patrick.net

The only people that obsess over housing prices are the handful of Patrick.net readers. in this country of about 307,000,000 people, most of them doesn't obsess over housing prices, especially what you think are "overpriced." They are paying their rent or mortgage on time every month, month after month, going to work, planning their next vacation, going to the kids open house and back to school night. In fact many men and women are looking for even more housing deals for investments in what most consider a depressed and low priced market while there is blood in the streets of the housing market. If you talk to co-workers, the butcher the baker and others regular citizens they don't obsess over home prices, let alone even know what Patrick.net is nor do they care.

thomas.wong1986 says

Troy says

I think prices make sense everywhere that is easily walkable to GOOG and AAPL, plus MP to LG in general. You've got to compete with millionaires for these houses.

So why was Mt View so cheap in the 80-90s? Plenty of Tech companies back than, lots of crazy growth 10-20% growth, good salary, yet prices never went balistic.

no google back then.

google market cap is $170B.

how many $100B-$200B companies were located in MV back in the 80s and 90s?

and if they existed, how many were as generous with stock options and RSUs as google is today?

google has had a definite impact on housing prices in mountain view.

thomas.wong1986 says

So why was Mt View so cheap in the 80-90s?

There's been a lot of employee growth 2000-now from GOOG and AAPL and not much housing stock growth.

That's like 2 or 3 generations of employees through these new tech companies.

dot coms like SGI, Netscape and Sun existed too but they were more a flash in the pan compared to GOOG and AAPL with their several hundred billion in market cap.

Plus there's an accretion effect of successful dotcommers retiring on their money into the area. I would, if I could, since the services are first rate in the fortress.

Hysteresis, had you not had the 100s of tech companies in the 80s and 90s making HW/SW there would be NO Google today.

You forget we had Exite, and Netscape and Infoseek.

Walk into the heart of Googles Server Rooms.. what do you see?
Its the same "Stuff" you see in any industry using products which run their operations. Semi, Servces, Sorage, and Software. This is the "stuff" we do that makes the global communications run.

The stuff Google makes is "Advertising"... not worth spit!

I would buy that condo now. If it went from 350k to 600k in about ten years you should be able to double your money within ten years, 600k profit is way better than 250k profit, buy now. I wonder what the HOA dues on a 600k condo is?, or how about property taxes?

What I've finally realized is that one income, even making 50-60k is not enough for home ownership. It's about enough to keep a car running, a roof over your head, food in the fridge, minimal entertainment, and save for retirement. When you have to live in the city to find a decent income, that city will eat most of it up.

I don't obsess because I've also realized that most RE in my price range is junk, needs to be gutted, bulldozed, or burned down.

Hysteresis says

and if they existed, how many were as generous with stock options and RSUs as google is today?

Stock options were not expensed to the profit and loss stmt prior to 2000. Fact is Google doesnt comp employees with stock options anymore. You did hear how this year had to give a raise because their employees were underpaid. Contact any headhunter and they will tell you the same.

Back before 2000, Yes, SV gave out stock options, but that has all changed.

Troy says

There's been a lot of employee growth 2000-now from GOOG and AAPL and not much housing stock growth.

You list two glamor employeers of today. Can you speak for the other 200 public companies? Back in the 80s we had mfg running 24/7, 3-4 shifts and plenty of jobs across many functions. Then vs now ? You have no idea how much better things were back in the 70s-80s-90s even compared to dinky Google today.

" dot coms like SGI, Netscape and Sun "

Sun and SGi started long long ago.. and contributed to many parts of tech you see today. They were not dot.com...

mdovell says

Well we have been blindsided by the whole argument that the "American dream" is owning your own house..

Well that is hilarious.

I always thought, that The American Dream was the freedom to be who you wanted to be, do your own thing.

For those who Want to Be Like Others in Idyllic Magazine Ads, well I suppose that means some stereotypical situation is Their American Dream.

lurking says

The only people that obsess over housing prices are the handful of Patrick.net readers. in this country of about 307,000,000 people, most of them doesn't obsess over housing prices, ..... regular citizens they don't obsess over home prices

That is why they are not Hip and Cool Bay Areans.

Troy says

Part of the problem 2000-2001 was I was waiting to establish an income history in the US

You don't have control over time factor. I got my first job out of college in 1997 and that was the best year to buy CA real estate.LOL.Who could have loaned me money to buy a home at the time? Fast forward 5-6 years and I have enough down payment money and I was already bummed by the 1998-2002 bubble. Like it was not enough another blow was the bubble that followed 2002. Right now my brain wins over my heart. I just cannot buy a piece of RE that is not going to appreciate in near future,thinking too much of the housing right now. Thanks Patrick. :)

thomas.wong1986 says

Back in the 80s we had mfg running 24/7, 3-4 shifts and plenty of jobs across many functions. Then vs now ? You have no idea how much better things were back in the 70s-80s-90s

I was growing up in blue collar neighborhood of San Jose during those days, my friends' parents all had relatively good paying blue collar jobs in blue collar manufacturing at all sorts of those outfits (BTW that don't exist anymore), whole neighborhoods and communities supported by it. But those days are over and now we're in the Vapor Wealth Hip and Coolness of the New Economy.

bubblesitter says

I just cannot buy a piece of RE that is not going to appreciate in near future,thinking too much of the housing right now. Thanks Patrick. :)

I'm not in the market for a $3M house but seeing this:

Jul 14, 2011 Price Changed $3,198,000 -- SoCalMLS #L35459
Mar 31, 2011 Price Changed $3,199,000 -- SoCalMLS #L35459
Mar 09, 2011 Price Changed $3,350,000 -- SoCalMLS #L35459
Mar 07, 2011 Listed (Active) $3,570,000

tells me to keep waiting : )

http://www.redfin.com/CA/Laguna-Beach/1335-Skyline-Dr-92651/home/4888296

thomas.wong1986 says

You have no idea how much better things were back in the 70s-80s-90s even compared to dinky Google today.

you are failing to understand the dynamic here. The old companies would hire 100 people and then they'd work for 20 years or whatever.

Companies like Apple go through thousands of employees every year. Many of them retiring millionaires.

The old Mac team people from the 1980s stayed in the valley and are still occupying space as it were. This is the accretion I was talking about, the fortress is like Hotel California for tech.

Sun and SGi started long long ago.. and contributed to many parts of tech you see today. They were not dot.com...

well, yeah.

SGi is funny as if it wasn't for that deal they made with Nintendo maybe they would still be around. A 10K Indy workstation turned into a $300 N64 system six years later.

We can say nearly everything in the past contributed to things we have now. The idea of the assembly line came from Henry Ford etc.

I just read the book The Great Stagflation that does state that google only has 20K employees, twitter 300 and so on.

If you have mass production of a given item then the value of those items goes down not up. As a economy matures so do its workers. You are not going to find people that want to do factory work for 50-60 years. The old factories in the past were repetitive and monotonous actions over and over again. Very little thinking was involved. I had a great aunt that performed the exact same function at an assembly line every 15 seconds. Today why would that have to be performed manually by hand? Now manufacturing is much more sophisticated and requires much more thinking.

To argue that wealth is only created when we make material products is quite a bit misleading. People that work in shipments (Fed Ex, UPS, trucking companies) do not create anything but certainly they are relied upon to deliver from point a to point b. I highly doubt companies would create their own shipping subsidiarity if these organizations dissolved. Is prepared food considered the same class? After all factory farms can churn out product right? But food spoils...

Even if a physical product is made it STILL spoils like food. If you buy a new Ford Mustang today it will go down in value because nearly all cars go down in value. If you bought anything electronic it will go down in value. Music, movies, books..same thing...clothing probably. Outside of commodities (gold, silver etc) most of what we buy DOES go down in value.

The act of using an item renders it "used" and thus it goes down.
But due to constant competition even if something is warehoused it can still go down in value. Otherwise we'd see Betamax players selling for the same prices they were in the 80s along with 8tracks and CED players! Of course this creates a paradox in that why even buy new of anything?

Does google create wealth? Well if you bought the stock the answer is yes. If you use the information it uses then the answer is yes. Much of the websites we get information from today would have cost money 15 years ago on various BBS's.

Let's take this argument a bit further and look at just some basics for employment.

Labor advocates try to say that we need jobs to do three things

1) be easy to get - any concept of significant training or qualifications is seen as discrimination. They want to maximize equity

2) hire a ton of people - believing it will lower unemployment and higher demand must mean that the company is doing great

3) have good pay and benefits - obvious

Well #2 is a paradox with #3 because if a job hires a ton of people why would it have good pay and benefits? It also means there's less security if more people know how to do the same work.

#1 is a paradox with #3 because if it easy to get then the wages would probably go down unless the work can be considered physical harmful/risky but that usually requires significant training

Certainly there can be nostalgia towards old mill areas and manufacturing but to suggest that everything has to be done by hand and be done by hand here is a bit of a stretch.

Sybrib I agree but I do hear from some that say that it is owning a home.

When life becomes too expensive it is a big deal.

You might remember the days when you could mow lawns and make enough money to live in a nice 2bd, eat all right, have affordable healthcare, and have a decent life style.

But all these political thugs and their cronies have changed this life. Shelter has blown into prohibitive bubble levels, food became very expensive, healthcare is beyond expensive (either have insurance or roll over to die). As American I see this as destruction of the middle class, a destruction of what made this country great. And a lot of the blame does fall on the government and their policies.

They collude with cronies to price up whatever benefits them. Create pretend socialist systems where they simply waste our money screwing us all. Promoting "home-ownership" this government has created only a balloon with lots of foreclosures and disgust that made money for wall street. Promoting "affordable" healthcare they have made another bubble and its now breaking the government bank.

I don't obsess over this, but it does bother me how this changes our nation. Especially that government wants to keep the bubble going to bail out wall street, screw the main street.

More interesting commentary as always, which is why I posted this. I did some more thinking about this last night because to me this is indeed more of a psychological issue than anything else for more ways than one.

The first is along the lines of what I was mentioning before: Buying a house is a symbolic gesture. Truth be known if you get married or have kids a rented house will shelter you just as effectively as a bought house. They both have roofs. You can also quite easily rent a home right next to the school of your choice if you so choose. The arguments I hear for buying are tied to the fear of uncertainty; what if the landlord decides to sell the house? Well... the same could be said for buying a house. What if you lose your job or get relocated at your job? Both choices contain uncertainties but yet people lean heavily towards thinking that buying means more stability simply because therein lies the promise that someday- decades from now- they will own the home. Then again, we all get old and someday you'll have to move out of that home regardless.

This sort of triage into my next thought which goes back to the obsession with high priced real estate. Humans like to use mathematics and physics for everything. We combine these to create predictions and hypothesis. If we do "X" or "Y" then logically the outcome should always be "Z". For example, if someone makes $100,000 a year and logic tells you that they can afford at most a $300,000 home then they will buy a $300,000 and under home. Yet they buy a $500,000 home instead. Why? An area median income is $80,000 and yet the median home price is $700,000. Our desire to see logical conclusions falls apart in this and countless other scenarios. The reason goes back to what I was talking about before. People using emotion and psychology will often make illogical choices.

The end result is that when we- who look at the whole housing situation- especially in extremely expensive areas like the Bay Area- are presented with an unpredictable outcome. Logic would suggest home prices should be inline with real incomes. Yet they aren't. Logic suggests that people making 100k incomes should only buy 300k homes. Yet they buy 500k homes. Logic suggests that people will wait until prices fall. Yet they don't and buy anyway. We won't really know why because the decisions made in this regard were not often based on mathematical reasoning or logic.

This in turn means we wind up having circular conversations seeking answers we'll never get simply because they don't exist. Seeking logical answers on a subject that relies heavily on illogical decisions is inconclusive- hence why many like myself feel frustrated.

ih8alameda says

I am having a very hard struggle right now because a semi-dream house is available, my wife and I can comfortably afford it but it's over priced for what it is.

Trust me. We're sort of in the same boat. The problem is that our rent is a mixed blessing. We pay around $1,500 for a fairly large 4 bedroom house with a big yard, a 2 car garage, and a garden. Its comfortable, in a good neighborhood, and we've lived there for 8 years with a landlord who doesn't raise the rent. I did the numbers and the same house would set us back around $2,500 not including taxes, thus almost doubling what we pay. We have no kids and no expenses thus renting means we're saving a lot of money- which is a nice thing. I haven't worried about money in years. We can eat out when we want, go on trips, and basically have a good time. Sure- we could buy a house and we would probably be alright. But for our situation its not like our lives would dramatically improve. In reality we would probably be able to buy a smaller house and then be on the hook for repairs.

Umm, supply and demand. Cities are limited. This is generally why prices are higher in popular places. Prices then are not solely dictated by income. But by supply/demand. Econ 101. Prices in sf or la won't be ruled by income. Ever! Get over that notion. This is where patrick's site is misleading. Bubble or no bubble. Thank you,
Management

This mindset is bubble market specific.

I think in NY its normal to be life long renters and they obsess about getting into a good deal on a RENT CONTROLLED apartment where the landlord can never ever kick them out or raise the rent.

I would prefer to live in a more free area such as bay area and battle with bubbles. This is better than fighting over a government handout/freebie which is what losers do.

KILLERJANE says

Umm, supply and demand. Cities are limited. This is generally why prices are higher in popular places. Prices then are not solely dictated by income. But by supply/demand. Econ 101. Prices in sf or la won't be ruled by income. Ever! Get over that notion. This is where patrick's site is misleading. Bubble or no bubble. Thank you,
Management

Yes- we can all agree on supply and demand but incomes and what they can afford are the other side of that coin. Stating that prices won't be ruled by income is like saying an auto manufacturer can charge whatever they want regardless of what their consumers can afford. That's why the economy is in the crapper and California and the Bay Area have massive amounts of foreclosures- because in the end it really does matter is local incomes can afford homes. Yup - That's econ 101 for ya'.

Location location location.

Sorry. You are right. Prices won't be ruled BY INCOME ALONE but by supply and demand.

Also, those old crappy houses in la and sf suck! Been there, fixed that and got out. Make life easy. Rent or buy new. Life is short.

KILLERJANE says

Sorry. You are right. Prices won't be ruled BY INCOME ALONE but by supply and demand

... except there isn't a shortage of homes. The supply is at an all-time high. So the supply and demand argument doesn't work here.

KILLERJANE says

My point is, don't be bored with the same old ideas, buy a home and live there forever. Boring and it effects the sex life too. Buy if you must, stay till the sex sucks and then rent it out and move to new.

That's not what was being discussed. The topic was about the general obsession people have over expensive real estate. My wife and I already go against the grain anyway so its not like we're "Bored".

edvard2 says

The supply is at an all-time high. So the supply and demand argument doesn't work here.

thing is with supply, is that it's not all the same. The supply in the fortresses is entirely fixed.

There's tons of homes for sale in Manteca and Los Banos, but that doesn't help the fortress much.

Of course, just trying to help your perspective and housing can be a great investment but sometimes we need to approach life in new ways. It is short and there are great re investments out there but waiting for highly demanded real estate to fit your budget will make you frustrated. Try a new approach is all.

KILLERJANE says

housing can be a great investment

KILLERJANE says

approach life in new ways. It is short

What I am understanding is the investment that has highly appreciated does not mean anything after one dies. So spend money on stuff other then RE.

corntrollio says

That's not that great an increase. Inflation since 1987 was 98.7% per CPI, so about $100K would have been $198,700 by inflation alone.

NO! This "Inflation adjusted" crap didn't even come into economic vernacular, until the Wealth vanished in 07. It was failed logic then and it is failed logic now. Granted 100K might as well been 198K in 1987, as at that time, I could not afford neither. But inflation had little to do with it.

Rates and Inflation has fluxed through out the 80's, in fact interest rates are lower now, so by "Inflation" standards, we should be experiencing "Deflation" but we're not for many obvious reasons. Manipulation being the biggest reason, and the same reason that people like to throw "Inflation Adjusted" around. It manipulates the facts.

KILLERJANE says

PLEASE BE SPECIFIC. My wife and I already go against the grain anyway so its not like we're "Bored".

We're married, make high incomes, yet we rent and we're cheap-skates. So its not like we can't buy. Its that we don't for the sake of economic sense.

Troy says

thing is with supply, is that it's not all the same. The supply in the fortresses is entirely fixed.

There's tons of homes for sale in Manteca and Los Banos, but that doesn't help the fortress much.

Fortress areas aside prices are still too high- even in the not so great parts of the East Bay where there's an abundance of homes.

Very funny. That's not the answer i was hoping for.

I only obsess over real estate because I own horses, and I doubt if I will be able to afford them once I get older/retire or have to live on less income. The only way I think I will be able to have them for the rest of my life is if I own a piece of property where I can have them at home.

We "own" a small house in the East Bay with a mortgage and our monthly expenses with PITI is about $1700 a month. But to own and board a horse around here runs nearly $1000/month.

We also have dogs, which is why we have this house in the first place. It was originally bought by the in-laws in the late 90s for my husband to rent since it was impossible to find a place to rent with a dog in the Bay Area from 1996+

Sadly I think there is an agenda behind the last decade of "must buy a house" propoganda. Taxes to hold real estate has risen sharply as have utilities accross the board. Insurance is way up too. Call me crazy but I think it was all a campaign by the rich to get everyone on the hook and chained to the massive prison that is home ownership for those who really cannot afford it.

I own my house. I bought it cash. I live in a city far from my first choice though. I am from Vancouver where the real estate went crazy and did not stop for the last 10 years. Instead of obsessing I moved. I went to a place I could plop down my savings (from years of renting) and own outright. Sometimes I really wish I would have stayed a renter. Its much easier and in my opinion cheaper in the long run. Sure you wont own a house when you die, but so what? Of course rents have gone crazy too as "owners" think you should foot their crazy mortgage. One fo the reasons I finally bought.

I am very glad I moved away from such a hig priced area. People in vancouver are struggling and its very dog eat dog there. Lots of drugs and prostitution ... LOTS. Thats a sad way to subsidize the rent. They are pretend to be living it up but in my eyes they are selling their souls every day.

Troy says

I bought a $10,000 motorcycle in 2002 with the savings, that qualifies as pissing it away I guess.

Meanwhile, you could probably still pay $700/month to rent a room in your friend's place in many places in the Bay Area, although I'm not sure where you lived at the time.

lurking says

They are paying their rent or mortgage on time every month, month after month, going to work

Last I checked, many of them aren't paying their rent or mortgage and many are out of work. But thanks for playing our game.

Tenouncetrout says

This "Inflation adjusted" crap didn't even come into economic vernacular, until the Wealth vanished in 07.

People did not think about inflation until 2007? Riiight. The rest of your comment is nonsense rambling.

Inflation adjustments help put absolute prices in context. No one cares that your grandpappy spent only a nickel on various things.

KILLERJANE says

This is generally why prices are higher in popular places. Prices then are not solely dictated by income. But by supply/demand.

So your argument is that household income has nothing to do with the supply and demand curve for houses?

Tude says

since it was impossible to find a place to rent with a dog in the Bay Area from 1996+

Not true.

Troy says

The supply in the fortresses is entirely fixed.

Not really. People kept saying that for decades, but we have seen from prime SF to Mt View to Los Gatos. New developments near the new Ball Park in SF, MW saw new homes dev. near downtown. Even today they are builiding new Apts off Evelyn and Castro. Los Gatos, had torn down an old hotel and put up new homes, and new homes called Thunderbird are being sold today... New homes were put up near Good Sam. Heck there is even a huge patch of farm land off 17/85 ready for new homes.

Plenty of land in the future.. take Sunnyvale. The old Westinghouse plant sitting idle and the Muni Golf course off 101. Lets not forget Moffet Field .. lots of land there. It would fix the local city/county gov budget problems.

Last year saw a former shopping center off Alma in PA get torn down for new Townhomes...

It suprising how all of sudden 'new supply' comes on the market.

Troy says

The supply in the fortresses is entirely fixed.

Not true for reasons thomas.wong said, but also another reason:

the constraint is completely artificial. There is plenty of land in the Bay Area that could be built on, but land use restrictions of various sorts prevent this. The Bay Area is obsessed with "open space," and you have to pay for that.

corntrollio says

Tude says

since it was impossible to find a place to rent with a dog in the Bay Area from 1996+

Not true.

Oh lovely, a simple "not true". I was here, I had a dog, and so did my husband. Unless you had a shit-load of money (as in thousands) for a deposit, and begged, and wrote a "resume" and provided references for your frickin dog, you pretty much had to live in a shit-hole in the ghetto. A spend quite a bit for the luxury for that.

I lived it for several years, moving around. My husband struggled with finding crappy homes that were way over-priced, then having to fill the place with dead-beat roommates to afford the ridiculous rent. It was a nightmare.

edvard2 says

I only ask this because if I stop and think about it there probably isn't a day that goes by that I don't think about this very subject: overpriced real estate.

Part of it is because of peer pressure (maw n' paw did it so why shouldn't I?), partly social inertia (THE AMERICAN DREAM), and last because housing has such an effect on the economy.

The latter is the easiest* to come to terms with since its more fact based, the first 2 weigh heavily on your and others psychology and emotions which is why its so hard to put this stuff into words for many. Home ownership is something that is ingrained into people when they're very young in America, its the American Dream after all (this is part of the social inertia aspect), so lots of people are just doing it because they don't know what else to do with their time/money.

*easiest doesn't necessarily mean easy, this is a relative statement!!

corntrollio says

People did not think about inflation until 2007? Riiight. The rest of your comment is nonsense rambling.

Inflation is always baked in, and No people did not think about inflation. They said, "Well we paid $24,000 back in 1962. "
We didn't need to adjust for inflation. The house was worth tripple at the time that statement was made. But then again so were wages, for that matter. But that house could have just as easily sold for 24,000 the next year. A house is only worth, what someone is willing to pay for it. That's economic reality, and this new fantasy Keynesian economy, it hasn't had a successful track record. Trying to valuate Real Estate across the board with some magic inflation formula.

While that formula works perfect and fits some homes, it over estimates many and under estimates others.

Young and young-ish people don't really think about inflation, its the older folks who are retired or near retirement who start to think about it since that can kill their savings.

What young/young-ish people think about is interest rates which are effected by inflation but they won't care about the inflation itself. They'll just complain about the interest rate being too high or whine about how they didn't lock in that tenth of a point less rate or whatever.