patrick.net

Garth,
As mentioned before, the I80 Tech corridor that runs from Raleigh to Atlanta is one of the fastest growing tech meccas in the country. Most major national chip makers and research firms have or are planning to set up shop there. The diffrence between California then and now was that in the past, Ca had an almost exclusive dominance on technology of all sorts. Now that this exclusivity has been somewhat dilluted- making the neccesity to pay california engineers huge salaries less the case, I think the 50 years prior to now are just that- 50 years. Perhaps california will find some magical new technology, but again, most of the tech that got the state in the rosey position it was in for a few decades was from military research.Most came from cold war era. That was in the 80's, and it floated the state throughout the 90's and partially through this decade. Basically, just about any state can easily replicate the same research, and in fact, there are states, like NC for instance spending millions on developing favorable locations and operating conditions for companies that do such work. Thus I expect to see california being more of a role player along with the rest of the country, not neccesarily as the out front player it has been for the last 50 years.

One observation: rent is Mountain View appears to be rising considerably, although other rental markets in the silly valley are showing little more than an uptick.

George Says:

Apparently, men are spineless and cave in the face of a full frontal N.A.G (No Ass for you Gentlemen) Assault.

SCENE OPENS WITH JILL & JOE RENTER SITTING ON SOFA IN SQUALID APARTMENT WITH REALT-WHORE ON THE PHONE

JILL: "I just don't see what you're so worried about, Joe. Real estate never goes down! It's gone up 300% in the last 6 years and if we don't get on board now, we'll be priced out forever."

JOE: "I don't know, Jill, the house looks pretty nice, but is a 40-year-old two-bedroom ranch in the Valley really worth $1.2 million? Plus that loan our broker got us just doesn't seem on the level. What the heck is a "neg-am" anyway?"

JILL: "Look, buster, I've put up with a lot from you renting these last two years. I didn't know I was taking a vow of poverty when I married your sorry, loser ass! And need I remind you my biological clock is ticking? "

JOE: "I'm sorry, sweetheart, it's just that we're saving a lot of money renting and I just don't want to jeopardize our future by making a mistake on the biggest purchase of our lives."

JILL: "The only "mistake" you can make is to give up and not buy! It's impossible to lose in real estate --a no-brainer. Besides, have you forgotten what happened the LAST time you tried to make an important decision without my approval? You lost your "cuddle" privileges for six months, as I recall!"

JOE (LOOKING SHEEPISH): "Yes, dear..."

JILL: "Now pull yourself together and be a man for a change!"

JOE: "OK, I... guess we'll be alright."

REALT-WHORE: "You guys can do this! I ran the numbers, and everything looks super!"

JILL: "There, there, that's more like it! Keep it up and maybe I'll let you have your testicles back for the weekend. No promises or anything, but if you keep being a good boy..."

FADE TO CENTURY 21 LOGO.
PLAY TAGLINE:
"Century 21, it's not just a home, it's an ATM!"

Probably a large part of this is due to Google.

It would seem so. I am looking for a new rental and nice units are getting quite pricey. They appear to cost at least 25% to 30% higher than two years ago.

Should I avoid Mountain View? Or am I just too picky?

Haven’t you seen that Century 21 Commercal with the nagging wife bullying her husband into submission?

I haven't seen this (I watch very little TV, and all of that is Tivo'd, so I never see commercials unless I seek them out). Anyone have a link to the commercial on the web perchance?

astrid,
This ought to help you get started:

www.strawbuilding.org/
mha-net.org/html/sblinks.htm
www.buildinggreen.com/features/straw/straw.cfm
www.dsaarch.com/
www.skillful-means.com/menupages/strawbaletips.html

nomadtoons,

I fully agree with your observations (with the exception of the rust-belt Midwest, which is still mired in decline). The question is whether this trend will hold up long enough to permanently shift the equilibrium. We won't know this for a while, unfortunately. It's very hard to spot such major shifts while they're occurring. Lots of people get it wrong on all sides because, buried within the big shifts, there are lots of smaller cycles, some of which send out "false signals". You can't tell a cycle from a trend often until after the fact.

Right now though, the Southeast is doing much (economically) right, whereas I'm less appreciative of what the Midwest is doing to power the improvements there (the Southeast is doing it "the old fashioned way" while the Midwest is doing it with more artificial subsidies and barriers). Also, there is no reason that CA and NY have to decline in order for the South to rise. There is plenty of room for CA and NY to restructure and maintain their economic power base while the South rises. Similarly, there is also a chance that the whole shootin' match goes down the tubes, coasts and inland alike. One of the big questions I keep reading about is what the future of Florida, for example, holds over the next 50 years. A lot of economists are worried that FL is likely to come under growing risk of stagnation because of demographic reasons. Again, no one knows even though lots of people have complicated, well reasoned hunches.

Economic models don't really predict anything, they just help to understand the forces and process of changes.

Astrid,
Try going to craigslist Nashville, type in Minumum 50k and maxiumum 150k. There are pages of homes. Of course there's also lots of million dollar homes in the southeast, bu the key diffrence here is that none of those million dollar homes are 2 bedroom stucco bungalows next to the freeway. Many of these 150k homes are million dollar homes in CA. It isn't neccesarily the cost, but what you get for the price. Then go to just about anywhere else in that region on CL. The results are the same. My dad bought a rental last year- a 3 bedroom for 40k.

I haven’t seen this (I watch very little TV, and all of that is Tivo’d, so I never see commercials unless I seek them out). Anyone have a link to the commercial on the web perchance?

Randy H,

I wasn't able to find any links to the actual commercials, just press releases. Perhaps it's because it's so new. Btw, the multi-commercial campaign is called "Agents of Change".

Randy,
The biggest economic forces right now in the SE is manufactoring and healthcare. Cities like Nashville and Atlanta have some entertainment industry (CNN,Scripps,Food network, TNN, CMT, and turner networks) but by and large, the rest of the region is manufactoring, mainly in automotive and automotive parts. The majority is from foreign makers, like toyota, nissan, Mercedes, BMW, Hyundai and Kia- newcomers, and then some of the domestic makers. My father has been working as an HR manager for years. He was head of a regional HR research firm for a few years, and the number of startup manufactoring companies is pretty high. So in reality, the economy of the new south could look like what california did 50 years ago- small towns that grow up around manufactoring sectors, and average middle class citizens in average homes with normal single digit appreciation. basically- middleclassdom. The research sectors are the areas that could come and go. Right now the severe diffrence in costs between California and NC might as well be the diffrences between China and the US. But if more engineers move in, the prices will go up and the sweetness of the deal will be soured. You are right- if enough influence moves into these regions, then it could jump start a new section of the country to start infringing on California's heels. But that could take years, and the time it takes for the bubble to cool may not be enough.

Bap33,

I was at Castle AFB in 1990 for a few months. Sounds like Atwater and Merced have gone dowhill since then. Sad.

I have been a landlord of good working class homes (3-4 bed, 2 or 2.5 bath, garage, 1500 sq ft) for almost 20 years (I have sold all but one during this absurd bubble). I refused to do any Section 8, as my houses were all in owner-occupied areas and I was not going to put a scumball in amongst people who had pride in and earned thier houses. In fact, I was surprised when I found out that Section 8 allowed them to rent houses that nice. Welfare is supposed to be a safety net, not a method of living comparably to a foreman or manager.

George
Sounds like you've got a smart solution and a smart woman! :P

Astrid
There are parts of the SE that are quite nice and quite cheap. I go onto realtor.com and type in the zip(the area I was looking at was S Charlotte 28277)and you'll find 2,800 sq ft lovely homes in good areas for btw $250K to 350K. They are really overbuilding the area so I believe it will stay cheap for years to come.

I couldn't find the "Agents of Change" ads anywhere on the google video, but I did find this entertaining piece (not at all related to RE, but related to how wrong predictions can be):

Question for Harm and/or Linda in LA-LA Land:

How were Los Angeles rents affected by the early 90s real estate collapse? Did they decrease as much as real estate prices, stay the same or even increase? Just curious.

tannenbaum
I wasn't tracking rents back then...so off the top of my head rents did drop, though I'm not sure by how much...my guess is about 10% for SFH. But that's only a guess.
Remember,we also had the quake which caused people to flee. I have friends that own apt. bldgs that were looking for ANYBODY to rent their units. ..not good renters, ANY renter.

astrid
I, for one, am absolutly intrigued with straw bale building. Thick walls, eco friendly, etc. It's kind of a dream of mine that perhaps I can build one someday. Maybe when this baby crashes I'll buy a little piece of land so that when I retire I can design the coolest straw bale house ever!( and build it myself)

@tannenbaum,

I wasn't systematically tracking rents back then either, but I'll second Linda and guesstimate that they fell modestly (10-15%) during the recession, which btw was very protracted in CA vs. other parts of the country. By the mid-90s rents had definitely levelled off and restarted rising at a rate close to inflation. Generally they had held up better than house prices during the same period. There certainly wasn't any big increase (from increased demand by former owners turned renters), as bulls like to believe.

Re: RE in the Southeast

Beware! Do you have any idea how bad the summers are? Do not even CONSIDER moving there for at least the next 2 years. By that time I should be well settled in my sub-300k 100% cash transacted home.

My wife & I visited Raleigh, NC over XMAS and made a game out of guessing the prices of home listings based on descriptions/pics alone. Laughably low compared to here, and last time I checked, engineering salaries were not laughably low compared to here.

Haha,

the GLD management fee (as well as that of IAU) is long known to us gold hoarders, if gold price doesn't go up at least .4% a year, the value of GLD will eventually go to 0.

However, for those people who already know that they need to seek refuge in precious metal, there is no better choice. Hoard gold yourself? Well, to buy physical gold, you are looking at an average of 1.5%-2% shipping and handling fee, plus annual insurance and storage cost. Well, you can skip on the storage cost if you are going to bury it in the backyard, but if you are betting a significant portion of your HaHas on the precious metals, you'd better have an insurance coverage. The standard shipping and handling charge for silver is 3%.

I am not arguing that gold and silver are good investments. They are hedges, not investments. But if one does decide to get into gold and silver, then ETFs are probably the most cost efficient way to do it, even factoring in the annual management fee.

astrid and HARM,

thanks for the links.

George,

congratulations on finding a good keeper. She is the one.

My wife occasionally nags me about a big stone, but then I gave her some investment articles on diamond and she happily agreed to divert her attention to making more Hahas instead of spending them.

She is more of a number cruncher and savvy investor than myself, if I dare to upgrade in this environment, she will make sure I get no corpoal pleasure for god knows how long.

Did someone see a Century 21 ad featuring a Mandarin speaking couple being picked up by the agent at the airport?

WTF is that about? We are running out of idiots in this country so we need to import some non-English speaking idiots from somewhere else?

@Hokies

I met someone back in 1989 who was buying everything he could get hands on. He said "real estate never goes down". He was 31 then. I met that same guy seven years later and he was being evicted from his 3 condos, thanks to the market tanking and him losing all his equity and then some. That was 1996 and he was 38 years old. Meanwhile, he’s lost his entire net worth, and had to start over from scratch. It’s now 2006 and he's just finally getting back to where he started 17 years ago. Sad.

How do you destroy your life, with family and kids if you just buy a house without even researching the market first or considering consequences of buying at the top?

Point is, if you time it right.. that’s fine. But if you don't, you could be screwed for a loooong time.

Pop!,

I think Fidelity freedom fund is such a sloppy product, it is just a packaged up USD fixed income fund, worse return than a CD. I can confidently do much better than this fund just by putting money into short-term USD treasury.

Do you have to stick with Fidelity? If not, there are plenty other choices. If you have to stick to Fidelity, then the closest thing I can find is Fidelity Gold Select Portfolio, Natural Resources and Energy.

Hokies is just another maggot here to annoy. He does this when he is not jacking off with his frat boy buddies with a bottle of bud light watching VT fucking lose.

Hokies
Everybody who is anybody is getting OUT of real estate now. Everybody.

Pop!,

I rolled over my past 410K from Smith Barney to Schwab, you can call up both companies to ask if you can do so. Once I roll the 410K over, I can do whatever I want.

Here are a few choices
XLE - energy ETF
DBC - commodity ETF for oil, heating oil, gold, alumnium, corn and wheat, you should definitely hold DBC in Roth/IRA accounts due to its more complicated tax reporting of PFIC in a taxable account (basically a way for IRS to screw everyone who wants to hold *passive* investment in a foreign fund)
USO - an ETF for crude, just launched today
GLD, IAU, CEF - first two are gold ETFs, the last one holds both gold and silver coins, hold CEF in non-taxable account for the same PFIC issues
SLV - not launched yet, but approved, silver ETF
BHP - Australia's largest mining company, enjoying one of the highest correlations with metal and mineral prices

The real commodity funds that invest in the commodity itself but not the company mining/growing these commodities usually have a heavy front load of 5-5.5%, Pimco, Oppenheimer all have such true commodity funds. That's why I prefer to invest in ETF, bypassing hefty front loads.

hate to rent,

I don't think you can do anything with your existing 410K. You can only roll over the previous ones.

Interesting data from Morningstar:

http://screen.morningstar.com/Movers/FdMovDef.html?fsection=losers

Bigest Loser Mutual Funds (Any pattern here?)

REPSX ProFunds Ultra Real Estate Svc 46.07 -1.36 -2.87
REPIX ProFunds Ultra Real Estate Inv 45.27 -1.33 -2.85
STMDX Stratton Monthly Dividend REIT 37.68 -0.97 -2.13
SOABX Spirit of America Real Estate B 14.75 -0.32 -2.12
PETBX PIMCO RealEstateRealReturn Strategy B 8.83 -0.19 -2.11
PETCX PIMCO RealEstateRealReturn Strategy C 8.83 -0.19 -2.11
BCSIX Brown Capital Mgmt Small Co Instl 34.17 -0.73 -2.09
PETDX PIMCO RealEstateRealReturn Strategy D 8.92 -0.19 -2.09
PRENX Principal Inv Real Estate Sec AdvSel 23.38 -0.50 -2.09
SSREX SSgA Tuckerman Active REIT 19.20 -0.41 -2.09

sex is not a weapon :twisted:
chilren are not weapons :evil:
Thanks SQT

-chilren
+children

New thread: Housing Bubble Haiku

Fewlesh,

I second your concern about 401k, 403b, SEP, SARSEP, SEPIRA, IRA, RothIRA, etc. tax status.

I have contended for years now that there is a very significant risk that the government will create a special tax mechanism to disproportionately tax returns/disbursements from these tax deferred vehicles sometime in the future. A simple demographic revenue extrapolation should be enough to convince yourself that the gov't will not be able to contain their need to get their hands on all this untaxed/undertaxed money.

George,

There is a lot of interesting stuff happening with the USD. Even as it devalues further against the EUR, it is appreciating pretty quickly against the "carry trade" currencies. Last weekend's FT had a couple articles on how Iceland, New Zealand, South Africa, and Australia are all either at or very close to entering stagflation and sinking currencies largely because of the USD. In essence, the US economy is unloading a portion of our inflation/stagnation pressure to those economies primarily through currency trades. It's all very complicated by also very interesting.

Hokies,

I'm in my 40s and pay about 40% less renting than I would if I bought a comparable property today. I'd much rather pay a cheaper price in 4-5 years and bank some of the difference in savings bonds in the meanwhile than buy at the top and watch my kids and wife suffer economic starvation as interest rates ratchet up my economic pain year after year.

By the way, I'm putting more away right now than I would be paying down in principle at the start of a 25 year amortization anyway!

Better a higher rate on a lower principal, that's my principle - all the benefit is on the downside of rates for someone smart enough to do that. Even if rates go up, the pain is less with a lower principal amount.

All the pain is on the upside of rates for someone too dumb to wait, who jumps the gun and buys at the top. Bigger principal plus rising rates equals potential default!

I happen to be at the top of my income potential with the current employer. It would be oh so stupid to worry about how old I am when I purchase a property and let that guide an investment decision.

tsusiat

http://finance.yahoo.com/columnist/article/richricher/3413

We need to wait and buy in the stage 6 of the boo/bust cycle: when the panic begins.

Amateurs now hate their asset. They start to dump it as prices fall and banks stop lending. The panic accelerates. The boom is now officially a bust. At this time, controls might be installed to slow the fall, as is often the case with the stock market. If the tumble continues, people begin looking for a lender of last resort to save us all. Often, this is the central bank.

The good news is that at this stage, the professional investors wake up from their slumber and get excited again. They're like a hibernating bear waking after a long sleep and finding a row of garbage cans, filled with expensive food and champagne from the party the night before, positioned right outside their den.

true, mike...

Mike,

Thanks for your perspective. I argue that your definition of rent-to-price is a bit too narrow to explain how people intrinsically value a property. I think buyer psychology does include rent as a factor; but much more so in a sort of opportunity-cost calculation (although flawed).

Therefore the theoretical, fundamental-determined price prediction for a home will inevitably be lower than the theoretical, factor-determined price prediction for the same home. Put more simply, in your example of house prices being $650K, but the theoretical price prediction being $400K, I would argue that actual support prices will almost certainly much higher than $400K (but probably lower than $650K) because of various significant factors which are not strictly fundamentals. I posited a formula for this here.

John,

I can't speak to your specific situation. The best I can do is point you to a tool me and others created which might help you to evaluate your on situation. The tool is a spreadsheet here on my own blog.