patrick.net

(-) 80/10/10 "picky-back" financing option
(+) 80/10/10 "piggy-back" financing option

Sheesh, must've been drinking...

Randy H Says:

> Quite a while ago I paraphrased some work on the current strata;
> I’ll see if I can find it and repost it. In short, there is no “upper
> middle” class; in fact almost no “middle class” left at all. There
> are only (leaving out education and movement factors):

I have found that most people that fit in to the "True Rich" strata are the best educated and also work the hardest and continue to make far more than they spend year after year (even though they don't "have" to work at all)…

This is the "Upper Middle Class" that someone renamed to prove a point that "there is no upper middle class". I see a small number of this group move up to "True Rich" (the part of the group that works hard and continues to make far more than they spend and pass this work ethic on to their children who work hard, and get a good education) most of this group is happy to spend more than they make and just "appear" to be "True Rich" (these shallow people don't notice that their kids are stoned all the time as they spend tons of money and host parties trying to fit in with the True Rich).

There is a wide range of middle class from a working couple in SF that comes up short some months despite a $300K combined income to a family in the rural south that lives in a paid off home with a stay at home Mom and a Dad that makes $18K.

"Working Class" people are just Middle Class people that are too lazy to either work a little harder to make more money, learn a new skill to make more money, or move where the money they can earn will allow them to live a middle class lifestyle.

Unfortunately this is the fastest growing segment of the population since the government does nothing to discourage uneducated looser guys from getting uneducated looser girls pregnant and actually encourages the uneducated looser girls from getting pregnant by irresponsible guys since as soon as they get pregnant with no guy around the government will set them up in a rent free apartment where idiot looser guy #2 can crash with her and the kid hiding out from his previous "baby mommas" (when I managed HUD Section 8 Housing in collage the guys used to brag to me "what a great deal they had when they got to live with their girlfriend on welfare for free without working". My boss used to say that he didn't mind the welfare moms but he despised the looser guys they attracted who just hung out screwing them until they got pregnant again...

Countdown: 19 days until the Iranian Oil Bourse goes live.
Countdown: 22 days until the Fed stops reporting M3.

hate to rent,

Your "Job Fair" experience is so typical. Whatever the latest "buzzword" is bringing them in the door, that's what we're going with! It wasn't until a few years after the massive run-up in bio's that a doctor friend brought to my attention that there are just so many things that can go wrong with humans! So few diseases and so many researchers (pounding the pavement for research dollars). That's why we have drugs like Lamasil (for that unsightly yellow discoloration of toenails). Look away! I'm hideous!

waiting_for_the_fall,

Wait no more! We'll have to give you some input on your new screen name.

Your sister's burden? Your brother-in-laws joy! In keeping w/my bio-tech analogy why would he bother getting a job? I mean seriously. If every time I turned around some lender (investor) was ready, willing and able to provide me with more money based on further unrealized "potential" who needs a job! 100K in cc bills? So basically they're putting everything on plastic?

athena,

Not only does she provide excellent data she brings outstanding equity analysis as well! I mean it! You need to start getting paid for some of this work. You've described exactly what's wrong at Google with a candor you won't find at major wire houses. The way you've depicted this house of cards I should think that Randy H and Peter P can short this puppy with a new found confidence!

Btw, a good friend of mine told me just last night that his job w/major brokerage has about run it's course. He wrote mortgages for all of their retail brokers on the west coast. THEY ARE NO LONGER PAYING ON 2nd MORTGAGES! They only get paid on firsts! Last year 80% of his business came from new purchases. This year 30%! No more pay-out on 2nds, HELOC's and cash-out/consolidations! MB's are in a tail spin.

Hey SF woman,
Actually, I read an article in the Chronicle about a year ago that mentioned some of the same things pertaining to Drs in CA. There is actually a slight shortage because young MD's look at the cost of living, the 8 or more years they just spent in school, and realize that they're trading that for a crappy little house in somewhere CA. That VS a rather nice house anywhere else.
Real life example: had a friend from my church as a kid. She grew up, went to med school, moved with her husband to LA. Bought a house for 320k. Commuted 2 hours each way. Barely able to make the payments on the house. SO they moved to Atlanta. She makes the same there but they live in a gigantic house.

SFWoman,

We see those trends even here in Oregon. We quickly shift the blame to all of the "transplants" from CA. I have prospected many a MD in my time and it's been my experience that if your dad was a doctor and your grandfather was a doctor chances are you're doing pretty good. If you're the first in your family to get through medical school chances are they are dealing with lots of debt, some until their 40's and then some. I suppose that's why we have these overly generous DBP/DCP retirement plans that allow these practicioners to "sock away" as much as they can while they can!

OT, and cross-posted from Ben's blog, but I thought some people here might find it amusing.

“It’s amazing to me,” Baras said. “They expect more and they’re buying more. The first-time buyer, when I started in the business, they were willing to do a lot of fixing up, get a small house, build up some equity. Now, young people are looking for move-in condition. They are not prone to doing some work. They have to have a big bedroom, because maybe the furniture they already bought is huge. It’s a completely different buyer.”

That quote about first-time buyers is such BS. Look at houses of the Baby Boomers you know. How many of them were “fixer-uppers” at one time? Did any of the 40 and 50-somethings you know do ANY home improvements on their own homes more complicated than painting? I will tell you this — none of the homeowners at my office were out in the backyard with the chop saw 20 years ago. Nope, they bought homes that were in “move-in” conditon.

Also, hiring a contractor to fix something or build something does not count. We are talking about home improvements that you do YOURSELF.

I mean, when is the last time a Boomer whose home you were visiting proudly pointed out his garage workbench, or the downstairs bathroom he installed himself? I bet if you were to visit 100 homes in a typical middle or upper-middle class community, you’d find maybe 1-2 examples of this. Obviously, blue collar guys do this a lot more becuase they have the necessary skills.

Personally, my dream is to buy a house needing home improvements. If I have to replace some avacado green appliances, rip out some tacky shag carpeting, and rewire a light fixture that hasn’t worked in years, that’s more than fine by me. I enjoy working with my hands and would like to learn some basic plumbing/carpentry/etc. skills. The problem is, a house like that costs $700,000.

For today’s buyers, the “fixer-uppers” available generally have problems that can’t be fixed. For example, about a year ago I found a SFH for only $268,000 in the middle-class LA suburb of San Gabriel. 2BR/1ba, 900 sq ft. It needed a lot of work; the paint on the exterior was flaking off, and the front porch was sagging. Why didn’t I snap up this bargain, put in a little elbow grease, and turn that frog into a swan?

Because the railroad tracks ran right through the backyard, that’s why. I mean, they were literally 10 feet away. Also, two of the neighbors on the street collected scrap metal out of garbage cans for a living; their 30-year old pickups piled high with twisted metal were parked in the driveway. Three of the homes had pit bulls running around in the yard, untethered. The house we had come to see had a Realtor’s sign out front — and there was grafitti on the sign!! There was a man standing in a sleeveless shirt with prison tattoos and bugling muscles on the corner, who gave us a puzzled look when we drove by. Incidentally, the foregoing description is 100% accurate and has not been embellished in any way. It was just as I have described it.

Sure, I could have bought the house, put in grainte countertops and stainless steel appliances, and painted all of the walls in neutral colors — but there would still have been a lot of needed “fixing up” that I cannot do, unless I want to burn the surrounding neighborhood down and reroute the railroad tracks.

But hey, I guess I’m just a greedy first-time buyer who is picky and unwilling to put in the needed work, right?

After all, the Baby Boomers all live in houses that looked just like this one at one time — right?

If anyone gets the chance there was an hilarious link on Ben's Blog where someone had taken a camera to a Condo Open House in San Diego. I think it's the 5th. thread down. "Investors Edging for the Exits in Oregon" (which caught my eye naturally) and was it ever funny! I especially liked the comments and the ever so fake staging complete with a "hot chick" neighbor (in the empty condo across from you) that drunk sailors would be able to detect as bogus. I believe it's www.capitalstool.coms/index.php?showtopic=7644.

SQT,

Have you ever considered something along these lines? My wife and I have contemplated buying a place in rural OR and use it as a vacation home/for the kids/favor to clients for the next several years. Maybe even a mobile on acreage with a view/recreation? Then when we're ready to retire (not sure what I'd do) the place would be paid for? Who cares if we're renting in the meantime b/c it's the impact on your retirement (that we anyway) find to be the most important. This isn't to diminish child rearing years but they won't stay young for long, whereas I've already been old for a while.

"It seems that right now we’re at a sort of tipping point. A lot of people my age (mid-30’s) who are priced out seem poised to move out of state if this doesn’t turn around fairly soon."

We've tossed that idea around. Although with the fat salaries and low rents this place is really a renter's paradise. However if rents start rising and our salaries fall we're gone.

athena,

The Greek Goddes of not throwing away money foolishly! Bravo!

Google had traffic. Agreed I use GOOG all the time. If they went away tomorrow I'd be inconsolable (for about 10 minutes).

The only cold callers more aggressive than stockbrokers are adv. people. Pit Bulls I tell you. Why? B/c their services are the first to go! I also like the observation about "dancing with those that brung ya" as well.

For what it's worth, reposting the socioeconomic strata stuff from about 6 months ago. If I recall, this was based on 2-3 different references. It includes more about education and social factors which help to explain the differences in strata. This is true regardless of whether you're talking about CA, the Midwest or the Southeast, because it's all relative. It's more about which strata you're in, and how likely you are to stay there.

Note, strata are macro generalizations. Thare are always exceptions and exceptional people (unfortunately, in both directions).

---
[referring to the discussion that was ongoing about if one could move up]

It’s not impossible, just increasingly improbable. My wife and I both succeeded to move up, quite a lot actually (we both grew up pretty damned poor). But that was years ago when education was a great enabler of upwards mobility; it would have been harder much harder today.

I still think there are at least 4 classes, because you’ve left out the abject poor–a frighteningly quickly growing strata. The working-educated who have the ATM-houses aren’t the same as the New Orleans, in-the-projects poor. Of course, there’s no officially agreed upon classification, but most stuff I read tends to divide into these 4(5):

* The poor. Truely no wealth, often little or no secondary education, entirely dependent upon others for economic survival, usually the government. This group has little chance to gain education or skills from formal training due to early childhood neglect and failure to understand the process of education.

This class is growing.

* The working-class. Little or no wealth; any wealth is distressed or at severe risk of loss due to insufficient access to or understanding of insurance. This group lives paycheck-to-paycheck and can be moved down to the Poor by a single event such as a sickness of the primary provider.

This class is not growing or shrinking by some estimates. [Later stuff I've read indicates this class is indeed growing much more rapidly than the authors of the studies I was referring to; most socio-econ studies were from the 80s until recently.]

* The Educated (or educated-working class, or The Skilled Class). This group has some wealth, usually in the form of home equity, which is generally not distressed and is often insured. They are strongly deliniated from the lower classes by an education (University, trade school, etc.) which is generically applicable to many jobs. This group generally has 4-times or more the rate of health care coverage and property insurance. This group has little risk of falling to the Poor, and only slight risk of occassional dips into the working-class. This class can sustain moderate periods of reduced or no income without falling into poverty.

[Again, later studies have shown increased chance that an increasing number of this strata do permanently fall into the working-class]

This class, when summed with the next highest, is not growing.

(The “Rich” classes)
* The near-wealthy/sub-wealthy/”BoBo’s”/neveux rich. This group has often moved up from the Educated Class, usually within the most recent generation. It is a dispute whether this is attributable to quality of education, timing and location, or simply luck. This group has significant, usually growing wealth in the form of assets in addition to their primary home, often in the form of equity ownership, investments, or income-producing assets. Few in this group move up to the “True Rich”, and many consume much of their wealth within 2 generations, their children and grandchildren settling back into the Educated Class. This class can sustain significant periods of loss of income by liquidating assets–often equating to multiple years worth of viability.

This class, when summed with the previous is not growing.

*”True Rich”. Total financial independence. This group requires no income to exist economically. This class leaves long lasting wealth legacy, often esnuring that their families will maintain this level of existence for many generations. It is rare and often spectacular when there is downward mobility out of this strata.

This class is not growing.

I had the pleasure to hear from Andy Rachleff himself as to why Benchmark told Larry and Sergey to get lost. It was an interesting paradox. Benchmark turned their back on Google for all the right fundamental reasons, yet it was ultimately the worst investment decision they made since WebVan. The top reason Andy gave for not investing was that they neither had, nor were particularly interested in developing a revenue model.

Hey Randy,
Well I would wonder where the majority of the younger middle class exsists in this state. I can say that most friends of mine, in the early-30's bracket are educated, make decent salaries, yet fit inbetween the working and educated class, meaning that they cannot afford even the most basic level of equitable financial assets such as a home. This is in stark contrast to the generations before. So the model is flexible and time sensitive. And I still think the above model is vastly diffrent in any other part of the country. A drywall installer in GA can afford a house on a small salary- even by regional standards- VS the highly educated engineer in San Jose who cannot afford the same size of house making 4 times as much income.That same drywall guy wouldn't have a chance in CA, even if he made 3 times as much.

SFWoman,

Like Anna Nicole Smith?

SFWoman,

So true! That is why I tell ALL of my clients that re-marry later in life to make SURE that your children are cared for in the event of their demise. You may love your wife/husband but after you're gone, who are your kids to her/him? How do I know this?

Davis_renter,

I have maintained Ms. Dimartino's findings for at least the last 5-6 years. Boomers will not keep 2+ homes. They won't. Her article concludes that the 55-64 crowd are actually NET SELLERS! I feel so vindicated! Thank you, thank you, thank you! It has been boomer based research that "duped" the 35-44 age group into buying their white elephant.

Hey SF woman,
Well I sort of came from a poor background. I think a lot of people in my family had some resentment towards people that were well off. That said, the people that were well off in our small communuty when I was growing up don't hold a candle to the amount of wealth people have in California, New York, or any other liberal-esqe region. I've been here 7 years and still find myself astounded at the level of extreme wealth I see here.
On the other hand, I can see where being extremly rich can be almost as bad as being very poor.Social conciosness. I have a friend from college. Great guy. He rented a crappy apartment, drove a Ford, and wore old clothes. I found out his dad was worth 100's of millions of dollars and gave him 200k a year just so he could save the money from paying taxes on his appreciation. After college, he played in band gigs, drove around the country.. had a good ole' time while I was basically almost starving and mixing paint for a living. He got married and his dad simply bought them a 3 story brownstone in the heart of NYC. 1.2 million bucks in cold cash. I can't help but feel resentment sometimes that people like that will never have to work for what the rest of us have to bust our asses for 40 years to get. But then again, He had a real problem with being born into an unusually wealthy sitaution. He just wanted to fit in with the rest of the kids.

I guess that’s one advantage I have in coming from a middle class family— nothing to fight over when the parents are gone.

All we'll have to fight over when the parents are gone is which debts need to be attended to and which can be abandoned. My wife's folks have insisted on holding onto many generations of farmland in Ohio and Indiana. In fact, they've taken on more over the years as siblings, cousins, and parents have died or abandoned the farms. The problem is that all this farmland is unprofitable and carries far more debt than its value. And, none of the children want it, having all long since departed that part of the country never to return. They keep working us about emotional obligations to our "roots" on this land, but that entire region is a hopeless poverty sink. It's the kind of place where to be educated is viewed as a sin, everyone's hyper conservative, but ironically quite insistent about the holy righteousness of government farm subsidies and medicare.

Randy,
On both sides of me and my wife's families, even though we are from middle class families, I am a tad worried about a few things. Namely that where my parents lived was in the middle of nowhere, but now that place isn't that far from the epicenter of new developments. So the value has gone up.A lot. I'm not too worried about that, but on the other hand, her folks have some vacation property they bought 40 years ago for nothing that's now worth 2 million. She has a lot of sibblings, so I am dreading the day that this property pops up in the will. It'll probably be nasty.

*”True Rich”. Total financial independence. This group requires no income to exist economically. This class leaves long lasting wealth legacy, often esnuring that their families will maintain this level of existence for many generations. It is rare and often spectacular when there is downward mobility out of this strata.

This to me is a perfect reason to bring back the dreaded so-called "death tax". I don't begrudge anyone the right to make a mint by their own industry, brilliance or luck. But what entitles his/her parasitic children to permanent automatic wealth? People bitch and moan about governement entitlement programs all the time (myself included). What about legacy wealth "entitlement"? After your gone, inheritance hand-outs should be strictly limited, and descendants should have to sink or swim on their own merits --just like everyone else.

(-) your
(+) you're

I thought one of the reasons we originally rebelled against England was we didn't want a permanent generational aristocracy?

End American Aristocracy: Bring back the Death Tax and soak the bastards!!

OT- Pulte is opening their sales information office this weekend for the Altura townhomes near Santana Row. Their 220 units are all at least 2br/2ba. It says the prices start in the mid 400's. That price seems "low". Anyone know if they were initially going to offer these at a higher price?

lunarpark, do you really want to live near santana row? I rather live at Vallco, Condotino. :)

Peter,

LOL, no! I'm just observing the market. I have no intention of buying a condo in Condotino or Satan Row. I'm actually interested in the Los Gatos Mountain area but not for a few years - falling knives and all that.

End American Aristocracy: Bring back the Death Tax and soak the bastards!!

I am all for minimizing income tax for the rich but maximizing the "death tax".

LOL, no! I’m just observing the market. I have no intention of buying a condo in Condotino or Satan Row. I’m actually interested in the Los Gatos Mountain area but not for a few years - falling knives and all that.

LG Mountain? Do you also monitor raw land? There are quite a few plots around there if you want to build.

HARM Says:

"Burn rate” –sweeeet!
A term most us haven’t used since the Dot.bomb days. A term most Specuvestors will come to know well in the months and years to come.

Friggen' astute observation!

Wow! The fricken' match has been lighted. The new burn rate is in play!

Man, this is gonna be just like watching the nasdaq crash!

Wow! The fricken’ match has been lighted. The new burn rate is in play!

With lower prices and higher ARM rates, it is like a two-ended match lighted from both ends. :)

There just still is not enough housing in CA!

http://www.inman.com/inmannews.aspx?ID=50255

"Do you also monitor raw land?"

My husband does. But since he's dying to leave CA I don't think he's making a very good effort!

There just still is not enough housing in CA!

Remember, builders and developers are our friends. They are powerful allies that lobby against zoning regulations in California.

"When you get a chance visit the link for the Condo Open House in San Diego from Ben’s Blog."

OMG, what was Belinda thinking - those pants!

Wow! The fricken’ match has been lighted. The new burn rate is in play!

With lower prices and higher ARM rates, it is like a two-ended match lighted from both ends.

Very cool time to be a bear, indeed ;-). I predict it will play out something like this:

1. The worst, most clueless, hyper-leveraged amatuer specuvestors will fall first when they (a) fail to make the minimum payments following "teaser" rate periods on their upward-adjusting ARMs, and (b) cannot refinance into FRM, due to zero to negative equity.

2. Smaller fly-by-night sub-prime mortgage brokers will begin announcing mass lay-offs, folding or be consumed by the bigger industry players (we're already seeing this happen).

3. Next to go will be the newly minted Realtors and MBs, who will have to go back to their former jobs as waitresses, car wash attendants and day-traders.

4. The next domino will be heavily RE-dependent service and retail sectors, such as construction and Home Despot/Crate 'n Barrel chain stores. They will have to lay-off and consolidate heavily to survive in the bubbliest areas.

5. Gradually, your average "bunker-mode" specuvestors (who either bought early enough to have a little equity to burn, or still have some cash) will begin to capitulate in waves, as their patience, equity, cash (or all of the above) runs out.

6. One or more of the GSEs (Fannie/Freddie/Ginnie) will collapse/enter government receivership, and some big MBS/CMO-heavy pension funds/REITs as well.

7**. With the tide of public opinion turned 180 degrees, Congress is finally able to break the NAR cartel and pushes through SEC-type industry regulations, and forces open-MLS nationwide. May also eliminate the MI tax deduction and capital gains exemption on second homes.

**Not sure on this --more of a hope than a prediction.

I move that “Specuvestor” be inducted into the Housing Crash glossary of terms.

DinOR, actually I took care of that last month:
It's listed as an alternate term for "Speculator/Investor"
/wp/?p=63

They have their own “burn rate” for their inheritence, which is very very fast.

I like the term "half life" better in this case. :)

@SFWoman,

I have added your terms to the Housing Bubble Glossary. Your cultural distinctiveness has been added to our own. Resistance is futile. :-)