Tuesday, 03 May 2011 10:38

Bubble, Bubble, Real Estate Toil and Trouble: Macro Climate for Real Estate Still Sucks, Despite New Bubbles

A reader wrote me complaining about the nonsensical bubble blowing in multi-family properties before the last bubble was even finished bursting. I feel his pain. Let's run through a quick pictorial of how I see the macro climate for real estate as of right now...

Everybody is getting squeezed, businesses, consumers, homeowners... Everybody!

Businesses have been pressured by wage inflation, but have managed due to growing revenues. The growing revenues portion has slackened considerably after .gov bubble blowing wore off.

I know many of you are saying, "But wait a minute!!!". You said the employment market was weak! Yes, I did say that and yes, it is. We have historically high and stubborn unemployment, but that doesn't tell the whole story. That high unemployment crams more dollars into the "average" hour worked, but many less hours are worked by less people in the aggregate. See On Employment and Real Estate Recovery.

The reported unemployment numbers materially understate the amount of actual real unemployed there are in this country for it does not include the labor force participation. If you are not actively (or more to the point, have given up looking) for a job you are not included in the count.

The amount of people no longer counted in the labor force has been steadily growing, thus steadily underestimating true unemployment.

Add to all of this the fact that banks had practically halted foreclosures, thereby significantly exacerbating the shadow inventory problem, and you have a mess on your hands. Subscribers should review the latest Shadow Inventory Analysis Spreadsheet online to see exactly what I am talking about. There is at least an additional year or two of inventory not shown in (hidden from) these already pessimistic numbers.

Add to this the fact that interest rates are going up around the globe, in some places eventually by force - reference Reggie Middleton ON CNBC’s Fast Money Discussing Hopium in Real Estate, and then reflect upon inflation vs. stagflation - Inflation + Deflation = Stagflation ~ Lower Real Estate Values! and don't forget to remember that we are in a real estate depression: In Case You Didn’t Get The Memo, The US Is In a Real Estate Depression That Is About To Get Much Worse.

Sound gloomy enough yet? Don't worry. Despite all of this, guess what? The .gov/central banking cartel has successfully reblown another bubble in real estate by messing with the circle of economic life.

My next post on the CRE topic will include some of my thoughts on this gentleman's situation. In the meantime, comments are always welcome.

Last modified on Thursday, 05 May 2011 07:20