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alstry (34.92)

America Shrinking FAST!!!!

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June 13, 2008 – Comments (3)

Real Estate are CRASHING in California!!!!!!

The Retreat, a gated golf course community that boasted the Inland region's first million-dollar tract homes, has been hit by a tsunami of foreclosures, proving that even the most elite neighborhoods can't escape the devastation of falling real estate values....

The average asking price for homes in The Retreat plunged 46 percent from an estimated $1.3 million in June 2006 to $705,000 today, according to data recorded with a multiple listing service. Six resale transactions in the community this year averaged $675,916 on houses that sold for an average $1,123,000 at their peak, a decline of 40 percent.

And prices continue to drop, with about seven homes currently listed between $475,000 and $500,000, said Pat Patton, an agent with Re/Max Partners who has listings at The Retreat. As prices fall, the community is attracting bargain hunters. About 14 homes are in escrow.

http://www.pe.com/localnews/inland/stories/PE_News_Local_S_retreat13.40e4da7.html

This is just community in CA.  As noted in a number of previous posts, in the last few months, the price declines have really accellerated.  We have seen DH Horton and Standard Pacific liquidate at upto 50% off.  Prices have gotten so low that builders have simply stopped building in unfinished communities leaving weeds growing where houses were supposed to be.

The contraction in housing has resulted in millions of jobs being lost accross the country.

 Florida started 2007 with 86,000 licensed mortgage brokers. The number today, 55,000, is 36 percent lower. Even that understates how many brokers have left the field, says Ritch Workman, a Melbourne mortgage brokerage executive and president of the Florida Association of Mortgage Brokers.

Many retain their licenses but no longer count on brokering for their entire livelihood, Workman said.

http://www.heraldtribune.com/article/20080612/REALESTATE/806120496/1661

That is at least 30,000 jobs lost in Florida's mortgage industry alone in about a year....add in Real Estate Agents and we are probably looking at 100K jobs in one state in a little over a year.  Multiply it around the country and we are probably looking at well over 1 million people in just Real Estate Sales and Mortgage business alone.  Add in residential construction, mills, manufacturers, ect....and we are likely looking at some staggering numbers.

As a result of crashing prices and a slowdown in the economy, banks are losing billions and billions of dollars forcing some to cut dividends and even shut down.

Federal regulators are pressuring banks with sagging balance sheets to cut dividends and raise capital. And analysts are drawing up lists of which banks look most in need of cash.

Regional-bank stocks were broadly lower Friday as a number of analysts suggested that dividend cuts and capital raises are likely for several of the banks. Lehman Brothers Holdings Inc. warned that Wachovia Corp. could soon cut its dividend for the second time this year, while Fifth Third Bancorp plunged 14% as dividend-focused investors scurried to sell. Some analysts said the Cincinnati-based bank could be the next to announce it needs ...

http://online.wsj.com/article/SB121339899543273695.html?mod=hpp_us_whats_news

The problems are just beginning.  The price decline phase is just kicking in.  Those people who thought they were getting bargains last year at 30% are now realizing prices have fallen by as much as 50% more.  This is just housing.  Similar problems are now arising in commercial real estate with vacancies rising rapidly.  As commercial loans start defaulting it will likely have an even harder impact on banks as most of those loans are contained within the bank's portfolio and not sold off like residential.

As the commercial tsunami moves forward and bank's balance sheets deteriorate further, expect lending to be constrained even further.  I am already hearing about some sizeable projects that were supposed to start in the Summer and Fall that are now being delayed due to financing problems.

Real Estate and related business account for about 20% of GDP.  Add in Airlines and Autos and their impact on the economy and we are probably approaching 30%.  If you look at the economics of those businesses right now, and add in banking/finance.....and we could reasonably say that between 1/3 and 1/2 of America's economy is in or on the brink of being in a depression.

Pile the above on top of an unprecedented mound of debt, rapidly rising food and fuel prices, and increasing interest rates..............and it is not unreasonable to guess that we are on the brink of something very very ugly.

3 Comments – Post Your Own

#1) On June 13, 2008 at 11:13 PM, alstry (34.92) wrote:

Many of the jobs being lost used commercial space in some fashion or another.  Whether it was retail, office, warehouse, or industrial....millions and millions of square feet are or becoming vacant.

As restaurants are now starting to close, we are seeing more and more free standing buildings going dark.  Same with retailers.  GAP just announced that it alone will likely reduce its footprint by millions of feet.

The problem is that there are few willing or capable of replacing many of the above tanants.  As vacancies rise, the cash flow and value of the buildings decrease.

Commercial and Residential Real Estate combined is probably the largest asset class in America.  Right now values are crashing.

Bonds are another key asset class.  With rising defaults and rising interest rates, bond values are crashing.

With bonds and real estate crashing, the only asset class left is equities.  The goofy part is since equity is subordinate to debt....shouldn't equity values have decreased before debt?  If a business can't pay its debt, there is no equity.

What does this mean for equities going forward???

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#2) On June 13, 2008 at 11:41 PM, alstry (34.92) wrote:

THE EFFECT:

The latest update of the Principal Financial Well-Being Index found that more Americans are pinching pennies when it comes to everyday spending. Since April, 56% of workers and 55% of retirees told Principal that they have pared spending because of the economy's woes.

That's significantly more than workers, at 38%, and retirees, at 32%, who said the same thing only six months ago.

More than two-thirds of both groups said they're forking over about $100 more a week on groceries compared with last year.

About half of both groups are eating out less and also stocking up on store or generic brands more often, while more than one-third of them are giving up convenience and premium items for cheaper alternatives. Another one-third is stalking multiple stores in search of sales.

http://www.marketwatch.com/news/story/americans-enter-new-cycle-tough/story.aspx?guid=%7B2AD5D9FF%2D408C%2D443E%2DB295%2DF154C2DF194E%7D&dist=hplatest

Aside from the virtues of saving money and living within ones means, the consequence is an inevitable shrinking of our consumerism economy.  If ones economy is very leveraged and  geared to much higher sales volumes.....the only logical result is massive defaults until equilibrium is reached.

As stores shut down, jobs lost, bankruptcies rise, homes go into foreclosure, vacancies increase, tax revenues shrink, businesses close, causing even more contraction...the big question going forward is when will equilibrium be achieved?

Since 2000, many families have had stagnant or falling incomes while costs have risen:

$5200 per year in increased grocery costs

$4000 per year in increased fuel costs

$5K-$10K higher interest expenses

$2000 per year increased insurance costs

$2000 per year in higher property taxes

The mess is just starting to roll now that interest rates are going to add fuel to the fire. 

NEVER IN OUR NATIONS HISTORY HAVE COSTS RISEN SO DRAMICALLY AND WAGES REMAINED STAGNANT.

At this point, with the HomeEquityLoan pretty much extinguished......how will America make ends meet??

Report this comment
#3) On June 14, 2008 at 12:08 AM, alstry (34.92) wrote:

THE EFFECT:

The latest update of the Principal Financial Well-Being Index found that more Americans are pinching pennies when it comes to everyday spending. Since April, 56% of workers and 55% of retirees told Principal that they have pared spending because of the economy's woes.

That's significantly more than workers, at 38%, and retirees, at 32%, who said the same thing only six months ago.

More than two-thirds of both groups said they're forking over about $100 more a week on groceries compared with last year.

About half of both groups are eating out less and also stocking up on store or generic brands more often, while more than one-third of them are giving up convenience and premium items for cheaper alternatives. Another one-third is stalking multiple stores in search of sales.

http://www.marketwatch.com/news/story/americans-enter-new-cycle-tough/story.aspx?guid=%7B2AD5D9FF%2D408C%2D443E%2DB295%2DF154C2DF194E%7D&dist=hplatest

Aside from the virtues of saving money and living within ones means, the consequence is an inevitable shrinking of our consumerism economy.  If ones economy is very leveraged and  geared to much higher sales volumes.....the only logical result is massive defaults until equilibrium is reached.

As stores shut down, jobs lost, bankruptcies rise, homes go into foreclosure, vacancies increase, tax revenues shrink, businesses close, causing even more contraction...the big question going forward is when will equilibrium be achieved?

Since 2000, many families have had stagnant or falling incomes while costs have risen:

$5200 per year in increased grocery costs

$4000 per year in increased fuel costs

$5K-$10K higher interest expenses

$2000 per year increased insurance costs

$2000 per year in higher property taxes

The mess is just starting to roll now that interest rates are going to add fuel to the fire. 

NEVER IN OUR NATIONS HISTORY HAVE COSTS RISEN SO DRAMICALLY AND WAGES REMAINED STAGNANT.

At this point, with the HomeEquityLoan pretty much extinguished......how will America make ends meet??

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