patrick.net

How about this non-cartoon "depiction" of David Lereah?

http://tinyurl.com/bpbpf

Ok,
Here are some general thoughts. I found this article, and out of all the things I've read on housing in CA, this just about sums it up perfectly:

"Does California Have A Rational Housing Policy?"

"...This situation has produced large numbers of both winners and losers regarding housing.

The 59% of California households who are homeowners - the second lowest fraction among all 50 states - are big winners financially. From 1999 to 2004, California home-owners gained almost as much gross equity wealth from rising home prices as all the homeowners in the entire other 49 states combined! Even after subtracting mortgage and home equity debt, California homeowners prospered mightily.

Yet Californians have the lowest housing quality standards in the nation. It takes young Californians much longer in their careers than any other Americans to amass enough money to buy or rent a home. And when they do, they get a smaller abode with fewer amenities than elsewhere per dollar spent, and it is farther away from where they work. So they commute greater distances and encounter worse traffic congestion.....

....If you were running a global business trying to be competitive, why would you locate in California? It has the 10th highest state taxes per capita, by far the highest housing costs, a government that is broke, ranks almost last among states in spending per pupil on primary and secondary students in attendance, has an above-average poverty rate of 13.5%, has high cost of living expenses, and the nation's worst traffic congestion. Is California's good climate and pretty scenery really worth all that? In the long run, the high costs of living in this state will be a drag on its economic growth.

Now let me say a few words about why housing costs are so high in California. It is basically a combination of local government policies that discourage new homebuilding.

Local governments determine how many and what kinds of housing units can be built. Almost all suburban governments are politically dominated by homeowners, who comprise 70% of suburban voters, according to PPIC surveys. Homeowners are driven by two key goals: (1) maximizing or at least maintaining the values of their own homes, which are their major financial assets in most cases, and (2) preventing any worsening of traffic congestion in their areas. Traffic congestion worsens because of rising population and economic prosperity.

The first goal is served by not permitting any more lower-cost housing to be built nearby. The second goal is served by preventing as much growth as possible. To serve both goals, NIMBY homeowners pressure local governments not to allow much new housing to be built near them, especially relatively affordable - i.e., low cost - housing.

.....The Bay Area is an extreme case, but it illustrates the basic reason why this state has high housing prices. California homeowners do not want enough new units to be built to reduce existing price levels; and homeowners control local governments. As long as local governments set the state's housing policies, there will be a permanent shortage of housing in California....

....
Just consider all the interests who don't want home prices to decline. They include the 59% of California households who are homeowners, all banks and lending institutions that hold mortgages on those homes, all the Realtors and home builders, all investors who own mortgage-backed securities and bonds, Fannie Mae, Freddie Mac, all local governments who don't want taxes to decline, all retail firms who depend upon consumer spending derived from home equity profits, and all the local officials these people support. These groups represent overwhelming political resistance to falling home prices. There is no chance whatever of getting locally elected officials to defy them. All local officials are parochial in outlook, acting primarily to benefit the local citizens who elect them. So they will not allow enough building to drive prices down...."

If that doesn't address what's really going on here, then I haven't seen satisfactory data to dispute it. In essence, California's Politics are controlled by the current generation of homeowners. Perhaps not boomers, maybe not neccesarily scrupulous investors, young saps. Just plain ordinary people who " don't wanna' have any more neighbors" and only act for themselves and for the non benifit of others. Here in Alameda, I have some next door neighbors with a big red sign that says " Keep Measure A! No overcrowding!"
So... CA politics are FU*#d up big time. This is what happens when you give the people TOO MUCH power. There i a delicate balance here and CA is off the deep end. Unless these issues are addressed, then you can bet your boots, prices will stay out of reach for a LONG time.

Link to that site: http://www.anthonydowns.com/CalifInclusionary.htm

Oh, and I said to try to avoid the tangents. If Surfer-X tries, but finds it too difficult, who am I to argue?

I forgot, are you the Blog Queen or the Queen of Tangents or both?

This is what happens when you give the people TOO MUCH power. There i a delicate balance here and CA is off the deep end.

There is no need to change. California is a goner. The process cannot be reversed. (Unless we can immediately adopt a Texa style growth policy and abolish state income tax)

There are only two remaining competitive advantages of the silly valley: food and weather.

Food is not difficult to duplicate, so long as there is a market. So weather is the only edge.

Can anyone remember the name of “The Former Iraqi Defense Minister”? Didn’t this guy have his own website? The parallels to David Lerah are uncanny. Are those actual quotes from David Lerah? Can anyone actually be that biased?

We usually just call him Baghdad Bob. Some quotes are actual, I believe. A shill is usually biased anyway.

Hey DINOR,
Honestly, this is about the most smoking gun piece of literature I've found on the topic ever. I bookmarked it. The thing for me personally for a while has been the question of whether or not I should just stop everything, the friends network, and all, pack my bags and be done with California. I think It is safe to say many people my age( 29) and situation( educated middle class) are sitting on the fence just waiting for the ball to drop. I think I have been looking for an answer. If I knew for a fact that RE in CA will be unaffordable no matter what, the I would've left a long time ago for TX, TN, NC, or some other more reasonable area.
This whole linking of home prices to local citizens and their death grip on politics and the lack of intrest in developong new housing just about gives me my answer which is that the best thing for many of the people I know to do is save their CA wages for a 2-3 years, and move away and simply buy a house outright in a better affordable area.I can only assume these new areas will be more opportunistic the more of us leave.CA will be stuck with the old, the wealthy, and the dishwashing recent immigrants. It's Sad and I hate to sound like a quitter, but enough is enough.
The sun, weather and food aren't worth a lifetime of debt and poor living standards.

@ DinOR, Are you thinking of Tariq Aziz (Deputy Prime Minister) - the guy who looked a bit like Peter Sellers? He was the only "Christian" member of Saddam's inner circle.

@ SQT, Just anecdotal, but I'm seeing a ton of rental signs go up in the past weeks in front of single family homes in the Stockton area. A local agent told me that in 2005 approximately 50% (I can't back up the figure) of RE sold in Stockton was bought by SF Bay Area buyers - speculators and investors.

@nomadtoons2,

Thanks for the anti-NIMBY/restrictive zoning post. You are pretty much preaching to the choir here on that score --see the archives for many anti-NIMBY discussions.

The only critique I might offer is that I wouldn't confuse NIMBYism as the cause of the current RE/credit bubble, which IMO, has much more to do with the Fed pushing real rates into negative territory and the role of MMSs/CMOs in destroying lending standards and shifting default risk from banks to investors.

NIMBYism has been around in CA for a long time and I believe is the reason why housing prices here are much higher here relative to other states even when you eliminate the effects of the bubble. Whereas in "normal" (non-Bubble) markets, median home prices might be 2-3X HH incomes in flyover land, here in NIMBYville it's closer to 5-6X. Of course, thaks to the bubble, it's now more like 12-15X.

To be fair, NIMBYism would also push up rent prices. However, this has not been the case. If rent has been increasing significantly, we would not have called it a bubble.

So NIMBYism increased housing costs but it did not create the bubble because its effect on the rent/price relationship is minimal.

(One notable exception is the restriction on condo-conversions.)

Hey DINOR,
Well I am sort of stuck in a dilema in that a far as career goes, well I love the job, and the money( being a renter and being able to save) but I get a sense from friends who moved to TX that it seems to be the new happening place. Lots of new jobs and Positive change and growth from more traditional economic measures unrelated to real estate.
I have been hearing the whole "2-3 year turnaround" theory from a lot of people. hence, we are commited to staying for another 3-4 years and see what happens. if not, then that will be sufficient evidence that we are shut out.
Another concern of mine is that perhaps more than a small number of younger people are going to make the realization that places outside of CA have enourmous potential and make the move, hence driving up prices and negating the overwhelming stark contrast between CA and elsewhere. The main draw now to these places is the extreme affordability. There is still opportunity for people like me to save my relaticly higher CA wage, and buy a home with it elsewhere. That's getting your money to work for you, and without unneccesary borowing. I can imagine many people are making the same decision, so the options I have in front of me may not stay the same. It is a delicate balance, so I am paying very close attention to trends in numerous areas I am considering to move to.

@HARM

I think your NIMBY conclusion vis-a-vis flyover states is faulty. The effects can be entirely accounted for by fragmented regional inflation differentials ala Bruce Greenwald's work. In fact, NIMBYism is quite vibrant and apparent in even small, rural flyover redstate land. It's just implemented diferently. Try to move into Wilmington, Ohio and do any development as an outsider. They just keep things in line with old school methods. (This was in fact the whole strategic genius of Walmart in their growth phase).

@Peter

The BA has more going for it over the long run than food and weather. As we discussed previously, there are very few comparable areas (maybe 5 or less) in the US that have a comparable density of research academia.

The BA has more going for it over the long run than food and weather. As we discussed previously, there are very few comparable areas (maybe 5 or less) in the US that have a comparable density of research academia.

True, but one can always telecommute to work. Food tastes horrible delivered long distance. :)

Boston has a comparable density of research academia. Its seafood is better than that in California. However, weather sucks and it is in Taxachusetts.

but one can always telecommute to work.

I'll take the other side of that bet all day. The importance of geographical placement has only grown as telecommunications have advanced. There is a huge and growing body of work on this phenomena. I wouldn't sell Boston short either. There is no replacement for R&D married to capital infrastructure and a factory of highly skilled managers and engineers. When this system breaks down, then I'll finally agree with the grow-your-own-food and stock guns & gold crowd.

Just get a McLife and a few McGoals and everthing will be OK.

Trust me, I'm a Boomer!

Just like fine art, perceptions are entirely in the eye of the beholder. The single most inspiring moment I have had in my life was sitting in a grass and tree faced bald on top of Mnt Leconte' in The Great Smokey Mountains TN. Yes, CA is "gorgeous"... but so are countless many other places. I am glad you feel so positivly about your adopted state. I meet tons of people who are almost always from the other coast. Seems like most east-west coasters skip over the entire country, and there's either CA or NY and nothing inbetween. At least you lived in a few other places before you found the ideal location for your personal tastes. As for me, I miss the sound of whipoorwills on a hot summer's night with fireflys in the neighbor's field.

@HARM

I think your NIMBY conclusion vis-a-vis flyover states is faulty. The effects can be entirely accounted for by fragmented regional inflation differentials ala Bruce Greenwald’s work. In fact, NIMBYism is quite vibrant and apparent in even small, rural flyover redstate land.

Randy H,
To be honest, I'm not familiar with Bruce Greenwald or FRIDs but I'm interested in hearing more --could you please summarize the main points for us here?

I'm not sure I agree that NIMBYism as anywhere near as bad in other states as CA, though. A while back someone posted data from the CBIA that showed it costs developers something like $90-100K on average in mostly unnecessary zoning/municipal fees for every new home that gets built here, vs. much, much less elsewhere.

On topic,

If Zillow is anything to go by, then we've passed the peak even up here in "prime" Marin. I particularly like this data:

Past: This home 94941 Mill Valley Marin CA US
30 days -4.8% -0.8% -0.8% -0.6% 0.3% 0.6%

That's the home I'm renting, down -4.8% in the past 30 days.
This zip, down almost 1%
Mill valley the same.
Marin down over half a percent.

The importance of geographical placement has only grown as telecommunications have advanced.

Why? Won't people just cluster around culinary capitals instead?

Fragmented Regional Inflation Differentials (summary from memory)

Following the stagflationary periods of the 70s/early 80s, the recovery in wage inflation, capital creation and investment was regionally fragmented to an extreme degree. The midwest/plains and non-coastal southeast lost significant ground (over 100% in many cases) over the following 5-10 years. Except for the Reconstruction Era South, there is no precendent for such economic disparity in US history. This function resulted in the high wage inflation areas effectively extracting capital from the low wage inflation areas over multiple decades, and save a few small counterexamples, has never corrected. Thus, the differential continues to grow today, only a bit slower.

Many prices are set nationally, and the high income inflation areas have driven these prices, forcing low inflation areas into a cycle of more dependence on local economy (enter the Walmart strategy) and government subsidy. States like Indiana receive many times more government subsidy per capita than California or New York, even excluding direct agricultural subsidies.

This relates to development because most inputs into development as a capital stock creation endeavor are locally priced, except perhaps some raw resources. When you compare the costs of development burdens, you have to do so in locally adjusted economic terms: the cost of the inputs and the value of the capital created, all or most of which are locally priced.

What this all leads to is an Easterly-style "poverty trap" phenomena with an American flavor.

Somebody mention Baghdad Bob vs. David Lereah?
You must check out Marin bubble blog:
marinrealestatebubble.blogspot.com/

Here in So. San Jose (AFFECTIONATELY known as San Hosebag by some), word of bubble must've gotten out.... I need to rent anew, & it just so happens that the market is thinnning out. And based on conversations, there is a lot of rental interest (bidding wars coming soon?). Yes the wonderful part of renting: like it or not you get to experience new environs every now & again.

This is odd also because at the same time, homes for sale inventory is not really rising much...I'd call it stagnant...and sales have really picked up in the last 2 or so weeks.
Lot's of more fools??? Maybe it's different here???
WTFK's.

Randy H,

Thanks for the synopsis. Now that I understand what it means, I'm convinced that FRID factors cannot explain why CA housing costs --taking the housing Bubble OUT of the equation-- are always so much higher than elsewhere.

As you say, the FRID scenario assumes that "Many prices are set nationally, and the high income inflation areas have driven these prices". It's pretty obvious that "high income inflation" is NOT what's been driving housing prices in CA. As nomad's article stated, median HH incomes here are only 12% above the national average (census.gov/hhes/income/histinc/h08a.html), not nearly enough to account for the huge price differentials.

If you factor in the per-capita government subsidies as a form of additional "income", this would imply that non-CA HH incomes are in effect HIGHER than the census figures, and may even wipe out CA's 12% wage advantage altogether.

Here in So. San Jose (AFFECTIONATELY known as San Hosebag by some), word of bubble must’ve gotten out…. I need to rent anew, & it just so happens that the market is thinnning out. And based on conversations, there is a lot of rental interest (bidding wars coming soon?). Yes the wonderful part of renting: like it or not you get to experience new environs every now & again.

My lease is ending soon too. But I need to get out of San Hosebag. :)

This is odd also because at the same time, homes for sale inventory is not really rising much…I’d call it stagnant…and sales have really picked up in the last 2 or so weeks.
Lot’s of more fools??? Maybe it’s different here???

People are waiting until spring. At least one of my friends is waiting until then to unload a property.

What sales? All I see is open house signs.

But is rent going to increase 50% soon. If so, I am buying.

"My lease is ending soon too. But I need to get out of San Hosebag. "
Good for you! For some reason damnit I like it here (maybe I need to see a doctor about that???). Actually...family friends etc. has lot to do w/it.

"What sales? All I see is open house signs. "
I see a lot of open houses too...especially last weekend when the spring weather caused them to bloom like wild flowers.

Mostly I track s. san jose through:
southsanjose.com/realty.php
It's tedious, but nice in a way because it breaks down properties by neighborhoods as small as ~5 miles^2. Anyways although inventory isn't changing much, there's quite a bit of cycling...that is, currently listed properties are typically ~1 mo or less on market. In contrast, through november/december/january, many properties were on market for 2+ months.

I also use some searches on ziprealty (the new "only show reduced price properties" feature is great).

Anecdotal example: the house 2 doors down from where I grew up (quintessential urban sprawl middle class neighborhood) was listed at 690K for 3 days before selling yesterday (1972 ranch build, 4bd/2ba 1700 ft^2). However, a recent comp sold in August 2005 for 690K (4bd/2ba 1678 ft^2), which _would_ indicate a bit of price stagnation (then again who knows what actual sale price of recent sale is).
I guess I see a lot of stagnation (as one would expect at the apex...?).

@HARM,

I am excluding RE bubble regions from the FRID analysis. I, like you, believe there is a geniune asset/credit bubble. I'm also not convinced that 100% of the difference is purely inflation differential in all cases. I am convinced that most of the difference in most cases is inflation.

@newsfreak

I agree with the direct, proportional representation arguments. However, the counterarguments are strong; and I recognize that. Eliminating 2-Senator per state rules and/or scaled proportional Representative rules would only worsen the plight of the existing poverty traps. You would essentially remove both their disproportionate government subsidies and their political power. In the worst case, 5 states would run the other 45 *all of the time, without exception*. 3 States would usually be sufficient for most political actions.

SQT

Good point. I grew up in the midwest, and frequently miss it.

In addition, for me anyway, there is the factor of what brought you to an area and does it feel worth it to you? I think about this whenever Seattledude disses Seattle. I lived in Seattle for a couple of years, and really loved it. In contrast, I have lived off and on in coastal California for several years, and don't like it much. But I loved my work in Seattle and have been much less happy here professionally, and I know this has had a big impact on my perceptions of CA vs. WA.

seattledude,

“About 1980 was the peak of everything. ”

SFWoman

Except for hair. Everybody had really, really bad hair.

LOL!

Central Coast said:
In San Luis Obispo the fight to keep newcomers out and new development from growing has been lost due to State threat. CA threatened to take away funds because SLO wasn’t doing it’s ‘fair share of growth’.

Interesting. I had heard that restrictions on growth had been loosened, but didn't know why.

Does 1980s fashion critique count as forbidden boomer bashing?

Hey Seattledude,
Well as it so happens, ALL of my family live in the South and Western states. So in reality, most of my friends and family live back where I am thinking of moving back too.
As far as a reply to SFWoman,There are many many things that you can't do here in SF that people take for granted back home. Small things, but I miss them just the same. For one, you can have a huge yard where you can do whatever the hell you want. Interestingly enough, back home, I grew up on 22 acres, a ridge behind the house, a 2 story workshop, an inground swimming pool, 2 fireplaces, a greenhouse,a screened in porch with windows facing the woods that also had a small fireplace. A fruit orchard, and a hiking trail that went over the ridge and into the neighboring area.This sounds like an amazing place doesn't it? It is. It would surely cost you millions here. My parents are School teachers making less than 35k a year each.Their house and property even now is valued at around 135k.It cost 22k in 1974.As you can easily see, they live way better than I do, and very likely you as well, despite the fact that you sound somewhat well off.
People here in SF have to use public land as their backyard. If you want to go enjoy the outdoors, you have to drive somewhere. We just had fun in our backyard because it provided just about all the comforts you needed. You could do whatever you wanted too because the neighbors lived about a half mile away.
My brother just bought his first house in downtown Nashville for 55k. He just bought it outright. The guy works as a waiter. Do you know any waiters in CA who can do that?
Now.. I can imagine someone from CA who moves into a "flyover" state, well of course it will be diffrent for them. How do you think CA is for me? I've been here for 8 years and still I shake my head at just how stupid it is that people are willing to delay their lives for decades for what? A tiny little house that we in NC would bulldoze to make way for something more energy efficient. I stand firm when I think that Californians and New Yorkers need to get in a bus, take a road trip, and get some sense slapped into them. The value is simply not here anymore. There is no mystery.

dt said: So, now the questions is, what do we prefer. What do we really want? Do we like that proposition 13 or we don’t? I’m sure CA home owners love the proposition 13. Which home owners would want to take that proposition 13 away?

dt: I still hope to be a homeowner someday, so I like proposition 13. When I lose all hope of ownership, I will want to take it away. :evil:

This was my first use of smilies. I said :evil" but I wanted :twisted:.

I'm baaaaaaack. Too much to respond to, so I'll bullet:

--NIMBYISM (Communism) Bad. Capitalism, low taxes, red states good.
--CA: Love it or leave it. I love it. It is a PITA, though.
--God bless George Bush.
--I was in Sac yesterday. What a Shit hole.
--Our founding fathers distrusted democracy for a reason. CA and the war of Northern Aggression are two examples of their wisdom.
--CA has much pain ahead--but it will reform. Hang in there.
--29 is a tough time in your career--the bottom fell out from me at that age thanks to the tech bust. Two steps forward, one step back. It gets better. Aim high. Never too early to figure out where you want to end up.

And finally, I have been trying to talk friends out of moving to Oregon. They have read that home ownership is the "Cornerstone" of your financial future. Not if it becomes a "Millstone" around your neck. No place is perfect, not even if cheaper prices give that illusion. Learn to love where you're at. If people in Sacramento can do it, I guess anybody can.

--Beer deficiency BAD. I'm going to cure mine.

Peace
--Deo Vindice

I almost forgot my advice for baby boomers:

Plan on dying before your peers. Gen X and Gen Y hates you, and we will overcome you through your attrition. I would hate to be the last baby boomer left. You will be lonely in your kennel after we confiscate your assets to pay your debts.

--Deo Vindice

DiNor: Thanks. It's nice to be missed.

dt said: I believe the RE bust in the 90s because there were probably of job lost or not enough household income to cover the monthly payment.
Where as right now, the job growth seems good. Many companies are doing well.

dt: Job loss is often cited as the cause of the 90s RE bust, but prices had started to come down prior to the big job losses. It will likely be worse this time, with so much recent job creation being in RE.

Crashes occur because overvalued prices stop going up further.

Where are the NIMBYists when we need them to enforce single-family zoning rules?

Here in Texas, the real estate market is very strong. Property values increased an average of 3.3% over last year, which is pretty much in line with economic growth and inflation. Of course, some areas of the state–San Antonio, Austin, Dallas, Houston, Corpus Christi, McAllen–are doing better than others–El Paso (which I would never advise anyone to even visit).

I hope California can be as pro-growth as Texas.

California, on the other hand, is anybody’s guess. Without any inside information on the market there, I would expect prices to fall to where they are more in line with income and economic growth. Bad for sellers, good for buyers.

Very true indeed.

Is this ScottC the same as the previous ScottC? I like this one. :)

I never hated realtors anyway. But I still like the idea of Open MLS.

Free market, banzai!