http://www.economist.com/printeditio...ry_id=13527685A glimmer of hope?
Apr 23rd 2009
From The Economist print edition
The worst thing for the world economy would be to assume the worst is over
THE rays are diffuse, but the specks of light are unmistakable. Share prices are up sharply. Even after slipping early this week, two-thirds of the 42 stockmarkets that The Economist tracks have risen in the past six weeks by more than 20%. Different economic indicators from different parts of the world have brightened. China’s economy is picking up. The slump in global manufacturing seems to be easing. Property markets in America and Britain are showing signs of life, as mortgage rates fall and homes become more affordable. Confidence is growing. A widely tracked index of investor sentiment in Germany has turned positive for the first time in almost two years.
All this is welcome—not least because the slump has been made so much worse by panic and despair. When the financial system was on the brink of collapse in September, investors shunned all but the safest assets, consumers stopped spending and firms shut down. That plunge into the depths could be succeeded by a virtuous cycle, where the wheels of finance turn again, cheerier consumers open their wallets and ambitious firms turn from hoarding cash to pursuing profits.
But, welcome as it is, optimism contains two traps, one obvious, the other more subtle. The obvious trap is that confidence proves misplaced—that the glimmers of hope are misinterpreted as the beginnings of a strong recovery when all they really show is that the rate of decline is slowing. The subtler trap, particularly for politicians, is that confidence and better news create ruinous complacency. Optimism is one thing, but hubris that the world economy is returning to normal could hinder recovery and block policies to protect against a further plunge into the depths.
Luminous indicators
Begin with those glimmers. It is easy to read too much into the gain in share prices. Stockmarkets usually rally before economies improve, because investors spy the promise of fatter profits before the statisticians document a turnaround. But plenty of rallies fizzle into nothing. Between 1929 and 1932, the Dow Jones Industrial Average soared by more than 20% four times, only to fall back below its previous lows. Today’s crisis has seen five separate rallies in which share prices rose more than 10% only to subside again.
The economic statistics are hard to interpret, too. The past six months have seen several slumps, each with a different trajectory. The plunge in manufacturing is in part the result of a huge global inventory adjustment. With unsold goods piling up and finance hard to come by, firms around the world have slashed production even faster than demand has fallen. Once firms have run down their stocks they will start making things again and the manufacturing recession will be past its worst.
Even if that moment is at hand, two other slumps are likely to poison the economy for much longer. The most important is the banking crisis and the purge of debt in the bubble economies, especially America and Britain. Demand has plummeted as tighter credit and sinking asset prices have exposed consumers’ excessive borrowing and scared them into saving more. History suggests that such balance-sheet recessions are long and that the recoveries which eventually follow them are feeble.
The second slump is in the emerging world, where many economies have been hit by the sudden fall in private cross-border capital flows. Emerging economies, which imported capital worth 5% of their GDP in 2007, now face a world where cautious investors keep their money at home. According to the IMF, banks, firms and governments in the emerging world have some $1.8 trillion-worth of borrowing to roll over this year, much of that in central and eastern Europe. Even if emerging markets escape a full-blown debt crisis, investors’ confidence is unlikely to recover for years.
These crises sent the world economy into a decline that, on several measures, has been steeper than the onset of the Depression. The IMF’s latest World Economic Outlook expects global output to shrink by 1.3% this year, its first fall in 60 years. But the collapse has been countered by the most ambitious policy response in history. Central banks have pumped out trillions of dollars of liquidity and, in rising numbers, have resorted to an increasingly exotic arsenal of “unconventional” firepower to ease credit markets and loosen monetary conditions even as policy rates approach zero. Governments have battled to prop up their banks, committing trillions of dollars in the process. The IMF has new money. Every big rich country has bolstered demand with fiscal stimulus (and so have many emerging ones). The rich world’s budget deficits will, on average, reach almost 9% of GDP, six times higher than before the crisis hit.
The Depression showed how damaging it can be if governments don’t step in when the rest of the economy seizes up. Yet action on the current scale has never been tried before and nobody knows when it will have an effect—let alone how much difference it will make. Whatever the impact, it would be a mistake to confuse the twitches of an economy on life-support with a lasting recovery. A real recovery depends on government demand being supplanted by sustainable sources of private spending. And here the news is almost uniformly grim.
Searching for new demand
Take the country many are pinning their hopes on: America. The adjustment in the housing market began earlier there than anywhere else. Prices peaked almost three years ago, and are now down by 30%. Manufacturing production has been falling at an annualised rate of more than 20% for the past three months. And the government’s offsetting policy offensive has been the rich world’s boldest.
As the inventory adjustment ends and the stimuli kick in, America’s slump is sure to ease. Cushioned by the government, the economy may even begin to grow again before too long. But it is hard to see the ingredients for a recovery that is robust enough to stop unemployment rising. Weakness abroad will crimp exports. America’s banks are propped up with public capital, but their balance-sheets are clogged with toxic assets. Consumer spending and firms’ investment will be dragged lower by the need to pay back debt and restore savings. This will be a long slog. Private-sector leverage, which rose by 70% of GDP between 2000 and 2008, has barely begun to unwind. At 4%, the household savings rate has jumped sharply from its low of near zero, but it is still far below its post-war average of 7%. Higher unemployment and rising bankruptcies could easily cause a vicious new downward lurch.
In Britain, given the size of its finance industry, housing boom and consumer debt, the balance-sheet adjustment will, if anything, be greater. The weaker pound will buoy exports, but fragile public finances suggest that Britain has much less scope to use government spending to cushion the private sector than America does—as this week’s flawed budget made painfully clear (see article).
The outlook should in theory be brighter for Germany and Japan. Both have seen output slump faster than in other rich countries because of the collapse in trade and manufacturing, but neither has the huge private borrowing of the sort that haunts the Anglo-Saxon world. Once inventories have adjusted, recovery should come quickly. In practice, though, that seems unlikely, especially in Germany. As the output slump sends Germany’s jobless rate towards double-digits, it is hard to see consumers going on a spending spree. Nor has the government shown much appetite for boosting demand. Germany’s fiscal stimulus, although large by European standards, falls well short of what it could afford. Worse, the country’s banks are still in trouble. Germans did not behave recklessly, but their banks did—along with many others in continental Europe. New figures from the IMF suggest that European banks face some $1.1 trillion in losses, hardly any of which have yet been recognised (see article). This week’s German plan to set up several bad banks was no more than a down payment on the restructuring ahead.
Japan has acted more boldly. Its latest package of tax cuts and government spending, unveiled in early April, will provide the biggest fiscal boost, relative to GDP, of any rich country this year. Its economy is likely to perk up, temporarily at least. But its public-debt stock is approaching 200% of GDP, so Japan has scant room for more fiscal stimulus. With export markets weak, demand will soon need to be privately generated at home. But the past two decades offer little evidence that Japan can make that shift.
For the time being, the brightest light glows in China, where a huge inventory adjustment has exaggerated the impact of falling foreign demand, and where the government has the cash and determination to prop up domestic spending. China’s stimulus is already bearing fruit. Loans are soaring and infrastructure investment is growing smartly. The IMF’s latest forecast, that China’s economy will grow by 6.5% this year, may prove conservative. Yet even China has its difficulties. Perhaps three-quarters of the growth will come from government demand, particularly infrastructure spending.
Not much to glow about
Add all this up and the case for optimism fades quickly. The worst is over only in the narrowest sense that the pace of global decline has peaked. Thanks to massive—and unsustainable—fiscal and monetary transfusions, output will eventually stabilise. But in many ways, darker days lie ahead. Despite the scale of the slump, no conventional recovery is in sight. Growth, when it comes, will be too feeble to stop unemployment rising and idle capacity swelling. And for years most of the world’s economies will depend on their governments.
Consider what that means. Much of the rich world will see jobless rates that reach double-digits, and then stay there. Deflation—a devastating disease in debt-laden economies—could set in as record economic slack pushes down prices and wages, particularly since headline inflation has already plunged thanks to sinking fuel costs. Public debt will soar because of weak growth, prolonged stimulus spending and the growing costs of cleaning up the financial mess. The OECD’s member countries began the crisis with debt stocks, on average, at 75% of GDP; by 2010 they will reach 100%. One analysis suggests persistent weakness could push the biggest economies’ debt ratios to 140% by 2014. Continuing joblessness, years of weak investment and higher public-debt burdens, in turn, will dent economies’ underlying potential. Although there is no sign that the world economy will return to its trend rate of growth any time soon, it is already clear that this speed limit will be lower than before the crisis hit.
Start preparing for the next decade
Welcome to an era of diminished expectations and continuing dangers; a world where policymakers must steer between the imminent threat of deflation while countering investors’ (reasonable) fears that swelling public debts and massive monetary easing could eventually lead to high inflation; an uncharted world where government borrowing reaches a scale not seen since the second world war, when capital controls ensured that savings stayed at home.
How to cope with these dangers? Certainly not by clutching at scraps of better news. That risks leading to less action right now. Warding off deflation, for instance, will demand more unconventional steps from more central banks for longer than many now seem to foresee. Laggards, such as the European Central Bank, do themselves and the world no favours by holding back. Nor should governments immediately seek to take back the fiscal stimulus. Prolonged economic weakness does far greater damage to public finances than temporary fiscal activism. Remember how Japan snuffed out its recovery in the 1990s by rushing to raise taxes.
Japan also put off bank reform. Countries facing big balance-sheet adjustments should heed that lesson and nudge reform along, in particular by doing more to clean up and restructure the banks. Countries with surpluses must encourage private spending at home more vigorously. China’s leaders are still doing too little to boost private citizens’ income and their spending by fostering reforms, from widening health-care coverage to forcing state-owned firms to pay higher dividends.
At the same time policymakers must give themselves room to change course in the future. Central banks need to lay out the rules that will govern their exit from exotic forms of policy easing (see article). That may require new tools: the Federal Reserve would gain from being able to issue bonds that could mop up liquidity. All governments, especially those with the ropiest public finances, should think boldly about how to lower their debt ratios in the medium term—in ways that do not choke off nascent private demand. Rather than pushing up tax rates, they should think about raising retirement ages, reining in health costs and broadening the tax base.
This weekend many of the world’s finance ministers and central bankers will meet in Washington, DC, for the spring meetings of the IMF and World Bank. Amid rising confidence, they will be tempted to pat themselves on the back. There is no time for that. The worst global slump since the Depression is far from finished. There is work to do.
Prosperity is just around the corner.
I should be buying my first home in August. looking at a 5.5% FHA loan on a brand new 2080'sq 4 bedroom with den, study, and living room & fireplace double wide on 1 acre for $85,000. The recession is good news for people wanting to buy. I'll take the 8,000 refundable tax credit in the spring and dump it into the house in the form of a storm cellar, car port w/cement pad, storage shed and jungle gym for the kid all of which goes directly back into the economy.
Congrats. 85K is going to get me a kitchen remodel, basement finishing, and master bath remodel in NoVa. It's amazing how much price differential there is based on where you live.Originally Posted by zraver
"So little pains do the vulgar take in the investigation of truth, accepting readily the first story that comes to hand." Thucydides 1.20.3
Buying a house is good if you have a stable income and work in the military or you're a civil servant. People fearing for their jobs, and I think there are quite a lot now, won't engage in such a huge spending that would represent a new home. The question would not even be raised since the banks would be too loath to grant them a loan.
This is just plain wrong. Some home prices are starting to rebound, which indicates that people are not only jumping back into the market, but that they are jumping in faster than the supply is growing right now. It's certainly not at a level to where it's going to create huge growth in the economy, but it's a start.
"So little pains do the vulgar take in the investigation of truth, accepting readily the first story that comes to hand." Thucydides 1.20.3
Thats what the article I posted is all about, people claiming the worst is over now, home prices, stock prices boucing back, etc...
It may be the start of the recovery or it may fizzle. I have no chrystal ball, but the recent dead cat bounces of the stock market should make you a bit more cautious about every bit of good news you can get.
people have to pay housing costs either buying or renting. With the drop in prices, the low interest rates and the tax bonuses now is the time for former renters to buy. Not only does it stimulate the economy, but the risk of bad lending is actually pretty low. No one is buying their first home as an investment tool but as a home.
The bubble collapse that preceeded the meltdown was caused by the corruption of the subprime market. What was meant as community development- get people into their own home and fix them to the locale was turned into get people to buy more home than they can afford on the belief that the prices would go up so they could sell for a profit. This let loan officers basically print money for themselves and it unraveled.
A case in point is the story of Clayton Homes and Vanderbilt Mortgage both totally owned by Berkshire Hathaway. In a letter to investors Warren Buffet stated- Clayton manufactures and sells manufactured homes and Vanderbilt finances them in a vertically integrated process. The average credit score of a Clayton home buyer is 644 well below the national 730. But the default rate is minuscule. The reason is that Clayton sells people a home they can afford based on their income and not what the property might be worth in the future. This means most of their buyers are buying a home not an investment. Even those who get in with a low 3.5% down FHA backed loan have proven to be tenacious into holding on to their homes. They go all in, and only job loss chases them out of the home, not property prices. Where as people who had too much home foisted on them as a tool for making future wealth who end up under water with falling values simply walk away.
First time home buyers in a market of crushed real estate values are likely to be the home buyer not the investment home buyer. They will sink roots into their soil and hold on. The current tax incentives and low prices are good for the economy because people have to spend that money on housing anyway so home sales will go up.
ps I am not buying a Clayton home, we looked at them but they use more upscale fittings to disguise real reason (profit) their homes are $44 a square foot vs the $30a square I found. The R values for the insulation and the building codes and quality are the same and determined by the HUD code.
I decide to go with more space over a fancier sink and ceiling fans I can change out myself for a fraction of the cost.
Ya prices can swing a huge amount. The model we are buying is from a manufactuer who builds to the entry level market. HUD code and not a bit more outside of some real basic but important upgrades like thermopane windows, fire places or thicker roof insulation. No fancy fixtures, no dry wall (wallboard instead) no ceiling fans etc. But aside from the upgraded windows and fireplace that is all stuff I can do for a whole lot cheaper. So we are ordering a fire place for the ice storms and upgraded windows for obvious efficiency reasons. We are getting a steal on the land lol, its land we will inherit anyway so we are getting an acre of mostly usable land for $6500. Set up fees including a cement foundation are about $12,000. The house itself is about $65,000.
It won't be a mansion but it will be big enough and some for my family and it will be MINE. It'll be good to own my own small sliver of America. I've traded in my chances to go to Rice (dream school) or some other high faluting history program for a chance to call of piece of Arkansas mine. I'll probably go after my masters at the school I am in and then either teach high school or pursue my doctorate at the University of Arkansas.
Zraver, your trying to compare people that bought real property and houses with people that bought trailers.
No one buys a trailer as an investment. Or to flip. Nor do they buy one for long term living.
The people that are walking away from homes were not the people that were in trailers. They were the ones that bought McMansion's at 650K only to have the value drop 40-50% in 3 years. No way they are going to ever recover their cost much less make a profit. They see it as "Why pay a 600K mortgage on a 300K house?".
The house that JAD, or I, builds today will be around and in very good shape in 50 yrs. Maybe a new roof covering, but thats about it.
That "Manufactured home" won't.
manufactured homes set on a foundation are real estate.
Oh yes they did, the MH meltdown occurred about 10 years earlier than the site built meltdown but for the exact same reasons.No one buys a trailer as an investment. Or to flip.
A little biut biased aren't you? The house I am buying will be the one I die in.Nor do they buy one for long term living.
Bingo, thats what i said they didn't buy a home but an investment.The people that are walking away from homes were not the people that were in trailers (or normal homes) They were the ones that bought McMansion's at 650K only to have the value drop 40-50% in 3 years. No way they are going to ever recover their cost much less make a profit. They see it as "Why pay a 600K mortgage on a 300K house?".
If its taken care of.The house that JAD, or I, builds today will be around and in very good shape in 50 yrs. Maybe a new roof covering, but thats about it.
Why not? Its made from the same materials, often with the same materials. There are some differences do to the nature of the manufactured home like roof pitch and door size but overall they are made from the same materials. Like anything else, if you take care of it it will last, if you trash it it won't.That "Manufactured home" won't.
No they are not.
You should go to the plant that makes your new home.
Check out the material and techniques of construction. Then go to a stick built home construction site. Way different.
Mobile homes do not fall under the same building codes as a stick built home.
DoT sets mobile home building standards. Not the state. The building codes in your state may be lax to where mobile homes may meet your states requirements. I can only speak of Florida. Even the so called "Wind zone III" MHs wouldn't be allowed if they were stick built.
If I used some of the material, and fastening methods my license would get yanked faster than I could spit.
its not DOT but HUD. The home I am buying is 2x4 spaced 16' on exterior walls. I could go for 2x 6 but I don't need it. it uses OSB decking and owen-corning 20 year shingles what exactly is different?
I respect you, and the fact your a builder and will take advice to heart but the evidence seems to argue against you. Dealing only with Florida, hurricane Charlie killed 16 people, only 2 were MH realted, and they had ignored an evac order and stayed in a decades old mobile home. the State Bureau of Mobile Home and RV Construction surveyed 11,800 manufactured homes among 77 parks in seven counties, including hard-hit Charlotte and DeSoto. Of the manufactured homes installed according to Rule 15-C—the most stringent tie-down regulation in the country—the Bureau could not find a single home that had been moved from its foundation. And RADCO, an independent engineering firm, revealed that manufactured homes produced and installed in accordance with the current Federal Standards successfully withstood the effects of Hurricane Charley. Gov. Jeb Bush was quoted by the media as saying, "the new construction standards for manufactured homes are working." Such news organizations as Fox News, CNN, and the Associated Press were finally forced to admit that homes built to the new codes didn't budge an inch in the 145 mph winds recorded at Punta Gorda.
Builtstronger.com - Florida Manufactured Homes Built Stronger and Perform Better in Hurricanes and storms
Going away from Florida now,
How prone are they to fire? According to Supple, fires are a case in point. Mobile homes are not necessarily more likely catch on fire, but they are more likely to be extensively damaged if they do. "In a mobile or manufactured home, if a fire does break out, it can sometimes spread more quickly,"
In contrast, however, a national fire safety study by the Foremost Insurance Company showed that manufactured homes are actually less prone to fire than homes built on-site. As a matter of fact, site-built homes are more than twice as likely to experience a fire than manufactured homes, according to the Foremost study. The research showed that the number of home fires is 17 per 1,000 for site-built homes, while only eight per 1,000 for manufactured homes.
Insurance for mobile and manufactured homes
Not to mention other advantages like knowing that no wet materials were used since the home is built in a factory, custom tools for the same reason etc.
I accept everything you say about the older mobile homes and even early HUD code manufactured homes, but I don't think it holds true now. Site built has its own advantages- not bound by the 13'6' from road to top of the roof height rule so better roof insulation and a steeper pitch without sacrificing ceiling height, thicker walls, more floor plans and if the state has stricter than Federal codes better built (not all do) but that all comes at a price I can't afford. $80-100'sq in Arkansas means I go manufactured or stay a renter.
But don't you know that they attract tornadoes? Silly you :P
"So little pains do the vulgar take in the investigation of truth, accepting readily the first story that comes to hand." Thucydides 1.20.3
Tornadoes are like a bi-polar chick whose on the rag, who they hit is completely random. But I do plan on installing a storm cellar I can get a 5'x6' storm shelter for about 3K before a $1000 rebate. That is about the size of my dining room table and its big enough for the family including pets.
HUD has construction standards for getting a home loan through them.
DoT is the one that sets building codes for mobile homes in Fl.
Well for starters floor joyces. Bet yours are 2x8s. If we don't use eng I-beams than you wont see anything less than a 2x12. Your floors are probable decked with OSB. I get(have) to use 3/4" TaG plywood. All studs must be clipped to the floor and top plate. Roof trusses must be clipped to the top plate.
Your roof may have 1/2 OSB decking in 24in O/C trusses. Why you see ripples in many older roofs. Still allowed on trailers. Not on stick built in Fl.
Trusses can be 16 or 24 o/c, decking must be 5/8 CDX plywood sheathing. Must use plywood clip between sheets and use a 4 in nail pattern with #8 ring shank nails.
Nails cannot break through any of the plys (Why you see lots of hand nailing vice nail guns)
Then I have to put a moisture barrier (tar tape) on every seam and nail or use "Titanium" underlayment. No more felt paper (new code) but before I could use 30lb felt. Most trailers have 15lb felt.
Trailers will have shingles stapled. I have to use 6 ring shank roofing nails per 3 tab shingle.
Your eaves/soffit will only be about 6 inches. Standard house is 18-24. Aside from exposing more of your house to water damage, you don't have as much vent space. Causing roof failure quicker.
The outside of you trailer is not required to be sheathed, except for the corners. You will most likely find thermoply underneath your siding. Stick built is 3/4 plywood with tyvec house wrap.
Thats just a few things. These are things that I have found common on Zone III mobile homes. I've even seen finger jointed studs. All legal in MH construction.
I respect you, and the fact your a builder and will take advice to heart but the evidence seems to argue against you. Dealing only with Florida, hurricane Charlie killed 16 people, only 2 were MH realted, and they had ignored an evac order and stayed in a decades old mobile home. the State Bureau of Mobile Home and RV Construction surveyed 11,800 manufactured homes among 77 parks in seven counties, including hard-hit Charlotte and DeSoto. Of the manufactured homes installed according to Rule 15-C—the most stringent tie-down regulation in the country—the Bureau could not find a single home that had been moved from its foundation. And RADCO, an independent engineering firm, revealed that manufactured homes produced and installed in accordance with the current Federal Standards successfully withstood the effects of Hurricane Charley. Gov. Jeb Bush was quoted by the media as saying, "the new construction standards for manufactured homes are working." Such news organizations as Fox News, CNN, and the Associated Press were finally forced to admit that homes built to the new codes didn't budge an inch in the 145 mph winds recorded at Punta Gorda.
Do you realize how many old homes are in Florida and you are using standards developed in 1999 for mobile homes. Compare homes built after 1999 and those same trailers.
And Rule 15-c is a Florida Dept of Motor Vehicle standard. Building codes for MHs, while they adhere to HUD standards, are administered in the State of Florida by the FL Dept of Motor Vehicles/Dept of Transportation.
And I'm not knocking you for buying a mobile home. But don't expect the same longevity from it that you would from a conventional home.I accept everything you say about the older mobile homes and even early HUD code manufactured homes, but I don't think it holds true now. Site built has its own advantages- not bound by the 13'6' from road to top of the roof height rule so better roof insulation and a steeper pitch without sacrificing ceiling height, thicker walls, more floor plans and if the state has stricter than Federal codes better built (not all do) but that all comes at a price I can't afford. $80-100'sq in Arkansas means I go manufactured or stay a renter.
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