patrick.net

Call it Crazy says

Current 30 year rates are around 4.25%, so there is still plenty of room to push rates down further if needed...

It depends on inflation and growth. I don't think we can assume this will go down.

New Renter says

monkframe says

I don't think most posters here have any idea about what's going on out there in the greater USA.

And you do?

I doubt it.

Heraclitusstudent says

Strategist says

That is what has been happening in the last 50 years.

Yeah... at the very least this is not a promise of future performance. And one would argue this is precisely why it can't continue for much longer.

And this didn't happen in a vacuum. There are a precise set of macro economic circumstances that allowed this to happen. Including hundreds of millions of new workers courtesy globalization. Including constantly decreasing in interest rates. etc...

You think this will continue long term? You believe in Santa Claus?

In all fairness, your response could have been written, verbatim back in 1990 just as easily as it could have been written today. Point being, just because something is unsustainable, does not mean it cannot continue "much longer".

In point of fact, Robert Shiller believes the overperformance of coastal ca will revert to the mean not via crushing price declines, but instead as new cities are built (envision "Pelosi, CA" being built right in the middle of the bay) which serve as a pressure relief valve. If so, SF will become more affordable not by out and out price declines, but slightly more anemic price growth for the next 20-30-50-100 years.

Bottom line, don't be so sure you can time this any better than someone penning your exact same argument 25 years ago.

CDon says

your response could have been written, verbatim back in 1990

I don't think people were nearly as stretched back then as they are now.

It's not just poor people: even people in the top 10% are stretching in order to live in decent areas.

Further there are deep changes taking place now: household debts is pretty much saturated if we don't see actual wage growth (which seems unlikely), consumption in developed countries can no longer be the driver of global growth, tons of money has been printed and won't be taken back easily, on the other side of this salaries in China are growing double digits, etc....

CDon says

Robert Shiller believes the overperformance of coastal ca will revert to the mean not via crushing price declines, but instead as new cities are built (envision "Pelosi, CA" being built right in the middle of the bay) which serve as a pressure relief valve.

- I don't think Bay Area prices will go down much if at all. It could go up a lot more: The argument about rich people works there.
- I don't think real-estate in California will go down quickly. There is just a lack of it right now, and a lot of demand.
- I don't think rates or inflation will rise quickly in the US. Growth will stay slow.
- I think it will take a couple of decades at least to revert the past 30 yrs. This will happen slowly.
- But I doubt on balance real-estate in California will keep up with inflation.
- In any case the idea that coastal California will continue to gain 6%/yr seems crazy.
People will just be forced to leave if this happens.

Strategist says

I think in the costal areas of California, you will see a historical 6% or so long term growth rate in prices.

That's possible, but it's also possible that growth could be lower going forward because it has been so high for the last few years. Hard to tell in the short-term vs. long-term what will happen. For certain houses that I've seen, if the growth from Year 2014-X to 2014 continued until 2014+X, then some of them would have 8-figure prices, which seems somewhat implausible.

Strategist says

That is what has been happening in the last 50 years. Look at New York, London, Paris, Hong Kong, Mumbai, Shanghai? It's a phenomenon that has been very consistent.

Some people have studied Paris, in some cases going back to 1200. I don't read French well enough to know all the conclusions, but Paris dipped well below par according to the data from 1914-1965, so it had a lot of room to come back up. Whether anything is "consistent" or not seems questionable, at least.

http://www.cgedd.developpement-durable.gouv.fr/house-prices-in-france-property-a1117.html

bob2356 says

Maybe when solar can be used to directly convert it from water it would make sense.

Using electricity to produce H2 is inefficient. Then storing H2 means a tank of liquefied H2 in which H2 is boiling and slowly escaping the tank.

You might as well use a battery.

corntrollio says

I don't read French well enough to know all the conclusions, but Paris dipped well below par according to the data from 1914-1965

Housing policies in France are very similar to CA: a large deficit of new buildings, a lot of barriers to new buildings, low interests government loans, and tax deductions. All resulting in the same kind of insanity.

European austerity is forcing more common sense. Prices are going down, though probably not in Paris.

corntrollio says

If you compare that to living in the Midwest and putting all the excess money into investments, you could easily come out ahead. For example, assume you lived in a $150K house with a $800/mo mortgage payment (7%, 120K principal). You could put the extra $1200/mo or so into investments making 7%/year and have $572K at the end, or almost $150K more.

Yes, but I think periodic layoffs, also need to be taken into account.

A lower cost homestead, which then caps your monthly outflow, won't make a job loss devastating. One can still travel, consult in various cities, and still pay down the mortgage.

This is why I'd bought my place in central/western MA, instead of greater Boston. Today, my mortgage is paid off and I never need to worry about being a renter during retirement. If I ever need to move for work or further education, I'll either get a studio or rent a room, from someone.

Without that option, a job loss can result in a short sale and then, the IRS coming after someone, for taxes on that forgiven loan which is then counted as income.

thenuttyneutron says

Read posts for understanding. I said burn H2 in our current engines with minor
modifications.

Read his post---what's the advantage of using hydrogen over electricity?

So why are we worried about a technically infeasible economy, based around H2 conversion/storage vs a super solar energy economy?

Heraclitusstudent says

So let's say wages grow 2% a year. In other words you are telling us that coastal California prices will increase forever 4% faster than wages.

Maybe one really needs to compare coastal California wages vs coastal California housing prices...

zzyzzx says

Maybe one really needs to compare coastal California wages vs coastal California housing prices...

You think high salaries grow faster? Outside the top 1% I don't think so.

The fact is: in this recovery close to 100% of new revenues went to the top 1%.

I'm in the software industry and I know for a fact that wages are barely tracking inflation if growing at all. Large companies are only hiring overseas to keep costs low. I think lawyers also have problems, and so do doctors and banksters for different reasons.

Plus, again, you can make an argument about the rich, but "coastal California" is way too big and diverse for that. Do you think everyone in San Diego or Santa Cruz has a good paying job? No. Not even close. People so far coped by stretching, but there is a limit to that.

It's silly to assume that because they were able to stretch for decades, they will always be able to do so.

Toyota coming out with a fuel cell car next year. Looks ugly.

http://www.pcmag.com/article2/0,2817,2460029,00.asp

Toyota today revealed the exterior design of its hydrogen fuel-cell sedan, expected to launch in the U.S. and Europe next summer.
Toyota unveiled the concept car at last year's Tokyo Motor Show, and today gave the media a full look at its finalized design.

Heraclitusstudent says

Plus, again, you can make an argument about the rich, but "coastal California" is way too big and diverse for that. Do you think everyone in San Diego or Santa Cruz has a good paying job? No. Not even close. People so far coped by stretching, but there is a limit to that.

It's silly to assume that because they were able to stretch for decades, they will always be able to do so.

OK, lets look at it from a different angle.
Why is a 10 year old 2000 sq ft house in Malibu, perched on a cliff, overlooking the Pacific, a lot more expensive then an identical house in Stockton?
You tell me.

Strategist says

Why is a 10 year old 2000 sq ft house in Malibu, perched on a cliff, overlooking the Pacific, a lot more expensive then an identical house in Stockton?

Because Malibu is really representative of "coastal California"?
If you want to argue only about places where the super rich live, then maybe. But that's a very narrow argument that doesn't impact most people in California.

Other example, take San Luis Obispo, with no view of the ocean.
Does it qualify as "coastal California" to you?
Why are houses there in the $600K range?
Do you believe they will go up 6%/yr moving forward? based on what?

Heraclitusstudent says

Strategist says

Why is a 10 year old 2000 sq ft house in Malibu, perched on a cliff, overlooking the Pacific, a lot more expensive then an identical house in Stockton?

Because Malibu is really representative of "coastal California"?

If you want to argue only about places where the super rich live, then maybe. But that's a very narrow argument that doesn't impact most people in California.

Other example, take San Luis Obispo, with no view of the ocean.

Does it qualify as "coastal California" to you?

Why are houses there in the $600K range?

Do you believe they will go up 6%/yr moving forward? based on what?

Yes 6% moving forward is possible. Maybe even more.
Because the number of rich people in the world is exploding. Half the human population lives in Asia, and their economic growth rate is truly amazing. A lot of that added wealth is coming to California real estate.
People with money don't want Stockton or Nebraska or New Mexico. They want Coastal California, and are willing to bid up the price. It's gonna continue well after I kick the bucket.

Strategist says

That is what happened in 2008. Falling home prices caused the Great
Recession.

There was no recession in 2008. Mccain said that the fundamentals of the economy were strong. The recession was imagined just like the people in portraits with stalin who disappeared.

Heraclitusstudent says

If you are talking of the implied deflationary effect, there is a easy solution called money printing and higher gov spending

Won't that solution just lead to higher real estate?

tatupu70 says

Heraclitusstudent says

If you are talking of the implied deflationary effect, there is a easy solution called money printing and higher gov spending

Won't that solution just lead to higher real estate?

Would, did and will.
We live in a free market economy.
The only other solution is to go communism

dublin hillz says

Strategist says

That is what happened in 2008. Falling home prices caused the Great

Recession.

There was no recession in 2008. Mccain said that the fundamentals of the economy were strong. The recession was imagined just like the people in portraits with stalin who disappeared.

If he said the fundamentals were weak, he would be implying Bush, his fellow Republican screwed up. So he had to find an economist who said the fundamentals were strong.
I voted for McCain.

bgamall4 says

Strategist says

Bubbabear says

University of Michigan researchers have released a study stating that the disparity between the wealthiest Americans and the rest of the country has grown because of the Great Recession and the slow recovery.

Why is everyone hung up on how much the wealthiest make. If they make 10 times as much, it does not make YOU any poorer, am I right?

Some always trickles down for us to lap up.

You are a ridiculous thinker, Strategist.

You made me laugh. LOL
I missed your insults the last few days.

Strategist says

That is what happened in 2008. Falling home prices caused the Great Recession.

There was a recession because the unsustainable consumption and building boom came to a halt. It's not the housing prices fall that caused the recession, it's the boom that preceded it.

And that boom was caused by housing prices going up. Apparently you think it was a good idea in the first place to have that debt boom take place.

Strategist says

Won't that solution just lead to higher real estate?

Would, did and will.

Not if housing is abundant and the money is spread equally between every citizen.

Strategist says

We live in a free market economy.

The only other solution is to go communism

Lol.

So all the restriction California has on building is "free market"?

Explain why in a free market a widget that can be mass-produced for $250K is sold used for $500K in San Luis Obispo.

Heraclitusstudent says

Strategist says

We live in a free market economy.

The only other solution is to go communism

Lol.

So all the restriction California has on building is "free market"?

Explain why in a free market a widget that can be mass-produced for $250K is sold used for $500K in San Luis Obispo.

Location location location.
That 250K house is standing on a lot that is worth $250K. Therefore the price is $500K.
A few years from now that house will depreciate to a $200K value, but it will still sell for $1million, because the land will be worth $800K. There is no stopping it.

Heraclitusstudent says

Explain why in a free market a widget that can be mass-produced for $250K is sold used for $500K in San Luis Obispo.

The cost of the land.

Strategist says

Yes 6% moving forward is possible. Maybe even more.

Because the number of rich people in the world is exploding. Half the human population lives in Asia, and their economic growth rate is truly amazing.

So according to you, an invasion of Asian millionaires will kick out 90% of young native Californians from California.

Do you realize how that sounds?

APOCALYPSEFUCKisShostikovitch says

The only cure for anything is CANNIBAL ANARCHY.

It's true. Worked great for my hemorrhoids.

tatupu70 says

Heraclitusstudent says

Explain why in a free market a widget that can be mass-produced for $250K is sold used for $500K in San Luis Obispo.

The cost of the land.

Yeah, because we all know land is RUNNING OUT in San Luis Obispo. It's surrounded on all side by water and every square inch has been built.

Heraclitusstudent says

Strategist says

Yes 6% moving forward is possible. Maybe even more.

Because the number of rich people in the world is exploding. Half the human population lives in Asia, and their economic growth rate is truly amazing.

So according to you, an invasion of Asian millionaires will kick out 90% of young native Californians from California.

Do you realize how that sounds?

Truthful?
We kicked out the Native Americans didn't we? Now Asians are coming in and becoming Americans too. America is not just for European descent, it's for the whole world. Everyone wants a piece of the American pie. We are the melting pot.

tatupu70 says

The cost of the land.

Not a real explanation, just an assignation.

The reason land is expensive is because it's immobile (along with the house and other fixed improvements as a practical matter) and totally fixed in supply in any given area. And the more popular an area is to live, the less land available for development.

And land has a valuation that is largely independent of what exists inside the lot lines, actually. What drives land valuation is its access to a quality community, since this is no longer the first millennium and we all need to purchase goods and services from third parties, not make them in autonomous manors.

Access to jobs, shopping, nature, entertainment -- aka quality of life -- also pushes up valuations.

Negative factors -- street crime, pollution, poor roads -- can push down valuations, too.

Heraclitusstudent says

tatupu70 says

Heraclitusstudent says

Explain why in a free market a widget that can be mass-produced for $250K is sold used for $500K in San Luis Obispo.

The cost of the land.

Yeah, because we all know land is RUNNING OUT in San Luis Obispo. It's surrounded on all side by water and every square inch has been built.

Look at it this way....If someone is willing to pay $500K for a home that cost $250K to build, wether there is a lot of land or not, how are you gonna prevent that? It's their money.

Strategist says

Location location location.

That 250K house is standing on a lot that is worth $250K. Therefore the price is $500K.

No $250K is the price for the land and the house.

You are saying a piece of land in San Luis Obispo is as precious for the same reason land a Malibu lot above the ocean is precious, or maybe an apartment in Paris. i.e. all rich people want to live in San Luis Obispo.

Get a grip of yourself.

Who wants to live in San Luis Obispo?
What industry do they have?
What attraction?

Strategist says

If someone is willing to pay $500K for a home that cost $250K to build, wether there is a lot of land or not, how are you gonna prevent that? It's their money.

Yes it is their money. I'm not going to prevent it. I don't want to prevent it.

I'm just saying it's ridiculous to expect it to appreciate 6% a year.

Heraclitusstudent says

Strategist says

Location location location.

That 250K house is standing on a lot that is worth $250K. Therefore the price is $500K.

No $250K is the price for the land and the house.

You are saying a piece of land in San Luis Obispo is as precious for the same reason land a Malibu lot above the ocean is precious, or maybe an apartment in Paris. i.e. all rich people want to live in San Luis Obispo.

Get a grip of yourself.

Who wants to live in San Luis Obispo?

What industry do they have?

What attraction?

People who are willing to pay $500K certainly want to live there.
Buyers and sellers determine the price of a house. You cannot dictate the price.
You tell me, why are they willing to pay that high price?

Heraclitusstudent says

Strategist says

If someone is willing to pay $500K for a home that cost $250K to build, wether there is a lot of land or not, how are you gonna prevent that? It's their money.

Yes it is their money. I'm not going to prevent it. I don't want to prevent it.

I'm just saying it's ridiculous to expect it to appreciate 6% a year.

So why has it been happening for the last 50 years?

Strategist says

We kicked out the Native Americans didn't we?

Yes, by force.
You do realize there are immigration laws with a ceiling on the number of immigrant visas that effectively prevent millions of Asians to come to California?

Heraclitusstudent says

I'm just saying it's ridiculous to expect it to appreciate 6% a year.

What sold for ~$30,000 in 1975 sold for $420,000 in 2014

That's ~9% pa appreciation (in Salinas, CA).

The condo my bud's parents flipped in Westwood CA -- bought for $185k in 1986. sold for $735,000 in 2008 -- 6%.

The beauty -- and terror -- of exponential curves is that you never know where you are on them, since their rise is self-similar at every point.

http://research.stlouisfed.org/fred2/series/MZMSL

shows that in 1986 MZM was under $2T. Now it's over $12T.

In 2036, will it be $70T? Why not?

Strategist says

So why has it been happening for the last 50 years?

For one thing it started low. Debt levels started low.

You can't claim things are the same now as they were 50 yrs ago.

Heraclitusstudent says

effectively prevent millions of Asians to come to California

it only takes dozens of well-heeled buyers to affect a local market, not millions.

http://www.cnbc.com/id/101225345#.

and we're not going to close the door to them.

Strategist says

You tell me, why are they willing to pay that high price?

not helping matters:

http://research.stlouisfed.org/fred2/series/CUUR0000SEHA

rents have more than tripled since the 1970s.

that, combined with low interest rates:

http://research.stlouisfed.org/fred2/series/MORTG

has pushed up the housing cost curve immensely.

http://research.stlouisfed.org/fred2/graph/?g=EJc

shows the average wage has risen from $13,000 to $50,000 since the 1970s.

Housing is our primary life need, it's easier to live without food for a day than tenancy in housing.

Now, if you'll excuse me, there's a beach calling me. : )