Recession Impact
My take:
Common sense action / impact seem to be the norm at most organizations. New initiatives / projects on hold but not off the table. Legal, compliance, regulatory, and maintenance / upgrades: Some areas where planned efforts are moving forward as well as a few change and business transformation projects. New hiring at a minimum -- trying to run on internal resources and/or reduce resources. Credit, liquidity, and cash flow / sales remain the primary drivers. Financial Services sector and especially banks are edgy expecting regulatory change from new administration.
What does it look like from your POV?
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Immigration reversal? Local
Immigration reversal?
Local TV news this week reported that migrant workers have been returning to their countries of origin due to the downturn of our national economy.
Years ago, I moved to Austin from Silicon Valley, thinking that my wages would go farther out here. Instead, I've found that there are far fewer tech jobs, and that the cost of my down time more than eliminates any benefit. On Monster, I recently saw that there are nearly 20 times as many tech jobs listed in Silicon Valley (and that they're listings by actual employers, not just headhunters reposting the same listings). In short, I've been thinking about moving back home, too.
- John
OK, "immigration reversal."
OK, "immigration reversal." First off, what you call "migrant workers" are more often than not, illegals. Yes, the drying up of the US economy is creating a reduction in illegal immigration (that's defined as anyone who crosses the US border without legal Visa or paperwork).
Times are tough all over. Yes, people have stopped hiring. Jobs that were there 6 months ago, aren't now. What is the common sense and impact? Some things have to continue. You do without the extras. Fewer lunches out. Multi-purpose trips if necessary. But you have to continue to file patents (if you're in a tech business that does that). If your business can secure a line of credit (at a reasonable rate), then you should do it.
Basic point is that South Texas is a lower cost of living than most places. The downturn will uptick sooner here (probably) than in other places. Some things like housing prices (unfortunately for me, trying to sell in this BEAR housing market), will stay tough for a while.
By the way, I've just read that unemployment in Germany increased at twice the expected rate...this thing is cascading and could get alot worse before it gets any better.
A slowdown or reversal of
A slowdown or reversal of Californians moving to Austin should be good for the job market here. Before the housing market crash what I was seeing a lot of around where I live were Californians who had equity in silly expensive houses in CA moving here with no prospects of a job because they could pay off their cars, credit cards and buy a house here outright with their cash out and still have enough money left over to live for a while. The reason that becomes a problem is that they'd generally take whatever the first low-ball tech job they could find which was watering down the market with artificially cheap labor. It is hard for the average person to compete on salary with people who have virtually no bills and a big slush fund.
Its really the housing that is the imbalance... when the housing boom was still going and a person had say 30% equity in a $850k house in certain parts of CA (which believe it or not, you could often buy a similar house for $150k here in Austin) they'd end up with over $200k left over after Realtor commission, etc. If they bought a $150k home here outright, paid off a couple thousand on credit card bills and a few thousand remaining on a car loan they might still have enough money to survive 6 months to a year living modestly without working at all.
That's not just from
That's not just from California though. Not with same magnitude in your example, but I did a similar thing coming from Long Island (but my price spread wasn't anywhere near as dramatic as the example you give since I still needed to secure a mortgage - then again, I actually qualified for mine and afford to make the payments).
California housing prices
California housing prices prior to the bust were just insane. I've read that they've dropped on average around 40% in the past 6 to 9 months, but they are still pretty outrageous.
The example I gave was actually pretty modest and reasonable...
It wasn't hard for people who'd been in a house a few years to end up with 30+% equity if they had put down very much when they bought the way prices were spiraling upward. $850k in a lot of the bay area at that time would only buy a pretty modest home, but those homes were often $500-$600k just a few years before. Even if they only put 10% down if they bought a house during the years prior to the bubble going crazy they still had a bunch of equity at the height of the boom.
$150k in my Pflugerville area neighborhood would buy a recently constructed 2400sq ft house which would probably be more than fairly comparable to most $850k houses in the bay area at that time.
Housing prices in my area have been flat to down since 2001. Luckily since they didn't go up, they don't seem to have gone down much either, but sales appear to be very, very slow.
Anyway, since the crash things are definitely different... the scenario I'm talking about won't work for most people. And for those contemplating moving to CA, its a buyers market right now like hasn't been seen in a long time, and may not be seen again for a while in the future.
And the beauty of it is,
And the beauty of it is, given enough rain, that Pflugerville house could become water-front property too...just like in Cali.
California is a beautiful state, but I would never consider moving there unless I could buy a house there for cash and easily afford property taxes.
It would take an awful lot
It would take an awful lot of rain to make my neighborhood water-front property... Its pretty much down-hill from my house over towards Howard Lane, so there is a lot of space down there that would have to fill up first.
Parts of California are beautiful, to be sure... but there are a lot of parts that are not so nice with massive, ugly urban sprawl and ghettos. Like 1/2 the LA area and big chunks of the bay area these days.
I'd never consider moving there because the legal environment is too stifling concerning several of my hobbies.
I understand (understood)
I understand (understood) the point. My statement was about the amount of equity carried from California in your example versus what I took from Long Island. My house in San Antonio is about 2800sf and cost almost 20% less than what we sold our 900sf condo for on LI. Then, of course, my prop. taxes in SA are only 8% higher than what I paid on LI. My house in San Antonio would be between 3-4 times what I paid for it if it was on LI. Now consider that Austin more expensive than San Antonio (even if only slightly).
Yeah, Long Island is
Yeah, Long Island is ridiculously expensive too... In order to make my example work you'd have had to move from and to relatively similar housing. If you'd bought a 1000sq ft house or so in San Antonio, you'd probably have cashed out a bunch more money and had property taxes lower than what you were paying in NY.
Houses in the Austin area seem to be $10-20k more than San Antonio for something similar, I think its all in the lot price given materials and labor costs to build a house are virtually identical.
Unfortunately with the sharp
Unfortunately with the sharp market downturn the $850k house would now not be worth 1/2 that with no buyers in sight. But if you did happen to find one they probably couldn't qualify given how tight the credit market is.
The crazy thing is that the Fed dumped millions and millions of $$'s into banking industry so they could give out credit and stimulate the economy but the problem seems to be that they just took the money in but are not releasing it out! Loaning money and generating revenue from the interest, hmmm, what a concept. Isn't this one of the primary functions of a bank?
Crazy world
Thanks
kmac
Fact is that before the
Fact is that before the housing implosion, some people were getting mortgages that they shouldn't have qualified for and then bought houses they really couldn't afford. The credit market is tight now because they are being cautious about who gets a mortgage.
Again, the French banc Paribus was the first bank to refuse to loan money to another bank in the overnight market (as I understand the progression of how this all fell apart) and brought to light the insolvency of some of the banks that had alot of exposure to the subprime mortgages. Greedy people caused this. I feel nothing for them. NOTHING
I feel the same way, plus
I feel the same way, plus betrayed by our legislators for the various "bailouts." I thought I was wise not to invest in US auto makers, their products, Citibank, etc.; as a taxpayer, I now bear the cost as an unwilling investor, but will never see any benefit. Hyperinflation, here we come...
- John
No, the primary function of
No, the primary function of a bank is to make the senior executives rich, isn't it?
Ooops... :-)
Not that I've got anything against people getting rich... but if I was a shareholder I'd be a little pissed that senior executives were getting huge bonuses when the company was losing money. If my shares are going down, the senior management should be feeling my pain. Its only fair if they expect to profit when the shares go up. There has to be a way for companies to make senior management's compensation be tied to long term financial performance of the company. And the "long term" in there is an important consideration I think. I'm not saying the government should make companies do it... I think shareholders should demand it.
FWIW, the only financial industry stock I own is a small amount of Wells Fargo left over from when I worked for them. WFC seems to be doing better than average through this mess even though they are big into the mortgage market. Having worked at Wells Fargo Home Mortgage I know a few of the reasons why they haven't gotten whacked as badly as some others, but it would take a bit to go into that.
One of the desired outcomes
One of the desired outcomes of any business is making a living for those who own it and for those who work to support it... sometimes even getting rich.
The honest way to do that is delivering a product or service that people, need, want, and will pay for at a price point that allows enough profit to keep it going, pay for the future, and pay for the present.
There is nothing wrong -- ethically or morally -- with people making money -- even lots of money -- honestly.
There is something wrong with assuming that anyone who has a lot of money is dishonest.
William W. (Woody) Williams
Senior Project Manager
Software & IT Governance
Yes, my objective is make
Yes, my objective is make alot of money from my entrepeneurial efforts, and in doing so, make alot of money for my investors. On the otherhand, if my business is a public company and loses money, I don't think that it is right to take a bonus for example. If my business goes out of business, there is no way that I should be entitled to a golden parachute while my shareholders or investors lose everything.
Concur: 100%. Ethical and
Concur: 100%.
Ethical and morally reprehensible although probably legal.
Despicable behavior.
William W. (Woody) Williams
Senior Project Manager
Software & IT Governance
I agree. I feel little pity
I agree. I feel little pity for people who can't do math. Some lenders may have played a part if they were being less-than-honest about what could be afforded...but ultimately the borrower is responsible. I recall my realtor would tease me because I worked out a spreadsheet to see exactly how much we could afford. She said I was just being an engineer. No, this is how everyone should behave when buying a house; if I'm out of the norm, then something's wrong.
I agree. When I bought my
I agree. When I bought my house the realtor, my former manager and co-workers all made fun of me because I bought such a cheap house "way out there" in Pflugerville rather than buying a David Weekly house in the trendy South Austin areas they did... On paper I could have qualified for something $50-100k more than what I bought, but I didn't want to spend that much. Hindsight being 20/20 I am glad I did what I did given that the .com I was working for went .bomb and although I was lucky and found a job fairly quickly for that time, it could have been much worse. And the job I found paid a lot less than what I had been making (and it was 1099 too so I took it in the shorts on taxes until I went permanent) so if I'd had a much larger mortgage payment I might still have ended up in big trouble. As it is I'm only now getting close to digging my way out of debt that ran up during that time.
The moral of that story is that everyone should have some cushion just in case. I almost didn't have enough.
The simple point is that the
The simple point is that the sub-prime mortgage issue created the housing implosion which in turn or in parallel created the financial crisis. So what do you say to (or about) someone who cries about not reading that their mortgage was adjustable and that they can't afford the new payments and will lose their house in foreclosure. As harsh as it sounds, I feel nothing but disdain.
Caveat emptor
My wife has health issues that we didn't anticipate. So we wanted to move from our two-stroy house to a comparably priced one-story home, maybe even within the same subdivision. But no! Two houses on my street we sold under the market price because their owners were upside down on their sub-prime mortgages. So we, how have great credit, pay our bills and qualified for a mortgage (could have gotten 40% than I took), can't sell the house even at break even.
But I should add that I
But I should add that I believe that the greedy bankers and realtors who allowed such people to buy houses they knowingly could not afford should be hung by their short hairs.
I agree. I think a lot of
I agree. I think a lot of them were only looking at their own short term personal gain (commissions) or profits this quarter and not using proper business sense. Realtors, well, the only backlash is now the market is toast and they've got a tough situation... but bankers really should have known better. They are sort of getting their just deserts when it comes to all the massive bad paper they are holding. Its one of the reasons I am sort of torn over the whole bailout mess. It feels like we are rewarding the banks for being stupid, but if we don't do anything it probably means an even bigger economic mess.
One of the really irritating thing about the whole subprime mess is that many politicians were pushing banks to loan to "historically under-served" people with questionable credit/ability to pay and now they are pointing fingers at the banks for having done it.
Yeah, I have trouble feeling
Yeah, I have trouble feeling sorry for people who didn't take the time to understand their mortgage. I perhaps am an arrogant bastard for that having worked in the mortgage industry so I know a lot of the ugly details about how it works...
I know what you mean about being stuck. My wife hates our house -- for various reasons which I won't go into, but right now we probably couldn't sell it for what we owe on it after we paid the realtor fees and put $$$ into repairs and maintenance (new carpet, paint, minor stuff like that) that would probably be necessary to sell it for anything near what its worth. It would be close, but we'd probably be out at least a few thousand plus moving costs if we had to sell and move. And as slow as the market is it might take quite a while. I certainly couldn't afford any double payments right now.
I agree with Matt. Can't
I agree with Matt. Can't put all the blame on greedy realtors and bankers. They walk out the door, cash in hand at closing while the customer is basically walking in the door to new ownership of a house built on a bad deal that should never have happened and now in some way we ALL pay.
Thanks
kmac