patrick.net

BoomAndBustCycle says

Someone has yet to disprove that US real estate is among the cheapest assets in all of the world.

The fact that at the height of the boom around 70% of the Bay Area's homebuyers were using exotic loans is proof enough. At that point the percentage of folks who could actually afford houses were in the single digits.

edvard2 says

BoomAndBustCycle says

Someone has yet to disprove that US real estate is among the cheapest assets in all of the world.

The fact that at the height of the boom around 70% of the Bay Area's homebuyers were using exotic loans is proof enough. At that point the percentage of folks who could actually afford houses were in the single digits.

Again and again, you're making my point. A lot of people who live in the Bay Area simply don't belong here income wise. That's a snotty thing to say but the longer I live here, the more confident I am with that opinion.

I don't know how we fix this. Maybe we don't.

RentingForHalfTheCost says

20% minimum!!! If anyone even talks about buying a house before they save that much, then as a taxpayer I should be able to kick them in the nuts with steel toe boots.

I agree with you.. But you are living in an alternate universe. Because you haven't needed 20% downpayment for a home for a generation now. You can wish it wasn't a reality all you want, and we probably would be better off as a society if 20% downpayment were required all along.

But, what is your solution?.. If you were president.. Would you suddenly enact a 20% downpayment requirement? How would you deal with the "fall out" from enacting such a law?

I'm sure you'd get called out for re-distributing wealth to poor renters by Republicans. Democrats would call you out for making it impossible for the poor to come up with 20% down payments.

You'd get crucified!

BoomAndBustCycle says

RentingForHalfTheCost says

There is a reason why other countries save better than us.

I'm sure those countries have there own problems... And just because you have a country that has a lot of savers.. doesn't mean real estate prices in that country will be low. Someone has yet to disprove that US real estate is among the cheapest assets in all of the world.

Here is a cool site to compare the trends of US against other countries. Check out South Africa. Yikes.

http://www.economist.com/blogs/freeexchange/2011/03/global_house_prices

dublin hillz says

RentingForHalfTheCost says

20% minimum!!!

I agree with the 20% minimum. That demonstrates that one can save for the downpayment which predicts that they will be able to honor required future payments compared to those who cannot pass the threshold.

If we had that requirement I bet this site would not exist today. Sad but true. People need skin in the game. I know too many people now walking away from their homes in the BA. Good people who make good money. Sad.

BoomAndBustCycle says

But, what is your solution?.. If you were president.. Would you suddenly enact a 20% downpayment requirement? How would you deal with the "fall out" from enacting such a law?

You wouldn't want me as president. Heads would role. A 20% minimum down payment requirement would be a footnote on my agenda. :)

So, because no one is able to do the right thing, we will continue to suffer for a long long time. Like tearing off the band-aid one hair at a time.

As much as I wish this wasn't the case, I do agree with you that we have created a system that forces us to keep it going. There will be some hard resets, like the one we are going through now. Remember, no one saw this coming right? What a joke. Anyone who took a single course in economics saw this coming from the start. No money down, interest only payments for the first 2 years! How could you not see it coming. It is too bad we can't take the time now to fix the problems because we all live in fear of the political fall-outs.

If people really sat down and understood the problem that was created, instead of being called the "Occupy wall street" and the 1%, 99% mantras, it would have been "bring back responsible lending standards". Most of the crowds would have to examine themselves though, which people hardly practice.

dublin hillz says

Why are you assuming that a house will be sold in 7 years? Buying and selling after 7 years while only making minimum payments is not a good idea.

As I quoted before, lots of people are forced to do that.

RentingForHalfTheCost says

because we all live in fear of the political fall-outs.

We would have a lot more problems than political fall out.. It would be an UGLY few years if the government stopped lending money and we were all made to eat our broccoli so to speak. Home sales would simply just STOP... Everyone with "just enough" equity to sell, would become hopelessly underwater as the 2006 buyers. Any 2006 buyers still holding on would get the official memo that their home will never reach their purchase price in their LIFETIME, and even the most moral and credit-worthy among them would walk away or stop paying their mortgage.. pocket the money and buy the house next door with cash in a year or two. :)

We'd have a very weird situation.. Where people could stop paying their mortgage and in a matter of a few years, have enough cash to buy a slightly more modest home outright if they played their cards right.

Attempting to police and foreclose on all the squatters would prove futile and delinquent mortgages would bring the financial system to a grinding halt. Runs on banks would probably occur.

The inevitable depression and morale crushing layoffs that would commence... It would be a hard, chaotic reset button on our financial system.

BoomAndBustCycle says

The inevitable depression and morale crushing layoffs that would commence... It would be a hard, chaotic reset button on our financial system.

Bring it ON! Time for us sinners to pay and pay dearly. We can take it. Who is not up for a good round of suffering. I'd vote for this if there was a vote. And I own multiple houses (just not any in the BA). I'd rather get us back on track to eventually be prosperous again, regardless of how long it took. Even if it took longer than I live. At least we would be passing down something worth inheriting. Right now, we are passing on an economy build on junk bonds in all honesty. 61% of the bonds are being bought by the fed. What a joke.

SubOink says

RentingForHalfTheCost says

If you look at the very long term, houses have been the worst investment available to the general public:

If its such a bad investment, how come everybody that is rich owns property?

If I was rich I would own property. See how the rich comes first?

SFace says

Once that is considered, the return on housing is at par with stocks. Owners net worth are around 30-50X higher than renters. The end result clearly indicates owning has been the better result long term.

I get your point about the uses of the home is equivalent to a dividend. It still will not bring the housing as an investment up to the level of the other vehicles though.

As for the 30-50X higher than renters. People that get rich or are just born rich will obviously buy property. That doesn't mean property made them rich. Your putting the cart before the horse in that statement. If you want to draw some comparison to wealth in owners verses renters you need a better breakdown of the data.

BoomAndBustCycle says

Someone has yet to disprove that US real estate is among the cheapest assets in all of the world.

Its cheap due to violence, bad schools, shrinking middle class, no safety nets and high risks. Our way of life is going from best to not even top 10 at breakneck speeds. Being house poor - and entire nation of house poor - is ridiculous, especially when the economy is consumer based / net importing.

SubOink says

If its such a bad investment, how come everybody that is rich owns property?

The logic of a true Realtor(R). Did you know that most rich people own can openers too?

RentingForHalfTheCost says

See how the rich comes first?

Thank you. Most rich people don't get rich from the real estate, they buy real estate because they got rich from something else.

RentingForHalfTheCost says

SubOink says

RentingForHalfTheCost says

If you look at the very long term, houses have been the worst investment available to the general public:

If its such a bad investment, how come everybody that is rich owns property?

If I was rich I would own property. See how the rich comes first?

Why would you own property if you were rich?? You said yourself that its a terrible investment. Why not just rent whatever you like? You're rich, why bother owning a shitty investment?

:)

wthrfrk80 says

SubOink says

If its such a bad investment, how come everybody that is rich owns property?

The logic of a true Realtor(R). Did you know that most rich people own can openers too?

Most poor people own can openers too. :)

wthrfrk80 says

Thank you. Most rich people don't get rich from the real estate, they buy real estate because they got rich from something else

People get rich in all sorts of ways. But I know a few that definitely got rich via real estate and prove the theory that its a bad investment wrong.

Every investment has a risk and a down side.

Why do all these investors buy up property now?

Anyways, I am not even on the investment side of home ownership. We simply wanted our own place and pay the money towards our own house rather than giving it to a stranger. Not looking at it as an investment per se. It's where my kids will grow up and a place I want to have free and clear when I "retire". I just wouldn't want to risk having to use my retirement money for where ever rents will be in 35 years. Looking back 35 years, they could be double or triple from now. Talking about being ffed.

SubOink says

Why would you own property if you were rich?? You said yourself that its a terrible investment. Why not just rent whatever you like? You're rich, why bother owning a shitty investment?

:)

Now your getting half of the truth. That is a big step forward! Housing is a shitty investment. No one that studies the data will suggest otherwise. When you are rich, you have enough money and look at a house as a shelter and a bit of show-boating your wealth. If people were honest they would agree. The problem lies in people being allowed to show-boat before they get rich. That is a problem in our national housing campaign that has been trying to put an end to income discrimination. "Everyone deserves a home, even when they can't even make the first payment".

SubOink says

Why would you own property if you were rich?? You said yourself that its a terrible investment. Why not just rent whatever you like? You're rich, why bother owning a shitty investment?

Also, if you look at ROI on housing in terms of renting them out, typically you get the best ROI on cheap houses and the worst on expensive houses (where the rich live). These rich people are not only being stupid by buying a terrible investment, but also buying the worst group of a terrible investment. Hmmm...unless there's more to it.

SubOink says

Why would you own property if you were rich?? You said yourself that its a terrible investment. Why not just rent whatever you like? You're rich, why bother owning a shitty investment?

Why do rich people own property? Because they have to live somewhere and can afford to buy with cash rather than with massive debt.

Some rich people do rent. Like Michael Jackson in his final years.

I never said it's *always* bad to mortgage a place to live. In most of the USA it's probably better to do so than rent. That is, if you plan on staying in one area for more than 5 years.

But some places (like coastal CA) are so expensive that it can be wiser to rent.

RentingForHalfTheCost says

Why would you own property if you were rich?? You said yourself that its a terrible investment. Why not just rent whatever you like? You're rich, why bother owning a shitty investment?

Because there is a value/benefit to owning your own home that is more than just economic:

Stability, aesthetics, pets, gardening, sense of "place/home", family. etc.

SubOink says

Most poor people own can openers too. :)

Right! That was my whole point. Just because the rich often own property doesn't mean they consider it an investment. Anymore than they consider their can opener to be an investment.

Is it possible to get rich speculating on real estate? Sure. Just like it's *possible* to get rich speculating in any other asset class. It's also possible to lose your shirt.

You could become a wealthy landlord, but only if rents are high relative to prices. In coastal CA, prices are high relative to rents. A poor ROI. If you don't know what I mean by ROI, google it.

wthrfrk80 says

Why do rich people own property?

Because they're rich. Think about it. If you're worth 100's of millions of dollars, a multi-million dollar house would be like one of us going out and buying a flatscreen TV. The price is incidental. When we talk about irrational home purchases, its usually in referrel to a lot of Bay Area home buyers- those who even though might make good income will spend 50% or more of their incomes on a mediocre, grossly overpriced house. There's a big difference.

edvard2 says

Because they're rich. Think about it. If you're worth 100's of millions of dollars, a multi-million dollar house would be like one of us going out and buying a flatscreen TV. The price is incidental. When we talk about irrational home purchases, its usually in referrel to a lot of Bay Area home buyers- those who even though might make good income will spend 50% or more of their incomes on a mediocre, grossly overpriced house. There's a big difference.

Correct. That was my whole point.

edvard2 says

Because they're rich. Think about it. If you're worth 100's of millions of dollars, a multi-million dollar house would be like one of us going out and buying a flatscreen TV. The price is incidental. When we talk about irrational home purchases, its usually in referrel to a lot of Bay Area home buyers- those who even though might make good income will spend 50% or more of their incomes on a mediocre, grossly overpriced house. There's a big difference.

Yup.

Lots of people here seem to think that rich people are all super penny pinchers. Many ARE, and you will see that they spend a small percentage of their income. However, when the income is millions of dollars per year, a $1M house is no big deal. Say they spend 1 entire year's worth of income on a house, and they still have multiple years' worth of income in investments. So what if the house loses value? It would be like one of us buying a new TV and finding that the same model is listed on Craigslist for 40% less a year later. No biggie. That's the textbook definition of being rich: you can buy really expensive stuff without it having any really measurable impact on your net worth.

There are also stupid rich people out there, that don't stay rich for more than a generation or so. Spending TOO much, and not paying attention to income, is how that happens.

1sfrenter says

Because there is a value/benefit to owning your own home that is more than just economic:
Stability

Most of the stability in owning a home is chosen. Signing yourself up for 30 years of payments which includes paying interest on a very high dollar amount is the kind of discipline I'd rather not choose.

If a person decides, "I'm going to rent this place until my kids are out of high school" they choose a similar amount of stability. I'm guessing being kicked out of a rental is less common than the loss of a home due to financial stress.

SubOink says

If its such a bad investment, how come everybody that is rich owns property?

I'll just write it, since this kind of logic prevails and many, many people don't understand the flaw in this thinking when they look at statistics and other studies. Correlation is not causation!

Secondly, everybody who is rich does not own property. So even your correlation was either based on a non-factual idea or was not carefully worded.

FunTime says

Correlation is not causation!

oink is not going to understand this statement.

FunTime says

I'll just write it, since this kind of logic prevails and many, many people don't understand the flaw in this thinking when they look at statistics and other studies. Correlation is not causation!

It's Realtor(R) logic.

FunTime says

I'm guessing being kicked out of a rental is less common than the loss of a home due to financial stress.

If you have to "guess" about this, can I guess that you are not a renter?

I have been renting for about 30 years (my entire adult life) and since most of my friends are teachers, artists, etc.they are also renters. I can assure you that renting has not provided us the kind of stability you speak of. And that's in a city that has strong rent control and tenant's rights.

I have found that some of the biggest housing bears are people who already own houses and like to suggest that the rest of us become life-long renters.

1sfrenter says

The value is housing is not purely financial.

What a lot are saying is that the value of housing is helfpul when even a little financially considered. Look at how people make any other purchase. Look at how they buy a house. Why are they so different!

1sfrenter says

If you have to "guess" about this, can I guess that you are not a renter?

I'm also an artist, although not for money. I've never figured out a way that works for me to be an artist without a job. I grew up in a very poor family, so I've never lived in any residence which was owned by me or my guardians. I'm a lifelong renter.

At this point, it looks like staying in the Bay Area means staying a renter. I could have gotten mortgages, but I'm planning for a time when my job/art time is more even.

http://money.cnn.com/galleries/2012/retirement/1203/gallery.investing-advice-adult.moneymag/6.html

RentingForHalfTheCost says

When you are rich, you have enough money and look at a house as a shelter and a bit of show-boating your wealth.

Makes no sense. Why would showing off "the worst investment possible" be even considered showing off then?

All rich people could just rent, multiple homes. After all, they are rich. They can afford it. No need to buy.

I am just playing devils advocate here.

1sfrenter says

Because there is a value/benefit to owning your own home that is more than just economic:

Stability, aesthetics, pets, gardening, sense of "place/home", family. etc.

Absolutely. But the renters here will argue that. It's weird when we rented for all those years I was never feeling like I am in MY home. I always liked being on month to month after the initial 2 year or 1 year lease, to be flexible as in possibly finding a better house or maybe even buying. But after getting kicked out a few times due to them selling, I hated the insecurity of every month could be the month of the famous phonecall and then the nightmare search for another house begins all in the middle of full time work etc etc...sucks!! And nobody in LA signs a 4-5 year lease. Landlords don't do that.

We spent so much money on moving each time. $2-3k BAM!

You get to the point where you don't even want to put anything in the house because you never know when you may move. And on top of it you spend money like a mortgage, so your saving is not increasing any faster than paying a mortgage.

We just did our taxes this year. Massive refund. First time. Amazing. Prop tax was paid by tax refund and there is money left over.

SubOink says

Absolutely. But the renters here will argue that. It's weird when we rented for all those years I was never feeling like I am in MY home.

Its a case-by-case situation. I've never been kicked out of a house I've rented and the house we rent now we've been in for 9 years. It also "feels" like our home. Live anywhere that long and that will happen. We re-did the back yard, painted the living room, etc etc. Big deal.

The fear of being "kicked out" is every bit as much of a concern-or should be- for a homeowner. In this day in age no job is secure and if you lose one and own a house, well too bad- the payment comes do at the first of the month and you can't simply move to a cheaper situation unless you sell. Unlike a renter that has that ability to move somwhere cheaper. I definitely know my fair share of homeowners who lost jobs and lost their house as a result.

SubOink says

Makes no sense. Why would showing off "the worst investment possible" be even considered showing off then?

Because they don't think of it an an investment. They think of it as a luxury good. Like a Ferrari. Or a yacht. Or a glass of fine wine. Or a jet. They don't expect a return on those purchases. They buy them because they're nice to have and they can afford it. They're investments are in stocks and bonds. And maybe real estate if they're collecting rents.

wthrfrk80 says

Because they don't think of it an an investment. They think of it as a luxury good. Like a Ferrari. Or a yacht. Or a glass of fine wine. Or a jet.

I'll use myself as a real-life example to further this notion. In my "other life" prior to getting my current career going I worked at retail stores making $8-$10 an hour. I did this from the time I was around 16, all the way through college, and the first 2-3 years after graduating college. I can recall taking out a loan for a computer. It took me over 2 years to pay it off. It cost $1,500 which at the time to me with my financial situation was a HUGE amount of money. In fact, most anything like a TV, CDs, cell phones, and a nice dinner all seemed impossibly expensive. I was just barely scraping by.

Fast-forward to now after 10+ years in my career and I make a lot more. I'm not rich, but I can go out and buy a computer, a flatscreen TV, or even a econo-car no problem. Not to say I do this all that often as I'm a cheap-ass who still drives the car I had in high school. But when I go out to a nice dinner I no longer worry about how much it is or what it'll do to my monthly expenditure or what sort of dent it will make in my savings account. Not that I take this for granted, but these are all things that at one time were very big deals to me since they were outside the realm of what I could really afford. Now I can and that notion has more or less evaporated.

What if I made millions and millions of dollars? A nice house would be the same thing. Not neccesarily an investment per-say, but given that its value in the end would probably be a non-issue since I wouldn't be counting on it for my finanancial well-being unlike most people who do simply because their purchasing power is limited and a house to them is this extremely expensive thing that could very easily ruin them financially if things don't go well.

SubOink says

We just did our taxes this year. Massive refund. First time. Amazing. Prop tax was paid by tax refund and there is money left over.

The government and the people with money in this country thank you. Actually, I thank you too, because your willingness to loan the government money all year takes a little sting out of how much I disagree with where my taxes get spent.

SubOink says

All rich people could just rent, multiple homes. After all, they are rich. They can afford it. No need to buy.

Some do.

SubOink says

Why would showing off "the worst investment possible" be even considered showing off then?

Sociology.

Nomograph says

edvard2 says

If the bubble returns to the BA, what will you do?

I have a better question:

When you figure out that there are a lot of wealthy, successful people in the nice areas and you'll never be able to afford a house on the peninsula, what will you do?

There ARE a lot of wealthy, successful people in the nice areas and for that reason those areas will never be affordable. My understanding is Danville and Alamo were high in the early seventies and they're high now.

It's EXPENSIVE to live here. Some will not be able to afford it. Some who are here, should not be.

What else is there to know?