patrick.net

Patrick says

Ideally, enough people will get tired of taxes, crime, and corruption caused by Democrats that they will vote the bastards out, but so far I haven't seen evidence that people in California have made the connection between the Democratic party and California's problems.

I think it's more likely California will hit a turning point and spiral down quickly.

If I had new money coming in, I would continue to buy mutual funds.

If I wanted for the future beyond 5 years or so and didn’t want a 1099, I would buy Vanguard Tax Managed Capital Appreciation.

If I felt cautious, I would buy Vanguard Wellington which is a balanced fund. It’s bonds and dividend stocks so it produces a 1099.

Another cautious fund is High Dividend Yield Index Fund, which will produce a 1099.

If you buy something with a low interest loan that defeats inflation, then your house maintains or increases in value, then it worked. If real estate value drops, which it might due to higher Fed interest rates to clamp down on inflation, then you have just effectively started paying higher interest rate on the depreciated value you finance, maybe lost your down payment, and need to wait until the next real estate cycle upward to recoup.

Come on…

That’s a 4200sq ft house on a 90,000 sq ft lot in the desirable tri valley. The $2.5M wasn’t a real asking price. Get real.

BayArea says

Come on…

That’s a 4200sq ft house on a 90,000 sq ft lot in the desirable tri valley. The $2.5M wasn’t a real asking price. Get real.

This is true. $830 per sq. ft. (@ 3.5 million per 4228 sq. ft) is very close to current estimated market conditions, wheras 2.5 million is artificially low. That isn't even expensive compared to the peninsula areas.

I think a driver of the market is also the desire to trade today's fiat printing press money for hard assets. Even if the nominal fiat printing press money value drops, the asset will still hold on to value better than potentially depreciating, nose diving currency. All the better if you can pay for it with a low interest, fiat money loan. If they start burning up the printing presses cranking out fiat money, then appreciation in fiat dollars could become ridiculous.

People who like the idea of buying a house will not be discouraged regardless of the potential gain or loss of money.

My friend who sells houses in Santa Cruz just bought house #3; she lives in one and bought 2 in a state on the east coast.

She can’t help herself.

Her long suffering husband got a $55k inheritance and instead of investing he was roped into using the money for a down payment. He is in his 60’s with no IRA.

I can’t imagine the joy of seeking renters in another state, dealing with problems and paying property taxes in 3 places.

A few years ago her mother passed away and the proceeds from her house gave her $500k+ in cash.
“You can invest that money”
She used it to pay her mortgage and cars for her and her husband, etc. instead.

Ever wonder why movie stars collect mansions or even French chateaus?
It’s irresistible to most people.

With the inflation happening at historical rates, buying a house to park your money is probably still a good investment even now.
Mine is up $400k in five years.

Housing sales have dropped four months in a row now. It's not how much you ask, it's how much you close for that matters.

Shaman says

With the inflation happening at historical rates, buying a house to park your money is probably still a good investment even now.
Mine is up $400k in five years.

When @patrick started this site to warn people about insane housing prices, It made perfect sense as the people getting houses were unqualified.
Things are much different now, The govt will put a "thumb on scale" to always make sure that large scale housing depreciation doesn't happen.. even if it means negative rates... or cancelling property taxes for few years.

I think considering the govt behavior, I don't think @patrick normal economic theory applies anymore. The best we common folks can do is to shield ourselves from this Govt + Housing sector mafia nexus.

Now see this house, The guy was making 3x median US income by just living in house:
https://www.redfin.com/CA/San-Ramon/5537-Satinleaf-Way-94582/home/2101085?source=patrick.net

The system is rigged for capital against labor, It is better to own house. As imports become expensive, The construction costs have gone way up.

I don't know How they spiral the costs higher, But it is being done very effectively.
Common man has no chance to apply supply/demand theory to wrestle better prices for housing or medical costs.
https://www.homebuilderdigest.com/cost-guide/california-cost-guides/how-much-does-it-cost-to-build-a-house-in-the-san-francisco-bay-area/?source=patrick.net

https://www.dailycal.org/2022/01/03/as-bay-area-cities-see-minimum-wage-increases-some-push-for-more/?source=patrick.net
I see often entry level workers ~$20 + benefits + bonus.

In spite of that you will see stores shut early for lack of staff.
It is hard to see how the inflation will subside in near term with democrat policies of lot of free money too.
House prices will continue to remain high if not skyrocket.

It’s been done before in the 1970-82 curve. 400% inflation in those twelve years and the government debt was pretty much managed. It went from “a real problem” to economists moaning that it wasn’t enough debt to provide liquidity for the markets!
The heroes of that time period weren’t at the Federal Reserve raising interest rates to the moon. The heroes were unsung CIA and deep state agencies which ensured that the inflation would continue until it was no longer needed. And they used the hell outta old Jimmy Carter to get that done. Look at the parallels from Carter to Biden and you’ll see that they’ve chosen another clueless moron with even more disposability for this tasteless job.

Inflation helps debtors, who pay back debt with money which is worth less than it was when it was borrowed.

An IOU or a bond doesn’t have “$1000, adjusted for inflation” printed on it.

I think you need a concrete interest rate vs inflation rate to attempt to answer this.

Also I do think they can run inflation a bit higher without needing to raise rates just by announcing the new target inflation rate is say 4%, allowing them to reap the benefits of inflation on their debts, without having to pay more to borrow.

I wonder how many costs are like SS, where they pay monthly a fixed price, but dont have the payments indexed to inflation. So at best, those payments might go up 1-2% a yr, or maybe none at all. High inflation would be a way for them to save on those entitlements. For example, pensions, or disability for veterans etc...

Is strong $ good or bad for US?
Pro
1) More purchasing power
Cons:
1) More outsourcing.

Inflation allows the government to spend unlimited amounts of money. It's a tax on labor that is hidden.

People who get the new money first, have the greatest amount of spending power with that money as well.

So, it's great for the people the control the government, and awful for the people under the government.

San Ramon + SB9 Lot split = $$$$

I was a big housing bull 10 years ago and I was crapped on. Thesis was Fed zero interest rates as far as the eye can see. I ended up buying a house and riding the wave. I like my house so I'm not selling and I'll probably see my paper wealth take a ding, my next prediction....

Once mortgage rates hit 5% things will slow, once they hit 6% houses will depreciate and once the word is out that rates are going a lot higher, we'll see a reversion to the mean.

Inventory is still low, but that can change in a hurry.

Ceffer says

Patrick is retired young and has the scratch to buy a home elsewhere if desired. Patrick's rent strategy is hyper-rational whereas home ownership is largely irrational, since you never own the pile anyway, you just rent it from the tax and insurance terrorists in perpetuity, even if you have paid off the vig.

It depends on what you buy and when. I paid $160 for the house I bought after the crash . I don't think a house like mine should be worth a penny over $250K(that's even too high) but now Zillow says it's pushing almost $500K. Patrick, like any sane minded person, says you would be stupid to put down $500K on that deal. Or $275 for that matter.

Patrick's message is, "Just because everybody else is doing it, doesn't meat it's a good idea."

Dholliday126 says

I was a big housing bull 10 years ago and I was crapped on. Thesis was Fed zero interest rates as far as the eye can see. I ended up buying a house and riding the wave. I like my house so I'm not selling and I'll probably see my paper wealth take a ding, my next prediction....

Once mortgage rates hit 5% things will slow, once they hit 6% houses will depreciate and once the word is out that rates are going a lot higher, we'll see a reversion to the mean.

Inventory is still low, but that can change in a hurry.

Interest rates won’t move past 5%.
They can’t. The national budget won’t allow for it given our enormous debt. And anyway the whole POINT of what the WEF folks have done so far is to drive inflation into hyper inflation territory and keep it there until the debt problem is resolved.

Shaman says

Interest rates won’t move past 5%.
They can’t. The national budget won’t allow for it given our enormous debt.

Maybe that's what TPTB want. The Fed is talking tougher than I've seen since Volcker.

Dholliday126 says

I like my house so I'm not selling and I'll probably see my paper wealth take a ding,

There's more to consider than appreciation or depreciation, when you have a house, you plan on living in and it's not an investment.
On one hand it's always nice to see your wealth increase on paper(it's not wroth a dime until you sell it), still it's nice to see your tax bill or insurance bill subside with the depreciation. Or at least it should. For me the biggest concern for depreciation is the lack in pride of ownership as people abandon, or rent houses out that are depreciating. They don't keep them up like houses that appreciates, they constantly polish those like a jewel. Unfortunately sometimes depreciation = blight.


I don't know if I can give advice to some of you millionaires here at Patnet with my frugalness or middle class view on Real Estate and the value there of.
I mean I dare not to give anyone advice mulling over a 2 million dollar purchase. The thought of which boggles my mind, of all of the things I would love to spend 2 million dollars on, real estate would not be one of them. At least not my residence house, I could see commercial investing or a huge farm or ranch.

Tenpoundbass says

I don't know if I can give advice to some of you millionaires here at Patnet with my frugalness or middle class view on Real Estate and the value there of.
I mean I dare not to give anyone advice mulling over a 2 million dollar purchase. The thought of which boggles my mind, of all of the things I would love to spend 2 million dollars on, real estate would not be one of them. At least not my residence house, I could see commercial investing or a huge farm or ranch.

Unfortunately the reality of bay area is that lot of printed money get funneled into our area. It is hard to follow @patrick advise as "Housing" is not free market, But a manipulated one with lot of not only printed but bribe money from Asia chasing.
$3M+ houses are common and they were $1.5M pre-bubble and $1M post last bubble.
I am not convinced that rental prices won't increase double digit next few year.. You can agree/disagree on real estate investment.. But one House you must have to protect against Govt schemes to increase house prices.
I came to view slowly as I age that we can't win against house... It is a self torturing exercise at best.

richwicks says

Inflation allows the government to spend unlimited amounts of money. It's a tax on labor that is hidden.

People who get the new money first, have the greatest amount of spending power with that money as well.

So, it's great for the people the control the government, and awful for the people under the government.

I am not sure what the end game of our masters is...?

Tenpoundbass says

It depends on what you buy and when.

And how much you spend relative to renting the same type of thing. That's my message.

Use a rent-vs-buy calculator and do the math. And for God's sake never believe a realtor about anything, or ask a barber if you need a haircut.

The NY Times, slimy as they are, does have a very good rent-vs-buy calculator:

https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?source=patrick.net

Patrick says

And how much you spend relative to renting the same type of thing. That's my message.

Use a rent-vs-buy calculator and do the math. And for God's sake never believe a realtor about anything, or ask a barber if you need a haircut.

The NY Times, slimy as they are, does have a very good rent-vs-buy calculator:

https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?source=patrick.net

It works well in ideal and true capitalist world.
Housing is socialist cesspool in USA.. From artificial supply constraints to govt backed loans, It is made ripe for "price increase" like healthcare and education.

We at Patnet talk like housing is a free market.

It’s not, the game is rigged keeping prices going up up up.

BayArea says

We at Patnet talk like housing is a free market.

It’s not, the game is rigged keeping prices going up up up.

It is true, As much as I want it to be "free market", It is not.
The rigging side of equation have powerful interests.

Once "Blackrock" and other big players take hold of large chunk of market, They will push NIMBYism to high gear to create more wealth for themselves.
In a rigged system, You should try to become self sufficient.. Solar, small chunk of agriculture land and house. Above all try to be healthy and hope God keeps you you healthy.
https://slate.com/business/2021/06/blackrock-invitation-houses-investment-firms-real-estate.html?source=patrick.net

Govt can regress to Hindooo way, where even basic toilet is luxury.

/*******Land locked market like bay area will be prime target for these folks and they will raise rents*********/
Let’s focus on Invitation Homes, a $21 billion publicly traded company that was spun off from Blackstone, the world’s largest private equity company, in 2017. Invitation Homes operates in 16 cities, with the biggest concentration in Atlanta, where it owns 12,556 houses. (Though that’s not much compared with the 80,000 homes sold in Atlanta each year, Invitation Homes bought 90 percent of the homes for sale in some ZIP codes in Atlanta in the early 2010s.) While normal people typically pay a mortgage interest rate between 2 percent and 4 percent these days, Invitation Homes can borrow money for far less: It’s getting billion-dollar loans at interest rates around 1.4 percent. In practice, this means that Invitation Homes can afford to tack on an extra $5,000 to $20,000 to the purchase price of every home, while getting the house at the same actual cost as a typical homeowner. While Invitation Homes uses a mixture of debt and cash from renters to buy houses, its offers are almost always all cash, which is a big leg up in a competitive market.

https://wset.com/news/local/price-of-fertilizer-skyrockets-could-impact-what-you-pay-for-produce-inflation-costs-virginia-groceries?source=patrick.net
Price of fertilizer skyrockets, could impact what you pay for produce

Ammonia fertilizer prices have increased 210% from September 2020 to December 2021.
During that same period, potassium fertilizer went up 134%.

Bay area is not the only crazy one!

https://wolfstreet.com/2021/04/27/the-most-splendid-housing-bubbles-in-america-house-price-inflation-ignored-by-cpi-april-update/?source=patrick.net

Buyers are buying in panic in this market if you ask me.

FarmersWon says

Question for Economists: Is inflation Good or bad for Federal Goverment Debt?....adding.. Is strong $ good or bad for US?

Inflation is how governments with central banks pay for everything. Since they produce nothing of value, their only option is taxes and inflation, and taxes are really just a cover, as the percentage spent using inflation is MASSIVELY greater. Government debt is always preceded by inflation, it's a function of the system, so couching it as "good or bad?" makes no sense. Necessary would be the more appropriate term.

As to the second part, who is the US? If it's the government, refer to the above. If it's the citizenry, inflation is ALWAYS bad, and a strong currency, which we haven't had in over a hundred years, is vital. Not to our success as much as to our survival.

Anyone who talks about inflation being good for debt has never lived through hyperinflation, and has never read economic history. Wages cannot, and will not keep up with the price of basic goods people need to survive. Need an example, gas, in the US, today. If things continue you can add meat, bread, milk, eggs, produce, food. Yes, your mortgage will technically have less value. But you won't give a fuck, because you don't have enough money for food, so you can't afford the mortgage, or property taxes, or whatever the bill is that's not a about keeping you from starving.

So why do so many people put up with being robbed blind? In a word, greed. Silly as it might sound, most of us are so greedy, inflating the prices of things we own, makes us think we have somehow gained wealth. Notice I didn't say increasing value, I said inflating price.

One of the stupider things people of authority say is “out of an abundance of caution” which means roughly “I know what decision the facts and logic support but I’m going to ignore that because if I’m wrong I’m illogically scared of the consequences”

If you hear a government official say out of an abundance of caution, run.

Just say no 4WD, DCT's, and (for the most part) CVT's.

If the 2012 - Ford Focus had a regular automatic transmission I'd be driving one today. Actually there is a regular automatic transmission in the sedan, but I prefer hatchbacks.

Yeah, AMT is superior. My current car has a CVT and the author is right in that it feels soulless. It is smooth though.

Eman says

Buyers are buying in panic in this market if you ask me.

Agree 100%.

As much as I want a new pad, my gut says to watch and wait.

It's really simple, people who are smart in one area mistakenly assume they are proficient in other areas. That's why everyone thought they were an expert on viruses when most of them couldn't even tell you what RNA actually is.

Sounds like a new term for the baddies to use against anyone catching on to their evil. "My advancement from negative net worth to multi-millionaire in the last two years has nothing to do with my election to office. Amazing the apophenia out there." Also "Only an apopheniac would think the rise in youth heart attacks has anything to do with the vaxx."

What? People are struggling to survive in "neoliberal economy"? Puhleeeze! You can literally go from cradle to grave w/o ever holding a job and be fed, clothed and have your medical needs covered. In SF they will even buy you your favorite drugs and booze and deliver them to your luxurious hotel room.

It's MT or GTFO!