patrick.net

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.

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.

Randy, I see the Google ads on this page are calling to you. :) I vote for the 30-year Fixed Rate Loan: "Great Rates. Less paperwork. No Lender Fee. Approval in Minutes." It's not quite as good as the ruby slippers, but since when have ruby slippers ever given you cash back? Huh? That's what you get for wearing gem-encrusted footwear from a housing casualty. If Dorothy had a brain, she could have flipped that crashed fixer-upper and snapped up some prime Main Street property in Munchkin Land.

Munchkin Land is sort of like Oakland, except the gang members carry lolipops instead of 9mm handguns. And you see how property values keep climbing in Oakland!

This is depressing. The optimal capital-gains tax rate should be 0%. Why would they want to raise it? 15% is already too high. Do we want to end up like Europe?

Hopefully, enough of middle class homeowners will feel threatened enough to make this tax hike a political third rail.

It is clear that the budget should be balanced through privatization, not taxation.

My dream of a flat tax system is fading. :(

I just can't see the agent actually following through and buying the property. It doesn't make any sense for them to buy something that nobody else wanted, and at a higher price. Realtwhores may be scum, but they are not that stupid, at least not with their own money.

I think the "agency offer" is made when they realize that the sellers wishing price is too high, it will take > 3 months for the seller to come to his senses, and they intend to lock the listing/commission up for longer than that.

Meanwhile, in the unlikely event of a sudden market turnaround, they have a "call option" to buy the house at a discount and flip it. If the market continues to go south until the option expires, they will invoke some contingency and get off the hook.

If the realtor *really* wanted to buy the house, they would buy it NOW for 2M, maybe discount heir commission to beat out other buyers. I don't think price collusion has anything to do with it. They want a transaction to happen, they don't care about the price. They only care about increasing the prices when it helps them to create panic buying, (read: more transactions).

They also want to do something to keep the listing active, I would think. In areas like MV they are fighting "toe-dipping" sellers. In both cases, the homes in question have been on and off the market for from 1 to 2 years. The sellers tend to list a wishing price, sit on it for a while then either get a low ball or agent pressure to drop the price, so they yank it and wait a while. A few months back they're on MLS again with a different agency. So this is a way the agent both locks up commission and keeps the listing active in the hope a fool will stumble upon it. After all, homes not on the market don't get sold.

The whole "agency offer" discussion also brings up the question of of how to deal with "insider transactions", and transparency in general.

I think there ought to be much stricter rules about reporting of real-estate transactions, and equally strict associated penalties for those who break the rules.

What is needed is

--rules about accurate reporting of sales and prices
--rules about open disclosure of all bids, to prevent fake bids
--mandatory reporting of "industry insider" selling and buying activity
--reporting of "off-market" transactions
--auctions should have published minimum bids

Total transparency is the goal. The stock market is much more transparent, although there is plenty of loopholes and shenanigans still going on there.

Social security is not going away. First of all it is financially solvent, at least through 2040, and even after that it is 80% solvent, meaning they could drop benefits 20% and it would be fine. Secondly, there are more elderly than ever and they vote.

Medicare is the thing that is going to bust the federal budget and I fully expect it to go away. Medical costs will end up bankrupting most of us before we die.

somewhat OT questions: is there a way to roll my 401k from a previous company into a Roth IRA? what are the tax implications?

also, when I read this blog from my Treo, each post is numbered, how come the post numbers don't show up when I use Firefox?

We recently had a tragic shooting in the BA.
A father's despair over money problems at a family-owned skin-care clinic in the East Bay led him to shoot his wife and their two children to death before turning the gun on himself, police said Tuesday.
So their business was having problems, but do you think this also had anything to do with it? The PropertyShark knows all.
Their house in Berkeley was bought on 3/21/05 for $640,000 with 100% financing from Impac Lending Group. The first mortgage for $512,000 shows up as variable. The second at $128000 is fixed. If the first was a 2/28 ARM, resets would have happened in March of this year. He registered his gun in April. Heartbreaking.

Do we want to end up like Europe?

Golly, "ending up like Europe" sounds awful. Far less unequal distribution of wealth and poverty. Cradle-to-grave healthcare coverage for all citizens. Fully or near-fully subsidized higher education. 2-3 months of mandatory paid vacation per year. Clean cities comparatively free of crime, gang violence, and graffiti. Strict immigration controls that ensure plenty of demand for a skilled and well compensated labor pool, even among the lowest tiers.

Sounds horrible. Where do I sign up? ;-)

Honestly, Peter, I'm not aching to have my own taxes raised, but if a capital gains tax-hike is one of your biggest concerns, then you must be doing rather well, no?

Worrying about how the mostly well off are going to pay (relatively modest) taxes on passively accumulated wealth is not really one of those things that keeps me up at night. I have substantial m. fund and 401k holdings and it doesn't even register on my 'big picture' radar. Losing my job to outsourcing or cheap foreign labor, or losing my medical coverage and being bankrupted by healthcare costs are a little higher up the priorities chain for me.

Just sayin'...

DinOR,

@ HARM,

I would really appreciate it if you could arrange for a password re-set!

My bad. Many thanks!

DinOR

@HARM

I rather dig Europe too. I think there are a great many things within countries like the Netherlands, Germany and the UK that the US could learn from. But economic stability and fairness is *not* among those attributes.

Keep in mind that most of those famous entitlements are crushing "old European" systems. Look up the percent of GDP debt carried in those cradle-to-grave countries as compared to the US. They're running their own ponzi scheme.

And the widely bandied "income disparity" numbers are misleading. Europe is incredible stratified, with little socioeconomic mobility. Whenever some NGO or the UN produces those famous studies showing the US is so terribly unbalanced compared to Europe they always (a) include social entitlements in wealth and (b) exclude private real estate ownership.

Randy,

got a pointer to such a study about Europe?

Peter P, I can't help but think that you live in some libertarian fantasy world.

Zero capital gains tax (and flat income tax) will do nothing good for society as a whole except conserving the wealth of those that have it already, and make it near impossible for anyone else to obtain wealth. Sitting around on ones ass owning stuff will be the only way to be wealhty.

Of course, it is pretty clear that what "conservatives" want to "conserve" is exactly that: The wealth and property of those who have it already.

justme,

The Economist covers the issue on a fairly regular basis. If you have a subscription, just do a search. If I recall it was in late January last time around.

I'm not trying to 'dis Europe. I think we could learn a lot from their health care systems -- both good and bad. But the health system we have now is shameful. The fact we cannot come together and fix something so primary shows one of the worse weaknesses of America.

But income disparity is deceptive when comparing the US to somewhere like France or Germany. In those countries the "middle classes" are primarily employed by the government directly or by protected-status labor jobs. Those countries also have very limited socioeconomic mobility, which is their downfall. To wit, even France is slowly and begrudgingly adopting more "Anglo" economic policies as a matter of survival.

DinOR,

Just emailed your new password --let me know if that doesn't work.

Look up the percent of GDP debt carried in those cradle-to-grave countries as compared to the US.

Most of the stats published here re: overall government debt-to-GDP ratio are misleading, as they conveniently omit our STATE and local government debt. Federalism is something relatively unique to the U.S.

I can give you an example HARM where capital gain tax is zero. If you hold onto your asset for more than 1 year capital gain is ZERO in INDIA and that's helping the economy. I support Peter on this.

Not saying (western) Europe is a perfect worker's paradise, just that --as Randy says-- we might learn something by keeping an open mind and considering successful social programs in other countries. I'm really tired of blanket assumptions like "all universal healthcare coverage programs are bad / creeping communism".

Public health and education are public goods. Woe to the society that neglects them.

HiThere,

0% c.g. might make more sense in India, which is a very poor, rapidly developing country, but not here. Obviously, we are about as "developed" as you can get, and the biggest threat to our own economy IMHO is not a lack of incentive in getting people to invest, but rather a wide-and-growing disparity in the distribution of wealth and our inability to provide basic, critical services like healthcare at a reasonable cost.

That said, I would be in favor of keeping c.g. taxes graduated --the longer an asset is held, the lower the tax rate. That way, you reward long-term (and retirement) investors vs. speculators. Where housing is concerned, our current structure is nuts. Today you pay 0% c.g. tax on a house if you: a) hold it for only 2 years, and b) claim to have "occupied" it (nudge-nudge, wink-wink) for 2 out of 5 years, non-consecutive. What's so wrong with going back to making this a one-time deal and only on your primary residence, and requiring a minimum holding period of, say, 10 years?

Some Europe vs. U.S. links:

http://www.taurillon.org/Europe-vs-USA-Whose-Economy-Wins
http://www.federalunion.org.uk/europe/060610EuropevsAmerica.shtml
http://www.spiegel.de/international/0,1518,366944,00.html

We tried selling our home in Blackhawk - a gated community - about 2 years ago with a discount broker. We were blackballed by one of the real estate agencies that had the majority of listings in the gated community.

The way I figured it out, was when I looked at who showed up for the Realtor Open House, only one agent toured the house from that company, whereas lots of agents toured the house from most of the other real estate companies.

Eventually, we ended up having to use a regular broker but at least we were able to negotiate the commisssion a little bit.

What I notice now, is that their lock on listings in that community is loosening. Don't you just love these little games !

Honestly, Peter, I’m not aching to have my own taxes raised, but if a capital gains tax-hike is one of your biggest concerns, then you must be doing rather well, no?

Not really. But I would like an efficient and simple tax system.

On the other hand, we must do everything possible to stop or slow the expansion of the tax system. The middle class will be the ultimate victim.

Not all gay-right activists are gay, right? ;)

I know Europeans are shocked when they hear what American business pays for liability insurance.

Losing my job to outsourcing or cheap foreign labor, or losing my medical coverage and being bankrupted by healthcare costs are a little higher up the priorities chain for me.

HARM, wealth can only be created through capital gains. The global trend cannot be stop. However, we can position ourselves for the effects.

But I would like an efficient and simple tax system.

Me too.

On the other hand, we must do everything possible to stop or slow the expansion of the tax system. The middle class will be the ultimate victim.

Yes and no. Not all taxes are created equal. The inheritance tax (reframed by rich apologists as the "death tax") is an excellent example of this. It primarily affects the rich, and among the rich, it mostly impacts inherited (not earned) wealth. The dead are not being taxed, rather, their lazy, unproductive trustafarian offspring are, which is not necessarily a *bad thing*. It can even be very beneficial to society *if* the money is put to productive use, like providing healthcare or college education grants for the poor. Of course, with such a large, inefficient and corrupt government, that's always a big "IF". I.T. by its nature also reduces income disparity, increases class mobility, and disincentivizes hereditary wealth transfer over the long term, which is arguably a very good thing for society.

On the other had, payroll taxes negatively impact productive people of all social strata, though to varying degrees. It hurts those at the bottom rungs the most, as a far greater % of their income must go towards basic necessities vs. the upper strata. The last thing you want to do when social engineering is to dis-incentivize productive work.

I think what I find most unfair about the cap gains rules for housing is that they treat a "once in a lifetime" event as though you made that much money ever single year....

The old rules permitted "income averaging" over 5 year periods. This was more fair, but it was done away with back in the '80's IIRC.

So now cap gains sales rules treat someone like me - who actually lived in a house for 25 years - the same as a "flipper" who faked living there for 2 years.

An example of a possible reform would be a gradation with more granularity that just "short term" and "long term" cap gains.

Under 1 year - short term rate 30%
Between 1 and 5 years - 25% ("flipper rate")
Between 5 and 10 years - 18%
Between 10 and 15 years - 12%
Between 15 and 20 years - 6%
Over 20 years - FREE NO TAX

Looks like Bears Stearn didn't manage to save the hedge funds. $800mil in securities seized and to be auctioned off today.

This could be the beginning of the hedgie wedgie fest, 2007.

"hedgie wedgie fest" LOL!

I like it! :)