patrick.net

To BA or Not,

I looked at that future, it bothered me a little bit. Houses are not identical properties. You can swap one for another, anything fluid and transparent must be of commodities, but as we know, except for condos (still you have the floor, directional facing, amenities, floorplan variance), SFHs are anything but a commodity. So a perfect hedge against your own home loss is impossible. Your home may lose 10% while the market loses 50%, or vice versa. But I like his index as an indicator, because he is trying to use the value of the same house, not merely a median value of a neighborhood to derive the true state of the market.

In fact, his idea is not novice. Such index has existed in Hong Kong for a number of years. But Hong Kong people all live in 30-60 storey hi-rise buildings with very similar floorplans. For a development of say 4,000 units, you may only have a choice of 8 floorplans (no kidding!). So the home value is very easy to track, and the price per sqft data is very widely applicable. Not the case here, housing is extremely local.

Another worry I have is such data is fieled through NARs. In the last downturn, if you talk to the people from BA, what happened was transactions were way down, either the agents took the transactions off the record so as to NOT upset the comps, or homeowners hold on to the under-water properties. Too much distortion exist in these data.

That's why I prefer to bet on something else, like shorting builder or subprime mortgage companies rather than shorting housing index. It is a bit too smart by a half.

even if she thinks the Monte Carlo simulations are a sign I need therapy or more friends to go play hockey with or something

Or more sushi.

Sushi is an event she demands participation in.

My husband and I have found that we can be as happy in a small house as we can in a big house....depending on what is going on inside that house.

Now, that may seem like an obvious thing to say, but so often people are concerned about appearences...what designer handbag you carry, etc. Heck, I'd be afraid to carry an expensive handbag in LA for fear of getting robbed!!

Stupid old slogans like "keep it simple stupid' and "it's an inside job" aren't really so stupid where housing is concerned.

Rednecks are a part of the culture; one which adds to the diversity. Hicks on the other hand are to be avoided at all costs. This is the reason I shall not be returning to Clinton County Ohio anytime soon. That place would do well with more rednecks and less hicks.

@astrid,

This is a very serious question which troubles us a lot. We honestly have no idea how to properly plan on our son's college education. Besides maximizing tax deferrals, it's tough to figure out where financial planning meets appropriate upbringing.

We're both #5's by default being neither of us had trust funds, parents with any extra HaHas or qualified for any substantial federal aid, grants or scholarships. Going to college in the 80s sure was fun. It was the 5-year minimum plan because you had to work full-time to pay your own way.

But, at least back then, the great public universities were there to provide affordable education to in-state residents. I was able to pay my way through Ohio State on a 18-23-year-old's wages (although I did do computer work so I got paid much better than minimum wage).

I worry that now things are different. Either the state schools have fallen far behind the "top-tier" schools or they are very expensive. It's kind of funny. I applied to MIT when I was in high school and was accepted. My parents framed the acceptance letter as that was just to prove I *could* have gone there if we were rich. Today, the inflation adjusted cost for Ohio State is more than MIT was then. I seriously don't know how people do it.*

*Actually I do know how they do it. I just don't like the answer that more debt solves all ills.

astrid,

change your 2) to move to Australia. I have family in Australia and it is an incredibly nice country to live in, and if I don't retire in Norcal, I will retire in Sunshine coast, or Perth, Australia, both having very similar climate as us, perhaps even warmer. Perth is almost exactly like us.

I'd say Australia is a much better option than Canada. Canada is honestly too cold for me, the only viable option, Vancouver, rains 9 months out of a year just like Seattle.

Randy,

I think the public universities here like UCLA, UC Berkeley, UCSB are still of very good quality at a reasonable cost. I don't see how that will change in the next couple of decades or so.

The true cost is really getting the kids into good junior high and high school so that they can get in a good public university or private colleges on partial scholarship, hopefully. Given the deteriorating quality of our public schools in CA, that is my biggest gripe. That's why parents are paying premiums to get into good school districts to save that 20K post-tax tuition per kid on private schools.

Owneroccupier,

I agree re: UCLA, Cal, et al. These schools are still expensive when I compare them to what I paid to get my education though; even cost adjusted and as a % of income. Actually, the UC system is a great reason for staying in CA.

I agree regarding finding good primary and secondary schools too. This is a big part of the Marin premium I suspect. This is also why I think people paying $1M for 3BR/1.5BA 950sqft homes in Redwood City are deluding themselves.

*deceiving themselves, because they are delusional. See, product of public edumacation.

Interesting discussions on Prop 13.

It should be noted that the problems with prop 13 are the result of the old law of unintended consequences. It resulted from a “taxpayer revolt” as people became fed up with watching the government at all levels spend wastefully at a rapidly growing rate, and then just raising taxes to cover it. People were literally being taxed out of their homes.

Prop 13 set a maximum tax rate of 1% that could only be increased to pay for taxes approved by the voters. So, for example, if a sewer bond was approved in a town the tax rate could be increased to cover it. I think this part of the law is good.

The problem arises from the annual escalation cap on the assessed value against which the tax rate is applied. This is the provision that has neighbors in identical houses paying different tax amounts. The annual cap was intended to protect people from being taxed out of their homes due to appreciation. It was mostly for the protection of retired people and others with incomes that might not keep pace with inflation – especially housing price inflation.

This was well intended but the low 2% escalation factor has over the many years created the disparity in what neighbors pay. If there is to be such a cap it should be higher than 2%. Perhaps it should only apply to senior citizens.

Prop 13 does benefit long time owners over new owners. As such, it generally benefits older people more than younger people. Because the boomers are older people now prop 13 benefits them more than younger people just as it originally benefited the parents and grandparents of boomers, and not the boomers.

At the time when prop 13 was passed (by two thirds of the voters) most boomers (being very young) probably did not even bother to vote, and very few of them were buying houses yet. Prop 13 was a non issue for them at that time. Of course, it has become a windfall created by their parents and grandparents.

Prop 13 has resulted in reduced government revenues and unequal tax burdens among property owners. However, if prop 13 were repealed nobody would get a reduction in their property taxes. Of course, many would get increased tax bills, and the local governments would get increased revenues.

As for the discussion thread question – Simple ratios such as the price to income do not work well because they ignore too many important factors including interest rates, buyer preferences, accumulated wealth, demographic shifts etc.

I use a fairly simple approach as a cornerstone in my buying decision process. I will buy a property when I can get positive or neutral cash flow with no more than a 30% down payment. In other words, the rent must cover all real expenses (ignoring depreciation and expected appreciation).

This simple formula generally gave me the red light from 1978 to about 1983, then the green light until 1987, the red light in 1987, and the green light again in the mid 1990s until the end of 2003.

Of course, I also study the market cycle and demographics very closely and select my locations very carefully.

Furthermore, I never buy if prices are declining or flat. Why buy today when prices will be lower or equal tomorrow? I wait for the market to prove that it is recovering before I start buying.

As a general strategy I do not sell, even at the top of the market. However, I did sell in early 1989 in Los Angeles because I expected a significant decline in prices. But normally I buy to hold forever.

Whether you are buying to invest or buying your first home you will benefit from good market timing – but not as much as you might think.

Prop 13 was passed in 1978, during which time the boomer generation was well into the phase of life during which many buy their first home. Many were in their 30s at that point. I'm not so sure they were a silent, non-voting constituency, although certainly the GI generation and the Silent generations were the primary movers on the issue. The simple fact is that pretty much no one opposed the measure, and it was one of the most widely participated in elections in CA.

Proposition 13 passed with 65% of voters in favor and 35% against, and with 70% of registered voters participating.

I don't take an anti-boomer generational rant on this issue...yet. What will be telling is if the boomers decide to repeal or weaken prop-13 in the coming ten years. There has been quite a bit of rumbling about "fixing" prop-13, which I fear will come at a time just when the boomers are done with its usefulness (but probably protecting seniors still, of which they'll qualify) sticking GenX and Millenials with the adjustments.

The expenses involved in selling property would exceed the tax savings from such a flip. The tax savings would not justify the selling expenses.

I agree that retired people occupying houses near the work centers is less efficient. However, this becomes an emotional issue when you advocate pushing people out of the neighborhoods where they have lived for decades and where they raised their children and have all of their friends.

I do believe that California would benefit from being split up. I have been in favor of this for about 30 years. I have always thought of it in terms of only two pieces - north and south.

The average boomer was about 23 years old in 1978. The oldest few were 32. People under age 30 generally have a low voting participation rate.

Most people hold their homes until they die or right before they die. Therefore the boomers will be unable to repeal prop 13 after it is no longer useful to them - because they will be dead.

...and (with some exceptions) dead people do not vote.

Yes, I am for splitting up the North and South too!

Hold on, where does Central Valley go? I definitely want to stay on the side that gets to keep the farms, natural gas reserve, Yosemite, Redwood forest and Lake Tahoe. The other side can take the rest :-)

I would split Southern California off with most of the state remaining with the north. I would include Santa Barbara and Bakersfield in Southern California.

I would guess that most of the people who actually voted in 1978 are dead now.

Not surprisingly, Prop 13 was especially popular among the retired and older voters at the time.

These older voters were the same people that the boomers complained (at the time) had ruined the world. Just as today’s young complain that the boomers have ruined the world. This pattern will repeat itself. Someday today’s younger people will be the ones who are complained about. It comes with the territory of being in the 40 to 60 age cohorts. Eventually we all pass through this age if we are lucky.

PS,

Which company did you hear that about ? I am curious.

When I can beat the bubble with a rod no wider than my thumb I will buy.

These older voters were the same people that the boomers complained (at the time) had ruined the world. Just as today’s young complain that the boomers have ruined the world. This pattern will repeat itself. Someday today’s younger people will be the ones who are complained about. It comes with the territory of being in the 40 to 60 age cohorts. Eventually we all pass through this age if we are lucky.

Ahhh.... Zephyr. Always the calm, reassuring voice of reason. And so ready to parry any of my anti-Boomer rhetoric with mere facts and some pertinent cross-generational perspective.

Bah, humbug! Maybe I just want Prop. 13 to be part of the (undeniable) Worldwide Evil Boomer Conspiracy to enslave my generation with debt! Did you think of that smart guy? Did'ya, did'ya??

Ha! --I didn't think so! ;-)
Must get back to making tinfoil hat & stocking basement with MREs & ammo now...

Joe Schmoe Says:

"Third, and this is more applicable to SoCal than the lovely NoCal, CA really is on the decline. The decline is irreversable. SoCal really is becoming Northern Mexico. The illegals are excellent people and we are lucky to have them, but their numbers are so great, and they are so poor, that they really are ruining the place. If I wanted to live in Mexico, I’d move there, but I don’t, so I haven’t. Unfortunately, Mexico is coming to me. Traffic has gotten worse."

Great observation.

I grew up in San Jose, but live in Phoenix now.

In 1989 I helped a friend move from LA back to San Jose. Didn't return to LA for some years later. I think the spectacle of the LA riots just sort of turned me off from the place.

I went to LA in 2002 because a friend from college was going to
float my resume his company, a defense contractor in El Segundo near the beach.

I drove from Phoenix to LA and was SHOCKED at how bad LA had deteriorated. It reminded me of New York City in the 70's when my dad took me for a visit to the Empire State Bldng. etc.: dirty, ramshackle, crowded, grafitti-laden.

Like you said, looks like Mexico. I think that you are right. The change is virtually irreversible. In a democracy, majority rules. If the minority in LA become the majority, like they are becoming, the city will bend to their will.

I think California will bifurcate into the rich and poor, mostly. Just like Mexico.

I wonder if the elaborate and costly social service system will collapse?
Too many people want too much for the government and the middle class taxpayer is tapped-out, spent.

Viva la Mexifornia!

Sunnyvale renter,
I don't deny that the Bay area has a tech culture along with healthy doses of environmentally aware people, but I think that this kind of culture is becoming less and less california/bay area specific as time goes on. The rest of the country is quickly "growing up", to put it in laymen's terms. I believe that where there is greater economic and cultural opportunity, the greater the change and the faster the development of entirely new ways of thinking. The Bay Area to me is starting to look more and more like Manhatten. Loads of rich people, and less of the middle class backbone that gets things done. In essence, I think that what the Bay Area and other places export the most to the rest of the country isn't high tech, but the stream of people leaving and adding their own values and culture to other regions in the country. Where opportunity exsists, ideas and concepts thrive. I am willing to place my bets somewhere else.

“Too many people want too much FROM the government and the middle class taxpayer is tapped-out, spent.”

I always make typos when I type fast and don't proofread.

Good points SFWoman.

Ha Ha Posted :

Patric Adair (padair@interorealestate.com) wrote:
“He doesn’t mention that a home will double in value in 10 years”

Whenever I hear someone say something like this I will call them on it and ask “do you really believe that a home will double in 10 years” …

If they say yes I will point out that they can get rich beyond their wildest dreams using leverage to buy multiple homes. If they don’t run out and buy the homes I will know they are full of crap…

I just went to one of those “how much home can I afford sites” and it said that I will qualify for a $1mm loan at 7% making $367K a year. I better buy now since in 10 years I will need to be making $652K to buy the same home with a $2mm loan if I interest rates are still 7%.

Realtors just want to make the sale and never seem to think if what they say makes sense. When they released the 2000 census data only about 5% of the “households” (not individuals) in the US made over ~$115K and if your household income was over ~$220K you were in the top 1%.

Let me say something about immigrants from Mexico. In the 3 years that I worked selling hardware, half of the guys I worked with were from Mexico. The one thing that they all had that almost all Americans lack is a sense of family, and a sense of community. When one of my friends got a new pickup truck, he got it not only for him, but for his elderly father who was 65, still needed it for work, and lived with him and his girlfriend. The other guy worked something like 70 hrs a week at 2 jobs, was driving all the way from Manteca to Berkeley, and paying on a house that he, his mom, dad, and wife all shared and paid for. When someone got sick, they took the day or week off until they were well. They were proud of who they were. They introduced me to real mexican food- not the crap that gets passed off as mexican food to Americans. When my car had a problem with the water pump, one of them came over and helped me replace it- free. I was invited to family picnics, events, and parties. What I saw there was what I experienced as a kid in the south- real close family and the focus was on helping each other. The simple fact is that I personally like hanging out with Mexicans more than native Californians, who seem to be constantly trying to do nothing but scramble for more dollars, or comlain about the government, the cost of living( as I do) and whether or not they should allow another housing development to go up. Mexicans will do the same as all other immigrants in this country. Look at the Jewish population. They came here in droves at the turn of the century,were poor- despised, frowned upon as shop keepers, yet now the majority are very well off- through hard work. I have no doubt that given the chance, mexicans will exceed as well.

Ha Ha Says:

> “It’s time to build a real fence or a wall along
> every foot of the 1,989 miles of the U.S.-
> Mexican border.

This is good news for Bechtel (or some other politically connected construction firm) that will make tens of millions of dollars building it, but does anyone really think that it will stop the illegals from climbing over it, cutting through it or digging under it?

I was laughing when I read in the past month that Diane Feinstein co sponsored a bill to make it “illegal to tunnel from Mexico to the US” (like even a single illegal alien or illegal drug smuggler will care that it is now illegal to tunnel under the border)…

Then nomadtoons2 Says:

> Let me say something about immigrants from Mexico.
> In the 3 years that I worked selling hardware, half of the
> guys I worked with were from Mexico. The one thing that
> they all had that almost all Americans lack is a sense of
> family, and a sense of community.

The Mexicans are doing fine here (my Dad calls them the “new Irish”) and as they keep pouring in to the state in huge numbers it will not be long before they are running the whole state. It is amazing how fast Mexicans are advancing. When I was a kid the Mexicans were just grape pickers and laborers, while now most of the guys running vineyard management are former grape pickers and a huge number of contractors and construction site managers are former laborers.

@nomadtoons2

I hear you on your perspective on Mexican family values. I worked in Mexico at a huge cement manufacturer for 6 months on a large IT project. What a difference it makes to be completely immersed in a culture. I really enjoyed my trip there. Of course it helped that I had a co-worker who was native to the city I was in show me around and I met a lot of great people. Before that trip, my exposure was just eating "taco bell" type foods and seeing a bunch of them hanging out at Home Debterpot. So why is their image so bad in the US? I know there are Mexican gangs out there and a lot of them are just plain poor. But so are many Asian immigrants who come to the US. There are rich Asians and rich Mexicans too. So why does it seem like Asians the still the "model minority"? I'm Asian and my mother is an immigrant. I don't think I've ever seen her face real discrimination. If both groups work hard, why is one group perceived so much worse? Is it really the "lazy Mexican" image?

I know that illeagal immigration really hurts the US economy. Its a drain on hospital resources, schools, police and just about every other bit of infrastructure you can think of. So what are all the meat packing plants and produce farms going to do without their uber-cheap labor? Aren't these corporation the ones that want to keep the door to Mexico wide open? It's almost as if there are parts of the US that wants slavery to be legal so that they can profit from it. Cheap labor, no benifits = huge profit. Come to think of it, I get a feeling that agricultural corps are just as greedy than the Kenneth Lay types because they're exploiting people in the worst way. If they had to pay real US wages and provide benifits to all employees, they'll have "medium" profit. And then, some of them may actually need to retool their business to stay competitive. I really don't feel a lot of sympathy for those rich agricultural monolith blastaaaards! (I can't type a reall cussword at work)

Sorry, just ranting... I ought to go write up a boring IT spec.

Scott J.

Before anyone bitches about the Mexicans think how you would feel about $10 a head lettuce. Whoops, that's right the homedebtors already pay that at Whore Foods. I'll hang out with Mexicans over Americants every time. Remember this used to be Mexico, to try to seperate the Mexicans from California is like the corn flake without the milk.

@astrid,

Why TVM matters very much for your calculation:

I don’t think the time value of $27.5K will be bad. If the homeowner can successfully do FSBO and capture 2%, the costs would be –> $15K - $10K + 10K + 5K = $20K or 4 yr recovery.

These recovery times are short enough for me to forgo time value of money calculations.

r = 4.5%*

Y0: -27,500
Y1: 5000 [-21737]
Y2: 5000 [-17356]
Y3: 5000 [-13163]
Y4: 5000 [-9151]
Y5: 5000 [-5311]
Y6: 5000 [-1637]
Y7: 5000 [+1879]

Y0: -20,000
Y1: 5000 [-14560]
Y2: 5000 [-10179]
Y3: 5000 [-5986]
Y4: 5000 [-1974]
Y5: 5000 [+1866]

Payback periods for positive NPV is longer than your calculations.

* most people's discount rate will be *much* higher than the 5-year treasury rate, especially if they hold any credit card debt, car loans, etc.

@Lovy

Your calc is good but what about the non taxable profit when the price goes back from $500k to $1mil is 2 years

I don't even know what this means. Those wouldn't be profit until realized, and assumes a dramatic increases over 2 years implying another immediate bubble.

I think Mexicans are fine people. They are hardworking, cheerful and honest. Why does the guest worker program exist? Because a lot of white and black fat asses in this country refuse to pick up jobs they consider beneath them, while at the same time lack the skill and knowledge to fill the high-pay jobs. Instead, they stay at homes watching TV all day long, chewing machos, drinking Pepsi and starting to develop diabetes and having babies at 15.

The whole Katrina thing disgusts me. I was watching one woman in her 40s, already a single grandmom, and her daughter is obviously, well, a single mom, bitching and moaning about the lack of government aid and lack of food and water, and then you get the classic scene of a few guys shooting the helicopter with looted guns, great. I never see any Mexican immigrant workers bitch and moan about lack of aid, when they need food and money, they squat in front of Home Depot to be picked up for remodeling or construction projects. Without Mexicans in the CA agriculture business, how much would you like to pay for your organic vegetables and free range chickens?

I am being serious, if you take away the Mexicans from CA, we will all have a serious toilet problem. They monopolize the cleaning job, expect garbage to start growing in your office and home. Who will fill the spot? Definitely not those folks in South Central, I can assure you that.

I just wanted to add (and see how many others felt the same way) that when contemplating a potential purchase as a "buyer-user" it's important to put as much mental distance between the seller's asking price and what you MIGHT be willing to pay as possible. So when we are "shopping" we shouldn't let ASKING price be the "ultimate" or final parameter. For instance, you want to live in a certain neighborhood (but assumed it was out of your price range). I say, go ahead and look where you would actually want to live, prices be damned! Let's all break this bad habit of conducting searches based on pricing parameters. We've long suspected that prices where negotiable and now that I think it's safe to say that Robert Cote's "Silent Spring" is fast becoming a reality we should become more brazen, not more frustrated. I realize alot of people will say, Easy for you to say DinOregon! This really helps ME anyway. NOT WHAT THEY ARE ASKING, WHAT YOU MIGHT BE WILLING TO PAY! I may even run an ad on C/L that goes something like this:

Have you priced your home or property based on what friends or a realtor told you they thought you could get for it only to watch it sit on the market? Are the "bidding wars" you were told would surely come failing to materialize? Trust me, alot of people are there right now and there's more everyday! Stop to consider what your monthly carrying costs are then calculate how much longer you can afford your payments on top of your own residence. Don't jeopardize your credit rating and your own home! If you are ready to reasonable we can make arrangements to relieve you of your unwanted property as soon as possible! Call today!

It's the warm winter weather:

http://biz.yahoo.com/ap/060323/economy.html?.v=10

P.S (to C/L ad)

If you are already behind on your payments just "renting it out" won't work! We work with people in your situation everyday and it may take months to get a decent, paying tenant! We can make a difference! Call us today!

mr.o

to understand sales volume, you need to understand accounting. I don't know jack about RE accounting, but I can tell you in every single industry, the "Sales" number can be easily manipulated by Micky Mouse accounting. It depends on how you book your revenue. When someone puts down a deposit, do you book it as one transaction? When someone makes a conditional offer, do you make it a transaction? Then there is the trick of shuffling orders, which every companies do all the time, postponing orders from a good quarter to a bad quarter to smooth things out. So how many sales of Feb are in fact sales from Jan or futures sales that cannot be booked until March?

So sales is a general indicator, don't look at it religiously.

For example, in retail business, you don't book the revenue until the goods are shipped, same thing applies to software vendor that need to get the bits delivered to the customer. But enterprise license or retail order is usually fixed several months ahead, you won't get to know the bad news until the day before quaterly reporting. So as the CFO, u juggle numbers, if the numbers are too low, you talk to your customers to have the stuff delivered early, if your numbers are too good and you want to avoid spikes, you delay delivery. It is particularly done in the last quarter of the accounting year so you always have the YOY growth.

Come to think of it, I find the Redneck, white-trash, ghetto stereotypes is a little ironic because if you think about it, the whole housing bubble isn't about big, huge, mansion sized homes, BMW's, and Caviar. It's all about people in places like California- people that are educated, smart, well paid, and culturally aware trying desperatly to attain the basic basement level housing that only 15 years ago would be lower middle class housing, and what in the rest of the country still is. In fact, people are struggling to attain the same kind of housing that " white trash" inhabited less than a decade ago. It has come full circle, and many people don't even see what they are fighting for- a whole lot of nothing. When I see people who are so proud of their 2 bedroom home in oakland, or some house with no yard perched in berkeley, I can't help that despite all of this, Most housing in the Bay Area is substandard, ugly, and oudated.