patrick.net

I have no idea, really.

Too many variables.

You've got to divide the future into possible cases.

As things are set up now, 2020 is basically when everything blows up.

The front half of the baby boom will be 63-74 and hitting SSA retirement age.

So 2022 will be when the front half hits medicare, too.

This is going to be an immense wealth suck for us -- the baby boom had to put an extra 2.6T+ into the system 1986-2008 and they're going to want it back.

This means higher taxes on everyone else, and all taxes come out of rents (and home values).

Then there's "ObamaCare". If this survives the next 2 years the upper middle class will be partially subsidizing the lower quintiles' health care bills. More money getting pulled out of our wallets.

Then there's the national debt itself. Will it be $25T by 2020? Interest alone will be $750B/yr, and that's at 3%.

What about oil? $15 gas is entirely possible.

What new policies, changes in tax system, green energy industrial revolution can jumpstart the economy... ?

Avoiding my typical pie-in-the-sky stuff, I think the system is just going to come under increasing stress. We could pave the high desert in solar power arrays and save our bacon (it'd be a better investment than high speed rail) but if that's going to happen we'v got to start planning now.

But what might also happen is the money supply expanding such that prices get another 0, along with everyone's incomes. That would solve some problems, and of course make buying a house now a screaming deal.

Los Angeles Renter says

Which would mean we would have 30 years of ZERO housing appreciation from 1995-2025.

Yes, Back to the norm.

http://en.wikipedia.org/wiki/United_States_housing_bubble

Robert Shiller's plot of U.S. home prices, population, building costs, and bond yields, from Irrational Exuberance, 2nd ed. Shiller shows that inflation-adjusted U.S. home prices increased 0.4% per year from 1890–2004 and 0.7% per year from 1940–2004, whereas U.S. census data from 1940–2004 shows that the self-assessed value increased 2% per year.

SSA is in dire situation and the kind of debt we are in I don't think why anyone would think we would be on our feet very soon - What Troy said! http://news.yahoo.com/social-security-disability-verge-insolvency-090119318.html

actual prices will probably be double what they are today

toothfairy says

actual prices will probably be double what they are today

Hehe..Care to back it up by some data and how and why will it happen?

I don't think prices will go back up to recent bubble levels. Just like .com bubble, a lot of companies that were deemed worthless after the crash are still worthless and gone. And tulips haven't risen in price either if you know what I'm referring to.

Boomers are starting to retire, taxes are going to go up. Property taxes will most likely go up in CA. Funny enough, renters will probably feel better prices since a lot of boomers are starting to rent out their spare rooms because SS doesn't pay very much.

Wages aren't going up or will go up, unless you are too big to fail Washington insider. So live life conservatively. Don't take on more debt than you are comfortable with, if you can don't take any on at all.

bubblesitter says

toothfairy says

actual prices will probably be double what they are today

Hehe..Care to back it up by some data and how and why will it happen?

just a guess based it on the last housing crash that ended in 94. 10 years later in 2004 prices had more than doubled.

Los Angeles Renter says

What types of effect on our society would 30 years of zero housing appreciation have?

more affordable homes. less debt. more time to enjoy life. This is after the crushing fear and cannibal anarchy subsides. Plant potatoes. Your chubby neighbors are now food. Mmmm long pork! (watch "The Book of Eli")

bubblesitter says

SSA is in dire situation

SSA has $2.6T in assets, no debt, and dibs on the first 12.4% of the US's wage income. They could buy the 15 largest corporations in the US for cash if they wanted (and if they could sell their treasuries). The problem lies with .gov itself. Taxes are too low and wasteful spending (DOD cough) is too high.

toothfairy says

just a guess based it on the last housing crash that ended in 94. 10 years later in 2004 prices had more than doubled.

Yes if we get another dotcom boom things will turn around.

I wouldn't bank on that happening.

I did include in my above doom scenario the possibility of intentional inflation, like what happened 1999-2004 with the housing boom.

But the housing boom card has been played -- part of the reason prices rose so much 2002-2004 was interest rates falling from 8% to 5%. That was a massive drop, and in the bubble markets rates were even lower thanks to negative-am. Rates now can still go lower, but that's the Japan playbook, and their economy is still stuck in these low rates and no growth.

This is the chart Im looking at. The trend is pretty consistent. And if youre in California like me we tend to be above trend in price appreciation

shrekgrinch says

Just wait for Facebook to IPO for $100 billion or so.

Let's see, Facebook has about 1,700 times as many distinct viewers per month as Patrick.net, so Patrick.net should be worth $100B / 1,700 = $58.8 million!

Hmmm, something must be wrong in my calculations. No one has offered me even a measly million. In fact, no one has offered anything.

Or could it be that Facebook is not actually worth $100 billion?

Or could it be that Facebook is not actually worth $100 billion?

Blasphemy!

What I will be interested to see is how East Palo Alto might change in the next 5 years as a result of Facebook's move.

$58.8 million!

incorporate Pnet with 600,000 authorized and Issued shares.

Authorize Shared 600,000
Issued Shares 600,000
at Par Value 0.001
Total Equity $600.00

Sell to One Investor $100 /per Share
# of shares 10 shares
Pref. Class A $1,000 equity

Market Value $59,999,000

bmwman91 says

What I will be interested to see is how East Palo Alto might change in the next 5 years as a result of Facebook's move.

Any different than what was near by decades past. Ciscos first operations were in fact located on O'Brian Ave in East Palo Alto. Sun, Adobe, Ariba also near by

toothfairy says

The trend is pretty consistent

the trend is dead.

thomas.wong1986 says

Sell to One Investor $100 /per Shares
...
Market Value $59,999,000

Wow, I have to just sell ten shares at $100 to make Patrick.net worth $59.999M? I didn't quite get the thing about Pref. Class A shares though.

Sounds a lot like the old dot-con days! Still, I'd probably do it if I could.

East Menlo Park probably won't change much with Facebook there. Remember that they're moving into Sun's old buildings, and Sun was on top of the world at the time that was built. I don't see what's different about Facebook occupying the same space.

Sounds a lot like the old dot-con days!

nope.. shares to investors were based on more reasonable measures back in late 90s. 5-10 cents per share x majority ownership and control of the board.

The example above is what happened when Microsoft and others took a small equity in FB Zynga and Linkedin paying half a billion for a very small slice say 5%. Paying an inflated prices for 5% revalues the other 95%. This is what actual happened over the past 5-6 years.

Pref. Class A ... first round of VC round of funding...
b = 2nd c = 3 rd round... etc etc etc.

I'm terrified that inflation will mean that housing prices, and consumer prices in general, could double or triple in that period, if not worse.

I don't think housing will keep pace with inflation, if that's the question. Too many downsizing baby boomers and not enough Gen X/Y/Millennial wealth (it's all being taxed away) to fund big homes.

Bellingham Bob says

toothfairy says

The trend is pretty consistent

the trend is dead.

“Nessuna soluzione . . . nessun problema!„

let me guess...new paradigm?...this time its different? Thats what they said when prices were going up too.

Michinaga says

I'm terrified that inflation will mean that housing prices, and consumer prices in general, could double or triple in that period, if not worse.

Nada. House prices are based on healthy credit market. Healthy credit market happens 1)when there is underlying support of wages which is completely missing 2) or else days of NINJA loans return. Currently both are missing. Inflation in house prices is zero possibility in near future,even with rock bottom rates.

bubblesitter says

Inflation in house prices is zero possibility in near future,even with rock bottom rates.

You dont pay higher prices for homes anymore.. you pay to live near polution free air, better weather, better 4 year schools, better shopping centers, resturants, intellectually smarter nieghbors, and all the other marketing gimicks the REA can come up with. You also pay so prices never go down... bigger fool theory...

What will be the marketing gimicks in 2020-2025 ? I dont know.

toothfairy says

let me guess...new paradigm?

no -- failure of the new paradigm

http://research.stlouisfed.org/fred2/graph/?g=1K1

shrekgrinch says

Cornholio will soon start ripping into you for daring to piss all over the sacred cow known as ObamaCare.

No, I only comment when people say stupid or uninformed things (regardless of ideology or topic). I don't think anyone actually disagrees with Bob's statement -- it's at least partly true. Nothing sacred about it -- it's just annoying when people make ignorant strawman comments about anything or make false claims that are easily shown to be false to anyone with a modicum of intelligence.

In addition, there seem to be a large number of people who speak without knowing anything about Obamacare, as they do for many other topics, and these people largely focus quite transparently on talking points, rather than referring to specific aspects of the legislation. I seem to remember user saying "we don't know what's in ObamaCare" which was particularly unsophisticated because the law has been published for a quite a while now and this was a very old talking point.

The last point I'd make is that most people complaining about Obamacare didn't complain about the Republican Congress' plan back in the 90s that was almost exactly the same. I often wonder why that is.

shrekgrinch says

It's already happening. Just wait for Facebook to IPO for $100 billion or so.

Not sure about this. First of all, I don't think anyone thinks it's worth $100B. Even the Goldman valuation was reported as $50B, but is more like $38B if you do the math.

Second, Facebook does have a decent number of employees, maybe 2000 or so, but they're not all in the Bay Area -- unclear how many are.

Third, the dotcom boom-correlated Bay Area real estate boom happened when there were several companies with IPOs that were legit companies and many many multiples of crappy companies that had IPOs anyway (one of which currently is Groupon, although that's a Chicago company). So far the least impressive company to have an IPO is Pandora (based in Oakland, not Silicon Valley or SF), and that's partly because their business model isn't secure, but there haven't been a steady stream of low quality companies have IPOs pumping more and more cash into the local market, nor do there appear to be a stream of them on the horizon.

Fourth, the vast majority of Facebook stock will be held by co-founders, key executives, VC funds, and a few big institutional and other big stockholders, and not by employees. Obviously the early employees will have more, but many rank and file people won't have all that much.

None of this is really the same as back in the day -- we are seeing a limited number of high quality companies that are in the pipeline, such as Zynga, but not that many low quality companies.

FortWayne says

And tulips haven't risen in price either if you know what I'm referring to.

Big difference between HOUSES and TULIPS.. you can't live and raise a family in a tulip!

Comparing the housing bubble to the tulip bubble is a little ridiculous.

toothfairy says

This is the chart Im looking at. The trend is pretty consistent. And if youre in California like me we tend to be above trend in price appreciation

Don't place too much faith in charts, especially super long term ones like that. They're great measuring sticks, but that is all they are. You have to consider the history that chart represents too (ie. post WWII and GD the economy was very different than the pre 1920's, and during the pre 1920's the country was still expanding quite a bit into essentially empty land or land that had been forcibly emptied by the military, avg. people routinely put down 50% on a home or even bought outright) and remember that future will likely not at all be a repeat of the past. The past doesn't repeat, it rhymes with the future.

You also have to consider stuff like where wages will be, and how much debt people will likely have, and if we're entering a prolonged L shaped recession (IOW depression) like Japan has been in since the late 1980's.

Most people don't want to consider any of that, its too difficult and scary to think of a future in those terms, but those are real possibilities that your chart doesn't not contain.

anyone that says anything other than "i don't know" is fooling themselves.

- no one can predict even 1 year out
- every year introduces additional error.
- 25 years later the errors compound so the predictions are completely useless

That's not a very nice thing to say about RomneyCare.

Let's see, Facebook has about 1,700 times as many distinct viewers per month as Patrick.net, so Patrick.net should be worth $100B / 1,700 = $58.8 million!

Unfortunately, that assumes a linear relationship between the value of web site and its viewership.

One of the popular variants of Metcalf's Law says, "The community value of a network grows as the square of the number of its users increase." However, I believe even this is incorrect.

A better model would be a Logistic Growth Curve. The value of a network or website at first increases exponentially, but then value/growth slows down as it reaches a horizontal asymptote at 100% of the population.

Of course, one Apocalypsefuck is worth a thousand regular viewers.

Los Angeles Renter says

Others are less optimistic and see prices heading back to mid-1990s prices and staying there until 2025.

I like how you refer to this as "less optimistic". I would call that the more optimistic view. Would you say it is pessimistic to believe that gas prices will remain under $4/gallon for the next few years?

Los Angeles Renter says

I've read some predictions that we wont reach 2006 bubble prices again in Los Angeles until 2024.

Adjusted for inflation, I don't think we'll see housing prices at their 2006 level in any of our lifetimes. And that's a good thing. Why should shelter be so unaffordable? Would we want tulips to ever reach their 1637 inflation adjusted prices?

Dealers refused to honor contracts and people began to realize they traded their homes for a piece of greenery; panic and pandemonium were prevalent throughout the land. The government attempted to step in and halt the crash by offering to honor contracts at 10% of the face value, but then the market plunged even lower, making such restitution impossible. No one emerged unscathed from the crash. Even the people who had locked in their profit by getting out early suffered under the following depression. Investopedia

Wow, that exact same stuff happened in America between 2006 and 2011!

Los Angeles Renter says

What types of effect on our society would 30 years of zero housing appreciation have?

People would be able to spend a greater percentage of their income on non-housing related purchases like restaurants, vacations, clothing, jewelry, automobiles, electronics, and the rest of the 96% of the economy that is not housing.

Bankruptcy law expert and Harvard University Professor Elizabeth Warren spent a lot of time crunching consumer spending numbers for her popular books, "The Fragile Middle Class” and “The Two-Income Trap.” In both, she makes this point: Despite all those $200 sneakers you hear about and the long lines at Starbucks, consumers are actually spending less of their income — much less — on discretionary items like clothing, entertainment and food than their parents did. In fact, after taking care of essentials like housing and health care, today’s middle class has about half as much spending money as their parents did in the early 1970s, Warren says.

The basics, according to Warren, now take up close to three-fourths of every family's spending power (it was about 50 percent in 1973), leaving precious little left over at the end of the month — and leaving many families with no cushion in case of a job loss or health crisis.

Life is harder now -- MSNBC

So, if families didn't have to spend so much on housing, they could spend more on other things. And that would be the best stimulus possible.

So basically, life was better in 1973 when people dressed like this.

thomas.wong1986 says

you pay to live near polution free air, better weather, better 4 year schools, better shopping centers, resturants, intellectually smarter nieghbors, and all the other marketing gimicks the REA can come up with.

I don't get the gimmick part. Those are all things that have value to some people, so why wouldn't they pay more to get them?

Time does not exist ! 2025 may bring NO BUYERS, or MULTIPLE OFFERS ??? if the latter is true, we will again be spending time back on Patrick.net !!! We could all be doing our laundry in a river, hopefully upstream of the pig farmer.

Housing prices will spike again only when someone invents a SURPRISE implement that everyone in the free world wants to buy and is anxious to spend about $2,000 ea. and replace that model with a new one every year or two while that new invention is evolving to reach its peak performance. ( it took the computer from 1983 to 2006 )(coincides wit housing) Then b.r.i.c. will improvise and housing will collapse. This story is boring, it is too simple. We need to move on, learn to take the holding power away from banks, freddie and fannie, find some contractors ready to build realistically priced housing. No land you say ? Go fer a plane ride dufus.

Can anybody name ANY invention that generated ONE TENTH of the revenue that the computer did ?

Los Angeles Renter says

we would have 30 years of ZERO housing appreciation from

Thats correct L.A.R.... Generation present, sucked all the appreciation potential out of the real estate market for the next several generations.... Its probably a good thing seeing as how we may be living in their home for the rest of their time.

Their philosophy was,,,, it does not matter what you pay for it,,, it will be worth %20 more next year. Justify that !

My bet is that we will see a new currency system by then and we probably won't be valuing houses in dollars.

toothfairy says

This is the chart Im looking at. The trend is pretty consistent.

Yes, 1973 was way better to me. This isn't a style site so the clothing of that man is irrelevant. 1973 housing prices is where I see prices settling, (and if the gold standard returns IMHO will likely remain.) I see clearly from this chart the gross insanity of the past 35 years in terms of residential real estate pricing. Adjusted for inflation is IMHO is just more manipulated bullshit semantics to get a person to pay more for something that essentially has not changed in value (the burst has shown that one.) If the gold standard wasn't taken off the table that phrase would not exist. The problems today started when the masses and others bought into the idea of manipulation of a house as a vehicle to make fast money (there is the glitch right there.) A house is not a bank, it is not an investment to me. It is to be lived in with the opportunity to sell it in the future. End of story. I also recommend reading "31 Days" by Barry Werth.

Over the long term, it isn't possible for house prices to rise any faster in REAL (i.e. inflation-adjusted) terms than peoples' REAL incomes. Am I right? Even if you have a highly desirable area (say a waterfront), prices there can't rise any faster than the average ability to pay. Even billionaires don't have unlimited resources. Indeed, it was arguably the desirable areas (coastal CA and FL) which saw the biggest bubble.

The whole notion that a house can produce wealth is bunk. A house is a consumer good that slowly depreciates and needs constant maintainence (not to mention insurance and property taxes). Factories, refineries, farms, and working businesses produce wealth...not houses.

Unfortunately over the last two decades we've sent much of the wealth-producing sector overseas. It seems our economy is now based on little more than speculation and gambling, er...I mean..."finance."

about 3-5 times your annual wage.