patrick.net

What's sensationalist about it?
The fact is that even high-wage earners are living near the edge.

Over-leveraged into liabilities.

BobbyS says

Sixty-one percent of those surveyed said if they were handed a pink slip, they would not be able to continue to make their mortgage or rent payment longer than five months.

We have the lowest savings rate so it does make sense.

It's not just savings, people who make good salaries buy expensive houses, at least here in the Bay Area. When you are spending $3000++ a month on your housing and you lose your job, that's a lot of money to have to come up with every month.

I don't know how people can handle the stress. My PITI is around $1700 a month and I hate it.

Tude, its the new people who came tp SFBA post 2000, who wrongly believed prices were always much higher in the SFBA.
It may be true it was only $100-200 a month but that was exploited to the max. So now they are stressed out financially.

My neighbor, from New York, paid 5x for his home in 2003 compared to my home I bought 10 years early. Both are similar in size and quality. Today, he is out of work due to a M&A deal. Unlikely to get a job real soon due to the position he held before.

Lol I rent and would survive at least tge period of unemployment plus tge amount of time savings would cover.

If I apples to apples had a mortgage, I wouldn't make it through even all my period of unemployment.

Hi,

I have been a fan of your site.

This survey tells the reality behind the bay area housing bubble.

People bit up the price of houses in here believing;
"We make $250,000 as a family. We CAN AFFORD
4X house = $1,000,000 easily, right?"
"There are plenty of families in bay area who make
more than that. So $1million house price is sustainable,
at least in our neighborhood"
I heard those arguments so many times.

The reality is, they are one pink-slip away from
foreclosure if they defined "affordability" based on that logic.
Because given the high cost of everything else, not that many people can accumulate much surplus.
The famous two-income trap

Back in good old days, they could still say;
"Well, if something happens, we can just sell the house
and still make money thanks to price appreciation."
Not anymore.

I always wonder how come so many of my educated
friends cannot see the simple reality.
They think they know the math,
without doubting "4X" magic number.
To me, that is brainwashing.

But I don't say that at parties because
I am a polite girl.
People love to be in denial. :P

Tude says

When you are spending $3000++ a month on your housing and you lose your job, that's a lot of money to have to come up with every month.

I don't know how people can handle the stress. My PITI is around $1700 a month and I hate it.

Brudda, you left out the other, concomitant expenses that come with The Fortress Life: the expensive models of cars, the private lessons and "summer at Stanford" for the kids, the every-other-year or so jet setting to "back home" during peak (expensive) travel times.

I don't get it either. So it is how I came to the conclusion, they're all loaded. Money from back home. Kind of makes sense anyway, you have to be from elite back home in order to find your way to grad school in the USA.

When people say 2.5-4x income for a house do they mean purchase price of home or mortgage size? Coming to the table with 30% down vs 3.5% down would mean you could buy more than 3x your income somewhat safely. Also if you are married its safer to stretch how much house to buy if your are buying based on one income vs both incomes.

Also interest rates and age should play a part of the equation. If someone bought a $130k home in 1983 at then 13% interest rates. Thats about the same monthly nut as buying a $300k home at 4% today.

Its seems apparent that interest rates are going to be kept around 4% or lower until some new innovation starts spurring the economy forward. If that innovation doesnt come... Then we will all be screwed by a depression or hyperinflation or new world war and civil unrest.

These Asians from China and India must be SUPER RICH to pay the outlandish prices for real estate here. I make six figures and cannot afford a home here.

SJ says

These Asians from China and India must be SUPER RICH to pay the outlandish prices for real estate here. I make six figures and cannot afford a home here.

Yep. It is the only rational and logical conclusion.

Well I did the open houses just out of curiosity and yep, it was 99.99% ASIANS looking to buy- mostly INDIANS and CHINESE. What I have noticed is HERD GROUPTHINK mentality with these groups. Look at Japan and the lost decade and the current property bubble in China and India.

Real estate is still all the rage in China. I am Hong Kong right now, and from reading newspapers & talking to a few folks, RE is still "the easiest game" for making money by "investing." I have been explaining what is going on in the US and some parallels I am seeing in China/HK, and it seems that I am one of very few people with this position.

As far as "investing" in US property, it sounds like they are well aware that prices have been falling. I think that they think that it might be temporary, and possibly a sign that now is the time to buy before prices "appreciate again." Generally, the idea is to buy, hold for a while & sell to gain on the margin rather than use properties as rental cashflow vehicles. This is in HK of course, and a lot of wealthy mainlanders probably have other ideas. I am certain that mainlanders know what is coming for China's economy as the world economy tanks, and their US properties are probably their "plan B" when it comes time to escape China. Still, if a lot of foreigners are buying because they think that price drops in the fortress are temporary, soon to be replaced with wild appreciation, I think that some may tire of waiting & losing, and cut their losses at some point.

China is odd with housing.

The one child policy combined with a preference for males leads to more of the country being male.

Unlike western countries it is seen to have a house BEFORE getting married.

So in a sense you have millions of men trying to compete with one another for wives by having the best house on the block. Since there are now

This article was written in '04 and had prediction in 8-10 years of 40 to 60 million extra guys.
http://www.msnbc.msn.com/id/5953508/ns/world_news/t/china-grapples-legacy-its-missing-girls/

40 million people buying homes (or things that are considered to them as homes) certainly has potential to drive prices up. Now the sad thing is they won't be able to technically marry unless maybe polygamy is legalized but I highly doubt that..besides that is usually associated with multiple wives, not husbands.

Some have suggested that the past 10 years in china have been like the 1950's in the USA. I believe we will see a situation like the 1960's in China..it might not be pretty..I don't mean democracy but social structures are going to change.

SJ says

These Asians from China and India must be SUPER RICH to pay the outlandish prices for real estate here. I make six figures and cannot afford a home here.

It may be more obvious since they cant take out more than $5000 USD out of China.

http://www.bbc.co.uk/news/world-asia-pacific-13813688

Chinese officials stole $120 billion, fled mainly to US

Thousands of corrupt Chinese government officials have stolen more than $120bn (£74bn) and fled overseas, mainly to the US, according to a report released by China's central bank.

Thousands of corrupt Chinese government officials have stolen more than $120bn (£74bn) and fled overseas, mainly to the US, according to a report released by China's central bank.

Between 16,000 and 18,000 officials and employees of state-owned companies left China with the funds from the mid-1990s up until 2008.

The officials used offshore bank accounts to smuggle the funds, according to the study posted on the People's Bank of China website this week but which has since been removed.

It said the officials smuggled about 800 billion yuan into the US, Australia, Canada and the Netherlands through offshore bank accounts or investments, like property or collectables.

The stolen funds were covered up by disguising them as business transactions by establishing private companies to receive the money transfers.

The study said corruption inside China was severe enough to threaten the nation's economic and political stability

Wow that would explain the inflation in real estate prices in the bay area- now I understand who I am competing against!

bmwman91 says

Still, if a lot of foreigners are buying because they think that price drops in the fortress are temporary, soon to be replaced with wild appreciation, I think that some may tire of waiting & losing, and cut their losses at some point.

they've done research (might've been shiller) which showed foreign investors are usually the last to be informed so they are not a good indication of whether something is a good investment or not.

I keep reading post after post about foreign buyers in the ba, but no one has actually provided any documentation of this alleged buying.

SJ says

What I have noticed is HERD GROUPTHINK mentality with these groups.

Correct. All of them think that RE a best investment at any time at any price.

SJ says

Wow that would explain the inflation in real estate prices in the bay area- now I understand who I am competing against!

LOL! it may be one possibility. In the case of SF, many foreign governments have made purchases of homes/re property that double as consulates in the City. So a RE agent may hype that " rich foreigners" have purchased homes in prime areas for millions, without stating that it was actually purchased by the government. There are currently some 250 consulates in SF today. I dont think we had that many in prior years.

Need to look at all the possibilties...

South Bay Also had inflated prices dating back some 12 years now due to stock options. Say back in 1998-99, recent IPO employee sold their stock that had a inflated prices say Ariba for $300 per share and purchased a home in PA.... it actually did happen. On the other hand the purchaser of the stock saw a 90-95% decline in value. Turned out to be a scam....like facebook valuations today.

bob2356 says

I keep reading post after post about foreign buyers in the ba, but no one has actually provided any documentation of this alleged buying.

Agreed. Whenever I look at actual data, it tends to disagree with this lore.

Last few offers were kicked out by CASH offers again & again, some people are so rich now, easily with $725K cash to buy RE... :(
Too bad I don't have that much cash: http://www.redfin.com/CA/Castro-Valley/18849-Cindy-Way-94546/home/35657549

CashOffer says

some people are so rich now, easily with $725K cash to buy RE... :(

Two months to close means it probably wasn't cash. Cash should close very quickly generally.

Any idea what prices this house went pending at before? I wonder what they were asking originally.