patrick.net

Rin says

Ok, I was more thinking semi-rural, not rural rural. In essence, the reason why I'd bought in central/western Mass, 1.5 hours from Boston was that my mortgage could easily be paid off, even as an IT contractor, bouncing around the northeast cities.

Retirement to semi rural makes more sense. But even this as one gets older can become a real burden if there are health issues. Rural life sounds great and can be when you are young and healthy not so much as you age and your body begins to fall apart.

indigenous says

Cept when the SHTF you don't want to be among strangers, when push comes to shove blood counts. When it happens the world is going to be effected.

One other thought when TSHTF the world is not going to come to an end there will still be an economy.

The excrement has already hit the turbine, for anyone over 62 in this country. It's grotesque and ugly, I'm surprised that we as American's tolerate the way our country is increasingly treating seniors and the open hostility toward them both economically and politically.

You'd be hard pressed to tell me one single country on the globe that treats Seniors as horrible as the US. With an official open policy supported by the media, reinforced by our education system and regurgitated by our youth, just because one party has a hard on for them because they typically vote for someone else.

Name one other country*, just one! I might change my mind.

*(besides North Korea, but it's not a policy against seniors, everyone is living under the same regime and its blood thirst whims.)

clambo says

The man was an MD who lived in an apartment during the week who taught at Harvard's medical school. His actual residence was a house in New Hampshire.

The thing is that MA and NH have this tax arrangement, since NH doesn't have a state income tax, so if a NH resident works in MA, he also pays MA state income tax. I knew one NH person, who actually consulted to companies, outside of MA, for this and other reasons. So he was bouncing around from CT to DC, regularly. Fortunately, since he wasn't on a project for a contiguous period of time, he'd expense-d all those short-term stay places on the road. End result, he's almost done with the mortgage & isn't worried about positive or negative equity anymore.

Our other buddies, who'd moved into those Boston 'burbs with the so-called great high schools, are all stressed out and so-forth. And finally, it's usually a few years down the road, when they realize that those HSs don't give their kids any better of a shot at Harvard than any other school. Instead, they should have asked Hank Paulson to adopt their kids and suddenly, their chances at Harvard would go through the roof.

I bought a home last year, not because I believe in the economy or the stock market or the government's power to get the national debt under control. It's because I saw the blatant manipulation by government and banking forces to drive housing up and make it unaffordable. It's, what I believe, is a strategy to create a permanent renter class of most working adults, and it's perpetrated by the wealthy owner class which owns our government. I can't fight such forces, but I can predict them. Over time, housing will inexplicably rise in urban places with access to jobs. This makes ownership attractive.
Also, the power of the dollar is eroding steadily, which makes American houses a bargain for foreigners who are encouraged by government policy to buy homes here. These foreign investors combine with institutional and private investors to put a floor under housing. End users who just want to live in a house they own will have to pay top dollar for anything to have a chance at it.

This is all because the uber wealthy own too much, and have too much influence over our government. Unless that changes, housing trends will be generally up.

Quigley says

It's, what I believe, is a strategy to create a permanent renter class of most working adults, and it's perpetrated by the wealthy owner class which owns our government.

That was the same reason I bought in 2010. I didn't believe it was the bottom, but I believed it was as low as the GOVERNMENT was going to let home prices go.

I just didn't want years more of disappointment and aggravation, of following a market that was defying all logic and practicality.
Then again, I didn't buy my house to even ponder on how much it will be worth, it's worth a roof over my head, and that's all.

CaptainShuddup says

The excrement has already hit the turbine, for anyone over 62 in this country. It's grotesque and ugly, I'm surprised that we as American's tolerate the way our country is increasingly treating seniors and the open hostility toward them both economically and politically.

The JoJo syndrome? It is hard times, jobs are not being created, people are pissed. This is a PR attack to defer blame from the real cause of the FED. Look at just this site and how people drink the Kool Aid or at Elizabeth Warren who is the savior spewing the income inequality bogus generality. When TSHTF for real PR is not going to be a factor as it is going to shuck the conjecture, for survival mode. Not that it is going to Mad Max.

John Bailo says

They may very well decline for the next 30 years in real terms."

I also think it is the most likely scenario.

It's not a question of bad economy. The economy may be very good and housing still erode in real terms.

Housing would just stop being the financial fetish it has become and we would return to a more practical view of having a roof above your head.

The only place where I'd say it's *safe* to buy, are regions where there are a multitude of jobs, and where typical costs of ownership are 'ok'.

Right now, that's the Texas Triangle of Houston-Dallas-SA.

The idea that former brand name cities like Boston MA, don't become the next Buffalo NY, has more to do with hubris than anything else. Much of MA's biotech industry is mature, all the big hits were back in the 90s, but yet, they'd spent a huge amount of money on local office parks, creating an illusion of continuous prosperity. Well ... much of that excess will find itself in the Carolinas, Texas, or abroad in the years ahead. Even the stable MA defense contractors are shaving 10-15% off their budgets by simply finishing existing projects and then, starting new ones in Texas. So without a major stream of blockbuster drugs, the so-called vaunted biotech will also see a fall in the years ahead.

And no, Harvard, MIT, and hospitals can't foot the bills for everyone.

Strategist says

Isn't that always the case? 200 years ago homes did not have electricity. Even a hundred years ago most bathrooms were outside the house. Homes at one point did not have central heating or air conditioning. These are all technological advances that did not result in drops of real estate prices.

The fact that as more and more amenities were added to homes, even if the prices increased, you were getting much more home say in 1955 than you would have had in 1905, but the differences were much less stark than between 1955 and 2005 when you could have had the early versions of all the comforts of the 50 year newer home. The same differences applied to all the technologies between the turn of the 20th century and mid-century, especially in automobiles.

Like he said somewhere in the article, it's unreasonable for one think of a home as more than rendering the services of shelter. Somewhere along the line peoples' thinking went way off track and they completely abandoned all the safeguards that had served earlier generations so well. My parents bought their first new home on five acres in 1937 for $7,000, it had a septic tank and butane. In 1963, five years after my father died my mother sold the property to the newly founded Catholic church on the neighboring property for $28,000. She had to pay capital gains taxes on the $21,000 gain, spread out over five years, but like she said at the time there was really no appreciable gain in spending power between 1937 and 1963, just inflation--but they hadn't bought the house and property for financial gain but just as a place to live. At the time, she had to spend less than half what she got for a much nicer home, the one I live in today, and over 50 years it has increased to six figures, but not in real purchasing power.

P N Dr Lo R says

1937 and 1963

Yeah, but here's the thing, from '37 to '63, the country's population surged from ~130M to ~190M but at the same time, a lot of work was created to accommodate that rise of population plus its urban density. Thus, you have a true cost-of-living index, incorporated into that housing figure.

Today, aside from finance, govt, & health care work, much of the housing gain since that mid-90s was mainly due to lending practices and QE practices, not the rise in well paying jobs. In fact today, you could even say that housing is de-coupled from the labor markets. With that in mind, if a millionaire, let's say losses a million or two on a mansion, it's no big deal, however, if a regular Joe's home goes from $900K to $700K, it's a devastating loss vs let's say a haircut from $350K to $270K. Unfortunately, many recent working Joes in the good 'burbs may take the former haircut if their jobs get re-located.

jazz music says

"Say you and I both have $250,000. I buy a house for $250,000 cash, and you rent a house across the street for $1,000 a month and put $250,000 in the S&P 500. After 20 years, I'll have a house worth $200,000 in real terms, and you'll have a portfolio of stocks worth $330,000 adjusted for inflation "

Except the house owner will also have extra cash flow for 20 years (since he bought his house for cash) that they can invest over that 20 year period.

Yeah, but $250K is not much money for a house these days. Even when I was in tech, making from $70-$110K, a median-non-bubble township house was very doable. That's in essence, 3x one's income. The problem is when we have two ppl working, buying a place from $600K to $1M.

There, job loss equals devastation.

In the future, everyone will be given a house, but be forced to pay 70% of their take home pay to live in it, with a minimum payment based on a local incomes.

Those that can't even afford that will be provided a tent and basic cooking supplies.

exfatguy says

Those that can't even afford that will be provided a tent and basic cooking supplies.

That'd be too much, they should live in their cars, if they can afford to own a car.

Same as my chart ...
http://www.showrealhist.com/RHandRD.html

Shoddy new construction and cheap materials is what will come with new fangled homes with all the gadgets. The older homes, mine is almost 100 years now, were built much better and made of real solid materials. I prefer the stuff as old as i am. Even when it comes to people!

Heraclitusstudent says

John Bailo says

They may very well decline for the next 30 years in real terms."

I also think it is the most likely scenario.

It's not a question of bad economy. The economy may be very good and housing still erode in real terms.

Housing would just stop being the financial fetish it has become and we would return to a more practical view of having a roof above your head.

I say again: The MAIN ENABLER of sizable asset price bubbles is keeping the real asset price histories out of sight -- Look & see:
http://www.showrealhist.com/RHandRD.html

casandra says

The older homes, mine is almost 100 years now, were built much better and made of real solid materials

That is true. Many 1920's home were beautiful and also well built without many of the concessions to cheapness of today's homes. They are getting into their 90's, though, and I think homes were still well built in the 50's and 60's and also had many of the modern comforts we expect built into them from the ground up. The real cheapening and cost cutting began in the 70's, specifically with aluminum wiring to replace the much more expensive copper, caused by one of the many manufactured "shortages" of that awful decade.

Rin says

Unfortunately, many recent working Joes in the good 'burbs may take the former haircut if their jobs get re-located.

Yes, you are right about that.

P N Dr Lo R says

My parents bought their first new home on five acres in 1937 for $7,000, it had a septic tank and butane. In 1963, five years after my father died my mother sold the property to the newly founded Catholic church on the neighboring property for $28,000. She had to pay capital gains taxes on the $21,000 gain, spread out over five years, but like she said at the time there was really no appreciable gain in spending power between 1937 and 1963, just inflation

A four fold increase in 26 years is not too shabby. There is also the question of location. In Huntington Beach, Ca as an eg. there are homes built in the 1950's that originally sold for $17,500. Now they are priced at $700,000. I would call that an awesome return on investment.

jazz music says

That has been true since the early '70s
...
This is how and when the 2-income trap first got baited. Many people fell for it too. It was as effective when houses were $50,000 as when they were $500,000

The exception I'd make here is that during the 70s stagflation, interest rates were rather high, along with wage hikes.

At the same time, if my dad's memory serves him right, an engineer could earn some $20K+ and his legal secretary wife, $10K, which next to a $50K+ home, is still affordable.

And oil patch tech workers back then, were easily minting north of $40K. Thus, the birth of the 'Dallas' TV series, the world of extravagant living in the oil patch.

Rin says

The exception I'd make here is that during the 70s stagflation, interest rates were rather high, along with wage hikes.

At the same time, if my dad's memory serves him right, an engineer could earn some $20K+ and his legal secretary wife, $10K, which next to a $50K+ home, is still affordable.

That's right about the 70's. I could have afforded the 1930 built house in Forest Hills at 8122 Santa Clara Dr. in Dallas where I'd lived in the garage apartment for 7-1/2 years when the old couple who had lived in it since 1940 put it on the market in 1973 for $34K--the most expensive house in the neighborhood was $45K--all beautiful 20's and 30's houses on 100 x 200 lots. To be fair, it did require nearly $10K in deferred roofing and foundation repairs they hadn't been able to afford. Instead I rented for the next five years from 1975 to 1980 before buying a condo. By 1980, the house had increased to $100K and is now close to $600K, down from $750K at the height of the boom. Not only could I not have afforded it in later years, neither could a reservoir engineer of today, which is who I worked for at the gas company.

http://www.zillow.com/homes/8122-santa-clara-dr.-dallas,-tx_rb/

P N Dr Lo R says

By 1980, the house had increased to $100K and is now close to $600K, down from $750K at the heigh of the boom. Not only could I not have afforded it in later years, neither could a reservoir engineer of today, which is who I worked for at the gas company.

Today's time is like no other, since the Gilded Age. In fact, I'd even argue that the Gilded Age was better (sans the labor rights issues) because the US was the new nation, with ever expanding factories & land development. The British Empire had just hit their zenith before WWI, allowing their excess investment money to come into America.

What's happening now is that the US is attempting to become another present-time City of London, a global money laundering city-state, but unlike London, we really have too much land for that to prop up the whole continent, even if Hollywood, Wall St, Silicon Valley, etc, attract a lot of the world's capital. The regular worker bee in America, who's not in global finance or Hollywood, will simply not be able to sustain nationwide prices at 6x annual income. In contrast, Britain's a small island with much of its economy derived from the activities of the City of London and global finance. Therefore, ppl there will live to serve the global oligarchs, who rule the City. I guess that also includes their soccer teams.

But now contrast that with the US. Upstate NY, north of Duchess County, has dramatically lower housing prices than greater NYC. The same difference goes between southern Maine (or western MA) and metro Boston... or central Pennsylvania vs South Jersey/Philly.

Rin says

What's happening now is that the US is attempting to become another present-time City of London,

I think so. The FED is trying to keep the economy going which is based on perpetual growth, which is not sustainable, same as Japan. So when it comes to end you have to adjust to 0 growth and inflated currency.

indigenous says

Rin says

What's happening now is that the US is attempting to become another present-time City of London,

I think so. The FED is trying to keep the economy going which is based on perpetual growth, which is not sustainable, same as Japan. So when it comes to end you have to adjust to 0 growth and inflated currency.

What it tell me is that the middle classer has to play defense. Sure, buy a home, but make sure that a haircut isn't a guillotine strike. In other words, if it's possible to live in a semi-rural community, paying $190K-$250K for a house but then, contract/consultant in the big cities for a better pay, that's good defense.

The mortgage will be paid off quickly and then, regardless of the ups and downs of the economy or even currency, one can still service that loan, even if one has to bounce around various cities & states, to earn a paycheck. In the end, you won't be a renter in retirement, which I think is most ppl's fear around here but at the same time, when your industry gets moved to Texas or Indonesia, you're not stuck with a short sell either.

I didn't word my post very well, I meant to say the market will clear from 0 growth and an inflated currency.

A lot of this comes from international monetary policy, as it did with England in the past, or China now, or Japan a decade or two ago.

Strategist says

In Huntington Beach, Ca as an eg. there are homes built in the 1950's that originally sold for $17,500. Now they are priced at $700,000. I would call that an awesome return on investment.

I can find a cite for Rossmore houses built in 1956 for between $17K and $20K. Wouldn't Huntington Beach have cost more than that?

Note that $17,500 in 1956 vs. $700K (if that's true) in 2014, would be about 2.7% above inflation (as measured by CPI). However, I'd note two things that affect pricing now:
1) The house has probably had money invested in it since 1956 in upgrades, renovations, etc. As such, you have to include those amounts in the basis.
2) Interest rates are very low now on 30-year mortgages, which raises people's ability to pay high prices. For reference, mortgages in the 50s also had low rates similar to now, but likely would have been on 20-year or 25-year terms. If you had an equivalent mortgage market, people likely wouldn't be paying as much in 2014 as they are, assuming a more normal housing market (which we don't have right now).

I suspect factor #1 would make it so that the return is not nearly as impressive.

For reference, Zillow suggests a median sale prices in Huntington Beach of $636K:
http://www.zillow.com/local-info/CA-Huntington-Beach/r_25218/

corntrollio says

I can find a cite for Rossmore houses built in 1956 for between $17K and $20K. Wouldn't Huntington Beach have cost more than that?

Concerning Huntington, Manhattan, Redondo, Venice or any of the SoCal beaches, here's what you're forgetting ... a lot of those places, were built up in the 60s and 70s, during the *California Dreaming* era. The avg working Joe believed in the Frankie Valli movies and thus, were drawn to the areas. I'd presume that 'Bay Watch' was the final generation who'd bought into that mythology of SoCal living.

Today, middle class ppl simply need work. Whether or not they could afford to live or hang out in some beach volleyball or surfing society is a fantasy of yesteryear. In the end, the bills have got to be paid.

Thus, if we don't see major wage increases in the regular, non-Hollywood, non-financial services crowd, those communities will simply be occupied by trust fund babies and muggers, trying to rip them off.

Rin says

Thus, if we don't see major wage increases in the regular, non-Hollywood, non-financial services crowd, those communities will simply be occupied by trust fund babies and muggers, trying to rip them off.

Manhattan Beach is helped by having good schools. It's not a huge housing market, but there's a great blog dedicated to it (at least I assume the blog is still going).

Rin says

Whether or not they could afford to live or hang out in some beach volleyball or surfing society is a fantasy of yesteryear.

The beaches in SoCal aren't even that great compared to many east coast beaches -- water's too cold, beach is too dirty/polluted, sewage dumped in the water, often cold and windy, etc. SoCal beaches on TV look amazing, but the reality is that a lot of people only go to the beach on "beach days" which aren't particularly numerous.

corntrollio says

The beaches in SoCal aren't even that great compared to many east coast beaches

Yes, I'm aware of the fact that the water isn't too great there, however, it's the coastline of a 10M population LA metropolis.

In contrast, the better eastern beaches starting from the Delmarva peninsular region to Virginia Beach and then down through the Carolinas, have less population than the main Boston to DC nexus corridor.

Rin says

Yes, I'm aware of the fact that the water isn't too great there, however, it's the coastline of a 10M population LA metropolis.

Sure, but these days I always think of the people most likely to live in the beach cities (i.e. Redondo, Hermosa, Manhattan) as Midwesterners who move to LA.

jazz music says

SoCal beaches are okay a lot of times. There are swimmers and surfers almost every day in the waves.

For a large percentage of the year, only if they're wearing wetsuits. I can't speak to San Diego at all, but there is definitely a concept of "beach days" in SoCal (i.e. referring to Ventura, LA, and Orange Counties). For example, if you're on certain beaches in May, you are probably a tourist (note I said *on* the beach, as opposed to hard core surfers). OC is probably better than LA overall, and a bit warmer, but I still found Newport pretty cold most of the time.

jazz music says

Many beaches typically get unhealthy reports after rain storms presumably from run-off bacterial contamination from the streets.

Agree, you don't want to be anywhere near after rain storms.

jazz music says

As a native I always set my goal for Huntington Beach but dreamed of Laguna. Crescent Bay Beach to be specific. I would still move there if I had money from royalty or some other windfall.

Later on I was told that San Diego county is probably better from San Clemente, down to Encinitas, Oceanside, Carlsbad, Solana, Del Mar, La Jolla and Torrey Pines to Pacific Beach.

I thought you were against capitalism Jazz. Now you want to live in an area designed for the filthy rich capitalists?

jazz music says

corntrollio says

Newport pretty cold

Yeah California beaches are cold! Most hardcore (daily) surfers and swimmers are wearing wet suits.

I was at Huntington Beach yesterday evening. Cold and very very windy. Felt like a little sandstorm.

corntrollio says

the people most likely to live in the beach cities (i.e. Redondo, Hermosa, Manhattan) as Midwesterners who move to LA.

The thing is that in the future, there won't be as many boomers, with excess cash, to live in SoCal-by-the-sea. That money will have to go to health care and medicines. I recall so many ppl, from the northeast, who used to dream of being in SoCal but today, have moved to either Virginia, Florida, or the Carolinas because of affordability.

jazz music says

Yeah California beaches are cold!

Isn't that why the Navy Seals have chosen SoCal for their primary BUDS training?

The run up here in US is basically due to heavy investment by foreigners in the housing market. Some 60 Bil was invested during 2012-2013 time period and the lack of new construction has added fuel to this. Inventory is low and until sellers step up the prices are going to go up. This report by the Association of Realtor suggest a move into the luxury market also: http://www.marinhomelistings.com/blog?post=SURVEY-FINDS-13-PERCENT-OF-CONSUMERS-READY-TO-BUY-A-LUXURY-HOME&xid=040600-02

Real wages(inflation adjusted,real purchasing power) for the bottom 90% of wage earners have remained flat or declined for nearly 40 years. Houses are unaffordable for most now....so how can the prices continue to escalate? Seems like simple economics to me.....of course the government will try to keep the bubble going, but it got to give at some point.

Tim

Just to be clear. You are saying it is possible to get $3000 rent on a $100,000 property? This works out to be 36% annual yield, only three years payback. Would like to know where.

hanera says

Tim

Just to be clear. You are saying it is possible to get $3000 rent on a $100,000 property? This works out to be 36% annual yield, only three years payback. Would like to know where.

I think he means the down payment as being $100,000.

jazz music says

Strategist says

I thought you were against capitalism Jazz. Now you want to live in an area designed for the filthy rich capitalists?

LOL WTF! When are you going to stop leg-humping Rush Limbaugh?

I don't even like that guy. And you still haven't answered the question.

Tim Aurora says

On top of it I get the appreciation ( tax free till 500K). Assuming that to equal to inflation, it is equivalent to 30% return ( 18% + 4*3% ) after tax. This translates to 41% return before tax.

That's some fuzzy math there.

Sorry to snark Tim above, I have nothing against what he does with his money if it suits him.

But in 2009 I bought some Apple shares and unlike buying a house ($10K fees) I paid a $2 broker commission at Vanguard.

This investment is up about 600% but of course this is unusually good.

The frosting on the cake is that Apple now pays $1+ per share per month in dividends. If I live long enough, Apple will have paid me back all of my original investment!

Oh and I have no "property tax" on this but I do owe tax on the dividends except for the shares I have in my Roth IRA.
Below a certain income the dividends aren't taxed.

I won't have to fix the roof of my Apple shares, nor buy insurance for them.

Other investments in mutual funds are doing great and the nice thing is that they are very liquid and you can sell a share or two if you need some dough.

I suggest Vanguard Dividend Growth among other funds.

corntrollio says

That's some fuzzy math there.

Can't get fuzzier than that.