Over 3 1/2 years ago, I posted my first “Jobs, Jobs, Jobs, Recovery to Crash” post and followed up when layoffs began in 2006 to corresponding residential lending.
My basic premise was that housing created a lot of imbalances, most notably in job creation. This included both traditional construction jobs as well as well paid professional jobs in lending and real estate sales. At the time, the ranks of California realtors had swelled to nearly one in every 50 adults in California, and loan brokers were probably not far behind. This not only supported high prices, but also ensured that even a slight downturn in one would result in a crash for the other. Indeed, when sales volumes hit their lows last year, it was hard for many real estate agents, or even loan brokers to continue to exist which is evidenced by the Lender Implode-o-Meter.
Today’s news comes from the Inland Empire (and Coachella Valley), which is now sporting some impressive (if downright incredible statistics):
This corner of Southern California had the highest unemployment rate of any area with 1million or more people in the United States — including metropolitan Detroit.
“We are the epicenter of the economic crisis in this country,” said John Husing of Economics and Politics Inc., a leading regional economist.
Federal labor statistics showed the two-county Riverside-San Bernardino area that includes the Coachella Valley with 9.5 percent unemployment in October, compared to 8.8 percent in metropolitan Detroit.
What’s interesting is how much previous forecasts from so many economic think tanks based in SoCal were based on strong employment numbers. While this has steadily worsened, it has not been completely unseeable; I saw it developing more than 3 years ago when I first began the blog as an outsider to the housing market. Shouldn’t more have seen it coming? I would argue no, due primarily to groupthink, and that we are generally programmed in larger groups to not question authority unless that kind of activity is rewarded; something that cannot be said about the last 30 years. Most Americans have been told to shut up, sit down, and take what we give to you. However, this blog is not about social commentary; greed is more of an objective observation to me since it motivates people. Understanding others’ motivations will ensure you can achieve what you want.
Which after all, leads us to the basic questions posed by Southern Californicators:
1. If we came to SoCal for the jobs, and they’re no longer here, why are we still here?
2. If there are no jobs (or the ones available are transitory) why does it cost so much more to live here than anywhere else?
3. Can weather pay the bills; house payment, electric, water, gas, and taxes?
4. If weather can pay the bills, what about places with crappy weather like the IE?
5. Also, if weather can pay the bills, what about cheap places with good weather like Florida?
6. Oh, yeah, can’t forget the once-in-a-lifetime opportunity to have your life destroyed by a massive earthquake.
All of these questions have in the past kept SoCal home prices pretty well tethered to similary type-housing prices in other states. And why did they go so out of whack this time?
Was it Subprime? No, that wasn’t widespread enough, since only a small percentage of the people were getting subprime loans.
Was it Option ARM? Maybe, but that’s a Ponzi scheme that requires a lot of confidence that others have more than you.
Was it Loosening Standards? Maybe, but then you gotta be able to pay off that note.
I believe, in the end, the only conclusion that one can come to after so many other possibilities is that people were irrationally optimistic about housing. Just like internet stocks in 1999. Just like Tulips in the 1600′s. We really have learned nothing, and many will lose their entire lives’ savings from it. Hopefully, most of the innocent can keep their jobs, but I’m not optimistic. I believe unemployment will get worse before it gets better.