How bad is this housing bubble, when will it stabilize and how will the economy react?

At this point it is certainly safe to say that there has been a housing bubble in the US and that it is now bursting. I started looking at homes in 2003 and determined that the prices were simply too high with respect to incomes and that at some point it had to come down. I did not, in my wildest dreams, forsee the craze that followed. People were putting 0 down and merely telling brokers how much they make with no proof (ALT-A, “Liars Loans”). If you could walk into a loan office and scribble on paper, that was good enough for a million dollar loan!?!?! It basically got to the point where people were buying homes for $500,000 in areas of southern California like compton where equivalent homes would rent for less than $1000/month! I like the series “Real homes of genius” at the drhousingbubble blog, this spoof on Budweisers “Real men of genius” comedy commercials is hilarious and scary at the same time.

So people speculated and went absolutely bonkers, thereby preventing real buyers from affording their first homes. This speculation shot the value of homes up in some areas by 2, 3, 4 or even as much as 5 times their value before the boom. The very simple problem here that I have been telling my friends all during this housing boom is that this is unsustainable because salaries were not increasing sufficiently to match these home prices. Homes are not a magical source of unending wealth, their are a place to live and people must be able to afford them on the basis of their salary.

Median Home Prices vs. Median Household Incomes 1992 - 2005

There are a few simple solutions here. The first solution is that home prices fall to their inflation adjusted levels before the boom to resume their localized home price/median income ratios. This is approximately 2-3:1 for rural, 3-4:1 for suburban and 4+:1 for urban depending on the locale. The second solution involves a mild drop and stagnation in home prices like the one that happened after the 80’s housing boom and subsequent bust here in the US.

US Homes Prices 1975 - 2005

I would however argue that this bust cycle we are in now is significantly worse than the late 80’s boom/bust. The US housing boom follows the bust of the dot com bubble. To mitigate the dot com bubble, Greenspan reduced interest rates at the Federal Reserve to record lows and the result was a large economic boom based almost entirely on housing. This created record numbers of new construction and due to speculators, record numbers of vacant homes (typically homes purchased as investments or lost due to foreclosure). As this process is rapidly slowing and the housing market is falling out and returning to lower values or stagnating, we are beginning to see the ripple effects. If our economic growth was based almost entirely on homes, then what happens when the demand for homes drops precipitously? Suddenly, our drop in home prices doesn’t look like the 80’s boom/bust anymore, not it more closely resembles the Japanese boom/bust of the 90’s.

Japanese land values

The first hit is losing the loan officers, brokers and realtors which is a loss of a small but nationally significant white collar loss of jobs. The real effects will hit when all those well salaried, blue collar construction jobs and the entire industry supporting construction and remodeling comes to a crashing halt. All the people who did the framing, roofing, tiling, electrical, plumbing, paving, landscaping, sheet rock, painting, flooring, etc. will soon be at risk of losing their jobs. Then all the places selling the necessary products to those construction workers, then all the businesses manufacturing the products necessary for those construction workers. This was a major part of the US economic growth. Once this all starts falling through we will see large increases in unemployment, falling wages, increasing foreclosures, falling home prices (thereby falling wealth) and general chaos. The dollar will weaken and if the fed does lower interest rates, the dollar will deteriorate even further. It seems likely that a strong recession is coming and most people are still in denial and have not yet connected the housing bubble with the larger state of the economy. What makes this worse are the international consequences of a deep US recession and the possibility that other markets face a similar fate. Below is evidence that the UK is likely heading for a housing disaster deeper than the US.

Evidence of UK housing bubble

Here is an interesting forecast which, if you believe, implores you to put your assests in commodity business and classic bust valuables like gold.

Peter Schiff has a similar forecast that basically says this bubble needed to burst because of irresponsibility and that the government should not intervene because it will merely slow the necessary market correction and use up government resources in the process (which I agree with):

I really have to put this video below which has the same “doomsayer” explaining in 2006 why the market will crash who is talking in the above video, Peter Schiff.

I believe this housing bubble will lead to larger problems and the larger economy will suffer. If the international economy also suffers it is possible that we could be looking at a real depression similar to the 1930s. At the very least we should expect a dramatic housing correction, housing stagnation for a long time and a large loss of jobs in the US that will need to be filled. When might the economy begin its recovery? I believe there are two major issues surrounding the recovery. The first is that we are really still on the high end of the fall and are not even close to the bottom. We still have to see the job losses in the construction sector and the influence this will have. We have yet to see if investors will completely pull out and the US will be left with thousands of unfinished homes and if areas like Miami, with MASSIVE investments in condos, will turn into a condo ghost town like Bangkok Thailand.

Bush uses al-Qaeda presence in Iraq as Justifcation for continued War

Ok, so some people may think the title is preposterously obvious? I have met far too many who say “of course we are in Iraq because of 9/11” According to polling data, most Americans believe we entered Iraq for reasons related to 9/11.

Poll: 70% believe Saddam, 9-11 link
WASHINGTON (AP) — Nearly seven in 10 Americans believe it is likely that ousted Iraqi leader Saddam Hussein was personally involved in the Sept. 11 attacks, says a poll out almost two years after the terrorists’ strike against this country.

Sixty-nine percent in a Washington Post poll published Saturday said they believe it is likely the Iraqi leader was personally involved in the attacks carried out by al-Qaeda. A majority of Democrats, Republicans and independents believe it’s likely Saddam was involved.

The belief in the connection persists even though there has been no proof of a link between the two.

President Bush and members of his administration suggested a link between the two in the months before the war in Iraq. Claims of possible links have never been proven, however.

Veteran pollsters say the persistent belief of a link between the attacks and Saddam could help explain why public support for the decision to go to war in Iraq has been so resilient despite problems establishing a peaceful country.

The president frequently has called the Iraq war an important centerpiece in the United States’ war on terror. But some members of the administration have said recently they don’t believe there is a direct link.

The Post poll of 1,003 adults was taken Aug. 7-11 and has a margin of error of plus or minus 3 percentage points.

Initially and during the events leading up to the Iraq war, I furiously spoke with people who would not waver from their belief that the Iraq war was retribution for 9/11. In retrospect I better understand why uninformed Americans might believe that Iraq was a war based on the attacks of 9/11. Despite public belief, congressional support and political support were based on three major premises:

1) Iraq has obtained weapons of mass destruction and may use them at will.
2) Saddam Hussein has purchased nuclear material for the purpose of nuclear weapons development.
3) Iraq was sponsoring terrorists including al-Qaeda members and that Iraq may provide these terrorists with the weapons mentioned above for attacks on US targets.

Though none of these calls to war directly include 9/11, the context in which they were often mentioned was apparently sufficiently indistinct from 9/11. In this hazy context many Americans disillusioned by 9/11 stopped discerning between the two events. The context I speak of were frequent speeches made by Rumsfeld, Cheney and Bush which invoked 9/11, al-Qaeda and Iraq in the same conversation and often as intrinsically intertwined events. This was a distinction that has proven to be difficult for some Americans, below is some video showing why that might be the case:

Cheney says he “pretty well confirmed” that there was a meeting between Mohammed Atta, one of the 9/11 Ring Leaders, and an Iraqi intelligence officer in Czechoslovakia. This purported evidence was brought to light by Cheney to provide a perceived link between 9/11 and Iraq. Video below:
Senator Edwards hammering Cheney on the same point:

Now given the context of his full conversation, which I will provide in a quote below, it does seem clear that he did not directly indict Saddam Hussein of an association with 9/11. However, he specifically mentions says that there is new information coming to light about the connection between 9/11 and Iraq. He then goes on to mention and validate as “pretty well confirmed” a meeting between Mohammed Atta, a 9/11 ring leader, and an Iraqi intelligence officer. His false confirmation is, at the very least, a direct implication of involvement though not a direct accusation of involvement. This is a the smoke and mirror tactic often employed by the very secretive Cheney, Bush and Rumsfeld which I believe led to the confusion and misleading of the American public.

RUSSERT: Let me turn to Iraq. When you were last on this program, September 16, five days after the attack on our country, I asked you whether there was any evidence that Iraq was involved in the attack and you said no.

Since that time, a couple of articles have appeared which I want to get you to react to. The first: The Czech interior minister said today that an Iraqi intelligence officer met with Mohammed Atta, one of the ringleaders of the September 11 terrorists attacks on the United States, just five months before the synchronized hijackings and mass killings were carried out.

And this from James Woolsey, former CIA director: “We know that at Salman Pak, in the southern edge of Baghdad, five different eye witnesses–three Iraqi defectors and two American U.N. inspectors–have said, and now there are aerial photographs to show it, a Boeing 707 that was used for training of hijackers, including non-Iraqi hijackers, trained very secretly to take over airplanes with knives.”

And we have photographs. As you can see that little white speck, and there it is.

RUSSERT: The plane on the ground in Iraq used to train non-Iraqi hijackers.

Do you still believe there is no evidence that Iraq was involved in September 11?

CHENEY: Well, what we now have that’s developed since you and I last talked, Tim, of course, was that report that’s been pretty well confirmed, that he did go to Prague and he did meet with a senior official of the Iraqi intelligence service in Czechoslovakia last April, several months before the attack.

Assuming that the polling data is correct and most Americans did, near the time of the Iraqi war invasion, believe that Iraq and 9/11 were intricately tied together those very Americans were set up for a major disappointment when they learned this connection to be false. The heavy criticism of more observant and discerning Americans about this important distinction as well as general criticism for the abysmal post-war planning of the Bush administration slowly brought this truth to bear.

Bush’s statement that Iraq had nothing to do with 9/11 was interpreted by a large number of Americans as a lie coming full circle because they were led to believe that Iraq was involved in the 9/11 attacks.

So our military, politicians and some discerning citizens chose to enter this war based on the reports of weapons of mass destruction, the nuclear threat, purported ties between al-Qaeda and Iraq and perhaps for humanitarian reasons as well (genocide of the Kurds). The public supported this invasion due, in large part, to Iraq’s perceived ties to the 9/11 attack and to a lesser degree the other points mentioned above. Once Saddam’s military had been disassembled we find every “fact” or “truth” or “they have xxx” pushed by the Bush administration to be false. As it later turns out, the Downing street memos and information from intelligence officials demonstrates that this was pushed by the Bush administration despite strong evidence that all of these assertions were unverifiable or patently false. There were no weapons of mass destruction, there was no nuclear threat, there were no al-Qaeda ties but there were humanitarian reasons. I completely disagree with Bush’s assertion that we are spreading freedom because we simply have no cause to traverse the world, forcing our system of government upon other sovereign nations consuming the lives of our soldiers and wearing the worlds tolerance thin.

Then the tide starts to turn. Bush’s popularity plummets. Polls regarding his administration and their handling of the Iraq war, for which there was apparently little to no post-war planning, plummet. Hindsight shows that many Americans believed an idiot who took advantage of his people in a disillusioned and vulnerable state of blind rage, fear and unfailing patriotism. Patriotism and fear that were preyed upon with all manner of unconstitutional abuses of executive power. The question then becomes why are we there now? Evidence now suggests that Saddam Hussein, in his ruthless authoritarian regime, suppressed civil disorder rippling under the surface of Iraq. Saddam Hussein also suppressed the gun toting, fundamentalist, opium bandits passing themselves off as terrorist albeit at the end of a gun. The US took down Saddam’s regime and prosecuted its leadership. Obliterating Saddam’s regime started a civil war, took human rights and women’s rights into a state of post-apocalyptic hell, generated international derision and hatred towards the US and provided a breeding ground for the opium growing terrorists. Senator Biden has called this a self-fulfilling prophecy in which al-Qaeda did not previously exist in Iraq and now does as the result of US policy. It seems preposterous then that Bush would argue that the reason we should stay in Iraq is to bring order, freedom and stable government to the region by militarily defeating the insurgency and notably al-Qaeda! What? Really? Seriously? Was that the argument I heard tonight when Bush addressed the nation and told Americans that he would keep troops in Iraq and force this condition on the next president?

Despite my tirade I am not anti-republican but I have never felt so ashamed, enraged and defiant of an American president until George W. Bush. What really upsets me at the end of Bush’s justification for continuing to send the sons and daughters of this country into a hotbed of violent hatred while ignoring our crumbling educational system, health care system, infrastructure and constitutional rights?

Bush is not concerned about Osama bin Laden?:
Wanted dead or alive? Bush promised to hunt Osama down and 6 months later he is no longer concerned? Brilliant.

The answer to the housing bubble and deficit savings rates of Americans

Well folks, this gets pretty simple. As we pirate our social security funds for war and issues of the present, our future generations will have the pleasure of dealing with bankrupt social security, Medicare, Medicaid and many other social welfare programs. Higher education costs have become insane and new graduates have more debt every year while our public school systems continue to fall down the ladder of International prestige (Link to Government data). Additionally our roads, power grids, sewer systems and various components of US infrastructure are failing due to inattention.

It seems ludicrous that money isn’t being poured into local and federal issues on a grand scale but instead those funds make it into the pork of various bills, we create entire new governmental institutions to monitor our previously free speech and wars of aggression we illegally started on deliberately falsified intelligence. So what can you do? Well first you can write your representative, set up an automated mail creation system with your views and just keep mailing the crap to them until they can’t stand to hear it anymore! Second, save your damn money because it is likely that you will need it in the future America.

This blog and “Honor” in the American sense


I’ve decided to make this blog something of a vent as I see America headed for disaster in so many ways but with the power to change course very rapidly that is right for the future of this country. I am relatively young so I think to the future as it seems prior generations tended to do. It seems that now we often think no further than our eyes can see as Americans are reaching record deficits both in their personal lives and in their government.

I’d like to talk briefly about “Honor” as this seems to be the new hot topic in the Republican debates. Ron Paul, who is more libertarian than anti-war Republican, is the only Republican candidate to suggest that we should withdraw our troops and secondarily that the American presence and affairs in the Middle East cause “blowback” or resentment towards the US. When he makes this suggestion, a firestorm of debate is unleashed between the Republican candidates. True debate is strength in democracy and these candidates are otherwise unified with little distinction other than name and Reputation. In the last debate, it seemed as though many opposing candidates used the word “Honor” with odd frequency to describe our current course of action in Iraq and implying dishonor upon withdrawal.

I’m not going to argue this point one way or another however I would like to see one thing happen that used to happen in the Vietnam War days. The media used to be heavily entrenched in Vietnam exposing problems and generally the horrors of war often. We don’t see that today. We don’t see the horrors at all in the media. What we see are politicians arguing, often defamed because of affairs in their personal lives, over the fate of these soldiers with whom we have a total disconnection. The Vietnam War was the first and thus far only war to truly bring the harsh realities and plant them right before our eyes. I believe that every news channel should do what the PBS News Hour does at the end of each broadcast. They take a moment of silence to honor those men and women who died fighting each day in Iraq and Afghanistan while showing us images of those soldiers with their names. Apparently shirts with the names of killed soldiers have been banned because it bothers people, in spite of our ailing first amendment rights (USA Today Link). There are frequent articles about soldiers coming home to inadequate medical care and not enough money to make ends meet (NY Times Link). The “Honor” that I would like to see from the media and politicians involves at LEAST a moment of silence for those soldiers killed in Iraq and at LEAST sufficient medical and financial care for those soldiers who have been wounded in Iraq. Whether you agree with the war or not, these Americans are fighting for us and they deserve more than political rhetoric from us.