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Friday, November 26, 2010

Where are the boats?

I hope that you (if you are an American reader) had a terrific Turkey Day feast. I had a strange but wonderful Thanksgiving dinner with a whole bunch of people previously unknown to me. One of them was a real estate guy.

In an after-dinner conversation, he said that in his neck of the woods -- the area of southern California known as the Inland Empire -- a diligent searcher could find, little more than a year ago, houses that were unnervingly inexpensive. Decent homes went for as little as $40,000.

Now (according to this real estate guy) the same home would sell for $100,000. Prices have doubled -- or more-than-doubled.

Is the economy truly rebounding?

The assertion seems hard to accept. Among my personal circle of acquaintances, unemployment has become the norm. People who used to make nearly $20 an hour are being forced to take gigs that pay $10 an hour. How can the economy rebound if fewer people have disposable income?

This statistic will stun you: Fewer than half of the younger members of the work force holding B.A.s have acquired jobs requiring a college degree.

For decades, we were told that higher education will solve all of our personal financial problems. It has finally become socially permissible to admit that this American credo is, in too many cases, a hoax.

At the end of the Spanish Civil War, defeated Republican soldiers gathered at the port of Alicante, waiting for the arrival of the promised rescue ships. Those ships never came; the boats were a myth born of desperation. The merciless fascists either slaughtered their opponents or kept them in concentration camps.

Are we in a similar situation? Where are the boats?
Hard to imagine what that real estate guy said is true. Housing prices continue to decline, with perhaps an inflection point where the declines have lessened slightly.

Even with the spur of historically low mortgage rates, and the apparent bargains to be had, the rate of sales compared to the outstanding inventory of homes to be sold shows about a 10 year supply out there, and that doesn't include the 'shadow inventory' of homes not yet foreclosed on, or sellers who have taken homes off the market that they want to sell, but cannot.

Nothing short of a wholesale drop of maybe 30% in the standard of living will clear these markets, and it will still likely take a decade or more.

"And if of ships I now should sing, what ship would come to me?"

We have to build them ourselves, Joseph.

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