patrick.net

The housing bubble and God somehow makes me think of "Mercedes Benz" by Janis Joplin.

SFWoman Says:
Perhaps we will meet intelligent life who are fleeing an impossibly large real estate bubble in another galaxy.

yes, like the energy wave of a rapidly expanding supernova which goes on to collapse into a real estate black hole...

Randy H Says:
Who replaced Peter P with our favorite postmodernist from down under?

hey, i was a science nerd for many years, i'll have you know... won the HS graduation physics prize and studied astronomy under physics at uni...

unless you're talking about ajh, that must be it ;)

i've just transcended mere logical positivism lately, that's all... and there was no money in astrophysics, i switched to mortgage broking...

maybe the soundtrack should be pink floyd's 'money', or the little known led zeppelin number 'when the housing bubble bursts (you got to lose)'

FAB,

that is a very good discussion since I am interested in swapping out of my current "sorta prime" area into a significant acreage which may have growth potential to be the next prime after the gigantic blowup.

Here is my wife's observation after being here all her life. The rural areas at the border of the center on the west side has a much better chance of becoming prime gradually than rejuvenated subprime. A perfect example is Los Altos, which was just a farming area with a railway scam that turned into a prime spot because of its proximity to Palo Alto, and we know why Palo Alto became prime. East Palo Alto, however, never became desirable despite the ups and downs through the years. Another example is San Jose' Almaden area, it was again a rural town with little significance down south before the sprawl went down to San Jose. It became sorta prime, which East San Jose remains what it used to be throughout the years.

In the peninsula, Hillsborough and Burlingame sound like a suburbs that ascended real fast for some reason that I cannot understand. I've been here since early 90s and Burlingame never came across as a prime neighborhood as it is today. Could it be the school districts? Or the Burlingame downtown that was completed in the 90s? I'd say San Mateo has pretty much remained the same throughout the last 15 years, a stepping stone for those who want to move into Menlo Park, or Burlingame. So could downtown and school district have a big play in upgrading a neighborhood from subprime to prime?

I also would like to hear some examples of the Bay Area on which area upgraded and downgraded, for what reasons.

I read about a neighborhood before near Detroit, it was the poster child of a prime neighborhood that became a slum. Sorry that I forget the name. It is an area full of mansions that are left to rot, the decline was said to begin in the Great Depression. I read somewhere last year that even this neighborhood was being rejuvenated.

As long as the Bay Area keeps its industries intact, I don't think we are going to repeat Detroit's story.

The housing bubble and God somehow makes me think of “Mercedes Benz” by Janis Joplin.

This song is probably sung like a hymn at every "prosperity gospel" service. :-)

There are plenty of areas in cities like Cleveland where mansions were abandoned after WWII, as white flight drove people out of the remaining urban gentry neighborhoods. In many cases the rich folks got the city to buy out the land, and projects were plopped where splendid homes once stood.

I don't know of any examples not tied to major industrial manufacturing cities, or on the West coast. But certainly the rust-belt is rife with examples of dying "prime" neighborhoods.

And fwiw, Sedgwick in Chicago was quite prime before the projects were erected. The fact there was crime there in 1931 makes it no different than anywhere else in Chicago. 1931. Yea. Something was going on in Chicago in 1931. I think they made a couple movies about it or something.

The area is very prime now.

I think there are parts of the Gold Coast in Chicago that have also cycled since WWII.

Uh I'm anything but an expert on theology but it seems to me that the Big Fella might take serious exception to the HB?

HE wants you to have a gas guzzling SUV!

HE created your wife "in his image" but likes the "up-grades" (hubba hubba) you've been able to afford through "equity extraction"!

HE is pleased with the 10 bucks you dropped in the collection basket (after your 100K Housing ATM Withdrawal!)

HE is content that you have not wasted your time coaching Little League and have instead opted to devote your weekends to installing fake hardwood flooring!

HE is pleased that the pursuit of all things material has consumed your life so completely there is no way HE would even recognize you if you DID show up at the Pearly Gates!

Why did God allow the housing bubble to exist?

What? Nobody here read the book of Job? God is testing your faith in Market Forces. Should you waver, you will fall unto damnation.

I'll take being a renter over having my family killed and boils visited upon my face any day. The Housing Bubble is definitely from the New Testement God, not the Old Testement God.

Of course, if you bought in 2005, God might soon be asking for your firstborn on the altar...

DinOR Says:

HE created your wife “in his image” but likes the “up-grades” (hubba hubba) you’ve been able to afford through “equity extraction”!

Equity EXtraction = silicone INsertion

Is Palo Alto prime? How come the downtown area has so much rift-raft?

Peter P Says:

Is Palo Alto prime? How come the downtown area has so much rift-raft (sic)?

Downtown PA has had riff raff as long as I can remember (about 17 years). Probably related to the proximity to a university and the availability of homeless services (in particular, that church across from Prolific Oven has some kind of meal plan). I personally don't mind them, as long as the panhandling is not aggressive. Remember when that plaza next to High St. was still Burger King? It was almost like Telegraph Ave. "lite." Plus, when you bike under the train tracks, that tunnel had a perma-urine aroma, now gone.

SJ may not be prime in appearance, but it's certainly gotten prime in asking price.

Michael Holliday,

Thanks for the rec. That album has been in my Amazon wish list for years, but I never got around to purchasing it. Though for the housing collapse, I’d recommend some Mogwai and Explosions in the Sky.

FAB,

“After the war Berkley was tough by the east shore freeway and prime in Claremont, nothing has changed. Dublin was a sleepy cow town (not a yuppie village with chain stores and cul de sacks) and I can’t think of any San Jose areas that have changed much…”

Your definition of prime is quite restrictive. The lesser parts of Berkley, all of Dublin and SJ may not have changed much physically, but their asking prices have really jumped up. Nowadays, if you buy there you may still be neighbors to semi-literate manual laborers who bought 20 years ago, but you better come with two professional level salaries to pay for it. In time, if the gentrification trend continues, I think more and more professionals would move in and fewer day laborers would remain. The physical transformation of neighborhoods will take a bit longer than one cycle of RE price run up.

Detroit is pretty much the prime candidate for prime to less prime. CEO/highly paid executive homes there are losing value because the whole Detroit area is hollowing out. I’m not too familiar with the Midwest outside of Detroit, but I know that much of Manhattan cycled in and out of prime: it used to be that the Upper East Side was the only truly prime residential area in NYC, but now much of lower and midtown Manhattan has caught up to the Upper East Side in price.

I can’t take credit for the power of prayer antecdote. That goes to SQT. But you’re absolutely right, the Catholics have a much more extensive prayer management system than the Protestants.

ajh and SFWoman,

I know United has an EconomyPlus section that offers a bit more space at the front of the cabin. I believe it’s around $50 per trip. They also have an EconomyPlus upgrade for free program if you fly enough miles with them each year.

I think the point of business and first class pricing wasn’t about space or service offered but to price segregate the riff raffs from the busy executives. A major selling point of business class was (I say was because mileage upgrades altered the equation) so you won’t sit next to crying kids or chubby vacationers or the insane old lady showing you pictures of her 37 cats.

Owning vs. Renting

I pay just under $3K a month to rent my place in Presidio Heights.

I could buy a condo similar to my place in the area (2 br 1 ba with a deep garage where I can park my car & SUV) for about $1.25mm.

Total cost to rent is $36K a year

Renting the a million $ to “buy” a place would cost $76K (6.5% 30 yr am).
Property Tax $15K a year
Loss of a return on $250K in Cash down payment $35K a year (based on my average annual return on hedge fund cash since 1999).
Typical HOA dues for a Presidio Heights condo that include Insurance $6K a year
Maintenance and Repairs $1K a year.

Total cost to buy is $133K a year (just under $100K more than renting) assuming that values do not go down (if we have even a 5% drop in values over the next few years the total cost to “buy” will increase by ~$60K to just more than $150K more than the cost to rent).

“astrid ‘pontificates;’”

Yes, but do I get a pope-mobile?

I think the point of business and first class pricing wasn’t about space or service offered but to price segregate the riff raffs from the busy executives. A major selling point of business class was (I say was because mileage upgrades altered the equation) so you won’t sit next to crying kids or chubby vacationers or the insane old lady showing you pictures of her 37 cats.

Really? My friend told me that there are crying kids and other aggressive behavior in (domestic) first class now. And who says business executives are necessarily not chubby?

Rich people do not fly commercial anymore. I predict the demise of domestic first class. Fractional jet ownership and charters will make private jet travel "affordable" even to the not-exactly-wealthy.

Peter P,

Airlines are retrenching from overuse of mileage upgrades. I looked into upgrading with frequent flyer miles and I couldn't stomach the conditions. I've never flown anything but coach though. I find earplugs and sleep deprivation to be more effective towards aggressive nearby passengers. (Though once an asshole decided to lecture me on too much carry-on luggage while the plane was loading. I let the flight attendant tear into him.)

The very rich will always have the option of fractional ownership or whole ownership, but I suspect many of the wannabe rich people who are currently using the options will go back to commercial aviation quite soon.

" * Wife makes $9500/mo as a registered nurse"

I didn't realize nurses were being paid so well. Is she a nurse practioner?

SFWoman Says:

I am a very WASPy blond with two blond kids and the world’s WASPiest name. Apparently that sets off bells at the United and American ticket desks.

Maybe they're on the lookout for the Brahmin sect of al Qaeda.

astrid Says:

I didn’t realize nurses were being paid so well. Is she a nurse practioner?

It's called UNIONS. RN's will go on strike early and often. Senior RN's, not necessarily NP's, will make that range of pay, particularly if they work in the OR, ICU, or ER. Plus, they strike to have 40hr work weeks and work an extra 40 hours per week to get paid overtime.

Of course, the vast majority of RN's are fabulous (on an individual basis), but there is a bit too much labor movement, union-y stuff in that profession, imo.

Peter P Says:

> Rich people do not fly commercial anymore.

“Rich People” still fly first class, it is only really “F’ing Rich People” that own jets (even fractional ownership).

> I predict the demise of domestic first class.

Domestic first class may go away, but it will be due to other airlines going to the (profitable) Southwest model of a single class not because everyone is flying around the US in GVs…

SFWoman,

That really sucks. The current air traffic safety scheme is incredibly idiotic. Somebody at homeland security apparently thought that the humiliating experience of lining up to having large African American women paw through you will increase national safety. I've had (inadvertantly brought on) Swiss Army knives go through airport security more than once, and anyone with real hand to hand combat training can kill with their hands.

I’ve never flown anything but coach though. I find earplugs and sleep deprivation to be more effective towards aggressive nearby passengers.

I just take two Benadryl pills and get unconscious.

The current air traffic safety scheme is incredibly idiotic.

They should just hire some psychic to see if the passengers have malicious intentions.

FormerAptBroker Says:

“Rich People” still fly first class, it is only really “F’ing Rich People” that own jets (even fractional ownership).

I don't know about that - have you seen the ads in the WSJ for "affordable" private jets? Not just for the "F'ing Rich" anymore! Your sad-sack "merely rich" sucker can fly one of those:

http://travel.news.yahoo.com/b/b_correa/b_correa8840

Maybe the FB can just refi your McMansion to buy a share of one of these - I'm sure properties will continue to appreciate to that level!

SFWoman Says:

Wow! We can pay mortgages with credit cards? That’s why everyone else gets those upgrades!

Those must be the "other people" whaddup must be talking about!

He thinks the new wave will be these little $2 million jets with people getting licences and flying themselves.

He is right. Those VLJ (very light jets) will open a whole new page in aviation history. Some of them costs little over 1M and can go 300+ knots.

Air-taxi will become a keyword.

I asked my husband about doing that. I went to flight school in the early eighties (for high school credit!), I’d go back and work up to jet certification. He said there’s no way he’d fly with me. Oh well, I tried.

Don't you need instructment rating as well? It would suck if you have a nice jet but you cannot fly at night.

FAB,

Great breakdown. I've always suspected the further up the scale you work the more profound the disparities!

I think Peter P once said that most "rents" in up-scale areas would "just about cover the taxes and HOA's"?

Have pikers put bona fide landlords in a bind here? They were so eager to get a foot on the first rung of the "property ladder" they couldn't be bothered with anything resembling a business plan?

Maybe the FB can just refi your McMansion to buy a share of one of these - I’m sure properties will continue to appreciate to that level!

Not even that. One can charter light jets (without any ownership) at a cost that is not much more than first-class if there are multiple passengers.

I’m sure properties will continue to appreciate to that level!

I heard planes appreciate though. ;)

Just for the record, I'd like to say that for the most part light civil aviation is at best a nuisance. IMCO.

I have been around aviation most of my life. In fact I've done everything you can with an airplane except fly. Unlike Headset* with an unreal amount of training I believe that being able to afford flight lessons and truly being made from the right cut of cloth are two totally different things.

It's hard to pick up a paper without there being some kind of civilian A/C accident. With simulators we can put rookies through scenarios that would be unsafe/unwise in an actual A/C. This will in time reduce mishaps but at present I'd have to say the idea of someone that only recently got started in aviation commanding a multi-engine jet frankly scares me.

SFWoman Says:

> I asked my husband about doing that. I went to flight
> school in the early eighties (for high school credit!),
> I’d go back and work up to jet certification. He said
> there’s no way he’d fly with me. Oh well, I tried.

Flying is easy in nice weather when everything is going well (I started flying out of San Carlos as a High School student and got my instrument rating in college).

I have not flown in over 20 years since I realized that I will never have the hours necessary to feel good in real bad weather or deal with a mechanical failure.

After JFK Jr. died a friend called me and said that while he was watching the news as they looked for JFKs plane he thought of the discussion we had years ago and decided to join me as a “former pilot”.

The retired UCD professor I was just talking to at a wedding mentioned that he stopped flying a few years back after one of his fly fishing buddies died. http://tinyurl.com/nk9jx

I hope these $1M jets will not proliferate. We have enough noise pollution as it is. The last thing we need is more noise pollution (and air pollution) so some rich people can save themselves a couple hours and show off to their friends.

FAB said:

Owning vs. Renting

Total cost to buy is $133K a year (just under $100K more than renting) assuming that values do not go down (if we have even a 5% drop in values over the next few years the total cost to “buy” will increase by ~$60K to just more than $150K more than the cost to rent).

Running these numbers:

Nominal cost of ownership (total burdened holding costs) in year 1 are $83,012. The amount changes per year, increasing slightly, due to reduced value of tax shield, even considering inflation and salary-increase @ inflation rate.

Nominal rent ownership total cost in year 1 is $36,000.

The ownersihp holding cost to rent ratio is 2.31 in year 1, but sinks to 2.03 by year 7.

The alternative cash flow difference in year 0 is $47,012, assuming the median hedge fund rate. At best, perhaps $60Kish for an insane, but riskier, fund.

The final outcome analysis, for a 7 year holding period:

PV of Ownership costs $66,030
PV of reinvestment (hedge fund of delta returns): $368,146
PV of net holding costs: $302,116

Implications:

Home purchased in year 0 for $1,250,000 with $250,000 down, utilizing stated parameters:

Must increase by $86.62% over 7 years to break even against renting.
9.32% implied annual return. (IRR of 19.47%)

I hope these $1M jets will not proliferate. We have enough noise pollution as it is. The last thing we need is more noise pollution (and air pollution) so some rich people can save themselves a couple hours and show off to their friends.

Those newer bizjets are actually surprisingly quiet. (I used to live very close to the flight path of SJC)

We should ban older jets like older DCs and first-gen 737s instead.

I for one would love to see a return of "the dirigible" lighter than air ship! I just can't understand why they aren't being used for more than advertising?