Posted on 10/08/2005 2:35:32 PM PDT by wagglebee
Despite fears in the marketplace about a U.S. housing bubble, about 60 percent of homeowners expect the value of their homes to increase by at least 5 percent annually during the next several years, according to an online survey of 1,001 American consumers.
According to the survey findings, released by RBC Capital Markets, the corporate and investment banking arm of RBC Financial Group, 24 percent of respondents said they expect annualized gains of 10 percent or more over the next few years. About 3 percent of respondents said they expect their home values to decline over the next few years.
About 85 percent of homeowners who responded to the survey said they have experienced real estate gains over the last three years and over 70 percent experienced gains in excess of 10 percent during this timeframe, RBC announced.
Meanwhile, about 10 percent of the respondents said rising home values have affected their spending habits. And over half of those surveyed disagreed with the notion that real estate gains impacted their spending even though 51 percent either sold their home or borrowed against their home equity in some fashion. Ironically, those that disagreed most with the idea that real estate gains had impacted their spending were those in higher income brackets (defined as those making over $100,000) and those that had already experienced the biggest real estate gains, RBC reported.
Ultimately, these two groups were also the most aggressive in extracting equity (approximately 65 percent).
"Not only are most people expecting big real estate gains to continue, the vast majority of people don't believe these gains have impacted their spending. These opinions run contrary to most data in the marketplace regarding the real estate wealth effect," said Scot Ciccarelli, managing director of equity research for RBC Capital Markets.
"We believe these findings raise a major question. In our minds, the question is whether people have spent more freely than they otherwise would have because of their real estate gains and don't even recognize it. If that's the case, a simple slowing of real estate gains, not just a fall in housing prices, could have a significant adverse impact on spending patterns."
About 60 percent said rising gas and energy prices were already causing them to cut back on their spending. "Rising energy prices are essentially creating a flat tax that is affecting lower income consumers at a disproportionate rate and supports anecdotal evidence in the marketplace over the past two years that companies more levered towards higher-end consumers have largely outperformed those that cater to lower-end consumers," Ciccarelli said.
Finally, by a 2-to-1 ratio, people are more positive about their personal financial situation than they are on the broader economy. On average, just under 40 percent of respondents were optimistic about their personal financial situation and just over 30 percent were concerned or pessimistic, the survey found.
On the flip side, 20 percent of the respondents were optimistic about the broader economy while just over 50 percent were concerned or pessimistic about the economy.
"Not surprisingly, those that were the most optimistic about their personal financial situation were those in the upper income categories and those that had experienced the biggest real estate gains," RBC announced.
"This outlook seems to cut to the heart of the American consumer. People seem to be conscious of the macroeconomic headwinds facing them like rising energy prices, the war on terror, and the growing federal deficit and the impact it can have on others. However, they are less inclined to believe they can be affected by these same factors. Ultimately, it is this optimism that keeps the U.S. spending engine intact," said Ciccarelli. "While energy prices are certainly disconcerting, it is this real estate wealth effect that we are most concerned about and should be the primary focus of investors."
How can you believe that inflation is only a couple of percentage points? Have you seen the price of food, energy, and housing?
You ever hear of the Boskin Commission? The CPI is manipulated downwards to hide inflation. This was started early in the Klinton administration and they manipulate it downwards through hedonics, substitution, and weighting. House prices aren't included in the CPI, "owner's equivalent rent" is. Taxes aren't included in the CPI either.
It's hard to define intrinsic value. Here's a good website about it:
http://plato.stanford.edu/entries/value-intrinsic-extrinsic/
Most people think gold has intrinsic value, but what basic human need does it satisfy? What does it do other than look pretty? My cat sees no value in my gold and silver coins, but we both see value in a tasty, juicy T-bone.
If you can't get a job to pay your taxes and lose it ALL because of that then there is more wrong than losing your job ... . Good grief!
"If you really own something, no one can take it away from you for any reason. I don't have to pay any taxes for owning stocks, bonds, gold, or just about anything else."
Just think, if you lose your job you can sell your stocks, bonds and gold to pay your taxes! Problem solved for you!
Eventually you will pay taxes on that too!
I do agree with you that Bush has become quite the "compassionate socialist". He demoralizes those that aren't on the hand out list with how he throws money around.
I've heard that there are hints of inflation out there. Which would not surprise me in the least as fuel prices trickle down.>>>>>>>
Hints of inflation? Surely you jest! Inflation is rampant in most of life's necessities! My wife and I went to a local chinese buffet yesterday and paid $16 and change. Just a very few years ago the same type meal cost half that in this area. My electric bill is equal to what a house payment was twenty five years ago, I could go on all day.
I paid cash for my house after selling my Calif. home. I will not have a house payment for the rest of my life. That's better than any possible Calif. scenario.
Excuse me if I don't rely on the government for anything. I saw what happened to people in New Orleans who put their faith in the government relief. The government is so far in debt now that our great grandchildren will never pay it off, and you think that the government can bail this country out of a housing crisis? The whole country? Who is going to pay for that?
That really isn't very much.
Well who wants to live in New Jersey?
C-YA
Houston is a good example, but it's worse than that:
Houston home prices fell 22 percent from $111,000 to $86,800, and also took 15 years to rebound. Counting inflation, the average Houston home, which cost just $159,700 in 2004, is actually worth less now than it was 22 years ago.
http://money.cnn.com/2005/09/19/real_estate/buying_selling/price_declines/index.htm
This bubble has set up maybe half a dozen areas around the country for the same fate.
I hear you can pick up some railroad stocks for a song! ;-)
"Well who wants to live in New Jersey?"
I sheepishly admit; not me but that's where the employer is.
The morsal of food in a beggers hand has value . some things have value
value is the worth in usefulness or importance to the possessor
Nobody argues against that: things do have value. What I was trying to clarify for you and the other poster is that objects do not have an intrinsic value; that is, they have no value outside of the agent. Value is attached to a thing by an economic agent. As a consequence, it is completely subjective.
Marx postulated to the contrary that things have an intrinsic value and computed it, in essence, from what it costs to produce them. He then proceeded to state that prices charged in excess of those "values" constitute exploitation of the one that pays that price.
As an aside, it's interesting that Confederate money is now trading at more than face value.
It is not important whether I believe that or not. If YOU don't believe in the CPI, then YOU have no case: to discuss inflation one can compare apples to apples. To be sure, on can view apples as inferior and think that oranges are better. But then use oranges instead of apples and do so consistently. IN other words, if you are dissatisfied with the CPI, find another measure and then show from the time series of that measure that inflation is high by historical standards.
To sit in an chair with a newspaper and merely criticize the existing knowledge for being imperfect does not consitute scientific inquiry. Inflation is low to the extent the extent that it is measured by the CPI. If you have other measures, offer them. And, if you do, please publish your findings in a peer review journal and forward them to the Fed. We all will be only grateful.
House prices aren't included in the CPI, "owner's equivalent rent" is. What's wrong with that?
You appear to misunderstand the objective of the CPI and cannot therefore conclude that it fails to reach that objective.
Inflation is defined for a given commodity: it is an increase in the monetary price of that commodity. It is therefore absolutely valid to speak, as you do, of inflation in the housing market, wage inflation, inflation in apples, etc.
The CPI attempts to measure average inflation, which is then inflation in a basket of commodities consumed by a typical consumer. Of course, therein lies the difficulty: what is the "typical" consumer. One can question decisions made in answering that question. If we are to have a measure of any operational significance, we have to agree on something reasonalbe, however imperfect it may be. The current CPI is such a measure. Given the changes in the culture and wealth of the coutnry, it is adjusted from time to time.
Now, your criticism of the CPI on the basis of housing is completely invalid. You complain that it does not include house Ownership. But why should it? Apparently, only because this happens to be what YOU prefer to buy. That is fine, but your consumption is not necessarily representative. The CPI does not include the cost of graduate studies, ownership of even rent of yachts, vacations in Europe and many other things you and I might be interested in. It is simply not the objective of the CPI to include these categories. And it is the objective of the Fed to keep the OVERALL inflation low --- as it is measured by the CPI --- and not of yours or mine favorite commodities.
Once again you have argued against a straw man: you are accusing the Fed of failure to achieve something that us not its objective.
Taxes aren't included in the CPI either.
Now, this is completely ridiculous. Inflation is a change in the monetary price of a given commodity or, in the case of the CPI, a given basket of commodities. It has nothing to do with what you pay for something else. TO determine inflation of apples, you focus on apples and disregard what one pays for books, transportation, or public goods. Taxes you pay are your expenditures on public goods (defense, etc.) Prices of those goods are completely irrelevant to the question of whether there is an inflation in apples or the basket underlying the CPI.
As I said earlier, you manipulate notions you do not understand. And I can see now why so: you argue instead of inquiring. Forming opinions before understanding is bound to result in fallacious conclusions. As I also mentioned ealier, the scientific method requires one to reserve judgment until evidence is gathered. You show not even an inclination to do so. Don't be surprised therefore that almost every statement you make is problematic.
Reading what Boskin Commission says is of little use if you don't understand the terms in which it states its finding. I would suggest that you simply refrain from that until you study some economics, in which you appear to be interested.
You really ought to go read this: http://www.financialsense.com/stormwatch/2005/0624.html
There doesn't exist any official measure of inflation. I can see several things increasing in cost in the economy. Based on anecdotal evidence, I would say that inflation is 6-7%.
Where do we start??
gasoline prices - up 100%
crude oil - up 50%
gold - up 20%
other commodities - up in the double digits
health care - up 10% per year, every year since I can remember
food - up ~10%
house prices - up 15%
college tuition - up 10% every year
How can you with a straight face say that inflation is at 2%????
The Boskin Commission recommended several changes in the CPI which were then implemented. With these changes, the CPI can be easily manipulated downwards.
Substitution:
The CPI used to be computed each month using a fixed basket of goods. The BLS now uses substitutions in their monthly computations of the CPI. If beef prices rose, it was assumed that people substituted chicken. If chicken prices rose, then consumers would switch to fish. If all these prices rose, well consumers would become vegetarians or maybe start eating Alpo dog food.
Weighting:
Instead of straight arithmetic weightings the BLS began to use geometric weighting. The benefit of geometric weighting is that it automatically gave a lower weighting to those items in the CPI that were rising in price and higher weightings to items in the index that were falling in price.
Hedonics:
The BLS also adjusts prices for quality. Hedonics adjusts the prices of goods as a result of the increased utility a consumer derives from a product.
Last year the price of a 27" TV was adjusted for quality improvements. The 27" TV had a retail cost of $329.99. It was decided that the new model, which still sold for $329.99, had a better screen. After putting this improvement through the governments complex hedonic adjustment model it was determined that the price of the TV fell by $135, concluding that the price of the TV had actually fallen by 29%! The price reflected in the CPI was not the actual retail store cost of $329.99, but $194.99. The problem is that if I go to Worst Buy to buy that TV, I would still pay $329.99.
Another example: A 2005 model car, which went from $17,890 in 2004 to $18,490 in 2005. After adjusting for quality items and making antilock disc brakes standard, the BLS adjusted the actual $600 price increase down by $225. The problem is that the price of the car in dealer showrooms is still $18,490.
The CPI is "program produces monthly data on changes in the prices paid by urban consumers for a representative basket of goods and services." But monetary inflation has a direct impact on the prices the consumer pays. Why shouldn't house prices be in there? Why not taxes?
Maybe you ought to go and study economics because you obviously don't have a clue as to how the CPI can be manipulated. You also don't understand why inflation is evil and is the bane of all economies with fiat currencies.
We could have 10% inflation, and through manipulation the CPI could come out and say 0%. The government has no problem with lying to the American people and stealing from them. Whether inflation is 1% or 10% it's still a tax on your savings and is morally wrong.
Taxes you pay are your expenditures on public goods (defense, etc.)
Sometimes it is, but most of my tax money goes towards socialist, wealth-redistributing, vote-buying scams. As I also mentioned ealier, the scientific method requires one to reserve judgment until evidence is gathered.
I'm not writing a scientific paper or dissertation here.
You got lucky and bought at the right time and in the right place. Long term, it's impossible for everyone to have their house values go up so much that they "live in them for free."
It's simply illogical.>>>>>>>>>
Logic seldom enters into it. Ask the average person if they think that an investment can earn 3% after taxes year after year forever if it is passed from one generation to another without spending any part of it and it is not taxed. Almost anyone you ask would say of course, but if you do the math it turns out to be impossible because it would eventually amount to owning the earth.
Such inflation is absent; you have no case.>>>>>>>>>>
How can you say that inflation is absent? Inflation is very real in the housing, food and energy sectors, just because color televisions are cheaper than ever does not equate to no inflation. After many years of "no inflation" I am paying prices I never dreamed I would see, it is like shoveling two feet of "partly cloudy" out of the driveway.
We could have 10% inflation, and through manipulation the CPI could come out and say 0%. The government has no problem with lying to the American people and stealing from them.>>>>>>>>>>>
Amen to that! I have a poorly paid job and yet with overtime I will earn far more in one year than my father used to earn in ten years, he supported a wife and four sons, I have no debt and yet I can barely support my wife and myself.
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