patrick.net

Young and young-ish people don't really think about inflation, its the older folks who are retired or near retirement who start to think about it since that can kill their savings.

What young/young-ish people think about is interest rates which are effected by inflation but they won't care about the inflation itself. They'll just complain about the interest rate being too high or whine about how they didn't lock in that tenth of a point less rate or whatever.

Tude says

Oh lovely, a simple "not true". I was here, I had a dog, and so did my husband.

1996+? 1996 + what? 15 years is a huge range. Do you think it's impossible now? Also, what kind of dog? I grant you it's easier to find a rental for a chihuahua than for a Great Dane, but impossible is a strong word.

Tenouncetrout says

Inflation is always baked in, and No people did not think about inflation. They said, "Well we paid $24,000 back in 1962. "
We didn't need to adjust for inflation. The house was worth tripple at the time that statement was made.

This is just nonsense babbling. What you're saying has nothing to do with inflation or how it's "baked in." Please explain the mechanism by which inflation is baked in. If you think buying a house for $24K in Detroit in 1962 and selling it for $24K in 2011 means you broke even, I have a bridge to sell you, and a whole lot of other stuff too.

Inflation is a useful metric to apply to data, but it can get a little complicated when considering wages & costs of living. For real estate, I think that a much more useful metric is the price-to-income ratio. For me anyway, it seems like the most useful way to gauge the cost of something in the past versus now. Income will become a driving factor in pricing again at some point. Sloppy lending, borrowers over-extending & our current absurdly low interest rates + GSE-backed loans are still keeping prices propped up beyond what a financially savvy individual would consider reasonable.

Why do I obsess? I don't know. It is mostly because home ownership was ingrained in my generation from day one. My fiancee & I are working hard to get the idea out of our heads, and the more progress we make, the more we seem to be able to enjoy our lives & not worry about money at all. Renting kicks ass for now because we can save cash every month, and we basically never worry about budgeting for food/restaurants/vacation/toys. If we want something, we pay cash (granted, we have worked hard to reduce our material "wants" & don't even own a TV).

The only reason I still have for wanting a house is so that I can get a garage. I love projects, particularly woodworking / loudspeaker building and car stuff. It is more of an emotional / irrational thing though, because I can always rent a workspace or find a private workshop to do things at. It just isn't as convenient...but it isn't worth half a lifetime of indentured servitude to the bank.

bmwman91 says

Inflation is a useful metric to apply to data, but it can get a little complicated when considering wages & costs of living. For real estate, I think that a much more useful metric is the price-to-income ratio.

Fair enough. Inflation does affect both. At least this is a reasonable answer vs. "inflation doesn't matter, only nominal price does, fuck you."

I agree with you that price:income is being kept propped up by various factors.

By the way, what stops you from renting and having a garage? Do you need items to be built in?

corntrollio says

Fair enough. Inflation does affect both. At least this is a reasonable answer vs. "inflation doesn't matter, only nominal price does, fuck you."

Haha, well I COULD reply like that, if it pleases the coliseum spectators.

I can still rent an apartment/townhouse for a lot less than a house in this area. My commute is a 6 minute bike ride presently, and that is worth paying a little bit of a premium for (I estimate it saves me $150-200 per month in gas & upkeep, plus 5-10 hours per week of my life). Also, from talking to some people renting out houses, they do not seem keen on table saws & the possibility of "chemical spills" from car maintenance. I guess they are afraid that sawdust will get everywhere & the noise will irritate neighbors.

I COULD rent somewhere in the East Bay, but then I have to commute & live in an area where my tools are more likely to be stolen. Working with the garage door closed kind of sucks, but I wouldn't want to "advertise" to the local thugs either. It is all a trade-off really, and at this point I am happy to not commute at the expense of a workspace. I suppose I could always go make a mess in San Jose at my father's garage workshop, but that is a bit of a drive during the week, and I don't like imposing with my mess.

corntrollio says

"inflation doesn't matter, only nominal price does, fuck you."

Well since you insist.

Well OK fancy pants, houses in most modest Ham and Egger neighborhood, is at or bellow '98 prices. Where's your interest there? And what do you do with all of the over valued years inbetween. HMM Is there a metric to retro fit those bank accounts that either benefited or lost their Asses?

NO! You take your lumps and pull up your pants.

bmwman91 says

I COULD rent somewhere in the East Bay

bmwman91 says

I can still rent an apartment/townhouse for a lot less than a house in this area.

Why not rent a house somewhere further up the Peninsula? You could also rent a townhouse + garage in some areas.

At the end of the day, we're talking about a garage. As long as it's reasonably in the same condition as you received it, no one cares. I've never heard of a landlord asking "do you plan to have table saws? I don't allow that."

As far as I can tell, the shop equipment is best left as a "better to ask forgiveness than permission" thing. I haven't talked to very many owners of rental houses though, so it is probably a sampling issue on my part. Anyway, it is all a trade off. Pulling my hair out in traffic irritates me a lot more than NOT having a workshop to play in at odd hours. Besides, I'll be married soon & probably won't be "allowed" to make noise at odd hours anywyay.

bmwman91 says

I COULD rent somewhere in the East Bay, but then I have to commute & live in an area where my tools are more likely to be stolen. Working with the garage door closed kind of sucks, but I wouldn't want to "advertise" to the local thugs either.

The east bay isn't one giant crime-ridden hell-hole. In fact, there are quite a few perfectly safe, almost crime-free areas where you don't usually have to worry about stuff getting stolen or broken into. The town I live in is renown for being insanely safe. I regularly walk to town, and sometimes at night to the bar. Oh well. If people have this notion then I guess that's better for us and keeps things nice-n-cheap.

By the way, I have a garage I work on mt cars in and its freakin' awesome. I don't give it a second thought about my stuff getting stolen and I even have a welder and a bunch os scrap steel for fabrication purposes. I'm spoiled and will probably not be going back to apartments and places without garages.

edvard2 says

bmwman91 says

I COULD rent somewhere in the East Bay, but then I have to commute & live in an area where my tools are more likely to be stolen. Working with the garage door closed kind of sucks, but I wouldn't want to "advertise" to the local thugs either.

The east bay isn't one giant crime-ridden hell-hole.

No shit. What a ridiculous thing to say! I don't even live in a "nice" part of the East Bay, I am minutes from Richmond, but in 15 years have never had a thing stolen, and my mechanic husband has a LOT of expensive equipment in the garage. His old Harley has actually been left in the driveway on numerous occasions with the keys in it, never disappeared. A garage full of dirtbikes, perfectly safe.

We know all our neighbors, and leave doors and windows unlocked regularly. What a shit-hole.

Tude, I live in a place like that, for a lifetime.

Saved (and invested) a lot of money. Raised kids who don't have a sense of entitlement, but who were able to take a shitload of AP courses in high school, in a peer group of like minded students.

The oldest got accepted to all the UC's applied to except Berkeley. Two classmates did get Berkeley though, another got Stanford and a handful of them to Ivies.

It's just that the school's API is not so hot because the whole campus was not comprised of such students as it was more diverse than that.

A lot of folks who insist on public K-12 access in The Fortress don't trust their own parenting abilities, they would rather outsource that responsibility to the API of the school.

Well, I stand corrected regarding the East Bay. I am mostly thinking of places convenient to where I work in Mountain View (not Google), and I guess those areas are sort of dumpy. I'll take EBA residents' word for it that there are decent spots.

I just find these east bay versus the Peninsula versus SF conversations funny. The average person in the Bay Area can tell you absolutely anything you'd probably want to know about Liechtenstein but couldn't tell you a thing about 20 miles down the freeway.

I live in a neighborhood like Tude described, but in the South Bay. 25 minute light rail ride to the Tasman Xfer station, where a lot of people change to the Mtn View train for their commutes in that direction. Usually the operator will even wait for the Mtn View train to arrive on the opposite track so people can transfer instantly. To Mtn View for Google or whatever. Convenient. Cheap. From cheap Tude-like neighborhood Outside the Fortress Walls, to Google.

edvard2 says

person in the Bay Area can tell you absolutely anything you'd probably want to know about Liechtenstein but couldn't tell you a thing about 20 miles down the freeway.

That is because it is so Hip and Cool to be a Beautiful Jet Setter.

Here's my bullet points as a single bachelor.

1) Work in Palo Alto, currently rent in Santa Clara. Would love to move closer to work, but prices rise exponentially the closer I look. I had hopes during the RE crash that I would be able to afford something closer, but pretty much didn't even affect things there. Actively looking to move jobs or location at this point.

2) Housing prices have scaled almost exactly with my raises and job hops after the dot com bust. I have a fair bit of money squirreled away from stocks and IPO, so could make the down-payment, it's the monthly payments that worry me as I'm pretty much at the peak of my job title payscale at this point.

3) I want to be walking distance to places of interest (bars, restaurants, caltrain). Needs to be close, not listing agent "it's walkable we swear" distance.

4) Need a place with a yard because I have a dog.

5) There are some Condos that fit the bill, but Condo association fees out here are expensive.

6) Thought about getting a duplex and renting out 1/2, but the asking prices are so out of whack, the income from rental side doesn't even cover 1/2 of the mortgage. I don't see how anyone can buy these purely for renting.

7) I obsess about landlords who are on Prop 13 and are paying next to nothing in taxes and regularly raise rents. This goes for both corporations and individuals.

8) I obsess over dual income families that price me out on 900sq foot places that would be cramped for even 1 person. Also can't stand the bay area school based obsessions that lead to higher prices in the areas that I want to live. Basically I would need to pay a premium for the house, and my taxes would pay for someone elses kids to go through school.

9) I read things like the CNN "where homes are affordable" link that was on this site today and I can't contemplate how the Bay Area with medium house incomes in the $150-200k range justify the $750k average house. Think about moving to places where income is $80k and houses are $120K. Downpayment here would just buy a place elsewhere.

10) Could buy a place in Florida for winter and something up north for summer for the same price as one place out here.

11) California state taxes suck. Payed over 10% income tax, and sales tax is additional %8+ on purchases.

12) Earthquakes. Yea, it will happen eventually.

13) Weather. Sure, it's better then the midwest, but it's really not that great. SF is terrible, have to bring a jacket with you in the middle of summer if you are out after the sun sets, and just meh down in Silicon valley.

Oh yea, and 14) The downpayment on even the cheapest place is a LOT of money that could go for any number of dreams, such as produce a movie or video game, take a world tour, open a bar in the Caribbean, or just take a couple of years off before I get too old to enjoy it.

First, you guys need to get out of the overcrowded, overpriced, and over-rated bay area fishbowl. Buyers there have been brainwashed by realtors that somehow it is so heavenly, wonderful, thrilling, fantastic, whatever, to live there, that they gleefully pay 4X the real value. It's not! There are plenty of good places to get a house without buying into the hype and greed of bay area RE. Simply, leave the smog, crime, gangs, ripoffs, frustration, and misery all behind you. Get out of there now, before you lose your minds!

I think it is also safe to say that houses being over-priced also puts a great "have" and "have not" issue on the table. There is the sense that owning a house is an entitlement, which in our mixed bag society of capitalism and socialism, is not.

I feel for your frustration. I want a house, but I'm not going down in flames financially to get it.

"As Patrick points out in his front-page "Why it's a Terrible Time To Buy a House" article, the oldest baby boomers are now 66 years old and plenty of them will sell their SF houses and move to AZ or FL or such. They paid $60K for their houses and if they make $400K instead of $800K, they've still made a big gain and can head for sunnier warmer cheaper regions. Cheaper being a big factor. Things will come full circle everywhere, even in San Francisco, and at some point the focus will be away from housing housing housing. As Edvard pointed out, a lot of this is about fear. We live in uncertain times."

But here's the thing..How can everyone do that at the same time?

There was a housing study performed that examined retirement ages and makes predictions. it's three and a half years old but it does say that there will be years where the majority of boomers retiring start to move out

www.informaworld.com/smpp/title~content=t782043358

see i don't buy the baby-boomer move out = cheaper houses argument.

You have to realize that 1) the homes are already paid off and 2) because they've had decades with minimal house payments, much less than what you or i pay in rent and a fraction of what you and i would pay in mortgage, a good number of them probably have huge nest eggs/pensions and the actual benefit of social security.

So sure, they would make a killing at 400 or 800k, but the fact is most of them probably don't NEED the money, and if they don't NEED to sell right now, why would they throw away 400k just because you and I hope they would?

I obsess over real estate (overpriced or not) because in our area, large houses are cheap, jobs are scarce, and where I want to move I could barely afford a doghouse. It is hard to think of trading what we now enjoy (lots of space, abundant parking, no HOA or paint color rules or grass length citations) for a doghouse, but this means we spend a lot of time on the road and on the phone tracking family down south.

In regard to the boomers downsizing, I think that those who have kids or younger relatives will pass their Prop 13 properties on through a trust or other arrangement. In my parents' 1950's SoCal neighborhood, lots of old folks have died or gone into nursing homes, but their houses are quickly taken over by grandkids, nieces and nephews. So those properties are unavailable.

If the relatives decide to sell, it will be for as much as the market will bear, of course. Unless they get a scummy realtor (no R) like the one retained by the inlaws of my aunt's deceased friend, a realtor who convinced them to put the house on the market at a very high price with a "Pending" status, and come to find out he bought it from them at $150k less than listing and has now divided it in half and rents it out. It still seems wrong to advertise a house when it was never really for sale in the first place. So if there are any deals to be had from dead or demented boomers, I suspect the realtors (small r) will snap them up before normal people get a chance.

I think the psychology is simple: Not being able to get something that we want and have also earned in terms of past common sense about the housing market. The rules have suddenly changed and they don't make sense, and so we are frozen in the dilemma of overpay versus sit and wait.

We grew up middle class, knowing that we wanted to own a home when the time came, and knowing that houses were just naturally affordable to those who worked hard and had good jobs. We obsessives were moving responsibly toward our goals like pack mules, since we have hard working sensible personalities rather than get-rich-quick impulsive streaks that dominate the recent casino-like reality. Suddenly we watched as housing became a hot investment commodity, the tide of prices rose higher than we were able to pay at our point of entry, and the real-world basis for such bubble prices lost all sense. This leaves us in a dilemma of either taking out a super chunk of debt for something that should not logically be so expensive, or continuing to rent and feel disappointed. Perhaps it feels like we f'ed up somehow, but looking back it's impossible to see where we made a mistake because we used good judgment all along.

There has been a huge transfer of wealth to financiers in the past two decades. Many people lost a lot of money so that corporate coffers could be so stuffed. We Ben Franklin types (a penny saved...) managed to hold on to our money but have now lost out on our standard of living in the service of the big greed game.

Postscript: I also find it obsessively fascinating to look at the sale histories of properties. When I see prices sailing ever upwards during the boom, and then becoming REOs at half the price, I obsess over where all that money WENT. Somebody made a killing. I obsess over all that granite that was quarried for countertops in abandoned houses, because buying a headstone for my husband's grave was a shock immersion in stone technology and prices.

I obsess over all the sacrifices we are making as a low-income family as opposed to those you read about and become acquainted with who are not paying their mortgages but are able to buy expensive toys for the kids and $250 shoes for the moms while they live free in their nice new houses.

There is just so much injustice in the topic of real estate it is hard not to be obsessive about it. I think before I have an apopletic fit I'd better get off the computer and go enjoy the sunshine and the kids.

Cautious1 says

I think one cure would be to get off the computer and go enjoy the sunshine and the kids.

Agreed, 100%. Getting out and LIVING is sort of the point of life. Realistically, a living space is only going to bring a finite amount of happiness. Sunshine & fresh air are generally available everywhere & are free. Kids...I can't say that I enjoy them at all, but that is probably more a product of me being a 27 year old male. Maybe in a few years...

bmwman91 says

Well, I stand corrected regarding the East Bay. I am mostly thinking of places convenient to where I work in Mountain View (not Google), and I guess those areas are sort of dumpy.

Well, I thought the reaction you got was a little heavy in context. There are certainly decent areas of the East Bay. However, you specifically mentioned short commute, so that could mean Hayward, Castro Valley, San Leandro, Union City, maybe if you're up in the hills, but that takes longer. Dublin, Pleasanton, Livermore, that might not suit your commute desire. Fremont ain't bad though.

edvard2 says

The average person in the Bay Area can tell you absolutely anything you'd probably want to know about Liechtenstein but couldn't tell you a thing about 20 miles down the freeway.

Sad but true.

Zakrajshek says

Simply, leave the smog, crime, gangs, ripoffs, frustration, and misery all behind you.

Have you ever even been here? Doesn't sound like it. You're trying to make a point, but why exaggerate and be bombastic about it? No doubt, some people are choosing not to be in the Bay Area because of cost of living, but where are you actually suggesting? It seems like you wanted to criticize, more than you wanted to contribute.

cab says

the oldest baby boomers are now 66 years old and plenty of them will sell their SF houses and move to AZ or FL or such. They paid $60K for their houses and if they make $400K instead of $800K, they've still made a big gain and can head for sunnier warmer cheaper regions. Cheaper being a big factor.

But cheaper can mean many things. SF is cheap if you have a low tax valuation because of Prop 13. If you move somewhere else, you will have to pay more in property taxes, although perhaps you can get a cheaper condo and pay lower state taxes and sales taxes elsewhere. You'd have to do the math. There are also other factors, such as old people don't always have to drive everywhere in SF (doesn't have to be the bus -- could be a taxi).

Prop 13 causes more inertia than there otherwise would be. For example, your kid and grandkid can inherit your tax base in some cases. It's also trivial for grandma to move out into a home/condo and for someone else in the family to take over the house.

SingleSpaced says

Think about moving to places where income is $80k and houses are $120K.

Where?

corntrollio says

But cheaper can mean many things. SF is cheap if you have a low tax valuation because of Prop 13. If you move somewhere else, you will have to pay more in property taxes, although perhaps you can get a cheaper condo and pay lower state taxes and sales taxes elsewhere. You'd have to do the math. There are also other factors, such as old people don't always have to drive everywhere in SF (doesn't have to be the bus -- could be a taxi).

Prop 13 causes more inertia than there otherwise would be. For example, your kid and grandkid can inherit your tax base in some cases. It's also trivial for grandma to move out into a home/condo and for someone else in the family to take over the house.

A few Bay Area counties allow you to transfer your low prop 13 taxes to a smaller/cheaper home once after the age of 59 I believe. My FIL was able to sell his home in Orinda he bought in the 70s and buy a condo in Danville and keep his property tax basis - and pocket a few hundred thousand. He is also now walking distance to everything he needs/wants.

http://markusandheidi.com/default.asp.pg-Propositions6090

repo4sale says

GOAL IS 3000-6000% GROSS PROFITS PER PROPERTY WHEN THE OBAMA ADMINISTRATION IS OUT AND THE MARKET TAKES OFF!

keep dreaming there.

tts says

Young and young-ish people don't really think about inflation, its the older folks who are retired or near retirement who start to think about it since that can kill their savings.

What young/young-ish people think about is interest rates which are effected by inflation but they won't care about the inflation itself. They'll just complain about the interest rate being too high or whine about how they didn't lock in that tenth of a point less rate or whatever.

Thats a good sentiment. I remember a while ago in Bloomberg Businessweek magazine there was an article on investing with a cartoon related to that.

That cartoon drew a scenario where a young person is given a chance to invest $600 into stocks long term to make a large sum of money, and instead choose to blow it all on an iphone.

Maybe young people are just too child like. Back in the days you were 18 you moved out. Today they live with their parents until mid 30's.

corntrollio: Where?

http://money.cnn.com/galleries/2011/moneymag/1108/gallery.best_places_affordable_homes.moneymag/

Again, was looking at the article posted on CNN, and linked on the main page Thursday. I'm sure they all have negatives to go with, but on face value looks reasonable. Some examples:

10. Deer Park, TX
Median home price: $131,250
Median family income: $80,721

14. Stockbridge, GA
Median home price: $124,000
Median family income: $74,418

Interesting stuff...Seems like the folks in the South have some common sense... which is lacking elsewhere in the nation.

FortWayne says

Maybe young people are just too child like. Back in the days you were 18 you moved out. Today they live with their parents until mid 30's.

Weeell you have to bear in mind too that this young generation doesn't have the same economic opportunities previous generations have. They're coming up during the worst recession since the Depression and its still ongoing. Meanwhile they're saddled with tens of thousands of undischargable debt to get a chance at a OK job fresh out of college, and that is if they're lucky. Many seem to end up with useless degrees working off the debt at your local Starbucks or McD's for minimum wage, likely until their mid or late 30's at that rate.

So yea many are forced to live at home for far longer than previous generations, but you can't say that a whole generation suddenly became lazy/stupid/whatever. Even if it did who's fault would that be? Barring some weird chemical contamination or shit it'd be the generation that raised them that would be at fault wouldn't it?

life was generally easier back when there was less people around.

http://en.wikipedia.org/wiki/Frontier_Thesis

tts says

So yea many are forced to live at home for far longer than previous generations, but you can't say that a whole generation suddenly became lazy/stupid/whatever. Even if it did who's fault would that be? Barring some weird chemical contamination or shit it'd be the generation that raised them that would be at fault wouldn't it?

The other thing to keep in mind is that some people have pretty much become sandwich generations. This term means not only do they have kids of their own to take care of but potentially one or both set of grandparents. It might not mean living with them but checking up with them on a frequent basis.
http://en.wikipedia.org/wiki/Sandwich_generation

In addition what one might have been considered "adulthood" these days might not be. Anyone can have a child as long as they are fertile and housing can be provided by the government (section 8). Of course it is not a mature thing to submit someone into levels of poverty to do it but some do.

This website dismisses the concept of house ownership largely because it is frankly too expensive (and in most cases it is). I also dismiss it because the social concept is passe. If companies can move but people cannot then who has the advantage? I'm not advocating constantly moving but the days of finding some rock hard stable job and staying put in a location 30+ years are long over.

If someone rents they don't have to put a house on the market and try to sell it and wait longer...and longer.

We are tired of the overpriced re market and are renting. We like the flexibility. After selling a house and all the stress involved, we are not sure we want to jump back into that mess.

Bellingham Bob says

life was generally easier back when there was less people around.

http://en.wikipedia.org/wiki/Frontier_Thesis

“Nessuna soluzione . . . nessun problema!„

more resources available, less competition for them. makes sense.

tts says

So yea many are forced to live at home for far longer than previous generations, but you can't say that a whole generation suddenly became lazy/stupid/whatever. Even if it did who's fault would that be? Barring some weird chemical contamination or shit it'd be the generation that raised them that would be at fault wouldn't it?

As we used to say back in the days: "It takes a village to raise a child." Who is the blame? Parents.

Of course lately politicians would blame this on the Tea Party grassroots movement somehow, it's the new cool in Washington.

Real estate is overpriced by there are no controls over appraisers and they work for commissioned salespeople. Biggest conflict of interest in history!

The states want it this way so property taxes will keep rising.

Read: "The Truth About Real Estate Appraisal" by Stephen G. Bishop

tts says

Weeell you have to bear in mind too that this young generation doesn't have the same economic opportunities previous generations have.

This is definitely true. The younger generations don't have cheap cost of living, cheap education, and cheap housing, among other things. They also don't have the guaranteed pensions of the older generations and have fewer job opportunities, partly because of demographic reasons. Most of these excesses of the boomer generation has been funded by these younger generations, so it's no surprise they have fewer economic opportunities.

I don't obsess over overpriced real estate. ;-)

Where I live, a small decent house in a decent neighborhood can be had for $100k.

The rents, on the other hand, have been driven up by an influx of natural gas fracking employees. Here the "price to rent" ratio is at the other extreme relative to the bubble in CA. I currently pay $750/month in rent for a 1br apartment, but I could get a decent house for less money per month.