Monday, August 17, 2015

Why are your wages down and your housing costs up?

Donald Trump has been garnering a lot of contention with his rhetoric on immigration.  He promises to enforce immigration laws and revoke "anchor baby" citizenship.  Whether you agree with the boisterous Trump or not, he is the only candidate vociferously addressing the economic consequences of unlawful and unregulated immigration.  Since 2007 the US has added 2.3 million "foreign-born" workers, offset by just 727K "native-born".  As a longtime resident of the San Gabriel Valley suburbs of Los Angeles I have observed the slow motion 30 year invasion by ethnic Chinese.  What began in the 1980s with wealthy Taiwanese immigrants to Monterey Park has morphed into cash buying buy Chinese Nuveau Rich whose children are receiving automatic citizenship via birth tourism.  The most recent wave of Chinese all cash property purchases have been a huge part of the low volume price skyrocket that has been Housing Bubble 2.0.

Why should I, or any other American citizen be forced to compete with this foreign capital?  Capital that was derived from the purposeful destruction of American manufacturing jobs?  Why should American workers be forced to compete with an extreme and unregulated influx of foreign labor? 

For decades Federal and local governments along with the various chambers of commerce have worked for towards the dual goals of higher asset prices and lower wages.  This was and is wholly unsustainable.  The tech bubble crash should have been the beginning of a moderate/harsh correction in which wages, asset prices and consumer credit reached an equilibrium.  Instead Alan Greenspan created the Housing Bubble.  An army of Mexican and South American workers were imported to help build inventory.  Credit was expanded to hide the loss of American wages.  Everything was excellent.  Until it wasn't...  Ben Bernanke doubled down on Greenspan's folly.  Yet all the consumer demand that could be pulled forward had already been.  There could be no wage inflation in the face of foreign pressures, both from exported manufacturing and imported labor.  All that was left was a world awash in liquidity that could push asset prices beyond any sane valuation.

Should you happen to live in one of the areas where real estate has been bid up by foreign buyers, remember it's your governments policies that have allowed this.  I'm not aware of any province in China where I could settle and comfortably live out the rest of my days without learning Mandarin and assimilating to the culture.  Yet American home buyers are being forced to compete with Chinese who can own property and businesses here while still remaining first and foremost Chinese.  This demographic change has forced many local businesses that thrived when the communities were of an American culture to close.  The remaining non Chinese residents are forced to move or drive further to buys the same goods and services.  The total lack of assimilation fosters ethnic divides and is the opposite of the grand melting pot America is portrayed as.  I've had conversations with longtime Chinese residents who fled the communist dystopia decades ago who are equally disturbed with this new influx of wealthy "Party Members".

The trade and immigration policies of the last 30 years have lowered the standard of living for the vast majority of Americans.  This is government of, for and by the oligarchy.  To them borders have no meaning nor should they.  However adverse the affect on American citizens is of no concern to them.  As Donald Trump said so succinctly yesterday "We either have a country, or we don't have a country".  There can be no real recovery nor can housing be affordable to working people if our horrible trade and immigration policies are not reversed.  We have been in The Matrix for so long that what once would have been considered common sense is now portrayed by the media as radical.  Whatever you think of "The Donald" he is the only candidate addressing why you are making less money while paying ever more for goods and services.

Friday, August 14, 2015

What Does Your Dream Home Look Like?

How big is your American Dream?  Mine is pretty modest.  I'm a SoCal lifer who lived pillar to post for a few of my teenage years.  I've got a significant other and a couple of family members to share a space with.  A 4/3 with 2500 sqft like the one above is right in my wheel house.  I've always liked the scenic views of Mt Baldy offered by Upland and Rancho Cucamonga.  The home above is listed for $655,000. Meets all my needs, yet I wouldn't dream of buying at that price.  Zillow had this home at $462,000 during the 2011 trough. And Zillow tends to skew on the high side.  What in the hell happened in the last for years to legitimately ad $200k to the value of this house?  Sure you can point to dollar devaluation, but with no inflation in WAGES there is nothing to justify this increase.  Rents and higher RE prices have a destructive symbiotic relationship that along with food and energy inflation is destroying consumer purchasing power.

The bubble can expand no further.  The FED will try to front run the mayhem with rate increases.  Some will foolishly blame the coming hikes for the correction when in fact not being caught at the zero bound when the SHTF is the only way the FED can maintain the illusion of control.

How far away has the FED's easy money policies taken you from affording your dream home?  A return to 2011/2012 prices is a minimum for me.  Share some Redfin links in the comments.  We can all share our dreams of a better RE future...

Wednesday, August 5, 2015

Rents are Soaring But So are Vacancies???

Chart provided by

Another great article from the blog  This time the topic is rents vis-a-vis home prices and the circular argument for increases in each.  Yet again we can point to the FED as the source of market manipulation.  Multi-family unit construction is on the rise.  All that fiat seeking returns is fueling an apartment building boom that isn't justified by vacancies.  Just as hot money cash buyers drove speculation in SFH's, it seems larger institutional investors are driving multi-family construction based on suspect math.  Increasing rental costs are forcing more and more people to take on roommates and quadruple up in 2 bedroom apartments.  Working people are maxed out.  If this new apartment inventory is reliant on those benefiting from the current mega-bubble then add multifamily housing construction loans to the list of problems that will be faced when the unwinding begins.  Who would have known apartment builders would be the new sub-prime?

Thursday, July 23, 2015

The Top of Housing Bubble 2.0 is Being Called

The chart and article above introduced me to the concept of Fibonacci Retracements.  As someone who has always been fascinated with the truth telling aspects of mathematics it was interesting to see yet another piece of evidence to show that it's never "different this time."  The FED was able to create a very temporary mathematical advantage that fostered Housing Bubble 2.0.  This quite effectively moved distressed inventory from the banks to private equity.  With Mission Accomplished, so to speak, we are now ready to see the first FED rate raise in almost 9 years.  Isn't that amazing to ponder.  A whole group of Johnny-Come-Lately specuvestors are about to face a smidgen of economic reality.  What level of velocity will power this correction.  After all, we are less speaking of families looking to stay in their homes than we are of institutional investors and REITs whose cap rates are about to be destroyed through demographic and interest rate changes.  Houses are about to get cheaper as the cost of money gets more expensive.  Specuvestors have left the market.  Young families never entered it.  Some Boomers who may not live to see the next market top will be looking to cash out before any further declines.  And lest we forget the world economy is on the brink of sustained contraction if Oil Prices, Caterpillar sales and the Chinese stock indexes are to be believed.  Doesn't seem to me like it's a great time to buy a house you can rent for 20% less...

Note: Just getting this thing started but I'm gonna try and up the amount of posts.  Anything you guys might find interesting let me know in the comments!

Tuesday, July 14, 2015

Donald Trump Wants YOU To Have Affordable Housing!

There are two major factors that have made housing in America so unaffordable to most.  The first is of course the destruction of the dollar by the FED.  However this could be offset by wage inflation which brings us to our second factor, declining wages and joblessness.  As the FED is clearly responsible for the devaluation of the dollar, so is international trade the cause of wage destruction fro American workers.  One of the candidates for president understands this quite succinctly.

From The Donald's 2016 Presidential Announcement...

"They can’t get jobs because there are no jobs because China has our jobs and Mexico has our jobs.  ...And the people are saying ‘What’s going on? I just want a job. I don’t need the rhetoric, I just want a job.'
  I tell you I’ll bring back our jobs from China, from Mexico, from Japan, from so many places. I’ll bring back our jobs, and I’ll bring back our money.  Free trade can be wonderful if you have smart people.  But we have people that are stupid. We have people that aren’t smart, and we have people that are controlled by special interests and it’s just not going to work...

Now Ford announces a few weeks ago that Ford is going to build a $2.5 billion car and truck and parts manufacturing plant in Mexico.  $2.5 billion. It’s going to be one of the largest in the world.  ...I would call up the head of Ford, who I know. If I was President I’d say ‘Congratulations, I understand that you’re building a nice, $2.5 billion dollar factory in Mexico and that you’re going to take your cars and sell them to the United States. Zero tax - just across the board.’  And you say to yourself, ‘How does that help us, right? Where is that good.’ It’s not  So I’d say ‘Congratulations, that’s the good news. Let me give you the bad news. Every car, and every truck and every part manufactured in this plant that comes across the border, we’re going to charge you a 35% tax. Okay? And that tax is going to be paid simultaneously with the transaction, and that’s it."

I'm not suggesting Donald Trump will be president.  But much like Ross Perot 24 years ago Trump understands the perilous position international trade places the American worker.  Trump has the advantage of speaking with hindsight as opposed to Perot's foresight.  American labor has been devastated by NAFTA, China's favored nation status and every other shit trade deal that has been rammed through since Clinton.  Donald Trump has the potential to be Ron Paul, Bernie Sanders and Ross Perot rolled into one.  With the expanded media exposure of non-political celebrity to spread the message.  It is a message average Americans need to hear and clearly understand.  Housing is paid for with wages and Donald Trump wants you to earn a higher wage.

Housing, nor any other asset or commodity can never be truly affordable nor endure true price discovery unless America pulls back from the faux-free-trade and fiat money abyss. The Pauls, Sanders, Perot and others have tried to spread this message but their stage was to small.  Donald Trump is the first person with his level of celebrity and influence to tackle what is the core problem in our nation.  The income and opportunity disparity in America that has it's roots in the destruction of our manufacturing base and currency.

Perhaps this whole campaign is an ego trip for a most eccentric billionaire.  Even if that proves true, Donald Trump is now working Americans loudest voice in the 2016 presidential campaign.  He seems to be reveling in the role.

Read his entire announcement speech here: 
NY Daily News - Transcript of Donald Trump’s 2016 presidential announcement

Friday, July 10, 2015

Comment system fixed...

Clicking save when you change your blog settings is a good idea LOL!  Anonymous posts now allowed with whatever handle you choose.  I'll be on the lookout for my Dr. HB friends handles.  Have a great Friday everyone!

Wednesday, July 8, 2015


The Greek people vote resoundingly to reject being Germany's debt serf in perpetuity.  Debt servicing on hundreds of billions of dollars in Euro denominated bonds is at extreme risk.

The Communist Party of China is taking complete control of the tanking Chinese stock market. A toxic combination of QE, price/market controls and other totalitarian measures are likely to come as the PROC attempts to forestall deflation.

Microsoft terminated over 20,000 employees in the last year.  The tech company which makes products that are actually used to enhance business productivity at one time took pride in never having laid off a single employee.  

Meanwhile a relatively modest 4 bedroom 3 bath home in Upland, CA sold for $685,000.  Assuming a modest 10% down payment the monthly nut is over $3700.  That's before likely PMI.  Now I'm aware that this could be a move up buyer with some equity rollover, but let's assume if not this property there's another that someone is just squeezing into with similar math.  Assuming $600 in additional monthly debt, say a car payment plus credit card, a 50% DTI requires over $100k household income.   Being that most households have an uneven distribution of income your likely looking at a $60k to $70k earner in the equation.  Here is where the aforementioned "Panics" come into play.

Entrepreneurship has been on the decline in this country for decades.  Where once we had small business owners who were savvy and prudently prepared for downturns, we now have high earning W2 employees in administrative positions that are one bad quarter away from pink slips.  If our hypothetical Upland 70k earner works in the logistics hubs near Ontario he is EXTREMELY vulnerable to world macro events.  Bulls who opine over the "special" real estate market in SoCal completely ignore that the high earners of the region are really no more secure than their minimum wage counter parts.   In fact they are even less so because in an environment where labor has already been stripped to the bone, administrative and IT are all that's left to cut.  Unlike the entrepreneurs of old who could whether a percentage drop in their business, the high income administrative worker loses 100% of his income in a downturn.  His skills may not be obsolete, but they are completely unnecessary when there are multiple BA degrees applying for every opening.

Do cuts in high earning positions in California and other bubble areas happen this year?  In 2016?  2017???  None of us can say for sure.  However with VIX still at historic lows (though the NYSE shoutdown today led to a 16% jump) complacency rules the economics of the day.  History has shown that when the consensus is "Nothing can go wrong" it rarely doesn't.

One more thought on our hypothetical Upland buyer.  Interest only short term loans are still quite accessible for the credit worthy and income verifiable through banks and private financing.  A $100K household could very easily find it in their interests to lock in a low interest only payment on a 5 year term.  After all, they can now lease that new Mercedes and that next raise and promotion is surely right around the corner.   Just look at the stock and RE markets ascent.  What could go wrong?