patrick.net

E-man says

Oh god. Did you compare the magnitude of Japan's bubble to our bubble? They crashed for 20 years & prices are still TRIPLE before the market ran up. TRIPLE, TRIPLE, TRIPLE.

Yes, I am comparing it, because the bubble in Japan is still alive and strong. It's not over yet. Also, the bubble in the bay area was actually bigger than what they saw in comparable places in Japan.

E-man says

You think the numbers I provided above are BS? How long have you been screaming that home prices will crater to 1975 prices. How's that working out for you?

You know what the sad thing is about that? In 1980, nominal prices were 56K, roughly 40% higher than the 36K prices seen back in 1975. Thus, in 1980, the adherent to the "prices will revert to 1975 nominal prices" would then say...

What??? 56K for a house that was 40% less 5 years ago??? No way!!! This is a huge bubble, and its all gonna come crashing down eventually... Im gonna wait, rent, and swoop in once prices crash!!!

Sadly, that was now 32 years ago. The 1980 buyer has paid off his place, whereas the 1980 sitter is in his 32nd year of renting with no end in sight...

E-man says

Japan home prices went up 20 folds while we went up 2-3 folds & he's comparing our bubble to them

I think we've been through this many times, already. Japan's house price bubble was actually smaller than that of the US bubble, and nothing, at all, like what we've seen in the bay area. Don't kid yourself.

And prices in Japan only doubled, not 20 times. You pulled that number out of your a*ss for sure.

CDon says

Thus, in 1980, the adherent to the "prices will revert to 1975 nominal prices" would then say...

Problem is that the K-cycle lasts for 85 years, not 5 and not 30, so you can't compare what's going to happen now, with what was in 1980s. That was a K-summer. Now it's K-winter.

E-man says

Where are we on that chart now? 140?

It depends where. In US, we are about 50-60% done with the collapse. In the bay area, less than 30%. The chart below would put a fresh light on it.

E-man says

How's your housing bet working out for you so far?

Very good. Remember, I keep all money in real currency, not the fake currency that you all talk about.

E-man says

So it's an 85 years cycle. Home prices started to go up in 1975. We should see 1975 home prices again in 2060.

I suggest you educate yourself on the K-cycle, before you make outrageous statements like this.

E-man says

At least he's still up on the bet. Although it never went down to $15, it hasn't gotten above $36.

I am still up on my bet, too. House prices never came down to 1975, either. That's why we are still in a bubble.

E-man says

Save your money folks. Don't buy housing now. Man, I start to sound like Darrell. :)

More sarcasm from E-man. I wonder if there will be a day when E-man actually shows us some real data, instead of feeding us with sarcasm.

E-man says

It would be sad waking up 30 years from now and still renting. I just feel sorry for their kids.

This is an incredibly arrogant comment.

There are economic arguments for buying, and there are economic arguments for renting. Whether the renter or the buyer is ahead long term depends on luck, timing, and economic factors beyond any individual's control.

More power to you if you are enjoying home ownership, but go fuck yourself if you want to criticize those who chose to rent.

robertoaribas says

4. stagnant or falling population in Japan, the US population is still growing.

True, but which socioeconomic groups are growing? Poor people can't afford to buy houses. The middle class is shrinking, with more folks becoming poor than wealthy. And class mobility in the U.S. is at a 100 year low.

Of course everyone needs a place to live, but it seems more likely that the increasing number of poor and lower middle class populations will be renting rather than buying.

robertoaribas says

unsubstantiated crap that passed for thinking on here... at a low enough price point, investors will buy every damn home in a city...

Ha, ha, ha. Another stupid remark from the professor. Just think about it. If investors buy every home in the city, and there is no organic buyer to sell it to, then they can only sell to themselves. This type of thinking is exactly why we had the crash in 05-06, and will continue to crash for a long time to come.

robertoaribas says

1. No quick easy foreclosure and debt forgiveness...
2. Sense of honor about debts

Another stupid remark from someone who hasn't done his homework. Japan has been doing nothing but bailing out zombie banks for the last 20 years. This is precisely why we are seeing this slow decline in prices, and this is exactly what we are seeing in the US.
robertoaribas says

3. High degree of correlation between stock companies and real estate.

Look at the house prices in the bay area and stock prices. I bet you the correlation is higher than it is in Japan.

robertoaribas says

4. stagnant or falling population in Japan, the US population is still growing.

That's only because we are about 10-15 years behind Japan. 10-15 years from now, we will have the exact same demographics as Japan.

robertoaribas says

5. Age of the two populations, with Japan being considerably older.

It doesn't take a college professor to figure out why our crash came 10-15 years after theirs.

E-man says

LOL! Arrogant? It's the reality pal. Housing Affordability Index is at record high, and people still complaint it's unaffordable. Go ask your parents what they had to sacrifice to buy a house 30-40 years ago. You guys had it too easy so all you do is bitch & complaint. No one is forcing you to buy. You guys just keep ignoring the facts in front of you. Don't be surprise if we wake up 30 years from now & we will be renting from the Chinese & other foreigners.

Parents sacrifice their lives & savings for their kids. Sorry, you're single so you don't understand. If you want to go fuck yourself, be my guess. I'm happily married. :)

Thanks for confirming your arrogance to the list! You are truly the fountain of knowledge about real estate, and your shit doesn't stink like the poo of us lowly renters.

The affordability index varies significantly depending on the locale. I'm surprised you haven't noticed that given your wealth of knowledge and insight into the industry.

I'm not sure why you think it's more affordable to buy a house now than 30-40 years ago. Care to back up that statement with some data? The last I checked, housing, healthcare, and child care costs were significantly higher now than in the 1970's. Other expenses have decreased (e.g., food, clothing, transportation), but not enough to offset the big three increases.

I've never complained about affordability because I can afford to buy given I make $250-300k/year and have excellent job security. But for now I'm perfectly happy to rent and see where the local market goes. I doubt it's going anywhere (up or down) very quickly. If I eventually decide that I'm unhappy renting, I'll move somewhere else. There are plenty of nice places to live other than the Bay Area.

I don't see the relevance of your "parents sacrifice their lives and savings for their kids" comment. Are you saying renters are bad parents because they don't buy a house? If so, you just moved up a notch on the arrogance scale.

My condolences to your wife on the marriage thing.

E-man says

Didn't I say you should rent in your situation in the other post. It's a case by case basis. You don't understand Dunross' situation & you cut in. You see who should go eff himself? Maybe you should listen to Dunross & wait for home prices to drop to 1975 level in NOMINAL term.

Dunross' posts are irrelevant. I'm interpreting your posts at face value. If you have posted otherwise somewhere else, maybe you should try to be consistent with your views.

robertoaribas says

Japanese births per female: 1.39
US births per female: 2.1

I think you need to dig a little deeper and dissect the birth rates amongst socioeconomic groups. Poor kids have a tendency to become poor adults. Wealthy kids have a tendency to become wealthy adults. If it's mostly poor and lower middle class families having kids, that doesn't bode well for home ownership rates. But I have no idea whether this is the case or not.

Actually the birth rate has been falling since 2007 and now we are closer to European birth rates rather than being an exception in the developed world.

http://money.cnn.com/2011/08/11/pf/recession_birth_rate/index.htm

>You'd have children with lemonade stands being able to raise a house payment >at 3.5%.

Children don't have expenses. It was easy to save when your parents cover all of your other costs.

treatmentreport says

Actually the birth rate has been falling since 2007 and now we are closer to European birth rates rather than being an exception in the developed world.

Interesting data. Some Euro birth rates tend to vary significantly by ethnicity/race. For example, in Italy, recent North African immigrants have the highest birth rates. This has created a lot of consternation amongst the older (white) Italian community, because political power as delineated by race will shift dramatically within 1-2 generations.

It would also be interesting to look at birth rates in the Bay Area and other high (housing) cost areas compared to lower cost regions. My guess is that the birth rates in the high cost areas are significantly lower.

treatmentreport says

Agree that going back to 1975 levels in nominal terms is impossible.

A major plague or some other sort of disaster that wipes out a significant percentage of the human population would prove otherwise. So more of a highly unlikely scenario than an impossibility.

treatmentreport says

I suspect that there is going to be a lot of downward pressure on houses above 750K due to higher taxes on high income earners. We need higher taxes but there are consequences.

That's one of the reasons I'm hanging tight renting for now. I fall under the government's arbitrary "high wage earner" designation, so best to see how things settle out on the tax front

Taxes are just another living expense, just like college loan payments, healthcare costs, etc None of this stuff is getting cheaper. And eventually interest rates will go up. Not sure how these will trend with other factors affecting house prices.

ducsingle5313 says

Taxes are just another living expense, just like college loan payments, healthcare costs, etc None of this stuff is getting cheaper. And eventually interest rates will go up. Not sure how these will trend with other factors affecting house prices.

you will certainly see the mortgage deduction go away, certainly on 2nd homes and caped at least on your primary residence..

these are just the ingredients to the final leg down (correction) to better prices.

ducsingle5313 says

It would also be interesting to look at birth rates in the Bay Area and other high (housing) cost areas compared to lower cost regions. My guess is that the birth rates in the high cost areas are significantly lower.

Not to mention out migration of jobs and people over the past 10-20 years has shifted to the south. Not the earthquake some would see but the silent losses of jobs escaping the SF Bay Area. My former employer AMD is no longer a Silicon valley Icon based in Sunnyvale, they are Austin based. But you wouldnt have heard that from the media.

ducsingle5313 says

A major plague or some other sort of disaster that wipes out a significant percentage of the human population would prove otherwise.

Good point, except with Bubbles Ben at the press, housing would be among the last to go down. And, with Obamacare at the helm, medical would be among the last to go down. Basically it's about re-arranging the deck chairs on the Titanic: people in these industries can see the bubble/debt/deficit situation is unsustainable, so they hire lobbyists to make sure that everyone else will drown before they do. It isn't about "the rich" so much as it's about the lobbyists, what used to be called the "special interests," protecting their own comparative advantage. It's a losing game, but a sinking ship illustrates the significance: a seat on a lifeboat is less comfortable than a first class cabin, but it beats the heck out of drowning.

BTW, regarding "affordability", that term conflates prices (artificially high) with interest rates (suppressed by Bubbles Ben's endless QE). The FIRE industries have achieved what they wanted: a basic necessity of life is "affordable" only when financed with debt.

dunnross says

CDon says

Thus, in 1980, the adherent to the "prices will revert to 1975 nominal prices" would then say...

Problem is that the K-cycle lasts for 85 years, not 5 and not 30, so you can't compare what's going to happen now, with what was in 1980s. That was a K-summer. Now it's K-winter.

K Winter? Are you still following the writings of that "spirit of truth" guy you quoted this spring (see post #31):

/?p=1209832&page=2#comments

As I noted at the time, that spirit of truth guy is likely insane. Once I pointed out (in addition to believing that we are in K Winter) that guy also said he had been receiving secret messages from Tom Brokaw in 1991 didnt that give you pause?

Later still, when the spirit of truth guy said that he believed he was the reincarnation of Jesus Christ - didnt you judgment tell you that perhaps this guy was not the best source of information about whether or not you should buy or wait for 1975 nominal prices?

You guys crack me up arguing about how nominal house prices relate to who is smarter than who.

I gave up on trying to understand affordability and value in nominal price terms a few years ago. What helps me to understand things better is "how many hours does one have to work to pay for" the thing.

thomaswong.1986 says

Not to mention out migration of jobs and people over the past 10-20 years has shifted to the south. Not the earthquake some would see but the silent losses of jobs escaping the SF Bay Area. My former employer AMD is no longer a Silicon valley Icon based in Sunnyvale, they are Austin based. But you wouldnt have heard that from the media.

It doesn't even matter anymore. Remember, for the pricing of homes in recent years it's all about counting on a Greater Fool (rich immigrant or Hipster from the East Coast or whatever) coming in later to prop up the prices. I would add, not just to buy but also to rent keeping the rents high, too. By self-selection now, we live in a region dominated by Fools.

Why you wanna waste your time and joules arguing with Fools?

Darrell In Phoenix says

B.A.C.A.H. says

I gave up on trying to understand affordability and value in nominal price terms a few years ago. What helps me to understand things better is "how many hours does one have to work to pay for" the thing.

The only way to understand pricing is construction costs.

I was speaking more broadly than just on the housing. Even things like eggs and cars, tuition and insurance premiums, etc.

B.A.C.A.H. says

Why you wanna waste your time and joules arguing with Fools?

Amazing. Best one-liner evah!

B.A.C.A.H. says

By self-selection now, we live in a region dominated by Fools.

yes.. we are and indeed is the best one liner...

Robertoaribas,

Do you ever worry about the temperature rising too much in Arizona to the point that it becomes uninhabitable?

I believe that this last DataQuick report coincides well with a top in a stock market. Election results drove all of the selling in the stock market and will affect CA housing market similarly.

Taxes going up on high income earners:
- 1-3% California income tax
- 3% - Obamacare surcharge
- 4% Federal tax rate or equivalent cut in deductions

The only thing that can offset it is interest rates on 10 years going below 1%.

robertoaribas says

dipstick, investors rent homes out... dunnross says

So, now that we all agree that investors are not very good at sustaining house price appreciation, we can finally agree that investors are very good at sustaining rental price depreciation.

B.A.C.A.H. says

how many hours does one have to work to pay fo

And since there is no wage growth, nominal prices and hours is the same graph. What you should be looking at is the price of house in oz of gold.

treatmentreport says

I believe that this last DataQuick report coincides well with a top in a stock market. Election results drove all of the selling in the stock market and will affect CA housing market similarly.

Taxes going up on high income earners:
- 1-3% California income tax
- 3% - Obamacare surcharge
- 4% Federal tax rate or equivalent cut in deductions

The only thing that can offset it is interest rates on 10 years going below 1%.

It is always interesting to watch and see what exactly triggers corrections, be they in the stock market or housing market. This may well be one of them.. Even as prices started to decline, there was plenty of denial until late 2009.. then the shit hit the fan.

denial and fools are plenty in the Ca. ... sobriety is rare.

Tiger says

Robertoaribas,

Do you ever worry about the temperature rising too much in Arizona to the point that it becomes uninhabitable?

Eh, thats what AC is for.

It seems to me that the same groups of people have been insisting that things will just keep getting worse for at least the last 5 years or so that I've been using this site.

I bought a house 3 years ago against the advice of this forum. I borrowed $440,000 at 5.5% interest to buy a home priced at $550,000.

Last year I threw in some cash (because what the hell else was I going to invest in?) and refinanced to $417,000 at 4%, cutting my payment by 20%.

I'm now considering selling my current place to build my dream home. The house was appraised at $585k, which is more or less what the guy down the street sold his house for over the summer, and he had a smaller house that needed new carpet.

Renting an identical house here would cost more than what i'm paying for mortgage + tax, and I wouldn't be able to deduct that from my taxes.

If I had listened to all the doom-saying on this forum, I would have continued renting a place that was entirely too small and expensive for my family. While I will most likely merely break even equity wise on the place, by my estimate I've saved $30-40k over the period compared to renting.

Basically this place has just become filled with people who will insist that it is never a good time to buy housing and it's always an awful thing to spend your money on.

I'm going to go blow a million bucks on a new, custom built, modern 4000 sqft home on a huge piece of land surrounded by streams and forest.

I'll check back in 3 years and we can swap notes.

Darrell In Phoenix says

Kevin says

The house was appraised at $585k,

LMAO. Who cares what the realtors say its "worth"?

You couldn't find a buyer for a fraction of what you paid. You got suckered. Like everyone else who listed to the used house salesmen

What kind of moron bases appraisals on realtors? You must gave never bought or sold a home. You hire professional appraisers for this. No bank would accept anything else.

I have two neighbors who have sold within the last year. Both are smaller houses with worse finishes and both sold for the same range as what I'm selling for.

How have your financial decisions worked out in the last 5 years?

Kevin says

Renting an identical house here would cost more than what i'm paying for mortgage + tax, and I wouldn't be able to deduct that from my taxes.

If I had listened to all the doom-saying on this forum, I would have continued renting a place that was entirely too small and expensive for my family. While I will most likely merely break even equity wise on the place, by my estimate I've saved $30-40k over the period compared to renting.

Where do you live?

Agreed there is a fair bit of doom-saying on the forum. But I think a lot of those folks live in areas where house prices are very questionable relative to fundamentals. For example, in many cities in the core SF Bay Area. The outcome of the rent vs. buy equation varies substantially depending on the locale, so there is no right answer for everyone.

ducsingle5313 says

Where do you live?

Agreed there is a fair bit of doom-saying on the forum. But I think a lot of those folks live in areas where house prices are very questionable relative to fundamentals. For example, in many cities in the core SF Bay Area. The outcome of the rent vs. buy equation varies substantially depending on the locale, so there is no right answer for everyone.

I live in the puget sound area. Housing is expensive here, as in any coastal region, but much cheaper than, say, NYC or SF.

I used to live in the bay area. I heard all the time about how nobody could afford to buy there and thus the prices were going to come crashing down, but that never happened either. That's why I moved up here. Back in 2005 I waited. If I had waited until now the result would be that houses were 10% more expensive in the areas I wanted to live.

The Bay Area is a weird place. People are willing to spend 60%+ percent of their income on housing. I knew a guy who made less than $8k a month and had a $5k mortgage. They're all on interest-only mortgages anyway, so the drop in interest rates over the past 5 years only made housing less expensive for them.

A big part of the problem there are all the chinese and indian immigrants who are culturally pressured to buy an expensive home. They have few to no kids. They're probably making terrible decisions, but they think that's what they're supposed to do. So they go out and spend two thirds of their income on a house and never take vacations.

The only real fix for the bay area is going to be either relaxation of the ridiculous building restrictions that make the place look like one giant housing tract, or by reducing the number of high paying tech jobs.

Renting is definitely more sensible than buying in the bay area, I'll grant that. It's one of the few places where that actually holds though.

bmwman91 says

So the real answer to finding affordable housing is to:
a) Make a lot more money
b) Get the hell out of the SFBA

More and more companies are making (b) possible by moving tech jobs to other locales. Software is still growing in SV, but mostly the core project management groups with the worker bees distributed around other states and/or countries. Most of the hardware companies seem to be reducing or flatlining their SV staffing levels.