Monday, January 19, 2009

LA Times: "post-bubble global recession"

Peter Gosselin's front page article in today's LA Times, "Better off in 4 years? Unlikely" gives a good description of the economic context ahead for Westside real estate. Note especially the quotes from Stephen Roach, who has a track record of being a prescient bear. Here are some highlights:

"We're in a post-bubble global recession, and post-bubble recessions are lethal for growth," Stephen S. Roach, chairman of Morgan Stanley Asia, said from Beijing. "It will be a long time before the world experiences anything more than anemic recovery." ...

What most worries analysts is not a cataclysm such as the Great Depression but the sort of economic morass into which Japan fell after its stock and real estate markets burst in the late 1980s and early '90s [chart above, 2007 post].

Daily life for most Japanese citizens wasn't terrible. There were few company shutdowns or mass layoffs. Indeed, the Japanese came to call their economic condition the "golden recession," said Simon Johnson, a senior fellow at the Peterson Institute for International Economics.

The problem was that the country simply didn't grow -- and that, economists worry, is what could happen in the U.S. and around the world. ...

Although U.S. consumers constitute only about 4.5% of the global population, they bought more than $10 trillion worth of goods and services last year. By contrast, said Roach of Morgan Stanley Asia, Chinese and Indian consumers, who together account for 40% of global population, bought only $3 trillion worth.

In the last decade, a new generation of financial engineering -- complex deals involving home equity loans, subprime mortgages and other devices that provided easier access to credit -- seemed to make it safe for Americans to save less and consume more. That further expanded their share of global economic activity and made them even more indispensable here and abroad. ...

Initially, the expansion was heralded as evidence of economic vitality. But by now, it has become apparent that the growth was largely a debt-driven bubble -- and a double bubble at that, in housing and in personal consumption.

As the elaborate superstructure of easy credit began to pop rivets, consumers found themselves caught dangerously short. They have reacted by drastically cutting back on purchases, particularly those that are discretionary.

Retail sales in the last three months of 2008 plunged 7.7% compared with a year earlier, the government said last week, making it the worst sales quarter in more than 40 years. ...

"Decades of borrowing have finally caught up with consumers; they realize there is no more easy money left," said Allen Sinai, chief economist of Decision Economics Inc. "This is going to scar this generation of consumers the way the Great Depression did our fathers' and grandfathers'." ...

China and other Asian economies "were driven by export bubbles, which, in turn, were a play on the U.S. consumption bubble," Roach said. With the bubbles on both sides now burst, the U.S. and Asia are dragging each other down, he said. ...

44 comments:

Anonymous said...

For those keeping score, 1997 would mean greater than 70% declines from peak value in most westside markets. A bit more in 90402.

Anonymous said...

According to my calculations, a true decrepit teardown in the 90402 sold for around $650 thousand bucks in 1997

If we assume that decrepit teardowns peaked at 2.2 million then 70% down takes us to $660 thousand

so yes I agree with the numbers you cite

Anonymous said...

Really? I'll be picking up a prime 90402 property for $650K soon...

Where do I sign?

Anonymous said...

Not to worry--President Obama is going to save our economy. He promised and since he has such an impressive record...oh, wait, he doesn't have a record.

I want my tax refund! Americans will soon have more money to spend after Obama institutes free universal health insurance. Just think of all the money that will free up!

And the State of California will be out of the debt as soon as the Democrats in Sacramento figure out how to get really dumb foreign investors to buy worthless State Bonds.

Yessir, buy now before it's too late!

And just think about the added new costs to businesses and consumers from "green legislation"! Who needs cheap electricty when we can all pay TWICE as much for government subsidized renewable energy!

Wooster said...

blah, blah, blah.

Anonymous said...

Why are all the townhouses s of montana selling faster than the houses north of montana

Wassssup with that ?

Anonymous said...

"Not to worry--President Obama is going to save our economy."

President Bush obviously didn't, right?

"I want my tax refund! Americans will soon have more money to spend after Obama institutes free universal health insurance."

Where did you get that bullshit from?? There was never any talk about "free" universal health insurance.

You're such a sore loser.

Anonymous said...

Prices, by sheer will power, have maintained. Happens what, when exhausted finally becomes? Prevails does gravity.

Yoda

Anonymous said...

Obama now OWNS the economic disaster. What's all this negative talk about how bad things are and the long struggle?

I voted for Obama after having an epiphany and I saw the light!

The seas have stopped rising and hope is rising in the east.

Or at least that what the Obama television commercial said would happen when he won the election and was sworn in.

I see the market tanked again today. What's Obama's plan going to be to reverse the trillions of dollars in losses that investors have suffered recently?

We need answers and solutions not more campaign speeches.

Anonymous said...

I don't disagree with the recession points, although I think the downside is overstated. The Japan example has one wrinkle - there was not a population increase, influx of foreign nationals, or inter-regional transplants to drive sales and price stability. By extension, imagine BH, SM, PP, Palos Verdes, etc. R/E prices if there was no new money over the past 25 years. We would have had low demand and not much of a bubble. The underlying demand factors (and to-come new money) means we won't have a very, very long recovery of a decade or more.

Anonymous said...

Hey 2:29, a lot of people out here agree with you, but ease back with the sour grapes. It won't do any good. You sound pretty informed...use that knowledge to watch out for you and yours.

Anonymous said...

you have to believe! Think positively and dig in.

Anonymous said...

A previous poster said

imagine BH, SM, PP, Palos Verdes, etc. R/E prices if there was no new money over the past 25 years


I would like to suggest you imagine that exact scenario for the next 25 years. The voters of California decided to invite millions of undocumented workers to move to California. Those are kind good hearted hard working folks. But they don't pay taxes to cover the government services they receive. A typical undocumented family will have one family member paying $5 thousand a year in taxes with three kids in schools and five members collecting medicaid. The costs to the tax payers for that family will be $50,000 and the family is contributing $5,000 in taxes. That $45,000 gap is covered by the state's other tax payers

Again, take a look at the state budget this year - it is only going to get worse as the cost of providing health care and education to the fine undocumented folks goes up.

Moving to California is like marrying in to a family in which you are expected to support your spouse's unproductive extended family - with the number of unproductive people in the family growing rapidly every year.

I love how generous the voters of California are towards the fine hard working undocumented people moving to our state. But of course this generosity will bankrupt the state. Taxes will go way up and services will be cut.

Do the math. Why would you assume that productive people will stay in California in the future rather than move to a state where they don't have to support a massively growing group of tax consumers

Sorry to rain on the unrelenting optimism here.

Anonymous said...

Undocumented does not equate to unproductive. Not only do they fill jobs, many of them actually pay estimated taxes.

Anonymous said...

"Undocumented does not equate to unproductive. Not only do they fill jobs, many of them actually pay estimated taxes."

No one said that the illegal aliens were "unproductive". What is true is that they don't pay a significant amount of property or income taxes. In many cases these people are paid in cash--in this case they don't pay any payroll taxes.

It is a simple fact that the population of California is increasing only because of immigration from south of the border (legal and illegal) and from the births of Hispanics already here. This group of people will NOT be capable of entering the housing market for the foreseeable future and they will not be contributing significant amounts in state or local taxes.

Anonymous said...

A big fat drawn out recession will scare off those Mexicans....won't see a lot of them coming here if there is no work.

Anonymous said...

Okay you big crybabies, sky-is-falling...

Here are the numbers for 2008 home sales in SM vs. 2007....I took out the condo sales numbers because no one cares about that stuff...

Santa Monica/90402
103 houses sold

$2,550 avg. sales price

-9.9% decrease

$1,027 SF


Santa Monica/90403

22 houses sold

$1,843mm avg. price

22.8% increase

$1,006 sq. ft.

Santa Monica/90404

14 houses sold

$830m avg. sales price

2.2% increase

$754 psf

Santa Monica/90405

72 houses sold

$1,100mm avg sales price

-13.7% decrease from 2007

$800 per sq. ft avg.

Anonymous said...

Uh -

Our elected reps have stated pretty clearly that any undocumented person who moves to California is to get free public school education for all of his children, and free medical care for himself and all of his children.

Even when you are earning very low wages and working a small percentage of the time the free education and free medical care is enough to make living in California more attractive than living in Mexico.

The state budget numbers speak for themselves.

Santa Monicans are among the most generous people in the USA, inviting the homeless to live here and very consistently voting for more undocumented folks to move to our State.

Eventually good deeds like that wind up having negative consequences.

Anyway, California taxes will have to be raised massively to balance the budget. The question is why should someone productive stay here and pay those high taxes in order to support others when they can instead move to another state and pay low taxes, or move to a state where taxes actually go to provide decent services and not to support the undocumented.

As we have seen with the subprime crash, sometimes if the numbers don't seem to make sense the numbers really don't make sense and eventually it all crumbles.

Anonymous said...

"Santa Monicans are among the most generous people in the USA, inviting the homeless to live here and very consistently voting for more undocumented folks to move to our State."

I'm sick and tired of hearing the phrase "invite the homeless to live here." Nobody is inviting the homeless. They're a part of our society, plain and simple. You won't be able to ban anyone from using the sidewalks and public spaces just because they violate your oh so delicate sense of aesthetic.

I don't know what it is, why this board tends to be populated by angry right-wingers. Or maybe it is just one or two people; in any case enough to constantly trying to distract from the discussion of real estate. If you don't like the fact that Santa Monica is a liberal place, get the hell out of here, and buy your house somewhere else. In (most of) Texas they'll great you warmly.

Anonymous said...

"If you don't like the fact that Santa Monica is a liberal place, get the hell out of here, and buy your house somewhere else. In (most of) Texas they'll great you warmly.

January 21, 2009 12:31 PM"

I thought the name of this blog was "Westside Bubble", not "Santa Monica Bubble".

Why is it that some people are always trying to dictate what other people can say? That is a distinctly liberal trait.

And homeless people, illegal aliens and taxes have EVERYTHING to do with real estate values in California.

It's called the "ECONOMY", stupid.

The State of California is going to start issuing IOUs soon since it is out of cash. Warner Brothers is laying off 800 people and L.A. County is predicted to lose tens of thousands of jobs in 2009.

The stock market shows no signs of stabilizing and every single investor in America has lost a substantial sum of money in the last year.

But of course none of this will affect the prices of real estate in 90402, the only zipcode that we're supposed to be talking about on "Westside Bubble".

Anonymous said...

I agree - this blog is about the whole West Side

not just Santa Monica

The collapse of the California economy and the exodus of productive people impacts the whole West Side

Anonymous said...

"Why is it that some people are always trying to dictate what other people can say? That is a distinctly liberal trait."

I didn't say you can't say it. I just think this blog is not the right forum for homeless-bashing and xenophobia. Take it somewhere else.

"And homeless people, illegal aliens and taxes have EVERYTHING to do with real estate values in California.

It's called the "ECONOMY", stupid."

I agree, it's about the economy. And not about the homeless or illegal aliens.

Anonymous said...

"exodus of productive people"

Laughing out loud.

Surely you must be talking about the realtor class. Or the hedge-funders (aka people who make money out of thin air). Their time is up.

People who honestly are productive will still be needed. It's just that our economy was too long based on *not* doing anything productive except suing each other, selling each other real estate, and managing imaginary wealth.

Anonymous said...

"I agree, it's about the economy. And not about the homeless or illegal aliens.

January 21, 2009 1:41 PM"

The homeless and illegal aliens do affect the economy. The homeless don't have any significant economic effect on the state or local economy--they do impact the quality of life in local neighborhoods. California will always be a magnet for the homeless and I think that people should just get used to it.

The illegal immigrants, on the other hand, they have a significant impact on the state and local economy. Just the cost associated with illegal alien moms giving birth in California hospitals is substantial and this takes resources away from others. The state and local government spend a huge amount of money on social and law enforcement services related to illegals.

I don't think that it's fair to scapegoat illegal aliens for all of our state's problems, but illegals cost California a huge pile of money.

The benefit and contribution to society by illegals is not distributed equally--i.e., lots of people are exploiting these people for their own personal gain. Think of all of the restaurants, parents and homeowners that are making out by hiring illegals--dishwashers, nannies etc.

Probably a lot of people on this board have hired or are now employing illegal aliens.

Who's at fault? I'll let you answer that one yourself.

Anonymous said...

Such Republicans on this board....

Anonymous said...

Such Democrats on this board...

Anonymous said...

Am I a liberal if I don't mind seeing the homeless?

I feel they deserve to be treated with kindness and respect.

They were all someone's child at one time. All loved by someone at one time.

Why do they have to figure into the real estate discussion so prominently?

Anonymous said...

This board is way off topic. I wrote the 11:17 pm post about 'new' money coming to the better neighborhoods, notably 90402. My point is that smart, industrious people from elsewhere on the way up in life provide a vitally needed level of R/E demand and price support. My 90402 neighbors are from all over the world (legally for the cynics out there) and have the skills and drive to make things happen. We are lucky they are here - creating new businesses and jobs. Take a look at the title records in 90402 - not a lot of folks with the last names of Smith, Jones, etc. anymore. Again, I see this as a positive - the West side is attracting the best and brightest from around the world, and the trend is not about to stop.

Anonymous said...

yes the best and brightest of the high IQ people from around the world -

plenty of people from China, Japan, Korea, India, Armenia, Israel all settling in the 90402

The names speak for themselves

Anonymous said...

"plenty of people from China, Japan, Korea, India, Armenia, Israel all settling in the 90402

The names speak for themselves"


I'm sure your name is on the 90402 owner list as well, perhaps several times; sounds like you out-smart and out-hustle low level foreigners 2 to 1.

Anonymous said...

When I was growing up, North of Montana was a solidly middle of the middle class neighborhood. Plenty of aircraft workers, accountants, engineers there.

Now the folks moving in are generally business owners. They may have come from modest backgrounds but they are people who have built pretty large and successful businesses of various kinds.

A person who just draws a salary can't make it North of Montana these days.

It doesn't surprise me if the more entrepreneurial and aggressive groups are moving in - it makes sense - those of us that just simply draw a salary, no matter if it is a "good" salary won't make it N of Montana

That is just the way it is

Anonymous said...

Okay, instead of the hedge fund managers, rich Middle Easterners, kids with rich parents, etc, now we have successful business owner immigrants from India and China--they're going to keep the values in 90402 at their bubble peak.

This board is one of the funniest places on the web.

Anonymous said...

And I heard half of NOMA is getting deported, the other half is already in foreclosure or BK, and NOMA will soon be a ghost town with price roll-backs to 1966.

Anonymous said...

"I'm sick and tired of hearing the phrase "invite the homeless to live here." Nobody is inviting the homeless. They're a part of our society, plain and simple. You won't be able to ban anyone from using the sidewalks and public spaces just because they violate your oh so delicate sense of aesthetic."

And we're sick of people who are on the side of the vagrants and the psychotic homeless against the homeowners in Santa Monica. The only reason these people want to encourage the homeless is because it makes them feel good about themselves, they can call the residents here "right-wingers".

Usually, these smug homeless advocates don't even own property in the neighborhood, don't know their neighbors, and certainly don't walk the streets with their children at night. If you want to feel good about yourself by taking the side of the mentally insane, please don't do it at the expense of me, my family and my neighbors.

Anonymous said...

"Usually, these smug homeless advocates don't even own property in the neighborhood, don't know their neighbors, and certainly don't walk the streets with their children at night."

Actually, I do all of these things.

I agree it's not great that we have homeless people living on the streets of Santa Monica, or, for that matter, any city in the US. As I said, I think it's a scandal. And something needs to be done about it- but that will require a major reorientation about how we care for our handicapped and mentally ill people in this country. Until then, I argue for treating the homeless humanely- just I would treat any other member of our society. I'm not "on the side of the vagrants and the psychotic homeless" or "against the homeowners in Santa Monica." (I would be against myself.)

I'd be curious to hear what kind of "solution" to the homelessness problem you propose, dear Anonymous @ 11:00 AM.

Anonymous said...

The phenomenom you talk about has been identified and studied by scientists. It is called competitive altruism.

The way the scientists describe it is as follows - certain tribes decide that status will be accorded on the basis of how altruistic each member is. Members then compete to see who is most altruistic. In these tribes altruism often reaches such extreme levels that the interests and sometims lives of the tribe's members and in particular its children are sacrificed. In such tribes, those that call in to question the altruism are made in to pariahs.

Just google competitive altruism there is a vast literature on the subject.


___________________

Proc Biol Sci. 1998 March 7; 265(1394): 427–431.
doi: 10.1098/rspb.1998.0312. PMCID: PMC1688900

Copyright notice
Competitive altruism: from reciprocity to the handicap principle
G. Roberts


Current work on cooperation is focused on the theory of reciprocal altruism. However, reciprocity is just one way of getting a return on an investment in altruism and is difficult to apply to many examples. Reciprocity theory addresses how animals respond dynamically to others so as to cooperate without being exploited. I discuss how introducing differences in individual generosity together with partner choice into models of reciprocity can lead to an escalation in altruistic behaviour. Individuals may compete for the most altruistic partners and non-altruists may become ostracized

Anonymous said...

"The phenomenom you talk about has been identified and studied by scientists. It is called competitive altruism."

Compassion = competitive altruism?

You seem to have a very cynical view of human relationships. Very sad. I hope you're not teaching your children such an egotistical world view.

And again, I'd like to hear about your proposals about how to approach the homeless issue. Rather than beating around the bush like this.

Anonymous said...

Paying more so that others can have an education, opportunity, and health care doesn't bother me. Sure, we can make these institutions more efficient, but who uses it is of no concern to me. Being born here doesn't make me any more deserving of these things than anyone else.

However, competing with idiots who think a million or two is a "good" price for a modest home absolutely drives me nuts.

I also like having smart presidents, but call me crazy.

Anonymous said...

Competative altruism in Santa Monica would be putting up with a conservative as a neighbor... putting up with the homeless is simply acknowledging the facts on the ground as they have existed for half a century.

Anonymous said...

Smart Presidents?

Boy, you sure must be disappointed with the new one. He didn't even know what was in his own Executive Order closing Club Gitmo!

Anonymous said...

"Smart Presidents?"

Well yes, of course our former president, he was a deep thinker. He had an MBA, after all.

Anonymous said...

You're not really arguing that George Bush is smart are you? Well, I guess that's why you would vote for him, and a ticket that included Sara Palin.

Anonymous said...

GW Bush was smarter than Al "I invented the internet" Gore.

And he was smarter than John "I fought in Vietnam" Kerry.

In fact G.W. Bush was smarter than the entire Democrat Party (left coast included).

He's also smarter than B.O. since now even B.O. agrees that killing Osama bin Hiden isn't absolutely necessary.

Anonymous said...

And of course, GW Bush is smarter than Paul Krugman, for sure. I mean, what are the credential of that guy? Princeton professor, Nobel prize? Bush has an MBA.