patrick.net

fargaud,

Hilarious! :)

I dare you to send your response to Mr. Cannon's ("broker") letter to the Chronicle and see if they print it!

skibum Says:

"...And another thing about the data presented in the article you linked: if you look at 2 of the top wage increases by job sector, they are construction and financial (which would include the mortgage industry). We all know where those wages are heading!"
_____

Very astute observation. Yeah, that makes a lot of sense. I figured there were a few glitches to the wishful thinking on salaries.

SALARIES ARE UP HAIKU:

Salaries are up
in a down market. Go buy
more houses. Have fun!

farguad,

Good on ya!

That's been much of my problem with the "arrangement". Everybody gets a piece of the action. What makes it worse is that often as not they are working in collusion with one another!

King_Cobra,

Actually I'm a pretty fur piece from Hood River (closer to Salem, OR). HR is a great place (in the summer). Wind surfing is getting national attention and that's great! My understanding is that the rolling bubble has found Hood River too. Evidently views of the gorge are no longer the domain of carefree wind surfing vagabonds.

Due to the multitude of environmental groups and all of the "impact surveys" YOU have to pay for to build or develop there it's out of reach for the average guy.

SFWoman,

Thanks for the maps!

SFWoman,

Great maps --thanks! My only lament is that the first map doesn't seem able to pull up any data for SoCal zipcodes/cities and there is no SoCal analog to the second map (you click on the So. Cal. link and just redirects you to the State's website & it's old, poorly detailed grid map).

Once again (in yet another way), SoCal sucks compared to the Bay Area.

@Michael Holliday

I am probably in the minority because I believe those numbers and think they are understated, if anything. I have been claiming for a while that real wages are accelerating.

This is consistent with the quiet/unreported/underreported inflation that many have been claiming, myself included. My reasoning is simple. Rents are rising. Rents cannot rise if real wages are flat or declining for very long. Either rents must fall, which they aren't, or wages must rise. Then add in all the other inflation we've seen, namely energy and more recently food, and wages are under tremendous pressure even ignoring house prices.

Keep a couple of things in mind. These stats are very broad, so tiny movements in the rates are considered significant. The income distribution is heavily skewed, so small movements in the median mean there has been very large absolute wage inflation. Compare that to the past 5 years where the upper 5,10,20% (whatever you happen to measure) has experienced tremendous wage growth, but these stats just sat flat because that group couldn't move the median. However if you bump up minimum wage a few cents the median starts moving. (Not to digress into an anti-minimum-wage debate, but herein lies the math that macroecon opponents rely on).

If the big quaker comes in at 8, he will probably make plenty of mush all along the bayside. Liquefaction can then abound and shake down some prices. A six or seven if centered in just the right places might do much that same. Some of the faults are long overdue for a shake out. Given time they will show themselves, and then after the shake gravity might long last come into play.

The Alaskan quake of '64 was quite a spectacle and sent a tsunami into Crescent City, CA. California would be hard put to come up with something of that magnitude. There has been plenty of seismic retrofitting all about California which will probably stand up quite well to strong shakes.

Waterspouts out at sea are much more common in California than the rare tornado. Hurricanes happen in Baja California Sur where warmer ocean waters can support them. Hurricanes die out rapidly on reaching the deep and cooler ocean waters of Upper California.

Randy H.:

Good explanation of real wages & rent.

Is it possible, like housing, that instead of wages actually going up, what's really going up is one's percentage of take-home pay going to rent.

Are rent payments rising in some proportion to the rise in monthly mortgage payments?

In otherwords, is the higher percentage of income that is now going to mortgage payments actually pushing up the average household percentage of income going to rent payments, irregardless of a rise (or fall) in median salaries?

Is there a correlation? Is the higher ratio of income now going to pay mortgages causing the ratio of income to rent payments to go up?

Etc.

FRANKEN-HOUSE HAIKU:

Stupid, little flip-
pers flop hard as the house comes
to life, and hurls them.

Is there a correlation? Is the higher ratio of income now going to pay mortgages causing the ratio of income to rent payments to go up?

Most likely. In fact, if this _did not_ happen, then there would be a much bigger problem because it would mean that a landed-gentry class was emerging in the US. To a much smaller degree, this is happening to be sure, but we're still very far from a Western European style cast system. But if rent were to stay this far (or farther) below ownership costs for a generation or so, it would very profoundly alter the culture of American society. We're built on the Horatio Alger rule: work hard and you can get ahead. But a landed-gentry system would mean that no matter how hard you worked, if you didn't inherit land you can never hope to buy it.

He said they were holding onto boulders for dear life.

BAP33,

Nah, that would be too much hard work. One dirty bomb in a van in Pacific Heights ought to do it. Ditto Midtown Manhattan. Ditto Foggy Bottom in DC. And so on. Nothing needs to be destroyed or even killed, just rendered uninhabitable and worthless for 50 years or more.

http://sfgate.com/cgi-bin/article.cgi?f=/c/a/2006/11/21/BUG5UMGNVT1.DTL

Housing article on sfgate.com.

lunarpark,

Even with as modest a decline as Mr. Rosen is calling for I'm sure that article has plenty of seller's blood boiling. LAY (is she STILL around) seems to concur, basically home prices will go down little if at all and within 18 mos. every thing will be back to "normal" in Berkley?

DinOR -

Yes, that article probably raised the blood pressure of many would be sellers. The articles keep getting more bearish.

Another one from Marketwatch:

http://www.marketwatch.com/news/story/commentary-psychology-favors-buyers-housing/story.aspx?guid=%7B49CC3F2B%2D9AB7%2D413F%2D809D%2D1E59F6E65CF3%7D&siteId=

Also, one of the commentators on CNBC this morning compared realtors to car salesmen.

SFWoman,

I admit, it depends on the type of nuclear material. Radioactive waste would be expensive and probably call for a somewhat lengthy quarantine...but the cities could survive. I was thinking of low grade plutonium from rogue breeder plants - I understand that would be quite hazardous for sometime to come.

Based on my understanding, the bombs dropped in Japan were constructed from Uranium and much of the radioactive material was burnt up in the blast. Most of the radiation poisoning issues appear to be from the blast.

The O'Shaughnessy dam in Hetch Hetchy is not well guarded. In addition to the flooding danger - you BA people should really cringe at the prospect of buying icky drinking water from LA if the dam blows up. BA has much better tasting water than LA.

SP,

I suppose lying is possible, for him to illustrate his point about the Lehman caves. Maybe he mentioned another earthquake and I remembered Loma Prieta (given his age and the fact that he worked extensively in Sequoia). He's an NPS tour guide and not a park ranger, so maybe lying is more acceptable (putting aside that scout troop leader thing).

lunarpark,

Kind of on the fence about marketwatch's bubble coverage. Mortgage rates didn't get super ridiculous crazy cheap until 2003/2004? This would have been the logical entry point for all those new members to the "ownership society". Buying what? Mostly entry level housing! How does some poor schmuck finally being able to qualify for a 3/2 1,500 sq. ft. home out in Fresno have any bearing on the unprecedented run-up in up-scale neighborhoods in the BA? Maybe I'm just plain wrong here but I fail to see any connection.

The bubble didn't work like that. It was the, yes, "Superstar Cities" going hog wild first and THEN the locusts took their MEW and migrated to Bend, OR and Missoula, MT etc. Not the other way around! In this regard the new entrants really couldn't make a dent so can we please drop the whole cheap money=entirely new pool of first time buyers=bubble=bust? Please?

DinOR, you make an interesting point.

lunarpark,

Thanks, I'm not so sure that I'm on to anything b/c MSM pundits are now eagerly getting on the bandwagon telling those of us that have "been there" from inception how it all went down.

Because it is THEY that are behind the learning curve on this and are just now getting on board they're scrambling to explain how things could've gotten off kilter "so quickly". Well we were already in a state of "bubble fatigue" before they were aware there was one. Now they want to come along and tell us where the train and the tracks departed. Don't get me wrong, we can use all the MSM exposure we can get! We welcome you (Carol Lloyd etc.) to "the team" but ya' gotta tell it right!

By the time most folks that were "apartment dwellers" got wind there was a big housing thing goin' on we were already 3-5 years into this! (Depending on your area and MSM level of awareness). The only thing the first time buyer can be guilty of is being the last GF's. And think about, some couple fresh out of their first apt. together DRIVING the bubble? It doesn't get any more silly than that!

Also, one of the commentators on CNBC this morning compared realtors to car salesmen.

Hey now, let's not be so harsh on car salesmen!

@lunarpark and DinOR,

RE: the sfgate article and the Haas real estate conference, I'm mixed about the event. On the one hand, yes, they paint a more bearish picture of Bay Area RE. On the other hand, they are in the end, tied heavily to industry. Here is the program's advisory board:

http://groups.haas.berkeley.edu/realestate/Fisher/PAB/index.asp

However, I'd give them credit for at least not being merely RE cheerleaders like Restinas at Harvard, or that loser at UoP, despite an advisory board that is basically made up of representatives of the REIC.

Oh and while we're at it I also reject the notion that all former apt. dwellers/first time buyers had FB written on their forehead! Due in large part to the fact that there's just so much "stuff" you can cram into an efficiency apt. my guess is that some/many of these folks had better DTI/fico than Mr. and Mrs. Serial Re-fi!

We're all being fed a bunch of stereotypes that are convenient scapegoats for the MSM just to give their articles "flow". I mean how many people are really going to challenge this stuff?

How can ANY first time buyer be in worse shape financially than a more "established" couple straddling two mortgages/coasts and an investment property (or two)? If I found myself in some sort of "freaky friday" switcheroo can I be the first time buyer?

If Katrina is evidence, then an earthquake would raise housing prices.

2 Reasons:

1) Lower housing supply (assuming a bunch of houses are destroyed.) People aren't going to leave exodus-style because of an earthquake. People have too much tied up here - jobs, family, friends, etc.

2) Gentrification. Maybe some of the crappier areas will get destroyed and be rebuilt to be nicer.

My understanding of New Orleans and other areas is that housing prices have absolutely soared since Katrina.

skibum,

Sometime back HARM posted the list of "contributors" at Harvard and it read like a REIC who's who! A-Z. Pella Windows, Moen you name it! Needless to say their conclusions were equally comical!

Are ARMS pegged at the same rate as short term T-Bond or the 10 year like fix?

TN,

Most ARMs in the U.S. are pegged to LIBOR, or a derivative thereof. Most FRMs are pegged to the 10-year Treasury. The Fed more or less directly manipulates LIBOR, by adjusting the Fed funds rate. In theory, they have far less control over FRMs because Treasury rates are set on the open market via auction.

However....

The Treasury Dept itself issues Treasuries (hence the name ;-) ) and the Fed regularly buys and sells large quantities them "as needed": http://www.newyorkfed.org/aboutthefed/whatwedo.html By being able to manipulate demand to some degree, they do have some control over these rates as well (greater demand results in lower rates, less = higher). This has given rise to some conspiracy theories re: the PPT (Plunge Protection Team), often centered around the activities of the shadowy "Working Group": http://www.washingtonpost.com/wp-srv/business/longterm/blackm/plunge.htm

WARNING: Totally OT!

I've been told that my impersonation of "Kramer" is hysterical. Ah-hem, "Kramer" will not be making the rounds during the Holiday Season this year thanks to some j@rk-off that totally screwed it up for me!

Can you believe the lost revenues to the entire former cast as a result of this? I'd heard a quote yesterday that the only person in America happy to hear about this was Mel Gibson!

FYI all bloggers:

If you need to contact a moderator, such as myself, Randy H, Peter P, SQT (or the Big Man himself, Patrick Killelea) simply post your wish to be contacted. As long as you are a) registered and logged in, or b) you aren't registered but use a valid email address when you post, we will be able to see your address and can contact you.

In general I would not advise posting email addresses here, given the amount of trolling going on.

Muggy,

I've already contacted you. Now that you've piqued my curiosity, I'd like to at least know what your question was ;-).

Money magazine just arrived at my door, they have a housing article, perhaps someone cleverer than I can post it for you, but basically they say prices are going down, but only by 5-15%

If houses are too expensive, how can they think that by only going down 5% or so they will stimulate people to buy again? I don't even think they look at the issue that it is much cheaper to rent than buy!

@Claire,

You might want to take a look at who is buying most of the full-page ads in Money. If you see a lot of mortgage, Realtor and/or home builder ads, then there's your answer. Fyi: Fortune has been a lot more "forthcoming" about the scale and risks of the bubble. I saw a number of great pieces last year by Shawn Tully. As DinOR likes to say, Shawn's "on the team" :-) .

Harm - yeah - but they are both owned by the same people - actually on the website it lists them all and when you dig deeper they do have a lot of housing related articles - I was just a bit disappointed in them that's all.

And the fact none of them seem to grasp the issue that the rent vs owning costs are totally out of whack in some areas - or maybe they do and just don't want to tackle it! I wish someone would write a letter to the editor - maybe I will, but I'm sure someone else would be much more eloquent and I'm never very good and giving accurate figures for the ratios.

Does anyone have any idea what happened to the forsakencraft website? The server is still up, but there is no longer a web page to be displayed. He has had this radio show bashing RE that he was doing every friday night, but suddenly it all disappeared. I sent an email to John, the owner of the site last week and still haven't gotten an answer. I'm thinking maybe some angry Realtwhores kidnapped him.

HARM,

Thanks for sparing me this once! Money Mag. is primarily filled w/ads from no-load mutual funds. Vangard, Fidelity etc. Their ideal market demographic is the DIY crowd. Not that there's anything inherently wrong w/that but it also fits hand in glove with *not* upsetting their readers too much. (Vice say being p1ssed off at your broker).

5-15% corrections won't help buyers a lick. Yet at the same time this gives their readers the sense that this isn't anything they can't weather! If you can walk away from this thing and all you had was 5-15% downside count yourself lucky! Some markets have already taken that big a hit and then some. Factor in incentives/discounts etc. and it's probably a lot worse.

DinOR,

Part of the reluctance to call a spade a spade is knowing which side your bread is buttered on. The other part is not wanting to be the one to yell "fire" in a crowded theater (and then getting sued for causing the stampede). I'm sure the editors/publishers know *exactly* how bad this thing is likely to get, and if you did a survey of how many of them sold off personal "investment" properties over the last 12 months, you would see many hands.

DinOR,
Could you explain a bit more about the $250k tax free conspiracy (or point to a link if you have already done this in detail). The reason I'm asking, is, from my limited analysis, it would seem the at the old law (defer cap. gains) actually redirected more money into the RE marketplace as you had to roll your gains into a new, more expensive place. People like you and Randy are actually examples of folks taking advantage of the $250k exemption and getting out of the home buying machine -- under the old system this was not possible (without taking the cap. gains hit). Admittedly, tax free money is hard to pass up and there are folks at the high end (see SFWomans posts about the million dollar home sold back and forth) and fringes taking advantage of the system, but I am not yet convinced. Anything more to add?

King Corbra says

"I am not a shark that will look for opportunity at the expense of people’s sufferings."

Unfortunately, with property values dropping before we are willing to buy, we will be buying from people who will be financially suffering from their HELOC's and ARMS from Hell!

EBGuy,

The practical application was that b/c you were forced to re-direct the capital back into a home of equal or greater value........ most folks simply stayed put! There wasn't any real advantage b/c you couldn't "pocket" the gains (at least until you were 55 or older) and were allowed to downsize.

So it wasn't as much about "the money" b/c they were real sticklers about it. If 18 months from the sale of your home had elapsed and you hadn't re-invested? Hello tax bill! Most folks didn't want to expose themselves to this kind of liability so speculation was left to the pros.

Because you HAD to re-invest in your PRIMARY residence you didn't have all these options and people using HELOC's/re-fi cash outs to buy 2nd and 3rd homes ALL w/ tax free money. Where do we think the the money to fund flipper nation came from? Our great "savings rate"? In 2004 36% of home sales were described as 2nds. In 2005 it was 40% of home sales! Previous to this the average was more like 3-5%! I'm not even remotely interested in how much of this was done w/o the aid of HELOC bubble bucks. That would be chasing a rounding error.

Any time someone argues w/you about how this is a "non-factor" just tell them you'd be glad to take 35% of their profit! I mean, if it's all the same to you? Look, when there are no tax consequences people can afford to get pretty silly! Once they enter the picture it totally changes the whole complexion of the conversation. Sobriety sets in very quickly and humor dries up.

Show me another time in American tax history when people could take up to 500K in tax free gains without so much as visiting a CPA! When you word things in those terms, it sounds pretty stupid doesn't it.