Productivity isn't just up...it's waaaaaaaaaay up. It really can't go up
anymore...which means even the the pessimists will be needing to hire
additional people soon.

Productivity has gone up while employment has declined. Why would further
increases in productivity necessarily require corresponding increases in
employment?

We're not producing more stuff -as much as we are producing a little less stuff
with a whole lot less people. That goes down as a productivity "gain" based on
efficiency, but doesn't do much to increase the base of overall wealth.

On 06 Sep 2003 14:59:36 GMT, (Gould 0738) wrote:

That's not an acceptable answer even if it does happen to be true. In
politics it ALWAYS has to be someone's fault, and it's ALWAYS the
other guy. If the economy is really so bad, I'd like to know who
these people are bidding up the price of housing to stratospheric
levels.

The Federal Reserve.

The Federal Reserve (Big Al and his boys) has very little to do with mortgage
rates.

Home buyers are the ultimate "payment buyer." The percentage of folks writing
out a check for $468,900 to move into a rickey-tickey cul-de-sac clone 40 miles
from town in "New Westchester Estates" (or some other pretentiously named
community) is likely to be in the low single digits. Even if you can afford to
pay cash for housing, the interest rates make it more atractive to borrow.

Housing prices are no more logical than were the prices of stocks in 1999.
"It's worth it because that's what the last guy paid for the same offering, and
it's going up in value so fast we have to buy now or we'll never afford it
again!"

While declining interest rates have allowed payment buyers to pay some very
high prices for housing of late, those same interest rates cannot continue to
fall.

Rates actually have risen from their 45 year low reached on June 13 of this
year. 30 year fixed rate mortgages moved rapidly from around 5.25% to around
6.25%. Rates don't need to fall in order for a housing market to survive.

My wife recently mentioned to me that the overnight Fed Funds rate is
hovering around 1 percent.

The Federal Funds rate is exactly 1 percent--and there is room for the Federal
Open Market Committee to drop it right to zero if they wish. They may well do
just that--although they've already demonstrated caution over the years.

That has to be about the bottom, unless investors
are going to be willing to pay to have their money stored for them. :-)

The Federal Funds rate is not investor money.

When those interest rates start to rise, as they will to cover the cost of the
Iraq invasion and attract investors to cover our
record national debt, housing prices could be a short-term victim. People might
want to move to a newer, nicer, house but if stepping up $100k in mortgage
balance at a higher interest rate changes that just barely doable $2500 a month
mortgage note to $4100, a lot of people will decide to

The rate on the 30 year fixed rate mortgage has just risen one full percentage
point--a tad more, actually--but that's a function of the selloff in Treasury
bonds that began in mid-June. This is important because a) the selloff reduced
the price of the "long bond" and price and yield move in opposite directions;
and b) mortgage rates are set by the investors (like Fannie Mae) based on the
yield of the long bonds.

But let's look at your example above. Someone contemplates moving up to a
larger/fancier/nicer home with a mortgage balance $100,000 higher than what they
now have, with a payment of $2,500 (principal and interest) before some
escalation of interest rate. Using today's rates--about 6.25% for a 30 year
fixed rate mortgage--their $2,500 payment would apply to a mortgage of $406,000.
In order for their payment to go to $4,100, as you have suggested, the mortgage
rate would have to increase to 11.75%.

Do you believe this is a likely scenario? If you do, why?

"stay put" instead. At that time, those who
*must* sell will have no choice except to dump the price as low as they can
manage to go, and that will bring the price of all similar houses down as well.

The fact is (at least here in Northern California) that there has been a certain
amount of "dumping" of high-end houses. This is arguably attributable to the
end of the "Dot-Com Goldrush," where many dot-com scamm...uh, entrepreneurs saw
their assets evaporate as their companies imploded and stock options became
worthless. They had bought extravagant homes at inflated prices and, needing to
dump them, got whatever they could--at the true market value. For most of the
housing market, however (resale and new) prices have continued to increase at
some increment over the inflation rate.

Higher end houses in areas with a lot of unemployment have not appreciated at
all, and have declined in supposed "value" in many cases. Seattle is a good
example.
Our own place is a humble little tarpaper shack, of course, but our run down
dump is surrounded (by outraged neighbors) in one of the priciest districts in
town. We couldn't afford to buy even our meager little hut if we moved to
Seattle today, but we have lived at our present address about ten years.

As the dot.com boom roared on, housing prices in our neighborhood of 100-year
old
wood frame houses blew clear up into the seven digit category. We were shocked
when prices crept up to this level, but the houses sold fairly quickly and in
many cases before there was an advertised reduction in the listing price.

Some of those "Million dollar" houses have since resold. The one on a corner a
block away started at $1.1mm, dropped to $950k, dropped to 895, 875, 845, 825,
and finally $795k before the "SOLD" sign went up. $795k was less than we
remember the house advertised for when it last sold- so it's likely the latest
reseller sacrificed some of his initial down payment just to get rid of the
house at this point....and of course just forget any "appreciation."
Some houses in the neighborhood have started extremely high, dropped a few
steps, and then been withdrawn from sale.

A seller's asking price may bear little relation to its actual value, as
determined by the amount a ready, willing and able buyer is willing to pay.

Low end houses (meaning in the low six-figure category in W. Wash) have held
their own and shown some appreciation in this region, but there is a lesson to
be learned from the decline in prices for the
highest priced homes....the price of a house is not supportable unless it is
affordable to enough buyers to create competitive demand.

When the mortgage rates rise much faster than wages, something has to give way.
Price is usually that something.
Remember that when 5% mortgages go to 6%, the interest rate has gone up only 1%
but the cost of money has increased by a factor of 20%....(6 being a number
120% as large as 5).

Um...it doesn't work that way. Using your example, a 5% mortgage (and that was
a rate that was available as a 30 year fixed loan for only a short time) would
have a monthly payment of $1,610 for a $300,000 loan. Raising the rate to 6%
increases the payment to $1,798--a 10% increase. And, when looking at the
actual cost of housing, you have to take into account property taxes and
insurance. Here in California, the property tax on a $400,000 property would be
about $400 per month. Insurance would add about another $75 monthly--so the
total payment in the first case would be $2,085. In the higher rate scenario,
it would be $2,273--an increase of around 8%.

With workers having to strike to get 2, 3, or 4% annual
raises these days, (and many others willing to forego any sort of raise and
just grateful to be working at all) an overnight 20% increase in the cost of
*anything* will put a damper on demand for that item.

In order to qualify for ("afford") a property with a $300,000 loan, a borrower
would have to show an income of around $5,200 per month (assuming his consumer
debt was modest). At the higher rate, he'd need $5,680 to qualify in the same
way. Looking at it from the other side--and assuming he would not move to any
sort of adjustable rate mortgage--the run-up in rates would mean that he'd
qualify for a loan of $270,000. If he were moving up from another house, he'd
have to choose between applying more of his sale proceeds to down payment and
buying a house for $30,000 less.

OB. BOAT CONTENT

A good friend of mine called me yesterday, asking me what I know about boat
financing. He had just sold his home in pricey Alameda as part of a divorce,
and was looking at what he could afford to buy in his area. Basically, nada.
So he's contemplating a 36-42 foot trawler at around $150,000 to live aboard.

I'm more than a little jealous!

Joe Parsons
WAY too much coffee this morning

"Gould 0738" wrote in message
...

Remember that when 5% mortgages go to 6%, the interest rate has gone up
only 1%
but the cost of money has increased by a factor of 20%....(6 being a
number
120% as large as 5).

Just when it seems that you do indeed *have* a brain, you post something
like this. If a mortgage rate goes up from 5% to 6%, the monthly payment on
a 30 year mortgage goes up by a little under 12%...not 20%.

For a 15 year mortgage, the change is just a little bit under 7%.

"Gould 0738" wrote in message
...
Productivity isn't just up...it's waaaaaaaaaay up. It really can't go up
anymore...which means even the the pessimists will be needing to hire
additional people soon.

Productivity has gone up while employment has declined. Why would further
increases in productivity necessarily require corresponding increases in
employment?


Because in order to continue growing, a company must then invest in *either*
labor or capital (ie--automate their processes). If they invest in capital,
someone has to make that automated machinery...and there is an increase in
employment at the supplier's end.


We're not producing more stuff -as much as we are producing a little less
stuff
with a whole lot less people. That goes down as a productivity "gain"
based on
efficiency, but doesn't do much to increase the base of overall wealth.

No, actually, *you* are wrong. Productivity is a measure of total man-hours
needed to produce a product. If someone can build 2 widgets per hour
(ie--1/2 man-hour per widget), you don't get increased productivity numbers
by working that guy 50 hours per week, rather than 40 hours. You increase
productivity by figuring out a way to get that guy to build 3 widgets per
hour (1/3 man-hour per widget). Didn't you ever take a business class?





"jps" wrote in message
...
"Jim" wrote in message
news:Yrb6b.368926$YN5.247563@sccrnsc01...

Exactly! Companies do not like to lay off workers. They want to make
sure that these
are not little farts in the economy they are seeing before they hire
more
workers....the last thing they want is to have to lay them off because
they misread the
indicators. That is why productivity is up.

WRONG! The reason productivity is up is because people are working longer
hours and taking fewer holidays in an attempt to keep their jobs and
livelyhoods.

"jps" wrote in message
...
"NOYB" wrote in message
...

Notice how the unemployment rate improved...people are so disheartened
they're giving up and not bothering to report.

The unemployment rate is determined by surveying households. The other
figure is determined by sampling certain businesses. If you sample
households, and the results tell you there were fewer people unemployed
in
August than in July, then why do the businesses report a cut in payrolls
by
93,000? Simple...that survey ignores small business. Small business is
beginning to hire in pretty large numbers. If the surveyed businesses
lay
off a net amount of 93,000 employees, but the unemployment rate falls,
then
that means these employees are being absorbed into the job market in
small
businesses not accounted for in the original survey. "Unemployment
rate"
is
the key figure...

"Small business is starting to hire in pretty large numbers" but since
those
figures aren't tracked, you have no proof of your theory, right?

No, the proof is in the unemployment rate. Surveyed businesses layoff
workers, yet the unemployment rate goes down. Why? Because the
unemployment rate surveys households...and that means the people in those
households are working somewhere. Where are they working? Obviously in
businesses not tracked as closely by the payroll data (ie--small
businesses).



Then where do you get your information from and how do you know that it's
not people who've exhausted their unemployment benefits?

Investors Business Daily

Patrick Fearon, an economist with Eaton Vance, says the divergence between
the unemployment rate and company payrolls stems from the way the figures
are calculated.

Payroll data are based on a survey of businesses about the number of people
they employ. The jobless rate is calculated from a poll of households asking
about respondents' employment status.

The volatile household survey showed jobs rose 147,000 in August. Household
employment is up 1.19 million so far this year, compared with the decline of
437,000 in nonfarm payrolls.

The payroll measure "probably does not do a perfect job of capturing new
start-up businesses and self employment. The household survey probably does
a better job of that," Fearon said.

He says this disparity is normal early in a recovery. Many people out of
work "strike out on their own," creating their own businesses and forming
start-ups with a small group.

Those start-ups and home businesses generally aren't included in the payroll
survey.



http://www.investors.com/editorial/feature.asp?v=9/6

NOYB wrote:
"jps" wrote in message
...
"NOYB" wrote in message
...

Notice how the unemployment rate improved...people are so disheartened
they're giving up and not bothering to report.

The unemployment rate is determined by surveying households. The other
figure is determined by sampling certain businesses. If you sample
households, and the results tell you there were fewer people unemployed
in
August than in July, then why do the businesses report a cut in payrolls
by
93,000? Simple...that survey ignores small business. Small business is
beginning to hire in pretty large numbers. If the surveyed businesses
lay
off a net amount of 93,000 employees, but the unemployment rate falls,
then
that means these employees are being absorbed into the job market in
small
businesses not accounted for in the original survey. "Unemployment
rate"
is
the key figure...

"Small business is starting to hire in pretty large numbers" but since
those
figures aren't tracked, you have no proof of your theory, right?

No, the proof is in the unemployment rate. Surveyed businesses layoff
workers, yet the unemployment rate goes down. Why? Because the
unemployment rate surveys households...and that means the people in those
households are working somewhere. Where are they working? Obviously in
businesses not tracked as closely by the payroll data (ie--small
businesses).



Then where do you get your information from and how do you know that it's
not people who've exhausted their unemployment benefits?

Investors Business Daily

Patrick Fearon, an economist with Eaton Vance, says the divergence between
the unemployment rate and company payrolls stems from the way the figures
are calculated.

Payroll data are based on a survey of businesses about the number of people
they employ. The jobless rate is calculated from a poll of households asking
about respondents' employment status.

The volatile household survey showed jobs rose 147,000 in August. Household
employment is up 1.19 million so far this year, compared with the decline of
437,000 in nonfarm payrolls.

The payroll measure "probably does not do a perfect job of capturing new
start-up businesses and self employment. The household survey probably does
a better job of that," Fearon said.

He says this disparity is normal early in a recovery. Many people out of
work "strike out on their own," creating their own businesses and forming
start-ups with a small group.

Those start-ups and home businesses generally aren't included in the payroll
survey.



It's a giggle to watch you grasp at any passing straw as you try to
rationalize the failures of your dumb-as-a-post president.

"NOYB" wrote in message
m...
No, actually, *you* are wrong. Productivity is a measure of total
man-hours
needed to produce a product. If someone can build 2 widgets per hour
(ie--1/2 man-hour per widget), you don't get increased productivity
numbers
by working that guy 50 hours per week, rather than 40 hours. You increase
productivity by figuring out a way to get that guy to build 3 widgets per
hour (1/3 man-hour per widget). Didn't you ever take a business class?

And do you know for certain that your sources are measuring productivity in
this manner? Perhaps in academia but not in the commercial markets. Just
because it's how we were taught to think of defining productivity in school,
that doesn't mean it's the measure being used.

I've heard our increased productivity is indeed due to longer hours and
reduced time off.

I'd like to see your sources and what measures they're really using.

"Harry Krause" wrote in message
news

It's a giggle to watch you grasp at any passing straw as you try to
rationalize the failures of your dumb-as-a-post president.

Grasping at straws, eh?

"Household employment is up 1.19 million so far this year, compared with the
decline of 437,000 in nonfarm payrolls."

That's a net gain for you mathematically impaired.

"jps" wrote in message
...
"NOYB" wrote in message
m...
No, actually, *you* are wrong. Productivity is a measure of total
man-hours
needed to produce a product. If someone can build 2 widgets per hour
(ie--1/2 man-hour per widget), you don't get increased productivity
numbers
by working that guy 50 hours per week, rather than 40 hours. You
increase
productivity by figuring out a way to get that guy to build 3 widgets
per
hour (1/3 man-hour per widget). Didn't you ever take a business class?

And do you know for certain that your sources are measuring productivity
in
this manner?

My sources? My source is the BLS:
"The Bureau of Labor Statistics of the U.S. Department of Labor reported
preliminary productivity data--as measured by output per hour of all
persons"

ftp://ftp.bls.gov/pub/news.release/H....08072003.news

Perhaps in academia but not in the commercial markets. Just
because it's how we were taught to think of defining productivity in
school,
that doesn't mean it's the measure being used.

You really are being pretty obtuse. The statistics are from BLS...and there
own website tells you that they define productivity as "output per hour".


I've heard our increased productivity is indeed due to longer hours and
reduced time off.


Longer hours won't change "output per hour".


I'd like to see your sources and what measures they're really using.

Go to the www.bls.gov website!