patrick.net

Virtually nothing of money management is taught to citizens

I remember taking a "Time Value of Money" lesson in an 8th grade econ class. But even if such courses were competently and widely taught, would it matter?

People already know that paying $500 over twelve months at an easy credit store for a $300-at-Wal-Mart item is foolish. Same with waiting all night outside an Apple store to overpay for an I-Phone. Ditto the 7 year auto loan, maintaining a credit card balance, and generally spending more than one earns.

Teaching kids finance is a good idea, but I think the real issue is financial disipline. Gotta break them out of the "take it home today" habit.

I would not angrily denounce "society" for any individual or collective lack of judgment. You will need to prepare your kids to live in "society," where they will face pressure not just to overextend, but to smoke, drink, do drugs, and put out.

Teaching kids finance is a good idea, but I think the real issue is financial disipline. Gotta break them out of the “take it home today” habit

Why? We need willing consumers to help grow our economy. I am against teaching those who are not interested in learning.

Best evidence of global warming yet:

http://tinyurl.com/3qbae4

Best evidence of global warming yet

LOL!! Either proof of global warming or of better waxing techniques.

Paul says;

Ouch - anyone notice the spike in 30 year Jumbos now at 7.21%

Encouraging. Let's hope the "spike" is just the start of a trend up.

I for one - living off the interest on savings - could sure appreciate some more "Volkeresque" interest rates right around now. How about setting a floor under those interest rates set by the Fed - maybe CPI + 2%? :?

How about setting a floor under those interest rates set by the Fed - maybe CPI + 2%?

No. Then they will find a way to revise the CPI all the way down to 0%.

The Merc is such a joke. Hard to be sympathetic for the first two famililes in the story.

http://www.mercurynews.com/ci_9444900

cb :

The Merc story rhymes with what I have been saying ad nauseum.

Even in these Fortress areas, these high salaried people have stretched thin. Earning so much money - over 200K a year - should let one sleep peacefully. But that doesn't happen when you buy a 1M+ home. If not that then you became a slave to a home that you don't really like.

Unlike many people here who think job recession is necessary for prices to go down, I have argued that higher interest rates would be enough too. But so far neither has happened. So the debate is yet to be settled. But we already are seeing effects of tighter credit conditions even in Fortress. Overbidding is almost absent - unless the house was deliberately priced low to start that.

I have to admit my total surprise - people are still buying at these prices in Cupertino - a market I closely watch. Still willing to give up so much quality of life and future savings for an unshaken belief that prices will not go down here. And still not realizing that even if prices hold steady, the real cost of owning will actually leave them poorer when they need the money most.

The negative effects of this bubble are so long term that they are beyond the horizon for most people to see.

>> Even in these Fortress areas, these high salaried people have stretched thin. Earning so much money - over 200K a year - should let one sleep peacefully. But that doesn’t happen when you buy a 1M+ home.

This is exactly what I said before .... We are earning 250K and priced out of Cupertino housing SCAM .... renter in ZIP code 95014 (Garden Gate School)

"Unlike many people here who think job recession is necessary for prices to go down, I have argued that higher interest rates would be enough too."

I totally agree with this.

People will continue to buy when they feel more comfortable to buy than not to buy. The fear of inflation may as well balance out the cost of higher interest rate.

Job fear is entirely different.

>> People will continue to buy when they feel more comfortable to buy than not to buy.

Let them go to hell ..... adios amigos ....

Jus saw a used condo opposite Cupertino Library ... list price 999K.

The Merc story is a joke because the first family stretched thin to buy a 1200 s.f. cottage in Menlo Park which likely costs over 1M. The second couple chose to become a single income earner because one of them started a new company to try to strike it rich. Cry me a river really.

I would never send my kids to a Cupertino school even if I don't have to pay a mortgage. There are many alternatives; for example, many areas that has good K-8 school has less of a school premium. You can just live there and pay 4 years of private school and saved a bundle.

My wife has a co-worker who sent her kid to Harker for kindergarten and complained that they have no money (no sh*t when kindergarten costs over 20K), when I lived in Canada, I remembered all the private school kids were pretty rich, there aren't many working/middle class families that send their kids to private schools.

I just bought a one year old used car so I asked a guy who I used in the past to come out to detail the car, he was boasting how he just bought a house in Menlo Park for over 1M but it was only 1200 sq. ft.

Also, if you make 250K for a household, why not rent, you will be pocketing some serious change each month.

@OO

The auto loan rates are really low. For certain types of cars (BMW, Infiniti), you can get rates from 1.9 to less than 5%. I belonged to the HP credit union (where I worked many moons ago), they promised loans rates like 4.75% for 60 months. Live a little and get out of the Asian stereotype of Camry's and Accords :)

I wish Toyota would make a 2-ton car with aluminum space frame. :(

Cartels generally die off. Indonesia - home of Royal Dutch Shell Ltd. - has had enough and has pulled out of OPEC.

www.msnbc.msn.com/id/24856026/

StuckInBA,

The negative effects of this bubble are so long term that they are beyond the horizon for most people to see.

This is a very key point that I believe will take on a much larger significance when historians look back upon this period. Combine a general ignorance of personal finance in the majority of the population with a planning horizon set so far into the future that it shakes loose even those with a rudimentary grasp, and I'm not surprised with the stories that are hitting the headlines these days. When I pointed out to my wife we that could settle in an 1860 sf St. Tropez home in the south of France for the same amount many far more pedestrian metropolitan US cities' realtors are claiming is fair value for tract homes or shoddily-built recent construction "custom luxury homes", she readily agreed with me to start looking outside of the US for a permanent home as it is apparent to me now that the US monetary leadership will attempt to save the REIC at the expense of the currency and wealth of the nation. Even with the infamous tax loads of these offshore locations, preliminary analysis indicates to me that we would pay roughly the same, for a better value; there are many aspects I don't like about France, but for a 2-3X difference in what I would expect to pay in the US for the same cachet, I'm finding I might be willing to overlook those undesirable issues.

Lenders and investors in mortgages owned about 660,000 foreclosed homes in April, up from 493,000 in January and 231,000 in January 2007, according to First American CoreLogic ... The April total works out to about one in seven previously occupied homes available for sale nationwide.

... By cutting prices, lenders have managed to increase sales of such homes sharply in recent months in some cities hit hard by foreclosures ... Mark Zandi, chief economist at Moody's Economy.com, forecasts that the inventory of REO homes won't peak before the end of 2009.
...
The REO glut is weighing on house prices in many areas, as banks tend to cut prices faster than other sellers.

The lenders were slow to reduce prices at first, apparently hoping for "better market conditions". Now some lenders are getting aggressive as they realize that holding REOs means even greater losses as prices continue to fall.

From anecdotal evidence, it appears the lenders are being aggressive on pricing at the low end, but are still reluctant to discount mid to higher priced homes. This will probably change as the REOs continue to pile up at the banks.

Price expecatations go a long way in setting prices.

That little piece in hte Merc is showing people what it is like to count on 250k combined income to buy what was intended to be a tract home near a major emplyment center back in the 50s when it was built.

Back then there was no where near the kind of pressure on families just to meet their housing needs as there are today.

Even I these boards I am stunned by people saying, "I expect to pay $750k for my home in San Jose."

Ummm, no.

Change those expecations.

The sacrifice to spend that kind of money on a home should mean a premium home in a premium location. The standard should not be dual income just to cover expenses.

Only New York matches the low quality it the high prices of the Bay Area, and the finance job sector had to overpay its emplyees to do it. And the wheels have come off that bus. Leakage to Wall Street is stemmed and Manhatten shouldbe poised for a flop.

Even if the Bay Area is 'special'. I think that the outlaying areas can be at least as special as the penninsual proper. Indisty should migrate to cheaper areas, even if we do not see the flight to Colordao and Arizona as we have seen previously.

If a couple makes $300K and finds it hard to survive in BA, there's something wrong with that couple, not with BA. If they just pay rent, they can easily find a $3K place that is worth over a mil in asking price. Then, they can sock away a substantial portion of their income even if they go Whole Foods, imported car, European vacations etc all the way.

If a couple makes $300K and finds it hard to survive in BA, there’s something wrong with that couple, not with BA.

Even with 300K, one cannot comfortably afford a "regular" house (1.2M) in a decent area.

Moreover, Bay Area is quite ugly for the price. It is not Left Bank. It is not Lake Geneva. Mind you.

If they just pay rent, they can easily find a $3K place that is worth over a mil in asking price.

How? Perhaps a 1M contractor's special? ;)

A nicer 2/2 apartment in Mountain View with good amenities will cost $3200/month.

We are paying less, but our rental has flimsy everything. Besides, it is on a busy street and with underpowered air-conditioning.

RE: rent vs buy

An "unimproved" crap in a good location can cost little to rent and a lot to buy simply because you do not rent the "potential."

Plenty of choices around $3K for a 3/2 house on a decent lot in Cupertino, Saratoga or Los Gatos, just don't expect any fancy interior. But again, you won't get any fancy interior with a mere $1M budget either.

With $1M, you either get a fancy interior in a crappy location or a crappy interior in a good location.

But again, you won’t get any fancy interior with a mere $1M budget either.

You can get fancy interior for under $1M in a decent location if you are willing to live in a condo or townhouse.

Semi-fancy interiors (worker-bee standard) don't usually cost more than $100K for a 2/2.5 townhouse.

Aventino, the brand spanking new apartment just finished about a year ago along Los Gatos border rents for below $3000 for 2 bedder, very posh interior and amenities. I was visiting a friend there the other day, I'd say that's probably the best apartment I have ever been to.

Spending $1M on a townhome or condo is downright silly. Most of that $1M you pay for a SFH goes into the value of the land, with condo or townhome you get almost no land.

Not to mention the $400+ and fast increasing condo fees which definitely tracks the TRUE inflation. Condos are always the first to crash and last to appreciate in real estate cycles.

Spending $1M on a townhome or condo is downright silly.

One pays to live. Remember that.

Aventino, the brand spanking new apartment just finished about a year ago along Los Gatos border rents for below $3000 for 2 bedder, very posh interior and amenities.

I did check that one out. It was quite nice. Smallish bathrooms though. Nevertheless, back then the units we wanted were not available. Perhaps we should call again.

Check out this $300M townhouse in London:

http://tinyurl.com/5c67v7

If one has $300M to spare on one of his residences, I don't think he is not looking at it from an investment point of view. It's just a toy, very expensive toy.

The rent distribution is is far more volatile than the purchase price distribution across micro-markets in Bay Area. In Cupertino, some apartment complexes charge over 2K for a 2 Bed 2 bath - but I know people who have been renting uncrappy (!) and of course bigger SFH for less than 2400.

If you are willing to spend only(!) about 1M in the same neighborhood, then what you can get is really nothing but a sh1tbox - you have to keep convincing/deceiving yourself that it's all worth it.

Let's not kid ourselves though. These cities/areas are very small. In Cupertino, all it takes is 20 idiots per month to keep the madness going.

What is changed is this. While I was watching over my kids while they were playing in a park, an impromptu discussion started with other parents and topic soon went to housing. Every single person expressed disbelief about what people are STILL paying in this area. Instead of thinking of the buyers as lucky folks on their way to riches, everyone ridiculed them to be the last idiots to hang themselves.

Such are my unscientific indicators of market psychology. Every single one of them is negative. But not enough to go contrarian yet.

If you are willing to spend only(!) about 1M in the same neighborhood, then what you can get is really nothing but a sh1tbox - you have to keep convincing/deceiving yourself that it’s all worth it.

Just tell yourself that it is only(!) GBP 500K. ;)

At a certain level, we can all prosper, no matter what we read in the papers. Most of us are not at the macro level described in the news anyway. I did well in the last recession, as well the one before that, but also hit hard times during a couple of boom times.

I did not know that I lived in the Rust Belt in 1980 -- there was not such thing as the Rust Belt then! I moved to California, where at least I had a chance to find a job. Frankly, it has been a struggle for the last few years already, and I am doing what I can to get out of it, hoping that I am ahead of the curve by a few years. Good luck to everyone else.

As consumers max out their credit lines and banks clamp down on lending, many older and middle-class Americans are resorting to pricey, often-risky alternatives to stay afloat. Some are depleting their retirement accounts, tapping 401(k)s for both loans and hardship withdrawals. Some new fast-cash options allow homeowners to squeeze equity from their houses -- without the burden of monthly payments. One new product offers a one-time payment. In exchange, the company shares in as much as 50% of any future gain or loss in the property's value, typically collecting proceeds when the house is sold.
...
Reserve Solutions Inc. of New York offers debit cards to help workers access funds from preapproved 401(k) loans.
...
Despite the risks, business in the fast-cash lane has been accelerating. In 2007, 18% of workers had taken a retirement-plan loan within the past year, up from 11% in 2006, says a recent survey by Transamerica Center for Retirement Studies.

There are 129 million housing units in the United States, comprising owner-occupied, rented, and vacant units. Of these, 18.5 million are empty. This vacancy rate is 2.5 percentage points higher than it has been at any point in the half century the data have been tracked, translating into at least 3 million too many empty housing units in the country. This number, moreover, is rising. This is the most intractable part of the real estate bubble, for we cannot find a true bottom to home prices until this inventory of empty units starts to clear, and we cannot find a bottom to the mortgage finance market until home prices bottom out.

HSBC quickly stopped offering some of the riskiest loans, including stated-income mortgages, which require little documentation, and those generated by brokers, a channel where it had less control.

But trying to help homeowners stave off foreclosures through loan modifications or restructurings is taking longer than expected, McDonagh said.

A modification is generally temporary; after the end of a certain period, the loan resets to its original terms. A restructuring is a permanent redoing of the contract, including new terms and conditions.

"We typically would do six- to nine-month modifications" for troubled homeowners, he said. "Now we're looking out two to three years because, with the severity of the issues they've got, they need longer than six months to work things out."

The number of modifications and restructurings have been rising and represent 22 percent of its mortgage book, or about $18 billion.

Of that, $1.9 billion in modifications, in 11,900 loans, has occurred since late 2006 as part of a program to address the interest rate resets of adjustable-rate mortgages. . . .

Struggling as we are with the housing bust, the credit crunch, shrinking consumption, rising unemployment and faltering business investment, we can be forgiven for thinking that all the big shoes have dropped. There is another one up there, however, and it is about to come down.

State and city governments have yet to shrink the economy; indeed, they have even managed to prop it up. They have quietly maintained their spending at pre-crisis levels even as they warn of numerous cutbacks forced on them by declining tax revenues. The cutbacks, however, are written into budgets for a fiscal year that begins on July 1, a month away. In the meantime the states and cities, often drawing on rainy-day savings, have carried their share of the load for the national economy.

That share is gigantic. At $1.8 trillion annually in a $14 trillion economy, the states and municipalities spend almost twice as much as the federal government, including the cost of the Iraq war. When librarians, lifeguards, teachers, transit workers, road repair crews and health care workers disappear, or airport and school construction is halted, the economy trembles. None of that, or very little, has happened so far, not even in California, despite a significant decline in tax revenue.

Yea - not enough media play on the budget crisis in CA. It is huge and windening.
Not even a hint of rolling back wages. Or cutting positions.
If CA thinks it can tax its way to a balanced budget it is crazy.