patrick.net

We recently went through the biggest housing bubble ever witnessed in America, so expect some people to be a bit jaded about housing. I couldn't afford to buy a house outright here, but I could easily get a loan and afford a mortgage. I won't because I don't like to leverage, although I see how some people have made it work wonders for them, it is also a huge gamble that you can lose your shirt on if the market flips. I am happy doing things my way and have no problems with housing bulls.

ducsingle5313 says

This isn't intended as a snarky response - - - isn't there an "ignore" feature that could filter those folks?

Yes, and I use it judiciously...A lot of the folks that I'm referring to, though, have input that is worthwhile sometimes, so I don't really want to ban them. I guess at the end of the day I'm just bitching.

Call it Crazy says

New Renter says

I agree its nice having money in the bank - except knowing the purchasing power of that money is evaporating.

True... but the question is, is better to watch it "evaporate" 10% per year sitting in a house, or have it sit in the bank earning basically nothing. Or, take even a bigger gamble and stick it in the casino known as the stock market and take your chances...

Life's about decisions and I can afford to sit on the sidelines until the right deal comes around.

Good question. At least in a bank you don't need to pay a few percent each time you make a withdrawal or deposit. Not yet anyway.

swebb says

complaining about how the prices are high because so many people are making irrational decisions (overpaying for a house)

If the majority are happy to "overpay" for a house, does that make it irrational, or does that just make it "the market"? In this way, it's not overpaying at all.

We said eff it. We are happy to rent and save and GTFO of LA in a couple years. Put up or shut up, folks.

Yeah, the market, sure. But it relies on the assumption that the market will continue as is. Between the lackluster economy, falling wages, and cohorts of Baby Boomers readying to retire, not sure this will be the market in 5 to 10 years.

And, oh, does everyone believe 30 year mortgage interest rates will stay at current levels forever?

Because something tells me that even a modest 1% increase of the rates crushes the "market"... unless there is a corresponding wage inflation across the board to compensate for the higher debt servicing costs.

Anyhow, there are places where buying makes sense despite the risks. There are places where the risk is too high.

Hmmm. Phoenix is up, the whole country is out of the hole?

ducsingle5313 says

It is frustrating for folks in the Bay Area who got the right degree(s) from the right schools and work for a prestigious tech firm - - - only to have a substantially lower standard of living than their slacker high school buddies with 2 year associates degrees who have ho-hum jobs in flyover states.

when i started to work in Tech firms 30 years ago.. there was NO such thing as ...
1) right degree
2) right school
3) prestigious tech firm

we all knew it could easy turn and end .. as many actually did!

that is the reason we have a bubble today.. and not in prior decades...
it was a gamble ... too risky.. as its risky today, but new people
working in SV think there is no risk..

Call it Crazy says

Otherwise he stands to lose his shirt if Phoenix heads back to where it was a year or two ago...

I doubt that. IT's only a question of how comfortable he is. He would still be fine with the rental income. Rents aren't going to drop a lot.

E-man says

I don't know about your neck of the woods. Here in San Jose, I see people keep comparing apple to orange. They compare renting a 2 or 3 bedrooms condo/apartment to the cost of owning a house. When I run the numbers using what I call the "right" formula, people would be like "WOW."

I am definitely comparing apples to oranges. I wouldn't buy a place as small as the place we rent. No way> No how. what it the point?

E-man says

ran the numbers and bought 5 rentals in San Jose in 2009. My friends and some of wife's family members said I would lose my shirt at that time.

I started seriously considering buying rentals, but I was too slow. I will be better prepared next time around anyway. I continue to save the money I am not spending on a house.

I like your arrangement with your family. I would love to be the landlord mommy in my family instead of the worker bee that I am.

Well, I own my home in western MA, one hour from Rte 495. For MA, it's affordable.

I refuse to live into metro Boston, with those $650K to $850K homes, in overrated school districts which cannot guarantee one's kids admissions to a northeast Ivy League college or a near full scholarship to a southern school, like Emory, or Vanderbilt.

You see, that's been the lure for many of my friends and colleagues. They seem to think that these elite Boston suburbs have some direct pipeline to Yale or Harvard admissions when they don't. Pretty much, if your family isn't alumni (or an important donor), it's a crap shoot, whether you live in a posh Boston suburb or some rural town in upstate NY.

Well, I live in metro Boston in one of the "elite" suburbs :) But I rent cheap. I wish there was a $650K home I'd like, I'd perhaps even buy.

And while I certainly do not think the schools here are top-tier college "feeders", I am rather pleased with the quality of the education and the school's environment, which I think matters, regardless of where the kids end up going to college. By the way, not all of these elite towns are equal in terms of schools, either.

swebb says

How many bears could actually afford a house in their market..

E-man says

Here in the Bay Area, the folks that cannot afford Palo Alto would have to settle for Mountain View. Cannot afford Mountain View? Well, you'd have to buy in Sunnyvale, Santa Clara or San Jose.

Of course, there will be bitterness with the folks that got priced out of their preferred neighborhoods.

lets go up the "$$ income supply chain" where the money to spend for these homes comes from... what do the employers you pay the incomes say to all these prices...

no bitterness or anger needed..... just the invisible hand at it again. No wonder we keep losing jobs in Silicon Valley.. but you sure done hear complaints from people who inherit our jobs be they in North West, SouthWest, or Overseas... yes all SV tech workers not paying SV home prices...

ON THE RECORD / CARL GUARDINO

You mentioned housing. It probably is the top concern we hear about in Silicon Valley from both CEOs and employees in terms of local issues. Does that have an impact? Let me put a finer point on it.

Hewlett-Packard and Dell are the top two computer-makers in the world. Corporate headquarters for HP are located in Palo Alto and Dell is in Round Rock, Texas. Obviously, they both have people and facilities around the globe.

In those two communities where their corporate headquarters are and where a lot of research and development takes place, the median resale price for a home in Palo Alto is about $1.6 million. In Round Rock, Texas, it's about $180,000, except the home and property are bigger.

We hear from HP all the time that a huge deterrent to the ability to recruit and retain people anywhere near Silicon Valley is the housing issue. We don't hear that from Dell, which is also a member company, about their operations in Round Rock. It does continue to plague us and we will continue to sound the alarm.

Read more: http://www.sfgate.com/business/ontherecord/article/ON-THE-RECORD-CARL-GUARDINO-2574540.php#ixzz2Lmh5OBIb

thomaswong.1986 says

when i started to work in Tech firms 30 years ago.. there was NO such thing as ...

1) right degree

2) right school

3) prestigious tech firm

we all knew it could easy turn and end .. as many actually did!

Very good point!

IMHO, the so-called "right degree" "right school" "prestigious tech firm" that do not pay historic return are actually the exact wrong ones: they were right once upon a time according then supply and demand, which was drastically different from today's.

it was then and still today all about being at the right place the right time...by Accident.

thomaswong.1986 says

when i started to work in Tech firms 30 years ago.. there was NO such thing as ...

1) right degree

2) right school

3) prestigious tech firm

You don't think an engineering degree from MIT, Stanford, Berkeley, or Cal Tech made a difference in career prospects? You don't think IBM or HP were considered prestige tech firms?

You must have been doing a lot of blow in the early 80's.

Rin says

They seem to think that these elite Boston suburbs have some direct pipeline to Yale or Harvard admissions when they don't. Pretty much, if your family isn't alumni (or an important donor), it's a crap shoot, whether you live in a posh Boston suburb or some rural town in upstate NY.

Admissions into a highly selective university is always a crap shoot. And a tiny bit of research on legacy admissions would show you that your statement above is way off base.

ducsingle5313 says

Rin says

They seem to think that these elite Boston suburbs have some direct pipeline to Yale or Harvard admissions when they don't. Pretty much, if your family isn't alumni (or an important donor), it's a crap shoot, whether you live in a posh Boston suburb or some rural town in upstate NY.

Admissions into a highly selective university is always a crap shoot. And a tiny bit of research on legacy admissions would show you that your statement above is way off base.

Yes, but that's a part of the point. Legacy [family members being alumni] admissions is the reason why some people point to Boston suburb 'A', as a big feeder to Harvard/Yale/Pton but forget to mention that the parents had also gone there as well.

Thus, you have folks who spend a fortune to move to suburb A, but then find that their kids don't gain admissions to the Ivies, 10 years later, but then, as a result of the fact that everyone there does the same exact thing, are not high enough in class ranking, to win that scholarship to a Vanderbilt or Rice, since those places basically give money to only top 1-5 of any high school.

Therefore, it's better if that kid went to some HS in upstate NY, graduated in the top 5, and found himself with some money to attend Vandy on a 70-100% scholarship.

lostand confused says

What do you mean by afford-the monthly payment or the whole enchiliada??

The whole enchilada. I have money for a down payment and can afford the monthly payments. I would never buy a house based on the payment alone. If you are asking if I can pay cash for the whole thing, then no. But I am a 20% down buyer. I would like a 15 year mortgage better than a 30 year. That might be a stretch on a 600K house. 30 year? No problem.

The thing is that I don't think is make sense to buy in this market. I will wait for this current mini-bubble to deflate and then likely buy at least a rental property. If I rent and save forever, I don't consider that a terrible turn of events.

What's the secret for getting deals below FMV? :)

Call it Crazy says

unclemat says

What's the secret for getting deals below FMV? :)

Sleep with the realtor....

Bribes

donjumpsuit says

If homes were priced in the region where 25-50% of primary owners could buy them without a loan, then that would be healthy. Instead only the 1% can outright buy, and they are doing so, to loan the shelter to others. This more or less sounds like a payday lender.

I don't think it's reasonable to expect 25-50% of the population to be able to buy in cash. Even if the land were free, the cost of construction will be prohibitive for most people. For 25-50% of the people to be able to afford to buy in cash, new homes would have to be be dramatically downsized and downgraded...

The comparison to payday lenders is ridiculous.

Rin says

Thus, you have folks who spend a fortune to move to suburb A, but then find that their kids don't gain admissions to the Ivies, 10 years later, but then, as a result of the fact that everyone there does the same exact thing, are not high enough in class ranking, to win that scholarship to a Vanderbilt or Rice, since those places basically give money to only top 1-5 of any high school.

Therefore, it's better if that kid went to some HS in upstate NY, graduated in the top 5, and found himself with some money to attend Vandy on a 70-100% scholarship.

Most top universities only offer *need based* scholarships. They don't have any problem filling their freshman class with top students whose parents are willing and able to pay full tuition. And a family that can afford to live in an affluent suburb probably isn't going to qualify for a need based scholarship. Some schools might offer token scholarships for National Merit Finalists, etc., but the $$$ is so low it's essentially beer money.

It is, however, easier for students from less populous states and/or rural areas to gain admission to elite universities. For example, if MIT receives applications from two equivalent students from North Dakota and California, the North Dakota applicant has a significant edge over the California applicant.

ducsingle5313 says

You don't think an engineering degree from MIT, Stanford, Berkeley, or Cal Tech made a difference in career prospects? You don't think IBM or HP were considered prestige tech firms?

You must have been doing a lot of blow in the early 80's.

IBM collapsed by 1991.. along with the mainframe business DEC Sperry and others... HP which was a great company focused more along the lines of measuring equipment (agilent), mainframes, and mini-computers... frankly HP died by 1999-2000.

But there were others who did far better .. like Sun or Tandem or ASK systems. Names all lost.. Many of these found it hard to recruit so have some classes without a full degree got you in... The point is back in 1970s and 80s what these companies were doing ... wasnt being taught in your Universities... and frankly there was a shortage... so having some classes actually got you in... after all some founders never had a degree either.

at what point did Cisco (Founded in 1984) become a prestigious tech company..or Intel.. by the time many heard of Cisco or Intel.. the original employees already had established them self far higher than most recent grads.

E-man says

You sound bitter in some of your posts. Could it be the right schools and right degrees didn't get you what you want in life? Could it be your "right" attitude that leaves you single till now? Look at the dude in the mirror. He's the problem, not others.

Nope, I'm pretty happy with my life. Maybe you misinterpreted my earlier posts because English is a second language for you. And it's pretty weird that you seem to have done a search of my earlier posts in other threads before you responded to this. I must have struck a nerve.

Please continue with your FOBy posts. It's entertaining to see someone brag thinking it will garner them more respect when actually the opposite is true.

Rin says

Yes, but that's a part of the point. Legacy [family members being alumni] admissions is the reason why some people point to Boston suburb 'A', as a big feeder to Harvard/Yale/Pton but forget to mention that the parents had also gone there as well.

being from Boston or being a legacy.. carried no weight around Silicon valley.. we did things
different around here.

unclemat says

What's the secret for getting deals below FMV? :)

people who know how to bargin.. understand that "asking" is the top of the range and your "offer" will be far far below... therefore actual final deal is set btw those two points. So no many dont overbid or overpay... of course realtors and sellers will state there are other offers.. so you stick to your guns or walk.

And if your really sharp.. you already realize that prices over the long run go up only at rate of inflation.

swebb says

It has occurred to me (many times) that the super-negative bears are probably just not able to afford the house they want in the market they live in.

I think someone must have just bought a house. It has occurred to me (many times) that one of the first articles of post-purchase rationalization is for a new mortgagor to vent spleen on the market skeptics.

Never-mind bears v bulls. It more often seems to me it's a case of skeptics v the credulous. Who will win?

Let's go back to TW's original post:

thomaswong.1986 says

when i started to work in Tech firms 30 years ago.. there was NO such thing as ...

1) right degree

2) right school

3) prestigious tech firm

Followed by:

thomaswong.1986 says

The point is back in 1970s and 80s what these companies were doing ... wasnt being taught in your Universities... and frankly there was a shortage... so having some classes actually got you in... after all some founders never had a degree either.

Time for a little technology company founder history lesson:

IBM: Herman Hollerith (PhD from Columbia), going back kind of far
DEC: Kenneth Olsen (BS, MS MIT + MIT Lincoln Labs)
Sperry: Elmer Sperry (Cornell)
HP: Bill Hewlett and Dave Packard (Stanford)
Sun: Vinod Khosla, Andy Bechtolsheim, and Scott McNealy (Stanford)
Tandem: Jimmy Treybig (Rice)

I think Stanford receives almost 40k applications and sends out about 2500 offers with about 2000 offers accepted. The reason many technology companies recruit from highly selective schools is because the admissions committees have pretty much ensured that most of the grads are pretty smart. They could probably hire somebody just as smart from a second-tier school, but if would take more effort to sift through the chaff, and HR folks are a fairly lazy lot.

With a few exceptions for really fundamental research, universities have lagged behind commercial companies in R&D for the past century. So that's not exactly news.

ducsingle5313 says

Most top universities only offer *need based* scholarships.

I should have said, "Other than certain targeted minority groups, most top universities only offer need based scholarships."

Really smart Native American or African American students probably get money thrown at them by top universities, even if their parents are millionaires.

ducsingle5313 - there was no way to pick winners and losers
based on their educational background or prestige of their schools..
it was all a crap shot. As far as hirings, you got what you can get.

Your picking founders which is meaningless..
i was referring to staffers and mid level managers the hundreds of thousands of workers.
at best many in SV like myself came from SJSU, Chico, Fresno State and SCU.
Even today, SJSU workers outnumber the pedigree which are rare.

a far cry from so called media stories which is nonsense.

It should also be noted that in almost each and every one of those high tech entreprenuerial success stories, the founder was the rebel in that field, not only not following the foot steps of the "proven success path" but actually doing the exact thing to bury the previous "proven success path," e.g.:

DEC's Mini Computers displaced IBM Main Frame + Terminals in the business computing world

SUN's RISC processors displaced DEC's CISC processors for workstations.

"Creative destruction" is why American style market capitalism can sustain high productivity growth over the long run.

i'm a bear.
i could pay cash.
i don't because i'm cheap.

i also contend people that leverage themselves with only 3.5% down to buy a house, without sufficient savings for a rainy day, retirement and their kid's education are morons.

Fair Question.

I am a housing bear. Yes, currently the housing market is seeing a rebound nationwide. But I see how the cost of housing is still expensive relative to incomes. I see how there has been unprecedented market distortion due to the federal government and federal reserve in proping up housing values.

I already own a house (almost paid off). I could easily buy a second large house with a sizeable down payment. I will not do so until there are interest rates and home values are near historical norms. I just hate groupthink and economic cheerleading. That's my motivation.

thomaswong.1986 says

ducsingle5313 - there was no way to pick winners and losers

based on their educational background or prestige of their schools..

it was all a crap shot. As far as hirings, you got what you can get.

Your picking founders which is meaningless..

i was referring to staffers and mid level managers the hundreds of thousands of workers.

at best many in SV like myself came from SJSU, Chico, Fresno State and SCU.

Even today, SJSU workers outnumber the pedigree which are rare.

a far cry from so called media stories which is nonsense.

To both Thomas & Ducsingle5313, your assumptions about schools are a bit off the mark. Historically speaking, tech companies, not just Silicon Valley but the national spectrum: GE, Eli Lilly, DuPont, Allied Signal, Westinghouse, etc, have a national dragnet of recruiting from many schools, provided that the students have internships/CO-OPs, and a proper GPA with a junior/senior research project.

Now, with the above stated, this is where recruiting diverges... outside of tech, which is a reasonably flat field, areas like management consulting and investment banking are about elitism and go out of their way to exclude normal graduates. Thus, while GE gathers resumes from let's say Univ of Illinois (Chicago or Urbana), Univ of Conn, Univ of Kentucky, etc, a private equity firm like Lazard will almost never recruit from below the brand name level of a Univ of Michigan/Ann Arbor campus, regardless of the student's talent level. The reason for that is to keep the field, a clubhouse. Yes, they see Georgetown as *better* than a school like Michigan with top academic depts because it's private and has a cachet "political" DC name. For them, Georgetown is the political offspring of the Princeton-to-Harvard crowd.

Thus, some of the folks who later attempt careers in finance but started in a regular engineering school, like Rochester, attempt to find the easiest tech Masters dept at a Columbia or Univ of Penn, where they'd already done that level of work in prior undergrad studies. This way, they can join the recruiting activities of a Lazard, McKinsey, Goldman, etc, during student and alumni gatherings. In other words, it has little to do with real education. It's more an (alumni) ring knockers effect.

Rin says

To both Thomas & Ducsingle5313, your assumptions about schools are a bit off the mark. Historically speaking, tech companies, not just Silicon Valley but the national spectrum: GE, Eli Lilly, DuPont, Allied Signal, Westinghouse, etc, have a national dragnet of recruiting from many schools, provided that the students have internships/CO-OPs, and a proper GPA with a junior/senior research project.

No disagreement here. I did not intend my earlier posts to say that tech companies recruit exclusively from top tier schools, and obviously that's not the case. However, engineering graduates from Cal, Stanford, MIT, etc. generally have an edge over graduates from other universities - - - which is why parents want their kids to attend those schools. This is especially true for new college graduate hires.

And none of this should be interpreted as meaning everyone who graduates from top tier schools is smarter than everyone who graduates from second tier and lower schools.

unclemat says

What's the secret for getting deals below FMV? :)

Courthouse steps - 75% to 80% FMV all day long. It's happening 5 days a week, every week. You do this when you have the cash, and you know what you're doing.

Pending short sales that fell through - you must have a relationship with these realtors. Do what you say you will do, and you will get a first shot at it. Only 40% of all short sales actually close, and 25% of those closed are with the original buyer. Just to put things in perspective on short sales. Most of my deals are short sale that fell through. Just closed on a short sale that was in limbo for over 2.5 years. Got a great price for that reason.

Direct marketing - we sent out 800 letters and got one deal. It's closing in 10 days. You don't get a good deal with this method. You do this when you don't have enough cash to buy at the steps. This works well when you're in an appreciating market. The comps told you what happened, not what is currently happening and will likely happen in the near future. The data from the courthouse steps give you an indication of where the market is likely headed in the next 6 months. Owner is happy that he doesn't have to pay a commission. We don't have to compete and over-pay for the property. Win-win for both.

Bears aren't interested in houses. They're too busy eating hunny!

Call it Crazy says

unclemat says

What's the secret for getting deals below FMV? :)

Sleep with the realtor....

You got it all wrong. You don't sleep with them. You have them sleep with you. Then you offer a below market value because you're not happy with their performance. The ones you're happy with, you thank them, but you're not willing to engage in a competitive bidding. :)

SFace says

I'm afraid the competiveness is being applied in non-law fields across business.

Well, here's the story ... post-graduation placement from law school means top 15 (Harvard to Univ of Virginia), management consulting & investment banking parachutes mean top 15 B-school (Harvard to Northwestern). Outsiders, attempting to break into MC/IB ... go through a less subscribed to, Masters in Applied Statistics (or similar sideshow, less exciting dept) from Penn or one of the quantitative distance programs at London Univ, piggybacking off the reputation of LSE. Usually, these outsiders tend to have the most intellectual merit, as they need to get A's/A+'s as special students, without the help of alumni pulling 'em up by a cohort effect.

Now, once that's covered, the next tier of careers are a bit different; here you have engineers from what seems to be ordinary places, Univ of Rochester, but then, after 4 years on the job, the trajectory for management is still the same, top tier B-school like Columbia, followed by recruitment from a GE or a United Technologies in a Jr VP "Fast Track" program.