Henry C.K. Liu
Doug Henwood wrote:
> DANIEL.DAVIES at flemings.com wrote:
>
> >Americans are now beginning to consume out of capital gains in earnest.
>
> I believe it was you who said recently that you can't have a real bubble
> without a real estate bubble, and that the U.S. didn't have one of those.
> The more I hear, the more I disagree. The NYC residential real estate
> market has been insane for some time now, with 1-br apartments in formerly
> marginal neighborhoods of Brooklyn now going for $1,700/mo, thanks to young
> Wall Street thrusters with fat wallets. But it's happening elsewhere too. I
> was in Chicago last week, where the pace of gentrification looks incredibly
> rapid. Ditto San Francisco and Seattle. I was visiting my parents in the
> northern New Jersey suburbs yesterday, and the pace of new housebuilding
> there is fairly phenomenal. Add to this the LA Times story that Greg Nowell
> forwarded the other week saying that 15% of house downpayments in
> California are coming out of stock market gain. And finally this story that
> someone forwarded me yesterday. I don't think it's as relevant to overall
> housing inflation as the author seems to think, because the BLS is trying
> to measure average, not marginal, costs, but still...
>
> Doug
>
> ----
>
> U.S. Economy
> Sun, 20 Jun 1999, 9:46pm EDT
> U.S. Economy: Housing Is More Expensive Than Government Says
> By Liz Enochs and Noam Neusner
>
> U.S. Economy: Housing Is More Expensive Than Government Says
>
> Washington, June 18 (Bloomberg) -- By the government's
> calculations, Tod Siegal should've had to spend only an extra $17
> a month on rent when he moved from his apartment in Washington's
> upscale Dupont Circle neighborhood to another place nearby.
>
> Sometimes, though, the government calculations don't measure
> up. The government's inflation figures suggest Siegal's monthly
> rent should've risen 2.1 percent to $817. Instead, finding a
> comparable place in Washington's hot apartment market meant
> Siegal had to pay an extra $225 per month, a 28 percent increase.
>
> Siegal's experience highlights a divide between what the
> government says about U.S. housing costs and the sticker shock
> buyers and renters experience when they look for a new place to
> live. According to the Bureau of Labor Statistics, housing costs
> through the 12 months that ended in May rose 2.1 percent. Yet
> industry surveys indicate the figure is at least double that. In
> some areas, it's five times as high.
>
> And that could mean there's more inflation in the economy
> than government figures indicate. ``We've had stratospheric
> gains'' in housing prices, said Diane Swonk, deputy chief
> economist at Bank One Corp. in Chicago. ``That's going to act as
> a push rather than a drag on inflation.''
>
> It's not just major cities like Boston, New York and San
> Francisco that are seeing housing prices go through the roof. In
> Chicago and Minneapolis, rents rose 7 percent or more last year.
> Rents also rose in Atlanta, Charlotte and West Palm Beach,
> Florida, says M/PF Research Inc., a Dallas-based real estate
> consulting firm.
>
> Higher prices come as a result of an economy now in its
> ninth year of expansion -- the second-longest for the U.S. on
> record -- and rapid job growth that has driven unemployment this
> year to a 29-year low.
>
> Rat Race
>
> Siegal, whose landlord wanted to move back into the
> apartment he was subleasing, found that he competed with many of
> the beneficiaries of this economy, such as people looking to move
> from smaller apartments to bigger ones and willing to pay for the
> privilege. He faced a rat-race of apartment-seekers, some of whom
> would apply for apartments sight-unseen.
> ``I'd show up to these open houses 45 minutes early, and
> there's already eight people waiting. By the time it starts,
> there's 25. As soon as the door opens, they start putting down
> applications,'' said Siegal.
>
> He told one landlord he would take a place, but lost it to
> another bidder offering $200 a month more. Eventually, Siegal
> found an apartment, at $1,025 a month.
>
> The Labor Department reports shelter costs in a category of
> the consumer price index that includes rent and lodging costs, as
> well as a calculation of what homeowners would pay if they were
> renting their houses. That homeowner category, called ``owner-
> equivalent rent,'' is used instead of a direct calculation of
> changes in home prices or mortgage costs. In all of 1998, shelter
> costs rose 3.3 percent, CPI statistics show.
>
> Different Data
>
> Yet the National Association of Realtors says housing prices
> -- not including lodging or rent -- rose 5.2 percent nationwide
> in 1998.
>
> Meantime, U.S. apartment rents rose at a 4.9 percent pace in
> 1998, according to M/PF Research.
>
> Why is there a discrepancy between the government's
> statistics and private sources? One reason may be that M/PF
> Research surveys only apartment complexes that have at least five
> units and doesn't include public housing, company president Ron
> Witten said.
>
> Also, when the government measures housing costs, it counts
> price changes on a fixed group of apartments or houses over time
> -- whether or not the occupants move or sell.
>
> In the government's report on inflation, ``there's the idea
> that there's one unit at a time and you're looking at the price
> change for that unit,'' said Frank Ptacek, the Labor Department's
> head of housing calculations for the consumer price index.
>
> The housing market, however, consists of the smaller number
> of properties that change hands -- and that market has exploded.
> ``Almost uniformly, people are getting their asking price,''
> said Astrid Adolfson, an economist at MCM MoneyWatch in New York.
>
> Outstripping Incomes
>
> Which means that people who move -- 43 million Americans
> each year, or 17 percent of the total population -- are
> particularly susceptible to rising housing prices.
>
> At the same time, housing costs are rising faster than
> incomes. Non-farm compensation has been rising at about 2.2
> percent during the past year. And that's making it difficult for
> some people who have to relocate.
> ``I'm struggling now,'' said J.W. Ford, a taxi driver who
> spent $770, or 10 percent more on rent per month when he moved to
> San Diego from San Francisco earlier this year. Before the move,
> he could sock away $50 or $100 a month in savings. ``Now I'm
> finding it difficult to even do that,'' he said.
>
> Not that Ford's starving. As proof of the real estate
> market's strength, Ford was paid $29,000 to move out of his rent-
> controlled apartment in San Francisco by his landlord, who could
> easily get $1,800 a month for that apartment now, nearly three
> times what Ford was paying.
>
> Costly Move to California
>
> More often, however, renters are catching no such breaks.
>
> When Jonathan Levy moved last year from New York to Palo
> Alto, California, he figured rents would be steep. But not this
> steep. The 31-year-old lawyer moved from a $600-a-month studio to
> a $950-a-month one-bedroom apartment in suburban Burlingame,
> California, near his office in Silicon Valley.
>
> Even though his housing costs rose 58 percent, he got lucky,
> because most comparable apartments are even more expensive, he
> says. Levy says similar-sized units now rent for $1,400 a month.
>
> So what does that tell him about government statistics that
> say he should be paying only $13 more a month?
> ``It's just another indication,'' he said, ``that you can't
> trust Uncle Sam.''