Monday, December 06, 2010

Leucadia Economics

A commenter seemed to think all Leucadians have taken on unsustainable and unstrategic debt. I don't know if there is good data on local consumer debt, but you'd think that local businesses and governments would want to know how tapped out the people are before making revenue projections. Is that data available?

A lot of Americans took on debt for boob jobs, boats, and trips to bermuda. The NYTimes did an interesting series on why so many jumped into the "debt trap". It is unfair to imply that this behavior was conducted by all Americans. Many were responsible and more thoughtful about taking risks. Many even realized the generational penalty we would pay for all the play.

Here is a little write up on the impact of interest rates and housing prices. Rates will have to rise (lets hope) and that will cause a deflationary pressure on housing prices. Maybe the government should prop housing prices with the Mick Pattinson solution of increasing permit fees and legal hurdles for development. We all know that the cost of production is what sets the price of a home. The papers printed that anyways.

Here is an example house that is for sale on Crocus:


Below are the zillow market price estimates. 

click to enlarge

You can see that the Zillow estimate for this house and for 92024 demonstrates a substantial drop in real estate prices, since the peak. The Fed can't lower interest rates enough to shove prices back up, especially in this economy. No more housing credit ATM machines. Good thing  a lot of us didn't over leverage.

31 comments:

  1. get your hands out of my poketDecember 06, 2010 6:29 PM

    Excellent article. In the past Americans worked hard for their reward or sucess in life. That notion is all but forgotten now. So many in this country think they can get the reward now before the hard work or knowing how they will pay for it. The credit card industry just loves Americans. Bankruptcy used to be a dirty word in America, now people don't blink an eye when they have to do it. Dryfuss is right when he says we don't know our civics but he forgot that we don't know how to do math anymore either.

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  2. Anon 6:29-As a psychologist, I see a lot of people mostly all younger than I. Perhaps it is the population that I see, but not one person or couple that has come to me is looking for a free handout for reward without working for it. Many of them would just like the opportunity to work, and at a profession that would be interesting to them. When I graduated college in the 70's that was a reasonable request, although credit cards were not sent to us in the mail when we graduated. What I am seeing now is almost a hopelessness and despair at the current economic situation. And, while it seems to be true, kids are living at home longer than before, not all of them are doing so because they want to. They are doing it because they have to. I feel fortunate and saddened by the situation. Fortunate because I purchased my home in Cardiff in 1984 for $118,000. Saddened because my own children cannot even purchase a house pretty much anywhere in San Diego. And they both work. My daughter teaches at San Diego High School. I am proud of her accomplishments and the impact she is making. However, she is not paid enough to purchase even a small home. My other daughter just finished up at UCSD and is working in a lab, again paying very little. I have great respect for the young people around here. And most are young to me:) Perhaps Soylent Green is the answer as we get older? Most of my life has been lived, and I have had a great time. When I hear of "death squads" such as in Arizona, where the woman could not get a transplant because the governor too Arizona out of the Medicaid system, I get enraged. How can it be that if you have power, there is plenty of money to go around. And, if you don't, you can die? What happened to this nation of Christians and other religions? Sorry for the Dr. Lorri rant!

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  3. Dr. Lorri, doesn't your husband work? If so, why don't you donate 1/2 your income to the needy. You don't need all that to get by, do you? Or do you just want to tell others what they should do with their hard earned money?

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  4. What your seeing is the feds attempt to prop the housing market by throwing trillions of printed paper money at the problem to create artificially low interest rates and provide huge tax credits only equated to a dead cat bounce. The market is tanking again. My income tanked and taxes are tanking in every sector. The government will keep printing money, your savings will devalue and soon the Chinese and Americans will quite buying US Debt. When that happens, you better have plenty of commodities like gold and guns because the worthless paper dollar will not be worth toilet paper. Its going to happen quicker than anyone realizes. Once it starts its a parabolic curve down. and we are well into the parabolic curve.

    See you in the new world order like in 2012. Hope your family gets through it safely.

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  5. I'm not worried Wall Street will bail us out all those investment bankers need us.

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  6. 10:08 is exactly right.

    The housing bubble was and is a deliberate strategy by the Federal Reserve and Wall Street to get people to take on debt based on their illusory home equity. More debt means more excess consumption and more profits for Wall Street.

    That young people can't buy a decent house today is a direct result of the Fed's deliberate and consistent debasing of the currency.

    End the Fed!

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  7. Young people can buy property today. They need to have a job with good income and SAVE a lot for years not run up the credit card. If they expect to start out with coastal property then they get what they deserve.

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  8. Young people can buy a house along the coast for about 50% the price from a year ago. Waite another year or two and prices will drop another 15%. Start saving and diversify your assets. That is if you have a job that pays well. The US dollar is devalueing by the minute. I used to laugh at the Mexico Peso. Now the US Dollar is on a tail spin worse than the peso. Serves us right, for our foolish consumption fetish.

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  9. ANon: 9:10- I already do what you have suggested. I am seeing people for less that when I started practicing. As far as insurance, I have not had a raise from any insurance company in 10 years. My annual income in the last 2 years was about $6,000 due to doing this. My husband does work but we are both at retirement age and have health problems. I don't expect my kids to take care of me when I get to the age that I cannot. So, I will probably go out with what I came into this world with-nothing. That works for me. I am much more concerned about younger people than I am myself.

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  10. There was speculation that the Chinese will force another currency model on the United States. This rumour was verified when the
    Chinese proposed it during some economic summit. Similiar to the Euro, it was called the Amero, and would be the currency used for Canada, the United States and parts of Latin America. The US has very little economic leverage on the Chinese, since they hold so much of our debt. They will control the Amero, so they can minimize their losses in their holdings of American currency, which is devaluing fast. Citizens would have just so much time to exchange their assets before the US dollar becomes useless paper. Meanwhile, the US is still printing billions upon billions, in a frantic frenzy to float the economy a little further. The Great Crash is coming, thanks to the grred and avarice of the leaders and the corporations. Obama caved in on the tax breaks - cut taxes while accelerating spending - that'll work! The American experiment is beginning to crumble...

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  11. grred should read greed

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  12. We can't have it both ways. Houses used to create wealth through appreciation means houses are more expensive. If they are more expensive then less people can afford them. If they sell, someone can afford them or is ready to take the risk of affording it.

    Fortunately, inspection of the data shows that long-term appreciation is a myth pumped by greedy Realtors once you factor in inflation or look at opportunity costs.

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  13. 12:43,

    True, but if you can buy with a fixed-rate mortgage right before inflation takes off, it's a pretty sweet trade.

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  14. California and the USA are headed for financial disaster. The government is insolvent and is close to the point of no return.
    Who do we tax? How much? Who gets something without ever paying in? Who gets to control the redistrubution of wealth? And to whom?
    This housing boom and bust helped kick off the global economic crisis, and Washington's meddling in mortgage lending (Dodd, Frank and the rest of those low lifes, both Dem and Rep) with the help of banks and Wall Street have only made it worse.
    Hope and Change didn't work. Most people who actually work and pay taxes are protesting the best way they can, by NOT WORKING. Good for them.

    Thomas Jefferson said in 1802:
    "I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow
    up around the banks will deprive the people of all property - until
    their children wake-up homeless on the continent their fathers
    conquered."

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  15. get your hands out of my pocketDecember 07, 2010 5:41 PM

    5:36: Nailed it! Well said TJ. Usery is EVIL!

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  16. No Shit? that was a Jefferson Quote?

    That Cat was smart beyond his time.

    Dr. Lorri I am with you. I am in my 50s and pretty well situated.

    I have lived a full life. Its the children who we are saddling with this financial dissaster that will pay dearly. Our voters are asleep and our politicians are scum.

    Its amazing how fast things change. But then again, no democracy ever lasted past 300 years. Change happens and it happening quick these days. Hold on, 2011 is going to be a freaky year.

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  17. American democracy is crumbling - the politics of greed has destroyed the system.

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  18. Where in the Constitution does it say every American deserves to own a house. It's the American Dream... not a promise people. Living the dream is risky in these times but not necessary if you don't try keeping up with the Joneses or living large.

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  19. The sky is falling! The sky is falling!

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  20. For years government grew and so with it the welfare state. Now the money is gone and so with it the Democrat strategy. What do you think started the Tea Party. People sick and tired of the government spending other people's money on programs that don't work. Democrats have for years bought off their base, minorities, government employees, big labor, trial lawyers, teachers' unions, gays, radical women's groups and environmentalists Look where we are, broke.
    Welfare states around the world are failing and so will we. I hope it comes to Calif first.

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  21. The democracy will cease to exist when you take away from those who are
    willing to work and give to those who would not.
    Thomas Jefferson

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  22. People were saying that before the dot com and the housing bubble popped as a way to dismiss those who looked critically at the economy. The analysts were right, not the permabulls.

    Considering what the FED is doing, do you still think we are in a "normal" economic cycle?

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  23. Thomas Jefferson was one smart dude!

    see you in the new order 2012.

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  24. Charge it to the Chinese!

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  25. This is a cherry crowd.

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  26. The old rule of thumb in my parent's day was something between 20%-40% for a down payment to buy a house. Average median home price in this area must be in the 600's. That's a huge sum of money to put down on a house these days. People who go in with 3%-10% or God forbid zero down, are foolish and risking alot in the long run. How many families can save that kind of money after all the bills are paid? Those of you that bought before incorporation and prop 13 won the loto.

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  27. How about we all pay our own way? No more handouts. Save for retirement. Work for a living.

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  28. We are a Cherry crowd and we should have to save for a house. Putting your saving in it, means your less likely to bail on the mortgage. The banks should not be bailed out. They took the risk, they should pay the cost. Let the chips fall as they may, but what was done undermine the USA free enterprise system and government control was born. Its time for the people to resume control of the government.

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  29. Why on earth would I want to produce for those who rob and revile me? This is what the producers are thinking and by their actions (inaction) are doing, just what the liberals want. They, the "rich" are making less money and therefore are paying less in taxes. This causes the "rich" to be drug down to the same tax rate as the working stiffs and we all get poorer.
    Didn't Lincoln say something like: The US will not be brought down from outside enemies but only from enemies within. That's what the left is, enemies within.

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  30. Amen. Unions and the bleeding liberals are the enemy within. Council members like Jerome Stocks need to be feathered. The sooner the better. True republicans will make Jerome Stocks pay for his trader ways. when will the local GOP step up and make us proud. Put Jerome Stocks in Jail where he belongs.

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  31. Ask Dan Dalager for a loan - he's got connections!

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