patrick.net

Man, the rate of growth of this thread is.
Well.
Well, it's bubble like.

NEast good for weather, not for taxes and COL. Grrr. I'm already looking for the final resting place.

Here are my requirements -
1. San Diego Weather
2. No State Tax
3. Low property Tax
4. Arable land
5. Not too many people.
6. 100 acres for less than 500k

Any suggestions welcome.

If Peter P wants a trademark, I'll submit it to the USPTO for free. His filing fee would be about 300 bucks.

BAY AREA DATAQUICK REPORT JUST RELEASED:

http://www.dqnews.com/RRBay0805.shtm

re: dataquick report, I noticed this side comment:

Indicators of market distress are still largely absent.

Hmm....are they expecting something? Or: "Does that mean the market is turning? Probably not."

If Peter P wants a trademark, I’ll submit it to the USPTO for free. His filing fee would be about 300 bucks.

Wow, you must have super power or something. Thanks in advance. ;)

Shmend Rick, we did have a thread about hedging and MACRO securities:

http://patrick.net/wp/?p=27#comments

Analyzing past RE cycles using median prices may understate the magnitude of the downturn. This is from Ben Jone's blog:

"Thus I can have median price increase yet everyone of the home that sold can decrease in price. ( Sale composition just shifted to high priced home.)"

This is very true. During the last SoCal bust, the median price only fell about 15-20%. However, individual homes were down as much as 50% and condos even more. When affordability improves (as prices decline), people may spend the same money for a home, but get more home for the money. Thus, if people spend the same, the median stays the same, just the pool of homes sold changes.

Thanks deb!

Mr, Right, I'd like to answer a post you made before the recent "troubles":

Re: rent vs. own ratios. It’s funny that some think that is a cast in stone indicator that prices will “revert to the mean”. Much like equity p/e’s of the S&P 500 from 1980 to date, which have increased 3 fold (disregarding the 5 fold dot.bom high), ratios sometimes change and do not “revert”, it seems. Unless, are we expecting the equity markets to crash again as well?

I noticed you picked 1980 as your starting point, which was actually the low point at the end of the long 1970's bear market. Actually, while the S&P 500's current P/E is somewhat high (22.5) relative to its 65-year historic average of around 15 (tinyurl.com/b672o), it's also well below extreme highs reached at the end of the tech bubble (high-40's). While I don't think historic PE ratios are the very last word on everything, I think they are pretty reliable indicators of when asset valuation is way out of line with fundamentals.

A lot of economists, bulls & bears alike, think rents are one of the best ways (if not THE best way) to determine a "PE ratio" for housing prices. Simple cash-flow analysis works fine for me too. If I buy a house or condo at todays prices in City X, would I be able to rent it out for what it's costing me in PITI, maintenance, etc., assuming a non-voodoo amortizing loan? If it's not even close, then something's out of whack IMO.

Jack,

Over the long run, rents have always moved pretty much in tandem with housing prices --the very notable exceptions being periodic housing bubbles. This makes sense when you think about in terms of renting being pretty much the only alternative to buying. When the premium for buying greatly exceeds the cost of renting an equivalent house/condo, then you would expect that some buyers would shift back to renting, depressing demand for housing, while increasing demand for rentals.

That's what would happens in a rational market anyway. I don't think most buyer's expectations today are rational ("it never goes down/20% a year forever"), nor are most of them really paying attention to things like PE ratios, affordability, speculation, loose lending standards, yield curves or most of the topics we cover in this blog on a daily basis. I see the the very high housing demand right now as primarily comprised of speculators and people who are basing their decisions on emotion (greed, fear of being priced out forever, herd mentality, etc.).

HARM-
Traditional “Investment models” dont work with real estate, because real estate is not ONLY an investment. It is as simple as that.
No new paradigm BS either, just a fact. Real estate is not an investment.

Jack, for people who are flipping condos a dozen at a time, real estate most definitely IS "just an investment". You and I are not like that, but these people are creating an environment of greed and fear (of runaway prices) that is driving the market for everyone. When the easy credit dries up and the market turns, this same herd psychology will work in reverse.

No new paradigm BS either

Ok, Jack, so you're not saying it's a "new paradigm". Just that traditional investment models, which used to work with RE, don't work anymore. And that the RE boom "is different this time". And maybe we've reached a "permanently high plateau". *wink, wink* ;-)

@jack
So at age 37, I was not the least interested in “trading up” to bigger debt and property taxes, etc. I was more in survivor mode, attempting to minimize my mortgage..."

Smart man--and a big difference from then to today, eh?

But why cant it simply be that so many people are looking to own instead of rent? Even without factoring in “investors” it could well be the stituation that the cheap credit has brought so many more people into the buying pool that the rentals are standing empty.

Good question. Wouldn't that suggest a steep trend of renter-->owner? Can we find any stats to support that? I know--that's my job! ;) Yet, when I read that investors comprise 20-30% of home buyers in the Bay Area, I really begin to wonder about the rental glut. Already, some regions are reporting a excess of homes that invetors can't rent (much less cover their monthly costs). This is one example, but of course it's not in Marin: http://tinyurl.com/982uy

Btw: Median prices in Marin--
Here's that Marin trend graph I did for 93-05:
http://tinyurl.com/c959f (sources cited on graph)

And here's a mean price graph '65-'04
http://tinyurl.com/7wrb5
(credit to Marinite and his Marin bubble blog)

business as usual, anomaly, or insanity?

But why cant it simply be that so many people are looking to own instead of rent?

Because they are convinced that housing prices can only go up.

And I didn't say permanently high plateau! I lived through two busts, remember? Going on three, and we will all live through this one too. Excuse me, correction, not bust.

I know you didn't Jack --was just giving you a hard time. :-)
Personally, I usually say "crash", but I've heard that gentlemen prefer busts.

Although the Bay Area as a whole didn’t break another record, SAN FRANCISCO did at $776K (up another $16K from the month earlier), based on my quick glance of every month’s data this year.

I made some (beer) money on HedgeStreet because of this SF number. Will continue to bet that median price in SF will be up for the rest of the year. This is not a bet on the housing market. Just a bet on the mechanics of median prices.

@Jack,
PS I just told my brother in law NOT to buy a house right now. For the first time in 15 years I said “dont do it”. (Happy now, Bubbleheads? hahaha)

I always suspected you were wise, if a bit bullish. Now I'm convinced.

I always suspected you were wise, if a bit bullish. Now I’m convinced.

Seconds there.

I always suspected you were wise, if a bit bullish. Now I’m convinced.

Jack is a wise guy of course. Never doubted that.

But he favors granite over corian... hmm...

I was trying to say that the urge to buy might define the game for some people- to the point that they would rather buy someplace ELSE –than rent HERE.

If they would rather buy someplace else than rent here, the intangibles argument will be weakened, no?

But he favors granite over corian… hmm…

I'm sure Corian's a fine product, but I also tend to prefer natural/traditional materials over Anal Voodoo Counter Products (AVCPs). Thanks, Jack!

np, Jack. I have purged the offending duplicate post (kept the longer one).

It used to be: If you get a fixed rate loan, and can afford the payments, and can stay in the house 5 to 10 years…” blah blah blah….Now it is more like: If money is NO object, and you can buy the house outright, and you are positive that you are not moving for at least 45 years, it may make sense to buy!

Sing it, my brother!!

Yes! Jack is Prime

@Jack
Are the bull’s arguments really all that terrible these days?

Nope, but it's just harder to fitler out the reasonable ones.
We might be witness to the leading edge of RE pessimism (panic?), where moderate bull arguments will get drowned out. I'm sure there still markets where homebuying is a reasonable decision...I'm just not in one of them.

You’ve been living in the BA where home prices have increased 10% to 20% forever and ever and ever.

Your implication sir, not mine.

Any gut feels for where the CPI might go?

I’m sorry that you read a hidden implication into a simple statement about factual past events.

Not trying to read anything into your statement, I'm just not aware of 10-20% increases being the norm. Aren't increases like that short term in nature? And isn't it more likely that after several yearly increases the rate will start to drop, go flat or even decline. I know that nationally the housing market tends to stay positive, but various areas of the U.S. have had numerous boom/bust cycles and unless I'm mistaken the B.A. has fallen into this category.

This is just intuitive, nothing more, but in the last month that I have added bubblehead web sites to my list of regular surfing, it seems to me that a great many of them (bubbleheads) are regular equities traders. I wonder if that is true, and if that might account for an aversion to owning an extremely illiquid asset?

Cheers.

I don't know if people around here have an aversion to property (me, I like property, particularly at the right price), but maybe we have analysed the RE market using fundamentals. I like to think that people that make these assessments usually have an interest in the equity markets as well.

Others here have probably lived (or read) through boom bust cycles and have comments based on those experiences.

Mr. Right

Thanks for your very gentlemanly answer, it is much appreciated. I have to admit, I am not someone who is comfortable jumping into RE after the trend has been up as long as it has currently. But I too think that RE is a great investment at the right time. My husband and I are not heavy equity traders either, just not inclined to buy RE right now.

Even in the last crash, change took time.

Change in median price takes time. Change can happen quickly if you need to sell quickly.

You mean reasonable arguments to buy real estate are now being drowned out by unreasonable and frivolous arguments by my fellow bulls?

Not under my watch. ;)

@Right

You’ve been living in the BA where home prices have increased 10% to 20% per year and don’t like that trend line?

You keep repeating that 10-20% figure; what are you referring to exactly? A specific location--a housing segment? Do you invest in housing, where that's what you expect long-term?
In our last exchange, I pulled historical stats on the subject of San Diego and posted them here (scroll up somewhere). I don't recall any response then; you can pursue Bay Area stats for your own answer. If you're a serious investor, I'm sure you'll do that yourself.
Oh, btw, median home prices in my locale have averaged +34% annually since '99, so 10-20% is obviously out of context in my case.

I hope you know I am just having fun (PURGE)

Really? I was really mad and I hated you!

Really? I was really mad and I hated you!

JKJ (Just kidding Jack) ;)

No offense was intended; I stated an opinion re: sustainable growth and you expressed a contrary opinion, which I appreciate but didn’t think needed further exchange as the page tends to turn pretty quick on the good ol’ inet.

None taken--all theories, really. We'll know eventually.

Hi MP,
I hope news was not wishing you harm. I think he said that it would suck for you and probably others I would guess. Maybe this is why there is aggression between bulls and bears. Might be the bulls think that the bears are trying to wish loss to the bulls. Far from it. I think it would be financially bad for both camps if RE busts. Due to the fallout this would have into the broader economy.
Cheers.

So mean of you to wish harm on me! Yes, San Francisco prices just increased by a lousy 2.2% month over month, and hits another record high…. but to wish me harm is so cruel.

I mean, i know I only made 10% on my equity in one month (120% annualized?), but come on, play nice!

I made 40% on my equity in less than one month (480% annualized) on HedgeStreet going long SF median price. Does that make me a better investor? ;)

(Too bad. The liquidity on some HedgeStreet instruments can be exhausted with as little as $100.)

WARNING/BAN RULE STILL IN EFFECT:

"From this point on, the next clown to post a personal attack, insult or gratuitous taunt directed at another blogger gets his post deleted with a warning. Same goes for anyone who repsonds to it with another taunt/insult. Do it twice and you get banned."

Some of the recent comments here, while within bounds, are starting to get provocative. If you don't want to trigger a flame war and get booted off --along with your opponent-- I recommend staying well away from personal matters.

@HARM

Thanks for the above. I'm not a frequent contributor (I'm making this stuff up as I go along!), but if this blog continues to devolve, I am sure I speak for many lurkers in saying that I'll stop reading completely. This thread was truly an effort.