patrick.net

I understand the resistance pols will have to taking away the housing tax breaks, but the pols do not always do as the people wish. Just look at how hard they are trying to push the immigration bill through, and that is only supported by about 20% of the people. I would bet raising taxes on real estate including the 500k deduction and the mortgage deduction would have more support among the people than the immigration bill.

The '86 tax reform bill cleaned up a lot of the garbage that had built up in the tax code over the preceding decades. Now we have had 20 years of additional crap larded onto the tax code. It is time for a new sweeping tax reform bill, in my opinion (reforming the code is sort of like pruning trees--the branches always grow back).

Unfortunately, tax reform doesn't seem to be high on the list of priorities for any of the presidential candidates. If a democrat wins we will likely see a host of new "targeted tax breaks" (ie: more complexity and more opportunities to game the system). If a republican wins, we will likely see more "economic incentives" (ie: industry handouts). Either way, I don't think the voters are demanding a massive tax code overhaul at this point, so it is unlikely that it will happen.

@FAB

Off topic, but I've sent another request to your email.

@all

We're preparing a healthy wave of bid offers, and I'll be blogging about how we've refined our strategy, etc. For those not familiar, we offer low-but-fair, look for weak spots where there's downward competition and over supply, and we don't use a buying agent (and we do use a real estate attorney). We might do another "reverse multiple offer", where we offer on more than one simultaneously and add a contingency that we'll select the most acceptable counter/acceptance.

If for no other reason than to see the look on some of the agents faces when they receive their first "reverse multiple offer"; especially after trying so earnestly to convince me that "multiple offers are back". Yep, they are. Just the other way around.

And btw, we're getting calls back from agents (in MV) begging us to reconsider buying homes we've viewed now that there have been "significant price reductions". Indeed, a couple of these are down more than $250K.

My guess would be we're due for a massive tax overhaul around 2015 or so. By then there will be enough real pressure on entitlement programs to force the issue. Also by then they'll be able to start chipping away at our 401k et. al. tax deferred savings.*

* I still strongly advocate fully funding one's 401k/SEP/IRA. But be aware that the current tax savings calculation is almost guaranteed to erode over time.

** I think this is the saddest statement of all, that we'd allow our retirement savings tax benefits to be culled before we'd allow our home-owners tax benefits to be culled. But that be Realpolitik.

"I think this is the saddest statement of all"

Yes sir, it is. In fact, many of us allowed ourselves to be swayed by mortgage "planners" into buying off on "buying as much house and borrowing as much money as you can get our hands on!"

"I don't know about you... but I've NEVER made ANY money in the stock market! With the $524.89 you WERE putting into your 401K I can "qualify" you for another 100K in an "investment" that IS going some where!" Yada yada.

In order to correct this we'd have to move the cap. gains exemption out to at least 5-8 years and more like 10! As things stand now, 401K/IRA dollars are "some day" dollars. REIC dollars are "right now" dollars. Why wait for 59 1/2 for "tax deferred dollars" when you can have "tax FREE dollars" TODAY! :)

Randy,

Well, it might come to that, esp. if there's massive stagflation or depression. I think future tax rates, esp. capital gain, will almost certainly be higher. That's why I want to lock in the current low tax rate under Roth. Deferring tax to the future is almost certainly going to be a mistake even for people at their peak earning capacity.

DinOR

@astrid,

Oh you're right, and... (without getting political) with the tab we're running up it's all but guaranteed! In FP circles the debate has moved to, how much and when?

Just another example of how distorted the REIC lobby has "sculpted" our tax code, country and their rightful place at the head of the line.

Oh and sorry about the confusion on the screen name. Obviously I botched that when the reg. was implemented. I'll get a hold of Patrick to straighten that out. :(

DinOR

Good luck on the offering, Randy! Make sure to keep a notebook around to jot down entertaining things said to you by realtors as you go about your business. I'm sure you'll hear some colorful things.

Brandon

> it takes a looooooooooooong time (3-5 min) for comments to post.

I finally demanded that he.net move me to a different server, which they did. Unfortunately, the did not move the patrick.net DNS domain name at the same time. You may have noticed that the site was unavailable as a result from about 7pm last night to 6am this morning.

Oy. I would dump he.net, but it might cause yet more problems, and so far this new server seems OK.

Patrick

I think future tax rates, esp. capital gain, will almost certainly be higher. That’s why I want to lock in the current low tax rate under Roth. Deferring tax to the future is almost certainly going to be a mistake even for people at their peak earning capacity.

astrid,

What makes you think that a national financial crisis severe enough to enable a reduction or elimination of federal tax deferrment on 401k/SEp/IRAs won't also impact Roth IRAs? Congress can rewrite the tax code as they see fit --and retroactively if necessary. Your Roth "rate lock" today may become tomorrow's potential 'cash cow' for politicians to mine. Never underestimate the collective political power of two enormous generations of wanna-be-rich retirees (Boomer+Silent) and their need for immediate self-gratification at any cost (to other people, that is).

HARM,

So eventually it'll come down to a zombie movie-esque showdown between the young and the old? "Fuuunds.... fuuuuuuuunds!"

Excuse me... I gotta go stock up on shotgun shells.

DinOR,

@HARM,

While that always remains a distinct possibility the conventional wisdom is that it will be much tougher to go after Roth's. As you're aware they're done with after tax dollars so there was no "dual benefit" of reducing your pre-tax income as well as tax deferred growth to boot. The Roth 401K was in ways a means to appease younger voters/workers that had never really had the benefit of a "defined contribution plan".

When compared to a DCP (employer funded plan) the Roth still sucks. Taking away that little compensation would create quite a stir and require some type credit back for having reneged on their promise. Then again...?

DinOR

HARM definitely has a point. Look at all the wealth that was confiscated during the depression. They took peoples gold for crying out loud, and then paid them what they said it was worth. You know those $50 gold coins you can buy for $680 each. How much do you think they will pay you for them if things really get bad. My guesss... $50. Whose to say what they will do with ROTH IRA’s, or 401K plans. I foresee a solution to the Social Security problem if things get bad enough. Combine everyone’s retirement packages into Social Security, including IRA’s and 401K’s. Govt make these rules and can change them any time.

Randy,

When you say MV I assume you mean Mill Valley and not Mountain View.

(Because the Fortress never goes down. BTW, the Fortress has now an official name in the MSM - "Prestige Markets". Makes the buyer feel better.)

As said, Roth's are post-tax lock in, which *should* be harder than pre-tax deferments to "confiscate". Keep in mind that the government are expert at figuring out all kinds of ways to skin the proverbial cat. I actually highly doubt they will ever *directly* eliminate retirement deferments or lock-ins. Rather, I imagine they'll figure out ways to put in offsetting taxes that just happen to correlate real well to the amount they want to confiscate from your deferment. And they'll call it the "American Families Retirement and Security Relief Act of 2012" or something similarly patriotic.

Have I mentioned how much I hate non-direct, non-consumption taxation yet today? All taxes not directly tied to the actual consumption of product or service are de-optimizing, by definition, and should be eliminated.

@SFBB, :lol:

@KT,

Maybe I'm just being tin-foil hat paranoid, but I wouldn't put such a thing past a future government in seriously dire straits. Given that they can (and occasionally *do*) rewrite the rules as they see fit, I would prefer to take my tax deduction right here and now, while it's still available, thank you.

How many people 10 years ago would have guessed there would be a "means test" to individual (but not corporate) bankruptcy? Who could have forseen the Fed, GSEs and Congress would rig the mortgage market completely in favor of flippers and fraudsters? I have learned not to expect politicians or a frightened, greedy, ignorant public to do anything but make the worst possible choices at the most critical moments. If there's enough political will to confiscate, there's always a way.

@Patrick aka Admin aka Chief Great Leader

I'm setting up some racks at ColoServe in SF. Any thoughts on how reliable they are? I know you don't have a dedicated box, but I've been toying with setting up a shared blog server there for some other stuff for a while anyway...

StuckInBA,

I like the name "Prestige Markets" a lot. If you look back in the origin of the word (or watch the movie "The Prestige") you'll see that it means "illusion" in french.

Pretty much the bubble has (and is) a 'prestige' in that sense of the word.

DinOR,

@sfbubblebuyer,

Seriously, that is too funny!

I did a coin toss this weekend and rented "The Fountain" instead while massively hungover. I'll try to get it right this coming weekend!

Hi Randy,
I don't know how good ColoServe is. Sounds nice to have real control. How much do they charge? You can mail me direct at p@patrick.net.

I thought my DNS problems were over this morning, but apparently not. Many people still cannot see patrick.net today because their ISP's name server has not updated yet. Depressing.

Patrick

Holy crap, all my zip realty saved searches () have jumped 10-15% in inventory overnight. And these searches are all for the Frickin' Fortress (r). Not sure if inventory actually went up or if this was caused by a glitch in their search.

Compared to the beginning of the year, inventory is up 191%. Here is the data.

1/1/2006 ------ 60 %
8/1/2006 ------ 314 %
1/1/2007 ------ 100 %

rats, there was a less-than symbol in my post.

Here are the numbers again:
1/1/2007 35 100

1/1/2006 ------ 60 %
8/1/2006 ------ 314 %
1/1/2007 ------ 100% (baseline)
2/1/2007 ------ 145 %
3/1/2007 ------ 154 %
4/1/2007 ------ 157 %
5/1/2007 ------ 157 %
6/1/2007 ------ 151 %
6/20/2007 ----- 191 %

SP

HARM,

I suppose when the revolution really comes, anything can happen. I was born in a country where the parents' pre-1949 landlord/capitalist status can destroy the career prospect of their children/grandchildren. No point in saving money in that case.

As Randy said, direct confiscation is extremely unlikely. The creeping confiscation via denial of benefits is more likely, though I hope to be out of the country by that point.

DinOR,

"completely in favor of flippers and fraudsters?"

That would be about the size of it. When you put it that way maybe a bird in the hand...? I guess the only reason I have any faith left is that it really does seem like the Fed is frantically scrambling to get some standards back into lending standards? At least they haven't lowered rates (yet) under immense REIC pressure.

The "special commission" that met last fall did make comments regarding some of the preferential tax treatment and the fact that there was at least some debate about subprime/predatory lending was encouraging (if not misguided).

Patrick, I had a friend today "who has no interest in housing, or bubbles, or econimics, etc", ask me today what blogs I read. She had read about patrick.net in a BA newspaper article this weekend and had been reading your site feverishly. I did not see the article, but it made me wonder if that is generating a bunch of traffic to this site causing some of these problems.

I'm not sure what econimics is, but I bet it's interesting.

I fully expect Social Security to fail. I say this because more and more people in their 20s-40s don't expect it to exist by the time they retire. I pretty much assume SS is wasted money for me at this point, and as we get older and more cynical, I see us actually having the numbers to oppose the NAARP's voting block and start phasing out SS. I'd LOVE to see SS taxes be gradually phased out over the next ten to twenty years along with SS benefits.

So DinOR is now Apache66 ?

Yes, "Apache66" = DinOR. Which is really odd, because "DinOR" is already a registered account with authoring privileges.

DinOR, what's up with the name change?

It's interesting that I haven't seen any of the local MSM outlets report this:

http://phx.corporate-ir.net/phoenix.zhtml?c=63356&p=irol-newsArticle&ID=1017129&highlight

PMI, the folks who insure our mortgages, reports on the risk of price declines in major RE markets in the US. Near the top are Oakland, SF, SJ; ie, the entire Bay Area. As I read the report, basically these three locales have an estimated 57%, 41% and 49% chance of price declines during the next 2 years.

HARM,

I think he screwed up the registration somehow and can't log in as DinOR.

DinOR, let me know if you need your password reset. If that fails I could try to delete and re-create that username.

Mill Valley is definitely dropping again on the higher end of things. But there is a lot of "funny businesses" going on too. Cripes. Seems impossible to win the real estate game. Apparently, so I've heard from 2 agents now (who were trying to get my to bid-up), once hitting the $2mm + level nicer homes in MV often have "agency offers" on them, which are in essence purchase options for some long-dated future date, with a significant (but not exorbitant) cancellation feel. Say something like a $2.0mm home is sitting for sale, and an agency says they'll buy it for $2.19mm on 1/09, with a $65K cancellation fee and a right of refusal to match any other offers that come in during the interim. I wouldn't make this shit up. I've heard it on 2 properties from 2 different agents from 2 different agencies now. It's kind of like realtor-price-protection collusion, as best I can figure. It makes it so sellers simply won't bring themselves to sell "below asking" even though they're basically saying they'd rather have the $65K fee in 1.5 years than the delta of price drops they risk losing by not taking a $200K hair cut.

Cripes.

Randy,

That's absurd! I cannot imagine the hubris that goes into making an offer like that to a seller. I wonder if it's only the ones they think are likely to capitulate that they make such an offer to, and it smacks of racketeering.

Randy,

Who is making these "agency offers" - RE outfits? If so, which specific ones have you seen do this? I've never heard of this before. It's almost like a "guarantee we'll sell your place or else we'll buy it from you" (for a hefty fee) from the Realtor.

So...these sellers must therefore be "test the waters" types, since they seem to have no urgency to sell. Clearly this is not the type of seller one ideally wants to buy from (ie, no pressure to negotiate down).

I wonder if these sales factor into DOM, as they will tend to stay on market longer, or if the Realtors (TM) have some way of doctoring the stats so that the date of the signing of the "agency offer" is used as the sale date? Wouldn't surprise me if they did.

Is such a contract even legally enforcable?

Test

Wait a second. I'm trying to parse what the "agency offer' really means. I think it simply means that your listing is locked in with the agent until 2009, because practically speaking, nobody is going to want to wait that long (2 years) before they sell.

The whole scheme is just a roundabout way of extending the listing contract period by some huge and non-standard amount. Once 2009 rolls around, maybe the agent/agency can get out of the contract because they have an inspection contingency, a loan contingency or some such. That makes the offer at 2.19M (or whatever) not worth the paper on which it is written,

I don't think it is a coincidence that 3% of 2.19M is 65k. Basically, the listing broker is locking up their rights to a sale commission for 2 years.

Am I wrong?

Justme,

Randy's description sounds like an option that makes absolutely no economic sense outside of collusion and attempted price fixing to guarantee a price floor. I'm not even sure how it could make sense if it was an effort at price fixing.

Possibilities as I noodle through it:

1. The agents are making it up, but have colluded on some common storyline.

2. Some agencies/firms also do investments. I had written about this like 2 years ago on Patrick.net, not too long after moving up to Marin from the Peninsula. There are definitely agencies here that do some horse swapping. That wouldn't be illegal as far as I know, just unseemly.

3. These could be investment groups, probably with various brokers and richer agents participating, that speculate on properties.

4. These could be legitimate investors buying up residential real estate properties. I've never lived in a place like Southern Marin, but I do recall from a previous life in Chicago that the exclusive areas were often prone to professional investment activities. Not flippers, but actual portfolio investment companies that would buy, rent & hold, and then sell residential real estate including SFHs in high value areas.

5. I could be having a bad dream and I'll wake up back on the mid peninsula, somehow magically having been transformed into an owner of my dream home mini-ranch in Woodside.