Many states appear to be in recession as deficits grow

Interesting article on Yahoo.

Last week, the Washington-based Center on Budget and Policy Priorities said 27 states are reporting projected budget shortfalls next year totaling at least $39 billion.

I realize that its normal for some states to run a deficit. But click on the article. Look at the graph. Basically the states in the most trouble are the bubble markets.



Never before has the US been so leveraged at the city, state, national, and personnel level. Many news stories start with "the nation clearly in recession." Its not the media driving the story, its what their audience wants to hear.

Got Popcorn?
Neil

Stop shopping for homes and get your house in order

This has been quite a bearish day on the WSJ. Two articles came to my attention.







1. http://online.wsj.com/article/SB117252218857019738.html
2. http://online.wsj.com/article/SB117329581356629863.html?mod=todays_us_the_journal_report

Yes, its a paid subscription, so here are some "fair use" quotes.

"If you don't qualify for a loan because you have no down payment, stop shopping for homes and start getting your house in order. To save more, spend as if you've already bought a home. If your mortgage payment would be $2,500 and your rent is $1,500, deposit the $1,000 difference automatically into a high-yielding savings account each month."

But but but... that's what I'm already doing! ;) But a mortgage payment of only $2,500... how I wish. This used to be common old advice. Click on my $2,859/month article from last month if you want to know more on what I'm doing.

"

Q: But I have to live somewhere! And I have to pay something for a place to live. Certainly it's better to pay "deductible" mortgage interest than rent.

A: Buying a house with a long-term mortgage is just another form of renting.

Mortgage interest is rent that you pay to your lender for the use of its money rather than to a landlord for the use of his house. Yes, the government picks up a portion of that with the tax deduction, but most of your monthly payment neither builds equity nor is deductible. It just goes down the same black hole that sucks up any other renter's money. And it takes 20 years before a typical borrower pays more principal each month than interest.

"I have to pay something" is a rationale that home buyers use for going deeply in debt and paying tens or hundreds of thousands of dollars in interest to buy a house that, they mistakenly believe, will make a big profit for them down the line."

Ok, which of you secured a job at the WSJ? ;)

I'm thinking the lead Sheeple are noticing that their is a burning smell in the theater. They're quietly slipping out the exits. Pretty soon a lot of people are going to be walking away from their investments and that won't be pretty.

Got popcorn?
Neil

News lags reality

Some erroneously blame the media for slower sales. In fact, the media has been lagging the reality of the housing market. For a long time they've parroted the NAR's insistance of a rebound in the spring or the "soft landing" propoganda.

But now... they're losing subscribers. Who's going to buy something that is only an obious mouthpiece for their advertisers?

So the daily breeze has an artilce on soft housing markets:
http://www.dailybreeze.com/business/articles/4705351.html

The feeble U.S. housing market showed more frailty when third-quarter home sales plummeted in 38 states, hitting Nevada, Arizona, Florida and California particularly hard, government data showed on Monday.

The real estate market's persistent weakness during the past year has reined in expectations for economic growth but hasn't been severe enough to offset a rising stock market, lower gas prices and improved consumer expectations.

They also have in the from of the business section an artile tiled "What they'll do to close on a home." Gee... now why can't I find that on the web site? Its talking about how buyers don't want to buy in a "buyers market." Also how selling $1 million dollar homes is getting tougher. Ok, they don't say it... but its pretty obvious the author did want to say it but the editor cut that out of the story.

USA today had bearish home articles too.

Money magazine also had recomendations on downsizing real estate investments. It even went into how it could be wise to downsize the house to reduce exposure. Good advice. Nov 27th edition (IIRC). Sorry no link, I was browsing post turkey day through someone else's copy.

And yet they wonder why buyers aren't buying?

Simple, a $1.0M home takes about a $300k salary. That's a very rare salary in Los Angles, but not a rare home price. Last I looked, only 1.8% of LA's population could afford the median home. Someone up in that income bracket isn't going to want the median home.

Its going to take a while. I still don't expect the market to "break" until 2Q 2007. I also still do not expect it to be a true "buyers market" until Fall 2008. Do note, I place a higher utilization value on having a home than some of my fellow bubbleheads. Many of them note, I believe correctly, that we cannot expect home appreciation in LA/OC until 2011. So there won't be a rush to buy for a long time.

And I believe home prices have been too high for too long. Combined with taxes and workers comp, this means jobs that pay 75k to 150k (Nominally 1.5X median wage to 2.5X median wage) are going to leave LA/OC. Wait a second... Isn't that the best jobs a city can hope to attract?!? Uh oh... this is going to get ugly.

I hope to buy into the south bay... but I now think there is a 50/50 chance I'll be leaving the state in 2 years, not buying in. :( Not by choice, but rather to follow a good job. Hopefully I'm wrong.

Enjoy shopping on Black Friday.
Now to come up for a catchy name for the comming downturn...

Neil