patrick.net

The Denial phase could itself be very long and drawn out. We'll need to keep coming here at least until the False-Hope/Dead-Cat-Bounce phase is behind us.

There is a higher level to discuss. We are going to see a sea-change in American politics at the nexus of the bubble collapse and the social welfare state collapse. It is going to be a big deal. Below is a link that addresses what I have been going on about:

http://www.financialsense.com/fsn/BP/2006/0218.html

Just scroll down to the part under "Tax Revolt". Excerpt below:

"And so what we’ve got here, John, is you’ve got these large welfare redistribution states – many of the blue states on both coasts – and there’s an article in Barron’s this week and it was called Revolution on Wheels, and they were talking about quietly and very subtly individuals, families, private businesses are moving out of high tax states like California, and New York, and they’re moving to places like Florida, Nevada, and Texas. And just to give you an idea, between 2000 and 2004, high income paying individuals totaling almost 1.3 million people moved out of high tax states, and they moved to states that don’t have income taxes. I had a friend recently just moved to Florida when they raised income taxes here in California the last year, 10.3, he said, “that’s it, I’m out. I’m gone.” And what was the first thing Tiger Woods did when he signed all his contracts is he moved out of California and domiciled and bought a home in Florida."

Less of a habit for me as of late, since I'm fairly certain we've seen the top of RE: July-Aug '05?

Is there anything left to debate?
Perhaps, but I think the next real "event" will be Spring inventory levels.
Won't that give us a clearer picture of things to come?
Until then, I'm sure there's plenty of room for speculation.

Very interesting post on the "quiet" exodus out of Cali.

I think some people can sense that things could get a little ugly
if the welfare checks stop rolling in.

All those real estate jobs holding the house of cards up.

No McJobs for the welfare class, since illegals own the jobs "Americans won't do," if/when the gov't. checks stop rolling in.

Could get fugly.

I lived in Arlington TX for a year. Not to shabby!

Big house, little money. Nice to ride out the storm and keep your equity stash dry.

CA is a net *contributor* to the US General Fund, which fuels the welfare budget. By and far CA sends more tax revenue to DC than it receives in various forms of welfare; even more drastic when measured per capita. This is true even when including agricultural and mining subsidies, which tends to correct for other net contributors (but not all).

The real correlation has nothing to do with "red/blue" states. It has to do with population, which is concentrated on the coasts, and happens to be "blue". Interestingly, when considering ag & mining subsidies, most "red" coastal states become net recipients (because of the SE coastal states).

I make take no political position on this other than to correct stylized/spun data. There was a report from the Congressional Budget Office (non partisan, Republican controlled) a couple years back that showed that a flat-tax or value-added/consumption tax would increase the burden on "red" states by over 50%, while unburdening the "blue" states by the same amount. Draw your own political conclusions.

Max: I'm in the same boat as you. I've come to one conclusion. I'm just going to focus on making a lot of money.

Seriously, if there is one lesson of "Rich Dad, Poor Dad", it's that being wealthy is a decision. I plan to focus on improving my sales skills, bringing in big checks, setting my wife up in a business, and making the best investment decisions that I can make with the best knowledge that I can learn.

Notice, I didn't say that I know how to solve any of the above problems. It's all about me, and my family. Deo Vindice, incorporated. I think that it is important for everybody to remember that we are all responsible for ourselves and our family. No one else is responsible for my problems. I am not responsible for theirs, and I can't fix them anyhow. Besides, such talk pisses off liberals, the beneifts of which should be obvious.

--Deo Vindice

"I visit Ben’s Blog but it’s sooo civil!"

I don't have to be civil? Great! Randy H: WTF is your deal! Please reread the article. This is not about whether Red States or Blue states get more back from the feds. It is about the fact that there are no razor wire fences or guard towers around San Francisco, Boston, NY, NJ, or any of the other communist Blue States. The commies can't make the wealthy people stay and pay taxes. Period. Big problem for them. That means that only Left wing college professors, the Kennedys, and poor people are going to be left in the combined Blue State "Worker's paradise".

But then again, maybe the lefties should just come out and put up the fences and guard towers. At least it would be more honest than lying to people that they are all about "Power for the People".

There was that uncivil enough?

--DV

I am contantly amazed at people I know who are buying real estate and also deny there is a bubble. Souls on other blogs call me defeatist, doom and gloomer through their self assurance of how optimistic they are.

I am constantly amazed at how I can be called a communist, an Ayn Rand nutso, and a whacko right-wing market fundamentalist all in the same blog; all just for pointing out objective data.

DeoV, perhaps you should apply your "communist" label to the confiscatory, market disrupting actions of the Federal government too. Hell, let's all go live in Ayn's paradise; then I'll be the only one's who's happy.

(direct answer to "WTF is my deal": it's called objectivity.)

btw,

is you’ve got these large welfare redistribution states – many of the blue states on both coasts

This is an objectively false statement, which also evoked the mythical red/blue facade of polarization. The states referenced have greater uneven wealth accumulation, not redistribution. But then again, I'm a commy sympathizing free-market facist.

"Failure is part of doing business, and time you spend bitching about it is time you waste not learning from your mistake and going forward."

I like to say that failure is on the path to success. I sure did a lot of failure in the tech bubble, and I learned from mistakes. Nobody picked up the pieces for me. I am better for it.

Key lessons: Never bet more than you can afford to lose. Never too soon to figure out where you want to end up. It's the journey, not the destination. Liquid wealth means more choices for you and your family. And of course, buying all that crap at the malls just makes you unhappy. Find ways to spend quality time with your family that are free. And don't smoke cigarettes.

--DV

"You think you know. But you don't know."

Jim Mora, Head Coach, New Orleans Saints

Caligirl,

I don't believe anyone has a monopoly on predicting the future. The downturn could be long and drawn out, or rapid; both are theoretically possible. (There even could be no significant downturn at all, as unlikely as that is).

You should measure all the normal quantitative things like affordability, etc., then make a quality-of-life decision. Especially if you intend to stay there for many years, you can then buy and ignore the market and the maelstrome falling around you. Just make sure you can afford your mortgage in the "realistic worst case" scenario, and don't second guess your convictions.

Just make sure you can afford your mortgage in the “realistic worst case” scenario, and don’t second guess your convictions.

Also, do not assume that it is possible to refinance. Choose a financing option that you can commit to for at least 7-10 years.

"Rumors of my demise have been greatly exaggerated."
Samuel Clemens

"I'm not dead."
"Yes, you are. Be quiet."
Monty Python and the Holy Grail

Lates FHFB median sales price date for San Jose-San Francisco-Oakland CA*

4th Qtr ‘04………568.9
3rd Qtr ‘05………649.3
4th Qtr ‘05………679.9

http://www.fhfb.gov/GetFile.aspx?FileID

Correction, average sale prices.

Lates FHFB median sales price date for San Jose-San Francisco-Oakland CA*

4th Qtr ‘04………568.9
3rd Qtr ‘05………649.3
4th Qtr ‘05………679.9

Microstrategy is alive and kicking!

Jan 99 ... 31.50
Jan 00 ... 231.00

Randy H:

Thou dost protest too much. I did not call you a commie, or a fascist, and how did Ayn Rand get into this? The Red states are just dividing the spoils. That's what winning elections does for ya. Besides, those tax dollars going to red states are partial restitution payments for the War of Northern Aggression.

"This is an objectively false statement, which also evoked the mythical red/blue facade of polarization".

Well, I guess if the polarization is mythical, then there is no need to go back to cleaning my guns. Damn, I thought I was gonna get a chance to bag some yankees.

"The states referenced have greater uneven wealth accumulation, not redistribution."

Then why am I paying all that money to the state of CA? 10.2%? They don't even have to shovel snow. No wealth redistribution in CA? Are you shitting me? Nothing to see here. Please move on. There are no US troops in Baghdad. Berkely is just misunderstood; they just need to get in touch with their inner-Republican. "We're not anti-capitalist; we just hate corporations." Oh yeah, no wealth redistribution in NY either. Hillary is a center of the road moderate. It takes a village? More like a commune. Puleeeeeeze!

And are you saying that there is not uneven wealth accumulation in red states? Have you ever been to New Orleans? Apparently, having lots of wealthy people (Blue states) means that you have to have crushing tax burdens, even though you aren't redistributing it? Huh?

"DeoV, perhaps you should apply your “communist” label to the confiscatory, market disrupting actions of the Federal government too"

Well you got me there. To quote a great American, "I believe that taxation is tyranny". Isn't Bush trying to cut taxes? Aren't the Democrats fighting him on extending the cuts? Aren't the dems in congress from, let's see, BLUE STATES?

Again, I say WTF? Do you just make up all this pseudo intellectual BS for some reason?

Seriosuly, man. Put down your text book. Go crack open a beer.

--DV

Is there anything left to debate? Or are we all coming here out of habit?

And why are there still people out there who claim there is no bubble or decline? What’s that all about?

The FHFB numbers lump together the last quarter of '05 and don't separate October versus November or December. They obviously say nothing about this year yet.

I agree with Max,

"the next real “event” will be Spring inventory levels.

Like Jim Mora, I remain agnostic. But the hard numbers indicate there has not yet been any "decline." At least as of the last official closed escrows in '05 the average home price was still going up in SF (and Sacto too).

I'm guessing that Peter P flamed me with the Microstrategy comment. I'm just not smart enough to get the reference.

I’m guessing that Peter P flamed me with the Microstrategy comment. I’m just not smart enough to get the reference.

I was just saying whatever you think I was saying. Perhaps I was not saying anything. Perhaps I was. Huh?

Randy H:

"And just to give you an idea, between 2000 and 2004, high income paying individuals totaling almost 1.3 million people moved out of high tax states, and they moved to states that don’t have income taxes."

And the jokes on them! There was no wealth redistribution back home, just uneven wealth accumulation! Those high taxes went for what, again?

--DV

No wealth redistribution in CA? Are you shitting me?

Data is a bitch. I don't create it, just try to interpret it best I can. You're free to ignore it if you will.

Maybe it's the fact that I was born in, grew up in, and had my values formed in a "red state" that I am willing to call bullshit when I see it. You don't need any textbook to look up data. And intellectual bullying won't work on everyone (thus the name calling I supose). For the record, I'm very far from a "liberal"; perhaps the real reason I irk you to the point of "WTF"ism. If the either side wants to win my support they'd better start working with facts. Calling it the "war of northern aggression" doesn't change the fact that it was categorically a civil war, dude. Remember, I took the time to read your piece on that war, and I don't disagree with much of your insight. But it was a civil war, by definition, even if incited by the North; the rest is slant. ...Maybe you should lay off the Schlitz a bit and try a Martini or something a bit stronger.

And the jokes on them! There was no wealth redistribution back home, just uneven wealth accumulation! Those high taxes went for what, again?

–DV

And yet somehow CA has the highest inflation adjusted GSP growth in the US. How could that be? They must be counterfeiting money or something.

DEAD PERSON:
I'm not dead!

CART MASTER:
'Ere. He says he's not dead!

CUSTOMER:
Yes, he is.

DEAD PERSON:
I'm not!

CART MASTER:
He isn't?

CUSTOMER:
Well, he will be soon. He's been quite ill lately.

DEAD PERSON:
I'm getting better!

CUSTOMER:
No, you're not. You'll be stone dead in a moment.

Sorry, Max and Kurt S.

What I meant to say was I agree with Kurt S.

the next real “event” will be Spring inventory levels.

Caligirl,

if you are waiting for a bottom, look at Japan and you will find an answer. This won't be a simple reset of RE, but trade imbalance, medicare, pension/SS obligation train wrecks all rolled into one. If you are waiting for the absolute bottom, start looking 7 years later. Silicon Valley didn't hit the bottom until 94 in teh 89 bust, so adding another 2-5 years sounds reasonable for this bottom.

Now, life is of course too short to wait that long. You need to balance out $$$ vs. enjoyment, recently Americans have been trading the former for the latter too much of course, so we shouldn't go to the other extreme either. However, for a meaingful drop from the current level, you should hold out till at least 2009 when the biggest wave of ARM/I/O/ Neg Am reset (about 4-5 trillion worth of mortgage) are behind us. The biggest refinance wave of mortgage will hit throughout 2008, so you definitely want to see how much housing price will be drowned out by that avalanche.

So in a nutshell, the earliest you can buy is late 2009.

bb, thanks for the misinformation. Debt = wealth, there is no housing bubble.

The point of public relations slogans like "Support Our Troops" is that they don't mean anything... That's the whole point of good propaganda. You want to create a slogan that nobody's going to be against, and everybody's going to be for. Nobody knows what it means, because it doesn't mean anything. Its crucial value is that it diverts your attention from a question that does mean something: Do you support our policy? That's the one you're not allowed to talk about." - Noam Chomsky

To paraphrase the great Joaquin Andujar of the St. Louis Cardinals:

"You can sum up real estate in one word: You never know.''

No tax cuts until we cut spending.

If we do not cut tax first, the government can always find ways to spend. We should cut tax first, then we can starve unnecessary programs.

It’s clear that rent-to-price ratios south of SF aren’t nearly as good as in SF, but it’s hard for me to get a very clear picture. I think a good-size house (4 bed, 2-3 bath, >2000sqf) on a quiet street in a good school district (such as Cupertino) would rent for $3000, but I’m not sure. Such a house would probably sell for $1.2 million, so the ratio is clearly much worse than in SF where $620K condos rent for $2300.

Yes, if I must buy now I will probably do so in San Francisco. Also, houses above 1.5M-1.75M may be overpriced but I DO NOT see a bubble.

Luckily, a 2/2 is all I need. I do not have to look for a house in a good school district.

I’m trying to figure out how much nice houses in good school districts rent for on the peninsula.

I am in the market for a rental because my lease will be up and I am escaping from San Jose. All I need is a 2/2 apartment/condo in a nice neighborhood. I like to live among older people (45+ years old) because young people scare me. Any suggestion?

You can sum up real estate in one word: You never know.

So they knew when prices were going up. But we never know if prices will come down?

I have a friend who is a director at Google, if there is a position paying 250K per engineer, I can tell you there won't be more than 5 people in the entirely valley fit for what that position calls for, and most probably they are happily employed elsewhere.

If your company is paying 140K for a QA, no matter how senior that QA is, your company will fold in the next 24 months. We pay our H1Bs no more than 100K, even for those perpetual H1Bs who have been in the trade for 5+ years.

Unfortunately that isn’t working. Instead they just keep raising the debt ceiling and let the next generation deal with it. There seems to be no consequence for the current congress to have such a high deficit.

True enough. But privatising much of the government should help.

I like to live among older people (45+ years old) because young people scare me.

Funniest thing I've seen all week. :roll:

Peter, I didn’t say there is no bubble. The point I am making is that the current average household income in the silicon valley can hold the bubble for much longer than what is being preached on this board.

It is not about how long the bubble can be sustained. The stock market could have been sustained indefinitely because there was NEVER any affordability issue (you can buy 1000 shares, 100 shares or 1 share), but it did not. It is a game of psychology.

If the employment market is that good rent would be through the roof by now. It is still WAY (40%) below 2000 level.

The salaries you’re quoting sound about 15%-20% too high (unless things really changed significantly over the last year or two).

Or perhaps you have to start paying your minions more. Just kidding. :)

Anecdotal: Took my tax binder to the CPA today. He said there's no question the RE market is headed into a steep decline.