patrick.net

Jimbo Says:

Umm, no. Maybe you mean 75% of new loans, but very few loans made before 2002, which are the majority of outstanding loans in the Bay Area.

So sorry, but YOU are wrong, Mr. Troll. According to a September, 2005 SF Chronicle poll, 48% of Bay Aryans had refinanced "within the last few years" --i.e., they got brand-new loans on their existing properties, most of them "liberating" equity no doubt. And this percentage has undoubtedly increased in the following 17 months. Add to this all the new loans, and it's not hard to see how the total tally could easily hit 75-80% of ALL outstanding mortgages.

Astrid, people want to live here, as simple as that. Plenty of us could live anywhere in the world and we choose here. I don’t consider myself “slaving away half my life” I consider myself living a decent, but modest, existence exactly where I want to be. I could have more “stuff” elsewhere, but it wouldn’t make up for having to live there.

You could argue that Bay Area home prices will go down *more* than they will elsewhere, but if you are, I respectfully disagree. San Francisco home prices have always been 3X median US prices and they always will. It is a great place to live.

Yes, it's different here. The sidewalks are paved with gold bricks, money grows on trees, and even the homeless wear Versace & Prada.

007, I think that people who own homes like that have just pulled them off the market. Most people who own a home that is worth that much can sell when they feel like it and right now they don’t feel like it.

That's right. No specuvestor carrying cost "alligators" burning up cash around here! Yessir, all Bay Aryans are independently wealthy and can afford to carry their $1.8 million stucco $hitboxes until the sun explodes, if necessary. Stupid greedy buyers! (whistles past graveyard...)

PAR,

I would not assume the majority of refis made during the last 5 years were of the "less risky" 30 FRM/no cash-out variety. Not even in that mighty bastion of Uber-wealthy Boomerdom, the Bay Area.

test

/test/

test

And here I thought BA rodents pooped chewing gum.

That's what my dogs seem to think my Guinnea Pigs poop.

Claire :

Like SP I also have a few anecdotal data points. People who could have made a killing by selling their home chose to become move-up buyers. They ended up with either same or more mortgage. Someone I know, who purchased 10+ years ago or so for about 250K is now looking to buy in Saratoga and was bidding for a 2M house. And I know a few serial refinancers too.

This is sheer madness. Stories like these made me write the wasted opportunity thread. The whole country is doing a collective screw up and everyone is trying to outdo everyone else.

MtViewRenter,

Most smaller pension funds will be fine, even with less sophisticated staffs, because they, like the bigger funds, diversify across assets as well as across asset managers. One bad investment (or even a few bad investments) should not destroy the fund.

The situations you describe usually involve situations where the guy in charge of the pension fund abandons diversification. He puts all (or much) of the pension fund's assets in a single investment or entrusts it to a single asset manager. That makes as much sense as putting all of your money in a single stock. The problem in those situations isn't hedge funds or MBS or risky investments; it's that you have a guy in charge who has no business running a pension fund.

I agree regarding McMansions. I like them. They are so freaking better than the "Ranch" style 50+ year homes found everywhere. I wouldn't buy them - where the kitchen is the first thing you see after entering the house , and the bathroom in the master bed is so small that it can only accommodate a shower stall. Even if they drop by 50%. Actually no matter what the price is, I wouldn't live in those old servant quarters.

The primary reason I chose not to buy was because most of the houses here suck. Big freaking time. Even at 2002 prices. When the prices started going out of hand, I started researching why. Then I found this and other sites.

I would rather move to Brentwood than buy a 50+ year old "charming" hut.

I hate the squished together developments, too. 3000 sq ft homes on 4000sq ft plots is not my definition of good city planning.

I hate the insides of McMansions. Generic, lacking privacy, bad traffic flow, full of pointless spaces, poorly constructed.

I have no problem with well planned high density housing, but the soulless subdivisions of the last ten or twenty years is dreadful.

Otherside, when I was a kid I spent as much time OUTSIDE my house as possible. Playing in the back yard, riding my bike around, heading to the playground. Nowadays I enjoy taking my dogs for a walk several times a day, I like biking to work (when possible) and I still like hanging out in the yard, barbequeing, reading, or playing with my dogs (and hopefully someday) kids.

Neighborhoods with cookiecutter houses and HOA mandated paintjobs look so... well... lame.

Jimbo Says:

> Astrid, people want to live here, as simple as that.
> Plenty of us could live anywhere in the world and we
> choose here. You could argue that Bay Area home
> prices will go down *more* than they will elsewhere,
> but if you are, I respectfully disagree. San Francisco
> home prices have always been 3X median US prices
> and they always will. It is a great place to live.

People may “want” to live here, but with rare exceptions (say “Gordon Getty”) the people that live here need a job so if employers decide to move jobs to other states or India the people that loose their jobs and can’t find new ones will have to move.

San Francisco has not “always” been 3X the US median. In 1980 the SF median was about 2X the National median, The SF median was exactly 3.0X the National median in the 1990 census and rose to over 4.5X the National median by the 2000 census.

I have no problem with well planned high density housing, but the soulless subdivisions of the last ten or twenty years is dreadful.

Soulless anything is dreadful.

Today I bumped into someone I hadn't met in a long time. The conversation started in a typical rat-race money minded BA way.

"Where do you work ?"
I told him the company name.
"What project do you work for ?" "When did you join ?" etc.
I told him the date, and I could see that he was trying to guess my stock option grant price.
Next, "Where do you live ?"
Cupertino, I said.
"That's awesome ! When did you move there ?"
Hmmm, trying to guess my gained equity. I told him the date.
"That's cool. You made a killing on your house."
There we go. I was tuned out and answering like a robot.
No, I rent there, I said and waited for the inevitable.
"Renting ?" He was taken aback.

Then came the shocker.
"You don't have a mortgage, then what do you do with so much money ?"

I was so completely taken by surprise, that I had no idea how to respond. I mumbled something and changed the topic.

I think the J from JBR is now gone to JFBs. Now only if I had remained poised and told him about the Vanguard Emerging Market Index fund ...

StuckInBA Says:

> Today I bumped into someone I hadn’t met in
> a long time. The conversation started in a typical
> rat-race money minded BA way.
> Then came the shocker.
> “You don’t have a mortgage, then what do you
> do with so much money ?”

I get the "what do you do with all your money" question at least once a week (since most of my friends have huge mortgages, property tax bills higher than my rent, big car payments, and kids that probably cost $30K per year each with private schools in SF over $20K a year)...

I used to live in Ambleside in West Vancouver, try telling people you rent there, you're not one of them immediately.

Of course, as the mortgages crush some of these paper millionaires in the years to come, I guess the beauty of paying too much will soon not be so cool.

HARM, before you call someone a troll, you should bother to try and figure out what the conversation is about.

In addition to subprime loans, this includes interest-only loans where the borrower makes no principal payments. It includes negative-amortization loans in which the borrower pays less than the full interest payment, with the shortfall added to the outstanding debt. And it includes loans that require little or no down payment, or no proof of income.

And I stand by my earlier statement, that there is no way that 75% of Bay Area loans qualify as "agressive," by this standard. Just because someone has re-fi'ed doesn't make them neg-am or no-doc loans.

FAB,

According to this NAR chart, the average US home is $219k,. while the avereage SF one is $733k:

http://www.realtor.org/Research.nsf/files/MSAPRICESF.pdf/$FILE/MSAPRICESF.pdf

This puts SF homes at a 3.3X to US median ratio. If you have other information, I would love to see it.

I wish I could remember the URL where I saw the long term graph of SF home prices vs. US median. I am pretty sure it is a US Fed Bank site, but I could be wrong there. In any case, if I am wrong, I am happy to be proven wrong, but I need more than an assertion to believe it. Show me where you get your numbers.

I have to say, I really appreciate reading the DQ archives from 1995. It is good to remember that it doesn't "always go up."

I wish I had known about these archives a few years ago. when my brother, father, father-in-law and practically everyone else I knew was climbing aboard the "it never goes down" gravy train.

I just read that Paso Robles went down 11% last quarter, according to Zillow. No wonder my brother doesn't want to talk Real Estate anymore, when I go to visit him! That is where he lives and he bought a few properties there.

I’m not going to buy unless and untill the average price in Bay Area falls by another $150 K. It’s then it will match the fundamentals. Wait till there is flight of capital from the Bay Area to places where the prices are falling through the floor. And also wait till the lending companies go bankrupt and Wall Street shows its ass to the mortgage bankers.

Will it really though? Just a few threads ago, we calculated that $600k was the magic number - that most (2 income) families could afford that. It'd be uncomfortable and risky, but it wouldn't require any death trap loans. A conventional 30 year would do.

I get this a lot too - I got so sick of this line of questioning that the last three or four times some jackass asks me “when did you join”, I ask him for a fax number.

When I get this question, and I answer it, the other party usually offers me a discount. :(

Jimbo,

Just to clarify, I never thought you were a troll. I do have a differing opinion about the value of living in the BA. I like the BA very well and I could afford to live quite comfortably there, but the cost of living there is so high that I doubt I'd ever buy into it unless there's a huge decline in RE prices and cost of living in general. The lifestyle you described would suit me admirably, but I could live the same lifestyle on $40,000 salary anywhere else. I see no reason to work director level hours & responsibility and live an administrative assistant lifestyle, merely to live in the Bay Area.

Even $600,000 seems quite high - maybe the price to buy in a decent house in a good school district, as befits a family earning $150,000-200,000 a year.

Who cares about a big yard these days? It just consumes your weekend hours trying to maintain it or you are supporting some illegal and paying way too much for a gardener.

My wife and I rent and it allows us to put 30k a year in our 401k(15k X2)

I run the numbers and try and compare it to owning a home and having $30k in deductions from the interest and property taxes if I owned.

There's so many variables that it's difficult to come up with a rule of thumb.

Here's a few considerations:

We couldn't afford to put $30k per year in the 401k if we had a mortgage.
Because we rent, we can do it.

We dont get the advantage of the interest and property tax deductions but we get to keep the standard deduction of 10,300.

When I combine the $10,300 standard deduction and the $30k a year that goes into the 401k, it's a better tax shelter than owning a home.
We lower our taxable income by $40,300 because we rent plus we contribute to 30k per year to our retirement.

A home can go up in value but so can a 401k.

Any flaws to this logic? I invite your comments.

iceberg_slim,

Yer...... good to go. :)

We all need reminding from time to time that the real "tax advantages" for owning a home really don't begin until AFTER you have crossed that line in the sand. And, (because it's Friday) I'll go you one better. At any point in the future you and the Mrs. can make adjustments to your 401K contributions. Try telling your lender that the $4,500 PITI payment isn't aligning w/your personal financial goals!

PAR,

Spot on. Bankrate ran an article late last year stating that over HALF of the mortgages in this country are under 2 years old. Last year 83% of CA mortgages were *not FRM. Neg. Am went from being like 3% in 2001 to 30% + last year.

There will always be those that want to make the case that the market is "anchored" or "centered" by long time residents with plenty of equity and stable incomes. That's fine. However the reality here is that we've reached a tipping point where that now describes the MINORITY of owners so don't look for the calming effect that "anchor" has had in the past.

Eliza,

Your describing the folly of McMansions was right on the money. I keep wondering what if any function much of the floorplan might actually have. The other day I heard a new to justify the wasted space. "Wrapping Room". Now we need a special room just to wrap presents? :(

It's so odd that you'd say you get the feeling that any turn could lead you to where the spare lighting and boom mikes are kept b/c you really feel like your on a stage or movie set? Can we get an interior shot of one of those sprawling "great rooms" with a "director's chair" and boom camera? Quiet on the set!

I've actually seen a couple of McMansions with decent floor plans. They put the 4 bedrooms upstairs and then have an open kitchen greatroom combo that would be a great party hosting situation, with a small office and the garage and a dining room seperated off on the other side... Then I've seen super retarded ones with 'extra' living rooms attached to an entry hall, recessed sitting rooms, etc.

My parents own a HUGE 7200 sq ft home (No, not ARM'd or anything, 30y FM with over 40% equity that they built 7 years ago) and it has a 'library' and 'sitting room' off the foyer... and really all they get used for is furniture storage. Nobody uses those rooms until the entire famil is over for christmas (which can be 25 people!) and then they get used as 'last resorts' for locations for cardgames. So... effectively wasted space that costs money to heat.

Jimbo Says:

> FAB, According to this NAR chart, the average US
> home is $219k,. while the avereage SF one is $733k:
> This puts SF homes at a 3.3X to US median ratio. If
> you have other information, I would love to see it.

You said it has “always” been 3X the national average when it was (according the US Census) 2X in 1980, over 4X in 2000 and (due to the national bubble pushing homes in the last couple years) dropped to 3.3X based on your recent info.

I remember hearing someone in early 2000 say that “new tech firms always trade at 100X next years projected earnings”. This guy had not been in the market for a long time and in his world they “always” did.

Since I started inspecting the foundations of homes as a little kid in the early 70’s (crawling through the spider webs with a flashlight) I’ve been involved with real estate my entire life and in the late 80’s (before I lost a lot of money) I was in the CA RE “always goes up” camp (since in my world it did).

When you step back and start doing actual analysis you will understand that it will be a long time before San Francisco homes are selling for the 2005 prices again…

One of the houses my wife and I looked at recently :
http://www.mlslistings.com/common/properties/propertyDetail.asp?open=0&page=1&mls_number=670189&type=property&name=

Things to know about the property :

The owner wants to sell 'as is' but will do 70k worth of foundation work before the sale completes.

The foundation report says that the foundation needs REPLACING, not fixing, at a minimum cost of 100-200k, and if you call the guy who did the foundation report, he's not even sure it's doable. He said the house is 'slipping' and they wouldn't know if they could save the house until they'd started trying.

That's not a knife, it's a hatchet. I hope nobody catches it and lets the owner take it in the shorts.

Yikes... sorry about the url! Must... use... tinyurl...

SFbubblebuyer said:
"One of the houses my wife and I looked at recently :"
(link to house listing)

DAMN!

I'm sober right now so I don't have the courage to click the virtual tour.....gimme time though and I'll check it out.
If, after watching the tour I go blind, send help or a case of DosEquis.

I think this guy is a desperate seller playing the role of a buyer. If not and he really is a buyer, let him buy! We do need buyers to bring down the prices anyway! I mean, if he's been to sites like this and has been doing research on the bubble and still is going to buy; who can stop him.

It's like someone standing on the ledge of a sky scraper about to jump; you can try to talk them out of it all you can, but if they're going to jump, there is nothing you can do!

It's amazing though how someone would be willing to buy into a market that is obviously collapsing. When all the cheap money is gone, who will be able to pay those bubble prices?

I have an housing bubble faq that I point potential FB's to so they're given fair warning. If that doesn't stop them, what else can you tell them?

is it some kind of repressed Rapunzel fantasy?

Bwahahahahaha. Bay windows are nice for bringing in natural light, but seamless floor to ceiling glass walls are much better (though much more costly and harder to control).

I'm not a seller. I was serious when I said it was a house we looked at. I acutally LOVE the skyline ridge area, as I ride motorcycles. I'd rather spend 25 minutes riding down twisty tiny roads than 25 minutes stuck on 101 trying to get up from S. San Jose. It's gorgeous up there, and I love redwoods.

The only reason I'm even looking at houses right now is my wife. She wants a house before babies. I keep sending her links to rentals in the areas we look at houses.

I've pretty much talked her into waiting until at least 2008, however. She hates living in apartments, so I'm going to see about renting us a SFH in a nice area and then showing her how much cheaper that is than buying a house in the area, and then saying "When it becomes cheaper to own than rent, let's do it! Until then, let's keep saving!"

That worked better than ranting about price vs. incomes and 'return on investment' and things like that.

So... the name is a little ironic. But it does reflect that I started looking to buy right in the middle of a bubble. And my wife's ovaries may force me to buy before the bubble's fully deflated. :D

danville woman,

Ideally I'd like to have a 4,800 s/f lanai. Seriously, with as much of it concrete floored and steel roofed as possible. If I had my way it would have an outdoor shower, cooking and "rest facility" making coming inside completely unnecessary until at least October!

Oh, and a HUGE c@ckfighting arena w/rum dispenser! :)

(Can ya' tell it's Friday?)

SFBubbleBuyer,

Why not join me out in the "lanai"?

Oh, and... uh could ya' bring another case of ESQ? I've got P500 on Wala!

DinOR... if there's c@ckfighting, there's bound to be barbeque afterwards! Count me in!

SFBubbleBuyer,

Unless you're insured for a lot of money in case of death or debilitating injuries, your wife has her priority all wrong. Renting never gave me a sense of insecurity, but I would seriously consider breaking up with my boyfriend if he took up motorcycling, esp. on twisty mountain roads.

PAR,

Those Alt-A REITs are feeling a bit of hurt right now, but that's far from a meltdown. At only 4-5% of the portfolio being subprime, they should be able to weather the fallout with a few quarters of losses before they become profitable again... assuming the subprime collapse doesn't spread into low end 'prime' mortgages. Helocs could be the 'vector' that transfers then subprime collapse into the prime area. Then it's real trouble for ANY real estate based investment.