Posts
David Rosenberg: ‘We Are On the Throws of Seeing Wage Deflation’
What really caught my eye was that despite the fact that we created almost 300,000 jobs, wages were basically flat and they’ve been flat almost since the beginning of the year. So, this excess capacity in the labor market is now showing through in wage disinflation. We’re really on the throws now for the first time in my professional life of actually seeing wage deflation. So that I think was the story beneath the veneer of the unemployment report today.
I offer an anecdotal evidence story.
Each year I need my sprinkler system tested for backflow. This is to ensure that my sprinkler doesn't feed water back into the water supply that we drink. It cost me $40 last year to have it done. I called up the guy I normally use and this is what he said. I paraphrase from memory.
I'm only going to charge you $35 this year. There's some guy in your area that's trying to undercut me and I don't want to lose your business.
He does good work and I told him so. He offered me the $35 rate just the same. Go figure.
For $35 he's willing to drive to my house, test my sprinkler system, and send in the paperwork for me. If there's ever a problem, he'll retest it for free. Not just anyone can do the work either. You need to be a certified backflow tester.
BACKFLOW ASSEMBLY TESTER CERTIFICATION COURSE
BACKFLOW ASSEMBLY TESTER CERTIFICATION COURSE Class is full. Click the add to Waitlist button below.
Fee: $675.00
ICE: Mortgage Delinquency Rate Increased Year-over-year in October
-
From ICE: ICE First Look at Mortgage Performance: Serious delinquencies hit
17-month high while foreclosure activity remains historically muted
• At 3.45% ...
2 hours ago
18 comments:
Wages are the key. Bernanke knew this but allowed venal bonus seeking bankers to subtitute debt for wages. Big mistake. The world's money supply is now polluted with trillions in unpayable debts.
Bailouts are a myth just like money printing. There is no such thing as a free lunch and, hence, no such thing as a bailout. If one group is "bailed out" another group pays for it, with interest. Lower interest rates help, but I don't think they will help enough.
Central bankers took what was primarily a private debt disease and infected public debt markets. Another big mistake.
Bailing out the wealthy and irresponsible on the backs of the poor and prudent is unCONscionable.
We'll be lucky if the world financial system doesn't collapse.
The system is more unstable now than ever. More debt, lower wages and higher unemployment - not good. Plus, the general awareness of the fraud is growing. This will likely lead to more and more debt repudiation.
Eventually, difficult choices will have to be made. I just don't see how creditors can avoid losses. And if creditors take haircuts, equtiy will get crushed.
Treasuries are still the best deal in the world.
Hmmm. Sounds like this guy is smart, taking care of his customers. It's a survival strategy in a serviced-base business.
Still, $675 for a certification course is a little steep. And undoubtedly there is a continuing education requirement. So, at $35 a backflow test, this guy has to service 20 customers just to break even on his certification expense. He certainly can't afford to lose any customers, given his business expenses.
I'm in the same boat. In Texas, to become a licensed realtor, you need six courses--contracts, agency, principles I, II and III, and either marketing, finance, or business, or a specialized area such as commercial. Those will run you about $350 each and require 30 classroom hours. Then you have to pass the state licensing exam, which costs $60, and the only place you can take the exam down here is about 70 miles away, and pay a fee to the real estate commission, $75/year. All this just to get an inactive license.
In order to activate your license, and be able to sell real estate, you have to be licensed by a broker. And you have to join the local board, which costs about $1500/year, in order to have access to MLS.
Now, here's the kicker. The broker is going to retain 30% of each commission you earn for office expenses and supplies, advertising and signage, etc. All other business expenses, gas, cell phone, what have you, come out of your pocket.
And then there's continuing education requirements each year, legal updates and course work, that will run you say $500. In order to become a broker, you must have several years of experience selling real estate, a certain number of hours of coursework, and pass the broker's exam. The licensing fee the real estate commission charges for brokers is considerably more expensive than it is for realtors, about $450/year.
So it costs a considerable amount of money to be a realtor, a lot more to be a broker. Thus, you better start getting listings and making sales real quick, or you'll be broke in no time. This is why 80% of the people who get licenses each year are out of the business in less than two.
Every time I go to a continuing education class, I get all these realtors who ask how they can get into the repo maket, because my mother and I list and sell about 120 houses a year. (The national average for realtors is 6, by the way.) I tell them, well, you're going to need at least $50,000 capital up front, for lawn care, utilities, repairs, etc. You will be reimbursed for those expenses, but if you don't have the money now, the work doesn't get done and the houses don't sell. That shuts them up.
In order to be a broker for Fannie Mae, for example, you must have ten years of experience as a broker and an impeccable reputation. Which is why there are only 5 in this area out a board with over 500 members.
A lot of people complain about realtors, for good reason no doubt. Like lawyers, a good one is hard to find. But this is not a business for the lazy and incompetent. Only the best survive and prosper. The rest go bankrupt rather quickly.
Wow you need a sprinkler system up there in the rainy day capital of the USA?
Deflation is what will cause the panic button to be hit. My guess is after the summer when home prices are treding back down again and no improvement has been made on the jobs front. I have no idea what new idea the FED/ECB will have on hand to "stimulate" the economies but I think it will be big.
I have some pictures of beef and baby back ribs I did yesterday up if you want to get hungry. If I keep making this stuff there will be inflation of my waist size.
mab,
We'll be lucky if the world financial system doesn't collapse.
...in our lifetimes! Timing is key, at least for me. The longer we can postpone it, the less I'll stand to lose if and when it happens.
GawainsGhost,
Sounds like this guy is smart, taking care of his customers. It's a survival strategy in a serviced-base business.
He's been testing backflows for quite a few years. It's clear he is smart. I can tell simply because he said (paraphrasing once again from memory), "I won't be in your area until next week, but you can count on me to have your work done on Tuesday, or Wednesday at the very latest."
He doesn't just put people in a list, he sorts the list to keep traveling expenses low. Smart. He also has a good memory. I told him my address and he instantly knew what development I was in and that he should be offering me the discount.
The paperwork must be done by June 1st or I am at risk of having my water shut off.
So it costs a considerable amount of money to be a realtor, a lot more to be a broker. Thus, you better start getting listings and making sales real quick, or you'll be broke in no time. This is why 80% of the people who get licenses each year are out of the business in less than two.
It was clear that our real estate agent was struggling. He was next in line for a customer the day we walked in. I wasn't the ideal customer though. I looked at 50 houses or more before finding the right one (most were seen without his help or he'd have really burned some gasoline). It was the third one I'd made an offer on. However, I pay full price. It seemed more than fair. I'd seen enough to at least have some idea what houses were worth (at least to others).
Worked out well in hindsight. The neighbor's house was sold shortly after I moved in. There was a bidding war on that one. I avoided such a war. I bought before the sign was even in the yard.
GYSC,
Wow you need a sprinkler system up there in the rainy day capital of the USA?
It's natures prank.
According to the 1989 edition of the New York Public Library Desk Reference...
In December, we have a 20% chance of sunshine each day. That's a tie with Juneau (Alaska) for the least sunny city in the country.
In July, we have a 65% chance of sunshine each day. That's pretty much right in line with most cities. Juneau is still stuck at 31% though.
We get about 5.5" of rain each month from November to February. That's pretty much the highest in the country in those months.
We get about 1.25" of rain each month from May to August though. That's well below average for the country.
So we get drizzle in the winter to create moss and we get sunshine in the summer to create high water bills. Perfect! :)
I'm not complaining though. As much as I like the rain, it is nice to have sunny dry summers.
GYSC,
I found a few charts online that show the rainfall. Check out that dry spell in Seattle's chart, compared to New York just above it.
Climate of the United States
I posted about the PANIC button being hit due to deflation and the EU has hit the panic button with their own version of unlimited TARP. I am sure this will be bad for the metals long term, LOL!
Glad you liked the rib pics.
Well, sounds like you did your agent right, Mark. But, yeah, it is a hassle. Most buyers are impatient and often call other agents to show houses to them.
Sorry, I'm not about to waste my time, money and gas showing you houses so some other agent can make a commission. I'm primarily a listing agent. I have been a buyer's agent on occasion and no doubt will again, but if you want my advice, opinion and research on real estate, I require a buyer's representation contract.
Most people don't understand this business, much less how to buy a house. But it's very simple really.
First, get your financing (save a substantial downpayment). Then contract with a realtor (the seller pays the commission so it won't cost you any money). Give him or her your specific requirements--square footage, age and condition, number of bedrooms/baths, school district, whatever. And let the agent find the house for you.
For each property under consideration, you want a history of the subdivision, number of sales and prices for each, time on market, whether they were sold by owner-occupiers or were REOs, and three current comparable sales and listings. Of course, access to that kind of research is going to cost the agent a lot of money, but that's the cost of doing business.
Based on the information provided, when you find a house you like, make your best offer. This low-ball game is for losers; it's the best way to get into a bidding war, as your neighbor discovered.
Also, this backflow tester does sound smart. One can't go about wasting time, money and gas in pursuit of a sale. Just plan your trips and make appointments.
I'm the exact same way. This is one of the largest counties in Texas, and we have listings in 16 cities and towns, not to mention an incredibly large rural area. So when I leave in the morning I have a very clear itinerary that I do not deviate from. I'm not about to stop what I'm doing at one place, drive fifty miles to open a door for some idiot who made a phone call and has not even demonstrated the financial ability to make an offer, then turn around and drive back to finish what I started. That's how a lot of agents wind up broke.
I get a lot of complaints, but I don't care. I'm in the business of making money, not wasting it. If you want my advice and opinion on real estate, if you want me to work for you, then you can come to the office and sign a buyer's representation contract. And bring proof of financing or proof of cash with you. Otherwise, don't bother me.
I never get complaints from my clients, the sellers. Mainly because our listings sell, most of them rather quickly. I only get complaints from stupid callers who don't have their financing and just want to drive around looking at houses they can't afford. I hang up on them. It is not part of my job description to placate idiots.
But, you know, when my friend Omar wanted to buy a new house, he came to me. I found him a nice two-story 4/2.5/2 stucco home in a golf course community with pool priveleges. Under my advice, he put down 20% and bought it for $150,000. He's happy, and he never complained.
This is what I'm talking about.
LOL!
A house like that in Massachusetts (if you can find one not built before the war, the civil war!) is about 800k even after the home market drop. Unreal.
GawainsGhost,
"This low-ball game is for losers; it's the best way to get into a bidding war, as your neighbor discovered."
I hear that. If you bid low then you must not want the house at the current price, or it should mean that anyway. Bidding low just to be bidding low is silly.
I bid low on a previous house. I liked it but I thought they wanted too much. When I was told that I was outbid I simply walked away. The price I offered was all I was willing to pay.
"Most buyers are impatient and often call other agents to show houses to them."
In general, impatience is a great way to lose money. The day I bought my first car the sales manager asked me if I really wanted to spend the rest of the day haggling over the last $200. I told him that I'd be more than happy to haggle for 10 hours if need be. That would be $20 an hour. He looked into my eyes and then came down to my price. He knew I was serious. I was serious. I'd just graduated college, the downpayment came from a job paying far less, and I was heading to Seattle to start a career. $200 was a lot of money to me then. My main thought was that my time was worth far less to me than their time should be worth to them though. Once he opened the door to a never-ending negotiation process I knew it was over.
I did not haggle on my house though. The price was more than fair. The patience came from looking at 50 others first and knowing it.
Well, Mark, that was smart of you.
The problem with real estate is that every seller believes that the house is worth more than it really is, and every buyer believes that he house can be bought for less than it's worth. Try negotiating that deal.
What people do not understand is that fair market value is a reasonable estimation of what a house will sell for based on the recent sales of comparable homes. The market value is the actual sales price. These two values may be equal but are not synonymous. List price is irrelevant; appraisal value is meaningless; assessed value is what you pay taxes on.
Most sellers will list a house at a higher price, hoping to get more for it or thinking they can come down in a negotiation and still get full value. Most buyers will offer much less for a house, hoping to get a steal (this is especially true in the repo market) or thinking they can go up a little and still get a deal.
But this is an illusion. Rule #1 is that a house is only worth what someone is willing to pay for it. A deal is made when a willing buyer and a willing seller agree on a price, with full disclosure.
This is why I stress the importance of having an agent and doing your research as described above. Subdivision history, comparable sales and listings will give you a good idea of fair market value. Then, as a buyer, decide how much you're willing to pay for the house and make that offer. The seller will either accept, negotiate or reject. At that point, you either got the house you wanted at the price you were willing to pay, or you have to make a decision whether to stand firm or raise your offer, or move on to the next house on the market.
I certainly don't want the buyer to pay more than he's willing to pay, nor do I want the seller to accept less than he's willing to accept. It's a delicate negotiation process. The trick is to ensure that both make informed decisions in their best interests, which is difficult given how people are.
In the end, the best deals are when the buyer pays a little more, the seller accepts a little less, both get what they want, neither are really very happy about it but both feel that they've been treated fairly. Then I get paid.
It's a hard job, but someone has to do it.
GawainsGhost,
The problem with real estate is that every seller believes that the house is worth more than it really is, and every buyer believes that he house can be bought for less than it's worth. Try negotiating that deal.
We saw a house that would be a good example of that. We would call it the "House of Mauve". Every single thing in that house was the color mauve, from the exterior paint to the interior paint to the carpets to the bathtub to the countertops to the drapes. It was quite stunning (shocking).
The seller certainly had one opinion for what the house was worth and the buyer (me) had a dramatically different opinion, lol.
That does not mean the house wasn't worth that price, for that rare individual who loves all things mauve. Good luck finding that person though.
The funny part was that we specifically told our real estate agent that we did not like the color mauve. He saw the house at night though so didn't know what color it was. When we arrived, he immediately started apologizing.
To be perfectly honest, I enjoyed the experience. It brings a smile/chuckle every time I think about the House of Mauve, lol.
Well, the problem with that is people tend to think their personal preferences are what sells on the open market. They are not.
There is a reason why these corporations that sell repos repaint in flat white. It's a blank canvas, and the buyer can put up whatever color he wants, after funding and closing.
The problem will come when he tries to sell the house. A lot of buyers might not like the color pattern. Now what? Um, the house doesn't get sold.
By the way, I did a full interior inspection on a new assignment this weekend. Nice house, from the outside. Tile throughout, 3/2/2, split bedrooms, utility room. Granite counters in the kitchen, of course, no appliances. Missing some ceiling fans and light fixtures, but these are minor repairs of course.
However, the paint scheme was atrocious. I'm talking about really ugly. I figure it will cost at least $1800 just to cover over that mistake. Until then, this house won't sell for anywhere near list price, except to an investor who has a painter on contract.
GawainsGhost,
However, the paint scheme was atrocious. I'm talking about really ugly. I figure it will cost at least $1800 just to cover over that mistake. Until then, this house won't sell for anywhere near list price, except to an investor who has a painter on contract.
I'd probably have to do a similar thing with my house at some point if I was planning to sell it. It's all in the eye of the beholder.
For example, I like a somewhat dark home office. I've painted the walls olive green. I've got a sand color for the ceiling (and about one foot down the wall from the ceiling). I've got hunter green woodwork for the window, the door, the baseboards, and the wooden blinds. I also have a wooden rail separating the sand ceiling from the olive green walls that's also painted hunter green.
You either like it or you don't. I like it. Most may not.
Do something like that to enough rooms and the only person that will like your house is you. It's kind of like politicians. Take a stand on too many controversial topics and nobody will like you.
"Oh, I like where he stands on this, this, this, this, and this. However, there's no way I could vote for him based on his stand on THAT!"
And yet, if you don't do it then it is just a house, and not really a home. Know what I mean?
The good news is that I don't plan to move. I bought this house with the idea that it could be the last house I ever own. So far so good. It's been 13 years.
Well, yes, exactly.
Myself, I live in a small condo that is paid for. But I remodelled it. Money green in my office (a converted bedroom), Cowboy/heavenly blue in the living and bedroom, blood red in the dining. I think it looks nice.
Does anyone else, for example a potential buyer? I doubt it, but then it's not for sale.
I'll probably live here for at least the next 20 years. At that point, it will be time for more rennovation. (By the way, when it comes time to sell you house, give it fresh paint, and upgrade the kitchen and bathrooms. Then double the cost and add it on to the fair market value. That is the strategy.)
I'm happy. I'm content. I make money. I don't carry debt, well, except for that RX-8 I shelled out for. So I am not the least bit concerned about what this condo is worth in the current market. Talk to me in 20 years, and we'll see if we can make a deal.
GawainsGhost,
I was interested in buying a used RX-7 once. I saw it at night in the rain. Looked great. Had a fantastic price.
Didn't look so great in the sun the next day though. There was a reason they only wanted so little for it.
It wasn't just used, it was greatly used, lol. :)
Post a Comment