patrick.net

If I had to buy my insurance directly from Blue Shield, I would pay more than what my company is paying for me.

Not necessarily so, my wife and I buy our own policy from blue shield and it's significantly cheaper than what I was paying for my policy when I was employed by Bayer.

>IMO, feng shui and astrology are good references. We should not >ignore them.

The way I look at feng shui and astrology is that these "fields" offer limited knowledge. Even if fengshui is totally valid, what you know about it is limited. So while digging a 2 ft hole to horizontally bury a water-filled tube may bring you wealth, what if you're disturbing the earth dragon path that happens to pass through your house?

You'll end up doing more harm to yourself by pleasing your wife, while there are thousands of other scenarios that will end you up at the same consequence, but it won't involve your labor of digging a 2 ft. hole to bury a water-filled tube.

If you just keep watching over your shoulder doing irrational and unconventional things, I think it's better if you could just ignore the whole things and just live life naturally :-)

but you’ll be unpleasantly surprised about the cost of your policy in the future if you start having medical problems.

This I don't doubt, but that is the nature of insurance, great if you don't use it, but bend over and lube up if you do. doesn't matter, car, health, they all act the same. Fuckers.

If you just keep watching over your shoulder doing irrational and unconventional things, I think it’s better if you could just ignore the whole things and just live life naturally.

True. This is why I use them for references only. ;)

Media critical mass:

Ok, it's the FT, not exactly a hugely subscribed paper in the US, but it is still the #2 financial journal (and IMO, much better than the WSJ).

Numerous stories relating to the US housing market, inflation and the credit bubble.

Page 4: Fall in applicaitons of mortgages in the US. The mortgage bankers index has fallen 2.6% to 694.8, the lowest level since April.

Page 7: A quarter-page ad for a new Fidelity "inflation-fighting" fund. The allocations are among TIPS, Floating Rate Loans, and Commodity-linked notes.

Page 26: "Easing demand could turn hot properties into hot potatoes" This 'Market Insight' column is absolutely alarming. The author brings together the total risk exposure of the various speculation, easy loans, and dependent industries. The best quote: Signs of slowing demand from housing are already apparent to David Rosenberg, the chief US economist at Merril Lynch. He notes that newly built, yet unsold homes grew at an annualised 36 per cent in August and estimates the unsold inventory of new homes to be worth about 4.7 months' supply--a five-year high. Furthermore, he cites the latest Beige Book of grassroots economic conditions from the Federal Reserve's district offices, where all regional Fed districts saw anecdotal evidence of a housing slowdown.

Page 28 (backpage): "Prospect of further Fed tightening sees precious metals start to climb", and "Bullion soars on inflation concerns". The interesting thing from these articles is that gold seems to be overbought, and at risk of correction whereas other metals are seeing increased demand. Further, the Bond market has altogether failed to react to the inflation data that's driving precious commodities.

FT is sooooooo much better than WSJ.

The bond prices have been falling the past few days as a direct result of inflation

I'm not a bond market guy, so you're probably right. I was going from the FT article, which upon reread the bond-market quote is from a Merrill guy who is "not bearish" on bonds despite the inflation data.

I’d figured 3 years to a nice entry point to buy, but these numbers coming in recently seem to indicate we’re already sliding toward a free fall.

Oh how I fucking hope so. With my luck though, I'll fall off the curb laughing my ass off and break my ankle.

allah, I'm sure that it's going to pop. I see all the signs of the disease, every third house is up for sale, 4/5 vehicles on the freeways are big ass trucks or SUV's, gas is 3/gallon, at best housing is flatlining, at worst it's dropping, doesn't matter though as for the housing ATM crowd to get screwed all it has to do is stop going up. I feel it's going to crash hard, that the speculation in Ca is more widespread than anyone thinks. I've seen it first hand, row after row of empty new houses, drive through Oxnard lately? There are at least 200 brand new empty houses there. It is just fucking assinine to think that housing can outstrip income by such a large margin and keep on trucking. WTF? I just see it crashing very hard, why would a market which defied everything going up behave any differently going down? I'd venture to guess that over half of the houses in the Coastal regions of CA are either second homes (investments) or speculators. And once it starts dropping it's going to fall like a stone. Fuck all that bullshit about immigrants, lack of housing, how hard it is to build, lack of supply, great economy, all bullshit. Most if not all of the new jobs in CA are in the real estate sector. What happens when these asshats start getting their much deserved desserts?

What happens when these asshats start getting their much deserved desserts?

The question is whether you will sit and watch the carnage from afar, whilst sipping your fine champaign. Or, will you climb the battlements and declare befor the world: I am Jean Valjean!

True. However, let’s say prices flatten, some investors bail, and some marginal buyers get into trouble. Will the effect be so strong as to cause a crash? Possibly in some areas, but probably not in strong areas, such as the central parts of the Bay Area.

Which are the central parts of the Bay Area?

I think some areas will hold up better: San Francisco (15% - 20% correction)
Some may not hold up as well: Foster City (20% - 30% correction)
Some will fall freely: San Jose (50% - 65%)

I'll go on the record saying SLO county 62% drop by 07.

I agree with Peter's prediction, but in real-price terms, not necessarily nominal-price terms. Inflation will skew nominal prices.

I feel it’s going to crash hard, that the speculation in Ca is more widespread than anyone thinks.

My suspicions too. RE is the new dot-com, and based on the little I've read, there's been an unprecedented move of $ into real estate. The NAR/CAR numbers suggest a significant buy-in, and I think it's larger than the let on. In fact, I've heard of corporations whose profits relied on developing land holdings into residential RE.

And who here hasn't ever heard that coastal property is a good investment? I've lost count of the money/finance/investor rags I've seen trumpeting RE (particularly coastal CA), as huge investment potential. Since we hear it so often, it must be true--right?

It's just words, with little exploration of the reality of the matter. Long-term, what does RE actually return as an investment? Let's say you park your money in 4 coastal properties: S. Kona HI, Carmel CA, Malibu CA, Belvedere-Tiburon CA. Granted, they're all damn "prime" areas, and it will possibly impress your friends. Beyond that, what do you have? You have a serious amount of money parked there, plus whatever loans you have, plus maintenance, utilities, association dues, and so on. Even with appreciation, you're paying for this "investment" in terms of mortgages, maintenance, and so on.

How well does that actually compare to investing in actual businesses which produce something of value? I dare say that RE (even coastal) is not the "investment" it's hyped up to be.

There’s just way too much demand and too little supply in those areas.

How do you know?

Normally, demand increases with falling prices. In a bubble demand increases with expectation of future prices.

I find it amazing that extraordinary price gains in the past years can be taken as granted but price corrections north of 20% are considered implausible.

I am not talking about median prices though...

I find it amazing that extraordinary price gains in the past years can be taken as granted but price corrections north of 20% are considered implausible.

New paradigm? Black rocket! Razorfish! Pets.com!

There’s just way too much demand and too little supply in those areas.

Face Reality, how do you measure demand?

As to the “extraordinary” price gains - we discussed this before. The gains don’t look as great when you take into account the long price stagnation during the ’90s and the fact that an unprecedented number of people made serious money in the Bay Area during the last 10 years. Yes, these people are still a minority, but there are enough of them to create demand which exceeds supply in the desirable parts of the Bay Area.

Talk about beating a dead horse. How about the divergence from 110 years of historical data? How about the complete dislocation from 1) income, and 2) rent prices? How is this explained? Is the rent in the BA suddently going to jump? Is the income suddenly going to jump? If no, then the market isn't a new paradigm, its the same old one, bullshit. Black rocket man, black rocket!

In a house sale the money just changes hand. It doesn’t disappear.

What if your 650K $hitbox is now worth 375? Where did the money go?

The few houses that get on the market in Cupertino and Los Altos, for example, still sell in practically no time.

Los Altos, maybe. It is less credit dependent.

For the small number of houses that become available, there are more than enough people with the financial ability to buy them.

This is arguable. 50+% of recent house buyers in California are using 30+% of their total income for house payments. 20+% are using more than half of their income.

I am not sure whether the "financial ability" you talked about is the NAAVLP-enhanced ability. Newly created liquidity can readily disapper.

What if your 650K $hitbox is now worth 375? Where did the money go?

Worth is a believe system. I choose to believe in something else.

Median santa clara county household income is ~72K.
Median bay area household income is ~68K.
There are norms, and there are exceptions.

What towns north of SJ and on the west side of the bay are “credit dependent” in your opinion?

Sunnyvale
Campbell
East Palo Alto
Redwood City
South San Francisco
Daly City
Pacifica
...

I can assure you that there are less high-income executives and options-benefishies than highly leveraged marginal buyers.

Yes, but when supply is tight, exceptional people start making a big difference.

When the market turns, you will not be able to use the same supply and demand assumptions. We argue that the demand will be tight, exceptionally-leveraged people start making a big difference.

For example, Santa Clara County has a population of over 1.7 million people, and over 600K housing units, but there are only about 3000 houses on the market. Only some of these are in decent shape and in decent areas, so it is not that far-fetched that there are enough people with much above median income and wealth to keep prices high.

Yes but when the market turns there will be more sellers and less buyers.

People with above median income may or may not buy. Most have bought already and they are not going to buy more.

Also, there there 3000 house at any time. It is not a diminishing pool. On the contrary, this pool appears to be expanding at progressive rate.

What would make it turn so much in this area as to cause a crash? I just don’t see this scenario, but I guess that since we’ve been waiting so long for this already, we can keep waiting. What’s the new date? It looks like October isn’t going to be it…

A small turn initially can cause a much larger turn. It will just snowball itself to critical mass. Welcome to the world of reflexivity.

It may be hard to believe, but people are still getting promoted into positions with high pay, making it on stock options, businesses, investments, etc. There are new people joining the group of people with some wealth (at least a few hunderd thousand) or high incomes around here all the time.

Valley economics: promotion != pay raise

Also, every time I go to an open house and ask why is the house on the market, the answer is always: the seller is moving to Seattle/Vancouver/NY ...

People with some wealth or high income leave the Silly Valley every day. Population statistics would support this.

Face Reality, I am not "hoping" for a crash so that I can buy. If I am convinced that the market is stable I would buy now. High prices do not turn me off. However, the bubble (pricing based on unsustainable and unrealistic expectations) bothers me a lot.

It seems like the job market stabilized, but I’m not sure.

It does seem so. If rent goes up significantly we may have a soft landing like the one in 1989-1995.

Do you think rent will be 50% higher in 5 years? I will re-evaluate my position if someone can convince me of this scenario.

What towns north of SJ and on the west side of the bay are “credit dependent” in your opinion?

Sunnyvale
Campbell
East Palo Alto
Redwood City
South San Francisco
Daly City
Pacifica

Does this represent some economic demographic? Actually, a good deal of Sunnyvale is similar to Cupertino, Mountain View, and parts of Los Altos.

Surprsingly, based on the stats I've compiled for foreclosues, some of the more "prime" areas have higher incidents of financial failure per capita. Los Gatos is one of the highest in the S.Bay, with Palo Alto not far behind. North, I've found Sausalito and Mill Valley w/higher rates. Sunnyvale is actually quite low.

I'm not sure what to make of this, but my guess is that people overextend themselves financially to "move up" to more expensive areas. This tracks with discussions I've overhead of people in various circles.

"It may be hard to believe, but people are still getting promoted into positions with high pay, making it on stock options, businesses, investments, etc."
This will always be true. But it is less true now than in previous times...and it is becoming less & less true, relative to the ~30-yr-old bay area tech-based economy. This valley is a shadow of its former self. Bay Area economy is leveraged in not only real estate but financing as well. Because of this leveraged position, there is at least a *potential* for disasterous shrinking of BA economy with slow downs in RE sales and equity extraction. When, and to what extent, this potential is realized is of course debatable (that's why we're here, right?!?). But many believe it'll be more fully realized than not. There are trickle effects to consider: i.e. over the past few years, many many contractors have been able buy brand new F150's and 650K SFR's with all the RE-related work available.

How long have you been waiting for the market to “stabilize”? How long are you willing to keep waiting?

I can wait indefinitely. I certainly does not wish to wait that long though.

I often feel that unless you’re working on something that may make you a lot of money, you’re better off moving somewhere else (even changing professions if needed…)

True. But the housing bubble is global...

Again, these people are still a minority, but it is not an insignificant one, and they can continue to keep prices north of San Jose (and some parts of San Jose) at high levels.

Dude you are smoking some serious crack, is MP your brother? You are talking about at most, 1000 people. You mean to tell me 1000 people are driving the real estate market in a population of ~3 million? No fucking way. Avg income avg home cost. The BA with the exception of maybe the penisula and SF is a shithole. Come on who are you trying to fool? SJ? Give me afucking break. Sunnyvale? Isn't that SJ north? Cupertino? SJ west.

There are just too many people around here who can definitely come up with at least a few hundered thousand in cash when buying a house.

I am sincerely worried about you, that crack pipe is going to fall out of your hands as you type and catch your house on fire. Odd, the opinions people have of the BA, THE STREETS ARE PAVED WITH GOLD! I venture to say that for every person earning 100K there are 50 earning 45K.

By the way, what’s so special about the peninsula compared to Sunnyvale and Cupertino?

To me Sunnyvale and Cupertino are too warm. Cupertino is fine but I keep calling it Cappuccino. Sunnyvale has many bad pockets.

I have one test for prime urban areas: you can tell that an area is nice if it has many premium (1M+) condos. I am not going to buy those condos, but it is a pretty good test.

Do you really think that there are only 1000 people with high incomes or some wealth here?

More like 993. ;)

My point is that those people buy prime properties and they will not stop price decompression and the crash of regular homes.

I have one test for prime urban areas: you can tell that an area is nice if it has many premium (1M+) condos. I am not going to buy those condos, but it is a pretty good test.

I consider places like Los Altos, Saratoga, Woodside, Tiburon ... non-urban, so this test does not apply.

Have you actually lived in the Bay Area in the last few years or looked for a house here? How much do you know about the economy here? Do you really think that there are only 1000 people with high incomes or some wealth here?

I grew up in the BA and know all about it. Please kindly point your sage crystal ball towards the blog and let us all know where this wealth is coming from? Please list the companies, the products and how many employees. The BA "used" to have a great economy. Who is there now? Intel? No, not really. Applied Materials? No not really. What exactly is there now, realtors.

The top executives and from about the director level and above make bank. The average employee makes about 65K, my friend is a Sr. Director at Applied and supplied the figures. You are talking about the movers and shakers, and they are not going to buy in SJ, Cup, Sunnyvale, they are going to Portola Valley, Hillsboro, Los Altos etc.

By the way, what’s so special about the peninsula compared to Sunnyvale and Cupertino?

Proximity to the Ocean and a better class of people, less segregated areas etc.

Proximity to the Ocean and a better class of people, less segregated areas etc.

Surfer, you have never failed to amaze me. You are able to say things that I am afraid to say. ;)