patrick.net

"I seriously doubt that Marin would take kindly to the “Huh?” Institute for Depravity either…"

I rarely met a group of people who would. Or at least they won't admit to it publicly. (insert devil face emoticon here)

"met"

Meet, I meant. Meet.

"- changing prop 13"

Do you really think it's possible to get wide-spread support for this? I hope it's possible, but I don't know anyone personally who would shout rah-rah over touchign prop 13.

I expect prices to outpace inflation at a rate that is about one point less than the rate of real growth in GDP.

"I am sure that people will be interested. It is far too early to say that nobody is interested when they are all watching Survivor and "

Exactly. Not many people are here right now. And the only reason I am is because I'm Tivo-ing Survivor and CSI. :-)

However, I expect prices to decline by about 5% per year in the major markets during the next few years. Prices will more than make up for this during the next up cycle.

After 2025 I expect prices to track with inflation for a long time.

"We tivo’d Survivor while watching……. LAST week’s Survivor!"

Okay, so last week's maneuvering by the guy who was on the chopping block was nothing short of brilliant. Very smart of him to egg that Texas dude into being even more annoying. I love when players are actually able to be smart and maneuver like that rather than just flying under the raidar or being little follower sheep.

We are about to experience a few years of cyclical decline in housing prices. After that we will see the full effect of the double demand wave. Today’s prices will look dirt cheap to homebuyers in 20 years.

Price level in 20 year will depend heavily on market psychology in the future, which is a few cycles away.

My comments are based on demographic profiles, and the consumer spending habits by age cohort... overlaid upon historical cycle patterns and traditional economic analysis.

Well, let's see if anyone's interested. It can be ny time i the future, so there's no hurry.

Wouldn't it be interesting to hear everyone's voice? For those nervous souls, just kick back with a bottle of wine on your sofa and pick up the phone and dial in.

Jack, I'm used to rolling it on the air with people who want to KILL me, so I'm not really frazzled at your initial reaction.

Thanks!

My spelling...yikes!

Well, let’s see if anyone’s interested. It can be any time in the future, so there’s no hurry.

Wouldn’t it be interesting to hear everyone’s voice? For those nervous souls, just kick back with a bottle of wine on your sofa and pick up the phone and dial in.

Jack, I’m used to rolling it on the air with people who want to KILL me, so I’m not really frazzled at your initial reaction.

Thanks!

"I don’t think chaning of prop 13 will fly this year, but let prices drop 20% and people will be screaming about how much “Extra” tax they are paying. "

Since I don't own real estate here, I'm unfamiliar with how it works when property values drop. Don't the taxes drop too as properties are reassessed at lower values?

I think of people like my inlaws who are still paying ultra-low taxes because they bought their SF house in the 70s, and that's what makes me think changing it won't fly unless the changes grandfather people like them in. The older folks are the ones who go out and vote in big blocks, after all, and they don't want to loose their cushy tax situation.

But I do agree that it is prudent to invest in real estate in reasonable places after the coming shake down.

My comments are based on demographic profiles, and the consumer spending habits by age cohort… overlaid upon historical cycle patterns and traditional economic analysis.

I agress this analysis is quite accurate, although I believe the tech bust represent a divergence. (I remember looking at a chart with lagged demographics data plotted on dow)

Peter P,

Yes. Cyclical conditions will affect the general secular trends that I have described. The timing of the cyclical peaks and troughs is yet to be seen, and psychology is a major factor in causing the cycle to be above or below the secular trend line.

Another important factor is that supply responds to demand shifts on a significant lag. This leads to shortages and gluts as supply is out of sync with the cycle of market demand.

e lag effect

Zephyr, in your opinion, how is housing going to be financed in 2025? Inheritance from boomer? Strong economic growth? More voodoo loans?

Zephyr, I love chatting with you. I can feel myself getting wiser. ;)

Real incomes will be higher for the upper half of the populastion. They buy most of the housing, and are thus the real market.

While we know how many people will be in each age cohort far into the future, I cannot predict how our methods of financing will evolve with any confidence. I assume that they will be about the same.

Many will inherit substantial equity and/or homes from their parents. Certainly this will enable people to afford higher prices.

For a point of reference, note that today the averge equity position of homeowners is about 50%, and the average homeowner spends roughly 10% of income on housing. Obviously, the first-time buyer is not in such favorable financial condition.

For a point of reference, note that today the averge equity position of homeowners is about 50%, and the average homeowner spends roughly 10% of income on housing. Obviously, the first-time buyer is not in such favorable financial condition.

In case of inheritance, should we assume that one house will be released to the supply side for each new one on the demand side?

Obviously, the first-time buyer is not in such favorable financial condition.

I can see price/income ratio sustain at a maximum of 4-5. What do you think?

I have no opinion on the appropriate price to income ratio because it ignors several critical factors. Interest rates, equity or down payment, income level, general wealth.

I look at the financial obligation ratios, and the historical consumer spending habits... (their allocation of income to housing expenses and other expenses). This combined with data on income, wealth, interest rates, housing characteristics, and some other lesser factors, enables me to predict what people can afford in the context of normal spending patterns. This tells me my fundamental support level for prices. I measure the actual prices against this metric to get an indication of relative price appropriateness. To this one must apply much judgment to interpret the significance. Market cycle timing, momentum, psychology etc. are all important considerations.

I have been doing this (or similar) analysis for about 30 years using data going back to 1930. However, the data is not so good prior to 1960.

Here's why prop 13 just seems *right* to me:
I believe that people should make educated long-term financial decisions...& that they should have enough information to support such decisions. A variable property tax works too much against rational financial decision making...when planning long-term, what rationale could be used to predict your property tax burden when you retire? Bottom line, you just can't know what kind of shit you're getting into...and for the good of society, homes, of all things, should have as few destabilizing factors as possible.
IMO It would be a sad day to see many older bay area homeowners (i.e. my parents!) have to pay dearly for the irrationally-exuberant home-buying over-bidding orgy of recent years.

I still remember the first time I learned what Prop 13 was...I thought to myself: "HUH??? People think THAT is UN-usual?" The idea that property tax would increase, completely out of control of the homeowner and simply because "the market" said it should, sounded absolutely crazy to me.
Having had no prior knowledge as to how property taxes worked, the alternative to prop 13 just seemed absurd to me (then again, more & more these days the status quo seems absurd to me).

"I have been doing this (or similar) analysis for about 30 years using data going back to 1930. However, the data is not so good prior to 1960. "

Hey, so Zeph, it sounds like you would have very well-informed opinion of Shiller's inflation-adjusted real estate data plot (from NY times article some mos ago). Here's the link:

http://tinyurl.com/8dfja

Do you agree with it's approximate "accuracy" (or maybe, do you think it is a "fair representation of current, relative to historical, real estate valuation?").

By the way, I think everyone should print a dozen or so copies of this plot and hand them out at open houses this weekend.
(***not conduct advice***)

Shiller's inflation adjusted chart is not accurate.

Thx Zeph. I was mildly skeptical...but, well...i'm no economicocentricist & I've never stayed at a holiday inn express, so....

"Shiller’s inflation adjusted chart is not accurate."
Do you know, & is it straightforward to explain, how it is inaccurate?

"I believe that people should make educated long-term financial decisions…& that they should have enough information to support such decisions. A variable property tax works too much against rational financial decision making…when planning long-term, "

Excellent point, SJ Jim. I did notice when comparing the possible purchase of a house here to out of state that Prop 13 makes CA more desirable in at least that one way--you know what you're getting into tax-wise.

Excellent point, SJ Jim. I did notice when comparing the possible purchase of a house here to out of state that Prop 13 makes CA more desirable in at least that one way–you know what you’re getting into tax-wise.

Personally, I think property tax is essentially a form of land rent. IMO, it should be replaced with consumption tax.

I've never stayed there either.

Shiller's data relies on very imperfect CPI adjustment and anectdotal info for the older data (prior to the 1960s most likely). Just on a reasonableness test one who has studied real estate as I have sees a glaring glitch in his chart in the 1930s data. He shows prices RISING during the Great Depression. However, the depression was the era of one dollar foreclosures, and the real prices for real estate collapsed from 1930 to 1934. It was the steepest drop in history on a nominal and inflation adjusted basis. Yet Shiller's chart shows prices rising at that time.

The data for the 1970s and 1980s understates the real increases due to the way inflation was measured (overstated) at the time. However, the dramatic increase of the last few years is accurate in my opinion.

Unfortunately he had to work with faulty and sparse data.

I must go to bed now. Tomorrow I will be working with faulty and sparse sleep.

Hey, I'd like to post a new topic for commentary. Any way I can do that? It's good, I promise!

Never mind, I figured it out :>

"IMO, it should be replaced with consumption tax."

I agree.

No homeowner will vote away prop 13, because you can argue it down during bad times. Here is how it works, and I have done it myself.

When the market price of a house drops, let's say, 20%, all you need to do is to tell the tax assessor to go out to the market to do a re-assessment based on the new market situation. Therefore, if the market tanks, you do get slapped with a lower property tax. Just that when the market is up, you get locked into a lower 2% annual increase. So all home owners are winners when the market is down, and the only loser is the government. When the market is up, existing home owners and the state government are the winners, and the new home owners are losers, but without home value soaring every day, why bother to complain?

Canceling prop 13 will be a political suicide.

LOL Thanks for reccommending me just the same!

Jack-
Haha...sorry for that indignity! Really, you bring up some good counterpoints, not to lump you in w/ the poster boy.

you are far more even tempered in these matters than I am.

Just watch what happens to me if people of conscience get the "L-word" slapped on them, branded as enemies of god, nation, and family, bla bla. Those "grey areas" get lost in sound bites, and could easily become an easy target. Don't want to go there myself.

When the market price of a house drops, let’s say, 20%, all you need to do is to tell the tax assessor to go out to the market to do a re-assessment based on the new market situation.

Does Prop 13 really work that way? It would strike me as very very odd behavior for the guberment. Why would they be inclined to lower tax rates rapidily but not raise them when the value goes up. One thing they absolutely should do is jack the rates when you refi, as you are essentially reselling the house to yourself.

(Jamie and SQT, note I said WISE blog members! LOL)

You cut me Jack, you cut me deep. ;)

Jamie and SQT, note I said WISE blog members! LOL

You say Jack, I say "Bob Ross".