patrick.net

Randy H,

"Not one condo closed escrow in July"

Does it get any deader than that? Why, I don't believe I've ever seen anything that dead! Now what do you all suppose might remedy this situation? Hmm.

Allah,

I don't make specific predictions because I don't claim to be smart enough to read the future. I just apply what is known about data past and present to the best current models and theory, and from there make general assumptions about what is likely for the future. There is always the chance that anything might happen.

he will tell you how the rents will rise over the next 6 - 12 months before nose-diving into a recession. Then, like I said before, the rents will drop.

Then this would be general deflation, and for rents to "nose-dive" during a deep recession, the deflation would be pretty bad driving CPI and PCE negative. I wouldn't cheer for that. Two likely results of that scenario would be (1) the Fed cuts rates back to 1% or lower, extending general asset inflation and most likely further ballooning housing prices and (2) the "landed gentry" phenomenon starts becoming entrenched as income disparity accelerates.

DinOR,

I just posted that blurb from the wire because I think it shows the sticky, clumpy nature of the correction. Just reading his micro market observations you can see that things are definitely dead, but prices aren't reflecting that yet with only minor declines and even some segments showing increases. It's the part of the cycle where sellers are deciding if they want to be sellers or holders-and-waiters, and buyers are just not in any hurry.

I also think San Diego is a bit of a leading indicator for CA, SoCal at least.

Conor,

I'm with you most of the way too. I don't know when/if inflation will enter everyday consumer goods. I can say this, I believe if/once it does then the current "funk" we're in will be labeled "Stagflation". That is because once Joe Everyman cannot afford those cherished consumables anymore, he'll start getting really pissed off about his stagnant salary. This will bring a lot of political volatility both domestically and internationally because a fall in US consumption really screws a lot of other world exporters.

Randy H,

I got the impression from the article that the "buy side" has completely dried up. They've totally pushed the envelope of affordability. Didn't Fallbrook used to serve as U.S Navy bombing range? I hear they still find shells out there from time to time.

I don’t make specific predictions because I don’t claim to be smart enough to read the future. I just apply what is known about data past and present to the best current models and theory, and from there make general assumptions about what is likely for the future. There is always the chance that anything might happen.

Same here.... I just make educated guesses about what most likely will happen. Actually it would be a bad bet for me because when we're in a recession and money is tight, you probably won't make any effort to pay me back :lol:

SP,

do you have the link to the report? Thanks.

I don’t make specific predictions because I don’t claim to be smart enough to read the future.

You don't need to be smart. You just have to be psychic. :)

"he'll start getting real pissed of about his stagnant salary"

Well it's about time!

During the "boom years" having a job was just a necessary evil one endured for a few hours going through the motions so they could secure a mortgage! That's the REAL road to wealth! DEBT=WEALTH.

Now that Joe Schmuckitelli's check won't cut his newly adjusted PITA mortgage payment he'll start paying a little fucking attention to what's really been going on in his life between the hours of say......... 9 to 5?

Delta needs out from under their pension obligations further burdening an already strained PBGC but you didn't notice b/c you were at Home Depot loading up on pergraniteel that was just replaced about 3 years ago!

Overtime? You're kidding right? My HOUSE makes ME rich! Why would I waste my mutha fuckin' time doing overtime for da man when any fool knows re-installing pergraniteel (messed up the first batch) is what makes you RICH!

I wouldn’t cheer for that. Two likely results of that scenario would be (1) the Fed cuts rates back to 1% or lower, extending general asset inflation and most likely further ballooning housing prices

I highly doubt that the FED will bring interest rates down to 1% again in our lifetime. In fact, if they even put out a message that they are going to start cutting rates, there will be a panic selloff of the dollar and long term interest rates will rise to the double digits. The FED cutting short term interest rates will not make mortgages cheaper, not at this point anyway. FB's will still be FB's.

but prices aren’t reflecting that yet with only minor declines and even some segments showing increases. It’s the part of the cycle where sellers are deciding if they want to be sellers or holders-and-waiters, and buyers are just not in any hurry.

Only because many FB's are putting their mortgage payments on their Capital One cards. Once there time runs out and it will be soon enough there will be nothing they can do to keep their houses. Some were banking on these energy prices to fall so they can breath a little, but we all know that isn't happening any time soon.

I accidentally started reading the last thread and there were a bunch of comments about Atlanta as a city with decent RE prices and QOL.

Saw this ad on craigslist--unbelievable:

http://atlanta.craigslist.org/rfs/191035894.html

RE: return of stagflation

One aspect that may be somewhat "different this time" compared to 1970s stagflation, is the relative lack of power labor has to demand compensatory wage increases. Given much weaker unions, much more pervasive (and easy) global outsourcing and workers today having been conditioned to accept meager to nonexistent COLAs, I don't see private sector wages shooting up anytime soon, or being tied to any meaningful inflation index on a significant scale (CA prison guards union aside, of course).

Randy, please correct me if I'm wrong here, but isn't it possible to define "stagflation" as a period of stagnant GDP + overall rising consumer prices (as in, rising wages are not necessarily a requirement)?

I accidentally started reading the last thread and there were a bunch of comments about Atlanta as a city with decent RE prices and QOL.

http://atlanta.craigslist.org/rfs/191035894.html

Glen, that's nothing! Go to realtor.com and look in the suburbs north of atlanta and you will see tons of houses with pictures in and around that price range. Many of them are new 2000-2006. You get alot of value for the money there for sure. ...and the taxes are much lower.

RE: property tax

I love seeing people being driven out of their houses because of high property tax.

This means only one thing: they have no business there and the land should be put into better use.

Don't feel sorry for them. Their homes must have appreciated significantly and they can move to areas more suitable economically.

The free market ought to be brutal.

Peter Coy of Business Week is on crack.

"Superstar Cities"?

Where does this guy come up with this stuff? If I see ONE MORE article about the "billionaires moving the millionaires out" I swear I'll.............

Here is an article that offers another reason that prices are not declining in the SFBA, despite rising interest rates, rising inventory, etc.

However, it does not explain the still-wide rent-to-buy ratio..

Yes, people in the past also offered reasons why the sun revolves around the Earth. However, they did not explain why planets go into retrogradation.

Here is an article that offers another reason that prices are not declining in the SFBA, despite rising interest rates, rising inventory, etc.

Err... that looks a whole lot like the "They aren't making any more land." argument, and most of SF does not consist of cliff-side ocean-view homes for 24 million. (I can only see that argument holding water in some /very/ limited locales, and the city of SF is not one of them.)

Allah,

Pretty surprising how cheap it is in Georgia. I wonder if this could have anything to do with it:

http://www.bankrate.com/brm/news/mortgages/20030121a.asp

If so, it goes to show what can happen when loose credit dries up.

Too often people only look at one side of the equation — for every poor old person protected by Prop 13 there are dozens and dozens of younger families who are negatively affected by it.

This is an example of compassion getting in the way.

Glen,

Well there's something you don't see everyday! I'm all about getting the bad actors out of the lending biz but how is it possible for a borrower to sue not only the lender, the institutional bond holder and individual investors? Now that's what I call far reaching!

SFWoman: Interesting... I wonder if they don't want to sell, and just want a price tag attached to their home instead. (Yesterday I heard about a wedding that was being thrown by people in the "not only do we have money, but we want to be incredibly tasteless about showing it off" category.)

I'm guessing Peter Coy (the author) hasn't been around SF lately. More likely, he's just thinking "everything must be fine" and is scrabbling for explanations.

HARM

Randy, please correct me if I’m wrong here, but isn’t it possible to define “stagflation” as a period of stagnant GDP + overall rising consumer prices (as in, rising wages are not necessarily a requirement)?

You are correct. I was responding to objections regarding rent price levels, not so much wages. Wages are a lagging indicator, even in the 70s they were lagging, no more so. Rents are a leading indicator. I believe it unlikely that a stagflation scenario would not include rising real rents -- that is the real cost per dollar earned is more expensive to the average renter. Probably, this will be largely because of stagnant wages. Wages have always been sticky too, btw. They probably are less sticky now, but there is evidence both ways. Some economists claim wages are actually stickier now than under big labor of the past. The reasons are pretty complex -- stuff like the shift from employee-focused to role-focused employment.

TN

I suspect if the Fed doesn’t offer a decent interest rate differential, support for the dollar will tumble, driving consumer products up.

Are you suggesting the Fed will begin recognizing dollar-policy as a factor again? It wouldn't surprise me but I haven't seen anything specific suggesting that anywhere -- but then again I'm not a Fed watcher or a Bond trader.

Allah,

If so, it goes to show what can happen when loose credit dries up.

Yes that is part of what will help drive prices down there a bit. Houses were never really expensive there to begin with. When they started building there, people from the bubble areas started buying up the houses left and right causing the builders to build more and the prices to start rising. Being that there is so much land over there, the builders were buying up land and overbuilding there. There are over 22,000 houses for sale in atlanta, many due to foreclosures.

Now that the bubble areas are suffering appreciation in the opposite direction, they can't sell their houses and move there. If you look at the pictures of the houses there, you will notice alot of houses from 2000-2004 that are up for sale. You will also notice that the insides are empty so nobody is living in them. Why would brand new houses not be lived in for years? Speculators? People torn between two mortgages (feeling like a fool). I don't know why they don't just photoshop things in there to make them look like someone is actually living in there. I'm sure eventually the RE agents will start doing that next. You will also see alot of houses that aren't even completely built.

I don't know though, at the rate that they were building these houses, what kind of quality could there be in them? I guess when a realtor states "won't last", we really know what they mean!

Too often people only look at one side of the equation — for every poor old person protected by Prop 13 there are dozens and dozens of younger families who are negatively affected by it.

You have to realize who the #1 voting block is: retired people. Hm, are they going to vote for better schools, or lower taxes for their fixed income?

Where I grew up in NY, the seniors would always tend to vote against tax hikes to pay for better libraries. The district would try to appease them by offering more lowcost "adult" classes (dancing, knitting, etc) and asking non-retirees to go vote.

Here though, it's the opposite - the default is "Yes, please keep schools crappy." and you have to take action to counter it.

I was at the Santa Clara County fair last year and there was a senior holding up a sign asking people to sign a petition to "Protect The Seniors! Protect Prop 13!" - and there wasn't even any anti-Prop 13 ballot measures!

by international comparison, americans often come across as braggarts in speech,

When I travel internationally, people don't think of me as an American (Hint: at LHR, the folks at the AA Arrivals Lounge tried to redirect me to CX's lounge.) But man-oh-man some of the Americans travelling abroad really are embarassing.

This is the best article on the topic: http://www.ricksteves.com/about/pressroom/uglyamericans.htm

When I was in London, I kept running into this retiree tour group from N. Texas. Unbelievably loud, making the same retarded comments about "what's this pound business?" - good grief.

What's sad is that you don't have to go intl to see "Ugly American" tourists - you just need to go to Times Square. Good grief. I once saw a mid-west teen girl almost get hit by a cab because their group was crossing 44th really slowly and basically holding up traffic. Afterwards, she happily exclaimed: "Wow! Did you all see that? I almost got hit by a taxi. How cool is that?"

Rent IS on the rise. A soft-landing for Bay Area real estate is a very real possibilty.

Some places -are- seeing large rent hikes, but in part because rent was so ridiculously low to begin with. Or... due to remodelling.

There's a complex in Mountain View on Crestview which was really cheap. The rates went up a lot - I'd guess 20%+ - after they remodelled and now each unit looks really nice (though the neighborhood is still rather blah).

One of them said straight out that a landlord that did anything that they didn’t legally have to for a tenant was a fool.

Why would you expect anything else?

Being a landlord is running a business.

For everything you do, you have to look at the ROI.

Randy,

Thanks for correcting my erroneous views on rents in the Midwest. I knew they were high compared to housing prices, but I had no idea they actually rose in real dollars since the 70s.

That is a rather counter-intuitive outcome. If being a landlord is such a great deal, why hasn't someone come in and arbitraged the buy v. rent difference? Could there be some hidden costs to landlord, ie worse quality tenants or higher vacancy rates?

PS - also, could there be hidden price support in the form of rising household income? The wives entering the work force could increase household income even while the individual incomes fell.

I was at the Santa Clara County fair last year and there was a senior holding up a sign asking people to sign a petition to “Protect The Seniors! Protect Prop 13!” - and there wasn’t even any anti-Prop 13 ballot measures!

Why? We should only protect assets. Are seniors assets?

PS - also, could there be hidden price support in the form of rising household income? The wives entering the work force could increase household income even while the individual incomes fell.

Sounds like this the Two Income Trap:

http://www.amazon.com/gp/product/0465090826/102-3205623-0517732?v=glance&n=283155

Why? We should only protect assets. Are seniors assets?

Doesn't matter. They're the ones who vote.

Isn't the AARP the #1.5 largest lobbying group? (they're either behind or tied with the NRA). I wonder what the AARP's position on Prop 13 is.

PS - also, could there be hidden price support in the form of rising household income? The wives entering the work force could increase household income even while the individual incomes fell

But even HOUSEHOLD income has been stagnant.

Doesn’t matter. They’re the ones who vote.

I know. This is why we should side with seniors. :)

AARP and Prop 13 - what a surprise, they only list the positive aspects of it:

http://www.aarp.org/bulletin/yourmoney/property_tax.html

I know. This is why we should side with seniors.

I will, once I own a place. :)

I love the idea of "get in early, get in low".

I wonder if there is something else (invisible M3?) that is allowing them to do this.

SP,

Oversupply is probably the cause. An article that I read a while ago says that the state and local governments fund major goods producers; and the overriding goal is to get to the top instead of making money because the top dog will always be rescued by Beijing, sort of the "too big to fail" mantra. Therefore, the firms are always in a frenzy to expand production capacity to get to the top spot, with the cheap money from local governments or the state. The banks are happy to lend and incur bad loans.

This is where your invisible M3 comes in. Unlimited money supply and a permissive lending policy induce over capacity which depresses prices of finished goods.

DS,

Wow, you managed to write 122 words on Communism without answering what your ideal of Communism is. So I can't actually either be convinced that your position is right or argue that your position is inconsistent. Every social experiment has errors, but I haven't found any evidence that its methods fell too far astray from Communist orthodoxy.

If you say that Pure Communism has never been implemented, could it be that it just doesn't exist? The closest thing I can come up to a workable solution are Israeli Kibbutzes, but they operate more as extended family businesses than a REAL Communist society.

As for your busy schedule. Well, if you're too busy to write a summation (succinct would be nice) on your ideals about Communism (which, from your other posts appear to consist of unrealizable fantasies of going back to a state of noble savagery and the primitive unselfish man), maybe you shouldn't have started with a multiparagraph post full of tangential points.

On organ harvesting. Hmmm, I touched on some points about the economics of scarcity and hard choices (the peasant's left kidney or his family home), the problems of policing and moral hazards (dead v. live bodies), and moral hazards of organ donations. But rather than acknowledge the presence and interests of an organ market, you just go on (a paragraph after you said you're too busy to explain your position on Communism) about how the organ market is evil and then hold out some pie in the sky solution like organs from stem cells, which is at many many years away. So people suffering organ failure should just die rather than participate in something DS has called evil (without explaining why it is inherently bad or undesireable, to the point of elimination)?

Okay, let me say once more -- Huh?

Astrid,

why hasn’t someone come in and arbitraged the buy v. rent difference? Could there be some hidden costs to landlord, ie worse quality tenants or higher vacancy rates?

Because that isn't "arbitrage", it might be a local market strategy, but it isn't arb because it's full of local market risk. I wouldn't recommend this strategy because I believe that knowledge/information about a local market pretty much always trumps all else.