patrick.net

Btw, I am curious who these cash buyers are?

I just heard about two transactions in my neighborhood, one is $1.6M all cash (not foreclosure), another one was $1M all cash (pretty much just for the land, the house is definitely a tear-down).

So my curiosity is, if I have $1.5M cash (not in gold, oil, stock etc., but idle cash) laying around, why would I be buying a house? A person with so much money should have long bought a house. Then if he is smart enough to amass several million, why would he NOT borrow? Borrowing at FHA rate is a no-brainer.

I guess my main question is, I acknowledge that there are plenty of loaded people out there looking for good deals in good areas, but I don't understand why they don't borrow when borrowing makes perfect financial sense. Will all-cash offers be looked upon more favorably compared to, say, 50% cash offer? I think not.

OO -- If the homes were sold as prime residences then I have a guess: Wealthy individuals whom I have known always buy their homes for cash and never have a mortgage, though there might be tax and liquidity advantages. The logic is that if everything goes wrong at least they will have a house and a roof over their heads.

Think about the people who took out mortgages so they could invest more with Bernie Madoff, Enron or WorldCom, etc., and you can understand such thinking....

oo,

The investors are back in full swing again. And FHA only covers around
$400K, and you have to pay 5% interest. If you borrow more, then
you obviously have to pay more interest. These investors have cash.
If they make 10% profit within a year, it is an outperforming investment.

This is a bad news for buyers as this will increase the price of housing.
Therefore I have a gut feeling the price of housing is about to rebound,
even though all the data point otherwise. I wish those guys burn
in hell for starting the first housing bubble in the first place. We should
boycott buying any properties from a flipper.

If I had 5 mil in cash, and wanted to buy a 1 mil house, I absolutely would pay all cash.

OurBroker says

Wealthy individuals whom I have known always buy their homes for cash and never have a mortgage, though there might be tax and liquidity advantages.

Certainly explains why San Diego to Beverly Hills, Ca RE prices tanked by 35-40% in early 90s.

Opps, there went the money!

sfbubblebuyer says

If I had 5 mil in cash, and wanted to buy a 1 mil house, I absolutely would pay all cash.

LOL! you more likely would leave SF and move to NV or FL, as many did! $1M will feed and house you and your family for 10-12 years without worring about working. Its a very different world on the other side.

OO says

Btw, I am curious who these cash buyers are?

I just heard about two transactions in my neighborhood, one is $1.6M all cash (not foreclosure), another one was $1M all cash (pretty much just for the land, the house is definitely a tear-down).

So my curiosity is, if I have $1.5M cash (not in gold, oil, stock etc., but idle cash) laying around, why would I be buying a house? A person with so much money should have long bought a house. Then if he is smart enough to amass several million, why would he NOT borrow? Borrowing at FHA rate is a no-brainer.

I guess my main question is, I acknowledge that there are plenty of loaded people out there looking for good deals in good areas, but I don’t understand why they don’t borrow when borrowing makes perfect financial sense. Will all-cash offers be looked upon more favorably compared to, say, 50% cash offer? I think not.

You are thinking it incorrectly.

If you are borrowing over 30 years you are paying someone interest rate. It's not free. Thats cash you are not investing and making money from.

As far as those 1.5 or 1 million sales.... rich people buy luxury, or builders buy land to speculate or build. One doesn't become a millionaire by giving away once fortune in exchange for a wooden box.

I understand that logic of paying cash for your primary residence.

But I am perplexed by the fact that these residences are by far NOT luxurious - you know what $1.6M can get you in west valley. Now if someone pays $2.5M cash for Portola Valley, or better still, $100M for Los Altos hills like the Russian dude, that I can understand perfectly. That $1.6M house is quite, well, underwhelming for the price tag.

If I have loads of idle cash (say $1.5M), that means my net worth is probably more than $10M, because what kind of wealthy person will be keeping USD cash nowadays? And if I have $10M, I assure you today's $1.5M house will be last item on the shopping list for me, hence my perplexity.

Yeah, I get it, April fools.

kc6zlv says

And how did that work out in the Soviet Union?

Good point! The Soviet Union failed because it did not let people keep the results of their own work. That system is exactly the opposite of what is being proposed here.
Land is not the result of anyone’s work. So land is exactly the right thing to tax. Not labor.
A land-value tax also has the practical advantage that you can’t hide land, and taxes paid are all public record. No one can evade the tax, except by corrupting the laws to get exemptions for themselves. Say, for example, by exempting everyone over 60 regardless of wealth…

Patrick,

The problem I have with it is that it has the potential to allow people to pay very little in taxes based on their income. Someone in another town where land is cheap could open a business making 50 million a year in revenue and pay the same taxes as someone making $30,000 a year with a home where the value of land is high.

And I don't have a problem with income taxes. I have a problem with the way the tax burden is distributed. I know $30,000 is far from a high income, but I think lower-income people should share some of the tax burden. Likewise, I can't see the argument that someone who is makes tens of millions a year and pays $500,000 in taxes isn't paying their share. Certainly someone making less should pay less, and someone making more should pay more, but I really don't think dinging someone $500,000 a year in taxes is fair.

Additionally, property taxes/land taxes (whatever you want to call them) don't allow any flexibility for people going through financial hardships. You have to pay that magic number regardless of your ability to pay. I would like to see a good portion of the tax burden shifted toward sales taxes on non-essential goods. I don't think it would reduce the amount of consumer spending where people have the money to buy DVD players or other junk, but it would still allow people the option to cut back spending if they are having financial difficulties.

And when it comes to all the talk about the need for more revenue, I disagree. The current budget negotiations at all levels of government around the country are good examples. The Federal Budget, for example, is more about cutting funding for domestic programs, which are much smaller than the foreign programs like the cost of military spending in the Middle East, foreign aid to countries that don't need it (Israel) and countries where no amount of money will solve anything (African countries). Likewise, in California politicians won't even acknowledge the $600 million a year Los Angeles County spends on various services for illegal immigrants, but they are concerned that college students aren't paying enough toward their education.

The real problems in this country aren't going to be solved because we, as a country, aren't willing to prioritize where we spend money.

they print dollars so that poor can trade labor in exchange for that magical green paper

Being rich is not = to being smart. Some people get good stock options at work, then invest all the money in the same company and wala turns out to be, say a google, or MSFT, or any number of winners, and all they did was get a good job. Not rocket science. Does not make them market sluth. I know many many smart rich people, who are THE SELLERS of homes, NOT buyers.

On a side note, I think the duck if offten wrong, at least about Real Estate NO doubt!

Could things be any more absurd? Yes, start a war with no purpose and no good guys in the fight.

So happy to see that some of the the best "investments" to be found are in shorting fraudsters who managed to get a public listing.

Go capitalism!

Hope those highly skilled CCME folk don't get penalized too bad for this, or they won't be able to contribute to society any more :(

This wasn't a give away of any kind. It was a collateralized loan, fully paid back. The Fed, and the US taxpayers (AKA citizens) PROFITED from this loan to Dexia, so I'm really not sure what you're complaining about.

thunderlips11 says

Healthcare? No Money.
Small Business Grants? No Money.
21st Century Infrastructure? No Money.

That's not the role of the Fed. It's up the the Treasury to tax or borrow for those things.

Dumb question, but do you think Sarah Palin would go for this tax?

Someone in another town where land is cheap could open a business making 50 million a year in revenue and pay the same taxes as someone making $30,000 a year with a home where the value of land is high.

That's a feature not a bug. The LVT encourages more efficient use of land, which reduces the deadloss we have now in this sector.

do you think Sarah Palin would go for this tax?

Given it's something Nader has gotten behind, no. Though the Alaska Permanent Fund is in fact entirely Georgist in conception, if not aggressive enough in collecting severance taxes that are available.

Frankly, no viable politician is going to touch this tax with a bargepole. LVT targets landowners and benefits renters. That's not the way the bread is buttered in this country.

I have been to China and I wish I knew how to do what thunderlips is doing, he's entirely correct. There is such a bubble over there and so much hanky-panky going on, on all levels. It starts from the top with giant construction projects so as to make the GDP look ever-higher. Everyone seems to be trying some scheme or other, everyone wants to get rich. Since Chinese have few investment choices, they buy apartments and Chinese stocks. Too bad it's hard to buy the A shares of Chinese stocks, I imagine there are plenty of shorting opportunities over there.

I would skip college all together and learn a trade or get an entry level govt. job and work my way up, even if I have to drive a bus or something of that kind. A college degree only makes sense if one wants to pursue healthcare.

shrekgrinch says

And why should a geny’er invest in the overly priced education for programming when it can be outsourced at a whim? It is smarter to apprentice themselves to an electrician or a plumber, if you ask me.

In part, for the same reason as why cute girls and guys flock to LA hoping to make it in movies.
Some smart youths who studied CS have become insanely wealthy very quickly, not just in .com era but (though less commonly) more recently. The average odds are not high, but there are examples that media publicizes daily. No such thing in plumbing or electrician trade.

Let's improve it (no exemptions for rich people over 60, for example) and start our own petition!

HousingWatcher says

or get an entry level govt. job and work my way up, even if I have to drive a bus or something of that kind.

How far up do you think you would work in the govt. without degree, even in better times such as until 2008 when govt. was expanding at a rapid pace?

Sad to day, but most degrees aren't worth the investment. There's no problem the right price won't solve. The cost of all types of higher education needs to come down. Undergrads shouldn't be going 100k into debt for a bachelor's. Medical students shouldn't be going another 200k into debt for their MD. There are people my age with M.D.s who are in residency. Their loans are now compounding and they probably owe close to 500k.

theoakman says

Undergrads shouldn’t be going 100k into debt for a bachelor’s. Medical students shouldn’t be going another 200k into debt for their MD. There are people my age with M.D.s who are in residency. Their loans are now compounding and they probably owe close to 500k.

A more typical number would be ~200 - 300 K, which is about 1 year income.
Would you rather have income and debt of 300 K or 40 K, even if the ratio is 1 in both cases?

"How far up do you think you would work in the govt. without degree, even in better times such as until 2008 when govt. was expanding at a rapid pace?"

There are plenty of people in govt. making $100k + without a degree. They include police officers and rail road conductors. The lowest paid employee at the Long Island Rail Road makes over $70,000.

"Some smart youths who studied CS have become insanely wealthy very quickly, not just in .com era but (though less commonly) more recently. The average odds are not high, but there are examples that media publicizes daily. No such thing in plumbing or electrician trade."

So people should study CS because there is a .000000001% chance they will become rich?

kc6zlv says

The problem I have with it is that it has the potential to allow people to pay very little in taxes based on their income. Someone in another town where land is cheap could open a business making 50 million a year in revenue and pay the same taxes as someone making $30,000 a year with a home where the value of land is high.

You're going to have a tough time attracting talented workers to your $50M/yr company in the Boondocks. If you succeed and the company is successful, the wages, and hence rental value of the land is going to go up.

And what is somebody making $30K doing living where the land value is high? If they did, they would be living in an apartment building, where the the tax is very low per person since you've got so many people on a small plot of land.

There are plenty of decent job opportunities for non college grads. This whole "go to college or you will be a failure" is propaganda put out by the higher education industry. "Go to college or wash toilets your whole life" sounds awfully similar to "Buy now or be priced out forever." In NYC, a polumber or electrician with NO COLLEGE education makes $46 an hour. How many collelge grads will ever see that pay? Not many. My father did not go to college. He got a govt. job right out of high school and he made just as much as an average college grad.

A recent study found that 40% of recent college graduates do not work in a job that requires a college degree. That's 40%.

Forget Harvard and a 4-Year Degree, You Can Make More as a Plumber in the Long Run, Says Prof. Kotlikoff

http://finance.yahoo.com/tech-ticker/forget-harvard-and-a-4-year-degree-you-can-make-more-as-a-plumber-in-the-long-run-says-prof.-kotlikoff-536046.html

It's best self taught at self pace. If you need a classroom to get the material covered in the reference books. Then Programing probably isn't your Forte`.

What's important is staying current in libraries, programing platforms, frameworks, and associated languages.
Taking courses are a complete waste of time, although that doesn't necessarily mean they wont get work. HR likes to see that on resumes. Though those guys never develop the skills that the guys that stay current by subscribing to latest platforms and actually having hardware and software to set up development as well as learning labs at home. As the guys that take the class think those few hours in a class is a valid substitute for actually utilizing it hands on.

Like I told my wife when she told me I needed to go to school to get a job programming.
"No! You just need to know your shit. "

Nomograph says

Excellent advice if you want to clean toilets all your life.

Clever! Is this also a Jane Austen quote or just advice from your own experience in cleaning toilets for a living?

are you suggesting it is ok to do something based only on the fact that someone else does it?

shrekgrinch says

Anyway, what do the rest of you think?

It's a tough call. I think that anyone who is ready to spend obscene piles of money on a college education these days should do a cost-benefit analysis BEFORE they enroll. And I think it sucks that many students are obliged to assume a HUGE pile of debt for an undergraduate degree, regardless of their major.

The value of an education certainly extends beyond one's earning potential. College (at least in principle) provides an environment for students to learn how to think critically, which should make them better citizens no matter what they ultimately do for a job. However, if it costs so damn much that a person's future quality of living is seriously compromised then our system of higher education needs to change.

And finally, I don't see why there should be any stigma associated with learning and practicing a trade. Idealistic, I know. Still it seems wrong to me that a journeyman plumber or carpenter, with REAL, useful skills is considered less valuable to our society than a C+ comp sci graduate who works the register at home depot.

education system is a joke out here. It's all about passing as many students as fast through the system collecting federal dollars for the attendance. The only beneficiaries are administrators and teachers/professors who are at least rewarded with handsome salary and wonderful pensions. Everyone else is getting screwed.

For any tech degrees it's especially the biggest waste of time. curriculum is usually years behind, and these jobs do periodically get streamlined and outsourced. it's probably going to follow the same fate as machinists 50 years ago. back then that was previous generations "techies", today it's computer programmers who will eventually face the same fate.

One cool thing about college is the opportunity for learning stuff you never knew existed. You're exposed to information you might otherwise never have the chance to know. You also learn about different types of employment you might never know exist.

There are many jobs that don't require a college education, but there are many that do. While college isn't for everyone, it can be a valuable experience. I guess if a student knows what he wants to be and it involves college, it's worthwhile. If someone is just going while they try to figure things out, it's an expensive experiment.

I remember Gross telling people to stay into treasuries about 6 months ago. I knew he was exiting back then because the guy is a snake in the grass. I'm still not certain how people can be treasury bulls. The upside to them is completely limited and the downside risk is huge.

HousingWatcher says

A recent study found that 40% of recent college graduates do not work in a job that requires a college degree. That’s 40%.

That a college degree isn't required, doesn't mean that they didn't benefit from college. It doesn't even tell you whether they would have gotten the job without it (won out over other applicants even if it isn't required).

But also, since they are "recent" it must include many who took a job as a waiter, a bartender, or whatever until they get a break in their chosen field. I've had a few careers, but waitering was always my fall back job of choice. But just because I had jobs after college that didn't require a degree, doesn't mean I didn't benefit from college in a big way.

About the tech field, I think tech classes and degrees have a great value. My guess is that if you asked 100 of the highest level "architects" at major software companys whether they have a degree in computer science or whether they are glad that they do, I would bet that at least 80% would say yes on both counts.

Fisk says

theoakman says

Undergrads shouldn’t be going 100k into debt for a bachelor’s. Medical students shouldn’t be going another 200k into debt for their MD. There are people my age with M.D.s who are in residency. Their loans are now compounding and they probably owe close to 500k.

A more typical number would be ~200 - 300 K, which is about 1 year income.

Would you rather have income and debt of 300 K or 40 K, even if the ratio is 1 in both cases?

You obviously haven't looked at tuition or the loans they are making these students take out in the past 5 years. On top of it, if you think many doctors are making 300k easily these days, you haven't looked at the medical profession either. Most are lucky to escape with 300k debt minimum. Then, when they enter their residency, their loans are deferred and compounded.

Bankers, brokers and RE agents can go to work doing something that comports better with their skills and ethics like cleaning toilets with their tongues or running crystal meth labs or giving $2 blowjobs to truckers at rest stops or planting potatoes.

You forgot to add being crazy cat ladies. That comports with my skills and ethics.

Good God people!!!!

The ONLY redeeming thing about California right now is a reasonable property tax rate. Now the "progressives" want to redistribute that wealth as well. Typical liberal California politics here.

It is similar to the obscene electric rate structure in California. The more you use the higher the rate. I moved from MN to CA and I was astounded when I got my first electric bill. The rate is SIX TIMES (PG and E rates) more than what I paid in MN. But in California Energy Commision's infinite wisdom I have to pay this rate because I use more electricity, so according to them I must be rich. I don't think living in a 1400 square foot home should be considered "rich".

I fear this initiaitve is similarly structured. Who makes the determination of what "rental value" is? What is highest and best use? And now they want to pry into more of my personal business? (the initiative requires mandatory reporting of all leases and their terms to the government). The government is already way too intrusive. The last thing we need is more bueracratic red tape.

Califorina is already the HIGHEST taxed state in the nation. Not to mention our energy costs (gas AND electricity) are also the HIGHEST IN THE NATION.

How about they actually cut spending and get rid of the 1,000's of useless agencies imposing the onerous regulations (in most cases some form of wealth redistribution) that are diving businesses out of this state.