here<\/a> we go. Hm. Only 5.0% year-over-year. That’s not 7.2%, but it’s still pretty good.<\/p>\nSo, back to our experiment. We can run the actual house-price numbers in a minute, but I’m curious to see how it plays out in a simple economic model with nice round numbers:<\/p>\n
Lets say you sell widgets. Rather expensive widgets, with a target price of $100. And since they’re expensive, you’re only looking to sell 100 of these a month. Keep in mind that in actual America, instead of our model, you’re actually looking to sell many more widgets and for a much higher price, since 2008 numbers are really depressed in both metrics from where you want to be. But we’re running a simple model to see if the current pace is growth\/recovery or not, so let’s leave that on the side for a moment.<\/p>\n
2008 – 100 widgets for $100 each<\/p>\n
Great. Now, let’s run the sales growth rate of 5.0% units sold and the sales price declination of 15.1% and see what happens over time.<\/p>\n
2009 – 105 widgets for $84.90 each
\n2010 – 110.3 widgets for $72.08 each
\n2011 – 115.8 widgets for $61.20 each
\n2012 – 121.6 widgets for $51.96 each
\n2013 – 127.6 widgets for $44.11 each
\n2014 – 134 widgets for $37.45 each
\n2015 – 140.7 widgets for $31.80 each
\n2016 – 147.7 widgets for $27.00 each
\n2017 – 155.1 widgets for $22.92 each<\/p>\n
Great news! You increased sales by 55% in 10 years. The only trouble is that, over the same time period, your sales price declined by, uh, 77%. So unless you were making an 80%+ margin to begin with (who does this?), this is very bad, because you are now losing money on each widget and thus selling more widgets is actually a bad thing. And even if your margin was 80%, your margin has now shrunk to just under 3%, which means the odds are you aren’t really supporting your business anymore.<\/p>\n
But this probably doesn’t make it clear enough. Let’s look at your gross revenue over time:<\/p>\n
2008 – $10,000.00
\n2009 – $8,914.50
\n2010 – $7,950.42
\n2011 – $7,086.96
\n2012 – $6,318.34
\n2013 – $5,628.44
\n2014 – $5,018.30
\n2015 – $4,474.26
\n2016 – $3,987.90
\n2017 – $3,554.89<\/p>\n
Yeah. That should put it as starkly as it needs to be seen. Gross<\/i> revenue is down more than 64% in a decade with steady declines throughout. Certainly looks like a winning business model to me. Try walking into a venture capitalist’s office with this ten-year revenue trajectory (even in this economy) and see how quickly you get kicked out the door.<\/p>\n
If you’re wondering what this looks like against the actual housing numbers, it’s going into July 2017 with an annual pace of 8.15 million existing home sales at a median price of $40,889 each.<\/p>\n
Think about that for a second. That’s not a recovery, that’s a fire sale. A full-fledged housing panic.<\/p>\n
How many of you paying $178,000 for houses right now would be heartened to hear that you can flip it in ten years for $41,000 in a market glutted with 55% more homes?<\/p>\n
But the numbers are actually even worse<\/i> than this. Because the July 2009 numbers, by their own admission, have been massively propped up by the $8,000 tax credit that’s set to expire in the fall. Left to their own devices, market forces would have led to far fewer sales and probably at an even lower price, since people don’t negotiate as hard for a deal when they know they’re getting a fat rebate (see also: Cash for Clunkers).<\/p>\n
The indicator that this new report isn’t really good news is also buried in the story, that despite the increase in the number of sales, the stockpile of existing homes sitting on the market actually increased 7.9% (more than the 7.2% sales jump!) from 3.8 million to 4.1 million. They cover this by saying it’s a 9.4 month supply at the current sales rates, which is unchanged, but that fact alone should show you that the increase in sales isn’t outpacing the increase in market glut. Which may be part of why prices are down 15%.<\/p>\n
But the largest problem of all these is not that the numbers are inflated by the incentive deals like tax rebates or Cash for Clunkers, it’s that such incentive programs actually create unsustainable bubbles which will crash even harder than the market would have by itself. This summer, everyone who was even thinking about buying a house or a new car is doing so, because of all the super-bonus incentives. Once those incentives expire, absolutely no one<\/i> will buy a house or a car for some time, because it looks like an even worse deal than it would have otherwise, because people have come to expect a super incentive to buy. So the rebound effect of these programs is to create a quick brief spike that falls even further on the back-end.<\/p>\n
I know the principle is to fool people into thinking that everything’s better with the spike so that stocks go up and people just start believin’ again and somehow we’re on an upward spiral. But when the super spiked data still has you on a pace to get to a median existing home sale price of $41,000 in ten years, somehow I don’t think the goal has been fulfilled. So go get your party hats and streamers if you want to, but I’m going to pass on this parade just yet.<\/p>\n","protected":false},"excerpt":{"rendered":"
Today’s headlines have been overwhelmed with dancing in the streets. No, not the dancing in Libya, though that’s there too, but the dancing over the incredible housing recovery that now has cold, hard data to back it up. Now, I like data as much as the next person – probably much more, in fact – […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[16],"tags":[59],"class_list":["post-588","post","type-post","status-publish","format-standard","hentry","category-politics-n-a-strife-of-interests-masquerading","tag-politics-n-a-strife-of-interests-masquerading"],"_links":{"self":[{"href":"http:\/\/bluepyramid.org\/storey\/wp-json\/wp\/v2\/posts\/588","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/bluepyramid.org\/storey\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/bluepyramid.org\/storey\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/bluepyramid.org\/storey\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"http:\/\/bluepyramid.org\/storey\/wp-json\/wp\/v2\/comments?post=588"}],"version-history":[{"count":0,"href":"http:\/\/bluepyramid.org\/storey\/wp-json\/wp\/v2\/posts\/588\/revisions"}],"wp:attachment":[{"href":"http:\/\/bluepyramid.org\/storey\/wp-json\/wp\/v2\/media?parent=588"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/bluepyramid.org\/storey\/wp-json\/wp\/v2\/categories?post=588"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/bluepyramid.org\/storey\/wp-json\/wp\/v2\/tags?post=588"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}