patrick.net

I think the bulls who refuse to acknowledge the obvious are really driving me nuts. In particular, it is not easy to witness friends "boldly go" to the final frontier of speculative indebtedness.

SactoQt, thanks for the new thread. ;)

SactoQt, thanks for the new thread.

No problem. I think my masochistic side was ready to "boldly go" into the thread frontier again. ;)

I guess what bugs me the most it that even if you make a lot of money it's still not enough. In what world can you earn twice the median income and still find yourself priced out of the housing market? The NAAVLP world I guess. It's just so wrong that people who try to make informed responsible decisions end up out in the cold.

I'm sure there are those who would say that we could have elected to jump in the game and it's our own fault we didn't. But I still feel that if you have two brain cells to rub together it's obvious playing it conservative was the only way to go. Time will tell. (where's TWIT by the way?)

What bugs me a little bit is that friends tell me to buy a crappy "starter" shitbox even if it costs twice as much as my apartment. The "start house" concept needs intermediate-term appreciation to work. It is an assumption that is wrong at present time.

In most of the world you’re priced out of the housing market if you make only twice the median income.

Really? Do those places happen to have government-subsidized rental housing?

Foreigners still find housing in many areas of the US to be ridiculously cheap.

What kind of foreigners? Moneyed immigrants or generous expats? ;)

In most of the world you’re priced out of the housing market if you make only twice the median income.

BTW, many countries have excellent government-sponsored housing projects. There is no "need" for homeownership in those countries.

The US was actually an aberration in this respect, but many Americans don’t realize this.

Also, this "aberration" is created by the social/cultural belief that one ought to own and that renters are sub-human.

It may be true than in many other countries the P/E ratio is different, but I think it's unlikely that all things are equal in other respects. Like Peter P mentioned, you might have government sponsored housing.
When I went to school in Japan I was told that a 3 generation loan for a home was the norm. But even so, the housing market tanked.

For the most part I don't believe we are seeing a permanently changing market. I think we're seeing the result of a credit bubble that has primarly affected housing. If it turns out that the market does change significantly in the long run, then obviously I'll have to look at other options. But I sure don't want to. _digging heels in firmly_

When you get the chance, take a look at the ratio between house or apartment prices and median incomes in economically successful areas of Europe and Asia, and you won’t feel so bad about the situation in the Bay Area.

Many successful Asian economies, such as Hong Kong and Singapore, have heavily subsidied housing. A good portion of Europe is in a housing bubble as well. Some markets are already turning (e.g. UK).

According to the renters on this blog, there’s no need for it in the US either, right?

Absolutely. I am not complaining about being "price-out". I am complaining about being asked by good friends to buy a "starter" home at any price becuase one "needs" to own.

Whatever created this unique situation, it was bound to correct sooner or later in a global economy.

I sure hope so.

BTW, I personally do not use the affordability argument too much because it is relatively weak. My reasoning is supported by high price-to-rent ratio and high leverage used by unsophisticated borrowers.

I'm not sure I think the affordability argument is all that weak. We could get a loan for a 500,000+ home, but honestly, paying for it would be a whole different story. The only way we could do it would be to take out a NAAVLP special, and I would have lots of sleepless nights. And if any kind of emergency came up, we'd be in deep trouble.

I’m not sure I think the affordability argument is all that weak.

It is not "weak" in term of relevance. It is "weaker" because it is more prone to "MIRAGE" attacks.

Public housing in the United States immediately conjurs up images such as the Cabrini Green ghetto in Chicago. Government sponsored housing is greatly discouraged in America.

Exactly. I read that nearly half of Hong Kong's population (meaning millions) live in government housing.

Government housing will always conjurs less than perfect images... there are exceptions though... the White House is government housing, isn't it?

Someone has to lose money in order for someone to make money. It’s
been said before that it’s a ‘zero-sum game’. I feel the middle class has
been played. Who in the end has benifited? Follow the money.

Randy H is going to yell at me, but I have to agree that this is a zero-sum game.

I'm not economically savvy enough to know how the U.S. could remain separate from the rest of the global economy, but like I said before, I don't think we're in an "all things being equal" situation. I'm sure there are others who are more educated than I who could break the whole thing down. But I guess I'm wondering what economic factors from other countries are going to influence our economy to such an effect that our whole housing market changes? When we're saying "global economy" what does that really mean?

My view is that the house-buying power of Americans is declining naturally as a result of globalization. I don’t know of a good reason to expect that buying housing would be more affordable in the US than in other economies.

Interesting view. In a global economy, the living standard of American will have to adjust down. There no question about it. If this is your argument, I am not going to refute it.

However, I would expect a change in ratio of income versus rent in this scenario. I also expect the ratio between price and rent to remain roughly constant.

I’m not economically savvy enough to know how the U.S. could remain separate from the rest of the global economy, but like I said before, I don’t think we’re in an “all things being equal” situation.

You are more savvy than you think. Economics is an art anyway... I don't think people considered Vincent Van Gogh too "savvy" when he cut off his own ear. ;)

You are more savvy than you think. Economics is an art anyway… I don’t think people considered Vincent Van Gogh too “savvy” when he cut off his own ear.

Lol

I haven't gotten that "artistic" quite yet.

As far as California goes, the state was a lot LESS affordable in the late 80s than it was in most of the 90s. Again, cyclical nature of things, psychology, supply and demand, etc. You’re thinking too hard about this!

Supply and demand very dynamic. People tend to engage in bidding wars when they perceive that inventory is low. As a result, the demand curve itself is also a function of the level of supply in addition to the level of price. Very interesting indeed.

I haven’t gotten that “artistic” quite yet.

Van Gogh is my favorite painter. But I am not going to cut off any of my body parts yet (except hair).

Did you guys see MarinaPrime's example? If the high end is so crazy and the median price of SF is still pretty much the same, I cannot start to imagine how bad the lower end has become!

One other thing people forget is that the early 90s California collapse happened in a FALLING interest rate environment. Properties indeed became much more affordable as demand collapsed.

Two obstacles to overcome in a falling price environment:

* lending standard will be air-tight
* prices can still go significantly lower

I was going to take the "purge" route w/MP because no one wants him around, and I'm hoping to discourage him. What do you guys think? Wait till the inevitable flame war, or just purge?

Soviet-style purge! :)

I only know that 2^25964951 - 1 (7816230 digits!) is prime. This is a mathematical truth and is not in the eye of beholder. ;)

Good Lord! What a pain in the ass. I've never seen someone so determined to be a nit wit.

Hey SactoQT, you may just want to stop deleting these. This proves ONCE AND FOR ALL what an absolute CRACKPOT this guy is.

Isn't it amazing that someone who is completely despised keeps coming back? What is this guys deal?

You just know he's going to log on at 4:00am and start posting all this crap again. _sigh_

I work in the financial district and don’t understand how anybody could actually live in that city.

I live in San Jose downtown. I do not undestand how anybody could live here. What was I thinking? Glad that I am a renter. Moving next year.

I had some friends who lived in SF and I admit, I couldn't figure out the attraction. But I'm not into the city life. I lived in West Hollywood and couldn't stand it.

Give MP his due...MP is prime...he works his ass off...diggin' all day for 1 example to make a case; A for effort, I say.
Moving right along...
My gripe, also my fear (as from prevs thread), is that irrational is now rational. Relates to this notion: since so many people fucked up (or so we all would like to think), and due to what can be crudely defined as "strength in #'s", somehow it'll all work out for "them"...and even worse: maybe they "get it", and we don't...? Is "rational" subjective???
So, the fear, the gripe, is that I got it bass-ackwards...and housing costs work up to 85% of gross income... but that's okay, don't fear...microelectronics real cheap: designed here, & mfrd in china; Moore's Law stays on track, actually turns out to be conservative with industrialization of quantum computing...so much info at your disposal...plug it into your head, it pushes all the right buttons...pleasure, pain...simulated to perfection. And it's so cheap! Only 5% of gross for 1-yr subscription. You'll never have to leave your home. Grand Canyon? push this button here. Want a little romance? press here. Sweet, saucy, succulent chilean seabass at The HOUSE, de nada...green button over there.
Why the helll am I thinking about bladerunner right now???
Garcon...'nutha glenlivet, 2 cubes.

Peter P,
SJ downtown? I think it's a bit better now than, say, ~10-15 yrs ago. I actually enojoy hanging at Gordon Biersch; or parking under the old "SJ Live" (WTF street is that again?)...taking the elvator up for some s*bucks, then hittin' the IMAX, just to get all dizzy. But then, I dig pretty simple things. But yeah, it lacks that certain "je ne sais quoi"...mostly 'cause a lot of people go there w/civic inferiority complex & try to make WAY to much of it...but it's not bad if you just take it for what it is...i.e. limited expectation! JMHO.

I think it’s a bit better now than, say, ~10-15 yrs ago. I actually enojoy hanging at Gordon Biersch

I actually live one block from Gordon Biersch. :) Perhaps we can hang out sometime?

To be fair, there are nice area in San Jose (e.g. South part). But the downtown area is not too nice still. Auto insurance premium says all. Well, I guess "downtown living" is still a relatively new concept to me.

Good nite all... need to meet up with Jack and Kurt tomorrow...

As I have said, we should probably organize more activities for our "support group". :-P

Hey, I grew up in the "South part"...down the street from IBM's, err-Hitachi's, HDD facility. It's now quite expensive to live there. Live in Evergreen now...very nice, but freeway access bites.
You must be living in one of those newer high-rise complexes...3rd st. maybe?
Anyways, g'nite & enjoy the get-together tomorrow.

Hey, jbunniii, I understand the resentment a bit...& I think more people are understanding it...once people actually realize that the external craziness is causing such distress, & pressure to buy, the less likely they are to follow the herd. Hey, your post gave me an idea...how 'bout posting FICO #'s? Last time I checked, I was 803. Less debt now, so maybe a bit better.

Back on topic, my beef is “The American Way” of work, work, work, so that you can consume, consume, consume, and that as a result we live relatively isolated lives with not enough family time, socializing, community involvement, and travel to maintane balanced priorities.

Or the James Bond way, work hard, play hard, drive fast cars. ;)

(Obey all posted speed limits and traffic laws.)

Longtime reader first time poster. Peter, be proud of what you’ve created with this site, it’s the most useful compilation of info and opinions on this subject on the net.

BeWiser, Patrick created this site, I am just a guest like yourself. :)

The only truly “safe” investment is TIPS (treasury inflation protected securities). These yield a real return of about 1%.

There is no such thing as a truly safe investment. There are risks no matter how you do it.

For example, TIPS are tied to some CPI measures, which are subjected to "hedonics" and other governmental manipulations.

I guess one safer investment is to have your self sufficient ranch and your own private security force. Still, you can be robbed by your neighboring ranch with a bigger security force. ;)

When you get the chance, take a look at the ratio between house or apartment prices and median incomes in economically successful areas of Europe and Asia, and you won’t feel so bad about the situation in the Bay Area.

I'm not sure that's a fair comparison, because there are stark differences between the US and Europe, including attitudes towards housing, and how cities are structured. In dense, urban areas of Europe, the "American dream" of an oversized home are impractical. Many people prefer living within urban centers, but they don't whine about their limited space; they deal and enjoy life. What's more: housing hasn't inflated at skyrocket rates like here (I'm thinking of Germany and Switzerland) And, unless you're a country farmer, you won't typically have the land to support a large rural-style home.
Some countries have growth restrictions to preserve farmland, keeping development vertical in urban areas. Add to that--negative population growth in some EU countries.
Just my take based on living there a short time--US and the EU are vastly different.