patrick.net

Zachary says

The Fed tripled our money supply created the DOLLAR BUBBLE. That has to pop now to.

The only way for the dollar bubble to pop is if people start literally destroying their dollars, like lighting piles of money on fire.

The USD is still the tallest midget.

The we have the Federal Government DEBT BUBBLE at 15Trillion

Shrug. You *do* know that total systemic debt has gone DOWN since 2009, right?

2009-01-01 52732.77
2011-04-01 52554.37

http://research.stlouisfed.org/fred2/series/TCMDO

So when austerity kicks in and we can't pay the interest on our debt, what do you think is going to happen to real estate?

While I am sympathetic to this argument (austerity & real estate), we can always pay the interest on our debt, since the Earth is a closed system and the dollars we print have no choice but to come back to us in the end.

SubOink says

Let's rephrase it then - Just because you can't afford it, does not mean everybody else can't afford it. Get my message now?

Look back to the last 10 years in RE. The buyers who overbid, overpaid, overborrowed who thought they could afford it could not in the long run. They were the winning bidders. What does that say about the other buyers below them?

Clara says

Nice houses will always be out of reach of the most of us unless you made a fortunate, a fortunate larger than most other people's in order to outbid them. It's the reality.

See the prime areas of SoCal from 1989 to mid 90s. Prices declined by 30-40%. And those were in the nice parts of town.
Even Beverly Hills saw major drops. So where were the other people during this time to outbid them. The same is true today.

When ever you see a bubble and herd mentality, they eventually correct. SoCal has a history of bubbles and corrections.

thomas.wong1986 says

See the prime areas of SoCal from 1989 to mid 90s. Prices declined by 30-40%.

That time, the elite and rich in Communist China were not targeting their Exit Strategy into The Fortresses. It is different this time.

B.A.C.A.H. says

It is different this time.

Naaaa... does it really look different ?

The only rich red commies I heard of are the ones who may have embezzled billions from the Chinese government.
http://www.cbsnews.com/stories/2004/01/30/world/main596944.shtml

Eventually, the cash (after liquidation of all property) will be returned along with embezzlers back to China.

It has happened before, will again.. Not so different this time.

that chart looks flat to me my friend. bottom is in. time to change gears.

thomas.wong1986 says

Look back to the last 10 years in RE. The buyers who overbid, overpaid, overborrowed who thought they could afford it could not in the long run. They were the winning bidders. What does that say about the other buyers below them?

But those buyer couldn't really afford it. Puttin 0% down and grabbing a teaser interest rate is not being able to afford it. So those buyers don't count - and back in those days, you could rent a house for half the price than buying it. Not so now. Times have changed. Now you can buy a house and pay LESS than rent.

SubOink says

ut those buyer couldn't really afford it. Puttin 0% down and grabbing a teaser interest rate is not being able to afford it.

this is short sighted. those folks made the right move. they are more finance minded than conventional types. you will not make money with buy and hold. bad choice

thomas.wong1986 says

B.A.C.A.H. says

It is different this time.

Naaaa... does it really look different ?

The only rich red commies I heard of are the ones who may have embezzled billions from the Chinese government.

http://www.cbsnews.com/stories/2004/01/30/world/main596944.shtml

Eventually, the cash (after liquidation of all property) will be returned along with embezzlers back to China.

It has happened before, will again.. Not so different this time.

Based on the graph, it looks like prices rose more during the boom in high-end areas, contrary to the opinions of those people on this blog who are arguing that prices in these areas will fall less now.

that line is flat and kind of climbing somewhate. you boys don't know how to read a graph.

Congrats and good luck. I am sick of waiting but I need the right deal. The bank has one that I want but it's off market. The inventory control pisses me off.

JodyChunder says

that line is flat and kind of climbing somewhate. you boys don't know how to read a graph.

That "climbing hire" is called a "Classic Bull Trap" or a "Return to Normalcy" illusion all bubbles exhibit on the way down:

&w=600&h=389&ei=dRbTTsesBOXSiALY6OiEDA&zoom=1&iact=hc&vpx=803&vpy=167&dur=12&hovh=181&hovw=279&tx=150&ty=88&sig=102347815281620335203&page=1&tbnh=136&tbnw=209&start=0&ndsp=15&ved=1t:429,r:3,s:0

Everyone was calling the bottom in late 2010 and now we dropped about 8% since then while rates are making record lows. hmmm...

Sorry, can't really pay attention to your post when you have an avatar like that. I apologize.

JodyChunder says

Clara says

Same here. Extremely happy with my home. It's amazing to have my own place and cheaper than rent. Ha ha. Love it.

HA HA! YAY! THAT IS SO AwEsOmE! I think there are some smart operators on here!

E-man,
I agree 100%. Glad more people talk rationally in this forum.

E-man says

Suboink and Clara,

Congrats to you guys. I believe Mr. Fantastic and some others were the ones that did most of the garbage talk back then.

Real estate is very local. Maybe your market hit bottom, but that doesn't mean elsewhere has. The point of this site is about rent vs. buy. In your case, it made sense to buy than rent, but that might not be true elsewhere. In a sense, both sides are correct.

Enjoy your new home and your family. Now and the next couple of years are a great time to load up on investment properties in my opinion. Work hard and save money to buy those positive cashflow properties. They will provide you and your family an income for life.

Best of luck to both of you.

Cheers. :-)

Success isn't by chance, but by choice.

Clara says

orry, can't really pay attention to your post when you have an avatar like that. I apologize.

That is a photo from two years ago. you got your knockers more n half way out what is the difference.

anyhow you made a good decsion to buy investment houses. this is the path to riches. pretty soon you will be laughing in every ones face and telling them how ratonal you are compared to them. we will show them!

dunnross says

The RE bubble started all the way back in 1975.

Does Patrick still have nominations for the dumbest posts?

tatupu70 says

dunnross says

The RE bubble started all the way back in 1975.

Does Patrick still have nominations for the dumbest posts?

No, tatapu. The dumbest posts were all back in '06 when people were saying that "RE prices can only go up", and "This time it's different". Now that we look at the graphs, we can appreciate how dumb those posts really were.

After this RE bubble completely implodes, we will see the new graph, which will clearly show that the RE bubble started all the way back in 1975, because the bubble will completely deflate back to 1975. Then, my post will be nominated for the "Smartest post on the blog".

Really not sure what the point of this post was supposed to be other than to brag. Well, if that's the case two can play at that game.

As for me, well I am happy to report that we still pay about 50% less than the cost of buying the equivalent of what we rent- a large 4 bedroom house in the middle of the bubbly Bay Area. We both make good incomes and save a little less than 50% of what we pull in every year. We have a fairly substantial amount of cash we've saved up. At this point we could very easily buy a house just about anywhere in the US for cash straight up with money leftover. We have healthy retirement accounts. We are somewhat considering buying a house in the Bay Area but even now, it doesn't exactly make financial sense. We could quite easily do so. If rent for us was the same or more than buying the decision would be easier. But looking at it from a purely mathematical perspective buying would not bring us any real benefit. So there.

Anyway, now that my bit of bragging is out of the way, buying a house isn't a simple right or wrong scenario. All factors leading to a purchase has to do with way too many variables: Location, income, savings, job prospects, real estate taxes, the condition of the home, the market, and so on. Any of these above can make a huge difference. If you live in say- Nashville, where homes are more like $150k-$200k then sure- buying a home isn't near the same as buying- say a 500k crappy starter home in the Bay Area. If you make 50k then buying a 300k home will be impossible. If you make 100k 300k is easily doable. BIG difference.

$500,000 in Manhattan will buy you a studio apartment, although you can rent one for $1,500.00 a month. So in the big apple renting makes much better sense. Did I mention tha NYC maintenance fees that will cost you at least another $1,000 a month?

I think the main difference between the gotta-buy-now crowd and the hurry-up-and-waiters (of which I am one) is that the latter are better at seeing how bad things could get, whereas the home-owner-wanna-be's see mainly what they want to see. Every day that I read the latest apocalyptic headline about the credit system freezing up, or how many more millions will be underwater if housing prices drop even a little, I sleep a little better knowing that my only stake in the system is a six month lease.

Joe_Mumau says

I think the main difference between the gotta-buy-now crowd and the hurry-up-and-waiters (of which I am one) is that the latter are better at seeing how bad things could get, whereas the home-owner-wanna-be's see mainly what they want to see. Every day that I read the latest apocalyptic headline about the credit system freezing up, or how many more millions will be underwater if housing prices drop even a little, I sleep a little better knowing that my only stake in the system is a six month lease.

And you are doing no different, except you have decided to see the worst in everything. Housing in most of the US is not overpriced. In fact, it is cheap relative to pretty much all other Western countries. Just look at the Economist article posted up on the front page that was presumably intended to show how bad things are, but in fact states that homes are, comparatively speaking, undervalued in the US. That may not be true for your particular location, but hey, not everybody lives where you do.

Joe_Mumau says

I sleep a little better knowing that my only stake in the system is a six month lease.

Right, and when that lease is up you could always live...ah....live in the mountains for free? I sleep good because I know my "rent" is never going up in my lifetime from here and I will be rent free at 65 years old (worst case scenario)

edvard2 says

Really not sure what the point of this post was supposed to be other than to brag. Well, if that's the case two can play at that game.

You obviously didn't understand the purpose of the post. People were predicting a year ago how screwed up I would be financially and how much I would regret having bought a house and how my house will have lost 20% in value etc etc etc ...well, the main posters from back then (like klarek and co) are nowhere to be found now. - THAT's the purpose of the post.

Little point bragging in a forum on the internet with a bunch of strangers I don't even know, don't you think?

If you can rent a place for half the price than buying it (assuming a mortgage based on a 20% down fixed 30 year loan) - then it makes perfect sense to rent. That is if you love the house and enjoy living there, get along with the landlord etc. - We did the same thing for 10 years.

If its working for you that's great, however you might wanna check your math. You really do not know what your house is worth until you try to sell it.
It still is a "buyers market" and homeowners today rarely get what the house is "worth". Buyers Demand deep discounts and you need to compete with all of the discounted inventory on the market

6% in and 6% out for realitor fees, improvements moving costs ect.
You probably are not planning to sell today but if you did you would most likely take a hit.
Important to think about if job changes or other life events occur.
We all feel richer on paper. The reality does not always match with the "pretty" numbers.
So those on the fence consider all factors before taking the risk.

Doesn't the fact that investors can purchase investment property and be cash flow positive, suggest that we are at or close to the bottom?

If prices drop some more, this will attract even more investors, driving up prices.

I'm personally considering my first investment property, simply because rents in SF are so high relative to the low mortgage cost (I consider property tax and M.I.D. to be a wash financially).

OP, I am glad that you are happy with your choice. For your sake, I hope that your area has hit bottom and that you will live happily there for many years.

Jimbo in SF says

If prices drop some more, this will attract even more investors, driving up prices.

Investors have never been able to sustainably drive up house prices. Ultimately, somebody needs to live in that house, and, as long as those buyers are few and far between, those investor/knife-catchers are going to be taking some losses on their balance sheets.

dunnross says

Investors have never been able to sustainably drive up house prices. Ultimately, somebody needs to live in that house, and, as long as those buyers are few and far between, those investor/knife-catchers are going to be taking some losses on their balance sheets.

I wouldn't guarantee that they're gonna' take some losses but I would say that at least in places like the Bay Area, I can think of many better ways to invest money rather than 300k teardowns. I think there is a general attitude amongst house "investors" that they're somehow getting terrific steals only because they're making simplistic comparisons between now and the peak of the boom, paying top-dollar for houses that were easily under 150k prior to the boom. Now they're paying 300k-400k for those same houses. I assume its because many believe the boom is surely about to return and they'll be none the better.

While I don't actually believe in investing in real estate since stocks will and have always outperformed it, if I were to do so it wouldn't be in places like the Bay Area. I'd be looking to areas that are actually growing and have a better financial situation- places like cities in the Sunbelt- aka, NC, TX, and so on. Cities where rent to own ratios are closer, prices are lower, jobs are growing, and the median incomes more closely hook up with home values: metros with 200k and under overall medians. *Not investment advice.

edvard2 says

because they're making simplistic comparisons between now and the peak of the boom, paying top-dollar for houses that were easily under 150k prior to the boom

I think investors are making comparisons between what the house will generate under current rental conditions ... will it be cashflow positive?, rather than the price it cost 10 or 20 yrs before the recent bubble.

My question is this ... will the current 'cash buyers' everyone seems to hear about, be looked upon in the future as the 'smart money' who got in early, or as the knife catchers who grabbed the blade? My guess is 'smart money', due to the fact that they seem to be cash flow positive. Now, they may not "make out like bandits" as in the past, but they may do reasonably well.

Jimbo in SF says

My question is this ... will the current 'cash buyers' everyone seems to hear about, be looked upon in the future as the 'smart money' who got in early, or as the knife catchers who grabbed the blade? My guess is 'smart money', due to the fact that they seem to be cash flow positive. Now, they may not "make out like bandits" as in the past, but they may do reasonably well.

Count me out as viewing cash investors as geniuses. let me make a direct comparison to what I was previously discussing. I started a few investments in various stocks and mutual funds last year. Believe it or not one of the investments has appreciated 13% YOY while another has managed to eek out a 6% gain. Putting that into perspective if I had decided to put in 300k- about what the typical bottom feeder investment house costs these days- into the 13% fund, I would be up around $40,000 for the year. So unless the cash investor can somehow rent their 300k shack for a cool $3,400 a month or so ( not including taxes and maintenance) then they can't even come close to what the equivalent money would have done had they instead stuck it in the fund I have. Also- my investments don't require paint, roofs, or new siding.

Will some cash investors do well? Sure. A few probably will. But I can almost guarantee if they had stuck that money into stocks, bonds, and so forth they would in all likelihood have done better. * Not investment advice.

edvard2, this ain't Nash-Vegas. I've been contemplating the 10% (technically 9.3%) marginal income tax rate in CA. Combine that with Prop 13 (and passive losses) and real estate in the outer BA screams buy me. At least for those who haven't hit the phase outs. Just sayin'. Still scared witless to take the plunge; I'm keeping an eye on ducky and E-man's condo purchases to gauge whether I'll get my feet wet. BTW, that $300k will get you around $1million in rentals.

EBGuy says

edvard2, this ain't Nash-Vegas. I've been contemplating the 10% (technically 9.3%) marginal income tax rate in CA. Combine that with Prop 13 (and passive losses) and real estate in the outer BA screams buy me.

Really? Not exactly sure why. The outer Bay Area took a fairly massive hit in many different areas, from job losses, dwindling property prices, and so on. The main appeal of the Bay Area exurbs was during the peak of the bubble when prices got so high within the immediate Bay Area that it forced families to make some drastic decisions- like moving an hour or 2 out. A lot of those places ain't gonna' be coming back. Especially since there are way too many foreclosures and in many cases outright abandoned homes.

Like I said- buying real estate as an investment has historically not been the best use of money. You can do far better investing in other areas. But what's important is to pay special attention to migratory and growth trends. On the sidebar of Patrick is a story from the LA times: More people are moving out of Cali than moving in. The main reason is expensive housing. Where are they heading? To the sun belt: TX, NC, GA, and so on. Some of those states, like TN for example, have ridiculously low real estate taxes. My folks pay less than $1,000 a year for their 14 acres and larger home. Look where the money and people are going. Simple as that.

* Not investment advice.

edvard2 says

More people are moving out of Cali than moving in. The main reason is expensive housing. Where are they heading? To the sun belt: TX, NC, GA, and so on. Some of those states, like TN for example, have ridiculously low real estate taxes.

Going on now for 10 years. As jobs are also moving elsewhere.

On The Record / Carl Guardino May 13, 2007

http://articles.sfgate.com/2007-05-13/business/17245441_1_carl-guardino-silicon-valley-leadership-group-high-tech-industry/2

Q: So are those really challenges?

A: Unequivocally, yes. Not only to the CEOs in the boardroom, but to any family you talk to in their living room. What we hear time after time from CEOs as well as frontline employees is how incredibly difficult it is to come here and stay here. That truly does have an impact on a company's bottom line when the cost differential is so much higher here than it is in other regions around the state, nation and globe, or the ability to recruit top talent is also impacted.

You mentioned housing. It probably is the top concern we hear about in Silicon Valley from both CEOs and employees in terms of local issues. Does that have an impact? Let me put a finer point on it.

Hewlett-Packard and Dell are the top two computer-makers in the world. Corporate headquarters for HP are located in Palo Alto and Dell is in Round Rock, Texas. Obviously, they both have people and facilities around the globe.

In those two communities where their corporate headquarters are and where a lot of research and development takes place, the median resale price for a home in Palo Alto is about $1.6 million. In Round Rock, Texas, it's about $180,000, except the home and property are bigger.

We hear from HP all the time that a huge deterrent to the ability to recruit and retain people anywhere near Silicon Valley is the housing issue. We don't hear that from Dell, which is also a member company, about their operations in Round Rock. It does continue to plague us and we will continue to sound the alarm.

i bought my house while everyone here was super bearish. I paid all cash and havent paid any rent or mortgage money ever since.

if someone decided to rent at the same time at the same time I bought they'd be about about $20k in rent money and still hoping for house prices to fall.

toothfairy says

if someone decided to rent at the same time at the same time I bought they'd be about about $20k in rent money and still hoping for house prices to fall.

what do you mean hope?

they are falling, and they've fallen well over $20k, where i'm looking.

toothfairy says

if someone decided to rent at the same time at the same time I bought they'd be about about $20k in rent money and still hoping for house prices to fall.

East Bay got hit the first, and the slide continues for others. If you paid 1997 prices plus inflation say 35-40%, then you did well.

East Bay, Riverside (SoCal), and Miami are at or near their long term trend. Others continue to decline. Not all regions move in tandem at the same rate.. but they do move over time.
Home prices are not going anywere and there is plenty of time to drive prices lower.

http://www.dqnews.com/Charts/Monthly-Charts/SF-Chronicle-Charts/ZIPSFC.aspx

"The median price paid for all new and resale houses and condos sold in the Bay Area last month was $350,000. That was down 4.1 percent from $365,000 in September, and down 8.6 percent from $383,000 in October 2010. Last month’s median was the lowest since last February when it was $337,250."

I paid around 1997 prices. But my house needs a ton of work. It's not like I got a brand new house for what someone would've paid in 1997.
and prices may have fallen some from when I bought but it's a different market now. It's hard to do an apple to apples comparison where I say that if I's only waited I coulve bought a house for 20k less because that's just not the case. (Even though the charts may seem that way).
The only 100% certain calculation is every year I'm not renting it saves me about 20k.

so not regretting my decision at all even if I'm underwater technically speaking.

There's a ton of houses near where I live that are also probably at 1997 prices. Then again most I've looked at need major repairs. As in we're talking like at least 100k in work. So if I see a seemingly cheapish house- say in the 350k range- if the thing needs work- as in 120k for new foundation work- then the 'real' price is more like 450-500k. That's the hitch. Anything that's move-in ready in my area is still sitting at 500k and they aren't selling. There are cheaper houses. But for the most part to me it seems that the only affordable houses are still weird, in bad shape, or less than ideal. That's my take anyway.

Here's a good apples to apples comparison I looked at a few condos in this building when I was looking to buy, it was full of foreclosures. The one I looked at was identical to this one and the bank wanted something like $120k now I dont see anything under $140k

http://www.redfin.com/CA/San-Jose/1060-S-3rd-St-95112/unit-313/home/2125990

bob2356 says

The only gloom and doom is if you plan to flip or get in over your head.

touche'!