patrick.net

Owneroccupier! It was zippy's first post! Now don't be buggin him!

Assuming a 8HaHa House
Purchased with 0.8HaHa down, IO, 1/5ARM
Family income of 1.0HaHa, and 1.0HaHa total liquid savings
(leaving 0.2HaHa in the bank after close)

Note: This represents the Median BA buyer (supposedly)

Net Result: 1.0BooHoos which is roughly equivalent to -10.0HaHa, or the breaking point of bankruptcy action by Mr. Median's creditors.

I am in my mid-40s, and live in NYC. My wife and I have rented since we were married, but we are now considering retiring from this rat race to a nearby quite suburb. I am a financial advisor with a background in economics. My wife is an obgyn. While we can easily afford to buy the type of home we want, today's prices would put a damper on our plans to retire early. But we are still very fortunate compared to others that we know. Honestly, I don't know how some of our friends, with a huge mortgage (relative income), pre-college kids and zero savings are ever going to be able to retire comfortably before they die.

My wife's cousin recently graduated as an engineer and got married. He and his engineer wife now have jobs that pay about $60k. They live in the Denver area.

I suggested that they live on one salary and bank the other. That way, in 5 years they can pay cash for a $300,000 house. In Denver, that would be an upscale home. This would also be a boon if they wanted to start a family and one parent wanted to stay home. Why go into debt to buy the big home now? Nobody expects someone in their early 20's to be rich. Live in a apartment with a pool and clubhouse that has other young people to party with. Freedom beats materialism.

I did a similar thing myself, although I was single. I bought a small house with a mortgage that I paid off in 7 years, both by having room mates and by putting all spare coin into it. Having no house mortgage payment early on allowed me to pay that money to my savings, rather than to a mortagage company. In 1995, when I was 38, I was able to pay cash for a 1 Ha Ha house, which is worth 2 Ha Ha today. Not having a house payment for the last 11 years allowed me to put the "mortgage payment" into good use. Although I never had a salary over one half Ha Ha, I live in that free and clear 2 Ha Ha house, own another 1.4 Ha Ha house free and clear that I rent out, and have another 4 Ha Has in the bank. I live on the Va Peninsula, where a 2 Ha Ha house is a 2400 Sq Ft 2.5 bath 2 car in a nice area. From the posts I've read here, I know that if you add up all my Ha Has, it would only buy an engine crate house in the Bay Area. My point is that while you are young, live modestly and save. Enjoy the stuff that is fun while young, ie party and travel.

Ahoy PS,
Since your post shows you have a deca-Ha Ha in investments and a deca-Ha Ha annual income, why did you use a mortgage to buy a modest house? With my experience paying cash for the 1 Ha Ha house, I was able to save from paying $4,000 in various loans fees, and got a discount from the builder. Also, the interest on the 1 Ha Ha loan would not add up to the $10,000 standard deduction. (Although for you, with that deca-Ha Ha annual earnings, you probrably deduct that much from Federal for your Cal income tax alone).

Bernanke has said that he would drop money from helicoptors if need be to stop deflation. He will push the monetary policy so as to have the measured inflation between one and two percent.

I'm always amazed when I look at this blog. To be honest, I could not say things better than the regular posters here.

I wish I could be as witty and well informed, but I'll limit myself to administration and posting news links on the crash page, since I barely even have the time for that. Someday my kids will be grown and I'll be retired and have the time to do all this right, but by then it will be long since over.

Patrick

Hi, Patrick,

Thanks for stopping by --and thanks for the nice compliments. I can certainly understand about the time scarcity issue, though. Don't have kids yet (but the wife & I are "working on it"), and I'm already having trouble finding the time to post regularly as it is.

I won't go too heavy into my bio, since (as SQT pointed out), most of us "old-timers" already posted them back in August '05 --see "On A Personal Note". I'm a native So Californian in my late 30's (Gen-Xer --no surprise to anyone here, I'm sure). I've moved around quite a bit as an adult, but have lived in LA-LA land most of my life. I stumbled onto this site a couple years ago, when I was researching housing and trying to figure why the f@ck prices were going parabolic and pricing people like me out of the market.

I'm a network admin/engineer by trade (degree in English & marketing) wife works PT at a day spa, but we only manage to make about .7 Hahas combined :-( . Even on our modest incomes, we managed to become/stay debt-free and have saved up .6 Hahas for a down payment, for whenever/wherever we choose to buy, which odds are won't be CA.

oldfarticus of hosebag Says:

"I grew up in east San Jose on the corner of Crack and Stabwound.
I went to SJSU but didn’t graduate. I’m the only person in my family to go to college and I’m considered a success for doing so."

Awesome! There was a time not too long ago in San Jose
where a high school grad with some college from San Jo State
was way ahead of the pack.

My business degree from SJSU hasn't done much for me.

Is Crack and Stabwound near Story & King?

I think what specifically happens to abandoned housing is different by city. Certainly places like Chicago and New York dealt with the problem differently in the 70s/Early 80s. What usually eventually happens is the homes are recycled and sold off to slumlords or demolished and the land is seized and either made into Section 8 housing or re-purposed. It depends upon the winds of politics and bureaucracy as to exactly what happens to each house. These days, houses don't stay vacant too long because many cities have the power to seize and sell/destroy abandoned homes less they become crack houses.

I know that in Chicago, by the late 80s/early 90s, there were massive seas of city blocks which were once single family homes, duplexes, and a few sprinkled brownstones/greystones; all of which were owned by suburban landlords. As city communities slowly resurrected themselves, most of these landlords sold off their slum rental properties to renovators who then sold to invading yuppies.

SQT,

One of the aspects of the bubble that I've wondered about is the sheer number of homes that seem to be neglected enough to "qualify" for a flip. There can only be handful of reasons why a home could understandably fall into disrepair. Death in the family, serious LONG TERM illness and job loss of one or BOTH wage earners. Could it be that these buyers were overstretched when they bought at 2000-2003 prices already? If people won't take care of their homes during THE BIGGEST REAL ESTATE RUN UP in history what will these neighborhoods look like when overall prices are declining?

SF Woman,

I can't speak for SQT but I was referring to "owner-occupied" homes. I believe it is disincentives, but that will "git 'er done"!

There is a very strong psychology at work when it comes to rental property owners and their "repair/maintenance" investment decisions. In fact, I believe this is the primary reason that running an income property business *as a business* is so difficult, and the reason that so few amateur operators are able to create sustainable, cash-flow positive businesses.

As a generalization, most owners tend to think of their properties only in terms of immediate monthly cash-flow, perhaps with a small, unsophisticated recognition of the invested capital and working capital aspects. The end result is that they find it very easy to justify "running the property into the ground" and extracting every last marginal Penny from the renters. Economically speaking, this is a very interesting study in how people view sunk costs -- more accurately, how people miscategorize sunk costs, fixed costs, and variable costs.

To properly run an investment RE business for the purpose of producing free-cash-flow requires a pretty rational, reasonably sophisticated approach to capital management. FormerAptBroker and Zephyr have talked about the specifics in detail a lot on this site (something which I am not proficient in myself). But notice that both have either been formally or self-educated in the sophisticated finance and cost-accounting necessary to run such businesses profitably. I claim that most folks who own properties for rental income come nowhere near this level of sophistication, and thus are very prone to allow their properties to deteriorate to a point of unrecoverable losses.

Since MarinaPrime is not here, I'm gonna write one for him.

I am MarinaPrime, transplanted SF resident and a dot-comer-turned-RE-agent. I got a degree in women's studies from a liberal arts college in Walla Walla, WA, and never liked dealing with numbers. However, I am a very ambitious person. Upon graduation, I heard there was fair amount of bucks in the IB industry bucket so I applied for a job to be a junior analyst with a few bulge bracket banks, but unfortunately got turned down because I couldn't figure out why P/E ratio is important in stock analysis. So I picked up a job as a car salesman instead.

Fast forward to 2000 Jan, I came to SF in the hope of making a dotcom millionaire. However, I lost my job 5 months later after my employer went belly up. Most failed dotcomers of that time went on to the to wait tables, but I did better, I rebuilt my career in the booming RE industry. It took me 6 months to obtain a RE licence, and I was on my way selling properties at prices that would originally only be handled by the Sotheby's.

I usually make 1/10 Ha ha per property after splitting with the office and the buyer's agent. I did about 10 transactions a year, so I was making 1-1.2 Ha Has from 2003-2005, and I know I am making the top-bracket salary in Norcal. People who whine about the RE price only because of one reason, they are poor filthy little low-class scums that don't make enough to deserve living here, we should ship them to Mexico instead. With I/O and neg-am ARM plus all these innovative loan techniques, I can afford not only one, but three prime properties in Marina, the epitome of an upper-class, exclusive lifestyle neighborhood that most people in the world can only dream of. I live in one of the three properties I bought and rented out the other two, and furnished my own residence with nice Ethan Allen furniture that I don't need to pay for until 2007, plus the monthly minimum is low. I rented out the other two to a couple of lawyer and doctor renters who obviously didn't jump into RE fast enough so that they will be priced out forever!! Although my bank savings seem to be dwindling fast since I bought these properties, for some reasons I don't quite understand, but all of them have appreciated 30% since I bought them in late 2004. I am currently tapping into my HELOC to buy a nice Hummer, no, not H2 or H3, the real Hummer.

Whatever happens, my properties will never go down. Your central valley or Tracy properties may have a bumpy road ahead, but Marina is prime of the prime and it never goes down. What reclaimed land? I was not here in 1989, so don't distract me, 1989 has nothing to do with the fact that Marina will never go down. I came to this site to do you guys a favor, buy now, or you will be priced out forever.

Owneroccupier Says:

Since MarinaPrime is not here, I’m gonna write one for him.

"Whatever happens, my properties will never go down. Your central valley or Tracy properties may have a bumpy road ahead, but Marina is prime of the prime and it never goes down. What reclaimed land? I was not here in 1989, so don’t distract me, 1989 has nothing to do with the fact that Marina will never go down. I came to this site to do you guys a favor, buy now, or you will be priced out forever."

Ha, ha! Surfer-X you friggen' lunatic.

You had me fooled for a few......sentences.

SQT,

Our experience as "bubble sitters" has been quite different. Because we originally made an offer to buy this condo for 180K (and our offer declined) we've been treated more or less as owners and are consulted with regularity on everything that would affect our little 5 unit complex. I think there was a measure of respect toward my wife and I as we stood up to a local guy that's used to getting his way. The one couple bends over backwards to make sure we're aware and approve of all the improvements they are planning and want desperately for the owner of our unit to sell it to us and have actively "lobbied" him to that end. They have even offered to find an appraiser we can all agree on! If it works out that the other 4 units are rentals, they basically become an HOA with a membership of 1 (and they don't want that)! There has been quite a few new duplexes, townhomes and condos built that are NOT moving all that well so there isn't alot of motivation on our part to take the plunge to double what we now pay just so we can tell people that we are "owners"!

Randy H. wrote:

> There is a very strong psychology at work when it comes to rental property owners and their
> “repair/maintenance” investment decisions. In fact, I believe this is the primary reason that
> running an income property business *as a business* is so difficult, and the reason that so
> few amateur operators are able to create sustainable, cash-flow positive businesses.
> To properly run an investment RE business for the purpose of producing free-cash-flow
> requires a pretty rational, reasonably sophisticated approach to capital management.
> FormerAptBroker and Zephyr have talked about the specifics in detail a lot on this site
> (something which I am not proficient in myself). But notice that both have either been
> formally or self-educated in the sophisticated finance and cost-accounting necessary to
> run such businesses profitably. I claim that most folks who own properties for rental income
> come nowhere near this level of sophistication, and thus are very prone to allow their properties
> to deteriorate to a point of unrecoverable losses.

As a broker I noticed that most apartment owners fall in to one of two camps:

1. Owners that maximize cash coming in by minimizing the cash going out.
2. Owners that maximize cash coming in by improving the property to a point where they get the highest rents in the area.

Last week I got an investor letter from the manager of a hedge fund I invest in where he pointed out that very few people are great at managing a business “and” great at allocating capital. There are a lot of guys that manage the hell out of properties an make a decent living but the guys that make the real money in real estate are the ones that know how to allocate capital and create value.

The Coming Depression?

Food for though!

http://financialsense.com/Experts/2006/Brussee.html

A couple people posted that they were surprised at the overall education level of the people who post to the site.

I wasn’t surprised at all since with rare exceptions I see educated people continuing to learn from others and plan their lives while the uneducated masses sit at home watching Skating with the Stars and voting for the next American Idol (while they hope their homes go up in value so they can pull more cash out on their home equity loans)...

SQT,

My wife and I researched the property we currently rent for some time before even renting here. They were originally asking 227K. That didn't happen and I told the owner that when he turned down our very reasonable offer. We knew for a fact that he paid 340K for two units or 170K each. Ours was the "model" and has a little more "bling" than the other 4. We offered 180K and were outright refused. Upon learning of the situation many locals applauded our decision not to budge on our offer because the owner is just one of those guys that seems to have a "horse shoe" in his back pocket! He's one of those "money men" that can't be bothered with those little nagging details. I remember one time at a party I asked him if he paid the AMT (Alternative Minimum Tax) and I could tell after some fumbling that he had no clue. He just mumbled something like "Oh, I let the accountants worry over that". Notice; accountants as in plural. Like it takes more than one to keep track of all of his money. Again, the housing bubble was custom made by and for nickel millionaires.

I'm 34, married, two boys. My wife stays home with the kids. We live in the San Gabriel Valley just outside of Los Angeles (hi Charles!).

I was born into the lower class; my dad drove a cab. I grew up in a lower middle class suburb of Chicago and had a typical Midwestern childhood, which was wonderful. Later went to college at University of Illinois at Urbana Champaign and put myself through (I worked 3 jobs, 50-70 hours per week, during the academic year) (yes, really.) Next went to law school at NYU; am still paying for this at a rate of $1,200/month. Today I am an entertainment lawyer in Beverly Hills, California.

I earn about 0.9 HARM/per year. For some reason, I seem to have a knack for finding low-paying legal jobs; I used to be the lowest paid antitrust lawyer in the nation, and now I'm a fairly low paid entertainment lawyer. I've always worked at first rate law firms, and do very good work, but for some reason I've never made the big bucks. I am not happy about this, but am not about to whine about it becuase I know that there are probably 4 billion people living in Third World squalor who would give their right arm to trade places with me. Anyway, the reason I am telling you this is to let you know that although I have an impressive-sounding job, I really am priced out of the market and do personally experience the same pressures that everyone else here is facing; we rent becuase we cannot afford a decent place, not becuase we are unwilling to overpay.

I am something of an oddball on the polticial front because I am socially as well as fiscally conservative. In fact, I am one of President Bush's most fervent acolytes. I don't blame him for the housing bubble, just as I didn't blame Bill Clinton for the dot-com bubble.

As I see it, the business cycle is just a fact of life, beyond the power of government to control, and it is silly to politicize it. Could the Fed have tightened lending standards or raised rates sooner? Sure, and this undoubtedly would have helped, but I tend to think that: (a) Federal Reserve does not have godlike vision or powers, there are ups and downs in the economy, the Fed cannot engineer the business cycle away; and (b) the lowering of rates was an honest, good-faith attempt to fend off a crash after 9/11 that unfortunately inflated the housing bubble. Although I know very little about economics and therefore cannot justify my belief, I have always instinctively thought that the "cult of Greenspan" and the conspiracy theories associated with the Fed governors were ridiculous.

Finally, I think the housing bubble is just a symptom of the profound changes that are taking place in our larger society. For example, as a member of Gen X, I have long felt trapped in perpetual childhood. I want nothing more than to become a stable, contributing member of society, the stereotypical middle class burgher with a mortgage, a small businesses of his own who runs for the City Council and goes to breakfast with the Rotary Club. But at present, these things are impossible.

On the housing front, these changes are obvious. I'm 34 and cannot hope to buy the sort of house that my Boomer coworkers purchased when they were my age. But you can also see it on the employment front. For example, there are no more junior partners at big law firms. The partnership track used to be 6-7 years. It was a lot of work, and there were no guarantees, but if you really dedicated yourself you had a decent chance of making partner. I've been out of school for almost 10 years and only know one person who has made it. There are a few exceptions, of course, but the odds are overwhelmingly against it these days. So for my generation, there is NO upward mobility. Entrepeneurship is a lot harder, too. I would need a bare minimum of $400,000 in capital to start my own practice, and I simply don't have that much. And that's assuming no mortgage, student loans, or other expenses, all of which I have (well, no mortgage). In the past, people were able to go out on their own; today, it's much harder. Salaried jobs are far more volatile these days, too. I've had four different jobs since graduating from school, just like everyone else my age; people 10 years older than me have generally only had one or two. The Boomers never temped, or worked as "contract" employees, today lots of people do it; for kids coming out of college, it seems like this is almost the norm.

My guess is that there will be lots of opportunity in the future once the Boomers retire/drop dead. The current strategy is to amass as much capital as possible in order to buy a house/start my own business/etc. when things finally open up. In addition, I am trying to become more self-promoting entrepeneurial; the idea is to find something that people want, and give it to them. Most of the successful people I have met have done these things, so it seems like a good idea to do it too. I am guessing that others here are following a similar strategy. It's interesting that the same phenomenon we are expereincing with the housing bubble mioght also be occurring in other areas of life.

Out-of-SF,

I find the intelligence and humor of the folks on this blog very refreshing, although I think the wailing against boomers is infantile and self-defeating.

Please know that the occasional (OK, daily) anti-boomer-ranting that goes on here is largely a product of generational demographics more than it is (or should be taken as) a specific personal attack. I know some of us tend to become animated and colorful -- myself included at times -- when we go off on "Boomer mentality", but we are more voicing collective frustration with the younger generations' less-than-optimal claim on the future. Also, there just happen to be more X'ers (and increasingly Millenials) who are of the age to be using blogs to research housing prices.

I think most X'ers and Millennials would agree that it's not Boomers' faults that they were born in the boom anymore than it's your faults that many of you won the societal cycle lottery. But it is up to each individual to take responsibility for their own outcomes. It just happens that Boomers generally had a bit less headwind than X'ers. Not that these guys are the gospel authorities on generational demographics, but at least a couple of demographer authors (who happen to be Boomers themselves), support the general malaise that us X'ers feel: http://www.fourthturning.com/

I'm a 28 year old graphic designer. I grew up in a small town in rural TN with a population of approximately 134 people. I went to college in Boston, and moved to the Bay Area in late 2000 when the Dot-Com madness was at it's absolute peak. Our school had invited a few businessmen to speak to us about the wonders of the internet. They were from Mondo Media,and wanted cartoon animators( which was what my degree was in) and said that the need for highly proficient Flash animators was severe in the SF. So me and a few friends moved out here in Jan, 2000. Renting was insane. We couldn't afford to live in SF, so we rented a tiny, miserable condo in Berkeley for $2500. I was sharing a tiny room with another guy. Our stuff was out in the living room, and we were practically tripping on each other. Then the dot-com burst, we never found work, except doing menial jobs like working at video rental places and movie theaters making 6 bucks an hour. We almost starved. 3 guys that moved out with me left for NYC. I stayed and rented an even smaller room in Alameda.
I worked selling expensive decorative hardware to rich people for almost 3 years, then the job market began to improve. I got a job as a graphic designer. I met a girl soon after. She worked as a school teacher, but the pay was awful. So she quit and also found work as a designer. We decided to get married. That was a year ago, and since then, the idea of finding a home for us became a pressing issue. I had never considered a house because frankly I thought the prices were a joke and it wasn't a big deal to me since rent was so cheap in comparison. Besides, I liked having all the extra savings and spending money, not to mention security if the job market did a repeat of 2001. I had been through that before, so naturally, NOT having to suffer that same thing was paramount in my mind.
Thinking about housing changed my whole outlook about my perceptions of family, home, values, and the state of California. The disparity, insane prices, and the fact that there were plenty of people desperately trying to buy houses regardless of the cost was appalling to me. It also changed my priorities. Prior to all of this, my big goal was to be as creative as possible. Nothing else. Once housing entered my mind, making LOTS MORE money became my new obsession. So I bounced from job to job in pursuit of more money. After 2 years of this, I can see that wages for my kind of work are stalled at a level that's about 1/3rd of what I would have to make just to buy a crappy condo. We both make a combined total of 85k. It seems that we know way too many people who make twice this amount, yet still cannot afford. So I'm struck with a depressing realization that even if the housing prices crash and burn to 50% or more reductions, we STILL have to compete with all the people who make way more than us.
The housing bubble made me stop and realize just how good me and my family have it in comparison back in TN, where a house is a simple given no matter what your income. Everyone sends their kids to public schools, and people work 9-5 and come home. Easy. Simple. It made me realize that a large chunk of the country still lives a fairly comfortable life on middle-income salaries. Even though I originally thought California was perhaps one of the best states to live in, that has all changed.
I wait and wait for a miracle to occur, like a recession, a burst, earthquakes, or whatever. But nothing happens. I realize that sooner or later I will have to make a drastic decision, which is to vacate the state for another and hope that plenty of other younger people do the same, thus creating entirely new communities in which to work and live and attain the same level of comfort as that of my parents.
The longer I live here, the more I hate rich people, homeowners, baby-boomers, and the countless people I run into who are obsessed with real estate. This last weekend I went to several small towns I visited 2 years ago. Literally half of the businesses in the areas were Real estate. Big portraits of smiling people on billboards, and just about every third home for sale. These small towns were ruined. They were taken over by Bimmer driving yuppies who were moving in, decimating the town's charm, and buying up businesses to sell candles, smelly hippy shit, and real estate.This, among all else is what bothers me more than all the rest.As far as I can see, California has already lost more than it will ever gain back, and once the ball drops, I don't want to be living here.They have lost their heritage, their future children, and their future neighborhoods. I hate to admit defeat, but to stay here will eventually lead to financial ruin for countless millions of citizens who played the game and will lose. Even those who "thought" they were prepared.

Costa Mess said :

An RE agent just said to me that “my house is the most important investment I’ll ever make’- I thought for a second and said “No, my daughter is my most important investment, and my wife totally agrees”. She couldn’t think of anything to say to that.

Amen.

20 years from now, will I be worrying about how big by McMansion is or how my kids turned out to be ? When I am saving, I keep reminding myself. It is for my retirement and for kids' education. Not just for downpayment. If I buy now, I will be just helping someone else pockets the profit, and solve the exact same problems for themselves. What good that does to my family ?

Out-of-SF,

actually places like "A walk in the clouds" still exist here, you just need to look a bit harder, but they do exist, and they are still incredibly beautiful. My dream is if I can telecommute, I will go out there and get a 10+-acre ranchette with a small modest home that I design, when RE is absolutely hated in California. It is a dream that needs patience, I am willing to wait for another decade or so for my share of the California dream. If you drive down from San Jose to Salinas, there are still many untouched spots with stunning beauty.

The bubble is really a blessing in disguise, because many of these farmland or ranch land were put under Williamson Act and passed down in a family for a hundred years, and the carrying cost is only mere thousand or even less each year. But for the bubble, these land will never change hand! Thanks to the bubble, so much of these land are now in the hands of speculators, and they will have to spew it out at a huge loss some point down the road. Land is a far less liquid asset than a home, and when credit dries up, it is almost impossible to get a loan on a piece of land. So I am waiting for those speculators / mom-and-pop self-coined developers to get desperate, we will see if their cashflow or my patience runs longer.

California needs a crash to bring sanity back. It has become so much more crowded compared to 15 years ago, and the gold rush has brough in too many people who just want everything but nothing to give back. I was quite happy about the doctom bust, since the traffic lightened up a lot, but the RE boom just brought them all back. A crash of any kind is a pruning process by the nature, so that what is left can grow better on more fertile grounds.

You should come back and take a look a few years down the road.

nomadtoons2,

your frustration is echoed throughout the world, talk to any Canadian, Aussie, Kiwi, Spaniard, British or eve Chinese, people of your age group from many countries are facing the same problem: it's so darn hard to buy a home. I think it is a result of the Fed loosening too much in the past few years, and the money supply through different investment vehicles spilled over to nations far and near.

However, the BA apartments actually have gone down in rent, quite significantly compared to 2000, so a reasonable standard of living in BA is not so hard to sustain. It is unfair that your age group can't afford to buy until later, but that was what life should have been, we just got lucked out. When I was growing up, my parents didn't buy their first home until I was about 15. When I talk to the older immigrants in California, some of them couldn't afford to buy until they were 50! (think about the 1980 mortgage rate under Paul Volcker). People in the early to late 30s just stumbled on this good fortune during the dotcom and the RE boom, which sadly set the wrong expectation for many younger people. I remember in 2000, a 20 something guy told me that if one doesn't make a million when he is 30, he's considered a failure. Therefore, everybody is trying to scam each other in CA in the get-rich-fast scheme.

When all the dust settles, if you are careful with your Hahas, you will be pleasantly surprised with how far your Hahas can go. Just need to be patient.

Owneroc said :

your frustration is echoed throughout the world, talk to any Canadian, Aussie, Kiwi, Spaniard, British or eve Chinese, people of your age group from many countries are facing the same problem: it’s so darn hard to buy a home.

If you think Bay Area (or Phoenix or XYZ US city) has seen outrageous RE gains, take a look at Banglore, India. They measure appreciation in months, not years. Does that surprise anyone ? The new Tech boom their has translated into a RE frenzie never seen before. Note that, not everyone in Banglore is in IT. So not just young people, but people from all other fields now find it very hard to buy a decent apartment.

And I - who believs in RE bubble here - do not think there is as much speculation there. Salaries have gone up - doubled, trippled - in last 5+ years. Interest rates have gone down. The future looks bright, as opposed to here. There is lot of inflow of people and jobs.

Slowly even that is reaching a limit. So companies and people are going to other cities. The same boom is now starting - or has already started - in other cities - Hyderabad, Delhi and Pune.

I take heart in this. At least here, the possibility of houses being affordable is real. If I was in Banglore without a house, I would have been truly priced out forever.

Not to mention India's persistently protectionist bias. They run a very real risk of ending up with inflexible industries that cannot be changed, when economic realities shift, without massive disruption.

Marin County prices hit all time new high!

http://www.marinij.com/fastsearchresults/ci_3613137

When's the charade gonna' end?

Athena,
I have over the years taught my older brother to come to me when he wants encouragment, love, and understanding. But, for me, I have found that helping him monetarily, really doesn't help him at all...it prolongs his problems....and boy does he have issues with money. I just thought I'd give my 2 cents. Best of luck with that!

Another key issue here is,

How we savers, after sacrificing our quality of life, not get fucked by the Fed and the irresponsible US government when this bubble bursts?

I will be royally pissed off if they inflate away my savings, raise my taxes, or force me to chip in to save the asses of the irresponsible squanders. I absolutely don't want to lend a helping hand until 10 years later when the squanders have to sell their assets at a cent on a dollar.

I don't think saving alone will get you ahead any more. One has to be a smart saver, knowing where to put his money so that it won't be available to save the sorry asses of all these idiots when things fall apart. I'd love to speculate where the powers of this country put their money?

It's funny how no sooner someone says they were going to buy in 2003 but didn't b/c they started reading this blog and the trolls come out of the woodwork!

Look, if you are trying to attain a 20% return and you buy at $10, then sell at $12 (calculate transaction expense here) then YOU WIN. From there, I don't care if it goes to $2 or $200, and you shouldn't either. With all of the rugus out there we have become snake fascinated with the "what if". Saying you were thinking about buying a home (and I keep forgetting if it's a home or an investment) in 2002 but thought the bubble peaked and it continued on a "hockey stick" ramp, do yourself a favor and stop worrying about it! You don't want to touch it, especially on "margin". Let's all please try to remember; momentum players are alot like dogs that chase cars. They make alot of noise, they attract alot of attention but unfortunately don't last that long! I'll now say what I said in the summer of 2000 in the stock market. When this is all said and done everyone is going to get exactly what they deserve! The HB will be no different.

I'm not so sure CA housing is entirely a war between socioeconomic classes. There is certainly this aspect, to at least some degree. But the RE bulls would like to frame the issue as nothing but a class war, because this helps feed fear. After all, who would willingly choose to be a downtrodden Prol? I left the Troll's earlier post about "rent if you want to remain poor" in because it helps to provide a point of reference to all the great Biographies people posted here.

There is more at hand than a simple question of who wants to be rich or poor; or even a battle between the classes for housing. There are serious fundamentals out-of-whack, and this thread shows that *a lot* of successful, well educated, even quite affluent people have come to the rational conclusion that something is seriously wrong. My own personal opinion is that it is a clash between two opposed broad philosophies:

* Those who consider their decisions by weighing the benefits/costs now against the benefits/costs in the future. For some this means over their entire lifetimes, over a phase of life, or over some years. For others this includes the lifetimes of their children and grandchildren. Some even consider the larger picture of future generations to come.

* Those who are incapable, unwilling, or for some reason opposed to thinking much beyond a very short time frame when they make decisions. These folks don't worry about things like their children's college funds, their own retirement planning, how the next 10 generations of Americans will pay for the debt of the last 3 generations. Let me correct that. These people would rarely admit they don't care about these things. But, they are willing to let others take the responsibility for planning decisions for them. They let everyone from politicians to real-estate agents make decisions about their own future. So long as they aren't troubled to sacrifice much *now*, they are OK with letting others steer the ship.

I don't think these camps break down easily by income levels, religious convictions, race, ethnicity, gender, or education level. We can see from these many posts that we have Republicans, Democrats, Liberals, Conservatives, Rich, Poor, Over-educated, Undereducated, Self-educated, Devout Religious, Atheists, and even Anarchists; yet for some reason we've all come to the same conclusion about this mega-bubble. This could be an entire thread itself.

I just wanted to raise it because, for me at least, this has been the most unexpected result of this blog. I would have guessed something like "educated people who can do math know there's a bubble". But this has proven false. Others say "poor people are jealous bitter renters, and cry bubble", but we see too many millionaires here who are renting, and are quite humble about their HaHas. They could buy, but don't (or don't buy more). I don't know, maybe it comes down to *common sense*, which appears to be in short supply of late.

Randy H,

"clash between two broad opposed philosophies"

Thank you for bringing some much needed clarity here. I've actually gotten to the point where I somewhat resent being labled a housing "bear". Would it be accurate to say that I am "bearish" on sliding down a bannister full of razor blades? Why? Is there a right way to do it? So when it comes to drunk driving, bungee jumping over pungee sticks and hang gliding in a missle testing range I should be considered bearish on these "activities"? There's bullish and then there's just plain wreckless. Buying a home (when a peak has already been well established) with some kind of exotic loan presents little if any upside with no EXIT STRATEGY! Let's be truthful here, the only reason I bother to look at RE listings is to get a hardy chuckle at the original asking price, track DOM and then chart the inevitable price reductions.

Jeff,

We should consider the source. BankRate is basically a mouthpiece for the lenders. Now that borrowers are stretching ever further to meet their monthly obligations they may be having second thoughts about going further into debt. So the timing of the article is just about perfect. I haven't tracked mortgage activity closely but from what I hear about the lay-offs in the industry it's safe to say they are in a near free fall.

DinOR says

Look, if you are trying to attain a 20% return and you buy at $10, then sell at $12 (calculate transaction expense here) then YOU WIN. From there, I don’t care if it goes to $2 or $200, and you shouldn’t either.

Your statement really hit home for me. I bought 5 houses in the mid ninties to use as rentals. The rents did not quite cover the mortgages on two of them, the rest I had strong equity in. I considered them long term investements. My plan was to eventually own these houses free and clear, and thus have a good steady monthly income. Paid off real estate protects against inflation and deflation. Under inflation, the rents go up. Under deflation, the rents go down, but the money is worth more and you have no killer debt to service.

But then the bubble hit, and the houses went way up in price. In 2003 I thought this bubble must pop, so I sold one of the houses. In 2004, I was even more sure so I sold 2 more. In 2005 I sold another. I am keeping that last one as a hedge just in case the government tries to inflate its way out of our collective debt (my own house is free and clear, so that will help if my money in the bank gets "Weimared" by the Wasington turbo-inflation machine). I would have made a extra Ha Ha by selling those 4 houses in 2005. It is still possible that after the bubble pops, I'll be able to pick up similar houses at pre-2003 prices. I like to buy when the rent is close to the 30 yr fixed mort payment.

Someone mentioned renting a $200,000 house for $1,500/mo. My remaining rental is a $200,000 house, and I rent it for $995. In this area (Va Peninsula), $1,500 will get you a $350,000 home. Good tenents are hard to find since anyone with decent credit is jumping on the homedebtor bandwagon. It is a tenents market right now.

Randy H Says:

> I would have guessed something like “educated people who
> can do math know there’s a bubble”. But this has proven false.

I disagree with Randy and think that almost all educated people that can do math "know" that there is a bubble, for some reason they buy anyway...

These same educated people "knew" that a dot com company with no earnings should not be worth many billions of dollars but they bought the stock anyway...

I meet educated people who "know" that the lottery is just a tax on people who don't understand statistics, but they buy the tickets anyway...

When I'm in Vegas I'm often with very smart people who "know" that they have very little chance of winning but time and time again they bet (and loose) thousands of dollars...

Smart women "know" that there is not a (straight) guy on the planet that cares of they are wearing $500 shoes and holding a $5,000 handbag but they will claim they need nice shoes and handbags to attract men...

Educated people "know" that it's not smart to drink an entire bottle of wine and then drive home to save the $8 cab fare but they do it all the time...

For a more dramatic example why do women live with guys who beat them up when they "know" it is a bad idea (I dated an Assistant DA who worked in domestic violence for a while until she quit telling me that she was worried she would loose control and beat the crap out of one of these women since almost none of them would press charges against the guys that beat them up)...

Another topic to tag on to "why do people buy things they don't need" we can add "why do people do things that they "know" they shouldn't do"

David Clark,

Not a problem. Your actions were decisive and appropriate. I especially like the way you haven't burned any bridges and leave the door wide open to reconsidering when your Price/Rent ratio is more in your parameters! You've also managed to walk away from this with a home that is fully paid for. No small feat.

Clients ALWAYS look back. If you sold them out of an investment and it went up just one more dollar you'll never hear the end of it. If you sell them out just one dollar shy of the peak (and then it takes a serious nose dive) well, you'll never hear about the money you saved them either.

“Smart women “know” that there is not a (straight) guy on the planet that cares of they are wearing $500 shoes and holding a $5,000 handbag but they will claim they need nice shoes and handbags to attract men…”

Perhaps if that is all they are weaing......

FormerApt,

because it is not the education that matters, it is the emotional intelligence that matters.

Education is a way to raise the emotional intelligence, but this is not guaranteed. I too often run into people who are over-educated and have zero common sense / street smartness.

People buy things they don't need because they are insecure. They want to be recognized, respected, looked up to, and buying things they don't need is a way to conform to the cool-aid fed by marketers (I am guilty here, I do a lot of these marketing tricks in messaging and positioning). A marketer's wet dream is a consumer who doesn't look at his own needs and buy things based on self-doubt and insecurity, you can literally make him pay whatever.

People do things that they "know" they shouldn't do because of fear, and greed. Acquiring emotional intelligence is to overcome one's greed and fear.

I have been a stay at home mom for 15 years. (3 kids) We also can be added to the list of people with ha ha's and are going to sit this out. I finished high school but that is all, hubby is an engineer that made the ha ha's. I am not so talented at posting as so many here are, but I really like to come here and read all the interesting posts. One day I was flipping through the tv channels and heard Donald Trump say something like "there better not be a housing bubble" WHAT? So I googled Housing Bubble and found this site, this was around December. We just moved back here to the BA after spending 5 1/2 years freezing in Colorado. We will be moving into our rental in a few days!