patrick.net

You’ll finally want to put down long term roots. By renting, you risk having to uproot your kids (schools, local friends) on your landlords whim.

Only if you can't find another good rental in the same school district. This hasn't been a big problem for people in soft rental markets. By the same token, plenty of homebuyers have "uprooted" their kids by moving to "better" zipcodes. While I generally agree that home ownership stabilizes life, recent history has been the exception. For those losing sleep over their NAAVLPâ„¢ resetting, it would've been far better to rent.

Wondered if anyone knows how a comment gets stuck "awaiting moderation." Is the current threadmaster trying to model patrick.net after the Disney Channel comment board?

Wondered if anyone knows how a comment gets stuck “awaiting moderation.” Is the current threadmaster trying to model patrick.net after the Disney Channel comment board?

Your comment has been approved by the Big Brother.

Thanks, Big Bro.

Becoming a survivalist in the mountains (no need to work!) does not make you a member in the upper class.

Dunno, there's plenty of "prime" lakefront caves in the Sierras. I could retire and live the good life there right now. Before long, everyone might want to live there.

By the way, housing in the US has actually been much more affordable relative to incomes than in other countries. There was no reason to expect this to last forever, and price/income ratios in the US are indeed starting to catch up in some areas.

There is also no reason to _expect_ this to change. But you may be right, the price (per sqft)/income ratio can and do change. However, people will not get "priced-out" permanently. They may just have to put up with higher density and/or smaller homes.

Dunno, there’s plenty of “prime” lakefront caves in the Sierras. I could retire and live the good life there right now. Before long, everyone might want to live there.

Perhaps a lobster farm.

"I wonder if the US is just now catching up to Europe, where some parts are simply off limits to “plebians”

I'm not certain we can cite Europe to suggest future short-term trends in the US. Some areas are just as prone to speculation, while others havenot see rampant appreciation--even with severe restrictions to growth. Switzerland is just one such example. Then there are cultural differences in regards to space needed to live, perceptions on city vs. suburban life, etc.

uh, "have not seen..."

Frify,
If one were unable to find another rental in a given area, then the area wouldn't be worth living in anyway. I can name at least 15 other houses that are of the same size that rent for LESS than what we're paying now. I actually have more flexibility than someone who owns. If you own now, you're probably more likely to have to leave the state come the potential defaulting on loans that would place you in serious debt Vs renting where the worst that would happen is having to pay for a rental truck and perhaps a month's worth of wages in moving costs. I've lived in the same place for 3 years, but moved 5 times within the same area in the first 4 that I lived here. No biggie.

Unfortunately, there is a reason for it to change, and it’s called globalization. The buying power of working people with similar skills and productivity will tend to equalize across countries.

In this case Europe and the first world will price-equalize with the third world. This will mean a downward pressure on anything but upper-class housing. Remember, the upper-class is always *very* small.

The buying power of working people with similar skills and productivity will tend to equalize across countries.

Uh... it is actually the price of working people, not the buying power of working people.

Labor is a commodity. It is a slavery-equivalence. It has no power.

There are two ways to achieve parity - reduce incomes, or make the money worth less by having prices go up without increasing incomes and benefits. The latter is currently happening.

This I agree. However, I see more problem in education and medical care than in housing. Technically, it is rather easy to increase high-density housing supply. One can also move just a few hundred miles to reduce housing cost. The same is not entirely true for education and medical care.

Remember, the upper-class is always *very* small.

I also don't see the "upper-class" buying all the homes destined for middle-class markets. If they do, they'll rent them back to the worker hordes, priced to their "equalized" wages...hardly a great way to make easy money.

I also don’t see the “upper-class” buying all the homes destined for middle-class markets.

Very true. They would rather have cheaper housing for the worker bees so that wage can be further depressed.

Living in a "good school district"? Things can change:

http://www.mercurynews.com/mld/mercurynews/living/education/14903795.htm

Thanks my wife for sending this in.

Institutions owned by the upper classes collect the interest on these large loans, essentially taking back a large portion of the income of the workers, thus bringing the work force closer to slavery.

People will just default on the mortgage anyway... Moreover, it is foreign central banks that are holding these mortgages anyway.

an anyone think of a scenario related to housing crash where my fund shrinks or disappears? If so where to store my stash?

You cannot think of all scenarios. Unexpected things do happen.

Have you considered T-bills?

Two of the partners on my husbands team make about $500k a year, they’ve been able to save millions due to the fact that $500k in the Sacto area buys you a lot, and leaves a lot of liquid income.

Yes, if they are able to accumulate assets.

I have heard of people who make 1M+ that are on the brink of bankruptcy.

Man, I sure am hearing and seeing all kinds of +spin on the housing numbers today.

Not really - there aren’t that many defaults out there.

Foreclosure is definitely on the rise. It is part of the reflexive process of trends anyway.

What does “foreign” mean in a global economy? Upper class people tend to have global financial interests anyway.

Perhaps. I do not know enough to defend my position. Where is Randy?

Ryno73 ,

I have a chunk of $ in my BA housing fund in a CA tax exempt Money Market. Money Markets are not insured by FDIC but pretty damn stable. Can anyone think of a scenario related to housing crash where my fund shrinks or disappears? If so where to store my stash? I’m too much of an optimist to think the mattress is a good idea

The chance of money markets, muni bonds, or other institutional vehicles collapsing is very remote. They will be bailed out if they fail for risk of confidence in the entire system collapsing as in The Great Depression.

Ryno73,

While bank deposits are insured through FDIC, money markets on the other hand are insured through SIPC (Securities Investor Protection Corporation). How does this wonderful insurance work? Guys like me pay in a small percentage of our "gross commissions" each month to make sure they stay solvent. If SIPC goes under we are all screwed.

While bank deposits are insured through FDIC, money markets on the other hand are insured through SIPC (Securities Investor Protection Corporation).

DinOR, I thought SIPC protects against brokerage insolvency but not loss of investment value. If the MM fund losses value due to defaults, SIPC is not going to be of much help.

Randy H,

AAA rated municipal bonds that are insured are done so to the degree that the insurer will step in to keep the issuer's debt obligations current in the case of insolvency. You may or may not be able liquidate your bonds at the time. (But you're right, I think the last time say for instance South Carolina defaulted on a bond was before the Civil War).

Peter P Says:

> Just, curious, how is doingwell NOT middle class?
> 300-500K, if true, is still in middle class IMO.

$300K is only “Middle Class” since it is not PC in America to ever admit that you are rich. The kids that I grew up with on the Peninsula who Dad’s that made MILLIONS per year (back in the 70’s when $8mm a year was a lot of money) all considered themselves “Middle Class”…

> Another way to look at it: 300K x 4 = 1.2M = 1 Eichler in
> a (previously) lower-class Palo Alto neighborhood.

The Palo Alto Eichlers were never a “Lower Class” neighborhood…

Then SQT Says:

> Well, then I think 300-500K is upper-middle class then.
> When you look at median incomes and the percentage
> of people who make over six-figures a year, you have to
> admit 3-500k is a lot of money.

Today $300K of “household” income will put you well in to the top 1% of all US families and $500K will put you in the top 1/10th of 1%. The top 1% is not in the “middle”…

What does “foreign” mean in a global economy? Upper class people tend to have global financial interests anyway.

Perhaps. I do not know enough to defend my position. Where is Randy?

It's oh so more complicated than that.

You're both right; you're both wrong.

Rich people do earn returns (usually not direct interest) on the debt of consumers. They do this very indirectly through their portfolio holdings.

Foreign Central Banks are about as clean cut of "foreign" as you can get. Yes, they own a huge amount of USD denominated debt. But there's a big quid-pro-quo. They power their GDP through exports derived by selling stuff to US consumers bought with that very debt. It's a big feedback loop. In this regard, it really is hard to tell what "foreign" is.

To make things more complicated, American consumers then benefit from this huge debt in terms of "standard of living". This is because those foreign holders of USD debt because they need to export stuff to our consumers need to compete on price with US producers. Since our dollar is weak, they have to buy them or their products cost too much for our debt-ridden consumers because their currencies will go up compared to the dollar.

This means that the consumer in America gets to buy cheap stuff because he is in debt. If American consumers ever start saving too much they'll be faced with rapidly rising prices as foreign exporters become non-competitive. Then they'll consume less, and the feedback loop will go the other way, like it was before the late 50s/early 60s.

Peter P,

Good point and absolutely true! However only about 200 companies in this country have access to money at this level so they are basically "debentures" and short term notes as well as "repo's" or repuchase agreements along with a smattering of Letters of Credit. Most of 90 days or less in duration. The brokerages pay for the "insurance" to create good faith in the market place and frankly to compete with the assurances of FDIC.

The Palo Alto Eichlers were never a “Lower Class” neighborhood…

Really? My friend told me that Eichlers were designer for poor people. But he lies from time to time.

-designer
+designed

FAB,

Today $300K of “household” income will put you well in to the top 1% of all US families and $500K will put you in the top 1/10th of 1%. The top 1% is not in the “middle”…

I think there's been more bimodal accumulation recently. I'll try to find the reference but I think that $250K household income puts you into a group smaller than 1%.

Keep in mind, however, that there is nominal distortion to these figures.

Peter P,

I believe there are other components that go into creating money markets but those I believe are the biggies. I have a buddy at Nuveen in Chicago and he could probably define it much better. Ahem, I may have a "SIPC" placard prominently displayed on my desk but hell, you're the guy that just took the CFA Exam!

you’re the guy that just took the CFA Exam!

I probably did not pass anyway. Should have taken a realtor exam instead.

Because of where I'm from, Eichlers look too much like mobile homes to me.

Because of where I’m from, Eichlers look too much like mobile homes to me.

The exposed beams are really bad. One must cover them up in the bedrooms.

Peter P,

Now, now! Let's not get frustrated here! Besides what percentage of people pass on their first go round? I understand it's less than 1/5?

CAR REALTOR EXAM:

1. What color is an "orange"?

2. What color is "The White House"?

(Bonus points for getting your name and social sec. number correct!)

People on this forum mentioning that they think 300k is middle income level salaries are perfect examples of just how out of whack fundemental concepts in value in California has gone. If you make 300k- you're loaded. Plain and simple. No buts, or IFs about it. Trust me. As someone that made 25k for 3 years after college, I can tell you that there are millions and millions of CA residents that don't even make that much. I save roughly 50% of my 50k salary, yet if I were to buy, forget saving anything, let alone avoiding going into serious debt. The people making 300k and STILL think they're middle class obviously have no concept of common sense, and if they have problems saving money, then it is their faults entirely.

People on this forum mentioning that they think 300k is middle income level salaries are perfect examples of just how out of whack fundemental concepts in value in California has gone.

Who says that the middle class makes middle level income?

"Middle" just means that it is between "upper" and "lower".

It is about class (cast).

No, there’s a better option: let the workers “buy” (or think they’re buying) the property with huge mortgages.

That sounds vaguely similar to the risks of home purchasing since 2003. But, there was a perceived upside due to appreciation providing "safe" exit strategies. Take away that upside, and I don't see the same run on the housing market, which may explain growing inventory. How could the market be fixed to eliminate options such as renting? Even with the NAR "cartel", they only have so much control on pricing. Like Peter said, if globalization favors growth in emerging economies, I don't see how that supports inflated pricing here. Judging by recent job migration, that suggests growth is linked to less worker overhead/higher opportunity. Little that I know, but I don't see a New Economyâ„¢ repeat of c. 1999.

"...I think that people who live in the Bay get used to looking at things through a fish-eye lens"

I agree. Here we have a sliding scale of values/expectations, where we eventually forget any semblance of normality. If a $300K median home is now $800K 4 short years later, then there *must* be a way to buy. After all, most of us consider ourselves "successful", therefore we should ride this wave like everyone else. Jump on, or be a loser. Never mind the skyrocketing costs in the bay area, because success and unending appreciation will cover everything. Work yourself to death for homedebtorship now, because it will pay off someday.