Why should we wait to buy in OC until 2010?

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For the green shooters out there, I wanted to point out a few charts that debunk that theory. Especially this chart from CR, that proves that even once unemployment peaks, housing prices continue to slide:



http://i40.tinypic.com/seq168.jpg



<a href="http://www.ritholtz.com/blog/2009/06/continuing-claims-exhaustion-rate/http://www.ritholtz.com/blog/2009/06/continuing-claims-exhaustion-rate/">And Barry points out that continued claims are not be continued by choice</a>.



<em>Last week, we saw Continuing Claims decrease ? proof, said the green shooters, of the imminent economic recovery.



Only, not so much:



Those of you (who can still afford the luxury of) a trusty Bloomberg will note the ?exhaustion rate? for jobless benefits - EXHTRATE ? <strong>reveals that people are not leaving the pool of continuing unemployment claims because they are getting new jobs; Rather, they are leaving because they have exhausted their benefits.



They are now unemployed AND broke. That is hardly a green shoot . . . </strong></em>



http://www.ritholtz.com/blog/wp-content/uploads/2009/06/exht-rate.png



<a href="http://www.ritholtz.com/blog/2009/06/exhausted-claims-part-ii/">And for part 2...</a>

<em>

Our earlier post on Exhausted Unemployment claims has provoked an interesting (if wonky) discussion on Claims Exhaustion.



Yes, it is a moving average, but that rise starting in December 2007 ? when the recession began ? which spiked vertically is unmistakable.



Here is the Labor Department data source, and their description of the data series:



?The monthly summary report is intended to provide the user with a quick overview of the status of the UI system at the national and state levels. This summary report contains monthly information on claims activities and on the number and amount of payments under State unemployment insurance laws. This data is used in budgetary and administrative planning, program evaluation, and reports to Congress and the public.?



The data goes back to 1972.



I looked at a simple 24 month series:</em>



http://www.ritholtz.com/blog/wp-content/uploads/2009/06/exhaustion-rate-bls.png



As was noted by Transor Z earlier:



<blockquote>Since Exhaustion Rate was first reported for the 6/72 data set, the average value has been 34% and the median value has been 33%.



In 37 years there have been 44 monthly values of 40% or higher. Only 7 of these were NOT in the period 2002-2009 and the highest of these was the 8/31/83 set with 40.83.



38.3 was the peak for the 1970s ? 11/30/76.

40.83 was the high for the 1980s ? 8/31/83.

40.11 was the high for the 1990s ? 11/30/92



Until 3/31/09, the previous all-time high was set in 7/31/03 with 43.9. The March, April, and May figures have set successive all-time highs. You have to go back to 1/31/91 (29.87) to find a rate under 30%.



When you plot 12-month average benefits duration on the same graph, you see a clear correlation between the two. One question the data raise is that, during the early 80s recession, the average went over 17 weeks from 5/31/82 to 3/31/83. The 27 year average is 14.76 weeks. The latest figures put us only at 15.67 weeks. Given that even the ?green shoots? crowd is predicting a jobless recovery at least in the short term, a 17+ week average would seem likely to follow, sending the exhaustion rate to further 27-year highs.</blockquote>


Here is another good chart showing the 2009 highs significantly above prior peaks:



Unemployment Benefit Exhaustions

Regular State UI Final Payments, Data from 1972 to 2009



http://www.ritholtz.com/blog/wp-content/uploads/2009/06/exhaustion-total-bls.png



Green shoots? Hardly... CR and Barry just whipped out the weed killer with those posts. Like I said, we need to be creating jobs for their to be any green shoots. Flattening out and stagnating is still really losing and only making it worse, not better.
 
[quote author="no_vaseline" date=1245537294][quote author="No_Such_Reality" date=1245531452]I laugh at $800K being a delineation point for low end.</blockquote>


Only 8x the median income in Irvine, 11x the median income in Orange.</blockquote>
It'll be closer to 15x the median income once incomes are coming down.
 
[quote author="No_Such_Reality" date=1245569152][quote author="Geotpf" date=1245568064]

My point, basically, is that there are absolutely NO low end properties in Irvine, except maybe a few studio or one bedroom condos.</blockquote>


Irvine started as a middle class suburban neighborhood.



Irvine still is a middle class suburban neighborhood.



Middle class neighborhoods don't sustain $800K being low end.</blockquote>


I dunno. Irvine is certainly trying to become "Beverly Hills" with good schools replacing movie stars. It's also resisting significant price reductions (40%+ off peak) in most cases, except in the smallest one bedroom or studio condos. When condos can cost a million dollars or more, it's not a middle class suburban neighborhood.
 
So that's why his screen name is graphrix.



Too. much. chart. pr0n.



Just kidding... I like seeing these things, although meme will probably come in here and say there is no correlation.
 
<em><a href="http://www.businessweek.com/the_thread/economicsunbound/archives/2009/06/a_lost_decade_f.html">A lost decade of jobs</a>



Posted by: Michael Mandel on June 23



Private sector job growth was almost non-existent over the past ten years. Take a look at this horrifying chart:



http://www.businessweek.com/the_thread/economicsunbound/archives/longjobs1.gif



Between May 1999 and May 2009, employment in the private sector sector only rose by 1.1%, by far the lowest 10-year increase in the post-depression period.



It?s impossible to overstate how bad this is. Basically speaking, the private sector job machine has almost completely stalled over the past ten years. Take a look at this chart:



http://www.businessweek.com/the_thread/economicsunbound/archives/longjobs2.gif



Over the past 10 years, the private sector has generated roughly 1.1 million additional jobs, or about 100K per year. The public sector created about 2.4 million jobs.



But even that gives the private sector too much credit. Remember that the private sector includes health care, social assistance, and education, all areas which receive a lot of government support. I?ve been talking about the HealthEdGov sector. Take a look at this table:



10-year Job Growth: HealthEdGov Sector Dominates



Industry Change, May 1999-2009

(thousands of jobs)*



Private healthcare 2898

Food and drinking places 1567

Gov educ 1390

Professional and business services 885

Gov except health and ed 843

Social assistance 796

Private education 772

Arts, entertainment, and recreation 188

Gov health 148

Mining 133

Financial activities 130

Utilities -40

Transportation and warehousing -43

Retail -91

Accomodations -119

Wholesale -166

Construction -238

Information -525

Manufacturing -5372



*Gov health and gov educ based on April 2009 estimates

Data: BLS



Most of the industries which had positive job growth over the past ten years were in the HealthEdGov sector. In fact, financial job growth was nearly nonexistent once we take out the health insurers.



Let me finish with a final chart.



http://www.businessweek.com/the_thread/economicsunbound/archives/longjobs4.gif



Without a decade of growing government support from rising health and education spending and soaring budget deficits, the labor market would have been flat on its back.</em>



Like I have said several, no... many... many times before, job growth has been f'ing awful in the private sector, especially the professional and business services. I have also said that gov, education, and medical typically continue to grow in a recession. In fact, medical is the <strong>only</strong> sector that has grown in any and every recession for as long as the BLS/state has been tracking jobs. So when the morons say that jobs were not that bad because the medical/education sector grew, then you have to look at them as the moron that they are. Until the private sector: professional services, finance, construction, manufacturing, retail, tech, etc. start growing... then we are just looking like a depression. BTW, unemployment was estimated to peak around 12% in OC during the depression. If you factor in those no longer in the labor force because they gave up... then we are damn close to the depression and we could easily hit that mark before year end.
 
I see. The government is borrowing to stay afloat. Individuals are borrowing to stay afloat. I think the past ten years have been pretty much been a whole financing scheme. Unless the US can start producing, we are definitely getting closer to defaulting each passing day. I also agree that jobs in heathcare, education, and government are all based on deficit spending. If the healthcare industry does not realize that they cannot continue in this path, they must prepare themselves for a rude awakening when the bottom falls out. Most of my healthcare friends are making 10K+ per month. But then much of their income is derived from Medicare and Medicaid payments.
 
<strong>Orange County remains steady over the month, loses 70,800 jobs over the year.</strong>

<em>

The unemployment rate in the Orange County was 9.2 percent in June 2009, up from a revised

8.8 percent in May 2009, and above the year-ago estimate of 5.2 percent. This compares with

an unadjusted unemployment rate of 11.6 percent for California and 9.7 percent for the nation

during the same period.



Between May 2009 and June 2009, total nonfarm wage and salary employment showed no

overall change, remaining steady at 1,425,000 jobs.



? Government posted the largest month-over decrease with an overall loss of 1,400 jobs.

Federal and state employment showed no change over the month, whereas an increase

of 500 jobs in city government was offset by a loss of 1,900 jobs in local government

education, due in part to employment cutbacks during the summer recess.



? Educational and health services declined by 800 jobs with losses of 500 jobs in

educational services and 300 jobs in ambulatory health care services.



? Professional and business services reported a gain of 1,000 jobs. Scattered gains and

losses resulted in an overall gain of 300 jobs in professional, scientific and technical

services. Management of companies added 100 jobs and the administrative and support

services sector added 600 jobs overall.



? Leisure and hospitality grew by 700 jobs overall as the employers continued ramping up

employment for the summer tourist season. Construction added 600 jobs overall.



Between June 2008 and June 2009, total nonfarm wage and salary employment declined by

70,800, or 4.7 percent.



? Trade, transportation, and utilities reported the largest year-over decrease with an

overall loss of 18,900 jobs. Nearly 55 percent of the decline was reported in retail trade

(down 10,300 jobs), 40 percent was in wholesale trade (down 7,600 jobs) and 5 percent

occurred in transportation, warehousing, and utilities (down 1,000 jobs).



? Construction payrolls declined by 12,200 jobs over the year. While cutbacks occurred in

every sector, 81 percent of the job losses were in the specialty trade contractors sector.



? <strong>Professional and business services posted an overall loss of 11,600 jobs with 58 percent

of the decline in administrative and support services, which includes temporary help

firms.</strong></em>



Wow! The job losses in the professional services sector is starting to become even worse than I expected. It is amazing how the civilian labor force shrank year over year. This means that near 25,000 people disappeared from the labor force, or just gave up looking for work. Add them into the unemployed number and OC is closer to 175,000 unemployed. By this estimate, it puts OC's U-6 rate at 10.7%, but I should do a calculation from peak employment of 2006 to get a more accurate read on how many people have disappeared from the labor force.



Employment stat of the month: In June of 2003, 9700 more people had non-farm jobs than we do now.
 
Why to wait to 2010 (or maybe even later) for Irvine:



What has really driven down prices so far is the foreclosure wave. That, in turn, has mostly been driven by the collapse of assorted bad loans, when they become unsustainable for the borrowers. In lower-priced areas most bad loans have been subprime or fraudulent Alt-A. Those loans are pretty much busted, and so the correction is well underway. BUT - in higher-priced areas (like Irvine, or most good areas in OC for that matter) the main form of bad loans has been option ARMs. *Those* generally have about a five-year period before they recast and go bust, unlike the subprime loans which mostly reset and go bust after two years. The current very low interest rates can drag them out a bit more.



The result is that the massive waves of foreclosures that have driven prices sometimes below replacement in outlying areas in 2007-now won't show up in Irvine until three years later, or 2010-2012. Irvine has had some foreclosures from subprime and from Alt-A fraud; but most of the pain for Irvine owners lies in the future. Board that train at your peril.
 
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