patrick.net

Might as well start this off myself. I'm 37, renting & living in the San Gabriel valley (east of downtown L.A.). I don't work in RE (IT guy), and though I lurk elsewhere, this is definitely the first blog I've taken an active role in. Prior to posting here, I was lurking around Patrick.net for about 6 mos. prior, when it was mostly a link site. I found a link to it while reading other bubble sites (can't recall which one).

I first became aware of the bubble 'theory' when my wife and I were house-hunting 2 years ago, right after I accepted a FT offer from my current employer. We could not believe what selling prices were at that time, even though we are both SCAL natives, and are accustomed to sky-high RE prices. Despite a decent combined income, our financing at the time did not come close to matching prices in so-so neighborhoods within commuting distance to my job, so we had to drop out (keep in mind this was a little before $0-down NAAVLPs became the norm). Little did we know at the time, prices still had another 40-50% to go.

I did some searching online to try to figure why this was, and was introduced to the Bubble theory this way. It may come as a surprise to some that at the time, I was not 100% convinced we were in a bubble. I wasn't sure if rapidly escalating prices were really the result of a bubble or just the result of some change in fundamental demand/supply (immigration, NIMBY anti-development laws, etc.).

I stayed undecided until about a year ago, when I came across a number of articles by Bill Fleckenstein and CEPR.net, which analyzed the housing bubble in terms of being started as a credit bubble created by the Fed's cheap money policy in the aftermath of the Tech bubble and sustained by speculative psychology (euphoria, greed & herd mentality). I also learned more about how previous housing bubbles had ended badly. I followed the links to other sources and housing bubble sites, and began to learn about historically reliable ways to gauge "true" home values based on underlying fundamentals: especially, price-to-income and price-to-rent (PE) ratios. By these measures, housing prices (at least in CA) seemed ridiculously out of line with these fundamentals. By about mid-2004 I was convinced. We were experiencing a classic asset bubble, fueled by cheap credit at negative real interest rates.

Aside from housing, I dabble in photography, cartooning and web design. Someday (when prices return to something remotely justified by the fundamentals), I hope to buy and set down roots somewhere –not necessarily CA. Until then, I gratefully rent for about 1/3rd the monthly cost of a comparable condo in my area, and invest the rest.

Thanks, pbass -intersting stuff. Personally, I think your choice of career (RN) is a smart one, given how rapidly the U.S. population is aging. It's definitely more "bubble-proof" than a lot of other jobs are. Btw, My maternal grandfather was a Freemason. He died when I was very young, so I know very little about it.

Hi, I'm 42, own and run my own eletronic design and manufacturing business. Renting for last 2 years.

My family lives in Sydney Australia and I believe our bubble peaked 2003-2004 and has since seen price falls in Sydney and Melbourne. Other parts of the country are still catching up with our cycle.

I am a firm believer in economic cycles with boom bust cycles of most interest. In early 2003 we sold our last real estate asset which was a very hard decision.

Spent a lot of time on internet researching property, boom bust events, with the "Economist" magazine releasing interesting articles on the subject.
Obviously, people were starting to question the run up in property prices (globally) and the reasons seemed to be one off, and unsustainable.

Friends were very worried for us that we should be without RE investments, however I preferred the logic that everyone else should own a home and an investment property. Should I be the only renter with so much investment property, supply and demand would mean that renting would be very cheap (and so it is). I have relocated the property equity into other areas that I believe to have better growth prospects.

Have to say that when I first started renting, I felt a little insecure, but time has changed that. Whenever something breaks, I get the landlord to fix it. Use to be that I did all general maintenance and now have more time for other things.

Unfortunately I think prices will still fall more here, and will probably take around 10 years to rise to reach bubble peak. Probably a couple more years before bottom. I will probably use the rental return to determine bottom, with either rental increases, or rent buy equivalence as the trigger point.

Hobbies are watching human behaviour, playing with my boys (4 and 6) and generally enjoying life. I tend not to be motivated by money, as greed generally gets people into investment problems.
Regards,
Ben

I am 28, renting and living in the San Jose area. My wife and I became aware of the housing bubble when we found out that price and rent were getting out of whack.

We met some of our friends on the golf course, directly or indirectly, despite being bad golfers. Our friends are mostly homeowners, some have invested in multiple homes in multiple locations.

I "discovered" Patrick's site just a few months ago. I am a software engineer but I find the financial market more interesting.

I am a fan of George Soros and Warren Buffet.

Hello all. I’ve told bits and pieces of my story quite a bit, but I guess it could be fun to fill in a few blanks. I’m 35, kind of a “jack-of-all-trades -master-of-none.” I have a degree in Journalism and a minor in Japanese (of all things). I thought the Japanese minor would make me unique-- and it did, but it didn’t prove very useful in the long run. I did go to school in Japan too, and that was a great experience, but again, not too useful. I worked in TV and newspaper for awhile. I didn’t know until after I graduated that newspaper pay was terrible, so much for my research skills, so I left that. TV pays pretty good. I worked in LA as an associate producer for a bit, but the office politics are especially brutal in TV so I left. Broadcast journalism only works if your willing to bounce around station to station building a resume and I moved a lot as a kid so that didn’t appeal to me. I was volunteering for literacy programs while I tried to figure out what to do with myself when a friend suggested getting paid to teach might not be a bad idea. I’m kind of impulsive, so I jumped on that and within a year had my teaching credential. I actually liked teaching quite a bit (5th grade) but once I had my daughter, devoting all my time to other people’s kids didn’t appeal as much.

Fortunately, my husband makes a pretty good living so I’m able to stay at home with our kids (5, 19 months) He’s been a financial consultant for 10 years. The first couple of years in the business were kind of brutal. He started right as the tech market was going nuts. He was still a little wet-behind-the-ears so his caution fell on deaf ears a lot of the time, but he did manage to save some people a lot of money and I’m proud of him for that. We had our daughter pretty much simultaneously with the tech crash, so it wasn’t the best time to go to one income. Because of that we continued to rent, and I’m happy to say that my husband has continued to build his business even through a down market. We live in a very well-to-do area and we could have bought in less desirable areas, but my husband wants to wait until we can buy exactly what we want without worrying about the cost. And since we live in such a nice area it’s easy to wait out the market. One of my husbands partners has been both in finance and RE and he’s been watching the market and we’ve taken some of our cues from him. I started researching online and found Patrick’s website a few months ago. I mostly read the links at first, but I liked how civil the posters were, so I started posting too.

Nowadays I mostly run around with my kids, I’m a runner, I dabble in art and I’m currently working on my black belt in karate.

So, I just turned 29, been married for three. We rent in Palo Alto, CA. Just finished a MS in CS, and I'm working at a (humane) startup in San Mateo, hacking away in the Java salt mines. Wife has two more years of residency ahead of her, after which, if prices don't moderate, we are probably out of here.

I've been a bubble-head for three years now, and I've enjoyed being totally and utterly wrong the whole time. Good for the soul. I was also totally and utterly wrong about the dot com thing for two years, and google for a year and a half and counting, which begs the question: if a broken clock is right twice a day, what is something that is right twice (well, at least once!) a decade?

I found this site obsessively googling for any shred of evidence that it was, indeed, insane to pay 500K+ for a soul-eating ranch home. Came for the links, stayed for the witty banter.

Other interests: (dare I mention) mere christianity, golf (obviously), classical architecture, traditional urbanism, PG Wodehouse and old FJ landcruisers (40's, 55's, whatever).

Cheers,
prat

@Waiting in Vegas

did any of you read “Was Someone Squeezing Treasuries?” from Prudent Bear website?
tinyurl.com/9ox7a

I think I got the jist of it but could someone explain it to me in more simpler terms? Are they really saying that some companies are manipulating the the 10 year which keeps rates low?

I just skimmed it, but as near as I can tell it looks like PIMCO was over-buying T-bills to cover its losses due to short-selling. Not too kosher, but not a conspiracy to keep interest rates low on the 10-year.

I also do Java development, although the company is in Palo Alto. My other interests are: golf (which I actually hate), food, philosophy, and food (did I say that already?).

Homeownership is not currently our priority. However, we may look into buying if and when we see something reasonable and affordable.

I am risk-adverse in nature but I am very willing to take risks if the rewards justify them.

Peter P

You know my husband hates golf too, and soooo many people in his business do business over a game of golf. Anyway, he loved skateboarding as a kid, and a couple of years ago a he and a co-worker started going to all the local skatepark's and skating again. At first all his other business associates thought he was nuts, but he didn't care, it's fun and he loves it. Now, other co-workers have started going out with them from time to time and he's had wholesalers and clients go out with him too. I guess when you love something you can find a way to work it into your life and even your job--- no matter how ridiculous it might seem to others.

You know my husband hates golf too, and soooo many people in his business do business over a game of golf.

SactoQt, it is more complicated than that... I have a love-hate relationship with golf. :)

SactoQt, it is more complicated than that… I have a love-hate relationship with golf.

Funny, I feel the same way about chocolate. ;) I know how it is though--- you love it when it's good, and you're nuts when it's bad.

So far, we've got most of the Posse, but no bulls (Fake, Face, MP) or neutrals (Jack, Zephyr, MerrillClient).

C'mon bulls/neutrals...

We all know MP's story already. :)

High Sierra Guy

You are speaking my language. Welcome to the blog.

It would be fun to collect MP stories and see how consistant they are.

We all know MP’s story already.

Nah --we just know his cover story. I want the real story.
How he's actually a 13-year-old on summer vacation posting from his bedroom, living out his fantasies online by impersonating a $400K/yr investment banker & RE mogul.

@Josh & HighSierraGuy,

Thanks for posting your stories --great stuff! Don't worry about not being "regulars", whatever that means. This is an open forum --no one "owns" it (except Patrick).

You know my husband hates golf too, and soooo many people in his business do business over a game of golf.

Golf hates me.

We bought a 2bd/2ba cosmetic fixer in Sep 2002 for $240k... We bought the house doing all nearly all the things everyone is being criticized for now–$0 down with an 80% I/O 5/1 ARM, 20% piggyback second, although to be fair I wasn’t looking for an I/O, that’s just what the lender came up with. We qualified on the fully amortized payment.

SoldAtThePeak,

Interesting, I didn't realize lenders were aggressively pushing $0-down I/Os that far back. When my wife and I started looking back in '03, we got a pre-qual from our local credit union for standard 30-year & 15-year fixed, but I don't recall them pitching any exotics to us.

May I ask what type of lender you used (broker/bank/online)? Did it include a "teaser-rate" below prime on either the primary or second?

I am 32 years old, single. Have worked for the State of California since 1994, right out of college. Have rented a room from my sister at a very reasonable rate in the Bay Area since 1999 while trying to hoard as much cash as possible. Have approximately $120K saved. Am extremely risk averse and want to avoid all "gimmicky" typed of financing as much as I can when I buy since I plan on staying put once I finally decide to do it. But, like many of you, am very aware of how out of whack rents and prices have become. I believe that the 1998-2001 boom was justified, not only because of the dot-com boom, but because BA real estate had been undervalued for 8 years. Then in 2002 and 2003, prices in Alameda County had actually stabilized after the dot-com fall-out (but no "crash") and I was almost convinced to buy. I became convinced of a "bubble" in 2004 because the madness once again ensued and the market has become downright frightening in the last 18 months and short term rates have been RISING to boot! Can't remember exactly how I found this site. Have been lurking for a year, but have not posted here until recently. I believe's patrick's site was linked from another site that I can no longer remember!

EBR: "Prat — what kind of residency?"

Radiology. Probably going to do a fellowship in body.

Residency has been much harder on her than on me, to be honest. I just try to keep the wheels on the household...

Cheers,
prat

Jack mentioned the real estate boom of the late 1970s and have heard some anecdotes from my parents about that tiem. I'm curious. WHat are the similarities and/or differences between the late 1970s boom and now?

Wow, Jack, and I thought I was long-winded! Just kidding --really enjoyed reading your bio.

Btw, I was wondering --since you're an artist, could you paint or draw something that expresses your vision of the housing bubble? Maybe a nice watercolor of a sea of McMansions all with Realtor signs and Escalades parked in the driveway, extending to the horizon? Or a portrait of a Speculator with bulging suitcase full of NAAVLP money, salivating with greed over FTB/victims?

And when you're finished, we could scan it & post next to "Mr. Bubble" on Patrick's link site. Just an idea...

Hi,
I find it interesting to read how people approach the housing problem, and their conclusions leading to the so-called "bubble" scenario.

I'm a transplant from the Seattle area originally, getting thick into the speculative/entrepeneurial mania in Silicon Valley as the "New Economy" ramped up. During the height of the boom, I was in a way a "cyber real-estate" developer, buying up large tracts of domain names, branding these appropriately for "foreseen" dot-com businesses, then selling off for a very nice return. This wasn't "cybersquatting", but more of a creative venture, capitalizing on the prevailing belief that any "good name = good real estate" for future dot-com businesses. So that's the hype. All went very well...for a while, and you know the rest. Fortunately, I noticed the boom/bust dynamic earlier than the average investor, cut my losses, and did ok.

Yet, despite the huge hit to the local economy and resulting workforce exodus, real property values continued rising past 2000, hitting the stratosphere as of late. While realtors insisted it was demand-driven market dynamics, I began to question basic assumptions and wonder wtf was really going on. Researching RE investing, I started seeing parallels between the dot-com boom/bust and the current Bay Area housing market. I'm really a novice in real estate, but this site has provided some education--and challenging viewpoints.

Yakim wrote: "There aren’t *that* many Google million- (and hundred-thousand-) aires!"

True, and I bet the vast majority of them are NOT selling their stock yet either especially after tripling in value in just 12 months.

New story - MSNBC: "Housing inventory spikes in 'burbs"
http://tinyurl.com/9rjfc

"Buyers are taking advantage of the increased inventory, waiting longer before they make their offers and hitting more open houses. Sellers, meanwhile, many of whom are trying to cash out near the height of the market, are growing increasingly frustrated as their houses sit on the market for weeks and months.

Sellers traditionally are slower to realize when the market is changing, usually because their information is more dated than buyers'."

Denial: My million-dollar stucco $hitbox will continue to appreciate 20% YoY forvever. There is no Bubble!

Anger: What's the matter with these people! Don't they see the PIBs of my $hitbox?

Bargaining: Well... maybe I could lower the asking price... just a bit.

Depression: I've already lowered my asking price three times --to ONLY $850K (*sob*)! And still no buyers --I just don't understand!! Sure, I only paid $600K, but STILL....

Acceptance: I guess $1 million was a bit too much to ask for a 600 sft corrugated steel shack under the freeway overpass. But it did have granite countertops...

That's precisely what happens when you put all your eggs into one basket. Funny how homeowners accuse renters of being angry, jealous and bitter when THEY are the ones with the sense of entitlement regarding the worth of their property. Perhaps buyers are FINALLY saying enough is enough - it's about freakin' time!

(Novato was a little town with a few subdivisions carved into pear orchards and Highway 101 only had two lanes in each direction, and had the only stop sign ON the highway between SF and Santa Rosa.)

What do you mean, Jack? I do not remember having to stop on 101 driving frim Santa Rosa to San Francisco. Do you mean Novato only hase at-grade intersections (no on/off ramps)?

Now I am a bit sacred. I thought we would have until October to build speculative positions and I have been a bit lazy. It appears that many local markets are in the early stage of popping. Looks like I will have to "trade now or regret about not profiting from the bust forever.". :)

Since then, whenever I hear one of my friends making an offer a house, I send them this link and their reaction is always some sarcastic, “thanks a lot!”

What? Are you saying they don't appreciate your friendly offer of help and enlightenment?

What? Are you saying they don’t appreciate your friendly offer of help and enlightenment?

Usually, people just think that somehow you cannot get a loan for a house (e.g. cannot fog a mirror) and is bitter about that.

Jack--
Interesting yarn! Good to see how your experience/knowledge gives you optimism in Marin (my hope as well). I have so little of that, as we're recent transplants to the county, and could use good advice. I'm a "frustrated architect" here as well--I did the tour through art school too! One outlet to my frustration is to eventually buy some land (doubtful here in Marin), and design/build a home of our dreams.

Btw, I was wondering –since you’re an artist, could you paint or draw something that expresses your vision of the housing bubble? Maybe a nice watercolor of a sea of McMansions all with Realtor signs and Escalades parked in the driveway, extending to the horizon? Or a portrait of a Speculator with bulging suitcase full of NAAVLP money, salivating with greed over FTB/victims?

And when you’re finished, we could scan it & post next to “Mr. Bubble” on Patrick’s link site. Just an idea…

Jack, I'm serious about this --what d'ya think?

Since then, whenever I hear one of my friends making an offer a house, I send them this link and their reaction is always some sarcastic, “thanks a lot!”

Gee, doesn't that sound familiar...
Just yesterday, visiting my sister and husband, they announced they're planning on buying a second home in the C. Valley as a "college nest-egg" for their infant son.
I'm no financial expert, but I raised concerns that it may be hard to cover the mortgage, possible RE overvaluations, etc. The "bubble" didn't seem to concern them at all.
I'm no financial expert, but isn't it more financially savvy to skip buying the house and direct that money towards more stable, long-term investments?

I’m no financial expert, but isn’t it more financially savvy to skip buying the house and direct that money towards more stable, long-term investments?

It is foolish to rely on a highly-leveraged investment to attain a future financial goal. Leverage is about possible upside above and beyond necessities.

Jack,

Actually I wasn't thinking about a cartoon/caricature, but more along the lines of fine/representational "real" art. Maybe an avant-garde Picasso-esque interpretation of a speculator. Or, a realistic or impressionistic landscape of McMansion sprawl.

But... if your "neutralistic" leanings make this impossible, I understand. ;-)Maybe you could make it a class assignment for your students this fall ("Impressions of the RE market")? And don't worry about scanning/photoshopping --Peter or some of the other BA bloggers can handle that.

I'm a 31-yr-old writer renting in So Cal with two preschoolers at home, and I've been lurking on this site for about 6 months. I've only ever posted once before. My husband, an army officer, is a native San Franciscan who wants to return to the Bay Area in about 5 years to be near family and friends.

I became interested in the housing bubble when, last winter, our inlaws tried to convince us that we needed to buy a house in the BA then and rent it out until we were ready to move there. They had this 1.2 million dollar *major* fixer-upper in San Mateo in mind for us, and we began to wonder if the whole state had gone crazy.

In desperation, I googled "bay area housing bubble" and came up with this site, which I've been visiting regularly ever since. I've sent links to it to all of our BA friends and family who've expressed interest in buying second-home investment property there in recent months, and none of them have seemed convinced of anything other than that real estate is a sure investment bet. Sigh.

So we're sitting back hoping that in 5 years, we can buy a modest version of our dream house in the Bay Area, and if not, we'll go elsewhere and buy a much nicer house in some other nice place.

My interests are digital photography, jogging, and lately blogging. And I love, love love traditional architecture.

This just in...

CNN Money: "Banking on illegal immigrants - Banks are seeing an untapped resource in providing home loans to undocumented U.S. residents" tinyurl.com/btn9a

From CNN illegal immigrant mortgage article:

"Despite heated political debate in Washington over illegal immigration in the United States, an increasing number of banks are seeing an untapped resource for growing their own revenue stream and contend that providing undocumented residents with mortgages will help revitalize local communities."

Great idea! Hey, maybe there are some other "untapped resources" out there for growing the "revenue stream"? Like providing loans to sell crack to school kids, or financing a brothel for your wife/daughter. Maybe that will help "revitalize" the local neighborhood, too!

There's just no end to the "creativity" possible...

I've posted a couple of times. I'm 37 and bought my house in 97. I've watched this bubble with alarm and thought it would pop shortly after the the dot com burst. I did not see rates falling as low as they did.

After my favorite bubble site (www.itulip.com) stopped its updates on real estate after calling the RE bubble in 2000, I searched for another and found the early version of Patrick on Google (typed in Bay Area Housing Crash!). Most folks dismiss my views as crazy but they did in Oct. '99 as well.
My views are less extreme than his and I think (hope) prices will revert to the 1999-2002 timeframe if there is a lending crunch.

I'm originally from India and enjoy all that the Bay Area has to offer.