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Bubblepalooza

By someone else following x   2007 Jan 31, 10:52pm 22,743 views   254 comments   watch   nsfw   quote     share    


Bubblestock

From a Malcolm S in San Diego:

Hey Patrick, I just had an idea which is so morbid, ridiculous and ill conceived, I thought I would run it by you. You asked how to have fun during the bubble, well how about a party? This catastrophe is the biggest joke of the decade and I think it calls for a nationwide rally maybe in SF, or whatever city you designate as the birthplace of the housing bubble.

It could be called BUBBLESTOCK or BUBBLEPALOOZA! Some of your advertisers, and I guarantee a bunch of other businesses and media would love to sponsor, support, attend, and cover such an event.

Picture it! Swarms of like-minded bubbleheads converging on Golden Gate Park for an overnight festival of music, big screen bubble clips, movies, roasts.

Some ideas:

Lereah's powerpoint presentation on now is the time to buy
Fun with Dick and Jane
All the YouTube clips like Mortgage Gangstas
Gotta have at least a few country western songs about losing the house and the tractor

Think of the impact something like that could have. It could literally be a jab of historic proportions.

I guarantee that even with this theme you will have lenders, and realtors paying booth fees.

#housing

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215   DinOR   ignore (0)   2007 Feb 3, 9:09am   ↑ like (0)   ↓ dislike (0)   quote   flag        

"bone-deep stupidity" LOL!

spike66, God love you sir!

216   DinOR   ignore (0)   2007 Feb 3, 9:11am   ↑ like (0)   ↓ dislike (0)   quote   flag        

Paul,

I have a CPA friend in Salem, OR that grew up in Greenburg, IN and went to Northwestern, there's NO WAY this guy can lose! Any truth to the Vegas line being Colts by 7?

Oh and GO BEARS!

217   astrid   ignore (0)   2007 Feb 3, 9:50am   ↑ like (0)   ↓ dislike (0)   quote   flag        

OO,

That's a great point. Older long time landlords are very likely to hold their property until they die to give their estate the step up in basis.

218   astrid   ignore (0)   2007 Feb 3, 9:59am   ↑ like (0)   ↓ dislike (0)   quote   flag        

spike66,

Well, I'm just trying to wrap my mind around paying $8,000 a month just for housing. When I flip through advertised co-ops, I've seen $500,000 places with $2,000+ monthly maintenance, so $7,000/month is probably way too low as carrying cost. Even $7,000/month is more than any of the women in the article pulls in gross.

219   DinOR   ignore (0)   2007 Feb 3, 10:43am   ↑ like (0)   ↓ dislike (0)   quote   flag        

spike66,

With "himbo's" like that working there....... no wonder you left. You haven't done your "research" until you've been a regular on this site!

Seriously, "researching" NY is one thing, and like you say, since we all know it's the center of the universe what happens elsewhere couldn't possibly be of any consequence right? I understand Roz and Lucianna's motivations but what wigs ME out is the guys seemed to be an equal or greater influence in the decision making process.

What's with the vanity already? What happened to traders that ate, slept and drank the market? I used to love the guys that were washing the puke off of the tie they wore the night before in the men's room after sleeping in their car! Now these guys want "cushy" right out of the gate.

220   DinOR   ignore (0)   2007 Feb 3, 10:48am   ↑ like (0)   ↓ dislike (0)   quote   flag        

Reading an article today in the "BOregonian" about "e-d" and how doctors are now perhaps considering asking patients about (God forbid) their sex lives!

Believe me I feel for medical professionals! People DO NOT like discussing such matters. My question is.... what's worse for you long term? Physical OR financial impotence?

221   FormerAptBroker   ignore (0)   2007 Feb 3, 11:33am   ↑ like (0)   ↓ dislike (0)   quote   flag        

astrid Says:

> I loved the couples (in the NY Times)
> two cases of he’s (relatively) rich and
> she’s (relatively) hot.

(relatively) rich and (relatively) hot couples in NY are almost as common as (not that) rich and (kinda) chunky couples.

In nicer neighborhoods you see a lot of (super) rich and (smoking) hot couples and in poor areas you generally see (no chance of ever getting) rich and (super) chunky couples…

222   OO   ignore (0)   2007 Feb 3, 12:43pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

spike66

I have no intuition how much these NY apartments / co-ops should go for, but they look rather inexpensive compared to the luxury apartments being sold in HK.

The lower-to-middle level ibankers in HK make the same amount of dough as their NYC counterparts but they pay a total of 15% tax only, I guess the savings in tax all go to the luxury trophy apartments.

223   OO   ignore (0)   2007 Feb 3, 12:57pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

well, it may not apply to these folks in the NYT, but many bankers made serious dough in the last 3 years, that is a fact. We went a class reunion last year and I was completely dazzled by the money flowing around and wondered if we happened to be among the few "losers" in the crowd.

It seems like many people in the hedge fund industry scored big time, and they were not afraid to flaunt their wealth in front of their classmates, writing $200Ks, $300Ks to alumni fund, and talking openly about their multi-million dollar bonus. I don't know enough about the banking industry, but it seems like most people in that industry are able to do very well in good years, actually they make far more than enough in the good years to carry them through the bad years. I know, the street has swifter and deeper cutbacks, but hey, if you can make several hundred grands to millions in a good year, that is not a bad deal at all.

224   StuckInBA   ignore (0)   2007 Feb 3, 1:18pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

OO,

I have a friend here in BA who works for an investment house. Even the IT engineers were awarded minimum 2x annual salaries in bonus. Being at the right place at the right time, is all that matters.

225   StuckInBA   ignore (0)   2007 Feb 3, 1:22pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

Don’t feel very good, AMT bites again, I am by no means rich, but fits the description, 2 kids, mortgage, high property tax. When are they going to repeal this?

AMT has its pluses too. If they don't change it for a some more years, then I guess every middle class family will be hit by it. It's as close to flat taxation as it can get. So when that happens I will like it. Secondly, if you are already in the highest tax bracket, isn't the marginal tax rate on the incremental earning less than normal ? So if you get a bonus / or a short term cap gain, aren't you better off in AMT ? I could be wrong,

Is property tax deductible under AMT ?

226   Malcolm   ignore (1)   2007 Feb 3, 2:27pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

I think we are getting a credit for last year's AMT. It is wreaking havoc with my taxes this year though; even down to the income adjustment for my state income tax refund. You have to recalculate last year's taxes. It is a major headache.

227   Different Sean   ignore (0)   2007 Feb 3, 2:59pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

zidane2 Says:
If we assumed the vacation policies of the wealthy nations (Germany, Austria, Holland, etc etc) our entire economic system would collapse in the US. In the US we have a massive 3rd world population (Africans, Central/South Americans etc) that the wealthy nations dont have to support. It is a real problem and hinders our standard of living. Imagine if the problem could be solved with repatriation.

You are the wealthy nation, with the exception of Switzerland, which is an unusual case due to nature of business, small size, etc. Have a look at the CIA handbook of countries for per capita GDP. These countries aren't doing so well. Further, France, Germany, Spain, England all have massive illegal immigration or recent legal immigration as well, also from Africa, East Europe, Middle East, etc. Hence the recent riots in Paris. (And they don't 'support' them when they are working low paid jobs, now do they?)

However, reading OO's descriptions, you can see that there is more inequality in the US, more money going into fewer hands all the time...

228   Different Sean   ignore (0)   2007 Feb 3, 3:02pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

OO Says:
Well, it may not apply to these folks in the NYT, but many bankers made serious dough in the last 3 years, that is a fact. It seems like many people in the hedge fund industry scored big time, and they were not afraid to flaunt their wealth in front of their classmates, writing $200Ks, $300Ks to alumni fund, and talking openly about their multi-million dollar bonus.

StuckInBA Says:
I have a friend here in BA who works for an investment house. Even the IT engineers were awarded minimum 2x annual salaries in bonus. Being at the right place at the right time, is all that matters.
-----
I wonder exactly where all this dough is extracted from, and to what use it's put. Any insights?

229   ozajh   ignore (0)   2007 Feb 3, 3:16pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

DS,

There's a certain irony in zidane2 fulminating about 3rd world immigrants, given that zidane1's Algerian parents emigrated to France. IIRC from the World Cup bio's, Zinedine Zidane grew up in a VERY poor and tough neighbourhood.

230   B.A.C.A.H.   ignore (0)   2007 Feb 3, 4:01pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

People keep saying that Cupertino has good schools.

I think they mean, high scores on standardized tests.

Unless you're genetically wired to think that high marks on standardized tests means the same thing as "good education" (perhaps from centuries long tradition of civil service exams), well, most people with common sense know that there's more to good schools and good education than high scores on standardized tests.

231   StuckInBA   ignore (0)   2007 Feb 3, 4:34pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

I forgot the rule "Google first, ask later" and wrote :
Is property tax deductible under AMT ?

The answer is obvious no. That's a big OUCH !

So let's take these oft-quoted 2 income tech couples. In CA 200K of income virtually guarantees AMT due to high state taxes. (That's an irony in itself, but let's tackle it some other time.) I hope people realize this before buying.

So if they buy a house for 1M, the approx 12K of property tax WILL NOT be deductible as they will be hit by AMT. I will pay 22K on rent this year. Even if I win the lotto and get 1M, by buying the house, I will only "save" 10K per year on housing costs, assuming NO costs like HOA and insurance. And not get 30K of SAFE interest after tax.

Buying a house at this time at these prices never made any sense. But AMT makes it even worse.

232   StuckInBA   ignore (0)   2007 Feb 3, 4:39pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

Anyway. Looking forward to the game tomorrow. I am rooting for Colts. I have heard enough of this Peyton Manning cannot win big game BS.

233   e   ignore (0)   2007 Feb 3, 5:49pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

Imagine if AMT eliminated the mortgage deduction??

234   Different Sean   ignore (0)   2007 Feb 3, 8:17pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

hold on, much of the bubble growth has been in low-lying seafront property...

235   Bruce   ignore (0)   2007 Feb 3, 8:29pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

Spike66,

Nice cameo. 'My' NY is about half way between yours and the Algonquin roundtable. But the tone is NYC alright.

236   DinOR   ignore (0)   2007 Feb 4, 12:07am   ↑ like (0)   ↓ dislike (0)   quote   flag        

Sid Finster,

Yeah, I have a buddy that lived in the Temecula, Perris, Moreno Valley area for years and oft boasted that while they do not have a "wine country" the DO have "pit bull farms" and the "meth country"?

(He'll be hammered before half-time I'm sure)

GO BEARS!

237   DinOR   ignore (0)   2007 Feb 4, 12:13am   ↑ like (0)   ↓ dislike (0)   quote   flag        

CB,

Sorry to hear of your "entrapment". FWIW I've been railing about this for years (obviously to no avail). As always, anyone that's sec. licensed has to be extra careful about giving out tax advice but any time I have clients that are heading down this path it's time to take drastic measures!

Once you fall into the AMT trap it's difficult if not impossible to get out of it. Are you a W-2 or a 1099 guy?

238   DinOR   ignore (0)   2007 Feb 4, 12:18am   ↑ like (0)   ↓ dislike (0)   quote   flag        

wtf,

You've always had great posts in the past so I hope your dismissive attitude regarding the SINGLE MOST IMPACTFUL EVENT OF OUR TIME is just a joke, right?

AMT is serious sh@t! If you happen to be no where near it, count yourself lucky! As more and more "rank and file" Americans find themselves in tax hell the guilty pleasure will wear off. Believe me.

Google it for articles....... and weep.

239   DinOR   ignore (0)   2007 Feb 4, 12:25am   ↑ like (0)   ↓ dislike (0)   quote   flag        

Malcolm,

Ahhh, the CPA's best friend! I swear, these twisted f@cks LOVE IT! (More bill-able hours!)

I had a struggling practice, that is until more and more of my clients fell crank first into the AMT! Now I'm thinking about getting a 30 footer!

240   lunarpark   ignore (0)   2007 Feb 4, 1:58am   ↑ like (0)   ↓ dislike (0)   quote   flag        

I was at a party last night. The Chinese couple who sat next to me own a house in Cupertino. The husband was talking to a lady who is a recent immigrant from Russia. He told her she needs to buy a house right away because prices are still going up, and that it is best to buy in Cupertino because of the schools.

The best couple of the evening had to be the 19 and 20 year old engaged couple (she's also pregnant). They somehow managed to buy a house in San Jose a year or so ago. Neither one of them come from money and I imagine their combined income is probably around $60k.

I still haven't made it through an entire party in the Bay Area without someone bringing up real estate. It's bizarre.

241   Jimbo   ignore (0)   2007 Feb 4, 3:13am   ↑ like (0)   ↓ dislike (0)   quote   flag        

Does anyone have good graphs of housing prices in the Bay Area from say, 1981 or earlier to today? I know they have increased out of trend if you measure from the end of the bust (1997) but that was after 7 years of stagnation and decline in some places (LA).

The long term trend for CA real estate is 6% appreciation/yr. This is since WWII. How far off that trend are we really?

Please no trough to peak measurements, that really distorts the numbers.

242   Jimbo   ignore (0)   2007 Feb 4, 5:08am   ↑ like (0)   ↓ dislike (0)   quote   flag        

I sympathize with your plight, CB, especially since we will be in the same one ourselves this year.

The Republicans don't care about us since we are primarily concentrated in "Blue" states and the Democrats don't care because we are "rich." The WSJ complains about how upper-middle class homeowners are increasingly snared by the AMT, but I don't think anything is going to be done about.

The one small solace is that we are racking up AMT credits that we will eventually be able to use to lower our tax burden, if we ever fall back under AMT (probably upon retirement).

243   Jimbo   ignore (0)   2007 Feb 4, 5:39am   ↑ like (0)   ↓ dislike (0)   quote   flag        

Okay I found this:

http://www.realestateabc.com/graphs/calmedian.htm

Which comes out to about 8%/yr overall apreciation since 1968. There was a bigger "bubble" in the mid-late 70's, after which real esate under performed for about 17 years. The increase from 1981 to 1997 averaged 3% a year.

Notice there were no big drops, as so many on this blog have predicted, though there was one eight year (!) span over which prices dropped.

These must be nominal prices, too, so the inflation adjusted numbers would look worse.

Perhaps that is how the "bubble" will play out: 20 years of no real growth in real esate prices. I think that is much more likely that than the Big Bust everyone is hoping for.

244   Brand165   ignore (0)   2007 Feb 4, 5:57am   ↑ like (0)   ↓ dislike (0)   quote   flag        

If the Bay Area has 10-20 years of no real estate price increases, then buying a house was a terrible investment for any normal person. You have a huge negative return from inflation, taxes and maintenance. Renting was by far the better alternative.

I believe that prices will come down, because that is the inevitable outcome of a bubble. Things generally cannot plateau at an astronomical price. Perhaps Randy or others can cite instances where this has happened. Buying a Bay Area house doesn't make financial sense unless you can assume ongoing appreciation. I don't believe there are enough people for whom the emotional premium of owning is denominated in $100,000 increments.

When HP, Dell, and other major tech firms were overvalued during the bubble, their stock prices didn't stagnate at the high levels. They eventually came down. Housing as a market may be highly inefficient, but it is not immune to the laws of economics. ANY time people start touting that a particular sector, commodity or ANYTHING else is immune to the laws of economics, or that the laws are "different", THAT is the sound of a canary dying in a coal mine.

245   FormerAptBroker   ignore (0)   2007 Feb 4, 6:06am   ↑ like (0)   ↓ dislike (0)   quote   flag        

Jimbo Posted a link to a great graph and said:

> 8%/yr overall apreciation since 1968.

Around 1900 the median home price was just over $1K in 2001 after 100 (One Hundred) years of massive job growth and quite a bit of inflation in California the median price went up just $250K, then in the next 4 (Four) years in a period with many high paying jobs leaving the state and very little inflation the median price went up by over $250K to $524K (looks like a bubble to me)...

246   Jimbo   ignore (0)   2007 Feb 4, 6:08am   ↑ like (0)   ↓ dislike (0)   quote   flag        

By "real" growth, I mean inflation adjusted growth. But yes, renting would be better, assuming rents stay stagnant, too, but that is a big assumption.

Rents will probably go up about as fast as incomes, which should be a percent or three faster than inflation.

I agree that this is a bad time to buy, if you are primarily interested in real estate as an investment.

Whether it is better to buy or rent depends on how long you intend to stay, what you think t he inflation rate is going to be and how fast both rents and home prices are going to appreciate.

I did this math about two years ago and came up with home buying making sense if you intend to hold for 10+ years.

Of course it would make no sense at all to buy a declining asset.

247   Jimbo   ignore (0)   2007 Feb 4, 6:17am   ↑ like (0)   ↓ dislike (0)   quote   flag        

FAB, you and I have very different definitions of what a "bubble" is. Just the normal boom bust cycle of California Real Estate is not a bubble to me. You can see from that graph I posted that home prices actually increased at a faster rate for longer in the mid to late 70's than they did recently.

A "bubble" is when prices increase at an increasing rate, to the point where they are disconnected from all financial fundamentals. Usually prices are 10X or even 100X what they should be worth based on a rational valuation.

Good examples of bubbles include Dot Com stocks in the late 90's, the South Sea bubble, the Mississippi Finance bubble in France. Other examples are the "Nifty Fifty" stocks in the 70's and the Japan land market bubble in the 80's.

In all cases, prices dropped 75-99% after the bubble popped and always quite rapidly.

I don't think that describes California Real Estate today, but I know that puts me in the minority here.

248   FormerAptBroker   ignore (0)   2007 Feb 4, 6:19am   ↑ like (0)   ↓ dislike (0)   quote   flag        

Brand Says:

> I believe that prices will come down, because
> that is the inevitable outcome of a bubble. Things
> generally cannot plateau at an astronomical price.
> Perhaps Randy or others can cite instances where
> this has happened.

I have never heard of any “bubble” hitting a “plateau” without a solid reason (say the average wage in a remote area going up after a large company moves there).

Looking at the link Jimbo posted with median home priced reminded me that high end homes in La Jolla, Hillsborough and Ross were selling for ~$1mm in 1989 (~5x the median) and dropped a lot more than average/median homes by 1994. In the current bubble cycle I’ve noticed that high end homes in La Jolla, Hillsborough and Ross are pushing $5mm (almost 10x the median). I’m wondering if these homes will drop as much this time and if watching the price of homes nearby drop by $500K a year will make more people run for the doors (and sell making things drop even faster) than the drop of “only $100K a year” back in the early 90’s…

249   Brand165   ignore (0)   2007 Feb 4, 6:20am   ↑ like (0)   ↓ dislike (0)   quote   flag        

FAB, you really can't compare gold standard prices to "currency" economy prices. The gold standard stabilized the prices on durable goods for a dozen decades.

btw, someone at work said that FDR actually took us off the gold standard? I thought that this move is oft attributed to Nixon? But gold was siezed by the government in the 1930's, IIRC. Perhaps one of our resident goldbugs can clear up the history at work?

250   Jimbo   ignore (0)   2007 Feb 4, 6:40am   ↑ like (0)   ↓ dislike (0)   quote   flag        

FAB, yeah I thought it would work itself out that way, too, that is why I bought TOL puts.

I did okay, but I would have done better buying KBH puts.

I guess the global redistribution of wealth upwards has helped maintain the price of high end homes. Let's see if that continues.

My dream house is "only" $2M anyway, so I don't think I am going to be helped much either way...

251   Brand165   ignore (0)   2007 Feb 4, 6:59am   ↑ like (0)   ↓ dislike (0)   quote   flag        

Jimbo: One thing I have often wondered is how many super-expensive homes get resold? They are often uber-customized for the original owner. It seems just as likely that someone who wants to build a $4M home would acquire the appropriate land and then build their own "perfect" home.

Of course, if you're going to buy or build a $4M home, then money probably isn't a concern anyway...

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