patrick.net

"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.

Just go to zillow.com and you will discover something interesting in Palo Alto:

Houses above 1.5M sustained a relatively stable trend all the way from 1999.

Houses below 1M went relatively no where before 2004. Then they shot up sharply.

It is not hard to see that one is caused by wealth and one is caused by debt.

Since debt = wealth, perhaps I have been talking nonsense. :)

If the salary quoted by bb is true, I think most of the companies in the SV will have relocated to Austin, TX, and their employees will happily obliged too.

Give me a freaking break, 140K for a QA, lowest on the food chain. If your QA costs 140K, how much should you be paying your code-spewing engineers? 180K? Then how much should you be paying your group product managers, program managers, biz dev directors? Everyone will be making 250K plus and yeah, the next thing we know, we are all paid in US peso.

Now I am not saying that the "wealth" behind these higher-priced homes cannot go away, but it is more real than Greenspired liquidity.

Good luck. If I were you, I would be looking into relocation or even outsourcing. How can you compete?

...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

Congress is just the entertainment ministry of the shadow government. They don't care if the U.S. spirals into a black hole of debt. Congress has its marching orders and the ultimate goal is to level the world economy so that a new order, one world government, can be established.

Unalloyed, have some faith in your government. Bubbles have been rather common throughout history. It is not the end of human civialization.

BTW, a 300K combined household income can barely support a 1M mortgage.

I can give you some examples of houses above 2M coming down since 2001.

I have been tracking acreage properties in Los Gatos, Saratoga, Cupertino and Los Altos Hills, I can find quite a few examples that their current asking price is LOWER than the price purchased back in 2001. Here is one example:

15289 TOP OF THE HILL RD, Los Gatos, purchased in 2005 for 2,650,000, currently available for sale at 2,195,000

I can give you some examples of houses above 2M coming down since 2001.

Yes. However, it is probably safer to hold one 2M house than 4 500K condos. :) (NOT INVESTMENT ADVICE)

These higher-priced houses are much less detached from the reality than liquidity-driven shitboxes.

I am not saying people are not making that kind of salary, I have plenty of friends with 250K+ household income, but they are all people armed with ivy league degrees, JD/MBA, 5-8 years of working experience.

QA on average make south of 80K, maybe if you are the best QA in the whole wide world you make 120K. You make it sound like every QA is making that kind of money is such ridiculous. It is not like we don't know anyone in these companies and don't get headhunting calls. Quoting a few examples out of hundreds of thousands is called a bias. The valley always has a place for the elites, but not for there are just not that many elites that support so many multi-million dollar homes.