Irvine Housing Blog

“Wage inflation is the best barometer of house prices.”

Yes but it’s very hard to capture for the differet segments of society.  The upper quarter is far different than the lower quarter.  The two middle quarters have also seen vastly different wage inflation.

When major companies move an employee to southern CA they offer a cost of living adjustments.  Typically this is around 16% depending on where the employee moves from.  You may say this is not enough but reality is different.  If the said employee was spending 28% of their income to live in TX, they can now take that full 16% and put it towards housing.  That is what the cost of living adjustment is for.  Other cost are generally the same, cars, clothes, food… There may be some marginal different but generally the main difference is housing expense.

Population is another factor for prime areas.  In regions that have seen population double in a short period of time, the premium areas will be inflated due to supply and demand.  Short supply and the higher incomes bid up the premium areas.

Regions like Las Vegas and Riverside saw growth they could never sustain but Irvine keeps on growing.  It will be a very long slide down for Vegas and Riverside in full blown depression.

IR,

I follow Barry’s blog and have seen that graphic before.  I was curious if you’ve ever seen a similar graph that would index monthly payments adjusted for inflation using the 30 year fixed rate as the financing barometer as opposed to nominal housing prices adjusted for inflation.

The graph would seem to indicate that prices would need to fall approximately 40% to get back to the 100 level on the index.  However, that does not seem likely considering where interest rates are.  It just seems to me that when you factor in interest rates, we’re much closer to the 100 level on the index than 140.

One great(?) thing about statistics is that it can be presented in various different ways, and depending on that can influence the views of the observers.  In the case of Shiller’s graph above, it looks at a period of 120 years.  Viewing this without too much thought can cause many observers to conclude that we should be shifting back to the 100 level of 1890.  We are taught in statistics that one of the major factor of measuring is the time range of the observations.  Too long of a time range can result in discounting of important shifts that may mark a permanent shift of the basis. 

I think by looking at 120 years, we can see this shift occurring in a couple of occasions.  If you take the 120 years as a whole, the base should probably be somewhere south of 100 if you discount the past few years.  However, you can see a shift that looks permanent around 1950.  So for the past 50 years prior to the 2000’s, looks like the baseline should be around 110.  And that what of 2000 & beyond?  Is that another permanent shift of some kind that will now play out for another 40-50 years?  Obviously we can’t be sure but I think it’s naive to assume that we should be regressing back to the 100 number (which is actually arbitrary purely based on when the measurement started), or to a 90-95 number that seems to be more of the baseline of this entire range, without considering how significant this time range is.

Looking at it purely statistically, that’s what I see.

PR, you must be hard of hearing, we are telling you that companies are no longer offering COLAs and tax equalization agreements.  In my case, the employer pointed out that while Irvine might be high priced, there was nothing preventing me from living in the surrounding communities that are lower priced. They covered my moving expenses and that was it.

I’ve asked this before but was told that if something wasn’t done to slow the freefall, we would be much worse off.

I think my original question was would the world have ended if not for government intervention, bailouts and credits.

Someone said it was a necessary evil to prevent an economic meltdown. To all the experts here, would it have been better to just let it all crash quickly?

The purpose of the program was to give money to banks. In that regard, it was a success.

The people would of rebelled if the expressed reason was to give money to the banks.

The reasons that people will support are:
1.  Preventing a depression.
2.  Helping people keep their homes
3.  Helping the misfortunate

The people will not support are:
1.  Enriching the banks and Wall Street
2.  Removing the liability from the banks and brokers
3.  To cause a hidden tax through inflation
4.  To stick it to the children, grandchildren and yet to be born.

I really question if the bailout was sucessful in the expressed goals, but am confident that the 4 unexpressed reasons were accomplished or at least in part.

Tax slave and subject.

What-if, in early 2009 and 2010, we did not have those home-buyer credits.  And existing home sales continued their free-fall, down to 3M/yr or even lower.  We’d have 3-4M more homes on the market than we do currently.  Think about the implication of that.

What is really holding the economy back?  Housing.  Greasing the wheels to get transactions happening again is not the worst thing our gov has done in the past 10 years.

Systems can overshoot on the bottom side of prices just as easily as they can on the high-side.  Even at bubble’s peak, prices in a lot of the country were not that far out of line.  Letting them fall further, and more out of line than the areas that were just falling to a stable point, would cause significant damage.

The credit was not well targeted.  Lots of people got it who would have bought anyway.  Lots of people in areas that didn’t especially need it got it.  One of the problems with ‘national housing policy’ is that we don’t have a ‘national housing market’.  It’s a lot of local markets.  What you do to help one market may end up hurting another.