patrick.net

Even at $3K plus, rents in the fortress are between 2 and 2.5% of asset value which is something like 200-250 bps below the historical average. Translation: rents can rise a long way before it makes much economic sense to buy.

Granted, in absolute terms it's hard to stomach paying that kind of rent - enough to comfortably cover the mortgage, property tax impound and maintenance on a pretty nice house in many, many parts of the country. Nonetheless, if you're here you've already made that choice...

The problem, of course, is that people don't make the buy decision dispassionately on the numbers - if they did, prices should plummet around here where people pay a massive premium to "own" that can't be justified (rationally) in an environment where appreciation is anything less than constant double digits.

Was it my schizophrenia or did Warren Buffett actually say the housing troubles won't affect the broader economy......just wondering.....

The bottom line is, if you can afford it, go with PPO.

In fact, the best doctors of the Bay Area do not even accept any insurance. They only take cash. That's my experience anyway, since we hooked up with a very good doctor whom we used to refer to all other practices (yeah, we are using him as the human search engine). Out of say, 10 recommendations he made, 6 of them accept cash only and accept no new patients, 4 of them on Blue Shield or Blue Cross PPO, and hesitate to take on new patients without strong referral from doctors they know well. We have to drop names to get on the patient list.

That's why I am a huge believer in MSAs with a catastrophic policy. I don't understand why people pay a bunch of money in insurance, go through paperwork hassles just so that they can have a cheap office visit. Just save the money, pay the office visit in cash and keep the insurance for something big, this mentality of not wanting to pay for something is really irritating.

Just save the money, pay the office visit in cash and keep the insurance for something big, this mentality of not wanting to pay for something is really irritating.

I totally agree.

Unless we allow Free Market to bring down health care costs we will all pay dearly in the future.

I laud Bush's veto of the children's insurance bill. If we allow special interest groups (Medicare is another example) separate access to health care, we will never have a reasonable and efficient system.

Randy H Says:

> My rent went up over the past couple years, but SFH
> rents here in Marin have definitely softened recently.
> 6 months ago all you’d see in CL was an occasional
> 3+BR house for between $3K-$4K/mo., and then a
> whole bunch for $7.5K-$8.5K/mo., right about
> mortgage-coverage level for recent buyers.

I don’t know if Randy has noticed it in Marin, but many of the apartment and rental home owners I know (even my parents the cheapest people in the world) have realized that spending $10K on a unit (granite counter tops and new stainless steel appliances) in an apartment will often bring in an extra $200 a month and spending $20K on a rental home will often bring in an extra $500 a month (a much better return than we are getting from money markets and CDs that are mostly below 5% these days). The owners of Parkmerced (the biggest apartment in SF) have invested over $60 million (more than $15K a unit) over the past couple years to improve the property.

Unless we allow Free Market to bring down health care costs we will all pay dearly in the future.

That is only true to a certain extent. To believe that free market forces will bring down health care costs, you have to argue for changing at least two fundamental paradigms in the current US healthcare system: financial incentives for hospitals and physicians, and CYA-based medical practice, which is a direct result of our over-litigious society.

Seeing how patient care is carried out by private practice clinics and hospitals, it's no wonder healthcare costs are huge. I see firsthand private MDs who will perform procedures, order tests, refer to subspecialists for completely unwarranted reasons. Unfortunately, the vast majority of patients don't realize that essentially they've been had by these "doctors." Why does this happen? Because hospital, clinic and physician compensation in most cases is based entirely on how many procedures, tests, consults they can bill. I hate to say this at risk the of sounding xenophobic, but there's a clear trend I've noticed of FMG's (foreign medical grads) being guilty of this bad behavior more so than US trained MDs as a whole. This is in contrast to one cost-containment strategy that does work at Kaiser - their physicians are salaried. Kaiser just goes too much in the opposite direction on occassion.

From a hospital's perspective, they make their money by billing insurance companies (including Medicaire) per procedure/test/consult as well. They recoup their costs handily for buying expensive equipment (the latest surgical tool, the latest MR scanner, etc.) by shoving as many patients through the system as possible. Also, because hospitals are compensated by diagnostic entity, meaning if someone comes in for say, a stroke, they are paid for what insurance thinks that diagnosis should be paid only, no matter how many days the patient is in the hospital. That's a less-publicized but important reason why hospitals are always trying to shove people out the door (see Skid Row reference above).

I won't even get started on the CYA style of practicing medicine we all do now because of fear of litigation. That's a whole other topic.

BTW, for a look at how private hospitals operate, check this out:

http://youtube.com/watch?v=xskFo75Wdhs

Patrick,
I dunno why, but I have a comment in moderation. Thanks.

Malcolm Says:

> That’s why I am a huge believer in MSAs with a
> catastrophic policy.

So am I…

> I don’t understand why people pay a bunch of
> money in insurance, go through paperwork hassles
> just so that they can have a cheap office visit.

For the same reason that most Americans pay a bunch of money for new care with warrantees, and go through paperwork hassles just so they can save a few hundred in maintenance and repair costs every year (while the vehicles depreciate by thousands of dollars each years)

care = cars

The cash flow might look good but what about when the stainless is all scratched up? The conventional wisdom is that the first wave of renters will pay a little more for the luxury fixtures but then they ruin them and then you basically are back to square one. I don't mean to put anyone down, but without the ties owning something has, people tend to not take care of stuff. I used to replace broken appliances with brand new ones but only because the price difference between new and used was negligable, but it is heat breaking to put in a brand new oven, and then go back in a year or two later and basically not even be able to read the words and symbols because a tenant used the wrong cleaner on it. Then they argue that it is normal wear and tear. Yikes.

I never pay extra for extended warranties. Anyone who understands expected value or statistics will shy away from them.

I actually had a smart guy ask me once, well what about when you buy a lot of appliances? I said, it is like slot machines, the more trials, the more the valid the statistic becomes and it makes even less sense.

I was surprised by the question, he was an engineer.

The other classic example of stupid insurance, of course targeted to the largest demographic who will pay more to avoid paying for something, they shall remain nameless.

Funeral insurance. The average funeral cost...... So you buy insurance for the $6,000 cost and of course it is statistically set up to cost a lot more than $6,000. Why not just buy the plot and make the arrangements ahead of time?

The only insurance worth having is when the event would be traumatic and unaffordable, like a house buring down. Other than that, I don't believe in it.

Well, the current medical cost is so outrageous that even a small event can wipe out an average middle class family.

My wife had a small surgery last year, the hospital screwed up the billing code so that the insurance company declined the claim, causing the hospital to bill us directly, at a whopping $7,800, excluding doctor charges, which are actually very reasonable compared to this. Then we straightened out the billing code and insurance company processed it, bringing down the total cost to their negotiated rate of $1,700.

What the F@#%$! How come the hospital can charge so much more if the patient has NO insurance? Trust me, it was really a *small* surgery that is non life-threatening, non-traumatic at all. I believe that an average American family will find it hard to swallow a $8K medical bill if there is no insurance "gatekeeper" to bring down the cost, particularly for such a small procedure.

I have absolutely no idea how hospitals are run in this country. It just seems to me that they can charge whatever they want.

I say let's import doctors from the third world. I am sure we can get 80% of the result at 20% of the cost.

If we want to fix the medical system, we should lobby to eliminate Medicare. We need one pricing system. We want EITHER universal health care OR no state-sponsored health care at all.

Also, we need to disallow or limit punitive damages for malpractice.

The only insurance worth having is when the event would be traumatic and unaffordable, like a house buring down.

Or getting sued.

It really does not make sense for medical deductibles to go below $1000 per incident.

(Silly me, I used to have health insurance for my cats.)

Peter P,

My moderated comment addresses the issues you raise. I will add that importing more doctors from the "third world" will not improve the situation. Many of the sleazy MDs I deal with are FMGs (foreign medical grads). Of course, many are good docs as well, but there are disproportionately more sleazeballs, IMO.

Moreover, the problem is not overall not enough doctors. The problem is that (a) there are not enough good doctors, and (b) a mis-allocation of doctors - places like the Bay Area, LA, NY, Boston (ie, "desirable" places to live) have a glut of doctors, while rural areas generally have not enough.

Peter P,

I don't think doctor is the problem. I have enquired about the cost of these doctors who demand cash while operating at full capacity, the consultation is only around $200-250 per visit, which I am fine with. Surgery wise, they only charge $2-6K for most procedures, and I am ok with paying for this out of my pocket for the best doctors in the world, which I believe they are.

I have a problem with the freaking hospital! How can the hospital justify its $8K charge when the doctor's surgery fee is only less than $1K? It is not like my wife occupied a very fancy operation theater for an hour, not at all. Our first bill had a big miscellaneous item that cost $2K, what the f*ck is that for? If we were not mistakenly charged directly by the hospital, I would have never spent time trying to understand the hospital bill. It is the most difficult thing to comprehend in the world!

I think the cancer of the medical system lies in
1) drug company - I have never been to a doctor visit without seeing at least ONE drug saleswoman doing the house call.
2) hospital - it seems to me that most of costs are amortization of these super expensive equipment and newly erected buildings.

Mayor McCheese here... longtime lurker, first time poster.

I think this blog finally found a solution to the subprime mortgage meltdown. Apparently, Kaiser is required to find a place to stay for anyone visiting their hospitals who does not have a home.

A homeless person who goes into any other business (bar, hotel, retaurant) is just kicked out on the street. Thanks to Michael Moore and the LA Times, now Kaiser not only has to provide thousands of dollars of uncompensated medical care, paid for by the rest of us, they also have to find you a place to stay for the night afterwards.

Sooo, never fear, subprime loanowner! Any FB who loses their house to foreclosure can just go check in at the nearest Kaiser and the nice doctors and nurses there will be sure to find you a comfortable place to live. You'll even get a free taxi ride in the back of an ambulance! ANd you wonder why helath care is so expensive...

skibum,

who, which committe, which government body in this country presides over hospitals and determines that they charge too much? How can hospitals get away with whatever they want to charge? How do I know if the hospital is charging me $50 per cotton ball used? Shouldn't there be a better business bureau for hospitals only?

oo,

There are a few reasons, none of them great, for why hospitals charge so much. First and foremost, they CAN. Medicaire sets hospital and physician reimbursement rates, and insurers follow suit. Medicaire determines how much a hospital can bill for each type of patient visit - $800/night for a medical admission, $ 4000 for an outpatient surgery, or whatever. Needless to say, hospitals lobby congress super hard to support these reimbursement rates.

Second, hospitals are generally run in an incredibly inefficient way. That "miscellaneous" charge? It goes to everything from the nurses caring for you, to overhead, to the army of administrators whose job it is to contain costs.

Finally, I've said this in my moderated post, but hospitals (and MDs) practice defensive medicine on the one hand, and on the other hand, private hospitals in particular, overdo it on billable services to recoup investments on equipment and technology, so in general too many tests and procedures are done.

I am surprised no one is talking about the $1600/$800 checks we should be looking forward to pretty soon.

http://www.forbes.com/markets/feeds/afx/2008/01/17/afx4546502.html

"Bush is pushing for tax rebates of as much as 800 usd per person, or 1600 per married couple, but Democrats in Congress want a smaller figure to keep the cost down. A final figure is still to be determined."

who, which committe, which government body in this country presides over hospitals and determines that they charge too much?

oo,

In short, JCAHO, or the Joint Commission monitors hospital quality. Medicaire and the GAO audits hospitals and MDs for fraud and the like.

The Absolutely Shameless Shill Emeritus, Leslie Appleton Young, let fly today with these two statements, in the same press release:
“I think we are just about, if not already at, the bottom.”
AND
“You’re dealing with buyers now who are waiting until the end of the market downturn. No one rings a bell at the bottom of the market.”

Huh? You don't see an contradiction between statement 1 and statement 2? Really??? Isn't this about the fourth time in four months that you have rung exactly the same bell?

I wonder if this lady decided to stay at Kaiser because her ARM reset?

http://sfist.com/2005/03/07/the_old_lady_who_lives_in_a_hospital.php

I don’t know if Randy has noticed it in Marin, but many of the apartment and rental home owners I know (even my parents the cheapest people in the world) have realized that spending $10K on a unit (granite counter tops and new stainless steel appliances) in an apartment will often bring in an extra $200 a month and spending $20K on a rental home will often bring in an extra $500 a month

Not really. There are some decent SFH rentals (I haven't looked at apartments or even condos/townhouses, given my situation), but most of those are accidental landlords who are expecting to rent short-term, due to whatever reasons (usually delusions).

The veteran landlords and amateur-but-equity-heavy alike seem to put as little into their places as is possible without inducing criminal negligence charges. What I don't get is how much some of these otherwise fine houses have been beaten down to a point where it would take hundreds of thousands in repairs (mostly neglected water damage) for homes which could sell for well over $1mm, even in pre-bubble prices. My only explanation is that they don't care and will just leave the problems (and prop 13 status) to their ungrateful, neo-liberal, trustafarian Marin children.

This is a big part of the "premium" to owning a _house_ (SFH) in a place like this. No matter what you try to rent, it is never on the same level of quality you'd expect or can find when compared to buying even a modest house in a modest neighborhood.

mayor mccheese (Honorable)

I'm willing to bet there were (2) sides to that story? I worked Shore Patrol for the Navy in both San Diego and Long Beach, CA and the job basically consisted of sorting out which homeless people still were the Navy's problem?

You got spit at, cursed, threatened, kicked, had your vehicle damaged, and at one time (I think I had a "hex" put on me?) If this individual threatened staff, was a danger to himself and others and normal channels were exhausted... what are they supposed to do?

I don't know about the "applied make-up before speeding off" comment (I wasn't there) but after a scuffle with a homeless/intoxicated person I would think it normal to at least make sure you don't have any cuts/bruises etc.

Housing experts predict that many would-be home buyers may be forced to rent for years because the relationship between rents and home prices are out of whack. Rents remained at around 5% of home prices throughout much of the postwar period, but beginning in 1996, home-price growth rapidly outpaced rent growth. By the end of 2006, home prices had more than doubled while average rent was up just 48%, driving down the annual rent/price ratio to 3.48%.

A study by one former and two current Federal Reserve economists suggests that home prices will have to fall by 15% over the next five years while rents increase by 4% a year to return that rent/price ratio to normal.

http://finance.yahoo.com/real-estate/article/104224/Home-Sellers-Pain-Is-Renters-Gain;_ylt=AmYIx1Z4QR4B2KdZyvFVPsi7YWsA

eburbed,

For a more skeptical view of Silicon Valley population growth, check out

http://www.viewfromsiliconvalley.com/id377.html

Note also the data that shows that the job participation ratio is declining and job counts are barely moving.

There are also other articles on this site that will debunk f(intentionally flawed and otherwise flawed) data from the local media, including the SJMN.

Money being dropped from helicopter:

Bush Calls for $145 Billion Economy Plan
Bush Calls for Economic Package Worth About $150 Billion

WASHINGTON (AP) -- President Bush on Friday called for about $145 billion worth of tax relief and other incentives to stimulate a sagging economy and fend off a possible recession. He said a growth package must include tax incentives for business investment and "direct and rapid" tax relief for individuals.

Bush said that to be effective, an economic stimulus package would need to roughly represent 1 percent of the gross domestic product -- the value of all U.S. goods and services and the best measure of the country's economic standing. White House advisers say that, in current terms, 1 percent would amount to around $145 billion, which is along the lines of what private economists say should be sufficient to help give the economy a short-term boost.

"Letting Americans keep more of their money should increase consumer spending," he said.

Bush said that Congress should work as soon as possible to send him legislation to "keep our economy growing and creating jobs."

The president and Congress are scrambling to take action as fears mount that a severe housing slump and painful credit crisis could cause people to close their wallets and businesses to put a lid on hiring, throwing the nation into its first recession since 2001.

"This growth package must be big enough to make a difference in an economy as large and dynamic as ours, which means it should be about 1 percent of GDP," Bush said. He said the package should be built on "broad-based tax relief" that will directly affect economic growth.

"should increase consumer spending"

How about Pay Down Consumer Debt?

Watching Cramer interview Trump last night was right out of the Twilight Zone. Trump calling for Bernanke to reduce by a FULL POINT and "take control of the situation by getting ahead of the learning curve". WTF?

I hope Housing Perma-Bulls are happy now? If reducing us to humiliated, debt-craving junkies was your goal (you've succeeded!) Oh btw, Yun is now saying it was Wall Street that "created" the subprime mess. "They gambled big, and lost".

One more bit on medical costs (should I start a medical cost blog?):

I was in the Netherlands this summer, and my son needed stitches out. I just have a high-deductible plan, so I was preparing myself to pay $200 or so, especially given the cost of the Euro.

Pleasant surprise: we just walked into a Dutch doctor's office, she removed them on the spot, and she charged about $20. I love Holland!

The NY Times had an interesting article a few months ago about how more than 50% of US health care dollars are consumed by insurance administration.

Patrick

Patrick,

Have you watched SICKO?

Medical is european countries are either free or low cost ....

I am a US citizen now (H1B ==> Green Card ==> Naturalized US Citizen).
If I have to do it all over again, I would choose an European country like France.

Well, they do have a very high tax rate. I have an American friend who married a Dutch woman and is now a resident. He was complaining that more than half his income goes to taxes.

On the other hand, medical care is good and cheap, and many other things are heavily subsidized.

Holland is very prosperous and clean, so their high tax rate seems to work for them without killing the economy.

I did not see Sicko, but I plan to.

Oh man. That tax rebate check again. I wish all these morons stop trying to "kick-start" the economy. I know they won't stop, but that doesn't stop me from wishing that they stop.

So now people are going to buy house with these $500 checks ? Or they avoid foreclosure by 2 more weeks ?

If you want to fix the problem, encourage saving and investing - not spending. I want to remain optimistic about future but when I look at the leadership across a broad spectrum and people around me, it's hard not to get pessimistic. Maybe we really need a f*cking depression to cure us.

I am surprised no one is talking about the $1600/$800 checks we should be looking forward to pretty soon.

Hopefully [sic] $1600 will still buy me an ounce of gold. :)

The NY Times had an interesting article a few months ago about how more than 50% of US health care dollars are consumed by insurance administration.

I propose taking away tax credit for employer-sponsored health plans. We need to throw insurance companies to the fury of Free Market.