patrick.net

Anonymity strains credibility. Every little bit which helps to prove that posters to the community here are not a bunch of nameless cranks goes a long way towards solidifying the credibility of this forum and its collective opinion.

Randy H.

A product of upbringing in the Midwest, including the mandatory “career start” in Chicago (with a Big 6 consulting/accounting firm), I’ve been in the Bay Area since 1996. I’ve actually lived lots of places, but essentially grew up in Ohio. I am a great appreciator of the BA and the West in general, in no small part because of my upbringing.

I came to Patrick.net a little over a year ago when my wife and I needed to move from the Peninsula to Marin. As newcomers, we bought in Redwood City back in 1996, despite my protestations that “only a moron would pay over $300K for a little 3BR house. I’m still not convinced that we weren’t morons, but nonetheless history was kind. Fast forward to 2004; we were now facing selling our Belmont house and buying in “prime Marin”. This time things felt different. I was uneasy. Something was in the air. People were still frantically overbidding…or were they? I couldn’t be sure anymore. So I Googled “housing bubble”, and found this site. I was looking for anything that could help me to evaluate the mess of quantitative models I tend to waste time tinkering around with in Excel/Crystal Ball. I was convinced that real estate would correct. But how? When?

Of course Patrick.net couldn’t answer these questions for me directly (although certainly many posters did claim exclusive command of the truth). But this forum did something better. It plugged me into a diverse community of people thinking about the same things. This has proven far more powerful than just some expert’s opinion.

I now rent a poorly constructed McMansion in Mill Valley, awaiting the right time to become a homeowner again, along with my wife, young son, and other extended family. My wife is an accounting and finance professional; a controller. I’m an entrepreneur who started off as a management consultant, turned software architect/designer, turned venture analyst/consultant. I’ve started quite a few companies and even done well by a couple of them. I went to school at Ohio State, and later to Columbia Business School in NY and U.C. Berkeley. I run a blog of my own at www.capitalism2.org, if you really want to know more.

I like to evaluate many of the subjects which come up on Patrick.net in economic terms, with an eye towards financial mechanics. I’m largely a believer in neoclassical macroeconomics, however with an understanding that “normative behavior” does not mean that people “rationalize” like economists are prone to think they should. There is a very strong psychological aspect to how real people make real decisions. This is why the real estate market so strongly interests me.

Otherwise I am politically agnostic, often being disgusted by politics of the day and politicians. I like to evaluate issues on their merits, fully thinking through complexities, and actively seeking disconfirming viewpoints. As such, I eschew demagogues and ideologues of all ilks.

what is the future looking like for Detroit and other Rust Belt cities over the next 5-10 years? thanks

whoops sorry maybe wrong place to post...anyway, i'm a detroit area renter......

While of modest formal education I've managed to survive at some of the oldest and most prestigious IB's in the country. I now work independently with a select group of individual investors and enable small to mid size firms to get the most from their company sponsored retirement plans. But enough about me, in the end the proof is in the pudding and we are measured by the clients we keep, not the ones that we "land". I consider this web-site to be an indispensable and consummate news source in all things housing bubble related. Besides, I just love the "one stop" shopping! In a world gone mad this is the one "place" one can reassure one's self that you haven't become a complete stark raving lunatic. (The San Diego Condo Open House was just too much!) Now to add insult to injury WE are being accused of "fear mongering" and maniplulating the media/public opinion?! Oh people, please. The RE JUGGERNAUT has all the firepower imaginable to sculpt perceptions they could ever possibly need. Now that greed has derailed the well oiled RE JUGGERNAUT we are to blame?

Mort,

Oh you belong here!

I am the mother of a 13 year old boy,WASP, mid 40s, entrepreneur(I am a sculptor and own a fountain company).I am politically liberal, religiously liberal, and financially conservative. I'm originally from SJ but as soon as I learned to drive, I drove away. I currently reside in Southern CA.
All I know about the real estate market is from the school of hard knocks. I've owned 6 homes in the past, lived in them, fixed em up and sold them, all for a profit but one, and that one erased most of my previous profits. It was more like a hobby ...until thehorrible fall in the 90s. I am, however, VERY interested in the RE market and have followed it for years and hopefully a tad wiser.
I come to Patrick.net to educate myself and discuss instincts, facts, trends in the real estate market. I am not an authority on anything, so I try to share my experience and opinions from more of an instinctual place and investigate the facts of other posters. My father is a financial consultant with Wachovia (previously Prudential)so I grew up with financial discussion throughout my life but am in no way an authority, just an interested party.
I sold my previous house last Aug. for a great profit and now rent with some $ stashed away. I do believe that a significant correction is imminent and will be good for the economy as a whole, though some will be hurt.

SFWoman,

Trolls are people who post with the only intention being aggravating the community. Troll posts usually have little or no content merit, except that the Troll reads enough of the blog to know how to superficially sound like a plausible contrary viewpoint.

Flame Baiters are people who troll, but don't even bother to disguise their intentions. It's easier to parse out Flame baiters than Trolls. Flame baiters will tend to drop homophobic, racist, jingoistic kind of stuff, whereas Trolls try to be more coy.

Flames are just ongoing arguments which degenerate into name calling and personal insults. There is a long running "internet theory" that all flames logically end in references to Hitler/WWII.

And of course spammers post unsolicited, off-topic advertisements. In the blogosphere cross-promotion is usually tolerated if discrete, on-topic and polite. Spams are almost always off-topic, and mindlessly posted by 'bots.

SFWoman,

No worries. All flame-wars eventually end up there anyway. You were just intuitive enough to skip to the end-game. This is the reason that moderators try to nip flames in the bud.

First generation immigrant FOB to the States 15 years ago, grew up in Asia (primarily Hong Kong and Taiwan), came here for graduate school in and stayed in the valley doing technology marketing. My grandparents spent 6 years in Norcal when they were pursuing a graduate degree at Berkeley prior to returing to Taiwan, so I feel a destined attachment to this place. Bought a home 13 years ago in South Bay and can't believe that my home price has advanced 3+ times.

Having grown up and seen how my family thrived in what the Economist hailed as the most liberal, laissez-faire economy in the world, I am a Milton Friedman believer and a proud Republican (until Bush's first term finished). I believe in the least government intervention, and all power to the market. However, what Maestro Greenspan has been doing is exactly the opposite of that. He artificially for political reasons prolonged the boom to an unprecedented duration, which unfortunately will be repaid with equally unprecedented pain of bust, I am afraid.

I came to this blog because I called the top of the RE bubble back in 2000, having seen two RE busts in my life up close and personal. I thought I had good judgement, little did I know that the Fed had the power next to God to pump in so much money into the system to steer all of us into an alternative reality.

I am very concerned about the future of the Valley, although I am optimistic about the longer term. Speculations like this distorts allocation of resources, and the worst misallocation is not about money, it is about human ATTENTION. We wasted our lifetime thinking about, obsessing over this artificial distortion that impacts our lives so profoundly. We could have been much more productive doing something else, e.g. thinking about a new product, brainstorming over an innovative way of life, etc. But because of this RE bubble, so many bright and not-so-bright men and women of the US are pouring their stamina and time into a fruitless venture, while our competitors catch on with skills and ideas.

I probably fit the profile of what this blog calls the elite class from Asia, and most of my friends fall into this category. Realtors like to refer to us as the Asian money that will keep RE going forever. But unlike what you believe, the true elites, for example, the kids from the billionaire families don't stay here, and they don't buy million-dollar 3BR ranch homes. They get their US passports and then head back to run the family business. Most people like myself are from an educated family with parents working in professional jobs like lawyers, doctors, or corporate executives of companies back in Asia. But most families are not well-off to the extent of being able to buy a house for each kid all-cash (maybe in 1991 in Oregon, but certainly not at the current price level). Most of us buy a home on our own, but we do benefit from a good education funded by parents which helps us land a better job. The only headstart is probably having no student loans at all.

I actually found the web-site at some length by first googling "housing bubble" and really got tired of reading fluff after fluff piece covering the same ground. I thought to myself, this has got to be more serious than just a bubble, it's a crash! Been here ever since.

Anyone in hear have a vast knowledge of REIT's

sorry, typed hear, meant here

houselessinseattle Says:
Anyone in hear have a vast knowledge of REITs ?

I don’t have a “vast knowledge” of REITs, but I know more than most people about them. Do you have any specific questions? The real estate bubble has been great for REITs and like REALTORs ™ REIT execs will try and deny that their stock price has been affected by the bubble. I ran in to the Chairman of a big Bay Area REIT at the de Young gala in October and he did not seem happy when commented that “It must be nice to see your stock trading so far above NAV”…

Former Apt Broker......You still here?

FormerAptBroker......

If you read this please email me, so we can chat, i don't want to hog the blog with discussion about REITS

Thank you
Charlie
eaglepartnerslp@hotmail.com

SFWoman Says:

> what were the price vs. rent ratio (multiple?, I am unsure what
> you would call it) for investment residential properties when you
> bought them vs. what they are now?

The common name for the “price vs. rent ratio” is the “Gross Rent Multiple” or GRM. Over the last 50 years is has been rare to see an apartment sell for a GRM of less than 6 or more than 12 with an average of about 7 for working class stuff and 9 for nicer stuff. Properties in nicer areas with barriers to entry will typically trade at the top of the range while crappy properties in areas with low restrictions on new construction will trade at the low end of the range. I have never paid more than 10 times the gross rents and today people are often paying more than 15x and even as high as 20x for Bay Area apartments.

Most real estate investors just glance at the GRM since like a stocks price in relation to sales the GRM does not tell you anything about the property cash flow. Most mid level investors use a cap rate that is the net earnings (income – expenses) divided by the sales price to evaluate investment real estate. Cap rates on apartments have mostly been in the 8-10% range. Today cap rates are crazy with almost every Bay Area apartment cap rate under 4% and some as low as 2%.

Advanced investors look at GRMs and Cap Rates, but also use various complex modeling with the Argus software being the most popular to get to an IRR over a hold period.

> Are they as skewed as SFR and condos? I have friends who
> bought apartment buildings in San Francisco 10 years ago and
> they did not have subsidize the mortgage, and now that
> seems impossible.

SFRs and condos have always had higher GRMs and lower cap rates than apartments. With Bay Area bubble prices so high today it is actually possible to have a NEGATIVE cap rate on a SFR or condo (you can buy a home or condo for cash and the rent will not even cover the property taxes, and other fixed expenses).

BayAreaNewcomer,

As someone who shares your "Midwestern sensibilities", hold on to your faith in common sense. Inflation in the Bay Area is higher than Chicago, but not anywhere near enough to explain the current bubble numbers. It's all bounded by income affordability. And people in the BA aren't earning a premium over equivalent Chicago workers near enough to support these real estate prices, even given the "good weather premium". I, for one, think Chicago has a bit of a decent premium of its own -- even it's not weather.

BayAreaNewcomer,

after a while you get used to the numbers. These days when I see anything below a million, "dirt cheap" seem to be the first two words popping out of my head. Then I have to remind myself the unit is dollar, not Thai baht.

what is DW? Dear wife?

I have a BA from USC and a law degree from UCLA. I retired at 52 from a large Southern California electric power utility and have a nuclear family. I have 1 daughter who graduated college, 2 daughters in college and a son in highschool plus a stay at home wife of 28 years. We bought our house in Long Beach outside of Los Angeles in 1980.

I followed Harry Browne up the gold rush of the 1970s making a nice profit and got hooked on investments in land, stocks and bonds plus options and futures. The most enticing book I read early on was "Manias, Panics, and Crashes: A History of Financial Crises". I went to school with a 3 story early computer which would be put to shame by handheld graphing calculators today.

I have had many sucesses and failures in investing. I have seen manias, panics and crashes upclose and personal. By 2003 I was convinced that this housing bubble was not a normal mania. In 2005 I found various bear site on housing including Patrick.net.

Like most all regulars to this site I am a bear on economic matters. Unlike most here I look for deflation, if only to be a contarian.

FormerAptBroker,

what is your take on commercial properties in the area? I see soooo many for lease signs in the Valley, it seems like we have years of commericial inventory available.

Based on your previous experience, which area has given you the best returns in terms of rental return and capital growth? Prime area? Transitional? Thanks

jeffolie,

you may get your deflation if we inflate too much. How long Ben Bernake lasts is also an intriguing factor.

SFWoman Says:

> Thank you very, very much. I periodically have the idea of
> purchasing a small (6ish unit) building so that the kids could
> have a place to move into just after school, but between the
> tenant protections in SF and the current costs I will not trouble
> my brain with that thought for the next five years.

Unless you want to start a second career in Real Estate management I generally don’t recommend buying a small investment property.

I’m not joking when I say that I would feel more comfortable buying Real Estate in “Communist” China than in “Progressive” San Francisco.

There is a lot of good free information on Real Estate investing (and a lot of ranting about Real Estate Gurus) at John Reed’s site.

It has been a while since I read it on the site, but (in between some interesting rants) John writes how it is hard work to make investment real estate cash flow.

For some reason it looks like I can’t post URLs to the site (my co-op URLs never seemed to make it or the link to photos of my favorite SF co ops located at 2000 and 2006 Washington). To find John Reed’s site do a Google Search for "John T. Reed" "Real Estate".

I may consider buying some SF investment property if the TIC melt down is even worse than I expect and I find some super deals from desperate sellers in prime areas.

First Generation Chinese guy born in Philippines to refugees from Commie China. I Lived in SoCal for over 20 years. Married with kids, Majored in CS&E, did programming for 4 years, started my own business – running it for the last 3 years. Witnessed 20% interest rates in early 80s, the 80’s real estate boom, - went through the early 90’s real estate crash. Witnessed the late 90s dot com boom (thank God was not invested in tech) – didn’t think it would only take 2 years for people to forget the lessons I learned from it.

Bought a poorly marketed home in 02 late last year for a nice profit. I have no doubt the next recession will destroy many people.

Owneroccupier Says: FormerAptBroker,

> What is your take on commercial properties in the area? I see soooo
> many for lease signs in the Valley, it seems like we have years of commercial
> inventory available.

I am very Bullish on Bay Area Commercial Real Estate. If we had another dot com boom and had the same absorption as we had in 1998-2001 we will still have a lot of vacant space. Office space in the bay area has three big challenges.
1. When as (SF Woman mentions) Bay Area firms have a hard time getting people to move here for $200K we are going to see a lot more firms moving out of state.
2. We are going to see more office sharing as technology today truly enables people to work from anywhere (I was recently “working” from an airport in Idaho via free Wi Fi with full access to the server back at the office).
3. India and China are starting to do a lot more than QC and programming (and just like technology lets people work with co-workers in low cost states or work from home it makes it very easy to work with low paid hard workers in India and China)
There are three words that scare me about retail real estate:
On Line Shopping (I buy almost everything on line and even my parents and their friends are starting to do it).

> Based on your previous experience, which area has given you the best
> returns in terms of rental return and capital growth? Prime area?
> Transitional? Thanks

This is an easy one, historically you get the most cash flow from the worst areas (as long as you know what you are doing and don’t get shot) and the most appreciation from the best areas. With both kinds of property it is important to have a plan and to remember that an “investment” needs to have a “return on investment” or it is not an investment it is a “bet.

Kerri,

if you buy now, you'd buying at the absolute top. Rent a larger home, there are so many choices. Don't resent paying rent, especially if you want to rent in a good school district for your kids, the landlords are putting money in your pocket for their current rent. I bought 13 years ago, if I rent out my home today, the rent can't cover my property tax + mortgage, so I will have to go negative on cashflow (no kidding!). I can't even fathom what kind of cashflow the recent "investors" are running.

BayAreaNewcomer:

There is definitely some numbness to the numbers. In our particular case, we had a particular price range and we stayed in it, but we got less than we had hoped, or wanted, or expected (i.e. smaller, a little farther away from the downtown core, though still good on a number of factors).

As for how I look at the numbers -- well, when I look at something I am considering to buy, I now no longer look at it in terms of dollars, but also in the hours or years I must work to pay for it. Example: a coat for $300 = 15 hours of my take-home pay. Said coat will cost 15 hours of my LIFE, do I still want it?! Or, $50,000 car.... that will cost me one year of my life. It is a lot fuzzier with a house which has interest payments, curiously I never thought of housing in that way, just consumer goods. Suffice to say, if my mortgage is 25% of take home pay, that's one week a month, times 25 year mortgage = 300 weeks or 6 years of your life. doesn't look that bad unless you think, "what if I slaved, did not buy anything, nor ate nor enjoyed nothing of life for 7 years and used all that labour to pay for the house" but that's very difficult to visualize.

I've never tried to estimate the time-life cost for a f*cked borrower who's got a negative option ARM.

See "Your Money or Your Life" by Joe Dominguez and Vicki Robin for more on the above concept. A fabulous book, unfortunately one many people will never start to read, let alone finish, and thus benefit from.

A friend at work used the expression "Bubble Sitter" for those who sell, then rent with the hope of buying after the housing crash. So I sold, I rent, and I hope. Googling "Bubble Sitter" landed me here after a few hops. I split rent with my girlfriend and live about 90 miles east of San Francisco. San Joaquin County has experienced two phenomena from Y2000 to Y2005 that has jolted the local economy:
1) East Bay people priced out of Livermore, Dublin, Pleasanton etc. bought a lot of housing because it's so much lower here and the commute is bearable. For example, my brother-in-law is a chemist at L.L.Lab and can't touch even a small house in Livermore. By commuting from Stockton, he was able to afford a two story home on 2 acres.
2) Bay Area investors and speculators have bought San Joaquin RE on a grand scale, accounting for approx. 50% of all 2005 sales. This contributed to the valley bubble and priced a lot of locals out of the market. Why do I visit Patrick.net? Because many intelligent people share insightful, informative and though provoking posts here. At times I am out of my depth when reading economics/finance/mortgage information here, but I learn nonetheless. Strange and disturbing, the Housing Bubble has proven to me the heuristic value of looking at anomalies.

Originally from Bombay, India and came to Bay Area in late 1996. Masters degree in CS from IIT Bombay. I have only a handful days left, for me to call myself as "in my 30s". Original plan was to work for a few years in the IT Mecca - just to see what the heck is this place called Sillicon Valley, and then go back to native land. Somhow over the years fell in love with this area and USA in general, and decided to settle here.

Extemely averse to taking debt, which could be a bad thing. But the fear is shaped by life in Bombay, where I have seen middle class workers spending the prime years of their life not enjoying, but repaying debt they took to purchase a small apartment. BTW, not many on this forum might be aware, but RE in Bombay did "crash". Prices stayed flat for a long time, and with inflation running close to 10%, the real values actually declined.

Got burnt badly in the dot com era. Been a firm believer in the imminent crash in 1998, then lost patience as the day never seem to arrive, and jumped in just before the market crashed. Have no intention of repeating the same mistake in RE. Very firmly believe in ridiculous overvaluation of RE in Bay Area, but not as confident about the actual outcome. I think there is 50% chance that prices have been permanently elevated. That is, they may come down 10%, and stay there for seemingly forever till income eventually catches up. This may take a decade or more, as I suspect the economy will go in stagflation. Personally, have decided to wait till 2008 at the least.

The first time I could have bought was in 2002 - 03. The bidding wars put me off, and the begining of rate increases made me think that RE boom is going to be over soon. I had no clue that the long term rates would not be affected at all. Sometimes I do think it was a costly mistake. My wife makes sure that I do not forget it ;-) Innumerable times, I have presented cold logic to her, and it just has no effect. The intangible of "owning a home" is priceless. Like Margo in "All About Eve", my wife tells me (in different words, but the spirit is the same) - "It's obvious that you are not a woman". And like Bill, I say (but just to myself) "Yes, I have noticed that myself".

SFWoman, you left off that you're... HOT!

I live in Richmond, VA. We moved here from Boston in 1994 just before our only daughter was born to escape the high cost of living, recession, and unpredictable job environment in the Boston area at the time, not to mention the winters. We bought a 4 br/2.5 ba 2,700 sq ft house on a half acre here in a good neighborhood with great schools for 150K with 20% down we scraped together and a standard 30 year mortgage. This represented about twice the house we could get in Boston for the same price. We refinanced in 2002 to a 15 year, and are well on our way to pay it off in about 8 years through extra payments. As apparently so many others here, I am debt-phobic. I measure freedom in my ability to be financially independent. I carry zero debt outside my mortgage, and could pay that by working at McDonalds. Well maybe not quite, but the point being I am obligated and financially dependent on no job and no person. It provides me extraordinary peace of mind.

I do not believe in organized religion, am politically independent, financially conservative and socially liberal, independently thinking and try to be conscious of what is happening around me. I am really pissed off at our current elected leadership of both parties, and believe we and our children are being sold out in a big, big way.

I am a civil engineer with BSc and MSc degrees, work for a consulting firm in infrastructure assessment and rehabilitation, and earn a fair living. I travel a lot from Boston to Florida and everywhere in between. Civil engineers are educated migrant workers - we go where the work is. My wife recently went back to work part time after being a stay-at-home mom since the birth of our daughter.

In 2001 I made a trip to CA to visit my brother who was living in Santa Barbara and an old friend living in the east bay. At the time my house was worth maybe $250K, and my friend had just bought a smaller house, on a much smaller lot, for more than $500K. I could not believe the disparity in housing prices and became interested in why. I have been following the credit and housing bubbles ever since, and am an avid reader of this blog and Ben's blog, as well as credit bubble centric websites such as PrudentBear, Safehaven, and FinancialSense. My brother says my hobby is researching the end of the world. :) My favorite humor site is thereisnohousingbubble.blogspot.com. I think it hilarious.

My house is now valued at about 325K, and my bay area friend's house is valued at about a million. Thus, the disparity has grown significantly in the last 5 years. In about 10 years my daughter will graduate college. At current trends (about 8%/year overall since 1994), even in a non-extreme bubble area such as Richmond the cost of my house will be measured in millions, not thousands. What if she wants to live in the bay area, or DC, or New England? Even to stay here she will need to earn about $300K coming out of school to afford to buy the equivalent house to what she lives in now. Of my own personal experience and using just simple logic, one of two things must happen; either there is extreme wage inflation, or there is a decrease in housing costs everywhere and significantly so in the bubble areas. As I don't think the first will happen any time soon, only the latter remains as the logical outcome.

I continually ask myself, how do people get the money to buy these houses, these nice new cars, all this expensive stuff. The only answers are either that they make a boatload of money, or they are indebted up to their eyeballs and sinking fast.

If I had to buy my house today, it would be an equivalent price/income ratio as it was when I bought my house 12 years ago, but the long-term debt burden would be significantly higher. So even with the equity built, I believe I have gone backwards, substantially, with regard to housing in the last 12 years because of bubble economics and artificial asset inflation. I don't think most people in my situation could buy the house they live in today if they had to do it again, and if so, only under significantly larger debt burdens. In that sense, we are all living in golden prisons, unable to move without going backward significantly. If I sold and "cashed out" where would I buy, and what? If for some reason I was forced to move, I would rent unless the debt cost of buying (after downpayment) were at parity with a conventional, 15-year mortgage. That place seems to no longer exists.

I was talking with a woman in her 90's a few years back. She told me hang on to what you have, do not take on debt, do not take too much risk. Be careful and save. I have seen this has all happen before. She was referring to the late 1920's, leading to the Great Depression.

Be careful and if you don't own, rent. Something will happen for it can not continue as is.

Anyone in the real-estate industry, mainstream media, or general public reading this should be struck by the consensus among high-income folks. Many here qualify as top-decile earners in the Bay Area (family incomes well over 300K with significant liquid cash), and could/should buy very nice homes, yet have a decidedly bearish outlook.

More are bubblesitters like myself than I had realized. Others are delaying upgrade purchases, delaying vacation/summer home purchases, deciding not to purchase income/rental properties. Even our professional rental property entrepreneurs are bearish.

So, this isn't just a bitter-renter phenomenon at all. When so many folks here fall into the 2x~3x HaHa zone (1 HaHa = $150K /yr income), yet still refuse to pay $1.2MM for an overpriced McMansion, and instead chose to rent or sit in their more modest home waiting it out, I am more convinced that the correction may be much sharper and faster than the "decades long slow correction" soft landing theory.

The question should be, "just who is paying $1.2MM~$2.4MM for all these homes, if it's not the $350K/yr dual income family with $.75MM in the bank?" Of course we all know the answer: it's the 1xHaHas with NAAVLPs.

The LA times is showing much more inventory here, lots of reduced prices and significant camoflaged reduced prices(relisting at a lower price). Looking forward to a spring thud.
I love the term'bubble sitters' Though it's been such a prolonged bubble, it feels more like an an aneurysm. Ouch!
BTW, it's great to get to know all of you, read your general backgrounds, get an idea of your philosophies. Such a diverse group coming together with a common interest. I can't wait for more posts on this thread.

Bap33,

one problem we may face in the future is, a lot people are buying / flipping homes on a work or student visa. That is fairly common among the FOB Chinese community that I know of. I believe this is also the case for the Mexicans.

The lending policy used to limit buying to only greencard holders (at least when I first came here), and since I was still on a H1B when I bought my home, my wife, then fiancee, who grew up here had to be the co-borrower of the home. They need to look at your W2s, credit scores and the whole 9 yards. Things work quite differently now, so that anyone who can "state" anything can get a loan.

If the RE market blows up in everyone's face, what is the likelihood of these people sticking around to pay down the mortgage? What is the likelihood of them even paying off their credit card bill? Increasing number of international students who were given credit card but couldn't find a job or go through immigration just return to their home countries with tons of cash advance with no intention of ever paying back.

Honestly I won't even start to worry about them paying tax. California has a particularly high percentage of illegal immigrants and work-visa first time buyers. Nothing against work visa, I went through the process myself, just that when the ripple effect shocks the job market and work visa cannot turn into a greencard, I think there will be very little incentive left for the debtor to stick around. Not to mention the illegal immigrants.

Why am I seeing that my comment is awaiting moderation? Is it just me or system glitch?

[Comments with 2+ URLs or certain keywords get automatically put into "awaiting moderation" status. I don't know what those keywords are, but they include things which might be mistaken as spam. If you find a comment needs moderation, you usually have to tell the thread-owner, because we don't actively monitor the comment queue. We'll release the comment when we find out about it.]

I've posted here somewhat frequently for a little while, but have been mostly lurking recently because of work. Everytime when I'd have something moderately interesting to contribute, the next thread is already underway :-)

I'm a 41-year old man. I was born and raised in Munich, Germany. Went to school until I got my MS in Computer Science in '89, then immediately married and had three children.
Bought a condo in Munich at a time when everybody had been going crazy about real estate for years. Bigger condos than ours had sold for half the price five years before, the works. Buying seemed to be a no-brainer path to riches. Of course, I naively bought right at the top (1994), and am under water by about 30% to this day.

I was always somewhat cheesed about the nasty all-encompassing pessimism that hung over the country and its economy, so when I got a chance to work in the Bay Area in 1996, I jumped.
After living here for a few months, my wife and I thought about buying. We were advised by two colleagues and long-time BA residents that real estate in the area is grossly overvalued, and that we should wait. Having been recently painfully burned by a crashing RE market, we took the advice for face value.
When it became clear that there was some more overvaluation to be had and that it may be time to reconsider the no-buy decision, the train had left the station: the dollar had gone through the roof (our remaining, insignificant savings were still in Euro) and the RE prices went crazy. In late 1999, a small 4BR house in Cupertino that had been listed for $450k went for almost $700k. Discouraged, we gave up again.

I tried to call the bubble in the Bay Area in early 2001, and for half a year, it looked like it would be bursting real good. Median prices declined from a little less than $600k to $480k, over 20%. We could have bought right then and there, but didn't, hoping for more droppage. But then 9/11 came and Mr. Greenspan turned the money pump on. Again, until I had realized what was going on we were again priced out, and are to this day.

Well, come to think of it, we're not really priced out. We could kiss our savings goodbye, take the kids out of their current school, and buy a 3/2 in an "improving" neighbourhood for about $750k. Doesn't seem to be very appealing.

We rather continue to rent a slowly crumbling 1960s McMansion in West San Jose for $2,700. The house would easily go for about $1.3 mil, do the math. Not sure when our landlord will kick us out, though.

I'm making decent money at a great small (but high-profile) company, although I'm starting to have doubts since my HaHa multiplier is less than 1.0. :-) But since it's enough to clothe and feed the kids, allow my wife to stay at home and still save some money, I don't worry about it too much.

I'm not sure whether we will ever buy in the Bay Area. Our daughters will be in college in a few years, we won't need a big house anymore, and the anticipated time of cheap living in a paid-off house is approaching zero since we're already in our 40s and will be in our 70s when the 30yr fixed is paid.
If the true cost of owning ever approaches the cost of renting again (which means that real house prices have to fall by about 60% if my math is correct), we'll think about it.

I like to think that the Bay Area was the origin of the current bubble. For the first time in history, lots and lots of young folks moved here in a short timeframe, and unlike immigrant waves in past days, these people had jobs that payed better than what most of the then-residents earned.
And a good majority of them wanted to settle down and buy a house. Now, if a lot of high-income folks can scoop up all of the supply in an area for years, the prices naturally no longer reflect the area's median income, but the median income of the newcomers, plus the "it always goes up" bonus.
Once a substantial number of people cashed out and moved away (or even just borrowed on their unrealized gains), the bubble spread like a cancer over the rest of the U.S.
I also think that we're close to the end of working through the demand overhang in the BA, and that, if nothing else, will kill the local bubble psychology (and hopefully take the bubble with it).

I truly enjoy reading the diverse insights and rants on this blog, and think I've learned a lot about RE, economic principles, this society, my own misconceptions and a lot else.

Girgl,

I certainly hope that you are still keeping your Euro-denominated savings, at least I am sitting in more Euros than dollars at this point:-)

What is your suggestion of the safest way to park your Euro (if you still have any)? Some of mine is in Euro denominated high grade bonds at brokerages, but some are just cash. Do European banks offer the equivalent of FDIC insurance over there? Also, how positively correlated do you think European stock market is the US market? If the US market crashes, how badly affected will the German market be? I made some German stock investment a couple of years ago, for diversification purpose, and I am thinking whether I should take the profit at this point or let the profit run. At least it seems that Germany is not falling apart under Merkel. I am not going to hold you responsible for my investment decision, just would like to get more data point from the insider's mouth. Thanks

Haha,

only seniors under a certain income threshold can apply for a deferral in property tax until they pass away. I don't think anybody making $160K with $100K (or is it $200K?) savings can make a deferral case to IRS. Even for the case of the seniors, the unpaid property tax will accrue interest cumulatively and the amount comes due when the homes is passed on to the beneficiary.

Randy,

Not to discount previous threads and topics, but thanks for starting what I think to be the best thread in a long time. And thanks to all who have divulged so much about who they are. Extremely insightful posts from so very many.

Although I do wish it to be a slow "leveling" because of the macro economic implications of a severe and acute crash, something tells me it won't be. As a snowball turns to an avalanche, I believe it will turn uglier and faster than anyone now can imagine. From what I am currently personally witnessing in the DC area, I believe the crash is starting to gain momentum.

Only time will tell. Until then, please be careful all.

RIC

Owneroccupier says:
I certainly hope that you are still keeping your Euro-denominated savings, at least I am sitting in more Euros than dollars at this point:-)

I hate to say that my last cash savings in Euro were eaten up by negative cash flow from my ill-advised condo purchase. I'm such a loser :-) Wasn't much, though, so I'll put seppuku off for a while.

What is your suggestion of the safest way to park your Euro (if you still have any)? Some of mine is in Euro denominated high grade bonds at brokerages, but some are just cash. Do European banks offer the equivalent of FDIC insurance over there? Also, how positively correlated do you think European stock market is the US market? If the US market crashes, how badly affected will the German market be? I made some German stock investment a couple of years ago, for diversification purpose, and I am thinking whether I should take the profit at this point or let the profit run. At least it seems that Germany is not falling apart under Merkel. I am not going to hold you responsible for my investment decision, just would like to get more data point from the insider’s mouth.

Well, here's what I know (which is mostly through friends who spend more time in Germany than me, and from reading the Spiegel). It seems to transpire that the new administration in Germany has lifted spirits significantly, because, well, it's a new beginning of sorts, and they truly want to do the right thing. The business climate is finally improving again, and people start to realize that being frugal and content with 0-1% yearly raises while corporate profits are rising and rising will never get them out of the hole. So that's positive.

On the other hand, even the new, more conservative administration is all about big government ("Fürsorgepflicht des Staates" - I don't even know how to translate this wacky concept), and the story about the unstoppable population decline due to a whole generation choosing not to have children (which leads to depopulation of the countryside while the city population seems to stay about constant) is just so depressing that it could kill whatever optimism is popping up. Definitely not the country to hold real estate in, I tell ya. :-)
The one thing that worries me the most is the anti-capitalistic tendencies that seem to gain more and more momentum. No one seems to understand anymore how and why a capitalistic economy works, and why the freedom may be painful, but ultimately a good thing. There are unscrupulous politicians who cater to these trends, and the audience is growing. Very scary.

As for independence of the German market from the U.S. market in case of crash of the latter: not sure. Might be ugly, too. Germany is still very dependent on their exports, and if the U.S. crashes, China and the rest of the markets Germany exports its manufacturing gear to won't be far behind. Wouldn't place my bets on it.

In a nutshell, I'd be careful.

I do have some money in Austrian stocks (via EWO). Austria has successfully reformed their social system a while ago, and stands to benefit a lot from the economic awakening in Eastern Europe. Vienna is still the portal to much of Eastern Europe, and they're not encumbered in the current global political mess. Not sure how much of the goodness has been priced in already, but it's been a good ride so far.

I'm trying to figure out how to conveniently put money into Eastern Europe, mainly Hungary, Czechia and Slovakia. Seems like many German jobs are going there (like my niece's), and folks there are still "hungry". AFAIK, there's no ETF yet.

I have no idea about FDIC-like guarantees in Euro-land - all I ever knew about money, I've learnt about the U.S. system.

In case you're wondering: This is all just my personal, rather uninformed opinion and should in no way be construed to be investment advice.