The Recovery Myth: Caveat America

The pattern would be amusing if it wasn't so predictable, and ultimately, so disappointing to anyone who has been negatively impacted by the bursting of the real estate/asset bubble.

Our eager eyes turn to the newest piece of news, about home sales, home prices, a business that has anything to do with homes, expecting the proverbial green shoots, but time and time again, we just are disappointed. Home prices plunge. Spring market wilts. Shabby Chic, gone.

The reason for our disappointment is that instead of looking at the reality of the situation, we are in a state of continuing denial about what actually has happened and what might happen next.

For the last 25 years, the American economy has been inflated, re-inflated and over-inflated with a series of bubbles, the tech bubble, the housing bubble and a larger more dangerous full-asset bubble and now, as the largest and last of these bubbles burst before our eyes, it is virtually impossible for everyone to fully understand how large, powerful and pervasive the housing driven asset bubble was.

It is equally impossible for people to truly grasp that it was nothing more than a bubble and the prices for the houses, and the underlying economy and businesses that were relying on the housing market are gone and indeed will

Let's look again at the long term housing bubble chart.

See the small peaks and valleys in past decades? Those valleys are ones that you recovered from. What we have is an unrecoverable bubble, prices will never, ever, ever go back to those levels in real dollar terms.

Ever.

Like ever, ever.

To make this point even clearer, let's look at another bubble.

Almost 10 years ago, the NASDAQ hit 5,000. Right now it is at 1,747. Almost 10 years later, it is worth a fraction of what it was at its peak.

Let's look at the biggest bubble of all time perhaps, the famous Tulip Bubble of four centuries ago. The prices of small patches of bulbs in current dollars was over $500,000. Insane? Sure. But at least with the tulip bubble and the tech bubble, the insanity was somewhat localized. Of course, when tulips lost 99.9% of the value, if you were local to that insanity, it hurt.

But the housing/asset bubble has created over the past decade a bubble that has permeated our entire culture.

The bubble from real estate fed bubbles in retail, in the service industry, in the jet ski industry, the travel industry, literally everything that people were going to spend that $100,000 they made in real estate, is now hurting, and will continue to hurt.

There are no green shoots, because there is no recovery when a bubble pops.

There is only gradual and slow, painful realization that it was a bubble. And now, it's gone.

Comments

[yappnmutt]

what this graph shows is why it is imperative that the dollar must be devalued and hyperinflation must be allowed to occur. the alternative is not available as the outcome is worse. the hyperinflation course is bad, also, but it is just not as bad as deflation, at least, for anyone owning assets including precious metals and real estate. the working middle class is gonna pay dearly either way.

[Sundialsvc4]

It was and is much more than a bubble: it is a crime, and it is High Crime.

When I look at those charts, I do not know where the numbers came from .. how the numbers were "cooked" and for whose benefit .. but I do know that they certainly are not "objective truth."

I'm tired, damned tired, of wading through buckets of lies.

[ImmanuelGoldstein]

Okay here are some things that can't be 'cooked'.

The entire model of residential housing as a growth investment is inherently intellectually bankrupt (as opposed to just being literally bankrupt at present).
Houses, are not like factories,farms or mines, in that they do not create new wealth once they are built.
Their prices cannot grow faster than incomes indefinitely or very long, if they do more and more of people's income will be tied up in housing costs, theoretically the point will be reached where so much income is tied up in housing PEOPLE STARVE BECAUSE THEY HAVE NO MONEY TO BUY FOOD.
Of course in the real world long before that point is reached people will just stop buying houses.
Which is what we are seeing.
Now do you understand ? Because this is the mathematically inevitable objective truth of the matter. The housing crash was an entelechie,that is something whose endpoint was determined by the initial starting conditions and contained in the initial starting conditions, not a probability, something that might or might not happen.

[KillTheMessenger]

Wow... somebody gets it. Very good! Thank you.

[lullu]

I'm not sure if we all wait a few years we will be looking back at this time saying " do you remember 2009 when house prices were in a hole?" I spent almost half my life living in London and what has happened here has happened there many, many times. Certain areas of this country have become boom and bust real estate markets -- I have no doubt that will continue to be the case. I remember very clearly the recession of the early 90's. Everything was in a hole then, we sold a house for around $200,000 which skyrocketed to almost 3M over the course of the next few years. Admittedly this recession is different but I am reluctant to accept that we are in this hole forever.

[KillTheMessenger]

This, lullu, is the equivalent of Japan's lost decade, just bigger. It's not the London yuppie housing market that was driven by bankers making insane amounts of money on... wait for it... US homeowners betting the house on the house.

Keep waiting. But stop whining because we don't need to hear your cries for the next twenty years.

[bud812]

If my properties value has declined so much why are my property taxes going up!Im for one tired of being ripped off by every single corporation and government hack i dont even know or have never met.Do we in this country actually own anything or is it all an illusion?Wake up we are nothing more than economic slaves and not only are we slaves we dont even know who our masters are they hide behind Washington.I will not play thier games any longer you can all have the illusion i will buy what i need and nothing more because the illusion is that you must have all these things to be happy,i for one disagree!

[KillTheMessenger]

If your real estate value has gone down but your property tax has gone up it probably means your county has come to the realization that it's better to raise property tax rates than to lay off the fire brigade. You should be happy about that. It could have been the other way around and you could have lost it all during the next emergency when the 911 operator would have replied to your pleas with "Sorry... the next fire crew is 50 miles from you. They are expected to arrive in your area in about 58 minutes."

:-)

[DiogenesOfAlaska]

Very true. But maybe there's some comfort in the realization that the old thinking in economics - according to which there is basically no money illusion, everybody is aware of all kinds of possible inflation - is about to being dumped.

What I'm saying is: it may be a lot more soothing to accept that renewal comes out of chaos than to hold on to the extrapolation of disastrous trends. As in: the feeling I get when I look at your chart may be too pessimistic after all, because it can't get any worse than chaos.

[Hailmaryyy]

We need a way out. How America Can Escape the New Great Depression calls for the federal government to back jumbo mortgages. The latest real estate report showed a 40 month supply of homes on the market over $750,000.

"Washington needs to wake-up. Their efforts so far may have prevented imminent collapse of a major bank, but little else. If this trend is not reversed it is only a matter of time before the big banks face a new crisis. These homes are selling at these prices because not enough Americans can access mortgages. The only solution available to the country is massive quantitative easing. Without it assets prices will continue to deteriorate and job losses will continue to mount. Those afraid of runaway inflation need to contemplate whether or not that is preferable to runaway deflation."

http://www.escapethenewgreatdepression.com

[olephart]

Maybe those $210,000 ranch styles that sold for $920,000 in 2007 need to be repriced. Those thinking their value is what is owed need to wake up.

[drkazmd65]

Can you give me an 'Amen!". Sadly,... the $210K house really should be priced a lot closer to $210K,...

[confidance government]

The value of a property is what you can sell it for. If you can't move an asset, its overpriced or you're a horrible salesman. There is a reason these homes aren't selling; they aren't worth $750, 000. All preventing foreclosure would do is delay recovery by hindering the deflation of this bubble, at incredible cost to the government in terms of both losses due to backing the mortgages.

The fears of deflation are greatly exagerrated; the current increase in money supply has crushed deflationary pressures; when velocity increases again we should get some nifty inflation figures. I am not saying its going to be exactly like Zimbabwe, but double digit inflation seems very possible.

[RoloTomassi]

Things DO have an actual value, and houses are no different. The base materials that go into a structure will never change so much that said structure's real value changes as drastically as the absurdity of market forces allow.

But it is the rationale and language of moronic self-centered profiteering that is a significant part of the problem; when you equate everything to the behavior of the markets common reality gets pushed aside for market force fantasyland, and away we go with market "experts" posturing and pontificating--in terms that they barely understand, much less anyone else--on the inexplicable forces that only such grand masters of commerce can control or fathom.

What is as sad as any political manipulation or crime is the fact that most Americans now allow such idiocy to pass as financially-oriented knowledge--but the truth is really much simpler.

The cretins who have pushed and grown this sham of an industry into this absurd and insane force, they really are just thieves, thieves who use devices like mark-to-market to price gouge on the way up the market ladder, and then revert to mark-to-model so that they can still overcharge on the way down.

[olephart]

One article stated that foreclosures would not abate until employment turned around. Another said that housing prices wouldn’t stabilize until foreclosures abated. Yet another declared that the economy wouldn’t pick up until housing prices stabilized. Finally it was postulated that employment wouldn’t turn around until the economy picked up.

[confidance government]

So essentially, we are screwed, assuming these articles were correct in their analysis?

[drkazmd65]

A slight oversimplification confidance,... but only ever so slight.

[olephart]

Each is a logical statement. Taken together your conclusion holds water.

[WorkingClass]

Yes. We are screwed.