patrick.net

DinOR Says:

> I suppose if we had 4 or 5 children (most of which were
> daughters) we could plead indigence. But when you only
> have 2 children and they’re BOTH daughters (and Filipinas
> at that) weddings are a big deal.

If the two Filipino American weddings I’ve been to are anything like most Filipino American weddings they are a BIG deal. When a college roommate that grew up in Daly City got married there were almost two dozen bridesmaids and groomsmen plus another dozen male and female relatives both young and old wearing outfits that matched the wedding party, and I think they rented every white limo between SF and SM…

Astrid wrote:

> It would be cool to be a corporation (or as lawyers
> like to remind us, corporations are legal people),
> I get to be immortal and get all kinds a cool tax
> treatments.

You don’t need to be a corporation to get cool tax treatments…

Just try and avoid getting “money” since we are taxed on “money” not “things”…

If a company pays your rent and leases your car you will pay a lot less taxes (and the company will pay a lot less social security and other payroll taxes).

If you buy a piece of investment property or set up a small business you can have the business buy many things for you so you don’t have to buy them with after tax dollars…

Fake Surfer-X,

Please stop. What you're doing is by definition trolling and I don't tolerate such behavior.

LILLL,

Wow, didn't realize threadmastering was not just a fulltime job, but one that ties me to the desk 24/7. Oh wait, it's not!

I will say this to you just once more: my threads, my policies. Everyone here has been warned about my policies.

Surfer-X,

I will erase inappropriate comments to the best of my ability. However, their rudeness does not mean I will refrain from moderating your comments in response.

Kirk,

Assume the upper rent limit is 1/3 of gross income. So, 1500/mo means (clickety clickety) a 54000/yr income, or 27 kilodollars per person.

Or, a couple earning together 108 kilodollars could almost rent a 1 bedroom for 3000/month in SOMA.

So, I'd say a decently playing job is 80 kilodollars, assuming DINK status. That's enough to get a semi-decent place pretty much anywhere in SF.

Kirk,

From observation a good deal of the current "decently paying" jobs are in accounting firms. But, that could just be my biased perspective. They seem to be similar to law firms (associate, partner, etc. ladder structure) but at a lower price point.

LILLL,

Firstly, I would prefer to directly answer you queries via email. Except I can't because you already blocked my email.

Secondly, as I've already said numerous times and the administrator has confirmed, I get to decide what's appropriate on my threads. I apply my standards, not LILLL's standards. For me, your comment referring to an inappropriate relationship between Surfer-X and an underaged minor is inappropriate and grounds for deletion.

If you don't like my policy, you can ask Patrick to let you author your own threads and put your fairmindedness to work. Your vocal but solitary complaints will not change my thread policies.

LILLL,

I think you've already made your opinions about my policies and my person fully clear to me and others here. I will consider your future comments about my thread policy to be threadjacking and will act according.

If you are serious about your concern and want to address them point by point, you know how to reach me via email.

PS - if you do something petty like add my email to a bazillion spam lists, you should know that the email address you have is only used for this blog, I can easily switch out to another address if I have to.

Everybody else,

Sorry about all this.

FAB,

What you say about tax loopholes (AKA planning opportunities) are very true. When I took corporate tax, the amount of "planning opportunities" available to the self employed and business owners just hit me like a ton of bricks. It really just floored me how much tax these nice folks can defer or avoid altogether. I also realized the truth behind the truism about business decisions being tax driven.

Unfortunately, most of these strategies require working at a level and on a salary way above the reach of the average worker bee. Hence, I'm kinda stuck with the ordinary income tax system right now.

DinOR,

Outlet malls are pretty awesome. Where else can you find 10 china and houseware stores, 5 stores owned by Gap, 5 stores stocked only with cloth you can't fit into, etc, all at 50-75% off retail? It's true that I only frequent two stores at my local outlets, but boy that Eddie Bauer makes some good cloth, and that Saks outlet sure have some steep discounts ($600 retail? We can sell it for 80% off of 80% of $600).

veritas,

Haha, your wedding sounds pretty sweet.

Realistically, I think I'd have to throw together a BBQ for people here and do a banquet in Shanghai to keep the old folks happy, and bribe them with a "no gifts" invitation. I'd much rather spend the time and money of a traditional wedding (no offense, DinOR, and mazol tov!) on something fun and constructive, like taking 6 months off to travel the world.

FAB,

What companies will do is move out of the Bay Area (or move the jobs out of the Bay Area) before they raise prices…

Some will do this, of course. They won't all do this. Others will raise prices because that will be less costly (in terms of lost sales rev) than relocating or outsourcing. Others cannot source. Some will go out of business. None of this will happen instantly, and it won't all happen simultaneously.

Price is but one variable. Some companies are price-takers, or effectively price-takers, and simply cannot raise prices. Most companies are not.

Keep in mind that the past 6 quarters have been the strongest in relative corporate earnings in over 16 years. Companies are doing just fine; they're just not passing that along to employees, instead it's mostly going to shareholders.

FAB Said,

If a company pays your rent and leases your car you will pay a lot less taxes (and the company will pay a lot less social security and other payroll taxes).

Be careful before following this advise. Such schemes will almost always count as income, and are fully taxable to both the company and the employee. A company cannot pay your rent or lease your car except under very specific circumstances. The IRS will flag you if you do it, and you have a very high chance of being reviewed if not audited. Even when your company rents an apartment for you, say for an out-of-town project, it is very difficult for the company to achieve 100% detectability without breaking some rules.

On threadmasters, moderators, and trolls:

Patrick.net is a loosely moderated forum, in general. The spirit around here has always been pretty open (at least since I've been here). That said, the Threadmaster of any thread has authority to moderate as they see fit. The custom is for the "admins" to not override threadmasters unless something egregious has occurred, which I'm not aware of ever happening to date.

Just a couple of points:

* Patrick is the owner of this blog, no one else. The admins and threadmasters don't have any absolute power. Anyone who has any issue is always free to email Patrick. His email is on the front page.

* The admins are: Peter P, HARM, SQT, Randy H. We also start a lot of threads. Whenever Patrick or one of us starts a thread, only the thread owner or Patrick can exercise moderation powers on that thread.

* A lot of others are threadmasters (people with power to author their own threads and then moderate that thread). Anyone who is interested in trying out their hand at authoring is encouraged to contact one of the four admins or Patrick. We're almost always happy to give folks a stab at authoring topics; it gets tough to keep things fresh when only a couple of us contribute threads. To my knowledge, no real filter is applied to whom we grant authoring powers except for keeping out obvious trolls or blatant spammers.

Finally, I remind everyone that each author has their own personality. After you get a feel for their topics and moderating style, you may choose to either pay extra attention to, or entirely skip their threads. I'm sure that there are plenty of folks here that skip right on past when they see a Randy H "great, there's yet another graph" thread. If you find a hole in the set of "on air personalities" here lacking, by all means let us know you'd like to take a crack at it yourself. That's the power of blogs: this isn't a broadcast media. Everyone can contribute, we can all be heard, and everyone has a chance to influence or be influenced.

Sort of OT, but my favorite photo website now has a San Jose gallery:

http://terragalleria.com/california/region.san-jose.html

In addition, the same website has a beautiful selection of BA and CA pictures here:

http://terragalleria.com/california/index.html

Randy,

nice succinct summary, hopefully it proves useful to the disembodied, disenfranchised or just plain disillusioned. I expect many lurkers here might become a bit more active if they understand the basics of how this works.

On a side note, anyone here who wants to do something similar, the blogging software used here is free, and pretty easy to set up, relative to your own page, on whatever subject interests you. Software is wordpress Its a good way to get some interesting new content on your site everyday, without working hard at it - provided people are visiting your blog!

Cheers,

tsusiat

Mike,

Don't be so optimistic, you might live to 110! :)

I'm rather torn between your vision of the future and the optimism expressed by Randy H and OO. Right now, I think I'd side with them. I think the energy shock will be a short term thing, 5 to 10 years. America can use energy in a much more efficient manner than it is currently doing. Societies have a great ability to adjust to resource shortages over the long term and the only resources that we absolutely cannot do without are: good farmland, clean water, and a decent growing season. American still has that in abundance.

What worries me more about America are the inadequacy of its human capital and the erosion of its intellectual capital. Right now, American companies are going beyond outsourcing manufacturing and are beginning to outsource R&D to India and China. The kids here are growing up to be undisciplined and underskilled compared to the top 10% of India or China, yet they are accustomed to expect a comfortable first world life. If these two areas erode significantly while the rest of the world advances on us, America's comparative advantage may go away in time.

@Astrid, thanks for deleting the "fake Surfer-X" comments!;)

Mike (in a great long post made some good points that I’ll comment on):

> For the record, I’m closing in on 70 years old.

I’m only about 2/3 as old so I have a lot less experience…

> Here’s some history of property values going back to 1946.
> I’ll start with the UK where I was born. My mother bought a
> house (big struggle) in 1947 just out side London for (exchange
> rate now) $4,000. She lived in that house until she died in 1998.
> That property hardly moved (value-wise) until the late 1960’s.
> Maybe a few percentage points a year. Then in the mid-seventies
> it started to take off. It’s now worth $550,000.

My grandfather paid $3,000 for the Noe Valley house my Dad grew up in. When he died in the early 70’s my Dad didn’t have the money to buy his brothers out (who wanted the cash) so it sold for just under $40K (appreciation about $1,000 per year). In the early 90’s a friend bought a home down the street for $220K and my grandfathers home was probably worth a little less (appreciation about $10,000 per year). Last year the actual home (with a new kitchen) was listed at $995K, but is sold for just over $1.3mm (appreciation about $100K a year). Everyone in SF today expects their home to go up AT LEAST $100K a year and have no idea that before the recent boom we had a 20 year period of about $10K appreciation per year that followed a 40 year period of $1K per year appreciation…

> However, I have learned a few things over the years (I day trade btw)
> about finances and politics and “how it works”. Greenspan instigated
> his free money policy to compensate for all the big losses ($7 trillion
> I understand) brought on by the tech “crash”. The reason being, he
> needed to “inject” that lost money back into consumers pockets.
> Without BIG consumers the US economy nose-dives.

The reason I see a dive is that I can’t think of anything else that will pump tons of cash in to the US economy so consumers can buy more worthless junk like:

1980’s: Women going to work (as a public school kid in the 70’s not one Mom had a job)
1990’s: Stock Market Boom (tow truck drives with E*Trade accounts)
2000’s: Home ATM withdrawals (and GOP tax cuts)

> Where to from here. Bad news for America I’m afraid. Property will
> fall back to fundamentals. Eventually - sooner or later. Statistics
> show that it takes around 18 quarters for over-priced property values
> to reach bottom. The house I rent will probably settle around $400,000
> from it’s current price. About 1/3 or 33% drop. A crash is unlikely.
> Remember, bottom fishers will continually move in to buy at what they
> think is support. Then the support cracks and property falls again.

I was reminded of the hundreds of S. Cal property that went REO twice in the last cycle when I saw people rushing in to buy tech stocks in Oct. 2001 for “half price” (50 times next years earnings)….

> The support level, of course, now becomes resistance.
> Just like stocks. I’m sure the realtors will scream, “BUY
> NOW!” when we get a 10% drop - but it will NOT be the
> bottom. Next level down and new “greater fools” will appear
> and the realtors will cry, “BUY NOW!”

REALTORs and Stock Brokers always scream “Buy Now!” because they don’t make money unless people are buying…

> Look for a serious crisis in the hedge fund and derivatives markets.

I’ve got some real smart friends that are really worried about what the Hedge Funds are doing with leveraged derivatives. They way they all get paid there is really no reason not to “swing for the fences” every year since if the fund has big returns they all make millions, but if the fund goes under it is no big deal since they have made $10 million over the past few years and can always get a new job (they cover their asses with letters to the top guys talking about the risks that they can show when they are looking for a new job)…

> Up until now the US (for over 70 years) has had the world to itself.
> Competition was almost zero. Now China and India and to a certain
> extent Russia and to a big extent Europe, are pushing the US down
> down the economic ladder.

We have all watched manufacturing jobs slowly go away over out lives, but I am amazed how fast technology is allowing companies to move other jobs overseas…

> Worse, again because of Bush, America is very out of favor and in
> many places around the world hated.

I’m no fan of Bush, but I don’t things would be much different if we had Al Gore or John Kerry running the show (what will the Muslims do if we ever elect a woman president?)…

crimsonbey Says:

> I don’t think people who have higher ed ergo Ma’s and
> Ph’ds are worried about Chinese or Indians taking their job.

I found on census.org that MORE than 75% of the US population does NOT even have a bachelors degree so I’m guessing that maybe 5% of the population has a Masters or PhD.

I don’t think the top 5% worries about their job going to China or India because real smart people know they can always make a living…

FAB,

I agree with most of your points. My sole point of possible disagreement is that I think there is a real difference between Bush and Gore. I don't think the Muslim world hated the US nearly as much pre-Gulf War II as post-Gulf War II. I don't think Gore would have went into Iraq or would now try to tangle with Iran, so the hostility level would be much lower.

This is particularly important because the Saudi government is really an American client state. The Saudi and Kuwaiti governments needs the US at least as much as we need their oil. We're the ones with the technology and we're the arbiters of power in the region. They also have a simmering pot of discontent at home and they need every bit of US help possible to contain it, or risk following the Iranian and Iraqi kings into exile and disgrace. Bush's naivete has stirred up a real Muslim hornet's nest there and made the Saudi royal family's job that much harder. I think Gore would not have blundered into war and would have concentrated on hunting down Bin Laden.

The other major difference I see is Gore's fiscal policy. Gore has a pretty decent track record as a fiscal moderate and worked in a White House that actually managed to turn a federal deficit into a surplus. While I think he would have difficulty dealing with the aftermath of dot.com bust, I think he would have taken on less federal debt and have this country in a better shape to face the challenges ahead.

FAB,

I agree with your assessment about highly educated people. Especially for people with financial or technical expertise. There is very little language problem for people from Anglo-Saxon countries since most of the World's elite can speak passable English.

Surfer-X,

No problem! It's my job and it's my promise. :P

I would be willing to pay up to $8k/mo in PITI for the right place. It would really have to be the dream home in the Claremont hills though.

ptiemann,

While PITI is a fudgeable number, the difference btwn a 15 year mortgage and an interest only is not too great. My primary object was to explore the maximum monthly amount folks here would pay for housing. Almost any market, except maybe one catering exclusively to billionaires, must have a ceiling, and I was curious to see where the ceiling was and how it was arrived at.

For me, my current ceiling would be about $1,500 shared with my boyfriend. He's paying about $1,000 for a nice-ish small 1 bdrm in the Tri-Valley area. That place (and a similar earlier apartment) serves our needs pretty well and allow him to save about 1/3 of his gross income + pay off his cheap new car in 5 years. My goal is to push our savings rate to 1/2 of our gross income, when we move in together.

If rent for a similar place goes above $1,500 a month, I may finally do what I've threatened to do. Buy a used RV, find a free or dirt cheap parking place, and live out of an RV full time.

We pay about 1/3 takehome on our house; I don't suppose we'd change that much, unless we reduce expenses elsewhere. We'll "buy up" someday, but only if it makes financial sense.

After 20% down, PITI should be comparable to rent after tax deduction.

I'd really like to see those sweaters Carol Cleveland was wearing back in style, I mean the whole ring zipper thing...

va va vooommmm....

tsusiat Says:
I’d really like to see those sweaters Carol Cleveland was wearing back in style, I mean the whole ring zipper thing…

wouldn't we all...

very good post from mike. not sure whether all will come to pass, but shows great prescience. if things look sticky for the US, they will probably find ways of using force to maintain hegemony though. it's more balanced than some posts where i like to play my saved .mpg of john ashcroft singing 'let the eagle soar' (in his inimitable national anthem meets lounge swing arrangement) in the background to get in the proper mood. that rendition of his own composition always brings tears to my eyes for some reason, perhaps not the intended one...

1980’s: Women going to work (as a public school kid in the 70’s not one Mom had a job)

just on this, this is also a feeder into the property boom -- now every 1 bedroom apartment is priced for a double income yuppy, dinky couple, disenfranchising single people on average incomes -- property prices simply soak up extra disposable income like a sponge, and the market doesn't care about actually meeting anyone's need for affordable housing.

the other drivers are of course historically low interest rates, liberalised credit, shaky and untrustworthy sharemarket, etc, etc.

> Worse, again because of Bush, America is very out of favor and in
> many places around the world hated.

I’m no fan of Bush, but I don’t things would be much different if we had Al Gore or John Kerry running the show (what will the Muslims do if we ever elect a woman president?)…

yes, those nasty, nasty muslims. they seem to be everywhere, like the bogeyman. and so inordinately powerful too. funny how the angriest, evillest ones are sitting on most of the world's easily extracted oil. (and hugo chavez is now 'evil' and holy rollin' pat robertson says he should be outright assassinated by the US! o-kay, think we can see things more clearly now. just like allende in 1973. and kissinger deserved the peace prize.) and bin laden is still alive! he didn't die in 2001 of kidney failure or an air strike like some people said -- we have recent audio of him! he sometimes also goes by the name 'emanuel goldstein' and we like to have 2 minutes of hate every morning.

good heavens, charlie sheen thinks the whole thing was an inside job! maybe without the PNAC, the neocons, the 2 rigged federal elections, the impending invasion of afghanistan on behalf of unocal, PNAC intentions for caspian sea hydrocarbon resources and george bush 9/11 may never have happened...
http://tinyurl.com/hfl78

or am i being too harsh?

Mike,

It's never an easy task to convey the landmark economic events of one's lifetime in a few paragraphs but you've managed quite nicely. Because your life experiences span two continents (and a number of decades) it helps put things in perspective. Charles Hugh Smith shares an article today titled "How to buy a 450K home for 750K"! Absolutely hilarious, a must read. The sheer number of articles posted over the long weekend is overwhelming. One realtor in FL observes that if you want to sell in today's market you need to price your home at 2004 levels! Well, that's a step in the right direction but I was thinking more like 2000 (or prior) levels.

I am probably on the extreme low end of what I'm willing to pay for rent. I have never paid more than $600 a month to rent, and have managed to do this simply by always choosing to rent an entire house with 1 maybe 2 other housmates.
I also manage this by living in less "sexy" areas that are off the radar of the chic-metrosexual crowds. Thus I live in Alameda. Close to Oakland, SF, and Berkeley, but always about half the price of living in SF. Takes us 15 minutes or less to get downtown.
I would be willing to pay as much as $800 a month, but the whole idea behind paying cheap rent is that I'm able to save over 50% of my take home pay and save up for that mini ranch in TX or large log home in NC. If rent were to go up past that amount, then the fundemental exonomics of the region wouldn't make sense to me anymore and I'd have to cut my losses and ditch the area entirely, which I wouldn't exactly be that upset about anyhow.

George,
All I can say is that I hope something on the level of Florida's reductions come our way over here in Cali. The big problem here is that everyone makes too much money. I skimmed over a lot of the posts here, and the fact that many people were comfortable paying as much as $2,000 a month on rent tells me that the affordable level in Cali is signifigantly higher than FL.

Funny thing happened this weekend. There's this sort of drab,boring 3 bedroom house in my hood has been for sale since October. There's this kind of older Asian guy that owns it and sits outside next to the for sale sign on weekends. So far, there's been balloons, signs set on top of cars, signs alongside the for sale sign that says:" I'm beautiful inside!" and a few changes in Realtor companies. I figured the guy must be asking too much for the place. Anyhow, I saw a ad for it in the paper that said: "Price reduced!"
The reduced price is... drum roll..... 1.2 MILLION DOLLARS! No, I didn't misquote this. I wish I could find the ad online because if you saw this place, you'd absolutely piss your pants. I think the guy who's selling it just assumes that eventually, some idiot's going to buy it and he can move back to Vietnam and be a bazillionaire over there or something. NOBODY in their right mind would pay even 600k for this place.

George,

I have to agree. One of the most important market dynamic that needs to be in place to "entice" bottom fishers is the expectation of a fairly swift recovery or a "reflex rally". When the first round of bottom feeders comes in and DO NOT convert into near immediate profitablility it scares off the other BF's. (Not to be confused with a FB). BF's are not by any means long term investors. Typically these people are graduates of the "School of Hard Knocks" and have little patience to cover the carrying cost of an under-performing asset.

George,
I took a trip this weekend. The trip took us through Sacremento. As I see it, Sac might as well be Palookaville USA compared to the Bay Area. It seriously looks like a big cornfield with a ballion new ticky-tacky stucco homes. There are literally entire chunks of the city that are crammed packed full of these houses that all look the same. What's odd too is that all of these developments have cheesy flags that surround their perimeters, as if you're really sailing past used car lots, or perhaps a trailer park. I can see why Sacremento's housing market will and is crashing: They did the uttermost to make the area look almost unattractive. Go about 45 minutes down the road and the story in the BA is really diffrent. For one, the only new homes being built are the ugly condos and lofts in SF. Lofts were never meant to be upscale, expensive, or chic places to live. They were and should be for starving artists. Yet in SF, a loft is a status symbol, which to me seems ludicrous. I wouldn't want to live in one of those even if they were free.
The fact that people are willing to pay 700k for a loft in a crummy part of SF is proof that SF and the BA is still very diffrent than Sac. I just had the misfortune of choosing to live here years ago without realizing it was the most insanely priced city in the country.
I think I make pretty good money. According to the BLS, I make almost double the state average. But listening to some of the folks I know, they must make double that, and they too are priced out.
I'm with you on whether California will have an economic fallout. The obvious seems to be there: Wages are double or more for a job that people can do in an increasing number of other cheaper cities, More people are moving out than in, and that the economy here is more heavily tied to RE than anyone dares to admit. This isn't the biggest thorn in the paw. The biggest folly is that most Californians assume that regardless of whatever warning signs exist, the state will whip out some newfangled technology, find more smart immigrants, or find another cash cow to save them once again. There is a feeling that high wages, high tech, and high prices are here to stay, and that just because it's California, then that makes this state alone safe from any economic faults the "rest" of the country might experience. Once this thing comes unravveled, I expect a lot of dropped jaws and looks of disbelief.

Any notion of "salvation" from the bustling throngs of BF's should be quickly disbursed b/c by their very nature if they do not see a "quick turnaround" they will only cut their losses and put it right back onto the market and I do mean post haste! Bottom feeding is all about "living to fight another day". Cutting off a finger to save the hand (if you prefer).

Mike,

LOL! I believe those "Iranians" still prefer to call themselves Persians. I agree that whenever a government starts calculate for fines in its budget, there's a big moral hazard that the fine is not for keeping peace but to get money improperly.

WWII,

I totally agree. Although California has been lucky to maintain an extremely high wage in the LA and BA, there's no guarantee of that continuing. To plan for continued future wage levels to support 4X the national avg RE prices is just a bad planning. While BA does have some incredible advantages for the rich, there just aren't enough rich people, and most people will care much more about jobs, school, and having a decent life -- they'll leave once that's no longer the case. Prop 13 and people who bought in at 1/3 the current price can delay that, but that day of reckoning will come unless California pulls up another amazing save, and that's not statistically likely.

burbed,

That's pretty unbelievable. 500K for a circa 1980 trailer? Does the trailer come with the entire rest of the trailer park?

I was thinking of living in an actual RV. It's a little tricky, since I need to find a safe and quiet parking place and also a place to dump and pick up water. However, there are some advantages to RV living, I could do a lot more roadtrips without packing.

Astrid,
I recall someone else mentioning trailers the other day and I did some research. Apparently, Prefab and manufactored home sales have been rapidly increasing. The reason is that in the case of prefab houses, the quality in some cases is just as good as something built on site. You may also find it interesting that of the majority of the homes built after the 06' quake in SF, most of those homes are prefab. Many came on a flatbed kit from Sears which could be had from 5-700 dollars.
The reason prefabs were chosen after the quake was because they were cheaper. Most families didn't have insurance, so the safest return to a home was a prefab. SF is proof that prefabs work, and what's more, they are still way cheaper than paying someone to build a home on site.
A home such as this one: http://tinyurl.com/npklt
costs around 85-95k. Not bad considering the same home would cost over 3 times this amount to build. Of course the land would be the pricey part, but if you ould find a rental lot, the costs would still be signifigantly less than buying, plus you would own the house.
On the other hand, manufactored homes are more like cars. They are more difficult to update and lose value almost immediatly. But... they can be had NEW for as little as 30k.
I think that under the economic circumstances we now face, mobile and prefab homes could be a good bet.