patrick.net

"Well, there’s no real value there..."

_smile_

"so I think the situation here is a little different"

Ah. But *how* different?

Anyway, Face makes good points. I'm willing to concede that the downturn may be more muted in prime areas of the Bay area. Except for the Marina. Which will fall into the ocean. Twice. After catching on fire. Twice.

Cheerio,
prat

Sacramento is DOOMED _fist clench_ DOOOOMED _fist clench_

My husband and I went to dinner tonight at a friend's who is moving to Oregon (new job). Anyway, he sold his 1500 sqft home in a modest neighborhood for $450,000. I don't know what comprable homes go for in the bay, but for here that is waaaaaaaaaaaaaay too much money. The new owner bought it as an investment property and has to ask $1500 to break even (they put $200,000 down). I'm glad for my friend though, nice guy and he made over $200,000 on the deal. He bought a home in Oregon for $270,000 that's a little over 2000 sqft.

It's funny though, we pulled up to their house and the guy across the street is taking down his open house sign. There are literally open houses on every corner these days. I can't believe our friend sold their house for so much. But I guess the buyer is like everyone else out there, convinced the market will go up and up and up. The buyer is a nurse and her husband is a janitor at the local community college. They made the $200,000 from another investment property and had to reinvest (I don't know the tax laws, I'm guessing capital gains??) I think there is a good chance they are going to end up upside down in the property, but we'll see. At least they had a down payment.

I didn't ask. The home is still in escrow and I didn't want to mess things up for my friend. (we met the new owner-to-be with the thought of maybe renting, but we don't want to pay that much. It's $500 more than we pay now for the same sqft.)

Well, there’s no real value there, but that’s the currently hot thing to invest in, and prices will remain high until people decide that something else is better as a way to secure their future. This may take a long time, however.

It may not take long...

I am getting so many oil and gas spam mail that it is not even funny.

Sacramento has so much buildable land within 20 minutes of downtown that real estate speculation is truly incomprehensible. The weather is better than Las Vegas, but the restaurants are not as good. :)

They made the $200,000 from another investment property and had to reinvest (I don’t know the tax laws, I’m guessing capital gains??)

Probably it is the tax-deferred 1031 exchange. This part of the tax law appears to keep investors from wanting to get out of the game. Sometimes, it is better to pay the tax and leave, you know.

The Sacto housing boom is inexplicable to me. The only thing to offer is proximity to the BA, and how far is that going to go in the long run? There are nice suburban areas out here, but not enough to justify the prices. Other areas that have benefited from BA transplants, like Modesto and Stockton also have high crime rates. So much for intangibles there.

But the main difference between us and the BA is all the land out here. The builders have not been idle and it's only a matter of time until there is a major housing glut.

It's definately risky to pay too much for another property rather than pay the taxes. But I think there are so many novice investors in this market that they're either not experienced enough to see the dangers, or they just get greedy.

SactoQt, I believe that the housing glut in Sacto is already building up.

Do you know when did the boom begin? It appears to be running out of steam already.

On the other hand, I am unable to see signs for a slowdown within the city of San Francisco yet. Can anyone give some input on this?

It’s definately risky to pay too much for another property rather than pay the taxes.

The psychology is quite easy to understand. People try to be savvy and optimize their tax perhaps too well. Consequently, they find more reason to stay in the game.

If I remember correctly 1031 exchange requires the replacement property to be of a higher value. As a result, people find themselves deeper in the game as well. Sad.

Also, I drive home along Alpine road in palo alto to hit the Stanford range after work sometimes and there are at least 10 For Sale signs up between 280 and Stanford.

Prat, don't you like the Palo Alto Muni range better? ;)

I remember seeing lots of "signs" along Alpine road too. I am seeing more and more unsold Palo Alto condos. Looks like it has begun...

The boom here has been going on for about 5 years or so. I really do think traffic from the BA started the upward movement in prices, and the lower interest rates really got the train in motion (now just waiting for the wreck). I'm saying 5 years because I got married 7 years ago, and I remember you could buy a modest 3bd home for less than 200,000. Now that same home is going for $450,000 in some areas. The first 2 years I was married, my husband and I thought we had time to save a down payment and buy. And at first that seemed reasonable because prices stayed pretty level. The next thing we knew prices started shooting up way faster than our income or savings could keep up with. We thought things would level off after a year or two, and then we'd buy in. But the train kept a rollin' (as the song goes...) But we are seeing significant numbers of homes on the market now, so I think it's only going to be another year or two for things to simmer down enough for us to feel comfortable buying. We'll see.

Getting bleary eye'd, think I'll turn in. Night Peter.

Good night everybody... (cat yawn)

P: "Prat, don’t you like the Palo Alto Muni range better?"

Infinitely. But I take 280 to work.

In other news....

http://tinyurl.com/aqw7n

[homer-voice]d'oh![/homer-voice]

Cheers,
prat

Population in the US will *not* be going down after 2020. I don't know where you get that information, but the census bureau predicts otherwise. The young population will flatten out and the older cohorts get larger, but overall population will continue to rise.

http://www.nationmaster.com/country/us/Age_distribution

California population will grow, too.

There is virtually zero chance of that happening.

The chance of the 1987 crash happening: virtually zero
The chance of failure in the portfilio of LTCM in 1998: virtually zero

The new meaning of 10-sigma events: they happen every few years

My scenario?

The market will be down 5% to 10% initially in several major bubble markets. Many people will continue to hold on to the homes. However, inventory will continue to grow with much lower turnover volume.

Mortgage payments will begin to adjust in quantity. Recent homeowners will discover that they are unable to refinance their IO loans and NAAVLPs. With much higher payments and a non-performing market many will attempt to sell...

Not in the next 45 to 90 days, they don’t.

You are probably right.

Population in the US will *not* be going down after 2020. I don’t know where you get that information, but the census bureau predicts otherwise.

Jim, Although projecting that far into the future is dicely at best, I agree that --based on current trends-- the U.S. population is not likely to plateau or decline until (at the earliest) mid-century. The 2000 Census projects we're likely to hit 325 million in 2020 (mid-range projection), and 392 million by 2050: tinyurl.com/a4b54. Most if not all of this growth will no doubt be driven by immigration and high birthrate among immigrants.

We ("Bubbleheads"/Posse) can agree with you on continued long-term population growth being a reasonable assumption.

However, if you are using this as evidence to deny there is a housing bubble, I must disagree. Right now U.S. homebuilders are producing a surplus of 300,000 housing units nationally (SFRs, condos, townhomes, apartments): tinyurl.com/ahqpu. This figure takes into account annual attrition due to disasters, obsolescence, etc. and the net growth in population. Demand caused by Immigration and/or population growth cannot account for the recent run-up in prices.

typo - I meant "dicey" at best

What I consider remote is your prediction that the meltdown will occur in the next 45 to 90 days, but I think you already knew that.

@MerrillClient,

Does this mean you wouldn't completely rule out a meltdown starting further out (say, 1-2 years) and taking years to play out? Personally, I see the panic starting sometime in 2006-2007, when about $ 1.5 Trillion worth of IO & neg-am specials must either (a) adjust to fully amortizing ARMs or (b) get re-fi'd. I can see the full decline taking at least as long as the last down-market cycle (6 years).

*Ahem* -no troll-feeding rule still in effect.

Jim A: "Population in the US will *not* be going down after 2020."

http://esa.un.org/unpp/

The UN low model has US population peaking in 2040. Fertility rates are plummeting across the third world. As I have said, *some* people claim the US population will peak *as early as* 2020. Russia has a declining population. Ukraine is predicted to have 1/2 its population by 2050. _shrug_ I'm not making any definite predictions. If I had to put money on it, I'd put it a bit earlier than the U.N. mid model, mainly because the U.N. is so heavily invested in the overpopulation problem that I can't imagine that it doesn't color thier predictions.

Personally, I find the current demographics crash in the west one of the most interesting stories going...

Cheers,
prat

MC: " just looked at that housingbubble2.com site and you all are far more rational then the average poster there"

Rather damning with faint praise, no?

_smile_

Cheers,
prat

I don’t know, and I don’t care because I don’t buy my primary residences based on short time horizons, and I don’t buy investment real estate that doesn’t pencil out.

MerrillClient,

I think this is true of the large majority of posters here, be they current owners or renters, bulls or bears. Most of us are very anti-speculator, but are very concerned that so many buying houses today are just that. The eveidence from NAR/CAR themselves indicates that a lot of the so-called demand is really people flipping (and using risky loans) to get a quick payoff.

I too wouldn't buy RE "that doesn't pencil out", which is what I think of most property for sale on both coasts right now. We've really entered a phase where house prices have gone WAY beyond the historical close-to-the-beach premiums and are now into truly unsustainable territory in terms of incomes & price-rent (PE) ratios.

Baby boomers, PIBs or not, I highly doubt the BA will be spared from a correction/crash, though I agree "prime" areas will probably hold up relatively better than less-than-prime.

Rubbish. What it prevents is elderly people on fixed incomes from losing their homes to the tax collector.

If it only applied to low-income seniors, I'd agree with you. Unfortunately, it does not, and this type of comforting/self-serving propaganda is one of the reasons why we're still stuck with this socialistic turkey.

@MC,

Sorry if I came off a little sharp with that last post --I'm not a big fan of CA redistributive/centralized planning schemes, whether it's redistributing the tax burden from pre-existing buyers to new buyers (generational redistribution of wealth) or NIMBY pseudo-ecological urban limit laws. To me it's all just a variation on "I've got mine so screw you" anti-development hypocrisy.

MC: "Rubbish. What it prevents is elderly people on fixed incomes from losing their homes to the tax collector."

I'm actually all for abolishing property taxes, as well as income and capital gains taxes. Anyone interested in my national sales tax idea?

Hello?

*taps mic*

Is this thing on?

Cheerio,
prat

Consumption taxes instead of asset and income taxes? This would unambiguously tax people based on their lifestyle. The more you spend the more you pay. Live frugally and you pay less tax. Live like a Kennedy and you would pay far more tax than a Kennedy currently pays.

I’m actually all for abolishing property taxes, as well as income and capital gains taxes. Anyone interested in my national sales tax idea?

Taxing only CONSUMPTION! *gasp*...

My God, man, this the U-S-of-A! I'm entitled to my food-coupon purchased tax-free ding-dongs! I absolutely MUST have every nook and cranny of my NAAVLP-purchased home crammed full of Wal-Mart's offshore goodies! I'd just die if I couldn't lease a new luxury SUV every 2 years!

That's just un-American, comrade... ;-)

Foreign businesses have a tax advantage over U.S. companies. A consumption tax would eliminate their tax advantage. We are losing taxpayer corporations to foreign domiciles as capital seeks the lowest cost environment. Tax is a major cost in calculating after-tax ROE. We are chasing jobs and tax receipts offshore with our existing tax policy.

No worries, but if you think only low income seniors would lose their homes here in CA, think again. My home has gone from $35,000 in 1950, to a land only value of over 3mil. (ocean bluff lot). My property taxes alone would be close to or at 3k per month.

@MC,

I certainly don't want to see anyone lose their home to the tax man, but... you have a house worth THREE MILLION BUCKS and you're worried about a little tax bill??

Abolishing Prop. 13 is the least of your worries, bro. I should be so lucky to have such "problems"...

Astrid: Do you really think that low income people consume more than the rich? Clearly a consumption tax would be paid mostly by the rich, in proportion to how extravagantly they live (consume).

This is particularly true if food clothing and shelter are exempted from the tax. Thus the tax would only apply to discretionary consumption.

However, as a wealthy person I do not want a consumption tax because I feel I would be taxed heavily twice. The money I have saved is the net after tax (taxed once), and I think it terribly unfair for me to pay tax on it again as I spend it in retirement (soon).

Veritas: It is a misconception that a consumption tax would screw the poor. The poor would likely pay no more than now. Other than economists, very few people understand that ultimately all taxes are imbedded in the price of the goods sold. Thus the current tax system is all about who collects the tax, not who ultimately pays it. Corporations do not really pay taxes because they include their income tax in their pricing of the goods and services. In reality corporations are little more than tax collectors, collecting tax from their customers by imbedding the tax in the price.

Worse yet, many companies pay little or no tax because of loopholes and accounting tricks. Those companies with offshore parent companies have many more ways to hide from paying tax. We should tax all corporations on their revenues to eliminate this advantage.

Case in point: MC got his, screw the rest of you.
_nod_ to astrid

On to the other post on taxes....

A system solely based on consumption (which means 30-40% taxes on everything) is 1) difficult to enforce and will encourage all new levels of tax cheating,

No doubt there will be cheaters, but isn't cheating already rampant on income and (especially) corporate taxes? How much of the federal tax bill was paid by corporations or rich people last year? Plus, if most every state already collects sales taxes, why would it be 'difficult to enforce'?

2) fall disproportionately hard on low income people who spend more of their money on immediate consumption,

I wish it were otherwise, but our tax system is becoming less and less progressive with each passing year, not to mention a nightmare of complexity & special interest loopholes. With well funded lobbyists running the show, I don't see that changing anytime soon. It's hard for me to see how a flat consumption tax --while not perfect-- could be any worse than the current system.

and 3) does not tax wealth.

You have a point here. I'm not against all forms of wealth tax --I was never in favor of phasing out the Inheritance tax, which is just a way of passing along un-earned generational wealth to children of privilege. I'm also not against property tax for the way it tends to keep RE prices in check.

Peter-

It is my understanding that sales are down in Marin because inventory is has been lower than usual for quite some time. Has this changed?

Jack, I am now Peter P. That P is not this P.

Harm: People with the top 10% of incomes pay approximately 60% of all income taxes.