patrick.net

Good advice. But to clarify... the house I was looking at is a short sale. I noticed on the tax roll that the assessed value last year dropped to $129,000. They are asking in the short sale for $94,000. Do you think the banks are already taking into account the drop in value that is coming?

Is the 40% drop in value the worst of what will happen? Or that is just this year alone and we will be seeing more drops in value in coming years?

And I was thinking 5 years, but I would not mind being in that area I found for longer... I thought I could always rent it out too in case I need to move. Not sure if renting it out will be worth it at that time.

Wow - patrick, a side of you we never knew!

edited response: I wrote this in response to a spam ad for sex-related material. But since he removed it, I retract my observation.... :) sorry!

Not a side of me. Sex spam deleted. Those guys are like cockroaches.

Socialism is not freedom.

andrew.lieberman says

Socialism is not freedom.

And pertinence is everything.

Socialism is not freedom.

Au contraire, mon frère.

Socialism provides liberty of action by leveling the playing field between the haves and have nots. Without socialism, "all the freedom you can afford, but not one drop more" obtains.

It can go overboard, but when done right (eg Canada, the Eurosocialists, Australia, NZ, Singapore, Japan to some extent) the real-world results speak for themselves.

Any unregulated economy is just a money pump that sucks wealth from the weak to the strong in a self-reinforcing closed feedback loop.

In such an economy there's generally opportunity at the margin to escape the rat-race through entrepreneurial effort, but overall the great bulk of jobs are uncreative and soul-killing. Socialism just recognizes that in a modern economy somebody's got to pick up the trash, drive the buses, clean the toilets, front the storeshelves, and do the millions of other shit jobs that need to be done. These shit jobs have low skill levels and so are fungible and the people stuck in them lack bargaining power, but socialism obviates this dire state of affairs by attempting to provide subsidized social services -- health, education, transportation, recreation -- that the toiling masses would normally lose access to as they become increasingly peonized by predatory capitalism.

Few jobs outside the rat-race are really wealth-creating. Most are just naked rentierism, parasitical intermediary activities like real estate agents, mortgage brokers, landlording, resource extraction. A good example of socialism that kills two birds with one stone in this area might be Norway, with their oil-funded Pension Fund, but I haven't been there so I don't really know. But I do think they've got their act together better than the US.

National Socialist Party... that's socialism.

Bernanke is caught in a trap. He CANNOT raise interest rates as it would destroy the only certain money-maker the big banks have right now. Borrowing at nearly zero and using it to buy Treasuries or similar lame "money-printing" schemes is what is keeping their leaky boats afloat. All jawboning about raising rates, is just whistling past the graveyard. I would expect this "we might raise rates next cycle" to repeat for at least 3 more years, possibly as much as 5.

Heck, he can't lower them either! So the Fed is completely impotent, except for the possibility of helicopter drops of cash.

This next crash in the stock and housing markets will be interesting, because there's nowhere for interest rates to go. Looks like the stock market is crashing at this very moment, down >2% today.

Patrick,

I think it would be a very good idea to see where the NAR and CAR are putting their political money. Who is getting their lobby money for this next Nov. Can you get that info? Do you think it would be important for voters, specificly PatNet voters, to know? I know it would matter in my vote.

I've heard that the NAR and CAR contribute to everyone to make sure everyone owes them something. But it would definitely be interesting to see exactly where the money goes. There are laws about recording contributions, but I think they're pretty weak.

Anyone know how to get data on which politicians have been bribed the most by realtors?

I think you're right Patrick, it seems about 50/50 bribing to both parties:

http://www.opensecrets.org/industries/indus.php?ind=F10++&goButt2.x=7&goButt2.y=8

Click on the "Recipients" tab from that site to see who is receiving the most RE bribes.

It is slightly higher in recent years to Dems. They probably bribe the party in charge a bit more, but they definitely spread the obligation around.

andrewl570 says

National Socialist Party… that’s socialism.

No, that's fascism. It's an entirely different political philosophy. Why don't you look it up in the dictionary or in a history book? You may also want to look up another word, "propaganda." Then you might understand why that particular fascist party wanted to try to come across as "socialist" when in point of fact, they were fascists.

NSDAP shipped the real socialists in Germany to the KZs in the mid-30s. That's what the KZ system was originally established for.

Red triangle—communists, trade unionists, liberals, social democrats, Freemasons, anarchists.

Paying high interest rates is not smart money. The "haves" own real estate, and the "have nots" often pay for it. I'll bet Patrick owns his property.....buy smart and quit paying rent/ someone elses mortgage

You must be kidding! I absolutely do not own the place I live in. I let my landlord take the loss while I enjoy the property.

At this point, the "have nots" are usually the ones who "own" property, because they paid too much. Price is everything.

It's all about comparing the cost of owning vs the cost of renting. Prices are still WAY too high in the SF area, so it makes much more sense to rent. Far cheaper, and you can live in the same location and same quality place.

Recovery 101 – Have we seen much bang for the bucks spent in expectation of stimulating the US economy? The answer is No!
The only solution to really get the economy going and create jobs is to offer a residential mortgage interest tax credit, governed by the same higher income phase out rules as the current mortgage interest tax deduction. A credit rather than just a deduction will cause money to pour into the US housing market and create jobs for real economic growth. The cost to taxpayers for such a program would be far less than the already spent stimulus money and spur the US economy enough to pay for itself. Without such a solution, we may continue to stagnate as we have for the last year and a half.

Henkel7 says

A credit rather than just a deduction will cause money to pour into the US housing market and create jobs for real economic growth

Housing is consumption not production. The housing expense comes out of our producer surplus, and is significant, around 20% of GDP.

The actual reality we face is that the US needs to make more stuff that we trade to pay our way in the world, and producing bigger houses to park our fat asses in is not the answer here.

If we were serious about the nuts & bolts of our economy -- and not just mouthing meaningless mumbo jumbo about "real economic growth" like some retarded Cargo Cult natives expecting the return of their John Frum -- we'd start focusing our tax system on collecting actual rents, both the economic rents of corporate profits, and the ground rents of our cities.

I've mentioned here the efficacy of changing the tax deduction to a tax credit in preserving what housing valuation we still have from the bubble times, but this goal of preserving housing value is exactly similar to the desire to preserve high energy costs, and it's something I've said in fear not hope, since we should be trying to push housing costs lower, not higher.

Troy says

exactly similar to the desire to preserve high energy costs

It's somewhat different. I advocate higher energy costs, at least for gas, by raising the tax on it, to incentivize development of other sources and technologies. Otherwise we will wait too long for that development, and use up this cheap source first (disregarding true cost).

Also, people need more incentive to build and drive more fuel efficient vehicles.

In the case of fuel, it can be argued that a higher cost now prevents a higher cost later. I don't see that as the case with housing, although in the short run it is.

^ good point, given the long-run supply and ecological issues of the current hydrocarbon economy.

Pat,

I am currently underwater in my house. I have an FHA loan. I want to take advantage of the low interest rates. What do you know about the FHA streamline. Is it a good idea?

Thanks

Mike in MD.

myoute1 says

Pat,
I am currently underwater in my house. I have an FHA loan. I want to take advantage of the low interest rates. What do you know about the FHA streamline. Is it a good idea?
Thanks
Mike in MD.

I did a conventional loan streamline re-fi a few months ago with the current mortgage holder of one of my rental properties (have about 200K equity in the property...no cash out) and it was nothing more than a few pages of paper and no appraisal which was very simple and very smooth. I told my neighbor about this a week ago because she has a mortgage with the same company and they told her on Monday that the underwriters are no longer doing streamline refinance loans. I guess I was lucky to get in under the wire on that one, although it might be different from mortgage company to mortgage company so you're company may be doing them.....but I would think it's difficult if not impossible if you're underwater.

Mortgages should automatically re-fi every goddamn basis point down. : )

shrekgrinch says

Yeah, right. The millions of jobs created under Reagan just magically appeared by happenstance then.

Prime rate hit 20.5% in december of 1980. Long bonds hit 14%.

YES OVER TWENTY PERCENT !!! LONG BONDS AT 14% !!!

This was engineered by Volker (Carter's appointee) to kill inflation.

When rates came down HARD AND FAST, allowing businesses to finance again, of course things boomed. We can not have any idea how much Reagan's terrible fiscal policies, increasing defense spending while cutting taxes hampered this boom. But attributing the boom to Reagan policies is nothing more than your foolish religious dogma.

I will admit that Reagan's image and communication skills were a plus. And that whole "don't worry, be happy" thing was much more fun than Carter's malaise.

The millions of jobs created under Reagan just magically appeared by happenstance then

The baby boom in 1980 was aged 18 to 34. Quite a "surge" was in place to happen. This too was part of the "happenstance". Along with the interest rate drop:

and the trillion dollar deficit of 1980 becoming three trillion at the end of his administration.

Troy says

The baby boom in 1980 was aged 18 to 34. Quite a “surge” was in place to happen.

Yes. I have often thought that the pain of the seventies was in part due to absorbing the baby boom into the economy, along with all the women that were starting to work. By the early eighties, when interest rates cam down, we were poised for a stunning increase in household incomes (now coming out of the recession(s) with two wage earner families).

Note: To students working on PHDs in economics, please feel free to elaborate on this. Just a little gift from me to you. Were things overstimulated to absorb the baby boomers and the women into the economy? And then the resulting inflation was too much, having to be killed by taking short term rates up, until long rates (inflation expectations) finally stopped going up ?

I'm sure if it's true, it wouldn't be a breakthrough. But seems like an interesting period for research.

Hi Patrick,

I stumbled on your site last night while doing a google search for "are housing prices still dropping?". I recently placed a bid for a single family house and was searching for more info to see if I should acquiesce an additional 5,000 to meet the owner's price. After reading some of the enlightening info on your site, I think I will hold firm at my offer.

I do have a question about your fundamental premise: that the value of a house is directly related to its rental potential. In NY, at least, there is a dichotomy between rental properties and live-in properties. Rentals in NY are typically designed for that purpose: converted one family houses that hold multiple families, or a house that is designed from the ground up to be a rental. These properties designed to be rentals will sell for notably less per square foot than a comparable single family house, though you may receive even more in rent from the house that holds multiple families.

I think there is a common belief (erroneous or not) that, all things being equal, owning your own home is worth the extra cost.

PS- if you are a baseball fan, congratulations!

AndyW says

. In NY, at least, there is a dichotomy between rental properties and live-in properties. Rentals in NY are typically designed for that purpose: converted one family houses that hold multiple families, or a house that is designed from the ground up to be a rental.

I'm talking about the difference in the exact same house. What would that particular house on that spot with the same exact quality rent for?

So it's on the top and the bottom of the ratio, and it cancels out. All that is left is whether you're spending more or less money for the exact same thing.

So places designed to be rentals may be lower quality, but that doesn't affect the calculation at all. Rent will be lower, and price should be lower too.

Same with the number of families or people. A place that holds multiple families may get higher rent, but it will also get a higher price because of that rent potential. It also drops out of the ratio.

So for you personally, the only question is this: which will cost me more, to buy or to rent this exact same quality and size place?

AndyW says

In NY, at least, there is a dichotomy between rental properties and live-in properties. Rentals in NY are typically designed for that purpose: converted one family houses that hold multiple families, or a house that is designed from the ground up to be a rental. These properties designed to be rentals will sell for notably less per square foot than a comparable single family house, though you may receive even more in rent from the house that holds multiple families.

I don't know where you are looking at Andy, but there really aren't one family homes that are 'designed from the ground up' to be a rental. Single family houses are simply SF homes, designs and the building codes used to construct them don't distinguish if they are for rent or not.

But, if the houses you are looking at are SF and have been illegally converted into multiple dwellings, or a basement apartment has been added to or pick up some under the table cash, then the owner can't (or, should not be able to) sell it as is without a zoning change. Good luck with that in the vast majority of homes in the metro NY area. The appliances and materials typically used to convert the illegal dwellings are Home Depot clearance specials, so they may not be terrific; electrical systems are often incorrect and under capacity. In the NY area, you are probably looking at are houses without C of O's for all units and the building endures hard wear and tear. Is what it is, but makes sense that is why the lower price.

Thoroughly check the C of O and legal status, and violation history of the home before you buy it.

I was telling my husband about this site last night. He asked me what Patick's day job was. I was thinking I had read that you were a software engineer somewhere. I started reading this post to see if you had said what you did. I realized that in the middle of the post there was a huge diversion into a mean arguement about parenting. It is really weird to me where these threads wander off to find themselves. Really, a mean parenting snipefest? No offense intended, but that made no sense!

Hi Patrick,

I was wondering if you could divulge which are 'the areas' where you feel housing prices have come down appropriately (as mentioned in the beginning of your latest blog entry).

I was speaking to a loan officer a few weeks ago who said he recently bought a town-house in stamford, CT. I asked how he felt about the local housing market, and he was confident that prices would dip a little but would remain stable. His reasoning was that NYC would always have large volumes of jobs and thus, there would always be a demand for houses in the area.

Do you feel that housing prices in different metropolitan areas will have different trajectories for 2011, and is it possible that neighborhoods around NYC have stabilized?

-Andy

Nomograph says

Disclaimer: Please consult your physician before shoving any medicine up your ass.

Nomo:
From what I've read, I understand that you are a physician. Obviously, the disclaimer that you've written (above) was free medical advice. So I'd like to ask for more free advice, since you seem in the mood and I'm fucking snowed in and can't even get any teevee and have no movies that I haven't seen a million times and if my dog brings me a ball to throw one more time I shall shove it up her ass... and for the record, I do realize that you have specialized in people and not dogs, but that there are certain parts of anatomy that are somewhat similar from person to canine.

So here's my question, dear doc:

What can I shove up my dog's ass without consulting a veteranarian? Is a tennis ball okay?

ok friends enough with the ass remarks um i think the real estate market has made an ass out of a lot of us!
happy new year to all : )

I think it's wise to CLEARLY identify the two real and actual political parties that now exist in the United States. Choose your side, but take your time deciding. One side seeks total control over society and the individual at all costs, for the grandiose goal of a perfect Utopia. The other side seeks freedom for the individual, within reason, since individual freedom is Utopia. Historically, tyranny and repression of the individual generally comes about from those who choose control over freedom.

SIDE 1: The Fabian Socialists, also known as Communitarians. Also known as the Third Way, or a cross between communism and a free republic. Note how you intentionally never hear these definitions in the Communitarian-owned mainstream media -- this is intentional as the Fabian Socialist works undercover, over a long period of time. This includes most Republican and Democrat politicians in the US today. The essence of their philosophy is that the needs of the community are always more important than those of the individual, despite that the community is made of individuals and that the freedom of the individual has moved civilization forward for millenia.

SIDE 2: The Libertarians. Not to be confused with the "Tea Party" which is an intentional bastardization of Libertarian philosophy, and was created by Side 1 which indicates the level of fanaticism and moral corruption Side 1 will undergo to pursue their goals. Libertarian ideals are best expressed through the non-racist John Birch Society, the reputation of which has been literally destroyed by the Side 1-owned mainstream media despite that the vast majority of Americans, when polled, agree with Libertarian ideals.

There you have it. If you are pro-socialist you are by default a Fabian Socialist Communitarian because there's really no other socialist game in town worth speaking of. There is no such thing as a Libertarian-Communitarian.

Patrick in his original post above seems to claim both sides. This, IMO, means he is indulging in the traditional method of the Communitarian. They decided long ago to pursue their collectivist goals at all costs, through repeated distortion and manipulation of truth.

If Patrick is a Fabian Socialist/Communitarian, I think he should come clean and let us know about it. If he is a Libertarian, we should know that, too. But there is no such thing as being both at the same time, as they completely conflict with each other on the issue of the individual vs. collectivist society. The powers that be are pushing one way or the other at this time in history. To assume both sides wreaks of the traditional Communitarian method of manipulation.

A great 6-minute video about Communitarianism as it applies to current events...
http://www.youtube.com/watch?v=LKW862_h-W4

On a similar note, it's worth mentioning that the greatest innovations that mankind has brought to civilization have generally come about through dreams -- the dreams of the individual, not of a group. The discovery of the structure of the Benzene molecule is a good example of this. In addition, historically speaking, it is the shaman of the tribe (an individual) who is responsible for the health and safety of the tribe. The shaman takes it upon himself to join the world of man with the world of spirit, for the furtherment of the community. This is something that has been going on since the dawn of man, and it still goes on today.

A collectivist society ultimately replaces the individual's dreams and the shaman's talents with the State, or a soviet (a community that leads itself through collectivism; no individual property rights, etc.). The government becomes your role model and this is under the assumption the State is capable of doing such things, which historically, it has never been able to do for any community anywhere in the world. It tries, but this is how we end up with sick society (which of course is conveniently blamed on the Libertarian).

As a former Libertarian, this poster really does hit home:

From here:

http://www.leftycartoons.com/the-24-types-of-libertarian/

This is a great thread, and this outline: http://patrick.net/housing/crash1.html is 150% spot on the mark! You nail every hard core fact with statistics to back it all up. Book about your stance? Yes.

Ruki says

But liberals don't care...liberals only care about POWER. They DREAM of having as much power as the old communist central commitees and poliburos of the past. That's all they care about.

Ruki says

I have observed that most liberals in general either are incapable of understanding that or just DO NOT WANT to acknowledge that for ideological purity reasons. It is the main reason why I feel liberals DESERVE the title LIBTARD out of all the others.

Thank you for your refreshing point of view - not sure how you can see out of such a tiny hole, tho.