Posted on 06/26/2007 2:30:38 PM PDT by hripka
This is why I have always found it comical when people try to dissaude their kids from college because of “what might happen to them” or because they hate the professors or whatever.
A truth that no politician has the guts to tell the American people, is that for most non-college educated Americans, they have already reached their zenith, and the truth is, the American worker who doesn’t have a certain level of training is going to have to get used to the idea that the real value of their pay is going down. That is just the nature of our economy. It was one thing for American workers to recieve high wages when we had no competition, but that is no longer going to be the case.
And at least initially, the well off are going to feel this too, but our economy is headed for a bad spell and how we survive it determines how we push forward as a country. But the truth is, people have to begin preparing now.
I’m probably going to be ripped apart for saying this given the composition of this board, but I’m only saying what economists have been saying for a while now.
I read Rich Dad. His philosophy is based on taking a large pile of money, investing it in risky real estate deals, getting lucky, and getting people to pay large amounts of money for the chance to listen to him talk about how lucky he was.
He *is* an excellent con man, though. I'll give him credit for that.
The Administration's attempt to strong-arm the Chinese into changing its yuan/dollar "peg" into a floating currency smacks of both desperation and hubris to me. Yuan is/are China's "product"; why do we think that we can demand where they set the price of their product?
China’s currency is undervalued though, and they are using it to their advantage, and unfortunately, the only sure fire way to stop it would be to collapse the world economy. We could actually do that intentionally, but of course, the costs outweigh the benefits of that greatly.
Where his market misses the mark is that well, the Chinese only invested in certain markets, or, major markets. The major markets in our country are going to collapse, but lower tier markets, that before were not considered worth the time of foreign investors, are going to see a substantial boom when the major markets fall, and those areas suffer the after effects of foreclosures, high employment, etc.
Since Hurricane Katrina, which is more of a regional factor, but still, real estate prices in this area have risen on average between 50-75%, with appreciations well over 200% in specific areas. I actually expect our area to do real well when the markets in New York and Los Angeles fall, because actually, we are more dependent on the economy of neighboring areas and the Gulf of Mexico/Carribean basin, then we are the national economy.
Or to put it another way, stagflation actually saved us from economic collapse because we became a major petroleum center, and then FEMA relief after 1979 helped alot of people take advantage of inflation to pay off debts with hurricane checks. Of course, when oil crashed in the mid 80’s, our local economy somewhat flatlined, even as the rest of the country boomed.
The reality is that the U.S. wants the Chinese currency to be pegged to the dollar. The yuan is actually overvalued, not undervalued.
You missed two key points:
A) The major markets, like LA and NYC, are booming because of European investment as well. The dollar is weak and all those $3 mil lofts in Soho look like bargains.
B)Foreign investment is alive and well in the secondary markets. Who do you think has bought up all those subprime loans, etc.?
Not without the help of central banks.
I knew it. A bad case of yellow metal fever.
Our real estate market has had no foreign investment, and suddenly were now in the top 20 in the country, all due primarily to the fact that of metro areas in the Katrina disaster area, we’re the one that actually had an immediate net benefit (though I still contend when it is said and done, New Orleans will have a permanent net benefit, but right now it is hard times there, their wage scale is all messed up due to labor shortages)
I just think the bottom is beginning to fall out when people pay $400,000 for a house in the worst part of Compton. A similar home in this area would run you $20,000. A college friend of mine from L.A. was in town a few months ago and had dinner at our house. He asked what I’d paid for it, then his mouth dropped. When he told us what this home would cost in L.A., I nearly collapsed.
The problem is that, there of course was regional variation in real estate before, but it was never as extreme as it is now. There was a time not too long ago when homes in the hot markets were actually reasonably priced. Now it’s to the point where home ownership, which has long been our economic foundation, has become out of rich to people who aren’t impoverished. Now, the upside of this is, about the only affordable land in L.A. now is in “bad areas”, so the local governments are making a considerable effort to make this neighborhoods tolerable for families to move into, and from what I understand, whites have begun to move back into Harlem.
But I still think it is an overly inflated market, and I also think it is dangerous that we have inflated it with a reliance on debt. That’s just bad policy, and alot of people in these markets are going to end up stuck with 600k houses and no way to make even on it. What $600,000 buys you in this area. Well, not our house anymore, but our house is waterfront. For the most part, you get choice real estate at that price and we actually paid less than that for our home. What that buys you in the hot markets, it’s just pathetic, it’s overvalued, and it can’t stand.
You;ve already begun to see things leaving Southern California because no one can afford to live there and no one can afford to business there. And its even worse when, because, the actual minimum wage that is dictated by the cost of living is over $30,000. And that’s actually a salary around here that, if you have a spouse even making 2/3’ds of that, gives you a comfortable lifestyle. It’s just insane. California has a per-capita income of $46,000. There are alot of households in this area not in dire poverty that don’t even make that as a combined income, and this is not the backwoods.
It’s all so terribly inflated and at some point, there has to be a correction. The only downside is that alot of people from these markets, when it falls out, are going to come to markets that haven;t collapsed, and do the same thing to them. It’s a lack of restraint that troubles me. Then again, our area to a degree is immune to national shocks, we actually fared comparatively well during the Depression, but still, has me uneasy.
I kind of agree. China's weak currency is self limiting. As they rely more on imports, especially oil, their prices will be relatively high. Besides, W is an economic moron who loves his own currency to be very weak. Who is he to tell others what to do with their currency?
Katrina will have a huge eventual benefit for the area. It’s one of the top ten tourist destinations and top five business destinations. Up until now the big boys couldn’t crack the market effectively. In ten years it’ll be a mall with liquor and gambling bought at a bargain price.
It depends what kind of business you’re in whether it makes sense to locate in LA. If you’re in the high end retail, Asian imports or entertainment industry, then LA makes sense. However, if you’re making furniture, then why bother?
Same goes for NYC. If you’re in law, finance, fashion, media etc., then NYC makes sense. If you’re in manufacturing, then forget it.
p.s.
The real estate in those major markets isn’t inflated as much as you think. The salaries more than support it.
He made up his stuff, wrote a fictional book about a rich dad and got Oprah to blow him up and make him a brand.
That is about it and I give him no weight.
But I do think there is a much deeper RE depression coming.
"Put your money in TAXES. Its the only thing thats certain to go UP!
bookmark
Well, let’s look at the fundamentals. People don’t live on money, they live on goods and services.
With modern technology, it is possible to produce large amounts of goods and services at low cost. About 50 million people can produce all the goods the world requires, and another 50 million can produce all the food we need. The rest can be lawyers, chefs, violinists, and accountants, it doesn’t matter.
With the world population nearing its peak, there really isn’t much of a threat to global prosperity. The chief danger is crazy ideologies that theaten the technological core that has gotten us to this point.
You are quite right. And for the past few years the tremendous appreciation of real estate across the country has kept things afloat, as people can afford to cheaply finance (oh, so cheap) using ARMs and balloon mortgages.
But soon the balloons are going to bust, and the holders of that debt (see Bear Stearns, last week) are going to be left holding the deflated remains. There was a time when you could take out a 5-1 balloon mortgage, live in your house for 5 years, sell it at a handsome profit, pay off the balloon and move onward and upward.
As the economic data showed again this week, however, that time is past. Housing prices declined (I think around 2%, without checking the numbers).
I would be interested to hear where others of you in the business think rates are going now in the US though - on any given day you can find pundits saying the fed will cut, and (more, I think) saying we will have an increase before year end.
X
Having read some of his columns online, I would think he became wealthy by getting people to pay him to shut up. I can’t remember what site he posts articles at, but it might be Yahoo finance; it’s hilarious... most of the posts are people begging the editor to remove him from their list of contributers. He doesn’t seem bright enough to me to be a con man; I think it was luck.
Well said. I would add that "how we push forward as a country" should mean culture, our values rather than anything the government/Fed will do. One cannot continue to earn great wages while unable to read and write, and being ignorant of basis mathematics. One cannot continue to earn great wages when TV gets a greater priority than education.
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