patrick.net

And the 80 year olds are an extreme example. What about the 50 year-old who bought his house for $250k 10 years ago? Today it has appreciated to $1.25mm. This person is still fifteen years away from retirement; he almost certainly considers his home equity to be a substantial part of his net worth. He has probably even factored it into his future plans.

For these reasons, I think that equity-rich sellers resistance to taking a “loss” will play a role here.

Joe,

I think you may be overstating the percentage of elderly retirees who are closely following the market online (or in the MSM) or flipping properties. I don't have the statistic handy, but I'd wager that most seniors still don't even have Internet access --not even in CA. What's to keep such a person from selling for a $500K profit instead of a $1million profit?

Regardless, it is not "needs-based' pricing of the seller that determines the sale price, it is whatever price that will bring a buyer at the time the property is offered. With average residential turn-over somewhere around 7-8%/year, it doesn't take many "motivated" sellers to quickly reset market expectations. IMHO, the really resistant sellers will be underwater f@cked buyers who cannot afford to sell or refinance, and will hold out until the bitter (and inevitable) conclusion.

HARM,

My limited experience agrees with Joe's. These old people know how much their houses are worth. If they didn't five years ago, all the recent hoopla about RE has made them aware. And 80 year olds start thinking very carefully about estate planning and where they leave their money.

@astrid,

You and Joe may be right about that, I'm no gerontologist ;-). Even so, I still stand by my truism: Regardless, it is not “needs-based’ pricing of the seller that determines the sale price, it is whatever price that will bring a buyer at the time the property is offered.

What happened to SQT?

On a whim I wandered to Wikipedia to see what it had to say about different building techniques. The first image in the "Stucco" article was completely unexpected; dating from around 1850 in Iran: "Stucco from the House of Borujerdi-ha".

As for [physical] attractiveness, I think there's a continuum between three poles: cute, hot, and plain. For some reason I don't think I'd find someone at the extremes of the 'hot' and 'plain' categories that attractive. (But then I try to maintain a strict filter on personality and cluefulness, so looks end up being more of a bonus than a selection criteria.)

newsfreak,

Oh, let's get over FAB's thing, maybe guys are different. It was just a tinge impolite to state it in mixed company, even if it is online and semi-anonymous mixed company. ;) FAB probably keeps rather exaulted company offline, so the guys can get hot chicks easily and the women have over inflated ideas of their personal attractiveness.

(Admittedly, I wouldn't want to be with a guy who was TOO good looking or TOO social because I'd be afraid that he'll be cheating on me or ready to dump me at every moment of the relationship. Oh, give me an ole lovable nerd any day)

I have great faith in Canada, not because it has free healthcare, but I think Canadians are some of the nicest people in the world.

because they are in the british commonwealth :P , and knew things would get better if they just waited a couple of centuries...

Joe,

I don't disagree with much of your logic, although I dispute whether the "average" equity rich seller will ultimately sell on needs-based pricing. This gets down to how people negotiate, as we discussed in a previous thread. The seller with a lot of equity has a lot of room to still come out ahead. They are weighing real-life concerns on the other hand, and can easily convince themselves that their "winnings" are worth much less than potentially more "losses". This is basic mental accounting theory.

And, you don't have to agree with the thesis of mental accounting to recognize the massive body of empirically supporting evidence for the effect. Put it this way, if mental accounting theory is wrong then vegas casinos and state lotteries don't make any money.

Robert,

Stickyness won’t apply this time.

I'll take that bet. Loser pays the sushi bill.

I am not big on emperical evidence. Statistics, figures...they just make my eyes glaze over.

Joe
I agree with you especially on the fact that housing prices are well known to the older retirees. When the 2+2 ordinary stucco $hitbox down the street sells for over a million....everybody and I mean everybody in the neighborhood knows about it. The little old widows come out of their stucco $hitboxes and gossip and stare.
It will be hard for people to take less than their neighbors got only 6 mos. ago.Very few will have the courage to sell, then rent for a few years. Believe me...it takes courage and commitment...2 things that sheeple seem to lack.
The agent repping my old house was saying the other day ' All the signs of a housing bubble and subsequent crash were there but nobody was paying attention'...I think this pretty much sums up how blind people have been to readilly available information. But when it's all over the front page news...

Randy,

I agree that most people are risk adversely when well informed (that is: $100K gain creates less pleasure than $100K loss causes in pain), however,
Casinos and state lotteries work because they hold out the promise of life changing millions without apparent downsides.

The housing market will not work like that. Once people realize that housing prices can go down as well as up, their mental arithmetic will change dramatically to accomodate.

Buffpilot,

The new bankruptcy law specifically limited the state homestead exemptions both in time, in dollar amount, and in applicable situations. Furthermore, it basically prevented anyone with an above state average income from getting a clean slate.

The new bankruptcy laws are extremely unfriendly to sheeple financially under water.

"because they are in the british commonwealth , and knew things would get better if they just waited a couple of centuries… "

Haha Different sean, are you a monarchist or a republican... ;)

buffpilot,

There's always political risk, but I doubt enough to rewrite the bankruptcy code in the near future. Foreclosure is a long process with lots of protection for the homeowner, so it won't be a very dramatic process. And anyone making above avg. wage and/or HELOCed themselves into trouble will not be particularly sympathetic.

The government is more likely to do band aid solutions like hold hearings against Fannie Mae/major mortgage brokers/NAR. Much cheaper and easier than going against the banks/credit card companies.

disclaimer: don't rely on my guesses, make your own!

I ate at Panda Express last night fergawdsake. (I don’t think they use real panda). Todai is my idea of fancy.

Panda Express? You need to watch out for eating too much oil though.

At the price of three pieces of Toro, Todai is not too bad a deal.

My mom can buy 9 pounds of live blue crabs for your one piece of Toro!

Blue crabs are indeed delicious (they're usually good after October, but I had some very good ones this April) though very time consuming and quite messy. You can't eat crabs and blog at the same time...

It all comes down to Haiku, so I'll reiterate my previous post, postehaste.

HOUSING BUBBLE HIPPY:

See the butterfly
So high away. Take a toke
As housing crumbles…

Blue crabs are indeed delicious (they’re usually good after October, but I had some very good ones this April) though very time consuming and quite messy. You can’t eat crabs and blog at the same time…

I love crab roe and blue crab has lots of it!

I once had sauteed blue crab and rice cakes in a Chinese restaurant. Yum!

Houses are sticky on the way down only because home debtors have a big pile of cash to blow through or a stable job to make the payment. At the beginning of every fall, you can count on cash-poor, laid-off debtors being the trail blazers in setting new low comps. American housing bubble has a very important distinguishable characteristic compareed to the rest of the world: toxic loans. I have never seen any loan terms as crazy as the ones given out here, it should be called kami kaze loan.

I actually argue otherwise that the long-time holders with extra equity are not going to sell out at a price that they are not happy with. You know property can be passed down at the same prop 13 base right? Why would any parent give that up? Particularly since we are going to enter a high-inflation period, financially savvy parents are not going to let go of the paid-off property. I talked to a couple of my long-time neighbors who own their homes free and clear, they have no intention to let go whether the market is up or down, unless they run out of retirement money (pension or SS evaporates).

Amateur flipping is a form of financial gene pool cleansing. Inexperienced flippers are an effective wealth transfer tool from themselves to other members of the society, when this is all over, we should be thankful for their contribution.

astrid,

Casinos and state lotteries work because they hold out the promise of life changing millions without apparent downsides.

Casinos work because they give wins in big chunks but spread out losses into a series of small events. This is why you can sit there for 3 hours, come out negative, but still "feel" like you came out ahead. You remember the gain more than the little losses.

So, I'll only agree with the "little old lady" theories so long as the correction is _so massive and fast_ that it causes her to take a huge hit all at once. Otherwise, she's going to see the "+650K" from her purchase years ago much more than the "-225K" that she lost from not selling at the perfect time.

And, everyone here is missing the point about mental accounting. This is "house money" (in gambling terms). Most people haven't banked this money into a mental account until they allocate it/promise it/plan to depend upon it. Wins and losses are internalized very differently for them than for the HELOCer, the Flipper, or the FBer.

Anyways, if I'm wrong it will only result in even _more_ stickiness than I already think exists. lol.

Wins and losses are internalized very differently for them than for the HELOCer, the Flipper, or the FBer.

True. Behavioral Finance offers much insight. ;)

Randy,

I also believe that you are wrong about some of these elderly.

I happened to visit a few nice retirement homes here to check out for my parents in case one day they want to move closer to us. So we were given a tour and got a chance to talk to these old-timers. I have to say, I was amazed at the financial savviness of people there.

We are talking about people in their 70s-90s, they talk with a clear mind, know all the CPI, bond rate, exchange rate etc. stuff that we are talking about, because they are explaining payment structure to me and showing me different ways of looking at the financial proposition. They are among the smartest people I have seen, I hope I can stay that sharp at their age. They are all well *AWARE* of the real estate bubble that we are in, some of them sold out a couple of years ago exactly because of that and are very proud to show off about their timing.

Maybe the retirement places were only letting me talk to the sharpest residents, but I am convinced lots of Bay Area old-timers, especially those who did well financially before the dot com, are really no dummies.

AmazedinSF,

If something is legal, it's called "tax planning." :)

AmazedinSF,

simpler than that, just add the name of the kids to the home, then when the parents die, everything is passed down including the prop 13 base, no re-assessment. As long as the parent portion is not over $1M or whatever the estate limit is for that year, no estate tax either.

buffpilot Says:

"Many of you have noted that the Gov may jump in to ’save’ the situation. I noticed a lot of ideas but didn’t hear one I thought of. The Gov. changes bankruptcy laws to prevent the loss of the primary residence. In other words you declare BK, lose everything but the house and dump all the debt. I know in many states (TX and FL) the creditors can’t take a paid for house. That’s how the Hunt’s managed to keep their property after the silver debacle. Could this be the way out for the politicians? The speculators still get killed but everyone else comes out OK. What am I missing - and I assume I’m missing something huge."

If we get a FL and TX style "homestead" law here in CA it will help very very few FBs since the laws only protect homes without any secured debt (not many of the recent bubble buyers paid cash) . If you have a home loan in TX in FL the bank will still get the home even if the owner filed BK…

P.S. Not to drag out the looks issue (that started with a use of the H-bomb term I have never heard), but I think we can agree that most people want a fit, intelligent, athletic, kind and attractive partner. Most guys just put "attractive" higher on the list than most women. When was the last time you saw a good looking young guy dating an unattractive older woman or an older woman looking at a web site with hot looking "mail order grooms" that they can bring to America and marry (I'm not even sure I could find a web site where women select good looking foreign guys to marry and bring to America).

P.P.S. To astrid most white guys find most Asian women attractive (and find almost all hapa women very attractive)...

AmazedinSF,

It's not strictly legal. Doing anything for the sole purpose of avoiding taxation, without a reasonable (reasonable to a jury of your peers) motivation otherwise, is committing strict tax fraud. Taxes are the one area where you are presumed guilty until you can prove innocence.

Notwithstanding, I know tons of people -- especially up here in Marin -- that do exactly that. Our next door neighbors moved into a "McMansion McConversion" (an older house morphed into a Mansion) which would easily sell (according to Zillow) for over $2M. Their assessed tax base is under $300K, and they just moved in last year. Of course, there's a bit of improvements fraud going on there too, but it's still a robbery of the system which everyone else pays for.

This guy at Columbia has done a lot of research into mate-selection, and it's not encouraging. I had him as a prof, and it's even more depressing coming from him directly.

Randy,

your next door neighbor is commiting fraud, because any extensive remodeling will trigger tax reassessment, unless they never got the permit and the city is not aware. Simple maintenance like fixing a leaking toilet will be ok.

I am talking about more legal type of transaction. Parents passing down whatever they are living in to their kids.

Randy,

I'm not familiar with the specific law, but any prop 13 legacy transfer just have to be taken at face value as a tax purpose transfer. I don't think the legitimate business purpose doctrine would come into play because the legislature must have thought of the tax implications and permitted it.

I share Buffpilot's concern but, I am still not that worried.

The government always promises much but delivers little. The big Bush "tax cut" of a few years ago gave the average family what, $300? I was glad to get the tax cut, but even a right winger like me knows that it was just a token gesture.

I suspect that any "relief" for "victims" of the housing crash will be equally meaningless. That's just how gov't operates these days.

part white mixed blood, usually from Hawaii

I am talking about more legal type of transaction. Parents passing down whatever they are living in to their kids.

It's my understanding that such a change in ownership causes reassessment, but I could be wrong. Is there a legal way to wriggle out of that? If so, then why aren't many more people doing exactly that? Seems, at these prices and tax assessments, there would be a whole market for "financially arranged marriages" purely for tax reasons.

Randy,

If incest was legal, marrying your offspring would be the biggest estate tax loophole there is!

AmazedinSF wrote:

> How does this work on transferring the title without
> the property being re-assessed?

Then Owneroccupier wrote:

> just add the name of the kids to the home, then when the
> parents die, everything is passed down including the prop
> 13 base, no re-assessment. As long as the parent portion
> is not over $1M or whatever the estate limit is for that year,
> no estate tax either.

For most people it is a BAD idea to transfer ownership of a piece of real estate from their parents before they die. If the kids are on title when the parents die they will keep the current basis and NOT get the tax free step up in basis ($2mm this year).

http://en.wikipedia.org/wiki/Inheritance_tax

The Prop 13 tax basis pass down has no connection with the federal estate tax laws. In CA children can take over the low Prop 13 tax basis on any number of properties with a limit of $1mm of total "assessed value" (so if the parents bought 10 rental homes in SF in the 60's for $50K each and they all had a current "assesses value" of just under $100K the kids could continue paying about $100 month in property taxes on each of the homes even if the current values were $3mm each and the new buyers of homes on the street were paying about $3,000 a month in property taxes (30 times more)...

Except for white guys and ugly Asian girls. Total mismatch in level of attractiveness, not compensated by money, personality, or sanity qualities.

astrid,

I'm not talking about the legitimate business purpose doctrine.

I'm talking about "actus reus" (i.e., guilty conduct) -- an affirmative act (and not merely an omission or failure to act) in any manner constituting evasion or an attempt to evade either the (A) assessment of a tax or (B) the payment of a tax.

Randy,

I think I misunderstood you the first time. It sounds like your neighbors violated the letter of the law and not just the spirit of the law.