patrick.net

HaHa,

My biggest concern is how much will the bailout of the stupidity and greed in the lending industry cost us taxpayers for the rest of our lives - and our descendants’ lives?

Keep an eye on the fully burdened cost of taxes, keep another nation's residency status (or citizenship and passport, preferably) at the ready, and leave if the cost becomes unbearable. Of course, you have to be as comfortable making a living as DinOR is, or you aren't going to make it on just expatriated savings and assets alone (unless you are clocking tens of millions). There is no way that those responsible for running up the debt will be stuck with the bill. The FB's will turn in the keys and walk away (the IRS will tax them on the forgiven portion, at least), the originators and the enabling appraisers have long since evaporated, and the underwriters and MBS holders will extort Congress with the threat of devastating economic collapse unless they're bailed out with taxpayer funds. And everyone else in the world will refuse to pull the plug on the dollar's reserve currency status for fear of collapsing their own export-dependent house of cards. It's bad now, but it has to get orders of magnitude worse before debtors will have to face the music they wrote.

In the meantime, those of us who are prudent will be stuck with the bill, unless we have made plans ahead of time to not be around (whether fiscally and/or physically) when the bill is presented.

FAB,

(From previous thread)

"P.P.S My Dad joked that he plans to hire a "food taster" (like the medievel kings had to avoid poisoning) in 2010".

I may have totally misunderstood the meanings and nature of your posts but when put together perhaps you can see how I might have gotten that impression.

I'm sure someone could dredge up some of my old posts and contort them to mean just about anything. I hope no one got the impression that was my intent. Guys like Chris Gardner and Larry Ellison are not a dime a dozen. Most of us will likely never attain the levels of success we think should (but that doesn't mean we just give up). What kind of world would that be?

Maybe it's just part of being a parent but unless my kids were into dope or smut what can you do with young people except support them!?! No matter HOW many times their "dream" changes.

apostasy,

Now I'd love to believe that the IRS would be billing these borrowers for "debt not paid" but there's already such an outcry on CH it's just silly! Never before have I seen an interest group get their beefs aired and "fast tracked" like this?

Perhaps at first there will be harsh consequences but as defaulters swell into larger numbers...... they'll walk. Besides I "thought" it was up to the lender to 1099 these guys? Either way, dealing with all the negative equity will be a PITA.

FAB, you’re out of line. Telling some UCB grad. that if they “don’t have a strong connection to the BA they might as well throw in the towel” is totally out of line.

I don't know, unless you really have an affinity to here, I am not sure it is worth it to stick around. You have to decide if a decade or more of living in a lower standard of living is worth it.

It is not really that hard to make $100k here mid career. If you are smart and hard working you should be able to afford half of that home mortgage by the time you are in your mid-30s. Then you just need to find a wife you can hold up her half and you will be set. It is a lot harder to make $200k, at least right now. And even with $200k, you would currently only be able to buy a pretty modest home in a nice neighborhood. So you have to adjust your expectations accordingly.

So you have to decide if it is worth it to scrimp and save every penny for a decade and life like a college student to be able to buy a home. The Bay Area and in fact all of California has deliberately made it hard on newcomers to the state. The Bay Area is especially bad. You *can* show up here with nothing and end up a home owner and successful, but the bar is higher here and the competition tougher.

DinOR Says:

> FAB, (From previous thread) “P.P.S My Dad joked that he
> plans to hire a “food taster” (like the medieval kings had to
> avoid poisoning) in 2010″.
> I may have totally misunderstood the meanings and nature
> of your posts but when put together perhaps you can see
> how I might have gotten that impression.

I did add the word “joked” so I hope you don’t think my Dad is really planning to hire a food taster in 2010 (the year that the estate tax aka death tax is scheduled to expire). As a kid I read that after Warren Buffett became a multi-millionaire he wrote his Dad a letter telling him that he did not expect to inherit anything (I’ve always wanted to write a similar letter)…

> Most of us will likely never attain the levels of success we
> think should (but that doesn’t mean we just give up).
> What kind of world would that be?

I don’t complain about my level of success much since I’m doing better than about 99% of the households in the US (I didn’t give up and just started over after losing everything in the last CA RE downturn), but I do complain about housing prices in the Bay Area since there is something wrong when friends making even more than I am (and the guys SF Woman’s Husband tries to hire at $250K a year) have to ask their parents for help to buy a small home in a decent part of San Francisco…

Pshaw. You can easily afford a $1M home on a $250k salary. And there are still nice, but modest homes in decent neighborhoods in San Francisco. But yes, if you think because you graduated from HLS, you deserve to start out with a mansion, I can see how the Bay Area would be quite a shock.

A quick search on the MLS for homes in the 900k to 1M range shows 13 in the 5 and 2 district. Some of them are in Noe Valley, Forest Hills Extension and the Middle Sunset, all of which are reasonably decent neighborhoods.

surfer-x Says:

"...(w)hen you pay your rent with a credit card check..."
_____

Ha, ha!

I did that when I was in Graduate School.

I'm still paying for that one...but it got me through some lean times.

wtf, that has been the discussion here for the last 4 years, welcome to the party.

Most here thought that home prices would collapse in 2006, which they did not. A few of us think that home prices are in for a decade or longer of zero nominal price gains, which would make them come down in real terms. At least one fellow, who doesnt' post here anymore, thinks that home prices will continue to go up.

It actually might make more sense to buy now than rent, depending on what you think inflation in rent, salary inflation, home price appreciation and interest rates are going to do, but you will have a tough time finding anyone here who thinks that.

Check out randolph's excellent Excel spreadsheet on the topic at:

http://www.capitalism2.org/

Sorry, I didn't mean to imply that one had to own a home to be successful earlier. There are loads of very successful people who post here who do not own a home by choice. Some even sold because they were so sure that home prices were going down, so they tried to time the downturn.

wtf :

Of course, no one knows the real answer. My predictions keep changing with the yields on the treasury notes. If you accept that this is first a credit bubble and then a housing bubble, then keep a watch on the credit bubble - which is bursting, even without the interest rates going up.

One - Keep an eye on mortgage rates. If they start going up, it will accelerate the process, else the bubble will keep slowly collapsing under its own weight as is happening now. Second - this year is going to be "interesting" as the ARMs start adjusting - and 2008 is going to be "very interesting".

Enjoy the spectacles of subprime meltdown while you can. Like the comets, these shows don't often too many times in our lives. (At least I hope so.)

I am speechless.

http://www.forbes.com/free_forbes/2007/0226/110.html?partner=yahoomag
Don't buy it. For months now the debate has been over whether America will have a hard landing or soft landing, the answer hinging on how big 2007's housing disaster turns out to be. Well, there won't be any housing disaster.

Question for the foodies: Why is my red wine fizzy? Sometimes when I get down to the last of a bottle of Il Poggio or some Chilean wines, I find that the wine has an acidic fizz. Is it something that I'm doing wrong? In some cases I recork and finish the bottle the next day, but that alone doesn't really explain it. I've had this phenomenon on fresh bottles as well. I suspect that they're having some sort of fermentation issue, considering that champagne yeast can create carbonation. What's the deal?

Ken Fischer must be the biggest bull in the world. I agree that housing stocks are battered, but let's not kid ourselves here. Profits are going to suck this year. In his context, there's a second word that goes with bull. Maybe someone can beat surfer-x to guessing what it is?

StuckinBA and Brand,

Thanks for the K. Fischer link. What did it for you? I fervently hope Mr. F is acting on his own counsel and is enormously long TOL.

Time wounds all heels.

DS,

The SMH has run some very fair stories...

It's not just Fairfax, the front page of today's Daily Telegraph also takes the same line.

Funny thing is, at the same time tonight's MSM news is talking about the rise in mortgagee auctions, especially in the outer suburbs of the major cities ('except Perth'). That means problems for people who bought a year or 2 ago.

My take is that the low-end rental shortages are real, and may well be due to the speculation of the last few years. The new owners are now, even applying the absurd rule of a thousand, asking for considerably higher rents.

In fact, where I live in Canberra I suspect that a lot of the new luxury apartments bought by investors are not being actively marketed for rental at all. Tenants are 'too much trouble', and why bother when the capital gain dwarfs any rent and you can claim all your expenses (which you can in Australia)?

IN THEORY the tax office should be disallowing all these deductions wherever the property is not genuinely being used for business purposes (I.e. rented out), but in practice they don't have the resources to check all the 'landlords'.

Note for non-Australians:
The entire private residential rental sector in Australia went into net loss about 5 years ago, and the loss has been increasing at about a billion a year. (Multiply by about 15 to get an equivalent US figure.)

goober,

Huh? No more than the rest of the grammys (certain bluegrass musicians excepted).

I think that the Ken Fisher article is written for a national magazine and it's more about the national housing market than real estate in any particular location.

Don't forget, there are huge swathes of the country where real estate barely keeps pace with inflation. You probably don't live in one of those places if you have wound up here.

I would be happy if Colorado got back to being flyover country. :)

I am speechless.

http://www.forbes.com/free_forbes/2007/0226/110.html?partner=yahoomag
Don’t buy it. For months now the debate has been over whether America will have a hard landing or soft landing, the answer hinging on how big 2007’s housing disaster turns out to be. Well, there won’t be any housing disaster.

Pure bogus!

First of all, they are talking about national inventory which includes the bubble areas and the non bubble areas.

Second, they are not taking into account the fact that many had taken their houses off the market thinking that all the (nonexisting) buyers will be around in the spring when they will be able to list fresh.

Third, what about all the ARM resets that will be taking place and all those who HAVE BEEN going into foreclosure AND all those that will soon join them.

Fourth, what about all the subprime lenders that are dropping like flies and the fact that lending standards will be tightening; thus severely limiting how many CAN borrow and HOW MUCH.

SFWoman Says:

> I think that the Ken Fisher article is written for a national
> magazine and it’s more about the national housing market
> than real estate in any particular location.
> Don’t forget, there are huge swathes of the country where
> real estate barely keeps pace with inflation. You probably
> don’t live in one of those places if you have wound up here.

It is going to get ugly in every part of the country due to the “creative” financing. I was just talking to the owner of a 150 unit apartment north of Cincinnati, OH about defeasing his current loan and putting a new 10 year fixed rate loan on the property. The area around Cincinnati has had real estate go up LESS than inflation but he told me that he expects the home prices around his property (that are on average well under $100K) to drop even lower since many of his same tenants that moved out (with a no down neg am voodoo loan) are moving back after giving back their homes when the payments reset. He said his leasing staff has been getting a lot of calls from people asking about how a foreclosure will impact their ability to rent an apartment.

P.S. A 150 Unit apartment complex in Ohio would sell for around $4.5mm about the same as a nice 2 bedroom view condo on Russian Hill…

I keep hearing people say that Long Island will remain strong as long as New York City is strong; even though that is total bullshit:

Foreclosures in city jump 18%

In the end, I simply expected better of Forbes.

There have been thoughtful pieces on the broader implications of a housing and credit slide even in the foreign presses. But Forbes published this.

I'm startled when journalists treat the housing decline in isolation. Probably I shouldn't be.

OK, my bad. I didn't realize that the bad money practices had gone outside of bubble areas.

I guess everyone wants their slice of the American Dream (TM), and you get a bigger slice with voodoo loans regardless of where you live.

For Michael Shedlock's/Mike Morgan's survey of the South Florida 2007 peak RE sales season, there's:

http://globaleconomicanalysis.blogspot.com/

Is it a harbinger of Spring in the BA? Don't know, can't say.

SFWoman

I don't think he was arguing about large parts of country not having bubble. Even then, isn't it the case that bubble has happened where majority of the population lives ? So the impact will be on a national economic scale even when it may not be spread geographically all over the nation.

When every economist of any repute is debating how hard or how soft the landing will be, he is instead saying ...
Right now the U.S. and global economies are both accelerating.
You can see right through the housing crash story by looking at the prices of housing stocks.
...
We're accelerating, not landing.

I am all for contrarian thinking, but statements like these fall under DinOR's "Dude, whatever" category.

So you have to decide if it is worth it to scrimp and save every penny for a decade and life like a college student to be able to buy a home. The Bay Area and in fact all of California has deliberately made it hard on newcomers to the state. The Bay Area is especially bad. You *can* show up here with nothing and end up a home owner and successful, but the bar is higher here and the competition tougher.

But it's so special here, that no matter what, people will keep moving here.

Like this quote:

http://www.insidebayarea.com/business/ci_5206472

Janet Fouts bought her house two years ago “and gained enough in the house not to be too worried about the changing market,” the San Jose resident said. “I think it’s just an overall adjustment, not a downhill trend. This is the Bay Area. It will always be a place where people want to live.”

But in all seriousness, I truly believe what Guy Kawasaki (famous guy) has to say here:

http://blog.guykawasaki.com/2006/06/how_to_kick_sil.html

High housing prices. If houses are cheap, it means that young people can buy housing sooner and have kids. When they have kids, they can’t take as much risk and don’t have as much energy to start companies. (I have four kids—I barely have the time and energy to blog, much less start a company.) Also, if houses are cheap, it’s easier to “make it big,” and you want it to be hard to make it big.

If Silicon Valley weren't so expensive, it wouldn't be so successful.

Imagine if everyone had a house - they'd have families, home theatres, etc. They wouldn't be working so hard.

I have the odious obligation of warning good family friends against buying a $1.7M 1,500 sq ft POS in Palo Alto. There's just so much wrong with the picture. Highlights:

The wife is a patent attorney and the primary wage earner. But she's working in-house and doesn't make big firm partner level money.

They're selling a $850K, 3,000 sq ft house in MD in a very good school district. They might be able to clear $350K from the sale (if the prices don't drop further this spring).

Very high spending habits with two grade school age kids. One of whom suffers mild autism. Both are bright and well mannered, but neither would be described as *gifted*.

They are absolutely convinced, even though their own house *value* dipped $100,000 from the peak last year, that BA is special and prices will only go up.

Usually, I'm too lazy to convince people who've made up their mind. But I'm quite close to this family and I really want them to do well and be happy long term. Any advice about websites or approaches to convince them to wait a couple years before very likely making the biggest financial mistake of their life?

astrid,

Extremely difficult situation. I can't say that I envy you there! It just sounds like they've had just enough success w/their current house to pretty much convince them this is a "can't lose" scenario?

I wouldn't describe this so much as you're being "lazy". Hell, we've all tried and where does it get you? Even if you did talk them out of it all it would take is for ONE home there to sell above asking and you become the bad guy. They are looking at a "can't lose" situation (and you can't win).

StuckinBA,

Even early on (when things were still rockin') we were fed a steady diet of "no national RE market" Itulip ran a great piece they called, "YES (it's a housing bubble!" Realtors were quick to point out that outrageous appreciation was "only" occuring in densely populated coastal areas! Yeah, uh where like 70% of the U.S population lives!

NEW continues to take a severe butt pounding. :)

Satellite of Love! LOL!

You mean Tom Servo and the boys are still in orbit somewhere?

Craigslist FB Index Reaches new Milestone

For the past couple of months I have been doing a highly scientific survey of the Bay Area housing market. Here is my methodology:
1. Go to sfbay.craigslist.org->Real Estate For Sale
2. Type "reduced" in the search field
In the past, this would return several days worth of entries on a single page (each page has 100 listings). On Feb. 10, the search produced two days of listings (around 50 listing on each day, Feb. 9,10) on a single page. For as long as Craigslist has existed (do we really remember a time before Craigslist?), we have never had so many homes "reduced" (some even on "one day special" :-)) If we ever hit over 100 listings in a day, then we will know things are really cookin'.

EBGuy,

Have a little faith. In no time at all it will seem like getting a drink of water from a fire hose! (You should zip over to Sac. they broke a hundred over a year ago). Geez it's a mess.

astrid :

I have repeatedly said here that I refrain from giving a dose of reality to people who are buying a house. They are so emotionally attached to the process of buying that they are already well into the dreamland and rational arguments don't bring them back. You are getting in their way of happiness.

On occasion I have directed people to this site, Ben's blog and to Randy's bubblizer. Didn't have ANY effect.

"It doesn't make any financial sense to buy right now, but I cannot wait forever."

DinOR :

NEW continues to take a severe butt pounding. :)

Man those puts are so expensive ! Seems like the bankruptcy fears are controlling the sell-off, which seems like never ending now. I was hoping to buy a put after a sucker's rally, or a short squeeze based some guidance from company/analysts that it's not as bad as it seems to be. Didn't happen yet, so my gambling money is still on the sidelines.

Jimbo Says:

It actually might make more sense to buy now than rent, depending on what you think inflation in rent, salary inflation, home price appreciation and interest rates are going to do, but you will have a tough time finding anyone here who thinks that."

Ok, since when did Jimbo --the long-time poster who once, as I recall, attended more than one Patrick.net NCAL blog party at Marin Brewing Co. and met Randy H, Peter P, Jack & Kurt S in person-- suddenly morph into a troll? And where exactly, aside from a few pockets of the midwest or south, does it make more financial sense to buy vs. rent today?

I don't deny that if we really do have "a decade or longer of zero nominal price gains" combined with fairly high inflation (incl. wage inflation), that real house prices can correct entirely through inflation alone. However, this would virtually require require a Japan-style ZIRP policy to keep the easy-money spigot wide open for many years. And come to think of it, it didn't go so perfectly well for Japan (Tokyo house prices are approx. 60% off late-1980s peak). It would, however, drag out the correction over a much longer period and prolong the pain --for debtors and wanna-be buyers alike.

What the hell happened to the old Jimbo? Was his blog personna hijacked by MP?

Culture driven, or "cult" driven? Hmm :(

"It actually might make more sense to buy now than rent"

You can buy if you want to, but it probably won't make a lot of sense. Every calculation I've seen that works off the "push the earth under the bubble" scenario leaves craters everywhere. Watch your step!

"harshing their mellow" :( LOL!

SP, but I can understand why *astrid feels that way. Who needs more "house poor" friends? Maybe (and I'm just thinking out loud here) just maybe she could say, I think it's a great idea! BUT why don't you use some of that equity from your sale and buy a SECOND home as well! Maybe that'll put the fear of God in 'em?

StuckinBA and DinOR,

Yeah, I know it's probably futile, though I have to try. A 20% drop on a $1.7M shitbox is $340K --- about as much as I'd ever want to pay for a 1,500 sq ft shitbox anywhere. I just can't fathom how a nice and otherwise rational family could court financial ruin so unthinkingly.

astrid,

SP is right. I know of very few examples of where family/friend pre-buy counseling did any good. And those are far outweighed by examples of it having no effect and even antagonizing your loved ones. As strange as it seems to us, most people really do not expend much time or thought on what could be the single largest purchase decision of their lives, other than "how should we decorate/furnish it?"

Most Americans today are simply not accustomed to deferred gratification, and do not want to be told that it might be in their best interests to place their "dream" on hold a few years. In the unlikely event that they do listen to you and see (NAR-reported) median prices in their neighborhood continue to go up, they will blame you for for being "wrong" and "preying on their fears" by talking them out of their "dream". If they don't listen (very likely) and get foreclosed on or have to short-sell a few years from now, they will *not* remember your good advice. If anything, they will see you as a jealous, bitter, mean-spirited person who "wanted them to fail", and may even blame you for wishing it upon them. Among the general public, selective memory and blame-avoidance is just as common as mental accounting.