Aussies, Phillip, debtjunkies, ak, mfo, The Outback Oracle, mickeyc, Steve Keen……;-)
July 20th, 2010 at 11:34 am
Steve
btw, great presentation. My education continues…..
July 20th, 2010 at 12:00 pm
Woa Woa Woa there boy. I spoke too soon. This is a ripper of an article on house price drop in US.
http://www.newgeography.com/content/00810-housing-downturn-update-we-may-have-reached-bottom-but-not-everywhere?ref=patrick.net
July 20th, 2010 at 12:36 pm
6th Annual Demographia International Housing Affordability Survey: 2010
http://www.demographia.com/dhi.pdf
Median House price to Median Income multiple 2010
Sydney 9.1
San Fran 7
NY 7
LA 5.7
Also read page 45. It clearly shows this sydney mutiple to be more accurate than RBA’s multiple of 5.2 or so. Sydney is seen with median house price of $569,000 to median income of $62,000.
Severely Unaffordable Markets: There were 62 severely unaffordable markets this year, down
from 64 in 2008. The least affordable markets were concentrated in Australia (22) the United
Kingdom (19) and the United States (11). Nine of the 11 US severely unaffordable markets were in
California. There were 5 severely unaffordable markets in New Zealand and 5 in Canada (Table ES-
3). However, many of these severely unaffordable markets have experienced steep price declines in
the last year. Among the major markets, Vancouver is the least affordable, with a Median Multiple of
9.3, followed by Sydney (9.1), Melbourne (8.0), Adelaide (7.4), London (7.1), New York (7.0) and
San Francisco (7.0). As in the past, all of these markets were characterized by more prescriptive land
use regulation (such as “compact city,” “urban consolidation,” “growth management” or “smart
growth” policies), which materially increase the price of land, which makes housing unaffordable.
July 20th, 2010 at 12:36 pm
BB
I believe there will be a big crash. It will start with the first home buyers and the wage and salary investors. The photo @ 14 is Frankston, Victoria, not Florida, USA.
8 weeks ago you hardly saw for lease or to rent signs. Now there going up everywhere. Since that photo, a few more have gone up.
Wage and salary property investors have squeezed their tennants enough-and tennants are protesting with their feet and walking away. Probably back to mum and dad, or sharing with a mate.
Wage and salary investors need that rental income each week to keep the bank manager off their backs to pay that $400,000 plus loan which their wages can’t support.
You can bet that the town houses in that photo plus the hundreds of others around town are in default with the bank. Maybe not this month but certainly the next because there not finding tennants to pay the bills.
The trickle of houses being foreclosed upon will soon turn into a flood-like it did in America. In 2 or 3 years time when the banks are up to the eyeballs with unsold proerties and the rates are due, if you offered the bank $200K cash for a house that sold for $400K at the peak of the boom, I reckon they’ll take it.
July 20th, 2010 at 12:48 pm
Mfo
San Fran and New York have only dropped a small amount in relation to Median house price to Median Income ratio. This is with 20% unemplyment in US.
How will Sydney ever drop. It has only a slightly higher mutiple with good emplyment rate.
My NewGeography weblink shows 48% house price drop in San Fran and yet the mutiple is still 7 in my demographia weblink. Something does not sound right here.
July 20th, 2010 at 12:54 pm
Here are some things that maybe the ABC and others aren’t telling you:
Despite the govt’s rate, the official unemployment rate is about 20%.
At least twice in the past, long-term unemployment benefits have been cut by Republicans (for purely petty and idiotic reasons).
1-BR apts. in my area are running between $700 to 950 a month.
The rate of American expats renouncing their citizenships is going up. Main reason: unfair dual taxation.
A growing number of major cities are cutting basic services.
In Arizona, they’ve done away with speed cameras. In Calfornia, the state govt. won’t overturn Prop. 13 (which keeps the value of many properties artifically low).
In Texas, many cities are heavily recruiting laid off teachers in California to move and work there.
Obama has signed a law giving vets “better access” to mental health services for PTSD. Yet, nothing about the public gtting help. (30% of the population here has some form of untreated PTSD).
The Supreme Court has ruled that corporations (who have many of the same rights as people)can make unlimited campaign contributions to anyone they want. Who are you seeing in many current campaigns? A growing number of billionaires.
If you go and protest in many major cities, you can be tasered, beaten or both. Merely for being there (the official charge usually is “resisting arrest”).
If your boss doesn’t like one of your opinions that you advertise in some way (ex., a car bumper sticker), you can be sacked for refusing to remove it. And, there’s no way to sue for wrongful termination.
If you ring up Homeland Security’s general info line, you MUST give them your name and number to get an answer to any question. And no, they don’t have to tell you why.
The number of people here who turn to intl. news sources is at an all-time high. Public radio/TV is fighting for donations. Which means that many are turning to govt. funding. If you do this, then you must tow the govt. line on many issues.
If a presenter on a station (commercial or public) uses one of the 7 Dirty Words, you can be fined up to $325,000 per word. Also, this is the average annual budget of many public stations.
Censorship? You be the judge.
July 20th, 2010 at 12:57 pm
@Up and away
The last time I checked, to live in San Francisco the minimum income is at least $50,000 a yr.
July 20th, 2010 at 1:09 pm
San Fran has non recourse loans whereas NY different. Greatest falls in US has been in States such as California and the south west where non recourse loans are the norm.
A sad fact has been the wealthy utilising non recourse loans and walking as a strategic decision. US taxpayer bailing them out.
Interesting that Boston as a coastal city that dominates its area has seen 30% falls
I still think we wont see a crash until we see rising unemployment. We we will probably see stagnation as the more probabale result as their is a fair amount in monetary terms that the RBA can do (ie drop to ZIRP).
Maybe the Messrs Abbot or Gillard with paying back the debt and removing the stimulus might start the ball rolling but more likly to reintroduce the super – duper FHOG mark 3 and try and keeping bringing forward purchases.
The cost of credit is the other issue and LIBOR has been rising steadily since April.
Australian banks are also quite clever – they will do everthing they can to not forclose all at once.
Retail sector struggling – households saving for 10% deposit and increased cost of living. This will continue to affect the lower end of the market.
Reversion to mean over next 15 years highly probable.
July 20th, 2010 at 2:08 pm
Interesting article –
http://www.theage.com.au/business/foreign-punters-spooked-by-perky-property-market-20100719-10hwp.html
This adds weight to the issue re cost of overseas funds.
July 20th, 2010 at 2:13 pm
at bb – I know US is different than Australia but both supply and demand changes have effected house prices in US…Demand for housing is down even as population is up….more people are living in less space…kids are moving back in with mom and dad, mom and dad are moving in with kids, single folks are moving in with their sibling’s family – helping with kids. As people lose their houses, or lose their jobs and thus cannot afford rent, they seek alternative shelter options. Homeowners are taking on roomates. People with houses they can’t sell are renting them out for cheap while the bank works the legal system to foreclose on house.
I have friend who recently moved from a condo to a house in suburbs…it is a far out suburb known to be fairly affordable but solid, nice area… houses are generally 2 to 3 bedrooms with basements that could be finished to a room and bathroom more, 10 out of 12 houses nearest her have multiple families in the houses. Some of these houses have 10-15 in them. My small city urban neighborhood is near a college, so I thought the small apartments interspersed among the old houses would always have a steady stream of renter as enrollment at the college is up…but unlike the last 17 years I have lived here, there are now “for rent” signs up everywhere, including signs that promote incentives like free first month rents.
Even if your supply is not out of control, be wary of a loss of demand, people need shelter but they don’t need lots of space, and families will sneak too many into a place, regardles of laws…
July 20th, 2010 at 2:19 pm
Up And Away @ 37
The price / income numbers in the US (san fran) are actually higher than Demographia would have you beleive.
The US has a property tax system which artificially lowers the upfront price of a home, but in economic terms, actually inflates the real price Owner Occupiers’s (OO’s) pay over the life of the home.
The annual property tax in San Fran is about 1.1% per annum. These taxes grow over time and are annually assessed with a 2% cap until sold.
http://sftreasurer.org/index.aspx?page=66#taxamount
Assuming prices grow in perpetuity at inflation (say 2%), and the 30 year mortgage is say 4.7%, then the present vaule of these taxes adds 40% to the list price. (ie using the standard perpetuity model, 1.1% / (4.7%-2.0%)).
So the 7x income in SF is closer to 9.8x income after adjusting for the liability of a perpetual tax.
In Australia of course we have stamp duty which can add anywhere from 0-7% to the purchase price. OO’s have no liability to pay property tax although local councils can charge for rates etc which varies from area to area.
Investors do pay land tax, but it excludes improvements, so it is very different compared to the US. In NSW the rate starts for land values above 380k (which would roughly equal to a house value of $700k). So most investors don’t pay this.
July 20th, 2010 at 2:28 pm
US banks have ton of “shadow inventory” and are avoiding foreclosing all at once also…but still price of houses down, inventory up…there are people that have been in their US houses for 2 years with out paying a dime, banks just pretend loan is still worth something while they make money by taking free, 0 percent loans from Fed, and buy Treasuries so US taxpayers can pay interest to banks on money they gave them for free ?!?!..meanwhile, they pretend to be solvent by not foreclosing quickly….
anyone want to see what happens in a crash, including price of coastal cities in US like San Fran and Boston, just read http://www.patrick.net (summary of housing (primarily US) links) everyday for a month tell me it couldn’t happen in Australia or China….you have had so much more warning than those in US did. I remember how emotional realtors and homeowners were when people like myself said housing would crash in US in 2004, then in 2005, then in 2006…we felt crazy even as each rise in price we were more convinced the crash would be of historic, once in a century proportions….we were crazy, we were right…I wish I had been wrong… worrying every night about my job is way worse than losing an argument on a blog…
July 20th, 2010 at 2:34 pm
bb
The newgeography link shows house price drop of 48% in San Fran. Does this San Fran had a multiple of 18 prior to the drop?
http://www.newgeography.com/content/00810-housing-downturn-update-we-may-have-reached-bottom-but-not-everywhere?ref=patrick.net
The Demographia suggest a srop from 8 to 7 or so. Read their prior report.
http://www.newgeography.com/content/00554-new-survey-improving-housing-affordability-%E2%80%93-but-still-a-way-go
July 20th, 2010 at 2:38 pm
glubilee
“know US is different than Australia but both supply and demand changes have effected house prices in US…Demand for housing is down even as population is up”
+10% unemployment probably does not help.
I accept if Australia has a sharp increase in unemployment we may get the same dynamic here for a short while. This is why Steves work is so interesting.
But the huge fall in house prices in the US was cause by the fact prices were massively above replacement cost – and quick analysis of Lennar’s 10k from 2002-2005 will tell you that.
Check out page 16 from the link below. Lennar’s Homebuilding profits increased from 834m to 2.3bn from 2002 to 2005. That’s 28% per annum compound growth in earnings!
http://media.corporate-ir.net/media_files/irol/14/144019/asx/release.pdf
Now thats a bubble!
Prices in Australia are no-where near as high relative to cost. Have a look at any Mirvac or Stockland annual report. Their profits have been terrible. This is hard to explain if you believe we have a bubble.
http://media.corporate-ir.net/media_files/irol/14/144019/asx/release.pdf
July 20th, 2010 at 2:39 pm
at bb – by the way, prop taxes in Cali are based, essentially due to the caps you mention, on the price of house when you bought it, or price in 1975 if you bought before that…so if you have been in same house for long time, regardless of how much it is worth now, you pay very little prop taxes. But if you bought house at bubble prices, property taxes based on that new, much higher price. You have new homeowners, like a young couple, paying 10 times as much prop tax compared to 55 years old down the street that make lots more money and have already paid for their house. Worse yet, this applies to commercial real estate too! So a new business that wants to own its real estate would have to pay way more in prop taxes than its competitors. When Macy’s re-organized under US bankruptcy law, there was a big legal fight about whether they were a new owner of retail properties in Cali and now had to pay taxes on much higher, value of land compared to when Macy’s first bought it
A agree low property taxes actually make housing costs go up…and agree with Michael Hudson on taxing property.
San Fran house prices did not go down when poorer ex-urbs were getting slammed, but now the rich housing is going down, including San Fran…so it goes, it always hits poorer areas first…but rich and walking away now…
July 20th, 2010 at 2:40 pm
Up And Away @45
I can’t talk for the survey. I never believed their data.
Just trying to show what difference the tax laws can make between juristictions.
July 20th, 2010 at 2:58 pm
by the way, I agree with Steve about depression in US, macro economic situation does not look as bad as most private losses seen in US 30s depression have instead been shifted ot govt. In some ways this just distributes the pain, some of this is just trading private debt for sovereign debt…in 30s there was no unemployment insurance, now there is. Banks just collapsed and people lost life savings, now govt insurers deposits. There are food stamps for low income folks. Anyone over 65 gets Social Security checks and health care for very little cost…none of this around in 30s…so less likely to see hobos, wanders, soup lines. Also, no one speaks about it much, but all the low skill jobs are done by illegal immigrants…they often don’t show up in official stat or media..the unemployment is by far the worse for those at low income scale…middle class, college educated having a hard time to, but not down as much…so worse points are less visible to professional class..
July 20th, 2010 at 4:00 pm
@Glubilee
Re: your point about low-skill jobs. There’s always election talk about getting rid of these people. But we all know that if Obama deported an estimated 12 million people, the economy would instantly stop. I’ve seen many “pundits” in the past saying people need to pull themselves up by their (fill in the blank), and get a job.
My response: so if you lost everything tommorrow (house, cars, possessions, your well-paying cable news gig, etc.), you’d have no problems fighting for a minimum wage job at McDonalds? Also, since you’re over 55, you’d have no problems dealing with the age discrimination that IS out there? Lots of mean talk. But when push comes to shove, it’s a totally different thing.
Another double standard. Many experts say that if you have a uni degree, your chances in life are generally better overall. At least two major universities here offer free tuition to low-income students. Yet, it’s not a nationwide system.
Why not? Because higher education is a “business”. This won’t work. Then please explain to me why these two schools are doing quite well with these programs.
The answer: the corporate societal mode of thinking (memo to me: I could write a bestseller on this)is pushing the gap between the haves and have nots even further. The UC system in California is screaming that they have to make massive cuts. But, does this include the President? No. Does this include athletic programs? No. But everybody else. You’re on your own.
My prediction? Frankly, Obama will be a one-term president. He’ll fight like hell to keep from being labeled a loser like Johnson who lost ANOTHER Vietnam. He won’t stop the insane borrowing. But despite all of that staring people in the face, the hardcore Obama supporters will conveniently ignore reality and vote for him again. Why? Because he’s the “lesser of two evils”. Nothing about actual qualifications. Nothing about the first term. Nothing about the “change” that he spent two years (and millions of dollars) pushing. And then it all just disappeared. None of that matters.
BTW: In my neighborhood, the number of homeless is starting to go up. And I’ve been homeless twice already.