"We Didn't See it Coming"

For Some reason, my comments on Paul Krugman's blog don't seem to stick. Below is my comment on his post entitled: How We Failed

The "We didn't see it coming" thing drives me crazy. My experience in seeing it [the bubble burst] coming is reflected in three clear memories.

First, The Great Unraveling by... some economist from NJ, pretty much had me change my ARM to a fixed rate mortgage a couple years before the bust.

Second, people with good jobs in my solid middle class neighborhood were saying, "If I had to buy my [modest row] house today, I couldn't afford it." I remember exactly where I was, walking my dog.

Third, it was going to by systemic: "Systemic Risk: Fannie Mae, Freddie Mac and the Role of OFEHO," February, 2003, which lost Armamndo Falcon his job. http://www.ofheo.gov/Media/Archive/docs/reports/sysrisk.pdf

Traveling GDAEman

Enjoying a respite and family time as I travel in the San Francisco Bay Area, my old stomping grounds. I've let the 24-hour news cycle pass me by for a change, but will be right back on top of the GDAE Podcast upon my return... that is, if I don't partake in a long weekend beach trip :-1

A couple thoughts have crossed my mind while traveling. One is a reflection on a segment by Fair and Accuracy in Reporting (FAIR) on media coverage of the on-going efforts to "reform" our anemic health care system. The commentary observed that reporters were saying, "The health care debate is so complex and nuanced that it is very difficult to cover and explain to the public." My gut reaction to that was, "It wouldn't be so complex if we had a single-payer system."

Another unrelated thought I had was a reflection on the SF Bay Area in which I grew up. It has changed so much, with many wealthy foreign people beginning to dominate the population in a place that is now nearly unaffordable to meager mortal (like myself). What happened?

Back in the early 1980s a referendum, Proposition 13, was passed based on short-term thinking and a fair amount of misinformation from the corporate quarters. It placed limits on property taxes, which on the surface sounds great. The most direct negative effect was the demise of the State's excellent public school system. A more subtle effect was the following.

Controls on property taxes made it possible for housing prices to inflate drastically, in part because there was little impact on existing home owners. Traditional property tax policies would have put the breaks on the outrageous home price increases. Once the housing prices got inflated, there was no way to reverse the Proposition 13 policy, because the taxes would have been unbearable. Prop 13 created an irreversible trap.

Because of the cost of a home, families like mine that had been in the Bay Area began feeling pressure to split up. Kids couldn't afford to buy a decent house here, so they had to move away. However, the most wealthy foreigners could afford the prices. As a result, the composition of the Bay Area has change irreversibly.

My parents and I, having left the Bay Area temporarily, cannot afford to return to live near my siblings, unless we want to live in a shoe box. This is a profound unintended consequence of the short-term thinking of Proposition 13.

Enough musing for now. It's time to enjoy my brief time here in sunny CA.

Price Changes in Baltimore-Washington Area

Consumer Price Changes March 2008

Source:

US Department of Labor

Housing Price Changes in Southern California

Between May 2006 and May 2007, the median* price of a home in Southern California has dropped by typically about 5%.

Town	May 2006	May 2007	Pct. Change
Camarillo	$686,000	$575,000	- 16.2
Fillmore	$565,000	$565,000	0.0
Moorpark	$610,000	$662,000	8.4
Oak View	$599,000	$561,000	- 6.3
Ojai	$640,000	$639,000	- 0.2
Oxnard	$595,000	$540,000	- 0.2
Port Hueneme	$378,500	$374,000	- 1.2
Santa Paula	$513,000	$496,000	- 3.5
Simi Valley	$588,000	$555,000	- 5.6
Thousand Oaks	$686,500	$687,500	0.1
Ventura	$601,000	$579,250	- 5.1
Ventura County	$625,000	$594,000	- 5.0

* The Median is the price for which half the homes cost more and half the homes cost less.

Source: California Economic Forecast and First American Real Estate Solutions.