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Earthquake overdue


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2006 Nov 19, 11:10am   14,650 views  122 comments

by Patrick   ➕follow (59)   💰tip   ignore  

A reader points out that the lack of big earthquakes recently may also be a factor in the bubble in California.

This site by the USGS gives a list of recent quakes. It does indeed seem ominously quiet lately, and the activity of 1991-1997 corresponds pretty well to that last big housing downturn.

Patrick

#housing

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101   skibum   2006 Nov 21, 8:07am  

Yes, the growth rate is somewhat higher in border states like CA, which also has some very stringent anti-development NIMBY laws, which artificially restricts housing supply.

@HARM,

Even this population growth trend is projected to slow down significantly. It already is slowing:

http://www.lao.ca.gov/2004/cal_facts/2004_calfacts_econ.htm

102   EBGuy   2006 Nov 21, 8:07am  

DinOr,
I think this is where you and I differ. If someone wants to put down stakes for two years, I will give them their due (hell, I am jealous, I want to do that -- well, the tax free proceeds part, moving is a pain). Maybe I am "misunderestimating" the speculator crowd, but I think most got their capital through the great serial refinance (not the $250k tax free proceeds) and are taking the depreciation expense on their rental house flips (maybe I need to take a RE seminar to see what the hucksters are recommending these days.)
Heck, I have a friend who has owned a three unit apartment building for over a decade. He is smart guy, but it took a lot of convincing on my part for him to realize that he will do quite well if he does the condo conversion himself (instead of selling out) and then moves through the units serially every two years. That could be a huge gift from Uncle Sam. Again, I would do that -- except for the fact that my portfolio would no longer be diversified :-(

103   HARM   2006 Nov 21, 8:14am  

By now, I'd say it's obvious to practically everyone here that “Buy_in_Cali” & “King_Cobra” are probably bored REIC troll(s) trying to spam and/or sow doubt among newcomers by re-hashing the same tired old crap they've been spewing for years.

Either that, or very sophisticated spambots of the kind Randy has been warning us about :-).

104   HARM   2006 Nov 21, 8:24am  

@Buy_in_Cali,

If you're not a troll and just a newcomer, then I offer my sincere apologies and welcome you to the blog. Unless you register and login (free by the way), it's very hard for us to tell though.

Not trying to be a d*ck here. Sophisticated spammers & trolls often try to use the innocent "I'm just the new guy" approach to try to hijack the discussion. In the past, anonymous trolls have taken many screen names and routinely change IPs/email addresses.

105   skibum   2006 Nov 21, 8:37am  

ConfusedRealtor came on with an almost identical approach. I was assuming this was the same situation, but I still always try to answer logically and truthfully.

You are just too nice! Most of us are probably on the verge of gang-piling on anyone who smells trollish.

106   skibum   2006 Nov 21, 8:45am  

Sometimes being logical and polite infuriates people who need to use emotions to get people to accept their point of view.

How Vulcan of you!

107   HARM   2006 Nov 21, 9:18am  

@King_Cobra/ConfusedRealtwhore/CuriousCat/MarinaraPrime/Happy, etc...

*yawn*

108   Claire   2006 Nov 21, 9:21am  

I'm in CA in Silicon Valley, all I can say is it is MUCH CHEAPER to rent than buy - the house I'm in would sell for $900,000 - $1M and I'm paying $2400 in rent for it. It's not worth 900,000, four years ago it would only have been 400-600,000 range. Even that I think is more than it's worth - I'm seriously thinking of relocating to East Coast - worse weather, but a lot cheaper!

What is the point of buying a house if you can only get a suicide loan, and house prices are not appreciating. You are just paying the BANK rent (and probably twice the amount) instead of a landlord and what's more you're also paying the property tax, insurance and upkeep for it too - any landlord would be in heaven if you did this for them!

109   Claire   2006 Nov 21, 9:40am  

Wherever there is a job suitable - most likely Boston, Philadelphia or NJ somewhere. We go where the job trail leads us.

110   Randy H   2006 Nov 21, 9:46am  

HARM

I do think that "ZIRP" is the path of least resistance. But not true ZIRP, as in what the hardcore neoclassic crowd are advocating. More likely LIRP (low interest rate policy).

I am dubious of shock-therapy, even though it serves my own (and many of your) personal purpose vis-a-vis the housing market. Shock therapy has an absolutely terrible historical track record. It's kinda like the neocon nationbuilding strategy of economics: it looks great on paper, the plans are flawless, the logic irrefutable. But in practice all hell breaks loose, and unintended consequences rule the day. Russia's default was the direct result of US-IMF initiated macroeconomic shock therapy.

But if I'm given the choice of LIRP, ZIRP or HIRP, I'd take ZIRP. HIRP will cause a deep recession, perhaps even semi-depression. That will solve housing too, but it's more like using a .45 to solve a splitting headache. At least ZIRP is like using vodka to solve the headache -- it'll go away so long as you stay drunk.

111   HARM   2006 Nov 21, 9:55am  

At least ZIRP is like using vodka to solve the headache — it’ll go away so long as you stay drunk

:lol: Nice analogy! Only problem is, with ZIRP you may wake up one day in a ditch without your wallet, or in bed next to, uh... something you'd rather not wake up next to. And long-term ZIRP addiction can lead to all kinds of health and social consequences, like cirrhosis of the currency, or the breakup of your carry-trade "marriages".

112   HARM   2006 Nov 21, 9:59am  

@Randy H,

How about NIRP (No Interest Rate Policy)? Otherwise known as "let the market decide what an appropriate risk premium is"?

113   Bruce   2006 Nov 21, 11:18am  

In Austin's particular case, I wonder if it isn't in line for an extended bubble, or even the formation of a newer, greater one.

It's a better climate and natural environment by far than one generally imagines to be typical of Texas. And as a university town and the state's capitol, it's culturally sophisticated in a way not usually attributed to the rest of the state.

For those who are now facing lowered expectations vis a vis their retirement plans - and who can live pretty much anywhere - Austin's 'inflated' prices for homes. lofts, highrises and villas are laughably cheap when compared to comparable digs in DC, Boston, SoCal and the like.

Austin may have struck the coastal areas as one of those 'flyover' areas in the past, but it is increasingly coming to be seen as attractive and unusually affordable even at today's prices, IMO.

114   Randy H   2006 Nov 21, 12:14pm  

@HARM

How about NIRP (No Interest Rate Policy)? Otherwise known as “let the market decide what an appropriate risk premium is”?

I'm all for that ... just as soon as the US controls the actions of all world central banks. Can you imagine what would happen to a large, open, free-floating currency economy like the US if everyone else were free to set our rates for us? I'll be applying for a job with the ECB or BOJ.

115   Randy H   2006 Nov 21, 12:17pm  

ZIRP = zero-interest rate policy (this is an actual term)
HIRP = high-interest rate policy (we made this up)
LIRP = low-interest rate policy (ditto)
NIRP = no-interest rate policy (not to be confused with ZIRP; NIRP means the Fed doesn't set rates at all)

116   Randy H   2006 Nov 21, 12:19pm  

And before I forget, related actual terms not be confused with our banter:

IRP = interest rate parity
CIRP = covered interest rate parity

These have to do with international currency exchange. IRP is the mathematical theory that differentials in interest rates determine equilibrium currency exchange rates.

117   skibum   2006 Nov 21, 12:51pm  

@Randy,

Don't forget these :

MIRP = Mentally Inadequate Real estate Professional
PIRP = Person In Repossesion Process (ie, FB)
DIRP = Desperate Interest Rate Plunge (what Ben Bernanke will be doing when the recesssion hits full stride
GIRP = Greenspan Is a Real Pu$$y

118   DinOR   2006 Nov 21, 1:33pm  

tannenbaum,

Warren B. has always felt that by maintaining a higher stock price you tend to attract a better class of investor. People that stay with you long term and collectively carry clout in the market. We've all heard his comments regarding CEO pay, options expensing, dervitives etc.

Does anyone give a rip what Sergey and Brin think? I don't know. I know I don't. They're still basically an IPO. If this keeps them from falling prey to the daytraders perhaps so much the better. But I do agree stock "price" is primarily psychological.

119   DinOR   2006 Nov 21, 1:43pm  

Anonymous Fake Newbie:

You're entirely too focused on the carrying costs of real estates. Don't you get it? It doesn't matter! High real estate prices are good for everyone! Even if they don't know it or appreciate it now. The REIC based economy has replaced the old economy and even the new economy! It's the new new economy where we no longer need to commute, work or produce anything of value! Flipping houses to each other is lucrative enough to carry the entire economy going forward. You just need to decide where you want to fit in? At the top making BIG FAT STACKS living off the fat of the MEW or down at Home Despot trying to figure out how you can pilfer enough lumber out the back door to put together your chicken coop one board at a time! It's really up to you.

120   astrid   2006 Nov 21, 8:59pm  

I don't think one earthquake will collapse the prices, esp. if much of BA infrastructure survives with little damage. But a series of quakes will get people thinking. Liquifaction and associated insurance costs should shake some reality into landfill construction.

The Katrina analogy is false - New Orleans pre-Katrina was about as poor and black. Basically, making New Orleans a brown field pumped with insurance and taxpayer money was worth much more than the Katrina New Orleans.

BA is already infamously expensive and overgentrified, so I don't see that happening. However, any quake that takes down a lot of the low rise sketchy housing would do wonders for city planning.

121   Randy H   2006 Nov 22, 12:47am  

Someone pointed this out earlier, but it bears emphasizing:

Disasters produce positive economic benefit after the initial economic shock, so long as there is rebuilding. Disasters and wars are ironically the only way in which obsolete capital infrastructure is ever effectively replaced. Much of the better designed highway, bridge, aquifer, communications and emergency response systems in the Bay Area are the direct result of earthquakes.

122   Zephyr   2006 Nov 22, 8:12am  

"Disasters produce positive economic benefit..."

If this were true we could really magnify our wealth as a nation by destroying everything in the entire country so we can rebuild it.

While it is true that disasters PROMPT us to make restoration investments, the disaster actually comsumes wealth and capital. The rebuilding of the disaster area is done with resources that otherwise would be used to build something else. We lose that something else when we rebuild what was lost.

The fallacy of a disaster being good is known among economists as the fallacy of things unseen or as "The Parable of the Broken Window." We see the rebuilding but we do not see what was not done with the resources diverted to the rebuilding.

http://en.wikipedia.org/wiki/Broken_window_fallacy

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