Biggest Housing Boom Ever...

[Muckmaw1]

WASHINGTON (AP) - Construction spending surged in August to the highest level on record, fresh evidence that the housing market is helping move the economy ahead.

The Commerce Department reported Friday that the value of buildings put in place clocked in at a seasonally adjusted annual rate of $1.02 trillion, a record high. That represented a 0.8 percent increase in August from July's level.

The strength exhibited in August in part reflected a strong showing in residential projects by private builders, which hit a record high.

The 0.8 percent advance was twice as big as the 0.4 percent increase the economists were forecasting. In more encouraging news, July's performance turned out to be even stronger than previously estimated. Revised figures showed that construction spending jumped by 1.1 percent in July from the previous month.

 
The report reinforced the view of Federal Reserve Chairman Alan Greenspan and his colleagues that the economy has regained some traction after hitting a soft patch in the late spring and early summer.

Citing signs of some economic improvements, the Federal Reserve last month boosted short-term interest rates for a third time this year. That pushed up a key rate to 1.75 percent, still low by historical standards. The Fed wants to make sure that inflation doesn't become a problem for the economy.

The health of the economy and the availability of jobs are frequent sparring issues on the presidential campaign trail. President Bush says his tax cuts have helped the economy rebound and have spurred job creation. His Democratic opponent, John Kerry, says the tax cuts have benefited mainly the wealthy, squeezed the middle class and plunged the government's balance sheets deeper into red ink.

Although growth in the nation's payrolls picked up in August, the economy is still down 913,000 jobs since Bush took office in January 2001.

The housing market has been a key contributor to economic growth. Home sales are expected to hit record highs this year, aided by relatively low mortgage rates. That has kept home building brisk.

In August, residential projects by private builders rose by 1.7 percent from the previous month to a record high of $550.6 billion, on an annualized basis.

Commercial construction by private builders increased 0.8 percent in August to an annual rate of $227 billion, the highest level since June 2002. That's encouraging news for the commercial sector which has been hard hit by the 2001 recession and has struggled to get back on solid footing.

Government spending on big public works projects, meanwhile, dropped by 1 percent in August from the previous month to an annual rate of $237.6 billion. The weakness in part reflected cuts in spending on schools and highways and streets.

[Charon]

There's also talk of a housing bubble, like the stock bubble of a few years ago.

Also, how much of that construction could be considered affordable housing? I don't know the answer myself, but most of the new construction I see in the Chicago area has $400,000 to $1 million price tags.

The average cost of a new house is $251,000. The Bureau of Labor Statistics shows the average salary at $36,764 in 2002. The average non managerial salary was $15.54 in March 2004. Even with two working spouses the ability of an average family to own an average house (even with dual employment), drive an average car and pay for an average college is marginal. And the trend is increasing.

Charon

[J_A_B]

"Even with two working spouses the ability of an average family to own an average house (even with dual employment), drive an average car and pay for an average college is marginal. And the trend is increasing. "

When you consider that 40 years ago a family could do all that with just one spouse working and have money left over, one begins to understand that our standard of living and overall buying power is steadily decreasing.

This is especially true when you figure that an average car 40 years ago was something like a nice big Chevy Impala or such.....and now it's a POS like a Honda Accord.  Statistics don't capture the quality decline in "average" goods.

PC's have remained largely static in price while greatly improving in quality, but they didn't exist 40 years ago.  I do not expect that trend to continue indefinately.


I expect it to get worse before it gets better.


J_A_B

[FUNKED1]

40 years ago Impala was a good car for its time.  Compared to any modern car it is junk.  Not your best work JAB.  

[Raubvogel]

90% of the new houses being built in my area are these huge monstrosities that have to run $300,000-$500,000 or more. I live in a generally blue collar area, and have no idea how these folks are affording these houses. I'm by no means wealthy, but I make quite a bit more than median wage, and wouldn't even think of putting myself in a situation like that with kids still growing and retirement to save for. These people have to be one family emergency or extended layoff away from bankruptcy. I think sooner or later there are going to be quite a few folks getting a rude awakening.

[Elfie]

Here in the Denver metro area housing projects are not going up any faster than they were say 2 years ago. Most of the houses are very expensive also. (300,000+)

[phookat]

Hmm, I remember GB the First said something during his re-election campaign-- "But, you know, it's a great time to buy a house!"

I also think these housing numbers convey a skewed impression.  It's probably all expensive houses, bought by folks who are already wealthy, and are simply taking advantage of interest rates.  Same reason the housing market is so strong (and has been for some time).  Doesn't mean the economy is doing good, I think.  Job market still looks tight from here.

Then again, the economy is largely about perception, so if everyone thinks things are going great because of housing, then...Go Housing Market!

I have my doubts about tax cutting, though.  We still have a large debt, and now a deficit.  Doesn't seem very responsible of us.

JAB-- Impala vs Accord?  People aren't forced into buying Accords.  I'd wager that most folks who buy them like them, even more than a 69 Impala (strange as it sounds).  Besides, you can still buy an Impala.  Oh wait, it's a POS isn't it.

[-MZ-]

Originally posted by Elfie
Most of the houses are very expensive also. (300,000+)

That would be 'low income' housing in so cal

[J_A_B]

Actually Funked, that's my point exactly--

Impala was a nice car for its time (1960's), and was pretty typical.  It was something you could be proud of owning and even brag about.  Accord is NOT a nice car for its time (today); it's an econo-box.  

I am disgusted when I see new car advertisements featuring 72-month loans and still over $250 monthly payments.   That's just sick!   I'm actually seeing 3-4 year old Fords and such selling for in excess of $10,000 now.  Insanity!  

Homes are even more disgustingly overpriced than cars are nowdays.  I have to agree with Raubvogel in that the only way people can afford houses nowdays is by going into massive debt and praying that something bad doesn't happen.  

Or appliances.....I see quite a few TV's now advertised for $5,000-$7,000 as if it's some kind of bargain.  Mind you, they're not even NICE, but ugly, cheap plastic-looking things.  I mean, for crying out loud, if I'm spending several grand for a friggin TV, shouldn't it at least look nice?  Sorry, I'll stick with my 20-year-old RCA that has proper wood paneling and is FAR nicer than that new overpriced garbage.  I'm still fairly young and I never would have dreamed that I'd see the day when a household TV would cost that much.    I can not find a single TV on ANY of the major appliance store websites, for ANY price, that is actually NICE and built into its own woodworking.  They're all cheaply-made, plastic junk.  That's what I mean by stuff just not being as nice as it used to be, despite a much higher price.


And....the talking heads act like they can't figure out why consumer debt is at all-time highs.  Gee....I wonder...  Combine out of control rip-off pricing with falling real net incomes and is it REALLY that hard to figure out?  And then the kicker, the stuff we're getting isn't even all that nice.

The housing bubble will burst eventually as all bubbles do, although I doubt prices will ever actually return to reasonable levels.   The general decline of buying power and standard of living worries me a lot more.   I for one do NOT consider it an improvement when it takes two people working just to live at the same level as families used to live at with one working spouse.  


J_A_B

[Eagler]

not housing but a CREDIT bubble will be the next POP you hear

the average smo is up to his eyeballs in credit debt with no way to pay it off...

[MrLars]

Originally posted by FUNKED1
40 years ago Impala was a good car for its time.  Compared to any modern car it is junk.  Not your best work JAB.  

I bought a '64 Malibu new when they first came out, kept it for 10 years and eventualy dropped a 427 in it two years before I sold it.

If offered a New car or my '64 Bu I'd not hesitate to get it back.

Cars today are a mechanics dream....for their bank account.

[phookat]

Originally posted by J_A_B
Impala was a nice car for its time (1960's), and was pretty typical.  It was something you could be proud of owning and even brag about.

Oh come on.  The Impala sedan was about as interesting as a cinder block. The Impala is the Taurus of the 60s.  You don't brag about that any more than a Accord.

Just cause you don't like Accords, doesn't mean the general standard of living has decreased because people have to buy them instead of 60s gas guzzlers.

But an average family car today is what, maybe 20k.  Average salary is 36k or so, I guess.  What were the prices/salaries back then?

Originally posted by MrLars
Cars today are a mechanics dream....for their bank account.

Not really.  You take care of it, it will last just fine.  And a lot more consistenly as well, thanks mainly to computers.

[J_A_B]

"But an average family car today is what, maybe 20k. Average salary is 36k or so, I guess. What were the prices/salaries back then? "

Average new vehicle sticker price runs between $28,000 to $30,000 depending on which source you refer to (it hasn't been $20K for like 10 years).  And that DOESN'T account for extra money paid for interest since the average car loan is several years longer now than it was in the '60's.   Average sticker price in 1960 was about $2500, with average income being about $5500 (that's off the top of my head, been awhile since I researched this stuff).  An average new home back then cost about $16,000


Point being...your "typical" car used to have chrome, whitewalls, (if you go back a little farther) fins, door window vents, and other such features to make them as NICE as the technology allowed.   Compare that to the typical car of today, which is as drab and spartan as can be.   What ever happened to the notion of affordable stuff being NICE as opposed to merely adequate?  Why should people settle for overpriced mediocracy nowdays?    Same with TV's....they used to be fancy pieces of furniture in built into their own cabinets....now they're just so much ugly plastic junk.  

I wish stuff was still nice.

-------------------------------------------------------

Home prices have inflated more than anything else I know of.  I don't see how it is sustainable.  



J_A_B

[Lizking]

Actually, if you look at the numbers instead of your local advertising, most of the new residential construction, in raw dollars, is in apartments and homes under the median (about $157,000, if I remember right).  It varies with area, of course, but overall that is what it is.

Home ownership is at all time highs, too, though that is part of the credit bubble that will burst someday.

[phookat]

Well JAB, that stuff is a matter of opinion, not purchasing power.  Anyway, it looks like the numbers show we have less purchasing power.  Still I'd rather be around now than then.  For one thing, there was no AH back then.  Quality of life is more than purchasing power.