Is The Housing Bubble Back?

The Housing Market Roars Back to Life

2006 was a seemingly pleasant time for America. Sprawling subdivisions were popping up all over the country, home prices were surging and homebuyers were grabbing up properties at record rates with little to no money set aside for down payments. It seemed that prices would never stop climbing and that wealth would never stop growing.

Then came 2007 / 2008 and everything collapsed. Home prices plummeted, people found themselves owing more than their homes were worth and we were faced with nearly countless foreclosures. Neighborhoods stood abandoned; new subdivisions stopped mid-construction and America decided that we would never create another housing bubble again.

Welcome to 2014

For the past three years, housing has been making a strong comeback. Interest rates have been at record lows and home prices have been steadily rising. But after years of recovery, we may have inadvertently begun to create another bubble like the one that caused the housing crisis in the first place.

This government chart clearly shows the last bubble that was created. This measures the difference between home prices and rental units. More specifically, the light blue line measures what it costs to own a home while the dark blue line measures the would be cost of renting the same home. Between 2000-2006 there was a huge and growing gap between the cost of buying vs. renting. The financial crisis corrected this bubble and brought home prices more in line with historical averages.

Pay attention to the last centimeter or so of the graph. Sometime around 2011, the light blue line began to rise sharply in comparison the the dark blue line. If this trend continues it will indicate that homes are once again becoming much more expensive than renting.

Now here is another graph that is less technical, but perhaps more telling.

This one shows the median and average square footage of new homes. During the last bubble, new homes got larger and larger. It was the era of McMansions. After the crisis, home sizes fell significantly. But once again, home sizes began to creep higher starting in 2011. As of right now, home sizes have actually hit a new record. This means that the average home built today is larger than during the peak of the last housing bubble!

Be Careful America

Right now homebuyers are feeling quite excited. Prices are rising and interest rates are low. Things are looking pretty great. I'm not trying to put a damper on this excitement, but I think that it is important to be cautious. If we are not careful, this type of activity could quickly begin to re-inflate a real estate bubble. Try not to forget what happened last time. 

 

Using Carbon Emissions to Measure Success

Measuring the Economy with the Environment

Traditionally, the economic fate of the world has been rendered in GDP. The more that we can produce in a given year, the more successful we are. As the global economy boomed through the industrial age, this measure of output made sense; countries races to see who could build the biggest things the fastest. We have now reached a point in history where many of our past assumptions no longer hold true and thus it is time to redefine what it  means to have a successful economy.

I propose that we use net carbon emissions. We have entered an age where sustainability is now much more important that it was in the past. If all countries were to produce "stuff" as fast as they could, GDP would rise across the world but we may use up all of earths resources. Here are some reasons why I think net carbon emissions could be better than GDP.

We Don't Need More Stuff: This is probably one of the main reasons GDP was so important for so long. Most people for hundreds of years were impoverished and as the world has produced more and more, hundreds of millions have risen out of poverty. We are now at an age where people in developed countries have their needs met and some of their wants as well. Giving more stuff to most people in these countries will not actually make them any better off. So rather than focusing on producing more things for people to consume, we should begin to focus on quality. Net carbon emissions would measure how clean and sustainable our production is and focus on that over rapid growth.

Smaller Scale Measure: Usually GDP is calculated nationally. It is often difficult to find out how one city or region within a country compares to another. Right now we can't really say that San Francisco has a higher GDP growth rate than Houston; we focus so much on macro-information that we lack detail. Net carbon emissions could measure the success of almost any sized area in theory by simply taking air samples. We could see how New York City compares to Philadelphia much more easily. In the aggregate, we could still see large scale numbers for entire countries.

We DO Need Smarter Growth: As I mentioned previously, if we do not change our production habits we will literally run out of resources. Imagine if we continue to build and churn and we end up with no oil, no trees, no fresh water, no natural gas and lots of cars that can't run, pollution and waste. Doesn't sound like a world that I would want to live in, but if we cannot change our global mindset, we may be headed in that direction. If we shave a bit off of our growth, we can build in greener and smarter ways while ensuring that we do not pollute. This way we can still grow and continue to develop new technologies and support larger populations without burning out. 

This may seem like a radical idea and I am not sure that it is the perfect solution, but I firmly believe it is better than what we are doing today. Spread the word, change the world. I welcome your thoughts and comments.

Fast-Food "Recovery" into Poverty

Since the end of the last recession, unemployment has fallen from over 10% to around 7.4%. While this is generally good news, many of the newly created jobs since 2010 have come in low-wealth industries such as fast food. In fact, growth in the fast-food industry has been faster than that of any other industry; employment has expanded by over 10% in the past three years. More than 100 cities now see these workers striking for higher wages. The average wage for a fast food employee in the United States is around $8.50 per hour, not nearly enough to live on. The central theme of this strike is to request a wage of $15 per hour.

Given the fact that last year McDonalds reaped after-tax profits of around 6.5 billion dollars, they could probably afford to pay their employees a bit more. 

But I'm more concerned with the bigger picture here. The healthiest portion of our economy happens to be the sector that arguably contributes most to making us unhealthy. Obesity rates continue to rise and yet more and more fast food jobs are created. We know that American need to lose weight, but our new jobs simply expand unhealthy options for Americans. This seems like a huge paradox.

Furthermore, the jobs are not good for the employees either! (Even those who choose not to eat the food) Working for a fast food restaurant where you make close to minimum wage will not allow you to improve your life, it will keep you in poverty. As far as I see it, McDonalds and other unhealthy fast-food chains are almost like a collective black hole. 

These jobs are actually making the country much worse. Employees have almost no opportunity for upward mobility and end up trapped in poverty, patrons use these businesses as a way to become fat and unhealthy and yet the economy grows. Something has to change here. We as a country need to learn to look more into economic numbers and realize what they really mean. A country that grows fatter by the day while expanding low wage job options is not a country heading in a positive direction.