Tuesday, September 25, 2007

Everyone is talking about housing values lately. 40 year sales lows, highest foreclosure rate since the Great Depression, and ownership are all hot topics in the news. The news media today isn’t doing a very good job, and here’s why. They aren’t telling the whole story. I can’t blame them for not wanting to scare you, well actually, I can. Usually all the news media does is try to scare people into acting to benefit corporate ownership. Obviously, this sort of bad news is the kind of thing they don’t want to get too analytical about.

In 1940 the average sale price for a house was just under three thousand dollars. Almost 16 million homes, or 45.3%, did not have “plumbing”. IE, there’s a toilet in the back yard, washer on the back porch, and sink on the front porch. In other words, these were hand-built or literally home-made houses. People still built their own homes. The total US population was over 130 million.

Now we start to see some interesting deviations from the government’s own data, and I want very much to illustrate just how far the deviations are internally. Still in the 1940s, census.gov claims that 46.5% of Americans owned their homes. But, there were ~16 million without plumbing, and 17 million that had plumbing, for a total of 33 million homes give or take a few thousands. 130 million Americans divided by 33 million homes is not 46.5%, but a great deal less. Less than 25% of Americans owned their homes.

The only possible explanation for such a huge discrepancy is the way they measured the data. This is how most data is skewed by federal agencies, or independent “studies”, by fiddling with the standards used to measure the data. Census.gov is only talking about people living in a house. 45.6% of them own the house, the other 54.4% are house RENTERS. They don’t say how many of the owners owed the bank for a significant portion of the value of the house at the time.

This data obviously ignores anyone living in anything but a house, or some 97 million Americans, and about 76% of the population. Neither my own nor the US total population figures include transient homeless, illegal immigrants, or expatriots. They are not counted as people at all, unfortunately.

First of all, the government loves to manipulate figures by adjusting them for “inflation” but what inflation values do they use? It’s not stated. It’s also inaccurate to say that a 3K home in 1940s is equal to 30K in 2000 dollars, because although the dollar has certainly dropped value, it’s not matched by the inflation against earned income. True inflation is the loss of income. The dollar drops by 10 times, but the rate of pay has not increased by 10 times. Minimum wage in the 1940s was 0.30 an hour, and was 5.15 an hour in 2000. That’s an 18 times increase over 60 years, but homeowners have never earned minimum wage, and you can’t qualify for a home loan with such low income. The problem is that “median” income rose only $8,300 between 1970 and 2000, an increase of just over 1.2% over 30 years. I can’t find median income data from the 1930s or 40s from any source available on the internet, and the US Census hasn’t distributed that data or never gathered it.

Being as the data necessary for comparison is unavailable, I am forced to perform a scientific extrapolation. General economic data indicates that the median income increased during the missing data years. Economic statements by economic professionals indicate that except for the Great Depression and recovery period totaling about 7 years, there was general prosperity. Thus, it is acceptable to assume that the recent 30 year increase of 1.2% can be extrapolated back to at best, 1940, for an additional 1.2%. A total of 2.4% is believed to be ballpark but not accurate. In direct language, the income of home owners only increased by 1/5th in 60 years. Let’s round up, to absorb error, and claim a full 100% leap, or a doubling of income. Even had homeowner income actually doubled, it would not have kept up with a ten-fold increase in the price of a new home.

Yes, these values are not inflation adjusted but actual dollars fixed in each relevant decade. Fiddling with figures allows people to do one thing well, and that’s to tell a lie. Raw data may mislead, give an incomplete picture, but it’s nearly inconceivable that verified raw data would be false after 60 years of publications and review. Yes, adjusting for inflation gives a better view of the percentages relevant or proportional to modern values, but that’s only A POINT OF VIEW, not real data. No average house was sold for 30K in the 1940s. They sold for 3K. The dollar was worth ten times more in purchasing parity back then, but mislabeling the 1940 dollar amounts with 2005 values tells a lie. The percentage of a percentage is a goldmine of misinformation. Primarily, it represents the lie that earnings, taxes, and all other fiscal details were equal. They have never been equal.

A 1940 dollar was backed by gold reserves, was more easily earned, and spent harder. There’s no way to summarize that accurately with a bald percentage, especially not by simply inflating it. That’s what GINI indices were created for.

It would be more accurate, and far less misleading, to state all the charts in 1940 dollars. Then you begin to see the enormity of the distortion of data. Suddenly an average 2005 home is worth 4 million. Median income becomes 360K. Minimum wage rises to a paltry 120K. The cost of living is a factor, you say? Well, thanks for making my point for me.

The cost of living has risen at an average of 4.5% per year, a total of 142.5% just since 1975 (the earliest available figure.) Again, assuming a similar average rate back to 1933 (32 more years and entering the full-swing of the GD,) that’s approaching 300%. Cost of life has at least tripled, and that’s according to very mild government data. In reality the costs of living don’t adequately measure the impact on the poor or the middle classes separately from the rich upper class. A rich woman can cut her hair appointments in half when her unearned income has less value, but a poor woman can’t eat half as much.

In general, home sales are used as a rule of how well the middle class are doing, but how many people are middle class?, Though the exact numbers are debatable, the middle class has long been declared to be shrinking while home sales were increasing. The rich are buying more homes as investments and vacation homes and extended familial residences, but the middle class is scaling back to less expensive homes, or increasingly unable to afford one at all.

The housing crisis people are experiencing in 2007 is a culmination of almost a hundred years of inequity. When you squeeze the middle class you squeeze capitalism. Stock points don’t keep going up without productive earnings behind them. Speculation can’t bank on speculation. Companies don’t earn more when people have to spend less. Wasteful spending by the extremely rich will never replace the middle class. A company can’t sell enough yachts to balance the loss of blue collar jobs. France learned that when King Louis lost his head.

In fact, when only the top 5% of a nation is buying homes, those home would have to be selling at a rate of 1 million houses a year, at no less than 1 million per home, in order to replace the middle class. There is no existing economic plan which makes such a situation possible. 65% of all taxes are paid by small business. Almost 70% of all income tax is paid by the middle class. The entire concept of trickle down economy is as ludicrous as the concept that the Earth is hollow or that it’s flat.

A pyramid scheme is a pyramid, not just in name but in design, and by function. The people at the bottom get ruined, and America has turned our class diamond into a double pyramid (or an hourglass, depending on the point you want to make. It could be argued that Time is the crucial element.) A few poor, a few rich, and large middle class = vibrant economy. More rich, few middle class, and lots more poor = revolution. US banking and the SEC have been engaged in the longest running pyramid scheme in history. The working classes are the people at the bottom, set to pay all the bills due, and suffer all the costs.







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