patrick.net

The marginal utility of being right about a housing bubble dwarfs any potential benefit for going the other way.

This ignores the value of Theta. The longer one needs to wait to "be right", the less utility they receive from their position. After all, what you're describing reduces to a real-options scenario on a personal level. Again, this is a collision of macro and micro perspectives.

I agree with you when evaluating things from the top down. I am ambivalent about it when evaluating things from the bottom up. Some people are, could, or will receive more utility from buying rather than waiting. Some have simply deceived themselves of the same. It all depends upon how much you value your personal real-options.

Robert Cote,

I agree with most of what you said but I'm not sure being wrong about housing is merely a zero cost proposition. Not just at a microeconomic level, but with a whole class of people who just totally missed out.

For example, in Shanghai, RE in 1996 or 1997 (when my parents bought their flat) was probably 10X the annual income of their owners. This was high enough that a lot of people hesitated or did not upgrade in time. Those same flats have gone up 3-10X since while wages have less than doubled. The worst part is that there is only a tiny rental market in the city, targeted at migrant workers (ghetto low end) and foreign ex-pats (extreme high end).

People who didn't buy in on time are now stuck in a very difficult position. Nobody in Shanghai would move to a cheaper city. So they're stuck with either living in their current unsatisfactory housing (often crumbling one room apartments) or move into extreme suburbs and spend 3+ hour commutes everyday. Renting up close isn't even an option.

I don't think this scenario would quite play out in the US, but it seems like a lot of people think so. Some people have been brainwashed into believing that they must buy middle class SFH in certain communities, or must buy some home, in order to climb onto the home owning ladder and not be utter failures.

Unfortunately, these guys are likely to find themselves in the same boat as the poor late Eighties Japanese buyer, stuck in an undesireable situation and unable to get out. The only positive for them is that even with the new bankruptcy laws, bankruptcy here continues to be much more socially acceptable out than bankruptcy in Japan.

CC,

Can you come up with something that hasn't been analyzed and debunked hundreds of times already? I welcome counter indicators to the RE bubble, but new stuff, please!

I went to visit a friend yesterday at a new development around Silvercreek area (south of Evergreen) yesterday.

The last time I was there was perhaps 7 years ago, it was truly amazing that once you drove through this little hill, suddenly rows and rows of new homes open up right in front of you stretching all the way to the horizon. Most of them have a decent lot, 12000sf or so, but even more decent is the size of the homes (4000-5000sf). There are also some smaller homes closely packed together for lower price points. The developments there seem to be quite fully occupied.

But this is not what I want to talk about. I want to talk about the vast office space that is left VACANT just below the Evergreen foothill. I first took a wrong turn and ended up in the industrial park right below, the buildings are about 80% empty, even more empty than the infamous stretch along 237 from Sunnyvale to Milpitas. Some of the glittering office space was already being used for storage! of cardboards, packing foam, etc. Driving through the abandoned industrial park, two words came to my mind: Great Depression.

Somehow, I cannot mentally connect the empty office space to the fully occupied housing development a mile away. Why can't the fully occupied developments with bezillion homes at least create some employment for the office space below? Where do these people living in Silvercreek or Evergreen commute to?

However, the good news is, now I know we definitely will have plenty of space available for the homeless and NEOs who will be kicked out of their residence soon. There is no way that rent can go up, if all the empty office space in the Bay Area can be modified to accommodate people, which they will after being left vacant for years, there will be enough housing to go around for 3 generations.

OO,

Ouch! What's the vintage for these office parks? Were they the result of overbuilding during the dot.com boom?

If gas prices go up above $5/gallon (Robert Cote, I promise you this is not one of my environmental screeds, so just bear with me), these vacant offices make good capsule motels for the 100 mile per day heroic commuters.

Silver Creek appears to be about 10 miles from downtown SJ. That doesn't seem too bad of a commute.

CC, you Mom had a different story to tell when i was balls deep in her fat ass, she said she only allows you 2hrs a day internet time before your ritalin. Bad troll, no go rub salve on mommy's bunghole.

Whoops I meant "now go rub salve on mommy's bunghole"

Hey CC why not stop by the blog party this weekend so i can bounce a alum. baseball bat off your head.

rickus, the dude abides

Hey CuriousCat, how's your mommy's bunghole? 35%, hmmm, your head must be very far up your ample ass indeed. All published stats indicate less than 10, nice try asshole, hey isn't more fun for you to post your tired fucking bullshit on craigslist? That way you can get the man/man action you want and post your bullshit to a larger crowd.

Tell you mom not to eat so much corn!

Just stopped by. Nice to see such polite intellectual dialogue.

Charming. You are the silver tongued one.

However, the correct stat is 35%. Here is a rundown on various stats for SF:

http://quickfacts.census.gov/qfd/states/06/0667000.html

BTW, the SF home ownership stat for 2005 is 34.4%... down slightly from the 2000 census.

Curious Cat, Rates are still low, but prices are very high. With higher or lower rates the direction for home prices will be down. Lower rates will mitigate the decline a little... but only a little.

Zephyr, does your Mommy eat too much corn also?

Homeownership rate, 2000

I'm sorry you hermaphrodite fucking moron, did you not fucking see 2000?

Dear WoopAss, oddly enough that is the very same address where I was balls deep in your mom's ass. You really really have to tell her to eat less corn.

Hey Zephyr do you pitch or hit with the other troll? Just Curious. Man you two are so super savvy, why waste your time here? I mean with all the money to me made why bother typing a few tid bits of your financial prowess here? Whoops gotta go, seems your Mom just had a corn dog and needs me to dislodge it from her colon.

tinyurl.com/flrz5

Median home value: $835,000
Median family income: $88,450
Median home value to median family income: 9.4

tinyurl.com/fehrd

tinyurl.com/l66z3

tinyurl.com/f2mlq

tinyurl.com/fh93a

oh shit gotta go, your mom is all lubed up again. But seriously, you have to tell her to eat less corn.

so sorry maggots, one more

tinyurl.com/jk7dr

hey I have an excellent million dollar idea, why don't you partner with ha ha and get a troll only blog? Could be fun for you fucking maggots. Let me guess, no friends, small cocks, and not a lot of female companionship?

Surfer-x, Glad to see you have a useful purpose in life. Good substitution for X-lax. But perhaps you should expand your marketing. Explain to the world how you are superior to x-lax... if in fact you are.

Lower rates will mitigate the decline a little… but only a little.

Let me guess, 5'8" or so?

One difference I see is that with X-lax all the shit comes out from only one end.

Surfer-x, My dog ate too much corn tonight. Can you come over?

I don't know about Californianisms, but howabout "smucker" and "pritch"?

example:

Look at that below average height smucker and his horse faced pritch in their H3.

We could have a couple brewskis afterwards... Heinekin, of course.

Bap33,

You're right, it was wrong of me to mess with those classics. :oops:

Surfer-x, My dog ate too much corn tonight. Can you come over?

Let me guess, your German Sheppard is fucking your Mom and you're selling tickets on craigslist to offset your RE losses?

If so, count me in!

We're having a get together tomorrow, perhaps your Mom and your German Sheppard can stop by for the entertainment.

Surfer-x, I already counted you in.

Robert Cote'

theta only applies if there is only one game to play. I guess if eventual ownership is the given end state you are correct but substituting luxury hotel stays, exotic vactions, etc. for the joys of ownership can be considered compensation can it not?

Like I said, it depends upon each person's own situation and definition of utility. For some, surely luxury hotel stays substitute for home ownership; for others, not. Regardless, theta is a factor for everyone whether they choose to ignore it or not.

Robert Cote,

I just realized that I've been pretty rude to ignore acknowledging your well thought out answers and your questions (got momentarily dazed and confused by the corn based exchange above):

"I ask a few leading questions: Is energy going to get cheaper relative to technology? Do cities have any nonpolitical inherent advantages? What do we call cities with no competitive advantage? Detroit, Buffalo, Rochester. To answer one question, is transit a nonpolitical entity?"

To reply, I'd say that there are definite urban planning opportunities if energy prices go up by a substantial amount and stays there. New York and Tokyo has managed higher density and lower consumption than suburbanites without becoming undesireable. Higher densities afforded by urban centers offer convenience, abundance of various jobs, high quality entertainment and food options. Given the high prices paid for urban center housing versus suburban housing, it shows that some people definitely have preferences for living in urban centers. For some people, higher gas prices or the wear of long commutes may finally tip the balance in favor of high density urban housing.

The convenience and energy efficiency aspect of the urban centers will be enhanced when energy prices go up. Of course, technology may catch up quickly enough to maintain the American lifestyle without too many visible changes - but I don't think a transition to a higher commodity price will be painless. A couple hybrid vehicles will not reduce gas consumption sufficiently to deal with the huge stock of pre-existing gas guzzlers and McMansions, which will be almost impossible to retrofit. There will be an adjustment curve while we wait for the existing gas-guzzlers to die out, just as was the case in the seventies.

Your examples of decaying urban centers point to a wider decay of the entire metropolitan area surrounding them. The suburbs of Detroit and Buffalo are also decaying, albeit at a slower pace. Meanwhile, SF and NYC centers command a premium over their suburbs. A lot depends on the quality of local schools, safety, and amenities. People have lived in cities for 5,000 years. Medium density suburbs are a much more recent phenomena and may well be a post-WWII aberration.

Besides, I think suburban lawns are overrated. The Chinese gardened for thousands of years with no lawn. I think it's all a matter of cultural conditioning.

Athena, not to be overly vulgar but have you ever eaten corn? What happens say 8-12hrs later? Wow, I ate corn. Now imagine you are a troll who's Mom I am having let’s say very SF man/man relations with, but I'm Surfer-X and she's Zephyr's mom. And I see corn on my....well.... you get the point.

Listing Price Selling Price
$2,450,000 $2,565,000

Did you see that stucco, faux SF McMansion?

What a joke!

I'd rather slap the $2.5M in T-Bills at 5%, take my $100K after tax income and rent a room in Santa Cruz, kick back on the beach with a Dos Equis or two, and play some drums.

To answer one question, is transit a nonpolitical entity?

Only in the fantasy land that the denizens of "The Futurist" inhabit. Transit, including freight, public and personal locomotion, are a major infrastructure backbone and represent one of the most significant variable sets in the US economic structure. Attempts to prove the contrary -- I invoke a "proof" on "The Futurist" that high oil prices would be good for the US -- are little more than wishful thinking and errant logic.

If someone invents practical solar cars, maybe all this will change. But in a consumer economy, transit and transport are king.

Sorry Surfer-x for your frustration in not participating in the biggest recent wealth creation ever.

http://www.sfarmls.com/scripts/mgrqispi.dll?APPNAME=Sanfrancisco&PRGNAME=MLSLogin&ARGUMENTS=-ASL,-AL,-A,-N188960,-ACP

I'm sorry asshole the house you are spewing shit about sold in 2004 for $2260048. Ok so the maggot that bought it used an option ARM, their piti payment was ~ 10K/month=$240000 in 2 years. Sold in 2006 for $2565000. Wow what an amazing wealth creation mechanism. $2260048 +$240000=$2500048. So they are what 60K ahead? Whoops, 6% to realtwhore,$150002. Hmmm, excellent investment, but hey they only lost $90K. Seems like an excellent investment to me.

Hey your Mom was amazing last night, nevermind about the corn, tell her I didn't notice it once i was in her colon.