patrick.net

In my book, routinely ignoring or subsidizing law-breaking is NEVER acceptable, no matter whose ends it supposedly serves.

Absolutely! Even a wink is not acceptable. There should be jail time for hiring illegal immigrants.

H-1B are not even immigrants. They are non-immigrants that are allowed to have "immigrant intent".

I would like to see KG’s face in 2015 when my house is three times what it was worth today.

Is it inflation adjusted?

2) No idea, maybe 5%? 10%? 3%?

If the appreciation will be 5+% annualized (inflation adjusted) for the next 10 years I will call my broker right now.

3) Anytime is a good time if you could afford it and justify it. To each his own.

I agree.

I believe SactoQt was talking about immigrants in general.

Let's not get into an argument about illegal immigration. In general, I agree that laws should be enforced, but sometimes it may not be practical to enforce them, and sometimes work should be done to change the laws because they aren't practical. Also, legalizing people will take care of some of the exploitation and other problems that were mentioned here.

The large amount of high-quality legal immigration in the Bay Area is one of the reasons why the housing market isn't likely to crash here.

By the way, how many of the people who post here regularly live in the Bay Area? I often read comments that seem like they're coming from people who don't actually know the reality of this place.

"The large amount of high-quality legal immigration in the Bay Area is one of the reasons why the housing market isn’t likely to crash here."

Japan also have a large pool or quality buyers with significant savings. Yet the housing market crashed there because of a change in expectation.

I can also point out that many crappy places in America do not have quality buyers yet their housing market has experienced dramatic appreciation as well. Does this invalidate your theory?

1) Shockingly gross generalization (typical of hardcore extreme bubbleheads.), please show me some numbers or articles to prove that this is happening on a large scale.

Fake P, find me a reasonable house that has a reasonable mortgage to rent ratio. I will call my broker.

Face,
Sorry if I "went off" on you. Obviously, you touched a nerve.

I agree that replacing illegal with legal immigration will take care of much of the routine exploitation, poverty and other social problems. Unfortunately, the moneymen & lobbyists who control both parties don't want it that way. (Gee, I'm starting to sound paranoid... where's my tin-foil hat?).

Anyway, like you said, off topic (except in terms of how it might impact housing). As for me, I was born in SCAL (L.A.) and have lived here most of my life. I often visit family/friends in the BA, and may be moving up there soon. I plan to keep renting until the PE & income-price ratios come back to sanity.

KG, let's be fair to Fake P. I don't think that his house will definitely be 3 times its current value in 2015. He certainly does not think that home prices can only go up. We should not compare him to the lemmings.

It's not bad to be a lemming who made hundreds of thousands of dollars in appreciation. The longer this appreciation lasts, the less likely it is that all those gains will be wiped out. Even if prices stay stagnant for a few years or go down somewhat, it was a pretty good deal for the lemmings.

"The longer this appreciation lasts, the less likely it is that all those gains will be wiped out."

Not true. When the correction comes the market will return to its fair valution. The higher it goes, the greater the fall.

Name one instance in the financial history in which lemmings prevailed. It is all about strong hands and weak hands.

Peter P,

Prevailed in what time frame? Human life is pretty short. You have only relatively few good years as an adult to make some money and enjoy it. That's one of the reasons why I don't believe in this "let's wait 15 years until we buy a house" business. In 15 years you may be too old to care. It matters now, not then. People who bought a house in the Bay Area a few years ago did well. Period. They enjoyed their house during the years that matter to them, and they made a killing when it counts for them. People who waited don't get a chance to make up for the lost time, and they have to get in at much higher prices. You gotta be kidding if you think prices are going back in the Bay Area to what they were in the mid-90s or something like that.

What is "fair valuation"? This may change from time to time, and who knows how long the change lasts. It may be 5 years or 50 years. Look at Japan and Western Europe. Prices are higher than here in many places (yes, even after the drop in Japan), while incomes aren't. Why would you consider their "fair valuation" to be different from ours? Why can't ours increase to match theirs?

Why would you consider their “fair valuation” to be different from ours? Why can’t ours increase to match theirs?

Because of globalization our it is more likely that our home prices will match those in Bangalore than those in Japan. Any developed nation is going to suffer the same fate eventually.

It matters now, not then.

Then why not renting a bigger house? For the same money one can rent a much better house or apartment.

What is “fair valuation”? This may change from time to time, and who knows how long the change lasts.

Yes, the fair valuation can drop over time, especially with the emergence of China and India.

"People who waited don’t get a chance to make up for the lost time, and they have to get in at much higher prices."

The jury is still out. They do not have a chance to make up for the lost time but unless they do not have to get in at higher prices. They can get in at much lower prices when the market corrects.

Peter P,

Well, so far prices in Bangalore have been rising extremely fast and prices here have been rising as well, but not nearly as fast. Why do you think that it's impossible that Bangalore will come closer to our prices by rising as opposed to our prices falling to their levels? Similarly, look at Shanghai.

"Why do you think that it’s impossible that Bangalore will come closer to our prices by rising as opposed to our prices falling to their levels? Similarly, look at Shanghai."

I never said that our prices will fall to their current level. :) I am just saying that prices will converge.

They have more upside and we have more downside. With globalization being a wealth distribution mechanism, I do not think that our prices will go up much in real term.

The market is Shanghai is falling right now. Their government is more willing to take step in curbing speculation.

BTW, what is the P/E ratio in Bangalore? Is rent going up there? These factor may well justify their price appreciation.

Prevailed in what time frame? Human life is pretty short. You have only relatively few good years as an adult to make some money and enjoy it. That’s one of the reasons why I don’t believe in this “let’s wait 15 years until we buy a house” business.

I doubt it will take 15 years for prices to revert to the historical mean PE & income wise, but, yes, I think it might take 5, or even 10 years. And yes, life is very short and no one wants to wait forever, but what's the alternative, Face? "Buy" now with a $0-down NAVVLP and pray that prices keep increasing until .00001% of households can afford a house?

People who waited don’t get a chance to make up for the lost time, and they have to get in at much higher prices.

This sounds suspiciously like the panic-inducing "Buy now or you'll NEVER own a home!" sales pitch I hear from so many Realtors(tm) and lenders. Well, explain to me how a $0-down NAAVLP is really any different from renting (except renting carries much less risk)? Why can't I rent a nice SFR with a yard/garage in the BA, as several people I know are currently doing, and live a very good life?

What exactly am I missing out on here? The thrill of waking up in a cold sweat each night, worrying that I won't get enough OT to cover my I-O ARM when it adjusts next year? The joys of spending over half my net income on PITI? The ecstasy of Replacing the roof/foundation I waived the inspection on in order to win that Bidding War? The refined pleasures of baloney sandwich/mac'n'cheese dinners, while I barely scrape together enough to get by?

"The jury is still out. They do not have a chance to make up for the lost time but unless they do not have to get in at higher prices. They can get in at much lower prices when the market corrects."

I guess it boils down to whether you believe in an imminent large correction in the Bay Area. You do and I don't. Everyone who is in the market needs to make their call about this. Ultimately, when people reach a certain stage in their lives they want to settle down, buy a house, and maybe have kids. It's hard to delay these things - life is just too short. If you're going to bet on an area, I would say that the Bay Area is still one of the best to bet on in terms of the robustness of the housing market.

Again, convince me that rent is going to be 50+% higher in 5 years and I will call my broker ASAP.

HARM,

No one is saying you should buy if you can do it only with a loan that doesn't make sense for you.

Peter P,

If you're happy renting that's fine. Most people aren't satisfied with that, and they're willing to take some risk. I don't think the risk is that huge in this area. We agreed to disagree on this point.

Face Reality, I guess it is alright to buy if:

1. one really loves the house
2. one can afford the house without stretching
3. the house will be adequate for at least 10-15 years
4. future appreciation is not part of the decision process

East Bay Renter,

Sounds good if it satisfies your needs and if your landlord lets you stay there for as long as you need it.

Dipanjan, thanks for the information about various Indian cities. I always believe that India has a lot of opportunities but I never possess the knowlege about the details.

East Bay Renter, do not lose interest. We can talk about the advantages (intangibles!) of renting.

Peter P,

I agree with your "alright to buy" post, but it seems to contradict your other statements about a huge correction coming soon. Do you really believe in this imminent cataclysmic correction?

Ultimately, when people reach a certain stage in their lives they want to settle down, buy a house, and maybe have kids. It’s hard to delay these things.

Face, this is exactly the stage of life where my wife and I are at right now. However, I disagree with the "logic" that says I HAVE to "own" (whatever that means these days) in order to have kids and "settle down". Heck, I grew up mostly in rented homes and yet managed to stay out jail, complete college, and find a good job.

I've noticed a certain elitist/snobbish ring to many of the arguments I hear from BDs (Bubble-Deniers). Many bloggers (not you) even go so far to equate renting with crime/ghettos/projects. Ahh... the myth of the poor, "homeless" renter... "You say you're still renting? I'm sorry, how sad for you...."

What does "buying" with a NAAVLP(tm) have to do with "owning"?? Puhleeazzz.... You're just renting money instead of renting the house. Even worse, you're gambling your "equity" on the hope of never-ending price increases. And, as for "settling down," how many people stay in the same place more than a few years before they move again? We've become a very transient people in the last 60-70 years, and this trend seems to be accelerating.

Again, if I can rent the same place for half of what it costs to "buy" with none of the risk, then where's the benefit to me?

Dipanjan,

I agree that Bangalore isn't the only game in town in India. Similarly, Silicon Valley isn't the only high-tech center in the US. However, I believe that there will ultimately be only very few high-tech centers in India - just like in the US. I don't think the talent and jobs will be spread all over the place - this never happened in any country, and it isn't really feasible. The few high-tech centers will become expensive areas.

I agree with your “alright to buy” post, but it seems to contradict your other statements about a huge correction coming soon. Do you really believe in this imminent cataclysmic correction?

I believe in the consumption model of housing. I do not see homes as investments and I object to purchasing decisions based on expected appreciation.

An implication of my "alright to buy" post is that the concept of "starter homes" will have to go away. One can no longer count on appreciation to build equity for another house. Consequently, one will have to "start" with a house that is going to be adequate for 10-15 years. This is not easy for young couples who plan to have two kids.

Face Reality, how many people will still buy (or can afford to buy) at the current price level if they are convinced that there will be no inflation-adjusted appreciation for the next 10 years?

I have nothing to say if people will still buy.

Any weakness in prices, and people with long commutes will start bidding on houses closer to work. It’s a really tough and resilient market here.

I believe that any crash in the Bay Area will be preceded by a crash in the outlying areas.

I think our disagreement comes only from a single assumption: whether people buy mostly for the reason of expected appreciation.

High density housing close to transportation hub will solve the problem. We can limit the number of parking spaces to soften the traffic problem caused by higher population density.

I think our disagreement comes only from a single assumption: whether people buy mostly for the reason of expected appreciation.

Plus, a few other assumptions:

That the BA is so "special" (those PIBs - Positive IntangiBles) that an unlimited stream of people will continue to pay any price --no matter how outrageously out-of-sync with rents & earnings-- in order to "buy" here.

That there is no end to the amount of $$ mortgage lenders will be willing shovel at almost anyone, so they can participate in the forever-escalating bidding wars. This will go regardless of whether people default en masse, rates rise, or a recession hits.

That the PIBs of home-"ownership" always outweigh the NIBs (Negative IntangiBles), and that renters can never have the same or better qualilty of life as owners.

By the way, who’s paying for the teachers, firefighters, and vets? Who sponsors the arts? Do you know how the great museums, concerts halls, and opera houses of this country were built? Guess what, it was people who made a lot of money who made this happen.

Gee, Face, it can't be CA home-"owners", can it? I thought Prop 13 outlawed evil property tax forever? (yes, I'm being sarcastic).

I also wish housing was more affordable as I said many times before, but I don’t hear any concrete ideas for making it happen other than Peter P’s high-density housing suggestion.

Are you asking this independent of the assumption we're currently in a housing bubble? In other words, are you asking how to make CA housing more affordable in general/at any time, or are you asking how could we accelerate deflation of our current bubble?

Jack, it's actually down to 12% overall, according to a just-released report from CAR: car.org/index.php?id=MzUyMDY=

C.A.R. HOUSING AFFORDABILITY INDEX
San Fran. Bay Area 12 (composite index)

BA Counties:

Alameda 11
Contra Costa 10
Marin 12
Merced 14
San Francisco 8
Santa Clara 18
San Mateo 11
Sonoma 7

Face Reality, you may be right about density. Let me rethink that.

Perhaps we should encourage telecommuting. This should spread housing needs across a larger area. This will also lessen the load on transportationg system.

Actually, higher density housing may be unpopular. But it is quite politically tempting. By the time an area is built-out, there will be pressure from megabucks developers to re-develop older homes. Additional tax revenue from higher density will be a very good think for local governments.

Just thinking about the old cliche that immigrant families “double up” or ‘triple up’ to rent or buy a house sometimes...

Now, families can rent their own place or "double up" to buy a house...

I wonder what they will choose.

Face,

Apart from your "bubble deflation" prediction, I totally agree with your other statements (which is why I asked "independent of the assumption we’re currently in a housing bubble?"). Even if you subtracted the impact of loose lending/GSE growth/low interest rates/spculation from last 5 years or so, CA has consistently been significantly more expensive relative to other regions for a long time.

Yes, I think Prop. 13 and NIMBY laws/regulations (such as Urban Growth Boundaries) are a big cause of this and should be repealed. Frankly, I don't how to go about it, though. People seem to love UGBs because they're always touted as "pro-environment/anti-growth". Contra Costa just recently passed an even more restrictive UGB during last year's elections. And good luck overturning Prop. 13 --that's the homeowners' Sacred Cow of California. Remember what happened when Warren Buffet made the barest metnion of it right after the recall?

Most voters just can't seem to make the connection between these regulations/policies and high housing prices. Either that, or existing NIMBY homeowners aren't willing to sacrifce what they view as a competitive advantage over new buyers, even if it will benefit everyone. Not sure how to combat that.