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I'm still trying to wrap my mind around "owning" a carbon copy McMansion as the end all be all experience of life.
Nothing wrong with buying expensive Japanese knives either, even if it is a 500% premium for 10% improvement from a set of Forschners.
Of course. :)
"I don't want to have to pay the property taxes for my entire block"
Brent, I don't know what you do (better than this) but whatever it is..... I'll take a gross.
See, I'd be willing to buy when I can get a house I like in a location I like. A place I'd be happy to be for 10-30 years. But only if I can afford to buy it without having to say "Well, when magic money falls out of my butt, then I can pay off enough of the mortgage to refinance it so that it's not taking up 50+ percent of me and my wife's salary!"
Seriously... ouch.
Wow!
Why do you think now is the time to buy? Is that based on informed research or on those with a vested interest in your purchase telling you it's a time to buy? Is there any basis in fact for the idea that prices will continue to rise? So, seriously, I challenge him to consider where he's getting his information from. If he wants a real time example, he can go down to the local Mercedes dealer. Wear ratty clothes and maybe not shower for a day. Have a beer or two before he goes. Pick a car, and then find a sales representative. ask if he can "get him into that car today". Anyone want to guess how many "No" resposnes he'll get?
Second, read what PAR says about affordability. Being able to buy vs. being able to afford are two different questions. For many an FB, they are discovering that they were able to "buy" a house, but are unable to "afford" a house.
Third, I'd recommend that he goes back and reads some earlier threads. Seriously. The pros and cons of buying vs. renting vs. waiting have been covered in excruciating detail at least 25 times.
Fourth, I think that his comment on the stock market is spot on. Wait -- hear me out. My guess is that the majority of individuals who read and contribute here have anywhere from a good to world-class understanding of capital markets. Even a good understanding is probably better than 99% of the people in the US. If this fellow's only experience in/of the stock market is, say, June 1999 to June 2000, then it does seem like it's only speculation. Actually, from the popular media's commentary, a la CNBC, the capital markets are little different from horse racing commentary. I suspect that if you substituted horse names, trainer names, and jockey names, for company names, CEO names, and analyst names in the CNBC commentary (or Cramer), you could use the commentary at Santa Anita. So, for him, it does seem like it's purely speculative.
But he's free to do as he pleases. Someone has to catch the falling knives and help the market on its way down.
Tangentially on topic:
Jim Grant's Statement from a Hearing of the House Financial Services Committee, February 15 (the article I referenced on CDO's several threads back was from his publication).
PAR,
I have absolutely no problem w/that. Let me guess? Muscatine, IA? When I first got out of the service my wife and I bought a 3/2 in Molalla, OR for $67,500 (1989) and there were so few places "to" rent it was actually a little cheaper to have bought. But only by about $20-$25 a month.
In your relatives case how much work could it be to maintain a 1,000 s/f? Our 1,100 s/f ranch took about a weekend and case of beer to paint. She'll be fine, just no beer, o.k? :)
Why is it that people in the upper middle class seem to be willing to keep on buying in this obviously inflated market? I haven’t seen any pull back in the $1.5 to $2.5M price range, either in the bay area, Los Angeles or North County of San Diego.
Upper middle class people do not buy 1.5M to 2.5M homes in the Bay Area.
The price range is more likely to be 5M+.
007,
Valued contributor Robert Cote' made this call almost as soon as a market peak was declared. A frantic final round of "musical chairs" while money was still cheap, and then..... Silent Spring. There's always a few "sucker's rallies" in any bear market.
I saw a report (on Square Feet, the merc re blog) that appreciation for $1m+ properties in the bay area was 1.5% yoy, and -1.5% last quarter. They spun it as "stable". I mocked them.
You may be seeing an active top end market, but I'd like some of what you're smoking, so I can see it too (along with the fairies and pink elephants).
It's hardly about the total price for the home! It's about "howmuchamonth" is this gonna cost me!
I didn’t know where to classify it actually. Up to $5M seems to be a bit much for middle class though? I don’t know that many people willing to say they are middle class in the bay area living in a $4-5M house. But maybe I haven’t been hanging out in the right circles.
The middle class is huge. I believe upper class membership requires the ability to sustain high standard of living on PASSIVE INCOME only.
I don’t know that many people willing to say they are middle class in the bay area living in a $4-5M house.
Willing to say? ;)
I thought 86% of all drivers believe they are above-average drivers.
Palo Alto is still very hot though. Mountain View is at least semi-hot.
Buyers are after schools and proximity to employment. Do upper middle class people care about those?
As a side note, I now feel a lot “poorer†than I did an hour ago.
Feeling poor is good motivator to make more money. ;)
Perhaps even Bill Gates should feel poor when compared to JDR.
Outside high-cost areas, even upper class people may live in 2.5M "palaces".
007,
I have a friend who bought a house for about $2.2 million in November. The house is almost 10x her husbands income, she makes a tiny bit of money as a (you guessed it) Realtor (TM). They put almost 1/2 down (inherited), so the mortgage is 5x their combined income. Property taxes hit them hard.
She told me that they are OK as long as they don't need a new car. They give only a tiny amount to their kids schools' annual fund (yes, that means other people are subsidizing their kids' tuition). They can't afford to vacation or even go to high end restaurants the way they used to. I'm watching the money stress help their marriage to unravel.
I asked her 'Why are you buying now???" She said that she has to live in a single family house in a nice neighborhood or she doesn't think the family will be happy. I said "Why don't you wait a bit and see what's happening with the market?" She owned a lovely, large apartment that they were living in. "It can't go down here, we can always sell it at a profit if something happens."
She bought her previous place in 1989, a few weeks before Loma Prieta, but the Real Estate Industry Kool-Aid has apparently wiped out her memory of the six years of depreciating prices her old place went through.
Some of the 'upper middle class' that are buying now aren't that economically savy, and are living on borrowed time.
Also, +1.5% increase in prices in luxury houses is actually a real loss when taking inflation into account. They never seem to mention this in the articles.
Patrick
You should stop renting when it’s cheaper to own.
Not to pick, but you have to be careful about that statement. It is historically always more expensive in nominal terms to own than rent. The exceptions are usually short periods of economic distress, or longer periods in severely depressed areas (think rust belt).
The cost of owning will generally always exceed the cost of renting over the long term by:
psychological premium + utility premium + tax benefit
Psych premium is the "everyone owns" or cultural effect;
Utility premium is the net value one gets from owning over renting. Renting is more flexible, owning is more stable, etc.
Tax benefit is real and powerful, and creates a subsidization of leverage.
News,
That is a downstream effect. I agree that subprime failures will ripple through the economy, mainly as hedge funds fail I suspect. But the real question isn't why hedge funds are investing in junk bonds, but why municipalities are investing in hedge funds.
Randy H,
Not to nit pick but calling these "at least I got paid" MBS junk bonds is frankly..... well an insult to junk bonds!
News,
What made the $6 bil loss "stunning" was that it happened in (one) day. Yikes! :)
In addition it's my understanding that San Diego could ill afford that kind of a hit.
SFWoman,
The very situation you describe is why I (and a handful of others) firmly suspect that defaults will bleed over into the Alt A paper and beyond. Here are some otherwise reasonable people that, again.... leveraged their FICO to the hilt.
"they are o.k as long as they don't need a new car"? You mean all it would take to derail their well laid financial plan is add'l $247.81 on a car payment?
I doubt $300 or even $1,000 a month would break many $2.2 Million house families. Divorce, loss of employment, or an ARM jump are much more likely culprits.
After factoring in, going over miles on the lease and/or negative equity on your trade-in and paying off your old auto loan your *new* payment will be $247.81 HIGHER than your old payment? I mean counting the undercoating and extended warranty, right? Or something like that.
I just can't believe anyone would take a small inheritance, put HALF down on a house and STILL be in a financial bind! Had it been me I'd have found something I could just have paid off or banked it but then again I'm not a realtor so I don't need or want a "showcase" home.
What kind of car can you buy with $247.81/month car payment. It would be 10 K car. Do you really think people who buy 2.2 million dollar house, will buy a 10k car?
$247/month can get you a lease on a 20K car.
Sam Walton drove a pick-up truck.
Hedge funds regulation is necessary but a bit too late.
Hedge funds regulation is completely unnecessary. They are just private investment ventures and they should be able to operate freely.
Casey Serin is in the Wikipedia but Patrick Killelea has not made it yet.
Well, I don't want to speak for others but 6 bil is 6 bil (no matter you pee'd it away).
For those bored enough, a great description of "fiduciary responsibility" is on www.fi360.com. Perhaps the good folk in San Diego should have read it first.
FAB,
You do realize that anyone can write their own Wiki entry I hope. Maybe I'll go create a Randolph entry when I get some free time.
But seriously, we should consider making Patrick Killelea Wiki, x-refing the housing bubble entry, and then we can all link our own sub entries off of there.
Any takers? I'd start the process but I'm bogged down again between real work and not learning my lesson starting blog fights with people who buy cartoon real estate and pay for cartoon sex.
There, I started it in a minor way. I added this blog to the external links reference of the Real Estate Bubble wiki entry.
http://en.wikipedia.org/wiki/Real_estate_bubble#External_links
Maybe I should run a thread that shows everyone how to go contribute to wiki. There's all kinds of bubble and reic stuff out there that could use our love.
Maybe I’ll go create a Randolph entry when I get some free time.
We should write an entry for King Randolph. Long live the King!
I wouldn't recommend spending the time to write entries on Wikipedia. Those guys are extremely narrowminded about what's acceptable knowledge. I put up an entry on a rather innovative and popular humor blog and they erased it because they thought it was irrelevant.
At the very least, I'd recommend proposing Patrick's name and then get a wiki "editor" behind the entry, otherwise, any entry you put up is likely to be deleted very soon afterwards.
Patrick is already on the US bubble specific wiki
http://en.wikipedia.org/wiki/United_States_housing_bubble#External_links
astrid,
My stupid critical article about Second Life landed me in the "mainstream press coverage" wiki on Second Life, which is heavily monitored by the company itself.
I thought they'd delete it, but it seems to have survived. So I'm mainstream now.
Then why have I only earned $2.12 on my blog ad revenues? lmao
I like Wikipedia a lot as a resource, but it's controlled by a bunch of pinheads. They totally do act like the Encyclopedists from Foundation. Great for finding all the alternate universes in the Marvel/DC Comic canon, less good for current events coverage.
Wikipedia is a great thing.
Great for finding all the alternate universes in the Marvel/DC Comic canon, less good for current events coverage.
An encyclopedia for current events?
astrid,
I'd recently read one school is no longer accepting papers from students using wiki as a "reference".
I would preface my argument on the basis that no comprehensive coverage of the bubble is complete without THE NUMBER ONE bubble site (and of course our good friend Casey!)
I don’t understand why people finance or lease cars, to tell you the truth. I have never owned a vehicle I didn’t buy outright, new or used. If you drive your car to death, you can easily save the cash for a new car.
Huh?
Leasing makes sense because you are paying mostly for the depreciation, which is going to cost you regardless.
Why would anyone ever want to drive a half-dead car? Is it even safe?
007 Says:
> Long time lurker, first time posting,
Welcome, you are probably the only poster with a “License to Killâ€â€¦
> I have a question for the group here. Why is it that people in the
> upper middle class seem to be willing to keep on buying in this
> obviously inflated market? I haven’t seen any pull back in the $1.5
> to $2.5M price range, either in the bay area, Los Angeles or North
> County of San Diego. In fact recent figures in SD N.County prove
> out that since the beginning of the year the market is better than
> it was in the same time period for 2006 in houses $1M+.
Many of the $1.5mm - $2.0mm homes selling today would have sold for $1.75mm - $2.25mm last year. If you get details on the new SF condos most are selling for less than comparable units sold for last year even with the HOA fees paid for a year and many upgrades.
Today SF gate had an article about how high end homes were holding their value and I laughed when I saw that the article had a photo of Andre Agassi and Steffi Graf’s house in Marin that sold late last year for $3mm less than they paid it for (after a long time on the market and many price cuts).
> I would make the assumption that people dealing in these price
> ranges have to be somewhat savvy buyers and aware of the
> economic and housing environment. So why would they be buying
> now?
Most people that make enough to buy $2mm homes are “smart†but most are not “savvy buyersâ€.
Peter P,
I'm saying that if you buy a new car for cash, drive it until it's pretty much at the end of its useful lifespan, then buy another one for cash, you're saving money over borrowing money to do the same thing. And if you can't afford to buy a new car for cash, buy a decent used car.
I've never understood making payments on cars. They drop in value the second you drive them off the lot. They drop A LOT. Yet people still pay, say, 20k for a car, promise to pay another 5k in interest charges over the next 3-4 years for a car that will be worth at most 10k. They're throwing away 5k, given that they decided that it was worth 10k to drive that car for 3-4 years.
However, for 20k, they can drive that car for 20 years. Sure, maintainance eventually catches up and it's cheaper to get a new car and start the cycle over, but certainly not every 3-5 years.
Leases were invented for people who like to do that sort of thing, but don't pay cash up front. Personally I don't like leases because I don't want to have to worry about violating a milage clause and paying extra when I turn it in, etc. But if you get a good lease it can be cheaper than 'owning' a car outright if you plan on swapping soon.
My main point was being flabbergasted that somebody in a 2.2 million dollar home could be worried about a new car tipping them over the edge.
Peter P
Leasing often does sound good, but if you buy a second hand car (1 to 2 years old), then most of the depreciation has already been paid for by the previous owner/leasee - besides if it's my car, I won't get it in the neck so much from hubby when the kids put a dent in it or spill a drink!
SP,
Definitely the "high gloss" stuff! LOL!
I guess what I was trying to say was that it wasn't some big production. A 6' ladder handled most of it. People seem to love vaulted ceilings but somehow forget that a wall of equal height must be on the exterior?
However, for 20k, they can drive that car for 20 years. Sure, maintainance eventually catches up and it’s cheaper to get a new car and start the cycle over, but certainly not every 3-5 years.
I cannot find a 10 years old car with all the must-have safety features:
1. Front airbags
2. Side airbags
3. Side curtain airbags
4. Traction control
5. Stability control
6. Good frontal and side impact scores
7. Good realibility
The closest one would be a 1997 Lexus LS400. But I believe it does not have side curtains, which are IMO more important than front airbags.
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From a reader:
Wow, where to start with this guy? How about this:
Patrick
#housing