patrick.net

Randy,

Yes. But free market also produces plenty of market failures. Isn't that the point of the Prisoner's dilemma?

In case of Gen-X spending habits, a big part of the problem is that the social normative has yet to catch up with the economic reality. Many Gen-Xers are now really priced out of housing (a reality shown by the relatively low rent costs) and buying is quite economically irresponsible. Yet their boomer parents and financial advisors are telling them to buy obscenely priced homes to be "responsible" and to "build equity" with neg-amort ARMs.

The social normative may catch up in time, but I can't help but pity the lemmings who bought because they blindedly wanted to be "responsible." (It really isn't their fault that mom and dad wanted more *hard* testing and less economic/finance instruction in high school.)

Meanwhile, slightly smarter Gen-Xers (me?) decide to maximize personal utility by doing comparatively better value activities with my money/time by travelling, watching way too much TV, eating and talking about eating and just being a goof off. But yet folks like me are called irresponsible! Even though I have a positive net worth and tons of pictures with red rocks!

Randy,

If you're arguing for a "whole new paradigm" type of event, there should be some justification for it; otherwise we have no way of distinguishing them from run-of-the-mill bubbles. In the case of your numbers, it seems possible that the jump is explainable by the addition of a second wage earner. If you were using household income, another explanation would need to be found.

re: poor working moms

I agree that the financial picture gets a lot more hazy when we move outside of the wealth enclaves of Palo Alto, Marin, SF and Manhattan. However, at least in those enclaves, excess wealth was generated and much of it funneled into housing in a manner to benefit long time owners.

The last 5 years have really exacerbated this trend though. The excess money supply has been funneled into housing in a manner that tremendously benefitted builders and anyone who bought before 2001. The current buyers are mortgaging their futures in the hopes of even greater money supply in the future. Even the moms with latchkey kids are getting in on the action because they now believe it's the *responsible* thing to do.

re: latchkey kids due to globalization

Yeah, but there's many ways for countries to deal with globalization. While I'm not particularly happy with Europe/Japan's protectionist approach, I don't think America's "let's turn everyone into lawyers or burger flippers" service worker approach is much better. The social inequalities in this society is truly striking. The culture of consumption and worship of money w/o work is very sick.

Harm,

I read your "Portland Sucks" link and every word is correct! LOL
The quickest way to get mugged in Portland is to carry an umbrella. It's a dead giveaway you are an outoftowner....no local even owns an umbrella, much less uses one.

One thing you forgot though.......

A person's perspective is tempered by where they are moving FROM. Coming from the Deep South, the PacNW is pretty damn good.....but that's another story.

DinOr,

The TLPA has nothing to do with flying. It is the Taxicab Paratransit and Livery Association. I got out of the Air Force in '95, when a babe 24 year old flight surgeon grounded me for hearing loss. I can still fly private, (I can still pass a Class 2 medical) and did so for a while at Langley AFB Aero Club.

For about 7 years now, I have been managing a company that owns about 300 taxis. Therefore, I been to multi-day conventions in places like Vegas, New Orleans (pre flood), New York, Myrtle Beach, Orlando, and LA. These conventions are really excuses for business owners and selected staff to party in fun areas with like minded folks. This upcoming Vegas Convention will have Aussies and Brits as well. I will check out the housing market while I'm there.

Sometimes we learn stuff, and sometimes trade "war stories." And as in the military, some of those "war stories" are true.

Correction, 28 year old Flight Surgeon. She just looked 24

requiem

What about a fundamental shift in how families derive their income, notably the addition of a full-time wage earner, does not constituted a "paradigm shift"? Just because something is explainable doesn't mean it isn't paradigmatic. I use the very term "paradigm shift" somewhat on purpose to solicit debate, because it has become such a loaded term that it is practically useless.

George,

Hedonic adjustments are justifiable when they are applied to correct for non-fundamental -- or non paradigmatic if you will -- types of things. Or when better or more relevant metrics are discovered. Using EBITDA instead of simple Net Income when valuing public companies is an example of hedonics in action.

Adjusting for a long-run, perhaps permanent, shift in socioeconomic structure and culture by "backing out" to the previous state is useless. Well, that may be harsh. It's not useless if you want to be nostalgic or make a social/political statement of some sort. Myself, I'm not interested in either of those types of statements.

Who's adjusting for technology? Productivity is an economic variable, not a constant. I'll happily amend my position if you can demonstrate for me where a constant should be a variable. You have yet to make the case that the "per household" part of income per needs to variablized.

Doug H, SFWoman,

The biggest problem I had working downtown (I hadn't lived there since the late 70's) was that native Chicagoans in spite of stereotypes do not take kindly to rude behavior in public. I realize that may come as a shock to some here but it really is true. Panhandlers only "hit me up" once.

What the Portland Sucks blog failed to point out is all the "part-time" hookers that work "Fareless Square". It's really annoying when you go to lunch w/your buddies and some gal asks for the time like THREE times! When you're obviously disinterested, they become really loud and abrasive shouting "I was only asking you for the TIME!" Then my buddies get some free lunch time entertainment watching me blow a gasket telling some 20 something gal that her folks raised her better than that and how she probably grew up in a decent neighborhood with everything a kid could want so don't give this mean street garbage and get your butt back to class! They either sulk or get off at the next stop whimpering. So..... you guys have your jollies? Sheesh.

ajh,

Agreed, there are certainly scenarios where re-fi'ng at a higher rate can make sense. However, that is what people were "supposed" to be doing back in 03/04! That was the whole "debt consolidation" stampede.

The part that annoys me is that there are several alternatives out there that require nothing out of pocket from the consumer and the homedebtor would actually become a true "homeowner" decades earlier! It's not exactly rocket science. All I need is a better entry point and I'll deploy my financial strategy on a much lower cost (and tax) basis. You can pay off your mort. in 1/2 to 1/3 the time w/out taking a vow of poverty.

From the US census pages (I forgot to cut the income URL, but I used actual "household" income not adjusted and can find it again) I've been renting apartments and homes for years and get real numbers (with pay stubs) about what people make and very few people today can afford the $1mm piles of crap that are selling in the Bay Area...

1980: Median Income $17,710 Median Home Price $50,000 Ratio 2.8
1990: Median Income $29,943 Median Home Price $62,700 Ratio 2.1
2000: Median Income $41,990 Median Home Price $90,400 Ratio 2.2

Home price info below:

http://www.census.gov/hhes/www/housing/hvs/annual05/ann05t11.html

goober Says:

You’ve been making 160 for a while now, inflation’s kicking your ass….

HA HA!

Randy,

The addition of a 2nd wage earner does constitute a paradigm shift, yes. It also makes it more unlikely that something similar is going on now, unless we see young children also pulling in 80K$ a year for the benefit of the family. Does the data you used to calculate the price to income ratios reflect that second earner? (i.e. is it per individual as FAB suspects, or per household?)

Now, the 60% to 70% jump may be smaller, but that largely depends on basic expenses such as food and toilet paper. As someone mentioned, a person pulling in 1M$/yr (after taxes) could spend up to ~94% of that, and still have left the equivalent of the median income. So, is there a way to make a decent claim that, say, 20K$/yr is the lower limit for household necessities, food, and transportation? If so, we can look at such a number to see if that 60%->70% jump for someone earning the median income hits that barrier or not.

requiem,

But isn't it possible that the Sheeple will eventually wise up and refused to pay those exorbitant house prices? Couldn't they redeploy their income to other (hopefully R & D rich) areas that give a more satisfying pay off? Maybe living with mom and dad and sis at the McMansion isn't so bad if Gen-Yers eat sushi every night...

SQT,

Good point. As Randy mentioned in his comment. In the rustbelt, the moms working were essentially replacing the dad's who used to work paying jobs. In those situations, it wasn't so much a cost of living increase forcing mom's work but erosion of dad's earning capacity. So ironically, those families continue to be one earner families, but mom became the primary bread winner.

I don't think the problem is daycare per se. It's more about the lowly status this society accorded to daycare workers - we pay them near minimum wage jobs, overwork them, don't respect them and make unreasonable demands on them. Is it any surprise that only the most desperate women (immigrants unable to speak English and so on) are willing to staff such jobs?

requiem,

I originally stated that there is a threshold problem, which you eloquently described.

I am not stating a new paradigm is emerging today. I am simply saying that anyone who claims to "know for sure" either way is suspect. Very few people can actually see a fundamental shift occurring as it occurs. And usually, those people are deemed crazy.

The other problem with kids with 2 working parents is that nobody but the teachers are watching out for them. The parents don't bother to supplement the kids' education outside of class or to properly supervise the kids. I've seen perfectly good daycare children when the parents were engaged in the kids' education.

Looks like the "Surreal Estate" columnist in the Chronic(le) has picked up the Casey Serin story:

http://www.sfgate.com/columnists/lloyd/

Of course, she fails to cite the blogs that brought his story to everyone's attention (HP, here, Ben's). Figures.

Astrid,

Moms did not replace dads in the Midwest for two reasons.

1. In those days women earned a significant discounted wage as compared to men (doing roughly equivalent work, like teachers for example).
2. Most men still had jobs, they were just underemployed and thus "underpaid" compared to their previous salary.
3. This was all happening during a dramatic inflationary period with stagnant growth, forcing families to either give up significant standard of living or augment their incomes somehow.

As to the social commentary on all this, I am again agnostic. I keep hearing about this and that backlash. It all depends upon your perspective I guess. There are a lot of people with a lot of different backgrounds, and thankfully a great diversity of perspective and opinion.

Oh, and the "rustbelt/midwest" was not the only place to suffer stagflation or dramatic job losses/displacement in the 70s/early 80s. It was very much a national phenomenon. The midwest was at the peak of its population right about then anyway and had 3 of the 5 most populated states. Places like Cali and FL were a lot smaller then.

But isn’t it possible that the Sheeple will eventually wise up and refused to pay those exorbitant house prices?

<stops laughing, picks self up from floor>

Well, um, now that I've thought about that some more, isn't that essentially happens when the bubble goes away? <thinks more...> That might happen in a generation or two. Maybe not living at the McMansion, but in perhaps in roving doublewides travelling in giant packs across the midwest, wrapped in clouds of UAVs, WiFi, and on-demand sidewalk extruders as they drain aquifers and cattle herds for nutrients.

Ok, not sure where that came from. I think that visible consumption is a major part of keeping up with the Jones, and that when renters start driving porsches and inviting their homeowner friends to vacations in exotic locales, the prestige of owning a house becomes a lot less. (Especially if everyone else has one. People want what they think they think is a mark of being above their station, thus houses and LV purses; once they realize that everyone, including the guy who mows their lawn, is a "homeowner", it won't feel so special anymore.)

I’ve seen perfectly good daycare children when the parents were engaged in the kids’ education.

I’ve seen this too, but unfortunately I can’t say it’s the majority.

It must be the daycare. Couldn't be overuse of television and video games as pacifiers, lack of discipline, parental substance abuse, unhappy marriages or unfortunate divorces, terrible McDiets, increasing competitive education pressure, improperly installed carseats... Maybe it's just easier to blame something simple like daycare.

Randy,

My bad! Thanks for clearing that up for me.

I'd argue that it wasn't so much global economics that pushed women to work. Rather, it's the technical innovations that freed them off from the most onerous household chores and made them available for work. Much of this gain went to consumption. Just look at the size of an acceptable house in 2006 v. an acceptable house in 1950. Look at how much more stuff we have.

Yeah, on second thought, I'm not so sure about this second income necessity issue. If we lived like the average people of 1960, many of us could get by on much less than we make now.

astrid Says:

"...The obvious solution to this late Gen-Xer is to resist and boycott Big Boomer..."
_____

Ha, ha!

George Orwell's "Big Brother" is now called "Big Boomer."

No wonder the American Dream has turned into an Orwellian, negative utopia.

Beware of Big Boomer!

astrid,

Normally I agree with you but the obvious way for Gen-X to level the playing field is to have as many children as possible, claim indigence/drug dependency and drop them off at Boomer's doorstep!

Grandparents raising children is becoming an epidemic in this country. They have support groups and everything. Sad.

skibum,

Clearly Carol Lloyd of SFGate is "on the team". If we HAD a payroll, I'd move she be on it. She gets it. She also did a great piece on the 500k exemption and it's impact. Giving credit where it's due, she (not I) accurately described flipping as a tax free "cottage industry" back in May. Great minds.......?

Oh and btw she called Robert Cote' a "hyena" for his savage treatment of poor Casey Serin in blogsphere! Rather than be offended, Robert (like myself) takes compliments where he can find them.

DinOR,

That sounds like a negative sum solution. I like to fight my wars with positive sum results for my side.

SQT Said: I think you might be letting personal experience get in the way of looking at the whole picture.

And you're not? Reread your most recent comment, which essentially comes down to an argument from authority: "because I saw it that way, it must be so universally".

All I ever say is that what works for one may not work for another. Generalizations are convenient, and "pareto" nicely. But inevitably the rare, incredible, and extraordinary arises from that part of the "pareto frontier" that falls outside of the simple stereotype. Or in plain language: it's the folks your generalization is wrong about who are exactly the ones who you're missing out the most by alienating.

astrid,

I was only kidding! It's an awful scenario and altogether too common. In a way though it's part of the "garbage-in/gabage-out" result from boomers raising their children to do their "thing" and not worry about what other people might think? Well....... these would be their grandchildren. Many of these people raising grandkids are in their mid/late 50's to early 60's.

I'm so glad I was an AH dad!

astrid Says:

> I don’t think the problem is daycare per se.
> It’s more about the lowly status this society
> accorded to daycare workers

It has nothing to do with status or money it has to do with LOVE, and most (but not all) day care workers (no mater what their status or how much they are paid) don’t LOVE the kids. Most (but not all) parents and grandparents LOVE their kids and grandkids…

On a positive note the increasing number of people who care more about personal fulfillment than their families will help slow down the real estate crash by increasing the demand for housing as people get divorced and buy second homes and increase the population of the state by flying in nannies from Central America (who will work for next to nothing)…

SQT

I didn't personalize this argument, you did. I injected my original anecdotal about growing up in the midwest as a response to an earlier commentor who's entire argument was based on anecdotal experience.

To that you replied: I think you might be letting personal experience get in the way of looking at the whole picture.

I apologize for defending myself against that unprovoked assertion, which was totally unnecessary had you considered the context of my comment in the first place. It surely couldn't be your own sensitivities.

If it makes you feel better for me to grovel before the wisdom of the masses, then so be it. You're right. I'm wrong.

I'll be careful not to dare dissent or question folks when they make shit up and post irrelevant charts as evidence anymore.

I think you might be letting personal experience get in the way of looking at the whole picture. Where you grew up there were massive job losses that required women to work. But this was not the case country wide. Stereotypes don’t come into play for no reason. There were a lot of disaffected who entered the workplace looking for “fullfillment” and thus created a culture that became dependent on a two income family.

This may not be your personal experience, but that doesn’t mean it doesn’t happen.

I don't know what I could have been thinking. And here I thought I was talking about the logical inconsistency in applying a hedonic adjustment to household income statistics regarding the HSBC HomePulse model of real national real estate. To which, I was told that I was wrong for purely anecdotal reasons, to which I replied with my own anecdotal counter-example, to which I was lectured about day care and greedy "women who chase the dollar and forget about the kids they dropped off for someone else to raise".

Sorry for being so defensive. Like I said, I won't call bullshit anymore. Clearly it's not welcomed here anymore.

SQT

So why did you interject into that particular debate in the first place? I clearly stated, twice, that I was making no judgement about whether 1 or 2 earners are better, let alone the status of children. I was simply talking about economic reality and home prices. I was then engaged in a battle of anecdotes with another person who wasn't you. I shouldn't have taken that bait, for that I apologize. But then you pile on making assumptions about what I must think based upon only my most recent comment.

As to whether kids are better off, I don't have the hubris to claim to know what is best for other people's life situations. But I'll gladly offer a guess to that answer as soon as you explain to me why that affects how we *should* measure "per household" income.

LILLL,

That's why you see postings by totally clueless people in Craigslist like:

"We fired our agent and we're passing the savings on to you!"

No....... Your agent listed it at what you TOLD them to list it at (not what they felt the market would bring)! Your agent put it in the "Unrealistic Seller" column and moved on to people that were either open to their assesment, had purchased sometime back, didn't care or NEEDED to sell!

"We fired our agent b/c everybody knows RE is "hot" right now and if they can't sell our "special" property in THIS market then they couldn't get laid in a whorehouse! We advertised w/Craig on Craigslist because it's for people that are more "sophisticated" hip and with the times! (Besides, it's free and we've never sold so much as Girl Scout cookies but we're gonna throw our hat in the ring on this one).

What did we say earlier about every man for himself? (It's starting)

That sad thing is that once again the original issue has become lost a popular hot-topic debate. I wasn't defending any position on anything other than two specific HSBC home affordability metrics.

I apologize that I used a browser instead of my RSS reader, which usually filters out the baits that started this whole thing. I took some effort to pull out data from spreadsheets to support and debate with Gavin's numbers.

To that I was baited with a "Randy must be using old, when mom didn't work" argument. I already apologized for dignifying that. Actually, I wouldn't have, but then George raised a valid question about hedonic consistency, so I got caught up defending why we shouldn't "back out mom's income".

Question: Where am I going with this? Answer: I don't think any of this debate changes the HSBC metrics one iota. Otherwise, I leave everyone else to prove why working moms are anathema.

Well, I think it's no good worrying about whether there's going to be a soft or hard landing at the minute, I just can't plain afford anything except waiting.

@SP,
I more or less agree with you. I find it hilarious how the RE industry shills are all saying, "see - prices haven't dropped this year, they're flat," (see King_Cobra's post) or "prices are now appreciating at a more normal rate," a soft landing. Whatever the reality is, how can anyone use the stats from just one year to conclude the trend for the next 3-5 years? Prices went up nationally at astounding rates; how can anyone think that they will turn on a dime and plummet? Talk about straw man argument.

SQT and Randy H,

Can't we all just get along?

Randy:

Working moms, when married to a working father, are anathema to single individuals not sharing housing with another employed individual, assuming all working individuals in a given comparison are earning reasonably equivalent amounts and housing costs are not subsidized by outside entities. Does that work?

I hope you weren't thinking I was suggesting "backing out mom's income", I was just curious as to whether it was included in the income calculation.

(No, it wasn't intended as a proof, just an attempt at removing assumptions.)