patrick.net

I would lose my low property taxes, a large chunk of equity to a RE commision, and then what?

Sorry, but I didn't know we were refering to your particular situation.... I know in your case it would be a no-brainer to stay....I know I have told you this before. When I say it's not a gamble, I'm talking about those who bought like 5 years ago who luckily have seen their house appreciate enormously. These people haven't been in the house long enough to put down roots and for them to cash out and rent would not be a gamble at all.

SJ_Jim,

I can understand your assumption about me, but it’s not the case.

I am known to many people because I am the CEO of a financial services company with many corporate customers and competitors. We have about $1 billion of invested assets on our balance sheet.

Anyway, this visibility makes me known to many who I do not know.

It is important for me to anticipate economic trends, so I spend a lot of time staying on top of the market environment. This is particularly true for issues of inflation and general economic health. I read a lot every day.

The web is a great resource. I usually spend an hour or two reading the websites of a variety of economists. I also have my own website that exists solely for my convenience in finding, linking and sorting sources.

Residential real estate is a key part of my personal investment portfolio, so I read what I can find on that topic as well. In doing that I stumbled onto this blog. I often check it later in the night. When the discussion is serious I will join in. When the discussion is more casual I move on to other things.

The internet enables people from diverse walks of life (who would probably never meet or talk to each other) to mix and discuss ideas. It is a powerful media and source of ideas. It gives unlimited access to facts. The blogs provide access to diverse points of view.

I can understand your assumption about me, but it’s not the case.
Hey, Zeph, no assumptions here! Assumptions generally get me in trouble so I shy away.

So, now, I know you're a CEO for a reason, but if enough strong arguments are made here for RE cliff-drop, will you substantially drop your RE holdings? Then the other big financial services industry players will follow suit? Wow, we have a golden opportunity here to promote a self-fulfilling prophecy.
(yes, I jest, I jest...and badly at that)

Seriously, now, I'd love to know of some of the economists' websites that you peruse.

Had a rather uncomfortable conversation with our part-time admin assistant today. Here & husband (med. tech.) closed on an investment rental property a couple months back.
They're having trouble finding a renter...their current prospect is a recently divorce amateur boxer...FICA = 600.
I asked if the rent would cover mortgage...she said, "pretty close...maybe not, if you consider the property manager's fee."
I said, "Well, but good thing you locked in an interest rate since they've been rising lately & will probably continue to rise for a while."

That's where everything turned sour.

She told me they were on variable interest & have already seen their mortgage rise. She also said they only have to pay $XXXX even with the rising rate. But if they don't pay enough, then after a while they might have to pay more, "or something like that."
I asked if they could re-finance to something fixed, & she quickly shook here head no. So, it looks like they're pretty tapped out (perhaps took equity on primary residence to buy rental), or otherwise restricted.
I told her everything will work out somehow. She said "yeah, at least if we lose money we can deduct it." This made me think of her previous statement, a while back, when telling me about her aprehension to buying the place: "At least if it doesn't work out we could always sell it."

So, yes, that was a bit of an uncomfortable conversation. What are the chances that that is the only conversation of its kind to take place in the bay area, now or in the not-too-distant future?

SJ_Jim,

While I have hundreds of links on my lists, I am posting one here that is an aggregator of serious economics and finance web logs. Start with this one and explore the chain of links. If you run out of places to go from this one let me know and I can give you more. However, this one is like a central hub to the universe of such blogs, so exhausting the trail is probably not possible.

http://www.rtable.net/

Mr. Wrong,

I agree. Flipping has been around for ever.

I was a mortgage guy in the 1970s and I remember some customers who were so active that they would have more than a dozen houses in process at any given time. Some of these operators would not make any payments and would be delinquent from day one. We would keep lending more money to them for their new purchases anyway. They were money machines for us because we got the up front points and the prepayment fees on loans that would last for only a matter of months. Often we would get the new buyer as well.

Mr. Wrong, I left the mortgage business in 1978, although I have often provided capital in those markets since then.

H.Z.,

Absorbing information is an important part of my work. I delegate almost every task, and create a flow of information coming to me from everyone.

I agree that it is good to hear the negative case before making a financial commitment. One danger I worry about is people around me wanting to tell me only what they think I want to hear.

As for the RE cycle, I believe the downturn has started. I will wait for the bottom and start buying at that time. The deeper it goes the better it will be for me. However, like you, I am not convinced that it will be so deep.

Mr. Wrong, You really move fast to keep it under 2 months. Are you delaying the close on the front end?

Zeph thanks for the link -- looks to be just what I was looking for.

Let’s hope that they have good Lobster Bisque.

is everything related to food? 6 degrees of sushi?

We all live to eat.

Don't we?

New thread: "Reputable Sources"

"Prime neighborhoods like Los Altos Hills, Los Altos, Saratoga went down cumulatively 30% in the last 90’s depression, second tier neighborhoods like Cupertino, Los Gatos went down slightly for around 5-10%. Marginal neighborhoods like Oakland went down 40% in the first two years."

Owneroccupier, do you have a source for these numbers? I'd love to be able to quote them to people who tell me the Bay Area didn't take a hit in that recession except for condos and luxury homes. I didn't quite believe them but haven't been able to find solid numbers to counter with.

"Yes, partly because a substantial part of my total WAD is involved"

You were just looking for an opportunity to say that, weren't you, Jack?

And I also do not want someone to buy a house with coffee water without knowing what they are getting into.

They could sell the coffee......I hear it's a pretty good business.....and if the coffee is free, you have fewer expenses and more profit. :lol:

hmmm…have another espresso Jack…..sorry for the long post.

Hmmm...post got cut-off.
I SAID: nice post!

OH, I also said: I could use an espresso, too.

"I dont care where the market goes as far as my own little situation. That IS true Frank!"

Well thanks for the long clarification Jack. I guess I'll have to reclassify you then. How about the "Bay Area RE bull who has a substantial portion of his WAD at risk but defies commonsense because he doesn't really care if he loses it all" guy? Oh and yes, you're a nice guy who cares about us bears too.

Well all I can say is you're quite an anomaly Jack and without you this blog might be less interesting :-).

"In the last year I sold my two small apartment complexes that I bought years ago for 10+ caps for caps of 4.5 and 4.65. I’ve never seen that market so inflated, and if someone is buying for those prices, I’m damn sure selling. I still own a couple of rentals locally that are highly “prime”, cash flow well and are almost paid off." - Mr.Wrong.

Gee, and you still have the time and desire to post to this little blog about all your marvelous RE success stories. One would think you would be off on your own tropical island by now what with all those riches you must have accumulated by now. lol.

Frank, Jack can respond for himself, I know; but as far as I know he's not planning on selling his home anytime soon...and he doesn't really care about short-term paper gains or losses on his HOME.

And frankly, being more bearish myself, it's mildly annoying seeing such sour sarcastic barbs by other bears. But if that's your style....

I’ve never seen that market so inflated, and if someone is buying for those prices, I’m damn sure selling.

Mr. Wrong, I believe, from your posts, that you don't think RE is headed for a very severe downturn; how do you reconcile this sentiment with the statement above?
If RE is "so inflated," what will prevent it from becoming "so deflated?"

knickers in a twist

Hah! Nice fig-o-speech. I love it!
But it sounds like he has done well...sold a lot of property at (or near) the peak, and held on to lucrative rentals that are almost paid off. Unless I missed something....

SJ Jim.

Sarcastic yes, sour hardly. I'm just calling Jack what he is - a concerned (for himself) RE bull doing damage control. And don't try to make sense of Mr. Wrong's position, he's exactly the same as Jack if not the same person.

Peace.

And don’t try to make sense of Mr. Wrong’s position, he’s exactly the same as Jack if not the same person.

Ahhhhh....you mean literally, or...?
How long you been reading this blog?

I don't think anyone who has their house paid off or close to it and likes the property should cash out and buy in later.....I don't see the point! You should not gamble with the place you live in... I wouldn't buy now because I am a first time buyer so it would make no sense for me to buy into a severely overpriced market that is just starting to turn the corner. If I bought 4 or 5 years ago..... I would certainly sell now.... not that I would be looking to buy back into a bigger place or that I would want to roll around in the cash that I accumulated so easily, I just would want to own more of my house.

.....besides Jack.....if all you with your paid off houses cashed out and bought back in, you'd drive the prices right back up again...... We need that liquidity to disappear not get cashed out and poured back in. Your house may lose value to those who lose the power to pay the price, but if you're staying there why should you care. Your house is your home and to you it should be priceless.

Jamie, go check out the rereports.com. They only have numbers dating back to 1997, but you can already see the drop in 2001, very substantial drops for these blue-ribbon suburbs.

For the 90s numbers, I lived through that. You can ask your realty agent to dig up the median price for SFH in these neighborhoods and it shouldn't be a problem to pull.

I was buying a home in early 90s, choosing between Los Gatos and Los Altos, my RE agent kept telling me that Los Altos was a better deal because the neighborhood lost 30% and Los Gatos headed down only 5%-10%, although the properties I was looking at cost around the same figure.

Mr.Wrong Says:
I do believe, however, that we are headed into a multi-year market of low appreciation followed by flat or slightly declining prices...

At the risk of pissing you off, I have to say that I find these projections to be utter bullshit.

A market is a market. They are governed by buyers and sellers. But this statement is not a market projection. This is careful spin. You are carefully walking the line between not looking incompetent in a down market while not stirring up panic among RE buyers. And you hear the exact same line from every published realtor.

Stop and think about that...a ~0% growth rate is an awfully arbritray thing, no? Why does the swing suddenly drop to 0% but then conveniently and lovingly hover above there, protecting even the most recent buyers? Why is there some magic barrier that assumes the market can only swing dramatically up, but not dramatically down?

Think about it another way...if indeed, RE is this safe of an investment you would see Wall Street suck up every house they could in a New York Minute. If you're a money manager, and you can score up to 20% a year, but can't lose, who wouldn't do it?

To me, the only realtors I'll believe are ones that say something like: 'Gee, I can tell you that the market is clearly not as hot this year. Who knows what will happen next year? Historically, it's hard to say because these conditions are unique."

"Landlord wants to know what to do…time has run out…and I still don’t know."

Matt, I feel for you. It's a tough situation, but if buying were the right choice for you, would it really be such a tough decision? Your tone has struck me as one who's trying to talk yourself into buying the house, but if it were the right choice, shouldn't you feel it in your gut already and not have to endure such indecision?

"If only I didn’t have to move maybe this would be easy."

Well, hey, to put it in perspective, we have to move every two years, and we have two kids. It hasn't killed us yet. ;-) Moving has its pluses, like giving you a chance to check out another neighborhood in depth before you buy, forcing you to clear all the extra stuff out of your house, etc. And you may end up in a nicer rental than the one you're in now.

Good luck!

"Jamie, go check out the rereports.com."

Thanks, Owneroccupier, I'll check it out.

Jamie: thx for the encouragement! Reason for hesitation is that this 'new paradigm' somewhat conflicts with my 'old paradigm'.

-matt

Anything else?

Yes, one more thing: I was really hoping for a reasonable response to a specific, 1/2-way well-thought out point that I raised. And it kind of sucks to be disappointed.

Hey, look, I'm aware that nationwide affordability has been publicized as being at ~1991 levels -- as opposed to all time lows. I understand that this reflects the low interest rates. I'm willing to believe this data...and not attribute it to some conspiratorial manipulation of numbers by some RE industry secret society. But at the same time, it would be really nice if you'd concede that the amount of risky, highly-leveraged financing is more prevalant this time around -- that it is being used by the masses as opposed to an educated, investment-minded minority -- and that this presents the potential for something a little more severe than a leveling off.
But perhaps it's a matter of social circles. You've clearly done pretty well in RE & maybe some other industries. so, perhaps you don't know people, other than investors, who have used such loans. Well, being a rather mid-class-person, I can tell you that it's pretty common! Shit I don't even know that many people, but I know people that have are relying on this kind of financing to barely be able to "afford" their primary residence! So, perhaps that is skewing your perspective just a bit.

That's all :)

It is called aversion to loss. And greed. Once you see your neighbor sell for 1M, you would not want to settle for 900K. Unless you are forced to. Eventually inflation cures it. Most people only look at nominal returns, not real returns.

On the other hand, there were people who sold their homes in 1994 for much less money than they paid for it in 1990...in a falling interest rate environment. There have and will be times when the reality of survival is harsh enough to shatter even the wildest, most stubborn dreams of greed. When is the next? Who knows!?!

It’s an amazingly astute vision of future events that will culminate with a mushroom cloud of foreclosures, job losses, and a RE value death spiral the likes of which have never been seen American soil.

Come now, Mr. Wrong, If that isn't a straw-man distortion of the arguments presented here by most bearish bloggers, I don't know what is. "You've criticized me and I don't agree with your projections/assumptions, so therefore, you're an extremist."

I'd come to expect a little more from you by now.

Jamie,

You might want to read this http://tinyurl.com/ahfyu but don't get angry at me, I didn't write it.....and you may also want to comment to the author Anne Fisher....go ahead, let her have it!

"That is another reason we need a little bit of positive inflation to release the psychological angst of loss taking."

So to release the angst of taking a loss on an investment you are suggesting we devalue the currency such that any such loss would appear not to exist. Spoken like a true monetarist. lol.

I guess it’s the bank that holds the mortgage.

Banks aren't dumb enough to hold the mortgage....they sell it to fannie and fannie sells it to (suckers) investors. pass that hot potato will you :twisted:

"Jamie,
You might want to read this http://tinyurl.com/ahfyu but don’t get angry at me, I didn’t write it….."

Allah, I don't know what I'm supposed to be getting angry about here. It's not like some big secret that mothers suffer discrimination in the workplace--it's such common knowledge that Desperate Housewives has a whole storyline about the issue.

I'd like to drop this subject completely, because clearly I accomplished nothing the first time we debated this issue. Your thinking I'd get pissed off about the article shows that we're on such different pages, we're not even reading the same book.