patrick.net

1. do i have to rent a place for $1800 per month or less to join the cult?

No. Many here are current owners.

2. i want to sell my home and join the cult - who has the $1800 apartment for me to rent?

When did you buy? It may not be prudent to sell and rent. Consult a professional.

3. …and which one of you wisemen will come snuggle with me in my $1800 apartment on superbowl sunday?

We have beer parties.

no seriously, raise your hand if you rent an apartment for $1800 or less.

Is this a troll?

no seriously, raise your hand if you rent an apartment for $1800 or less.

Why is $1800/mo rent a magic number? This may be your number, but results will vary for each person's specific case. In our case, even a number double that for rent is still significantly less than the PIIT that we'd pay on a home comparable to the one we sold last spring. Given that our equity is banked in an inflation-protected vehicle, we'll come out ahead if we see even so much as a small real-price adjustment downwards (which has already occurred). In fact, we could buy back in now for about a 2-3% real-price benefit, weighing our rent costs and everything else.

So what is your troll-question again?

@Linda,

Your most welcome. Sometimes I think newcomers get the wrong idea about the regulars at this site and assume that we are all RE-hating perma-bears (perhaps due in part to idiot comments from posters calling themselves "Pat McGroine"?).

I assure that nothing could be further from the truth. Many of us are already homeowners, and those of us who aren't (disclosure: I'm a jealous bitter renter :-) ), would eventually like to own someday, when market conditions indicate that purchasing makes sense. If I could buy a nice place today at pre-Bubble prices with a sane, amortizing mortgage that compared favorably to rents on equivalent properties, I would buy without hesitation.

For now, I rent, save and patiently wait.

Linda:
I'm going to echo what Peter P. and HARM said: keep the house. Key point of your situation being that you don't want to leave the Bay Area.

You got in early enough that your monthly payment is quite comparable to our going rental rates around here. Perhaps more importantly you have 5.25% locked in, and I have a hard time believing we're going to see that rate available for 30-year fixxies again in at least 5 years.

Basically, you're "old school" which is the best way to be in our "new paradigm" housing market. You're building equity one payment at a time and you seem to have the rest of your financial ducks in a row, and you have all that in the Bay Area where we have a strong and diverse economy.

How do you like that advice from a housing bear? I'm a housing bear right NOW, not a housing bear on buying 5 years ago!

Finaly, I DO expect Bernanke to attempt to inflate us out of the current situation. So even if you do cash out and plunk all that money in HSBC Direct earning 4.25%, in the long run it will at best likely only hold its real value.

Jesus H. Christ, I almost sound like a REALTOR (TM) in my prior post! Worlds are colliding!

I tend to think if anyone had a lot of unearned money staring them in the face they would feel the same way.

You know, this really cut to the heart of the Bubble for me. This is the real tragedy of the Bubble (aside from the looming correction) --it's distorting the way people view their own homes and diverting an incredible amount of energy, labor and capital away from more productive uses.

Your house is no longer a place to live, it's a rapidly appreciating "asset" to be traded like a NASDAQ stock. Your mortgage isn't a debt to be repaid, it's a speculative financial instrument used to "liberate" the "trapped" equity in your house. Why should people bother to do real work and hold a regular job when we can all get rich selling each other real estate?

@DinOR,

I hear ya, bro'. Never fall in love with four walls and a roof, run the numbers and always have the ability to take a cold, detached look at your financial situation. Even so, given her desire to remain where she is long-term, when she purchased and the financing, I'd still say the numbers are in favor of her staying put.

Ahhhh money, it's just so fantastic, when you get some all you want is more and then when you get more you treat people like shit.

Here's a though, you're an archeologist, you find a 300 yo tomb in the middle of the united states, full of wampum, which was at one time considered currency. Are you stoked?

You find another tomb which has gold bought 300 yo ago with an equivalent amount of wampum.

It's just green fucking paper folks.

surfer-x Says:

"Ahhhh money, it’s just so fantastic, when you get some all you want is more and then when you get more you treat people like shit."

Ha, ha, haaa... I love it. Isn't it true?

The 10 year note rose. If the rates continue up, the whole economy comes down regardless of HeliBen.

There are rumors that carrier groups and other military assets are on the move generally in the direction of Iran. Rumors and rumors of rumors, yet there was no flight to quality of the US Treasuries. Very strange. Maybe gold is the flight to quality of choice in Asia.

Rented a truck from Budget Trucks to move from our rental in Pismo to the new rental in $anta Barbara (1950/month, house currently for sale, 1.67mil). Reserved a 16 footer, thought it might be a bit tight, called up to get a 24 footer was told that there are no, I mean no, 24 ft trucks for a one-way trip. Only in town.

Last one out turn out the mother fucking lights :)

http://tinyurl.com/e39wy

Dear New Troll,

Do the fucking math ludite, ok idiot I'll do it for you, from patricks site,

3K a month to rent,

Ok troll, here goes, at 1mil the payment is $6320 assuming nothing down, ie a troll loan, ok, idiot, more math for you, that's before insurance and property tax.

Ok troll, more numbers for you, at 1.4mil it's $8848 a month.

Kindly go fuck yourself, new troll. Same as the old troll, can't you fucking trolls come up with something new?

PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,PRIME, IT'S PRIME, PRIME, IT'S PRIME,

there troll, that ought to cover your posting duties for a while, now you can go get some more brie.

@Linda

I feel the state of the union is tenuous at best.

Now this truly puzzles me, a government that is actively taking away your civil rights while at the same time bankrupting the country in a war to protect a declining dollar, lies being peddled each and every second, inflations tamed, the economy is red hot, the country is in great shape, how could you possibly be concerned? Come on now, the troll traffic alone should convince you that the run up in housing prices are a new paradigm, housing values merely reflect the bubbling good economy, a robust manufacturing sector and just plain good leadership at the top. Shit, we's even gots our freedom fighters delivering democracy on the heal of a boot all around the world. What's not to like. I say sell the albatross and get an apt in the City. Invest in ammo, well that and automatics. And not the type in the new M-5.

Peter P,

A decline in home prices would be very stressful for recent buyers who have small equity positions. Many of these people would indeed be upside down, and screwed if they had to sell or wanted to refinance. Their distress will contribute to the market decline. However, while many will face this plight, this is not the typical situation.

Most homeowners have lots of equity in their homes. The average homeowner has about 55% equity in their home. A short-term fluctuation in the value of their home is not likely to be important to them. Even a 25% price decline would leave the average homeowner with 40% equity (and 60% LTV). This is hardly a scenario for most people to have any financial troubles. It is not even a scenario that would prevent them from further borrowing on their HELOCs (foolish as that might be).

And people do seem to be foolish about “liberating” equity from their homes. Of course, they are not liberating anything – they are merely incurring debt. The home equity just gives them the ability to become deeper in debt. I recall seeing that only about half of this “equity extraction” in recent years was spent, while the remainder was invested or is still held as cash. I consider borrowing for consumption to be a foolish behavior (except in emergencies).

The key to financial success is to spend less than you earn – to save and invest a meaningful share of your income.

Unalloyed says:
Okay…off the thread, but I’ve been watching metals markets. Why is this sector rising so fast? And it’s not just gold and platinum. 20 articles give you 20 spins. I can’t believe that the middle class in India is suddenly spending more on jewelry, causing a worldwide surge. Are investors who see the RE decline turning to metals? Are the oil mullahs hedging against an Iran-Israeli armageddon? Anyone have a “spin-free” angle on this?

No idea. Came across this today, though:
http://pda.physorg.com/lofi-news-researchers-metals-copper_9971.html

HARM,

While it is true that many people do buy to flip, MOST people buy a home to live in it – even in Southern California. If most people flipped their homes the average time of ownership would be closer to one year. (more than half flipping in a matter of months and the remainder holding for multiple years). If most buyers were flippers the median holding period would be a matter of months. However, the average duration of ownership is about seven years. Obviously, with a seven year average, most people hold their home for many years before selling. And when they do sell almost all of them buy another home in a trade-up purchase – not the type of pattern that flippers follow.

Of course, the presence of flippers is very cyclical and during the last few years they have been out in force in the hot markets. Let these fools play their greater fool game. The last fools will get burned.

I have been actively studying the real estate markets (in a serious way) for more than 30 years, and I have been actively investing in rental properties for nearly as long (also stocks and bonds). Over those many years I have had countless conversations with perhaps a thousand homeowners and many property investors (from mom and pops to mega millionaires). It is nearly universally true that they expect their real estate to go up in value in the long run, and many think you can never lose with real estate. However, people who were buying property to flip have been the exception, not the rule in my experience.

When I encounter other investors or even flippers, I seek to understand the entirety of their strategies. I started doing this exploration when I was a mortgage loan officer in the mid 1970s in southern California. There are many ways to make money as an investor, and also as a flipper. However, I have never “flipped” a property – I follow a buy and hold strategy with a very heavy market timing bias in my buying activity. The only exception to this was in early 1989 when I sold much of my Los Angeles property because I thought the market was about to crash badly. It did. I then waited until 1998 to resume buying. I bought steadily until late 2003 when my analysis showed that the market had become fully valued (time for me to wait again).

I have made many millions of dollars in this game while never ever having invested more than $20,000 of my own money. Until 1989 I was leveraged to the eyeballs. After selling in 1989 I had only modest leverage. By 1997 I was debt free on my rentals from the positive cash flow of the rents. Even after much buying in and after 1998, today my average loan to value is under 25%.

In the summer of 2004 while many talked of collapse, I remained convinced that the market would do well until the summer of 2005. As it turned out those 12 months were probably the best 12 months of appreciation in US history. Since then I have believed that we were in the beginning stages of a cyclical decline in the hot markets. I expect this decline to last for several years. However, the bulk of the country will experience no significant decline, and much of the country will see low single digit price appreciation during the decline of the hot markets.

If the decline that I have forecast takes hold, I expect that 2009 will be a very good time to buy. Until then I am waiting, and (like always) I am watching...

Even a 25% price decline would leave the average homeowner with 40% equity (and 60% LTV). This is hardly a scenario for most people to have any financial troubles. It is not even a scenario that would prevent them from further borrowing on their HELOCs (foolish as that might be).

True. But many people get equity out just to pay for their mortgages. They tend to have very high LTV already.

Prices have been set by frantic buyers in the past 18 months. A moderate decline can cause trouble, turning them into frantic sellers, setting prices once again, towards the other direction.

I agree that much of the US will not see much decline though.

Yes. People on the edge will be at high risk from even a small decline. Only those who have an event requiring sale or refinancing will get into distress. This will be a very small percentage of homeowners. However, since only a small percentage of homes are sold each year, even a very small percentage of homeowners in distress can disrupt the market.

Remember several years ago when the power was out for about 6 hours on the west coast? I drove around town to see if any areas had power or any stores were open. What struck me most was how close the public was to civil meltdown. People were having shouting matches at intersections because nobody obeyed right of way in the absence of working traffic signals. I'm amazed there were no murders that night. People turn ugly at a moments notice. If we have a real depression I think it will look more like Mad Max than the Waltons.

Jeez guys getalife!

A San Jose resident (and homeowner), I started reading this website in the summer to gauge my suspicions that homes in my neighborhood were too expensive. (I am rooting for a crash, to make life more liveable around here for the few natives who remain.)

But jeez, the same posters add rant after rant, with no tangible information to enhance this site.

Get a life!

Japan made our rates rise.....

Jan. 26 (Bloomberg) -- The yen rose as a report today showed Japanese investors sold bonds abroad for the first week in seven.

The currency snapped a two-day drop that pushed it to the lowest in three weeks against the dollar after a finance ministry report showed Japanese money managers last week dumped the most overseas bonds and notes in four months. An auction of U.S. two- year Treasuries yesterday drew the weakest demand in nine months.

``Japanese institutional investors are returning money by selling dollar-denominated assets,'' Akihiro Tanaka, a currency dealer at Resona Bank Ltd., said in Tokyo. ``Repatriation will support the yen'' toward the end of the fiscal year on March 31.

sybrib Says:

"Get a life!"

Noooo. Get a house!

Ever notice how much better "I'm buying a house" sounds than "I'm signing up for a shit load of debt and have agree'd to pay the bank interest for 30 years".

I guess the former is applicable in the fantasy world where people by houses to live in, so 1950's. Remember if your house is paid off, you Sir are not in finance. I love the wholesale selling of "investments" to the greater unwashed. One can't help to think of the ex g/f in San Diegho, who works for Cal Trans, do I really need to state her income. Well that all doesn't matter because she's a real estate tycoon now, what with those 3 downtown condos. Upsidedown you say? Troll, RE only goes up, what she loses in monthly she'll more than make up for on y/y gains.

DinOR, you get my vote :) as a pathetic renter who is moving from Pismo to $anta Barbara I couldn't agree with you more.

"From what I understand (and please correct me if I am wrong), the Federal Reserve popped up somewhere in the 30s or 40s and took away the gold standard - meaning paper money meant nothing unless two parties agreed to the “money contract” of its value.
Right?" --Linda

No. The US did no go off the gold standard untill Nixon ended the Bretton Woods system in the '70's. Check it out, I Wiki'ed it up for you yo:

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

"Now that I’ve read almost everything on this site, it seems to me that you all have a great distaste for anybody who owns a home and is trying to decide whether to get out now and take the money and run." --Linda

I don't. I was still in College 5 years ago and in no position to buy in to the RE market. I do not hold it against anyone that they made the right decision to buy in years ago and also had the financial ability to so.

I also do not think it is accurate to say that even most of us here have a great distaste for those who have made a fortune in this bull run. I think some are very jaded that they missed out and/or are now priced out, but that is their problem, not yours.

It's been over 2 months now since Lyon RE of Sacramento has updated its market statistics page:

http://www.golyon.com/pricingtrends_f.htm

HMMMM.......

by missing out on the 2003-2005 gold bull, you have missed a massive investment opportunity.

How can one take part in every single opportunity? It is neither possible nor necessary. It is much better and easier to be cautious and play only when risk and reward are favorable.

by missing out on the 2003-2005 gold bull, you have missed a massive investment opportunity.

Of course, timing is everything. :)

Most homeowners have lots of equity in their homes. The average homeowner has about 55% equity in their home. A short-term fluctuation in the value of their home is not likely to be important to them. Even a 25% price decline would leave the average homeowner with 40% equity (and 60% LTV).

Lies, Damn Lies, and Statistics, Part II

DinOR mostly beat me to the punch here (average in Midwesterners owning their homes outright with people who have little-to-ZERO equity, and viola!: 55% "national average" equity rate).

However, I can also add the following:

--This "55%" figure (demos-usa.org/page269.cfm) is an all-time low from 1973, when they first began collecting this data.

--This "55%" figure is based on current home valuations. If prices drop, then guess what? So does the assumed equity.

"by missing out on the 2003-2005 gold bull, you have missed a massive investment opportunity." --Fewlesh

Zephyr knows Real Estate, so that is what he invest in.
"Buy what you Know" --Peter Lynch

For some reason the last paragraph of my above post on flipping/speculation stats got chopped. Should have read:

Statistics on national averages tell me little about what recent homebuyers in my city have been doing. As DinOR pointed out, national averages combine people in the Midwest who have lived in the same house for 50 years with serial condo-Flippers from South Beach.

See “Lies, Damn Lies and Statistics”.

BTW, all of this is recycled, already-posted information, well known to any Patrick.net long-time poster.

I suspect Zephyr is just having a bit of fun with us ;-) .

PIMCO research indicated that 82% of the purchase loans in California in the last year were either I/O or negative-amortization That’s what we expect in the year ahead. Indeed, I would suggest that the downside for home price appreciation (note, being an optimist, I said downside for home price appreciation, not home prices themselves!) is particularly acute right here Paul McCulley of PIMCO announced that in California over 80% of new mortgages over the last year have been exotic creatures – interest only, pay option, and negative amortization concoctions.

Regarding equity of recent buyers, here's some info that caught my attention:

"Recently compiled statistics at Legacy Escrow Service, Inc. reported that 71% of closed purchase transactions by the firm in 2005 were 100% financed."

Legacy services the Puget Sound (West Wa) market (which isn't has hot as here), but what does that suggest for the SF Bay Area? It's pretty easy to imagine it's just as bad (or worse) here.

Zephyr:

Do you happen to have a connection to Zephyr Real Estate on Brannan Street here in San Francisco? Just curious, no need to respond if you don't want to.

@jeffolie,
Thanks for the stat. Here's the link:
blogs.ocregister.com/morningeye/archives/2005/12/the_future_and.html#more

DinOR,
Ah, yes, that's beauty of statistics. ;-)

usatoday.com/money/perfi/housing/2006-01-17-real-estate-usat_x.htm?csp=14

WASHINGTON — As housing prices soared last year, an eye-popping 43% of first-time home buyers purchased their homes with no-money-down loans, according to a study released Tuesday by the National Association of Realtors.

Who are entry-level buyers?
Survey of home buyers reveals:
Median age: 32
Median household income: $57,200
Median down payment: 2%*
Purchased with no money down: 43%
* — on home costing $150,000

Source: National Association of Realtors, 2005 Profile of Home Buyers and Sellers