Tag Archives: economic crisis

Upcoming film about a unconstructed 90,000 square foot mansion

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I’ve seen several references to the film The Queen of Versailles which comes out later this summer. Here is what the movie is about:

A Florida real-estate tycoon and his appealing, immensely flawed wife try to build the country’s biggest McMansion in photographer-turned-filmmaker Lauren Greenfield’s documentary, which is stranger than any work of fiction. Surrounded by controversy since well before its Sundance premiere (when subject David Siegel tried to sue the festival), “Queen of Versailles” veers from profound human compassion to domestic horror as Siegel’s wife Jackie wanders through her enormous but trashed home scraping dog crap off the carpets. It’s like a Theodore Dreiser novel for our time, infused with the vivid, vulgar spirit of reality TV. (Opens in theaters July 20; VOD release is likely but has not been announced.)

There is one problem with this: the home at the center of this film is not just a regular American McMansion.

At 90,000 square feet, it will be America’s largest single residence, boasting ten kitchens, a private ice-skating rink, and enough tacky antiques to make Michael Jackson blush. It’s telling that while the couple’s dream house was inspired by the famed palace, it was most directly modeled on a Las Vegas theme-park imitation of French grandeur.

A home that is 90,000 square feet is far beyond a McMansion. There are not many homes in the United States that are 90,000 square feet so it is difficult to argue that this home is mass produced. The home is named “Versailles,” referring not to some builder’s model but rather the well-known French palace. The home may be tacky and not have a lot of architectural merit but this is home is way beyond the size of anything that can be reasonably called a McMansion.

In reading several early reviews of this film, it seems like critics think this film is about more than just the vanity of a few wealthy people: the uncompleted mansion serves as a metaphor for the excesses of the early 2000s.

Chicago region home prices back to April 2000 levels

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Data from the S&P/Case-Shiller suggest that Chicago area home prices have returned to levels from early 2000:

Home prices in the Chicago area hit a new post-housing crisis low in March, falling to levels not seen locally since April 2000, according to the widely watched S&P/Case-Shiller home price index, released Tuesday.

With the most recent decline, average  home prices in the Chicago area have fallen 39 percent since they peaked in September 2006, according to the index…

Much of the pricing pressure was on homes that sold for less than $139,182, as the average selling prices for those properties in March fell 3.4 percent from February and were down 9 percent from a year ago and reflects the impact of distressed homes on the market. That puts the pricing environment for lower-priced homes akin to where it was in April 1995…

“We’re beginning to see more stability in the overall numbers,” Blitzer said. “The housing situation in the United States, while certainly not booming, is seeing some stability and possibly some gains going forward. Prices will be the last thing to go up.”

As the article notes, economist Robert Shiller has expressed skepticism that housing prices will rise anytime soon.

While there may be a lot of worry about foreclosures (and Illinois ranks poorly here as well), the issue of depressed housing prices might linger even longer. The wealth that people expected to incur through their house has, on average, been reduced to 2000 levels. Another way to interpret the data above is that on average, people who have bought a home since April 2000 can’t expect to make any money on selling their home now. This could limit people’s abilities to move and purchase homes as well as change how they think about homebuying.

 Zillow just put together a new map of the United States based on what % of homeowners are underwater. The map has more people in the red than one might hope:

The real estate information website Zillow has compiled its data from the first quarter of 2012 to build this map, showing just how much negative equity there is among the homes in many counties. Deep red along the west coast, throughout Florida and in the Great Lakes region serve as a harsh reminder of the chronic troubles these areas are still struggling to control…

In the worst hit counties, more than half of the homes are underwater. Clark County, Nevada – home to Las Vegas – is among those in the unfortunate top 1 percent, with 71 percent of homes underwater. For the vast majority of homes here, the amount owed is more than 200 percent of the value. Clayton County, Georgia, part of metro Atlanta, has an astounding 85 percent of its homes underwater.

This article from 24/7 Wall St. breaks Zillow data down even further to name the ten cities with the highest rates of homes with negative equity. Las Vegas, Reno, and Bakersfield are the worst performing cities in the country, with rates above 60 percent.

While the situation is certainly bad in many, many parts of the country, four-fifths of all counties in America have fewer than 35 percent of their homes underwater, according to the map. But it’s still a widespread problem – and one that seems to be growing. More than 31 percent of all homes in the country are underwater, according to these first quarter 2012 numbers from Zillow, a jump from the 28 percent the company noted a year earlier and the 22 percent the year before that.

It could take a long time to reverse these trends.

Economy down, traffic congestion down

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A company that tracks traffic congestion suggests that congestion was down in a number of metropolitan areas in 2011 because of the economy:

Of the 100 most populous metro areas, 70 saw declines in traffic congestion while just 30 had increases, says Jim Bak, co-author of the 2011 U.S. Traffic Scorecard for Kirkland, Wash.-based INRIX…

Bak says the data show that the reduction in gridlock on the nation’s roads stems from rising fuel prices, lackluster gains in employment and modest increases in highway capacity because of construction projects completed under the federal stimulus program.

In some cases, the connection between job growth and increased congestion was clear. Cities that outpaced the national average of 1.5% growth in employment experienced some of the biggest increases in traffic congestion: Miami, 2.3% employment growth; Tampa, up 3%; and Houston, up 3.2%.

Cities that had big drops in congestion often were those that saw road construction slow considerably from 2010 to 2011 and those where gasoline prices were well above the national average at the peak in April 2011.

Does this fall into the small category of benefits of the economic crisis of recent years?

I would guess many metropolitan residents would be happy with less congestion but I would also guess they wouldn’t like the tradeoff of fewer jobs and higher gas prices. Of course, there have been discussions for years about how higher gas prices would limit driving. But does higher gas prices necessarily have to align with less growth?

Social profiling of McMansion owners?

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The mayor of an Australian town suggests that some residents are profiled because they live in McMansions:

HILLS Mayor Greg Burnett challenged Prime Minister Julia Gillard last week to meet struggling families and businesses from the Hills.

The mayor set the challenge on the Ben Fordham show on 2GB last Wednesday in response to the Prime Minister’s suggestion that Sydney’s north shore was out of touch.

“It’s social profiling and it’s similar to comments made regarding our area when they talk about McMansions and our levels of income,” he said.

“We have the highest proportion of families with mortgages than anywhere in the country and parents working 70 to 80 hours per week.

As I’ve suggested before, there isn’t really an acceptable quick comeback if someone accuses you of living in a McMansion. Such claims tend to put the owner in a defensive position. It is common to hear people make comments about McMansion owners, not only because of their perceived wealth but because of their bad architectural taste, their disinterest in community life (particularly in teardown situations), and how their purchases help feed into large social problems like sprawl and consuming too much.

The most support McMansion owners get tends to come in more wealthy communities with a critical mass of larger and more expensive houses. It is in these places where teardowns are not always seen negatively and property rights are more important in public discourse and regulations. These communities often have zoning that at least allows, if not encourages, the construction of McMansions. But from the outside, these communities can be viewed as exclusive as it requires a decent amount of money to live there and some communities actively work to keep certain housing and people (anything that might harm property values) out.

However, it might be going too far to suggest that McMansion owners are deserving of pity. After all, these tough economic times mean that there are plenty of people experiencing financial difficulties. These days, McMansions (and there owners) are a favorite whipping boy. See this example from a comment about a Atlanta Journal Constitution story about debt:

It’s because everyone wanted the McMansion ($300K). Then you had to have the Cadallic Escalade (40K)…to impress the neighbors.

And there were numerous housewifes who LOVE to shop and don’t work…

There is not much support for McMansion owners today…

Argument: the rise of the American rental economy

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Even though ownership seems engrained in the American psyche, Daniel Gross argues that recent economic troubles are pushing the United States to a rental economy which may just thrive in the years to come:

In the American mind, renting has long symbolized striving—striving, that is, well short of achieving. But as we climb our way out of the Great Recession, it seems something has changed. Americans are getting over the idea of owning the American dream; increasingly, they’re OK with renting it. Homeownership is on the decline, and home rentership is on the rise. But the trend isn’t limited to the housing market. Across the board—for goods ranging from cars to books to clothes—Americans are increasingly acclimating to the idea of giving up the stability of being an owner for the flexibility of being a renter. This may sound like a decline in living standards. But the new realities of our increasingly mobile economy make it more likely that this transition from an Ownership Society to what might be called a Rentership Society, far from being a drag, will unleash a wave of economic efficiency that could fuel the next boom.

While downgrading the place of ownership in the American psyche may sound like a traumatic task, the cold, unsentimental fact about the American dream is that Americans never really owned it in the first place. For the past three decades, especially, consumers haven’t so much bought their quality of life as they’ve borrowed it from banks and credit card companies. And since the Great Recession, Americans have been busy rebuilding their balance sheets and avoiding new financial encumbrances. When American consumers can’t—or won’t—borrow to purchase the goods and services they’ve come to consider part of their standard of living, how does the economy get back on its feet?…

It’s tempting to view the rise of rentership as an economic step backward. Renters can’t build up equity, and they have less control over their living standards than owners. Renting is generally seen as something you do when you’ve failed as a homeowner or are not yet ready to be one. But I’d argue the rise of rentership is a sign of a system adapting—albeit too slowly—to new realities.

The U.S. economy needs the dynamism that renting enables as much as—if not more than—it needs the stability that ownership engenders. In the current economy, there are vast gulfs between the employment pictures in different regions and states, from 12% unemployment in Nevada to 3% unemployment in North Dakota. But a steelworker in Buffalo, or an underemployed construction worker in Las Vegas, can’t easily take his skills to where they are needed in North Dakota or Wyoming if he’s underwater on his mortgage. Economists, in fact, have found that there is frequently a correlation between persistently high local unemployment rates and high levels of homeownership.

An interesting argument.

I wish Gross would explore the implications of this further. Perhaps for the “average” American, renting will make sense  in the future. It has several clear advantages: it doesn’t require one to take on a lot of upfront debt. This is most clear with mortgages: how many people will want to take on that amount of money when conditions can change quickly? (Does this idea about renting have any application for the other popular debt topic these days: college loans?) Second, it allows consumers to pick and choose more. If you are renting with a yearly lease, you have some freedom to adapt to changing circumstances. (There also could be some negative pressures due to rising rents, actions of landlords, etc.) If there is something that Americans like even more than ownership, it is choices. You can also see this trend in media options: we are moving away from a system of ownership to buffet or a la carte models where you can access thousands upon thousands of songs and movies on demand. Third, this seems like a classic American argument: the times are changing and there is money to be made by more quickly seizing on the new realities!

But there could also be some downsides to this. First, someone must still own things like housing units and rights to digital media. Will ownership be consolidated in the hands of a few? What happens if the few want to restrict access to their products? Does a society based more on the renting of housing units inevitably require things like rent control? Second, there is a long cultural history in the United States that ties renting to transience and lack of concern for the local community. For example, many suburban communities have resisted the construction of apartments because the perception is that people who live in apartments don’t contribute long-term to a community in the same way that homeowners do. (Of course, there are other reasons suburbanites resist apartments, including issues of race, class, and property values.) At its most blatant, homeownership was seen as a bulwark against Communism. These cultural biases can be overturned but it won’t necessarily come quickly or easily. Third, are there other aspects of life that would have to change to accommodate a shift to renting? Can widespread renting of homes work in suburbia? Can Zipcar exist in less dense areas? In other words, is this just about renting or about large-scale adjustments to American society based on new realities?

This bears watching. Is this the end of the dream of some of an ownership society?

Shiller makes more dire prediction: “we might not see a really major [housing] turnaround in our lifetimes”

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I highlighted about a month ago a prediction from economist Robert Shiller that suburban housing values may not recover anytime soon. Shiller made another prediction this past week that is even more dire:

The housing market is likely to remain weak and may take a generation or more to rebound, Yale economics professor Robert Shiller told Reuters Insider on Tuesday.

Shiller, the co-creator of the Standard & Poor’s/Case-Shiller home price index, said a weak labor market, high gas prices and a general sense of unease among consumers was outweighing low mortgage rates and would likely keep a lid on prices for the foreseeable future.

“I worry that we might not see a really major turnaround in our lifetimes,” Shiller said.

Shiller is the most pessimistic prognosticator about the housing market I’ve seen. Is this earning him credibility or scorn?

By the way, is there any academic or impartial observer who keeps track of such predictions? I thought about this during the NFL draft: think how many hours and days were wasted coming up with mock drafts that are based on one-seventh of the draft and often have mistakes. What is the same number of hours and days was devoted to trying to predict the outcome of the US housing market in the coming months and years – would the predictions get any better?

Americans optimistic that their home’s value will increase in the next year?

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Gallup recently released results of a new poll regarding homeownership and housing values. Here is some of the interesting data:

Americans are much more positive about the direction of housing prices this year than they were last year. They are significantly more likely to expect the average price of houses in their area to increase over the next 12 months than to decrease, 33% vs. 23%. Last year, Americans were about evenly split, 28% to 30%…

Today’s housing price expectations differ sharply from those during the housing price boom. In 2005, 70% of Americans expected house prices in their area to increase, while 5% expected them to decrease. Expectations moderated as prices hit record levels in 2006-2007. Expectations became more negative during the recession and financial crisis. In 2010, price expectations were similar to those anticipated today…

Fifty-three percent of Americans believe their house is worth more today than when they bought it, down significantly from 80% in 2008 and 92% in 2006. It confirms that many Americans are underwater in terms of the value of the home they currently own.

These lowered expectations about their housing values seems to go along with lower homeownership rates, reported at 60% by this Gallup data but the Census said the homeownership rate was 66% in the fourth quarter of 2012. I would guess that the Census has a bigger and better sample than Gallup to assess this.

I wish they had gone on to ask whether homeowners believe their houses should make money in the long run. These lowered expectations come after a period from roughly the early 1990s to middle 2000s where more people viewed their homes as good investments. Even after the economic crisis, I would guess a majority still believe their homes should earn them some money in the long run even if it takes a little longer to get that value.

Argument: “Peak Housing, Peak Fraud, Peak Suburbia, and Peak Property Taxes”

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Charles Smith suggests the housing issues in the United States are related to several other concerns and all of this isn’t likely to improve soon.

I don’t know if Smith is correct but why aren’t more people talking about the possible long-term consequences of a depressed housing market? Is this unlikely to happen or are people afraid that this actually might happen?

“More U.S. cities set to enter default danger zone”

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A Reuters story suggests more municipalities are having trouble keeping up with their debt:

Bond defaults were $25.355 billion in 2011, or nearly five times the value of defaults in 2010, according to Lehmann. In 2012’s first quarter, defaults totaled $1.245 billion, or more than double the $522 million of last year’s first quarter.

Municipal bankruptcies, such as last November’s landmark, $4.23 billion Chapter 9 filing by Alabama’s Jefferson County mainly because of its excessively expensive sewer system mocked as a Taj Mahal project, have picked up, too.

Chapter 9 municipal bankruptcy filings doubled to 13 in 2011 from six in 2010, but still remain rare among the more than 60,000 issuers, with only 49 of the 264 cases since 1980 being towns, cities, villages or counties, according to James Spiotto of Chapman and Cutler LLP. States are ineligible for Chapter 9.

Outsized pension-deficit payments and other liabilities, as well as depressed local economies or failing government projects such as Harrisburg’s trash incinerator, often herald crises, according to Ciccarone.

While much of the focus has been on the national debt and national figures (such as unemployment, jobs created, where to set the tax brackets, etc.), all of this is trickling down to the local level. Since many municipalities and local taxing bodies are heavily dependent on property taxes, a decrease in housing values and a continued sluggish housing market suggests many communities will struggle to find revenue. In other circumstances, local bodies might be able to look to states and the federal government for monetary help but they have their own issues during this economic crisis.

I would love to see experts speculate on where this all will end up in five or ten years. Are we legitimately in danger of a lot of municipal governments defaulting? If so, how will this affect local services? How will residents respond to what will be more fees and taxes even as their services might decrease? Could the wealthier people respond with their feet and move to more financially solvent communities?

British economics writer: economics has failed but are the sociologists ready to step up?

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This is an interesting viewpoint: “Mainstream economic models have been discredited. But why aren’t political scientists and sociologists offering an alternative view?” Here is some of the discussion about how sociology has failed to seize this opportunity:

Perhaps you have more faith in the sociologists. Take a peek at the website for the British Sociological Association. Scroll through thepress-released research, and you will not come across anything that deals with the banking crash. Instead in April 2010, amid the biggest sociological event in decades, the BSA put out a notice titled: “Older bodybuilders can change young people’s view of the over-60s, research says.”

Or why not do the experiment I tried this weekend: go to three of the main academic journals in sociology, where the most noteworthy research is collected, and search the abstracts for the terms “finance” or “economy” or “markets” since the start of the last decade.

Comb through the results for articles dealing with the financial crisis in even the most tangential sense. I found nine in the American Sociological Review, three in Sociology (“the UK’s premier sociology journal”), and one in the British Journal of Sociology. Look at those numbers, and remember that the BSA has 2,500 members – yet this is the best they could do…

It wasn’t always like this. One way of characterising what has happened in America and Britain over the past three decades is that people at the top have skimmed off increasing amounts of the money made by their corporations and societies. That’s a phenomenon well covered by earlier generations of sociologists, whether it’s Marx with his study of primitive accumulation, or the American C Wright Mills and his classic The Power Elite, or France’s Pierre Bourdieu…

Nor is there much encouragement to engage with public life. Because that’s what’s really missing from the other social sciences. When an entire discipline does what the sociologists did at their conference last week and devotes as much time to discussing the holistic massage industry (“using a Foucauldian lens”) as to analysing financiers, they’re never going to challenge the dominance of mainstream economics. And it’s hard to believe they really want to.

Ouch.

I can imagine some sociologists might argue that the world is much bigger than markets and economics. They would not be wrong. At this same time, this critique could be viewed as a call to action: does sociology offer a compelling alternative way to view the world? How can we account for both economic and social life?

I will say that there does appear to be growing interest in economic sociology. This may not be reflected in these particular journals but more sociologists are looking at the social and cultural dimensions of economics. As noted, this was a key concern of a number of foundational sociologists, observers who noticed that industrialization was changing the social world. I wonder how many sociologists would view studying the economic realm as something “dirty” (too many ties to capitalism, too messy, too close to economics, etc.) or “uninteresting” (not what really motivates them to research, teach, and engage in public life).