patrick.net

As a survivor of the last housing bubble where I watched prices in Los Angeles drop 50% on average from 1990 to 1994 I have mentioned that I things will be a lot worse this time due to not only the increasing interest rates and variable rate IO loans but the larger numbers.

I think that many of us have heard the “Frog in the Pot” story (if you turn the temp up slowly you cook the frog, but if you turn the temp up slowly the frog jumps out). People are just like frogs and if the temp slowly rises in a hot tub they will stay in but if you sent in a quick blast of much hotter (or colder) water they will jump out.

Around the end of 1986 a friend’s brother bought a home for about $180K in Woodland Hills. In 1990 the house had doubled in value and was worth about $360K. Over the next 4 years the market cooled and the house lost about $3.75K in value a month. The reasons my friends brother did not “jump out” aka sell was that it was cooling slowly and the temp. aka price change was not much and rent in the area would be more than his (fixed rate) mortgage payment.

Around 1999 a friend from grad school (who had a great job on Sand Hill Road) bought a little fixer upper not far from where I grew up on the Peninsula for $1.1 mm that would probably sell for over $4mm today. Everyone was happy to watch homes in the Bay Area go up by more than $30K a month, but when they start dropping by that much I think that a lot more people up here will jump out or sell then we had in S. Cal in the 90’s (especially since you can put the $500K you get tax free in to a CD and cover a big part of your rent)…

I think that many of us have heard the “Frog in the Pot” story (if you turn the temp up slowly you cook the frog, but if you turn the temp up slowly the frog jumps out). People are just like frogs and if the temp slowly rises in a hot tub they will stay in but if you sent in a quick blast of much hotter (or colder) water they will jump out.

i wrote just that in a letter to the editor of the SMH 3-4 years ago, with reference to overpriced $hit boxes... didn't see the light of day :(

The RFID devices, if ever adopted, will be defeated. People will find ways to render the "rice grain" inoperative, just like car thieves have got around all the high tech (some RF based) anti-theft devices.

SFWoman Says:

> I had to buy my Jewish sister in law a book about
> Judaism because it drove me nuts that she knew
> nothing about it. I knew a lot more than she did
> about her religion and I’m a WASP.

One of the funniest books I ever read was a joke book titled "How to be a Jewish Mother" (a friend's Jewish Aunt gave it to his Protestant Mom). One of the chapters was "Using guilt to get the kids to do what you want" and another chapter was "What to do if your child does not want to be a Doctor, Lawyer or CPA"...

yeah, they'll dig them back out or something, i spose... there isn't a technical new-fangled solution to every problem, that can also be a mistake in thinking...

DinOR says:
"I have heard that about half of the homes do not have mortgages but wonder how many of them are outside of OH, IN, IL, IA, WI and MN? Oh and MI and the UP? Mortgage brokers HATE to cold call these states b/c outright ownership there is common practice"

In that case, after the big crash the rest of the country will in economic servitude to the smart folk of OH, IN, IL, IA, WI, MN, and I add VA. We will be free while the rest grovel in the salt mines to pay off their self imposed indentured servant status!

Peter P,

As usual, you're right! The 1031 is actually called "Like Exchange" and was never intended to be solely RE. Somehow the use of RE exchanges has almost totally obscured it's versatility. Seems every weekend some "rugu" is sponsoring a RE 1031 Exchange Seminar at location near you! This is a large part of the reason "I" hope the 'Unity' will continue.

The next time someone boasts they're "gonna 1031" I can say, "Really"? Were you going to 1031 an aircraft equipment lease or livestock? When they give you the patented "huh?" look you can say, "Oh........ property" (with much contempt).

Interesting side note: Even the most casual research revealed that 1031's (of the RE variety) generate endless litigation as the IRS can disqualify the transaction even after it's been completed! So both the Rugu and Realtors (TM) can be exposed to liability later. It just grinds me that so many people describe this as being such a "lay up".

FAB,

Funny! I worked with a guy that was "jewish" twice a year. He would take off Yom Kippur and Rosh Hashanah. (Actually it wasn't such a bad idea) b/c typically stock market volumes are quite light on those days. What bothered my co-workers was that for a guy that swore, drank and did drugs he was quick to get defensive if anyone said anything he construed as defamation? People got tired of it and finally just said, whatever dude. He was a fun guy to go drinking with though!

DinOR,

Yes, the 1031 is a guru's dream, just like the America Funds or especially Destiny is to loaded funds salespersons.

Take 5 $100,000 rental houses ($100,000 is the appreciated price, with cap gains), 1031 them into one $500,000 rental house. Rent that $500,000 house out for a year. Then kick out the tenent and live in it yourself for 2 years. Now you can sell it and use the "2 of 5" years personal residence rule to eliminate the cap gains tax. Would still have recoup depreciation, though. -THIS IS GURU SARCASM, NOT INVESTMENT ADVICE-

HeadSet,
Well... as someone headed for the "less evil" part of the country, I don't know if they will be in eternal servitude to we in the ole' red states. I think the opposite will be true, in that we will ALL have to pay for the overexuberance of the bubblezones. However, I kind like the idea of having a few calfornians in the yard to help me out with chopping wood, mowing the yard, and washing the truck. Yar!

HeadSet,

VA? I think not! The NoVA is expensive, Virginia Beach is expensive, Richmond is getting there, Charlottesville is expensive, and the vacation homes are pricy too. There's also tons of expensive new construction in all over, and I doubt any of them are owned outright.

Most of the homes without mortgages will be elderly people living in their original homes or in cheap homes in AZ and FL bought before 2001. They're still gonna feel squeezed by rising property taxes and insurance.

SHTF,

How many Californians does it take to wash a truck?

I think there's a general consensus that houses are too expensive. Even new buyers and recent sellers don't think the prices are cheap, they just hope the prices can go up further to benefit/vindicate them personally.

George,

I don't know. The Republicans are very good at demonizing Democratic candidates. I thought lots of folks were very unhappy with Bush in 2004 but they still held their noses and voted for him, because Republicans got to them subliminally.

The way I see the next presidential election working out in a way that might make everyone happy is that someone like Wesley Clark or Senator Frist run, with Clark on the Democratic side, Frist on the Republican. This would be my most ideal lineup because either men would make way better presidential nominees than the last one. Both of these men are very intelligent, and do not have interests that spill into the interests of both parties. They both also sound like good ole' boys thus will appeal to a wide audience, yet appeal to educated people as well.Either one of these people winning would make me more than happy. Clark should have been nominated last time. He was a hell of a lot smarter than Kerry.
The last election was all about two canidated pointing out how diffrent the two parties are, and personifying the kinds of people that exsist in both parties as diffrent animals. We need an election that brings the similarities together, and makes these diffrences less jarring. This way you don't have as much side taking. I for one will vote for the person who I think will do the best job. If that person is on the Democratic of Republican, I could care less.

Astrid,

You are quite correct. I do not think many people in VA who bought recently paid cash.

However, many people own houses bought before the bubble. In 1995, a new 3 bed 2.5 bath two car could be bought for $105,000 in the Peninsula/Norfolk/VA Beach area. A new 4 bed 2400 sq ft 2car could be had for $140,000. This was well within the reach of cash buys for a saver in his late 30s/early 40s.

I know that most people with the cash would opt to put the $105,000 down on a $300,000 and borrow the difference, but some did not. For those who paid cash, I consider it a triumph of responsibility over vanity.

For those who think paying cash is a bad investment for tax and opportunity reasons, you really need to work out the numbers.

the_lingus,

Well then stop working a 40 hour week and come on over to the 1099 side. I've seen some of your comments over at Ben's Blog and I suppose they put you in your place so you've come over here for awhile?

headset,

This link kind of sums up where I was going with continued pressure on the middle class. Please to notice that most of the "TIUTA" was SELF INFLICTED! www.post-gazette.com/pg/06222/712559-28.stm.

Let me know what you think!

astrid Says:

> I don’t know. The Republicans are very good
> at demonizing Democratic candidates.

I was punching buttons in the car this morning and clicked on KGO AM 810 in the middle of an anti-Republican rant by a crazy lady. I was surprised to hear Ed Baxter cut her off by saying "Thank You Congresswoman Pelosi"...

the_lingus,

Bush turned a 500,000 voter deficit into a mandate in 2000. And never misunderestimate these people's vote getting abilities. There's plenty of seemingly open minded people out there who share Bap33's opinions about Democrats. Beats me why, maybe their preachers told them Democrats were all born with 666 on their heads.

However, an anti-War Democratic win will push the US out of Iraq and maybe make some inroads to cut our crazy military expenditures. There's plenty of real problems to tackle at home without exhausting ourselves fighting neo-Colonialist wars in the Middle East. Wars are inflationary, so ending one ought to help curb the inflation pressures.

The NoVA area is awash in irresponsibly spent Pentagon dollars -- taking that money away (combined with other factors) should depress the prices nicely, I'd say 50-70%. Ten years ago you could buy a decent middle class home here for under $200K, now that place will go for $600K or more.

SHTF,

Frist? I would never vote for that cat murderer and callous legislator! Truth be told, I could never vote for anyone the Republicans could nominate, they'd all run way to the right of Nixon and Reagan and Bush I.

And look for Republicans to demonize anybody Democrats put on a ticket. They made Howard Dean look like a raving leftist lunatic when his legislative policy was fiscally conservative and socially libertarian. They made Kerry look ineffective and stupid when his legislative record pre-2000 is anything but. Americans have been trained to believe they should vote for the guy they'd like to have a beer with and make them feel good, whether that's with a George W Bush nationally or with SF "Progressives" locally. I still don't notice the electorate getting any smarter.

Please use the link which takes you to the Post Gazette, then just plug "Mortgage" into their search and it's the first article that comes up.

Homeowners Feel Pain of Rising Rates

Mr. Technology, YEP that's what they call me. Mr. Technology.

DinOR,

You link gave me a "Missing Page"

FAB,

LOL! Damn that is funny!

Headset,

My bad. Like I say MISTER Technology.

DinOR,

That articles funny - if an accountant can't work out that the loans are a bad deal, then what about everybody else?

SFWoman,

Agreed, no Hillary! Now or ever! She's basically the Republican's dream Democratic candidate - polarizing, compromising, built in lady MacBeth persona, still married to Bill Clinton but doesn't have his personal charisma. I don't think Democrat outside of the DNC actually wants her to run, and I think she's smart enough to forgo it in 2008. I hear her name mentioned much more often by Republican pundits than Democratic pundits.

I really do hope the Democratic grassroots overwhelm the Beltway DNC bunch and pick a governor from outside of the Northeast. The Beltway bunch are just terrible: grey, overly compromising, defeatist.

The only exception might be Obama, but I don't think this country's ready for him yet.

FAB,

So what? How many sane congress people do you know of? The Republican leadership isn't exactly better. Pelosi's job is to motivate the House Democrats and keep them in line. She's never going to win a national office or even a state-wide one, so she can say whatever as long as the people of SF votes her back.

And as a Democrat, I'd say she's a damned sight better than her predacessor, at least she's willing to put up a fight against bad Republican legislation.

DinOR,

Sorry, I posted that before I saw you MISTER technology post.

Good article. I see it as irresponsibility coming to roost. Refinancing incures costs, usually thousands, even if the rate is lowered. I know, they roll the costs into the loan. Why do people always have to be in a monthly payment mindset? Why not forget about any home you cannot buy with a fixed rate, then work to pay off the mortgage? I would love to see a national mindset where people expect to own thier homes outright by the time they are 40. And only the very young would take out a loan for a car.

the_lingus,

Yes, that is my answer. I worked a 40 hour + week for over 3 DECADES! I don't recall being treated remotely fairly by ANY of my employers (be the liberal or conservative) or who resided in the White House. So armed with a lower middle class upbringing and an Assoc. in Fire Science (and a TON of debt) a wife and teen daughters I started my OWN business and now find that I am treated quite fairly. I fund my OWN pension and have my OWN healthcare plan.

Guys like you need to stop blaming the administration, sack up and start making a meaningful contribution. Your presence on Blogs of this caliber is only for the shear joy of starting flame wars and nothing else. I also recall that folks over at Ben's are about as receptive. Be they liberal or conservative. Bye bye.

DinOR,

OOPS, did I miss the point? Was it about the financial illiteracy of not only the public, but the supposed experts?

Guys like you need to stop blaming the administration, sack up and start making a meaningful contribution.

I agree.

I have a funny feeling about the future though.

Patrick.net will have as much luck in banning me as Benny and his handjob queen Robert Cote.

Why? Do you want to try?

About 20 minutes was spent on the psychology of people responding to fires, and it was fascinating.

Wow.

The scientist said another minute or so and the people would have collapsed and died, all because they didn’t want to yell or leave their place in line.

Huh? Silly. You will see me walking out the door calmly and quickly.

Damn, people are still buying houses in Mountain View, don't they know that we want it to crash??? If people who bought last year are going to be really FB's, what about the people that are still buying now?

headset,Claire,

Lost a post there. Anyway, the article (in my mind anyway) just exhibits that people seem to understand how leverage works when things are working their way, and yet suddenly fail to understand it when it turns against them. This lack of financial understanding will lead to more self inflicted "un-doing" than anyone else could to you.

Damn, people are still buying houses in Mountain View, don’t they know that we want it to crash??? If people who bought last year are going to be really FB’s, what about the people that are still buying now?

If people keep buying there may be a soft landing in certain locations. Mountain View is not a big place.

Be patient.

DinOR,

Yeah, I know, but it amazes me that supposed accountants are crying foul, if they can't work the figures and read the loan agreement, then who can?

"It was in the small print" - boo hoo

SFWoman,

What's worse is that fire has this natural tendency to reach out and "grab you". The theory goes that as it voraciously consumes oxygen it creates a vacuum and actually draws flammable material into it. In this case YOU!

There have been so many advances since I worked in that field I doubt I could get through the "volunteer exam" these days.

This lack of financial understanding will lead to more self inflicted “un-doing” than anyone else could to you.

It may not be about financial understanding. Some people choose to believe in the best case scenario. I choose to consider the worst case scenario. This is why I am always depressed. :(

Peter P,

If anywhere will be soft, it probably will be Mountain View, worse luck for me :-( I'm also interested in a house with a garden, so any bargains in the condo, townhouse market are out :-(

What’s worse is that fire has this natural tendency to reach out and “grab you”.

The other theory: IF you are fated to die you will. I thought the word "fatal" comes out of the word "fate".