Monday, March 10, 2008

Excessive immigration and the sub-prime meltdown

Note: This post addresses Immigration Policy in the U.S., this is not a piece to scapegoat the immigrant. This post attempts to go beyond the social-cost and wage depression statistics to evaluate the basic supply and demand involved with nomadic worker's effect on home-equity. Equity of the common man is eventually destroyed on both sides of the excessive immigration equation. The nomadic worker forgoes home equity to undercut the earning power of the established worker, neither worker is then capable of servicing a traditional mortgage. Excessive immigration makes it progressively harder for citizens and immigrants to maintain standards of credit-worthiness due to housing inflation.
Global competitiveness is dependent upon the wage-earner's salary requirement. The largest contributing factor to the wage-earner's salary requirement is the cost of housing.

Home equity appreciation is an often used, politically correct term, but in reality, home equity appreciation has become hyper-inflation. Housing costs have inflated 309% in 27 years, while four-fifths of America's wage-earners (80%) have averaged (after tax) income increases of only 18.25% in 24 years.

Percent Change in House Prices Period Ended June 30, 2007 (United States)
5 year = 50.76%
Since 1980 = 309.4%

Excessive immigration defers cost of living raises while increasing demand for housing. Hyper-competitive labor, resulting from excessive immigration, decreases the pool of wage-earners who are able to afford the purchase of a home. The rental housing market is similarly inflated and many wage-earners make purchasing decisions based upon sheltering income through tax deductible home mortgage interest.

The sub-prime mortgage was created to offset the decline in the levels of qualified borrowers by eliminating the traditional financial qualifications. Prior to the sub-prime mortgage, the debt service coverage ratio (DSCR) determined the fair market value of the housing market. The DSCR ensures that unqualified borrowers are rejected; if the population at large cannot afford to purchase a home, the loan terms, or housing valuation must be adjusted to accomplish the sale. Current housing valuation is inflated by an oversupply of easy credit and demand caused by excessive immigration.

Sub-prime borrowers assumed that the 2001 recession would abate, but didn't realize that the Bush administration was considering doubling legal immigration, while ignoring illegal immigration -- eliminating the possibility of commensurate cost of living increases.

"Fankly, the study hypothetical dealing with the relationship of both increasing immigration from 1 million to 2 million (per year) and entitlement costs, must be revisited with offsetting economics from both homeownership from new and existing immigrant family members, and increased subprime homeownership.
Professor Richard Ivar Rydstrom, Esq.
House Ways and Means Committee, Chairman Charles B. Rangel
Hearing on Economic Challenges Facing Middle Class Families

Recently, Alan Greenspsan has made some comments concerning high-skilled immigration and the housing market.

"Greenspan said the economy will continue to erode until there is a stabilization of U.S. housing prices." [Link]

"…he [Greenspan] expects the mortgage problem to persist until housing prices stabilize. And that won't likely happen until the inventory of new homes dries up." [Link]

Home builders describe the inventory of unsold units as their problem.

"Falling prices tend to keep potential buyers on the sideline. That’s especially bad news for home builders who are stuck with nearly 500,000 unsold homes, or about 10 months worth of demand." [Link]

We have a housing inventory of nearly 500,000 new unsold homes, but there is a much larger hazard in the potential of inventories in the housing market. The Census Bureau provides housing vacancy data. [Link]

Housing Vacancies 2007
Northeast -- Held off market……… 921,000
Midwest -- Held off market……… 1,205,000
South -- Held off market……… 2,911,000
West -- Held off market……… 1,143,000
Total Vacancies – Held off market ……. 6,180,000 (Year-round vacant)

It's my opinion that these year-round vacant homes are the result of the "second home mortgage interest deduction act."

Another comment made by Alan Greenspan suggests that America should adjust "income inequality" by attacking upper wage earners with high-skill immigrant competition.

Greenspan: One thing the country could do to improve things speaking to recession] is to allow more immigration of skilled workers... "Significantly opening up immigration to skilled workers solves two problems," he said. The companies could hire the educated workers they need. And those workers would compete with high-income people, driving more income equality, he said. [Link]

While I agree that housing prices must be allowed to decline to reflect competitive levels, I suggest that re-introducing the 6 million second homes into the "for sale" inventory would be devastating to the U.S. economy. These "high-income people" will sell second homes to reduce the cash drain, the second home interest deduction is not required in lower income brackets.

The Greenspan and Rydstrom statements indicate that the administration has been using excessive immigration as a wage control. Now that the sub-prime bubble has burst, we find that financial instability has spread from the immigrant community to the domestic population.

Emancipation age children account for about 13,568,057 of this century’s population growth, when subtracting the population losses (CDC deaths). The Civilian noninstitutional population has grown by 23,784,000 while employment has grown by only 11,767,656.

MBIA and the New York Times have made accusations ranging from irresponsible borrowers to irresponsible hedge funds for the failure of the sup-prime mortgage. Who is more irresponsible, the citizen who is pressured into purchasing an over-inflated home, or an immigrant who abandons her home?

In truth, income inequality exists between nations not within. Luring highly skilled and low skilled persons to migrate away from their home retards the advancement of prosperity in both nations.

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