While I was sleeping

While I was sleeping the U.S. economy has slid into a deep hole, and seems to be going further. I've been here trying to lose weight (try the South Beach Diet) and slowly recover. Meanwhile things do not look good for the U.S. economy.

Since this is an Israel and technology based blog, I'll try to keep focused on those things. In the last few years the real estate boom in the U.S. has fueled a very specific kind of oleh (immigrant). People have come here with lots of money from the sale of their home. Instead of coming here when things were bad, and hoping to send their children to the cheap colleges here, people were waiting until their children reached college age, selling their home and using the equity to buy a cheap apartment here and pay for their children's education.

Now things have changed, the same people no longer have large equity in their homes. Without cheap mortgages, no one will pay those inflated prices of a few months ago. Since most people have adjustable rate mortgages, as the rates are adjusted, they will go up. It's impossible to predict how far, but it looks like they will double in the next year or two. If inflation continues like it did in the Carter administration, they could jump from 4% to 20% per year.

Already, many homes are being foreclosed upon. Before the rate hike of the last few weeks, in some areas it was already happening. A friend who lives in rural Colorado said she has been seeing foreclosures starting around a year ago. Even with cheap money people could not keep up with the payments. They banks were happy with this, if they held on to the property for a few weeks, it would go up again, assuming they could find a buyer.

Now all of that has changed. People who were not in bad situations last month will soon be. Builders will stop building new homes and may be unable to complete ones they are working on. People who bought houses before they were built will not be able to pay for them when they are. I saw an article on an online news site about housing developments in the U.S. where there are two houses in the development still occupied.

Where do these people go? I expect that some of the Jewish ones will come here. They won't be like this summer's olim, complete with large sums of cash and a willingness to pay U.S. rents for apartments while they look for a house to buy. Rents here are much less because you get less. By the time you are done paying the taxes and other bills at the end of the month, a $1,000 a month rent is closer to $1,500. There are no real estate taxes here, instead there is an occupancy tax, which is payed by the occupant (tenant). Other taxes and utilities are paid by the tenant and if it is an apartment in a building, you pay a fee to the "building committee". This fee ranges from very little in a building where the committee only lights and sweeps the stairways, to much higher if the building has a garden, elevators or communal heating.

Years ago people came here and stayed in absorption centers. The first ones were tent cities for the olim from the Arab countries and were leaky muddy places with nothing. They are well documented in the comedy film "Sallah Shabbati" which stars Topol (of Fiddler on the Roof fame) when he still had a first name (Chaim).

The absorption centers are much nicer than that, sort of a old creaky graduate dorm. Most people from the U.S. did not want to go to them because they were crowded, dirty, had small rooms and were loaded with foreigners. Two adults got two rooms, a living/dining room/kitchen and a bedroom. Often two singles had to share a two room apartment. A family also got a two room apartment unless they had many children, then they could get three.
There are laundry facilities in the basement. Recently you could sign up for cable TV and Internet.

Most olim from the U.S., coming here with lots of money, did not want to go to them and the money used for their rent was converted into a cash benefit instead. Some of the centers were closed and the rest are not open to olim from the U.S., Canada and the U.K.

Recent olim preferred to ship all of their belongings except for their cars and appliances because the appliances would not work here and buy new ones. A private organization called Nefesh B' Nefesh (soul to soul) also gave them large cash payments. The actual amount they get is not known, but the maximum they give is $5,000 per person, or $20,000 a family. It's a loan for three years and if you are still here then it becomes a grant.

IMHO those days are gone. People will not be able to sell their homes for the inflated prices they had been and many will be coming because they lost their homes and or jobs to foreclosure. They will no longer be waiting for their teenaged children to "leave the nest", so there will be many teenagers coming. Teenagers often have difficulty adjusting to new situations and a totally different social structure and language will really causes problems.

My expectation is there will be a requirement for new absorption centers, school programs for teenagers that don't speak Hebrew and jobs for their parents. In the first Internet bubble, you could get a job without speaking any Hebrew, but those days are passed. Many people who speak English but not Hebrew work at call centers. Working at a call center is a good job for someone with the right personality and skills. If you are good at it you can make 2-3 times the national average wage ($1250/month) . People who are not, and are just a low level "answer the phone person", make less.

Taxes are high here, so take home pay is much less. It does include nationalized health insurance and in most cases it is better than the health insurance in the U.S. Obviously some people in the U.S. have better coverage, but most people don't.

So as the old song goes. "The Times, they are a changin'."

Geoff.