patrick.net

uomo_senza_nome says

realitycheck says

Isn't it? I think "competition" appears to among sellers! :)

What I was alluding to was this: rents closely track income and job growth. If you have the same number of people in a locality but their income grows, so will their rent. If you have the same income for people but the number of jobs in the locality increased, then also rent will increase because of the premium to live close to your job.

I think it is a combination of things that support high prices in Bay area and it is hard to see how these things will all fall in place so that lower prices can be achieved.

I mean the whole system is rigged to support high prices.

There are jobs here that pay well, and people with cash flow and money saved to allow sellers in choice areas to ask ridiculous prices.

Game over, thank you for playing.

It's just as I said. Some people will not be able to afford to buy here. The same could be said for Arlington, VA or Chevy Chase, MD or Brookline, MA or Westchester, NY or Bedminster, NJ or Bellevue, WA.

This is what Michael Bloomberg was saying awhile back. There will be certain places that are no longer affordable for middle class people. Peter Schiff has been screaming about Chinese real estate speculators for several years. Judd Gregg said right after he left the Senate that it's very likely we would pass to our children a nation in which they could not afford to live.

There's nothing new here.

uomo_senza_nome says

rootvg says

I also remember Carter saying at the end of the seventies that we needed to draw in our horns and accept there would be no more growth.

Carter was an intelligent guy, he was trying to reduce the addiction of America to cheap oil. Clearly that did not work.

Secondly, economic growth over last decade was predicated on cheap credit. To claim that that was real growth is BS.

I would never denigrate Carter. He was an awful President but is arguably the best ex-President we've ever had.

They say he swings a mean hammer, too.

SFace says

The theory makes sense if there are no transformative changes between 1980 and now.
For starter, mortgage interest was around 12% in 1980 vs 4% now. There are other transformative changes (favorable and unfavorable) unaccounted for.

Transformative changes.. 1970 to 1990 lots of reasons prices should of skyrocketed as it did in the last 10 years. But that didnt happen.

Today, transformative changes are vanishing...yet the people who came here after 2000 are still expecting some kind of magical boom to happen fueled by myths and legends. But that isnt happening.. is it ?

Lower interest rates certainly dont explain higher prices since rates have fallen in the past along with prices..

Vanishing Public Companies Lead To The Incredible Shrinking Silicon Valley

http://www.siliconbeat.com/2010/02/17/vanishing-public-companies-lead-to-the-incredible-shrinking-silicon-valley/

One of the most significant trends I’ve been watching over the past decade is the dramatic drop in public companies in Silicon Valley. Naturally, that number was artificially inflated during the dot-com bubble when it reached 417 in 2000. For our purposes, Silicon Valley includes San Mateo and Santa Clara counties, and the southern half of Alameda County.

But the number of public companies has dropped for nine straight years now. Even when IPOs briefly reappeared in 2006 and 2007, they weren’t enough to overcome the net loss of public companies through acquisitions or bankruptcy.

In 2008, the number had fallen to 261. We just updated our records and the latest figure is 241.

That’s not just less than the dot-com era, that’s well below the 315 public companies the valley had in 1994 when the Mercury News started keeping track.

Helloeeze says

How many people in Ohio are working 80 hours a week?

In the 1970s and 80s yes we had factories in SV that ran 24/7 around 360 days a year. 3 Shifts daily rotation. It was the center of 70-80% of world semiconductor/harddrive/and other High Tech production. And since we had the global markets to supply... lots of jobs with skyrocketing growth.

So why didnt prices of RE skyrocket as it has in recent 10 years ?

Could it be people were more sensible about what they were willing to pay for homes ?

Helloeeze says

Could it be that salaries have gone up (for a talented few) higher than inflation would suggest wages should go up? The Bay Area is one of the most highly educated areas in the United States.

We must have been less educated, less paid and really lazy employees in decades prior to the year 2000...

uomo_senza_nome says

They can't purely because someone is willing to pay that high price. So may be the prices correlate more with income and/or wealth (because of the affordability factor of monthly mortgage payments or buying it outright).

Bay Area (Cupertino and other most desirable areas) is one place where rent vs. buy logic fails, miserably.

I think it's more a question of facility; as long as the debt is provided or otherwise underwritten by the GSE to allow speculation in housing, then you will see these areas stay puffed-up -- otherwise, most moneyed jerks know better than to sink such a chunk of their own capital into a dud asset like RRE. OPM!

Helloeeze says

the chart the housing bubble started in the 1987 and it continues today. Using inflation as a benchmark, we have been in the bubble for over 20 years. It appears it's the norm now for this area.

By its very definition, a bubble cannot continue in perpetuity. By calling this the "norm" you are suggesting a new, higher baseline for residential real estate. I don't think the fundamentals support this idea, unless we have even more government intervention in the housing market going forward.

Helloeeze says

How many people in Ohio are working 80 hours a week?

Quite a few. 40 hours at each minimum-wage job.

BA is an exception - wait another 20 years,until the decimation of these high tech companies and no more lucrative companies replacing them. LOL.

I think the FHFA index only covers conforming loans:

"This information is obtained by reviewing repeat mortgage transactions on single-family properties whose mortgages have been purchased or securitized by Fannie Mae or Freddie Mac since January 1975.
"
http://www.fhfa.gov/Default.aspx?Page=81

Also, it would probably not cover most subprime, since Fannie didn't get into that substantially until 06. Most subprimes were non-bank entities like Countrywide pre-BAC.

So what does it mean? This index might understate the bubble from 2003-2006 by excluding many subprimes. It might overstate the decline since then by excluding houses with mortgages >$729k. There's been some other graphs posting showing that the lower tier bubbled and popped more than the top tier.

Also, what about the common theory on this board that the government is understating inflation? with that, the green line should be higher, making it closer to the house prices.

Finally, the problem with this analysis is that it says one should buy in Vallejo or Stockton. However, given the choice, more people would prefer to buy in SJ area or SF. So there's something to a purchase besides the cost.

wthrfrk80 says

Helloeeze says

How many people in Ohio are working 80 hours a week?

Quite a few. 40 hours at each minimum-wage job.

I saw a lot of that growing up. It's one of the reasons we left.

JodyChunder says

Helloeeze says

the chart the housing bubble started in the 1987 and it continues today. Using inflation as a benchmark, we have been in the bubble for over 20 years. It appears it's the norm now for this area.

By its very definition, a bubble cannot continue in perpetuity. By calling this the "norm" you are suggesting a new, higher baseline for residential real estate. I don't think the fundamentals support this idea, unless we have even more government intervention in the housing market going forward.

It's true, and Greenspan admitted it in his book. The 1987 break created the foundation for the prices we see today.

thomas.wong1986 says

Helloeeze says

How many people in Ohio are working 80 hours a week?

In the 1970s and 80s yes we had factories in SV that ran 24/7 around 360 days a year. 3 Shifts daily rotation. It was the center of 70-80% of world semiconductor/harddrive/and other High Tech production. And since we had the global markets to supply... lots of jobs with skyrocketing growth.

So why didnt prices of RE skyrocket as it has in recent 10 years ?

Could it be people were more sensible about what they were willing to pay for homes ?

Here again, it's about demographics and culture. They're straight down the middle people. Their world is not in a constant emotional fog or externally induced state of confusion. They are not governed and their agenda is not set by people with alternative lifestyles or who constantly have axes to grind or who are on the margins of society.

They also don't have the money or education we have out here.

REpro says

What if devaluation of dollar (inflation) pop up house prices everywhere but BA will stay on same level?

That's highly unlikely. Recovery always starts at the high-end. Look at the '95 FHFA chart. The recovery in SF & SJ started almost 2 years before Valejo & Stockton. A more likely scenario is for fortress areas to continue falling for the next 10-20 years, suppressing the low end, even more.

30 years later there will be a site similar to this site touting return of BA prices. :)

rootvg says

Game over, thank you for playing.

It's just as I said. Some people will not be able to afford to buy here. The same could be said for Arlington, VA or Chevy Chase, MD or Brookline, MA or Westchester, NY or Bedminster, NJ or Bellevue, WA.

I don't get it. are you agreeing with me or disagreeing with me?

You are comparing areas where there are people with a lot more net worth relative to other areas in the US. Obviously prices are high because such high prices can be supported because of the mere existence of these buyers at the margin.

Sure cheap loans are also a factor.

Good that you bring up Arlington,VA and MD into the picture. Those are some of the richest counties in the whole country and surprise, surprise -- located in close proximity to the power circles.

bubblesitter says

BA is an exception - wait another 20 years,until the decimation of these high tech companies and no more lucrative companies replacing them. LOL.

You could also be dead in 20 years.. we will probably have a major world war before then that changes the way we all live...so who cares.

I'm checking out... gonna concentrate on living my life rather than constantly circling the dead carcass of the housing market on a daily basis... while trying to determine if the meat is spoiled enough to feast.

LAO says

bubblesitter says

BA is an exception - wait another 20 years,until the decimation of these high tech companies and no more lucrative companies replacing them. LOL.

You could also be dead in 20 years.. we will probably have a major world war before then that changes the way we all live...so who cares.

I'm checking out... gonna concentrate on living my life rather than constantly circling the dead carcass of the housing market on a daily basis... while trying to determine if the meat is spoiled enough to feast.

That's another one of the reasons we bought.

LAO says

I'm checking out...

Please do yourself a favor. There is no reason for a person who bought recently to be on this site -unless he is here for a post purchase rationalization.

http://en.wikipedia.org/wiki/Post-purchase_rationalization

PS: As I said before,I CAN RENT THE SAME PLACE THAT YOU LIVE IN AND NOT BUY IT. I AM LIVING THE SAME LIFE STYLE AS YOU DO BY RENTING A HOUSE.

uomo_senza_nome says

rootvg says

Game over, thank you for playing.

It's just as I said. Some people will not be able to afford to buy here. The same could be said for Arlington, VA or Chevy Chase, MD or Brookline, MA or Westchester, NY or Bedminster, NJ or Bellevue, WA.

I don't get it. are you agreeing with me or disagreeing with me?

You are comparing areas where there are people with a lot more net worth relative to other areas in the US. Obviously prices are high because such high prices can be supported because of the mere existence of these buyers at the margin.

Sure cheap loans are also a factor.

Good that you bring up Arlington,VA and MD into the picture. Those are some of the richest counties in the whole country and surprise, surprise -- located in close proximity to the power circles.

A little of both.

These are ALL high income or high proximity to power areas.

The real issue here isn't real estate and I think most of us here understand that. It's about increasing income differential in the United States and (again) it's something Alan Greenspan spent time discussing in his book.

This isn't the fifties, as badly as my wife and I and others we know would want it to be. I think we can get there again and there are some very smart people who think we can as well but it's gonna take time and WORK.

I really think Tom Tancredo has it nailed. He said we need to close the borders (not permanently) to allow some assimilation and our economy and political culture to heal from the most recent wave of mass immigration. That won't go over well in politically correct California but then again, I'm not so sure we're going to be a state ten years from now. When the Republicans take control in January and start cutting off all that money for social engineering projects, all those lefties sitting at the table are likely to become mighty nervous about the dwindling supply of cash. This is what Starve the Beast is about.

We've been here before: economically, politically and socially. We've navigated these waters before (except for the debt) and we can do it again.

bubblesitter says

LAO says

I'm checking out...

Please do yourself a favor. There is no reason for a person who bought recently to be on this site -unless he is here for a post purchase rationalization.

http://en.wikipedia.org/wiki/Post-purchase_rationalization

PS: As I said before,I CAN RENT THE SAME PLACE THAT YOU LIVE IN AND NOT BUY IT. I AM LIVING THE SAME LIFE STYLE AS YOU DO BY RENTING A HOUSE.

Yes!

You can live the same life but without the tax advantages. We did it for eight years and that was enough.

Even my landlord (VP of a commercial real estate management company) and CPA both said at our income level, it made sense because of what we bought and where. When my wife gets promoted (or if I get promoted, my boss is retiring soon and I'm the only one on the team with a college degree) the IRS will send Guido and his buddy after us with a tire iron. I'm sick of it. I don't have to do this.

I'm here because I'm good at writing and enjoy seeing other opinions. My high school Government teacher almost thirty years ago literally begged (in front of the whole class, no less) me to go to law school because of my strong personality and high verbal but I thought technology offered me a better future. On balance, I think I made the right decision. If I had done law school, I'd be back in Ohio.

Well, one thing the Bay Area has that many other areas don't is jobs. Although the job market is not what it once was, compared to other parts of the country it is comparatively robust in certain segments. Between San Francisco, Silicon Valley and all the support jobs that feed off of both sectors, the Bay Area isn't all that bad. Housing has always been over price in this area but seems to have weather a bit better than say places like Florida, etc. The thing that will collapse the housing market nation wide is interest rates. If and when they start moving up, the housing market is in for far worse conditions than we seen so far. It is anyone guess as to when rates will climb but at some point the rates will move up and once again bring housing to its knees. My personal opinion is it will take at least ten years before we will have stable market which all depends on the political environment both here in the USA and worldwide.

Terrabella says

The thing that will collapse the housing market nation wide is interest rates. If and when they start moving up, the housing market is in for far worse conditions than we seen so far. It is anyone guess as to when rates will climb but at some point the rates will move up and once again bring housing to its knees.

Yup. The Fed holds the cards. I can't reliably predict the Fed.

My guess is that the Fed will continue with low interest rates and inflation to help reduce the debts of their buddies in Big Finance and Big Government.

But if I'm wrong, and the Fed tightens the money supply, housing could start tanking again. Especially in overpriced areas.

Terrabella says

Well, one thing the Bay Area has that many other areas don't is jobs. Although the job market is not what it once was, compared to other parts of the country it is comparatively robust in certain segments. Between San Francisco, Silicon Valley and all the support jobs that feed off of both sectors, the Bay Area isn't all that bad. Housing has always been over price in this area but seems to have weather a bit better than say places like Florida, etc. The thing that will collapse the housing market nation wide is interest rates. If and when they start moving up, the housing market is in for far worse conditions than we seen so far. It is anyone guess as to when rates will climb but at some point the rates will move up and once again bring housing to its knees. My personal opinion is it will take at least ten years before we will have stable market which all depends on the political environment both here in the USA and worldwide.

Excellent points.

Bernanke says rates will be stable for about another two years but what if we get a President who wants another Fed chief? Romney is a moderate (although not by California standards) and what if he wants...oh, let's say Bob Rubin at the tiller? My wife says that's nuts because he's a Democrat but strange problems bring strange solutions.

I think it could happen and A LOT of things would change very quickly.

We have to get back to a somewhat more honest currency. Three percent mortgages and one percent on a CD with retirees getting a weekly high colonic when they go to the grocery store IS NOT sustainable.

rootvg says

This isn't the fifties, as badly as my wife and I and others we know would want it to be. I think we can get there again and there are some very smart people who think we can as well but it's gonna take time and WORK.

What exactly about the 50s did you like? Was it the high tax rate for the wealthy? The social engineering (GI Bill)? Or, perhaps that pesky civil rights movement hadn't yet taken hold?

Ah yes, to live in a simpler time when men worked and woman stayed at home and made dinner and babies.

I don't know which "very smart people" you've been listening to, but based on your post either they are not very smart or you misunderstood them.

There is no going back. Never was. The desire to go back - nostalgia - is real and very powerful. Advertisers know this. Politicians do too. Get over the past -- it wasn't nearly as great as you thought it was. (That amazing long bomb touchdown pass I heaved in high school in truth traveled about 30 yards and looked like a dying bird.)

rootvg says

We've been here before: economically, politically and socially. We've navigated these waters before (except for the debt) and we can do it again

Or really? When have we been here before? 1980? That was just the beginning of an end we are just starting to understand. Our glory days are over. The jobs for simpletons are gone from our shores for good. Soon they'll be gone from everywhere for good. The ONLY WAY to keep civilization plugging along will be through redistribution of wealth from people like me to people like you.

You're welcome.

uomo_senza_nome says

realitycheck says

Willing to pay is also linked to banks willing to lend! Anyways, too much competition to buy? In that case prices should be rising.

Agreed. Credit is too loose, that's another problem. There are no repercussions for making bad financial decisions. That's also a problem.

About what you said above concerning foreign policy, I would tell you that Reagan's team from his first term was absolute best of the best and then Bush 41's people were at least that good if not better.

Bush 43 was another matter. I like Rummy and I like Cheney but Dubya was sort of above his head with a lot of things and it showed. A very conservative friend of ours who's a retired statistician from Livermore Labs (and the smartest person I've ever met) said he thought Junior burned his brain with drugs during college. That's really the only explanation. His father was never like that and Prescott wasn't like that when he served in the Senate.

My uncle served as Flight Superintendent (E-8, didn't stick around for the last stripe) in the 89th Airlift Wing (Air Force outfit that functions like a private airline for Congressmen, Senators and VIPs, it's separate from Air Force One) and flew with all of these people for many years. He said the Bushes and then Al Haig were some of the most gracious people you could ever meet. The enlisted guys were always in awe of Bob Dole because of what had happened to him and what he managed to accomplish. It's a story that's well known but rarely told anymore.

Terrabella,

I totally agree with you, rising interest rates can collapse housing which is why Ben Bernanke said in speech he is planning to hold interest rates at record-low levels until at least late 2014. The Fed is also comfortable with official inflation being above 2%. This type of environment will punish savers and reward people who have debt.

fewy says

Terrabella,

I totally agree with you, rising interest rates can collapse housing which is why Ben Bernanke said in speech he is planning to hold interest rates at record-low levels until at least late 2014. The Fed is also comfortable with official inflation being above 2%. This type of environment will punish savers and reward people who have debt.

It's been going on for awhile...

...but as I said, if we get a new Fed chief as we did when Paul Volcker replaced Bill Miller, all bets will be off.

rootvg says

You can live the same life but without the tax advantages. We did it for eight years and that was enough.

Enjoy your tax benefits,if you got your math right. :) I have never recommended renting for life - It is about renting vs buying the same property.

bubblesitter says

rootvg says

You can live the same life but without the tax advantages. We did it for eight years and that was enough.

Enjoy your tax benefits,if you got your math right. :) I have never recommended renting for life - It is about renting vs buying the same property.

My landlord and CPA even said we were pushing the envelope for the length of time we waited to buy.

Debt scares me. Great big honking tax bills scare me even more.

If I suddenly got rich, I'd pay that mother off so fast you wouldn't know I did it no matter what the interest rate is. It's a TON of money.

We understand the seriousness of what we did. Trust me.

rootvg says

My landlord and CPA even said

rootvg says

Trust me.

You forgot to add your Realtor. :)

There are many things I disagree with President Carter about, but he really socked it to the oil companies in the 70s. I believe he put in a windfall profits tax on them, a maximum price limit on gas at the pump, a 55mph speed limit nationwide. This scared them so much that the price of gas stayed stable for some 20 years after he left office. Back then it felt like the government was at least somewhat watching out for us.
With the cast of wimpy charactors in charge today, policies like these are unimaginable, and the greedy oil companies run amuck with zero fear of the people. Carter is a good man.

Patrick - Let's say we have a currency crisis like we did in 1980 (due to the money printing and low rates). If rates hit 18% again, will home prices get crushed beyond everyone's imagination? Some people are saying that inflation will help increase home prices even if rates skyrocket above 10%.

Zakrajshek says

With the cast of wimpy charactors in charge today, policies like these are unimaginable, and the greedy oil companies run amuck with zero fear of the people.

Which greedy oil companies? Are you speaking of Saudi Aramco? The OPEC cartel? Or small-time punks like ExxonMobil?

Right, Obama should send a "stern letter" to OPEC informing them they must pump more oil or else!

Hahahahahah...

HousingBoom says

Patrick - Let's say we have a currency crisis like we did in 1980 (due to the money printing and low rates). If rates hit 18% again, will home prices get crushed beyond everyone's imagination? Some people are saying that inflation will help increase home prices even if rates skyrocket above 10%.

Canada had a currency crisis in the mid nineties and their property prices didn't crash (especially in BC and in the Toronto area) because of continuing in-migration from Asia. My guess would be we'll have something similar in this country.

Peter Schiff said the Chinese would flood in here to invest all those Dollars we've given them over the past twenty years. He was right.

bubblesitter says

rootvg says

My landlord and CPA even said

rootvg says

Trust me.

You forgot to add your Realtor. :)

But we didn't buy in Hayward, Fremont, Brentwood or Oakley.

There's a reason.

This is also the first time a landlord said he was glad to hear we were staying close by. We'll end up having him over for a barbeque.

rowemoore says

What exactly about the 50s did you like?

In rootvg's defense, he was talking about the economy. That's probably enough to know he wasn't talking about all of the unresponsible sexual activity of the fifties.

rootvg says

Peter Schiff said the Chinese would flood in here to invest all those Dollars we've given them over the past twenty years. He was right.

They said the same thing about the Japs in 1989. Remember the final episode of "Newhart" where the whole town sells out to a Japanese RE tycoon and Joanna is wearing a kimono?

China in 2012 = Japan in 1989. Same kind of asset-bubble driven economy. China will have a "lost decade" just like Japan...except with potential civil unrest and violence.

FunTime says

rowemoore says

What exactly about the 50s did you like?

In rootvg's defense, he was talking about the economy. That's probably enough to know he wasn't talking about all of the unresponsible sexual activity of the fifties.

The economic stability, the relative stability of our culture...although my father was one of those James Dean wanna be types who ended up in the military because there were no other options for a working class kid from a small town in Appalachia.

In my lifetime, the mid eighties and then the mid to late nineties were good. Strictly on the basis of economics, most all of the early and mid sixties were good, late sixties not as much due to creeping inflation from having guns and butter. When we went off the gold standard in 1971 and then found ourselves in a position where we no longer controlled the worldwide price of oil, that's when things got bad. Again, Alan Greenspan discusses this at considerable length.

I have a copy of John Chancellor's book where he discussed many of the same issues, saying he thought the last "good year" in the United States was 1972. That would roughly match up with the beginning of our oil problems and then our currency problems which ramped up when we had to have all that social spending during the Vietnam War days.

wthrfrk80 says

rootvg says

Peter Schiff said the Chinese would flood in here to invest all those Dollars we've given them over the past twenty years. He was right.

They said the same thing about the Japs in 1989. Remember the final episode of "Newhart" where the whole town sells out to a Japanese RE tycoon and Joanna is wearing a kimono?

China in 2012 = Japan in 1989. Same kind of asset-bubble driven economy. China will have a "lost decade" just like Japan...except with potential civil unrest and violence.

You could be right. Some very smart people think you are right.

Yes, the shit could really hit the fan in China. One would think our national security folks are ready for it.

I miss Mary Frann.