patrick.net

Was that MIRAGE or ILLUSION, I forget which acronym makes the most sense here, but it’s just not the case.

It is SHARP.

Supportive Home-buying from Altruistic Rich People

This is a very interesting report. I wasn't aware that foreign investment was so prominent, particularly from Europe:

http://home.businesswire.com/portal/site/google/index.jsp?ndmViewId=news_view&newsId=20051102005788&newsLang=en

"Allah should repost that link to articles on I think it was Netscape, about the Great Depression. "

You mean this? http://tinyurl.com/7e8z2

"Even seattledude who is more pessimistic than I, cannot concieve of such a drop."

I didn't know you were pessimistic.

R Patrick,

Are you aware of a big movement of the younger generation off of long island? Are you aware of suozzi's/levy's attempt to try to keep the younger generation on LI with what they call "affordable housing"? Have you noticed when you went to certain stores and there were only one or two cashiers with long lines when there were 6 or 7 unused registers? .....and the boomers standing on line behind you saying "Whats wrong with this place...why don't they have more cashiers over here, this is ridiculous". I see this happening alot and I know many people who already left LI and there will soon be more to follow.

I see they have started to use computers for self checkout because of the lack of cashiers. This is no solution because they will still need people to watch and make sure people ring up everything and they will still need people to maintain and repair them when they break down.......and yet so many of the boomers cannot even figure out how to use them...and just like the ATM hasn't replaced bank tellers, there will always be cashiers needed.

If cashiers, mechanics and such are getting fewer, the rules of supply and demand will push up their salaries.....this will in turn be reflected in consumer prices which will surely affect those with fixed incomes. This will put more pressure on them to downsize and move out of the area.

"Austin is 78 and sunny today…"

Sounds nice but how do you stand the Texans? (;-) Just kidding ScottC)

I've tried to talk my husband into Austin, but he's afraid as a Californian it will be too much culture shock for him. San Jo-to-Austin, did you experience much culture shock?

RE: "This is not the end of the middle class, or affordable housing. "

I argue that - you bet it is. It has been the death of the middle class for a long time now. -hence the middle class shrinking. It’s a slow and agonizing death. Just wait til your kids end up living with you for ever or moving out of state.

Huh, what data-driven indicator supports this dire prediction? Again I'll let you answer your own question:

California was actually pretty “affordable” by the mid 90s.

That's right--after a housing boom (particularly in SoCal), prices corrected themselves, dramatically in some places. And, guess what--this boom is far larger and pervasive this time.

SanJose-to-Austin, do you guys get to lock down your property tax like we do with prop 13?

If you don't then it is scary 50 years down the road.

"Plus, if you like sports, beer, and BBQ, it is heaven."

Ehhhhh, sounds more like hell for me. :-) Joking. I've researched Austin and San Antonio quite a bit, and both are future possibilities. Do you find the humidity hard to deal with? That's my husband's other argument--he can't stand humidity and thinks it would be too much there, but I've read that it's more bearable than, say, Dallas, where the humidity in my experience really is horrid.

Good point about the schools/property tax. I was taken aback when I first saw what property taxes were there, but if it really means a noticeable difference in school quality I'm all for it.

"If you don’t then it is scary 50 years down the road."

Somehow most areas seem to do okay without prop-13 type measures, at least that's how it seems to me, because property values increase very slowly. Am I making some incorrect assumption? Prop 13 is important in a place like CA where the real estate values sometimes skyrocket, right?

As far as overall state tax burdens, if you google of a chart that compares all the states according to tax burden, Texas comes out among the least expensive. California comes out sort of in the middle, and East coast states tend to have the heaviest tax burdens.

"if you google of a chart that"

Meant to say if you do a google search FOR a chart...

"YEAH talk about shitty timing, Too bad I was too young back then to have rode the boomers 2nd wave."

Maybe you should wait for the third........it's coming soon and it is going to be much bigger!

"Actually, this boom is clearly no longer just a California phenomenon and I have friends in Maryland that are sweating their property tax bills now the same way Californians did pre-prop 13. "

The way the real estate bubble seems to have gone is that it has some spill-over near the most expensive areas. So, I would guess Maryland has been driven up some because of it's coastal location and proximity to Boston/NYC. etc, because people probably move there when they get pushed out of the more expensive markets. Sort of like how Arizona, Oregon, WAshington, etc, have had surges in property value partly due to Californians moving there.

(But the further you get from bubble areas, the more normal the prices are. I've compared a lot of different markets around the country, and while Texas has gotten an influx of Californians, there is so much land there that they can just build more houses.)

We lived in Virginia Beach for a while, and a lot of New Yorkers/people from the northeast had a habit of relocating there. Sure enough, when I checked real estate prices there recently, they were crazy high for that city. And it's a very ho-hum city culture and scenery-wise, with not much big-paying industry, so to me, that says the property is being driven up by out-of-area people. I wonder if it's the same for Maryland.

Oh, and duh, I forgot, Maryland gets major DC spillover.

" reno gained 30% just this last year. but since they do 1/2 the people every year, and you get 2 years worth . some people will open up to a 40% increase in your property tax.
Doh!"

I went to a conference this summer in Reno and was surprised to find that everyone I met there was originally from the Bay Area. Maybe explains why prices are so ridiculously high there now? ;-)

Jamie,

austin is considered the most liveable place in Texas, and I won't be surprised that it will become much more expensive in the future as more people like yourself tend to look for a better exit from CA. Austin is still being discovered.

I traveled to Austin quite often in my previous job. The property price has gone up quite a bit, one could easily afford a very nice home in the Travis county for 200K, nowadays you are looking at 400-500K, that is less than 10 years. People from out of state (read: richer states on both coasts) into Austin tend to converge only in a few nice spots that remind them of home with true mountains, lakes, rivers, not just rolling hills and creeks. That is why you need to worry about prop 13. You won't be happy going to the "ordinary" part of Austin, at least I won't. Most people I know who are from CA and have been to Austin agree that there are perhaps only very few spots that we can camp out without complaining about the topography, and you can't pay us enough to settle in other parts of Texas. We actually like the Texans, just can't deal with the "flat as a pancake" sprawling plain.

But one thing you need to bear in mind, once you move to Texas, you are almost forever locked out of the CA realty market, unless you strike it rich on your own. So you really have to make sure you are ok with living there for the rest of your life.

I think when all the shit hits the fan, some companies are going to relocate to areas where the cost of living is cheaper..... This will furthur crush the richer areas....and at the same time boost the cheaper areas.

Not really. When BA price comes back to normal, people will come back again. We are complaining about price, not about anything else. There are many places in America that you have plenty of things to complain about, even if the price is good.

"can’t deal with the “flat as a pancake” sprawling plain."

Ahhh, yes, I've seen that sprawling plain where telephone poles count as scenery. :-)

"But one thing you need to bear in mind, once you move to Texas, you are almost forever locked out of the CA realty market,"

Well, sadly, we're already locked out of the CA real estate market since we've never owned a house (we move too frequently and didn't want to be out-of-state landlords), so unless there is a very significant correction, we could only live here as renters.

I research different areas trying to find some place that will suit us when it's time to stay in one place--if CA isn't affordable for us at that time, probably in a few more years. Mostly, it's a depressing search. I really love California.

Jamie,

I think you should continue renting, wait for the market to correct, and then come in. CA actually has a lot of inventory, if you are in the BA, just drive east, rows and rows of new houses are being built with nobody to occupy them. Right now they are selling for 600-800K, but in a year or two, I can easily see them slashed to 50% the current price. I am not sure if you are targeting the established neighborhoods, but it is definitely a myth that we are running out of land!

If you plunge in any property now, be it in Austin, Seattle or portland, your cash is translated into an inflated property which is bound to lose value later. The revenge of the renters will come, be patient. Why not keep taking advantage of the landlords who are bearing negative cashflow every month as you rent?

The correct way to build equity is not to buy, but to pay whatever is the least for your own living while investing the rest in income-generating asset. Buying a home right now is called an equity-destruction event.

"I think you should continue renting, wait for the market to correct, and then come in."

This is our plan.

"Right now they are selling for 600-800K, but in a year or two, I can easily see them slashed to 50% the current price."

I agree, I can see the outlying areas becoming affordable again pretty soon.

"I am not sure if you are targeting the established neighborhoods,"

Yep, it will depend on where my husband finds work, but I know he left his heart in SF. ;-)

Hey HubbaBubba, where is that Groove Sushi? I could not find it.

What is Groove Sushi?

LOL!

Is everybody on this board excited that Disney’s ‘Chicken Little’ is coming to a theater near you!?! I know I am!

I do not like Disney. Moreover, I prefer duck over chicken. Do not let your government regulate duck farms and/or foie gras production!

BTW, foie gras is supposed to be from geese. How come it is so difficult to find goose meat products (other than canned ones)?

I think the constitution should be amended to guarantee culinary freedom and liberty against unreasonable food regulations.

How about butter-fish marinara?

"Thats the problem with moving out of the NYC metro area. Once I leave I am done, and can’t get back in. That I would think keeps alot of people on LI"

I don't see anything so great about LI.............the only reason why I haven't left is because I eventually want to buy a house, I am renting pretty cheaply right now....I don't see the point of leaving just to rent again.....my next move will be a house. I have some family over here, but that won't stop me from leaving. When I do buy a house, I am not so sure I'm going to want to stay here even after a correction.......I mean the cost of living itself is so high over here and it's getting so crowded. So we have nice beaches over here, I don't go to the beaches much anyhow. There are so many up and coming areas that I can bring up a family without stuggling......... I mean the taxes alone are so damn high...and by the time my children grow up, are they going to be able to stay? I mean I would rather live closer to my children than my siblings.

"I say- nah-they’ll just continue to outsource."

Yes....they will continue to outsource...but some jobs cannot be moved overseas. They will realize that they can save so much more money and maximize their profits by moving certain parts of the operation to cheaper areas. Don't forget, when fewer young technical people can afford to live in a high tech area, these companies will have a hard time finding new talent....this is another reason I am not sure I want to stay on LI.

I remember the president of Computer Associates siad "There certainly are cheaper places to hire than LI".

" cant resist… wait. Yes. I can."

Jack, such restraint! So unlike you!

Let me be the devil's advocate.

Most people/economists believe that our Helicopter Drop Bernanke will stop the interest hike at around 4.5-4.75% and probably start cutting to avoid recession. If this is true, how will this affect the housing market?

Bubblesitter,

let me further develop my devilish streak :-)

Will 4.75% really be enough to pop the bubble? See, our new chief is targeting the inflation as measured by the core rate, and as long as oil remains below 60, or even slips to 50, then the inflation number will go back to around 2.5% (whether you believe this is the true inflation rate is entirely up for debate).

The percentage of NAAFL loans didn't go drastically up until 2004. Most people have a 3-5 rate locked in, which means the effect of higher interest won't be felt until 2007 onwards. So, does it mean housing will continue to go up until 2007? Or have we already exhausted all buying power in the market at this point? You know, as long as there are people with $$$ sitting at the sideline, you can't say the buying power is exhausted, and most likely this cash rich investor will jump in out of desperation or frustration.

So let's say our Bernanke chief keeps the rate constant once he reaches 4.75%, does that mean our housing bubble can still hang on for another 2-3 years? Will there be any other events that will prompt the RE bubble to pop aside from the rates?

Ownerocc,
I think inflation pressures due to recent energy cost spikes will not finish working their way into the CPI numbers until perhaps the end of the year or later. This sentiment may be reflected by recent Fed speak, which has recently mentioned, for the first time. 5.5% as an upper limit to the desired "neutral" funds rate.

Not to mention, if bond markets think Fed will stop increasing, or decrease rates, the conundrum might come back in full force, with markets driving down long yields. Currently, I think the yield curve is still relatively flat, with the long end still having a decent amount of ground to make up.

Also, some argue that higher interest rates aren't necessarily requisite for popping this bubble. Even in a low-interest rate environment, the lending industry has had to turn to increasingly "creative" loans for the past 18-24 mos. Remember, home ownership is at very high levels, while at the same time affordability is at very low levels...how much more extreme can it go? Will the lending become even more exotic? Perhaps it will; but recently we've been hearing about the possible onset of tighter lending practices. Plus, irrespective of quasi-regulated lending practices, the global appetite for such high-risk mortgages can't persist forever (or can it???).

And finally...there is the big question of home ATM cashflow. I think it is very hard to foresee the magnitude of the ripple effect due to slowdown in HELOC consumer binging. Big? Small? Nill? A slowdown in house appreciation would cause some decrease in consumer spending (how much? how big could the effect be on the economy? I think highly localized & difficult to predict). Some speculate this could be a big effect, yet others curiously leave it completely out of the equation.

I am curious about consumer spending this holiday season, and here is why:
I see it as a sort of test. That is, even if this current lag is merely a pause in the RE boom, it certainly has gotten a lot of press, right? And possibly spooked quite a few people? Well, I think consumer spending this holiday season might just give us an indication of how fragile, or how robust, the economy is. If there is poor spending this season, than to me that would imply that we are VERY dependent on RE appreciation and the economy is somewhat at the mercy of housing appreciation. If, on the other hand, people spend normally this season, then (A) economy is not very dependent on RE appreciation, (B) nobody pays any attention to media reports of RE bubble bursting, (C) everyone is too addicted to spending money to stop.

***NOTE: when I say "the economy", I realize that certain effects may be localized to bubble-areas, & certain aspects may apply to local economies only.

Well, this is the best I could muster to counter your devlish advocacy. :)

"(A) economy is not very dependent on RE appreciation, (B) nobody pays any attention to media reports of RE bubble bursting, (C) everyone is too addicted to spending money to stop."

C................always has been, always will be! There is still room on that credit card.

Well, I think consumer spending this holiday season might just give us an indication of how fragile, or how robust, the economy is. If there is poor spending this season, than to me that would imply that we are VERY dependent on RE appreciation and the economy is somewhat at the mercy of housing appreciation.

Yes, will people draw back spending this holiday, or go on an all-out binge-fest to feel good? I do know that the house-ATM was "hell-locked" at record highs in '04, and appears to be petering out. Once the mainstream realizes that house prices won't keep flying to the moon, there's could be a bit of panicked belt-tightening. But despite the warning signs, if people continue their credit-loose ways, that might suggest the RE mania could continue for a while longer?

Just for fun, a while back I compared some builders stocks against home improvement stocks. It was interesting to observe a relative peak that happens to coincide with the July/Aug RE peak. Nothing definitive, but interesting all the same:

http://tinyurl.com/9bdmq

"Add to above proposal-

will there be
coal in your stocking?
:mrgreen: "

Coal isn't a bad gift....It can heat the house ;)

"That’s for existing buyers as their 3-1 and 5-1 loans convert over the next few years. For new buyers, how are they supposed to continue to pay higher prices for homes as the interest rates they get are increasing so quickly percentage-wise? Even for risky IO loans, an increase from 4% to 5% is a 25% increase in monthly payments."

Anyone who is buying right now will be darwinized.......The bubble already has popped, but much like sound waves take time to travel so does the air out of the bubble. Sellers are in a handcuffed situation.....Just look at how many houses are for sale.....I have never seen so many in my entire life....and we are approaching winter! Obviously the sellers know their equity is at stake.........The ones that are waiting for spring are going to have a surprise waiting for them, but it won't be spring flowers!

Update on my sister's home-buying saga:

So there's selling their previous home, a 3 BR 1400 sqft eichler which they had newly landscaped and remodeled the kitchen (viking gas range, deep freeze, granite etc.). It was smallish, but nicely done.

Now they've just bought an 1100 sqft 2BR on a hill, "better area" etc. This home also has a basement not included in sqft. So their angle is to make the basement a liveable space, adding 500sqft to the home, thereby in their words "increasing the equity". (How does this help, if you buy at the top? But I digress...) Right now, the basement has a 7ft ceiling, so their plan is to raise the whole house by a foot. This sounds very ambitious to us (not to mention expensive), but my sis' husband calmly says "I know a guy who will do it for $10K". I suggested that sounds more like $100K, just by the sheer magnitude of the project, and all the possible details he'll face.

Hmm...any thoughts out there?

I'll repeat....Anyone buying a house now will be darwinized :twisted:

I've asked that before......I'd love to see the "suicide loan" useage timeline. I bet it resembles the stock market bubble chart.

KurtS, wouldn’t it be easier for her to lower the basement floor?

Yes, we kept asking that, but it seems it would undercut the foundation, and apparently the city won't let that be done for integrity issues. We suggested there must be a workaround, but they've firmly sold themselves on the idea (just as firm on buying now, despite my cautions)

KurtS,

Does your sister have any regrets at all about buying? Even after seeing/hearing about sellers cutting their prices, inventory rising and fewer buyers showing up at open houses.